Q2 2020 American Campus Communities Inc Earnings Call

Good morning, welcome to the American campus communities second quarter 2020 earnings Conference call. All participants will be on listen only mode. So do you need assistance for single politics specialist personal Starkey qualifies you.

After today's presentation, there will be an opportunity to ask questions to ask a question, let's let's start by one or that Touchtone phone withdraw. Your question. Please press Star then too.

Please note this event is being recorded.

I like to turn the conference, which a Ryan Dennison senior Vice President of capital markets and Investor Relations. Please go ahead.

Thank you good morning, and thank you for joining the American campus communities, 2022nd quarter Conference call press releases furnished on form 8-K to provide access to the widest boss water.

In the release the reckons the company is reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements also posted on the company website in the Investor Relations section you will find an earnings materials package, which includes both the press released in the supplemental financial package.

We are hosting a live webcast for today's call, which you can access on the website with the replay available for one month, our supplemental analysts package and our webcast presentation or one of the same.

Webcast slides, maybe advanced by utility following all.

Management will be making forward looking statements today as referenced in the disclosure in the press release in the supplemental financial package and in that SEC filings management would like to inform you that certain statements made during this conference call, which are not historical fact, maybe deemed forward looking statements within the meaning of section 27 eight of the Securities Act 1933, and section 21 each of the Sky.

Ladies and Exchange Act of 1934 as amended by the private Securities Litigation Reform Act of 1995, although the company believes the expectations reflected in any forward looking statements are based on a reasonable assumptions they are subject to economic risks and uncertainties.

Company can fried no assurance that its expectations will be achieved an actual results may vary.

Factors interest that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the FCC.

The company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances. After the date of this release, having said that I'd now like to introduce the members of senior management, joining us for the call Bill Bayless, Chief Executive Officer, Jim Hockey President, Jennifer Beese, Chief operating officer.

In Talbot Chief investment Officer.

Daniel Perry Chief Financial Officer, Kim Boss, Chief Accounting Officer, and Jamie will you VP of public private partnerships with that I'll now turn the call over to Bill for his opening remarks Bill.

Thank you Ryan good morning, and thank all of you for joining us as we discuss our Q2 2020 financial and operating results and provide a comprehensive update related to the current and potential impacts Oh, the cobot 19 pandemic on our business.

As we discussed on our first quarter called from the outside of this black Swan event or overriding objective has been to do the right thing by all of our stakeholders.

And as we reiterated in our earnings press release to follow the a principal objectives, we established to guide us through this crisis.

Consistent with those objectives, our communities under the leadership of our field staff have continued to operate and serve our residents while adhering to the CDC guidelines and complying with local municipal and state guidelines.

Our corporate team members of also adapted well to the new work environment and have continued to support our field staff into advanced all of our strategic business objectives.

On behalf of the entire executive team I'd like to thank all American campus team members for their commitment hard work and perseverance over the last four months.

I truly believe the we have collectively done some of the best work in our company's 27 year history. During what has certainly been it's most challenging period.

And with many of our team member still working remotely we want to acknowledge and take our hats off to all our working parents that are playing the rolls up in HCC team member teacher camp Counsellor in parents.

The next generation are they see see team members appear to be learning a lot about our business for mom and dad each day.

I'd also like to acknowledge and thank our board of directors for their engagement guidance and the meaningful support they have provided during this time.

As you know at the outset of this pandemic consistent with our company values and the previously mentioned eight guiding objectives. We made a pledge that no resident would go without a home because of an inability to pay rent on a timely basis.

We also committed to be compassionate to the financial hardships that our residents and their parents may be experiencing due to coated and the corresponding government shutdowns.

And we committed to be the best partner possible to our long term Ace University partners.

Staying true to our pledge and these commitments did indeed caught short term financial impacts that are reflected in the quarter.

At our off campus apartment communities and those on campus apartment communities that American campus leases in the open market.

On a monthly average basis for April May and June 93.7% of our residents made the rent payments.

For those that were not able to meet their financial obligations due to hardship.

Through our resident hardship program, we provided nearly $9 million of direct financial relief to more than 6500 of our residents in their parents.

We also provided an additional 15 million of financial relief just students and parents at our Ace on campus communities, where leasing administration rent collections in residents life are administered by our University partners.

In addition, our waiting of fees associated with the payment a collection of rent resulted in more than $2 million, a budgeted revenues not being collected during the quarter.

As the team will discuss this $24 million in financial relief and the waiver fee income makes up the large majority of our diminished revenue for the quarter.

We were able to offset a portion of this through expense reductions that did not diminish our ability to deliver quality service to our residents.

With the majority of our current in place leases ending in the weeks ahead, and a new academic you're about to begin at universities across the nation. Unlike multifamily residents the financial position in buying power of the student renter has the potential to improve somewhat.

As many of you will recall from your own college years or from being parents of college students. Each year students are eligible to apply for needs based financial aid in the form of grants scholarships in student loans.

In the spring and summer of 2019.

When those financial weight assessments were being completed for the current academic year. The U.S. economy was at or near all time highs with unemployment for nearly every demographic group being at all time lows.

Incomes from the favorable economic conditions were likely reflected in the students applications for financial Wade based on their in their pet parents financial position at that time.

As such we cobot hit in March of 2020 in the middle of this academic year. Many of those students and parents solve their income significantly diminished without the benefit of financial aid support.

By contrast, as students have apply for finance your weight in the spring and summer of 2020 for the upcoming academic year, those students and parents experiencing financial hardship due to the pandemic are now likely to qualify for more financial Wade then they received in the prior year.

We believe this needs based increase in financial Wade likely occurs in every U.S. recession and is perhaps one of the regions. The student housing industry has been so resilient over the years during times of macro economic stress.

As we look forward to the next academic year, while we do not believe there will be a full return to normalcy in the fall of 2020, we are cautiously optimistic at this time given the following four variables.

One.

Universities focus on policies and procedures to promote a safe environment in the delivery of the rack elect academic curriculum facilitating a return to campus with some component of in person instruction.

As reported in the college in the Chronicle excuse me as it reporting chronicled higher education. At this time 63 of our 68 University served are conducting some component of in person classes.

And it's worth noting we also continue to have leasing activity a property serving the five universities that but now it's predominantly online curriculum delivery with our for same store properties at the schools being 90% leased and with potential no shows and request for re letting currently representing only five.

Percent potential diminishment in occupancy.

Two.

Diversities now having available data on how cold it impacts the 18 to 22 year old student demographic and.

Having an improved understanding of how modern apartment style student housing and in suite Bath residence halls, facilitate a student's ability to sanitize their own living environment and to isolate and households, with two to four residence in times of outbreak three students sentiment with regard to a desire to be.

In the college environment with their peers versus at home with mom and dad, even if instruction is being deliberate predominantly online.

And for the continued incremental improvement we see in our overall leasing data coupled with well above normal velocity compared to the same period prior year with regard to traffic applications leases or renewals for the last 310 and 20 days at our open market proper.

Ladies.

As of July 17th.

As you saw in last nights release with a range of five to 11 weeks left before the commencement of classes. We're now 90% pre leased for the upcoming academic year, only 340 basis points behind the prior year.

While the variance to prior year increased from the 230 basis points on our May 31st leasing update it is worth noting that the variance to prior year at our open market leasing properties have decreased since that time and when you review page S. Eight in our supplemental the 310 and 12.

Any day velocity trends in traffic applications leases and renewals would suggest that variance to the prior year should continue to decrease for that core category of properties.

I'd now like to further breakdown, our cautious optimism in terms of the ongoing risk and opportunities that may negatively or positively impact our final leasing numbers first focusing on risk.

There are three normal and ordinary risk categories that we routinely manage in each and every annual lease up.

Those components are one renewals skips to students who have asked us to attempt to re let their accommodations. So that they may be released from their financial responsibility and three no shows.

In all three of these risk categories. Each year. It is our goal to re let prior to the beginning of classes any accommodations that become available due to any of these three reasons.

A renewal skip is a current period leasehold that has also signed a renewal lease for the upcoming academic year, but has vacated their apartment and quit paying current tourette, thus, having scoped out on their current lease and the future lease.

Given the definitive actions that they have taken in the certainty that they are not returning for the next academic year. These students are actively removed from our pre leasing statistics and are not count this leases in our pre leasing reports thus they are not counted in as leases in the 90.1% reported in this.

Earnings release.

Thus far throughout this lease up we have had 178 renewal skips, which is consistent with our historical levels.

With regard to potential no shows and re let request we commenced our no show management and re letting process in late May early June versus our normal timing in July in.

In an attempt to ferret out earlier than usual the number of students who may not be planning to show up in the fall.

As well as to proactively identify students who wish to have us help them release their accommodations.

These potential no shows and re let leases are included in our pre leasing numbers as they have always been at this time and the lease up.

Our normal Unordinary annual process is to diligently attempt to re leased accommodations subject to both no show Andrew let request until the very end of the lease up process.

At the very end of the annual lease up process. We then removed from our final leasing statistics any actual no shows and unsuccessful relax that also never took possession of their accommodations and essentially became a no show.

As we've commented to the market over the years, we typically only lose a total of 35 to succeed 60 basis points a final occupancy.

With that net loss always having been reflected in the final leasing statistics, we report each year to be clear our final fall lease up occupancy average of 97.5 over the years has always been net of the impacts of the processes. We just discussed.

We've also often commented over the years that we believe one of the reasons our fall occupancy typically exceed the industry average by 200 basis points is our diligent administration of this process versus our peers.

As part of this year's efforts to expedite this process, we have undertaken an exhaustive communication process to facilitate engagement with our residents, giving them the opportunity to let us know if theres a possibility that they're not coming we do not proactively asked directly are you going to take possession of the unit or are you planning to note.

Joe, but rather we undertake communication in discussions related to the stepson actions required with regard to roommate matching move in and other coordinating informational items.

This process includes a series of email communications to each resident and their guarantor as well as an attempt to call and actually speak to each resident guarantor.

At our properties leased in the open market. We currently have a total of 72009 leases for fall with 28057 being returning renewal residents that have already taken are already have possession of their units and 43952 being new incoming leases.

With this latter category, representing a greater no show risk.

In addition to our standard E mail protocols, which again were implemented earlier than usual this year.

We as of this date have made a total of 64029 phone calls.

And successfully have had direct in person dialogue with 68% of our new incoming leases and 28 and 20% of our returning renewals.

At this time, our numbers do reflect an increase over the prior years potential no show and requested re let activity.

While we do know some portion of this increase is due to co bid we do not net yet no to what degree the increase over the same day prior year is directly due to our efforts to expedite the process.

As of yesterday July Twentyth, we have identified 689 potential no shows as compared to a 135 in the prior year.

With regard to re let request. We currently have 1563 for the current year as opposed to 956 in the prior year.

The combined current year total potential no show re let at this time represents approximately 230 basis points of potential lost occupancy versus 110 basis points in the prior year.

In addition, historically the no show the number of no shows typically increase in the first week of August in concert with the first rent installment being do.

As an example.

Last year, the 135 potential no shows as of July Twentyth.

Hit a high of 446 on August 15th last year.

Through our normal processes, we successfully manage the final impact to only 38 basis points of diminishment due to actual no shows and successful reletting.

We will closely monitor rent payments in increases in potential no shows during the first week of August to determine if historical or above normal increases occur or if our at X or if our efforts to expedite these processes did in fact accelerate.

Patient a potential no shows in relapsed earlier than usual.

Well as of July Twentyth, the combined no show in re let net variance to last years is 1161.

Representing 120 basis points of potential lost occupancy the ability to re let both no show and re let request in the co wouldn't environment will likely be more challenging.

This year with fewer properties being leased and in many cases I'm sorry, this year with fewer properties being fully leased and in many cases, not having a waitlist to facilitate this process.

We will have to rely mostly on increased traffic applications and leasing velocity to the prior year.

That we previously discussed to backfill these potential no shows and re let request.

With regard to opportunities that may further accelerate our leasing velocity, but on the on historical levels in the late stages of our lease up I'd like to discuss universities fall housing densification activities due to cope.

As we have discussed earlier in the summer.

Approximately 470000 on campus beds in the 68 owned markets. We serve over 180000 of those beds are largely in older traditional residence halls with community bathrooms, whereas many is 20 to 40 student share common sink.

Toilets in showers, and small confined spaces are less than ideal product with regard to sumer preference and the ability to control standardization to minimize the spread of viruses.

With many universities looking to de Densified this product type by converting double bedrooms to singles, thus cutting in half the number of students sharing these common restroom invading facilities.

The potential existed for on campus capacity to be reduced by as much as 90000 beds.

Based upon our tracking of these densification activities by the universities. We serve at this time 48 of the 68 University served our de Densifying their on campus housing, resulting in a reduction of 45800 on campus beds.

In addition, a total of 50 of the 68 universities are taking additional an additional 909735 on campus beds offline to use as quarantine housing showed a second wave of Corona virus occur, resulting in an actual total reader.

Auction of more than 55500 beds on campus. This fall.

As universities are in the final stages of administering these plans and given the fact that to date, we have not yet seen a positive variance in velocity in the 48 markets, where densification is occurring as compared to the 20, where it is not we're hopeful that we have yet to see the additional off campus demand that.

Yet may occur.

With regard to on campus Densification impacting our own portfolio via compliance with any mandates covering on campus University housing. We're pleased to report that we have only 1061 beds impacted at this time.

Representing only 110 basis points of capacity loss to our portfolios design beds.

I'd also like to briefly touch on the average rental rate increase for the upcoming academic year.

At this time, the 90.1% of leases in place are at an average rent of $807 per bed.

Or a 1.6% increase over the prior year in place average rent.

Whether or not that rate growth increases or decreases or stays largely intact.

Depends upon the rent levels.

So she aided with the mix of remaining vacant beds leased.

The rent levels associated with leases ultimately not reflected on our final leasing statistics due to final no shows and relapse.

With that I'll turn it over to Jennifer to discuss our results further and how we've adjusted our operations in response to coated.

Thanks, Bill as expected this quarter. The operations team was focused on our response to and preparations for operating portfolio under eight core objectives as outlined by Bill last quarter addressing cobot 19th.

Page five of the supplemental highlights our financial performance, which was impacted on the revenue side by relate to our resident may either directly or through our university partnerships, followed by weight fees revenues forgone in our summer camp uncompressed business and increased reserves for bad debt for residents.

This resulted in properties same store revenues decreasing by 14.2%.

Which we were able to partially offset with savings and operating expenses of 5.7% for a combined NOI decreased 20.9%.

In mid March since the virus was officially designated a pandemic. The American campus team has been transitioning our operational systems to accommodate the new norms amid the corona virus crisis.

Understanding the different property types in our portfolio was essential to creating mitigation strategies for each property based on how students circulate to the community.

Were 60% of our portfolio is garden style apartments, or townhome units, which typically feature exterior unit in trees and by nature have less interior circulation in common area interaction.

The balance of our communities consist of 30% mid mid rise products and 9% high rise buildings that rely on the use of common elevator banks in single point increase which require additional mitigation.

As part of our code that operational plan, we're collaborating with our beat the maker of lifestyle and implementing a comprehensive be safe be smart do your part program.

Our approach to operating in a pandemic environment can be broken down to four key components materials special specifications.

Operational policies staff and student education.

And the promotion of resident accountability and responsibility.

In addition to following CDC and EPA guidelines Hccs collaboration with RBC Lysol will greatly enhanced areas of the operational plan.

To be safe based smart do your part program began with the touch point analysis, the public spaces in each of our communities simply put our operations team evaluated every public area from the building entry throughout the community and identified the high touch surface areas in areas, where close interaction would occur.

This essential analysis, which highlighted single point entries door handles reception desk elevators public bathroom fixtures among others gave us the information needed to begin implementation of all aspects of the program.

Anti.

Microbial surface overlays, which have a chemical response that continuously self cleans contaminants opt to surface were applied to door handles touch screens and elevator buttons to further minimize touch points.

I see has also incorporated door foot pools at some public restrooms touches trash and recycling receptacles touches paper towel dispensers and touchless so dispensers.

And sanitization stations replace it entries amenities and elevator lobbies, while sanitization wipe stations are strategically placed promoting student involvement in the disinfecting of high touch surface areas.

The annual operation expense on these items is approximately 2.5 to 3 million.

Signage has been installed to highlight policies that will promote physical distancing maximum recommended occupancy and best practices.

We're also providing our residents at every community with updated rules and regulations addressing cobot 19 resident responsibilities.

Student code of conduct that address addresses the use of the many spaces and education for residents pro forma daily wellness self check list to assist their health before leaving their student unit.

Masisi has also comprehensively overhauled our clean policies and procedures. We are proud of current lease cleaning policies and procedures with RB lysol.

As the U.S. Environmental Protection Agency recently approved Lysol disinfectant spray as the first product to test effective against the virus that causes cobot 19, when used on hard noncore surfaces, our revised cleaning regimen, including the frequency of decrease in high touch points surface areas.

As customers products in procedures for each type of functional space and our student housing communities as we turn to make ready units, we will disinfected lifestyle products in prepare each student lenient unit and bedroom. According to the co written lysaght protocols, and we will place a lifestyle cleaning confident room still on the unit in bedroom doors.

Which will not be broken until the resident enters their unit and bedroom.

As we welcome our students we've strive to make our move in process touch free and de centralized in order to promote physical distances.

Our operational staff have new policies for safe engagement with residents as well as each other and have been issued masks gloves and other equipment along with guidelines for their use.

We will also reach out an educator residents through a healthy living email campaign virtual brochures and virtual Reds resident life programming.

Our residents why programming initiatives will support the health and wellness and academic and personal success of our residents.

While education is key to understanding the current environment, perhaps the most critical part of the be safe be smart do your part program is promoting self accountability and responsibility among our residents.

As such the most important part of collectively mitigating the spread of the virus is the individual actions of our residents for this unprecedented fall semester, we have physical distancing sanitization knowledge and personal responsibility practices will become the new behavioral norms for our student residents already.

We're delighted to see our residents embrace the new personal responsibility policies at our communities.

With that I'd like to thank the entire HCC team and particularly our on site teams for the tremendous work that has been done so far for fall 2020 residents have a college home. During these unprecedented times I will now turn the call over to Williams, who will discuss our investment activity.

Thanks, Jennifer.

Beginning with our 2020 owned development deliveries I am pleased to report that we have received all necessary permits for occupancy for all projects expected to be completed for this August including the second phase of our Disney College program housing and projects at San Francisco State and you'll see health Sciences.

Well those developments are targeted opened on time and on budget. Despite the potential disruption from cobot 19, we are experiencing impacts to targeted occupancy for fall 2020.

With regard to the Disney project Flamingo crossings, while Walt Disney World has reopened to limited capacity based on discussions of Disney We do not currently anticipate occupancy of the project in 2020 based on their current reopening schedule in labor Onboarding, while the situation remains fluid we will have 1600 beds available in August increasing.

2600 beds in January 2021, ready to occupied DC, Peter participants once the program re commences.

Through the terms of the ground lease our project has a first fill provision for all DCP participants in the program.

To the extent intern program continues to be suspended for a prolonged period of time, we have the right in the ground lease to open the project to all of Walt Disney World Orlando based employees, along with the additional backup provisions, where we have the right to convert the project to a hotel, which Disney has the right to offer and manage as part of the hospitality portfolio.

Each of these alternate uses has pro forma returns equal to or greater than the developments intended primary use.

With regards to San Francisco State University University officials have mandated to significantly reduce the amount of on campus housing available for fall 2020, as part of de Densification efforts. Our project is operating under a marketing and license agreement with San Francisco State performing to leasing administration duties for this academic year. After this.

Cash and with the University, we anticipate that the project will open at 60% capacity in a single occupancy configuration for this fall the remains the potential to return to fully design bed capacity for spring and summer 2021, and we will continue to monitor the situation and work closely with the University.

With regards to you will see health Sciences phase two we're currently 72% Preleased and are working through continued leasing activity and the new show process for fall.

We will provide a comprehensive update on all our fall deliveries on the Q3 call.

Moving to our on campus Pvthree business, we have a strong pipeline of on campus development with 10 projects in various levels of Predevelopment first we anticipate closing and commencement of construction on our third party project in Georgetown University in Q3 of this year as originally planned.

However, due to the disruptions caused by coded 19, our third party projects that Concordia University of California, Berkeley, Upper Hearst and University of California, Irvine are anticipated to be delayed until next year.

We currently expect to closing commence construction all three projects in 2021 with Concordia delivering.

With Concordia targeting delivery in fall 2022, and you see Berkeley, and you see Irvine targeting delivery in fall 2023.

And we continue to make progress and early stages of Predevelopment on our previously announced awards MIT, Virginia Commonwealth University, Princeton, Northeastern you see Berkeley, and West Virginia University.

The final structure scope feasibility fees and timing for all projects in Predevelopment have not yet been finalized.

Overall, while we have seen some procurement and housing initiatives temporarily delayed in suspended through coded 19, we continue to pursue numerous active procurements and see a vibrant future pipeline on campus development opportunities.

As Bill mentioned in his remarks universities across the country have had to densify on campus housing with beds impacted consisting primarily of older traditional doors of community bass.

Consumer preferences also weighted heavily to more modern apartment and suite style accommodations, the more easy allow synchronization and if needed isolation to occur within the unit.

In addition, due to diversification other reduced revenue streams and related financial impacts universities, we utilize off balance sheet financing structures in order to update their housing stock, including the project based financing as all equity based models like our Ace program.

We expect that the combination of these facts will further accelerate the need for the monetization of outdated on campus housing utilizing the pizza refinancing method and believe HCC is well positioned as established best in class partner to capitalize on this expanding opportunities.

In addition to what we believe will be an expanding opportunity on campus. HCC is also positioning itself to execute on opportunistic investments that may arise from the cobot 19 crisis and corresponding economic environment.

Given that our recent cost of public equity continues to be a disconnect a private market valuations is prohibitive for us to execute on the mini investments in the current environment.

As such we're expanding our joint venture equity strategy in order to pursue external growth.

We have engaged eastdil secured as financial advisor and are currently in the market to identify equity sources for joint venture or fund in which KCC wouldn't invest minimal equity or contribute existing assets as minority GP.

In addition to our existing partnership Valliant Identiv identification of external equity partners will allow HCC to pursue external growth off balance sheet, but also offering further access to liquidity via dispositions. If the current economic crisis continues.

We plan to utilize this off bouncy structured executing our proven core competency of identifying and executing on investment opportunities that drive outsize returns for both HCC and our strategic capital partners FCC will benefit in the form of EPS and FFO growth through the generation of fees and potential promotes upon outperformance while requiring mint.

Equity investment to preserve our balance sheet for more accretive investments.

I will keep the market up to date as we make progress.

Finally, looking forward to the fault 2021 academic year, we continue to see favorable reductions in new supply across our own market.

Within HCC 68 markets, we're tracking 17600 beds currently under construction for 2021 with a potential additional 1200 beds planned, but not yet under construction, reflecting a decline of 14% to 20% in new supply off the current years decline of 20%.

Even if all planned beds were delivered for fall 2021. This is the lowest number of beds delivered in our markets since 2011.

Update the market respect to these potential deliveries on our third quarter call.

I'll now turn over to Daniel to discuss our financial results.

Thanks William.

As we reported last night total FFO in for the second quarter of 2020 was $50.9 million or 37 cents per fully diluted share.

As has been discussed Q2 was a quarter significantly impacted by the effects of covert 19, and the associated governmental shelter in place orders put into effect across the country.

While we cannot completely isolate every item related to the pandemic.

We believe approximately $23 million to $24 million and fully on was lost due to situations surrounding the pandemic this quarter.

Overall owned property revenue was $32.4 million negatively impacted by Copel unrelated rent relief last summer camp revenue.

Increased bad debt and waves fees and other items.

Somewhat offsetting the loss revenue owned property operating expenses were $8 million lower than originally budgeted budgeted as we were able to reduce spend in each area, except for the uncontrollables of insurance and property taxes.

As a result of the lower than originally budgeted property NOI.

Ground lease expense was approximately $500000 less due to a reduction and the outperformance rent being paid to our University ground lessor partners.

And joint venture partners non controlling interest in earnings was approximately $1.2 million lower.

Additionally, third party manage me management fee income was approximately $1 million lower and fill in contribution from our on campus participating properties was also almost $800000 lower due to universities refunding a portion of spring rents at properties in both.

Of these business segments.

Lastly, we were able to create approximately $800000 in DNA and third party overhead expense savings relative to our original plan for the quarter.

Due to the continued uncertainty created by the pandemic and the ultimate effect of any actions taken by universities with regard to curriculum delivery for the 2021 academic year, we're not issuing new 2020 earnings guidance at this time.

We do however, one to make you aware of some additional impacts of the pandemic that you should expect as we close out the current academic year.

In the first couple of months of becoming quarter.

July will represent the last month of the current in place leases at a substantial majority of our properties and we expect delinquent delinquencies will not materially differ from recent months.

We also have some additional anticipated refunds in our on campus apes based portfolio for the remainder of the summer term expected to be in the range of approximately one and a half to two and a half million dollars, which is still keep us within the originally communicated range of expected refunds.

[music].

And finally with regards to other income we continue to expect a little to no summer camp business and we're continuing to waive late fees and convenience fees through the remainder of the current academic year.

Which combined is expected to result in the loss of $5 million to $6 million and other income in the third quarter.

As William discussed we now believe it is likely that the three third party development projects at the University of California Irvine.

Berkeley.

And can 40 University originally scheduled to commence in 2020 will be delayed until 2021.

These projects were expected to contribute a combined $4 million and development fee income in 2020.

While there will be some continued financial impacts of the pandemic into the immediate future the consumer sentiment and University policies Bill discussed give us confidence that longer term, our operating results will return to normalized levels.

In the meantime, we have a strong in healthy balance sheet and substantial liquidity to allow us to absorb the disruption.

We further improved at the company's balance sheet liquidity in June with a well received 10 year $400 million bond offering using the proceeds to reduce the outstanding balance on the company's $1 billion revolving credit facility.

As of June Thirtyth, we had over $800 million of availability on our revolver with no remaining debt maturities in 2002 warning and a manageable $167 million and secured mortgage debt maturing in 2021.

As detailed on page 15 of our earnings supplemental, including all projects currently under development for delivery through 2023, we have only $279 million and remaining development capital needs.

As of June Thirtyth, the company's debt to total asset value was 40.9% and net debt to EBITDA was 7.6 times.

Although our leverage ratios are temporarily elevated at this time relative to the targets we have historically communicated.

Due to the short term covered related disruption discussed we feel confident about the capital plan. We continue to lay out on page 15, which will bring the company's debt to total assets back into the mid 30% range and debt to EBITDA back to the high five to low six times range.

With that I'll turn it back to the operator to start the question and answer portion of the call.

We will now become the question answer session to ask your question. Let press Star then one touchtone phone areas. All speakerphone. Please pick up their heads up before passing the Q. So withdraw your question. Please press Star then to at this time, we will pause momentarily.

Well our roster.

Our first question will come from John.

Polaski with Green Street Advisors. Please go ahead.

Hey, Thanks, very much less William has Disney given you a best case scenario on just the timing around the reinstatement of internship program.

And just curious what to give you time to plan, what say prolonged period, where you would look to look to pivot into the open market employees or hotel like framework for the project.

Yes, and this is actually bill going to go and take that one it is in obviously Disney and you can pretty much publicly follow their statements in terms of their approach to how they are undertaking it as it relates to exactly when the Disney College program comes back into play and what prolonged is no certainly is Williams said in our prepared remarks.

We have looked at this year as likely not having occupancy and so we think about prolonged we think beyond the period. The we have stated the one thing we want to be careful of and I want to remind everyone. We were.

Very thoughtful when we structure this transaction from a design perspective, and a ground lease perspective to anticipate something like this occurring and so when we look at the backup alternatives to the Disney College program, the William referenced being employee housing for the broader Disney cast members or to converted to a hospice.

Talladega offering it as part of their portfolio rather than doing the typical college design, we do with dividing privacy walls and that we really developed traditional multifamily units and achieve those things through furniture and how we made it more adaptable in terms of the college program participants and so from physical perspective, we're well.

Position for that from an actual decision to make that transition first and foremost the last thing we want to do is not be available when the Disney College program comes back and that we do have a first Phil the historical levels of that program are usually thousands of participants up to 10000, we're only going to have.

Overall, just over 2000 beds available on in January and so we don't want to being a position where the intended uses not there for Disney and for our long term stabilization and so we're already an ongoing conversations all on an ongoing base with Disney on what their timelines are with their perspectives are how we think about that and we'd continue those.

Those conversations as things evolve for them.

Always having the ability to make approved decision anytime to switch over to that if it were prudent but the last thing we want to do in these early stages is to circumvent the original intended use and long term stabilization to content.

Okay understood and last question for me Biller Jennifer.

I understand the leasing trajectory or velocity is going well and cancellation and re letting risk seems pretty modest right now that things are changing on the ground pretty quickly in terms of university the decisions and so could you give us. Some examples of school where are you seeing notices of cancellations spike in recent weeks.

So we kind of have a playbook going forward. These next few months as things on the ground change trying to understand geography, just the pain points within the portfolio, which is healthy today.

Yeah, It would be and there's not really immediate short term trends that we can point you to draw any conclusions as it relates to the coming weeks. We'll have we'll go ahead break down some of the statistics accordingly, though.

When you look for example at our no show and re let request and you look at the schools category for either in person hybrid or online you don't see a great relative variation in those categories to know show in Relight request for example, the 689.

Potential no shows we have identified 208 in person universities 440 at hybrid universities and.

23 at online universities, and when you look at the percentage of that those beds represent in our portfolio they pretty much mirror that breakdown.

When you get into re letting we have the same type of balance across those areas and so we have not.

We have to direct examples that we can speak to where a university actually publicly went out early in the months of June and said Hey, we're going to go predominantly online and those are Fresno and.

Also phase one above Curry hall at U.S.C.

And in both of those situations, where they end both announced in early June.

We did see cancellation some cancellation activity, but we also saw continued leasing activity.

To where at those two properties from the time of announcement at perhaps no. We actually have held our ground in had equal new leasing to cancellations and so we were 75% pre leased when they announced we're still right I would actually 74.8 today.

Let us see we were 98, we're now at 89 and as we mentioned in the earnings release in the portfolio. When you look at that online category as a whole we've only had a total sense time of announced as announcement at our for same store properties, a 5% potential occupancy hit when you add all potential no shows and all real.

Yes.

And so there's we in it cautious optimism is certainly the proper word and that we are absolutely as big cautious as we are optimistic.

And managing those no shows and re let activity all the way through the end, John and looking for any trends that dual vault.

It is what we're we're highly focused on at this point in time leasing progress itself leasing velocity trends in the 310 and 20 days those things are all very positive the administration of no show a potential no shows and re let that is where we're daily Hoover focused on watching that data looking for trending in the nature of the question you.

Yes, we just haven't seen it yet and there doesnt seem to be disparate and I guess, that's the good news when if there is when you look at the data, we just said and how it crosses over the university's classification of curriculum delivery.

We're not seeing very a significant variations in trending so I think thats, probably the most positive thing we could hope for in an uncertain environment related to cope.

Okay makes sense, thanks very much.

Thank you John.

Our next question will come from Alexander Goldfarb with Sandler. Please go ahead.

Hey.

Good morning down there.

So just.

Continuing along that line requesting burst.

Bill can you just give an update on university thinking.

Earlier this year callout, they came out and then sort of modify their statement.

You had a recent second wave, but the debt rate and a lot of those states is still really low nowhere near as high as it was in the northeast. So can you talk a little bit about what universities.

Now switching and thing no we're going to cancel in person can't hybrid go to online.

[music].

What's actually happening reap the headlines with the sport program, but curious what the universities are actually thinking about as we approach sort of at September one school start date.

Yeah, you know and this is consistent with the conversation we were just having and it's almost as though it doesn't matter what the category. The University has issued our headline saying we're in person were hybrid or were predominantly predominantly online candidly the university thinking in preparation for fall is almost I'd.

Identical in every single case and at the first thing that Theyre doing is they are preparing the classroom and areas of interaction to meet all CDC guidelines and social distancing and so to the extent that you have online instruction. It is being done and social distance classrooms to where everything is compliant with enacted.

David environment.

The second component is that virtually every university and I cannot eliminate the were virtually every university that we serve.

Has indeed set up dual capability that they have the ability to deliver curriculum in person and they have the direct the ability to deliver that same curriculum online and have flexibility in going between the two which I think is great. It's not an all or none and a time duration certain and solvay.

Have the ability to modify those things based upon their situation and then when you look at and what most directly impacts US you know certainly the thought in the work that has been done is evidenced in Williams the discussion on Densification I guess hubs in my script, sorry to Densification.

What it really gets into is that university have assessed their house, which they have not had time to do in the spring they bad time to assess their housing products and how they are geared toward pandemic and when we look at those community Bath products that really is where you have you don't have households have two to four that can self isolate and.

Since we bass and they're going through the pre densification areas in that and so I think universities have regardless of category reporting have fully set up so the students may come back to their college towns and at the university's May adjust curriculum delivery as they need to in person online based on.

Circumstances on the ground.

And not have to have the chaotic situation, we had in the spring, but rather have everything set up in order in this cobot environment.

But no basically your view is that universities that have set their decisions those divisions or that you don't get a sense at some are waffling and some that that they will be in parts that are now.

Again, I think the headline is irrelevant and when you look at every universities operational administrative plan.

I guarantee there University to said were hybrid.

That may have a higher component of in person class. The University said that we're in personal student gets their schedule and they have a higher percentage of online.

And so it's really the administration of online and in person.

Our components at all three categories of institution.

Okay. So they don't have to say they don't know they don't necessarily have to change the headline of categorization and that they're just adjusting their operational plans is one of the things that we hear a little bit a lot of how universities as they're approaching the curriculum hope delivery online versus in person if you have.

Hey, professor that as older immuno compromised and they say, hey, I'm not comfortable while they're saying hey will allow you to deliver that lecture online whether the kids are in the classroom or or in the rest hall and so these are our universities get into these operating plants, they're very flexible in innovative and how they're putting it together and they are not.

It's focused on what headline there categorized under as we obviously are focused given the market's interest in this.

Hi, yes.

All streets interest as well as the second question is just going back to the occupancy.

I want to make sure I have the numbers right you spoke about a 5%, but I thought that was only a potential for the online.

University exposure, but then I think you mentioned, 2.3%.

Your first 1.1 last year, so if the 2.3 versus the one what are those the headline numbers that we should really focus on and then this is before the potential that the Densification may work more students to come your way I just wanted to yes. There is I wonder if any of it and you and.

You are correct into clarify that for everybody the 5% that we discussed related only to the for same store properties at online universities and that was taking those four properties looking to get the total potential no shows the total request to re let currently and deducting that from the percent their pre leased thus those four going from now.

92, a potential of 85.

Those for same store properties in that 5%. Our then a sub component of the broader portfolio, where the total combined to know show and relapse are currently at 230 basis points.

Versus.

110 basis points in the prior year. So the variance is 120 total basis points to a normal year and as I mentioned in a normal year last year, we manage that process down to being only 38 bits of Bips of impact now the other thing that we have caution when we talk about cautious optimism is that this.

This is anything but a normal in ordinary year as it relates to.

Anything if that were administering and so when we look at our normal and ordinary historic success of managing that what was last year 110, Bips down to 38, we would assume it's going to be more difficult in this environment with not as many properties fully leased or above 95% leased at this time, which may make it huh.

Harder to close that gap. So when we're looking at our internal risk assessment, we look at that totaled 230 Bips at this moment of time of total potential no shows is re let as that's our risk bogey out there at this moment in time, those 230 basis points and as you appropriately said that his prior to taking into this.

Duration, what we viewed as the optimistic upside that we have is the 55000 on campus beds being taken offline due to densification in quarantine that may indeed lead to a late surge.

Thanks, very much in demand not coded.

Alright.

Thanks, Phil.

Our next question will come from although I'll come back with Bank of America. Please.

Hi, everyone. Thank you for taking my question I realize I might be getting ahead of myself here with 2020 and 2021 fall leasing.

Hi, how are you guys thinking about falling school year in 2021 2022.

And Jeff strategy.

We love your question, because we all like thinking about the world beyond coated.

And we certainly do believe there you know there should be a return to normalcy in the 2021.

Academic you're going forward next next false Lisa.

A couple of positive things in that regard and one is I briefly touched on on on rental rate growth and still having some intact for this year and so you saw that the coated.

Prices did not really impact the fundamentals of pricing and student housing you also heard and William script and incredibly positive update in terms of the supply picture going into next year and that after this year declining 20%. It's expected to go down another 14, the 20 next year.

So we we view that positively also the other unknown variable is related to the densification activity that has taken place on campus in those 55000 beds in that one of the things we believe as an opportunity and we don't know how quickly it's going to evolve but as universities has have look.

Good how undesirable that particular component of their on campus housing is any of them that choose to take those ppas older facilities out of service to develop new could also have ongoing impact in the years going ahead, and so we do when we think about a postcode and.

Firemen, and we think about the business fundamentals that we're really studying throughout this period.

It really makes US you know, where we're very cautious and we all have to deal with the short term impact so of the crisis that America together is facing when we look at our business segment beyond this transaction beyond this crisis, we get very bullish on what are what are optimistic outlook is.

Im not a little bit in terms of marketing expenses.

At quarter just.

I have on campus advertising like do you think that strategy for Mark.

Does this fall.

You know that first of all that is a fantastic question because as we go through our own analysis. This this is what we're looking at and how we have spent our marketing dollars over the year and obviously as you go through our numbers, we had significant savings of marketing cost in Q2.

We have pretty good leasing progress now ultimately that 340.

Basis point gap that we currently have that's a lot of revenue on on a dollar basis and we don't think it's related to a decrease in marketing activity, but rather obviously the cobot environment, but this has is causing us to appropriately look at all the incremental marketing dollars that we traditionally span that have been replaced with candidly much more costs.

The effective social media and digital activities to evaluate.

The real benefit and impact of that.

Significant amount of our marketing dollars on an annual basis, the expensive activities that we undertake or what I'll call. The on campus promotional activity is getting out there you know, giving away 2000 T shirts, our sports marketing contracts. Our biggest overall marketing expense is our affiliation with colleges and University athletic probe.

Brands and when you go into the stadium and the the basketball Arena is on the back of every football tickets. The American campus communities I know, there's a lot of benefit of advertising and Jamie Wilhelm and the P. three world that recognition, but.

Those are things that throughout this lease up we havent had available to us and because of the lack of those things and so it is giving us the opportunity.

We talked about this is one of our you are guiding principles to evaluate all the unique things that we're learning through co would to see what may have benefits going forward, but it is causing us to go through that assessment I can't give you the answer to your question, yet, but I can tell you that we're going through that process into the attempt to learn from it and to be more efficient and impact with.

Our marketing dollars going forward.

Thank you.

Our next question will come from Austin Wurschmidt with Keybanc. Please go ahead.

Great. Thanks, guys.

Thank you for all the data point, but.

I was hoping for a little more detail on on the leasing acceleration Densification I believe you mentioned that you haven't seen any material acceleration in velocity at schools that have densify the on campus housing.

So one what would you attribute to that recent surgeon leasing and then second you have any sense. If it schools that have densified plan to use other accommodations like hotels.

Silver housing needs or or if they've even communicated at this point to students that that they are on their own to define.

Find the source of bucket of off campus.

No. It when you look at in God bless all the universities that are administering these processes and that they are in the throws of it.

Add the data that we have given you we only have because of our in depth proactive relationships with these university officials and then conveying to us the processes that they are implementing and in many cases the universities have not been through the administration of that Prost those processes and so while we have.

I've seen a blue an increase in our velocities, we've seen that across the board at all 68 universities versus.

Just at the 48 versus the 20 and that's why we say we haven't seen a differentiation in that trending which makes US hopeful there is another search coming as an example of this is over the weekend since we put together are releasing that Fridays numbers, we've got to call from temple and did 100 bed master lease over the weekend related to their.

Okay and so these processes are just taking place.

And we're hopeful that that will lead to as they go through and fill their beds through the assignment process and issue that out that world and start to see.

Some positive benefit from that and again Thats one of the places we're hopeful but we have to see it materialize.

But we don't have evidence yet the increased traffic is from that situation I think it's more from just people having need to delay.

Understood appreciate that and then just secondly on on capital allocation.

Thinking about where your Leverages the day the capital needs you have remaining for projects that are that are under construction or that you're committed to.

How should we think about one with future dispositions versus that annual $100 million to $150 million viewpoint do in recent years.

Kind of and annually.

And then how you're thinking about prioritizing future development starts.

The the more lease up transaction deals we've seen you do in the past versus the traditional just.

Down the fairway acquisitions.

Yes.

Austin This is Daniel and you know as we laid out on our capital allocation plan on in the supplemental we continue to target the same amount of dispositions to fund the current development pipeline that we've been talking about.

For our on camp our on balance sheet.

Yes external growth, we would continue to reserve that primarily for our development pipeline.

Yeah, William talked about in his prepared remarks.

Our continued.

Expansion and desire to expand our joint venture strategic capital sources.

Yeah, really twofold, one would be to have that.

Partnership.

In place and opportunity even beyond what we currently have in place with all the audience to be able to sell additional assets into a joint venture partnership to fund additional developments in the future. So that we can manage has leveraged statistics, but also to put us in a position to take advantage of the.

Opportunistic investment.

Opportunities that may come up as the coast Covance situation unfolds. So you know again, we continue to want to reserve our on balance sheet capacity for development and then as far as those upside acquisition investment opportunities. We would look to do that through an off balance sheet joint.

Venture structure like we like we've talked about in the past.

Any sense at this point of how large of a JV.

You're considering or just what the opportunity set is from an acquisition perspective.

Yeah, I think well if an acquisition perspective, we're still assessing we haven't seen.

A ton of stress out there yet obviously, we have to see where this year's lease up comes in and what comes off of that and what comes off of that with regard to properties that with me.

The investment criteria, we want to pursue but when you look at.

Typical joint venture type structure, you know your ticket typically looking at a 300 million to a billion dollar type.

Size program.

Okay.

That's really helpful. And then just last one for me I was curious how you on the realized and central no shows how does that break down from properties that are in the three buckets. The outlined in the pre leasing those that are very well leased versus those that maybe have some catch up potential.

Yes, actually have that debt and this is one of their the via items that we raises an area to be cautious I have that data on the table here in front of me hang on one SEC.

Hang on one second.

Okay here, we go at our properties that are 95% or greater.

We currently have 38% of our no show and relapse and that the properties that are below 95% pre leased we currently have 61.5% of our relapse and so on those 61% of the current relapse at those properties that are currently below 95%.

That gives us a little greater exposure in terms of the risk of Backfilling. Those how we do in a typical year, obviously at a property where you're already fully leased every lease you get today eliminates a potential no sure request for relapsed and so as we administer through that that 60 really closer to 60 40 breakdown is what we're very closely.

Monitoring now one of the reasons that we attempted to flush out the no shows and re let early is we did want to have all those beds identified in the hopes of the University. The justification does result in that push of students off campus that we have though had those beds identified for that purpose.

So that's kind of where the the risk and opportunity.

We hope line up but we certainly look at that 230 basis points versus the once again this year of being in an environment is harder to backfill because of that.

Got it appreciate the detail thanks without.

Our next question will come from Nick Joseph with Citi. Please go ahead.

Hey, it's Michael Bilerman here with Nick just couple of questions is there any change to the lease language or the structure of how you're doing a leasing for the upcoming academic year in the event that school changes both for off campus as well is programs.

Just thinking if there are any variables or or at least at least.

Language, that's changed for the pandemic.

Yes, Michael and when we look at our off campus in privately marketed apartment communities. The answer is no and Thats a very positive no. Let me explain why.

Our leases in no way shape or form are tied to the actions of any universities, nor any activities that they undertake and when you look at the University shutting down in spring every single one of our off campus private lease properties. Every release remained in full force in effect and we had 93.

0.7% collection of rental and in no way shape. This is all the way that we explain it you recent apartment near major employer.

When you move into that apartment, if anything happens without major employer in your appointment you're not in any way no longer obligated toward the lease that you have execute and so we have not added any language and that we do not want to draw a correlation that our leases are in any way shape or form contingent upon that.

As it relates to our on campus lease agreements.

The majority of the beds in the beds, where you saw the refunds take place we do not have leases with those students.

Those are under master lease agreements with the University, where the institutions have licensing agreements and so we do not have to direct relationship. There. The other thing that we pointed out on the last call is in our agreements with the universities, we were not obligated.

Partake in those refunds that the university's made the decision in how they administer those licensing agreements, but rather for us given the duress that they were under given that they haven't had the chance to go through the facilities assessment that I referenced earlier on in in suite residence Hall versus.

As a community back and that they were in a sense of urgency and panic of just getting getting students off campus and having everybody go and they hadn't done the community bat Densification and advanced like they are now because it note was coming but we made the partner decision to participate in those refunds and so the net the need.

To add a resident level do anything related to some of the economic impacts that we experienced this time, we're not necessary for those reasons.

If you think about you guys have referenced a lot of safety and security things, you're putting in place to mitigate the spread of the virus within their communities.

The kids are kids.

Teenager strategic nature, and as we've seen across the us.

And a lot of cases theyre not abiding by those things so how in the event.

That the virus starts to spread with at the University of using the communities that you.

Okay, and what are you going to do in terms of refunds and bad debt like what happened in the spring how do you protect yourself financially or should we expect that.

Let's say 50% of the portfolio.

The schools have shut down or do other things that we should expect a similar level of revenue impacts.

Refunds and things like that yes preferred first let's break it down by segment and first talk about the the larger portion of our community, which is the privately leased in the open market apartment communities and as you saw there we had 93.7% rent payment throughout the pandemic when schools book the took the most.

Draconian action out of not having ever faced this before and what they did so you know we certainly look at what occurred when no. One was prepared for it as the worst case outcomes that you would experience in that regard.

As I mentioned in my prepared remarks, when you look at these students buying power and the money that they have available for education.

At the beginning of last academic year. The economy was at an all time high unemployment was at an all time low and when students filled out their financial aid need based assessment for the academic year, we were in when cobot hit.

Mom and dad and they had excellent financial income that was part of that financial way consideration.

All the people that have been negatively impacted by coated parents and students in securing their financial weighed need based assessments for this upcoming year now I've had the opportunity to access that so as they go into this academic year the financial hardship that they have suffered has given them the anymore.

Has given them the ability to qualify for the norm on ordinary Pell grants student loans scholarships that our needs based and so they have the opportunity. Unlike a traditional renter to improve their economic profile, where when coal would hit in the middle of the year. After a great economy. They didn't have that basis too. So we would look.

At the condition of our residents as it relates to financial hardship in a better position now than it was then also all the running decisions that they are making going to as it for this upcoming year is based on their financial condition. The price points. They ran think things of that nature and so.

We don't look that the rate and the other thing I think the more important point is the discussion we were having about how universities are setting up for social distancing curriculum delivery to where we don't think it's going to be a universe. Just we're shutting down everybody leave the campus. We think a University me say hey, Okay. We have an outbreak.

We are switching these four classes to online curriculum delivery.

Versus in person and they have all those mechanism set up and so again everybody is much better prepared we live in a cobot environment and you know and we have continued I think this is important we.

We have 12 month leases and we have continued to operate our properties throughout this cobot environment and search we had one property, where we did have an outbreak.

In early summer wearing a two week period, there were 41 students that contracted cobot at that property when they quarantine. It at all things are supposed to do we weren't it directly involved they worked of local help visual they quarantined. We've had no cases reported that property since June 29.

So it is it is manageable did the other thing that I think is as students come back to campus.

Those that aren't already there.

The 18 and Dr. Julio Frank Who's the University of Miami, President was on CNBC, a couple of months ago.

And he and he is a former global health officials, so much much better credential to speak about this and meets all references his comments.

And he was talking about you know the 18 to 22 year old demographic and how it appears they are much more resilient in terms of the virus and not as many severe cases in and out out severe cases related to it.

And if we're back in fall and you do have surges I think the last thing any university is going to want to do is tell students to go back home to mom and dad in their.

Grandparents that may be higher risk group versus staying right, where they are given how they're able to isolate and quarantine in the products like we talked about and working on this.

How do you think about.

It sounds like you're optimistic about sort of a post covered world.

What's your view in terms of the University system overall getting through that right. There is a fair amount of disruption going on in a lot of different markets generally higher education is one of them.

Cost of going University is significant.

And not all universities have large endowments like some of the Ivy League schools that can financially make it to the other side yes.

How are you how are you thinking about sort of the disruption that's going to calm and the likelihood for significant financial difficulties for a number of universities and how that plays in your portfolio, which I right, yes, higher is better but you know can't.

Even the best mall portfolio is going to have an impact from what's going on in the retail environment as an analogy.

Yes, and certainly.

As you alluded to there towards the end of your question. The answer that we've always talked about that applies more consistent here certainly when we look at higher education across America, and all the thousands of institutions of higher education that exist. There is no doubt that the economic downturn associated with Cove. It is going to put significant financial strain on the sector and there are going.

To be universities and colleges that don't come out of this.

<unk>.

Because of the way the we have positioned our portfolio and focusing on the state flagships the tier one institution the Carnegie our one research and the power five certainly we don't think the schools that were at our at risk to go away not that they won't have financial strength and I'm going to back up in a moment say, but that on that future financial strain owned.

He plays into the need for privatization and use of other People's capital one non ancillary services. So it actually could drive as it relates to modernizing student housing and opportunity for us. When you also look at the schools that may end up not making it may end up going away.

That's only going to provide more demand for a smaller group of schools and those that do make it may see increased demand. The other point I want to point out and this is something that we continually talk about is the affordability of education at the private flagship institutions that we serve and while I agree with you completely.

For anyone to spending.

90 to $150000 a year on higher Ed, which candidly is not the schools were at over the Princeton, which is faculty and staff.

The average tuition is the public institutions that we service just over $10000 year and the value of public education schools. We serve we think only become more valuable and more attractive in a time of macroeconomic stress and went about dollars are more valuable and so again, we think that the choices we have.

Made in our long term investment criteria position us well again, and then to it but.

To acknowledge what you said make no mistake. The schools were at their are feeling the financial pinch they're feeling the economic pinch everybody no. One in this crisis is not.

All right. Thank you.

Thank you Michael.

Our next question will come from Neil Malkin with capital. Please go ahead.

Hey, good morning, guys.

Good morning.

Just wanted to go back to the JV.

Right.

Maybe or shift obviously with the time, but maybe just.

It was it inbound inquiries anything maybe that you can provide additional color to.

As to.

The need to called this out or to have that desire to grow the JV platform.

Obviously can understand selling assets and to.

You have some capital.

But from the other side in terms of inbound inquiries and it has well distressed opportunities maybe some distress.

Element.

Can you just talk about what you kind of see has the potential opportunities that over the next couple of years.

Yes for first of all I'd like to address it and this is something we're talking about to the market. Given we want you to have clear purview into our ability to create liquidity and how we're thinking about our capital allocation. This crisis, but as it relates to the this long term strategic JV approach candidly. This is something we had in the works prior to cope.

And that is part of our executive plan, we have a program that we call pursue growth 2030, which is the tenure the companys 10 year strategic vision on how we create value for our shareholders and candidly with their having been a consistent disconnect between our public cost of capital and private valuations.

We felt like over the last several years that we have been sitting on the sidelines too much when we could you know we look at the pro largest model, where they very successfully view strategic capital to advance beyond their core business and mature that actually came boss, our chief accounting officer started there at a when it was a and B and has context, there and she and William you know study.

That model, but we looked at strategic third party capital as a means to propel our growth in fee income and earnings growth in and without using a lot of our capital as a pre co bid.

Strategy certainly now ask cobot has evolved it is only made our own on balance sheet capital, even more precious and more limited and certainly with the emergence of potential opportunities that may come out of Cove. It.

It is consistent with the mission that we have to grow to go out there what we don't want to do I hate when you look back and I've been in this point my career before where I've made those mistakes when I look back five years and say off only we had executed at that time right after turmoil.

And so that is why we have chosen on this call to make everybody aware of our efforts and why we're pursuing that and I think as Daniel very appropriately pointed out not only is a strategic growth vehicle on a long term basis, but it also is an excellent another quiver to create liquidity through just.

Positions or joint ventures, as it relates to any needs for capital as this crisis maybe prolonged.

Yes that makes sense.

I appreciate that.

Yes.

On the trends for on collections or delinquency.

From a and then for the second quarter in General and then what July looks like it looks like delinquencies kind of ticking up.

Kind of gradually which as expected but.

Do you think that as your.

As these leases roll over and you start your new year leases call. It August September.

Just given all the things you've talked about financial aid et cetera.

It's likely that.

I think with these collections will sort of trend back to historical level.

As opposed to what they are kind of right now.

Yes, I mean, our expectation I don't know back historic levels immediately with the August September payments, but our expectation certainly is.

That we will see a migration back to that over the next academic year.

Okay.

In terms of the that pre anything looks like the online.

About 90% and the total portfolio is about 90% so that would imply the in person or hybrid about 90 lie.

That.

Hi, there is that more function.

Thank you said pushing pushing potential no show that have room for that you did that define any any color on.

Why is that Delta is it.

Isn't bigger.

No and again the one thing is when you look at that.

Grouping up properties in that category. It's so small it's only for same store assets and so it's not like portfolio is 50, 50, where you can draw meaning correlation in differences between those two numbers.

And again the other thing that we would point out and this is what we have certainly what the consumer sentiment was we were feeling over the throughout this pandemic.

Is that regardless of what the university's we're saying.

In terms of their curriculum delivery, whether it's going to be online whether it was going to be on person what was going to be hybrid we kept peering students and their parents say well my kids are common wheelchair out the universe is going to deliver they're going back to their college town.

And so you know in it and everything that we see as we look at those three categories and look at leasing velocity traffic as I previously went through those numbers for no show and relax.

We don't see great differentiation in any trending by those break downs, which cautiously gives us.

Makes us think the hypothesis that we were making there and what we were hearing from consumer sentiment is playing out into that.

Okay, Great and then lastly from me in terms of the.

Hey.

I have in development.

Going to be talking about it before but is there.

You got believe that there's a chance you'll see an increase in activity.

Over the near term and the RFP or or maybe even a percentage of RFP that want to do for a private.

Equity partnership.

Sure.

Potential capital, given and tack on financial or balance sheets from from cope. It. Yes. It is certainly know at the highest level. We believe that there's going to be increased activity in especially when we talk about the potential modernization. The other thing that we're looking at very closely in terms of consumer sentiment in this case consumers.

Being the administration of universities is the evaluation of what financial structure models going forward make the most sense to them.

We we and understand first of all as it relates to Ace American campus equity, we're going to continue to be stringent and prudent as to where we're willing to invest our capital on campus and we don't invest our equity in every University justice.

Mr. Bilerman asked the question earlier about how we're positioned as we move forward and the implementation of our growth plan, even on Ace, we always want to have that discriminating investment criteria related to where we invest our money, whether it's on or off campus.

So when you look at the University is going forward that want to develop housing some of which may not be candidates for our equity we want to do those deals. We continue to have the fiber one C project base that model that will be evaluated and then we also may look for some institutions and use it for a third party source of equity is willing to invest in.

As transactions with us as the developer in going forward. The other thing that I'll point out.

The and this is something that the Jamie Wilhelm and his team are working with universities as you look at universities, making be on campus decisions.

As to what structure is best for them and how did those structures performance related to coated.

Earlier, we talked about as their ace partner and having a long term investment on their campus. We made a partner decision to step up in share that pain with them.

Ed contribute $15 million toward those refunds.

At any other universities that had that five old one C project based model, where they made those decisions.

There was no one with a balance sheet behind those deals to step up and make that contribution.

And the university's found themselves in a situation, where well if we need that support and offer that support well now Moody's and S&P now look at our participation in what was supposed to be.

Perhaps an off credit deal that maybe doesn't have the comfort and stability if someone with a real balance sheet behind it and so those are things that again in going to that principle. What are we learning from cove. It in terms of how it impacts are going forward business. We do think there's going to be an up tick in Patrick activity.

And we think that the desired financing structures may have some evolution and I think certainly that.

Equity based transactions.

May have come across than this more beneficial now let me do say this.

Not all equity partners throughout this crisis took the approach that American campus did and as I mentioned, we didn't have to step up and contribute but we did.

We've heard stories from other universities have other equity partners that didn't step up even when they were asked to.

And so I think that the goodwill that we have among higher education, the manner in which we behaved as a long term partner.

Has only probably giving us a greater competitive advantage over our peers.

Appreciate that thank you.

Again as you'd like to ask your question. It is star then one.

Star then one to ask your question.

Our next question will come from Rick Skidmore. Please go ahead.

Hey, Bill Good morning, just as you look at the remaining qualities of how do you think about the tradeoff of occupancy versus rent rate and are you using any concessions are reduced rent to drive traffic and occupancy. Thanks.

You know at this point in time.

You always have.

We're always trying to maximize revenue and so certainly this it appeared this is a period of time, where you would trade rate for occupancy in and going through that and I mentioned.

There were currently at that 1.6% rental rate increase but that theres, great variation in where that may end up.

Based upon what is the average rent of the remaining leases we sign of vacant beds and also how potential no shows and re less ultimately materialize and roll out based on the rent that may be rolling out and so as we look at the portfolio today.

As it relates to our vacant beds and how many of those vacant beds are above that price point and how many of those vacant beds are below that price point.

I have a number in front me crown.

Let me first week to know shows and re less on the no shows of the 671 same store no shows 268 are at price points above that 807.

That if they fall out bring that number down I'm, sorry, bring that number up and for all three are below as it relates to relapse of our same store number 15, 51 896 of them are priced above I'm, sorry, yes above and 13 26 are priced below and so it's.

It really well.

We certainly have let the market into how sausages made in our industry in terms of the final average rental rate in terms of the variation of components that they come into that equation.

But it's really hard to draw conclusion at this point in time in terms of how the remainder of the lease up and the administration of no shows in relapsed impacts that final rent with 90% in place.

<unk> typically wouldn't see anything more than on.

A full percentage basis point at this time, but this year is anything but normal.

And so we draw no real definitive conclusions in terms of giving.

Dictation from our perspective at this time.

Thank you.

Our next question will come from.

So please go ahead.

Mcdurman Hearst one quick follow up on the joint venture that you're looking at to be able to get back into the acquisition market would you go hard on the transaction.

For a joint venture is set up for what you will hear house key assets for the eventual contribution to the venture or.

Are you not going to do that and make sure you have the capital.

Yes, we we absolutely will not do that Michael and again, we're going to preserve our capital diligently and anything that we would do would be and were look you know we're thinking about a 90 to 95 joint venture, where we can contribute an asset as our portion and preserve our equity. So we're not going to go on trying to tie step up on our balance sheet and have transaction.

Risk associated with having to lever up to do so.

And where are you in that process in terms of raising that third party capital when should we expect potential deploying.

Yes, we have the package is just out and so we are in the process. So procuring parties of interest and will be playing through the front part of that process will give you an update on the on the next call as to where we are in the process I would not expect to have the process commenced and fully in place by the next time, we talk so again.

Big on the process at that point in time.

And our you presenting actual opportunities that are in the market today to these perspective joint venture partners or is it just more.

Theoretical at this point it is theoretical here's American campus you know our track record. This is an overview of the type of opportunities that we think may be coming forth and we want to have partners in place when it is prudent to pursue.

Okay, all right I appreciate the time thanks, Thank you Michael.

This concludes our question answer session, but until the conference back over to Bill Bayless for any closing remarks.

We'd like to thank you all for joining us and again, we're pleased to update you with pro our progress and truly give you full insight as to the risks and opportunities that are that are currently before us and certainly with the uncertainty immco, but until the students come and move in and the university's commenced their classes were all in a period of uncertainty that will continue to keep.

Speed with I'd like to close this call.

By speaking to and reading the internal statement that we've issued related to supporting the black community and our commitment to anti racism and its from this statement that we will derive the external actions that will take in the future.

Do you see family the recent tragic death of George Floyd. Another examples of injustice against Black citizens in our country has sparked outrage deep grief intense sadness and pain.

We must pass to acknowledge that the pain of racism is very real and that there are people in this world, who consider some lives to be less valuable than others.

This is unacceptable and we all have responsibility to facilitate change.

We must stand up for each and every individual and for the belief that no. One is any less worthy of care safety protection dignity and life itself.

It is for this reason, we renewed our commitment to do our part and to make a difference while we don't have all the answers today.

We know we must use our heartfelt compassion and our collective sense of humanity to cultivate a world that acknowledges and respects every individual.

Our company and our students communities are defined and strengthened by diversity and inclusion.

And we have zero tolerance for racism and discrimination.

We will continue to encourage our staff and our residents to speak up and engage in the direct in difficult conversations the must take place to achieve real understanding and the drive real change.

We will listen and learn and provide resources that will help us drive this change.

We'll engage each of our student communities to actively participate to participate in play leading roles in each of the broader University communities. We serve to help further this cost.

We'll continue to stand for diversity inclusion inequality.

Together will embrace our core values to do the right thing and to drive evolution toward a world without prejudice discrimination and hate.

With that we look forward to speaking with you on our next update.

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