Q2 2020 Mid-America Apartment Communities Inc Earnings Call

Good morning, ladies and gentlemen, welcome to the in <unk> second quarter 2020 earnings Conference call.

The presentation, all participants will be in listen only mode.

Afterwards, the company will conduct a question the need for session.

During this conference is being recorded today feel like 30 at 2020 I will now turn the conference I would assume Argo senior Vice President finance, but yes.

Thank you actually and good morning, everyone. This is Tim Argo Senior Vice President Finance for M&A with me order in both our CEO Al Campbell, our CFO Rod don't worry our general counsel on Grimes, our COO and Brad Hill, Executive Vice President and head of transactions.

We began with our prepared comments. This morning, I want to point out that as part of discussion company management will be making forward looking statements actual results may differ materially from our projections. We encourage you to refer to the forward looking statements section in yesterday's earnings release in or 34 Act filings with the FCC, which scrap.

Risk factors that may impact future results. These reports along with a copy of today's prepared comments in an audio copy of this morning's call will be available on our website.

During this call will also discuss certain non-GAAP financial measures presentation to the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found our earnings release and supplemental financial data which are available.

On the for investors page of our website at Www Dot match Dot Com I'll now turn the call over to Eric.

Thanks, Joe.

Results for the second quarter, we're ahead of expectations as strong collections drove in a wide performance above our internal forecast.

Due to both the high quality of our portfolio and the proactive efforts by our team to work with residents impacted by the pandemic. We expect continued solid performance with collections.

Originally the trends are for rent payments improved over the course of the quarter and as Tom will touch on the positive trends continued in July with residents with fewer resonance seeking rent deferral arrangements.

As of the 27th of the month, our cash collections for July Rep, where a strong 98.1%, which compares favorably to an average Q2 performance on a comparable basis at 96.4%.

We are monitoring reports of increased levels of co. The cases in a number of sunbelt markets.

While we expect conditions will remain fluid and choppy across various states end markets. We are optimistic that efforts to reopen local businesses and economies will continue.

Beyond the uncertainties associated with how various state and local economies will proceed to reopen.

Questions associated with the actions by the federal government to extend support to individuals and businesses also remain unresolved.

For these reasons, we continue to feel that conditions remain too uncertain to provide updated earnings guidance.

However, as outlined in our supplemental pages to the press release, we will continue to provide more details surrounding current rent collections and leasing trends.

Assuming there is no significant change in current conditions. We believe that we will continue to capture solid collections on build rep as well as continued low resident turnover and stable occupancy.

We do expect continued pressure on rent growth, but we were encouraged.

With the improvement in lease over lease pricing for lease assigned in July but.

With a significant percentage of our leases repricing during the busy summer leasing season. It is important to keep in mind that we will carry these reprice units into early leasing season next year and it will weigh on the cumulative performance of overall rent growth for the next three quarters or so.

However, as new supply deliveries slow next year, we expect a resumption of more robust shrank growth across our markets.

Longer term, we believe that our sunbelt markets will capture increasingly stronger trends in adding new employers job growth and new household formations.

Our unique approach to diversifying across this robust reach another country with high quality communities supported by a sophisticated operating platform will we believe continue to drive long term outperformance for capital.

Further our strong balance sheet puts us in a solid position to both whether the current economic slowdown as well as opportunistically pursue compelling opportunities that emerge.

In closing I want to express my appreciation and thanks to our in May I associates for their dedication and superior service throughout the stressful second quarter.

Your performance and commitment to our mission of serving our residents and all who depend on M&A. During these stressful times has been absolutely incredible.

With that I'll now turn the call over to Tom.

Thank you, Eric and good morning, everyone, Oh off our short recap on the second quarter, and then move to trends that we've seen through July.

The initial slowdown in demand triggered by cover 19 in late March has moderated and trends are improving our teams have adapted and have been effective using our virtual oneself tour platform. These practices for further augmented our return to guided tours in may.

Leasing volume in April was down versus prior year by 9% of volume in May in Japan were strong enough leasing volume for the quarter, let's 0.6% higher than last year.

Active rents were up 3.4% and blended lease overlying lease pricing, including concessions went up 1.2%.

Occupancy remained steady at 95.4% in turnover for the quarter was down 7% versus last year.

We saw steady interest in our product upgrade initiatives during the quarter, we restarted our unit interior our interior unit redevelopment program as well as the installation of our smart home technology package and includes a mobile controlled whites thermostat security as well as leak detection.

As noted in the supplemental document collections during the quarter were strong we worked diligently to identify and support those who need help as a result cobot 19.

The number those seeking assistance has trouble with each month in April we had 5600.

Residence on relief plans, a number of participants decreased each month thereafter, and it's just 530 for the July rental assistance plan. This represents 0.5% of our hundred thousand units.

As a reminder, in addition to the flexible payment plans for those affected by Kevin Knight aim, we've not charge soybeans frozen we have frozen eviction proceedings and actively work to pair affected residence with local and national support resources.

Why are we are still below our normal run rate reduction in the number of residence on the rental assistance planned aided our fee income during the second quarter.

Cares act expiration and the discussion around the continuation of government benefits.

Well you seen volume for July is on track to exceed last year, historically pricing power peaks in the early third quarter, and thus far july's been our best pricing much since cobot 19 hat.

Net July month to date blended lease over lease rates on during the month increased 1.7% business more than 100 basis points better and leases signed in the second quarter.

While we see this improvement across asset types and locations or b assets and our suburban locations are stronger.

In addition to positive pricing trends occupancy is also strengthened occupancy has improved from a low point of 95.1 to 95.7 today 60 day exposure, which is all vacant units plus notices through a 60 day period, it's drop on behalf of 9.2 in April April.

For in June and is now 8%.

Our current residents are choosing to stay with us and our resident renewal retention rates are also positive August September and October renewal, except rates are running ahead of prior years and signed a lease over lease rates are in the 4% to 5% range.

I'd like to Echo Eric's comments and thank our teams as well.

Dave served in cared for our residents and our associates well and of grappled with the constantly changing implications opened 19, they've worked diligently to provide supportive and carrying environments for our residents in one another I'm proud of them and grateful for their efforts and character I'll now turn the call over to Brad.

Thank you Tom the transaction market continues to experience a material slowdown in activity with second quarter volume within our markets down significantly from 2019.

In addition to challenges in underwriting travel moratoriums property tour restrictions and difficulties performing due diligence all continue to make closing a successful transaction challenging.

Despite these pressures sellers are beginning to test the waters and our number of underwritings, while still below previous years have increased materially since the beginning of July.

Certainty of execution is more important than ever and since this is one of our core strengths. We have been able to review a number of properties mostly off market.

At this point most of the deals we have reviewed have not traded so broad pricing trends are not yet apparent.

The upcoming election is likely to further suppressed transaction volume and caused the lack of pricing discovery to persist, we believe better buying opportunities on new lease ups should emerge after the election and ended 2021 as the backlog of merchant build properties, which are prevalent in our footprint begin to hit the market.

The availability of financing continues to evolve.

While early in the pandemic debt financing was difficult across the board. It now remains difficult for lease up properties.

As well as some developments, but is available at very attractive rates for stabilized assets. In addition to the commitment of equity. In addition, the commitment of equity is also are there restricting transaction volume and construction starts to date, a number of equity providers have paused or completely pulled out of quite a few new developments as well as acquisitions.

Sometimes for reasons not related to the real estate or the returns.

This hesitancy coupled with our continued ability to perform on compelling investments has opened the door for us to review numerous opportunities through each of our external growth platforms.

While we are reviewing a few acquisitions.

It's still too early for new lease up opportunities to materialize and more compelling investments on existing assets are likely to emerge late this year and into 2021.

Our balance sheet is well positioned to allow us to take advantage of these opportunities as they arise.

Our development team continues to pursue a number of land sites with three developments in due diligence that we hope to start construction on in 2021.

With equity hesitating on new developments, we are receiving strong interest in our pre purchase platform.

We're currently in conversations on several opportunities that would likely start construction late this year or early next with delivery occurring mid 2022 and wrapping up in 2023.

These development and pre purchase investments align well with the current delivery pipelines and we will deliver at a time when we believe the leasing conditions for new developments will be significantly stronger.

We are beginning to see a drop in permit activity and have seen a substantial drop in construction starts in our markets, which should result in a decrease in deliveries in 2022 and 23.

In terms of construction the six projects, we have underway remain on budget and on schedule and to date, we have not experienced any major disruptions or delays to any of our supply chains with that I'll turn the call over to al.

Thank you Brad and good morning, everyone I'll provide some brief commentary on the company's recent earnings performance balance sheet position and then finally, a few comments on our outlook for the remainder of 2020.

As mentioned earlier, we're very encouraged by the second quarter performance, particularly in the area of rent collections at the beginning of the pandemic. This area was the most significant short term unknown with rental pricing expected to have a longer term impact as new leases roll through the portfolio as noted in the supplement through July 27th we either fully collected or Tayne deferral agreements for now.

9.4% of all rent build during the second quarter.

At this point, we've had very good payment performance from our typical denims with a 97% compliance rate on outstanding agreements. We also established reserves sufficient to cover all rent unpaid from residents not entering an affiliate agreement as well as a large portion of the deferred rent.

Due to continued a strong trend and recollections given the remaining high level of uncertainty, we do not yet have enough clarity to reestablish earnings or overall same store guidance for the year. However, we do have a little more clarity on operating expenses and overall, we still expect them to end up essentially in line with our initial forecast for the year. As a reminder, we initially outline same store expense.

Growth for the full year to be in a range of three and three quarters to ordinary course percent growth or fourth quarter growth at the midpoint. The primary pressures coming from real estate taxes insurance and the rollout of the bulk Internet able program called double play.

The context on their contribution to expense growth ignoring these three items all other operating expenses are expected to grow about 2.5% for the full year.

Our balance sheet continues to support our business plans very well with leverage near historic lows and significant capacity from cash in remaining bar potential under a lot of credit combining for 927 million of capacity.

We restarted our redevelopment programs during the quarter under development pipeline continues to progress well and on trial, we expect to fund between 202 hundred $50 million for full year towards the completion of our development pipeline as Brian mentioned in the acquisition environment remains challenging with most opportunity is expected to be prepurchased deals, which would have longer term funding commitments.

Similar to a development.

We currently expect our business plans for the remainder of the year to be essentially leveraged neutral not requiring any equity funding. This year. However, as previously discussed in our plans do include a potential bond deal in the second half of the year to fully pay off our line of credit maintaining our capacity and prepaying some future debt maturities in today's low rate environment.

And finally as reflected in our release, we incurred $2.4 million or Kevin 19 related expenses during the second quarter, primarily consisting of additional cleanups cleaning supplies covered 90 related leave and contract labor.

We have these costs about its core FFO as these initial expenses are considered nonrecurring in nature. We do expect remaining calls be much smaller over the second half of the year.

That's all that we have in the web prepared comments. So Ashley will now turn the call back over you for questions.

Well really at this time, if you would like to ask the question.

And then one.

Oh, you mean withdraw your question that anytime my question.

Once again that is our number one well take our first question from Neil Malkin with capital one. Please go ahead.

Everyone. Good morning.

Neil Mona NIM.

Hey.

Nice quarter.

First question.

Have you started the maybe over the last three months.

In terms of your new leases.

Migration out of the gateway urban markets and into your sort of course sunbelt means.

Or is that Ken.

Either Q harder to your Q soon to discern.

No we track that information overall, it's a relatively low percentage of our total leases, we didnt see much movement in the second quarter, but in July that began to pick up So New York is up double digits, Massachusetts up about 8.7% in Pennsylvania up about five per.

Percent, 5.3% of our.

Increase over.

Prior year on that but again still relatively low percentage of our total leases, but we are beginning to see early trends about.

Okay and then the follow up to that are you seeing within your markets.

You know more move from urban too.

Suburban, particularly in some of your I guess, maybe out of your post assets or things like that into into more suburban.

Area.

We are we're not seeing that we are seeing demand for urban assets you know suburban assets is a stronger.

Pricing for us right now.

But we're not seeing people transfer from urban suburban.

Got it maybe can you talk about.

Orlando.

How about market.

One thing was trending.

Similar with Charles want them Premier markets that are.

You are more exposed to the to leisure travel.

Yes, Orlando is.

It is I would say improved on the rank collection standpoint, they were one of our larger exposures backend.

April there now just 0.7% of leases outstanding are on renewal.

Or on rent support programs.

In terms of the market.

Disney and Universal coming back in modest fashion that have helped a little bit we're seeing the more northern properties.

Perform better.

Then the southern properties, which have that exposure.

The Disney and a little bit of international. So it's you know it's sort of I would say largely the same with some improving.

Rent collection trends right now, but we're pleased to see the parks open and that has a ripple effect across those southern properties.

I mean in Charleston, frankly improved significantly we saw a nice pick up in light.

[music].

Second quarter in early July Amin Savannah stole worry bead on that front.

Great and then lastly, I mean.

And in terms of opportunity Nelson.

Talk about a lot from that sure I got all of it correctly, but.

If you do not think add in second half of the year, you're going to stabilize opportunity that it's mostly just.

You know that development related deals and although you know are you thinking or would you think about doing the measure preferred given the kind of dislocation relative to earlier in the year in the higher yields you could get.

This is this is Brad I think in terms of the opportunities for the rest of the year.

I do think there'll be yeah, we've seen starting in July has some stabilized assets have begin to come to market certainly in the second quarter. There was just a complete fall off in transactions coming to market Thats picked up a bit.

I think for US our focus has always been on new lease ups and to date, we're not really seeing those come to market I think there needs to be a little bit more pressure in the market before.

Developers begin to really bring those to market. So we're really focused in seeing opportunities right now based on.

Kind of a capital constraints that I mentioned in my opening comments, we're seeing the opportunities really emerge on the development front land sites that have been dropped and then also on pre purchase where we partner with developers and.

For those you know we've got difficulties in both debt and equity on that side that's.

Putting some opportunities in front of us that we wouldn't have had the Neil This is Eric to also just to clarify we are not.

In the business of financing.

The People's properties.

We will come in with capital and work with developers on the bases that we will ultimately owned the asset but functioning strictly as a financiere other people's product is not what we do.

Got you guys very much.

Thanks.

And we'll take our next question.

Nick Yulico.

She bank. Please go ahead.

Hi, guys. This system at the end for Nick.

Good.

Thoughts about renewals this trying to understand how you how you get to think about this.

They were lower in July, but still well above the has it full 0.8%.

To make sure these leases where were offered about 30 to 60 days earlier right.

Most likely right off the reopening how should we think about renewals looking ahead I mean, it's close to the low in July or could they track.

Great and perhaps stay flattish or.

Slip a little further.

Any color on that or what is your most sticky point in your negotiations with renewing tenants.

What's driving done was so low would be really helpful.

Thank you you caught it in your earlier comments.

July was priced on the renewal front.

It's sort of.

Pete concern a level.

This point or thus far.

The renewed so we would expect at this point renewal rates for July.

Place in July to be below point renewals on in July were 4.5% and I think we expect September.

In October to be and though between four and 5% range going forward. So you know a little recovery and renewal rates is what we're expecting.

And I guess, just following up what's driving.

Negotiation that don't have just just any color on that kind of thing.

Yes, I mean, we've got a very sophisticated.

Platform and team that works to understand what the market demand is.

For a renewal and we use that process consistently.

And have trusted over the years and that's what we used to move out.

And then we you know, we obviously have some level of negotiation.

With the resident at that point, there hadn't been much in the way of sticking points. So we sort of feel like we're hitting the right spot in terms of the market because the except rates are actually better.

And prior years.

So there is.

I'd say, it's a pretty honestly normal.

A renewal process going forward.

Okay. That's really helpful color and I guess, what's just to understand the overall pricing environment and better and I'll yield after that.

We're hearing that you know there was that there was a third of pent up demand right. After the lockdowns and so the people, who really want to sort of changed living conditions and that's why they were looking to move and even during the virtual leafing days, but now that everything is.

During the open again.

We're also hearing that with being a lot more bargain hunters and playing grade that showed and competitive dynamics. So youre. Your views seem to suggest that you're not seeing that I guess I guess whats different here or how are you.

You know, what's what's driving your optimism of anymore.

When I would tell you is that you know we did see as you saw in my comments around the second quarter, we did see sort of a push back in.

Leasing volumes in May and June, which sort of caught us off from the falloff in.

April but what we're seeing in sort of a normal seasonal trend at this point and are sort of pricing power. If you will normally peaks in late July in early August I would expect that to happen and then of course, it will fall off in the fall under normal seasonal.

Patterns, we're certainly seeing bargain hunters out there.

And our pricing is down lower than it was at this time last year, but where we're seeing is sort of normal.

Seasonal pricing patterns now as we move past that sort of shut down if you will that occurred in late March in early April.

The other thing I would add is that is that.

I think the fact that you're seeing performance.

Along long what you're describing.

You really have to start thinking about different parts of the country and our sunbelt markets have just continue to we think demonstrate a certain resiliency to them that is stronger than what we're seeing in other regions of the country and as a consequence of that.

We are things are depressed from where they were a year ago, but patterns and overall behavior.

In activity surrounding leasing.

Renewal is pretty much in line with patterns that we've seen historically.

Thank you so much that's really great color I'll yield now.

Thank you.

Well take our next question from Nick Joseph with Citi. Please go ahead.

Thanks.

This is increasing kind of broadly across the sunbelt I'm wondering on the ground correlation between local hotspot relative strength of the operated environment.

Nick.

We're a little muffled and we're all trying to talk to masks, a suspect and I think you were.

Asking correlation between hot spots in leasing volume is that correct.

That's right just on the.

Micro level, if you see a hot spot.

As a hot spot for coal.

Feel that on the ground.

From a leasing perspective.

Nick we have not seen much in the way of correlation on that you know.

The market fundamentals really seem to be driven more by you know where a lay offs are occurring and then some variability between location in the submarket, but we're not.

Seem you know leasing fall off in.

Let's say high positivity markets versus low positivity markets at this point.

And less those correlate with you know.

With unemployment levels.

Thanks, that's helpful that not maybe just on that give us.

What percentage of your tenants are currently unemployed or benefiting from government support.

When we do not have insight into their source of income Nick but the fact that.

You know we have seen such an improvement in an antidote in terms of the number of people asking from support from us and the feedback that we get will we interact with our.

As system property managers, and our property managers, which as you can imagine we're doing a ton of right now is that people getting off are not.

Getting off the plans because their government check came and they're getting off the plans because they got more hours or are they got pulled back off a for a lower Disney opened in there now engaged in some sort of support capacity and Nick the other thing I would add is when you look at the average income of our portfolio of our resident.

Well file.

And our average rent you know at this point rent constitutes about 20% of monthly income up our resident base pretty affordable and so as a consequence of that we just while we're certainly monitoring what's happening with the.

Efforts to continue some government assistance on the at the federal level, where unemployment, we're not particularly concerned about about that issue because we just haven't.

For all the reasons that Tom mentioned, we just feel like that our folks have not really depend a lot on that assistance to meet the rent obligations.

Thank you that's very helpful.

Thank you Nick.

Second question from Austin Wurschmidt with.

Keybanc. Please go ahead.

Thanks, and good morning, everyone.

Eric Eric or Tom Im curious, what you think is really driving the the strong demand for your property today, given the state of the job market.

The fact that.

Great.

Adding market, but for by end rentals.

And so do you think its lenders that are trading down and bargain honey is somebody referenced earlier.

Just curious about your thoughts on on what's driving demand for that.

Yes, Austin I appreciate the question.

I think it really is the.

Underlying outlay of our markets in our area of the country in what we're seeing is normal patterns.

I mean I appreciate the comment on strong demand I'm not sure I'd quite classify that other than strong relative demand, but demand is clearly off of the levels that we were seeing last year, but I mean, we like the resiliency that we're seeing or spread out across the sunbelt, which is.

A place that is I think appealing, especially in this timeframe and was already a major driver for jobs.

And then we've allocated across.

We've got.

Across different market types as well so it is holding it is holding up well and the defensive nature of our portfolio. Thank is is showing.

I would hold short before I called it strong demand I'd call it.

Relatively strong demand, which were pleased with that I'd also add Austin you know when you consider the fact that 80% of our resident profile is single and only 20% married and over 50% female. This is not a demographic. This is going to be driven to move into single family.

May be a for sale or for rent. So we just continue to not see any mounting evidence whatsoever that single family is becoming more compelling as it pertains to drawing more of our traffic.

I'm, probably should have mentioned as well move outs to buy house during the quarter were down almost 5% and home renting.

Was it was down.

Significantly in still less than 6% I was down almost 10%, it's less than 6% of our move outs.

So we hear the builders are busier, but we're not seeing any impact of that.

Yes.

Understood all Fairpoint and appreciate the detail.

You have free they talked about the dry powder you have in the balance sheet and are willing to use the right opportunity.

I'm curious with the decrease in permitting level.

And supply that you referenced in your prepared remarks.

When would you or would you consider ramping the development pipeline above.

Kind of the previous ranges that you've targeted and then also wondering if you could put a finer point on on what the decrease in supply into 2021 looks like.

Well take the first part Brad you can take the supply question, Yes, I will tell you Austin, Yes, we definitely are looking for some development sites at the moment.

We think that is Brad alluded to in his comments that if we were able to start some new projects.

Early next year.

That delivering in 2022 early 2023 could be really really strong and so we've got the existing land sites that we own in Austin.

Another opportunity that we're working on in Raleigh.

Another opportunity working on in Tampa, and so where you're not going see it ramp up.

Significantly because we've also got some other projects will be finishing up but on balance I think that you'll likely see our development pipeline.

Somewhat over the next year or so because we think deliveries in the next two years could be could be quite profitable.

And also this is Brad on the supply question for 2021, I think you know in terms of specific numbers for 21, it's kind of hard to pinpoint at this point it but I think if you look at the the larger picture here starting in March when when Kobin kind of started in the impact started hitting.

And really permits really started to decline in construction starts more so you know if you're looking at an 18 to 20 months time period for delivery, you're starting to get into the back half of next year end of next year when the supply starts to go down versus previous expectations, but in terms of the magnitude of.

That at this point I think it's too early to say what it is but we do expect starting.

End of next year supply coming down just based on the construction starts and permitting and then that carrying into two a larger degree into 2022.

That's helpful. Eric I mean, how how larger development pipeline would you be willing to build either from a dollar perspective or percent of easy.

Also this is Alan what we've talked about in the past is really we wouldn't want go above 5% of our balance sheet, but that's that's a pretty big number you're talking seven 800 million right now as Jack mentioned, we've got about 450 million than we're working on some of that will deliver over the next year, you and a half and we'll have several projects come back into the pipeline. So we would expect to go up from the Fourfifty, We're having right now, but you wouldn't see it.

Well, we're probably 800 million something like that and less at a specific plan or something different.

Right.

Yes.

We'll take our next question from Rich Anderson with SMB, Inc. Please go ahead.

Thanks, Good morning, great quarter everybody.

I just want to clarify I think was.

5600, seeking assistance and April down to 530 in July was that right and seeking assistance from the government or from you.

From us those are available that we reached out to identified.

And.

It is assistance from us in that in term of around a payment plans in your numbers are correct rich and yes. Your numbers are correct. Okay. So you actually gave us this or they were seeking assessed.

We gave assistance we did we had plans that set up.

Payment plans for rent over define time.

Okay.

So.

I think it was you also Thomas mentioned, you're seeing people come from Massachusetts, New York.

That's fine that kind of interesting.

I'm surprised you're not more.

Interested in that you kind of kind of brushed off as an early sign.

So you have to crawl before you walk I kind of feel like that Mike.

Something really keep an eye on them and I'm wondering if you could give a little bit more color on your perspective of that that kind of in migration dimed dynamic you're seeing.

And then the dynamic is real and it's part of the reason that we've built our strategy, though a while we feel like the sunbelt as employees since always benefited from in migration.

It's a high quality of life, it's affordable.

And you have some flexibility here and then that.

It was accelerated in latter years is tax has got more difficult and things like that and then it seems to be further accelerating is.

Work from home allows you know.

Unprecedented flexibility on where you choose to live.

And.

Things like density and.

Transit or things that were perceived as real strengths may or may be less. So so we're certainly read everything that you're reading and think that's interesting and that's a lot of the reason why we are where we are.

But right now the total move ins from those markets is still relatively low the pickup is interesting for us and we think this is going to continue but I don't want to overstate the impact on our demand and Thats why those perhaps being a little lighter on the point earlier.

Are you are people, saying I'm coming here, because I'm afraid of what's going on.

Is it impacted by covert banking or is it just sort of.

Just a data point you don't really you really can't characterize is data point based on where they moved from we have not conducting interviews, but I will tell you when I talk to our staff members, who are often you know moving you know we have healthy amount of people from the northeast in Raleigh.

And in Charlotte.

In Tampa, Chicago, and Phoenix and.

Denver, and Dallas, and Austin, its California, they're moving and they're moving with their family and they're moving because they're out priced and over commuted.

And.

Those are the things driving it now these recent things like co bid and unrest that may accelerate things further, but the people we've talked too.

It's been lifestyle choices based on quality of life.

Well, we have not hurt anybody recent enough or had a conversation reis enough to know that these other things are playing into it at this point okay great.

Migration.

The fact of flight.

Generally its you.

Secondly, more than typical but anyway I'll move on last question for me.

Maybe to Eric if you get your federal or that situation gets resolved chairs too.

What do you what do you think you and perhaps the.

The industry because like I got I assume you talk to every other read about how to physician, earning season do you think guided come back into the mix next quarter or some time or do you think we're going to probably wait this out till 2021 comes around.

No I mean, I think that if we see.

Stabilization.

Broadly begin to take place and the government.

Programs get.

We committed to I think by the time, we get to the end.

Of October when we're releasing Q3 will have pretty good visibility on their balance the here at that point. So my guess is that.

When we release Q3 will have a pretty good read on the full year TEP point.

And then.

We also starting to get some sense of where 2021 is likely to go a little bit as well, we probably will not give guidance for 2021 at the end of October but I think we'll have.

Some evidence to at least guide expectations, a bit supply dynamics things of that nature, probably are pretty well known so.

I'm confident by the time get to the end of October will have a pretty good read on the balance of the year.

Okay that sounds great. Thanks, everybody.

Yes, thanks rich.

Well take our next question from him now thank Jeff.

Yes.

Now please go ahead.

Thank you.

I promised that we have two questions.

So.

First linear as you mentioned earlier that you've been able to review a few deals.

I'm curious what you're looking at Sadiola, they haven't closed what they.

Form your sell their underwriting maybe from a cap rate.

And now could you say that one more time I'm sorry, we had a hard time here you got all of it.

Sure thing.

Referring to other comments made earlier about being able to review a few deals for potential sellers I was curious what looking at cover the shadow deal I know that close but I'm curious what you might have learned.

What revealed that you'll conform to you.

Seller expectations, what their underwriting maybe from a cap rate for IR perspective. Thanks.

And this is Brad I'll answer the first part of that and anybody else can add in but.

You know certainly if you look back at second quarter.

I mentioned volume was off tremendously normally in a quarter were underwriting somewhere between 50, and 60 deals and in the second quarter.

We looked at 10 individual assets so.

That just gives you an indication of the potential for data points is very very limited and it's hard to draw you know strong conclusions from that of the 10 that we looked at.

Three have closed.

Those were generally excuse me stabilized assets.

Certainly as I mentioned the lease up properties are not coming to market. So we.

I really don't have any data points for pricing.

Excuse me to indicate any pricing on those.

But then as you get into the stabilized assets you really have two camps you have.

Just a stabilized asset or you have a value add and the value add camp is certainly seeing more of an impact we're in constant communications.

With all their contacts within the industry to try to help paint a broader picture of what this pricing.

Environment, It looks like and again, we just don't have a lot of data points back and tell you. What were generally seeing is if you just look at the underwriting impact of what generally folks believe the impact to underwriting is of.

David going forward over the next couple of years is generally a 5% to 10% pricing discount is what folks expect if you look at the deals that have closed again, taking out lease ups, which haven't incurred and then taking out value add.

You are really looking at pricing discounts between zero, and 5% and really what's helping folks bridge that gap.

His buyers are able to really pay a little bit more for the assets than what the underwriting would suggest because of the accommodative financing of our environment. That's out there and these high levered folks that are that are able to close on these transactions are able to kind of pushed through that pricing a little bit, but what it has indicated to us because the fundamentals are.

Our off in the pricing is not off as much as that would suggest is that cap rates are coming down.

We've seen that again on the couple of deals that we've looked at and then we're also hearing that with the industry contacts that we're talking to but I would just say that it's very limited number of data points at this point, so it's really hard to.

To draw strong conclusions from that at this point and I think we'll start to see some of the stabilized asset pricing points trickle out as we get.

Little bit further along in the year, but Lisa pricing I think will be next year before we start seeing that.

Got it got it would likely with what we've heard as well.

One last one.

About the blended rent growth.

He was the logic will be leading growth market the often robby.

For one to Atlanta, and maybe perhaps you can give us some thoughts on your near term expectations.

But that releases.

Let me, let gross mean, but that's in the word.

Wider.

Or to narrow.

Over the next couple of quarters it in one.

Yes.

C.

No I think you know we're seeing.

Better progress in.

For signed in July and Phoenix, Raleigh, Jacksonville, Rainbow places like that.

Houston in Orlando flat to modestly improving.

And then Savannah as I mentioned earlier.

In Charleston, both improved on.

And in pricing during the quarter Charleston improved to give bit draw Savannah modestly overall what.

Again, I think we will follow on new lease pricing I think we will follow seasonal patterns. What gives me some encouragement is across the board in July.

Move ins increased.

Exposure has come down and occupancy is improved during the month and I think that sets us up well to follow sort of our typical seasonal pattern.

On on on those areas.

If I could follow up and finally, when I, probably wouldn't do any covenant.

The best and worst markets generally what the market or what you're seeing across some of those better marketing weaker markets.

Yes so.

We're on a net effective basis on concessions. So we give a few really where we're set up will.

Near lease ups for the company concessions were <unk>, 0.8% of potential of last year in our 1%. This year our competitors what we're seeing in those most competitive markets is.

You know.

In places like.

And our.

Downtown Atlanta Inner loop are in Buckhead, one to two months free on stabilized assets up to three on lease up properties.

In Houston and early percent half month, two a month.

Phoenix, much wider and areas like that and.

In Orlando is a little softer to the south as I mentioned into the North just to go around the horn worst concession developer thing that we've seen is.

For four months free at a busted deal.

Brands already sniffed around the on and.

In Fredericksburg, Virginia DC.

VCSEL berms.

Thank you for the Cup Richard.

Well one thing I question from Rob Stevenson with King. Please go ahead.

Hi, Good morning, guys can you talk about what you guys typically see in terms of traffic and leasing volume in May June July from the influx of New college graduates in your core markets on a normal year and what you've seen thus far this year.

It's obviously, it's reflected in our overall results overall exposure Rob the student housing is oil we don't have any property, it's remotely close to half of its students, but we've seen we've got one asset in Atlanta.

Our Emory and it's been a little slower, but honestly in terms of.

Students coming back and we've got a few others like that but we're just using that as an opportunity to diversify what are our unit mix is so we're not we're definitely seeing some delay on people committing to housing. It was much later and then it's hit or Miss where it is depending on what the school signaled earlier.

Okay, and then as has suspect it continues to evolve is.

As schools are changing their plans.

The short answer is we've got so little exposure to it that are but we don't pay a ton of attention to but have picked up a few snippets here there.

Now when I was focusing on is somebody who just graduated from let's say, Georgia Tech and is now going to rent the Ewing unit in Atlanta with one of his bodies. Because you know he added he would have last year. It would have been working for us.

Consulting firm or a tech from or something like that the new the new leases from somebody that doesn't have a.

Background, where it's the got graduates whatever they are how big a meaningful portion our college graduates in that sort of May June July at the beginning of the summer leasing season in the influx of that typically in terms of your business and what does that sort of dropped off to now as it half is it a quarter for all these kids staying.

In their parents basements, and working remotely or the sunbelt markets have the businesses actually brought you know the new hires into the headquarters buildings et cetera.

I'll answer it.

Anecdotally and that is you know we saw leasing.

In May and June strong enough that it offset the weakness in April and put US ahead for the quarter in aggregate in July is running ahead of last year. So our overall demand you know in terms of the number of leases that we've been able to execute has been a little bit better than last year.

We also have not seen often we will see their shops.

Or we will pick up a few where a large.

Large higher like be of air somebody like that is bringing on a bunch of new people and they're looking for 40 units in a market or in that all want to be near Peachtree road or something like that we're not seeing those.

We're not seeing those shops.

But as far as exactly what that number is of people college grads that are looking or not looking at don't have that but we have been able to fill units as we normally one.

Okay, and then you guys talked earlier about the development starts over the next six nine months expect to be delivered in 2022.

What point do some of the sort of issues with co would start to make its way into how you plan. It build new development projects I mean, if I look over the last 10 years across the apartment space units have gotten smaller theres been more studios in the mix you've had more central entrances, an elevator banks as you've gone from three storey walk up still mid rise.

Et cetera, so whether or not its urban or suburban people's impact and tighter. When you guys think about planning out the new developments that you will start next year are you, making any changes to the size of the units to the unit mixes how tenants and or exit the building.

And what does that though too because if you are what does that doing two construction cost estimates when you plan. This versus what you would have started you know a year or so ago.

Hi, Rob this is Brad.

I don't think we've made any broad changes to unit sizes or things like that I mean, I think over the last.

A couple of years, we've been doing more demands and one of the things we are adding is the opportunity within the.

The club houses for a work from home type environment. We also have you know are trying to add.

Asks and things like that areas within some of our new units wherever we can but I feel like there has been.

At least for us over the last couple of years, there has been a push to really beefing up the amenities on the outside from the pull decks to having some congregation areas that are on the outside of the units.

Exterior and I think that will continue.

And we're pouring even the deals were looking at now quite a bit into the design and the development of those outside gathering spaces as folks.

To get outside when they can.

So so those are the things that we're looking at I'm not sure that.

We've seen any type of construction cost.

Considerations or any trends relative to those things at this point and Rob I'll tell you. This area that we are of all the projects that were looking at an all that we have underway right now only one is in an urban core area and downtown Orlando everything else that we're doing.

His suburban.

Usually two three story walk in some cases elevators, but we've only got one project we're working on that is.

What I called real high density type project.

Okay. What is your average square foot.

Well our per per unit these days.

Well I'd say, it's roughly 900 square feet and 150 square feet.

Okay. Thanks, guys appreciate it.

We'll go next John Kim.

The most capital markets. Please go ahead.

Thank you I think Erika Brad mentioned.

At the upcoming election has had an adverse impact on transaction volume was wondering if you could elaborate that on that.

And whether that.

Specific to the answered your tendered when exchanges.

This is Brad John.

I don't think it is relative to 10 31 exchanges at this point I think it's just a nother item that introduces uncertainty into the transaction market.

I do think we have seen an uptick in.

Opportunities come to market. The first part of July it's been pretty robust and generally everything that's coming out right now is off market. It's not fully marketed deals. So I'm sure. There are things that are coming out.

We're not even seeing at the moment, but it is there is an uptick in that and I suspect that all.

Continue for the next month or two and then likely dissipate as we get closer to the election I think it's just from the folks were talking to the it's just another area of uncertainty into the valuation model that just puts folks on pause. So I don't think it's anything specific to.

Trying to project who's elected or what policy.

And the impact of that policy at this point I think it's just another unknown.

Without getting too political I mean is your view, where the market view.

That the by Biden presidency would be negative for asset values.

Yes, I don't know John.

I think that.

I'm not going together here.

I don't know how the market is.

At this point weighing.

Whether a trump or biden presidency as favorable on favorable I think that.

What we're seeing is really just what Brad alluded to is just.

There's this uncertainty and I think capital just gets a little bit nervous with uncertainty and it's hard makes it harder underwrites. So.

I think that's all we're saying at the point at this point.

Fair enough.

Tom mentioned.

Your prepared remarks that.

The return of so I'd say the return of guided tours to complement your virtual and self guided tours.

Did you find in the force experiment that the traditional towards or at least a hybrid approach are more effective.

No we did not what we found that was really know as they were equally has effective.

And so we're we're very pleased with that those tours got us over the hump in now it's.

Roughly 43% of our president of our leads are our tours are.

Doings guided tours, where they're interacting with our folks in its split evenly between virtual and self tours after that.

We've learned an awful lot about the process thrilled with how the teams.

I have worked in adopted them and then as we get into 2021, you'll be gable, you'll see us begin to do some things that really streamline in ease the self service side of it.

But we were quite pleased actually how effective they were with or with the residents and what the prospects and how well our teams adapted to that really overnight and use that as well.

We provide an update as to what percentage every communities.

Have the capability to do self guided tours.

100%.

We have way of self guided tours occurring at every property in the company.

Okay.

Great. Thank.

You bet.

I don't think question John Hello, The with Green Street. Please go ahead.

Thanks, very much just just two questions for me Tom on the new lease figures for sign in July could you give us a sense. If you excluded interior redevelopments, what that new lease figure might look like I'm, just trying to get a sense for what market rent growth is across your portfolio right now John.

It would really be minimal I'd have to go back it out but it was since we didn't produce any in second quarter is really minimal that the at least we just got back to turning those on so this is probably as cleaner result on.

On on renovate impact as you're going to say.

Perfect.

And then Brad curious for with your question here with your conversations with developers do you get a sense and that's tough to read the tea leaves, but do you get a sense that they think this is.

Two three month pause on their their debt and equity providers given money or are they.

They become really concerned that this is kind of more of a structural multi quarter multi year.

Freeze in there and their capital sources.

Well I think first of all the development bond is normally a very opportunistic in a very positive group. So.

So I don't think they view this as a structural issue.

I do think that they see it.

As problematic because a lot of the folks that we talked to our merchant developers in their platform is certainly built on.

On the machine continuing to run so I think that they are out looking for alternative sources.

Whether this is short term or long term.

But that bunches normally.

There have glass half full normally so.

I don't know that there and I have no indications at this point that they're thinking that this is a long term shift in that they're changing their strategies because of that but there's certainly an impact I think.

The debt side of things for developers that are that are not the strong established sponsors with strong relationships with the banking community. Those folks are going to have a hard time.

Lining up debt for the foreseeable future.

Thank you.

Right.

Our next question from Alex Kalmus, We've now many associates. Please go ahead.

Hi, Thank you for taking my question.

Looking at your collection results, which are currently trending about the group.

I was hoping you could walk us through the components on page 30 total built in the denominator is that all.

The original Brent or is that all of.

The new we amended lease rates.

And same question for July 19.4, Thank you.

Yes, I was just as al that is that is based on for the or the April may and June was build that at cash they're expected to pay I mean that is that is what what the least lease would say.

And before the end to end them at least would say what we what the what was signed to be and then after then them. It would have that that lease rate plus additional amount that we spread over the life lease so that cash build number is what we build and expect them to collect liked in total and as the point there in that and that presentation was to say that look we've collected 98.

We now I'm sitting in cash and other half 80 basis points or 0.5% and payment addendums that we're getting very good collection performance on I think at this point.

It's about 97% compliance with as we feel very good about that but having said that we felt it was a prudent to put a reserve on on the books. It was sufficient to cover a couple of things one if somebody did not come in and talk to us at all and doing it in them fully reserve that and if someone did to an addendum reserve is essential portion of that somewhere there different per each.

One bid on aggregate, probably two thirds of that so so thats what that represents expected cash collections, and where we where we are on that and what we reserved.

Got it got it thank you and.

Very different topic in terms of.

Okay, and seeing how you're thinking about fall season coming up.

Sure.

You have you been seeing great renewal growth rates.

Is that you like to see your occupancy number go up before maybe uncertainty in the fall or you're still going to be pushing those renewals. Thank you.

Ill tell you that.

We we expect occupancy to build and with exposure going down.

Expected to happen and bring our exposure down theres alone and prepare ourselves for the low demand timeframe.

Those.

Renewal rates.

If you look at us historically in the fall there. So there are lower than they are in the peak season.

But I would expect them to continue on at about this rate, which is still significant lower increase than this time last year. So I would I would expect recovery in our.

Renewal rates in the variable that will change to manage.

Exposure down an occupancy up will be it'll be probably a seasonal fall off I would expect.

And our new lease rates.

As we move into the fall.

Got it thank you very much.

Yep.

And when the next two Wes Golladay with RBC capital markets. Please go ahead.

Yes. Good morning, guys I would you happen to have a snapshot of the gain or loss to lease of the portfolio as it stands today.

What the earned in is today.

Yes.

Well I don't have any and probably don't else. It's when we can get that get that.

We'll get back to you on that yes, we certainly had strong loss lease going into the second quarter I think it's probably decline given that leasing trends that we've seen in the quarter certainly come down but for quanta is the actions we took over the last year Julie.

Can you just to put your price and gave a little occupancy to do that but it's a really good position going into second quarter. So take that as well there has come down Tim Tim to get that will get FMT offline, but we think it okay and the qualitative was good.

Getting what the strong renewals see if it's not taper off a bit.

Now turning to acquisitions, you kind of mentioned looking that lease up properties and would you expect a lotta off market transaction is limited bid and then secondly would you expect competition from the Levered buyers.

This is Brad West I would say predominantly what we're seeing right now is off market.

Theres only been a couple maybe 10% of what we have seen come across has been mark fully marketed deals. So yes.

I think everything right now is going to be more off market.

Even the deals that have been marketed.

Some of those where preempted where somebody came in and just paid what the.

Seller wanted and really short circuited the marketing process.

So I expect that to continue.

And then.

I'm sorry, what was the second part of your question.

So would you expect the levered buyers to be active competition for you.

Well not on not on lease upside down we generally don't see those come into play as much on lease ups. Those are are generally focused on the assets. There are currently earning so stabilized assets, that's where you see those a little bit more.

Also on lease ups, where we're focused financings extremely difficult right now and that's why a lot of the sellers are not wanting to to bring those to market at the moment, they're wanting to get stabilized so that they can lineup financing and certainly bring those high levered buyers in there so to the extent that developers can wait it out and get the.

Our assets.

Stabilized.

Then I think the leveraged buyer can come there, but thats really not the segment of the lease up.

Segment that were actually focused on.

Okay. Thanks, a lot guys.

That was a Q.

It appears that there are no further questions at this time I'll turn the call back over to the company for any final comment.

Okay. We appreciate everyone joining our call this morning, and having followed questions its reach out be glad to answer any other questions. Thanks very much.

Thank you and that does conclude your program. Thank you for your participation you may disconnect at any time.

[music].

Uh huh.

[music].

Yeah.

[music].

Yeah.

[music].

Yeah.

[music].

Okay.

[music].

Okay.

[music].

Okay.

Okay.

[music].

Mm Hmm.

Mm.

[music].