Q2 2020 UDR Inc Earnings Call

2020 earnings call at this time, all participants Arnie listen only mode. A question answer session will follow the formal presentation.

Anyone Truecars operator systems during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it now my pleasure to introduce your host director of Investor Relations truck trio.

Thank you Mr. trio you may begin.

Welcome to yard.

Actual results conference call.

So we just got supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section on our website.

Excuse me our dot com.

In the supplement we reconcile all non-GAAP financial measures.

Second comparable GAAP measure in accordance with Reg G requirements.

Made during this call which are not historical may constitute forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance or expectations.

[music] discussion of risks and risks factors are detailed in our press release and included in our filings with the FTC.

We do not undertake any duty to update any forward looking statements.

When we get to the question and answer portion, we ask that you'd be respectful everyone's time and limit your questions one follow up.

Management will be available after the call for your question, but do not get answered during the Q when assessing today.

I'll now turn the call over to you the our chairman and CEO talk to me.

Thank you trend and welcome to you any our second quarter 2020 conference call.

On a call with me in a day or Jerry Davis, President and Chief operating Officer.

Lightweight Hayes senior Vice President of operations.

Joe Fisher.

Financial Officer.

I will discuss our results.

Senior executive Harry Alcock it back because that will also be available during the Q and a portion of the call.

First the executive team would like to take our associates, an appeal for ensuring Judy ours continued strong performance.

And holding our culture to high standard.

Through the challenges we're facing these past few months.

They are front like workers.

Our company and have definitely.

I happened to constantly changing health and regulatory environment. That's all it continues the implementation our next generation operating platform, all while showing kindness understanding that accommodation to our restaurant.

Reflecting on the challenges we faced over the past or my only strength, it's our belief that our next generation operating platform represents the way that multifamily business will be managed in the future and will remain a differentiator for UGI our for years to come.

Throughout this crisis. It has enabled the utilization of a variety of technology solutions to support our associates and engage with revenue.

They have allowed us to take a surgical approach.

The price it apartment homes, all while continuing to drive controllable expenses Walmart.

We firmly believe our next generation operating platform continue to increase resident satisfaction and engagement.

Mice revenues unlock future cost efficiencies and deliver strong cash flow in years ahead.

Matt.

Operating a diversified portfolio across numerous jogger praise and price points affords us a deep and wide spread to understand heater market fundamentals.

Mike will provide details later in the call.

But a brief business update.

Cash collections as a percentage of billed revenue our strong at 97 at the half reset.

No deterioration in month over month and trajectory.

Physical occupancy remained solid at approximately 96%.

Our over year resident turnover declined 620 basis points during the second quarter.

And traffic continued to show well first last year.

These are just a few of the positive sign.

As an indication that our business is on solid footing or relatively well in the future.

It would be easy to rush back into reinstating guidance.

But for any guidance range to be useful we need habitat that more stability in the regulatory environment, we face.

Oh, the case load and the impact that they have.

On the cadence of state reopening.

As well as more insight into the economic impact currently.

Appointment.

Nevertheless, we have a sound strategy and a team to effectively manage through these on certain types.

And our in a position of strength moving forward.

Balance sheet remains healthy with nearly $1 billion in available liquidity.

Dividend is secure.

And thanks to our next generation operating platform, we have the tools to meet all the resident expectations as well as enhanced margin increase shareholder value.

With that I will turn call over to Mike.

Thanks, and good afternoon.

During the second quarter results, our combined same store NOI declined by 4% year over year, driven by revenue decline of 2.1% and expense increase of 2.5%.

Well not the results, we expect coming into 2020, I'm encouraged by blended lease rate growth they positive during Warner.

Traffic volume or mean remaining above last year at the same time.

Turnover could you might see turns better than a year ago.

All of which helped to preserve our rent roll for future periods.

On page three of our press release, we've included detailed on the sequential and year over year decline, we realized in our second quarter 2020 combined same store.

As you can see gross rents were positive first apart appeared.

However primary drivers of the 2.1% year over year revenue decline included first concession were generally elevated during the quarter.

Well, particularly in urban areas of coastal markets, where they reach upwards of heap Leach.

Work for you.

This compares to the sunbelt markets. They reopen more quickly was concessions between two to four weeks on average.

Typically we would see minimal concession about say why that's it.

During peak leasing season, a cold, but has anything but typical what concessions driving a 60 basis point negative contribution to our year over year combined same store revenue.

Second our physical occupancy declined 50 basis points year over year in second quarter.

However, the realizing approximately 150 corporate given during the quarter, primarily high when it comes to market.

Second quarter economic occupancy down.

Additional 50 basis points.

In total more economic occupancy accounted for 100 basis points, our year over year decline.

Same store.

Importantly, our main corporate partners or walk out.

Thereby reducing board economic risk associated with the homes they utilize.

There are few years job just talked and due to regulatory concerns will likely remain that way until the regulatory change.

Just had a 50 basis points negatively impacting year over year combined same store.

The final maybe driver of the year over year, you claim combined things starting to grow with a bad debt reserve totaling 4.5 million.

Negatively impacted our results by 170 basis points.

As mentioned last Night's press release absent our bad debt accrual second quarter combined same store revenue and alike girl would have been negative your point or and maybe 1.6% respectively.

Moving on the recent opera <unk>.

On page four of our press release, you can see that blended lease rate growth for me probably <unk>.

Cash collections held up well and more recent traffic in applications continue to compare favorably versus 2019.

Additionally.

Annualized turnover during the second order was 620 basis points lower year over year, which along with our next Gen operating platform initiatives.

That's right.

Our teams in the field and their execution of our surgical approach to pricing homes deserves much of the credit for generating these results.

Next I love, a second quarter operating trends by geography, you price point.

Across all markets, our suburban community generally outperformed urban communities in terms of occupancy new lease rate growth renewal rate girl and traffic more specific.

That's all occupancy in our suburban portfolio averaged 96.9% during the quarter compared to 94.6% and our Herman Chan.

Occupancy and certain ordinary the coastal markets experienced the most pressure corporate lease exposure and short term ability trends.

The work from home mandates.

Traffic and turnover me better as our suburban communities.

Okay, great growth and our suburban portfolio outpaced our urban portfolio at 1.3% first negative 30 basis points.

That's correct or just generally followed an act of regulation, we bought Angela Boston and New York liking, the that's where possible.

These are the first suburban trends are similar when analyzing our portfolio.

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The quality outperformed quality and stuff.

Oh I.

And just similar magnitude as the suburban versus urban results.

Turning to July.

We have not yet come to the bottom line.

Well, we expect fiscal occupancy average, 95.5% to 90, 520%.

One didn't lease rate growth to be flat to down 50 basis point.

And build revenue to range around 105.

As shown on page four of our press release month to month billed revenues varied by a couple of million dollars during the quarter due to one the Chinese some fee and other income items to regulatory restrictions that impacted our operation.

Great and increased number of lease expirations in harder hit higher rents sub markets such as Manhattan.

San Francisco proper and downtown Boston.

Moving forward, we expect that one month billed revenue will continue to be somewhat range bound until emergency regulations are relax and there's more visibility around office reopening that over the course.

No market levels up.

Demand characteristics in our markets generally near the cadence of each markets real.

With those market they have more subjective and journal stay at home or side, he knows which reopened sooner.

Throughout the pandemic aren't nimble approach to pricing our apartment homes and maximize revenue.

An important differentiator given that every market has reacted different to cope.

I like some specific mark.

Asheville, Selena and our Texas markets exhibit the strongest pricing power during second quarter.

Youre, San Francisco, and Boston, where do we just did market rents down the middle single digit range.

Oh definitely we have seen markets, such as our Randow, Tampa and Orange County proved to be quite resilient truck pandemic.

Despite their high exposure hospitality retail sectors.

We attribute this to our largely suburban and b quality portfolio be mark.

New York San Francisco.

Well if market that experience decreasing in like turnover during the quarter.

There was no short term of all the trends due to work all mandate as well as corporate structure.

Well residents Christie, Iran. Several other leases expire and they will revisit the ready situation once it's well job require.

And the timeline for office reopening our better fine.

Lower traffic levels in these markets due to more cumbersome regulation as a result was generally lower occupancy, which has driven higher concession levels. However, marrying a theme across all our markets or b quality assets are outperforming our rights and suburban communities are outperforming or.

A good example of this the New York and I say, where occupancy at 100 point in Brooklyn, and our one William deal in New Jersey remained the high nine.

Moving up the nearly 2 billion or community acquisitions, we amazing started 2019 continued to perform relatively low.

Would you want to then why these communities currently tracking above our original underwriting.

Finally, I want to thank our governmental affairs and legal teams for their dedicated work tracking day to day regulatory changes across our markets.

Being able to efficiently.

And effectively communicate our comprehensive understanding of actually moratoriums, right regulation and other regulatory change of charging seal.

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And my colleagues in the field I. Thank you for your hard work and adaptability.

Daily changes in regulatory restrictions and to our operating strategies.

Your job have now been easily but I appreciate all that you do.

And now they could turn over the call the Gerry.

Thanks, Mike and good afternoon, everyone.

Actually Tom's comments, our success in todays operating environment not be possible without our next generation operating platform.

Because we were early in transitioning to an online self service model.

Benefited from our associates no guarantee enhanced technological tools are plot that our platform provides including the installation of nearly 37000 smartphones, which improve operational efficiencies increase resident engagement.

These resources have been Paramount to our success over the past four months, given social distancing requirements state shutdowns.

From a revenue perspective.

Platform increases ease of use and delivers a self service model, which has become the new everyday standard and many aspects of our residents lives.

Financial perspective, a platform drives more dollars for our bottom line by expanding our controllable operating margin.

This was accomplished through efficiency gains by the centralization of certain functions outsourcing of others utilization on self service integration of big data.

Our focus on achieving these goals has not wavered I'm proud to say that spiked combined same store revenue declining in second quarter due to cope with Nike our control our control operating margin.

Flat at 84.3%.

This was driven by a 2% reduction in controllable expenses versus a year ago in particular, combined personnel and repair and maintenance costs declined by 1.1% year over year, and we realized significant savings and administrative and marketing expenses.

Prior to the pandemic platform implementation that driven approximately 80 basis points of expansion in our controllable operating margin or nearly half of our stated goal of 150 to 200 basis points improvement by the into 2022.

Well coated constrained further margin growth in second quarter, there's still well ahead of where we would have been without our next generation operating platform and continue to seek long term benefits such as a 23% like today production site level head count through natural attrition.

A 28% improvement in control NOI per associates, and they 15% increase and resident satisfaction as measured by MPS scores, we've realized approximately 60% of our staffing level efficiencies today expect to capture the remaining 40% once our customer ourselves.

Service technology rolls out into the next two years.

Looking ahead, we are rolling out the next phase of our self service smart device App for rest of that's that we'll continue to mitigate the need to visit our on site offices shifting self guided tours to a web interface versus an app to increase either views and integrate entity.

Brady more data science supported revenue growth and expense reduction opportunities and to our platform.

I look forward to updating you on our progress on future calls as we continue to innovate over the years ahead.

Bottom line. Our next Gen operating platform, it's allowed us to run our business efficiently.

Exceptionally throughout the crisis and puts UTI our position of strength.

Bianco, but.

A big Thank you to everyone on the field and corporate for continuing to push forward and make our platform success with that I'll turn it over to Jeff.

Thank you Gerry.

Next I will cover today include our second quarter results, an overview of our bad debt reserves.

And then balance sheet and liquidity up the inclusive of recent transactions capital markets activity.

Our second quarter FFO as adjusted per share a 51 cents declined by only one penny or less than 2% year over year.

The three pending sequential decrease and Oh per share was primarily driven by $9 million total company bad debt reserves 5.5 million that's from residential.

3.5 million from retail.

In addition to lower property revenue due to occupancy concessions and fees.

Finally to offset by lower Julianna.

Regarding guidance as Tom mentioned, we're not reinstituting, a full year 2020 guidance outlook at this time given continued uncertainty around how the current a virus epidemic.

Back their economy and our business.

However, as disclosed in our press release and as Mike discussed we have presented an operating uptick to provide stakeholders with additional insights and the recent trends.

Onto collections and how we're reserving for potential bad debt.

As we outlined in our operating update on page four of last nights release during the second quarter, we built $322.6 million of revenue.

As of quarter end, we had collected 96.1% of that rather than.

Even 12.5 million on collected.

We established a bad debt reserve against the uncollected, rather now and the amount of 5.5 million or 1.7% of build rather than.

Since quarter end, we've collected the additional cash towards second quarter billings, increasing our collection percentage to 97.5%.

That leaves our total bill, but not yet collected revenue at $8 million, which set against the $5.5 million reserve was 2.5 million or less than one penny per share a recognized revenue that has not yet been collected.

We're comfortable with this level of recognized but not yet collective rather now based on our assessment of collection trends.

Interactions with our residents.

And the probability of future collection.

Looking at approximately half million dollars outstanding second quarter Rep subject to payment plans that we expect to collect.

Moving on.

Our balance sheet remains strong due to ongoing efforts to reduce that cost.

Liquidity.

Extended duration and enhance cash flow.

As such we're in a position of strength to weather the continued effects of cobot like too and the downturn as a company to.

Some highlights include.

First.

As of June Thirtyth, our liquidity as measured by cash credit facility capacity, none of our commercial paper balance was $974 million.

When accounting for the roughly $105 million previously announced forward equity sales agreements, we have nearly $1.1 billion and available capital.

Second the refinancing of our final 2020 debt maturity.

Wasn't month.

After which we will have no consolidated EBITDA scheduled to mature through 2022, when excluding principal amortization and amounts on our credit facilities.

Additionally, subsequent to quarter end.

Issued $400 million 12 year unsecured debt at an interest rate of 2.1%.

Proceeds were used to prepay $246 million of our 4.64% secured debt originally scheduled to mature in 2023.

As well as complete our previously announced tender for $117 million of 3.75% unsecured debt originally due in 2024.

All of these actions have improved our liquidity profile in duration.

Looking further ahead, when excluding balances on our credit facilities less than 15% of our consolidated that scheduled to mature for 2024.

Please see attachment for B R supplement.

For further details on our debt maturity profile.

Third identified 2020 uses of capital remain minimal and predominantly consist of funding our current development and redevelopment pipeline.

The aggregate cost for these projects total XOMA $308 million or less than 2% of enterprise value and they are nearly 50% funded with approximately $157 million remaining capital spend over the next several years.

Fourth our dividend remain secure and as well covered by cash flow from operations.

Based on second quarter, 2020, AFFO per share a 47 cents or dividend payout ratio was 77%.

This implies that our earnings would need a decrease by an additional 20% before approaching cash warfare.

Taken together our balance sheet is in great shape, our liquidity position is strong.

And our board sources and uses remain very manageable as as detailed on attachment 15 of our supplement.

Next the transactions update.

First as previously announced we sold two communities on the greater Seattle area for a combined hundred $43 million at a low 4% cap rate, reflecting pre tobin pricing.

Second subsequent to quarter end.

We funded a 40 million dollar DCP commitment for a community in Queens, New York, and a 13% yield and with profit participation on our liquidity about which we expect to occur at approximately five years.

Construction of a commanding began eight months ago and is fully capitalized.

$62 million of developer equity or approximately 80% of the 342 million dollar total project cost.

You do yours investment provide enhanced economics compared to pre feel good deals.

If we back bills the upcoming 2021 maturity of our mezzanine loan on the portals, and Washington, DC, which carries an 11% yield no profit participation.

Moving forward, we remain highly selective with where and how we choose to investor capital with a focus on both current yield as well as future value creation.

Wrapping up as is evident on attachment for Steve or supplement.

We have some substantial capacity before would reach noncompliance with our line of credit or unsecured bond covenants.

As of quarter end.

Our consolidated financial leverage.

34.2% on Undepreciated book value.

30.6% on enterprise value inclusive of joint ventures.

Consolidated net debt to EBITDA RT 6.2 times.

An inclusive of joint ventures was 6.3 times, which looks slightly elevated due to the still outstanding settlement of our Ford ATM proceeds.

With that I'll open it up for Q1 night.

Operator.

Thank you at this time would be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad a confirmation tunnel indicate your line is in the question to you May Prestart too if you would like to remove your question from the Q.

Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, one moment. Please all we pull for questions.

[laughter].

[laughter].

Your first question comes from a line of Nick Joseph with Citi. Please proceed with your question.

Thank you.

Yeah dynamic operating environment, how do you think about the pricing strategy between offering concessions are holding rates snappy potentially lower occupancy.

Hey, Nick this is Jerry I'll take that one.

Yeah, I would tell you we strategically elected.

You like concessions rather than take significant rental rate cuts on new leases in order to maximize nominal revealed that maximize both near term and long term results.

Keeping lease rates higher we preserved our rent roll for 2021, which is a key.

Factored why we did that's.

Because we take concessions upfront for same store reporting purposes, we incur the charge at the beginning of the lease terms.

This is consistent with how we have historically reported in accounted for concessions.

Weve elected during 2007, the second quarter to offer no concession, but instead reduce stated rent slant equivalent amount or same store revenue would have been more than 100 basis points higher than what we reported.

Our strategy the differences will be made up over the remaining lease term and we'll be in a better position upon renewal and we would have been if we just cut right.

Give an example of how this works by asking a lot of people get it but if you at two units and eat and one was priced at $3000 per month, and two months free rent and the second was priced at $2500 per month and no concession.

Both result in 12 months of revenue at $30000 were effectively at 2500.

In the first three months.

The unit with a concession would recognize revenue with $3000 compared to 7500 for the unit would know concession and over the next nine month period. The unit with a concession will pay rent is $4500 higher cumulatively. So as we've looked at it obviously, we like to keep occupied.

So you had a pretty.

Pretty significant levels, Mike was in the 96 is.

During the quarter dropped a bit in July.

We look at our pricing strategy to maximize that revenue we elected to go more with the concessions so that when you get to next year.

Going into with higher rent roll it will be able to.

Apply renewal rates do I think Joe's can add something if you know I know a lot of the sector.

Does concessions on straight line basis, and I think Joe can walk you through what we would look like with that.

Perfect. Thanks afternoon.

Maybe just some additional clarifications Jerry gave an example, there.

But if we had simply shift in strategy from our current approach given concessions to no concessions in twoq, but keeping the gap that cash reporting methodology that we have for same store that would've been the up a 100 basis points. If we continue to utilize the same concessionary strategy that we have been utilizing switch from.

Cash reporting to GAAP reporting or sort of on reporting.

We would have had about a 40 or 50 basis points better same store number. So just wanted to clarify that sort of take us from eight to one.

Down up to about a one cents to.

The one six down in same store revenue on a year over year basis.

That's very helpful. Thanks, and then maybe just in terms of.

As we've talked a lot about your investment model and trying to make better decisions around how about say exposure I recognize.

Near term, maybe external growth will be a little more muted.

If and when you return to that.

Have you already have that models will be dynamic aside given all of the changes that we've seen it different pathways over the last call. It six month.

So there is oh I'll kick it off and then maybe some others may have some thoughts on vessels as well.

But let's say one thing we've obviously learned over time and throughout this downturn is diversification as case. So diversification remains a core part of the portfolio strategy everything we're seeing today in terms of ability to withstand downturns in certain submarkets Martin certain markets overall or even a versus b.

Continues to hold true and support the idea.

Diversified in nature, So no change there.

Quantitative process or the predictive analytics process, you're talking about.

It's always been supplemented by the qualitative overlay and so that they are both of them is simply that.

It helps you avoid.

Ill recency bias or herd mentality or kind of the got reaction that I would say is pretty prevalent in today's environment.

So we continue to have those tools to weigh in on I think as we continue to give more data then obviously will influence the quantitative model.

But theres a lot of issues out there that we're going to spend time thinking about theres. The binary outcome of that takes place with the vaccine and what that that may mean to reopenings or closing some markets I think the regulatory environment clearly more prevalent today than it's been in the past.

Things like fiscal health and some of the budgetary shortfalls that you've seen.

Turn to understand those unhealthy this validates tried to correct for that and solve for those products are shortfalls through different forms of taxation.

Related income migration trying to figure out where those jobs are going to shift to if they do in fact shift at all so that's all going to come into play a big piece, that's always forgot about it here we've talked about in the past, we just second derivative flow of capitals.

And the other day, you're going to see supply shift and you're seeing it today. When you look at the permanent start activity you could moshe.

Out from the West.

Permits are down about 30% for more than worth yeah that is down 20, plus or minus <unk> percent sunbelt from generally flat to up 10%. So I think there's already as Ben.

Outcome on the supply side or at least trending towards the shows a shift of capital.

And that's an offset to where we think demand is going up it bounces out the rents impact. So it gives you some thoughts I think of them. They we got to remain patient.

And that's one of the ultimately, we'll see where it come out on the other side of this.

[noise] Hey, Nick.

Hey, this is Chris been and I, just wanted to add one or two other things on that yeah. I think it's important to note you talked about the quantitative versus the qualitative on the qualitative side of our portfolio strategy process.

We were already incorporating variables like regulatory environment fiscal health, which you managed or which you.

Spoke to market desirability affordability et cetera. So.

As we're kind of digging into how maybe some of these trends are changing and see where they go both near term and long term.

That's really just going to augment what we already have out there.

So I think we're already a little bit ahead of the curve when we're thinking about some of these things and now we're just seeing how those variables are going to change going forward.

Okay.

[noise]. Your next question comes from the line of Rich Hightower with Evercore. Please proceed with your question before.

Good morning out there guys.

Yes, that's just a follow up on that on that prior question as far as the contribution to the investment process from predictive analytics and some of the particulars there yeah clearly.

The sand are shifting in a lot of ways. As you guys have described in alluded to it but I'm, just still investing and making capital allocation decisions on the buy in the sell side himself.

You know our our recent deals are deals in the pipeline currently are those more deal specific and just about the economics of that particular transaction or is there still sort of that macro predictive analytics overlay.

You take into account understanding that Cove. It is sort of wrecking all the models as we sit here and talk about it.

Yes, Thanks rich afternoon.

Yes, I'd say historically, we had always had the two pillars of the organization go way not meaning that the operational platform and all the pieces that go with that as well as the transactional platform and the value created through either a buyer so.

Element or DCP is so those haven't changed so I think when you referenced and whats in the pipeline today in our winning more I'm just good old fashioned what can we do on the operational side can we make good deals and what are the economics of those deals.

It's probably a little bit more so that add a little bit more so diverse in terms of the markets that we're looking at today than we have in the past so trying to ferret out opportunities such as what you saw with the burden DCP deal Yeah, we're not making a battle in New York necessarily and put a stake in the ground and saying we're going to the two large degree.

Expand our new Yorker exposure. This is a very strong return for the risk that were taken.

It's one of the few areas that we've seen disruption.

And this.

Environment May then the mezzanine lending space, the construction lending space and the LP equity to fund development has been disrupted so us being able to go others take advantage of a deal and you see the returns on that a 13% pref most of our participating deals what we've done over the last couple of years spend them at a 10, 9% preferential so again.

Another 400 basis points of.

Perhaps as well as upside participation on the deal that we have 60 million of equity as a little bit lower in the stack than some of the other day CPL deals. We've done and also yeah from a started standpoint started eight nine months ago. So the rest the timeline de risk the buyout on the cost et cetera. So net net I wouldn't take that from a cap.

Allocation standpoint, as a bet on New York say safe bet on the return that we think a spend the rest of degree.

Okay. Yeah, that's that's helpful color John.

And maybe just a ask another quick question on on concessions and bad debt accounting. So first of all did something did something change about the way you accounted for bad debt or maybe pulled forward some of the.

Some of the write offs during Twoq you just any any changes quarter over quarter that we should be aware of and then likewise on the concessional side.

What what drives the choice.

We'll go to cash accounting versus a more traditional straight line just so we understand the decision making there. Thanks.

Yep understood. So.

I wouldn't say there is necessarily been a change to the bed at approach, but we have definitely enhanced our approach as we view the collectability of build rents in this environment historically, our approach has done that.

PON that's a fiction.

We would write off that rents and then go to basically a cash basis recognition of revenue on a go forward basis in this environment given that we're dealing with a completely different regulatory environment than any of us we've ever seen meaning that you have very expensive depiction moratoriums you have extended payback plans in certain markets, such as California, Oregon.

Seattle, DC proper et cetera.

We felt we knew that enhanced that process and really trying to understand down to the resident level what was their financial situation what type of regulatory environment or we had with that individual what has been their payment history et cetera. So.

I would say, we just put a more robust process around us we did have write offs in the quarter as we typically would.

Individuals move out.

But those are.

No hindered by the fact that have become more towards our employees, so the 1.7% or five and a half million dollar reserve that we put up yeah. We thought there was a very prudent reserve given the number of unknown items that are out there today. So wallets supported by the high degree of collections that we've seen in April we disclosed and the number of paper.

Plants or we have a number of individuals that continue to put forth efforts to collect.

We didn't think that was the appropriately reserved.

I do think hopefully one thing that came out of my commentary was the subsequent collections that we had in July which continue to whittle away if pads.

Accounts receivable balance that we have out there. So we're down to about two and a half million dollars have recognized but not yet received revenue I think that's important to think about from your perspective in terms of how much risk is out there to the revenue as a brief reported so less than a penny per share only about two and a half million dollars of this onetime and we do expect it to mitigate collections.

Overtime.

In terms of your second piece of the question.

Concessions and recognizing those on a cash basis.

It is consistent with how we've always approach that we felt that giving investors. The view of two cash a recognition gives you the best view of what's going on and the market today.

It is in compliance with gaps and say non-GAAP metric and so therefore, we don't have to align perfectly. Although we do report on at a wide overall and adjust for straight line per gap. So everything there is compliant.

I would expect so its comply with us and to historical broached no change there.

Got it okay. That's great. Thanks, Joe.

<unk>.

Your next question comes from line of Austin, Wurschmidt with Keybanc capital markets. Please proceed with your question.

Hi, everybody thanks for the time.

Getting back on that last point.

Bad debt.

First the teams rent collections improved them in the coming months as you know that that the non payers are those impacted by coal bid either you know begin to vacate or for you no longer chapter them in the so I guess, maybe the build right number like how did that the numbers work from that perspective, as we think about.

You know when you report the collecting data going forward.

Yes, I think where you're going to Austin and correct me if I'm wrong, what do you say the non payers related to go but so what weve affectionately refer to as waters here out as those individuals and turned on their kids or decide to skip on us or is it makes it more storms come off as they haven't about 20% of our markets.

As we can move through that process those those rents maybe written up and they basically net against the reserve that we put up so we would not expect a future negative impact to revenue we've already effectively a corporate through there is are we thinking this quarter for those rights that we previously belt.

Okay. That's helpful. No I appreciate the thoughts there.

Switching gears, a little bit there during the cycle you guys have been opportunistic on Verizon. If you did from the short term rentals and part of your friends goals corporate leases.

So I'm just curious.

Your reconsidering any of these initiatives given some of the volatility in those income streams you've seen during this downturn and what you think you know that income looks like on a go forward basis.

Hey off and this is Mike I'll take that.

Just to be plan, how backup a little bit the best to our other income this quarter was around $1.3 million and had an impact of negative 0.5% to our total revenue and just to put in perspective again, we have about $10 million. Another income it's 10% of our total have you stack.

Other income was down about 3.5%. So some of these initiatives that we've been very successful and.

Executing over the years they didn't take all the custom all hit during the quarter I can tell you a short term tarnished program was about $900000 are common areas that's about $250000.

Aside from that our late fees, which were more regulatory mandates put in place that went down 1.1 million. So when you look at that total it's around 2.3 million on the flip side. The parking initiative that we put into play about two years ago continues to do well and that would actually come $500000 year over year and our transfer.

For these break fees were also about 500000. So in total we are off again by 1.3 and some for a more stinky initiatives continue to do well and we think when things bounce back when we get a vaccine. We didn't expect that short term furnished program as was our common areas will bounce back too.

And what about some of the other good will be don't call into other income unlike the corporate.

Item and furnace landfills.

Can you repeat that Austin.

Yeah sure maybe some of the other items that don't fall into the other income bucket, but are still you know.

More unique indeed, you didnt like the funniest rentals or the corporate leases are you rethinking loads at all.

I don't think so I think right now with business travel stalled out.

Obviously as Mike just said we've taken a.

I'll step back we do believe them once once the economy gets going the vaccines back in place or it is out there that.

You will see short term rentals come back into play so right now again, it's a it's a line of the business that did very well for us for a couple of years right. Now we I think we continue to have a little over 100 residents and short term furnished rentals, but that is down from what it was last year. It will continue to be a drag this year, but.

I think it's a business. It served us well helped us have outsized occupancy compared to peers and you know when times are good is that I could say good business to be yeah.

Thank you but at that.

Obviously this is Tony little bit of color. It's been good to have the resource on that side of the fans for corporate rentals example, because we can swing back crew that team around and work renewals where pricing. So they are familiar with our system familiar with our products.

Actually given us a boost.

In terms of resources that we can pivot.

The day welcome that those businesses will re emerge and our pivot back to that and we don't think we'll miss a beat when that opportunity and it's going be market by market opening up the gives us that capability.

I understand appreciate the additional thought.

Your next question comes from line of Rob Stevenson with Janney Montgomery. Please proceed with your question.

Hi, guys talk about where the biggest pieces of the new leases that you're currently signing are coming from is that people trading down by price point or people trading up by unit size within the same market that people moving from urban and suburban people moving from the northeast of the sunbelt or people living with roommates going solo can you.

Characterize where the biggest chunks of your new leases are coming from.

Yeah, Hey, Rob It's Mike I would tell you. It's one of the biggest trends we've seen over the last few months is our occupancy on our studios that is a little bit lower than what we're seeing our one twos. So when I referenced on our other income that are transfers are are off it's because we're seeing people doubling up in some case.

Yes, but as far as migratory patterns and things of that nature or not necessarily seeing people coming from different markets Theres still.

Within their own markets, we're seeing them jump around them.

Yes, I do think you're seeing a bit of movement from urban over to suburban I think when Mike looks at our New York portfolio. For example, our deal one William is doing quite a bit better than our downtown Manhattan, you're seeing as you go down to Silicon Valley, Some movement from Soma down there for pricing.

Reasons as well as to escape some density, but we're not seeing people totally leave the major markets.

Okay helpful. And then given Joe's comments earlier about the Queens DCP investment, but you guys willing to take your exposure the DCP higher if you could continue to get 12, 13% returns.

How are you guys thinking about that as you know versus you know acquisitions or future development starts at this point in the cycle and given what you're experiencing on the operation side.

Yes, Hey, Rob So just to put the size and of Dcps context.

We have disclosure on 12, where we stand today. So you can see I'm swell fee.

We're sitting right around $420 million or exposure I think it yeah, we're adding Vernon for 40 million, we got about $10 million a funding remaining for thousand Oaks.

But you do have to negative adjustments to that to take off yes portals out in DC for about 50 million that will be coming out sometime in the first half next year. In addition, we show up on this page.

It's not really traditional DCP host Neil as we've talked about in the past its breo up in Bellevue, Washington for 120 million or so of accrued total balance now that was really a loan with a purchase option. So call. It a bridge loan to get into that purchase option sometime and most likely first half of 21 as well.

So once you adjust for all those factors.

While we're doing burden you met those other guys out what about a 300 million dollar DCP portfolio, we've consistently talked about being willing to go above 300 million I in the 350 400 gradually so I think as we continue to find opportunities we've been opportunistic pivot in in the past between things like DCP trend.

Good development when appropriate shifting to acquisitions.

When we have a cost of equity and even doing buyback previously so I think we'll keep looking for opportunities and as I said earlier. This is one of the few areas that you're seeing distressed just given a stabilized operating assets.

Financing market is very well in function into that and just really not stand the stress on that side of the pricing environment. So I think we're happy to do more they're pretty find opportunities.

And how does that some valuate versus you know what incremental dollar about 400 million there versus that incremental dollar of 6% development or afford a half percent acquisition how does that.

Are you guys from a risk in from a long term standpoint, or the portfolio sort of thing how are you thinking about that.

Are there yet on a risk return spectrum DCP today makes the most sense given that you do have the yield for your location has and the stack and the fact that there is some distress in that area allows us to get outsized returns relative to the risks there were taken the new price step down to development, where we previously delayed.

Two projects, but term in west three down in Dallas as well as you didn't market I can do seem to.

To get a little bit more visibility on this environment.

We've been able to would allow some costs. There. So we probably are going to have starts and the next quarter or two on those two which I'm combination about $200 million of additional starts. So I would put those is the next spectrum that acquisitions Bam labs, although you really have to whittle through and talk about what type of acquisition, you're thinking about which mark.

Are you thinking about a lease up for a developer may want to get out of it earlier, maybe we're willing to take that dilution and that lease up risk, but good at a discounted price so.

Theres rentals to every deal that we're going to look out so we're not going to red line any piece of the investment spectrum.

Hey, Rob this assuming I would emphasize that the one aspect of capital deployment.

That is.

First and foremost in our mind is the platform.

And the value that it creates not just the deal with this environment, but the fact is.

We'll be by de facto probably the way business is conducted in this business going forward.

So the quicker we give that fully implemented.

And the enhancements and aversion to all the ads are drawing those up today I see that is the real differentiator with respect to capital deployment and implementation. The other items come and go the good news, we've got 20 markets to look at per opportunities, we way I'm against what we think of the mom.

Okay, what we think against the opportunity and Joe gave you a pretty good insight into our waterfall up where things fall out in that ski.

Platforms, the most critical piece of our capital deployment and execution.

Okay. Thanks, guys very helpful.

Your next question comes from the line of Neil Malkin with capital. One. Please proceed with your question.

Hey, guys has gone.

And then okay.

Hi.

There isn't a fed funds that focus April Oh, there last month I'm. Just wondering if you can talk about how lead green.

But traffic has has performed or fares.

With those cases, right and maybe talk about that the context of your opco silver suburban portfolio.

Hey, now it's Mike I can take that just generally speaking our traffic enact count for the month of July is up around 9%, 7%, respectively, and we did see a little bit of that impact within this them out we were seeing upwards of 15, 20% at times.

Year over year increases in traffic and when that second wave. If you will came about in those markets in was still above year over year, probably closer to 95% to 10% range what that means that in some of our other markets. They started to get better and what we're seeing today is similar so when you focus.

Just over some now.

I'm paying our traffic today coastal down about 20%, our sunbelt ends up around 8%.

At the urban versus suburban traffic is down around 12% to 13% in suburban it's still positive 7% to 10%.

Okay, great. Thank you for that.

Next one I had it related to our yeah, everything going on internally Coke forget us Portland Seattle.

New York.

When the market there are really find a lot.

Contributors and they've been.

Significant.

Violent right now I forgot about anything happening.

Just wondering how old you deal with that of the company more industry.

And.

Are you focus on increasing people sort of moving out because it accruing or finding those reasons lighting that is the reason to move out I'm seeing an impact in operating fundamentals and you're right.

Talking about Albert for going on foods to get more.

Extreme and I'm not less.

Yes, Neil it's a very good question and one we debate here and you're trying to operate a company and be compassionate and thoughtful about your interactions with each individual resident and I think Mike in the entire team and been very accommodating rather that's payment plans are people wanting to move our health reason.

And Thats the first place to start the second I would suppose if the challenging no question about it we have weekly calls where the entire associates in the field in Denver and talk through some of these challenges that they're facing on the ground.

And reassuring that we're going to help them through it.

Their safety is first impair modeling then our residents. So you manage through that and that has taken a great deal of time and at the same time I'm very grateful for the people. If you will adapting to that environment, which may persist.

For some period of time, but I do note that the election is over and three and a half months cobot will be cured there will be a vaccine and on the long term basis.

We think that the troublesome and struggles we have.

Joe and Chris highlighted with respect to the portfolio is people are not going to live in neighborhoods that aren't safe.

Whenever the political affiliation whatever and so honing in on when that piece of the equation gets solved and how it gets solved.

And will it be solved before the election, probably not.

But we're hopeful that is if it's not we're prepared to deal with that I think it does.

Finally settlement itself when there is more communication rationally and things.

Returned to a normal cycle and then these cities that are challenge today.

When they get their security their safety solve their transportation.

We're all be waiting for the backseat.

To help us get to the next level. It doesn't change the long term dynamic of people wanting and choosing their lifestyle their balance so I do believe the urban cities will re emerge.

Can't put a timetable on it but I know the factors that need to be in place for that to happen and Thats what were honing in on.

No I appreciate that I, just I guess.

The other part of that facility are you feeling or are you able to discern a different.

And in leasing for saying reason for move out add off some of them.

She is going on or is it kind of hardware to fit we got out.

Yes, a couple of things there now first of all no real damage the properties and were very thankful that none of our residents and or associates for harmed in any of these demonstrations. So that was kind of the first thing and as far as move outs. We do track that very closely and we haven't really seen any contact from this and not.

Only seen on the traffic either so so far has been minimal.

Impact.

Okay. Thank you sound like.

Your next question comes from line of Nick Yulico with Scotia Bank. Please proceed with your question.

Hi, guys. This is so matea in for Nick a couple of questions one related for the prevention or the reserve that you Doug how much of that is related to then into requested developments with it.

But that's okay to address identified by your internal analysis.

And then how much of the delinquency that related to corporate tenants as well as student.

Yes, well probably have to follow up with a little bit more that detail.

But in terms of the payment plans you referenced we do have.

Approximately half million related to Twoq, you that's $9.

Related to Twoq, you that is on payment plans as a net accounts receivable. So it does get lumped in there, but at a higher probability placed on that given payment history from those individuals.

The most.

The biggest reserves been taken against yes by market, it's going to be about 80% in our top six markets men and Oh by San Fran do see Orange County, New York in Boston.

The bigger markets or the markets that have more regulatory meaning that if you take ela as an example, that's over 10% of our.

Accounts receivable at a much bigger portion of the reserve, but it's only about a 4% market for us so certain markets that have more delinquency due to regulatory issues.

We're going to garner more than their mindshare relative to the percent of the portfolio that they have.

This is sort of add some color that's interesting and we.

Talked about over the number of investors over the last couple of months on calls.

Thanks for example, what's going to happen when the eviction Madrid moratoriums.

And to put in context today, the number of people that if we had the right to go to of action would be 2% about 800.

Okay. So it's not a big number and there's not a tsunami upfront.

Section pending but an interesting data point.

Mike operations in Florida, There was a 72 hour window window, where we could move to eviction and we filed there were 75 residents on that list at the time.

And two thirds of them showed up and paid immediately.

Okay.

Other one third said, hey, I want to enter into had a plan.

So I think that same dynamic I don't know those percentages will hold.

But were somewhat hopeful that when we can proceed to enforce the contract.

We will become passionate about it.

We will try to work with people.

Yes that is not the case, we expect some.

I have already saved up the money and or have other means to do so and there are just using this flow.

For a variety of other reasons, we'll find out.

Florida, then put the eviction moratorium back on and we're comply with the loss. So it's hard for US I think we've been cautious about the our balance and the related reserve.

And I think thats prudent on our part.

Let's see how it plays out.

Understood and I guess the background on this question with more around something you just spoke about which is that.

Delinquencies are usually not related to.

Hey addressed the default good schools are all we've just wondering what time do you guys in done anything you know these group then it's become a part of the result with the provision because if something happened when somebody walked in instead I can say this month.

Just trying to get a sense of that I think any color you could provide could be good on that.

Yes, so we took.

What I'll call a three pronged approach to that I came out a number of different ways given the unknowns that exist in this environment trying to make sure we got to the correct place at the end of the that.

We looked at it from a typical age receivables approach, where if you were over two months delinquent you had the greatest reserve apply to you. If you were less than that had been making efforts to make payments that you would have less and so on and so forth. We looked at it down to the market level of trying to go down to each represent what does their payment history.

But is there they are and what type of market are they up from a regulatory standpoint, and adjusting for that and then we did a very high level top down approach as well. So you triangulate through all those American up to about that same place. So.

Hopefully that gives you a little better color I'll call. It the robustness of the process overall comfort that we got to the right Blessed.

But that's really great. Thank you so much and one last one from me in terms of a concession activity or could you help us understand what unit types that one bedroom studios to bed stupid.

And possibly what Mike it related to the unit type are being I.

I think the biggest amount of concession activity.

Sure, Mike I think what you're going to see is when you go to.

Markets and you hit on that property level, which Weve stated before that's our surgical approaches.

You're going to see the concession on on all of those Unitized. So in places like New York in San Francisco, where the concessionary environments higher we are seeing across the board that being said I mentioned earlier on one of the question that our studios are down more than others. So we're running around 91% occupied our studio.

[music] units and in some cases were trying to move those and we may be doing lost leaders things like that just to try to ticket those lease to move before the fall.

Got it thank you so much.

Your next question comes from line of Rich Hill with Morgan Stanley. Please proceed with your question.

Hey, Good afternoon, guys quick question for me.

Looking at your effective new or your effective renewal lease rate growth, it's pretty impressed.

Particularly given the down.

In turnover. So I'm wondering if you could just revisit your strategy for renewals across markets I think you've talked about this to some degree on your last earnings call, but but just an update or how you're thinking about that and if you're thinking about each marketing individually.

Sure. Thanks for the question.

Just to go back to the beginning of kind of Covance and what we did we elected to go out half market at that time and since then about 20% of our NOI has been regulated to the point, where we have to send out zero percent increases so that leaves 80% of our and why.

The ability to push to mark.

So you have the regulatory environment level, we're having seen today is what's happening in the markets when they're very concessionary market rents are coming down we're having to negotiate to some degree that being said we have pushed out renewal that I can tell you. It's between two and a half the 3% that has been sent out through September I expect.

We come in probably about 50 basis points less than that just based on negotiations that again.

The fact that there could be more regulatory restrictions put on honest, but it does differ by market. So it goes as low as zero percent to its highest 5.5%.

Got it and if we think about your July commentary that effective rents combined effective rents are going to be flat to down 50 basis points and I'm sorry. If you gave that's but but can we assume that the renewals are going to be in same range and that maybe slight down tick negative tax.

Territory is going to be driven by new leases.

Yeah, I think that's pair of what we're seeing is very similar to what we saw in June. So I would tell you are new lease growth is probably somewhere between negative three to negative 4% far renewal growth should hang in there probably closer to and a half to 3%.

Alright, thanks, guys I ever.

Okay.

Your next question comes from line of Rich Anderson with SMBC. Please proceed with your question.

Thanks.

For now.

So you guys are two nice I have a tenant she was 10 minutes and a state late she 70 years old just Karlie Kloss my car so.

[laughter] I don't know where to go with [laughter].

The analogy when you're getting shakes quite fair Unifi fashion that there you have to be faster than the people that you're with and <unk> and I'm wondering if you can apply that secure longer term where.

You guys and your peers that are you know the most financially capable.

In the business phone collectively maybe about 10% of the apartment units the country.

Is there a long term opportunity, where some of the financially viable and stuff like that on multifamily real estate.

[laughter] really suffer statutory depending how long this goes in that you are the industry.

Our as a company could get through the larger even if there's not really a.

No.

Negative event from from you know from a yield perspective on transactions I'm just curious if you're kinda on you got your attendance is up about getting bigger and all this again today.

Rich it's really good question when we talk about with respect to how does the reef occupy space compared to the privates and where pain will be.

Our first thought goes to long term ability, where the customer is to grow cash flow.

And then the platform was barn, and our ability to increase our margins and thats relatively.

Pretty straightforward you can see our operating margins as last quarter held pretty solid and 84 anybody that range I can guarantee you that private investors generally going to ride on 10 12 Vince.

Excuse me, 10% to 12% below that because of their inefficiencies either scale. Our technology. So we take a long term to play if they have a better operating model for the customer and our cost structure.

On with respect to financial hardship and what it shakes out.

I kind of harken back to the like the poor lot five last recessions I've been through.

And they always poke out at about the same place developers are the first to show the pain.

And.

That is an opportunity for us either in the DCP fraud or acquisitions of lease up and it's not bad deep of a pool of capital that's going to compete with us on that front.

The real hardship maturing debt.

Everybody in the broader right now wants to re Fi and I congratulate Joe and the team for 400 million dollar has a 12 year paper at 2.1.

You can.

Hang on pretty long time, if you're able to stabilize and get to that so I don't know if there is stabilized assets are going to have a lot of hardship.

And then it's a function where else it might poke out a market had an employer somewhere in there.

I'm not sure the rizzardi that competitive on that front because of our leverage profile.

First the PE shops, who can use a higher leverage borrow on an international basis, and we'll probably be able to buy a lot of stuff and I think thats going to play out with this current environment and so you could see our game plan straightforward platform long term cash flow margin.

Pick off opportunities that the p. shopped, probably are overlooking or not interested because it doesn't support their investment thesis.

Joe anything that.

Overall.

I think just balance.

Andy I agree that.

Yes, rich this is Barry just on the private market values I mean, as Tom mentioned.

Theres still plenty capital that's very interested in in apartments interest rates are very low which is obviously stabilizing apartment values.

There is a divergence in markets, we know a the markets that are performing well.

Particularly non urban.

Pricing is relatively stable probably doesn't change much at all.

Submarkets like New York in San Francisco, you're not going how much of a bid.

Buyers and sellers are unlikely to come together so leased in the short term you are unlikely to see many trade to those ounces.

Okay, great. Thanks, Harry and then the.

A quick follow up.

The spread is Texas, California, Florida kind of starts to get real Ugly post second quarter.

Are you seeing anything there that is troubling post oak second quarter. So this period of time now where.

The threat of kind of re closing or whatever whatever whatever just fear generally might be impacting those specific states or just not apparent and the answer is no.

A lot.

That's really the answer is no they've been very resilient and I can tell you that traffic really hasn't changed much though.

They are doing well.

Okay. That's good enough right. Thank you very much.

Your next question comes from one of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Okay.

Good morning, I am sorry, maybe good afternoon.

So two questions first Tom you you mentioned sort of a affirmation that people want to live in the urban areas that people want to come back to the cities you led on that people want to live in things like that but if I looked at like the markets that are really impacted Boston New York San Francisco.

Yeah. Good so at the low hold it certainly would.

California in the country, where it's obviously the word speaks for itself involved as a bit elevated.

So I guess yeah. The question is how much of that there's an absolute bleep that leap in markets that return more frequently New York at San Francisco versus here is a bigger fundamental shift that's gone on fifth you've had higher forbid and other higher cubic feet with another market, where you guys I product and you're not seeing that same impact.

Some of your property. So what gives you the confidence that like San Fran and New York proper just the urban metro not the surrounding area. The urban metric will bounce back in the near.

Yes, Alex I'll take a shot and ask anyone else clean it up.

I guess the belief I habit is simply that the markets that you decide who statistics are all correct.

What's underlying that is the simple fact that business is a shutdown.

Given people the option to work from home.

That our belief is that when business opens up whatever the conditions are that they will reassembled our workforce and some of the Terry would be when business is in cities open back up.

The re population of those cities will occur our leasing season will be an unusual window if that were to be fortunate by the end of the year, we're going to have a rush of November and December leases example, so we're really hanging around the whole.

Waiting for businesses and the vaccine to make the connection if that takes.

Three months six months a year.

I think we have to run our company under those conditions long term People's sought the urban for lifestyle surrounding and I would think if I have been.

In Wyoming area that my parents basement.

Working remotely, but I cannot be anxious enough to get back to life and what I enjoyed before.

First violent.

As an example.

So I am.

Why only has good 55 away.

Yes.

Our polite I would agree with that.

Probably not a lot of people to date.

[laughter].

[laughter].

Okay.

Thats the long term you guys anything to add to that.

Oh I read it.

As I talked about earlier on the port strike outside the quantum qual work that we do.

It's meant to keep us disciplined masks medscape us away from new jerk reactions of headlines on disruption such as the so four months ago, New York was the finance hub of the World San Francisco's detect couple of the World Boston the biotech over the world. So if you go through all that has that changed has the venture capital dollars.

So completely disappeared from those markets as the intellectual hub that exists there disappeared.

I would say no no. If you say, we never find a vaccine for coated.

Individuals can never come back to work in an improving environment. Then that's a different set of rules, but we're not ready to start investing with conviction based off of the premise yet at this point in time, So we think being patient.

Is that appropriate.

No place to be.

Some of these outcomes are going to be pretty binary nature, do we get us or not.

The financial situation on the other side of this for a lot of these municipalities and states, what's the taxation situation with the regulatory environment. So it's just too early to make a convicted view one way or the other which is the beauty of being a diversified portfolio and we don't have to make the cultivated say, we got to approve shift half our portfolio we feel like.

We're in a good place some as long as we stay focused on platform. We think we're going to went on a relative basis over time. So we're just not there yet we'll hopefully get there as we get more information, we'll have more conviction to speak too, but just not there yet.

Right, but you did create something interesting earlier, which is that a lot of your residents that statements in the federal Metro area that you could have been shifting of where people live no working on a same area, but the shifting their living for living habit. Joe second question is on the regulatory front Oh, yes, the November elections, coming up and washing bandwidth.

Yeah, clearly potential for David Sasnett White House Democrats, which would then bring with it a lot more housing regulation, how do you guys feel to your position both from beauty yard well industry to try and fend off.

We're tightening legislation.

Uh huh.

There.

The keyboard Coriums rents is sold et cetera.

Yeah ill, maybe started off of that maybe Tom or Chris may have something to jump in here. Yeah. I think again, we go back to that diversified approach. If we were fully concentrated in only blue states or red states, perhaps we'd be more exposed to the risks there. So again diversification helps out.

Yes, I think the industry as a whole the trade groups that we work with and support.

Or trying to lobby and help.

The powers that be understand the need for affordable housing the need for more supply out there and the need to eliminate some of the red tape and restrictions that exist and that's at a national state and local level. So.

I think the industry as a whole is doing that and trying to educate.

So I think we're in a good position from that sense, Yes, Chris who oversees the regulatory side as well as other roles may have additional thoughts on upcoming elections, either on national basis, or even coming down to what we're seeing that yes, they like California or some of the recent regulations that were sooner, but bantered about.

Yes sure Joe.

I guess a couple of times for me I think I think balance there is theres kind of two different types of regulatory as I think about you really sign in a number of our coastal markets and address the pandemic I would say first back in March April some early on.

There were some some very value valid emergency regulations that were enacted to come echoed hardship.

I think as the pandemic progress with some of those valid regulations.

Really became.

Ways of different groups advancing more of their kind of tenant friendly and personal agendas in assorted markets. Yes. So we think it going ahead and outside we'll see what happens.

If the Democrats take the Senate and obviously the presidency, but the things that we're really trying to assess when these markets and obviously to enroll up to the state level and then also.

Federal level at some point is.

Duties policies eventually expire.

When do they expire and then we ended the day could they transition from emergency Ordnance Institute to some sort of long term policy.

No and secondarily and Joe kind of talked about this in the second derivative, but what's this new capital formation or markets at the end of the day as well and investment.

I think as we talked about with some of the ports rats stuff just on the regulatory side and we're going to find anything that comes up but it really is too soon to have a definitive view on emergency regulation versus long term policy, how sticky all that stuff is.

But at the end of the day I think we can probably all agree that none of this helps to improve long term affordability, which is obviously one of the biggest issues. That's that's pushing a lot of us.

Okay. Thanks, Rami I think we could have a separate call at great length on this because it's a great topic.

And at the same time.

I think when you get passed the election year, we'll have a little bit more calmness vaccine.

Cooler heads will prevail I think a lot of the actions right now our knee jerk and reactionary.

As long term if you look at cities.

That's right.

They tried through growing housing stock.

Variety affordability and that is generally brought on by friendly business environment and supply.

Being brought into the market those that shut down their supply and capital flow.

Tend to gentrify and become less progressive.

So I think people will start to realize and they watch, California, One city housing restrictions another who left said all the sudden whose tax base grows where to more people want to live where it's more entertainment amenities et cetera for you present.

And it in and they don't have to look far but usually their neighbors.

And we said time and time again examples Huntington Beach, where for 30 years, nothing with Bill and the city woke up and said, we have availability to build and we're doing quite well there.

First the surrounding cities that it's still shutdown. So we're going to have to get smarter about what market we operate in.

We have made investments in the government regulation crest lead that effort has a great team.

And that helps being thoughtful lot of long term basis, not just reacting to today.

So thank you Tom.

[noise]. Your next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.

Thank you I'm hearing Mike mentioned to certain strategy that was previously that's got to maybe.

Two now prioritized occupancy over holding off on the market contraction.

Can you just elaborate what drove about tipping point that drove that change in strategy and also you see the current not going at 95, and a half person occupancy the trough.

Hey, John just just to be clear, we don't focus on rents or occupancy in a vacuum. So we are trying to maximize total revenue and what you've seen from us and you can see an art supplement some markets are operating at lower occupancy today and some are still operating in a very high occupancy.

That being said the other side of it is a ran into more renewing with plans for we're trying to do and maximize our total earning for not only the rest of this year, but it going into next year. So.

Again, we don't we do this.

As a function I'm trying to optimize the whole thing not either of them in a vacuum.

And the price docking levels are you willing to go lower to maximize rental revenue.

I think in a couple of our markets, where we're still.

Having a little bit more trouble, it's too early to tell kind of where that is but I will tell you occupancy has come down a little bit as we've seen move outs Hello me and in some of the other markets again, where we have the opportunity to hold rate push occupancy we're doing that so I think today, we're closer to the.

The high Eightys in places like.

Downtown San Francisco in downtown.

New York City and.

It's a little bit more challenging we can see that come down a little bit over the next 30 to 60 days, but aside from that it's too early to tell where those go.

I would just add John.

Coming off of that comment not come at the top made earlier, yeah. We do have approximately 2% of the resident base that we would potentially look to affect today. If regulations allowed so when Mike talked about not mentioned occupancy.

If we have not better sitting in there we're not gonna be worried about keeping them and from an occupancy standpoint, we're going to be focused on getting them out and getting good high quality rental fares into the system. So you can see is temporary disruptions in a market by market basis as you see regulations roll off so.

I wouldn't take that as a sign that were like an occupancy dip. It's just imagine total revenue until I don't want.

Okay on a similar level can you discuss youre willing to provide shorter term leases given the uncertainty that many tenants may have signed a lot the luckily like when you ever.

So the way that our pricing system works today is that we can offer up upwards of three to some in some cases 18 months leases and I can tell you with some of the ordinances and the regulations and put in place over the last few months they limit our ability to do that so today.

Sample today, San Francisco, you are not allowed to do anything in downtown proper less than 12 month links. So we can't do it in other places the way that pricing matrix works, we will open that up they will pay a premium depending on where lease expirations fall. So we are really managing that.

That's helpful. Thank you.

Oh hi.

Next question comes from line of John Philosophy, with Green Street Advisors. Please proceed with your question.

Hey, Thanks, just one for me I appreciate you guys keeping that call a long here the DC, Mike you touched on just trends in San Fran and New York softening in the summer here, but he see urban assets. So they are.

Assuming the work from home time environment for sensitive balance of the year and and the social stages cities state shot.

Theses sorry.

Got a lot of feedback here the DC behave like New York in San Francisco over the balance of this year.

Thanks to the Carson John Let me give you all color on DC. It's obviously now makes up 19.3% of our same store NOI I can tell you are to be revenue growth you saw it was down 1.2% our suburban portfolio has held up relatively well and positive over the last few months our Herman.

Property struggled the most and this kind of along with a lot of things we've talked about today as the DC proper assets word Forest Park and based on regulatory environment. So we had to go out with zero percent renewals at those properties. So again.

Portfolio in the suburbs positive or you're seeing down in the hard to do you see it up a little bit more of a challenging I think a lot of that has to do with regulatory environment.

But I was having today lending growth remains positive our turnover is down.

Thanks.

Well I ought to be excited about that market comparative somebody like.

Just any more San Fran.

Yeah, I'd say from a intermediate perspective, when you look at continuing claims and job forecast DC definitely holding up better than the nation's a whole given they do have a diversified base of employment, but also the government education, cyber defense et cetera, as well as the glut growing texting there so the demand side, probably looks better than our core.

<unk> as a whole.

Over the intermediate term and then supply was that's been a little bit difficult DC for most of the cycle.

During this downturn, it's one of the markets you've seen permit activity come off by far the most so to the extent that holds hopefully usually a little bit lighter supply picture going forward as well.

Okay. Thank you.

Your next question comes from a line of Haendel Juste with Mizuho. Please proceed with your question.

Hey, there just a couple of quick one for me I don't think about but what's your appetite here for the stock buyback you mentioned.

You mentioned comment about asset value speaking your bank liquidity profile, so I'm curious.

Given your balance sheet.

What.

Your appetite here is and then.

Physician.

As of course capital, where perhaps you'd be more inclined.

Thanks.

And then after known as Joe.

No. It's as I said earlier, it's one of the items that we look to in deploying capital we've been pretty diverse and our approach between platform development DCP.

Acquisitions and buyback as recently as 28 team.

It's not something that today were jumping out there often seen activity here in the quarter.

We do feel very good about the balance sheet at the liquidity et cetera, but being only about one quarter into this crisis I'm not sure. We have the conviction levels yet to go out there and pursue that agnew from our use of capital perspective would like to see more conviction in the economy the trajectory there.

More conviction and the direction of level of NOI, and therefore, future liquidity and metrics as well as what we've seen asset values holding very strong with today.

Make sure that continues to hold and this capital markets environment. So.

Not sure were quite there yet, but we've shown that are building in the past.

The old tried to do the right thing as we move forward.

Okay. Thanks.

Second question.

But the gap between your better Sunbelt markets in New York City in some of your coastal markets with pretty darn wide the second quarter I hope it thousand be like we've done.

So I'm curious if you got the fact that wider here going a few quarters and when you can see that yep.

Yes.

Again, I know one thing we're looking at today is when you see July trends versus June trends as a whole they're very similar.

Sorry traffic it continues to improve in a lot of ways on a year over year basis, our new lease growth is very similar to what was in June and our renewal growth is impact a little bit just based on what's happening in the market stays most regulatory environment, so that being said.

You do have different markets doing different things I I would say, it's it's too early to tell when we look at this property market and we've been encouraged by some foreign markets bottomed already so about 20% of our Hawaii is in markets that bottom previous to this month, we got about 50% of our NOI.

And then appear to be bottoming and that leaves about 30% on the and why.

PBB and that's where we're kind of watching that to see what happens over the next few months.

Okay fair enough. Thank you.

Your next question comes on line of Alex Kalmus with Zelman and Associates. Please proceed with your question.

Thank you for taking my question, that's looking at singles I mean that we've been given what you know about your dependent for that make up a.

Consequential will this move to move the performances on a go forward.

Oh, the allergy you were a little bit muffled all around.

Maybe if you could repeat I think what were your dad was perhaps exploration of unemployment benefits and impact on resident base.

Correct correct.

Okay.

Yeah, I guess, when we started in the past unlike a general fright jump in here.

We've looked at our resident base and the need for us to accommodate them and help them out.

From my rental deferral or payment plan.

It's been relatively minimal in terms of the number of residents that have come in and requested that so what we don't know exactly how many residents.

Our still employed or on unemployment the percentage that proactively come to us and request with assistance is under 2%. So I think that gives us a pretty good the reconviction when we look at collections as well as their own actions.

That roll off of unemployment benefits if in fact, it does happen for an extended period of time.

That our portfolio still in a good place given that were higher income higher quality overall relative to typical apartment product out there the market.

[noise] got it thank you very much and.

So looking back their regulation, California looking at top 21.

Is there any other than the obvious and then maybe what well underground is different than in 2018, one called 20, <unk> and was rejected.

And.

They are concerned around the proposition or are you guys.

It will be a similar result.

Sure Alex say thanks for the question. This is Chris again ill kind of give me just a rundown could we've had to come up over the last couple of months. So all the good time for rundown of what's happening there.

So far.

21, I would tell you right now the coalition and really our plan going forward, we think we're in pretty good shape.

Say that for really a couple of reasons.

First I think the coalition as much deeper and I would say.

More widespread purchase an base than last go around so back in 2018.

Obviously, there's going to still be multifamily owners operators, who are the big guys. There, but also affordable housing groups.

Yes organizations big Labor veterans groups et cetera.

So much more extensive from that perspective, I think second in the last update we received from CFR age, California responsible housing.

Indicated that fund raising has remained strong versus where it wasn't 2018 at the same time, so definitely feeling good on that point as well.

And third recent mone polling results there about a clean went as far as yes, no right now, but they do definitely tilt more in our favor once before and against arguments are discussed with the.

Pulling respondents.

In the flip side and potentially going against US was that it is a presidential election year.

We all know the Democrats comprise I'd say a majority.

California, just wonder base.

And turnout tends to be significantly higher in California, as it does a lot of states in presidential versus.

Good inventory in the years, so we'll see how that goes but again in general we feel pretty good about where we are right now on prop 21.

Thank you for the great color.

[noise] there no further questions in the queue I'd like to hand, the call back over to chairman and CEO Mr. to me for closing comments.

First let me express thanks for all of you for your interest in new the are certainly the extra time today.

And want to wish you.

Be faith, and helping to our associates on the call.

Just want to reiterate a hard for way proud of the job you're doing the adaption the skill.

And.

Oh, you want you to know we're here to help in any way shape or form.

Turning to the business side.

We've said many times, it's a challenging environment and if you will have a storm on a lot of different fronts.

But our strategy remains the same it's the right one.

And what has adjusted as our tactics.

And we will continue to adjust as the environment evolves.

Proud of the team's ability to adjust do a daily changing environment and executing at a high level.

What does remain constant and beauty are.

And we'll remain constant is long term focused on our cash flow growth.

Maintaining our diversification.

Our transparency.

And certainly managing risk in this environment.

With that we always welcome your questions.

Dialogue.

And we will see you soon take care.

[noise].

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