Q2 2020 Investors Real Estate Trust Earnings Call
Good day and welcome to the investors Real estate Trust second quarter 2020 earnings Conference call. All participants will be in listen only mode. So do you need assistance precipitously conference specialist by pressing the star keep up with your out.
After today's presentation, there will be an opportunity to ask questions.
Please note. This event is being recorded I would now like turn the conference over to Mark Becker Chief Executive Officer. Please go ahead.
Thank you Melissa and good morning, everyone.
I read T filed its form 10-Q for the second quarter yesterday after the market close. Additionally, our earnings release in the supplemental disclosure package had been posted to our website at <unk> apartments Dot com and filed on form 8-K.
It's important to note that today's remarks will include our business outlook in other forward looking statements that are based on management's current views and assumptions on a result in 2020.
Including views and assumptions related to the potential impact of the Kobe 19 pandemic.
Our quarterly reports and other SEC filings with certain factors, including those related to the pandemic that could cause our actual results to be materially different than our current estimates.
Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call.
Joining me this morning, as and Olson, our Chief operating officer, and John Kirschman, Our Chief Financial Officer.
It's incredible how much change and disruption has occurred since we were together three months ago talking about the first quarter.
And preparing for this call I was trying to come up with a good summary for our company and our team.
The last three months and the where the kept popping into my head was unwavering.
We certainly we're prepared for the worst as we headed into the second quarter and the resilience of our team our customers and our portfolio communities has really shown through on an absolute and relative basis.
Our entire team listening to this call. Thank you so much for working to make everyday better for our residents in this challenging time.
Our focus remains on weathering the pandemic and the economic damage that comes with it you.
In operations that means making our business is virtual as possible, while maintaining and improving the customer experience.
Investing and simplifying our systems and solutions and staying energetic and safe and working with our residents who are living through all of this with us.
We're also working to maintain expense discipline and hold the line on a rise by five campaign.
With headwinds from taxes and insurance in our non controllable expenses and stifled revenue growth due to the pandemic rise by five is helping now and positions us well in the future.
Getting out to the company as a whole we're driving improvements in our overall portfolio of assets through rigorous asset management and on the right side of the balance sheet, we're striving for long term improvement in our financial flexibility.
To that end in the second quarter, we issued approximately $45 million of equity through our ATM at an average net price of just under $72.
This cash extends our margin of safety and gives us the ability to be opportunistic.
We'll also consider select asset sales that position the company for stronger and more sustainable growth.
The fundamentals of the next 12 to 24 months will be off significantly from outlook at the beginning of the year. The capital flows in debt markets are holding pricing for apartments steady in our markets.
That's our early read and we expect that trend to continue has more capital flows into our sector.
We expect to be a net buyer over the next 12 to 24 months should our cost of capital remain advantageous.
We do have a large pipeline of opportunities in our target markets of the twin cities, Denver and as announced in June Nashville, We expect to accelerate our continued portfolio improvement if this environment holds.
Lastly, I'll close with an exciting milestone last Friday I read T. celebrated 50 years in business.
One PNM and the real estate business. Since 1970 is quite an achievement unwavering and we're fortunate to be positioned as we are today on behalf of our shareholders and team.
However, as we've all seen with devastating speed longevity does not convert any special advantages. Our team is here to move the needle we bring a startup spirit every day and will remain cautious and thoughtful as we carry out our mission to provide great homes.
With that and could you please give us the operations update.
Thank you Mark and good morning.
We discussed last quarter, we were well positioned for the impacts of the cold and 19 pandemic at the end of a strong first quarter and we're pleased that our second quarter results demonstrated that our vigilance in all areas of our operating platform will benefit our portfolio, even an uncertain time.
We achieved I know I growth of 1.1 person for the second quarter compared to the same period last year driven by a 4.3% decrease in same store controllable expenses when compared to second quarter 2019.
Notably our NOI grew 3.4% sequentially over first quarter 2020 and year to date, our I know why is 2.4% ahead of the same period at 29 team.
Our discipline on expenses was matched with diligence on a rental revenue are weighted average occupancy during the second quarter was 94.6% compared to 94.3 person for the second quarter 2019.
Our collections have been strong 99.1 person during the second quarter, just a 50 basis point decrease compared to the same period last year, while we believe our positive performance is due in part.
The relative its installation of our markets from regulated shutdowns as Dan placed orders, we have seen increases in our bad debt where price point is lower.
Typically billings, Montana, where average rent is 20% below our portfolio average rent.
We do continue to see declining request for rental assistance across our portfolio of the 176 total request for a deferral during the second quarter more than 73% of those came in April.
As of today, we have entered into 184 payment plans, representing 225000 of total run, which a 40% $40000 outstanding to be collected under those plans.
In July we entered into eight deferral agreement, representing 10 basis points of our total July rent charges.
Our second quarter did bring many challenges traffic was 24% lower across our portfolio than second quarter, 2019, and new lease rates decreased an average of 1.2% we feel really.
We did realize renewal rate increases averaging 3.3% for leases effective during the second quarter, but keep in mind that many of these renewals would've been signed pre pandemic.
Topic did pick up significantly toward the end of May and our June traffic was 26% over June of 2019.
Like many of our appears we are experiencing higher retention rates with 62.8% of our resident staying in place upon lease expiration during the second quarter.
I'd like to also provide some color on July our July collections were 99% and our same store portfolio average renewal rate increased 10 basis points and our resident retention was 66% or.
Our average new lease rates increased 1.1% lease over lease and our revenue per unit is higher year over year with july's revenue per unit at $1074 compared to $1055 in July 2019.
As of July 31st we were physically occupied at 95.2%.
We believe that some of the increase a new lease rates that we were seeing are the result of the traffic increases in June which we attribute the pent up demand from the significant lack of traffic in April in May Our July traffic has leveled off to be on par with 2019.
We expect flattening renewals and slow rent growth to impact our topline revenue through Q2 of 2021 as we carry for the lease rates entered into during this economic slowdown, which coincided with our peak leasing season, our operating platform will help us optimize revenue in our increasing exposure to growth oriented market should provide an opportunity to perform.
Well as the economy recovers.
We're still seeing opportunities for value add in certain communities, where we have high occupancy desirable locations and pricing power. We have continued with value add commentary and or unit renovations within nine communities in our portfolio with 115 units being fully renovated during the second quarter of the renovated units, 78% had been leased.
We're achieving our underwritten premiums with an average return of 18.3%.
Our teams are back in our communities and our offices are open we're all getting used to the new normal of social distancing use of digitally enabled leasing and rather than service and the uncertainty of what the future may bring for economy and our communities. Our teams have shown a remarkable commitment to our resonance in each other and during these difficult times over 82% of our Minnesota base.
His team member participated in a third party workplace survey the resulted in <unk> being named the top were placed by the Minneapolis star to be on based on factors, including employee engagement company leadership pay benefits and workplace flexibility. This is a great distinction and a testament to our key values of doing the right thing serving others and being one team.
And now I'll ask John to discuss our overall financial results.
Thank you I am last night, we reported core FFO for the quarter ending June 30, 2020 of 91 cents per share a decrease of nine cents or 9% from the second quarter of 20 might be.
The decrease in core FFO for the quarter can be attributed to lower an ally of 1.3 million an increase casualty loss of $600000.
Offset by reductions in interest and gene expenses or an NOI for the quarter is primarily due to decrease.
$1.2 million from 29 team dispositions.
Oh additional ally from new acquisitions as well as a 370000 dollar reduction in our commercial and Hawaii due to the impacted Kobin 19 are mixed use multifamily commercial tenants.
Year to date core FFO is $1.81 cents per share.
Compared to a dollar and 77 cents for the first six months of 29.
An increase.
Four cents or 2.3%.
Turning to our general and administrative expenses for the six month ended June 30, 2020, Genie expenses decreased 9.9% to $6.6 million compared to $7.4 million and the same period of the prior year.
The decrease was driven by coded related cost control initiatives.
As well as 360000 dollar decrease in legal fees related to our our successful pursuit of recovery on a construction defect claim and 29 team.
Interest expense increased by 11% to 13.9 million for the six month ended June 30, 2020 compared to $15.5 million in the same period of the prior year.
This decrease was attributed to the replacement a maturing debt with the lower rate debt and a lower average balance on our line of credit.
Property management expenses decreased $100000 to $2.9 million for the six months ended June 30, 2020 compared to $3 million in the same period of the prior year.
The decrease was due to lower third party management fees and compensation costs.
Looking at capital expenditures, which are highlighted on page 16 of our supplemental.
Same store Capex for the six month ended June 30 2020.
Was $4.6 million, a 59% increase from $2.9 million for the same period of the prior year.
The increase in Capex, what is related to the timing of capital replacement projects occurring earlier in 2024. Your same store Capex is expected to remain in line with the prior year at $825 to $900 per door.
In Q2 value AD spend were $4.1 million as compared to Q2 2019 value at span of $750000.
Year to date value I spent a $6.2 million versus $1.1 million for the same period in 2019.
During the second quarter, we issued 624000 common shares through our ATM program at an average net price of $71.84 per share for total proceeds of $45 million.
The proceeds from these shares were used to fund our value add capital spend and draws under our construction loan as well as to increase our liquidity and balance sheet flexibility.
Turning to our balance sheet as of June 30, our total liquidity was approximately $240 million, including $187 billion available under our line of credit and $53 million in cash.
Further information on our liquidity can be found on page 11 of our supplemental.
Looking to the remainder of 2020 and into 2021, we have $45 million of debt maturities and $34 million remaining to fund on our construction and mezzanine loans for the development of a multifamily community in Minneapolis.
We believe our current liquidity is sufficient to cover our foreseeable capital needs.
As well as allowing us to invest in our targeted market.
On March 27, 2020, we issued a press release inc., indicating that in light of the impact of Kobin 19 on our business and results of operations, we were withdrawing our 2020 financial outlook.
We continue to monitor the ongoing impact to Kobin 19 closely.
Including the continuation of the enhanced federal unemployment benefits, which expired on July 31st.
And there remains a great deal of uncertainty as to the impact on our rents and occupancy.
Given the ongoing uncertainty of the impact from co benign team.
We're not providing updated 2020 financial outlook at this time.
Our Q2 results are encouraging and reflect the work of our dedicated team members, who demonstrate our core mission to provide great homes, while proactively responding to the business challenges presented by the current environment.
It is a great work of our strong team here at Irene.
That delivers results and then still confident in our residents and the investment community.
With that I will turn the call over to the operator for your questions.
Well now begin to question and answer session to ask a question. You May proceed Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before passing the keys to withdraw your question. Please press Star then queue. At this time, we will pause momentarily to assemble the roster.
The first question today comes from garage Mehta of National Securities. Please go ahead.
Yeah. Thanks, good morning.
First question that I had the ones transactions out there in your prepared remarks, you mentioned that you would consider select asset sales.
I was hoping if you could provide provide some color on what you're seeing.
In the market on and know what kind of timing should mix budgets, you want to send any assets.
Yeah. Good morning, Rob This is mark.
So I mean I think.
As we've talked a lot a little bit over the last few months.
You know the disruption of the pandemic as has kind of opened up a little bit a window and our mine to consider some asset sales that we weren't likely to do.
And I would say that combined with what's been a pretty exceptional.
A combination of.
Forward looking deterioration combined with a lot of liquidity has actually held up pricing pricing has stayed the same.
Or better in the tertiary markets, which you know is a pretty unusual set of circumstances. So you know where we can we'll consider.
Consider sales I think you should think about it like you like we've done in the past what I think we could be opportunistic.
On portfolios, but more likely will be pruning portfolios to kind of work ourselves into a better portfolio, which we did.
In Bismarck and and my not where we went from sold some older product and things like that to get ourselves to a portfolio that is newer higher rents better margins more efficient et cetera.
Okay.
Second question that I have is on the market I saw that done what I'm, saying, so what two markets being had negative same store happened to growth.
Provide some color on what you're seeing in those two markets.
Yeah, Andrew on took up.
Yeah sure. Good morning. This event, so let's start with Denver, So Denver, obviously within our portfolio had side the fastest kind of shutdown and the slowest coming out of depend on that given that it's one of our larger cities with a higher density and our assets. There are fairly core so we have too.
Uhhuh assets that would be considered downtown assets and then one that is close then but more suburban and given the supply in Denver and heavy concessions with many projects still lease up as they entered the pandemic we are experiencing a lot of pricing pressure there.
We also have you know Denver also had our only exposure to a set of leases about 10 leases that one of our assets in a in a short term rental and those obviously have gone away and the and not a short term rental provider is you know in receivership. So you know, we're working through that and having so.
Occupancy issues, which bring our bring our pricing down, but overall I think were holding very well and in Denver and do expect to see it continued to have a negative lease over lease then and flattening renewals there in St cloud. It we had significant increases last year. So if you went back.
Back into our supplemental overtime, you would see that they really push rents in St. Cloud. We also had.
At this time last year as part of our.
Rise by five initiative, we increased our ratio utility bill backs and so you know it got a little bit more expensive for our residents to live in our units and that was in efforts to optimize our revenue St cloud was hit, particularly hard because they have significant water and sewer charges through the cities there it's like.
What we're seeing is a little bit of that rolling through there. So it's also heavy student population. So there is a university in St cloud and with the uncertainty around schools and the University I think we're just seeing some pressure on pricing there so little bit of a confluence of events with the utility bill back the Panasonic and uncertainty.
How about on education in St Cloud.
Okay. Thank you that's all Mohan.
Thanks.
The next question comes from Rob Stevenson Dan.
Hi, Good morning, and could you talk about help move out notices in Florida availability are trending looking out I guess it does September ish or early October at this point any reason to believe that operations change much for the good or bad over the next call. It eight weeks.
Yeah, I don't think so I think where I think we're gonna stay pretty study we are.
Seeing a lot of people that are uncertain right. So people don't know what's going to happen if they're gonna be working from home are going back to work if their kids are going back to school or not if their job as stable or not so we do still seeing people who are looking maybe to move but our.
Not yet ready to make decisions that is leading to higher retention rates and if you saw or a second quarter retention rate. You know is about 62, but our July retention rate was 66%. So I think we do expect that into the fall, we're going to see a little bit higher retention rates and.
You know not not much real change in operations with July traffic, how did level after kind of on par with where it has been historically and in our markets throughout the Midwest you know our offices. Our old then we're taking in person tours. We still are doing a lot of virtual touring and digitally enabled resident services. So that has become a pretty new.
Normalized part of our business, but you know people are starting to move around and I don't think we're expecting a significant drop off in kind of historical traffic or a or big increase either.
Okay, and Howard you, Karen how would you characterize your fee stream relative to your rent is the fee stream under you know same amount of pressure as rents in some of these markets is it you are able to hold the fees and so it's not under the same I mean, when we look at those sort of a total.
Sure how would you characterize the the fees today and looking out over the remainder of 2020 versus a rep.
Yeah, I think the fee stream is under the same amount of pressure we were looking at its down around 8% from our historical and so you know.
We have to give the the price give somewhere right and so as we look at the total revenue optimization, sometimes where peeling back on on the fees are waving some of those fees you know instead of a large concession we might be waving application fees or lease break fees. That's something that we are you know have been waving in some cases when people.
Our have financial uncertainty rather than you know fight with them about the amounts owed where we're kind of letting people move on so yeah. There. It is under the same under pressure and as I mentioned down around 8%.
Okay, and what's driving the year to date expense growth in Rochester, which is up like 15% rapid city.
At the same and then billings about 6% specifically it was a capital spending is that taxes and those markets that's driving that.
Yeah, so its taxes and insurance you know at the end of last year, you know, we really got our insurance renewal and we got the taxes in and realize that most of our markets. We're gonna take a pretty significant hit there in our non controllable expenses, but our controllable expenses are are down and so we feel pretty good about the overall expense.
This growth rate given a pretty big increase that we saw on taxes insurance and particularly Rochester was hit very hard with taxes.
Okay, and then last one for me Mark why Nashville today versus.
Two years ago or whatever you did your last exercise what brings that on to the radar screen today versus what did that have when you ran this exercise last time.
Yeah. That's a great question I mean in both instances, we kind of ran an internal process and then.
Engaged a third party.
Consultant to kind of.
Yeah, I get to an answer and see their work.
When we were starting.
You know, we got to Denver, I think there was a little bit of it was.
Somewhat adjacency to our existing.
Geography, so we sort of view that as the best.
Midwest or near West a market and.
Yeah, we're looking at Nashville, now for two reasons one weve.
I wouldn't say, we've completed our beachhead in Denver, but we have what we believed to be critical math, there now and.
And so we won't we'll keep going in Denver, we'll keep going into twin cities and and National just has some very attractive growth characteristics. So you know we looked at 60 markets, we rank them a whole bunch of ways and Nashville kind of came up on top and in every way.
Not every way it every dimension that we were focused on it it came out on top.
And how would you characterize the I assume that you've been looking there.
You know given the announcement how would you characterize that market in terms of depth of product that you would want to own as well as pricing and competition a relative to the your other NFL cities of Minneapolis and Denver.
Yeah. It's.
It's it's a little thinner I mean, it's just it is a smaller market and.
You know the volume is an interesting thing both both Denver and Minneapolis is as we've talked about are about the same size, but Denver does tend to have kind of two to three times the volume.
Nashville is about two thirds of the size.
So there is less volume, although we do believe.
Theres a lot of merchant activity, there that that should play to our favor.
Pricing wise I mean thematic we Denver the twin cities in Nashville, all seem price pretty similarly to me, which is there's a lot of demand.
For those assets as you know, there's just a whole lot of factors at work, including having setting aside the pandemic New York with a market people weren't going to spend as much capital and because of the regulations there around rent control.
Which is a huge amount of capital kind of going elsewhere.
Nashville, and now the work we did to that that market, we didnt do in secret or at least the data we had wasn't secret so anyone who's doing work on markets I think we'll identify.
Nashville as a as.
As a strong play so you know, it's going to be very competitive and pricing going to be tough.
And that's what we felt in Denver I mean.
Obviously, you should get that into form of growth.
Both of cash flows and value over time, we believe in that and I think when we went to Denver I can remember some of our early broker meetings there like why you're like group number 400, you're saying, they're going to buy something in Denver.
And your now though there is still about 398 of those people, who who are still talking about you guys have really done it and so I mean, you know we've we've really chosen to be focused on kind of one market at a time, having said that this does expand or opportunity set by 50%. So that's exciting for us.
And a good opportunity to kind of look at relative values, but.
The short version is a little bit smaller going to be expensive and it's going to be competitive.
And have you taken any of the options for entering that market off the table, whether it be a JV or a loan to own mezz or anything of that nature or you looking at all those type of opportunities.
No I'd say everything's on the table.
Okay. Thanks, guys.
Thanks, Rob Thanks, Rob.
Your next question comes from Alex Kevin Sac Oh Baird.
Good morning.
Just a quick follow up to Rob's Nashville questions I know, it's a longer term opportunity set for you guys, you're still looking but how much capital, which need deployed to date I feel comfortable entering the market is this like a market where are you guys are comfortable kind of what asset at a time, it's a number while or do you want to how about more why the opportunity set of how to you before you get aggressive.
I'm not fronts.
Actually if you gotta portfolio in your pocket call me, but.
I look I think we'll we'll be measured I think.
As is always the case, what kind of trying to find.
The Senate did in a in a world that is.
Very well trafficked.
I would imagine the best opportunities will be in deals that are in lease up I mean, that's thematic we what we've seen.
Over these last month as the area, where the seller as most willing to take.
A price that's lower than the price they were expecting let's say in January or February.
Because.
The leverage market is so strong if you have a cash flowing assets.
You know your forward cash flows have gone down, but your mortgage rates gone down.
Probably had a greater rate so.
The area, where we can really differentiate ourselves as sort of an all cash buyer is in that lease up space I mean that said.
Those are harder on your kind of next 12 to 18 months EFO, which is something we obviously have to think about but.
It could be you know a good any decision overtime so.
Well well look at all.
In Denver, we've now done three one off deals.
That that's what I expect would you'd see unfold I think the primary difference between how we went into Denver and how we went into here if circumstances stay the same is to do what we did in Denver, we really had to sell things to buy anything.
And now we can continue to do that and as you know is dilutive or we can potentially.
Go to the market and raise equity which.
We would we would do we'd like to do that helps us.
Spread our costs it helps grow to find it does a whole bunch of things that are positive on the company side. Obviously it has to work on a per share basis and it has to make sense, but that's that's a tool. We didn't have you know three years ago, when we went into Denver.
Yeah, that's really helpful color, there and looking at operations repairs and maintenance it's been a expense line you've got its units on a savings. This year do you want to the moving pieces driving the savings and is there any worry that there's some deferred maintenance that'll eventually come through on the numbers as people kind of spend more time than their apartments that are more willing to temper.
Theres dawn on their units themselves.
Yeah, I think what's driving a lot of the savings. There is really is really two things one is lower turn costs as we have higher retention. So you know that might be offset a little bit by some of the additional maintenance as people spend more time, but we really haven't seen that yet.
Or really any trend on you know more work orders than typical but we are seeing some savings in turn costs and then second you know we are our teams were off site for a long time and you know forced to work really differently and a lot of those ways that we found a work we're at less expensive.
Then what was his normal so you know, we're having virtual resident and advance instead of in person resident events and you know in person resident events that require food and entertainment [laughter] all sorts of things there just aren't werent happening for four months and still aren't happening. So what we're trying to do as adopt as many of those new ways of working into the future.
Sure as we can while still really trying to build a community and how to be a place where people really want to lift but I'd say the biggest driver of the Opex savings is isn't the turn costs.
That's helpful. And then one more quick one for me John was just hoping you could share your guys as bad debts philosophy it looks like.
You guys have done a pretty good job of kind of attributing people that haven't been thus far into bad debt, how do you touched collectibility from here.
Oh, great we greatly appreciate it.
Sure Alex we have a pretty easy policy in that regard so.
We reserve anything that.
At the end of the month it hasn't they are about 1% to 100% so [noise].
Our bad debt is essentially anything we build that month that we didnt collect.
Straightforward easy thank you for its I never want.
Thanks, Alex.
Next question comes from Jim Sullivan of BTI G.
Hi, Yes, a good morning, guys I'm wondering.
Question for you or the controllable expenses, obviously, a great job that the can put the comp year over year and I'm. Just curious as you think about that as part of your.
Strategy about you know rise by size, whether the progress you've made and some of it is post cobot related to.
RM spending, but do you think you're going to accelerate the timing of achieving that rise I thought it or maybe have a more aggressive target in terms of.
Handing the operating margins.
I think our target is going to remain the sand. So you know we've done a lot of though what I would call low hanging fruit that are really heavy lift item and we have some pretty significant initiatives in front of us, including you know changing some of our technology and also you know part of the rise by far.
I've really needs to be in is connected to the value add program. So.
Onto the extent that the market continues to soften or we don't see a big <unk> you know an opportunity there as we look at our portfolios value add opportunities that may be a little bit a little bit slower as mark indicated we maybe able to you know accelerated a little bit if we can turn off with opera.
During the six sales.
Some of our asset to have that have large capex or lower margins are a little bit inefficient to really position our portfolio is well within their markets, but on the true operating side you know what we have in front of US is time consuming and and going to take some time to run through so I think we're right on track.
Back with our five years.
And worth Okay. [laughter] second point, just wanted to follow up on your comment about low hanging fruit in the value add program in your prepared comments.
You cited the return you have achieved which is pretty impressive.
Yes of course I have is whether the whether that return is again, partly a product of low hanging fruit you know the first value add programmers fed where markets are with assets, where you saw the most upside.
Or you know number two is we think going forward do you think you're going to be able to maintain that level of ROI.
Program.
Yeah. Jim This is mark I mean, I think we certainly weren't the first ones to the value add game I mean, that's been a great play for really the last six or seven years and.
Yes, it's about specific.
Submarkets in specific properties to where we're having that.
Success is really in markets, where we think we chose well in terms of what the you know, which which project to go forward with and we have a lot of potential properties that could be upgraded and we really prioritize them based on markets and where we thought we had the best chance of success and.
So I think we'll continue to have those opportunities and if the returns don't hit I will just stop.
Yes, so were generally with the exception or things like clubhouses, which we do think add a lot of value. We're really doing these on the terms. So we have a pretty good ability to to throttle up or back I mean, and you want to add to that at all yeah. I would just say you know our expectation on the unit renovation. So the 18.3 months and I mentioned is on our full.
Unit renovations, our expectation there is north of 15%.
So I do think that we'll continue to identify the the best opportunities and our expectations are high for what we won in return and how we put that capital via.
It could you just remind us and how many units are kind of being programs for the value add over the next quarters.
Oh, that's a good question Oh, probably close to 900.
Okay very good and then final question for me, obviously, you tapped into the equity markets with your.
Share price, where it was a comfortable doing so.
And being able to access equity capital at fair pricing.
Obviously I think it hits this year positioned in terms of talking with rating agencies about investment grade rating, maybe if you could just.
Update us on thoughts in that respect.
Yeah.
We start I guess for openers, we certainly.
Our more focused on safety and caution so.
I mean, we're putting that cash on because.
Or want to be prepared for bad weather and we want to be opportunistic on the acquisition side as it relates to the and I and we'll continue to have that bias I'd say towards safety and liquidity.
Until.
Until we think we can run leaner again.
[noise], which will be I'm sure several quarters for now, but with respect to the GE discussions.
An index eligible bond deal today, I think is 350 million box, which is 60% of our current total debt outstanding that we couldn't get too if you want it too so.
You know the rating agencies tell us where small.
And ER and on a relative basis, that's true so I think for the for the near term that that's not a discussion where to focus on with the ratings agencies, specifically in the context of trying to get to NRG rated deal where we are very focus is on maintaining an expanding our ability to use.
The private placement market.
And.
As we've talked about we did that deal in September of last year.
With Prudential, which has been a great relationship and partnership and was the product of a lot of work. They are the largest buyer or one of the largest buyers of real estate private placements and they're one of a few groups. It really does.
Beyond kind of Bloomberg or desktop underwriting.
So it's great to be in that market with them, we'd like to continue to do work.
To broaden that access over time.
And so I think we're well positioned to do that today provided we keep on doing what we've been doing which is a hold onto a as we've caught it investment grade like metrics. So ultimately we'd love to be in a spot where we can go investment grade that's going to be a factor of.
Maintaining or increasing the quality of the metrics as they sit today and getting larger.
Sorry for that.
No. That's okay. It wasn't one final final question for me.
In the conversation about the comments about Denver.
Particularly in the in the context, so development deals said babies stalling out or having problems. Maybe if you could just kinda give us the centsfour, where you think concessions are likely to go in that market over the next two to four quarters.
Yeah, I mean, it's concession heavy right now I mean, I think they're going to I'll ask and a jump in but I I think they're gonna stay.
Reasonably heavy I mean, when we I mean listen we reduced we read the transcript and listen to all these other reports I'd say that's our most.
Affected market sort of double whammy of of co bid and supply.
And you want to add yeah, I mean, we're already seeing two to three months there from the projects that were in lease up and that you don't need to need to finish out there at leasing. So I don't know if that gets any heavier given I think occupancy in that market has stayed relatively stable and you know where we're coming to the end of leasing season.
And where they're just.
You know won't be as many people moving around but.
Yeah. So it continue I think the other thing I'd add to that Jim that's really important as we really do believing that market and the long term strengthened and you know a lot of what's happening in the world today I think accelerates.
What we like about and believe in for Denver, which is people will move there because they want to live there and they can do their jobs there and.
That's true because companies are moving narrow facilitating people being there, but also you know given everything that's happening today.
You can lower your frictional cost of living somewhere, which I would define frictional cost as taxes and time commuting and things like that.
And being a place into foothills are those mountains a lot of people are going to do that I think that trend will continue.
Sure makes sense, okay. Thanks, guys.
Thanks.
Your next question comes from Daniel Santos of Piper San There. Please go ahead.
Hey, good morning, Thanks for taking my question. Most my questions have been answered, but could you give us some thoughts with some high level comments on how you're thinking about pushing rates versus occupancy across the portfolio and then specifically on St. Cloud just given the comments on some of the pressure from University students is it fair to say that if university the University doesn't.
Opened for on Kansas classes that that market will lag through the next academic year.
That's a good good question I'll start I'll start with St. Cloud you know, we believe to as of right now it appears as though the students will be going back and while we don't have a high percentage of students in our buildings you know the students being gone from other the other projects you know really create vacancy in the market which gives people.
Options. So you know I think we feel optimistic that they're going to come back in.
And that we're going to be able to push occupancy there a little bit and once you have some occupancy then you can grow the rents and with respect to the rent and occupancy I mean this is a fine balance that we walk every day and our job is really to optimize the revenue. So we focused heavily at the beginning of the Panasonic and keeping.
Occupancy high so that we would be in a good position to push pricing. When we had the opportunity we are seeing that opportunity now at some of our assets as as I noted our new lease rates were 1.1% up in July so that was a good that's a good indicator and most of the.
It was.
[noise] leases are signed and go effective you know within the same month, whereas our renewals lag. So you know that renewal pricing is effective but it was priced 60 to 75 days ago. So I think we feel pretty good about the opportunity in front of us, but we do think that there's still probably going to be some flat month.
Particularly as we go into lower expirations and lower traffic month, we would really like to keep our portfolio occupied.
Above 94% in order to make sure that we're well positioned.
For the second quarter next year when leasing starts I think that's gonna be our real first opportunity to test what the post call that pricing will be is at the beginning of leasing season next year.
Awesome. Thank you that's it for me.
Thanks Daniel.
Your next question comes from Macquarie Raymond James. Please go ahead.
Hey, Thanks, Good morning, I, just couple of quick ones to clarify I wanted to go back to the bad debt accounting policy, just and make sure I understood that so you reserve everything pass.
They are balanced past, one month, but or are there some security deposits or other.
Ways to recover those balances, even though they've been reserved or is that or the reserves net of deposits how does that work exactly.
Yeah. So the the reserve excludes the security deposits.
The reserve would be for you know residents who are currently occupying our units when they move out.
The security deposit can be applied but you can access the security deposit in the you know in the middle of a resident reciting there, though would be triggered by when they move out I don't know and if you did you add or anything else to add.
So it's not it's not considered at all in the bad debt provision if that if that's what the question was yeah. It truly here around the amount owed.
So this isn't so thats reserve, but theoretically okay, there's a point, where you could possibly recovery.
Could you.
Did you reverse that reserve with Recoverability of the deposit does that does that.
Does that make sense.
Yes.
That's right okay.
Okay.
And then other one just thinking about.
Equity issuance from here in the usage of the ATM I mean would you guys considers still.
Raising some dry powder on the ATM in advance of anything announced in Nashville or.
If you do do something in Nashville would that probably accompanied by more structured equity raise or how do you think about.
A more typical secondary versus an ATM to raise capital for entry Nashville.
Yeah, I mean, we certainly have a lot of firepower right now [noise].
Just in terms of cash.
Relative to our the size of our enterprise so.
The answer is yes, we would raise it and advance I mean again I think our our ammo kind of.
Over the past couple of years as Ben.
By match with sale proceeds used a little bit of leverage tell people about it raised capital if needed to get back to leverage neutral.
I'd say, we flipped out a little bit towards you know be prepared in advance have the cash on hand.
Seeking opportunities protecting our overall liquidity. So we'll continue to do that I mean, we're running kind of rich right now in terms of.
Our cash balance in our in our judgment.
And so we continue to do that and we would raise an advance as it relates to a traditional.
A follow on I think if we had the size and we felt like the pricing made sense.
We would we would absolutely consider that.
I mean directionally the feedback we get from a lot of institutions, who.
Our spending time with us, but don't own the stock is we'd love to find a way to get in with volume that would be a way to do that you know there's a big cost of that and you know we have to weigh those two things together because we work for the people who on the stock today [laughter].
Not the prospects, obviously, that's a balance we we'd like to.
Attract those folks as well.
Understood. Thank you that's that's all I appreciate it thanks, good thanks Bye.
Again, if you have a question. Please press Star then one.
Having no further questions. This concludes our question and answer session I would like to turn the conference back over to Mark Decker for any closing remarks.
Super Thanks, Melissa Thanks, everybody. We appreciate your interest in Iran can't be well in stay safe.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.