Q3 2020 Equity Residential Earnings Call

And constantly changing.

Shifting to the business our third quarter results reflect the challenges posed by the continuing health crisis and the impact it has had on living and working in the urban centers of our markets.

The approximately 23% of our portfolio located in downtown San Francisco, Manhattan, and Brooklyn, and downtown Boston, and Cambridge continue to be the most impacted.

When we last spoke with you in late July on our second quarter call. We were seeing demand in excess of 2019 levels and renewals that were at or near 2019 levels, albeit with significant rent reductions in concessions, leaving the occupancy being generally stable.

As we went through August in early September we continued to experience good demand, but turnover increased significantly pressuring occupancy.

The timing of these turnover increases correspond to generally with the announcements by employers of delays in bringing employees back to offices as well as incidence of civil unrest.

This occupancy pressure in turn caused further rent declines and increased concessions.

So far October has been broadly similar though we have seen scattered positive signs in the form of modestly improved renewals and higher application volumes.

I caution, however that market conditions remain too volatile and the timing of developments on mitigating the virus too unclear to suggest that we have turned a corner.

All that being said we are heartened by the demand we see for our product even in urban centers, where life has been significantly impacted by the pandemic. We also see recent office leasing activity by technology firms as well as activity by financial services office users as a long term vote of confidence in our urban centers.

We believe that the knowledge based economy will continue to drive growth in the us and that our markets with their massive installed base of universities innovative companies venture capital firms and the many other things that make a knowledge economy grow not to mention renowned entertainment and cultural amenities will keep them at the.

The center of this activity.

The cities in which we do business and in which many of you live and work will again be attractive places for affluent long term renters to live work and play once that pandemic wanes.

The impact of the pandemic on increasing the ability of many office workers to remote work is certainly a fascinating new trend, whose long term impact is difficult to gauge for no matter what it does to longer term office demand. We feel that are relatively young demographic craves, both work proximity and proximity to the entertainment and.

Cultural amenities in our cities, which we think will remain very attractive to affluent renters once our city's reopened fully.

Also supply in urban centers should in the mid term declined sharply as developers lenders and investors react to market conditions and construction costs that have not declined as of yet.

While we are not providing earnings guidance, we do want you to be aware that our financial results will weaken over subsequent quarters as the full impact in the pandemic works its way through our rent roll.

Lower lease rates take some time to fully manifest themselves in our reported same store revenue numbers because at any one time, our rent roll is made up of both new leases with lower rents and leases that were signed at higher rents prior to the beginning of the pandemic as the composition of our rent role changes to include more of these lower.

Rate leases, our same store revenue results decline the opposite is true on our way back up occupancy changes, causing much quicker shift in the trajectory of our reported revenue numbers.

In the meantime, the combination of our portfolio diversity and strong balance sheet will allow us to weather. This challenging operating environment for IEC you. Our recovery is a matter of when not if.

A quick note on collections.

We continue to have strong results, we're collecting about 97% of our rents and resident payment behavior has not changed and that said, we had increased residential bad debt costs in this quarter, reflecting the fact that although in the aggregate theres only a small number of residents who have stopped paying since the pandemic began we had a peak in.

In July of those that reached our three month nonpayment threshold and their full balances were written off.

From that point forward only a small number of new non payers have surfaced. So while we will continue to deal with elevated bad debt and will likely not be to the same extent seen in our third quarter numbers.

On a similar note the write off of nonresidential straight line rent amounts in the quarter was large and lumpy and should not or Korea curve going forward.

My final comment will be on investment activity.

We closed on one acquisition in the quarter to 158 unit property in suburban Seattle and easy commuting distance to the growing job centre of Bellevue. The purchase price was 48.9 million. The profit is a brand new asset in lease up and we expect the year to cap rate upon completion of the lease up to be 4.7%.

This is the only asset that we have purchased this year versus approximately $750 million in 2020 property sales.

This purchase is a continuation of our strategy of buying urban and suburban properties with Apple went well employed residents the acquisition of which we believe will lead to attractive long term cash flow and Unlevered IR our growth.

We will continue to buy properties using proceeds from selling assets that we think have weaker prospects due to property condition or location, where the buyer is willing to pay a price that exceeds our estimate of fair value.

I will now turn the call over to Michael and Ellis, Our Chief operating officer to walk you through the markets in detail and then we'll take your questions Michael.

Thanks, Mark let me start by thanking our employees for their dedication and hard work during the third quarter. This has been a year like no other and their commitment to their residence their colleagues has been tremendous.

The third quarter saw a better overall demand for our apartment, both urban and suburban suburban assets are holding up relatively well, while our urban assets are producing higher turnover, leading to decrease rental rates increased use of concessions and lower occupancy.

Overall this quarter's performance was determined as much by the density of the location urban or suburban as by the market.

As we previously discussed a little over half of our portfolios urban while the remainder is suburban.

On a positive note the improvement in demand across all locations resulted in a 5% increase in year over year movements resident.

Resident turnover, however was a more challenging story after eight consecutive quarters of improving resident turnover. The third quarter of 2020 was the first quarter with a number of residents moving out increased on a year over year basis.

Resident turnover continued to decline in the suburban markets, but the increased turnover in the urban markets more than offset this improvement.

On the renewal side as we sit here today, we are renewing just over 50% of our residents with approximately 35% of our fourth quarter renewal offers being issued with some renewal increase mostly in the suburban submarkets.

Portfolio wide occupancy is currently running just above 94% the suburban portfolio is around 96% with the urban portfolio slightly below 93.

As I mentioned the good news is that we continue to see more people looking for our apartments than last year.

As disclosed in the release applications at the company level were up 20% over last year in the quarter driven by outsized growth in the urban core and this growth accelerated in October defining normal seasonal slowing.

Given the amount of inventory, we have available to sell in our urban portfolio, we will need to maintain this velocity through the fourth quarter or reduce turnover in order to continue to hold portfolio wide occupancy at 94% of stabilization and then improvement of our occupancy is what would allow us to dial back.

Concessions and begin increasing rates.

Much like applications turnover in occupancy the pricing story is also bifurcated between urban and suburban.

In the urban markets pricing continued to trend down and concession usage increased throughout the quarter, 70% of the portfolio wide concessions used during the quarter were in Manhattan, Brooklyn, Boston and Cambridge in downtown San Francisco.

The volume of new leases is strong in these submarkets, however, price prospects continued to be very price sensitive.

Previous addresses provided on applications suggests that the large majority of these new residents are deal seekers, who are moving to us from from within the same market.

In the suburban markets concession use was rare and pricing was fairly stable throughout the quarter with a few submarkets beginning to show modest year over year growth, particularly in southern California.

Now, let me move on to some market specific commentary.

Starting with Boston elevated vacancy levels at existing properties and the in opportune recent delivery of new supply in the city will continue to challenge Bostons near term performance, while concession use remained elevated in the city and Cambridge. It has been consistent since July with about four to six weeks being the norm.

Leasing activity is predominantly coming from interested he moves with the lack of international students and workers continuing to pressure rates.

Currently we have seen some very early signs of stability with no incremental declines in rates for the last several weeks and marginal improvement in occupancy.

Boston is typically highly seasonal and these albeit early signs are bucking that typical trend for.

For the market to fully stabilize it will require continued improvement in the demand drivers to aid in absorption of the new supply that is being delivered currently and anticipated in 2021.

New York continues to be one of the markets hardest hit by the pandemic and we still see residents, leaving the city to wait it out.

During the quarter leasing activity was driven by deal seekers or intra city moves who represented approximately 75% of total move ins. This is up 15 percentage points over last year.

Meanwhile, the elevated move outs continued with most of our residents moving to the surrounding states with suburban New Jersey, capturing the largest share.

In our conversations with New York based employers and based on Mark in My recent visit to New York you can see early signs of the city trying to re energize.

While overall activity in the city remains meaningfully suppress there are absolutely a few areas where things are starting to feel a little better specifically, the upper west and east side Submarkets.

Other sub markets, notably Midtown Chelsea Soho and the financial district have a long way to go overall, we've noticed a brief period of stability beginning in late September and through October which is far better than the weekly sequential declines we experienced throughout the entire second quarter and much of the third.

Currently we are defining the usual seasonal drop off in applications and are achieving outsized growth and weekly application counts. We have also recently seen a slowing in the pace of move outs. However, we will continue to feel pressure on occupancy until move outs fully normalize.

Our occupancy in the market is just below 90% studio apartments, which were once our highest occupied unit type prior to the pandemic are now our lowest at 88%.

We are getting ready to furnish a few of these as many offices available for our residents who are working from home and willing to test the demand for renting these spaces and hourly blocks of time.

The good news is that New York is resilient and we strongly believe that it will remain a top destination for highly educated workers.

We hear anecdotally from our local teams that residents intend to return when we get to the other side of this pandemic Dick.

Declines in rates have made living in Manhattan, more affordable and that could be a catalyst to bring people back the broader recovery in this market will be fueled by a lack of competitive new slot supply and the continued growth of big Tech employers in this market.

Many of these tech firms continue to expand their investments in this market even during the pandemic supporting the view that the city will continue to thrive as it has in the past both pandemic.

Moving to DC, which is holding up better than our other east coast markets, but performance during the quarter moderated due to slowing class a multifamily absorption.

The market benefits from federal government employment, which has actually seen a net increase over the last 12 months, but the overall job growth has declined the ability of our residents to pivot to work from home has allowed us to maintain occupancy with concession use that was relatively low in the quarter. We.

We are seeing some increase in concession use and pricing pressure in this market and expect performance to moderate through the fourth quarter, partly due to normal seasonality, but also due to the continued competitive pressure from new supply.

Heading over to the West Coast, Seattle began the year with strong expectations based on elevated job growth and a favorable competitive supply landscape in the downtown area for the second consecutive year.

In addition, Seattle's median income within the city limits increased by 10% and crossed the $100000 a year threshold, which makes it the third major city to do so.

While Seattle was initially impacted in large by coded its performance through late July was very stable social unrest in the city and extended work from home announcements in late July and August However began impacting our performance, especially our ability to retain residents in the CBD Belltown and Capitol Hill Submarket.

Yes.

Overall market occupancy is now just below 95% with elevated turnover during the quarter that was heavily concentrated in the Capitol Hill and CVD Belltown Submarkets.

Sessions, which were hardly used previously are now starting to be seen in stabilized assets, mostly in these submarkets eastside properties are also using concessions, but with the lower frequency and properties to the north continue to be in the best overall shape with good year over year growth in the Bible Mill Creek Submarket.

Overall housing prices continue to rise at a fast pace and along with the other factors just discussed we would expect this market to quickly bounce back both pandemic.

San Francisco is our most challenged market. Although it is not the same everywhere overall occupancy is now below 93%, while our downtown assets are 87% East Bay is 96, and both peninsula and South Bay are currently at 94%.

Since mid March the downtown portfolio has been pressured on rate with escalating concession use concessions at two months are now common downtown and what used to be a 15% to 20% rent premium between downtown San Francisco and new supply in downtown Oakland is now flat to a 5% discount.

As we think about the future San Francisco should recover when there is more clarity on tech companies long term plans regarding office versus work from home policies and an improved quality of life in the downtown area.

Supply in 2021, we will continue to be concentrated in Oakland and the South Bay South Bay supply May challenge operations, even further unless the tech workers resume living in closer proximity to their offices.

One small positive from the declines in rental rate is that it has made the city of San Francisco and more affordable place to live potentially attracting more people back into the city.

During October we saw outsize growth in applications and a slight improvement in renewals. This in turn led to slower declines in pricing in our downtown portfolio.

In Los Angeles, the urban portfolio maintained occupancy around 95% through the quarter well continue contending with continued pressure from new supply in the downtown Korea town mid Wilshire corridor Westell La continues to feel pressure from the slow restart of online content creation.

Overall pricing, including the use of concessions has been stable since mid September while the application activity has continued to grow.

The suburban portfolio continues to show signs of improvement with occupancy staying Apple and near 97% the suburban Submarkets of inland Empire, Santa Clarita Valley inventory County are all experiencing modest year over year gains in rental income.

That being said, we expect the overall portfolio to modestly improved through the quarter, primarily driven by continued rate improvement in the suburban submarkets. It.

It is only fitting that I conclude our market updates with Orange County, and San Diego, which stand out for their resilience through the pandemic, while our portfolio. In these markets consist primarily of suburban assets and were certainly impacted by the pandemic they have consistently sustained occupancy above 96.5% collectively.

While also improving the percent of residents renewing their leases.

Both markets have year over year revenue gains and are expected to sustain for strengthen their performance during the fourth quarter.

Overall, we haven't seen anything that leads us to believe that the trends. Despite just discussed are likely to change meaningfully in the near term to.

The suburban portfolio should continue to outperform with some potential improvement in pricing and relatively stable occupancy.

The urban markets will likely continue to be challenged, particularly Manhattan, Brooklyn City of Boston and Cambridge in downtown San Francisco, where continued pressure from the increased turnover and a highly concessionary operation operating environment impact performance.

As detailed in the release and in my remarks, we have seen tentative signs of improvement in some of the metrics in these markets, but pricing remains under significant pressure.

We will need to see occupancy begin to improve and pricing to stabilize to feel like we have turned the corner.

Our urban properties in Washington, DC, Seattle, and now they will likely continue to see slight moderation in both rate and occupancy with potentially more pressure in Seattle, where some signs of weakness that come into play.

While the economic uncertainty in the extended impact from the pandemic have made it difficult to predict what a recovery looks like and when it may occur we remain optimistic on a number of fronts, including the ability to grow rate in our suburban portfolios continued demand for our product regardless of location.

And solid collection performance, our ongoing effort will continue to seek out those opportunities to improve performance, while ensuring the well being of our employees and residents. Thank you at this time I will turn the call back over to the operator to begin the Q and a session.

Thank you at this time, if you do have a question. Please demos by pressing star one again that will be start one for questions well hear first today from Nick Joseph with Citi.

Thanks, Mike I appreciate all the details.

You mentioned at the end the trends are not likely to change in the near term. So wondering what the historical relationship between applications, which you are seeing pickup, particularly in October for the urban core.

And ultimately occupancy or net effective new lease rate change.

Well I guess I would I would think about it this way, which is the the volume of applications on a year over year basis is is improving and its strong but again there is seasonality to applications right. So applications are the highest in the third quarter will drop off in the fourth quarter as we think about that relation.

The ship to new lease change.

Obviously, if we can continue this extended leasing season that we're seeing throughout the balance of October and November.

That should start stabilizing that occupancy and give us the ability to start dialing back some of the concession used and then ultimately try to pressure test increasing rates back up a little bit, but I think it's still too early to see what's going to happen for the balance of the quarter, but I think right now looking at where we sit at the end of October we.

Pretty good that we're seeing this extended leasing season continue.

We just don't know how much longer will continue for.

Thanks, and then I appreciate all the additional disclosure and.

I understand the lease for all of the seasonality.

Current operating environment.

Given how much price transparency dairies in the market.

How many tenants with in place leases.

Are you seeing trying to renegotiate and then how are you handling that.

Well, so I think theres two there's two aspects to that so first is transfers. So people that are on a current lease seeing what's available in their building and trying to move in.

ENTRALEADS. So we did see an increase in our transfer activity through the quarter.

We raised our transfer fees in early April trying to mitigate some of that activity and ultimately a large percentage of those residents that are transferring are actually moving to a larger unit that has an increase in rent still.

And then on the other side at the end of the lease you are still seeing some some folks trying to trade units and really going after kind of more space. So people that were in studios moving to the one bedrooms et cetera, and again at that point, we are doing our best to negotiate with them to keep them in place in there.

Current unit, but.

But ultimately we want to retain them in the resident as a resident so we're going to do what we need to do to keep them.

And how about just on pure lease breaks.

Our second quarter.

Looking at a unit intangibles units now down 20%.

I may end up just moving out and pay the lease break versus renegotiated medley.

Yep. So early lease terminations are continued to be elevated on a year over year basis were up about 25% year over year sequentially. We definitely saw it July like ticked down from June, but then the announcements from the large tech companies on extended work from home policies.

On the civil unrest in the cities kind of in early August resulted in early terminations increasing in the month of August So far September and October remain elevated on a year over year basis, but they are not as high as they are in August.

And just to add Nick its mark we do receive lease termination payments from residents who terminate leases early so depending on the jurisdiction that can be continuing to pan your lease are paying us two to three months right then and there as that lease termination cost. So there is a the same sort of elevated number but it isn't like.

Free option for the resident to exercise.

Thank you.

Thank you.

Well hear next from John Pelosi with Green Street.

Thanks slab marked the first questions just on the private market valuations in some of your hardest hit urban cores. So if you went out and and JV or sold out right your Manhattan portfolio or San Francisco portfolio today would there be a sufficient bid do you think and.

Howard values look versus streak of it.

Yeah. Thanks, John I guess I'll do a quick survey and just say that if you're in the suburbs and I think it is consistent with you and others have written if your suburban proper.

Property owner of a b property quality asset with the renewal.

Excuse me, our renovation potential that probably that assets worth a little bit more than it was pre pandemic class a suburban is probably about the same as it was pre pandemic the urban stuff in San Francisco, New York would be very hard to trade I mean, we still see.

Total volume in the third quarter is down 60% for our kinds of assets and even more so in New York and San Francisco and I can't even 0.2 completed deals to tell you what the market is so I'd say those markets are pretty illiquid. It's I think very logical to assume there has been some reduction in value. My guess is it's going.

To end up being pretty modest because a lot of folks like us who own and those markets are compelled sellers and because of that you won't see us putting those assets into the market.

So I think what you're probably guessing at some sort of modest reduction in value in New York and San Francisco for sure. If we were trying to do a transaction frankly right at this moment I am not sure how well that we'd go I. Just think people are trying to underwrite declining rents trying to understand the health crisis.

Pandemic coming back again, and I think all of that is would make it quite difficult to treat these assets.

We needed to do so in some kind of quick haphazard fashion and of course, we don't need to do that.

Okay.

[music].

And then just trying to understand your.

Your comments on the recovery as a matter of.

When and not if.

Year to year very still bullish on the knowledge based economies.

And you are in the past cycles opportunistic.

Just why haven't you acted on the dislocation in your stock yet and others illiquidity in some of your urban markets in terms of selling assets. It just feels like there is that there is a big dislocation in front end just curious why why you're not selling more assets to buy back stock.

Yes, I think theres two things going on in there and one is a capital allocation thought process that you laid out and there is also in our minds a risk management thought process I mean, when we start selling assets to buy stock, which we can do that we don't have that much tax pressure, though at some point, we would and we can't sell it on.

Limited number of assets and not have gain issues, but as you go through that process of taking EBITDA out of your company taking in Hawaii on in the company, you're increasing risk 23% of our AR and why right now is under significant pressure so switching to a risk management thought process from our perspective, it seems better at this point.

To be a little more cautious to acknowledge the uncertainty that's out there in the world whether it relates to the pandemic or the values in some of these urban markets and just sit tight and operate the portfolio hard and that Thats, a more prudent thing to do than to go and purchase shares because again once that capital leaves the firm and it cant come.

Mac so again for US just this recycling activity will keep doing John because again, it's just relatively minor and were an apartment company thats, what we do but buying stock back to us increases risk in the firm and we just think this isn't a point in time when you want to do that.

All right. So there's no big large disposition plan.

There are other assets that are going to be sold were going to sell into this bid as I mentioned for the value bid for some of this class b renovation stuff in the suburbs Weve got properties, where we don't believe in the renovation play where others may. So you should expect will sell into that we may pay down some more debt that will leave us what options, which could include a buy.

Back at some juncture willing definitely include recycling into assets in these dense suburban areas and in other markets, which we've talked about on prior calls so.

But doing a buyback right now with the pressure, we're feeling on operations and the uncertainty in the world at large it does not seem like the right idea to us.

Thank you.

Thank you.

Well move onto rich Hightower with Evercore.

Okay.

Hey morning, guys. Thanks for taking the question.

Mark I can't believe you don't want to Roddy you are like hedge funds.

[laughter].

It's always easier to look at these problems from the outside.

Yes, no thats certainly is.

Its numbers on a spreadsheet for the rest of this right you guys were already so.

So.

But I do want to.

The.

The current concession environment, Michael I know you mentioned 40.

For the difference being the norm and I think Austin was market mentioned, but help us understand where we two month, where we three months three or some of the more extreme numbers in that conversation and then maybe a quick follow on to that if we fast forward a year from now.

Got all these people and all that sort of end use demand as you described due to.

Much lower rents more affordability more concessions and that sort of thing what happens at the end of the lease term what your historical experience. There. When there is a bit of sticker shock 12 months out how should we expect that to factor into occupancy and turnover a year from now so I know, it's kind of a compound questions. Appreciate.

Any color.

Yes. So first let me just start I'll, just give you a little bit of color on the use of concessions today. So the markets that you would expect to have the most concession use like I said, 70% of all the concessions in the quarter were in those urban cores of the New York, Boston and San Francisco.

New York about 70% of all of our applications are receiving a concession just about two months right now San Francisco the entire market overall, it's about 50% to 60% that are receiving a concession we're averaging right around that one and a half month or six weeks, but if you go to the downtown San Francisco.

You are closer to about 70% to 75% of all the applications receiving two months.

Everywhere else is sitting kind of right at that six week were right around that one month, Mark and I think what you should expect to see as I said in the prepared remarks as we see some stability in occupancy see this improvement in demand or demand is holding steady we'll start dialing back some of the concessions as.

We work our way through the year as far as coming upon the renewable side of the equation in a year from now when we underwrite applicants today, we underwrite them at their gross rent regardless of the concession so our rent as a percent of income really has not changed in the portfolio from the applications.

So we're still running between the low 17% in Seattle and the high at 22, and a half in San Diego and you look at those ratios and you would say they are going to be in a position to afford an increase there are clearly going to be at a physician to afford continuing to write the check at the rent that the writing regardless of.

The concession they receive when they moved in with US. So I think thats, how were thinking about a year from now.

Okay. That's helpful and then.

They've done for historical experience with that sort of thing if we go back to own nine.

And is that does that mean thats the way. It played out back then where you underwrite.

Certain income Brent ratio and upon renewal.

The tenant to sort of take it if the market is stronger and is that is that in a predictable way.

Renewable curve or do you think there is some variability just kind of given the unique nature of.

What's going on right now.

Well I think the extent of concession uses greater right now in the portfolio than it's ever been so I don't know if we can look to the past down cycles and see what does that look like I'll tell you a lot is going to depend on what the pace of the recovery is like one of the city's feel like what are these long term work from home policies.

It looked like that is going to dictate more around our concessions still being used widely in the marketplace. If they are we probably are not going to be able to just wipe off any concession on a year over year basis will stare step them back to the rents they are paying but it's not like they're just going to go away so lots going to do.

And about what is happening around us in that competitive markets that as to how those renewals will be treated through our renewal negotiation process.

Great. Thanks for the color.

Okay.

From Morgan Stanley, We'll hear next from Rich Hill.

Hey, good morning, guys.

I wanted to maybe just take a step back I think when a lot of us are trying to get our arms around it.

[noise] win.

When when when the headwinds begin to inflect.

And so from your perspective as you think about the drivers of rent growth in your markets is it isn't really a job growth inflection is that getting people back to markets like New York City that moved away because of COVID-19.

Is it just is it just rinse resetting to a lower level.

Can you just walk me through what you think from a macro standpoint are the biggest drivers of an inflection on rent growth.

Hey, rich it's Marc Thanks for that question I guess as we think about it it's pretty predominantly related to the public health emergency So let's spend a moment together speculating on how that might play out and that's all this is I mean, there is good reason to believe the virus will get worse I think there's good reason to believe the vaccine.

We will become available, especially the health workers and people that are more at risk over the next few months and then slowly all the rest of US we'll get that so you will head into the spring leasing season, maybe with some positive signs on the Covance front.

One of the reason you're hearing a lot of caution from US is we've got this elevated demand, which we like we got elevated inventory, but we're also heading into the quietest time of the year. So we need to be really thoughtful about our seasonality. So not only are we finding coded we're fighting pardon me seasonality and right now we're we're bucking seasonality we're doing we're done.

I'm really well on leasing the team's doing a great job rates still suffering but where we would hope would happen just as you think about headwinds to us. The most predominant headwind is coded because on job growth our resident base from what we can tell didnt lose their jobs that was unfortunately people in some of the service sectors and hospitality business things like.

That and that is in our resident base. So I think a lot of our residents are well employed they just don't care to leave in some of these urban centers right now when they are these centers are disengaged and aren't as much fun 11, and I think that a great number those folks will come back and the new crop of people. The people I graduated from an MBA programs from technology programs and won.

That city experience those folks will still want it because that younger demographic that we mostly cater to balance is safety I think engagement entertainment differently, and I think rich they'll be they'll want to come back and they will be eager to come back if the cities are reasonable facsimile of what they were before so that's how we're looking at it doesn't mean.

We're guaranteeing things are better in the spring, but we're saying that the next.

A quarter or so we're dealing with the seasonal decline in demand as well as whatever the virus brings us and that makes us a little more concerned.

I think that makes a lot of sense to summarize it sounds like a good old fashioned supply versus demand technical and as as demand begins to increase as people move back and hopefully that will lead to lead to an inflection is is that correct characterization.

Sure and.

The comment in.

The press release that I made about things rolling through the you know the financials I just want to make sure everyone understands it isn't necessarily that things will keep getting worse and worse and worse. It's more that whatever is happening in the rent roll now takes a quarter or so to manifest itself in reported numbers. So what will happen first is on some call in the future.

In some press release Microanalysis, we'll tell you things have started to get better occupancy is firmed up concessions are declining maybe rate isn't moving at but that seemed to second derivative is going the right direction. So you will see it in what I call. The management accounting numbers before you see it in the numbers that Bob reports to you for same store revenues. So thats what were trying to.

Again, we've got a pretty new group of analysts frankly on these calls a lot of investors aren't as familiar it's been a while since we've had a downturn. So we're just trying to make sure everyone understands how that works in the apartment business.

Yes that that's very fair. So thank you for that and just a strategic question.

And maybe it goes back to one of the earlier questions I do very much appreciate your commentary about why you don't want to buyback stock I think that's generally not the right thing to do and in markets like this but your your stock is trading at a pretty meaningful discounts to private market valuations.

Basically against the backdrop of low low global yields.

There is a lot of money on the sidelines two investment commercial real estate.

Private equity seems to be making a big push in the commercial real estate, particularly for stable cash flow assets with strong secular tailwinds.

And that all sort of triangulate at least back to us to the apartment sector. So I guess my question there very long way as you know.

Is there a scenario where valuations were to stay here for another six to 12 months, where you would seriously consider.

Yes.

Either either a significant JV with a private company.

Or or or maybe just say hey look you know what.

The best thing for our shareholders is to take ourselves private I recognize that's a big check and a lot of friction costs I'm curious, how you think about that.

Well as one thing you said I want to latch onto you said the interest of PE firms and generally the private folks with with investment dollars very interested in the apartment sector and you used the word stable I would say half our business is pretty stable.

A third of it in the urban centers outside New York, Boston, San Francisco is okay, but marginally weakening and then a quarter of our businesses as having a tough run of it. So I'd say that when you think about the buyback like I said some of the prior responses and when you think about any other action or interest from PE firms, there's going to be a lot of interest in the New York portfolio.

The moment that portfolio needs to find a floor on rents it needs to have some enthusiasm and excitement in the urban center again and people moving back end, then you'll get a floor under that sort of taking a company. This size private I mean, that's obviously a matter for the board to consider not for me alone to determine but I think its weight.

Too early to start thinking about things like that and I I would expect that at some point again when the operations of the company, especially in Europe and centers feel a little more stable, we will feel like a larger menu of capital allocation options are open to us at that point will be conversations with the board about things like buybacks again and other conversations for.

Now.

The best thing to do is to run the portfolio hard and stay Super flexible that's the right thing to do.

Okay, all right guys Super that.

Hi.

Thank you.

From Bank of America, we'll hear from Jeff.

Great Good morning.

First question.

Hi on.

On markets.

I appreciate your comments on.

Knowledge based economies and your positioning in these different cities just to confirm.

Are you, saying that you and your team you are not more concerned today about any of the market you're in Brazil for example, San Fran downtown or Seattle downtown.

And that you're happy with your positioning.

What I'd say I'm, sorry, when I'd say about our positioning is the covance virus the whole pandemic exist accelerated a bunch of trends and among those is just the dispersion of high wage job growth outside the coastal centers, where they used to be predominant.

Okay. So we have talked about adding exposure in Denver.

We've talked about potentially going in Austin Theres other markets that at the right time, we'll talk about with you as well. So I think you can expect that we will spread our capital around a bit more overtime, because I think those jobs have moved around for a lot of different reasons, Jeff I think some people just want to different lifestyle some folks.

Are looking to get away from maybe some sort of tax or political thing that they're concerned about but I would say for the most part our residents. When you look at where affluent we think renters in the knowledge industries are.

San Francisco is still has a lot of advantages as a technology Center, New York still has a lot of advantages as both the technology and financial services Center Boston in the biotech in Cambridge and biotech in financial services. So, but there are other markets that are of interest. So I would say terms of our positioning right now I tell you I think we will continue as Weve said I think.

Since 2018 to add exposure in dense suburban areas, where we can find affluent renters and we will follow our affluent renters to places like Austin and to Denver, and we'll continue doing that so you should expect that we will continue to broaden the platform out and continue to react to that and react to things like political risk in some of our markets.

But you know theres no risk free apartment market. Some of the markets that you might move into have had in the past very significant supply issues don't have as big a base of high wage apartment renters. So there is again there is a balancing act as you enter each of these markets.

Thank you and my follow on question is.

Is on you.

New York City, given that is one of the weaker markets.

And I believe in the early remarks, you talked about a lot of those renters, leaving for New Jersey.

I live in New Jersey, and I could say I don't think many young people want to live in New Jersey, So I take that.

Maybe as a positive I mean, when you do your exit interviews are these 20 to 30 year olds moving back home with the parents temporarily like I'm. Just I know you don't know, but if there is a vaccine that is.

Is that could be a nice boost to the spring summer leasing season for 21.

Yep, So I guess I'll give you just a little bit of color on you know I think I said in the prepared remarks, we're definitely seeing an increase and those that are leaving the market. So we used to have about 70%.

Our used to be 50% now, it's about 70% and New Jersey, Connecticut, and California are the top three states, where those that do leave are going to.

With suburban New Jersey is where the majority of them were going.

The anecdotally from our doorman from the concierge and the building our regardless of the demographic, whether its young and gone back with mom and dad, whether it's the older a lot of them basically are telling the doorman, telling the concierge they will be back and they will be back as soon as we get to the other side of those pandemics.

So to us that's the positive side that we have that the renter base that we had will return it's just a matter of when they're going to return.

Okay. Thank you.

Well hear next from Anthony Paolone with JP Morgan.

Yes. Thanks.

Sure I think everyone's one is just to understand in California, if you're offering a resident free rent and then next year.

Renew.

Does that is that impacted by the CPR plus 5%.

Regulation or does that only.

In fact, the face round comes at work.

I'm not sure we have that answer for you right at the top of our fingertips mean, CP VI is often driven by housing and some of these places so that is going to be approaching an 8% number under the California rules, which is a one month concession at least so I guess I don't we don't know the answer to that off the top of our hands.

Right and something like Dodge, San Francisco, where you give someone two months of free rent when that is.

If they renew is that rule kind of inhibit the ability to take those two three months out.

I don't believe so I think I think concessions are going to be excluded from that calculation and if you held somebodys rent flat or you actually raise the rent up.

But again I'm not I'm not 100% positive of that.

Okay, and then just second one.

You know just given hits and ransom portfolio. How do you think it takes or what are the prospects to maybe do something on the property tax side.

Okay.

Yeah. So I think it's going it's a little bit of a laggard right. So on the property tax side. So right now we're kind of beginning are prepping for that I'll call at hand to hand combat or conversations with every local jurisdiction, but it tends to have run kind of on a lagging basis, you probably want to.

See anything or any kind of relief at least until 2021.

Or maybe even into 2022 based on prior experience, it's going to be that argument or that conversation about what jurisdictions are doing on the rate side relative to what they're doing on the assessment side. We're very used to this we've done it for years and we will have those conversations so far we haven't seen much activity, but it's really just the nature of.

When when the actual assessments are new rates and all that comes out depending on the jurisdiction.

Okay. Thank you.

Well hear next from Rich Anderson with Sumitomo Mitsui Corporation.

Very good.

Good morning there.

So it sounds like from a from a geographical Pie chart, you kind of have some ideas about what the company might look like and in the aftermath of all this down the road, but I'm wondering if anything that has happened.

Operationally as opened your eyes to processes within the organization whether its.

Tennants select resident selection credit process.

Maybe is set to be sort of a cleansing event here.

Just put it that way for the future of equity residential do you see any changes and how you run things as a result of what you've seen through all of this.

Yes.

Well I.

I think early on and we talked about this on the last quarter, we saw that the exposure from corporate providers.

Right, we didnt have a lot to begin with it was like at one and a half.

Percent of the portfolio, we're now down 50% so.

So we have fewer than 600 units right now with corporate provider. So I think one of the early lessons I learned is that we'll probably.

Keep that at a pretty low number throughout the portfolio I don't think we'll bounce right back where we do we're going to have really large security deposits on hand from those kind of folks API.

Operationally other than that I think the biggest thing that is it is it created a catalyst for us on our sales process and is shown to us how fast we can move to virtual leasing and how fast we can move to self guided kind of tours and still be able to produce pretty strong application kind.

So I think operationally, you're seeing us adjust that way.

To to shape the business on the sales side, and we're getting ready to deploy have our new sales.

Sales applications. This next month, that's going to bring mobility to the sales teams and allow us to kind of have multiple assets covered by individual. So I think those are probably the biggest takeaways that I've had learnings.

Okay, great and the second question.

For marketing.

I don't know if we divest the analogy might be back to 911 in New York and.

Fortunately I was there cover.

Covering you back then too.

And everyone said I'm never going back to New York a deal do you have a recollection of how quickly the bounce back half and if if theres anything about that.

Period of time that can be fast forward to today, they both kind of share similar sort of fear element to it and I'm wondering if it's.

If that is guiding you in any way shape or form in terms of how things might progress when we do kind of get a vaccine or some sort of therapy in place.

Yes, Hey, you know, it's a little anecdotal for us because though we've owned for a while in New York, We really didn't known rate then so what we know about what happened then is mostly from frankly.

Frankly, our people who did work in other apartment companies or.

All our contacts that lived in the market I mean again, New York you said it very well the difference in population is significant I mean by 2016. The city was considerably more popular in fact, I think it might had the highest population has ever had.

Compared to over one and the obituary was clearly written on New York and then the city, Michael and I would summarize it from being there and from our conversations talking New York is definitely trying to get up off the mat and some progress can continue to hold on the virus people want to go back there is a special feeling of the city. You know people are there there is a lot.

Of interest our volume and New York is higher proportion than anywhere else. It's just the rate is low we just need even more demand to make up for folks that have made the decision rich to move temporarily to new Jersey or whatnot and come back. So you know I'm, probably a little less concerned with New York than I am with San Francisco, where a combination of work from home and just quick.

All the life concerns and just sort of general feeling around that those 10 properties. We have in the city of San Francisco that feels probably a little more concerning to me in the medium term I think again as long as the pandemic by the spring starts to wane and we have it under control I think people want to be back in New York and that will happen in San Fran.

Cisco I, just think it might take longer frankly.

No.

Okay, great. Thanks, Mark Thanks, everyone.

Thanks Rich.

I would now Kim BMO capital markets.

Thanks, Good morning.

Mark and Michael you mentioned that in safety, social unrest and the lack of social engagement activities are impacting apartment demand and unfortunately these have been very politicized issues in major cities.

I was wondering if you were working with any political or business organizations to encourage the reopening of offices or restaurants or other businesses.

So we have significant engagement through our trade associations on all sorts of things I don't recall being specifically engages are related to reopening restaurants were certainly big supporters of the idea that the partnership for New York put out in their letter of getting the city's running again and being on top of everything from sanitation too.

Do you know just all the transit to all the things that make cities fun and livable. So I guess our answer to that is we're not involved day to day in that but the trade associations. We support are involved in those things and we support the bigger groups its citizens and leaders in companies that are pushing for being a little more balanced year end for political.

Leaders to take in account these business interests.

You mentioned in prior calls that move onto buying homes, we're going on 12% and I'm wondering if that's changed at all with the homeownership rates spiking up to 67% earlier this year.

Yes, it actually ticked down this quarter. So we're just below 11% we saw.

Like a nominal pick up.

In the southern California markets for our Orange County, and San Diego, but that under that every market as you know basically declined about a point.

And my final question is on the bad debt expense what percentage of that 2%.

Does that represent in terms uncollected right.

The the majority of that I guess, the majority of the 2% growth.

Really all of that is uncollected rent I mean, whether that's your monthly rents are your are you know utility reimbursement whatever the charges to the resident ads, that's the uncollected amount that's in there.

I must ask the question what percentage of the uncollected line.

Okay.

<unk> expenses.

A question like that that represents.

So John do you mean on where you are breaking up or have you mean rent versus say utility charges or ease or I'm not sure. We follow the question.

I'll take it offline im sorry.

Okay. Thank you.

And from Janney will move to Rob Stevenson.

Good morning, guys. Just a question on the bad debt there Mark you said earlier your tenants weren't losing their jobs one of the key factors in driving the bad debt higher for some of the others. It was the elimination of the federal unemployment subsidy, but if you didnt have the unemployment whats been driving that is that still accelerating are you stabilizing at this point.

[noise], so I'd say that it's it's geographically focused right. So some you know the bad debt is running higher in places like Los Angeles, which was before the pandemic the area, where you probably had the highest.

Or the most constrained kind of rent to income level. So you may have add probably centers. There are pockets, where you add a little bit more gig economy steps. So some people have lost their their their jobs, we're talking about a pretty small population base in the aggregate.

Of call. It 1100 folks that are in that bad debt piece anyways. So it's you know there is some job loss right, but for the most part to Mark's earlier point, we think our general demographic isn't really driving it and I'll tell you. It's been really consistent it hasnt changed much Mark said in his prepared remarks, you know we had this pocket of how our are policy works, but if.

If you look at individual accounts like you've had the same accounts. They hit the three acts they kind of peaked in July and since then we haven't really added very much at all to that non payer bucket. It's actually the same kind of existing group.

That has just continue not to pay that is there at 930.

Yeah, and I just would add I mean, there are some percentage of our residents who did lose their jobs did have situations like Bob mentioned, it could be gig workers and the content industry in La Theres also public policy reasons, some people aren't paying because they feel like they don't have to and we continue to pursue those folks and within the bounds of the law will.

Be relentless in that matter I mean, there's a contractual obligation here, but we also want to work with people I mean, if there is some understanding that they need from us they need some more time, we've got good number payment plans out there. So you made your comment I think you're right. There is some folks where that government supplement mattered that didnt matter as much to us, but there was a few employees are few people excuse.

Me residents of ours that did lose their jobs and Thats certainly in the number that we wrote off in the quarter, but there is some of that that's likely behavior, driven and and that's something that will work itself out over the next whatever number of quarters.

Okay and then how are you guys feeling about the the California vote next week and is there any.

Any of the type of legislature are ballot initiatives in other markets that hadn't got as much attention that you guys are worried about.

Sure. So we remain reasonably confident on defeating prop 21, I think the industry is well organized very Altschiller, who is one of our senior investment guys is the president of the California apartment Association with other industry leaders is just let a really great campaign to educate people in California that prop 21 does.

And create a single unit new unit of affordable housing and doesn't put anyone who's homeless into a home all it does is discourage investment in our markets in housing. So I think what we feel is we've made a good case.

Yes things have changed in terms of the way the vote will be tabulated I mean, it's all remote I wouldn't surprise us if it continue past the actual election day is maybe more than one election willing to us, but we feel pretty good about it there was a good Poland one of the southern California papers on this as well so at this moment, we're feeling reasonably confident but it's.

Presidential election year, a lot more people will be voting voted in 18, and we'll keep making our case to the people the state of California, All the way through November Threerd.

Okay, that's all our cases.

Yeah, there's not a lot there's a ballot measure in Colorado that would raise property taxes for residential both homeownership and apartment owners and stuff like that but it's just not nearly as significant as prop 21. So thats were for us at least most of the action is.

And anything working its way through the legislature in New York, or Massachusetts, or elsewhere in California, sure well do a quick survey so Washington State.

You know there are obviously, they're going to have their legislative election. There has been some discussion there about California style rent control, meaning as CPI, plus and inclusive of vacancy decontrol.

Industry continues to talk about that with them. There are some real downsides to part of that approach, but were engaging in that conversation.

As you go across a little less pressure in Massachusetts.

Certainly New York has its own set of elections in a week and we'll see what that ends up being but I would imagine there's always things to talk about in New York, but there isn't anything on the hopper and as I understand that the general assemblies and et cetera. So we don't need to worry about that at the moment, Washington, DC City councils, considering various rent control measures.

Two of which are highly negative we don't think those are likely to go through we're having constructive conversations there through our trade Association. So there's always things that were looking into Robin we're always out there supporting and we have a pretty pretty active engagement when policymakers and when it's a ballot proposal with the whole you know electro.

Rent on this stuff and usually you know once you have the conversations you and explain whats really going to happen near the emotional satisfaction of rent control, usually fades away because it doesn't work I mean universally academics tell you. It doesn't work in the market experience shows that doesn't work and we try and talk about ways to improve zoning to create private incentives.

So that people are out there building more affordable so thats thats really the battle.

Okay. Thanks, guys appreciate it.

Thank you.

Well hear now from Haendel, St Juste with Mizuho.

Hey, good that's good afternoon here good morning to you.

Hey, Mark So I guess first question.

Was on your views on that and mix and more claims here in California, New York recently, I guess I'm curious how much progress you think that poses indirectly and directly to apartment portfolios in your portfolio in those in those markets.

So were fortunate with these eviction moratoriums to have a high quality resident base, where again our people are getting great service I mean, I read all these comments and LNG, it's really awesome that we get from the people that work for Michael and on site and its its folks that interact with our service personnel our customers.

Our residents interact with our concierge and with our on site staff.

Okay terrific things so a lot of our people they don't paint their landlord they like their experience with us. They think we are doing a good job. They appreciate how hard we work during the pandemic to keep them safe. So the good news for US is most of our residents pay and Thats not a problem in terms of these eviction moratoriums, which have been tough on a lot of more affordable landlords I.

The right answer is what the industry has been pushing national multi housing council and others, which is the proposal the idea of putting more cash in the pockets of renters. So they can pay their rent the idea of putting this loss entirely on landlords and breaking the residential housing system United States. Its just a terrible idea in the long run.

I think the answer is if the if the need is great than we as taxpayers have to shoulder that burden Congress needs to appropriate the money present needs to sign the law and the money needs to go either directly the landlords or two residents who are in need so they can make their payments. So landlords in turn we need you are for example, our biggest single expenses $400 million of.

You're in property taxes that in turn support all the first responders in these hard pressed municipalities and stuff and as well as our significant payroll costs and keeping our properties up so I guess any doubts about having a conversation with people in explaining the whole I've heard it called connected ecosystem here I mean, so but again free QR it hasn't.

Been quite as big an issue yet, but I think in the long run. These eviction moratoriums are pretty awful idea and I think they become less and less justifiable as time goes on.

Quite a preclinical thoughts there.

Second question and.

I love them on New York City, but from a different perspective, and I guess Uh huh.

That's a little bit of patients you mentioned a number of questions on New York City already but I wanted to go back.

And the question that I asked you last quarter. We discussed you know honestly when you thought New York would return to positive same store NOI territory I think at that point in July we and many investors were expecting.

Otherwise, it's going to continue to decline into early next year with the drop in New York City not occurring until.

Spring and maybe middle of next year in a positive return potentially by the second half of 2022.

No since that July call, obviously operating conditions, and clearly remained in probably gotten a bit more challenging with concessions even more profit from prevalent here. So I guess.

My mind is it fair to assume or expect that timeline to that potentially positive staple line now shifting to now.

Now 2023, even if you get a vaccine independent starts to wane next spring just given the level of concessions are being offered how deep into the year and basically that the size of the whole year not quite yet from here.

Wow.

Latin that question I am hesitant to give you guidance I mean, we don't have any formal guidance and I'm hesitant to suggest any particular quarter for things changing on the NOI front. It doesn't mean that we have pessimism, it's just impossible with the public health emergency to predict but I will seize this color out again.

On the rate side it takes a while for it to go negative and a while for it to go positive and that's what we've been talking about the little often comment. We made was on occupancy right. Now we have buildings that are occupied in the high eightys at a very desirable buildings and when New York becomes New York again and people move back that improvement in occupancy will be immediate and that.

We'll go to the topline immediately and to the NOI number you referred to so rate takes a while both up and down. This was quick because there was so much pressure on the way up you should expect it will take a while on rates to get rid of the concessions start moving later that will take a little while but the occupancy boost will feel more immediate and.

Unfortunately, I mean this portfolio was running 97% right. Now. This morning were 89.93 to 90 as Michael said, you could make up seven points in occupancy if the city became the city again pretty quick and again I'm not predicting when that occurs but I think there is an occupancy opportunity for us, but which quarter. All occurs just depends on when the virus gets.

Better.

Yes got it and last one if you'll indulge me of the obligatory.

General election question on what that's the implications of a potential biden victory.

Would mean for coastal urban markets like New York, San Francisco, Boston, and the CBD portfolio is there.

And how would you view the odds of perhaps.

Potential direct stimulus after some of these markets and maybe balance that against perhaps a rollback in some of the mortgage tax deductions dealing that were put in place during the current tax that's just been in.

In a at a high level just curious on your views on what a potential buyers, meaning that some of that policy initiatives that that could play out and what that means for your portfolio. Thanks.

Yeah [noise].

So because it also depends on who controls the Senate and whether the how stays where it is now in a whole that's really hard to speculate on I mean, I think it's pretty well understood.

The programs people, having some of the things you didn't mention for example, more certainty on immigration and more positive immigration policies would be helpful to us.

More regulation will generally not be positive for us.

Some things like taxes, changing may create more or less economic growth. So it's hard for me to say that there you are as a particular dog in this fight and am hesitant to get involved in any of that so but I do think the mortgage tax thing it wasn't a big impact on us before when they took it away. So I doubt it will matter very much here too.

To us at all I think a stimulus package to me I think after the elections, Don I would guess there is a pretty high chance that that will get done because once the elections done given how frail the stock market economy feel I think the politicians will look at each other and okay. We need to do this now and there's not as much risk the election is over.

Sure.

And there is no benefit to be gained from waiting so I guess I'm sort of expecting some stimulus to happen. After the election that seems like the bedding line out there regardless of who wins.

Got it. Thank you for your time and not before thank you.

Thank you.

[noise] Oh phosphatase, then your Coleman with prominent associates.

Hi, Thank you for taking my question.

Digging into the applications with the credit quality look like versus history and.

How does the conversion process.

[noise] application we compare.

Are you seeing a brent price at a.

Spreads of any type.

So I think I said earlier, we did not change our underwriting criteria at all so applicants coming in.

Our run and screened against the gross rent regardless of concessions and we really didn't see a material shift in the affordability index, which has rent as a percent of income across any of our markets, where we range still between that 17 and 23%.

As far as he might give me the last part of that question.

Just a credit quality question.

Yes, there is a.

Spread between the rent.

Or maybe the price that they are growing now.

For for a unit that maybe a low ball for or are you seeing more of that versus no real legitimate prosper.

No I mean these this is legitimate prospects I think one of the parts of the question I forget which was the closing ratio. So the way to think about kind of typically you would have foot traffic those that come in for the virtual tour.

Or a self guided tour about 25% of the time that converts into an application and that that closing ratio has been fairly consistent we had a little bit of a change when we got into the initial golden period, but right now it's fairly stable on our ability to convert kind of that traffic to application.

But really not seeing anything from a quality of the renter show or the quality of the applicant showing up.

For these units and I want to add Alex people, who are applying for us are putting down a deposit and paying a fee. So when they're involved with us. It. It isn't you make it sound like it's a little bit of a bid I mean, it at that point, we've sort of agreed on price with them subject to a credit you know in criminal background check.

View and they move the great preponderance of those people end up moving in with US so applications for us to see understand or a forward indicator of move ins. This month's applications. Our next month's move ins and our that months reduction in left to lease in that next month's increase in occupancy that maybe that that help.

She said the quality and we do qualify people based on the rent without the concession.

Just to be really clear about that so they can afford to pay the face rent not just the rent a reduced stem some effective basis by the concession.

Got it appreciate the color there and then.

Looking a little different question here.

The performance of non residential real estate asset prices overall.

Even on underperformed.

A lot of the residential talking about the are you hearing any conversion from hotels or offices or even retail into new apartment buildings and urban centers.

Yeah. There were some it's mark there was some discussion Alex we've heard from our people in southern California, both hospitality plays.

Strip centers in the Los Angeles area strip retail.

Of which there is a fair amount that might go residential. So there is some conversation I've heard about it particularly in southern California as to both hospitality and retail theres. Other spots. We've been involved with shopping center owners and thinking about refurbishing out lots and things like that so there's there's a fair bit of conversation on that but again most reach.

I've heard a fair bit about in southern Cal.

Got it thank you.

Thank you.

Well go next to Nick Yulico with Scotiabank.

So a question on were urban core itself you guys break out the occupancy now.

Do you have any stats on well if we look at the drop in occupancy levels very visible in the urban core how much of those renters stayed in the market versus left the urban core do you have any sense on that.

Yeah, well I think I shared a little bit of that before like in New York that we saw an increase of those leaving so both New York and San Francisco proud.

Probably saw the most pronounced increases of those leaving that MSC, but staying nearby.

Moving to kind of other nearby market you know that may have more concentration of suburban type properties in there.

Okay, but you don't have any specific stats you can share about you know because you've obviously frame. This as an issue where occupancy is a problem because people are leaving your urban core they may come back, but how are you sure that you're not just losing out to other properties and I guess I'm wondering whether you guys feel like you are competitive right now with your concern.

Things or if there's some element for this occupancy dropped to tapping the urban core our residents who are going to the developer down. The road is just getting a even bigger concession package.

Yeah. So I guess I would say I think I've said, a couple of them that were in those urban cores, you're absolutely seeing people leave those downtown areas and go to other nearby markets with some upticks like in New York that actually leave the state in Iraq.

So as you think about the the move interest city. So are we losing residents that then go to competitors in the market I guess I will tell you that our renewal process is set up in such a way to handle those negotiation not only on site, but then as soon as somebody does give us the notice we lose.

Leverage our National call Center to place calls to those residents just to make sure. There is nothing we can do within reason to keep them and for the most part this is not a rate play. So I'm sure. There are a few that leave us and go somewhere to some concession offer that is just outside of the mouth market boundary.

But a very small percentage of those residents that leave us are doing that to us. The other way to think about it is the increased volume of applications that we're seeing right now is a pretty good indicator from a market competitive standpoint of our pricing.

If we were not competitive we will not be seeing new leases coming to us.

Okay, great. Thank you.

[noise] well hear now from Alexander Goldfarb with Piper Sandler.

Thank you. Thank you and good morning out there on the two two questions. The first one on one of the one of my Puregraft earlier about the ability to to Ria. That's on the property tax given the drop in analyzed but obviously I think I'm.

You guys have been very efficient on Opex and on the DNA front Bill as you look at the rent declines you see an ability to offset some of that on the expense or DNA side or you guys about yourself.

Lean and then also on the capital market side refinanced so much debt that theres really not much additional that you can do from either a cost or interest expense side.

Alex It's Mark we're going to split that up I'm going ask Bob to talk about capital markets and the debt maturity. We got coming next year, that's at pretty high rate. He can go through in the second on our and you're going to see that the in the quarter at least Gionee and property management in our overhead categories. Collectively were down you know I think was 10 or 15% on you.

I would expect that to continue I mean, we're certainly responsive to the fact that cash flow is going down and overhead needs to follow that so they will continue to be adjustments in that regard.

I don't feel like we have a lot of folks that aren't being well utilized I think it's just a matter of you know what is going to be sort of bone.

Bonus compensation those sorts of things, that's where the discussions lie and then just running the business more efficiently Michael talked earlier about but.

But what he did in terms of remote leasing that certainly has impacts on head count so things like that so you should expect that we will be just as relentless I'm not again I don't feel like we have a lot of people sitting around on their hands, but I do think we need to be responsive to the fact that you analyze are going down and overhead needs to respond to that and you see it.

Third quarter did you should expect it will continue to.

And on the balance sheet side, Alex as you think about it you've got the big maturity to $750 million maturity in 2021 that does carry a 4.625 coupon.

And we could refinance that today on a 10 year basis that you know call. It 2%. So there is still a positive arbitrage between the refinancing activity going forward. So that exists frankly, you know if you look at our maturity schedule on page 18, not just in 2021, but continued in 2022 based on where and 23 despite the.

Back that we don't have a ton of debt maturing.

Okay and then the second question is going back on handhelds question.

Mark if you look at the markets over time, there's definitely been a shift in APAC, certainly two decade, more rent control or more right control.

The market.

The eviction moratoriums I mean, there's a lot more housing regulation in coastal markets that we didnt previously have deferred.

Additionally, there talk in the progressive weighing about right.

Moratoriums or rent write off for national rent regulation et cetera. The dem suite. So certainly there is a lot there how do you think about overall that you guys. Originally looked at your current portfolio and all the factors that drove you to these markets versus the political changes that have happened now and maybe also.

Thanks changes, where maybe you get a more.

Lower more of a broader mix et cetera. So if you look at the overall you our portfolio now do you feel that the original trends that you saw that got you into these markets are still there you would say hey, guys.

Things that have shifted on the political and on the affordability side that we should realize that maybe.

While these markets will come back as a viable they're going to be different than maybe we want to be positioned more differently than just waiting for the markets to come back.

Yeah, I don't think we're just going to wait for the markets to come back I think political risk has changed in our markets I think when we thought about this shift into urban you know 15 years ago. One of the reasons. We liked the urban centers was it was politically difficult to build that the politics created a supply constraint that we like so to be honest.

Some of the markets were chosen with some of that in mind, Alex and then as time has gone on I would say what's happened is that Theres. This bid.

We did have a bias against against landlords theres a bit of a regulatory mindset that is challenging to work through and we do think political risk is higher in our markets and one of the reasons to spread our capital out both in the suburbs of our markets because a lot of rent control rent regulation is local okay. Some of it is that the state.

Level, but a lot of it is local so you might want to be in a metro but you may not be one want to be exactly where you were in the center before so you should expect we will continue responding to that risk by spreading out and also going into some metro's where the supply risk may actually be worse in some of those other metros were not in but you're getting some compensating political risk benefits.

I'll also say that you didn't mention it quite as much but the fiscal situation is quite concerning and some of our markets by the way also in some markets. We're not in okay. So theres plenty of municipalities under a lot of stress. That's another thing we keep in mind. So whenever we buy an asset we underwrite or developing assets two we underwrite the locality the key.

Tony the state and how it looks from.

From a financial perspective, and think about as Atlanta long term owner of this property, where that's a risk we're willing to take so I think we're pretty focused on managing our existing political risk by having like going to speak outreach to politicians and to to policymakers. We talked about and then secondarily just over time shifting some of our capital to places that.

Maybe are a little friendlier in that regard.

Okay, and then just one final if I could you guys mentioned on your California residents very happy in Brent and are you are all of the tenants who were taking advantage of that Optionality if I can.

Hey, or not pay or all of those tenants now out of you'd like let those people just leave with a minimal break fee or you still have a bunch of California residents, who are sort of living red sorry.

So Alex we.

We believe in the sanctity of contract both ways and so you know these people we don't have the ability to a victim. So there is some number of people that can pay that haven't.

We'll continue to monitor that situation again, we're always willing to some people have been communicated with us we talked about ghosting on the last call and have a little fun with that but we've got to have these conversations with people figure out how we can help them how they can meet their contractual obligation to pay rent and how we can move forward. There is no rent forgiveness program at equity residential.

Okay.

Thank you Mark.

Thanks, a lot Alex.

[noise] [noise] compared to I mean at this point there.

Great. Thanks for taking my question I wanted to follow up on kind of your election comment you present value and it all depends on benefit your portfolio integration reform and then do you have any data on what proportion of your weather denvers skilled immigrants or which of your markets may benefit most from immigration reform.

I think what I can give you is just a little bit of backdrop, which is [noise] last year. This time about 7% of our applications were coming from those residents outside of the United States at present, we are down to about 2% for the third quarter of 2020, So I think changes.

Positive changes in immigration policy that allow us to get back to where we were would be a catalyst for some of the recoveries and some of those major markets, where we're feeling more pressure right now.

That's helpful and just the fact is that an application, but you mentioned, where that's concentrated in any particular end markets or was it pretty widely distributed.

You know I guess I would tell you that it's the major Maher It is Boston, San Francisco, and New York that you see the biggest changes on this year over year basis.

Okay. That's helpful. That's it for me thanks.

Thank you.

[noise] well take a follow up from Nick Joseph with Citi.

It's Michael Bilerman here connect.

Just two quick questions, one mark you've talked a little bit about how taxes play into somewhat of your ability to sell substantial assets and do buybacks one of the public apartment peers.

The large joint venture and also doing the spin off can you talk about whether either of those would work for each QR and if not why.

Sure. So again I don't understand all the back and forth on the tax side with our peer, but I would say that most joint venture transactions when you're keeping the cash near the 40 plus percent seller, which is the complete does create gain unless you do a lot of structuring things that create other risks.

So I'm doing a JV is great to prove value to create diversification to get new capital and all those other things, but in terms of it being a great way to sell an asset it isn't a whole lot different than just selling it outright.

So I guess I'd say on the tax side I look at the JV and I look at an asset sale relatively similarly, now if a JV partner in institutional investor wanting to be in with us in a market and they would provide a better price and better terms on the portion that we're purchasing because they are differently correlated than just the straight up buyers.

I'd be interested in that we're open minded we're very few jvs, but we've done many in the past and so I guess I'd say, Michael we're open to doing some jvs and some of our assets and maybe some of our urban assets. If the price made sense to us, but it is getting cash out and buying stock back just to use. The most obvious example is a pretty hard thing.

To do at least in great size without triggering some kind of special dividend requirement or really stress in your tax situation.

And then specifically then on the second part on.

Spinning or doing something too.

It's got to wait.

An increased tax basis does that have any.

That resonate at all with the board or with you for instance, does that make sense.

Every company has got its own goals and motives, but the way I've been taught for years is to not pay taxes earlier than you need to and so there isn't a great deal a desire on the part of our board to.

Create a taxable event just so that the company has more flexibility in selling assets. So if we need that flexibility we can manage that at the time and we did do a special dividend before and that's because giving capital back to the shareholders and that case made so much sense. So I guess I'd, rather address that on an as needed basis, rather than do it in some peremptory fashion.

And then just lastly, just coming back on the application data and appreciate splitting up the portfolio and giving us the different pieces.

I assume the increase in applications is also a matter of increased vacancy right because no one's going to apply for apartments that are fully leased you got to create they can you have to have vacancy for more applications.

So you have 80000, or so units almost 5000 them. Our vacant today you talked about that 1100 that are not paying their rent for more than three months.

So do you have like at least in the history on just numbers that go behind the percentages and then how those how coincident how lagging they may be just to sort of get the history of occupancy in applications over time, so that we can use these numbers as.

Potential leading indicator to occupancy is moving up.

Yes, so I guess I'll try to frame it so at a total portfolio level the applications in the third quarter were call. It 12700, and Thats compared to 10700 last year Theres definitely seasonality component to.

Due to those applications. So you will see applications that hit a peak in June or July call. It four or 5000 applications a month they'll drop down to 2000, a month or 2400, a month in November and December. So I would look at this is just the indicator that we are seeing an extended.

Leasing season your point about available inventory is dead on we need the applications to be running a 120, we actually needed them to be like a 125% in the third quarter. Just so that we could have held on to the occupancy that we had in the beginning so a lot of this is just the trade out between if retention starts to improve.

We start to renew more residents then that takes a little bit of pressure off the front door, but if we're going to continue to renew residents call. It at 50%, 50% that we will need applications running hundred 20, 130% over prior year and that's that's a great point about we will continue to try and in our.

Materials for Neri to continue to elaborate on that because the virtuous cycle for us the beginning of improvement begins with with retention improving and with applications holding and you don't have to go up from here and likely won't just given seasonally where we are but continuing to outperform on applications, which again a month later or move ins.

And doing better on renewals, especially in these urban markets that'll start solidifying occupancy that'll start given Michael confidence to start removing concessions. So we absolutely will try and be as clear as we can about historical trends and youve been around a long time. So you know this gets confused with you've got this cycle. We're in this.

Economic cycle on top of just our seasonal cycle. So you got two things going on we May tell you in December that applications went down but there are still three times what they normally are in a December right, but they are less than November so, we'll try and do a good job of being clear on those things.

Okay. Thanks for the time appreciate it staying on.

Thank you.

[noise] [noise] I'd like to turn things back to you for closing remarks.

Well, we thank you for the interest in equity residential for sticking with us on a long call and we wish everyone well. Thanks.

And that will conclude today's call everyone else has left to comp.

[music].