Q3 2020 American Campus Communities Inc Earnings Call

Good morning, ladies and gentlemen, thank you for standing by welcome to the American campus communities incorporated 2023rd quarter earnings Conference call.

Today's call is being recorded at this time all participants are in a listen only mode. Following the presentation. We will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions.

I would now like to turn the conference over to Ryan Dennison Senior Vice President of capital markets and Investor Relations for American campus communities. Please go ahead.

Thank you good morning, and thank you for joining the American campus communities 2023rd quarter Conference call.

Yes release was furnished on form 8-K to provide access to the widest possible audience.

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

We are hosting a live webcast for today's call, which you can access on the website with the replay available for one month, our supplemental analyst package and our webcast presentation are one and the same webcast slides may be advanced by you to facilitate following along.

Management will be making forward looking statements today as referenced in the disclosure in the press release and in the supplemental financial package and in SEC filings management would like to inform you that certain statements made during this conference call, which are not historical facts may be deemed forward looking statements within the meaning of section 27, a of the Securities Act of 933.

And section 21 of the Securities and Exchange Act of 934 as amended by the private Securities Litigation Reform Act of 1995, although the company believes the expectations reflected in any forward looking statement are based on reasonable assumptions. They are subject to economic risks and uncertainties. The company can provide no assurance that its expert.

Patients will be achieved and actual results may vary.

Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances. After the date of this release.

Having said that I'd now like to introduce the members of senior management, joining us for the call Bill Bayless, Chief Executive Officer, Jim Hockey President, Jennifer Beese, Chief operating Officer willing Talbot, Chief Investment Officer, Daniel Perry, Chief Financial Officer, Kim Voss, Chief Accounting Officer, Jamie Wilhelm our EVP of public.

Private partnerships with that I will turn the call over to bill for his opening remarks Bill.

Thank you Ryan good morning, and thank you all for joining us as we discuss our third quarter 2020 financial and operating results.

As you know Q3 encompasses the completion of the prior academic year, which was substantially impacted by the onset of the cobot pandemic and the commencement of the new academic year.

Let me start by saying that we're pleased with the start of the 2020 2021 academic year.

As Jennifer Williams, and Daniel will discuss the resiliency of the modern student housing industry operationally financially and from an industry fundamentals perspective is once again being demonstrated as we transition into the new academic year amid the cobot pandemic.

While our business has not fully normalized at this time, we believe we are on the road to recovery as exemplified in many areas our lease up occupancy exceeded 90% level. Many believed to be a best case scenario in the early days of this pandemic.

Our rent collection rate improved to 97% of September the first full month of the new academic year in most of our markets from approximately 94% in Q2.

This improvement taking place while many other sectors continue to experience decreasing trends at this time.

We're also receiving significantly fewer resident hardship rent abatement request so.

Several hundred currently versus several thousand per month in the prior academic year.

We have also definitively witness the strong consumer sentiment regarding students desires to be in the college environment with their peers, regardless of universities curriculum delivery methodology, whether it being online in person or a hybrid combination.

And our University partners have planned and implemented prudent strategies to effectively manage cobot outbreaks on their campuses.

While this led to lower initial fall occupancy is on campus. Among first year students. It appears to have provided stability in ongoing on campus occupancy.

As we are not currently holding any discussions for on campus rental refunds beyond one University partner, which we expect to total only $1 million in the approximately $1 million in the fourth quarter.

Versus the 15 million, we contributed in the second quarter of the prior academic year.

Also.

As William will discuss in HCC tier one university markets, there appears to be enrollments stability amid the pandemic.

Even amidst this black Swan event, the resoundingly value of a college degree and abundant demand for higher education at power five and Carnegie. Our one research institutions continues underpinning the stability and consistent growth opportunity in our sector.

Finally, as part of our ongoing commitment to the high how argue project, whose mission is to remove the stigma associated with mental illness and to encourage discussion regarding mental health and wellbeing.

We jointly conducted a mental health survey at our communities in conjunction with the commencement of the new academic year to better understand the mindsets, drawing COVID-19.

The survey received responses from over 12000 of our residents. This was one of the largest surveys of its kind specifically examining college students perspectives about cobot and how it has impacted their mental health.

Not surprising according to the survey 85% of respondents are more stressed as a result of the global pandemic.

Also worth noting the top three items students are missing most are one socializing with their friends to participating in in class instruction and three attending events, both on and off campus.

Encouragingly. The results also reveal students believe that their mental health is just as important as their physical health and their opening open to having dialogue to help themselves and others.

We'll continue to promote the mission of the high how are you project and promote discussion around mental wellbeing among our student residents through our residents locked programs as we hope to have a meaningful impact in this very important endeavor.

With that I will turn it over to Jennifer Beese, our chief operating officer to get Us started.

Thanks, Bill we are excited to get the 2020 2021 academic year underway with September representing its first full month.

Based on our leasing activity. It is now evident that the vast majority of our students desire to be with their peers and their college environment, regardless of the curriculum delivery method at the University.

Our modern well located fully amenitized apartment communities offer students the ability to continue to thrive. Despite the current cobot environment.

Turning to page six of the supplemental as usual our third quarter includes a mix of two academic years with prior academic year leases expiring mid quarter and new academic year leases commencing in August and September while.

While the prior year academic year results were heavily influenced by coded in the new academic year, we are seeing an improving financial trajectory.

During the quarter, we provided $2.1 million in rent refunds to on campus residents at one Ace partnership University.

Which we expect to decrease to $1.2 million in the first fourth quarter.

This is in comparison to the 15 million provided to residents that are primarily on campus residence halls in the second quarter.

As noted in our release no additional refunds are in discussion at this time.

With regard to students and parents being impacted by COVID-19, we instituted our resident hardship program during the second quarter, where we provided over $8 million of financial assistance.

During the current quarter, the amount totaled $4.7 million with the majority of this amount relating to our prior academic year leases.

In September based on significantly lower levels of request within the program. We gave approximately a 175000 indirect rent relief during the month.

In regards to collections, we had a 97% collection rate on a rent charge for September a.

A significant improvement from the 93.7% seen during the second quarter.

As expected our third quarter other income was impacted by $8.4 million due to the loss of summer Camp Conference business. The continued waiver of online transaction fees in late payment fees.

And higher levels of bad debt.

Going into the fourth quarter, we will continue to be impacted to some degree as we work on reinstituting leasing and payment fees.

With regard to same store Opex, we were able to partially offset lost revenue with savings in operating expenses of 5.2% led by savings in all of our controllable categories.

We continue to have lower gionee costs due to the cancellation of nonessential travel savings in maintenance as we were able to turn more of our units in house.

Lower marketing expenses due to substantially fewer in person promotional and marketing events.

And lower payroll costs associated with adjusted staffing unless overtime during the pandemic.

After executing successful touchless digital and physically distant move in better properties across the country, our standardization plan and procedures continue.

Throughout the pandemic at our owned properties our residents physical health has been minimally impacted by the coven virus.

In the current academic year residents have reported a total of approximately 1500 positive COVID-19 cases are 1.7% of our occupied bed.

At this time, we are tracking only a 110 active cases, 4.1% of our occupied bed.

Consistent with National Cobiz Statistics for College age population, we are thankful to report that to our knowledge. None of our residents have reported serious illness or the need for hospitalization related to their cobot case.

It is also worth noting that both the CDC and Dr. bouchie have urge universities to not since students back home to their primary residence if at all possible.

To eliminate the risk of scattering students throughout the country and putting them in contact with parents and family that may be in a higher risk category.

We are pleased to see that universities have successfully implemented their operational protocols.

Through the initial spikes in spikes and cases so.

In any case this decline.

And several have recently announced plans for expanded in person activities in the spring.

Turning to our leasing results on page nine of the supplemental as of September Thirtyth. Our 2000 22021 same store portfolio was 90.3% leased with in place rates growing 1.1% over prior year.

Our same store lease percentages unchanged since our September 11th 2020 press release.

However, as you will see in the chart. We gained approximately 300 additional leases at our properties that primarily serve softwares and above.

Which offset the decreasing in our properties, primarily serving first year students.

As our University partners finalize their move in assignment process.

We continue to see fall leasing activity at our off campus communities.

Primarily serving softer ores and above.

The largest opportunity for occupancy gains in the spring.

As our on campus Ace properties, serving first year students a process, which again is administered by University partners.

I will now turn the call over to William who will discuss our investment activity.

Thanks, Jennifer turning first to development. We are pleased to have completed construction and delivered two owned ace developments on the campuses of the University of Southern California Health Sciences, and San Francisco State University does.

Developments were completed on time and on budget. Despite the challenging environment. However, initial occupancy occupancy at the communities were impacted primarily due to state in University policies in response to COVID-19, we've.

We still anticipate the projects will stabilize at development yields of six in the quarter upon a return to normalcy on each campus.

In addition, we completed the second phase of our for legal crossings village project at Walt Disney World with the continued temporary suspension of the Disney College program, both delivered phases, which totaled 406 units at 1600 24 beds remain unoccupied at the current time.

Given our strong relationship Disney has agreed to abate all ground rent until the project becomes occupied and we are actively working with Disney to market and leave the community to the broader rental market, including Walt Disney World cast members the.

The original design of the community and ground lease contemplated the potential leasing of units beyond the DCP program with Configurable furniture attractive individual lease liability options and an unmatched amenity package in the market.

Based on recently updated projections provided by Disney We now do not expect occupancy from DCP participants until the second half of 2021.

While leasing of the currently available beds to the open market has just commenced and will continue through 2021 based on traditional conventional multifamily absorption versus immediate DCP stabilization as units are brought online coupled with discount pricing due to the interim nature of these non DCP leases, we expect short.

Termed diminished economics from the original DCP pro forma projections we.

We anticipate housing both open market renters in DCP participants through at least 2022.

We continue the construction of the remaining phases of the project to be delivered through May 2023 in anticipation of the full return of the Disney College program, along with leasing to the broader rental market until the DCP program returns the levels that fully occupied the community.

In our on campus third party development business during the quarter, we commenced construction on a 476 bed development on the campus of Georgetown University in Washington, DC. The project is located on the university's capital campus, just north of the Georgetown Law School that is expected to be delivered in fall 2022.

We expect earned a total of $3 million in development fees and we'll manage the project upon completion.

We continue to make progress on Predevelopment efforts at the University of California, Berkeley University of California, Irvine, MIT, Princeton University, West, Virginia University, Concordia University in Virginia Commonwealth University deals.

The ultimate timing finance structure and project feasibility for these predevelopment have not been finalized at this time.

With regard to the overall on campus development environment, We still anticipate the continued increase in on campus P. Three opportunities across the country. The occupancy of antiquated communities on campus have been impacted to a much greater extent the more modern accommodations offered both on and off campus than universities will look to modernize their.

On campus housing to meet consumer preferences and mitigate against future losses. In addition, we anticipate more universities will turn to off balance sheet financing structures, including our Ace program to finance the development of new housing as universities will be focused on conserving their balance sheets and debt capacity in the wake of the effects of COVID-19.

We are currently tracking a deep pipeline of on campus opportunities and American campus remains in a strong position to capitalize on those opportunities.

Turning to University enrollment, we have been actively tracking full 2020 enrollment and the potential impact of COVID-19.

Of the 68 owned markets, where HCC currently operates 85% of universities have reported statistics for the pole overall, we've seen only a 0.3% decline in enrollment across those 58 markets.

50% of our universities experienced increased enrollment in fall 2020, with an average increase in student of 2.5%.

About half of our University that had decreases enrollment they only average at 3.1% decline for fall 2020.

First year student enrollment is only down 1.1% for fall.

As Jenniffer discussed our properties that primarily serve first year students are currently 77% occupied and given there has only been a slight decline in first year student enrollment. We believe there is opportunity improve occupancy in those projects as first year students may decide to return to university for the spring semester.

University enrollment has remained stable despite reduced international students for fall 2020 as international students typically constitute less than 10% of enrollment in our portfolio while demand from domestic students remains deep to replace any loss from international students.

With 51% of our universities, having released fall 2020 International data there has been a 14% decline in international students get those same universities have grown a much larger segment of domestic enrollment by 1.2% over.

Overall this demonstrates the demand from domestic students at the tier one universities, we serve offset the negative impact from reduced international enrollment the.

The resilient stable enrollment figures during the pandemic places a tier one colleges and universities, we serve in a strong position for academic year 2021 and beyond.

Finally, the new supply landscape for next academic year continues to remain favorable.

Within HCC 68 markets. We're now tracking 21150 beds currently under construction for 2021 with a potential additional 400 beds planned, but not yet under construction, reflecting a decline of 2% to 4% in new supply off the current year's decline in new supply of 20%.

Limited available land close to campus construction costs and lack of available construction financing will continue to put downward pressure on future supply in our markets for the next few years.

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

Thanks William.

As we reported last night total FFO AUM for the third quarter of 2020 was $45.2 million or 32 cents per fully diluted share.

As Jennifer said, despite the unprecedented and ongoing response to the virus, we have all experienced in 2020 and its direct effect on the operating environment of the colleges and universities. We serve we have been pleased with the resiliency the student housing sector has exhibited.

While the company's near term earnings will of course be affected by the governmental and University actions taken in response to the pandemic.

We believe that we are on a path to return to a relative level of normalcy normalcy, both operationally and financially after achieving over 90% for this fall. Despite the amount of ongoing online instruction as well as seeing significant reductions in delinquencies refunds and resident hardships.

As we have started the new academic year.

Like last quarter, we cannot completely isolate every item related to the pandemic, but we believe for Lam was negatively impacted by approximately $19 million versus our original expectations for the quarter.

And year to date for women has been negatively impacted by approximately $42 million to $43 million.

Total property revenue was approximately $27 million impacted for the quarter with $15 million due to covert related rent relief last summer camp revenue increased bad debt and waive fees and $12 million due to the lower opening occupancy for the salt fall semester.

Relative to our original expectations.

Partially offsetting the lost revenue property operating expenses were seven and a half million dollars than lower than originally budgeted as jenniffer discussed.

Also as a result of the lower originally budgeted property NOI.

Joint venture partners non controlling interest in earnings was approximately $700000 lower and ground lease expense was approximately $1.4 million less due to a reduction in outperformance rent being paid to our University ground lessor partners as well as Disney's agreement to waive ground rent on Disney College program.

Sam housing until occupancy resumes.

Additionally, third party management fee income was approximately $1.2 million lower than expected and AFFO him contributed from our on campus participating properties was almost $500000 lower due to universities refunding, a portion of rents and lower fall occupancy at properties in both of these.

Business segments.

Lastly, we have benefited from approximately $700000 and Gionee and third party overhead expense savings relative to our original plan due to both reduced travel and payroll costs.

Due to the continued uncertainty surrounding the pandemic, we will not be reissuing earnings guidance for 2020.

If the current environment remained stable, though we are hopeful that the reduction in revenue through the remainder of the year should be limited to the impact of the 90.3% occupancy we achieved for the opening of the fall semester and the $1.2 million in re rent refunds that we have agreed to for the fourth quarter at one of our.

This partnership universities.

Also while delinquencies and resident hardships have improved significantly in September we still expect to run at an elevated level of bad debt relative to the 1% level. We typically are typically operated at prior to the pandemic.

With regards to operating expenses, we will of course strive to be as efficient as possible and create savings that can help offset the lower revenue levels in the near term.

However, with the new academic year, physical occupancy levels above, 90% and approximately two and a half to $3 million and expected additional annual cost for cobot related cleaning supplies and procedures, we do not expect to be able to create expense savings at the same levels. We did in the second and third quarters.

And finally as discussed last quarter, we continue to believe the 33 third party development projects at the University of California, Irvine, Cal, Berkeley, and Concordia University originally scheduled to commence in 2020 will be delayed until 2021.

These projects were expected to contribute a combined $4 million in development fee income in the fourth quarter of 2020.

Again, while there will be some continued financial impacts of the pandemic into the immediate future but.

The progress that has been made gives us confidence that longer term, our operating results will return to normalized levels.

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

As of September Thirtyth, we had $44 million in cash on hand, and over $720 million of availability on our corporate revolver with no remaining ruminant remaining debt maturities in 2020.

And a manageable $167 million and secured mortgage mortgage debt maturing in 2021.

Also as detailed on page S 16 of our earnings supplemental the remaining phases of the Walt Disney World project represent our only ongoing development with phases spanning through 2023, and only $201 million in the remaining development capital needs.

As of September Thirtyth, the Companys debt to total asset value was 41.3% and net debt to EBITDA was 8.1 times.

It's worth noting that excluding the impacts of Cove. It on operating results. This year net debt to EBITDA would be in the range of seven to 7.1 times.

Although our leverage levels are temporarily elevated relative to the targets. We have historically communicated we feel confident that with the three year capital plan, we lay out on page 16, as well as the expected normalization of EBITDA, becoming the companys debt to total assets will return to the mid 30%.

Range and net debt to EBITDA to the high fives to low six times range.

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

Thank you we will now begin the question and answer session.

To ask a question you May proceed Star then one on your Touchtone phone using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble roster.

Our first question is from Anthony Paolone from JP Morgan. Please go ahead.

Thank you and good morning, Mark.

Morning, I think.

I think you mentioned some prospects of maybe picking up some occupancy in the second semester with some of the freshman and I was just curious to get your thoughts as to as you look into the next semester. We do think that risk is greater than our kids, maybe don't return or that that that opportunity to maybe pick up some.

Occupancy.

Wins out.

Yes, Tony at this point, we continue to be optimistic in that the universities have done an excellent job in terms of managing through.

Any cobot outbreaks through the fall semester and the confidence level among students and parents seems to be stable to increasing with that when you look at the upside the greatest upside in the portfolio is indeed at those first year on campus Ace assets.

That are administered by the universities in terms of the assignment process of that so it's not something that we have direct ongoing purview into in the were not administering that process. The thing that where we take comfort in and have some optimism over his is William went through the enrollment numbers is that we.

How did the material impact we talked about when we released our leasing in on September 11th is the only place we really saw any material diminishment in occupancy was that decision. The first year students coming to college for the first time out of high school.

Where that 79% occupancy versus the traditional 90, 596% in that arena, where we are encouraged though is they still enrolled and that the enrollment numbers are steady. So were just a delay in when they're coming to campus and so we know our universities have done partners have done a great job in terms of their management.

They certainly want to welcome more students back and ultimately there the one administering that but we believe it is a more positive outlook than a negative outlook in terms of the opportunity of gain versus diminishment.

Okay.

And then the three points of non collections in September.

Do you think that number gets gets better or worse from here is it seems like a new group of students compared to the run off from from last school year, and then did you reserve anything against that in the quarter.

We are hopeful that it's stable, but certainly as you know to be proven out as we as we move through semester.

It is Jennifer talked about in her script, we are very encouraged in the fact that we we've.

We've seen less request for resident hardship only a couple of hundred as we had commented I believe was on on the last quarter's call you know the real benefit that students have perhaps over other traditional renters and apartments is the fact of the annual process of application for financial weight and guaranteed student loans that enabled them in essence to recapitalize.

In funding their education, and so we hope that creates more stability on an ongoing trend rate in this year than we had in the past academic year, when cobot hit mid stream and so.

Good we're happy with that improvement, we think we're fortunate that our sector. We believe has the upward trajectory on that trend when others are still facing perhaps a declining trend, but obviously, we're cautiously optimistic let's see how it plays out over the next several months.

Okay, and then just last question you've laid out.

Your plan on the balance sheet through 2023, but just curious if there's anything contemplated.

In the near term with regards to their asset sales and also how you're thinking about your common equity here.

Yes, Tony This is Daniel the good thing is we're definitely in a solid liquidity position to be able to fund everything that we have in front of us as I laid out my prepared remarks between cash on hand, and availability on the revolver, we have $767 million of.

Of availability, there and only $200 million remaining to fund on the development pipeline and if you. If you look at the mortgage debt maturing in two.

2021 through 23, we only have a 193 million left to pay off there. So.

Obviously plenty of liquidity to fund all of our needs in front of us.

No of course in our capital plan, we do reflect.

The call it equity side of the equation longer term, which may come from.

Dispositions or common equity depending on what's the most attractive cost of capital there of course common equity does not make sense right now so our primary target will be via dispositions.

We sold $150 million earlier this year and we only have about 50 to 125 million per year that we would need to fund as part of our capital plan through 2023. So we would expect to move forward with that starting next year.

And we feel like that's a very reasonable amount to two to accomplish.

Okay. Thank you.

The next question comes from.

Awesome Wurschmidt from Keybanc. Please go ahead.

Great. Thanks, everybody good morning.

You guys did highlight that occupancy upside at first year residence halls is one of the most attractive opportunities and just curious as you speak with University partners at those schools.

Especially the ones that have closed their on campus or may be deemed densified, how are they thinking about administering on campus housing.

In the spring as well as the fall of next year.

Yes, and certainly let me answer the question in reverse order I think that as we move towards the fall of next year. We in all of our University partners are hoping to four hoping for a much greater return to normalcy in fall of 2021 certainly.

Certainly the spring on an interim basis.

The universities have done an exceptional job and from our perspective in terms of the management of their campuses and the fall move in with Covance. Although the first in the university's did this was why you do see a dip in the occupancy you know most of our ace partner institutions have housing requirement to your expectations.

That they expect all first year students to be to live on campus and obviously any one that had a discomfort with covance students are parents universities accommodated them by no means whatsoever.

Held those requirements and expectations, which in the long term the future. We do expect to return however on that short term basis. The other thing that they have done has just done a fantastic job in terms of managing cobot outbreaks.

You take our largest partner, Arizona State University with over 75000 students.

As of this date they have 11 active cobot cases, 0.9% and then that's the whole enrollment base that they've tested 99070, 5000 students 12000 faculty and staff and so they have excellent procedures in place to administer also as you all have probably heard and read.

The 18 to 22 year old College demographic has been extremely resilient with when they are infected with Covance. Most cases have been asymptomatic. It is rare that any hospitalizations I've ever been occurring and so the the fear level among students and parents of college students if anything as.

Outbreaks have occurred and quickly pass them and properly manage we think is only created more comfort and so I think soon universities are prepared to welcome back in the spring as many students choose to comp and so at the end of the day. It is really a consumer decision as to whether or not they return versus a university mandate that you return or.

Our university encouragement not to return.

So thats even for the schools that have closed their on campus housing there theyre considering welcoming back some students and the vet.

Very few students are very few universities have actually closed their on campus housing.

With rare exception there the only university part of that we had that as had been has been more cautious in extreme is Drexel who is in Philadelphia in urban area Temple Drexel both have gone fully online.

But if we don't see changes yet in any of their sentiment in a more negative sense whatsoever.

Got it that's helpful and.

And then as far as the balance sheet I mean, it seems fair to assume in the near term. We should expect that that you know 8.1 times net debt EBITDA to continue to increase as you fund future development.

And then you mentioned that likely temporary normalizes, but how.

How should we think then relative to the capital needs to fund development and leverage is in terms of disposition volume is the 100 to 150 million you've guided us towards is that still a good number or.

Are you considering you know.

Either increasing I guess or decreasing that depending on managing kind of those two.

Those two different items funding needs and leverage.

Yes, I mean Austin.

The amount of dispositions, we do per year, obviously will be dependent on how much development. We're spending as we've talked about in the past. We're we're doing our best to match fund as we go and not disrupt.

The the pace of RF AFFO.

[music].

Of course.

If we see opportunities in the market. We May act more quickly on that we'll just have to see how that progresses.

Got it.

Okay, and then just one last one on supply it seems like that level of supply actually ticked up from maybe what you had expected previously or a range of outcomes previously.

Curious what changed that are you seeing banks, a little more willing to lend them on the construction side.

No and we did see a slight uptick from where we are we're on Q2, but.

We feel very strong for the supply outlook is in our markets.

When you build off the very the reduced supply you had an accident that I can't talk academic year 20 with academic year 21, we're seeing 2% to 4% decline of that we are still seeing the lowest level of supply. We've since seen since 2011 and what that you just had a few projects that came in stick frame built down the southeast that could get started.

Instruction in the summer or late fall or early fall, that's what caused the uptick but the metrics and the tailwinds for supplier or as we have stronger than last year, and so and when you go back and look at our leasing pre Cove, and where we were 300 basis.

This is ahead 3800 leases ahead.

Very strong tailwinds.

We think as we normalize you continue that the strong fundamentals of supply that are only going to build per academic year 21 and beyond.

A strong footprint within those markets.

Got it good context, thanks William.

The next question comes from Neil Malkin from capital One Securities. Please go ahead.

Hi, everyone. Good morning.

Good morning, Kurt.

Hi, first question is on Opex it seemed like.

The numbers came in better than expected or at least kind of what you talked about in terms of maybe reverting to a more.

Trend level.

Expense growth just wondering.

I could talk about some of the things that are occurring that you maybe didnt expect to end.

Those types of things should continue.

And then if theres anything that Youve learned along the same lines.

Either from a staffing level or a technology standpoint that you can continue.

Continue forward and implement on a more permanent basis to your overall cost load.

Yes, let me go ahead and start off none Daniel Ken can add in here to two of the areas, where you see the grit. Some of the greatest savings are in marketing and payroll and those are very much somewhat related and then we when you look at the nature of our business and we've always talked about student housing being a little more operationally intense given the number of leases we have per property on a per bed leasing basis. When you think about.

Adding that in the context of marketing and promotional event activities that typically take place throughout the year. When students are actively engaging in all aspects of campus life in athletic programs. Those are up in person human resource intensive marketing activities.

In terms of the hours that are para professional staff of students working on campus promotional event athletic event centers and staffing those type of things and so there you see kind of a double savings it relates to marketing and leasing activities as it relates to everything having been largely fully moved to social and digital online on.

Online leasing less people coming into the actual leasing center in terms of the level staff you have not just for the events for giving tours and so certainly the payroll savings associated with the day to day business of marketing and leasing in the in person interaction are two of the things Weve seen great benefit now as we look at that going forward.

I think that we and probably many real estate companies feel that we've all through necessity and opportunity have really honed in and enhanced our technical skills as it relates to the ability.

Two marketing lease to students in that manner.

However, with that said we are at the 90.3% versus our traditional ordinary 97, we aspire to be fully back to normal and so the the thing that we will have to see and manage we hope there is longer term saving opportunities that we can continue to harvest in those areas, but certainly as the environment from KOVA changes those.

Type of activities will ramp back up we won't just automatically okay. We're going to go totally hundred percent digital social and no longer do those things because what we don't know yet is what they contribute to that incremental return to normalcy and improvement and so thats one of the greatest areas in terms of the the savings we've seen and how a we hope it has some.

Bearing going forward, but may not be able to be fully realized given the return to normalcy.

Yes, and no the only thing I, maybe add to that outside of the things that bill went through that are obviously very covert driven.

He is on the the utilities and repairs and maintenance side, we're continuing to think and we think this is really kind of hidden in the fact that we're seeing so much savings surrounding cove it.

We are driving.

Additional.

Efficiencies with our asset management program, which is geared to a lot of our SG initiatives.

And driving savings on the utility side, both water usage as well as electricity also within the the properties or within the units doing things from a longer term finishes standpoint that require less spend during our during our turns so.

We don't think that we're getting to see the full benefit of that given all the other savings that you are seeing associated with cogan.

Okay I appreciate that.

Next you talked about.

Handful at school is talking about.

Increased in person learning our curriculum delivery.

In the spring.

And could you maybe talk a little bit more about that how those plans are kind of shaping up and I guess in general whats your kind of sense of your your overall school University.

Stands now that they've kind of dealt with the first blow of Covidien.

Sentiment and that kind of looks like.

In general and.

I think what I'm getting to is would you expect occupancy to remain to get back to sort of the 90, 597% range of the fall of next year or is it more of a 22 type of event based on what you're currently seeing.

Yes, and as I answer that question I also want to correct something I said earlier, when I was discussing Arizona state and the infection rates. Mike said 11 cases actually 11 cases, among faculty and staff of 12400, which is a 0.09%. The student body is 70 out of 74000, which is.

I also 0.09%, but I think that really speaks as it is a good lead into the question that you're asking in terms of faculty staff and the delivery of curriculum at College University, what we have seen and when you look at the the 68 markets that we serve very few markets ended up fully online only five market seven of our assets.

When you look at the remainder there were some that were designated as fully in person, but the reality is they had some semblance of on online curriculum delivery and the large majority of our markets were what we refer to as hybrid what we have seen in the one thing universities have done have done an excellent job.

In making sure that their faculty and staff are comfortable and accommodated in relation to any that may be high risk and giving them the option of how they're delivering their curriculum and theyve been very sensitive to the needs of the faculty and staff in that regard and because of that we have seen all of our University partners for the most part.

Really toggle between the online and the in person as necessary based on an outbreak or how things are going and provide both alternatives and so I think as we move into the spring you're going to see more of the same where we are that is the as a benefit to US you know there have been outbreaks occurred certainly.

Sure you all read articles the first.

Two to three weeks of camp when students came back to campus. If there were some spikes universally very effectively managed through that by toggling at that time to online and then coming back and so.

And having a conversation with our board members.

I've spoken to we were now in what I refer to as co bid normalcy and there's certainly were not operating in a normal ordinary fashion, but universities are operating in a normal reaction to what the conditions on the ground are of Covance and so as we move to spring I think the universities are very much in a state.

Cable operational reaction mode of curriculum delivery back and forth.

Very surprisingly not will not surprisingly very very good.

Good for our industry is that we did see stability across all curriculum delivery methodologies in terms of students coming back to the campus whether they were fully online whether they were hybrid or whether they were in person.

Especially among the non first year students sophomore and upper division classes. When you look at that group within our portfolio roughly 90% to 93% came back regardless and so we we think that again when you look at the risk opportunity environment moving forward, we think that now the true.

Track record that universities have that in June July and entering into the fall that was unknown and people have seen the ability to manage in the university's proficiency in managing in a proactive and very thoughtful manner, but the environment going into spring is better as it relates to the opportunities for occupancy and affordability to toggle back and forth in the.

Curriculum delivery.

That's awesome can I just go back to the last part I know.

The latter I apologize, but.

Just again kind of based on what.

You just said.

It seems like obviously a good thing.

And sort of just overall trend as of today would you expect.

Fall of 21, who a year to get good morning. Your your your stabilized levels or is that more of a 22.

You assume there's some sort of lag in international or or what have you yet.

I apologize I just forgot the last part of the question versus avoiding I mean to be seen I mean, when you look historically, we have always operated yearning year out at that 97% to 97.5% in terms of fall occupancy is that where we'd like to be in fall of 21, absolutely.

Certainly we believe there's going to be substantial incremental improvement in that journey I completely would expect in fall of 2022 that we are in a complete post cobot world and we are normalized fall of 21, we would hope to be but it could be what we would would second our hope would be a significant progression toward that normalcy, but we.

I would expect it to be significantly better than this fall that we're surrounded and all the uncertainty in how universities could operate in the environment, which as I talked about they've demonstrated.

Thank you all.

The next question comes from Nick Joseph from Citi. Please go ahead.

Thanks.

Given the current.

Leverage and capital commitments in terms of development.

Thoughts on reconsidering, the pivot and creating some additional liquidity retained cash flow on trying to become a little more self funding for development.

Yes, Nick it's a great question certainly at our board meetings next week the dividend, we will continue to be as it always is something that the board will get very thoughtful consideration to and discuss I think Daniel has commented on prior calls we appreciate both sides of the perspective in terms of maintaining your dividend or retaining more of your dividend.

We we know their shareholders, including you know us as shareholders that have always appreciated the stability of the dividend and the reliance upon and the fact, we've never had to cut it as a company at the same time as you mentioned retained earnings is your most favorable cost of capital and ability to.

To implement capital so certainly it will be a topic of discussion at this board meeting it like it is at every board meeting and the board will give proper waiting and purview into both of those perspectives as they consider as they always do.

Thanks, and then just on.

Got that.

How our collection is going for what was kind of left due in the second quarter and third quarter and I know some of that was through the rest of hardship program, but you also have the parental guarantees. So I'm just wondering how much they're going to Pat Pat that yen.

Yes, Nick and we in Q2, we took a large write off you know much greater than we typically do in delinquencies related to those prior year delinquencies and also you see the numbers in this quarter impacted by it related to the prior academic year and so we so to say have taken our medicine in that regard on and also in terms of you know our.

Our compassion through.

Turning to covert crisis in terms of wanting to do the right thing by period, we did wave all of those eviction proceedings.

Ongoing and trying to enforce parental guarantees on the prior year on past resonance for the most part those have been written off without with rare exception versus a hard you know Chris there has been no turning into credit agencies, we made that commitment to our residents. The beginning of cobot that no. One would go without a home because of the inability.

Did pay rent, we would spend that and so that was part of the short term met medicine was taken we did with a significant portion of our resident hardship program, where people could enter into payment plans those were undertaken and students undertake that those continue to be administered on the on the go forward basis, and certainly as we as we talk.

Talked about the improvement you're seeing in September.

Is really somewhat systematic with the commencement of the new academic year as we mentioned there are students that.

We're able to recapitalize through financial weight and student loans also the choices students made as to what University. They are intending to public the public that is very affordable tuition versus the private you probably saw those choices come to give us a better praying paying profile and really when we look at them the ongoing delinquency as can be.

Fair to the past.

As Jennifer mentioned the resident hardship is much less given.

Given that people have had the opportunities to recapitalize and do what I, just said and really the only lingering delinquency. We see at this point I think this is something you see in multifamily also is with there being in most municipalities still a complete.

Moratorium on eviction proceedings and the like and also there is actually a federal.

Moratorium through 12, 31 that renters can supersede even locally where theres not one you do have a very small percentages from some multifamily executives also is very very small percentage of renters to just understand and in some cases politically being encouraged you don't have to pay rent and so if you don't want to don't and so it's.

A very small portion of delinquency, but I think that exist in residential all across America, we see a little bit impact in that in Boston, Seattle, Portland, and in and strangely, Florida, a little bit too where there has been some movements to charge people you don't really have to pay but it's very small percentage as you see in our numbers as referenced in September.

Thank you.

The next question comes from a Lula as cornerback from Bank of America. Please go ahead.

Hi, everyone. Thanks for taking my questions.

I want to go back to the 2021 2022 school year.

If you guys have any color on the pre leasing.

Most of it.

Markets have started in October.

Just kind of what demand is from students.

How many current students are already looking at options for next year anyway.

Chap.

Yes. It is still very very early on in the process and even in the Norbord Norton every year at this point in time were not giving color on on lease up we're always talking about is just kicking off the returning student efforts are just underway at our properties that we.

Give our current students first priority come back in and kicking off the new and so really too early to give any indications into velocity I think also that when we just look at the the future of this year versus last year. Obviously, you had you had two very unique leasing cycles in the last year, you're going to have a year that we're benchmarking.

Against the pre co, but it was all normal ordinary as William talked about it Tailwinds. Then you had a complete stop in velocity for March going forward. This year, we would expect the exact opposite type of trend. Obviously, you have all the cobot activity still there.

Probably creates a little bit of Peru.

Perhaps a little bit of lagging then it should be a great acceleration in March April and May So way too soon to comment on anything that we're seeing but certainly you know our expectation will be as we get toward June July and August is when you can really start to draw comparative to the prior year as to where that ending is going to be where I've already commented on.

We hope.

Fall of 21 will lead to in terms of at least significant progress toward at normalcy.

Great. Thank you.

The next question comes from John Powerup Ski from Green Street. Please go ahead.

Good morning.

A question on Disney This time next year, you'll have five phases delivered.

As you roll as you market the properties to the broader rental market and as the Disney in turn program, perhaps comes back second half of next year.

How are you viewing kind on the trajectory of occupancy guidance.

Zero percent to 50% a year from now 70%, 90% can you just help frame the the impairment of occupancy a little bit.

Yes, John It's Bill let me go ahead, and grabbed and take the lead on that William jump.

Jump in as appropriate the obviously in with the initial deliveries that have taken place through this year, where that would have been as William commented instantly stabilize with DCP participants just moving over now we're looking at putting it into more of the traditional conventional apartment ramp up and so typically.

We're we're we're pro forming in the area of 7100 units a month and absorption and so obviously, it's a longer lead time into that were just kicking it off.

We don't have any purview yet into as we go down that path, whether or not that absorption rate estimate is right on track or slower or we can exceed it so a little bit too soon to gauge out what the occupancy may be a bit based on our current projections. When we go through the build out of the.

10400 beds.

We think we could have as much as a third of the beds about 3800 960 units that may be available to the open market beyond the DCP program, and so where that occupancy ties in is all going to relate to the successful absorption of.

Those beds as they become available so a little too soon to to speak to it I do want to say that we.

The folks at Disney have just been incredible partners throughout this and it's the type of relationship where no one is ever referred to the legal documents. It's all.

Everyone doing the right thing by each other and they have been very sensitive to the investment that we have made there and in us mitigating and.

Supplementing the loss of income from DCP by going to the open market.

Hey, this is really the one thing I would add to that one third of the beds that Bill mentioned, that's in the interim kind of caught through 2023, we still fully expect the DCP program to occupy as designed once the parks open backup when 2023 and beyond so just wanted to clarify that.

Okay, and then on the DCP demand.

With your conversations with Disney on their expectations. They get in turns back at the parks second half of next year is this like.

We expect 50% of DCP demand come back or how is it going to shake out relative to pre cobot levels for the interns themselves.

No it will certainly come back in phases.

In ramp up kind of starting in late 21.

All the way through 2023 as Bill said, we think right now we could have through 2023, a third of those beds available. So.

And certainly thats subject to change based.

Based on the current order the future projections of Disney.

Okay last one from me Jennifer Bill.

For the properties that primarily how sophomores at above.

Curious if any markets leasing is actually rolling backwards and cancellations are piling up in occupancy is actually head ends out.

Yes, we've been.

Well, Mike was off sorry here, but I would know we have seen great stability. Once the school year has started so.

So when you look at our leasing update you actually see that from the time, we announced on September 11th we continue to have a couple two to 300 pickup in leases that those properties that primarily how soft Morse and so that is something that we by no way shape or form have seen any negative trending only continued interest and continued velocity and as I met.

In that particular demographic sophomore and above almost without exception more than nine out of 10.

About 93% across the board did indeed come back when you look at those soft more properties in the dip down.

We had from last year, which was only 470 bips.

When we really drilled into that number while there are properties that are designed primarily for soffe more and above at some universities that do not have capacity for first year students and where we end up with first year students in our apartment products off campus.

Traditionally it's a small population is about four to 6000 in the overall portfolio.

But most of our diminishment in that area was in that category also in the apartments, we added dip there.

Of about I want to say it was 12% among those 4000 that we typically see and so with the upperclassman and upper division students, we have seen great stability and continuing demand as the years gone on and we think once the first year students that all come in and again and I've said this before the poor kids that were high schools.

Seniors through co bid never got to have their graduation and finish out their career. They're the same students were talking about that are now enrolled and having to take their first semester online and so we certainly think that once.

For those of you know again four out of five did come to the campus, but for the one out of five that have delayed that certainly when they come once theyve had the college experienced we think that you'll then see the same ongoing normal Nord air retention that we see over four years of college career.

Understood. Thank you.

The next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.

Yes, good morning, and thank you down there.

The attributes that even how it was a nice intro. So thanks for taking operating season.

Two questions here first just going back to the Disney Bill just so we're clear one the sixeight stabilized yield that's when this thing is fully up and running obviously, we here and there whenever that is a number of years yields going to be a lot lower right.

Yes, I mean, the six eight stabilized I believe it's 2024 and you know that could slide year to 2025.

Certainly when when you look at the interim yields in the main reason Alex for the the interim yield going obviously going down is twofold. One is will you mentioned under the DCP Pro for original Pro Formas just like student housing every phase that has delivered a 100% occupied as it was kids zone the interns rather just moving.

From the current housing into the new and with the cast members or the broader market supplementation to the broader base renters. It is the staggered absorption as you've seen traditional multifamily also as William mentioned in his script because of the nature of these beds were taking in units were taking to the open market.

Being interim and that it's not a situation where someone's going to sign their lease and then renew as it rolls over the next three years because as the DCP program comes back with better economics, we are going to want to.

Ramp that back up so it we are offering what we think is a little bit of a discount to what market rents would be one to gain velocity quicker and so certainly the yields between now and that year end stabilization are going to be somewhat materially impacted.

Okay, and then as far as the ground rent abatement or meaning the pause the way because the ground rent.

Nate is that something thats commensurate so, let's say you lease up 30% of the of the beds you would pay 30% of the ground rent or how is that being structured.

The ground rent when you have to pay versus.

Heads in beds, yes.

Alex resumed thats correct it would be off as the property becomes occupied the ground route would scale pro rata to that.

Okay and then the next question is on is on the pre leasing.

Last week at the interface NMHC. It was a big topic with a lot of folks just saying clearly there are some issues this year as far as like the gap between Thanksgiving and then people knocking back until after.

Winter break you already have the freshmen.

20%, who Didnt show.

And you guys have almost 30% exposure the on campus, which makes it even more prone to the freshmen how are you thinking about preleasing addressing it for next year, especially given your I'd be on campus and build what do you think or what what's the feedback that the your college.

Please are telling you about breast changes maybe people on campus, saying, hey, their friends really miss out and really want to try to come back to campus or something that would give us some data points on how to think about the freshman for next year, yet and you got to understand the freshmen for next year currently aren't even.

On campus. They are the current high school seniors and so thats actually I would say at this point good and that they have been completely isolated from all the turmoil of Cove. It in the college towns that took place last year and the apprehension prior to this fall and so the university's normal ordinary process in terms of.

The building occupancy for next fall one I made the comment in my.

Prior to an answer that almost all universities I think I can say all totally relaxed any housing requirements or expectations for those first year students no. They have not made any definitive commitments that they are going to do that in fall of 2021, so that will be an indicator that is in the press.

We will address that my guess would be until may when they're doing their acceptances in terms of what their expectations are and so if kobin. Indeed has subsided or indeed vaccine has made progress I would expect universities that are nationally heavily relying upon that revenue source, even more so than we are.

And is 100% of their housing revenue in most cases, we will be much more back to their enforcement of their policies and so that I think will be the greatest indicator toward 2021, and then shy of that taking place certainly again the the large ended the one thing again universities are more mode.

Debated on this issue than we are when you look at that first year housing products about 10% of our beds. When you when you look at it and in that regard in terms of specifically on that group administered by the University under those MLS but for the institutions nationally that is something they need to return to normal at a much greater pro.

Hi, Ori than we do and so we think there's great alignment there in that regard.

As it relates to spring I think already covered that a little bit AD nauseum in terms of what the current environment is what the opportunity is and how the universities are administering that and we just don't have enough purview into it yet to see where that may end up but again, we think the environment overall, given the success and management the fall is more opportunistic.

Rick than risk of diminishment.

Okay and then just the final question again.

Last week, there was the discussion of Fannie Freddie having much wider spreads 80 basis points wide of multifamily and having.

Set up for student housing, whether it was leased up reserves or prepaid reserves et cetera.

At the same time cap rates for the tier one which is where you guys are our firm to getting even tighter.

Given Fannie and Freddie focus a lot on sponsorship tier one it would seem like it would be sort of similar overlap. So what is causing the spread and I know you guys really don't do mortgage debt, but still it seems a little odd that on one hand investors are paying firm or better cap rates for products. While at the same time the main lenders are.

Make stricter return.

Covenants or whatever restrictions so what's going on here that explains that and how do you think it's going to play out as far as either their spreads getting better or cap rates backing up yes.

Yes, so the first thing Alex I'll make a comment on the cap rate than anyone else on the team here come.

Comment on the debt today, more and more perspective, and certainly you know the stability of cap rate I think is a good thing for the industry. Whether you don't know is what are they playing that cap rate too.

And is it indeed, you know full pro forma recovery or is it implies revenue were the hybrid in between there and at the you know the headline cap rate in that regard depending on what that underwriting in terms of what I. Just said, there's a lot of variation in terms of upside and opportunity versus that I don't know what you may have more clarity into the underwriter.

In that regard, but I know if you want to comment on the debt will be more.

The cap rates I do think you are seeing some transactions, there's not a ton of transaction volume, we've seen but you're seeing transaction volume come in in line with those pre kobin, maybe even somewhat inside.

And it's really also flight to quality on that you are really focusing tier one universities pedestrian assets, you're getting deep interest and you're getting a lot of.

Offers very strong pricing there as you get further away as you get to tier two markets that demand is dropping rather substantially. So it also depends on what the product is obviously our product tends to all be pedestrian tier one markets and so certainly from a valuation standpoint, that's it the degree data point. When you then go to the debt and the sponsors.

Side.

Certainly you are seeing reserves that theres, if theres properties that have significantly missed occupancy the less that occupancy misses there the less those reserves are required, but very focused on university asset and sponsor.

And so the groups that check those three boxes up his check the three boxes, there is ample debt and Fannie and Freddie are are competing right now for those if you don't fit what one or a couple of those boxes. The debt can be tricky and then the final thing I think when you really look at it is I think some of what you're seeing on the cap rates is at risk adjusted returns student.

Housing is performing better than other relative sectors and the cap rate should be reflective of that.

Okay. Thank you.

The next question comes from Rick Skidmore from Goldman Sachs. Please go ahead.

Hey, Bill Good morning, just two really quick question on the return to normalcy do you think thats a function of a vaccine in place or do you think the schools have managed appropriately will be able to ramp up in person without a vaccine no.

No I think the schools in the absence of a vaccine have done extremely well.

And again when you look at the statistics related to how the 18 to 22 year old population.

Is impacted by co, but again from a health risk perspective, and the actual impacts to them, while having the disease.

Is minimal and so I don't think that the that group is looking at a vaccine as something that they are waiting for a.

By contrast, I think were universities have shown appropriate greater care and concern is understanding that the faculty and staff.

Those likely include higher risk members of the population and that's where you know what we have seen them do in terms of the accommodation to faculty and staff in terms of the ability to give a lecture online or in person or how the classrooms are set up.

We we think they have just managed accidently through the process again, pointing to the largest university that we serve Arizona state at this time, having only 11 faculty cases of 12400 and only seven student cases of a 74000 in an environment absent other vaccine universities have shown that they absolutely.

Our capable of managing through this environment, regardless of if they vaccine does or does not exist I think what a vaccine does do obviously not just for our industry, but for every industry is just takes any cloud of uncertainty and doubt off of it and so certainly you know I think that we ever University and probably every other earnings call that.

You will have in this earning season will obviously say when that occurs there's going to be a positive boats.

Potential influx for them.

Thanks, Thanks for that and then just following up on the second quarter call. There was some discussion around pursuing some joint venture partners can you just is there any update on that front that you can provide.

Hi, This is really about that process is still ongoing.

We've got a number of equity sources that were talking to a number of opportunities. We're looking at but we've made great progress since the second quarter and continuing with those initiatives will update certainly next quarter.

The other thing I would dovetail in a prior question that Daniel answered related to dispositions and one of the key things that we look at when we look at the the drag on our earnings over the last couple of years related to the dispositions that we undertook and we burnt more benefiting from growing scale and efficiency in the portfolio is that it can.

Function with the joint venture activities that William is undertaking.

For new opportunities the most likely disposition opportunity for us is to actually contributing assets into joint ventures, not just in terms of any proceeds that may be within the joint venture, but in creating liquidity also beyond that for our development pipeline. So that we can also well still dispose in essence disposing of it.

Your son assets continue to maintain scale critical mass and start to get that.

Scale efficiency back into our internal growth rate. So it's also key in terms of our capital recycling opportunity, we'd rather joint venture Weve done a lot of pruning of the assets over the years and we've got a portfolio, we really like in and put value in and so in many cases, we would desire to joint venture in asset versus dispose of it.

Thank you.

The next question comes from Steve Sakwa from Evercore ISI. Please go ahead.

Thanks, Good morning, I, just wanted to be 100% clear on something for the September rent that were not collected were those fully reserved for or are you in the process of working out payment plans with those folks.

So so it depends on the specific tenant Steve.

Definitely any tenants as part of the RHP program.

Of course their rent as abated and that's different that's not a bad debt that's actually just removed from.

From from rental revenue and but.

But there any past due balance they have and as that is forgiven at that time is written off through bad debt.

We do look at protests renters in our our feelings on Collectability, there and reserve against that amount. So you know you do have some that you that you think is collectable that you haven't reserved against but definitely.

In this environment.

We have been as aggressive as rules allow us to be to go ahead and write off anything that we that's that's delinquent.

Okay, great. Thanks.

Bill I guess, a bigger question as you sort of talk with the universities and they kind of reevaluate their bigger housing.

Program and look at the impacts of Covance had.

When do you think you start to see some of the benefits coming out of the pandemic in terms of them having.

On a redo the housing on a long term basis.

Yes, and I think there's the well the one thing that we will say appropriately.

Every University administration through the summer and the commencement of fall was completely focused on their campus operations in bringing students.

Students back safely and making all the accommodations necessary to faculty and staff and so there was appropriate redirection of every.

Executive on a college campuses.

Daily activities in terms of that mission certainly we've now with a normalization that have taken place as William mentioned in his script, we got some real good opportunities there and in Predevelopment, including MIT per incident, I made about West Virginia next to Princeton and MIT when you read it because of the three prestigious institution should be together, but but there's.

Great opportunity there that is now the meetings are kicking back up and so I think as we go into 220 21 there.

There's a large pool of opportunity that is coming.

And not only in the transactions that of ours that the timing slid six to 12 months that should benefit our future years in terms of fee income, but it is now indeed, a broader base as we have talked about in the universities have now seen it when we talk about the diminished on campus occupancy.

In the first year products without giving specific institutions.

We have seen large these are schools that are in our partners that in the future, maybe but the institutions that have not done.

Large scale modernization and their housing start stock largely consist of the community Bath beds, one major power five schools at 42% occupancy.

Because they only have that community bath offerings and so the universities now having lived through the consumer reaction.

To their housing stock we believe there is a high degree of motivation.

For those institutions now to address the housing needs in the modernization so post over 2021 and beyond.

I'm looking down the JV will on the shaking his head and smiling is the personally leading that Pthree initiative. He feels as though the environment of opportunity in that sector for us is greater than it's ever been postcode.

Great. Thanks, Thats it for me.

Again, if you have a question. Please press Star then one.

The next question is a follow up from Nick Joseph from Citi. Please go ahead.

Hey, its Michael Bilerman here with Nick that's.

Was wondering if you can just spend a little bit more time on that.

Deal and maybe just to start can you be a little bit more specific with the earnings that's a FFO drag.

From all of these activities in terms of going market rent out of the Disney program for at least calendar year 21, where you will have.

Almost $300 million.

Capital, that's outlaid and so it sounds like.

Revenues, you're going to get are going to be significantly lower given by the vacancy in the rent if the charge and all the incentives you have to provide you will have the lack of capitalize interest come onto your balance sheet, because the vessels will be delivered.

Offset by ground rent that will scale now rather than being all at the same time.

So it's not insignificant in terms of the spend.

So can you just sort of how many cents dilution are we looking at right now.

Let me give a lead and then then I'll turn into Daniel to see what will we have available. This point in time 2021 will be the most impacted year.

As you look at in terms of because originally again it was full ramp up immediately of everything delivered in DCP and now we're starting from all the units that are available and have been delivered in the absorption ramp up and so you have the the first time ramp up with no DCP into the mix at all not coming until the latter half of the.

Year the.

The differentiation is 21 2021 is the largest discrepancy in exposure in that Daniel I don't know that we have had the old one understand we have sensitivity pro formas related to how quickly that ramp up that are just going into place in at these conversations with Disney in the kick off of this is in the last candidly two weeks and so I don't know if work.

Yes.

Michael I don't know that we want to to give a specific amount yet because we're just getting started with Disney and I think by the time, we get on the next call and we're looking at giving some projections for 2021 in terms of guidance that will be in a better position to really dial into what we think we can get in terms of that alternative.

Market from cast members or otherwise.

In offsetting the revenue loss from the the internship program on these first few phases.

And then also just ongoing conversations with Disney between now and then in their ramp up.

Backup of the internship program and how much we expect from that in the latter half of the year. So.

By that time, I think we can give you a much more specific impact, but you're not wrong in your comments in terms of exactly the components of how you're thinking about it.

But I guess, if I step back from it.

It feels as though putting aside wherever the stabilization.

Turning to slide 25, I don't think anyone's going to give you credit for the eventual stabilized deals, but people are going to care about the here and now and I just you know.

No I don't know if there's like a 10 cents drag into next year I'm just trying to understand.

Some of at least the goalposts that you have in terms of what you've spent $300 million right on top.

Thats delivering solve another 100 that you've already spent which is a good thing I guess you are two thirds the way done all your capital.

But theres just a lot of dynamics.

Going on and I think having a little bit more detail would be helpful.

Yes, I mean, I think when you look at what the original phase is being delivered and the yields on that there was probably net of ground rent somewhere in the range of.

$40 million of eventual why after ground rent contribution we will get some contribution in 2021.

Which is what we still have to find out is how much of that can we get from the alternative market that we're going to be starting.

Starting to pursue here shortly and then the return of the internship program in the second half of the year.

The offset to that as we as William answered previously will be we are going to have some savings on ground rent as they continue to wave that and really bring it back on pro rata to the occupancy we get so.

The 13.9, probably represents about 10 cents and you know, it's going to be less than that because because we will get some revenue replacement.

Right.

I guess you step back from that when you embarked on this this was very out of the box idea.

And I had some adjacent fees to your existing business something very different and also.

Also within the small commitment that you made.

Mark the almost $600 million.

Call It six 7% of your asset base towards the war.

And I know none of us could have predicted what happened.

And what Covance has caused.

Do you step back at all and rethink this investment and is there any way to extricate yourself from it.

The one at this moment, we wouldn't want to extricate ourselves, but we did and this is where we do when you look at when we announced the transaction and I am surprised.

That were currently implementing the strategy that we are in terms of what the original intent of this was but we are very fortunate that we did plan and foresee that we did ask ourselves. The question about undertaking this would've DCP goes away what are the backups and what are the alternatives now if we were.

We're developing this asset for the alternatives from day, one we Didnt Ics honest.

Honestly when we negotiated that provision it was okay. What of 20 years from now things are different we didnt think any in any way shape or form that this would be a strategy, we would be implementing in the context of the development and that is where the big.

Impact is taking place in that when you look at the need for additional professional worker housing it Disney and the market beyond that the universal broader market in greater Orlando, There's a great economic opportunity here that is that yields that are acceptable to us, but you would have faith.

Got it and build it differently in terms of normal absorption of how came together again, we're having to switch mid course is what creates that yield the ultimate backup that we built into the ground lease is that if the DCP program and the backup market were not successful then ultimately Disney it can be part of this.

Nice hospitality pool at that point, they are managing it but we wouldn't care. They are much better managing that we are and that actually had the best IR are of anything we would look at and so I do think that when we stepped out of the box and assessed whats the unique risk of this we didnt get the unique risk correct in that the DCP program could be.

Got it in no way shape or form again did we ever think it was going to be related to cove, it and on a short term basis and the implementation would have to be through the development aspect of it and it's really the timing of that did is what brought it into play. It is a full stabilization also you know was was was conceived over that period of time.

John.

In hindsight again, when I say, what would we have done differently then.

Knowing everything we know now you know again the backups, we put in place in the ground lease or Solodyn are good and so I wouldn't have structured that differently. The only thing that you would have done with stage construction differently. If you knew you were going into that alternative market and so it I would say we're still very excited as.

About the Disney transaction.

We also were excited about the the backup use pre covert Orlando was the number one market in America for lack of affordable workforce housing and so this is a topic. That's hot there locally there has been some relief obviously through the impacts of go bid on the multifamily market, but it also demonstrated that.

This can be a good niche make no mistake you are correct. There are short term material impacts to our AFFO contribution in yield and that's real and we don't make light of that in any form or fashion.

But I do think that our initial thoughts and structuring the deal did have the proper risk perspective in terms of the contemplation and the alternate uses that are there again it happening through the development is what creates the real pressure point in terms of the short term impacts being right paint.

Then if it had been fully stabilized and then we were transitioning is there any opportunity to to reduce the capital commitment to this project $600 million is not a small amount and doesn't sound like the other sales are progressing.

Progressing where there is not new updates on raising incremental capital.

Is that just off the table or you you know in in this is let me say this when we announced the Disney transactions, we had more phone calls from equity wanting the joint venture that deal than probably anything else, we had ever done and so certainly as it as it relates to the schedule of building it out in the capital committed to complete.

It is something that looking at the projected ramp up of the Disney College program and the ability to supplement we are still moving forward and committed to the completion of that build out we always have the ability to capitalize our interest in Disney and to supplement it through a joint venture.

I don't know at this point in time, that's something we would want to do we're still very very bullish on the long term prospect of this and what it means to our company both from an individual investment perspective, and also from you know we have the other thing we talked about we did Disney that we have seen is the impact that it has with colleges and.

Each of these in terms of the reputation will benefit in the procurement process of being Disney's partner and so.

Certainly lessons learned on a lot of fronts as we as we think through how we did structure it.

In terms of the one comment I made in all of our business. We've not just Disney we need to look at every aspect of on campus and Ace transactions. When we look at first year residence halls, and that their disruption from co would being the greatest material disruption in our occupancy this year.

We were undertaking.

Part of our thoughts were modernizing the community bathroom concept, obviously, we got a big switching strategy there in terms of.

Some of the lessons learned from Cove, and so I think there's a lot of things that we can look back on reflectively and certainly something that we will do as a management team and also with our board of directors in terms of up.

Lessons learned and things that we can.

Aggressive going forward.

Okay. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Bill Bayless for any closing remarks.

Yes, first and foremost and most importantly, I want to thank the American campus team, our field and community staffs, especially that throughout this pandemic have built continued to deliver deliver essential housing services to our residents all across America and its their efforts.

And their commitment that have resulted in the road to recovery that we are on so I want to thank them first and foremost and thank all of you for joining US we look forward to updating talking with many of you may recall and updating you on how things go in the spring. Thank you very much.

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

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Hi, David.

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No.

Okay.

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