Q3 2020 UDR Inc Earnings Call
Greetings and welcome to <unk> third quarter 2020 earnings call.
At this time all participants are in a listen only mode.
Great question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host director Investor Relations Trent Trujillo. Thank you Mr. Korea sales you may begin welcome to UTI, Our quarterly financial results Conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website IR.
Got you yard Dot com.
In the supplement we have reconciled all non-GAAP financial measures to most directly comparable GAAP measure in accordance with Reg G requirements.
Statements made during this call, which are not historical may constitute forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met.
Discussion of risks and risk factors are detailed in our press release and included in our filings with the FCC, we do not undertake a duty to update any forward looking statements.
When we get to the question and answer portion we ask that you be respectful of everyone's time and limit your questions to one plus a follow up management will be available after the call for your questions that did not get answered during the <unk> session today.
I will now turn over the call to UTI, Ares, Chairman and CEO Tom Toomey.
Thank you Tracy and welcome to UTI ours third quarter 2020 conference call on the call with me today are Jerry Davis, President and Chief operating Officer.
Lacy Senior Vice President of operations, and Joe Fisher, Chief Financial Officer, who will discuss our results.
Senior executives, Harry Alcock, Matt Cozadd and Chris that ends are available during the Q and a portion of the call.
Simply stated our business is predicated on revenues, we built and our ability to collect those revenues.
For the former the third quarter remained challenging due to the combination of ongoing regulatory restrictions slow coastal reopening work from home trends and elevated concession levels in our hybrid coastal markets combined with the highest number of leases explorations.
Any quarter during the year.
Despite this build revenue appears to have stabilized across the August September and now October.
For the latter.
Our ability to collect revenue remained strong and it's consistent with prior month.
While these observations have yet to show up in our company wide same store revenue and in Hawaii result.
I draw some degree of comfort from the approximately 80% of our portfolio, which is experiencing stabilizing or slightly improving fundamentals.
This is in our suburban and sudden bar communities combined these factors provided the basis for our issuance of same store and earnings guidance for the fourth quarter.
But we have not lost sight.
The fact that many uncertainties and challenges remain ever.
Every recession has a couple of quarters, where the headwinds converge.
The third quarter had that type of feel to it for us.
And based on our guidance for the fourth quarter, which has fewer leases coming due good as well for same store statistics.
The stabilization of fundamentals occupancy build revenue and collections is a first step.
Towards the recovery.
But to inflect higher.
We need meaningful improvement in our hardest hit high rent markets of San Francisco Manhattan in downtown Boston.
These markets make up 20% of our portfolio and while the improvement in our October occupancy has been encouraging.
They have come at a cost of higher concession levels.
We have not lost faith in the long term viability of these urban areas, but we need a vaccine for widespread reactivation and recovery, Mike will provide more commentary in his remarks.
With all that said.
We remain focused on maximizing cash flow and bottom line results.
On that front, the midpoint of our fourth quarter earnings guidance implies a full year 20, 20-F O. It a.
$2.04 per share.
She was down only 2% year over year. This.
This is a result, I'm very proud off given the challenges this year has presented.
Shifting gears I'm pleased at the E.S.G. achievements UTI, our has made over the past year as detailed in our recently published 2020 corporate responsibility report.
Which covers our 2019 actions.
We remain committed to driving our E.S.G. platform floored and have laid out a variety of sustainability targets through 2025 and have improved our reporting disclosure to provide the most relevant and comprehensive metrics to the investor community.
We look forward to sharing our continued success in the years ahead.
Next all of use VR would like to welcome Diane Morefield as the newest member of the board.
Diane has an accomplished history as a senior executive in the read industry.
And as an independent director will be bring.
Valuable perspectives.
As we continue to execute our strategy.
Finally, as we wrap up 2020 and turn our attention fully to 2021, we continue to focus on controlling what we can.
Which is how efficiently we price our homes, how well we execute the implementation of our Nexgen operating platform.
The quality of our customer service, we provide to our residents the support we give our associates in the field and maintaining a strong liquid balance sheet.
The executive team would like to thank all of you the Ars associates for their efforts to move our business forward keep up the good work.
With that I'll turn the call over to Mike.
Thanks, Tom and good afternoon, starting with first quarter results on.
On a cash basis, our combined same store NOI declined by 10% year over year driven.
Driven by revenue fine of 5.9% and an expense increase of 4.2%.
When accounting for concessions on a straight line basis, our year over year combined same store revenue declined.
Going to more modest three point.
Well, then why down 6.4%.
On page four of our press release, we have included walk between cash and straight line combined same store revenue.
During the third quarter.
As was evidenced by our early results, albeit concessions and more economic occupancy negatively impacted our growth.
But the extent to which they did wasn't markets tend to vary by urban versus suburban location.
Despite these challenges I am encouraged that are billed revenue stabilized in August and September was this trend continuing into October as well.
Currently we are operating with minimal or no concessions across approximately 65% of our portfolio.
And continue to maximize revenue growth by balancing blended lease rate growth against occupancy changes at the market unit level.
We believe the surgical approach to pricing.
That's contributed to the stabilization of our build revenue and maintained our rent role for 2021.
Okay, We think 2020.
These factors over decision to provide fourth quarter 2020 guidance, which you can find on page two of our release.
Splitting our portfolio into three performance buckets helps to better explain our fourth quarter guidance.
First roughly.
Roughly 20% of our allies in markets that have stable to improving fundamentals and positive revenue growth well.
Both of which we expect will continue.
This is due to a combination of occupancy gains and positive affected blended lease rate growth, primarily due to less restrictive regulatory environment.
Weaker economic reopening.
This bucket includes Tampa, Orlando, Nashville, Dallas, Austin, Richmond, Baltimore in Monterey Peninsula in California.
Concessions across these markets have generally remained in the zero to four week range since March and demand remains strong which has helped us maintain average occupancy.
97.5%.
Second.
Roughly 60% of our analyzer is in markets that we believe have bottomed and are showing early signs of improving second derivative could ensue.
This bucket includes some of your peers larger exposures, such as Orange County, Los Angeles, Seattle, and Metropolitan Washington DC.
Also grouping our suburban communities in New York, Boston and the Bay area.
Concessions across these markets have generally range around two to six weeks with occupancy averaging 96% to 96.5%.
Third roughly 20% of our end wise in urban areas of coastal markets, where demand and growth are more dependent on office reopening.
Mobility trends work from both flexibility and a vaccine season.
These include Manhattan, San Francisco downtown Boston.
Concessions across these markets have averaged 48 weeks.
But some competitors have offered up to 12 weeks on new leases.
Average occupancy across these markets was a mid to high 80% range during third quarter, well has since improved to 91.6% in October with Manhattan, leading the way.
While these results which are highlighted on page three of our lease are encouraging occupancy gains in these urban cores has come at a cost in the form of more concessions or face rates.
Overall market fundamentals across our portfolio feel somewhat better than during the summer months.
Billed revenue appears to have stabilized.
Cash collections remain strong and continue to trend above 98%.
And traffic and applications remain favorable versus 2019.
On the other side of the equation new lease roll downs are likely to remain the norm in the 2021.
The ongoing emergency regulatory measures in primary coastal markets will continue to hinder our operations.
But we believe our revenue maximization strategy for pricing our homes.
Well your dividend.
Finally, I want to thank my colleagues in the field and here in Denver for their dedicated execution Burberry to operating strategies and the base is still evolving regulatory restrictions, which are dedicated governmental affairs and legal teams have diligently track, we're measured as a team and yours efforts have been crucial.
The foundation for future success.
And now I'd like to turn the call over to Gerry.
Thanks, Mike Good afternoon, everyone, a big part of our future operating success is expected to be driven by our next generation operating platform, which provides residents and online self service model and improves operational efficiencies, while increasing resident engagement. The initiatives, we have rolled out thus far have expanded our country.
Global operating margin and driven a year to date decline in controllable expenses, a 40 basis points combined personnel and repairs and maintenance expense are flat year over year, all administrative and marketing expenses are down nearly 8% year to date through September thirtyth, well declining revenues because of the pandemic.
Have altered the timeline for achieving some of our margin expansion targets. The ultimate operating benefits of our next generation platforms remain clear.
First site level headcount has declined 29% since our base quarter of Twoq 2018 through natural attrition over.
Over that same period, the number of total homes, we own and manage has increased by 4% as permanent reductions in our cost structure through head count efficiency has driven a 31% improvement in controllable and allied per associate.
Second despite reducing head count we have delivered a self service model that our residents prefer well also in grain in UTI. Our further into their day to day lives. This is apparent in our resident satisfaction as measured by net promoter scores, which have increased 24% since twoq 2018, as well as the 80% adoption.
Right of our resident happened the two months since we rolled it out self service has become the preeminent way that business is interact with their customers. We believe we remain ahead of the curve in the multifamily industry.
Last well all the public apartment Reits operate very efficiently at comparable rent levels, we have higher than peer average margins across the majority of our markets.
Versus private operators, we believe the margin advantage is even greater typically ranging between 501000 basis points affording us the opportunity to enhance shareholder value through acquisitions.
Looking ahead, we plan to capture additional staffing level optimization, which will further improve our operating efficiency without sacrificing the high quality service our residents have come to expect in.
In addition, the rollout of the next phase of our self service smart device App and the integration of more data science and our process, we see further opportunities to enhance resident loyalty and deploy revenue growth and expense reduction initiatives. Finally, it is important to understand that our nexgen operating platform.
Does not have a finite life centralization smart home installations self touring and a shift to self service have formed a strong foundation upon which we will continue to evolve and improve.
Future platform enhancements should benefit not only our existing portfolio, but also allow us to generate outsized returns when buying assets at market prices.
With that I'll turn it over to Jim.
Thank you Jerry the topics I will cover today include.
Third quarter results and first quarter guidance.
An overview of collections and our bad debt reserves.
And the balance sheet and liquidity update.
Inclusive of recent transactions and capital markets activity.
Despite the challenges we faced during the third quarter, our FFO as adjusted per share of 50 cents declined by only two pennies or 4% year over year.
The one penny sequential decrease and AFFO per share was primarily driven by lower property revenue due to a decline in occupancy and elevated concession levels part.
Partially offset by lower interest expense from executing accretive accretive that prepays and higher DCP income from recent investments.
Regarding guidance. Despite the continued uncertainty around how the pandemic will impact the economy.
The regulatory environment and our business we.
We have provided fourth quarter 2020, combined same store growth and earnings guidance as outlined on page two of our release.
We anticipate fourth quarter for weight per share to range between 48 cents and 50 cents with the 49 cent midpoint, representing a 2% sequential decrease.
We expect fourth quarter year over year revenue growth of negative 5% to negative 6% on a cash basis, and we expect the difference between cash and straight line revenue growth rates to compress relative to the third quarter due to a lower amount of concession dollars during the fourth quarter because of fewer lease expirations.
And the amortization of concessions previously granted.
Additional guidance details, including sources and uses expectations are available on attachment 15, and 16 any of our supplement.
Onto collections and how we are reserving for potential bad debt.
To begin we continue to make progress on second quarter collections, which stand at 98.1% of build rather than residential revenue.
This is 200 basis points higher versus second quarter end and leaves a modest 20 basis points or approximately $600000 of earnings risk towards the revenue we recognized during the second quarter, given the 5.5 million or 1.7% reserve we took.
For the third quarter as we outlined in our operating update on page two of yesterday's release.
As of quarter end, we had collected 96.1% of build residential revenue.
Which is the same level of collections compared to the end of the second quarter.
We expect cash collections dropped further and subsequent to quarter end third quarter collections stood at 97%.
This compares to our bad debt reserve, a $4 billion, 1.3% for third quarter build residential revenue.
Collectively.
We had a rental revenue accounts receivable balance of approximately $15.5 million at quarter end.
Against which we have reserved 9.5 million between the second and third quarters.
This leaves $6 million or less than two pennies per share of recognized revenue that we expect to collect in the future.
Moving on.
Our balance sheet remains strong due to ongoing efforts to reduce debt cost extend duration.
Maintain liquidity and preserve cash flow.
As such we remain in a position of strength to weather the continued effects of the pandemic.
Some highlights include.
First.
As of September Thirtyth, our liquidity as measured by cash and credit facility capacity net of our commercial paper balance was $924 million.
When accounting for the roughly $102 million previously announced forward equity sales agreements, which we intend to settle in the fourth quarter of 2020, we have over $1 billion and available capital.
Second after.
After completing the refinancing of our final 2020 debt maturity during the third quarter.
We have no consolidated debt scheduled to mature through 2022.
After excluding principal amortization at amounts on our credit facilities.
Looking further ahead less than 15% of our consolidated debt scheduled to mature through 2024. This is due in part.
Sure in $400 million of 2.1% 12 year unsecured debt during the quarter and prepaying over $360 million of higher cost debt originally scheduled to mature in 2023 and 2024.
Please see attachment for B of our supplement for further details on our debt maturity profile.
Third.
Identified uses of capital remain minimal and predominantly consistent funding our current development and redevelopment pipelines to which we added 440 Penn Street 300 unit hundred $45 million community in Washington DC.
Aggregate cost for our active development and redevelopment projects totaled only $453 million or less than 3% of enterprise value and they are nearly 50% funded with approximately $234 million of remaining capital to spend the next 24 to 30 months.
Fourth.
Dividend remains secure and is well covered by cash flow from operations.
Based on third quarter 2020, AFFO per share of 45 cents.
Our dividend payout ratio was 80%, resulting in over $100 million of free cash flow on an annualized basis [noise].
Taken together our balance sheet is in good shape, our liquidity position is strong.
Our Ford sources and uses remained very manageable as is detailed on attachment 15 of our supplement.
Next transactions up to.
First as previously announced we funded a $40 million DCP commitment for a community in Queens, New York at a 13% yield and with profit participation. Upon a liquidity event, which we expect to occur in approximately five years.
As a reminder, the project is fully capitalized and the investment provides superior economics compared to pre covert deals due to more of a stricter bank lending standards and generally lower available construction financing.
Second.
During the quarter.
Quite a fully entitled Development site King of Prussia, Submarket of Philadelphia for $16.2 million.
Third.
Subsequent to quarter end, we sold Delray tower, a 322 home community Metropolitan Washington, D.C. area for $145 million or approximately $450000 per home.
Proceeds from which we expect to Accretively redeploy in the coming quarters.
Moving forward.
We will continue to leverage our industry relationships and evaluate investment opportunities based on a rigorous set of qualitative and quantitative criteria and determining how and where we choose to invest your capital to generate value with DCP being our top rated years currently.
Last.
As is evident on attachment foresee of our supplement we.
We continue to have substantial capacity before we would breach or line of credit line of credit or unsecured bond covenants.
As of quarter end, our consolidated financial leverage was 35% on Undepreciated book value at 34.2% on enterprise value inclusive of joint ventures concern.
Consolidated net debt to EBITDA or are you with 6.5 times and inclusive of joint ventures was 6.6 times, which looks slightly elevated due to the still outstanding settlement afforded TM proceeds.
With that I will open it up for Q and a operator.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session.
I'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press star two if he would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star kids in the interest of time, if you could please limit yourself to one question and one follow up so we may get to everyone's questions. Our first question comes from the line of Nick.
So with Citigroup. Please proceed with your question.
Thanks, I appreciate all the disclosure, particularly around the different parts of the portfolio.
When you think about TDR portfolio, obviously, its diversified across markets and price points, but Tom given the regulatory restrictions that you've talked about and I recognize from a national but a lot of those are more local or state driven how do you think about the marketing.
Market exposure past call, but I'm, so lucky transaction market returns more to normal.
Are there any lessons learned thus far that maybe makes you want to change where the portfolios situated.
Hey, David It's Joe maybe I'll lead off and then that's it.
Over to Tom to close it out.
I think similar to our comments from last quarter and throughout conference season, I guess, a little bit too early at this point to jump to conclusions in terms of market exposures.
It was certainly a diversified portfolio has worked for us throughout this crisis is wells during the up market. So that is the strategy will remain but.
But I think we want to get through a couple of these binary outcomes the trying to figure out what it means ultimately for our markets get into the election here in a couple of days getting through co business and getting a vaccine understanding as to what degree regulatory environment changes.
Okay, then we'll evaluate the fiscal health of these markets and ultimately what happens with migration jobs. Therefore migration over then comes overtime that house capital on the supply side respond to that so today I think it's still too early what we're really focused on us and we do what we've done in the past from a capital allocation standpoint, which is just continuing to do accretive.
Type of spread investing so say this one on that point trying to source low cost capital through dispositions or free cash flow and drive more accretion, which.
I do think it's important on this release just to highlight the fact that while our year over year earnings growth was down 4%.
When you look at the underlying pieces within that.
We had almost 4% accretion coming off of last year's acquisition DCP and capital markets activity. So the amount of work we've done on that front continues to show through and so well operations clearly important to us in this environment driving cash flow is all the more important so pretty proud of what we've done there, yes, I'll actually take my view, Brad talk little bit about how those transactions are performing.
Yeah, Hey, Nick.
Thank you for letting that $2 million in acquisitions were actually within a 100 to 150 basis points on our original underwriting I think a lot of that you can point towards our 90% of those properties are suburban in nature. So we are pretty happy with where we've gone those deals.
Thanks, and then just maybe on the DCP program that $20 million share note that father, Paul can you talk about what the plan is there it is going to be underwriting for that as you kind of take title off the land.
Yes, hi, Thanks, Joe Oh, Okay from a high level sources to get a little context of the Harry is going to jump and give you. Some details on that transaction I look forward. So ultimately.
Ultimately the goal of these advanced we've talked about.
Our newest again IRS returns in between acquisitions and development, while taking on revenue commensurate with that.
With this plan.
And what the sales somewhat all sales will report back to the board.
As we do with the bolt on acquisition show them. What the returns were what the acquisition returns were whether development returns work.
And overall the program is pretty much performed as expected when you look out while we have today essentially realized including Alameda.
We're running right around a low double digit hierarchy, which is what we've communicated previously asked a couple of home runs of citywide wanting to Arbor is parallel guidance.
Singles like help me there.
Hi, this is already pretty much as sales are we comfortable owning assets out of that basis are we comfortable stepping that we're giving ourselves the ability to enable construction document so.
The one thing that's quite different here, a little bit versus all the other DCP transactions. We've done this is a land loan.
Not have limited partner equity line up in a construction financing lined up.
We got involved with the intent to be impressed equity deal and somewhere in the future once they did that whereas all other transactions, we close simultaneous with equity construction loan and other partners. So we took on a little bit more risk.
Thats part of the reason we have the opportunity to today going forward with that is if you mentioned as well as healthy less construction financing more opportunities for new deals that were out there doing but overall I think this deal. We got some time here in our evaluation will be at the 150 joint basis point range over market cap rates once we get underground good that started.
Thanks, Nick This is Harry I'll, just jump in for a minute to.
Just a reminder, this is a parcel of land that is fully entitled for 220 market rate homes.
We have a cost basis of roughly a third 14000 per unit.
But that includes nearly $15 billion that was invested by the borrower for land equity architectural plans. Another entitlement costs of the valuation is is quite good.
The borrowing some master development, which created a significant amount of required investment forum.
All the parcel next door the own phase two and three the Master plan and as Joe mentioned, they had been unable to.
Secure an LP to help fund the several million dollars of costs.
Prior to construction commencement, including interest and our low which they were paying currently.
The borrower asked for some assistance given there are other financial commitments for the project broader site.
And we just made the decision to take the property rather than grant assistance, it's all being done in a very friendly manner.
Just a little bit about the site to its other former Navy base and Alameda, which is.
Well as aylwin between San Francisco and Oakland.
Environmental cleanup in the title that process took probably 20 years to complete.
The sales part of the larger master plan with multiple parts of two tails on projects sold for more than a million per home.
Another market rate community in a senior community that will be completed next year.
Office and retail in the future.
So hi income suburban ish location excellent schools 20 minute ferry ride to San Francisco.
Right understood virtually no new supply now needed for the last 20 years or so.
Just a single 200 unit property, a bill perhaps 10 years ago.
Thank you.
Operator.
Operator can we go to the next question. Please.
Mark I would not me sorry about that I was on I was on mute. The next question comes from Rich Hightower with Evercore ISI. Please proceed with your question.
Okay, great. Thank you I was getting worried there.
Good good morning out there guidance.
Okay quick ones I guess in light of the seasonal slowdown in leasing.
Yes, there were going to see in all markets, but really centering on.
Boston and San Francisco, how how long do you think this four to eight weeks plus concession environment.
Yes.
Well its got sort of through the end of the fourth Q early part of one how should we think about that.
You should see me.
See you know Doesnt really factor into anything for the next few months, let's say.
Why is it office occupancy and that sort of thing.
Hey, rich, it's Mike I'll take a stab at that first I'd start by saying we continue to believe in the long term viability of both New York and San Francisco as well as Boston and job creation centers in cities that will attract talent and individuals who have demonstrated a propensity to rat.
In all cases, we are encouraged that our approach has led to increased occupancy. So with that you turned down to solve that we're one of the levers first and I can tell you having a diversified portfolio, we've seen opportunities, where we can increase rents today and concession levels have come across off in places like the sunbelt and marine.
The whole occupancy relatively high but going back to New York, San Francisco and Boston, We have taken an approach to try to increase our occupancy there that being said it had come at a cost immersed we've seen.
Session levels anywhere from eight to 12 weeks and some of the hardest hit hard to those markets, but and then other parts, where we have more suburban assets, it's closer to zero to two weeks on average. So we are starting to see in pockets concession levels coming off and again, our occupancy levels are rising.
Okay I appreciate that.
And then maybe.
Maybe a little bit more broadly.
And this this hits on the sort of market diversification and portfolio allocation.
As soon as well, but as you think about.
A lot of these beaten up to states and municipalities.
Coming out of Cove, it and the implications for property tax.
Increases how do you think thats going to play out across.
[noise] markets in the EBITDA.
The calendar year.
The what.
Thanks, Bob for the next 1234 years in that in that context.
Hey, rich.
So no question, we've been spending a lot of time thinking about broader personal health and also of course real estate taxes, both near and long term, yes. This 120 21.
Approximately a third of the portfolio Thats in California. So clearly we have that effectively locked in that too precise in addition to that spread about another 20% of the port folio unexpected expense next year that is effectively locked in as we've already valuation. So we're starting to reduce that risk is probably kind of mid single digits type of growth next year for real.
Six axis.
Hey, if you think about those municipalities and states.
Not quite as simple as just as a coastal sunbelt rent versus Lou.
Depends a lot in terms of the sources of revenue those states have.
Obviously, there are states like Florida, Texas, Tennessee in state of Washington.
I have no real estate or no income tax, which puts them much more dependent on the real estate tax items sales and use tax side.
So I'd say as we go forward for a little bit more concern about what's going to take place.
At all to see.
Texas next year in terms of valuations as they try to fill up that revenue bucket.
Yes, and then it comes down to there are markets that are hard to it like New York, and New Jersey, California, I'd say, California is probably one of the best positioned in the country from a reserve a rainy day fund perspective, So you do need to factor that in and then yes, we got the election next week, which if theres a democratic sweep clearly there has been talk stimulus.
Sales and so with a stroke of a pen and you could potentially fill out some of those fiscal issues, which is why it's exciting we do want to wait and figure out some of the binary risk that's out there.
Yes, that's a great answer Joe Thank you.
Thanks revenue.
Our next question comes from the line of Nick You Love of Nick Yulico from Scotia Bank. Please proceed with your question.
Hey, good afternoon, everybody. This is a summit in for Nick. Thank you for taking the question I was just sort of piggybacking on on Rich's question.
On the credit spread investing just curious there's a lot of capital getting into the sunbelt at least when you speak to people who are predominantly California biased they seem to want to get a little more sunbelt exposure.
And so you either through acquisitions or development lending. So curious if there any market. Besides the coastal markets that you may not be interested in at this stage because the spreads are not suitable.
No I mean, there's really nothing that weve red wine today, obviously, we're cognizant of near term performance in certain markets. So, yes on New York or Boston San Fran.
So we're cognizant of the performance there.
As you go through the underwriting there is a probably wider degree variables or outcomes. As you think about four and a lot of strength and there are no markets that we run by typically when you see kind of a herd mentality all shift to a place like the sunbelt, you'll see some cap rate compression and see more competition.
It is not always a great way to make money to run with the herd. So there may be more value opportunities in other markets. So nothing we frontline today.
I wouldn't say, there's any new markets outside of the.
Six or seven in the sunbelt that were already on.
We're looking at.
So this is Tom just to add some additional color I think there is a lot of people sitting on the sidelines waiting the outcome of the election and the potential changes in tax, particularly around rates as well as 10 31.
And so I think you're you're going to be thinking about this topic, but I suspect post election first part of 21.
See an elevated differential in where capital is flowing and the triggering of those 10 31 transactions will start to be more visible so kind of saving ourselves to watch how that unfolds.
But there could be some opportunities inside of that to be selling.
Got it thank you for the color and in terms of.
The open sort of market that you that you've highlighted in that in the release I guess, New York San Francisco Boston.
Just interested in what kind of units are are you seeing the biggest weakness in like one studios do bad feedback the studios.
Sure generally speaking we've seen last occupancy on our studio units and those are particularly located in places like New York San Francisco.
That being said, we have seen things like our transfer realized these increasing over the last few months and we have been able to move people from studio units in those areas into larger ones and twos, where we're capturing a higher fee income as well as keeping that occupancy in place.
Got it thank you so much.
Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
Hey, Jeff Jeff Sorry, My line.
Can you hear me.
Yes, I'm not you know.
Thank you sorry about that.
Yes, Jeff are you still there.
Can you hear me now.
Well Jim Okay.
Okay, I'm, sorry, I don't know, what's going on I'm on I'm on it and said I'm not sure if it's my line.
Hopefully as LIBOR has come back to the office.
Oh, yes, yes, hopefully you can hear me now I just wanted to follow up on the market question again, I know you've discussed a few times, but I just want to confirm so let's say you know the outcome of the election.
You know, it's where there's no stimulus or limited stimulus in early 21.
Just so I have my head around this are we saying that.
That doesn't necessarily mean, a you know San Fran New York Boston or.
Our you know have major issues that had you feel like that because I'm worried about San Francisco in particular, and I think appear.
You know made a comment this week that was something similar but for you for your company or just owners of apartments in San Fran in general in these cities do you feel like just we should and we shouldn't just look into that directly and say okay. If there's no stimulus limited limited stimulus. This these cities are in May.
Major trouble for years to come.
I don't I wouldn't say, that's the case I think there is a number of other factors aside from Mr. Nolan side clearly if there is that helps.
Yes, it really was a little bit of a fiscal pressures in those days are under that is helpful. But they're still going to be a lot of other facts and then we come back to the number of these coastal cities and look at the knowledge based economy and wall individuals are spread out today.
It's probably the biggest impact an important indicator of our the cities that kind of going to come back. So as you see the ability to get back on mass transit come into high rises as you reactivate a lot of the amenities in those cities I think that's going to be a big driver and throughout this crisis, while office leasing has off obviously fairly materially.
We still have a lot of tech companies, taking down space.
And then some of these benchmark as you know you go outside of New York and Wonder what's been taking place there were sales force Facebook Google Facebook just about the how are you guys at quarters up in Seattle, Boston, San Fran of course, as a life science contention content. So.
I don't think ultimately you're going to see a mass exodus from these sales it's going to be one of the hub and spoke model, where maybe you need to be in a couple of days a week.
And if you do have the ability to work from home or holding full time, we still have some of these tech companies are going to start reducing your uncommitted yourself. So the cost of living argument.
Sort of scary little bit less weight in that scenario. So I don't think we're dependent on one factor there today the stimulus there's only a lot that rolls into it and the qualitative and quantitative side.
Okay. Thanks, No. That's fair and then my follow up I'm, sorry, if you discussed this already if I missed it but you know again just given your diverse.
Diversified geographic portfolio did you can you talk about did you discuss any of the trends you are seeing like within the portfolio or or moves within the portfolio and.
Again, any any comments on that and do you think some of this is temporary.
Or you know when you.
Interviewed the the people moving it seems more permanent.
Yes, Mike has some pretty good stats on that as it relates to what comes to market. So your guidance through.
We're seeing a lot of the reports out there and some of the work done on like you Sps Ford and addresses and things like that.
Seem to indicate New York is a little bit more urban to suburban maybe San Francisco, a little bit more exiting the market essentially temporarily limited us on those went in and around but we're seeing these ebbs and flows over time, but my guess is pretty good stats on it.
Jeff I'll start with the move outs, we had been looking at this and we look at both over the last call. It six to nine months and we compared to prior periods I'd tell you in both New York and San Francisco, we experience around 40% of our move out relocating out of Pms say and this compares to about 20% to 25% moving.
Now normally.
And the difference between these two markets in New York, We had more local forwarding address to places like Boston, New Jersey, even upstate New York, where we're getting the sense that people are moving out and potentially looking to come back if and when the markets really open back up the difference with San Francisco over the last 30 to 45 days.
As we've seen more of those forwarding addresses that things that are further away from California.
That being said I will tell you given traffic an application patterns increasing for us over the last call. It two to three months, we're starting to see people come back to the cities.
Outside of that everyday so its been promising to see some of our traffic patterns.
Typically for New York, San Francisco, just to give you a little bit more color on the markets I'd tell you our hardest hit some markets in New York or the financial district, it's healthy for us.
And you can see it on ourselves that we did a cash and straight line basis for New York those markets were down and then negative 20% range and they were obviously can't harder with concessions in age and week range I'll tell you today, though Chelsea our asset there were running back in the 95%.
Range, and we're not I actually offering concessions. So that's been promising submarket for us over the last few weeks as far as San Francisco goes yes.
During the quarter, we had very different experience amongst our submarkets as well as urban and suburban exposure I can tell you that fixed.
68% of our properties are in that urban area and they were down about 23% compared to our suburban exposure, which is closer to 30% they were down around 11%. So a much different story and again pointing back to the concession levels the occupancy levels, obviously in that so my area.
We're seeing concessions in that six to eight week range today and down along the peninsula, we're seeing zero to two weeks, so a much different story and start going down south.
Very helpful.
To be I'd, just add some color.
The key that we spend a lot of time every week on is looking at that occupancy concession trade off trend.
And you can see it in New York.
Hit its low occupancy in the Manhattan portfolio.
Pure urban down in the low Eightys and now mikes running back close to 93 and with that type of occupancy level is concessions can go from 12 weeks down to a pretty rapidly and as he gets up closer to 95, you'll pull it down even further so I think that while everyone's quoting.
Revenue billed revenue selected thrilled turning an inflection point comes when we achieved an occupancy concession trade off that works on a net cash basis for us and helps us build a 21 rent roll.
And so that's what we're really focused in on last month on the balance of the year is that particular markets that are starting to have that inflection piece.
And it's hard to find.
But its going to show up in those two staff first.
Great. Thank you.
Our next question comes from the line of Austin Wurschmidt with Keybanc. Please proceed with your question.
Hello, everybody.
He is one of the most attractive opportunities for you today I'm just curious, though what your conviction level, then maybe versus last quarter and buying back some stock here given the incremental proceeds you got from the DC sales.
Yes, good morning, Joe.
You know overtime I think we've shown a pretty good track record in terms of our ability to pivot to different sources and uses obviously, we pivoted last year to the good cost of equity is through the enterprise pretty aggressively.
More recently went the other way and as much as we did buyback level of stock.
Third quarter, we bought some back in early 2018, when we got a pretty compelling levels and bought back back in the last downturn. So there definitely is an aversion to buy back stock but.
We do realize that capital is precious at this point in time, there is a lot of unknowns out there we got to have good conversion on the economic trajectory.
Capital markets, our NOI, which while we have enough conviction in the next two months to give your fourth quarter guidance I can't say that we have a high degree of condition. The next two years. So there's a lot of unknowns out there still as well as of course, the projections to our taxes, our rating agency or liquidity leverage et cetera, So we're going to try to.
Balance them all as you mentioned, we sold at DC deal, but that is part of the operating partnerships. There are certain tax implications. So that is going to be a 10 31 transaction. The idea there. The Genesis there was simply to take a very compelling price and you can back into what the yield was that we sold that were going to attachment five down on that.
Held for sale on a y and.
And redeploy that in a very accretive basis into hopefully another transaction that has pretty good operational upside as we shall pass acquisitions.
Got it no that's helpful and I know that recognize there's a lot of uncertainty and the outlook for the economy here.
But you know you mentioned that cash and GAAP same store revenue are compressing in Fourq do you think cash same store revenue is bottomed at this point.
Yes.
In the interim we're not trying to call the inflection we're not trying to speak to 21 yesterday.
Hopefully we have the conviction what are we talking.
January when we get out there potentially put out 21 guidance, we'll see where we're at at that point, but today. When you look in our press release billed revenue line item that we focus on a lot as a kind of wins through all the concession occupancy rate trade offs.
See October we're looking at around 103 million. So that's three.
Three four months in a row here that we've kind of come around that level. So.
Next quarter, we think cash same store revenue on a sequential basis should be plus or minus flat expenses should come down a little bit generally just due to seasonality of turnover and you should get a positive sequential cash NOI number out of us and the headwind of course it comes to the straight line side would you mentioned on the guidance, Yes, you start to see that compression.
Than you do have to run up and a little bit against these straight line amortization. So that's why you see 50 cents this quarter coming down to 49 cents next quarter.
Okay makes sense, thanks for the thoughts.
Yes.
Our next question comes from the line of long dense area with BMO capital markets. Please. Please proceed with your question.
Hi, guys.
Just a couple of questions for me I guess first off is there anything in.
Short term rentals or parking et cetera that kind of has contributed to the widening gap between that blended lease rate growth.
And the cash same store numbers.
No I am honest, Mike I'm, sorry, just to give you a little color on our other income we were pretty excited to see that that was actually a positive contributor to our total revenue in the quarter. So give you a little more color on our short term purchase program, we were down around $1.3 million year over year.
For about 70%, we had probably roughly a 130 occupied fair to typically 400 per month. So that was mainly due to the regulatory environment as well as just people not being able to travel as much and then on late fees, we weren't able to charge and a lot of cases, so that was down.
500000, or 40% and then our common area.
Manny program that we started last year, we weren't able to do a lot of that this year that was only down about 200000. So in total that was down $2 million on the flip side to your point on the parking that's one of the more sticky initiatives, we put in place over the years that was up 3% or 200000 and our biggest.
Pick up on other income this quarter was transfer lease breaks goes back to that point, we reached out to a lot of our residents to try to figure out how we can try to keep that in a lot of ways. It was just moving into the property to different units and so we're able to increase that by about $1.5 million in the quarter.
75%. So overall other income was a positive contributor for us during the quarter.
Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, guys. Good afternoon, I think on might be the only analysts on wall Street Thats actually back in the office and I think you guys might be as well so.
As it relates company I guess, hey.
[laughter] I wanted to chat a bit about.
What the fourth quarter might look like.
I really appreciate you guidance, giving the guidance I think thats really helpful at least for sentiment, but could you maybe talk about what the occupancy build.
Thats embedded in your guide and what leasing spreads might look like as well.
Yes, rich if you go to page two within the press release. It really gives you a pretty good sense for where fourq is going to play out.
As Mike talked about do the occupancy trend starting to pick up a little bit as we showed you on page three as New York, San Fran Boston, you picked up a little bit did you see the October ranch start to pick up relative to Q3 20, yes.
Tens off a little bit.
Rich, yes, a little bit is just math.
Math in terms of which units are leasing obviously weaker blended lease rate.
New York, San Fran et cetera, and so to the extent that we gain occupancy and also just good cash flow.
So optically negative on the blends that ultimately it's about cash flow how much revenue we can build so.
I think those are going to be relatively static as you think about the trajectory of those numbers.
Okay. That's helpful that was getting getting out my question I promise you I did get to Twoq to page two of your press release believe it or not.
[laughter] all so one more question guys. As you guys. As you think about this demand increases that you're you're skewing. Some of your peers are starting to see can you maybe walk us through why that demand is building.
Is it seasonal is it because rents have dropped to not are you actually seeing people come back, what's what's driving that and I guess ultimately.
Ultimately question about why you're not giving.
Guidance is clearly you're seeing something.
Hey, Rich Tonight, I think the biggest thing for us it goes back to the well diversified portfolio on every market is acting a little bit differently and then you can go within the sub markets within each market and we're seeing different stories I think my example of Chelsea is a good one as well as the financial district when they started.
Looking back some of the jobs to the city, we did see an uptick in demand.
Recently, we've seen just generally speaking our traffic patterns, increasing in places like the sundial as well as some of these harder hit markets. Some of that's a function of us finding the right spot in terms of pricing and some events that quite frankly, where we're seeing people come into the market that we historically.
We haven't seen coming to market. So again, it's very different market by market we have.
They are very excited to see your occupancy levels, obviously increase in that 20% of then why that we've referenced in the past that's been more of a struggle. So that obviously helps to Joe's point put us in a more stabilized environment when it comes to build revenue.
Got it and EBITDA is going to go.
Go ahead I'm sorry.
I think the other they do I mean, we of course track all the mobility status above markets all the restaurant bookings castle and the security starts when I give you some indications by market so slowly, but surely those are coming back clearly not.
Not nearly close where we'd hoped it'd be but the broader job [laughter] clearly as individuals get more comfort that the economy is moving in the right direction that they are going to retain their job, whether they're actually getting their job that that's helpful. So whether or not they left the city, whether or not they work in an office to show you. The comfort level that they are going to have a job and the ability to pay rise there is helpful.
From a demand standpoint.
Got it and just maybe one follow up question.
Can you share any renewal data on the non CBD markets I recognize you did a really nice break down.
For for the three markets that you discussed on page two but the non CBD market. So any any updates on the renewal trends there.
Yes.
Yeah, Rich said renewal trends that we're seeing today are pretty consistent I would tell you in general we've been sending out that 2% to 2.5% range and I would remind you and everybody else that 20% of our enterprise capped at zero percent. So that's kind of where we stand there, but as far as the markets that are in the other bucket.
They are still in that 2% to 3% range and that's what we're sending out today.
Great. Thank you guys.
Appreciate the transparency on what looks like.
Good inflection in the quarter. Thank you.
Thanks Rich.
Our next question comes from the line of Rich Anderson with SMBC. Please proceed with your question.
Thanks, Rich number three here.
So.
I feel like maybe there should be some rule against dialing in an hour earlier before a conference call, but that's that's another compensation Darley.
So.
On the topic of.
No the CBD, New York City, Boston, San Francisco Am I reading. This right are you guys kind of frustrated with the local and state leadership, there and don't agree with how it was handled or.
Maybe that's a strike against them when it comes to investing again in those marketplaces or is it did reverse where you know, you'll maybe more likely zig rather than zagg in and invest more there with a longer term view I'm curious how the leadership, but through this cobrand thing has impacted your view of those those three specific markets.
Right.
Yeah, Rich this is toomey and and for the right price, we could let you reserve that first spot.
And I understand we will add to the Prs were pretty good on the income.
Just to help you out there.
Or a box of cigars, either one would probably get you there.
So you.
Yes, I think it's a fair question with respect to our observations of how government had to respond is differently in different municipalities and does it change our view towards the market in the future.
I wouldn't say obtained at what it does is as Joe highlighted on the portfolio strategy. It's another part of the Q that we're looking at and saying what do we think the tax base looks like how vibrant of an economic environment and is it conducive to us and our operating business.
And there's a lot of city councils that swung very far in a very aggressive manner, and we think they're going to pay a price on long term viability of their city.
And.
That's not for US to judge is just we have to take the facts in and look at it and say boy.
Right does that change. Our example, Seattle downtown view of that market place when they have declared war on business through a variety of taxation legislative action well businesses are going to move and if those businesses move our business has moved so yes.
We do way, yet, but we want to see more facts develop and see how cities open back up and if they realize that if they opened their doors to business. The vibrance of their city can take off and all the other projects that can be funded and they can solve some other problems, but the anti business. So.
Sentiment that is being exposed in a number of these cities.
I hope passes.
I think we're in an election year everybody's amped up.
We'll see how that plays out at post election, and if they start pulling back office. Some of this we've seen.
Sales in California, 30, 88 was a nice measure at least it got force people to have a dialogue.
BARDA lifting evictions.
You're starting to see cities respond and it will be a question about the aggressive nature of that response and the timing of it.
But we're just like everyone else, we're a citizen.
We've got to run our business, we've got to look at how that business is impacted by its overall legislative agenda.
Good answer thanks, Tom Thanks, everyone Thats all I got.
Its revenue.
Two boxes.
Our next question comes from the line of Amanda twice, there with Robert W. Baird. Please proceed with your question.
Great. Thank you guys.
Okay and on the pipeline of potential.
You see the band that I, obviously recognize that each deal is unique but where are you seeing pricing trend today first dividend CPP investment at least relative that 13% yield that you guys achieved on clean.
This is Harry I mean, if I tell you generally the number of opportunities we're seeing is increasing.
Capital overall is more difficult for the developers debt proceeds are lower LP capital is more difficult to obtain but all of those things make it difficult for these projects to get started because they have to get the entire capital stack. So we're looking at a lot of opportunities on the other side. There is a lot of capital that is also looking to deploy capital in.
In the space. So it is pretty competitive but I think our are the deals you've seen us do over the last call. It 18 to 24 months are pretty consistent with how we're pricing deals today and so that would be typically a blend of coupon.
And backend Didnt underwrite it to kind of that 12% to 14% type player are.
Helpful. Thanks.
Thanks Amanda.
Our next question comes from the line of John Polansky with Green Street Advisors. Please proceed with your question.
Hey, Thanks for the time, just one question from me, Tom or Joe on the capital allocation side, you've been emphasizing patients this year.
But acknowledging you can't control when a large portfolios coming to the market. It's one day that met your quality criteria would you be willing to bid on it right now.
Yes, John I guess.
So what we did in 2019.
It was we had a number of parameters, obviously at a fit with where.
We want to deploy capital on Versalite basis, but.
It was a platform outside of that had to be near term accretive and we had to have a good cost capital funded.
I don't think theres any disputed in the room here that we do not have a good cost cap on the equity side debt markets are absolutely fantastic for us dispositions are a great source of capital for us.
Cost of equity is nowhere near where it wouldn't individual portfolio type transactions. So we're more so in terms of can we just incrementally drive a little bit more cash flow with the sources that we can create internally.
Okay. Thank you.
Our next question comes from the line of Neil Malkin with capital One Securities. Please proceed with your question.
Hey, guys.
First one.
In your urban Sand brand, New York portfolio, what is beyond that.
Month to month.
Breakdown like I guess, how many how many tenants well first I know you had to think that.
The majority of your Corp.
Corporate housing sort from housing there but.
How many.
What percentage is the month to month leases.
Given people's uncertainty with so that I haven't heard a lot out there that are driving the mounted by month to month and just wondering are you.
You've seen that in how you're handling that.
Hey, Mike you know we've been watching the Stan it's been amazing to watch because we're running just under 4% month to month today and I would tell you just put in perspective, we typically run around 3.5%. So we haven't actually seen much of an uptick when it comes to month to month and when you go into.
Those particular markets, it's basically the same.
Trend line.
Okay.
Restate that.
I guess maybe for.
Joe or for that.
Yes, I talked about.
Sure.
Advanced analytics or not wanting to make a decision to quickly we want to make sure you no long term debt.
And then more permanent.
I want to go back to like the California, Thank Bruce I mean.
If you look at it like that.
A lot of permanent move for example, a lot of companies have been moving their headquarters.
Legislation that.
Well thank.
They get past that.
November but not beyond the bounds and more years given.
Far to the left politics have gone there.
Look at a lot of new like on the bookings movements a lot of things that beyond that in permanent seemed like longer term in nature, but yet what what else do you need to be or how do you weigh those.
Rounds that are more permanent in nature, when deciding who.
You know shipped your capital allocation or maybe it just how that looked a screen in your advanced analytics and now.
Yes.
Little bit as to use history as a guide to not seven knee jerk reaction on those we.
We do when you say these are more permanent in nature.
Seems to be kind of the popular view today, but you go back over time to look at a track record financial crisis and other types of those there was an expectation that some of those markets were hardest said, we're going to be essentially.
Underperforming I don't think Thats the case, because when you look at migration overtime migration has consistently gone from mid west coast down onto the sunbelt, but it hasn't resulted in long term rental rate outperformance you have to have its income growth to drive it can't just be has the driver because supply usually offset so you need to hire.
Income component and what remains to be seen as to what degree you see the income migration. So.
The good thing is we're already diversified we've already got exposure the sunbelt exposure to markets like Baltimore enrichment that are performing well Monterey peninsula are performing well, even though those are the coast DC is performing well for us so.
Right now with EBITDA position and strength to be patient on us and to the extent that we want to shift capital over time.
You'll hear more from us in terms of steel our actions are.
This is toomey I'd add to that.
One of the factors I have not seen much writing from the sell side on and we've not discussed.
Externally, but internally we have this potential immigration policy impact.
And if it changes dramatically do you have the normal migration city.
Then you get a first from that piece of the equation. So you can see there is a lot of factors that when you start looking at the Crystal ball of the future you'd say boy, we'd like to nail down one or two more of those.
Before you start making knee jerk reactions that we live with for the rest of our days.
So I think we're being patient.
Sometimes the hardest thing to be.
But the most rewarding thing to be.
Hi.
Thank you.
It is now.
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, good morning out there and I'll.
Alright, I appreciate you guys taking my question.
On the call going up first.
The topic of Yeah, I mean, I think also part of that.
National outlook regularly.
So I think when people think about that.
Simulate that.
The negative.
Re regulate the correct.
It really doesn't need it but.
Up to here.
First on the progression that you guys outlined in your guidance.
The target urban core markets, but the big thing a lot of pressure the renters that you'd be coming in if you're hearing is that venture I mean, when they are heavy.
That's in the market and to be not that you expect the folks leave next year or your view is that these are people who have all we want to live in the city or in that neighborhood and therefore are young are taking that hole and we'll we'll stay committed one actually they are no longer part of their rent.
Major.
Yeah, I think for us what we're experiencing today is 70% of our people that are coming into these places in New York and San Francisco are coming from within the area. So it does feel like they are looking for the best deal and maybe in some cases the place. They wanted to live they just want to wait for the right pricing.
And so once we get them in there obviously, we do feel that with our platform and things that we put in place we differentiate ourselves from others and we do have the ability to try to keep them that being said only 40% to 50% before.
People have moved in over the last three months actually received anything substantial and when I say that that's in that three to four week range concession level half.
Half of them Didnt, even really perceive a concession all we typically use it as a loss leader try to get people through the door and again a lot of ways. Not every single person that comes through there is actually getting a big concession.
Yes and.
Alex.
Resident screening perspective, one thing we of course want to avoid those individuals generally from someone else is bad debt pool do our own bad debt pool, and what do you look at the number of individuals over the last four or five six months, you're not seeing a larger percentage turn into 60 days delinquent than what we had previously so the resident screening that's a place where.
Now taking off bad debt by offering how concessions afraid that a bad resident.
Okay and then the second one is looking at Boston. Thank you Larry.
Some of the NMHC interpret your comments about.
The length of time for Internet back that it won't be here may take several years.
Your portfolio in Boston, how both currently are you in the international.
And.
And how do you see that impacting the recovery the recovery of those.
Who oriented department.
Relatively low exposure for us on the international side, we over the last six months have experienced around 1% move out so around 500 people and it's not being I'd say in Boston is probably a little bit higher than other parts of the country, but it's not any more than two to two and half for SAP.
Okay. Thank you Derek.
Our next question comes from the line of Randall St. Juste with Mizuho. Please proceed with your question.
Hey, thanks.
So.
Quick question for you go first you mentioned that your leverage.
That's fine.
The dog.
Year ago, and it looked like you were.
Yes that forward equity down around.
Brightening keep them around 5.9 this in mind by our math I guess my question that I know you have about liquidity and limited the security the upcoming but how comfortable are you made.
Leverage.
Wow.
And we think it will.
Limit your willingness or ability to deploy capital.
Yes fair question so yes.
Average has ticked higher on a debt to EBITDA basis that said over the last year, we've seen some other metrics improved.
Ration threer liquidity fixed charge coverage ratio. So it is one metric that hasn't gone the other way, we'd like but thats. The reason, we typically run within very solidly investment grade balance sheet throughout the cycle. So I want to see EBITDA come off a little bit we can absorb that so the forward equity deal of around 100 million.
Like to draw that down in the fourth quarter and 100 million on full featured debt right now of 5.4 billion.
Is only about 2% so shouldn't move that metric too much from six and a half times you move about 2% as 12 basis points. So it will take us down a 10th of a turn.
That said when we think about our leverage profile.
A couple gating items or gradients that we look at it you have where do we stand relative to the rating agencies, where do we stand relative to our dividend and where do we stand relative to our covenants I'd say with the rating agencies or that would have good constructive conversations with them.
Seem to be very comfortable with where we stand today and where we're headed we could probably absorb another 50 $75 million of EBITDA declines before we might even begin to get concerned their dividend clearly we have over 100 million of annual cash flow relative to dividend coverage, so very well supported and relative to covenants, we could take up to 300 million dollar type decline.
And EBITDA before we'd start to put pressure on covenants. So plenty of capacity I'd say across all three spectrum. So long story short, we feel very comfortable with where we're at.
Come out the other side, we'll get back to those full cycle type of leverage metrics.
Got it got it thank you and maybe one for Tom or maybe Gary.
More likely to happen in 2020.
The Broncos liquid bubble in New York the positive NOI.
[laughter].
[laughter].
Lowering the bar to apply better team, maybe they've got actually [laughter] Super Bowl well.
We all know we all know that brought would have no Scott I get that out there.
I think we discuss a bit more about some of the best indicator you mentioned that the ones that you're more focused on the price side. This is more at the restaurant booking moving trucks were turned off this trend Starbucks coffee sales.
What do you look like and gets a bit more constructive on the urban coastal recovery for places like New York City.
Boston in the back half of next year or even 2022 and then.
Are you getting any more comfortable or closer to being comfortable to deploy capital in any of these markets given all the capital that's been flowing the sunbelt and try the cap rate compression there. Thank you.
Yes.
First break that into two questions what gets us comfortable through pace of recovery and I think you start with first and foremost a vaccine.
You start with people getting back to work.
Those are underway K b inevitability, rather they happen in one Q 21 or to Q, it's going to happen and then its adoption rate penetration vaccination type aspect. So we think that is just the inevitability.
And it will happen.
Then it's a question for us about what fiscal shape. Our city then what legislative agenda are we faced with.
And then you ask the second question was about capital well first it's pretty easy when we're trading where were trading on.
On the capital side, our first and foremost as our platform and then its DCP and then it's going to be swapping means.
Meaning assets that people have an interest in and you saw what we saw this quarter in and clearly there's more out in the marketplace. If people had a number we're glad to let the asset go and try to figure out where the best place to put that capital is.
And that environment might be with us for the balance of 21.
22, we should see some normalcy to the business climate.
And the full impact of the stimulus the employment picture become more clear and then we can weigh what our options are beyond that but right now it really comes down to the day to day markers of trapping concession occupancy and pricing running for our cash flow.
And that's not a bad place to be that's how you manage a recession you get too far down the road make too big a best in the world turns on yet.
Don't get rewarded for that we get rewarded for producing cash flow earnings.
Thats our focus.
Got it thank you and maybe as a follow up does that imply perhaps that you would be more likely to be a net seller here over the next.
The next 12 18 months.
Price dependent.
Fair enough. Thank you.
Our next question comes from the line of Dennis Mcgill with Zelman. Please proceed with your question.
Hi, Thanks, guys a couple of just quick one.
First one when you look at the effectively funding rates at zero six to one.
Second in Frac Tobar pretty similar to what you saw in the third quarter.
That hold for all three buckets that you outlined the 2060 40, I'm earlier that essentially stable pricing power as you look at it that way in that bucket.
I think it does turn for US right now, obviously, we're dealing with a little bit of seasonality as well, but for the most part now that we have occupancy roughly and then 93% to 94% range New York like I said, we do have some more pockets, where we're coming off of concessions. So we think that we can have a little bit more pricing power there.
And then the other parts of the country, we are finding opportunities to push rate and holding occupancy steady. So I would say overall, it's directionally moving that that way.
Okay, Great and then applies obviously taken a backseat tenant demand side blade.
Where would you how would you articulate the supply picture over the next 12 months.
I guess within that are you seeing any product either getting delayed permanently or temporarily or become harder to finished product.
Labor availability are easier any any thoughts around the pipeline.
Overall, we probably would have expected a little bit more slippage. This year than we think we're probably not enough sales.
Supply this year in our markets.
Flat to up 10%, yes.
Good about kind of which markets that is.
The worst ones Boston, we've talked about Atlanta, San Francisco those coastal markets are getting hit a little bit harder, there's not really a lot of relief next year for the portfolio as a whole as those starts already took place so price lads up 10 off of this year's number when we get into next year that said when you look at the Submarket exposures, where you actually see some really really good.
So supply in our Submarkets comes down next year and then when you get into 22, clearly that's one of the permanent activity that we're seeing today is going to rollout in south permits being off 15, 20%.
East Coast West Coast.
In addition, some though that's where you should see some relief from the coast from a supply perspective, once we got to 22.
Okay. That's helpful. Joe Thanks.
Okay.
Thank you take care.
There are no further questions in the Camille I'd like to hand, the call back over to chairman and CEO Mr. Toomey for closing remark for closing comments.
Real quickly looking at the clock and knowing that you have a lot more to cover today first let me. Thank you for your interest in time today in New York.
A special Thanks go out to all our associates you guys have done a fabulous job across the spectrum through a lot of different challenges very proud of the job you've done always willing to help just ask.
I mentioned earlier in my remarks, we're very focused on our cash flow and frankly very proud of the fact that we've managed this year.
And looking at the net bottom line last year was too low eight a share Ferrari FF away and this year. It looks like were up too low for 2% decrease through all the challenges that we've had.
And very proud of the team for that production.
What it did highlight to me is we have the portfolio the team and the track record to perform well in recessionary in challenging environments.
I think that will continue for the future and look forward to it.
With that we wish you the best good luck.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.