Q3 2020 Apartment Investment and Management Co Earnings Call
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Presentation, there will be an opportunity to ask portion.
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Thank you and good day.
This conference call forward looking statements, we make are based on management's judgment.
Projections related to 2020 2021 expectation.
These statements are subject to certain risks and uncertainties, a description of which can be found in our filings.
Actual results may differ materially what maybe discuss today.
He will also discuss certain non-GAAP financial measures such as AFFO and FFO. These are defined and are reconciled the comparable GAAP measure.
All information that is part of the full earnings release published on Aimcos website.
On today's call, we will provide information during our prepared remarks related to our prepared or excuse me to our plans no separation.
Given the focus of this call are ongoing shareholder outreach and our anticipated public filings expected next to me, we are not going to hold and not going to comment on not respond to questions related to the planned separation or the shareholder solicitation.
Prepared remarks today come from Terry Considine, our chairman and CEO.
She's Campbell, our executive Vice President charge of property operations.
Well, that's how our executive Vice President and President in charge of redevelopment.
Although our chief financial Officer.
I will now turn the call to Terry Considine Terry.
Thank you Lisa and thanks to all of you on this call for your interest in Aimco.
We have a lot to talk about.
Third quarter was filled with unusual challenges and a great many successes.
There are three headlines.
In cooperations does well in difficult times.
Yeah.
And go reduces leverage by a billion dollars.
And and go and watched your older value, reducing risk leverage and cost.
Separating into two entities.
Here's the rest of the story.
The challenge is where the continued effects of the pandemic.
Oh, no second quarter collapse of the economy.
Third quarter, GDP rebound strong but uneven.
Any sectors remain at historic lows.
For example, many universities are no virtual.
And many office building stand empty as workers now work from home.
For apartments, we are now subject to unprecedented.
Relation of threats setting and Red collection.
In many of our markets, we've experienced rioting violence in camps for the homeless targeting a place and a general challenge to public order.
And the public health outlook continues uncertain.
Total 19 cases spiking across the country, including several of the markets in which we operate.
Sure It all Keith and his team work hard and successfully to provide homes for the individuals and families who live in ankle apartment homes.
They provide safety it refuge from the virus good neighbors respectful treatment trial, and a helping hand to those in need.
As teams and Paul will discuss later in detail the economy took its toll.
As in previous recession, some residents can no longer afford the rent.
Their departures occupancy dropped and bad debt increased.
In other instances and this is unprecedented local ordinances gave residents the option to live rent free.
Two thirds of Aimco bad debt in the third quarter is owned by residents good lifts rent free for the past six months.
Well cautious about a second spike in the pandemic it.
It seems that the worst is behind for Aimco.
Our forward looking metrics have been steadily improving since mid summer.
For example, they spaces up and available to let is dramatically down.
Occupancy has bottomed.
The rate of new delinquencies has been steadily declining.
So important properties in urban settings remain impact.
But the largest portion of our portfolio is returning to its normal performance and steady improvement.
As we move forward.
We will benefit from chief disciplined adherence to providing world class customer service as grain and by our customers.
And maintaining as customary high standards selecting customers, who will be good neighbors and stay longer.
Notwithstanding the turbulence west and his team advanced our long cycle <unk> redevelopment.
I found a few new opportunities for future growth, including acquisition of a bayfront community in Miami and formation of an interesting venture with you each June dynamic life Science campus developer.
How are you feeling sold a minority joint venture stake in a portfolio of 12, California properties to pass an institutional investor.
The $2.4 billion joint venture was priced in September at a 4.2% cap rate.
Well, it's a 97% of aimcos pre called an estimated value fell.
Eating aimcos published net asset value and taking important steps to rebalance the infill portfolio.
[noise] same JV was also the source of funds to reduce leverage by $1 billion significantly improving aimco strong and flexible balance sheet.
[noise] personal and family concerns from the pandemic in school closings and what the business challenge of difficult markets in changing regulations.
<unk> team maintained their focus and did excellent work.
How did their successes and grateful for the chance to work together.
They got board of directors was its always highly engaged.
Well total shareholder returns for the past one three and five years have been competitive with coastal peers. The board would like them to be better and sees the share price discount to net asset value is offering the opportunity for outperformance.
Our goal is to create a simple transparent and low cost public vehicle to invest it stabilized multi family properties.
Our plan is to simplify the business and reduce execution risk allocate to a second at any roughly 10% of total capital for development redevelopment and non traditional assets.
90% of Aimco capital and a high quality diversified portfolio of stabilized apartment communities.
To reduce financial risk by lowering leverage by $2 billion sourced from the joint venture and from the separation.
The increase in AFFO and dividends per share by substantial reductions in vacancy loss and GE and they cost related to redevelop.
And to replenish the tax basis to reduce the need for future stock dividends and enhance our flexibility and capital allocation.
After the separation shareholders, while in the same math it before and after the shareholders will then have the ability to make individual allocation CST owning only stabilized apartment communities to be known as air and to the entity with more complicated longer cycle development and redevelopment and non traditional assets.
Noticed Angola, our new Aimco.
Full FCC descriptions of these plans are expected in form 10 filings expected to be public in the next few days.
Until then I will not be able to add much on this subject beyond what I've already said with.
With that I'll turn the call to Keith Kimmel head of property operations Keith Thanks Terry.
The third quarter brought a mix of challenge uncertainty and promise.
Encouraging signs make us highly optimistic about recovery in the long term outlook for our business.
No leasing base rebounded and was up 20% year over year.
As a result lease percentage, our best forward indicator of occupancy increased by more than 6% from July onest to today and.
And our units to lease have been cut in half.
Our high standards for residents elections are paying dividends as collections have been consistently high since April.
Customer service remains world class with residents, giving US 4.3 stars or 19000 service.
Thanks for that level of satisfaction turnover was 280 basis points better than 2019 and 41.9%.
And at the same time, we achieved 2.6% rate growth on renewals.
This all despite an environment with constant changes in employment schools courts and regulations.
[noise] one measure of the health of our core businesses residential net rental income.
Simply put this was our occupancy and average rate of apartment homes, which was down 2.5% in the third quarter.
Average daily occupancy was 93.9%.
Down 280 basis points from last year blended lease rates were down 3%.
New lease rates down 7.6% in renewals up 2.6%.
Bad debt expense was 190 basis points, including a 130 basis points attributable to court closures and recent Los Angeles regulations.
Same store revenues declined 4.9% in the third quarter.
<unk> expenses were down 1.3% due to increased efficiencies from our team and lower net utility costs as our energy initiatives drive value.
As a result same store third quarter net operating income decreased 6.3% year over year.
With that said results in the quarter depended on geography.
And our stable suburban markets operations were largely business as usual these communities distributed across the country total 19100 units.
Occupancy was 95.7% turnover was 39.6% blended rates were nearly flat in residential net rental income was up 60 basis points.
In our 8500 units located in urban areas demand was down and lease rates were more frequent leading to turnover a 47% occupied.
Occupancy of 89.5% and blended lease rates were negative 6.7% in residential net rental income went down 7.1%.
And each urban neighborhood.
Local conditions led to this performance and the reversal of those conditions will fuel growth next year.
In Philadelphia.
University City felt the impact when you put an international announced the fall semester was virtual.
In center city, many offices were empty, including both Comcast towers weeks.
We expect Philadelphia deterrents shortly when students return to class and employees returned to their office.
In May we'll shirt in west Los Angeles, the interruptions to the entertainment industry and shutdown of the city nearly eliminated demand in the spring.
While rate remains pressured and losses were compounded by local laws, allowing residents to live rent free we see blue skies coming with leasing up 44% year over year in the third quarter and up a 150% in October.
Occupancy is anticipated to fully recover by year end.
On the Peninsula, Northern California work from home policies and tech companies change the demand for apartments. So.
The Pacific neighborhood weakened and has since stabilized well San Mateo and Redwood City continue to face challenges with demand in rate and will likely remain tough and 2021.
Our exposure to the Submarkets is limited and our diversified portfolio in Northern California includes solid performances in San Jose Maria in the East Bay.
In October business continues to improve leasing pace is still running ahead of last year average daily occupancy for the month is 94.2% and we expect further increases through the end of the year and into 2021.
Pricing remains challenged with new lease rates down, 10% renewals up 1.4% and blended lease rates down 6.7%.
First the context on new lease rates.
We saw a 95% of our leases for the year in our suburban market rates are healthier and improving.
In our urban markets rates have been tough, but we've also seen them stabilize.
And with our suburban markets for urban leasing has made up an increasing share of the transaction dollars each month since July.
We anticipate that these three trends will hold through the winter months as we believe we've reached the bottom.
Lastly October collections were consistent with recent months neutral.
New delinquencies are slowing with more of our accounts receivable growth coming from residents who've been delinquent since the beginning of the pandemic.
We anticipate an improvement in bad debt once local emergency ordinances enclosures unwind sometime next year.
A moment, Paul will provide more details on our collections and bad debt.
We continue to focus on the long game, keeping a steady hand on the wheel and building sustainable revenue growth for the coming year.
We have a strong operational architecture in place today was smart home technology and every unit.
Artificial intelligence is delivering productivity input and improve results.
Centralized team driving consistent execution.
Relentless innovation, enabling us to hold our expenses flat in.
Any depth analytics guiding our decision, making and most importantly, our field team members to consistently deliver exceptional service and outstanding results Mike.
My thanks to each of you and your continued energy innovation and dedication to serving our residents and with that I'll now burden to call over to Wes Powell, our executive Vice President of redevelopment West.
Thank you Keith.
Amid this year's challenges the inco team has sourced new investment opportunities advanced construction on our major projects and worked hard to fill newly delivered apartment homes with high quality residents.
First I'll touch on new investments made during the quarter and will then turn to our redevelopment and development activities.
In August Immco acquired Hamilton on the Bay.
Okay did in Miami Edgewater neighborhood first price of $90 million.
The acquisition included a waterfront apartment building containing 271 units averaging over 1400 square feet.
Yes, and adjacent development site.
Combining the parcels will allow for more than 380 additional residential units under the current zoning.
We are planning to invest as much as $50 million in a substantial redevelopment of the existing building and the second phase focused on unlocking the value of the available development rights is being explored.
Also during the quarter.
Immco made a 50 million dollar commitment to invest in I.Q. HQ, a premier life Sciences real estate development company.
In addition to our investment in the company Immco secured the right to collaborate on the multifamily portion of future I do a few development sites.
Post separation, we expect these new investments will be strong contributors to the growth of Aimcos development business and we are actively pursuing additional opportunities with plans to further grow our pipeline.
Now turning to our ongoing redevelopment and development projects here are some highlights as of the end of October.
At Park Mosaiq in Boulder, Colorado, where construction was completed earlier in the year, Keith and his team have leased 97% of the apartment homes.
Count House project in L. Hurst, Illinois is now substantially complete with all 58 homes delivered and 57 of those being leased.
At seven no set or Navy in Redwood City, we've delivered 60 homes over 80% and the remaining 50 are scheduled to complete before year end.
At the at the Fremont on the answer to medical campus. Just over 100 homes have been delivered here to 80% had been leased and the remainder will be completed in the coming months.
Our final two long cycle projects prism in Cambridge, and the North tower at swimming go in Miami Beach remain on track for initial delivery in early in mid 2021, respectively.
Initial rental rate performance on those projects currently in lease up has averaged 98% of our original expectation. However, we believe that NOI yields will meet or exceed our underwriting as the impacts of continuing on site construction and strained local market conditions lift.
With that I would like to offer a special thanks to my Aimco teammates for their continued dedication and positive results over these past few months.
I'll now turn the call here, Paul Beldin, our Chief Financial Officer Paul.
Thank you Ed.
Today, I will discuss it because balance sheet third quarter financial results rent collections in bad debt and then wrap up with a brief discussion of Aimcos previously announced a special dividend.
As Terry mentioned in 2020, we expect to reduce leverage by $2 billion 1 billion from the September closing of the California joint venture and $1 billion for the separation transaction.
The billion dollar leverage reduction reduced third quarter leverage to EBITDA on a trailing 12 month basis of 7.0 times.
Now on the Aimco financial results.
Third quarter pro forma FFO of 61 cents per share was down three cents or 5% year over year we.
We estimate lower occupancy and other cobot related impacts reduced third quarter AFFO by nine cents year over year.
Offsetting the cobot related impacts was four cents of increased interest income associated with apart percent mezzanine loan and three cents of lower offsite costs.
The one the remaining one cents decline is attributable to the net impact of property sales and lower interest expense net.
Next I'd like to spend a minute discussing aimco red collections of bad debt.
Residential revenue includes apartment rents and also such items as storage rent our clearance related fees owed by residents.
In the third quarter Aimco recognize 98.1% of all residential revenue.
The 98.1%, 96.7% was paid in cash 30 basis points better than the second quarter's collection percentage as of the same day.
60 basis points subject to recovery by offset against security deposits and $1.6 million or 80 basis points is considered collectable based on Aimco review of individual customers credit.
And does not expect to collect and therefore did not recognize revenue on a 190 basis points of third quarter billings. These amounts are reflected as bad debt and our quarterly financial statements. The.
The majority of this amount approximately a 130 basis points is attributed to residents who have not paid April and subsequent rents prior.
Prior to then that bit of restrictive city ordinances and close courthouses. These residents would have been evicted an ordinary course, and therefore, the bad debt would not have continued for the past six months earlier.
There are many of them out approximately 60 basis points reflects residents, whose initial delinquency occurred during the third quarter. This is elevated reflecting stress the economy for the rate of initial delinquencies has been steadily declining since July.
We expect a decline to continue until reaching a more normal 30 basis points 2021.
As we look forward. We also expect the emergency ordinances that allow residents live rent free to unwind provided us with the opportunity to re rent these apartments to rent paying residents.
Lastly.
As previously announced the Aimco Board of directors declared a special dividend on October 20, Onest to distribute the taxable gains resulting from the partial sale of assets in the California joint venture and other 2020 dispositions.
Dollar 27 per share dividend consists of 10% cash or 82 cents per share, which covers aimcos regular scheduled quarterly dividend and the acceleration of the next dividend typically paid in February.
The remaining 90% will be paid in common stock.
Shareholders of record on November 4th well have the option to elect to receive either cash or shares of common stock.
The other option is oversubscribed, the shareholder will receive a pro rata amount of cash in common stock.
Special dividend will be payable on November thirtyth concurrent with the reverse stock split effectively neutralizing the per share impact of additional common shares issued in the dividends.
Post separation it is expected that the need for special dividends to distribute a taxable gain on sale at air will be reduced or eliminated due to the refresh tax basis.
That we will now open up the call for questions. Please limit your questions to two per time in the queue Rocco I will turn it over to you for the first question.
Thank you.
A question Please press star one.
Today's first question comes from Rich Anderson.
Please go ahead.
Thank you Jeremy.
You bet, Okay morning, Ren good morning.
So.
Sorry.
I think I met you in 1997 and the third first thing you said to me was.
Went up Demaree said.
Don't judge us so much another multifamily company, but don't judge us on Gi and I don't think you're going to buy or sell refrigerators, but in the point was well taken that youre going to look outside the box to great Alpha tax credit redevelopment asset management property management portal, how they're all that stuff and it all makes sense factor.
In what has changed over the course of time to make you do have to complete bouncy hasn't been in the public markets.
Not.
Are those businesses just no longer work like what has given you have such a change the perspective as it relates to the multifamily industry.
[noise] rich that that is a.
An excellent question and it it does reflect a change in the public markets.
That increasingly the public markets. It seems to me the marginal price setter values EFO and it many of those more complicated transactions are better measured by net asset value and.
And so as as we pursue alpha as you called it and those.
That that category, we would be in competition with that undermine our AFFO business and so I think the separation allows.
The market to see the benefits of both okay.
When we get past this endemic and we're past the recession and the time is now to be a developer and to develop under one roof. Under one umbrella is there a risk now that you know, although and I recognize the motivation behind the separation that you could be a step behind every one because of the time.
Right to be a developer and you know in in a in a in a manner that is sort of again under one umbrella.
I think I think the but my opinion is that there will be a long term demand for stable predictable cash dividends and that that that.
If you will the dental business will always be in demand and it will have opportunities from growth by just the suffered management.
Keith and his team and buying stabilized properties with AFFO in place.
And adding to them as he did for example, and penetrate with would be a recipe for the future.
Okay.
Thank you thank you rich.
And our next question comes from Alexander homeless with Zelman Associates. Please go ahead.
Hi.
Yes, and so you provided the urban versus suburban break.
Break out there, but I'm just curious how are you coming to the.
Mark for those.
Those properties are you qualified.
[noise] I would say this is Keith I'll take it the.
The way that we're getting there is sort of where the geography is and where they are physically located so I I emphasized Philadelphia, Northern California in Los Angeles in my prepared remarks, but but I'd give you a couple of one off examples that would be different so in Washington DC. As an example, we have a lot of most of our portfolio theres in suburb in our suburban or suburban mom.
Yes, but we have let's throw this in the district. So it's a one off that we would categorize that as an urban location. Similarly in San Diego, we have lots of suburban locations that are in.
North San Diego, but we have a yard Broadway lost property that is in the gas lamp district in the middle of the city. So so really the way that we've separated these is physically where are they located in and how they're performing.
Got it got it thank you and.
After posting you'll you'll have your for us tax basis, there, but when.
When you think about the potential 10 31.
Getting eliminated your transaction partners won't have that basis what.
What do you think well due to the transaction market overall for multifamily.
Yeah, It's Alex if I can I can take this is Terry I think that the tax.
Increased taxes reduce activity, it's as simple as that that the profitability of exchanges or transit transaction will be reduced.
Makes sense. Thank you.
[noise], although osterberg with Bill. Please go ahead.
Hi, Thanks for taking my questions. Today. So I was just wondering if you guys can talk a little bit about the your New York City property. You believe this time you guys put under other markets I just want to see how those assets are performing well there I believe mostly urban.
Occupancy.
This is Paul. Thank you for your question just on your comment about the combination of the New York City properties. We did move those into other markets this quarter and the rationale for that was that we have our river club property, which has been it's in a edgewater New Jersey, but it's been classified in New York I'm from day, one that is under.
A contract to sell and that contributed over 30% of our New York operations and so without being gone. We didn't think it made sense to separately present, New York, but in response to your question. Keith you have some additional color you'd like to add on the New York well.
The main thing I would say is we have less than 500 units. That's in that other markets in New York City in there in there or is there a walk ups the.
They definitely been impacted by a you know what's going on in the city.
But it's really a small fraction of the contribution here.
Got it okay. Thank you.
And our next question comes from handles and just with Mizuho. Please go ahead.
Hey, good morning out there.
Three questions for you.
There was not a lot of money, mostly but maybe you could help us understand the decision behind making the $50 million investment in the life Science development company, especially given you know the prior April or May.
Okay, and how did you weigh the how do you weigh the pros.
Right.
Skepticism.
For the second investors may not want you to go down that path and then maybe you could talk a bit more about the expected return to potential scope of the opportunity what specifically makes you excited.
Enough here to make you know.
Withstand any any push back there thanks.
Okay and out as to the first I I would I would say that this is an investment in the future of the development redevelopment company and that as as we discussed with its rich earlier on the call.
We've really these two different businesses, you're exactly right that they are in conflict with each other and in many ways.
These stabilized apartment communities are best measured by AFFO and predictability and the development business is best measured by net asset value creation and is Lumpier and riskier and so this is an investment in that second business and that the.
Issue for shareholders is that they will soon be able to choose which business best suits them or what their allocations might be so that's how I would address.
The question of how how to serve sure our shareholders. The second question is the $50 million was a.
An expression of commitment to Alan gold a very talented entrepreneurs you must know who's had great success with Alexandria, and biomed and other such and is going to do it again, and we think the opportunity to invest in a collaborative way with him well will bring.
Okay with it.
Opportunities that we cannot quantify today, but that we would expect really quite substantial.
Got it got it doesn't sound like that going over on the pro forma into inside then and maybe you could talk a bit more about the acquisition in a I think it was Miami here.
No talking about that not only assets Oh.
Pricing there that's why ours, but what are you seeing more broadly in the market today.
In terms of our company has been in a in a market like Miami or just broadly as you look across perhaps parts of the portfolio, where you would be inclined to add at.
The mine.
Oh sure I have heard.
When you're talking about a cap rate.
Yes, some of the market maybe into the high threes, how curious on not only what you paid for this asset.
We do about it but broadly what you're seeing out there. Thanks.
Hi, Haendel I'll start and then I'll turn it over to Wes.
Deal It is and it's a wonderful deal that but I'd make I'd make two points first of all that this deal was under contract for.
I think seven or eight or nine months.
A year, maybe so it is a long transaction and closing and second that are in the market today. The most important fact is volumes and collapsed that that there is much much less liquidity today than there would have been a year or two or three years ago. So.
I don't know that we can take an example of something that traded.
A year ago and use that is representative of what you'd find today, but good but it's a terrific deal in west want to speak to that.
Sure. Thanks Jerry.
You are exactly right. This is an opportunity that we have been engaged in since late 2019.
We had the opportunity to work with the seller through the events of the spring and income too.
A price that made sense given all that was going on in the world in August and close on the transaction.
No we've talked before about why we like South Florida.
A number of factors, but they all translate into increased population growth and long term demand for housing.
Of course waterfront land is scarce and so we like that.
And the location is one we know pretty well, it's about a mile north of the property Bay Park that we own and operate today.
Just north of a successful condominium development, though that that related did and is has sold out it at high prices.
The existing asset itself has great bones large apartments that we plan to renovate the views are terrific. So that one's right for redevelopment and then as you also know we like the Optionality to have a future investments in ground up development until it comes with a in adjacent waterfront parcels and the ability to add.
Almost 400 apartment homes on that site when the timing makes sense.
So overall it kind of fit the playbook, well and we think it's going to be a good opportunity over the long haul.
Got it got in London.
Make any anything you could share perhaps on how the pricing here ultimately concluded versus perhaps we started nine months ago.
Yeah.
Hi.
Pricing was better than it was when we first engaged but I'd say that's also as much a reflection on the seller circumstances as it is on the general market conditions.
As Terry mentioned.
Sends action volume is down significantly, especially in locations like urban Miami. So it's hard to have a real good feel for what an asset like that would trade at but again, we feel like we bought it at a good basis.
Again, just keeping in mind that go in and 70 apartments, but they're about twice the size of a you know what a normal building might have so when you think about it on that way. So we think it was a pretty good bye.
I do appreciate that but any way you could quantify that be done a cap rate or any other quantifiable measure just curious what type of asset values.
Repricing [laughter] occurred in the market.
We saw pricing come off.
About 10 or 15% from when we first engaged in the deal.
[laughter].
And now that that is also typical of many negotiations and that isn't all in the market I would add yeah and no that's exactly right and the point I was making is that I wouldn't read through that to the values in the market, but again this particular transaction and the particular seller in their circumstances as we went.
Through the through the events of this spring.
Got it got it okay. Thank you.
[laughter], John Kim with BMO. Please go ahead.
Thanks, Good morning earlier today I say.
Now it's important for the special shareholder vote.
And I just want to ask what your thoughts are as far as the timing of when this may occur and also the timing of any next hurdles that we should be looking for in China, you're moving forward with with your split.
John I think I think Thats, an important question I have had a chance to read it we didn't have a meeting with ISS they were completely.
Helpful and thoughtful and we enjoyed.
Adjusted to discuss it with them, but we were not prepared to discuss it today.
This will all be part of the public filing that is being reviewed by the FCC it'll be public I think sometime next week and perhaps we'll invite all of you to come back or will be in touch one way or another to discuss it at that time.
As far as you know are you still on target to complete the split this year.
Yeah, John I, I really do want to.
Be both tertius, but also clear we we really want to have this conversation focused around the third quarter. This is a very important issue you're very right to raise the question, but it's I think it's going to be better address next week. When we have all the facts transparent to everyone.
Okay, that's fair.
Given the cap rate compression that had.
Had been occurring and some of these years its been talking about.
Are there any additional dispositions that you're contemplating including appetite.
Potentially the separate portfolio, that's going to the new income.
Hi, John again this is Terry I think the cap rate compression is is.
It is something that you have to look through carefully.
One is of course the transaction volumes are down so you have to see what's being sold and whats relevant second while incomes are down and so that gives you a lower cap rate if values are steady and you have to kind of filter through that.
But I think the biggest factor is the market's relatively liquid right now.
Yes, we are interested to choose to sell more and that the.
The timing of the liquidation of the separate portfolio will be a function of the separation of the companies, which is a conversation we're going to have later.
Independent of that.
Ah at Aimco, we're probably more interested to pursue joint ventures and that the.
Something along the lines of what we are we're been pepper Patti fielding was very successful in California, a would be a wonderful second act.
Fair enough. Thank you.
Okay.
[laughter] gone below.
Uh huh.
Thanks Terry.
Terry maybe following up on your point there did I hear you right that the plan is to still liquidate the separate portfolio all Pat post spin.
Thank you John It [laughter] I really want to talk about about the Companys post spin and pre so forth at another time, perhaps next week, but but that is.
That is the intent of that is to have a portfolio that and to complete the liquidation and the delevering of air but.
But let's talk about that next week.
Okay, we'd like to talk about you know things involving the spend that you've talked about before one is what I struggle with and just independence in my mind. It's it's a the same CEO and chairman is about home and the your colleagues in the same shared office space.
And it's maybe it's it's got people analysts, but I think in no and no world, where it will incur on air be truly independent I think if it's green shakeout splitting into two and and my boss was the boss of the of the new entity I'd be partial to that new entity and their colleagues my former colleagues and on Wednesday. So how are you going to make.
Sure. This is not a convoluted non arms lagged a period of these coming years doing im going there.
John I'm going to talk about it next week, but I hope I think you'll be satisfied we've been out talking to shareholders. We recognize that a minimum have concerns in this area. The board is focused on it at great length, and we hope to report next week something that I hope will be satisfactory to you.
Thank you.
And then my question is do it comes from Austin Wurschmidt with Cuba.
Yes. Thank you.
So when we talk a lot about leverage coming down post spin by another billion dollars. You know, obviously air will no longer be focusing on development or or a complicated redevelopment. So that acquisition becomes important leg of the external investment opportunity heading into next cycle. So I guess.
Given the greater aversion to markets with high regulation, I mean, what markets.
Our attractive to you.
Including any potential new markets.
Awesome.
You're exactly right you see our analysis is to.
To to reallocate capital and including new capital into.
Markets that are faster growing and have freer economies.
Wes is already spoken about about our appetite for Florida.
Not just south, Florida, but Florida in general, but that will be true in Georgia, Tennessee, North Carolina markets, such as that and perhaps.
Additionally, in the Rocky Mountain West.
That's helpful. Appreciate the thoughts and then switching over on.
On the capital commitment.
HQ just curious how big of a pipeline is it that you foresee there and what are sort of the funding options. I guess, you know for a new and co to build out you know that most multifamily properties associated with a life science.
I think I think us and again, that's something that we will be prepared to discuss at length next week, but but again just for clarity I think the pipeline will be lead one that would be many multiples of the investment because the scale of activities inside Ike you issue or is expect.
It activities it is quite substantial and so if they typically are apartment building in that context was 100 or $200 million to $300 million.
And there are multiple buildings and you can see its a.
A levered investment secondly thing would be that that company is more likely to be funded with.
The financing and and private equity.
Got it are any of these assets are locations, one that air would be interested in owning overtime.
[noise] My Dear friend, I really do want to talk about that next week, but but again.
Let's talk about it next week I think that it just it's a road its good lead down and eventually we're going to be ahead of ourselves.
Okay fair enough. Thanks for the time.
You bet.
And ladies and gentlemen. This question is a follow up from John <unk> Green Street. Please go ahead.
[noise], just maybe you could talk operations and Keith in terms of the positive inflection points and the you know the bottoming in the Blue skies, you refer to curious what gives you confidence today and that stability in bottom because you know yourselves in a lot of peers have used that term.
Bob I mean, before and I'm not I'm not trying to hold you to a prior comments because we've been wrong unpleasant forecast internally nobody can predict the future right now, but just curious on the ground trends what gives you a little bit more confident today that these markets have bottomed versus three months ago.
[noise] John Thanks for the question and thanks for the caviar, because there's obviously a lot of unknowns still in front of us, but but let me give you some insights of what we're seeing and what makes us think that so when.
When we look at our third quarter and are we looking at suburban and urban type of situations. Our suburban portfolio was running in the mid 90 fives and now as we finish up October we're seeing it in the mid to high 90, Sixs. We also see the rates in that same portfolio that having.
Recently gotten stronger when we look at our urban areas, while occupancy has held relatively flat in the ninetys. What we've seen is is it started to pick up and I'll use a very specific example in Los Angeles and so when we look at Los Angeles in the third quarter, we were running in the 90 twos and now we're going to finish and then in the mid to high Ninetys.
For us and we see a path that we starts getting us a 90 596 by year end. So there is a series of things that we start seeing across the country that are starting to show us that there are some lose guys coming now I'd point out that Philadelphia is one that will be you know a it will be honest switch that says does you pay and come back and direct.
I will come back because Comcast in the cities come back in and then in Paris in Philadelphia, We have administrators that live with us that work at some of those institutions, who have given us but you know in indication. They are working hard to find a way that could they opened in January and they would like to open the January whether that happens or not I don't know there.
It's not any public statements around that but it gives us optimism and in the interim and another thing that we know is that I'll give you. An example in Evanston, Illinois, we have a property there right next to northwestern University. When they came back we went from struggling in occupancy to nearly a 100% in a matter of a week and so we know that.
If these come back there will be an opportunity, particularly in Philadelphia for a switch type of opportunity not a dial, but but we think it will come back strong that's what we're looking for too, but there's plenty of other things that are shoot green shoots that are coming up in the other markets that give us indication that we've hit the bottom.
It's market by market, there is plenty of different variables, but but we're optimistic that we'll start seeing some benefits of those things.
Got it. Thank you for the details did that on the non binary non university markets has that improving occupancy come through pulling the concession lever harder than you did three months ago.
You know John it's been accomplished first of all when we think about concessions. We thing about them is it's a marketing tool and we sold it to total revenue and so it's been a combination of both retention of customers. It's been a combination of win when appropriate and what's happening in the markets around us that there has been some some concessions.
But but it's also ultimately that we think that we are making a long term decision, making around things that will play paying dividends. In 2021, you know theres a lot of ways to make decisions that you would lower your resident quality as an example, or you would give more concessions that to somebody who maybe is it the first that will pay in the future.
And Weve tried to have a steady hand, our occupancy has been lower than others, but we're building it in a very steady ways in which we believe will pay dividends in 2021 and beyond.
Thank you.
Yes, John but if I might add to what Keith said, so well.
Net income because we have residents that live with us for a longer period of time, it's particularly important just select concern.
Consistent precedence so that you have a contribution not just today, but then for the next two or three years and so I'd.
I'd say I think one of the great things I think Keith has done that I tried to site in my remarks is to be disciplined about picking.
Neighbors for our existing customers, but also residents will be contributors over the next several years.
Understood. Thanks for the time.
Yes.
Our next question today is a follow up John Kim BMO. Please go ahead.
[noise]. Thank you just mentioned the weakness in center city being.
Partially driven by a penny dreadful going really works well can you just remind us how many of your residence and silly our student.
And if there are any or any other market and you have to have a pretty sizable university student population.
So.
Thanks for the question John we have a lot of I would call. It about a thousand residents that would be direct students and we have one particular building just on hold it is a student building and then we have some influence that goes to our park Towne community, but really more importantly, what happens is it creates a life environs that comes with the city with.
Those folks being in place and so think about businesses. The good about restaurants think about all kinds of other things that are happening on those.
Those things also ER will be impacted by the in center city, the Comcast towers in the other buildings there and so a combination we know that there's the heart and soul of that city comes through those wonderful universities and ultimately feed the vibrance through the rest of the business.
Would you say Phillies, you're only market we have secured.
Strong dynamic like this.
Oh and.
In which context John.
Maybe we have student I mean, its students are important part of demand across the country and because all markets are not related its going to be very hard John to say, whether it's limited to one area or another but it's certainly true that just top of mind North Andover, He of Merrimack College in.
Chicago or in Evanston, Illinois, He's already mentioned northwestern University.
In Philadelphia, Weve talked about Drexel and Penn in.
In Miami, you're going to have an influence from university of Miami and so forth. So it will it'll show up throughout the year.
Portfolio as it as it does through apartment demand across the country.
Oh.
Great. Thanks for the color.
[noise] illness listen today.
As a follow up.
Keybanc. Please go ahead.
Hi, guys. Appreciate you taking the follow up Terry you referenced how lower cap rates, you know may reflect the lower income streams, and perhaps values are stable versus pre call bid levels and and I recognize there hasn't been a tremendous amount of transaction, but you just completed a sizable JV and close the market.
Pension you're pursuing additional sales. So just curious what your view is towards values for.
For multifamily property.
[laughter] last night I. Thank you for the follow up I think that values are affected by alternatives and the price of one thing is the cost of the alternative forgot.
And so if we look at apartments as a relatively predictable it's hard to say its headed in during 2020, but overtime relatively predictable cash flowing asset class that if it can be simplified as we're seeking to do is low leverage and measured by current return.
In a in a world of very low interest rates, that's a positive in terms of demand for pricing.
But as I say they are there are many other competing factors.
Including most.
Most I'm in an unprecedented way government intrusion so.
So those are the factors that are being worked out they I don't think they've been worked out which is why you see this reduction in valuation and I think that it wouldn't be.
Logical to think that that there probably has been some reduction in value.
But but I think that thats, probably as much due to the as I say to the.
Regulatory intrusions.
King.
Any recession, which I think is seems to be recovering and.
Offset by low interest rate.
Got it appreciate the thoughts and then just one last one you also you also referenced the attractiveness of the second act on a potential joint venture and clearly.
Clearly that that seem well received by the market you know during the first stack, but I'm curious how you balance your focus on simplicity going forward and then adding on another joint venture along with sort of the ongoing relationship that you're planning to have with new aimco overtime.
Well I think you're right life is all balance and and we would have to ask ourselves and as shareholders whether they would.
The interested to see an incremental billion dollars, let's say raised if we are talking about a second act at at that kind of pricing and their natural question might be or what would be the uses of the proceeds and if that were to be applied to repurchase stock in scale they might like that.
But you're right. It's all a question about.
Okay. Thank you very much.
Oh, it's supposed to do it comes from Nick Yulico. Please go ahead.
Hi, guys. This is sumit in for Nick.
A question about one of the things we saw earlier.
Uh huh.
On one of your properties are actually quite a few of your properties.
Round.
You know penal rents or on rent does not increase for a long time to come so it seem to imply that there were certain leases that you were ready to sign with tenants who are going to be longer dumb would know renting season I'm just wondering.
One topic around.
You know what sort of going into trial.
Back then and what's the sort of market vacancy profile, that's driving this kind of concession or a.
New awards carry a promotion and second whether these assets or do you need.
These programs.
Our.
A part of you know the entity that remain on the entity that you are going to be doing in focus and you know you can you can you can divide the second part the next week, that's totally fine I I would just deal with it.
No [laughter] this is Keith I'll take it and Ah Ah.
I'm not sure exactly what you're looking at but I'm guessing it's something that's on one of our web sites or some sort of motion.
They are likely seeing there is is that we will do long term leases I'm in certain circumstances, and so well what it is is it the tagline for an inquiry about how we will sign 24 month leases things like that and which we will have a an agreed upon rental rate over a longer period of time to what may be.
Traditionally the way that some people do write leases that being only 12 months.
Correct and any color on the on how that program has been received and whether we should see more of it across other aspects of your portfolio.
[noise]. So this is a without getting into a lot of our secret sauce. It is it is something that if it is not a reflection of the pandemic, let's put it that way.
And it's a it's part of our tool kit and how we think about unit types market conditions in a variety of other things in which we will offer different lease terms.
[noise] [noise] [noise] alright, thank you.
Ladies and gentlemen, this concludes the question of increases.
Okay.
Thank you Rocco and thank you. Thank you everyone on the call I know.
Many of you have had very long weeks with so much reporting both in the apartment sector and then the other companies you you follow and I appreciate your your insurance and making it through the Friday wish you happy weekend and I look forward to chatting with you next week as we talk about this variance.
Seeing opportunity of the separation that we've and proposed so thanks again and have a great weekend.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines have a wonderful day.