Q4 2020 Equity Residential Earnings Call

[music].

Good day and welcome to the equity residential fourth to 'twenty earnings Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Marty Mckenna Investor Relations. Please go ahead Sir.

Good morning, and thank you for joining us to discuss equity residential fourth quarter and full year 2020 results and outlook for 2021. Our featured speakers today are Mark <unk>, our president and CEO, Michael <unk>, our chief.

Operating officer, and Bob here kind of on our Chief Financial Officer.

Our earnings release as well as a management presentation regarding our results and outlook are posted in the investors section of equity apartments Dot com. Please be advised that certain matters discussed during this conference call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to.

Update or supplement these statements that become untrue because of subsequent events now I'll turn the call over to Mark Corral.

Good morning, and thank you all for joining us today I want to start by thanking all 2700 of my equity residential colleagues across the country for their dedication to serving our 150000 residents during a very difficult year.

Your commitment and hard work at the company through 2020, and I know you were ready to drive a recovery in 2021.

Today, I will start with some color on the current state of our business and its future prospects and Michael <unk>, Our Chief operating officer will provide an operating update and Bob <unk>, Our Chief Financial Officer will provide detail on our guidance expectations and then we'll take your questions.

We also posted to our website at equity apartments Dot Com a management presentation that provide some background on both current operations and our guidance expectations.

Turning to the business, we are encouraged by the recovery in demand in all of our markets and especially in our urban Submarkets in real estate demand as the unsolvable problem without it no other economic factor matters and in our business, both urban and suburban we see plenty of it as.

As noted in the presentation and release applications net move in activity and occupancy of all turned upward, especially over the last two months. This positive trend in spite of a worsening pandemic and renewed shutdowns in our markets gives us even more of a cause for optimism.

If demand is this strong now we think that when the vaccines are more fully distributed and cities reopen our business will really hum.

The fact that this is likely to coincide with our traditional leasing season with its higher seasonal demand positions us, especially well.

Admittedly, though pricing remains weak, but there are signs of the beginnings of improvement as we noted in the presentation pricing trends have turned up over the past few months led by urban core markets of New York City, The city of San Francisco and the cities of Boston and Cambridge, We also see declining forward concessions without.

Occupancy firming and strong demand going into our busiest time of the year. We believe that we can recover considerable ground on the pricing side is 2021 plays out.

While we see signs of recovery our current results reflect the still challenging climate in many of our markets. You may remember that on prior calls I made clear that the impact of lower rents and higher concessions in 2020 and currently we will take some time to fully manifest itself in our reported numbers.

That impact arrived in the form of our fourth quarter 2020 same store revenue results as we continue entering into new leases and renewing existing leases at lower rents, reflecting the post pandemic leasing climate as well as amortizing concessions from leases written in 2020.

But just as our reported results lagged our actual operating environment on the way down. They will also lag on the way up. So you should expect relatively weak same store revenue results in the first half of 2021 with a marked improvement in our revenue numbers in the second half of the year as we benefit from improving pricing higher.

Occupancy and lower concessions plus easier post pandemic comparable periods.

The interplay of our expectations of increasing occupancy pricing that is improving but will be lower than last year's pricing until mid year, or so and the amortization of 2020 and 21 concessions creates considerable modeling complexity for us and for our investors and analysts.

Because of this more complex picture than usual, we thought it was particularly important that we reinstate guidance to give investors a better idea of managements view of the year.

Our guidance has a wider than usual range to account for the multitude of factors, both positive and negative that may impact our business in 2021.

While I certainly acknowledge that the pandemic has created unique challenges equity residential same store revenue growth coming out of recessions is typically recovered quickly with us posting strong numbers and I see no reason that will not occur again once the lagging impact of concessions and some of the other factors I mentioned abate.

All of this is of course premised on the continuing progress in controlling the virus and an assumption that other general economic conditions remain supportive.

Turning to the long term, we believe that the fundamental factors that have long made equity residential on attractive place to invest your capital remain just as true now as before the pandemic.

First our capital is invested in markets that will continue to be the centers of analogy economy that drives the growth of this country.

Centers of innovation and Technology Finance Entertainment Medicine in life Sciences.

Even in the pandemic, we have seen announcements of new high quality jobs, and our urban centers like Amazon's announcement that its putting 3000, new technology and software development jobs in the Seaport district of Boston and with the recent commencement of construction on Disney's New building and Hudson Square in New York that will lead to a significant influx of new content.

<unk> and technology jobs, and while the remote work trend may change the number of days that we are in the office. We are by our nature social animals are need to interact with each other to create to share ideas to manage our businesses and start new ones is not being met by meetings on a video screen.

Second we believe that the entertainment cultural and social attractions that filled a great urban centers in which we operate will soon reopen and will again prove to be magnets for affluent renters. We believe that many renters desire. Both the work proximity I just mentioned as well as easy access to the amazing entertainment cultural and social opportunities our cities will provide.

Once they are reopened.

Not to mention the ability to live in an exciting dynamic and diverse community. Our residents that live in our more urban properties do so because they value the lifestyle of our country's great urban centers.

Third we have a highly skilled affluent customer base able to afford our rent and accept future rent increases as conditions improve our residents are well employed and growing industries like technology biotech and new media.

Industries that we also think are less susceptible overtime the job loss from increasing waves of automation and offshoring.

And the pandemic period overall unemployment rose to almost 15% and is now around 6% while job losses for those with a bachelor's degree or better which is our target demographic peaked at eight 4% and has now gone down to three 8%.

Our resident base proved its quality again in the fourth quarter as we collected 97% of our expected residential revenues, we think the quality of our customer base is over the long haul one of our greatest strengths.

Fourth the superior location and quality of our portfolio makes our properties attractive places for our residents to live and it also makes our properties attractive places for private investors to invest their capital. This makes our properties liquid and appreciating over the long term capital has long been drawn to the higher quality properties, we own and that will continue to be the case.

Even in markets like New York, and San Francisco once the pandemic abates.

We also believe that the lower long term capital spending required to maintain our properties and income stream compares favorably with that of older lower quality apartment buildings.

But our portfolio can always be improved and you should expect us to be more active recyclers of capital over the next few years as I have said on prior calls even before the pandemic in order to create the most stable and growing cash flow stream possible for our investors. We are inclined to further diversify our portfolio and the higher end suburban locations and are.

Current markets as well as into a few select new markets with favorable long term supply and demand characteristics and a growing affluent renter base.

These affluent renters are found in abundance in our existing markets, but there are also increasing concentrations of them and denser saw suburbs city centers of our existing markets and in places like Denver, which is a market. We re entered in 2016 youll.

You've seen us do this over the last few years as we have acquired properties in suburban Seattle, and Washington D. C. With strong resident demographics, we are looking hard at several other suburban assets as well as development and acquisition opportunities in Denver that we find appealing long term, we will fund this by lowering our concentration of assets in city centers.

In our existing markets and by exiting assets elsewhere that do not meet our return parameters to close we have the best team in the business ready to maximize results of the pandemic ends and a sturdy balance sheet that gives us ample flexibility. We are tremendously optimistic about our company's future because we believe that the markets in which we operate will thrive when we get to the other.

Their side of this pandemic and with the rollout of vaccines, we are on our way.

I'll now turn the call over to Michael <unk>.

Thanks, Mark So 2020 has been the most challenging year that we have faced in our business. So let me start by thanking the entire equity residential team for their continued dedication and hard work throughout the year.

Working together, we go through 2020 by serving our customers taking care of each other and driving the best results possible given the circumstances.

Okay.

Despite the challenges we are excited that 2020 is behind us and optimistic that 2021 will be a year of recovery.

As Mark mentioned, we have begun to see improvements in both physical occupancy and pricing.

Notably this is the first time this has occurred since the beginning of the pandemic. We continue to test price sensitivity in many markets by reducing both the value and quantity of concessions being granted and beginning to raise rates in November concessions average just over six weeks free on about 45% of our applications.

In recent weeks concessions of average just under six weeks on only about a third of our applications on.

All that said it will take some time to fully recover from the unprecedented events that have occurred, particularly in our hardest hit markets.

While we are optimistic about the recovery it is hard to handicap it as pace, especially in New York and San Francisco are hardest hit cities on.

On page three of the earnings release and in the accompanying management presentation. We have provided some key performance metrics broken out by our urban core urban other than suburban portfolios.

I will not walk through all the specific metrics on the presentation, but I do want to highlight some of the performance indicators, we remain focused on.

So first demand demand continues to be robust and has carried us through much of the winter season with increased moving activity well above seasonal norms.

Application count exceeded 2019 levels by 25% in the fourth quarter, and we were able to generate sufficient front door activity to have move ins outpaced move up despite higher turnover compared to the 2019 record low level. We haven't seen this net gain in move ins since the onset of the pandemic.

Applications have remained robust in January, albeit below december's levels, but that isn't surprising since improved occupancy has allowed us to start testing pricing and we have fewer units available to sell.

Turning to pricing the chart on pricing trend, which includes the impact on concessions as a good indicator of where rents are headed and it has been improving across both the urban and suburban markets for the last eight weeks or so blend.

Blended rates, which combines new lease changes and renewal rates achieved will continue to be negative for some time as this metric compares new leases written or renewed with those that were before the pandemic began.

That said the rate of change on blended rates has flattened and for the first time, we have seen modest sequential improvement in new lease rates, which is helpful. We continued to experience negotiation pressure on renewal rates and we are still renewing residents who signed leases pre pandemic. We have found some stability in the percent of <unk>.

Other than renewing which stands at approximately 52% in January we expect that to improve to around 54% for February and March which is still below our usual retention rates for this time of year.

Before moving to market commentary I want to summarize that while the operating environment remains challenging we continue to see good demand for our product and we are starting to see early signs of pricing improvement we have a long way to go but recovery is in sight now.

Now let me provide some brief market commentary, starting with Boston strong application volume and improved retention through the fourth quarter resulted in steady gains in occupancy to position us to 95, 5%. Today. This market has been dialing back concession use and raising rates consecutively for the past four weeks at.

Present concessions are being used on about 25% to 30% of our applications and averaging right at six weeks, which is compared to 50% used back in November.

Going forward, we expect modest improvement in rates, but acknowledged that a full recovery will require additional demand drivers like the Amazon jobs, Mark mentioned in his remarks to aid in the absorption of the new supply that is being delivered currently and anticipated through the year.

Long term demand drivers remain positive with a very bullish outlook for biotech and pharma space.

Fueling job creation.

At this point it is hard to forecast exactly how some of the traditional demand drivers associated with Boston play out, notably students, both domestic and international and the jobs that support that infrastructure.

We expect to have a better view on these by late spring early summer before the fall semester anecdotally I will tell you that January did see a few applications from foreign addresses which we haven't seen for several months.

Austin will have its challenges in 'twenty, one, but its performance over the last two months has definitely improved in 2021, we look to regain more occupancy which will allow us to then recapture some of the rate we lost last year.

New York continues to feel the outsized impact from the pandemic, but there are early signs of recovery. We recently had our best traffic week in the last 12 months and our best leasing weeks since August leasing activity is still driven by deal seekers and interest city movers, which is running about 10 points higher than normal.

We still see move outs to the suburbs, and New Jersey, and Connecticut, but that number is normalizing.

Occupancy has improved in the market and is just above 91, 5%, which is the first time, we have been over 90% since September of 2020.

Some additional color on recent traffic concludes that we are just now starting to have former residents reaching out to our property teams contemplating moving back to the city.

Like in Boston, we are seeing the first signs of international students and specific to New York UN workers looking to come back and finally, we saw a few roommate type prospects emerging from their parents' basements.

Any of these prospects are looking for late spring or early summer timeframes in anticipation of their offices opening back up we still see a good amount of deal hoppers and upgrade or <unk> as well as prospects from the outer boroughs, who can now afford to live in Manhattan and many of them are telling our on site teams. They think the market bottom is near.

And they don't want to Miss out.

Concessions remain prevalent in this market was 70% of the applications receiving about two months free rates are beginning to show signs of improvement and we are just starting to gradually dialed back concessions.

For 2021, our focus on New York will be recapturing as much of the occupancy or rate as possible, while lowering and possibly eliminating the use of concessions.

While the market will still produce a negative decline for the year, New York has upside potential given the dramatic declines we saw in 2020 recovery in this market will be fueled by a lack of competitive new supply the return to office and the continued growth of the big Tech employers in the market.

Moving to DC, which has been our most resilient market on the east coast occupancy remained solid at 95, 5%, but the market continues to feel the impact from the delivery of class a multifamily product, which is not being absorbed as efficiently in previous years.

Federal government employment has grown but the overall job growth has declined concession use was up in the quarter with the largest amount focused in the district. The good news. However is that as fastest concessions came into the market during the fourth quarter. They have now been greatly reduced since mid December we are only using concessions on <unk>.

15% of the applications and they have been averaging just below one month.

'twenty, one will be focused on balancing occupancy and rate as we faced supply pressure from yet another 12000 units being delivered into the market.

Recent signs of improvement provide us more confidence in the market's ability to absorb the new units and allow for continued rate recovery, which could make DC one of our better performing markets in 2021.

Heading west Denver, albeit a small portfolio for us is holding up well for 2021, all five of our Denver communities will be included in the same store results occupancy is sitting around 96% and both new lease change on renewal rates on improving renewals are showing positive growth rates in December and January.

<unk> and concession use is trending down.

In Seattle, we are seeing early indications that the bottom may be behind us on.

Occupancy continues to improve as traffic is up over January 2020 by about 6% and we are seeing weekly application numbers that are closer to peak leasing season levels.

Sessions remain common in the market, especially in the urban Submarkets during the fourth quarter concessions averaged about six weeks free on about 55% of our applications.

Strength in occupancy both at our properties and more generally in the overall market are allowing for a gradual reduction in concessions. We have heard from our Seattle teams that many prospects seem less concerned about the monthly rate right. Now is they are about getting a deal.

While current rent freeze restrictions may limit renewal performance in the first half of the year overall fundamentals for this market support a recovery recent home price appreciation.

And the increase in this quarter's job postings from the technology companies should continue to drive strong demand for our product the.

The focus in Seattle in 2021 is maintaining the strong occupancy we currently have while pushing rate.

San Francisco remains our most challenged market, but even here or there are some very early signs of recovery occupancy is just below 94% and has improved 150 basis points since the beginning of November the downtown portfolio remains pressured on rate with concessions that average six weeks in the quarter on about $2.

<unk> of our applications January concessions improved to a one month average on less than half the applications.

Anecdotally stories from our teams across the Bay are reporting that people, who left to go to other areas like Denver and Sacramento are now looking to move back to be near their office or in desirable school districts. The.

On the extent of the Bay area recovery will improve as we get even more clarity on tech companies plans regarding return to office.

We acknowledge that work from home will play a role, but we believe in in person collaboration and much lower rent levels should make San Francisco attractive again.

There have been headlines about corporately relocations out of state and clearly that is not a positive for the market, but it is important to keep reading the.

The Bay area continues to attract venture capital and has yet to be replaced as the epicenter of the tech economy.

Bay area Tech companies are also feeling a bit more optimistic in their ability to receive H <unk> visas under the new administration, which could increase demand in this market.

Supply in 'twenty, one we will continue to be concentrated in Oakland and in the South Bay feedback from our local team was that the recent lifting of the stay at home order can definitely be felt in the downtown market with much more active streets and outdoor restaurant seating filled to the new lower allowed capacity levels. These other.

First signs of bringing life back to the city.

Our focus in San Francisco in 'twenty, one is to build back our occupancy, particularly in the downtown Submarket get rid of concessions and then push rate, while San Francisco will produce a revenue decline in 'twenty one it like New York has a lot of upside potential due to the steep decline in 2020.

Finally, moving to southern California, which continues to hold up much better than the bay area. Despite some pretty difficult pandemic related headlines in the la area.

Our Los Angeles portfolio maintained occupancy above 95% through the quarter concession use was modest and average just under one month on about 20% of our applications on.

Operationally the story is similar to the third quarter with continued pressure from new supply in the downtown Korea mid Wilshire corridor less delay continues to feel the pressure from the slow restart of online content creation, but new lease and renewal rates have shown some stability through the fourth quarter and into January.

The suburban portfolio has very strong occupancy at or near 97% and the Submarkets of inland Empire, Santa Clarita Valley, and Ventura County continued to experience modest year over year gains in rental income.

For 'twenty one law.

Should be one of our better markets, we have recaptured our occupancy concession use his heart is already been dialed back and now our opportunity is on increasing rate and managing delinquency.

I will finish with Orange County, and San Diego, which are primarily suburban markets for us and have averaged around 97% occupancy through the quarter. These markets continued to demonstrate resilience and produced higher resident retention than in any of our other markets. Both of these markets are presenting opportunities to increase rates.

And are expected to continue to perform well through 2021.

In closing we remain optimistic that the early signs of recovery that we now see will continue and that through 'twenty. One we will build occupancy on the back of strong demand leading to improved pricing power. Our efforts over the next several months will be focused on seeking out opportunities to maximize the tradeoff between <unk>.

Occupancy, while ensuring the well being of our employees and residents.

I will now turn the call over to Bob care Channel.

Thanks, Michael This morning, I'll focus on our 2021 guidance for same store revenue and expenses, along with normalized <unk> and conclude with a couple of highlights on our balance sheet before turning it over to Q&A.

As part of the release on management presentation published last night, we introduced 2021 guidance after having withdrawn guidance in March 2020, due to significant uncertainties arising from the pandemic.

In doing so we acknowledge how far we progressed towards the end of this pandemic, but also recognize that a significant amount of uncertainty remains as a result, our same store revenue NOI and normalized <unk> ranges are wider than normal.

Let's start with our full year 2021 total same store revenue guidance range, which is between negative 9% and negative 7%.

Note that this guidance is on a GAAP basis. Since we reported same store revenues in the same manner and include the straight lining of concessions as required.

And our management presentation, we laid out a variety of scenarios under which we could achieve the top bottom or points in between.

That said, let me take a moment and highlight the main drivers that will shape revenue performance for the year, along with our thoughts on how 2021 might play out.

First physical occupancy you heard both Mark and Mike will talk about the improvements we are already seeing.

We would expect us to continue and that as we get into the second quarter occupancy should become a tailwind that began contributing to year over year improvement.

Next pricing.

Much like occupancy the middle on higher ends of our guidance anticipate the pricing improvements discussed to continue both on improved leasing rates and reduced concessions. This positive trend. However, we will take a little longer to manifest itself on our reported numbers for.

Per our leasing rates it will take some time not only to start writing new leases and renewing existing ones at levels above the prior year, but also to reset a meaningful part of the leasing book.

The good news is that not only are we starting to see improving trends. These improvements may gain even more traction in time to coincide with our prime leasing season, and resulting in positive year over year rates by mid year.

The other element of pricing that is worth touching base upon its concessions.

As I mentioned earlier, we recognize concessions on a straight line basis as required by GAAP that means as disclosed on page 12 of the release of the $31 million on cash residential concessions granted in 2020, we still have approximately $19 million of unamortized concessions that will reduce revenue in 2021, which is about 75.

Five basis points of same store revenue.

Any new concessions granted in 2021 will also be straight line. So the earlier in the year that the concession is granted but more of it that will be recognized in the 2021 financial statements.

We expect concessions granted will taper off during the first half of the year, but because of the combination that I. Just described 2020 unamortized residuals and the timing of new 2021 concessions, it's improvement won't fully manifest itself in 2021 reported GAAP results.

And finally, some thoughts on bad debt as Mark mentioned, our collections have remained strong and consistent at approximately 97% we.

We incurred an approximately $13 million reduction in revenues for the fourth quarter 2020, due to uncollected rent.

The middle range of our 2021 guidance assumes that this continues with only slight improvement very late in the year. We hope that we can do better than that but given the regulatory environment, we remain cautious in our assumptions.

In summary, our same store revenue guidance incorporates recovery in operating fundamentals, but acknowledges both difficult comparable periods for the first half of 2020 and the reality that it will take time for improvements in the business to show up in our reported results.

Specifically same store revenue performance will be sequentially negative from Q4, 2020 to Q1, 2021 and likely not improve until the second half of the year as fundamentals improve consistent with our expectations reported results will catch up from this improvement and benefit both sequentially and from a year over year comparison basis.

We expect same store revenue results in the second half of the year to be better than the first half results and to position us very well for continued growth and recovery.

Now some color on same store expenses, our full year guidance range for same store expenses is 3% to 4%. The drivers of same store expenses remain largely unchanged to four largest expense categories continue to be real estate taxes on site payroll utilities and repairs and maintenance before I provide you a bit of color on <unk> I'd like to remind you.

You that 2020 will present, a tough comparison period on expenses given growth was only two 1%.

As you think about how this plays out quarterly this comparison issue will especially be pronounced in the second quarter since many activities and corresponding expenses were halted in the first few months of the pandemic.

Now a little color on the major categories.

Real estate taxes are expected to grow in the mid 3% range, which is slightly lower than prior years on municipalities continue to be stretched we are seeing some jurisdictions provide relief on assessed values and that coupled with aggressive appeals activities should help control growth, perhaps even more pronounced this year than usual will be the timing and success of it.

Appeals activity, which may present, an outsized impact on where the number ultimately settles out.

Payroll and in 2020 flat to 2019. This is the second year in a row that payroll growth has been less than 1% and while many of our efficiency initiatives were delayed because of the pandemic our hard working on site colleagues have continued to gain efficiencies.

As a result 2020 makes for yet another difficult comparison for 2021 by.

By continuing our efficiency initiatives and keeping our eye on the ball, we should still be able to limit payroll growth for the full year to around 2%.

That leaves us with the final two categories of utilities and repairs and maintenance both are estimated to have more meaningful growth in the 4% to 5% range.

In previous years utility benefited from modest modest or declining commodity price growth in 2021, we're expecting higher natural gas prices, which is driving our forecasted growth.

For repairs and maintenance a good amount of the growth encompasses catching up on activities that were delayed as a result of them hedonic keeping in mind that this expense declined in 2020.

Our guidance range for normalized <unk> in 2021 is $2 60 per share to $2 80 per share major drivers for the change between our 2020 normalized <unk> of $3 26 per share and the midpoint of $2 70 from our 2021 on guidance include.

A 60% decline in same store NOI based on the revenue and expense assumptions outlined Keith.

Keep in mind that nearly one third of that decline stems from the difficult comparable period in the first quarter of 2020.

On <unk> declined primarily due to disposition activity that occurred in 2020, which is more than offset by a positive 14th <unk> contribution from lower anticipated interest expense predominantly due to taking those disposition proceeds and paying down nearly $1 billion on debt in 2020.

And finally, a negative <unk> <unk> and other items.

The back loaded nature of the recovery in our NOI will also of course impact our <unk> numbers, which should improve on the back half of 2021.

A final note on the balance sheet, our financial position remains extremely strong despite the impact of the pandemic as I just mentioned in 2020, we paid down nearly $1 billion of debt using disposition proceeds extended our already long weighted average maturities to nine years and continued to reduce our weighted average rate.

This activity has positioned us extremely well ending the year with net debt to normalized EBITDA of five <unk> times.

Nearly $2 billion in available liquidity and very limited maturities until 2023.

Our access to debt capital remains excellent positioning us well for opportunities should they present themselves.

With that I'll turn it over to the operator for the Q&A.

Thank you.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.

Okay.

And we will go first to John Pawlowski of Green Street.

Yes.

Okay. Thanks, David.

Starting with you Bob open.

Opening comments did I hear it right that you're assuming positive year over year blended rates by mid year.

Yeah, So our guidance assumption at the midpoint is that as you approach the middle part of the year that we will start to see positive year over year lease rates.

And presumably you're still decidedly negative on renewals.

Decidedly positive on new lease rates or am I interpreting that correctly.

So when I guess I am talking about leasing rates and the guidance Im thinking that.

We likely will be positive on blended which encompasses both by middle part of the year encompasses both new lease and renewal rates.

John just to add so it's mark.

Yes, just just to add some color that will get you a clarification and that is partly because things are recovering and getting better and that's partly because of the 2020 comp periods are declining right rates declined on a decline, particularly hard late in the second quarter and through the third.

So we look at this line is kind of crossing these two lines in the middle of the year and I'm sorry, you were asking on clarification there.

And I'm, sorry to cut you off but renewals renewal rates through the year.

Beginning mid year on renewal rates positive still.

Yeah, Hey, John This is Michael So I think the way to think about renewals was first and foremost we are a pretty difficult comp period in front of us with Q1 and Q2 and then as you turn that corner you would expect performance in renewals to start turning positive.

Okay. Thank you and then final one from me.

Mark your opening comments about just the liquidity of the assets.

More on.

Active capital Recycler.

Just curious your updated thoughts on urban class a product along the coast. If you are starting to test the market as per.

As pricing shaking out versus pre COVID-19 level from Jorge.

Right.

Yeah. Thanks, John So in terms of values and let's focus for just a moment on the hardest hit markets, New York and San Francisco I'll start by saying there has just been very little and you know theres very little volume much much less in fact, we can sort of named the deals the chief investment officer and either have closed.

The ones that have closed and there is one in Union square in New York that closed.

Right about at what at pre pandemic values would have been so that's an asset that I think was about 200, a foot 900000 a unit.

At like a $3 six tax cap rate excuse me.

Very much value would have traded at before the pandemic, but it's just one deal and I don't have a lot of others.

In San Francisco, There has certainly been some stuff traded smaller deals.

I would say, we're probably down 10% or so on value in San Francisco and New York, We are starting to hear from people, who want to acquire assets from us in those markets. The thought being arrived the recovery up we get that and we probably are sellers as I implied in my remarks in those markets to some.

Remember, we still have those 421 assets in New York net at the Big tax increases we have a big concentration in the city of San Francisco, but for us to sell much below the pre pandemic value doesn't make a lot of sense because we believe in the recovery on those markets. So we think revenues are going up pretty sharply, especially.

In the second half of this year and into 'twenty two.

The idea that we would sell at a big discount doesn't make sense to me, but I think you will see us start to be more active sellers in those two places other places like Seattle, particularly has had a speed of sales, including a pretty large one in bellevue at very good pricing and I had pre pandemic value or maybe even better obviously lower cap rates.

Because NOI is down so Seattle has had some strong numbers DC to a lot of suburban steps traded on.

On a fair number of suburban things have traded so we see that as market is holding up I haven't seen a lot on urban stuff traded Theres. Some rules in D. C that have come into force that make it hard in a district to sell assets right now.

So I'll pause there and I hope that's that's responses.

It is thanks for the debt.

Thank you.

Well go to our next question from Nick Joseph with Citi.

Mark maybe just following up on that as you look to be active recyclers over the next few years and think about these potential expansion markets.

The IRR differential are you underwriting between some of these assets may be thinking of selling like you mentioned the volumes may be down, but the growth may be on go forward basis.

Versus any assets that you are starting to look at other markets that you are starting to look at.

Wow.

We all are able to boil it down to the math, but theres a lot more to it than that.

Again, we've seen deals we've underwritten for example in Denver lately that are served.

Seven on Levered IRR deals.

Maybe even some high <unk>, there's a lot of stuff we're selling.

It might be 1% lower than that but of course, the assumptions matter a lot on how do you think about your recovery.

And rents, which is so hard to peg as you know.

So we do think that what matters.

Moving our capital around as ending up into place net risk adjusted as best and in some cases some of the markets also have more political risk other markets have.

More supply risk and we just got to balance that out so that we do see obviously a higher IRR on the stuff we're buying the stuff we're selling a lot of stuff. We're selling is interesting of the buyers because theyre levering it up or they've got a renovation play or some other way theyre jewson their IRR that we either don't believe in or can't underwrite.

So.

I guess, that's how I'd answer it is kind of not as mathematical as just maybe it's 1% better.

Got it that's very helpful. And then I appreciate all the commentary upfront and the presentation that says if you look at the applications and the move in.

Over the last two months is there anything that youre seeing true.

In terms of either the age your credit quality, a rent to income levels relative to where you are on a year ago were pre pandemic.

Yes, so Nick this is Michel so really we're not seeing any any kind of material shifts when we look at those applications. So we've looked at kind of rent as a percentage of income the portfolio is always average somewhere right around 19% for those move ins in the fourth quarter. We were also right at 19% what we do.

Did see a little bit happen is the range that we used to see as rent as a percentage of income used to be from 17% to 23% with Seattle being the low at 17 and San Diego will be in the high at 23 that range has expanded a little bit to 16 and 24, but it's really a marginal shift.

And this stuff so from the demographic side no change in the average age of applicants coming in the income I guess I would tell you. When you look at New York <unk> got some affordability opportunities right now so youre seeing average incomes coming down for applications in New York, but it's still well over $220000 a year.

And the ratio is still at like 18, 5%. So actually everything we've looked at right now would suggest that all of our new applicants on all of our new residents coming in from an affordability from a demographic standpoint really kind of demonstrate their ability to pay as the markets start to reaccelerate and stay with us.

Thank you.

And we will go to our next question from Rich Hightower of Evercore.

Hey, good morning, guys.

Thanks, Thanks for all the valuable color you actually answered most of my questions but.

I just wanted to get a sense, maybe in a market like New York.

Is there anything embedded within the forecast.

Related to sort of the spring home buying season, just given for the first time in a long time the strength in sort of the Tri state area.

Housing market and did you make any assumptions around around some of those related move outs or.

Anything along traffic or demand that might be impacted by that.

So rich this is Michael I'll, just start off and say just overall when we've looked at the percent of residents moving to buy homes.

Again. This is one of those debt, we really have not seen a different at a portfolio level. We're running just over 12, 5% of residents moving out when you go specific to New York, We really haven't seen any material change on that front at all it's actually declined a little bit in the fourth quarter. So I think relative to our assumptions as we move forward.

Word.

I think you heard in my prepared remarks, we're starting to see some improvement in the percent of residents renewing so for the portfolio were expecting to be up at 54% New York still one of those markets that we're off on where off what is normal for that market. So we are still sitting below 50%.

And we should be up above 60%, so I think our modeling and our assumptions going forward is that we start to see a little bit of improvement in our ability to retain those residents, but nothing specific to them more of them moving out to go buy homes and rich it's mark just to support Michaels comment there isn't anything expressly in our guidance about <unk>.

Creasing home purchases and whole portfolio was kind of designed not to have a lot of concerns about people moving out to buy homes.

Far as we can tell that continues to be the case historically going forward a lot of the renewals that Michaels thinking about now on a lot of these people that could elect to buy a home. These were people that renewed with us or at least initially with us in the pandemic, we're rolling into a period, where everyone would have leased with us knowing what the situation was in New York and especially in.

March April and May when it was particularly dire so I would have thought that if they really were thinking home buying was absolutely at the top of their list are disproportionately are our population of renters thought that they already would have been in the suburbs. They already would've rented there in hopes of buying so I'm guessing the homebuilding home buying boom in the Tri State area is not.

Actually going to matter very much to us.

Got it thanks for the comments.

Thank you rich.

Okay.

Our next question from on the epic.

Bank of America.

Good morning, everyone and thank you for taking my questions. Today I appreciate all the commentary this morning that was really helpful.

But I was wondering if you guys can talk a little bit more about the suburban sub markets. It looks like the renewals are still high but they're trending behind 2019, and early 2020 and the occupancy on that emerged again. So I was just wondering where those renters headed to the ones that arent renewing net does it kind of tie into your commentary on that.

The vendors are looking to come back to urban.

Trying to think about it.

Shift back to urban and suburban.

That we've been talking about from here.

Yes, so I think Thats a great question and I think as we think about the forwarding address for residents that are leaving us we still see a little bit of an elevated number and those that are leaving urban submarkets to go to Serbia suburban submarkets. When we think about our own suburban portfolio I think a lot of what.

You are seeing right now in the management presentation, a lot of that is just normal seasonality as to how the market's actually would react and I think what we're seeing is we had strong demand. We maintained good occupancy throughout the year and I think we're going to continue to do that with stability and start pushing rate.

And try to recover as much of the rate as we can in the suburban submarkets.

Okay got it it makes sense and then I just have a question on lease breaks and.

Fragrance Arnaud I know last quarter, you said that everything was still elevated.

It also came about from companies pushing back the start dates, but how did that trend ex <unk>.

Yes, so in the fourth quarter.

The lease breaks is still elevated kind of on a year over year basis, but we are starting to see kind of that percent on the numbers start coming back into norms I think.

We peaked up in September at like 36% and the fourth quarter is now kind of gradually coming back down we would expect this number I think we're at like 25%. We would expect this to be kind of on somewhere around 20%.

Okay, great. Thank you.

And we will move to our next question from Amanda Sweitzer with Baird.

Great. Thanks for taking my question I thought your.

Your comment on from campus. We've got residents looking to move back from Sacramento, and Denver, where interesting can you quantify the magnitude of that reverse migration either on an absolute basis or relative to how many residents left.

Okay.

So I think the <unk>.

First of all those that like that's just the anecdotal statements that's coming to us or the quantity is small right, but every week. We're on the phone with our on site teams and we're just trying to get some color around the applications.

And where they were coming from when we see the inflows, which is new applicants per San Francisco, 87% of all of our applications are coming to us from within the state of California, and 70% are coming from within that MSA. Both of these numbers are up about 10 points each.

So you are still seeing that elevated kind of activity, which to us is still that deal seeker right, they're coming in they're taking advantage of that price. So from the out migration in those states where people had left and are coming back. It's just starting to trickle in it hasn't really manifested itself into.

A large enough percentage change, but I think the positive is that we haven't heard any of that for months and now we're just now starting to hear that.

Yes, that's helpful color and then following up on some of your demographics comments I know the percentage of your residential children. It still kind of a small piece of your overall portfolio, but have you seen a change in that percentage either non 15 based on the applications you're seeing come in.

Okay.

Yes, so about 10% of our residents have children living with them.

We haven't seen a change in that trend and that is I mean, our portfolio Hasnt changed it still has a limited number of three bedroom units.

A fair number of one bedrooms and studio so I wouldn't expect that amended to change very much just because again our portfolio is more suited to couples.

Your roommate situations in some family certainly, but it's just it isn't like we added three bedroom units to the portfolio to make it more family friendly in the last couple of quarters.

That makes total sense, thanks for the time.

Yes.

Okay.

Okay.

And we will go on our next question from John Kim of BMO capital markets.

Thanks, Good morning, Mark you mentioned in your prepared remarks that you are optimistic on our recovery in the urban markets, just given the social and cultural aspects.

But at the same time you are looking to reduce your urban exposure. So can you just marry those two comments together.

And also maybe quantify where you are looking to get your net exposure to over time.

Great. Thanks for those questions Jon.

There is a surface inconsistency there I mean, our overall strategic goal is.

As I said is to just have a growing.

And steadily growing dividend and cash flow of the business and to do that the management team even before the pandemic and the board have decided that we were going to spread our capital again into these dense suburban areas around our urban centers, while still maintaining a significant urban center presence and into a few new markets or renewed market.

In the case of Denver, So that was the plan, we do think theres going to be a pretty good recovery in these urban centers and we think one or two things is going to happen, we're either going to be able to sell those assets now with the buyer understanding that theyre going to need to pay close to closer at pre pandemic value because they are they're almost certain in our.

Opinion at least to obtain a pretty good increase in revenue over the next couple of years or we're going to wait and our shareholders who have suffered with the downside of the reduction in the urban centers will get that benefit and then we'll sell a few of those assets. Later, so it's not that we don't believe in the urban centers will stay over weighted to them, but not this over weighted.

And in terms of exact numbers, we have nine significant buildings in the city of San Francisco.

More than we need to have but exactly how many should leave or go I'm not sure on the other hand, we did buy assets in the Bay area and we're thinking about developing a couple of deals Theyre, just more peninsula or east Bay, or just sort of spreading the capital out you saw our development deal John that sitting on on.

On the island just outside of Oakland So.

You should just sort of expect a decline in the city of San Francisco.

And overall, California, just again because of the concentrated political risk there.

I don't have on order of magnitude to give you, but that's a source and New York compose.

Composed predominantly of Brooklyn, and Manhattan again, we have significant number approaching 30 buildings in that area and to get rid of a few of those buildings at the right price. We're looking at a development deal on the Tri State area, We've acquired in Jersey City over the last year or two so it's not like we're not interested in staying invested in the area. It's just spreading them on <unk>.

Add a little bit so I guess I do have you stay tuned for the exact numbers, but you should expect a lessening in California, specifically the city of San Francisco and a lessening in New York provided pricing makes sense and.

And an increase in a place like Denver and in some of these suburban places as well as maybe another couple of markets.

It sounds like you think their organization trends that has occurred in the last decade on peak Medicare.

Characterization.

No I think they are spreading out more I think new places are Urbanizing I think New York will continue to be a great Urban center in San Francisco will eventually recover but I think places like Denver now have an urban center.

Not.

As dense as it needs to be but it's attractive and we have three buildings in downtown Denver and those are well occupied so I guess I'd say I think the trend towards urbanization I think is inexorable over the whole world and in the United States I think it gets thrown off kilter for temporary periods of time like the pandemic I think what's going on in United States.

<unk> other places and again Denver as an example, Austin, Texas start to become more dense and become more attractive for a variety of reasons. So I was just going to be more cities Seattle joined the party.

15 years ago in regards to having a really significant downtown so I just think some of these other cities are also densify, but I don't believe that urbanization is going to going to end in the United States I think it's just merely been interrupted.

Okay I appreciate your insight. Thank you I just had a follow up question on <unk>.

Your urban core operating metrics and the improvement in pricing that you've seen.

Which is on page six of your transportation.

I just wanted to clarify the pricing trend that you're showing this is face rents are not.

Effective rents is that correct.

This is base rent, but it includes it's a net effective so it includes the impact of the concession so basically abuse scraped our website and you looked at every single one of our units what we'd be charging.

The rent the amenity rent monetize rent and the impact of that concession.

Okay.

Thank you.

Thanks, John.

And we will flow to our next question from Handelsbank Mizuho.

Hey, good morning out there.

Good morning.

Appreciate the color on asset pricing and your thoughts on your portfolio exposure I was hoping you could talk a bit more about how new ground up development Youre thinking here with asset pricing very full on your footprint that you outlined in the noticeably more optimistic on your votes today versus prior quarters.

What's the current thinking here on development. Your peers certainly number of December you had been adding projects to the development pipeline in the quarter you still have.

<unk>, one of which is in the JV. So curious if you're.

It sounds like you're more on client based on your average a prior question are you just on.

On the opportunities to return to talking about the other than.

Maybe how much you'd like to expand that pipeline.

Yes, Thanks, and I appreciate that question. So I think all three of our development deals that you now see in the supplementary disclosure are going to deliver this year will certainly be in lease up for some time, we've been looking at a couple of deals. We started nothing in 2020 that just didn't seem prudent to us given the circumstances.

There are at least two deals we like that we would consider starting this deal. This year pardon me one is in the district of Columbia proper.

It's an emerging neighborhood, we really like some of the highest per foot rents in the city on area that though its suffered in the pandemic not as much as a lot of other neighborhoods. So we really like the location and because of TOBA on I know you've been around a lot. So you know what <unk> is but the quick brief there is it's a law that gives residents the right to purchase their building.

If it's being sold in the district of Columbia, and it makes it quite difficult to sell.

To acquire properties that are newly built and have our resident base. So building like we've done before near Union station and that Noma area, you should expect us to do that occasionally and to fund this by selling some of the older product, we own on Wisconsin Avenue, and Connecticut Avenue.

I would expect that debt deal would likely start this year. Another one is in suburban California location with some really powerful employer drivers nearby that we really like the very unique thing about the deal in Dallas Thats a density play it's us knocking down 60 units from an existing property and putting 200.

20% or 230 units back so it's very efficient from a capital on return point of view again, its a place we really like it is a hard hard place to build.

So we like that the team's very busy we're looking at a whole bunch of stuff as I implied in my remarks, there's a couple of things in Denver, we're thinking about as development opportunities again, we'd like to get a bigger presence there. The deals we're looking at our other paths of growth I'd say between urban and suburban or suburban development. So I'd expect us to start there.

Two deals I, just mentioned, maybe one or two other things we'll see.

We think development is part of the mix here at the company.

And we'll continue to do them as they sort of pencil out.

Any preliminary color on exactly what.

On the spread was from cap rate could look like.

Yes, that's a terrific question because on a hard debt as you've hit on the nub of the hardest underwriting part is what are first of all what our spot rents when spot rents are going down.

On a lot of these places so what are the spot rent mean, and then you come back and Unfortunately three months later spot rent has changed and how do you think about rent growth. So youre going to be building. These buildings for three years, I mean, they're going to deliver in 2022.

Excuse me 2023 early 2024, you may be delivering into you will be delivering into certainly a very different climate than maybe a much more advantageous one so we spend a lot of time thinking about just that so I can't really give you a yield if we start the deals I will talk about that but it is.

Just as important as Youre starting rate as your rent growth assumption when do you get back to where you where do you get back to where you were how does that work and that's that's the art of this process.

Got it got it thanks for the core.

Thank you.

Yes.

Our next question from Brent Thill from UBS.

Hey, guys. Thanks, you've answered most of my questions, but just one last one here for me is how is demand trending by unit size on how is that differing by urban or suburban or even MFA. If you have that data.

Yes, so I don't I don't have the actual demand in totality I will tell you that studios continued to be our most challenged unit type. So I think our overall occupancy and studios as like 93% compared to they used to be the highest just over 96% and if you drill into those.

Studios and you look at like New York, and San Francisco. The Occupancies of studios are down at like 80, 586%. So I think you could say that the demand thats coming into us is still seeking kind of that one bedroom. The larger units even the two bedrooms, because that is where that occupancy improvement has come from and I think right.

Now, we're just kind of in the wait and see mode to understand at what price can we clear these studios out and when does that demand really start to return to these markets.

Okay. Thanks I appreciate it.

Okay.

Please note that if you find that your questions have been answered you can remove yourself from the queue by pressing the star followed by the digit too.

We'll go next to Alexander Goldfarb of Piper Sandler.

Hey, good morning.

So two questions first.

As you guys look over your expirations in the next few months or call. It March into June do you ever sense for how many of those residents are planning to move out.

Or are people not sort of indicating yet their intentions of whether or not they plan to renew or move out.

And I'm really focused on obviously the major hard debt markets like New York, San Francisco Austin.

Okay.

Yes, Alex this is Michael so.

Right now we've just started issuing April renewal offers out there. So it's hard to get kind of that indicator from residents I will tell you.

On the prepared remarks, you could see I think we're going to be moving from the 52% that we were in January up to 54, maybe even 55% as you work your way through February and March.

At this time I don't expect like the April and May's to do anything materially different.

Optimistic that we're going to get back into the 60% retention rate, but you've got to remember at the onset of the pandemic. We had a lot of residents chose to renew with us that drove that kind of number up. So I think we should expect this kind of gradual improvement in retention.

And I think the improvement that Youre seeing is really systemic across all the markets, but again I have the most improvement to gain or the most.

Area to make up in San Francisco, and New York and I think at this point, it's too early to understand May June and July kind of Timeframes.

Okay, and then mark on the portfolio.

It's great to hear that you guys are considering some new market.

In addition to expanding in Denver.

Look back over the history of the company the AQR has morphed from.

The El Paso, where there's sort of Midwest.

On a low rise to sort of urban culminating with archstone and now you're sort of going back but in that process. There was dilution in.

The debt investors took as far as earnings as you envision the next market that you're going to enter in the transitioning to decrease your exposure on some of the majors like New York or San Francisco do you envision like that same sort of dilution or the way you guys see it you could see it sort of.

Modest pace that earnings can still grow and so that.

We don't go through that same dilution that we experienced previously.

Thanks, Alex it's Mark.

So I would have told you before the pandemic debt that effort would have been accretive slightly that we'd be selling New York at four.

For our slightly sub four cap rate and we'd be buying Denver at $4 75, and what I'll be happy and easy now I think those two cap rates are close to each other part of that is a product of what's going on in New York and San Francisco I don't envision us to be a dilutive exercise I think it isn't going to be an accretive one I think it is going to be about.

Even now I think what we're buying in some of these new markets is probably <unk>.

Or political risk a little bit better cash flow in these assets over the long haul.

On and maintaining exposure, though to these big urban centers, where you have a lot of affluent renters and per New York, a really good supply picture. That's good and I think what we will have then is just more opportunities to invest and develop across a larger number of markets and the steadier platform win inevitable.

Issues come up in the future.

So I don't expect dilution from the process.

I would have told you on early 19, I was hoping you'd be accretion in the process, but I don't think that's realistic right now.

Okay, but it is marketed on the positive I mean, you guys certainly are good on the on the deal side and obviously there is markets with more growth. So it's good to see you guys.

Pursuing this so thank you.

Thank you.

We'll go to our next question from Nick <unk>.

Scotiabank.

Thanks, just a couple of questions I guess first in terms of the improvement that you've seen in January in terms of on.

Occupancy.

Also pricing.

I guess I'm, just wondering what we should really be reading into that because I think typically you do.

Like most of the multifamily gain from occupancy to start the year versus the fourth quarter.

And yet both periods are very slow leasing period. So I'm just kind of wondering what we should really be taking out of this about your confidence levels.

Getting some improvement in these two quarters, which are again.

Or will you make your year on which is second quarter third quarter in terms of occupancy and when what is really giving you guys confidence about.

Your ability to do better in the spring is it is it is it actually something youre seeing on the data right now or is it more of your view about just people returning to cities and that can create leasing demand.

Yeah. Thanks, Nick it's Mark I'm going to start and I think Michael is going to supplement, but the fact that we're seeing we agree with you. There is a seasonal improvement in occupancy that starts to incur now and there is certainly an improvement in rate that starts to occur now.

The fact that our numbers are obeying the normal seasonal norms of our business is a very positive thing because they didn't in 2020 occupancy rate all of those things declined when they usually went up so the fact that our markets and I remind everyone on the call I mean December and January and November, especially the <unk>.

And in November were horrible for the pandemic, particularly in California, which is almost half of our NOI and it got tough again in New York. So we would say Nick under difficult circumstances, our properties our portfolio started to perform like it normally does and if it performs like it normally does that mean as rate and occupancy youre going to keep going up every week.

Weak through the end of the third quarter and that to US is very encouraging I would also add it's the setup and 95% occupied Michael in his pricing team and our colleagues in the field feel much more comfortable reducing concessions and starting to push rate when they're this well occupied when youre on your back Keith.

<unk>, it's harder to do so I would say, we're positioned well going into leasing season, and just being normal is an advantage from what went on in the third and fourth quarter I know Michael if you have something you'd add I think I would just give a little bit of context. So normally youre right. We run about 20% of the volume in Q1, 30% in Q2, 30%.

Q3, and then it falls back to about 20% in Q4, the actual the velocity and the strength of the leasing season that we had in Q3 and Q4 of 2020 has actually shifted this profile a little bit and put us now for 35% of our leases expiring in the third quarter of 21% and 22%.

In the fourth quarter, so I actually view this as a little bit of a positive that we shifted some of these exploration to be back half loaded which gives us more time to even recover some of this rate and then get through those leases.

Okay. That's helpful. Appreciate that I guess, just one one last question.

Per where you think <unk>.

Base rents are for your portfolio versus the market just trying to kind of gauge the level of.

Above market leases, you still have to deal with in the portfolio could be expiring in coming quarters.

Yes, so I think youre, referring to gain and loss to lease so basically just snapshot and kind of our rents in place and comparing it to the existing rent role.

Sitting here and I did this best basically at the end of January our gain to lease was six 5% not including concessions nine 5%. When you folded in concessions and that is clearly frontloaded. So the numbers are much higher gains in that Q1, and then it starts to kind of grab.

Italy down we actually flipped to kind of the loss to lease model back in that fourth quarter, but I think at this point you are looking at this.

At the lowest point in the rent seasonality rents are the lowest and you're comparing this still against people that were pre pandemic and then new people. So I don't really I mean, I think it's a good snapshot to understand what could be but I think really over the next couple of months that number is going to move around a little bit and the other thing the numbers useful for Nick.

<unk> got checking in the investor's name has got checking our guidance. So when people trying to understand that to understand where the gain the leases gives you some idea of where our starting point is and what we need to make up during the course of the year.

Okay. Thank you Mark and Michael appreciate it.

Thanks, Nick.

And we'll go to Alex.

Gentlemen, and associates.

Alright.

Yeah.

Looking at the projects in the pipeline.

We expected lease ups over the next year. It seems like there is a.

More projects in the urban markets.

There is some supply and supply.

Supply chain can construction delays and typical in those markets, but what are your expectations for.

For the coming year in the urban core.

So I just want to make sure I understand your question. Alex. So you ask is what we see for supply and call. It New York Central New York, and San Francisco kind of in 'twenty one.

Correct. Thank you.

Yes, so on.

I'll just start at the top and just say so right now when you think about the natural shifts that happened between the fourth quarter into the first quarter. When we look at supply for 'twenty and 'twenty. One we think the overall numbers is going to be relatively the same I think you picked up in my prepared remarks.

San Francisco is elevated in a lot of that is the concentration sitting in South Bay.

When you look at markets like New York, It's really non existent in Manhattan from a competitive landscape against us and we are a little bit on the Hudson waterfront. So when we think about supply. We're looking at these numbers in totality, but we really go granular we go down to an individual asset and we're looking at what new delivery.

These are coming at us or what the existing deliveries are still kind of working their way through the lease up process and what pressure do we think that that's going to have on us in terms of performance as we work our way through the year. So it's a very granular process and I think when we roll it all up.

Right now you got you still have a lot of supply coming at you in D. C. So another 12000 units being delivered the question. There is really just the ability for the market to absorb that supply from a competitive standpoint, I really stand back and just say the South Bay in San Francisco on a little bit on the peninsula is going to have a little bit.

More pressure on us than we have felt in the past.

And Alex it's Mark if I can just add something on some sort of new research we've done to try and think about just new starts on that completions as Michael was referring but starts.

As we look at.

It's tough to make these deals pencil on the urban centers. So we're trying to determine what does it look like in 'twenty three and a couple of our guys. It's really good work and the work was focused on what do we see starting.

Within call it two miles of our properties.

Remembering that all supply in a market is competitive with us, but Michael would tell you on our operators would tell you that the supply. That's very close is what is most damaging to our rent roll. So looking at what's relatively close to us looking at what starts where from 2016 to 2019 by market getting an average and.

Comparing that to what we saw in 'twenty and 'twenty one when we see that's being generated in 'twenty. One will lead us to believe that starts are likely to be down 30%. It does deliveries are down 30% in say 2023, especially in our urban markets now in Washington D. C that number seems completely unaffected I mean start seem.

<unk> constant, but we are seeing that and we hope that thats, an additional tailwind, but again this is relatively new research that.

And our folks have done that we think is is informing us on our optimism about supply.

<unk> Urban center coming forward.

Really appreciate the color. Thank you.

Thank you.

The bad debt.

Assumptions in the revenue guidance you gave.

There's a lot of the productivity on.

California is.

Susan.

To extend <unk> into June.

Is that the most sensitive aspect to that bad debt assumption or are there other.

Our regulatory on macroeconomic factors.

Would cause up or down.

Based on that.

I think are somewhat increased pessimism about bad debt over the last two months was based on both the new administration doing its extension under its CDC Authority, California doing an extension New York all of these markets sort of chiming in given that the pandemic got challenging again in the fourth quarter and in <unk>.

<unk> that all of this got extended which meant that we wouldn't get resolution, but I will say that we didn't and this is why our guidance is Bob acknowledged was a little conservative on remains in our minds may be a little conservative on bad debt is that we didn't take into account either the $25 billion that was passed in the old administrations.

In December for rental relief, New York put rules out last yesterday on that California put those out a week ago.

We're still analyzing all of that so we're not sure. We certainly intend to get involved there and make sure. Our residents who are in delinquency situation are aware of that and can take advantage of it. So we may get some benefit there from taking advantage of some of those programs by the administration. One nine trillion dollars program has another $25 billion on it.

From a rent.

For helping folks that are behind in their rents rental assistance again, who knows if that passes but thats very helpful.

Along with in the in the one nine trillion dollars Bill is $350 million of aid to cities and that is tremendously helpful to places like New York, where thinking about tax increases or service cuts and so I'm, taking your question a little longer but I think it's important that some of these government restrictions are problematic, but they come with.

Some good things as well, especially for owners like us of apartments that are in more urban settings.

I appreciate it thank you very much.

Thanks, Alex.

And with no further questions in the queue. Mr. Mckenna I'd like to turn the conference back to you for any additional or closing remarks.

Yes, it's mark per al well. Thank you all for your interest in equity residential and have a good day take care.

You have been removed from it on.

That does goodbye, we'd like to thank you for your participation you may now disconnect.

Yeah.

[music].

Yeah.