Q4 2020 Avalonbay Communities Inc Earnings Call

[music].

Please standby we're about to begin.

Okay.

Good morning, ladies and gentlemen, and welcome to the Avalonbay communities fourth quarter 'twenty 'twenty earnings Conference call.

At this time all participants are in a listen only mode.

Following remarks by the company, we will conduct a question and answer session. You may enter the question and answer queue at any time during this call by pressing star one.

If your question has been answered.

You wish to remove yourself from the queue. Please press star two.

If you're using a speaker phone please lift the handset before asking your question and we ask that you were of frame from typing and have yourself phones turned off during the question and answer session.

Your host for today's conference call is Mr. Jason Reilley, Vice President of Investor Relations. Mr. Riley you may begin your conference.

Thank you al and welcome to Avalonbay communities fourth quarter 2020 earnings Conference call before we begin. Please note that forward looking statements may be made during the discussion there of variety of risks and uncertainties associated with the <unk> looking statements and actual results may differ materially.

Discussion of these risks and uncertainties in yesterday afternoon's press release as well from the company's form 10-K, and form 10-Q filed with the SEC is.

As usual. This press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion.

The attachment is also available on our website at Www Dot Avalon zone Dot Com Ford cash earnings and we encourage you to refer to this information during the review of our operating results and financial performance.

Is that.

I will turn the call over to Tim Naughton, Chairman and CEO of Avalonbay communities for his remarks Tim.

Thanks, Jason and welcome to our Q4 call with me today are Kevin O'shea, Sean Breslin, and Matt beer volume.

And for the first time, our bench at all.

Sean Kevin and I will provide commentary on the slides that we posted last night.

All of us will be available for Q&A afterwards.

Before turning to our prepared remarks, I'd like to take a minute to introduce Ben.

Who many of you of met either during his previous job or since the announcement in early December.

Most recently served as the CEO and President of this heritage growth properties.

Where he led the company from its inception and oversaw the transformation of the company from a portfolio of sear stores and to a mix of shopping dining entertainment and mixed use destinations.

Prior to the search has been was CEO of Rouse properties on owner of regional shopping shopping malls and before that he was SVP with Vornado Realty Trust.

Ben brings a deep background in developing the operating activating real estate. In addition to the broad experience of many of the markets on which we do business.

This is this is the only been second week on the job. So the likelihood of a limited role on the call today, but.

But I thought I'd give him the floor for a couple of minutes just to share a few comments.

Thank you Tim.

Terrific to be here and I'm truly honored by the opportunity to join the team and organization.

Avalon day is one of a rarefied group of companies in my mind led by Tim and the senior team that had been able to successfully shape build and grow in enterprise of the quality and scale and do so with the core culture with a focus on integrity caring and continuous improvement that remain of real differentiator for the organization.

<unk>.

And for me in terms of why Avalonbay very much started with what I believe to be the strong overlap between those values embedded here and my personal values and those that I look to bring the teams and organizations.

I'm also passionate about creating real places that connect with people and communities and Theres not a purpose more powerful than Avalon base core purpose of creating a better way to live.

And to be a leader as an organization and providing better quality housing environments that are safe healthy gauging and at the appropriate price point.

Fulfill such a meaningful need so many communities.

And to do that and scale across the country.

Very special place for me to have the opportunity to be of part of.

My official first day was not quite two weeks ago on Monday January 25, and my early transition is in full swing.

On a personal front now of Virginia resident having moved with my family into an Avalon communities nearby not.

Not only is that of wonderful home and community I also get to be fully immersed in the avalonbay experience living and breathing our offerings, each and every day and witnessing how much the Avalon ownership mentality comes through as a differentiator on the ground.

Much of my time over the first 90 days is focused on listening learning and building relationships across the organization.

The early listening tour also includes our shareholders and the investment community and I will be coordinating with Kevin and Jason and team on that front and look forward to connecting with many of you over the coming months.

I am very excited to be part of the Avalonbay organization as we collectively help shape the future of the company and stay on the forefront of creating better ways to live.

And before turning it back over to Tim I want to give a heartfelt thanks to the wider Avalon Bay team and associates for how you've welcomed me and my family to the Avalon day family. Thank.

Thanks, Tim.

Greg It was the thanks, Pat and great to have you.

The welcome again.

Our prepared comments today I will focus on providing a of.

The summary of Q4 results.

Some perspective on 2021, and how it impacts our plans for this year.

Before getting started on the slide so maybe just maybe just off of few introductory comments on the quarter and the year.

The fourth quarter was a was a tough end to what was already a very challenging year for the company and the business the.

The normal effects of an economic downturn on the apartment sector are were magnified by work from home mandates of civil unrest in our city centers.

And the growing strength of the for sale market.

So the the contraction of the apartment demand in urban Submarkets over the last year has been profound.

Unprecedented to anything we've experience.

Except perhaps for the the tech rack of the Bay area of the early two thousands.

Over the last few weeks and months, we have begun to see some signs early signs of stabilization.

With the steady improvement in occupancy followed by effective rents begin to level off in all of our markets.

And yet the visibility for the business beyond the next 90 days or so remains challenged due.

Due to a combination of.

Unique risk factors, including on.

The ongoing transmission of the virus and its variance the.

Rollout of efficacy of the vaccine.

Of the continuation of work from home mandates.

The regulatory extension of the eviction moratorium on most of our markets.

And lastly, the size impact and distribution of any potential additional federal stimulus that may be passed in the coming days.

As a result for earnings and operating metrics, we've decided to provide quarterly guidance in lieu of full year guidance.

We are providing annual guidance. However on a number of other items like lease up income cash.

<unk> formation and development starts and overhead.

And we will continue to update and share information with you as we move through the year.

As the environment changes such that we believe we can reliably expand our guidance we will do so.

So now, let's let's turn to the slides are starting on the slide four.

As I mentioned Q4 was the was a tough in two of challenging year core <unk> growth was down by almost 17% in the quarter on a year over year basis, and 7% for the full year.

Same store revenue was down just over seven 5% year over year on one 6% sequentially from Q3.

For the full year same store revenue declined three 2%.

We've completed almost $400 million of development in Q4 at a projected initial yield of 5%.

And for the full year, we completed almost $800 million at a yield of five 2%.

While the yields are down by almost 100 basis points due mostly to lower rents.

It remains 7500 basis points above prevailing cap rates.

The two northern California developments completed.

Completed this year, particularly weighed on results as rents of declined by double digits in that region region over the last year.

Excluding those two communities the average stabilized yield for complete the communities was five 8%.

In Q4, we started three communities in suburban northeast markets, which have been less impacted by the economic downturn.

These were the first wholly owned communities started in 2020.

We raised 465 million of the capital in Q4, mostly through dispositions.

For the year, we sold over 600 million at a weighted average cap rate of four 4% on an unlevered IRR of 10, 8% over an average 14 year whole period.

Which compares favorably versus the last two to three years.

In addition, we raised just over $1 3 billion of debt this year.

The refinance maturing or near maturing debt of just over $1 billion.

And lastly, we purchase of repurchased purchased almost $200 million of stock for.

For the year at an average share price of $150.

Turning now to slide five we thought we'd provide a little more color on the components of same store revenue declines that we've experienced on a year over year and the sequential basis.

On slide five to see on a year over year basis. This past quarter, we saw about half the decline in same store revenue being driven by a lower effective rents at about half by increased vacancy of bad debt.

And as we mentioned last quarter future declines the same store revenue. This year will be driven by pressure on lease rates as the lower rates, we have been leasing out over the last couple of quarters, we get the roll through the portfolio and concessions, which have also been elevated over the last couple of quarters and are amortized over the lease term.

Turning to slide six and sequential same store revenue.

Sequential same store revenue was down one 6% Q4 from Q3.

Driven mostly by lower lease rates, which were down more of the 2% sequentially.

And the concessions is the accumulative impact of amortized concessions continue to grow from Q3 of the Q4.

Lower lease rates at higher amortized concessions were offset by a significant pick up in occupancy in Q4.

Sean will touch on on his comments.

With that I'll turn it over to Sean to discuss portfolio performance in more detail Shawn alright. Thank you Tim.

Moving to slide seven.

Can see the impact of the pandemic on physical occupancy and the absolute effective rent we have achieved over the past year.

Broken out between urban and suburban Submarkets.

Sure one reflects our suburban submarkets, which makes up about two thirds of our portfolio.

We experienced some deterioration in both occupancy and rate during the spring and summer of 2020.

But of recovered most of the occupancy over the past four months.

And as of January effective rental rates were up about 1% sequentially from December and of roughly 4% below of where we start of 2020.

The primary driver of the weakness in our suburban portfolio. It has been the performance of assets located in job centered hubs.

Employers have adopted extended work from home policies and.

In transit oriented development with the use of mass transit has declined materially during the pandemic.

Some examples include the assembly row on Boston Places.

Of this corner in northern Virginia non.

On view in Cupertino in Northern California, and Redmond in Washington State.

Chart to reflect our urban portfolio, which suffered from elevated lease breaks turnover and an overall reduction in demand on the late spring and summer months, which is prompted by employers extending work from home policies and major urban universities announcing the adoption of distance learning models for the fall term.

Occupancy dipped to a low point of roughly 90% of September but has since recovered by more than 300 basis points.

We're still about 300 basis points below what we consider a more normal occupancy rate in urban submarkets.

But likely one experienced net level until people returned to work.

At major universities open for on campus learning.

You can also see the rental rates fell substantially the past three quarters.

Sort of flattened out late in the year.

Yes, it ticked up about 2% of from December to January.

On a year over year basis effective rental rates on our urban portfolio is still down about 18%.

Moving to slide eight you can see the trend of physical occupancy and the absolute effective rent by region for the last year.

Occupancy has recovered from the low point in every region, except the Pacific Northwest, which continues to hover around 93%.

Breadth of leveled off in all of our regions over the past couple of months and we experienced a modest uptick in January in the Metro New York, New Jersey, mid Atlantic and Northern California regions.

Also in southern California in effective rents of increased sequentially for the past three months.

It's certainly too early to call the bottom in rents it will experience year over year of negative rent change for the next few months as we passed the one year anniversary of the pandemic. So we will continue to highlight sequential trends in both rents and occupancy of key indicators of the bottoming.

Now I'll turn it to Kevin to address our outlook development on the balance sheet Kevin.

Thanks, Sean turning to slide nine we highlight our financial outlook for 2021.

Although we prefer to provide our traditional full year outlook the uncertain resolution of the pandemic and the related regulatory orders Inc.

<unk> evictions moratory across our footprint has reduced our visibility on our performance later this year.

Consequently for 2021, we are providing operating and earnings outlook for the first quarter only and we are providing guidance for development capital activity and other select items for the full year.

Nevertheless to assist investors in driving their own perspective on our outlook for the year, we have enhanced our disclosure unexpected performance in the first quarter of 2021.

Specifically, we identify actual residential revenue performance in January 2021, four.

For our same store communities, which reflected a year over year decrease of seven 8% and a sequential decrease of 40 basis points from December 2020.

We also provide ranges for projected residential performance for revenue operating expenses and net operating income in the first quarter of 2021 for our same store communities.

In the first quarter, we project a year over year decrease in same store of residential revenue of about eight 5% 10%.

Reflecting the impact of lower residential lease rates amortized and newly granted concessions.

Lower occupancy versus the year ago period.

And the persistent level of uncollectable lease revenue.

We expect an increase in same store of residential operating expenses in the low 4% range during the first quarter.

And for operating expenses to remain elevated during the first half of the year.

Due primarily to several factors that influence of year over year comparison, including first the presence today of Covid related expenses that were not incurred during most of Q1 2020.

The second substantially reduced maintenance and other spend during the beginning of the pandemic in 2020 that will make for a challenging comparison in the current year period.

And third elevated turnover of marketing costs in the current year period.

As a result for the first quarter, we project a decrease in same store of residential net operating income of between 13% and.

16%.

And finally, we protect the core <unk> per share for the first quarter will range between $1 85 per share and $1 95 per share.

At the midpoint of our projection of $1 90 per share on core <unk> for the first quarter of 'twenty. One represents a sequential decline of <unk> 12 from the fourth quarter of 2020.

This 12% sequential decline is composed of an eighth sequential.

Decline in residential same store NOI.

A <unk> <unk> sequential decline related to dispositions completed in the fourth quarter.

And the <unk> sequential decline related to increased overhead and strategic initiatives.

That is partially offset by a <unk> <unk> sequential increase from other community classification, which in turn are primarily driven by increasing development lease up NOI and commercial NOI, the latter of which was reduced in the fourth quarter by the write off of the straight line rent receivables.

As for the full year guidance on other items, we project starting about $750 million of new development projects in 2021.

We expect to complete $1 $1 billion of development this year.

And we expect NOI from new development communities undergoing lease up to be between $40 million and $50 million in 2021.

For full year capital activity, we anticipate sourcing about $630 million in external capital from asset sales the condominium sales from parclose debt and capital markets activity.

This compares with expected capital uses for development redevelopment and debt maturity day, an amortization of.

The $835 million in 2021.

Turning to slide 10 as I just noted we do expect to increase our development activity in 2021.

The roughly $750 million in new starts that we plan for 2021 is comparable to our startup activity late in the last cycle and represents an increase from the $290 million on development started last year, when we curtailed new investment activity in response to the pandemic.

Over the past four years of about 85% of our development starts have been located in suburban markets.

As Sean mentioned fundamentals have been much more favorable.

For 2021, our development starts are also concentrated in our suburban markets in.

In addition, this year's two urban starts are located in residential city neighborhoods and not in the more hard hit high density central business districts.

These new development starts to contribute to earnings in any of the growth in the next few years.

And we'll be delivering into the market environment that we anticipate will be highly favorable for new lease up in 2003.

Turning to slide 11.

Almost 95% of current development of the way, it's already match funded with long term debt and equity capital.

As a result, we have locked in the cost of investment capital on these developments, which in turn helps to ensure that these projects on slide earnings in any of the growth when they are completed and stabilized.

As shown on the next two slides, we continue to enjoy tremendous financial strength and flexibility for the next.

Liquidity modest near term debt maturities and of well position balance sheet.

Shown on slide 12, our liquidity at quarter end was roughly $2 billion from our credit facility and cash on hand.

This compares to just under $600 million in remaining expenditures on development of the way over the next several years.

Resulting in approximately $1 4 billion in excess liquidity relative to our remaining development commitments.

Turning to our debt maturities on slide 13, we show our debt maturities over the next 10 years and our key credit metrics.

For debt maturities.

Only $600 million on debt maturities and amortization over the next two years.

Of which less than $40 million matures in 2021.

As a result of our quarter end liquidity of $2 billion exceed both our remaining developments then and our debt maturities over the next two years by approximately $800 million.

As for our key credit metrics at quarter end net debt the core EBITDA of five four times was in line with our target range of five times to six times.

While our unencumbered NOI was at or near an all time high of 94%, reflecting our large unencumbered pool of assets that we could tap if necessary for additional secured debt capital.

And finally, and perhaps most importantly, as we look beyond the end of the pandemic our strong balance sheet provides us with terrific financial flexibility to pursue investment opportunities as they emerge in the recovery ahead.

With that I'll turn it back to Tim.

Thanks, Kevin.

Turning to slide 15, I thought on might provide some longer term perspective on this downturn in our business.

This slide shows an index for our same store base rental revenue.

1999, or over the 22 years, plus or minus on the Avalon and the merger.

A couple of things worth mentioning here.

Firstly, you can see the long term trend is positive.

And reflects the healthy business over the last three cycles annual compound of same store revenue growth has been roughly 3%.

Rents have grown a little faster than that during the expansionary phase of the cycle.

Generally contract for one to two years during the downturn.

We are doing now.

And then reaccelerate during the recovery phase of the start of the next cycle.

Housing has been a consistent performer over many cycles.

As demand of supply generally grow in tandem over the cycle of net completions roughly matching the pace of household formation most years, except during recessions with the number of households temporarily contracts.

During the downturns it can be difficult to project. The operating performance has no two downturns and recoveries look exactly alike.

Just just to demonstrate that the downturn in the early two thousands was reasonably deep for the apartment sector.

It took almost five years for rents to recover back to their prior peak across our footprint.

And at San Jose rents didn't fully recover for 15 years.

The downturn in the late two thousands was comparatively steeper.

As the economy and labor market were significantly impacted by the financial crisis.

And while it was one of the steeper was also shallower for the apartment sector as rental demand benefited from.

From the correction in the for sale housing sector.

Yes.

The current downturn brought on by the pandemic has been the steepest yet for.

For the economy for the apartment sector.

While we are of perhaps seen early signs of stabilization.

Is difficult to predict the timing and strength of the recovery.

Given the myriad of uncertainties directly impacting our business, whether it'd be economic regulatory or health related.

Importantly, though we are confident that the apartment housing markets will recover.

And that we will return to sustained growth in rents in revenues over the next cycle just as we've seen over the last several cycles and then multifamily will continue to be a good business for the long term.

So turning now to the last slide in the.

And in summary, operating performance continued to decline in Q4.

But during the quarter and the early part of Q1, we began to see early signs of stabilization on some important operating trends.

We saw healthy gains in occupancy sequentially with urban Submarkets recovery about half of the occupancy they lost earlier in the year.

Rent growth began to level off after declining for most of the last three quarters.

In some regions, even began to see modest sequential improvement.

The transaction market has recovered and strengthened significantly in recent months with suburban assets generally now selling at or above pre COVID-19 values.

As Kevin mentioned, our balance sheet and liquidity remain in great shape, and well positioned to support new growth opportunities.

In fact, given recent operating trends and improved capital on transaction market conditions, we decided to activate the development pipeline started three new developments on this past quarter. After hasnt been cautious for most of the 2020.

Of our starts in 2021 will be focused on submarkets that have been less impacted by the downturn, where the economics still offer a reasonable risk adjusted return.

And with that Ali we're happy to open up the call for some Q&A.

Of course, thank you and as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off your line your signal to reach our equipment.

If you find your question has been answered already you may remove yourself from the queue by pressing star two.

As a reminder of the star one of you would like to ask a question.

And we will go ahead and take our first question from Nick Joseph from Citi. Please go ahead.

Hey, it's Michael Bilerman here with Nick.

Tim I wanted to ask you sort of on development underwriting.

And also maybe for embed into the conversations because it's a little bit about mixed use about when youre now underwriting niche project.

How are you thinking about the ancillary.

Services and the locations that are going to be part of the community, whether they be retail or even office and historically Avalon has partnered with others to do those and I think about the deal he bought in Virginia, where regency took the retail I think about assembly, where the federal obviously.

You're going to do the.

The Reggie.

How do you think it's going to evolve.

Can know Keith.

The capitalized separately or will require some of them to come in and take a loss on retail or a loss on office to support the.

The multifamily rental effectively you have to get higher returns on multifamily the make the math work.

Yes, Michael I think we talked a bit about this in the past and obviously, it's probably more interest in it just given the the events of the last the last few quarters is as we've talked about mixed use yes, we pursued in a number of ways.

Oftentimes partnering as you suggest whether it's federal or of regency or or Eaton's on a number of projects, where it's more of a more of a condo structure.

The building out the core on shell and ultimately turning back of that retail to to them and that's the that's been that's been sort of the emo in cases, where it's been a pretty significant there's pretty significant piece of of the retail and we felt like it was.

We were able to reasonably sort of separate.

The execution and ultimately the management of the two pieces relative to doing a fair bit of mixed use that I sort of think of the sort of horizontal more kind of more kind of commodity if you will where we may be assembling maybe assembling of Si Sudbury is a good example of this.

The.

There may be a separate adjacent.

The.

The fact, there we've got a whole foods was part of the that's part of the community, but it was owned fee simple not the.

The Congo structure of it fee simple by the different retail developer that also had a for sale housing on it also had also had a restricted and age restricted component as well so, particularly on the suburban locations will look to do that I would say kind of the some of the infill locations, we'll probably continue to partner with the.

With the some of the top retailers on the country and then the third category, which I think is where you are.

The question was headed is is we're in the one of the when the users of so internally.

Sort of link.

It's probably in the interest of the asset that would be controlled by a by a single entity, whether the entity as a partnership or whether we control debt, whether we control. The end of the 100% I think I think are probably of preferred solution on that cases, where we are again partnering with the.

Somebody's expert in the area of retail and can underwrite help operate that but our partners in the venture with us and so if you're looking at the economics of the of the entire venture together and trying to optimize that in terms of the.

As of the tradeoffs of unit evidently make between the between the ground plane, which is because of the retail and the residential above that so I think youll.

If you sort of fast forward over the next 510 years I think youll see more of the third category.

<unk> and companies like us will be we'll be partnering with the.

The presumably of the agencies the federals needs of the world to make that make that happen.

Okay, and then just in terms of the rent recovery and.

I know you pointed out debt.

The extraordinarily the timing of the strength of recovery, particularly on it in the urban Submarkets.

Difficult to project when you made a comment about the early two thousands on how San Jose didn't recover from a rent perspective to prior peak for 15 years.

I guess, when you think about New York, and San Francisco, which you still out of a fair amount of exposure to.

I guess, what are you trying to underwrite sorry would assume having a view would dictate your capital allocation decisions.

How about either rotating capital out of these markets or trying to go deeper overall.

Overall.

If you have a 15 year time frame.

That can make them a lot more difficult so where is your mindset a day about winter.

When you think the recovery and how the fundamentals in New York and in such as Google will turn.

Yes, Thanks, I didn't use the San Jose example to suggest that that's what we think is going to happen in New York City in the in downtown San Francisco, Obviously, the San Jose case was extreme because there had been a big spike during the tech run up in the late Ninety's in 2000.

On a lot of that.

A lot of the period of gain was just before just before sort of the.

The tech crash, but I think your point is I think part of the point is that some of these things can be long cycles right.

We still believe in New York and San Francisco, We believe in our coastal markets as of as an investment.

Thesis going forward I mean, the art, we think theyre going to continue to be centers of innovation the homes of great research universities.

There continue to over index in our view in terms of knowledge economy, where you have higher income and productivity and the density of knowledge. That's contained in those markets is critically valuable, particularly the.

The startups, Inc.

Copies of the getting off the ground now as companies continue to grow and mature they're going to distribute their workforces as we've seen as we've seen over the last year.

Satellite.

Some satellite markets and other markets.

<unk>.

With the additional sort of <unk> to work from home of hybrid positions is maybe maybe perhaps all over the map. So I think the.

I think it's too early to underwrite sort of what the what the relationship between demand and supply is going to look like over the next five years, but we don't see those markets and long term decline to be clear.

When you think of sort of the the the power corridors in this country.

Still Washington, the Boston on the East Coast La San Francisco on the.

The West Coast and.

Those are long cycles to those on those on reverse themselves over over fiber over five or 10 years or so.

Probably we're going to continue.

Allocate capital to some of our other markets that I think are going to be somewhat better.

The fish Aries by maybe some spillover effect from north of San Francisco, whether it's DC, Seattle or Boston as well as recent expansion markets, Denver, and southeast, Florida, but theres, probably other expansion markets and our future as well of it.

That will likely have some of the same characteristics research universities attractive day knowledge workers.

It's particularly some of these larger mature.

The company's dispersed workforces across the across the wider geography.

So the south of you won't sell in.

New York and San Francisco to fund that that will be other are sort of sales to deal with are just raising the capital to expand.

I don't I don't think we're at a point, where we think it probably makes sense to pursue.

The city sales just just given given the performance of those markets right now.

I think we I think all of US we're going to feel a lot better, which we see how much they bounce back I'm, not saying, they're going to balance of 100% back from from where they were a year or even the or even two years ago.

But.

Until there's a little bit more visibility of their I, just don't think I think the.

I'd ask is just going to be too wide on assets.

On assets in those markets I mean, Shaun mentioned northern.

And urban markets, we're seeing we've seen rents down 18% in the they are down more than that in northern California, and New York So the <unk>.

So I think it's I think it's I think it's early but I think it's I think it's safe to say, that's not where probably the net growth is going to be.

For the portfolio just like.

Sure.

Google or Facebook.

Faced with probably a lot of your net growth of isn't going to be in.

Is it going to be in mountain view of Menlo Park. So.

But it doesn't mean, you're going to abandon abandoned.

Those regions.

They're going to be they're going to be core to they're going to continue to be core to our portfolio of but it's probably not what where the growth is going to come from as it relates to from a capital allocation soon.

Okay. Thanks, Tim.

And we will go ahead and take our next question from Rich Hill from Morgan Stanley. Please go ahead.

Hey, Good afternoon, guys and then it's nice to hear from you on on ABB The earnings call of Florida, working with you.

Hey, guys I want to spend a little bit more time thinking about the bridge from one Q versus <unk>.

I recognize that the sales and <unk>, probably had a four to five.

Hit and I appreciate the additional disclosure on capitalized interest, which had another <unk>, but it still seems like the guidance is at midpoint.

Little bit lower than what maybe we were expecting.

So as you think about that given the green shoots is it just is it something to do with the mix of <unk>.

Apartments coming online or how should we think about that that difference, which given the green shoots I would've expected.

Maybe the guide to be call it 5% to seven since higher so maybe on just trying to understand how you get there and if you could break that down a little bit more for us.

Rich this is Kevin maybe I'll sort of take a stab at that I tried to walk people through that in my opening remarks. So I don't know that I have a whole lot of detail. So let me begin on may be repeating that and then if you have further questions around that we can try to dive a little bit data cheaper so.

Just as a reference point, we anticipate core <unk> per share at the mid point declining from $2 <unk> in Q4 to the $1 90 in Q1.

In terms of the 12% sequential decline.

Relative to our budget, what we have is in <unk> sequential decline in residential same store NOI.

The <unk> sequential decline related to dispositions that were completed in the fourth quarter the need to bear in mind, we did sell of about $450 million of assets in the fourth quarter that were present for much of the fourth quarter and are no longer presence in the first quarter. So thats. The <unk> sequential decline from that line item the <unk> sequential decline as well.

From increased overhead and strategic initiatives.

And those total call it 16, or so and they are partially offset by a sequential increase in other communities classifications, primarily which include increasing lease up NOI from development.

And then commercial NOI.

Which is expected to recover sequentially because of that will burden in Q4 by the write off and straight line rent receivables.

So that was kind of the backdrop for it.

Again, it's hard for me to reconcile against your expectations, which seem to have been about <unk> <unk> higher.

Thats the backdrop I'm happy to answer any follow up questions. You may have about the wellhead.

That's very helpful on that.

That's very helpful on I follow all of that.

Just trying to understand a little bit more was the eight <unk>.

Headwind the same store NOI.

Because it seems like the quarter is going to be maybe a little bit more challenging than <unk>. Despite some of the green shoots that have emerged.

And maybe I'm, just asking a naive question, but I wanted to maybe understand.

Why why same store NOI is a headwind.

Versus the <unk>, despite what looks like to be improving occupancy and improving.

Sector effect of blended rents.

Yes, rich this is Sean letter of I'm trying.

<unk> tried to provide some high level commentary on that but I think may help and then if you are looking for additional details on can certainly take it offline, but one thing to keep in mind here is of what we're talking.

Talking about sort of green shoots in terms of leveling off of a breath of such.

We do have sort of of the cumulative effect.

The lease rent reductions as well as the amortization of concessions that will bleed through the P&L as the move through 2021.

In other words, the expectation with the issue look forward over the next couple of months the amp.

Pack from the amortization of concessions and the cumulative effect of the lease rates.

Being higher than it has been in Q4.

So that's something that I'm not sure people always think about that.

One sort of.

Broadway to look at it as an example, as we granted about $47 million in cash concessions in 2020 will amortize of about $16 million of those sort of still another $31 million of concessions that will amortize through 'twenty and 'twenty. One so that will continue as Tim mentioned in his talking points to impact the growth.

Rates as we move forward over the next several months.

So thats just from additional commentary on the headwind.

Yes, that's very helpful guys on I think the simple explanation and sorry for a complicated. It is theres just an earn on benefit that still has to burn off over time, which makes that makes it a little bit more of a tougher comp but.

That's very helpful and one more just clarification question and then I'll get back in the queue, but that <unk> a strategic initiative that you mentioned is that one time or is that reoccurring as we think about modeling.

It's recurring it's part of our.

Full year guidance for overhead costs, which includes <unk>.

Significant component of which is investment in building out our digital capabilities and other strategic initiatives.

And so it's.

It's the capability of that we've been adding and continue to add to our to our business and is therefore of occurring throughout the course of the year. So it's it's something that you can kind of think about it as continuing on average.

Just to add on of that one as well.

Any more detail in the coming quarter of too, but it's always because of some of the information that we provided back in sort of late 19 in terms of of our investment in digital capabilities.

And machine learning and things of that sort of.

If anything has only accelerated as we moved through the pandemic. If you think about what's been happening with virtual tours and self guided tours in the smart access and things of that sort of I think.

Can you talk to us.

US, but our peers and others is even probably more conviction on making those investments on the ROI associated with them.

We would expect to continue to invest in those capabilities over the next couple of years for sure and sales.

Those payoffs come through.

Hey, Rick kind of just add to that as we're.

Making those investments and innovation there is a bit of of geography issue right you get maybe hitting the overhead line, but the benefit oftentimes flow through to the assets and so when we were able to save some payroll and things like that it may not may not be obvious because the the payroll expenses the big number.

Property of the property Opex ex the big number maybe compared to what the strategic strategic initiative number is.

Got it guys. Thank you very much I know this was sort of wonky modeling questions, but I really appreciate you spending the time to detail that a little bit more.

Thanks, guys.

We will now move to our next question from Rich Hightower with Evercore. Please go ahead.

Hey, good afternoon, guys and welcome to been on these calls.

Yes.

So my first question on kind of on a home in again on San Francisco, and New York and the the.

The big sequential occupancy gains in the fourth quarter, obviously, a lot of that must have been driven by.

Pricing in the market as opposed to anything related to return to office sort of the normal seasonal leasing pattern that we might consider but as you think about the pace and the drivers of demand going forward as we go through 2021.

Why do you think the key drivers are that we should be expecting and how does that overlay with what is normally seek new things starting in the spring and how do we fold in return to office in that and how do you guys think about the moving parts within the business just going to be on the screens year.

All of the stacks.

The breadth of alone I think first shot at debt and others can comment as needed but I.

I think the factors that you'd like to monitor our <unk>, which you mentioned in terms of Inc.

Florida is basically reopening their offices.

Part of people back to work in the environment is obviously the key driver here.

As Tim mentioned earlier, we're probably not expecting of 100% of return, but certainly a very high percentage are very likely to return. The second component is what I mentioned in my prepared remarks is sort of the reopening of the major urban the universities.

That.

We do not only domestic but international students, let's do occupy apartments in some of these major urban centers.

And it's not just the students items ancillary staff faculty et cetera, et cetera. So when you think of New York, and San Francisco and markets like that sort of.

The significant phenomenon.

And then you'll ultimately what's kind of follows that is more business activity, whereas there was corporate demand and things of that sort of core consulting assignments and such the can make up 1% 2% of of market. So the combination of those factors will really sort of drive the demand.

We'll likely see people lease department, a little before they need either on campus or back at work of our growing system consulting assignment et cetera, and so the timing of which.

That is sort of things that I think we probably all of the pain I think our view at this point just based on what's happening with the pandemic and vaccinations et cetera is that it's probably sometime maybe in the summer when you'd like to see that happen depending on how the the vaccination of the population of occurs over the next few months here.

So we could see in Florida as lot of people back in the summer of maybe the fall.

When people are returning to school on stuff. So I think those of the key questions of the timing of which is.

Yet to be determined for it to have a material impact on 2021 results. However, given the lease expirations that we have from quarter to quarter, you really would need to see that happen on probably in the late spring to early summer to of any kind of meaningful impact on 2021 as compared to what occurred in the fall where we only have.

Maybe just 1% to 30% of on lease explorations remaining you would see the lift in 2022.

Okay. That's helpful color, Sean I guess.

My second question here.

You're obviously ramping up development starts this year.

What's the chance that you can.

Guys, even go bigger than the $2 50 to $8 50 guidance.

You think we are really on the cusp of the.

The next multiyear recovery.

In multifamily.

Well.

It's a good question as I mentioned on my prepared remarks, it's somewhat of a function of what we've seen in the markets both the real estate markets as well as the capital markets.

At this point, we're basically funding that development with with the planned dispositions, just given where our leverage our leverages right now on trying to sort of protect the.

Protect our credit metrics, where they stand so.

And I think as we said in the past it's hard to.

With game gained ratios of around 50%, it's hard to sell sell too much. If we wanted to double down we didn't have the distribution and it's it's just not capital S. On capital efficient. So I think we would have to happen as you know the equity markets. I mean, we had a good start today I guess, but.

On the equity markets would need to we need to recover the more to a level, which we think sort of more reflective of of intrinsic value of NAV.

Where we might have some we might have access to those markets as well to really expand the balance sheet in order to accommodate the comment more development.

Said that not all deals we think are sort of ready to go.

As I mentioned on my remarks, we're for the most part we're focused on the markets that haven't been as impacted from a from a run rate standpoint, so that the yields are still there.

At least.

Yeah on the current basis, so offer we think sort of an appropriate risk adjusted return that's that's not true of the entire.

The entire development pipeline.

And.

All of these deals work you just don't go.

Out and pick up pickups of land options and start the next quarter. These things take even even deals that are entitled to can take a year or two years of sort of fully gestate before they're ready to further reduce starts of the number is probably not going to it's probably just can't flex up too much even if even if market conditions were great but it's.

I suspect it's going to be in this range unless market conditions move dramatically one way or the other.

Got it thank you.

We'll take our next question from John Pawlowski from Green Street. Please go ahead.

Thanks, Matt could you give us a sense for the two northern California dispositions, how do you think values ultimately it's out of that to where what you kind of gotten on the sales pre COVID-19 and any cap rate color of course two deals.

Sure John.

We sold the two deals in northern Cal in the fourth quarter <unk> was our only asset in Marine County, that's a pretty unique asset.

And a very.

Supply constrained part of the world with very little existing stock almost no new construction.

I would say that one I don't think that the value there was really impacted much at all.

We think the cap rate was high threes, maybe around the 339.

So im not sure of Navy is down slightly from where it would've been a year ago.

That's just such a special asset it's a bit of a one off story the other.

As I think we sold at the end of the year was the <unk> high that's an older rent control of that debt in the city of San Francisco.

And we were a little bit motivated there to close by year end because of the city.

Through a about initiatives to increase their transfer tax to the highest in the country at 6%. So there was definitely some.

The dollar savings by closing before year end that deal was about a $3 seven cap as 470000 unit I would say a year ago that asset probably would've sold for.

8% to 10% more although it's hard to know.

Not as impacted in terms of the NOI as some of the other assets just because it was the rent control of asset and so some of the rents were below market, but also maybe less lift for the buyer by out because there'll be more constraints on our ability to raise rents so probably a little lower beta navy than some other assets and cash.

Francisco.

Okay, great. Thanks.

The second question for Sean sticking with Northern California, just curious your thoughts, particularly in San Francisco San Jose.

A lot of your private competitors occupancy well below your own lateral and the it feels like the entire markets one to three months free and so the short question and you go on to be able to sustain the occupancy and sustain stable of rents as your private competitors play catch up do you feel like the floors on them.

Or is it going to be choppy few quarters here.

Yes, John Thats, a good question, but I think if you look at basically has the the.

Of the quarter unfolded and not just the northern California, but across some of the of.

More impacted markets.

Whether it's the ones you referenced or New York City or resident of Washington State. As an example is we've certainly seen rents decline as we built occupancy.

And now they sort of leveled off.

A question kind of rolling forward is sort.

Sort of balance along the bottom here as we try to kind of hold occupancy where it is we feel like the for the most part of it across the portfolio, we're pretty close to where we think market occupancies are.

So rents should get better.

On the question is how much.

The rest of the market sort of does what it does as you pointed out I think there is some of the other peers are going to be higher than occupancy somewhat lower trying to catch up but.

But I think just given what we've seen the belief is that we probably just from the next couple of quarters are going to kind of bouncing around a little bit of wouldn't say that we're expecting a sharp.

The uptick I wouldn't say that but should we expect some marginal improvement I think thats reasonable to assume given where the rents were to get the occupancy that we needed now we're trying to just sort of stabilized a little bit. So we should be able to compete without as much inventory of available and therefore.

For the rest of all it needs to be solved I guess is the we have to stop.

All of that every profit is a little bit different out of the way I think when you think of look at it.

In terms of what's happening is the new suppliers are not in the supply things like that to impact the submarkets.

Essentially of meaningful way, depending on what's going on there.

Okay, great. Thanks for the thought.

We will take our next question from John Kim with BMO capital markets. Please go ahead.

Thank you.

Comparing this downturn versus the prior recession on page 14 of get very helpful.

I guess one of the big similarities between now and the early two thousands is the homeownership rate and the strength of the housing market.

And I'm wondering if you think this is the factor that is most important in terms of the pace of recovery at this time around.

Or have landlords, including yourselves aggressively cutting rents because of the recovery time could be quicker.

Yes, John it's Tim.

A good question I mean, we our debt.

Seeing.

The for sale market strength, I think part of the like the early two thousands as demography.

As you're starting to see the kind of the 30 to 34 year olds are the leading edge of the millennials.

Come forward.

Start to purchase I do think the whats happening is you are seeing just an acceleration of folks that may have bought a year from now or two years from now three years from now accelerating the purchase decision just because of whats quality of life of the urban markets has been like over the last over the last year. So.

Yes, we'll have to see when you look at it's been our view.

I think we've talked about this over the last two or three years that housing demand between rental and for sale is going to be more balance over the next over the next decade that we've seen over the last two decades. The last decade was kind of of the renter decade decade before that was kind of the homeowner decade. There was there's some where some of.

Artificial factors driving it.

And particularly in two thousands as you know is going on in terms of just the of a mortgage crisis, but.

Yes, I just think just given kind of the mortgage finance system. We have in place now I think it's going to be driven more by fundamental factors in speculative irrespective of the factors.

For a long time from on.

On a ship rates were just said.

Just 64, 65% and they were kind of that kind of kind of of that level on the mark on a margin level and if you look of what's happening.

As of in terms of the growth and we've talked about this two thirds of this growth in single single person or single parent households.

The population is so growth.

On the population is still growing in the multifamily is a better because of better use for.

The better better housing choice for that group. So I think theres a lot of thought of practice of when you. When you sort of put them. All together really does suggest sort of balance housing demand going forward and so today, we're producing whatever close to $1 billion of around 1 million.

Single family units.

Three or four maybe 400000 and the multifamily units that feels about right relative to relative to module demand.

I think it's been accelerated as of.

The speaking right now just because of the because of the pandemic, but as you look out over 234 year period.

It's the sort of strikes us is about the.

Sort of the right mix of supply to address margin on demand.

That's very helpful. Thank you.

Maybe the second question for Kevin the.

The impact of your earnings from concessions doubled this quarter versus last quarter, but can you remind us how the concession per trended throughout the year last year. So the average compression to be granted.

On each quarter.

Yes.

Well, maybe it's Sean if you want to speak to the average.

Session value.

Yes, I mean, I think what I could probably describe to us.

If you look at the leases that were signed kind.

Of what the.

The pace has been in terms of concessions. So in Q3 of the average concession per lease sign was 1100 Bucks.

When you look at Q4, the average of $13 50, but it did tick down as we move through the quarters. So as an example October of $14 50 of lease November of 2000, 1400 December was $11 90, and now we're down to just under 1000 of lease in January.

So the trend has been our friend in terms of the impact of concessions.

Terms of the accounting of it just one comment to reiterate what I had mentioned earlier on Kevin can address it more thoroughly as well as we granted about $47 million of cash concessions in 2020.

We did on the Amex is $16 million of them in 2020, so theres still a $31 million on deferred concessions on the book.

Amortized through 2021.

And then in addition to that whatever concessions cash of sessions with grant in 2021 will also enhance the amortization. So hopefully that gives you some sense of sort of the headwind as it moving into 2021 from the concessions of her granted but deferred from <unk>.

On 'twenty.

Hope that answers your specific question of if you have a follow on I can add a couple of things.

Kevin again, so just to give you a sense to frame. It if you kind of look at the earnings release to start the discussion here for instance, as John has mentioned on page 31 of our earnings release for the full year of 2020 of the granted $46 $6 million of the concessions. That's just the granted number if you kind of go back and Q4, we green.

On the.

About $19 5 million Q3 granted about $15 3 million for the difference pretty much is really what we did in Q2.

So.

That's going to be call it.

The $12 million or so granted in Q2.

And again, the what we emerge from.

From this differently.

Is it fair to assume the third quarter.

The year over year comps are easier will be withholding the concessions on going on.

Well.

It is a function of what concessions we grant.

In 2021, all else being equal if you just sort of stopped today as you thought the concessions were going to go to zero effect on February 1st as an example.

On the book today at the peak of concession burn off for amortization would be sort of in the April may timeframe.

We're still granting of concessions maybe in the lower rate, but we're still granted concessions now so it's very likely that the peak burn off of the amortization will drift into the summer sometime depending on the volume of concessions that we grant in the amount of each concession over the next few months.

That's helpful. Thank you.

We will now take our next question from Austin <unk> from Keybanc. Please go ahead.

Great. Thanks, guys.

Just wanted to touch on sort of the occupancy rebound again in economic occupancy now on protein kind of that mid 95% range.

We're 96% plus pre pandemic, but but anyhow.

How does it change your moving towards continuing to build occupancy given I guess your view that it could be until the summertime until you start to see a surge in demand.

As people firm up the back office dates and then into the fall for from the student population, how does that kind of balance that.

Continuing to grind down on.

On the concessions versus trying to build occupancy to give yourself, maybe some cushion as you get into the spring leasing season on the exploration and start to increase.

Yes, often this chunk of question kind of from a strategy standpoint over the next two to three months.

As I mentioned in response to the couple questions ago.

I think as we look across the suburban markets in the urban markets that were in the range of.

Consider the market occupancy.

Based on multiple data points that are available out there of people, who is actually of metrics of our coasts or various other sources like that.

So we've got.

The ability of sort of triangulate into what we think market occupancy is and we're comfortable sort of operating around market occupancy to slightly above the 100 to 200 basis points.

Anything beyond that and you probably just given up too much right the whole net higher occupancy.

Well the occupancy may drift up a little bit over the next couple of months here I wouldn't expect it to spike materially somewhat of what we've seen in the last four months.

So for us it will be more about maintaining our general improvements in the physical occupancy and really trying to make sure we find where we can hold those rats.

And the sequential improvement in effective rents asset occupancy.

The game going forward for us.

Yes, if there is the.

The pivot one way or another in terms of the macro environment of its certainly influence the strategy, but that is the strategy as we see of today.

Got it. Thank you and then you referenced the 18% decline in rents I think of as referenced the urban markets, but as we think about that recovery last quarter you did mentioned.

You mentioned, you've kind of gone further down in the renter pool from a credit perspective can you give us any type of metric to give us a sense of how that change in renter profile, how significant it has been or maybe an affordability ratio comparison versus.

The years, leading up to the pandemic.

Yes, no also a good question.

One thing to be clear about is the <unk>.

Anything of our credit standards have become more stringent during the pandemic given the various.

The regulatory orders that are out there, particularly the the eviction moratorium where we have.

Reached out further on the rental pool of its more from Inc.

Perspective.

And obviously rents are down so people can qualify for apartments.

They couldnt qualify for last year. When you go to New York City of San Francisco on the rents were down 25%.

But in.

In terms of maybe where you might be going with this is their ability to pay of the future is the key a rebound.

And of course through rent increases.

While income levels are down rents are down more than that.

So actual rent to income ratios have come in a little bit over the last few quarters, which just tells us that there is more ability to absorb rent increases on the other side of the pandemic, we see a rebound.

On one thing to remember.

As it relates to concessions.

What we have to amortize protection for GAAP purposes, we don't amortize the concessions for the individual residents. So they may receive a month free as an example of upfront, but the next monthly our assortment of check for the full of not on the lease rent. So any renewals that we provide to them at some point on some of the lease expires will typically based off of.

The lease rent as opposed to the success for us so.

So people are.

We're thinking of Florida book, They are writing a check for as opposed to the effective date.

Right and whats the decrease from the gross from face rent if you will.

Versus that 18%.

Yes, so if you look at it.

On a rent change basis as opposed to the blended value. So if we were talking about.

Basically we had effective rents that were down 11 two.

But if you look at the lease rents they went down about 7%.

No I saw that for the quarter I'm more curious I guess.

The course of <unk>.

How about 18% number would compare.

And our income is still down less than that face rent number.

Move the concession as you referenced.

That's correct, yes, yes incomes were down less than the day reduction of rental rates.

Okay. Thank you.

Uh-huh.

Okay.

We will now take our next question from the <unk> from Bank of America. Please go ahead.

Hi, everyone. Thank you for taking my question I know are going on too long.

So I'll be quick, but I wanted to ask a little bit more on the demand side of that you've been seeing just to get a clearer idea are you still seeing a lot of the bargain hard goods coming in within markets looking for.

On the deals in your open market or are you starting to see all of that more demand coming in outside of those markets.

Yeah, no. It's a good question some of the.

Bargain hunters.

I guess of the current environment sort of everybody is looking for a deal.

But as I mentioned in response to the last.

The question if people are well qualified with good incomes that.

That are coming in so it's.

Sure.

I would say that we're not looking for people.

Really can't afford of over $1 billion until they are really trying to drive for a deep discount to make it tougher for them.

In terms of the question about net new demand coming in from yes from the other.

Geographies. That's the good question I don't have that right off the top of my head, but let's say from the most part of what we're seeing is that given the entire market in many cases improve occupancy debt. There is net new demand coming into these markets as opposed to just the recirculating of the existing demand Thats all.

Already in place that would allow that to happen.

So I don't have the <unk>.

Sales for the answer.

And in New York City as an example, the.

The market occupancy to come up there has to be net new demand.

Okay got it. Thank you and then just a quick question on Boston, New England over all of it looks like the effect of runs really dropped off from <unk>.

Is there anything behind that other than maybe the supply that you guys have been talking about.

No I mean, it's the same phenomena.

I mean, the urban markets in Boston are still very challenged.

Choppy not quite as bad as New York City of San Francisco, but the urban markets.

Most of it in there and there are of some sort of infill pockets.

I mentioned the assembly row asset.

The chestnut hill of pockets like that that is sort of the inner ring suburbs are also a little bit weaker some of our existence.

Further the pounds with good school districts of things like that are performing better.

Okay got it thank you.

Okay.

Okay.

We will now take our next question from Nick <unk> from Scotia Bank. Please go ahead.

Thanks, So I just wanted to go back to the slide in the presentation, where you gave the the.

The occupancy and Glen the rent for the suburbs.

The urban environments.

And I guess I'm, just wondering for those two different buckets.

Suburbs versus urban.

If you could give us the feel for kind of the composition of the blended rent, meaning what percentage of that was.

Renewals versus new leases the different regions.

Yes, Nick that debt.

It's a good question, it's a lot of data points because it is the blend of renewals of numerous events, which changes by the month.

It's probably something Jason yes talking about offline.

As opposed to trying to walk through of that because of the changing the model by model.

I think to think about it if you wanted to just go look at it sort of a rate that we provided in the earnings release to get a feel for it though it shows that you have the data for the last couple of quarters that will give you the.

Of the mix slide Okay. Yeah. That's the way I was wondering if it was kind of similar to the turnover rate because I guess my question here is if your turnover is.

The lowest point of the year on the fourth quarter and.

First quarter and we're looking at a blended rent number that is on some cases stabilizing our slightly picking up.

Versus higher turnover period.

I guess I'm, just wondering what we should really be reading into this because it doesn't it just mean that youre, signing new leases, which is where the you know the.

The worst pricing is and so the fact that it's starting to stabilize but we are doing more renewals versus new leases and go on until period in the spring when we get a hell of lot of new leases.

I guess I'm, just trying to wrestle with what we should really be reading into this line of improvement.

For January in the fourth quarter versus other parts of last year.

Yeah, No. That's a good question I think to the.

The comments that I made to John earlier.

Hello relative to tell in terms of calling at the bottom, but we are.

But the fact that during what is typically a seasonally the lower period, where we had.

Turnover up 15% year over year debt.

Have renewables the slowly pulled back on concessions and see slightly better plumbed the grass.

On a net effective basis.

For now four months basically through four months of that.

That gives the.

Yes.

We're kind of pricing in the right neighborhood and that was building occupancy. So we don't need to build as much occupancy as we were attempting to do in the last three or four months.

Therefore, we believe we should be able to do better in terms of absolute effects of brands moving forward.

To your point, though it does.

What happens in each market as we get to the spring leasing season.

It's yet to be seen so I think we're kind of bouncing around the bottom now on.

As we continue to see the sequential improvement.

Now the rat that occupancy platform that we want to be that is a function of just through a supply and demand in these markets on what happened. So I think it's probably a little too early to call in terms of the specific question that you have weather.

I should read in the this is at the bottom and it's kind of bounce back I'm not sure we're prepared to say that just yet.

Okay. Thanks, that's helpful. Thanks, guys.

Yes.

Okay.

We will take our next question from Rich Anderson from F&B see please go ahead.

Good afternoon, everyone. So when I think about percentages and talk about percentage of you can get sort of sort of misleading.

I don't have any jobs per loss in your markets in 2020, but you need kind of to ex growth to get back to where you were on absolute numbers.

Kind of just because youre growing off of smaller base and then the same logic applies to the 18% decline in your urban.

Fact of rates you Gotta do 30, plus off the lower base to get back to where you were in absolute.

Per unit rent.

And my point is when you look at your slide on page 14, it's taken three of six years for you to just get back to where you were.

And whether it was the tech bubble of the housing crash.

Does this does this environment, which is somewhat more black and white, it's sort of the virus vaccine.

As bad as it was it's not very complicated do you think that the recovery back to where you once were and whether use jobs or rents whatever the metric is will be tighter than that 3% bottom end of the range that you've experienced in the history.

Rich Tim here.

Thats, obviously, one of the the big debate here.

As to whether this is going to be V shaped or solutia and in terms of recovery and that's ultimately.

As jobs is what's going to help propel total household formation.

On the deconsolidation of households, the households that may of consolidated over the last.

Over the last year and while the unemployment rates are looking pretty good obviously the labor participation rates are pretty are pretty low. So it's going to take it's going to take some really decent economic growth.

I think to really.

I think the suburban risk can be back a lot quicker could be a lot quicker than the three to five three years to five years of seeing the path I think I think the question here is really about urban and some of the really tech intensive suburban submarkets like like of mountain view or the amendment part because where we were talking about before and Thats.

That's kind of take some it's kind of take some some economic growth I think.

And so I think we May think we may see sort of a quick V shaped maybe for maybe for the suburban markets in the urban markets may be.

We may not be back to those two of those rents for another three or four years.

So the leads me to my second question, which is.

You are not giving full guidance because you don't have all of the visibility.

On 90 days, but then youre ramping development.

No.

I just wondered if youre.

Confidence in our peer rate two years from now when you might be delivering these ASP.

Thats it.

It's higher than it is.

Six months from now and I imagine it is.

That's what I'm trying to pinpoint, whereas the development youre turning on sort of specific to those markets in those areas that maybe weren't as impacted by the COVID-19.

Dan the pandemic.

It's the latter point that you are making.

As I said before I think the suburban sprawl of rents could be back back to where they were in a year.

The only down 4%.

Doesn't take a lot of growth to get that 4% back in those in those markets and so yeah. We're we're focused.

Of activating that lever.

The markets, where we think we think there is like as I said on my prepared comments, where we think the risk adjusted return as it makes sense to us right now so.

Okay.

Alright, I guess that's it thank.

Thank you.

Well go ahead and take our next question from Anthony per loans from J P. Morgan. Please go ahead.

Yeah. Thanks on the expense side is there anything for 2021, as we look out debt that could bring just expense growth back down to sort of on an inflation number or does the turnover in some of these other dynamics.

On a step function this up for higher growth this year.

Yes, good question.

It's more of the ladder.

Lot of the stuff that we're seeing is sort of related.

The pandemic has prompted whether the higher turnover costs PPE and extra cleaning costs.

Associates that are on lease and therefore, driving temporary labor contract labor overtime and things like that you can kind of play their way through and obviously, we have a tough comp just given the first half of last year on particularly the second quarter.

Yes, Ben came to a screeching halt on the number of different areas, let's turnover came down on maintenance projects for delay et cetera et cetera. So I think it's just going to put pressure on core.

The numbers look like particularly as Kevin mentioned in the first half of this year given that tough comp.

It will be a little bit easier when it gets in the second half because some of those expenses on the elevated turnover on all of that will be more comparable.

Particularly the first half of the pressure.

Yes.

Okay, and then just second question for Kevin.

The $160 million to $170 million of total overhead for 2021 do you have the comparable number for 2020 just to understand the.

Increase the thing it's a couple of line items in a variety of adjustments to get there.

So Tony you're referring to the kind of the core expense overhead number.

Yes, I think you I think you gave brackets around I guess it combines like G&A and.

Property management of a few things of that.

Core.

Expense for core <unk> of $160 million to $170 million the.

The reference point from the prior year was about $150 million of $51 million. So it's about a $14 million year over year increase.

Where most of that is as we alluded to before related to.

The investment, it's very strategic and related initiatives and strategic initiatives alone of about $7 million of that number.

Probably about five on the growth basis, and there is an ancillary investments as well and then some additional compensation cost including.

Decorative transition costs.

Okay got it thanks for that.

Okay.

We will go ahead and take our next question from Alexander Goldfarb from Piper Sandler. Please go ahead.

Sure.

Good afternoon, and welcome aboard I'm assuming.

The decline the the free rent incentives. So you can do your part to help.

Earnings on.

Two questions here the.

First just going to guidance, Tim and Kevin.

You've laid out you know.

Definitely that you think things are bottoming, you're not sure how things will go but in general you've laid out sort of a base case, so with that in mind why could you provide a full year number even if it's a wide range because it seems like you're sort of tracking in the sort of $7 57 to 60, something like there mid point and just.

Sort of curious what prevents you from providing EBIT. If it's just the wide range something because of the as I say from your first quarter observations. It sounds like you feel comfortable with where things are shaking out any of the.

General sense that if that continues then you sort of would know where do you work the full year.

Yes, Alex.

It's a fair question.

I mentioned on my kind of earlier remarks, it's more than just one or two things that are.

And of the play here, we didn't even get into the the issue of eviction moratorium, where we've got core.

All of it 3% of our units sort of tied up in.

People that aren't paying.

We have essentially of federal stimulus that may benefit from <unk>.

Actually and actually help us to actually the potentially even reverse some bad debt that we've taken on on before.

I'm, Sean in terms of the work from home mandates when they expire it makes a big year Ken.

The big difference in terms of when we might get it initially.

Good occupancy boost.

But with that comes other income and other things as well. So when you put them all together and you start you start plant. These variables you get a range as the so why is that we just think its not that reliable and frankly.

I think in the past, we've actually haven't given quarterly guidance, we give it the annual guidance because that's how we manage our business in the typical year.

Manage it quarter to quarter reality is we're managing it week to week month to month quarter to quarter right now and we feel like we've got enough visibility out of about 90 days to provide reliable guidance beyond that you just don't think it's that reliable.

To be putting it out there and it's always been trying to reconcile in sync up it just.

Didn't think is really adding anything to the conversation but.

So others may choose to to provide to provide the outlook with the wide range I get it.

If you are.

If youre at a slim book.

All of a sunbelt portfolio I think it makes total sense of that you'd be providing guidance right now, but that's the.

Not the situation we're in on Kevin.

I mean, just to add to that I think that covers the Tim but.

Alex it's for US it came down to can we can we satisfy the tests and providing a reasonably reliable midpoint and of reasonably narrow and useful range.

We know anything possible on itself.

The kind of played the these variables and look at the back half of the year.

There were things that could be very positive from a very negative in there beyond our ability to reasonably predict with accuracy and so.

Given that we just didn't feel like we could meet the test of providing a reasonably reliable midpoint forecast, which hopefully with leading what we where people would focus on where even if we gave a wide range and yet we couldn't provide a reasonably narrow range around that so we just felt like why try to get something thats in all of us and how we're managing the business into Q1 guidance seems more appropriate yes.

The last thing that we it's one of the reason we showed the slide 14 as well on kind of put a circle around the downturn from the recoveries that sort of it's hard to protect the business I mean, when youre going to the expansion of its fairly linear and we feel like we can give some pretty reliable.

Reliable guidance in terms of how the how the portfolio on a perform over the next 12 months.

Okay and then the second question.

As you guys think about ramping up the development program and using more capital how does that balance with the expansion markets and yes to the extent that you are looking at other markets like Nash.

Nashville, or Austin or some of the other sort of popular markets. These days, how do you reconcile your balance of capital between investing in development in your current markets versus using that capital.

Two either in your expansion markets or enter other new markets.

Well Alex.

Good question.

I think the the reality is that we yes.

Yes, we didnt give guidance around acquisitions and dispositions to the extent that we.

The acquisition of let's say to.

To the extent, we acquire we would just sell more of an existing assets. So it's really be done more through portfolio management.

Basically recycling capital out of out of.

Certain markets.

Where we've been recycling largely of the northeast.

In markets like Denver, and southeast, Florida, potentially so some other expansion markets to come but at.

At this point at this point in the cycle where the.

Where capital is price Thats, how thats, probably how we would fund it.

If the equity values recover in any meaningful way, where you think it makes sense to expand the balance sheet on.

Accretive and the and prudent way that'd be that'd be sort of the second alternative.

Okay and then just finally, the New York Development site, which one was that that was written off.

Hey, Alex its Matt.

That was the investment that we had in the east 96th Street.

RFP.

Okay.

Yes.

Okay that was the quantum of Deblasio on got it Okay no problem.

Hey, Alex just to just to be clear when we write it off of meters.

More probable than not it's less probable than not.

I would say that right all of them.

The double negative thank you.

Yes.

A lot of the savings alone.

It doesn't mean, we're not still working on and are pursuing it but it's more probably we have to do this from an accounting point of view the tip. The other way it's been.

<unk>.

We got it.

Thanks, Tim Yeah, it's a long day.

[laughter].

True.

And we will go ahead and take our next question from Brent Thill from UBS. Please go ahead.

Hey, Thanks, guys just one from me at this point, but could you talk about how the financial struggles of some of the largest U S transit agencies, who are talking about permanent cuts the service might impact your transit oriented properties.

Yes, Thanks, Sean.

I can.

<unk> 7001, as a matter of others can jump in but.

I probably have the literally it's all right now I would say I mean, certainly ridership has fallen dramatically from the pandemic and all of the major transit systems.

And as a result.

In my prepared remarks mentioned that one of the locations within our suburban footprint that has been most impacted is sort of a transit oriented development.

Just to get people zone it isn't much.

When does that result in permanent cuts versus just the temporary reductions in capacity that we've seen.

Is yet to play out and I suspect that they probably wouldnt be decisions made around permanent costs until we get beyond the panther of back and people see what ridership sort of normalizes.

So I think it's probably too early to call on that at this point, but certainly if theyre transit oriented development that are out there that are the best.

Or heavily rely on a Pos trends.

So on the capacity is kind of dramatically.

The negative impact of of that price is too early to tell what that might be.

I will just have to think of that this is Matt.

On the other side.

Perhaps marginally it makes the transit agencies of little more aggressive with trying to dispose of some of their land.

<unk> go into some joint development actually one of the deals. We just started this past quarter was the Avalon Summerville, which is out of and J T stop in Central New Jersey.

And we are looking at other.

Right.

Where transit agencies are probably going to feel more pressure to monetize the Atlanta Division.

Okay, great. Thanks, guys.

We'll take our next question from Rob Stevenson from Janney. Please go ahead.

Hi, good afternoon guys.

What percentage of your 2021 development starts of locked in cost wise at this point and what are you seeing with respect to construction costs, especially lumber given what's going on there.

How decent as some of those labor supply of these days.

Sure Hey, Rob, it's Matt I can speak to that one as well.

If we haven't started the job yet we have not locked in the cost on anything really except for probably the land and a little bit of the entitlement costs. So.

The <unk>.

<unk> that we're looking at potentially for next year.

I think we own the land on maybe two or three of them and then Theres a couple of others, where we have they are under hard contract. So.

Everything else is subject to the market the land and the soft costs, usually is around a third 30 $25, 30% to 35% of the total capital cost of the hard costs, usually around 65% depending on the product type.

We have if you had asked at the beginning of the pandemic I think we had a pretty high degree of conviction the podcast should come down, particularly in some of these markets. It has seen a big run up over the last couple of years.

I would say we have less conviction around that today, just seeing how the for sale market.

It has recovered.

And lumber right now is very very expensive.

Fortunately went on the position of really having to buy much longer as we sit here today, because we didn't start anything for three quarters last year.

But.

If the longer pricing doesn't adjust back to where we would expect it to some of those starts may be in question and.

And my guess is it's like a lot of commodities there is a little bit of of self correcting element to that that we're not the only ones that we'll probably find ourselves on that position.

Our number of mills that are shut down right now because of the COVID-19 concerns.

So we do think supply should start to increase again hereby springtime.

But.

At this point.

I would say our sense is more of the cost of levelled off.

And except for maybe on a few markets where.

They were really overheated I can say of the expectation at this point is probably moving towards more of a flattening of real nominal decline in hard costs.

Okay, and given that I mean, where are the yields on the new start in the 2021 starts relative to the five to eight on the current pipeline.

Right there just about the same day and when.

When you look on our current development pipeline.

And you look at the mix of the current development pipeline is mostly suburban and even of the deals they're in lease up Theres a couple of them that are behind pro forma profit.

They are actually ahead of pro forma as well so that kind of makes sense. When you look at.

When we compare thats the.

Kind of a near term start.

Okay, and then last one from me where are you in terms of the mix of condo sales of park closure is what's left skew towards higher or lower price points or is what's left fairly consistent with what you've already sold.

Congratulations on I was wondering if youre kind of get through the call without a question about park closure.

We have we've closed 73 units.

Have another 15, where we've accepted offers or under contracts of that would bring us the 88 total.

The mix, we have sold Navy of few more I think we sold three of the four pan houses.

So the mix is going to start to skew a little bit more towards the low priced units just because of that but we still have a reasonable mix up and down the building and that's where we're seeing frankly, some pretty good traction now is in the more modest price points and the podium of the building.

Traffic has actually picked up quite a bit.

<unk> seen 15 to 20 increase of week in January we've been averaging about four new deals of months. The last three months, whereas on the last call. It was more like three per month. So.

But we do it.

The inventory that remains a little bit more affordable on average.

And it's tough being sold I mean, thus.

Thus far been primary residents are the largely secondary residents and are you expecting any impact if new York City and state passes additional soak the rich type of tax measures.

I don't know again this is not billionaires row I mean, this is by Manhattan standards.

On a pretty compelling value proposition and which is I think why with the continuing to see our sales pace maintained pretty strongly.

It is not.

There's a lot of.

People buying condos for their kids.

In many cases, maybe the kids, who are going to University in New York.

That market obviously.

A lot of distance learning since the pandemic hit.

Yes.

It may well pick up.

So I don't have the exact breakdown of primary versus secondary residences, but.

I would say that there is a lot of.

On <unk> and a lot of.

A lot of family type transaction.

Okay. Thanks, guys I appreciate it.

Okay.

Well take our next question from Hendel St. Just.

I am Mizuno. Please go ahead.

Hey, Thank you good afternoon.

First question is on the bad debt.

Remained elevated in <unk> very similar to the third quarter I guess first of all.

Are you expecting a similar level.

Does that look embedded within your <unk> guidance here and second I guess when do you think you can see some improvement there and since you brought it up earlier how's the extension of the eviction moratoriums until March 31st playing a role do you think.

Well Hey, Bill this is Kevin maybe I'll answer the first couple of here in terms of the first quarter.

We're expecting a persistent level of bad debt expense to roll into the first quarter. So.

Not meaningfully different from what you saw on the first and the fourth quarter.

And.

I don't know Tim.

Tim you on sorry, Sean if you want to add any more about kind of.

Yeah just on the.

On the eviction moratoria.

There is sort of of here.

Right.

Various.

There is out there.

Related to both the evictions relative to charge late fees for the vehicle of rent increases things like the.

So it's not just at the federal level that we have to flow.

With that at the state and even local of some cases so.

One example, you've made of notice that.

California extended line.

Okay.

And to the Newbuild called.

In the 91 net.

The extent.

Jim.

And there's other things in Washington State and various other places.

While the CDC order is a little bit of the federal override.

There is quite a bit.

Yeah of Jigsaw puzzle lots of I guess I would say in terms of what you can do with the state and local level our expectations. At this point is that we'll probably see most of that whole sort of mid year very likely depending on how things unfold with the.

The vaccination of the population in the.

On the economy continuing to recover.

That's the sort of the house view at this point, but.

There is no question that it could be extended beyond that on some cases of things are going well people letting expire sooner so that will influence our ability to people. We are continuing other efforts as it relates to <unk>.

Collections.

We will continue.

But at this point, what we basically feel like it's going to happen is the.

The bad debt that we saw in the last three quarters of 2020 will likely continue at that pace of little bit of a nice surprise in January.

Isn't quite as bad, but the expectation is to look more like the last three quarters of 2000.

Yes, I mean, just to add to that.

K to begin to revert from the 250 to 300 basis points of revenue trends that you've seen in the last few quarters to something more typical which is more like 50 to 60 basis points of revenue, obviously, we're going to need of the resolution of the pandemic.

On a restoration of kind of the landlord remedies with respect to that.

Who are non payers.

Can be a little while here and certainly not something we expect to change materially in the first half of the year.

Got it got it very helpful. Second one of the follow up to some other questions on development.

You noted that the noted that all three of the new development starts on northeast suburban so I'm curious when you're thinking about new starts when can we see a few of them.

Aside from the West coast, the non northeast markets and in more urban locations I recognize you have a couple of west coast projects underway in the pipeline, but you haven't started a new west Coast project since I think the second half of 2019.

Yes sure this is Matt.

We do have.

I'll start likely in the southeast Florida.

This year we.

Have a start in Denver, I think we're planning and we have a pretty large start in suburban Seattle that we're planning later this year.

California's tough, California is wherever probably finding the most challenged economics right now for new starts.

But we but we do have starts on the expansion markets and Seattle.

And would the spreads on your expense development yields versus cap rate the fairly similar that call. It 50, 75 basis points spread you're referring to earlier.

Yes, I think the spreads more than that I mean, if you look at we said that the current book is about a five eight.

Those assets today would sell for sub four and a half probably low force. So I think the spread is well over 100 basis points.

As wide given the how low cap rates are in Seattle, Denver and Florida.

Got it got it thank you.

We will go ahead and take care of last question from Dennis Mcgill from Zelman and Associates. Please go ahead.

Thank you.

Just wanted to touch on supply in your views on how that might play out in 2021, especially in the urban environment.

From our work there is still quite a bit to deliver and maybe some of that finds out.

Seemingly limit some of the pricing power once you rebuild occupancy, but just wanted to see how you guys are thinking about this competing balance it.

Yes, Dennis it's Sean good question happy to comment on that and others can as well but.

As it relates to our footprint, we're expecting deliveries of 2021 to come down about 6% to 7%.

Compared to 2020 and represent about one 8% of stock all of the regions are expected to be down except for the new.

New York, New Jersey region, first where the decline in deliveries.

So on the New York area of going to be offset by what we're seeing in northern New Jersey, particularly Jersey City.

And the increases by about 3500 4000 units.

Even though on the balance of kind of New York City is down <unk> 22, hundreds. So in terms of the trade area. There is an increase there and then we expect it to be relatively flat in northern California.

In terms of the urban specific.

Yes, we did see a little bit of benefit certainly coming in as I mentioned, New York City Urban Boston.

A very modest increase in the district.

So not terribly different.

In San Francisco is basically flat net.

On material change there and then the other urban market I guess you could be interested in it would be law of or deliveries are going to be down about 15 of them.

So in general.

The supply picture in the urban environments with the exception of San Francisco.

It will be better in 2021.

In 2020, which all things being equal should certainly help.

The support a recovery from the client.

Hey, Dennis the Tim here.

With that I think John just said I think one of things interesting things to think about what the urban urban supply is not just what's happening over 'twenty, one and 'twenty two on stuff. That's already been started in 19 and 20, but the likelihood that we're going to see starts from 'twenty, one and 'twenty two and how that may translate into 23 of 24 performance I think of.

Is going to be tough for people to get deals financed just against the narrative of the sold kind of work from home work from anywhere.

Dispersing your workforce, the satellite offices as well as as well as kind of downtown.

I think by the middle of the decade, you could be in a position where we could be in a position where we're seeing very little supply delivered the demand maybe down a bit, but where the fundamentals actually look.

Better.

Quite a bit better in urban submarkets and even even the suburban markets. It's almost the reverse of what we saw this last decade, where at the beginning of the decade 2010, everyone thought or everyone's got to outperform and it did from a demand standpoint, but supply more of that made up for it so share performance actually asset performance at least on our portfolio.

And our markets are stronger in the suburbs.

The story could completely reverse I think in the next three years to four years.

That's helpful perspective, Thank you and then on the the share repurchases in the quarter can you maybe just talk about how you triangulate it youre getting comfortable on the buyback and then how you might be thinking about that now with where the stock is it if it hangs out here of higher is it likely.

The capital in 'twenty one.

Yes, Dennis it's Kevin.

So.

There are a number of variables to take into account clearly first of all of our alternative use and development is our alternative use interest you can see.

The kind of based on our outlook for the year, we do anticipate starting development and that reflects an implicit view that at least relative to where our shares of of trading lately development represents a more attractive.

Use of for our capital than buying back our shares although our share is quite compelling and compelling and it is a tougher called any of the most normal circumstances, given how we're trading.

Hello.

As you can tell from when we were buying back shares we were buying back shares at around $150, a share, which we felt was pretty darn compelling when we ran that math.

And we're at a different point today.

The price matters to us as well when looking at the alternatives. The other factors, we need to take into account.

Mentally our source of proceeds but also what the impact on our Leverages.

We did then and we do now still have the financial capacity and the proceeds from from dispositions to engage in the measured buyback if it were to makes sense to do so.

But every time, we do so we have to think about the impact on our leverage metrics.

And what we knew then and what is still true today is our EBITDA has been sequentially the declining over the quarters.

Our net debt to EBITDA was at five four times.

In the last quarter of target is five to six times. When we began the pandemic our ratio was about $4 six times and so the movement up in that that ratio has really been driven not by taking on more debt, but rather by a decline in EBITDA and as the pace through the balance of this year.

And see the the lower lease rates and concessions working to our rent roll in our EBITDA needs.

We need to be mindful of of managing that ratio. So the it stays in the hospital within our targeted range engaging in heavy buyback potentially work against that a little bit.

But all of that said, we stand still ready to engage in the buyback if it made sense on a measured basis mindful of our credit metrics, but at the moment.

You can triangulate around what's the best use of our capital developed until the figures today to be our best use of capital.

Got it that makes sense line I know, it's been a long call. So thanks for the time on the transparency.

And with that that does conclude our question and answer session for today I would now like to turn the call back over to <unk> for his brief closing remarks, Kevin.

Thank you Allie and thanks, everybody for being on I know, it's been off for a while thanks for all of that.

But the.

The hung in there for our 45 minutes.

But I look forward to scan and seeing.

All of you or many of you virtually.

Rounds here over the next for the next two to three months and sort of.

The rest of the day. Thank you.

And with that that does conclude today's call. Thank you for your participation you may now disconnect.

[music].