Q1 2021 American Campus Communities Inc Earnings Call
Yes.
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Before.
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Good day and welcome to the American campus communities Q1, 2020 One earnings conference call.
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I would now like to turn the conference over to Ryan Dennison Senior Vice President of capital markets and Investor Relations for American campus communities. Please go ahead.
Thank you good morning, and thank you for joining the American campus communities 2021 first quarter conference call the.
The press release is furnished on form 8-K to provide access to the widest possible audience and.
And the release the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements.
Also posted on the company website and the Investor Relations section you will find an earnings materials package, which includes both the press release and a supplemental financial package.
We are hosting a live webcast for today's call, which you can access on the website with the replay available for one month, our supplemental analyst package and our webcast presentation are one and the same webcast slides may be advanced by you to facilitate following along.
Management will be making forward looking statements today as referenced in the disclosure and the press release and the supplemental financial package and in SEC filings.
Management would like to inform you that certain statements made during this conference call, which are not historical fact may be deemed forward looking statements within the meaning of section 27, a of the Securities Act of 1933 and section 21 E of the Securities and Exchange Act of 1934 as amended by the private Securities Litigation Reform Act from 1995.
Although the company believes the expectations reflected in any forward looking statement are based on reasonable assumptions. They are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary fat.
Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time and the Companys periodic filings with the SEC. The company undertakes no obligation to advise or update any forward looking statements to reflect events or circumstances. After the date of this release.
I said that our Chief Executive Officer, Bill Bayless, we'll be providing our opening comments today. He is joined by the following members of senior management for the call Jim Hockey President Jennifer Beese, Chief Operating Officer, William Talbot, Chief Investment Officer, Daniel Perry, Chief Financial Officer, Kim Voss, Chief Accounting Officer, and Jamie Wilhelm EVP of public.
Private partnerships with that I'll turn the call over to Bill for his remarks Bill.
Thank you Ryan good morning, and thank all of you for joining us as we discuss our 2021 Q1 results and evolving operating environment.
As we commented last quarter 2021 will be a year of transition on the path back to normalcy.
And his overview and in our release last night, we are off to a good start.
The results for the quarter exceeded our expectations at the property level and for the company overall with NOI and earnings per share, beating our projections and Q1.
And operationally, we continued to see stability this quarter.
Collection rates for the first quarter were 97, 3% consistent with the fourth quarter of 2020.
Request for assistance under our resident hardship program continued to decrease totaling only 750000 and for the quarter.
Student request for refunds at all and campus communities also continued to decrease with refunds only being provided at one university totaling a net refund of just $1 3 million this quarter.
We expect the need for refunds to continue to decline through the remainder of the current academic year and do not expect refunds to continue into the new year academic year. This fall.
Increased spring leasing and less seasonal attrition and led to the lowest reduction in fall to spring occupancy that we have seen in recent years, another positive sign of improving consumer sentiment.
We're also pleased with our ability to continue to control operating expense growth. Despite the impacts this quarter of the extreme ice storms in February which resulted in over $800000 net of insurance proceeds and repairs and maintenance cost and increased utility expenses, and Texas, Oklahoma and other.
Affected states.
Turning to pre leasing for the 2021 'twenty two academic year and.
As we mentioned last quarter and consistent with what has been reported by our private peers and a third party.
Market research and pre leasing across the industry continues to lag behind the traditional pre COVID-19 pace.
However, as we anticipated we have begun to see significant acceleration and weekly pre leasing velocity compared to the prior year now that we're into the leasing period when activity slowed dramatically early in the pandemic last year.
Since March 12th our weekly velocity of applications renewals and new leases are running approximately two and a half times the same period prior year.
With a significant amount of leasing left to do before the next academic year begins will continue to utilize our proprietary lamps platform and an attempt to maximize rental revenue.
On our next earnings call in July we should be and are positioned to disclose a more meaningful lease and comparison to the prior year.
And at that time, given early indication as to where our final occupancy maybe.
While we remain cautiously optimistic that we will experience increased occupancy levels for fall of 2021 over the prior year.
We continue to believe that we will not fully returned to historic occupancy levels. This fall and at this time the range of final fall occupancy and overall financial outcomes is still too wide for us to provide full year earnings guidance with a reasonable and useful range.
As such at this time, we're providing guidance for the next quarter.
We do want to thank the analyst community for their efforts since our request on last quarter's call to better incorporate the seasonality of our business into their quarterly estimates. Despite what is obviously, a very difficult environment and wish to project earnings.
With regard to our Disney College program development and.
Some of you may be aware on their last earnings call.
Disney CEO, Bob Shea Pat commented that they have been very pleased with future Park bookings and at the recent annual shareholder meeting he conveyed that the Disney College program is a tremendous asset and that they are hopeful that the program will be back and business by the end of the year.
Based on these public comments and our ongoing conversation with Walt Disney World Management.
We now believe that once the college program is reinstated that the ramp up and occupancy may well occur at a pace that ultimately allows us to meet our targeted stabilized yield of six 8% by may of 2023 as.
As originally anticipated prior to the Covid pandemic.
We will of course provide additional updates as Disney plans for resumption of the program continue to develop.
Turning to on campus P. Three opportunities we are seeing early signs of University administrations, beginning to focus their efforts on the future modernization of on campus housing post COVID-19.
During the first quarter, we were awarded a new project to renovate Kelley Hall, and 19 sixties era community Bath residence Hall, located at Drexel University and.
And we commenced construction on another third party project at Concordia University.
We continue to believe that both Ace and third party on campus development opportunities may well be greater and a post COVID-19 environment as.
And as universities prioritize their limited capital on academic and research infrastructure and as older community Bath residence halls are taken out of service given the negative consumer sentiment and economic impacts of D. Densification during the Covid pandemic.
I'd like to congratulate the ACC team for two National Development Awards. This quarter first our leadership and sustainable development was recognized by the National Association of Homebuilders with the pillar of the industry Award for the best Green market rate multifamily community.
For our development of Plaza Bear day at UC Irvine.
This was not a student housing specific award, but rather was selected from among all multifamily development nationally.
Also in the student housing category, the academic and a residential complex that we developed on the campus of the University of Illinois at Chicago received the pillar and the industry Award for the best on campus student housing communities.
Lastly, I am proud to announce that we recently published our 2020 ESG report, which can be found at ESG Dot American campus Dot com.
We have always attempted to positively impact the lives of our residents from fostering academic achievement to nurturing health and wellness and 2020, we took great care and making our communities a haven of wellbeing during these challenging times.
As outlined in the report.
<unk> earned a LEED platinum certification for light view at northeastern University in Boston.
This is the company's 38th project that has earned or is tracking LEED certification and.
In addition, the company completed its first greenhouse gas emissions inventory to inform future target setting and we entered into renewable energy contracts at six communities for a projected 11 4 million kilowatts annually.
Additionally, the company published employee demographic data, demonstrating our commitment to diversity and inclusion with over half of our team members being female and over half of our team members being minorities.
We're very proud of our efforts to bring value to all stakeholders and look forward to what the future holds for our company.
With that I'd like to turn it back over to the operator to start the question and answer portion of the call.
Thank you.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Derek Johnston with Deutsche Bank. Please go ahead.
Hi, everybody how are you doing thank you.
Are any of your colleges or universities, requiring the vaccine and.
Do you see this says and enrolment hindrance.
Do you worry about a broadening of our vaccine mandate for students and then that's part of this question and lastly, our these vaccination requirements being driven by student wishes or instructors doctors and staff.
Yes. Thank you Derrick currently only two of our 64 universities are requiring a vaccine and it is important to note and we do think Youll see more schools followed that trend the.
The way that it is being done is and the context of students need and go vaccine to attend classes in person on campus and so when we look at what occurred last year, where you know and many of our universities NAU students, we're able to attend classes at all but yet still 90% came back and so even with schools mandating and.
A vaccine to attend classes, we don't think that as a whole it will be a negative impact with regards to it's still going to be a much better situation than we had going into last fall and so again, we would expect it to be a not a anything to the detriment of where we are launching from this year. We do think that most institutions that are having those.
<unk> it is being driven by making their faculty comfortable in terms of being able to feel comfortable coming into the classroom.
We see more of that and we do from a student a mandate with regard to it.
Thank you that's very very helpful. Given the growth and the application rates nationwide and.
Is there a potential upside to growth and admissions.
And do you think it's taking students a little longer to decide where to attend and given that most students are applying to numerous where more universities and historically and.
And are the elevated applications and COVID-19, possibly delay and University offers.
Yeah and.
Certainly when we look at common App, which is the the company and that helps universe students apply to universities. There is indeed, an uptick and applications. This year. When you look at unique applications in terms of the actual physical number of applicants thereof nationally about two 3%.
Which is a good growth number.
Good for us and when you look at where the the larger increases are and the increase and applications certainly public large institutions with enrollments above 20000 are doing very well the applications. There are up 13% to 15% and so in the universe, where we operate we do see double digit.
Submission of application.
And certainly the increase and applications is from an administrative perspective, theres more processing that the universities need to do and so while we do see them operating on their normal time line and typically by the end of May is when you see all of the application and acceptance is play out.
We don't see a slowdown and that process, but there is a little more processing for schools to do.
And it all plays out and our particular universities ultimately we have to wait till the fall when those final enrollment numbers come in but the trending is positive both in a small uptick about two 3% and a double digit submission of applications at our universities and then when you look at how and where students are applying on in and pre Covid and.
<unk> they were typically applying at five three universities per student and now it's five eight so it is a small uptick in terms of the number of institutions that are applied to an average of about one more and if you round up.
Okay got it and just one last one if I may.
And what are investors missing me why do you think ACC shares at significantly lagged the broader multifamily Reits year to date.
Especially as your company, but the bulk of the pandemic pain upfront and in real time versus apartment rates, where it likely takes years to get back to pre COVID-19 and earnings power.
But first I think that you know just when we look at the initial impacts on Covid.
It occurred last year, I think there was more concern and fear around student housing and multifamily at the beginning.
When we saw University, starting with harbor, taking very significant draconian actions closing the campuses. When we didn't know what COVID-19, yet was and so certainly I think that the initial impacts in terms of concern to our sector were greater than multifamily certainly I think that we have over time now demonstrating the long term thesis of stool.
And housing has always been the stability of cash flows and the fact that we are more resilient in times of macroeconomic uncertainty and I think we started to build that story back in and showing the reality of it in the context of the progress that was made this fall in terms of the 93% Oxy and more importantly, a return in the pay.
<unk> structure and collection rates going back up to that 90, 798% showing that students and parents can recapitalize the funding of their education and economic hard times with guaranteed student loans and grants and the like and so we think the market is seeing firsthand a demonstration of the resiliency of the sector.
And we've got to prove out this year's lease up and that's where we're focused right now we're chopping wood and getting back on that road and normalcy and returning to the sector and I do think theres going to be some geographic variations as we see the reopening and university systems across the country and on the coast.
And as we build that back and so I don't know that the market is per se missing anything just in terms of watching the demonstration of the long term thesis of our sector being proven out and one of the most unique circumstances, we faced as a company and the industry.
Thank you Bill.
Our next question comes from Neil Malkin with capital one. Please go ahead.
Hey, everyone. Good morning, nice quarter, and I started the year.
First.
A housekeeping in terms of like Arizona, and Texas, Florida, and like the states with your largest exposures.
Most of those schools have they announced or do you expect them to announce a plan or.
You know I guess.
Formula for a full time in person and curriculum and the fall in terms of just.
And then learning implementation and as well as our Covid protocol.
So those three states in particular have done very well even through this first year.
And in terms of their models of education delivery and their policies on campus and continuing though the good news is and when you look at all of the data of all the markets that we're operating in is that all state systems are making positive statements toward a return toward in person activities certainly those three where we have the highest concentration.
And are already states and systems, where we have seen more open policies as it relates to in person activities.
Yeah, Okay makes sense and then in terms of your I believe its growth 2030, if I remember correctly that you're.
Initiatives with joint ventures, and and growth outside of.
And then normal.
Our business lines I suppose you could say.
Any update there I mean, I know things have gotten a little bit better.
Since that was announced but.
Do you think that youre going to have more to announce there you and and talked to have your potentially established a.
Partners, you're going to announce something with any any update there would be great.
Yeah, No and we certainly continue that process as we talked about we had and engaged a consultant later and there are brokerage firm later and in last year, we'd move that process along we're into the final stages of selection. We're very pleased with the interest and the amount of capital that is out there that is entering and such program.
And I mentioned previously the entire industries and the focus right now of returning our values as we move through this fall's lease up and so you know as we get closer to the transaction environment, which we think and Q4 of this year and Q1 of next year, we'll be in a position and talk more about that and bring finality to it.
Okay. Thank.
Thank you guys very much and good quarter.
Thank you.
Our next question comes from Nick Joseph with Citi. Please go ahead.
Thanks, Bill I appreciate the commentary on pre leasing and understand the uncertainty still there.
And just in general why why couldn't occupancy come back to fall of 2019 levels. This year, just given the application traffic and talked about.
And personal enrollment or a need for kind of continued social distancing and nurse or something else that could hold back and fever.
Versus that long term average net.
And we think we talked a lot about this at the Investor Conference that you all put on and net you know it's really on the margins just for everyone on the call and think about your circle of friends and acquaintances and the 20 to 30 families that you interact with and.
And then you know how many of those families are a 100% returning to normalcy and all their decision makings and Theres always that you know on the margins two to three that are going to continue to have a consumer behavior thats different you know last year. We had 9.3 out of 10 students that came back this year or is it going to be 9.5.
And $5 nine six I mean, it's really that on the margins.
Other thing that we when you look at our performance historically over the years and one of the things that we always talk about is the the spread of occupancy where we outperformed the rest of the industry and in the axial metrics $1 75, and a lot of that benefit that we bring to full maximization of revenue.
And our portfolio, we always talk about how we manage the waitlist and no show process and some degree filling student housing beds and the fall was like running an airline and filling those maximizing the seats and in that process and you when you're in that Overfill and overbook situation is where we really utilize ARPA.
<unk> systems to fill every last bed do every last roommate matching to efficiently work that process and so the maximum benefit that we bring is when you're in and oversold situation and the majority of your markets and so when you look at a normal year.
Full of 19, we had 93 assets that were over 98%, 76% were virtually 100% full where we were able to nurture that process to maximize and you look and the COVID-19 environment. We only had 46 assets that we're 98% and above and so you have a little less opportunity.
Across the portfolio geographically and across the entire nation to have that type of outperformance and so when you look at consumer behavior on the margin and the ability to fully take advantage of our systems and a normal situation of overflow. We think thats. The reason, we probably won't see a full return.
And to normalcy.
And this fall this fall.
And then giving more clarity on the Disney College program and Disney phases deliver this year, how are you thinking about leasing those and the open market versus waiting for the program services.
Yes, we're in discussions with Disney on that right now as they advance their plants and thinking about the reinstatement of the college program and as we mentioned in my comments and certainly Mr. Jay pack.
Their annual meeting.
Thinking about what the Disney College program means to them and they hope it will be reinstated this year and the internal conversation we have with them. We do believe that and I mentioned. This also adds the reinstatement takes place which he knows Mr. Capex said, they hope will be by the end of this year.
And the potential for the ramp up of occupancy.
And may more emulate closer to our original pro forma as we're bringing phases back on to where we now believe that we may indeed be able to hit the stabilized yield of six eight ultimately by May of 2023 between now and that point and time, while the reinstatement is still and question is exactly when it will occur once.
It does it may ramp up more in line with what our original expectations were and so certainly because of that we are while we've leased you know I think we said 148 beds to date at the time of the release, we are because those leases are typically 12 months and would extend into the period and which Mr. <unk> said the college program will come back.
We are monitoring that to make sure we make the right decision that we are ready for the higher revenue generating beds to be available to the college program.
Thanks.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning.
Seem to be and pretty high spirits today. So that's a good thing.
So two questions here, one freshmen and where the.
Where the laggards last year I think there were 80% pre lease do you have any sense bill and how the freshman and are doing this year because that seems to be.
The next question that seems to be the real variable and getting back to normalcy.
Yes.
Yeah, and Alex when you say first year students and you were referencing the ones coming in from high school this year or the ones that came in last year continuing on with leasing.
No no no the the new to school it was because last year with the kids going to school, who were the ones.
And that you had actually live on campus. So trying to get gauge that same group you have the people who are going to school for the first time.
Yeah, No and this is where we're <unk>.
Again, all of our preliminary indications are positive, but we continue cautious optimism as it relates to the.
And the ultimate outcomes.
We continue to see good velocity among that group and all others and then and as we mentioned we're now at about two five times weekly activity of what we had in the prior year and.
And so certainly we did see a slower pace of decision making toward housing initially in the fall and over the holiday break period, but we have seen that acceleration continues so the R&D and making decisions a little later when you look at prior years people that entered the market a sense of urgency that existed.
Our retained your housing for that particular group coming in and they never experienced that and so their decision making is just more on a comfortable pace of Oh now it's time for me to do this we always attempt.
Attempt to create that sense of urgency and some markets. We continue to have that sense of urgency, but it has been a slower decision, making process, we have seen with that too and at times velocity and this is where I mentioned hopefully by the time, we get on the call next quarter, we'll be able to give you a real comparison of this year to prior year that will enable us to.
Start to have a feeling or a projection of where we're going to end up with that particular group of freshmen and as well as sophomores and juniors, we now see a velocity that that two five times trending by the end of June July we should be at a point, we should be able to have some indications as to how far we're exceeding last fall and.
And that goes across the board as it relates to new incoming first year students. There is two positive things one the common app data that we mentioned in terms of an increase and applications are first time students and secondly, and probably more importantly, and our partnerships is colleges and universities returning too.
Their housing expectations and requirements that they had waived during COVID-19, which should be the bolster and that particular category.
Okay perfect sales so that leads into my second question.
From across your portfolio, especially the comment about the geographic differences and return to normalcy.
What are you seeing from the schools as far as full restoration of sports extra curriculars.
Allowing for charities and store argues for rush and basically how much and you'll see and schools go back to full operations.
And your view that maybe some of your portfolio would be full operations. Some will be sort of limited and we're just trying to get.
Get a sense for how much the schools are doing on their part to try and really restore the the.
From college experience.
The most important policy, we're seeing first as housing and the schools are going to a restoration of normal housing activity and policy. Secondly, when you look at major athletic events and I do think it was a pretty successful year overall for collegiate athletics from where we started at the beginning of the pandemic to what we saw and the completion of your major.
Athletics, especially with March Madness, just having finished up and and and having a successful college football season, where they actually crowd the champion.
Some schools have announced full occupancy at sporting events.
And so we have seen some began to go all the way back to normalcy others. We're seeing are that are now staging that coming in line, but everything is positive movement more toward normalcy. This is where you may see some of the vaccine requirement help universities put.
These back into action and so it's still somewhat influx geographically. The good news is every announcement that has been made has been positive whether it's in Texas, Florida, California and Massachusetts.
Announcements have been incrementally positive and moving back more toward in person activities of all kinds and versus where they were.
Okay. Thanks.
Our next question comes from Austin, where Schmidt with Keybanc. Please go ahead.
Hey, good morning, everybody build to that cause and one of those last points can you just put a finer point on what percentage of your schools have reinstated or the on campus housing mandate for first year students.
Every all of the weir and formal partnership with or going back to their normal expectations and requirements and so within our portfolio at this moment in time barring any changes we have seen 100% that theyre going back.
Got it that's helpful. Thank you and then as far as DPC DCP you discussed the potential to reach the underwritten yield by May 2023.
I think it is when the final kind of 10 phases delivered but at what point do you think you could achieve the targeted yield on those phases, one through five that deliver by the end of this year to the extent that the program is reinstituted.
Later this year.
Yeah, we don't have clarity at this point and time on that and again, certainly looking and Mr. <unk> comments, we think that by the end of this year. We can begin to see the reinstatement what that ramp up is through 'twenty, two and how it may hit pro forma is just too soon for us to have clarity into being able to convey to you what that might be.
Got it and then just last one from me on the balance sheet and sort of leverage we've seen it tick higher.
But as we start to lap some of the comps and refunds of last year, how do you see that rationing down and how do you plan to manage that.
And as new development opportunities start to emerge for maybe 2023 and beyond.
Yes, Austin. This is Daniel first just on the normal recovery and those leverage ratios and we continue to lay out.
We believe our pro forma leverage ratios will be as we fund out the development pipeline. The current development pipeline, which currently all of that is remaining as the Disney project.
Throughout 'twenty two.
And into the fall of 'twenty two is when we actually expect to see that full recovery and EBITDA to bring it back down to the pre COVID-19 levels, which at this time.
And if you were to eliminate the negative impacts of COVID-19, we'd be around seven times low <unk> debt to EBITDA.
But with the capital recycling and or other types of equity type capital raises that we lay out and that $177 million to $377 million range between now and 2023 that would bring us on down to the low sixes high fives that we plan. So we.
Don't have.
And we're willing to be patient and allow that recovery and EBITDA to occur and to execute on.
And attractive cost of capital transactions.
And that will move that debt to EBITDA and debt to assets ratio back into our targeted ranges and not do something that overly dilutes. The NAV of the company just to get there more quickly.
Got it I appreciate the time thank you.
Thank you.
Our next question comes from Anthony Pallone with J P. Morgan. Please go ahead.
Okay, Thanks, and good morning.
And just wondering if you can walk us through your view on when the core NOI of the company gets back to 2019 levels and I'm just trying to size up like you've actually had some rent growth. Even if you have some occupancy slippage. So I'm just trying to get a sense, maybe as we look past 2021.
And one is a transitional year.
And yes, we certainly.
We certainly believe as we get to fall of 'twenty to.
That we believe will be very close to a complete return to normalcy and that and by that time with some hopefully rent growth and revenue growth and that area will certainly be back to the pre COVID-19 numbers.
Again, it's just too soon for us in terms of being able to build in a reliable expectation for it. This fall through the first three quarters of 'twenty two that are relying upon this lease up to be able to have full clarity, but certainly as we think about the lease up and fall of 'twenty, two and where the university policies have been and what we've seen and consumer behavior.
We do think by that time it is reasonable to expect that we should be in that position.
Alright, do you do you need.
And occupancy to come back because you've had some rent growth over the last few years yet no.
And obviously, it's the combination of rent and occupancy to get to that number we will always utilized the lamps program to do that we have mentioned that you know the on campus beds, where we had the vacancy this fall or the higher rates. So we should get a and average revenue per bed uptick from that as you see the recovery and so certainly the combination of the two but the grant.
And really say, how much is going to come from each one.
And we can't do it this time, but certainly I think by fall of 'twenty, two we should be there.
Okay, and then just on the supply side can you comment on.
What the supply picture looks like for 'twenty, one 'twenty, two and your markets and also whether there's.
Developers are starting new projects and theirs.
Capital available for that right now.
Yeah, Let me, let William Talbot answer that question William go ahead and.
Yes, so as we've talked about in the past couple of calls for fall 'twenty one.
We're seeing a slight decrease and supply about one three percentage where that ended up.
At the end of the day, and that's coming off a year and we saw a 20% decline of supply so continue to see that decrease.
And supply and it's really driven by most developers are focusing on this pedestrian sites and the tier one major markets and as you all know if you've been to college towns and those are typically very difficult sites require assemblage.
Difficult entitlement environments, typically are going up so higher construction costs, certainly and in a more difficult construction environment. So those really those barriers to entry that are naturally in close to universities is whats really constricting that development, we're seeing and our market.
Okay. Thank you.
Our next question comes from Eric and now with Evercore ISI. Please go ahead.
Good morning, everyone.
Bill or Daniel can you provide and update on what Youre seeing as it relates to the summer camps and the conference businesses I think Daniel you talked about the sort of four and a half.
And and revenue kind of split between the second and third quarter kind of based on kind of what youre seeing on the ground.
How should we think about that segment over the next two quarters.
Yes, Sameer Youre right and in a normal year. We commented that we typically produce about $4 $5 million of same summer camp and conference business and as we discussed obviously that went away last year.
And when we were in the middle of the early <unk>.
Part of Covid.
And schools have started to think about that but honestly.
With the real goal in mind been keeping the eye on the ball for return this fall.
Making sure that they don't do anything to derail that we don't expect really much of any.
And this summer.
Do think that that will return and the summer of 2022.
And if there is any of this year, we expect it to be very minimal and.
And not a big.
Dial mover in terms of earnings.
Got it thanks for that and then I guess my second one is just from a modeling perspective, I know you've talked about expense growth being in the high single digits.
Especially next quarter and maybe into the third quarter, how should we think about maybe the sort of there.
The items within expenses, whether it's G&A utilities and payroll.
And kind of in the broader context, so that high to high single digit growth.
Yes, I mean.
And if you think back to or if you were to go back and look at expenses during the midst of Covid all of those controllable items, so excluding insurance and property taxes, we had significant savings across the board.
Honestly and the second and third quarter due to just a lot of activities ceasing.
And so.
And we would expect and the controllable areas to see significant growth.
Pretty much across the board as we return activities to normal levels.
We are.
Continuing to deploy a lot of asset management initiatives.
Across the portfolio that will help keep in our utilities expenses.
But.
Youre going to see the return.
Or that.
Higher growth level, just because of the absolute savings we had due to cease activity and the second and third quarter, and then start to maybe normalize a little bit into Q4.
Yes.
And I'll remind you that the when we talked on last quarter's call.
Our expenses when we looked at our internal budgeting for this year overall, we're pretty much in line with what we had budgeted for 2020 pre COVID-19 and that's with $2 million to $3 million of anticipated spend on Inc.
Additional COVID-19 cleaning costs, and then of course normal increases that are uncontrollable in and prop.
Property taxes are really significant increases in insurance as you are hearing from a lot of operators just due to the insurance market, we're all dealing with.
So even despite those.
Increased costs to be able to come in in line with where we were expecting going into 2020, we've really taken a lot of.
The benefit from the from the efficiencies we learned during Covid and are bringing those forward into the more normal operating environment. We're in right now.
Okay. Thanks, that's it from me.
Our next question comes from John Hello Ski with.
Green Street. Please go ahead.
Hey, Thanks for the time, William one follow up on the supply question.
In terms of the Shadow supply market post Covid do you expect any meaningful shift.
And a higher or lower from kind of shadow supply and perhaps apartments, we repurposed the traditional apartment market.
No really don't I mean, you guys think the majority of our University markets are and the smaller college towns that don't have that shadow multifamily supply and the traditional since that is catering to the conventional multifamily renters. So and the majority of our University markets. You don't have that flex and then when you look at take for example and market.
Where we do have that Austin, Texas, and the multifamily market continues to be on fire.
And we have the benefit of being that location to campus. So we'll always have that premium even if the Austin multifamily market were to soften and you've got that great benefit of being walk to class, whereas the further from campus properties could maybe see some softness from that.
Okay, and then <unk>.
Question from me on the Berkeley, and Master plan development could you give us a sense as the plans are evolving kind of a minimum capital needs require from accs balance sheet and and maximum needs. These next few years as you guys. Just go about the project.
And again it is still at this point and time on the Berkeley Masterplan what transactions are third party what transactions are ace how those play out and again. This is a long term planning process. So you know this work is the total scope could be over the next decade.
And so how much of that actually turns into ace and equity requirement is yet to be determined we will have a long runway as it relates to as those decisions are made with the institution to announce that and to think about it and in those context, but at this point, it's still too early.
Yeah, and John I guess that reminds me I think somebody asked.
Somewhat related question earlier that I didn't fully answer in terms of how we think about our funding and our leverage as additional developments become come to fruition beyond the current pipeline and of course, we will look to.
Match fund those match time knows as we've talked about historically doing a better job of.
Two.
Maintain a more stable earnings growth trajectory and so we will look at all the forms of capital available to us.
We continue to have a great partnership with all the answer and that 45 55, JV structure, we have with them and we think that's a great alternative.
Part of our.
Set of capital raising options to be able to contribute assets into.
And really match time, Inc.
And kind of development activity, we might have.
Alright, great. Thank you.
Again, if you'd like to ask a question. Please press Star then one at this time.
Our next question comes from Rick Skidmore with Goldman Sachs. Please go ahead.
And good morning, Bill just a question on the comment that you made and the press release around rent rates and in line to slightly ahead of a year ago can you just talk about how you think about rent rate growth as you go into the fall academic year and going back to your analogy on the airplane to rent rates go up as you get closer to that.
Or do they go down.
Yeah, and certainly the first comment that I would make is asset by asset unit type by unit type market by market. We look at what that velocity is and and adjust rates Accordingly, and so for example, you know I mentioned, we had <unk>.
Several three to four dozen properties that were full this year virtually at 98 plus percent, that's a different pricing matrix, where we can still be aggressive as you would and a pre COVID-19 environment. However, if you look at the broader portfolio as a whole with approximately 700 basis points of occupancy diminishment from a normal year first and foremost we look.
At making sure that we make the occupancy gains and don't damage velocity by being too aggressive and rate.
And we also mentioned that the market as a whole and and Jennifer's comments and the release are being patient in terms of understanding the difference and in velocity and so when you look at the portfolio as a whole we do look at that.
More of a flattening of rents in this year as people are focused on making up those occupancy gains and so I would say, it's very cautious where you have occupancy upside and only being implemented in a normal fashion in the.
Several dozen assets, where we have normalcy based on fortress locations and demand for our lease up we do as I mentioned to have a little bit more potential.
And that the return of occupancy and our on campus assets that are higher price typically lead to an average rent per bed, that's a little bit of and increase over just the straight rental rate growth.
Great. Thank you.
Our next question is a follow up from Nick Joseph with Citi. Please go ahead.
Hey, it's Michael Bilerman here with Nick.
So I was wondering if you can talk a little bit about there's a number of student housing portfolios. Some small from larger on the market deals and so deal activities picking up how and.
And the reconstituted capital allocation committee on the board and in management. How are you now evaluating those portfolios on the market today.
Yet for <unk>.
First and foremost Michael at this point and time, we are chopping wood and we're focused on putting the value of our own portfolio back in place and this lease up and by the way.
Well, sometimes you should.
But certainly as we look at and the current focus is on returning that value in our own portfolio. We do believe that the bulk of transaction aerie activity that youre going to see is going to be coming in Q4 of this year and Q1 of next year as you see those values return and so we will underwrite transactions as we always do looking at what is the.
The growth rate of <unk>.
Opportunities there are before us based upon how much upside continues to be on and asset by asset portfolio by portfolio.
Post Covid world and implement.
Proper and investment when we can create outsized returns for our investors.
I guess are you looking at maybe activating more disposition activity to date and put yourself in a position to if you want it to be active and those acquisitions and to have the balance sheet and all the capital necessary to.
And I don't know if thats part of the plan today in terms of selling more assets looking at institutional joint ventures to really gain that capital and and maybe also getting insightful about where the market is pricing.
Assets today.
Okay.
Yeah I'll jump in on that real quick Michael I think the first thing is.
We do have a capital recycling plan that we've laid out obviously, we would increase that.
Our cost of equity doesn't make sense for investment.
If we think theres and appropriate match funding, we can do with additional dispositions for external growth opportunities that have upside as bill talked about right now the important part is to.
Let the student housing market re stabilize.
We have seen cap rates hold in throughout the pandemic, but we have seen values on stuff that has transacted impacted by the current in place NOI and so both ourselves and the broader market.
Want to wait and let that releasing occur for this fall and improve out more stabilized values.
That we arent, giving away value just based on short term disruptions to NOI and so thank.
Youll see us be able to be more specific about <unk>.
Amounts and timing of dispositions as we get into this fall and of course any external growth opportunities that we would think makes sense from an upside standpoint, we would we would match fund.
With what we think you know whatever we think is the most appropriate cost of capital that creates value.
In terms of just being an operator as well as an owner or are you finding.
Basically just institutional capital, calling on you for some of these portfolios and in the marketplace, where they're willing to be the 70% to 80% of equity, but they need <unk>.
History expertise and operational.
Keith.
And so I'm just wondering if there is.
Are you being asked to partner.
And some of these deals to go forward.
And Michael There is always strong institutional capital interest in the space and certainly people that want to partner with American campus. As you know we are running our own process and that we are very selective in terms of the partners that we will pick in terms of Joying doing institutional joint ventures, and we want to make sure that we're aligned in terms of asset characteristic.
<unk>.
And term and hold periods the line with us and so we get core did all the time by the capital that's coming in but we are very selective in terms of who we are looking to partner with.
Alright, okay. Thanks for the time.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Bill Bayless for any closing remarks.
We'd like to thank you all for joining us for this update this is a quarter again of keeping keeping focused on what the task we have before us and the lease up and hoping again to continue down that road to normalcy.
Fall of 'twenty, one we thank you and we'll look forward to talking to you at NAREIT in June.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.