Q1 2021 Equity Residential Earnings Call
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Please standby.
Good day and welcome to the equity residential first quarter 2021 earnings Conference call Today's conference is being recorded.
At this time like the turn the comments over to Mr. Marty Mckenna. Please go ahead Sir.
Good morning, and thanks for joining us to discuss equity residential first quarter 2021 results. Our featured speakers today are mark per al our president and CEO and Michael <unk>, Our Chief operating Officer, Bob <unk>, Our Chief Financial Officer is here with us as well for the Q&A are earned.
<unk> release as well as a management presentation regarding our results and outlook are posted in the investors section of equity apartments Dot com. Please be advised that certain matters discussed during this conference call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no.
No obligation to update or supplement these statements that become untrue because of subsequent events.
Now I will turn the call over to Mark per hour.
Thanks, Marty good morning, and thank you all for joining US today. We are pleased to report that we are seeing significant improvement in our operations driven by continued strong demand all across our portfolio.
This in turn allowed us to extend the gains in occupancy we discussed on the prior earnings call. We are currently 96% occupied 160 basis point improvement since December 31 2020.
We are especially encouraged by our numbers as we enter our primary leasing season, the periods of peak demand in our business and by the continuing reopening activities in our cities.
The improving pricing we noted on last quarter's call has accelerated over the past few months pricing trend, which is a leading indicator of where market rents are going and as computed net of concessions is up 14%. This year and we have already recovered 60% of the pricing reduction we suffered as a result of the pandemic.
In fact on the pricing trend basis collective pricing in our markets outside of New York and San Francisco is likely to recover completely by the end of May.
The New York and San Francisco markets declined by more than our other markets. So they have further to go to regain pre pandemic pricing, but momentum is strong in those two markets and they are making good progress towards full recovery.
To provide additional color on our operating trends, we posted to our website at equity apartments Dot Com a management presentation that provide some background on both current operations and our guidance expectations. After I give a quick overview of guidance changes in investment activities, Michael <unk>, Our chief operating officer will provide more detail.
Our current performance and forward trajectory after that we'll take your questions.
The encouraging trends I, just mentioned led us to raise our guidance ranges for physical occupancy same store revenue same store net operating income and normalized funds from operations as disclosed in last night's release.
The midpoint of our same store revenue range was raised a 100 basis points to negative 7% the midpoint of our NOI range was raised 150 basis points to negative 12% and the midpoint of our <unk> range was raised by <unk> <unk> to $2 75 per share.
These improvements were almost entirely driven by stronger and earlier than anticipated recovery trends in both of our residential and nonresidential operations across all our markets.
We are well positioned heading into our prime leasing season, but our reported same store revenue numbers will lag the recovery in our operating statistics as we work through the impact of lower rents and of concessions.
In terms of the first quarters numbers the impact of the pandemic is readily apparent we.
We said previously that our reported same store revenue numbers would get worse before they get better and Thats exactly what happened same store revenues declined 10, 5% for the quarter, which while it was a bit better than we expected is still among the worst revenue numbers in our history.
We believe that our first quarter results will be our low point for the year and that they will improve from this point on.
Turning to investments, while no dispositions or acquisitions closed this quarter, we have been active in the transaction market and we expect to of a considerable amount of activity. The report on next quarter.
As we've said on prior calls in order to create the most stable growing cash flow stream possible for our investors. We are broadening our portfolio over time, the increase our exposure to the suburban properties in our existing markets, where the resident demographic is similar to our existing affluent urban resident population.
We're also working on increasing our investment in Denver, and continuing to consider a select number of new markets that of large and growing affluent resident basis favorable long term supply and demand characteristics and lower political risk.
While asset prices are high and the locations of which we seek to invest our funding source for these acquisitions comes from sales of existing properties, especially in California, where we are obtaining pricing of exceeds our pre pandemic valuations.
We expect to complete this transaction activity with minimal dilution and to stay consistent with our strategy of acquiring newer assets with modest capital expenditure burdens.
The one piece of notable investment activity that did occur in the quarter was our $5 million investment in a fund that preserves the affordable housing across our country.
This for profit fund is run by longtime experts in the affordable housing preservation of finance area, using our equity capital and that of other investors as well as government financing to fund the acquirers and improves the quality of existing affordable housing communities that would otherwise be at risk of other physical neglect or where the affordable restrictions are about.
The what expire.
We have been clear on prior calls of our steadfast opposition the rent control and other short sighted policies that do not help solve the affordable housing shortage.
<unk> consistently say that rent control in fact leads to disinvestment in existing housing and impedes the creation of new housing.
We support solution focused investment like this fund that preserve or create affordable housing in favor of the elimination of overly restrictive zoning codes that limit housing production, where it's needed most.
Along with the ongoing engagement with public officials in our markets. This investment demonstrates our commitment of being part of the solution with respect to the affordable housing GAAP.
To sum up we are encouraged by the progress being made on vaccinations as well as the reopening of cities recent announcements made by employers, particularly in the tech industry regarding return of office are welcome news, we believe that the new operating model for most companies will be a hybrid of in office and work from home and that our portfolio will benefit from.
Workers looking to live close to the office.
Of the unique cultural and entertainment options that are becoming available again in the cities reopen are also magnets to our affluent renter demographic and will draw them back to the city's instead of lifestyle many of them crave.
Our customer base of stayed well employed during the pandemic and can afford our current rents and absorb future rent increases as market conditions improve.
2021 is indeed, turning out to be a year of recovery for our company as we have said before equity residential same store revenue growth coming out of recessions is typically recovered quickly with us posting strong numbers and I see no reason that will not occur again once the lagging impact of concessions and some of the other factors I mentioned abate.
<unk>.
All of this is of course premised on continuing progress in controlling the virus and the assumption that other economic conditions remain supportive.
Before I turn the call over to Michael I want to thank all of our investors for their continued support during these challenging times, we are well positioned to benefit from a return to normal as the pandemic subsides. We are optimistic about the future of our business and believe that our portfolio will thrive I'll now turn the call over to Michael <unk> Michael.
Mark so with the first quarter now in the books and our spring leasing season ramping up we continue to see strong performance build upon the early indicators, we were seeing on our last call. The accelerated distribution of the vaccines have clearly had an impact on many of the states and cities, where we operate as they push for a return to a more.
<unk> environment, our teams in our various markets are sharing positive news of neighborhoods that are starting to feel alive again as more and more companies get ready to reopen offices.
<unk> of the ultimate outcome of work from home, we see our demographic is drawn to the amazing culture food and our debt our urban locations offer theyre excited about reopening of these experiences and feel a sense of urgency to return, especially knowing that these lower rents won't last for long.
As you May remember from prior calls we have focused our approach on maximizing revenues by balancing occupancy with rate and concessions, which has proved successful thus far our cash.
Confidence from the recoveries of our cities coupled with the disciplined approach kept us from overreacting in one direction or the other.
We are well positioned as the recovery takes off to sell our excess inventory at net effective rates that are currently 14% higher than the end of last year.
In both the earnings release and in the accompanying management presentation. We have provided some key performance metrics. Let me highlight a few of the overall trends. So first demand demand was strong through both the winter season in early spring with a continued trend of increased applications and moving activity that is well above.
Seasonal norms and has fueled a stronger than expected occupancy recovery.
Occupancy is currently 96% and as of two weeks ago is now above the prior year comp period and for the first time beginning to approach 2019 levels.
Occupancy strength is contributing to the improvement in our revenue growth recovery.
Pricing trend, which includes the impact of concessions and is a good indicator of where market rents are headed has improved across all markets. During the first quarter and through April we continue to test price sensitivity in every market by raising rates and reducing both the value and quantity of concessions being granted and.
January concessions average just under six weeks on about a third of our applications by March and into April. This has been reduced to about 20% of applications receiving on average four weeks and we expect this to continue to decline in EMEA as stated in the management presentation, we have seen a force.
14% improvement in pricing trend from December 31 to April of 'twenty three.
Renewal rate negotiation pressure continues as we renew residents from signed leases at the onset of the pandemic before the declines and pricing trends occurred outside of Southern California, and Denver are other markets of pricing trend below prior year, which put pressure on renewal negotiations.
The situation is improving weekly and as Mark mentioned, we expect the other markets, Excluding New York and San Francisco to be positive by the end of May eight.
The April renewal rates achieved should be 200 basis points better than March which was a negative four 5% the <unk>.
Percentage of residents renewing also continues to improve with March and April both achieving above 55%. These levels remain below our historical average for this time of year, but the gap is closing.
Blended rates, which combines new lease changes and renewal rates achieved continued to improve with sequential improvement of new lease change expected for the next several quarters. As previously discussed renewal rate achieved was pressured in Q1, but the pressure will continue to moderate as pricing trend improves and as the rate.
Byron leases with were written pre and early onset and the pandemic narrows with current market rents.
On pages six through eight of our management presentation. We have provided color on pricing trends physical occupancy percentage of residents renewing and leasing concessions per each market. So I will not repeat that here, but let me provide some brief market specific commentary I will start in Boston, where we are seeing an uptick in interest from.
Students as many colleges have announced plans for campuses to open again in the fall.
We may well benefit from limits on dorm occupancies of some students will need to find alternative housing.
This market will face some headwinds from new supply, particularly in the city, where we are still dealing with some non stabilized lease ups from last year as well as of few new deals expected to deliver in the back half of 2021.
New York is starting to see positive momentum demand is good driven by both bargain hunters looking to upgrade and people returning to Manhattan and anticipation of office three openings specifics around the office re openings remain unclear, but the indications are that it will be a hybrid debt has employees back in the office at least part of the week.
By summer and early fall.
In New York concessions remain part of the marketing strategy, even while we are raising rates. This market held onto widespread concession use through most of the first quarter, but the last several weeks has shown concession use starting to decline.
Unlike any of our other markets New York has a more significant number of local operators not on yield management, who tend to use concessions more frequently.
New supply is basically non existent Manhattan, however supply pressure on the Hudson waterfront in New Jersey in the back half of this year may impact that sub market.
Our migration data suggests that this market is beginning to return to normal as applications from outside the New York MSA and move outs, leaving the MSA, both continue to trend closer to normal pre pandemic levels.
Turning to DC during the pandemic physical occupancy held up better than DC than any of our other east coast markets absorption of new supply also has generally remained healthy but has slowed compared to 2019 levels while demand in this market remains robust we are facing some headwinds from new <unk>.
Fly in 2021, DC has an excellent track record of absorbing new supply, but with more than 12000 units being delivered this year that track record will be challenged.
Heading to the West Coast, Seattle trends are moving in the right direction, but the market has shown periods of price resistance.
The company's continue to hire and are moving towards reopening offices.
The Amazons recent announcement of its commitment to an office centric culture as the baseline is of very good sign for driving demand.
The exploration of the H <unk> visa band at the end of March should also be of good driver of demand as the tech sector was heavily relying on this program per gallon.
On the supply front, new supply deliveries will rebound in 2021 with the largest concentration in the CBD Bell town Submarket.
San Francisco one of the markets hardest hit by the pandemic is clearly on the road to recovery concession use in this market has shown a meaningful decline our communities located in the city of San Francisco are starting to feel vibrant again.
Late in the first quarter, we saw a flurry of announcements from Bay area of Tech firms with regards to return to office.
Any of the tech firms, including Google are taking a firmer than expected stance with regards to office attendance as they recognize the importance of in person work and both product creation and company culture.
Schools of reopening with colleges planning for students to return the campus in the fall and demand for our two and three bedroom has clearly increased in the last several weeks new supply will be elevated in 2021 with a large concentration in the South Bay, which may create some pricing headwind for us.
Southern California has been the strongest part of our portfolio during the pandemic Los Angeles, Despite being one of the most locked down cities in the country continues to have good demand.
The city is opening back up and the Governor has set mid June for a full reopening the.
The most encouraging sign in this market is the pickup in activity and the content creation sector.
TV and movies that were filming in other states during the pandemic are returning to la <unk>.
2021, new supply deliveries will be well spread out across the submarkets with most of the expected pressure coming to us in the mid Wilshire of Korea town Submarket.
Orange County, and San Diego continue to be the real standouts in terms of performance. These markets of the highest occupancies and the best albeit still negative revenue performance, but we see same store revenue growth in these markets turning positive in the second quarter.
These markets should continue to benefit as the state opens back up and travel and leisure activity picks up.
New supply will be at normal levels, and generally well spread out across the submarkets.
While southern California is generally one of our better performing areas. It has and continues to experience the highest levels of delinquency. We have mobilized our teams to assist our residents and applying for available federal rental assistance dollar while California was ahead of most states and creating a rental assistant application.
Process. The state is just beginning the process applications and to send out money, we will be aggressive in pursuing these california relief funds as well as other programs throughout the country.
Finally in Denver demand remained strong across the market, although pricing pressure and widespread concession use is common downtown our two suburban Denver properties have little concession use and are seeing good demand and revenue growth.
New supply will be elevated from 2020 level, but good job growth should be a driver of the absorption of that supply.
Across all of our markets, our focus will remain on increasing rates and continuing to reduce and eliminate concessions.
Our strategy of not chasing occupancy at any cost during the winter is paying off so far we have been able to grow our occupancy while at the same time recovering just over 60% of the decline in rate that we experienced from March to December of 2020.
We believe that this approach will continue to benefit us as we move forward through 2021 and close that gap.
Let me close by thanking the entire equity residential team for their continued dedication and hard work I am confident that we of the best team in the industry and they are demonstrating the power of working together as they lead the market through the recovery phase and remain relentless in serving our customers and taking care of each other.
Thank you I will now turn the call over to the operator to begin the Q&A session.
Thank you if you'd like to ask the question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off tomorrow single Tree chart equipment again press star one to ask the question.
Okay.
And we'll take our first question of day from Nick Joseph with Citi.
Thanks, I appreciate all of the additional operating.
Disclosure.
Look at the pricing trends and the management presentation.
Coaching.
Last year.
In April the thing you look at.
Blended rate in April fell down seven 2%.
How do you marry those two things together I know you talked some on the renewals, but how would you expect to sign new leases the trend over the next few months.
And it fits of Michael So I think the way to think about this as pricing trend from page five of that management presentation is the leading indicator of where the improvement is going to come to blended rate and then after you see the improvement in blended rate you start to see the improvement in revenue growth. So I think theres probably about one.
Month, or two lag that you start to see as well start to cross over and I'll remember the comp period from last year gets easier as we work our way through May and June. So our focus is really around that pre pandemic period, which is what were rents like in each one of these assets at the very beginning of March of 2020.
Where we have good acceleration, we're focused on what was that high Mark from <unk> 19 in how fast can we go after that so I think as we keep pushing forward and keep getting that momentum over prior year youll start to see that blended rate of improvement really kick into gear. You can see what happened just sequentially from March to April I would expect youre going to see that.
Same kind of real big pop as you work your way April into May.
Thanks, that's very helpful and then.
Mark you mentioned the considerable amount of activity I was just wondering if you can give more details on that expected external growth and the size.
<unk> of debt.
The yield.
Hey, Nick well just to be clear the growth is really a swap right. We're selling assets as I mentioned in my remarks, predominantly in California, but also elsewhere getting really terrific pricing on that stuff and being able to trade into the properties in Denver for example, where we're going to expand our presence.
We think pretty significantly over the next few quarters, we continue to look at some new markets.
Then again suburban parts of our existing markets. So.
Well have better detail than I actually have properties to speak to but we're well along in that process I expect to have a bunch of close in the next month or two and then to be able to talk about it in more detail in July.
Thanks.
Thank you.
Next we'll hear from John Pawlowski with Green Street.
Thanks, guys.
Maybe a follow up on that Mark.
A few months to hear about actual deals, but just in terms of the private market pricing youre seeing the law when these markets.
Of which metropolitan areas the screen the cheapest right now some of the going in pricing and in which markets and qualify some of the most of irrational.
Great question.
So I'm going to look at cap rates talk a little bit about cap rates with you, though we all know thats only part of the picture.
A lot of these markets almost all of them that were either in or interested in with the exception of Manhattan, Brooklyn and call. It the city of San Francisco are trading at or higher than they did at the pandemic period. So I mean, we're looking at cap rates for example, in Denver, $3 75 to four and a quarter in there.
Isn't a market that's screening cheap and in terms of expensive I'd say the recovery is well price skin is probably a charitable way to say it I think of these cap rates are low because people have confidence because even in the sunbelt markets are places like Denver, there were declines in revenue and I think what people are seeing as youre going to make that.
Up and Youre going to make that up pretty quickly and so they are willing to kind of capitalized debt into the price. So what the NOI is still relatively low that makes the cap rates low.
I guess I would say there arent any bargains, we see but what works for US is if we can sell some of these assets debt, whether its locational or we have an over concentration we're able to get rid of John at pretty low cap rates to add values of lot of cases that are the highest not just the pandemic, but we've ever seen and buy assets we real.
Like at the same cap rates, even if they are frankly in the very low fours and in the threes. That's still a good trade for US we still think of that gives us that diversification, we talk about maybe a little better growth going forward.
Again, we're always looking at newer assets. So we're not arbitrage ing new properties for old we're typically buying in our markets and in Denver for example assets that our 2016 vintage or newer.
Okay understood makes sense.
Final question, maybe when you stare out of his remark or Michael when you stare out of few years beyond this initial snapback in rate and occupancy in your markets, which markets. The thing, we're well positioned for kind of a nice multiyear run in rent growth and which markets are you concerned kind of hit a wall.
A few years.
Let me start there Michael May have something to add in there Jon but maybe we will talk about the whole company per second and then we'll go to the market question, because we have been noodling on that a little and we're certainly not in a position to give 22 of 23 guidance, but I think when you look at how this company performed equity residential.
The perform coming out of recessions and thinking back to the tech bust in the 2002 vintage period, Great financial crisis in <unk>, you had a couple of years of negative growth.
And then you had a kind of an in between year of transition here, where we're rated zero for same store revenue and then you've had that snapback that youre, referring to where we're averaging 5% for three or more years of same store revenue growth. What I think is different this time or is likely to be the first off the decline was much larger absolutely both.
Last year and this year larger than the order of magnitude in those two prior cases, but I think we're going to skip the transition year and go straight given the velocity Michael speaking of we're going to go straight to a number of that's considerably higher than net sort of transitional of zero to de Minimis. The same store revenue growth. When you look by market one market I will.
Thinking a bit about before the call was New York and we certainly hear a lot about New York and net kicked around a little bit but when you look at the numbers. After the great financial crisis and couple of years day had quarters, where the numbers were 7% quarter over quarter and I'd remind everyone that simply removing concessions is in <unk>.
8% increase for a given lease in revenue year over year. So I think New York will put up some pretty good numbers, but in fairness. That's based on some pretty big declines and I think the same is true for San Francisco I think we've got a lot of confidence in southern California, I think debt market is doing very well I think Seattle is.
<unk> been a little uneven so I'll, let Michael maybe comment on that a lot of confidence in Boston. The recovery has been great in that market. There's a lot of good things happening in Boston and again in D. C and we haven't talked about it in the wild but.
We're still going to of Amazon's HQ, two coming and Thats very close to numerous of our assets. So I feel like when I look at the markets, San Francisco, and New York might post very significant quarter over quarter year over year numbers, but in fairness that has to be judged by the level of decline that occurred the last few years, but when you just do comps.
Round numbers I think southern Cal is going to feel good I think Boston is going to have a really nice recovery income out of this more quickly than a play sales. So I guess I'll defer to you Michael as you think about Seattle, because I just don't know how to think about yes, well. So I think near term I think I said in the prepared remarks, it's had these moments of kind of fits and stops as our recovery.
But if I would go a little bit further out longer term I mean, the demand drivers are strong in all of our markets. So as you really think about our ability to kind of grow revenue across our market. All of these markets have unique aspects of what's going to be really delivering that demand growth and I feel positive about really our op.
Opportunity as we work our way forward, we've still got the near term stuff, we've got to work our way through but the momentum is on our side right now just and Im sorry. The supplement further maybe just a conversation about Denver and this is just as applicable to Austin I mean, a lot of the per square foot rents in those markets are $2 to two.
20 of foot per month.
When you look at other markets that we think Denver will emulate like Seattle, there is a lot of room to run.
And when you look at single family and I was just out there with our Chief investment officer of few weeks ago in Denver Gray.
Great quality of life of lot of good things to say about job quality and a lifestyle and in of Denver, but also single family has gotten a lot more expensive I mean townhouses that routinely of $600000 nice homes, but not elaborate and again, our rents at that level of compete well and I feel like you could see some real outperformance for <unk>.
The year end departments in places like Denver, and presumably places like Austin. The issue is that the market is pricing that in and of cap rates are pretty darn low, but again, if we're trading out of assets, we don't want and it's at the same cap rate and we're buying of better kind of growth stream. We think that Matt is going to work out for us.
Alright, well, thanks for all the comments and the up at the time.
Thanks, John.
We'll now hear from rich Hightower Evercore.
Hey, good morning, guys. Thanks.
Thanks, and good morning, all of the year.
The operational details good morning.
Just.
Think about the charts in the Investor deck from last night in New York, and San Francisco and as we think about sort of the interplay between occupancy and net effective rents and Michael I think.
Touched on this a little bit in your prepared comments, but.
Is there a is there a chance or something youre forecasting where maybe rent level off a little bit of as you play more catch up in occupancy in those markets specifically over the next few months.
Well I think I would say that the occupancy of catching up in that trajectory moves our focus really in both of those markets is to continue to claw back as much of this decline as we can given the strength in demand. We're seeing we still got a ways to go if you if you isolate like downtown San Francisco.
Go to the nine properties of 2500 units, we have were still materially off from where we were at this time last year. The good news in that market as concessions have really abated. So now we have an opportunity just to grow that face rent the opposite opportunity exist in New York right now, whereas concessions held on strong.
And now our focus is let's keep trying to pull back those concessions, even while concessions maintain that high level in the first quarter. We were trying to pressure test raising up right. So we have a different opportunity in both of these markets.
To really go forward, so I wouldn't say, it's let's pause occupancy and claw back all of the rate or let's keep rates, where they are and get all of the occupancy. It's this constant push on both levers.
Okay that makes sense.
And then just.
In terms of the.
Sort of the return to office ways, obviously thats the big.
Contributor to demand, whether it whether thats happening now or or maybe later this summer, it's causing demand to increase in a lot of the sort of the urban core submarkets.
Submarkets are there any trends that we can or the <unk>.
Youre gleaning from your portfolio in terms of who's moving in and.
Whether thats by price point or unit mix or maybe the different neighborhoods are there any kind of interesting.
Takeaways from some of those data.
Sure well I will tell you I think on the past calls I talked about the pressure we were having with studios and just not seeing a lot of demand for new leases there.
That clearly is changing as we work our way through that first quarter and through April just sequentially from our point of April 20, <unk> to the end of that first quarter, we've improved 150 basis points and our occupancy of studios. So we're not backed all the way, where we were but we're clearly starting to see that demand.
And that's really an interesting standpoint, because we're not seeing as much of the acceleration in the rate recovery on studios, yet so youre still seeing that attractive price point and that leads to that next demographic piece just from the overall affordability and like the household income. So what we've done is we're really focused.
Right now of new residents that moved in with US during the first quarter, what do we know about them. So first from the overall age profile of demographic really pretty much in line with our historical average those move ins had 33, there were 33 years old so a little bit less than like in New York market.
Where we are 33 and a half but historically we were up at like a 35 year old kind of moving in so not a big change on the age and the affordability index, which is really rent as a percent of income we really saw no significant change across any of our markets. The portfolio is still averaging at 19%. So.
Rent as a percentage of income of 19% when you drill into that because rates are still down that means what gave us a little bit of a decline in the annual household income for our new residents moving in it's just not a significant number of though these are still affluent renters that are moving in with us the most significant.
Decline came in New York, but our average renters for Q1 household income was $215000 in that market and the rent to income ratio is still at 18, 5%. So we've been kind of watching these demographic trends to see what's happening the.
The pattern of going after the larger units the 1% and two bedrooms, we talked about on the last call still there we're well occupied on that front now the opportunity of studios.
Okay, great. Thanks for the color.
Yeah.
Next we'll hear from Jeff Spector with Bank of America.
Great. Thank you good morning.
One follow up on that the last discussion around demographics.
Specifically, New York City, and San Francisco can you discuss a little bit more on who's returning who's entering the portfolio.
Any color on that to give us.
Sure. So I think by that we'll just we'll talk about what we say is like our migration patterns. So like where are people coming to us from the new residents as well as when we look where our residents that are leaving going and I will tell you in San Francisco.
We're trending back towards normal pre pandemic levels.
The applications from within the same MSA and state both still remain elevated huge improvements sequentially from what we saw in the Q3 and Q4 period of last year, but they are both still slightly elevated which really just means that youre still seeing kind of this deal seeker or people trying to take advantage of it just moving.
Within the market the New York front is really almost returned back to normal it still has some elevated level of deal surgery secrets from within the same MSA, but really that is materially lower we were up in like 80% of all of our applications in New York, we are coming to us from within the same MSA right.
Now we're back down to 65%, which is right in line with our historical norms.
Thank you very interesting and then second on renewal rates.
I know you made comments on markets.
<unk>, San Fran and New York.
It should return positive by May.
Sorry, if I missed this but can you provide a forecast for San Fran and New York When do you expect renewed.
The renewal rates to stabilizer of the also turned positive.
Yeah.
That's a great question. So I think a lot still depends upon our ability to grow that pricing trend over the prior year and really back to that pre pandemic level. So I would think I would look at the somewhere in we have an opportunity in the late second quarter early third quarter.
To do it if that momentum stays but I could also just see that number of kind of moving out of few more months. If we kind of hit any section of pause and our ability to keep recovering and climbed back debt rate.
Great. Thank you.
Okay.
Alexander Goldfarb with Piper Sandler has our next question.
Hey, good morning.
So Q2 questions.
Yeah first.
Mark as you were talking about the.
Yes.
The markets are the sort of the change in the demographics of people moving in.
Your view simply that based on the commentary of the income levels that youre seeing and really talking about San Francisco and New York because it sounds like the other markets are doing much better is your view that if you remove the concessions that the new renter profile can't afford the standard face rents or is your view that it's going to be.
The slow trickle of.
Easing back into the historic phase ramp than let's say we were at in 2019.
Well I mean, I think from an affordability index, it's clear that the new residents moving in are going to be able to afford increases as we return to those pre pandemic levels.
As we have been pulling back even sequentially in the April and as we think about where we sit today even from last weeks kind of applications coming in we're pushing really hard and we're not we're not finding that resistance point, yet I mean, that's our goal is to keep pushing and trying to find net resistance point, we haven't seen a change in the dam.
The graphic profile, so I think from an affordability standpoint.
The applicants coming in they're all approved based on the gross rent so regardless of concessions.
They are approved on that gross rent and they're used to paying us that gross rent after they get past that first or second month. So I think that's something we'll have to watch in the markets, where we like New York and San Fran, where we really kind of have momentum to dial back even more on that concession use but to date for the month of April we have not seen.
Any material change in that demographic.
So if I understood you correctly all the tenants are approved based on their ability to pay the non concessionary rent of the bulk base rent is that correct.
That is correct.
That is correct.
That's actually a pretty big so it's all of it.
Total not the effective rent okay. It's interesting mark would be of conference call without rent control of the discussion.
The IC that Albany is still kicking around the good cause eviction.
The potential for basically rented from New York you.
You didn't mention it in the light of Aspen.
The of markets that you would.
The sell down, but given that new Jersey, and Connecticut are don't seem to be in that same vein with yoga view of of selling down here in New York, and Manhattan exposure, and increasing New Jersey and Connecticut.
So youre going to ruin all of the news for next quarter, but we did sell our last asset in Connecticut and that was really an asset decision. It just wasn't a property that we thought had the renovation potential that the buyer did so just a little bit of an older property. Alex we are interested in.
Deal and will likely close shortly that is of new Jersey.
The higher end affluent renter base, you can certainly community of Manhattan, but theres a lot of folks that live at this property that are going to work in that area. So we are open again, New York has the New York Metro has some huge advantages in terms of supply dynamics in terms of having the largest base of high income renter shipped in the country by a long shot.
I think you can say whatever we all might say about this present in the prior president's actions, but as it relates to infrastructure and spending and things that the city of New York The state of New York and the <unk>.
States around it needed in a lot of money is coming into the states. The heel. So we're still open very much to investing in the greater Metro area and New York.
Okay, but it sounds like you may be opened the further selling down your direct New York exposure of that fair to the fact.
That's fair to say, we of 27 buildings in Brooklyn, and Manhattan I can't tell you. How many we will have in two years, but it will be somewhat less and I think that we've got some of that for 'twenty. One day stuff you might remember that we've spoken out of that is just hard for a public reporting company to own and I. Just think we are probably just a little over concentrated in Manhattan.
You may just see a slight net but again youll see us find deals that we like in the Metro area will buy those so we've got a development deal and the New York Metro area as well that we'll talk about next quarter of the quarter. After so.
Think we're willing to do both Alec but the Alex but this trend of spreading out our capital is true in every market and that definitely includes New York and I think New York net will be smaller the.
The metro Okay.
Thank you the markets.
Thank you I appreciate it Alex.
We'll now hear from Rich Hill with Morgan Stanley.
Hey, good morning.
One of the back to meet the comment.
The question Nick was talking about at the beginning and thank you very much for the additional disclosures I recognize Marty might feel differently about putting it together, but we certainly enjoy it.
I think.
If you think about pricing trends.
Hi.
The slide on page five talks about all of your markets I am struck by how the ball.
<unk> County, and San Diego have done well above pre COVID-19 market Denver is holding up fairly well. So as you think about the ability.
To push before returned to work, let's use New York as an example, it seems like given the demand that youre seeing from people Opportunistically moving back to major markets like New York City, There's still healthy room for you to push that does that is that the right way to think about it.
Yes, absolutely.
You can just look at the slope I mean, I would say we have been pushing if you just look at the slope of the line that's occurred but our goal is to keep being as aggressive as we can.
While we have that demand kind of coming in that front door.
Got it and so as we think about these pricing trends given the NOI contribution coming from markets like New York from Washington D C.
San Francisco, you could actually see those debt pricing trends.
Go well above where it was this time last year.
From a variety of different reasons, but primarily due to mix. The fact is that is that a right way to think about how that pricing trend might look like in the <unk> assuming that you put the slide in your deck again.
Well, it's Mark just I just wanted to make sure we're answering the right. The right question for you. When you start comparing price trend for example in July of 2020 in any of those markets to pricing trend in July of 'twenty one.
<unk> kept going down in 'twenty, one, we believe and hope and feel is going to keep going up those numbers will cross.
Relatively soon so we want we're trying to be careful we are certainly happy.
That were improving and we see that as an absolute but pretty soon it won't be relevant to judge us against 2020 anymore. It's when do we get back to pre pandemic 2019 early early 2020, and we're making progress towards that so to answer your question, yes that will probably happen in those lines with <unk>.
That's partly because we do feel like we can keep pushing pricing trend that's partly because of it went down so hard in 2020 in fairness, but I think youre going to see us talk more and more of things keep going this well about how and when we'll get back to 'twenty. Late 2019 early early 2020 type of pricing is that is that helpful.
That's absolutely helpful and that leads me to my next question, if I can which is the forward outlook.
Obviously, the market wasn't wasn't weaken in 2019 prior too.
Prior to COVID-19, but is there a scenario where you can actually really begin to push rents pretty pretty heavily.
Once you normalize back to 2019 levels given the combination of strength that youre seeing in the already strong markets, but also on millennium Z generation that should create a heavy demand in urban markets.
We certainly hope so I mean, you are starting to ask a question thats more applicable probably the 2022, but again, we've all read the article.
Yes, we already are I mean, the setup is good you got great occupancy I mean, New York and just a few weeks, we'll open up to 75% occupancy and office space and we're seeing these numbers so strong and legally it's not open for more than 50% occupancy that feels terrific to us.
Again, we've all read about what happened after the 2019 or whatever it was Spanish flu epidemic. There was a lot of pent up demand for all sorts of things and I think we will see that I think people want a little more space young people, who have been stuck at home with their parents. My kids included one out and they want to live where we own properties.
I think we're going to feel all of that which is your gen. Z comments. So I think we've got a good long runway here ahead of us as we get through this year put the pain of 2020 behind us as a company and the society I think youre going to see some pretty good numbers from folks like us the apartment owners of these big cities.
Yes, Thanks, guys I wasn't asking the question about 'twenty, two and just trying to think about.
[laughter] once we get past the inflection in the second half of 'twenty one in the first half of 'twenty two.
Which feels very real to us what do we look like going forward.
That's quite helpful guys. Thank you.
Well I want to shift the heavier, but I'd just tell you.
Obviously progress and the pandemic hits the continue like I said in my remarks economic conditions have remained generally supportive, but theres good momentum the single family market is very expensive steel.
Do understand all of the return of office work remote arguments, but I think there is still a very large constituency happy to live in our urban locations.
Great. Thanks, guys.
Thank you.
Our next question comes from John Kim with BMO capital markets.
Good morning.
Question on concessions so in New York.
You mentioned that 55% did not receive of compression and 45% guidance takes on average.
Well, what's the difference between the haves and have not does that of neighborhood.
The discrepancy or price point.
Yeah.
Well, it's I think it's a little bit of both so clearly we have some markets like the upper west side and upper East side, where we really have pulled back using concert concessions you still have submarkets like Chelsea and Graham Mercy that you still see concessions are being use widespread.
Across most of the applications.
So yes, I think at this point, we've seen momentum in the last three weeks even in those tougher hit areas. So we're going to just keep open that we could keep pulling back and dialing back not only the value of the concession, but just how frequently we are the other thing you got to remember with the use of concessions is many times what we are.
Doing right now is we will have concessions in place on vacant units.
To create the sense of urgency to fill our vacancy and we will not offer concessions on noticed unit, which as residents that said theyre moving out somewhere at the end of May or end of June we will advertise those units for sale, but we will not have concessions on them and we are leasing those units without concessions.
Okay, and then how long do you think it will take to <unk>.
Reduce the concessions back to kind of the comp.
Is it going to be more of like a more than one leads to the cycle.
Hi.
I think thats too early to tell right you can see the momentum in like the San Francisco downtown San Francisco.
How fast you can pull back so I think new York or the Manhattan sub markets clearly of the opportunity to just pull back but at the same pace. They haven't done that yet and I think of lot of that does have to do with the type of ownership, we have where you have a lot of kind of single.
The single owned assets that arent using yield management, and they're going to they're going to keep those specials in place until they fill back up and then they will eliminate the concession. So I think thats still TBD as to when we'll get back to the place where were normalized on the concession use in that market.
Okay, and then Mark you mentioned that the portfolio repositioning of this year, we will have minimal impact.
Two the earnings this year.
But do you see this new market concentration, providing more earnings growth potential or the benefit really diversification and stability.
The forward.
A little bit of both when you think about growth.
As I sit in some of my prior answers, it's likely that New York and San Francisco will post absolute numbers that are somewhat higher in the near term, let's call. It. So maybe 'twenty two 'twenty three ish periods, just again because of the decline John was so significant before.
I think when you start to talk about a longer period of time, it's probably good to have a little bit of a.
To be in a few of these growth markets and be a little bit spread out.
So and I also just think diversification of all sorts of is good the listen we've talked a lot of our political risk in some of our markets, but I would point out now if the owned departments in Texas, you probably have some pretty significant casualty and maintenance issues to deal with from the free. So there is no place that's riskless from a physical point of view.
The <unk> from political issues or whatever so just having the capital and us being in six seven market, probably better than 10 or 11, but I don't see us going back to 30% like we were in the late Ninety's. That's not that's too many to keep I think good track of in the beyond top of.
Great. Thank you.
Thank you.
Sure.
Amanda Sweitzer with Baird has our next question.
Thanks, Good morning.
Can you guys provide an update on your ancillary income trend and do you have pricing power to implement some of the seeds today and any thought to bring in more short term rentals.
So the short term rentals I would say at this point, we're not doing that we see enough demand for conventional renters. So we're going to kind of hold off on going back to that type of rent.
Renter and as far as the ancillary income I think we're still being aggressive where we can with all of our amenity fees, whether that's raising the parking I mean, we spent a lot of time.
Over the course of the last couple of years improving kind of.
How we priced our parking spaces and how we kind of optimize the revenue from that so I think there's still a little bit of opportunity left but not a lot. There and then the other thing that feeds into some of those ancillary income is just our settlement fees. So when people break leases what are the fees we charge we.
Clearly of increased those throughout the COVID-19 pairing will keep them at this elevated level.
And then the other areas that we have right now I would say we had some things in place pre COVID-19 that we're just not ready to go back to yet.
That's helpful.
And then of a follow up have you given any thought to repurposing. Some of your existing commercial space and if you have I mean white uses the peer interested in any perspective of rois on those conversions.
Yeah, Hi, Amanda it's mark.
So we have given some thought we've talked on prior calls a little bit about that so again this would mostly be for our current residents are thought isn't to compete with those sort of rework type of remote work providers. It's more to provide an amenity to our residents that they are either paying for directly on a per use.
Basis, maybe its repurposed ground floor retail that we put a great internet hub in some furniture and then off to the races or maybe it's just space in existing amenities that we're bifurcate a little bit more so people can use it. So I don't really have an ROI for you as much as its stickiness and I'll say that one thing we don't want to do is just hold.
On the empty retail for too long, assuming we can get cities still let us rezoned. It we.
We do have retail space that was vacated and we.
Just given a lot of thoughtfulness to other we're just going to put you retail tenants in that space and then you Havent forbid 234 years later go through the same experience again, because retail is the tough business. We're glad we have very little of it. So we may repurpose some of that additional spaces.
Potentially amenity space for our residents, but you shouldnt expect us to use it.
Significantly as an independent rental stream.
That makes sense I appreciate the time.
Thank you.
We'll now hear from a handful of Sun's used with Mizuho.
Okay.
So I was just I liked it. Thank you the morning out there.
Yeah.
So hey, I was curious maybe you guys can talk a bit about the outlook for bad debt in the portfolio given the recent extension of the conviction moratoriums and how that plays into your same store revenue picture for your California, and the overall portfolio and the.
Whats reflected in the guidance.
Yes.
Yeah.
No problem handful its Bob.
So from a bad debt perspective, not a lot has changed and you kind of saw that in the reported numbers from sequentially from Q4 to Q1. They are relatively flat and that's what we assumed in our guidance is that they kind of stay the same we did not in the suit assume any kind of material level of improvement.
That's obviously of potential green shoot we are very active in the process of working with our residents as it relates to some of these federal rental assistance programs.
And that's particularly concentrated as you kind of alluded to in southern California, where we.
We have experienced the most elevated amount of bad debt and so that's a possibility, but it is not incorporated into the numbers themselves. So for now.
Our best guess is just assuming that things stay the same throughout 2021.
Okay.
And maybe you guys can we.
Talk a bit about.
If you're funding thoughts for potential acquisitions.
<unk> at all given the continued improving your cost of equity I know that the plant this year with the B E.
The proceeds from dispositions to buy it but just curious.
Today, there has been any shift in thinking about the perhaps being more of a net acquirer of giving the improvement of cost of capital and then also as part of that maybe you could talk about your plans to get bigger in Denver and Austin.
<unk> will play a role in that in Europe, multi zone development year.
Well, it's mark Thanks for that question to handle those are a little bit linked because of the one thing we can't do with recycling is development. So if the 10 31 rules continue to be in effect, it's pretty efficient for us because we do of assets, we want to exit in markets, where we want of lower exposure.
To do use of do a tax free exchange of then just move the money over.
<unk>.
I would say on development, that's an area where in the past we have used the ATM or have used other mechanisms to raise money because you can't 10 31 into developments you really need to.
Have independent capital often it's been pretty small so we've used debt capital, but again as our cost of equity improves here and as it becomes a more relevant funding source I'm open to it another way by the way to address our market concentration or desire to rebalance is to make the whole company bigger.
So you could use again, Atms and issuances to buy assets and not recycle, but as long as the $2 31, and buy assets I'm, sorry in new markets or in Denver for example.
But that's the that's a process that could have more dilution associated with it. So I just want to be kind of a thoughtful about.
Okay, good and thoughtful think of your market. One question. One last one from me maybe you can help me understand something a bit better the commentary about reinvesting your potential disposition proceeds from California.
Into places like Denver, but accretively on an IRR basis.
Yes.
The reconcile the math if cap rates in <unk>.
Denver, and California are in both in the call it low for maybe the sub 4% range of rents across much of California still sitting below well below prior levels, while Denver has already.
It looks like it's passed it.
Yes.
The lower Capex.
How are the IRR.
Debt.
Different or even better in the place like Denver with Catholic already pretty low. So maybe you can help me understand what I might be missing here as you think about the reallocation of capital from California to places like Denver.
I think youre asking a very fair question I think youre starting at about the same place as you suggested I think the assets, we're selling often do have significant capital that needs to be invested and I. Appreciate that's more of an <unk> thing than an <unk> thing, but as you know we think a lot about capex at EUR and so in a lot of these cases, we're buying new products.
<unk> in Denver, and we're selling old product in California, and so I think the shareholders are much better off on an <unk> basis. I'll also say again when were in Denver looking at $2 of $2 20 of.
A foot rents for per months in a place where incomes are rising very quickly where you got a lot of momentum that to me is compared to $3 $54 rents in California. It makes me feel like boy why Couldnt that number of very quickly get to Seattle's number in the higher twos in low threes.
Why why can't that happen over an accelerated period of time, so we're not underwriting crazy numbers in Denver, but we are underwriting significant same store significant rent growth in the first few years and then some sort of normalization, but I feel like I've got the likely more upside in places like that for the reasons I just.
<unk> and we already have tons of California exposure. So if California does draft up as you said, even better great. We already have will always have 40% of the company and that state, but maybe we don't need the 45 plus percent in that state that helpful.
That is certainly it sounds like obviously that there the.
Capex element in your comments about the yet though.
But just curious as we look back over the prior debt.
Decade, and we see cap rate compression between the coastal and non coastal years ago. It used to be 50 75 basis points of few years back maybe 25 50 today, we're sitting here right.
Top of each other I guess I'm curious.
Where do you think cap rates in places like Denver or three to five years from now versus today comparatively to say, New York or California.
We got to start by knowing what interest rates are with growth is with Paul.
I wish I was that good.
Yes.
That's the big that's the Big Kahuna question, Yes, I mean and by the way do I have to know the answer for sure if I'm spread out in places where theres knowledge workers. Good general economic growth I mean, if we spread our bets a little bit and al will draft that no matter, where it happens right and again to be over concentrated in any one place probably.
That's probably the lesson, we've all learned even before the pandemic wasn't a great idea and it isn't just again these coastal markets.
Everytime Hurricane season comes we have no properties, there, but we used to I remember shuttering everytime. It started because I don't know what it was going to do to our numbers into the condition of our properties. So I mean every market has significant risk of one there is no risk of this apartment market so to be more balanced I think is a good idea in any regard.
Much appreciate it thank you for the time.
Thank you.
Our next question comes from Brad Heffern with RBC capital markets.
Yeah, Hey, good morning, everyone.
The question on office conversions. So we've heard some reports from the press that some major metros or thinking about converting offices into apartments potentially or potentially just the typical housing do you see that as something that's likely to happen in kind of potentially have any sort of meaningful impact on supply.
Maybe that we wouldnt see in typical supply numbers.
Yeah.
The first off price anything that helps the affordable housing shortage is worth trying so we will start with that premise because again some of the conversations of articles I've read and you've likely read are about can that help with the affordable housing I am not sure, but let's given of world because that's the real issue, but the problem with <unk>.
<unk> offices, often these are older office buildings large floor plates limited windows. So when you think about a lot of units that don't have outside access that don't have windows I think Michael would tell you those are going to be card units to rent. We do have a couple of buildings in the portfolio that were repurposed.
One is of great asset debt used to be the U S steel headquarters.
Down near the New York Stock Exchange on Broadway that's of Great asset that's really cool. It's also a pretty narrow asset everyone as window access and the adding of the property works, we have some out west as well same thing floor plates of little bit smaller there is an interior courtyard I don't know what happens with the building that takes up half of block or more.
And Youre, just trying to turn it all into apartments I'm not sure how that's going to work so I'm not that concerned with it as competitive the higher end departments and I think we'd be open to trying to figure out of way to make it into affordable units, but again. This window issue is not a small one most people want to see the outdoors.
Again, I think Mike will be very unhappy if we gave them hundreds of units to rent without windows.
Yes, Okay. I think we can all agree I mean the windows.
Yes.
Yes.
I was curious why the top end of the of the <unk>.
Guidance stayed the same and just given that all of the underlying or most of the underlying contributors moved up at the high end is there something thats maybe the.
You guys don't guide to the depressing the top end of the range or maybe is there some conservatism built in just given we're so early in the year.
There is certainly no.
There is nothing that depresses the the the.
High end of the range of et cetera. So there's nothing in that regards on the from a guidance perspective.
The only thing I would tell you from the range is in the shifting of the range is that you have to keep in perspective is where we started from and that range that initial line <unk> range that we gave at the beginning of the year was very wide right. So with the 20 <unk>.
Difference.
So it was probably abnormally wide relative.
Relative to typical years and other timeframe, but I wouldn't read anything into.
No.
We shifted up the guidance range on revenue on NOI and then we paired off the bottom end of the <unk> range, but I won't read anything of not raising the top end.
Im answering your question.
Yes, I mean, it's still kind of of math, yes kind of of math equation.
There's five since more of <unk> likely to come from operations. So you moved the midpoint up <unk> to $2 75, and you didn't need the rest of the range. So it was kind of what happened.
Yes, Okay got it thank you.
Thank you.
<unk> with UBS has our next question.
Okay.
Hi, this is the <unk> in place for Brent.
Could you give us some color on how much of the impact on the extreme residential housing the environment has on your business from.
Are you, making decision as far as rents or potential acquisition or dispositions, given what's going on or are you, taking a wait and see approach. Thank you.
Pardon me I Didnt quite understand that question are you asking what extreme are you referring to.
The low inventory in the housing.
And some of the higher prices.
Or was that really affecting your business.
Great. Thank you so you're referring to single family housing I'm, sorry, we took that to mean apartments.
The whole portfolio was designed not to have a lot of impact given the markets. We're in from single family. So the fact that single family prices are going up and availability is tight that's somewhat helpful. I guess to our business, but it.
It is not as helpful. As if we had a portfolio in the market where everyone wanted to be of homeowner right away.
You think about markets like of Kansas City, or something where people just they really living in the apartment is the transitional state for people with with the middle income and they want to own a home right away and the rate is much purpose to being a renter as much advantage in terms of amenities in the city center.
In our case, our residence of our thinking a lot about lifestyle and job proximity and other stuff. So single families issues arent really not terribly relevant to us right now.
Okay. Thank you.
Thank you.
Next we'll hear from Alex Kalmus, with Zelman and associates.
Okay.
Thank you for taking the question.
The depreciate the favorable new move in trends in concession of environment how are you.
Youre peeling off some of those but.
Just curious how the brokerage commission component.
Ladies into your leasing strategy going forward.
Oh, sorry, yes.
Just curious the venue.
Yes, so for US I mean, the use of brokers is really heavily concentrated in New York and right now I'll tell you in the first quarter were just over I think $300000 in broker fees and it is truly directed towards the Submarkets, where we are still having the most pressure so.
Graham Mercy few assets in the Gramercy Submarket and Chelsea Submarket is where we will have kind of.
<unk>, where we're willing to pay that broker fees, but you can see that $300000 quarter. My guess is as the market continues to improve that our dependency on that brokerage in those submarkets will lessen.
Got it thank you very much and.
Sort of touching on the renewals from me.
Moving to a different way.
What occupancy level would you.
Comfortable at in your New York, and San Francisco markets.
Sort of get to a more flat renewal rate of that there is there any sort of benchmark that you would look towards.
Well no because we're quoting a renewal offers in line with where that future Street is expected to be.
So as we think about pricing trend net effective pricing trend as soon as it starts crossing over prior year in any asset or any submarket. Those renewal quotes will go out with an increase.
And then we'll just we'll start having the conversations with residents, but so much of our ability to to focus on achieved renewal rate increase is dependent upon what is happening in that direct some market around us what other options when that renewal offer comes in and as concession use starts to abate.
Power and the negotiation shifts back to the landlord.
Alright, alright, thank you.
Yeah.
Our final question the day will come from Nick <unk> with Scotiabank.
Oh. Thanks, so in terms of the concessions can you just remind us in the guidance what that assumes in terms of.
I know you'd of container has the straight line issue with the goal of sessions, but from a cash standpoint.
What are you assuming for concessions for the back half of the year or any of the monthly numbers they've been declining do they continue to decline.
Sequentially from here.
Zero.
The relative to the guidance.
Yes, so thanks, Nick for the question so are.
Concessions are assumption in guidance from I'm going to talk from a cash basis, and then I'll talk I'll mentioned, a little bit the amortization, but is that we continue to see the good momentum that Michael has kind of outlined and we continue we continue to see the reductions.
That we mentioned for instance.
Between like March and April So we continue to think on a cash basis that they will decline.
Because of the GAAP treatment and the straight line amortization in fact, we think that the cash numbers are going to flip soon such that the cash numbers are better than the GAAP numbers, meaning you're amortizing more concessions and youre actually granting on new ones. So you saw in the first quarter that the GAAP number was better than the reported cash.
Number I think thats going to flip and that's what's encompassed in our guidance of that makes sense, but it is a continued decline as we can as we work through the recovery and we're already seeing that while on the way as Michael outlined.
Okay. Thanks, that's very helpful. Just one other question on the concession activity.
Is.
If you look at I know, we keep talking about New York San Francisco, but these are markets, where you did say concession activity coming down.
At the same time you are still.
100, 200 basis points below prior.
Prior to COVID-19 occupancy and so I guess I'm wondering you know why if you're going into the higher turnover season over the next yes.
Second quarter third quarter, why if you're still below on occupancy than sort of long term goals why would you be.
Pulling back concessions in the market.
Yes, So I guess I would tell you you need to really drill in and understand the assets that were competing against and what is the occupancy of that sub market that we're operating in because when we're looking at this we're always trying to stay call. It a 100 200 basis points above what we would say is market Aki.
P&C, but win right now when you're in this recovery phase the overall market occupancy is not as relevant as drilling in to the assets that you are competing against and what are those occupancy. So I think this balancing act of clearly in these more hard hit areas like the New York and San Francisco is to really focus on recovery.
Everything grant grab your occupancy and keep pushing aggressively on rate and dialing back concessions San Francisco responded well on the pullback of concessions New York was a little bit more resistance and a lot of that has to do with the type of ownership that exists there Nick.
Nick It's mark just to add a little bit to that.
Our ownership in New York City, So Brooklyn, and Manhattan, as well as in the city of San Francisco, which is where all of this action is really happening that's about 10% of the company and so it's a small group of assets as Michael said, we're very capable of doing both I mean, we intend to raise both right.
Diminished concessions and drive occupancy, but there may be buildings, where we just can't move concessions and Michael but we've got great demand, but we just have that demand is super price sensitive then youll see us just grow occupancy, but for the most part now where the better position that demand we talked about in the fall led to the occupancy improvements over the winter is leaning of the pricing improve.
<unk> now the shortly we hope will lead to the other abatement of concessions, though.
Not in our guidance, we think concessions exist all the way through the fourth quarter, just a lot of lower but there's sort of this cycle. We're in that I think is a very positive line.
Okay I appreciate that mark thanks, everyone.
Thanks, Nick.
And we do have a question from rich Anderson with SMB CLEC.
Hey, sorry, if they're giving you on but that's why they tell you the big box.
Yes.
Final question.
The question about the tail, perhaps a longer tail to this recovery like for the as long as I'll cover the multifamily you go through the spring and summer leasing season, and when Thats over your kind of the.
<unk> in the bag so to speak you start thinking about the next year at this time, the Magic day seems like Labor day.
The schools, perhaps reopen offices reopen to have a different dynamic in terms of economic activity that could extend.
The activity level within your business do you see that as the potential outcome from this since it's so different than any other environment, we've seen that the.
The ability to kind of extend your quote unquote heavy leasing season could actually fall into the fall months because of those dynamics.
Absolutely I, absolutely could see that playing out. We also have we had great traction in Q3 and Q4 of 'twenty. So from a rent roll perspective, I will have more renewal activity kind of in that back half of the year, it's not a material shift but it is of ship. So I really do think this demand.
Profile and what we used to think of as a normal kind of peak leasing season is going to extend out and go into kind of the later part of Q3 and it could very well we've seen other recovery cycle continue all the way through and pushed through the fourth quarter as well, yes, just to give you some real world evidence. We know you are a student of history.
Free like we are.
But the fourth quarter in 2011 for our New York portfolio same store revenue growth again fourth quarter 2011 was seven 4% in the first quarter of 2012 was $7. One I am not promising numbers like that I'm, just telling you that when the markets and our recovery. It can perform like that and our expectation is there will be.
A very fulsome recovery in New York City and in San Francisco over the next few years. So we agree with you great. Thanks very much.
Thanks, a lot.
And that will conclude today's question and answer session I will now turn the conference over to Mr. Mark Carrel for any additional or closing remarks.
Well, we thank everyone for their interest in equity residential and wish you a good day. Thank you.
Everyone now from today.
Tom.
That will conclude today's conference. Thank you for your participation you may now disconnect.
It looks like no one else is going to join this call.
Goodbye.
[music].
Yeah.