Good day, and welcome to the Investors Real Estate Trust Second Quarter 2020 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Decker, Chief Executive Officer.
Please go ahead.
Thank you, Elisa, and good morning, everyone. IRET filed its Form 10 Q for the Q2 yesterday after the market closed. Additionally, our earnings release and the supplemental disclosure package have been posted other forward looking statements that are based on management's current views and assumptions on our results in 2020, including views and assumptions related to the potential impact of the COVID-nineteen Our quarterly report and other SEC filings list certain factors, including those related to the pandemic that could cause our actual results to be materially different than our current estimates. Please refer to our earnings release for reconciliations of any non GAAP It's incredible how much change and disruption has occurred since we were together 3 months ago talking about the Q1. In preparing for this call, I was trying to come up with Good summary for our company and our team of the last 3 months and the word that kept popping into my head was unwavering.
We certainly were prepared for the worst as we headed into the Q2 and the resilience of our team, our customers and our portfolio of communities has really shown through on an absolute and relative basis. To our entire team listening to this call, thank you so much Our focus remains on weathering the pandemic and the economic damage that comes with it. In operations, that means making our business as virtual as possible, while maintaining and improving the customer experience, investing in simplifying our systems and solutions, and staying energetic and safe in working with our residents who are living through all of this with us. We're also working to maintain expense discipline And stifled revenue growth due to the pandemic, RIDE BY 5 is helping now and positions us well in the future. Zooming out to the company as a whole, we're driving improvement in our overall portfolio of assets through rigorous asset management.
And on the right side of the balance sheet, we are striving for long term improvement in our financial flexibility. To that end, in the second quarter, we issued approximately 45 dollars of equity through our ATM at an average net price of just under $72 This cash extends our margin of safety and gives us We'll also consider select asset sales that position the company for stronger and more sustainable growth. The fundamentals of the next 12 to 24 months will be off significantly from outlook at the beginning of the year, but capital flows in debt markets are holding pricing for apartments steady in our markets. That's our early read and we expect that trend to continue as more capital flows into our sector. We expect to be a net buyer over the next 12 to 24 months should our cost of capital remain advantageous.
We do have a large pipeline of opportunities in our target markets of the Twin Cities, Denver and as announced in June, Nashville. We expect to accelerate our continued portfolio improvement if this environment holds. Lastly, I'll close with an exciting milestone. Last Friday, IRET celebrated 50 years in business. 1 P and L in the real estate business 1970 is quite an achievement, unwavering, and we are fortunate to be positioned as we are today on behalf of our shareholders and team.
However, as we've all seen with devastating speed, longevity does not convert any special advantages. Our team is here to move the needle. With that, Anne, could you please give us the operations update?
Thank you, Mark, and good morning. As we discussed last quarter, we were well will benefit our portfolio even in uncertain times. We achieved NOI growth of 1.1% for the 2nd quarter compared to the same period last driven by a 4.3% decrease in same store controllable expenses when compared to Q2 2019. Notably, our NOI grew 3.4% sequentially over Q1 2020 and year to date our NOI is 2.4 ahead of the same period in 2019. Our discipline on expenses was matched with diligence on our rental revenue.
Our weighted average occupancy during the Q2 was 94.6% compared to 94.3% for the Q2 2019. Our collections have been strong, 99.1 percent during the Q2, just a 50 basis point decrease compared to the same period last year. While we believe our positive performance is due in part to the relative insulation of our markets from regulated shutdowns and stay in place orders, We have seen increases in our bad debt where our price point is lower, specifically Billings, Montana, where our average rent is 20% below our portfolio average rent. We do continue to see declining requests for rental assistance across our portfolio. Of the 176 total requests for During the Q2, more than 73% of those came in April.
As of today, we have entered into 184 payment plans, representing $225,000 of total rent with just $40,000 outstanding to be collected under those plans. In July, we entered into 8 deferral agreements representing 10 basis points of our total July rent charges. Our Q2 did bring many challenges. Traffic was 24% lower across our portfolio than Q2 2019 and new lease rates decreased an average of 1.2 percent lease over lease. We did realize renewal rate increases averaging 3.3% for leases effective during But keep in mind that many of these renewals would have been signed pre pandemic.
Traffic did pick up significantly towards the end of May and our June traffic was 26 percent over June of 2019. Like many of our peers, we are experiencing higher retention rates with 62.8% of our residents staying in place upon lease I'd like to also provide some color on July. Our July collections were 99% In our same store portfolio, average renewal rate increased 10 basis points and our resident retention was 66%. Our average new lease rates increased 1.1 percent lease over lease and our revenue per unit is higher year over year with July's revenue per unit at $10.74 compared to $10.55 in July of 2019. As of July 31, we were physically occupied at 95.2 percent.
We believe that some of the increase in new lease rates that we are seeing are the result of the traffic increases in June, which we attribute to pent up demand from the significant lack of traffic in April May. Our July traffic has leveled off to be on par with 2019. We expect flattening renewals and slow rent growth to impact our top line revenue through Q2 of 2021 as we carry forward the lease revenue and our increasing exposure to growth oriented markets should provide an opportunity to perform well as the economy recovers. We are still seeing opportunities for value add in certain communities where we have high occupancy, desirable locations and pricing power. We have continued to value add common area and or unit renovations within 9 communities in our portfolio, with 115 units being fully renovated during 2nd quarter.
Of the renovated units, 78% has been leased and we're achieving our underwritten premiums with an average return of 18.3%. Our teams are back in our communities and our offices are open. We're all getting used to the new normal of social distancing, use of digitally enabled leasing and resident service and the uncertainty of what the future may bring for our economy and our communities. Our teams have shown a remarkable commitment to our residents and each other. And during these difficult times, over 82% of our Minnesota based team members participated in a 3rd party workplace survey that resulted in IRET being named the top This is a great distinction and a testament to our key values of doing the right thing, serving others and being one team.
And now I'll ask John to discuss our overall financial results.
Thank you, Ann. Last night, we reported core FFO for the ending June 30, 2020 of $0.91 per share, a decrease of $0.09 or 9% from the Q2 of 2019. The decrease in core FFO for the quarter can be attributed to lower NOI of 1,300,000 and increased casualty loss of $600,000 offset by reductions in interest and G and A expenses. Lower NOI for the quarter is primarily due to a decrease of $1,200,000 from 20 19 dispositions, Net of additional NOI from new acquisitions as well as a $370,000 reduction in our commercial NOI due to the impact of COVID-nineteen on our mixed use multifamily commercial tenants. Year to date core FFO is $1.81 per share compared to $1.77 Turning to our general and administrative expenses.
For the 6 months ended June 30, 2020, G and A expenses decreased 9.9% to $6,600,000 compared to $7,400,000 in the same period of the prior year. The decrease was driven by COVID related cost control initiatives as well as a $360,000 decrease in legal fees related to our successful pursuit of a recovery on a construction defect claim in 2019. Interest expense increased by 11% to $13,900,000 for the 6 months ended June 30, 2020, compared to $15,500,000 in the same period of the prior year. This decrease was attributed to the replacement of maturing debt With the lower rate debt and a lower average balance on our line of credit, property management expenses decreased $100,000 to $2,900,000 for the 6 months ended June 30, 2020 compared to $3,000,000 in the same period of the prior year. The decrease was due to lower third party management fees and compensation costs.
Looking at capital expenditures, which are highlighted on Page S-sixteen of our supplemental. Same store CapEx for the 6 months ended June 30, 2020 was $4,600,000 a 59% increase from $2,900,000 for the same period of the prior year. The increase in CapEx was related to the timing of capital replacement projects occurring earlier in 2020. Full year same store CapEx is expected to remain in line with the prior year at $8.25 to $900 per door. In Q2, value add spend was 4,100,000 As compared to Q2 2019 value add spend of $750,000 Year to date, value add spend is 6 $200,000 versus $1,100,000 for the same period in 2019.
During the Q2, we issued 624,000 common shares through our ATM program at an average net price of $71.84 per share for total proceeds of $45,000,000 The proceeds from these shares were used to fund our value add capital spend and draws on our construction loan as well as to increase Our liquidity and balance sheet flexibility. Turning to our balance sheet. As of June 30, our total liquidity was Approximately $240,000,000 including $187,000,000 available under our line of credit and $53,000,000 in cash. Further information on our liquidity can be found on Page S11 of our supplemental. Looking to the remainder of 2020 and into 2021, we have $45,000,000 of debt maturities and $34,000,000 remaining to fund on our construction and mezzanine loans for the development of a multifamily community in Minneapolis.
We believe our current liquidity is sufficient to cover our foreseeable capital needs as well as allowing us to invest in our target markets. On March 27, 2020, we issued a press release indicating that in light of the impact of COVID-nineteen on our business and results of operations, we were withdrawing our 2020 financial outlook. We continue to monitor the ongoing impact of COVID-nineteen closely, including the continuation of the enhanced federal unemployment benefits, which expired on July 31. And there remains a great deal of uncertainty as to the impact on our rents and occupancy. Given the ongoing uncertainty Of the impact from COVID-nineteen, we are not providing an updated 2020 financial outlook at this time.
Our Q2 results are encouraging and reflect the work of our dedicated team members who demonstrate our core mission to provide great homes while proactively responding to the business challenges presented by the current environment. It is the great work of our strong team here With that, I will turn the call over to the operator for your questions.
The first question today comes from Gaurav Mehta of National Securities. Please go ahead.
Yes, thanks. Good morning. First question that I have is on the transactions. I think in your prepared remarks, You mentioned that you would consider select asset sales. I was hoping if you could provide some color on what you're seeing In the market and what kind of timing should we expect if you were to sell any assets?
Yes. Good morning, Rob. This is Mark. Yes. So I mean, I think as we've talked a lot a little bit over the last few months, The disruption of the pandemic has kind of opened up a little bit of window in our mind to consider some asset sales that we weren't likely to do.
And I would say that combined with what's been a pretty exceptional combination of Forward looking deterioration combined with a lot of liquidity has actually held up pricing. Pricing has stayed the same or better in the tertiary markets, which is a pretty unusual set of circumstances. So where we can, we'll Consider sales and I think you should think about it like we've done in the past. I think we could be opportunistic On portfolios, but more likely, we'll be pruning portfolios to kind of work ourselves into a better portfolio, which we did in Bismarck and Minot, where we went from sold some older product and things like that to get ourselves to A portfolio that's newer, higher rents, better margins, more efficient, etcetera.
Okay. Second question that I have is on the markets. I saw that Denver and Same Cloud were 2 markets where you have negative same store revenue growth. Can you provide some color on what you're seeing in those two markets?
Yes. Anne, do you want to talk about that?
Yes. Sure. Good morning. This is Anne. So let's start with Denver.
So Denver, obviously, within our portfolio had saw the fastest kind of shutdown and the slowest Coming out of the pandemic given that it's one of our larger cities with higher density and our assets there are fairly core. So we have 2 assets That would be considered downtown assets and then one that is close in, but more suburban. And given the supply in Denver And heavy concessions with many projects still in lease up as they entered the pandemic, we are experiencing a lot of Pricing pressure there. We also have Denver also had our only exposure to a set of leases about Ten leases at one of our assets in a short term rental, and those obviously have gone away and that short term rental provider is in receivership. So we're working through that and having some occupancy issues, which bring our pricing down.
But overall, I think we Holding very well in Denver and do expect to see it continue to have negative lease over lease And flattening renewals there. In St. Cloud, we had significant increases last year. So if you went back into our supplementals Over time, you would see that they really push rents in St. Cloud.
We also had at this time last year as part of our Rise by 5 initiative, we increased our ratio utility bill backs. And so it got a little bit more expensive for our residents to live in our units and that was in effort to optimize our revenue. St. Cloud was hit particularly hard because they have Significant water and sewer charges through the cities there. And so I think what we're seeing is a little bit of that rolling through there.
So it's also, heavy student Population, so there is a university in St. Cloud and with uncertainty around schools and the university, I think we're just seeing Some pressure on pricing there. So a little bit of a confluence event with the utility build backs, the pandemic and uncertainty about education in St. Cloud.
The next question comes from Rob Stevenson of Janney.
Good morning. And could you talk about how move out notices and forward availability are trending looking out, I guess, into September ish, Early October at this point. Any reason to believe that operations change much for the good or bad over the next call it 8 weeks?
Yes. I don't think so. I think we're going to stay pretty steady. We are, seeing a lot of people that are uncertain, right? So People don't know what's going to happen if they're going to be working from home or going back to work, if their kids are going back to school or not, if their job is stable or not.
So We do still see people who are looking maybe to move, but are not yet ready to make decisions. That is leading to higher retention rates. And if you saw, our 2nd quarter retention rate was above 62%, but our July retention rate was 66%. So I think we do expect that into the fall we're going to see a little bit higher retention rates and not much real change in operations. With July traffic did level off to kind of on par with where it has been historically.
And in our markets throughout the Midwest, Our offices are open. We're taking in person tours. We still are doing a lot of virtual touring and digitally enabled resident services. So that has become a pretty normalized part of our business. But, people are starting to move around and I don't think we're expecting a Significant drop off in kind of historical traffic or a big increase either.
Okay. And how are you how would you characterize Your fee stream relative to your rent, is the fee stream under same amount of pressure as Rent in some of these markets, is it you're able to hold the fees and so it's not under the same I mean, when we look at those sort of Total picture, how would you characterize the fees today and looking out over the remainder of 2020 versus rent? Yes.
I think the fee stream is under the same amount of pressure. We're looking at it's down around 8% from our historical. And so we have to give the price gives somewhere, right? And so as we look at the total revenue optimization, Sometimes we're peeling back on the fees or waiving some of those fees. Instead of a large concession, we might be waiving application fees or Lease break fees, that's something that we are have been waiving in some cases when people are Have financial uncertainty rather than fight with them about the amount, so we're kind of letting people move on.
So yes, it is under the same amount of pressure and as I mentioned down around 8%.
Okay. And what's driving Year to date expense growth in Rochester, which is up like 15% Rapid City, about the same and then billings about 6 Specifically, is that capital spending? Is that taxes in those markets? What's driving that?
Yes. So it's taxes and insurance. At the end of last year, we really got our insurance renewal and we got the taxes in and realized Most of our markets were going to take a pretty significant hit there in our non controllable expenses. But our controllable expenses are down. And So we feel pretty good about the overall expense growth rate given the pretty big increase that we saw in taxes and insurance and particularly Rochester was hit very hard with taxes.
Okay. And then last one for me. Mark, why Nashville today versus 2 years ago or whenever you did Your last exercise, what brings that on to the radar screen today versus what didn't it have when you ran this exercise last time?
Yes, that's a great question. I mean, in both instances, we kind of ran an internal process and then Engaged a 3rd party consultant to kind of get to an answer and see their work. When we were starting, we got to Denver, I think there was a little bit of it was Somewhat adjacency to our existing geographies. So we sort of view that as the best Midwest or Near West market. And we're looking at Nashville now for two reasons.
1, we've I wouldn't say we've completed our beachhead in Denver, but we have what we believe to be critical mass there now. And so we won't we'll keep going in Denver, we'll keep going in the Twin Cities and Nashville just has some very attractive growth characteristics. We looked at 60 markets. We ranked them a whole bunch of ways and Nashville kind of came up on top in every way, Not every way. Every dimension that we were focused on, it came out on top.
And how would you characterize, I assume that you've been looking there, given the announcement. How would you characterize that market in terms of Depth of product that you would want to own as well as pricing and competition relative to the year other NFL cities of Minneapolis and Denver.
Yes, it's a little thinner. I mean, it's just it is a smaller market and The volume is an interesting thing. Both Denver and Minneapolis, as we've talked about, are about the same size, but Denver does Tend to have kind of 2 to 3 times the volume. Nashville is about 2 thirds the size. And so there is less volume, although we do believe there's a lot of merchant activity there that should play to our favor.
Pricing wise, I mean, thematically Denver, the Twin Cities and Nashville all seem priced pretty similarly to me, which is there's a lot of demand For those assets is, there's just a whole lot of factors at work, including, I mean, setting aside the pandemic, New York was a market people weren't Nashville, the work we did to vet that market, we didn't do in secret or at least the data we had wasn't secret. So Anyone who's doing work on markets, I think will identify Nashville as a strong play. So It's going to be very competitive and pricing is going to be tough. And that's what we felt in Denver. I Obviously, you should get that in a form of growth, both of cash flows and value over time.
We believe in that. And I think When we went to Denver, I can remember some of our early broker meetings, they were like, oh, yes, you're like group number 400 who's saying they're going to buy something in Denver. And now they're like, well, there's still about 398 of those people who are still talking about it. You guys have really done it. And so I mean, We've really chosen to be focused on kind of one market at a time.
Having said that, this does expand our opportunity set by 50%. So That's exciting for us and a good opportunity to kind of look at relative values. But the short version is A little bit smaller, it's going to be expensive and it's going to be competitive.
And have you taken any
of the options for entering that market off the table, Whether it be a JV or a loan to own mezz or anything of that nature or you looking at all those type of opportunities?
Yes. No, I'd say everything's on the table.
Okay. Thanks guys.
Thanks Rob. Thanks Rob.
The next question comes from Alex Cusick of Baird.
Good morning. Just a quick follow-up to Rob's Nashville questions.
I know the longer term opportunity set for you guys, you're still looking, But how much capital would you need to deploy today to feel comfortable entering the market? Is this a market where you guys are comfortable kind of one asset at a time and
sitting on for a while? Or if you
want to But more wide opportunity set ahead of you before you get aggressive on that front?
Alex, if you got a portfolio in your pocket, call me. But Look, I think we'll be measured. I think, as is always the case, we're kind of trying to find The thinnest bid in a world that is very well trafficked. I would imagine the best opportunities will be in deals that are in lease up. I mean that's thematically what we've seen Over these last months is the area where the seller is most willing to take a price that's lower than the price they were expecting, let's say in January or February, Because the leverage market is so strong, if you have a cash flowing asset, Your forward cash flows have gone down, but your mortgage rates gone down, probably at a greater rate.
So The area where we can really differentiate ourselves as sort of an all cash buyer is in that lease up space. I mean that said, Those are harder on your kind of next 12 to 18 months FFO, which is something we obviously have to think about, but could be A good NAV decision over time. So we'll look at all. In Denver, We've now done 3 one off deals. That's what I would expect you'd see unfold.
I think primary difference between how we went into Denver and how we went into here, if circumstances stay the same is to do what we did in Denver, we really had to sell things to buy anything. And now we can continue to do that. And as you know, it's dilutive or we can potentially go to the market and raise equity, which We would do, we'd like to do that helps us spread our costs, it helps grow the flow. I mean, it does a whole bunch of things that are positive on the company side. It has to work on a per share basis and it has to make sense, but that's a tool we didn't have 3 years ago when we went into Denver.
Yes, that's really helpful color there. And looking at operations, repairs and maintenance has been an expense line. You guys have seen a ton of savings this year. Can you walk through the moving pieces driving the savings? And is there any worry that there's some deferred maintenance that will eventually come through on the numbers as people kind of spend more time in their apartments and are More willing to have repairs done on their units themselves?
Yes. I think what's driving a lot of the savings there It's really two things. One is lower turn costs as we have higher retention. So that might be offset a little bit by some of maintenance as people spend more time, but we really haven't seen that yet, or really any trend on more work orders than typical. So we are seeing some savings in turn costs.
And then second, we our teams were off-site for a long time and Forced to work really differently and a lot of those ways that we found to work were less expensive And what was is normal. So we're having virtual resident events instead of in person resident events. And in person resident events that require food and Entertainment and all sorts of things that just aren't weren't happening for 4 months and still aren't happening. So what we're trying to do is adapt as many of those New ways of working into the future as we can while still really trying to build a community and have it be a place where people really want to live. But I'd say the biggest driver of the OpEx savings is in the turn costs.
That's helpful. And then one more quick one for me. John, I was just hoping you could Share
your guys' bad debt philosophy. It looks like you guys have done a pretty good job of kind of attributing people that haven't paid thus How do you judge collectability from here? Just any help would be greatly appreciated.
Sure, Alex. We have a pretty easy policy in that regard. So we reserve anything that At the end of the month, it has an AR balance, 100%. So our bad debt is essentially anything we build that month that we
The next question comes from Jim Sullivan of BTIG.
Yes. Good morning, guys. Good morning. Question for you on the controllable expenses. Obviously, a great job at the comp year over year.
And I'm just curious as you think about that as part of your Strategy about Rise by 5, whether the progress you've made and I know some of it It's post COVID related to RM spending. But do you think you're going to accelerate the timing of achieving that rise by 5? Or maybe have a more aggressive target in terms of expanding the operating margin?
I think our target is going to remain the same. So we've done a lot of the, what I would call, low hanging fruit that are really heavy lift items. And we have some pretty significant initiatives in front of us, including changing some of our technology. And also part of the RISE by 5 really needs to be and is connected to the value add program. To the extent that the market continues to soften or we don't see a big an opportunity there as we Look at our portfolio's value add opportunities, that might be a little bit slower.
As Mark indicated, we may be able Accelerated a little bit if we can prune off with opportunistic sales some of our assets who have that have large CapEx Lower margins are a little bit inefficient to really position our portfolios well within their markets. But On the true operating side, what we have in front of us is time consuming and going to take some time to run through. So I think we're right on track with our 5 years and we're 3 years in.
Okay. Second point, just wanted to follow-up on your comment about low hanging fruit. The value add program in your prepared comments, you cited the return you've achieved, which is pretty impressive. And I guess the question I have is whether that return is, again, partly a product of low hanging fruit. The first Value add program or spend were in markets or with assets where you saw the most upside?
Or number 2, as we think going forward, do you think you're going to be able to maintain that level of ROI in the value add program?
Yes, Jim, this is Mark. I mean, I think we weren't the first ones to the value add game. I mean, that's been a great play for really the last 6 or 7 years. And It's about specific submarkets and specific properties. So where we're having that Success is really in markets where we think we chose well in terms of what the which project to go forward with.
I mean, we have a lot of properties that could be upgraded and we really prioritize them based on markets and where we thought we had the best chance of success. And so I think we'll continue to have those opportunities and if the returns don't hit, we'll just stop. So we're generally with the exception of things like clubhouses, Which we do think add a lot of value. We're really doing these on the turn. So we have a pretty good ability to throttle up or back.
Anne, do you want to add to that at all?
Yes. I would just say our expectation on the unit renovation, so the 18.3% I mentioned is on our full unit renovations. Our expectation there is north of 15%. So I do think that we'll continue to Identify the best opportunities and our expectations are high for what we want in return and how we put that capital to use.
Could you just remind us, Ann, how many units are kind of being programmed for the value add over the next 6 quarters?
That's a good question. Probably close to 900.
Okay, very good. And then final question for me. Obviously, you've tapped into the equity markets with your Share price where it was comfortable doing so. And being able to access equity capital at fair pricing, Obviously, I think it enhances your position in terms of talking with rating agencies about investment grade rating. Maybe if you could just Update us on thoughts in that respect.
Yes. I guess for openers, we certainly are more focused on safety and caution. So I mean, we're putting that cash on because We want to be prepared for bad weather and we want to be opportunistic on the acquisition side. As it relates to the And we'll continue to have that bias, I'd say, towards safety and liquidity until we think we can run leaner again, Which will be I'm sure several quarters from now. But with respect to the IG discussions, an index eligible bond deal I think it's $350,000,000 which is 60% of our current total debt outstanding that we couldn't get to if we wanted to.
The rating agencies tell us we're small and on a relative basis that's true. So I think for the near term that's not a discussion we're too focused on with the ratings agencies specifically the context of trying to get to an IG rated deal, where we are very focused is on maintaining and expanding our ability to use the And as we've talked about, we did that deal in September of last year With Prudential, which has been a great relationship and partnership and was the product of a lot of work, they are the largest buyer or one of the largest buyers of Real Estate Private Placements. And they're one of a few groups that really does beyond kind of Bloomberg or desktop underwriting. So It's great to be in that market with them. We'd like to continue to do work to broaden that access over time.
And so I think we're well positioned to do that today, provided we keep on doing what we've been doing, which is hold on to, as we've called it, investment grade like metrics. So ultimately, we'd love to be in a spot where we can go investment grade. That's a point to be a factor of maintaining or increasing the quality of the metrics as they sit today And getting larger. Sorry for the volume winded
answer. No, that's okay. One final, final question for me. In the conversation about or the comments about Denver, and particularly in the context of Development deals that may be stalling out or having problems. Maybe if you could just kind of give us a sense for
Yes, I mean, it's concession heavy right now. I mean, I think they're going to I'll ask Anne to jump in, but I think they're going to stay Reasonably heavy. I mean, when we listen, we read the transcripts and listen to all these other reports, I'd say that's our most Affected market, sort of double whammy of COVID and supply. Anne, do you want to add to that? Yes.
I mean, we're already seeing 2 to 3 months there from the projects that were in lease up and that need to finish out their leasing. So I don't know if that gets, any heavier given I think occupancy in that market has stayed relatively stable. And we're coming to the end of leasing season where there just won't be as many people moving around. But
Yes. So continue, I think the other thing I'd add to that, Jim, that's really important is we really do believe in that market and the long term strength And a lot of what's happening in the world today, I think accelerates what we like about and believe in for Denver, which is People being there, but also given everything that's happening today, if you can lower your frictional cost of living somewhere, which I would define frictional cost as taxes and Time of commuting and things like that, and be in a place in the foothills of those mountains, a lot of people are going to do that and I think that trend will continue.
Sure. Makes sense. Okay. Thanks, guys.
Thanks.
The next question comes from Daniel Santos of Piper Sandler. Please go ahead.
Hey, good morning. Thanks for taking my question. Most of my questions have been answered, but could you give us some I'll ask some high level comments on how you're thinking about pushing rates versus occupancy across the portfolio. And then specifically on St. Cloud, just given the comments On some of the pressure from university students, is it fair to say that if universities the university doesn't reopen for on campus classes That market will lag through the next academic year?
That's a good question. I'll start with St. Cloud. We believe as of right now, it appears as though the students will be going back. And while we don't have a high percentage of Students in our buildings, the students being gone from other projects really creates vacancy in the market, which gives people options.
So, I think we feel optimistic that they're going to come back and that, we're going to be able to push occupancy there a little bit. And once you have some occupancy, then you can grow the rents. And with respect to the rents and occupancy, I mean, this is a fine balance that we walk every day. And our job is really to optimize the revenue. So we focused heavily at the beginning of the pandemic on keeping So that we would be in a good position to push pricing when we had the opportunity.
We are seeing that opportunity now at some of our As I noted, our new lease rates were 1.1% up in July. So That was a good indicator and most of those leases are signed and go effective within the same month, whereas our renewals lag. So the renewal pricing is effective, but it was priced 60 days to 75 days ago. So I think we feel pretty good about The opportunity in front of us, but we do think that there's still probably going to be some flat months, particularly as we go into lower expirations and lower traffic months. We would really like to keep our portfolio occupied above 94% in order to make sure that we're well positioned For the Q2 next year when leasing starts, I think that's going to be our real first opportunity to test what the post COVID pricing will be is at the beginning of Leasing season next year.
Awesome. Thank you. That's it for me.
Thanks, Daniel.
The next question comes from Buck Horne of Raymond James. Please go ahead.
Hey, thanks. Good morning. Just a couple of quick ones to clarify. I want to go back to the bad debt accounting policy, just to make sure I So you reserve everything past that's an AR balance past 1 month. But are there some security deposits or other Ways to recover those balances even though they've been reserved or is that or the reserves net of deposits, how does that work exactly?
Yes. So the reserve excludes the security deposits. The reserve would be for residents who are currently occupying our units. When they move out, The security deposit could be applied, but you can't access the security deposit in the middle of a resident residing there. That Would be triggered by when they move out.
I don't know. And if you've had anything else to add. So it's not considered at all in The bad debt provision, if that's what the question was.
Yes. It truly is the amount owed.
So that's reserved, but theoretically, okay, there's a point where you could possibly recover. Could you reverse that reserve with recoverability of the deposit? Does that make sense?
Yes.
That's right. Okay. And then other one, just thinking about equity issuance From here in the usage of the ATM, I mean, would you guys consider still raising some dry powder on the ATM in advance Of anything announced in Nashville? Or if you do do something in Nashville, would that probably accompanied by A more structured equity raise or how do you think about a more typical secondary versus an ATM To raise capital for entering Nashville?
Yes. I mean, we certainly have a lot of firepower right now just in terms of cash Relative to the size of our enterprise. So the answer is yes, we would raise it in advance. I mean, again, I think Our MO kind of over the past couple of years has been buy, match with sale proceeds, Use a little bit of leverage, tell people about it, raise capital if needed to get back to leverage neutral. I'd say we flipped that a little bit towards You know, be prepared in advance, have the cash on hand, seeking opportunities, protecting our overall liquidity.
So we'll continue to do that. I mean, we're running kind of rich right now in terms of our cash balance in our judgment. And So we'd continue to do that and we would raise in advance. As it relates to a traditional Follow on, I think if we had the size and we felt like the pricing made sense, we would absolutely consider that. I mean, directionally, the feedback we get from a lot of institutions who are spending time with us, but don't own the stock is we'd love to find a way to get in Volume that would be a way to do that.
There's a big cost to that. And we have to weigh those two things together because we work for the people who own the stock Today, not the prospects. Obviously, that's a balance we'd like to attract those folks as well.
Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Mark Decker for any closing remarks.
Super. Thanks, Elisa. Thanks, everybody. We appreciate
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