Good day, ladies and gentlemen, and welcome to the EQR First Quarter 2020 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I'd now like to turn the conference over to Mr. Marty McKenna. Please go ahead, sir.
Thank you, operator. Good morning,
and Thanks for joining us to discuss Equity Residential's Q1 2020 results. Our featured speakers today are Mark Parrell, our President and CEO Michael Manelis, our Chief Operating Officer and Bob Perrijana, our Chief Financial Officer. Please be advised that certain matters discussed during this conference This call may constitute forward looking statements within the meaning of the federal securities laws. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.
Now, I'll turn it over to Mark Correll.
Good morning, and thank you all for joining us today. I want to begin today by giving a big thank you to my Equity Residential colleagues Their dedication is serving our 150,000 residents during this difficult time. Whether working on-site, performing essential maintenance or concierge duties, Whether you are engaging remotely with prospects using our new touchless leasing process or whether you are working from home in the many corporate roles that make Equity Residential You are keeping our company rolling. So thank you very much Equity Nation for your amazing work. Now turning to our business, the best way I can describe it in the last 7 weeks is resilient.
In April, we collected in our residential business about 97% of the cash that we would usually collect. While no part of our country's economy will be immune from the coming recession, we feel that our portfolio of properties Populated with residents having average annual household incomes of $164,000 and often employed in technology and other knowledge industries will fare relatively well. Our operations team has also shown resiliency. When the pandemic hit in full force in mid March, Michael Manelis and his team quickly pivoted and over a few week period adjusted our leasing and service operations dramatically. On the leasing side, Michael and his team were able to quickly create a touchless process that made our customers comfortable to lease.
And on the service side, we focused on essential maintenance tasks and cleanliness, which helped our existing residents feel safe and comfortable living with us through this pandemic. Michael will give you more details about all of this in a minute. When the lockdowns were initially announced, we saw our leasing activity decline significantly, but demand has since picked up as we noted in the release. We see our recent pickup in demand as a further indication that our properties and markets will remain attractive place for our target demographic. All in all, we think our people and our properties have been resilient with a capital R going through this crisis.
We do fully acknowledge that challenging days remain ahead and are taking steps to weather the storm and prepare for the post pandemic world. We have further fortified our already strong balance sheet, as Bob Garachana will describe in a moment. We are also preparing in earnest for our properties to operate with fuller staffing as lockdowns across the country are relaxed. We will keep in mind the safety of our employees and residents as we reengineer our business. Equity Residential has historically performed well in these downturns, and we would expect this to be no exception.
We are optimistic that we will perform well operationally given these circumstances and that we will find opportunities to add high quality assets to our platform as the economy works its way through this recession. Finally, we did withdraw guidance in the release. We are unable to estimate with Precision, the continuing impact of the pandemic and the timing and character of the reopening process on our business. That makes it impossible for us to give you the high quality estimates We did provide a significant amount of information on April's preliminary results and hope that is helpful. Now, I will turn the call over to Michael.
Thanks, Mark. So today, I'm
going to provide a quick recap of operations over the past 45 days. Prior to the COVID-nineteen pandemic, we were off to a very good start for the year. Our occupancy was ahead of expectations and we were well positioned for the primary leasing season. And then COVID-nineteen hit causing us to adjust our operations to this new unprecedented challenge. Let me start by acknowledging the dedication and hard work of our employees during these unprecedented times.
They inspire me with their ability to quickly adjust operations, while keeping an intense focus on our customers, properties, themselves and their families. Shelter in place was mandated by governors in our markets in early to mid March. For us, this means that our more than 150,000 residents began staying at home 24 hours a day, 7 days a week. In response to shelter in place, we made some key changes to our operations. We closed our common area amenities.
We increased cleaning frequency. We quickly modified our website and our artificial intelligent e lead responses to pivot the entire sales process to virtual leasing. Capturing video content and conducting the sales process via video conversations allowed the business to continue uninterrupted. This process would have normally taken us several months to accomplish. We also locked the office doors to encourage social distancing, Kept the business running as we implemented shift rotations of the staff to reduce the number of employees coming to the property.
When we look back to March 15, we saw our traffic and applications drop 50% compared to the same period in 2019. That being said, we continue to receive over 375 new applications each week through the end of March, which we see as a validation of the new leasing process. With reduced traffic coming through the front door, our focus has been on keeping current residents in place. We are currently offering residents the option to renew without increase. Overall, retention in April May has improved as we are now renewing in the mid to upper 60% range, which is a 300 basis point improvement from last April And an almost 800 basis point improvement from last May.
New York is having the strongest renewal percents of nearly 70% for March, April May. Despite this good retention, our overall occupancy since March 31 has declined by 130 basis points. We expect the occupancy impact to be the most pronounced in the Q2, setting a new base from which we hope it will improve as shelter in place orders are lifted. Let me share some color on the performance in April. At the beginning of April, we began to notice an improvement in demand With both traffic and leasing activity rebounding by almost 30% and actually now trending on par with last year.
In fact, we had over 900 applications last week, which is a significant improvement compared to the 375 that we were averaging in late March and very encouraging for us. Given the activity in the last 45 days, we would like to see that volume grow even more to help offset the lower demand that we experienced in March and to match the increased volume of applications that we usually get in May. What is clear is that our high quality, well located portfolio continues to attract future residents. While the pandemic is certainly a deterrent, People have life reasons that require them to move like changes in jobs or partners. On Page 13, we reported the Q1 and included April monthly pricing statistics by market.
I would remind everybody this is only 1 month of data and that longer periods of time are usually required to show definitive trends. Mark mentioned the strength and quality of our resident base. This is evident by the fact that we received a very strong 97% of the cash collections in April relative to our March collections. This resilience delivered 5.4% delinquency, which is quite good given these unprecedented circumstances. Notably, Seattle and Denver were our markets with the lowest delinquency at below 3% and Los Angeles was the laggard close to 8%.
The rest of our markets were centered around the average. We have also taken a cut at looking at property type and in most of our markets are garden style or more suburban assets have experienced higher delinquency than our mid rise, high rise, more urban locations. As we move through the continued disruptions created by COVID-nineteen, We remain strategic in our pricing efforts. Sitting here today, our base rents are down 4% compared to the same week last year. Let me give you some color on notable markets.
Overall, our strongest market is Seattle, which has shown great resilience with limited delinquency and the best overall revenue growth performance in the portfolio. New York is a bit of a mixed story. On one hand, it has the Strongest retention of any market, but it has also not shown the signs of recovery that other markets have with traffic and applications. Long term, we expect the New York market to benefit from low new supply and technology firms expanding their presence in the city. We are hoping leasing activity will improve as the hard hit New York area gets through the worst of the pandemic.
Finally, we started 2020 anticipating That Los Angeles would have a very challenging year given the new supply pressure. COVID will definitely add to this. Despite recent improvements in applications, we This market to remain challenged with meaningful pricing pressure that will continue as supply is delivered. So where do we go from here? Well, we are now in the early stages of preparing our properties for the new normal.
We expect things to shift over time. Right now, the new normal is going to be focused on Increased deep cleaning standards at the properties adjustments to the layout of common areas, including fitness and lounges to accommodate social distancing Balancing the capabilities of virtual leasing with the need to engage with our customers and ultimately staggering work shifts to ensure that we limit the number of employees on-site at any given time. These are challenging times, but our business is resilient and our teams are positioned to deliver. Thank you. At this time, I'll turn the call over to Bob.
Thanks, Michael. This morning, I'll highlight our enhanced disclosure from last night's release, Give a brief update on non residential operations and end with our incredibly well positioned balance sheet. Starting with our new disclosures, We've modified our disclosures to help better present our business and where it stands today. We do so by providing April operational and collection statistics, By breaking out our same store performance between residential and non residential, a practice that we would expect to continue as the performance from our main residential business, which makes up approximately 96% of total revenues is likely to diverge meaningfully in the upcoming quarters for our much smaller non residential business. This includes modifying the schedules on Pages 10 through 12 of the release and finally by providing an update on liquidity and balance sheet information.
In order to accomplish this, we've defined a number of key terms in the back of the release. We hope that these definitions will provide specificity and clarity to our disclosure.
Part of
the new disclosure includes a breakout of non residential operations for our same store portfolio. This is a modest component of our business at 4% of total revenues and consists mostly of ground floor retail and public non resident parking at our well located apartment communities. Ground floor retail makes up about 2 thirds of this 4% with public non resident parking making up the rest. As you would suspect, A good portion of the retail tenants that rent our space have been significantly impacted by shelter in place orders. This is evidenced by the 58% April collection rate for all retail that we disclosed, which while certainly below what we would have hoped, maybe higher than many other retail landlords.
The drugstores, bank branches and national chains that occupy a good portion of these spaces have for the most part continued to pay rent, while local small business owners have struggled. With nonresident parking, we've seen an approximately 30% decline in parking volume for April, given the lack of public events and increased work from home arrangements. We suspect that this may recover as shelter at home orders are eventually lifted. Finally, a few highlights on our balance sheet. We ended the Q1 with an incredibly strong net debt to normalized EBITDA of 4.9 times and nearly $1,800,000,000 in liquidity under our revolving credit Subsequent to quarter end, we improved this already strong position by closing on a very attractively priced 2.6 percent, $495,000,000 10 year GSE loan and by closing on the sale of an asset in the San Francisco Bay Area.
With these steps, we sit here today with over 84% of our total NOI unencumbered, about $150,000,000 in commercial paper outstanding And readily available liquidity of over $2,200,000,000 under our revolving credit facility, which does not mature until 2024. This liquidity is more than sufficient to address our modest level of anticipated development spend, minimal debt maturities in 2020 and to address our next significant debt maturity, which isn't until December of 2021. Our balance sheet is in excellent condition to weather the storm And take advantage of opportunities should they present themselves. With that, I'd like to turn it back over to the operator.
We'll start with Nick Joseph from Citi. Please go ahead.
Thank you. Hope you guys are doing well. Just first on May rent collections, I recognize we're still very early in the month, but I'm wondering how collections Thus far and maybe you can tie it to where you were in March or this time last year?
Yes. Hi. So this is Michael. I guess I would just say, so 1st and foremost, yes, you're right. This is very early in the month.
But right now, Looking at kind of how we closed out yesterday, we are identical, like right on par to the way collections kind of played out through the month of April.
Thanks. And if you think about the delinquency moving up at the end of April, and I recognize there's always some level of delinquency, it was helpful to put in the Number 2, how do you think about the ability to collect on that rent? And then how are you working with the residents to get repaid?
Yes. So maybe I'll start and then Bob can kind of fill in. So first and foremost, I mean, I think you could See from the release, we're dealing with about $11,000,000 in total delinquency, and that was above the $5,400,000 that we had in the previous month. So the process that we're going through right now is we're working through conversations with all of these residents with both Kind of an empathetic mindset as well as an obligation kind of reminder mindset. And that's a tough balance that our teams are doing, But we're setting up various payment plans in places and we're just documenting kind of the financial hardships that many of our residents have experienced from this.
And we'll be navigating and working through those conversations through the month of May, just like we did in the month of April. And how much of that it's Michael Bilerman and maybe just to frame, it sounds like the 260 basis points from March was Totally in line with the historical nature of where you are on a monthly basis in terms of collections, which obviously accelerated in April given the hardships that a lot of Individuals are going through, is there anything in that increased delinquency bucket that is either geography based, Asset type based, is there any color that you can give in terms of that amount? And have you already entered into any sort of deferrals on that amount or outside of the collections that you've had? So I think first in the prepared remarks, I kind of identified, right, Seattle and Denver were absolutely the lowest at 3% or below total delinquency. LA was the highest at 8.
As far as property types, we definitely saw kind of lower delinquency at the high rise, kind of mid rise product versus kind of the more suburban or garden style. So I think right now in regard to deferred rent, I mean, the nature of these conversations are all over the place. I mean, these are very 1 on 1 conversations that we're having. But much of that delinquency or at least the incremental delinquency from hardships is set up in payment plans or set up into deferred rent situations. And I think the varying state of emergency orders that we have around the country are going to dictate when those payment plans are going to allow for payments to reoccur.
And I just want to add, Nick, it's Mark. As you think about building delinquency going forward, you also have to think a little bit. We do have significant security deposits That we haven't applied in any of these analyses. So generally speaking, you take the security deposit when the resident moves out, but that's a matter of local law. So we do have a significant amount of security deposits against these obligations.
Michael has entered into a bunch of payment plans or the company has and there'll be more of those. So I don't disagree that the economy will get worse before it gets better. But I'd also say we do have these other offsets, Both on the security deposit side and with these payment plans and we'll just have to feel our way through it.
Right. In your April, that With the April numbers that you're quoting, would you outside of that $5,911,000,000 would you have already deferred certain amount of your monthly rent that was already due. So effectively, there is more sort of delay in cash collections Even outside of the $11,000,000
Yes, Bob. And I'll give you a little bit of color to that. So if you think about March and kind of the regular, the Pre COVID delinquency levels, it's very uncommon or would have been very uncommon to have any level of deferral of rental payments. Typically, you would have ended a month at 2% to 3% of delinquency. And then through the regular process Having conversations and collecting that rent, etcetera, that would have diminished, to the point in time where it converted to a financial statement impact, would have been write offs of bad debt, etcetera.
And that number would have been something more like 50 basis points of, call it, total income. So very uncommon in this business to have a material amount of delinquency or payment plans, if you will. Obviously, the situation has changed modestly with the COVID-nineteen and pandemic implications.
And Nick, I want to answer just precisely. Delinquency includes everything, including the payment plan. So that number is all inclusive as it relates to the residential book. There isn't Like if it's a payment plan, it isn't suddenly undelinquent. It remains in our books delinquent.
We just aren't pursuing the resident. We have a deal with them, But we don't we include that in our number.
Perfect. Thank you. Thank you.
Thank you. We'll next go with Rob Stevenson from Janney. Please go ahead.
Can you guys talk about what level of extra operating expenses you're incurring From COVID and how much of that has been offset by reduced hours for employees in other areas?
Sure. So maybe this is Michael. I'll start off. I guess I would tell you to date, we probably have incurred about $500,000 of expense specific to COVID, and that would include kind of not only the increased cleaning standards that are occurring At our properties, but also some of the personal protection equipment that we've been acquiring. And I think some of the offset has And obviously, we're incurring less overtime expense on our payroll.
We're experiencing less turnover expense. But then on the flip side, having all these residents living with us, we're also having some increased trash expense that's mitigating some of those offsets.
Okay. And as things begin to spool back up in some markets, how much of that do you expect of the expense side to be sticky? And how much of the offsets do you lose as the hours for employees tick back up and other things? I assume that the trash doesn't go down anytime soon, etcetera.
Yes. So I mean, I think we're looking at kind of what it looks like to kind of reopen and what that new normal is going to look and feel like. I think It is clear to expect that we are going to be spending more money on cleaning standards and protocols at our properties. But I think that we're going to be balancing Kind of that out, not only kind of with the labor and the overtime, but trying to figure out more things that we're going to get done in house versus relying on contract labor.
And I'll just add, I mean, if we're again, we did withdraw guidance, so I know you're trying to fuel your way through that. So we'll give you a few other building blocks. Our general instinct here is that our Expense numbers will be lower this year than we thought, not higher. So these cleanliness and other costs aren't 0, but they're not that significant. And the over time, The less routine maintenance that's being done because things are being deferred, all of that is more material.
And so over time, again, you could have Certain events occur in markets, weather related or otherwise, but absent that, our general sense is that the expenses will remain Pretty tight. This is not going to blow a hole in the expense number for us.
Okay. And then on the capital side, I mean, How I assume that all the dispositions
completed year
to date were under contract before COVID hit. You just talk about, I mean, if you wanted to sell assets today, is there enough demand and pricing to be able is that market Back to being liquid or people taking a pause there? How are you guys thinking about potentially making acquisitions going forward and also Redevelopment spend over the next quarter or 2?
Yes. There isn't a lot going on right now. I mean, the last 7 weeks with the pandemic, Again, talking to the brokers, talking to potential sellers, there really isn't anything institutional grade in our markets that's priced and closed or is even very far along in that process. So I don't have any markers there. As you relate to EQR, I mean, we're always out there.
We have Teams in our markets and it's their job to always be looking at purchase opportunities and such. But right now, there's just not a lot going on.
And on redevelopment, are you going to
be able to get the returns to warrant the spending in the near term or do you guys put a pause on that for now?
Yes, great question. We have a pause on it, but for a little different reason. Our residents don't really want contractors in the building. Pardon me, our contractors don't really want to go out right now with the shelter in place. So what you're going to see across our portfolio is a real Slow down in capital spending, including renovation, these projects that we've talked about on prior calls, we hope to begin those again.
We'll be thoughtful about whether we can get the rents and all of that. But at this point, really, a lot of this capital spending depends on having people on-site. Those people aren't willing to come and frankly our residents are more comfortable with them not being there. So I think there's going to be a real slowdown there.
How significant have been any of the delays in the development pipeline for those few assets?
Yes, that's a great question. It depends on where you are. So I'll start by saying that. So for example, in Boston, We've got a tower we're building. The mayor closed down construction May 17.
It still hasn't reopened. And that's the sort of City of Boston rule, but outside the City of Boston in some of the suburbs, construction continues. So it's really place by place across the country. And I'd say there's more significant delays in places like Boston and New York in terms of places we do business And to a good extent, Seattle, there's less of a delay in DC and Southern California, where things have just kind of continued. And the delays you'll see in those places are people working in shifts, general contractors saying you need to split your shifts up, We need more physical distance between workers and so you'll see things slow down a little bit because of that.
For example, when you look at our numbers and Axios numbers For supply shifting like what happened between our opinion at the end of 2019 and at the end of the Q1 of 2020 as to what 2020 supply would be. And in markets like Boston and New York, those numbers we think are going to move down, supply being lower in 2020 by upwards of 20%. In places like Southern California, it's more nominal and the same with DC. So it's very much a local law thing.
Okay. Thanks guys. I appreciate the time.
Thank you.
Thank you. We'll next go with Nick Yulico from Scotiabank. Please go ahead.
Thanks. So appreciate the April date you gave on renewals, new leases In terms of rate growth, I guess from a timing standpoint, I want to be clear on this because I think it can be confusing at times. If you guys reported renewal rates achieved of 2.8% in April, you're saying that I think you said you're offering 0 Renewals, flat renewals across the portfolio now. At what point in the year does that sort of 0%
So I think 1st and foremost, you got to realize the April numbers that we reported on renewals, many of those offers were generated in January February. So Many of those leases were already executed well before kind of COVID-nineteen pandemic began. When we started issuing those offers In mid to late March, those are really for kind of May, June and now even July offers that are out there. So I think what you could expect to see is May is going to trend down, probably be somewhere between 50 basis points to 100 basis points positive. And then in June It's when I would expect that you'll start to see us kind of deliver flat on the renewal increase percent.
And just to add a little to that, We will start to adjust our renewal expectations, our asks, and we'll try and look at the market and see what we can get done. So As conditions start to normalize, we'll sort of feel our way through supply and demand conditions and you will see us increase our renewal asks, I would expect, Mid to later in the year. Right now, we're making decisions in some markets as far out as August. So we've got to call that, Nick, at some point And make a judgment.
Okay. That's helpful. I guess also on the new lease If we look at the April numbers, I don't know if
you have any data you
could share on May so far, but I mean April seems like it's unusual month, right? You didn't have as much traffic. So if we're looking at down almost 2% on new lease growth in April, I guess, May shaken out to be a similar number. Maybe you can just talk about how we should think about that new lease growth impact?
Yes. Well, I think in the prepared remarks, I kind of stated that base rents or amenitized rents right now are down about 4% compared to the same week last year. So as you kind of just fast forward your way through May, you could expect that that new lease change Could deteriorate down to that 4%. But again, the numbers that you're looking on that release, if you go to the footnote of that, you'll see that the 12% to 12% of the like term Actually improved by about 110 basis points. So it's actually down negative 80 basis points.
So I don't know exactly where we'll land Again, this is kind of a lease by lease thing that you work through to see these stats, which is why I always caution everybody from looking at just 1 month. But I think I like to just understand where am I am monetized or asking rents relative to last year and that's that kind of down 4% level.
And I'm just going to take the chance, Nick, to add a little bit to that answer. And that's we feel and we gave some extra disclosure about At the moment, demand conditions, we like on the occupancy side, the momentum we feel like we will pick up. It's certain. It's not certain. We have to see how these unwinds, these various stay at home orders go, but we would expect our occupancy to recover and We feel good about that.
And then you have, as Michael said, with the recession, and that'll affect new lease and renewal and all the other quotes. But On the occupancy side, I think we've shown we're already having days where we have more move ins than move outs. We're already seeing all that occupancy stuff kind of steady. So as we see these markets open up, our hope is that, again, if it's done in an orderly fashion and we don't slide back into a lockdown again, that We'll work our way out of occupancy and then there'll be just the rate stuff to deal with. So I just want to emphasize, we feel pretty good about demand.
Even in a pandemic, we're seeing Good demand for our product. It's just a matter of figuring out the clearing price at the moment.
Okay. Yes. No, that's helpful, Mark. I guess just one follow-up on occupancy. You guys did talk about 2nd quarter being the biggest occupancy impact in the portfolio.
I mean, in April versus March, you already lost 130 basis points of physical occupancy. I mean, is it is that kind of the brunt of it? Is it going to get worse Annette, any idea on occupancy for the Q2 right now?
Well, and I guess the way to think about it right now is that the Fact, if our applications like they are right now are on par with last year and my retention Continues to improve. It's already improved. But if it continues to improve, I think you're going to see occupancy not only stabilize, but possibly start to improve. If our demand continues at this pace and our applications start running above last year with stronger retention, I think you're still going to see this portfolio come back to that 96% level and start kind of optimizing revenue there. But I think it's still a little bit too early to understand, Stan, because we really need some of these shelter in places to be lifted to truly understand the longer term kind of demand or impact on traffic for us To kind of optimize revenue off of.
Yes.
And everything Michael said absolutely agree with, but would add, we don't really understand the impact of the recession. I mean, it is true that 20,000,000 plus jobs are gone. It's hard for us to understand that impact on rate and on demand Without all these stay at home orders being lifted and once that happens, we'll have a better view for you. But certainly, our hope that Given the strong demand we've seen while we're still in a shutdown that we have stemmed the sort of occupancy bleed for the most part. Then we're just going to have to all figure out what rate is in a recession like this.
Okay. Thanks a lot. Appreciate it.
Thanks, Nick.
Thank you. We'll next go with Rich Hightower from Evercore. Please go ahead.
Hey, good morning, guys. Hope all is well. Hey, how are you? Yes, thank you. So just to follow-up again on that occupancy question, just To clarify that 130 basis point month over month loss, were those move outs in April according to Normal lease expirations, was it COVID related?
What was the sort of composition of the change exactly, if you don't mind adding a
little more color there? No problem. So, it's a little bit of both, right? So I think when March 15 kind of rolled around, everybody that was scheduled to move out For the balance of the year from base or for the balance of the month based on lease expirations moved out. People that were scheduled to move in, some of those folks canceled Kind of those move ins or deferred those move ins.
And then we had, call it, a couple of 100 of our units, basically COVID Specific reasons, leave early, early terminations. Okay. And that's really the impact on the occupancy.
Yes. Okay. That's helpful color. And then maybe, obviously, tough to predict, but As you apply the experience from maybe 'eight, 'nine and the possibility Sort of the trade down or the doubling up effect coming out of a recession, where do you guys how do you think about your portfolio Given its predominant Class A white collar composition, how do you think about that dynamic with respect to
your own portfolio going forward here?
Yes. Hey, Rich, it's Mark. I'd start by saying the portfolio is similar, but not the same as 'eight and 'nine. I mean, we have A higher end clientele, as you acknowledged in your question, I like the income levels. I like the kind of employment our residents have.
Doesn't mean they're immune to the recession that's coming, but I think they'll be less affected than some of the folks in hospitality and other industries got laid off very quickly And suffered unfortunately very quickly in this recession. So I guess we feel no, I guess, we do feel much better about our resident base. We think they've Both got skills that will mean they'll be more readily employable. I mean, we worry, I think, a little bit about portfolios that depend on workers that have been Often how many of those workers are really getting those jobs back. In our portfolio, we just don't see that as much at this point.
Doesn't mean a few people won't lose their jobs in our resident base, We think being tied to technology and some of these knowledge industry jobs is going to mean that our folks will have more employability, less layoffs coming through this recession.
Okay. Appreciate that.
Thank you. We'll next go with John Pawlowski from Green Street Advisors. Please go ahead.
Hey, thanks. Good morning.
I just want to follow-up with some
of the comments in terms of And application volume picking back up. I'm just trying to wrap my head around what's the more important leading indicator for what This spring and summer leasing season, is it applications currently being flat or traffic being down 20%? And Michael, what kind of weight you put on traffic versus applications? Just trying to understand what's more important for us to focus on.
Well, so I think the improvement
in traffic is really telling, right, compared to where we were Even in the beginning of the month and where we are right now. And then our closing ratios, is kind of giving us that sense of this market Clearing price. And if I backed up all the way to March, I'll tell you, I mean, we're looking at how many eyeballs were hitting the website, what was that traffic count looking like. And We were closing 70% to 80% of everybody who expressed interest. So it was not a price issue back then.
And right now, as you can see, okay, we have an opportunity to kind of make an impact with the traffic improvement that we're seeing. And we're going to continue to do what we're doing with promotion based to go forward and try to recover some of what we gave back in the last 45 days. But I think it's really the improving trends is what you got to focus on because again, the peak leasing season is not going to exist like Leasing season has in the past. It's probably going to shift forward a few months or it may just be kind of more Don't throughout the whole thing. We don't know that yet.
So what we're watching is week over week, are we seeing the improving Traffic, are we seeing the improvement in apps like you would expect to see through a leasing season? And so far, that's what's been playing out for the last several weeks for us.
Okay. Bob, on the delinquency side, thanks for the comments on what's a typical delinquency rate? And then as you work through Payments, what is it all coming down to in terms of bad debt, 2% to 3% delinquency, eventually getting down to 50 bps. A market like LA where there's an 8% delinquency rate and tenants have a year to pay back rent, With 8% delinquency rate, what's a reasonable bad debt working assumption for rent you'll never see?
I think that's a hard question to answer in all fairness. We haven't seen those kind of levels historically, right? So Like I said, this business was very fortunate and has been very fortunate to see very little delinquency historically. So I'm not sure that that ratio of that I talked about Between 2% to 3% converting itself ultimately to 50 basis points necessarily holds true in the middle of a pandemic. I do think that all the positives that we have in our resident base that Mark outlined, in terms of high quality Employment, etcetera, should help in the collections process, but hard to guess an answer to that one right now.
Okay. Is it fair to say, you probably won't know until 2021 and we won't See it in the financials until 2021, the net shortfall?
Yes. I mean, my And that kind of gets towards the kind of bad debt expense policy or kind of what policy we have in terms of write offs, etcetera. I think that's something that in the Q2 we will evaluate with a lot more detail about at what point do you reserve against some of these outstanding deferral programs And payment programs, because certainly there will be some subset of residents that are subject to a payment program that ultimately don't pay. That's something that we're currently evaluating and currently discussing as we have just simply a lack of historical payment history to understand because of the unprecedented nature. So I think you're correct in assuming that it will that is To be told, as how it manifests itself in the financial statements.
And again, just to add to that just a little bit, John, we have the Security deposits that we need to apply against this amount. It's not appropriate to apply it against delinquency now. You usually, by law, do it when a residence moves out or near that time or With the Resonance Agreement, so we do have a little bit of an offset there that we need to figure out, but there will certainly be more delinquency. Bob, I think maybe you give a little color on what was delinquency in the Great Financial Crisis?
Yes. Delinquency and I'm sorry and bad debt expense.
So, I'll talk maybe to bad debt expense, to give you a frame of reference. So I mentioned earlier that in normal kind of environment, so not in the great financial crisis, We run about 50 basis points of total. In 2,009, which would have been the worst year of the great financial crisis, that 50 basis converted itself to slightly over 100 basis points.
Is that helpful, John, giving you a little bit of a frame of reference?
Yes, definitely. I know it's a guessing game right now, but there's more cities enact longer payback periods in Seattle yesterday coming out and Saying you have till 2021, imagine more cities along the coast will do the same. I'm just trying to understand how those historical relationships Change in this environment.
Thank you. Thank you.
Thank you. We'll next go with Wes Golladay from RBC Capital Markets. Please go ahead.
Good morning, guys. I'm looking at that $11,000,000 delinquency. Is that mostly tied to hardship in your opinion? Is it more people electing not to pay rent and more tenant friendly government, such as the coast on the last question?
Well, so Just to make sure I understand your question, Wes, is it mostly people who have hardship issues that they can sort of document or is it folks So just decided not to pay sort of the moral hazard issue. Is that the question?
They're on exactly.
Yes. I guess that's a little hard to tell for us. Not some of the residents haven't called us back. We don't have insight into their thought process not paying us. But that's a very small number for us given again the quality of the portfolio.
We're talking about a pretty small number of accounts here. So, I guess I'd say that most of the conversations that Michael has shared with me have been people saying, hey, I need another week or 2, and then they paid. So that's been most of the conversations that we've had to date. I'd also point out that there are people that may benefit from the checks So they'll receive from the government either through unemployment or through that federal supplementary payment. And I'm not sure how quickly all those are reaching people either And that could be a benefit to us as well.
So I don't we don't have a breakdown or anything. We've got a few people that have ghosted us, but that's a pretty small number. And Really, it's most people have been talking to us and been working something out or again, it's not more payment plans. It's often just give me another couple of weeks and I'll pay you the rent. That's been a more predominant conversation.
Okay. And I'd appreciate the holding rent renewals flat for the whole portfolio, but you did call out some of your markets are actually doing quite strong, Seattle, tech workers in particular, I guess, would you phase in renewals for different segments or is it going to just be a blanket, we're going to expect renewals for the whole portfolio How you approaching it,
I guess the increases going forward? Yes.
So I think this is Michael again.
So I think we're now looking at kind of months like August September renewal offers. And I think each market Always was done strategically with different kind of parameters being set for kind of how we would issue kind of renewal offers. So I would expect That there will be markets that we'll maintain kind of a no increase option for and then there will be markets that we start going back The kind of tiering approaches and see kind of what those results are.
And to add to it isn't just markets, we price by unit. So I mean, In 2015, when things were great in the industry and great for our company, we had unit types that there weren't increases that we could get on renewals. And when you had bad years like 2,009, we had unit types that we did get increased on renewals. So it is a unit by unit thing. It is a market thing as it relates to maybe legal restrictions.
But Michael and his team starting going forward are going to be looking at this saying, But Michael and his team starting going forward are going to be looking at this saying, listen, these restrictions are removed. How do we now feel about supply and demand in the market? How are we going to think about this? And that's kind of how we're expecting to play it.
Okay. And one last one. I guess looking at your platform, probably a little different than many of Competitors in the market. So do you think you're taking share of new applicants with the touchless applications and the self showings?
Well, I think our closing ratios tell us kind of whether or not we're Kind of taking more market share. I mean, historically, we would run against what we used to call foot traffic, but that's got a whole new definition now With virtual leasing, but people that express interest, you historically would close somewhere in that 20% range for people that express interest take tours with you. And right now, that's kind of what we've been balancing off of. So when we're closing 30%, 35%, We're getting more than kind of the normal share of those applicants.
Got it. Thank you.
Thank you. We'll next move with Jeff Spector from Bank of America. Please go ahead.
Great. Thank you. Good morning. Just a couple of follow ups and then just maybe one big picture question. First on the on occupancy in 2Q, I believe you mentioned you do expect 2Q to be the worst.
I guess it's just thinking about the applicants and figuring out the right Rent levels here, is it just it's going to be hard to convert those applicants into Occupancy during 2Q, is that your expectations?
No. I think I would say the impact from what we experienced at That we had last week, call it 60 plus percent of them are moving in before May 22, Right. So that's going to help kind of balance. So in the world of yield management, I mean, you're optimizing revenue, you're trading off occupancy and rate And you're balancing this. And that demand part of the equation is going to say whether or not you're going to optimize revenue at 95%, 95.5% or If you're going to kind of continue on this path, maybe you'll bounce back and start optimizing back at 96%, but I still think it's too early to understand Where that sweet spot is for these portfolios.
Okay, thanks. And then, I was surprised to hear that Garden style delinquencies were higher than mid to high rise. I believe you made that comment. Can you provide a little bit more color there?
Yes, sure. So it was almost in every single market that we looked at, we can see that And some of this just has to do with where our kind of rent to income ratios. So it wasn't surprising, right? When you think about Seattle being the lowest, while Seattle also has our lowest rent as a percent of income. And when you go to LA, it was the highest percent of income.
And those are markets like When you start looking at that, where we absolutely had more garden style property versus the high rise property, but that relationship held true Across all of our markets.
Okay, thanks. And then in terms of amenities, I thought it's encouraging to hear that you are working on We used to open up the gyms or more open space. And just thinking about working from home, Is it too early to incorporate changes into buildings to maybe foster a more working environment within the apartment building, like can you set up areas that comply with social distancing to Offer folks to work, let's say, from a lounge within the building or is that just is it too soon to tell?
So I guess I will just start by saying first, we have a whole group of individuals that are focused on what does it look like To be operating in the new normal, right? So that starts with looking at all of our existing common area space and understanding How are we going to guarantee the safety and well-being of our employees as well as our residents once these spaces start to open up and operate? And I think that there's occupancy limits, there's spacing in fitness center, there's a lot of complexity to this. And each one of our jurisdictions is going to have Different kind of rules that we'll be applying to our operations as we think about opening up. But longer term, as we think about the fact that residents Maybe working from home more, it does create an opportunity for us to look at our common area spaces and look at any of our available spaces that we may have in our And think about how do we make some adjustments to that to allow them the opportunity to work from home as well as adhere to social distancing.
So I think you'll see us start to get creative with how we're using spaces going forward to allow for more of that to occur.
Thanks. And then my last question, just a big picture for Mark. I believe, Mark, you mentioned there might be opportunities. Is it too soon to share with us Your thoughts on just kind of your the EQR strategy going forward, I'm in the New York, New Jersey area and I admit I am A bit more worried about New York. I hear I heard some optimism there that tech will still come to New York and hopefully they still do.
But can you share with us some big picture thoughts on your go forward strategy when you think about opportunities?
Great. So I've got 2 questions in that. Part of it, I read, is just when might we get active on the investment side and another is Sort of a New York question, and when that city might function a little better. And I guess I would start on the investment side by saying, As I said in my earlier remarks, there's just not a lot going on right now. We're 7 weeks in.
Sellers still remember the price they would have gotten in early March and Buyers think about the price they dream of getting right now and it's going to take a little while for that all to sort itself out. Some of the big deals that you might remember we did, we are quite active coming out of the great financial crisis. So purchasing the big portfolio in New York and development land and broken condos, but on the East Coast and the West Coast, Those were all done 12 to 18 months after the beginning of the great financial crisis. So those were Q4 2,009 deals at the beginning and then 2010, what you think about that crisis, the GFC really being a mid-two 1008, Q3 of 2,008 event. So I'd tell you, It's going to be a little while before we really see much to act on.
So I'd start with that. And the way we're sort of thinking about opportunity is Trying to think about replacement cost a little bit, trying to think a little bit about what long term growth will be in this market. Did anything change that matters? And we think and this sort of gets into your New York question a little bit. We think these big cities and I'll focus a little on New York are really Quite resilient.
I mean, York has been through, as you're quite aware, riots, it's been through wars, it's been through epidemics before, It's been through 9eleven and after 9eleven, there's a lot of comment that New York wouldn't come back and people would decamp from New York in size. And yet, New York had a terrific urbanization trend over the last 20 years and the population in New York City was higher in 2016 and it was in 2,001. So I think every morning millions of owners of businesses throughout the country are waking up trying to figure out how to run their restaurant, their Cultural amenity, their non profit, their restaurant, whatever. And they're going to figure that out over time. And we're going to have new rules about distancing And cleanliness and then over time, hopefully there's some cure to this and we don't have this top mind.
But I think these cities are going to adjust like they always have. And I think you could expect that we'll still be focused in our investment efforts on these large cities and these dense suburban areas for our kind of for our apartment investment.
Thank you for your thoughts. I wish everyone well.
Yes, same to you. Stay well.
Thank you. We'll next go with Hardik Goel from Zelman and Associates. Please go ahead.
Hey, guys. Thanks for the color. As it turns to transaction markets, are you seeing a difference in investor sentiment And the gateway cities versus somewhere like Denver, and what is your thought on where cap It might eventually settle out when buyers and sellers meet in the middle. Great.
So I'm going to repeat that, Zach, to make sure I understood it. Got a question about where cap rates might end up through this and then investor interest in some of these less dense markets like Denver. The first that Denver question or the investor interest question, as we look at that, it's just again a little early for us to sort that out. I think some types of trades like, for example, the value add trade may be less attractive. I think you're going to have a hard time doing your renovations, you're going to have a hard time jacking up rents, all of those things.
And a lot of the value add deals that were done just before the pandemic are likely to perform pretty poorly. So my sense is that you're going to see investor interest get sorted out. And I think and we've talked about this in the last call, Cap rates had really compressed between all these markets. And I think as you go through this recession and you get past some of this government stimulus, You're going to see people with better resident bases like ours perform better and you're going to see those cap rates on those properties be more durable than cap rates that had sort of come down on B&C Quality Stuff and in lesser markets and have lesser employment basis than the ones we're in. So that is our sense of things.
In In terms of where cap rates end up, part of this is, of course, a function of interest rates and rates are incredibly low, but there's also a limiter because of replacement costs. So I think there's a bunch of things going on with cap rates. It wouldn't surprise me if cap rates in 2 or 3 years weren't lower than they were before the pandemic Because of an interaction of interest rates, my sense that the apartment sector in our company in particular will perform better than most other real estate And that there'll be more capital attracted to the area. And then you just got to think about replacement costs, because you've got to be careful about paying big premiums to replacement costs No matter what interest rates are when you buy an asset. So I guess I look through it and say, it wouldn't surprise me if cap rates were lower in a few years than what they are now for those reasons.
And just as a quick follow-up, could you split out what delinquency is for just garden style properties Versus, let's say, your high rise?
Yes. I'm not sure we're going to give quite that level of detail. I think that's just Probably more than we have at our fingertips.
Got it. Thanks. That's all from me. Thank you.
Thank you. We'll next go with Rich Hill from Morgan Stanley. Please go ahead.
Hey, almost good afternoon guys, at least on the East Coast. Just two quick follow-up questions. When we think about the 97% of rents that you collected versus March, I'm sorry if you mentioned this already, but did that does that 97 Include the decline in occupancies that you noted or should we think about the decline in occupancies on top of the 97% of rents you collected?
So let me make sure I understand the question and kind of frame a reference, and I'm going to rephrase it and hopefully this answers your question. It's Bob here, Rich. So the 97% is measured off of March rental payments. In March, we had higher occupancy, Right. So, then we did in April.
So if anything, it probably understates that 97% probably understates What the collection percentages as a whole. Does that answer your question?
Yes. I think that's exactly what I was trying to get at. So said another way, If your occupancy went down of a percentage point and a half that would be included in the percent of rent that you did not Collect compared to the month prior?
That is correct.
Okay. Thank you. That's very helpful. And then one bigger picture question. I've heard a lot of conversations about the GFC, but I'm curious why isn't post-nineeleven A better proxy for what this recession might look like.
Obviously, a big shock to the system, payrolls went down, there were some job losses, Maybe job losses focused on lower income earners. How do you guys think about that? I recognize not everyone's been in the industry since 9eleven, But you guys have a long institutional memory. So how do you think about this versus 9.11?
Well, most of us in this room were, so we remember that Unfortunate event distinctly. First off, I'd say our portfolio compared to the 2008 great financial crisis is very similar. When you go all the way back to 2001, it's a very different portfolio. So when you think about what lessons we would pull out of that, when that happened, of course, It also created this which led to the next problem, created a big boom in purchasing single family homes. And so our markets like Phoenix, who we owned at that point, really suffered.
I don't know how to think about that. Again, rates are really low, but mortgage capital is not that loose. So I appreciate that there are Similarities both to the GFC and to the 911, because 911 was much more of that existential shock like COVID is, but our portfolio was so different, it's hard for me to draw some lessons to share with you.
Okay. That's helpful. That's it for me guys. I appreciate the transparency in this quarter.
Thank you.
Thank you. We'll next go with John Kim from BMO Capital Markets. Please go ahead.
Thanks. Good morning. I was wondering if you could quantify what you could the impact is on rent deferrals and reduced fees To same store revenue?
Yes. So the rent deferral question, I guess, The long term impact will depend on kind of what bad debt turns out to be, John, right? So we're not providing guidance, but that will factor in. Deferral, you would recognize your revenue in the normal course. The question is what bad debt ends up being on that piece.
Certainly, we will be impacted Did by fee revenue or lack of fee revenue, potentially, right, with lower applications and some of that in our markets. But it's hard it's not a meaningful part of the overall top line. So it's not a huge impact.
And I would say even the fact that we've been waiving late fees, that's a short term kind of impact and even those dollars are not that significant.
Yes.
But if a tenant is on a payment plan or defers rent, it would not impact FFO and it would also not impact same store revenue. Is that correct?
So if a resident is on a defer or a tenant on the non residential side is on a deferral program, Right. You're still going to recognize the revenue unless you believe the revenue is not collectible, at which point you're going to reserve against the revenue or take a bad debt expense Against that revenue line item. So it all sheer nature of having deferral doesn't necessarily mean that you're not going to recognize the revenue. It's all about Collectibility.
That delinquency is just to tell you where we've charged revenue, but haven't received cash. So over time, to be very specific, and this will be a discussion with our auditors and the audit committee, and we'll think about this because again, We're fortunate not to be that familiar with delinquency, all right. So we'll get into June July and we'll look at these folks and we'll see if they're performing per the payment plans, If they're still in the units and we'll write things off and that will run through revenue. That's where bad debt runs is through revenue. And then there'll be a number of people that will effectively will have this receivable outstanding and we'll be getting paid on it and we'll be hopefully just as transparent as we are right now with you about All those numbers, what did we write off, what it remains in account receivable and what's the status of the payments we've received on delinquent accounts.
Okay. That makes sense. And then secondly, I was wondering if you offer to your tenants payment of rent with credit cards And if you've seen any trends on that in the last couple of months?
Yes. So we did well, first of all, we've always had the option to pay rent with a credit card. It's There were fees associated with that processing fee. So through the process of our conversations, we are allowing residents To pay their delinquent balance with a credit card and we would absorb the processing fee, it just is not a material number at all right now. The fees are well below even $100,000 I mean kind of level.
Yes. That's really encouraging because that shows you that our residents are Living hand to mouth and having to put a month's credit card on their credit card or rental payments. So we think that's encouraging from our point of view.
Okay. Thank you very much. Thank you, John.
Thank you. We'll next go with Alexander Goldfarb from Piper Sandler. Please go ahead.
Good morning. Good morning out there.
So two questions. First, can you just go back through The delinquencies, so the 5.5% delinquents, number of municipalities, New York, California, etcetera, have the eviction moratoriums. So it would seem like tenants really don't have any incentive to go on a payment plan for A good period of time as these things are pushed out. But Mark, you said that a lot of people are coming to you voluntarily and not many have been ghosting. So how do we reconcile the 2 that a lot of your tenants need to be coming to you and yet the delinquencies are still high?
Are people playing the eviction thing and they just realized that they can skip a few months rent and pay it next year or maybe never pay it? Or how should we think about this?
Yes. Hey, Alex, it's Mark. I guess I'm going to take issue with the idea that our delinquency is high. I mean, again, you're talking about a company with 220 Plus $1,000,000 of monthly residential revenue that in what is the worst panic of our lifetimes maybe has $5,000,000 of rent we're chasing around and making progress on. So I don't feel like this is a big number of people.
I'm more concerned frankly about the recession Than I am about delinquency in our portfolio. Listen, we've got high level credit tenants. These obligations aren't going away. We're not going anywhere. So these are folks that value their credit, that know they're receiving a great service.
I mean, I'm lucky, I get to read all the feedback That our residents right on our teams on-site. And that feedback, Alex, has been really good. They really appreciate That our people, our frontline workers at EQR are keeping the property clean, are maintaining all the essential parts of the building so they can shelter in place. They don't look at this rent as something they need to avoid. They don't we're not ripping them off.
We're taking care of them in a crisis. So I guess I'd say, I think our resident mindset, at least as far as I can tell, is very different than The sort of resident mindset you're describing, are there a few people that are taking advantage of the system and creating this moral hazard? Absolutely. And that's just plain wrong. We're turning around and paying their rent in property taxes to these hard pressed municipalities, to our hardworking frontline workers.
I mean, That's just wrong, but I'll tell you we're not going to stop being persistent pursuing them. We'll follow the law, but they owe the rent and Sooner or later, there will be a discussion about that. So I guess I'd put it to you that way.
Okay. No, listen, that's Mark. That's helpful. And then second question is just New York specifically, obviously a lot of us are impacted Whether we live in the city or outside of commute, but from what you are hearing from your property from the managers there, Are you hearing about what are they saying their residents are looking to do? Are a number looking to leave?
Are a number looking to move in? Because you say you keep your buildings Better maintained than probably a number of your New York neighbors. So what is the sort of mood and expectation for New York this summer through the summer leasing season?
Well, I guess I would just start by saying New York, one, it's always had the strongest retention in the portfolio, But it absolutely is seeing an improved retention with renewals at that 70% level. We've never experienced that in the city. So a lot of our residents are staying put And it's not like they're just staying for a month or 2 months. They're renewing at those 12 month terms. As far as the front door, that's a really Tough thing to answer right now because it's not rebounding yet like the other markets have, which understandably, it's the hardest hit From the COVID, so I think we need to see a little bit of the public health crisis kind of Soften or dampen a little bit in New York to get a feel as to what the new folks coming in are saying and what they're looking for and everything else like that.
But I think The retention side of it short term is a positive for us.
The other thing, Alex, we've been wondering about and we don't know, as Michael said, the biggest question mark is just When do the stay at home orders get lifted and when do people feel comfortable getting out there and looking for apartments and doing virtual tours? I mean, there's going to be more distancing, Are they going to feel comfortable doing a self guided tour in our property on their own, but they're able to see the site. Those are more efficient. Those are good marketing techniques That will improve closing. So we're trying to balance all that.
We've also done some extensions of people into the fall. Those people Probably want to go somewhere and it's probably true that there's other people in other apartment owners portfolios. So we wonder about whether the lease this isn't a leasing season different than any other, Where it might go it might be as high a peak, but kind of go a little longer into the shoulder season a bit. But that's a little speculation on our part we're trying to sort out because again, we and no one else has been through this before.
And hopefully, we don't go through it for another 100 years. Listen, thank you.
Thanks. Stay well.
Thank you. We'll next go with Rick Skidmore from Goldman Sachs. Please go ahead.
Good morning. Thank you. Just one quick question. As you think about occupancy and the trade off of trying to grow occupancy, how do you think about Tenant credit quality or the various tenants that you're looking in, are you able to perhaps high grade or do you Move perhaps down the credit quality spectrum as you look to build occupancy? Thank you.
Yes. So right now, I will tell you, we're not changing our models, our Criteria for underwriting residents. I mean, we have a strong resident base, and I think that that's proven some of the benefits out right now. And I think we're going to continue down that path. Obviously, if the demand profiles totally change through the summer and all that, We can revisit that and pull some levers and make some changes, but at this point, we don't expect to do that.
Thank you. Thank you.
Thank you. We'll next go with John Guinee from Stifel. Please go ahead.
John Guinee here. Question first. Hey, Mark, nice really nice job today. Give me a little more detail. What does ghosted us exactly mean?
Thanks for that
comment. And I'm
going to Hand it over to Michael, because
we've used that term, he and
I, between us and maybe that needs more definition. Yes.
I think just to give some color. Obviously, our On-site folks, they're working really hard. And I think I said this before, this is difficult, right, because It's heavy lifting to go after some of these delinquent balances because you have to have the ear, you have to have the tone of empathy, But you also have to reinforce the obligations that sit with this stuff. So we have outreach programs, right, for folks that we haven't heard from. We're trying to do well-being checks Many of our residents that we haven't heard from as well.
And the term ghosting is we've left some messages, we've sent some emails and we've gotten zero response back from those Both. And again, I think Mark alluded to it. It's a small subset of this group that we're dealing with, but eventually we have to have some conversations with these folks.
Okay. So it doesn't mean they moved out in the dark of night and took half their furniture with them or maybe not. It just means they're going silent on you.
Gone silent and in some of the markets we're We will enter to make sure that it hasn't been vacated on us. And that is part of a process, but that is one of the things that we will be doing.
Okay. And then second, You obviously have computer generated revenue optimization tools and you run like everybody else run to full occupancy. Is there a color both good and bad in terms of how far you would drop Rents in the next 6 to 12 months to maintain full occupancy or are you not there yet?
Well, we're definitely not there yet. I guess I can give you a little bit of context. So first and foremost, in the beginning of March, We changed some of our parameters inside these yield management applications to just lessen the volatility of pricing to begin with. On March 20, we actually stopped generating prices from the pricing engine. We turned it off in essence and just let all of our prices Stay as they were regardless of lease term, regardless of duration of lease as well.
So at that point, Now we're watching and we're seeing the kind of the traffic come back and the application volume come back. So just a couple of weeks ago, we started to reinitialize kind of that LRO or the yield management application To start sending out the daily price changes as well. So I don't know exactly, I think I said this before, where we'll optimize Kind of revenue at, what level of occupancy it is and what rate decline you'd allow. I think demand is going to tell you where what that market clearing price Needs to be, but I think you could see right now, I alluded to the fact that base rents are down 4% and we're closing At a higher percentage of what we normally would be. So that to me feels like the right level today and we'll just see where the demand levels are going forward.
Got it.
Okay, great. And then last question, I think you've got increased disclosure. Thank you. Any Consideration of bringing back your disclosure for your consolidated joint ventures?
Consolidated joint venture So our unconsolidated joint ventures
at the moment are really just one asset that's a it's a garage parking kind of
Did you say consolidated or unconsolidated, John?
You're consolidated. Can you use to carve out your partner's Ownership or economics of the consolidated JVs, I think you stopped doing that?
Got it. Yes, it's a very de minimis amount. Happy to give you more color and Marty or I could give you more color about it, but it's a very small percentage. And it's also I think there's more disclosure in the 10 Q in the footnotes in the 10 Q. We just stopped including a whole page in the supplemental of the press But in the 10 Q, we can point you to some color on that.
Great. Okay. Thank you.
Thank you. We'll next go with Haendel Sandeust from Mizuho. Please go ahead.
Hello out there.
Hey, Andel.
So I found here your comments earlier on potential changes you're considering to the annual leasing cycle In a post COVID world, interesting that more leasing could be shifted forward out of the Q2 and Q3 periods where I think historically you've done 60% plus of your leasing. So just curious on how active some of these considerations are and how that might look? Any color on that would be appreciated. Thanks.
Yes. So I'm going to start, it's Mark and Michael is going to supplement here. This is more of us looking at small sample sizes and seeing a little shifting and trying to figure out the conduct of our customer in this kind of Jerry's situation. So I can't tell you we're sure that demand will be flattened out. It will just be longer.
That's just again, we have a few of those. Michael, by turning on the pricing machine has already begun doing something. We don't want to do 6 month leases now and have expirations in the late Q4. So to incentivize us to do that, we are going to raise your rent. If you want a renewal for a 1 year term on like term, we'll do that flat.
So I guess Haendel, we're going to still manage our expiration schedule, but there are a few people who took shorter term in our portfolio, we're guessing others, Shorter term extensions in March April because listen, no one was in a position to really move. And so you may see some of those people turn around and go, okay, now I'm ready, it's August. And they would have been ready instead in April or May, right? So there may be a little bit of a shift, but it's not fully discernible, I'd say, at this point.
That's helpful. Thanks. And just to be clear, the folks who are taking short term lease extensions here, Are they subject to the same premiums that they would have been historically or before COVID or are those also been extended at 0%?
So, no. So everybody basically since March 15 has had flexibility to move to any term at no increase. We basically froze rents regardless of term, and now we're starting to pivot and change off of that. And that was our way To kind of help people through these unprecedented times, people that were really nervous about moving, we wanted to give them the opportunity To just say so, I think the peak leasing season, like we all knew it, is definitely impacted from this. We just don't understand yet how that Impact is going to play out.
Got it. Got it. Thank you for that. Another life in a post COVID world question. I'm curious if your recent experience with virtual and contactless leasing makes you more inclined to accelerate and increase A tech investment here near term as you tweak your operating platform for a post COVID world?
And what do you Some of the more lasting changes in your leasing and operations approach could be. I'm assuming in that kind of world, you'll have more virtual leasing, maybe less Neef, On-site personnel. So just curious on how the business might be changed here, your views on technology investments? And then maybe some thoughts on Retail exposure, is that something that perhaps going forward you would look to have less risk?
So, this is Michael. Maybe I'll start with just Kind of the impact on the operations. I will tell you, I think you've heard us talk a lot about what we were doing from a sales process and all the initiatives that we were teeing up before all this. I think this was an accelerator to us.
I think this just advanced a
lot of the things that we were already kind of teeing up and thinking about. I think it added a new layer With this virtual leasing and having kind of high content video available doing FaceTime kind of live tours, that's a new element to the sales process. And Going forward, we're going to continue to have all of the above available as our sales process. It's just another tool kind of that we'll have available to close leases As far as the tech investment side goes, this did not change the tech investment that we were thinking about from the service side of the business. We already deployed that mobile kind of software and I'll be honest with you, that was a huge advantage for us in this.
It allowed our team to quickly pivot To focus on urgent service requests only, we had complete transparency at the top of the house as to what was happening all the way down to an individual tech. So we knew what needed to get done all from your mobile device. That was a big win. On the sales side of the business, we've already made most of the investments The technology that we're going to need to run, I think the biggest thing that was out there is you heard us talk about making some investment into the smart home technology We were getting ready to move forward with about 10,000 units this year. We already have about 2,500 units deployed.
I think that's one of the areas that will probably pause and we're going to see the next gen of technology come out that probably won't have keypads That will be Bluetooth enabled. There's already some of this technology available, but we'll just wait to see it kind of get bet out a little bit and then we'll continue to move forward But I think as you think about operations going forward, it is very clear that contactless, Touch free. Those are kind of things that are going to be with us in this environment, not only immediately, but probably even longer term In this world of new normal. And Bob, maybe you want to just hit on the retail?
Yes. No, the retail and non residential pieces, we've always focused on minimizing that exposure. We've focused on investing in high quality apartment buildings, right? We're an apartment company. So that hasn't changed.
That's how we ended up with the limited exposure that we have here today. So I don't think from a strategy standpoint that's going to change at all. In our markets, particularly in the urban areas, there is typically With these high quality assets, some exposure to retail.
That's helpful. Thank you. And one more classification. I think earlier you guys mentioned that 60% of the new leases you signed recently are set to move in before May 12, I wonder if I heard that correctly. And then I guess I'm more curious, How the time between lease approval and move ins is being impacted here by COVID?
Any noticeable change or delay in that timing On either your product or customer's product and maybe help us put that 60% figure into some context. Yes. So first, let me
cut it. 60% of the applications last week are scheduled to move in before May 22, not May 12. And I think from a behavior standpoint, as you think about the duration, I think this is the time of the year, Right, where you have a lot of people looking to lease future months. Their leases are expiring. That's typically what you see in a peak leasing season.
And I think we're seeing that. We're seeing demand for June still, and we're seeing some of our notice to vacate or units that we will have Become vacant in the future, those are being sold today, but not a huge change in their normal behavior.
Okay. Thank you very much.
Thank you. We'll next go with Nick Joseph from Citi.
Hey, it's Michael Bilerman. Mark, I wanted and look, I appreciate your comments About the resiliency of New York and other dense urban cities. But I also know that this is a pretty unprecedented time that doesn't have Sort of a marker relative to other times. And I wanted to know what the house view, and I don't know if this means it's Sam's view, but Collectively as an equity organization about the interplay between office utilization And where you live, whether that's a rental apartment or a house or a condo or whatever it is, but the whole dynamic Once we get post this and just from a frame of reference, yes, 911 had a massive impact clearly in New York and organizations' desires to be in big office towers. This what we're going through now is 100% of Corporate America except for essential workers have their organizations working remotely.
I would imagine that that is going to change some element of how corporations will see where their workforces are, Who they are and where they may live. And I would have thought that could have significant impacts In terms of how things would play out from a residential perspective. So can you dive a little bit More into that element?
Sure. A lot there to unpack and I certainly think very thoughtful and I mean, it is an evolving situation. No doubt this is a 100 year event, we hope, and we're going to go all go through it together and figure it out. I was trying to get to this thought process about vibrancy and flexibility that these big urban areas have Gone through a lot before and Bill figured this out too in ways that we can't yet determine. And you talked just a little bit, and I wonder about that, Michael, about Corporate preferences versus individuals.
People could probably always live in different places in telecommute and now they'll Be able to telecommute even more, I agree with that part of it. But our sorts of people, these affluent renters, they liked living in these urban and dense suburban places. And right now they're thrown off a little because we're all trying to figure out how do you run New York City with more social distancing and cleanliness? Is it shifts? How does that all work?
But every day, millions of people are waking up trying to figure out how to do that, how to run the transit systems and the restaurants and all of that. So I guess I'd say I'm certainly not of the mind that that's something you abandon very quickly that all of a sudden we're all moving to Exurban in rural settings, that doesn't make sense to me. The preference for young affluent renters like we have to live In these cities among their peers is pretty durable and pretty strong. So I guess I don't deny this is unprecedented, but I guess I'd Answer by saying the companies may allow more teleworking and almost certainly will us included, but I think residents Excuse me, employees will still choose where they care to reside. And I think our markets will still be very attractive to them and that the dense Denser solutions, especially as we work through new ways to be clean inside buildings and the distance inside buildings, that will kind of work itself out over time.
So I guess that's I'm not sure if that's the house view, but that's the sort of EQR view. And I think Sam has been on record very recently in a Big broadcast about the strength of the residential business. So I think we feel good about our business model.
Right. I just
I wonder if there is an investment or a future opportunity if corporations are going to have some portion of their work force, right. The incremental hire they're going to have, I would believe Corporate America, just like you would, you would look at an employee and say, we can find a really good Operations person that may not have to be in Chicago and be in head office, but given all of our technological improvements and we've all now Had this trial, then it works. You may find that incremental hire you may want to put in Denver or another local market where you don't have an office And that person, if you're living in the Meet to Our Community, may need a certain amount of office. And so Is there an opportunity to further the investment in your communities to provide a And you'd already started some of this in terms of the need of co working and things like that. I don't know if there is a trend there that you started to think about.
Yes. I mean, Michael had some comments on that. I mean, we are trying to figure out how we can make our apartment buildings even more comfortable as these Common areas open up in this new distancing and cleanliness environment. I think that's something that we're working on right now. And you're right to ask about and I think we want to make our properties attractive for people to spend more hours per day and then they probably have in the past, At least for a while.
And the good news is you've been in a lot of our buildings. They have terrific amenities. They have terrific, most of them have just terrific lounges and Large roof decks in places where you can be home, but be outside your unit for a period of time and still feel safe. So I think that's something we'll market. And again, we've got to get the cleanliness and the safety thing right as an industry, and we will.
And then I think you'll have the advantage of being at home, But outside your unit and that will feel good to our residents.
Right. And just lastly, in these higher density, Higher rent locations, there's a certain aspect of these cities that have a massive cultural aspect. And while I would Think about LA and San Francisco, New York, Seattle all trying to reopen parts of that. They're not going to reopen it at full force. And the other part of it is the taxes in those locations are very high and the employment Places are not going to bring back 100% of their employees because they can't in the social distance world.
And I just wonder whether more Younger affluent people are going to say, I'm just going to go lease in Denver or Austin or Miami for a year because My office does not doesn't need 100% going back and none of the things that I live in the city for can I enjoy? And so could the occupancies get further in the near term before we sort of come out on the other side?
Great question. I can't give you certainty on any of this. I'll just say that so far we've seen demand even in lockdown Start to head up again already. I mean, it seems to us that our demographic and this is anecdotal. I have a daughter who's college age.
I know a lot of Kids in their mid-20s and they don't want to live with their parents anymore. They want to go back to the big cities and be In their apartments and live their lives again. So I guess I'd be more anxious about owning a bunch of apartment buildings in Orlando or Miami, where They're hospitality dependent. That's closed down and you wonder how many people who work at airports and hotels and theme parks and cruise lines will ever come back to work. I think that's a pretty salient question to ask.
I think you're right, there's these telecommuting options will be more available to people. But I think people didn't live in Brooklyn because it was cheap. People lived in Brooklyn because they love the cultural amenities. They love the restaurants and All that stuff closed down and now everyone's figuring out how to reopen it and I think it will reopen and over a period of time as you suggested and make Those submarkets that we operate in continue to be pretty attractive.
I appreciate you taking the Time to answer the questions and for all the details you gave in the release as well.
Stay healthy. Appreciate the good questions. Thank you.
Thank you. We'll next go with Hardik Goel from Zelman and Associates. Please go ahead.
Hey, guys. I just wanted to be respectful of everyone's time, so I joined back in. Mark, I guess this is not much question, but I just need your help understanding something. Garden has higher delinquency across your portfolio. Employment basis in some of the markets you are not in is weaker and yet EQR is trading at a discount to some of its other peers, A greater discount than it's ever treated at.
And there's this narrative about the future of apartments and suburban living and all that. But Right now, we have 30% unemployment. Your portfolio has performed really well through that. And I don't find it's got to be in some markets. So I'm a little confused by the investor response and I just don't get it.
Well, I just would ask you to spread the word. Listen, I think what We were trying to get across in the release besides this general feeling of empathy and concern for our communities, which are going through hell and back Right now is that we did pretty well in April. We did pretty well as a company in the midst of this pandemic. And when you look long term, a lot of what Just happened with COVID, doesn't you don't look at our strategy and go, that doesn't make sense, like you do some other real estate sectors. Our strategy makes a lot of sense.
But in between then and now is this recession and we're all going to go through that and we're going to see how it goes. Our company has been pretty resilient through those. We've come out of it historically faster and better. So I think we just need to make our case and continue to be effective And transparent and we're confident investors over time and smart analysts like you will pick it up and people We'll see the opportunity. So I guess we think about running the business long term and investors will respond to it over the long run.
Thanks. Really appreciate the disclosures you guys put out. I think the reporting and the messaging was really transparent and high quality.
Thanks a lot,
guys. Thank you. All credit to Bob and his team. So, thank you for that.
Thank you. This marks the end of the question and answer session. I will give the floor back to the moderator.
Well, we thank you all for your time today, and we hope everyone stays healthy. Good day. Thank you.