Earnings Call: Q1 2020

May 7, 2020

Good day, and welcome to the Essex Property Trust First Quarter 2020 Earnings Conference Call. As a reminder, today's conference call is being recorded statements made on this conference call regarding expected operating results and other future events are forward looking statements that involve risks and uncertainties. Forward looking statements are made based on current expectations, assumptions time. A number of factors could cause actual results to differ materially from those anticipated Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Mr. Michael Shaw, President and Chief Executive Officer for Essex Property Trust. Thank you. You may begin. Thank you for joining our call today. John Burkhart and Angela Climen will follow me with comments and Adam Baria is here for Q And A. These are challenging times as we managed through unprecedented events in our nation's history. We'd like to offer our best wishes to all those impacted by COVID 19, their caregivers and those participating on the call today. We reported a strong first quarter results last night, exceeding the midpoint of our FFO per share guidance by $0.07 with the results for the quarter mostly unaffected We withdrew our 2020 FFO guidance ranges. Generally, we believe providing FFO guidance and related assumptions is an important aspect We believe that the range was announced on March 17 key is as great as I have ever seen. Key variables in the government's policy response are impossible to model such as the duration of the shutdown the possibility that a second wave of infection could occur and the effectiveness of social distancing after a prolonged debate, we made the difficult decision to withdraw our core FFO guidance. In my prepared remarks today, I will cover 3 topics: a recap of actions taken in the past 2 months in response to the pandemic, a review of our updated estimates for rent growth in our markets as can be found on page S-sixteen of the supplemental and insights into what we're seeing in the west team has responded and adapted to the dynamic and unprecedented conditions created by COVID-nineteen. As the scope of the pandemic became more comprised of senior leadership to gather information and act decisively. To maintain essential property operations we implemented a push nearly all transactions online over the phone or through the mail. We acquired and distributed PPE to our on-site staff and expanded training for safety protocols. We transitioned 5 corporate offices to work from home and implemented a virtual management we conducted weekly live video conferences that were available chaotic time. Communication is important during periods of uncertainty. And on March 23, we issued a impacted by COVID-nineteen, including protection from the eviction and late fees, creation of payment plan and dissemination of information acquired urgent responses to many complex issues, including many unknowables related to the pandemic itself, a plethora of well intentioned but imprecised government regulations and properly balancing our obligations to stakeholders in the spirit of corporate responsibility. With that backdrop, it's essential to recognize the tireless efforts of the Essex team amid great concern for their health and safety of their families to rapidly and thoughtfully react to the crisis. Well done team Essex. Turning to the West Coast rental markets, we have prepared a scenario for our 2020 rent growth expectations on Slide S-sixteen of the supplemental that incorporate macro US forecast for GDP and job growth that are prepared extent, there is a common expectation and an overall contraction in the economy in 2020, with job losses for the year estimated at around 7%. In summary, we expect approximately 900,000 job losses or 6.6% in our West Coast Metros in 2020 compared to the net addition of 207,000 jobs from our estimate last quarter an approximate 14% reduction in estimated total housing deliveries from last quarter is not sufficient to offset an average of 2.8% in 2020 versus last quarter's estimated 3% increase in market rents. The extraordinary fiscal and monetary stimulus programs that have been implemented by the federal government have already helped stabilize across the major stimulus programs from the Great Recession, they occurred roughly a year after the recession started. But in today's case, they were just days weeks into the crisis and have been much larger in scope. On page S 16.1 of our supplemental, we highlight the impact of the 600 dollar per week federal supplement to unemployment insurance that was part of the Cares Act, while the of the program has been muted by processing delays at state unemployment offices. The weekly checks have started to arrive and will substantially offset the income loss for a large segment of the population that has suffered from job losses and furloughs. We highlight this program because it hasn't received much attention. Given these benefits the income shortfalls for lower to middle income workers are much less severe than they would have been otherwise. And in some cases, Again, at lower and middle income levels, some workers will receive more in unemployment benefit as compared to their compensation. Finally, I'll turn to the apartment transaction market. Yields or cap rates for apartment transaction generally exceed interest rates Unlike the great financial crisis, large banks have maintained relatively conservative lending standards and strong liquidity and capital positions and interest rates have declined further since the crisis began. As an example, we recently received 2.75%. We believe these factors will be sufficient to avoid widespread distress in the apartment space. Unlike REIT stock, private market values in terms of cap rates are generally sticky, meaning that they don't change immediately in reaction to events. But rather seek to reflect the longer seeking a higher cap rate as a result of the pandemic. However, apartment owners generally have no distress and exceptionally low interest rates provide the opportunity to improve cash flow through refinance to take advantage of record low positive leverage. As a result of these factors, the spread between buyer and the gap separating them is probably around 30 to 60 basis points, likely resulting in fewer apartment transactions in the near term. If our stock price was periods of disruption have resulted in great opportunity for Essex. I'm confident that we have the team, resources and strategy to thoughtfully act on these opportunities consistent with our long term track record of outperformance. And now I'll turn the call over to John Burkhart. Thank you, Mike. I would like to start by echoing Mike's sentiment and Rick United Associates who are working hard to provide our customers the best service in this essential business of providing housing. Over the past few weeks, we have seen countless demonstrations of the Essex spirit throughout our community. Our teams have shown grit and determination in the face of rapidly changing working conditions. But even more, they have shown compassion to each other and to our residents from proactively reaching out to those in need buying residents groceries and even obtaining and distributing personal protective equipment. In addition, we have published resources on our website to assist residents in finding created a library of resources for residents whose children are home from school or who are simply looking for productive ways to use their time during this crisis. Most residents and prospects have been understanding of the changes we needed to make at our communities and appreciative of the great efforts of our team to continue to provide exceptional service during this time. A big thank you to our E team, our residents and the community. We achieved 3.2 percent revenue growth over the prior year's quarter. The results were in line with our expectations. Although this is the Q1 call, I believe everyone is more interested in recent events post COVID shelter in place orders. Therefore, I will be focusing on specific April metrics and recent market activity. I'll begin with general comment and move on to My commentary on the future market expectations and conditions relies on numerous generally positive assumptions such as the relaxation of the shelter in place and a restart of the economy between the bid ask price for rental transactions at certain properties in the market. Rental transactions are disproportionately curring at stabilized properties offering 2 to 4 weeks free rent, while other properties are losing occupancy. April 2020, year over year same store economic rents were up approximately 1.5% while financial occupancy declined 1.3% compared to the prior year's period. We are currently offering the market will move back to equilibrium in June as the shelter in place requirements are relaxed and we enter the summer leasing season. Historically during periods of reduced demand, our portfolio has benefited from people taking advantage of lower pricing and moving from the outlying areas to the core areas where our portfolio is located. I expect the same market dynamics to play out in the coming months. Looking at operations post shelter in place, leasing applications in our portfolio bottomed the 1st week of April and have increased each week since that time. 1.3% in April from March. Roughly half of the decline in occupancy was due to COVID-nineteen related lease breaks. The remainder was related to reduced leasing velocity. This last week, we have seen activity increase dramatically. Our tours increased 47% and our applications increased 62% over the prior 4 week period average. The initial shock appears to be Now, we will turn to April delinquencies. Delinquencies in our total portfolio on a cash basis was 5% in April, compared to 33 basis points for the full first quarter of 2020. As the magnitude of this crisis became more apparent in March, we acted immediately to form a resident response team to engage with our residents in understanding their situations, identifying resources for them and partnering with them to get approximately 4600 tenants representing 7.4 percent of our total portfolio completed our online request form in April firming that they had been financially impacted by COVID-nineteen and requesting assistance. 36% of those residents paid their April rent in full. Another 36 percent made a partial payment averaging about 50% of their rent. And 28% were unable to pay their April rent. Residents representing 60 basis points of our portfolio requested to move out immediately, which we allowed enabling the residents to move forward with their life and the company to potentially avoid future delinquency. Of the residents who stated they were financially impacted by COVID-nineteen, 16% were in the food and beverage industry, 9% each in retail and personal services, which relates to fitness massage or beautician services. And 7% each in Healthcare, Transportation, Construction And Professional And Business Services. 2.2% of our residents are delinquent and we have been unable to contact them. However, some of them have made partial payments. Interestingly, the delinquency at the property level within a selected market had fairly large variations, certain properties were substantially more impacted than others. I believe this disproportionate impact is the root cause of the market dislocation. I would compare it at the highly impacted buildings with respect to occupancy and or delinquency as well as those who are struggling to compete in this new virtual sales world are likely to As Mike has mentioned, we have withdrawn our financial guidance. However, I want to note some expense considerations. Utility usage and related expenses will be higher due related to personal protective equipment and cleaning supplies as well as related increased labor costs due to new cleaning protocols. Finally, to protect our employees and residents, we have stopped performing non emergency work orders in occupied unit We've provided residents with self help videos and other resources to help them fix many of their own issues. However, we expect that there will Our technology vision and related operating strategy that we have been executing positioned us well going into this rapid change. Our cloud first strategy enabled a relatively smooth transition as the stay at home orders were implemented. We remained fully operational while rapidly transitioning to working from home The new operating environment of social distancing requires a solid digital presence including video tours, digital maps, self help information and related videos, as well as smartphones for FaceTime tours and other similar tours. We made the decision early on completing the implementation of our mobile maintenance app 2.0, our sales lead management system 2.0 and several other initiatives shaving 4 to 12 months off the original rollout plan. As the restrictions are relaxed, we are positioned well for this new environment. Our operating strategy going forward will balance occupancy and market rents maximizing revenue. We will our technology platform and operate consistent with the social distancing protocols by using a combination of virtual tours and live video tours where a sales associate is either on-site through a prospect via phone or the resident is on-site and the sales associate is live answering questions. And explaining various features and benefits of the particular unit and amenity. Our Smart Lock Digital Entry Systems enable us to provide access to vacant units for self tours, thus eliminating the need for agents to be on-site to provide access. These were very challenging weeks for certain, but we are emerging from this challenge stronger and we are well prepared for the future. Turning to our markets. In the Seattle market, while financial occupancy declined 80 basis points compared to the prior year's period. Delinquency in the Northern technology driven markets were lower. In April, delinquency in our Seattle same store portfolio was 1.8%, the lowest in rents were up 17 basis points, while financial occupancy declined 1.2%. Delinquencies for the same period in the Bay Area were 3.9%. Our Santa Clara County submarket had the lowest delinquency at 2%, while Alameda, San Mateo and Contra Costa County were 4.1%, 6.3% and 7.9% respectively. Consistent with the rest of the market, our 4 Bay Area lease ups 500 Folsom station park, Green, Milo and Patina at Midtown had very little activity since late March which was the result of Southern California same store economic rents were up 1.1% year over year in April, 2020, while financial declined 1.6%. In the same period, our Southern California region had higher delinquency overall in our same store portfolio percent, respectively. Orange County delinquency was 7.5% and LA County delinquency was 9.4%. Our LACBD and Woodland Hills submarkets were the hardest hit at 12.1% and 13.8%, respectively. As of April 30, our same store portfolio's physical occupancy was 94.4 and our availability 30 days out is 6.5%. Thank you. And I will now turn the call over to our CFO, Angela Clement. Thank you, John. I'll briefly comment on our first quarter results and provide an update on our funding plans and the balance sheet. We had a strong start to the year with 1st order same property NOI growth of 3.9 percent and core FFO per share exceeding the midpoint of our guidance by $0.07 and achieving a 7.7% growth compared to the same period last year. As noted in our earnings release, We have withdrawn our closure by providing additional data on April operations and more liquidity details on page 15. Turning to our funding plan, for investments, stock buybacks and dividends. During the first quarter, we committed $106,000,000 of capital towards structure finance investments at an average yield of 11.2 percent. The funding for these investments is is expected to start around September and occur over a period of 6 to 12 months thereafter. Which means our funding needs 20 is also de minimis at about $75,000,000. This represents 50% of our total development commitment shown on Page S11. In fact, approximately 90% of the current development pipeline is expected to complete lease up within the next year. We have begun reducing our exposure to direct development several years ago because the rate of construction costs increased at a greater pace than rent growth, ultimately compressing yields. Hence, this is consistent with the plan we have discussed on previous calls. Moving on to funding sources. We expect to receive a total of $215,000,000 from structured finance repayment of which $115,000,000 can be allocated to our investment needs noted earlier and $100,000,000 can be allocated to fund our stock buybacks. Since we have repurchased $176,000,000 of stock, the remaining $76,000,000 will be match funded with cash flow from operations As for our dividends, during the first quarter, we raised the annual dividends by 6.5% which represents the 26th consecutive dividend increase. We are proud of this track record which few companies have achieved. Even though cash flow from operations may be lower than original plan for this year, the dividend remains very secure and covered by free cash flow. With over $1,000,000,000 in liquidity, no debt maturities in 2020, and our funding commitments well covered ES6 remains in a strong financial position. Thank you. And I will now turn the call back to the operator. Thank you. At this time, we'll be Our first question comes from Nicholas Joseph with Citi. Please proceed with your question. Thanks. Mike, you mentioned the transaction market and that your cost of equity isn't where you like it be. But if you see good external growth opportunities, either repurchasing your shares or on the acquisition market, would you to increase near term leverage? Hi, Nick. Thanks for the question. Appreciate it. I think at this point in time, given this incredible uncertainty, we would like to stay more leverage neutral in terms of how we approach our different investment types, not to say that we won't sell property in order to pursue other types of opportunities. But at this point in time, until we see greater clarity, because I would say at this point in time, there are more unknowns and knowns out there given the unprecedented unprecedented nature of the pandemic itself. And so we're going to remain fairly conservative when it comes to leverage for the foreseeable future. Thanks. And then just maybe on operations, you mentioned the concessions that you're seeing on some stabilized properties. What sort of concessions are you seeing on lease up properties, today in the different markets? Sure, this is John. The lease up properties that going back to the stabilized just for a second, what we're seeing is we're seeing 2 to 4 weeks pretty common is where we're seeing rental transactions. And I mentioned the comment as far as dislocation because simply looking at asking rents and assuming that and reflects the actual rent, that's what I'm getting at. It doesn't necessarily reflect that where the transactions are occurring is where there are some level of concessions that are going on that really relates to what I see is this dislocation that's caused by the impact of some of the delinquencies hitting certain properties and not others creating many lease ups out there. I think that will abate in the near future. As we move to the lease ups, the lease ups concessions are closer to 2 months and there's some other specials that are going on. Again, the whole market just kind of expanded out from shorter concessions on lease ups and no concessions on stabilized 2 to 4 weeks stabilized and basically 8 weeks on a new product across the board. Does that answer your question? Helpful. Thank you. Our next question comes from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question. Hi, good morning up there. I'm curious what your thoughts are on the collections across your markets, married the comment you had, you said, regarding the slow rollout of unemployment benefits. And then also balancing that with some of the tenant activism that's made headlines of light? Yes, I'll take that. What we're seeing, I got to start with an amazing event and we're really seeing some good people that were impacted by situations outside their control really all trying to figure it out and do the right thing. I don't want to focus on the potential of a few bad actors. The reality is We have a lot of great people that are working hard. Our resident response team is engaged with them, and we're seeing good behavior by really the majority of those people acknowledge there's some people we haven't connected with, but even those people, some of them have actually paid some levels of rent They might just be a little bit shell shocked from this whole situation. My expectation is that as the government assistance rolls out that people will probably make as much rent payments as they can. And then again, as I mentioned, we do expect the relaxation of some of the shelter in place requirements and somewhat orderly challenged, but orderly economic improvement. And so we expect to see people starting to go back to work, being able to pay rent. And for those that can't pay rent, they may end up moving out. But again, our markets that we're in benefit from this chronic undersupply. And so what we've always seen in the past is whenever there's some level of a shock, it takes some time 1 to 3, 4 months. And we start to have people from the outside areas moving into our market and supporting occupancy and therefore rents. So, I see you have a somewhat optimistic view as to how this goes, but Again, want to be very candid that where we are today, there's a little bit of dislocation going on right now. That's helpful. What do you think the likelihood that you collect some of that unpaid or delinquent rent is over time as some of those benefits roll in? Hi, this is Mike Austin. We don't know, honestly, that falls in the bucket of, actually have more unknowns than knowns, which is why we didn't give guidance. I think this is one of the key issues out there. And Historically, as John said, we have somewhere around 30 to 40 basis points of delinquency and, it does not present an accounting issue. We just assume effectively we treated on a cash basis. And so it's a little bit different now. And fortunately, because of the timing of what all this happened, we have pretty much 3 months to work through those issues and have better information. We know historically that the further you get away from the move out date, the more difficult it is to collect. And, that's just our experience over time. And so we are motivated to move pretty quickly and which of course many of these eviction prohibitions and other governmental actions prevent us from doing that. And so as John said in his prepared remarks, which I think is important here, that if someone comes to us and says, Hey, I'll move out, we're going to likely let them out of their lease, which means that we're going to have a little bit more turnover but we're going to control the unit at a time when, again, because of these eviction prohibitions, we don't have a lot of choices. So, we're working through all that. And so I think one of the more complicated issues that we have to deal with with respect to this whole, challenging scenario. That's helpful. And, I know there's still a lot of uncertainty, but you guys kind of leading into this had preferred preferred equity over ground up development. And curious as you think about coming out of this and how you want to be opportunistic how are you weighing those types of investments? Yeah, this is Mike and Adam is here too. So he may wanna add something. But, yeah, we still like the preferred equity investment. We're not in the first loss piece Again, we come in to those transactions at the point in time that they are beginning construction. So costs are known, financings in place, etcetera. So we're not taking a great deal of risk upfront. And, typically those deals underwrite to similar in the high 4 to low 5 cap rate and there were, of course, at the around the 85% loan to value ratio, which means our effect cap rates somewhere in the mid 5s. So the chances of having distressed at that level, I think, is incredibly unlikely And, in terms of, investment policy going over going forward, direct versus, preferred equity, I'll let Adam handle that. Yeah. To echo what Mike has said, we continue to aggressively pursue on the pref equity side. Throughout this crisis. We've we've underwritten deals a little more conservatively, increased interest rates commensurately with our additional cost of capital that's happened over the last month or so. And we've continued to identify deals. And we're in the process of due diligence on a number of prep equity deals. Going forward, there are there are definitely development deals out there and we'll continue to track and monitor. We there's some expectation. The costs will come back toward us with decreased construction. We haven't seen any of it so far, and we've we have our finger on the pulse with a number of prep equity deals out there right now. So haven't seen a decrease in pricing and and sellers are very, very hesitant to decrease their pricing expectations. So I think the development world will take a little pause but we continue to, like I said, aggressively pursue on the upside. Thank you. All very helpful. Our next question comes from Nick Yulico with Scotiabank. Please proceed with your question. Hi, everyone. I just want to first ask on the market rent forecast you gave, which is for market rents being down about 3%. This year. Can you just give us a feel for how fast that could manifesting your portfolio in terms of a a decline in new lease rates. And I guess I'm also wondering, if if the impact could be bigger than that on a short run basis in your, you assume some sort of recovery in rates, in the back half of the year, any perspective there would be helpful? Yes, Nick. This is Mike, and I'm sure Mr. Burkhart has an opinion on this one as well. So I think what you have here is a shock to the system. So, and anecdotally, lots of people that can't afford their apartment, you know, potentially moving to different places and other things. So that'll be the shock to the system. And then there's a recovery. The recovery is almost always people backfilling from further out locations into areas that are closer to the jobs. And then we benefit from that. Over time, but this takes time to play out. So, this presumes since we were up 3% in Q1, on F-sixteen, you know, last quarter and now we're at minus 2.8%. It assumes a pretty dramatic drop off in market rents. Of course, we don't turn units. We turn units ratably throughout the year. I think part of that because we enter this traditionally a more seasonal period. So the fourth quarter is a little bit more challenging for us on the demand side anyway. We still have the deliveries of apartments into the markets. And so we think it will be pretty choppy going into the fourth quarter and then we think it recovers from that point on. So, the other point I would make is, John's comment about stabilized concessions, you know, I think that stabilized concessions are assumed to continue in our economic growth forecast on page S-sixteen. And again, just a reminder from what this is, this is a scenario based on macro factors effectively supply demand factors. When you throw them into our model for what happens with various supply demand factors, what happens to rents this is what we get. There's still a whole bunch of unknowns on top of this. Again, the policy issues, will there be more regulation in these markets, which we don't say we think there's been plenty of regulation actually, but we don't know what's going to happen with that. The cadence of of move ins and move outs. We can't predict that. And the collection of the delinquency is another challenging subject So that that's why we decided to give the this data on S-sixteen without getting guidance because there's a whole another level of assumptions And we think that there's enough very large assumptions embedded in S-sixteen that it just didn't make sense to push it further. Okay. That's helpful, Mike. And then just in terms of supply, if we look Oakland and San Jose are two markets that are facing some of the biggest supply deliveries in the second quarter, third quarter of this year. Is your sense that any of those projects have now been delayed in terms of timing? And then also if you could just maybe tell on a real time basis, what you're seeing for projects that are delivering and lease up. I mean, is it 2 you mentioned 2 months earlier, Is that norm in these markets? Is it worse than that? Thanks. Yes, it it can be worth that, but I would focus you on the percent of supply, total supply to total stock, which is at 0.6% for the portfolio. And Northern California is a little bit higher, at 0.7% But then again, Northern California also has more momentum. I think I think we believe that tech markets are the winner here. And, because their business models are, pretty COVID-nineteen, resistant for the most part, not that venture capital hasn't been affected. It has a little bit and jobs haven't been affected. They have. Although when we look at, for example, top 10 technology companies, job openings are down a little bit, but they're still very strong. So our view is that the tech markets do better here and we'll continue on the path of, leading the West Coast markets. And, obviously, that's been a key part of our So I guess what I'm saying is I'd be less concerned about supply in Northern California given the strength, the overall strength of the job markets and the companies here probably if we have a concern, even though it appears to be the least amount of supply in Southern California, because it doesn't have the job drivers that Northern California and Seattle have. Okay, thank you. Thanks. Our next question comes from Neel Malton with Capital One Securities. Please proceed with your question. Hey everyone. Good morning. I just wanted to kind of go back to something that Austin brought up. I believe in your supplement, you've called out 2% of the delinquency or, is or 2% of the total rent is people who are not affected by COVID that haven't paid. So that's basically the moral hazard. I guess I'd be interested in, if you can at all, Mike, you know, just maybe walk through what markets you're, you're the most concerned about. You know, obviously people talking about rent strikes seems like the legislature and, and, and judges have no interest of, of, pushing through evictions anytime soon. I guess, any more color on on how you see that kind of playing out when you see the eviction, I guess, market normalizing and how much worse could that moral hazard get, you know, as we continue to have, an elevated unemployment environment for a longer period of time. Yes, it's a good question. And I believe you're talking about, on F-fifteen the 2.2%, which is the percentage of units delinquent in April, not requesting assistance. So I guess most of that category is people that we haven't heard from. And, yeah, I think that there are really 2 components. There is the moral hazard component, those that just want to take advantage of the situation, the, the various laws and the reluctance of the courts to process, evictions, etcetera. But I think there's another piece of that, which is people that are just overwhelmed and or for whatever reason, ignore their notices. So I think it's still a little bit early to tell exactly how that breaks down. I guess from my perspective, that's not a huge number in the scheme of things. Because, I know when we were talking to our board, we gave them a much larger range of delinquent And so I think our actual experience is better than what we thought. And I was concerned that to your point, that if you're going to give people, there's no hammer as it relates to evictions. We're waiving late fees for some period of time as part of our overall program to try to help residents through this difficult period, etcetera, that there might be more of those people that just say, oh, I'm just not going to pay rent. Keep in mind that they still have a credit issue And so there is a reason to pay rent. They still owe the money. And we still fully intend to pursue the collection effort And we will have to approach it a bit differently given the magnitude of it. And so, but we we're going to still push hard to to collect it where we can. So this falls within one of the unknowns, and we're not sure exactly what's going to happen with that category. Fortunately, it's only 0.2%. Yes. Mike, let me just add. In my comments, I mentioned that those are the people that we haven't spoken with, but I also said Some of them have actually paid partial payments. So to be clear, you can't look at that group and say that their moral hazard I'll give you an example. One of the things we did at Essex is we early on realizing the challenge that this was for so many people We identified residents that have been challenged with us in the past. They may have had, you know, reviews that they wrote that they're upset with for whatever reason, and we reached out to them just to check and see how they were doing. The feedback we got was amazing, but what we found is many people were somewhat shell shocked. They really just weren't interacting the public. And so we had people that were saying, wow, call me back next week. And so I think how this impacted a lot of people was some people just kind of went back into their units and and just disconnected from everything. And then others, we're just trying to work through it and maybe they were working and they're connecting with other people. So I don't associate that 2.2 has been reflective of, moral hazard. I recognize there may be some of that out there, but I think people will come along and, we're seeing good behavior overall. We're hearing amazing stories. So I wouldn't associate that with moral hazard. All right. I appreciate the detail, you guys. Other one I have is, in terms of the H1B visa programs. I know a lot of that goes to tech. I know a lot of that goes into your markets. And so I'm just wondering if you have any sense as to, what that looks like going into the summer, Is that, is that sort of, demand or occupancy that you assume now will be lost? And then the venture capital side as well, I guess, sort of like the 2, specific to the West Coast head that the demand drivers just had questions on that? Yes. Yes, this is Mike. Again, we haven't spent a lot of time on the H1Bs, given all the other things that we're working on. Anecdotally, we have not heard in terms of what they're actually doing, we'd know that they don't qualify generally for unemployment and therefore to the extent they're placed, then maybe there's a possibility that they will go home. And so that's out there, but it's just it's too hard to tell at this point in time. And I'm sorry, I missed the second part of your question. Oh, yeah, sure. Sorry. I was just asking about venture capital. You had alluded to it. Yes, venture capital. So yes, no, I did. I did. I did. I did. Yeah, venture capital. I mean, it still remains strong in our markets, still above dotcom era, the last funding by quarter, last quarter was for quarter 2020 was $12,000,000,000 versus about $10,000,000,000 in the dotcom period. So, still strong. Again, anecdotally, we're hearing that venture capital valuations are dropping pretty substantially by a big number. We also when we go through the worn notices or the notices of layoffs, there are a lot of venture capital, funded companies that are on that list. So trying to figure out how to, kind of continue operations at a time when, valuations are not really attractive. I would put this in the bucket of still a lot more unknowns than knowns as the venture capital world is trying to figure out what to do. I know in our case, we have our technology fund consortium both, that the REITs and other multifamily owners put together. And, we're seeing some pretty attractive deal flow as result of that and lower valuations overall. And so we think it's actually a very good time to be an investor in technology at this point in time compared to the recent past. Thank you. Our next question comes from Jeff Spector with Bank of America. Good afternoon, and thanks for all of the thoughts so far. If I missed this, I apologize. Can you discuss May collection so far, what you're seeing? Yeah, you didn't, this is John. They're materially consistent with April. One thing I would say is, because of when the 5th falls, things can move around a little bit, but we're right on path with April. Okay, great. Thanks. And then I believe Mike in his opening remarks talked about an expectation for a decline in market rents in 2020. I believe I heard negative 2.8%. Just given what's going on it just it doesn't seem so bad to me. Again, I know it's down and you were expecting up 3% plus, but Is that correct? And can you put that in perspective, let's say, versus what you saw during the tech crash or Was it minus 2.8%? Yeah, Jeff. Yeah, but keep in mind, this is actually published in F-sixteen of the supplement where we try to give you an idea of what we think market rents are going to do on average for 2020. And so we come to 2.8% However, keep in mind, we have 3% rent growth, market rent growth in the first quarter. So it to average 2.8% the year, we expect rents to decline pretty substantially between now and year end. And again, I go back to John's comments about stabilized concessions because if you give away a month free, you know, that's actually a pretty significant reduction in market rents. And I think it's somewhere in that magnitude where we expect, again, as we're working through all the delinquent, and some of them are moving out and we've created more units than we would ordinarily have to rent. And now we have to draw people into those units that we think we're going to have to provide more incentive to do that. And so that will be probably mostly in the form of a concession. But I think that's the environment for the rest of the year. And then, I think John points us out too. Then, we probably hit equilibrium at some point in time. We'd say toward the end of the year and then I think things can recover from that point. Does that make sense? Yes. And can you compare that the minus 2.8% for the year to, let's say, happen during the tech crash or a great recession. Yes. Well, your overall mart rents declined in the, financial crisis about 15% over a couple of years. In terms of but keep in mind, we don't, we don't actually realize that, or realize that over time we have leases in place, and I'd actually have these numbers. So in 2009, the reported revenue drop was 2.8% and 2010 was 3.3%. So we had 2.8% same property revenue dropped 2.8% in 2009, 3.3% in 2010 on a overall about 15% reductions in market rents. And, so as you can tell, I mean, the reported numbers are pretty dramatically less than given leases in place. Compared to the market rent numbers. Does that help? Yes, it's very helpful and I wish everyone well. Thank you. Thank you. You too, Jeff. Our next question comes from John Kim with BMO Capital Markets. Please proceed with your question. Thanks. Good morning. I was interested in the commentary about the increased tours and applications in the past 4 weeks and trying to compare that with the 140 basis points of occupancy that was lost during April. Do you think that with the increased activity that occupancy has basically troughed already? And how do those metrics compare year over year? Yes. So, the I definitely believe that, activity trough, it troughed in 1st week of April and the commentary that I gave related to the last week versus the April average and it was up substantially. Our applications were up over 60%. So we saw a lot of market activity So very good outlook going forward. What we're seeing is the market is moving toward equilibrium. We're offering some level of concessions people are renting units, things are going in the right direction. That's a good thing. As it relates to year over year activity, we're definitely lower. It's a little harder to compare because when you look at say tours, we're up an infinite amount on virtual tours right now. We had no virtual tours a year ago. And so when you're trying to those numbers is a little challenging. That's why I gave away the trough, which was the 1st week of April. And then this last week, where we are in comparison We're continuing to see this week good leasing traffic, good activity. But overall, definitely the market for April was you call it shell shock, it was less than what it was a year ago in April, but given exact comparisons of de misleading. Okay. So the activity is a good leading indicator. I was wondering if you could also clarify the difference between financial and physical occupancy on F-fifteen. So it's basically a 100 basis points, I'm wondering. Financial occupancy relates to, whether or not someone's in our unit for the full month or the period, whatever the period is, compared to our scheduled rent, whereas physical occupancy is just simply looking at the units and whether or not they're they're occupied. So the at one point in time. So our we quoted our physical occupancy as of April 30th, which was on that day, whereas our financial occupancy for April would have been the whole month. So a little bit different. The reason we were doing that is we're trying to give out people, again, full transparency, give a good understanding of where we ended up because we did end up lower than where we were, for the month. I will say though that things have picked up and what you would expect. It's consistent with what I'm saying. We do expect occupancy to continue to pick up. I think that was probably our low point. You know, when you think about it with traffic being the low at the 1st week, that's typically going to really do occupancy being the low several weeks later. And then all of a sudden it picks up. So this whole thing is working out as expected consistently, and I expect our will continue to pick up going forward, which it is right now. So is it fair to say that the physical occupancy is a leading indicator for the financial? And then the tours and applications are a leading indicator for both? Yes. Thank you. Sure. You're welcome. Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question. Hey, morning out there and apologize for the background noise. So a few questions. First of all, I think you guys are pretty bold to let tenants do their own home repairs. Can't wait to see the, the photos of the aftermath, but Two questions. So first, Mike, can you just you talked about the different markets and Seattle's strongest, the North LA Suburbs, the weakest as far as rent collection. Can you just maybe I missed it, but can you just give some color on urban versus suburban and especially that you guys have sold down, you've been selling down your urban exposure. So just sort of curious how you're seeing your portfolio rent collections, etcetera, play out between that dynamic? Sure, Alex. Good question. And, yeah, I don't want to see the drywall patch job that our residents do for sure. Let's see. The I think Yes. I mean, I can talk about the delinquency. Yeah. I'll talk to you. I'll talk to you. I'll just start. Just delinquency. It's first off, Alex. We're a high service shop. So some of the self help might literally be replacing a light bulb. But anyway, the, as to the delinquency, as I mentioned, we aren't really seeing a high rise versus low rise or rent. We're not seeing correlations as it relates to that. When I look at the, what occurred, certain assets were impacted more than others. And when I dug deep into that, you could see the logic, like an asset that perhaps next to a mall or one that's highly impacted by a school, and you could understand what was going on. But then when I try to apply that back to other assets in a similar situation next to a mall, you know, 10 miles away or highly impacted by school, the results weren't the same. It was really interesting and unique. And, what I did find though is that there was a submarket distinctions, and that's why it brought up the submarkets. And so downtown LA, what is highly impacted that's why I brought that one up specifically. As Woodland Hills and Woodland Hills has exposure to the entertainment industry. So we did see those types of impact We also saw regional impacts less in the Pacific Northwest. And of course, there we have a lot of assets on the east side many of them are garden style and that type of thing, really low impact. And then, in the middle was the Bay Area and more in the south we had greater impact. Some of it was a Disneyland effect. Yes, Alex, let me pick up on that. So, so yeah, we have sold some buildings in the downtown. MOSO, if you'll recall, was sold in Q4 of last year and Ethan Hope the year before, one in downtown San Francisco, one in downtown LA, And I would say, most of that motivated by some of the issues and the grindiness of the downtown and our expectation for some of the areas to be cleaned up more quickly and transition more quickly than they did. So I think that that continues to be a pretty significant issue, here on the West Coast. And, our performance has been, it's been okay in the downtowns. It hasn't been great, because of some of those factors. And so, we've become more suburban over time. And, you know, again, with we want to own property and they'll say, D minus the 8 quality area in areas near jobs and never far never too far from the major job notes. And, I'd say that suburban generally has outperformed the urban here on the West Coast. I realized that in other markets, if you could have different outcomes. Okay. And then the second question sort of going to that geographically. Obviously, New York here, we've been really hit hard, but speaking to folks in the rest of the country, including ours, even in the Bay Area, it seems like COVID has really been much less of an impact. And if there's a sense of people wanna get back to their jobs, much quicker than the politicians want. So in your view, do you sense that there's this pent up demand where people are ready to get back to their job And you guys may even rebound quicker than people think just because the level of COVID is less. And the people are just far ready for it because they don't have to rely on mass transit? Or do you think that it will take longer to reopen in your markets? It is the $1,000,000 question. And I and certainly, I don't have an answer to it. I put this definitely in the unknown category. I think that we tend to have high income levels out here and the people that are earning high incomes want to consume services and the services for the most part, restaurants and a variety of things those services are really not open at this point in time. So I think that there is a motivation to, to start opening things up again. Having said that, yeah, there I think the governmental entities are incredibly, let's see, conservative and concerned about search capacity and some of the other issues that go along with it. So we're going to take it one day at a time. And can't exactly predict what's there. But I totally agree with you. I think that the demand for services is building and is pretty intense out there. And so hopefully that motivates. We've seen various different things on the news about this, in terms of closing the LABG's boy, that's a tough one. But, because people want to get out and go do things. So, can't exactly tell you what's going to happen, but I definitely can feel the pressure building. Our next question comes from Rich Hill with Morgan Stanley. Please proceed with your question. Hey guys, just one follow-up on the negative 2.8 percent macro forecast. And by the way, thank you very much for that. I'm sure it's not easy to put together right now. But I think one of the things that I'm certainly trying to understand, I think a lot of people are trying to understand is the cadence of that. And I'm not looking for you to give specific guide, but maybe if you could just walk us through, if you think you're going to see a deeper 2Q 20 trough and then a quicker rebound, or is it going to be more, more stable but down over the course of the year? And the reason I asked the question is I think about your I think it was a negative 7% job growth forecast for the year, which is a little bit more severe than Morgan Stanley was projecting, which maybe suggests that you're expecting it to be delayed out, but maybe not as deep in 2Q. So any color you could provide on that, that would be really helpful. Yeah, Rich. This is Mike. And I think I went through some of this previously, but, the job forecast and the GDP forecast or estimates. Again, we survey a wide range. We don't do any fundamental research as it relates to the macro economy. And as you know, there's wide dispersion of what people think is going to happen. And as we sort of triangulated all that, we got the minus 900,006.6 percent job loss in our West Coast market. So that's where that came from. We don't again, we don't add we don't try to add value. We just try to report the facts as it relates to that. What this is intended to do is take those macro, forces and consider what would happen with rents in a normal situation because we don't have a COVID-nineteen model because we've never been through this before. But in a normal situation, if you had -6.6 percent jobs, job growth. And you had about 0.9% apartment deliveries what would happen with rents. And so that's where the 2.8% number came from in terms of our rent forecast minus 2.8%. And again, that compares to plus 3% that we achieved in the first quarter. So in order to average minus 2.8% for the year, when you start with 3 months of 3, yeah, things get pretty ugly in the second half of the year. We view this as more just part of the shock to the system. There's been an extraordinary shock to the system. And I think John's equilibrium comment is the is the right one. We need to get back to equilibrium and, there will be short term pain in order to get back to equilibrium. And best I can tell, it's going to be somewhere around 1 month free on stabilized communities, which is sort of embedded into the minus 2.8. So that's where it comes from. And, but this is just our modeling. This is what happens in our rent forecasting model when you put these various pieces in, again, it doesn't reflect a COVID-nineteen scenario and the extraordinary uniqueness of the situation. So it could be different. And again, this is why we didn't follow-up with this and then push into guidance because there's a whole another set of assumptions that would go into as I'm asking a tough question. It sounds like given the 1 month free concessions right now, hopefully those will burn off towards the end of the year. Maybe we could, maybe we could assume something more than severe than the negative 4.75 that the average for the next three quarters would assume in 2Q and then gradually getting better, because I think you had noted that you begin to reflect in 1 Q21. So I was just trying to get my hands around what does that average look like? And it sounds like it might be a little bit deeper in 2Q, but then start to get better as the year progresses. Yes. In our model, it gets progressively worse, because again, you have seasonality that comes into the equation, although you would say Q3 is normally our best quarter, let's say, and we're not going to get the benefit of the positive seasonality. And so maybe the negative that which typically comes in the fourth quarter will be more muted. But yes, we just don't know. So we the way that our model runs is it gets progressively worse and then we'll hit bottom sometime in Q4 and then rebound from there. Our next question comes from Harte Goel with Zelman And Associates. Please proceed with your question. Hey, guys. First of all, thank you for all the great color on all the work you've done. And, Mike, congratulations on buying back stock, second downturn in a row. That said, I really wanted to get your thoughts on, you guys talked, you guys tracked the labor market really well gotten great commentary in the past about what job trends are like. What is your work there really tell you about not just startup employment, but employment from the big tech companies and how would that compare to last year? Can you contextualize that? We can. Let's see. Let me pull out a slide on the big tech companies, which I have here somewhere, But again, we, there's a piece of it that we don't know, and that is, to what extent do things open up as we, as California, Washington open up, how many of those jobs will come back? Will it be half the restaurants that get become filled given social distancing. And that's kind of our best guess, but that of course means that the other half don't come back immediately and what happens with them. So this is part of the unknown with respect to that part of it. And again, I think the good thing about our markets is that we have high income people. We generally are in the better areas and people have the want to consume services, which are not there right now, but I think there's going to be a lot of pressure to bring them back. So I guess that's the first statement. In terms of specifically our process of tracking what's happening with the top 10 tech companies, all of which are headquartered in a ethics market, we have, let's say, total openings at 22,900 as of May 1st, 2020. So that compares to, last quarter, March 27th, it was about 28,000 or 29,000. So there's been about a 20% reduction there. But if you go back in time, you hit about the same level Q3, Q4 2018 in terms of the number positions open. So I would put that in the still strong category. And, even though it it's, it's off, it's off the all time high that we achieved last quarter. So, I think still pretty compelling. Does that help? And just as a follow-up to that, I think John mentioned a few times, and that is really helpful, by the way. John mentioned a few times equilibrium pricing. And I was just wondering, what do you guys see as equilibrium maybe in 2021 once we're past some of this uncertainty, is the economic environment stronger than 4Q 2019 Or is it something where we still have, you know, a fixed percent unemployment rate and pricing power inherently is not as strong as the late cycle? Yes. Again, I think this is goes within the, the category of, hey, there's been an extraordinary shock to the system and the markets are trying to find equilibrium but they're changing as time goes on. Again, there are people that are on unemployment. Some of them will be brought back and to work and some of them won't have a job given you're probably going to chop the capacity of a restaurant in half, for example. And maybe that's made up with, delivery or pickup type services or whatever, but it's just going to be different. And I would say it's beyond our ability to really predict with any degree of certainty when it comes to what that scenario is going to look like, which, but it will. We will have equilibrium Historically, when you talk about the great financial crisis or 911 or the.com period, these these periods go on for maybe 18 months and then kind of turn the corner. In this case, I think we've had all the negative part of that 18 months in 1 month. And so it's all been compressed And then now we have the second part where, you know, we're hopefully hitting bottom and now we're recovering. So I would expect that whole process therefore to compress to maybe 9 months or something like that. Got it. That's really helpful. And just if you replied to me one last one, Could you give us the range of the prices at which you bought back stock? I know the average was 2.27 and I may be leasing here, but I have the trust. Hi. This is Angela. I think you're trying to be a troublemaker here. So let's just leave it at, you know, that's our average and that's what we report. Thank you. I'll give you some credit for trying. Our next question comes from John Pawlowski with Green Street. Please proceed with your question. Thanks. Just one for me. Mike, there's been a flurry of cities to enact their own type of rent freeze measure. And I realized most of them won't really impact your portfolio at all because they abide by Costa Hawkins. There's a few examples of cities kind of violating cost actions right now. But again, that's de minimis impact at least from our lens in your portfolio. When you step back and you evaluate the legislative landscape. Is there anything on your radar that will prohibit your renewal pricing power beyond your own proactive 90 day window. Is there any issues with any cities later in the year where you won't be able to push renewals? Well, John, I know you guys tracked us pretty well and we do too. And there have been all kinds of proposals out there Fortunately, most of them have not moved forward. And in California, obviously, we have AB1482, which statewide rent control imposing a cap of CPI plus 5 with a cap of 10. So we're managing through that environment, fortunately, the more aggressive proposals have not been adopted. Thank goodness. I would say the one that, you know, was most concerning, really maybe 2 of them, you know, one is, you know, LA extending the, the rent payment program out a year. And then there's the judicial council that essentially is not going to hear eviction cases for some period after the state of emergency is raised. So So we track it, but we think that for the most part, we're working through it. And as John said, The good news is that most of our residents have chosen a higher path of working with us to work through their situation. And again, I look at that 2% bucket that hasn't communicated with us as being probably ultimately a good news with respect to those that are trying to take the maximum advantage of these various laws. Got it. Thanks for taking the time. Our next question comes from Wes Golladay with RBC Capital Markets. Wes, you there? Well, sorry to figure out this whole mute function, sorry about that. Looking at S-sixteen, the 2.8% rent decline, Have you made any adjustments to the Essex model for the CARES Act neutralizing job loss? No, I don't, no, we have not. Again, this is take the macro inputs job growth, GDP growth, supply. And, straight, this is what comes out of our model. If we put those factors in, and again, for the marketplace. So I think the, you know, the Cares Act will definitely help. You know, that's referring to S16.1 and the pretty great unemployment benefits that are out there. I think that helps with respect to people hopefully being able to stay in our units longer and paying rent for a longer period of time. And minimizing the damage, even if they pay a half a month, that may be okay, at least they don't accrue balance that becomes so large that they just can't, we just can't finance it. So I think it will help. It will help more on the delinquency side probably than it will on the rent side. Okay. And then did you comment already about retail exposure? No, I'm glad to hit that. Retail is a really small part of our portfolio like 1, 1.5%. Our retail delinquency was basically about half of the retail tenants paid what they owed. So it was roughly in line with other things I've seen in the industry. That group of retail where they're located at multifamily sites, typically a relatively hand them out. They're providers. So when the business shuts down, they struggle. We're working with really all of them and are pretty hopeful that they'll be able to reopen back up and we also will work with them on payment plans. So, but that group was hit hard and we've seen that really across the industry and Advanced team. Okay. Thank you. Our next question comes from Haendel St. Juul with Mizuho. Please proceed with your question. Good morning. Hey, Andy. So, Mike, I guess I was intrigued by your comments earlier on not being afraid to capitalize on the transaction should the right opportunities emerge. And I had flash back to the time around, the great financial recession when you guys backed up the truck and acquired a sizable amount of newly completed or near completion construction, in lease up type of assets, those deals and the merger with VRE were instrumental in lowering fully wage broadening out to your skilled market and price point collections in your California market. So I guess I'm curious if you would be similarly interested in buying up busted condo projects or development lease up to size? And would you be more willing to call from the bottom of your portfolio's fund date or perhaps use a fund structure to pursue these type of deals? Yes. Hey, Haendel, those are great questions. I guess the difference between now and the great financial crisis And the great financial crisis you had, you know, mortgages being made to people that couldn't afford to pay them back, And the amount of distress within the housing sector was extraordinary, as you'll recall, which created this opportunity to buy vacant, brand new condo buildings at, 50% of replacement. There is nothing even close to that out there at this time. And, you know, again, my comments in the script about record high positive leverage. You know, if you take a typical deal that might be a 6, let's say, 6a half unlevered IRR with positive leverage, you're probably in the high 9s to low 10s somewhere in that zone in terms of IRR levered IRR. So I think that that is going to prevent any kind of significant stress within the markets. Of course, there are always some transactions that manage to find very aggressive lenders and they managed to leverage their property up to 90% or more. They're out there for sure, but, there are few and far between, I would guess, at this point in time. So In terms of our basic view of transactions, we view it as, okay, what can we do with our portfolio on a leverage neutral basis? So what's the arbitrage ability within our portfolio? What can we sell and replace at a higher overall yield or growth rate or IRR, let's say, and how do we transact. So we're always thinking about it that way. And So I would say that preferred equity is still pretty important to us. It's still sort of at the top of our list. And, and also I would say, certainly joint ventures, which, take greater advantage than on our balance sheet. We're a little bit higher leverage in the joint ventures when we begin. And then of course, that leverage drops over time. But, utilizes, you know, the leverage to a small extent or to some extent beyond that. So I would say those two things are transactions that we're looking at and are interested in. And, I didn't mean to exclude Adam from this discussion because he's the expert at it. Adam, what did I miss? You nailed it all, Mike. It did. It did. Thank you. Appreciate that. I want to go back to an earlier question, I guess, from a different angle, just I'm curious if you're hearing anything in terms of rent forgiveness those being contemplated in California, Washington, beyond the tenant protection on for the temporary ban on addiction that we're even even hearing here. As I'm sure, you know, New York State is currently contemplating such a forgiveness bill. I think it's NYS-1825. So I'm curious if there's, anything you're hearing, and it's just more broadly, as a concept, does that even work, or how would that work? Just give you the idea of stepping in and telling landlords to forgive 1, 2, 3 months free rent. So curious on maybe what you're hearing and what you're thinking on that. Well, clearly, this is California. And so, you're going to hear some of those things and there have been various proposals out there. And we don't think that they're constitutional, but that doesn't necessarily stop them from being circulated. There actually is a bill in Sacramento, AB-eight twenty eight, that would give the courts the right to force landlords under certain circumstances to reduce rents by 25%. We think it's unlikely. But, it's out there. We think it's very unlikely. We don't think it'll happen. And again, from what we understand and all these discussions throughout the West Coast, which are mainly cities. There have been a lot of proposals, but the city attorneys have been pretty good at pointing out the legal peril with respect to that position. So, they have those bills have not been passed And I think at this point in time, it appears that we're beyond that period where we're getting what seems to be a new a new legal mandate a day. We're kind of beyond that period now. And I think we're more in the period of list figure out how to get back to work and open up. So I think that from a timing perspective, the time for those bills has come and gone. Got it. I appreciate the thoughts. We have reached the end of the question and answer session. Now, I'd like to turn the call back over to Michael Schall for closing comments. Yes. Thank you, operator. And thanks, everyone, for joining the call today. Please call or e mail us with any questions or comments. And our best wishes to you and your family during this challenging time. Thank you. Good day. This concludes today's conference. You may disconnect your lines at this time.