Good morning, ladies and gentlemen. Welcome to the MAA second quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, the companies will conduct a question and answer session. As a reminder, this conference is being recorded today, July 30th, 2020. I will now turn the conference over to Timothy Argo, Senior Vice President of Finance for MAA.
Thank you, Ashley, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO, Al Campbell, our CFO, Rob DelPriore, our General Counsel, Tom Grimes, our COO, and Brad Hill, Executive Vice President and Head of Transactions. Before we begin with our prepared comments this morning, I want to point out that as part of the discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our '34 Act filings with the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call, will be available on our website. During this call, we will also discuss certain non-GAAP financial measures.
A presentation of the most directly comparable GAAP financial measures, as well as reconciliations of the differences between non-GAAP and comparable GAAP measures, can be found in our earnings release and supplemental financial data, which are available on the For Investors page of our website at www.maac.com. I will now turn the call over to Eric.
Thanks, Tim. Results for the second quarter were ahead of expectations as strong collections drove NOI performance above our internal forecast. Due to both the high quality of our portfolio and the proactive efforts by our team to work with residents impacted by the pandemic, we expect continued solid performance with collections. Encouragingly, the trends for rent payments improved over the course of the quarter. As Tom will touch on, the positive trends continued in July with fewer residents seeking rent deferral arrangements. As of the 27th of the month, our cash collections for July rent were a strong 98.1%, which compares favorably to an average Q2 performance on a comparable basis at 96.4%. We are monitoring reports of increased levels of COVID cases in a number of Sun Belt markets.
While we expect conditions will remain fluid and choppy across various states and markets, we are optimistic that efforts to reopen local businesses and economies will continue. Beyond the uncertainties associated with how various state and local economies will proceed to reopen, questions associated with actions by the federal government to extend support to individuals and businesses also remain unresolved. For these reasons, we continue to feel that conditions remain too uncertain to provide updated earnings guidance. However, as outlined in our supplemental pages to the press release, we will continue to provide more details surrounding current rent collections and leasing trends. Assuming there is no significant change in current conditions, we believe that we will continue to capture solid collections on billed rent, as well as continued low resident turnover and stable occupancy.
We do expect continued pressure on rent growth, but we were encouraged with the improvement in lease-over-lease pricing for leases signed in July. With a significant percentage of our leases repricing during the busy summer leasing season, it is important to keep in mind that we will carry these repriced units into early leasing season next year, and it will weigh on the cumulative performance of overall rent growth for the next three quarters or so. However, as new supply deliveries slow next year, we expect a resumption of more robust rent growth across our markets. Longer term, we believe that our Sun Belt markets will capture increasingly stronger trends in adding new employers, job growth, and new household formations.
Our unique approach to diversifying across this robust region of the country with high-quality communities supported by a sophisticated operating platform will, we believe, continue to drive long-term outperformance for capital. Our strong balance sheet puts us in a solid position to both weather the current economic slowdown as well as opportunistically pursue compelling opportunities that emerge. In closing, I want to express my appreciation and thanks to our MAA associates for their dedication and superior service throughout this stressful second quarter. Your performance and commitment to our mission of serving our residents and all who depend on MAA during these stressful times has been absolutely incredible. With that, I'll now turn the call over to Tom.
Thank you, Eric, and good morning, everyone. I will offer a short recap on the second quarter and the move to trends that we have seen through July. The initial slowdown in demand triggered by COVID-19 in late March has moderated and trends are improving. Our teams have adapted and have been effective using our virtual and self-tour platform. These practices were further augmented by our return to guided tours in May. Leasing volume in April was down versus prior year by 9%. The volume in May and June were strong enough that leasing volume for the quarter was 0.6% higher than last year.
Effective rents were up 3.4%, and blended lease-over-lease pricing, including concessions, was up 1.2%. Occupancy remained steady at 95.4%, and turnover for the quarter was down 7% versus last year. We saw steady interest in our product upgrade initiatives. During the quarter, we restarted our interior unit redevelopment program, as well as the installation of our smart home technology package that includes mobile control of lights, thermostat, and security, as well as leak detection. As noted in the supplemental document, collections during the quarter were strong. We worked diligently to identify and support those who need help as a result of COVID-19. The number of those seeking assistance has dropped with each month. In April, we had 5,600 residents on relief plans. The number of participants decreased each month thereafter, and it's just 530 for the July rental assistance plan. This represents 0.5% of our 100,000 units.
As a reminder, in addition to the flexible payment plans for those affected by COVID-19, we have not charged late fees, we have frozen eviction proceedings, and actively work to pair affected residents with local and national support resources. While we are still below our normal run rate, the reduction in the number of residents on the rental assistance plans aided our fee income during the second quarter. As of July 27th, we've collected 98.1% of rent billed for July. This is 170 basis points better than April, May, and June results at the same day of the month. Adding the 0.3 of deferred payments for COVID-19 affected resident payment plans referenced in the COVID-19 disclosure, we've accounted for 98.4% of July's billed rent. This is an encouraging result, but we are keeping a close eye on the CARES Act expiration and the discussion around the continuation of government benefits.
Leasing volume for July is on track to exceed last year. Historically, pricing power peaks in the early third quarter, and thus far, July has been our best pricing month since COVID-19 hit. Net July month to date, blended lease-over-lease rates signed during the month increased 1.7%. This is more than 100 basis points better than leases signed in the second quarter. While we see this improvement across asset types and locations, our B assets and our suburban locations are stronger. In addition to positive pricing trends, occupancy has also strengthened. Occupancy has improved from a low point of 95.1 to 95.7 today. 60-day exposure, which is all vacant units, plus notices through a 60-day period, has dropped from a high of 9.2 in April to 8.4 in June and is now 8%.
Our current residents are choosing to stay with us, and our resident renewal retention rates are also positive. August, September, and October renewal accept rates are running ahead of prior years, and signed lease-over-lease rates are in the 4%-5% range. I'd like to echo Eric's comments and thank our teams as well. They've served and cared for our residents and our associates well and have grappled with the constantly changing implications of COVID-19. They've worked diligently to provide supportive and caring environments for our residents and one another. I'm proud of them and grateful for their efforts and character. I'll now turn the call over to Brad.
Thank you, Tom. The transaction market continues to experience a material slowdown in activity, with second quarter volume within our markets down significantly from 2019. In addition to challenges in underwriting, travel moratoriums, property tour restrictions, and difficulties performing due diligence all continue to make closing a successful transaction challenging. Despite these pressures, sellers are beginning to test the waters, and our number of underwritings, while still below previous years, have increased materially since the beginning of July. Certainty of execution is more important than ever, and since this is one of our core strengths, we have been able to review a number of properties, mostly off-market. At this point, most of the deals we have reviewed have not traded, so broad pricing trends are not yet apparent. The upcoming election is likely to further suppress transaction volume and cause the lack of pricing discovery to persist.
We believe better buying opportunities on new lease-ups should emerge after the election and into 2021 as the backlog of merchant build properties, which are prevalent in our footprint, begin to hit the market. The availability of financing continues to evolve. While early in the pandemic, debt financing was difficult across the board, it now remains difficult for lease-up properties as well as some developments, but is available at very attractive rates for stabilized assets. In addition, the commitment of equity is also further restricting transaction volume and construction starts. To date, a number of equity providers have paused or completely pulled out of quite a few new developments as well as acquisitions, sometimes for reasons not related to the real estate or the returns.
This hesitancy, coupled with our continued ability to perform on compelling investments, has opened the door for us to review numerous opportunities through each of our external growth platforms. While we are reviewing a few acquisitions, it's still too early for new lease-up opportunities to materialize, and more compelling investments on existing assets are likely to emerge late this year and into 2021. Our balance sheet is well positioned to allow us to take advantage of these opportunities as they arise. Our development team continues to pursue a number of land sites with three developments in due diligence that we hope to start construction on in 2021. With equity hesitating on new developments, we are receiving strong interest in our pre-purchase platform. We're currently in conversations on several opportunities that would likely start construction late this year or early next, with delivery occurring mid-2022 and wrapping up in 2023.
These development and pre-purchase investments align well with the current delivery pipelines and will deliver at a time when we believe the leasing conditions for new developments will be significantly stronger. We are beginning to see a drop in permit activity and have seen a substantial drop in construction starts in our markets, which should result in a decrease in deliveries in 2022 and 2023. In terms of construction, the six projects we have underway remain on budget and on schedule, and to date, we have not experienced any major disruptions or delays to any of our supply chains. With that, I'll turn the call over to Al.
Thank you, Brad, good morning, everyone. I'll provide some brief commentary on the company's recent earnings performance, balance sheet position, then finally a few comments on our outlook for the remainder of 2020. As mentioned earlier, we're very encouraged by the second quarter performance, particularly in the area of rent collections. At the beginning of the pandemic, this area was the most significant short-term unknown, with rental pricing expected to have a longer-term impact as new leases roll through the portfolio. As noted in the supplement, through July 27th, we either fully collected or attained deferral agreements for 99.4% of all rent bills during the second quarter. To this point, we've had very good payment performance from our deferral addendums, with a 97% compliance rate on outstanding agreements.
We also established a reserve sufficient to cover all rent unpaid from residents not entering a deferral agreement, as well as a large portion of the deferred rent. July continued the strong trend in rent collections, but given the remaining high level of uncertainty, we do not yet have enough clarity to reestablish earnings or overall same-store guidance for the year. We do have a little more clarity on operating expenses, and overall, we still expect them to end up essentially in line with our initial forecast for the year. As a reminder, we initially outlined same-store expense growth for the full year to be in a range of 3.75%-4.75% growth or 4.25% growth at the midpoint. The primary pressure is coming from real estate taxes, insurance, and the rollout of the bulk internet cable program called DoublePlay.
For context on their contribution to expense growth, ignoring these three items, all other operating expenses are expected to grow about 2.5% for the full year. Our balance sheet continues to support our business plans very well, with leverage near historic lows and significant capacity from cash and remaining borrow potential under our line of credit, combining for $927 million of capacity. We restarted our redevelopment programs during the quarter, and our development pipeline continues to progress well and on track. We expect to fund between $200 million and $250 million for the full year toward the completion of our development pipeline. As Brad mentioned, the acquisition environment remains challenging, with most opportunities expected to be pre-purchase deals, which would have longer-term funding commitments similar to a development.
We currently expect our business plans for the remainder of the year to be essentially leverage neutral, not requiring any equity funding this year. However, as previously discussed, our plans do include a potential bond deal in the second half of the year to fully pay off our line of credit, maintaining our capacity, and prepaying some future debt maturities in today's low-rate environment. Finally, as reflected in our release, we incurred $2.4 million of COVID-19 related expenses during the second quarter, primarily consisting of additional cleanups, cleaning supplies, COVID-19 related leave, and contract labor. We add these costs back to Core FFO as these initial expenses are considered non-recurring in nature. We do expect remaining costs to be much smaller over the second half of the year.
That's all that we have in the way of prepared comments, so Ashley, we'll now turn the call back over to you for questions.
Certainly. At this time, if you would like to ask a question, please press the star, then one on your touchtone phone. You may withdraw your question at any time by pressing the pound key. Once again, that is star and one. We'll take our first question from Neil Malkin with Capital One. Please go ahead.
Hey, everyone. Good morning.
Hey, Neil. Morning, Neil.
Hey. Nice quarter, also. First question, have you started to see maybe over the last three months, in terms of your new leases, migration out of the gateway urban markets and into your sort of core Sun Belt names? Is that kind of either too hard or too soon to discern?
No. We track that information. Overall, it's a relatively low percentage of our total leases. We didn't see much movement in the second quarter, but in July, that began to pick up. New York is up double digits, Massachusetts up about 8.7%, and Pennsylvania up about 5.3% of our increase over prior year on that. Again, still a relatively low percentage of our total leases, but we are beginning to see early trends of that.
Okay. Then just as a follow-up to that, are you seeing within your markets more move from urban to suburban, particularly in some of your, I guess, maybe out of your coast assets or things like that into more suburban areas?
We are not seeing that. We are seeing demand for urban assets. Suburban assets is a stronger pricing for us right now, but we're not seeing people transfer from urban to suburban.
Gotcha. Then maybe can you just talk about Orlando, how that market's been performing or how it's trending? Similar with Charleston and Savannah and some of your markets that are.
You're more exposed to the leisure travel.
Yes. Orlando has, I would say, improved on the rent collection standpoint. They were one of our larger exposures back in April. They're now just 0.7% of leases outstanding or on renewal or on rent support programs. In terms of the market, Disney and Universal coming back in modest fashion have helped a little bit. We're seeing the more northern properties perform better than the southern properties, which have that exposure to Disney and a little bit of international. It's sort of, I would say, largely the same with some improving rent collection trends right now. We're pleased to see the parks open, and that has a ripple effect across those southern properties.
Okay, great.
Charleston frankly, improved significantly. We saw a nice pickup in late second quarter and early July. Savannah is still a worry bead on that front.
Great. Last one from me. In terms of opportunities, you mentioned, kind of talked about a lot, I'm not sure I got all of it correctly, you do not think in the second half of the year you're going to see stabilized opportunities. It's mostly just the development related deals, also, are you thinking of, or would you think about doing some mezz or preferred given the kind of dislocation relative to earlier in the year and the higher yields you could get?
Hey, Neil, this is Brad. I think in terms of the opportunities for the rest of the year, We've seen starting in July, some stabilized assets have begun to come to market. Certainly in the second quarter, there was just a complete fall off in transactions coming to market. That's picked up a bit. I think, for us, our focus has always been on new lease ups, and to date, we're not really seeing those come to market. I think there needs to be a little bit more pressure in the market before developers begin to really bring those to market. We're really focused and seeing opportunities right now based on kind of the capital constraints that I mentioned in my opening comments.
We're seeing the opportunities really emerge on the development front, land sites that have been dropped, and then also on pre-purchase where we partner with developers. For those we've got difficulties in both debt and equity on that side that's putting some opportunities in front of us that we wouldn't have had.
Neil, this is Eric too. Just to clarify, we are not in the business of financing other people's properties. We will come in with capital and work with developers on the basis that we will ultimately own the asset. Functioning strictly as a financier of other people's product is not what we do.
Got it. Thank you guys very much.
Thanks, Neil.
We'll take our next question from Nick Yulico with Scotiabank. Please go ahead.
Hi, guys. This is Sumit in for Nick. Quick thoughts about renewals. Just trying to understand how you guys are thinking about this. They were lower in July, still well above peers at 4.8%. Just to make sure, these leases were offered about 30 to 60 days earlier, right? Most likely right after reopening. How should we think about renewals looking ahead? Is this close to the low in July, could they track new lease rates and perhaps stay flattish or slip a little further? Any color around that, what is your most sticky point in your negotiations with renewing tenants and what's driving turnover so low would be really helpful.
I think you caught it in your earlier comments. July was priced on the renewal front at sort of peak concern level at this point or thus far. We would expect at this point, renewal rates for July, that took place in July to be the low point. Renewals signed in July were 4.5% and I think we expect September and October to be in the between 4% and 5% range going forward. A little recovery in renewal rates is what we're expecting.
I guess just following up, what's driving negotiations or turnover? Just any color on that kind of thing.
We've got a very sophisticated platform and team that works to understand what the market demand is for renewal. We use that process consistently and have trusted it over the years, and that's what we use to move out. Then we obviously have some level of negotiation with the resident at that point. There hadn't been much in the way of sticking points, so we sort of feel like we're hitting the right spot in terms of the market because the accept rates are actually better than in prior years. I would say it's a pretty honestly normal renewal process going forward.
Okay. That's really helpful color. I guess, just to understand the overall pricing environment a little better, and I'll yield after that is, we're hearing that there was a surge of pent-up demand right after the lockdowns, there were people who really wanted to sort of change living conditions, and that's why they were looking to move and even during the virtual leasing days. Now that everything is seemingly open again, we're also hearing that we're seeing a lot more bargain hunters implying rate pressure and competitive dynamics. Your views seem to suggest that you're not seeing that. I guess what's different here or what's driving your optimism a little more?
Yeah. What I would tell you is that, as you saw in my comments around the second quarter, we did see sort of a pushback in leasing volumes in May and June, which sort of caught us up from the fall-off in April. What we're seeing is sort of a normal seasonal trend at this point, and our sort of pricing power, if you will, normally peaks in late July and early August. I would expect that to happen, and then of course, it'll fall off in the fall under normal seasonal patterns. We are certainly seeing bargain hunters out there, and our pricing is down lower than it was at this time last year. What we're seeing is sort of normal, seasonal pricing patterns now, as we've moved past that sort of shutdown, if you will, that occurred in late March and early April.
The other thing I would add is that, I think the fact that you're seeing performance, along the lines of what you're describing, you really have to start thinking about different parts of the country. Our Sun Belt markets have just continued to, we think, demonstrate a certain resiliency to them that is stronger than what we're seeing in other regions of the country. As a consequence of that, things were depressed from where they were a year ago, but patterns and overall behavior, and activity surrounding leasing, and renewal is pretty much in line with patterns that we've seen historically.
Thank you so much. That's really great color. I'll yield now.
Thank you.
We'll take our next question from Nick Joseph with Citi. Please go ahead.
Thanks. With COVID cases increasing kind of broadly across the Sun Belt, I'm wondering on the ground if you see any correlation between local hotspots and the relative strength of the operating environment.
Nick, you were a little muffled, and we're all trying to talk through masks, I suspect, but I think you were asking correlation between hotspots and leasing volume. Is that correct?
That's right. Just on kind of the micro level, if you see a hotspot, or if there is a hotspot for COVID, do you feel that on the ground, from a leasing perspective?
Nick, we have not seen much in the way of correlation on that. The market fundamentals really seem to be driven more by where are layoffs occurring and then some variability between location and the sub-market. We're not seeing leasing fall off in, let's say, high positivity markets versus low positivity markets at this point, unless those correlate with unemployment levels.
Thanks. That is helpful. Maybe just on that, do you have a sense of what percentage of your tenants are currently unemployed or benefiting from government support?
We do not have insight into their source of income, Nick, but the fact that we have seen such an improvement in terms of the number of people asking from support from us and the feedback that we get when we interact with our assistant property managers and our property managers, which as you can imagine, we're doing a ton of right now, is that the people getting off are not getting off the plans because their government check came in. They're getting off the plans because they got more hours, or they got pulled back off of furlough or Disney opened, and they're now engaged in some sort of support capacity.
Nick, the other thing I would add is when you look at the average income of our portfolio, of our resident profile, and our average rent, at this point, rent constitutes about 20% of monthly income of our resident base, pretty affordable. As a consequence of that, while we're certainly monitoring what's happening with the efforts to continue some government assistance at the federal level for unemployment, we're not particularly concerned about that issue because for all the reasons that Tom mentioned, we just feel like that our folks have not really depended a lot on that assistance to meet their rent obligations.
Thank you. That's very helpful.
Thank you, Nick.
We'll take our next question from Austin Wurschmidt with KeyBanc. Please go ahead.
Thanks, good morning, everyone. Eric or Tom, I'm curious what you think is really driving the strong demand for your properties today, given the state of the job market, the fact that there is some strength in the single-family housing market both for buy and rentals. Do you think it's renters that are trading down and bargain hunting, as somebody referenced earlier? Just curious about your thoughts on what's driving demand today.
Yeah, Austin, appreciate the question. I think it really is the underlying outlay of our markets in our area of the country. What we're seeing is normal patterns. I appreciate the comment on strong demand. I'm not sure I'd quite classify that other than strong relative demand. The demand is clearly off of the levels that we were seeing last year. We like the resiliency that we're seeing. We're spread out across the Sun Belt, which is a place that is, I think, appealing, especially in this timeframe, and was already a major driver for jobs. We've allocated across different market types as well. It is holding up well, and the defensive nature of our portfolio, I think, is showing. I'd hold short before I called it strong demand. I'd call relatively strong demand, which we're pleased with.
I would also add, Austin, when you consider the fact that 80% of our resident profile is single and only 20% married and over 50% female, this is not a demographic that's going to be driven to move into single family, be it for sale or for rent. We just continue to not see any mounting evidence whatsoever that single family is becoming more compelling as it pertains to drawing more of our traffic.
Yeah, I probably should have mentioned as well, move-outs to buy a house during the quarter were down almost 5%, and home renting was down significantly and still less than 6%. It was down almost 10%. It's less than 6% of our move-outs. We hear the builders are busier, but we are not seeing any impact of that here.
Understood. All fair points, and appreciate the detail. Eric, you have previously talked about the dry powder you have on the balance sheet and the willingness to use it for the right opportunities. I'm curious, with the decrease in permitting levels in supply that you referenced in your prepared remarks, when would you or would you consider ramping the development pipeline above those previous ranges that you've targeted? Also wondering if you could put a finer point on what the decrease in supply into 2021 looks like.
Well, I'll take the first part, and Brad, you can take the supply question. I will tell you, Austin, yeah, we definitely are looking for some development sites at the moment. We think that, as Brad alluded to in his comments, that if we were able to start some new projects early next year, that delivering in 2022, early 2023 could be really strong. We've got existing land sites that we own in Austin, another opportunity that we're working on in Raleigh, another opportunity we're working on in Tampa. You're not going to see it ramp up significantly because we've also got some other projects that we'll be finishing up. On balance, I think that you'll likely see our development pipeline move up somewhat over the next year or so because we think deliveries in the next two years could be quite profitable.
Austin, this is Brad. On the supply question for 2021, I think in terms of specific numbers for 2021, it's kind of hard to pinpoint at this point. I think if you look at the larger picture here, starting in March when COVID-19 kind of started and the impact started hitting and permits really started to decline and construction starts more so. If you're looking at an 18-to-20-month time period for delivery, you're starting to get into the back half of next year, end of next year, when the supply starts to go down versus previous expectations. In terms of the magnitude of that at this point, I think it's too early to say what it is. We do expect starting end of next year, supply coming down just based on the construction starts and permitting, and then that carrying into a larger degree into 2022.
That's helpful. Eric, how large of development pipeline would you be willing to build, either from a dollar perspective or % of EV?
Austin, this is Al. What we've talked about in the past is really we wouldn't want to go above 5% of our balance sheet, but that's a pretty big number. You're talking $700 million-$800 million right now. As Eric mentioned, we've got about $450 million that we're working on. Some of that will deliver over the next year and a half, and we'll have several projects come back into the pipeline. We would expect it to go up from the 450 that you have right now, but you wouldn't see it go over probably $800 million, something like that, unless we had a specific plan or something different.
Understood. Thanks, guys.
We'll take our next question from Richard Anderson with SMBC. Please go ahead.
Hey, thanks. Good morning. Great quarter, everybody. I just want to clarify, I think it was Tom, 5,600 seeking assistance in April down to 530 in July. Was that right? Seeking assistance from the government or from you?
From us. Those are the people that we reached out to, identified, and it is assistance from us in terms of rent abatement plans.
Your numbers are correct, Rich.
Yes, your numbers are correct. Yeah.
Okay. You actually gave assistance, or they were seeking assistance?
No, we gave assistance. We had plans that set up payment plans for rent over a defined time.
I think it was you also, Tom, that mentioned you're seeing people come from Massachusetts and New York. I find that kind of interesting. I'm surprised you're not more interested in that. You kind of brushed it off as an early sign. Don't you have to crawl before you walk? I kind of feel like that might be something to really keep an eye on, and I'm wondering if you could just give a little bit more color on your perspective of that kind of in-migration dynamic you're seeing.
No, I mean, the dynamic is real. It's part of the reason that we've built our strategy the way we feel like the Sun Belt is a place that's always benefited from in-migration. It's a high quality of life, it's affordable. You have some flexibility here. That has accelerated in latter years as taxes got more difficult and things like that. It seems to be further accelerating as work from home allows unprecedented flexibility on where you choose to live. Things like density and transit are things that were perceived as real strengths may be less so. We certainly read everything that you're reading and think that's interesting, and that's a lot of the reason why we are where we are. Right now, the total move-ins from those markets is still relatively low.
The pickup is interesting for us, and we think this is going to continue. I don't want to overstate the impact on our demand, and that's why I was perhaps being a little lighter on the point earlier.
Are people saying, "I'm coming here because I'm afraid of what's going on?" Is it impacted by COVID-19, or is it just a data point you really can't characterize it?
It is a data point based on where they moved from. We have not conducted interviews, but I will tell you, when I talk to our staff members who are often moving, we have a healthy amount of people from the Northeast and Raleigh and in Charlotte and in Tampa to Chicago and in Phoenix and Denver and Dallas and Austin, it's California. They're moving, and they're moving with their family, and they're moving because they're outpriced and over-commuted, and those are the things driving it. These recent things like COVID and unrest, that may accelerate things further, but the people we've talked to, it's been lifestyle choices based on quality of life. We have not hired anybody recent enough or had a conversation recent enough to know that these other things are playing into it at this point.
Okay, great. I know in-migration, the fact of life in the Sun Belt generally. I just didn't know it was significantly more than typical. Anyway, I'll move on. Last question for me, maybe to Eric. If you get your federal support and that situation gets resolved, CARES 2, what do you think you and perhaps the industry, because I assume you talk to every other REIT about how to position earnings season. Do you think guidance could come back into the mix next quarter, or do you think we're going to probably wait this out until 2021 comes around?
No. I think that if we see stabilization broadly begin to take place and the government programs get recommitted to. I think by the time we get to the end of October, when we're releasing Q3, we'll have pretty good visibility on the balance of the year at that point. My guess is that when we release Q3, we'll have a pretty good read on the full year at that point. Then we're also starting to get some sense of where 2021 is likely to go a little bit as well. We probably will not give guidance for 2021 at the end of October, but I think we'll have some evidence to at least guide expectations a bit. Supply dynamics, things of that nature probably are pretty well known.
I'm confident by the time we get to the end of October, we'll have a pretty good read on the balance of the year.
Okay, that sounds great. Thanks, everybody.
Thanks, Rich.
We'll take our next question from Haendel St. Juste with Mizuho. Please go ahead.
That's fine. Mizuho, thank you. I promise I only have two questions. First one here is, you mentioned earlier that you've been able to review a few deals from potential sellers. I'm curious what, looking at some of these shadow deals, I know they haven't closed, but I'm curious what they've informed you of seller underwriting, maybe from a cap rate IRR perspective.
Haendel, could you say that one more time? I'm sorry, we had a hard time hearing you on that.
You broke a little bit, Haendel.
Sure thing. I was referring to the comments you made earlier about being able to review a few deals from potential sellers. I was curious, looking at some of these shadow deals. I know they didn't close, but I'm curious what you might have learned. What reviewing those deals informed you of seller expectations, what their underwriting may be from a cap rate or IRR perspective. Thanks.
Yeah. Haendel, this is Brad. I'll answer the first part of that, and anybody else can add in. Certainly if you look back at second quarter, as I mentioned, volume was off tremendously. Normally in a quarter, we're underwriting somewhere between 50 and 60 deals. In the second quarter
We looked at 10 individual assets. That just gives you an indication of the potential for data points. It's very limited, and it's hard to draw strong conclusions from that. Of the 10 that we looked at, three have closed. Those were generally excuse me, stabilized assets. Certainly, as I mentioned, the lease-up properties are not coming to market, we really don't have any data points for pricing, excuse me, to indicate any pricing on those. As you get into the stabilized assets, you really have two camps. You have just a stabilized asset, or you have a value add, the value add camp is certainly seeing more of an impact. We're in constant communications with other contacts within the industry to try to help paint a broader picture of what this pricing environment looks like.
Again, we just don't have a lot of data points. I can tell you what we're generally seeing is if you just look at the underwriting impact of what generally folks believe the impact to underwriting is of COVID going forward over the next couple of years, is generally a 5%-10% pricing discount is what folks expect. If you look at the deals that have closed, again, taking out lease-ups which haven't occurred, and then taking out value add, you're really looking at pricing discounts between 0% and 5%. Really what's helping folks bridge that gap is buyers are able to really pay a little bit more for the assets than what the underwriting would suggest because of the accommodative financing environment that's out there.
These high-levered folks that are able to close on these transactions are able to kind of push through that pricing a little bit. What it has indicated to us, because the fundamentals are off and the pricing is not off as much as that would suggest, is that cap rates are coming down. We've seen that again on the couple of deals that we've looked at, and then we're also hearing that with the industry contacts that we're talking to. I would just say that it's very limited number of data points at this point, so it's really hard to draw strong conclusions from that at this point. I think we'll start to see some of the stabilized asset pricing points trickle out as we get a little bit further along in the year.
Lease-up pricing, I think, will be next year before we start seeing that.
Got it. That's helpful and largely consistent with what we've heard as well. One last one. I'm curious if you could talk about the blended rent growth in 2Q and July between your leading growth markets, the Austins, the Raleighs, and your weaker ones, Atlanta, and maybe perhaps if you could give us some thoughts on your near-term expectations. Do you expect that relationship in terms of blended rent growth between the best and the worst to get wider or to narrow over the next couple of quarters, and why?
Yes, I think we're seeing better progress for signed in July in Phoenix, Raleigh, Jacksonville, Greenville, places like that. Houston and Orlando, flat to modestly improving. Then Savannah, as I mentioned earlier, and Charleston both improved on blended pricing during the quarter. Charleston improved a good bit, Savannah modestly. Overall, again, I think we will follow on new lease pricing. I think we will follow seasonal patterns. What gives me some encouragement is across the board in July, move-ins increased, exposure has come down, and occupancy has improved during the month. I think that sets us up well to follow sort of our typical seasonal pattern on those areas.
If I could follow up and violate what I promised I wouldn't do. Any color on concessions between the best and worst markets, generally what the market or what you're seeing across some of those better markets and weaker markets is?
Yeah. We're on a net effective basis on concessions, so we give a few really where we're set up near lease-ups. For the company, concessions were 0.8% of net potential last year and are 1% this year. Our competitors, what we're seeing in those most competitive markets is in places like Downtown Atlanta, Inner Loop, or in Buckhead, one-two months free on stabilized assets, up to three on lease-up properties. In Houston, Inner Loop, we're seeing half month to one month. Phoenix, much lighter in areas like that. Orlando is a little softer to the south, as I mentioned, than to the north, just to go around the horn. Worst concession developer thing that we've seen is four months free at a busted deal that Brad's already sniffed around on in Fredericksburg, Virginia, in the D.C. suburbs.
Thank you for the call. Appreciate it.
We'll take our next question from Robert Stevenson with Janney. Please go ahead.
Good morning, guys. Can you talk about what you guys typically see in terms of traffic and leasing volume in May, June, July from the influx of new college graduates in your core markets in a normal year and what you've seen thus far this year?
Obviously, it's reflected in our overall results. Our overall exposure, Rob, to student housing is low. We don't have any property that's remotely close to half of its students. We've got one asset in Atlanta near Emory, and it's been a little slower, but honest in terms of students coming back, and we've got a few others like that. We're just using that as an opportunity to diversify what our unit mix is. We're definitely seeing some delay on people committing to housing. It was much later. It's hit or miss where it is, depending on what the school signaled early. As I suspect, it continues to evolve as schools are changing their plans.
The short answer is we've got so little exposure to it that we don't pay a ton of attention to it, but have picked up a few snippets here or there.
What I was focusing on is somebody who just graduated from, let's say, Georgia Tech and is now going to rent a unit in Atlanta with one of his buddies because last year, he would've been working for a consulting firm or a tech firm or something like that.
Got it.
The new leases from somebody that doesn't have a background. Where it's the graduates, whatever they are, how big a meaningful portion are college graduates in that sort of May, June, July at the beginning of the summer leasing season, the influx of that typically in terms of your business, and what has that sort of dropped off to now? Is it half? Is it a quarter? Are all these kids staying in their parents' basements and working remotely? Or in the Sun Belt markets, have the businesses actually brought the new hires into the headquarters buildings, et cetera?
Yeah. Well, I'll answer it anecdotally, and that is, we saw leasing in May and June strong enough that it offset the weakness in April and put us ahead for the quarter in aggregate, and July is running ahead of last year. Our overall demand, in terms of the number of leases that we've been able to execute, has been a little bit better than last year. We also have not seen Often, we will see either shopped, or we will pick up a few where a large hire, like BofA or somebody like that, is bringing on a bunch of new people, and they're looking for 40 units in a market, and they all want to be near Peachtree Road or something like that. We are not seeing those shopped.
As far as exactly what the number is of people, college grads that are looking or not looking, I don't have that, but we have been able to fill units as we normally would.
Okay. Then you guys talked earlier about the development starts over the next six, nine months that expect to be delivered in 2022. At what point do some of the sort of issues with COVID start to make its way into how you plan and build new development projects? If I look over the last 10 years across the apartment space, units have gotten smaller. There's been more studios in the mix. You've had more central entrances and elevator banks as you've gone from three-story walk-ups to mid-rise, et cetera. Whether or not it's urban or suburban, people have been packed in tighter. When you guys think about planning out the new developments that you'll start next year, are you making any changes to the size of the units, to the unit mixes, how tenants enter, exit the building?
If you are, what is that doing to construction cost estimates when you plan this versus what you would've started a year or so ago?
Yeah, Rob, this is Brad. I don't think we've made any broad changes to unit sizes or things like that. I think over the last couple of years, we've been doing more dens, and one of the things we are adding is the opportunity within the clubhouses for a work-from-home type environment. We also are trying to add desks and things like that, areas within some of our new units wherever we can. I feel like there's been, at least for us over the last couple of years, there has been a push to really beefing up the amenities on the outside, from the pool decks to having some congregation areas that are on the outside of the units, exterior, and I think that will continue.
We're pouring, even the deals we're looking at now, quite a bit into the design and the development of those outside gathering spaces as folks look to get outside when they can. Those are the things that we're looking at. I'm not sure that we've seen any type of construction cost considerations, or any trends relative to those things at this point.
Rob, I'll tell you this, that of all the projects that we're looking at and all that we have underway right now, only one is in an urban core area in downtown Orlando. Everything else that we're doing is suburban, usually two, three-story walk-up, in some cases, elevators. We've only got one project we're working on that is what I call a real high-density type project.
Okay. What is your average square foot per unit these days?
Rob, I'd say it's roughly 900 sq ft, 950 sq ft.
Okay. Thanks, guys, appreciate it.
We'll go next to John Kim with BMO Capital Markets. Please go ahead.
Thank you. I think Eric or Brad mentioned that the upcoming election has had an adverse impact on transaction volumes. I was wondering if you could elaborate on that and whether that's specific to the uncertainty of 1031 exchanges.
This is Brad, John. I don't think it is relative to 1031 exchanges at this point. I think it's just another item that introduces uncertainty into the transaction market. I do think we have seen an uptick in opportunities come to market the first part of July. Generally everything that's coming out right now is off market. It's not fully marketed deals. I'm sure there are things that are coming out that we're not even seeing at the moment. There is an uptick in that, and I suspect that'll continue for the next month or two and then likely dissipate as we get closer to the election. I think from the folks we're talking to, it's just another area of uncertainty into the valuation model that just puts folks on pause.
I don't think it's anything specific to trying to project who's elected or what policy and the impact of that policy at this point. I think it's just another unknown.
Without getting too political, is your view or the market's view that a Biden presidency would be negative for asset values?
I don't know, John. I think that I'm not going to go there. I don't know how the market is at this point weighing whether a Trump or a Biden presidency is favorable or unfavorable. I think that what we're seeing is really just what Brad alluded to, is there's just uncertainty, and I think capital just gets a little bit nervous with uncertainty, and it makes it harder to underwrite. I think that's all we're seeing at this point.
Fair enough. Tom mentioned in your prepared remarks the return of guided tours to complement your virtual and self-guided tours. Did you find in this forced experiment that the traditional tours, or at least the hybrid approach, are more effective?
No, we did not. What we found that was thrilling, though, is they were equally as effective. We're very pleased with that. Those tours got us over the hump, and now it's roughly 43% of our leads or our tours are doing guided tours where they're interacting with our folks. It's split evenly between virtual and self-tours after that. We've learned an awful lot about the process, thrilled with how the teams have worked and adapted them. As we get into 2021, you'll see us begin to do some things that really streamline and ease the self-service side of it. We were quite pleased at how effective they were with the residents and with the prospects, and how well our teams adapted to that really overnight and used that as well.
Can you provide an update as to what percentage of your communities have the capability to do self-guided tours?
100%. We have self-guided tours occurring at every property in the company.
Okay, great. Thank you.
You bet.
We'll take our next question from John Pawlowski with Green Street. Please go ahead.
Thanks very much. Just two questions from me. Tom, on the new lease figures for sign in July, could you give us a sense if you excluded interior redevelopments, what that new lease figure might look like? I'm just trying to get a sense for what market rent growth is across your portfolio right now.
John, it would really be minimal. I'd have to go back it out. Since we didn't produce any in second quarter, it's really minimal that lease. We just got back to turning those on. This is probably as clean a result on renovate impact as you're going to see.
All right, perfect. Brad, curious with your conversations with developers. I know it's tough to read the tea leaves, do you get the sense that they think this is a two, three-month pause on their debt and equity providers giving them money? Have they become really concerned that this is kind of more of a structural multi-quarter, multi-year kind of freeze in their capital sources?
Well, I think first of all, the development bunch is normally a very opportunistic and a very positive group. I don't think they view this as a structural issue. I do think that they see it as problematic, because a lot of the folks that we talk to are merchant developers, and their platform is certainly built on the machine continuing to run. I think that they are out looking for alternative sources, whether this is short-term or long-term. That bunch is normally glass half full normally. I don't know that they're, and I have no indications at this point that they're thinking that this is a long-term shift and that they're changing their strategies because of that. There's certainly an impact.
I think the debt side of things for developers that are not the strong established sponsors with strong relationships with the banking community, those folks are going to have a hard time lining up debt for the foreseeable future.
All right. Thank you.
All right. We'll next take our next question from Alex Kalmus with Zelman & Associates. Please go ahead.
Hi, thank you for taking my question. Looking at your collection results, which are clearly trending above the group, I was hoping you could walk us through the components on page 30. Is total billed in the denominator, is that off of the original rent, or is that off of the newly amended lease rates? Same question for July, that 98.4%. Thank you.
Yeah, Alex, this is Al. That is based on, for the April, May, and June, what was billed that cash they're expected to pay. That is what the lease would say. Before any addendum, the lease would say what it was signed to be, and then after addendum, it would have that lease rate plus additional amount that we spread over the life of the lease. That cash bill number is what we billed and expect them to collect in total. The point there in that presentation was to say that, look, we've collected 98.9% in cash, another 50 basis points or 0.5% in payment addendums that we're getting very good collection performance on. I think at this point, it's about 97% compliance with that, so we feel very good about that.
Having said that, we felt it was prudent to put a reserve on the books that was sufficient to cover a couple things. One, if somebody did not come in and talk to us at all and do an addendum, fully reserve that. If someone did do an addendum, we reserved a substantial portion of that somewhere, they're different per each one, but on aggregate, probably two-thirds of that. That's what that represents, expected cash collections and where we are on that and what we reserved.
Got it. Thank you. A slightly different topic. In terms of occupancy and how you're thinking about the fall season coming up, historically, you've been seeing great renewal growth rates. I'm curious if you would like to see your occupancy number go up before maybe uncertainty in the fall, or are you still going to be pushing those renewals? Thank you.
I will tell you that we expect occupancy to build and with exposure going down, expect that to happen and bring our exposure down and prepare ourselves for the low demand timeframe. Those renewal rates, if you look at us historically in the fall, they're lower than they are in the peak season. I would expect them to continue on at about this rate, which is still a significant lower increase than this time last year. I would expect a recovery in our renewal rates and the variable that will change to manage exposure down and occupancy up will be probably a seasonal fall off, I would expect, in our new lease rates as we move into the fall.
Got it. Thank you very much.
You bet.
We'll go next to Wes Golladay with RBC Capital Markets. Please go ahead.
Hey. Good morning, guys. Would you happen to have a snapshot of the gain or loss to lease of the portfolio as it stands today?
What the earned in is today?
Yeah.
Wes, don't have that in front of me right now.
We can get that.
We can get that.
We'll get back to you on that one.
Yeah. We certainly had a strong loss to lease going into the second quarter. I think it's probably declined given the leasing trends that we've seen in the quarter certainly come down. Important point is the actions that we took over the last year to really continue to push price and gave up a little occupancy to do that, put us in a really good position going into the second quarter, so it protected us well there. It's come down. Tim can get that. We'll get that back to you offline, what we think it is now.
Okay. The qualitative was good. I was kind of getting with the strong renewals, see if it's going to taper off a bit. Turning to acquisitions, you kind of mentioned looking at lease-up properties, would you expect a lot of off-market transactions, limited bid? Secondly, would you expect competition from the levered buyers?
This is Brad. Wes, I would say predominantly what we're seeing right now is off market. There's only been a couple, maybe 10% of what we have seen come across has been fully marketed deals. Yes, I think everything right now is going to be more off market. Even the deals that have been marketed, some of those were preempted, where somebody came in and just paid what the seller wanted and really short-circuited the marketing process. I expect that to continue. I'm sorry, what was the second part of your question?
Would you expect the levered buyers to be active competition for you?
Well, not on lease ups, I don't. We generally don't see those come into play as much on lease ups. Those are generally focused on the assets that are currently earning, so stabilized assets, that's where you see those a little bit more. Also on lease ups where we're focused, financing's extremely difficult right now, and that's why a lot of the sellers are not wanting to bring those to market at the moment. They're wanting to get stabilized so that they can line up financing and certainly bring those high levered buyers in there. To the extent that developers can wait it out and get their assets stabilized, then I think the leverage buyer can come there. That's really not the segment of the lease up segment that we're actually focused on.
Okay. Thanks a lot, guys.
Bye, Wes. Thank you.
It appears that there are no further questions at this time. I'll turn the call back over to the company for any final comments.
Okay. Well, we appreciate everyone joining our call this morning, and if you have any follow-up questions, just reach out and I'll be glad to answer any other questions. Thanks very much.
Thank you, and this does conclude your program. Thank you for your participation. You may disconnect at any time.