Greetings, and welcome to UDR's Third Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Director of Investor Relations, Trent Trujillo.
Thank you, Mr. Trujillo. You may begin.
Welcome to UDR's quarterly financial results conference call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir. Udr.com. In the supplement, we have reconciled all non GAAP financial measures to the most directly comparable GAAP measure accordance with Reg G requirements. Statements made during this call, which are not historical, may constitute forward looking statements.
Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. Discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward looking statements. When we get to the question and answer portion, Q and A session today. I will now turn over the call to UDR's Chairman and CEO, Tom Toomey.
Thank you, Trent, And welcome to UDR's Q3 2020 conference call. On the call with me today are Jerry Davis, President and Chief Operating Officer Mike Lacey, Senior Vice President of Operations and Joe Fisher, Chief Financial Officer, who will discuss our results. Senior Executive, Terry Alcock, Matt Cozad and Chris Van Ayns are available during the Q and A portion of the call. Simply stated, our business is predicated on revenues we bill and our ability to collect those revenues. For the former, the Q3 remained challenging due to the combination of ongoing regulatory restrictions, Slow coastal reopenings, work from home trends and elevated concession levels in our high rent coastal markets, combined with the highest number of leases expirations for any quarter during the year.
Despite this, Build revenue appears to have stabilized across August, September and now October. For the latter, Our ability to collect revenue remains strong and it's consistent with prior months. While these observations have yet to show up In our company wide same store revenue and NOI results, I draw some degree of comfort from the approximately 80% of our portfolio, which is experiencing stabilizing or slightly improving fundamentals. This is in our suburban and sun barred communities. Combined, these factors provided the basis for our issuance of same store and earnings guidance for the Q4.
But we have not lost sight of the fact that many uncertainties and challenges remain. Every recession has a couple of quarters where the headwinds converge. The 3rd quarter had that type of feel to it for us. And based on our guidance, the 4th quarter, which has fewer leases coming due, could as well for same store statistics. The stabilization Our fundamentals, occupancy, build revenue and collections is the first step towards a recovery.
But to inflict higher, We need meaningful improvement in our hardest hit high rent markets of San Francisco, Manhattan and Downtown Boston. These markets make up 20% of our portfolio and while improvement in our October occupancy has been encouraging, They have come at a cost of higher concession levels. We have not lost faith in the long term viability of these urban areas, but we need a vaccine for widespread reactivation and recovery. Mike will provide more commentary in his remarks. With all that said, we remain focused on maximizing cash flow and bottom line results.
On that front, the midpoint of our 4th quarter earnings guidance implies a full year 2020 FFOA of $2.04 per share, which is down only 2% year over year. This is a result I'm very proud of given the challenges this year has presented. Shifting gears, I'm pleased at the ESG achievements UDR has made over the past year, as detailed in our recently published 2020 Corporate Responsibility Report, which covers our 2019 actions. We remain committed to driving our ESG platform forward and have laid out a variety of sustainability targets through 2025 and have improved our reporting disclosure to provide the most relevant and comprehensive metrics to the investor community. We look forward to sharing our continued success in the years ahead.
Next, all of you, Doctor, would like to welcome Diane Moorefield as the newest member of the Board. Diane has an accomplished history as a senior executive in the REIT industry and as an independent director who will bring Valuable perspectives as we continue to execute our strategy. Finally, As we wrap up 2020 and turn our attention fully to 2021, we continue to focus on controlling what we can, which is how efficiently we price our homes, how well we execute the implementation of our next gen operating platform, The quality of our customer service we provide to our residents, the support we give our associates in the field and maintaining a strong liquid balance sheet. The executive team would like to thank all of UDR's associates for their efforts to move our business forward, keep up the good work. With that, I will turn the call over to Mike.
Thanks, Tom, and good afternoon. Starting with Q3 results, on a cash basis, our combined same store NOI declined by 10% year over year, driven by a revenue decline of 5.9% and an expense increase of 4.2%. When accounting for concessions on a straight line basis, Our year over year combined same store revenue declined a more modest 3.3%, with NOI down 6.4%. On page 4 of our press release, we have included walks between cash and straight line combined same store revenue growth during the Q3. As was evident by our quarterly results, NOV's concession to lower economic occupancy negatively impacted our growth.
But the extent to which they did was market dependent and varied by urban versus suburban location. Despite these challenges, I am encouraged that our build revenue stabilized In August September, with this trend continuing into October as well, currently we are operating with minimal or no concessions across approximately 65% of our portfolio and continue to maximize revenue growth by balancing blended lease rate growth against occupancy changes at the market and unit level. We believe this surgical approach to pricing our homes Has contributed to the stabilization of our build revenue and maintained our rent roll for 2021, while not tax placing for 2020. These factors drove our decision to provide Q4 2020 guidance, which you can find on page 2 of our release. Splitting our portfolio into 3 performance buckets helps to better explain our Q4 guidance.
First, roughly 20% of our NOI is in markets to have stable to improving fundamentals and positive revenue growth, both of which we expect will continue. This is due to a combination of occupancy gains and positive effective blended lease rate growth, primarily due to less restrictive regulatory environment and quicker economic reopening. This bucket includes Tampa, Orlando, Nashville, Dallas, Austin, Richmond, Baltimore and moderate Peninsula in California. Concessions across these markets have generally remained in the 0 to 4 week range since March and demand remains strong, which has helped us maintain the average occupancy of approximately 97.5%. 2nd, roughly 60% of our NOI is in markets that we believe have bottomed and are showing early signs that an improving second derivative could ensue.
This bucket includes some of UDR's larger exposures, such as Orange County, Los Angeles, Seattle, And metropolitan Washington, DC. Also in this grouping are our suburban communities in New York, Boston, and the Bay Area. Concessions across these markets have generally ranged around 2 to 6 weeks, with occupancy averaging 96% to 96.5%. 3rd, roughly 20% of our NOI is in urban areas of coastal markets, where demand and growth are more dependent on office reopening, Mobility trends, work from home flexibility, and a vaccine. These include Manhattan, San Francisco, and Downtown Boston.
Concessions across these markets have averaged 4 to 8 weeks, but some competitors have offered up to 12 weeks on new leases. Average occupancy across these markets was in the mid to high 80% range during the Q3, but has since improved to 91.6% In October, with Manhattan leading the way. While these results, which are highlighted on page 3 of our release, Our encouraging occupancy gains in these urban cores has come at a cost in the form of more concessions or lower face rate. Overall, market fundamentals across our portfolio feel somewhat better than during the summer months. Bill revenue appears to have stabilized.
Cash collections remain strong and continue to trend above 98%. And traffic and applications remain favorable versus 2019. On the other side of the equation, new lease roll downs are likely to remain the norm into 2021. Non ongoing emergency regulatory measures in primary coastal markets will continue to hinder our operations. But we believe our revenue maximization strategy for pricing our homes throughout the pandemic will yield dividends to move into next year.
Finally, I want to thank my colleagues in the field and here in Denver for their dedicated execution of our varied operating strategies in the face of still evolving regulatory restrictions, which our dedicated governmental affairs and legal teams have diligently tracked. We are measured as a team and your efforts have been crucial in laying the foundation for future success. And now, I'd like to turn the call over to Jerry.
Thanks, Mike, and good afternoon, everyone. A big part of our future operating success is expected to be driven by our next generation operating platform, which provides residents an online self-service model and improves operational efficiencies while increasing resident engagement. The initiatives we have rolled out thus far have expanded our controllable operating margin and driven a year to date decline in controllable expenses of 40 basis points. Combined personnel and repairs and maintenance expense are flat year over year, while administrative and marketing expenses are down nearly 8% year to date September 30. While declining revenues because of the pandemic may have altered the timeline for achieving some of our margin expansion targets, The ultimate operating benefits of our next generation platform remain clear.
1st, Site level headcount has declined 29% since our base quarter of 2Q 2018 through natural attrition. Over that same period, the number of total homes we own and manage has increased by 4%. This permanent reduction in our cost structure through headcount efficiency has driven a 31% improvement in controllable NOI per associate. 2nd, despite reducing headcount, we have delivered a self-service model that our residents prefer, while also ingraining UDR further into their day to day lives. This is apparent in our resident satisfaction as measured by net promoter scores, which have increased 24% since 2Q 2018, as well as the 80% adoption rate of our Resonant app in the 2 months since we rolled it out.
Self-service has become the preeminent way that businesses interact with their customers. We believe we remain ahead of the curve in the multifamily industry. Last, While all the public apartment REITs operate very efficiently, at comparable rent levels, we have higher than peer average margins across the majority of our markets. Versus private operators, we believe the margin advantage is even greater, typically ranging between 500 1,000 basis points, affording us the opportunity to enhance shareholder value through acquisitions. Looking ahead, we plan to capture additional staffing level optimization, which will further improve our operating efficiency without sacrificing the high quality service our residents have come to expect.
In addition, with the rollout of the next phase of our self-service smart device app and the integration of more data science into our process, We see further opportunities to enhance resident loyalty and deploy revenue growth and expense reduction initiatives. Finally, it is important to understand that our next gen operating platform does not have a finite life. Centralization, smart home installations, Self touring and a shift to self-service have formed a strong foundation upon which we will continue to evolve and improve. Future platform enhancement should benefit not only our existing portfolio, but also allow us to generate outsized returns when buying assets at market prices. With that, I'll turn it over to Joe.
Thank you, Jerry. The topics I will cover today include 3rd quarter results and 1st 4th quarter guidance, An overview of collections and our bad debt reserves and a balance sheet and liquidity update, inclusive of recent transactions Capital Markets activity. Despite the challenges we faced during the Q3, our FFO as adjusted per share of $0.50 declined by only 0.02 dollars or 4% year over year. The 0.01 dollars sequential decrease in FFOA per share This is primarily driven by lower property revenue due to a decline in occupancy and elevated concession levels, partially offset by lower interest expense from executing accretive debt prepays and higher DCP income from recent investments. Regarding guidance, despite the continued uncertainty around how the pandemic will impact the economy, The regulatory environment and our business, we have provided 4th quarter 2020 combined same store growth and earnings guidance As outlined on Page 2 of our release, we anticipate 4th quarter FFOA per share to range between $0.48 $0.50 with the $0.49 midpoint representing a 2% sequential decrease.
We expect 4th quarter year over year revenue growth of negative 5% to negative 6% on a cash basis, and we expect the difference between cash and straight line revenue growth rates To compress relative to the Q3 due to a lower amount of concession dollars during the Q4 because of fewer lease expirations and the amortization of concessions previously granted. Additional guidance details, including sources and uses expectations, are available on Attachments 1516E of our supplement. Onto collections and how we are reserving for potential bad debt. To begin, we continue to make progress on 2nd quarter collections, which stand at 98.1% of billed residential revenue. This is 200 basis points higher versus 2nd quarter end and leaves a modest 20 basis points or approximately $600,000 of earnings risk towards the revenue we recognized during the Q2, given the $5,500,000 or 1.7 percent reserve we took.
For the Q3, as we outlined in our operating update on page 2 of yesterday's release, as of quarter end, We had collected 96.1 percent of billed residential revenue, which is the same level of collections compared to the end of the second quarter. We expect cash collections to ramp further and subsequent to quarter end, 3rd quarter collections stood at 97%. This compares to our bad debt reserve of $4,000,000 1.3 percent for 3rd quarter build residential revenue. Collectively, we had a rental revenue accounts receivable balance of approximately $15,500,000 at quarterend, against which we have reserved $9,500,000 between the 2nd and third quarters. This leaves $6,000,000 or less than $0.02 per share of recognized revenue that we expect to collect in the future.
Moving on, our balance sheet remains strong due to ongoing efforts to reduce debt cost, extend duration, maintain liquidity and preserve cash flow. As such, We remain in a position of strength to weather the continued effects of the pandemic. Some highlights include: 1st, As of September 30, our liquidity, as measured by cash and credit facility capacity, net of our commercial paper balance, was $924,000,000 When accounting for the roughly $102,000,000 previously announced forward equity sales agreements, which we intend to settle in the Q4 of 2020. We have over $1,000,000,000 in available capital. 2nd, After completing the refinancing of our final 2020 debt maturity during the Q3, we have no consolidated debt scheduled to mature through 2022 After excluding principal amortization and amounts on our credit facilities, looking further ahead, less than 15% of our consolidated debt is Scheduled to mature through 2024.
This is due in part to issuing $400,000,000 of 2.1 percent 12 year unsecured debt during the quarter and prepaying over $360,000,000 of higher cost debt originally scheduled to mature in 2023 2024. Please see Attachment 4B of our supplement for further details on our debt maturity profile. 3rd, Identified uses of capital remain minimal and predominantly consist of funding our current development and redevelopment pipelines, to which we added 440 Penn Street, A 300 Unit, dollars 145,000,000 community in Washington, D. C. The aggregate cost for our active development and redevelopment projects totals only $453,000,000 or less than 3% of enterprise value and they are nearly 50% funded with approximately $234,000,000 of remaining capital to spend for the next 24 to 30 months.
4th, Our dividend remains secure and is well covered by cash flow from operations. Based on Q3 2020 AFFO per share of $0.45 Our dividend payout ratio was 80%, resulting in over $100,000,000 of free cash flow on an annualized basis. Taken together, our balance sheet is in good shape, our liquidity position is strong and our forward sources and uses remain very manageable, as is detailed on Attachment 15 of our supplement. Next, a transactions update. First, As previously announced, we funded a $40,000,000 DCP commitment for a community in Queens, New York at a 13% yield and with profit participation upon a liquidity event, which we expect to occur in approximately 5 years.
As a reminder, The project is fully capitalized and the investment provides superior economics compared to pre COVID deals due to more restrictive bank lending standards and generally lower available construction financing. 2nd, during the quarter, we acquired a fully entitled development site, King of Precious submarket of Philadelphia for $16,200,000 3rd, subsequent to quarter end, We sold Delray Tower, a 3 22 home community in the Metropolitan Washington DC area for $145,000,000 or approximately $450,000 per home, the proceeds from which we expect to accretively redeploy in the coming quarters. Moving forward, we will continue to leverage our industry relationships and evaluate investment opportunities based on a rigorous set of qualitative and quantitative criteria in determining how and where we choose to invest your capital to generate value, with DCP being our top rated use currently. Last, as is evident on Attachment 4C of our supplement, We continue to have substantial capacity before we would breach our line of credit or unsecured bond covenants. As of quarter end, Our consolidated financial leverage was 35% on undepreciated book value and 34.2% On enterprise value, inclusive of joint ventures, consolidated net debt to EBITDAre was 6.5 times And inclusive of joint ventures was 6.6 times, which looks slightly elevated due to the still outstanding settlement of Ford ATM proceeds.
With that, I will open it up for Q and A. Operator?
Thank you. Ladies and gentlemen, we will now be conducting A question and answer session. Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.
Thanks. Appreciate all the disclosure, particularly around
Print parts of the portfolio.
When you think about EDR's portfolio, obviously, it's diversified across markets and price But Tom, given the regulatory restrictions that you talked about, I recognize some are national, but a lot of those are more local or state driven. How do you think about the Market exposure past COVID, so once the transaction market returns more to normal, is there are there any lessons
Hey, Nick, it's Joe. Maybe I'll let Matt lead off and then Pass it over to Tom to close it out. But I think similar to our comments from last quarter and throughout conference season, I think it's a little bit too early at I'd like to jump to conclusions in terms of market exposures. We're fairly certain that diversified portfolio has worked for us Throughout this crisis as well as during the upmarket. So, that piece of the strategy will remain.
But I think we want to get through a couple of these binary outcomes Trying to figure out what it means ultimately for our markets. So getting through the election here in a couple of days, getting through COVID and getting a vaccine, Understanding to what degree regulatory environment changes and then being able to evaluate the fiscal health of these markets and ultimately what happens with Migration of jobs and therefore migration of incomes over time, then how's capital on the supply side respond to that. So today, I think it's still too early. What we're really focused on is, can we do what we've done in the past from a capital allocation standpoint, which is just continue to do accretive Type of spread investing, so stay disciplined on that point, try to source low cost capital through dispositions and free cash flow And drive more accretion, which I do think is important within this release just to highlight the fact that while our year over year earnings growth was down 4%, When you look at the underlying pieces within that, we had almost 4% accretion coming off of last year's acquisition DCP and Capital Markets activity. So the amount of work we've done on that front continues to show through.
And so, while operations is clearly important to us in this environment, driving cash flow is All the more important. So pretty proud of what we've done there. Yes, I'll actually take it to Mike. He can probably talk a little bit about how those transitions are performing.
Yes. Hey, Nick. I would say, if you look at that $2,000,000,000 in acquisitions,
we're actually within 100 basis
points to 150 basis points on our original underwriting. I think A lot of that, you can point towards our 90% of those properties are suburban in nature. So we're pretty happy with where we've gone with those deals.
Thanks. And then just maybe on
the DCP program, the $20,000,000 secured note Can you talk about what the plan is there and the underwriting for that as you plan to take title of the land?
Yes. Hey, Nick, it's Joe. I'll kind of come to high level first just to give a little context and then Harry is going to jump in, Give you some details on that transaction and outlook for it. So, yes, ultimately, the goal of DCP, as we've talked about in the past, idea is to get IRRs are returns in between acquisitions and development, while taking a risk commensurate with that. With this Plan and with this deal, similar to all deals we report back to the Board as we do with development and acquisition, show them what the returns were, what the acquisition Returns were what the development returns were.
And overall, the programs pretty much performed as expected. When you look at life all We have to date the things we've realized, including Alameda. We're running right around a low double digit IRR, which is what we've communicated previously. It's got a couple of home runs in City Line 1 and 2, Arbory in Parallel, got some singles like Alameda in there. But the process is always pretty much the same.
Are we comfortable owning an asset at that basis? Are we comfortable stepping in? And have we given ourselves the ability to when you look at the structure and the documents? So, I think the one thing that's probably different here a little bit versus all the other DCP transactions we've done, this was a land loan. It did not have limited partner equity lined up.
It did not have construction financing lined up. We got involved with the intent to be A
prep equity deal at some point in
the future once they did that, whereas all other transactions we closed simultaneous with equity, construction loan and limited partners. So, we took on a little bit more risk, but that's part of the reason we have the opportunity today going forward within DCP, which is less LP, less construction financing, More opportunities for new deals that we're out there doing. But all the more I think this deal, we've got some time here to evaluate, but we'll be at the 150 basis point to 200 basis point range over Market cap rates once we get in the ground and get that deal started.
Nick, this is Harry. I'll just jump in for a minute. Just a reminder, this is a parcel of land that's fully entitled for 2 20 market rate homes. We have a cost basis of roughly $114,000 per unit, But that includes nearly $15,000,000,000 that was invested by the borrower for land equity, Architectural plans and other entitlement costs of the valuation is quite good. The borrower owned Master Development, which created required investment for them.
They own the parcel next door. They own Phase 2 and 3 of the master plan. And as Joe mentioned, they have been unable to Secure an LP to help fund the several $1,000,000 of costs prior to construction commencement, including interest in our loan, which they were paying currently. The borrower asked for some assistance given their other financial commitments on the broader site and we just made the decision to take the property rather than grant It's all being done in a very friendly manner. Just a little bit about the site.
It's on a former Navy base in Alameda, which is a Quasi Island between San Francisco and Oakland, the environmental cleanup and entitlement process took probably 20 years to complete. The site is part of a larger master plan with multiple parks, 2 townhome projects selling for more than $1,000,000 per home, Another market rate community and a senior community that will be completed next year, plus office of retail in the future. It's a high income suburban ish location, excellent schools, 20 minute ferry ride to San Francisco. I'll remind you there's been virtually no new supply in Almeda for the last 20 years or so, just a single 200 unit property built perhaps 10 years ago.
Thank you.
Operator, can we go to the next question, please?
Sorry about that. The next question comes from Rich Hightower with Evercore ISI. Please proceed with your question.
Great. Thank you. I was getting worried there. Good morning out there, guys.
A couple of
quick ones. I guess, In light of the seasonal slowdown in leasing that we're going to see in all markets, but really centering on And Patrick Lawson in San Francisco, how long do you think this 4 to 8 week plus concession environment can last? Would it last forecast through the end of the 4Q, early part of 1Q, I mean, how should we
think about that, assuming that
It doesn't really factor into anything for the next few months, let's say. And likewise, with office occupancy and that sort of thing.
Hey, Rich, it's Mike. I'll take a stab at that. First, I'd start by saying we continue to believe in the long term viability of Both New York and San Francisco as well as Boston has job creation centers in cities that will attract talent and individuals who have demonstrated propensity to rent. In all cases, we are encouraged that our approach has led to increased occupancy. So with that, you pay that to Salts that were one of The levers first and I can tell you having a diversified portfolio, we've seen opportunities where we can increase rents Today, in concession levels that come across in places like the Sunbelt and we're able to hold occupancy relatively high.
But going back to New York, San Francisco and Boston, we have taken an approach to try to increase our occupancy there. That being said, it has come at a cost and we've concession levels anywhere from 8 to 12 weeks in some of the hardest hit parts of those markets, but in other parts where we have more Suburban assets, it's closer to 0 to 2 weeks on average. So we are starting to see in pockets concession levels coming off
Okay. I appreciate that. And Maybe a little bit more broadly, and this hits on the sort of market diversification and portfolio allocation My question as well. But as you think about a lot of these beaten up states and municipalities Coming out of COVID and the implications for property tax increases, how do you think that's going to play out across The markets and the localities that you're supposed to, what should we think about the next 1, 2, 3, 4 years in that context?
Yes. Hey, Rich, it's Joe. It's a phenomenal question. We've been spending a lot of time thinking about broader fiscal health, but also, of course, Real estate taxes both near and long term. Yes, I'd say at this point we're 2021.
We've got approximately a third of the portfolio that's in California. So clearly, we have That effectively locked in at 2%. In addition to that, you probably have got another 20% of the portfolio or an expected expense next year It is effectively locked in as we are lowering on valuation. So we are starting to reduce that risk. It's probably kind of mid single digits growth next year for real estate taxes.
But I'd say, if you think about those municipalities and states, it's not quite as simple as just thinking coastal Sunbelt, Red versus blue, it depends a lot in terms of the sources of revenue that those states have. So, obviously, there are states like Florida, Texas, Tennessee and State of Washington that have no real estate or no income tax, which What's going to take place in Seattle, Tennessee and Texas next year in terms of valuations as they try to fill up that revenue bucket.
And then it comes down to markets that are hard hit
like New York and New Jersey, California. But I'd say California is probably one of the best positions in from a reserve or rainy day fund perspective. So you do need to factor that in. And then we have the election next week, which If there's a democratic sweep, clearly, there's been talk of stimulus for states. And so with a stroke of a Fed, you could potentially bail out some of those fiscal issues, which is why we Sam, we do want to wait and figure out some of the binary risk that's out there.
Yes. That's a great answer, Joe. Thank you.
Thanks, Rich.
Our next question comes from the line of Nick Yulico from Scotiabank. Please proceed with your question.
Hey, good afternoon, everybody. This is Sumit in for Nick.
Thank you for taking the question.
I was just Sort of piggybacking on Rich's question on accretive spread investing, just curious, there's a lot of capital getting into the Sunbelt, at least When you speak to people who are predominantly California buyers, they seem to want to get a little more Sunbelt exposure. And so either through acquisitions or development lending, so curious if there are any markets besides the coastal markets that you may not be interested and at this stage, just because the screens are not suitable?
No, I mean, there's really nothing that we've redlined today. Obviously, we're cognizant of near term performance in certain markets, so New York, Boston and San Fran. So we're cognizant of the performance there. And as you go through the underwriting, there's a wider degree of variables or outcomes as you think about the Fort and a live stream.
But there are no markets
that we brought Typically, when you see kind of herd mentality, I'll shift to a place like the Sunbelt, you see some cap rate compression and see more competition. That's not always a great way to make money to run with So, there may be more value opportunities in other markets, but nothing we've outlined today. At the same time, I wouldn't say there's any new markets outside of the Yes, 6 or 7 in the sub belt that we're already in that we're looking at.
So, this is Tom. Just to add some additional color, I think there's a lot of people sitting on the sidelines waiting the outcome of the election and the potential changes in tax, Particularly around rates as well as 1031s. And so I think you're going to be thinking about this Topic, but I suspect post election, 1st part of 'twenty one, you'll see an elevated differential in where capital is slowing And the triggering of those 1031 transactions will start to be more visible. So kind of saving ourselves to watch how that unfolds, But there could be some opportunities inside of that to be selling.
Got it. Thank you for the color. And in terms of the urban sort of market that you've highlighted in the release, Yes, New York, San Francisco, Boston. Just interested in what kind of units are you seeing the biggest weakness in like 1, 2, 2 beds, 3 beds of studios?
Sir, generally speaking, we've seen less occupancy On our studio units and those are particularly located in places like New York, San Francisco and Boston. That being said, we have seen things like our transfer, we let increasing over the last few months and we have been able to move people from studio units in those areas into larger ones and twos Got it. Thank you so much.
Our next question comes from the line of Jeff Spector with Bank of America. Please proceed with your question.
Hey, Jeff. Hey, Jeff. Hey, Jeff. Hey, Jeff.
Can you hear me?
Yes. I'm back now.
Great. Thank you. Sorry
about that.
Jeffrey, are you still there?
Can you hear me now?
We can. Okay. I'm sorry. I don't
know what's going on. I'm on a
Hopefully, you can hear me now.
I just wanted to
follow-up on the market question again. I know you've discussed it a few times, but I just want to confirm. So let's say the outcome of the election, It's where there's no stimulus or limited stimulus in early 2021. Just so I have my head around this, are we saying that, That doesn't necessarily mean San Fran, New York, Boston Have major issues ahead you feel like because I'm worried about San Francisco in particular. And I think Appear Made a comment this week that was something similar.
But for your company or just Owners of apartments in San Fran in general in these cities, do you feel like just we shouldn't just look into that directly and say, okay, If there is no stimulus limited stimulus, these cities are in major trouble for years to come?
I don't I wouldn't say that's the case. I think there's a number of other factors aside from the stimulus side. Clearly, if there is, that helps Relaynguished a little bit of the fiscal pressure that some of those states are under that is helpful, but there's still going to be a lot of other facts. We come back to a number of these coastal cities and look at the knowledge based Individuals are spread out today. COVID is probably the biggest impact and important indicator of how those cities are going to come back.
So, as you see the ability to get back on mass transit, come into high rises, as you reactivate a lot of the amenities in those cities, I
think that's going to be
a big driver. And throughout this crisis, while office leasing is off, obviously, fairly materially, You still have seen a lot of tech companies taking down space in some of these major markets. You go out to New York and look at what's been taking place there with Salesforce, Facebook, Google, Facebook just bought the REI headquarters up in Seattle, Boston, San Fran, of course, had the life science contingent, tech contingent. So, I don't think ultimately you're going to see a mass exodus from these cities. It's going to be more of the hub and spoke model where maybe you need to be in a couple of days a week.
And if you do have the ability to work from home remotely full time, you still have some of these tech companies are going to start reducing your income if you do so. So, the cost of living argument It starts to carry a little bit less weight in that scenario. So, I don't think we're dependent on one factor at the end of the day, I. E. Stimulus.
There's going to be a lot that rolls into it in the qualitative and quantitative side.
Okay. Thanks, Joe. That's fair. And then my follow-up, I'm sorry if you This already if I missed it, but again, just given your diversified geographic portfolio,
Can you talk about did
you discuss any of the trends you're seeing like within the portfolio For moves within the portfolio and again any comments on that and do you think some of this is temporary Or when you've interviewed the people moving, it seems more permanent.
Yes. Mike has some pretty good stats on that. He's a really successful local coastal markets, he can take you through. We've seen a lot of reports out there and some of the work done on like Yes, forwarding addresses and things like that, which seem to indicate New York is a little bit more urban to suburban, maybe San Francisco a little bit more Exiting the market potentially temporarily. Clearly, the Sunbelt is winning in the interim, but we've seen these ebbs and flows over time, but Mike has some pretty good stats on it.
Hi, Jeff. I'll start with the move outs. We have been looking at this and we look at
it both over the last, call it, 6
to 9 months And we compare it to prior periods. I'd tell you in both New York and San Francisco, we experienced around 40% of our move outs relocating out of the MSA and this compares to about 20% to 25% moving out normally. And the difference between these two markets is In New York, we had more local forwarding addresses to places like Boston, New Jersey, even upstate New York where we're getting the sense that people are moving out and potentially looking to come back if and when the markets really open back up. The difference with San Francisco over the last 30 to 45 days is We've seen more of those forwarding addresses in states that are further away from California.
But that being said, I will tell
you given traffic and application patterns Increasing for us over the last, call it, 2 to 3 months, we're starting to see people come back to the cities Outside of that MSA, so it's been promising to see some of our traffic patterns. Specifically for New York, San Cisco, just to give you a little bit more color on the markets, I'd tell you our hardest hit submarkets in New York were the Financial District and Chelsea for us. And you can see on ourself that we did a cash and straight line basis for New York. Those markets were down In the negative 20% range and they were obviously hit harder with concessions in the 8 to 10 week range. I'll tell you today though, Chelsea, our asset there, we're running back in the 95% range and we're not actually offering concessions.
So That's been promising submarket for us over the last few weeks. As far as San Francisco goes, during the quarter, we had a very different experience Amongst our submarkets, as well as urban and suburban exposure, I can tell you that 68% of our properties Are in that urban area and they were down about 23% compared to our suburban exposure, which is closer to 30%, They were down around 11%, so a much different story. And again, if you can point it back to the concession levels, the occupancy levels, Obviously, in that Soma area, we're seeing concessions in that 6 to 8 week range today. And down along the peninsula, We're seeing 0 to 2 weeks, so a much different story as you start going down south.
Very helpful. Yes, this
is Toomey, I'd just add some color. The key that we spend a lot of time every week on is looking at that occupancy concession trade off trend. And you can see in New York, it hit its low occupancy in the Manhattan portfolio, pure urban, Down in the low 80s and then now Mike's running that close to 93. And with that type of occupancy level, his concessions can go from 12 weeks down to 8 pretty rapidly and as he gets up closer to 95, he'll pull it down even further. So, I think that while everyone's quoting Rent filled, rent collected, the real turning in inflection point comes when we achieve an occupancy concession trade off That works on a net cash basis for us and helps us build the 2021 rent roll.
And so that's what we're really focused And on last month on the balance of the year is that particular markets that are starting to have that inflection piece And it's hard to find, but it's going to show up in those two stats first.
Our next question comes from the line of Austin Wurschmidt with KeyBanc.
Hello, everybody. You mentioned DTV
is one of the most attractive opportunities for you today. Just curious though what your conviction level is maybe versus last quarter in buying back some stock here given the incremental proceeds you've got from the DC sale? Yes.
Hey, Austin, good morning. It's Joe. Over time, I think we've shown a pretty good track record in terms of our ability to pivot to different Obviously, we pivoted last year to a good cost of equity and grew the enterprise pretty accretively. More recently, went the other way. And As you mentioned, we did buy back a little bit of stock.
In Q3, we bought some back in early 2018 when we got pretty compelling levels and bought back, back in the last downturn. So There definitely isn't an aversion to buy back stock, but we do realize that capital is precious at this point in time. There's a lot of unknowns out there. We got to have good conviction on the economic trajectory in the capital markets, our NOI, which while we have enough conviction in the next 2 months to give you Q4 guidance. I can't say that we have a high degree of conviction in the next 2 years.
So, there's a lot of unknowns out there still, As well as, of course, the implications to our taxes, our rating agency, our liquidity, leverage, etcetera. So, are going to
try to balance them all.
As you mentioned, we sold that DC deal, but that is part of the operating partnerships and there are certain tax implications. So, that is going to be a 10.31 transaction. The idea there, the genesis there was simply to take a very compelling price and you can Back into what the yield was that we sold that ad, looking at attachment 5 down on the held for sale NOI, and we avoid that at a very accretive basis into Hopefully, another transaction that has pretty good operational upside as we've shown in past acquisitions.
Got it. No, that's helpful. And I know that Recognize there's a lot of uncertainty in the outlook for the economy here. But you mentioned that cash and GAAP same store revenue are compressing in 4Q. Do you think cash in store revenue has bottomed at this point?
Yes. I mean, in the interim, we're not trying to call the inflection or we're not trying to 21 yet today. Hopefully, we have that conviction when we're talking late January when we get out there and potentially put out 2021 guidance. We'll see where we're at at that point. But Today, when you look at our press release, that billed revenue line item that we focus on a lot as it kind of weeds through all the concession occupancy rate trade offs, You can see October, we're looking at around $103,000,000 So, that's 3, 4 months in a row here that we've kind of hung around that level.
Next quarter, we think cash same store rev on a sequential basis should be plus or minus flat. Expenses should come down a little bit, Generally, just due to seasonality and turnover, and you should get a positive sequential cash NOI number out of us. The headwind, of course, then comes from the straight line side, which you mentioned. On the guide, you start to see that compression and you do have to run off a little bit against these straight line amortizations. So that's why you see $0.50 this quarter coming down to $0.49 next quarter.
Okay. Makes sense. Thanks for the thoughts.
Yes.
Our next question comes from the line of Juan Santaria with BMO Capital Markets. Please proceed with your question.
Hi, guys. Just a couple of questions for me. I guess, first off, is there anything in Short term rentals or parking, etcetera, that kind of has contributed to the winding gap between the blended lease rate growth And the cash same store numbers? Hey, Lon, this is Mike. I would tell you, Just to give you a little color on our other income, we were pretty excited to see that that was actually a positive contributor to our total revenue In the quarter, so to give you a little more color on our short term furnished program, we were down around $1,300,000 year over year or about 70%.
We had probably Roughly 130 occupied compared to typically 400 per month. So that was mainly due to the regulatory environment as well as just People not being able to travel as much. And then on late fees, we weren't able to charge in a lot of cases. So that was down around $500,000 or 40%. And then our common area amenity program that we started last year, we weren't able to do a lot of that this year.
That was only down about $200,000 So In total, that was down $2,000,000 On the flip side, to your point on the parking, that's one of the more sticky initiatives we put in place over the years. That was up 3% or $200,000 and our biggest pickup on other income this quarter was transferred lease breaks, Going back to that point, we've reached out to a lot of our residents to try to figure out how we can try to keep that. In a lot of ways, it was just Moving into the property to different units and so we were able to increase that by about $1,500,000 in the quarter, up 75%. So Overall, other income was a positive contributor for us during the quarter.
Our next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your questions.
Hey, guys. Good afternoon.
I think I might be the only analyst on Wall Street that's actually back in the office, I think you guys might be as well. So misery loves company, I
guess. Hey,
I wanted to chat a little bit about
What the Q4 might look like? I really appreciate you guys giving the guide. I think that's really helpful, at least for sentiment. But could you maybe talk about what the occupancy build that's embedded in your guide and what leasing spreads might look like as well?
Yes, if you go to Page 2 within the press release, it really gives you a pretty good sense for where 4Q is going to play out. So as Mike talked about, the occupancy trend is starting to pick up a little bit as we showed you on Page 3 as New York's in Grand Boston picked up a little bit. You do see the October range start to pick up relative to Q3 'twenty. The blend's off a little bit, which a little bit of that is just Math in terms of which units you're leasing. Obviously, you have a weaker blended lease rate in New York, San Fran, etcetera.
So, to the extent that we gain occupancy in those, which is good for cash flow, it does show up optically negative on the blends, but ultimately it's about cash flow and how much revenue we can build. So, I think those are going to be relatively static as you think about the trajectory of those numbers.
Okay. That's helpful. That was
Getting at my question. I promise you I did get to Page 2 of your press release, believe it or not. So one more question guys. As you think about this demand increases that you and some of your peers are starting Steve, can you maybe walk us through why that demand is building? Is it seasonal?
Is it because rents have dropped enough? Are you actually seeing people come back? What's driving that? And I guess, ultimately, it's ultimately
a question about Why are
you comfortable enough giving a guide because clearly you're seeing something?
Hey, Rich, it's Mike. I think the biggest thing for us, it goes back to the whole diversified portfolio and every market is acting a little bit differently and then you can go within the sub markets, Within each market and we are seeing different stories. I think my example of Chelsea is a good one as well as the financial district, when they started bringing back some of Good job. To the city, we did see an uptick in demand and recently we've seen just generally speaking our traffic patterns increasing In places like the SunVail as well as some of these harder hit markets, some of that is a function of us finding the right spot in terms of pricing And some of it's quite frankly where we're seeing people come into the market that we historically haven't seen come into the market. So again, it's Very different market by market.
We have been very excited to see our occupancy levels obviously increase in that 20% of NOI that we've referenced in the past has been more of a struggle. So that obviously helps, to Joe's point, Put us in a more stabilized environment when it comes to build revenue.
Got it.
And maybe the last one
Go ahead. I'm sorry.
I think the other thing, I mean,
we have of course dragged all the mobility stats by markets, all the restaurant bookings, cash also on the security card swipe, It gives you some indications by market. So, slowly but surely, those are coming back. Clearly, not nearly close to where we'd hoped they'd be, but the broader job As individuals get more comfort that the economy is moving in the right direction, that they're going to retain their job or that they're actually getting their job back, That's helpful. So whether or not they left the city, whether or not they work in an office, just having a comfort level that they are going to have a job and ability to pay rents is helpful from a demand standpoint.
Got it. And just maybe one follow-up question.
Can you share any renewal data on the non CBD markets? I recognize you did a really nice Breakdown for the 3 markets that you discussed on Page 2. But the non CBD markets, any updates on the renewal trends there?
Yes, Rich. The renewal trends that we're seeing today are pretty consistent. I would tell you in general, we've been sending out that 2% to 2.5% range, and I would remind you and everybody else that 20% of our NOI is capped at 0%. So That's kind of where we stand there. But as far as the markets that are in the other bucket, they're still in that 2% to 3% range and that's what we're sending out today.
Great. Thank you, guys. And appreciate the transparency and what looks like a good inflection in the quarter. Thank you.
Thanks, Rich.
Our next question comes from the line of Rich Anderson with SMBC. Please proceed with your question.
Thanks. Rich number 3 here. So I feel like maybe there's some rule against Dialing in an hour earlier before a conference call, but that's another conversation entirely. So
On the topic of
the CBD, New York City, Boston and San Francisco, am I reading this right? Are you guys kind of Frustrated with the local and state leadership there and don't agree with how it was handled or and maybe that's a strike against them when it comes to investing again in those marketplaces? Or is it the reverse where you'll maybe more likely zig rather than zag And invest more there with a longer term view. I'm curious how the leadership through this COVID thing has impacted your view of those Rich, this is Toomey. And for the right price, we could let you reserve that first spot.
And I understand. If we run through the PRS, we're pretty good on the income. If it doesn't help you out there or a box of cigars, Either one would probably get you there. So, yes, I think it's a fair question with respect to our observations Of how government had responded differently in different municipalities and does it taint our view towards the market in the future? I wouldn't say it taints it.
What it does is, as Joe has highlighted on the portfolio strategy, it's another part of the queue That we're looking at and saying what do we think the tax base looks like, how vibrant of an economic environment And is it conducive to us and our operating business? And there's a lot of city councils that swung very far In a very aggressive manner and we think they're going to pay a price on the long term viability of their city And that's not for us to judge. It's just we have to take the facts in and look at it and say, boy, does that change our Example, Seattle downtown view of that marketplace. When they have declared war on business Through a variety of taxation, legislative action, well, businesses are going to move. And if those businesses move, our business has moved.
So, yes, we do weigh it, but we want to see more facts develop and see how cities open back up And if they realize that if they open their doors to business, the vibrance of their city can take off and all the other projects they add can be funded And they can solve some of their problems. But the anti business sentiment that is being exposed in a number of these cities, I hope passes. I think we're in an election year. Everybody's amped up. We'll see how that plays out at post election And if they start pulling back off of some of this, we've seen you can see it in California, 3,088 was a nice measure.
At least it could force people to have a dialogue, Florida lifting evictions. You're starting to see cities respond And it will be a question about the aggressive nature of that response and the timing of it, but we're just like everyone else. We're a citizen. We've got to run our business. We've got to look at how that business is impacted by its overall legislative agenda.
Good answer. Thanks, Tom. Thanks, everyone. That's all I got.
Thanks, Rich. Two boxes.
Our next question comes from the line of Amanda Streitzer with Robert W. Baird. Please proceed with your question. Great.
Thanks. Can you guys just expand on the pipeline of potential DCP deals you see today? And then I obviously recognize that each deal is unique, but where have you seen pricing trend today For some of those DCP investments at least relative to the 13% yield that you guys achieved on Queen?
This is Harry. I mean, I tell you generally, the number of opportunities we're seeing is increasing. Capital overall is more difficult for the developers, debt proceeds are lower, LP Capital is more difficult to obtain, but all of those things make it Difficult for these projects to get started because they have to get the entire capital stack. So we're looking at a lot of opportunities. On the other side, there's a lot of capital that's also looking to deploy capital in this space.
So it is pretty competitive, But I think our the deals you've seen us do over the last call it 18 to 24 months are pretty consistent with How we're pricing deals today and so that would be typically a blend of coupon and backend and underwrite into Kind of a 12% to 14% type IRR.
Helpful. Thanks.
Our next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your questions.
Hey, thanks for the time. Just one question for me. Tom or Joe, on the capital allocation side, you've been emphasizing patience This year, but acknowledging you can't control when a large portfolio come to the market, if one did that Your quality criteria, would you be willing to bid on it right now?
John, I guess, you saw what we did in 2019, Which was we had a number of parameters, obviously, that fit with where we wanted to deploy capital on a diversified basis, but And if it was a platform upside
and then it had to
be near term accretive and we had to have a good cost of capital to fund it, I don't think there's any dispute in the room here that we do not have a good cost Debt markets are absolutely fantastic for us. Dispositions are a great source of capital for us. The cost of equity is nowhere Near where it would need to be to do a portfolio type transaction. So, we're more so in churn mode, can we just incrementally drive a little bit more cash flow With the sources that we can create internally.
Okay. Thank you.
Our next question comes from the line of Neil Melton with Capital One Securities. Please proceed with your questions.
Hey, guys. First one, in your urban San Fran, New York portfolios, What is the month to month breakdown? Like, I guess, how many tenants Well, first, I know you have the majority of your corporate housing, short term housing there. How many or what percentage is the month to month leases, just given people's uncertainty With COVID, we've heard a lot that there's a rising amount of month to month. And just wondering, if you've seen that and how you're handling that?
Hey, Danielle. It's Mike. We've been watching the stat and it's been amazing to watch because We're running just under 4% month to month today and I would tell you just to put it in perspective, we typically run around 3.5%. So we haven't actually seen much of an uptick when it comes to month to month. And when you go into those particular markets, it's basically the same Trend line.
Okay. Appreciate that. I guess maybe for Joe or Chris. You guys talked about when you look at your Advanced analytics are not wanting to make a decision too quickly. You want to make sure you could go long way back then, becoming more permanent.
But I just kind of want to go back to like the California thing for a second. I mean, you look at like a lot of Permanent moves, for example, a lot of companies have been moving their headquarters, legislation that will probably could get passed This November, if not, be on the ballot in 2 more years, just given how far to the left of politics has gone there. Look at A lot of these like things on the police movement, a lot of things that, to be honest, seem permanent, seem like longer term in nature. So I guess, What else do you need to see or how do you weigh those sort of trends that are more permanent in nature when deciding Shift your capital allocation or maybe adjust how that looks for screens in your advanced analytics analysis?
Yes, we get a little bit is to use history as a guide and not just have a knee jerk reaction on this. We do when you say These are more permanent in nature. That seems to be kind of popular view today, but you go back over time to look at the tech rep or financial crisis and at the depths of those, There is an expectation that some of those markets that were hardest hit were going to be perpetually underperforming. I don't think that's the case because when you look at Migration over time, migration has consistently gone from Midwest and the coast down into the Sunbelt, but it hasn't resulted in long term rental rate outperformance. You have to have an income growth to drive it.
You can't just be heads to drive it because supply usually offsets it. So, you need that higher income component. And what remains to be seen is to what degree you see an income migration. So, the good thing is we're already diversified. We've already had exposure to the Sunbelt.
We've got exposure to Markets like Baltimore and Richmond that are performing well, Monterey Peninsula are performing well even though those are on the coast. D. C. Is performing well for us. So Right now, we're having a position of strength to be patient on this.
And to the extent that we want to shift capital over time, You'll hear more from us in terms of seeing what our actions are.
This is Tim. I'd add, one of the factors I have not seen much riding from the sell And we've not discussed externally, but internally we have is potential immigration policy impact. And if it changes dramatically, do you have the normal migration cities That get a first from that piece of the equation. So, you can see there's a lot of factors that when you start looking at the crystal ball of the future, You'd say, boy, we'd like to nail down 1 or 2 more of those before you start making knee jerk reactions that we live with So I think being patient is sometimes the hardest thing to be, But the most rewarding thing to be.
All right.
I appreciate that. Thank you.
Thanks, Bill.
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.
Hey, good morning out there. And anyway, appreciate you guys taking the questions. Just keeping the call going. First, on the topic of debt squeeze, I think also part of that could be National Housing Regulation Rent Forgiveness. So I think when people think about stimulus, the negative of increased regulatory sector, but it clearly doesn't need it.
But Two questions here. First, on the concessions that you guys have outlined in your in sort of the target urban core market They're facing a lot of pressure. The renters that you see coming in, is your experience that renters that come in when they're heavy concessions in the market Tend to be not that sticky. So you expect these folks to leave next year? Or your view is that these are people who have always wanted to live in the city or in that Neighborhood and therefore are taking a hold and will stay committed once the concessions are no longer part of their rent.
Hey, Ark. I think for us
what we're experiencing today is 70% of our people that are coming into these places In New York and San Francisco are coming from within the area. So it does feel like they are looking for the best deal. It may be in some cases The price they wanted to live, they just wanted to wait for the right pricing. And so once we get them in there, obviously, we do feel that with our platform and things that we Put in place, we differentiate ourselves from others and we do have the ability to try to keep them. That being said, only 40% to 50% All of the people that have moved in over the last 3 months actually received anything substantial.
And when I say that, That's in that 3 to 4 week range concession level, but half of them didn't even really receive a concession at all. We typically use it as a loss leader, try to get people through the door. And again, in a lot of ways, not every single person that comes through there is actually getting a big concession. I'll add to that, Alex.
I mean, looking at the resident screening perspective, one thing we, of course, want to avoid are those individuals Jumping from someone else's bad debt pool to our own bad debt pool, when you look at the number of individuals over the last 4, 5, 6 months, You're not seeing a larger percentage turn into 60 day delinquent than what we had previously. So, the resident screening that's in place, We're not taking off bad debt by offering up concessions and bringing in a bad resident.
Okay. And then the second one is just looking at Boston in particular, Given some of the NMHC interface comments about the length of time for international I'm back that it won't be this year. It may take several years. In your portfolio in Boston, how exposed and increasingly are you to the international And how do you see that impacting the recovery of those school oriented apartments?
Relatively low exposure for us on the international side. We over the last 6 months have experienced around 1% Move out, so around 500 people. And it's not big. I would say in Boston, it's probably a little bit higher than other parts of the country, But it's not any more than 2% to 2.5%.
Okay. Thank you, Jared.
Our next question comes from the line of Haendel St. Juste with Mizuho. Please proceed with your question.
Hey, thank you. So I guess quick question for you, Joe. First, you mentioned that your leverage here has increased to 6.5 times on the net debt to EBITDA versus 5.5 year ago. And it looks like if you were to take that forward equity down around On pricing, you'd be somewhere around 5.9
ish times by our math. So I guess my question is,
I know you have lots of liquidity and limited Securities upcoming, but how comfortable are you maintaining this type of leverage profile into the near future? And do you think this will limit your willingness
or ability to deploy capital opportunities?
Yes, fair question. So, the leverage has ticked higher on a debt to EBITDA basis. That said, over the last year, you've seen some other metrics improve, be it duration, 3 year liquidity, fixed charge coverage ratio. So, It is one metric that hasn't gone the way we like, but that's the reason we typically run with a very solidly investment grade balance sheet throughout the cycle. So when you see EBITDA come off a little bit, we can absorb that.
So the forward equity deal of around $100,000,000 We expect to draw that down in the 4th quarter, Yes, dollars 100,000,000 on full see through debt right now of $5,400,000,000 is only about 2%. So, it shouldn't move that metric too much from 6.5x, you move it by 2%, it's 12 basis points. So, we'll think it's down a 10th of a turn. That said, when we think about our leverage profile, There's a couple gating items or gradients that we look at. You have where do we stand relative to the rating agencies, where do we stand relative to our dividend And where do we stand relative to our covenants?
I'd say with the rating agencies right now, we've had good constructive conversations with them. They seem to be very comfortable with where we stand today and where we're headed. We could probably absorb another $50,000,000 $75,000,000 of EBITDA declines before we might even begin to get concerned there. Dividend, clearly, we have over $100,000,000 of annual cash flow relative to dividend coverage, so very well supported. And relative to covenants, we could take a $300,000,000 type decline in EBITDA before we start to put pressure on covenants.
So plenty of capacity, I'd say, across all three spectrums. So Long story short, we feel very comfortable with where we're at. And when we come out on the other side, we'll get back to those full cycle type of leverage metrics.
Got it. Got it. Thank you. And maybe one for Tom or maybe Jerry. What's more likely to happen in 2022?
The Broncos win the Super Bowl
or New York City to turn to positive NOI?
A 500 team, the AV unit got you in action. Super Bowl. We all
know that Broncos have no shot. I guess, it helps here, Mitch. Maybe just talk a bit more about some of the advanced indicators you mentioned. The ones that you're, I guess, more focused on the price side a bit more, Be it the restaurant booking with moving trucks, return to office trends, Starbucks coffee sales. I mean, what are you most closely why can we get you a bit more constructive On the urban coastal recovery for a place like New York City or Boston in the back half of next year, even 2022.
And then, is that are you getting any more comfortable or closer to being comfortable with deployed capital in any of these markets, given all the capital that's been flowing through the Sun Belt and causing cap rate compression there? Thank you.
Yes. 1st, break that into 2 questions. What gives us comfort about the pace of a recovery? And I think you start with 1st and foremost the vaccine. You start with people getting back to work.
Those are underway, okay. The inevitability, whether they happen in 1Q 'twenty one or 2Q, It's going to happen. And then it's adoption rate, penetration, vaccination type aspect. So we think that is just the inevitability and it will happen. Then it's a question for us About what fiscal shape our city is in, what legislative agenda are we faced with?
And then you asked the second question was about capital. Well, first, it's pretty easy when we're trading where we're trading On the capital side, our first and foremost is our platform and then it's DCP and then it's going to be swapping, meaning assets that People have an interest in and you saw what we saw this quarter and clearly there's more out in the marketplace. If people hit a number, we're glad to let the asset go and try to figure out where the best place to put that capital is. And that environment might be with us for the balance of 2021. By 2022, we should see some normalcy to
the business
climate And the full impact of the stimulus, the employment picture become more clear, and then we can weigh what our options are beyond that. But Right now, it really comes down to the day to day markers of traffic, concession, occupancy and pricing running for our cash flow. And that's not a bad place to be. That's how you manage a recession. You get too far down the road, make too big a bet In the world terms, Sonya, you don't get rewarded for that.
We get rewarded for producing cash flow earnings. That's our focus. Got it, Tom. Thank you. And maybe as a follow-up,
does that imply perhaps that you would be more likely to be a net seller here
over the next 6, 12, 18 months?
Time is dependent.
Fair enough. Thank you.
Our next question comes from the line of Dennis McGill with Zelman. Please proceed with your question.
Thanks guys. Hopefully a couple of just quick ones. First one, when you look at the effective lease blended rates at 0 to 6 to 1 that you got bracketed for October,
I think it does. For us right now, obviously, we're dealing with a little bit of seasonality
as well. But for the
most part, now that we have occupancy roughly in the 93% to 94% range in New York, like I said, we do have some more pockets Well, we're coming off of concessions. So we think that we can have a little bit more pricing power there. And then the other parts of the country, We are finding opportunities to push rate and holding occupancy steady. So I would say overall, it's directionally moving that way, yes.
Okay, great. And then supply has obviously taken a back seat to the demand side of late, but Where would you or how would you articulate the supply picture over the next, call it, 12 months? And I guess within that, are you seeing any Product either get delayed permanently or temporarily or it's become harder to finish product with labor availability or easier? Any
I think overall, we probably would have expected a little bit more slippage this year than we think we're probably going to end up seeing. Supply this year in our markets is probably going to end up flat to up 10%. When you think about kind of which markets that is, The worst ones, Boston, we talked about LAX and France and some of those coastal markets are getting hit a little bit harder. There's not really a lot of relief next year for the portfolio as a whole As those starts already took place, so we'll probably flatten up 10% off of this year's number when we get into next year. That said, when you look at the submarket exposures, We do actually see some relief.
We think supply in our submarkets comes down next year. And then when you get into 'twenty two, clearly, that's when the permitting activity that we're seeing today is going to roll in. So Permits being off 15%, 20% within the East Coast, West Coast, and got flattish at Sunbelt. That's where you should see some relief for The coast from a supply perspective wants to get out to 22.
Okay. That's helpful, Joe. Thanks. Good luck, guys.
Thank you. Take care.
There are no further questions in the queue. I'd like to hand the call back over to Chairman and CEO, Mr. Toomey for closing comments.
Yes, real quickly looking at the clock and knowing that you have a lot more to cover today. First, let me thank you for your Interest and time today in UDR. A special thanks go out to all our associates. You guys have done a fabulous job across the spectrum through I mentioned earlier in my remarks, we're very focused on our cash flow and frankly very proud of
the fact that we've
managed this year And looking at the net bottom line, last year was $2.08 a share for FFOA And this year looks like we're up 204%, 2% decrease through all the challenges that we've had And very proud of the team for that production. What it did highlight to me is we have the portfolio, the team and the track record to perform well in a recessionary and challenging environment. And I think that will continue for the future and look forward to it. With that, we wish you the best.
Good luck.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.