Greetings, and welcome to UDR's Second Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A 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. Triadio, 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 at ir. Udr.com. In the supplement, we have reconciled all non GAAP financial measures to and 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.
A discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake any duty to update any forward looking statements. When we get to the question and answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that do not get answered during the Q and A session today. I will now turn the call over to UDR's Chairman and CEO, Tom Toomey.
Thank you, Trent, and welcome to UDR's Q2 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 Executives, Harry Alcock and Matt Cozzette and will also be available during the Q and A portion of the call. First, the executive team would like to thank our associates in the field Ensuring UDR's continued strong performance and holding our culture to a high standard through the challenges We have faced these past few months. They are our frontline workers for our company and have definitely adapted to a constantly changing health and regulatory environment, as well as continued the implementation of our next generation operating platform, all while showing kindness, understanding and accommodation to our residents.
Reflecting on the challenges we have faced over the past 4 months, only serves our belief That our next generation operating platform represents the way that multifamily business will be managed in the future and will remain a differentiator for UDR for years to come. Throughout this crisis, it has enabled The utilization of a variety of technology solutions to support our associates and engage with residents and has allowed us to take a surgical approach to pricing our carpet homes, all while continuing to drive controllable expenses forward. We firmly believe our next generation operating platform will continue to increase resident satisfaction and engagement, maximize revenues, unlock future cost efficiencies and deliver strong cash flow in the years ahead. Next. Operating the diversified portfolio across numerous geographies and price points and affords us a deep and widespread understanding of market fundamentals.
Mike will provide details later in the call, But a brief business update. Cash collections as a percentage of billed revenue are strong at 97.5%, with no deterioration in month over month trajectory. Physical occupancy remained solid at approximately 96%. Year over year resident turnover declined 6 20 basis points during the Q2 and traffic continued to show well versus last year.
These are just a few
of the positive signs and an indication that our business is on solid footing to perform relatively well in the future. It would be easy to rush back into reinstating guidance, But for any guidance range to be useful, we need evidence that core stability in the regulatory environment we face, COVID caseloads and the impact they have on the cadence of state reopening as well as more insight into the economic impact currently by unemployment. Nevertheless, We have a sound strategy and a team to effectively manage it through these uncertain times and are in a position of strength moving forward. Our balance sheet remains healthy with nearly $1,000,000 in available liquidity. Our dividend is secure.
And thanks to our next generation operating platform, we have the tools to meet all the resident expectations as well as enhance margin and increase shareholder value. With that, I will turn the call over to Mike.
Thanks, Tom, and good afternoon. Starting with the 2nd quarter results, our combined same store NOI declined by 4% year over year, driven by a revenue decline of 2.1% and expense increase of 2.5%. While not the results we expect coming into 2020, I'm encouraged by blended lease rate growth staying positive during the quarter. Traffic volume remained above last year at the same time and turnover continuing to trend better than a year ago, all of which help us preserve our rent roll for future periods. On Page 3 of our press release, we have included details on the sequential and year over year We realized in our Q2 2020 combined same store revenue results.
As you can see, gross rents were positive versus the prior period. However, primary drivers of the 2.1% year over year revenue decline included: 1st, Concessions were generally elevated during the quarter, but particularly in urban areas of coastal markets where they reached upwards of 8 weeks at some of our communities. This compares to the Sunbelt market that reopened more quickly with concessions between 2 to 4 weeks on average. Typically, we would see minimal concessions on stabilized assets during peak leasing season, but COVID has been anything but difficult with concessions driving a 50 basis point negative contribution to our year over year combined same store revenue. 2nd, Our physical occupancy declined 50 basis points year over year in the Q2.
However, the re letting of approximately 150 corporate units during quarter in primarily high demand comes to market, drove second quarter economic occupancy down by an additional 50 basis points. In total, lower economic occupancy accounted for 100 basis points of our year over year decline in combined same store revenue. In Portland, our remaining corporate partners are well capitalized, thereby reducing forward economic risk associated with the homes they utilize. 3rd, our fee income was disrupted due to regulatory constraints and will likely remain that way until the regulatory environment changes. This has 50 basis points negative impact year over year combined same store revenue growth.
The final negative driver of the year over year Client same store revenue growth was a bad debt reserve totaling $4,500,000 which negatively impacted our results by 170 basis points. As mentioned in last night's press release, as on our bad debt accrual, 2nd quarter combined same store revenue and NOI growth would have been negative 0.4% and negative 1.6%, respectively. Moving on to recent operating trends. On Page 4 of our press release, you can see that blended lease rate growth remained positive during the quarter. Cash collections held up well and more recent traffic and applications continue to compare favorably versus 2019.
Additionally, Annualized turnover during the Q2 was 620 basis points lower year over year, which along with our next gen operating platform initiative Our teams in the field and their execution of our surgical approach to pricing homes deserves much of the credit for generating Next, high level second quarter operating trends by geography and price point include Across all of our markets, our suburban communities generally outperform urban communities in terms of occupancy, new lease rate growth, renewal rate growth and traffic more specifically. Visible occupancy in our suburban portfolio averaged 96.9% during the quarter compared to 94.6% in our urban communities. Occupancy in certain urban areas of coastal markets Traffic and turnover remain better at our suburban communities. Blended rate growth in our suburban portfolio outpaced our urban portfolio at 1.3% versus negative 30 basis points. And collections generally follow the NAC regulations, with Los Angeles, Boston and New York guiding the rest of our portfolio.
These urban versus suburban trends are similar when analyzing our portfolio across different quality. B Quality outperformed A Quality and Sunbelt outperformed coastal and to similar magnitude as the suburban versus urban results. Turning to July, we have not yet closed the book on the month, but we expect physical occupancy to average 95.5 percent to 95.8%. Blended lease rate growth to be flat to down 50 basis points and billed revenue to range around $105,000,000 As shown on Page 4 of our press release, month to month billed revenue varied by a couple of $1,000,000 during the quarter due to 1, the timing of some of the other income items 2, regulatory restrictions that impacted our operations and 3, an increased number of lease expirations in harder hit, higher rent submarkets such as Manhattan, San Francisco proper and Downtown Boston. Moving forward, we expect that once a month build revenue will continue to be somewhat brain scale until emergency regulations are relaxed and there is more visibility around office reopenings and open floors.
Now market level results. The main characteristics in our markets have generally near the cadence of each market's real. With those markets that have more restrictive and durable stay at home orders, citing those which reopen sooner. Throughout the pandemic, our nimble approach to pricing our apartment home as maximized revenue growth, an important differentiator given that every market has reacted different to COVID. Highlighting some specific markets.
Nashville, Salinas and our Texas market evaded the strongest pricing power during the Q2. New York, San Francisco and Boston were the weekends, with market rents down in the middle to single digit range. Positively, we have seen markets such as Orlando, Tampa and Orange County prove to be quite resilient throughout the pandemic, Despite their high exposure to hospitality and retail centers, we attribute this to our largely suburban and fee quality portfolio of deep markets. New York, San Francisco, both markets that experienced the increase in in life turnover during the quarter as a result of short term mobility trends due to work from home mandate as well as corporate lease exposure. While residents continue to pay rent, Some have allowed their leases to expire and they will revisit their living situation when physical job requirements and the timelines for office reopening or better defined.
Lower traffic levels in these markets due to more cumbersome regulation has resulted in generally lower occupancy, which has driven higher concession levels. However, mirroring a theme across all of our markets, our beef quality assets are outperforming our rates and suburban communities are outperforming our urban. A good example of this is New York MSA, We're occupancy at Leonard Point in Brooklyn and our 1 William deal in New Jersey remain in the high 90s. Moving on, The nearly $2,000,000,000 of community acquisitions we have made since the start of 2019 continue to perform relatively well. With cumulative NOI at these communities currently tracking above our original underwriting.
Finally, I want to thank our governmental affairs and legal teams for their dedicated work tracking day to day regulatory changes across our markets, being able to efficiently and effectively communicate our comprehensive understanding of eviction moratorium, rent regulation and other regulatory changes to our teams in the field Have been critical as we continue to surgically price our apartment homes portfolio wide. And to my colleagues in the field, I thank you for your hard work and adaptability to daily changes in regulatory restrictions and to our operating strategies. Your jobs have not been executed, but I appreciate all that you do. And now, I'd like to turn over the call to Jerry. Thanks, Mike, and good afternoon, everyone.
Echoing Tom's comments, our success in today's operating environment and not be possible without our next generation operating platform. Because we were early in transitioning to an online self-service model. We have benefited from our associates' familiarity with the enhanced technological tools that our platform provides, including the installation of nearly 37,000 smart homes, which improve operational efficiency and increased resident engagement. These resources have been paramount
to our success over the
past 4 months given social distancing requirements and state shutdowns. From a resident perspective, the platform increases ease of use and delivers a self-service model, which has become the new everyday standard in many aspects of our resident lives. From a financial perspective, The platform drives more dollars to our bottom line by expanding our controllable operating margin. This is accomplished through efficiency gains via the centralization of certain functions, outsourcing of others, utilization of self-service and integration of big data. Our focus on achieving these goals has not wavered.
I'm proud to say that despite combined same store revenue declining in the 2nd quarter Due to COVID-nineteen, our controllable operating margin remained flat at 84.3%. This was driven by a 2% reduction in controllable expenses versus a year ago. In particular, Combined personnel and repair and maintenance costs declined by 1.1% year over year and we realized significant savings in administrative and marketing Prior to the pandemic, platform implementation had driven approximately 80 basis points of expansion in our controllable operating margin or nearly half of our stated goal of 150 basis points to 200 basis points improvement by the end of 2022. While COVID constrained further margin growth in the
Q2, we're still well ahead of where we would have been without
our next generation operating platform and continue to see long term benefits such as a 23% life to date reduction in flight level headcount through A 28% improvement in controllable NOI per associate and a 15% increase and resident satisfaction as measured by NPS scores. We have realized approximately 60% of our staffing level efficiencies Today, expect to capture the remaining 40% once our customer self-service technology rolls out over the next 2 years. Looking ahead, we are rolling out the next phase of our self-service smart device app for residents that will continue to mitigate the need to visit our on-site offices, shifting self guided tours to a web interface versus an app to increase ease of use and integrating more data science supported revenue growth and expense reduction opportunities into our platform. I look forward to updating you on our progress on future calls as we continue to and debate over the years ahead. Bottom line, our next gen operating platform has allowed us to run our business efficiently and successfully throughout the crisis and puts UDR in a position of strength
as we move beyond COVID.
A big thank you to everyone in the field and in corporate for continuing to push forward and make our platform a success. With that, I'll turn it over to Jeff.
Thank you, Jerry. The topics I will cover today include our Q2 results, an overview of our bad debt reserves and a balance sheet and liquidity update, inclusive of recent transactions and capital markets activity. Our 2nd quarter FFO as adjusted per share of $0.51 declined by only $0.01 or less than 2% year over year. The $0.03 sequential decrease in FFO per share was primarily driven by $9,000,000 in total company bad debt reserves with $5,500,000 of this from residential and $3,500,000 from retail, in addition to lower property revenue due to occupancy, concessions and fees, partially offset by lower G and A. Regarding guidance, as Tom mentioned, we are not reinstituting our full year 2020 guidance At this time, given continued uncertainty around how the coronavirus pandemic will impact the economy and our business.
However, as disclosed in our press release and as Mike discussed, we have presented an operating update to to provide stakeholders with additional insights into recent trends. On to collections and how we are reserving for potential bad debt. As we outlined in our operating update on Page 4 of last night's release, during the Q2, we billed $322,600,000 of revenue. As of quarter end, we had collected 96.1% of that revenue, leaving $12,500,000 uncollected. We established a bad debt reserve against that uncollected revenue and the amount of $5,500,000 or 1.7 percent of billed revenue.
Since quarter end, We have collected additional cash towards Q2 billings, increasing our collection percentage to 97.5%. That leaves our total billed but not yet collected revenue at $8,000,000 which set against the $5,500,000 reserve Reached $2,500,000 or less than $0.01 per share of recognized revenue that has not yet been collected. We are comfortable with this level of recognized, but not yet collected revenue based on our assessment of collection trends, interactions with our residents and the probability of future collection, including approximately $500,000 of outstanding second quarter rent subject to payment plans that we expect to collect. Moving on, our balance sheet remains strong due to ongoing efforts to reduce debt cost, Improve liquidity, extend duration and enhance cash flow. As such, we are in a position of strength to weather the continued effects of COVID-nineteen and the downturn that has accompanied it.
Some highlights include: First, as of June 30, our liquidity as measured by cash and credit facility capacity, net of our commercial paper balance, was $974,000,000 When accounting for the roughly $105,000,000 of previously announced forward equity sales agreements, We have nearly $1,100,000,000 in available capital. 2nd, the refinancing of our final 2020 debt maturity We'll close at month's end, after which we will have no consolidated debt scheduled to mature through 2022 when excluding principal amortization and announce on our credit facilities. Additionally, subsequent to quarter end, we issued $400,000,000 12 year unsecured debt at an interest rate of 2.1%. Proceeds were used to prepay $246,000,000 of our 4.64% secured debt originally scheduled to mature in 2023, as well as complete our previously announced tender for $117,000,000 up 3.75 percent unsecured debt originally due in 2024. All of these actions have improved our liquidity profile and duration.
Looking further ahead, when excluding balances on our credit facilities, Less than 15% of our consolidated debt is scheduled to mature through 2024. Please see Attachment 4B of our supplement for further details on our debt maturity profile. 3rd, identified 2020 uses of capital remain minimal and predominantly consists of funding our current development and redevelopment pipeline. The aggregate cost for these projects totals only $308,000,000 or less than 2% of enterprise value and they are nearly 50% funded with approximately $157,000,000 remaining capital to spend over 4th, our dividend remains secure and is well covered by cash flow from operations. Based on Q2 2020 AFFO per share of $0.47 our dividend payout ratio was 77%.
This implies that our earnings will need to decrease by an additional 20% before approaching cash flow parity. Taken together, our balance sheet is in great 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, the transactions update. 1st, As previously announced, we sold 2 communities in the Greater Seattle area for a combined $143,000,000 at a low 4% cap rate, reflecting pre COVID pricing. 2nd, subsequent to quarter end, 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.
Construction of the community began 8 months ago and is fully capitalized, including $62,000,000 of developer equity or approximately 18% $342,000,000 total project cost. UDR's investment provides enhanced economics compared to pre COVID deals and effectively backfills the upcoming 2021 maturity of our mezzanine loan on the portal in Washington DC, which carries an 11% yield and no profit participation. Moving forward, we remain highly selective with where and how we choose to invest your capital with a focus on both current yield as well as future value creation. Wrapping up, As is evident on Attachment 4C of our supplement, we have substantial capacity before we would reach non compliance with our line of credit for unsecured bond covenants. As of quarter end, our consolidated financial leverage was 34.2% on undepreciated book value and 30.6% on enterprise value, inclusive of joint ventures.
Consolidated net debt to EBITDAre with 6.2x and inclusive of joint ventures with 6.3x, which looks slightly elevated due to the still outstanding settlement of our forward ATM proceeds. With that, I will open it up for Q and A. Operator?
Thank you. At this time, we'll be conducting a question and answer Your first question comes from the line of Nick Joseph with Citi. Please proceed with your question.
Thank you. It's obviously a dynamic operating environment, but how do you think about the pricing strategy between operating concessions or holding rates and having potentially lower
Hey, Nick. This is Jerry. I'll take that one. I would tell you we've strategically elected to utilize concessions rather than take significant rental rate cuts on new leases in order to maximize and I'm going
to repeat that maximize both
Near term and long term results
are keeping lease rates higher. We preserved our
rent roll for 2021, which is a key Factor in why we did this. Because we take concessions upfront for same store reporting purposes, we incur the charge at the
beginning of the lease term.
This is consistent with how we've historically reported and accounted for concessions.
We elected during the Q2
To offer no concession, but instead reduce stated rents by an equivalent amount, our same store revenue would have been more than 100 basis points higher than what we reported.
Using our strategy, the difference will
be made up over the
remaining lease term and we'll be in a better position at the time of renewal than we would have been if we had just cut rate.
To give you an example
of how this works, I think a lot of
people get it. But if you
had 2 units and each one was priced at $3,000 per month and 2 months free rent, and the second was priced at $2,500 per month and no concession, both result in 12 months of revenue at $30,000 We're effectively at $2,500 In
the 1st 3 months,
the unit with a
concession would recognize revenue of $3,000 compared to $7,500 for the unit with no concession. And over the next 9 month period, the unit with a concession We'll pay rent that's $4,500 higher cumulatively. So as we look at it, obviously, We like to keep occupancy at a pretty significant level. Mike was in the 96s During the quarter, it dropped a bit in July. But when we look at our pricing strategy to maximize that revenue, We elected to go more with the concessions, so that when we get to next year, we're going into with higher rent roll that we'll be able to
I think Joe's going to
add something if I know a lot of this sector does Concessions on a straight line basis, and I think Joe can walk you through what we would look like for that.
Yes, perfect. Hey, good afternoon. Maybe just some additional clarifications. Jerry gave the example there, but if we had simply shifted the strategy from our current approach of Giving concessions to no concessions in 2Q, but keeping the GAAP the cash reporting methodology that we have for same store, That would have been the up 100 basis points. If we continue to utilize the same concessionary strategy that we have been utilizing, but switch from cash reporting To GAAP reporting or straight line reporting, we would have had
about a 40 basis points
or 50 basis points better same store number. So I just want to clarify that. So it will take us from a 2.1% down up to about a 1.7% to 1.6% down in same store revenue on a year over year basis.
That's very helpful. Thanks. And then maybe just in terms of in the past, we've talked a lot about your investment model and kind of Trying to make better decisions around the NSA exposure. I recognize in the near term, maybe external growth will be a little more muted. But if and when you return to that, How do you think about the ability of that model to be dynamic given all of the changes that we've seen in different MSAs over the last, call it, 6 months?
Yes. I'll kick it off and then maybe some others may have some thoughts on this as well. But I'd say one thing we've obviously learned over time and Throughout this downturn, diversification is key. So, diversification remains a core part of the portfolio strategy. Everything we're seeing today in terms of ability to withstand downturns in certain submarkets, certain markets overall or even A versus B Continues to hold true and support the idea of being diversified in nature.
So no change there. The quantitative process or the predictive analytics process we've talked about It's always been supplemented by the qualitative overlay. And so the idea of both of them is simply that it helps you avoid What I'll call recency bias or herd mentality or kind of gut reaction that I would say is pretty prevalent in today's environment. So we continue to have those tools to lean on. I think as we continue to get more data in, obviously, it will influence the quantitative model.
But there's a lot of issues out there that we're going to spend time thinking about. There's the binary outcome that takes place with the vaccine and what That may mean to reopen some closing some markets. I think the regulatory environment clearly more prevalent today than it's been in the past. Things like physical health and some of the budgetary shortfalls that you've seen, trying to understand those and how the municipalities try to correct for that and All for those budgetary shortfalls through different forms of taxation, ultimately income migration, trying to figure out where those jobs are going to shift to if do in fact shift at all. So that's all going to come into play.
I think the piece that's always forgotten about it here. We've talked about it in the past is just 2nd derivative flow of capitals, at the end of the day, you're going to see supply shift and you're seeing it today when you look at the permanent start activity. Yes, you can look at it. Out in the West, permits are down about 30% from where they were. The East, Down 20 plus or less percent.
Sunbelt, generally flat to up 10%. So, I think there's always been Outcome on the supply side or at least trending towards that shows a shift in capital and that's an offset to where we think demand is going to be and bounces out the rent impact.
So, it can't give
you some thoughts. I think at the end of the day, we got to remain patient, remain disciplined, and ultimately, we'll see where it will come out on the other side of
Hey, Nick. This is Chris Benes. I just wanted to add 1 or 2 other things on that. I think it's important to note, Joe talked about the quantitative versus the qualitative. On the qualitative side of our portfolio strategy process, We were already incorporating variables like regulatory environment, fiscal health, which we spoke to market desirability, Affordability, etcetera.
So as we're kind of digging into how maybe some of these trends are changing and seeing where they go, Both near term and long term, that's really
just going to augment what we already have out there. So I think we're already a
little bit ahead of the curve when we're thinking about And now we're just seeing how those variables are going to change going forward.
Thanks, Ryan.
Your next question comes from the line of Rich Hightower with Evercore. Please proceed with your question.
Good morning out there, guys. I guess just a follow-up on that prior question. As far as the contribution to the investment process from Predictive Analytics and some of the particulars there, clearly, The sands are shifting in a lot of ways that you guys have described and alluded to, but you're still investing and making capital allocation decisions on the buy and Sell side and sell. Our recent deals or deals in the pipeline currently, are those more deal specific and just about the economics of that COVID is sort of wrecking all the models as we sit here and talk about it.
Yes. Thanks, Rich. Afternoon. Yes. I'd say, historically, we had always had the 2 pillars of the organization to lean on, meaning the operational platform and all the pieces that go with that as well as the transactional platform and the value created through either a buy or sell Development or DCP.
So those haven't changed. So I think when you reference what's in the pipeline today and are we leaning more on Just good old fashioned, what can we do on the operational side? Can we make good deals and what are the economics of those deals? It's probably a little bit more so that and a little bit more so diverse in terms of the markets that we're looking at today than we have in the past. So trying to figure out opportunities such as what you saw with The Vernon DCP deal, we're not making a bet on New York necessarily and putting a stake in the ground And Zane, we're going to, to a large degree, expand our New York exposure.
This is a very strong return for the risk that we're taking. It's one of the few areas that we've seen disruption in this environment, meaning that the mezzanine funding space, The construction mining space and the LD Equity, the fund development has been disrupted. So, us being able to go out there and take advantage of a deal and You see the returns on that 13% pref. Most of our participating deals that we've done over the last couple of years have been in the 8%, 10%, 9% pref range. So again, another 400 basis points of prep as well as upside participation.
On a deal that we had $60,000,000 of equity It's a little bit lower in the stack than some of the other DC deals we've
done. And also, from a
start standpoint, started 8, 9 months ago. So you could derisk the timeline, Derisk the buyout and the cost, etcetera. So net net, I wouldn't take that from a capital allocation standpoint as a bet on New York. It's a safe bet on a return that we think has been de risked to a degree.
Okay. Yes, that's helpful color, Joe. And maybe just to ask another quick question on concessions and bad debt accounting. So First of all, did something change about the way you accounted for bad debt or maybe pulled forward Some of the write offs during 2Q, just any changes quarter over quarter that we should be aware of? And then likewise, on the concession side, what drives the choice To go to cash accounting versus a more traditional straight line, just so we understand the decision making there.
Thanks.
Yes, understood. So I wouldn't say there's necessarily been a change to the bedded approach, but we have definitely enhanced our approach As we view the collectability of billed rents in this environment, historically, our approach has been that upon eviction,
We would write off that rent
and then go to basically a cash basis recognition of revenue on a go forward basis. In this environment, given that we're dealing with a completely different regulatory environment than any of us have ever seen, meaning that you have very extended eviction moratoriums, you have Extended payback plans in certain markets such as California, Oregon, Seattle, DC proper, etcetera. We thought we needed an handset process and really tried to understand down to the resident level, what was their financial situation, What type of regulatory environment are we in with that individual? What has been their payment history, etcetera? So, we think it's a more robust process around this.
We did have write offs in the quarter as we typically would as individuals move out, but those are Yes. Hindered by the fact that there is more to our earnings reflect. So the 1.7% or $5,500,000 reserve that we put up, Yes. We thought that was a very prudent reserve given the
number of unknown items that are
out there today. So while it's supported by The high degree of collections that we've seen in April that we disclosed and the number of payback plans that we have, the number of individuals that continue to put forth efforts to collect, We did think that was the appropriate reserve. I do think hopefully one thing that came out of my commentary was the subsequent collections that we had in July, Which continue to whittle away at the accounts receivable balance that we have out there. So we are down to about $2,500,000 of recognized, but not yet received revenue. And I think that's important to think about from your perspective in terms of how much risk is out there to the revenue that we've reported.
So less than $0.01 per share, only about $2,500,000 at this point in time, and we do expect to continue to get collections then over time. In terms of your second piece of the question, concessions and recognizing those on a cash basis, it is consistent with how we've always approached that. We felt that giving investors the view of cash recognition gives you the best view of what's going on in the market today. It is in compliance with GAAP. It's a non GAAP metric.
And so therefore, we don't have to align perfectly, although We do report on NOI overall and adjust for straight line per GAAP. So everything there is compliant, as you would expect. It's compliant with this historical approach, no change there.
Got it. That's great. Thanks, Joe.
Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question. Hi, everybody. Thank you for
the time. Just hitting back on that last point around bad debt, do we
start to see rent collections improve then in the coming months
as the
either begin to vacate or you no longer factor them in to, I guess, maybe the build rent number. Like how do the numbers work from that perspective as we think about any reports to be collecting data going forward.
Yes. I think where you're going, Austin, and correct me if I'm wrong, when you say the non payers related to COVID, so What we affectionately refer to as squatters here. Now, as those individuals turn in their keys or decide to skip on us or as eviction moratoriums come off as they have in about 20% of our markets. As we can move through that process, those rents may be written off, but they basically net against the reserve that we put up. So we would not expect a future negative impact to revenue.
We've already effectively incorporated through the reserve we've taken this quarter for those rents that we previously built.
Okay. That's helpful. I appreciate the thoughts there.
Just switching gears a little bit there. So during the fast cycle, you guys have been opportunistic on various initiatives on the short term rentals and
furnished rentals, corporate leases. So I'm just curious
If you're reconsidering any of these initiatives given some of the volatility in those income streams you've seen during this downturn and what you think that income stream looks like on a go forward basis?
Hey, Austin. This is Mike. I'll take that. Just to be clear and I'll back up a little bit, the mix to our other income this quarter was around $1,300,000 and had an impact of negative 0.5 percent to our total revenue. And just to put it in perspective again, we have about $10,000,000 in other income.
It's 10% of our total revenue stack and other income was down about 3.5%. So some of these initiatives that we've been very successful Executing over the years, they did take a small hit during the quarter and I can tell you the short term furnished program was about $900,000 Our common areas, that was about $250,000 And aside from that, our late fees, which were more regulatory Mandates put in place, that was down $1,100,000 So when you look at that total, it's around $2,300,000 On the flip side, The parking initiative that we put into play about 2 years ago continues to do well and that was actually up $500,000 year over year and our transfer lease break fees were also up about $500,000 So in total, we are off again by 1.3 and some of our more sticky initiatives continue to do well and we think when things bounce back and we get a vaccine, We do expect that the short term furnished program as well as our common areas will bounce back too. And what about some of
the others that maybe don't call on to other income like the corporate items and furnished rentals?
Can you repeat that, Austin?
Yes, sure. Maybe some
of the other items that don't fall into the other income bucket, but are still More unique initiatives like the furnished rentals or the corporate leases, are you rethinking those at all?
I don't think so. I think right now with business travel stalled out, obviously, as Mike just said, we've taken a Step back. We do believe that once the economy gets going, the vaccines back in play or is out there That you'll see short term rentals come back into play. So right now, again, it's a line of the business that did very well for us for a couple of years. Right now, I think We continue to have a little over 100 residents in short term furnished rentals, but that is down from what it was last year.
It will continue to be a drag this year. But I think it's a business that served us well, helped us have outsized occupancy compared to peers. And when times are good, it's a good business to be in.
All right. Thank you for the time.
Austin, this is Toomey. A little bit of color. It's been good to have the resource on that side of the fence for corporate rentals example, Because we can swing that team around and work renewals, work pricing. So, They're familiar with our system, familiar with our products. It's actually given us a boost in terms of resources that we can pivot.
The day will come that those businesses will reemerge and they'll pivot back to that. And we don't think we'll miss a beat when that opportunity and it's It's going to be market by market opening up that gives us that capability.
Understand. Appreciate the additional thought.
Your next question comes from the line of Rob Stevenson with Janney Montgomery. Please
Talk about where the biggest pieces of the new leases that you're currently signing are coming from? Is that people trading down by price point or people trading up by unit size within the same market that people moving from urban to suburban, People moving from the Northeast to the Sun Belt or people living with roommates going solo, can you characterize where the biggest chunks of your new leases are coming from?
Yeah. Hey, Rob, it's Mike. I would tell you, one of the biggest trends we've seen over the last few months is our occupancy on our studios That is a little bit lower than what we're seeing on our 1s and 2s. So when I referenced on our other income, our transfers are up. It's because we're seeing people doubling up in some cases, but as far as migratory patterns and things of that nature, We're not necessarily seeing people coming from different markets.
They're still within their own markets. We're seeing them jump around in.
Yes, I do think you're seeing a bit of movement from urban over to suburban. I think when Mike looks at
Our New York portfolio, for example, our deal at
One William is doing quite a bit better than our downtown Manhattan. You're seeing as you go down to Silicon Valley, Some movement from Soma down there for pricing reasons as well as to escape some density, but we're not seeing people totally leave to the major markets.
Okay, helpful. And then given Joe's comments earlier about the Queen's DCP investment, Are you guys willing to take your exposure to DCP higher if you could continue to get 12%, 13% returns? How are you guys Thinking about that versus acquisitions or future development starts at this point in the cycle and given what you're experiencing on the operation
Hey, Rod. So just to put the sizing of DCP in context, Yes, we have disclosure on 12B of where we stand today. So you can see on 12B, we're sitting right around $420,000,000 of exposure. I think we're adding Vernon for $40,000,000 We got about $10,000,000 of funding remaining for 1,000 Oaks. But you do have 2 negative adjustments to that to take off.
We have portals out in DC for about $50,000,000 that will be coming out sometime in the first half of next year. In addition, while we show it on this page, It's not really a traditional DCP deal. As we've talked about in the past, it's Brio up in Bellevue, Washington for $120,000,000 or so of accrued total balance. That was really a loan with a purchase option. So we call it a bridge loan to get into that purchase option sometime in most likely first half of twenty twenty one as well.
So once you adjust for all those factors, while doing Verdin, you net those other guys out, we're at about a $300,000,000 DCP portfolio, we've consistently talked about being willing to go above $300,000,000 I. E. The $350,000,000 $400,000,000 range. So I think as we continue to find opportunities, we've been opportunistic at pivoting in the past between things like DCP, shrinking development when appropriate, Shifting to acquisitions, when we have a cost of equity and even doing buyback previously. So, I think we'll keep looking for opportunities.
And as I said earlier, this is one of the few areas that you're seeing distress just given the stabilized operating assets. Financing market is very well in functioning today and just really not seeing the stress on that side of the pricing environment. So I think we'll give you more than ever we can find opportunities.
And how does that evaluate versus An incremental dollar above $400,000,000 there versus an incremental dollar of 6% development or 4.5% Acquisition, how does that for you guys from a risk and from a long term standpoint of the portfolio, sort of how are you thinking about that?
On a risk return spectrum, DCP today makes the most sense given that you do have the yield Your location is in the STACK and the fact that there is some distress in that area allows us to get outsized returns relative to the risk that we're taking. Then you'd probably step down to development where we previously delayed 2 projects, the Tourbillon West III down in Dallas as well as Union Market out in DC to get a little bit more visibility on this environment. We've been able to wheel out some costs there, so we're probably going to have starts The next quarter or 2 on those 2, which in combination, about $200,000,000 of additional starts, so I would put those as the next spectrum. Then acquisitions being last, although you really have to whittle through and talk about what type of acquisition you're thinking about, I. E, which markets?
Are Are you
thinking about a lease up or a developer may want
to get out of it earlier and maybe we're willing to take that dilution and that lease up risk, but get it at a discounted price. So There are sprinkles to every deal that we're going to look at, so we're not going to redline any piece of the investment spectrum.
Rob, this is Sumi. I would emphasize that the one aspect of capital deployment that is 1st and foremost in our mind It's the platform and the value that it creates not just to deal with this environment, but the fact is It will be by de facto probably the way business is conducted in this business going forward. And so the quicker we get that fully implemented and the enhancements in a version 2.0 as we're drawing those up today. I see that as a real differentiator with respect to capital deployment and implementation. The other items come and go.
The good news, we've got 20 markets to look at for opportunities. We weigh them against what we think of the market, what we think against the opportunity and Joe gave you a pretty good insight into our waterfall where things fall out in that scheme. The platform is the most critical piece of our capital deployment and execution.
Okay. Thanks guys. Very helpful.
Your next question comes from the line of Neil Malkin with Capital One. Please proceed with your questions.
Hey, guys. How's it going?
Hey, Bill.
Hey. There has been
a resurgence of COVID cases over
the last month. I'm just
wondering if you can
talk about how leasing photographic Has performed or fared, with those cases rising, maybe you can talk about that in the context of your coastal suburban portfolio?
Hey, Neil, it's Mike. I can take that. Just generally speaking, our traffic and app count The month of July is up around 9% and 7% respectively and we did see a little bit of that Impact is in the same well. We were seeing upwards of 15% to 20% at times year over year increases in traffic and when that second wave, if you will, came about in those markets. It was still above year over year, probably closer than that 5% to 10% range.
Well, that being said, in some of our other markets, they started to get better. And what we're seeing today is Similar. So when you go coastal versus Sunbelt, I'll tell you our traffic today coastal down about 20%. Our Sunbelt is up around 8%. And when you look at the urban versus suburban, traffic is down around 12% to 13% and suburban is Still positive 7% to 10%.
Okay, great. Thank you for that. Next one I have is related to everything going on in the coast, look at Portland, Seattle, New York,
some of these markets are really flying a lot
contributors. There have been Significant violent riots, jazz, cops, all those things happening. And I'm just wondering how A, you deal with that as a company, as an industry, and B,
Are you seeing an increase
in people sort of moving out because of those things or setting those reasons, citing that as a reason to move out, seeing an impact And operating fundamentals in any way, if you could kind
of talk about all this from going on,
it seems to get more extreme and not less.
Yes, Neal, it's a very good question
and one we debate Here, and you're trying to operate a company and be compassionate and thoughtful about your interactions with each individual resident. And I think Mike and the entire team have been very accommodating, whether that's payment plans or people wanting to move or health reasons. And that's the first place you start. The second, I would suppose, is it challenging? No question about it.
We have weekly calls with the entire associates in the and talk through some of the challenges that they're facing on the ground and reassure them that we're going to help them through it. Their safety is first in Paramount and then our residents. So you manage through that and that has taken a great deal of time. And at the same time, I am very grateful for the people, if you will, adapting to that environment, which may persist For some period of time, but I do note that the election is over in 3.5 months. COVID will be cured.
There will be a vaccine. And on a long term basis, we think that the troubles and struggles we have with Joe and Chris have highlighted with respect
to the
portfolio is people are not going to live in neighborhoods that aren't safe, Whatever the political affiliation, whatever. And so honing in on when that piece of the equation gets solved and how it gets solved. And will it be solved before the election? Probably not. But we're hopeful it is.
If it's not, we're prepared to deal with that. I think it does finally settle itself When there is more communication rationally and things return to a normal cycle and then these cities that are challenged Today, when they get their security, their safety solved, their transportation, we're all waiting for the vaccine to help us get to the next level. It doesn't change the long term dynamic of people wanting and choosing their lifestyle, their balance. So I do believe the urban cities will reemerge. Can't put a timetable on it, but I know the factors that need to be in place for that to happen and that's what we're honing in on.
No, I appreciate that. I guess, the other part of that question is, are you seeing or are you able to discern a difference in leasing or setting reasons to move out as some of those issues going on or is it kind of Harder to read that out.
Yes, there's a couple of things there, Neil. First of all, no real damage to the properties and We're very thankful that none of our residents and or associates were harmed in any of these demonstrations, so that was kind of the first thing. And as far as move outs, we do track that very closely and we haven't really seen any impact from this and Not really seeing it on the traffic either. So, so far it's been minimal impact.
Okay. Thank you so
much.
Your next question
comes from the
line of Nick Yulico with Scotiabank. Please proceed with your question.
Hi, guys. This is Sumit here in for Nick. Couple of questions. 1, related to the provision or the reserve that you took. How much of that is related to Tenants who requested deferments versus potential credit risks identified by your internal analysis.
And then, how much of the delinquent tenants are related to corporate tenants as well as students?
Yes, we'll probably have to follow-up with a little bit more of that detail. But in terms of the payment plans you referenced, we do have Approximately $500,000 related to 2Q that is on payment plans in the accounts receivable. So it does get locked in there by the higher probability placed on that given payment history from those individuals. The most The biggest reserves being taken against by market, it's going to be about 80% in our top 6 markets, meaning LA, San Fran, DC, Orange County, New York and Boston, so the bigger markets or the markets that have more regulatory, Minnie, if you take L. A.
As an example, that's over 10% of our accounts receivable and a much bigger portion of the reserve, It's only about a 4% market for us. So certain markets that have more delinquency due to regulatory issues are going to garner more than their lion's share Relative to the percentage of
the portfolio that they have.
This is Jimmy. I'd add some color that's interesting and we've Talked about it with a number of investors over the last couple of months on calls. Take for example, what's going to happen when the eviction moratoriums And to put it in context today, the number of people that if we had the right to go to eviction would be 2%, about 800, okay? So it's not a
big number and there's not
a tsunami of eviction pending. But an interesting data point, Mike's operations in Florida, there was a 72 hour window where we could move to eviction and we file. There were 75 residents on that list at the time And
2 thirds of them showed up and
paid immediately, okay? The other 1 third said, hey, I want to enter into A plan. So I think that same dynamic, I don't know if those percentages will hold, But we're somewhat hopeful that when we can proceed to enforce the contract, We will be compassionate about it. We will try to work with people. But if that is not the case, we expect some have already saved up the money and or have other means to do so, and they're just using this flow for a variety of other reasons.
We'll find out. Florida then didn't put the eviction moratorium back on and we'll comply with the laws. So it's hard for us. I think we've been cautious about the AR balance and the related reserve, And I think that's prudent on our part. We'll see how it plays out.
Understood. And I guess the background on this question was more around something you just spoke about, which is that Delinquencies are usually not related to credit risk or default risk overall. Just wondering at what time do you guys internally say these group of tenants become a part of the reserve provision because It happened when somebody walked in and said, I can't pay this month. So I'm just trying to get a sense of that. I think any color you could provide could be good on that.
Yes. So we took what I'll call a 3 pronged approach to that and came out in a number of different ways given the unknowns that exist in this environment and Trying to make sure we got to the correct place at the end of the day. We look at it from a typical aged receivables approach, If you were over 2 months delinquent, you had the greatest reserve reply to you. If you were less than that and had been making efforts to make payments and you would have left and so on and so forth. We'd love to add down to the market level of trying to go down to each resident, what is their payment What is their AR and what type of market are they in from a regulatory standpoint and adjusting for that.
And then we did a very high level top down approach as well. So You triangulate through all those and they all came out to about that same place. So hopefully that gives you a little bit of color on, Call it the robustness of the process overall and comfort that we got to the right place.
That's really great. Thank you so much. And one last one for me. In terms of concession activity, could you help us understand what unit types, that's 1 bedroom, studios, 2 beds, 3 beds, And possibly what markets related to the unit size are being are seeing the biggest amount of concession activity?
Sure, Mike. I think what you're going to see is when you go to markets and you go down to that property level, which we've stated before that's Our surgical approach is you're going to see the concession on all of those unit types. So in sites like New York and San Francisco where The concessionary environment is higher. We are seeing it across the board. That being said, I mentioned earlier on one of the questions that our studios are down More than others.
So, we're running around 91% occupied on our studio units and in some cases, we're trying to move those and we may be doing loss leaders, Things like that, just to try to get those leased and move before the fall.
Got it. Thank you so much.
Your next question comes from the line of Rich Hill with Morgan Stanley. Please proceed with your question.
Hey, good afternoon guys. Quick question
for me. Looking at your effective renewal for lease rate growth, It's pretty impressive, particularly given the down pit and turnover.
So I'm wondering, if you
could just revisit your strategy for rules across Marcus, I think you talked about this to some degree on your last earnings call,
but just an update as to
how you're thinking about that and
if you're thinking about each market individually.
Sure. Thanks for the question. Just to go back to the beginning of COVID and what we did, We elected to go out at market at that time and since then about 20% of our NOI has been regulated to point where we have to send out 0% increase. So that leaves 80% of our NOI the ability to push to market. So So you have the regulatory environment and what we're having and seeing today is what's happening in the markets when they're very concessionary Market rents are coming down and we're having to negotiate to some degree.
That being said, we have pushed out renewals and I can tell you it's between 2.5% to 3% that has been sent out through September. I expect we come in probably about 50 basis points less than that Just based on negotiations and again the fact that there could be more regulatory restrictions put on economists. But it does differ by market. It goes low as 0% to as high as 5.5%.
Got it. And if
we think about your July commentary that combined effective rents are going to be flat to down 50 basis points. And I'm sorry if you gave this, But can we assume that
the renewals are going to be in the
same range and that maybe slightly down to excess negative tax territories and be driven by new leases?
That's fair. What we're seeing is very similar to
what we saw in June. So I would tell
you our new lease growth is probably somewhere between negative 3% to negative 4%, Our renewal brochures hang in there probably closer to 2.5% to 3%.
All right. Thanks guys. I really
appreciate it. Okay.
Your next question comes from the line of Rich Anderson with FMC.
Please proceed with your question.
Thanks. Good afternoon. So you guys are too nice. I have a tenant and she was 10 minutes 10 days late. She's 70 years old currently washing my car.
So So you know the analogy when you're getting chased by
a bear, you don't have to
be faster than the People that you're with. And I'm wondering if you can apply that to here longer term where you guys and your peers that are the most financially capable in the business own collectively maybe about 10% of the apartment units
Country. Is there a long term
opportunity where some of the financially vulnerable of the owned multifamily real estate It could really suffer substantially depending on how long this goes and that you as an industry and UDR as a company could get materially larger even if there's not really a negative event from a yield perspective on transactions. So just curious if you're kind of on got your antennas up about getting bigger in all
of this at the end of the day? Reg, it's a really good question and one we talk about with respect to how do the REITs occupy space compared to the privates and where Our first thought goes to long term ability where the customer is to grow cash flow. And hence the platform was born and our ability to increase our margins and that's relatively pretty Straightforward, you can see our operating margins this last quarter held pretty solid in the 84%, 85% range. I can guarantee you that private investors generally going to run 10, 12 bps excuse me, 10% to 12% below that because of their inefficiencies either scale or technology. So we think the long term play is to have a better operating model for the customer and our cost structure.
With respect to financial hardship and what it shakes out, I kind of hearken back to like the 4 or 5 last recessions I've been through. And they always poke out at about the same place. Developers are the first to show the pain, and that is an opportunity for us either in the DCP front or acquisitions of lease up And it's not that deep of a pool of capital that's going to compete with us on that front. The real hardship maturing debt, Everybody and their brother right now wants to refi. And I congratulate Joe and the team for $400,000,000 in 12 year paper at $2,100,000 You can hang on pretty long time If you're able to stabilize and get to that.
So I don't know if the stabilized assets are going to have a lot of hardship. And then it's A function of where else it might poke out a market, an employer, somewhere in there. I'm not sure the REITs are that competitive on that front because of our leverage profile versus the PE shops who can use a higher leverage borrower on an international basis and will probably be able to buy a lot of stuff. And I think that's going to play out with this current environment and so you can see our game plan straightforward, Platform long term cash flow margin, pick off opportunities that the PE shops probably are overlooking or not interested because it doesn't support their investment thesis. Joe, anything to add?
No. I
think just on private market values. I mean, as Tom mentioned, there's still plenty of capital that's very interested in apartments. I mean, interest rates were very low, Which is obviously stabilizing apartment values. There is a divergence in markets. We know the markets that are performing well, particularly not urban.
Pricing is relatively stable, probably hasn't changed much at all. So markets like New York and San Francisco, you're not going to have much of Buyers and sellers are unlikely to come together. So at least in the short term, you're unlikely to see many trades in those assets. Okay, great. Thanks, Harry.
And then just a quick follow-up.
The spread in Texas, California and
Florida kind of Florida kind of starts to get real ugly post second quarter. Are you seeing anything there that is Troubling post second quarter and to this period of time now where the threat of Kind of reclosing or whatever, just fear generally might be impacting those specific states or is it just not apparent? And if the answer is no, then we can move on.
Really, the answer is no. They've been very resilient,
and I can
tell you that traffic really hasn't changed much. So they're doing well. Okay.
That's good enough for me. Thank you very much.
Your next question
So just two questions. First, Tom, you mentioned sort of a affirmation that people want to live in the urban areas, You let on that people want to live in safe places.
But if
I look at like the markets that are really impacted Boston, New York And
San Francisco, San Francisco had such the lowest COVID,
certainly in California and in the country, whereas obviously New York speaks for itself and Boston has been elevated. So I guess, yes, the question is,
how much of this is
an absolute belief that these are markets that return more principally New York and San Francisco versus there's a bigger fundamental shift that's gone on because you've had higher COVID in other Higher COVID cases in other markets where you guys have products and you're
not seeing the same impact
on your property. So what gives you the confidence that like a San Fran and New York proper just as urban metros, not the surrounding areas, but the urban metros will bounce back in the near
Alex, I'll take a shot and ask anyone else to clean it up. I guess the belief I have is simply this, the markets that Your sites and statistics are all correct. What's underlying that is the simple fact that businesses have shut down, Given people the option to work from home that our belief is that when business opens up, whatever the conditions are, That they will reassemble their workforce. And so the theory would be when businesses in cities open back
up,
The repopulation of those cities will occur. Our leasing season will be an unusual window. If that were To be fortunate by the end of the year, we're going to have a rush of November December leases as an example. So we're really hanging around the hoop waiting for businesses and vaccine to make the connection. If that takes 3 months, 6 months, a year, I think we have to run our company under those conditions.
Long term, people sought the urban for lifestyle surrounding And I would think if I've been in Wyoming, buried in my parents' basement, working remotely, But I cannot be anxious enough to get back to life and what I enjoyed before. Ernst Wyoming, As an example.
Wyoming has good fishing by the way.
Fair point. I would agree with that and probably not a lot of people to date. Okay. So that's the long term. You guys have anything to add to that?
Renee, as I talked about earlier on
the Port Strat side, the quantum core work that we do, it's meant to keep us disciplined, Meant to keep us away from knee jerk reactions and headlines and disruptions such as this. So 4 months ago, New York was the finance hub of the world, San Francisco is the tech hub of the world Boston, the biotech hub of the world. So, you go through all that and has that changed? Has the venture capital dollars Completely disappeared from those markets. Has the intellectual hub that exists there disappeared?
I would say no. Now, if you say we never find A vaccine for COVID and individuals can never come back to work in an impermanent environment, then that's a different set of rules, but we're not ready to Start investing with conviction based off of the premises at this point in time. So we think being patient is an appropriate place to be. Some of these outcomes are going to be pretty binary in nature, do we get it or not? It's a financial situation on the other side of this for a lot of these municipalities What's the taxation situation?
What's the regulatory environment? So it's just too early to make a committed view one way or the other, which is the beauty of being a diversified portfolio. We don't have to make the call today and say we got to uproot and shift half our portfolio. We feel like we're in a good place and as long as we stay focused on the platform, think we can win on a relative basis over time. So we're just not there yet.
We'll hopefully get there as we get more information, we'll have more conviction to speak to, but just not
there yet.
Right. But you did say something interesting earlier, which is that a lot of your residents have stayed in the general metro area. So you could have a shifting of where people live, Still working in the same area, but they're shifting their living habits. Joe, second question is on the regulatory front, The November election coming up in Washington, clearly potential for the Senate and White House to go Democrat, which would then bring with it a lot more housing regulations. How do you guys feel that you're positioned both from UDR as well as industry to try and fend off ever tightening legislation that seems to be coming.
There's mortgage moratoriums, rent control, etcetera.
Yes, I'll maybe start it off and then maybe Tom or Chris may have something to jump in here on. I think again, we go back to that diversified approach. If we were wholly concentrated in only blue states or red states, perhaps we'd be more exposed to the risk there. So again, diversification helps out. I think the industry as a whole, the trade groups that we work with and support are trying to lobby and help the powers that be understand The need for affordable housing, the need for more supply out there and the need to eliminate some of the red tape and restrictions that exist.
And that's at a national, state and local level. So I think the industry as a whole is doing that and trying to educate. And so I think we're in a good position from that sense. Yes. Chris, who oversees the regulatory side as well as his other roles, may have additional thoughts on upcoming elections either on a national basis or Even coming down to what we're seeing in a state like California or some of the recent regulations that we've seen have been banded about?
Yes, sure, Joe. I guess a couple of thoughts for me. I think, Alex, there's kind of 2 different types of regulatory As I think about it, you really saw it in a number of our coastal markets. Head of the pandemic, I would say first, Back in March, April, so early on, I think there were some very valid emergency regulations that were enacted to combat COVID hardship. I think as the pandemic progressed, some of those valid regulations Really became ways of different groups advancing more of their kind of tenant friendly and personal agendas In assorted markets, yes, so as we think going ahead and outside, we'll see what happens if the Democrats beat the Senate and The presidency, but the things that we're really trying to assess in these markets and obviously they'll roll up to the state level and then also At the federal level at some point is, do these policies eventually expire?
When do they expire? And at the end of the day, could they transition from emergency ordinances to some sort of long term policy? And secondarily, and Joe kind of talked about this in the second derivative, but what is this new capital formation in our markets at the end of the day as well And investment, I think as we talked about with some of
the pork strat stuff just
on the regulatory
side, We're going to
fight anything that comes up, but it really is too soon to have a definitive view on Emergency regulation versus long term policy, how sticky all that stuff is. But at the end of the day, I think we can probably all agree None of this helps to improve long term affordability, which is obviously one of the
biggest issues that's pushing a lot of this.
Alex, so, Jeremy, I think we could have a separate call
at break length on this because it's a great topic. And at the same time, I think when you get past the election, you'll have a little bit more calmness, vaccine, Cooler heads will prevail. I think a lot of the actions right now are knee jerk and reactionary. But long term, if you look at cities That thrive. They thrive through growing housing stock, variety, affordability and that is generally brought on by friendly business environment and supply being brought into the market.
Those that shut down their supply and capital flow tend to gentrify and become less progressive. So I think people will start to realize and they watch California, one city housing restrictions, Another who lifts it, all of a sudden whose tax base grows, where do more people want to live, where is more entertainment, Amenities, etcetera are being presented and they don't have to look far, but usually their neighbor. And we see it time and time again. Example is Huntington Beach, where for 30 years nothing was built and the city woke up and said, we have availability to build and we're doing quite well there versus the surrounding cities that have still shut down. So we're going to have to get smarter about what market we operate in.
We made investments in the government regulation. Chris leads that effort, has a great team and it helps
Your next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Thank you. Jerry and Mike mentioned the shipping strategy that was previously discussed at Naeries To now prioritize occupancy over holding off on the markets and fashion, can you just elaborate what Although it's tipping point that drove that change in strategy, and also do you see the current 95.5% occupancy trough for the year?
Hey, John. Just to be clear, we don't focus on rents or occupancy in a vacuum. So we are trying to maximize total revenue and what you've seen from us and you can see in our supplement, Some markets are operating at lower occupancy today and some are still operating at very high occupancy. That being said, The other side of it is our rents and what we're doing with the blends. What we're trying to do is maximize our total earn in for not only the rest of this year, but it's going into next year.
So Again, we don't we do this as a function of trying to optimize the whole thing, not either of them in a vacuum.
And as far as occupancy levels, are you willing to go lower to maximize rental revenue?
I think in a couple of our markets where we're still having a little bit more trouble, it's too early to tell kind of where that is. But I will tell you Occupancy has come down a little bit as we've seen move outs elevate and in some of the other markets again where we have the opportunity to Hold rate and push occupancy, we're doing that. So, I think today, we're closer to the high 80s in places like Downtown San Francisco and Downtown New York City, and it's a little bit more challenging. We could see that come down a little bit over the next 30 to 6 days, but aside from that, it's too early to tell where those go.
I would just add, John, coming off of that comment and a comment that Tom made earlier, Yes. We do have approximately 2% of the resident base that we would potentially look to affect today if regulations allowed. So, when Mike talks about not managing the occupancy, if we have non payers sitting in there, we're not going to be worried about keeping them in from an occupancy standpoint. We're going to be focused on getting them out and getting good high quality rental payers into the system. So you could see it's temporary disruption on a market by market basis As you see, regulations roll off.
So I wouldn't take that as a sign that we're letting occupancy dip. It's just managing total revenue and total NOI.
Okay. On a similar level, can
you discuss your willingness to provide shorter term leases, just given
the uncertainty that many tenants may have to sign a long term lease
So the way that
our pricing system works today
is that we can offer upwards of 3 to In some cases, 18 month leases. And I can tell you with some of the ordinances and the regulations that have been put in place over the last few months, They limit our ability to do that. So, best example today, San Francisco, you are not allowed to do anything in Downtown proper less than 12 month lease. So we can't do it. In other places, the way that the pricing matrix works, We will open that up.
They will pay a premium depending on where our lease expirations fall. So we are constantly managing that.
Your next question comes from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.
Thanks. Just one for me. I appreciate
you guys keeping the call long here. The DC, Mike, you touched on just trends in San Fran and New York softening into the summer here. But DC, your urban assets, are they Assuming the work from home kind of environment persists in the balance of the year and as social seems as cities stay shut, Does DC sorry, I'm getting a lot of feedback here. Does DC Behave like New York and San Francisco over the balance of this year.
Thanks for the question, John. Let me give you a little color on DC. Obviously, you know, it makes up 19.3% of our same store NOI. I can tell you our 2Q revenue growth you saw it was 1.2%. Our suburban B portfolio has held up relatively well and it's been positive over the last few months.
Our M and A properties struggle the most and this kind of goes along with a lot of things we talk about today as the DC proper assets We're more restricted based on regulatory environments, and we had to go out with 0% renewal at those properties. So again, Hopefully, out in the suburbs, positive. What you're seeing down in the heart of D. C. Is a little bit more of a challenge.
And I think a lot of that has to do with the regulatory environment. But I will tell you today blended growth remains positive, our turnover is down, Traffic is on, so a lot to be excited about in that market compared to somebody like New York City or San Fran.
Yes. I'd say from an intermediate perspective, when you look at continuing claims and job forecasts, D. C. Definitely holding up better than the nation as a whole, Given that we have a diversified base of employment, but also the government, the education, cyber, defense, etcetera, as well as the growing tech scene there. So The demand side of that looks better than our portfolio as a whole over the intermediate term.
And then supply wise, that's been a little bit difficult DC, for most of the cycle, during this downturn, it's one of the markets that you see in permit activity come off by far the most. So to the extent that holds,
Your next question comes from the line of Haendel Jeth with Mizuho. Please proceed with your question.
Hey, there. Just a couple of
quick ones for me.
I don't think you mentioned it,
but what's your appetite here for stock buybacks? You mentioned You mentioned comments about asset value, sticky, your favorable liquidity profile. So I'm curious, given your balance sheet, what Your appetite here is and then if it's dispositioned
as the source of capital,
where perhaps you'd be more inclined to call the portfolio?
Hey, Andel. Afternoon, it's Joe. As I said earlier, it's one of the items that we look to in deploying capital. We've been pretty diverse in our approach between platform development, DCP, acquisitions and buyback as recently as 2018. It's not something that today we're jumping out there on Unseen activity here in the quarter.
We do feel very good about the balance sheet, the liquidity, etcetera, but being only about 1 quarter into this crisis, I'm not sure we have the conviction levels yet to Go out there and pursue that avenue from a use of capital perspective. We'd like to see more conviction in the economy, the trajectory there, More conviction in the direction and level of NOI and therefore future liquidity and debt metrics, As well as what we've seen asset values hold in very strongly to date, make sure that that continues to hold in this capital markets environment. So, Not sure we're quite there yet, but we've shown that our ability in the past and we'll try to do the right thing as we go forward.
So my second question is, so the gap between your better Sunbelt markets in New York City and some of your coastal markets was pretty darn wide this past quarter, right, over 1,000 basis points in some cases on a same store revenue basis. So
I'm curious
if you guys expect that will get
wider here in the next few quarters and when we could see that
Again, one thing we're looking at today is when you see July trends versus June trends, As a whole, they're very similar. So our traffic continues to improve in a lot of ways on a year over year basis. Our New lease growth is very similar to what it was in June, and our renewal growth is impacted a little bit just based on what's happening in the market So that being said, you do have different markets doing different things. I would say It's too early to tell. While we look at this as a property market and we've been encouraged by some of our markets bottomed already, so about 20% of our NOI We've got about 50% of our NOI in markets that appear to be bottoming, That leaves about 30% of the NOI TBD.
And that's where we're kind of watching that and see what happens over the next few months. Okay. Fair enough,
guys. Thank you. The next question comes from the line of Alex Kalmus With Zelman and Associates, please proceed with your question. Thank you for taking my question. Just looking at
the stimulus ending this week and
Given what you know about your tenants' employment makeup, how consequential will additional stimulus be for collections on a go forward basis?
Hey, Alex, you were a little bit muffled on our end. Maybe if you could repeat, I think what we were hearing was Perhaps expiration of unemployment benefits and impact on resident base?
Correct. Thanks.
Okay. Perfect.
Yes. I guess, when we started in the past, and Mike and Jerry will probably jump in here. When we've looked at our resident base and the Need for us to accommodate them and help them out from a rental deferral or payment plan, it's been relatively minimal in terms of the number of residents that have come in and requested that. So while we don't know exactly how many residents are still employed or are on unemployment, the percentage that proactively come to us and requested assistance is under 2%. So I think that gives us a pretty good degree of conviction when we look at collections as well as their own actions That roll off of unemployment benefits if in fact it does happen for an extended period of time, that our portfolio is still in a good place given that we're Higher income, higher quality overall relative to typical apartment product out there in the market.
Got it. Thank you very much. And just looking back at regulation in California, looking at COP21, Is there any other than the obvious pandemic, what on the ground is different than in 2018 when Prop 10 was rejected? And is there concern around this proposition? Or are you guys there will be a similar result?
Sure, Alex. Thanks for the question. This is Chris again. I'll give you just a rundown because we've had a couple of updates over Last couple of months, so probably a good time for rundown of what's happening there.
So for Cross 'twenty one, I would tell you
right now, the coalition and really our plan going forward. We think we're in pretty good shape. I'd say that for really a couple of reasons. First, I think the coalition is much deeper and I would say more widespread participant base than last go around, so back in 20 Obviously, there's going to still be multifamily owners, operators who are the big guys there, but also affordable housing groups, Business Organizations, Big Labor, Veterans Boots, etcetera, so much more expansive from that perspective. I think second, the last update we received from CFRH California for Responsible Housing indicated that fundraising As remains strong versus where it was in 2018.
At the same time, so definitely feeling good on that point as well. And then 3rd, reasonable Calling results, they're about a coin flip as far as yes, no right now, but they do definitely tilt more in our favor Once before and against arguments are discussed with the polling respondents, the flip side is potentially going against us is that It is a presidential election year. We all know that Democrats comprise, I would say, a majority of California's voter base and turnout tends
to be significantly higher in California and
a dozen a lot of states in presidential versus gubernatorial years. So we'll
see how that goes. But again, in general, we
feel pretty good about where we are right now on PROF 21.
Thank you for the great color. 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.
First, let me express thanks for all of you for your interest in UDR and certainly the extra time today and want to wish you Be safe and healthy. To our associates on the call,
I just want to reiterate
in a heartfelt way, Proud of the job you're doing, the adoption, the skill, and always want you to know we're here to help in any way, shape, or form.
Turning to the business side, we've said
it many times, it's a challenging environment, and if you will, a storm on a lot of different fronts, But our strategy remains the same. It's the right one. And what it has adjusted is our tactics and we will continue to adjust as the environment evolves. Proud of the team's ability to adjust due to a daily changing environment and executing at a high level. What does remain constant at UDR and will remain constant is the long term focus on our cash flow growth, maintaining our diversification, Our transparency and certainly managing risk in this environment.