Mid-America Apartment Communities Inc (MAA) 2020 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the MAA Second Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, today, July 30, 2020.

I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA.

Thank you, Ashley, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO; Rob DelPriore, our General Counsel; Tom Grimes, our COO; and Brad Hill, Executive Vice President and Head of Transactions.

Before we begin with our prepared comments this morning, I want to point out that as part of the discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release and our '34 Act filings with the SEC, which describe risk factors that may impact future results.

These reports, along with a copy of today's prepared comments, and an audio copy of this morning's call will be available on our website.

During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data, which are available on the For Investors page of our website at www.maac.com.

I will now turn the call over to Eric.

Thanks, Tim. Results for the second quarter were ahead of expectations as strong collections drove NOI performance above our internal forecast. Due to both the high-quality of our portfolio and the proactive efforts by our team to work with residents impacted by the pandemic, we expect continued solid performance with collections.

Encouragingly, the trends for rent payments improved over the course of the quarter. And as Tom will touch on, the positive trends continued in July with resident -- with fewer residents seeking rent deferral arrangements. As of the 27th of the month, our cash collections for July rent were a strong 98.1%, which compares favorably to an average Q2 performance on a comparable basis at 96.4%.

We are monitoring reports of increased levels of COVID cases in a number of Sun Belt markets. While we expect conditions will remain fluid and choppy across various states and markets, we are optimistic that efforts to reopen local businesses and economies will continue.

Beyond the uncertainties associated with how various state and local economies will proceed to reopen. Questions associated with actions by the federal government to extend support to individuals and businesses also remain unresolved. For these reasons, we continue to feel that conditions remain too uncertain to provide updated earnings guidance.

However, as outlined in our supplemental pages to the press release, we will continue to provide more detail surrounding current rent collections and leasing trends. Assuming there is no significant change in current conditions, we believe that we will continue to capture solid collections on billed rent as well as continued low resident turnover and stable occupancy. We do expect continued pressure on rent growth, but we were encouraged that the improvement in lease-over-lease pricing for leases signed in July.

With a significant percentage of our leases repricing during the busy summer leasing season, it is important to keep in mind that we will carry these repriced units into early leasing season next year. And it will weigh on the cumulative performance of overall rent growth for the next 3 quarters or so.

However, as new supply deliveries slow next year, we expect a resumption of more robust rent growth across our markets. Longer term, we believe that our Sun Belt markets will capture increasingly stronger trends in adding new employers, job growth and new household formations.

Our unique approach to diversifying across this robust region of the country with high-quality communities supported by a sophisticated operating platform will, we believe, continue to drive long-term outperformance for capital.

Further, our strong balance sheet puts us in a solid position to both weather the current economic slowdown as well as opportunistically pursue compelling opportunities that emerge.

In closing, I want to express my appreciation and thanks to our MAA associates for their dedication in superior service throughout this stressful second quarter. Your performance and commitment to our mission of serving our residents and all who depend on MAA during these stressful times has been absolutely incredible.

And with that, I'll now turn the call over to Tom.

Thank you, Eric, and good morning, everyone. I will offer a short recap on the second quarter and then move to trends that we have seen through July. The initial slowdown in demand triggered by COVID-19 in late March has moderated and trends are improving.

Our teams have adapted and have been effective using our virtual and self-tour platform. These practices were further augmented by our return to guided tours in May. Leasing volume in April was down versus prior year by 9%. The volume in May and June were strong enough that leasing volume for the quarter was 0.6% higher than last year.

Effective rents were up 3.4% and blended lease overlying lease pricing, including concessions, was up 1.2%. Occupancy remained steady at 95.4%, and turnover for the quarter was down 7% versus last year. We saw steady interest in our product upgrade initiatives.

During the quarter, we restarted our unit interior -- our interior unit redevelopment program as well as the installation of our SmartHome technology package that includes mobile control of lights, thermostat and security as well as leak detection. As noted in the supplemental document, collections during the quarter were strong, we worked diligently to identify and support those who need help as a result of COVID-19.

The number of those seeking assistance has dropped with each month. In April, we had 5,600 residents on relief plans. The number of participants decreased each month thereafter, and it's just 530 for the July rental assistance plan. This represents 0.5% of our 100,000 units.

As a reminder, in addition to the flexible payment plans for those affected by COVID-19, we have not charged late fees, frozen -- we have frozen eviction proceedings and actively worked to pair affected residents with local and national support resources. While we are still below our normal run rate, a reduction in the number of residents on our rental assistance plan aided our fee income during the second quarter.

As of July 27, we've collected 98.1% of rent billed for July. This is 170 basis points better than April, May and June results at the same-day of the month. Adding the 0.3 of deferred payments for COVID-19 affected resident payment plans referenced in the COVID-19 disclosure, we've accounted for 98.4% of July's billed rent. This is an encouraging result, but we are keeping a close eye on the CARES Act expiration and the discussion around the continuation of government benefits.

Leasing volume for July is on track to exceed last year. Historically, pricing power peaks in the early third quarter. And thus far, July has been our best pricing month since COVID-19 hit. Net July month-to-date blended lease-over-lease rates signed during the month increased 1.7%. This is more than 100 basis points better than leases signed in the second quarter. While we see this improvement across asset types and locations, our B assets and our suburban locations are stronger.

In addition to positive pricing trends, occupancy has also strengthened. Occupancy has improved from a low point of 95.1% to 95.7% today. 60-day exposure, which is all vacant units plus notices through a 60-day period has dropped from a high of 9.2% in April to 8.4% in June, and is now 8%.

Our current residents are choosing to stay with us, and our resident renewal retention rates were also positive. August, September and October, renewal accept rates are running ahead of prior years and signed a lease-over-lease rates are in the 4% to 5% range.

I'd like to echo Eric's comments and thank our teams as well. They've served and cared for our residents and our associates well and have grappled with the constantly changing implications of COVID-19. They worked diligently to provide supportive and caring environments for our residents and one another. I'm proud of them and grateful for their efforts and character.

I'll now turn the call over to Brad.

Thank you, Tom. The transaction market continues to experience a material slowdown in activity with second quarter volume within our markets down significantly from 2019. In addition to challenges in underwriting, travel moratoriums, property tour restrictions and difficulties performing due diligence all continue to make closing a successful transaction challenging.

Despite these pressures, sellers are beginning to test the waters, and our number of underwritings, while still below previous years, have increased materially since the beginning of July. Certainty of execution is more important than ever. And since this is one of our core strengths, we have been able to review a number of properties, mostly off market.

At this point, most of the deals we have reviewed have not traded, so broad pricing trends are not yet apparent. The upcoming election is likely to further suppress transaction volume and cause the lack of pricing discovery to persist. We believe better buying opportunities on new lease-ups should emerge after the election and into 2021 as the backlog of merchant built properties, which are prevalent in our footprint, begin to hit the market. The availability of financing continues to evolve. While early in the pandemic debt financing was difficult across the board, it now remains difficult for lease-up properties, as well as some developments, but is available at very attractive rates for stabilized assets.

In addition to the commitment of equity -- in addition, the commitment of equity is also further restricting transaction volume and construction starts. To date, a number of equity providers have paused or completely pulled out of quite a few new developments as well as acquisitions. Sometimes for reasons not related to the real estate or the returns. This hesitancy, coupled with our continued ability to perform on compelling investments, has opened the door for us to review numerous opportunities through each of our external growth platforms. While we are reviewing a few acquisitions, it's still too early for new lease-up opportunities to materialize and more compelling investments on existing assets are likely to emerge late this year and into 2021.

Our balance sheet is well positioned to allow us to take advantage of these opportunities as they arise. Our development team continues to pursue a number of land sites with 3 developments and due diligence that we hope to start construction on in 2021. With equity hesitating on new developments, we are receiving strong interest in our prepurchase platform. We're currently in conversations on several opportunities that would likely start construction late this year or early next, with delivery occurring mid-2022 and ramping up in 2023.

These development and prepurchase investments align well with the current delivery pipelines, and we'll deliver at a time when we believe the leasing conditions for new developments will be significantly stronger. We are beginning to see a drop in permit activity and have seen a substantial drop in construction starts in our markets, which should result in a decrease in deliveries in 2022 and '23.

In terms of construction, the 6 projects we have underway remain on budget and on schedule. And to date, we have not experienced any major disruptions or delays to any of our supply chains.

With that, I'll turn the call over to Al.

Thank you, Brad, and good morning, everyone. I'll provide some brief commentary on the company's recent earnings performance, balance sheet position and then finally, a few comments on our outlook for the remainder of 2020.

As mentioned earlier, we're very encouraged by the second quarter performance, particularly in the area of rent collections. At the beginning of the pandemic, this area was the most significant short-term unknown with rental pricing expected to have a longer-term impact as new leases roll through the portfolio.

As noted in the supplement, through July 27, we either fully collected or obtained deferral agreements for 99.4% of all rent billed during the second quarter. And at this point, we've had very good payment performance from our deferral addendums with a 97% compliance rate on outstanding agreements. We also established a reserve sufficient to cover all rent unpaid from residents not entering an deferral agreement as well as a large portion of the deferred rent.

July continued this strong trend in rent collections. But given the remaining high level of uncertainty, we do not yet have enough clarity to reestablish earnings or overall same-store guidance for the year. However, we do have a little more clarity on operating expenses. And overall, we still expect them to end up essentially in line with our initial forecast for the year.

As a reminder, we initially outlined same-store expense growth for the full year to be in a range of 3.75% to 4.75% growth or 4.25% growth at the midpoint. The primary pressure is coming from real estate taxes, insurance and the rollout of the bulk Internet cable program called Double Play.

For context on their contribution to expense growth, ignoring these 3 items, all other operating expenses are expected to grow about 2.5% for the full year.

Our balance sheet continues to support our business plans very well with leverage near historic lows and significant capacity from cash and remaining borrow potential under our line of credit, combining for $927 million of capacity.

We restarted our redevelopment programs during the quarter, and our development pipeline continues to progress well and on track. We expect to fund between $200 million and $250 million for the full year toward the completion of our development pipeline.

As Brad mentioned, the acquisition environment remains challenging with most opportunities expected to be prepurchase deals, which will have longer-term funding commitments similar to a development. We currently expect our business plans for the remainder of the year to be essentially leverage-neutral, not requiring any equity funding this year.

However, as previously discussed, our plans do include a potential bond deal in the second half of the year to fully pay off our line of credit, maintaining our capacity, and prepaying some future debt maturities in today's low rate environment. And finally, as reflected in our release, we incurred $2.4 million of COVID-19 related expenses during the second quarter, primarily consisting of additional clean-ups -- cleaning supplies, COVID-19 related leave and contract labor. We added these costs back to core FFO as these initial expenses are considered nonrecurring in nature. We do expect remaining costs to be much smaller in the second half of the year.

That's all that we have in the way of prepared comments. So Ashley, we'll now turn the call back over to you for questions.

(Operator Instructions) We'll take our first question from Neil Malkin with Capital One.

First question, have you started to see maybe over the last 3 months in terms of your new leases, migration out of the gateway urban markets and into your sort of core Sun Belt names? Or is that kind of either too hard or too soon to discern?

No. We track that information overall. It's a relatively low percentage of our total leases. We didn't see much movement in the second quarter. But in July, that began to pick up. So New York is up double digits, Massachusetts up about 8.7% and Pennsylvania up about 5% -- 5.3% of our increase over prior year on that. But again, still a relatively low percentage of our total leases, but we are beginning to see early trends of that.

Okay. And then just as a follow-up to that, are you seeing within your markets more move from urban to suburban, particularly in some of your -- I guess, maybe out of your post assets or things like that into more suburban areas?

We are not seeing that. We are seeing demand for urban assets. Suburban assets is a stronger pricing for us right now, but we're not seeing people transfer from urban to suburban.

Got you. And then maybe can you just talk about Orlando. How that market's been performing and how it's trending. Similar with Charleston and Savannah and in some of your markets that are more exposed to leisure travel?

Yes. Orlando is -- I would say, improved on the rent collection standpoint. They were one of our larger exposures back in April. They're now just 0.7% of leases outstanding are on renewal or on rent support programs. In terms of the market, Disney and Universal coming back in modest fashion have helped a little bit. We're seeing the more northern properties perform better than the southern properties, which have that exposure to Disney and a little bit of international. So it's sort of, I would say, largely the same with some improving rent collection trends right now. But we're pleased to see the parks open, and that has a ripple effect across those southern properties. I mean and Charleston, frankly, improved significantly. We saw a nice pickup in late second quarter and early July, I mean Savannah's still a worry bead on that front.

Great. And then last one for me. In terms of opportunities, you mentioned -- you kind of talked about a lot. I'm not sure I got all of it correctly. But you do not think out in the second half of the year, you're going to see stabilized opportunities. It's mostly just the development related deals? And then also, are you thinking -- or would you think about doing some mezz or preferred given the kind of dislocation relative to earlier in the year and the higher yields you could get?

Neil, this is Brad. I think in terms of the opportunities for the rest of the year, I do think there'll be -- we've seen, starting in July, some stabilized assets have begun to come to market, certainly in the second quarter, there was just a complete falloff in transactions coming to market. That's picked up a bit. I think for us, our focus has always been on new lease-ups. And to date, we're not really seeing those come to market. I think there needs to be a little bit more pressure in the market before developers begin to really bring those to market. So we're really focused and seeing opportunities right now based on kind of the capital constraints that I mentioned in my opening comments, we're seeing the opportunities really emerge on the development front, land sites that have been dropped and then also on prepurchase where we partner with developers and for those, we've got difficulties in both debt and equity on that side that's putting some opportunities in front of us that we wouldn't have had.

Neil, this is Eric, too -- also, just to clarify, we are not in the business of financing other people's properties. We will come in with capital and work with developers on the basis that we will ultimately own the asset, but functioning strictly as a financier of other people's product is not what we do.

And we'll take our next question from Nick Yulico with Scotiabank. .

This is Sumit in for Nick. Quick thoughts about renewals. Just trying to understand how you guys are thinking about this. They were lower in July, but still well above peers at 4.8%. And just to make sure these leases were offered about 30 to 60 days earlier, right? So most likely right after reopening, how should we think about renewals looking ahead? I mean, is this close to the low in July? Or could they track new lease rates and perhaps stay flattish or slip a little further? Any color around that? Or what is your most sticky point in your negotiations with renewing tenants? And what's driving turnover so low would be really helpful.

I think you caught it in your earlier comments, July was priced on the renewal front at the sort of peak concern level at this point or thus far. The -- so we would expect at this point, renewal rates for July, it took place in July to be the low point. Renewals signed in July were 4.5%. And I think we expect September and October to be in the -- between 4% and 5% range going forward. So a little recovery in renewal rates is what we're expecting.

And I guess just following up, what's driving negotiations and turnover? Just any color on that kind of thing?

I mean we've got a very sophisticated platform and team that works to understand what the market demand is for renewal. And we use that process consistently and have trusted it over the years, and that's what we use to move out. And then we obviously have some level of negotiation with the resident at that point. There hadn't been much in the way of sticking point. So we sort of feel like we're hitting the right spot in terms of the market because the accept rates are actually better than in prior years. So there's -- I would say, it's a pretty, honestly, normal renewal process going forward.

Okay. That's really helpful color. And I guess what's -- just to understand the overall pricing environment a little better and I'll yield after that is, we're hearing that there was a surge of pent-up demand right after the lockdowns. And so there were people who really wanted to sort of change living conditions, and that's why they were looking to move and even during the virtual leasing days. But now that everything is seemingly open again, we're also hearing that we're seeing a lot more bargain hunters implying rate pressure and competitive dynamics. So your views seem to suggest that you're not seeing that. I guess what's different here? Or how you -- what's driving your optimism a little more?

Yes. What I would tell you is that we did see, as you saw in my comments around the second quarter, we did see sort of a pushback in leasing volumes in May and June, which sort of caught us up from the fall off in April. But what we're seeing is sort of a normal seasonal trend at this point. And our sort of pricing power, if you will, normally peaks in late July and early August. I would expect that to happen. And then, of course, it will fall off in the fall under normal seasonal patterns. We are certainly seeing bargain hunters out there and our pricing is down lower than it was at this time last year. But what we're seeing is sort of normal seasonal pricing patterns now as we've moved past that sort of shut down, if you will, that occurred in late March and early April.

The other thing I would add is that I think the fact that you're seeing performance along the lines of what you're describing, you really have to start thinking about different parts of the country. And our Sun Belt markets have just continued to, we think, demonstrate a certain resiliency to them that is stronger than what we're seeing in other regions of the country. And as a consequence of that, we are -- things are depressed from where they were a year ago. But patterns and overall behavior and activity surrounding leasing a renewal is pretty much in line with patterns that we've seen historically.

And we'll take our next question from Nick Joseph with Citi.

With COVID cases increasing kind of broadly across the Sun Belt. I'm wondering on the ground, if you see any correlation between local hotspots and the relative strength of the operating environment?

Nick, you were a little muffled, and we're all trying to talk through masks, I suspect, but I think you were asking correlation between hotspots and leasing volume, is that correct?

That's right. Just on kind of the micro level, if you see a hotspot or if there is a hotspot for COVID. Do you feel that on the ground from a leasing perspective?

Nick, we have not seen much in the way of correlation on that. The market fundamentals really seem to be driven more by where a layoff's occurring. And then some variability between location and the submarket, but we're not seeing leasing fall off in, let's say, high positivity markets versus low positivity markets at this point, unless those correlate with unemployment levels.

That's helpful. And then maybe just on that, do you have a sense of what percentage of your tenants are currently unemployed or benefiting from government support?

We do not have insight into their source of income, Nick. But the fact that we've seen such an improvement. And then in terms of the number of people asking from support from us. And the feedback that we get when we interact with our assistant property managers and our property managers, which as you can imagine, we're doing a ton of right now is that the people getting off are not getting off the plans because their government check came in, they're getting off the plans because they got more hours or they got pulled back off of furlough or Disney opened and they're now engaged in some sort of support capacity.

And Nick, the other thing I would add is when you look at the average income of our portfolio, of our resident profile, and our average rent, at this point, rent constitutes about 20% of monthly income of our resident base, pretty affordable. And so as a consequence of that, we just -- while we're certainly monitoring what's happening with the efforts to continue some government assistance on -- at the federal level for unemployment. We're not particularly concerned about that issue because we just haven't -- for all the reasons that Tom mentioned, we just feel like that our folks have not really depended a lot on that assistance to meet their rent obligations.

And we will take our next question from Austin Wurschmidt with KeyBanc.

Eric or Tom, I'm curious what you think is really driving the strong demand for your property today, given the state of the job market, the fact that there is some strength in the single-family housing market, both for buy and rentals. And so do you think it's renters that are trading down and bargain hunting, as somebody referenced earlier, just curious about your thoughts on what's driving demand today?

Yes. Austin, I appreciate the question. I think it really is the underlying outlay of our markets and our area of the country. And what we're seeing is normal patterns. And I mean, I appreciate the comment on strong demand. I'm not sure I'd quite classify that other than strong relative demand, but demand clearly off of the levels that we were seeing last year, but I mean, we like the resiliency that we're seeing. We're spread out across the Sun Belt, which is a place that is, I think, appealing, especially in this time frame and was already a major driver for jobs. And then we've allocated across -- we've got across different market types as well. So it is holding up well. And the defensive nature of our portfolio I think is showing. But I'd hold short before I called it strong demand, I would call it relatively strong demand, which we're pleased with.

And I would also add, Austin, when you consider the fact that 80% of our resident profile is single and only 20% married and over 50% female. This is not a demographic that's going to be driven to move into single-family, be it for sale or for rent. So we just continue to not see any mounting evidence whatsoever that single-family is becoming more compelling as it pertains to drawing more of our traffic.

Yes. And I probably should have mentioned as well move-outs to buy a house during the quarter were down almost 5%, and home renting was down significantly and still less than 6%. It was down almost 10%. It's less than 6% of our move-outs. So we hear the builders are busier, but we are not seeing any impact of that here.

Understood. All fair points and appreciate the detail. Eric, you have previously talked about the dry powder you have on the balance sheet and are willing to use it for the right opportunity. I'm curious with the decrease in permitting levels, you can supply that you referenced in your prepared remarks. When would you or would you consider ramping the development pipeline above kind of those previous ranges that you've targeted? And then also wondering if you could put a finer point on what the decrease in supply into 2021 looks like?

Well I'll take the first part, and Brad, you can take the supply question. Yes, I will tell you, Austin, yes, we definitely are looking for some development sites at the moment. We think that, as Brad alluded to in his comments, that if we were able to start some new projects early next year that delivering in 2022, early 2023 could be really, really strong. And so we've got the existing land sites that we own in Austin, another opportunity that we're working on in Raleigh. Another opportunity we're working on in Tampa. And so you're not going to see it ramp up significantly because we've also got some other projects that will be finishing up. But on balance, I think that you'll likely see our development pipeline move up somewhat over the next year or so because we think deliveries in the next 2 years could be quite profitable.

Yes. And Austin, this is Brad. On the supply question for 2021, I think in terms of specific numbers for '21, it's kind of hard to pinpoint at this point. But I think if you look at the larger picture here, starting in March, when COVID kind of started and the impact started hitting and really permits really started to decline and construction starts more so. If you're looking at an 18- to 20-month time period for delivery, you're starting to get into the back half of next year, end of next year when the supply starts to go down versus previous expectations. But in terms of the magnitude of that at this point, I think it's too early to say what it is, but we do expect starting -- end of next year, supply coming down just based on the construction starts and permitting. And then that carrying into to a larger degree into 2022.

That's helpful. Eric, I mean, how large a development pipeline would you be willing to build either from a dollar perspective or percent of EV?

Austin, this is Al. And what we've talked about in the past is really we wouldn't want to go above 5% of our balance sheet, but that's a pretty big number. You're talking $700 million to $800 million right now. As Eric mentioned, we've got about $450 million that we're working on. Some of that will deliver over the next 1 year, 1.5 years, and we'll have several projects come back into the pipeline. So we would expect it to go up from the $450 million that we have right now, but you wouldn't see it go. We're probably $800 million or something like that, unless we had a specific plan or something different.

And we will take our next question from Rich Anderson with SMBC.

I just want to clarify, I think it was Tom, 5,600 seeking assistance in April down to 530 in July. Was that right? And seeking assistance from the government or from you?

From us. No, those are the people who we reached out to, identified and it is assistance from us in terms of rent abatement plans.

Your numbers are correct, Rich.

And yes, your numbers are correct.

Okay. So -- and then you actually gave assistance or they were seeking assistance?

We gave assistance. We did -- we had plans to set up a payment plans for rent over a defined time.

Okay. So I think it was you also, Tom, that mentioned, you're seeing people come from Massachusetts and New York. That's -- I find that kind of interesting. I'm surprised you're not more interested in that. You kind of brushed it off as an early sign. Isn't -- don't we have to crawl before you walk? I kind of feel like that might be something to really keep an eye on that. And I'm wondering if you could just give a little bit more color on your perspective of that kind of in migration dynamic you're seeing?

No. I mean, the dynamic is real, and it's part of the reason that we've built our strategy. While we feel like the Sun Belt is a place that's always benefited from immigration. It's a high-quality of life, it's affordable and you have some flexibility here. And then that has accelerated in latter years as taxes got more difficult and things like that. And then it seems to be further accelerating as work-from-home allows unprecedented flexibility on where you choose to live and things like density and transit or things that were perceived as real strengths may be less so. So we certainly read everything that you're reading and think that's interesting. And that's a lot of the reason why we are where we are. But right now, the total move-ins from those markets is still relatively low. The pickup is interesting for us, and we think this is going to continue. But I don't want to overstate the impact on our demand. And that's why I was perhaps being a little lighter on the point earlier.

Are people saying I'm coming here because I'm afraid of what's going on? And is it impacted by COVID-19? Or is it just sort of -- just a data point, you don't really -- you really can't characterize?

It is a data point based on where they moved from, we have not conducted interviews, but I will tell you, when I talk to our staff members who are often moving -- we have a healthy amount of people from the Northeast and Raleigh and in Charlotte and Tampa, Chicago and in Phoenix and Denver and Dallas and Austin, into California, they're moving and they're moving with their family and they're moving because they're outpriced and over commuted. And those are the things driving it. Now these recent things like COVID and unrest, that may accelerate things further. But the people we've talked to, it's been lifestyle choices based on quality of life. We have not hired anybody recent enough or had a conversation recent enough to know that these other things are playing into it at this point.

Okay. Great. So I know in migration, the fact of life in the Sun Belt generally, I just didn't know it was significantly more than typical. But anyway, I'll move on. Last question for me, maybe to Eric, if you get your federal support and that situation gets resolved, tariffs, too, what do you think you and perhaps the industry, because I assume you talk to every -- other read about how to position earnings season. Do you think guidance could come back into the mix next quarter or sometime? Or do you think we're going to probably wait this out until 2021 comes around?

No. I mean, I think that if we see stabilization broadly begin to take place and the government programs get recommitted to. I think by the time we get to the end of October when we're releasing Q3, we'll have pretty good visibility on the balance of the year at that point. So my guess is that when we release Q3, we'll have a pretty good read on the full year at that point. And then we're also starting to get some sense of where 2021 is likely to go a little bit as well. We probably will not give guidance for 2021. At the end of October, but I think we'll have some evidence to at least guide expectations a bit. Supply dynamics, things of that nature probably are pretty well known. So I'm confident by the time we get to the end of October, we'll have a pretty good read on the balance of the year.

And we'll take our next question from Haendel St. Juste with Mizuho.

I promise, I only have 2 questions. So first one here is, you mentioned earlier that you've been able to review a few deals from potential sellers. I'm curious what -- looking at some of these shadow deals. I know they haven't closed, but I'm curious what they informed you on seller underwriting, maybe from a cap rate IRR perspective?

Haendel, could you say that one more time? I'm sorry, we had a hard time hearing you on that.

Struggled a bit, Haendel.

Sure thing. I was referring to the comments you made earlier about being able to review a few deals from potential sellers. So I was curious what -- looking at some of these shadow deals, I know they didn't close, but I'm curious what you might have learned. What reviewing those deals informed you of seller expectations, what they're underwriting maybe from a cap rate or IRR perspective?

Yes. Haendel, this is Brad. I'll answer the first part of that, and anybody else can add in. But certainly, if you look back at second quarter, as I mentioned, volume was off tremendously. Normally in a quarter, we're underwriting somewhere between 50 and 60 deals. And in the second quarter, we looked at 10 individual assets. So that just gives you an indication of the potential for data points. It's very, very limited, and it's hard to draw strong conclusions from that. Of the 10 that we look at, 3 have closed. Those were generally stabilized assets. Certainly, as I mentioned, the lease-up of properties are not coming to market. So we -- I really don't have any data points for pricing to indicate any pricing on those. But then as you get into the stabilized assets, you really have 2 camps. You have just a stabilized asset or you have a value add. And the value-add camp is certainly seeing more of an impact. We're in constant communications with other contacts within the industry to try to help paint a broader picture of what this pricing environment looks like. And again, we just don't have a lot of data points. But I can tell you what we're generally seeing is, if you just look at the underwriting impact of what generally folks believe the impact to underwriting is of COVID going forward over the next couple of years is generally a 5% to 10% pricing discount is what folks expect. If you look at the deals that have closed, again, taking out lease-ups, which haven't occurred and then taking out value add, you're really looking at pricing discounts between 0% and 5%. And really, what's helping folks bridge that gap is, buyers are able to really pay a little bit more for the assets than what the underwriting would suggest because of the accommodative financing environment that's out there. And these high levered folks that are able to close on these transactions are able to kind of push through that pricing a little bit. But what it has indicated to us because the fundamentals are off and the pricing is not off as much as that suggest is that cap rates are coming down. We've seen that again on the couple of deals that we've looked at. And then we're also hearing that with the industry contacts that we're talking to. But I would just say that it's a very limited number of data points at this point. So it's really hard to to draw strong conclusions from that at this point. And I think we'll start to see some of the stabilized asset pricing points trickle out as we get a little bit further along in the year, but lease-up pricing, I think, it will be next year before we start seeing that.

Got it. Got it. That's helpful. And largely fits with what we've heard as well. One last one. I was curious if you could talk about the blended rent growth in 2Q and July between your leading growth markets, the Austins, Raleighs, and your weaker ones, Atlanta. And maybe perhaps you can give us some thoughts on your near term expectations, do you expect that relationship in terms of blended rent growth between the best and the worst to get wider. Or it's a narrow. And over the next couple of quarters and why?

You got to see, Haendel. I think we're seeing better progress in -- for Sun in July in Phoenix, Raleigh, and Jacksonville, rainbow places like that. Houston and Orlando, flat to modestly improving. And then Savannah, as I mentioned earlier and Charleston, both improved on blended pricing during the quarter -- or Charleston improved a good bit, Savannah modestly. Overall, what I -- again, I think we will follow on new lease pricing. I think we will follow seasonal patterns. What gives me some encouragement is across the board in July, move-ins increased, exposure has come down and occupancy has improved during the month. And I think that sets us up well to follow sort of our typical seasonal pattern on those areas.

Any -- if I could follow-up and violate what I promised I wouldn't do. Any color on concessions, it would seem that the best in the worst markets, generally what the market or what you're seeing across some of those better markets and weaker markets is?

Yes. So we're on a net effective basis on concessions. So we give a few really where we're set up near lease-ups for the company. Concessions were 0.8% of net potential of last year and are 1% this year. Our competitors, what we're seeing in those most competitive markets is in places like inner -- Downtown Atlanta inner loop and Buckhead, 1 to 2 months free on stabilized assets up to 3 on lease-up properties. In Houston, inner loop we're seeing half month to a month. Phoenix much lighter in areas like that. And Orlando is a little softer to the south, as I mentioned, than to the north, just to go around the horn. Worst concession developer thing that we've seen is, 4 months free at a busted deal that Brad's already sniffed around on in Fredericksburg, Virginia and the D.C. suburbs.

We'll take our next question from Rob Stevenson with Janney.

Can you talk about what you guys typically see in terms of traffic and leasing volume in May, June and July from the influx of new college graduates in your core markets in a normal year and what you've seen thus far this year?

It's -- obviously, it's reflected in our overall results. Our overall exposure around the student housing is low. We don't have any property that's remotely close to half of its students. But we've seen, we've got 1 asset in Atlanta near Emory, and it's been a little slower. But honest in terms of students coming back, and we've got a few others like that, but we're just using that as an opportunity to diversify what our unit mix is. So we're not -- we are definitely seeing some delay on people committing to housing, it was much later. And then it's hit or miss where it is, depending on what the school signaled early and then as I suspect, it continues to evolve as schools are changing their plans. The short answer is we've got so little exposure to it that our -- we don't pay a ton of attention to it. But it picked up a few snippets here or there.

No. What I was focusing on is somebody who just graduated from, let's say, Georgia Tech, and is now going to rent a unit in Atlanta with one of his buddies because he had -- he would have -- last year, he would have been working for a consulting firm or a tech firm or something like that? The new leases from somebody that doesn't have a background, where it's the graduates, whatever they are, how big a meaningful portion are college graduates in that sort of May, June and July, at the beginning of the summer leasing season. The influx of that typically in terms of your business? And what has that sort of dropped off to now? Is it half? Is it a quarter? Are all these kids staying in their parents basements and working remotely or in the Sun Belt markets, have the businesses actually brought the new hires into the headquarters building, et cetera?

Yes. I'll answer it anecdotally. And that is, we saw leasing in May and June strong enough that it offset the weakness in April and put us ahead for the quarter in aggregate. And July is running ahead of last year. So our overall demand in terms of the number of leases that we've been able to execute has been a little bit better than last year. We also have not seen -- often we will see either shopped or we will pick up a few where a large hire like BofA or somebody like that, is bringing on a bunch of new people, and they're looking for 40 units in a market or -- and they all want to be near Peachtree Road or something like that. We are not seeing those -- we are not seeing those shopped. But as far as exactly what the number is of people and college grads that are looking or not looking. They don't have that, but we have been able to fill units as we normally would.

Okay. And then you guys talked earlier about the development starts over the next 6 to 9 months, expect to be delivered in 2020, too? At what point do some of the sort of issues with COVID start to make its way into how you plan and build new development projects? I mean, if I look over the last 10 years across the apartment space, units have gotten smaller, there's been more studios in the mix, you've had more central entrances than elevator banks as you've gone from 3-story walk ups to mid-rise, et cetera. So whether or not it's urban or suburban, people have been packed in tighter. When you guys think about planning out the new developments that you'll start next year, are you making any changes to the size of the units, to the unit mixes, how tenants enter, exit the building? And what does that do to -- if you are, what is that doing to construction cost estimates when you plan this versus what you would have started a year or so ago?

Yes. Rob, this is Brad. I don't think we've made any broad changes to unit sizes or things like that. I mean, I think over the last couple of years, we've been doing more dens. And one of the things we are adding is the opportunity within the clubhouses for a work-from-home type environment. We also have -- are trying to add desks and things like that, areas within some of our new units wherever we can. But I feel like there's been, at least for us, over the last couple of years, there has been a push to really beefing up the amenities on the outside from the pool decks to having some congregation areas that are the outside of the units, exterior, and I think that will continue. And we're pouring even the deals we're looking at now, quite a bit into the design and the development of those outside gathering spaces as folks look to get outside when they can. So those are the things that we're looking at. I'm not sure that we've seen any type of construction cost considerations or any trends relative to those things at this point.

And Rob, I'll tell you -- this is Eric, that we are -- of all the projects that we're looking at and all that we have underway right now, only 1 is in an urban core area in Downtown, Orlando. Everything else that we're doing is suburban, usually a 2, 3-story walk up, in some cases, elevators, but we've only got 1 project we're working on that is, what I'd call a real high-density type project.

Okay. What is your average square foot per unit these days?

Rob, I'd say it's roughly 900 square feet, 950 square feet.

We will go next to John Kim with BMO Capital Markets.

I think Eric or Brad mentioned that the upcoming election has had an adverse impact on transaction volumes. I was wondering if you could elaborate on that and whether that's specific to the uncertainty of 1031 exchanges?

This is Brad, John. I don't think it is relative to 1031 exchanges at this point. I think it's just another item that introduces uncertainty into the transaction market. I do think -- we have seen an uptick in opportunities come to market. The first part of July, it's been pretty robust. And generally, everything that's coming out right now is off-market, it's not fully marketed deals. So I'm sure there are things that are coming out that we're not even seeing at the moment. But it is -- there is an uptick in that, and I suspect that will continue for the next month or 2 and then likely dissipate as we get closer to the election. I think it's just -- from the folks we're talking to, it's just another area of uncertainty into the valuation model that just puts folks on pause. So I don't think it's anything specific to trying to project who's elected or what policy and the impact of that policy at this point. I think it's just another unknown.

Without getting too political, I mean, is your view or the market view that a Biden presidency would be negative for asset values?

I don't know, John. I think that I'm not going to go there. I don't know how the market is, at this point, weighing whether a Trump or a Biden presidency is favorable or unfavorable. I think that what we're seeing is really just what Brad alluded to, is just there's this uncertainty. And I think capital just gets a little bit nervous with uncertainty and it's hard -- makes it harder to underwrite. So I think that's all we're seeing at this point.

Fair enough. Tom mentioned, in your prepared remarks that the return of -- sorry, the return of guided tours to complement your virtual and self guided tours. Did you find in the forced experiments that the traditional tours or at least a hybrid approach are more effective?

No. We did not. What we found that was thrilling, though is they were equally as effective. And so we're very pleased with that. Those tours got us over the hump. And now it's roughly 43% of our leads, our tours are doing guided tourists, where they're interacting with our folks. And then it's split evenly between virtual and self tours after that. We've learned an awful lot about the process, thrilled with how the team's have worked and adopted them. And then as we get into 2021, you'll be able -- you'll see us begin to do some things that really streamline and ease the self-service side of it. But we were quite pleased at a -- how effective they were with the residents and with the prospects and how well our teams adapted to that really overnight and used those well.

Can you provide an update as to what percentage of your communities have the capability to do self-guided tours?

100%. We have self-guided tours occurring at every property in the company.

And we'll take our next question from John Pawlowsk with Green Street.

Just 2 questions for me. Tom, on the new lease figures for sign in July, could you give us a sense if you excluded interior redevelopments, what that new lease figure might look like? I'm just trying to get a sense for what market rent growth is across your portfolio right now?

John, it would really be minimal. I'd have to go back it out. But since we didn't produce any in second quarter is really minimal that we just got to turning those on. So this is probably as clean a result on renovate impact, as you're going to see.

All right. Perfect. And then, Brad, curious with your question -- with your conversations with developers, do you get the sense -- I know it's tough to read the tea leaves, but do you get the sense that they think this is a 2, 3-month pause on their debt, and equity providers given the money? Or are they -- they've become really concerned that this is kind of more of a structural multi-quarter, multiyear kind of freeze in their capital sources?

Well I think, first of all, the development bunch is normally a very opportunistic and a very positive group. So I don't think they view this as a structural issue. I do think that the see it as problematic because a lot of the folks that we talk to are merchant developers and their platform is certainly built on the machine continuing to run. So I think that they are out looking for alternative sources, whether this is short-term or long term. But that bunch is normally -- they're glass half full normally. So I don't know that they're -- and I have no indications at this point that they're thinking that this is a long-term shift and that they are changing their strategies because of that. But there's certainly an impact. I think the debt side of things for developers that are not the strong established sponsors with strong relationships with the banking community. Those folks are going to have a hard time lining up debt for the foreseeable future.

We'll take our next question from Alex Kalmus with Zelman & Associates.

Looking at your collection results, which are clearly trending above the group. I was hoping you could walk us through the components on Page 30. Is total billed in the denominator, is that off of the original rent? Or is that off of the newly amended lease rates and same question for July, is that 98.4%?

Yes, Alex. This is Al. That is based on -- for the April, May and June, what was billed -- that cash they're expected to pay. I mean that is what the lease would say. And before any addendum, the lease would say what was signed to be. And then after addendum, it would have that lease rate plus additional amount that we spread over the life of the lease. So that cash bill number is what we billed and expect them to collect in total. And so the point there in that presentation was to say that, look, we've collected 98.9% in cash, another 50 basis points, 0.5% in payment addendums that we're getting very good collection performance on. I think at this point, it's about 97% compliance with that. So we feel very good about that. But having said that, we felt that it was prudent to put a reserve on the books that was sufficient to cover a couple of things. One, if somebody did not come in and talk to us at all and do an addendum, fully reserve that. And if someone did do an addendum, we reserved a substantial portion of that, somewhere -- they're different per each one, but on aggregate, probably 2/3 of that. So that's what that represents. Expected cash collections and where we are on that and what we reserved.

Got it. Got it. And a slightly different topic. In terms of occupancy and how you're thinking about the fall season coming up. Historically, you've been seeing great renewal growth rates. I'm curious if you would like to see your occupancy number go up before maybe uncertainty in the fall? Are you still going to be pushing those renewals?

I will tell you that we expect occupancy to build and with exposure going down, expect that to happen and bring our exposure down. There's a -- and prepare ourselves for the low demand time frame. Those renewal rates, if you look at us historically in the fall, they're lower than they are in the peak season. But I would expect them to continue on at about this rate, which is still a significant lower increase than this time last year. So I would expect a recovery in our renewal rates and the variable that will change to manage exposure down and occupancy up. It will be probably a seasonal falloff, I would expect, in our new lease rates as we move into the fall.

And we'll go next to Wes Golladay with RBC Capital Markets.

Would you happen to have a snapshot of the gain or loss to lease of the portfolio as it stands today?

What the earned in is today?

Yes.

Wes, I don't have that in front of me. I don't see we could...

We can get that to you-- we'll get back to you on that, Wes.

We can get that back to you. Yes. And certainly had a strong loss lease going into the second quarter. I think, it's probably a decline given the leasing trends that we've seen in the quarter have certainly come down. But important point is that the actions that we took over the last year to really to continue to push price and give up little occupancy to do that, put us in a really good position going into the second quarter. So protected us well there. It has come down. Tim can get that, and we'll get that back to you offline. What we think it is, yes.

Okay. And the qualitative was good. I was kind of getting with the strong renewal to see if it was going to taper off a bit. Now turning to acquisitions. You kind of mentioned looking at lease-up properties. And would you expect a lot of off-market transactions, limited bid? And then secondly, would you expect competition from the levered buyers?

This is Brad, Wes, I would say, predominantly, what we're seeing right now is off market. There's only been a couple -- maybe 10% of what we have seen come across has been fully marketed deals. So yes, I think everything right now is going to be more off market. Even the deals that have been marketed, some of those were preempted where somebody came in and just paid what the seller wanted and really short circuited the marketing process. So I expect that to continue. And then -- I'm sorry, what was the second part of your question?

So would you expect the levered buyers to be active competition for you?

Well not on lease-ups, I don't. We generally don't see those come into play as much on lease-ups. Those are generally focused on the assets that are currently earning. So stabilized assets. That's where you see those a little bit more. Also on lease-ups where we're focused, financing is extremely difficult right now, and that's why a lot of the sellers are not wanting to bring those to market at the moment, they're wanting to get stabilized so that they can line up financing and certainly bring those high levered buyers in there. So to the extent that developers can wait it out and get their assets stabilized, then I think the leveraged buyer can come there, but that's really not the segment of the lease-up segment that we're actually focused on.

And It appears that there are no further questions at this time. I'll turn the call back over to the company for any final comments.

Okay. Well we appreciate everyone joining our call this morning. And if you have any follow-up questions, just reach out. I'll be glad to answer any other questions. Thanks very much.

Thank you. And this does conclude your program. Thank you for your participation. You may disconnect at any time.