UDR Inc (UDR) 2020 Q3 法說會逐字稿

Greetings, and welcome to UDR's Third Quarter 2020 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Director of Investor Relations, Trent Trujillo. Thank you, Mr. Trujillo, you may begin.

Welcome to UDR's Quarterly Financial Results Conference Call. Our press release and supplemental disclosure package were distributed yesterday afternoon and posted to the Investor Relations section of our website, ir.udr.com. In the supplement, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. Statements made during this call which are not historical may constitute forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be met. Discussion of risks and risk factors are detailed in our press release and included in our filings with the SEC. We do not undertake a duty to update any forward-looking statement. When we get to the question-and-answer portion, we ask that you be respectful of everyone's time and limit your questions to 1 plus a follow-up. Management will be available after the call for your questions that did not get answered during the Q&A session today.

I will now turn over the call to UDR's Chairman and CEO, Tom Toomey.

Thank you, Trent, and welcome to UDR's Third Quarter 2020 Conference Call. On the call with me today are Jerry Davis, President and Chief Operating Officer; Mike Lacey, Senior Vice President of Operations; and Joe Fisher, Chief Financial Officer, who will discuss our results. Senior Executive, Harry Alcock; Matt Cozad and Chris Evans are available during the Q&A portion of the call.

Simply stated, our business is predicated on revenues we bill and our ability to collect those revenues. For the former, the third quarter remained challenging due to the combination of ongoing regulatory restrictions, slow coastal reopenings, work-from-home trends and elevated concession levels in our high rent coastal markets, combined with the highest number of leases expiration or any quarter during the year. Despite this, billed revenue appears to have stabilized across August, September and now October. For the latter, our ability to collect revenue remains strong and is consistent with prior months. While these observations have yet to show up in our company-wide same-store revenue and NOI results, I draw some degree of comfort from the approximately 80% of our portfolio which is experiencing stabilizing or slightly improving fundamentals. This is in our suburban and [Sunbelt] communities. Combined, these factors provided the basis for our issuance of same-store and earnings guidance for the fourth quarter. But we have not lost sight of the fact that many uncertainties and challenges remain. Every recession has a couple quarters where the headwinds converge. The third quarter had that type of feel to it for us. And based on our guidance, the fourth quarter, which has fewer leases coming due, could as well for same-store statistics.

The stabilization of fundamentals, occupancy, billed revenue and collections is the first step towards a recovery. But to inflect higher, we need meaningful improvement in our hardest hit, high rent markets of San Francisco, Manhattan and Downtown Boston. These markets make up 20% of our portfolio and while improvement in our October occupancy has been encouraging, they have come at a cost of higher concession levels. We have not lost faith in the long-term viability of these urban areas, but we need a vaccine for widespread reactivation and recovery. Mike will provide more commentary in his remarks.

With all that said, we remain focused on maximizing cash flow and bottom line results. On that front, the midpoint of our fourth quarter earnings guidance implies a full year 2020 FFOA of $2.04 per share, which is down only 2% year-over-year. This is a result I'm very proud of, given the challenges this year has presented.

Shifting gears, I'm pleased at the ESG achievements UDR has made over the past year, as detailed in our recently published 2020 Corporate Responsibility report, which covers our 2019 actions. We remain committed to driving our ESG platform forward and have laid out a variety of sustainability targets through 2025, and have improved our reporting disclosure to provide the most relevant and comprehensive metrics to the investor community. We look forward to sharing our continued success in the years ahead.

Next, all of UDR would like to welcome Diane Morefield as the newest member of the Board. Diane has an accomplishment history as a senior executive in the REIT industry, and as an Independent Director, will bring valuable perspectives as we continue to execute our strategy.

Finally, as we wrap up 2020 and turn our attention fully to 2021, we continue to focus on controlling what we can, which is how efficiently we price our homes, how well we execute the implementation of our next-gen operating platform, the quality of our customer service we provide to our residents, the support we give our associates in the field and maintaining a strong liquid balance sheet. The executive team would like to thank all of UDR's associates for their efforts to move our business forward. Keep up the good work.

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

Thanks, Tom, and good afternoon. Starting with third quarter results. On a cash basis, our combined same-store NOI declined by 10% year-over-year, driven by a revenue decline of 5.9% and an expense increase of 4.2%. When accounting for concessions on a straight-line basis, our year-over-year combined same-store revenue declined a more modest 3.3%, with NOI down 6.4%.

On Page 4 of our press release, we have included walks between cash and straight-line combined same-store revenue growth during the third quarter. As was evident by our quarterly results, elevated concessions and lower economic occupancy negatively impacted our growth, but the extent to which they did was market dependent varied by urban or suburban locations. Despite these challenges, I am encouraged that our billed revenue stabilized in August and September, with this trend continuing into October as well. Currently, we are operating with minimal renewal concessions across approximately 65% of our portfolio and continue to maximize revenue growth by balancing blended lease rate growth against occupancy changes at the market and unit levels. We believe this surgical approach to pricing our homes has contributed to the stabilization of our billed revenue and maintained our rent roll for 2021, while not sacrificing 2020. These factors drove our decision to provide fourth quarter 2020 guidance, which you can find on Page 2 of our release.

Splitting our portfolio into 3 performance buckets helps to better explain our fourth quarter guidance. First, roughly 20% of our NOI is in markets that have stable to improving fundamentals and positive revenue growth, both of which we expect will continue. This is due to a combination of occupancy gains and positive effective blended lease rate growth, primarily due to less restrictive regulatory environment and quicker economic reopening. This bucket includes Tampa, Orlando, Nashville, Dallas, Austin, Richmond, Baltimore and Monterey Peninsula in California. Concessions across these markets have generally remained in the 0 to 4-week range since March, and demand remains strong, which has helped us maintain average occupancy of approximately 97.5%.

Second, roughly 60% of our NOI is in markets that we believe have bottomed and are showing early signs that an improving second derivative could ensue. This bucket includes some of UDR's larger exposures such as Orange County, Los Angeles, Seattle and Metropolitan Washington, D.C. Also in this grouping are our suburban communities in New York, Boston and the Bay Area. Concessions across these markets have generally ranged around 2 to 6 weeks, with occupancy averaging 96% to 96.5%.

Third, roughly 20% of our NOI is in urban areas of coastal markets where demand and growth are more dependent on office reopenings, mobility trends, work-from-home flexibility and a vaccine. These include Manhattan, San Francisco and Downtown Boston. Concessions across these markets have averaged 4 to 8 weeks, but some competitors have offered up to 12 weeks on new leases. Average occupancy across these markets was in the mid- to high 80% range during the third quarter but has since improved to 91.6% in October with Manhattan leading the way. While these results, which are highlighted on Page 3 of our release, are encouraging, occupancy gains in these urban cores has come at a cost in the form of more concessions over [our base] rate. Overall, market fundamentals across our portfolio feel somewhat better than during the summer months. Billed revenue appears to have stabilized. Cash collections remain strong and continue to trend above 98%, and traffic and applications remain favorable versus 2019. On the other side of the equation, new lease roll downs are likely to remain the norm into 2021 and ongoing emergency regulatory measures in primary coastal markets will continue to hinder our operations. But we believe our revenue maximization strategy toward pricing our homes throughout the pandemic will yield dividends moving into next year.

Finally, I want to thank my colleagues in the field and here in Denver for their dedicated execution of our varied operating strategies in the face of still evolving regulatory restrictions, which our dedicated governmental affairs and legal teams have diligently tracked. We are measured as a team and your efforts have been crucial in laying the foundation for pure success.

And now I'd like to turn the call over to Jerry.

Thanks, Mike, and good afternoon, everyone. A big part of our future operating success is expected to be driven by our next-generation operating platform, which provides residents an online self-service model and improves operational efficiencies while increasing resident engagement. The initiatives we have rolled out thus far have expanded our controllable operating margin and driven a year-to-date decline in controllable expenses of 40 basis points. Combined personnel and repairs and maintenance expense are flat year-over-year, while administrative and marketing expenses are down nearly 8% year-to-date through September 30. While declining revenues because of the pandemic may have altered the time line for achieving some of our margin expansion targets, the ultimate operating benefits of our next-generation platform remain clear. First, flight level headcount has declined 29% since our base quarter of 2Q 2018 through natural attrition. Over that same period, the number of total homes we own and manage has increased by 4%. This permanent reduction in our cost structure through headcount efficiency has driven a 31% improvement in controllable NOI per associate.

Second, despite reducing headcount, we have delivered a self-service model that our residents prefer, while also ingraining UDR further into their day-to-day lives. This is apparent in our resident satisfaction as measured by Net Promoter Scores, which have increased 24% since 2Q 2018 as well as the 80% adoption rate of our resident app in the 2 months since we rolled it out. Self-service has become the preeminent way that businesses interact with their customers. We believe we remain ahead of the curve in the multifamily industry.

Last, while all the public apartment REITs operate very efficiently, at comparable rent levels, we have higher than peer average margins across the majority of our markets. Versus private operators, we believe the margin advantage is even greater, typically ranging between 500 and 1,000 basis points, affording us the opportunity to enhance shareholder value through acquisition.

Looking ahead, we plan to capture additional staffing level optimization, which will further improve our operating efficiency without sacrificing the high-quality service our residents have come to expect. In addition, with the rollout of the next phase of our self-service smart device app and the integration of more data science into our process, we see further opportunities to enhance resident loyalty and deploy revenue growth and expense reduction initiatives. Finally, it is important to understand that our next-gen operating platform does not have a finite life. Centralization, smart home installation, self touring and the shift to self-service have formed a strong foundation upon which we will continue to evolve and improve. Future platform enhancement should benefit not only our existing portfolio, but also allow us to generate outsized returns when buying assets at market prices.

With that, I'll turn it over to Joe.

Thank you, Jerry. The topics I will cover today include third quarter results and fourth quarter guidance, an overview of collections and our bad debt reserves and a balance sheet and liquidity update, inclusive of recent transactions and capital markets activity. Despite the challenges we faced during the third quarter, our FFO as adjusted per share of $0.50 declined by only $0.02 or 4% year-over-year. The $0.01 sequential decrease in FFOA per share was primarily driven by lower property revenue due to a decline in occupancy and elevated concession levels, partially offset by lower interest expense from executing accretive debt prepays and higher DCP income from recent investments.

Regarding guidance, despite the continued uncertainty around how the pandemic will impact the economy, the regulatory environment and our business, we have provided fourth quarter 2020 combined same-store growth and earnings guidance, as outlined on Page 2 of our release. We anticipate fourth quarter FFOA per share to range between $0.48 and $0.50, with the $0.49 midpoint representing a 2% sequential decrease. We expect fourth quarter year-over-year revenue growth of negative 5% to negative 6% on a cash basis, and we expect the difference between cash and straight loan revenue growth rates to compress relative to the third quarter due to a lower amount of concession dollars during the fourth quarter because of fewer lease expirations and the amortization of concessions previously granted. Additional guidance details, including sources and uses expectations, are available on Attachments 15 and 16E of our supplement.

On to collections and how we are reserving for potential bad debt. To begin, we continue to make progress on second quarter collections, which stand at 98.1% of billed residential revenue. This is 200 basis points higher versus second quarter end, and leaves a modest 20 basis points or approximately $600,000 of earnings risk towards the revenue we recognized during the second quarter, given the $5.5 million or 1.7% reserve we took. For the third quarter, as we outlined in our operating update on Page 2 of yesterday's release, as of quarter end, we had collected 96.1% of billed residential revenue, which is the same level of collections compared to the end of the second quarter. We expect cash collections to ramp further and subsequent to quarter end, third quarter collections stood at 97%. This compares to our bad debt reserve of $4 million or 1.3% for third quarter billed residential revenue. Collectively, we had a rental revenue accounts receivable balance of approximately $15.5 million at quarter end, against which we have reserved $9.5 million between the second and third quarters. This leaves $6 million or less than $0.02 per share of recognized revenue that we expect to collect in the future.

Moving on, our balance sheet remains strong due to ongoing efforts to reduce debt cost, extend duration, maintain liquidity and preserve cash flow. As such, we remain in a position of strength to weather the continued effects of the pandemic. Some highlights include: first, as of September 30, our liquidity as measured by cash and credit facility capacity, net of our commercial paper balance, was $924 million. When accounting for the roughly $102 million previously announced for equity sales agreements, which we intend to settle in the fourth quarter of 2020, we have over $1 billion in available capital.

Second, after completing the refinancing of our final 2020 debt maturity during the third quarter, we have no consolidated debt scheduled to mature through 2022 after excluding principal amortization and amounts on our credit facilities. Looking further ahead, less than 15% of our consolidated debt is scheduled to mature through 2024. This is due in part to our issuing $400 million of 2.1% 12-year unsecured debt during the quarter and prepaying over $360 million of higher cost debt originally scheduled to mature in 2023 and 2024. Please see attachment 4B of our supplement for further details on our debt maturity profile. Third, identified uses of capital remain minimal and predominantly consist of funding our current development and redevelopment pipelines to which we added 440 Penn Street, a 300-unit, $145 million community in Washington, D.C. The aggregate cost for our active development and redevelopment projects totals only $453 million or less than 3% of enterprise value, and they are nearly 50% funded with approximately $234 million of remaining capital spend for the next 24 to 30 months. Fourth, our dividend remains secure and is well covered by cash flow from operations. Based on third quarter 2020 AFFO per share of $0.45, our dividend payout ratio was 80%, resulting in over $100 million of free cash flow on an annualized basis. Taken together, our balance sheet is in good shape, our liquidity position is strong and our forward sources and uses remain very manageable as is detailed on Attachment 15 of our supplement.

Next, a transactions update. First, as previously announced, we funded a $40 million DCP commitment for a community in Queens, New York, at a 13% yield and with profit participation upon a liquidity event, which we expect to occur in approximately 5 years. As a reminder, the project is fully capitalized and the investment provides superior economics compared to pre COVID deals due to more restricted bank lending standards and generally lower available construction financing. Second, during the quarter, we acquired a fully entitled development site in the King of Prussia submarket of Philadelphia for $16.2 million. Third, subsequent to quarter end, we sold DelRay Tower, a 322-home community in the Metropolitan Washington, D.C. area for $145 million or approximately $450,000 per home, the proceeds from which we expect to accretively redeploy in the coming quarters.

Moving forward, we will continue to leverage our industry relationships and evaluate investment opportunities based on a rigorous set of qualitative and quantitative criteria in determining how and where we choose to invest your capital to generate value, with DCP being our top-rated use currently.

Last, as is evident on Attachment 4C of our supplement, we continue to have substantial capacity before we would breach our line of credit or unsecured bond covenants. As of quarter end, our consolidated financial leverage was 35% on undepreciated book value and 34.2% on enterprise value, inclusive of joint ventures. Consolidated net debt to EBITDAre was 6.5x and inclusive of joint ventures was 6.6x, which looks slightly elevated due to the still outstanding settlement of forward ATM proceeds.

With that, I will open it up for Q&A. Operator?

(Operator Instructions) Our first question comes from the line of Nick Joseph with Citigroup.

Appreciate all the disclosure, particularly around the different parts of the portfolio. When you think about UDR's portfolio, obviously, it's diversified across markets and price points. But Tom, given the regulatory restrictions that you talked about, and I recognize some are national, but a lot of those are more local or state driven, how do you think about the market exposure past COVID, so once the transaction market returns more to normal, is there -- are there any lessons thus far that maybe makes you want to change where the portfolio is situated?

Nick, it's Joe. Maybe I'll have to lead off and then pass it over to Tom to close it out. But I think similar to our comments from last quarter and throughout conference season, I think it's a little bit too early at this point to jump to conclusions in terms of market exposures. We're fairly certain the diversified portfolio has worked for us throughout this crisis as well as during the upmarket. So that piece of the strategy will remain. But I think we want to get through a couple of these binary outcomes to try to figure out what it means ultimately for our market. So getting through the election here in a couple days, getting through COVID and getting a vaccine, understanding to what degree regulatory environment changes, and then being able to evaluate the fiscal health of these markets. And ultimately, what happens with migration of jobs and therefore, migration of incomes over time, then how does capital on the supply side respond to that. So today, I think it's still too early. What we're really focused on is, can we do what we've done in the past from a capital allocation standpoint, which is just continue to do accretive type of spread investing. So stay disciplined on that point. Try to source low-cost capital, be it through dispositions or free cash flow and drive more accretion, which I do think is important within this release, just to highlight the fact that while our year-over-year earnings growth was down 4%, when you look at the underlying pieces within that, we had almost 4% accretion coming off of last year's acquisition, DCP and capital markets activity. So the amount of work we've done on that front continues to show through. And so while operations is clearly important to us in this environment, driving cash flow is all the more important. So pretty proud of what we've done there. And yes, I'll actually kick it to Mike. He can probably talk a little bit about how those transactions are performing.

Yes, Nick, I would say if you look at that at $2 billion in acquisitions, we're actually within 100 to 150 basis points on our original underwriting. And I think a lot of that, you can point towards our 90% of those properties are suburban in nature. So we're pretty happy with where we've gone with those deals.

And then just maybe on the DCP program, the $20 million secured note that saw the default. Can you talk about the plan is there and the underwriting for that as you plan to take title of the land?

Yes, Nick, it's Joe. I'll kind of come at a high level first just to give a little context and then Harry is going to jump in and give you some details on that transaction and outlook for it. So yes, ultimately, the DCP, as we've talked about in the past, idea is to get IRRs or returns in between acquisitions and development, while taking a risk commensurate with that. With this plan and with this deal, similar to all deals, we report back to the Board as we do a development and acquisition and show them what the returns were, what the acquisition returns were, what the development returns were. And overall, the program has pretty much performed as expected. When you look life all the way up to date for things we've realized, including Alameda, we're running right around a low double-digit IRR, which is what we've communicated previously. It's got a couple of home runs in CityLine 1 and 2, Arbory and Parallel. Got some signals like Alameda in there. But the process is always pretty much the same. Are we comfortable owning an asset at that basis? Are we comfortable stepping in? And have we given ourselves the ability to when you look at the structure in the documents? So I think the one thing that's probably differed here a little bit versus all the other DCP transactions we've done, this is a land loan. It did not have limited partner equity lined up. It did not have construction financing lined up. We got involved with the intent to be a pref equity deal at some point in the future once they did that, whereas all other transactions, we close simultaneous with equity, construction loan and limited partners. So we took on a little bit more risk, but that's part of the reason we have the opportunity today going forward within DCP, which is less LP, less construction financing, more opportunities for new deals that we're out there doing. But ultimately, I think this deal, we've got some time here to evaluate, but we'll be at the 150, 200 basis point range over market cap rates once we get in the ground and get that deal started.

Nick, this is Jerry. I'll just jump in for a minute. Just a reminder, this is a parcel of land that's fully entitled for 220 market rate homes. We have a cost basis of roughly $114,000 per unit. But that includes nearly $15 million that was invested by the borrower for land equity, architectural plans and other entitlement costs. So the valuation is quite good. The borrower owns the master development, which created a significant amount of required investment for them. They own the parcel next door. They own Phases 2 and 3 of the master plan. And as Joe mentioned, have been unable to secure an LP to help fund the several million dollars of costs prior to construction commencement, including interest in our loan, which they were paying currently. The borrower asked for some assistance given their other financial commitments on the broader site. And we just made the decision to take the property rather than grant assistance. It's all being done in a very friendly manner. Just a little bit about the site. It's a former Navy base in Alameda, which is a quasi-island between San Francisco and Oakland. The environmental cleanup and entitlement process took probably 20 years to complete. The site is part of the larger master plan with multiple parks, 2 townhome projects selling for more than $1 million per home. Another market rate community and a senior community that will be completed next year, plus office and retail in the future. It's a high income suburban-ish location, excellent schools, 20-minute ferry ride to San Francisco. And I'll remind you, there's been virtually no new supply in Alameda for the last 20 years or so, just a single 200 unit property built perhaps 10 years ago.

The next question comes from Rich Hightower with Evercore ISI.

So a couple quick ones. I guess in light of the seasonal slowdown in leasing that we're going to see in all markets, but really centering on Manhattan, Boston and San Francisco. How long do you think this 4 to 8-week plus concession environment can last? Would it last, forecast sort of through the end of the 4Q, early part of 1Q? I mean how should we think about (inaudible) and doesn't really factor into anything for the next few months, let's say. And likewise, with office occupancy and that sort of thing.

Rich, it's Mike. I'll take a stab at that. First, I'd start by saying we continue to believe in the long-term viability of both New York and San Francisco as well as Boston, as job creation centers in cities that will attract talent and individuals who have demonstrated a propensity to ramp. In all cases, we are encouraged that our approach has led to increased occupancy. So with that, you kind of have to solve for one of the levers first. And I can tell you, having a diversified portfolio, we've seen opportunities where we can increase rents today and concession levels have come across in places like the Sunbelt, and we're able to hold occupancies relatively high. But going back to New York, San Francisco and Boston, we have taken an approach to try to increase our occupancy there. That being said, it has come at a cost, and we've seen concession levels anywhere from 8 to 12 weeks in some of the hardest hit parts of those markets. But in then other parts where we have more suburban assets, it's closer to 0 to 2 weeks on average. So we are starting to see in pockets, concession levels coming off. And again, our occupancy levels are rising.

Okay. I appreciate that. And then maybe a little bit more broadly, and this hits on the sort of market diversification and portfolio allocation question as well. But as you think about a lot of these beaten up states and municipalities coming out of COVID and the implications for property tax increases. How do you think that's going to play out across the [rents and] the markets and the localities that you're exposed to? What should we think about the next 1, 2, 3, 4 years in that context?

Yes. Rich, it's Joe. Phenomenal question. We've been spent a lot of time thinking about broader fiscal health, but also, of course, real estate taxes, both near and long term. Yes, I'd say at this point for 2021, we've got approximately 1/3 of the portfolio that's in California. So clearly, we have that effectively locked in at 2%. In addition to that, you probably have about another 20% of the portfolio or [an expected expense] next year, it is effectively locked in as we've already got the valuation. So we're starting to reduce that risk. It's probably kind of mid-single digits type of growth next year for real estate taxes. But I'd say if you think about those municipalities and states, it's not quite as simple as just thinking coastal Sunbelt, red versus blue. It depends a lot in terms of the sources of revenue that those states have. So obviously, there's states like Florida, Texas, Tennessee and State of Washington that have no real estate -- or no income tax, which puts them much more dependent on the real estate tax side and the sales and use tax side. So I'd say as we go forward, we're a little bit more concerned about what's going to take place in Seattle, Tennessee and Texas next year in terms of valuations as they try to fill up that revenue bucket. And then it comes down to there are markets that are hard to hit like New York and New Jersey, California. But I'd say California is probably one of the best positioned in the country from a reserve or rainy day fund perspective. So you do need to factor that in. And then we've got the election next week, which if there's a democratic sweep, clearly there's been talk of stimulus for states. And so with the stroke of a pen, you could potentially bail out some of those fiscal issues, which is why we keep saying, we do want to wait and figure out some of the binary risk that's out there.

Our next question comes from the line of Nick Yulico with Scotiabank.

This is Sumit in for Nick. I was just sort of piggybacking on Rich's question on accretive spread investing. Just curious, there's a lot of capital getting into the Sunbelt. At least when you speak to people who are predominantly California buyers, they seem to want to get a little more Sunbelt exposure and so -- either through acquisitions or development lending. So curious if there are any markets, besides the coastal markets that you may not be interested in at this stage, just because the spreads are not suitable?

No. I mean there's really nothing that we've red lined today. Obviously, we're cognizant of near-term performance in certain markets. So New York, Boston and San Fran, so we're cognizant of the performance there. And as you go through the underwriting, there's a probably wider degree of variables or outcomes as you think about our NOI stream, but there are no markets that we've red lined. Typically, when you see kind of herd mentality all shift to a place like the Sunbelt, you see some cap rate compression and see more competition. That's not always a great way to make money to run with the herd. So there may be more value opportunities in other markets. But nothing we've red lined today. At the same time, I wouldn't say there's any new markets outside of the 6 or 7 in the Sunbelt that we're already in that we're looking at.

Sumit, this is Tom. Just to add some additional color. I think there's a lot of people sitting on the sidelines waiting the outcome of the election and the potential changes in tax particularly around rates as well as 1031s. And so I think you're good to be thinking about this topic, but I suspect post-election, first part of '21, you'll see an elevated differential in where capital is flowing and the triggering of those 1031 transactions will start to be more visible. So kind of saving ourselves to watch how that unfolds. But there could be some opportunities inside of that to be selling.

Got it. And in terms of the urban sort of markets that you've highlighted in the release, I guess, New York, San Francisco, Boston. Just interested in what kind of units are you seeing the biggest weakness in like 1, 2 beds, 3 beds or studios?

Sure. Generally speaking, we've seen less occupancy on our studio units and those are particularly located in places like New York, San Francisco and Boston. That being said, we have seen things like our transfer relet fees increasing over the last few months, and we have been able to move people from studio units in those areas into larger 1s and 2s, where we're capturing a higher fee income as well as keeping that occupancy in place.

Our next question comes from the line of Jeff Spector with Bank of America.

Can you hear me?

Yes, I got you now.

I just wanted to follow up on the market question again. I know you've discussed it a few times, but I just want to confirm. So let's say, the outcome of the election, it's where there's no stimulus or limited stimulus in early '21. Are -- just so I have my head around this, are we saying that, that doesn't necessarily mean San Fran, New York, Boston are -- have major issues ahead you feel like -- because I'm worried about San Francisco in particular. And I think [a peer] made a comment this week that was something similar. But for your company or just owners of apartments in San Fran in general and these cities, do you feel like just we shouldn't just look into that directly and say, okay, if there's no stimulus, limited stimulus, these cities are in major trouble for years to come?

I don't -- I wouldn't say that's the case. I think there's a number of other factors aside from the stimulus side. Clearly, if there is, that helps relinquish a little bit of the fiscal pressure that some of those states are under, that is helpful. But there's still going to be a lot of other facts. I think we come back to a number of these coastal cities and look at the knowledge-based economy. And while individuals have spread out today, COVID's probably the biggest impact and forward indicator of are those cities going to come back. So as you see the ability to get back on mass transit, come into high rises, as you reactivate a lot of the amenities in those cities, I think that's going to be a big driver. And throughout this crisis, while office leasing is off obviously fairly materially, you still have seen a lot of tech companies taking down space in some of these major markets. You go out to New York and what's been taking place there with Salesforce, Facebook, Google. Facebook just bought the REI headquarters up in Seattle. Boston, San Fran, of course, has the life science contingent, tech contingent. So I don't think, ultimately, you're going to see a mass exodus from these cities. It's going to be more the hub-and-spoke model, where maybe you need to be in a couple days a week. And if you do have the ability to work from home remotely full time, you still have some of these tech companies that are going to start reducing your income if you do so. So the cost of living argument starts to carry a little bit less weight in that scenario. So I don't think we're dependent on 1 factor at the end of the day, i.e. the stimulus. There's going to be a lot that rolls into it in the qualitative and quantitative side.

Okay. That's fair. And then my follow-up, I'm sorry if you discussed this already, if I missed it, but again, just given your diversified geographic portfolio, can you talk about -- did you discuss any of the trends you're seeing like within the portfolio or moves within the portfolio? And again, any comments on that? And do you think some of this is temporary? Or when you've interviewed the people moving, it seems more permanent?

Yes. The -- I have some pretty good stats on that as it relates to a couple of the coastal markets that we can take you through. And yes, we've seen a lot of reports out there and similar to the work done on like USPS forwarding addresses and things like that, which seem to indicate New York is a little bit more urban to suburban. Maybe San Francisco a little bit more exiting the market, potentially temporarily. Clearly the Sunbelt is winning in the interim, but we've seen these ebbs and flows over time. But Mike has some pretty good stats on it.

Jeff, I'll start with the move-outs. We have been looking at this and we look at it, both over the last, call it, 6 to 9 months, and we compare it to prior periods. I'd tell you, in both New York and San Francisco, we experience around 40% of our move outs relocating out of the MSA, and this compares to about 20% to 25% moving out normally. And the difference between these 2 markets is in New York, we had more local forwarding addresses to places like Boston, New Jersey, even Upstate New York, where we're getting the sense that people are moving out and potentially looking to come back if and when the markets really open back up. The difference with San Francisco over the last 30 to 45 days is, we've seen more of those forwarding addresses in states that are further away from California. But that being said, I will tell you, given traffic and application patterns increasing for us over the last, call it, 2 to 3 months, we're starting to see people come back to the cities outside of that MSA. So it's been promising to see some of our traffic patterns. Specifically for New York, San Francisco, just to give you a little bit more color on the markets, I'd tell you our hardest hit submarkets in New York were the financial district and Chelsea for us. And you can see it on ourself that we did a cash and straight-line basis for New York. Those markets were down in the negative 20% range, and they were obviously hit harder with concessions in the 8 to 10-week range. I'll tell you today, though, Chelsea, our asset there, we're running back in the 95% range, and we're not actually offering concessions. So that's been a promising submarket for us over the last few weeks. As far as San Francisco goes, during the quarter we had very different experience amongst our submarkets as well as urban and suburban exposure. And I can tell you that 68% of our properties are in that urban area, and they were down about 23% compared to our suburban exposure, which is closer to 30%, they were down around 11%. So a much different story. And again, you can point it back to the concession levels, the occupancy levels. Obviously, in that Soma area, we're seeing concessions in the 6 to 8-week range today and down along with Peninsula, we're seeing 0 to 2 weeks. So a much different story as you start going down south.

Very helpful.

Jeff, this is Toomey. I'd just add some color. I mean the key that we spend a lot of time every week on is looking at that occupancy concession trade-off trend. And you can see it in New York, it hit its low occupancy in the Manhattan portfolio, pure urban, down in the low 80s and now Mike's running that close to 93%. And with that type of occupancy level, his concessions can go from 12 weeks down to 8 pretty rapidly. And as he gets up closer to 95%, he'll pull it down even further. So I think that while everyone is quoting rent billed, rent collected, the real turning and inflection point comes when we achieve an occupancy concession trade-off that works on a net cash basis for us and helps us build a '21 rent roll. And so that's what we're really focused in on last month on the balance of the year, is that particular markets that are starting to have that inflection piece. And it's hard to find, but it's going to show up in those 2 stats first.

Our next question comes from the line of Austin Wurschmidt with KeyBanc.

You mentioned DCP is one of the most attractive opportunities for you today. Just curious though what your conviction level is maybe versus last quarter in buying back some stock here given the incremental proceeds you've got from the DC sales?

Austin, it's Joe. Over time, I think we've shown a pretty good track record in terms of our ability to pivot to different sources and uses. Obviously, we pivoted last year to a good cost of equity and grew the enterprise pretty accretively. More recently, it went the other way. And as you mentioned, we did buy back a little bit of stock in third quarter, we bought some back in early 2018 when we got to pretty compelling levels and bought back back in the last downturn. So there definitely isn't an aversion to buy back stuff, but we do realize that capital is precious at this point in time. There's a lot of unknowns out there. We got to have good conviction in the economic trajectory, in the capital markets, our NOI, which while we have enough conviction in the next 2 months to give you fourth quarter guidance, I can't say that we have a high degree of conviction in the next 2 years. So there's a lot of unknowns out there still as well as, of course, implications to our taxes, our rating agency, our liquidity, leverage, et cetera. So we're going to try to balance them all. As you mentioned, we sold that DC deal, but that is part of the operating partnerships and there are certain tax implications, so that is going to be a 1031 transaction. The idea there, the genesis there was simply to take a very compelling price, and you can back into what the yield was that we sold that at, looking at Attachment 5 down on the held for sale NOI and redeploy that in a very accretive basis into hopefully, another transaction that has pretty good operational upside as we've show in past acquisitions.

Got it. No, that's helpful. And I know that, recognize there's a lot of uncertainty in the outlook for the economy here. But you mentioned that cash and GAAP same-store revenue are compressing in 4Q. Do you think cash same-store revenue has bottomed at this point?

Yes. I mean, in the interim, we're not trying to call the inflection or we're not trying to speak to '21 yet today. Hopefully, we have that conviction when we talk in late January when we get out there, would potentially put out '21 guidance, we'll see where we're at at that point. But today, when you look at our press release, that billed revenue line item that we focus on a lot as it kind of weeds through all the concession, occupancy, rate tradeoffs, you can see October, we're looking at around $103 million. So that's 3, 4 months in a row here that we've kind of hung around that level. So next quarter, we think cash same-store rev on a sequential basis should be plus or minus flat. Expenses should come down a little bit, generally just due to seasonality and turnover, and you should get a positive sequential cash NOI number out of us. The headwind, of course, that comes with the straight-line side, which you mentioned on the guide, you start to see that compression and you do have to run [off bill] a little bit against the straight-line amortization. So that's why you see $0.50 this quarter coming down to $0.49 next quarter.

Our next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just a couple questions for me. I guess first off, is there anything in short-term rentals or parking, et cetera, that kind of has contributed to the widening gap between the blended lease rate growth and the cash same store numbers?

No. Juan, this is Mike. I would tell you, just to give a little color on our other income. We were pretty excited to see that, that was actually a positive contributor to our total revenue in the quarter. So give you a little more color on our short-term furnished program, we were down around $1.3 million year-over-year or about 70%. We had probably roughly 130 occupied compared to typically 400 per month. So that was mainly due to the regulatory environment as well as just people not being able to travel as much. And then on late fees, we weren't able to charge in a lot of cases. So that was down around $500,000 or 40%. And then our common area amenity program that we started last year, we weren't able to do a lot of that this year, so only down about $200,000. So in total, that was down $2 million. On the flip side, to your point, on the parking, that's one of the more sticky initiatives we put in place over the years. That was up 3% or $200,000. And our biggest pickup on other income this quarter was transfer lease breaks, goes back to that point. We've reached out to a lot of our residents to try to figure out how we can try to keep them. In a lot of ways it was just moving into the property to different units. And so we were able to increase that by about $1.5 million in the quarter, up 75%. So overall, other income was a positive contributor for us during the quarter.

Our next question comes from the line of Rich Hill with Morgan Stanley.

I think I might be the only analyst on Wall Street that's actually back in the office, and I think you guys might be as well. So misery loves company, I guess. I wanted to chat a little bit about what the fourth quarter might look like. I really appreciate you guys giving the guide. I think that's really helpful, at least for sentiment. But could you maybe talk about what the occupancy build that's embedded in your guide and what leasing spreads might look like as well?

Yes. Rich, if you go to Page 2 within the press release, it really gives you a pretty good sense for where 4Q is going to play out. So as Mike talked about, the occupancy trend is starting to pick up a little bit as we showed you on Page 3 as New York, San Fran, Boston have picked up a little bit. You see the October range start to pick up relative to Q3 '20. The blends, off a little bit, which a little bit of that is just math in terms of which units you're leasing. Obviously, you have a weaker blended lease rate in New York, San Fran, et cetera. And so to the extent that we gain occupancy in those, which is good for cash flow, it does show up optically negative on the blends. But ultimately, it's about cash flow and how much revenue we can build. So I think those are going to be relatively static as you think about the trajectory of those numbers.

Okay. That's helpful. That was getting at my question. I promise you, I did get to Page 2 of your press release, believe it or not. So one more question, guys. As you think about this demand increases that you and some of your peers are starting to see, can you maybe walk us through why that demand is building? Is it seasonal? Is it because rents have dropped enough? Are you actually seeing people come back? What's driving that? And I guess ultimately -- it's ultimately a question about why are you comfortable enough giving a guide? Because clearly, you're seeing something.

Rich, it's Mike. I think the biggest thing for us, it goes back to the whole diversified portfolio. And every market is acting a little bit differently, and then you can go within the submarkets within each market, and we're seeing different stories. I think my example of Chelsea is a good one as well as the financial district. When they started bringing back some of the jobs to the city, we did see an uptick in demand. And recently, we've seen, just generally speaking, our traffic patterns increasing in places like the Sunbelt as well as some of these harder hit markets. Some of that is a function of us finding the right spot in terms of pricing. And some of it, quite frankly, where we're seeing people come into the market that we historically haven't seen come into the market. So again, very different market by market. We have been very excited to see our occupancy levels, obviously, increase in that 20% of NOI that we've referenced in the past has been more of a struggle. So that obviously helps, to Joe's point, put us in a more stabilized environment when it comes to billed revenue.

Got it. And maybe just one -- go ahead, I'm sorry.

I think the other thing is, I mean, we, of course, track all the mobility stats about markets, all the restaurant bookings, [castle] on the security guard slide gives you some indications by market. So slowly, but surely, those are coming back. Clearly, not nearly close to where we'd hope they'd be. But the broader job (inaudible) clearly as individuals get more comfort that the economy is moving in the right direction, that they're going to retain their job or that they're actually getting their job back, that's helpful. So whether or not they've left a city, whether or not they work in an office, just hitting the comfort level that they are going to have a job and the ability to pay rent is helpful from a demand standpoint.

Got it. And just maybe one follow-up question. Can you share any renewal data on the non CBD markets? I recognize you did a really nice breakdown for the 3 markets that you discussed on Page 2. But the non-CBD market, so any updates on the renewal trends there?

Yes, Rich, the renewal trends that we're seeing today are pretty consistent. I would tell you, in general, we've been sending out that 2% to 2.5% range. And I would remind you and everybody else that 20% of our NOI is capped at 0%. So that's kind of where we stand there. But as far as the markets that are in the other bucket, they're still in that 2% to 3% range, and that's what we're sending out today.

Our next question comes from the line of Rich Anderson with SMBC.

Rich #3 here. I feel like maybe there should be some rule against dialing in an hour early before a conference call, but that's another conversation entirely. So on the topic of the CBD, New York City, Boston and San Francisco, am I reading this right, are you guys kind of frustrated with the local and state leadership there and don't agree with how it was handled, or -- and maybe that's a strike against them when it comes to investing again in those marketplaces? Or is it the reverse where you'll maybe more likely zig rather than zag and invest more there with a longer-term view? I'm curious how the leadership through this COVID thing has impacted your view of those 3 specific marketplaces.

Rich, this is Toomey. And for the right price, we could let you reserve that first spot. And I understand if we run through the TRS, we're pretty good on the income, just to help you out there. Or a box of cigars, either one would probably get you there. So yes, I think it's a fair question with respect to our observations of how government has responded differently in different municipalities, and does it taint our view towards the market in the future. I wouldn't say it taints it. What it does is, as Joe highlighted on the portfolio strategy, it's another part of the Q that we're looking at and saying, what do we think the tax base looks like, how vibrant of an economic environment and is it conducive to us in our operating business. And there's a lot of city councils that swung very far in a very aggressive manner. And we think they're going to pay a price in the long-term viability of their city. And that's not for us to judge. It's just we have to take the facts in and look at it and say, boy, does that change our example, Seattle, downtown view of that marketplace when they have declared war on business through a variety of taxation, legislative action. Well, businesses are going to move. And if those businesses move, our business has moved. So yes, we do weigh it. But we want to see more facts develop and see how cities open back up. And if they realize that if they open their doors to business, the vibrance of their city can take off and all the other projects they had can be funded and they can solve some of their problems. But the anti-business sentiment that is being exposed in a number of these cities, I hope passes. I think we're in an election year. Everybody's amped up. We'll see how that plays out at post-election and if they start pulling back off of some of this. We've seen -- you can see it in California, 3088 was a nice measure. At least it got forced people to have a dialogue. Florida lifting evictions. You're starting to see cities respond, and it will be a question about the aggressive nature of that response and the timing of it, but we're just like everyone else. We're a citizen. We've got to run our business. We've got to look at how that business is impacted by its overall legislative agenda.

Our next question comes from the line of Amanda Sweitzer with Robert W. Baird.

Can you guys just expand on the pipeline of potential DCP deals you see today? And then I obviously recognize that each deal is unique, but where are you seeing pricing trend today for some of those DCP investments that was relative to the 13% yield that you guys achieved on Queens?

This is Jerry. I mean, I'd tell you, generally, the number of opportunities we're seeing is increasing. Capital overall is more difficult for the developers. Debt proceeds are lower, LP capital is more difficult to obtain. But all of those things make it difficult for these projects to get started because they have to get the entire capital stack. So we're looking at a lot of opportunities. On the other side, there's a lot of capital that's also looking to deploy capital in this space. So it is pretty competitive. But I think our -- the deals you've seen us do over the last, call it, 18 to 24 months are pretty consistent with how we're pricing deals today. And so that would be typically a blend of coupon and back-end and underwrite it to kind of a 12% to 14% type IRR.

Our next question comes from the line of John Pawlowski with Green Street Advisors.

Just 1 question for me. Tom or Joe, on the capital allocation side, you've been emphasizing patience this year. But acknowledging you can't control when a large portfolio could come to the market, if one did that met your quality criteria, would you be willing to bid on it right now?

John, it's -- you saw what we did in 2019, which was, we had a number of parameters, obviously, had a fit with where we want to deploy capital on a per-site basis but -- and if it was a platform upside and then it had to be near-term accretive, and we had to have a good cost of capital to fund it. I don't think there's any disputing in the room here that we do not have a good cost of capital on the equity side. Debt markets are absolutely fantastic for us. Dispositions are a great source of capital for us. The cost of equity is nowhere near where it would need to be to do a portfolio type transaction. So we're more so in churn mode, given just incrementally drive a little bit more cash flow with the sources that we can create internally.

Our next question comes from the line of Neil Malkin with Capital One Securities.

First one, in your urban San Fran, New York portfolios, what is the month-to-month breakdown? Like I guess, how many tenants -- well, first, I know you have the potential you have -- or the majority of your corporate housing, short-term housing there. But how many -- or what percentage is the month-to-month leases given people's uncertainty with COVID? We've heard a lot that there's a rising amount of month-to-month. And just wondering if you've seen that and how you're handling that?

Neil, it's Mike. We've been watching the stat and it's been amazing to watch because we're running just under 4% month-to-month today. And I would tell you, just to put in perspective, we typically run around 3.5%. So we haven't actually seen much of an uptick when it comes to month-to-month. And when you go into those particular markets, it's basically the same trend line.

Okay, appreciate that. I guess, maybe for Joe or for Chris or Thomas, you guys talked about when you look at your advanced analytics or not wanting to make a decision too quickly. You want to make sure you can go long term (inaudible) something more permanent. But I just kind of want to go back to like the California thing for a second. I mean you look at like a lot of permanent moves, for example, a lot of companies have been moving their headquarters, legislation that will -- if it gets passed this November or if not, be on the ballot in 2 more years just given how far to the left the politics have gone there. You look at a lot of these like defund the police movements, a lot of things that, to be honest seem permanent, seem like longer-term in nature. So I guess, what else do you need to see or how do you weigh those sort of trends that are more permanent in nature when deciding to shift your capital allocation or maybe adjust how that looks or screens in your advanced analytics analysis?

Yes. A little bit is to use history as a guide and not just have a knee jerk reaction on this. We do -- when you say these are more permanent in nature, that seems to be kind of a popular view today, but you go back over times and look at the tech wreck or financial crisis and at the depths of those, there was an expectation that some of those markets that were hardest hit were going to be potentially underperforming. I don't think that's the case because when you look at migration over time, migration has consistently gone from Midwest and the coast down into the Sunbelt. But it hasn't resulted in long-term rental rate out performance. You have to have income growth to drive it. It can't just be heads that drive it because supply usually offsets it. So you need that higher income component. And what remains to be seen is, to what degree you see an income migration. So the good thing is we're already diversified. We've already got exposure in the Sunbelt. We've got exposure to markets like Baltimore and Richmond that are performing well. Monterey Peninsula are performing well, even though those are on the coast. D.C. is performing well for us. So right now, we're kind of in a position of strength to be patient on this. And to the extent that we want to shift capital over time, you'll hear more from on us in terms of seeing what our actions are.

This is Toomey. I'd add, one of the factors I've not seen much riding from the sell-side on, and we've not discussed externally, but internally we have is potential immigration policy impact. And if it changes dramatically, do you have the normal migration cities that get a burst from that piece of the equation. So you can see there's a lot of factors that when you start looking at the crystal ball of the future, you'd say, "Boy, we'd like to nail down 1 or 2 more of those" before you start making knee-jerk reactions that we live with for the rest of our days. So I think being patient is sometimes the hardest thing to be, but the most rewarding thing to be.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

First, on the topic of Dem sweeps, I think also part of that could be national housing regulation and rent for business. So I think when people think about a stimulus, that (inaudible) there's a negative of increased regulation for a sector, but it clearly doesn't meet it. But 2 questions here. First, on the concessions that you guys outlined in your -- sort of the target urban core markets that are facing a lot of pressure. The renters that you see coming in, is your experience that renters that come in when there are heavy concessions in the market tend to be not that sticky so you expect these folks to leave next year? Or your view is that these are people who have always wanted to live in the city or in that neighborhood, and therefore, are taking a hold, and will stay committed once those concessions are no longer part of their rent or (inaudible)?

Alex, I think for us, what we're experiencing today is 70% of our people that are coming into these places in New York and San Francisco are coming from within the area. So it does feel like they are looking for the best deal. It may be, in some cases, the place they've wanted to live, they just wanted to wait for the right pricing. And so once we get them in there, obviously, we do feel that with our platform and things that we put in place, we differentiate ourselves from others, and we do have the ability to try to keep them. That being said, only 40% to 50% of the people that have moved in over the last 3 months actually received anything substantial. And when I say that, that's in that 3 to 4-week range concession level, but half of them didn't even really receive a concession at all. We typically use it as a loss leader, try to get people through the door. And again, in a lot of ways, not every single person that comes through there is actually getting a big concession.

Yes. And I'll add to that, Alex. When you look at the resident screening perspective, one thing we, of course, want to avoid are those individuals jumping from someone else's bad debt pool to our own bad debt pool. And when you look at the number of individuals over the last 4, 5, 6 months, you've not seen a larger percentage turn into 60-day delinquent than what we had previously. So the resident screening that's in place, we're not taking on bad debt by offering up concessions and bringing in a bad resident.

Okay. And then the second one is just looking at Boston in particular, given some of the NMHC interface comments about the length of time for international students to come back that it won't be this year, it may take next several years. In your portfolio in Boston, how exposed traditionally are you to the international students? And how do you see that impacting the recovery of those school-oriented apartments?

Relatively low exposure for us on the international side. We, over the last 6 months, have experienced around 1% move outs, so around 500 people. And it's not big. I would say Boston is probably a little bit higher than other parts of the country, but it's not any more than 2% to 2.5%.

Our next question comes from the line of Haendel St. Juste with Mizuho.

So I guess a quick question for you, Joe, first. You mentioned that your leverage year has increased to 6.5x on the net debt-to-EBITDA versus 5.5 a year ago. And it looks like if you were to take that forward equity down around the current pricing, you'd be somewhere around 5.9 this time by our math. So I guess my question is, I know you have lots of liquidity and limited debt maturities upcoming. But how comfortable are you maintaining this type of leverage profile into the near future? And do you think this will potentially limit your willingness or ability to deploy capital opportunistically?

Yes. Fair question. So the leverage has ticked higher on a debt to EBITDA basis. That said, over the last year, you've seen some other metrics improve, be it duration, 3-year liquidity, fixed charge coverage ratio. So it is one metric that hasn't gone the way we'd like. But that's the reason we typically run with a very solidly investment grade balance sheet throughout the cycle. So when you see EBITDA come off a little bit, we can absorb that. So the forward equity yield of around $100 million, we expect to draw that down in the fourth quarter. $100 million on full see through debt right now of $5.4 billion is only about 2%. So it shouldn't move that metric too much from 6.5x. You move it by 2%. It's, 12 basis points. So it'll take us down 1/10 of a turn. That said, when we think about our leverage profile, there's a couple gating items or gradients that we look at. You have where do we stand relative to the rating agencies, where do we stand relative to our dividend and where do we stand relative to our covenants. I'd say with the rating agencies right now, we've had good constructive conversations with them. They seem to be very comfortable with where we stand today and where we're headed. We could probably absorb another $50 million, $75 million of EBITDA declines before we might even begin to get concerned there. Dividend, clearly, we have over $100 million of annual cash flow relative to dividend coverage, so very well supported. And relative to covenants, we could take a $300 million type decline in EBITDA before we'd start to put pressure on covenants. So plenty of capacity, I'd say, across all 3 spectrums. So long story short, we feel very comfortable with where we're at. And when we come out the other side, we'll get back to those kind of full cycle type of leverage metrics.

Got it. Got it. And maybe 1 for Tom or maybe Jerry, what's more likely to happen in 2022, the Broncos win the Super Bowl or New York returns to positive NOI?

(inaudible) If you had lowered the bar to a 500 team, maybe you got a (inaudible) Super Bowl, no.

We all know the Broncos have no shot. But I guess in all seriousness maybe you could talk a bit more about some of the advance indicators you mentioned, the ones that you're, I guess, more focused on the (inaudible) a bit more, be it the restaurant bookings, moving trucks, return to office trends, Starbuck coffee sales. What are you most closely watching to get you a bit more constructive on the urban coastal recovery for places like New York City or Boston in the back half of next year, even 2022? And then are you getting any more comfortable or closer to being comfortable with deployed capital in any of these markets, given all the capital that's been flowing to the Sunbelt and causing cap rate compression there?

Yes. First, break that into 2 questions. What gives us comfort about the pace of a recovery? And I think you start with, first and foremost, a vaccine. You start with people getting back to work. Those are underway, okay? The inevitability, whether they happen in 1Q '21 or 2Q, it's going to happen. And then it's adoption rate, penetration, vaccination type aspect. So we think that is just the inevitability. And it will happen. Then it's a question for us about what fiscal shape are cities in, what legislative agenda are we faced with? And then you asked the second question was about capital. Well, first, it's pretty easy when we're trading where we're trading on the capital side. Our first and foremost is our platform, and then it's DCP, and then it's going to be swapping, meaning assets that people have an interest in and you saw what we sold this quarter. And clearly, there's more out in the marketplace. If people hit a number, we're glad to let the asset go and try to figure out where the best place to put that capital is. And that environment might be with us for the balance of '21. By '22, we should see some normalcy to the business climate and the full impact of the stimulus, the employment picture become more clear, and then we can weigh what our options are beyond that. But right now, it really comes down to the day-to-day markers of traffic, concession, occupancy and pricing, running for our cash flow. And that's not a bad place to be. That's how you manage a recession. You get too far down the road, make too big of bets and the world turns on you, you don't get rewarded for that. We get rewarded for producing cash flow earnings. That's our focus.

Got it, Tom. And maybe as a follow-up, does that imply perhaps that you'd be more likely to be a net seller here over the next 6, 12, 18 months?

Price dependent.

Our next question comes from the line of Dennis McGill with Zelman.

Hopefully a couple of just quick ones. First one, when you look at the effective lease blended rates at 0.6:1 that just got bracketed for October, pretty similar to what you saw in the third quarter. Does that hold for all 3 buckets as you outlined, the 20 60-40 earlier? Is it essentially stable pricing power as you look at it that way in those 3 buckets?

I think it does. For us right now, obviously, we're dealing with a little bit of seasonality as well. But for the most part, now that we have occupancy roughly in the 93% to 94% range in New York, like I said, we do have some more pockets where we're coming off with concessions. So we think that we can have a little bit more pricing power there. And then the other parts of the country, we are finding opportunities to push rate and holding occupancy steady. So I would say, overall, it's directionally moving that way, yes.

Okay. Great. And then supply has obviously taken a back seat to the demand side of late. But where would you -- or how would you articulate the supply picture over the next, call it, 12 months? And I guess within that, are you seeing any product either get delayed permanently or temporarily or (inaudible) become harder to finish product with labor availability or easier? Any thoughts around the pipeline?

I think overall, we probably would have expected a little bit more slippage this year than we think we're probably going to end up seeing. Supply this year in our markets is probably going to end up flat to up 10%. And you think about kind of which market that is, the worst ones, Boston, we've talked about, LA, San Fran, so some of those coastal markets are getting hit a little bit harder. There's not really a lot of relief next year for the portfolio as a whole as those starts already took place. So we're probably flat to up 10% off of this year's number when we get into next year. That said, when you look at the submarket exposures, we do actually see some relief. We think supply in our submarkets comes down next year. And then when you get into '22, clearly, that's when the permitting activity that we're seeing today is going to roll in. So permits being off 15%, 20% within the East Coast, West Coast and kind of flattish in Sunbelt, that's where you should see some relief for the coast from a supply perspective once we get out to '22.

There are no further questions in the queue. I'd like to hand the call back over to Chairman and CEO, Mr. Toomey, for closing comments.

Yes. Real quickly, looking at the clock and knowing that you have a lot more to cover today. First, let me thank you for your interest and time today in UDR. A special thanks goes out to all our associates. You guys have done a fabulous job across the spectrum through a lot of different challenges. I'm very proud of the job you've done and always willing to help, just ask. I mentioned earlier in my remarks, we're very focused on our cash flow. And frankly, very proud of the fact that we've managed this year and looking at the net bottom line, last year, it was $2.08 a share for FFOA, and this year looks like we're at $2.04, 2% decrease through all the challenges that we've had. And very proud of the team for that production. What it did highlight to me is we have the portfolio, the team and the track record to perform well in a recessionary and challenging environment. And I think that will continue for the future and look forward to it. With that, we wish you the best. Good luck.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.