Apartment Investment and Management Company

to the AIMCO 3rd Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal your conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press stars and one on a touch-tone phone. To withdraw your question, please press stars and two. Please note this event is being recorded. I would now like to turn the conference over to Lisa Cohn. Please go ahead, ma'am.

Thank you, and good day. During this conference call, the forward-looking statements we make are based on management's judgment, including projections related to 2020 and 2021 expectations. These statements are subject to certain risks and uncertainties, a description of which can be found in our SEC filing. Actual results may differ materially from what may be discussed today. We will also discuss certain non-GAAP financial measures such as ASFO and SFO. These are defined and are reconciled to the most comparable GAAP measures in the supplemental information that is part of the full earnings release published on AIMCO's website. On today's call, we will provide information during our prepared remarks related to our planned business separation. Given the focus of this call, our ongoing shareholder outreach, and our anticipated public filings expected next week, we are not going to comment on and not respond to questions related to the plan separation or the shareholder solicitation. Prepared remarks today come from Terry Comptonine, our chairman and CEO, Chief Kimmel, our Executive Vice President in charge of property operations, Wes Powell, our Executive Vice President in charge of redevelopment, and Paul Belden, our Chief Financial Officer. I will now turn the call to Terry Compton. Terry?

Thank you, Lisa, and thanks to all of you on this call for your interest in AIMCO. We have a lot to talk about. The third quarter was filled with unusual challenges Here are three headlines. ANCO operations does well in difficult times. ANCO reduces leverage by a billion dollars. And ANCO unlocks shareholder value, reducing risk, leverage, and costs by separating into two entities. Here's the rest of the story. The challenges were the continued effects of the pandemic. Following the second quarter collapse of the economy, Third quarter GDP rebound strong, but uneven. Many sectors remain at historic lows. For example, many universities are now virtual, and many office buildings stand empty as workers now work from home. For apartments, we are now subject to unprecedented government regulation of rent setting and rent collection. In many of our markets, we've experienced rioting, violence, and a general challenge to public order. And the public health outlook continues uncertain, with COVID-19 cases spiking across the country, including several of the markets in which we operate. Truly all, Keith and his team work hard and successfully to provide homes for the individuals and families who live in AIM co-apartment homes. They provide safety, a refuge from the virus, good neighbors, respectful treatment for all, and a helping hand to those in need. As Keith and Paul will discuss later in detail, the economy took its toll. As in previous recessions, some residents could no longer afford their rent. With their departures, occupancy dropped and bad debt increased. In other instances, and this is unprecedented, local ordinances gave residents the option to live rent-free. Two-thirds of AMCO bad for AIMCO. Our forward-looking metrics have been steadily improving since midsummer. For example, lease pace is up and available to let is dramatically down. Occupancy has bottomed. The rate of new delinquencies has been steadily declining. Some important properties in urban settings remain impacted, but the largest portion of our portfolio is returning to its normal performance and steady improvement. As we move forward, we'll benefit from Keith's disciplined adherence to providing world-class customer service as graded by our customers and maintaining his customary high standards for selecting customers who will be good neighbors and stay longer. Notwithstanding the turbulence, Wes and his team advanced our long-cycle redevelopment and found a few new opportunities for future growth Patty Fielding sold a minority joint venture estate and a portfolio of 12 California properties to a passive institutional investor. The same JV was also the source of funds to reduce leverage by a billion dollars, significantly improving AIMCO's strong and flexible balance sheet. With personal and family concerns from the pandemic and school closings, and with the business challenge of difficult markets and changing regulations, the AIMCO team maintained their focus Bank Cup Board of Directors was, as always, highly engaged. While total shareholder returns for the past one, three, and five years have been competitive with coastal peers, the Board would like them to be better and sees the share price discount to that asset value as offering the opportunity for outperformance. The Board goal is to create a simple, transparent, and low-cost public vehicle to invest in stabilized multifamily properties. The Board plan is to simplify the business risk, allocate to a second entity roughly 10% of total capital for development, redevelopment, and non-traditional assets, and hold 90% of AIMCO capital in a high-quality, diversified portfolio of stabilized apartment communities. To reduce financial risk by lowering leverage by $2 billion sourced from the joint venture and from the separation. To increase FFO and dividends per share by substantial reductions in vacancy loss and G&A costs related to redevelopment, and to replenish the tax bases to reduce the need for future stock dividends and enhance our flexibility in capital allocation. After the separation, shareholders will own the same assets before and after, but shareholders will then have the ability to make individual allocations to the entities owning only stabilized apartment communities, to be known as AIR, and to the entity with more complicated, longer cycles, development and redevelopment, and non-traditional assets, to be known as AIMCO or New AIMCO. Full SEC descriptions of these plans are expected in Form 10 filings, expected to be public in the next few days. Until then, I'll not be able to add much on this subject beyond what I've already said.

New leasing base rebounded and was up 20% year-over-year. As a result, lease percentage, our best forward indicator of occupancy, increased by more than 6% from July 1st to today, and our units to lease have been cut in half. Our high standards for resident selections are paying dividends, as collections have been consistently high since April. Our customer service remains world-class, with residents giving us 4.3 stars on 19,000 surveys Thanks to that level of satisfaction, turnover was 280 basis points better than 2019 at 41.9%. And at the same time, we achieved 2.6% rate growth on renewals. This all despite an environment with constant changes in employment, schools, courts, and regulations. One measure of the health of our core business is residential net put, this is our occupancy and average rate of apartment homes, which was down 2.5% in the third quarter. Average daily occupancy was 93.9%, down 280 basis points from last year. Blended lease rates were down 3%, with new lease rates down 7.6%, and renewals up 2.6%. Bad debt expense was 190 basis points, including 130 basis points attributable to court closures in recent Los Angeles regulations. Same store revenues declined 4.9% in the third quarter, while expenses were down 1.3% due to increased efficiencies from our team and lower net utility costs as our energy initiatives drive value. As a result, same store third quarter net operating income decreased 6.3% year over year. With that said, results in the quarter depended on geography. In our stable suburban markets, operations were largely business as usual. These communities distributed across the country totaled 19,100 units. Our occupancy was 95.7%, turnover was 39.6%, the lending rates were nearly flat, and residential net rental income was up 60 basis points. In our 8,500 units located in urban areas, demand was down and lease breaks were more frequent. leading to turnover of 47%, occupancy of 89.5%, and blended lease rates were negative 6.7%, and residential net rental income was down 7.1%. In each urban neighborhood, punitive local conditions led to this performance, and the reversal of those conditions will fuel growth next year. In Philadelphia, University City felt the expect Philadelphia to turn around sharply when students return to class and employees return to their office. In mid-Wilshire and West Los Angeles, the interruptions to the entertainment industry and shutdown of the city nearly eliminated demand in the spring. While rate remains pressured and losses were compounded by local laws allowing residents to live rent-free, we see blue skies coming. With leasing up 44% year-over-year in the third quarter and up $150 is anticipated to fully recover by year end. On the peninsula in Northern California, work from home policies and tech companies changed the demand for apartments. The Pacifica neighborhood weakened and has since stabilized, while San Mateo and Redwood City continue to face challenges with demand and rate and will likely remain tough in 2021. Our exposure to these sub-markets is limited, and our diversified portfolio in Northern California includes solid performances In October, business continues to improve. Leasing base is still running ahead of last year. Average daily occupancy for the month is 94.2%, and we expect further increases through the end of the year and into 2021. Pricing remains challenged with new lease rates down 10%, renewals up 1.4%, and blended lease rates down 6.7%. For some context on new lease rates, We've signed 95% of our leases for the year, and in our suburban market, rates are healthier and improving. In our urban markets, rates have been tough, but we've also seen them stabilize. And with our suburban markets full, urban leasing has made up an increasing share of the transaction dollars each month since July. We anticipate that these three trends will hold through the winter months as we believe we've reached the bottom. October collections were consistent with recent months. New delinquencies are slowing, with more of our accounts receivable growth coming from residents who have been delinquent since the beginning of the pandemic. We anticipate an improvement in bad debt once local emergency ordinances and closures unwind sometime next year. In a moment, Paul will provide more details on our collections in bad debt. We continue to focus on the long game, keeping a steady hand on the wheel, and building sustainable revenue growth for the coming year. We have a strong operational architecture in place today, with smart home technology in every unit. Artificial intelligence is delivering productivity and improved results. A centralized team driving consistent execution, relentless innovation enabling us to hold our expenses flat. In-depth analytics guiding our decision making, and most importantly, our field team members that consistently deliver exceptional service and outstanding results. My thanks to each of you and your continued energy, innovation, and dedication to serving our residents. And with that, I'll now turn the call over to Wes Powell, our Executive Vice President of Redevelopment West.

Thank you, Keith. Amid this year's challenges, the AIMCO team has sourced new investment opportunities, advanced construction on our major projects, and worked hard to fill newly delivered apartment homes with high-quality residents. First, I'll touch on new investments made during the quarter, and we'll then turn to our redevelopment and development activities. In August, AIMPIL acquired Hamilton on the Bay, located in Miami's Edgewater neighborhood, for a price of $90 million. The acquisition included a waterfront apartment building containing 271 units, averaging over 1,400 square feet, plus an adjacent development site, Combining the parcels will allow for more than 380 additional residential units under the current zoning. We are planning to invest as much as $50 million in a substantial redevelopment of the existing building, and the second phase, focused on unlocking the value of the available development rights, is being explored also during the quarter. AIMCO made a $50 million commitment to invest in IQHQ, a premier life sciences real estate development company. In addition to our investment in the company, AIMCO secured the right to collaborate on the multifamily portions of future IQHQ development sites. Post separation, we expect these new investments will be strong contributors to the growth of AIMCO's development business, and we are actively pursuing additional opportunities with plans to further grow our pipeline. Now, according to our ongoing redevelopment and development projects, here are some highlights as of the end of October. At Park Mosaic in Boulder, Colorado, where construction was completed earlier in the year, Keith and his team have leased 97% of the apartment homes. Our townhouse project in Elmhurst, Illinois, is now substantially complete. with all 58 homes delivered and 57 of those being leased. At 707 Leahy in Redford City, we've delivered 60 homes, over 80% have been leased, and the remaining 50 are scheduled to complete before year-end. At the Fremont on the Anschutz Medical Campus, just over 100 homes have been delivered, Tier 2, 80% have been leased, and the remainder will be completed in the coming months. Our final two long-cycle projects, Prism in Cambridge and the North Tower at Clamingo in Miami Beach, remain on track for initial delivery in early and mid-2021, respectively. Initial rental rate performance on those projects currently in lease-up has averaged 98% of our original expectations. However, we believe that NOI yields will meet or exceed our underwriting as the impacts of continuing on-site construction and strained local market conditions lift. With that, I would like to offer special thanks to my AIMCO teammates for their continued dedication and positive results over these past few months. I will now turn the call over to Paul Belden, our Chief Financial Officer. Paul.

Thank you, Wes. Today I will discuss AIMCO's balance sheet, third quarter financial by $2 billion, $1 billion from the September closing of the California joint venture, and $1 billion from the separation transaction. The billion-dollar leverage reduction reduced third quarter leverage to EBITDA on a trailing 12-month basis to 7.0 times. Now, on to AMCO financial results. Third quarter pro forma FFO of 61 cents per share was down 3 cents, or 5% year-over-year. We estimate lower occupancy and other COVID-related impacts reduced third-quarter FFO by $0.09 year-over-year. Offsetting the COVID-related impacts was $0.04 of increased interest income associated with a part-per-set mezzanine loan and $0.03 of lower off-site costs. The remaining $0.01 declined Residential revenue includes apartment rents and also such items as storage rent, parking rent, and related fees owed by residents. In the third quarter, AIMCO recognized 98.1% of all residential revenue. Of the 98.1%, based on AIMCO review of individual customers' credit. AIMCO does not expect to collect and therefore did not recognize revenue on 190 basis points of third quarter billings. These amounts are reflected as bad debt in our quarterly financial statements. The majority of this amount, approximately 130 basis points, is attributed to residents who have not paid April and subsequent rents. Prior to the enactment of restrictive city ordinances in closed courthouses, these residents would have been evicted in ordinary course, and therefore the bad debt would not have continued for the past six months. The remaining amount, approximately 60 basis points, reflects residents whose initial delinquency occurred during the third quarter. This is elevated, reflecting stress in the economy, but the rate of initial delinquencies has been steadily declining since July. We expect the decline to continue until reaching a more normal 30 basis points in 2021. As we look forward, we also expect the emergency ordinances that allow residents to live rent-free to unwind, providing us with the opportunity to re-rent these apartments to rent-paying residents. Lastly, as previously announced, the AIMCO Board of Directors declared a special dividend resulting from the partial sale of assets in the California joint venture and other 2020 dispositions. The $8.20 per share dividend consists of 10% cash, or $0.82 per share, which covers AIMCO's regular scheduled quarterly dividend and the acceleration of the next dividend typically paid in February. The remaining 90% will be paid in common stock. Shareholders of record on November 4th will have the option to elect to receive either cash or shares of common stock. If either option is oversubscribed, the shareholder will receive a prorated amount of cash and common stock. Special dividend will be payable on November 30th, concurrent with a reverse stock split, effectively neutralizing the per share impact of the additional common shares issued in the dividend. Post-separation, it is expected that the need for special dividends to distribute taxable gain on sale at air will be reduced or eliminated due to the refreshed tax basis. With that, we will now open up the call for questions. Please limit your questions to two per time in the queue. Rocco, I'll turn it over to you for the first question.

Thank you. And as a reminder, everyone, if you'd like to ask a question, please press stars and one. Today's first question comes from Rich Anderson at SMBC. Please go ahead.

Thank you. Can you hear me? We bet. Okay. Morning, Rich. Good morning. So, Terry, I think I met you in 1997, and the first thing you said to me was, and I went after Denver and said, you know, don't judge us so much on other multifamily companies, but don't judge us on... GE. And I don't think you were going to buy or sell refrigerators, but the point was well taken, that you were going to look outside the box to create alpha, tax credit, redevelopment, asset management, property management, affordable housing, all that stuff. And it all made sense back then. What has changed over the course of time to make you do a complete bounce phase? Has it been the public markets not valued? Or do those businesses just no longer work? Like, what has given you such a change in perspective as it relates to the multifamily industry?

Rich, that is an excellent question, and it does reflect a change in the public markets, that increasingly the public markets, it seems to me, the marginal price center values as you called it, in that category, we would be in competition with and undermine our FFO business. And so I think the separation allows the market to see the benefits of both.

Okay, so now what happens when we get past this pandemic and we're past the recession and the time is now to be a developer and to develop under one roof, under one umbrella, Is there a risk now that, you know, although I recognize the motivation behind the separation, that you could be a step behind everyone because the time will be right to be a developer, you know, in a manner that is sort of, again, under one umbrella?

I think my opinion is that there will be a long-term demand for stable, predictable development. if you will, vanilla business will always be in demand and it will have opportunities from growth by just the superb management of Keith and his team and buying stabilized properties with FFO in place and adding to the Mizzy Ditcher example of Bent Tree would be a recipe for the future. Okay. Thank you. Thank you, Rich. Thank you.

And our next question today comes from Alexander Comus with Zellman Associates. Please go ahead.

Hi, thank you for that question. So you provided the urban versus suburban breakout there, but I'm just curious, how are you coming to the demarcation of those properties that you classify?

This is Keith. I'll take it. The way that we're getting there is sort of where the geography is. Philadelphia, Northern California, and Los Angeles in my prepared remarks. But I give you a couple of one-off examples that would be different. So in Washington, D.C., as an example, we have a lot of, most of our portfolio there is in suburban markets, but we have Latrobe that's in the district. So it's a one-off that we we have lots of suburban locations that are in, you know, North San Diego, but we have a, you know, our Broadway loss property that's in the Gaslamp District in the middle of the city. So really the way that we've separated these is physically where they're located and how they're performing.

Got it. Got it. Thank you. And after post-spin, you'll have your fresh tax basis there, but When you think about the potential 1031s getting eliminated, your transaction partners won't have that basis. What do you think that will do to the transaction market overall for multifamily?

Make sense. Thank you. Alua Osterbeck with BOA. Please go ahead.

Hi, everyone. Thank you for taking my questions today. So, I was just wondering if you guys can talk a little bit about your New York City properties. I believe this time you guys put it under other markets. I just want to see how those assets are performing. Those are, I believe, mostly urban and how occupancy is there.

Hello, this is Paul. Thank you for your question. Just on your comment about the combination of the New York City properties, we did move those into other markets this quarter, and the rationale for that was that we have our River Club property, which is in Edgewater, New Jersey, but it's been classified in New York from day one. That is under contract to sell, and that contributed over 30% of our New York operations, and so with that being gone, we did In response to your question, Keith, do you have some additional color you'd like to add on New York?

Well, the main thing I would say is we have less than 500 units that's in that other markets in New York City. And their walk-ups, they've definitely been impacted by, you know, what's going on in the city. But it's really a small fraction of the contribution here.

Got it. Okay. Thank you. Our next question today comes from Hando St. Just with Mizuho. Please go ahead.

Hey, good morning out there. Terry, a question for you. I know it's not a lot of money emotionally, but maybe you could help us understand the decision behind making the $50 million investment in the life sciences development company, especially given the prior aim code of March towards simplification. How did you weigh the pros versus the skepticism or skepticism or pushback from investors who may not want you to go down that path. And then maybe you could talk a bit more about the expected returns of potential scope for the opportunity. What specifically makes you excited enough here to make you, you know, to withstand any skepticism or pushback here?

Thanks. Well, as to the first, I would say that this on the call. We have really these two different businesses. You're exactly right that they're in conflict with each other in many ways. The stabilized apartment communities are best measured by FFO and predictability, and the was a an expression of commitment to Alan Gold a very talented entrepreneur whom you must know who's had great success with Alexandria and Biomed and other such and is going to do it again and we think the opportunity to invest in a collaborative way with him will bring with it opportunities that we cannot quantify today but that we would expect to be quite substantial

Got it, got it. It certainly sounds like that's going over on the Proforma AIMCO side then. And maybe you could talk a bit more about the acquisition in, I think it was Miami here, talking about perhaps not only asset pricing there, potential IRRs, but what you're seeing more broadly in the market today in terms of competition in a market like Miami, or just broadly as you look across perhaps parts of the portfolio where you would be inclined to add I had some exposure. I have heard one of your peers earlier today talking about cap rates and some of these markets maybe into the high threes. So I'm curious on not only what you paid for this asset, what intrigued you about it, but broadly what else you're seeing out there.

Thank you. Well, I'll start and then I'll turn it over to Wes, whose deal it is. I think seven or eight or nine months or a year maybe. So it is a long transaction in closing. And second, in the market today, the most important fact is volumes have collapsed, that there's much, much less liquidity today than there would have been a year or two or three ago. So I don't

But it's a terrific deal, and Wes, do you want to speak to that? Sure. Thanks, Terry. You're exactly right. This is an opportunity that we've been engaged in since late 2019. We had the opportunity to work with the seller through the events of the spring and come to a price that made sense given all that was going on in the world in August and close on the transaction. And we've talked before about why we like South Florida, a number of factors, but they all translate into increased population growth and long-term demand for housing. Of course, waterfront land is scarce, and so we like that. And the location is one we know pretty well. It's about a mile north of a property, Bay Park, that we own and operate today. It's just north of a successful condominium facility. development that Related did and has sold out at high prices. The existing asset itself has great bones, large apartments that we plan to renovate. The views are terrific, so that one's ripe for redevelopment. And then, as you also know, we like the optionality to have future investment in ground-up development, and so it comes with an adjacent waterfront parcel. and the ability to add almost 400 apartment homes on that site when the timing makes sense. So overall, it kind of fits the playbook well, and we think it's going to be a good opportunity over the long haul.

Got it. And one follow-up, if I may. Anything you could share, perhaps, on how the pricing here ultimately concluded versus perhaps where you started nine months ago? Thank you.

Yeah, I think the pricing was better than it was when we first engaged, but I'd say that's also as much a reflection on the seller circumstances as it is on the general market conditions. As Terry mentioned, transaction volume is down significantly, especially in locations like urban Miami, so it's hard to have a real good feel for what an asset like that would trade at. But again, we feel like we bought it at a good basis. Again, just keeping in mind that it's 270 apartments, but they're about twice the size of, you know, what a normal building might have. So when you think about it on that way, we think it was a pretty good buy.

I do appreciate that, but any way you can quantify that, maybe on a cap rate or any other quantifiable measure, just curious, you know, what type of asset value you re-pricing occurred in the market?

We saw pricing come off about 10 or 15% from when we first engaged in the deal. Yeah, and that's exactly right, and the point I was making is that I wouldn't read through that to the values in the market, but again, this particular transaction and the particular seller and their circumstances as we went through the events of the spring. Got it, got it. Okay, thank you.

We have a question from John Kim with BMO. Please go ahead.

Thanks. Good morning. Earlier today, ISS announced its support for the special shareholder vote. And I just want to ask what your thoughts are as far as timing of when this may occur and also the timing of any next hurdles that we should be looking for as far as your move forward with your split.

Joe, I think They were completely helpful and thoughtful, and we enjoyed a chance to discuss it with them, but we're not prepared to discuss it today. This will all be part of the public filing that is being reviewed by the SEC. It will be public, I think, sometime next week, and perhaps we'll invite all of you to come back or we'll be in touch one way or another to discuss it at that time.

As far as you know, are you still on target to complete the split this year? Okay, that's fair. Given cap rate compression that has been occurring and some of your peers have been talking about, are there any additional dispositions that you're contemplating, including potentially the separate portfolio that's going to the new ANCO?

John, again, this is Terry. I think the cap rate compression is something that you have to look through carefully. something along the lines of where Patty Fielding was very successful in California would be a wonderful second act.

Fair enough. Thank you.

Thanks. Terry, maybe following up on your point there, did I hear you right that the plan is to still liquidate the separate portfolio post-spend?

The intent of that is to have a portfolio to complete the liquidation and the delivering of air. But let's talk about that next week.

Okay. I would like to talk about things involving the spin that you've talked about before. One is what I struggle with of just independence. In my mind, if the same CEO and chairman is at the helm and your colleagues are in the same shared office space, Maybe it's skeptical analysts, but I think in no world will AIMCO and AIR be truly independent. I think if Green Street got split into two and my boss was the boss of the new entity, I'd be partial to that new entity and my former colleagues in that new entity. So how are you going to make sure that this is not a convoluted, non-arm's length period of these coming years between AIMCO and AIR?

John, I'm going to talk about it next week, but I hope I think you'll be satisfied. We've been out talking to shareholders. We recognize that many of them have concerns in this area. The board is focused on it at great length, and we hope to report next week something that I hope will be satisfactory to you.

Thank you.

And our next question today comes from Austin Worshmith with Keyboard. Thank you.

Yes, thank you. So, you've talked a lot about leverage coming down, you know, post-spin by another billion dollars. You know, obviously, AIR will no longer be focusing on development or complicated redevelopment. So, that acquisition piece becomes, you know, an important leg of the external investment opportunity heading into the next cycle. So, I guess given the greater aversion to markets with high regulation, what markets are attractive to you, including any potential new markets?

Austin, you're exactly right. Our analysis is to reallocate capital, including new capital, to markets that are faster growing and have freer economies And perhaps additionally in the Rocky Mountain West.

That's helpful. I appreciate the thoughts. And then switching over on the capital commitment to IQHQ, just curious, how big of a pipeline is it that you foresee there? And what are sort of the funding options, I guess, for that? new AIMCO to build out, you know, those multifamily properties associated with the life science development.

I think, Austin, again, that's something that we will be prepared to discuss at length next week. But, again, just for clarity, I think the pipeline will be one that will be many multiples of the investment because the scale of activities inside AIMCO was $100 or $200 or $300 million. And there are multiple buildings. You can see it's a levered investment. The second thing would be that that company is more likely to be funded with project financing and private equity.

Got it. Are any of these assets or locations ones that AIR would be interested in owning over time?

eventually we're going to be ahead of ourselves.

Okay, fair enough. Thanks for the time.

You bet. And ladies and gentlemen, our next question is a follow-up from John Pawlowski with Green Street. Please go ahead.

Just moving to talk operations then, Keith. In terms of the positive inflection points and the bottoming and the blue skies you referred to, Curious what gives you confidence today on that stability and bottom? Because, you know, yourselves and a lot of peers have used the term bottoming before, and I'm not trying to hold you to prior comments because we've been wrong on plundered forecasts internally. Nobody can predict the future right now. But I'm just curious, on the ground trends, what gives you a little bit more confidence today that these markets have bottomed versus three months ago?

John, thanks for the question. Because there's obviously a lot of unknowns still in front of us. But let me give you some insights of what we're seeing and what makes us think that. So when we look at our third quarter, looking at suburban and urban type of situations, our suburban portfolio was running in the mid-95s. When we look at our urban areas, while occupancy is held relatively flat in the 90s, what we've seen is it's started to pick up. And I'll use a very specific example in Los Angeles. And so when we look at Los Angeles in the third quarter, we were running in the 92. I'd point out that Philadelphia is one that will be, you know, it will be on a switch that says, does UPenn come back and Drexel come back? Does Comcast and the cities come back? And in Philadelphia, we have administrators that live with us that were They are working hard to find a way that could they open in January and they would like to open in January. Whether that happens or not, I don't know. There's not any public statements around that. But it gives us optimism. And another thing that we know is that, I'll give you an example. In Evanston, Illinois, we have a property there right next to Northwestern. And so we know that if these come back, there will be an opportunity, particularly in Philadelphia, for a switch type of opportunity, not a dial, but we think it will come back strong. That's what we're looking forward to. But there's plenty of other things that are green shoots that are coming up in other markets to give us indication that we've hit the bottom. It's market by market. There's plenty of different variables, but we're optimistic that –

Thank you for the details. Did that, you know, in the non-binary, non-university markets, has that improving occupancy come through pulling the concession lever harder than you did three months ago?

You know, John, first of all, when we think about concessions, we think about them as it's a marketing tool. And we solve to total revenue, and so it's been a combination of both it's also ultimately that we think that we are making a long-term decision-making around things that will pay dividends in 2021. You know, there's a lot of ways to make decisions that you would lower your resident quality, as an example, or you would give more concessions to somebody who maybe isn't the person that will pay in the future. And we've tried to have a steady hand. Our occupancy has been lower than others, but we're building it in a Thank you.

John, if I might add to what Keith said so well. AIMCO, because we have residents that live with us for a longer period of time, it's particularly important to select disciplined about picking neighbors for our existing customers, but also residents who will be contributors over the next several years.

Understood. Thanks for your time.

Our next question today is a follow-up from John Kim of BMO. Please go ahead. Thank you.

I think you just mentioned the weakness in Center City being partially driven by Penn and Drexel going virtual. Can you just remind us how many of your residents in Philly are students, and if there are any other markets that you have that have a pretty sizable university student population?

So thanks for the question, John. I would call it about 1,000 residents that would be direct students, and we have one particular population our park town community. But really, more importantly, what happens is it creates life environments that come to the city with those folks being in place. And so think about businesses, think about restaurants, think about all kinds of other things that are happening. Those things also will be impacted by the, in Center City, the Comcast Towers and the other buildings there. And so we know that

Would you say Philly is your only market where you have such a strong dynamic like this? In which context, John?

Just top of mind, North Andover, you have Merrimack College. In Chicago, or in Evanston, Illinois, Keith has already mentioned Northwestern University. In Philadelphia, we've talked about Drexel and Penn. In Miami, you're going to have an influence from University of Miami and so forth. So it will show up throughout the portfolio as it does throughout

Terry, you referenced how lower cap rates may reflect the lower income streams and perhaps values are stable versus pre-COVID levels. And I recognize there hasn't been a tremendous amount of transactions, but You just completed a sizable JV in a coastal market, and you mentioned you're pursuing additional sales. So just curious what your view is towards values for multifamily properties.

in value, but I think that that's probably as much due to, as I say, to the regulatory intrusions and the recession, which I think seems to be recovering and offset by low interest rates.

Got it. Appreciate the thoughts. And then just one last one. You also referenced the attractiveness of a second act on a potential joint venture and Clearly, that seemed well-received by the market during the first act, but I'm curious how you balance your focus on simplicity going forward and then adding on another joint venture along with sort of the ongoing relationship that you're planning to have with NewAimCo over time.

Well, I think you're right. Life is all balance, and we would have to – be interested to see an incremental billion dollars, let's say, raised, if we are talking about a second act, at that kind of pricing. And their natural question might be, well, what would be the use of the proceeds? And if that were to be applied to repurchase stock and scale, they might like that. But you're right. It's all a question of balance.

Thank you very much.

And our next question today comes from Nick Yulito with SpaceShop.

Please go ahead. Hi, guys. This is Sumit in for Nick. A question about one of the things we saw earlier this quarter on one of your properties, or actually quite a few of your properties, around, you know, pay no rent for or rent does not increase for a long time to come. So it seemed to imply that there were certain leases that you were ready to sign with tenants who are going to be longer term with no rent increases. Just one time figure out, you know, what sort of tenant profile are you trying to attract there and what's the sort of market vacancy profile that's driving this kind of a concession or as in your words, Terry, a promotion? And second, whether these assets or these programs are part of, you know, the entity that remains or the entity that is going to be the development-focused entity. Now, you can defer the second part to next week. That's totally fine. I was just inquisitive. Thank you. Thank you. This is Keith.

I'll take it. And I'm not sure as exactly. What you're likely seeing there is that we will do long-term leases in certain circumstances. And so what it is is it's a tagline for an inquiry about how we will sign 24-month leases, things like that, in which we will have an agreed-upon rental rate over a longer period of time than what may be traditionally the way that some people do right leases, that being only 12 months.

Correct. And any color on how that program has been received and whether we should see more of it across other assets of your portfolio?

So this is, without getting into a lot of our secret sauce, it is

All right, thank you. Ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to the management team for the final remarks.

Well, thank you, Rocco, and thank you, everyone, on the call. I know many of you have had very long weeks with so much reporting, both in the apartment sector I wish you a happy weekend, and I look forward to chatting with you next week as we talk about this very interesting opportunity of the separation that we've proposed. So thanks again, and have a great weekend.

Thank you, sir, and this concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.