UDR, Inc.

Greetings and welcome to UDR's third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 statements. When we get to the question and answer portion, we ask that you be respectful of everyone's time and limit your questions to one plus a follow-up. Management will be available after the call for your questions that 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 Executives Harry Alcock, Matt Kozad, and Chris Van Enns 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 and expirations for 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 sun-bought 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, build revenue, and collections is the first step towards a recovery. But to inflict higher, we need meaningful improvement in our hardest hit high rent markets of San Francisco, Manhattan, and downtown Boston. These markets make up 20% of our portfolio, and while improvement in our October occupancy has been encouraging, they have come at a cost of higher concession levels. We have not lost faith in the long-term viability of these urban areas. But we need a vaccine for widespread reactivation and recovery. Mike will provide more commentary in his remarks. With all that said, we remain focused on maximizing cash flow and bottom line results. On that front, the midpoint of our 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 you, DR, would like to welcome Diane Moorfield as the newest member of the board. Diane has an accomplished history as a senior executive in the REIT industry and as an independent director 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 NextGen 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 to more modest 3.3%, with NOI down 6.4%. On page four 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 marked dependent and varied by urban versus suburban location. 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 or no concessions across approximately 65% of our portfolios and continue to maximize revenue growth by balancing blended lease rate growth against occupancy changes at the market and unit level. We believe this surgical approach to pricing our homes has contributed to the stabilization of our billed revenue and maintained our rent rule for 2021 while not tax pricing 2020. These factors drove our decision to provide fourth quarter 2020 guidance, which you can find on page two of our release. Splitting our portfolio into three 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 funded lease rate growth. primarily due to less restrictive regulatory environment and quicker economic real. This bucket includes Tampa, Orlando, Nashville, Dallas, Austin, Richmond, Baltimore, and Monterey Peninsula in California. Concessions across these markets have generally remained in the zero to four 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 two to six weeks with occupancy averaging 96 to 96.5%. Third, roughly 20% of our NOIs in urban areas of coastal markets where demand and growth are more dependent on office reopening, mobility trends, work from home flexibility, and a vaccine. These include Manhattan, San Francisco, and downtown Boston. Concessions across these markets have averaged four to eight 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 three of our release, are encouraging, occupancy gains in these urban quarters have come at a cost in the form of more concessions or lower face rates. Overall, market fundamentals across our portfolio feel somewhat better than during the summer months. Build 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 as we move into next year. Finally, I want to thank my colleagues in the field and here in Denver for their dedicated execution of our varied operating strategies in the face of still evolving regulatory restrictions, which are dedicated governmental affairs and legal teams have diligently tracked. We are measured as a team, and your efforts have been crucial in laying the foundation for future success. And now, I'd like to turn the call over to Jerry.

Thanks, Mike, and good afternoon, everyone. A big part of our future operating success is expected to be driven by our next-generation operating platform, which provides residents an online self-service model and improves operational efficiencies while increasing resident engagement. The initiatives we have rolled out thus far have expanded our controllable operating margin and driven a year-to-date decline in controllable expenses of 40 basis points. Combined personnel and repairs and maintenance expense are flat year over year, while administrative and marketing expenses are down nearly 8% year-to-date through September 30th. While declining revenues because of the pandemic may have altered the timeline for achieving some of our margin expansion targets, The ultimate operating benefits of our next generation platform remain clear. First, site level headcount has declined 29% since our base quarter of 2Q 2018 through natural attrition. Over that same period, the number of total homes we own and manage has increased by 4%. This permanent reduction in our cost structure through headcount efficiency has driven a 31% improvement in controllable NOI per associate. 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 two 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 installations, self-touring, and a shift to self-service have formed a strong foundation upon which we will continue to evolve and improve. Future platform enhancement should benefit not only our existing portfolio, but also allow us to generate outsized returns when buying assets at market prices.

With that, I'll turn it over to Joe. Thank you, Jerry. The topics I will cover today include third quarter results and first 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 is adjusted per share of 50 cents, declined by only two pennies or 4% year over year. The one penny 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 two of our release. We anticipate fourth quarter FFOA per share to range between 48 cents and 50 cents with the 49 cent 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-line 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 two 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, 1.3%, for third quarter build 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 two pennies 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 30th, our liquidity is 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 forward 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 to 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 45 cents, our dividend payout ratio is 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 five years. As a reminder, the project is fully capitalized and the investment provides superior economics compared to pre-COVID deals due to more restrictive bank lending standards and generally lower available construction financing. Second, during the quarter, we acquired a fully entitled development site, King of Precious Submarket, Philadelphia, for $16.2 million. Third, subsequent to quarter end, we sold Delray Tower, a 322-home community, 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 years. Moving forward, we'll 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 EBITDA RE with 6.5 times, and inclusive of joint ventures with 6.6 times, which looks slightly elevated due to the still outstanding settlement of Ford ATM proceeds. With that, I will open it up for Q&A. Operator?

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, if you could please limit yourself to one question and one follow-up so we may get to everyone's questions. Our first question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

Thanks. Appreciate all the disclosure, particularly around the different parts of the portfolio. When you think about EDR'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, Are there any lessons learned thus far that maybe makes you want to change where the portfolio is situated?

Hey, Nick, it's Joe. Maybe I'll let the lead off and then pass it over to Tom to close it out. But, you know, 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 up market. 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. Yeah, I'll actually take it to Mike. He can probably talk a little bit about how those transactions are performing.

Yeah, hey, Nick. You know, I would say if you look at that $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.

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

Yep. Hey, Nick, it's Joe. I'll kind of come to a high level first just to give a little context, and then Harry's going to jump in and give you some details on that transaction and how to look for it. So, yeah, ultimately the goal of DCP, as we've talked about in the past, The 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, some of all deals we report back to the board as we do with development and acquisition, show them what the returns were, what the acquisition returns were, what the development returns were. And overall, the program's pretty much performed as expected. When you look at life all the way up to date, the things we've realized, including Alameda, We're running right around a low double-digit IRR, which is what we've communicated previously. It's got a couple home runs in City Line 1 and 2, Arbery and Parallel. It's got some singles like Alameda in there. But the process is always pretty much the same. Are we comfortable owning an asset at that basis? Are we comfortable stepping in, and have we given ourselves the ability to when you look at the structure and the documents? So I think the one thing that's probably different here a little bit versus all the other DCP transactions we've done This was a land loan. It did not have limited partner equity lined up. It did not have construction financing lined up. We got involved with the intent to be a prep equity deal at some point in the future once they did that. Whereas all other transactions, we closed simultaneous with equity, construction loan, and limited partners. So we took on a little bit more risk, but that's part of the reason we have the opportunity today going forward with NDCP, 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 base point range over market cap rates once we get in the ground and get that deal started.

Nick, this is Harry. I'll just jump in for a minute. Just a reminder, this is a parcel of land that's fully entitled for 220 market rate homes. We have a cost basis of 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 Master Development, which created a significant amount of required investment for them. They own the parcel next door. They own phases 2 and 3. 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 on a former Navy base in Alameda, which is a quasi-island between San Francisco and Oakland. Two townhome projects selling for more than a million per home. Another market rate community and a senior community that will be completed next year, plus an office of 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.

Thank you.

Rocco would not make a mistake. Sorry about that. I was on mute. The next question comes from Rich Highcower with Evercore ISI. Please proceed with your question.

Great. Thank you. I was getting worried there. Good morning out there, guys. 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 four- to eight-week-plus concession environment can last? I mean, would it last? The forecast sort of threw the end of the fourth queue, early part of one queue. I mean, how should we think about that, assuming that, you know, the vaccine, you know, doesn't really factor into anything for the next few months, let's say, and likewise with office occupancy and that sort of thing?

Hey, Rich. Mike, I'll take a stab at that. You know, 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 and cities that will attract talent and individual tools have demonstrated a propensity to rent. 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 seeing opportunities where we can increase rents today and concession levels that come across in places like the Sun Belt, and we're able to hold occupancy relatively high. But going back to New York, San Francisco, and Boston, we have taken an approach to try to increase our occupancy there. That being said, it has come at a cost, and we've seen concession levels anywhere from 8 to 12 weeks in some of the hardest parts of those markets. But in other parts where we have more suburban assets, it's closer to zero to two 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, you know, 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, you know, coming out of COVID and the implications for property tax increases, you know, how do you think that's going to play out across the markets and the localities that you're supposed to? What should we think about for the next, you know, one, two, three, four years in that context?

Yeah, hey, Richard, Joe. Phenomenal question. We've been spending a lot of time thinking about, you know, broader fiscal health, but also, of course, real estate taxes, both near and long-term. Yeah, I'd say at this point for 2021, we've got approximately a third of the portfolio that's in California, so clearly we have that effectively locked in at 2%. In addition to that, you probably have about another 20% of the portfolio or an expected expense next year that is effectively locked in as we go around evaluation. 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 the state of Washington that have 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 hit like New York and New Jersey, California. But I'd say California is probably one of the best positions 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 a 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 risks that's out there.

Male Speaker 1 Yeah, that's a great answer, Joe. Thank you. Male Speaker 2 Thanks, Rich.

Male Speaker 3 Our next question comes from the line of Nick Ulico from Scotiabank. Please proceed with your question.

Nick Ulico Hey, good afternoon, everybody. This is a submit in for Nick. Thank you for taking the question. I was just sort of piggybacking on Rich's question on the creative spread of 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, you know, either through acquisitions or development lending. So curious if there are any markets, besides the coastal markets, that you may not be interested in, in at this stage just because the experiments are not suitable?

No, I mean, there's really nothing that we've redlined today. Obviously, we're cognizant of near-term performance in certain markets, so, you know, in New York, in Boston, in San Fran. So we're cognizant of the performance there, and as you go through the underwriting, there's probably a wider degree of variables or outcomes, as you think about before, in a live stream. But there are no markets that we've redlined. You know, typically, when you see kind of herd mentality, I'll shift to a place like the Sunbelt. You see some cap rate compression and see more competition. That's not always a great way to make money to run with the herd. So there may be more value opportunities in other markets, but nothing we've read about 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.

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

Got it. Thank you for the color. And in terms of, you know, the urban sort of market 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 one, two, two beds, three beds of studios?

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

Got it. Thank you so much.

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

Jeff Spector. Hey, Jeff. Hey, Jeff. Are you on the line?

Can you hear me? Yeah, I got you now. Great. Thank you. Sorry about that. Jeff, are you still there? Can you hear me now? We can. Okay. I'm sorry, I don't know what's going on. I'm on a handset. I'm not sure if it's my line. This is why we're going to ask you to get back to the office. Yeah. Hopefully you can hear me now. I just wanted to follow up on the market question again. I know you've discussed it a few times, but I just want to confirm. So let's say, you know, the outcome of the election... uh... you know it's where they're there's no stimulus or limited stimulus in early twenty one just so i have my head around that so we think that that doesn't necessarily mean uh... you know cn fran new york boston or are you know have major issues ahead you feel like i could i'm worried about camp is going particular and i think appear uh... you know made a comment this week that was something similar but for your company or just owners of apartments in San Fran in general in these cities, do you feel like 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 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. 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 is probably the biggest impact and important 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, you know, 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 know, you go out to New York and look at what's been taking place there with Salesforce, Facebook, Google. You know, Facebook just bought the REI headquarters up in Seattle. You know, Boston, San Fran, of course, had the life science contingent and 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 one 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, thanks, Joe. That's fair. And then my follow-up, I'm sorry if you discussed this already if I missed it, but, you know, again, just given your, you know, 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.

Yeah, Mike has some pretty good stats on that as it relates to a couple of coastal markets that he can take you through. We've seen a lot of the reports out there and some of the work done on 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 ups and flows over time, but Mike has some pretty good stats on it.

Hey, 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 six to nine months, and we compare it to prior periods. I can 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 two markets is in New York we had more local forwarding addresses to places like Boston, New Jersey, even upstate New York where we're getting the sense that people are moving out and potentially looking to come back if and when the markets really open back up. The difference with San Francisco over the last 30 to 45 days is we've seen more of those forwarding addresses in states that are further away from California. But that being said, I will tell you, given traffic and application patterns increasing for us over the last, call it two to three 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 sub-markets 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 8-10 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 sub-market for us over the last few weeks. As far as San Francisco goes, During the quarter, we had a very different experience amongst our submarkets, as well as urban and suburban exposure. 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 six- to eight-week range today. And down along the peninsula, we're seeing zero to two weeks. So a much different story as you start going down south.

Very helpful. Jeff, this is Tooby. I just added some color. I mean, the key that we spend a lot of time every week on is looking at that occupancy concession tradeoff trend. And you can see it in New York. 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 eight pretty rapidly. And as he gets up closer to 95, he'll pull it down even further. So I think that while everyone's quoting rent bill, rent collected,

Great, thank you.

Our next question comes from the line of Austin Wershmus with T-Bank. Please receive your question.

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

Hey, Austin. Good morning. It's Joe. Over time, I think we've shown a pretty good track record in terms of our ability to pivot to different 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 in the last downturn. So there definitely isn't an aversion to buy back stock, but we do realize that capital is precious at this point in time. There's a lot of unknowns out there. We've got to have good conviction in the economic trajectory, in the capital markets, our NOI, which while we have enough conviction in the next two months to give you fourth quarter guidance, I can't say that we have a high degree of conviction in the next two years. So there's a lot of unknowns out there still, as well as, of course, implications to the 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 D.C. 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 five down on the helper sale NOI, and redeploy that on a very accretive basis into, hopefully, another transaction that has pretty good operational upside, as we've shown in past acquisitions.

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

Yeah, I mean, in the interim, you know, 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, you know, late January when we get out there and 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 build 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 three, four months in a row here that we've kind of hung around that level. So, you know, 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. Yeah, the headwind, of course, then comes to the straight line side, which you mentioned. On the guide, you know, you start to see that compression and you do have to run uphill a little bit against the straight line amortization. So that's why you see 50 cents this quarter coming down to 49 cents next quarter.

That makes sense. Thanks for the thoughts. Our next question comes from the line of Juan Santoria with BMO Capital Market. Please proceed with your question.

Hi, guys. 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 blend of these great growth and the cash and store numbers?

No, hey, Ron, this is Mike. I would tell you, just to give you a little color on our other income, we were pretty excited to see that that was actually a positive contributor to our total revenue in the quarter. So to give you a little more color on our short-term furnishing program, we were down around $1.3 million year-over-year for about 70%. We had probably roughly 130 occupied compared to typically 400 per month. So that was mainly due to the regulatory environment as well as just people not being able to travel as much. And then on late fees, we weren't able to charge in a lot of cases. So that was down around $500,000 or 40%. And then our common area amenity program that we started last year We weren't able to do a lot of that this year. That was only down about $200,000. So in total, that was down $2 million. On the flip side, to your point on the parking, that's one of the more sticky initiatives we've 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. It 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. Please proceed with your question.

Hey, guys. Good afternoon. 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. Hey, 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?

Yeah, Rich, if you go to page two 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, you know, the occupancy trend is starting to pick up a little bit, as we showed you on that. Page three is New York, San Fran, Boston picked up a little bit. You do see the October range start to pick up relative to Q320. 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, etc., 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. 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 two of your press release, believe it or not. So one more question, guys. As you think about, you know, 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? You know, is it seasonal? Is it because rents have dropped enough? Are you actually seeing people come back? You know, what's driving that? And I guess ultimately, you know, it's ultimately a question about, like, why are you going off giving a guide? Because clearly you're seeing something.

Hey, Rich, it's Mike. I think the biggest thing for us, it goes back to the whole diversified portfolio, and every market's acting a little bit differently, and then you can go within the sub-markets, 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 Sunville, as well as some of these harder hit markets. Some of that's a function of us finding the right spot in terms of pricing. And some of it's, quite frankly, where... We're seeing people come into the market that we historically haven't seen come into the market. So, again, 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. It's been more of a struggle. So that obviously helps, to Joe's point, put us in a more stabilized environment when it comes to build revenue. Got it.

Go ahead. I'm sorry.

I think the other thing, I mean, we, of course, track all the mobility stats by markets, all the restaurant bookings, you know, Castle on the security card swipe. It gives you some indications by market. So slowly but surely, those are coming back. Clearly, not nearly close to where we'd hope they'd be, but the broader job market, 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 left a city, whether or not they work in an office, Deciding 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 three markets that you discussed on page two. But the non-CBD markets, any updates on the renewal trends there?

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

Great. Thank you, guys. And, you know, appreciate the transparency and what looks like a good inflection in the quarter. Thank you. Thanks, Rich.

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

Thanks. Rich number three here. So 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, you know, 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? And maybe that's a strike against them when it comes to investing again in those marketplaces? Or is it the reverse where, you know, you'll maybe more likely zig rather than zag and maybe invest more there with a longer-term view. I'm curious how the leadership through this COVID thing has impacted your view of those three specific marketplaces.

You know, Rich, this is to me. 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. looks like, how vibrant of an economic environment, and is it conducive to us and our operating business? And, you know, there's a lot of city councils that swung very far in a very aggressive manner, and we think they're going to pay a price on the long-term viability of their city, and 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 is 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 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 forced people to have a dialogue. Florida lifting evictions. You're starting to see cities respond. And it'll be a question about the aggressive nature of that response and the timing of it. But We're just like everyone else. We're a citizen. We've got to run our business. We've got to look at how that business is impacted by its overall legislative agenda.

Good answer. Thanks, Tom. Thanks, everyone. That's all I got. Thanks, Rick. Two boxes.

Our next question comes from the line of Amanda Schweitzer with Robert W. Baird. Please proceed with your question.

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

This is Harry. I mean, I tell you generally, the number of opportunities we're seeing is increasing. Capital overall is more difficult. and back end and underwrite into kind of a 12 to 14% type IRR. Helpful.

Thanks.

Thanks, Matt. Our next question comes from the line of John Polowski with Green Street Advisors. Please proceed with your question.

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

John, I guess you saw what we did in 2019, which was we had a number of parameters obviously to fit with. where we wanted to deploy capital on a diversified basis, but 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, but cost of equity is nowhere near where it would need to be to do a portfolio type transaction. We're more so in churn mode. Can we just incrementally drive a little bit more cash flow with the sources that we can create internally? Okay.

Thank you. Our next question comes from the line of Neil Melton with Capital One Securities. Please proceed with your questions.

Hey, guys. First one, in your urban sand brand in New York, portfolios, what is the month-to-month breakdown? I guess, how many tenants... Well, first, I know you have 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, you know, if you've seen that and how you're handling that.

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

Okay. Appreciate that. I guess maybe for Joe or Chris, you guys talked about, you know, when you look at your advanced analytics or, you know, not wanting to make a decision too quickly, you want to make sure you do the wrong kind of game, something more permanent. But I just kind of want to go back to, like, the California thing for a second. I mean, you know, you look at, like, a lot of, Permanent moves, for example, a lot of companies have been moving their headquarters. Legislation that, you know, will probably, you know, could get passed this, you know, this November, or if not, you know, be on the ballot in two more years, given how far to the left the politics have gone there. 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, you know, shift your capital allocation or maybe adjust how that looks or screens in your advanced analytics analysis?

Yeah, a little bit is to use history as a guide and not just have a knee-jerk reaction on this. We do, you know, when you say these are more permanent in nature, That seems to be kind of a popular view today, but you go back over time 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 Sun Belt, but it hasn't resulted in long-term rental rate outperformance. 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 to Sunbelt. We've got exposure to markets like Baltimore and Richmond that are performing well. Monterey Peninsula are performing well, even though those are on the coast. D.C. is performing well for us. So right now we're having a position of strength to be patient on this, and to the extent that we want to shift capital over time, You'll hear more from us in terms of seeing what our actions are. to nail down one or two 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.

All right. I appreciate that. Thank you.

Thanks, Bill. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Hey, good morning out there. Anyway, I appreciate you guys taking the questions. It keeps the call going. First, on the topic of debt, I think also part of that could be national housing regulations, rent forgiveness. I think when people think about stimulus, there's the negative of increased regulations for a sector that's It clearly doesn't beat it, but two questions here. First, on the concessions that you guys have outlined in your, you know, in 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 they're heavy concessions in the market tend to be not that sticky, so you expect these folks to leave next year, or... your view is that these are people who have always wanted to live in the city or in that neighborhood and therefore are, you know, are taking a hold and will stay committed once the concessions are no longer part of their rent.

Yeah, 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 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 percent of the people that have moved in over the last three months actually received anything substantial and when I say that that's in that three to four 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.

Yeah, I'll add to that, Alex. When you look at the resident screening perspective, you know, 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 four, five, six months, you're not seeing a larger percentage turn into 60-day delinquent than what we had previously. So the resident screening that's in place, we're not taking 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 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 six months, have experienced around 1% move out, so around 500 people. And it's not big. I would say in Boston it's probably a little bit higher than other parts of the country, but it's not any more than 2% to 2.5%. Okay.

Thank you, Derek.

Our next question comes from the line of Handel St. Just with Mizuho. Please proceed with your question.

Hey, thank you. So I guess a quick question for you, Joe, first. You mentioned that your leverage here has increased six and a half times on the net debt EBITDA versus five and a half 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-ish by our math. So I guess my question is, I know you have lots of liquidity and limited debt securities upcoming, but how comfortable are you maintaining this type of leverage profile into the near future? And do you think this will limit your willingness or ability to deploy capital opportunities?

Yep, fair question. So, you know, 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, three-year liquidity, fixed-charge coverage ratio. So, It is one metric that hasn't gone, you know, 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 that when we see EBITDA come off a little bit, we can absorb that. So the forward equity deal of around $100 million, we expect to draw that down in the fourth quarter. You know, $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, you know, six and a half times you move it by 2%. 12 basis points, so it will take us down a tenth 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. With 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 three 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. Thank you. And maybe one for Tom or maybe Jerry. What's more likely to happen in 2022? The Broncos win the Super Bowl or New York City returns a positive NOI?

New York City.

New York City. If you had to lower the bar to a 500 team, maybe you got that right.

Super Bowl. 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 advanced indicators you mentioned. The ones that you're, I guess, more focused on, you prioritize a bit more, be it the restaurant bookings, moving trucks, return to office trends, Starbucks 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, you know, 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 Sun Belt and causing capital compression there? Thank you.

Yeah. You know, first, break that into two questions. What gets us comfort about the pace of a recovery? And I think you start with, first and foremost, the vaccines. The inevitability, whether they happen in 1Q, 21, or 2Q, it's going to happen, and then it's 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 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 You get too far down the road, make too big a bet, 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. Thank you. 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, you know, 6, 12, 18 months? Price dependent. Fair enough. Thank you.

Our next question comes from the line of Dennis McGill with Zellman. Please proceed with your question.

All right. Thanks, guys. Hopefully a couple of just quick ones. First one, when you look at the effective lease blended rate at 0.6 to 1, which has got bracketed for October, pretty similar to what you saw in the third quarter, does that hold for all three buckets as you outlined the 20, 60, 40 earlier? Is it essentially stable pricing power as you look at it that way in those three 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 of concessions. So we think that we can have a little bit more pricing power there. And then the other parts of the country, we are finding opportunities to push rate and holding occupancy steady. So I would say overall it's directionally moving that. 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 12 months? And I guess within that, are you seeing any product either get delayed permanently or temporarily or just become harder to finish product with labor availability or easier? Any thoughts around the pipeline?

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%. You think about which markets 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'll probably flat top 10 off of this year's number when we get into next year. That said, when you look at the sub-market exposures, we do actually see some relief. We think supply in our sub-markets 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. It got flattish in Sunbelt. That's where you should see some relief for the coast from a supply perspective once we get out to 22.

Okay. That's helpful, Joe. Thanks. Good luck, guys.

Thank you.

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

Real quickly, looking at the clock and knowing that you have a lot more to cover today, first let me thank you for your interest and time today in UDR. A special thanks go out to all our associates. You guys have done a fabulous job across the spectrum through 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 my marks. We're very focused. that we've managed this year and looking at the net bottom line, that last year was 208 a share for FFOA, and this year looks like we're up 204. Two percent 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.

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