Equity Residential Properties Trust (EQR) — Q1 2020 Transcript

Good morning, and thank you all for joining us today. I want to begin today by giving a big thank you to my Equity Residential colleagues for their dedication to serving our 150,000 residents during this difficult time. Whether working on-site performing essential maintenance or concierge duties, whether you’re engaging remotely with prospects using our new touchless leasing process, or whether you are working from home in the many corporate roles that make Equity Residential hum, you are keeping our company rolling. So thank you very much Equity Nation for your amazing work. Now turning to our business. The best way I can describe it in the last seven weeks is resilient. In April, we collected in our residential business about 97% of the cash that we would usually collect. While no part of our country’s economy will be immune from the coming recession, we feel that our portfolio of properties, populated with residents having average annual household incomes of $164,000 and often employed in technology and other knowledge industries, will fare relatively well. Our operations team has also shown resiliency. When the pandemic hit in full force in mid-March, Michael Manelis and his team quickly pivoted, and over a few weeks adjusted our leasing and service operations dramatically. On the leasing side, Michael and his team were able to quickly create a touchless process that made our customers comfortable to lease. And on the service side, we focused on essential maintenance tasks and cleanliness, which helped our existing residents feel safe and comfortable living with us through this pandemic. Michael will give you more details about all of this in a minute. When the lockdowns were initially announced, we saw our leasing activity decline significantly, but demand has since picked up, as we noted in the release. We see our recent pickup in demand as a further indication that our properties and markets will remain attractive places to live for our target demographic. All in all, we think our people and our properties have been resilient, with a capital R going through this crisis. We do fully acknowledge that challenging days remain ahead and are taking steps to weather the storm and prepare for the post-pandemic world. We have further fortified our already strong balance sheet, as Bob Garechana will describe in a moment. We are also preparing in earnest for our properties to operate with fuller staffing as lockdowns across the country are relaxed. We will keep in mind the safety of our employees and residents as we reengineer our business. Equity Residential has historically performed well in these downturns, and we would expect this to be no exception. We are optimistic that we will perform well operationally given these circumstances and that we will find opportunities to add high-quality assets for our platform as the economy works its way through this recession. Finally, we did withdraw guidance in the release. We are unable to estimate with precision the continuing impact of the pandemic and the timing and character of the reopening process on our business. It makes it impossible for us to give you the high-quality estimates of where our business might go in the near-term that you’re used to receiving. We did provide a significant amount of information on April’s preliminary results and hope that is helpful. Now I’ll turn the call over to Michael.

Thanks, Mark. So today, I’m going to provide a quick recap of operations over the past 45 days. Prior to the COVID-19 pandemic, we were off to a very good start for the year. Our occupancy was ahead of expectations, and we were well positioned for the primary leasing season. And then COVID-19 hit, causing us to adjust our operations to this new unprecedented challenge. Let me start by acknowledging the dedication and hard work of our employees during these unprecedented times. They inspire me with their ability to quickly adjust operations while keeping an intense focus on our customers, properties, themselves and their families. Shelter-in-place was mandated by governors in our markets in early to mid-March. For us, this means that our more than 150,000 residents began staying at home 24 hours a day, seven days a week. In response to shelter-in-place, we made some key changes to our operations. We closed our common area amenities, we increased cleaning frequency, we quickly modified our website and our artificial intelligent E-Lead responses to pivot the entire sales process to virtual leasing. Capturing video content and conducting the sales process via video conversations allowed the business to continue uninterrupted. This process would have normally taken us several months to accomplish. We also locked the office doors to encourage social distancing but kept the business running as we implemented shift rotations of the staff to reduce the number of employees coming to the property. When we look back to March 15, we saw our traffic and applications drop 50% compared to the same period in 2019. That being said, we continued to receive over 375 new applications each week through the end of March, which we see as a validation of the new leasing process. With reduced traffic coming through the front door, our focus has been on keeping current residents in place. We are currently offering residents the option to renew without increase. Overall, retention in April and May has improved as we are now renewing in the mid to upper 60% range, which is a 300 basis point improvement from last April and an almost 800 basis point improvement from last May. New York is having the strongest renewal percents of nearly 70% for March, April and May. Despite this good retention, our overall occupancy since March 31 has declined by 130 basis points. We expect the occupancy impact to be the most pronounced in the second quarter, setting a new base from which we hope it will improve as shelter-in-place orders are lifted. Let me share some color on the performance in April. At the beginning of April, we began to notice an improvement in demand, with both traffic and leasing activity rebounding by almost 30% and actually now trending on par with last year. In fact, we had over 900 applications last week, which is a significant improvement compared to the 375 that we were averaging in late March and very encouraging for us. Given the activity in the last 45 days, we would like to see that volume grow even more to help offset the lower demand that we experienced in March and to match the increased volume of applications that we usually get in May. What is clear is that our high-quality, well-located portfolio continues to attract future residents. While the pandemic is certainly a deterrent, people have life reasons that require them to move, like changes in jobs or partners. On Page 13, we reported the first quarter and included April monthly pricing statistics by market. I would remind everybody this is only one month of data, and that longer periods of time are usually required to show definitive trends. Mark mentioned the strength and quality of our resident base. This is evident by the fact that we received a very strong 97% of the cash collections in April relative to our March collections. This resilience delivered 5.4% delinquency, which is quite good given these unprecedented circumstances. Notably, Seattle and Denver were our markets with the lowest delinquency at below 3%, and Los Angeles was the laggard close to 8%. The rest of our markets were centered around the average. We have also taken a cut at looking at property type. And in most of our markets, our garden-style or more suburban assets have experienced higher delinquency than our mid-rise, high-rise more urban locations. As we move through the continued disruptions created by COVID-19, we remain strategic in our pricing efforts. Sitting here today, our base rents are down 4% compared to the same week last year. Let me give you some color on notable markets. Overall, our strongest market is Seattle, which has shown great resilience, with limited delinquency and the best overall revenue growth performance in the portfolio. New York is a bit of a mixed story. On one hand, it has the strongest retention of any market, but it has also not shown the signs of recovery that other markets have with traffic and applications. Long-term, we expect the New York market to benefit from low new supply and technology firms expanding their presence in the city. We are hoping leasing activity will improve as the hard-hit New York area gets through the worst of the pandemic. Finally, we started 2020 anticipating that Los Angeles would have a very challenging year, given the new supply pressure. COVID will definitely add to this. Despite recent improvements in applications, we expect this market to remain challenged with meaningful pricing pressure that will continue as supply is delivered. So where do we go from here? Well, we’re now in the early stages of preparing our properties for the new normal. We expect things to shift over time. Right now, the new normal is going to be focused on increased deep cleaning standards at the properties; adjustments to the layout of common areas, including fitness and lounges to accommodate social distancing; balancing the capabilities of virtual leasing with the need to engage with our customers; and ultimately, staggering work shifts to ensure that we limit the number of employees on-site at any given time. These are challenging times, but our business is resilient, and our teams are positioned to deliver. Thank you. At this time, I’ll turn the call over to Bob.

Thanks, Michael. This morning, I’ll highlight our enhanced disclosure from last night’s release, give a brief update on non-residential operations and end with our incredibly well-positioned balance sheet. Starting with our new disclosures. We’ve modified our disclosures to help better present our business and where it stands today. We do so by providing April operational and collection statistics, by breaking out our same-store performance between residential and non-residential, a practice that we would expect to continue as the performance from our main residential business, which makes up approximately 96% of total revenues, is likely to diverge meaningfully in the upcoming quarters for our much smaller non-residential business. This includes modifying the schedules on Pages 10 through 12 of the release. And finally, by providing an update on liquidity and balance sheet information. In order to accomplish this, we’ve defined a number of key terms in the back of the release. We hope that these definitions will provide specificity and clarity to our disclosure. Part of the new disclosure includes a breakout of non-residential operations for our same-store portfolio. This is a modest component of our business at 4% of total revenues and consists mostly of ground floor retail and public non-residential parking at our well-located apartment communities. Ground floor retail makes up about two-thirds of this 4% with public non-residential parking making up the rest. As you would suspect, a good portion of the retail tenants that rent our space have been significantly impacted by shelter-in-place orders. This is evidenced by the 58% April collection rate for all retail that we disclosed, which, while certainly below what we would have hoped, may be higher than many other retail landlords. The drugstores, bank branches and national chains that occupy a good portion of these spaces have, for the most part, continued to pay rent, while local small business owners have struggled. With non-residential parking, we’ve seen an approximately 30% decline in parking volume for April, given the lack of public events and increased work-from-home arrangements. We suspect that this may recover as shelter-at-home orders are eventually lifted. Finally, a few highlights on our balance sheet. We ended the first quarter with an incredibly strong net debt to normalized EBITDA of 4.9 times and nearly $1.8 billion in liquidity under our revolving credit facility. Subsequent to quarter end, we improved this already strong position by closing on a very attractively priced 2.6% or $195 million 10-year GSE loan and by closing on the sale of an asset in the San Francisco Bay Area. With these steps, we sit here today with over 84% of our total NOI unencumbered, about $150 million in commercial paper outstanding and readily available liquidity of over $2.2 billion under our revolving credit facility, which does not mature until 2024. This liquidity is more than sufficient to address our modest level of anticipated development spend, minimal debt maturities in 2020 and to address our next significant debt maturity, which isn’t until December of 2021. Our balance sheet is in excellent condition to weather the storm and take advantage of opportunities should they present themselves. With that, I’d like to turn it back over to the operator.

Thank you. I hope you guys are doing well. Just – first on May rent collections, I recognize we’re still very early in the month, but I’m wondering how collections have been thus far? And maybe you can tie it to where you were in March or this time last year.

So this is Michael. I guess I would just say, so first and foremost, yes, you’re right. This is very early in the month. But right now, looking at kind of how we closed out yesterday, we are identical, right on par to the way collections kind of played out through the month of April.

Thanks. And if you think about the delinquency moving up at the end of April, and I recognize there’s always some level of delinquency, it was helpful to put in the March number two. But how do you think about the ability to collect on that rent? And then how are you working with the residents to get repaid?

Yes. So maybe I’ll start, and then Bob can kind of fill in. So first and foremost, I mean, I think you can see from the release, we’re dealing with about $11 million in total delinquency, and that was above the $5.4 million that we had in the previous month. So the process that we’re going through right now is we’re working through conversations with all of these residents, with both kind of an empathetic mindset as well as an obligation kind of reminder mindset. And that’s a tough balance that our teams are doing, but we’re setting up various payment plans in places, and we’re just documenting kind of the financial hardships that many of our residents have experienced from this. And we’ll be navigating and working through those conversations through the month of May, just like we did in the month of April.

But how much of that is like building in? And maybe just to frame, it sounds like the 260 basis points from March was totally in line with the historical nature of where you are on a monthly basis in terms of collections, which obviously accelerated in April given the hardships that a lot of individuals are going through. Is there anything in that increased delinquency bucket that is either geography-based, asset type-based? Is there any color that you can give in terms of that amount? And have you already entered into any sort of deferrals on that amount or outside of the collections that you’ve had?

So I think, first, in the prepared remarks, I kind of identified, right? Seattle and Denver were absolutely the lowest at 3% or below total delinquency. L.A. was the highest at 8%. As far as property types, we definitely saw kind of lower delinquency at the high-rise, kind of mid-rise product versus kind of the more suburban or garden-style. So I think right now, in regard to deferred rent, I mean, the nature of these conversations are all over the place. I mean these are very one-on-one conversations that we’re having. But much of that delinquency or at least the incremental delinquency from hardships is set up in payment plans or set up into deferred rent situations. And I think the varying state of emergency orders that we have around the country are going to dictate when those payment plans are going to allow for payments to reoccur.

And I just want to add, Nick, it’s Mark. As you think about building delinquency going forward, you also have to think a little bit, we do have significant security deposits that we haven’t applied in any of these analyses. So generally speaking, you take the security deposit when the resident moves out, but that’s a matter of local law. So we do have a significant amount of security deposits against these obligations. Michael has entered into a bunch of payment plans that the company has, and there’ll be more of those. So I don’t disagree that the economy will get worse before it gets better. But I’d also say we do have these other offsets, both on the security deposit side and with these payment plans, and we’ll just have to feel our way through it.

Right. And your April, that – with the April numbers that you’re quoting, would you – outside of that $11 million would you have already deferred a certain amount of your monthly rent that was already due? So effectively, there is more sort of delay in cash collections even outside of the $11 million?

Yes. It’s Bob. And I’ll give you a little bit of color to that. So if you think about March and kind of the regular or the pre-COVID delinquency levels, it’s very uncommon or would have been very uncommon to have any level of deferral of rental payments. Typically, you would have ended a month at 2% to 3% of delinquency and then through the regular process of having conversations and collecting that rent, et cetera, that would have diminished to the point in time where it converted to a financial statement impact, which would have been write-offs of bad debt, et cetera. And that number would have been something more like 50 basis points of, call it, total income. So very uncommon in this business to have a material amount of delinquency or payment plans, if you will. Obviously, the situation has changed modestly with the COVID-19 pandemic implications.

And Nick, I want to answer just precisely, delinquency includes everything, including the payment plan. So that number is all-inclusive as it relates to the residential book. There isn’t – like, if it’s a payment plan, it isn’t suddenly undelinquent. It remains in our books to link. We just aren’t pursuing the resident, we have a deal with them, but we don’t – we include that in our number.

Perfect. Thank you.

Thank you.

Can you guys talk about what level of extra operating expenses you’re incurring from COVID? And how much of that has been offset by reduced hours for employees and other areas?

Sure. So maybe – this is Michael. I’ll start off. I guess I would tell you, to date, we probably have incurred about $0.5 million of expense specific to COVID, and that would include kind of not only the increased cleaning standards that are occurring at our properties, but also some of the personal protection equipment that we’ve been acquiring. And I think some of the offset has been, obviously, we’re incurring less overtime expense on our payroll. We’re experiencing less turnover expense. But then on the flip side, having all these residents living with us, we’re also having some increased trash expense that’s mitigating some of those offsets.

Okay. And if things begin to spool back up in some markets, how much of that do you expect of the expense side to be sticky? And how much of the offsets do you lose as the hours for employees tick back up and other things? I assume that the trash doesn’t go down anytime soon, et cetera.

Yes, so I mean, I think we’re looking at kind of what it looks like to kind of reopen and what that new normal is going to look and feel like. I think it is clear to expect that we are going to be spending more money on cleaning standards and protocols at our properties. But I think that we’re going to be balancing kind of that out, not only kind of with the labor and the overtime, but trying to figure out more things that we’re going to get done in-house versus relying on contract labor.

And I’ll just add, I mean, if we’re – again, we did withdraw guidance. So I know you’re trying to feel your way through that, so we’ll give you a few other building blocks. Our general instinct here is that our expense numbers will be lower this year than we thought, not higher. So these cleanliness and other costs aren’t zero, but they’re not that significant. And the overtime, the less routine maintenance that’s being done because things are being deferred, all of that is more material. And so over time, again, you could have certain events occur in markets, weather-related or otherwise. But absent that, our general sense is that the expenses will remain pretty tight and this is not going to blow a hole in the expense number for us.

Okay. And then on the capital side, I mean, I assume that all the dispositions completed year-to-date were under contract before COVID hit. Can you just talk about – I mean, if you wanted to sell assets today, is there enough demand in pricing to be able – is that market back to being liquid or are people taking a pause there? How are you guys thinking about potentially making acquisitions going forward and also redevelopment spend over the next quarter or two?

Yes. There isn’t a lot going on right now. I mean, the last seven weeks with the pandemic, again, talking to the brokers, talking to potential sellers, there really isn’t anything institutional grade in our markets that’s priced and closed or is even very far along in that process. So I don’t have any markers there. As you relate to EQR, I mean we’re always out there. We have teams in our markets, and it’s their job to always be looking at purchase opportunities and such. But right now, there’s just not a lot going on.

And on redevelopment, are you going to be able to get the returns to warrant the spending in the near-term? Or do you guys put a pause on that for now?

Yes. Great question. We have a pause on it, but for a little different reason. Our residents don’t really want contractors in the building, our contractors don’t really want to go out right now with the shelter-in-place. So what you’re going to see across our portfolio is a real slowdown in capital spending, including renovation. These projects that we’ve talked about on prior calls, we hope to begin those again. We’ll be thoughtful about whether we can get the rents and all of that. But at this point, really, a lot of this capital spending depends on having people on-site. Those people aren’t willing to come. And frankly, our residents are more comfortable with them not being there, so I think there’s going to be a real slowdown there.

How significant have been any of the delays in the development pipeline for those few assets?

Yes. That’s a great question. It depends on where you are, so I’ll start by saying that. So for example, in Boston, where we’ve got a tower we’re building, the mayor closed construction March 17, and it still hasn’t reopened, and that’s the sort of city of Boston Rule. But outside the City of Boston in some of the suburbs, construction continues. So it’s really place by place across the country. And I’d say there’s more significant delays in places like Boston and New York in terms of places we do business and to a good extent, Seattle. There’s less of a delay in D.C. and Southern California, where things have just kind of continued. And the delays you’ll see in those places are people working in shifts. General contractors saying, you need to split your shifts up, we need more physical distance between workers. And so you’ll see things slow down a little bit because of that. For example, when you look at our numbers and Axio’s numbers for supply, shifting like what happened between our opinion at the end of 2019 and at the end of the first quarter of 2020 as to what 2020 supply would be, and in markets like Boston and New York, those numbers, we think, are going to move down, supply being lower in 2020 by upwards of 20%. In places like Southern California, it’s more nominal, and the same with D.C. So it’s very much a local law thing.

Okay. Thanks, guys. Appreciate the time.

Thank you.

Thanks. So appreciate the April data you gave on renewals, new leases in terms of rate growth. I guess from a timing standpoint, I want to be clear on this because I think it can be confusing at times. If you guys reported renewal rates achieved 2.8% in April, you’re saying that – I think you said that you’re offering zero renewals, flat renewals across the portfolio now. At what point in the year does that sort of 0% renewal rate growth get kind of fully factored into your rent roll?

Yes. So this is Michael. So I think first and foremost, you got to realize the April numbers that we reported on renewals, many of those offers were generated in January and February. So many of those leases were already executed well before kind of COVID-19 pandemic began. When we started issuing those offers in mid to late March, those are really for kind of May, June and now even July offers that are out there. So I think what you could expect to see is May is going to trend down, probably be somewhere between 50 to 100 basis points positive. And then in June is when I would expect that you’ll start to see us kind of deliver flat on the renewal increase percent.

And just to add a little to that, we will start to adjust our renewal expectations, our asks, and we’ll try and look at the market and see what we can get done. So as conditions start to normalize, we’ll sort of feel our way through supply and demand conditions, and you will see us increase our renewal asks, I would expect mid to later in the year. Right now, we’re making decisions in some markets as far out as August. So we’ve got to call that Nick, at some point, and make a judgment.

Okay. That’s helpful. And I guess also on the new lease change side, if we look at the April numbers, I don’t know if you have any data you could share on May so far. But I mean, April seems like it’s an unusual month, right? You didn’t have as much traffic. So if we’re looking at down almost 2% on new lease growth in April, I guess May shaping out to be a similar number, maybe you could just talk about how we should think about that new lease growth impact.

Yes. Well, I think in the prepared remarks, I kind of stated that base rents or amenitized rents right now are down about 4% compared to the same week last year. So as you kind of just fast-forward your way through May, you could expect that, that new lease change could deteriorate down to that 4%. But again, the numbers that you’re looking at on that release, if you go to the footnote of that, you’ll see that the 12 to 12 are the like term actually improves by about 110 basis points, so it’s actually down negative 80 basis points. So I don’t know exactly where we’ll land because, again, this is kind of a lease-by-lease thing that you work through to see these stats, which is why I always caution everybody from looking at just one month. But I think I’d like to just understand where are my amenitized or asking rents relative to last year, and that’s that kind of down 4% level.

And I’m just going to take a chance, Nick, to add a little bit to that answer. And that’s we feel and we gave some extra disclosure about, at the moment, demand conditions. We like, on the occupancy side, the momentum we feel like we will pick up. It’s certain – it’s not certain. We have to see how these unwinds and these various stay-at-home orders go, but we would expect our occupancy to recover. And we feel good about that. And then you have, as Michael said, with the recession, and that will affect new lease and renewal and all the other quotes. But on the occupancy side, I think we’ve shown we’re already having days where we have more move-ins than move-outs. We’re already seeing all that occupancy stuff kind of steady. So as we see these markets open up, our hope is that, again, if it’s done in an orderly fashion, and we don’t slide back into a lockdown again, that we’ll work our way out of occupancy, and then there’ll be just the rate stuff to deal with. So I just want to emphasize, we feel pretty good about demand. Even in the pandemic, we’re seeing good demand for our product. It’s just a matter of figuring out the clearing price at the moment.

Yes. Okay. Thanks a lot. I appreciate it.

Thanks, Nick.

Hey, good morning guys. Hope all is well.

Hey, how are you?

Yes. Thank you. So just to follow up again on that occupancy question, just to clarify that, that 130 basis point month-over-month loss, were those move outs in April according to sort of normal lease expirations, was it COVID related? What was the sort of composition of the change exactly. If you don’t mind adding a little more color there?

Yes, yes, no problem. So it’s a little bit of both, right? So I think when March 15, kind of rolls around, everybody that was scheduled to move out for the balance of the year, for the balance of the month based on lease expirations moved out, people that were scheduled to move in, some of those folks canceled, kind of those move-ins are deferred those move-in. And then we had, call it a couple of hundred of our units basically COVID specific reason leave early, early terminations. That’s really the impact on the occupancy.

Okay.

Yes. Okay. That’s helpful color. And then maybe, obviously tough to predict, but as you apply the experience from maybe 2008, 2009 and the possibility of sort of the trade down or the doubling up effect coming out of a recession, where do you guys, how do you think about your portfolio given it’s predominant Class A white color composition, how do you think about that dynamic with respect to your own portfolio going forward here? Yes. Hey Rich, it’s Mark. I start by saying the portfolio is similar but not the same as 2008, 2009, I mean we have a higher-end clientele as you acknowledged in your question. I like the income levels, I like the kind of employment our residents have, it doesn’t mean they’re immune to the recession that’s coming, but I think there’ll be less effective than some of the folks in hospitality and other industries got laid-off very quickly and suffered unfortunately very quickly in this recession. So I guess we feel now – I guess we do feel much better about our resident base. We think they’ve both got skills that will mean they’ll be more readily employable. I mean we worry, I think a little bit about portfolios that depend on workers that have been – often how many of those workers are really getting those jobs back. In our portfolio, we just don’t see that as much at this point. As I mean a few people won’t lose their jobs in our resident base, but we think being tied to technology and some of these knowledge industry jobs is going to mean that our folks will have more employability, less layoffs coming through this recession.

Okay. Appreciate that.

Thanks. Good morning. I just want to follow-up with some of the comments in terms of the occupancy floor and application volume picking back up. I’m just trying to wrap my head around what’s the more important leading indicator for what this spring and summer leasing season? As the applications currently being flat or traffic being down 20% and Michael, what kind of weight do you put on traffic versus applications? Just trying to understand what’s more important for us to focus on?

Well, so I think the improvement in traffic is really telling, right compared to where we were even in the beginning of the month and where we are right now. And then our closing ratios is kind of giving us that sense of this market clearing price. And if I backed up all the way to March, I’ll tell you, I mean we’re looking at how many eyeballs were hitting the website, what was that traffic count looking like? And we were closing 70% to 80% of everybody who expressed interest, so it was not a price issue back then. And right now as you can see, okay, we have an opportunity to kind of make an impact with the traffic improvement that we’re seeing and we’re going to continue to do what we’re doing with promotion base to go forward and try to recover some of what we gave back in the last 45 days. But I think it’s really the improving trends is what you got to focus on. Because again, the peak leasing season is not going to exist like the peak leasing season has in the past. It’s probably going to shift forward a few months or it may just be kind of more dulled throughout the whole thing. We don’t know that yet. So what we’re watching is week-over-week. Are we seeing the improving traffic? Are we seeing the improvement in apps like you would expect to see through a leasing season? And so far that’s what’s been playing out for the last several weeks for us.

Okay. Bob, on the delinquency side. Thanks for the comments on what’s your typical delinquency rate and then as you work through the payments, what does it all come down to in terms of bad debt, 2% to 3% delinquency, eventually getting down to 50 bps. A market like LA, where there’s an 8% delinquency rate and tenants have a year to pay back rent, with 8% delinquency rate, what’s your reasonable bad debt working assumption for rent you’ll never see?

I think that’s a hard question to answer in all fairness. We haven’t seen those kinds of levels historically, right? So like I said, this business was very fortunate and has been very fortunate to see very little delinquency historically. So I’m not sure that ratio of that I talked about between 2% to 3% converting itself ultimately to 50 basis points necessarily holds true in the middle of a pandemic. I do think that all the positives that we have in our resident base that Mark outlined in terms of high-quality employment, et cetera, should help in the collections process, but hard to guess any answer to that one right now.

Okay. Is it fair to say you probably won’t know until 2021 and we won’t see it in the financials until 2021 the net shortfall?

Yes. I mean my – and that kind of gets towards the kind of bad debt expense policy or kind of what policy we have in terms of write-offs, et cetera. And I think that’s something that in the second quarter we will evaluate with a lot more detail about at what point do you reserve against some of these outstanding deferral programs and payment programs, because certainly there will be some subset of residents that are subject to a payment program that ultimately don’t pay. That’s something that we’re currently evaluating and currently discussing as we have just simply a lack of historical payment history to understand because of the unprecedented nature. So I think you’re correct in assuming that, it’ll – that is to be told as how it manifests itself in the financial statements.

And again, just to add to that just a little bit, John, we have the security deposits that we need to apply against this amount. It’s not appropriate to apply it against the delinquency. Now you usually by law do it when a resident moves out or near that time or with the residents agreements. So we do have a little bit of an offset there that we need to figure out, but there certainly be more delinquency. Bob, I think maybe you give a little color on what was delinquency in the great financial crisis.

Yes. Delinquency and I’m sorry and bad debt expense. So I’ll talk maybe the bad debt expense to give you a frame of reference. So I mentioned earlier that in normal kind of environment, so not in the great financial crisis, we run about 50 basis points of total. In 2009, which would have been the worst year of the great financial crisis that 50 basis points converted itself to slightly over 100 basis points.

Is that helpful, John, giving you a little bit of a frame of reference?

Yes, definitely. I know it’s a guessing game right now, but there’s more cities enact a longer payback periods, Seattle, yesterday coming out and saying you have till 2021 imagine more cities along the coast will do the same. Just trying to understand how those historical relationships change in this environment. Thank you.

Thank you.

Good morning guys. I’m looking at that $11 million delinquency, is that mostly tied to hardship in your opinion or is it more people electing not to pay rent in more tenant-friendly government, which is a coast on the last question.

Wow. So just to make sure I understand your question Wes, is it mostly people have hardship issues that they can sort of document or is it folks that have just decided not to pay sort of the moral hazard issue? Is that the question?

There on.

Yes, I guess that’s a little hard to tell for us. Some of the residents haven’t called us back, and we don’t have insight into their thought process not paying us. But that’s a very small number for us given again the quality of the portfolio. We’re talking about a pretty small number of accounts here. So I guess I’d say that most of the conversations that Michael has shared with me have been people saying, Hey, I need another week or two, and then they pay it. So that’s been most of the conversations that we’ve had to-date. I’d also point out that there are people that may benefit from the checks that they’ll receive from the government either through unemployment or through that federal supplementary payment. And I’m not sure how quickly all those are reaching people either. And that could be a benefit to us as well. So I don’t – we don’t have a breakdown or anything. We’ve got a few people that have ghosted us, but that’s a pretty small number. And really it’s, most people have been talking to us. I mean, working something out. Again, it’s not more payment plans, it’s often just give me another couple of weeks, and I’ll pay you the rent. That’s been a more predominant conversation.

Okay. I appreciate you holding rent renewals flat in every portfolio. But you did call out some of your markets are actually doing quite strong, Seattle tech workers in particular. Well, I guess would you phase in renewals for different segments or is it going to be a blanket kind of special renewals for the whole portfolio? And how you approach that, I guess the increases going forward?

Yes, so I think our closing ratios tell us kind of whether or not we’re kind of taking more market share. I mean historically, we would run against what we used to call foot traffic, but that’s got a whole new definition now with virtual leasing. But people that express interest do historically would close somewhere in that 20% range for people that express interest take tours with you. And right now that’s kind of what we’ve been balancing off. So when we’re closing 30%, 35%, we’re getting more than kind of the normal share of those applicants.

Got it. Thank you.

Great, thank you. Good morning. Just a couple of follow-ups and then just maybe one big picture question. First on the – on occupancy in 2Q. I believe you mentioned you do expect 2Q to be the worst. I guess it’s – just thinking about the applicants and – figuring out the right rent levels here. Is it just – it’s going to be hard to convert those applicants into occupancy during 2Q, is that your expectations?

No, I think I would say the impact from what we experienced at the tail end of March and April is really what brought kind of this occupancy down. Right now, even when you look at, call it the 900 applications that we had last week, call it 60% plus of them are moving in before May 22. So that’s going to help kind of balance. So in the world of yield management, I mean you’re optimizing revenue, you’re trading off occupancy and rate and you’re balancing this and that demand part of the equation is going to say whether or not you’re going to optimize revenue at 95%, 95.5% or if you’re going to kind of continue on this path, maybe you bounce back and start optimizing back at 96%. But I still think it’s too early to understand where that sweet spot is for these portfolios.

Okay, thanks. And then I was surprised to hear that garden style delinquencies were higher than mid-to-high rise. I believe you made that comment. Can you provide a little bit more color there?

Yes, sure. So it was – it was almost in every single market that we looked at. We can see that relationship and some of this just has to do with where our kind of rent to income ratios. So it wasn’t surprising, right. When you think about Seattle being the lowest, while Seattle also has our lowest rent as a percent of income. And when you go to LA it was the highest percent of income. And those are markets like, when you start looking at that, where we absolutely had more garden style property versus the high-rise property. But that relationship held true across all of our markets.

Okay, thanks. And then in terms of the amenities, I thought it’s encouraging to hear that you are working on, we used to open up the gyms or more open space and just thinking about working from home, is it too early to incorporate changes into buildings to maybe foster we’re working from home environment within the apartment building? Like, can you set up areas that comply with social distancing to offer folks to work with, let’s say from a lounge within the building or is that just, is it too soon to tell?

So I guess I will just start by saying first we have a whole group of individuals that are focused on what does it look like to be operating in the new normal. So that starts with looking at all of our existing common area space and understanding how are we going to guarantee the safety and wellbeing of our employees as well as our residents, once these spaces start to open up and operate. And I think that there’s occupancy limits, there’s spacing and fitness center, there’s a lot of complexity to this and each one of our jurisdictions is going to have different kind of rules that we’ll be applying to our operations as we think about opening up. But longer-term as we think about the fact that residents may be working from home more, it does create an opportunity for us to look at our common areas spaces and look at any of our available spaces that we may have in our properties and think about how do we make some adjustments to that to allow them the opportunity to work from home as well as adhere to social distancing. So I think you’ll see us start to get creative with how we’re using spaces going forward to allow for more of that to occur.

Thanks. And then my last question, just a big picture from Mark, I believe Mark you mentioned there might be opportunities, is it too soon to share with us, your thoughts on just kind of your EQR strategy going-forward? I mean in the New York, New Jersey area and I admit, I am a bit more worried about New York, I heard some optimism there that, tech will still come to New York and hopefully they still do. But can you share with us some big picture thoughts on your go-forward strategy when you think about opportunities?

Great. So there’s kind of two questions in that. Part of it I read is just when might we get active on the investment side and another is sort of a New York question, when that city might function a little better. And I guess I would start on the investment side by saying, as I said in my earlier remarks, there’s just not a lot going on right now. We’re seven weeks in, sellers still remember the price they would have gotten in early March and buyers think about the price they dream of getting right now and it’s going to take a little while for that all to sort itself out. Some of the big deals that you might remember, we were quite active coming out of the great financial crisis. So purchasing the big portfolio in New York, and development land, and broken condos, both on the East coast and the West coast those were all done 12 months to 18 months after the beginning of the great financial crisis. Those were fourth quarter, 2009 deals at the beginning and then into 2010. When you think about that crisis, the GFC really being at 2000 – mid-2008, third quarter of 2008 events. So I’ll tell you, it’s going to be a little while before we really see much to act on. So, I start with that. And the way we are sort of thinking about opportunity is trying to think about replacement costs a little bit, trying to think a little bit about what long-term growth will be in this market, did anything change that matters? And we think and this sort of gets into your New York question a little bit. We think these big cities and I’ll focus a little on New York, are really quite resilient. I mean New York has been through, as you’re quite aware, riots, it’s been through wars, it’s been through epidemics before, it’s been through 9/11 and after 9/11 there’s a lot of comment that New York wouldn’t come back and people would decamp from New York in size. And yet, New York had a terrific urbanization trend over the last 20 years and the population in New York City was higher in 2016 than it was in 2001. So I’m trying to provide some context here that each day, millions of owners of businesses throughout the country are waking up trying to figure out how to run their restaurant, their cultural amenities, their nonprofit, their restaurant, whatever. And they’re going to figure that out over time and we’re going to have new rules about distancing and cleanliness, then over time, hopefully there’s some cure to this and we don’t have this top of mind, but I think these cities are going to adjust like they always have. And I think you could expect that we’ll still be focused in our investment efforts on these large cities and these dense suburban areas for our apartment investment.

Thank you for your thoughts. I wish everyone well.

Yes, same. You stay well.