Essex Property Trust Inc (ESS) — Q3 2020 Earnings Call Transcript

Thank you for joining the call today. Once again, we would like to offer our best wishes to all of those impacted by COVID-19. On today's call, John Burkart and Angela Kleiman will follow me with comments and Adam Berry is here for Q&A. Our results continued to be negatively impacted by the COVID-19 pandemic, including extraordinary local and state government responses. Our reported results for Q3 reflect these unprecedented challenges, resulting in a 6% decline in core FFO and 6.7% lower same property revenues. Despite a variety of challenges, we were mostly successful in our goal of maintaining occupancy and rental rates to the extent possible, which John Burkart will discuss in a moment. Our first priority continues to be the safety of our employees and residents while deploying technology throughout our portfolio, given a strong consumer preference for touchless interaction. Regulatory hurdles have been pervasive across our markets, creating a new level of complexity and administration for our property teams. As can be seen on Page F16 of our supplemental package, California has developed a four-tier system applied to each county for determining the severity of COVID-19 restrictions. Fortunately, recent changes have been mostly moving Essex markets into less restrictive tiers. San Francisco recently reached the least restrictive yellow tier for allowing offices and indoor dining to reopen, among other improvements. Similar positive changes have occurred across several of our markets in recent weeks which represent welcome news for local businesses and residents. We have previously noted that the apartment business closely follows local housing supply and demand trends and seasonal patterns. Given the pandemic, these normal seasonal patterns were disrupted by massive job losses resulting from the pandemic and related shelter-in-place orders. In April, year-over-year, job losses were 13.7%, followed by solid job growth in May and June. Job gains then moderated again this summer as shelter-in-place orders were extended upon a surge of COVID-19 cases. By September, job losses in Essex markets were still down 8.7% year-over-year, a positive trend from April but still lagging the 6.4% national average job loss. For perspective in the financial crisis, peak to trough U.S. job losses were 9.1 million over 20 months. This year, the nation lost 20.8 million jobs in just two months. We attribute the greater job loss and slower economic recovery in California and Washington to very restrictive shelter-in-place mandates. We see the recovery path ahead as reversing the job losses in the cities and industries that suffered the greatest impact from the shutdown. Tourism, travel, leisure and hospitality sectors were among the hardest hit and they are concentrated in the urban core of various cities. The restaurant industry provides a good example. Using the open table data as of last week, the number of dining reservations in Los Angeles fell by 66% compared to one year ago, while Seattle and San Francisco both declined 78%. This compares to other large cities like Miami, Denver, Dallas and Atlanta, which saw only 30% to 40% declines. Similarly, employment in hotels, live entertainment, and local transportation activities are down 37% to 50%. They should have a strong recovery as cities reopen. In Southern California, the TV and film industry is a significant wealth creator and it was decimated by COVID restrictions. In the third quarter, the number of shoot days began to recover from near shut down but remained down 54% year-over-year. The industry is now trending in the right direction and production permits have steadily increased since June, suggesting employment will continue to rise. Younger workers have faced many challenges in the pandemic, including greater job loss and higher unemployment rates compared to more experienced workers. Employers often delayed hiring and reduced the number of job openings during the pandemic as offices and small businesses closed from shelter-in-place orders. Many college graduates chose to move home rather than relocate in proximity to their new employer as a result of work from home flexibility. As a result of these conditions, the share of 18 to 29-year-olds living with a parent increased to 52% this summer, up 500 basis points year-over-year and the highest level in over 100 years. The combination of lower immigration from new graduates and higher out migration from young singles has played out in different ways across our market. We have seen pockets of strength in Ventura, Orange County, San Diego, and outer suburban markets in Seattle and Northern California. By contrast, our urban and tech-centric sub-markets are deeply discounted to attract residents. Meanwhile, tech companies are speaking with their pocketbooks; companies including Google, Facebook and Amazon continue to expand their real estate footprint in our markets. Notably, Facebook's expanded campus in Menlo Park, and their acquisition of our REI new headquarters in Bellevue, Google's continued plans for an urban village in San Jose, and Amazon's continued growth in Bellevue and other sub-markets in the Seattle area. As always, we continue to monitor the pace of job openings amongst the top 10 tech employers in our market. While these numbers are down year-over-year, we are encouraged by recent increases in openings from 9 of the 10 companies in our survey. While today's 17,000 openings are significantly lower compared to the pre-COVID period, today's level is consistent with the pace of hiring they experienced in 2016 and 2017. It appears that the most successful tech companies in the world remain committed to our markets, and most of them have announced work return to office plans in 2021. Turning to our initial thoughts about 2021, we plan to provide annual guidance as part of our fourth-quarter earnings report. There are many moving parts to the guidance discussion, including the impact of the winter's Coronavirus trajectory, the timing of vaccines and improved therapeutics and any new government stimulus measures. With that said, we base our modeling on the consensus of third-party economists for next year's GDP growth, which is currently around 3.7% and compares to this year's minus 3.6%. If that proves accurate, we would expect to benefit from positive tailwinds in the form of steady employment growth and rising consumer confidence. In addition to the boost from an improving job outlook, the potential for a COVID vaccine to become widely available next year is an obvious positive that would reduce the need for social distancing and shift the work-from-home dynamic from a requirement to a lifestyle decision. This could also lead to several negatives such as potential pay reductions for remote workers, lack of face-to-face collaboration and networking, and potentially fewer career advancement opportunities. Finally, with respect to our year-over-year growth trajectory next year, we would expect to hit an inflection point during the second quarter as we anniversary the steep COVID-related declines. This could set the stage for gradual improvement in rental growth in the back half of 2021. Again, assuming further easing of COVID-related restrictions. Our data and analytics team completes its own fundamental research on supply, indicating around 33,000 apartments supply deliveries in 2021, which is similar to 2020. While that continues to represent just below 1% of our apartment stock, it is still too much supply until the pace of job growth accelerates further. As with the past several years, the 2021 apartment supply estimates from third-party research providers are well in excess of our expectations, implying a ramp-up of deliveries that we do not believe is feasible, given skilled labor constraints within the construction industry in our markets. Turning to the apartment investment markets, we have now sold four apartment properties with a total of 670 apartment homes for $343 million, all of which were placed under contracts subsequent to the implementation of shelter-in-place orders in March. Given the wide discount and valuation for public REITs compared to the private real estate markets, we continue to market additional properties with the goal of funding at a minimum all of our investment needs through dispositions. Other than the AIMCO sales that were part of its announced reorganization, very few sizable apartment transactions occurred during the quarter. Generally, the number of properties being marketed has been extremely limited since March and is now slowly increasing. Therefore, it remains too soon to draw conclusions about cap rates going forward. In the suburbs, where rents have remained relatively stable since the start of the pandemic, cap rates and property value should not change materially compared to the pre-pandemic period. In those suburban areas, we expect high-quality properties to trade in the low-to-mid 4% range in terms of cap rates. Given significant concessions in hard-hit cities, recent price talk around possible sales indicates a 5% to 10% discount to pre-COVID valuations, with a few sales that we've seen in these markets assuming a fairly rapid rent recovery. As with previous recessions, Fannie Mae and Freddie Mac have continued to provide very attractive financing with 7-year fixed-rate financing in the mid-2% range. Significant positive leverage and active sources of debt significantly limits the amount of distress in the markets. Finally, I'll end with a brief comment related to California Prop 21. Including the extraordinary opposition effort coordinated by the Californian's Responsible Housing Group, I would like to commend the leadership of this group including RM, John Eudy for their unrelenting focus and steadfast effort in opposing this flawed proposal. Prop 21 would surely make housing shortages worse in California. The 'No on 21' Campaign has assembled an amazing constituency consisting of hundreds of organizations, including Veterans Groups, Affordable Housing Advocates, the California NAACP, the State Chamber of Commerce, and scores of others, along with Governor Newsom. Almost every newspaper in California supports defeating Prop 21. We all greatly appreciate your effort. And now, I'll turn the call over to John Burkart.

Thank you, Mike. I want to start by thanking the Essex team. Throughout this period of extreme volatility and complex regulations, they acted thoughtfully and tirelessly to serve our customers. We were successful in our objectives of building occupancy during the third quarter by using various pricing strategies, including concessions along with leveraging our technological advantage. We've significantly improved our response times in the overall customer experience. Our strategy of using upfront concessions when appropriate reduces the impact of the market dislocation on the rent roll. As noted in the table on the bottom of page 2 of our supplemental, our scheduled rents for Q3 2020 are down only 40 basis points from the prior year's quarter. This positions us favorably for revenue growth as concessions continue to abate and our year-over-year comparisons become a tailwind. As of mid-October, we're offering concessions of three to four weeks in less than half our portfolio compared to over 75% of the portfolio in the third quarter. No material concessions are being offered in Orleans, San Diego, Ventura, and Contra Costa County. Occupancy in these four counties currently averages 97.9% with an availability of 2.5%. I like the fact that we are seeing solid signs of stabilization in many of our markets; I do want to acknowledge that we continue to hear anecdotal stories of owners who reacted slowly to delinquency and rapidly changing market conditions and are now attempting to improve their occupancy position during a seasonally slow demand period. Consumer behavior related to COVID-19 including consumer preference for larger units, private outdoor space, stairs instead of elevators and communities within commuting distance to employment hubs, yet located in proximity to outdoor recreation amenities continues to impact demand in the marketplace. Turning to our Q3 2020 results as presented on Page 2 of our press release, year-over-year revenues declined by 6.7%. While the year-over-year revenue growth continues to decline due to the change in the rental market post-COVID, the improvement in the sequential revenue decline is consistent with the signs of stability that we're seeing in the market. Although we're not currently giving guidance, I want to remind everyone that the combination of a very tough occupancy comparison of 97.1 from Q4 of last year and the fact that lease transactions on average are below last year, it is likely that our year-over-year fourth-quarter revenue growth will decline from Q3. Turnover in the quarter increased 73 basis points from the prior year's quarter. Communities with certain attributes were the key contributors in this increased turnover, specifically high-rises and communities with markets that have a greater demographic of college students and Silicon Valley contracts and consultants. On the regulatory front, various governmental bodies have enacted anti-eviction and other resident protection. California recently passed AB 3088, which is a positive step toward replacing the patchwork of local ordinances to COVID-19-related delinquency. Importantly, AB 3088 prohibits eviction for nonpayment of rent between March 1 and August 31 of this year, establishes a minimum future payment threshold to protect against future eviction and establishes access to small claims courts to pursue collection of past due rent. Washington State has similar regulations expiring at the end of this year. While we continue to see many residents paying down prior balances, we also continue to work with our residents on solving delinquency issues. Lastly, expenses in the quarter were negatively impacted by increased property taxes in the Seattle market and COVID-19-related impacts such as PPE and higher utilities driven by increased usage from residence spending longer periods of time at home. Utility increases in Q3 were offset by a year-over-year reduction of 12% in electricity costs, as a result of the various green initiatives we have executed. Turning to our markets, year-over-year revenues in the Seattle market for Q3 were down 1.6%, while year-over-year occupancy for the period was flat. The greatest declines continue to be in Seattle CBD where revenues declined 5.6% followed by the east side with a 1.1% decline. Revenues in the south and north sub-markets saw increases of 30 and 60 basis points respectively for the same period. Seattle job growth in Q3 declined 8.1% year-over-year. However, Washington unemployment in August remained 60 basis points lower than the U.S. average of 7.7%. It's worth noting that Seattle home purchasing activity increased during the third quarter. On a trailing three-month average from August, year-over-year home prices were up 12% in August. In August alone, home prices were up 17.4% on a year-over-year basis. Moving to Northern California, in the Bay Area market year-over-year revenues in Q3 were down 8.5%. Occupancy for the period was 96.2, a year-over-year increase of 30 basis points. Oakland CBD and San Francisco continue to be our most challenged sub-markets in Q3 with year-over-year revenue declines of 16.5% to 17.1% respectively, compared to San Jose, where revenue declined 7.2%. In the same period, Contra Costa saw a decline of 4.6%, however, sequential revenues in this sub-market increased by 1.6% from Q2. Bay Area job growth declined 9.7% year-over-year in Q3, mainly driven by job losses in leisure and hospitality and trade, transportation and utilities, all heavily impacted by the state's required shutdown. However, there are positive signs of growth in the market. Several Bay Area tech companies filed for IPO during the third quarter, including McAfee, Airbnb, Snowflake, and Unity Software. In addition, Google unveiled their plans for a 1.3 million square foot tech village in Mountain View. This new development will have a capacity of 6,000 additional employees. Home purchase activity picked up during the third quarter; on a trailing three-month average from August, year-over-year home prices in the Bay Area were up as much as 8.6%. In August alone, home prices in the San Jose market were up 20% year-over-year, while San Francisco and Oakland were up 14% for the same period. The increases in home prices make the transition from renting to homeownership even more difficult, and it shows the continued long-term demand for housing in our markets. Then in Southern California, year-over-year revenues in the third quarter declined 7.3%, while occupancy declined only 20 basis points. The LA market continues to be a challenge. In Q3, our West LA sub-markets saw the greatest year-over-year decline of 16%, while our remaining LA sub-markets declined between 9.1% and 12%. LA job growth was minus 9.7% in the same period, while unemployment remained the highest of our markets at 15% in August. In Orange County, Q3 year-over-year job growth declined 10.8%, while revenues declined 2.6% and occupancy increased 1.4% in the same period. I do want to note that quarterly sequential revenues in our Orange County sub-markets actually increased by 1.9% in Q3. Finally in San Diego, our year-over-year revenues declined 2.1% in Q3. The Oceanside sub-market, however, continued to grow revenues by 2.3% in the same period. San Diego job growth declined by 8.9% for the period. Currently our same store physical occupancy is 96.4%, our availability 30-days out is at 4.5%, and our fourth-quarter renewals are being sent out with no increase. Thank you. And I will now turn the call over to our CFO, Angela Kleiman.

Thank you, John. I'll start with a few comments on our third quarter results, followed by an update on capital markets and funding activities. As noted in our earnings release, and early on, this was a challenging quarter with declines of both same property revenues and core FFO per share. The 6.7% decline in same property revenue growth is primarily driven by concessions and delinquencies. We report concessions on a cash basis in our same property results. Because we believe this approach provides a true picture of current market conditions. The cash impact of concessions was 500 basis points. So, excluding this, our same property revenue decline would have been 1.7% instead of 6.7%. Conversely, on our consolidated financials, we used straight-line concessions in accordance with GAAP in calculating core and total FFO. Keep in mind that when concessions abate, our approach will impact the future performance in two ways. First, our year-over-year comparison sustained dollar revenue growth will be favorable. Second, the opposite effect will occur on our FFO growth because there will be a headwind as we continue to straight-line concessions over the life of the lease. On to delinquency, we are encouraged to see total delinquencies declined during the third quarter relative to the second quarter. On the other hand, given the current environment and related uncertainties, we maintain the same approach as last quarter and reserved against 75% of our delinquencies with the third quarter. This may prove conservative as California law allows us a clear path to collection of COVID-19-related delinquencies as temporarily provided in AB-3088. The negative impact from our delinquency reserve to same property revenue and core FFO growth was 1.6% and 4%, respectively. Please see the bottom of Page two of our press release and S-15 in our supplemental for additional details. Turning to capital markets. In August, when interest rates dropped down to a level close to the 52-week low, we opportunistically issued 600 million of bonds, consisting of two $300 million tranches, an 11-year and a 30-year maturity at an effective yield of 1.75% and 2.67% respectively. The yield on our 30-year bond was the lowest on record of any Triple B plus rated issuer at that time. Since then, we have repaid a $300 million bond that matured in 2022 and have plans to pay off all remaining 2021 maturities at par. The net result is a very low risk maturity schedule for the next two years, with only a $350 million term loan to repay in 2022. As for funding plans for investments in stock buyback, our structural finance investments are funded by the redemption, and our development commitments are less than $73 million over the next two years. Incidentally, because the pandemic has caused delays in development deliveries, our development NOI for the next year will be lower than we expected, because we are not as far along in our lease-ups as we originally planned. Year-to-date we have repurchased around a million shares at an average price of about $226 per share. We have matched funded the stock repurchases with $343 million of property sales, which is comparable to our pre-COVID consensus NAV of close to $290 per share. While we have been opportunistic in arbitraging the compelling discount between our public and private NAV, we paused our share repurchases when COVID-19 caseloads and hospitalizations surged and severe shelter-in-place orders were issued. Even though we have transacted on a leveraged neutral basis and have reduced our net debt, selling assets also reduces EBITDA. Accordingly, we continue to be mindful of the impact of the debt-to-EBITDA ratio in the context of our stock buyback strategy. In summary with minimal near-term funding needs, nothing drawn on our line of credit, and approximately $1.7 billion in total liquidity, our balance sheet remains strong. And we continue to have the flexibility to be opportunistic, while maintaining our disciplined approach to capital allocation. Thank you, and I will now turn the call back to the operator for questions.

Thank you and appreciate all the operating update on the call. If I'm looking at page S15 of the supplemental the operating statistics for October, I know they're down on a gross basis and not taken into account concessions. I know you said concessions were abating. But I'm wondering if you can give the operating numbers do renewal of blended when taken into account concessions for both October and then the third quarter?

So let me see if I can give you some more information. I may not give you everything there, but let me give you some more information. Number one, on that note, it shows that the market rents, the decline in market rents has improved. And that is true. But the fact is last year, we had an easier comp. So I want to make sure we have the context, whenever you know, it's always a challenge with transparency, giving out more information and then not having all the context. So there's a little bit of a headache when it shows how the October rents have improved year-over-year. But that said, our markets are doing well and across the board and showing signs of stabilization or they're actually improving. So I want to make sure we get the right message across as we get to a read and further, you'll see that number reverses a little bit. I don't want people thinking, oh, now things are getting worse. It's not the case, it's just the year-over-year comp. But as we get into what's happening in October, as far as for concessions go, we started the October reducing concessions. And this is off a Q3, where over 75% of our transactions had concessions of roughly a month. And then we moved into October the first couple of weeks, and we were at less than 50%. And then as we moved into the second half of October, we're actually now at less than 25%. So we're doing that while maintaining occupancy or improving occupancy and while maintaining low availability. So, all those pieces are going in the right direction at Essex. Again, we don't - we're not in the market, we're part of the market, but we're performing very well within that marketplace. When we look at the break between renewals and new leases, there's definitely more leasing incentives on the new leases usually running 3.3% is what we have in there was accurate. On the renewals, it's usually less than a week. Obviously, there's less of an incentive, this is already - people already in the property. Does that answer your question, Nick?

That sounds very helpful, and especially the color on the year-over-year trend. And then maybe just the second question. Angela, I appreciate the commentary on the share repurchase program. What would get you to restart it? I'm wondering, obviously, the stock is below where you are purchasing and for some of the reasons that you discussed. So, what would get you more aggressive there? Is it price? Or should we expect it to be paused for the near term regardless?

Yes, I think, Nick, if you look at how we manage our capital allocations, we're not really going to deviate too much from that plan. And so, the key commentary I have is really to make sure that we also, at the same time preserve our debt-to-EBITDA ratio. And so, it'll be a little bit of all of the above: what are we selling? And what price and what's the impact on the EBITDA reduction? At the same time, what are our opportunities to reinvest the sale proceeds? So if we have more preferred equity for example, then that certainly will be an important piece. And of course, the other piece is where the stock is trading, right. And so, it's all of these things I guess, that factored in.

Thank you and appreciate all the operating insights. I have a question on cash delinquencies, I know there are 2.2% of scheduled rents. And you recently spoke at a conference earlier in September about positive delinquencies. So could you provide us with an update on how collections are trending on the delinquency side? And how much of this 2.2 will likely head into mid-2021? Also, do you have any delinquencies creeping into your utilities expense side like some of your peers?

Yeah, okay. So, overall, delinquencies are definitely improving. And you can obviously see that from Q3 versus Q2, there are some underlying trends there that occur. And so what's happening is, we are collecting a little bit more in prior delinquencies, which is a good thing. Again, I've said all along, we're working with all of our residents. And the great, great, great majority are showing very good behavior. So we are getting a little bit more on the current month's delinquency, is a slight uptick. It kind of ties in with the reduction of the federal aid, but it's really not that material overall. Again, the picture of delinquency is improving. And so my expectation as we move forward, we continue to have the economy opening up. Although, we still have negative year-over-year job comps, they're getting better and better. And so if on a local level, we actually had seasonal job comps, they would actually show seasonal growth. So things are actually improving out here and my expectation is that delinquency will continue to improve as we move forward. As it relates to utilities or any other line item, they're really running a similar path to the rental delinquencies. If the people who are unable to pay rent are really not paying delinquencies but, yeah, there's not paying all of it. So, or they're paying a percentage, but the percentage is type of thing. So it's a very parallel path, if that makes sense.

Yeah. Hey, guys, Nick here. Just a question - bigger picture question maybe for Mike, what is sort of the biggest selling point you can get investors right now about your portfolio and addressing some of the bigger worries out there, such as potential increase in rent control in California the fact that tech workers are working remotely, and they are in some cases moving to other states like Washington, where there isn't a state income tax. With all that being said what are people missing about the Essex story right now? And I guess, the other thing I'm wondering is, you talked about it sounds like transaction cap rates staying low, much lower than what your stock price implied cap rate is right now. So, how do you think about asset sales in this environment as well?

Yeah, Nick, those are great questions. And I guess I would start with the latter point you made which is the disconnect between public real estate markets and private real estate markets and trying to monetize that difference. And as Angela stated, we paused a bit in the quarter when the COVID cases were increasing. And it's interesting. We think that's just an obvious benefit for operating the machine in forward direction. We are issuing stock and incurring debt and buying property at a positive differential or arbitrage. And we think that that works pretty well in reverse direction as well. So I'd say that is an obvious way to add value, add NAV per share, add FFO share to the company given the current dislocation. I'd also mention that when we look at the amount of job loss we've had, the rent growth, or the rent reductions that we've seen are really I guess, I would say to be expected. And I know everyone is focused on this work from home issue. But if you just look at LA jobs still as of September down 9.6%, San Francisco down 10% and Oakland down 11%, and largely driven by things that will - a big portion of them will come back. Like for example, the tourism, restaurants, hotels, the motion picture business in Southern California. Those are the tech industries. But there's nothing fundamentally wrong with them. And I think that most of the rental revenue loss that we've incurred is just directly attributable to job growth. And so, I think that this will unwind itself and it's already started to unwind itself as Mr. Burkart just outlined in numbers that are slowly getting better or still, I would say in a pretty tough spot with respect to employment, we need that to recover. But the balance sheet is incredibly well positioned. And we do have some ways to add value to the company. And so we see opportunity there. So I guess that's how it answers your question.

All right. Thanks, Mike.

Thank you. My first question actually was similar to that last question. But, Mike, maybe we could dig a bit deeper into the work from home part? Because, as you stated, it seems to be the number one concern for the stock, I believe you said again, as Nick said, cap rates are flat in the suburbs. And did you see talk at least is only minus 5% in the cities versus, I think your stock is implying more of a 20% 25% discount. So the work from home maybe just, can you just talk about that a little bit more and why you're so comfortable that that's not going to impact Essex?

Yeah, hey again, it's a great question, Jeff. Thanks for joining the call. I guess our thesis is that the hybrid model will likely prevail. And many of the jobs that are in the cities require a physical presence, I would make that point, virtually everything that connects with a customer, from hotels, to restaurants, to bars, et cetera, the motion picture industry where it is pretty hard to film without people being present, et cetera. And so, we see that as probably it's too much focus on, let's say, the tech community, and not enough focused on the number of jobs that are required to actually physically be there to do your job. But, I guess, in thinking about this and in looking at what others have said, it's pretty interesting. There's obviously a big debate out there. And the Netflix CEO, for example, said, he doesn't see any positives from working from home. And another CEO, the Zillow CEO says, the easy decision - the easy part of the process of working from home is making the decision, the hard part is actually implementing it. And I think what he means by that is there are some pretty serious issues that come along with work from home, that are going to take a lot of time and effort to work out. And I would mention, let's say potential for less pay to the employees, how does the compensation issue work out? The productivity issues, how do you continue a culture of collaboration and a vibrant culture when people don't see each other? And I think, we've found we're largely remote at this point in time, we've found that it's pretty difficult to resolve significant business problems where senior executives have different perspectives on things when in a work-from-home type of environment, you're much better off together. So, again, we are thinking that the hybrid model is probably going to be the main path going forward. The hybrid model will have required some tethering to an office at some point in time to try to keep those collaboration and the vibrancy and the culture together. And so, we still see ourselves as being pretty well-positioned. So, someone may not live in a city, let's say, but they'll live somewhere, potentially nearby, certainly within driving distance. And we don't see that as a bad thing. We have properties; in fact, most of our properties are actually out in suburbia. And so, we think we're well-positioned for that. And by the way, the other key point here is we're not producing a lot of housing, and there's not going to be a lot of housing produced out there. So already, as John said earlier, already, we're starting to see rents increase now in suburbia as that dynamic plays out. And they're reducing in the cities and the areas that have previously had higher rents. And so, the market is compensating for all of these issues, as it always does. And the decision a renter might have made six months ago can be very different from the decisions that they're making today. So, net-net we think we're very well-positioned and again, we have properties throughout these markets and throughout the commutable locations near the job centers, and we think that's still the right strategy.

Thank you, Mike. My follow up would be are you able, you mentioned, I believe that 9 out of the 10 companies you're tracking you're seeing an increase in job postings. Are you able to track for those postings? I guess, if they're advertising, hybrid, work from anywhere. Is there a way to quantify that or not? No, it's not possible?

Yes, it's - Jeff, it's hard to do. I mean, we in our September presentation, we gave out the dates for office reopening of some of the top 10 tech companies, but the reality is that they are moving back to some degree, as if there's another phase of or surge of COVID cases, maybe those get pushed back. It appears and looking at, there was a recent Microsoft announcement that gave greater work-from-home flexibility, etcetera. But I guess from our perspective, most of the top 10 tech companies have worked via return to work dates out there. And I think that's significant. Because if they were going - all of them were going 100% work from home as a couple of smaller tech companies are doing, that would be one thing. But most of them have return-to-work dates. And even if they get pushed back a little bit, I guess the significance here is, as long as they ultimately are going back to the office in some way or another, I think that will solidify the connection to the office. And either way, no one's going to pick up the apple spaceship and move it somewhere else. So, it's there for a reason; there are a lot of services there, including daycare and all kinds of things. And it's meant it's there for a reason. And I don't think that that motivation goes away anytime soon. I guess, you're back to the top 10 tech companies in the job outlook, those are data that we take off their websites and do our own survey, and have tracked what they're doing for many years, because they're so important to our mission. And they, as I said, they're off their peak, which was actually in March of this year by a reasonable amount. I think, looks like somewhere around 27,000 jobs in March open for the top 10 tech companies down to about 17,000 - about 18,000 is the most recent number. And, but, now starting to move back in the other direction. So, it looks like that is starting to get better, not worse.

Great. Thank you.

Yeah, hey, good morning out there guys. Covered a lot of ground, but I guess Mike, just a follow up maybe on a prior thread. As we think about COVID cases rising here in the US and globally and you're seeing renewed lockdowns in places like Europe. I mean, how does that make you feel about California potentially being first in line to take a similar posture in the months ahead if current trends continue? And then I guess, on the flip side, given just lowered seasonality in terms of leasing volumes, do you think the impact of that happening would be a lot less material than what occurred during the sort of the second and third quarter?

Yes, Rich. Hey, you know what I got to say, I greatly appreciate the work that Evercore ISI has done on this issue on the COVID tracking, etcetera it's been fantastic. And we all use it. So, thanks for that. I think that California has been super conservative when it comes to dealing with COVID. And as I said in my prepared remark that means that it accomplished two things at once, it really curtailed the number of the case spread throughout California. And at the same time, it muted our recovery very significantly. So, we're now I think, at a place in California where things are actually in pretty good order. Not that it can't change, and I believe that what will happen is the state will be very vigilant in terms of pushing us back into a more restrictive tier if they have to. But I think as we sit here today, I think we're in a better spot than some of the areas that have been more open, and have let their economy flow more freely. So, we'll take this on a day-by-day basis. But we look - it looks like California and Washington are actually very well positioned. And I don't think that you would see this, with the chart on Page S16, I don't think you would see this pretty significant movement to reopen the economy, if that wasn't the case.

Sure, yeah, no that's actually very good overall. I mean, going into this part of the season, Essex as a general rule, we like to have higher occupancy and lower availability going into the season where there's a decline in demand season like and sitting at 4.5% right now availability is a good spot. It's consistent with where we've been in the last several years, the team has worked very hard to meet the market, and very interactive trying to understand what the consumer wants, and off of that and leased our units up and get quality paying tenants. And I think they've done a terrific job, you can see it in our higher occupancy even into October that 96.6. I mean, that's just really, really doggone good. Now, again, as I mentioned in my prepared remarks, in Q4 of last year, we were at 97.1, the market was very, very strong. And so we still have some headwinds. But in context, I think the whole portfolio is doing very well, if either signs of strength in some markets like Ventura, Contra Costa, Orange, and San Diego, or we see good signs of stabilization in many other markets. Or I'll mention, say, in San Francisco and Oakland, for example, we see the beginnings of this backfill, that's starting to happen. And we mentioned this before, how in our markets, they are desirable places to live. And so when it's really a value proposition, so when the price gets to the right point, consumers make changes. And so what we're starting to see now, from January through September, the average was about 6% move-ins came from the outlying areas, and this is far off commuting places, like say Antioch that we're moving into the Oakland area, and or San Francisco. And the numbers vary, but they're fairly close to that 6%, average all the way through pre-COVID, post-COVID, all the way through. And now in October, that number jumped to 14%, literally just jumped. And you look and you say okay, what's going on there, I would say this is the super commuters, the people that they're tethered, as Mike said to the employers. Employers are opening up, and they're looking and saying, I have now my value proposition is to move into San Francisco, move into Oakland, and at a lower price point, avoid that commute. This is a great deal. It works for me. And we're starting to see that. That's a real deal thing that actually happened. So, when I look across our markets, again, I get the strength in certain markets. I get the stability in others and I get the very positive signs in the most challenged places like San Francisco and downtown Oakland.

Good morning. You provided some helpful commentary on the incentive in response to Mike, Joe's questions. But I was wondering if you could provide some additional granularity as far as the effective blended rate growth rates in the third quarter and October?

Well, I guess I'm going to look at effective that one month is 8%. Right? And so if we go three weeks, or three quarters, it adds about 6% off of our lease rates, and that would be one way to look at it to get down to that number. But the reason why I'm not going there is I think it's a little bit misleading, to be honest. I mean, we tend to get into this almost bond mentality of doing a calculation and if we did that, I would have gone back in the last several months at GE rent spell this huge amount net effective. And today I would be saying, oh my gosh, rents have moved up this huge amount because concessions are abating. And I think both of those can be a little bit misleading. As Mike has said, for years, concessions can come into the market and go out rather rapidly. We've used them as a tool to increase occupancy as leasing incentives, and to much lesser extent as in renewals. And so my preference in this case is to really look at it and say, okay, what's going on with our street rents, or market rents or coupon rents and then concessions, where they add? They came into the market in a really big way in June. We use them to increase occupancy pretty dramatically, that's worked. The concessions are abating, we're pulling them back. And I think that's the bigger story. But if you get lost in the net effective rents I'd say, you'll have to go all the way back and say they sell a lot. And now they're increasing. And I think - I don't think that's the best way to look at it.

Should we be adding the free rent period to the 12-month lease, or is the 12-month inclusive of the free rent? In other words, is it a 12-month lease or a 13 only?

It's typically 12-month lease. And yes, if you try to get to net effective again, as I said, you just take the concession amount and say okay, if it's a month, it's 8%. And you'd make that adjustment. So I mean, that's the simplistic way to get there. But again, I just don't think that's the best way to look at what's happening in the marketplace right now.

Thanks. So just one quick question for me, John, as your private competitors play a little catch-up on the occupancy side and as larger rent resets kind of ripple through sub-markets outside of your portfolio, do you expect occupancy to slide here in the next several quarters?

I don't, I wouldn't say that I expect it to slide. I think the team is doing a phenomenal job. We are very aggressive getting data, we have a proprietary data hub, and we pull all the data together. We have daily meetings, pricing, and strategy meetings. And it is just an amazing team with leadership all the way through it. And so, we're meeting the market. So, we know that a unit that's vacant does not earn any revenue and we just for years laughed at the proud and vacant concept that it just doesn't get you anywhere. So we typically are doing 12-month leases, and we meet the market and try to understand it, meet it in and stay occupied. So, I don't see the occupancy declining a lot. 96.6 is high, but maintaining I'd say 96 and north of 96 I think is what I would expect to see for the next couple of quarters. And then normally as we start to get into the Q2 and Q3 and there starts to be more turnover, that has an impact on reducing occupancy just because of the nature of the turnover. But we will continue to try to maintain higher occupancy. And I just expect there to be volatility and I brought that up, because I don't want people to be surprised by headlines from different vendors saying this is happening here and that's happening there and also thinks that the whole market is going away. There's just individual players that are really struggling right now. There are some people with lost occupancy in the third quarter, which was probably not the best strategy. And now they're trying to figure out what to do.

Okay. One follow-up there, are there any markets in Northern California where you've taken concessions off and you think you'll have to put them back on into the winter?

No. I mean, it floats around. I mean, right? We're going to use them where we need them. But we have it's - again, we're meeting on a regular basis to figure this out and figure out what where the market is, and what's happening. But I'm not looking right now and expecting huge obvious weakness in one spot or another, I expect volatility. And so to that extent, what I mean by that is yeah, we'll make pricing adjustments as necessary if things pop up. But it's more like whack a mole, and then trying to maintain a good position throughout this situation.