MAA (2020 - Q3)

Good morning, ladies and gentlemen, and welcome to the MAA Third Quarter 2020 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, October 29, 2020. I will now turn the conference over to Tim Argo, Senior Vice President, Finance for MAA. Tim Argo

Thank you, Ashley, and good morning, everyone. This is Tim Argo, Senior Vice President of Finance for MAA. With me are Eric Bolton, our CEO; Al Campbell, our CFO, Rob DelPriore, our General Counsel; Tom Grimes, our COO; and Brad Hill, Executive Vice President and Head of Transactions. Before we begin with our prepared comments this morning, I want to point out that as part of the discussion, company management will be making forward-looking statements. Actual results may differ materially from our projections. We encourage you to refer to the forward-looking statements section in yesterday's earnings release, and our 34 Act filings with the SEC, which describe risk factors that may impact future results. These reports, along with a copy of today's prepared comments and an audio copy of this morning's call will be available on our website. During this call, we will also discuss certain non-GAAP financial measures. A presentation of the most directly comparable GAAP financial measures as well as reconciliations of the differences between non-GAAP and comparable GAAP measures can be found in our earnings release and supplemental financial data, which are available on the for Investors page of our website at www.maac.com. I will now turn the call over to Eric.

Thanks, Tim, and appreciate everyone joining us this morning. Results for the third quarter were ahead of our expectations. Cash collections on rents build in the third quarter were strong and October trends are the same. While we still have a long way to go in capturing full economic recovery, we are encouraged by the early signs of improvement evident in our third quarter results. Leasing traffic was well ahead of prior year. On a lease-over-lease basis, new move in rent pricing meaningfully improved as compared to the second quarter. Overall, net effective rents were 1.8% higher than Q3 of last year and average daily occupancy remained strong at 95.6%. As a result, we captured positive sequential revenue growth in each of our markets as compared to the second quarter. Demand is strong across our footprint and growing. While we expect new supply levels to remain elevated for the next few quarters, forecast for new deliveries and the trends for permits for new construction suggest moderation in deliveries beginning in the back half of next year and significantly declining into 2022. We continue to make progress on our new development pipeline with construction and scheduled deliveries on track to our performance where we are underway with initial leasing, both our leasing trajectory and rents are in line with our expectations. We are in active predevelopment work on several other new development projects that we hope to start next year. We believe MAA's strategy, with a focus on the Sunbelt region uniquely diversified across both large and mid-tier markets and serving a broad segment of the rental market. As the company well positioned to continue to work through the challenges presented by the current economic slowdown. As the economy begins to recover post COVID, we believe our markets will continue to outperform, capturing employment trends and a demand for housing that will be well above national averages. MAA is well positioned for a coming recovery cycle. To our team of MAA associates, thank you for your tremendous work and commitment to our mission over the busy summer leasing season. You have again exceeded expectations, and as a result, have us well positioned as we head into next year. With that, I'll turn the call over to Tom.

Thank you, Eric, and good morning, everyone. The recovery we saw beginning in May and June continued across the portfolio through a busy season. Leasing volume for the quarter was up 11%. This allowed us to improve average daily occupancy from 95.4% in the second quarter to 95.6% in the third quarter. In addition to strengthening occupancy by 20 basis points, we were also able to drive new lease pricing improvement. Effective new lease pricing during the quarter improved 140 basis points from the second quarter to the third. All in-place rents on a year-over-year basis were up 1.8%, and turnover for the quarter was down 2.7% versus last year. These improvements were supported by an increase in lead-generating marketing spending. We're pleased with the resulting improvements in occupancy and new lease pricing mentioned earlier. We saw steady interest in our product upgrade initiatives. During the second quarter, we restarted our interior unit redevelopment program as well as installation of our smart home technology package. That includes mobile control of lights, thermostat and security as well as leak detection. Year-to-date, we have installed 22,000 smart home packages and completed 3,300 interior unit upgrades. As noticed in the supplemental document collections during the quarter were strong. We've worked diligently to identify and support those who need help because of COVID-19. The number of those seeking assistants dropped with each month. In April, we had 5,600 residents on the relief plans. The number of participants decreased over time and it's just 470 for the October rental assistance plan. This represents less than 0.5% of our 100,000 units. October collections are running slightly ahead of the good results we saw in the third quarter. As of October 26, we've collected 98.6% of rent build for October. This is a 20 basis point improvement from what we saw on average for July, August and September for the same-day of the month, including deferred payments for COVID-19 effective resident payment plans referenced in the COVID-19 disclosure, we have accounted for 98.8% of October build rent. Leasing volume for October is on track to exceed last year. Effective new lease pricing for October-to-date is negative 2%, a 30 basis point improvement from the third quarter, effective blended lease-over-lease pricing for October month-to-date is 1.3%, a 50 basis point improvement from the third quarter. A high percentage of our current residents are choosing to stay with us, and our resident renewal and retention trends are positive. October, November and December lease-over-lease renewal rates signed at this time are in the 4.5% to 5.5% range. In addition to the positive leasing trends, occupancy has also strengthened. Occupancy has improved from a low point of 95.1% in May to 95.7% today. Average daily occupancy for the month is 95.6%, which is even with October of last year. 60-day exposure, which is all vacant units plus notices through a 60-day period, has dropped from a high of 9.2% in May to 6.8% in October. This low level of exposure also matches the same time last year and has us well positioned for the slower winter leasing season. I'd like to echo Eric's comments and thank our teams as well. They served and cared for our residents and our associates well and have grappled with the constantly changing implications COVID-19. They've also worked diligently to adapt to new business conditions and drive our recovery. I'm proud of them and grateful for their efforts and character. Brad?

Thanks, Tom, and good morning, everyone. Third quarter transaction volume picked up from second quarter, but still remains down significantly year-over-year, and we expect the volume to continue to be slow into next year. Because of the desirability of our markets, we continue to see robust buyer demand for existing assets within our footprint. This strong demand, coupled with very attractive debt rates, has further compressed cap rates, and in some cases, is resulting in pricing above pre-COVID levels, despite lower NOI's. We continue to expect our best buying opportunities on existing assets to be owned properties and their initial lease-up, where we believe pressure is likely to continue to build through the winter. With that said, we've only seen a few lease-up opportunities come up and pricing trends are mixed. All cash buyers and strong sponsors with established agency relationships remain the most aggressive bidders, while leverage buyers are having more difficulty obtaining financing on prestabilized properties. We do expect cap rates within our footprint to remain at historical lows and perhaps continue to trend lower, likely making acquisitions a smaller contributor to our external growth for some time. As mentioned last quarter, we expect our in-house development and our prepurchase platform to be significant contributors to our external growth going forward and anticipate starting construction on a number of these projects later this year and into next. While cap rates on acquisitions have compressed, yields on developments remain attractive. Rents and occupancy are holding up in our markets and despite cost pressure in a couple of line items, especially lumber, developments continue to underwrite to a positive spread to cap rates on stabilized properties. As shown in our supplemental, we have 6 development projects that are underway and all remain on budget and on-time, despite working through some minor supply chain issues. Subsequent to quarter end, we started construction on the land parcel in the northern suburb of Austin that we purchased back in January. This 350 unit project should begin leasing in the first half of 2022, when we expect leasing conditions to be significantly stronger than they are today. While early reports show 2021 deliveries in line with this year's levels, data and permitting and construction starts show a material decline since March and point to a drop in future deliveries beginning late next year and into 2022, lining up well with the expected delivery of any new development we start. That's all I have in the way of prepared comments. So with that, I'll turn it over to Al.

Okay. Thank you, Brad, and good morning, everyone. We reported core FFO of $1.57 per share for the quarter, which was slightly better than our internal expectations as operating performance, corporate overhead costs and interest costs were all better-than-expected for the quarter. As mentioned earlier, stable occupancy, strong builds in effective rents and continued strong collection supported the third quarter performance, while improving pricing trends position the portfolio well for the fourth quarter. As Tom mentioned -- excuse me, we have established a reserve for bad debts at quarter end sufficient to fully cover uncollected rent from rests not working with us on payment plans as well as for a large portion of the remaining deferral program payments. Our collections experience for those have been very good today. As discussed in our release last quarter, we expected some pressure in property operating expenses over the back half of the year. The majority of the increase for the third quarter was related to growth in real estate taxes, insurance and marketing costs as well as impact on a utility costs on the double-play bulk Internet program, all discussed last quarter. A couple of unusual items affecting the quarter were an unexpected increase in Austin tax rates related to a recent approval by the city to bring forward funding for a light rail system, which was approved during the quarter and actually goes before voters next week. In addition, we did occur about $750,000 of unexpected storm cleanup costs during the third quarter, which also contributed to the growth. Our balance sheet remains strong, with low leverage and significant capacity from cash and remaining borrowing potential under our line of credit, combining for $980 million of capacity. We funded $50 million of development costs during the quarter with the expectation of funding around $260 million for the full year, including the purchase of land parcels for future deals. As Brad mentioned, the acquisition environment remains challenging, so we expect the majority of investment opportunities over the next few quarters to be in-house development or pre purchase development deals, which both have long-term funding commitments. And thus, we expect our development pipeline to increase over the next few quarters, but remain well within the risk tolerance ranges we've always had. We completed a successful bond deal early in the quarter, taking advantage of the low rate environment to issue $450 million of 10-year notes at a coupon rate of 1.7%. This funding was ultimately used to repay some secured debt maturing later this year as well as prepay a $300 million term loan during in 2022. We have no remaining current maturities or future maturities with low prepayment costs, so we don't anticipate additional debt or equity funding needs for the remainder of this year. And finally, as reflected in our release, recent trends have been encouraging, there's still significant uncertainties remaining, thus, we refrained from providing guidance for the remainder of the year, but plan to revisit the decision as we prepare for our fourth quarter release with the expectation of being able to provide guidance for 2021. That's all we have in the way of prepared comments. So Ashley, we will now turn the call over to you for questions.

[Operator Instructions] And we'll take our first question from John Kim with BMO Capital Markets.

Al, you just mentioned that there are some uncertainties remaining that basically allowed you to refrain from providing guidance for the year. Can you just elaborate on what some of those uncertainties are at this point?

Yes, John, I appreciate that question. I think as we look at whether there's continuation of certain government programs, the recent potential rise in COVID cases in our region, timing of reopening plans that continue in our region related to these states. And so all these things continue to bring risk. And as we mentioned, I mean, we are very encouraged with the trends, but just given that it was 1 quarter remaining in the year, we felt it prudent to refrain completing that out right now. We hope to be and feel like we'll be in a position, assuming continued stability in overall marketplace and environment to put full guidance out for 2021.

And with your cost of capital coming down, at least on the debt side, with your recent debt raise of 1.7. How does this change at all as far as how you underwrite investments?

I don't want to change. I mean, we continue to underwrite in a similar manner. I think what it does is it certainly provides the potential for very strong yields, gaps and the spread capture on some of these new development deals that brand, whether they're in-house development or prepurchase. And so that's why we talked about the remaining -- the capacity we have. And also, we talked about in the past, John, that we have a potential on our balance sheet to invest in $750 million before really impacting our leverage level. So I think we would say that -- and I talked about in the comments this morning, we do expect over the next couple of quarters on development pipeline to grow because that's where the opportunity is. And as you point out, those 6 yields that we're putting in place compared to that [ 1 to 7 ] debt funding cost is very attractive.

We will take our next question from Nick Joseph with Citi.

It's obviously been a very different operating year thus far. So I'm wondering how you're thinking about seasonality versus the normal patterns and how that impacts your operating strategy over the next few months in terms of focusing on occupancy or rate?

Yes. Nick, it's Tom. I think what we've enjoyed thus far, frankly, is pricing that has been unseasonal as you mentioned, normally our effect of new lease pricing peaks late July. Thus far, its peaked late August -- or excuse me, late October, with steady trends as it goes. I would expect, as we move into the fourth quarter, that we would see a seasonal falloff in sort of demand as we usually do and that new lease pricing will drop modestly, and that we'll be able to hold on or in the range of our current level of occupancy. That said, what I think will continue to grow, which are renewal rates that were effective in the third quarter or just 3.8. I think we'll see renewal rates continue to improve as we move through the fourth quarter. That's not something that's usual that seasonal, and that we'll see those in the 4.5% to 5.5% range for the fourth quarter.

And then just maybe specifically on D.C., it's a little unique relative to the rest of your portfolio. So what are you seeing on the ground there? And how you use in any concession?

I'm sorry, Nick, I missed which market you were asking about?

Washington, D.C. and the Greater [indiscernible] area.

Yes, absolutely. Yes, D.C. is a little bit different. Honestly, occupancy there is strong at 96.4%. The pricing has been weak. And as we go around the horn, we're seeing concession levels in D.C. Proper at 2 months unstabilized; Pentagon City, Crystal City, about 2 months; Tyson's corner, 2 months; Alexandria, pretty similar; Maryland and Northern Virginia are a little bit stronger, but both seeing a month 3 in those markets. So D.C. is 1 where we're stable on occupancy, but pricing growth remains elusive at the moment.

We'll take our next question from Austin Wurschmidt with KeyBanc.

Just curious, you referenced permitting levels declining. Fundamentals have been relatively stable and supply is expected to fall off. I guess, why do you think there hasn't been a pickup in construction activity at this point? Anything the supply chain challenges, I think you referenced or difficulty getting financing? And then just curious if there's any offsetting items from the pressure on lumber prices that Brad referenced and where you think kind of construction costs are versus pre-COVID levels?

Austin, this is Brad. I think certainly, in terms of construction costs, we've seen a strong rise in lumber, but it's been pretty volatile. We've seen a strong run-up since COVID. We have seen some relief there in the last 30 days or so, but it's still a pretty big unknown in terms of our construction cost. And we're really not seeing any other line items at the moment that are providing relief or offsetting some of that. It's just not happening. At the moment, in terms of seeing our -- not seeing construction tick up based on the permitting data we're seeing, I think it's -- I think financing is certainly a big part of that. When we started out of COVID equity was a little nervous. And so second quarter was tough. Equity folks backed out of a number of development deals. That's kind of -- since it's come back. And now I think the difficulty is more on the construction side or getting construction loans, that's very, very difficult for folks at the moment. And I think that's giving us some additional opportunities on our prepurchase platform, just based on the way we've structured that. But I think fundamentally, our markets continue to underwrite well for new development. You've got the -- certainly, the construction cost pressure a bit, but we see some mitigating circumstances there being the lower supply that we're talking about at late 2021 and into 2022 that the permitting data is showing. So we feel good about anything that we are developing today and putting a shovel on the ground on today. But I think the financing environment for folks -- for a number of folks out there is a little bit more difficult.

How robust is that pipeline of prepurchase opportunities? Has there been any change in pricing there? And then do you think as the transaction market general loosens up that maybe that spurs a little more activity in the construction market?

Perhaps. I mean, in terms of the -- what we're seeing on the prepurchase side, I mean, again, we're evaluating a lot of deals. As equity-backed out in the second quarter, we had a lot come forward to us. And then as I said, we've got our ability to provide the debt on our prepurchase platform is kind of a differentiator for us. And for folks that -- a lot of the established developers that we're doing business with, they have the capacity and the ability to go out and get debt, but we just provide a better option for them. So we're seeing a lot of opportunities there. We've got 2 that we hope to start in the coming quarters and in others that are in daily for us to evaluate. So we're optimistic that, that platform continues to perform and to provide opportunities for us.

And Austin, this is Eric. I'll add to what Brad is saying that we've got repurchase opportunities or predevelopment opportunities, I'll say, that we're working, including both in-house and on the prepurchase platform that Brad mentioned. We're working opportunities that we have tied up in Tampa, Raleigh, Denver, Phoenix. we're also actually looking at opportunity in a new market for us of Salt Lake City, which we hope we can start on next year. So we've got a number of things we're looking at.

We'll take our next question from Neil Malkin with Capital One Securities.

First off, congrats to your collections are remarkable as if there is no pandemic though. You guys are obviously doing something right. First question, I've been hearing more anecdotally about this, and I think it's increased with COVID. But are you seeing more inflow at your market from California, New York, Boston into Sunbelt Phoenix market? I think have you noticed a tick up since April. Any commentary there on how people are choosing to live now that remote -- work remotely is more accepted and the need -- the desire to get away from the sort of densely populated areas has increased?

Sure, Neil. We've seen -- we didn't see much of that in the second quarter, but it's picked up in the third quarter. And most of the -- majority of our move-ins come from within the Sunbelt. So keep in mind that these numbers that I'm going to throw at you represent a relatively low percentage of our total move-ins. But they are growing. So New York -- move-ins from New York is up double digits; moving from Massachusetts are up about 9.2%; Pennsylvania 10%; and California, almost 8%. And then sort of anecdotally, we spend a good amount of time digging into the Google Analytics stuff. We're also seeing searches from those areas. For instance, like if you pick a search phrase like apartments in Atlanta, that's up 44% over prior year from addresses in the New York area. Apartments in Raleigh is up 22% from our searches in the Massachusetts area. So it's not a driver of our business at this point, but there's certainly evidence to suggest that this is a continuing trend.

Yes. I appreciate that. Other question I have is on the single-family side. Your markets are great. The one thing is the home prices are more affordable, but just wondering given the increase in homeownership, mortgage applications, new and existing home sales, are you seeing any increase in the move-out for home purchases or single-family rental, again but over the same sort of like since maybe April and May. Any color there would be great?

Yes. On new home buying, that's remained relatively flat at 19.5% of our move-outs. So that has been steady as it goes. And then move out to single-family rentals have stayed well below 6%. Certainly, those are -- those businesses are doing well out there, but we're not seeing them drive an increase in turnover at this point. And we think people are with our demographic, which is in majority female, single and not at the phase where they're making those changes. We are not -- we're just not seeing a ton of shift in that direction in our move-outs.

Okay. I appreciate that. And then just along, how many people not answered those surveys? Like those percentages you're did 10% of the people move out the surveys. Is it 50%? It's like how good of a sample size is that?

It's roughly 100%. I mean we don't -- I'd say roughly just because I hadn't checked the number in the last couple of days, but that is -- we -- that's not a survey that's sent after the fact. That is a -- when you offer a notice to us, that's a required field for them to fill out and capture. So it is -- that's where we're getting that information. It is a part of our transaction for accepting the notice.

We'll take our next question from Nick Yulico with Scotiabank.

Just a question on renewals. It's impressive you guys have been able to keep your renewals close to 5% in terms of the growth. How do you guys feel about still being able to stay in that 4% to 5% range in this environment?

Pretty confident in and just to reset a little bit, in Q3, the renewals came down to 3.8%. And now we're seeing them move back in the 4.5% and 5%. Honestly, our 2 to 3-year average, there's probably 6%. So we're still a little below that. We feel quite confident in our ability to continue to maintain those rates as long as we continue to do our job and create value for our residents. We feel like renewals is a place where we have the most pricing power, and that hasn't changed through this process. So we feel confident in our ability to continue that.

Yes. And I would add, Nick, that I think people are probably a little -- residents are a little bit more sticky right now than perhaps they've ever been just as a consequence of COVID and the challenges of moving have always been there, but with COVID on the landscape, I think it probably helps in that regard as well. So we continue to feel that now is the time to -- as Tom says, if we're doing a great job on service, which I know we are at our locations, it makes sense to continue to push that to the extent that we monitor how much move out we're creating as a consequence of that and ready to back off and if we need to. But at this point, no signs that we need to do that.

Okay. Thanks, Eric. I think Sumit Sharma has a question as well.

Guys, just really quickly, we've been listening to a lot of developers in your markets talk about an increase in investment. So maybe you could walk us through some of the markets where you're seeing the most supply growth? And importantly, and this might be a long-term question, but still very interested. How concerned are you on shadow supply growth, let's say, from older office buildings or retail redevelopments?

Well, this is Brad. I think in terms of the shadow development, I don't think we're seeing a lot of that in our markets at the moment. I think what we certainly see is the repurposing of retail spaces into apartments, but the retail getting torn down. I think we're doing that at our West property in Denver, where we're tearing down an older underutilized retail space to put in apartments. I think we'll see some of that. But I don't know that we're going to see -- we're certainly not seeing right now repurposing of hotels or anything like that within our markets at the moment. But in terms of supply that we're seeing increases in, let me get my reply…

I think in terms of looking forward on that, we're in the process of really going through our study, Fred's team does an unbelievable job. They're really diving into the markets and understanding and what the implications are for us for 2021. So we're doing our study of the market. We're doing our study of the radius of our market exactly how it affects us. And we'll have more on that in the fourth quarter. But what we are showing really is a falloff in supply in the back half of year for a range of reasons that were mentioned earlier.

[indiscernible] anyone else?

I'm sorry, we didn't understand that.

And we'll take our next question from Alex Kalmus with Zelman & Associates.

So obviously, you have pretty strong top line growth compared to some of your peers that we're seeing in the urban market. Do you attribute the success figure [indiscernible] success reasoning? Would it be more because you're the urban footprint of your markets? Or is this a market selection?

Well, I think that if you look at our portfolio, I think that it really is -- it starts with the overall Sunbelt footprint, obviously, but where we are seeing stronger performance occur is particularly in some of our mid-tier markets where the supply pressures at the moment are not quite as significant. So some of our mid-Tier component of our strategy, mid-tier market component of our footprint is certainly helpful at this point. And then if you look at a submarket level, we have a higher percent of our portfolio is suburban in non-urban core. And that orientation of the portfolio, I think, is also a big contributor to our ability to sort of weather these downturns in a better fashion.

Got it. And turning to the smart home units. I'm assuming you're installing those on turns, but there is some lease-over-lease declines in the new lease. So should we think of this $25 premium as a mitigant to the declines? Or is there some sort of A/B testing that drives that 25 premium?

Yes. So we're actually doing those on turns and occupied and really, the majority, we just got back on it in the third quarter, and most of those units got completed a late third quarter. So when we have -- we do not -- when we do it on an occupied unit, we do not immediately put that price increase on it resets at the renewal. And then on new leases, we rent them with it. And that is a bump, but it is not a material bump in the third quarter, a lease-over-lease new lease numbers.

We will take our next question from Rob Stevenson with Janney.

Tom, when you adjust for urban versus suburban or just looking at sort of the suburban asset, et cetera, any differential in operating performance between price point within the various markets? Mean, in other words, a $2 square foot suburban, 2 bedroom, leasing any differently than $1.75, any difference of price point between sort of same product, same market or submarket? And then any difference in demand between larger and smaller floor plates the 850 square foot 2-bedroom units versus the 1,100 square foot, 2-bedroom units? Any color there?

Yes. Consistently, across the board, I mean you've touched on urban is -- our suburbans running a little stronger than urban. And then also a or higher price point is running a little weaker than B. B is strong. So B suburban is the best, and that plays out whether you're in the suburban or in the urban areas. On the unit types, it is -- we're majority 1 in 2 bedrooms. And in terms of our current exposure level and the current lease level growth for 1s and 2s, they're incredibly consistent. 1s are slightly ahead of 2, but it's by a negligible amount. The floor plan that is a little less popular right now is our efficiencies. They are running closer to 95% occupied on an average basis with more like 8% exposure and not terribly surprising. But to put that in perspective, that efficiencies are 4% of our exposure and 1s and 2s are like 88%. So the one little less favorable floor plan that we have right now is just 4% exposure.

Then what about bigger versus smaller within the same number of bedrooms, like that large -- are the large 2 bedrooms now getting more attention for people looking for that extra space than the smaller 2 bedrooms. People looking for that extra 150, 200 square feet.

I think that's honestly skewed a little bit by the A/B because our B assets and suburban assets tend to be a little bit larger. So if we looked at the numbers, yes, that would be the case. But I think that has to do with more the construction type and just sort of differences between our B product and our suburban product versus our A product and our urban product.

Okay. And then the other one for me is, are you guys seeing any markets that appear to be deteriorating on you noticeably, operationally at this point where you expect as you head into 2021, the things are going to continue to get weaker, adjusting for whatever happens with the economy, but where today, it looks weaker than it did last month?

Not a dramatic falloff. I think Houston and D.C., we're watching carefully as well as Orlando. But those are more sort of like bumping along than falling off materially.

We will take the next question from John Pawlowski with Green Street.

Tom, maybe just following up on a market question. You touched about supply in some of this -- maybe it was Eric, lower supply in some of the secondary markets. In the quarter, sequentially, your smaller markets really outperformed your larger markets. Curious if there was an outsized lift from the Double Play package? Or if it's just true organic demand or supply, differences versus the larger markets?

No. I mean, double play is really spread across the portfolio by tight fairly evenly. So no, there is not -- it is not that Double Play is not adversely or positively affecting one market or the other on the revenue or expense on.

Okay. And then, Al, last question for me. You talked about Austin property taxes. Nashville in recent months has increased property taxes as well. Are there any other markets you're hearing chatter across the Sunbelt where just property taxes to fund the growth of cities and infrastructure cities is becoming more topical?

Certainly a topical conversation right now. I wouldn't say that there's informal areas that where we're seeing right now that would be the next one to be a significant increase. Certainly going into the year, Nashville and Austin, both unexpected and were significant increases. And some question that a lot of municipalities are dealing with budget issues now. And so we're certainly watching that and monitoring. I think it's not just us in our region, it's nationwide in many markets. I would say this year, you're not seeing valuation relief yet because people are looking backwards. Maybe as we move into next year, you get a little bit of valuation relief and then the millage rates they're still in question because of all these issues that the municipalities are dealing with. So we're watching that closely, John. That's a long answer to say nothing specific, but certainly top of mind right now.

And we'll take our next question from Rick Skidmore with Goldman Sachs.

Just a follow-up, perhaps I missed it, but what's driving the 2% decline in new lease rate in October? Is that just supply in the markets? Because it seems like you've talked about strong demand and good occupancy, just -- and lower turnovers. So I'm just trying to understand what's happening there.

No. I mean I think it's just a difference in timing and seasonality. So from -- on an effective basis or when new lease rates that moved in, in October, they're actually up sequentially. New leases if you're looking at the new leases if you're looking at the supplemental or down slightly, which is what I mentioned earlier, I think we'll see normal seasonal trends on pricing as we head into November, December. The odd thing is, is that new lease pricing climbed, honestly, from May to October. And usually, it peaks in July for effective. And then the other thing that will be different for us in the fourth quarter in terms of pricing is that you're going to see renewal rates move back up into the 4.5% and 5% range, whereas normally, they might be coming down from 7% to 6% or 5.5% in a normal seasonal pattern.

And then just a follow-up. Al, you talked about the new development pipeline and being within the historical range. Can you just frame for us what that historical range should be as some of these projects that you have are moving off being completed in 2021, what sort of scale we might be thinking, whether it's number of projects, number units, total capital, however you might frame that new supply pipeline?

I think what I was trying to indicate was we've talked about a range of tolerance we would have for our pipeline overall, given our balance sheet. And typically, we've said 4% or 5% of our balance sheet, of course, an $18 billion balance sheet, that's a significant number. And so I think we would see -- we're certainly -- I made the comment because the opportunities that Brad mentioned, will be there in the development pre purchase as well as in house. The yields are very good relative to financing costs. We'll certainly see that increase. And we have room in our balance sheet to use that for a while to fund those maintaining -- I put the range out there. Over the long term, we certainly want to protect and maintain our balance sheet ratios where they are. So 4% to 5%, that gives you $800 million or so, a little more we could work with. And in the long term, we'll probably see that come back down into where we are now over a long period of time.

We'll go next to Amanda with Baird.

Great. I wanted to ask on your renovation project, and it was certainly nice to see kind of the slight acceleration in the rent premium achieved for those units. But are there any markets today where you pause renovations due to more challenging fundamentals? And then how are you thinking about the potential pipeline for renovation or redevelopment projects next year?

Yes. No. Thanks for the question, Amanda. And yes, there is some difference. We brought back about 80% of our units. And 80% of the properties where we're doing a redevelopment. And we do A/B testing there on a regular basis. And we did not feel in the results that we're seeing on the ground that it made sense to bring redevelopment back in Houston or Orlando at this time. We'll monitor those, and those are markets we feel good about long term. But one of the nice things about the redevelopment project, the way we do it is we can be relatively nimble in response to on-the-ground market conditions and just it made sense to pause those in those markets.

And Amanda, we are looking at our '21 plans at the moment, and we'd expect to see another productive year on redevelopment. And then also, we've got a number of more extensive repositioning efforts in projects that we will likely kick off next year as well.

Okay. That's helpful. And then just a quick clarification on some of your earlier migration comments. Are you still seeing movements from outside the Sunbelt remain in kind of that 8% to 10% historical range you've talked about? Or is it now running ahead of that with the growth you're talking about?

It's about 11% or 12%, now.

We will take our question from Anderson with SMBC.

Tom, I want to not get too nitty-gritty here, but for the October move-ins up 4.8% on renewals and those that were signed up 5.8%. That's basically the foreshadow you're talking about in terms of renewals going up. I assume as we kind of venture into the fourth quarter here, but is that 100 basis point spread move in versus signed a typical spread? Or is it particularly higher or low right now versus other years?

No, it's particularly hot right now. Usually, there's not much spread at all because our renewals are pretty consistent. But because renewals came down in the -- in terms of what our renewal offers were came down in June and July, those that then moved in 60 days out are lower. And then as our markets sort of stabilized and the picture became clearer on the impact of the economy in our market and we were seeing people stay and felt like we had pricing power then we began to move back to more of our normal practice. So normally, there's a pretty tight delta between those 2 numbers. But we're just on the incline at this point. And I would think as we stabilize, then you'll begin to see that delta tighten, but the overall renewal rates will be at a pretty high level at that point.

Right. Okay. Right. I guess I was getting signed confused with offers. But -- okay. That makes sense. And then the second question, maybe big picture for Eric. Talking a lot about urban versus urban, but I bet your urban portfolio is doing better than northern cities or coastal cities. Maybe that's an obvious statement. And I'm wondering if you think, is this a red state, blue state thing? I mean, not to get political because that's not the intention. But do your typical residents have perhaps a far less sensitivity factor when it comes to COVID-19. And so they're more inclined to move around and do what they have to do to get into other apartment? Or is that hard to sort of gauge and so you don't really know? My guess is you're in Trump country there that, that would be the case. But again, not a political conversation, but I'm wondering just how people think about this kind of stuff and if it's playing a role in your business?

Well, Rich, there are 2 questions there. One is, you're right, we are not seeing nearly the pressure on our urban product that you're seeing on urban product in San Francisco and New York. Our turnover move-outs from our urban locations are down this year versus last year. So where we see pressure on urban performance more as a function of supply coming into the market because more often than not, at the moment, that supply is higher in price point and more urban oriented. But, yes, our urban product is holding up relatively pretty well. The other part of your question is, as you suggest, is really difficult to answer. I think that largely, what we are seeing benefit of is a --states, in cities in a broad region that just tends to be viewed as more, if you will, pro-business bringing -- employers are bringing jobs to this region of the country. Employers are bringing and relocating jobs out of some of these higher cost areas of the country. This is clearly a more affordable region in the country to live in, a more moderate weather challenges and just -- I think it has a lot of appeal. And I think that the behaviors that -- I mean, we're seeing these markets starting to open up perhaps a little quicker and in a robust -- more robust way that we see -- have seen take place in other regions of the country. And I don't know whether that's sort of a red/blue thing or whether it's just more a different mindset that's hard to really attribute to political issues or anything of that nature. I just think that it is what it is. And these cities and these states are going to be much more inclined to just move forward with business in this environment. And we're seeing some benefit of that.

We'll take our next question from Jon Petersen with Jefferies.

Curious if you're seeing any new capital coming to your markets in terms of competition for acquisitions or funding new developments? Just thinking, you're hearing from a lot of private guys that have basically shunned office and retail and coastal apartments, but obviously, fundamentals are doing well in your markets. Just curious if you've seen any change in kind of new capital that's chasing your property type in your geographies?

Jon, this is Brad. Certainly, we're seeing a lot of capital in our market. Everybody that was interested in multifamily certainly is still interested in multifamily. And certainly, in the third quarter, we've seen of the folks that have been on the sidelines is kind of come back into the market and start looking for acquisitions, which -- that's one of the things that's driving and impacting pricing is there's just not a lot of deals and a lot of capital looking for it. I'd say one thing that we have seen that's changed and has been more pronounced is a number of investors that generally have targeted the Northeast have come into our market. And I think the way they look at some of our assets on a price per pound basis is a little bit different than what traditional Southeast investors do. And I think that, that is also driving pricing a bit, but we've seen a lot more participation from Northeast investors in our markets. And that's really the only change that we've seen. I think international capital is down a bit in our markets, but that's more than made up for by other capital sources. And then I'd say that private REITs are certainly very strong. They had a few months of low capital raising, which that's back up. And so those folks are back aggressively in the market. So…

Next is Zach Silverberg with Mizuho.

So my first one is about some comments you made earlier on Salt Lake City. I'm just curious what other markets you consider entering? And would your plan be to enter in some sort of scale or via opportunistic one-offs? And what do IRRs and cap rates look like versus your core markets?

No. I mean, Salt Lake is the only market that -- new market that we have intentionally targeted, and we have been working on that opportunity for some time. We've liked that market for quite some time. It's a -- the market has some challenges to get into, but we think we've got a way to get there, and we actually got, hopefully, several other opportunities behind the one we're currently working that would enable us over time to scale up there in a sufficient fashion. But we see the sort of underwriting dynamics and pricing there, very similar to how we see a number of our other Sunbelt markets and a lot of buyer interest. That's a market that continues to track just a great job growth, great quality of life, very affordable, employers like that a lot so we really like the long-term dynamics there. And it's just -- we've been disciplined about looking for the right way to get there and get into the market. And we've got a prepurchase opportunity that Brad and his team have been working on and hopefully, more to follow.

Got it. Appreciate that. And just one more from me. You sort of touched upon this in the prepared remarks in the press release that you worked with residents to stay in their homes. Can you quantify the amount of tenants to request the assistance? And how has that trended since the start of pandemic? And where does that sort of show up in your financials?

Yes. So the -- I mean, it shows up in the financials on the amount of rent outstanding. But we started with -- in April, we had 5,600 people on a rental assistance plan; in May, we had 5,100; in June, it was down to 2,000; July 529, and then we've stayed below 500 through October. So it's continued to remain steady and trend down, and the results of that are in our numbers. So those are what we've really found. We took some risk with working with these folks, but even for a jaded landlord, it's been impressive to see how well those folks have lived up to their obligation. We gave them a little bit of time, and they've come through very strong, and they've paid us.

Got you. And just one quick follow-up on Salt Lake. Could you provide any sort of cap rate or IRR color if you guys have that at your disposal?

What I'd tell you, we're still in our predevelopment work on that and more to come on that as we get that buttoned up and which we hope to do early next year.

There appears to be no further questions at this time. I'll turn the call back over to you, Mr. Argo for any addition or closing remarks.

Thank you, Ashley. I appreciate everybody joining us on the call, and please reach out if you have any more questions. Thanks.

Thank you and this does conclude today's program. Thanks for your participation. You may disconnect at any time.