Essex Property Trust Inc

NYSE:ESS

Earnings Call Transcript 2020-Q2

[Operator]

Good day and welcome to the Essex Property Trust Second Quarter 2020 Earnings Conference Call. As a reminder, today’s conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the Company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found in the Company’s filings with the SEC.

It is now my pleasure to introduce your host, Mr. Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you. You may begin.

[Michael Schall, President and Chief Executive Officer]

Thank you for joining our call today. The unprecedented reactions from the COVID-19 pandemic have presented many challenges that have affected every part of our business and indeed our lives. We'd like to offer our best wishes to all those impacted by COVID-19 and thank you for participating on the call today.

On today's call, John Burkart and Angela Kleiman, will follow me with comments and Adam Berry is here for Q&A. Our reported results for Q2 reflect these unprecedented challenges as we reported 5.1% decline in core FFO from a year ago, representing an abrupt turnaround from very favorable conditions throughout this economic cycle.

Our first priority upon receiving COVID-19 related shut down orders was to ensure the safety of our employees and residents, while reacting thoughtfully to shelter-in-place restrictions and regulatory hurdles that had been especially pervasive across our markets. Unprecedented job loss from mandatory shutdown orders in March suddenly insignificantly reduced rental demand, leading to lower occupancy in April, followed by a steady recovery throughout the quarter.

Ultimately occupancy fully recovered and was 96.2% in July. Delinquencies also spiked due to job losses in anti-eviction ordinances, which often contain collection forbearance provisions. Proposed regulations that could further impede collection of COVID-19 related rent receivables led us to adopt a conservative approach to bad debt.

During the second quarter, the direct cost of the pandemic in the form of greater residential and commercial delinquency, lost occupancy and COVID-19 related maintenance totaled $27 million. We view these costs is mostly temporary and have seen improvement in each category second quarter. John and Angela will provide additional detail as part of their remarks.

Fortunately, the economy improved quickly from its April trough as measured by resumed job growth, lower continuing unemployment claims and fewer warn notices. In addition, many businesses have found ways to adapt to the virus by creating new safety protocols and procedures. After declining nearly 14% in the Essex markets during April, by June year-over-year your job declines had moderated by almost 400 basis points to 10.1%. We expect gradual improvement to continue in the second half of the year.

Turning to the West Coast markets, technology companies are a primary driver of wealth creation and growth in the Bay Area in Seattle. Most of the leading tech companies remain in a growth mode with minimal damage to their business models and many of them such as Amazon, Netflix and Zoom have benefited from the shelter-in-place restrictions, resulting in greater market share.

Generally, it appears that many large tech companies have slowed their pace of growth, while allowing greater flexibility for employees to work-from-home. We track the open positions at the 10 largest public technology companies, all of which are headquartered in an Essex market. Recently, these companies had approximately 17,000 job openings in California and Washington.

These large company tech jobs are down by about a third on a year-over-year basis and are now at about the same level since we saw in 2017. Many of the top tech companies including Apple, Alphabet, Microsoft, Amazon and Salesforce are planning for employees to return to the office and have established related dates, which range from October 2022 to July 2021.

This is consistent with our comments during our June NAREIT meetings, whereby we expect employees in the post-COVID era to have a greater work-from-home flexibility, while also needing to report to the office at various times to maintain team dynamics, acclimate new hires and pursue career opportunities, all of which require periodic face-to-face contact.

Venture capital has continued to flow at a healthy pace according to the most recent data. However, we understand that the mix of investments is more focused on companies that have business models that are not directly impacted by COVID-19 and have lower cash burn rate. Southern California has a more diversified economy that has outperformed during previous recessionary periods.

While San Diego, Orange and Ventura counties have generally continued this trend, Los Angeles County has notably underperformed. L.A.'s preliminary unemployment rate was 19.5% in June, well above the level implied by recent job losses of 12.3% on a trailing three months basis, and partially explained by the usually large number of gig and freelance workers in L.A. that are not captured by the BLS payroll survey.

Filming and content production is the key contributor to jobs and wealth creation in Los Angeles, and the industry came to a temporary standstill. Film L.A. reported that the number of shoot days during the second quarter declined 98% from the prior year across television film and commercials. Despite these challenges, the demand for content is unabated amid the pandemic, and there are reasons to be optimistic.

In a joint report called a Safeway Forward, various organizations including the screen actors guild have outlined the process for content production amid the pandemic, which is building production momentum. A key factor impacting all of our markets is the loss of leisure and hospitality and other services jobs, which represented from 12% to 17% of total jobs at June, 2019 in the Essex Metros.

Compared to the total jobs lost in the Essex bucket this past year, these service jobs declined an average of about 30% year-over-year with the greatest declines in Seattle and San Francisco. These job losses are throughout each metro area, although the downtown locations had the greatest concentrations of affected businesses. We see the recovery path ahead as reversing the pandemic related declines we experienced this last quarter.

In the near-term progress will depend on the direction of COVID infection rate and the associated governmental limitations on business activity. Given the COVID-related shutdown of film and digital content industries and its potential for value creation, its recovery is essential in Los Angeles. Fortunately, that recovery is underway with the recent restart in a production of daily TV shows such as Jeopardy and Wheel of Fortune in Culver City and several soap operas produced by CBS and ABC.

Necessarily crowded motion picture sets and safety mandates will probably make this a slow process. Wealthy areas create demand for restaurants, bars and other services and the related jobs contribute to housing demand, particularly in the cities. That makes service jobs systematically important to housing, and we believe that they will recover.

Finally, mostly of the technology industries are in great condition and should be expected to resume greater hiring and growth. Along with unspent wealth accumulated during the pandemic, we expect the recovery of jobs to be strong as the outlook for managing the pandemic improves.

In light of the unpredictable nature of the pandemic and with the recent surge in COVID-19 cases and hospitalizations, the course of the pandemic and governmental responses have become intertwined with job growth and other economic outcomes. Thus, we've made the decision to withdraw our forecast on Page S-16 of the supplemental until we have better clarity on the direction of the pandemic.

Finally, turning to the apartment transaction market, we sold two properties during the quarter, both of which were placed under contract in May. Pricing for both represented a small discount compared to the pre-COVID period. Both properties were in downtown San Jose, continuing the theme of the past few years of selling downtown locations that are more susceptible to added supply and a diminishing quality of life.

Going forward, we expect to grow the portfolio near major employment centers that offer a better living experience. Generally, the transaction market had been slow to recover with very few closed apartment sales and even fewer properties being marketed. The industry is working through key issues in the selling process, such as travel restrictions and due diligence challenges.

Given a dearth of transactions, it's too early to conclude on how buyers will value apartment properties going forward. A few closed transactions since the onset of the pandemic traded at prices at or near pre-COVID levels, suggesting that, highly motivated buyers have taken a longer view when valuing property by treating the COVID-19 specific impacts such as delinquency as a purchase price adjustment, rather than long-term reductions in NOI or higher cap rate.

At quarter end, we had two additional properties under contract for sale. Both are smaller properties and one of them closed in July. Going forward, our intent is to mostly fund our growth with disposition proceeds. We announced one new development deal in suburban San Diego and we have a robust preferred equity pipeline.

As before, plenty of money is searching for distress real estate which will be scarce with institutional-grade apartments, given extraordinarily low financing costs. As with prior recessions, the existence of Fannie Mae and Freddie Mac virtually assures a source of liquidity for apartment.

Yields or cap rates for apartments generally substantially exceed long-term interest rates and related debt and the resulting positive leverage remains a powerful force in the market. Unlike REIT stocks, private market values in terms of cap rates are generally sticky, meaning that they don't change immediately in reaction to events, but rather seek to reflect the longer term financial performance of a property.

At the end of the day, we believe that, the transaction markets will like to recover because lower interest rates will provide sufficient incentive to offset greater perceived risk. Historically, we found opportunities to add value as markets transition and in periods of disruption. I'm confident that, we have the team, resources and strategy to thoughtfully act on these opportunities, consistent with our long-term track record of our performance.

And now, I'll turn the call over to John Burkart.

[John Burkart]

Thank you, Mike. Our priority during this period was our people, the safety of our residents and our employees. I'm incredibly proud of what our team accomplished and how they worked together to serve and support our residents through this challenging time. Thank you, E team.

Looking at the second quarter of 2020, the occupancy challenges that we faced early on related to a reduction in demand when the initial stay-at-home orders were implemented as opposed to an exodus of existing residents.

During May, traffic increased substantially and we took advantage of the relative strength in our market by lowering our rental rates and offering significant leasing incentive in certain markets of two to eight weeks on stabilized properties, leading to an increase in our same-store occupancy of 110 basis points in June.

The relative strength in the market continued into July, enabling us to increase our asking rent, decrease our leasing incentives and add another 80 basis points in occupancy. Our availability 30 days out as of the end of July was 10 basis points lower than where it was last year at this time. As our customers adapt to the new COVID-19 environment, we are seeing some consumer behavioral changes that make intuitive set.

For example, with the current work-from-home practices, the value proposition of living in downtown San Francisco has temporarily changed since the restaurant, entertainment and sports venues have shut down. Additionally, the value of having more private indoor space presume calls, high speed internet and access to open space for outdoor activities have increased demand for suburban assets despite being a greater distance from corporate offices.

We have also noted that work-from-home has turned into work-from-anywhere as we've seen several consultants moving back to their original home and continuing to work for their West Coast employer. Regarding the work-from-anywhere theme, we believe this trend will reverse when conditions permit. We were all positively surprised by the ease in which we all adapted to Zoom and believe that this experience will have a lasting impact on future same-day business travel.

However, the loss of a personal connection frozen screens and barking dogs in the background, so the Zoom cannot replace the value that comes from in person interaction. If I heard someone say recently, I am done with living at work. We see the changes in consumer behavior within our portfolio, our same-store portfolio in Contra Costa, Ventura, Orange and San Diego at higher occupancies today than in pre-COVID March.

Turning to our Q2 ’20 results as presented on page two of our press release, year-over-year, revenues declined by 3.8%. On delinquencies various governmental bodies have enacted and continually extend resident protection along with prohibitions against late fees and eviction. These regulations have been a strong headwind for the industry and our markets compared to other metros. Thankfully, they are temporary in nature.

Referring to the S-15, delinquency for our total portfolio on a cash basis was 4.3% in the second quarter of 2020 compared to 34 basis points in the second quarter of 2019. In the month of July on a cash basis, delinquency was 2.7%, which is down from the prior month. In July, 18% of our same-store assets had positive delinquency. Meaning the delinquency line item contributed positively to the revenues due to residents paying past due amount. We appreciate that our residents continues to prioritize their rental obligation.

Moving on to our operating strategy in this new environment, our operations objective continues to be focused on maximizing revenue. Given current conditions, our strategies will evolve as the market changes and will vary across our market. For example, we will likely run lower occupancy in urban markets such as downtown San Francisco while targeting higher occupancies in highly desirable suburban markets, such as San Ramon.

Overall, we believe that market occupancy has fallen about 150 basis points, and our same-store portfolio is expected to run at a lower occupancy for the remainder of the year. As noted on S-15 our supplemental and consistent with our expectations, our new lease rate, excluding leasing incentives, were down 5.8% in July compared to the prior year’s period. We expect that market rental rates will remain depressed in the fall due to the seasonal decline in demand.

That said, some of the historical factors such as contractors moving home in the fourth quarter are not an issue since they've already moved out due the work-from-home policies in place. On to tech initiatives, we continue to make considerable progress on the technology front as our employees learn how to optimize our new tools. For example, we currently have several leasing agents that are leveraging these tools that enable them to be two to three times more productive than the average leasing agent.

We are seeing similar progress with our maintenance systems as well. Our emphasis will continue to be on people first, if we try to bring everyone up to speed. However, we expect that through the increased productivity and natural attrition, we will both lower our headcount and increase our compensation to our top performers.

Another advancement in our technology roadmap includes the development of our mobile leasing app that is on target for pilot at the end of this year. The app is fully integrated with our other sales tools and will fundamentally change how we interact with our prospects, providing them with a simple, seamless 24/7 mobile experience.

Finally, we are now offering ultrafast internet offered by market leading fiber providers that 10% of our assets, and we expect to complete installation at another 50% of our assets by year end. The ultrafast service is in great demand in our current work-from-home environment and is expected to be a great value adds asset for our residents.

Turning to our markets, in the Seattle market year-over-year revenues in Q2 was down 20 basis points and occupancy was down 1%. The greatest decline during this period was in the Seattle CBD revenues declined to 70 basis points followed by the East side with a 20 basis point decline while revenues in the South saw an increase of 10 basis points in the same period.

In July, unemployment in Washington remained 90 basis points below the U.S. average of 10.7%. In the same period, Amazon's job openings remained at just over 8,000 a year-over-year decrease of about 25%. Moving to Northern California and the Bay Area market, year-over-year revenues in Q2 were down 3.4%, revenues in San Francisco open CBD declined by 6.3% and 7.8% respectively although San Jose revenues declined only 1.5% in the same period.

Tennessee job growth declined the least of our markets in Q2 and was a hundred basis points below the US decline of 11.3. In Southern California year-over-year revenues in the second quarter declined 5.7% well occupancy declined 2.1%. L.A. was our hardest hit market with a year-over-year revenue decline of 8.6% in Q2. Our L.A. County sub markets have declined between 8.4% and 9.7% in the same period with the greatest decline in L.A. CBD.

The L.A. economy has been the most impacted out of all our markets with an unemployment rate of 19.5%, leading to a higher delinquency rate than our other markets. In Orange County, the South Orange submarket outperformed North Orange submarket with year-over-year revenue decline of 2.6% and 5.1% respectively in the second quarter.

Finally, in San Diego, year-over-year revenue declined 2% in Q2 with the exception of the Oceanside submarket, which grew revenues by 2% in the same period, likely benefiting from the military stay-in-place order through the end of June. Currently, our same-store portfolio’s physical occupancy is 96%. Our availability 30 days out is at 5.5% and our third quarter renewals are being sent out with an average reduction in rate of 1.4%.

Thank you. And then, we'll now turn the call over to our CFO, Angela Kleiman.

[Angela Kleiman]

Thank you, John. I'll start with a few comments about the quarter followed by an update on our funding plan for investments and the balance sheet. As noted in our earnings release in earlier comments, this will be a challenging quarter with declines in both same property revenue growth and core FFO per share.

The 3.8% decline in same property revenue growth is primarily driven by two key factors. First, we took a conservative approach and reserved against, approximately 75% of our delinquencies, which negatively impacted our same property revenue growth by 2.9%. This information is available in a new table at the bottom of Page 2 of our press release, along with other additional details.

Second, we report concessions on the cash basis in our same property results, which reduced our growth rate by approximately 1% compared to using the straight line method. The combine negative impact to same property revenue growth from both of these accounting treatments is 3.9%.

As for our core FFO per share growth, the total negative impact of delinquencies in the second quarter is 20%, without this, our core FFO per share growth would have been positive 1.5%. More details are available in a new reconciliation table on Page S-15 of the supplemental, along with additional disclosures on operations.

On to operating expenses, same-store expenses increased by 6%, primarily driven by Washington property taxes, which have increased approximately 15% compared to the prior year. As you may recall, taxes in Seattle decreased by 5% in 2019, resulting in a difficult year-over-year comparison, our controllable expenses have remained generally in line with plan for the rest of the year.

Turning to funding plan for investments and the stock buybacks, we are expecting to spend approximately 205 million in 2020 between our development pipeline and structural finance commitments. In addition, we have bought back 223 million of stock year-to-date, bringing total funding needs to 428 million.

As for funding sources, we expect 150 million of structured finance redemptions and we closed on the sale of three assets for 284 million. In total, we have 434 million of funds available which covers all new funding obligations this year on a leverage-neutral basis.

Moving onto capital markets, the finance team was very productive in the second quarter, securing a $200 million term loan, which was used to pay down all remaining 2020 debt maturities. In June, we opportunistically issued 150 million in bonds, achieving a 2.09% effective rate for 12-year CAGR and use the proceeds to pay down our line of credit.

Lastly on the balance sheet, our reported net to EBITDA was 6.4 times, an increase from prior quarter primarily related to how we account for delinquency reserve. Adjusting for the impact of delinquencies, our net debt to EBITDA would have been six times. With nothing drawn on our line of credit, an approximately 1.4 billion in total liquidity, our balance sheet remains strong as we continue to maintain our discipline approach to capital allocation.

Thank you and I will now turn the call back to the operator for questions.

[Operator]

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator instructions] Our first question comes from Jeff Spector with Bank of America. Please proceed with your question.

[Jeff Spector, Bank of America]

Just looking at some of my notes from the remarks between Mike and John, on your thoughts on periodic contact at the office, first work-from-home and some of the initiatives that John laid out, I guess, just big picture. Can you clarify at least today, how you think your portfolio is positioned for what you think may be? I'm sorry I was a little confused between the different comments.

[John Burkart]

Yes, why don't I go ahead and start with that. This is John. I think we're actually positioned very well and what we're seeing is, people wanting to different value propositions. So, they're looking for our assets of which we have many that have a little bit lower price point or dollars per square foot, a little bit more space. They're in great locations as it relates to outdoor recreational opportunities, and then of course, access to high-speed and going forward gig speed Internet. So I think we're positioned very well for that.

What we're seeing is, at this point in time, many of the tech companies have decided that they're going to defer occupying the buildings, a range of dates really starting from October through one of them throughout July of 2021. But in no cases, do we see that becoming permanent. And then again, it gets back to this reality of people are now realizing that as much as we all kind of suck it up and we’re impressed with Zoom and really worked hard to make things work, which is fantastic, something is being lost.

And with the competitive juices flowing, we strongly believe, the companies will want to bring people back together and they see the value like they've always saw the value in having that. And there's also another piece to it, which is, I can speak anecdotally. I was talking to someone over the weekend and they mentioned the idea of moving in the extended commute zone and their employers said, that's fine, buy you're going to get a 20% to 25% pay cut, obviously completely negating their perceived value of a lower real estate prices. So, no doubt, they're not moving and we think we're positioned very well for the long run with our portfolio. Does that answer it? Mike, do you have there?

[Michael Schall, President and Chief Executive Officer]

Yes, Jeff. Let me just add a little bit more kind of America point of view, because I totally agree with what John says. And I think that, things are in ultimately pretty good order considering the fact that we've had a 10% loss of jobs in June. So, that's an extraordinary number of jobs being lost and more than the financial crisis. And as a result, that's going to impact our performance and our economy. And there are a couple of pieces that are just so fundamental and these are the things I tried to bring out in my script.

Basically, tourism is shut down and obviously the West Coast tourism is a pretty big deal. A lot of people like to go to San Francisco and to the various L.A. places. But with restaurants and bars shut down, those services are not available and you probably can't get there. It is difficult to get there given all the various shutdown orders, et cetera. And the other kind of key parts to our economy are certainly the film and content production in L.A., which we'd realize exactly how big a problem that was with respect to your COVID-19 and prevention of COVID-19, and producing content.

And then finally, the tech flow down that I commented on in my scripts. So, all these things are actually things that are demanded in the marketplace and they will recover. And yes, it'll take time and we're certainly disappointed about the second wave and the renewed shutdown orders. In many cases, restaurants and bars were open for a couple of days and then shut down again in California. And so this has been incredibly disruptive in California and has made it difficult to get traction on things that really matter.

Generally speaking, we have areas with pretty substantial amounts of wealth. Wealthy people like to consume services and including restaurants and bars, also people that have a choice between living in the hinterlands where you can make $15 an hour versus working in the city in a restaurant job restaurant type job, making $50 an hour. That's why they're, that's why people go to city.

So basically, most of these relationships and activities have been shut down, again on a temporary basis, and I think California has been incredibly, let's say, vigilant with respect to these shutdown orders. They've been very extensive throughout the market places and continue to have an impact. So, with the easing of that and with better COVID news, I think you're going to see things open up relatively quickly.

[Operator]

Our next question, it comes from Nick Joseph with Citi. Please proceed with your question.

[Michael Bilerman, Citi]

It’s Michael Bilerman here with Nick and Mike. In the press release, you talked about Cares fund that Essex started with donations from executive officers, and it says, you intend to distribute up to 3 million of that 3 million was it all donations? And do you expect to use corporate cash as part of it? Or is it all led by executives?

[Michael Schall, President and Chief Executive Officer]

No, Michael, it's a combination of both. And we set up at the beginning of the crisis, we set up a resident response team and they found extraordinary needs out there. And including people for example that didn't have money for food and other essential needs. So, we – actually, the executive group in that case essentially donated some money to provide meals for people. And then we realized that even more broadly, we have other needs because there are people that have lost their jobs and don't have great prospects for getting another job. And so, we wanted to have an entity that would provide relocation money and similar types of services.

And so we decided to set up the Essex Cares entity in order to do that. So in that situation where it's not doing them any good, they need to move on in their life and find something. If we can provide those relocation benefits, it's good for them. It gets them into a better place. And, in our case, we have -- and I mentioned ordinances so we can evict them anyway. So, it's probably better for everybody. So, I think that this is a good example of finding sort of the common good as it relates to the current situation and providing an opportunity to let people move to pursue their life and better their life.

[Michael Bilerman, Citi]

Right. So -- and then -- so how much of that $3 million was corporate cash? How much was donations? And how much capital do you foresee Essex contributing going forward to these initiatives?

[Michael Schall, President and Chief Executive Officer]

Well, I don't think we've decided exactly. I think the portion that came from the employee pool is somewhere around $500,000 and the rest came from FX, but that's not a not a perfect number, but a rough number, that's what we did.

[Michael Bilerman, Citi]

And then, the 2.5 is prospective? Or was there an expense in the quarter for the corporate cash then?

[John Burkart]

Michael, let me address that. So, there were expenses during the quarter, but we set the entity up toward the end of the quarter. So, what happened during the quarter was already expanded. And essentially, we created the entity in response to the needs that were out there and what we were seeing on the ground when we're dealing with the people. Our resident response team consists of some 50 to 60 Essex employees, and they're talking to our residents, couple times typically. And again, they're trying to -- we came up with a basket of needs and people that were really in difficult situations. And so, this is intended to respond to those needs on more of a prospective basis.

[Michael Bilerman, Citi]

Okay, this last one on the topic. Is the 2.5 million that's going to be Essex corporate cash? How are you going to treat that? Are you going to treat that as a cost of revenue? Are you even included in same-store? Or are you going to treat it completely separate from the financials?

[Michael Schall, President and Chief Executive Officer]

Well, I’ll let my financial guru talk that. Angela?

[Angela Kleiman]

Michael, that’s a good question. I think it depends on what it's being used for. So, for example, if it's for groceries or to relocate our tenants, it'll be a G&A item. But if it's for something that’s revenue related, impacting, say, delinquencies, it would be a contra revenue items. And so, at this point, it’s too early to see where that geography lands. But the intention is really more of a G&A item, and we'll see what that means anything.

[Operator]

Our next question comes from Rich Hill with Morgan Stanley. Please proceed with your question.

[Rich Hill, Morgan Stanley]

Hey, good morning guys. I apologize if my phone dies in the middle of this call. We're in the midst of getting a pretty bad storm. I think a lot of people on the phone might be as well. So, I want to come back and talk about a topic that you've spent some time on the past, which is valuing occupancy versus rent growth. And if I'm looking at sort of your metrics, I think you're at 94.9 in 2Q, you've gone up to 95.8 as of July. But new renewal spreads are obviously negative and maybe even a little bit lower than where they were in the quarter. So, I'm just wondering, if you can give us an update about how you're thinking about occupancy versus rent growth at this point? And when you think that you might be in a position to push occupancy and renewal and new leases be less bad than they are right now?

[John Burkart]

Well, this is John. That's a great question. Well, again, as Mike had mentioned, we started in a hole in April really related to the shelter-in-place and just the demand stopped for a period of time. So, as we moved in as traffic increase pretty dramatically in May and then we took advantage of that decided to fill up the portfolio, and big picture there's a thing that we like, which is, let's not be proud and vacant. And vacant unit really obviously earned nothing, so we made the decision to get aggressive and offer some leasing discount or leasing incentives to enable us to gain occupancy and we ultimately gained about 200 basis points of occupancy between June and July, and that's positioned as well.

We subsequently pulled back on concession and we're still offering them in certainly market-by-market, it depends. But taking some of our markets suburban markets like the San Diego, Orange County, Ventura, Contra Costa, in many of those cases, we've pulled back quite a bit on concession and those occupancies are riding higher. And in actuality, they're actually higher, as I mentioned in my remarks than they were in March. So, we look at it and say, the best thing is to position ourselves so that we're leading the market and not allow ourselves to be sitting vacant. And so, that's why we took that action.

Right now, we're in a pretty good spot and we're just watching the market on literally a daily basis, understanding what's going on. There are some areas that are more distressed. Certainly, San Francisco, we only have less than a thousand units there, but San Francisco is definitely under stress. And I'll also know San Francisco about 30% of our units are so our studios and studios are clearly a challenged unit type in this market. The process has moved out so that's also putting a little bit of excessive pressure on the San Francisco market in our numbers. Does that answer your question?

[Rich Hill, Morgan Stanley]

Yes. Yes, it does. And I wanted to maybe just come back to that a little bit more and think about the impact of concessions, and you might've talked about this a little bit earlier on. But if I'm thinking about this correctly, new leases were an average -- new leases saw an average of one to two months of concessions. So, I'm just trying to think about how we're supposed to think about the net effective rents. Can you just walk us through the effective portion of it? Because it seems like, it could be down a lot more than what the headline suggests. So, I want to make sure I'm thinking about that correctly.

[John Burkart]

Yes. So concession, I mean, think of it in this particular market, I would think of it very similar to a development of lease up, where you offer concessions to incent someone to move. And obviously, there's certain real cost of moving and then there's just the pure motivation of moving. And so, when we desire to fill up our portfolio, we offered concessions. It's not really reflective on necessarily market rents are lower. Doing often the concessions enabled us to gain a significant amount of occupancy. So, I would look at it that way.

I don't want to answer around though. There are clear to concessions in the marketplace. We were more aggressive because we wanted to fill up our portfolio and we've now backed away quite a bit from that. Our average confessions, I know in the supplemental, you're looking at saying four to eight weeks and that was pretty common. But the average concession during June was closer to 4% or four weeks for a little bit less than that that we used to, which enable us to fill out. So, there was a range. We clearly got assets and then serial concessions and some that were at eight weeks and sort of tendency a footnote in the financials.

[Rich Hill, Morgan Stanley]

Got it. Got it. And so, just to be clear, and I'm sorry for belaboring this point. But it's hard to compare across names and that's what I'm trying to understand at this point.

[John Burkart]

Yes.

[Rich Hill, Morgan Stanley]

The new and renewals are headline without the concession, right?

[John Burkart]

That is correct. And I'll ask you to throw in one more comment on the renewals to get a little clarity. The renewals go out typically 60 days plus into the marketplace, both we're trying to give our customers time to make a decision. And then, there's certain laws that prevent us from sending them out, say less than 30 days. And so, what can happen is the market can move between the time you send the renewal out, which is what happened in the second quarter and when it actually becomes effective. So, we would have had renewals that were effective in June that may have been signed in March, if that makes sense, always get a leg of the market rent, which are happening at that point in time.

[Operator]

Our next question comes from Austin Wurschmidt with KeyBanc. Please proceed with your question.

[Austin Wurschmidt, KeyBanc]

Thanks guys. And just building a little bit, maybe even more, you know, John it sound like you said that into July incentives have been proved even more. So, I mean, relative to that four weeks or last in June, have you virtually eliminated concessions at this point across most of your markets given where occupancy is today? Or is it the two weeks? Can you give us, help us quantify that? And then what the impact is from an effective rent perspective?

[Michael Schall, President and Chief Executive Officer]

Sure. So, it moves around daily literally, but I can tell you that for a period of time, we completely eliminated them out of San Diego, Orange, Ventura and parts of a Contra Costa. Subsequently, we've moved back in week to two weeks here and there, other markets, and it's certainly Seattle falls in that bucket as well.

Other markets like San Francisco, we continue to offer concessions somewhere in the range of four to eight weeks. it depends And San Mateo, pretty high with concessions and a similar number of weeks. And Silicon Valley is a mixed bag, but there are concessions in Silicon Valley, especially near the least ups. There is both Downtown Oakland and Silicon Valley and then some in San Francisco, where there's lease up that obviously is a concessionary market.

But we are pulling them back and we're going back and forth. And part of it is, we run the Company as a portfolio and not asset by assets. So where we see opportunity where the markets are stronger, like Orange County and San Diego, Ventura, we're going to allow that to increase the occupancy increased a little bit more and offset some of the areas that are a little bit weaker like San Francisco.

[Austin Wurschmidt, KeyBanc]

No, that's helpful. And then how frequently are you using concessions on renewal leases to retain tenants? And could you quantify what that net effect of spread is in July versus last year?

[John Burkart]

Yes, so with renewals much less, it's probably about 10% of what we're doing with the new leases and the renewals go out without any concessions. They can get negotiated in depending upon the situation. But our renewals, really, I expected the renewable going forward. That'll really dry up because the market is changing right now. And so, where we were in June and what we negotiated in June, we negotiated less in July and probably less again in August.

So, maybe a week or something or less than that, I mean, because again, most of them don't even have concessions for the renewals. So we’re not really trying to extend some of the move that's where we’re trying to intent some of the move that’s because they come into play because it really is a matter of they have moving costs. And so there's kind of this exchange that goes on.

[Operator]

Our next question comes from Alexander Goldfarb with Piper Stanley. Please proceed with your question.

[Alexander Goldfarb, Piper Stanley]

A few questions here, John in hearing your response to everyone's questions, it sounds like things improved in July. And then since then they have improved. So, where I think Mike who talked about or you talking about rent pressure in the back half. It sounds like that's more like you're not pushing rents positively, but you're seeing good demand. Most of your markets, we're seeing occupancy and that you're really not concerned about the back half for a repeat of the softening that occurred in early in 2Q. Is that a fair assessment?

[John Burkart]

I'll start. I'm sure Mike might have some comments. But there's a lot of risk factors out there, Alex. So certainly factually, today, the market is better today than it was yesterday, the day before, et cetera. And this is all a good thing. And we feel good about that our portfolio is positioned very well, all things considered. But there's obviously things that are happening, related to COVID that throw risk factors. There is some unusual, there are some positives, as I mentioned earlier consultants, they usually move out in the fourth quarter, well, that's not going to happen because they already moved out.

We didn't have insurance come in, and therefore they won't move out. So, those are positives that may enable us to have a longer leasing period. And then, there's some interesting things going around some of the colleges, for example, many of them are doing partially online. And that requires you to be very tethered to the university because you may be online for a class and then a half an hour later, you have a lab on site, but you still need to live right at that university and they cut down the occupancy.

My family just went through this and my daughter got bumped out of her spot. So, she's now an apartment. And so, there's things like that that are positive, but there's obviously risk factors out there. And I'll flip it over the Mike if you have more to add there.

[Michael Schall, President and Chief Executive Officer]

Yes, Alex suddenly, I try to tie this in, pretty specifically back to what's going on, on the job front. And, John, so John mentioned, the things you've done better and probably didn't draw enough attention to this. But in my script, I said, year-over-year job growth declines have moderated almost 400 basis points to 10.1%. So, from my perspective, things are really horrible in April. We fell off a cliff in terms of occupancy, and a variety of other things.

We had an additional challenge in that we had all of these anti-eviction ordinances. And if someone wanted out of their lease, given the backdrop of having an anti-eviction ordinance, we were actually, I would say, motivated to let them out of their lease probably to a greater extent than many other places would be. And then, so, we did so that accounted for sort of the occupancy drop, and then you things got better. And again, job declines, moderated 400 basis points and the results got better.

And so I would, that's kind of the point of my script is to say, we need things to continue to get better. And that's going to be intertwined with the COVID-19 experience going forward. And we remain hopeful that it's certainly -- we certainly believe is going the right direction. We certainly believe that mankind and potentially a vaccine or therapeutics or whatever, it is going to continue to moderate the picture. But we did positive developments, certainly, as it relates to the shutdown orders.

And once again, it looks like we're hitting a new peak on this second surge. And so, maybe we can open the restaurants again and we can do some other things. I was talking to some people recently about restaurants in Palo Alto, and they're shutting down, partially shutting down the streets, so they can move more and the tables out on the streets and then have a traditional restaurant experience outdoors, that won't work in the winter, but in the summer that'll be great.

So, there is incremental improvement for sure, and just good thoughtful people can overcome a lot of these challenges. So, I would expect certainly the progress to be ongoing. But whether we can take a big step forward or when we take the big step forward, we're still unclear as to when that might be. Hopefully that makes sense. So, we're making progress. We want it to be faster. It's a little too slow, but it seems to be going in the right direction.

[Alexander Goldfarb, Piper Stanley]

Right, But I guess to the point Mike, you guys – obviously, none of us can predict the future, but from what your properties and your reasons are telling you today, you felt comfortable, as you guys said pulling back discussion. You've seen an uptick in occupancy, and I think with the exception of like the Downtown L.A. or downtown San Francisco, it sounds like most of your markets have been responding well to the actions that you guys have taken. You didn't identify maybe I missed, but it did sound like you identified markets are still weakening and getting worse and getting softer yet, correct?

[Michael Schall, President and Chief Executive Officer]

Yes. I mean, that's a fair statement Alex. So, San Francisco is still challenged. We're trying to figure that one out, but it's a very small part of our portfolio. But the other markets clearly responded to pricing and we've said this back that we saw traffic increased pretty dramatically and that's when we made the decision to get aggressive and lease up the portfolio.

So, yes, our pricing was intended to increase occupancy. It worked very well. We've pulled back from that. We're maintaining occupancy, it's still, we're working very hard. We're watching things daily, but we're, we're not seeing things fall backwards in your words. San Francisco again is a little challenged, pretty challenged.

[Alexander Goldfarb, Piper Stanley]

Okay. And then just the second question, on the delinquency, it sounds like you guys let people leave move, the ability to do so or whatever unlike New York. So, you guys let people leave. Their rent, the delinquency came down. The people who are in there do you expect the people to be money good or these are sort of the freeloaders that are just hanging out for free rent and they're never going to pay. They're never going to leave the unit.

[Michael Schall, President and Chief Executive Officer]

There's going to be, I mean, there's no doubt, there is going to be a mixed bag of people. But like I said in my remarks, we had 18%, around one out of five assets where we had positive delinquency, meaning it contributed to revenues because people that owed us were paying back payments. So, there's a lot of hard work and people out there, we continually see these headlines, people struggling to get the unemployment payments.

So, my sense is as the money is coming through, many of them are trying to make a good effort to pay us. In the end, there will some that take advantage of us. There always are. But, I don't think that's the majority. But how it worked out, certainly as this thing drags on, it becomes harder to tag, and so we're cautious on how this whole thing plays out as it relates to collections and delinquency.

[Operator]

Our next question comes from Rich Hightower with Evercore. Please proceed with your question.

[Rich Hightower, Evercore]

I hope everybody is well. Just to maybe steer the conversation in a different direction here. Mike, what's your updated take on the policy risk landscape Essex? And certainly, we could be having a very different conversation 90 days from now the next time your reports. So just where do we stand on different bills and Prop 21 and so forth?

[Michael Schall, President and Chief Executive Officer]

Yes, there's definitely a lot to talk about. So, Rich, if I miss them, you can just follow up and ask again. But obviously, the biggest one that we're most focused on is Prop 21 here in California, which would amend a law that was passed in the mid nineties to promote housing construction called Costa Hawkins. And, so it would severely change that law and bring back potentially forms of rent control that really don't work that really discourage housing production in all the cities that they adopted.

And, it's interesting that we already have statewide rent control with respect to AB 1482, which passed last year, along with about 18 other bills that were intended to try to jumpstart and to increase the amount of housing that was available in California. But in fact, in the case of AB 1482, the apartment industry did not oppose that bill because we thought it was a reasonable finding the middle ground of the need for more housing and the need to protect tennis.

So, we thought that the legislature did a very good job of that. But Prop 21 is brought by someone that is not involved in the housing industry. It's a special interest group. And so, they are continuing that campaign. In our case, we decided to keep our entity that we used to by Prop 10 in 2018 alive, and essentially the same group of people lead that entity and are the opposition team on with respect to Prop 21. And they've made a lot of progress.

Polling continues to be fairly similar to what it was and as it relates to Prop 10 at this time, maybe a little bit better than that because AB 1482 was passed. The politics I think are somewhat different in that we already have statewide rent control. So why do we need this other rent control proposal? And the campaign is proceeding well, there are something like or somewhere over a hundred organizations and you can see them all representing seniors, labor, community groups, et cetera that have joined Essex in opposing Prop 21.

And there is a website if anyone's interested, which is noonprop21.boat. And I go to that website and see it. So, we're optimistic about it. We're fully a hundred percent support of it and we’re raising money and we’re preparing for the final showdown. So that is the story on Prop 21. Rich, maybe before I go on, do you have any follow ups on Prop 21?

[Rich Hightower, Evercore]

Yes, that was a great summary Mike. You mentioned that polling Prop 10 maybe a little bit of things back. And is there anything other than the obvious, the COVID environment, that’s driving that or are there any takeaways from that element specifically.

[Michael Schall, President and Chief Executive Officer]

Well, it's difficult to see exactly how COVID is going to play out as it relates to that. Obviously, rents are declined and certainly since AB 1482 was passed, rents have declined. So, why not give 1482 a chance to work because it seems to be working. And again, what is the need for another ballot proposition that effectively attacks the same issue that the legislature has already acted upon.

And I think that that issue actually helps us because, again, we have a legislative solution. So, why do we need to go to the ballot box? Certainly with respect to the sponsor that has very little to do with housing, and, and fight that battle. So, but that's where we are. And, we'll we will see, I mean, there'll be more coming out on Prop 21 in the coming weeks, so happy to discuss, if you want to call separately or whatever.

And then, I guess I would also mentioned the porphyry of anti eviction ordinances, which are incredibly difficult and you're like, John, I give great credit to the ethics team because sorting through city, county state, and even, federal laws with respect to and I think ordinances and all the different things that are that are out there, there's a tremendous amount going on. They are constantly changing all of these various eviction ordinances being extended different terms.

I think that there will likely be some legal action on some of them because they're pushing the envelope with respect to I think, what would normally seem to be appropriate in the circumstances. And I throw out as an example that San Francisco permanently banning landlords from eviction. This is at any time in the future for COVID-19 delinquencies. So, I mean, we definitely have an uphill struggle with respect to collections.

And to the extent, it almost appears that if you never have to -- if you never have to have accountability for your delinquency, then it almost seems like and we can't -- there's no late fees, there's no interest charges, you almost make create a scenario where there's no incentive to pay the landlord. So, this is the dilemma because we're not in many cases allowed to ask for documentation of a COVID-19 hardship and normal things that one would expect. So, this continues to be an ongoing dilemma.

[Rich Hightower, Evercore]

Okay, appreciate the call. And I guess one follow up, if I may, the incentive being a landlord and somebody might also be called into question longer term. I mean, what's your sense of risk to the portfolio from a capital allocation standpoint? And obviously, it's nothing you can turn on a dime or do quickly. But how do you think about diversification sort of beyond your current core markets in that sense?

[Michael Schall, President and Chief Executive Officer]

Yes, we're here for very specific reasons. So, we -- I think we're actually pretty diversified as it relates to the major metros on the west coast, which, again, it's a big part of the globe, global economies while I think California and Washington or something like a fifth largest economy in the world. So, we're not talking about a small area and what we've done is tried to diversify with respect to product and in many, many cities up and down the West Coast.

So, I think we're actually more diverse than that might seem. And having said that, why are we here? We're here because supply and demand for housing is very attractive and rents grow better over time. And so, if there were other places that had similar long term rent growth as the West Coast, we would likely be there. But that doesn't exist. And so, we're trying to maximize the growth of the portfolio over time and do it in a thoughtful way and certainly a risk adverse way, and diversify the portfolio within the West Coast, which again, it's a very large area. And so, we will look at and we constantly look at other geographies and other opportunities and we'll continue to do that. We certainly do that once a year in our strategic planning session with the Board, which comes up here in September. And so, we'll continue to do that and maybe this will change it a little bit, but I would say, the anecdote to maybe a little bit less diversity is a very strong balance sheet. So, you have to withstand the periods of time when there is more volatility and we've done that. And as a result, we believe that, we have kind of the best of both worlds. We have a very strong balance sheet that can withstand significant shocks and on the other hand have among the highest long-term growth rates and rents.

[Rich Hightower, Evercore]

Great. Thank you.

[Operator]

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

[Rich Anderson, SMBC]

Thanks, and good morning, everyone. Maybe there should be a new proposition to cap rent decline --

[Michael Schall, President and Chief Executive Officer]

Hey, Rich. We'll vote for you for governor.

[Rich Anderson, SMBC]

So, I'd like to get back to the concentration, West Coast concentration here. Point Mike a get it the big economies, big area of the country, but still a lot of common knitting in the state of California, that's sort of a singular problem. One thing I've noticed about you guys over the years is, things have a tendency to change over a shorter period of time than your peers. I remember back that supply issue on quarter, you were kind of having trouble pinpoint at the next quarter things certainly were much better. And I have that a little bit wrong, but I know I'm close. And saying that things change in perhaps maybe in months for us that might be measured in quarters for your peers. And I'm wondering third quarter had a very different flavor, is there a real chance that we could have a conversation three months from now that could vastly actually different than the tone of the press release that you release last night?

[Michael Schall, President and Chief Executive Officer]

It looks like it's starting to abate finally, but I think it might be a little bit longer term than that. Having said that, we fell off the cliff in terms of occupancy in April and again, because of these anti eviction ordinances, we were probably more aggressive at letting people move on with their life if they lost their job and needed more affordable housing than some of the others. And that caused vacancy to decline more. And, but it also set us up to find a tenant that can be a good long-term tenant. And so there were some definite trade-offs during the quarter, and then playing catch up with respect to using concessions to build occupancy as John alluded to definitely cost us something. And again, as in July, we're in a much better position and we don't have that. We don't have that overhang that we have to deal with.

So I would say that's incrementally better, certainly unemployment going from improving by 400 basis points. That's going to help us in the quarter. So there is good news out there and but as I tried to allude to in my comments, we need the film production business to come back. That looks like a choppy road. And even restaurants, all the service jobs and restaurants and bars, et cetera, that looks like a somewhat choppy roads. So cautiously optimistic and we'll see, but I do think the next quarter will be better than the last that's for sure.

[Rich Anderson, SMBC]

And then the concentration question, and you mentioned this you're always going to look at some other markets, and I don't remember when it was probably 15 years ago when you were looking at Baltimore and country, is your radar that far away or is it more closer in to the West coast area, perhaps at Denver or something like that?

[Michael Schall, President and Chief Executive Officer]

Yeah, it's a little above. I mean, what we try to do is look at other major metros, similar to the West coast, there's some element of supply constraints. We look at the stability of the economy and the federal government in Washington DC is pretty darn stable employer of people. And so it tends to do better when things are or not ongoing, well, although it also can produce a fair amount of apartment supply at the same time, so that comes back and hurt it. But, we look at things much like trying to find markets that are like the West coast, which are very difficult to find. And then we also consider blurring the line. So at what point in time might we go to some of the other markets that are near our existing markets, but just a step further out.

We own an asset in Santa Cruz. We've owned assets in Tracy and the inland empire. And, I'd say, you know, our experience there is, those are very much timing markets. And so, is there a possibility of example, setting up a coinvestment type entity, which inherently will have an exit for a period of time and then exit and do more a timing type trading is something that we also consider and so I'm not sure what we're going to do. I do know that, from feedback from our board that they are going to want to take a harder look at this issue. So we'll be having more robust conversations about it.

[Operator]

Our next question is from Neil Malkin with Capital One Security. Please proceed with your question.

[Neil Malkin, Capital One Security]

So, maybe talking about the development side, or the external side, started a JV development, just curious how that side of the business is going and the appetite level, hearing this only kind of distress in the market, and not really on the acquisition side, but more on the development land, pre purchase. Those types of things. Can you just talked about, what you see there? Have you gotten more inbound calls and how do you see, maybe the next, six to nine months shaping out on that side of the ledger.

[Adam Berry]

All right, well, this is Adam. So, I can cover this and Mike feel free to hop-in. So, as far as the stress goes on the land side of things, landowners are incredibly stubborn when it comes to decreasing their expectations on land values. So, yes, lots of inbound calls. But very few yields that seem to be getting a dry now. We haven't seen much if any decrease in construction costs so that coupled with some challenging a challenging rental environment, there's very little that we see right now that would pencil. We continue to be aggressive on the on the private equity side, because there are there are a number of legacy deals that that are out there searching for funding and construction lending standards have gotten somewhat higher and we've gotten more conservative with our with our prep underwriting. But even still, there's still a relatively high demand for that though. Like I said, we continue to have a robust pipelines. And that's probably where the, the main focus is going to be for the immediate future.

[Neil Malkin, Capital One Security]

Okay, great. Other one for me kind of been talked about, it seems like on each call, to talk about regulation and things like that continued to get, I don't know, worse and worse extreme.

Can you just maybe talk about a couple of things in particular, AD1436, which I think is the statewide codified in the statewide 60 moratorium, either the sooner of the end of state of emergency plus 90-days or April 2021. Just maybe what's going on there. And then, the other thing I guess part D would be you look at like proper trash in Seattle. You look at a lot of these things are deep on the belief, a lot of a lot of issues that, although you are diversified as you say they're very much a function of the California and Washington I'll say, mentality type. So, I'm just wondering how you navigate through that process or approach these, these things that seem to kind of come out at you on a more frequent basis?

[Michael Schall, President and Chief Executive Officer]

Yes, it is a great question. And I will say that we are surprised at the incredible, both number of eviction related and tenant protection related bills that come out of this. And it certainly in the short-term, we had our own our own self imposed limitations for 90-days on evictions and rent increases and a variety of other things. So I think that is something that is just appropriate and proper in dealing with this -- with the pandemic. But there's a point at which, and I would guess it will getting near that point that, things go too far. And so what we try to do is both certainly comply and understand all the existing ordinances that are out there. And again, they're at all different levels of government and they constantly change. And at the same time, try to advocate in our discussions with CAA and others like for example, if a resident, if this goes on for some prolonged period of time, if a resident was a certain amount of funds, shouldn't, they have some affirmative responsibility to prove their COVID-19 affect or impact or something like that.

And work with their tenant. There is a steer out there that, there's going to be widespread evictions, you're following this situation. And I look at it and we're realistic people, we have no interest in that, just mass evictions at all. In fact, we're better off working together, but it needs to be on several level playing field. We need them to essentially prove their or acknowledge their COVID-19 issue. And then we can react and try to do what is thoughtful for both of us. So the laws as they're currently constructed don't do that exactly. So there's a bunch of laws out there as you point out that prolong the eviction process and not just limited to the one you mentioned, but just on an ongoing basis.

And it still remains to be seen what happens with those laws. I mentioned, in San Francisco, the inability to evict anyone at any time indefinitely for COVID-19 delinquencies. And I'm not sure exactly how we get paid back on those particular delinquencies. So this has been a, an ongoing issue and certainly it's disappointing from our perspective, then that we have no ability to control our destiny. And it seems like people have the ability to essentially do things they shouldn't be allowed to do. So I'll leave it at that.

[Operator]

Our next question comes from Alex Calmes with Zelman & Associates. Please proceed with your question.

[Alex Calmes, Zelman & Associates]

Just looking at another discrepancy between pockets, or would it make sense for the match funds your positions? Or are you looking to get a little more progressive on --?

[Michael Schall, President and Chief Executive Officer]

Yes, Angela in her remarks talked about mass funding, firstly, everything that we do going forward. So that definitely is the plan and not just buy a stock, buy back preferred equity and others. So Angela outlined the her sources and uses for the rest of the year. So I think we're good -- I think we're on the same page with respect to how we're going to do that. Maintain a very strong balance sheet.

[Alex Calmes, Zelman & Associates]

So looking at rent collecting month over month, what is usual for patched up in the following marker for doing thing.

[Michael Schall, President and Chief Executive Officer]

A little bit hard to hear your question. So I'll repeat it. So I get it right. You're asking what the usual cadence for rent collection is if someone's delinquent, I think, and you were just in a different time. Because normally if someone's delinquent, we're going to obviously communicate with them either come up with an agreement with them, which case we're pretty reasonable. If they over the month rent, we're going to let them have a prepayment plan that's going to work over a reasonable amount of time. If they don't want to communicate, we're going to give him a three day notice and start a process and work through that.

So normally that's how it would go where it is today. Some of those options are not available. The communication is, and again, I'm very pleased to see that without any current hammers, we're seeing people step up and make payments on what they owe. Some people wanting to enter payment plans, others not they're concerned about whether they'd be able to keep those, but they're still paying more than their rent. And so we're seeing good behavior out of people in general. Hopefully that answers your question.

[Alex Calmes, Zelman & Associates]

I’m looking more for, percentage pass that you’re collecting 94% April rent at the end of April, and enter contract with you in May. Is there basis point catch up that you have been seeing? Or has it been mostly negotiated.

[Angela Kleiman]

Hi, this is Angela here. If you’re looking at the amount of revenue that is not reserved, we are essentially at over a 100% collected for same store, which means some of that of course goes towards delinquency. But keep in mind this is only July, one month. And so to John's point, we are seeing good behavior and most people are trying to be responsible, but it just too early to be okay what does that trend mean given this is July numbers.

[Operator]

Our next question comes from John Pawlowski with Green Street Advisors. Please proceed with your question.

[John Pawlowski, Green Street Advisors]

Just one follow up for me. John can you help me just understand whether your comment where elevating concessions aren't indicative of where market rents are. Because in certain markets, it feels like every, a lot of big private and public developers are four to eight weeks free. So it feels like the market clearing price of rents transcend demands, market rents across your portfolio. If all your competitors are four to eight weeks free, is is down in the neighborhood of 15%. Could you just elaborate on that?

[John Burkart]

I'm glad to, first I have to give you guys some credit, you've done a nice job trying to track things. So I appreciate that it's out there, but I would say what we're picking up and what ethics does is got of frustration out of not having a great market data, because some of the vendors aren't doing a great job. We created our own proprietary database. So we've got over a thousand assets and we're tracking. And then what we find is different days, different competitors are offering concessions. They're doing it in different units. And so there are commonly assets there that are offering maybe four day a week. But that doesn't mean that those are the only units that are renting. And what we saw back in June was many of the bigger owners were trying to gain occupancy. Increased absorption, just like a very large development lease, ultimately, are multiple leases competing against each other, that works for us and can't speak for our peers that that works for us. And so we're backing off, and we're continuing to find that we're receiving leases in many cases, without concessions, not all those cases San Francisco is different in your asset by asset we have different plans, but that the idea of having a concession to help pay the moving cost to them, some of the move has paid off for us.

And again, we're generally backing off now, when you get into a very competitive spot like downtown Oakland in the CBD or San Francisco or downtown San Jose, there's lease up going on in LA, there's lease up going on and so things get blurred a little bit because you've got to lease up, consider offering concessions. If you're stabilizing down the street, you're probably still offering large concessions. So, there's a little blurring going on. But we are seeing as you get down to other markets that like say, Ventura, lots of Orange County, San Diego, in many cases, conditions just drying up. And that's kind of what can happen with secession isn't there in the market, and then they just dry up rather rapidly. And we are seeing that happen. So, the overall, again, really as a tool to increase absorption, and I understand your ideas and that effective, but the reality is we try to use them to increase absorption and they worked well for us. Does that answer your question?

[John Pawlowski, Green Street Advisors]

It does, it sounds like it's more of a debate over duration. So, if these concessions ever to continue for the next six months, effective rents have to be down 50-ish percent across these markets. Right. I mean, it's just, -- it's just too lucrative a market?

[John Burkart]

And again with us, yes. Why reference we gain 200 to 190 basis points in occupancy because there was an impact from we offer concessions, we increased interest in tax, and we're backing off of that. So, that worked well done to create excess demand. So, yes, -- if they went on forever, yes. Then they're part of the market. That'd be different.

[Operator]

Our next question comes from John Kim with BMO Capital Markets. Please proceed with your question.

[John Kim, BMO Capital Markets]

John, mentioned in the prepared remarks. The value proposition of Downtown assets is defined with the Bourbon. And I was just wondering if you could remind us of the breakdown that you have or that you identify as Downtown or urban versus suburban.

market?

[John Burkart]

Sure, well, yes, we look at about 10% urban and 90% suburban. And there's, obviously can be some blending that goes on certainly as you get into some of the locations in Southern California, where it's, kind of blended but overall, we look at 10% we have very little incentive to under 1000 units in downtown market in our store portfolio.

[John Kim, BMO Capital Markets]

Okay, and then on this profession discussion, which I know it's already interesting property results, but if we are assuming four weeks of construction as an average there might be higher than that in the second quarter, then that would imply reasons were down 10% renewables are down 8%. And I think there's no better compression level but I'm not really sure. If I'm in the sector, basis level, it's gotten better just given where the waste is sorted, have gone so I was wondering if you could help quantify that difference between the second quarter in July, as far as the effective rent change.

[John Burkart]

Yeah. I can definitely tell you on that. If you were to look at it truly on net effective and in this regard the increase in absorption, so just weird advanced transact net effective. They definitely get better in July. And they're going to comment on the renewals, not all the renewals concessions and in many cases it was a week or something like that. So, it wouldn't be translate to a, let's say, an average of an 8% or one month on the renewals. That's the renewals were closest to offer 1% somewhere in that area. But on the new leases, again, the focus was on the new leases with the concessions to increase absorption. So, in some of that has gone away. And so, if you look at it purely that way net effect, yeah, definitely rents are up in July over June.

[Operator]

The question comes from Zach Silverberg with Mizuho. Please proceed with your question.

[Zach Silverberg, Mizuho]

Hi and good morning be out there. Just a quick one on capital allocation. I'm just curious, in the press release, you mentioned more stock buybacks. Where does the stock buyback program fit into your best use of capital today? And how do you view this moving forward?

[Michael Schall, President and Chief Executive Officer]

Yeah. Hi. This is Mike. Yeah, we've slowed down a little bit on the stock buyback, and the thought there is that, the affects of COVID-19 are going to be with us for a longer period of time. And so, the impetus to do a lot of stock buy back quickly is less important. We are constantly watching debt-to-EBITDA and some of the other balance sheet metrics. And so, if you're selling assets to buy back stock, you're going to need to do leverage along the way, because as you sell an asset, obviously your EBITDA shrinking. So, we're mindful about how we do stock buyback. We're still very interested in it. It is still one of the things that is important to us. But, and again, funding it along the way with asset sales is an imperative action with respect to all of what we're doing. So I'd say, at this point in time, as Adam mentioned that, probably the preferred equity pipeline is going to be our go to source, given that, there are fewer providers out there and therefore we have a better selection of transactions to pick from and would be that. And, we definitely like co-investment transactions when the transaction market gets better and we see more quality assets that are trading. And obviously, it depends on what guys are trading out, but this idea of buying, let's say four and a half type cap rate with your cost of debt in the low to mid twos, that generates a whole lot of cash flow and is pretty attractive transactions.

So, I think we're going to have opportunities on the external side and actually, I think this is, the fun part of the business, when there's disruption in the marketplace and lots of opportunity and we get to pick what the best use of capital is, I think that's what we do exceptionally well. Does that answer?

[Zach Silverberg, Mizuho]

Another quick one from me. You guys mentioned a mobile leasing app that you're developing. Do you have any sort of project return targets around this and what percentage I guess of your portfolio is completely touch less for a customer from the lease up process?

[Michael Schall, President and Chief Executive Officer]

Sure. So we're not giving away the metrics at this point in time on that, but I can tell you it'd be quite a change from the perspective of the customer being able to come in and lease on a mobile iPhone, literally set up, obviously some setting up the appointment all the way through to getting approved instantly and moving forward. So we're very excited about that. We think that will give us a great customer experience and positioned very well going forward when you're talking about the touchless, at this point in time, really we have, from a tour perspective and otherwise we can go touchless all the way through other than of course once they get to the site, they're going to move in. But, we're touchless across the board in that sense, does that answer the question?

[Operator]

We have reached the end of the question and answer session at this time. I'd like to turn the call back over to Michael Schall for closing comments.

[Michael Schall, President and Chief Executive Officer]

Very good. Thank you operator. And thank you everyone for joining the call today. Certainly our best wishes to you and your families during these very challenging times. And we hope to see you all either in person or on Zoom someday soon. Have a good day.

[Operator]

This concludes today’s conference. You may disconnect at this time. And we thank you for your participation.