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Mid-America Apartment Communities Inc
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Good morning, ladies and gentlemen. Welcome to the MAA Third Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, the company will conduct a question-and-answer session. 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 of Finance for MAA.
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 I appreciate everyone joining us this morning. Results for the third quarter were ahead of 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 to 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 remains 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 footprints 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 and deliveries beginning in the back half of next year and significantly declining into 2022. We continue to make progress on a new development pipeline with construction and scheduled deliveries on track to our performance where we are underway with initial leasing both are leasing trajectory and rents are in line with our expectations.
We are an active pre-development work on several other new development projects that we hope to start next year. We believe MAA 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 a 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-position 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 a new lease pricing improvement. Effective new lease pricing during the quarter improved a 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 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 assistance is 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 billed 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've 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 is 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 NOIs.
We continue to expect our best buying opportunities on existing assets to be on properties in 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 leveraged buyers are having more difficulty obtaining financing on pre-stabilized 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 pre-purchase 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 six 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.
Thank you, Brad. 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 built-in effective rents and continued strong collections in support of the third quarter performance while improving pricing trends positioned portfolio well for the fourth quarter. As Tom mentioned, excuse me, we have established a reserve for bad debts at quarter insufficient to fully cover uncollected rent from residents not working with us on payment plans as well as for a large portion of the remaining deferral program payments. No collections experienced 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 utilities costs from 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 incur 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 the in-house development, our pre-purchase development deals which both have long-term funding commitments. Thus we expect our development pipeline to increase over the next few quarters, but remain well within the risk tolerance ranges we've always held. 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 maturing in 2022. We have no remaining current maturities, our 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 though recent trends have been encouraging. They are still -- the significant uncertainties remaining thus we've refrained from providing guidance for the remainder of the year. But plan to revisit the decision as we prepare for our fourth core release with the expectation of being able to provide guidance for 2021.
So that's all we have in the way of prepared comments. So Ashley, we will now turn the call to you for questions.
[Operator Instructions] And we will take our first question from John Kim with BMO Capital Markets. Please go ahead.
Thanks. Good morning. 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 the timing of reopening plans that continue in our region related to these things 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 one quarter remaining in the year, we felt it created to refrain from putting that out right now. We hope to be and feel like we'll be in position assuming continued stability and 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 rate of 1.7, how does this change at all as far as how you underwrite investments?
I don't know the changes, I mean, we continue to underwrite in a similar manner. I think what it does is certainly provides the potential for very strong yields gaps and spread capture on some of these new development deals that Brad whether they're in-house development or pre-purchase 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 until three quarters of a billion dollars 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 quarters our development pipeline to grow because that's where the opportunity is, and as you point out those six yields that we're putting in place compared to that 1.7 that funding cost is very attractive.
Thank you.
We will take our next question from Nick Joseph with Citi. Please go ahead.
Thanks. It's obviously been a very different operating year thus far. So I'm wondering how you're thinking about seasonality versus the normal pattern and how that impacts your operating strategy over the next few months in terms of focusing on occupancy or rate?
Yes Nick, its Tom. I think what we've enjoyed thus far frankly is pricing that has been unseasonable. As you mentioned normally our effective new lease pricing peaks late July thus far it's peaked late August 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 fall off and sort of demand as we usually do and that new lease pricing will drop modestly and then we'll be able to hold on to, 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.
Q - Nick Joseph
Thanks. Just maybe specifically on DC it's a little unique relative to the rest of your portfolio. So what are you seeing on the ground there and -- any confession?
I'm sorry Nick, I missed which market you were asking about?
Washington D.C. and the greater –
Yes, absolutely. Yes D.C. is a little bit different honestly occupancy there is strong at 96.4, but pricing has been weak and as we go around the horn we're seeing concession levels in D.C. proper at two month on stabilized, Pentagon City, Crystal City about two months, Tyson's Corner two months, Alexandria pretty similar. Maryland and Northern Virginia are a little bit stronger, but both seeing a month free in those markets. So D.C. is one where we're stable on occupancy, but pricing growth remains elusive at the moment.
Thank you.
And we'll take our next question from Austin Wurschmidt with KeyBanc. Please go ahead.
Thanks everybody. Just curious you reference 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 on 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?
Yes 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 not seeing construction pick up based on the permitting data we're seeing, 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 as equity folks backed out of a number of development deals. That's kind of since come back and now I think the difficulty is more on the construction side are 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 pre-purchase 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 shelf 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 pre-purchase opportunities? Has there been any change in pricing there? And then do you think as the transaction market in general loosens up that maybe that spurs a little more activity in the construction market?
Perhaps, I mean, in terms of what we're seeing on the pre-purchase 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 pre-purchase 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 two that we hope to start in the coming quarters and then others that are coming 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 pre-purchase opportunities or pre-development opportunities I'll say that we're working including both in-house and on the pre-purchase 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.
Great. Appreciate the detail. Thanks everybody.
We will take our next question from Neil Malkin with Capital One Securities. Please go ahead.
Good morning guys.
Good morning.
Yes. First off congrats that your collections are remarkable as if there is no pandemic. So yes, you guys are obviously doing something right. First question I have 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 your 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 that the need for the desire to get away from sort of densely populated areas has increased.
Sure Neil, we didn't see much of that in the second quarter, but it's picked up in the third quarter and the most, 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. Move-ins 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 is 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. Another question I have is on just the single family side. Your markets are great. The one thing is that the home prices are more affordable. But just wondering given the increase in home ownership, mortgage applications, new and existing home sales, are you seeing any increase in the move-out for home purchases or single family rental again over the same -- like since maybe April or May? Any color there would be great?
Yes. On new home that remain 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 majority female single and not at the phase where they're making those changes. We're just not seeing a ton of shift in that direction in our move-outs.
I appreciate that and then just along how many people answer those surveys like those percentages you're quoting I mean did 10% of the people move-out throughout the surveys? Is it 50% like how good of a sample size is that?
It's roughly 100%, I mean, we don't I say roughly just because I hadn't checked the number in the last couple of days but that is, that's not a survey that's sent after the fact that is when you offer a notice to us that's a required field for them to fill out and capture. So that's where we're getting that information but it is a part of our transaction for accepting the notice.
Thank you guys.
We'll take our next question from [indiscernible] with Scotiabank. Please go ahead.
Hi good morning everyone. 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 it and just to reset a little bit in Q3 the renewals came down to 3.8% and now we're seeing them move back into 4.5% and 5% honestly our two, three year average there is 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 the 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 if 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 we see no signs to do that.
Thanks Eric. I think Sumit Sharma has a question as well.
Thanks Nick. Guys just really quickly we've been listening to a lot of developers in your market to 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 retail getting torn down I think we're doing that at our West Glen 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 –
I think in terms of looking forward on that we're in the process of really going through our study. Brad's team does an unbelievable job. They're really diving into the markets and understanding those and what the implications are for us for 2021. So we're doing our study of the market. We're doing our study of or the radius of our market exactly how it would affect us and we'll have more on that in fourth quarter. But what we are showing really is a fall off in supply in the back half of year for a range of the reasons that were mentioned earlier.
Anyone else?
I'm sorry we didn't understand that.
I'm sorry we just said all done. Thank you so much.
Great, thank you. Appreciate your question.
And we'll take our next question from Alex Kalmus with Zelman & Associates. Please go ahead.
Hi thank you for taking my question. 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 to weight success reasoning would it be more because you're the suburban 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 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 some market level we have a higher percent of our portfolio is suburban and 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, thank you. And turning to the smart home units I'm assuming you're installing those on turns, 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 AB testing that derives 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 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 lease-over-lease new lease numbers.
Got it. Thank you.
You're welcome.
We will take our next question from Rob Stevenson with Janney. Please go ahead.
Hi, good morning guys. Tom when you adjust for urban versus suburban or just looking at sort of the suburban assets, etcetera. Any differential and operating performance between price point within the various markets? I mean, in other words is a $2 square foot suburban two bedroom leasing any differently than a buck 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 like the 850 square foot two bedroom units versus the 1,100 square foot two bedroom units any color there?
No, consistently across the board, I mean you've touched on urban is our suburban's running a little stronger than urban and then also a higher price point is running a little weaker than BB 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 one in two bedrooms and in terms of our current exposure level and the current lease level growth for ones and twos they're incredibly consistent. Ones are slightly ahead of two, but it's by a negligible amount though. 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's efficiencies are 4% of our exposure and ones and twos are like 88%. So the one little less favorable floor plan that we have right now is just 4% exposure.
And then what about bigger versus smaller within the same number of bedrooms like that large are the large two bedrooms now getting more attention for people looking for that extra space than the smaller two bedrooms people looking for that extra 150 - 200 square feet?
I think that's honestly skewed a little bit by the AB 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 one 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 fall off, I think Houston and D.C. we are watching carefully as well as Orlando but those are more sort of like bumping along than falling off materially.
Okay. Thanks guys.
Thank you Rob.
We'll take our next question from John Pawlowski with Green Street. Please go ahead.
Thanks for the time. Good morning. Tom, maybe just following up on a market question. You touched about lower supply and some of this or maybe it was Eric, lower supply in some of the secondary markets in the quarter sequentially your smaller markets really outperform your larger markets. Curious if there was an outsized lift from the double play package or if it's just true organic demand versus supply differences versus the larger markets?
No I mean double plays really spread across the portfolio by type fairly evenly. So no there is not, it is not, the double play is not at adversely or positively affecting one market or the other on the revenue or expense side.
Okay. And then Al, last question from 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 a informal areas that that where we've seen right now that would be the next one to be a significant increase certainly going into the year Nashville and Austin both were 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. Its nationwide 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 we nothing specific but certainly top of mind right now.
Okay. Thank you.
And we'll take our next question from Richard Skidmore with Goldman Sachs. Please go ahead.
Good morning. Thank you. Just to 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. I'm just trying to understand what's happening there?
No I think it's just a difference in timing and seasonality. So on an effective basis or when new lease rates that moved in October they're actually up sequentially. New leases signed 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 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.
Thank you 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 we might frame that new supply pipeline?
I think what I was trying to indicate was we talked about our range of tolerance we would have for our pipeline overall given our balance sheet. And typically we've said 4% to 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 may be comment because the opportunities that Brad mentioned will be there in the development of pre-purchase as well as in-house. The yields are very good relative to the financing costs, we'll certainly see that increase and we have the potential room in our balance sheet to use that for a while to fund those maintaining. I put the ranges out there of 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 that we could work with and in the long term we probably see that come back down into where we are now over over a long period of time.
Thank you very much.
We'll go next to Amanda Sweitzer with Baird. Please go ahead.
Great. Thanks. Good morning guys. I wanted to ask on your renovation project and it was certainly nice to see kind of the slight acceleration 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 of 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 in or 80% of the properties where we're doing a redevelopment and we do AB 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 would expect to see another productive year on redevelopment and then also we've got a number of more extensive repositioning efforts and 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 remaining kind of that 8% to 10% historical range you've talked about or is it now running ahead of that with the growth you were talking about?
It's about 11% or 12% now.
Great. That's it for me. Thanks for your time.
Alright. Thank you.
We will take next question from Rich Anderson with SMBC. Please go ahead.
Thanks. Good morning everyone. Hi Tom, I want to not get too nitty gritty here. But for the October move-ins up 4.8% renewals and those that were signed up 5.8 that's basically the foreshadow you're talking about event is in terms of if renewals going up. I assume as we kind of venture into the fourth quarter here, but is that 100 basis points spread move-in versus signed, a typical spread or is it particularly high or low right now versus other peers?
No, it's particularly high right now. Usually there's not much spread at all because our renewals are pretty consistent. Because renewals came down in terms of what our renewal offers were came down in June and July those have been moved in 60 days out are lower. And then as our markets would have 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 is a pretty tight delta between those two numbers, but we're just on the incline at this point and I would think as we stabilized 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. I guess I was getting signed confused with offers. But okay that makes sense. Thanks. And then the second question maybe big picture for Eric talking a lot about urban versus urban but I bet your urban portfolios 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 do you did not get the political because that's not the intention but do your typical residents have perhaps a far less than sensitivity factor when it comes to COVID-19 and so they are more inclined to move around and do what they have to do to get into their apartment or is that hard to sort of gauge and so you don't really know. My guess is you’re in Trumph country there that would be the case. But yes 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?
Rich there are two questions there one is you're right. We are not seeing nearly the pressure on our urban product that you are seeing on urban product in San Francisco and New York. Our turnover and move out 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 supply is higher in price point and more urban oriented. But yes, our urban said 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 states and cities and a broad region that just tends to be viewed as more if you will pro business, the 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 reason the country to live in, more moderated 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 robust, more robust way that has seen taking 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 of 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.
Okay. Great. That's great answer. Thanks. Appreciate everybody. That's all for me.
Thanks Rich.
We'll take our next question from John Peterson with Jeffrey, please go ahead.
Okay. Thanks. Good morning guys. Curious if you are seeing any new capital come into your markets in terms of competition for acquisitions or funding new developments just thinking 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're seeing any change in kind of new capital that's chasing your property type in your property types and geographies?
John 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 a lot of the folks that have been on the sidelines 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 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 would say that the private REITs are certainly very strong. They had a few months of low capital rising, which that's back up and so those folks are back aggressively in the market.
Okay. All right. That's helpful. That's all for me. Thank you.
Next Zach Silverberg with Mizuho, please go ahead.
Good morning guys. Thanks for taking my question. So my first one is about some comments you made earlier in Salt Lake City. I'm just curious what other markets you considered entering and would your plan be to enter in some sort of scale or yes opportunistic one-offs and what do IRRs and cap rates look like versus your course on belt markets?
No. I mean Salt Lake is the only 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. The market has some challenges to get into. But we think we've got a way to get there and we have 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 in a number of 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 the market 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 pre-purchase opportunity that Brad and his team have been working on and hopefully more to follow.
Got it. Appreciate that and just one more for me you sort of touched upon this and the prepared remarks and the press release that you've worked with residents to stay in their homes. Can you quantify the amount of tenants who have requested assistance and how is that trended since the start of pandemic and where does that sort of show up in your financials?
Yes. So 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 2000, 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. We are 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've got to have that at your disposal?
What I'll tell you we're still in our pre-development work on that and more to come on that as we get that buttoned up and which we hope to do early next year.
Awesome. Thank you guys.
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.
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