Good day, everyone, and welcome to the Equity Residential 3Q 2020 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn things over to Mr. Marty McKenna. Please go ahead, sir.

Good morning, and thanks for joining us to discuss Equity Residential's third quarter 2020 results. Our featured speakers today are Mark Parrell, our President and CEO; and Michael Manelis, our Chief Operating Officer. Bob Garechana, our Chief Financial Officer is with us as well for the Q&A. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events. Now, I will turn the call over to Mark Parrell.

Good morning, and thank you all for joining us today. I will start by thanking my 2,700 Equity Residential colleagues across the country for all they have done this year to take care of our residents and run the business under often trying circumstances. I appreciate your tireless work in meeting the needs of prospects and residents, in an environment that has been constantly changing. Shifting to the business. Our third quarter results reflect the challenges posed by the continuing health crisis and the impact it has had on living and working in the urban centers of our markets. The approximately 23% of our portfolio located in Downtown San Francisco, Manhattan and Brooklyn and Downtown Boston and Cambridge continue to be the most impacted. When we last spoke with you in late July on our second quarter call, we were seeing demand in excess of 2019 levels and renewals that were at or near 2019 levels, albeit with significant rent reductions and concessions, leading to occupancy being generally stable. As we went through August and early September, we continued to experience good demand, but turnover increased significantly, pressuring occupancy. The timing of these turnover increases generally aligned with announcements by employers of delays in bringing employees back to offices, as well as incidents of civil unrest. This occupancy pressure in turn caused further rent declines and increased concessions. So far October has been broadly similar, though we have seen scattered positive signs in the form of modestly improved renewals and higher application volumes. I caution, however, that market conditions remain too volatile and the timing of developments on mitigating the virus too unclear to suggest that we have turned a corner. All that being said, we are heartened by the demand we see for our product, even in urban centers, where life has been significantly impacted by the pandemic. We also see recent office leasing activity by technology firms, as well as activity by financial services office users, as a long-term vote of confidence in our urban centers. We believe that the knowledge-based economy will continue to drive growth in the U.S. and that our markets with their massive installed base of universities, innovative companies, venture capital firms, and the many other things that make a knowledge economy grow, not to mention renowned entertainment and cultural amenities, will keep them at the center of this activity. The cities in which we do business, and in which many of you live and work, will again be attractive places for affluent long-term renters to live, work and play once the pandemic wanes. The impact of the pandemic on increasing the ability of many office workers to remote work is certainly a fascinating new trend, whose long-term impact is difficult to gauge. But no matter what it does to longer-term office demand, we feel that our relatively young demographic craves both work proximity and proximity to the entertainment and cultural amenities in our cities, which we think will remain very attractive to affluent renters once our cities reopen fully. Also, supply in urban centers should in the midterm decline sharply, as developers, lenders and investors react to market conditions and construction costs that have not declined as of yet. While we are not providing earnings guidance, we do want you to be aware that our financial results will weaken over subsequent quarters, as the full impact from the pandemic works its way through our rent roll. Lower lease rates take some time to fully manifest themselves in our reported same-store revenue numbers, because at any one time our rent roll is made up of both new leases with lower rents and leases that were signed at higher rents prior to the beginning of the pandemic. As the composition of our rent roll changes to include more of these lower-rate leases our same-store revenue results decline. The opposite is true on our way back up. Occupancy change is causing much quicker shifts in the trajectory of our reported revenue numbers. In the meantime, the combination of our portfolio diversity and strong balance sheet will allow us to weather this challenging operating environment. For EQR recovery is a matter of when, not if. A quick note on collections. We continue to have strong results. We are collecting about 97% of our rents and resident payment behavior has not changed. That said, we had increased residential bad debt costs in this quarter, reflecting the fact that although in the aggregate there's only a small number of residents who have stopped paying since the pandemic began, we had a peak in July of those that reached our three-month non-payment threshold and their full balances were written off. From that point forward, only a small number of new non-payers have surfaced, so while we will continue to deal with elevated bad debt, it will likely not be to the same extent seen in our third quarter numbers. On a similar note, the write-off of non-residential straight-line rent amounts in the quarter was large and lumpy and should not reoccur going forward. My final comment will be on investment activity. We closed on one acquisition in the quarter, a 158-unit property in suburban Seattle, and easy commuting distance for the growing job center of Bellevue. The purchase price was $48.9 million. The property is a brand-new asset in lease-up, and we expect a year two cap rate upon completion of the lease-up to be 4.7%. This is the only asset that we have purchased this year versus approximately $750 million in 2020 property sales. This purchase is a continuation of our strategy of buying urban and suburban properties with affluent, well-employed residents, the acquisition of which we believe will lead to attractive long-term cash flow and unlevered IRR growth. We will continue to buy properties using proceeds from selling assets that we think have weaker prospects due to property condition or location or where the buyer is willing to pay a price that exceeds our estimate of fair value. I will now turn the call over to Michael Manelis, our Chief Operating Officer to walk you through the markets in detail and then we'll take your questions. Michael?

Thanks Mark. Let me start by thanking our employees for their dedication and hard work during the third quarter. This has been a year like no other and their commitment to their residents and their colleagues has been tremendous. The third quarter saw better overall demand for our apartments both urban and suburban. Suburban assets are holding up relatively well while our urban assets are producing higher turnover leading to decreased rental rates, increased use of concessions, and lower occupancy. Overall, this quarter's performance was determined as much by the density of the location—urban or suburban—as by the market. As we previously discussed, a little over half of our portfolio is urban, while the remainder is suburban. On a positive note, the improvement in demand across all locations resulted in a 5% increase in year-over-year move-ins. Resident turnover, however, was a more challenging story. After eight consecutive quarters of improving resident turnover, the third quarter of 2020 was the first quarter where the number of residents moving out increased on a year-over-year basis. Resident turnover continued to decline in the suburban markets, but the increased turnover in the urban markets more than offset this improvement. On the renewal side, as we sit here today, we are renewing just over 50% of our residents with approximately 35% of our fourth quarter renewal offers being issued with some renewal increase, mostly in the suburban submarkets. Portfolio-wide occupancy is currently running just above 94%. The suburban portfolio is around 96% with the urban portfolio slightly below 93%. As I mentioned, the good news is that we continue to see more people looking for our apartments than last year. As disclosed in the release, applications at the company level were up 20% over last year in the quarter, driven by outsized growth in the urban core and this growth accelerated in October, defying normal seasonal slowing. Given the amount of inventory we have available to lease in our urban portfolio, we will need to maintain this velocity through the fourth quarter or reduce turnover in order to continue to hold portfolio-wide occupancy at 94%. A stabilization and an improvement of our occupancy is what would allow us to dial back concessions and begin increasing rates. Much like applications, turnover, and occupancy, the pricing story is also bifurcated between urban and suburban. In the urban markets, pricing continued to trend down and concession usage increased throughout the quarter. Seventy percent of the portfolio-wide concessions used during the quarter were in Manhattan, Brooklyn, Boston and Cambridge, and Downtown San Francisco. The volume of new leases is strong in these submarkets; however, price prospects continued to be very price-sensitive. Previous addresses provided on applications suggest that the large majority of these new residents are deal seekers who are moving to us from within the same market. In the suburban markets, concession use was rare and pricing was fairly stable throughout the quarter with a few submarkets beginning to show modest year-over-year growth particularly in Southern California. Now, let me move on to some market-specific commentary. Starting with Boston, elevated vacancy levels at existing properties and the inopportune recent delivery of new supply in the city will continue to challenge Boston's near-term performance. While concession use remains elevated in the city, in Cambridge it has been consistent since July with about four to six weeks being the norm. Leasing activity is predominantly coming from intra-city moves with the lack of international students and workers continuing to pressure rates. Currently, we have seen some very early signs of stability with no incremental declines in rates for the last several weeks and marginal improvement in occupancy. Boston is typically highly seasonal and these albeit early signs are bucking that typical trend. For the market to fully stabilize, it will require continued improvement in the demand drivers to aid in absorption of the new supply that is being delivered currently and anticipated in 2021. New York continues to be one of the markets hardest hit by the pandemic and we still see residents leaving the city to wait it out. During the quarter, leasing activity was driven by deal seekers or intra-city moves who represented approximately 75% of total move-ins. This is up 15 percentage points over last year. Meanwhile, the elevated move-outs continued with most of our residents moving to the surrounding states with suburban New Jersey capturing the largest share. In our conversations with New York-based employers and based on Mark and my recent visit to New York, you can see early signs of the city trying to reenergize. While overall activity in the city remains meaningfully suppressed, there are absolutely a few areas where things are starting to feel a little better, specifically the Upper West and East Side submarkets. Other submarkets notably Midtown, Chelsea, SoHo, and the financial district have a long way to go. Overall, we've noticed a brief period of stability beginning in late September and through October which is far better than the weekly sequential declines we experienced throughout the entire second quarter and much of the third. Currently, we are defying the usual seasonal drop-off in applications and are achieving outsized growth in weekly application counts. We have also recently seen a slowing in the pace of move-outs. However, we will continue to feel pressure on occupancy until move-outs fully normalize. Our occupancy in the market is just below 90%. Studio apartments which were once our highest occupied unit type prior to the pandemic are now our lowest at 88%. We are getting ready to furnish a few of these as many offices are available for our residents who are working from home and we're going to test the demand for renting these spaces in hourly blocks of time. The good news is that New York is resilient and we strongly believe that it will remain a top destination for highly educated workers. We hear anecdotally from our local teams that residents intend to return when we get to the other side of this pandemic. Declines in rates have made living in Manhattan more affordable and that could be a catalyst to bringing people back. The broader recovery in this market will be fueled by a lack of competitive new supply and the continued growth of big tech employers in this market. Many of these tech firms continue to expand their investments in this market, even during the pandemic, supporting the view that the city will continue to thrive as it has in the past post pandemic. Moving to D.C., which is holding up better than our other East Coast markets, performance during the quarter moderated due to slowing Class A multifamily absorption. The market benefits from federal government employment, which has actually seen a net increase over the last 12 months, but the overall job growth has declined. The ability of our residents to pivot to work from home has allowed us to maintain occupancy with concession use that was relatively low in the quarter. We are seeing some increase in concession use and pricing pressure in this market and expect performance to moderate through the fourth quarter, partly due to normal seasonality, but also due to the continued competitive pressure from new supply. Heading over to the West Coast. Seattle began the year with strong expectations based on elevated job growth and a favorable competitive supply landscape in the downtown area for the second consecutive year. In addition, Seattle's median income within the city limits increased by 10% and crossed the $100,000 a year threshold, which makes it the third major city to do so. While Seattle was initially impacted in March by COVID, its performance through late July was very stable. Social unrest in the city and extended work from home announcements in late July and August, however, began impacting our performance, especially our ability to retain residents in the CBD, Belltown and Capitol Hill submarkets. Overall, market occupancy is now just below 95%, with elevated turnover during the quarter that was heavily concentrated in the Capitol Hill and CBD Belltown submarkets. Concessions, which were hardly used previously, are now starting to be seen in stabilized assets, mostly in these submarkets. Eastside properties are also using concessions, but with a lower frequency and properties to the north continue to be in the best overall shape with good year-over-year growth in the Bothell Mill Creek submarket. Overall, housing prices continue to rise at a fast pace. Along with the other factors just discussed, we would expect this market to quickly bounce back post pandemic. San Francisco is our most challenged market, although it is not the same everywhere. Overall, occupancy is now below 93%, while our downtown assets are 87%, East Bay is 96%, and both Peninsula and South Bay are currently at 94%. Since mid-March, the downtown portfolio has been pressured on rate with escalating concession use. Concessions at two months are now common downtown and what used to be a 15% to 20% rent premium between Downtown San Francisco and new supply in Downtown Oakland is now flat to a 5% discount. As we think about the future, San Francisco should recover when there is more clarity on tech companies' long-term plans regarding office versus work-from-home policies, and an improved quality of life in the downtown area. Supply in 2021 will continue to be concentrated in Oakland and the South Bay. South Bay supply may challenge operations even further, unless the tech workers resume living in closer proximity to their offices. One small positive from the declines in rental rate is that it has made the city of San Francisco a more affordable place to live, potentially attracting more people back into the city. During October, we saw outsized growth in applications and a slight improvement in renewals. This, in turn, led to slower declines in pricing in our downtown portfolio. In Los Angeles, the urban portfolio maintained occupancy around 95% through the quarter, while contending with continued pressure from new supply in the Downtown, Koreatown and Mid-Wilshire Corridor. West L.A. continues to feel pressure from the slow restart of online content creation. Overall, pricing including the use of concessions has been stable since mid-September, while application activity has continued to grow. The suburban portfolio continues to show signs of improvement with occupancy staying at or near 97%. The suburban submarkets of Inland Empire, Santa Clarita Valley and Ventura County are all experiencing modest year-over-year gains in rental income. That being said, we expect the overall portfolio to modestly improve through the quarter, primarily driven by continued rate improvement in the suburban submarkets. It is only fitting that I conclude our market updates with Orange County and San Diego, which stand out for their resilience through the pandemic. While our portfolio in these markets consists primarily of suburban assets, and were certainly impacted by the pandemic, they have consistently sustained occupancy above 96.5% collectively, while also improving the percent of residents renewing their leases. Both markets have year-over-year revenue gains and are expected to sustain or strengthen their performance through the fourth quarter. Overall, we haven't seen anything that leads us to believe that the trends just discussed are likely to change meaningfully in the near term. The suburban portfolio should continue to outperform with some potential improvement in pricing and relatively stable occupancy. The urban markets will likely continue to be challenged, particularly Manhattan, Brooklyn, City of Boston and Cambridge and Downtown San Francisco, where continued pressure from the increased turnover and a highly concessionary operating environment impact performance. As detailed in the release and in my remarks, we have seen tentative signs of improvement in some of the metrics in these markets, but pricing remains under significant pressure. We will need to see occupancy begin to improve and pricing to stabilize to feel like we have turned a corner. Our urban properties in Washington D.C., Seattle and L.A. will likely continue to see slight moderation in both rate and occupancy, with potentially more pressure in Seattle, where some signs of weakness have come into play of late. While the economic uncertainty and the extended impact from the pandemic have made it difficult to predict what a recovery looks like and when it may occur, we remain optimistic on a number of fronts including the ability to grow rate in our suburban portfolios, continued demand for our product regardless of location and solid collection performance. Our ongoing efforts will continue to seek out those opportunities to improve performance while ensuring the well-being of our employees and residents. Thank you. At this time I will turn the call back over to the operator to begin the Q&A session.

We'll hear first today from Nick Joseph with Citi.

Thanks. Mike, I appreciate all the details. You mentioned at the end that the trends are not likely to change in the near-term. So I'm wondering what the historical relationship has been between applications, which you are seeing pick up particularly in October for the urban core, and ultimately occupancy or net effective new lease rate change?

Well, I guess I would think about it this way, which is the volume of applications on a year-over-year basis is improving and it's strong but again there is seasonality to applications, right? So applications are the highest in the third quarter and will drop off in the fourth quarter. As we think about that relationship to new lease change, obviously, if we can continue this extended leasing season that we're seeing throughout the balance of October and November that should start stabilizing that occupancy and give us the ability to start dialing back some of the concession use and then ultimately try to pressure test increasing rates back up a little bit. But I think it's still too early to see what's going to happen for the balance of the quarter. But I think right now looking at where we sit at the end of October, we feel pretty good that we're seeing this extended leasing season continue. We just don't know how much longer it will continue for.

Thanks. And then I appreciate all the additional disclosure, and I certainly understand the rent roll and the seasonality in the current operating environment, but given how much price transparency there is in the market, how many tenants with in-place leases are you seeing trying to renegotiate? And then how are you handling that?

Well, so I think there's two aspects to that. So first is transfers. So people that are on a current lease, seeing what's available in their building and trying to move internally, so we did see an increase in our transfer activity through the quarter. We raised our transfer fees in early April trying to mitigate some of that activity but ultimately a large percentage of those residents that are transferring are actually moving to a larger unit that has an increase in rent still. And then on the other side at the end of the lease, you are still seeing some folks trying to trade units and really going after kind of more space. So people that were in studios moving to the one-bedroom, et cetera, and again at that point we're doing our best to negotiate with them to keep them in place in their current unit, but ultimately we want to retain them as a resident. So we're going to do what we need to do to keep them.

And how about just on pure lease breaks—either saying, we're looking at a unit and saying, okay, this unit is now down 20%. I may end up just moving out and paying a lease break versus renegotiating mid-lease.

Yeah. So early lease terminations continued to be elevated on a year-over-year basis—we're up about 25% year-over-year. Sequentially we definitely saw July tick down from June, but then the announcements from the large tech companies on extended work-from-home policies and the civil unrest in the cities in early August resulted in early terminations increasing in the month of August. So far September and October remain elevated on a year-over-year basis but they're not as high as they are in August.

And just to add Nick, we do receive lease termination payments from residents who terminate leases early. So depending on the jurisdiction that could be continuing to pay on your lease or paying us two to three months right then and there as a lease termination cost. So there is the same elevated number, but it isn't like a free option for the resident to exercise.

Thank you.

We'll hear next from John Pawlowski with Green Street.

Thanks. Mark, the first question is just on the private market values in some of your hardest hit urban cores. So if you went out and JVed or sold outright your Manhattan portfolio or your San Francisco portfolio today, would there be a sufficient bid do you think? And how would values look versus pre-COVID?

Yeah. Thanks John. I guess I'll do a quick survey and just say that if you're in the suburbs—and I think this is consistent with what others have written—if you're a suburban property owner of a B-property quality asset with a renovation potential that's probably worth a little bit more than it was pre-pandemic. Class A suburban is probably about the same as it was pre-pandemic. The urban stuff in San Francisco and New York would be very hard to trade. I mean, we still see total volume in the third quarter is down 60% for our kinds of assets. And even more so in New York and San Francisco. And I can't even point to completed deals to tell you what the mark is. So I'd say those markets are pretty illiquid. I think it's very logical to assume there's been some reduction in value. My guess is it's going to end up being pretty modest because a lot of folks like us who own in those markets aren't compelled sellers. And because of that you won't see us putting those assets into the market. So I think what you're probably guessing is some modest reduction in value in New York and San Francisco for sure. If we were trying to do a transaction frankly right at this moment I'm not sure how well that would go. I just think people are trying to underwrite declining rents, trying to understand the health crisis, the pandemic coming back again. And I think all of that would make it quite difficult to trade these assets if we needed to do so in some kind of quick haphazard fashion. And of course we don't need to do that.

Sure. Okay. And then just trying to understand your comments on the recovery is a matter of when and not if. You're very still bullish on the knowledge-based economies and you are in the past cycles opportunistic. I guess, why haven't you acted on the dislocation in your stock yet? I know there's illiquidity in some of your urban markets in terms of selling assets. It just feels like there's a big dislocation in front of you and I'm just curious why you're not selling more assets to buy back stock?

Yes. I think there's two things going on in there and one is a capital allocation thought process that you laid out and there's also, in our minds, a risk management thought process. I mean, when we start selling assets to buy stock, which we can do that—we don't have that much tax pressure though. At some point, we would and we can't sell an unlimited number of assets and not have gain issues. But as you go through that process of taking EBITDA out of your company, taking NOI out of the company, you're increasing risk. Twenty-three percent of our NOI right now is under significant pressure. Switching to a risk management thought process from our perspective, it seems better at this point to be a little more cautious to acknowledge the uncertainty that's out there in the world whether it relates to the pandemic or the values in some of these urban markets and just sit tight and operate the portfolio hard and that's a more prudent thing to do than to go and purchase shares. Because again, once that capital leaves the firm, it can't come back. So again for us just this recycling activity we'll keep doing John because again, it's just relatively minor and we're an apartment company. That's what we do, but buying stock back to us increases risk in the firm and we just think this isn't a point in time when you want to do that.

All right. So there's no big large disposition plan coming?

There are other assets that are going to be sold. We're going to sell into this bid as I mentioned for the value bid for some of this Class B renovation stuff in the suburbs. We've got properties where we don't believe in the renovation play where others may. So you should expect we'll sell into that. We may pay down some more debt. That will leave us with options, which could include a buyback at some juncture. It will definitely include recycling into assets in these dense suburban areas and in other markets, which we've talked about on prior calls. So—but doing a buyback right now with the pressure we're feeling on operations and any uncertainty in the world at large does not seem like the right idea to us.

All right. Thank you.

We'll move on to Rich Hightower with Evercore.

Hi. Morning, guys. Thanks for taking the question. Mark, I can't believe you don't want to run EQR like a hedge fund?

It's always easier to look at these problems from the outside.

Yes. No, it certainly, it's the numbers on a spreadsheet for the rest of us, right? You guys are in a real business. But I do want to hit on the current concession environment. Michael, I know that you mentioned four to six weeks being the norm in—I think Boston was the market mentioned. But help us understand, where are we two months, where are we three months or some of the more extreme numbers in that conversation? And then maybe a quick follow-on to that. If we fast forward a year from now and we've got all this sort of induced demand as you described due to much lower rents and more affordability, more concessions and that sort of thing. What happens at the end of the lease term, what's your historical experience there when there is a bit of sticker shock 12 months out? How should we expect that to factor into occupancy and turnover a year from now? So I know it's kind of a compound question, but appreciate any color.

Yes. So first, let me just give you a little bit of color on the use of concessions today. So the markets that you would expect to have the most concession use, like I said, 70% of all the concessions in the quarter were in those urban cores of New York, Boston and San Francisco. In New York about 70% of all of our applications are receiving a concession—just about two months right now. In San Francisco the entire market overall, it's about 50% to 60% that are receiving a concession, and we're averaging right around that 1.5 months or six weeks. But if you go to downtown San Francisco, you're closer to about 70% to 75% of all the applications receiving two months. Everywhere else is sitting kind of right at that six week or right around that one month mark. And I think what you should expect to see as I said in the prepared remarks, as we see some stability in occupancy, see this improvement in demand or demand just holding steady, we'll start dialing back some of the concessions as we work our way through the year. As far as coming upon the renewal side of the equation a year from now, when we underwrite applicants today, we underwrite them at their gross rent regardless of the concession. So our rent as a percent of income really has not changed in the portfolio from the applications. So we're still running between the low 17% in Seattle and the high at 22.5% in San Diego. And you look at those ratios and you would say they are going to be in a position to afford an increase. They're clearly going to be in a position to afford continuing to write the check at the rent that they're paying regardless of the concession they received when they moved in with us. So I think that's how we're thinking about a year from now.

Okay. That is helpful. And then just based on your historical experience with this sort of thing if we go back to '09, I mean is that pretty much the way it's played out back then where you underwrite a certain income rent ratio and upon renewal the tenants just sort of take it if the market is stronger. I mean, is that a pretty predictable renewal curve, or do you think there's some variability given the unique nature of what's going on right now?

Well, I think the extent of concession use is greater right now in the portfolio than it's ever been. So I don't know if we can look to the past down cycles and say exactly how that will play out. I'll tell you a lot is going to depend on what the pace of the recovery is like. What do the cities feel like? What are these long-term work-from-home policies going to look like? That is going to dictate more around our concessions still being used widely in the marketplace. If they are, we probably are not going to be able to just wipe off any concession on a year-over-year basis. We'll stair-step them back to the rents they're paying, but it's not like they're just going to go away. So a lot's going to depend on what is happening around us in that competitive market set as to how those renewals will be treated through our renewal negotiation process.

From Morgan Stanley, we'll hear next from Rich Hill.

Hey, good morning, guys. I wanted to maybe just take a step back. I think what a lot of us are trying to get our arms around is when the headwinds begin to inflect. And so from your perspective, as you think about the drivers of rent growth in your markets, is it really a job growth inflection? Is it getting people back to markets like New York City that moved away because of COVID-19? Is it just rents resetting to a lower level? Can you just walk me through what you think from a macro standpoint are the biggest drivers of an inflection in rent growth?

Hey Rich, thanks for that question. I guess as we think about it it's pretty predominantly related to the public health emergency. So let's spend a moment together speculating on how that might play out and that's all this is, meaning there is good reason to believe the virus will get worse. I think there's good reason to believe the vaccine will become available, especially to health workers and people that are more at risk over the next few months. And then slowly all the rest of us will get that. So you will head into the spring leasing season maybe with some positive signs on the COVID front. I mean one of the reasons you're hearing a lot of caution from us is we've got this elevated demand, which we like. We've got elevated inventory but we're also heading into the quietest time of the year. So we need to be really thoughtful about our seasonality. So not only are we fighting COVID, we're fighting seasonality. Right now we're bucking the seasonality. We're doing really well on leasing. The team's doing a great job. Rates are still suffering but what we would hope would happen just as you think about headwinds to us the most predominant headwind is COVID. Because on job growth, our resident base from what we can tell didn't lose their jobs. That was—unfortunately—people in some of these service sectors, in hospitality business, things like that and that is in our resident base. So I think a lot of our residents are well employed. They just don't care to live in some of these urban centers right now when those centers are disengaged and aren't as much fun to live in. And I think that a great number of those folks will come back. And the new crop of people—the people that graduated from MBA programs, from technology programs and want that city experience—those folks will still want it, because that younger demographic that we mostly cater to balances safety I think and engagement and entertainment differently. And I think they'll be eager to come back if the cities are a reasonable facsimile of what they were before. So that's how we're looking at it. It doesn't mean we're guaranteeing things are better in the spring but we're saying that the next quarter or so, we're dealing with the seasonal decline in demand as well as whatever the virus brings us. And that makes us a little more concerned.

I think that makes a lot of sense. To summarize it sounds like a good old-fashioned supply versus demand technical. And as demand begins to increase as people move back, hopefully that will lead to an inflection. Is that a correct characterization?

Sure. And the comment in the press release that I made about things rolling through the financials I just want to make sure everyone understands, it isn't necessarily that things will keep getting worse and worse and worse. It's more that whatever is happening in the rent roll now takes a quarter or so to manifest itself in reported numbers. So what will happen first is on some call in the future in some press release, Michael Manelis will tell you things have started to get better. Occupancy is firmed up. Concessions are declining. Maybe rate isn't moving yet but that famed second derivative is going in the right direction. So you'll see it in what I call the management accounting numbers before you see it in the numbers that Bob reports to you for same store revenues. So that's what we're trying to highlight. Because again we've got a pretty new group of analysts frankly on these calls. A lot of investors aren't as familiar. It's been a while since we've had a downturn. So we're just trying to make sure everyone understands how that works in the apartment business.

Yes. That's very clear. Thank you for that. Just a strategic question. And maybe it goes back to one of the earlier questions and I do very much appreciate your commentary about why you don't want to buy back stock. I think that's generally not the right thing to do in markets like this. But your stock is trading at a pretty meaningful discount to private market valuations, particularly against the backdrop of low global yields. There's a lot of money on the sidelines to invest in commercial real estate. Private equity seems to be making a big push in the commercial real estate, particularly for stable cash flow assets with strong secular tailwinds. And that all sort of relates back to the apartment sector. So I guess my question in a very long way is, is there a scenario valuations were to stay here for another six to 12 months, where you would seriously consider either a significant JV with a private company or maybe just say, hey look, the best thing for our shareholders is to take ourselves private? I recognize that's a big check and there's a lot of friction costs and I'm curious how you think about that.

Well, there's one thing you said I want to latch on to. You said the interest of PE firms. And generally, the private folks with investment dollars are very interested in the apartment sector. And you used the word stable. I would say half our business is pretty stable. A third of it in the urban centers outside New York, Boston, San Francisco is okay, but marginally weakening and then a quarter of our business is having a tough run of it. So I'd say that when you think about the buyback—and when you think about any other action or interest from PE firms—there's going to be a lot of interest in the New York portfolio at the moment. That portfolio needs to find a floor on rents. It needs to have some enthusiasm and excitement in the urban center again and people moving back in. Then you'll get a floor under that. In terms of taking a company this size private I mean that's obviously a matter for the Board to consider, not for me alone to determine, but I think it's way too early to start thinking about things like that. And I would expect that at some point again when the operations of the company, especially in the urban centers feel a little more stable, we'll feel like a larger menu of capital allocation options are open to us. At that point, there'll be conversations with the Board about things like buybacks again, and other conversations. For now, I think the best thing to do is to run the portfolio hard and stay super flexible. And that's the right thing to do.

All right, guys. Thank you. Keep up the good fight.

Thank you.

From Bank of America, we'll hear from Jeff Spector.

Great. Good morning. First question—on markets—I appreciate your comments on knowledge-based economies and your positioning in these different cities. Just to confirm, are you saying that you and your team are not more concerned today about any of the markets you're in for example San Francisco downtown or Seattle downtown and that you're happy with your positioning?

What I'd say about our positioning is the COVID virus, the whole pandemic, has just accelerated a bunch of trends. And among those is just the dispersion of high-wage job growth outside the coastal centers where they used to be predominant, okay? So we have talked about adding exposure in Denver. We've talked about potentially going into Austin. There are other markets that at the right time we'll talk about with you as well. So I think you can expect that we will spread our capital around a bit more over time because I think those jobs have moved around for a lot of different reasons Jeff. I think some people just want different lifestyle. Some folks are looking to get away from maybe some tax or political concerns that they're worried about. But I would say for the most part, our residents when you look at where affluent renters and the knowledge industries are—San Francisco still has a lot of advantages as a technology center. New York still has a lot of advantages as both the technology and financial services center. Boston and the biotech in Cambridge and biotech and financial services. So—but there are other markets that are of interest. So I would say in terms of our positioning right now I'd tell you I think we will continue as we've said since 2018 to add exposure in dense suburban areas where we can find affluent renters. And we'll follow our affluent renters to places like Austin and Denver and we'll continue doing that. So you should expect that we'll continue to broaden the platform out and continue to react to that and react to things like political risk in some of our markets. But there's no risk-free apartment market. Some of the markets that you might move into have had in the past very significant supply issues and don't have as big a base of high wage apartment renters. So there's a balancing act as you enter each of these markets.

Thank you. And my follow-up question is on New York City given that is one of the weaker markets. And I believe in the earlier remarks you talked about a lot of those renters leaving for New Jersey. I live in New Jersey and I could say, I don't think many young people want to live in New Jersey. So I take that maybe as a positive. I mean when you do your exit interviews are these 20 to 30 year-olds moving back home with the parents temporarily? I'm just curious if there is any signal that with a vaccine this could be a nice boost to the spring/summer leasing season for 2021?

Yes. So, I guess, I'll give you just a little bit of color on—like I said in the prepared remarks we're definitely seeing an increase in those that are leaving the market. So we used to have about 50% leaving locally. Now it's about 70% leaving the state. New Jersey, Connecticut and California are the top three states where those that do leave are going to, with suburban New Jersey being where the majority of them were going. Anecdotally from our doorman and the concierge in the building regardless of the demographic, whether it's young and going back with mom and dad, whether it's older, a lot of them basically are telling the doorman and the concierge they will be back. And they will be back as soon as we get to the other side of this pandemic. So to us that's the positive sign that we have that the renter base that we had will return. It's just a matter of when they're going to return.

We'll hear next from Anthony Paolone with JPMorgan.

Yeah. Thanks. Just two, I think, bigger ones. One is just to understand in California, if you're offering a resident free rent and then next year, they renew does that— is that impacted by the CPI plus 5% regulation, or does that only affect the face rental? Like how does that work?

I'm not sure we have that answer for you right at the top of our fingertips. I mean, CPI is often driven by housing in some of these places. So that is going to be approaching an 8% number under the California rules, which is a one-month concession at least. So I don't know the answer to that off the top of our heads.

All right. And something like San Francisco where you give someone two months of free rent, when they renew does that rule kind of inhibit the ability to take those two, three months out?

I don't believe so. I think concessions are going to be excluded from that calculation and if you held somebody's rent flat or you actually raised their rent up. But again I'm not 100% positive of that.

Okay. And then just second one, just given the hits and rents in the portfolio how long do you think it takes, or what are the prospects to maybe do something on the property tax side?

Yes. So, I think, it's going to be a little bit of a laggard on the property tax side. Right now, we're kind of beginning or prepping for those conversations with every local jurisdiction, but it tends to run on a lagging basis. You probably won't see anything or any kind of relief at least until 2021 or maybe even into 2022 based on prior experience. It's going to be that argument or that conversation about what jurisdictions are doing on the rate side relative to what they're doing on the assessment side. We're very used to this. We've done it for years and we will have those conversations. So far we haven't seen much activity, but it's really just the nature of when the actual assessments or new rates and all that comes out depending on the jurisdiction.

Okay. Thank you.

We'll hear next from Rich Anderson with Sumitomo Mitsui Banking Corporation.

Very good. Good morning. So, it sounds like from a geographical pie chart, you kind of have some ideas about what the company might look like in the aftermath of all this down the road. But I'm wondering if anything that has happened operationally has opened your eyes to processes within the organization—whether it's resident selection, credit process—that maybe is a cleansing event, if you will, for the future of Equity Residential. Do you see any changes in how you run things as a result of what you've seen through all of this?

Well, I think, early on and we talked about this on the last quarter, we saw that the exposure from corporate providers was small to begin with—about 1.5% of the portfolio. We're now down 50%. So we have fewer than 600 units right now with corporate providers. So I think one of the early lessons I learned is, yes, we'll probably keep that at a pretty low number throughout the portfolio. I don't think we'll bounce right back. Or if we do, we're going to have really large security deposits on hand from those kinds of folks. Operationally, other than that, I think the biggest thing that this did is it created a catalyst for us on our sales process. And it has shown us how fast we can move to virtual leasing and how fast we can move to self-guided tours and still be able to produce pretty strong application counts. So I think operationally you're seeing us adjust that way to shape the business on the sales side. And we're getting ready to deploy our new sales application this next month that's going to bring mobility to the sales teams and allow us to have multiple assets covered by individuals. So I think those are probably the biggest takeaways that I've had on the learnings of these.

Okay, great. And the second question, maybe for Mark, and I don't know if we—the best analogy might be back to 9/11 in New York. Do you have a recollection of how quickly the bounce-back happened and if there's anything about that period of time that can be fast forwarded today? Because they both kind of share a similar sort of fear element to it. And I'm wondering, if that is guiding you at any way, shape or form in terms of how things might progress when we do kind of get a vaccine or some sort of therapy in place.

It's a little anecdotal for us, because though we've owned for a while in New York, we really didn't own right then. So what we know about what happened then is mostly from our people who did work at other apartment companies or our contacts that lived in the market. New York is definitely trying to get up off the mat. If some progress can continue to hold on the virus, people want to go back. There's a special feeling to the city. People are there. There's a lot of interest. Our volume in New York is higher proportionately than anywhere else. It's just the rate is low. We just need even more demand to make up for folks that have made the decision to move temporarily to New Jersey or whatnot and come back. So I'm probably a little less concerned with New York than I am with San Francisco, where a combination of work from home and quality-of-life concerns and the general feeling around that—those properties in San Francisco feel probably a little more concerning to me in the medium term. I think, again, as long as the pandemic by the spring starts to wane and we have it under control, I think people want to be back in New York. And that will happen. In San Francisco, I just think it might take longer frankly.

Yes. Okay, great. Thanks Mark. Thanks, everyone.

Hey, thanks, Rich.

We'll hear now from John Kim with BMO Capital Markets.

Hi. Good morning. Mark and Michael, you mentioned that safety, social unrest and the lack of social engagement activities are impacting apartment demand. Unfortunately these have been very politicized issues in many core cities. I was wondering, are you working with any political or business organizations to encourage the reopening of offices or restaurants or other businesses?

We have significant engagement through our trade associations on all sorts of things. I don't recall being specifically engaged related to reopening restaurants. We're certainly big supporters of the idea that the partnership for New York put out in their letter of getting the cities running again and being on top of everything from sanitation to all the transit and the things that make cities fun and livable. So our answer to that is, we're not involved day-to-day in that, but the trade associations we support are involved in those things. And we support the bigger groups of citizens, leaders and companies that are pushing for being a little more balanced here and for political leaders to take into account these business interests.

You mentioned on prior calls that moved out to buy a home was around 12% and I'm wondering if that's changed at all with the homeownership rate spiking up to 67% earlier this year.

Yes, it actually ticked down this quarter. So we're just below 11%. We saw a nominal pickup in the Southern California markets around Orange County and San Diego. But other than that, every market has basically declined about one point.

And my final question is on the bad debt expense. What percentage of that 2% does that represent as far as uncollected rent?

The majority of it—the majority of the 2% growth really, all of it is uncollected rent. I mean whether that's your monthly rent or your utility reimbursement, whatever the charge is to the resident, that's the uncollected amount that's in there.

I missed to ask the question, I'm sorry. What percentage of the uncollected rent—sorry what percent of bad debt expense is—what percentage of the uncollected rent relating to that represents?

John, do you mean on—you're breaking up a little—do you mean rent versus say utility charges or fees? I'm not sure we follow the question.

I'll take this off-line. I'm sorry.

And from Janney, we'll move to Rob Stevenson.

Good morning guys. Just a question on the bad debt there. Mark, you said earlier your tenants weren't losing their jobs. What were the key factors in driving the bad debt higher? For some of the others, it was the elimination of the federal unemployment subsidy. But if you didn't have the unemployment what's been driving that? And is that still accelerating, or are you stabilizing at this point?

So I'd say that it's geographically focused. Some of the bad debt is running higher in places like Los Angeles, which before the pandemic was the area where you probably had the highest or the most constrained rent-to-income levels. So you may have had pockets where you had more gig economy activity. Some people have lost their jobs. We're talking about a pretty small population base in the aggregate of call it 1,100 folks that are in that bad debt piece anyways. So there is some job loss, but for the most part to Mark's earlier point, we think our general demographic isn't really driving it. And I'll tell you, it's been really consistent and hasn't changed much. Mark said in his prepared remarks we had this pocket of how our policy works. But if you look at individual accounts you've had the same accounts, they hit the three-month threshold. They kind of peaked in July. And since then, we haven't really added very much at all to that non-payer bucket. It's actually the same kind of existing group that has just continued not to pay that is there at 9/30.

And I just would add, I mean there's some percentage of our residents who did lose their jobs and that's certainly in the number that we wrote off in the quarter. But there is some of that that's likely behavior-driven and that's something that will work itself out over the next number of quarters. There is no rent forgiveness program at Equity Residential.

Okay. And then, how are you guys feeling about the California vote next week? And is there any of this type of legislation or ballot initiatives in other markets that haven't got as much attention that you guys are worried about?

Sure. So we remain reasonably confident on defeating Prop 21. I think the industry is well organized. Barry Altshuler, who's one of our senior investment guys is the President of the California Apartment Association with other industry leaders. He's just led a really strong campaign to educate people in California that Prop 21 doesn't create a single new unit of affordable housing. It doesn't put anyone who's homeless into a home. All it does is discourage investment in our markets in housing. So I think we've made a good case. Things have changed in terms of the way the vote will be tabulated. It wouldn't surprise us if it continued past the actual election day, but we feel pretty good about it. There was a good poll in one of the Southern California papers on this as well. So at this moment, we're feeling reasonably confident, but it's a presidential election year. A lot more people will be voting than voted in 2018 and we'll keep making our case to the people in the state of California all the way through November 3.

Okay. Anything working its way through the legislature in New York or Massachusetts or elsewhere in California?

We'll do a quick survey. Washington state, they're going to have their legislative election. There's been some discussion there about a California-style rent control, meaning a CPI plus vacancy decontrol approach. The industry continues to talk about that with them. There's some real downsides to that approach, but we're engaging in that conversation. As you go across a little less pressure in Massachusetts, certainly New York has its own set of elections in a week and we'll see what that ends up being. I would imagine there's always things to talk about in New York, but there isn't anything on the hopper. And as I understand it the general assembly isn't in session. So we don't need to worry about that at the moment. The D.C. city council is considering various rent control measures, a few of which are highly negative. We don't think those are likely to go through. We're having constructive conversations there through our trade association. So there's always things that we're looking into Rob and we're always out there supporting. We have a pretty active engagement with policymakers and when it's a ballot proposal with the whole electorate on this stuff. Usually, once you have the conversations and explain what's really going to happen, the emotional satisfaction of rent control usually fades away because it doesn't work. Academics tell you it doesn't work and the market experience shows it doesn't work. We try and talk about ways to improve zoning and create private incentives so that more affordable housing gets built. That's really the focus.

Okay. Thanks guys. Appreciate it.

We'll hear now from Haendel St. Juste with Mizuho.

Hey. Good afternoon here, good morning to you. Hey, Mark. So I guess first question—curious on your views on the extension of eviction moratoriums here in California and New York recently. How much of a risk do you think that poses indirectly and directly to apartment portfolios and your portfolios in those markets?

So we're fortunate with these eviction moratoriums in having a high-quality resident base. Our people appreciate the service we provide, and many residents have described positive experiences with our on-site staff. So a lot of our people pay and that's not a problem. In terms of the eviction moratoriums, which have been tough on many more affordable landlords, I think the right answer is what the industry has been pushing—our trade associations' proposal is the idea of putting more cash in the pockets of renters so they can pay their rent. The idea of putting this loss entirely on landlords and breaking the residential housing system in the United States is a terrible idea in the long run. I think the answer is, if the need is great then taxpayers have to shoulder that burden. Congress needs to appropriate the money, the President needs to sign the law and the money needs to go either directly to landlords or to residents who are in need so they can make their payments. Landlords, in turn—EQR for example—our biggest single expense is $400 million a year in property taxes. That in turn supports first responders in municipalities as well as our payroll costs and keeping our properties up. So it's about having that conversation with people and explaining the connected ecosystem. For EQR it hasn't been a major issue yet, but in the long run these eviction moratoriums are a very poor policy. I think they become less and less justifiable as time goes on.

I appreciate the thoughts there. Second question—I guess you had earlier said that New York could return to positive same-store NOI territory and at that time many investors were expecting NOI to continue to decline into early next year with the trough in New York City not occurring until spring and maybe middle of next year with a positive return potentially by the second half of 2022. Now since that July call operating conditions have remained or gotten more challenging with concessions more prevalent. Is it fair to assume that timeline to positive same-store NOI is now shifting to 2023, even if we get a vaccine and the pandemic starts to wane next spring, given the level of concessions being offered and the size of the hole you're climbing out from?

That's a lot in that question. I'm hesitant to give you guidance. We don't have formal guidance and it's impossible with the public health emergency to predict quarter-level timing. But I'll be clear about this: on the rate side it takes a while for it to go negative and a while for it to go positive. Occupancy changes, however, can be more immediate. We have buildings that are occupied in the high 80s that are very desirable and if New York becomes New York again and people move back, that improvement in occupancy will be immediate and will flow to the top line and to NOI. So rate recovery takes longer, concessions take time to remove and rates to move up, but occupancy rebound can be fast. Right now the portfolio was running 97% and this morning we're 89.9%—call it 90%—so you could make up seven points in occupancy if the city became the city again pretty quickly. Which quarter that occurs depends on when the virus gets better. I'm not predicting when that will be, but there is an occupancy opportunity for us.

Got it. And last one if you'll indulge me—the obligatory political elections question—what perhaps the implications of a potential Biden victory would mean for coastal markets like New York, San Francisco, Boston and the CBD portfolios there? How would you view the odds of perhaps direct stimulus after the election and maybe balance that against perhaps a rollback in some of the mortgage tax deduction ceilings that we put in place during the Trump tax cut? At a high level curious on your views on what a potential Biden victory would mean and perhaps some policy initiatives that could play out and what that means for your portfolio?

Because that also depends on who controls the Senate and whether the House stays where it is now it's hard to speculate. I think it's pretty well understood the programs being discussed. Some positive immigration policy changes would be helpful to us. More regulation would generally not be positive for us. Taxes changing may create more or less economic growth. EQR isn't particularly a dog in this fight and I'm hesitant to get involved in detailed speculation. The mortgage tax change you mentioned wasn't a big impact on us before when they took it away, so I doubt it will matter much here. I do think a stimulus package after the election is likely because once the election is done politicians will see the economy is fragile and will act. So I'm sort of expecting some stimulus to happen after the election. That seems like the common expectation regardless of who wins.

Got it. Thank you for your time and I will look forward. Thank you.

And we'll move on to Alexander Kalmus with Zelman & Associates.

Hi, thank you for taking my question. Digging into the applications, what does the credit quality look like versus history? And how does the conversion process from application to lease compare? Are you seeing a price bid-ask spread of any kind?

We do not change our underwriting criteria at all. Applicants coming in are screened against the gross rent regardless of concessions. We haven't seen a material shift in the affordability index, which is rent as a percent of income across any of our markets, where we range still between about 17% and 23%. Typically you would have foot traffic and about 25% of those convert into an application. That closing ratio has been fairly consistent. We had a little bit of a change when we entered the initial COVID period, but right now it's fairly stable. We're not seeing anything from a quality standpoint that concerns us among applicants.

Got it. Appreciate the color there. And then looking at a little different question—are you hearing of any conversions from hotels or offices or even retail into new apartment buildings in urban centers?

Yes, there has been some discussion, particularly in Southern California, about repurposing hospitality plays and strip retail into residential. We've also been involved with shopping center owners considering repurposing out lots. So there's a fair bit of conversation on that, particularly in Southern California.

Got it. Thank you.

We'll go next to Nick Yulico with Scotiabank.

Thanks. So, just a question on the urban core, it's helpful you guys break out the occupancy now. Do you have any stats on—if we look at the drop in occupancy that was very visible in the urban core—how much of those renters stayed in the market versus left the urban core? Do you have any sense on that?

I shared a little about that earlier. In New York we've seen an increase in those leaving the MSA, and both New York and San Francisco probably saw the most pronounced increases of those leaving the metro area but staying nearby, moving to markets with more suburban properties. So you did see a significant increase in those leaving those downtown areas to nearby markets.

Okay. But you don't have any specific stats you can share about that? Because you've framed this as an issue where occupancy is a problem, because people are leaving the urban core. How are you sure that you're not just losing out to other properties? Do you feel like you are competitive right now with your concessions or is some of this occupancy drop happening because residents are going to other properties that are offering even bigger concession packages?

I would say some residents do leave and go to other properties, but our renewal process is set up to handle those negotiations both on site and through our national call center. As soon as someone gives us notice we reach out to see if there's anything we can do within reason to keep them. For the most part this is not a simple rate play. There are certainly instances where someone leaves us for a slightly better concession at a competitor, but that's a small percentage. The increased volume of applications we're seeing is a good indicator of our competitive pricing. If we weren't competitive, we wouldn't be seeing the new leases coming to us.

We'll hear now from Alexander Goldfarb with Piper Sandler.

Thank you and good morning out there. Two questions. First, one of my peers asked earlier about the ability to reassess on the property tax given the drop in NOIs, but that takes time. You guys have been efficient on OpEx and on the G&A front, but as you look at rent declines do you see an ability to offset some of that on the expense or G&A side? Or have you gotten so lean and on the capital markets side refinanced so much debt that there's not much additional you can do from either cost or interest expense side?

We're going to split that up. On the operating side, you'll see in the quarter that G&A and property management—our overhead categories—were down in the quarter. You should expect that to continue. We're responsive to the fact that cash flows are down and overhead needs to follow that. There will continue to be adjustments in that regard. We're not sitting on a lot of unused headcount, but we'll be responsive in bonus compensation and efficiencies like remote leasing. So you should expect us to remain relentless in managing overhead.

On the balance sheet side, Alexander, we have the $750 million maturity in 2021 that carries a 4.625% coupon. We could refinance that today on a 10-year basis at roughly 2%. There's still positive arbitrage between refinancing activity going forward. That exists when you look at our maturity schedule—not just in 2021 but in 2022 and 2023 as well—despite the fact that we don't have a ton of debt maturing beyond that.

Okay. And then the second question: you mentioned in your earlier remarks that political risk has changed in your markets. When you originally looked at your current portfolio and all the factors that drove you into these markets, do you feel those original trends are still there or have political and affordability changes caused you to reassess your positioning? Might you want to position differently over time?

I don't think we're just going to wait. Political risk has changed; there is a bit of a bias against landlords and more regulation in certain markets. Some of the markets were chosen because it was politically difficult to build—politics created a supply constraint that was attractive. Over time there's been more of a regulatory mindset that's challenging. One of the reasons we spread capital out and invest in dense suburban areas is that much rent regulation is local. You might want to be in a metro but not necessarily the exact center. Expect us to continue responding by spreading and going into metros that may be friendlier politically. We also watch municipal fiscal situations, which are concerning in some markets. When buying or developing an asset, we underwrite the locality, the county, and the state to assess long-term risk as a potential permanent owner.

Okay. And one final if I could—on tenants taking advantage of optionality to not pay—are those tenants who are not paying now mostly out, or do you still have residents living rent-free?

We believe in the sanctity of contract both ways. There are some residents who haven't paid and we continue to monitor and pursue those situations. Some haven't communicated with us. We'll have conversations to see how we can help, but there is no rent forgiveness program at Equity Residential.

And from Baird, we'll move to Amanda Sweitzer.

Great. Thanks for taking my question. Wanted to follow-up on some of your election comments. You guys evaluated all the potential benefit to your portfolio from immigration reform? Do you have any data on what proportion of your residents are skilled immigrants or which of your markets may benefit the most from immigration reform?

I can give a bit of backdrop. Last year around this time about 7% of our applications were coming from residents outside of the United States. At present, we're down to about 2% for the third quarter of 2020. Changes returning immigration levels to prior levels would be a catalyst for recovery in major markets where we're feeling pressure, like New York, San Francisco and Boston.

That's helpful. And were those 7% of applications concentrated in particular markets or widely distributed?

They were concentrated in major markets—the biggest changes year-over-year were in Boston, San Francisco and New York.

We'll take a follow-up from Nick Joseph with Citi.

Hi. It's Michael Bilerman here for Nick. Just two quick questions. One, Mark you talked a little bit about how taxes play into your ability to sell substantial assets and do buybacks. One of the public apartment peers did a large joint venture and also did a spin-off. Can you talk about whether either of those would work for EQR? And if not, why?

Most joint ventures when you're keeping cash and you're the minority seller create gain unless you do a lot of structuring. Doing a JV is a great way to prove value, create diversification and get new capital. But in terms of a way to sell an asset it's not fundamentally different from selling it outright. If a JV partner wanted to provide better price and terms, we'd be interested. We're open-minded; we've done JVs before. But getting cash out and buying stock back in size is complicated and can create tax and special dividend considerations. So we'd consider JVs at the right price and terms but wouldn't rush into something just to repurchase stock.

And then specifically on spinning or doing something to effectuate an increased tax basis, does that have any traction with the Board or with you, or does it just not make sense?

Every company has different goals, but generally the way I've been taught is not to pay taxes earlier than you need to. There isn't a desire on the part of our Board to create a taxable event just to provide more flexibility in selling assets. If we need to address that we can do so on an as-needed basis. We did do a special dividend before when it made sense. I'd rather address capital allocation when required rather than proactively triggering a tax event.

Okay. And then, just lastly on the application data—you gave helpful detail splitting up the portfolio. I assume the increase in applications is also a matter of increased available inventory right? Because people won't apply for apartments that are fully leased. You have about 80,000 units and almost 5,000 of them are vacant today. You talked about that 1,100 in bad debt. Do you have historical numbers behind those percentages and how coincident or lagging they are so we can use applications as a leading indicator for occupancies moving up?

At the total portfolio level, applications in the third quarter were around 12,700 versus 10,700 last year. There is seasonality—applications peak in June or July at 4,000 to 5,000 a month and drop to 2,000 or so a month in November and December. Think of applications as an indicator: they're a forward signal of move-ins. We needed applications to be running 120% to 130% of last year in Q3 to hold occupancy. Retention improving helps take pressure off the front door, but if retention remains at just over 50%, we will need applications running well above prior year to maintain occupancy.

That's a great point about the virtuous cycle. The beginning of improvement starts with retention improving and applications holding. We will try to be clearer with historical trends in our communications. You have two cycles at play—the seasonal cycle and the economic cycle—so sometimes applications can decline month-to-month but still be well above where they normally would be seasonally.

Gentlemen, at this time, I'd like to turn things back to you for closing remarks.

Well, we thank you for the interest in Equity Residential and for sticking with us on a long call. We wish everyone well. Thanks.

That will conclude today's conference call. Thank you all for attending. Everyone is now disconnected from the call.