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Equity Residential (NYSE:EQR)
Q4 2020 Earnings Call
Feb 11, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Equity Residential 4Q '20 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Marty McKenna, Investor Relations. Please go ahead, Sir.

Marty McKenna -- Vice President of Investor Relations

Good morning, and thank you for joining us to discuss Equity Residential's fourth quarter and full year 2020 results, and outlook for 2021. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer and Bob Garechana, our Chief Financial Officer.

Our earnings release, as well as the management presentation regarding our results and outlook are posted in the Investors section of equityapartments.com. 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'll turn the call over to Mark Parrell.

Mark J. Parrell -- President & Chief Executive Officer

Good morning, and thank you all for joining us today. I want to start by thanking all 2,700 of my Equity Residential colleagues across the country, for their dedication to serving our 150,000 residents during a very difficult year. Your commitment and hard work got the company through 2020, and I know you are ready to drive our recovery in 2021.

Today I will start with some color on the current state of our business, and its future prospects, then Michael Manelis, our Chief Operating Officer will provide an operating update and Bob Garechana, our Chief Financial Officer will provide detail on our guidance expectations and then we'll take your questions. We also posted to our website at equityapartments.com a management presentation that provide some background on both current operations and our guidance expectations.

Turning to the business, we are encouraged by the recovery in demand in all of our markets, and especially in our urban sub-markets. In real estate demand is the unsolvable problem, without it no other economic factor matters, and in our business both urban and suburban, we see plenty of it. As noted in the presentation and release, applications, net moving activity and occupancy have all turned upward, especially over the last two months. This positive trend in spite of a worsening pandemic, and renewed shutdowns in our markets gives us even more of a cause for optimism. If demand is this strong now, we think that when the vaccines are more fully distributed, and cities reopen our business will really hum. The fact that this is likely to coincide with our traditional leasing season with its higher seasonal demand, positions us especially well.

Admittedly though, pricing remains weak, but there are signs of the beginnings of improvement. As we noted in the presentation, pricing trends have turned up over the past few months, led by our Urban Core markets of New York City, the city of San Francisco and the cities of Boston and Cambridge. We also see declining forward concessions. With occupancy firming and strong demand going into our busiest time of the year, we believe that we can recover considerable ground on the pricing side as 2021 plays out.

While we see signs of recovery, our current results reflect the still challenging climate in many of our markets. You may remember that on prior calls, I made clear that the impact of lower rents and higher concessions in 2020, and currently will take some time to fully manifest itself in our reported numbers. That impact arrived in the form of our fourth quarter 2020 same store revenue results, as we continue entering into new leases, and renewing existing leases at lower rents, reflecting the post-pandemic leasing climate, as well as amortizing concessions from leases written in 2020.

But just as our reported results lagged our actual operating environment on the way down, they will also lag it on the way up. So you should expect relatively weak same store revenue results in the first half of 2021, with a marked improvement in our revenue numbers in the second half of the year, as we benefit from improving pricing, higher occupancy, and lower concessions, plus easier post-pandemic comparable periods. The interplay of our expectations of increasing occupancy, pricing that is improving, but will be lower than last year's pricing until mid-year or so and the amortization of 2020 and '21 concessions, creates considerable modeling complexity for us, and for our investors and analysts. Because of this more complex picture than usual, we thought it was particularly important that we reinstate guidance to give investors a better idea of management's view of the year.

Our guidance is at the wider than usual range to account for the multitude of factors, both positive and negative, that may impact our business in 2021. While I certainly acknowledge that the pandemic has created unique challenges, Equity Residential's same store revenue growth coming out of recessions is typically recovered quickly with us posting strong numbers, and I see no reason that will not occur again once the lagging impact of concessions, and some of the other factors I mentioned abate. All of this is of course premised on the continuing progress in controlling the virus, and an assumption that other general economic conditions remain supportive.

Turning to the long term, we believe that the fundamental factors that have long made Equity Residential an attractive place to invest your capital remain just as true now as before the pandemic. First, our capital is invested in markets that will continue to be the centers of the knowledge economy, that drives the growth of this country, centers of Innovation and Technology, Finance, Entertainment, Medicine and Life Sciences. Even in the pandemic, we have seen announcements of new high quality jobs in our urban centers like Amazon's announcement that it's putting 3,000 new technology and software development jobs in the Seaport District of Boston, and with the recent commencement of construction on Disney's new building in Hudson Square in New York, that will lead to a significant influx of new content creation and technology jobs. And while the remote work trend may change the number of days that we are in the office we are by our nature social animals. Our need to interact with each other, to create, to share ideas, to manage our businesses and to start new ones is not being met by meetings on a video screen.

Second, we believe that the entertainment, cultural, and social attractions that fill the great urban centers in which we operate, will soon reopen, and will again prove to be magnets for affluent renters. We believe that many renters desire both the work proximity I just mentioned, as well as easy access to the amazing entertainment, cultural and social opportunities our cities will provide once they are reopened, not to mention the ability to live in an exciting, dynamic, and diverse community. Our residents that live in our more urban properties do so because they value the lifestyle of our country's great urban centers.

Third, we have a highly skilled, affluent customer base able to afford our rent and to accept future rent increases as conditions improve. Our residents are well-employed in growing industries like technology, biotech and new media. Industries that we also think are less susceptible over time the job loss, from increasing waves of automation, and offshoring. In the pandemic period overall unemployment rose to almost 15% and is now around 6%, while job losses for those with the Bachelor's degree or better, which is our target demographic peaked at 8.4% and is now gone down to 3.8%. Our resident base proved its quality again in the fourth quarter, as we collected 97% of our expected residential revenues. We think the quality of our customer base is over the long haul one of our greatest strengths.

Fourth, the superior location and quality of our portfolio makes our properties attractive places for our residents to live, and also makes our properties attractive places for private investors to invest their capital. This makes our properties liquid, and appreciating over the long-term. Capital has long been drawn to the higher quality properties we own, and that will continue to be the case, even in markets like New York and San Francisco, once the pandemic abates. We also believe that the lower long-term capital spending required to maintain our properties and income stream compares favorably with that of older lower quality apartment buildings. But our portfolio can always be improved and you should expect us to be more active recyclers of capital over the next few years.

As I have said on prior calls, even before the pandemic, in order to create the most stable and growing cash flow stream possible for our investors, we are inclined to further diversify our portfolio in the higher-end suburban locations in our current markets, as well as into a few select new markets with favorable long-term supply and demand characteristics, and a growing affluent renter base. These affluent renters are found in abundance in our existing markets, but there are also increasing concentrations of them in denser suburbs near city centers of our existing markets, and in places like Denver, which is a market we reentered in 2016. You've seen us do this over the last few years, as we have acquired properties in suburban Seattle in Washington, D.C. with strong resident demographics. We are looking hard at several other suburban assets, as well as development and acquisition opportunities in Denver, that we find appealing long term. We will fund this by lowering our concentration of assets in city centers in our existing markets, and by exiting assets elsewhere that do not meet our return parameters.

To close, we have the best team in the business, ready to maximize results as the pandemic ends, and a sturdy balance sheet that gives us ample flexibility. We are tremendously optimistic about our company's future, because we believe that the markets in which we operate will thrive when we get to the other side of this pandemic, and with the rollout of vaccines we are on our way.

I will now turn the call over to Michael Manelis.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Thanks, Mark.

So 2020 has been the most challenging year that we have faced in our business. So let me start by thanking the entire Equity Residential team for their continued dedication and hard work throughout the year. Working together we got through 2020 by serving our customers, taking care of each other, and driving the best results possible given the circumstances. Despite the challenges we are excited that 2020 is behind us and optimistic that 2021 will be a year of recovery.

As Mark mentioned, we have begun to see improvement in both Physical Occupancy and pricing. Notably, this is the first time this has occurred since the beginning of the pandemic. We continue to test price sensitivity in many markets by reducing both the value and quantity of concessions being granted, and beginning to raise rates. In November, concessions averaged just over six weeks free on about 45% of our applications and recent weeks concessions have averaged just under six weeks and only about a third of our applications. All that said, it will take some time to fully recover from the unprecedented events that have occurred, particularly in our hardest hit markets. While we are optimistic about the recovery, it is hard to handicap its pace, especially in New York and San Francisco, our hardest hit cities.

On Page 3 of the earnings release and in the accompanying management presentation, we have provided some key performance metrics broken out by our Urban Core, Urban Other, and Suburban portfolios. I will not walk through all the specific metrics in the presentation, but I do want to highlight some of the performance indicators we remain focused on.

So first, demand. Demand continues to be robust and has carried us through much of the winter season with increased move-in activity, well above seasonal norms. Application count exceeded 2019 levels by 25% in the fourth quarter and we were able to generate sufficient front door activity that have move-in, outpace move-out despite higher turnover compared to the 2019 record low level. We haven't seen this net gain and move-ins since the onset of the pandemic. Applications have remained robust in January albeit below December's levels but that isn't surprising since improved occupancy has allowed us to start testing pricing and we have fewer units available to sell.

Turning to pricing. The chart on pricing trend, which includes the impact on concessions is a good indicator of where rents are headed and it has been improving across both the urban and suburban markets for the last eight weeks or so. Blended rates, which combines new lease changes and renewal rates achieved, will continue to be negative for some time as this metric compares new leases written or renewed with those that were before the pandemic began. That said, the rate of change of Blended rates has flattened and for the first time, we have seen modest sequential improvement in new lease rates which is helpful. We continue to experience negotiation pressure on renewal rates and we are still renewing residents who signed leases pre-pandemic. We have found some stability in the percent of residents renewing, which stands at approximately 52% in January, we expect that to improve to around 54% for February and March, which is still below our usual retention rates for this time of year.

Before moving to market commentary, I want to summarise that while the operating environment remains challenging, we continue to see good demand for our product and we are starting to see early signs of pricing improvement. We have a long way to go, but recovery is in sight. Now let me provide some brief market commentary. Starting with Boston, strong application volume and improved retention through the fourth quarter resulted in steady gains in occupancy to position us to 95.5% today. This market has been dialing back concession use and raising rates consecutively for the past four weeks. At present concessions are being used on about 25% to 30% of our applications and averaging right at six weeks, which is compared to 50% use back in November.

Going forward, we expect modest improvement in rates but acknowledge that a full recovery will require additional demand drivers, like the Amazon jobs, Mark mentioned in his remarks, to aid in the absorption of the new supply that is being delivered currently and anticipated through the year. Long-term demand drivers remain positive with a very bullish outlook for biotech and pharma space fueling job creation. At this point, it is hard to forecast exactly how some of the traditional demand drivers associated with Boston play out, notably students, both domestic and international and the jobs that support that infrastructure. We expect to have a better view on these by late spring, early summer before the fall semester.

Anecdotally, I will tell you that January did see a few applications from foreign addresses, which we haven't seen for several months. Boston will have its challenges in '21 but its performance over the last two months has definitely improved. In 2021, we look to regain more occupancy, which will allow us to then recapture some of the rate we lost last year. New York continues to feel the outsized impact from the pandemic, but there are early signs of recovery. We recently had our best traffic week in the last 12 months and our best leasing weeks since August. Leasing activity is still driven by deal seekers and interest city movers, which is running about 10 points higher than normal. We still see move-outs to the suburbs in New Jersey and Connecticut, but that number is normalizing. Occupancy has improved in the market and is just above 91.5%, which is the first time we have been over 90% since September of 2020.

Some additional color on recent traffic includes that we are just now starting to have former residents reaching out to our property teams contemplating moving back to the city. Like in Boston, we are seeing the first signs of international students and specific to New York, UN workers looking to come back. And finally, we saw a few roommate type prospects emerging from their parents basements. Many of these prospects are looking for late spring or early summer time frames in anticipation of their offices opening back up. We still see a good amount o f deal hoppers and upgraders as well as prospects from the outer boroughs who can now afford to live in Manhattan and many of them are telling our on-site teams they think the market bottom is near and they don't want to miss out. Concessions remain prevalent in this market was 70% of the applications receiving about two months free. Rates are beginning to show signs of improvement and we are just starting to gradually dial back concessions.

For 2021, our focus in New York will be recapturing as much of the occupancy rate as possible while lowering and possibly eliminating the use of concessions. While the market will still produce a negative decline for the year, New York has upside potential given the dramatic declines we saw in 2020. Recovery in this market will be fueled by a lack of competitive new supply, the return to office and the continued growth of the big tech employers in the market.

Moving to D.C. which has been our most resilient market on the East Coast, occupancy remained solid at 95.5%, but the market continues to feel the impact from the delivery of Class A multifamily product, which is not being absorbed as efficiently in previous years. Federal government employment has grown, but the overall job growth has declined. Concession use was up in the quarter with the largest amount focused in the district. The good news, however, is that as fast as concessions came into the market during the fourth quarter, they have now been greatly reduced. Since mid-December we are only using concessions on 15% of the applications and they've been averaging just below one month. 2021 will be focused on balancing occupancy and rate as we faced supply pressure from yet another 12,000 units being delivered into the market. Recent signs of improvement provide us more confidence in the market's ability to absorb the new units and allow for continued rate recovery, which could make D.C. one of our better performing markets in 2021.

Heading west. Denver, albeit a small portfolio for us is holding up well. For 2021, all five of our Denver communities will be included in the same store results. Occupancy is sitting around 96% and both new lease change and renewal rates are improving. Renewals are showing positive growth rates in December and January and concession use is trending down. In Seattle, we are seeing early indications that the bottom may be behind us. Occupancy continues to improve as traffic is up over January 2020 by about 6%, and we are seeing weekly application numbers that are closer to peak leasing season levels. Concessions remain common in the market, especially in the urban submarkets. During the fourth quarter, concessions averaged about six weeks free and about 55% of our applications. Strength in occupancy both at our properties and more generally in the overall market are allowing for a gradual reduction in concessions. We have heard from our Seattle teams that many prospects are less concerned about the monthly rate right now as they are about getting a deal. While current rent freeze restrictions may limit renewal performance in the first half of the year, overall fundamentals for this market support a recovery. Recent home price appreciation and the increase in this quarter's job postings from the technology companies should continue to drive strong demand for our product. The focus in Seattle in 2021 is maintaining the strong occupancy we currently have while pushing rate.

San Francisco remains our most challenged market, but even here there are some very early signs of recovery. Occupancy is just below 94% and has improved 150 basis points since the beginning of November. The Downtown portfolio remains pressured on rate with concessions that average six weeks in the quarter and about two third of our applications. January concessions improved to a one-month average on less than half the applications. Anecdotally, stories from our teams across the Bay are reporting that people who left to go to other areas like Denver and Sacramento are now looking to move back to be near their office or in desirable school districts. The extent of the Bay Area recovery will improve as we get even more clarity on tech companies plans regarding return to office. We acknowledge that work from home will play a role, but we believe an in-person collaboration and much lower rent levels should make San Francisco attractive again. There have been headlines about corporate relocations at a state and clearly, that is not a positive for the market, but it is important to keep reading. The Bay Area continues to attract venture capital and is yet to be replaced as the epicentre of the tech economy. Bay Area tech companies are also feeling a bit more optimistic and their ability to receive H1B visas under the new administration, which could increase demand in this market. '21 will continue to be concentrated in Oakland and in the South Bay. Feedback from our local team was that the recent lifting of the stay-at-home order can definitely be felt in the downtown market with much more active streets and outdoor restaurant seating filled to the new lower allowed capacity levels. These are the first signs of bringing life back to the city. Our focus in San Francisco in '21 is to build back our occupancy, particularly in the downtown submarket, get rid of concessions, and then push rate. While San Francisco will produce a revenue decline in '21, hit like New York has a lot of upside potential due to the steep decline in 2020.

Finally, moving to Southern California, which continues to hold up much better than the Bay Area, despite some pretty difficult pandemic related headlines in the LA area. Our Los Angeles portfolio maintained occupancy above 95% through the quarter, concession use was modest and averaged just under one month on about 20% of our applications. Operationally, the story is similar to the third quarter with continued pressure from new supply in the Downtown, Korea Mid-Wilshire corridor. West LA continues to feel the pressure from the slow restart of online content creation but new lease and renewal rates have shown some stability through the fourth quarter and into January. The suburban portfolio has very strong occupancy at or near 97% and the submarkets of Inland Empire, Santa Clarita Valley and Ventura County continue to experience modest year-over-year gains in rental income. For '21, LA should be one of our better markets. We have recaptured our occupancy, concession use is already been dial back and now our opportunity is on increasing rate and managing delinquency.

I will finish with Orange County and San Diego, which are primarily suburban markets for us and have averaged around 97% occupancy through the quarter. These markets continue to demonstrate resilience and produced higher resident retention then in any of our other markets. Both of these markets are presenting opportunities to increase rates and are expected to continue to perform well through 2021. In closing, we remain optimistic that the early signs of recovery that we now see will continue. And that through '21, we will build occupancy on the back of strong demand leading to improved pricing power. Our efforts over the next several months will be focused on seeking out opportunities to maximize the trade-off between rate and occupancy while ensuring the well-being of our employees and residents.

Thank you. I will now turn the call over to Bob Garechana.

Robert A. Garechana -- Executive Vice President and Chief Financial Officer

Thanks, Michael. This morning I'll focus on our 2021 guidance for same store revenue and expenses along with normalized FFO and conclude with a couple of highlights on our balance sheet before turning it over to Q&A. As part of the release and management presentation published last night, we introduce 2021 guidance after having withdrawn guidance in March 2020 due to significant uncertainties arising from the pandemic. In doing so, we acknowledge how far we progressed toward the end of this pandemic but also recognize that a significant amount of uncertainty remains. As a result, our same store revenue, NOI, and normalized FFO ranges are wider than normal.

Let's start with our full-year 2021 total same store revenue guidance range, which is between -9% and -7%. Note that this guidance is on a GAAP basis since we report same store revenues in the same manner and include the straight lining of concessions as required. In our management presentation, we laid out a variety of scenarios under which we could achieve the top, bottom, or points in between. That said, let me take a moment to highlight the main drivers that will shape revenue performance for the year, along with our thoughts and how 2021 might play out. First, physical occupancy. You heard both Mark and Michael talk about the improvements we are already seeing. We would expect this to continue and that as we get into the second quarter, occupancy should become a tailwind that begin to contribute to year-over-year improvement.

Next, pricing. Much like occupancy, the middle and higher end of our guidance anticipate the pricing improvements discussed to continue both an improved leasing rates and reduce concessions. This positive trend, however, will take a little longer to manifest itself in our reported numbers. For leasing rates, it will take some time, not only to start writing new leases and renewing existing ones at levels above the prior year, but also to reset a meaningful part of the leasing book. The good news is, that not only are we starting to see improving trends, these improvements may gain even more traction in time to coincide with our prime leasing season and resulting in positive year-over-year rates by mid-year.

The other element of pricing that is worth touching base upon is concessions. As I mentioned earlier, we recognized concessions on a straight-line basis as required by GAAP. That means as disclosed on Page 12 of the release, of the $31 million in cash residential concessions granted in 2020, we still have approximately $19 million of unamortized concessions that were reduced revenue in 2021, which is about 75 basis points of same store revenue. Any new concession granted in 2021 will also be straight-lined. So the earlier in the year that the concession is granted, the more of it that will be recognized in the 2021 financial statements. We expect concessions granted will taper off during the first half of the year. But because of the combination that I just described, 2020 unamortized residuals and the timing of new 2021 concessions, this improvement will fully manifest itself in 2021 reported GAAP results.

And finally some thoughts on bad debt. As Mark mentioned, our collections have remained strong and consistent at approximately 97%. We incurred in approximately $30 million reduction in revenues for the fourth quarter 2020 due to uncollected rent. The middle range of our 2021 guidance assumes that this continues with only slight improvement very late in the year. We hope that we can do better than that, but given the regulatory environment, we remain cautious in our assumptions.

In summary, our same store revenue guidance incorporates recovery and operating fundamentals but acknowledges both difficult comparable periods for the first half of 2020 and the reality that it will take time for improvements in the business to show up in our reported results. Specifically, same store revenue performance will be sequentially negative from Q4 2020 to Q1 2021, and likely not improve until the second half of the year. As fundamentals improve, consistent with our expectations, reported results will catch up from this improvement and benefit both sequentially and from a year-over-year comparison basis. We expect same store revenue results in the second half of the year to be better than the first half results and to position us very well for continued growth and recovery.

Now, some color on same store expenses. Our full-year guidance range for same store expenses is 3% to 4%. The drivers of same store expenses remained largely unchanged. The four largest expense categories continue to be real estate taxes, on-site payroll, utilities, and repairs and maintenance. Before I provide you a bit of color on each, I'd like to remind you, the 2020 will present a tough comparison period on expenses given growth was only 2.1%. As you think about how this plays out quarterly, this comparison issue will especially be pronounced in the second quarter since many activities and corresponding expenses were halted in the first few months of the pandemic.

Now a little color on the major categories. Real estate taxes are expected to grow in the mid 3% range, which is slightly lower than prior years. While municipalities continue to be stretched, we are seeing some jurisdictions provide relief on assessed values and that coupled with aggressive appeals activity should help control growth. Perhaps even more pronounced this year than usual will be the timing and success of this appeals activity which may present an outsized impact on where the number ultimately settles out.

Payroll ended 2020 flat to 2019. This is the second year in a row that payroll growth has been less than 1%. And while many of our efficiency initiatives were delayed because of the pandemic, our hard-working on-site colleagues have continued to gain in efficiencies. As a result, 2020 makes for yet another difficult comparison for 2021. By continuing our efficiency initiatives and keeping our eye on the ball, we should still be able to limit payroll growth for the full year to around 2%. That leaves us with the final two categories of utilities and repairs and maintenance.

Both are estimated to have more meaningful growth in the 4% to 5% range. In previous years, utilities benefited from a modest or declining commodity price growth. In 2021, we're expecting higher natural gas prices, which is driving our forecasted growth. For repairs and maintenance, a good amount of the growth encompasses catching up on activities that were delayed as a result of the pandemic, keeping in mind that this expense declined in 2020.

Our guidance range for normalized FFO in 2021 is $2.60 per share to $2.80 per share. Major drivers for the change between our 2020 normalized FFO of $3.26 per share and the midpoint of $2.70 from our 2021 guidance include a $0.60 decline in same store NOI based on the revenue and expense assumptions outlined. Keep in mind that nearly one third of that decline stems from the difficult comparable period in the first quarter of 2020. A $0.07 decline primarily due to disposition activity that occurred in 2020 which is more than offset by a positive $0.14 contribution from lower anticipated interest expense, predominant due to taking those disposition proceeds and paying down nearly $1 billion in debt in 2020, and finally a negative $0.03 in other items. The backloaded nature of the recovery in our NOI will also of course impact our NFFO numbers, which should improve on the back half of 2021.

A final note on the balance sheet, our financial position remains extremely strong, despite the impact of the pandemic. As I just mentioned, in 2020 we paid down nearly $1 billion of debt using disposition proceeds, extended our already long weighted average maturities to nine years and continue to reduce our weighted average rate. This activity has positioned us extremely well and in the year with net debt to normalized EBITDA of 5.0 times, nearly $2 billion in available liquidity, and very limited maturities until 2023. Our access-to-debt capital remains excellent, positioning us well for opportunities should they present themselves.

With that, I'll turn it over to the operator for the Q&A.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we will go first to John Pawlowski of Green Street.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

Hey, thanks. Maybe start with you, Bob. Your opening comments there, did I hear it right that you're assuming positive year-over-year Blended Rates by mid-year?

Robert A. Garechana -- Executive Vice President and Chief Financial Officer

Yes. So our guidance assumption at the midpoint is that as you approach the middle part of the year, that we will start to see positive year-over-year lease rates.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

And presumably, you're still decidedly negative on renewals. So that would assume that besides positive on new lease rates, am I interpreting that correctly?

Robert A. Garechana -- Executive Vice President and Chief Financial Officer

So when I guess I'm talking about leasing rates in the guidance, I am thinking that we likely will be positive on Blended which encompasses both by middle part of the year--encompasses both new lease and renewal rates.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

Okay.

Mark J. Parrell -- President & Chief Executive Officer

And John, just to add some color, It's Mark. Yeah, just to add some color that will get your clarification and that is partly because things are recovering and getting better, and that's partly because the 2020 comp periods are declining. Rates declined, any decline particularly hard late in the second quarter and through the third, so we look at this line as kind of crossing these two lines in the middle of the year. And I'm sorry, you were asking a clarification there.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

Yeah. And I'm sorry to cut you off but renewals--renewal rates through the year in the mid-year, the renewal rates positive still?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. Hey, John, this is Michael. So I think the way to think about renewals is first and foremost, we have a pretty difficult comp period in front of us with Q1 and Q2. And then as you turn that corner you would expect performance in renewals to start turning positive.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

Okay, thank you. And then final one for me, Mark, your opening comments about just liquidity, the assets and more active capital recycler. Just curious, your updated thoughts on Urban Class A product along the coasts, if you're starting to test the market, how is pricing shaking out versus pre-COVID level in some hard hit markets?

Mark J. Parrell -- President & Chief Executive Officer

Yeah. Thanks, John. So in terms of values--and let's focus for just a moment on the hardest hit markets of New York and San Francisco, I start by saying, there's just been very little--and you know there is very little volume, much, much less. In fact we can sort of name the deals, the Chief Investment Officer and I that have closed. The ones that have closed, and there is one in Union Square in New York that closed, right about at what its pre-pandemic values would have been. So that's an asset that I think was about 1,200 a foot, 900,000 units and I mean like a 3.6% tax--cap rate, excuse me, very much value would have traded at before the pandemic, but it's just one deal, and I don't have a lot of others. In San Francisco, there's certainly been some stuff traded, smaller deals, I would say we're probably down 10% or so on value in San Francisco, in New York. We are starting to hear from people who want to acquire assets from us in those markets. The thought being the ride the recovery up, we get that, and we probably are sellers as I implied in my remarks, in those markets to some extent.

Remember, we still have those 421-a assets in New York, we have the big tax increases, we have a big concentration in the city of San Francisco, but for us to sell much below the pre-pandemic value doesn't make a lot of sense, because we believe in the recovery in those markets. So we think revenues are going up pretty sharply, especially in the second half of this year, and in the '22 and the idea that we'd sell at a big discount doesn't make sense to me, but I think you will see us start to be more active sellers in those two places.

Other places like Seattle particularly has had a speed of sales including a pretty large one in Bellevue at very good pricing, in at a pre-pandemic value or maybe even better, obviously lower cap rates because NOI is down. So Seattle had some strong numbers. D.C. too, a lot of suburban stuffs traded, a fair number of suburban things have traded. So we see that as market is holding up--haven't seen a lot of urban stuff traded, there is some rules in D.C. that have come in the force that make it hard in the district to sell assets right now. So I'll pause there and I hope that's responsive.

John Pawlowski -- Green Street Advisors, LLC -- Analyst

It is and thanks for the time.

Mark J. Parrell -- President & Chief Executive Officer

Thank you.

Operator

And we'll go to our next question from Nick Joseph of Citi.

Nick Joseph -- Citigroup Inc. -- Analyst

Thanks. Mark, maybe just following up on that, as you look to be active recyclers over the next few years, and think about this potential expansion markets. What sort of IRR differential are you underwriting between some of these assets that you may be thinking of selling, because as you mentioned the values may be down, but the growth may be on the forward basis versus in the assets that you're starting to look at the markets, that you're starting to look at?

Mark J. Parrell -- President & Chief Executive Officer

Well, we all are able to boil it down to the math, but there is a lot more to it the net. I--again, we've seen deals we've underwritten for example in Denver lately that are seven unlevered IRR deals, maybe even some high sixes, a lot of stuff we're selling. It might be 1% lower than that, but of course the assumptions matter a lot and how do you think about your recovery in rents which is so hard to peg as you know, so we do think that what matters in moving our capital around is ending up in a place that risk-adjusted is best, and in some cases some of the markets also have more political risk, other markets have more supply risk and we just got to balance that out. So there we do see obviously a higher IRR in the stuff we're buying and the stuff we're selling, but a lot of stuff we're selling is interesting to the buyers because their levering it up, or they've got a renovation play or some other way they're juice in their IRR that we either don't believe in or can't underwrite. So I guess that's how I'd answer. It's kind of not as mathematical its just, maybe it's 1% better.

Nick Joseph -- Citigroup Inc. -- Analyst

Yeah, that's very helpful. And then, appreciate all the commentary upfront in the presentation. And so as we look at the applications in the move-ins, particularly over the last two months, anything that you're seeing trends in terms of either the age or credit quality or rent income levels, relative to where you were a year ago or pre-pandemic?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah so, Nick, this is Michael. So really, we're not seeing any kind of material shifts when we look at those applications. So we've looked at kind of rent as a percent of income, the portfolio is always average somewhere right around 19% for those move-ins in the fourth quarter, we were also right at 19%. What we did see a little bit happen, is the range that we used to see as rent as a percent of income used to be from 17% to 23%, with Seattle being the low at 17%, and San Diego be in the high at 23%, that range is expanded a little bit to 16% and 24%, but it's really a marginal shift in this stuff. So from the demographic side, no change in the average age of the applicants coming in, the income I guess I would tell you, when you look at New York, you've got some affordability opportunities right now. So, you're seeing average incomes coming down for applications in New York, but it's still well over $220,000 a year and the ratio is still it like 18.5%.

So actually everything we've looked at right now would suggest that all of our new applicants and all of our new residents coming in from an affordability, from a demographic standpoint, really kind of demonstrate their ability to pay as the market start to reaccelerate, and stay with us.

Nick Joseph -- Citigroup Inc. -- Analyst

Thank you.

Operator

And we'll go to our next question is from Rich Hightower of Evercore.

Rich Hightower -- Evercore Inc. -- Analyst

Hey, good morning, guys. Thanks for all the valuable color. You actually have answered most of my questions, but I just want to get a sense maybe in a market like is there anything embedded within the forecast that's related to sort of the spring homebuying season just given for the first time in a long time, the strength in sort of the tri-state area housing market and did you make any assumptions around some of those related to move-outs, or yeah, anything along traffic or demand it might be impacted by that?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

So Rich, this is Michael. I'll just start off and say, just overall, when we've looked at the percent of residents moving to buy homes, again this is one of those that we really have not seen a different. At a portfolio level, we're running just over 12.5% of residents moving out. When you go specific to New York, we really haven't seen any material change on that front at all. It's actually declined a little bit in the fourth quarter. So I think relative to our assumptions as we move forward, I think you heard in my prepared remarks, we're starting to see some improvement in the percent of residents renewing. So for the portfolio, we're expecting to be up at 54%. New York's still one of those markets that we're off what is normal for that market. So we're still sitting below 50% and we should be up above 60%. So I think our modeling and our assumptions going forward is that we start to see a little bit of improvement in our ability to retain those residents, but nothing specific to them more of them moving out to go buy homes.

Mark J. Parrell -- President & Chief Executive Officer

And Rich, its Mark. Just to support Michael's comment, there isn't anything expressly in our guidance about increasing home purchases. In old portfolio was kind of designed not to have a lot of concerns about people moving out to buy homes. And as far as we can tell that continues to be the case historically, going forward, a lot of the renewals that Michael's thinking about now and a lot of these people they could elect to buy a home. These were people that renewed with us or at least initially with us in the pandemic. I mean we're rolling into a period where everyone would have leased with us, knowing what the situation was in New York and especially in March, April, and May, when it was particularly dire. So I would have thought that if they really were thinking a home buying was absolutely at the top of their list, are disproportionately our population of renters thought that they already would have been in the suburbs, they already would have rented there in hopes of buying. So I'm guessing the home building, home buying boom in the tri-state area is not actually going to matter very much to us.

Rich Hightower -- Evercore Inc. -- Analyst

Got it. Thanks for the comments.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Thank you, Rich.

Operator

Our next question from Alua Askarbek of Bank of America.

Alua Askarbek -- Bank of America -- Analyst

Good morning, everyone, thank you for taking my questions today. I appreciate all the commentary this morning. It was really helpful. But I was wondering if you guys can talk a little bit more about the suburban submarkets. It looks like the renewals are still high but spending behind 2019 early 2020 and the occupancy has diverged again. So I was just wondering where those renters headed to the ones that aren't renewing and it does it kind of tie into your commentary that the renters are looking to come back to urban? Just trying to think about if there is a shift back to urban, suburban that we've been talking about for the past year.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. So I think that it's a great question and I think as we think about the forwarding address for residents that are leaving us, we still see a little bit of an elevated number and those that are leaving urban submarkets to go to suburban submarkets. When we think about our own suburban portfolio, I think a lot of what you're seeing right now in the management presentation, a lot of that is just normal seasonality is to how the market's actually would react. And I think what we're seeing is we had strong demand, we maintain good occupancy throughout the year and I think we're going to continue to do that with stability and start pushing rate and try to recover as much of the rate as we can in the suburban submarkets.

Alua Askarbek -- Bank of America -- Analyst

Okay. That does make sense. And then I just have a question on lease breaks and just transfers in general. I know last quarter you said that everything was elevated and that also came about from companies pushing back their start dates, but how did that trend in 4Q?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. So in the fourth quarter, the lease breaks is still elevated kind of on a year-over-year basis, but we are starting to see kind of that percent in the number of start coming back into norms. I think we peaked up in September like 36% and the fourth quarter is now kind of gradually coming back down. We'd expect this number--I think we're at like 25%, we'd expect this to be come as somewhere around 20%.

Alua Askarbek -- Bank of America -- Analyst

Great. Thank you.

Operator

And we will move to our next question from Amanda Sweitzer of Baird.

Amanda Sweitzer -- Baird -- Analyst

Great. Thanks for taking my question. I thought your comment on some San Francisco residents looking to move back from Sacramento and Denver were interesting. Can you quantify the magnitude of that reverse migration either on an absolute basis or relative to how many residents left?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

So I think--first of all those it like--that's just the anecdotal statements that's coming to us but the quantity small, right. But every week we're on the phone with our on-site teams and we're just trying to get some color around the applications and where they were coming from. When we see the inflows, which is new applicants for San Francisco, 87% of all of our applications are coming to us from within the State of California, and 70% are coming from within that MSA, both of these numbers are up about 10 points each. So you're still seeing that elevated kind of activity, which to us is still that deal seeker, right. They're coming in, they're taking advantage of that price. So from the out-migration in those states where people have left and are coming back, it's just starting to trickle in and it hasn't really manifested itself into a large enough percentage change. But I think the positive is that we haven't heard any of that for months and now we're just now starting to hear that.

Amanda Sweitzer -- Baird -- Analyst

Yeah, that's helpful color. And then following up on some of your demographics comments. I know the percentage of your residence for children is still kind of a small piece of your overall portfolio. But how do you see that change in that percentage, either among your existing base with the applications you're seeing come in?

Mark J. Parrell -- President & Chief Executive Officer

Yeah. So about 10% of our residents have children living with them. We haven't seen a change in that trend and all that is--I mean our portfolio hasn't changed, it's still has a limited number of three-bedroom units, there is a fair number of one-bedrooms and studio. So I wouldn't expect that Amanda to change very much just because again our portfolio is more suited to couples and fewer make situations in some family, certainly, but it just--it is like we added three-bedroom units to the portfolio to make it more family friendly in the last couple of quarters.

Amanda Sweitzer -- Baird -- Analyst

That make sense. Thanks for the time.

Mark J. Parrell -- President & Chief Executive Officer

Thank you.

Operator

And we'll go to our next question from John Kim of BMO Capital Markets.

John Kim -- BMO Capital Markets -- Analyst

Thanks. Good morning. Mark, you mentioned in your prepared remarks that you are optimistic on a recovery in the urban markets just given the social and cultural aspects, but at the same time you're looking to reduce your urban exposure. So can you just marry those two comments together and also maybe quantify where you're looking to get your urban exposure to overtime?

Mark J. Parrell -- President & Chief Executive Officer

Great. Thanks for that--those questions, John. So yeah, there is a surface inconsistency there. I mean what our overall strategic goal is--as I said, is to just have a growing and steadily growing dividend and cash flow of the business. And to do that, the management team, even before the pandemic and the Board has decided that we were going to spread our capital again into these dense suburban areas around our urban centers while still maintaining a significant urban center presence and into a few new markets or renewed markets in the case of Denver.

So that was the plan. We do think there's going to be a pretty good recovery in these urban centers and we think one of two things is going to happen we're either going to be able to sell those assets now with the buyer understanding that they're going to need to pay close to--closer at pre-pandemic value, because they are almost certain in our opinion, at least to obtain pretty good increase in revenue over the next couple of years or we're going to wait and our shareholders who have suffered with the downside of the reduction in the urban centers will get that benefit and then we'll sell a few of those assets later.

So it's not that we don't believe the urban centers, we'll stay over-weighted to them, but not this over-weighted. And in terms of exact numbers, we have nine significant buildings in the city of San Francisco. It's probably more than we need to have, but exactly how many should leave or go I'm not sure. On the other hand, we did buy assets in the Bay Area and we're thinking about developing a couple of deals. They are just more Peninsula, East Bay or just sort of spreading the capital out. You saw our development deal, John, that's sitting on the island, just outside Oakland. So we--you should just sort of expect a decline in the city of San Francisco and overall California just again because of the concentrated political risk there. I don't have an order of magnitude to give you, but that's a source, and New York composed predominantly, a Brooklyn, and Manhattan, again we have significant number we're approaching 30 buildings in that area and to get rid of a few of those buildings at the right price. We're looking at a development deal in the tri-state area. We've acquired in Jersey City over the last year or two so. It's not like we're not interested in staying invested in the area, it's just spreading the money out a little bit. So, I guess, I'd have you stay tuned for the exact numbers, but you should expect a lessening in California, specifically the city of San Francisco and a lessening in New York provided pricing makes sense and an increase in a place like Denver and in some of these suburban places, as well as maybe another couple of markets.

John Kim -- BMO Capital Markets -- Analyst

It sounds like you think urbanization trends that has occurred in last decade has peaked, is that a fair characterization?

Mark J. Parrell -- President & Chief Executive Officer

No, I think they are spreading out more. I think new places are urbanizing. I think New York will continue to be a great urban center and San Francisco will eventually recover. But I think places like Denver now have an urban center. It's not as dense as it needs to be but it's attractive and we have three buildings in Downtown Denver and those are well occupied. So I guess, I'd say--I think the trend toward urbanization, I think is inexorable over the whole world and in the United States. I think it gets thrown off-kilter for temporary periods of time like the pandemic. I think what's going on in the United States is other places and again, Denver, as an example, Austin, Texas, start to become more dense and become more attractive for a variety of reasons. So it's just going to be more cities. I mean, Seattle joined the party 15 years ago in regards to having a really significant downtown. So I just think some of these other cities are also densifying but I don't believe that urbanization is going to end in the United States. I think it's just merely been interrupted.

John Kim -- BMO Capital Markets -- Analyst

Okay. Appreciate the insight. Thank you. I just had a follow-up question on your Urban Core operating metrics and the improvement in pricing that we've seen, which is on Page 6 of your presentation. But I just wanted to clarify, the pricing trend that you're showing, this is base rents and not effective rents, is that correct?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

This is base rents, but it includes--it's a net effective, so it includes the impact of the concession. So basically if you scraped our website and you looked at every single one of our units what we'd be charging, it's the rent, the amenity rent--amenitized rent, and the impact of that concession.

John Kim -- BMO Capital Markets -- Analyst

Okay, thank you.

Mark J. Parrell -- President & Chief Executive Officer

Thanks, John.

Operator

And we'll go to our next question from Haendel St. Juste of Mizuho.

Haendel St. Juste -- Mizuho -- Analyst

Hey, good morning out there. I appreciate the color on asset pricing and your thoughts on your portfolio exposures. I was hoping to talk a bit more about how new ground-up development business you're thinking here with asset pricing very full in your footprint as you outlined in and noticeably more optimistic today versus prior quarters. What's the current thinking here in development? Your peers--certainly, the number of the peers you has been adding projects to their development pipeline in the quarter, you still have three, one of which is in the JV, so curious if you're--sounds like you're more inclined based on your answer to prior question, are you just opt on the opportunities return to track month yet and maybe how much you'd like to expand that pipeline?

Mark J. Parrell -- President & Chief Executive Officer

Yeah. Thanks, Haendel. I appreciate that question. So all three of our development deals that you now see in the supplementary disclosure are going to deliver this year, and certainly be in lease-up for some time. We've been looking at a couple of deals, we started nothing in 2020, that just didn't seem prudent to us given the circumstances. There are at least two deals we like that we would consider starting this deal--this year, pardon me.

One is in the District of Columbia proper. It's in an emerging neighborhood, we really like some of the highest per foot rents in the city, an area that though it's suffered in the pandemic, not as much as a lot of other neighborhoods. So we really like the location and because of TOPA--and I know you've been around a lot, so you know what TOPA is. But the quick brief there is it's a law that gives residents the right to purchase their building if it's being sold in the District of Columbia and it makes it quite difficult to sell or to acquire properties that are newly built and have a resident base.

So building like we've done before near Union Station in that norm area, you should expect us to do that occasionally and fund this by selling some of the older product we own on Wisconsin Avenue and Connecticut Avenue. So I would expect that deal would likely start this year. Another one is in suburban California in a location with some really powerful employer drivers nearby that we really like.

The very unique thing about the deal end is that's a density play. It's us knocking down 60 units of an existing property and putting 220 or 230 units back. So it's a very efficient from a capital and return point of view. Again it's a place we really like. It's a hard, hard place to build. So we like that. The team is very busy. We're looking at a whole bunch of stuff as I implied in my remarks there is a couple of things in Denver we're thinking about as development opportunities again, I would like to get a bigger presence there. The deals we're looking at are either path of growth, I'd say between urban and suburban or suburban development. So I'd expect this to start those two deals I just mentioned, maybe one or two other things we'll see. We think development is part of the mix here at the company and we'll continue to do them as they sort of pencil out.

Haendel St. Juste -- Mizuho -- Analyst

Any preliminary color on potentially what yield spread business cap rates and IRRs could look like?

Mark J. Parrell -- President & Chief Executive Officer

Yeah, that's a terrific question, because of hard that is, you've hit on the nub with the hardest underwriting part is what are--first of all, what are spot rents? When spot rents are going down in a lot of these places. So what does spot rent mean and then you come back and unfortunately three months later spot rent has changed and how do you think about rent growth? So you're going to be building these buildings for three years and they're going to deliver in 2022--excuse me, 2023, early 2024, you may be delivering into--you will be delivering into certainly a very different climate and maybe a much more advantageous one. So we spend a lot of time thinking about just that. So I can't really give you a yield if we start the deals I will talk about that, but it is just as important as your starting rate as your rent growth assumption, when do you get back to where you were, do you get back to where you were. How does that work, I mean, and that's the art of this process.

Haendel St. Juste -- Mizuho -- Analyst

Got it, got it. Thanks for the call.

Mark J. Parrell -- President & Chief Executive Officer

Thank you.

Operator

We'll go to our next question from Brent Dilts of UBS.

Brent Dilts -- UBS -- Analyst

Hey, guys. thanks. You've answered most my questions, but just one last one here for me is, how is demand trending by unit size, and how's that different by urban and suburban or even MSA if you have that data?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. So I don't have the actual demand in totality. I will tell you that studios continue to be our most challenged unit type. So I think our overall occupancy and studios is like 93%, compared to--they used to be the highest, just over 96%. And if you drill into those studios and you look at like New York and San Francisco, the occupancies of studios are down at like 85%, 86%. So I think you could say that the demand that's coming into us is still seeking kind of that one-bedroom, the larger unit, even the two bedrooms, because that is where that occupancy improvement has come from. And I think right now we're just kind of in the wait and see mode to understand, at what price can we clear these studios out and when does that demand really start to return to these markets.

Brent Dilts -- UBS -- Analyst

Okay, thanks. Appreciate it.

Operator

[Operator Instructions] We'll go next to Alexander Goldfarb of Piper Sandler.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning. So two questions. First, as you guys look over year expirations in the next few months to call March into June, do you have a sense for how many of those residents are planning to move out, or are people not sort of indicating yet their intentions of whether not they plan to renew or move out? And I'm really focused on, obviously the major hard debt markets like New York, San Francisco, Austin.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. Hey, Alex, this is Michael. So right now we've just started issuing April renewal offers out there, so it's hard to get kind of that indicator from residents. I will tell you--and the prepared remarks, you could see, I think we're going to be moving from the 52% that we were in January up to 54%, maybe even 55% as you work your way through February and March. At this time, I don't expect like the April and Mays to do anything materially different. Yeah, I'm optimistic that we're going to get back into the 60% retention rate, but you got to remember, at the onset of the pandemic, we had a lot of residents choose to renew with us that drove that kind of number up. So I think we should expect this kind of gradual improvement in retention and I think the improvement that you're seeing is really systemic across all the markets, but again I have the most improvement to gain or the most area to make up in San Francisco and New York and I think at this point it's too early to understand May, June and July kind of timeframes.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then, Mark, on the portfolio, it's great to hear that you guys are considering some new market in addition to expanding in Denver. As you guys look back over the history of the company, the EQR has more from the El Paso, where the sort of Midwest low-rise to sort of urban culminating with Archstone and now you're sort of going back, but in that process there was dilution and that investors took as far as earnings, as you envision the next markets that you're going to enter in the transitioning to decrease your exposure in some of the majors like New York or San Francisco, do you envision like that same sort of dilution or the way you guys see it, you can see it sort of in a modest pace that earnings can still grow, and so that we don't go through that same dilution that we experienced previously?

Mark J. Parrell -- President & Chief Executive Officer

Thanks, Alex. Its Mark. So I would have told you before the pandemic that, that effort would have been accretive slightly, that we'd be selling New York at 4% or slightly sub 4% cap rate, and we'd be buying Denver at a 4.75% and it'll be all happy and easy. Now I think those two cap rates are close to each other, part of that is a product of what's going on in New York and San Francisco. But I don't envision this to be a dilutive exercise. I think it isn't going to be an accretive one. I think it's going to be about even now and I think what we're buying in some of these new markets is probably better political risk, a little bit better cash flow in these assets over the long haul, and maintaining exposure though to these big urban centers where you have a lot of affluent renters and for New York, a really good supply picture that's good, and I think what we'll have then is just more opportunities to invest and develop across a larger number of markets, and the steadier platform when inevitable issues come up in the future. So I don't expect dilution from the process.

Again, I would have told you in early '19, I was hoping, there'd be accretion in the process, but I don't think that's realistic right now.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. But it is a marked as a positive. I mean, you guys certainly are good on the deal side. And obviously there is markets with more growth. So it's good to see you guys pursuing that side. Thank you.

Mark J. Parrell -- President & Chief Executive Officer

Thank you.

Operator

We'll go to our next question is from Nick Yulico of Scotiabank.

Nicholas Yulico -- Scotiabank -- Analyst

Thanks. Just a couple of questions. I guess, first, in terms of the improvement that you've seen in January, in terms of occupancy and also pricing, I guess I'm just wondering what we should really be reading into that, because I think typically you do--like most of multifamily gain some occupancy to start the year versus the fourth quarter and yet both periods are very slow leasing period.

So I'm just kind of wondering what we should really be taking out of this about your confidence level of getting some improvement in these two quarters, which are again not really where you'll make your year, which is second quarter--third quarter in terms of occupancy and rent. What is really giving you guys confidence about your ability to do better in the spring? Is it actually something you're seeing in the data right now or is it more of your view about just people returning to cities, and that's good trade leasing demand?

Mark J. Parrell -- President & Chief Executive Officer

Yeah, thanks, Nick. It's Mark. I'm going to start and I think Michael is going to supplement. But the fact that we're seeing--we agree with you, there is a seasonal improvement in occupancy that starts to incur now, and there is certainly an improvement in rate that starts to occur now. The fact that our numbers are obeying the normal seasonal norms of our business is a very positive thing because they didn't in 2020.

Occupancy rate, all those things declined when they usually went up. So the fact that our markets--and I remind everyone on the call, I mean December and January and November, especially end of November were horrible for the pandemic, particularly in California, which is almost half our NOI and it got tough again in New York. So we would say, Nick, under difficult circumstances, our properties, our portfolio started to perform like it normally does. And if it performs like it normally does that means rate and occupancy are going to keep going up every week through the end of the third quarter and that to us is very encouraging.

I'd also add, it's the setup. At 95% occupied, Michael and his pricing team and our colleagues in the field feel much more comfortable reducing concessions and starting to push rate, when there are this well occupied. When you're on your back heels, it's harder to do. So, I would say we're positioned well going in the leasing season, and just being normal is an advantage from what went on in the third and fourth quarter.

I know Michael, a few of stuff you would add.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah, I think I would just give a little bit of context. So normally, you're right, we run about 20% of the volume in Q1, 30% in Q2, 30% in Q3, and then it falls back to about 20% in Q4. The actual, the velocity and the strength of the leasing season that we had in Q3 and Q4 of 2020, has actually shifted this profile a little bit and put as now for 35% of our leases expiring in the third quarter of '21 and 22% in the fourth quarter. So I actually view this is a little bit of a positive that we shifted some of these expirations to be back-half loaded, which gives us more time to even recover some of this rate, and then get through those leases.

Nicholas Yulico -- Scotiabank -- Analyst

Okay, that's helpful. Appreciate that. I guess just one last question is, could you give a sense for where you think in-place rents are for your portfolio versus the market? Just trying to kind of gauge the level of above market leases you still have to deal with in the portfolio that could be expiring in coming quarters?

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yeah. So I think you're referring to gain and loss to lease, so basically just snapshot in kind of our rents in place and comparing it to the existing rent roll. Sitting here and I did this best--basically at the end of January, our gain-to-lease was 6.5%, not including concessions, 9.5% when you folded in concessions, and that is clearly front loaded. So the numbers are--we have much higher gains in that Q1, and then it starts to kind of gradually down.

We actually flip to kind of the loss-to-lease model back in that fourth quarter but I think at this point you're looking at this--at the lowest point in the rent seasonality. Rents are the lowest and you're comparing this still against people that were pre-pandemic and then new people. So I don't really -I mean I think it's a good snapshot to understand what could be, but I think really over the next couple of months this number is going to move around a little bit.

Mark J. Parrell -- President & Chief Executive Officer

And the other thing, the numbers used before Nick as you've got checking and the investors now got checking our guidance. When people try and understand that, understand where they gain the leases, gives you some idea of where our starting point is and what we need to make up during the course of the year.

Nicholas Yulico -- Scotiabank -- Analyst

Okay. Thank you, Mark and Michael. Appreciate it.

Mark J. Parrell -- President & Chief Executive Officer

Thanks, Nick.

Operator

And we'll go to Alex Kalmus of Zelman & Associates.

Alexander Kalmus -- Zelman & Associates -- Analyst

Hi, thanks for taking my questions. Looking at the projects in the pipeline and expected lease-ups over the next year, it seems like there's a lot more projects in the urban markets. Granted, there is some supply and supply chain and construction delays in typical in those markets, but what are your expectations for the coming year in the Urban Core?

Mark J. Parrell -- President & Chief Executive Officer

So I just want to make sure I understand your question, Alex. So you ask is what we see for supply in call it New York--Central New York and San Francisco kind of in '21?

Alexander Kalmus -- Zelman & Associates -- Analyst

Correct. Thank you.

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Yes. So I'll just start at the top and just say, so right now, when you think about the natural shifts that happened between the fourth quarter into the first quarter, when we look at supply for '20 and '21, we think the overall numbers is going to be relatively the same. I think you picked up in my prepared remarks, San Francisco is elevated and a lot of that is the concentration sitting in South Bay. When you look at markets like New York, it's really non-existent in Manhattan, from a competitive landscape against us, and we have a little bit in the Hudson Waterfront.

So when we think about supply, we're looking at these numbers in totality, but we really go granular. We go down to an individual asset. And we're looking at what new deliveries are coming at us, or what existing deliveries are still kind of working their way through the lease-up process, and what pressure, do we think that that's going to have on us, in terms of performance as we work our way through the year. So it's a very granular process and I think when we roll it all up, right now you've got--you still have a lot of supply coming at you in D.C., so another 12,000 units being delivered, the question there is really just the ability for the market to absorb that supply.

From a competitive standpoint, I really stand back and just say the South Bay and San Francisco and a little bit in the Peninsula is going to have a little bit more pressure on us than we have felt in the past.

Mark J. Parrell -- President & Chief Executive Officer

And Alex, it's Mark. If I can just add something on some sort of a new research we've done to try and I think about just new starts and not completions as Michael was referring but starts. As we look at--just it's tough to make these deals pencil in the urban centers. So we're trying to determine what does it look like in '23 and a couple of our guys did really good work and the work was focused on what do we see starting within call it two miles of our properties, remembering that all supply in the market is competitive with us. But Michael would tell you and our operators would tell you that the supply that's very close is what is most damaging to our rent roll.

So looking at what's relatively close to us, looking at what starts were from 2016 and 2019 by market getting an average and comparing that to what we saw in '20 and '21. What we see that's being generated in '21, will lead us to believe that starts are likely to be down 30% and thus deliveries are down 30% in say, 2023, especially in our urban markets. Now in Washington D.C., that number seems completely unaffected. I mean, start seeing relatively constant. But we are seeing that and we hope that that's an additional tailwind but again it's relatively new research that our folks have done that we think is informing us. So our optimism about supply closely in urban center coming forward.

Alexander Kalmus -- Zelman & Associates -- Analyst

Really, this is the color. Thank you and...

Mark J. Parrell -- President & Chief Executive Officer

Thank you.

Alexander Kalmus -- Zelman & Associates -- Analyst

Moving to the bad debt assumptions in the revenue guidance you gave is a lot of that predicated on California's decision to extend AB-3088 until June and is that the most sensitive aspect to that bad debt assumption, or there other regulatory or macroeconomic factors that would cause up or down based on that?

Mark J. Parrell -- President & Chief Executive Officer

I think our somewhat increased pessimism about bad debt over the last two months was based on both the new administration doing its extension under CDC authority, California doing an extension, New York--all these markets sort of chiming in given that the pandemic got challenging again in the fourth quarter and in January that all this got extended, which meant that we wouldn't get resolution.

But I will say that we didn't--and this is why our guidance as Bob acknowledge was all conservative on--remains in our minds may be a little conservative on bad debt is that we didn't take into account, either the $25 billion that was passed in the old administration's bill in December for rental relief. New York put rules out last--yesterday on that, California put those out a week ago. We're still analyzing all of that. So we're not sure. We certainly intend to get involved there and make sure our residents who are in a delinquency situation are aware of that and can take advantage of it.

So we may get some benefit there from taking advantage of some of those programs. The Biden administration's $1.9 trillion program has another $25 billion in it for rent, for helping folks that are behind in their rents, rental assistance. Again who knows if that passes, but that's very helpful. Along with in the $1.9 trillion bill is $350 million of aid to cities and that is tremendously helpful to places like New York, we're thinking about tax increases or service cuts. And so I'm taking your question a little longer, but I think it's important that some of these government restrictions are problematic but they come with some good things as well, especially for owners like us of apartments that are in more urban settings.

Alexander Kalmus -- Zelman & Associates -- Analyst

Appreciate it. Thank you very much.

Mark J. Parrell -- President & Chief Executive Officer

Thanks, Alex.

Operator

And with no further questions in the queue. Mr. McKenna, I'd like to turn the conference back to you for any additional or closing remarks.

Mark J. Parrell -- President & Chief Executive Officer

Yeah, it's Mark Parrell. Well, thank you all for your interest in Equity Residential, and have a good day. Take care.

Operator

[Operator Closing Remarks]

Duration: 76 minutes

Call participants:

Marty McKenna -- Vice President of Investor Relations

Mark J. Parrell -- President & Chief Executive Officer

Michael L. Manelis -- Executive Vice President and Chief Operating Officer

Robert A. Garechana -- Executive Vice President and Chief Financial Officer

John Pawlowski -- Green Street Advisors, LLC -- Analyst

Nick Joseph -- Citigroup Inc. -- Analyst

Rich Hightower -- Evercore Inc. -- Analyst

Alua Askarbek -- Bank of America -- Analyst

Amanda Sweitzer -- Baird -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Haendel St. Juste -- Mizuho -- Analyst

Brent Dilts -- UBS -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Nicholas Yulico -- Scotiabank -- Analyst

Alexander Kalmus -- Zelman & Associates -- Analyst

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