American Campus Communities Inc (ACC) Q4 2020 Earnings Call Transcript

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American Campus Communities Inc (ACC)
Q4 2020 Earnings Call
Feb 23, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the American Campus Communities Incorporated 2020 Fourth Quarter and Year End Earnings Conference Call. [Operator instructions] Following the presentation, we will conduct a question-and-answer session. instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference is being recorded, and I would now like to turn the conference over to Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations for American Campus Communities. Please go ahead.

Ryan Dennison -- Senior Vice President Capital Markets And Investor Relations

Thank you. Good morning and thank you for joining the American Campus Communities 2020 fourth quarter and year end conference call. The press release was furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements. Also posted on the company website in the Investor Relations section, you will find an earnings materials package, which includes both the press release and a supplemental financial package. We are hosting a live webcast for today's call, which you can access on the website with the replay available for one month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along. Management will be making forward-looking statements today as referenced in the disclosure and the press release in the supplemental financial package and in SEC filings. Management would like to inform you that certain statements made during this conference call which are not historical fact, may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said that, our Chief Executive Officer, Bill Bayless will be providing our opening comments today. He's joined by the following members of senior management for the call, Jennifer Beese, Chief Operating Officer; William Talbot, Chief Investment Officer; Daniel Perry, Chief Financial Officer; Kim Voss, Chief Accounting Officer and Jamie Wilhelm, EVP of public-private partnerships.

With that, I'll turn the call over to Bill for his remarks. Bill?

Bill Bayless -- Chief Executive Officer

Thank you, Ryan. Good morning, and thank all of you for joining us as we discuss our Q4 and full year 2020 financial and operating results. As you know, this call is occurring six days later than originally scheduled due to the unprecedented widespread disruption in Texas last week caused by severe winter ice storms and related power and water outages. Our hearts go out to those affected by these storms and we hope that everybody is recovering at this time.

Now, turning to our business. In reviewing 2020, prior to the pandemic, ACC was off to an excellent start. After delivering nearly 5% earnings growth in 2019, the Q1 delivered NOI that exceeded our expectations for each of the three months. Additionally, our velocity for fall 2020 lease-up was over 3% ahead of the prior year with rental rate growth trending well relative to targets. New supply for fall 2021 was also near decade lows. The fundamentals in our sector were strong and all facets of our business were exceeding our internal expectations.

With COVID- 19 being declared a pandemic, the student housing sector like most businesses faced unprecedented and unanticipated disruptions. The U.S. Higher Education System was dramatically impacted by the governmental shelter in-place orders put in place across the country. Over the last 3 quarters of 2020, we responded by attempting to do the right things on behalf of all of our stakeholders, while continuing to provide a central housing services to students all across America, all the while attempting to mitigate long term negative impacts to our business and providing thought leadership in action to help universities return to a sense of normalcy.

Despite the negative financial impacts to our business in 2020, we were encouraged by students' strong desire to be physically present in their college environment, demonstrating that the desired educational experience is much more than simply attending a classroom lecture. Ultimately fall 2020 enrollment levels at Tier 1 universities we serve remained relatively consistent with 2019, and most students returned to their college towns for the fall term, regardless of whether their university was holding in-person classes or providing them online. This was evidenced by the fact that our portfolio achieved approximately 90% occupancy for fall of 2020 with the sector as a whole being over 88% occupied.

As we look forward, 2021 will be a year of transition on the path back to normalcy. While the virus continues to have a lingering impact on the student housing sector, we are seeing signs of improvement. During the fourth quarter, we saw an increase in collection rates, a diminished necessity for on-campus rent refunds and a reduction in request for rent relief under our resident hardship program. We also had strong demand for spring leases signing over 3600 new leases commencing in the spring term, 50% more in the prior year. While the current transitionary environment causes us to believe there could be softness in our ability to backfill May-ending leases at historical levels and that we may not return our summer camp and conference business to normal levels.

We are cautiously optimistic regarding the 2021-2022 academic year commencing this fall. In discussions with our university partners, the vast majority are indicating that admission applications are up over the last year and many are projecting strong enrollment growth for fall 2021. There is also incrementally positive news in terms of universities planning to return to in-person classes for fall of 2021 as exemplified by the recent announcements by both the University of California and Cal State Systems as well as several other major universities who have been fully online in the current academic year. With regard to their statements, they will be returning to in-person classes.

Also, Arizona State University, our largest university partner recently announced plans for full availability of in-person classes in fall of 2021 and encouraged students to register early and at this time, they expect to reinstate their on-campus housing expectation for first year students. Although, we cannot yet give you a reasonably accurate estimate of fall 2021 occupancy levels, these are certainly encouraging signs. As we fully expected and consistent with what has been reported by our private peers and in third party market research, across the industry pre-leasing for the 2021-2022 academic year is tracking behind the traditional historical pace. Beyond the general disruption of COVID, the extended winter breaks at many universities that in many cases lasted from Thanksgiving through late January, appeared to have specifically contributed to a delay in students securing housing early for next fall as compared to the normal leasing activity that we would see during that period of time. We did see accelerating leasing velocity in the weeks after students return from winter break and there will be significant acceleration in April, May and June, which we expect to compare favorably relative to those months last year when leasing activity dramatically dropped off during the height of the pandemic.

Finally, the new supply picture continues to provide tailwind for the sector as a whole as fall 2021 deliveries are flat compared to 2020, which as I mentioned earlier was at the lowest amount of new supply in the past decade.

Turning to our ongoing development at Walt Disney World. As we discussed last quarter, with the current suspension of the Disney College Program, we did commence in earnest [Phonetic] marketing and leasing of the project at Disney cast members and employees of operating partners in late Q4. With the holiday season in the start of the New Year, being a slow leasing period for conventional multifamily, we have signed 88 leases to date and anticipate the velocity will accelerate through the remainder of the year as cast members' current leases expire.

The original pre-COVID proforma projected Disney College Program to deliver approximately $14 million in operating income after ground rent in 2021. However, based on a standard multifamily leasing stabilization trend of 25 to 100 leases per month, we now expect 2021 to have a net operating loss after ground rent between $2.7 million and $5.4 million. As Disney brings the DCP intern program back online, occupancy will increase more rapidly than the current conventional market leasing velocity. Disney continues to be fully committed to the full reopening of Walt Disney World as soon as possible, evidenced by their continued investment in the parks and resorts, including the continued construction of Flamingo Village Crossing Town Center, a 200,000 square feet mixed used entertainment center set to open in fall of 2021 across the street from our community.

And as Disney discussed on their recent earnings call, they have significant demand for attendance at the parks and are very pleased with future bookings, and as they stated at this point, it's only a matter of the rate of public vaccination that will allow them to start to see a return to normal levels of operations at the parks with corresponding increases in cast members and ultimately DCP participants. Although the timing and velocity of the reinstatement of the Disney College Program continues to be influx at this time, we currently expect the completed project to be fully stabilized and pro forma occupancy and rents within 12 to 24 months of the originally anticipated date of May 2023 at its originally targeted stabilized yield of 6.8%.

Now looking to transactional activity in the student housing sector. As with many sectors, 2020 volumes were down significantly, with CBRE reporting student housing transactions decreasing approximately 20% versus 2019. While deep interest from capital sources looking to invest in the sector held cap rates in line with pre-COVID levels, pricing has been lower as valuations have been impacted by COVID's disruption to historical revenues and NOIs. Based on our discussions with the investment community, we expect transaction volume to remain low in the first three quarters of 2021, with potential improvement later in the year, as lease-ups are finalized for the upcoming 2021-2022 academic year. As it relates to our capital recycling plants for '21, we will continue to monitor the market to assess the optimum timing to maximize our own asset valuations and we'll update the market at the appropriate time.

Turning to on-campus public-private partnership, P3 opportunities, as universities are expecting a return to normalcy in the fall, they are now beginning to refocus their efforts to modernize on-campus housing. We started to see progress with regard to our projects awarded pre-COVID that are in pre-development as well as a pickup in new pursuits. We continue to believe that P3 opportunities on-campus may well be greater in a post-COVID environment, given the significant financial impacts universities experienced related to the de-densification and consumer rejection of older community bath residence halls coupled with the funding and budget cuts university space in the post-COVID environment. As the recognized industry leader, ACC is uniquely positioned to capitalize on this expanding opportunity.

Currently, we are tracking over 60 universities that are evaluating potential on-campus projects. With respect to guidance, while we believe the student housing sector has exhibited impressive resiliency, despite the significant disruption the pandemic has had on the universities of students we serve, and while we see many encouraging signs of a steady return to normalcy, the range of potential financial results for 2021 is still too wide for us to provide full year earnings guidance, with a reasonable and useful range. Instead, we'll be providing guidance for each forward quarter until we can provide an estimate further into the future, that we can stand behind.

As such, we're providing Q1 FFOM guidance in the range of $0.54 to $0.56 per share. As we look beyond Q1, we would encourage everyone to review the normal quarterly seasonality of our business and further take into consideration some of my earlier comments, regarding the fact that the transitionary environment causes us to believe that there may be softness in our ability to backfill May-ending leases at historical levels, and that we will likely not see a return to normal summer camp and conference business in 2021. We also expect to see significantly higher same-store operating expense growth levels than normal, as 2020 presents a tough comparison year given that operating expenses were approximately 6% below our original 2020 guidance for expenses. This will be especially notable in Q2 and Q3, as we anticipate more normal expense levels that will be compared to the same periods in 2020, when many expense activities were halted. This could lead to expense growth in the high-single digits in Q2 and Q3 of this year.

In closing, I'd like to convey our excitement related to the recent appointments of three new outstanding independent directors to the ACC Board. As a part of our commitment to continued board refreshment, we're thrilled to welcome, Herman Bulls, Alison Hill and Craig Leupold. These three new directors have extensive real estate and capital allocation experience and bring valuable diverse perspectives that will serve the interest of our shareholders well. I'd also like to take this opportunity to express my gratitude on behalf of the entire Board to our two departing directors, Carla Pineyro Sublett, who left the Board in concert with accepting an exciting new role as the Chief Marketing Officer of IBM made meaningful contributions during her short time as a Director, and we wish her all the best. We'd also like to thank Ed Lowenthal, who announced that he'll be retiring from the Board in May, after 16 years of service, including 5 as our Board Chair. Ed has helped oversee our company's transformation from an owner of only 16 student housing properties at IPO to becoming the industry leader, and we'd also like to congratulate Ms. Cydney Donnell, who will be assuming the role of Board Chair up on Ed's departure.

With that, I'll turn it back to the operator to start the question-and-answer portion of our call.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator instructions] Our first question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Derek Johnston -- Deutsche Bank Securities -- Analyst

Hi, everybody. Good morning and thank you.

Bill Bayless -- Chief Executive Officer

Good morning.

Derek Johnston -- Deutsche Bank Securities -- Analyst

Can you share some deeper thoughts on summer camp ancillary income from camps, conferences or other historical tenants, meaning if 2021 summer likely to see some rebound in revenue in demand or is this another total washed year similar to 2020, we're certainly looking for a quarterly comp basis.

Daniel Perry -- Executive Vice President and Chief Financial Officer

Yeah, hey, Derek, this is Daniel. As you may recall, last year we talked about, typically we're able to generate about $4.5 million in revenue during the summer off of -- the summer camps and conferences that we hold at the residents halls that of course were empty during the summer months. It pretty equally split between Q2 and Q3 and of course, last year we did not have any summer camp and conference business as that was all suspended amid the height of the pandemic. Typically those contracts are signed up throughout this spring semester as we go into the summer and so we don't have a lot of insight into it yet, but at the midpoint of our expectations as we thought about the year, it's hard for us to think that would be something that would be back to normal level, certainly this year and likely that we wouldn't have much of it. Many of the schools are thinking that there is the risk that it could impact their ability to get back to normalcy for the fall, which is their primary focus at this point. The summer camps are middle-schoolers and high-schoolers, and so they bring hundreds of kids onto their campus when their primary focus is to return to normalcy as much as possible this fall, they don't want to interrupt that. So it's hard for us to expect much, we don't have a lot of insight into it until later this semester and so that's our expectations right now.

Derek Johnston -- Deutsche Bank Securities -- Analyst

Okay, got it, thanks. And then the Disney lease-up, can you share some more details on the leasing velocity and future demand expectations and this is really given your talks with Disney management, did they give any details about possible reopening dates or their current thinking or did they hire a 2021 intern class that you know of?

William W. Talbot -- Executive Vice President, Chief Investment Officer

Hey, this is William. As it relates to the turn of the DCP, we're obviously in constant communication with Disney as it relates to that. It is not our current expectation that that program will return in 2021, but it really, as Bill said in his opening remarks. It really is tied to the expanded capacity of the parks, which obviously Disney is monitoring very closely, and once those parts expand capacity, there is the ability for the DCP program to come on board and come on board at much larger volumes in the traditional cast member housing leasing velocity. So, that's still influx, as Bill mentioned in the opening remarks, but something we're constantly in contact with them and optimistic to hopefully see that program return in '22 and then build up quickly thereafter.

The second part of your question on the Disney leasing velocity, we are 88 leases to date, we've got an additional 11 applications in the process. We've kind of seen a trend of about right in line of that 50 leases on our trailing 30-day, and so when we talk about that range of 25 to 100 leases volume, we certainly -- we saw that here earlier in the year and expect that accelerate and that also is directly tied to, as you see the additional capacity at the park's brings on more cast members working at the park.

Derek Johnston -- Deutsche Bank Securities -- Analyst

Okay, understood. Thanks.

Operator

The next question is from Austin Wurschmidt with KeyBanc. Please go ahead.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

All right, thanks, everybody. Just curious, what you've seen at your properties in terms of how traffic has trended whether it'd be in-person virtually or however you track that data and then also could you share how many May-ending leases you've kind of backfilled historically within the existing portfolio?

Bill Bayless -- Chief Executive Officer

Yeah, good morning Aus. This is Bill. I'll handle the first part and kick it over to Daniel for the May-ending leasing. As we mentioned in our comments and while all lines velocities have been good from Thanksgiving through the end of January with the extended spring break, we did see a lesser velocity than usual in terms of walk in traffic, which is something that we did fully expect. And also, as we mentioned, once the students came back from that extended spring break, we did indeed, see a pick up in velocity, more consistent with what you would see in terms of historical interest. Now obviously in Texas the last week, there was a major slowdown in velocity just in this particular state, given the weather conditions. But as we did mention where we really were -- on the last call, I put forth, we're really not going to really have the type of indication that we can give in terms of trajectory in making really sound projections until we get through April, May and June where you had the inversion of the slowdown last year that we expect the acceleration to occur in velocity. And so it will really be more toward the end of the second quarter before we have comparable data on -- that there has been enough time passed in stabilizing what was normalized period last year that is currently slower versus in the April, May and June when we will have an increased velocity over that period of time. So that's where we talked about transition area. It's going to be a little bit of time, but we have to color into that.

Daniel Perry -- Executive Vice President and Chief Financial Officer

And then I'll jump in Austin on the May-ending leases. So, and of course, just to make sure everybody's clear that we're talking about May-ending leases with regards to our 12-month properties. Of course, we have our residents halls that have May-ending leases as well. What we're not doing a lot of backfilling in that -- in many cases what we're doing that summer camp and conference business in a normal environment. But with regard to the 12-month properties where we do sign some May-ending leases, it's typically about 1,000 leases per year that are May-ending and we're able to backfill about 50% in that in a normal year, which is about $1 million in revenue. About two-third of that hits Q2 being the May and June months and then the other third hitting July. So that's really the area where again a lot of those leases like the summer camp and conference business aren't signed until later in the spring semester and it's hard for us to have a lot of insight into it, but just being still in the middle of COVID, it's hard for us not have some expectation that there could be some softness there.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

That's helpful. You mentioned rates have been flattish to slightly up at this point of the year, but it seems when, not if velocity will accelerate. So how are you thinking about freight growth trending once you see the pace up -- pace pick up given what you're seeing just in terms of applications and admissions data?

Bill Bayless -- Chief Executive Officer

Yeah. it Is going to be a delicate balance. It's something obviously that we're going to be utilizing our internal systems to manage, there is significant upside as everyone's aware in occupancy this year at the $90.3 million that we ended up last fall. In terms of however much progress we can make from that point more toward normalized operations and so we're certainly going to make sure that under all circumstances, we do not jeopardize velocity to maximize occupancy in terms of being overly aggressive with rate. Also when it comes to the pricing, the one thing that we've been very pleased with throughout last year's lease up with COVID and this year's lease up is the owner's market has been very patient in terms of realizing that the velocity is related to COVID and not supply demand and people have been very balanced in terms of their pricing policies. Obviously, that's something that helps create stability that we're referencing in those rental rates, and so as we move into the period again of April, May and June, when we do expect those increase velocities, we will utilize our systems as we always have to maximize the combination of occupancy and rent being very thoughtful that our greatest opportunities are indeed in occupancy.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

And just one quick follow-up to that, Bill, if I can. In years where you kind of held back on rate, where have you seen final occupancy range across the portfolio?

Bill Bayless -- Chief Executive Officer

You know, it wouldn't be a generalization that you could transfer and what's taking place right now and also in the context of answering that question in a broader portfolio perspective, when you look at what is taking place and the disruption that COVID has caused, it is a market by market conditions on the ground that there may be great variation in terms of how we're implementing those policy. So I don't think there's anything that we can talk about on the broader historical trends of pricing velocity in results that we could translate into this environment this year and draw conclusions.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Understood. Thank you.

Operator

The next question is from Neil Malkin with Capital One Securities. Please go ahead.

Neil Malkin -- Capital One Securities -- Analyst

Good morning, everyone. Thanks. I guess maybe William for you. You had obviously the Berkeley, your chosen as you did the eighth development or it's under -- you expect to start next year. I just wanted to be clear. Were you likely to be the developer for the entire 6,000 bed master plan and then are you -- could you maybe give any detailed answer on the updated P3 activity, sort of where you are there, any breakdown of ACE versus third-party developed and sort of kind of how you see that playing out maybe over the next couple of years?

William W. Talbot -- Executive Vice President, Chief Investment Officer

Yeah, for sure, in particular with Cal, Berkeley that phase or that pre-development that we announced this quarter, that was related to our selection as the master developer of up to 6,000 beds on their campus. Berkeley does have other housing they're pursuing on their own, namely the People's Park project, but the 6,000 bed master developer, this is really the first project to be moved to pre-development under an ACE structure and we're actually working with them on a number of other potential housing projects as well. So we are excited to see certainly in this COVID environment the projects moving forward and seeing that progress and universities really starting to focus and advance their housing now that they're starting to focus on campus returning to normal.

As it relates to the overall P3 activity business as Bill mentioned in his prepared remarks, we're tracking over 60 current potential opportunities out there. We've really started to see momentum both in those projects that we had been awarded in pre-development and pre-COVID, are starting to move forward and see progress where there was a slight pause and with the procurements and the universities actively picking up activity to address these housing needs that really the weakness in the consumer demand was exasperated in COVID and we believe the majority of those will be looking to P3 solutions, but it's really too early to tell if that would be an equity ACE solution or third-party finance type solution and again one of the big benefits we bring to our university partners is, we can offer all of those solutions and evaluate all of those with them as we go through the process.

Bill Bayless -- Chief Executive Officer

The only thing I would add that from a capital allocation perspective is while there certainly a -- we believe a greater opportunity in the P3 in the years ahead. Obviously, as it relates to ACE, it is going to enable us to even be more selective in terms of where we want to invest our equity on campus with a broader range of opportunities and we will continue to assess ACE investment, the same way we do all investment decisions in terms of making sure that they meet our criteria.

Neil Malkin -- Capital One Securities -- Analyst

Okay and then just a follow-up on that. Would you expect then at schools, you're in -- your assets are off-campus, would you expect maybe like over the next, let's say, one to three years given the sort of hesitance about the dorms in the shared bathrooms. Would you expect to see an uptick in occupancy for your off-campus product as maybe kids and parents are a shift away or kind of make choices that are with COVID in mind.

Bill Bayless -- Chief Executive Officer

That depends on whether or not they have the opportunity to do so. Let me explain what I mean by that. Many universities have housing requirements and so obviously through COVID, they realize that those properties as you mentioned are not conducive from a consumer perspective to what students and parents want in that type of environment and it made them realize that if indeed they need to prepare to have more modern products for all situations. Now, many schools will go back to their on-campus housing requirement where the students won't have a choice. They will have to continue to live in that product for as long as it remains on the campus and so it -- and again that's why we love our ACE transactions and when we build on-campus housing is that we are covered by those housing guarantees and housing expectations, we mentioned in our comments, Arizona State University, where we have modernized the housing has a first year housing expectation of the students. Unless you are commuting from a local community, they expect you to live on campus and the only reason they historically will not have enough beds for the entire first year class and so that is something on-campus that universities will still be able to benefit from. But as well you mentioned they realize that those antiquated facilities do need to be updated in many cases and will move forward with those activities. Where there are open market choices universities where we could see a small outflow in terms of students living off-campus, but as we always talk about with regard to the on-campus investments that we make, universities really have great advantage in terms of locking up the first year students as they come in, in terms of administering their own processes.

Neil Malkin -- Capital One Securities -- Analyst

Okay, great. And then the other one for me is related to the Growth 2030, the strategic investment in development acquisitions and then JV, partnership side, anything under contract or in the works, maybe are you waiting for the new Board members and maybe that new Allocation Committee to sort of get the low down on prospects and everything going on before. I guess, when you kind of see that starting to take off?

Bill Bayless -- Chief Executive Officer

Yeah. And certainly, we continue to make progress in terms of our selection of partners in that regard, as William said on the call, it is a slow transit --transitionary environment at the moment, and we believe the bulk of activity will come, as it relates to Q4 in terms of when you'll see an increase in acquisition type opportunities, and so certainly we are advancing those initiatives, and of course we will always involve the Board in those process as the new Capital Allocation Committee will help us in terms of prioritizing the numerous opportunities that we will have before us in the future.

Neil Malkin -- Capital One Securities -- Analyst

Thank you, guys.

Bill Bayless -- Chief Executive Officer

Thank you.

Operator

The next question is from Nick Joseph with Citi. Please go ahead.

Michael Bilerman -- Citigroup Equity Research -- Analyst

Hey, it's Michael Bilerman here with Nick. So I just want to come back, Bill, on the Board. How do you sort of see the interaction, relationship with this new Capital Allocation Committee and help us understand how, I guess the formalization of this committee compared to what the previous Board oversight was and involvement in all of your capital allocation decisions, I guess what has changed between now this formal committee and what you had before. I don't know if there was a certain threshold, I don't know if the whole Board wasn't involved in your decisions and just go through what in fact this Capital Allocation Committee is going to have oversight of all acquisitions....

Bill Bayless -- Chief Executive Officer

Sure.

Michael Bilerman -- Citigroup Equity Research -- Analyst

Development, dispositions, equity raises, strategic alternatives, where does their mandate start and end?

Bill Bayless -- Chief Executive Officer

Yeah. And certainly as you went through the litany of purview that they can have insight into. First of all. historically, the Board has always been intimately involved in our capital allocation decisions, equity raises, all of those items, and certainly have had complete influence and control over that. As we move into this Capital Allocation Committee, and extremely excited about the caliber of the three individuals that are joining the Board and the specific capital allocation expertise that they're bringing, and also that it's very recent and fresh capital allocation expertise.

Mainly -- certainly Craig is a known entity to the real estate industry and highly regarded in terms of all the work that he has done throughout his career, and Alison Hill has exceptional purview into the role that she has played at Prologis in their strategic capital platform and so, and Herman Bulls is a Vice-Chair of JLL, certainly intimately involved in terms of the real estate market and capital allocation specifically in tune to higher education. And so I think we're bringing in some of refreshed firepower that really has their fingers on the pulse of the market in terms of what the opportunities are and how best to approach them.

And so the interaction will continue to be the -- at the Board level as it always has been. However, we're going to take advantage of that expertise. And so that Capital Allocation Committee, matter of fact we're meeting today at 3 o'clock, as a part of our normal Board meetings going in and at groups meeting in advance for a longer extended period of time and with the -- again we're going to have a plethora of opportunities available to us as we go forward, giving the emerging market opportunities down the road, and we do have limited capital.

And so as we do look at prioritizing and maximizing value for our shareholders on all fronts, drawing off of their expertise and having their purview into the transactions on all fronts that we're doing. We really have involved the Board and we will continue with this committee on all transactions that we do. The management team typically every quarter is taken every transaction of the Board regardless of size and whether it's over or under any threshold. And so we got a lot of a good expertise and firepower coming in and certainly with Craig and Alison, you combine that with the Cydney Donnell and John Rippel from the private equity side, it is very, very active still in his professional career of capital allocation. There's a lot of benefit there that they're going to bring in terms of the purview of the shareholders into the intimacy of what we're doing. And so we as management embrace it, we're excited about it and we look forward to working with them intimately on it.

Michael Bilerman -- Citigroup Equity Research -- Analyst

That's helpful color Bill. I guess what was done before, and I think you've just mentioned that everything was taken to the Board. Was there a subcommittee previously on your capital allocation decisions, obviously I'm not discounting the fact of trying to bring in this firepower to your board to improve capital allocation, but it's also the mission that something was wrong before, and I'm just trying to get a little bit more color about how we got to that point, what you did not have...

Bill Bayless -- Chief Executive Officer

No.

Michael Bilerman -- Citigroup Equity Research -- Analyst

The appropriate people on the Board or...

Bill Bayless -- Chief Executive Officer

Yeah.

Michael Bilerman -- Citigroup Equity Research -- Analyst

Or you did not have the right processes, where the management have more influence, I mean this is a pretty major thing to go through an activist campaign and and put new members on the Board and form a capital allocation committee. I'm just trying to get a perspective of what had happened before that led to it?

Bill Bayless -- Chief Executive Officer

Yeah. And certainly, we were forced to do nothing, and let me say this is something that I and this management team embraces and very much help to drive. The -- what had been done previously, it's not that anything was wrong, we always look to improve and you can always look to improve the process that you put in place in both this Board refreshment and this capital allocation committee are an improvement in terms of advancing our initiatives in that area.

Michael Bilerman -- Citigroup Equity Research -- Analyst

Thanks for your time, Bill.

Bill Bayless -- Chief Executive Officer

You got it.

Operator

The next question is from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, good morning. Good morning down there [Phonetic].

Bill Bayless -- Chief Executive Officer

Good morning, Alex.

Alexander Goldfarb -- Piper Sandler -- Analyst

Rather you guys are getting your power back and just for what it's worth the change for the intro bill just having you speak and they get into Q&A, definitely streamline things so if that's the go forward. I don't know that you need to form a special Board Committee on earnings calls, but that was definitely a very good. Just going on to the Michael's question, it's a little puzzling actually the capital allocation review, one, just the name, which gets over used in REIT land, but two, you guys made a concerted effort a few years ago to change your funding strategy where you're selling sort of low 4 caps to deliver -- to recycle that capital into assets that basically are opening up, September 1st at 95 plus yielding 6 plus. So, you guys had actually....

Bill Bayless -- Chief Executive Officer

Yeah.

Alexander Goldfarb -- Piper Sandler -- Analyst

Transformed the capital allocation overall, especially as you had sold out your legacy higher cap drive assets. So on one hand, you guys already seem to have addressed this and I think two, you guys have also been pretty good at communicating that the growth of student housing, it doesn't have the highs of multifamily, but doesn't have the lows either it's sort of a steady Eddie plus 2% to 3% business year-in and year-out. So I guess, from that perspective is -- what I guess sort of from that approach, what was sort of driving this to have because as I say, I think that you guys had already remedied on the capital markets, that was really just in finding the assets now that you know the higher cap and you found the sustainable development pipeline of that $300 million range and then two, on the earnings front, I think that you guys have finally gotten that message through on the pace of earnings growth to be expected. So I guess, from that perspective, what really caused you guys form this and what changes would we really see versus just having people like Craig, etc. on the Board, just to be a part of the discussion?

Bill Bayless -- Chief Executive Officer

Alex, thank you for pointing all that out, and that you really hit on some key points and that we did -- with the -- we in the board together made the decision really in '15, '16 and '17 to undertake the massive refinement of the portfolio and to transform it from the more eclectic portfolio that existed from a value add core portfolio into the premier core portfolio that you see today that we were then able to shift our capital allocation strategy coming out of 2018, in terms of better match funding with the sale of low cap rate 4 to 4.1 we transacted at and reinvesting that with a better match funding into the 6.25 development opportunities that we had. And so that -- and this speaks exactly to how I was answering Michael's question, as there was nothing that was wrong before, it is only in terms of continuing to strive to do better and to better enhance the processes related to that. With that said, again we as a company and especially in the position that we are in is the only public company in our space and the opportunities that we have before us in the years ahead. It's only prudent. The most important thing that we do as a company is capital allocation and so to meet the expectation of the market in terms of utilizing the expertise that we have available to us in a Board of Directors that all -- that has been and continues to be as we continue to refresh exceptional real estate and capital allocation expertise, we of course want to do everything we can to advance that moving forward. And so, performing that committee from our perspective, we as a management team are going to continue to be very selective and very disciplined as we procure opportunities and always strive to undertake transactions that for the long term will create the most value for our shareholders and we'll always rely on the expertise of the board that we have whether it's in the confines of a committee or the full Board to help advance those initiatives.

I do thank you though for pointing out the -- the 5% earnings growth, you start to see come in 2019 that we talked about in our comments in the tailwinds in 2020 that we were very pleased with the shift that had taken place and we now just want to continue to advance that.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay and then just two other questions, so apologies. One DP [Phonetic] on the opex, you mentioned that the percentage impact from growth in opex in the second and third quarters. But from a modeling perspective, in aggregate, on a gross portfolio, not just same-store, how much more million of opex are we looking at in the second and third quarters?

Bill Bayless -- Chief Executive Officer

Well, if you look Alex at 2020, we reported on this -- as we went through the year, in the second quarter, we came in about $8 million below our original expectations for the quarter, about $7.6 million for the third quarter. And so as we're looking at 2021, and at the property level, we're 90% plus occupied. We're pretty much back to full delivery of services and operations at the property's and so we expect those expenses to materially return on top of the fact that we also will have some additional COVID cleaning costs as part of the operating response to COVID that we put into place. And so when we look at 2021, we would expect to see the return of where we came in under with a lot of the expense activities that were halted and really that kind of primary period, initial period of COVID in Q2 and Q3 of last year to return to basically what we're looking at still some efficiency relative to what our original expenses would have been in 2020. But when you add the additional COVID costs pretty much in line overall with those original expectations, if you go back and look at what we had provided from a guidance standpoint on expenses last year.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. So just to be clear, so basically we're looking at $16 million in aggregate higher operating expenses and then perhaps a little bit more for extra COVID cleaning, is that's what we should expect spread out over the second and third quarters?

Bill Bayless -- Chief Executive Officer

That's right. And if you go back we talked at the end of last year third quarter call in October that our expectations are that COVID clean costs will run upwards of $3 million. Obviously, we're trying to control that as much as possible, but somewhere in that up to $3 million range is what we're expecting that to contribute.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay and then just finally and apologies for the third question. But, Bill, in your opening comments, you made a comment about student housing valuations, having been diminished. And just in our channel checks from the folks that we spoke to, we have been hearing is that any asset that was impacted by NOI, this wasn't trading in that otherwise valuations and Cap rates etc., have been unimpacted pre-COVID to post-COVID. So I just, maybe I misheard you or maybe you are just...

Bill Bayless -- Chief Executive Officer

No. No. And obviously, Alex. If you have an asset that was unaffected and is 95% to 97% at its historical occupancy and you traded, its valuation was not impacted, but largely, when you look at valuations of portfolios and decisions of sellers to sell or not sell, the decision to not sell the asset is based upon that impacted NOI in applying that Cap rate to it and so the -- you see selective trading taking place in terms of what assets are not impacted in going out versus those that are being held for sale for later period when they improve.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay, thank you.

Operator

[Operator Instructions]. The next question is from John Pawlowski with Green Street. Please go ahead.

John Pawlowski -- Green Street -- Analyst

Thanks a lot. For this upcoming fall, do you have a sense yet with your conversations with the universities on how many of your beds could be potentially just offline due to do densification efforts on the on-campus assets?

Bill Bayless -- Chief Executive Officer

Yeah. At this point in time, John, it is still optimistic that there as it relates to our ACE portfolio that there will not be de-densification. Of course as we see universities in many cases not -- they do have to react to public health officials if there is any concerns brought through on that. We're in very good standing in that the large majority and we only have two products that we've developed that have community bedrooms in terms of a VCU and Cal Berkeley. Cal Berkeley has come out very positively in terms of their expectations currently to return to normal in the fall. And so we are hopeful that de-densification will not be a major impact to us in the fall.

John Pawlowski -- Green Street -- Analyst

Okay. And then I apologize if I missed it. Could you share with the occupancy assumption that underpins the first quarter revenue guidance?

Bill Bayless -- Chief Executive Officer

Yeah, so if you'll recall, we came in and I think 90 point obviously for the fall, 90.3% on our roll forward page where we show the roll forward to the 2021 same-store group. On page S10 of our supplemental, you can see fourth quarter was 90.5%. We typically see that drop in the range of 20 to 40 bps as you move into Q1 because you have some whether it's short-term leases you have for seniors that are graduating or students who leave primarily on at ACE properties for spring co-offs or internships. As we mentioned, we did sign more spring starting leases this year than we historically have. So we think there will be some contribution of that. They do start at different times throughout the spring semester depending on the individual lease. But we do think there will be some offset to that 20 bps to 40 bps, but still a little bit of a downtick relative to the fourth quarter, 90.5% average.

John Pawlowski -- Green Street -- Analyst

Thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Bill Bayless for any closing remarks.

Bill Bayless -- Chief Executive Officer

Again we'd like to thank you all for joining us. I'd also like to as always thank the American Campus team for their continued hard work and dedication. We look forward to talking to you in the quarters ahead as we will have more clarity as the year goes on. Thank you much.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Ryan Dennison -- Senior Vice President Capital Markets And Investor Relations

Bill Bayless -- Chief Executive Officer

Daniel Perry -- Executive Vice President and Chief Financial Officer

William W. Talbot -- Executive Vice President, Chief Investment Officer

Derek Johnston -- Deutsche Bank Securities -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

Michael Bilerman -- Citigroup Equity Research -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

John Pawlowski -- Green Street -- Analyst

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