Good morning, ladies and gentlemen, and welcome to AvalonBay Communities First Quarter 2020 Earnings Conference Call. [Operator Instructions] Your host for today's conference is Jason Reilley, Vice President of Investor Relations.

Mr. Reilley, you may begin your conference.

Jason Reilley - Vice President of Investor Relations

Thank you, Kathy, and welcome to AvalonBay Communities First Quarter 2020 Earnings Conference Call. Before we begin, please note that forward-looking statements may be made during this discussion. There are a variety of risks and uncertainties associated with forward-looking statements, and actual results may differ materially. There's a discussion of these risks and uncertainties in yesterday afternoon's press release as well on the company's Form 10-K and Form 10-Q filed with the SEC.

As usual, this press release does include an attachment with definitions and reconciliations of non-GAAP financial measures and other terms, which may be used in today's discussion. The attachment is also available on our website at www.avalonbay.com/earnings, and we encourage you to refer to this information during the review of our operating results and financial performance.

And with that, I'll turn the call over to Tim Naughton, Chairman and CEO of AvalonBay Communities, for his remarks. Tim?

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Yes. Thanks, Jason, and welcome to our Q1 call. With me today are Kevin O'Shea, Sean Breslin and Matt Birenbaum. We'll provide brief commentary on the slides that we posted last night, and all of us will be available for Q&A afterwards. Our comments today will focus on providing a summary of Q1 results; an update on operations so far this year, including through April; an overview of development activity and the status of construction sites; and lastly, highlighting our liquidity position and credit profile.

Before getting started, I'd just like to acknowledge that the last seven or eight weeks have been far from normal for any of us on this call or any of our more than 3,000 associates at AvalonBay. Given our market footprint in large coastal metro areas in the U.S., we certainly have been impacted by this pandemic, professional and personal level. Many of us have had to learn to adjust to a different working environment at home while managing new and shifting family dynamics at the same time.

But even more of our associates have been asked to leave the comfort and safety of their homes, most every day, to provide housing and service for the more than 100,000 residents that call one of our communities home. What we do is fundamentally essential, and we are grateful and inspired by our team's amazing dedication and thank them for the commitment they demonstrate every day in service to our customers.

Now let's turn to the results of the quarter, starting on slide four. It was a solid quarter. Highlights include quarter core FFO growth of almost 4%, driven by healthy internal growth with same-store revenue and NOI growth coming in at 3.1% and 3.0%, respectively. All of our major regions, except metro New York, New Jersey, posed same-store revenue growth of 3% or more in Q1. In Q1, we completed three development communities totaling $215 million at an average initial yield of 6.4%, continuing a track record of creating significant value through this platform over this cycle. Given the current economic situation, we have not started any new development or acquired any new community so far this year.

And lastly, we raised over $900 million in capital this past quarter at an average initial cost of 2.9%, with most of that coming from a $700 million 10-year bond deal at 2.3% completed in February, a record low we operate for 10-year bond issuance in U.S. REIT history.

And with that, I'll turn it over to Sean, who will discuss portfolio operations, including what we're seeing so far in April and now in May. Sean?

Sean J. Breslin - Chief Operating Officer

All right. Thanks, Tim. Turning to slide five. The impact of COVID-19 and the various shelter-in-place orders had a material impact on leasing velocity in March, as noted in chart one, with year-over-year volume down roughly 40% from March 2019. In April, however, as a result of our teams becoming more proficient with virtual or no-contact tours, prospective residents becoming more comfortable venturing out to tour apartment homes and the various incentives we offer to increase conversion rates, leasing velocity rebounded. It was only modestly below 2019 levels, and similar to the volume of notices to vacate for the month.

Unfortunately, the reduction in leasing volume in March coincided with our normal seasonal increase in the volume of notices to move out from our communities. As noted in Chart two, this resulted in fewer move-ins and move-outs during the month of April. Taken collectively and as depicted on slide six, availability increased and occupancy suffered. As indicated in Charts one and two on slide six, availability was trending well below 2019 levels throughout most of the first quarter but spiked in the second half of March when leasing velocity fell materially. 30-day availability peaked at roughly 50 basis points greater than last year during the third week of March but has ticked back down a bit over the past six weeks or so. The impact of reduced leasing volume in March ultimately impacted physical occupancy as well as noted in Chart three, with April down roughly 75 basis points from March and 50 basis points from last year to 95.3%.

In Chart four, you can see the impact of the recent environment on April rent change, which ended the month at essentially zero. This second number reflects our efforts to help mitigate the impact of COVID-19 on residents by offering a no rent increase lease renewal option to undecided folks. And our response to the weakening environment, which included offering incentives to increase prospective resident conversion rates, which did affect increase, from about 23% in March to 34% in April.

Turning to slide seven. We collected about 96% of what we would have typically collected in an average month from our customers, which is noted in chart one. And if you look at the collection rates by segment, the rate for our market rate customers was the highest, with our corporate housing or short-term rental customers, which only represent 3% of billed residential revenue, the lowest. In terms of May collections, over the past few days, we're trending at about 94.5% of normal levels or about 150 basis points behind April. But it's early in the month. There are differences in how calendar lays out with the 1st being on a Friday in May versus a Wednesday in April and other nuances that influence daily payment volume.

Moving to slide eight. The collection rate for our highest income customers has just been the best, which isn't too surprising given the impact of the pandemic on the various service-related businesses throughout our markets. In terms of regional collection rates, the tech-led Pacific Northwest and Northern California regions have been the strongest and Southern California the weakest. Unfortunately, the impact of the pandemic on entertainment and tourism businesses in Southern California has been pretty severe. Most of the studios and other businesses producing content have been shut down for several weeks now, and all the major tourism-related sites, including Disneyland, Universal Studios and many other venues, are closed.

So with that operational overview, I'll turn it over to Matt to address construction and development. Matt?

Matthew H. Birenbaum - Chief Investment Officer

All right. Great. Thanks, Sean. To provide an update on how the pandemic is impacting our construction operations, slide nine shows our 19 active development communities across our eight regions. We started to experience slowdowns in the second half of March in Northern California and Seattle as regional shelter-in-place orders were announced and availability of both labor and inspection started to be impacted. By early April, the Northeast saw similar impacts, such that in April across all 19 projects, our average daily manpower was reduced by an average of roughly 50% with wide variations as reflected on the slide. Projects indicated in green have seen relatively little impact, while those in yellow have been proceeding at a significantly reduced pace, and those in red are temporarily shut down, except for basic life safety and asset preservation activity.

Residential construction is considered an essential activity in many jurisdictions. And just in the last week or so, we've started to see a listing of some of the more extreme restrictions, and the four projects in Seattle and the Bay Area just recently moved from red to yellow. We have been working diligently to address our on-site health and safety practices to ensure appropriate social distancing among our subcontractor trade partners, add daily health checks and on-site wash stations and move our supervisory staff to staggered shifts as part of our ongoing response.

These 19 development communities represent a projected total capital cost of $2.4 billion, which is our lowest volume of development underway since 2013. As shown on slide 10, we shifted to a more cautious stance as far back in 2017, and our development starts over the past couple of years have averaged just $800 million, a little more than half of our mid-cycle run rate of $1.4 billion per year. This puts us in a strong position as we navigate the shift from expansion to recession.

Slide 11 shows a breakdown of our future development rights. We have been managing this pipeline of future growth opportunities to provide us with maximum flexibility at relatively modest cost and control over $4 billion of next cycle development projects with a total investment of just $120 million. The development rights pipeline includes 28 different projects with more than 20% of the projected capital in flexible public-private partnership deals and another 20% in asset densification opportunities, where we are pursuing entitlements to add additional apartment homes at existing stabilized communities. Both of these types of opportunities offer flexibility to align timing with favorable conditions in the construction and capital markets.

Kevin will now provide some comments on our liquidity and balance sheet.

Kevin O'Shea - Chief Financial Officer

Thanks, Matt. Moving to slide 12. As shown on the next few slides, we entered this recession very well prepared from a financial perspective with a healthy liquidity position, modest near-term maturities and a well-positioned balance sheet. Turning first to liquidity. As you can see on slide 12, our liquidity at quarter end totaled $1.8 billion from a credit facility and cash on hand. This compares to a $900 million remaining expenditures on development underway over the next several years, of which about $400 million is expected to be expensed over the remainder of 2020. As a result, at quarter end, our $1.8 billion in liquidity exceeds remaining spend on development in 2020 by roughly $1.4 billion, and our liquidity exceeds total remaining spend on development over the next several years by nearly $1 billion.

Turning next to our debt maturities. On slide 13, we show our debt maturities over the next 10 years and our key credit metrics. For debt maturities, we have only $70 million of debt maturing in late 2020 and only $330 million of debt maturing in 2021 for a total of $400 million in debt maturities over the next seven quarters. Thus, looking out over the balance of 2020 and incorporating both development spend and debt maturities, our quarter end liquidity of $1.8 billion exceeds remaining debt maturities and spend on development over the rest of 2020 by $1.3 billion. In addition, our liquidity exceeds all of our remaining development spend over the next several years and all of our debt maturities through 2021 by $500 million. So you can see from this that we enjoy healthy liquidity relative to our open commitments through 2021.

In addition, we also enjoy considerable incremental liquidity from cash flow from operations in excess of dividends as well as from our ability to source attractively priced debt capital from the unsecured and secured debt markets to the extent the assets in the equity markets remain unattractively priced. In this regard, at quarter end, our net debt to core EBITDA of 4.6 times was below our target range of five times to six times, leaving us meaningful capacity to absorb leverage increases as we proceed through these challenging times. And our unencumbered NOI was at or near an all-time high of 93%, reflecting a large unencumbered pool of assets that we could tap if necessary for additional secured debt capital.

And with that, I'll turn it back to Tim.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Great. Thanks, Kevin. Just wrapping up and turning now to slide 14. So overall, Q1 was a very good quarter with results a bit better than we had expected despite the slowdown we began to experience in the second half of March. In April, we felt much of the impact of the shutdown, certainly, although we were are able to still collect most of what was built for the month, with only 6% uncollected by month end, which is about 400 basis points lower than normal. Progress at many of our construction sites have been impacted by the pandemic. We expect that orders by some of the state and local governments temporarily halt inspections and construction will result in the delay of delivery and obviously schedules at several communities, which in turn will push some of the lease-up NOI projected for 2020 into next year.

Most sites that have been impacted are currently in the process of either reopening or slowly returning to full manpower as most states are now permitting new construction as an essential service, as Matt had mentioned. Our shadow pipeline of $4 billion in development rights, which is controlled mostly through options or represent densification opportunities at existing communities, offers good flexibility in terms of timing future starts when supported by market conditions. And lastly, as Kevin just mentioned, we're in great shape financially. We have ample liquidity to fund existing investment commitments, a modest level of debt maturing over the next several quarters and strong access at attractive pricing to the debt markets.

So with that, Kathy, we're ready to open up the call for questions.

Question & Answers

Operator

Thank you. [Operator Instructions]We will take our first question from Nicholas Joseph with Citi.

Nicholas Joseph - Citi - Analyst

Thanks. I hope you guys are doing well. Just first, maybe on construction. Obviously, the delays that you've seen are also being seen really across this space. So I was wondering how that impacts expected supply in 2020? And on average, how long do you think individual projects will be delayed in terms of deliveries?

Matthew H. Birenbaum - Chief Investment Officer

Sure, Nick. This is Matt. In terms of what happens to total deliveries in 2020, obviously, I think it's too early to tell. What we found the last couple of years, even before the pandemic, was that deliveries wound up being 10% to 15% below what we had thought at the beginning of the year just due to labor constraints, inspection constraints and so on. So certainly, I would expect more deliveries to be down by more than that relative to what maybe third-party reports were at the beginning of the year. But it really depends, obviously, on how things play out over the next couple of months.

As it relates to our pipeline. So far, what we've seen is and what's reflected on our supplemental, five projects, we've delayed initial occupancy by a couple of months, call it. And six projects, we as of right now, we think are probably the final completion is going to be delayed by about a quarter. So that's maybe 1/3 of our 19 that are actively underway right now. Some of the others are either in areas that have been less impacted or early enough in their process that they haven't been materially slowed down. Obviously, that could change. But kind of that's the way we see it as of right now.

Nicholas Joseph - Citi - Analyst

And then just as states and different cities start to reopen, how are you thinking about kind of repositioning your amenity space to allow for social distancing? And then maybe medium and longer term for the developments on the progress or any kind of future developments, how do you think about changes to different amenity space, given maybe potential bigger picture trends such as work from home or anything else?

Sean J. Breslin - Chief Operating Officer

Yes. Nick, this is Sean. I'll take that one to start and others can jump in if they like. But in terms of the existing amenity space, yes, we do have a team that is taking a look at what the occupancy standards are for different types of spaces, not only at our communities but at our offices as well. And what kind of limitations that we'll place on the occupancy limits that were in place before the pandemic, we're still going to see that reduced pretty materially. But it depends on the type of space, depending on what you're talking about, fit to center equipment that was spaced two feet apart. We may have to go back and redistribute the equipment to have more spacing as an example. Chill spaces where there were, call it, soft seating that was side-by-side with tables around. That may have to be a space where we just reduce the number of items in there in terms of chairs, and the same thing, in terms of our swimming pool.

So there's a fair amount of work underway to sort of re-densify the various spaces at our communities to make sure they comply with the proper social distancing protocols. And it's just going to take some time to work through each one. And then in terms of the longer-term trend, you're probably a little too early to tell now. But certainly, there was a trend to see more people working from home, whether they were telecommuting or whether they were just sort of independent contractors working from home that are producing content or in sort of contracting business and things of that sort for different types of industries. Entertainment, in particular, comes to mind for a place like L.A. So that trend will likely continue. I think it's probably a reasonable conclusion from what we see. But to what degree, it's probably too early to tell at this point.

Nicholas Joseph - Citi - Analyst

Thank you.

Operator

We'll take our next question from Rich Hightower with Evercore.

Rich Hightower - Evercore - Analyst

Hey, good afternoon guys. Hope all is well. So I wanted to get your reaction to one of your competitors' comments yesterday regarding a little bit more underperformance in the garden-style communities versus high rises due to the collections. Are you seeing the same in your portfolio? Or do you have any comments along those lines?

Sean J. Breslin - Chief Operating Officer

Yes, Rich, it's Sean. I can share a few thoughts on that just how we look at collection rates maybe a few different ways. Certainly, we talked about it by segment in terms of what was presented on the slides and in my prepared remarks. But in terms of some other metrics that we look at and have been following. First, the sort of price point, As versus Bs. As are running about 100 basis points higher than Bs at this point in time. And then when you look, suburban, urban, what we're generally seeing across most of the markets, that suburban is outperforming by about 25 basis points or so.

So a little bit, but not terribly material. Probably the one exception is New York where the urban environment, the collection rate is better than the suburbs given the impact we've seen in Westchester has been pretty material in terms of the pandemic. And then in terms of high rise versus garden and midrise, high rise is slightly better. But there's not a lot of high-rise product to benchmark it against, to be honest. And most of that for our portfolio is going to be in New York, a little bit in D.C. It's just not a big sample size. So I probably wouldn't draw too many conclusions about the product type differences.

Rich Hightower - Evercore - Analyst

Okay. So maybe a little bit of differentiation there in terms of what you're seeing versus maybe, I guess, elsewhere in REIT-land. Okay. That's helpful color. And then I guess just as you think about foot traffic and demand patterns picking up now that we're into May and things have kind of come off the bottom, are you seeing any differentiation between suburban and urban within the portfolio along those lines?

Sean J. Breslin - Chief Operating Officer

Not material at this point. It's more market-driven, I'd say, where you've got certainly the hotspots are a little more sensitive to the rebound. And we're seeing people want to still continue with more of the virtual tours as opposed to self-guided, as opposed to maybe like the Mid-Atlantic where people seem to be more comfortable given the state of the environment, either with self-guided tours for the most part at this point and not as many virtual tours. So I think it's really a market-based dynamic as opposed to maybe price point at this point or location, as you pointed out, urban versus suburban.

Rich Hightower - Evercore - Analyst

Okay, great. Thank you.

Operator

We'll take our next question from Jeff Spector with Bank of America.

Alua Askarbek - Bank of America - Analyst

HI. This is actually Alua Askarbek for Jeff Spector. So I was just wondering if you guys could give some more color on the condo sales going on right now. So I think you mentioned this one were under contract in 4Q 2019 on the call. And so I was just wondering, I assume all of those were the ones that were closed so far. And are there any new contracts underway? Is the market enough active? Are you expecting to take a lot of price cuts? Or are you just holding up in there?

Matthew H. Birenbaum - Chief Investment Officer

Sure. This is Matt. I think in case some people couldn't hear the question, it was about Columbus Circle condo sales and recent progress. So as of today, we have 41 units closed and have generated $129 million. That's an average price of $3.15 million per condo. We have 22 others under contract with binding deposits. That represents another $70 million of proceeds. It's actually slightly higher priced, $3.17 million, $3.18 million per unit. The sales activity, the new contract activity was pretty strong in January and February. In fact, if you go back to our first quarter call, we had 54 contracts at that time. So we've actually added nine since then or about $40 million in incremental sales since the first quarter call. And really, all of that came in February and the first half of March because once the stay at home orders came into place, we went to 100% virtual tours in mid-March with our sales agent there. And traffic did slow dramatically in the back half of March and the early half of April.

I will say in the last, just two or three weeks, traffic has picked back up. And although they're virtual tours, traffic is back up to over 30 per week, which is a pretty strong number and comparable to where it was kind of before things stopped in mid-March. So but until people can actually get in and physically see the product, which we hope they'll be able to do within the next month or so, we won't really know how that traffic might convert to additional contracts. Pricing has been consistent. We haven't really seen a difference in terms of the pricing levels, either asking or what we're achieving for the last 10 or 15, 20 contracts than the early contracts. It's there's a lot of different price points in the building, depending what line and what floor. So it's not exactly apples-to-apples. But so far, we haven't seen any impact there yet. But again, until we really get people back into the building and start seeing some additional new contract activity, which hopefully will happen soon, we'll have a better sense.

Alua Askarbek - Bank of America - Analyst

Okay, great. Thank you.

Operator

We'll take our next question from John Pawlowski with Green Street Editors.

John Pawlowski - Green Street Editors - Analyst

Thanks. Sean, as you guys roll out concessions in different markets, which markets are responding better in terms of traffic coming in when you roll out specials? And which few markets just aren't responding no matter how generous the concessions become?

Sean J. Breslin - Chief Operating Officer

Yes. I mean, John, the response has been pretty healthy across most of the markets. I mean, I guess I'd have to tell you that based on what you probably have heard from others and are just pointing out some of the weakness in L.A. by taking slightly more concessions on average in the L.A. market as compared to others to get those conversion rates to sort of reasonable levels. But in terms of the rebound, for the most part, I would say that it's been pretty steady with some limited exceptions. And the exceptions really more relate to the hot spots and obviously, specific around in and around New York where people are still pretty hesitant, given the environment, to be out shopping for apartments.

People are doing virtual tours and the concessions are reasonable but not as much as what was required in L.A. to get people to spur to action just given what was happening in that market environment, which is already weak, as you may recall, in the beginning of the year. And the pandemic certainly only made it that much more difficult in terms of people who are qualified, being able to come out and shop for an apartment and be able to afford to rent on apartment, given what was happening with all the studios being closed. And a lot of people that produce content in Southern California, those shops being closed. So that's sort of the one market where it's been a little more challenging.

John Pawlowski - Green Street Editors - Analyst

Okay. And then last one for me. Just a question about D.C. and the defensiveness of that market. Obviously, a winner on a relative basis during the GFC. In your minds, the price point of your portfolio in the D.C. metro and the employer base and how it's shifted, is D.C. different this time? Or would you still put it up there against any other market in the next 12 to 24 months just in terms of rent growth and occupancy trends?

Sean J. Breslin - Chief Operating Officer

Yes. I mean, based on what we know as of now and just thinking about the composition of the workforce, I think D.C. should hold up relatively well. I mean if you think about the nature of the pandemic and how things have started and the impact on travels today, for the most part, as opposed to kind of a trickle down, it's really a trickle up-type thing where a lot of the job losses are heavily concentrated at those lower-level service jobs. You're talking about food service, or those bars, restaurants, hotel workers, things of that sort, it may trickle up some.

And in certain geographies where people are paid well, again, like L.A. that produce content, maybe disproportionate impact. But D.C., highly educated population, a lot of professional services, defense, etc. We'd expect it to hold up relatively well. And we've seen that thus far, even though it's only been sort of six weeks at this point in terms of what's happening. But others may have a different thought to add.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

No, I agree. I mean, between the knowledge base, knowledge nature of the economy, the federal government, I would say local governments are going to be pinched. I think you're going to see cutbacks there, but not as much in the area of federal government. I think it should stand up pretty well. I think D.C. was hurt a little bit initially just because of their marked exposure to hospitality. They obviously got Hilton and Marriott here, which had massive furloughs kind of early on in the pandemic. But I think over time, Sean is right. I would expect it to stand up pretty well relative to the U.S. overall, John.

John Pawlowski - Green Street Editors - Analyst

Okay, thanks for the time.

Operator

We'll take our next question from Austin Wurschmidt with KeyBanc.

Austin Wurschmidt - KeyBanc - Analyst

Hi, good afternoon, everyone. I was curious if you were to negotiate a new contract today on a construction project, where do you think hard cost would be versus pre COVID-19?

Matthew H. Birenbaum - Chief Investment Officer

Yes. Good question, Austin. It's Matt. We certainly think the direction is headed down. I think, as you sit here in this very moment, I'm not sure that you would see that yet. And in several of our projects, we have decided to defer. One of the reasons we've deferred some of our potential 2020 starts is because we think that there will be a better buying opportunity in, I don't know, three, four quarters maybe. So I think it takes a while to work its way through the system. And you probably will see it first in some of the early trades, where, like, concrete or site work paving, where deals aren't starting, those folks will start to see they have excess capacity and probably start to cut the pricing first.

It'll probably take longer before it gets to some of the finished trades where there's plenty of stuff underway that's going to need to be finished. And if anything, they take longer to get finished over the next four to six quarters. So one of the advantages we have is because 90-plus percent of our construction, we are our own general contractor, we can kind of time that and play that strategically a little more than if we were using a third-party general contractor, which is the way a lot of the private side of the business works. So still too early to tell. We'll see what happens. In the last downturn, it was down maybe 15%. And that was an extreme correction. But time will tell. I think Tim wanted to add something.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Yes. Also, I'll just say, I think, going into this, obviously, we've been seeing a lot of pressure on construction costs. We've probably been seeing 6% to 8% increase for the last three years. So it was probably already well above trend, and that provides us a little bit more conviction that we're likely to see a correction. And certainly, in terms of wages, commodities, materials, profits of subcontract division, all come down, putting downward pressure on pricing. Offsetting that somewhat, we do we would expect a little bit higher general conditions, just given changing protocols, social distancing, things like that and perhaps productivity being a little bit strained.

Offset again by as subcontracts start to reduce their workforce, they're left often with their most productive crews. And you oftentimes get the cost benefits from that as you come out of a downturn in the early parts of an expansion. So overall, we would expect we do expect costs to come down. They're going to need to, just to make sense, make sense of the economics, given NOIs are flat on their way down and capital costs, if anything, are up since being in the pandemic, looking at both for sort of the bond and the equity markets, obviously.

Austin Wurschmidt - KeyBanc - Analyst

That's really helpful. I mean, you guys had previously start expected to start $900 million. Matt, I think you alluded to some of those projects you delayed purposefully with the potential for cost to come in. What percent of that $900 million are costs fully baked at this point?

Matthew H. Birenbaum - Chief Investment Officer

I would say none of it. I mean, you're talking about the cost or the start commitment? We haven't committed to starting anything this year.

Austin Wurschmidt - KeyBanc - Analyst

The cost on some of the projects.

Matthew H. Birenbaum - Chief Investment Officer

Yes. The only cost that would be baked would be where we bought the land already. I think two of those nine and we did buy two parcels of land in the first quarter that's related to the deals that could have been or could be 2020 starts that we spent $38 million on those two deals so far. A little bit of a soft cost is baked, but we haven't bought any of the construction on any of those jobs.

Austin Wurschmidt - KeyBanc - Analyst

Okay. Understood. And then last one for me, Kevin, maybe to pull you in here a bit. On the balance sheet, certainly in great shape. But if you don't start any or only a small subset of that $900 million, where do you expect leverage to finish the year?

Kevin O'Shea - Chief Financial Officer

Yes. I mean, Austin, we're probably going to have to provide a more fulsome update on what we expect our capital plan to be for 2020 when we have our midyear call and provide have a clear visibility on a whole range of things, including not only NOI, but also investment activity and capital markets activity. We're standing right now at remarkably low leverage level of net debt-to-EBITDA of 4.6 times versus the target range of five to six times, and that's intentional. We very much intend drove that leverage number down over the last few years to give us more scope and more capacity as we might have to pivot through a downturn until we find ourselves kind of in the spot we had hoped we would be, which provides us an awful lot of flexibility to respond to the opportunities that may present themselves here in the coming months as well as capacity to take on debt if need be to pull through incremental development spend.

But as I pointed out in my opening remarks, we've already got a bundle of liquidity here relative to our open commitments here over the near term. And from a capital plan standpoint, although we withdrew guidance, when we provided our guidance, our initial expectation was to raise external capital of $1.4 billion. And we've already raised $900 million of that. So we'll track through the year and raise 2/3 of what we initially had hoped to raise. We may not need to raise as much as all that. But I think the bottom line answer to your question is while we haven't updated our guidance, I think our capital needs going forward are pretty modest. And so you can probably looking at the balance sheet in terms of absolute debt levels, where it is, it's probably not going to change a whole lot from here based on what we know today.

Austin Wurschmidt - KeyBanc - Analyst

No, that's helpful. I guess I was just getting at, it seems like it could be lower to the extent you get some lease up and you're not you don't have the incremental spend, but will wait and see what you have to say in Q2. Thank you.

Operator

Our next question from Nick Yulico with Scotiabank.

Sumit - Scotiabank - Analyst

Hi, This is Sumit [Phonetic] from Scotia and for Nick. Thank you for taking the question. Just following up on the development discussion. You mentioned as a footnote that you've lowered the yields on your developments. Just wondering if you could give a little more color as to what kind of yield reduction you're looking at for near term or developments in lease-up versus, let's say, stuff that's going out in 2021, '22?

Matthew H. Birenbaum - Chief Investment Officer

Sorry, can you repeat the question? This is Matt. The question was about the yield shown on the development?

Sumit - Scotiabank - Analyst

Yes. Yes. So you footnoted the yield as slightly reduced, saying that you brought down the yield for you brought down assumptions for developments nearing completion and lease ups. So just trying to get a sense of what's the split in the yield reduction for particularly for developments that are more near term in 2020, let's say?

Matthew H. Birenbaum - Chief Investment Officer

Yes. So as a general rule, our practice has been that when a deal gets more than 20% leased, then we kind of remark the rents to market to reflect the experience that we're actually having. And until that time, we tend to carry the rents of what we initially underwrote. So we've talked three years about the fact that we don't trend rents, and that's what we mean by that. So in this particular release, we only have the three deals that have completed. And in that case, those rents reflect the actual rent roll in place. Those are all more than 90% leased as on the schedule. And then there's three other communities where we have enough leasing done that we've reflected the most current rents there on the chart there on attachment eight.

The other 16 assets, we haven't done enough leasing yet, so those are still the original pro forma rents. So that's consistent with what our practice has always been. I guess we did add a note just to make clear that we have not endeavored to update those because of any changes in the environment related to the pandemic. We're still carrying the rents that were in the initial pro forma. And when we get leasing activity, we will adjust them accordingly. So it's really not any change from our current practice. I think it's just an additional disclosure that to make sure folks understood that it's a more volatile environment than it's been. Sean, do you want to talk to kind of how the current lease-up?

Sean J. Breslin - Chief Operating Officer

Yes. Just to add one thing on that. As Matt indicated, just for the first quarter, there were six assets in lease-up. And if you look across the rents for those six assets, four of them we're producing rents, at the time, kind of average for the quarter that were above the original pro forma. One was equivalent to our original pro forma and one deal kind of in Northern Seattle was modest to below our original pro forma. When you blend all that together, rents at that point in time were roughly 3% above pro forma or around $80 or so. But there were some cost changes on those deals. So the net reduction in yield really was only about 10 basis points to a weighted average of 5.9%, so really immaterial in the context of the whole basket.

Sumit - Scotiabank - Analyst

Thank you so much.

Operator

We'll take our next question from John Guinee with Stifel.

John Guinee - Stifel - Analyst

Great. John Guinee here. Two quick questions. One is has this situation given you any thoughts on speeding up or slowing down into other markets such as South Florida and Denver? And then second, if there is a slowdown in development starts in 2020, how would that affect G&A and interest costs in 2021 as you need to you can no longer capitalize the people and development interest expense?

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Yes. John, this is Tim. I'll maybe take the first and Kevin, I don't know if you want to take the second piece of it or not. But with respect to our market footprint, as we've talked about in the past, we have onto potentially diversify a bit of our exposure to the larger coast markets into other knowledge economy-type markets, part of which are entering into Denver and to Southeast Florida for sure. And there have been other markets that have been on our screen as well. We've been pretty active, in terms of our investment in both those markets, both in terms of acquisitions and new development and also funding third-party developers.

So we've tried to really kind of sort of activate all the levers, if you will, with respect to those markets. So we really haven't been held back by desire to get in those markets. It's just a function as much of the opportunity as anything. But we'd expect that to continue. That will continue to sort of trim from some markets and recycle some capital to the extent it makes sense to grow the balance sheet, to invest capital in those markets, we can do that as well. But right now, it's more through debt and asset recycling. So I don't think anything's changed there. We'll continue to evaluate other markets that we think it could make sense for us to be in long term that we think are over-indexed to the innovation economy, and therefore, we think we'll outperform over a long period of time from a demand standpoint.

And I think your second question, had to do with G&A around development. I can maybe start that and, Kevin, if you want to come in. We're always going to try to rightsize the development organization to sort of the to what we view the opportunity set over the next two or three years. To the extent we delay deals this year, it means we're probably going to have more stacking up in 2021 or 2022. So part of it is to make sure that you're properly positioned, not just for what you have to do for the next six months, but really for the platform over the next three or four years. To the extent this becomes a very protracted recession, that changes the calculus, obviously. That's not what that's not how we're viewing the environment today. We are viewing this as kind of a slow buildup from a sharp downturn.

And if we do see meaningful contraction in construction costs for the balance of 2020 and then as you start to see some recovery in 2021, you start to see 2022, 2023 could be a really good time to be delivering new product, which would argue for heightened starts in 2021. So we want to make sure we've got the rightsized development and construction organization, really, over the next three to four years, not just over the next six months. And not much as change in terms of our view that it needs to change material in part, because we'd already brought it down from, as Matt had mentioned, from down $1.4 billion to roughly $800 million sort of late cycle. So it is already kind of sized for late cycle downturn-type dynamics. Kevin?

Kevin O'Shea - Chief Financial Officer

Yes. I mean, just a couple of things. I mean and as a result of some of those the decline in start volume, we did have some recent staff reductions in our capitalized groups last year or so. And so when we put our budget together for this year, we did expect capitalized overhead for 2020 to be a bit below what it was in 2019. And if you look at what happened in the first quarter, capitalized overhead did sequentially increase a little bit in the first quarter due to a few onetime items such as increased benefits and payroll costs. But for full year 2020, we would expect that, that capitalized overhead run rate would decline in the back half of the year somewhat being based on what we know today.

John Guinee - Stifel - Analyst

Great, thank you.

Operator

We'll take our next question from Alexander Goldfarb with Piper Sandler.

Alexander Goldfarb - Piper Sandler - Analyst

Hey good morning. Just two questions for me. One, in the there was a footnote in the release about the impact of lost fees, $1.4 million per month. Can you just talk about your expectations? I'm assuming with the eviction moratorium market, obviously, there are no late fees. And then, I'm guessing wherever you don't have amenities open, you aren't charging amenities. So how should we think about this $1.4 million a month? Is that something we should be thinking about for the next few months? Or is your view that within, whatever, maybe by mid-summer, a bunch of communities will fully be opened where this number won't be as big as it is right now?

Sean J. Breslin - Chief Operating Officer

Yes. Alex, this is Sean. Just to give you some perspective, about 80% of that $1.4 million was in the way of common area amenity fees because our amenities are closed. So our expectation is you're going to see a kind of slow rebuild of that line item over the next few months as states begin to reopen and we resize our occupancy limits, as I was describing earlier in response to a question, and then it will slowly rebuild. But we don't expect it to snap back, I guess, I would say, just because the pace of opening is going to be different by jurisdictions based on the local market environment. But that's the majority of it. That should fully rebuild. The rest of it was small stuff related to some late fees and credit card convenience fees and things of that sort.

Alexander Goldfarb - Piper Sandler - Analyst

Okay. Okay. And then on your line of credit, you guys had drawn the $750 million, and then you quickly paid you just paid back the $535 million. It sounds like you have about $150 million or so rough numbers on condo sales. What drove it's pretty quick that you guys pulled it down and then paid it back. So what shifted in your thinking? Was it more that, “Hey, we weren't sure if banks were going to fund,” or “We weren't sure if the Fed is going to be there?” Or was it just once you guys delayed a bunch of projects, suddenly you realize that you didn't need all that money at once?

Kevin O'Shea - Chief Financial Officer

Alex, this is Kevin. So we drew a portion of our line of credit, basically 3/8 so the $750 million out of the $1.75 billion in mid-March. And we really did it on a precautionary basis, not because of anything in our business, not because of our development activities, not because we had any particular use. We didn't have commercial paper. There was really nothing related to AvalonBay that caused us draw that $750 million. Instead, it was really just a reaction to the initial stage of the pandemic and its impact on the capital markets, and before the Fed had fully stepped in to stabilize the markets. So it's really done on a precautionary basis to ensure that we have greater control over the capital. That would give us incremental abundant time and room to maneuver through what we saw would be a choppy set of months ahead of us.

Matthew H. Birenbaum - Chief Investment Officer

Maybe just to add to that, Alex. I mean, once the Fed came in, obviously, the bond markets became very constructive. And we had to top, especially if we have access to bond markets if we needed to. So that was the reason to ultimately just pay it back.

Alexander Goldfarb - Piper Sandler - Analyst

Okay okay. Thank you.

Operator

We'll take our next question from Rick Anderson with SMBC.

Rick Anderson - SMBC - Analyst

Thanks, good afternoon, everyone. First question, this whole thing started to take effect at the beginning of what would be considered the heavy leasing season for multifamily. My first guess was perhaps that was a good thing because but then I thought about it, maybe it was a bad thing because there was more activity and tenants maybe had an arrow in their quiver to negotiate. So what do you think? Do you think not that we could have changed it, but do you think you were the industry or yourself was negatively impacted by the timing? Or how do you think that would play out from a cadence standpoint?

Matthew H. Birenbaum - Chief Investment Officer

Rich, it's hard to know. I mean, the one thing I would say, when you are in the peak leasing season, it is when we get most of our rent growth for the year. You have both the benefit of better market pricing and more leasing velocity. So your rent roll is increasing. You kind of earn it all kind of in that March to July time frame. And obviously, that's challenged right now. So to the extent you kind of tick in time pandemics may argue for a late fall start. But we have a lot of things in our control. It's we haven't gotten there yet.

Rick Anderson - SMBC - Analyst

Okay. Yes. I mean, come on, can't you guys do anything right? So the second question is maybe perhaps more realistic in longer term…

Kevin O'Shea - Chief Financial Officer

As far as allowed.

Rick Anderson - SMBC - Analyst

So you guys are thought of as sort of visionaries. And I don't know if you're different you make product types and price points came out of the Great Recession, but let's pretend for the sake of this question that they did. Do you feel like that there is an evolution to multifamily as a consequence of all this, maybe more comparable with at a work-from-home environment, maybe more of a build-out of internal office space or technology enhancements or laser printers or whatever might people be needing right now that they don't have because they're working from home? Is that something that you think or maybe there's another alternative about how multifamily will evolve out of this. Do you have any idea or have you thought about it at all about what the change in the basic fundamentals of the industry might look like five years from now?

Kevin O'Shea - Chief Financial Officer

So Rich, it's Kevin. In terms of demand for multifamily, I think that's it's going to continue to be driven by the nature of the households. And there's been such great growth in single-person households. That's what's really what drives the demand part of our business. It's that's why households are for singles and professional couples, very few children. But in terms of kind of the product and the service, I do think you'll probably see some of this the work-from-home take shareholders already a trend of a sort, I think that Sean alluded to you in some of his remarks. So I think there's a good basis for expecting that. That might accelerate a bit. We had already started putting co-working lounges and spaces with meeting rooms in all of our communities. And they maybe be a little bit bigger now just to provide a little bit more space. But they're pretty good size to begin with.

And if you think about it from a resident standpoint, they might prefer that environment to Starbucks, which is a much more controlled environment. If they're going to sort of work from if they're going to work from some place other than the office. I think, certainly, there's been a movement towards much bigger or grander fitness centers. I think you're going to continue to see that. I think people are going to have more faith and comfort in working out in a community with their peers than and maybe a large club with a bunch of high schoolers who are cleaning up equipment and things like that.

So and then within the unit, another trend there that had already started I think that might accelerate is just more flexible open unit spaces that can where the nature of the space can change during the course of the day based upon kind of where you are in your day, where kind of kitchen, dining spaces convert to office spaces. My office faces an apartment community right across the street, and I've noticed a number of people have sort of set up their desk right up against the window. I don't think that's where it was, to be honest. They're just spending a good part of their day there now. So I think people start to think about that in terms of unit design that folks may be using the space more during the day than they have historically.

And then there's certainly just a need for broadband and high speed and reliability there and anything that we can do to kind of support that. And then I guess, lastly, I'll just mention, it's kind of a smart home initiative, which a lot of folks are pursuing now. But I think one of the most intriguing aspects of that is their merged entry, being able to allow goods and services to sort of flow freely throughout a community rather than having to be handled by something like a front desk or in a central office that people can get access right up to the unit and potentially right into the units to the extent that the resident has to step away. So I think you'll see all those things that were trends anyway, perhaps just accelerate as a result of this.

Rick Anderson - SMBC - Analyst

That's really good color. Thanks, Tim. Appreciate it.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Sure.

Operator

[Operator Instructions] We will take our next question from Hardik Goel with Zelman.

Hardik Goel - Zelman - Analyst

Sorry guys, can you hear me.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Yeah, okay. Now, yes.

Hardik Goel - Zelman - Analyst

Thank you, guys. I was just wondering, if I look at your development pipeline, and I know Matt talked about how you guys don't trend rents on, and the only really update is when there's 20% leasing. But if you look at the development pipeline that's going to deliver 2021, late 2021 or mid-2021 and beyond, how do you feel about the underwritten yield on those? And I know there's a lot of uncertainty, but what kind of buffer is there where you would still underwrite it today?

Matthew H. Birenbaum - Chief Investment Officer

Hardik, it's Matt. The deals we are delivering in 2021, first deliveries in 2021 are deals that generally were started in the last year, call it, because otherwise, they'd be delivering sooner than that. So on those deals, I guess, we'll see what happens, right? I mean, fundamentally, it's going to depend what happens to market rents, what happens to NOIs. They some of those deals were higher-yielding deals in the first place just because of the geography of where they were. So that, in theory, I guess, gives you a little more room.

But I don't think and there's a few that are early enough that we might actually realize a little bit of construction cost savings. And as I mentioned, we are, in some cases, shifting from trying to buy things as quickly as possible to slow payment a little bit to take advantage of hopefully what could be a better market to buy construction services in a few quarters. But yes, I mean, the risk there is the same as the risk in the stabilized portfolio. It's just the risk of what happens to market rents between now and then.

Kevin O'Shea - Chief Financial Officer

Hardik, I guess I'll just add to that. First, recognize those deals are capitalized in a different capital environment. So you got to figure, you got to look at both the cost of capital as well as the underlying fundamentals. But as you saw in Sean's remarks, rents in April were roughly flat on a year-over-year basis. I think there's a basis for believing that they should continue to come down. We've lost 20% of our workforce. And even if 3/4 of it comes back as states start to open up the economies, there's still going to be 8% unemployment and likely to see flat to maybe slightly negative household growth while we're still delivering some new supply.

So that's going to take its toll in the near term on the NOIs. But as I mentioned before, I think it ultimately, it's we could see a pretty strong late 2021 and '22 as delivery as people start to do what we are doing, which is delaying starts, and we start to have a dearth of deliveries at a time when maybe the economy is really starting to regain its footing.

Matthew H. Birenbaum - Chief Investment Officer

Just kind of one other thing, Hardik, as you think about sort of developing how it flows through our earnings from a business model standpoint and compare it perhaps to the last downturn. As you know, we've emphasized over the cycle how match funded we are with respect to long-term capital being sourced to fund the development underway. And really, at Q1, we were about we were over 80% match funded with long-term capital against the development book that's underway. So that's an important point. Tim touched on in his answer a moment or two ago.

But I really do think that as you think about AvalonBay and how we might perform here in the coming years, it's an important distinction to draw in terms of how we are positioned from a balance sheet and funding point of view and a build in accretion point of view with respect to development relative to, say, the last downturn where we had a lot much more in the way of open and unfunded development commitment at a time when, 12 years ago, developments were coming at around 5% to 6% yield and you're funding it with debt cost around 6%.

Today, it's very different. We'll see where the yields ultimately shake out to be. But we know debt costs for us on a 10-year basis today are probably somewhere in the mid-2% range. So and we don't really need much of that at all. I mean we're already over 80% match funded on the development underway. So we really are in terrific shape from that standpoint to sort of benefit from banking profit growth on the 80% or so that we've already paid for that's underway. And to the extent we have to source incremental capital needs to get to do so, that's likely to be as an additional source of accretion.

Hardik Goel - Zelman - Analyst

Just from my standpoint, guys, I have no problem with the balance sheet. I never have. I find it confusing when people are kind of dinging you for that, and it's resulted in you guys holding $750 million on your balance sheet. It's kind of crazy. To me, no issues with the balance sheet at all. You guys have been doing this for two decades and people still hit numbers about this. But I was thinking more about the IRRs. And Matt and Kevin, all of you guys have talked about the 9% to 12% range through cycle. You get 9% on assets started during the last downturn, maybe 12% on your best assets. What I'm trying to understand is on an IRR basis, obviously, these things will lease-up more slowly if they're coming on in a stressed environment. What is the IRR on the developments that are kind of 2021 and beyond? Is that a 9% number, 10% number? What does that number look like?

Kevin O'Shea - Chief Financial Officer

Yes. We have shared with you in the past, at least with the last couple of cycles where we had we started deals kind of late in the cycle and delivered into a downturn. Those were when you kind of run out 10, 15 on your IRRs, they are well within deals that you start at the beginning of the cycle or in the downturn, and lease up at the early stage of cycle. But I think we saw ranges from and it narrows over time, right, as you seen out the time hozizon from 10 years. But over a 10 year-horizon, I think we were so clear on our cost of capital, long-term cost of capital. I think on the low end, it was around 8.5%.

On the high end, it was more on the 13.5% range. So I would say it's going to be some of these deals that were that weren't sort of timed the worst, that started when construction costs were peaky and delivering in the depressed environment. I think they could still be high single-digit kind of IRRs, and deals that we start in 2021 and 2022 could be much better than that.

Hardik Goel - Zelman - Analyst

Got it. Thank you, that's great color.

Kevin O'Shea - Chief Financial Officer

Thank you.

Operator

We will take our next question from Haendel St. Juste with Mizuho.

Haendel St. Juste - Mizuho - Analyst

Hey guys, thanks for taking my questions. Quick couple for me here. So just going back to April, Matt, questions for a quick second. I guess I'm most surprised to see affordable rent collections trail the market rate collections. I've seen some of this is income and savings related, but I guess I'm more surprised to see the more meaningful lag in the corporate apartments business. So curious if you've been able to identify or help us understand what the key reasons, the key headwinds you're facing there in terms of rent collection? And that's it for me.

Matthew H. Birenbaum - Chief Investment Officer

Okay. I did you were a little muffled on some of it, but I heard the collection rate in the quarter had. And yes, it is lower. I mean, the way I think about it is these are the kind of corporate apartment home providers. It's not the corporations per se that are the end users here but the sort of intermediaries that are essentially has a sales team that have reached agreements with various corporations or have a booking site essentially that's a marketplace. And then they are leasing units from us and many other of our peers and others. And those there, think of it, I guess, I'll call it, it's sort of like an extended stay hotel almost, where their bookings basically dried up pretty darn quickly.

And some have some longer-term stays from people who were there on consulting assignments for three or four months and they'll bleed out little bit longer. And there are others who really were running more short term, 30-day stays, and their demand evaporated more quickly. So we're working through the process with them just as we would with other residents in terms of potential deferrals in plans and things like that. But yes, that's why the collection rate was quite a bit lower than what we'd see from our market rate apartments, which is generally higher quality residents, good household incomes, as I indicated in my prepared remarks about the slides that we addressed.

Haendel St. Juste - Mizuho - Analyst

That's helpful. So just want to be clear though. Ultimately, who is on the hook for the rent? Is it that individual or the corporate sponsor?

Matthew H. Birenbaum - Chief Investment Officer

The intermediary is technically our credit. That's who we're dealing with. But their ability to pay certainly is based on what occupancy rates they have across their portfolio. And to the extent that they're pick a number, 75% occupied with good corporate clients, that's what they can pretty much pay. Not many of these companies have probably none of them, really, have a really strong balance sheet to be able to handle three to four months without rent payments or 25%, 50% occupancy. So the nature of the pandemic and how long it lasts and the impact on the business travel are really sort of diminishing their ability to pay over the next few months.

Haendel St. Juste - Mizuho - Analyst

Yes. So can you also help us understand what percentage of the tours you've been conducting here in April and early May have been virtual? And how the conversion rate on those virtual tours compares to more traditional tours historically? I know you're finding that you need to offer a bit more incentives to get these virtual tourists to sign up for leases.

Matthew H. Birenbaum - Chief Investment Officer

Yes, good question. I don't have that right in front of me in terms of the composition of it. But I mean I would say that virtual tours for our business are not nearly as effective as the self-guided tours or an escorted tour. But given the nature of the pandemic, it's actually nice to see a rebound in activity in April where people are getting more comfortable with the virtual tour, better than it was online to our website. Or in some cases, we had community consultants that would basically be placed on-site tours through individual units and some of that was really at the discretion of a customer where they didn't want to come to a tour with someone, they were fine doing it virtually. So I think it's evolving. But it certainly reflects the nature of the business and where it's going in the future in our view.

The technology investments that we're making and we're already making that we may accelerate as it relates to the technology to support a lot of the sort of no contact-type activity between our staff and our customers and our prospective customers. And that includes various things on the tour side, on move-ins. We see the packages, and even on the maintenance side, where we're doing diagnostic calls via FaceTime and other via other tools to try to diagnose issues for customers to be able to sort of self-serve and self-help in many cases before dispatching someone to go to a unit. So I think this will just accelerate some of the things that we were already contemplating as part of our operating platform that will lead to more efficiencies in the future.

Haendel St. Juste - Mizuho - Analyst

Thank you for that.

Matthew H. Birenbaum - Chief Investment Officer

Yeah.

Operator

There are no further questions at this time. I would like to turn the conference back to Mr. Tim Naughton for any additional or closing remarks.

Timothy J. Naughton - Chairman, Chief Executive Officer and President

Thank you, Kathy. And thanks to all of you for being with us today. I know that you've got a lot of calls to cover. I normally say I look forward to seeing you at NAREIT, but I don't think that's going to happen. But hopefully, we'll talk to some of you during that week and maybe even see you on a Zoom call somewhere. So take care and stay safe. Thank you.

Operator

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AVALONBAY COMMUNITIES INC

Q1 2020

Earnings Transcript

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