Good day, and welcome to the Investors Real Estate Trust Second Quarter 2020 Earnings Conference Call. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mark Decker, Chief Executive Officer. Please go ahead.

Thank you, Alyssa, and good morning, everyone. IRET filed its Form 10-Q for the second quarter yesterday after the market closed. Additionally, our earnings release and the supplemental disclosure package have been posted to our website at iretapartments.com and filed on Form 8-K. It's important to note that today's remarks will include our business outlook and other forward-looking statements that are based on management's current views and assumptions on our results in 2020, including views and assumptions related to the potential impact of the COVID-19 pandemic. Our quarterly report and other SEC filings list certain factors, including those related to the pandemic, that could cause our actual results to be materially different than our current estimates. Please refer to our earnings release for reconciliations of any non-GAAP information, which may be discussed on today's call. Joining me this morning is Anne Olson, our Chief Operating Officer; and John Kirchmann, our Chief Financial Officer. It's incredible how much change and disruption has occurred since we were together 3 months ago, talking about the first quarter. In preparing for this call, I was trying to come up with a good summary for our company and our team of the last 3 months, and the word that kept popping into my head was "unwavering." We certainly were prepared for the worst as we headed into the second quarter, and the resilience of our team, our customers and our portfolio of communities has really shown through on an absolute and relative basis. To our entire team listening to this call, thank you so much for working to make every day better for our residents in this challenging time. Our focus remains on weathering the pandemic and the economic damage that comes with it. In operations, that means making our business as virtual as possible while maintaining and improving the customer experience, investing in simplifying our systems and solutions and staying energetic and safe in working with our residents who are living through all of this with us. We're also working to maintain expense discipline and hold the line on our "rise by 5" campaign. With headwinds from taxes and insurance in our noncontrollable expenses and stifled revenue growth due to the pandemic, "rise by 5" is helping now and positions us well in the future. Zooming out to the company as a whole, we are driving improvement in our overall portfolio of assets through rigorous asset management, and on the right side of the balance sheet, we are striving for long-term improvement in our financial flexibility. To that end, in the second quarter, we issued approximately $45 million of equity through our ATM at an average net price of just under $72. This cash extends our margin of safety and gives us the ability to be opportunistic. We'll also consider select asset sales that position the company for stronger and more sustainable growth. The fundamentals of the next 12 to 24 months will be off significantly from outlook at the beginning of the year, but capital flows and debt markets are holding pricing for apartments steady in our markets. That's our early read, and we expect that trend to continue as more capital flows into our sector. We expect to be a net buyer over the next 12 to 24 months should our cost of capital remain advantageous. We do have a large pipeline of opportunities in our target markets of the Twin Cities, Denver, and as announced in June, Nashville. We expect to accelerate our continued portfolio improvement if this environment holds. Lastly, I'll close with an exciting milestone. Last Friday, IRET celebrated 50 years in business. One P&L in the real estate business since 1970 is quite an achievement, unwavering. And we are fortunate to be positioned as we are today on behalf of our shareholders and team. However, as we've all seen, with devastating speed, longevity does not confer any special advantages. Our team is here to move the needle. We bring a start-up spirit every day, and we'll remain cautious and thoughtful as we carry out our mission to provide great homes. With that, Anne, could you please give us the operations update?

Thank you, Mark, and good morning. As we discussed last quarter, we were well positioned for the impacts of the COVID-19 pandemic at the end of a strong first quarter and we're pleased that our second quarter results demonstrated that our vigilance in all areas of our operating platform will benefit our portfolio even in uncertain times. We achieved NOI growth of 1.1% for the second quarter compared to the same period last year driven by a 4.3% decrease in same-store controllable expenses when compared to second quarter 2019. Notably, our NOI grew 3.4% sequentially over first quarter 2020, and year-to-date, our NOI is 2.4% ahead of the same period in 2019. Our discipline on expenses was matched with diligence on our rental revenue. Our weighted average occupancy during the second quarter was 94.6% compared to 94.3% for the second quarter of 2019. Our collections have been strong, 99.1% during the second quarter, just a 50 basis point decrease compared to the same period last year. While we believe our positive performance is due, in part, to the relative insulation of our markets from regulated shutdowns and stay-in-place orders, we have seen increases in our bad debt where our price point is lower, specifically in Billings, Montana, where our average rent is 20% below our portfolio average rent. We do continue to see declining requests for rental assistance across our portfolio. Of the 176 total requests for deferral during the second quarter, more than 73% of those came in April. As of today, we have entered into 184 payment plans, representing $225,000 of total rent, which is $40,000 outstanding to be collected under those plans. In July, we entered into 8 deferral agreements, representing 10 basis points of our total July rent charges. Our second quarter did bring many challenges. Traffic was 24% lower across our portfolio than second quarter 2019, and new lease rates decreased an average of 1.2% lease-over-lease. We did realize renewal rate increases averaging 3.3% for leases effective during the second quarter. But keep in mind, that many of these renewals would have been signed pre-pandemic. Traffic did pick up significantly towards the end of May, and our June traffic was 26% over June of 2019. Like many of our peers, we are experiencing higher retention rates, with 62.8% of our residents staying in place upon lease expiration during the second quarter. I would like to also provide some color on July. Our July collections were 99%. And in our same-store portfolio, average renewal rate increased 10 basis points and our resident retention was 66%. Our average new lease rates increased 1.1% lease-over-lease, and our revenue per unit is higher year-over-year, with July's revenue per unit at $1,074 compared to $1,055 in July 2019. As of July 31, we were physically occupied at 95.2%. We believe that some of the increase in new lease rates that we are seeing are the result of the traffic increases in June, which we attribute to pent-up demand from the significant lack of traffic in April and May. Our July traffic had leveled off to be on par with 2019. We expect flattening renewals and slow rent growth to impact our top line revenue through Q2 of 2021 as we carry forward the lease rates entered into during this economic slowdown, which coincided with our peak leasing season. Our operating platform will help us optimize revenue, and our increasing exposure to growth-oriented markets should provide an opportunity to perform well as the economy recovers. We are still seeing opportunities for value add in certain communities where we have high occupancy, desirable locations and pricing power. We have continued to value-add common area and/or unit renovations within 9 communities in our portfolio, with 115 units being fully renovated during the second quarter. Of the renovated units, 78% have been leased, and we're achieving our underwritten premiums with an average return of 18.3%. Our teams are back in our communities and our offices are open. We're all getting used to the new normal of social distancing, use of digitally enabled leasing and resident service and the uncertainty of what the future may bring for our economy and our communities. Our teams have shown a remarkable commitment to our residents and each other. And during these difficult times, over 82% of our Minnesota-based team members participated in a third-party workplace survey that resulted in IRET being named a Top Workplace by the Minneapolis Star Tribune, based on factors, including employee engagement, company leadership, pay benefits and workplace flexibility. This is a great distinction and a testament to our key values of doing the right thing, serving others and being one team. And now I'll ask John to discuss our overall financial results.

Thank you, Anne. Last night, we reported core FFO for the quarter ending June 30, 2020 of $0.91 per share, a decrease of $0.09 or 9% from the second quarter of 2019. The decrease in core FFO for the quarter can be attributed to lower NOI of $1.3 million and increased casualty loss of $600,000, offset by reductions in interest and G&A expenses. Lower NOI for the quarter is primarily due to the decrease of $1.2 million from 2019 dispositions, net of additional NOI from new acquisitions as well as a $370,000 reduction in our commercial NOI due to the impact of COVID-19 on our mixed-use multifamily commercial tenants. Year-to-date, core FFO is $1.81 per share compared to $1.77 for the first 6 months of 2019, an increase of $0.04 or 2.3%. Turning to our general and administrative expenses. For the 6 months ended June 30, 2020, G&A expenses decreased 9.9% to $6.6 million compared to $7.4 million in the same period of the prior year. The decrease was driven by COVID-related cost control initiatives as well as a $360,000 decrease in legal fees related to our successful pursuit of a recovery on a construction defect claim in 2019. Interest expense increased by 11% to $13.9 million for the 6 months ended June 30, 2020 compared to $15.5 million in the same period of the prior year. This decrease was attributed to the replacement of maturing debt with a lower rate debt and a lower average balance on our line of credit. Property management expenses decreased $100,000 to $2.9 million for the 6 months ended June 30, 2020 compared to $3 million in the same period of the prior year. The decrease was due to lower third-party management fees and compensation costs. Looking at capital expenditures, which are highlighted on Page S-16 of our supplemental, same-store CapEx for the 6 months ended June 30, 2020 was $4.6 million, a 59% increase from $2.9 million for the same period of the prior year. The increase in CapEx was related to the timing of capital replacement projects occurring earlier in 2020. Full year same-store CapEx is expected to remain in line with the prior year at $825 to $900 per door. In Q2, value-add spend was $4.1 million as compared to Q2 2019 value-add spend of $750,000. Year-to-date, value-add spend is $6.2 million versus $1.1 million for the same period in 2019. During the second quarter, we issued 624,000 common shares through our ATM program at an average net price of $71.84 per share, for total proceeds of $45 million. The proceeds from these shares were used to fund our value-add capital spend and draws under our construction loan as well as to increase our liquidity and balance sheet flexibility. Turning to our balance sheet. As of June 30, our total liquidity was approximately $240 million, including $187 million available under our line of credit and $53 million in cash. Further information on our liquidity can be found on Page S-11 of our supplemental. Looking to the remainder of 2020 and into 2021, we have $45 million of debt maturities and $34 million remaining to fund on our construction and mezzanine loans for the development of a multifamily community in Minneapolis. We believe our current liquidity is sufficient to cover our foreseeable capital needs as well as allowing us to invest in our target markets. On March 27, 2020, we issued a press release indicating that in light of the impact of COVID-19 on our business and results of operations, we were withdrawing our 2020 financial outlook. We continue to monitor the ongoing impact of COVID-19 closely, including the continuation of the enhanced federal unemployment benefit, which expired on July 31. And there remains a great deal of uncertainty as to the impact on our rents and occupancy. Given the ongoing uncertainty of the impact from COVID-19, we are not providing an updated 2020 financial outlook at this time. Our Q2 results are encouraging and reflect the work of our dedicated team members who demonstrate our core mission to provide great homes while proactively responding to the business challenges presented by the current environment. It is the great work of our strong team here at IRET that delivers results and instills confidence in our residents and the investment community. With that, I will turn the call over to the operator for your questions.

[Operator Instructions] The first question today comes from Gaurav Mehta of National Securities.

First question that I have is on the transactions. I think, in your prepared remarks, you mentioned that you would consider select asset sales. I was hoping if you could provide some color on what you're seeing in the market and what kind of timing should we expect if you were to sell any assets.

Yes. Good morning, Rav. This is Mark. Yes. So I mean, I think as we've talked a lot a little bit over the last few months, the disruption of the pandemic has kind of opened up a little bit of window in our mind to consider some asset sales that we weren't likely to do. And I would say that, combined with what's been a pretty exceptional combination of forward-looking deterioration, combined with a lot of liquidity, has actually held up pricing. Pricing has stayed the same or better in the tertiary markets, which is a pretty unusual set of circumstances. So where we can, we'll consider sales. And I think you should think about it like we've done in the past. So I think we could be opportunistic on portfolios, but more likely, we'll be pruning portfolios to kind of work ourselves into a better portfolio, which we did in Bismarck and Minot, where we went from -- sold some older product and things like that to get ourselves to a portfolio that's newer, higher rents, better margins, more efficient, et cetera.

Okay. The second question that I have is on the market. I saw that Denver and St. Cloud were 2 markets where you have seen negative same-store revenue growth. Can you provide some color on what you're seeing in those 2 markets?

Yes, Anne, do you want to talk about that?

Yes. Yes. Sure. Good morning. This is Anne. So let's start with Denver. So Denver, obviously, within our portfolio, had -- saw the fastest kind of shutdown and the slowest coming out of the pandemic given that it's one of our larger cities with higher density, and our assets there are fairly core. So we have 2 assets that would be considered downtown assets and then one that is close in, but more suburban. And given the supply in Denver and heavy concessions, with many projects still in lease-up as they entered the pandemic, we are experiencing a lot of pricing pressure there. We also have -- Denver also had our only exposure to a set of leases, about 10 leases at one of our assets, in a short-term rental. And those obviously have gone away, and that short-term rental provider is in receivership. So we're working through that and having some occupancy issues, which bring our pricing down. But overall, I think we're holding very well in Denver and do expect to see it continue to have negative lease-over-lease and flattening renewals there. In St. Cloud, we had significant increases last year, so if you went back into our supplementals, over time, you would see that they really push rents in St. Cloud. We also had, at this time last year as part of our "rise by 5" initiative, we increased our ratio utility bill-backs. And so it got a little bit more expensive for our residents to live in our units, and that was an effort to optimize our revenue. St. Cloud was hit particularly hard because they have significant water and sewer charges through the cities there. And so I think what we're seeing is a little bit of that rolling through there. So it's also heavy students population, so there is a university in St. Cloud. And with the uncertainty around schools and the university, I think we're just seeing some pressure on pricing there. So a little bit of a confluence of events with the utility bill-backs, the pandemic and uncertainty about education in St. Cloud.

The next question comes from Rob Stevenson of Janney.

Anne, can you talk about how move-out notices and forward availability are trending, looking out, I guess, into September-ish, early October at this point? Any reason to believe that operations change much for the good or bad over the next, call it, 8 weeks?

Yes. I don't think so. I think we're going to stay pretty steady. We are seeing a lot of people that are uncertain, right? So people don't know what's going to happen, if they're going to be working from home or going back to work, if their kids are going back-to-school or not, if their job is stable or not. So we do still see people who are looking maybe to move but are not yet ready to make decisions. That is leading to higher retention rates. And if you saw our second quarter retention rate, it was above 62%, but our July retention rate was 66%. So I think we do expect that into the fall, we're going to see a little bit higher retention rates and not much real change in operations. With July traffic, it did level off to kind of on par with where it has been historically. And in our markets throughout the Midwest, our offices are open, we're taking in-person tours, we still are doing a lot of virtual touring and digitally enabled resident services. So that has become a pretty normalized part of our business. But people are starting to move around, and I don't think we're expecting a significant drop-off in kind of historical traffic or a big increase either.

Okay. And how would you characterize your fee stream relative to your rent? Is the fee stream under the same amount of pressure as rent in some of these markets? Is it you're able to hold the fees, and so it's not under the same -- I mean, when we look at the sort of total picture, how would you characterize the fees today and looking out over the remainder of 2020 versus rent?

Yes. I think the fee stream is under the same amount of pressure. We're looking at -- it's down around 8% from our historical. And so we have to give -- the price gives somewhere, right? And so as we look at the total revenue optimization, sometimes, we're appealing back on the fees or waiving some of those fees. Instead of a large concession, we might be waiving application fees or lease break fees. That's something that we are -- have been waiving in some cases when people are -- have financial uncertainty rather than fight with them about the amount. So we're kind of letting people move on. So yes, it is under the same amount of pressure and as I mentioned, down around 8%.

Okay. And what's driving the year-to-date expense growth in Rochester, which is up like 15%, and Rapid City, about the same, and then Billings, about 6% specifically. Is that capital spending? Is that taxes in those markets? What's driving that?

Yes. So it's taxes and insurance. At the end of last year, we really got our insurance renewal, and we got the taxes in and realized that most of our markets were going to take a pretty significant hit there in our noncontrollable expenses. But our controllable expenses are down. And so we feel pretty good about the overall expense growth rate given the pretty big increase that we saw in taxes and insurance. And particularly, Rochester was hit very hard with taxes.

Okay. And then last one for me. Mark, why Nashville today versus 2 years ago or whenever you did your last exercise, what brings that on to the radar screen today versus what didn't it have when you ran this exercise last time?

Yes. That's a great question. I mean in both instances, we kind of ran an internal process and then engaged a third-party consultant to kind of get to an answer and see their work. When we were starting, when we got to Denver, I think there was a little bit of -- it was somewhat adjacency to our existing geography. So we sort of view that as the best Midwest or Near-West market. And we're looking at Nashville now for 2 reasons. One, we -- I wouldn't say we've completed our beachhead in Denver, but we have, what we believe, to be critical mass there now. And so we won't -- we'll keep going in Denver, we'll keep going in the Twin Cities. And Nashville just has some very attractive growth characteristics. So we looked at 60 markets. We ranked them a whole bunch of ways, and Nashville kind of came up on top in every way -- not every way. Every dimension that we were focused on, it came out on top.

And how would you characterize -- I assume that you've been looking there given the announcement. How would you characterize that market in terms of depth of products that you would want to own as well as pricing and competition relative to the -- your other NFL cities of Minneapolis and Denver?

Yes. It's a little thinner. I mean it's just -- it is a smaller market. And the volume is an interesting thing. Both Denver and Minneapolis, as we've talked about, are about the same size, but Denver does tend to have kind of 2 to 3x the volume. Nashville is about 2/3 of the size. And so there is less volume, although we do believe there's a lot of merchant activity there that should play to our favor. Pricing-wise, I mean, thematically, Denver, the Twin Cities and Nashville all seem priced pretty similarly to me, which is there's a lot of demand for those assets as there's just a whole lot of factors at work, including -- I mean, setting aside the pandemic, New York was a market people weren't going to spend as much capital in because of the regulations there around rent control, which is a huge amount of capital kind of going elsewhere. Nashville, the work we did to that market, we didn't do in secret, or at least the data we had wasn't secret. So anyone who's doing work on markets, I think, will identify Nashville as a strong play. So it's going to be very competitive, and pricing is going to be tough. And that's what we felt in Denver. I mean obviously, you should get that in the form of growth, both of the cash flows and value over time. We believe in that. And I think when we went to Denver, I can remember some of our early broker meetings, they were like, oh, yes, you're like group number 400 who's saying they're going to buy something in Denver. And now they're like, they're still about 398 of those people who are still talking about it, you guys have really done it. And so I mean, we've really chosen to be focused on kind of one market at a time. Having said that, this does expand our opportunity set by 50%. So that's exciting for us and a good opportunity to kind of look at relative values. But the short version is a little bit smaller. It's going to be expensive. And it's going to be competitive.

And have you taken any of the options for entering that market off the table, whether it be a JV or a loan-to-own mezz or anything of that nature? Or are you looking at all those type of opportunities?

Yes. And I would say everything is on the table.

The next question comes from Alex Kubicek of Baird.

It's just quite a quick follow-up to Rob's Nashville questions. I know with the longer-term opportunity set for you guys, you're still looking, but how much capital would you need to deploy today to feel comfortable entering the market? Is this like a market where you guys are comfortable kind of one asset at a time and sitting on them for a while? Or if want to have a more wide opportunity set ahead of you before you go get aggressive on that front?

Alex, if you got a portfolio in your pocket, call me. But look, I think we'll be measured. I think, as is always the case, we're kind of trying to find the thinnest bid in a world that is very well-trafficked. I would imagine the best opportunities will be in deals that are in lease-up. I mean that's thematically what we've seen over these last months, is the area where the seller is most willing to take a price that's lower than the price they were expecting, let's say, in January or February. Because the leverage market is so strong, if you have a cash-flowing asset, your forward cash flows have gone down, but your mortgage rate's gone down probably at a greater rate. So the area where we can really differentiate ourselves as sort of an all-cash buyer is in that lease-up space. I mean that said, those are harder on your kind of next 12- to 18-month FFO, which is something we obviously have to think about, but could be a good NAV decision over time. So we'll look at all. In Denver, we've now done 3 one-off deals. That's what I expect would -- you would see unfold. I think the primary difference between how we went into Denver and how we went into here, if circumstances stay the same, is to do what we did in Denver, we really had to sell things to buy anything. And now we can continue to do that. And as you know, it's dilutive. Or we can potentially go to the market and raise equity, which we would do, we would like to do, that helps us spread our costs. It helps grow the flow. I mean there's a whole bunch of things that are positive on the company side. Obviously, it has to work on a per-share basis, and it has to make sense. But that's a tool we didn't have 3 years ago when we went into Denver.

Yes. That's really helpful color there. Anne, looking at operations, repairs and maintenance has been an expense line. You guys have seen a ton of savings this year. Can you walk through the moving pieces driving the savings? And is there any worry that there's some deferred maintenance that will eventually come through in the numbers as people kind of spend more time in their apartments and are more willing to have repairs done on their units themselves?

Yes. I think what's driving a lot of the savings there is really 2 things. One is lower turn costs as we have higher retention. So that might be offset a little bit by some of the additional maintenance as people spend more time, but we really haven't seen that yet or really any trend on more work orders than typical. But we are seeing some savings in turn costs. And then second, we -- our teams were off-site for a long time and forced to work really differently. And a lot of those ways that we found to work were less expensive than what was -- is normal. So we're having virtual resident events instead of in-person resident events, and in-person resident events that require food and entertainment and all sorts of things that just aren't -- weren't happening for months and still aren't happening. So what we're trying to do is adapt as many of those new ways of working into the future as we can while still really trying to build the community and have it be a place where people really want to live. But I would say the biggest driver of the OpEx savings is in the turn costs.

That's helpful. And then one more quick one for me. John, I was just hoping you could share your guys' bad debt philosophy. It looks like you guys have done a pretty good job of kind of attributing people that haven't paid thus far into bad debt. How do you judge collectability from here? Just any help would be greatly appreciated.

Sure, Alex. We have a pretty easy policy in that regard. So we reserve anything that, at the end of the month, that has an AR balance of 100%. So our bad debt is essentially anything we build that month that we didn't collect.

The next question comes from Jim Sullivan of BTIG.

A question for you on the controllable expenses. Obviously, a great job at the comp year-over-year. And I'm just curious, as you think about that as part of your strategy about "rise by 5," whether the progress you've made, and I know some of it is post-COVID, related to RM spending, but do you think you're going to accelerate the timing of achieving that "rise by 5?" Or maybe have a more aggressive target in terms of expanding the operating margin?

I think our target is going to remain the same. So we've done a lot of the, what I would call, low-hanging fruit but are really heavy-lift items. And we have some pretty significant initiatives in front of us, including changing some of our technology and also part of the "rise by 5" really needs to be and is connected to the value-add program. So to the extent that the market continues to soften or we don't see a big -- an opportunity there as we look at our portfolio's value-add opportunities, that might be a little bit slower. As Mark indicated, we may be able to accelerate it a little bit if we can prune off with opportunistic sales some of our assets who have -- that have large CapEx or lower margins or a little bit inefficient to really position our portfolios well within their markets. But on the true operating side, what we have in front of us is time-consuming and going to take some time to run through. So I think we're right on track with our 5 years, and we're 3 years in.

Okay. Second point, I just wanted to follow up on your comment about low-hanging fruit. In the value-add program in your prepared comments, you cited the return you have achieved, which is pretty impressive. And I guess the question I have is whether the -- whether that return is, again, partly a product of low-hanging fruit. The first value-add program or spend were in markets or with assets where you saw the most upside. Or number two, as we think going forward, do you think you're going to be able to maintain that level of ROI in the value-add program?

Yes. Jim, this is Mark. I mean I think we certainly weren't the first ones to the value-add game. I mean that's been a great play for really the last 6 or 7 years. And it's about specific submarkets and specific properties. So where we're having that success is really in markets where we think we chose well in terms of what the -- which project to go forward with. I mean we have a lot of potential properties that could be upgraded, and we really prioritize them based on markets and where we thought we had the best chance of success. And so I think we'll continue to have those opportunities. And if the returns don't hit, we'll just stop. And so we're generally -- with the exception of things like clubhouses, which we do think add a lot of value, we're really doing these on the turn. So we have a pretty good ability to throttle up or back. I mean, Anne, do you want to add to that at all?

Yes. I would just say, our expectation on the unit renovation, so the 18.3% I mentioned is on our full unit renovations, our expectation there is north of 15%. So I do think that we'll continue to identify the best opportunities, and our expectations are high for what we want in return and how we put that capital to use.

Could you just remind us, Anne, how many units are kind of being programmed for the value-add over the next 6 quarters?

That's a good question. Probably close to 900.

Okay. Very good. And then final question for me. Obviously, you have tapped into the equity markets with your share price where it was comfortable doing so. And being able to access equity capital at fair pricing, obviously, I think, enhances your position in terms of talking with rating agencies about investment-grade rating. Maybe if you could just update us on thoughts in that respect.

Yes. We certainly -- I guess, for openers, we certainly are more focused on safety and caution. So I mean, we're putting that cash on because we want to be prepared for bad weather and we want to be opportunistic on the acquisition side. As it relates to the -- and we'll continue to have that bias, I would say, towards safety and liquidity until we think we can run leaner again, which will be, I'm sure, several quarters from now. But with respect to the IG discussions, an index-eligible bond deal today, I think is $350 million, which is 60% of our current total debt outstanding that we couldn't get to if we wanted to. So the rating agencies tell us we're small, and on a relative basis, that's true. So I think for the near term, that's not a discussion we're too focused on with the ratings agencies, specifically in the context of trying to get to an IG-rated deal. Where we are very focused is on maintaining and expanding our ability to use the private placement market. And as we've talked about, we did that deal in September of last year with Prudential, which has been a great relationship and partnership and was the product of a lot of work. They are the largest buyer or one of the largest buyers of real estate private placements. And they're one of a few groups that really does beyond kind of Bloomberg or desktop underwriting. So it's great to be in that market with them. We would like to continue to do work to broaden that access over time. And so I think we're well positioned to do that today, provided we keep on doing what we've been doing, which is hold on to, as we've called it, investment-grade-like metrics. So ultimately, we'd love to be in a spot where we can go investment-grade. That's going to be a factor of maintaining or increasing the quality of the metrics as they sit today and getting larger. Sorry for the long-winded answer.

Okay. No. That's okay. And one final-final question for me. In the conversation about -- or the comments about Denver and particularly in the context of development deals that may be stalling out or having problems, maybe if you could just kind of give us a sense for where you think concessions are likely to go in that market over the next 2 to 4 quarters.

Yes. I mean it's concession-heavy right now. I mean I think they're going to -- I'll ask Anne to jump in, but I think they're going to stay reasonably heavy. I mean when we -- I mean listen, we read the transcripts and listen to all these other reports. I would say that's our most affected market, sort of double whammy of COVID and supply. I don't know, Anne, do you want to add to that?

Yes. I mean we're already seeing 2 to 3 months there from the projects that were in lease-up and that need to finish out their leasing. So I don't know if that gets any heavier given, I think, occupancy in that market has stayed relatively stable. And we're coming to the end of leasing season where there just won't be as many people moving around, but...

Yes. So to continue, I think the other thing I would add to that, Jim, that's really important is we really do believe in that market and the long-term strength, and a lot of what's happening in the world today, I think, accelerates what we like about and believe in for Denver, which is people will move there because they want to live there and they can do their jobs there. And that's true because companies are moving there or facilitating people being there, but also given everything that's happening today, if you can lower your frictional cost of living somewhere, which I would define frictional costs as taxes and time of commuting and things like that and be in a place in the foothills of those mountains, a lot of people are going to do that. And I think that trend will continue.

The next question comes from Daniel Santos of Piper Sandler.

Most of the questions have been answered, but could you give us some thoughts or some high-level comments on how you're thinking about pushing rates versus occupancy across the portfolio? And then specifically on St. Cloud, just given the comments on some of the pressure from university students, is it fair to say that if universities -- the university doesn't reopen for on-campus classes, that market will lag through the next academic year?

That's a good question. I'll start with St. Cloud. We believe, as of right now, it appears as though the students will be going back. And while we don't have a high percentage of students in our buildings, the students being gone from other -- the other projects really creates vacancy in the market, which gives people options. So I think we feel optimistic that they're going to come back and that we're going to be able to push occupancy there a little bit. And once you have some occupancy, then you can grow the rents. And with respect to the rent and occupancy, I mean, this is a fine balance that we walk every day. And our job is really to optimize the revenue. So we focused heavily at the beginning of the pandemic on keeping the occupancy high so that we would be in a good position to push pricing when we had the opportunity. We are seeing that opportunity now at some of our assets. As I noted, our new lease rates were 1.1% up in July. So that was -- that's a good indicator. And most of those leases are signed and go effective within the same months, whereas our renewals lag. So the renewal pricing is effective, but it was priced 60 to 75 days ago. So I think we feel pretty good about the opportunity in front of us, but we do think that there's still probably going to be some flat months, particularly as we go into lower expirations and lower traffic months. We would really like to keep our portfolio occupied above 94% in order to make sure that we're well positioned for the second quarter next year when leasing starts. I think that's going to be our real first opportunity to test what the post-COVID pricing will be is at the beginning of leasing season next year.

The next question comes from Buck Horne of Raymond James.

Just a couple of quick ones to clarify. I want to go back to the bad debt accounting policy, just to make sure I understood that. So you reserved everything past -- there's an AR balance past 1 month. But are there some security deposits or other ways to recover those balances even though they've been reserved, or is that -- or the reserve is net of deposits? How does that work exactly?

Yes. So the reserve excludes the security deposits. The reserve would be for residents who are currently occupying our units. When they move out, the security deposit can be applied. But you can't access the security deposit in the middle of a resident residing there. That would be triggered by when they move out. I don't know, Anne, if you had anything else to add? So it's not considered at all in the bad debt provision, if that's what the question was.

Yes. It truly is the amount owed.

So that's reserved, but theoretically, okay, there's a point where you could possibly recover -- could you reverse that reserve with recoverability of the deposit? Does that make sense?

Yes. That's right.

Okay. Okay. And then other one, just thinking about equity issuance from here in the usage of the ATM, I mean, would you guys consider still raising some dry powder on the ATM in advance of anything announced in Nashville? Or if you do, do something in Nashville, would that probably be accompanied by a more structured equity raise? Or how do you think about a more typical secondary versus an ATM to raise capital for entering Nashville?

Yes. I mean we certainly have a lot of firepower right now just in terms of cash relative to the size of our enterprise. So the answer is, yes, we would raise it in advance. I mean again, I think our M.O. kind of over the past couple of years has been buy, match with sale proceeds, use a little bit of leverage, tell people about it, raise capital, if needed, to get back to leverage-neutral. I would say we flipped that a little bit towards be prepared in advance, have the cash on hand, seeking opportunities, protecting our overall liquidity. So we'll continue to do that. I mean we're running kind of rich right now in terms of our cash balance, in our judgment. And so we would continue to do that, and we would raise in advance. As it relates to a traditional follow-on, I think if we had the size and we felt like the pricing made sense, we would absolutely consider that. I mean directionally, the feedback we get from a lot of institutions who are spending time with us but don't own the stock is we would love to find a way to get in with volume, that would be a way to do that. There's a big cost to that, and we have to weigh those 2 things together because we work for people who own the stock today, not the prospects. Obviously, that's a balance. We would like to attract those folks as well.

[Operator Instructions] Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mark Decker for any closing remarks.

Super. Thanks, Alyssa. Thanks, everybody. We appreciate your interest in IRET, and be well and stay safe.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.