Blackstone Inc. (BX) Q3 2020 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the American Campus Communities, Inc. 2020 Third Quarter Earnings Conference Call. Today's call is being recorded. [Operator Instructions]. I would now like to turn the conference over to Ryan Dennison, Senior Vice President of Capital Markets and Investor Relations for American Campus Communities. Please go ahead.

Thank you. Good morning, and thank you for joining the American Campus Communities' 2020 Third Quarter Conference Call. Press release was furnished on Form 8-K to provide access to the widest possible audience. In the release, the company has reconciled the non-GAAP financial measures to those directly comparable GAAP measures in accordance with Reg G requirements. Also posted on the company website in the Investor Relations section, you will find an earnings materials package, which includes both the press release and the supplemental financial package. We are hosting a live webcast for today's call, which you can access on the website with the replay available for 1 month. Our supplemental analyst package and our webcast presentation are one and the same. Webcast slides may be advanced by you to facilitate following along. Management will be making forward-looking statements today as referenced in the disclosure in the press release and in the supplemental financial package, and in SEC filings. Management would like to inform you that certain statements made during this conference call, which are not historical facts, may be deemed forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in any forward-looking statement are based on reasonable assumptions, they are subject to economic risks and uncertainties. The company can provide no assurance that its expectations will be achieved and actual results may vary. Factors and risks that could cause actual results to differ materially from expectations are detailed in the press release and from time to time in the company's periodic filings with the SEC. The company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release. Having said that, I'd now like to introduce the members of senior management joining us for the call. Bill Bayless, Chief Executive Officer; Jim Hopke, President; Jennifer Beese, Chief Operating Officer; William Talbot, Chief Investment Officer; Daniel Perry, Chief Financial Officer; Kim Voss, Chief Accounting Officer; and Jamie Wilhelm, our EVP of Public-Private Partnerships. With that, I'll turn the call over to Bill for his opening remarks. Bill?

Thank you, Ryan. Good morning, and thank you all for joining us as we discuss our third quarter 2020 financial and operating results. As you know, Q3 encompasses the completion of the prior academic year, which was substantially impacted by the onset of the COVID pandemic and the commencement of the new academic year. Let me start by saying that we are pleased with the start of the 2020-2021 academic year. As Jennifer, William, and Daniel will discuss, the resiliency of the modern student housing industry, operationally, financially, and from an industry fundamentals perspective, is once again being demonstrated as we transition into the new academic year amid the COVID pandemic. While our business has not fully normalized at this time, we believe we are on the road to recovery as exemplified in many areas. Our lease-up occupancy exceeded 90%, a level many believe to be a best-case scenario in the early days of this pandemic. Our rent collection rate improved to 97% in September, the first full month of the new academic year in most of our markets, from approximately 94% in Q2. This improvement taking place, while many other sectors continue to experience decreasing trends at this time. We're also receiving significantly fewer resident hardship rent abatement request. Several hundred currently versus several thousand per month in the prior academic year. We have also definitively witnessed the strong consumer sentiment regarding students' desires to be in the college environment with their peers regardless of University's curriculum delivery methodology, whether it being online, in-person, or a hybrid combination. And our university partners have planned and implemented prudent strategies. It appears to have provided stability and ongoing on-campus occupancies. As we are not currently holding any discussions for on-campus rental refunds beyond 1 university partner, which we expect to total only $1 million -- approximately $1 million in the fourth quarter versus the $15 million we contributed in the second quarter of the prior academic year. Also, as William will discuss, in ACC's Tier 1 university markets, there appears to be enrollment stability amid the pandemic. Even amidst this black swan event, the resounding value of a college degree and abundant demand for higher education at Power 5 and Carnegie R1 research institutions continues underpinning the stability and consistent growth opportunity in our sector. Finally, as part of our ongoing commitment to the Hi, How Are You Project, whose mission is to remove the stigma associated with mental illness and to encourage discussion regarding mental health and well-being. We jointly conducted a mental health survey at our communities in conjunction with the commencement of the new academic year to better understand the mindsets during COVID-19. The survey received responses from over 12,000 of our residents. This is one of the largest surveys of its kind, specifically examining college student's perspectives about COVID and how it has impacted their mental health. Not surprising, according to the survey, 85% of respondents are more stressed as a result of the global pandemic. Also worth noting, the top 3 items students are missing most are: one, socializing with their friends; two, participating in in-class instruction; and three, attending events both on and off-campus. Encouragingly, the results also reveal students believe that their mental health is just as important as their physical health, and they're open to having dialogue to help themselves and others. We'll continue to promote the mission of the Hi, How Are You Project, and promote discussion around mental well-being among our student residents through our Residence Life programs, as we hope to have a meaningful impact in this very important endeavor. With that, I'll turn it over to Jennifer Beese, our Chief Operating Officer, to get us started.

Thanks, Bill. We are excited to get the 2020-2021 academic year underway with September representing its first full month. Based on our leasing activity, it is now evident that the vast majority of our students desire to be with their peers in their college environment regardless of the curriculum delivery method at their universities. Our modern, well-located, fully amenitized apartment communities offer students the ability to continue to thrive despite the current COVID environment. Turning to Page S6 of the supplemental. As usual, our third quarter includes a mix of two academic years, with prior academic year leases expiring mid-quarter and new academic year leases commencing in August and September. While the prior year academic year results were heavily influenced by COVID, in the new academic year we are seeing an improving financial trajectory. During the quarter, we provided $2.1 million in rent refunds to on-campus residents at 1 ACE Partnership University, which we expect to decrease to $1.2 million in the fourth quarter. This is in comparison to the $15 million provided to residents that are primarily on-campus residence halls in the second quarter. As noted in our release, no additional refunds are in discussion at this time. With regard to students and parents being impacted by COVID-19, we instituted our Resident Hardship Program during the second quarter where we provided over $8 million of financial assistance. During the current quarter, the amount totaled $4.7 million, with the majority of this amount relating to our prior academic year leases. In September, based on significantly lower levels of requests within the program, we gave approximately $175,000 in direct rent relief during the month. In regards to collections, we had a 97% collection rate on our rent charge for September, a significant improvement from the 93.7% seen during the second quarter. As expected, our third quarter other income was impacted by $8.4 million due to the loss of summer camp conference business, the continued waiver of online transaction fees and late payment fees, and higher levels of bad debt. Going into the fourth quarter, we will continue to be impacted to some degree as we work on reinstituting leasing and payment fees. With regard to same-store OpEx, we were able to partially offset lost revenue with savings and operating expenses of 5.2%, led by savings in all of our controllable categories. We continue to have lower G&A costs due to the cancellation of nonessential travel, savings, and maintenance as we were able to turn more of our units in-house, lower marketing expenses due to substantially fewer in-person promotional and marketing events, and lower payroll costs associated with adjusted staffing and less overtime during the pandemic. After executing successful touchless, digital, and physically distant move-ins at our properties across the country, our sanitization plan procedures continues. Throughout the pandemic, at our owned properties, our resident's physical health has been minimally impacted by the COVID virus. In the current academic year, residents have reported a total of approximately 1,500 positive COVID-19 cases or 1.7% of our occupied beds. At this time, we are tracking only 110 active cases or 0.1% of our occupied beds. Consistent with national COVID statistics for College age population, we are thankful to report that to our knowledge, none of our residents have reported serious illness or the need for hospitalization related to their COVID case. It is also worth noting that both the CDC and Dr. Fauci have urged universities to not send students back home to their primary residents if at all possible, to eliminate the risk of scattering students throughout the country and putting them in contact with parents and family that may be in a higher risk category. We are pleased to see that universities have successfully implemented their operational protocols. Work through the initial spikes in cases, seeing cases decline, and several have recently announced plans for expanded in-person activities in the spring. Turning to our leasing results on Page S9 of the supplemental. As of September 30, our 2020-2021 same-store portfolio was 90.3% leased, with in-place rents growing 1.1% over prior year. Our same-store lease percentage is unchanged since our September 11, 2020 press release. However, as you will see in the chart, we gained approximately 300 additional leases at our properties that primarily serve sophomores and above, which offsets the decreasing at our properties, primarily serving first year students as our university partners finalize their move-in in assignment processes. We continue to see fall leasing activity at our off-campus communities, primarily serving sophomores and above. The largest opportunity for occupancy gains in the spring is our on-campus ACE property serving first year students, a process which again is administered by university partners. I will now turn the call over to William, who will discuss our investment activity.

Thanks, Jennifer. Turning first to development. We are pleased to have completed construction and delivered 2 owned ACE developments on the campuses of the University of Southern California Health Sciences in San Francisco State University. The developments were completed on time and on budget despite the challenging environment. However, initial occupancy at the communities were impacted primarily due to state and university policies in response to COVID-19. We still anticipate the projects will stabilize at development yields of 6.25 upon a return to normalcy on each campus. In addition, we completed the second phase of our Flamingo Crossings Village project at Walt Disney World. With the continued temporary suspension of the Disney College Program, both delivered phases, which totaled 406 units and 1,624 beds remain unoccupied at the current time. Given our strong relationship, Disney has agreed to abate all ground rent until the project becomes occupied, and we are actively working with Disney to market and lease the community to the broader rental market, including Walt Disney World cast members. The original design of the community and ground lease contemplated the potential leasing of units beyond the DCP program with configurable furniture, attractive individual lease liability options, and an unmatched amenity package in the market. Based on recently updated projections provided by Disney, we now do not expect occupancy from DCP participants until the second half of 2021. While leasing of the currently available beds to the open market has just commenced and will continue through 2021, based on traditional conventional multifamily absorption versus immediate DCP stabilization as units are brought online, coupled with discount pricing due to the interim nature of these non-DCP leases, we expect short-term diminished economics from the original DCP pro forma projections. We anticipate housing both open market renters and DCP participants through at least 2022. We continue the construction of the remaining phases of the project to be delivered through May 2023, in anticipation of the full return of the Disney College Program along with leasing to the broader rental market until the DCP program returns to levels that fully occupy the community. In our on-campus third-party development business, during the quarter, we commenced construction on a 476-bed development on the campus of Georgetown University in Washington, D.C. The project is located on the University's capital campus, just north of the Georgetown Law School, and is expected to be delivered in fall of 2022. We expect to earn a total of $3 million in development fees, and we'll manage the project upon completion. We continue to make progress on predevelopment efforts at the University of California, Berkeley, University of California, Irvine, MIT, Princeton University, West Virginia University, Concordia University, and Virginia Commonwealth University. The ultimate timing, finance structure, and project feasibility for these predevelopments have not been finalized at this time. With regard to the overall on-campus development environment, we still anticipate the continued increase in on-campus P3 opportunities across the country. The occupancy of antiquity communities on-campus have been impacted to a much greater extent, the more modern accommodations offered both on and off-campus. And universities will look to modernize their on-campus housing to meet consumer preferences and mitigate against future losses. In addition, we anticipate more universities return to off-balance sheet financing structures, including our ACE program, to finance the development of new housing as universities will be focused on conserving their balance sheets and debt capacity in the wake of the effects of COVID-19. We are currently tracking a deep pipeline of on-campus opportunities, and American Campus remains in a strong position to capitalize on those opportunities. Turning to university enrollment. We have been actively tracking fall 2020 enrollment and the potential impact of COVID-19. Of the 68 owned markets where ACC currently operates, 85% of universities have reported statistics for the fall. Overall, we've seen only a 0.3% decline in enrollment across those 58 markets. 50% of our universities experienced increased enrollment in fall 2020, with an average increase in students of 2.5%. Of the half of our universities that had decreases in enrollment, they only averaged a 3.1% decline for fall 2020. First year student enrollment is only down 1.1% for fall. As Jennifer discussed, our properties that primarily serve first year students are currently 77% occupied. And given there has only been a slight decline in first year student enrollment, we believe there is opportunity to improve occupancies in those projects as first year students may decide to return to the university for the spring semester. University enrollment has remained stable despite reduced international students for fall 2020. As international students typically constitute less than 10% of enrollment in our portfolio, while demand from domestic students remains deep to replace any loss from international students. With 51% of our universities having released fall 2020 international data, there has been a 14% decline in international students. Yet those same universities have grown the much larger segment of domestic enrollment by 1.2%. Overall, this demonstrates the demand from domestic students at the Tier 1 universities we serve offset the negative impact from reduced international enrollment. The resilient, stable enrollment figures during the pandemic places the Tier 1 colleges and universities we serve in a strong position for academic year 2021 and beyond. Finally, the new supply landscape for next academic year continues to remain favorable. Within ACC's 68 markets, we are now tracking 21,150 beds currently under construction for 2021, of a potential additional 400 beds planned, but not yet under construction, reflecting a decline of 2% to 4% in new supply off the current year's decline in new supply of 20%. Limited available land close to campus, construction costs, and lack of available construction financing will continue to put downward pressure on future supply in our markets for the next few years. I will now turn it over to Daniel to discuss our financial results.

Thanks, William. As we reported last night, total FFOM for the third quarter of 2020 was $45.2 million or $0.32 per fully diluted share. As Jennifer said, despite the unprecedented and ongoing response to the virus, we have all experienced in 2020 and its direct effect on the operating environment of the colleges and universities we serve, we have been pleased with the resiliency the student housing sector has exhibited. While the company's near-term earnings will, of course, be affected by the governmental and university actions taken in response to the pandemic, we believe that we are on a path to return to a relative level of normalcy both operationally and financially after achieving over 90% for this fall despite the amount of ongoing online instruction as well as seeing significant reductions in delinquencies, refunds, and resident hardships as we have started the new academic year. Like last quarter, we cannot completely isolate every item related to the pandemic, but we believe FFOM was negatively impacted by approximately $19 million versus our original expectations for the quarter. And year-to-date, FFOM has been negatively impacted by approximately $42 million to $43 million. Total property revenue was approximately $27 million impacted for the quarter, with $15 million due to COVID-related rent relief, lost summer camp revenue, increased bad debt, and wave fees. And $12 million due to lower opening occupancy for the fall semester relative to our original expectations. Partially offsetting the loss revenue, property operating expenses were $7.5 million than -- lower than originally budgeted, as Jennifer discussed. Also as a result of the lower originally budgeted property NOI, joint venture partners' noncontrolling interest and earnings was approximately $700,000 lower, and ground lease expense was approximately $1.4 million less due to a reduction in outperformance rent being paid to our university ground lessor partners as well as Disney's agreement to waive ground rent on the Disney College Program housing until occupancy resumes. Additionally, third-party management fee income was approximately $1.2 million lower than expected. And FFOM contributed from our on-campus participating properties was almost $500,000 lower, due to University's refunding a portion of rents and lower fall occupancies at properties in both of these business segments. Lastly, we benefited from approximately $700,000 in G&A and third-party overhead expense savings relative to our original plan due to both reduced travel and payroll costs. Due to the continued uncertainty surrounding the pandemic, we will not be reissuing earnings guidance for 2020. If the current environment remains stable, though, we are hopeful that the reduction in revenue through the remainder of the year should be limited to the impact of the 90.3% occupancy we achieved for the opening of the fall semester, and the $1.2 million in rent refunds that we have agreed to for the fourth quarter at one of our ACE partnership universities. Also, while delinquencies and resident hardships have improved significantly in September, we still expect to run at an elevated level of bad debt relative to the 1% level we typically operated at prior to the pandemic. With regards to operating expenses, we will, of course, strive to be as efficient as possible and create savings that can help offset the lower revenue levels in the near-term. However, with the new academic year physical occupancy levels above 90% and approximately $2.5 million to $3 million in expected additional annual costs for COVID-related cleaning supplies and procedures, we do not expect to be able to create expense savings at the same levels we did in the second and third quarters. And finally, as discussed last quarter, we continue to believe the 3 third-party development projects at the University of California, Irvine, Cal Berkeley, and Concordia University, originally scheduled to commence in 2020 will be delayed until 2021. These projects were expected to contribute a combined $4 million in development fee income in the fourth quarter of 2020. Again, while there will be some continued financial impacts of the pandemic into the immediate future, the progress that has been made gives us confidence that longer term, our operating results will return to normalized levels. In the meantime, we continue to have a strong and healthy balance sheet and substantial liquidity to allow us to absorb the disruption. As of September 30, we had $44 million in cash on hand and over $720 million of availability on our corporate revolver, with no remaining debt maturities in 2020, and a manageable $167 million in secured mortgage debt maturing in 2021. Also, as detailed on Page S16 of our earnings supplemental, the remaining phases of the Walt Disney World project represent our only ongoing development with phases spanning through 2023 and only $201 million in remaining development capital needs. As of September 30, the company's debt to total asset value was 41.3%, and net debt-to-EBITDA was 8.1x. It's worth noting that excluding the impacts of COVID on operating results this year, net debt-to-EBITDA would be in the range of 7 to 7.1x. Although our leverage levels are temporarily elevated relative to the targets we have historically communicated, we feel confident that with the 3-year capital plan we layout on Page S16 as well as the expected normalization of the EBITDA, the company's debt to total assets will return to the mid-30% range and net debt-to-EBITDA to the high 5 to low 6x range. With that, I'll turn it back to the operator to start the question-and-answer portion of the call.

[Operator Instructions]. Our first question is from Anthony Paolone from JPMorgan.

I think you mentioned some prospects of maybe picking up some occupancy in the second semester with some of the freshmen. I was just curious to get your thoughts as to -- as you look into the next semester. Did you think that risk is greater that kids maybe don't return? Or that opportunity to maybe pick up some occupancy wins out?

Yes. Tony, at this point, we continue to be optimistic in that the universities have done an excellent job in terms of managing through any COVID outbreaks through the fall semester. And the confidence level among students and parents seems to be stable to increasing with that. When you look at the ups of -- the greatest upside in the portfolio is indeed at those first year on-campus ACE assets that are administered by the universities in terms of the assignment process of that. So it's not something that we have direct ongoing purview into and that we're not administering that process. The thing that we're -- we take comfort in and have some optimism over is, as William went through the enrollment numbers, is that while -- the material impact we talked about when we released our leasing in -- on September 11, is the only place we really saw any material diminishment in occupancy was that decision of first year students coming to college for the first time out of high school, where that 79% occupancy versus the traditional 95%, 96% in that arena. Where we're encouraged, though, is they still enrolled and that the enrollment numbers are steady. So it's just a delay in when they're coming to campus. And so we know our universities have done -- partners have done a great job in terms of their management. They certainly want to welcome more students back. And ultimately, they're the one who're administering that. But we believe it is a more positive outlook than a negative outlook in terms of the opportunity of gain versus diminishment.

Okay. And then the 3 points of non-collections in September. Do you think that number gets better or worse from here? Because it seems like a new group of students compared to that runoff from last school year? And then did you reserve anything against that in the quarter?

We're hopeful that it's stable, but certainly, as you know to be proven out, as we move through the semester. As Jennifer talked about in her script, we are very encouraged in the fact that we've seen less request for resident hardship, only a couple of hundred. As we had commented, I believe it was on the last quarter's call. The real benefit that students have, perhaps over other traditional renters and apartments, is the fact there'll be annual process of application for financial weight and guaranteed student loans; then enable them, in essence, to recapitalize in funding their education. And so we hope that creates more stability on an ongoing trend rate in this year than we had in the past academic year when COVID hit midstream. And so again, we're happy with that improvement. We think we're fortunate that our sector, we believe, has the upward trajectory on that trend when others are still facing perhaps a declining trend. But obviously, we're cautiously optimistic and want to see how it plays out over the next several months.

Okay. And then just last question. You've laid out your plan on the balance sheet through 2023. But just curious if there's anything contemplated in the near-term with regards to their asset sales? And also how you're thinking about your common equity here?

Yes. Tony, this is Daniel. The good thing is, we're definitely in a solid liquidity position to be able to fund everything that we have in front of us. As I laid out in my prepared remarks, between cash on hand and availability on the revolver, we have $767 million of availability there. And only $200 million remaining to fund on the development pipeline. And if you look at the mortgage debt maturing in 2021 through '23, we only have $193 million left to pay off there. So obviously, plenty of liquidity to fund all of our needs in front of us. Of course, in our capital plan, we do reflect the, call it, equity side of the equation longer term, which may come from dispositions or common equity depending on what's the most attractive cost of capital there. Of course, common equity does not make sense right now. So our primary target will be via dispositions. We sold $150 million earlier this year, and we only have about $50 million to $125 million per year that we would need to fund as part of our capital plan through 2023. So we would expect to move forward with that starting next year, and we feel like that's a very reasonable amount to accomplish.

The next comes from Austin Wurschmidt from KeyBanc.

You guys did highlight that occupancy upside at first year residence halls is one of the most attractive opportunities. I'm just curious, as you speak with university partners at those schools, especially the ones that have closed their on-campus or maybe de-densified, how are they thinking about administering on-campus housing in the spring as well as the fall of next year?

Yes. And certainly, let me answer the question in reverse order. I think that as we move toward the fall of next year, we and all of our university partners are hoping for a much greater return to normalcy in fall of 2021. Certainly, the spring on an interim basis. The universities have done an exceptional job in -- from our perspective, in terms of the management of their campuses and the fall move in with COVID. The first in the universities did. This is why you do see a dip in the occupancy. Most of our ACE partner institutions have housing requirements or expectations that they expect all first year students to be to-live on campus. And obviously, anyone that had a discomfort with COVID students or parents, university has accommodated them by no means whatsoever. Upheld those requirements and expectations, which in the long-term in the future we do expect to return. However, on that short-term basis, the other thing that they have done is just done a fantastic job, in terms of managing COVID outbreaks. You take our largest partner in Arizona State University, with over 75,000 students. As of this date, they have 11 active COVID cases, 0.9%. And then that's the whole enrollment base that they tested 99,000, 75,000 students, 12,000 faculty and staff. And so they have excellent procedures in place to administer. Also, as you all have probably heard and read, the 18 to 22-year-old college demographic has been extremely resilient with when they are infected with COVID. Most cases have been asymptomatic. It is rare that any hospitalizations have ever been occurring. And so the fear level among students and parents of college age students, if anything, as outbreaks have occurred and quickly passed them and properly managed, we think is only created more comfort. And so I think universities are prepared to welcome back in the spring as many students choose to come. And so at the end of the day, it is really a consumer decision as to whether or not they return versus a university mandate that you return or a university encouragement not to return.

So that's even for the schools that have closed their on-campus housing? They're considering welcoming back some students in this spring.

Very few students -- a very few universities have actually closed their on-campus housing, with rare exception. The only university partner that we have that has had been -- there has been more cautious and extreme is Drexel, who is in Philadelphia and urban area. Temple and Drexel both have gone fully online. But if we don't see changes yet in any of their sentiment in a more negative sense whatsoever.

All right. Got it. That's helpful. And then as far as the balance sheet, I mean it seems fair to assume in the near-term we should expect that 8.1x net debt-to-EBITDA to continue to increase as you fund future development. And then you mentioned that's likely temporary and normalizes. But how should we think then relative to the capital needs to fund development and leverage in terms of disposition volume? Is the $100 million to $150 million you've guided us towards, is that still a good number? Or are you considering either increasing, I guess, or decreasing that depending on managing kind of those two different items, funding needs, and leverage?

Yes. I mean, Austin, the amount of dispositions we do per year, obviously, will be dependent on how much development we're spending. As we've talked about in the past, we're doing our best to match fund as we go and not disrupt the pace of our FFO. Of course, if we see opportunities in the market, we may act more quickly on that. We'll just have to see how that progresses.

Got it. Okay. And then just one last one on supply. It seems like that level of supply actually ticked up from maybe what you had expected previously or a range of outcomes previously. Curious what changed that? Are you seeing banks a little more willing to lend on the construction side?

No. And we did see a slight uptick from where we were on Q2. But we feel very strong for the supply outlook is in our markets. When you build off the reduced supply you had, and I can't talk academic year '20. But academic year '21, we're seeing 2% to 4% decline of that. We are still seeing the lowest level of supply we've seen since 2011. And what -- you just had a few projects that came in, stick frame built down in the southeast that could get -- start construction in the summer or late fall -- or early fall. That's what caused the uptick. But the metrics and the tailwinds for supplier are stronger than last year. And when you go back and look at our leasing pre-COVID, where we were 300 bps ahead, 3,800 leases ahead, it was a very strong tailwind. We think as we normalize, you continue to have those strong fundamentals of supply, that are only going to build for academic year '21 and beyond a strong footprint within those markets.

The next question comes from Neil Malkin from Capital One Securities.

First question is on OpEx. It seems like the numbers came in better-than-expected or at least kind of what you had talked about in terms of maybe reverting to a more trend level expense growth. Just wondering if you could talk about some of the things that are occurring that you may begin to expect to? And if those types of things should continue? And then if there's anything that you've learned along those same lines, either from a staffing level or a technology standpoint that you can continue forward and implement on a more permanent basis to your overall cost load?

Yes. Let me go ahead and start off, and then Daniel can add in here. Two of the areas where you see some of the greatest savings are in marketing and payroll. And those are very much somewhat related. And then when you look at the nature of our business, and we've always talked about student housing being a little more operationally intense given the number of leases we have per property on a per bed leasing basis. When you think about that in the context of marketing and promotional event activities that typically take place throughout the year when students are actively engaging in all aspects of campus life and athletic programs, those are in-person, human resource intensive marketing activities, in terms of the hours that our Paraprofessional staff of students working, on-campus promotional events, athletic event centers and staffing those type of things. And so there you see kind of a double savings that relates to marketing and leasing activities, as it relates to everything having been largely, fully move to social and digital, online, online leasing, less people coming into the actual leasing center in terms of the level of staff you have, not just for the events for giving tours. And so certainly, the payroll savings associated with the day-to-day business of marketing and leasing and the in-person interaction are 2 of the things we've seen great benefit. Now as we look at that going forward, I think that we and probably many real estate companies feel that we've all through necessity and opportunity have really honed in and enhanced our technical skills as it relates to the ability to market and lease to students in that manner. However, with that said, we are at the 90.3% versus our traditional ordinary 97%. We aspire to be fully back to normal. And so the thing that we'll have to see and manage, we hope there's longer term saving opportunities that we can continue to harvest in those areas. But certainly, as the environment from COVID changes, those type of activities will ramp back up. We won't just automatically say, okay, we're going to go totally 100% digital and social and no longer do those things because what we don't know yet is what they contribute to that incremental return to normalcy and improvement. And so that's one of the greatest areas in terms of the savings we've seen and how we hope it has some bearing going forward, but may not be able to be fully realized given the return to normalcy.

Yes. And Neil, the only thing I maybe add to that outside of the things that Bill went through that are obviously very COVID driven, is on the utilities and repairs and maintenance side. We're continuing to think, and we think this is really kind of hidden in the fact that we're seeing so much savings surrounding COVID that we are driving additional efficiencies with our asset management program, which is geared to a lot of our ESG initiatives and driving savings on the utility side, both water usage as well as electricity, also within the properties -- or within the units, doing things from a longer term finishes standpoint that require less spend during our turns. So we don't think that we're getting to see the full benefit of that given all the other savings that you're seeing associated with COVID.

Okay. I appreciate that. Next, you talked about a handful of schools talking about increased in-person learning or curriculum delivery in the spring. Just could you maybe talk a little bit more about that? How those plans are kind of shaping up? And I guess, in general, what's your kind of sense of your overall school university stance? Now that they've kind of dealt with the first blow of COVID. And what sentiment and that kind of looks like, in general? And I think what I'm getting to is, would you expect occupancy to remain -- to get back to sort of the 95%, 97% range of the fall of next year? Or is it more of a 22 type of event based on what you're currently seeing?

Yes. As I answer that question, I also want to correct something I said earlier when I was discussing Arizona state need, the infection rates. I said 11 cases. Actually, the 11 cases is among faculty and staff of 12,400, which is a 0.09%. The student body is 70 out of 74,000, which is also 0.09%. But I think that really speaks as a good lead into the question that you're asking. In terms of faculty, staff, and the delivery of curriculum at College University. What we have seen in, when you look at the 68 markets that we serve, very few markets ended up fully online, only 5 markets, 7 of our assets. When you look at the remainder, there were some that were designated as fully in-person, but the reality is they had some semblance of online curriculum delivery, and the large majority of our markets were what we refer to as hybrid. What we have seen and the one thing universities have done have done an excellent job in making sure that their faculty and staff are comfortable and accommodated in relation to any that may be high risk in giving them the option of how they're delivering their curriculum. And they've been very sensitive to the needs of the faculty and staff in that regard. And because of that, we have seen all of our university partners, for the most part, really toggle between the online and the in-person as necessary based on an outbreak or how things are going and provide both alternatives. And so I think as we move into the spring, you're going to see more of the same. Where -- that is as a benefit to us. There have been outbreaks of the curve. Certainly, I'm sure you all read articles is the first 2 to 3 weeks of camp -- when students came back to campus, there were some spikes. Universities very effectively managed through that by toggling at that time to online and then coming back, and so -- and having conversation with our Board members. I've spoken to -- we're now in what I refer to as COVID normalcy. And certainly, we're not operating in a normal ordinary fashion. But universities are operating in a normal reaction to what the conditions on the ground are of COVID. And so as we move to spring, I think the universities are very much in a stable operational reaction mode of curriculum delivery back and forth. Very surprisingly -- not surprisingly. Very good for our industry is that we did see stability across all curriculum delivery methodologies in terms of students coming back to the campus. Whether they were fully online, whether they were hybrid or whether they were in-person, especially among the non-first year students, sophomore, and upper division classes. When you look at that group within our portfolio, roughly 92%, 93% came back regardless. And so we think that -- again, when you look at the risk opportunity environment moving forward, we think that now the track record that universities have that in June, July and entering into the fall that was unknown, and people have seen the ability to manage in the university's proficiency in managing in a proactive and very thoughtful manner that the environment going in the spring is better as it relates to the opportunities for occupancy and full ability to toggle back and forth in the curriculum delivery.

That's awesome. Can I just go back to the last part is -- I know I asked a lot there. I apologize. But just again, kind of based on what you just said, which seems like, obviously, a good thing and sort of just overall trends as of today, would you expect fall of '21 school year to get more to your stabilized levels? Or is it more of a '22, just if you assume there's some sort of lag in the international or what have you?

Yes. And I apologize. I just forgot the last part of the question versus boarding. I mean to be seen. I mean when you look historically, we have always operated year-in and year-out at that 97% to 97.5% in terms of fall occupancy. Is that where we'd like to be in fall of '21? Absolutely. Certainly, we believe there's going to be substantial incremental improvement in that journey. I completely would expect, in fall of 2022 that we are in a complete post-COVID world, and we are normalized. Fall of '21, we would hope to be, but it could be what we would -- second, our hope would be a significant progression toward that normalcy. But we would expect it to be significantly better than this fall that was surrounded in all the uncertainty in how universities could operate in the environment, which as I talked about, they've demonstrated.

The next question comes from Nick Joseph from Citi.

Given the current leverage in capital commitments in terms of development, what are the thoughts on reconsidering the dividend, creating some additional liquidity and retain cash flow, and trying to become a little more self-funding for development?

Yes. Nick, it's a great question. Certainly, at our Board meetings next week, the dividend will continue to be as it always is. Something that the Board will give very thoughtful consideration to and discuss. I think Daniel has commented on prior calls. We appreciate both sides of the perspective in terms of maintaining your dividend or retaining more of your dividend. We know their shareholders, including us and shareholders that have always appreciated the stability of the dividend, and the reliance upon it, and the fact we've never had to cut it as a company. At the same time, as you mentioned, retained earnings is your most favorable cost of capital and ability to implement capital. So certainly, it will be a topic of discussion at this Board meeting, like it is at every Board meeting. And the Board will give proper waiting in purview to both of those perspectives they consider as they always do.

And then just on bad debt. How are collections going for what was kind of left due in the second quarter and third quarter? And I know some of that was through the Resident Hardship Program, but you also have the parental guarantee. So I'm just wondering how much they're going to impact bad debt?

Yes. Nick, and in Q2, we took a large write-off much greater than we typically do in delinquencies related to those prior year delinquencies. And also you see the numbers in this quarter impacted by it related to the prior academic year. And so we, so to say, have taken our medicine in that regard. And also in terms of our compassion through the COVID crisis, in terms of wanting to do the right thing by period, we did waive all of those eviction proceedings ongoing and trying to enforce parental guarantees on the prior year on past residents. For the most part, those have been written-off without -- with rare exception versus a hard -- there's been no turning into credit agencies. We made that commitment to our residents, the beginning of COVID, that no one would go without a home because of the inability to pay rent, which to spend that. And so that was part of the short-term medicine that was taken. We did it with a significant portion of our Resident Hardship Program where people could enter into payment plans. Those were undertaken, and students undertake that, and those continue to be administered. On the go-forward basis, and certainly, as we talked about, the improvement you see in September is really somewhat systematic with the commencement of the new academic year. As we mentioned, there are students that were able to recapitalize through financial weight and student loans. Also, the choice of students made as to what university they're intending, the public that is very affordable intuition versus the private. You probably saw those choices come to give a better paying profile. And really, when we look at in the ongoing delinquency as compared to the past, as Jennifer mentioned, the resident hardship is much less given that people have had the opportunities to recapitalize and do what I just said. And really, the only lingering delinquency we see at this point, I think this is something you see in multifamily also, is with their being in most municipality still a complete moratorium on eviction proceedings and the like and also there's actually a federal moratorium through 12/31 that renters can supersede even locally where there's not one, you do have a very small percentage, just on some multifamily executives also in this area, a very small percentage of renters that just understand, and in some cases, politically being encouraged, you don't have to pay your rent. And so if you don't want to, don't. And so it's a very small portion of delinquency. But I think that exists in residential all across America. We see a little bit of impact in that in Boston, Seattle, Portland, and strangely Florida a little bit, too, where there's been some movements to Church people, hey, you don't really have to pay. But it's very small percentage, as you see in our numbers, as this is referenced in September.

The next question comes from Alua Askarbek from Bank of America.

So I just wanted to go back to the 2021-2022 school year and see if you guys have any color on the pre-leasing. I believe most of it, like markets, have started in October. So just kind of what demand is from students? How many current students are already looking at options for next year? Anything that you can share on that.

Yes, still very, very early on in the process. And even in an normal ordinary year, at this point in time, we're not giving color on lease-up. We're always talking about, it's just kicking off. The returning student efforts are just underway at our properties that we give our current students first priority to come back and then kicking off the new. And so really too early to give any indications into velocity. I think also that when we just look at the future of this year versus last year, obviously, you had 2 very unique leasing cycles. In the last year, you're going to have a year that we're benchmarking against it. Pre-COVID, was all normal and ordinary, as William talked about at tailwinds. Then you had a complete stop in velocity for March going forward. This year, we would expect the exact offset type of trend. Obviously, you have all the COVID activity still that probably creates a little bit of -- perhaps a little bit of lag and then it should be a great acceleration in March, April, and May. And so way too soon to comment on anything that we're seeing. But certainly, our expectation will be as we get towards June, July, and August is when you could really start to draw comparatives to the prior years to where that ending is going to be, where I've already commented on what we hope, fall of '21 will lead to in terms of at least significant progress toward that normalcy.

The next question comes from John Pawlowski from Green Street.

William, a question on Disney. This time next year, you'll have five phases delivered. As you roll -- as you market the properties to the broader rental market and as the Disney interim program perhaps comes back second half of next year, how are you viewing kind of the trajectory of occupancy? Are we going 0% to 50% a year from now or 70%, 90%? Could you just help frame the impairment of occupancy a little bit?

Yes, John, this is Bill. Let me go ahead and grab that and take the lead, and let William jump in as appropriate. The -- obviously and with the initial deliveries that have taken place through this year where that would have been, as William commented, instantly stabilized with DCP participants just moving over. Now we're looking at putting it into more of the traditional conventional apartment ramp up. And so typically, we're performing in the area of 70, 100 units a month in absorption. And so obviously, it's a longer lead time into that. We're just kicking it off. We don't have any purview yet into -- as we go down that path, whether or not that absorption rate -- estimate is right on track or slow or we can exceed. And so a little bit too soon to gauge out what the occupancy may be. Based on our current projections, when we go through the build-out of the 10,400 beds, we think we could have as much as 1/3 of the beds, about 38,960 units that may be available to the open market beyond the DCP program. And so where that occupancy ties in is all going to relate to the successful absorption of those beds as they become available. So a little too soon to speak to it. I do want to say that we -- the folks at Disney have just been incredible partners throughout this. And it's the type of relationship where no one has ever referred to the legal documents at all. Everyone doing the right thing by each other, and they have been very sensitive to the investment that we have made there and in us mitigating and supplementing the loss of income from DCP by going to the open market.

This is Willie. The one thing I would add to that, that 1/3 of the beds, that Bill mentioned, that's in the interim, kind of call it, through 2023. We still fully expect the DCP program to occupy as designed once the parks open back-up in 2023 and beyond. So just want to clarify that.

Okay. And then on the DCP demand with your conversations with Disney on their expectations, they get in turned back at the park second half of next year. Is this like -- you expect 50% of DCP demand to come back? Or how is it going to shake out relative to pre-COVID levels for the interns themselves?

No. It will certainly come back in phases and ramp up kind of starting in late '21, all the way through 2023. As Bill said, we think right now, we could have through 2023, 1/3 of those beds available and certainly, that's subject to change based on the current or the future projections of Disney.

Okay. Last one for me. Jennifer or Bill, for the properties that primarily have sophomores and above, curious if any markets leasing is actually rolling backwards? And your cancellations are piling up and occupancy is actually heading south?

Yes. No, we've been -- my mic was off, sorry, I hit the button. No, we have seen great stability once the school year has started. So when you look at our leasing update, you'll actually see that from the time we announced on September 11, we continue to have a couple 200 to 300 pickup in leases at those properties that primarily have sophomores. And so that is something that we, by no way, shape, or form, have seen any negative trending, only continued interest and continued velocity. And as I mentioned, that particular demographic sophomore and above. Almost without exception, more than 9 out of 10. About 93% across the Board did indeed come back. When you look at those sophomore properties and the dip down that we had from last year, which was only 470 bps. When we really drilled into that number, while there are properties that are designed primarily for sophomore and above, at some universities that do not have capacity for first year students and where we end up with first year students in our apartment products off-campus, traditionally it's a small population. It's about 4,000 to 6,000 in the overall portfolio. But most of our diminishment in that area was in that category also in the apartments. We had a dip thereof about, I want to say, it was 12% among those 4,000 that we typically see. And so with the upperclassman and upper-division students, we have seen great stability and continuing demand as the year has gone on. And we think once the first year students that all come in -- and again, and I've said this before, the poor kids that were high school seniors through COVID, never got to have their graduation and finish out their career, they are the same students we're talking about that are now enrolled and having to take their first semester online. And so we certainly think that once -- for those, again, 4 out of 5 did come to the campus. But for the 1 out of 5 that have delayed that, certainly, when they come, once they've had the college experience, we think that you'll then see the same ongoing normal know their retention that we see over four years of college carrier.

The next question comes from Alexander Goldfarb from Piper Sandler.

The attributes that you have had was a nice intro. So thanks for kicking off earnings season. A few questions here. First, just going back to the Disney, Bill, just so we're clear, one, the 6.8 stabilized yield, that's when this thing is fully up and running. Obviously, between here and there, whenever that is in a number of years, the yield is going to be a lot lower, right?

Yes. I mean the 6.8 stabilized, I believe, is 2024, and that could slide a year to 2025. Certainly, when you look at the interim yields and the main reason, Alex, for the interim yield going -- obviously going down is twofold. One, as William mentioned, under the DCP original performance, just like student housing, every phase that is delivered is 100% occupied as it was kids -- the interns, rather, just moving from the current housing into the new. And with the cast members or the broader market supplementation to the broader base of renters, it is the staggered absorption as you see in traditional multifamily. Also, as William mentioned in his scripts, because of the nature of these beds we're taking and units we're taking to the open market, being interim, and that it's not a situation where someone's going to sign their lease and renew as it rolls over the next 3 years because as the DCP program comes back with better economics, we're going to want to ramp that back up. So we are offering what we think is a little bit of a discount to what market rents would be, one, to gain velocity quicker. So certainly, the yields between now and that year-end stabilization are going to be somewhat materially impacted.

Okay. And then as far as the ground rent abatement or meaning the pause, the waving of the ground rent to Disney, is that something that's commensurate? So let's say, you lease-up 30% of the beds, you would pay 30% of the ground rent? Or how is that being structured, the ground rent, when you have to pay versus heads and beds?

Yes. Alex, this is William. That's correct. It would be off as the property becomes occupied, the ground root would scale pro rata to that.

Okay. Okay. And then the next question is on the pre-leasing. Last week at the interface NMHC, it was a big topic with a lot of folks just saying, clearly there's some issues this year as far as like the gap between Thanksgiving and then people not coming back until after winter break. You already have the freshman, 20% who didn't show. And you guys have almost 30% exposure to on-campus, which makes you even more prone to the freshman. How are you thinking about pre-leasing addressing it for next year, especially given your heavy on-campus? And Bill, what do you think -- or what's the feedback that the -- that your college employees are telling you about freshman changes maybe people on-campus saying, hey, their friends really miss out and really want to try to come back to campus or something that would give us some data points on how to think about the freshman for next year?

Yes. And you got to understand the freshman for next year currently aren't even on campus. They are the current high school seniors. And so that's actually, I would say, at this point, good and that they have been completely isolated from all the turmoil of COVID in the college towns that took place last year and the apprehension prior to this fall. And so the university's normal ordinary process in terms of building occupancy for next fall, one, I made the comment in my prior Q&A answer that almost all universities, I think I can't say all, totally relaxed any housing requirements or expectations for those first year students. They have not made any definitive commitments that they're going to do that in fall of 2021. So that will be an indicator that is -- and they probably won't address that. My guess would be until May when they're doing their acceptances in terms of what their expectations are. And so if COVID indeed has subsided or indeed vaccine has made progress, I would expect universities that are nationally heavily relying upon that revenue source, even more so than we are, and it's 100% of their housing revenue, in most cases, will be much more back to their enforcement of their policies. And so that, I think, will be the greatest indicator toward 2021. And then shy of that taking place, certainly, again, the large -- and the one thing, again, universities are more motivated on this issue than we are. When you look at that first year housing products, about 10% of our beds, when you look at it in that regard in terms of specifically on that group administered by the university under those MLAs. But for the institutions nationally, that is something they need to return to normal at a much greater priority than we do. And so we think there's great alignment there in that regard. As it relates to spring, I think I already covered that a little bit. Agonizing in terms of what the current environment is and what the opportunity is, and how the universities are administering that. And we just don't have enough purview into it yet to see where that may end up. But again, we think the environment overall, given the success and management in the fall, is more opportunistic than risk of diminishment.

Okay. And then just a final question, again. Last week, there was a discussion of Fannie, Freddie having much wider spreads, 80 basis points wide of multifamily, and having reserves set up for student housing, whether it was lease-up reserves or prepaid reserves, et cetera. And at the same time, cap rates for the Tier 1, which is where you guys are, are firm to getting even tighter. Given Fannie and Freddie focus a lot on sponsorship, Tier 1, it would seem like there would be sort of similar overlap. So what is causing this spread? And I know you guys really don't do mortgage debt, but still, it seems a little odd that, on one hand, investors are paying firm or better cap rates per product, while at the same time, the main lenders are making stricter return -- covenants or whatever restrictions. So what's going on here that explains that? And how do you think it's going to play out as far as either their spreads getting better or cap rates backing up?

Yes. The first thing, Alex, I'll make a comment on the cap rate and then anyone else on the team here comment on the debt they are more and more perspective. And certainly, the stability of cap rate, I think, is a good thing for the industry. The one thing you don't know is what are they applying that cap rate to? And is it indeed full pro forma recovery? Or is it in place revenue or the hybrid in between there? And at the headline cap rate in that regard, depending on what that underwriting in terms of what I just said, there's a lot of variation in terms of upside and opportunity versus that. I don't know, William, you may have more clarity into the underwrite on that regard. But I don't know if you want to comment on the debt, William or…

No. On the cap rates, I do think you are seeing some transactions. There's not a ton of transaction volume you've seen, but you're seeing transaction volume come in, in line with those pre-COVID, maybe even somewhat inside. And it's really also a flight to quality on that. You're really focusing Tier 1 universities, pedestrian assets. You're getting deep interests and you're getting a lot of offers at very strong pricing there. As you get further away, as you get to Tier 2 market, that demand is dropping rather substantially. So it also depends on what the product is. Obviously, our product tends to all be pedestrian Tier 1 markets. And so certainly from a valuation standpoint, that's a great data point. When you then go to debt in the sponsor side, certainly you are seeing reserves. If there's properties that have significantly missed occupancy, the less that occupancy miss is there, the less those reserves have required. But very focused on university, asset, and sponsor. And so the groups that check those 3 boxes and opportunity to check those 3 boxes, there's ample debt and Fannie and Freddie are competing right now for those. If you don't fit one or a couple of those boxes, the debt can be tricker. And then the final thing, I think when you really look at it is I think some of what you're seeing on the cap rates is that risk-adjusted return. Student housing is performing better than other relative sectors, and a cap rate should be reflective of that.

The next question comes from Rick Skidmore from Goldman Sachs.

Just a really quick question on the return to normalcy. Do you think that's a function of a vaccine in place? Or do you think the schools have managed appropriately and will be able to ramp-up in person without a vaccine?

No. I think the schools in the absence of a vaccine have done extremely well. And again, when you look at the statistics related to how the 18 to 22-year-old population is impacted by COVID, again, from a health risk perspective and the actual impacts to them while having the disease, is minimal. And so I don't think that the -- that group is looking at a vaccine as something that they are waiting for. By contrast, I think where universities have shown appropriate, greater care and concern is understanding that the faculty and staff does likely include higher risk members of the population. And that's where what we have seen them do in terms of the accommodation to faculty and staff in terms of the ability to give a lecture online or in-person or how the classrooms are set up. We think they have just managed excellently through the process. Again, appointing the largest university that we serve, Arizona State, at this time, having only 11 faculty cases out of 12,400 and only 7 student cases out of 74,000, in an environment absent of a vaccine. Universities have shown that they absolutely are capable of managing through this environment regardless of if a vaccine does or does not exist. I think what a vaccine does do, obviously, not just for our industry, but for every industry, is just takes any cloud of uncertainty and doubt off of it. And so certainly, I think that we -- every university and probably every other earnings call that you will have in this earnings season will obviously say when that occurs, there's going to be a positive potential influx for them.

And then just following up. On the second quarter call, there was some discussion around pursuing some joint venture partners. Can you just -- is there any update on that front that you can provide?

This is William. That process is still ongoing. We've got a number of equity sources that we're talking to, a number of opportunities we're looking at. But we've made great progress since second quarter, and continuing with that initiative, and we'll update certainly next quarter.

The other thing I would dovetail in a prior question that Daniel answered related to dispositions. And one of the key things that we look at, when we look at the drag on our earnings over the last couple of years related to the dispositions that we undertook and that we both weren't benefiting from growing scale and efficiency in the portfolio, is that in conjunction with the joint venture activities that William is undertaking, for new opportunities, the most likely disposition opportunity for us is to actually contributing assets into joint ventures, not just in terms of any pursuits that may be within the joint venture, but in creating liquidity also beyond that for our development pipeline, so that we can also while still, in essence, disposing of an interest in assets, continue to maintain scale, critical mass and start to get that scale efficiency back into our internal growth rate. And so it's also key in terms of our capital recycling opportunity. We'd rather joint venture. We've done a lot of pruning of the assets over the years. And we got a portfolio we really like and put value in. And so in many cases, we would desire to joint venture an asset versus dispose of it.

The next question comes from Steve Sakwa from Evercore ISI.

I just wanted to be 100% clear on something. For the September rents that were not collected, were those fully reserved for? Or are you in the process of working out payment plans with those folks.

So it depends on the specific tenant, Steve. Definitely, any tenant as part of the RHP program, of course, their rent is abated, and that's different. That's not a bad debt. That's actually is just removed from rental revenue and -- but they're -- any past due balance they have, and then that is forgiven at that time, is written-off through bad debt. We do look at protest renters in our filings on collectability there and reserve against that amount. So you do have some that you think is collectible, that you haven't reserved against. But definitely, in this environment, we have been as aggressive as the rules allow us to be to go ahead and write-off anything that we -- that's delinquent.

Okay. Great. And then, Bill, I guess, is a bigger question, as you sort of talk with the universities and they kind of reevaluate their bigger housing program and look at the impacts that COVID had, when do you think that you start to see some of the benefits coming out of the pandemic in terms of them having to kind of redo the housing on a long-term basis?

Yes. And I think -- so the one thing that we'll say appropriately, every university administration through the summer and the commencement of fall was completely focused on their campus operations and bringing students back safely and making all the accommodations necessary to faculty and staff. And so there was appropriate redirection of every executive on a college campuses daily activities in terms of that mission. Certainly, we've now, with the normalization that has taken place, as William mentioned in his script, we got some real good opportunities there in predevelopment, including MIT and Princeton. I made input West Virginia next to Princeton and MIT when you read it because those three prestigious institutions should be together. But there's great opportunity there that is now -- the meetings are kicking back up. And so I think as we go into 2021, there's a large pool of opportunity that is coming. And -- not only in the transactions that of ours that the timing slid 6 to 12 months that should benefit our future years in terms of fee income. But it is now indeed a broader base. As we had talked about, the universities have now seen it -- when we talk about the diminished on-campus occupancy in the first year products. Without giving specific institutions, we have seen large -- and these are schools that aren't our partners, that in the future maybe. But the institutions that have not done large-scale modernization and their housing stock largely consists of the community bath beds, one major Power 5 schools at 42% occupancy because they only have that community bath offering. And so the universities now having lift through the consumer reaction to their housing stock, we believe there's a high degree of motivation for those institutions now to address the housing needs and the modernization. So post-COVID 2021 and beyond, I'm looking down at Jamie Wilhelm, and he's shaking his head and smiling is the person leading that P3 initiative, he builds as though the environment of opportunity in that sector for us is greater than it's ever been post-COVID.

[Operator Instructions]. The next question is a follow-up from Nick Joseph from Citi.

It's Michael Bilerman here with Nick. I was wondering if you can just spend a little bit more time on the Disney deal. And maybe just to start, can you be a little bit more specific with the earnings, FFO drag from all of these activities in terms of going market rent out of the Disney program for at least calendar year '21, where you'll have almost $300 million of capital that's outlaid. And so it sounds like the revenues you're going to get are going to be significantly lower given by the vacancy and the rents that you have to charge and all the incentives you have to provide. You'll have the lack of capitalized interest, which come on to your balance sheet because those assets will be delivered, offset by ground rent that will scale now rather than being all at the same time. And so it's not insignificant in terms of the spend. So can you just sort of -- how many cents dilution are we looking at right now?

Let me give a lead-in, and then I'll turn it to Daniel to see what we have available at this point in time. 2021 will be the most impacted year, as you look at in terms of -- because originally, again, it was full ramp-up immediately of everything delivered in DCP. And now we're starting from all the units that are available and have been delivered in the absorption ramp up. And so you have the first time ramp up with no DCP into the mix at all, not coming until the latter half of the year. The differentiation is 2021 is the largest discrepancy and exposure in that. Daniel, I don't know that we have had one, understand we have sensitivity pro forma is related to how quickly that ramp up that are just going in the place, and that these conversations with Disney and the kick-off of this is in the last candidly 2 weeks. And so I don't know if we're going to...

Michael, I don't know that we want to give a specific amount yet because we're just getting started with Disney. And I think by the time we get on the next call, and we're looking at giving some projections for 2021 in terms of guidance, we'll be in a better position to really dial into what we think we can get in terms of that alternative market from cast members or otherwise in offsetting the revenue loss from the internship program on these first few phases. And then also just ongoing conversations with Disney between now and then in their ramp-up or back up of the internship program and how much we expect from that in the latter half of the year. So by that time, I think we could give you a much more specific impact.

But you're not wrong in your comments in terms of exactly the components of how you're thinking about.

Right. But I guess if I step back from it. It feels as though -- putting aside wherever the stabilization is -- if we're talking about 2025, I don't think anyone was going to give you credit for that eventual stabilized yield. But people are going to care about the here and now. And I don't know if there's like a $0.10 drag into next year. I'm just trying to understand some of at least the goalposts that you have in terms of -- look, you've spent $300 million, right, on top on the stuff that's delivering. You still have another $100 million that you've already spent, which is a good thing. I guess you're 2/3 the way done all your capital. But there's just a lot of dynamics going on. And I think having a little bit more detail would be helpful.

Yes. I mean I think when you look at what the original phase is being delivered and the yields on that, there was probably net of ground rent somewhere in the range of $40 million of NOI after ground rent contribution. We will get some contribution in 2021, which is -- what we still have to find out is how much of that can we get from the alternative market that we're going to be starting to pursue here shortly. And then the return of the internship program in the second half of the year. The offset to that, as William answered previously, will be, we are going to have some savings on ground rent as they continue to waive that and really bring it back on pro rata to the occupancy we get. So the 13.9 probably represents about $0.10, and you know it's going to be less than that because we will get some revenue replacement.

Right. I guess you step back from it, this -- when you embarked on this, this was very out of the box idea and it had some adjacencies to your existing business but was something very different, and also wasn't a small commitment that you made. You marked almost $600 million, call it, 6%, 7% of your asset base towards this. And I know none of us could have predicted what happened and what COVID has caused. But do you step back at all and rethink this investment? And is there any way to extricate yourself from it?

One, at this moment, we wouldn't want to extricate ourselves. But we did, and this is where we do -- when you look at when we announced the transaction, and I am surprised that we're currently implementing the strategy that we are in terms of what the original tenant this was. But we are very fortunate that we did plan and foresee that we did ask ourselves the question upon undertaking this, what if DCP goes away? What are the backups and what are the alternatives? Now if we were developing this asset for the alternatives from day 1, we didn't -- honestly, when we negotiated that provision, it was, okay, what if 20 years from now things are different? We didn't think any, in any way, shape, or form that this would be a strategy we would be implementing in the context of the development. And that is where the big impact is taking place. And that when you look at the need for additional professional worker housing at Disney and the market beyond that, the universal broader market in the Greater Orlando, there's a great economic opportunity here that is that yields that are acceptable to us, but you would have phased it and build it differently in terms of normal absorption of how it came together. Again, we're having to switch mid-course is what creates that yield. The ultimate backup that we built into the ground lease is that if the DCP program and the backup market were not successful, then ultimately, Disney, it can be part of Disney's hospitality pool. At that point, they're managing it, but we wouldn't care, they're much better at managing that than we are. And that actually had the best IRR of anything we would look at. And so I do think that when we stepped out of the box and assessed what's the unique risk of this, we did get the unique risk correct and that the DCP program could be halted. In no way, shape or form, again, did we ever think it was going to be related to COVID and on a short-term basis and the implementation would have to be through the development aspect of it. And it's really the timing of that that is what brought it into play. It is a full stabilization also, was conceived over that period of time. In hindsight, again, when I say what would we have done differently, then knowing everything we know now -- again, the backups we put in place in the ground lease are solid and are good. And so I wouldn't have structured that differently. The only thing that you would have done was stage construction differently if you knew you were going into that alternate market. And so I would say we're still very excited about the Disney transaction. Also, we're excited about the backup use. Pre-COVID Orlando was the #1 market in America for lack of affordable workforce housing. And so this is a topic that's hot there locally. There has been some relief, obviously through the impacts of COVID on the multifamily market. But it also demonstrates that this can be a good niche. Make no mistake. You are correct. There were short-term material impacts to our FFO contribution in yield, and that's real. And we don't make light of that in any form or fashion. But I do think that our initial thoughts in structuring the deal did have the proper risk perspective in terms of the contemplation and the alternate uses that are there. Again, it happening through the development is what creates the real pressure point in terms of the short-term impacts being than if it had been fully stabilized and then we were transitioning.

Is there any opportunity to reduce the capital commitment into this project? $600 million is not a small amount. And doesn't sound like the other sales are progressing or there's not new updates on raising incremental capital. Is that just off the table or...

No. And let me say this. When we announced the Disney transactions, we had more phone calls from equity wanting the joint venture of that deal than probably anything else we had ever done. And so certainly, as it relates to the schedule of building it out and the capital committed to completing it, it's something that looking at the projected ramp-up of the Disney College Program and the ability to supplement, we are still moving forward and committed to the completion of that build-out. We always have the ability to capitalize our interest in Disney and to supplement it through a joint venture. I don't know at this point in time. That's something we would want to do. We're still very, very bullish on the long-term prospect of this. And what it means to our company, both from an individual investment perspective. And also from -- we have -- the other thing we talked about when we did Disney that we have seen is the impact that it has with colleges and universities in terms of the reputational benefit in the procurement process of being Disney's partner. And so certainly, lessons learned on a lot of fronts is as we think through how we did structure it, in terms of -- the one comment I made in all of our business. Not just Disney. We need to look at every aspect of on-campus and ACE transactions when we look at first year residence halls. And that their disruption from COVID being the greatest material disruption in our occupancy this year, we were undertaking -- part of our thoughts were modernizing the community bathroom concept. Obviously, we got a big switching strategy there in terms of some of the lessons learned from COVID. And so I think there's a lot of things that we can look back on reflectively, and certainly something that we will do as a management team and also with our Board of Directors in terms of lessons learned and things that we can grasp going forward.

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

Yes, first and foremost, and most importantly, I want to thank the American Campus team, our field, and community staffs, especially, that throughout this pandemic have -- they'll continue to deliver essential housing services to our residents all across America. And it's their efforts and their commitment that have resulted in the road to recovery that we are on. So I want to thank them first and foremost. And thank all of you for joining us. We look forward to updating, talking with many of you at NAREIT, and updating you on how things go in the spring. Thank you very much.

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