The Impact of Covid-19 on REI and PPMG as of April 30, 2020

Hey, everybody. Welcome back to the first relaunch episode of ‘The Experience Matters’ podcast. I'm your host, Chris Clothier. Happy to be with everybody. Get my glasses kind of put on here so I can see good, and see who I'm talking to, see what I'm doing. 

Look, guys, thank you so much for joining us, thank you for sticking with us, thank you for coming back around the second time around. We had a phenomenally successful first run with ‘The Experience Matters’ podcast featuring Kent senior, my dad, CEO of - back then, Memphis Invest - now, REI Nation as we've rebranded. Kind of sharing his story; sharing his 55 years of business. How all of his experience through life and through business, why it matters, how it affects us as team members, partners, our vendors, our customers and clients.

Hopefully, we shared some great information with you guys. We really appreciate everybody sticking around and voting up the podcast as many times as you did and sharing it. I encourage you if you're a first-time listener just coming onto and finding the show, look, hit that button there that says ‘subscribe’. We would love to have more subscribers on here, more interaction, tell us what you think, send us your notes, send us your questions - we're happy to answer them on the show itself. 

So, look, here's how we're gonna do this relaunch and what we're looking to focus on: So, it's still ‘The Experience Matters’ podcast, and we're doing a video. We're gonna have the podcast, you're gonna find it everywhere that you can find a regular podcast to begin with. But the slight twist the second time around is that there's gonna be more people on here, we're gonna do more interviews with current investors. We're gonna do some interviews with business persons out there in the world that some of them are connected to us and they provide services to us and they've got a particular expertise that we want to share. And part of it is gonna be also going out there to interviewing actual investors - like some of them will be our clients some won't be our clients - but those investors out there that are doing great that are sharing their experiences, and helping shape good smart decisions by other investors. The other part of the podcasts will be like this kind of thing where I just jump on here and I'm gonna kind of share a little bit about where we're at, what we're doing, what I think what's happening, what's relevant, what's current.

The Covid-19 Impact

And look, I’m gonna jump right into it. Today, what is current, what's relevant is that we're towards the end of - I will say the first inning of this Covid-19 mess. We're approaching the end of April starting into May. I want to talk a little bit about kind of what the heck happened, and what we thought was gonna happen, and what did happen, and how the experiences of the last four to six weeks are really gonna shape us going forward as investors. 

Look, absolute turmoil was predicted for the beginning of this quarter - for the beginning of how April was gonna start. No one was gonna pay the rent. We had some people out there - and I'm not gonna get political at all - but I'm gonna tell you there were some people out there on the in the political arena that were saying renters should not pay rent, in some cases homeowners should not pay mortgages, you know, kind of flip it up on its head the entire idea of how property ownership is conducted for us. I mean, we manage 6,000 units that's how our company operates PPMG, the management company. Look, if nobody's paying rent, the company's gone. There's nobody there to manage anything because there's no revenue there. So, you know, we have this crazy environment where it looked like pandemonium would rule the day. And in all of this confusion, we sat down as leaders in this industry, and we lean on our experience, look, because it mattered, right? And, so, we said, “What do we actually think is gonna happen?” 

And we really felt that a majority of the residents that we managed, we thought they were doing okay. We had hotlines opened up, we had a team put together, we had a task force. I was gonna be working with every resident that was, you know, struggling or under duress, having trouble. And we just weren't getting a ton of outreach saying that anybody was gonna have trouble paying rent. There was some - that's what we set up the task force for. But we really felt like it wasn't gonna be a majority of the residents, at least in our 6,000 units. And that's what gives us credibility in the first place, right? Six thousand properties under management, in seven cities, you know, means that we know a little bit about what's happening out there in the rental arena, what's happening with residents in properties, and, you know, what are they dealing with, what are they thinking, what questions are they asking. And we had some real insight of this - real credibility when it comes to this issue. 

So, we really felt like when April 1st came around, residents knew that rent was due. Those that could pay rent on time and in full, they were going to. Those that were struggling we're going to reach out because the help was there. I will tell you: now, look, if you're listening to this and you maybe didn't have these same experiences, there's no judgment. I don't know why you did or didn't. But I will tell you one reason why I know we did. 

It's About Respect

Number 1: We treat residents like residents. That's the purpose of the word. They're not tenants. They're not short-term people that are just occupying something until we can get them the hell out and get another one in. That's old school. That's old school property management. That's old school tenancy. That's not who we are, how we operate. For us it's a resident, you know. With somebody that's gonna be there long term. Somebody that this is their home that they happen to be just renting from an actual person that owns it. But it's still their residence. That's why we want the person to treat it, that's the way we want the property to perform. 

First and foremost, there's this very high level of relationship and respect for the people that occupy the properties that we managed.

It's About Quality

Number 2: is that we only manage properties for owners that they face a very high premium on their property. They want a good property, they want it well-maintained and want it well taken care of, they want it well-managed. And, so, we don't manage, you know, properties where people say I'm not gonna fix this or I'm not gonna fix that or, you know, somebody didn't pay all their full rent on time so you know take out the AC, remove the heater, all that kind of BS And something that can happen out there with owners and management companies. That's not us. That's not who we are.

And lastly, we try and stick to better areas that, you know, the area itself - from the job market to the residents of the area - they're not under duress, to begin with. So, they're not already under the stress of, you know, lack of services, lack of quality homes, lack of businesses and jobs nearby. We try and stick with median-priced homes and above where we can. That’s a vast majority of what we are managing today. So, you know, when you start with that to begin with, we really felt like the people we were managing - the residents were going to be sound and that they were going to be okay. And what we found, again, to kind of wrap this little piece of this up, is that we guessed that most would be able to pay the rent, most would pay their rent, and those that are struggling were gonna reach out to us.

A New KPI

Fast forward, we're almost at the end of the month, you know. So, just so you guys know, this is gonna be released a little bit later, but right now it's April 30th. And on April 30th, we've collected a little over 95% of the rents billed this month. We're anticipating to end somewhere between 96%, we might hit the 97% mark. There is a brand new category, a brand new KPI that we've never had to measure before and that is: people that truly are under duress and they're unable to make a rent payment and therefore we need to work with them until they're able to get whether its assistance or a new job or whatever they just need help. So, we've never had that before as a category of what we're measuring. We do today. 

We know that there's a certain percentage - 2 to 3 percent - of our residents, they've raised their hand and said, “Hey, I'm struggling getting it in.” Many have made payment arrangements and have already made a deposit so they paid some April rent. But, overall, globally, a little over 95% of rents are already in. We're anticipating that to be 96 - 97%, which, I can only tell you, is phenomenal. Normally, we're 98 - 98.5% of billed rent collected during that month. 

There's always gonna be that 1 - 1.5% where somebody for - due to a multitude of reasons - they're just unable to pay rent during that month, and that's where move-outs occur, that's where your transitions occur, that's where people that are moving or getting transferred, that kind of stuff. For me, I know that, through this industry, that's a leading number for the industry. There are very few that are able to achieve that particular number and very few that are achieving 95.5%  this month. But, we did and I'm sure that there are others out there, you know. But that's the point, we really felt like people weren’t going to be able to pay in April and they did.

Now, let's look at a few other things just real quick because we're looking back, right, on April 30th. For us as a company, we manage 6,000 houses. We rented and closed - we will end up with around 160 leases closed this month. So, the final number, by the end of today, will be somewhere between 158 - 165 right in that number. And that's under a kind of a new system if you know what I mean. We're asking the questions now, “Hey, are you still working?” You know, we need to verify that you haven't been furloughed or that, you know, you're in an industry in a job where you're not gonna be let go, you know, anytime soon. We need to talk to your boss to make sure that everything is lined up the way it's supposed to be. We're just asking deeper questions and asking it two or three times instead of once. We're verifying, you know. We may approve somebody early in the month but they don't move in until later in the month. Well, we go back and verify again later in the month that they're still working, everything's still exactly the way it's supposed to be. That's just a new norm, right, under Covid-19. That's just what we have to do right now.

So, even with all that in place, 162 properties leased this month. There is great demand out there for high-quality, well-managed investment properties that are for rent. There's a great demand from the rental population that they just want quality. They want to be treated with respect. They want confidence that the property they're renting is gonna perform well. It's gonna have all the quality of life issues addressed and they’re just not gonna have issues. So there's a great demand for that right now.

Renters Return

Let me tell you something else that happened this month: 188 lease renewals now. You know, for those of you that are listening to this that maybe you own property - we've got all kinds of listeners, there are all kinds of different, you know, experiences of people that listen to the show. Here's the deal: 188 lease renewals. What does that matter? Why does that matter? I'll tell you. As a management company, we keep the first month's rent every time we lease a property, every time we put a new resident into it. We only do two-year leases, so, we don't anticipate having to lease up a property except for at a minimum every two years. But what we strive for is a five year plus occupancy. And today, that is what we average. So, half the properties go longer than five years, half the property go less than five years. The average is a little over five years occupancy. 

Again, why does that matter? Well, 188 leases could have gone vacant this month and if they had gone vacant this month the owner will lose next month's rent, and then the owner will spend some money to get that property back up to standard to go back onto the rental market. So, let's say that's another month's income, that's - and let's say that we as a company, we perform well and we're able to get that property occupied by the end of that third month. So, it's lease is approved, it's occupied, so, hat's three months of lost rent. But, I keep the fourth month because I keep the first month of the new lease. So, that's four months of lost rent for an owner if a property goes vacant.

This month, we kept a hundred 188 properties from going vacant, 188 properties signed a new lease extending their amount of time they were gonna be there during the month of April. I'm gonna tell you, you talk about an alignment of interest. If somebody says, “Hey, I want to know that my property management company is aligning with my interest, not just trying to use me as a bank to cash money out.” Well, there is no better metric to look at because - again, stick with me - $1,000 per rent, if that was the average and our average is higher than that, let's just say it's $1,000 for easy math, 188 properties at $1000. For us, in income that is a $188,000 that we could have made in revenue during this time period, which it's a struggle to generate revenue right now. $188,000 is what we could generate. By doing that, we would cost the owner 4x that. So, the owners would lose $800,000 in rent collections over four months. So, rather than let that happen, we gladly give up $188,000 to make sure that $800,000 goes to an owner.

For me, you talk about something that I want to go and pat the team on the back, where you talk about something I'm gonna go tell the team, “Phenomenal job! That is unbelievable. You're able to achieve that number, great job of securing $800,000  in rental income for our client by preventing 188 move-outs!” There's no better way to look at to judge and kind of know what we're doing then that particular number. 

That's what's happened so far in April - three huge metrics for us. So, what's gonna happen in May? Well, I'll tell you that, so far, we've collected roughly 10% of May’s rent before May 1st the exact same thing we did in April.

Outlook for May

We are still tracking, we still have the same, phenomenal team together to work with any resident that's struggling in the month of May to get their rent paid. There are steps that they have to take to prove their duress. There are resources we're able to share with them that they need to go and take advantage of them in order to assist them with pain. As much rent as they possibly can without putting them in, you know, under further stress. But I can promise you that when you have a good product and you treat people well, they want to stay. They want to figure out: “How can I stay in this house?” So, I truly believe that May, for the best property management companies out there that are managing the best properties, I think May is gonna be okay. 

It'll be tough and the team may have to work a little harder than we did last month to make sure we collect everything and there may be people that are under that second month of duress where the money is getting tighter than it was in April and we fully expect all that. But we're gonna do what we do. We're gonna treat people with respect. We're gonna hold the line on accountability. We're gonna have expectations of everyone from residents to owners and really expect everybody to work together, because what else can you do right now? I mean. that's what this is all about.

So, we're gonna work together. We're going to collect as much rent as possible. I fully believe that I'll be back with you at the end of May, early June on our ‘Experience Matters’ podcast and telling you that, “Hey, this is where we’re at. We've achieved, again, really startling good numbers. Nothing has happened to make me think it's gonna be different than that. 

We'll be watching. We’ll be monitoring. We'll see what comes in, you know, how things come into May. Again, like I said: I'm not getting political, I'm not going down that road, we'll see what happens. We’ll let the people make their decisions. We'll try and get business back open as soon as possible. We'll be safe as I company. We're doing everything we can with our - looking for my mask, I don’t have a mask in front of me - you know, we’ve got the masks up, we’ve got everybody working from home right now. Slowly but surely, we're gonna bring people back in the offices, spread out good, you know. Just the kind of stuff we're supposed to do anyway, right? Wash your hands, don't sneeze in your hand then go shake somebody’s hand, that's crazy! Stop that kind of stuff!

Take care of yourself, take care of each other, clean your workspace, all that good stuff. The smart things to do to be able to keep a good business up and open and get things going. 

Anyway, that's where we are. Look, I'm super, super jacked! I'm pumped! I cannot wait to share ‘The Experience Matters’ podcast with everybody. Rockin’ and rollin’ this thing back up and going again. Thank you so much for we're sticking with us. Thanks for joining us back in on the first one. Be looking for more episodes as we start rolling them out. We got interviews set up for you, we've got great commentary, we've got different hosts so can we do a different show on here. But ‘The Experience Matters’ podcast is all about sharing our experience with you because it matters. And we want to make everybody listens here a little bit smarter - I don't know if I achieve that today - but that's always the goal: sharing our experiences; trying to make people smarter. Everybody, thanks again for listening. 

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