Q1 2021 Essex Property Trust Inc Earnings Call
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The day and welcome to the Ethics property Trust first quarter of 2021 earnings Conference call.
As a reminder, today's conference call is being recorded.
Eight minutes made on this conference call regarding expected operating results in other future events are forward looking statements by the ball risks searches.
Forward looking statements are made based on current expectations assumptions and beliefs as well as information available to the company at this time of Numb.
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Further information about these risks can be found out of the company's filings with the C C.
It is now my pleasure to introduce your house Mister Michael Shaw, President and Chief Executive Officer for Essex Property Trust.
Thank you Mr. Shaw he may be good.
Thank you for joining us today and welcome to our first quarter earnings Conference call Andrew.
Angela Kleiman, and Barb Pak will follow me with prepared remarks, and Adam Barry Our Chief investment Officer is here for Q&A of.
I'll start today with our first quarter of results and expectations for the remainder of the year, including factors that lead us to believe the 2021 will be a year of recovery from the pandemic and then conclude with an overview of the transaction market.
I'm pleased to note that Essex was founded 50 years ago in 1971 by our Chairman George Marcus and we're very proud of all of the company has accomplished George remains keenly focused on the company's mission strategy and business plan the execution I.
I also want to recognize the extraordinary effort of be Essex game, which is allowed us to emerge from the pandemic in the position of strength and ready to seek opportunity that often comes from associated uncertainty.
The board and senior leadership team greatly appreciate this collaborative effort finally, the company's commitment to the balance sheet strength.
And of growing dividend was reaffirmed with our recent announcement of our 27th consecutive annual dividend increase.
Turning to our first quarter of results severe lockdowns in California, and Washington remained a headwind in the quarter. After intensifying last November amid of surge in COVID-19 cases, and hospitalizations that has only recently abated are very strong results in the first quarter of 2020.
And a plethora of pandemic related regulations and associate of job loss or a significant impediments to the company's performance this past year.
As of reflected in this quarter's results were same property revenues and core episode down 8.1 per cent at 11.8 per cent, respectively compared to a year ago.
Out of sequential basis same property revenues improve by 10 basis points driven by growth in several suburban areas and particularly in San Diego Orange in Ventura County of of Southern California.
As noted in our earnings release, we reaffirmed our full year of 2021 guidance ranges and we continue to expect improvements and same property revenue growth driven by job growth and easier your over your of comparisons.
[laughter] apartment demand continues to be strongest in property farthest from the urban centers and weakest in the cities both be in a function of new apartment supply in pandemic related job losses.
On of trailing three months basis as of March 20th 21, you're over your job losses, or 9.2% and 5.4% respectively for the ethics markets and the nation, marking significant progress compared to the <unk> to the 14% decline we saw it in the Essex market shortly after the answer.
Set of the pandemic and also suggest the them that are Marcus from Maine early in the recovery process.
Fortunately the recovery of jobs appears to be accelerating as reflected in preliminary job losses for the month of March 2021, which were down 7.9% for the Essex markets and 4.4% for the nation.
On a sequential basis Californian, Washington outpaced the nation in March Gagne, nearly 150000 jobs, representing over 16% of the U S job growth with less than 13 per cent of the employment base.
As we suggested several quarters ago, we expect the rents to recover on the west coast as we recapture pandemic of related job losses that were directly impacted by shelter in place orders, including hospitality and service sectors Entertainment and Keith filming and video production and tech jobs.
That were displaced to remote locations.
Hospitality and service jobs were disproportionately concentrated in the urban areas and wealthy suburbs for the nation jobs and hospitality and the other services have recovered about two thirds of their post COVID-19 job losses.
By comparison to date, Essex Metros have recovered less than one third of these losses.
Given the widespread recent reopening of California cities. The service sectors are getting growing and their potential upside represents of promising differentiator for Essex markets over the next several quarters.
[laughter] film and video production was disrupted once again by the COVID-19 shutdowns over the winter months, followed more recently by a surge in film permit applications overall production of activity remains below normal for this time of year. However date of released the last week from the from film L.
La highlighted a 45 per cent month over month increase in film permit applications per March as the industry benefited from the recent relaxation of stay at home measures in Los Angeles County, we expect the rebound in production to continue this year due to a pent up demand for content that has been disrupted do.
Two of COVID-19, this recovery should provide of positive tailwind for the industry and for rental demand in the L. A market.
We are also pleased that many of the top tech companies of announce returned the office plans supporting our belief that the hybrid model for offices will prevail with most employees spending a significant amount of time in the office for T building collaboration career advancement and related necessities the.
The largest tech employers of our markets had significantly reduce their hiring plans early in the pandemic, while also allowing many of their employees to work from home.
With the city's largely shut down many tech workers moved to suburban or rural locations or back home with their parents. This trend began to reverse late last year, and we expect to see further momentum and the coming quarters as more tech employers reopen their offices as per.
Four we track the announcements of the largest tech companies and we have provided a timeline of plan office reopening based on public disclosures on slide F 17.1 of our supplemental.
We also provide a graph, indicating the strong recovery and job postings for the top 10 tech companies with the open positions in the ethic bar Essex markets now above pre COVID-19 levels.
We also track the job locations per open positions, noting that about 57 per cent of their U S job postings list, California, or Washington, as the office location.
As of last week Californian, Washington have just spent the at least the first dose of of COVID-19 vaccine to approximately 47 per cent and 45% of the adult populations respectively.
Overall accelerating vaccine deployment and pent up demand for services gives us confidence that we are now and of solid path to recovery California's counties had begun to remove restrictions on commerce and the gum and Governor Newsome recently announced the California's expected to effectively reopen on June 15th including T. N D.
Or an outdoor activities such as conventions and sporting events. These plans of subject to several protective measures tied to continued low hospitalization rates and sufficient vaccines supplies.
All of the supply outlook total housing permits both single and multifamily and our West coast markets have declined 9.2% on of trailing 12 month basis compared to the.
The national average the increase of 6.4% the.
The national increase in permits is being driven by of 13.9 per cent increase in single family housing permits mostly in markets with low barriers to entry in rising of home prices in California. The median price of the single family home increased 12.4 per cent ear over here as of February normally one would assume the.
At higher home values would lead to increased production. However single family permits in the Essex markets are down 7.7 per cent, which we attribute to of challenging regulatory environment and limited land availability ultimately leading to fewer deliveries in late twenty-two.
And 2023.
[noise] with large increases in for sale housing prices Downpayments have increased in the transition from a renter to homeownership has become more challenging at the same time the combination of lower range from the pandemic in a higher average incomes in the Essex Barkus has improved apartment rental affordability we've seen these four.
S as in previous recoveries and they often result in periods of higher than average rent growth.
Turning to the transaction market, we successfully sold three apartment communities in the first quarter for 275 million at.
Values that were similar to the pre COVID-19 period period, when our consensus N O B was almost $300 per share as a result, we use property sales proceeds to fund preferred equity investments and repurchase common stock both accretive two per share core of thought though in offsetting of pork.
<unk> of covered related NOI declines.
[noise], the strong rebound and revaluations over the past six months makes it stock buybacks less attractive today and we are now looking for undervalued or mismanage property in our core markets to grow externally there were relatively few property sales during the pandemic and most of our completed by highly motivated buyers using temporary one exchange per.
Seeds and other sources of attractively price capital several of our suburban markets have ret levels set of increased out of year over year basis in recent transactions have price in the high three per cent cap rate range in the hard hit cities buyers appear to be looking beyond the COVID-19 impacts with the apartment silly.
Near a four per cent cap rate using pre COVID-19 rents and NOI roughly equivalent to a cap rate in the low three per cent range based on current Reds strong apartment values have led to a greater level of redemptions in our preferred of equity portfolio, the impact of which barb will discuss it of moment as condition.
<unk> normalized we're starting to see more property is being listed for sale the unprecedented changes and uncertainty experienced or in the pandemic will likely lead to a robust department transaction market as property owners of gestures strategies going forward.
I will now turn the call over to our C. O O Angela climate. Thanks, Mike first of special recognition to the Essex operating team for the or continue focus on delivering solid results under these extraordinary conditions. Thank you for your efforts.
As for my comments I will focus the discussion on our first quarter results.
And current luck of dynamics.
In general are markets continue to improve as the economy gradually we open with the vaccine rollouts easing of COVID-19 restrictions and the reason announcement for a faith or partial author to the opening by the major players which has contributed to jabra.
I go I missed the pandemic was to focus on maintaining occupancy and managing schedule rent, which will position of favorably for revenue growth the in the future.
Accordingly, we adjusted of concession strategy to match the improvements in demand, which has enabled are the same property revenues to perform slightly better than I expected sheds.
We have been successful with the strategy and as a result, we maintain occupancy was scheduled rents decline representing only 3.2% of.
It was at 8.1 per cent total revenue decline for the corner.
You may recall, the underlying fundamentals in the first quarter of last year consisted of a strong economic backdrop prior to the code the pandemic.
Our first corner of the year over here the same property revenue growth back then what's the 3.2% with revenue levels at historical high throughout the entire portfolio.
The strength of the first quarter last year created a more difficult you over your of comparable which is also the reason why I knew the suede declined by 9.7 per cent in the first quarter.
As shown in the F 16, compared to the fourth quarter or the new the straight declined by $8 nine per cent.
Consistent with the discussion on our last earnings call the year over year decline in a major market was primarily attributed to combination of job losses from the pandemic, particularly impacting urban C. V V, which also had a great of concentration of supply of deliberation.
Here are of P. O T highlight of the first quarter you over your performance by the <unk> by market.
In Seattle, the seven per cent of revenue. The claim was primarily driven by Seattle CVD down 15.7 per cent, whereas the remaining submarkets average eight 5.2% decline.
In Northern California, the 10.9 per cent of of any day claim with led by C V. The San Francisco, and Oakland and San Mateo, averaging 815.9% decline contrast, it with a five per cent decline in Contra Costa County.
In southern California, the 5.8 per cent revenue decline continuously.
Driven by L. A C V D in West L. A which were of down by an average of searching per cent Wow, our suburban southern California, Submarkets, Ventura, Orange County, and San Diego average, a 2.1 per cent decline.
As you can see I suburban portfolio continues to significantly outperformed the urban markets.
On the other hand, there are signs of improvement in our tech centric urban market for example.
First quarter of sequential financial Occupancies in San Francisco, and Seattle C V D increased by 2.7 per cent and 4.2% respectively.
In addition, the sequential quarterly turnover rates declined and an average of 5.4 per cent in these markets.
We continue to anticipate that the urban C V D markets, particularly in downtown Seattle, Oakland in L. A will remain in pass it by greater concentration of supply deliveries, resulting an elevated level of concessions which of moderate that'd be company.
Although we typically do not place significant focus and sequential performance.
Because of the seasonality embedded in our business under normal market conditions.
As we emerge from the pandemic, we view of the sequential.
Friend is a better indicator of a recovery progress.
From this perspective, we have delivered two consecutive quarters of modest total same property revenue growth supported by comparable periods of job growth in our markets, which began in the fourth quarter of last year.
And has continued through the first quarter of this year.
More notable is the hundred and 10 basis points and sequential improvement of our average net effective market ran per unit.
With the southern California continue to lead our portfolio growth.
On average new of these concessions improved from the over two weeks in the fourth quarter to about why I have weeks in the first quarter.
Well the man the magnitude <unk> theory. This trend is in line with our forecasts when we had expected that market of rent in our portfolio on average, which Roth between the fourth quarter and the first quarter.
Lastly, although office rental market has softened major tech employers are continuing to expand in our markets.
Google recently procurer of the right to build an additional 1.3 million square feet of space of Mountain view and Amazon in Bellevue began construction on a brand new office tower as well as signing new lease and the development for an additional 600000 square feet.
With our economy approaching 50 per cent reopening we remain mindful of the market and legislative Angela Certainties as we continue on the path to recovery.
In conclusion our.
Our portfolio is stable with current same store portfolio occupancy of $96 seven per cent, alright availability 30 out.
30 day out is at 4.4%.
You and I will now turn to call over to bar Pak.
Thanks, Angela I'll start with a few comments on our first quarter results followed by an update on our recent capital markets activities and the balance sheet.
I'm pleased to report core of herself for the first quarter exceeded the midpoint of our guidance range by four cents per share.
Of which to censor from consolidated the operations and the other two pennies relate to the joint venture portfolio and lower interest expense.
Of the two cent beat on operations, one penny relates to hire same property revenues and the other penny is from lower operating expenses, which is timing related.
For the second quarter, we expect core epistyle to be $2.92 at the net client of 15 cents per share declined sequentially.
Half of the decline is attributable to the loss of income on the early redemption of 110 million preferred equity investment which occurred at the end of March and the 276 nine of dispositions that the clothes at the end of February.
There is a temporary mismatch on the timing of the use of of portion of the proceeds and as such this is causing of seven set the kind of sequentially.
In addition, we expect commercial income to be two cents lower as we had one time benefits related to better delinquency collections in the first quarter that we do not expect to repeat in the second quarter. The remaining decline relate to lower the same property NOI due to higher expected operating expenses and delinquency and higher G N a.
For the full year, we are reaffirming our guidance ranges for same property revenue expense and NOI growth and of course I felt per share.
Turning to investments during the quarter, we received 120 million for the redemption of two preferred equity investments.
One of the investments totaling of 110 million was redeemed early as the developer was able to sell the property for of price that exceeded our pre COVID-19 valuation.
We estimate the cap right at 3.6% on pre cover the rent and three and a quarter per cent on current net effect of Reds.
As a result of the early redemption. The company received 3.5 million and prepayment penalties or five cents per share, which compensates us for the lost income on the portion of the investment that was made in the fourth quarter of 2020.
However for F. F. L purposes, we booked us income as a non core item.
Given the strong demand to invest in the apartment and sheep financing alternatives. Currently available we may experience additional early redemption of preferred equity investments in 2021.
Moving to the balance sheet during the quarter, we issued 450 million of unsecured bonds with the seven year term out of.
And then the effective yield of 1.8 per cent.
The proceeds were used to refinance most of her unsecured term non stop matured over the next two years, allowing us to extend our maturity profile with no impact of interest expense.
We know of lesson to undermine of debt maturing between now and the end of 2022.
Since the beginning of 2020, we of refinance near the 30 per cent of our debt taking advantage of the low interest rate environment, and reducing are weighted average interest rate by 60 basis points to 3.2%.
This is leading to a significant reduction in interest expense in 2021 and can be seen in the first quarter results via the 4 million reduction to interest expense compared to the prior year.
During the quarter, we raised our common dividend by 60 basis points to $8.36 per share on an annual basis or 27th consecutive dividend increase.
This is a sign of a strong balance sheet and cash flow of coverage. Despite the effects of the pandemic with approximately 1.4 billion of liquidity and minimum near term funding needs. Our balance sheet remain strong and we will remain disciplined as we look for ways to invest accretively to create shareholder value with that I'll turn the call back.
The the operator for questions.
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We ask that you. Please let yourself the one question and one follow up question one moment. Please while we Paul for your questions.
Our first question has come from the line of Nick Joseph with the City. Please proceed with your questions.
Thanks, maybe just started on guidance, we've talked to your peers increased guidance today, and I guess I'll ever Avalanche, that's guidance definitely of nationally so some could be more conservative than others, but just curious of as you thought about revisiting guidance this quarter in light of the one to be.
Yeah, how things of 20, and the rest of the year versus your original expectations or are you trying to be a little more conservative of and just wait for more of operating results to come through.
And it gets barb yeah, we did uhm, we did have a a good first quarter and we did see some favorable I'll come on our same store growth. However, it is early in the year and there is some uncertainty related to delinquency an eviction moratoriums of that play a factor into it.
And then on the preferred equity redemptions, we do have.
Some of uncertainty, they're aware of likely going to exceed the high end of our guidance range on the redemption side. So we're just working through some of the timing on that and we'll revisit it in the second quarter.
Thanks, how are you seeing the opportunities to redeploy those proceeds into in the preferred equity or designate the documents.
Hi, This is Adam.
We we have a number of deals on our profit pipeline right now that we're working through the the inherent challenge with with prop deals of the timing and the the the lumpiness of when the money comes back in when it goes out. So we are working through the pipeline. We're also looking.
As more deals hit the market on the the investment side on the acquisition side, we're looking at all of those as well so work into it.
Thank you.
Thank you. Our next question is coming from the line Austin worse Schmidt was Keybanc capital markets. Please proceed with your questions.
Great. Thanks, guys, just uhm first off on renewables one of the touch on that we saw some softness you know greater than what we saw earlier in the year and just wondering you know when we when you think with with concessions coming down the occupancy holding stable and as we start the lap easier comps when do you think we could.
Start to see renewal of lease rates begin to improve.
Yeah. That's a good question there and the renewal of I think you know with to your point, where the year over year of calm that will improve as we lab lab. The pandemic well, we actually are seeing a sequential improvement on our market rent and so.
That is starting and so as concessions continue to a bed and we have built a solid foundation with uhm, what that's from the level of occupancy uhm.
I do expect you know of.
Performance to continue the <unk> to trend.
Trent better, but as part of noted earlier there are certain factor of spiders delinquency. That's unknown the legislative impact of still uncertain, there and so we wanted to make sure that we factor all of those items.
So your comments Angela just just as a quick follow up on on the occupancy levels. I mean are you looking to push occupancy higher before starting to push harder on on the straight or is it at a level, where maybe as we get into the peak leasing season, you'd feel more comfortable you know beginning of the push a little bit harder on the leash.
From.
You know at this point at Uhm.
This occupancy level, we're very comfortable holding it and and to US we see that as a sign of strength to allow us to start pushing rats. The once again you know.
I do want to make sure that we're we're of cautious on or concessions land because that is a function of concentration of supply as well. So the a couple of different factors, but.
To your point, yes, we are.
With the occupancy level of where they are we do feel comfortable to start pushing the renters, we head into pick the space and she said.
Okay got it and then could you just provided an update on you know what per cent of leases of receiving a concession today and sort of what the average concession Uhm is and then you know maybe compare that what it's been over the last several months.
Sure sure you know I can give you a.
Court of my quarter transcend if you want to go into more granular than that we could talk about that but we talked about in the third quarter of last year. We had you know all concession so somewhere around three and a half weeks.
That uhm represented.
About 75 per cent of our portfolio in the fourth quarter of that improved to about 60% of the portfolio at a little over two weeks.
And the in in the first quarter now of further improvement slightly below 50 per cent of our portfolio animal or one about one of half weeks. So that's where things are trendy.
Do you have any update for April by chance.
I do April is looking a little bit better although you know keep in line. This is.
The first 28 days, but April is now down to.
About of one week.
Yeah and.
At 12 45 per cent of our portfolio an average so yeah. Okay. So we're moving the rise of Russia.
Thank you.
Thank you. Our next question is coming from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey.
Hey, still good morning out there so how's that.
The first question is on the accelerated timeline of of the California reopening the of June 15th of it's just a curiosity. If you spoke about it in the early part of the call My apologies I'm still another multifamily call are.
Are you seeing an acceleration down in southern Cal with all of the service jobs reopening or is the tech hiring growth and check the.
Bill outpacing the demand for bargains verses of recovery of service base jobs that are trying to quickly reopen.
As we had to that to the 15th time line.
Hey, Alex it's it's Mike that's a good question, we look at the I'll look at it a little bit differently and one of the ways. So we're looking at this now is cake.
Our portfolio divided into three categories. The large cities, let's say the mid sized cities and suburban most suburban markets.
And clearly the most suburban markets about performed.
The cities and both of them actually a year over year basis, and all of a sequential basis.
For example, our best you'll suburban market as Torrance, which sequentially is up 4.3 per cent and when you look into the mid sized cities, we see improvement I'd say, it's pretty clear of that the improvement in our market is starting as of suburbia and moving toward the cities and unfortunately.
<unk> has it really benefit of the cities to any great extent at this point in time, so the best performing clearly as all of the suburban markets and it doesn't matter, whether they're suburban Seattle or suburban Los Angeles and the the midsized cities are sort of the second best in terms of recovery trajectory and then.
The large cities are lagging pretty substantially again, the large shouldn't hampered by <unk>.
Supply, which is greater in the in the cities along with the job Devers, which you know the improved pretty significantly for the.
The three of trailing.
Average job growth was minus 9.2 and marches mitosis seven nine so there was actually a lot of improvement in the quarter and but we need that to continue would feel like California got a bit about late start coming out of the in this reopening process and so maybe from that perspective, or a step behind where we thought.
We were but we're making of ground and the things are looking better.
Alright, and what you're saying is yeah, but what you're saying if I heard you correctly it doesn't matter what the industry is in the market the bigger driver of the of the apartment performance is simply where the property is located suburban then mid size cities and the last is.
Is is the urban areas so is that fair.
Yeah, that's that's fair and again the urban areas are where you lost the service jobs, which are concentrated of course in the cities and they had more supplies. So it's really that confluence of both of those factors that is causing this those as you move from the large cities into the mid sized cities and into the.
Suburban markets suburban of Arkin's have very little supply. So you don't have you know someone competing with you in a new property next door offered in Cuba.
Two months free plus you know whatever else they might throw in so that dynamic of curse, mostly in the cities and that is what is preventing are of pricing power of the cities from improving substantially.
Okay and then the second question is I think it's you guys in the yard that America are all part of this sparkman you obviously have the news last week in the journal of what is the impact of you guys. Obviously, great to have your investment you know to hit the hit Big out of your best friend, but beyond.
Making money, which is awesome what is the practical impact as far as operations or the way you guys did Iraq with smart ran et cetera.
Yeah, Yeah. Thanks for that question I'd say smart, where it was one of the first of investments. It was made by this consortium of companies. The it was started by the end of the three reads the that are equal equal partners plus other owners of apartments aggregating sorry, I think we.
Started with a million owners of the million units of apartments, now I think it's fun to us up to like 2 million.
Units of the apartment, so some pretty substantial ownership and again the original concept was to create technology improvements in the industry operating improvements using technology and we'll have the amount through the portfolio of apartments that the the ownership group.
Together controlled so that's worked out great and yeah, and it's interesting because smart rent is one of the first investments that we made and as you noted the Wall Street Journal announced that the smart <unk>.
Entered into an agreement with a box of merge for 2.2 billion.
Less about $500 million of working capital, which would value of the company on the net basis of about 1.65 billion. We believe but there are many steps you noted uhm to complete that process backs had been pretty volatile in the recent past.
So there's no assurance of this is going to.
This will go through but it.
It seems like the sponsorship of the spak is pretty well the line and very motivated for this to happen So I feel.
Intimately.
Pretty good about that and so there'll be some financial benefits. We work a R. R. E. T ventures was a early investors seed round investor and then invest it all the way through the B and C rounds of of small red. So it's a substantial older I don't want to get into the you know all of the details but.
There'll be pretty significant potential game, there, but I guess, maybe more fundamentally in terms of the impact of it goes back to the vision of of.
Alrighty ventures in the beginning of which is to try to bring technologies better technology into these companies to improve efficiency and the the way we interact with our customer and you know smart Red as an example of that but there are many other investments I think there are 12 additional investments in addition to the.
Smart rent that were made by fund one and we're on from two currently.
And we're utilizing a number of those so I'll give you. An example of one which is a.
It's a the customer relationship management function and we're currently pilot and for example of we've done several hundred leases and a product that essentially allows you to to do the entire least process from your smartphone and Ed or from from the computer. So we are pretty far.
Part of the testing of that we're also continuing our role out of smart Red, which we think is the long term.
Benefit to both the company in the industry and so from of Technology perspective, we're very excited about what's happening recently.
[noise] sounds sounds the more than just the cocktail napkins, so that's pretty.
Thanks, Mike.
Thank you Alex.
Thank you. Our next question is top of the line of Jeff Spector with Bank of America. Please proceed with your questions.
Great. Thank you just the listening to the the comments on the call and and again the.
The you know sequential improvement you're seeing.
Make it feels like from at least where I'm sitting compared to coming out of the the tech crash early 2000 is the.
There's a pretty good backdrop here and I I don't have the numbers in front of me, but I do remember I don't know how long it took after the tech crash, but then of pretty nice boom I mean, what are your thoughts in and if you disagree I guess, what what's the big neck as it regulatory issues today and what's the what's the negative.
Yeah, Let me, let me hold that negative for for a second here and each of these crash in recovery periods is a little bit different the thing that was unique about the the internet boom and then the boss period that followed was in the.
Northern California, we had roughly 40% growth and market Reds before the bus. So you had this huge surge of market rents because the small tech companies many of which didn't even have a product identified let alone revenue or.
Or bring in people to the West coast and there were no real couldn't per produce.
Produce apartment fast enough to keep up with that demand and red Spike 40 per cent well. We gave all of that back plus then some of the ensuing a few years. After the after that period ended and the the bust period and you know I remember that period very well because we started in northern California and binds southern.
California, which southern California had no discernible benefit from that Internet boom and so assets you appear to be really cheap in southern California really expensive the northern California. So and then it took a long time for for the market's to recover from that period I think that setback from the.
From the essentially the the lack of real businesses that when public was a dramatic setback I think the I P O markets.
20 years later, and I think the IPO markets or only the.
The only started to recover of year or two ago from all of that so uhm. So it's taken a long time.
Fast forward to today appear.
The appears of this pandemic I'd say the response to it has been much different the governmental response of terms of pumping money into and liquidity end of the markets and making sure of that uhm.
A pandemic doesn't morph into a your credit or financial crisis, and so I gave the governmental entities.
A lot of credit for that so it feels like we're we're through the worst of this and we're coming out the other side and there's a lot of money chasing deals and asset values are increasing and so I'd say I'd say all of that is a good thing I'd say, maybe if there is a negative it goes back to.
Yeah, what do you do now with you of the new knowledge and with what you have your basically your worst bark of historically in terms of growth rates of the last 20 years from now your best markets does that continue on or what does it mean for your portfolio and we all spent a lot of time on that and Adam is in the middle of of transacting.
Around it so uhm, but for US I think that means that we sell some of our lesser property. Some of the property is that you know for whatever reason, we think will underperform you know, notably last quarter, we sold.
Hidden Valley, which is the property that has 25 per cent very low BMR units, which makes it very difficult to grow of the property is grapes and of great location, but if you're of 25 per cent very little BMR units the growth rate just can't keep up so we sell that property and then we will look for an ability.
We repurpose those funds into something that has a good long term of growth rate instead of better area. So that process is ongoing and.
As noted is barb noted, whereas the little bit of the episodes Delicia in queue to as a result of the those transactions of current before we reinvest those proceeds there's a little bit of drag and so I'd say that is perhaps the downside of think however, the long term benefits will be very a parrot.
Okay. Thank you.
And then my one follow up and I'm, sorry, if I missed this and you could talk to a lot of about you know the increase in jobs in hybrid how 'bout your benefit the portfolio did you specifically discuss.
Tech workers in the return to your portfolio are you seeing you know tech employees return as as you know as renters the portfolio or benefits from.
From these ipos like Where's the demand coming from.
Yeah, just the I think we're starting to see it but a few of <unk>, we have the 17th.
17.1 that talks about the reopening the most of the re openings are still.
Months or a quarter of two way so yeah I don't think that that's we're we're seeing the benefit I think it's.
It's been recovery cause as noted in let's say the motion picture of industries now opening up and there are some service jobs coming back and job sort of jobs have grown we're still off of big number but jobs of grown I think that the in terms of specifically.
Coming back to the office I think that's been a slow process at this point in time, but I don't think it's.
To any significant degree.
It's actually occurred I think it's ahead of us.
Thank you.
Okay.
Thank you. Our next question has come from the line of John allows tea with Cream Street Advisors. Please proceed with your questions.
And thanks, a lot by the time, maybe add on the follow up on the preferred equity or M. As business have the increases in construction cost reached the point, where it's start you think it's going to start dampen at the damp and deal volume of it.
Coming years, and then a follow up our costs getting to a point, where the any developers in your current portfolio or or having issues cover and that service.
Hey, John Yeah, So to answer your question.
We have definitely seen as we're working through our our press pipeline most of the developments have been in the more suburban areas. So they've been lower density more garden style products and so when you come when you when you look at the increases specifically the lumber, but also to some of the other materials.
The materials. It is it is absolutely having a and of facts on how these deals on the right and whether or not they will get built.
So we're seeing it and this is this is the beginning of it and the <unk>.
<unk> are are trying to work their way through it and we're we're working with them, but we definitely see that says as an obvious headwind for for new supply.
And then John what was the second part of your question.
Yeah, just in terms of ongoing projects any concerns about debt service coverage for in process deals.
Now, we we don't have any of those concerns.
Nothing nothing that we see forthcoming.
Okay, Great and then just final one for me Angela any early reads on have retention is ferrin on leases signed a year ago with the generous concessions are expecting some occupancy slipped the age or to have to follow up with another round of concessions to keep people sign a year ago and.
Their homes.
Yeah, that's that's a good question.
Go through our renewals of releases and heading into the peak leasing season, what we're seeing is a more normalize behavior relative to pre COVID-19. So when I look at in the number of psychiatry turns in the application and so that does not lead us to think that.
[noise] concessions itself will be significantly challenging, but keep in mind concessions is really more of a function of.
The competitive supply and one of the economy is doing.
So it's not so much the least duration itself and so right now you know our markets are only at approximately 50 per cent of the open compared to the rest of the the country that is mostly we open and so that's more of a factor in of course in certain C V D.
Location right now C. B C. L. A N Seattle why they are still going to be continues to apply pressure, we're gonna see more because that'll be in the mall concessionary environment, regardless of the lease term.
Okay. Thank you.
Thank you. Our next question is coming from the line of John K BMO capital markets. Please proceed with your questions.
Good morning, just a follow up on the return to work environment with Tech companies.
Uhm off of utilization is the lowest are Michael of within some of your major markets, including San Francisco San Jose in L. A.
Is this something you track as far as the Castle weekly data and is that something that you see having of high correlation to applications or interest level in your in your property.
Hi, John It's Mike, It's I don't really know how to track of exactly so.
We do try to the <unk>.
Triangulate.
Cross.
The company with the <unk>.
We track jobs, and we track Uhm.
Where our residents are coming from and and certainly we cracked my migration of patterns, but trying to do the sort of very granular level I think is pretty difficult. So what.
We have uhm, what we've tried to do is say hey, you know, let's keep it keep track of the Big Tech companies and when they plan to come back of the office and then we should be able to see the traffic increase as they start coming back in greater volume. So at this point in time as of as noted a minute ago, we just haven't seen the.
<unk>, we haven't seen a lot of it we don't think that's a major part of of this recovery at this point in time.
Well what about students returning back to the classroom are you thinking of at the tailwind and could you remind us what your typical of student profile is <unk>.
The pandemic for today.
It's that's another good question I don't have that granular that the granular detail. We we track supply demand, mostly bye bye jobs, and obviously supply and we know that there are some demographic tailwind and obviously, we know of the student.
Are are out there and they're relatively small part of our our occupancy so.
They're not big enough to be of driving factor in the broader scheme of the big the Big picture is of jobs I would say demographics of a people are living longer and therefore consuming homes longer than they have jobs.
And.
And the overall supply of number so we don't get down to that granular level.
Alright, thank you.
Thanks.
Thank you our next questions come from the line of Rich Hill with the Morgan Stanley. Please proceed with your questions.
Hey, Hey, guys Uhm wanted to come back to the guide.
Maybe just just breaking of <unk> pardon towards components of a little bit more <unk>. When he was a pretty strong quarter for you I think he beat F. F. L. U F F O guide by about four cents.
Yeah, you maintain the guide for a full year, which which implies somewhat of of cut uhm and the reason I bring that up is our our our channel check suggest to queue is off to a pretty strong start and and certainly stronger than the one to at least on effective rent growth I dunno, where renewals are in effect of rent growth of.
New leases looks pretty strong so I'm trying to figure out you know is it really driven by one timers that you included in your bridge, that's making you a little bit more conservative.
Or is there something in the business that that we should be thinking about because of the and I think about in the economy are economist or certainly.
Increased their projections for G. D. P growth of recognize you haven't and you typically don't and and one Q.
But I'm, hoping you can square of that away I know, it's a mouthful of and I'm trying to understand one Q, what's happening in two Q fundamentals versus one timers and what that means for the full year.
Alright. This is barb so yeah. The <unk> was shocked and like we mentioned we are tracking favorable on the same store uhm.
Let's drew the first quarter and you know I think what Angela alluded to in her opening remarks was that we just hit 50 per cent reopening at this point and within California, and so while we so good about wherever at we've had a lot of stops and starts with an californian over the past year with.
<unk>.
Needless to just take a little bit more conservative approach and we'll revisit you know in the second quarter. We we do feel good about where things are where fundamentals are the the wildcard is really delinquency, which we've talked about in the past and you can see in our numbers April did increase from where we were in Q1.
So those.
Those are the things that were that weight on us when we looked at our guidance, but it. It was you know we did we did trend favorably in the first Claire from the same property of perspective.
The bar, maybe maybe I can add just one quick thing base.
Based on what you've said because in Q1, we think that we benefited from stimulus payments specifically because we saw.
We saw delinquency improve.
Kind of in the right of January February timeframe and and.
And so now we get into F. B 91 of which is the the federal stimulus money and we haven't seen very much of that at all that remains of big question Mark in terms of what its impact is going to be going forward and we have no way to the historical precedent or even way to you to anticipate that.
So yeah.
I think that we've always been a little bit conservative and wait to.
Wait to see what happens with left the events occur and then record of them as opposed to trying to build them into our guidance and so I think that's kind of it's kind of of philosophical bias that we have and but with respect to delinquencies specifically I think it's it's hard to predict what's gonna happen not that we think anything bad is going to happen.
Say S. P 91, ultimately can only be good news, but we just don't have a way to.
I'm it to get the timing nor the.
The magnitude of giving that we've never seen it before.
Okay. That's helpful and the reason I ask cause I think a lot of us.
Both on South side of investors themselves are just trying to understand you know if this is inherently you being conservative of which is you know what it is and your DNA versus something that's may be different on the west coast, but it but it sounds like you know maybe just a little bit of of conservative approach recognizing that the operating.
Metrics of training in the right direction.
Right I fairly put yes, okay. Thank you guys I appreciate it.
Thank you.
Thank you our next questions come from the line of Neon market with capital One security. Please proceed with your question.
Hello, everyone. Thank you for taking my questions.
Michael.
Like I think this one's for you the the job growth of something that you put in your supplement or does that from like the government or is that an internal projection.
Are you referring to page at 17, I'm guessing yeah, Yeah that was 100000.
Of this year.
Yeah 396 hours Yeah. That's from 17 go we do our own fundamental research all of our markets.
Yeah, so definitely ours.
Okay, great cause the the reason I'm asking in that I'm just in general.
I know, it's the like the million dollar question, but trying to understand what the past back.
You know the recovery path read that back to pre cup of it looks like looking at your market.
I think you're still down 1.2 million jobs from.
Pre COVID-19 and so it used them 400000, you know that's basically like three years to get back to you know I guess pre COVID-19 employment.
You know.
Yeah, I mean, it is that you know does that matter of that really work because of you know when people come back to their their tech jobs or you know how how did you guys kind of think about that or or I don't know maybe underwriting that from an operating standpoint, you know, particularly in your you know kind of urban areas of your bigger kind of code from markets.
You know and how <unk>, how you see the the ability to push rents are the absolute level of of rent you know over the next call at 24 months.
Yes, the connecting those thoughts as of the observant you know good question you know I would say that what happens is people make different choices when rents increase or decrease and this goes back to kind of our theories as it relates to rent of income and the other thing so when <unk>.
[noise] decline in the city of this as much of the day that they have people come and fill those units now where do the exactly the come from.
I would suspect that a lot of them come from the.
The areas that are generally considered less good.
The canal people can move into the cities and because of the wrenching per.
Pretty dramatically different than lower than than they were before so they were price style previously and now that they can move in and so that presumes at if you're in the markets. This pair of theory portfolio of theory for a long time, if you're in the markets that have good schools.
Safety quality of life et cetera, those will be the beneficiaries because people will move there as long as they can afford it and then people that can't afford it will be pushed out to the very periphery of these market, so and I know that the.
Seems contra.
Everything about what we're what we're saying about suburbia doing so well, but there are select really good suburban markets. The beach cities for example, in southern California, or even northern California that are doing really well that are still pretty high quality areas of just farther from the the market. So we're not necessarily to talk about that we're talking about city.
That are less quality cities and people moving out of those cities in order to to move into a good location. Because you would have to say well how can you be 97 per cent occupied almost with all of those jobs lost and the answer is people move based on.
A better value rental value or a better life situation.
And the better quality assets, so and I think that's the key is we are.
About almost 97 per cent occupied and given that.
There's not that many vacant units within our portfolio and there's people come back it's not going to take the hundreds of thousands of jobs in order to.
Get to the point, where we're eliminating concessions and we have more price empower because our basis strong. So that's in the practical world how it how it works so it's not.
Just jobs as the consumer choice given changes in rent levels.
Makes us okay.
Yeah, Yeah, I, I see where you're going there.
The one for me is.
You guys of done a really good job at the most of the <unk> had done a good job minimizing delinquency you know kind of taking it to the channel you know early in terms of the concessions and you know line people leave or paint do you believe et cetera.
But the you're also impacted by you know your surrounding properties and owners et cetera. So there's obviously a big I guess you would call. It storm coming in terms of the amount of people who have six plus months of of back rent that you know quote unquote at the <unk>.
Has to be.
Paid back eventually yeah, I I have my doubts about that in California, but how did you guys see that playing out when that when that check needs to be written or or you know the sort of of the protections abate and again not really a big deal in your specific you know uhm assets, but.
A lot of people I'm sure operators of you compete P D guys have.
Maybe a lot of that you know I guess do you guys think that's gonna have a big impact on you know vacancy could that bring more people to the market for for selling their their assets you know any any commentary there would be great.
Yeah, that's extraordinarily good question and it's one that.
Causing this a fair amount of sleeplessness at night, and we don't have the answer to it we know that the existing the eviction moratoriums uhm, you'll laps on June 30th.
And we also know that there is a.
Pretty significant number of renters that the you'll over that the last year, it's more than six months over the last year or by the time, we get to Judah it'll be almost a year that will not have paid US you know even the 25 per cent red that's required to maintain their eviction protection.
Under S. B 91, so we know that this is going to be a problem. I would also say that there is no way that the courts can keep up with foreclosure processing. So I don't know exactly how that's gonna work itself out either so.
Unfortunately, I'm gonna have to just say that we're gonna work through it and we're going to we are obviously of public company. Obviously, we have sort of an obligation to.
To treat our residents thoughtfully and carefully and you know.
So what we will do our best to work through that but I can't tell you exactly what we're gonna run into as we get into that period of time, we were absolutely very concerned about it and and we'll have to take it a step at the time I guess, but I'd say.
Okay and does that why you're maybe a little bit more cautious on your guidance just out of curiosity of that one of the things that you didn't talk about it but could that'd be one of the things that are.
Making you kind.
Kind of of your name.
Yeah. It is but at the same time the people that have.
Let's say, we know that there are people that have received various forms of benefits and or and or payments and haven't paid the reds. So.
Finally, we will be in a position to reconcile some of those those situations, where where people are using the laws to shield themselves from pay anything so.
So I it isn't all bad there there is a good element to it as well and and maybe people face with if they want to maintain the eviction for protection, they're going to have to pass the 25 per cent.
Of.
Of Reds, the that of accrued from September 1st through June 30th of the extent the habit of already paid it. So so it's not all of that it's sort of I would say, it's it's kind of the.
The time for reconciliation come June 30th and again, it's difficult to predict exactly what that's gonna look like.
Alright, I appreciate the comments.
Thank you.
Thank you our next questions come from the line of Dennis from account with Zellman and Associates. Please proceed with your questions.
Hi, Thanks for taking the question.
You you've talked a bit about some of the extremes as far suburbs outperforming urban and some of the market is doing better than the other markets geographically can you maybe just put some numbers behind it and maybe use the down six per cent blended we rent number from April.
How how wide are those extremes and can you get a sense of you know which markets are the most negative and put your most positive.
Yeah Dennis is.
It's a good question I don't think I would necessarily have a broken out the wave of you you're referring to it so let me.
Let me give you.
Some sense of of what we're seeing so let's take the most suburban parts of our market.
The best.
On a sequential basis so <unk>.
Sequential quarters is Torrance at 4.3 per cent plus rent.
Revenue growth and snow home ish County up there in Seattle again, there's a Boeing issue.
The homeless.
Which is the minus 0.4% and then your over your Ocean side.
Plus 2.7 per cent and San Ramon is minus four two per cent. So that kind of gives you the.
The the brackets around what's happening in those both suburban markets in the mid sized cities.
The best sequential growth isn't actually the city of long Beach and the worst as in is sort of North City San Diego.
Long Beach up 3.4% North city downpour five per cent and year over year long Beach is the best at minus 2.3 per cent and San Jose is is the worst of minus 10.5 per cent of again, the long beach doesn't get a lot of supply and it's a decent get very decent place to live.
So I think it's benefited from that and then in the large cities.
The sequential on the sequential basis. The best there is west L. A at plus 3.5 per cent and Seattle's the worst it minus 2.5% and then year over year. The best is west L. A again at minus 11.9 in San Francisco at minus 27th of.
Does that give you some idea of what's going on.
Yeah, I think I think that doesn't noseworthy those are the revenue numbers are those where at least right numbers.
Total total revenue same store revenue.
Perfect. Thank you and then separate question just as you look at the age distribution of your renters I'm not sure. If you have it in front of your favorite way to summarize it but if you were to look at the distribution of your residents pre COVID-19 and segment them by age is there any difference between that and what you're saying I knew moving today.
I don't I don't think that we have that day that.
Yeah, we have me move out occurred and what categories, but we're not track of it by age cohort.
Okay, what about depending on how you do track of just to make up of the tenant base whether.
Whether it be income or demographic circumstance anything that would speak to whether it's different from what was common before the the nurses now.
Uhm.
There is some difference I don't have any data in front of the there there are some differences in that you know again because.
Because the the cities have had such a dramatic drop in rentz.
Different kind of renter is moving into the cities.
And and there's definitely more tech workers that are given work from home that are occupying housing in the suburbs, but I don't have any of that demographic data. We have it. We just I just don't kind of it with me. So I apologize for that we can follow up with you on the.
If you want the on US Yeah, we can kind of went bust line I. Appreciate it. Thank you good luck.
Thank you.
Thank you ever next question has come from the the line of Brad Heifer with RBC capital markets. Please proceed with your questions.
Yeah, everyone just coming back from the delinquencies again, I just want to make sure I understand that your phone number. So you have the 2.1 per cent of in the first quarter and then the April Number's 2.7, I assume that over time, you you collect more of that.
So are you I guess more concerned about delinquency now of anywhere a couple of months ago, because the payment the continue to come in or maybe less than the tailwind that you saw in the first quarter and I guess, how confident are you that that was really of stimulus tailwind just because it seems like.
It wasn't really enough to cover the month of rent and is that really something that is that going to be the first source of back hassle for people. When you have the the tenant protections that you do in California.
Yeah, you know that's a good question <unk> and it's a complicated one because there's quite a few different moving pieces right. Because this involves legislation involves behavior and of course.
People's view about their Johnson and prospects in and.
So the in terms of if you look at the first quarter delinquency, we actually published January and February and that was about 2.6% and so much came in significantly better to the point that allow the first quarter average to be down at.
That went down to 2.1 per cent.
So April of Pops back up to 2.7, which is more of of the normalize run right and that is why why we don't obviously have the exact uhm.
Uhm reason for the the sudden improvement in the queue. One that is why we can pretty safely 0.2 March which is when the <unk> stimulus. What's the history did it and so you know I, it's amount of perfect science, but it's pretty darn good correlation from that perspective.
And.
Where we're at is we don't think it's gonna get the Terry further but at the same time before looking at the people are asking US a Q1 sequential of the queue to sequential gross revenue Where's that had it you have the factory into the you know the.
The the delinquency, which is of 2.1, just going back to the more normalized level of 2.7. So that's one piece of it and as far as the delinquency and Oh, Mike talked about Uhm S. B 91, and we have a eight 818 the.
That has really put forth of a robust effort to work with our tenants and actively engaging with them to help them apply for this relief and so while we're going through that and we're seeing we're being able to we're able to help our tenants and what their eligibility the quad.
<unk> is the timing when will we get the reimbursement from the government and that is you know.
Every city has a different time line every city has a different process and every city approaches to reimbursement differently and so for all of US our view is not so much that it's a huge.
And his word and so you back that into what what does that mean for guidance that's gonna be lumpy, it's gonna be variable and therefore, we just felt that it was prudent to give it a few more months and see what the numbers come in.
Yeah, Okay that makes sense I appreciate the color yeah I.
I know the account, Okay, [laughter] and then I guess moving out of work to sort of of the dispositions that you've had in the redemptions you know it's about $400 million of Kappeler. So there I guess do you have pretty good the line of sight on what the the deployment is going to be for that or I guess more generally what's your cough.
<unk> and being able to redeploy that just given that.
Obviously athletes on the West coast haven't haven't become distressed or anything like that and it seems like there are a lot of willing buyers out there. So I'm curious you know your confidence in being able to redeploy that accretively.
Hi, Bob This is Adam so a couple of things.
The three dispositions that happened earlier this quarter of those actually mentioned them in last quarter's call. Those were essentially baked N Q4 of last year and so so we use the most of those for the proceeds at the time to buy back stock as well as the play New press the at that point.
The the what's changed within the from that time until now is the the redemptions and so with that that's $120 million that was unexpected to come back. The soon so my confidence level on redeploying that money is very high like I mentioned earlier the.
The pipeline on the press from.
Perfect obedience is pretty robust and it does take time to work through of them, but we are highly motivated to do so and and so that money will be of redeployed. It's just.
It's just getting there and moving as quickly as we can.
Okay. Thank you.
Thank you there are no further questions at this time with that we do thank you for your participation.
Does conclude today's the teleconference. You may disconnect your lines at this time.
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