Q4 2021 Essex Property Trust Inc Earnings Call

Speaker 1: good day and welcome to the ethics property trust fourth quarter 2021 earnings conference call as a reminder today's conference is being

Good day and welcome to the Essex property Trust fourth quarter 2021 earnings Conference call.

As a reminder, today's conference is being recorded statements made on this conference call regarding expected operating results and other future events are forward looking statements that involve risks and uncertainties.

Speaker 1: The statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties.

Forward looking statements are made based on current expectations assumptions and beliefs as well as information available to the company at this time.

Number of factors could cause actual results to differ materially from those anticipated further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host Mr. Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you. Mr. Shaw you may begin.

Speaker 2: Good day and welcome to our fourth quarter earnings conference call.

Good day, and welcome to our fourth quarter earnings Conference call.

Speaker 2: Angela Kleiman and Barb Pack will follow me with comments and Adam Berry is here for Q&A.

Angela Kleiman, and Barb Pak will follow me with comments and Adam Berry is here for Q&A today.

Speaker 2: Today I will provide an overview of fourth quarter and full year results, our expectations for 2022 and an overview of the apartment investment market.

I will provide an overview of fourth quarter and full year results, our expectations for 2022, and an overview of the apartment investment market.

Speaker 2: Essex experienced a strong recovery in 2021 following the unprecedented and extraordinary challenges of 2020. The fourth quarter was our second consecutive quarter of positive same-store results and Core FFO exceeded our original guidance midpoint by 5 cents per share.

<unk> experienced a strong recovery in 2021, following the unprecedented and extraordinary challenges of 2020, the fourth quarter was our second consecutive quarter of positive same store results and core <unk> exceeded our original guidance midpoint by <unk> <unk> per share or.

Speaker 2: Overall, net effective rents remain above pre-COVID levels despite a modest seasonal slowdown that occurs every fourth quarter. In California, the pandemic and related regulation has led to an unprecedented divergence in apartment performance across our portfolio.

Net effective rents remain above pre COVID-19 levels. Despite a modest seasonal slowdown that occurs every fourth quarter in California, the pandemic and related regulation has led to an unprecedented divergence in apartment performance across our portfolio.

Speaker 2: The suburban areas that underperformed for most of the past 30 years are now our top performers, and our historical top performers are now our last...

The suburban areas that underperformed for most of the past 30 years are now our top performers and our historical top performers are now our labs.

Speaker 2: To demonstrate net effective rents in San Diego, Orange, and Ventura counties are up at least 25% from pre-COVID levels, pushing rent to income ratios in these counties to all-time high.

To demonstrate net effective rents in San Diego Orange and Ventura counties are up at least 25% from pre COVID-19 levels pushing rent to income ratios in these counties to all time highs.

Speaker 2: Conversely, rents in the tech markets remain well below pre-COVID levels, especially San Francisco and San Mateo counties, which remained down at least 15% and now screen affordable relative to their much higher median household income.

Conversely rents in the tech markets remained well below pre COVID-19 levels, especially in San Francisco, and San Mateo counties, which remained down at least 15% and now screen affordable relative to their much higher median household incomes.

Speaker 2: There is a similar divergence in performance in the large metros that contain both urban and suburban areas.

There is a similar divergence in performance in the large metros that contained both urban and suburban areas.

Speaker 2: For example, in Los Angeles County, downtown LA, net effective rents are flat from pre-COVID levels, while suburban areas, such as Long Beach and Santa Clarita, are up 15 to 20%. We attribute the underperformance of the urban core to the damaging lockdowns in 2020, which resulted in severe job losses in restaurants and the service sectors.

For example, in Los Angeles County Downtown L. A net effective rents are flat from pre COVID-19 levels, while suburban areas, such as long Beach and Santa Clarita are up 15% to 20% we attribute the underperformance of the urban core to the damaging lockdowns.

In 2020, which resulted in severe job losses in restaurants, and the service sectors.

Speaker 2: More broadly, recoveries in the urban core and major tech companies have been slowed by ongoing government restrictions, worker shortages and delayed return to office plans.

More broadly recoveries in the urban core and major tech companies have been slowed by ongoing government restrictions worker shortages and delayed return to office plans.

Speaker 2: While the large tech companies generally did not experience job losses, their hiring slowed during the pandemic, and many employees relocated in the initial phase of the pandemic due to citywide shutdown.

While the large tech companies generally did not experienced job losses, they're hiring slowed during the pandemic and many employees relocated in the initial phase of the pandemic due to city wide shutdowns.

Speaker 2: As of December 2021, the US has recovered about 96% of jobs lost in the pandemic, compared to only 78% for the Essex market.

As of December 2021, the U S has recovered about 96% of jobs lost in the pandemic compared to only 78% for the Essex markets. Obviously, we are disappointed that many tech employers pushback there office reopening during the surge of the omicron variant.

Speaker 2: Obviously, we are disappointed that many tech employers push back their office reopenings during the surge of the Omicron variant over the holidays. However, the data indicates that most large tech employers will adopt a hybrid office environment, and therefore the return to office should be a significant catalyst for housing demand in our poorest performing markets.

Over the holidays. However, the data indicates that most large tech employers will adopt a hybrid office environment and therefore, the return to office should be a significant catalyst for housing demand in our poorest performing markets.

Speaker 2: With job growth now exceeding the US average, we believe that our recovery is well underway.

With job growth now exceeding the U S average, we believe that our recovery is well underway and.

Speaker 2: and several observations support our positive outlook. As highlighted on previous earnings calls, there has been many large investments in office space by the large tech companies this past year, contributing to positive net office absorption in seven of our eight major markets, representing 4.8 million square feet of space.

Several observations support our positive outlook as highlighted on previous earnings calls there has been many large investments in office space by the large tech companies. This past year contributing to positive net office absorption in seven of our eight major markets.

Is that a $4 8 million square feet of space.

Speaker 2: Available office sublease space has begun to decline in San Francisco, San Jose, Los Angeles, and Seattle, which supports our belief that many companies are moving forward with their return to office plans.

Available office Sublease space has begun to decline in San Francisco, San Jose, Los Angeles, and Seattle, which supports our belief that many companies are moving forward with our return to office plans.

Speaker 2: As expected, there is a resurgence in service and hospitality related hiring as our cities recover. With year-over-year increases in leisure hospitality employment ranging from about 29% in Ventura to about 56% in San Francisco.

As expected there is a resurgence in service and hospitality related hiring as our cities recover with year over year increases in leisure hospitality employment, ranging from about 29% inventory to about 56% in San Francisco.

Speaker 2: Recent immigration policy changes from the White House announced last week should also support the positive momentum that we're seeing in job growth at the higher income level.

Recent immigration policy changes from the White House announced last week should also support the positive momentum we're seeing in job growth at the higher income levels.

Speaker 2: For many years, Santa Clara and San Mateo counties disproportionately benefited from foreign immigration. However, during the COVID pandemic, stricter immigration policies during the previous administration drove net foreign immigration to a 30-year low.

For many years, Santa Clara and San Mateo counties disproportionately benefited from foreign immigration. However, during the Covid pandemic stricter immigration policies during the previous administration drove net foreign immigration to a 30 year low.

Speaker 2: We suspect that the recently announced immigration policy changes will contribute to job growth, particularly in the Bay Area.

We suspect that the recently announced immigration policy changes will contribute to job growth, particularly in the Bay area.

Speaker 2: Venture capital investment in the Essex markets continues unabated. In the fourth quarter, approximately 37.5 billion of capital was invested in West Coast based companies or approximately 40% of the total venture capital deployed in the United States and representing 124% year-over-year increase.

Venture capital investment in the Essex markets continues unabated in the fourth quarter. Approximately 37 5 billion of capital was invested in West coast based companies or approximately 40% of the total venture capital deployed in the United States and representing 124% year over year increase.

Speaker 2: The West Coast remains a leader in venture capital, which is a driver of global innovation and in turn local economies and job growth.

The West Coast remains a leader in venture capital, which is a driver of global innovation and in turn local economies and job growth.

Speaker 2: The top 10 tech employers in our markets continue to seek talent and with open positions listed in California or Washington reaching 47,000 in the fourth quarter, far exceeding the pre-COVID peak by 62%.

The top 10 tech employers in our markets continue to seek talent and with open positions listed in California, or Washington, reaching 47000 in the fourth quarter far exceeding the pre COVID-19 peak by 60%.

Speaker 2: Turning to our expectations for 2022, page S17 of our supplemental package.

Turning to our expectations for 2022 page S 17 of our supplemental package.

Speaker 2: summarizes our key operating expectations and assumptions. We continue to expect full year rent growth of 7.7% for SXU's West Coast market.

Summarizes our key operating expectations and assumptions, we continue to expect full year rent growth of seven 7% for Essex West Coast markets.

Speaker 2: Our rent estimates are derived from a top-down and bottoms-up approach that we continue to refine with each passing year. We are expecting 4.1% job growth in our markets next year, suggesting moderation from the 5.5% trailing three-month average Essex markets achieved as of December . And at 4.1%, West Coast job growth should significantly outpace the nation.

Our rent estimates are derived from a top down and bottoms up approach that we continued to refine with each passing year, we are expecting 4.1% job growth in our markets next year suggests suggesting moderation from the five 5% trailing three month average Essex.

<unk> achieved as of December even at four 1% West coast job growth showed significantly outpaced the nation.

Speaker 2: Our research team conducts its own fundamental analysis of apartment supply and they expect around 37,000 apartment deliveries in 2020.

Our research team conducts its own fundamental analysis of apartment supply and they expect around 37000 apartment deliveries in 'twenty.

Speaker 2: in 2022. This is slightly higher compared to 2021 and should lead to a limited disruption as stabilized communities.

In 2022, this is slightly higher compared to 2021 and should lead to a limited disruption at stabilized communities.

Speaker 2: Similar to 2020, there are pockets of apartment supply deliveries in some urban submarkets, notably CBD LA. Similar to 2021, for sale housing deliveries will remain very muted at about 0.6% of total stock of for sale homes.

Similar to 2020, there are pockets of apartment supply deliveries in some urban submarkets, notably CBD la similar to 2021 for sale housing deliveries will remain very muted at about 0.6% of total stock of for sale homes.

Speaker 2: Continued improvement in apartment trends in 2022 may be bolstered by inflationary pressures in the United States currently at the highest level since the early 1980s.

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Continued improvement in apartment trends in 2022 may be bolstered by inflationary pressures in the United States currently at the highest level since the early 19 eighties.

Speaker 2: While inflation and its countermeasures have the potential to slow the economy, it's worth noting that apartments are resilient with short-least-least durations and high-operating margins.

While inflation and as countermeasures have the potential to slow the economy, it's worth noting that apartments are resilient with short leash lease durations and high operating margins.

Speaker 2: In addition, it is incredibly difficult to ramp up rental and for sale housing production on the West Coast given long entitlement processes, government restrictions, and construction labor shortages.

In addition, it is incredibly difficult to ramp up rental and for sale housing production on the west coast, given long entitlement processes government restrictions and construction labor shortages.

Speaker 2: Finally, we have a conservative debt structure characterized by minimal levels of variable rate debt, staggered debt maturities, and low leverage.

Finally, finally, we have a conservative debt structure characterized by minimal levels of variable rate debt staggered debt maturities and low leverage.

Speaker 2: Estimating future supply a few years from now is another important part of Essex's capital allocation process. And page S17.1 of the supplemental highlights recent increases in housing permit activity in various prominent residential re-market.

Estimating future supply a few years from now is another important part of Essex's capital allocation process and page F 17.1 of the supplemental highlights recent increases in housing permit activity in various prominent residential REIT markets.

Speaker 2: while supply, while future supply in the Essex markets is expected.

While supply while future supply in the Essex markets as expected.

Speaker 2: To drop in 2023 and remain at manageable levels thereafter, supply appears to be increasing in several other markets.

To drop in 2023 and remain at manageable levels thereafter supply appears to be increasing in several other markets.

Speaker 2: It is also important to note that we have limited exposure to the institutional single family rental market compared to other metros. We continue to believe that housing supply and demand is the fundamental driver of our business and our capital allocation priority.

It is also important to note that we have limited exposure to the institutional single family rental market compared to other metros. We continue to believe that housing supply and demand is the fundamental driver of our business and our capital allocation priorities.

Speaker 2: I have a few brief comments on the apartment investment markets where the deal volume in our markets has now surpassed pre-COVID levels as institutional capital targets west coast department.

I have a few brief comments on the apartment investment markets, where the deal volume in our markets has now surpassed pre COVID-19 levels as institutional capital targets West Coast apartments Com.

Speaker 2: Cap rates are consistently in the low to mid 3% range, and we've seen yields converge across markets, construction types, location and age.

Cap rates are consistently in the low to mid 3% range and we've seen yields converge across markets construction types location and age.

Speaker 2: We sold four properties last year valued at $330 million using the proceeds to fund stock repurchases early on and then acquisitions of the year progressing and our cost of capital improved.

We sold four properties last year valued at $330 million using the proceeds to fund stock repurchases early on and then acquisitions as the year progressed and our cost of capital improved for the year, we acquired $432 million with the majority of that.

Speaker 2: For the year, we acquired $432 million with the majority of acquisitions completed in a co-investment format to conserve capital. Generally, we see greater deal volumes during uncertain conditions. So we are optimistic about more opportunities to create value in the transaction market in 2022. And Barb will detail our 22 guidance assumptions in a moment. With that, I'll turn the call over to Anne.

Acquisitions completed in a co investment format to conserve capital generally we see greater deal volumes during uncertain conditions. So we are optimistic about more opportunities to create value in the transaction market in 2022, and Barb will detail our 'twenty two guidance assumptions in a moment.

With that I'll turn the call over to Angela Kleiman.

Speaker 3: Thanks Mike. First I like to express my gratitude for the exceptional operations and support teams we have here at Essex. As the challenge to our business continue to evolve, our team has also continued to step up.

Thanks, Mike first I'd like to express my gratitude for the exceptional operations and support teams we have here of ethics.

As the challenge to our business continue to evolve our team has also continued to step up.

Speaker 3: which speaks to the dedication, work ethic, and the can-do attitude across the organization.

Which speaks to the dedication and work ethic and the can do attitude across the organization.

Speaker 3: on to today's comments. I'll begin with key operation highlights of on major regions, then focus on our outlook for the year, followed by an update on the progress we are making by leveraging technology, data analytics, and transforming our operating platform.

Onto today's comments.

Begin with key operation highlights of our major regions.

Focus on our outlook for the year, followed by an update on the progress we are making by leveraging technology data analytics and transforming our operating platform.

Speaker 3: We are pleased with our fourth quarter results of 4% year-over-year and 1.6% sequential growth in same property revenues. We have detailed on S16 of our supplement, which shows the fourth quarter year-over-year new and renewal rent spreads up by 17.1% and 10.7% respectively.

We are pleased with our fourth quarter results of 4% year over year, and one 6% sequential growth in same property revenues we.

We have detailed on S 16 of our supplement which shows the fourth quarter year over year, new and renewal rent spreads up by 17, 1% and 10, 7% respectively.

Speaker 3: The significant recovery in rent over the last year was bolstered by the occupancy and concession strategies we implemented throughout the pandemic.

The significant recovery in rents over the last year, that's bolstered by the occupancy and concession strategies, we implemented throughout the pandemic.

Speaker 3: To review our markets by region, I'll begin in Southern California, which represents almost 45% of our NOI and was our best performing region in 2021.

To review our markets by region I'll begin in southern California, which represents almost 45% of our NOI and was our best performing region in 2021.

Speaker 3: Through many economic cycles, we have consistently relied on Southern California for steady performance. And during the pandemic, it had exceeded our expectations. The one caveat is the last.

Through many economic cycles, we have consistently relied on southern California for steady performance and during the pandemic it has exceeded our expectations.

The one caveat is the Los Angeles Submarket.

Speaker 3: While it is also showing strong rent growth, this market faces offsetting challenges from the ongoing eviction moratorium and disproportionate bad debts.

Well. It is also showing strong rent growth this market faces offsetting challenges from the ongoing eviction moratorium and disproportionate bad debt.

Speaker 3: Now withstanding these challenges, we remain optimistic with the broader Los Angeles sub-market because of the continued strategic commercial investment by companies like Warner Brothers, which is planning to develop a 1.3 million square feet of studio and office space in Burbank.

Notwithstanding these challenges we remain optimistic with the broader Los Angeles Submarket because of the continuous strategic commercial investment by companies like Warner Brothers, which is planning to develop.

At 1.3 million square feet of studio and office space in Burbank.

Speaker 3: This will be the largest studio development in the country and is expected to bring about 400 new jobs to the market. Film LA recently reported the production activity in all time high in the fourth quarter. An Apple recently proposed a half million square foot office development in Culver City, which will create approximately 2,500 new jobs.

This will be the largest studio development in the country and is expected to bring about 100, new jobs to the market.

Film L. A recently reported production activity hit an all time high in the fourth quarter and Apple recently proposed a half million square foot office Github element Inc.

Colver city, which should create approximately 2500 new jobs.

Speaker 3: The continued job growth and high cost of home ownership amidst a slight increase in supply deliveries in Orange County in San Diego, our factors consider in our expectation for demand for rental housing, and the basis for a 2020 to outlook for Southern California market rent growth of 7.1%.

The continued job growth and high cost of homeownership, and that's a slight increase in supply deliveries in Orange County, and San Diego are factors considered in our expectation for demand for rental housing and the basis for a 2022 outlook for southern California market rent growth of seven 1%.

Speaker 3: Moving north to the Bay Area and Northern California, it is no secret that Northern California's rents have lacked the nation and the ethics portfolio average.

Moving north to the Bay area in Northern California. It is no secret that northern California's friends have lagged the nation in the Essex portfolio average.

Speaker 3: Review the region is in early stages of its recovery. Unlike most markets across the country, which are effectively back to normal economic levels, the Bay Area has yet to fully recover due to ongoing COVID regulations such as mass mandates and delayed return to office, tempering the momentum of normal economic activity.

We view the region is in early stages of its recovery.

Unlike most markets across the country, which are effectively back to normal economic levels.

Bay area has yet to fully recover due to ongoing COVID-19 regulations, such as masks mandates and delayed return to office tempering the momentum of normal economic activities.

Speaker 3: We have seen communications by Bay Area companies informing employees.

We have seen communications by Bay area companies informing employees.

Speaker 3: of plans to return to office after Omicron case subsides and we remain encouraged by the large tech companies' expansion plans and commercial investments in our markets as highlighted by Mike.

<unk> plans to return to the office after Autocrat case subsides and we remain encouraged by the large tech companies expansion plans and commercial investments in our markets as highlighted by Mike.

Speaker 3: Furthermore, our supply delivery forecast a decline in 2022. Thus, we anticipate rapid recovery in rent growth without requiring a comparable level of increase in housing demand.

Furthermore, our supply delivery forecast a decline in 2022 that we anticipate rapid recovery in rent growth without requiring a comparable level of housing.

Housing demand.

Speaker 3: Keep in mind that our Northern California portfolio is mostly suburban and should benefit from those employees having fewer commuting days in a hybrid environment. These factors contribute to our expectations for Northern California to be one of our strongest rental markets in 2022 with market rent forecasted to increase by 8.7%.

Keep in mind, our northern California portfolio is mostly suburban and should benefit from those employees, having fewer commuting days in a hybrid environment.

These factors contribute to our expectations for northern California to be one of our strongest rental markets in 2022 with market forecasted to increase by eight 7%.

Speaker 3: Turning to our Seattle portfolio, which continues to perform well.

Turning to our Seattle portfolio, which continues to perform well.

Speaker 3: We anticipate similar level of supply deliveries this year as last year, with the majority concentrated in downtown Seattle.

We anticipate similar level of supply deliveries this year as last year with the majority concentrated in downtown Seattle.

Speaker 3: Because our portfolio skews to the east side in Bellevue and surrounding suburbs, the demand for our communities remains strong from the continued investments by several companies, most notably Amazon, which has committed to developing a second tower in Bellevue with constructions to start this year.

Because our portfolio skews to the east side in Dallas and surrounding suburbs the demand for our communities remain strong from the continued investments by several companies, most notably Amazon, which is committed to developing a second tower in Bellevue with construction to start this year.

Speaker 3: and is expected to create an additional 3,500 jobs. Therefore, we forecast Seattle's market rent growth at 7.2% for 2022.

And it's expected to create an additional 3500 jobs. Therefore, we forecast Seattle market rent growth at seven 2% for 2022.

Speaker 3: Moving on to the advancements in our operating model, by way of background, our discipline and focus of investing in high-quality submarkets has resulted in 70 percent of our properties being located within five miles of each other.

Moving on to the advancements in our operating model by way of background, our disciplined focus of investing in high quality sub markets has resulted in 70% of our properties being located within five miles of each other.

Speaker 3: With this competitive advantage in geographic concentration and innovation in technology and data analytics...

With this competitive advantage in geographic concentration and innovation in technology and data analytics.

Speaker 3: We have re-envisioned Essex's operating model with property collection.

We have re envisioned ethics operating model with property collections.

Speaker 3: Essentially, we are transitioning from a dedicated team at an individual property to teams that will cover a collection of properties, allowing each associate to specialize in specific function and improving our ability to cross sell among nearby properties.

Essentially we are transitioning from a dedicated team.

At an individual property two teams that will cover.

A collection of properties, allowing each associate.

Your wife in specific function and improving our ability to cross sell among nearby properties.

Speaker 3: By organizing properties into collections and centralizing certain administrative duties, we expect to generate more efficiencies across the portfolio. We have already implemented this collections model in Orange County and San Diego and have achieved a reduction in personnel by approximately 10 to 15 percent through natural attrition.

By organizing properties into collections and centralizing certain administrative duties, we expect to generate more efficiencies across the portfolio. We have already implemented this collections model in Orange County, and San Diego and have achieved a reduction in personnel by approximately 10% to 15% through natural attrition.

Speaker 3: In addition, our data analytics has determined that our ability to cross-sell neighboring communities has increased by over 800 basis points following the adoption of the collections model.

Yeah.

In addition, our data analytics has determined that our ability to cross sell neighboring communities has increased by over 800 basis points. Following the adoption of the collection model.

Speaker 3: We plan to complete the rollout of the collections operating model to the remaining regions by the end of this year.

We plan to complete the rollout of the collections operating model to the remaining regions by the end of this year.

Speaker 3: While Essex has been deficient historically with each associate covering 40 units prior to 2019, with recent enhancements, we currently have each associate covering 43 units across the entire portfolio.

Well, Essex has been efficient historically with each associate covering 40 units prior to 2019.

With recent enhancements, we currently have each associate covering 43 units across the entire portfolio.

Speaker 3: Further benefits are expected in 2022 and thereafter as we complete our technology and other implementation plans.

Further benefits are expected in 2022, and thereafter, as we complete our technology and other implementation plans.

Speaker 3: We are currently co-developing proprietary applications with partners from REG Ventures Fund and other software developers that will enhance the associate and customer experience.

We are currently co developing proprietary applications with partners from R. E T Ventures fund and other software developers that will enhance the associate and customer experience.

Speaker 3: One example of advancements in our operating model over the past month has enabled 100% contactless tours, which currently consists of 92% self-guided tours and 8% virtual tours.

One example of advancements in our operating model over the past month has enabled 100 per cent contact with tourists.

Which currently consists of 92% self guided tours and 8% virtual tours.

Speaker 3: As part of our technology initiative, we are starting the rollout of Alloy Access, a smart rent common area access solution, which will elevate the resident experience while also further the productivity of our operations team by enhancing security, usability, and monitoring, along with improving the effectiveness of the self-guided tours for prospective customers.

As part of our Technology initiative, we're starting with the rollout of alloy access a smart rent common area access solution, which will elevate the resident experience. While also further the productivity of our operations team by enhancing security usability and monitoring along with improving there.

Yes.

The self guided tours for prospective customers.

Speaker 3: In addition, we are working with Funnel to co-develop a tailored solution to further automate our platform, which we plan to roll out later this year. We believe this will directly benefit both the associates and customers through streamlined systems, on-demand features, and link communications across properties, which will meaningfully accelerate the timetable to turn prospects into renters.

In addition, we are working with final to co develop a tailor solutions to further automate our platform, which we plan to roll out later this year.

We believe this will directly benefit both the associates and customers through streamline system on demand features and link communications across properties, which will meaningfully accelerate the timetable to turn prospects into renters.

Speaker 3: We integrate these advancements with our data analytics platform to provide new operational insights. For example, leveraging newly available data on our leasing patterns from funnel has improved the quality and effectiveness of our customer interactions.

We integrate these advancements with our data analytics platform to provide new operational insights for example, leveraging newly available data and are leasing patterns from final has improved the quality and effectiveness of our customer interactions.

Speaker 3: We have also applied advanced analytics with data from SitePlan to streamline our maintenance workflow, which reduced our unit turn times by 10% in the fourth quarter on a year-over-year basis, despite COVID-related labor challenges.

We have also applied and then analytics with data from site plan to streamline our maintenance workflow, which reduced our unit trying times by 10% in the fourth quarter on a year over year basis, Despite cold related labor challenges.

Speaker 3: We expect that these initiatives will continue to provide us with additional lovers and insights to improve our revenue growth and operating margins in the coming years. With that, I'll turn the call.

We expect that these initiatives will continue to provide us with additional levers and insights to improve our revenue growth and operating margins in the coming years.

With that I'll turn the call over to part of the pack.

Speaker 4: Thanks, Angela. Today we'll discuss the key assumptions supporting our 2022 guidance and conclude with an update on the balance sheet.

Thanks, Angela today, I will discuss the key assumptions supporting our 2022 guidance and conclude with an update on the balance sheet.

Speaker 4: We ended 2021 with strong momentum in the fourth quarter as demonstrated by 4.7% same property NOI growth and 7.6% core FFO.

We ended 2021 with strong momentum in the fourth quarter as demonstrated by four 7% same property NOI growth and seven 6% core <unk>. We believe the economic recovery has only just begun on the west coast and that's this positive momentum will continue throughout 2022.

Speaker 4: We believe that economic recovery has only just begun on the West Coast, and thus this positive momentum will continue throughout 2022.

Speaker 4: As such, we are forecasting core FFO per share growth of 9.7% at the midpoint, which is the highest growth in six years.

As such we are forecasting core episodes per share growth of nine 7% at the midpoint, which is the highest growth in six years.

Speaker 4: We are pleased that our 2022 core FFO per share guidance is expected to exceed our pre-pandemic FFO achieved in 2019, despite the challenging operating environment. This is a testament to our disciplined operating strategy and capital allocation process, which is driving results to the bottom line.

We are pleased that our 2022 of core <unk> per share guidance is expected to exceed our pre pandemic SSO achieved in 2019, despite the challenging operating environment.

This is a testament to our disciplined operating strategy and capital allocation process, which is driving results to the bottom line.

Speaker 4: Our 2022 FFO growth is primarily driven by a 7.8% increase in our same property revenues on a cash basis and 8.3% on a gap basis.

Our 2022 episode growth is primarily driven by a seven 8% increase in our same property revenues on a cash basis and eight 3% on a GAAP basis.

Speaker 4: For the year, we expect fewer concessions as compared to last year, but delinquency remains a challenge, and we are expecting delinquency of 2.4% of scheduled rent in 2022, which is 30 basis points higher than 2021. We have 2 counties representing 50% of our total delinquency where tenant protections remain in place.

For the year, we expect fewer concessions as compared to last year, but delinquency remains a challenge and we are expecting delinquency is two 4% of scheduled rent in 2022, which is 30 basis points higher than 2021, we.

We have two counties, representing 50% of our total delinquency or tenant protections remain in place.

Speaker 4: In addition, response times on tenant applications seeking emergency rental assistance remains slow and outside of our control, leading to large monthly swings in the delinquency line item.

In addition response times on tenant application seeking emergency rental assistance remains slow and outside of our control leading to large monthly swings in the delinquency line item.

Speaker 4: As a reminder, our historical annual delinquency has been around 35 basis points of scheduled rent, and given our long history of high collections, we believe we can ultimately return to this level once the various restrictions are lifted.

As a reminder, our historical annual delinquency hasn't been around 35 basis points, our scheduled rent and given our long history of high collections. We believe we can ultimately return to this level once the various restrictions are lifted.

Speaker 4: We continue to assist residents in applying for federal tenant relief funds and have received $29 million to date of which 12 million was in the fourth quarter.

We continue to assist residents and applying for federal tenant really science and have received 29 million to date of which 12 million was in the fourth quarter.

Speaker 4: As for operating expenses, we are forecasting a 4% increase, which is above our historical average of 2 to 3%.

As for operating expenses, we are forecasting a 4% increase which is above our historical average of 2% to 3%.

Speaker 4: This is a result of wage pressures in the market, along with general inflation in the economy for materials.

This is a result of wage pressures in the market along with general inflation in the economy for materials in.

Speaker 4: In total, same property NOI is expected to grow 9.4% on a cash basis.

In total same property NOI is expected to grow nine 4% on a cash basis.

Speaker 4: Continuing with our investment expectations for 2022.

Continuing with our investment expectations for 2022.

Speaker 4: As we have discussed throughout the past year, we have seen an elevated level of early redemptions of our preferred equity and subordinated loan investments due to high demand for West Coast Department and low interest rates.

As we have discussed throughout the past year, we have seen an elevated level of early redemptions of our preferred equity and subordinated loan investments due to high demand for west coast apartments, and low interest rates in.

Speaker 4: In 2021, we had approximately 210 million of redemption and our 2022 guidance contemplates another 350 million of redemption. Some of this was pushed from the fourth quarter into this year.

In 2020 , one we had approximately $210 million of redemptions and our 2022 guidance contemplates another $350 million of redemptions. Some of this was pushed from the fourth quarter into this year.

Speaker 4: Over the past year, it has become more challenging to find new investments given the influx of capital to this segment.

Over the past year, and it's become more challenging to find new investments given the influx of capital to this segment.

Speaker 4: However, we were able to secure 117 million of new commitments with an average yield of 11%, maintaining our discipline approach to underwriting these projects.

However, we were able to secure $117 million of new commitments with an average yield of 11% maintaining our disciplined approach to underwriting these projects are.

Speaker 4: Our 2022 guidance contemplates an additional 100 million of new commitments at the midpoint of which we assume 50 million will be funded during the second half of the year. The remainder of the preferred equity reduction proceeds will be used to fund new acquisitions.

Our 2022 guidance contemplates an additional $100 million of new commitments at the mid point of which we assume $50 million will be funded during the second half of the year. The remainder of the preferred equity redemption proceeds will be used to fund new acquisitions.

Speaker 4: Finally, the balance sheet remains in a strong position. During the quarter, we saw continued improvement in our credit metrics and our net debt to eviteration declined to 6.3 times as EBITDA grew. We expect this trend to continue throughout 2022.

Finally, the balance sheet remains in a strong position during the quarter. We saw continued improvement in our credit metrics and our net debt to EBITDA ratio declined to six three times as EBITDA grew.

We expect this trend to continue throughout 2022.

Speaker 4: Over the past two years, we have taken advantage of a low interest rate environment and refinanced nearly 40% of our debt, locking in low rates and reducing our weighted average interest rate by 70 basis points.

Over the past two years, we have taken advantage of the low interest rate environment, and refinance nearly 40% of our debt locking in low rates and reducing our weighted average interest rate by 70 basis points.

Speaker 4: As such, we have only 6% of our debt maturing over the next two years. In addition, we have minimal exposure to short-term rates with only 4% of our consolidated debt subject to floating rates.

As such we have only 6% of our debt maturing over the next two years. In addition, we have minimal exposure to short term rates with only 4% of our consolidated debt subject to floating rates.

Speaker 4: as such we have minimal risk to the rising interest rate environment.

As such we have minimal risk to the rising interest rate environment.

Speaker 4: Given limited near-term maturities, no material development funding needs and ample liquidity, the company remains in a strong financial position. That is that. I will now turn the call back to the operator for questions.

Given given limited near term maturities no material development funding needs and ample liquidity. The company remains in a strong financial position with that I will now turn the call back to the operator for questions.

Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tunnel will indicate your line is in the question queue. You may press...

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Please while we poll for your questions.

Speaker 1: We ask that you please limit yourself to one question and one follow.

Ask that you please limit yourself to one question and one follow up question.

Speaker 1: Our first questions come from the line of Rich Hill with Morgan Stanley . Please proceed with

Our first questions come from the line of Rich Hill with Morgan Stanley . Please proceed with your questions.

Speaker 2: Hey, good morning, guys. I want to maybe just start off with a question about new leases relative to same store revenue. I typically view new leases as a leading indicator for a revenue and you put up just a huge number for new leases in January , I think of around 17%. So how are we supposed to think about that? And maybe if I can push you a little bit, why is the same store revenue higher?

Hey, good morning, guys.

Wanted to maybe just start off with a question about new leases relative to same store revenue I typically view, new leases as leading indicators.

And you put up just a huge number for new leases in January I think of around 17%. So how are we supposed to think about that and maybe if I can push you a little.

Store revenue higher.

Yeah.

Speaker 3: Sure, Rich. It's Angela here. So let me just give you a little context on the, as the team that shows our new lease rates. And, you know, it is terrific with that 17%. They keep in mind that the year over year number to start. And we had communicated that.

Sure Rich it's Angela here. So let me just give you a little context on the F 16 that shows our new lease rates and it is terrific with that 17%, but keep in mind, that's a year over a year number just stars and we had communicated that.

Speaker 3: It'll be between 4th quarter of 2020 to 1st quarter of 2021, so that comparable period. That's when market rent dropped. And so from a Euro-evere perspective, we are really hitting kind of the greatest delta, if you will, my differential perspective. So if we're talking about really the same store guidance,

Between fourth quarter.

20 to first quarter of 2021, so that comparable period, that's when market rent trough and so from a year over year perspective, we are really hitting kind of the greatest Delta. If you will my differential perspective.

So if we're talking about really the same store guidance.

Speaker 3: What we probably, you know, I think a better indicator is to look to the S17 that Mike talked about earlier and you take that market rent of 7.7% that market rent growth.

What we probably you know I think a better.

Indicator is to look to the 17 that Mike talked about earlier and you take that market rent of 7.7% that market rent growth.

Speaker 3: And then you factor in the Boston lease at your end. And I know we normally do this, you know, look to the September loss lease, but you might recall that we were, we had a, you know, a typical seasonality and the seasonal peak was pushed.

And then you factor in the loss to lease at year end and I know we normally do this you know look at look to the September last please that you might recall that we were we had a a.

Atypical seasonality and and the seasonal peak was pushed so we had you know caution against using the September last week. So if we look at the December last at least it's around 6%.

Speaker 3: we had caution against using the September loss release. So if we look at the December loss release, it's around 6%.

Speaker 3: ? That's the results and I know some of these other

And and you faster as though yeah, and then you know some of these other.

Speaker 3: factors such as legislation and delinquency, that's what ultimately drives our midpoint guidance of 7.8%.

Factors, such as legislation and delinquency, that's what ultimately drives our our mid point guidance of seven 8%.

Speaker 5: Got it. And look, that makes sense to me. We spend a lot of time on your macro forecasts. So I guess your revenue guide was consistent with that, which is sort of what we expected. The newly spread was just really high and that's helpful color. Just one more question for me. When we're unpacking what you report it and guide it to relative to our numbers, one of the things that stood out to us was rising interest expenses and then rising non-same-store expenses. Can you just maybe talk through what you're expecting for the interest expense side of the equation and if you're intentionally being conservative given the interest rate environment that we're in right now?

Got it and then it looks like that that makes sense to me we spend a lot of time on your macro forecasts. So I guess your revenue guide.

It was consistent with that which is sort of what we expected the newly spread was really high and that's that's helpful. Color just one more question for me yeah.

We're in packing, what you reported and guided to relative to our numbers one of the things that stood out to us.

Was rising interest expenses and then rising non same store expenses can you just maybe talk through what you're expecting for it for the interest expense side of the equation and and you know if you're intentionally being conservative given the interest rate environment that we're in right now.

Speaker 4: Hi, Rich. It's Barb. In terms of the interest expense line, the biggest factor there is the reduction in cap interest as our development pipeline has substantially rolled off. And so that's a pretty substantial increase in the interest expense we do have.

Hi, Rich, it's barb I'm in terms of the interest expense line. The biggest factor there is a reduction in cap interest as our development pipeline has substantially rolled off and so that's a pretty substantial increase in the interest expense, we do have a.

Speaker 4: A couple rate increases forecasted in the guidance and it will

A couple of rate increases forecasted in the guidance and it and.

Speaker 4: It's really why we have a range, but we don't have a lot of variable rate debt. We only have 4% of our consolidated debt as variable rates. So that's a small impact to the numbers. It really is the cap interest side of the equation. I think that's a $4 million reduction.

It's really why we have a range, but we don't have a lot of.

Variable rate debt, we only have 4% of our consolidated debt is variable rate. So that's a small impact to the numbers. It really is the the cap interest side of the equation I think that's a 4 million dollar reduction.

Speaker 5: Okay, that's helpful. I'm sure a lot of people have other questions, so I'll jump back in, but thank you for that.

Okay. That's helpful. That's helpful guys.

Guys I'm sure a lot of people have the other questions. So I'll I'll jump back in but thank you for that.

Thanks Rich.

Speaker 1: Thank you. Our next question has come from the line of Alexander Goldford with Piper Sandler. Please proceed with your question.

Thank you our next questions come from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.

Speaker 6: Hey, good morning, morning out there. So just a few questions from me. As far as Southern California goes, the strength that market is experiencing in general.

Hey, good.

Good morning, good morning out there.

So just a few questions.

From from from me.

As far as southern California goes the strength that that that market is experiencing in general do you think that will continue so when San Francisco reopens and those tech jobs. Once again have to be in the office are you expecting a migration back of people who migrated down to southern Cal.

Speaker 6: Do you think that will continue so when San Francisco reopens and those tech jobs once again have to be in the office? Are you expecting a migration back of people who migrated down to Southern Cal going back to Northern Cal? Or your view is that everyone who is populated Southern Cal loves the lifestyle and is not looking to relocate back?

Going back to northern Cal or your view is that everyone, who is populated southern Cal gloves in the lifestyle and is not looking to relocate back.

Speaker 2: Hey Alex, it's Mike. I'll start with this and then flip it to Angela maybe for some more comments.

Hey, Alex it's Mike I'll start with this and then flip it to Angela maybe for some more comments.

Speaker 2: You know, we think that there is a reversion underway and it will draw people back to where the jobs were kind of pre-pandemic. And so the pandemic caused a lot of disruption with respect to where people went and many people went to Southern California.

We think that.

There is a reversion underway and it will draw people back to where the jobs were kind of pre pandemic and so the pandemic caused a lot of disruption with respect to where people went and many people went to southern California and elsewhere.

Speaker 2: and elsewhere. And so we think as the pandemic winds down, people will go back to where they once were, you know, again, hybrid model.

So we think as the pandemic winds down people will go back to where they once were again.

<unk> model BMD.

Speaker 2: the typical format for a lot of the big companies out here. So we think that some of the people will move from Southern California back to Northern California, but keep in mind, there were people from Southern California that moved to Phoenix and other places as well. So it's not just a one direction movement. And we think that the overall impact will be beneficial for California in total.

The typical format for a lot of the big companies out here. So we think that some of the people will move from southern California back to Northern California, but keep in mind there were people from southern California that moved to Phoenix and other places as well so it's not just a one direction movement.

<unk> and we think that the overall impact will be beneficial for California in total so even though some people will move from southern California back to northern California, that'll be offset by potentially other people moving back for job reasons <unk> lifestyle decisions so with that.

Speaker 3: So even though some people will move from Southern California back to Northern California, that'll be offset by potentially other people moving back for job reasons and or lifestyle decisions. So with that, I'll turn it over to Angela. Anything to add, Angela? Maybe just a little historical context, Alex.

I'll turn it over to Angela anything to add Angela maybe just a little historical context Alex.

You know with the southern California portfolio and in particular, San Diego, and then try and Orange County. These are markets that were at that performed at a 97% occupancy even pre COVID-19 . So it's already a highly desirable place to be and we combine that with <unk>.

Speaker 3: The Southern California portfolio and in particular, San Diego, Ventura and Orange County, these are markets that were at, that perform at a 97% occupancy even pre-COVID. So it's already a highly desirable place to be. And we combined that with this region having the, you know, the most, the strongest.

This region, having the.

The most.

That's the strongest loss to lease.

Speaker 3: And it actually has, as far as we can see, pretty long legs. So in the interim, during the reversion that Mike is referring to, it may be more of a net neutral, but long term, this market was still we would see this market continues to to perform well with a good tailwind from last release.

And actually has as far as we can see pretty long leg. So in the interim during the reversion that Mike is referring to and maybe more of a net neutral but long term. This market. We're still we would see this market as it continues to perform well with a good tailwind from loss to lease.

Speaker 6: Okay, and then just as a follow up to that, as part of guidance.

Okay, and then just as a follow up to that.

As part of guidance.

Speaker 6: And Mike, you've spoken about the exodus of the high tech worker and then the service worker who left when their businesses were shut down. But as far as guidance goes, how much of guidance is predicated on the return of tech workers, return of the baristas, just trying to get a sense or if return to office occurs and if service job, you know, those people who left came back, that's, oh, that's incremental above and beyond what you're already assuming in your numbers.

And Mike you've spoken about the exodus of there you know the high Tech worker and then the service worker, who left when their businesses were shut down but as far as guidance goes how much your guidance is predicated on the return of tech workers returning to <unk>, just trying to get a sense or is or if return to office occurs and if service.

Job those people who lost came back.

Oh, that's incremental above and beyond what you're already assuming in your in your numbers.

Speaker 2: Yeah, Alex, I would say that it's already happening. So it's not a future event necessarily. I think we're in the middle of

Yeah, Alex I would say that it's already happening so it's not a future event necessarily I think we are in the middle of the reversion at I think the point to a statistic just look at job growth and job growth is.

Speaker 2: The reversion and I think, you know, to point to a statistic, just look at job growth and job growth is...

Speaker 2: you know, trailing three-month job growth is highest in fiannol 6.2 percent followed by northern California at I'm sorry, southern California by 5.8 and northern California by 5 percent. So

Our trailing three month job growth is highest in Seattle, six 2% followed by northern California at our I'm, sorry, Southern California, 558 in Northern California, 25%. So jobs are coming back people are starting to move the Bay area. Obviously is a step behind but we think it will catch up given the strength.

Speaker 2: Jobs are coming back, people are starting to move. The Bay Area obviously is a step behind, but we think it will catch up given the strength and the uniqueness of the tech employers that are there. And so we think it's all underway and it's just gonna take some time to play out. I guess the question is, can it accelerate? I mean, we actually expect it to accelerate, especially in the tech markets, which were of course.

And the uniqueness of the tech employers that are there and so we think it's all underway and it's just going to take some time to play out I guess the question is can it accelerate.

Actually expect it to accelerate especially in the tech markets, which were of course.

Speaker 2: uh those that were most impacted. By the end of the year we expect that California

Is that were most impacted by the end of the year, we expect that at California.

Speaker 2: or our markets will have about 93% of their jobs that they lost during the pandemic recovered. We're currently at about 78% now. We expect, again, use trends to continue and pretty favorable for our markets given what the impact on jobs is.

Will.

Our markets will have.

93% of their jobs that they lost during the pandemic recovered book currently at about 78% now. So we expect again these trends to continue and pretty favorable for our markets given you know what.

What the impact on jobs is.

Thank you.

Thank you.

Speaker 1: Thank you. Our next question has come from the line of Nick Joseph with Citi. Please proceed with your question.

Thank you. Our next question is come from the line of Nick Joseph with Citi. Please proceed with your questions.

Speaker 5: Thanks. Maybe just following up on that. It seems like another topic, at least for San Francisco and maybe Seattle as well, has just been quality of life overall. And obviously a return to the office will help improve things. But do you think there's other steps that need to be taken or will the return of the office really help a quality of life as well?

Thanks, maybe just following up on that it seems like another topic.

For San Francisco, and maybe Seattle as well, it's just been quality of life overhaul.

Obviously, you returned to the office will will help improve things, but do you think there's other steps that need to be taken or will have been returned to the office really help a quality of life as well.

Speaker 2: I think quality of life considerations really come into play in the CBDs, the calmness,

I think quality of life considerations really come into play in the CBD.

The homelessness.

Speaker 2: concerns about defunding the police, et cetera. I think that is where quality of life issues are more manifest.

Concerns about funding the police et cetera, I think that is where quality of life issues are more manifest an obvious and.

Speaker 2: And I, you know, as they say, they're not they're not creating any more beaches around here. So that's obviously a benefit. And so I think that the quality of life in suburbia is actually very high.

As I say theyre, not theyre, not creating any more beaches around here. So that's obviously a benefit and so I think that the quality of life in suburbia is actually very high and we're as we said before we're going to push out a little bit farther.

Speaker 2: And we're, as we said before, we're going to push out a little bit farther, strategically into some other different markets and Adams here. You can talk about this Vista deal, which we've never bought and vista before. But it represents one of those markets that's in suburbia.

Strategically into some other some different markets in Adam's here. He can talk about this vista deal, which we've never bought invested before but it represents one of those market sits in suburbia.

Speaker 2: good community, good decent schools in a very nice northern San Diego sub-market and we're looking for that and we think that we can find great quality of life in some of those markets and there's great opportunity out there.

Good community good decent schools in a very nice northern San Diego Submarket, and we're looking for that and we think that we can find great quality of life and some of those markets and there's great opportunity out there.

Speaker 2: Thanks. So then as you think about the co-investment and the preferred in the MEDS book, obviously you've gotten good returns from it and it's led to some opportunities. But as you think about kind of earnings and some of the volatility that we're seeing this year associated with it, how do you think about the size going forward from a strategic

So then as you think about the co investment in the preferred and the managed book.

Obviously, you've gotten good returns from it and it's led to some opportunities, but as you think about kind of earnings and some of the volatility that we're seeing this year associated with it how do you think about the size going forward from a strategic perspective.

Speaker 2: Yeah, Nick, I think it's about right, actually. So we have

Yeah, I think it's about right actually so we have about seven.

Speaker 2: about 700 billion combined between preferred equity.

$700 billion combined between preferred equity and.

Speaker 2: and and and MES debt and again we don't want that business to get to be too large. We I think took advantage of an opportunity in 2020 to grow the business a bit given that there there's very little else it was working and I think that's helped but it will be somewhat lumpy and that's the primary reason why the board and all of us you know think that we should control its size and not let it not let it get too large so that's first and

Sure.

With that and again, we don't want that business to get to be too large we I think took advantage of an opportunity in 2020 to grow the business a bit given that there was very little else. It was working.

I think thats helped but it will be somewhat lumpy.

The primary reason why the board and all of US think that we should control is size and not let it.

Not let it get too large so that's first and foremost on our mind.

Speaker 2: From our perspective, it is probably the best risk reward of what we do in terms of how we generate income and plus there's some other advantages. One of our investments as Porter was a joint venture that came out of the preferred business. So I thought that was having other types of business tied to that is important. Plus we get...

From our perspective, it is probably the best risk reward of what we do in terms of how we generate income and plus or some other advantages one of our investments this quarter was a.

Joint venture that came out of the preferred business. So I thought that was having to other types of business tied to that as important plus we get.

Speaker 2: We get a look at many development deals that are going on in the marketplace.

We get a look at many development deals that are going on in the marketplace and that allows us to be more discerning with respect to our development pipeline.

Speaker 2: And that allows us to be more discerning with respect to our development pipeline.

Thank you.

Thanks.

Speaker 1: Thank you. Our next questions come from the line of Rich Hightower with Evercore. Please proceed with your questions.

Thank you our next questions come from the line of Rich Hightower with Evercore. Please proceed with your questions.

Speaker 7: Hi, good morning out there, guys. I want to go back to a couple of prepared comments in terms of delinquencies and I guess the longer term assumption that

Hi, good morning out there guys.

Just a couple of the prepared comments in terms of delinquencies and I guess the longer term assumption that that delinquency rate will revert more to historical norms.

Speaker 7: that delinquency rate will revert more to historical norms. Every time we talk to...

Speaker 7: your coastal peers, you know, regulatory risk is obviously very prominent in the decision to diversify outside of certain markets. I assume this is part of that. So, I guess what over the longer term gives you the confidence that, you know, the regulatory environment in that regard will indeed get back to where we were pre-COVID?

Time, we talked to you a coastal peers you know regulatory risk is obviously very prominent and the decision to diversify outside of certain markets.

I assume this is part of that I guess, what what over the longer term gives you the confidence that you know the <unk>.

Inventory environment in that regard will indeed get back to where we were pre COVID-19 .

Speaker 2: Yeah, it's a good question and it's definitely something that's on our minds and we will say that it's frustrating from time to time. But I guess, you know, we would ask that everyone take a balanced view of these regulatory risks and look at the other side. I mean, the other side is...

Yeah. It's a good question and it's definitely something that's on our minds.

We will say that it's frustrating from time to time, but I guess.

We would ask that everyone to take a balanced view of these regulatory risks and look at the other side I mean, the other side is that limited housing supply really comes from all the regulations that make it difficult to build housing in these markets and so we try to balance that equation as best we can.

Speaker 2: that limited housing supply really comes from all the regulations that make it difficult to build housing in these markets. And so, you know, we try to balance that equation as best we can and knowing that we are, you know, a beneficiary of, you know, the supply issues that California has because there's always another regulation that is making it more difficult for us to build housing right around the corner, which is...

And knowing that we are a beneficiary of this.

Supply issues in California, because there's always another regulation that is making it more difficult for us to build housing right around the corner, which is what cheap supply under control in California. So keep that in mind, and we know that we need to be a strong advocate with respect to sensible housing policies and we're going to be active.

Speaker 2: keep supply under control in California. So keep that in mind. And we know that we need to be a strong advocate with respect to sensible housing policies, and we're going to be active in that area going forward.

In that area going forward, but again, we would hate to trade away the.

Speaker 2: But again, we would hate to trade away the, you know, the unique benefits that we have given the supply restrictions.

The unique benefits that we have given the supply restrictions in California.

Speaker 7: Okay, I appreciate it. There's two sides to the coin there, Mike. Maybe one quick follow-up. Are you able to delineate for us on this call the bad debt percentages in terms of leases that were signed in the pre-COVID vintage, you know, true sort of COVID hardship at the time versus any leases that were signed when the world started to get better again? I mean, you know, and people that were gaming the system after COVID was already, you know, a factor.

Okay.

I appreciate there's two sides to the column there Mike.

One quick follow up I mean, just.

Are you able to delineate for us on this call to the bad debt percentages.

In terms of leases that were signed in the pre COVID-19 vintage true sort of COVID-19 hardship at the time versus any leases that were signed when the world started to get better again.

And people that were gaining the system after COVID-19 was already.

A factor.

Speaker 2: there a way to do that? You know, I'll start and then, you know, flip it to Barb. You know, a lot

Is there a way to do that.

You know I'll start and then.

Flip it to Barb.

A lot of this there was nothing in the pre Covid period that indicated that there were any issues with delinquency. So I'll make that that comment number one most of the issues that we have are really related to the government. The governmental agency, which is theres a website called housing is key and.

Speaker 2: There was nothing in the pre-COVID period that indicated that there were any issues with the linguists. So I'll make that comment number one. Most of the issues that we have are really related to.

They have.

Very recently about $7 billion in applications and they paid out about $1 9 billion. So they're way behind and so there is this delay in getting reimbursed for all these all these claims and Barb has some information about what's in process et cetera, but I guess the key.

Speaker 2: paid out about 1.9 billion. So they're way behind. And so there is this delay in getting reimbursed for all these claims. And Barb has some information about what's in process, et cetera. But I guess the key here is that the state agencies are way behind, and there's a lot of money that has been submitted. And we don't know. We don't have control over what's going to happen with those funds. And so we're just going to have to wait, which led to what we hope to be is obviously conservative guidance. We weren't intending to be.

Or is that.

The state agencies are way behind and there's a lot of money that has been submitted and we don't know we don't have control over what's going to happen with those funds and.

Speaker 2: submitted and we don't know we don't have control over what's going to happen with those funds and So we're just going to have to wait which led to what we hope to be is obviously conservative guidance We weren't intending to be conservative, but we realize that some of these factors are out of our control and You know, so then we aired, you know, maybe to the conservative Perspective but we just we just don't know barb with that said. I think you have some additional

So we're just going to have to wait which led to what we hope to be is obviously conservative guidance, we werent intending to be conservative, but we realize that some of these factors are out of our control and.

So then we are maybe to the conservative perspective, but we just we just don't know bar, but that said I think you have some additional numbers yeah rich. So in terms of our cumulative delinquency. We're at about 67 million, we have applied for reimbursement for 80% of that so about 53 million.

Speaker 4: Yeah, Rich. So in terms of our cumulative delinquency, we're at about 67 million. We have applied for reimbursement for 80% of that. So about 53 million and of that amount, 33 million relates to our existing residents.

And of that amount $33 million relates to our existing residents.

Speaker 4: However, the timing and amount of being able to collect that is unknown because the program prioritizes based on the resident's area meeting income, which is something that we're not fully privy to at the time of they apply. The remainder is applications we've applied for on behalf of past residents.

However, the tenant and the timing and amount of being able to collect that is unknown because the program prioritizes based on the.

The residents area median income, which as you know something that we're not fully privy to at the time. They apply the remainder is applications. We've applied for on behalf of past residents now our ability to collect on that is if the resident will engage and that's unknown at this time, but we have applied for everything that we can and asthma.

Speaker 4: Now, our ability to collect on that is if the resident will engage, and that's unknown at this time, but we have applied for everything that we can. And as Mike said, the state of California has been slow to disperse funds, which is causing a lot of the noise in our numbers at this point.

He said the state of California has been slow to disperse funds, which is causing a lot of the noise in our numbers at this point.

Okay. Thanks for the color guys.

Thank you.

Yeah.

Speaker 1: Thank you. Our next questions come from the line of Brad Heffern with RBC Capital Markets. Please proceed with your

Thank you our next questions come from the line of Brad Heffern with RBC capital markets. Please proceed with your questions.

Speaker 5: Yeah. Hey, everyone. Thanks. I was wondering about rent to income. You talked in the prepared comments about the big divergence between urban and suburban. Can you give any figures about where rent to incomes have have trended in those two splits? And if they've moved, has that largely been because rent has moved or has income moved as well? Thanks.

Yeah, Hi, everyone. Thanks, I was wondering about rent to income you've talked in the prepared comments about the big divergence between urban and suburban can you give any figures about where rents and incomes have.

Trended in those two.

Splits and if they've moved has that largely been because renters moved her husband kind moved as well. Thanks.

Speaker 2: Yeah, this is Mike, and there may be, Andrew may have a comment too here, but generally speaking...

Yes. This is Mike.

There may be Andrew May have a comment too here, but generally speaking the good news is the incomes are moving and that affects us in terms of our guidance, but it also helps us charge more brand or.

Speaker 2: The good news is that incomes are moving and that affects us in terms of our guidance, but it also helps us charge more bread or allows us to have higher rent levels and helps us much more than what it costs us on the operating expense side. So we're pleased with higher income levels and we're seeing that throughout our portfolio.

Allows us to.

Higher.

The higher rent levels and helps us much more than what it cost us on the operating expense side. So we're pleased with higher income levels and we're seeing that throughout our portfolio.

Speaker 2: And in terms of numbers, so Southern California, for example, has a rent and meeting income. This is the medium, this is not our data, this is...

And.

In terms of numbers, so southern California. For example has a rent to median income. This is the media and this is not our data. This is.

Speaker 2: uh... general data that comes from our data vendors but uh... using median uh... rent and median incomes

General data that comes from our data vendors, but using median.

Brands and median incomes.

Speaker 2: We're currently at 26.9% rent to income in Southern California versus the long-term average of 22.3%. So well, in excess of that average. And then conversely, in Northern California, we're currently at 22.1% rent to income versus the long-term average of 23.1%. So well below.

We're currently at 26, 9% rent to income in southern California versus the long term average of 22, 3%, so well in excess of that average.

And then Conversely in Northern California. We're currently at 22, 1% rent to income versus a long term average of 23, 1%. So well below in that regard Seattle is a little bit different if it's a 21, 1% versus 18, 7% respectively.

Speaker 2: In that regard, Seattle is a little bit different. It's at 21.1% versus 18.7% respectively. So it suggests that it's higher in the rent to income versus the long-term average. Although that market has changed pretty dramatically in terms of it going from being a lower cost to a higher cost or higher rent market over the last 10 years or so. So I'd say it's fundamentally changed its nature. Does that help answer your question?

So it suggests that it's higher in the rent to income versus the long term average although that market has changed pretty dramatically in terms of going from being a lower cost to a higher cost or higher rent market over the last 10 years or so so I would say, it's fundamentally changed its nature does that help.

Answer your question.

Speaker 5: It does. I mean, one of the things I was trying to get at is specifically for Northern California, you know, when you have the backfill after the initial sort of COVID pain, I'm curious, did you see, you know, significantly lower incomes from those people? And that's part of what caused the pricing pressure. And is there is there any reversion of that? Or is the pricing pressure truly just due to, you know, other factors?

It does I mean, one of the things I was trying to get at is specific weight for Northern California. You know when you have the backfill after the initial sort of covered paying I'm curious did you see.

Lower incomes from those people and that's part of what caused the pricing pressure and is there is there any reversion of that or is the pricing pressure. It's truly just due to you.

Other factors.

Speaker 2: Yeah, if that's the question. Yeah, we see, so take the leisure and hospitality segment, which lost a tremendous number of jobs because the state shut down the restaurants and the hotel shut and travel was shut down basically. So all those people that are generally pretty low wage earners left.

Yes, if that's the question, yes, we see so take the leisure and hospitality segment, which lost a tremendous number of jobs because the state shut down the restaurants and the hotel shot in travel was shut down basically so all those people that are generally pretty low wage earners.

Left.

Speaker 2: the Bay Area and went somewhere else. You know, they migrated far and wide or went home with parents, et cetera. And so we're starting to see them come back. They're skewing the data in terms of their impact on renting. It looks like we're bringing in a lot of lower income workers, but it's just replacing what we lost.

The Bay area Edwin somewhere else.

<unk> migrated far and wide or went home with parents et cetera, and so we're starting to see them come back they are skewing the data in terms of.

Their impact on rent income it looks like we're bringing in a lot of lower income workers, but it's just replacing what we lost a while ago. So there isn't there is nothing fundamentally wrong with the bay area or any of our markets with respect to income levels. I think there is still a very good shape.

Speaker 2: a while ago. So there's nothing fundamentally wrong with the Bay Area or any of our markets with respect to income levels. I think they're still in very good shape. The tech companies continue to, they didn't lose a lot of employees and they continue to hire at robust levels, at high income levels. And then those high income levels are what really drive the demand for the services.

The tech companies continue to they didn't they didn't lose a lot of employees and they continue to hire at robust levels that high income levels and then those high income levels are what really drive the demand for the services you will all the jobs that we lost early on in the pandemic and the.

Speaker 2: You know, all the jobs that we lost early on in the pandemic and

Speaker 2: You know, the higher incomes people here make enough money that they can pay a little bit more for their dinner and some of these other services. And so we just don't see that as a as a key issue. The key issue is how do you draw back people?

The higher income people here make enough money that they can pay a little bit more for their dinner and some of these other services and so we just don't see that as a as a key issue. The key issue is how do you draw back.

People that left.

Speaker 2: in the early parts of the pandemic. How do you draw them back now? And I think that's an ongoing process.

And the early parts of the pandemic, how do you draw them back now and I think thats an ongoing process.

Yeah.

Does that help you.

Yeah, that's perfect.

Speaker 1: Thank you. Our next questions come from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Thank you our next questions come from the line of John Kim with BMO capital markets. Please proceed with your questions.

Speaker 8: Hello. I was wondering, you talked about sourcing new preferreds and that has been challenging in this environment. Would you consider doing deals outside of your core markets? Not necessarily to own the equity, but just provide a wider pool of investment opportunities?

Hello.

I was wondering if you talked about sourcing new preferreds a massive.

Challenging in this environment would you consider doing deals outside of your core markets not necessarily just on the equity, but just to provide a wider pool of investment opportunities.

Speaker 9: This is Mike, actually, I'm going to give this to Adam in a minute, but the answer is we are to some extent, in other words, we're not going to completely different markets, but we're pushing into other markets. Adam, you want to give them a couple examples of deals that we've done? Yeah, John , so we have been tracking other markets since really the platform was put into place, and we've actually, we've done, to echo what Mike said, so we've looked slightly outside of our markets to where we think the fundamentals are still there. And so, a couple that we've done, we did one in Redlands, which is Inland Empire, that one's going well, currently funded, and then we had one round trip in Sacramento that,

This is Mike actually I'm going to give us the Adam in a minute, but we.

As we are to some extent in other words, we're not going to completely different markets, but we're pushing into other markets. Adam you want to give him a couple of examples of deals that we've done yes.

So.

We have been tracking other markets since that since really the platform was put into place and John we've actually we've done.

Echo what Mike said, so we've looked slightly outside of our markets to where we think the fundamentals are still there they are.

And so a couple of them that we've done we did one in broadband which is inland Empire allowance going well currently funded and then we have one round trip in Sacramento.

Speaker 9: that market has obviously done very well. So we continue to track markets within our overall footprint, but a little outside and we'll consider a little further beyond that.

That market has obviously done very well so we continue to track markets within our overall footprint, but a little a little outside.

There are no further beyond that.

Okay.

Okay. So nothing outside of the month, because it's really.

Yeah.

Speaker 8: My second question is on your revenue generating cat-backs, guidance of 100 million, which is more than double what you, what do you invest in last year? How much does this add to same-store revenue growth this year versus 2023? And as it fair to assume that most of this cat-backs will be outside of Northern California.

My second question is on you your revenue generating capex guidance of $100 million, which is more than double what you would do you invested in last year. How much does this add to same store revenue growth. This year versus 2023 and is it fair to assume that most of this capex will be outside of northern California.

Speaker 3: We actually are looking at these opportunities throughout the portfolio. So it's not...

We actually are looking at these opportunities throughout the portfolio. So it's not.

Speaker 3: skewed toward one region because we are seeing strong market rent growth in all of our portfolios, in all of our

Skewed toward one region, because we are seeing strong market rent growth in all of our portfolios.

In all of our regions.

Speaker 3: And as far as when they'll be realized, less likely in 2022, just because, as you know, it takes time to, you know, renovate and then get them leased up. And so by the time that occurs, you certainly wouldn't have a full year of revenue. So it's more likely going to impact 2023.

And as far as when there'll be realized less likely in 2022 with just because as you know it takes time.

Yeah, renovate and then get them leased up until that time by the time that that occurs.

You certainly wouldn't have a full year.

Revenue, so it's more likely going to impact 2023.

Great. Thank you.

Speaker 1: Thank you. Our next questions come from the line of Austin Worshima with Keybank. Please proceed with your questions.

Thank you our next questions come from the line of Austin, where Schmidt with Keybanc. Please proceed with your questions.

Speaker 10: Great, thank you. Mike, can you prepare remarks, you reference that buyers in the markets are, you know, not really discerning, I guess, between location and maybe vintage of product. And so, you know, is that simply just a function of the amount of capital that's coming into your markets and chasing fields? And, you know, separately, is there really any opportunity for you to pull forward any, you know, portfolio management objectives as a result of kind of everything seemingly converging in price.

Great. Thank you Mike in your prepared remarks, you referenced that the buyers and the markets are not really discerning I guess between location and maybe vintage of product and so you know is that simply just a function of the amount of capital that's coming into your markets and chasing deals.

And separately is there really any opportunity for you to pull forward any portfolio management objectives. As a result of kind of everything seemingly are converging in pricing.

Speaker 9: Hey Austin, this is Adam. I can start with that and then if Mike has any follow-ups.

Hey, Austin This is Adam I can start with that and then if Mike has any follow ups.

Speaker 9: So, we're seeing a different buyer pool for different vintages and different locations, but ultimately, what you said in your question is right. There's so much capital chasing these deals, whether it's coming from value-added funds or larger core funds or whomever, that the compression between product age type, construction type, and location has been significant and continues to remain today. As it relates...

So we're seeing a different buyer pool for different vintages in different locations, but ultimately.

When you send your question is right. There's so much capital chasing these deals whether it's coming from value add funds or larger.

Core funds or whomever.

The compression between product age type construction type and location has been significant and continues to remain today.

As it relates to that.

Speaker 2: Mike, do you want to cover that? Yeah, could you repeat the question about the portfolio? Yeah.

Mike joined to cover that.

Could you repeat the question about the.

Portfolio yet.

Speaker 10: Just portfolio management objects. It's trading around submarkets, you know, increasing product quality, whatever sort of, you know, within your purview.

Portfolio management objections trading around Submarkets.

Increasing product quality, whatever sort of you know as in your purview.

Speaker 2: Yeah, the broader management objectives. Yes. Well, we continue to believe that we can add value in a variety of ways. And it isn't that we're necessarily going to...

Yes, the broader the broader management objectives, yes.

We continue to believe that we can add value.

A variety of ways and it isn't that we're necessarily going to.

Speaker 2: dramatically increase our portfolio allocation to any one market or decrease it. I think that we're overall pretty happy and we want to see how the pandemic recovery plays out.

Dramatically increase our portfolio allocation to any one market or decrease it I think that we're overall.

Pretty happy and we want to see how the pandemic recovery plays out.

Speaker 2: Like everyone else, there's, you know, a number of unknowns about.

Like everyone else Theres, a number of unknowns about.

Speaker 2: Portfolio transitions and we would like to get into a more normal world as I mentioned in the in my prepared remarks You know

Portfolio transitions, and we would like to get into a more normal world as I mentioned in the in my prepared remarks.

The laggards over the last 30 years or now our top performing markets is that possible that that continues or does it revert back and I suspect that there will be some fairly significant amount of reversion.

We think of the World, we think that probably the urban core again given.

Issues with homelessness.

Crime et cetera are.

A mild negative mild two significant negative hopefully the cities.

Speaker 2: get control over some of these issues. I think that they can definitely do that with respect to crime. I'm not so sure that there is a plan when it comes to homelessness. But again, that's pretty focused on the urban core, much less so in, you know, throughout the suburban parts of our portfolio, which is, you know, where the vast majority of our property is located. We've commented actually before the pandemic on, you know, deemphasizing the city centers, you know, partially due to what I just said.

Get control over some of these issues I think that they can definitely do that with respect to crime Im not so sure that there is a plan when it comes to homelessness, but again, that's pretty focused on the urban core.

Much less so in throughout the suburban parts of our portfolio, which is where the vast majority of our property is located we've commented actually before.

The pandemic on deemphasizing the city centers.

Due to what I just said.

Speaker 2: And so that remains a, you know, something that we will, you know, take a look at and potentially transact around going forward. But overall, you know, north-south balance. Seattle, I think, is doing really incredibly well. Great job growth. And, you know, a couple of key drivers up there in Microsoft and Amazon that are really pushing that market. So, you know, we'd like to increase our portfolio up there, actually.

And so that remains a something that we will take a look at and potentially transact around going forward, but overall.

North South balance Seattle, I think it was doing really incredibly well great job growth.

Couple of key drivers up there and Microsoft and Amazon that are really pushing that market. So.

We'd like to increase our portfolio up there actually but it's difficult to find the product at the price it adds value. So.

Speaker 2: but it's difficult to find the product at the price it adds value. So we're the same.

More of the same been there before.

Speaker 10: Yeah, got it. And then just maybe, you know, given where the stock's trading, you know, certainly preferreds, I think the preferred equity investments have been, you know, one of the most attractive you've referenced. But beyond that, given where your stock's trading, you know, is the joint ventures still, you know, one of the best uses? Do you take a look at, you know, issuing from time to time where you're trading today? What sort of the thinking around, you know, your cost of capital and potential use?

Yeah got it and then just maybe you know.

Given where the stock's trading certainly preferreds I think of the preferred equity investments have been you know one of the most attractive you reference but beyond that.

Given where your stock's trading is the joint venture is still one of the best uses.

Do you take a look at you know issuing from time to time, where you're trading today, what sort of the thinking around.

You know your cost of capital and potential uses.

Speaker 2: Yeah, we, you know, when we look at deals, our deal generation is sort of independent of how we, you know, capitalize or how we, you know, take the deal down. And, you know, where we believe that we're adding value to the company, and that could be, you know, core FFO or cash flow and or NAB per share to the company, we will take it down on the balance sheet.

Yes.

Look at deals our deal generation is sort of independent of how we are.

Capitalized or how we take the deal down and.

We believe that we're adding value to the company and that could be core for <unk>, our cash flow <unk>.

<unk> per share to the company, we will take it down on the balance sheet and.

Speaker 2: and at times like now where we don't think we can add value.

At times like now, where we don't think we can add value.

Speaker 2: We will do it in one of our co-investments. We're still a substantial owner. We still own about 50%.

We will do it in our one of our co investments were where were still a substantial owner, we still own about 50%.

Speaker 2: of these transactions and we manage it, and therefore we earn a small amount of fee income. But it's really driven by the capital side of the equation. And again, at this point, we probably wouldn't issue

These transactions and we manage it and therefore, we earn some small amount of fee income, but it's really driven by the capital side of the equation and again at this at this point, we probably wouldnt issue stock we would prefer to.

Speaker 2: stock, we would prefer to transact in a co-investment format.

Transact in a co investment format.

Thank you.

Speaker 1: Thank you, our next questions come from the line of John Pulaski with Green Street, please proceed with your.

Thank you our next questions come from the line of John Pawlowski with Green Street. Please proceed with your questions.

Speaker 11: Thanks. Just one follow-up question to that, the North and South Southern California balance in the portfolio, either for Mike or Adam. I guess I'm listening, Mike, to your opening remarks and the unsaid investment takeaways.

Thanks, just one follow up question to that the north and South Southern California balance in the portfolio either for Mike or Adam I guess that I'm, not saying like to your opening remarks and that the onset investment takeaways.

Speaker 11: by Northern California or by the laggards and maybe sell or prune the winners just in terms of dispersion of relative rents we've seen the last 24 months.

Are there in California, or by the Laggards, and maybe sell or prune. The winners just in terms of the dispersion of relative rents we've seen the last 24 months. So.

Speaker 11: and kind of pounding the table on the mean reversion trade, why don't you have as much conviction to go out and tilt the portfolio on the margin toward Northern California more heavily?

It kind of pounding the table on the mean reversion trade why don't you have as much conviction to go out until the portfolio on the margin towards northern California more heavily.

Speaker 2: John , it's a great question and Adam, will you bring me a hundred buildings in Northern California, please, at a 3.8 cap rate? That's the answer. It's not there and if we could do it, we would. We did buy one property in Fremont, again in a co-investment. We would buy more if we could, John , but again, the markets are going to evolve and perhaps we'll continue to see more product hit the market.

Hi, John It's a great question and Adam will you bring me 100 buildings in Northern California. Please add.

Three eight cap rate that's the answer is not theres not there and if we could do it.

Would we did buy one property in Fremont again in a co investment we would buy more if we could John but again the markets are going to evolve.

And perhaps we'll continue to see more product hit the market and we wouldn't for high quality properties in the right areas of the Bay area were not black line in the Bay area by by any means.

Speaker 2: And we wouldn't for high quality property in the right areas of the Bay Area, you know, we're not blackline in the Bay Area by...

Speaker 9: John , just to tack on a little there. We see every deal that's marketed and every deal that's not marketed. And so it's always a relative game. And so we're underwriting consistently up and down the portfolio and jumping in where we see opportunity for that value add. Otherwise, we've seen deals in the Bay Area close at a 3-1, 3-2 gap, and that's not where we're going to compete.

Just to tack on a level there.

We see every deal that's this market and in every deal thats not marketed and and so it's always a relative game and so we're underwriting consistently up and down the portfolio.

And jumping on where where we see opportunity for that value add.

Otherwise we've seen we've seen deals very close.

3132 gap and that's that's not where that's not where we're going to compete.

Speaker 11: So going in economic yields are still meaningfully lower in Northern California than L.A. Orange County, San Diego.

Okay.

Going in economic yields are still meaningfully lower in northern California than than L. A Orange County, San Diego.

Speaker 9: You know, I keep telling Adam, I say, Adam, well, interest rates are going up. So, you know, what's going on with cap rates? And Adam keeps telling me they're pushing down, right? I mean, that's effectively what we've seen. That's effectively right. And so, John , not even going in. So, that 3132 cap that I quoted is economic. So, taking all units to market as of today. So, it doesn't include any future growth, but that's still absorbing the loss of lease. So, yeah.

I keep telling Adam I say animal interest rates are going up so what's going on with cap rates.

Adam keeps telling me they are pushing down right I mean, that's effectively what we've seen.

Secondly, right and John I'm, not even going in so that.

That 3132 gas at.

That I quoted is economics are taking all all units to market as of today.

It doesn't include any future growth, but that's that's still absorbing a loss to lease so yes.

Fair and competitive.

Speaker 12: Okay, thank you.

Okay. Thank you.

Thanks, John .

Speaker 1: Thank you. Our next questions comes online of Handel St. Justh with Mizzouville. Please proceed with your questions. Hey, I

Thank you. Our next question comes from the line of <unk> St. Juste with Mizuho. Please proceed with your questions.

Hey, I guess, it's still morning out there good morning.

Speaker 13: I have a question on your blended record. I guess I'm trying to better understand it.

What is that.

Question on your blended break or I guess I'm trying to better understand the cadence.

Speaker 13: in the back half of the year versus the first half and some of the key drivers or underlying assumptions. You're starting off the year on a strong foot. You seem to be fairly optimistic about an improvement in no capital gains in the back half of the year. But looking at the guide, like there's a massive drop-off to get to your same-to-revenue guide, so maybe you can help me understand or square that a bit more.

In the back half of the year versus the first half and some of the key drivers or underlying assumptions, you're starting out the year on a strong foot you seem to be fairly optimistic about an improvement in the back.

Back half of the year, but.

But looking at the guide.

There's a massive drop off to get to your same store revenue guidance, maybe you can help me understand.

Square that a bit more.

Speaker 3: It's really more of a function of the year-over-year comparable. And so we expect the first half to be much stronger because first half of 2021 was still quite soft. And of course, we started recovering in the second half of 2021. And so from a year-over-year perspective, this year, the second half will be a harder comparable and that's really what's driving the trends.

Sure I'll handle it it's really more of a function of the year over year comparable and so we expect the first half to be much stronger because the first half of 2021. It was still quite soft and of course, we started recovering in the second half of 2021, and so from a year over year perspective this year.

In the second half will be a harder comparable and that's really what's driving the trends.

Speaker 13: No, I understand that. So I guess maybe helping us understand maybe the delta perhaps between some of the regions in the back half of the year. Obviously, there's some tailwinds helping no cow, but perhaps SoCal has more headwinds given how well it's formed. So maybe a bit more color perhaps on, you know, maybe the spread that you're thinking of there. Well, in terms of the spread,

No I understand that so I guess, maybe helping us understand maybe the delta perhaps between.

Some of the regions in the back half year, obviously, there's some tailwind helping no cal, but perhaps the socal has more headwinds given how well it's.

So maybe.

A bit more color, perhaps on maybe the spread that you're you're thinking up there.

Oh in terms of the spread.

Hello.

Yes.

Speaker 3: The ad will be the highest from a year over year on the second half because it has high loss to lease and lower delinquency and a better concession benefit. And Northern California and Southern California are pretty much very comparable. Southern California because it's a challenge by delinquency while Northern California has that concessionary benefit and so they end up more similar. But in terms of spread, we're not talking.

Seattle will be the highest from a year over year on.

Andy.

Second half because it has higher loss to lease and lower delinquency.

And.

So better concession benefit and northern California, and southern California are pretty much very comparable.

Southern California, because it's the challenge by delinquency, well, Northern California has that concessionary benefit and so they end up more similar.

But in terms of spread we're not talking you know.

Speaker 3: We're talking the same 40 basis points versus that, you know, now hundreds of basis points. So they're all pretty down close.

We're talking to save 40 basis points versus that you know now hundreds of basis points. So they are all pretty darn close.

Speaker 14: Gotcha, gotcha. Okay, now that's helpful. And Handel, just one question. Are you asking about market ring grows or same store grows and just trying to understand? Yeah, I guess the first question was more on.

Gotcha Gotcha, Okay. That's helpful.

And he handled just one question are you asking about market rent growth, our same store growth and just trying to.

Yeah, No I guess the first question was more on the blended rate growth within the same store, but the market commentary is helpful.

Speaker 13: blended rate growth within the same store, but the market commentary is helpful.

Okay.

Hum.

Speaker 13: Where are you guys sending out renewals today for February ?

Where are you guys spending I don't know if I missed it but he had mentioned where you're sending out renewals today for February much.

Speaker 3: We didn't just let me take a quick look. So under renewals, we're sending out, in fact, hold on 2022.

We didn't.

Let me take a quick look so on the renewals.

We're sending out.

Hold on.

'twenty two.

Uh huh.

Speaker 3: So we're sending renewals out. 13-ish percent.

Or is that Oh here, so we're sending renewals out portfolio average in the low teens, so around say 13 ish percent.

Speaker 3: and with Seattle the highest, followed by North Cal and then SoCal around 10-ish.

And with Seattle, the highest followed by North Cal and then Socal around 10 ish.

Got it that's helpful.

Speaker 8: Mike, I guess a question for you. I heard your comments earlier about VC investment, and I understand there's a lot of profitable and very viable established companies, tech companies today, but I guess I'm curious how concerned you might be regarding the ongoing Facebook or meta troubles and the number of not yet profitable startups. I guess I'm curious, you know, what – any level of concern you might have at all as to what might happen to your job growth assumptions if these companies have to cut GMA?

Mike I guess a question for you I heard your comments earlier about VC investment and I understand there's a lot of profitable very Bible Fabless companies Tech companies today, but I guess I'm curious how concerned you might be regarding the ongoing Facebook are better troubles.

And the number is not yet profitable startups I guess.

I'm curious you know what at any level of concern you might have at all.

What might happen to your job with the assumption that these companies have to cut G&A.

Speaker 2: Yeah, Handel, it's definitely a concern, but I don't think in terms of the, you know, the STEM, you know, graduates and the workers that are in these fields.

Yes.

It's definitely a concern, but I don't think in terms of the stem graduates in the workers that are in these fields I don't think theres any shortage of positions might be available to them as plenty of plenty of jobs out there.

Speaker 2: I don't think there's any shortage of positions that might be available to them. There's plenty of jobs out there.

I was coming out of college I worked for venture capital company and so it was there for quite some time and it's amazing how different the world is and these companies or venture finance for a much longer period of time now and the rounds are much larger in fact, I think most of the money.

Speaker 2: Kevin out of college, I work for a venture capital company and so I was there for quite some time and it's amazing how different the world is and these companies are venture finance for a much longer period of time now and the rounds are much larger. In fact, I think most of the...

Speaker 2: money that was deployed that I discussed in the script was mega rounds, you know, rounds exceeding a hundred billion dollars. So, you know, we have some concern about it. Obviously those companies are more vulnerable and

The money that was deployed that I discussed in the script was mega rounds rounds exceeding $100 billion. So we have some concern about it obviously those companies or mobile.

Speaker 2: And therefore, I think that's warranted. I've been through that in my career in the late 90s where all these companies went public and without a product and it didn't work out well. So I think the current model of venture capital funding is much better, much more resilient. And a lot of these companies, the best ones, will see it through. And the ones that don't.

And therefore, I think that's warranted I've been through that in my career in the late nineties, where all these companies went public in without a product and it didn't work out well. So I think the current model of venture capital funding is much better and much more resilient.

You know a lot of these companies the best ones will see it through and.

Ones that don't.

Speaker 2: succeed. I think the employees, there's plenty of opportunity out there at some of the other companies. That's what makes the Bay Area such a unique place from a technology.

<unk> I think the employees there is plenty of opportunity out there at some of the other companies that's what makes us.

The Bay area, such a unique place for both from a technology employment standpoint.

Okay.

Speaker 8: That's helpful. And if I could squeeze one more, I don't know if I missed that number too, but did you guys tell us what's embedded in the guide for rental assistance payments for this year?

Okay.

Helpful and if I could I squeeze one more I don't know if I missed that number but did you guys tell us what's embedded in the guide for rental assistance payments cause.

Sure.

Speaker 4: Yeah, Handel, this is Barbara. Like I mentioned earlier, we have applied for 52 million of our cumulative delinquency.

And Dallas as Barb like I mentioned earlier, we have.

Applied for 52 million of our accumulative delinquency.

Speaker 4: $33 million of that is our existing tenants. And we feel good about that number. However, the timing is very uncertain. And what we do is we forecast on a net basis. So we've assumed that delinquency does increase this year because of the uncertainty related to the timing of payments on the

$33 million of that is our existing tenants and we we feel good about that number. However, the timing is very uncertain and what we do is we forecast on a net basis. So we've assumed that delinquency does increase the share because of the uncertainty related to.

The timing of payment on that.

Speaker 4: these applications as well as the California program, which

These applications as well as you know the California program, which.

Speaker 4: The applications have exceeded the amount that's already been allocated to the state. So there's a variety of things that let us to that assumption.

The applications have exceeded the amount that's already been allocated to the states. So there's a variety of things that led us to that assumption.

Speaker 8: Okay, so if I understand it, it should you are, it should be successful in getting, well, I guess I'm trying to attend, how's the, what level of payment are kind of embedded and where the upside, where that line lies? I guess I'm having trouble understanding what exactly is a net number, the absolute number that's included in the guidefish.

Okay. So if I understand it should you.

Should it be successful in getting.

Well I guess I'm trying to say.

What level of payment are kind of embedded and where the upside.

Where that line lives I guess I'm, having trouble understanding what exactly is the net number absolute number that's included in the guide for this year.

Speaker 4: So in our guidance is a 2.4%

So so in our guidance is at two 4%.

Speaker 4: delinquency as a percent of schedule rent. That's what will drive our numbers. And, you know, one thing that, you know, we are seeing is our delinquency has gotten worse, our net delinquency has gotten worse over the last couple of months as more of our tenants are applying for aid as the program has changed recently to allow tenants to apply for three additional months. Therefore, applications are going up. So there's a lot of moving parts on that front, but the,

Delinquency as a percent of scheduled rent, that's what will drive our numbers and.

One thing that we are seeing is our delinquency has gotten worse. If at all are net delinquency has gotten worse over the last couple of months as more of our tenants are applying for aid as the program has changed recently to allow tenant supply for three additional months. Therefore, our applications are going up so there's a lot of moving parts on that.

But.

Speaker 4: The net number is we do expect a liquidity to get slightly worse this year before it gets better.

The net.

Number is we do expect delinquency to get slightly worse this share before it gets better.

Speaker 8: Okay, I think we'll follow up offline, but thank you all, appreciate the time, appreciate your thoughts.

Okay, I think we will follow up offline, but thank you. All appreciate your time appreciate the thought thanks.

Speaker 1: Thank you. Our next questions come from the line of Rich Anderson with SMBC. Please proceed with your questions.

Thank you. Our next question is coming from the line of Rich Anderson with <unk>. Please proceed with your questions.

Good afternoon now.

Speaker 10: now. So is there any...

So is there any.

Speaker 10: logic to the concept that regulatory environment could actually be a good thing in terms of being a magnet for residents. I know some of your peers are running because of regulation, but on the other side of that table is perhaps a resident, I don't know, I'd like to know that I have tenant-friendly regulation behind me if I'm living in California. Is there any relevance to that line of thinking in your mind?

Logic to the to the concept that regulatory environment could actually be a good thing in terms of being a magnet for residents I know some of your peers are running because of regulation, but on the other side of that table is perhaps a resident I don't know I would like to know that.

Have tenant friendly regulation behind me if I'm living in California is there is there any relevance to that line of thinking in your mind.

Mike.

Speaker 2: Yeah, Rich, it's a good concept.

Yes rich.

It's a good concept.

Speaker 2: you know people generally don't think their landlord uh... very much we don't hear a great deal of appreciation but having said that i mean i think that uh... you tend to do appreciate it i you know can't believe from my perspective i worry that

People generally don't think theyre landlord very much we don't have here.

Great deal of appreciation, but having said that I mean, I think that the tenants do appreciate it.

Candidly from my perspective, I worried that.

Speaker 2: it's taken advantage of the system as opposed to uh... we're all for you know a safety net we're all for helping people out but uh... you know i it can go too far and trying to find that

It's taken advantage of this of the system as opposed to.

We're all for a safety net we're all for helping people out but.

It can go too far in trying to find that that comfortable middle ground I think is what they're trying to do and.

Speaker 2: that comfortable middle ground, I think is what they're trying to do. And I'm very glad I'm not managing that program, by the way.

I am very glad I'm not managing that program by the way. So I think it's I think it's a good point I think people do appreciate that.

Speaker 2: So I think it's a good point. I think people do appreciate that.

Speaker 2: that part of California. And, but you know, they're gonna do what's best for them, which ultimately will come down to their job and their quality of life and those factors that we spend most of our time thinking.

That part of California.

Right.

Theyre going to do what's best for them, which ultimately will come down to their job and their quality of life in those factors that we spend most of our time thinking about right I mean, Costa Hawkins reversal of defeated CPI, plus 5% state wide rent cap I mean these.

Speaker 10: i mean cost of walking reversal defeated you know cp i plus five percent state white rent cap i mean these these

More terrible events.

<unk> cycle, no family, California, but.

Speaker 10: Anyway, second question is, you mentioned cap rates are still going down with, you know, I guess what we would call the threat of rising interest rates still 10 years at historical lows, but I look back.

Okay.

Second question is you mentioned that cap rates are still going down with I guess, what we would call the threat of rising rate rising interest rates still tenures at historical lows, but I look back.

Speaker 10: you know, 2018, 10 year was over 3%. And I looked at what you said in your call at the time, you said, you know, cap rates are running around 4 and a quarter percent.

2018 tenure was over 3%.

Looked at what you said in your call at the time, you said cap rates are running around 4.25%.

Speaker 10: So are you kind of quietly hoping for, you know, perhaps an increase in interest rates to something more like that and also inflation because of the pass through qualities of multi-family and that you could really start to see some opportunities come? I know it's 3-1 now on the cap rate, but maybe that changes if we get some real change to the interest rate environment and that's perhaps opens up up.

Are you kind of quietly hoping for perhaps an increase in interest rates to something more like that and and also inflation because of the pass through qualities of multifamily and that you can really start to see some opportunities come I know its three one now on the cap rate, but maybe that changes if we get some real change.

Due to the interest rate environment, and Thats, perhaps opens up opportunities for you and your more more substantial costs or capital raising opportunities versus your peers.

Speaker 10: and you're more substantial costs or capital raising opportunity.

Speaker 2: Yeah, no, it's a great question, great observation. And I think that the company's position sort of for the worst case scenario, whatever it might be in terms of the balance sheet and the overall structure, a world in which incomes are inflating and rencer inflating is a good world for us, I think. I mean, I think that there will be opportunity, and even though our...

Yeah, no. It's a great question a great observation.

I think that the company is positioned sort of for the worst case scenario whatever that might be in terms of the balance sheet and the overall structure.

World in which.

Incomes are inflating.

And rents are inflating as a good world for US I think I mean, I think that there will be opportunity and even even though our probably our <unk>.

Speaker 2: probably our interest cost would go up in that scenario. The vast majority of our debt is pretty well locked down in terms of maturities and rate. So that would be a good world for us. And I think there's a reasonable chance that's the rubour on.

Interest costs would go up in that scenario.

The vast majority of our debt is pretty well locked down in terms of maturities and rate so that would be a good world for us and I think there's a reasonable chance thats the road were on.

Speaker 10: So, is a four-handle type cap rate, is there anything systemic about your world right now that that can't happen even if, you know, a scenario of 3% plus 10-year were to happen? I would assume that...

So it's.

A four handle tight cap rate is there anything systemic about your world right now that that can't happen even if it's.

Scenario, 3% plus tenure were to happen.

So I would assume that that's a very realistic.

Yes, I mean.

Speaker 2: The comment I would make is that cap rates tend to be pretty sticky over time, so they don't just change overnight just because interest rates move up or down. I would say back in the 2018 period you were referring to, we were maybe a little frustrated that cap rates weren't moving down somewhat given how much the tenure had rallied.

The one comment I would make is that cap rates tend to be pretty sticky over time. So they don't just change overnight, just because interest rates move up or down.

I'd say back in the 2018 period, you're referring to yes, we were maybe a little.

Frustrated that cap rates weren't moving down somewhat given how much the tenure had rallied but.

Speaker 2: until the COVID period, they remained pretty sticky, even though you had pretty significant reductions in interest rates over that period of time. I think that probably you're not gonna see

Until the Covid period, they were they remained pretty sticky, even though you had pretty significant reductions in interest rates over that period of time, I think that probably you're not going to see.

Speaker 2: Cap rates adjust upward quickly. There's too much money looking for a yield and a yield investment and you know, 3% versus some of the options is still 3% and is still in the scheme of things, you know, interesting to some investors. So I wouldn't expect.

Cap rates adjust upward quickly.

There's too much money looking for a yield.

And a yield investment and 3% versus some of the options is still 3% and is still.

In the scheme of things.

Kristin to some investors so I wouldn't expect that to change it really is all about the flow of money and that.

Speaker 2: that to change it really is all about the flow of money and the, you know, the number of investors that need yield and what the other yield alternatives are. Right.

The number of investors that need yield.

And what the other yield alternatives are right. Okay, great. Thanks very much.

Thank you.

Speaker 1: Thank you. Our next questions come from the line of Chondani Lutra. Please proceed with your questions.

Thank you. Our next question will come from the line of John Dineen, who throw. Please proceed with your questions.

Speaker 15: Hi, good afternoon, everyone. Thank you for taking my question. Could you talk about

Hi, Good afternoon, everyone. Thank you for taking my question.

Talk about that.

Speaker 15: drivers behind sequential scene store revenue declines in some of your market in fourth quarter. I'm talking about market like San Diego, 3%, you know, San Fran down about two, similarly, contract cost. I mean, how much of this was perhaps a disappointment?

Drivers behind Sequencers clean stone revenue declines in some of your markets in the fourth quarter I'm talking about the market like San Diego, 10%.

Samsung.

About two similarly contract also I mean, how much of this was perhaps a disappointment.

Speaker 15: on return to office as we were just crossing that labor day mark versus say some seasonal factors that had a road.

We're going to walk you can see but you know just crossing that labor day, Mark what do you see some seasonal factors that had a really good. Thank you.

Speaker 3: They're happy to see Angela here. The sequential revenue decline really was not a concern for us this time because it's really attributed to the timing of the lumpy delinquency recovery.

Sure happy to it's Angela here.

The sequential revenue.

Decline really was not a concern for us this time, because it's really attributed to the timing of the lumpy delinquency recovery and so what I'd be might mean by that is in the third quarter. We had very favorable delinquency recovery. So if you take San Diego for example, if I back out the <unk>.

Speaker 3: And so what I mean by that is in the third quarter, we have very favorable delinquency recovery. So if you take the ND-AGO, for example, if I back out the delinquency, the sequential revenue growth would have been 1.6%.

Quincy to sequential revenue growth.

With would've been one 6% and so similar relationship plays out for both Contra Costa in San Francisco as well.

Speaker 3: And so similar relationship plays out for both Contra Costa and San Francisco as well.

Speaker 15: They help make friends. And my follow up question is around your collection's operating model. So you talked about rollouts at the end of 2022.

Okay helpful. It makes sense and my follow up question is around your connections operating model. So.

Talked about the rollout by the end of 2022.

Speaker 15: And, you know, you also said that you've implemented this in Orange County and San Diego. So taking that sort of as an example, and let's say, you know, thinking about a 10 to 15 percent reduction in personnel through natural attrition across the portfolio, is there a way to contextualize that in some cost savings, either in terms of, you know, dollars or in terms of margins? That would be very helpful.

And you know you you also said that you wouldn't have mentioned this in Orange County, and San Diego for taking that sort of as an example.

Let's see you know thinking about the 10% to 15% a reduction in personnel.

So that took some across the portfolio, it's been a way to contextualize that in some cost.

Cost savings.

In terms of dollars on in terms of margin, but to be very helpful.

Speaker 3: Yeah, I think, you know, the one example that we provided with the rollout and some of our other enhancements has already realized a saving of about 150 basis points of margin improvement. And that represents about 15 million to the bottom line to NLI. And so my point in providing, you know, that that jump.

Yeah, I think the one example that we provided with the rollout and some of our other enhancements has already realized a saving of about 150 basis points in margin.

Improvement and that represents about $15 million to the bottom line to NOI.

And so my point and providing you know that that can.

Speaker 3: that context is that from a, if you look at the rollout, we're only a third way through and that was, you know, that represents a rollout of really just two major, two of our major regions and so which is why, you know, I provided indication of an additional two or three hundred basis points expectation of margin improvement just from the cost savings.

That context is that from a.

If you look at the rollout where only a third way through and that was not represent a rollout of really just two major two of our major regions.

And so which is why I provided indication of an additional two to 300 basis points expectation of margin.

Improvement just from the cost savings and of course with our revenue there's more to come on that but that's several years down the road.

Speaker 3: And of course with revenue, there's more to come in that, but that's several years down the road.

Very helpful. Thank you so much.

Speaker 1: Thank you. Our next questions come from the line of Joshua Denner line with Bank of America. Please proceed with your question.

Thank you. Our next question is coming from the line of Joshua <unk> with Bank of America. Please proceed with your questions.

Speaker 16: Yeah, hey everyone. Just maybe wanted to explore your comments around me pushing farther out with the suburbs. I guess how do you think about kind of identifying these new targets kind of further out from the urban core and maybe does this also imply you'll have more capital recycling for those?

Yeah, Hey, everyone.

Just maybe wanted to explore your.

Comments around maybe pushing farther out in the suburbs I guess, how do you think about kind of identifying these new targets.

Further out in the urban core.

And maybe does this also imply you'll have more capital recycling so those assets closer in.

Speaker 9: I'm going to start off. As Mike noted previously, we've been somewhat rotating outside of the urban centers now here for a few years since before the pandemic. And so we use a research team to assess, we look at all the top line metrics to see what effect we've been targeted on 2020 so far now we've been able to update our current ?emu 2020 mission. We have Dustbasa coming up here this afternoon if this plan hasn't arrived yet since organizing the flu phase, we might not have to Chrome it or call that next day so we can come back to let those patients out. First, if I'm going to be able to launch our new trip, clamp and strange motion

Hi, Joshua this is Adam.

Start off.

Mike noted previously.

Ben.

Rotating outside of the urban centers now here for a few years since before the pandemic.

So we use our research team.

To SaaS.

Look at all of the top line metrics to see what.

Speaker 9: What areas within our core footprint makes sense? And that's how to say Sacramento residents that they almost done pre-pandemic and even at that point, the between job growth and incomes and affordability, lack of affordability for single-family homes, it made sense on all of our metrics, which that's what drives our investment decisions. We have a research team that reviews all of those metrics amongst a number of both our core markets as well as more secondary markets.

What areas within kind of our core footprint makes sense.

That's how I say Sacramento for instance.

Almost done prevent downtick and.

And even at that point.

Between between job growth and incomes and affordability.

Lack of affordability for single family homes.

They made sense on all of our all of our metrics, which that's that's what drives our investment decisions. So we have a research team that reviews all of those all of those metrics amongst a number of both are our more core markets as well as more secondary markets.

Speaker 17: Yes.

Got it.

Okay.

Yeah.

Speaker 1: Thank you. There are no further questions at this time. I would like to turn the call back over to Michael Schaul for any closing.

Thank you there are no further questions at this time I would like to turn the call back over to Michael Schall for any closing comments.

Speaker 2: Thank you. Thank you everyone for joining us today. I appreciate your participation on the call and we hope to see many of you in the not distant future at the city conference. Thank you.

Thank you. Thank you everyone for joining us today I appreciate your participation on the call and we hope to see many of you in the not distant future at Citi.

The City conference. Thank you okay.

Yeah.

Speaker 1: This does prove to the teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.