Q4 2023 Essex Property Trust Inc Earnings Call

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Good day and welcome to the Ethics property Trust fourth quarter 2023 earnings Conference call.

As a reminder, today's conference call is being recorded.

<unk> made on this conference call regarding expecting 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 important as well as information available to the company at this time, a number of factors could cause actual results to differ materially.

Unknown Executive: For more information, visit www.fema.gov. For other information, please call 1-800-637-8170. It is now my pleasure to introduce you to the Essex fourth quarter earnings call. Barb Pak will follow with preparation remarks. Rylan Burns and Jessica Anderson are here for Q&A. I will start with the key highlights of our 2023 performance, then discuss our expectations for 2024, followed by comments on the transaction market and our investment strategy. Overall, 2023 was a solid year for Essex. We achieved 4.4% same property revenue growth for the full year, which is in line with our revised guidance and 40 basis points higher than the original midpoint. Furthermore, we made substantial progress in reducing delinquency as a percentage of rent from over 2% in the first quarter down to 1.4% by year end. These results are the result of the well-coordinated efforts of our hard-working operations and support teams across the company. Great job, team, and thank you.

I really from those anticipated further information about these risks can be found on the company's filings with the FTC.

Now my pleasure to introduce your host Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you. Mr. Climate you may begin.

Angela L. Kleiman: Good morning, and thank you for joining our six fourth quarter earnings call Barb Pak will follow with prepared remarks, Rylan Burns and Jessica Anderson are here for Q&A.

Barb Pak: I will start with the key highlights of our 2023 performance and then discuss our expectations for 'twenty 'twenty four followed by comments on the transaction market and our investment strategy.

Barb Pak: Well 2023 was a solid year for Essex, we achieved a four 4% same property revenue growth for the full year, which is in line with our revised guidance and 40 basis points higher than that which you know mid point.

Barb Pak: Furthermore, we made substantial progress in reducing delinquency as a percentage of rent from over 2% in the first quarter down to one 4% by year end.

Speaker Change: These are the results of the well coordinated efforts of our hardworking operation to support teams across the company great job team and thank you Lasse.

Unknown Executive: Lastly, we continue to drive results to the bottom line, delivering a 3.6% year-over-year increase in core FFO per share, exceeding the high end of our original guidance range by 6 cents. Turning to the fourth quarter, we deployed an occupancy-focused strategy as market rents moderated generally consistent with typical seasonal patterns. In addition, we recovered a significant number of delinquent units starting in October.

Speaker Change: Lastly, we continue to drive results for the bottom line delivering a three 6% year over year increase in core <unk> per share exceeding the high end of our original guidance range by 6%.

Speaker Change: Turning to the fourth quarter, we deployed an occupancy focused strategy that's marketed brands moderated generally consistent with typical seasonal pattern.

Speaker Change: In addition, we recovered a significant number of delinquent units starting in October.

Unknown Executive: As expected, the subsequent backfilling of non-paying units during a seasonally slow period created a temporary headwind to net effective new lease rates, which averaged negative 1.7% for the quarter. However, on the renewal front, the positive trend continues with strong retention among our residents, generating an increase in renewal rates of 4.9% for the quarter, resulting in a blended rate of positive 2.6%. As we start 2024, leasing activities in our markets are steady. In January, new lease net effect rates improved by 150 basis points, and concession usage decreased by half since the fourth quarter, and our financial occupancy sits in a solid position of 96.2%. Moving on to our outlook for the West Coast in 2024, as outlined in our earnings package, we expect the US economy and job growth to normalize in 2024 consistent with economists' outlook of a soft landing.

Speaker Change: As expected the subsequent back filling up non paying units during a seasonally slow period created a temporary headwind to net effective new lease rates, which averaged negative one 7% for the quarter.

Speaker Change: On the renewal front the positive trend continues with strong retention among our residents generating an increase in renewal rates of four 9% for the quarter, resulting in blender rates a positive two 6%.

Speaker Change: As we start 2020 for leasing activities in our markets a stake in January new lease net effective rates improved by 150 basis points and concession usage decreased by half since the fourth quarter and our financial Occupancies, such a nice solid position of 96, 2%.

Speaker Change: Moving on to our outlook for the West coast in 'twenty 'twenty four as outlined in our earnings package, we expect the U S economy and job growth to normalize in 'twenty 'twenty, four consistent with economists outlook or a soft landing.

Unknown Executive: We forecast job growth on the West Coast to perform in line with the national average and the Essex markets to produce market rent growth of 1.25% on average. The consensus macroeconomic U.S. assumptions and the quality of jobs are key considerations to our modest outlook. In 2023, employment growth will be largely concentrated in the service sectors, which do not yield meaningful rent growth.

Speaker Change: We forecast job growth on the West coast to performing in line with the National average and the Essex markets to produce market in Frankfurt, a 1.25% on average.

Speaker Change: The consensus macroeconomic assumptions and the quality of jobs are key considerations to our modest outlook in 2023.

Speaker Change: Demand growth was largely concentrated in the service sectors, which did not yield meaningful rent growth. We expect this dynamic to continue and we currently assume hiring of highly skilled workers to remain muted as companies continue to evaluate their labor needs and priorities.

Unknown Executive: We expect this dynamic to continue, and we currently assume hiring highly skilled workers will remain muted as companies continue to evaluate their labor needs and priorities. While our base case scenario for 2024 reflects tempered growth, there are several factors that could support a more positive outcome. First, inflation could continue to move in the right direction, increasing the likelihood that the Fed will pivot from tightening to easing. Accordingly, the economy could gain momentum, and the hiring of highly skilled workers could re-accelerate as the cost of capital becomes more attractive. Second, the large technology companies implemented significant business and labor retrenchments at the end of 2022 and the early part of last year.

Speaker Change: Well our base case scenario for 'twenty 'twenty four reflect temporary growth. There are several factors that could support a more positive outcome first inflation could continue to move in the right direction, increasing the likelihood that the fed will pivot from tightening to easing accordingly, the economy gained momentum in our hiring.

Speaker Change: Highly skilled workers reaccelerate its cost of capital becomes more attractive.

Speaker Change: Second the large technology companies implement a significant business in Libra retrenchment at the end of 2022 through the early part of last year. Therefore, these companies are better equipped today to lead advancements and stimulate growth to this point recent layoff announcements have been much smaller in scale with <unk>.

Unknown Executive: Therefore, these companies are better equipped today to lead advancements and stimulate growth. To this point, recent layoff announcements have been much smaller in scale, with companies citing larger strategic plans to redirect talent and investments toward artificial intelligence projects, which we view as a long-term benefit for the West Coast. With low levels of housing supply in our markets, a modest increase in demand could accelerate rent growth. Despite uncertainties in the overall economy, we are confident in our market's ability to navigate near-term volatility and outperform in the long term. Our conviction is based on two fundamental factors, low housing supply and favorable affordability. Over the next two years, we expect less than 1% of total supply growth per annum, which enables us to generate positive rent growth in most environments. Also, renting in the Essex market is considerably more affordable than owning a home.

Speaker Change: Companies, citing larger strategic plans to reach the right talent and investments toward artificial intelligence projects, which we do as a long term benefit for the west coast.

Speaker Change: With low levels of housing supply in our markets a modest increase in demand could accelerate rent growth.

Speaker Change: Despite uncertainties in the overall economy, we are confident in our markets ability to navigate near term volatility and to outperform in the long term.

Speaker Change: Our conviction is based on two fundamental factors low housing supply and favorable affordability over the next two years, we expect less than 1% of total supply growth per annum, which enables us to generate positive rent growth in most environments also branching in the Essex markets, it's considerably more affordable than owning a home.

Unknown Executive: And favorable rent-to-income ratios support a long runway for rent growth, especially in our northern regions. As such, we expect the economic incentive to rent to persist and drive demand for multifamily housing. Lastly, on the investment market and our strategy. 2023 was a year of historically low transaction volume, primarily due to significant volatility in the capital markets. Although we've seen interest rates decline throughout the fourth quarter, yield spreads between buyers and sellers remain wide, ranging from approximately 25 to 50 basis points in our markets. Thus, we are not anticipating a significant increase in deal volume in the near term. Lenders have generally been accommodating to sponsors, extending debt maturities when feasible, and there are very few for sellers in our markets currently. Given the dearth of data points, there is less certainty in the transaction market.

Speaker Change: And favorable rent to income ratios support a long runway for rent growth, especially in our northern regions.

Speaker Change: As such we expect the economic incentive to rent to persist and drive demand for multifamily housing.

Speaker Change: Lastly, and then investment market and our strategy 2023 was a year of historically low transaction volume, primarily due to significant volatility in the capital markets.

Speaker Change: We've seen interest rates declined throughout the fourth quarter yield spread between buyers and sellers remain wide ranging from approximately 25 to 50 basis points in our markets and thus we are not anticipating a significant increase in deal volume in the near term.

Speaker Change: Lenders have generally been accommodating to sponsors extending debt maturities when feasible and there are very few for sellers in our markets currently given the dearth of data points. There is less certainty in the transaction market.

Unknown Executive: It is during periods of uncertainty that Essex has historically created significant value for our shareholders through external growth. As such, our investment team is proactively looking for acquisition opportunities to generate the best risk-adjusted returns. We expect Essex's disciplined approach to capital allocation, strong balance sheet, and deep market expertise will be key differentiators in creating long-term value. With that, I'll turn the call over to Barbara. Thanks, Angela.

Speaker Change: It is during periods of uncertainty that Essex has historically created significant value for our shareholders through external growth as such our investment team is proactively looking for acquisition opportunities to generate the best risk adjusted returns.

Speaker Change: We expect ethics disciplined approach to capital allocation strong balance sheet and deep market expertise will be key to differentiate us in creating long term value.

Speaker Change: With that I'll turn the call over to Barbara.

Barbara: Thanks, Angela today, I will discuss the key assumptions to our 2020 for guidance and provide an update on the balance sheet.

Barbara M. Pak: Today I will discuss the key assumptions for our 2024 guidance and provide an update on the balance sheet, beginning with our outlook for 2024. A key factor to our revenue forecast is our market rent growth assumption. As Angela mentioned, the economic backdrop is expected to be muted this year, which is leading to below average rent growth for our markets. As a result, same property revenue growth is tempered at 1.7% at the midpoint on a cash basis.

Barbara: Beginning with our outlook for 2024.

Barbara: Key factor to our revenue forecast is our market rent growth assumption as Angela mentioned, the economic backdrop is expected to be muted this year, which is leading to a below average rent growth for our markets.

Barbara: As a result same property revenue growth is tempered at 1.7% at the midpoint on a cash basis.

Barbara M. Pak: The key drivers of our revenue growth are outlined on page S17.1 of the Supplement. Our guidance assumes delinquency of 1.5% of scheduled rents for the full year, which represents a 40 basis points improvement to year-over-year revenue growth. We expect delinquency will gradually improve as we move through the year. In terms of regional performance, we expect Southern California will produce our highest revenue growth at 3%, led by Orange County and San

Barbara: The key drivers of our revenue growth are outlined on page 17 that one of the supplemental.

Barbara: Our guidance assumes delinquency of 1.5% of scheduled rents for the full year, which represents a 40 basis point improvement year over year revenue growth, we expect delinquency will gradually improve as we move through the year.

Barbara: In terms of regional performance, we expect southern California will produce our highest revenue growth at 3% led by Orange County, and San Diego.

Barbara M. Pak: Northern California will be around 1%, and Seattle will be our weakest performing region, which is forecasted to be flat on a year-over-year basis. Moving to operating expenses, we are projecting 4.25% growth for the full year, which is largely driven by higher insurance costs.

Barbara: Northern California will be around 1% and Seattle will be our weakest performing region, which is forecasted to be flat on a year over year basis.

Barbara: Moving to operating expenses, we are projecting four point to 5% growth for the full year, which was largely driven by higher insurance costs, although insurance cause accounts for a small portion of our total operating expenses, we are forecasting a 30% increase in our premiums which adds one for Chris.

Barbara M. Pak: Although insurance costs account for a small portion of our total operating expenses, we are forecasting a 30% increase in our premiums, which adds 1.4% to our total same property expense growth. The company remains focused on managing controllable expenses, which we are forecasting to increase 3% in 2024, primarily driven by higher wages. In total, we expect same property NOI growth of 60 basis points and core FFO per share growth to be flat at the midpoint compared to 2023. Core FFO growth would be over 1% higher if not for the impact from two items related to our preferred equity platform. First, in December, we received $40 million in redemption proceeds, and we are forecasting an additional $100 million in redemption proceeds this year.

Barbara: Two our total same property expense growth.

Barbara: The company remains focused on managing controllable expenses, which we are forecasting to increase 3% in 2024, primarily driven by higher wages.

Barbara: In total we expect same property NOI growth of 60 basis points and core ethical per share growth to be flat at the midpoint compared to 2023.

Barbara: Core <unk> growth would be over 1% higher if not for the impact from two items related to our preferred equity platform.

In December we received $40 million in redemption proceeds and we are forecasting an additional 100 million in redemption proceeds this year.

Barbara: We anticipate redeploying the funds into new acquisitions, which tempers, our near term episode growth, but it's in the best long term capital allocation decision for ethics.

Barbara M. Pak: We anticipate redeploying the funds into new acquisitions, which tempers our near-term FFO growth but is the best long-term capital allocation decision for Essex. Additionally, while our sponsors remain current on all financial obligations with the senior lenders, we changed the accrual status on two investments in the fourth quarter based on current market conditions. Further, we've taken a prudent approach as to how we projected income for the remainder of the portfolio as part of our 2024 guidance. We will continue to evaluate the accrual status on each of our preferred equity investments every quarter as appropriate. Turning to the balance sheet, Essex is in a strong financial position with minimal financing needs over the next 12 months and ample sources of capital.

Barbara: Second while our sponsors remain current on all financial obligations with our senior lenders, we changed the accrual status on two investments in the fourth quarter based on current market conditions.

Barbara: Whether we've taken a prudent approach as to how we projected income for the remainder of the portfolio as part of our 2024 guidance. We will continue to reevaluate their cool status on each of our preferred equity investment every quarter as appropriate.

Barbara: Turning to the balance sheet I think is in a strong cash position with minimal financing needs over the next 12 months and ample sources of capital our leverage levels are solid with net debt to EBITDA at five four times and we have over $1 6 billion of liquidity available to us, we manage our balance sheet and capital needs cause.

Speaker Change: Service is really to be well positioned to create value throughout the cycle and we remain optimistic we will see opportunities to invest this year with that I will now turn the call back to the operator for questions.

Barbara M. Pak: Our leverage levels are solid, with net debt to EBITDA at 5.4 times, and we have over $1.6 billion of liquidity available to us. We manage our balance sheet and capital needs conservatively to be well positioned to create value throughout the cycle, and we remain optimistic that we will see opportunities to invest this year. With that, I will now turn the call back to the operator for questions. Thank you. We will now be conducting a survey. Do you like that? Okay. Star 2 if you'd like to, The Bulletproof Executive 2013, Hi Austin, it's Barb.

Speaker Change: Thank you well now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: You don't want to get your line is in the question queue.

Speaker Change: Press Star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Interest of time, we ask them.

Speaker Change: Participants limit themselves to one question and one follow up.

Speaker Change: One moment, please while we poll for questions.

Speaker Change: Our first question is from Austin <unk> with Keybanc capital markets. Please proceed with your question.

Austin: Great. Thanks, just digging into guidance here.

Austin: Can you share what your assumptions are for new and renewal lease rate growth relative to the one and a quarter of market rent growth.

Austin: And kind of how you're thinking about the cadence of that through the year.

Austin: Yeah.

Austin: Hi, Austin, it's barb yeah. So we're assuming one in a quarter for new lease growth and renewals, we expect to be slightly above that at 1.75%. We do expect renewal growth will be in the first half of the year V above 2% in the low 2% range and then.

Barbara M. Pak: Yeah, so we're assuming one and a quarter for new lease growth, and renewals, we expect to be slightly above that at 1.75%. We do expect renewal growth will be above 2% in the low 2% range for the first half of the year and then drift down to our market rent growth assumption of one and a quarter in the back half of the year. Yeah, so I think if you look at January, you'll see we printed 4.8% on new leases or renewals, but 50% of that is a burn off of concessions, and so it's not really new market rent growth. And I would say our philosophy on renewals is not to push them above market; we do like to, we want to price them appropriately. And last year, in 2023, we didn't have a significant loss on lease.

Austin: Drift down to our market rent growth assumption of one in a quarter in the back half of the year.

Speaker Change: I guess, just following up on that what's driving that really tight spread or concessions or anything that's impacting it.

Speaker Change: I guess the spread between new and renewal lease rates are assumed in your guidance.

Speaker Change: Yeah. So I think if you look at January you'll see we printed four 8% on new leases, our renewals, but 50% of that is a burn off of concessions and so it's not really market rent new market rent growth and I would say our philosophy on renewals is not to push them above market, we do like to.

Speaker Change: We want to price them appropriately and last year in 2023, we didn't have a significant loss to lease and so we don't have.

Barbara M. Pak: And so we don't have a big spread differential between our new and renewal customers from last year that would carry forward into this year. So we think it's priced appropriately. Yeah, so the concession piece on the occupancy and concessions, we expect concessions to be a 10 cent or 10 basis point headwind to our forecast this year for occupancy to be 20 basis points. So we're forecasting 96.2 for occupancy. So we don't expect concessions to have a material impact on the forecast this year on a year over year basis. Yeah, thanks. I guess it's a good morning out there.

Speaker Change: A big spread differential between our new and renewals from last year that would carry forward into this year. So we think it's priced appropriately.

Speaker Change: And then if I can just sneak in one more I recognize you guys report financial occupancy, but could you break out the impact of some guidance around the occupancy change and impact from concessions and maybe what market rent growth would look like on a net effective basis. If you included the concession impact there. Thank you yeah. So the.

Speaker Change: Concession piece on the on the occupancy and concessions, we expect concessions to be a 10 cent or a 10 basis point headwind to our forecast the share occupancy to be 20 basis points. So we're forecasting 96 two for occupancy. So we don't expect concessions to have a material impact to the forecast this year on a year over year basis.

Speaker Change: Thank you. Our next question is from Steve Sawka with Evercore ISI. Please proceed with your question.

Steve Sakwa: Yeah. Thanks, I guess good morning out there I noticed on the delinquency slide I guess, it's a F 16, there was a big jump up in the delinquencies between the fourth quarter in January and I know you talked about that overall trend getting better for the full year I think to the tune of 40 basis points, but just what color can you provide it.

Barbara M. Pak: I noticed on the delinquency slide, I guess it's, you know, S-16, there was a big jump in delinquencies between the fourth quarter and January. And I know you talked about that overall trend getting better for the full year, I think, to the tune of 40 basis points. But just what color can you provide for January that showed that big pop? Hi, Steve. It's Barb.

Steve Sakwa: January that showed that big pop.

Steve Sakwa: Hi, Steve It's Barb yeah, Yeah. This category, we've seen for several years now its the post holiday Ah I think people are paying off their credit cards or whatnot. So it's not something that we're overly concerned about we're monitoring it closely but we have seen this.

Barbara M. Pak: Yeah, you know, this January top we've seen for several years now. It's the post holiday. I think people are paying off their credit cards and whatnot, so it's not something that we're overly concerned about. We're monitoring it closely. But we have seen this last year; if you go back and look at our supplemental, we saw 190 basis points increase from Q4 to January. This year, we're up 80.

Steve Sakwa: Last year, if you go back and you look at our supplemental we saw 190 basis points increase from Q4 to this to January this year up 80. So it is a lot lower than we were a year ago, but we're monitoring it.

Barbara M. Pak: So we are a lot lower than we were a year ago. But we're monitoring it. Okay, and then just maybe on the DC or your, I guess your prep book, I mean, just as you've kind of gone through and scrubbed, sort of, some of the things you talked about a couple of the underwriting changes, like, just what risk do you sort of see out there on the kind of roughly 500 million you've got outstanding, and, You know, I guess, how are you sort of handicapping that in terms of any future write Yes, Steve, this is Barb.

Speaker Change: Okay, and then just I guess, maybe on the on the D C or your your I guess your prep book I mean, just as you've kind of gone through and scrubbed sort of you know some of the things you talked about a couple of the underwriting changes like just what risk do you sort of.

See out there on the kind of roughly 500 million you've got outstanding.

Speaker Change: You know I guess.

Speaker Change: How are you sort of handicapping that are in terms of any future write offs.

Speaker Change: Yeah. So yeah. This is barb I you know we take a prudent approach when we look at this and there's a variety of factors that we look at when we're looking at our prefer but where are we where is our last dollar sit relative to the market today you know what.

Barbara M. Pak: I, you know, we take a prudent approach when we look at this. And there's a variety of factors that we look at when we're looking at our preferred book, where are we, where's our last dollar sitting relative to the market today? You know, what's the maturity of our investments and how much time do we have for the market to recover? And really, what are our sponsors doing?

Speaker Change: What our or what's the maturity of our investments and how much time do we have for the market to recover and really what is our sponsors doing are they continuing to put equity in can they continue to fund.

Barbara M. Pak: Are they continuing to put equity in? Can they continue to fund? So those are the factors that we're looking at. I think we have fully handicapped the issues that we see today based on current market conditions within our guidance. It's a few assets we're monitoring. But for the most part, the book is performing as we expected. Great, thanks. That's it for me. Hey, this is Daniel Tricarico, along with Nick.

Speaker Change: So those are the factors that we're looking at I think we have fully handicapped the issues that we see today based on current market conditions within our guidance a few assets, we're monitoring but for the most part the book is performing as we expected.

Speaker Change: Great. Thanks, that's it for me.

Speaker Change: Our next question is from Nick.

Nick: With Scotiabank. Please proceed with your question.

Nick: Oh, Hey, its standards or tariff don't want Nick Barb with respect to the improvement in new lease rate growth in January which markets were the largest drivers of that change and I know you mentioned, the 50 basis point improvement from a concession burn off but is the general market improvement largely in line with typical seasonality.

Barbara M. Pak: Barb, with respect to the improvement in new lease rate growth in January, which markets were the largest drivers of that change? And I know you mentioned the 50 basis point improvement from concession burnoff, but is the general market improvement largely in line with typical seasonality? This is Jessica.

Nick: This is Jessica I'll take that with regards to the largest driver of the sequential improvement from Q4 to January It was 150 basis points. We saw the greatest improvement in Northern California, and the Bay area and a large part of that was.

Jessica Anderson: I'll take that. With regard to the largest driver of the sequential improvement from Q4 to January with 150 basis points, we saw the greatest improvement in Northern California and the Bay Area, and a large part of that was concession burn-off. For the total portfolio, if you break down the 150 basis point improvement, 100 basis points of it is the improvement in concessions.

Richard Anderson: <unk> concession burn off for the total portfolio. If you break down the 150 basis point improvement 100 basis points of it is the improvement in concessions. So we were averaging one week and Q4 and that's a half a week for January and then the other part of it 50 basis points is attributed to rent growth which is.

Jessica Anderson: So we were averaging one week in Q4, and that's a half a week for January. And then the other part of it, 50 basis points, is attributed to rent growth, which is typical of what we would expect this time of year historically. Great, thank you. Angela, follow up.

Richard Anderson: With what we would expect this time of year historically.

Speaker Change: Great. Thank you Angela just a follow up how are you thinking about recycling capital from your future press equity redemptions into acquisitions or another other used you you talked about optimism are I believe in your opening remarks or on a growing opportunity set or are you seeing anything specific in the market today and I guess, along the same lines.

Unknown Executive: How are you thinking about, you know, recycling capital from your future PREP equity redemptions into acquisitions or another other use? You talked about optimism, I believe, in your opening remarks around a growing opportunity set. Are you seeing anything, you know, specific in the market today? And, I guess, along the same lines, how are your JV partners thinking about deploying new capital into acquisitions today? Yeah, that's a good question.

Speaker Change: How are your JV partners thinking about deploying your capital in acquisitions today.

Speaker Change: Yeah. That's a good question as far as how we're reviewing investments and yeah. Let me just.

Unknown Executive: As far as how we're viewing investments, and you know, let me just give you a quick background on our PREF equity book. You know, the investment thesis for this vehicle was that it was intended to complement the development pipeline during a period when yields and interest rates were low and construction costs were accelerating at a significantly higher rate than rent growth. So, you saw us leaning into this business when the tenure fell to a historical low, and in that environment, a 12% yield was relatively more attractive. The general market environment and the interest rate conditions today are very different, and so we believe that there's more upside to rent growth in our markets over the long run. So the relative value is more compelling to focus on fee simple acquisitions.

Speaker Change: A quick background INR profile equity book, you know the investment thesis for this vehicle. It was it was intended to complement development pipeline during a period where in yields on interest rates were low and construction costs, we're accelerating at a significant higher rate than the bankrupt.

Speaker Change: So you saw us leaning into this business when the 10 year fell to a historical low and in that environment, a 12% yield was relatively more attractive.

Speaker Change: The general market.

Speaker Change: Environment and the interest rate conditions today are very different and so we view that there's more upside to rent growth in our markets over the long run so the relative value is more compelling to focus on fee simple acquisitions.

Unknown Executive: So it doesn't mean that we're shrinking the Prefer Equity book intentionally, but rather this book will probably drift lower as we look to acquisitions, you know, as a way to grow the company. And the reason is that if you look at the fundamentals in our market. It all speaks to more upside, relatively speaking, from rent growth. So, especially in our northern region, we have a much lower supply. Affordability metrics is in the best position we've seen since we started tracking this metric historically.

Speaker Change: So it doesn't mean that we're shrinking the preferred equity book, essentially but rather that this book will probably drift a little.

Speaker Change: Lower as we look to our acquisitions.

Speaker Change: A way to grow the company.

Speaker Change: And the reason is because if you look at the fundamentals in our market.

Speaker Change: It all speaks to more upside.

Relatively speaking yeah from brand growth, so, especially in our northern region, we have much lower supply affordability metrics isn't the best position we've seen.

Speaker Change: Since we started tracking this metric historically.

Unknown Executive: And there's, the rent has yet to recover, so it's still in the recovery phase. And lastly, there's demand optionality. I mean, if you look at the composition of the companies in our markets, the seven largest, seven out of 10 largest companies are located in our markets.

Speaker Change: And.

Speaker Change: And there is the the rent has yet to recover so it's still in the recovery phase and lastly, there is a demand optionality I mean, if you look at the composition of the companies in our markets. The seventh largest seven out of 10 largest companies.

Speaker Change: Are located in our markets and these are companies that have tremendous amount of wealth and looking and that have committed to you know infrastructure investment.

Unknown Executive: And these are companies that have a tremendous amount of wealth and are looking for and have committed to, you know, infrastructure and investment deployments. And so, if you look at all the building blocks, they're there, and they're ripe for acceleration once the economy shifts from a soft economy to a growth economy. And on the IRS, Rylan, you want to talk about the IRS? Yeah, at a high level.

Speaker Change: And so if you look at all of the building blocks, it's there and it's ripe for acceleration once the economy shifts from a soft economy joy growth economy.

Roland: And on the IRS Roland do you want to talk about the IRS, but at a high level I mean, we have several joint venture partners. We've been in this business for a long time that remain committed to us and our investment thesis along the west coast. So.

Rylan Burns: I mean, we have several joint venture partners who have been in this business for a long time and remain committed to us and our investment thesis along the West Coast. So there is demand there if we see the right opportunities, and we expect we will see some opportunities in the next year or two. Alright, thanks for the time, guys. Hey, thanks. I think you just mentioned that you saw the largest improvement in Northern California between 4Q in January, and your colleague just mentioned something similar on their call a moment ago, so I was just curious why you think you'll sort of see this muted rent growth environment throughout the year in Northern California if you're already starting to see signs of a recovery during this sort of seasonally weak period. Hey, Eric, it's Angela here.

Roland: There is demand there if we see the right opportunities and we we would expect we will see some opportunities in the next year or two.

Speaker Change: Alright, thanks for the time guys.

Speaker Change: Our next question is from Eric Wolfe with Citi. Please proceed with your question.

Eric Wolfe: Hey, Thanks, I think you just mentioned that you saw the largest improvement in northern California between four to January and nuclear just mentioned something somewhere.

Eric Wolfe: On their call a moment ago. So I was just curious why you think you'll sort of see this muted rent growth environment throughout the year, Northern California, if you're already starting to see signs of a recovery during the seasonally weak period.

Eric Wolfe: Yeah.

Eric Wolfe: Hey, Eric it's a it's Angela here on Northern California.

Angela L. Kleiman: On Northern California, it's really, when we look at our market rent growth, it's a, we do see potential upside. Having said that, that will require the tech companies to hire, you know, to resume their hiring in a more robust way. And so our forecast is really a function of the general market outlook because we cannot disconnect from what's happening with, you know, the rest of the country. And in particular, the North Cal region itself is really dampened by Oakland because of the amount of supply.

Eric Wolfe: Got.

Angela L. Kleiman: It's it's really when we look at our market rent growth.

Angela L. Kleiman: It's a well we do see potential upside having said that that will require the tech companies to hire you know to resume their hiring in a more robust way and so our forecast is really a function of the general market outlook, because we cannot disconnect from what's happening with the rest of the country.

Angela L. Kleiman: And in particularly the North Kao region itself, it's really dampened by Oakland because of the amount of supply and so on that if you look at the the one quarter percent market rent.

Angela L. Kleiman: And so when you look at the one and a quarter percent market rent composition, first of all, it's a narrow range, it's given, you know, the overall economic environment. But our Southern California leads the portfolio, and above that one and a quarter percent, and Seattle's is a close second. But the drag is really Northern California, which is closer to 1%. So below that one and a quarter percent average, and that's because Oakland is well below that 1%. So it's, that's the drag.

Angela L. Kleiman: Composition first of all it's a it's a narrow range just given the overall economic environment, but our southern California leads to portfolio.

Angela L. Kleiman: Above that one in a quarter percent in Seattle is a close second well, but the drag is really in northern California, which is closer to 1%. So below that one a quarter percent average and that's because Oakland is well below that 1%. So it is that's the drag.

Jessica Anderson: Yeah, that's helpful. And then as far as your renewals, when does the concession burn off through the comp get harder? And where are you sending renewals for the next couple of months if you sort of exclude that concession burn off? Eric, this is Jessica.

Speaker Change: Got it that's helpful and then as far as your renewals won the concession burn off of some of the comps get harder and I get where you're sending renewals for the next couple of months, if you sort of exclude that the concession burn off.

Jessica D: Eric This is Jessica D as far as renewal burnt off Barb mentioned earlier right now its roughly 50 50 and it becomes a less so with regards to concession burn off as we progressed through Q1, our concession strategy last year I think we averaged roughly half a week free.

Jessica Anderson: As far as renewal burn-off, Barb mentioned it earlier, right now, it's roughly 50-50, and it becomes less so with regard to concession burn-off as we progress through Q1. Our concession strategy last year, I think we averaged roughly half a week free last year, and there was some lumpiness as we dealt with delinquent units, so we may see that show up periodically. But with regard to forward-looking renewals, we've sent out February and March at roughly 3-3.5%, and it's a little bit less than 50-50; it's probably more like 60-40, and it will continue to progress that way, like I said, unless we have pockets of heavy concession usage from last year.

Last year and there were there were some lumpiness as we dealt with delinquent unit. So we may see that show up periodically, but with regards to forward looking renewals, we've sent out February and March at roughly three 3.5%.

Speaker Change: And it's a little bit less than 50, 50, it's probably more like 60 40, and it will continue to progress that way like I said, it unless we have pockets of heavy concession usage from last year.

Speaker Change: Got it thank you.

Jessica Anderson: Thank you. Our next question is from Alexander. Hey, good afternoon, or actually, good morning, afternoon here.

Speaker Change: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Alexander Goldfarb: Hey, good afternoon, or actually good morning afternoon here.

Alexander Goldfarb: So a few quick two questions here first.

Barbara M. Pak: So a few, two questions here. First, Yeah, I do like the updated S7. It's much simpler, and I think it brings the focus to just, you know, the data that you guys provide. So that's good. So there are two questions here. First, on the prep equity book, I'm assuming that you guys did not underwrite sort of like low three-cap deals at the peak or such. But can you just walk through, you know, where your investments sit in the capital stack? And, you know, as we hear articles or read stories about, you know, low-three-cap deals being revalued into the fives and what that does to people's equity and, and the associated debt, can you just walk through your prep book and how you underwrote it, and how we should think about it from a cap rate perspective? Yeah, Alex. This is Barb.

Alexander Goldfarb: Yeah, I do like the updated F 17, its much simpler and I think it brings the focus to just you know the data that you guys provided so that's good.

Alexander Goldfarb: So two questions here first on the equity book I'm, assuming that you guys did not underwrite sort of like low three cap deals at the peak or such but can you just walk through you know where your investments sit in the capital stack and you know as we hear articles you read stories about you know low three cap deals.

Alexander Goldfarb: Being revalued into the fives, and what that does to peoples equity and associated debt can you just walk through your crop book and how you underwrote it and how we should think about it from a cap rate perspective.

Alexander Goldfarb: Yeah. Alex this is barb theres a lot of moving parts to that question and every asset is different what we have is a comprehensive model, where we revalue every asset every quarter and what we're really focused on is whereas our last dollar sit where transactions are occurring and.

Barbara M. Pak: There are a lot of moving parts to that question, and every asset is different. What we have is a comprehensive model where we revalue every asset every quarter. And what we're really focused on is, where is our last dollar set? Where are transactions occurring?

Barbara M. Pak: And, you know, where is the exit strategy? And our response is going to continue to fund equity shortfalls. We're also looking at, you know, their debt maturities, the caps and swaps they have in place, as well as their interest reserves with their lenders. So there are a variety of factors that go into it. I do think we've scrubbed the book; we stopped accrual on two others, they were in Northern California, and given where we were in the stack, and we're watching a few others closely. But for the most part, we're at very reasonable valuations on the rest of the book, and I'm not concerned with it. And we've consistently got redemptions. Even in the fourth quarter, we were redeemed on one of our assets.

Alexander Goldfarb: Where is where what what is the exit strategy and our sponsor is going to continue to fund equity shortfalls were also looking at you know their.

Barb Pak: Their debt maturities their caps and swaps and in place as well as their interest reserves with their lenders. So there's a variety of factors that go into it I do think we've scrubbed. The book, we stopped accrual onto others. They were in northern California and.

Barb Pak: Given where we were in the stack and we're watching a few others closely but for the most part we're at very reasonable valuations on the rest of the book and are not concerned with it and we've we've consistently got redemptions, even in the fourth quarter, we redeemed out of one of our assets and so we felt good about the rest of the.

Barbara M. Pak: And so we feel good about the rest of the book, and we've not had to take back an asset. We've found solutions. And I think that goes to our disciplined underwriting of our guarantors. Okay, and Barb, just to be clear on that, the two in Northern California, they're not paying, so they're on non-accrual, or you just were precautionary, and then the other, Unknown Attendee. Do you expect those to go on non-accrual? So the two in the fourth quarter, we put them on non-accrual, they weren't required to pay current, but we put them on non-accrual, just given where we are in the stack, they have near-term maturities as well.

Barb Pak: And we've not had to take back an asset with our solutions and I think that goes to our disciplined underwriting of our guarantors.

Barb Pak: Mark just to be clear on that the two in northern California, they're they're not paying so the run nonaccrual or you just were precautionary and then the other I think.

So you're watching do you expect those to go on on non accrual.

Speaker Change: So the two in the fourth quarter, we put them on nonaccrual are they weren't required to pay current but we put them on non accrual just given where we are in the stack. They have near term maturities as well and we're working with the sponsors on those debt refinancings and then the other ones that we're monitoring we're assessing that mark well suss out quarter by quarter.

Barbara M. Pak: And we're working with the sponsors on these debt refinancing. And then the other ones that we're monitoring, we're assessing that mark, we'll assess that quarter by quarter, we have reserved it in the guidance, but we're assessing it based on current market conditions. Okay, and then Barb, just on the guidance. You know, hearing how you guys have described the market. Seattle's the weak one, you know, Oakland is weak, but your other Bay Area is fine. Southern California is obviously great.

Speaker Change: <unk>, we have reserved it in the guidance, but we're assessing it based on current market conditions. Okay, and then barb just on the guidance front you know hearing how are you guys have described the market Seattle's a weak one.

Speaker Change: Oakland is weak, but your other bay areas fine Southern Cal is obviously, great you're recapturing the COVID-19 units.

Speaker Change: You know the Opex is what it is you're very little supply in the rest of the portfolio and it sounds like the jobs outlook from what Angela described is fine. So are there any additional like it doesn't sound like they're really many headwinds in your portfolio. You don't have the supply issues that are plaguing other other markets or geographies. So are there any other heads.

Angela L. Kleiman: You're recapturing the COVID unit. The OPEX is what it is. You have very little supply in the rest of the portfolio. And it sounds like the jobs outlook from what Angela described is fine. So are there any additional, like it doesn't sound like there are really many headwinds.

Speaker Change: <unk> that we should be thinking about as far as your earnings or is this or what I've outlined is pretty much. How you guys are looking at the landscape this year.

Angela L. Kleiman: In your portfolio, you don't have the supply issues that are plaguing other markets or geographies. So are there any other headwinds that we should be thinking about as far as your earnings go? Or is this or what I've outlined pretty much how you guys are looking at the landscape this? Hey, Alex, it's Angela here.

Speaker Change: Hey, Alex it's Angela here I think you are.

Angela L. Kleiman: We're on point.

Angela L. Kleiman: As far as how we see our portfolio, we do see that we have a very stable portfolio and supply definitely is a benefit for US. There are you know that the variability really relates to the timing on the delinquency and that is.

Angela L. Kleiman: I think you are on point. As far as how we see our portfolio, we do see that we have a very stable portfolio, and supply is definitely a benefit for us. There is, you know, the variability really relates to the timing of the delinquency. And that is one aspect of our business that we don't have as much control as we would like because we are subject to how long it takes for the court to process these delinquency units.

Angela L. Kleiman: That is one aspect of our business that we don't have as much control as we would like because we are subject.

Angela L. Kleiman: Subject to how long it takes for the court to process. These delinquency units and the good news is that that process timing has.

Angela L. Kleiman: <unk> begun to decline. So for example, you know that last year, when we're talking about L. A.

Angela L. Kleiman: It took about 10 to 12 months and currently we're down to eight months everywhere else. He used to be nine to 10 months now it's down to six months. So we're making good progress there, but that remains a open item for us as far as the risk is concerned.

Angela L. Kleiman: The good news is that the process timing has begun to decline. So for example, you know, let's take the last year when we're talking about LA. It took about 10 to 12 months, and currently, we're down to 8 months. Everywhere else it used to be 9 to 10 months, and now it's down to 6 months.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question.

Angela L. Kleiman: So we're making good progress there, but that remains an open item for us as far as the risk is concerned. Okay, thank you. Our next... [inaudible] Can you talk about, you know, what you're seeing there? Is that definitely the number?

Jamie Feldman: Great. Thank you I just wanted to dig a little more into your comments on insurance I think you said up 30%.

Jamie Feldman: Can you just talk about what Youre seeing there is that definitely the number is there any kind of variability to that and does this last round of storms, we've seen over the last few weeks.

Barbara M. Pak: Is there any kind of variability to that? And does this last round of storms we've seen over the last few weeks impact that at all? Or is it more forward looking? Jamie, it's Barb.

Jamie Feldman: In fact that at all or is it more forward looking.

Jamie Feldman: Hi, Jamie it's Barb. So we we did our property and earthquake insurance renewal in December so that number is fairly baked for the year, we saw G L or general liability, but we don't expect that to move the needle too much. So 30% I think is the number it is still a very challenging insurance.

Barbara M. Pak: So we did our property and earthquake insurance renewal in December. So that number is fairly baked for the year. We still have GL, our general liability, but we don't expect that to move the needle too much. So 30%, I think is the number; it is still a very challenging insurance market. And, you know, we do have a captive, and we utilize the captive as appropriate to minimize our insurance premiums, where appropriate, and as we can, based on the risk that we would take within the captive. So we used all angles to minimize that number.

Jamie Feldman: Market and you know, we do have a captive and we utilize the captive as appropriate to minimize our insurance premiums where appropriate and what he said.

Jamie Feldman: Hmm.

Jamie Feldman: Based on the risk that we would take within the captive. So we used all angles to minimize that number but I think it is it's still going to be a challenging market for the foreseeable future in terms of the storms that won't impact the number this year, but what that carriers will do next year is still unknown.

Barbara M. Pak: But I think it's still going to be a challenging market for the foreseeable future. In terms of the storms, that won't impact the number this year, but what the carriers will do next year is still undetermined. I think what we need to see in the insurance market is re-insurers coming back into the market in a big way for the premiums to start to come down. And in terms of storm damage, we haven't had anything material yet.

Jamie Feldman: It's undetermined I think what we need to see in the insurance market is the reinsurers they come back into the market in a big way for the premiums to start to come down.

Jamie Feldman: And in terms of storm damage, we haven't had anything material. We've had obviously some links and some minor things, but nothing material related to the storms.

Speaker Change: Okay. That's helpful.

Speaker Change: I know, it's still hard to like quantify because theres not a waterfall at every tranche of coverage, but is there a way to give a number of like your your captive exposure like what percentage of total liability does fall on the company.

Barbara M. Pak: We've had obviously some leaks and some minor things, but nothing material related to the, Okay, that's helpful. I get it's so hard to like quantify because there's a waterfall at every tranche of the coverage. But is there a way to give a number like your captive exposure?

Speaker Change: Versus third party.

It seems like more and more rights are growing their captives or using their captive small I just wonder if there's a way to benchmark.

Barbara M. Pak: Like what percentage of total liability does fall on the company versus third parties? [inaudible] So convoluted. Yeah, that's a tough one to quantify because even though they're more recent, looking at the captive, and then I think it makes sense to do so. Everyone approaches how they take first loss and that first layer differently.

Speaker Change: It seems so convoluted.

Speaker Change: Yeah, That's hey, it's Angela here, that's a tough one to quantify because even though there are more ways.

Angela L. Kleiman: Looking at the captive and then I think it makes sense to do so every one approach how they take first loss in that first layer differently.

Angela L. Kleiman: And so I don't know if you can really get apples to apples.

Angela L. Kleiman: Uh huh.

Speaker Change: Well look into and see if there's a better way to are you now provide some additional context.

Barbara M. Pak: And so I don't know if you can really get apples to apples. We'll look into it and see if there's a better way to, you know, provide some additional context. And the other thing I would just add to that is, you know, we've had a captive for decades, and we have a marketable securities portfolio of over 100 million, which is the premiums that we would have paid to third parties that are there to backstop any major insurance loss that we have. So we do have, you know, a substantial amount of money sitting there on our balance sheet because of that. Okay, that's very helpful. But have you grown your exposure in recent years? Or not necessarily?

Speaker Change: And the other thing I would just add on that is you know we've had a captive for decades, and we have our marketable securities portfolio of over 100 million, which is the premiums that we would've paid to third parties that are there to backstop any major insurance loss that we have so we do have you know a.

Speaker Change: A substantial amount of money sitting there on our balance sheet because of that.

Speaker Change: Okay. That's very helpful have you been have you grown the exposure in recent years or not necessarily.

Speaker Change: Not not necessarily we will ebb and flow earthquake, depending on the earthquake premiums that are out there because sometimes.

Speaker Change: They're the earthquake coverage can be extreme so we will look at that in a different way, but we do have third party earthquake on all high rises and.

Barbara M. Pak: Not necessarily. We will ebb and flow depending on the earthquake premiums that are out there because sometimes, the earthquake coverage can be extreme, so we will look at that in a different way, but we do have third-party earthquake insurance on all high-rises and, you know, five stories and up. But outside of that, we haven't taken on any real significant risk in the last few years. Okay. All right. Thank you. I'm sure we'll talk about this more.

Speaker Change: Five stores enough, but outside of that we haven't taken on any real significant risk in the last few years.

Speaker Change: Okay, Alright, Thank you I'm sure we'll talk about this more.

Speaker Change: Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question.

Adam Kramer: Hey, guys. Just wanted to ask you about kind of a new versus renewal spread and I know, it's been talked about a little bit already but just wondering if you were to look over whether it is a long run average or maybe go back to kind of prior <unk>.

Barbara M. Pak: Our next question... Hey guys, I just wanted to ask you about the kind of new versus renewal spread. And I know it's been talked about a little bit already, but just wondering if you were to look over, you know, whether it's a long-run average, or maybe go back to prior prior recessions, even and use that as kind of the test case, wondering what the kind of spread historically was between new and renewals. Hey Adam, it's Angela here.

Adam Kramer: Recession is even if you use that as kind of the test case wondering what the kind of spread.

Adam Kramer: Quickly was between <unk>.

Adam Kramer: New and renewals.

Adam Kramer: Hey, Adam It's Angela here, you know that one is the relationship between renewal and new lease rates is really driven by what the prior years new lease rate is so for example in 2022 on market rents on new lease rates were north of.

Adam Kramer: A little up 11% and so that of course means that you can have a much higher renewal rates would take it to market and so that relationship really will be driven by whatever the market rent is going to be and the renewal then follows its really a lagging effect. So there is.

Angela L. Kleiman: You know, that one, the relationship between renewal and new lease rates is really driven by what the prior year's new lease rate is. So, for example, in 2022, our market rents, or new lease rates, were north of 11%. And so that, of course, means that you can have a much higher renewal rate when you take it to market. And so that relationship really will be driven by whatever the market rent is going to be, and the renewal then follows. It's really a lagging effect. So there isn't an exact number that you really can peg, just because it's really one follows the other, not so much that there's a, you know, logical or relationship that you could just use as a benchmark for, for trending purposes. So figure out how to ask that question. Hey, Adam, no, that's a good question. We actually have, I know this is not a surprise; we get this question on a regular basis.

Adam Kramer: And the exact number that we can peg just because it's really one follows the other not so much that there was a eight you know logical or.

Adam Kramer: The relationship that you could just use as a benchmark for for trending purposes.

Speaker Change: Got it that's really helpful. Thanks, Angela just wanted me.

Speaker Change: Kind of a private equity.

Speaker Change: Yes.

Speaker Change: Kind of maybe give any kind of more and more money back from that that you have in the past and I know in the past Rollouts about kind of how would you look at other other markets in the U S right other markets outside of the West coast, and maybe with getting kind of more proceeds by some sort of equity.

Speaker Change: Having a little bit more dry powder.

Speaker Change: Could enable you to maybe take it take all you look at some markets outside the west coast. So figured out that figured I would ask that question.

Speaker Change: Yeah No. That's a good question, we actually have I know this is not a surprise we get this question on a regular basis and it's it's and it's fair to ask.

Angela L. Kleiman: And it's, it's, and it's fair to ask. We have historically had a disciplined approach when it comes to evaluating markets, not just within our own markets. And so we do look at all the major metros across the US. And it's part of our annual study, you know, to make sure that we have a good handle on what is driving, you know, the fundamentals of other markets as well. And so, this is not to say that we wouldn't venture into other markets or, you know, take whatever proceeds are available. It's really a function of how we view the relative value.

Speaker Change: We have historically a disciplined approach when it comes to evaluating markets not just within our own markets and so we do look at them all the major metros across the U S and it's part of our annual study to make sure that we have a good.

Speaker Change: Good handle on what are driving the fundamentals of all other markets as well and so.

Speaker Change: This is not to say that we wouldn't venture into other markets or you know take whatever proceeds available. It's really a function of how we view the relative value and what I mean by that is you know as I mentioned earlier, when we look at the the fundamentals of our markets with <unk>.

Angela L. Kleiman: And what I mean by that is, you know, as I mentioned earlier, when we look at the fundamentals of our markets with recovery ahead of us, with potential demand catalysts from these large companies and low supply and affordability metrics. You know, that just speaks to the fact that our market has much more upside and lower risk from supply, and so it's more compelling in the near term to focus our investments in our markets. We will, of course, continue to watch the other markets and make sure that the relative value holds. Great, thanks for the time.

Speaker Change: Cover you are ahead of us with potential demand catalysts from these large companies and low supply and affordability metrics.

Speaker Change: That just speaks to.

Speaker Change: The the fact that our Mark ads has much more upside and lower risk from supply and so it's more compelling in the near term to focus our investments in our markets. We will of course continue to watch the other markets and and and make sure that that that relative.

Speaker Change: Value holds.

Speaker Change: Great. Thanks for the time.

Speaker Change: Our next question is from Joshua <unk> with Bank of America. Please proceed with your question.

Speaker Change: Yeah.

Joshua: I just wanted to go back to your comment that you're sending out renewals at three three and a half per cent right now what your guide assumes 1.75 per cent for the full year.

Angela L. Kleiman: Our next question comes from [inaudible]. I just want to go back to your comment that you're sending out renewals at 3, 3.5% right now, but your guide assumes 1.75% for the full year. Transcripts provided by Transcription Outsourcing, LLC. Hey, Josh. It's Angela here.

Joshua: I think some of that might just have to do with the free rent burn off but maybe walk us through the cadence of when we get past that free rent burn off and when things start to trend down two four points out of poverty, then assume the second half years actually rethinking the ones.

Joshua: Hey, Josh it's yes, it's Angela here, we are seeing that they're concerned the benefit of the concession burn off to to begin to abate as we head into the second quarter.

Angela L. Kleiman: We are seeing that the concession, the benefit of the concession burn off to, begin to abate, you know, as we head into the second quarter. And, and this is why, you know, as Barb mentioned, you'll see that renewal rates start to converge to that one and a quarter percent market rent. So that's, hopefully that's the cadence that answers your cadence question. Yes, no, that's good. And then, maybe just one more.

Angela L. Kleiman: And and and this that's why you know as Barb mentioned that you'll see that our renewal rates to start to converge to that one a quarter percent market rent.

Speaker Change: So that's hopefully that's the cadence at Oh, the answers your cadence question.

Speaker Change: Yeah.

Josh: Yes, no that's good.

Josh: Good and then maybe just one more for the same store revenue range do you walk us through the assumptions that get us to the high and low end of the.

Barbara M. Pak: For the same store revenue range, could you walk us through the assumptions that get us to the high and low ends of, Yeah, Josh. There are a lot of different assumptions that go into the high and the low ends. I think the biggest factor will be delinquency and market rent growth that could drive us to either the high or the low end. And, you know, as we saw in the third quarter when we or the fourth quarter when we got back a lot of delinquent units, it can have an impact, a temporary impact, on our occupancy and to market rent if we get those units back in a low demand period. So there are a variety of assumptions related to that on the high and the low end. Okay, I'll follow.

Josh: Same store revenue range of 70 basis points to 2.7% most of the focus I'm like Wow that occupancy assumptions underlying that.

Yeah, Josh this is Bob there's a lot of different assumptions that go into the high and the low end I think the biggest factor will be delinquency and market rent growth that could drive us to either the high or the low end and you know as we saw like in the third quarter. When we are the fourth quarter. When we got back a lot of delinquent units.

Josh: Can have an impact of temporary impact to our occupancy and to market rent. If we get those units back in a low demand period. So there's a variety of assumptions related to that on the high end the low end.

Speaker Change: Okay. Okay. All right appreciate it thank you.

Barbara M. Pak: All right. I appreciate that. Thank you. The next question is from Wes Golladay.

Speaker Change: Yes.

Speaker Change: Our next question from Wes Golladay with Baird. Please proceed with your question.

Unknown Executive: Hey, everyone, can you give us the balance on the two non-accrual investments? And can you also comment on what the 20 million non-core GNA charge will be this year? Yeah, so the two that we put on non-accrual, the balance is $25 million for both. And in terms of the 20 million that we have in our guidance, that's mostly related to political contributions. As you know, we're fighting a couple ballot measures, so that's most of what that's for.

Wes Golladay: Hey, everyone can you give us the balance on the two non accrual investments and then can you also comment on what the $20 million noncore G&A charges. This year.

Wes Golladay: Yeah. So the two that we put on non accrual the the balance is $25 million for both.

Wes Golladay: And in terms of the 20 million that we have in our guidance that's mostly related to political contributions as you know are fighting a couple ballot measure. So that's most of what that's for.

Unknown Executive: Okay, thanks for that. And I guess maybe the bigger picture, you know, supply is still relatively low at the portfolio level, and rent growth is, you know, call it a low 1%. Is it just mainly the markets with heavy supply bringing that, you know, the blend down for you?

Speaker Change: Okay. Thanks for that and then I guess, maybe bigger picture you know supply is still relatively low at the portfolio level and rent growth is you know call. It 1% is it just mainly the the the markets with heavy supply, bringing that you know the blend down for you, but you also mentioned something in the comments earlier about you know.

Unknown Executive: You also mentioned in the comments earlier about, you know, the job growth is being driven by service-related jobs. So I'm just wondering if the job mix is also playing a big part in the forecast. Hey, Wes, on the rents, and you know, for our guidance, it's a couple of factors. So first is what you mentioned, the service sector jobs, which have dominated job growth last year. And, and we've all seen the announcements recently, you know, lots of companies are still retooling and reevaluating. And so, typically, if you look at the long-term average of our job growth and the composition, normally, you would want about 30% of those jobs to come from higher-wage jobs.

Speaker Change: The job growth is being driven by service related jobs I'm just wondering if the job mix is also playing a big part of the year the forecast this year.

Speaker Change: Hey, Wes I'm on the.

Speaker Change: On the the rents and the.

Wes Golladay: For our guidance, it's a couple of them, but it's a couple of factors. So first is is what you mentioned the the service sector jobs, which has been which has dominated the job growth last year and and we've all seen the announcements recently you know to lots of companies are still retooling and reevaluating and so.

Speaker Change: No.

Speaker Change: Typically if you look at the long term average of of our job growth and the composition normally you would want in about 30% of those jobs to come from higher wage jobs.

Unknown Executive: And so in this environment, which, you know, with the consensus, the macro consensus of a soft landing, we certainly wouldn't be forecasting, or getting ahead of them, forecasting robust high-wage job growth. And so that's one key factor. As far as supply is concerned, you're right. For our portfolio, it's only half a percent for California. Seattle is elevated and close to 1%, higher than last year. Fortunately for us, it's mostly concentrated in the downtown area, and our portfolio is mostly on the east side. Having said that, there will be some properties that will have to, you know, that will be impacted by supply, and we'll see concessions elevated on a temporary basis for those assets. Okay, thank you for that. Thanks for your time.

Jobs and so in this environment, which you know with the consensus the macro consensus of a base of a soft landing.

Speaker Change: We certainly wouldn't be forecasting we wouldn't be getting ahead of that I'm forecasting robust high wage job growth and so that's that's one key factor as far as supply Youre right.

Speaker Change: For our portfolio. It's you know, it's only half a per cent for California, Seattle is elevated and are close to 1% and higher than last year.

Speaker Change: Unfortunately for us, it's mostly concentrated in the downtown area and our portfolio is mostly on the east side, having said that there will be some properties that will have to.

Speaker Change: You know that will be impacted by by supply and will see concessions elevated.

Speaker Change: On a temporary basis for for those for those assets.

Speaker Change: Okay. Thank you for that.

Speaker Change: Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Unknown Executive: Barb, I wanted to follow up on your comments on your quarterly process of remarking the values in your preferred equity book and making sure your dollar basis is safe. Are you able to share a rough average loan-to-value in your prep book right now? Are you able to share a rough average loan-to-value in your prep book right now? as real values do not lag the kind of third party praise values. I don't have that in front of me, and I think it varies by asset. So I don't have that in front of me.

John Richard Pawlowski: Thanks for the time, Bob I wanted to follow up on your comments on your quarterly process of that.

John Richard Pawlowski: Marking the values in your preferred equity book and making sure. Your dollar basis is safe or you're able to share a rough average loan to value in your prep book right now.

John Richard Pawlowski: Real values, not not lagged kind of third party appraised values.

Bob: Yeah, I don't I don't have that in front of me and I you know I think it it varies by asset.

Bob: So I don't have that in front of me, but it does it does matter about the rent growth that we've seen in each asset for each property and how we underwrote. It initially that all plays into the fact, where we are in the capital stack, but like I said, we've we do a thorough scrub and we feel comfortable with the book.

Barbara M. Pak: But it does matter about the rent growth that we've seen in each asset for each property and how we underwrote it initially. That all plays into the fact where we are in the capital stack. But like I said, we did a thorough scrub, and we feel comfortable with the book. Okay. One more for you, Barb.

Bob: <unk>.

Bob: Okay.

Bob: One more for you Barb how much success. If any have you had collecting past written off rent from tenants that have moved out I'm just not I don't have a good sense of how much.

Barbara M. Pak: How much success, if any, have you had collecting past written-off rent from tenants that have moved out? I don't have a good sense of how much, but www.youtube.com or www.youtube.com Yeah, it's a small component of our monthly collections. We collect a little bit every month on that past due rent because we have hit their credit and, you know, gone after them. But it and because of our conservative approach to how we account for bad debt, whereby if you're delinquent after 30 days, we reserve against it in the financials, you know, when we go and hit their credit, and they need their credit, they will start to pay. So it is a reoccurring part of our income, given how we account for it, but it's hard to quantify, and it is lumpy, it And we do expect it will be a reoccurring part for the foreseeable future, given we have over 130 million in uncollected rent. But it will be a small part, and it will come in drips and drabs.

Barb Pak: Keith you guys have to go after credit scores and how much you're able to actually collect from the huge kind of cumulative written off rent balance.

Barb Pak: Yeah.

Keith: Yeah. Its a small component of our monthly collections, we are collecting a little bit every month on that past due rent cause we have hit their credit and you know going after them, but it and because of our conservative approach to how we account for bad debt whereby.

Keith: If your delinquent after 30 days, we reserve against it in the financials you know when we go and hit their credit and they need their credit they will start to pay so we've it is a reoccurring part of our income given how we account for it but it's hard to quantify and it is lumpy and moves around month to month and we do expect it will be a rare.

Keith: Occurring part for the foreseeable future and we have over $130 million in uncollected rent.

Keith: But it will be a small part.

Keith: But it'll be drips and drabs.

Speaker Change: Okay, Alright, thank you very much.

Barbara M. Pak: Okay. All right. Thank you very much.

Speaker Change: Our next question is from John Kim with BMO capital markets. Please proceed with your question.

Angela L. Kleiman: Thank you. I wanted to go back to your market rent forecast of one and a quarter for the year, which is below what you had a year ago. Angela mentioned in her prepared remarks that layoff announcements have come down quite a bit year over year. So I was just wondering, are you actually seeing more move outs due to job losses this year versus a year ago when it seemed like tech layoffs were a lot more prevalent? Hey, John, it's Angela here. We have not seen more move outs due to job loss. And we do track that when we look at move out reasons, it's relatively stable. And so our market outlook is really a function of where the economy is and how we believe we would perform relative to the overall economy.

John P. Kim: Thank you I wanted to go back to your market rent forecast of one in a quarter for the year, which is below what you had it a year ago.

John P. Kim: Angela mentioned on the prepared remarks, layoff announcements have come down quite a bit.

John P. Kim: Year over year. So I was just wondering are you actually seeing more move outs due to job losses, this year versus a year ago. When it seemed like takeaway Austin chalk, we're a lot more prevalent.

John P. Kim: Hey, John It's Angela here, we have not seen more move outs due to job loss and and we do track that when we look at move out reasons, it's it's relatively stable.

John P. Kim: And so our market outlook, because it's really a function of where the economy is and.

Angela L. Kleiman: And how we believe we would perform relative to the overall economy.

Angela L. Kleiman: Okay, so just projecting the unemployment rate. Yeah, and I think, John, just to add to that, I think that, you know, the mix of jobs has been, we've seen a change in the mix over the last year, as high-quality jobs have not been added in the mostly service sector, as Angela mentioned earlier. And I think that that is because we just don't see that changing in this environment, given the slow economy. So that could change, that would be upside to the forecast, but it's not our base case. And that's what's driving the below-average growth. Can I clarify on the impairment that you had in your preferred, do you still have a position in this aspect, or was it, was the loan fully written off due to recapitulation or some other kind of that?

Speaker Change: Okay. So just projecting the.

Speaker Change: The unemployment rate moving up.

Speaker Change: Yeah, and I think John just to add to that I think the you know the mix of jobs has been the we've seen a change in mix over the last year.

As the high quality jobs have not been added analyst with service sector as Angela mentioned earlier and I think that that is we just don't see that changing in this environment given the the the whole economy. So that could change that would be upside to the forecast, but it's not our base case at this point.

Speaker Change: And that's what's driving the below average.

Speaker Change: Yeah.

Speaker Change: Can I clarify on the impairment that you had in your preferred.

Speaker Change: Do you still have a position in this asset or was it was alone fully written off due to recapitalization.

Speaker Change: Kind of that.

Barbara M. Pak: We still have our investment in the asset, but because the loan and our investment mature in October of this year, and because we don't feel we'll fully realize our valuation by the end of the term of the maturity of our loan, we impaired the asset, which is consistent with GAAP accounting rules. We do believe in the asset long-term and the market long-term. We're obviously in a very depressed market in Oakland, but it's going to take time for that market to recover. We need to see supply abate, which will start to happen in 25, and really into 26, and that should bring rents up, and so that will help our investment long-term. The sponsor continues to fund equity shortfalls and is actively putting money into the project, and we are working actively with them on the refi that will be coming up here in the fall. What is the likelihood that you will put more capital into the project or take ownership of it?

Speaker Change: We still have our investment in the asset, but because our the loan in our investment matures in October of this year and because we don't feel will fully realize our valuation by the end of the term of our maturity of our loan we impaired the asset which.

Speaker Change: Consistent with GAAP accounting rules, we do believe in the asset long term and the market long term, we're obviously in a very depressed market in Oakland.

Speaker Change: And but it's going to take time for that market to recover we need to see supply abate, which we will start to happen in 'twenty, five and really into 'twenty, six and that should bring bring rents up and so that will help our investment long term the sponsor continues to fund equity.

Speaker Change: Shortfalls and is actively putting money into the project and we are working actively with them on the refi that won't be coming up here in the fall.

Speaker Change: What is the likelihood you put more capital into the into the project or take ownership of the asset.

Speaker Change: I think that that's that'll be determined as we work through the refinance and based on the sponsors response to the refinance so it's a little too early and premature to talk about that but we'll know more as we work through that this summer.

Barbara M. Pak: I think that will be determined as we work through the refinance and based on the sponsor's response to the refinance. So it's a little too early and premature to talk about that. We'll know more as we work through that this summer. Okay, great. Thank you. Our next question is... Good afternoon.

Speaker Change: Okay, great. Thank you.

Speaker Change: Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

Jessica Anderson: Thanks a lot for taking my question. How is demand trending in your markets? And if you can quantify that in any way, like the number of property tours, that would be helpful.

Michael Jason Bilerman: Good afternoon, and thanks, a lot for taking my question how is demand trending in your markets and if you can quantify that in any way like number of property tours that would be helpful to get a market like Seattle just increased supply in the urban core combined with return to office draw residents away from the more suburban Essex properties.

Jessica Anderson: Like in a market like Seattle, does increased supply in the urban core combined with a return to office draw residents away from the more suburban Essex properties? Hi, Michael. This is Jessica. I can provide you with some basics, I guess, as far as how leasing fundamentals are going in our markets. And it's really trending as expected.

Michael Jason Bilerman: Hi, Michael This is Jessica I can provide you some basics I guess as far as how leasing fundamentals are going in our markets and it's it's really trending as expected and in all of our markets right now when we're looking at things like lead volume is steadily increasing which is what we.

Jessica Anderson: And in all of our markets, right now, when we're looking at things like lead volume, which is steadily increasing, which is what we would expect this time of year, and then also leasing activity overall is stable. As far as quantifying it goes, I mean, we really see that increase in demand that we would expect, of course, correlates to whatever sequential rent growth that we see. And we pointed that out earlier; we saw good growth in both NorCal and Seattle. And that's, that's something that is in part due to concession burn off; those are our most seasonal markets. So we do expect them to grow more substantially on a sequential basis. But overall, they're performing as expected in line with what we would expect this time of year. Thanks for that!

Michael Jason Bilerman: I would expect this time of year and then also leasing activity overall is stable and as far as quantifying. It goes I mean, we really see that increase in demand that we would expect of course correlates to whatever sequential rent growth that we see and we pointed that out earlier, where we saw good growth.

Michael Jason Bilerman: And both norcal and Seattle.

Michael Jason Bilerman: And that's that something that is in part due to concession burn off those are our most seasonal market. So we do expect them.

Michael Jason Bilerman: To grow more substantially on a sequential on a sequential basis.

Michael Jason Bilerman: But overall, they're performing as expected in line with what we would expect this time of year.

Michael Jason Bilerman: Yeah.

Speaker Change: Got it okay. Thanks for that and my follow up question is on rent control or have you seen any change in the rent control environment in your markets and then given that it's an election year does that does.

Angela L. Kleiman: And my follow-up question is on rent control. Have you seen any change in the rent control environment in your markets? And then, you know, given that it's an election year, does that create a little bit more noise than a traditional year? Hey, Michael.

Speaker Change: Does that create a little bit more noise than a traditional year.

Speaker Change: Hey, Michael.

Angela L. Kleiman: In an environment where we're looking at one and a quarter percent market rent growth, we certainly don't expect an elevated level of concern when it comes to the rent control conversation. Now, I think many of you are aware that there is a proposition out there to repeal Costa-Hawkins, again, sponsored by Michael Weinstein, the head of the AIDS Foundation. And, you know, we, of course, participate in the housing coalition that supports responsible legislation. And we do not think that this proposal to repeal the Costa-Hawkins Housing Act will have traction, because it's, you know, this is the third time that this proposal has come up. And in the past two times, it was overwhelmingly defeated, and only one out of 58 counties voted.

Michael Jason Bilerman: In an environment, where we're looking at one quarter percent market rent growth.

Speaker Change: We certainly don't expect an elevated concern when it comes to the rent control conversation now there is I think many of you are aware that there is a proposition out there to repeal Costa Hawkins.

Speaker Change: <unk> sponsored by Michael Weinstein, the head of the AIDS Foundation, and then we of course participate in the housing coalition supports responsible legislation.

Speaker Change: And we do not view.

Speaker Change: Yeah, Tom that this proposal to repeal the Costa Hawkins housing Act will have traction because it's this is the third time that.

Speaker Change: This proposal has come up and in the past two times.

Speaker Change: Overwhelmingly defeated him only one out of 58 counties voted.

Angela L. Kleiman: I am in favor of repealing Costa-Hawkins, and that was by a narrow margin, and it lacks the governor and general political support. It is viewed as an anti-growth proposal that will deter housing production when we already have a housing shortage. And so that is one that we are watching carefully, but beyond that, it's a normal operating environment for us from a legislative perspective. Thank you very much.

Speaker Change: In favor of repealing Costa Hawkins and they and that was by a narrow margin.

Speaker Change: And it lacks the governance and general political support it is viewed as an antique world.

Speaker Change: Proposal that will deter housing production when we already have a housing shortage and so that but that is one that we are watching carefully.

Speaker Change: But beyond that it's you know that's a normal operating environment from for us from a legislative perspective.

Speaker Change: Thank you very much good luck in 'twenty 'twenty four.

Angela L. Kleiman: Good luck in 2024. Thank you. Our next question... [inaudible] Hey, good morning, everyone. So Barb, you said one of the swing factors for you is getting back delinquent units and, you know, perhaps into a downtime in the rental market and not knowing what that opportunity would present itself. But I imagine it would be either zero or something more. And it's just a matter of, you know, when that something more hits. Is that it?

Speaker Change: Thank you.

Speaker Change: Our next question is from Rich Anderson with Wedbush. Please proceed with your question Hey, Good morning, everyone. So Barb you said a you know one of the swing factors for you is getting back delinquent units and you know perhaps into a downtime.

Richard Anderson: Rental market and you know not knowing what that opportunity would present itself, but I imagine it would be either zero or something more and it's just a matter of when that something more hits is that is that it because obviously the delinquent unit wasn't paying rent I just want to make sure I understand that logically what you were saying there.

Barbara M. Pak: Because obviously, the delinquent unit wasn't paying rent. I just want to make sure I understand logically what you're saying. Yeah, so yeah, and we can take the example of what happened in September and October; we got back hundreds of units, and our occupancy. So our delinquency dropped about 50 basis points, but our occupancy also dropped commensurately. And then when we backfilled, we gave back a little bit of the rent growth. And so there was a small impact on the bottom line, but it didn't all fall on the bottom line.

Speaker Change: Yeah, So yeah, and we can take the example of what happened in September October we got back hundreds of units our occupancy so our delinquency dropped about 50 basis points, but our occupancy also dropped commensurately and then when we backfill we gave back a little bit on the run.

Speaker Change: Growth in so there was a small impact to the bottom line, but it didn't all fall to the bottom line.

Barbara M. Pak: Long term, it's beneficial for us, but there is a temporary headwind, especially if you get the units back in a low demand period, because then you have to give concessions to backfill, to backfill those units. If we get the units back during peak leasing season, and we have a strong peak leasing season, there will be less impact on occupancy and rent growth. But why would there be an impact?

Speaker Change: Long term, it's beneficial for us, but there is a temporary headwind, especially if you get the units back in a low demand period. Because then you have to give concessions to backfill tobacco those units if we get the units back during peak leasing season, and we have a strong peak leasing season, there will be.

Speaker Change: Less impact to occupancy and rent growth, but why why don't make that impact why would there be an impact negatively if they weren't paying rent who cares what the occupancy was if there were zero rent coming in anyway, I'm, just curious I don't I'm not sure I understand why there would be a negative number.

Barbara M. Pak: Why would there be a negative impact if they weren't paying rent? Who cares about what the occupancy was if there was zero rent coming in anyway? I'm just curious. I'm not sure why there would be a negative number in that scenario. It would be either zero or something.

Speaker Change: In that scenario.

It'll be there zero rich Moore.

Barbara M. Pak: Yes, so from your question, from your perspective, the absolute number is right now. We're going from zero to something. So you can't be below zero, but keep in mind, the way Barb has outlined the guidance, we are assuming an improvement in delinquency, which means we will need to get, we do need to convert some of those zeros into a positive number, just to be at that point. Yep. Okay, perfect. Yep. Thank you.

Yes, So I think from your question, but from your perspective, the absolute number is right now we're going from zero to something so you can't really below zero, but keep in mind you know the way Barb has outlined the guidance we are assuming an improvement in delinquency, which means we will need to.

Speaker Change: Get we do need to convert some of those zeros into a positive number okay just to be at the point, yes. Okay. Perfect. That's helpful. Yes. Thank you and then so where there are problems in the bank industry and as it touches multifamily it's in the rent regulated area and we've seen that.

Unknown Executive: And then, so where there are problems in the bank industry, and as it touches multi-families in the rent regulated area, and we've seen that in New York community and signature portfolios and so on, rent regulated can, you know, California can be described, you know, with that phrase, I assume. I'm curious to what degree you're seeing any, anything, popping up. And if this was covered earlier, I apologize.

Speaker Change: I'm in New York community and signature portfolios and so on rent regulated can California can be described you know with that with that phrase I assume.

Speaker Change: I'm curious to what degree you're seeing any anything popping up and if this was covered earlier I apologize but is is there you know are you at the in a position.

Unknown Executive: But is, are you in a position to, you know, jump on opportunities? Is there a pipeline building of, of, sort of these sort of distress situations, you know, maturities coming? Anything like that that is interesting to you? Or is it not really sort of apparently happening at this point as an external growth opportunity for Essex? Hi, Rich.

Speaker Change: To jump on opportunities is there a pipeline building as of sort of these sort of distress situations.

Speaker Change: Maturities coming anything like that that is interesting to you or is it not really sort of apparently happening at this point as a as an external growth opportunity for Essex.

Unknown Executive: You know, I'll echo what many of our peers have said, that we're not currently seeing much distressed selling at all in our markets. However, given the amount of debt coming due in the next couple of years, we anticipate there should be some opportunities. But as of yet, we have yet to really see any forced selling. So we are keeping our eyes open and looking for opportunities, but nothing as yet. Okay, thanks so much.

Speaker Change: Hi, rich.

Richard Anderson: I'll Echo what many of our peers have said is we're not currently seen much distressed selling at all in our markets.

Speaker Change: Given the amount of debt coming due in the next couple of years, we anticipate there should be some opportunities, but as of yet we have yet to really see any for selling.

Speaker Change: So we are keeping our eyes open and looking for opportunities, but nothing.

Speaker Change: Nothing as of yet.

Speaker Change: Okay. Thanks, so much.

Speaker Change: Yeah.

Unknown Executive: Our next question is from Linda Tsai. Hi, in terms of the $134 million, are there different ways? Transcribed by https://otter.ai, Money Back Fashion.

Speaker Change: Our next question is from Linda Tsai with Jefferies. Please proceed with your question.

Linda Tsai: Hi in terms of the 134 million and receivables are there different ways.

Linda Tsai: Chip away at that you know I guess debt collectors involved or just anything operationally you can do to get.

Barbara M. Pak: Yeah, Linda, we are, this is Barb. We are pursuing every avenue to try to collect on that money, whether it be taken to small claims court, we've dinged their credit. And like I said, we are collecting little bits here and there. But it depends on when they need their credit. And when they need their credit, then they tend to come back and pay. But if they don't need their credit for a long time, then it can sit out there. But every avenue we can pursue, we are pursuing to try to collect on that money. Transcripts provided by Transcription Outsourcing, LLC.

Linda Tsai: Get your money back faster.

Linda Tsai: Yeah. Linda we are this is barb we are pursuing every avenue to try to collect on on that money.

Linda Tsai: Whether it be it take them to small claims court Ding their credit.

Linda Tsai: And like I said, we are collecting little bits here and there, but it it depends on when they need their credit and when they need their credit than they tend to come back and pay.

Linda Tsai: But if they don't need their credit for a long time and then it can sit out there, but every avenue. We can pursue we are pursuing to try to collect on that money.

Speaker Change: Got it and then just in terms of getting units back in a low demand period, where it's more of a negative for you.

Speaker Change: You know like what are some of the determinants for the timing of when you do get those units back and how do you forecast that to the extent you can.

Barbara M. Pak: Timing of when you do get those units back. How do you forecast that to such an extent? Linda, that's the $64,000 question of the day. When do we get these darn units back? And for us, it would be great to get them back as soon as possible.

Speaker Change: No no. That's the 64000 dollar question of the day when do we get these darn units back and for US It would be great to get them back as soon as possible. The challenge here is that once a unit is in eviction.

Angela L. Kleiman: The challenge here is that once a unit is in eviction, you know, when we looked at the fourth quarter, the majority of those tenants just leave. So what that means is for us, in a normal environment, we have notices that a tenant is going to vacate. We can pre-lease these units. We can plan for a turnover and, of course, coordinated marketing efforts, and our site personnel is ready for the move-out, move-ins, and all this logistics. In a situation where we have a certain number of evictions in play, and we don't know how many are going to come back or when, that's the part that creates that pressure when it comes to pricing, and it's very difficult to predict. Our next question is from Buck Horne. Thanks, I appreciate it. Appreciate the time. Um, was wondering if, going to the delinquency issue, you could maybe add a little color if you're seeing any systemic application fraud or upticks in just application fraud or identity fraud or other types of misrepresentations by tenants. Is this something that's kind of spreading on social media?

Speaker Change: Yeah, when we looked at the fourth quarter. The majority of those tenants just leave.

Speaker Change: So what that means is for us normally in a yeah in a normal environment. We have noticed is that a tenant is going to vacate we can prelease. These units, we can plan for turnover and and of course coordinated marketing effort and our site personnel.

Speaker Change: Always ready for the move out move ins and all in all this logistics in a situation where we.

Speaker Change: We have a certain number of evictions in play and we don't know how many are going to come back or when.

Speaker Change: That's the part that creates that pressure when it comes to pricing and it is very difficult to predict.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Our next question is from Buck Horne with Raymond James. Please proceed with your question.

Buck Horne: Thanks I appreciate it appreciate the time was wondering if going to the delinquency issue if you could maybe.

Buck Horne: I should add a little color if you're seeing any.

Buck Horne: Can make application fraud or upticks in just application fraud or.

Buck Horne: Identity fraud or other types of misrepresentations by tenants is this something that's kind of spreading on social media.

Angela L. Kleiman: That's becoming more of a structural issue Hey, Buck, it's Angela here. We have been our team has done a great job staying on top of these potential issues. And when we look at the fraud instances, it has not picked up or become elevated.

Buck Horne: Coming more of a structural issue.

Buck Horne: Hey, Buck it's Angela here, we have been you know our team has done a great job staying on top of these potential issues and when we look at the front instances it has not ticked up or become elevated and in some instances say if it's a building specific issue.

Angela L. Kleiman: And in some instances, say if it's a building-specific issue, we immediately remedy those. And so, that really hasn't been a driver for whether it's behavior or, you know, impact on our financials. It really is driven by the court processing time. So, you know, I'll give you an example.

Buck Horne: We immediately remedied those and so so.

So that really hasn't been a driver for whether its behavior or impact to our financials. It really is driven by the core processing time.

Buck Horne: Yeah, I'll give you an example, when a when a tenant goes delinquent.

Angela L. Kleiman: When a tenant goes delinquent, pre-COVID, it only took us about, say, two months, on average, to evict this tenant. Now, because of the court delays, it's six months plus, right? Or eight months if you're in LA.

Buck Horne: Pre COVID-19 it only took us about say two months on average to evict the tenant because of the court delays.

Buck Horne: It's six months plus ray or eight months, if you're in L. A and so that's the time, that's getting accumulated and so we normally have a level of delinquency in our portfolio.

Angela L. Kleiman: And so that's the time that's getting accumulated. And so we normally have a level of delinquency in our portfolio, but it's elevated now because it's just taking longer. Gotcha, gotcha. Okay, that's helpful. I appreciate the color there.

Buck Horne: But it's elevated now because it just it's just taking longer.

Speaker Change: Gotcha Gotcha, Okay. That's helpful. I appreciate the color there.

Speaker Change: And just as it relates to.

Unknown Executive: And just as it relates to your future investment opportunities or kind of how you think about capital allocation between urban core or, you know, suburban assets and opportunities in your core markets, you're saying there's a lot of upside still yet to be achieved in the West Coast markets and some significant recovery potential. Do you think that applies to, you know, the downtown urban cores of, you know, LA, San Fran, and Seattle? Is that where you would look to, you know, allocate additional dollars first? Or do you think the suburban submarkets will continue to outperform? Hi Buck.

Speaker Change: Your future <unk>.

Speaker Change: <unk> opportunities or kind of how you think about capital allocation between urban core or suburban assets and opportunities in your core markets.

Speaker Change: You're saying, there's a lot of upside still yet to be achieved in the west coast markets and some some.

Speaker Change: Recovery potential do you think that applies to the downtown urban cores.

Speaker Change: L a San Fran and Seattle is that where you would look to.

Speaker Change: Allocate additional dollars first or do you think the suburban.

Speaker Change: Submarkets would continue to outperform.

Speaker Change: Hi, Mark it's a good question, obviously investment returns driven by what Youll pay so we are paying attention to everything that's coming to market and we will keep an open mind to any investment a major consideration for US is also making sure that we are acquiring near our existing.

Unknown Executive: It's a good question. Obviously, investment returns are driven by what you pay. So we are paying attention to everything that's coming to market, and we'll keep an open mind to any investment. A major consideration for us is also making sure that we are acquiring properties near our existing footprints. Given our unique operating model, we think we can add a lot of value when an asset is purchased, when we buy something near an existing asset collection. Now, as you know, the majority of those assets happen to be in the suburban market, and that is where we're primarily focused. They also have fewer quality of life issues currently.

Speaker Change: Given our unique operating model, we think we can add a lot of value on its purchase when we buy something near an existing asset collection now as you know the majority of those assets happen to be in the suburban market and that is where we're primarily focused they also have fewer quality of life issues currently so.

Unknown Executive: So, the simple answer is we are very focused on our suburban footprint, but we will keep an open mind to anything that crosses our broader market. I appreciate it. All right, thanks, guys. Good luck.

Speaker Change: The simple answer is we are very focused in our suburban footprint, but we will keep an open mind to anything that crosses our broader markets.

Speaker Change: Got it I appreciate it alright, thanks, guys. Good luck.

Speaker Change: Thank you there are no further questions at this time.

Unknown Executive: There are no further questions. This concludes today's webinar. Thank you for participating. This concludes today's webinar. Goodbye.

Speaker Change: This does conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation Goodbye.

Speaker Change: Yeah.