Q1 2024 Essex Property Trust Inc Earnings Call

Operator: Good day, and welcome to the Essex Property Trust's first quarter 2024 earnings call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Such statements are made based on current expectations, assumptions, and beliefs, as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated.

Good day and welcome to the Essex property Trust first quarter 'twenty 'twenty four earnings call.

Operator: Further information about these risks can be found in the company's filings with the SCC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer of Essex Property Trust. Thank you, Ms. Kleiman. You may begin.

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

Statements made on this conference call regarding expected operating results and other future events are forward looking statements that involve risks and uncertainties.

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

A number of factors could cause actual results to differ materially.

From those anticipated.

Further information about these risks can be found on the company's filings with the S. C C.

It is now my pleasure to introduce your host Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust.

Angela L. Kleiman: Thank you Ms climbing you may begin.

Angela L. Kleiman: Good morning, and thank you for joining us at the first quarter earnings call for a pack will follow with prepared remarks and violent Burns is here for Q&A. We are pleased to kick off our 'twenty 'twenty four earnings with a notable increase in our full year guidance. This is primarily driven by solid first quarter results with core ethical per share of $4 nine.

Angela L. Kleiman: Good morning, and thank you for joining Essex's first quarter earnings call. Barb Pak will follow with prepared remarks, and Rylan Burns is here for Q&A.

Angela L. Kleiman: Percent exceeding the high end of our original guidance.

Angela L. Kleiman: We are pleased to kick off our 2024 earnings with a notable increase in our four-year guidance. This is primarily driven by solid first quarter results, with core FFO per share of 4.9% exceeding the high end of our original guidance. Barb will provide more details on our financial performance in a moment.

Angela L. Kleiman: Mark will provide more details on our financial performance in a moment.

Angela L. Kleiman: Today, my comments will focus on market fundamentals and operational highlights, followed by an update on the investment market. Heading into 2024, the consensus forecast was a slowdown for the U.S., and so far, U.S. job growth has trended better than the initial forecast. Job quality, on the other hand, has been concentrated in government and low-wage service sectors.

Mark: Today, My comments will focus on market fundamentals and operational highlights followed by an update on the industrial market.

Mark: Heading into 2024 consensus forecast, what they slow down for the U S and so far U S job growth.

Mark: Trended better than the initial forecast job quality on the other hand has been concentrated in government and low wage service sectors in the West coast. The Tech industry is a primary source of high paying jobs and job growth. In this industry has led because it'll be balling business strategies accompany reallocate some resources.

Angela L. Kleiman: In the West Coast, the tech industry is a primary source of high-paying jobs, and job growth in this industry has lagged because of evolving business strategies as companies reallocate resources to artificial intelligence opportunities. However, we have seen encouraging signs, including a steady increase in job openings in our markets by the top 20 tech companies. As for our near-term outlook, recent inflation data and Fed commentary have resulted in elevated uncertainty regarding the path of interest rate cuts.

Mark: Artificial intelligence opportunities.

Mark: However, we have seen encouraging signs, including a study increase in job openings in our markets by the top 20 Tech companies.

Mark: As for our near term outlook recent inflation data and fed commentary have resulted in elevated uncertainty regarding the path of interest rate cuts with this in mind, we do not anticipate an improvement in job growth in the high paying sector.

Angela L. Kleiman: With this in mind, we do not anticipate an imminent improvement in job growth in the high-paying sectors, which is typically the key catalyst to accelerate demand for housing and rent growth. While job growth on the West Coast has remained soft, our steady performance year-to-day can be attributed to two factors. First, limited housing supply. This is a significant structural benefit and a pillar of our California investment thesis. The lengthy and costly entitlement process effectively deters housing supply.

Mark: Typically the key catalysts to accelerate demand for housing in right.

Mark: Well job growth on the West Coast has remained soft.

Mark: Steady performance year to date is attributed to two factors first limited housing supply. This is a significant structural benefits and a pillar of our California investment thesis.

Mark: Lengthy and costly entitlement process is supposed to be detours housing supply.

Angela L. Kleiman: To this point, total housing permits as a percentage of stock continue to remain well below 1% in Essex, California, markets. Our performance today demonstrates this supply advantage. It is a key stabilizer during soft demand periods and a driver of rent growth outperformance over the long term. The second positive factor is rental affordability, which is driven by wages growing faster than rent in Essex markets. Additionally, the cost of home ownership continues to rise. The median cost of owning a home is two and a half times more expensive than renting in our market.

Mark: To this point total housing permits as a percentage of stock continues to remain well below one per sudden ethics, California market.

Mark: Our performance today demonstrate the supply of badge it as a chief stabilizer during soft demand periods and a driver of outperformance over the long term.

Mark: The second positive factor as rental affordability, which is driven by wages growing faster than rents and ethics markets. Additionally, the cost of home ownership continuously twice.

Mark: The median cause of owning a home is two and half times more expensive than renting in our market.

Angela L. Kleiman: Likewise, the percentage of turnover attributed to purchasing a home has fallen from around 12% historically to 5% today. Accordingly, rental affordability supports a long runway for rent growth in the Essex market. Turning to first quarter operations, we achieved a 2.2% growth in blended lease rates, which consists of 10 basis points on new leases and 3.9% on renewals. Our new lease rates are tempered by delinquency-related turnover in LA and Alameda, which comprise approximately 25% of our total, thanks to our portfolio. If we excluded these two regions, new lease rates would have been 150 basis points higher at 1.6%. Moving on to regional highlights.

Mark: Likewise, the percentage of turnover attributed to purchasing a home that's fallen from around 12% historically two 5% today.

Mark: Accordingly, one too.

Mark: Affordability supports a long runway for rent growth in the Essex markets.

Mark: Turning to first quarter operations, we achieved a two 2% growth in blended lease rate, which consist of 10 basis points on new leases and 3.9% hungry in the world are.

Mark: Our new lease rates are tempered by delinquency related turnover in L. A in Alameda, which comprise of approximately 25% of our total same store portfolio.

Mark: If we excluded these two regions, new lease, which would've been 150 basis points higher at one 6%.

Mark: Moving on to regional highlights Seattle was our best performing region, achieving blended rate of three 6% with new lease rate growth of 1.3% new.

Angela L. Kleiman: Seattle was our best performing region, achieving blended rates of 3.6% with new lease rate growth of 1.3%. New lease rates turned positive in February, led by the Eastside, and the positive trend has continued. Northern California was our second best performing region with 2.1% blended rate growth and flat new lease rates. San Mateo was our strongest market, offset by the East Bay, which remained challenged primarily due to the delinquency impact in Alameda County. Excluding Alameda County, new lease rates in Northern California would have been 70 basis points.

Mark: New lease rates turn positive in February led by the east side and the positive trend has continued.

Mark: Southern California was our second best performing region, with 2.1% blended rate growth and flat new lease rates.

Mark: San Mateo was our strongest market also or the East Bay, which remained challenged primarily from delinquency impact in Alameda County.

Mark: Excluding Alameda County, new lease rates in northern California would have been 70 basis points.

Angela L. Kleiman: As for Southern California, this region continues to be a steady performer, generating blended rate growth of 1.7% with a negative 30 basis points in new lease rates caused by delinquency in Los Angeles. Excluding Los Angeles, average new lease rates would have been positive 3.1% in Southern California.

Mark: As for Southern California. This region continues to be a steady performer generating blended rate growth of one 7% with negative 30 basis points in new lease rates caused by delinquency in Los Angeles.

Mark: Excluding Los Angeles average movies rates would have been positive three 1% in <unk>.

Mark: Southern California.

Angela L. Kleiman: Along with the improvement in eviction processing time, our operations and support teams have done an excellent job recovering long-term delinquent units at a faster pace, which has led to lower delinquency. We welcome this trend and continue to proactively build occupancy in anticipation of recapturing more units in this region. We view this temporary tradeoff as net beneficial to long-term revenue growth. As for current operating conditions, at the end of April, we are in a solid position with 96% occupancy heading into peak leasing season.

Mark: Along with the improvement in eviction processing time, our operations and support teams have done an excellent job recovering long term billings and units at a faster pace, which has led to lower delinquency. We welcome this trend and continue to proactively build occupancy in its IND submission of recapturing more units industry.

Mark: We view this temporary trade off it's not beneficial to long term revenue growth.

Mark: As for our current operating conditions at the end of April we are in a solid position with 96% occupancy heading into peak leasing season.

Angela L. Kleiman: Concessions for the portfolio average only three and a half days, and aside from areas with delinquency headwinds discussed earlier, we see opportunities to increase rental rates throughout our portfolio. Lastly, on the transaction market. Deal volume remains thin compared to recent years, and we continue to see strong investor demand for multi-family properties in our markets, with cap rates ranging from mid-4% for core to mid-5% for value-added communities. Against this backdrop of limited transaction volume, we have created external growth opportunities generating FFO and NAD per share accretion through our joint venture platform.

Mark: Sessions for the portfolio average only three and half days and aside from areas with delinquency headwind discussed earlier, we see opportunities to increase bunch of words throughout our portfolio.

Mark: Lastly on the transaction market.

Mark: Volume remains fun compared to recent years, and we continue to see strong investor demand for multifamily properties in that market.

Mark: With cap rates, ranging from mid 4% to a core to mid 5%, though down yes for value add communities.

Mark: Against this backdrop of limited transaction volume, we have created external growth opportunities generating F. O N E D per share accretion through our joint venture platform in the first quarter, we purchased our current US interest and then $505 million joint venture portfolio that will produce almost $2 million.

Angela L. Kleiman: In the first quarter, we purchased our permanent interest in a $505 million joint venture portfolio that will produce almost $2 million of FFO accretion for us in 2024. In fact, since inception, our private equity platform has delivered a 20% IRR and over $160 million to promote income for our shareholders and remains an attractive alternative source of capital. In conclusion, we intend to pursue growth through acquisitions while maintaining our disciplined capital allocation strategy and our core principle of generating accretion to create significant value for our shareholders. With that, I'll turn the call over to Barb. Thanks, Angela.

Mark: Oh accretion for us in 'twenty 'twenty four and five.

Mark: Since inception, our private equity platform has to deliver a 20% IRR.

Mark: And over $160 million to promote income for our shareholders and remains an attractive alternative source of capital.

Mark: In conclusion, we intend to pursue growth through acquisitions, while maintaining our disciplined capital allocation strategy and our core principle of generating accretion to create significant value for our shareholders with that I'll turn the call over to Barb.

Barb Pak: Thanks Angela. I'll begin with comments on our first quarter results, provide an update on key changes to our full year guidance, followed by comments on investment activities, capital markets, and the balance sheet. I'm pleased to report core FFO per share exceeded the midpoint of our guidance range by $0.09 in the first quarter. The outperformance was primarily driven by higher same property revenue growth, which accounted for $0.06 of the $0.09 beat. The first quarter also benefited from one-time lease termination fees within our commercial portfolio, totaling two cents, which are not expected to reoccur for the remainder of the year.

Barb: Thanks, Angela I'll begin with comments on our first quarter results provide an update on key changes to our full year guidance, followed by comments on investment activities capital markets and the balance sheet.

Barb: I'm pleased to report core <unk> per share exceeded the midpoint of our guidance range by nine cents in the first quarter.

Barb: Outperformance was primarily driven by higher same property revenue growth, which accounted for six cents of the ninth that'd be.

Barb: The first quarter also benefited from onetime lease termination fees within our commercial portfolio totaling two sons, which are not expected to reoccur for the remainder of the year.

Barb: Turning to our full year guidance revisions as a result of the strong start to the year. We are increasing the midpoint of same property revenue growth by 55 basis points to 2.25%. The increase was driven by two factors first delinquency has improved faster than our original expectations. What's your counsel.

Barb Pak: Turning to our full-year guidance revisions. As a result of the strong start to the year, we are increasing the midpoint of same property revenue growth by 55 basis points to 2.25%. The increase is driven by two factors. First, delinquency has improved faster than our original expectations, which accounts for 40 basis points of the revision. We now project delinquency to be 1.1% of scheduled rent for the year.

Barb: 40 basis points of the revision.

Barb: We now project delinquency to be 1.1% scheduled rent for the year.

Barb Pak: The second factor relates to higher other income, as we have been successful at optimizing our portfolio through various initiatives, which has led to 15 basis points of better growth. While we are trending slightly ahead of our expectations on blended lease growth so far this year, especially on renewals, we have not factored any revision into our guidance as we want to get further into peak leasing season when we sign the bulk of our leases.

Barb: I can't factor relates to higher other income as we have been successful in optimizing our portfolio through various initiatives, which has led to a 15 basis points or better growth.

Barb: While we are trending slightly ahead of our expectations on blended lease growth. So far this year, especially on renewables, we have not factored any revision into our guidance as we want to get further into peak leasing season, when we signed the bulk of our leases.

Barb: The other key driver of our full year guidance revision relates to the consolidation of our partnerships and the vacs AWS joint venture, which accounts for three sensor basketball accretion.

Barb Pak: The other key driver of our full-year guidance revision relates to the consolidation of our partnership in the BEX-AEW joint venture, which accounts for 3 cents of FFO accretion. As Angela highlighted, this acquisition reinforces the value Essex has created for shareholders through our joint venture platform, as well as our ability to grow externally in an otherwise challenging market. In total, we are raising core FFO by 20 cents per share, a 1.3% increase at the midpoint.

Barb: As Angela highlighted this acquisition reinforces the value that's created for shareholders through our joint venture platform as well as our ability to grow externally in an otherwise challenging market.

Barb: In total we are raising core <unk> by 20 cents per share of 123% increase at the midpoint.

Barb Pak: Turning to our preferred equity investments, subsequent to quarter end, we assume the sponsors' common equity interest affiliated with a preferred equity investment. This investment was previously on our watch list and was placed on non-accrual status in the fourth quarter of 2023. As such, this transaction is beneficial to our 2024 Core FFO forecast. The property is located adjacent to an existing Essex community, which will allow us to operate it efficiently within our collections model.

Barb: Turning to our preferred equity investments subsequent to quarter end, we assumed a sponsors common equity interests affiliated with a preferred equity investment.

Barb: This investment was previously on our watch list and was placed on non accrual status in the fourth quarter of 2023.

Barb: As such this transaction is beneficial to our 2024 of course LIFO forecast.

Barb: The property is located adjacent to an existing ethics community, which will allow us to operate it efficiently within our collections model.

Barb Pak: Overall, we view the outcome favorably given the quality of the asset, our initial yield, and our long-term view on the growth in the Sunnyvale submarket. Terrain to Capital Markets. In March, we issued $350 million in 10-year unsecured bonds to refinance the last remaining portion of the company's 2024 debt maturities and to partially fund the VEX-AEW transaction. We are pleased to have locked in 5.5% fixed-rate debt in today's volatile interest rate environment.

Barb: Overall, we view the outcome favorably given that quality of the asset our initial yield and our long term view on the growth in the Sunnyvale Submarket.

Barb: Turning to capital markets.

Barb: In March we issued 350 million in 10 year unsecured bonds to refinance the last remaining portion of the company's 2024 debt maturities and to partially fund the Baxter EW transaction.

Barb: We are pleased to have locked in 5.5% fixed rate debt in today's volatile interest rate environment.

Barb Pak: As it relates to equity, the company did not issue common stock to fund our year-to-date investments, nor do we plan to issue equity at our current stock price. We have alternative sources of equity capital, such as retained cash flow and preferred equity redemption proceeds from last year and expected this year, that can fund up to $400 million in investments, including transactions completed to date, without the need for new equity. We will continue to look at all our sources of equity capital, including disposition proceeds or joint ventures, in order to maximize growth in Core FFO and NAV per share while preserving our balance sheet strength.

Barb: As it relates to equity the company did not issue common stock to fund our year to date investments nor do we plan to issue equity at our current stock price. We have alternative sources of equity capital such as routine cash flow and preferred equity redemption proceeds from last year unexpected this year that can fund up to four.

Barb: 400 million in investments, including transactions completed today without the need for new equity we.

Barb: We will continue to look at all our sources of equity capital, including disposition proceeds or joint ventures in order to maximize growth in corso and NAV per share, while preserving our balance sheet strength.

Barb: We have been prudent stewards of shareholder capital over our 30 year history, which has served our shareholders well into.

Barb Pak: We have been prudent stewards of shareholder capital over our 30 year history, which has served our shareholders well. In conclusion, Essex is in a strong financial position, our leverage levels remain healthy with net debt to EBITDA at 5.4 times, and we have over $1 billion in available liquidity. As such, we are well equipped to act as opportunities arise. I will now turn the call back to the operator for questions.

Barb: In conclusion ethics is in a strong financial position our leverage levels remain healthy with net debt to EBITDA at five four times and we have over 1 billion in available liquidity as such we are well equipped to act as opportunities arise.

Speaker Change: I'll now turn the call back to the operator for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would 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 key. In the interest of time, we ask that you limit yourself to one question and one follow-up. Our first question comes from the line of Austin Wurschmidt with KeyBank Capital Markets. Please proceed with your question.

Speaker Change: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue and you May press star two if he would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: In the interest of time, we ask that you limit to one question and one follow up.

Speaker Change: Our first question comes from the line of Austin <unk> with Keybanc capital markets. Please proceed with your question.

Austin: Hi, everybody.

Austin Todd Wurschmidt: Hi everybody. You guys flagged the impact that select submarkets are having on your new lease rate growth this year. But I'm just curious if that overhang has been lifted in LA and Alameda, or if you think that the continued improvement and sort of the long-term delinquency continues to have an impact on others in the market, and you could continue to see kind of that, you know, weighing on those markets and affecting new lease rate growth moving forward.

Austin: You guys flagged.

Austin: Select sub markets are having on your new lease rate growth. This year, but I'm just curious if that overhang has been lifted in L. A in Alameda or if you think that the continued improvement in sort of the long term delinquency.

Austin: Continues to have an impact or impacts others in the market and you could continue to see kind of that you know weighing.

Austin:

Austin: Are those markets weighing on new lease rate growth moving forward.

Austin: Hey, Austin, it's Angela here, you've kind of cracked up in the.

Angela L. Kleiman: Hey, Austin, it's Angela here. You kind of cracked up in the earlier part of the question, but I believe you're asking whether the LA Alameda overhang is going to continue on new lease rates. Okay, great.

Angela L. Kleiman: Earlier part of the question, but I believe you were asking whether the L. A L. O meter overhang is going to continue on new lease rates.

Austin: Yes, that's correct.

Angela L. Kleiman: What we're expecting is that L.A. is going to continue to be an overhang on the delinquency rate. Elimida improvement is steady, and it's a smaller part of our portfolio, so the heavier influence is really coming from L.A. Just because, you know, when you have such a large volume that we're working through, it's going to take a longer period of time. The good news is that we are not seeing that bleeding into other markets, so it's really more focused on L.A., and our other markets are doing quite well.

Speaker Change: Okay great.

Austin: What we're expecting is that L. A is going to continue to provide it would be an overhang on the delinquency Alameda improvement is Ah study and it's a smaller part of our portfolio. So the heavier influence is really coming from L. A just because you know when when you have such.

Speaker Change: A large volume that we're working through.

Speaker Change: It's going to take a longer period of time.

Speaker Change: The good news is that we are not seeing that bleeding into other markets. So it's really more focused in L. A and our other markets are doing quite well.

Speaker Change: So how should we think about I guess you know when you guys underwrote at the beginning of the year you had a relatively tight spread in your new versus renewal lease rates you flag renewals are trending better, but that's been a little bit volatile, which I suspect is due to some factors on that.

Angela L. Kleiman: So how should we think about I guess, you know, when you guys underwrote at the beginning of the year, you had a relatively tight spread in your new versus renewal lease rates, your flag renewals are trending, you know, better, but that's been a little bit volatile, which I suspect is due to some factors on the comp month by month. But can you just give us a sense of or kind of updated thoughts on how you think the two of those will trend from here?

Speaker Change: On a month by month, but can you just give us a sense of.

Speaker Change: Kind of updated thoughts on how you think the two of those trend from here.

Speaker Change: Yeah sure thing now yeah, we have not really forecast it yet just because it is important to see how peak leasing season activities progress and because that's where the bulk of our leases occur at that point in time. So our data is are you now with a few months into the year and in a smaller.

Angela L. Kleiman: Yeah, sure thing. Now, you know, we have not reforecast it yet, just because it is important to see how peak leasing season activities progress. And because that's where, you know, the bulk of our leases occur at that point in time, so our data is, you know, with a few months into the year and a smaller set of leasing terms is turning, it's more limited. But having said that, what we're seeing right now is that Seattle and Northern California are trending slightly ahead of our original market rent forecast. Southern California is generally unplanned, but there is a LHRAD.

Austin: Set up leasing terms is turning its more limited, but having said that.

Austin: Well, we're seeing right now is a Seattle and northern California are trending slightly ahead of our original market rent.

Austin: Forecast.

Austin: Southern California is generally unplanned, but there is a L a drag.

Angela L. Kleiman: And so because, you know, it's not a huge outperformance relative to plan at this point. The outperformance is really mostly in the benefits from delinquency that we're getting from recovering the units much faster. In other income, it's once again, it's just too early to try to reforecast where market rents are going to be. I do want to say that with our performance on delinquency and our ability to essentially turn those units quickly, it speaks to the underlying fundamentals of our market. So that is quite solid.

Austin: And so because you know it's not a huge outperformance relative to plan at this point.

Austin: Yeah. The the outperformance is really mostly in the benefits from delinquency and that we're getting the recoveries are you in this much faster.

Austin: In other income it's once again, it's just too early to try to re forecast where market rents is going to be I do want to say that was or performance on delinquency and our ability to essentially turn those units quickly. It speaks to the underlying fundamentals of our markets. So that is quite solid.

Speaker Change: Maybe more specifically and then try to get to this in the question a little bit but can you just give us a sense where renewals are going out for the next couple of months that'd be helpful. And then that's all for me. Thanks.

Angela L. Kleiman: Sure thing. So renewal rates for, say, May and June are going out in kind of that low to mid-4 range. Say, average for the portfolio is around 4.3. And we do, you know, there are some negotiations there, and what we try to do is anticipate where the market is going to be. And because we are seeing that we are trending slightly ahead, we are, of course, going to push renewals wherever possible. But keep in mind, our approach to renewals is still the same as before. We are setting market-appropriate prices with the goal of maximizing revenues.

Angela L. Kleiman: Sure thing. So the renewal rates for

Speaker Change: Sure thing so renewal rates for say May and June they're going out and kind of that low to mid four range say average for the portfolio around four three.

Speaker Change: And we do do they there are some negotiations there and what we try to do is anticipate where the market is going to be and because we are seeing that we are trending slightly ahead. We of course are going to push renewals wherever possible, but keep in mind our approach on renewals is still.

Speaker Change: Same as before we are studying market appropriate pricing and with a goal of maximizing.

Speaker Change: Maximizing revenues.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line from the line of Nick <unk> with Scotiabank. Please proceed with your question.

Nicholas Philip Yulico: Our next question comes from the line of Nick Yulico with Scotiabank. Please proceed with your question.

Daniel Peter Tricarico: Hey, good morning out there. It's Daniel Tricarico on with Nick.

Nick: Hey, good morning out there, it's Daniel for Kericho honest Nick.

Angela L. Kleiman: Angela, you talked about the jobs backdrop and your prepared remarks. I was wondering if you could expand on the tech hiring trends in your markets. You know, are you seeing any green shoots from AI companies starting to take office space or, you know, general tech companies more active in return to work? You know, just want to understand the current state of the demand backdrop that many are hoping, you know, obviously including yourselves, to drive an acceleration in the recovery within the northern California and even Seattle market?

Daniel: You talked about the jobs backdrop in your prepared remarks I was wondering if you could expand on the tech hiring trends in your markets are you seeing any green shoots from AI companies, starting to take office space or you know general.

Daniel: General check companies more active and returned to work just want to understand the current state of the demand backdrop that many are hoping.

Daniel: Obviously, including ourselves to drive an acceleration in the recovery within the within the Northern California, and Seattle markets.

Speaker Change: Hey, Danielle it's a good question there we are seeing and adult anecdotally El hybrid workers moving closer to the office to essentially trying to reduce the commute because traffic has picked up.

Angela L. Kleiman: Hey, Daniel, that's a good question there. We are seeing anecdotally, you know, hybrid workers moving closer to the office to essentially try to reduce the commute because traffic has picked up. And we are also seeing the top 20 tech openings increasing, although it's very gradual. And so what we're seeing is that these job openings bottomed last year, you know, during the first quarter, and they were only about 8000 jobs. Today, in March, there were about 16,000 jobs. So it doubled. But it is well below our pre-COVID average; the three-year run rate was about 25,000.

Daniel: And we are seeing also the top 20 Tech openings Inc.

Daniel: Increasing although it's very gradual and so what we're seeing is that the the visa a job openings bought them last year.

Angela L. Kleiman: So hopefully that gives you some sense of how things are moving in the right direction. But in order for acceleration to occur, we really need to see a more robust pickup in high-paying jobs. And we do believe that we have, you know, the fundamental backdrop for that to occur. It just, it's all about when, and that's the big question on our minds.

Speaker Change: Yeah during the first quarter and the opening was only about say 8000 jobs today, yeah. Yeah in March it's about 16000 jobs. So it doubled but it is well below our pre COVID-19 average the three year run rate was about 25000. So hopefully that gives you some sense of how things are what we're.

Speaker Change: We're seeing is that the.

Speaker Change: The fundamentals are moving in the right direction, but in order for acceleration to occur we really need to see a more robust pick up on the high paying jobs and we do believe that we have you know that the fundamental backdrop for that to occur. It just it's all about when and that's the big question on our mind.

Speaker Change: Yes. Thank you for that Angela I wanted to follow up on the Seattle market.

Angela L. Kleiman: Yeah, thank you for that, Angela. I wanted to follow up on the Seattle market. It saw a nice sequential increase in occupancy and revenues in Q1. Could you talk a little bit about what you're seeing throughout the different submarkets, maybe give a breakdown of your portfolio urban versus suburban exposure and where you're expecting to see, you know, the greatest magnitude and timing of new supply in that market? Sure thing, Daniel.

Nick: Nice sequential increase in occupancy and revenues in Q1.

Speaker Change: Could you talk a little bit about what you're seeing throughout the different submarkets, maybe give a breakdown of your portfolio urban versus suburban exposure and where you're expecting to see the greatest magnitude and timing of new supply.

Speaker Change: In that market.

Speaker Change: Sure thing Daniel Oh, we are predominantly in the on the east side, so over 60% of our portfolio is more suburban in nature in the east side and what that means is because supply is predominantly in the CBD. We are more insulated from that and we so we're seeing much at all.

Angela L. Kleiman: And we so we're seeing much, you know, better activities coming from the east side of our portfolio. And where things are trending right now, we are seeing some demand. Some demand growth, which is, which is healthy, which is, you know, a good indicator at this point. Downtown seems to be doing okay; it's holding its own. And what we expect is the cadence of supply to occur somewhat between now and next quarter in terms of the bulk of the delivery.

Angela L. Kleiman: Sure thing, Daniel. We are predominantly in the east side. So over 60% of our portfolio is more suburban in nature on the east side. And what that means is because supply is predominantly in the CBD, we are more insulated from that.

Speaker Change: Better activity coming from the east side of our portfolio.

Speaker Change: And what we're seeing started training trending right now we are seeing some demand.

Speaker Change: The demand growth, which is which is healthy which as you know good indicator at this point downtown seems to be doing okay. It's holding its own.

Speaker Change:

Speaker Change: And what we expect is the cadence of supply to occur somewhat time between now and next quarter in terms of the bulk up the delivery, but as you know we've all experienced in this market that can get slightly pushed by a month or two in our markets, but that's what we're expecting at this point in time.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.

Eric Wolfe: Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question. Thanks.

Angela L. Kleiman: Angela, you mentioned kind of what's happening in LA and the overhang and kind of getting the units back, which obviously is a good thing, medium and longer term. Just curious if you've changed the underwriting in that market specifically to make sure you're renting to tenants that are going to be paying the rent.

Nicholas Gregory Joseph: Thanks. It's Nick here with Eric.

Eric Wolfe: Thanks, It's Nick here with Eric Angela you mentioned kind of what's happening in L. A and the overhang and kind of getting the units back, which obviously is a good thing medium and longer term just curious if you change the underwriting in that market specifically to make sure you're ready to tenants that are gonna be paying the rent.

Eric: Hey, Nick Yeah, or Reiland will talk about how we're underwriting activities.

Rylan Burns: Hey Nick, Rylan will talk about how we're underwriting activities in our various markets, including LA.

Reiland: In our various markets, including L. A.

Rylan Burns: Yeah, hi Nick. I think there's a higher degree of caution as it relates to what we're seeing in LA. You know, Thankfully, the double-edged sword, we have a lot of exposure to that market. So, I think we have pretty good data, and as we've shown over the past year or two, we know how we are turning these delinquent units back into rent-paying units and how quickly that can occur. So I feel like we've got pretty nuanced underwriting as it relates to the LA market, but it is something that we're certainly factoring in.

Reiland: Hi, Nick I think there is a higher degree of caution as it relates to what we're seeing in L. A.

Reiland: You know thankfully a double edged sword, we have a lot of exposure to that market. So I think we have pretty good data and as we've.

Eric Wolfe: Shown over the past year or two we know how we are turning these delinquent units back into rent paying units and how quickly that can occur. So I feel like we've got pretty nuanced underwriting as it relates to L. A market, but it is something that we're certainly factoring in.

Angela L. Kleiman: Yeah, Nick, and as it relates to the actual tenant underwriting itself for leasing activities, we have not needed to make any material change.

Speaker Change: Yeah, Nick and as it relates to what the actual tenant underwriting itself for leasing activities.

Eric Wolfe: We have not needed to make any material change obviously from building to building theyre always nuances on the tenant.

Angela L. Kleiman: Obviously, from building to building, there are always nuances in the tenant, you know, background and credit. We set a very solid bar for our credit. What has happened with delinquency really is not related to our underwriting. It's really a legislative result because the eviction moratorium went on for so long, and then all the courts are backed up in terms of processing these evictions, which is why the whole, you know, timeline to get out these non-paying tenants became prolonged. And so in terms of if you're talking about, say, new tenants going delinquent, we're not seeing that as a material problem at all.

Speaker Change: Background in credit we set up a.

Nick: A very solid bar for our credit.

Eric Wolfe: What has happened with delinquency it really is not related to our underwriting it's really a legislation a result, because eviction moratorium went on for so long and then all the courts are backed up in terms of processing. These are evictions.

Eric Wolfe: Which is why the whole you know timeline to get out of these non paying tenants became prolonged and so in terms of well. If you were talking about lets say new tenants going delinquent, we're not seeing that as a material problem at all.

Speaker Change: Okay, Yeah, that's exactly what I was asking about so you're not seeing anything from new tenants. This is definitely more of a residual of what you've seen before because it seems like the bad debt has certainly been improving pretty pretty rapidly recently it feels like April was he didn't even better than the first quarter.

Nicholas Gregory Joseph: Okay, yeah, that's exactly what I was asking about. So you're not seeing anything from new tenants. This is definitely more of a residual of what you've seen before, because it seems like the bad debt has certainly been improving pretty, pretty rapidly. Recently, it feels like April was even better than the first quarter.

Speaker Change: Yeah, that's correct Nick.

Angela L. Kleiman: Yeah, that's correct, Nick.

Eric Wolfe: Okay.

Nicholas Gregory Joseph: Thanks. Thank you. I appreciate it.

Eric Wolfe: Thanks.

Speaker Change: I appreciate it.

Alexander David Goldfarb: Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Speaker Change: Our next.

Speaker Change: <unk> comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Angela L. Kleiman: Hey, morning out there. Angela, just going back a few questions, you know, back to the to the demand and jobs and tech jobs What do you think is more the reason for this, if tech is still sort of sluggish on the hiring front, would you say it's more about, you know, sort of markets returning to normalcy, more about people, you know, let's say in Southern Cal enjoying that lifestyle, or is this really just a function of housing shortage?

Alexander David Goldfarb: Hey, good.

Alexander David Goldfarb: Good morning out there.

Alexander David Goldfarb: And so just going back a few questions you know back to the to the demand and jobs and tech jobs.

Alexander David Goldfarb: What do you think it's more the reason for the for this effect is still sort of sluggish on the hiring front would you say, it's more about you know sort of markets returning to normalcy more about people yeah, let's say in southern Cal enjoying about lifestyle or is this really just a function of housing shortage and.

Angela L. Kleiman: And we can talk about all these other factors, but the reality is the lack of housing, the single-family slowdown, meaning, you know, since the credit crisis, the shortage has really been the dominant driver, and therefore all these other items that we talk about are sort of on the margin, but it's really the housing shortage that's driving the stronger than expected recovery in apartments.

Alexander David Goldfarb: We can talk about all these other factors, but the reality is the lack of housing and the single family slowdown, meaning you know since the credit crisis. The shortage, that's really the dominant driver and therefore, all these other items that we talk about or sort of on the margin, but it's really the housing shortage, that's driving the stronger than expected.

Alexander David Goldfarb: Which I bring in apartments.

Angela L. Kleiman: Hey, Alexi, that is an excellent point. And good job; you've been paying attention. What we're seeing is that, you know, supply definitely is a significant benefit for our markets. And it's something that we've been stating for several years now, in that we don't need much demand for us to achieve our plan and to have, you know, a healthy performing market. And so these other incremental benefits are, you know, great signs in terms of whether it's moving people back to office, or we are seeing continual improvements in both domestic and international migration.

Alexander David Goldfarb: Hey, Alex that is an excellent point and a good job you've been paying attention.

Alex: Well, what we're seeing is that.

Alex: You know the the supply definitely is a significant benefit for our markets and it's something that we've been stating for several years now.

Alexander David Goldfarb: We don't need much demand for us to achieve our plan and to have a healthy performing a market.

Alexander David Goldfarb: And so these other incremental benefits R. R.

Alexander David Goldfarb: Our great signs in terms of you know well those moving our return to office or we are seeing continued improvements in both domestic and then there are national migration.

Alexander David Goldfarb: And in fact.

Angela L. Kleiman: And in fact, they are showing positive population growth for the first time in three years. So all this little, you know, anecdotal data on the margin is hopeful. But in terms of really driving acceleration, you know, the other high-paying job growth will need to kick in. But our markets are going to do just fine.

Alexander David Goldfarb: We're showing positive population growth for the first time in three years. So all of these little you know anecdotal data.

Alexander David Goldfarb: On the margin is hopeful but in terms of really driving acceleration and that would be the other the high paying job growth will need to kick in but where our markets are going to do just fine.

Angela L. Kleiman: Okay, and then the second question is just an update on the whole, you know, the third attempt at overturning Costa-Hawkins, you know, sort of, I guess, six months out. Is there a sense for, you know, what's the sense on the advocacy front, you know, where both sides stand? And obviously, Gavin Newsom has been big on promoting new housing, but are there major political forces coming out in support of overturning Costa-Hawkins? Or is the majority of the political might out of Sacramento supporting, you know, keeping Costa-Hawkins against the ballot initiative?

Speaker Change: Okay and then my second question is just an update on the whole you have a third attempt on overturning Costa Hawkins.

Alexander David Goldfarb: Yeah sort of I guess six months out is there a sense for what's the sense on the on that.

Alexander David Goldfarb: On the advocacy, Brian Yeah, where both sides stand.

Alexander David Goldfarb: And obviously Gavin Newsome has been big and bad promoting new housing, but are there major political forces coming out in support of overturning Costa Hawkins or the majority of the political might out of Sacramento is supporting you know keeping pop Costa Hawkins and against that ballot initiative.

Alexander David Goldfarb: Yeah.

Angela L. Kleiman: Hey Alex, yeah, that is an important question. What we are seeing is the vast majority of the legislature is not supporting overturning Costa Hawkins. So they are on our side. And because they recognize, especially, you know, in our market, we have an acute shortage of housing. And so that is not an anti-growth initiative. We have maintained our coalition to support reasonable legislation and, you know, especially relating to housing. And, of course, this proposal has been defeated overwhelmingly twice, and we just have not seen anything that shows that it will be different this time.

Alexander David Goldfarb: Hey, Alex Yeah that is an important question. What we are seeing is the vast majority of the legislature are not supporting overturning Costa Hawkins so they're on our side.

Alex: And because they recognize especially you know in our market. We have an acute shortage of housing and so that is not that is a anti growth initiative. We have maintained a coalition to support reasonable.

Alex: Legislation.

Alexander David Goldfarb: And and and yeah, especially relating to housing.

Alexander David Goldfarb: And of course this.

Alexander David Goldfarb: Our proposal has been defeated overwhelmingly twice and we just have not seen anything that shows that it'll be different this time.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

James Colin Feldman: Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question. Great. Thank you.

James Colin Feldman: Great, thank you. If we ran our numbers right, it looks like your new lease rate growth was flat or even slightly declined month over month from March to April. So I guess the first question is, is that correct? And secondly, if it is correct, we're just wondering what drove the lower acceleration and how do you expect that to trend into May?

James Colin Feldman: Great. Thank you if we ran our numbers right. It looks like your new lease rate growth was flat or even slightly decline month over month from March to April.

James Colin Feldman: So I guess the first question is that correct and secondly, if it is correct. We're just wondering what drove the lower acceleration.

James Colin Feldman: And how do you expect that to trend into May.

Barb Pak: Hi Jamie, it's Barb. Yeah, that's really driven by LA and Alameda between March and April. And once again, it's the delinquency-related challenges, which is ultimately a benefit to our revenues because we get those units back and can lease them to a rent-paying tenant. But if you pull out those two, you see that we did see a sequential increase. So I think it was primarily just driven by L.A. Alameda.

Alexander David Goldfarb: Hey, Jamie it's Barb, Yeah, that's really driven by L. A and Alameda between March and April and once again, it's that delinquency related challenges, which is ultimately a benefit to our revenues because we get those units back and can leasing to a rent.

Barb: Paying tenant.

Barb: But if you pull out.

Barb: Those to you we did see a sequential increase so I think it was primarily just driven by L. L.

Barb: Okay.

James Colin Feldman: And then secondly, you know, the acquisition in your JV in the quarter seemed like a great opportunity, you know, you didn't have to reassess your tax basis, you already had majority ownership. Can you just talk about the opportunities to continue doing deals like that? And then, also, just more broadly, I thought your comments on the transaction market were pretty interesting. I think you said four and a half percent core cap rates.

Barb: And then.

Barb: Secondly, the acquisition and your JV in the quarter. It seemed like a great opportunity you didn't have to reassess your tax basis, you already have majority ownership.

Barb: Can you just talk about the opportunities to continue doing deals like that and then also just more broadly I thought your comments on the transaction market were pretty interesting I think you said four 5% core cap rates.

James Colin Feldman: Can you just talk more about what's going on in the transaction market in terms of, you know, buyer interest? I think a lot of your peers have said things have pretty much taken a pause. I'm curious what you're seeing on the ground and your thoughts on putting capital to work.

Barb: Can you just talk more about what's going on in the transaction market in terms of buyer interest I think a lot of your peers is that things are pretty much taken a pause.

Barb: So curious what you're seeing on the ground in and your thoughts on putting capital to work.

Speaker Change: Hi, Jami rather than here.

Rylan Burns: Hi Jamie. Rylan here.

Speaker Change: On the first point, we are we do have significant opportunities to continue to acquire from our joint venture partnerships. What we are going to do however is try to make the best capital allocation decision. We can at any given point in time. So at the start of this year. This was a joint venture that was maturing and we had the opportunity.

Rylan Burns: On the first point, we do have significant opportunities to continue to acquire from our joint venture partnerships. What we are going to do, however, is try to make the best capital allocation decision we can at any given point in time. So at the start of this year, this was a joint venture that was maturing, and we had the opportunity to purchase our partner's interest, and it made sense. It was accretive for our shareholders, and that's why we decided to go down that route.

Speaker Change: <unk> to purchase our partner's interest and it made sense it was accretive for our shareholders and that's why we decided to elect that route.

Rylan Burns: So we have a pretty deep joint venture business that we can continue to look for opportunities, but we are not solely focused on one or the other. We're trying to find the highest and best return investments that we can find. As it relates to the transaction market, I think what you've been hearing is generally correct. Volumes continue to be very low, as they were all of last year, approximately a fifth of the transaction volumes we saw in 21 and 22.

Speaker Change: So we have a pretty deep joint venture business that we can continue to look for opportunities, but we are not solely focused on one or the other we're trying to find the highest and best returning.

Barb: Investments that we can find as it relates to the transaction market I think you know what you've been hearing it is generally correct the volumes continuing to be very low as they were all of last year.

Alexander David Goldfarb: <unk> fits the transaction volumes, we saw in 'twenty, one and 'twenty two what were seeing this year is there was an ample amount of capital looking to be put to work in particular from our focus on the west coast in multifamily and so theres a bit of a scarcity of premium for well located suburban product that's coming to market and so you are seeing very.

Rylan Burns: What we're seeing this year is there was an ample amount of capital looking to be put to work, in particular from our focus on the West Coast in multifamily. And so there's a bit of a scarcity premium for well-located suburban product that's coming to market. And so you are seeing very competitive bidding pools for the few transactions that have made it to market. And our expectation is that that is going to continue.

Alexander David Goldfarb: <unk> bidding pools for the few transactions that have made it to market and our expectation is that that is.

Alexander David Goldfarb: It is going to continue so we would look tracking a couple of deals right now we're very deep bitter pools, both levered and Unlevered buyers and I think some of our public investors would be surprised at where these transaction cap rates are going to come out so more to come there.

Rylan Burns: So we're tracking a couple of deals right now where there are very deep bid pools, both levered and unlevered buyers. And I think some of our public investors would be surprised at where these transaction cap rates are going to come out. So more to come there.

Speaker Change: Great. Thank you does that motivate you to sell more.

James Colin Feldman: Great, thank you. Does that motivate you to sell more?

Rylan Burns: It's certainly something we're considering. Again, we are trying to grow the portfolio, but we need to be cautious about where we, where our highest and best use of capital can be. So we have both opportunities that we are evaluating. Okay, all right.

Alexander David Goldfarb: Its certainly something were considering again, we are trying to grow the portfolio, but we need to be cautious about where we are.

Alexander David Goldfarb: Where are the highest and best use of capital can be so we have both both opportunities that we're evaluating.

Speaker Change: Okay alright, thank you.

James Colin Feldman: Okay. All right. Thank you.

Alexander David Goldfarb: Our next question comes from the line of Josh <unk> with Bank of America. Please proceed with your question.

Joshua Dennerlein: Our next question comes from the line of Josh Dennerlein with Bank of America. Please proceed with your question.

Joshua Dennerlein: Hey everyone, I want to go back to your comments, Angela, about where you're sending out May and June renewals. It sounded like mid to low fours.

Josh: Yeah, Hey, everyone I want to go back to your comments Angela about we're sending out may and June renewals. It sounded like the mid to low fours, if I if I recall correctly on the last call. It four Q I think renewals.

Angela L. Kleiman: If I recall correctly on the last call for 4Q, I think renewals Your guidance was assuming a slowing to like market rent growth, like 1.25%. Is this kind of what was expected in guidance, or is that ahead of schedule? And just like, how should we think about the cadence for the rest of the year?

Josh: Your guidance was assuming like a swelling market rent growth like the 1.25% is this kind of what was expected in guidance or does.

Josh: Is that ahead of schedule and just like how should we think about like the cadence for the rest of the year.

Josh: Yeah.

Angela L. Kleiman: Hey, Josh, we are slightly ahead of schedule. And what we haven't done is because we have not reforecast it, it's, you know, it's a little too early to talk about the actual cadence. And I will say that we're ahead of schedule everywhere except for LA and Alameda. So I want to caveat that, but things are doing fine.

Speaker Change: Hey, Josh we.

Speaker Change: We are slightly ahead of schedule and well what we havent done is because we have not be forecasted. It's you know it's it's a little too early to talk about the actual cadence and Oh, but I will say that we're ahead of schedule everywhere else, except for L. A and L. O meter so I want to watch.

Speaker Change: Have you thought but the things are doing fine right now.

Speaker Change: Okay, and what's your could you remind us what your typical like negotiation spread is on those renewals when they come back to their side.

Angela L. Kleiman: Okay, and can you remind us what your typical negotiation spread is? On those renewals, they come back to you. It could range anywhere from zero depending on market strength to close to 100 basis points depending on what else is going on. It could be supply, it could be the jobs environment, a whole host of things.

Speaker Change: Sure sure it could range yeah, it could range anywhere from zero, depending on market strength to say close to 100 basis points, depending on what else is going on it could be you know supply could be soften, but jobs environment, a whole host of things.

Speaker Change: Awesome, Thanks for the time.

Speaker Change: Our next question comes from the line of Hendel, St. Just with Mizuho. Please proceed with your question.

Haendel Emmanuel St. Juste: Our next question comes from the line by Haendel St. Juste with Mizzouho. Please proceed with your question.

Speaker Change: Hey, good morning out there a couple of quick ones for me.

Haendel Emmanuel St. Juste: Hey, good morning out there. A couple quick ones for me. I guess, first of all, I'm curious if there's any remaining benefit to your renewal rates from the burn-off of concessions? Or is that a tailwind that's now behind us? Thanks.

Speaker Change: I guess first of all I'm curious if there's any remaining benefit to your renewal rates on the burn off of concessions or is that a tailwind that's now behind us.

Speaker Change: Yeah.

Angela L. Kleiman: Hey Haendel, there's a little bit in May, and then nothing more in June and July.

Speaker Change: Hey, Handel.

Speaker Change: There's a little bit in may.

Speaker Change: And then no more in June and July.

Speaker Change: Okay. Thanks.

Angela L. Kleiman: Okay, thanks. And where's the overall loss release in the portfolio today? And maybe if you could break that down by region.

Speaker Change: Where's the overall loss to lease in the portfolio today.

Speaker Change: And maybe if you could break that down by <unk>.

Speaker Change: Region.

Speaker Change: Okay.

Angela L. Kleiman: Sure thing. So the loss of lease for the Essex portfolio in April is about 20 basis points. So nothing exciting there, once again, but keep in mind we have an LA Alameda overhang. So if you exclude LA Alameda, Los Feliz would be a little over 1%. And just to compare to last year, around April, Los Feliz was 80 basis points. So, absent LA Alameda, things are looking slightly better. We're not talking about massive acceleration, but it is slightly better.

Speaker Change: Sure thing so lots of leaves for the Essex portfolio in April is about 20 basis points.

Speaker Change: So nothing exciting there once again, but keep in mind, we have a L. L O meter overhang. So if you exclude L. A L. M. EDA last movies will be a little over 1% and just to compare to last year April loss lease was 80 basis points. So absent a L. L a meter.

Speaker Change: Things are looking slightly better we're not talking about massive acceleration, but it is slightly better.

Angela L. Kleiman: So in terms of just the disbursement, Seattle has the best lost lease at about 80 basis points, Northern California about 10 basis points, and Southern California about 10 basis points. That gives you kind of the range where things stand.

Speaker Change: So in terms of just the disbursement Seattle has the best loss lease at about 80 basis points, Northern California about 10 basis points, and southern California about 10 basis points. So.

Speaker Change: That's a that gives you kind of the range where things stand.

Speaker Change: I appreciate the color and then last one just on the Oh.

Barb Pak: And then last one, maybe talking about the health of the MEDS book, I think you put two loans on the watch list last quarter, so maybe talk about your book or your perception of the credit risk there and maybe your overall interest in adding to the book today, especially with rates looking to stay higher for longer. Thanks.

Speaker Change: Are you talking about the health of the that the best book I think you'd put two loans on watch list last quarter. So maybe talk about your the book or your perception of the credit risk there and maybe your overall interest in adding to the.

Speaker Change: The.

Speaker Change: Look today, especially with rates are looking to stay higher for longer.

Barb: And yeah, it's barb.

Barb Pak: Hi Haendel, yeah, it's Barb. So yeah, on our last call, we had five that were either on non-accrual status or on our watch list. And then we've obviously taken back one of those in the first quarter. So we're down to four, and of those four assets, three of them have loans maturing in the next... That's the next call on our watch list. We're working on a new asset for the third quarter, so we'll have an outcome there sooner rather than later, I believe.

Barb: Yeah on our last call. We had five that were either on nonaccrual status are on our watch list.

Barb: And then we've obviously taken back one of those in the fourth and the first quarter. So we're down to four and of those four assets three of them have loans maturing in the next.

Barb: Two to three quarters, so well will have an outcome there.

Barb: Sooner rather than later I believe on the other asset Theres one other asset that were having productive conversations with the sponsor to contribute additional equity, which will put us in a safer position in the capital stack and that one we will likely have more information on our next call on that one so net net it's trended a little bit.

Barb Pak: On the other asset, there's one other asset that we're having productive conversations with the sponsor to contribute additional equity, which will put us in a safer position in the capital stack. On that one, we will likely have more information on our next call on that one. So net-net, it's trended a little bit more favorably in terms of the amount that it's on our watch list, although nothing new was added. The book continues to perform. None of our sponsors are in default with a senior lender or with us. The sponsorship really does matter here, and we have really good sponsors.

Speaker Change: More favorably in terms of the amount that it's on our watch list nothing new was added.

Speaker Change: The book continues to perform none of them none of our sponsors are in default with our senior lender or with us and so I'm thinking you know the sponsorship really does matter here and we've had we haven't really good sponsors so no new updates.

Haendel Emmanuel St. Juste: So no new updates.

Barb Pak: And then your thought process perhaps on adding, or is that not being considered at the moment? Yeah, that includes adding anything new. We go through a comprehensive review of the portfolio every quarter, and we scrub it. And so yes, that does include that process. So there was no new added to the watch list this quarter.

Speaker Change: Okay and then your your thought process, perhaps on adding or is that not being considered.

Speaker Change: Yeah that includes adding anything new we go through a comprehensive review of the portfolio every quarter and we scrub it and so yes that that doesn't include that process. So there is no new added to the watch list this quarter.

Speaker Change: Okay. Thank you.

John P. Kim: Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

Speaker Change: Our next question comes from the line of John Kim with BMO Capital markets. Please proceed with your question.

Barb Pak: Hey Barb, just following up on that. So what is the earnings impact of consolidating Sunnyvale? I realize there's no impact from the impairment, but you've already had that amount of accrual. I would imagine it would be accretive going forward.

John P. Kim: Hey, Bob just following up on that so what is the earnings impact of consolidating Sonic Sunnyvale.

John P. Kim: Realize theres no impact from the impairment, but you've already had that on non accrual. So I would imagine would be accretive going forward.

Bob: Yeah. So in our 2024 initial forecast we didn't assume any accrual on the Sunnyvale asset. So it was a zero in our forecast now given that we consolidated it we did pay off the debt we think.

Barb Pak: Yeah, so in our 2024 initial forecast, we didn't assume any accrual on the Sunnyvale asset. So it was a zero in our forecast. Now, given that we consolidated it, we did pay off the debt, we think it's about a half penny benefit this year. Keep in mind, it's a small asset, and then it will grow from there as we see better rent growth.

Bob: About a half a penny benefit this year keep in mind, it's a small asset.

Speaker Change: And then growing from there as we see better rent growth.

Speaker Change: Okay.

Angela L. Kleiman: And can you quantify how much of the first quarter? Blended spreads benefited from reduced concessions on a year-over-year basis, and just remind us how that trends for the remainder of the year?

Speaker Change: And can you quantify how much of the first quarter blend.

Speaker Change: Blended spreads.

Speaker Change: Benefited from reduced concessions on your year over year basis, and just remind us how that trends for the remainder of the year.

Speaker Change: Sure. Thanks, Hey, John It's Angela here, so first quarter concessions pick up impact to <unk>.

Angela L. Kleiman: Sure thing. Hey, John, it's Angela here.

Angela L. Kleiman: So first quarter concessions pick up impacted renewals by about 60 basis points. And then what we're seeing in April, Barb, do you have them for any of you? Yeah, it's about the same.

Angela L. Kleiman: By about 60 basis points.

John P. Kim: And then what word anticipate what we're seeing in April do you have in front of you yeah. It's about the same oh, Okay April while at the same at 60 basis points and obviously, maybe we don't know yet, but we know that we have concessions burning off and June July.

Angela L. Kleiman: Oh, OK. April is about the same as 60 basis points. And obviously, May, we don't know yet, but we know that we have concessions burning off. And June, July, August will be flat, with a slight pickup in September and into the fourth quarter, but not much.

John P. Kim: I guess will be flat and slight pickup and so or and into the fourth quarter, but not much.

Angela L. Kleiman: The second and third quarter and the end of the second and third quarter last year was when you started to really Yeah, yeah, which is typical, you know.

Speaker Change: The second and third quarter.

Speaker Change: And third quarter last year.

Speaker Change: Turning to really reduce conversion.

Angela L. Kleiman: Yeah, yeah, which is typical, you know, and definitely in the second quarter and into a little bit into the third quarter, and then it picks up again in the fourth quarter.

Speaker Change: Yeah, Yeah, which is typical you know and definitely second quarter and into a little bit into the third quarter and then it picks up again in the fourth quarter.

Speaker Change: Thank you.

Adam Kramer: Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Speaker Change: Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Adam Kramer: Hey, thanks for the question. Good morning out there.

Adam Kramer: Hey, Thanks for the question good morning out there.

Adam Kramer: Asked about you know maybe a little bit about the demographics of your renters and thinking about the different job kind of new job growth commentary earlier on in the call in the opening comments.

Angela L. Kleiman: I wanted to ask you a little bit about, you know, maybe a little bit about kind of the demographics of your renters and thinking about the different jobs, kind of your job growth commentary earlier in the call in the opening comments. I think you kind of mentioned that, you know, the tech industry and higher-paying jobs haven't really recovered. I think people typically think of your portfolio as more Class B, right? A little bit more suburban, a little bit more Class B.

Adam Kramer: I think you kind of mentioned that.

Adam Kramer: Tech industry, and the higher paying jobs hasn't really recovered.

Speaker Change: I think people typically think of your portfolio is more more class b right, a little bit more suburban a little bit more class B, maybe just walk us through whether it's your cat exposure, whether its the type of renters.

Angela L. Kleiman: Maybe just walk us through, you know, whether it's your tech exposure, whether it's the type of renters that are renting with you guys. And, you know, maybe a little bit more about the specific jobs that are within your tenant base and, you know, how job growth has fared among those different industries.

Speaker Change: That all went through with you guys.

Speaker Change: And you know maybe a little bit more just about the specific job that they are within your 10 days.

Speaker Change: How is job growth there and among those different industries.

Angela L. Kleiman: Yeah, sure thing, Adam. Our tech exposure hasn't changed too much. It's about somewhere around, you know, the mid-5% of our total portfolio, of course, much higher in Seattle than Northern California and very little in Southern California. And so when you look at our portfolio as a whole, it's actually quite diversified. And what that means is, you know, jobs are coming through all the different industries. And so recently, the growth in job growth has really been in government and health and education services. And so we see that impact throughout our portfolio.

Speaker Change: Yeah, sure thing, Adam or tech exposure hasn't changed too much it's about somewhere around you know mid 5% of our total portfolio of course, much higher in Seattle, and Northern California, I'm very little in Southern California, and so when you look at our portfolio as a whole it's actually quite diverse.

Speaker Change: <unk> and what that means is you know job is coming.

Speaker Change: Through all of the different industries and so recently the growth in job growth has really been in government and health and education services.

Speaker Change: And so we see that that impact them throughout our portfolio.

Angela L. Kleiman: Got it. Okay, that's helpful. And the implication would be there are fewer renters within your within your tenant base from government and, you know, other service teacher types of industries without any kind of implication.

Speaker Change: Got it okay. That's that's helpful and the implication would be that theres fewer renters within your within your tenant base from Moody's government then.

Speaker Change: Yes.

Speaker Change: Other service.

Speaker Change: Our types of industries without kind of be the implication.

Speaker Change: Well, Adam I I think what I was trying to say is that.

Angela L. Kleiman: Well, Adam, I think what I was trying to say is that our tenant pool is pretty diverse. And there are, you know, employers from all job sectors. It mirrors the US pretty well with the exception of higher professional services, generally speaking. And so we're not going to be that different. And of course, with the northern region having a higher concentration in tech, that's the one benefit.

Speaker Change: Our tenant pool is pretty well diverse and there's.

Speaker Change: Yeah employers from all job sectors, it's it mirrors the U S. A.

Speaker Change: Pretty well with the exception of higher professional services generally speaking and so we're not gonna be that different and of course, you know with the northern region, having a higher concentration in tax that's the one benefit.

Speaker Change: Got it that's really helpful. Outdoor thank you maybe switching gears look I think the commentary around.

Speaker Change: I think you guys mentioned you didnt buyback any shares at all it's been an issue in your equity maybe just.

Speaker Change: Walk us through how you kind of view your equity cost of capital today, and you kind of the other potential cost of each other.

Speaker Change: Central capital sources and cost of capital, there or whether it's by whether it's Tvs and <unk>.

Speaker Change: And then just a little bit, but just kind of capital allocation strategy from here or is this more kind of asset light approach and I caught my ear, if you will.

Barb Pak: approach, an asset light year, if you will.

Barb Pak: Yeah, this is Barb. No, it's a good question. I mean, you have seen us in the past buy back stock when we're trading at significant discounts to NAV, and we can accretively sell an asset and arb the difference between public and private market prices. I think today we don't love our stock. We haven't issued our common stock in many years because of where we're trading relative to where we think the value is trading.

Speaker Change: Yeah. This is barb no. That's a good question I mean, you have seen us in the past buyback stock when we're trading at significant discounts to NAV and we can accretively sell an asset and are the difference between public and private market pricing I think today, we don't we don't love our stock, we haven't issued a stock or common stock.

Speaker Change: And in many years because of where we're trading relative to where we think the value is trading and toured islands point, where we're seeing private markets trade you know our cost of equity capital is not an attractive source for us and we will look to other alternatives.

Barb Pak: And to Rylan's point, where we are seeing private markets trade, our cost of equity capital is not an attractive source for us, and we will look to other alternatives. We have free cash flow, the preferred redemptions, and then we'll look at where we can sell assets or JVs if our stock price is still not where we like it, if there's an alternative acquisition opportunity or an alternative source of use of those proceeds. So we've done this since the founding of the company. We've always looked at all the sources of capital, and we'll remain disciplined on that front.

Speaker Change: We have Oh, you know free cash flow the preferred redemptions and then well look at where we can sell assets or JV is if our stock price is still not where we'd like it if there's an alternative acquisition opportunity or a term source of use.

Speaker Change: The use of those proceeds so we've done this for since the founding of the company. We've always looked at all the source of capital and we'll remain disciplined on that front.

Speaker Change: Great. Thanks, so much.

Bradley Barrett Heffern: Great, thanks so much. Our next question comes from the line of Brad Heffern.

Speaker Change: Our next question comes from the line of Brad Heffern with RBC capital markets. Please proceed with your question.

Bradley Barrett Heffern: Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question. Yeah, thanks. Hey, everybody. A couple on the press book. Can you give the yield that you ended up at on Sunnyvale and also?

Bradley Barrett Heffern: Yeah. Thanks, Hi, everybody a couple on the press book can you give the yield that you ended up add on Sunnyvale and also say how much debt you paid off as a part of that process.

Bradley Barrett Heffern: Yeah. So our yield is 475% it is a high quality condo style property and ethics, because we own the property next door, we can operate it much more efficiently than the prior owner.

Barb Pak: Yeah, so our yield is 4.75%. It is a high quality condo style property. And Essex, because we own the property next door, we can operate it much more efficiently than the prior owner. And then, in terms of the debt payoff, it was about $32 million in debt that was paid off. Okay, got it. And then, Barb, can you give the interest income that's associated with the assets that are not being accrued?

Speaker Change: And then in terms of the debt path. It was about 32 million and debt that was paid off.

Bradley Barrett Heffern: Okay.

Barb Pak: Just how much would that be if they had paid? If, for the four assets that are non-accrual, I don't have that in front of me. I would have to, I have to follow up with you offline on that.

Speaker Change: Okay got it.

Bradley Barrett Heffern: And then Barb can you get the interest income associated with the assets that are that are not being accrued just what that would be if dave if they paid.

Barb: If for the four assets that are non accrual I don't have that in front of me I would have to I have to follow up with you offline on that.

Barb: Okay sounds good thanks.

Speaker Change: And our next question comes from the line of Rich Anderson with S. M. B C. Please proceed with your question Oh, No no Wedbush.

Barb Pak: Our next question comes from the line of Rich Anderson with SMBC. Please proceed with your question.

Richard Charles Anderson: Oh, no, no, Wedbush. So I have a question on the dividend increase. I know you guys are dividend aristocrats, which sounds great, but you are also counting on free cash flow as a source of capital in the absence of raising equity. You mentioned that up front. I'm curious how married you are to this annual increase in the dividend, particularly now when, you know, cash is king, and, you know, free cash flow is important to you more now than ever, perhaps. So if you can comment on the and staying on this this aristocrat.

Unknown Attendee: So I have a question on the.

Unknown Attendee: The the dividend increase I know you guys are a dividend aristocrat, which sounds great.

Unknown Attendee: But you also are counting on free cash flow as a source of capital in the absence of raising equity you mentioned that upfront I'm I'm curious how old married you are to this annual increase to the dividend, particularly now when you know cash is king and you know free.

Unknown Attendee: Free cash flow is important to you more now than ever perhaps so if you can comment on the dividend policy going forward.

Barb: And staying on this this this aristocrat list. Thanks.

Barb: Hi, rich its barb I you know it is very important for us to stay on the dividend aristocrat list and maintain the dividend and continuing to increase it we do like free cash flow, but we also have a lot of planning that goes on behind the scenes in terms of how how we do raise our dividend and when we do charge.

Barb Pak: Hi Rich, it's Barb.

Barb Pak: It is very important for us to stay on the dividend or risk credit list and maintain the dividend and continue to increase it. We do like free cash flow, but we also have a lot of planning that goes on behind the scenes in terms of how we raise our dividend. And we do target a certain percent of our FFO and our AFO yield to go out as a percent of the dividend payment.

Barb: Get a certain percent of our <unk> on our Alco Yale to go out as a percent of the dividend payments. So all of that gets factored into how.

Barb Pak: So all that gets factored into how much we increase the dividend annually, and it won't be 6% every year. It just does depend on a variety of things behind the scenes that are going on. But maintaining the dividend and keeping our long history of increasing it every year is something that's very important to the company.

Barb: How much we increased the dividend annually and it won't be 6% every year. It just does depend on a variety of things behind the scenes that are going on.

Barb: But but the maintaining.

Barb: The dividend and keeping our long history of increasing it every year is something that's very important to the company.

Richard Charles Anderson: Okay. And my second question is, you know, understanding the makeup of job growth has not been your sweet spot yet to this point, but I'm wondering when you think of the jobs that are being created, do they have no shot at being residents with you guys, or could there be a situation where they would qualify in a doubling up scenario? I'm just curious, you know, to the extent there are some areas of the job growth market that don't, you know, immediately, you know, look great to Essex, but is there a path to them becoming residents nonetheless because of, you know, schemes like that.

Barb: Okay.

Barb: And my second question is you know understanding the makeup of job growth has not been your sweet spot yet to this point.

Barb: But I'm wondering when you think of the jobs that are being created.

Barb: Do they have no shot to being a resident with you guys or could there be a situation, where they would qualify and a doubling up scenario I'm. Just curious you know to the extent there is some areas of the job growth market that don't immediately.

Barb: Lately.

Barb: Look great to ethics, but is there a path to that hadn't been becoming residents nonetheless, because of some sort of set up like that thanks.

Barb: Hey, rich it's Angela here, that's a good question because when we look at the median income it actually is pretty darn good and it matches the profile of our property quite well and so we're you know that's my way of saying we don't have an.

Angela L. Kleiman: Thanks.

Angela L. Kleiman: Issue with the the the demographics and that they can't.

Barb: Mollify for our properties because within a market we have a diversified pool. So even though were solely in the west coast within each sub market. We do have different levels of our properties, where tenants can qualify and the you know the quality of jobs speaking.

Angela L. Kleiman: Hey, Rich. It's Angela here. That's a good question. Because when we look at the median income, it is actually pretty darn good, and it matches the profile of our property quite well. And so we're, you know, it's my way of saying, we don't have an issue with the demographics in that they can't qualify for our properties because within a market, we have a diversified pool. So even though we're solely in the West Coast, you know, within each stock market, we do have different levels of properties where tenants can qualify. And the, you know, the quality of jobs I'm speaking to really relates to our ability to accelerate rent growth. And that's the key when I'm talking about high-paying jobs. Yep, fair enough.

Barb: Two really more relates to our ability to accelerate rent growth and that's the key went out when I'm talking about the high paying jobs.

Richard Charles Anderson: Yep, fair enough. Okay. Thank you very much.

Speaker Change: Yeah fair enough. Okay. Thank you very much.

Speaker Change: Thank you we have reached the end of our question and answer session and with that this will conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Operator: Thank you. We have reached the end of our question and answer session. And with that, this will conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Goodbye.

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