Q1 2025 Essex Property Trust Inc Earnings Call
Milan: [music].
Unknown Attendee: © BF-WATCH TV 2021 © BF-WATCH TV 2021 Good day and welcome to Essex Property Trust first quarter 2025 earnings call. As a reminder, today's conference call is being recorded. The statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risk and uncertainty. 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.
Good day, and welcome to Essex property Trust first quarter 2025 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 risk 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.
Unknown Attendee: Further information about these risks can be found on the company's filings with the SEC.
Further information about these risks can be found on the company's filings with the S. E C.
Unknown Attendee: It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you, Ms. Kleiman. You may begin.
Speaker Change: It is now my pleasure to introduce your host Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you Ms climbing you may begin.
Angela Kleiman: Welcome to Essex First Quarter Earnings Call. Today, I will cover highlights from the quarter, our near-term outlook, and provide an update on the investment market.
Speaker Change: Welcome to ethics first quarter earnings call today, I will cover highlights from the quarter, our near term outlook and provide an update on the industrial market Barb Pak will follow with prepared remarks, and rylan Burns is here for Q&A.
Unknown Attendee: Barbara Pak will follow with prepared remarks, and Rylan Burns is here for Q&A.
Angela Kleiman: We reported a healthy first quarter with core FFO per share exceeding the midpoint of our guidance range. Additionally, we are pleased to start the year with $345 million in acquisitions in Northern California, which were funded by dispositions in Southern California. This reallocation into higher rent growth markets and further optimization of our operating platform will enable us to generate above market returns. Turning to operating highlights, first quarter results trended slightly ahead of plan with 2.8% blended net effective rent growth, and new lease rates improved sequentially from the fourth quarter for the same property portfolio. Two key factors contributed to our performance.
Speaker Change: We reported a healthy first quarter with core <unk> per share exceeding the midpoint of our guidance range. Additionally, we are pleased to start the year with 345 million in acquisition in Northern California, which were funded by dispositions in southern California, This reallocation into higher rent growth markets.
Speaker Change: And further optimization of our operating platform will enable us to generate above market returns.
Speaker Change: Turning to operating highlights first quarter results trended slightly ahead of plan with 2.8% blended net effective rent growth and new lease rates improve sequentially from the fourth quarter for the same property portfolio.
Speaker Change: Two key factors contributed to our performance first is delinquency improvement to a level close to our historical average, mostly driven by Los Angeles, where delinquency improved to one 3% of schedule rent compared to three 9% for the same period last year.
Angela Kleiman: First is delinquency improvement to a level close to our historical average, mostly driven by Los Angeles, where delinquency improved to 1.3% of scheduled rent compared to 3.9% for the same period last year. Second, we executed our operating strategy, which contributed to a notably low turnover rate of 35% while achieving positive new lease rate growth and stable occupancy level.
Speaker Change: Second we executed our operating strategy, which contributed to a notably low turnover rate of 35% well achieving positive new lease rate growth and stable occupancy levels.
Angela Kleiman: Great job, Team Essex on these accomplishments. From a regional perspective, in the first quarter, new lease rates turned positive in all three major regions, led by Northern California at 1.5%, Seattle at 1.3%, and Southern California in last place, as expected, at 20 basis points. On a more granular level, San Mateo left the same property portfolio with 4.8% and Oakland lagged with negative 1.2% in new rate growth, primarily due to elevated supply. Fortunately, Oakland has begun to demonstrate incremental improvement as supply abates and concessions moderate.
Speaker Change: Great job team Essex on these accomplishments.
Speaker Change: From a regional perspective in the first quarter, new lease rates turn positive in all three major regions led by Northern California, and 1.5% Seattle at one 3% and southern California in last place as expected at 20 basis points.
Speaker Change: On a more granular level San Mateo, let the same property portfolio was four 8% and Oakland lag with negative one 2% in new rate growth, primarily due to elevated supply.
Speaker Change: Fortunately Oakland has begun to demonstrate incremental improvement in our supplier base and concessions moderate.
Angela Kleiman: Moving on to the full year outlook. With our solid performance today, under normal circumstances, Essex would consider revising our guidance upward. But lack of clarity on the U.S. and global trade policy have led to macroeconomic uncertainty, including the impact on business investment and job growth. As we navigate this complex environment, we will be nimble with our operating and investment strategy, remain focused on our objective to maximize revenues and to generate long-term accretion. Ultimately, the West Coast Multifamily Fundamental is well positioned for a wide range of economic outcomes. Total new housing supply delivery as a percentage of stock in 2025 is exceptionally low, at only 50 basis points in the Essex markets, and is expected to moderate throughout the year and to decrease further in 2026.
Speaker Change: Moving onto the full year outlook with our solid performance today under normal circumstances ethics would consider revising our guidance upward, but lack of clarity on the U S and global trade policy have led to a macroeconomic uncertainty, including the impact on business investment and job growth.
Speaker Change: As we navigate this complex environment, we will be nimble with our operating and investment strategy. We remain focused on our objective to maximize revenues and to generate long term accretion.
Speaker Change: Ultimately the west coast multifamily fundamental is well positioned for a wide range of economic outcomes.
Speaker Change: Total new housing supply delivery as a percentage of stock in 2025 is exceptionally low at only 50 basis points in the Essex markets and is expected to moderate throughout the year and to decrease further in 2026.
Angela Kleiman: Accordingly, rents should continue to grow, even in a low-job growth environment. This downside protection is a key reason why our supply-constrained markets have outperformed over multiple economic cycles. Furthermore, the cost to own versus to rent remains prohibitive at over two and a half times more expensive. Overall, we remain excited about our portfolio's growth potential as our markets continue to lead in innovation, which provides a solid foundation for economic growth.
Speaker Change: Accordingly rent should continue to grow even in a low job growth environment. This downside protection is a key reason why our supply constrained markets have outperformed over multiple economic cycles.
Speaker Change: Are there more the cost to own versus two rent remains prohibited at over two and a half times more expensive overall.
Speaker Change: Overall, we remain excited about our portfolio's growth potential as our markets continue to lead in innovation, which provides a solid foundation for economic growth.
Angela Kleiman: concluding with a transaction market update. Deal volume in our markets was higher in the first quarter compared to the same period last year, totaling $2.5 billion, with cap rates consistently in the mid to high 4% range. With the onset of broad market volatility in early April, we have limited data points as to the impact of cap rates from ongoing policy changes. However, several deals in our markets have recently been awarded or had contingencies removed, and the valuations have remained consistent with what we've seen over the past year. Our year-to-date transaction activity has been balance sheet neutral where we have allocated capital into newer assets in submarkets with the best supply-demand fundamentals and rent growth potential.
Speaker Change: Concluding with a transaction market update.
Speaker Change: Volume in our markets was higher in the first quarter compared to the same period last year totaling two and a half billion with cap rates consistently in the mid to high 4% range.
Speaker Change: With the onset of broad market volatility in early April we have limited data points as to the impact of cap rates from ongoing policy changes. However, several deals in our markets have recently been awarded or had contingencies removed and the valuations have remained consistent with what we've seen over the past year.
Speaker Change: Our year to date transaction activity has been balance sheet neutral, where we have allocated capital into newer assets in submarkets with the best supply demand fundamentals and rent growth potential we look forward to more opportunities to continue our expansion and enhance accretion for our shareholders with that I'll turn the call over to.
Angela Kleiman: We look forward to more opportunities to continue our expansion and enhance accretion for our shareholders.
Barbara Pak: With that, I'll turn the call over to Barb. Thanks, Angela. I'll begin with comments on our first quarter results and full year guidance, followed by an update on investments and the balance sheet. I'm pleased to report first quarter core FFO per share exceeded the midpoint of our guidance range by 5 cents. There were three factors that led to this outperformance. First, our consolidated portfolio performed ahead of plan, primarily driven by same property revenues, which grew 3.4% compared to one year ago. This was 40 basis points ahead of plan driven by lower delinquency and higher blended net effective rent.
Speaker Change: Barbara.
Barbara: Thanks, Angela I'll begin with comments on our first quarter results and full year guidance, followed by an update on investments and the balance sheet.
Speaker Change: I'm pleased to report first quarter core <unk> per share exceeded the midpoint of our guidance range by five cents.
Speaker Change: There were three factors that led to this outperformance first our consolidated portfolio performed ahead of plan, primarily driven by same property revenues, which grew three 4% compared to one year ago.
Speaker Change: This was 40 basis points ahead of plan driven by lower delinquency and higher blended net effective rents.
Barbara Pak: Second, our co-investment portfolio exceeded our forecast due to better NOI growth from our joint venture properties and higher preferred equity income. And third, interest expense came in favorable to our forecast. As for our full year outlook, we are reaffirming our same property growth and core FFO per share guidance ranges. While we have gotten off to a solid start to the year and are trending slightly ahead of plan, we felt it prudent to get further into the year before making any adjustments to our forecast given the heightened economic uncertainty that has recently developed. In regard to the cadence of same property revenue growth at the midpoint, we expect the first quarter will be the highest growth followed by the fourth quarter.
Speaker Change: Second our co investment portfolio exceeded our forecast due to better NOI growth from our joint venture properties and higher preferred equity income.
Speaker Change: And third interest expense came in favorable to our forecast.
As for our full year outlook, we are reaffirming our same property growth in core <unk> per share guidance ranges well, we have gotten off to a solid start to the year and are trending slightly ahead of plan. We felt it prudent to get further into the year before making any adjustments to our forecast given the heightened economic uncertainty that has recently developed and rigs.
Speaker Change: Guard to the cadence of same property revenue growth at the midpoint, we expect the first quarter will be the highest growth followed by the fourth quarter. The second and third quarters are expected to be our lowest year over year growth due to tougher delinquency comps compared to the prior year.
Barbara Pak: The second and third quarters are expected to be our lowest year-over-year growth due to tougher delinquency comps compared to the prior year.
Barbara Pak: Turning to investments, we've made progress on our growth strategy year-to-date while match funding these investments on a leverage-neutral basis. While these investments are net-neutral to our 2025 FFO forecast, they further position the company for long-term outperformance. We'll continue to remain disciplined as we seek further opportunities to deploy capital utilizing the most attractive capital sources available to maximize core FFO and NEV per share growth while preserving our balance sheet strength. As it relates to the preferred equity portfolio, we received around $27 million in redemptions so far to date. One of the redemptions was on our watch list that we stopped accruing on over a year ago.
Speaker Change: Turning to investments we've made progress on our growth strategy year to date well match funding. These investments on a leverage neutral basis. While these investments are net neutral to our 2025 F O forecast. They further position the company for long term outperformance, we will continue to remain disciplined as we seek further opportunities.
Speaker Change: To deploy capital utilizing the most attractive capital sources available to maximize core S. S. O N E vapor per share growth, while preserving our balance sheet strength.
Speaker Change: As it relates to the preferred equity portfolio, we received around $27 million in redemptions, so far today.
Speaker Change: One of the reduction was on our watch list that we stopped accruing on over a year ago. Since we were fully redeemed on our investment we realized $1 million in incremental interest income this quarter that won't repeat next quarter.
Barbara Pak: Since we were fully redeemed on our investment, we realized $1 million in incremental interest income this quarter that won't repeat next quarter. As it relates to the rest of the year, we expect the remaining $125 million in redemptions will be split evenly between the third and fourth quarters.
Speaker Change: As it relates to the rest of the year, we expect the remaining $125 million in redemptions will be split evenly between the third and the fourth quarters.
Barbara Pak: Lastly, a few comments on the balance sheet. We are pleased to have refinanced the majority of our 2025 debt maturities earlier this year with the unsecured bond offering in February. Overall, our balance sheet remains a source of strength and has proven durable throughout all economic cycles. With minimal refinancing needs remaining in 2025, access to a variety of capital sources, and over $1 billion in available liquidity, we are well positioned.
Speaker Change: Lastly, a few comments on the balance sheet. We are pleased to have refinanced the majority of our 2025 debt maturities earlier this year with the unsecured bond offering in February overall, our balance sheet remains a source of strength and as proven durable throughout all economic cycles with minimal refinancing needs remaining in 2025.
Speaker Change: Access to a variety of capital sources and over 1 billion in available liquidity, we are well positioned I will now turn the call back to the operator for questions.
Unknown Attendee: I will now turn the call back to the operator for questions. Thank you.
Speaker Change: Thank you.
Unknown Attendee: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on the telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove your question from the queue. Request participants please limit to one question and one follow-up and rejoin the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on the telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: Request participants please limit to one question and one follow up and rejoin 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: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Nicholas Yulico: Our first question comes from Nick Yulico with Scotiabank. Please go ahead. Thanks. First question is just on, in terms of the guidance, I think the original guidance for the year assumed some modest acceleration on your blended rate growth in the second half versus the first half of the year. Can you talk about sort of the confidence level today of still achieving that, and if you didn't get that, kind of where it put you on the range for the year? Thanks.
Speaker Change: Our first question comes from Nick illegal with Scotia Bank. Please go ahead.
Nick Illegal: Oh. Thanks. Your first question is just on in terms of the guidance I think the original guidance for the year assumes some.
Nick Illegal: Modest acceleration on your blended rate growth in the second half versus the first half of the year can you talk about you know sort of a confidence level today. It's still you know achieving that in and if you didn't get that you know kind of where it puts you on the the range for the year. Thanks.
Angela Kleiman: Hey, Nick, it's Angela here. Thanks for your question. And yes, you're correct. Our original assumption includes a slight increase or incremental increase in the second half. And our current view is that relationship should remain intact. And keep in mind that we didn't revise our guidance. So what happened here is that first quarter we outperformed. And the rest of the year, and when you look at our second quarter, blended lease rate growth, it looks more incremental. And it looked like maybe we had some concern, but it's really a function that the first quarter outperformed, and we did not change our guidance.
Angela Kleiman: Hey, Nick it's Angela here. Thanks for your question and yes, you're correct. Our original assumption includes a slight Ah <unk>.
Angela Kleiman: Increase incremental increase in the second half and our current view is that a relationship should remain intact and keep in mind that we didn't revise our guidance. So what happened here is the first quarter we outperformed.
Angela Kleiman: And the rest of the year and then when you look at our second quarter blended lease rate growth.
Angela Kleiman: It looks more incremental and it looked like maybe we had some concern but its really a function that the first quarter and outperform and we did not change our guidance.
Nicholas Yulico: Okay, thanks, Angela.
Speaker Change: Okay. Thanks, Angela and then second question is just on tax you know, it's it's something that comes up a lot from our investors are you know in terms of the impact on your portfolio are you know there has been some.
Alexander Goldfarb: And then second question is just on tech, you know, it's something that comes up a lot from investors, you know, in terms of the impact on your portfolio, you know, there has been some, you know, headlines and concerns about the tech sector not, you know, growing jobs the way maybe they have been, you know, they may not grow going forward, just any perspective, clearly, it's not your entire portfolio, but any perspective on that and any trends you've seen on the ground related to tech. Thanks. They're saying now that that's an important data point that we track closely.
Speaker Change: Headlines and concerns about the tech sector not growing jobs the way maybe they have been they may not grow going forward just any any perspective clearly its not your entire portfolio, but any any perspective on that and any trends you're seeing on the ground related to tax effects.
Speaker Change: Sure thing now that that's an important data point that we track closely and when we look at the third party reports what we're seeing is that the opening jobs of the top 20 Tech companies. That's the most meaningful indicator of the health of that sector.
Angela Kleiman: And when we look at the third party reports, what we're seeing is that the opening jobs of the top 20 tech companies, that's the most meaningful indicator, you know, of the health of that sector, has remained steady and incrementally increasing each month. So it dropped in around November, December, but that's typically the seasonally low period. But since then, every month, it has increased. And that gives us an indication of the hiring to come. And if we were seeing any softness there, we would have seen either plateau or a decline, and we're not seeing that. Thank you.
Speaker Change: <unk> has remained steady and incrementally increasing each month so at trough in around November December, but that's typically a seasonally low period, but since then every month. It's it hasn't increased and that gives us gives us an indication of the hiring to come.
Speaker Change: And if we're seeing any softness there we would've seen either plateau or a decline and we're not seeing that.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Eric Wolfe: The next question comes from Eric Wolfe with Citibank. Please go ahead. Hey, thanks. Could you just talk about your occupancy strategy in the second quarter? I think typically you push a little bit more on rate and let occupancy come down a bit. Just wondering if that's also the case this year, or if you're trying to be a little bit more conservative than normal, given the current environment. Yeah, no, that's a good question. And, and, and a good observation on how we think about the business. What we're seeing right now is that the, our occupancy strategy is consistent with our approach as we head into the peak leasing season.
Speaker Change: The next question comes from Eric Wolfe with Citibank. Please go ahead.
Eric Wolfe: Hey, Thanks could you just talk about your occupancy strategy in the second quarter I think typically you push a little bit more on rate occupancy come down a bit just wondering if that's also the case this year or if you are trying to be a little bit more conservative than normal given the current environment.
Eric Wolfe: Yeah, No that's a good question and and and a good observation and how we think about the business. What we're seeing right now is that the occupancy the strategy is consistent with our approach as we head into the peak leasing season.
Eric Wolfe: But it's going to be nuanced as they should be so for example in April.
Angela Kleiman: But it's going to be nuanced as it should be. So for example, in April, we are pushing occupancy in northern California. In Seattle, it's transitional, it depends on where you are, because supply in Seattle is heavier in the first half. You know, we're talking about 60% of the delivery. And then of course, southern California, we are not, I'm sorry, northern California, we're pushing rent, not occupancy. Seattle is in transition and southern California, we are still holding or focusing on occupancy, mostly because of two reasons. Southern California peaks later than northern regions. So naturally, that would mean that you start pushing rents at a later point in time.
Eric Wolfe: We are pushing occupancy in northern California, and Seattle its transition all it just depends on where you are because supply in Seattle was heavier in the first half.
Eric Wolfe: We're talking about 60% of the delivery and then of course Southern California.
Eric Wolfe:
Eric Wolfe: We are not I'm, sorry, northern California, we're pushing rent not occupancy.
Seattle is in transition in southern California, we are still holding or focusing on occupancy mostly because of two reasons Southern California peaks later than northern region. So naturally that would mean that you start pushing rents at a later point in time.
Angela Kleiman: But also southern California, over 60% of the supply is occurring in the first half. So that is going to ebb and flow as, you know, as we see the market conditions. But once again, what we're experiencing now on the ground is consistent and the fundamentals are solid. So I guess in aggregate, in terms of sort of the demand statistics that you look at and the important things you look at and think through sort of forward demand, whether that's renewal rate or your exposure, like all of that looks relatively normal for this time of year. Basically, there's no signs like of incremental weakening since we had sort of the tariff announcements or other announcements that have come over the last couple of years.
Eric Wolfe: But also southern California over 60% of the supply is occurring in the first half so that is going to ebb and flow as you know as we see the market conditions, but once again, what we're experiencing now on the ground is consistent and the fundamentals are solid.
Eric Wolfe: So I guess in aggregate in terms of sort of the demand statistics that you look at an important things. If you look at things you sort of for demand, whether that's renewal rate or.
Eric Wolfe: Your exposure like all that looks relatively normal for this time of year basically there theres no signs like of the incremental weakening since we've had sort of a tariff announcements or other announcements that have come over the last month.
Angela Kleiman: No, we haven't seen any signs of weakening or cracks and the tariff announcements has not had any impact. What we're trying to anticipate is You know, all the different policy changes, what does that mean for the rest of the year, which is why we've taken a more cautious approach on holding any revisions to guidance until we have better visibility. But it's certainly not because of any concern with what we're seeing on the ground in our markets. Got it. Thank you.
Eric Wolfe: No we haven't seen any signs of weakening or cracks and the tariff announcements has not had any impact what we're trying to anticipate is.
Eric Wolfe: You know all the different policy changes what does that mean for the rest of the year, which is why we've taken a more cautious approach on holding any revisions to the guidance until we have better visibility, but it's certainly not because of any concern with what we're seeing on the ground in our markets.
Speaker Change: Got it thank you.
Eric Wolfe: Yeah.
Eric Wolfe: Thank you.
Stephen Sakwa: Our next question comes from Steve Sakwa with Evercore ISI. Please go ahead. Blended Net Effective Rate Growth Assumption that you guys have given for second quarter and it just assumes like 20 basis points of expectation. So what are the new lease rates you are achieving in April, you have achieved in April and May and... Let me make sure I'm asking or answering your question. You're talking about our second quarter blended of 3% and how we thought about that. Okay. And then, of course, new lease rates. So, as far as the second quarter blended lease rates, a guide of 3%, that is consistent with our original plan because we have not changed guidance.
Moderator: Our next question comes from Steve Sochua with Evercore ISI. Please go ahead.
Speaker Change: Hello. This is some kids university. Thanks for taking my question.
Moderator: Question around Black Knight.
Speaker Change: Net effective rent growth assumption that you get.
Speaker Change: Guys housekeeping for second quarter, and it just assumes like 20 basis points of acceleration at the midpoint can you help us think through that and also one of the new lease rates you are assuming in that pretty about children at Berlin.
And as.
Speaker Change: As well.
Speaker Change: If oh, let me make sure I'm asking or answering your question, you're talking about our second quarter blended a 3% and how we use.
Speaker Change: Sorry about that Okay, and then of course new lease rates.
Speaker Change: As far as the second quarter blended lease rates, our guide of 3% that is consistent with our original plan because we have not changed guidance and so I understand that it looks like Oh, there's not that much acceleration because.
Angela Kleiman: And so I understand that it looks like, oh, there's not that much acceleration because, you know, first quarter landed at around 2.8. But keep in mind, our first quarter guidance was 2.5, and so we had expected or planned for a 50 basis points acceleration. And so the, you know, that the incremental increase, it's once again, not because we have a different view of what we're seeing on the ground. It's really we outperformed in the first quarter and we have not changed our guidance. As far as where new lease rates are landing in April, it's consistent with plan.
Speaker Change: You know first quarter landed at around two eight.
Speaker Change: Keep in mind, our first quarter guidance was two and a half and so we had expected or planned for 50 basis points acceleration.
Speaker Change: And so the you know that.
Speaker Change: The incremental increase its once again not because we have a different view of what we're seeing on the ground. It's really we outperformed in the first quarter and we have not changed our guidance.
Speaker Change: As far as where our new lease rates are landing in April it's consistent with plan, it's consistent with what we saw in <unk> around the March.
Angela Kleiman: It's consistent with what we saw in around March. And, you know, there's nothing there that's unusual.
Speaker Change: And yeah, there's nothing there that is unusual.
Angela Kleiman: and can you can you give us some color on what renewals you are able to achieve? PAGE PAGE www.verbalink.com Page 3 Sure thing. So the renewals, once again, very steady. In April, you know, we send out renewals in the low fours, landed around high threes. So once again, consistent with plan.
Speaker Change: It makes sense and can you can you give us some color on what you are able to achieve in Poland, where you, yes or younger age.
Speaker Change: Sure thing so renewals once again very steady in April we send out renewals in the low fours land at around the high threes. So once again consistent with plan.
Speaker Change: Thanks.
Unknown Attendee: Thank you.
Speaker Change: Thank you.
Alexander Goldfarb: The next question comes from Alexander Goldfarb with Piper Sandler, please go ahead. Hey, morning out there. Angela, when, you know, there are third party data providers out there that, you know, publish information on how the different companies, different regions are doing. Do you guys participate in helping those entities get their information? Or are those entities merely scraping data off your website, and thus, you have no control over how they're aggregating their data or how it's being processed?
Speaker Change: Next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, good morning out there.
Speaker Change: Angela when.
Speaker Change: Yes, there are third party data providers out there that publish information on how the different companies different regions are doing.
Speaker Change: Do you guys participate in helping those entities get their information or are those entities merely scraping data off your website and thus you have no control over how they are aggregating their data or how it's being processed.
Angela Kleiman: For more information, go to www.fema.gov Hey, Alex, it's a good question. We have absolutely no control over what gets published and we do not participate in, you know, what the third party providers generate. Okay.
Speaker Change: Hey, Alex it's a good question, we have absolutely no control over what gets published and we do not participate in.
Speaker Change: And you know what the third party providers.
Speaker Change: Providers generate.
Angela Kleiman: And then the second question is, you know, in Sacramento, they're debating, you know, trying to rein in CEQA to encourage development in, in the urban areas. Just sort of curious your take on this AB 609, if it seems like, you know, finally, CEQA could be reined in, and we could see some improvement in investment, or if there look to be some workarounds where, you know, CEQA will not relinquish their power, and thus, you know, remain the inhibitor that they've been. Yeah, Alex, we view that trend is a positive, it's going the right direction. I think it will take time, you know, for these policies to ultimately get to where they need to go.
Speaker Change: Okay and then the second question is Oh in Sacramento, they're debating.
Speaker Change: You know trying to rein in sequence to encourage development and in the urban areas just sort of curious your take on this a bit 609, if it seems like finally seek where it could be reined in and we could see some improvement in investment or if they are look to be some workarounds where sequel.
Speaker Change: Not relinquished their power and thus remain the inhibitor that they have been.
Speaker Change: Yeah, Alex we view that trend is a positive it's going the right direction I think it will take time for these policies to ultimately.
To get to where they need to go.
Angela Kleiman: And I do think that the legislators recognize that regulation does not solve the housing crisis. In fact, it's been proven that regulations actually make things worse. And it's really not, you know, tenant advocacy, as they think, it's really anti-growth. And so once again, we're pleased that these conversations are being discussed. We're pleased with that California has begun to move toward a better environment and heading the right direction. We just, you know, need to see how this plays out in the end and how long it takes.
Speaker Change: And I do think that the legislators who recognize that regulation does not solve the housing crisis and that it's been proven that regulations actually make things worse and it's really not you know tenant advocacy USA. Thank gets really anti gross and so.
Speaker Change: Once again, we're pleased that these conversations are being discussed we're pleased with that California has began to move toward a better environment and end and heading the right direction, we just need.
Speaker Change: We need to see how this plays out in the Indiana and how long it takes.
Unknown Attendee: Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Austin Wurschmidt: Our next question comes from Austin Wurschmidt with KeyBank Capital Markets. Please go ahead. This is a question about the 4% market rent growth, was comprised of Seattle and San Diego, being close to the 4% range. I'm just curious, I know it's still early, but how are kind of the respective regions or markets track?
Speaker Change: Thank you.
Austin: Next question comes from Austin, <unk> with Keybanc capital markets. Please go ahead.
Speaker Change: Great. Thanks, maybe just digging in a little bit to the initial assumptions I think you know the 3% market rent growth.
Speaker Change: Which comprised of Seattle, and San Diego being closer to the 4% range I'm just curious I know, it's still early but how are kind of the respective regions or markets tracking which are tracking a little better and in our new tracking a little worse at this point. Thanks.
Angela Kleiman: which are tracking a little better and are any tracking a little Hey, Austin. Generally speaking, the, you know, Northern California, especially Santa Clara, and San Mateo counties and parts of Seattle, are leading our portfolio performance. And that's consistent with our expectations.
Speaker Change: Hey, Austin generally speaking, the northern California, especially Santa Clara.
Speaker Change: In San Mateo counties in parts of Seattle are leading our portfolio performance and that's consistent with I expect our expectations and southern California is softer, especially L. A and so we're talking about you know range of.
Angela Kleiman: And Southern California is softer, especially LA. And so we're talking about, you know, range of possibility, you can safely say that the submarkets I mentioned in the Northern region are maybe slightly for the higher end of our range. And Southern California, particularly LA, is for the lower range and averaging out to be about the same spot where we will ultimately land.
Speaker Change: Possibility.
Speaker Change: You can safely say that the sub.
Speaker Change: Submarkets I mentioned in the northern region, or maybe slightly towards the higher end of our range in southern California, particularly L. A is towards the lower range and averaging out to be about the same spot where we will ultimately land.
Angela Kleiman: helpful. And then given you guys perhaps, you can quickly tie your renewal rent growth pretty close to your view on market rent growth and I think you reference three of the high-growth housing that is currently in development. Renewals are still coming in, kind of in that mid to high 3% range. Should that be sort of an indication of how market rents are tracking, maybe relative to your initial expectations? Yeah, I think that's a fair assumption. And ultimately, if you look at our first quarter performance, which, you know, blended came in a little bit higher than expected.
Speaker Change: That's helpful. And then giving you guys typically tie your renewal rent growth pretty close to your view on on market rent growth and I think you referenced renewals are still coming in kind of in that mid to high 3% range.
Speaker Change: Should that be sort of an indication of how market rents are tracking maybe relative to your initial expectation.
Speaker Change: Yeah, I think that's a fair assumption and ultimately if you look at our first quarter performance, which blended came in a little bit higher than expected and that was in both cases, both renewal and new leases new lease rates slightly higher.
Angela Kleiman: And that was in both cases, both renewal and new lease, new lease rates slightly higher. But it wasn't a huge acceleration, right? These were incremental benefits. And so I think in the current economy where we had originally, you know, forecast a moderating economy, it's playing out that way slightly better.
Speaker Change: But it wasn't a huge acceleration right these incremental benefits and so I think in the current economy, where we had origin. Lee you now forecast a moderating economy, it's playing out that way slightly better than.
Unknown Attendee: And then you throw in tariffs in the mix, not sure what happens. But we do view that as far as our guidance is concerned, the downside risk is quite low. Thank you.
Speaker Change: And then you throw in tariffs and that makes not sure what happened but.
Speaker Change: We do view that as far as our guidance is concerned.
Speaker Change: Downside risk is quite low.
Speaker Change: That's helpful. Thanks Angela.
Speaker Change: Thank you.
John McAllen: The next question comes from John McAllen with Bank of America. Please go ahead. Thank you. Good morning to you guys. And congrats on the first quarter results.
Speaker Change: The next question comes from Jana Galan with Bank of America. Please go ahead.
Speaker Change: Thank you and good morning to you guys and congrats on the first quarter results.
Angela Kleiman: Angela, when you say you would have raised the guidance kind of barring the macro uncertainty, would you be referring to FFO or the same store revenue or both? Hi, Yana. Yeah, it's Barb. It's really more on the FFO side, we on the core FFO side, we do have a few items, like I mentioned, we got some preferred equity income this quarter. That is one time that is real to the bottom line. So that's really where we would have focused on. I think on same story, we would have waited until more mid year after we get further into peak leasing season.
Speaker Change: Angela when you say you would have raised the guidance kind of barring the macro uncertainty would you be referring to <unk> or the same store revenue or both.
Barb Pak: Hi, Ana Yeah, it's barb, it's really more on the SSO side on.
Speaker Change: On the <unk> side, we do have a few items like I mentioned, we are at some preferred equity income this quarter.
Speaker Change: That is one time that Israel to the bottom line. So that's really where we would have focused on I think on same store, we would have waited until more mid year. After we get further into peak leasing season.
Rylan Burns: Thank you.
Speaker Change: Thank you and then switching to transactions just kind of curious if we should continue to expect to see some trading from southern California, Northern California, and if you're kind of continuing to potentially review any new markets.
Rylan Burns: And then switching to transactions, just kind of curious if we should continue to expect to see some trading from Southern California to Northern California. And if you're kind of continuing to potentially review any new markets.
Rylan Burns: Hi, Rylan here. Yeah, we're really pleased with the execution of our first quarter transactions. And you know, we'd love to replicate it. Obviously, we're making all of our investment decisions on a investment by investment basis. And it's not not always easy to do. But we're pleased with our first quarter transactions. And to the extent that we can drum up additional opportunities to execute on that strategy, we will continue to pursue it.
Speaker Change: Oh, Yeah, and Ah Reiland here, Yeah, we're really pleased with the execution of our first quarter transactions and we'd love to replicate it obviously, we're making all of our investment decisions on a.
Speaker Change: Investment by investment basis, and it's not not always easy to do but we're pleased with our first quarter transactions and to the extent that we can drum up additional opportunities to execute on that strategy. We will continue to pursue it.
Rylan Burns: Any comments on the new market? Yeah, sure.
Speaker Change: Any comments on that in new markets.
Speaker Change: Sure.
Angela Kleiman: Hey, Yana. As far as new markets are concerned, we of course continue to study other markets to make sure that we're making the best long-term decision. But at this point, when you look at the potential upside in our markets, especially with Northern California just starting its recovery, it's a lot more compelling than to go to markets where you have over 20% to rent growth and with supply headwinds. And so for the foreseeable two to three years, it wouldn't make sense in terms of a trade, absent of, of course, a major distress that changes pricing. But based on what we're seeing right now, The majority of the upside is in our markets, and that's why we're so excited about our northern regions.
Speaker Change: Yeah, sure Hey, Yana as far as the new markets are concerned we of course continue to study other markets to make sure that we're making the best long term decision.
Speaker Change: At this point when you look at the potential upside in our markets, especially with northern California, just starting its recovery. It just it's just a lot more compelling than to go to markets, where you have over 20% to 30% rent growth and with supply headwinds and so for the net.
Speaker Change: Foreseeable two of the three years it wouldnt make sense in terms of a trade.
Speaker Change: Absent of course.
Speaker Change: Major this distress that that changes pricing, but based on what we're seeing right now.
The majority of the outside Asia is in our markets and that's why we're so excited about our northern regions.
Unknown Attendee: Great, thank you so much. Thank you.
Speaker Change: Great. Thank you so much.
Speaker Change: Thank you the next.
Jamie Feldman: The next question comes from Jamie Feldman with Wells Fargo. Please go ahead. Great, thanks for taking the question.
Jamie Feldman: Question comes from Jamie Feldman with Wells Fargo. Please go ahead.
Jamie Feldman: Great. Thanks for taking the question.
Angela Kleiman: I want to dig deeper into LA, which sounds like it's slightly disappointing from your initial numbers. Can you just talk about what do you think is going on there and then, you know, just thinking about the wildfire impact, any thoughts on, you know, what the, what that's going to look like for occupancy rents and just kind of behavior patterns for people's housing needs since we're several months out now? Yeah, hey, Jamie, you know, LA is a huge county, and it's more complicated than than something we could easily dissect. But the big picture here with LA is that in order for us to see pricing power with LA.
Jamie Feldman: I wanted to dig deeper into L. L, a which sounds like it's slightly disappointing from your initial numbers can you just talk about what's what do you think is going on there and then just thinking about the wildfire impact any thoughts on what the what that's going to look like for occupancy rents and just kind of behavior patterns for peoples.
Jamie Feldman: Housing needs.
Jamie Feldman: For several months out now.
Jamie Feldman: Yeah, Hey, Jamie you know L. A is a huge Tony and it's more complicated.
Jamie Feldman: Then than something we could easily dissect, but the big picture here with L. A is that.
Jamie Feldman: In order for us to see pricing power with L. A.
Angela Kleiman: Two things need to happen first. Starting with delinquency recovery, delinquency level need to return to Near historical average right now. We're making great progress, but we're not there yet. I mean delinquency at 1.3% is still well above the historical average in L.A. And so, you know, that's one piece. And once you get that delinquency, close to the long-term average, then we have occupancy, then we can build occupancy. And after that, you can have pricing power. So that's ultimately where we see the path to improvement in LA. As far as the market is concerned, you know, the labor market remains soft.
Jamie Feldman: Two things need to happen first.
Jamie Feldman: Starting with delinquency recovery delinquency level need to return to.
Jamie Feldman: Near historical average right now, we're making great progress, but we're not there yet I mean delinquency at one 3% is still well above the historical average.
Jamie Feldman: Average in L. A.
Jamie Feldman: And so that's one piece and once you get that delinquency.
Jamie Feldman: As to the long term average than we have occupancy than we can build occupancy and after that you can get pricing power. So that's you know ultimately where we see the path to up to two two improvement and in la as far as the the market is concerned.
Jamie Feldman: The labor market remains soft and.
Angela Kleiman: And And I think that is, you know, a lot of things happening there. And I don't think that's too dissimilar from a national level in terms of just a general, at least, soft, implementing economy. But the film industry has not yet rebounded. And we had hoped that the tax incentives that were implemented would, you know, revitalize the industry quicker. But obviously, we didn't plan for it. It was just something that would have been a nice upside for us. And it's just going to take more time.
Jamie Feldman: And I think that is a lot of things happening there analysis, that's too dissimilar from a national level in terms of just a general at least soft implementing economy.
Jamie Feldman: But the film industry has not yet rebounded and we had hoped that the tax incentives that were implemented wood.
We vitalize their industry quicker, but obviously, we didn't plan for it. It was just something that would've been a nice upside for us and and it's just going to take more time.
Angela Kleiman: Okay, and then in terms of the wildfires, any kind of final thoughts on? impact, yeah, whether it's essential occupancy rent growth, or just sub markets that are more or less in demand. Yeah, the wildfire, it's an interesting situation in that, you know, that the market does have a shortage of housing, but the wildfire impacted mostly single family homes. And these are high end single family homes, and people are, and a lot of the people there have, you know, other means and would want, say, a three bedroom or larger. So the Unimix really isn't conducive to what we have offering and nor are those types of customers would be our typical tenants.
Speaker Change: Okay, and then in terms of the wildfires.
Jamie Feldman: Any kind of final thoughts on.
Jamie Feldman: Impact yeah, whether it's central occupancy rent growth or just sub markets that are more or less in demand.
Jamie Feldman: Yeah. They the wildfire, it's an interesting situation in that you know the market. It does have a shortage of housing, but the wildfire impact and mostly single family homes and these are.
Jamie Feldman: Hi, and single family homes and people are.
Jamie Feldman: And a lot of the people there have you know other means and would want say a three bedroom or a larger so the unit mix really isn't conducive to what we have offered and nor are those types of customers.
Jamie Feldman: Customers would be our typical tenants.
Unknown Attendee: And so we really didn't expect to see a meaningful impact on either occupancy or otherwise in L.A., which is basically what has happened. Okay, thanks for the LA answers.
Jamie Feldman: And so we really didn't expect to see a meaningful impact on either occupancy or otherwise in a in L. A N which is basically what has happened.
Jamie Feldman: Okay. Thanks for that.
Jamie Feldman: So I guess Rylan, you know, with the new development start, you think this is something we'll continue to see more now that you're seeing supply really drop off across the country? And then also, you know, the acquisitions that either you've underwritten or others have won? What are people underwriting in terms of growth? Seems like you've got some negative leverage deals going on right now. Like what's the typical outlook?
Jamie Feldman: Answers, so I guess we're island.
Jamie Feldman: With the new development start you think this is something we'll continue to see more now that you are seeing supply really drop off across the country.
Jamie Feldman: And then also the acquisitions that you've underwritten or others. One what are people underwriting in terms of growth. It seems like you've got some negative leverage deals going on right now like what's the typical outlook.
Rylan Burns: Hi, Jamie. Yeah, I'm going to address those one at a time. You know, as it relates to our 7 South Linden, South San Francisco project, you know, as you know, our development team underwrites, you know, call it 100 sites a year. And it's been over 5 years since we found a project that meets our return hurdles relevant. So, such that we're getting compensated for taking that development risk. We'd like to find more because when we look out a few, a few years in the future, and we see the supply pipeline, we do think there's a really interesting opportunity here.
Jamie Feldman: Hi, Jamie, Yes, I'm going to address those one at a time you know as it relates to our seven Southwind in South San Francisco project.
Jamie Feldman: No our development team underwrites call. It 100 sites a year and it's been over five years. Since we've found a project that meets our return hurdles relative such.
Jamie Feldman: Such that we're getting compensated for taking that development risk, we'd like to find more because when we look out a few.
Jamie Feldman: A few years in the future and we see the supply pipeline. We do think there's a really interesting opportunity here, but we need to remain disciplined and it's just challenging to find deals that really underwrite and meet our return thresholds, but we continue to look and we're hoping to be.
Rylan Burns: But we need to remain disciplined and it's just challenging to find deals that really underwrite and meet our return thresholds. But we continue to look and we're hoping to backfill for others as it relates to the transaction market. It depends on the sub-market and we get some color from brokers about what other participants are underwriting and it's a wide gamut. But I would say consensus sentiment on NorCal has improved materially over the past year and we do think that we are losing out to some deals where people are probably getting a little bit more aggressive on the rent underwriting side.
Jamie Feldman: Backfill for others as it relates to the transaction market.
Jamie Feldman: It depends on the Submarket and we get some color from from brokers about what other participants are underwriting and it's a wide gamut, but I would say consensus sentiment on norcal has improved materially over the past year and we do think that we are losing out to some deals where people are probably getting a little bit more aggressive on the rent underwriting side. So.
Rylan Burns: So trying to be prudent and take swings where we see a fat pitch. In the past month since April 2nd, there's been limited data points, but the feedback from the brokers and several deals we're tracking is that there's really been limited changes in terms of market participation. Several deals have removed contingencies or first underwriting, it's been consistent with what we've seen year to date and over the past year. We're tracking it closely and expect to be active in the second half of the year.
Jamie Feldman: Trying to.
Jamie Feldman: Be prudent and take take swings, where we see a fat pitch.
Jamie Feldman: You know in the past month since April 2nd we have not.
Jamie Feldman: There's been limited data points, but the.
Jamie Feldman: The feedback from the brokers and several deals were tracking is that theres really been limited changes in terms of market participation. Several deals of five remove contingencies or first underwriting it's been consistent with what we've seen.
Jamie Feldman: Year to date and over the past year. So we're.
We're tracking it closely and expect to be.
Jamie Feldman: Active in the second half of the year.
Unknown Attendee: Okay, thank you for that.
Speaker Change: Okay. Thank you for that can you quantify at all like some of the deals you've you've lost out on what what kind of growth people are assuming.
Unknown Attendee: Can you quantify at all like some of the deals you've you've lost out on? What what kind of growth people are assuming? You know, there's a wide range. So I don't know if I can provide specifics as to what other people that are winning deals, but obviously, you know, some of these cap rates, we're we're assuming that they're underwriting, you know, mid single digit rent growth in some of these markets. Okay. All right.
Jamie Feldman: Yeah.
Jamie Feldman: The wide range.
Jamie Feldman: I don't know if I can provide specifics as to what other people that are winning deals, but obviously some of these cap rates, where we're assuming that theyre underwriting mid single digit rent growth in some of these markets.
Jamie Feldman: Okay.
Jamie Feldman: Alright, thank you.
Jamie Feldman: Yeah.
Jamie Feldman: Thank you.
Brad Heffern: The next question comes from the line of Brad Heffern with RBC Capital Markets. Please go ahead. Hey, thanks, everybody. On Oakland in the prepared comments, you said it started to show improvement. I think a lot of us had sort of given up on that sub market. I guess do you think in the medium term that could turn into a positive contributor with outlook over the next couple years? Yeah, okay.
Speaker Change: The next question comes from the line of Brad Heffern with RBC capital markets. Please go ahead.
Brad Heffern: Hey, thanks, everybody.
Brad Heffern: In Oakland in the prepared comments you said it started to show improvement I think a lot of us sort of given up on that Submarket. I guess do you think in the medium term that could turn into a positive contributor or what's the outlook over the next couple of years there.
Speaker Change: Hey, Brian Good question there, yes on Oakland, We finally see a light at the end of the tunnel.
Speaker Change: And Oakland what were showing is that 75% of the supply is delivering in the first half. So by mid year, we expect Oakland to start to revert back to a more normalized.
Speaker Change: Market dynamic I don't think that's going to happen overnight, but it's finally going to turn and we waited for a long time for that so we're pretty darn happy about it.
Speaker Change: Yeah.
Barbara Pak: And then I saw you dusted off the ATM this quarter. I know it's not a meaningful amount, but I guess, is that supporting development? Sort of why do that now? And how do you view the cost of equity right now in comparison to the opportunity set?
Speaker Change: Yes, okay.
Speaker Change: And then I saw you dusted off the ATM this quarter I know, it's not a meaningful amount, but I guess is that supporting development sort of why do that now and how do you view the cost of equity right now in comparison to the opportunity set.
Barbara Pak: Yeah, this is Barb. You're correct. We did a small issuance. And, and, you know, when we issue equity, we need to have a premium to NAV. And we do need to arbitrage not only the cost of equity, but what we're pairing it up with on the investment side. And as you mentioned, we do, we did start the development, we do have equity needs for that. And so we felt it prudent to take a little bit, a few chips off the table and issue a small amount. But when the stock moved away from us, we stopped issuing.
Barb Pak: Yeah. This is barb you are correct, we did a small issuance and and you know when we issue equity we need to have a premium to NAV and we do need to arbitrage.
Barb Pak: Not only the cost of equity, but what we're pairing it up with on the investment side and as you mentioned, we do have we did start the development, we do have equity needs for that and so we felt it prudent to take a little bit a few chips off the table and issue a small amount, but when the stock moved away from US we stopped issuing so we will be prudent and match fund.
Barbara Pak: So we will be prudent and match fund for that development, that development that we started.
Barb Pak: And for that development that development that we started.
Unknown Attendee: Okay, thank you. Thank you.
Barb Pak: Okay. Thank you.
Barb Pak: Thank you.
John Kim: The next question comes from the line of John Kim with BMO Capital Markets. Please go ahead. Good morning. Barb gave the best and worst quarters, I think first and fourth, were going to be the best on same store revenue based on delinquency comps.
John Kim: The next question comes from the line of John Kim with BMO capital markets. Please go ahead.
John Kim: Good morning.
Barb you gave the.
Best and worst quarters, I think first and fourth we're going to be the best on same store revenue based on delinquency comps, but I was wondering if you could provide the same metrics, especially risk quarters on blended lease growth for this year.
Barbara Pak: But I was wondering if you could provide the same metrics, best and worst quarters on blended lease growth for this year. Well, the first half of the year, we expect to be at around 3%. And that's the same in the second half of the year. So we don't expect too big a deviation to hit our 3% rent growth, all of us being equal. We do expect the second and third quarters will be the highest in terms of blended rent growth. So kind of the opposite from what we said on total revenue growth.
John Kim: Well.
John Kim: The first half of the year, we expect to be at around 3% and that's the same in the second half of the year. So we don't expect too big a deviation to hit our 3% rent growth all else being equal.
We do expect the second and third quarters will be the highest in terms of blended rent growth.
John Kim: So kind of the opposite from what we said on total revenue growth.
John Kim: Got it okay.
Rylan Burns: Rylan, can you talk about the attractiveness of South San Francisco as a multi-family market? Will you be targeting workers in the area and therefore have a higher corporate housing component to it? How do rents in that sub-market compare to others? Hi, John, yeah, great question. We've done a lot of work, obviously, in the sub market, you know, high level, close proximity to the largest biotech hub in the world. We do know that the three existing institutional grade apartments in that, in that sub market do draw a lot of demand from that oyster point sub market, but there's a lot of people that commute up and down the peninsula as well.
John Kim: And then maybe for island can you just talk about the attractiveness of South San Francisco multifamily market.
John Kim: Will you be targeting you know workers in the area and therefore more kind of a more corporate housing or higher corporate housing component to it and how do you rents in that submarket compared to others in the peninsula.
Speaker Change: Hi, John Yeah, Great question <unk> done a lot of work obviously in the sub market you know high level close proximity to the largest biotech hub in the world. We do know that the three <unk>.
Speaker Change: Existing institutional grade apartments in that in that Submarket to draw a lot of demand from that.
Speaker Change: Oyster point to sub market, but with Theres a lot of people that can move up and down the peninsula as well. So this is really targeting those types of workers you know a little bit higher compensation that are looking for good quality of life nice community easy access to the city or down to the peninsula.
Rylan Burns: So this is really targeting those types of workers, you know, a little bit higher compensation that are looking for, you know, good quality of life, nice community, easy access to the city or down to the peninsula. And so, you know, rents in this sub market are, you know, comparable with some that you some sub markets, you see a little bit further down there, it's a higher rent market, given the quality of this product. And it's a discount to some of the higher quality sub markets within San Francisco. So, again, we feel really comfortable with where we've underwritten rents today on an untrended basis.
And so rents in the Submarket are comparable with some but you have some submarkets you see a little bit further down there.
Speaker Change: It's a higher rent market given the quality of this product.
Speaker Change: It's a discount to some of the higher quality submarkets within San Francisco So.
Speaker Change: Again, we feel really comfortable with where we've underwritten rents today on trended basis, and we do think given limited supply outlook over the next several years there is an opportunity for that rent to move.
Rylan Burns: And we do think given limited supply outlook over the next several years, there is an opportunity for that rent to move. The product will be different as far as more corporate housing.
Speaker Change: With the product would be different as far as.
Speaker Change: More comprising.
Speaker Change: Were furnished apartments.
Rylan Burns: No, no, that is not part of our business plan. Okay.
Speaker Change: No no that is not part of our business plan.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you.
Adam Kramer: The next question comes from the line of Adam Kramer with Mortgage Stanley. Please go ahead. Hey guys, thanks for the time here. I just wanted to talk a little bit about the blended rate growth, kind of cadence over the course of the year. I think you guys have been really helpful in providing the disclosure and the detail here. The 20 basis points acceleration, I think I have that right from 1Q to 2Q. How does that compare to kind of a typical year, or how does that compare to history if we go back even pre-COVID? I don't know if you have those numbers in front of you.
Speaker Change: The next question comes from the line of Adam Kramer with Morgan Stanley. Please go ahead.
Adam Kramer: Hey, guys. Thanks for the time here.
Adam Kramer: So, let's talk a little bit about the blended rate growth kind of cadence over the course of the year you guys have been really helpful in providing the disclosure in the details here.
Adam Kramer: The 20 basis points acceleration I think I have that right from <unk> QQ.
Adam Kramer: How does that compare to kind of typical a typical year or how does that compare to history. If you go back even pre COVID-19 I know if you have those numbers in front of you, but just wondering.
Adam Kramer: I'm just wondering how does the cadence look this year compared to normal, and what might be some of the drivers here? Is there a bad debt impact here? Is there anything else that's kind of impacting the sequential cadence here?
Adam Kramer: How does the cadence look this year compared to normal and what might be some of the drivers here. There are bad debt impact here is there anything else, that's kind of impacting that with sequential cadence here.
Angela Kleiman: Hey Adam, on the sequential, I probably wouldn't get too concerned about this 20 basis points delta, just because I know that You know, it looks like it's De Minimis. And once again, I just want to reiterate, it's a function of us not revising guidance for the rest of the year. It's not a commentary or concern about Q2 or thereafter. You know, if you look at our performance last year between first quarter and second quarter, obviously, the spread was larger, but first quarter last year was only 2-2. So it's going to vary from quarter to quarter depending on market conditions.
Adam Kramer: Hey, Adam on the sequential I, probably wouldn't get too concerned about this 20 basis points Delta just because I know that.
Adam Kramer: Yeah.
Adam Kramer: Looks like it's.
Speaker Change: Is it de Minimis and once again I just want to reiterate it's a function of us not revising guidance for the rest of the year, it's not a commentary or concerned about Q2 or thereafter.
Speaker Change: Yeah. If you look at our performance last year between first quarter second quarter, obviously, the spread was larger but for.
Speaker Change: First quarter last year was only two two so it's going to vary from quarter to quarter, depending on market conditions, but I would point to.
Angela Kleiman: But I would point to encourage you to look at full year expectation. So if you look at our full year expectation of the blend is 3 at midpoint, it's not that different from what the sector is seeing in the market. And I think that's probably a more relevant number than these quarter-by-quarter or month-by-month variation.
Speaker Change: Encourage you to look at full year expectation. So if you look at our full year expectation.
Speaker Change: Hum.
Speaker Change: The blend is three at midpoint, it's not that different from what the the sector is seeing in the market and and I think that's probably a more relevant number then these you know.
Quarter by quarter month by month variations.
Unknown Attendee: No, that's helpful.
Angela Kleiman: And then just wanted to ask, you know, about this kind of commentary around, you know, kind of not raising the guidance, but feeling really good about the 1Q results.
Speaker Change: That's helpful.
Speaker Change: And then just wanted to ask you.
Speaker Change: About there's kind of a commentary around kind of not raising the guidance, but feeling really good about the <unk> results.
Angela Kleiman: You know, maybe, I mean, a little bit of a theoretical, I guess, conceptual question here. But, you know, if you're sitting, if you're sitting here in 90 days, right, you know, you have another good 2Q, just like 1Q, what would you need to see from a macro perspective or some of these other things you track that, you know, could kind of give you the confidence that, you know, to kind of raise at that point? You know, what would kind of need to be different versus where you are today after a good 1Q? Yeah, Adam, that's a good question.
Speaker Change: Maybe a little bit of a theoretical I guess conceptual question here, but if you are sitting for sitting here in 90 days.
Speaker Change: You have another good <unk>, just like <unk>, what would you need to see from a macro perspective or some of these other things you track that.
Speaker Change: Give you the confidence that to kind of raise at that point.
Speaker Change: What would you kind of need to be difference versus where you are today. After after a good <unk>.
Speaker Change: Yeah, Adam that's a good question and so essentially.
Angela Kleiman: And so essentially, you know, this conversation is really what what are the range of possibilities? And if the conditions on the ground is consistent with what we had expected, heading into the year, we certainly will have a higher level of confidence in raising. Now, here are the variabilities. So for example, on something like tariff impact, We don't expect that to have too much of an impact on the top line, for example, because with low supply, we don't need a lot of job growth. If there's a significant increase in material cost, which will have a direct impact on our operating expense, we're not seeing it yet.
Speaker Change: Conversations really was what are the range of possibilities.
Speaker Change: And if the conditions on the ground is consistent with what we had expected.
Speaker Change: Heading into the year, we certainly will.
Speaker Change: Have a higher level of confidence.
In embracing now here are the variability. So for example on something like a tariff impact.
Speaker Change: We don't expect that to have too much of an impact on the top line for example.
Speaker Change: Because with low supply, we don't need a lot of job growth.
Speaker Change: Got.
Speaker Change: If there is a significant increase in material cost, which will have a direct impact on our operating expense, we're not seeing it yet but that outcome depends on the timing of that policy and how it gets input implemented.
Angela Kleiman: But that outcome depends on the timing of that policy and how it gets implemented. You know, so that's why it's so difficult to predict. And, you know, you saw that.
Speaker Change: So that's why it's so difficult to predict.
Speaker Change: And.
Angela Kleiman: I know a couple of people published and noted that we pulled our macro guidance on jobs. Once again, it's very opaque on that if we're looking at the BLS data. And so, for example, you know, BLS just is not as reliable anymore. The participation has fallen. So pre-COVID, survey participation was 60 percent of the company. Today, it's only 30 percent. And so, which is why we started looking at, you know, other sources of third party sources and trying to look at job hiring. So everything would point to that the market and the fundamentals are healthy, and we certainly won't have reservations on raising, but for this pesky little thing on public policy and what that means on the expenses, which is why we wanted to just get another few months under our, you know, behind us to be able to set a number that we can really count on.
Speaker Change: You saw that I know a couple of people put the publisher and noted that we pulled our macro guidance on jobs.
Speaker Change: Once again, it's very opaque.
Speaker Change: Opaque on that <unk>.
Speaker Change: We're looking at the BLS data.
Speaker Change: And so for example, you know.
Speaker Change: It just is not as reliable anywhere more participation has fallen so pre Covid survey participation was 60% of the company today, it's only 30%.
Speaker Change: And so which is why we started looking at other sources of third party sources of trying to look at job hirings.
Speaker Change: So everything would point to that the market and the fundamentals are healthy and we certainly won't have reservations on raising but for this pesky little thing on public policy and what that means on the on the expenses.
Speaker Change: Which is why we wanted to just get another few months under are behind us to be able to.
Speaker Change: Set a number that that.
Speaker Change: That we can really count on.
Unknown Attendee: Great.
Unknown Attendee: Thanks, Angela. Thank you.
Speaker Change: Great. Thanks Angela.
Speaker Change: Thank you. The next question comes from the line of Mike Goldsmith with UBS. Please go ahead.
Michael Goldsmith: The next question comes from the line of Michael Goldsmith with UBS. Please go ahead. Good afternoon. Thanks a lot for taking my questions. In the prepared remarks, you said that ultimately, the West Coast multifamily fundamentals are well positioned for a wide range of economic outcomes. Why do you think that? And do you see it better than other markets, such as the East Coast or the Sunbelt? Yeah, that's a great question. One of the reasons for that comment is that the downside risk is lower in our markets. And it's primarily because of supply. And when you have supply, and you can see, you know, even within the quarter to quarter movements, well, it's temporary.
Mike Goldsmith: Good afternoon. Thanks, a lot for taking my question in the prepared remarks, you said that ultimately the west coast multifamily fundamentals is well positioned for a wide range of economic outcomes.
Mike Goldsmith: Why why do you think that do you see a better than other markets such as the east coast or the sunbelt.
Mike Goldsmith: Yeah. That's a great question one of the reason for that comment is that the Dallas I risk is lower in our markets and it's primarily because of supply and when you have supply and you can see you know even within the quarter.
Mike Goldsmith: Quarter to quarter movements, well, it's temporary and fortunately with our low supply environment, even if you have a large.
Angela Kleiman: It's good, fortunately, with our low supply environment, even if you have a large number that's coming, it only takes us typically a quarter or two to get through it. So in a overall low supply environment. You don't need that much job, which means we're not as reliant on the broad economy and the performance thereof. Relative to the East Coast, obviously we're looking at it from afar, so our peers will have better clarity on that. But New York seems particularly strong because it also has a similar low supply environment. Sunbelt is a little bit harder to sort out, right, because you have a much higher supply.
Mike Goldsmith: The number that's coming is only takes us is typically a quarter.
Mike Goldsmith: Hmm or two to get through it.
Mike Goldsmith: In the overall low supply environment.
Mike Goldsmith: You don't need that much job, which means we're not as reliant on the broad economy and in the.
Mike Goldsmith: The performance thereof.
Mike Goldsmith: Relative to the East coast from obviously, we're looking at it from afar. So our peers will have better clarity on that but New York seems particularly strong because it also has a similar low supply environment.
Mike Goldsmith: Sunbelt has a little bit harder to sort out right because you have a much higher supply.
Angela Kleiman: And what that means is the job growth there is required in order for you to have pricing power. And so and so it's not a you know, it's not a view that we don't like the Sunbelt, which is the view that at this current environment. It needs a better... Macroeconomic Performance, whereas we don't need that out here in the West Coast.
Mike Goldsmith: And what that means is.
Mike Goldsmith: The job growth there is.
Mike Goldsmith: Is required in order for you to have pricing power.
Mike Goldsmith: And so and so it's not a it's not a view that we don't like the sunbelt with just a view that this current.
Mike Goldsmith: Environment.
Mike Goldsmith: It needs a better.
Mike Goldsmith: Macroeconomic performance, whereas we don't need that out here in the West coast.
Angela Kleiman: The other anecdotal that I will share with you is that We had talked about this return to office, and I had said, you know, we were in the seventh inning, and that there's not going to be, oh, shoot, extra innings. I don't know, Barb's looking at me, because I kept calling overtime, and that's the wrong analogy. In any event, so I would have to modify that in that we actually potentially could have more upside, because my comment didn't anticipate companies changing their policy, and we recently learned that Google has changed their remote policy. They originally had grandfathered remote workers, and they have said, they basically said, no, that is no longer available, and remote workers that have been grandfathered are getting eliminated, and hiring is occurring in our markets, and that, of course, doesn't show up in the bail list or anywhere else as a new job ad.
Mike Goldsmith: On the other anecdotal that I'll share with you is that.
Mike Goldsmith: We had talked about this return to office and I had said.
Mike Goldsmith: We were in the seventh inning and that there's not going to be.
Speaker Change: Oh shoot.
Speaker Change: Core earnings are Barb is looking at me because I kept calling over time and that's the wrong analogy in any event.
Speaker Change: Hum.
Speaker Change: So I would have to modify that in that we actually potentially you could have more upside because my comment didn't anticipate companies changing their policy and we recently learned that Google has changed their remote policy. They originally had grandfather remote workers and they have said they.
Speaker Change: Basically said no that is no longer available and remote workers that have been grandfathered are getting eliminated and hiring is occurring in our markets and that of course doesn't show up in the BLS or anywhere else is a new job yet.
Angela Kleiman: So, frankly, at the end of the day, now we're looking at that there's more upside potential in our West Coast market relative to downside.
Speaker Change: So frankly at the end of day.
Speaker Change: Now we're looking at that there is more upside potential in our west coast market.
Speaker Change: Relative to the downside.
Barbara Pak: Thanks, thanks for that. And as a follow up, have you seen any changes in migration for international residents or any changes in migration trends from domestic markets? Thank you.
Speaker Change: Thanks for that.
Speaker Change: As a follow up have you seen any changes in migration for international residents or any changes in migration trends from domestic markets. Thank you.
Speaker Change: Okay.
Okay.
Barbara Pak: Yeah, this is Barb. No, we haven't seen any noticeable changes. We do track our international residents within our portfolio, and it's less than 2%. So we have a small number of residents, but it's remained consistent. New move-ins are consistent with prior years. And so no impact.
Barb Pak: Yeah. This is barb no we haven't seen any noticeable changes we do track our international residents within our portfolio and it's less than 2%. So we have a small number of residents, but it's remained consistent new move ins are consistent with prior years and so.
Barbara Pak: What I would say on the migration front, what we've noticed is San Francisco and San Mateo have actually turned positive from domestic migration perspective in the last few months. And so that, and I think that goes to what Angela was talking about, the Northern California region is performing slightly better than planned. I think that all kind of triangulates.
Barb Pak: No impact what I would say on the migration front, what we've noticed is San Francisco and San Mateo I've actually turned positive from domestic migration perspective in the last few months and so that I think that goes to what angelus talking about the the northern California region is performing slightly better than plan I think that all.
Barb Pak: Kind of triangulate.
Unknown Attendee: Thank you very much. Thank you.
Barb Pak: Thank you very much.
Barb Pak: Thank you.
Wes Golladay: The next question comes from the line of Wes Golladay with Baird, please go ahead. Hey, good morning, everyone. Looking at the development schedule, you have about 44 million of other projects. Do you expect to start any of those, and where are they located?
Speaker Change: The next question comes from the line of Wes Golladay with Baird. Please go ahead.
Wes Golladay: Hey, good morning, everyone looking at the development schedule you have about 44 million of other projects do you expect to start any of those and where they are located.
Rylan Burns: Hey Wes, this is Rylan here. Yes, we have a couple other projects in the pipeline. I'd say there's still a couple years away, but they are in Northern California and the Pacific Northwest. So in the markets that we have the highest conviction in future rent growth.
Speaker Change: Hey, Ross this is Brian here, Yes, we have a couple of other projects in the pipeline I'd say, there's still a couple of years away but.
Speaker Change: They are in.
Speaker Change: Northern California, and the Pacific Northwest So in the markets that we have the highest conviction in future rent growth.
Barbara Pak: Okay, and then looking at the JV, the Westco joint venture has some debt maturing within the next two years. Will any of that occur this year?
Speaker Change: Okay, and then looking at the JV the West code joint venture has some debt maturing within the next two years or will any of that occur this year.
Barbara Pak: Hi Wes, it's Barb. No, none of that is expected to occur this year. Some will occur in 26 and then the rest in 27. Okay.
Wes Golladay: Hi, Wes it's far no none of that is expected to occur. This year. Some will occur in 'twenty six and then the rest in 'twenty seven.
Unknown Attendee: Thanks, everyone. Thank you.
Speaker Change: Okay. Thanks, everyone.
Speaker Change: Yeah.
Thank you.
Speaker Change: Yeah.
Haendel St. Juste: The next question comes from the line of Haendel St. Just with Mizuho Securities. Please go ahead. Hey, guys. Good morning out there. A couple of quick questions from me.
Speaker Change: The next question comes from the line of <unk> St Juste with Mizuho Securities. Please go ahead.
Hey, guys good morning out there.
Speaker Change: Couple of quick questions for me first one is on the.
Barbara Pak: First one's on the – looks like the Mezbook asset you assumed full managerial control of in Oakland this past quarter. I guess I'm assuming that's a fancy way of saying you bought the asset or exercised an option. So maybe you can add some color on the events that led to this. Was this something that was previously contemplated? And perhaps some color on the underwriting cap rate or IRR on that.
It looks like the Mezz book asset you assumed full managerial control of in Oakland This past quarter I guess.
Speaker Change: I'm, assuming that's a fancy way of saying you bought the asset of exercise an option. So maybe you can add some color on the events that led to this or is this something that was previously contemplated and.
Speaker Change: Perhaps.
Speaker Change: Some color on the underwriting cap rate or IRR on that thank you.
Barbara Pak: Hi, Haendel, it's Barb. Yeah, so this was the asset where in the fourth quarter, we paid off the senior mortgage because the sponsor was going to default, and we effectively stepped in and took back the property. We had stopped accruing on our preferred equity investment back in 2022 and impaired the property in 23. So we've got a long history. As we talked about, Oakland has been a market that suffered for quite some time. We do see light at the end of the tunnel, though, as Angela said, on the supply side. So how we came up with the valuation, though, is we did a third party assessment on it.
Barb Pak: I handle it's barb.
Barb Pak: So this was the asset where in the fourth quarter, we paid off the senior mortgage cause the sponsor was going to default and we effectively stepped in and took back the property. We had stopped accruing on our preferred equity investment back in 2022 and impaired the property in 2003. So we've got a long history as we've talked about Oakland has been a market that suffered.
Barb Pak: For quite some time, we do see light at the end of the tunnel, though as Angela said on the supply side. So how we came up with the valuation though is we did a third party assessment on it our value at $95 million is around $3 90, a door and it's about 30% below replacement cost today.
Barbara Pak: Our value at $95 million is around $390 million a door, and it's about 30% below replacement costs today. The yield is low, it's in the mid threes, but that's because we have assumed three months of concessions, and once those concessions burn off, we'll be closer to a 5% cap rate.
Barb Pak: The yield is in the it's low it's in the mid threes, but thats because we have assumed three months of concessions and once those concessions burn off will be closer to a 5% cap rate.
Barb Pak: Okay.
Unknown Attendee: Okay, that's helpful.
Barb Pak: Okay. That's helpful.
Haendel St. Juste: And then one more, maybe on the conversation on capital recycling, selling some assets out of SoCal into NoCal, given the better growth option outlook that you mentioned, I guess I'm curious, how much more appetite there could be for that? How much more exposure perhaps you would want in NoCal?
Speaker Change: And then one more maybe on the conversation around capital recycling selling some assets out of socal into No-cal, given the better growth option outlook that you mentioned I guess I'm curious how much more appetite there could be for that how much more exposure, perhaps you would want in Ocala, and how do you think about Seattle as another option for be investing.
Rylan Burns: And how do you think about Seattle as another option for being best Hey Haendel, this is Rylan. I mean, as we've been saying over the past couple of years, we feel pretty good about the rent fundamentals in those northern regions. So we'd obviously like to skew the portfolio to capture that. You know, realistically, you know, there's only limited transaction volume that you're able to participate in and or generate on our own. So we'd like to move that up by a couple percentage points if we could, all else equal. But it goes back to, you know, the broader picture of us not doing deals just to do deals.
Barb Pak: Yeah.
Ryan: This is Ryan I mean, as we've been saying over the past couple of years, we feel.
Ryan: Pretty good about the rent fundamentals in those northern region. So, we'd obviously like to skew the portfolio to capture that.
Ryan: <unk> there is only limited transaction volume that youre able to participate in and or generate on our own. So we'd like to move that up by a couple percentage points. If we could all else equal, but it goes back to the broader picture of us not doing deals just to do deals. This has to be <unk> accretive over the long run we're really focused on driving more durable.
Rylan Burns: This has to be FFO creative over the long run. We're really focused on driving more durable and improving cash flows for our shareholders. So we are out there, you know, working to create that opportunity for us. And in the current environment, given really cap rate parity across the vast majority of our markets, we think that trade makes a lot of sense. So we're going to continue to actively pursue the increase in those markets that you mentioned.
Ryan: And improving cash flows for our shareholders. So we are out there.
Ryan: Working to create that opportunity for us and in the current environment, given really cap rate parity across the vast majority of our markets. We think that trade makes a lot of sense. So we're going to continue to actively pursue the increase in those markets that you mentioned.
Unknown Attendee: Thanks, appreciate that. Actually, if I could squeeze in one more, just curious on the lost lease and maybe concession activity across some of your major markets. I'd love to get an update.
Ryan: Thanks appreciate that actually if I could squeeze in one more just curious on the loss to lease and maybe concession activity across some of your major markets would love to get an update thank you.
Angela Kleiman: Thank you. Sure thing.
Ryan: Sure thing so it's Angela here on the concession market, we've seen terrific improvements between fourth quarter to the first quarter.
Angela Kleiman: So it's Angela here. On the concession market, we've seen terrific improvement between fourth quarter to the first quarter. So fourth quarter, we're about one week. And in the first quarter, we're about half of that. And so, you know, April level compared to March is pretty darn consistent. And as far as the loss release is concerned, it also has continued to improve. So just give you an example. For April, current loss release is about 40 basis points better than last year's level in April. Thank you.
Ryan: So fourth quarter, we're about one week.
Ryan: And in the first quarter were about half of that.
And so you know April level compared to March it's pretty darn consistent.
Ryan: And as far as the loss of lease is concerned. It also has continued to improve so.
Ryan: Just give you an example for April.
Ryan: Current loss Luis is.
Ryan: About 40 basis points better than last year's level in April.
Ryan: Okay.
Ryan: Thank you.
Ryan: Yes.
Rich Anderson: The next question comes from the line of Rich Anderson with Red Bush Securities. Please go ahead. Thanks. So, got the negative 0.3% GDP growth for the first quarter, so we're one quarter away. at least a definitional recession, should that turn negative as well. You mentioned how West Coast does better in tougher times because of low supply. But do you, can you prove that? I mean, have you looked back at recessions and note that there's a very clear win in the West Coast, whether it's multifamily or anything, but you know, investing in the West Coast is the place to be if we're in a recession.
Speaker Change: The next question comes from the line of Rich Anderson with Wedbush Securities. Please go ahead.
Rich Anderson: Good morning, So got the negative 0.3% GDP growth for the first quarter. So we're one quarter away to at least a definitional risk.
Rich Anderson: A recession should that turn negative as well you mentioned, how west coast does better in tough tougher times because of low supply, but do you can you prove that.
Rich Anderson: If you look back at.
Rich Anderson: Recessions.
Rich Anderson: Note that there is a very clear.
Speaker Change: When in the West coast, whether it's multifamily or anything but.
Speaker Change: Investing in the West Coast is the place to be if we if we are in a recession is that is that something you can provide for sure.
Angela Kleiman: Is that, is that something you can provide or share? Yeah, so Rich, what is the data that's available to all of us, it's the long term rent growth. And so if you look at the West Coast markets, and of course, every major region has a slight nuance. But the northern region, the long term GACR is higher than Southern California. For those are GACRs that's available and proven out. But what I also want to mention as it relates to the potential recession in this year that's being talked about, you know, tech, which is a important component to our portfolio, that industry has already retrenched.
Rich Anderson: Yeah, so rich.
Rich Anderson: What is the data that's available to all of us as the long term rent growth and so if you look at the West coast markets.
Rich Anderson: And of course every.
Rich Anderson: Major region has a slight nuance, but the northern region.
Rich Anderson: The long term <unk> is higher than southern California for example, in Southern California is.
Rich Anderson: Mirrors the U S.
Rich Anderson: And with a slightly higher level and so those are a CAGR that's available and proven out.
Rich Anderson: But what I also want to mention as it relates to the potential recession and this.
Rich Anderson: And this year that's being.
Rich Anderson: Talked about.
Rich Anderson: Tech, which is a important component to our portfolio that industry has already retrenched.
Angela Kleiman: And it went through the major layoffs, you know, back in 2020, early 2023, late 2022. And so it's already repositioned, and it's ready. And if you look at, for example, you know, the 08 recession, for example, or even during COVID, tech continued to higher. So we do view that that's a good anchor for our portfolio, and it's been proven through multiple cycles. Okay, great. That's great color.
Rich Anderson: And it went through the major layoffs.
Rich Anderson: Back in.
Rich Anderson: 2020 early 2023 mm late.
Rich Anderson: Late 2022.
Rich Anderson: So it's already repositioned and is ready and if you look at for example, you know with the OE recession for example.
Rich Anderson: Or even during Covid continue to hire.
Rich Anderson: So so we do view that that's a good anchor for our portfolio and it's been proven through multiple cycles.
Speaker Change: Okay, Great that's great color. Thanks, Angela and then maybe for Ireland.
Angela Kleiman: Thanks, Angela.
Rich Anderson: And then maybe for Rylan, you know, the trade from Southern California, Northern California, you guys are, you know, sort of once removed from downtown, that's the model. What point do you, you know, start to look at some of the, you know, improving conditions in downtown San Francisco and start to maybe dance a little bit more there than... do. Is that something that's on the radar?
Rich Anderson: The trade from Southern California, Northern California.
Speaker Change: You guys are sort of once removed from downtown Thats the model, but at what point do you start to look at some of the.
Speaker Change: Proving conditions in downtown San Francisco and start to maybe dance a little bit more there than you do.
Speaker Change: Is that something that's on the radar or are you sticking to your sort of guns outside of downtown.
Rylan Burns: sort of guns outside of town. Hey Rich, when you say at what point, we've consistently been underwriting all the product that transacts through our market, and that includes some of the urban areas that you're referring to. We've only seen a handful of trades in San Francisco in particular, as it relates to the Northern California market over the past year or so, and it felt like a lot of that upside was already priced in. Those were transacting at pretty low cap rates. So we've seen better relative value in the peninsula, but as I said, we're going to be looking all up and down our markets, urban, suburban, and trying to make the best risk-adjusted return investment.
Speaker Change: Hey, rich when you say at what point, we consistently been underwriting all the product that transact through our market and that includes some of the urban areas that youre, referring to we've only seen a handful of trades in San Francisco in particular.
Speaker Change: As it relates to the northern California market over the past year or so and it felt like a lot of that upside was already priced in those were transacting at pretty low cap rates. So we've seen better relative value in the peninsula, but as I said, we're going to be looking all up and down our markets urban suburban and trying to make the best risk adjusted return investments.
Rich Anderson: Ok, fair enough, thanks very much. Thank you.
Speaker Change: Okay fair enough thanks very much.
Speaker Change: Thank you.
Julien Blouin: The next question comes from the line of Julien Blouin with Goldman Sachs. Please go ahead. Thank you for taking my question. Maybe digging in again in Los Angeles, I appreciate the comments you gave Angela around what needs to happen for L.A. pricing power to improve.
Speaker Change: The next question comes from the line of Julien Lewin.
Speaker Change: With Goldman Sachs. Please go ahead.
Julien Lewin: Thank you for taking my question.
Julien Lewin: Maybe digging in again in Los Angeles.
Julien Lewin: I appreciate the comments you gave angela around what we what needs to happen for early pricing power to improve but is there a scenario where things actually weaken from here maybe due to tariffs just given the importance of the ports to the local economy and employment in the region.
Angela Kleiman: But is there a scenario where things actually weaken from here, maybe due to tariffs, just given the importance of the ports to the local economy and employment in the region? Hey. Probably, if as far as the tariff is concerned, it's probably going to be an impact national wide on all the markets, and more on the cost side than on the top line on the revenue side. And it won't be a LA specific situation, just because, you know, our tenant base really isn't port driven. And frankly, the ports are so automated that it's not a We don't expect the employment thereof to have a huge impact on performance.
Julien Lewin: Hey.
Julien Lewin: Probably if as far as the tariffs concern, it's probably going to be an impact national wide and on all of the markets and.
Julien Lewin: More on the cost side than on the topline on the revenue side.
Julien Lewin: And it won't be a specific situation just because.
Julien Lewin: Tenant base really isn't a port driven in and frankly the ports are so automated that it's not a.
We don't expect the employment theyre off to have a huge impact on performance.
Angela Kleiman: Now, as far as the tariff impact, what we would expect as LA-specific, you know, the potential offset or benefit is the improvement in delinquency. And so at least it has that to balance the net impact. And what we're seeing right now as far as the impact on consumers, for example, if we thought that the tariffs would have a negative impact, we're certainly not seeing that because the overall portfolio delinquency has remained steady. And so people are paying and we're not seeing the consumer weakness that you would have thought if we're in a recessionary environment, for example.
Julien Lewin: Now as far as the tariff impact, but we would expect that S. A L. A specific yeah.
Julien Lewin: The potential offset our benefit is the improvement in delinquency.
Julien Lewin: And so at least as Scott.
Julien Lewin: Is that to balance the then the net impact.
Julien Lewin: And what we're seeing right now as far as the impact on consumers for example.
Julien Lewin: If we thought that the.
Julien Lewin: The tariffs would have a negative impact we're certainly not seeing that because the overall portfolio delinquency has remained steady and so people are paying and we're not seeing the consumer weakness that you would have.
Julien Lewin: But if we're in a recessionary environment for example.
Unknown Attendee: Okay, thank you. Thank you.
Julien Lewin: Okay. Thank you.
Julien Lewin: Okay.
Julien Lewin: Thank you.
Richard Hightower: The next question comes from the line of Richard Hightower with Barclays, please go ahead. Good morning out on the West Coast, guys. I'm going to revisit, I think, an oft-asked question on this call, but just so you can confirm or disconfirm the way that I'm thinking about the blended lease growth numbers for the first quarter and the second quarter, you know, you've done a good job, I think, of sort of stating that, you know, the fact that you did not increase guidance doesn't really indicate anything about what you're actually seeing on the ground. It's really just more of a, kind of a general risk overlay based on all the other things we've been talking about on this call.
Speaker Change: The next question comes from the line of Rich Hightower with Barclays. Please go ahead.
Julien Lewin: Okay.
Speaker Change: Good morning out on the West Coast.
Speaker Change: I'm going to revisit I think in off.
Speaker Change: A question on this call, but just just so you can confirm or just confirm the way that I'm thinking about the blended.
Lease growth numbers for the first quarter in the second quarter.
You know you've done a good job I think of sort of stating that.
Speaker Change: The fact that you did not increase guidance doesn't really indicate anything about what you're actually seeing on the ground. It's really just more of a.
Speaker Change: A general risk overlay based on all the other things we've been talking about on this call. So is that is that effectively true where normally you did better in the first quarter than you thought youre not seeing weakness on the ground, which would imply some sort of increase related to the second quarter.
Angela Kleiman: So is that, is that effectively true where, you know, normally you did better in the first quarter than you thought, you're not seeing weakness on the ground, which would imply, you know, some sort of increase related to the second quarter. And so that's really kind of the way that we all should be thinking about it at this point.
Speaker Change: And so that's really kind of the way that we all should be thinking about it at this point.
Angela Kleiman: Yeah, I think that's an excellent summary. And, you know, when I mentioned some of these statistics, for example, April lost lease, it's actually better than the same period last year, driven by Northern California. And we look at occupancy. It's compared to, you know, sequentially, it dipped a little bit, but it's also that that's driven by Seattle because it was unusually high last year. It was 97.4%. So once again, we're not seeing any cracks on the fundamentals and the business is in good shape.
Speaker Change: Yeah, I think that's an excellent summary, and when I mentioned some of these statistics for example April last week, it's actually better than the same period last year, driven by Northern California, and we look at occupancy.
It's compared to.
Speaker Change: Yeah sequentially it dipped a little bit, but it's also that that's driven by Seattle because it was unusually high last year. It was 97, 4%. So once again, we're not seeing any cracks.
Speaker Change: On the fundamentals and and.
Speaker Change: And the business is in good shape.
Angela Kleiman: Okay, that is that is very helpful. And then maybe a new topic that we haven't talked about on the call, but just on turnover, you know, 35% of the first quarter which, you know, was, you know, probably pretty normal for the way you guys run the business.
Speaker Change: Okay that is that is very helpful. And then maybe a new topic that we haven't talked about on the call, but just on turnover.
Speaker Change: 35% in the first quarter.
Speaker Change: Sure.
Speaker Change: With.
Speaker Change: Probably pretty normal for the way you guys run the business, but if I'm comparing it to EQM is extraordinarily low 8% number for the first quarter. That's that's an enormous delta and so maybe just help those of US who are not in the apartment business day to day understand what sort of what sort of decision, making goes into how you run revenue.
Angela Kleiman: But if I'm comparing it to EQR is extraordinarily low, you know, 8% number for the first quarter, that's an enormous delta.
Angela Kleiman: And so maybe just help those of us who are not in the apartment business day to day understand what sort of decision making, you know, goes into how you run revenue management in that context. Just given the huge delta there that I think is just something that, you know, stood out to me.
Speaker Change: New management in that in that context, just given given.
Speaker Change: The huge delta there that I think it's just something that.
Speaker Change: Stood out to me.
Angela Kleiman: Hey, Rich, I think some of the confusion may be definitional. And so, you know, even for example, how we look at blended lease rates is slightly is defined differently than some of our peers. And, you know, for a lease rates, we look at nine to 15 months, like for like, and our EQR, for example, they use all leases, what that means, you could have short term leases, and that's going to change the numbers. That's why I encourage people to look at full year and relative basis. So I do know that the definition is different on the turnover statistic as well.
Speaker Change: Hey, rich I think some of the confuse.
Speaker Change: Confusion, maybe definitional and so even for example, how we look at blended lease rates is slightly is defined differently then.
Speaker Change: Some of our peers and.
Speaker Change: Oh I'm on lease rates when we look at nine to 15 months like for like and.
Speaker Change: Our AQR for.
Speaker Change: For example, they use all leases what that means you could have short term leases and that's going to change the numbers. So that's why I encourage people to look at full year.
Speaker Change: And relative basis.
Speaker Change: So I do know that the definitions is different on the turnover.
Speaker Change: Statistic as well, but as far as for our portfolio of 35% is a little bit lower than.
Angela Kleiman: But as far as for our portfolio, 35% is a little bit lower than typical historical average. It's usually closer to the high 30 to maybe to 40% range. And right now, it's really a function of us. The goal is, as I said in the past, is to maximize revenues. And we want to make sure that we are renewing in such a way that we can have and generate positive new lease rates whenever possible. And so if we look at our blended, we have, you know, really solid blended number in the first quarter of 2.8%. And which is, so turnover ultimately is an output number.
Speaker Change: Typical historical average.
Speaker Change: It's usually now closer to the high 32, maybe two to the 40% range.
Speaker Change: And right now, it's really a function of us.
Speaker Change: So is this has as I said in the past is to maximize revenues and we want to make sure that we are renewing as such a way that we can have and generate positive new lease rates whenever possible.
Speaker Change: And so if you look at our blended we have.
Speaker Change: Really solid blended number in the first quarter of two 8% and which is so so turnover ultimately is an output number it's not a strategy that is used to form an execution plan.
Angela Kleiman: It's not a strategy that is used to, you know, form an execution plan.
Unknown Attendee: That is very helpful. Thank you, Angela.
Angela Kleiman: Well that is very helpful. Thank you Angela.
David Segar: Thank you. The next question comes from the line of David Segar with Green Street.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of David Sega with Green Street. Please go ahead.
Angela Kleiman: Please go ahead. Hi, thank you. I want to get your thoughts on Washington State's rent control proposal. And if you could kind of relate how California similar rent control has impacted your operations and investment decisions over the last several years as kind of a guide for thinking about the Washington State proposal. Yeah, sure thing.
David Sega: Hi, Thank you I wonder if.
David Sega: To get your thoughts on the Washington States rent control proposal and if you could kind of relate how California is similar when control has impacted your operations and investment decisions over the last several years is kind of a guide for thinking about.
David Sega: The Washington State proposal.
David Sega: Yeah sure thing obviously.
Angela Kleiman: Obviously, you know, legislation generally is not something that helps multifamily. or housing cost. It doesn't achieve what the intention is or the misguided notion that it's going to somehow allow cost of housing to be cheaper. So it's too bad that Washington is taking this route. Having said that, this rent cap of CPA plus seven max at 10 is similar to what we've seen in California. So we're obviously accustomed to operating in this environment and and we'll want obviously a little more time to assess the details to make sure we understand the full impact. Having said that, when California passed AB 1482, It did not have a meaningful impact to our business because Essex had a self-imposed 10% rent cap for many decades.
David Sega: Legislation generally is not.
David Sega: Hum.
David Sega: Something that helps our multifamily.
David Sega: Our housing cost it's it doesn't achieve what the intention is or the misguided notion I was just going to somehow allow cost of housing to be cheaper. So it's too bad that Washington is taking this route having said that this rent cap of CPI plus seven Max attach.
David Sega: <unk> is.
David Sega: Similar to what we've seen in California. So, we're obviously accustomed to operating in this environment.
David Sega: And.
David Sega: Well, one obviously, a little more time to assess the details to make sure we understand the full impact having said that when California passed 48 14 82.
David Sega: It did not have a meaningful impact to our business because asics.
David Sega: Had a self imposed 10% rent cap for many decades, I mean, I think since I've been here and well before I joined the company and so that has not impacted our performance so at.
Angela Kleiman: I mean, I think it's since I've been here and well before I joined the company. And so that has not impacted our performance. So you know, at this level, it's really an anti-gouging. And so it's, you know, we certainly don't expect an impact to our business. It's really just the intention of the legislature, legislation, I don't think it's going to create the desired results that the legislatures want. Great, thank you.
David Sega: At this level, it's really an anti gouging and so it's we certainly don't expect an impact to our business. It's really just a.
David Sega: The intention that legislature legislation I don't think it's going to.
David Sega: Create the desired results that.
David Sega: Legislatures want.
David Sega: Great. Thank you and then just finally on bad debt.
David Segar: And then just finally, on bad debt, you've made a lot of good progress on that. And I'm just curious, like how, what the timeline would be to finally reach full normalization? Would that be by the end of this year, or probably more than 26?
David Sega: A lot of good progress on that and I'm just curious like how.
David Sega: What the timeline would be to finally reach full normalization would that be by the end of this year well probably more in 'twenty six.
Barbara Pak: Hi, David, it's Barb. Yeah, we're at 50 basis points in the first quarter, our long term average is around 40. So we're not that far off from it. But yeah, I think by year end, it's a realistic possibility. Great, thank you.
Barb Pak: Hi, David It's Barb, Yeah, we're at 50 basis points in the first quarter. Our long term average is around 40, so we're not that far off from it but yeah I think by year end it's.
David Sega: A realistic possibility.
David Sega: Great. Thank you.
Alex Kim: Thank you. The next question comes from Alex Kim with Zellman & Associates.
David Sega: Thank you the next.
Speaker Change: Question comes from Alex Kim with Zelman and Associates. Please go ahead.
Alex Kim: Please go ahead. Great, thanks.
David Sega: Great. Thanks, good morning out there.
Barbara Pak: Morning out there. I wanted to ask about kind of the lower turnover. I'm just curious, is this a primary driver to the lower repair and maintenance expense as well? Part of that, have your expectations Spence Bucket changed for the full year in all.
David Sega: I wanted to ask about kind of the lower turnover.
David Sega: Enjoyed for this quarter as well I'm. Just curious is this a primary driver to the lower repair and maintenance expense as well.
David Sega: Just as part of that or have your expectations for.
David Sega: This expense bucket changed for the full year at all.
Barbara Pak: No, this is Barb. The R&M cost is lumpy from quarter to quarter really depends on what happened in the prior year, what projects were being completed and things of that nature. So the R&M cost, we still expect to be up two and a half to 3% for the full year. The first quarter was as just a an easy comp that drove that nothing to do with the turnover. Got it. That's helpful to note.
Barb Pak: No. This is barb the R&M causes lumpy from quarter to quarter. It really depends on what happened in the prior year, what projects are being completed and things of that nature. So the R&M cost, we still expect to be up.
Barb Pak: Two 5% to 3% for the full year. The first quarter was as just an easy comp that drove that nothing to do with the turnover.
Barb Pak: Got it that's helpful to note.
Barbara Pak: And then just sticking with the expense side, if I remember correctly, you renew your insurance policy in December, and it looks like insurance costs still remain slightly higher on a year-over-year basis. for Talked through our expectation for being roughly down 2% for the full year, and then again if there's been a change for insurance. Yeah, you have a good memory. Insurance is still down 2% for the full year. There is an other stuff in that line, primarily related to tenant litigation. And that was a little bit more elevated this quarter relative to the first quarter of 24, which drove that number up 5%.
Barb Pak: And then just sticking with the expense side.
Barb Pak: If I remember correctly you renew your insurance policy in December and it looks like insurance costs still remain slightly higher on a year over year basis from $1 24.
Barb Pak: Could you talk through the prior.
Our expectation for being roughly down 2% for full year, and then again, if theres been a change for insurance expectations.
Barb Pak: Yes, you have a good memory insurance is still down 2% for the full year. There is other stuff in that line primarily related to tenant litigation and that was a little bit more elevated this quarter relative to the first quarter of 'twenty, four which drove that number up 5% that tenant litigation.
Barbara Pak: That tenant litigation is lumpy. And when we settle claims, it can be lumpy. So we do still expect the insurance line though to the insurance premiums to still be down on a year over year basis. Got it.
Barb Pak: It is lumpy and when we settle claims can be lumpy. So we do still expect the insurance line, though to the insurance premiums still be down on a year over year basis.
Unknown Attendee: Thanks for taking the questions. Thanks.
Barb Pak: Got it thanks for taking the questions.
Barb Pak: Thanks.
Unknown Attendee: Thank you.
Barb Pak: Okay.
Barb Pak: Thank you.
Unknown Attendee: Ladies and gentlemen, that ends our That ends our question and answer session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Barb Pak: Ladies and gentlemen that ends.
That ends our question and answer session. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you.
Barb Pak: You for your participation.
Barb Pak: Yeah.
Barb Pak: [music].
Barb Pak: Okay.
Barb Pak: Yes.