Q2 2025 Essex Property Trust Inc Earnings Call

Conference Host: Good day and welcome to ESSEX PROPERTY TRUST 2nd 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. Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for ESSEX PROPERTY TRUST. Thank you, Ms. Kleiman. You may begin.

Good day and welcome to SX Property. Trust second 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.

For the information about these risks can be found on the company's filings with the SEC.

It is now my pleasure to introduce your host, Miss Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you, Miss Kleiman. You may begin.

Angela Kleiman: Good morning. Welcome to ESSEX 2nd Quarter Earnings Call. Barb Pack will follow with prepared remarks, and Rylan Burns is here for Q&A. Today, I will cover key takeaways from the quarter, our outlook for the second half of the year, and provide an update on the transaction market. We are pleased to report solid results for the first half of 2025, highlighted by a 7% core FFO outperformance in the second quarter and an increase to same property and core FFO guidance for the year. Starting with operations highlights, the second quarter performed on plan with 3% blended rate growth for the same store portfolio. Northern California and Seattle led with 3.8% and 3.7% blended rate growth respectively, while Southern California lagged with 2% blended rate growth, primarily because of Los Angeles.

Good morning, welcome to Essex, second quarter earnings call.

Barack will follow.

Your remarks and Ryland Burns is here for Q&A.

Today, I will cover key takeaways from the quarter, our outlook for the second half of the year, and provide an update on the transaction market.

We are pleased to report solid results for the first half of 2025 highlighted by a 7 Cent core ffo outperformance in the second quarter and an increase to same property and core. Ffo guidance for the year.

Starting with operations highlights.

Angela Kleiman: On a more granular level, the suburban markets of San Mateo and San Jose were notable outperformers with 5.6% and 4.4% blended rate growth respectively. We attribute the outperformance to limited housing supply, increased enforcement of return to office, and likely better job growth than what has been reported by the BLS. In contrast, Los Angeles remains challenging with 1.3% blended rate growth, resulting from pockets of elevated supply deliveries coupled with legacy delinquency challenges in a soft demand environment. Despite these challenges, we have been able to generate a positive blended rate growth in every Los Angeles submarket year to date. Additionally, we are tracking several large infrastructure investments related to the World Cup and Olympics that should improve overall economic activities in this market in the next few years.

Second quarter performed on plan with 3% Blended, rate growth for the same store. Portfolio, Northern California and Seattle lead with 3.8 and 3.7% Blended rate growth respectively while Southern California. Lagged with 2% Blended rate growth primarily because of Los Angeles.

On a more granular level.

Mateo and San Jose were notable outperforms with 5.6% and 4.4% blended rate growth, respectively.

We attribute the outperformance to limited housing supply, increased enforcement of return-to-office policies, and likely better job growth than what has been reported by the BLS.

In contrast, Los Angeles remains challenging, with 1.3% blended rank growth. This is resulting from pockets of elevated supply deliveries coupled with legacy delinquency challenges in a soft demand environment.

Despite these challenges, we have been able to generate a positive Blended rate growth in every Los Angeles submarket year to date.

Additionally, we are tracking several large infrastructure investments related to the World Cup and Olympics. That should improve overall economic activities in this market in the next few years.

Angela Kleiman: Moving on to our outlook for the second half of the year, we continue to expect modest US GDP and job growth, and for the West Coast, a stable job environment. Year to date, our seasonal rent curves have generally matched our expectations, and our seasonal peak for rents occurred around late July. Accordingly, our guidance for the second half of the year assumes market rents to moderate, consistent with normal seasonality. Our increase to the same store revenue guidance generally reflects the outperformance achieved to date. In terms of range of outcomes, the low end of our guidance contemplates two factors. First, a softer macroeconomy stemming from public policy. Second, delinquency recovery in Los Angeles slows because this area can be lumpy. As for potential factors for the high end of the guidance range, first is an increase in hiring driving rent growth.

Moving on to our outlook for the second half of the year.

We continue to expect modest US GDP and job growth. And for the West Coast a stable job environment.

Year-to-date, our seasonal rent curve has generally matched our expectations, and our seasonal peak for rents occurred around late July accordingly. Our guidance for the second half of the year assumes market rents will moderate consistent with normal seasonality.

Our increase to the same-store revenue guidance generally reflects the outperformance achieved to date.

In terms of range of outcomes, the low end of our guidance contemplates two factors. First, a softer macroeconomy.

Stemming from public policy.

Second delinquency recovery in Los Angeles slows because this area can be lumpy.

as for potential factors for the high end of the guidance range.

Angela Kleiman: We have seen a gradual positive trend in job openings in the 20 largest tech companies, and this metric has been a reliable leading indicator of demand. The second factor is a more favorable operating environment, as we are expecting an average decrease of 35% in multifamily supply deliveries in our markets in the second half of the year compared to the first. Turning to the transaction market, investor appetite for the West Coast multifamily properties remains healthy, with deal volumes slightly higher in the second quarter compared to the same period last year, and average cap rates have remained in the mid-4% for institutional quality assets. In the second quarter, we started to see a higher volume of transaction pricing in the low 4% in Northern California.

First, an increase in hiring is driving rent growth. We have seen a gradual positive trend in job openings in the 20 largest tech companies, and this metric has been a reliable leading indicator of demand.

The second factor is a more favorable operating environment. We are expecting an average decrease of 35% in multi-family supply deliveries in our markets in the second half of the year compared to the first.

Turning to the transaction Market. Investor appetite for the West Coast multi Family Properties remains healthy with Geo volumes slightly higher in the second quarter compared to the same period last year.

And average cap rates have remained in the mid 4% range for institutional-quality assets.

In the second quarter, we started to see a higher volume of transaction.

Angela Kleiman: In comparison, ESSEX is generating on average yields in the mid to high 4% from approximately $1 billion of acquisitions in Northern California over the last 12 months. Our team has done a terrific job investing ahead of the cap rate compression, resulting in immediate NAV accretion. Lastly, as we have maintained our disciplined capital allocation by funding the majority of these acquisitions with select dispositions, going forward, we would continue to arbitrage our cost of capital and reallocate our portfolio to optimize the risk-adjusted returns to drive NAV and core FFO per share accretion. With that, I'll turn the call over to Barb. Thanks, Angela. I'll begin with a recap of our second quarter results, followed by the components to our revised full-year guidance, and conclude with an update on capital markets and the balance sheet.

Pricing in the low 4% in Northern California.

In comparison, Essex is generating, on average, yields in the mid to high 4% from approximately $1 billion of acquisitions. In Northern California, over the last 12 months,

Our team has done a terrific job. Investing ahead of the cap rate compression resulting in immediate NAD, accretion.

Lastly, as we have maintained our disciplined capital allocation by funding the majority of these acquisitions with select dispositions going forward, we will continue to arbitrage our cost of capital and reallocate our portfolio to optimize the risk, adjust the returns to drive NAD and core FFO per share. Accretion with that. I'll turn the call over to Barb.

Angela Kleiman: Beginning with our second quarter results, we achieved a solid second quarter with core FFO per share exceeding the midpoint of our guidance range by 7 cents. The primary driver of the beat relates to 4 cents from better same property operations, of which half relates to higher same property revenue growth, and the other half relates to lower operating expenses. The expense reduction is driven by a 9% decline in Washington property taxes as compared to 2024. In addition, the quarter benefited from lower G&A, which is timing related. Turning to our revised full-year outlook, we are pleased to announce a 10 cent increase at the midpoint for core FFO per share to $15.91. Contributing to the increase are three factors.

Thanks, Angela. I'll begin with a recap of our second quarter results, followed by the components of our revised guidance, and conclude with an update on capital markets and the balance sheet.

Beginning with our second quarter results, we achieved a solid second quarter with core FFO per share exceeding the midpoint of our guidance range by 7 cents.

The primary driver of the beat relates to 4 cents from better. Same property, operations of, which half relates to higher, same property, Revenue growth, and the other half relates to lower operating expenses.

The expense reduction is driven by a 9% decline in Washington property taxes as compared to 2024.

In addition, the quarter benefited from lower GNA, which is timing related.

Turning to our revised for your outlook. We are pleased to announce a 10-cent increase at the midpoint for core ffo per share to $15.91.

Angela Kleiman: First, we are raising the midpoint for same property revenue growth by 15 basis points to 3.15%, driven by higher other income and better delinquency collections, partially offset by lower occupancy. Second, we are reducing our same property expense midpoint by 50 basis points to 3.25% on account of lower property taxes, which I previously mentioned. With these revisions, we now expect same property NOI to grow 3.1% at the midpoint, a 40 basis points improvement from our original guidance. The increase in same property NOI contributed 7 cents to our full-year FFO guidance raise. The third component relates to our co-investment platform, as our joint venture properties are performing ahead of plan.

Contributing to the increase are three factors.

First, we are raising the midpoint for same property revenue growth by 15 basis points to 3.15%, driven by higher other income and better delinquency collections, partially offset by lower occupancy.

Minted point by 50 basis points to 3.25% on account of lower property taxes, which I previously mentioned.

With these revisions. We now expect same property. Noi to grow 3.1% at the midpoint of 40 basis points improvement from our original guidance.

The increase in same-property NOI contributed 7 cents to our full year. FFO guidance raised.

The third component relates to our co-investment platform, as our joint venture properties are performing ahead of plan.

Angela Kleiman: As for our third quarter core FFO guidance, we are forecasting $3.94 at the midpoint, a 9 cent sequential decline from the second quarter, primarily related to elevated operating expenses given typical seasonality in utilities and taxes, which is partially offset by higher sequential revenues. For the third quarter, we are forecasting same property operating expense growth to increase 3% on a year-over-year basis. In addition, preferred equity redemptions are expected to be back and loaded, which is also causing a reduction in sequential core FFO. Year to date, we have received approximately $30 million in redemptions, and we expect an additional $175 million in proceeds before year end. We are pleased with the progress we have made in executing our strategy to reduce the size of the book, even though it is causing a temporary headwind to core FFO growth.

As for our third quarter core FFO guidance, we are forecasting $3.094 per share at the midpoint, a $0.09 sequential decline from the second quarter, primarily related to elevated operating expenses. Given typical seasonality in utilities and taxes, this decline is partially offset by higher sequential revenues.

For the third quarter, we are forecasting, same property, operating expense growth to increase, 3% on a year-over-year basis.

In addition, preferred equity redemptions are expected to be back and loaded, which is also causing a reduction in sequential core FFO.

Year to date, we have received approximately $30 million in redemptions, and we expect an additional $175 million in proceeds before year-end.

We are pleased with the progress we have made in executing our strategy to reduce the size of the book, even though it is causing a temporary headwind to core FFO growth.

Angela Kleiman: At year end, we anticipate the structured finance book will be less than 4% of core FFO and continue to decline in 2026, as we anticipate being repaid on the majority of our outstanding investments over the next four quarters, after which the earnings headwind will have largely abated. Lastly, a few comments on capital markets and the balance sheet. During the quarter, we executed several transactions to further enhance our balance sheet flexibility. We issued a $300 million delayed draw term loan, of which $150 million is drawn and fixed at an attractive 4.1% rate through April of 2030. We also expanded our line of credit to $1.5 billion while extending the maturity to 2030, and we established a commercial paper program. As a result of these financings, we further enhanced our balance sheet strength while optimizing our costs and access to capital.

At year-end, we anticipate the structure Finance book will be less than 4% of core FFO and continue to decline in 2026, as we anticipate being repaid on the majority of our outstanding investments over the next 4 quarters.

After which the earnings headwind will have largely abated.

Lastly, a few comments on capital markets in the balance sheet.

During the quarter, we executed several transactions to further enhance our balance sheet flexibility.

We issued a $300 million delayed draw term loan, of which $150 million is drawn and fixed at an attractive 4.1% rate, through April of 2030. We also expanded our line of credit to $1.5 billion while extending the maturity to 2030, and we established a commercial paper program.

Angela Kleiman: With minimal refinancing needs in 2025, healthy net debt to EBITDA of 5.5 times, and $1.5 billion in available liquidity, we are well positioned. I will now turn the call back to the operator for questions.

As a result of these financings, we further enhance our balance sheet strength. While optimizing our costs and access to capital with minimal refinancing needs in 2025, we maintain a healthy net debt to EBITDA of 5.5 times and $1.5 billion in available liquidity. We are well positioned. I will now turn the call back to the operator for questions.

Operator: Thank you. 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 your 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. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We request participants to limit to one question and one follow-up. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question comes from the line of Nick Culico with Scotiabank. Please go ahead.

Thank you.

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 1 on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You may press star and 2 if you would like to remove your question from the queue.

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

We request participants to limit themselves to one question and one follow-up.

Ladies and gentlemen, we will wait for a moment while we poll for questions.

Our first question comes from the line of Nick Ulo with Scotia Bank. Please go ahead.

Analyst: Thanks. Hi, everyone. I guess first off, just turning to Los Angeles, can you just talk a little bit more about, you know, what drove some of the, you know, the weaker blended pricing? And then also, is this, since you highlighted LA County, is there also sort of a specific, like, fire ordinance impact that's happened as maybe different than what was previously expected?

Uh, thanks. Hi everyone. I guess first off just turn it to Los Angeles. Can you just talk a little bit more about? You know what? Drove some of the um you know the weaker uh Blended pricing and then also is is essentially you highlighted LA county is there. Also sort of a specific like fire ordinance impact uh that that's happening as maybe different than what was previously expected.

Barb Pak: Hey, Nick. It's Angela here. On Los Angeles, it has underperformed relative to our expectations, and it's really a couple of different factors. It's not related to the fire ordinance. It's not a legislative concern. It's more of the the supply is heavier in the first half, which, of course, we knew that was going to be an impact. And the delinquency recovery is taking time. And what we had hoped for was that we could make progress sooner because of the progress we made from last year to this year. But so far, you know, the first half is it's moving along. It's just not improving at such a great rate. And then the last factor is really, it's a soft demand environment. And what we're seeing, the soft demand environment is actually not just Los Angeles. It's Southern California as a whole.

Hey Nick, it's Angela here um on Los Angeles.

It has underperformed relative to our expectations.

And it's really a couple of different factors.

Uh, it's not related to the fire ordinance. It's not a legislative concern. It's more of the...

The supply is heavier in the first half, which of course we knew was going to have an impact, and the delinquency recovery is taking time.

What we had hoped for was that we could make progress sooner.

Barb Pak: And I just want to, you know, remind everyone that Southern California mirrors the US economy, and the US economy has been soft. It's not broken. It's not, you know, it doesn't have any, we're not seeing cracks, but it's been soft. And so for those reasons, Southern California as a whole, which is 40% of our portfolio, has been more of a drag. And what we expect is that in the second half, the one benefit is that the supply is declining. So supply in the first half is actually 68% of total supply in Southern California. So that is one benefit. And we certainly have seen offsets from our northern regions that have benefited our overall performance with Northern California and, of course, strength in Seattle.

The environment is actually not just Los Angeles; it's Southern California as a whole. And I just want to, you know, remind...

Um, everyone, Southern California mirrors the U.S. economy, and the U.S. economy has been soft. It's not broken; it's not, um, you know, it doesn't have any.

We're not seeing cracks, but it's been soft. And so for those reasons, uh, so Southern California is a whole, which is 40% of our portfolio. Um, has been more of a drag. And, uh, and what we expect is that and the second half the 1, that is that the supply is, uh, declining so Supply in the first half is actually 68% of total Supply in Southern California. So that, um, that is 1 benefit. And, uh, we certainly have seen offsets from our Northern regions that has, um, benefit our overall performance with Northern California and of course, strength in Seattle.

Analyst: Thanks for that, Angela. And then I guess the second question is just on Northern California. I know you gave, I think you gave some numbers on how the blended rate growth trended there, and the market was outperforming. Maybe you could just, maybe if we sort of take a step back a little bit, because I know, you know, everyone tends to focus a bit on blended rate growth, and there's talk about, I think you said that that sort of moderates in the back half of the year. But I mean, is that masking, though, what is perhaps sort of bigger strength not being appreciated in Northern California?

Thank thanks for that Angela and then I guess the second question is just on Northern California. I know you gave I think you gave some numbers on the on how the Blended rate growth uh Trend there and then Market was outperforming. Maybe you could just maybe if we sort of take a step back, a little bit because I know you know, everyone tends to focus a bit on Blended rate growth and and there's talk about. I think you said that that sort of moderates in the back half of the year. But I mean, is that is that mask?

Analyst: That, you know, even if it's not showing maybe continued acceleration in the back half of the year, that there's, you know, some other impact and benefit to the portfolio that's not fully, you know, showing up right now in terms of, like, you know, the increase in guidance that you gave. Thanks.

Though what what is perhaps sort of bigger strength, not being appreciated in Northern California that, you know, even if it's not showing maybe continued acceleration in the back half of the year, um, that there's, you know, some other impact and benefit uh to the portfolio that uh, not fully, you know showing up right now in terms of like you know in the increase in guidance that you gave thanks.

Barb Pak: Hey, Nick. Yeah, that's a great question. We are seeing strength in Northern California. And what I think has been a little confusing is really two factors. One is that we had expected a, you know, solid performance from Northern California, and we are seeing job postings to gradually increase, which, of course, it does lag from that perspective. And when we look at the seasonal curve in Northern California, it's performing actually slightly better than we had expected. I think what's confusing is the blended and how that is presented across our peers because everyone defines it differently. And so let me just step back and explain our blended lease for a second. Our blended lease, what we try to do is provide an apples-to-apples or like-to-like, for example, 9-15 months leases. But that doesn't represent all leases. What impacts our financials is all leases.

Hey, Nick. Yeah, that's a great question. Um, we are seeing strength in Northern California and...

What I think has been a little confusing is really 2 factors 1 is that we had expected a, a, you know, solid performance from Northern California. And we are seeing, um, job postings to gradually increase which, of course, uh, it does lag from that perspective.

And then, when we look at the seasonal curve in Northern California, it's performing actually slightly better than we had expected. I think what's confusing is the blended and how that is presented across our peers because everyone defines it differently. So let me just step back and explain our blend at least for a second.

Our blended leaves. What we try to do is provide an apples-to-apples comparison for life to life, for example, 9 to 15 months. Leases, but that doesn't represent all leases.

Barb Pak: So what's showing up that's reported is about 75% of the leases signed. If we use all leases, new lease rates would flip from 70 basis points that's reported to 3.3%. I know that's a huge delta, which is why we try to shy away from doing all because there's more volatility. But that 25% makes a difference because that represents corporates, which typically has a 15% to 25% premium, and, of course, the short-term leases, which has a higher premium. And so our blend, if we use all leases, it would be 4% versus 3%. And once again, that's what hits our financials. And I think the other factor that can be a little confusing is that people expect the blend to continue to accelerate throughout the year. But that would be contrary to the comment that we have achieved our seasonal peak, which is normal.

What impacts our financials is all leases.

So, the showing up that's reported is about 75% of the lease assigned.

If we use all leases,

New lease rates would flip from 70 basis points. That's reported to 3.3%.

I know that the huge delta, which is why we try to shy away from doing all, because there's more volatility. But that 25% makes a difference, because that represents corporates, which typically has a 15% to 25% premium. And of course, the short-term leases, which is a higher premium.

And so, our blend. If we use all leases, it would be 4% versus 3%. And once again, that's what hits our financials.

And I think the other, uh, factor that's a little confusing is that people expect the blend to continue to accelerate throughout the year.

But that would be contrary to the common debt; we have achieved our seasonal peak.

Barb Pak: July is a normal time for us to, you know, peak. And therefore, the rest of the year, this is normal seasonality. It's going to decelerate. And it would be unusual for the blend to actually be higher in any normal environment. The one caveat is that if we see a greater strength in the macroeconomy, you know, if hirings pick up in a meaningful way, for example, then yes, then we could see that. And then we could see a situation where the seasonal peak actually gets prolonged, which is not what we're currently observing. And I think we've all experienced a lot of the noise with public policy and, you know, the lack of clarity there. And so I do think companies have been more reticent in hiring and investing, which, of course, impacts overall growth. And that's really what we're experiencing here.

Which is normal. July is a normal time for us to you know keep and therefore the rest of the Year. This is normal seasonality, it's going to decelerate and it would be unusual for the blend to actually be higher um, in an in in, in any normal environment, the 1 cavitt

Barb Pak: But Northern California is doing just fine.

There. And so I do think companies have been more reticent in hiring and investing which of course impacts or growth and that's really what we're experiencing here. The Northern California is doing just fine.

Analyst: Appreciate it. Thanks.

Appreciate it. Thanks.

Operator: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please go ahead.

Thank you.

Our next question comes from the line of Alexander Gould, Fob with Piper Sandler. Please go ahead.

Analyst: Hey, good morning. Morning out there. So just to, Angela, just to go back, and maybe this was all our, you know, sort of misunderstanding of the fire impact on housing. But, you know, presumably, we would have thought that LA would have seen a pickup in demand. And I know that you guys and others articulated that, hey, single-family people are different than apartment people, which clearly is the case. But also, you know, the COVID unit replacement taking this long, I mean, we're five years past. So are there other dynamics at work? Like, is this more just the Hollywood spillover, the strikes, or fallout of port workers who, you know, got laid off?

Uh, hey uh, uh, morning morning out there. Um, so just to uh,

To go back, maybe this was all our, you know, sort of misunderstanding of the fire impact on housing.

Analyst: Just trying to understand the dynamic because I would have expected at least a little bit better, you know, maybe not the strength of Northern Cal or Seattle, but still, you know, would have expected that between the COVID units and just absorption, it would have been a little bit faster this year, not what seems to be slower.

But, you know, presumably we would have thought that La would have seen a pickup in demand. And I know that you guys and others articulated, that hey, single family people are different than apartment people which clearly is the case. But also you know the co unit replacement. Taking this long, I mean we're 5 years past. So are there other Dynamics at work like, is this more just the Hollywood spillover, the strikes or Fallout of Port workers, who you know, got laid off. Just trying to understand the dynamic because would have expected at least a little bit better, you know? Maybe not the strength of Northern Cal or Seattle but still, uh, you know, would have expected that the uh,

Between the co units and just absorption, it would have been a little bit faster this year. Not not, what seems to be slower.

Barb Pak: Yeah, Alex, that's a great question. And we share your view in that we didn't expect LA to just suddenly take off. But we did expect that on the occupancy side, that it would run a little tighter, which is what we had forecasted. And what we are experiencing is, you know, that overall macroeconomy softness, which, of course, has an impact on LA. And, of course, keep in mind, you know, yes, we're five years since COVID. That's 2020. But LA was shut down for three years. The eviction moratorium lasted three years. So we're only in the second half, you know, the back half of the second year of this recovery. And it's a huge economy. It's going to take more time. What we have not done is we have not redlined LA because there is a lot going for LA.

Yeah, Alex that's a great question and and we share your view in that we didn't expect LA to just suddenly take off. But we did expect that on the occupancy side, that it would run a little tight tighter, which is where we had forecasted. And what we are experiencing is, um, you know, that overall, um, macroeconomy softness, which of course, has an impact on La. And of course, keep in mind, you know, yes, we're 5 years since Co that's 2020, but La was shut down for 3 years.

Eviction moratorium lasted 3 years. So we're only in the second half, you know? Uh, the the back half of the second year of this recovery and it's a huge economy is going to take more time

Barb Pak: And, you know, it is the largest economy in terms of by county, with over a trillion dollars of GDP. And with the infrastructure investment that's earmarked for LA for the World Cup and the Olympics, the latest estimate is over $80 billion. And so we do see that the market has been stable. So that's great. It's remained in that low 95% occupancy. It hasn't picked up as much as we would like. Having said that, we do see a positive, you know, environment moving forward.

What we have not done is we have not redlined LA because there is a lot going for LA, and, you know, it is the largest.

Economy in terms of by County with over a trillion dollars of GDP and with the infrastructure on investment, that's earmarked for La for the World Cup and the Olympics. Um, the latest estimate is over 80 billion dollars.

And so we do see that the market has been stable, so that's great. It's remained in that low. 95% occupancy hasn't picked up as much as we would like. Having said that, we do see positive, um,

You know, environment, uh, moving forward.

Analyst: Okay. And then the second question is, on your MEZ platform, you guys have a long track record of making a lot of money. I know that you don't include the gains in core FFO, but you guys have created a lot of value over time. And it almost sounds like you're maybe not fully exiting, but dramatically scaling back. So two parts. One, why the decision to scale back when you have a successful track record? And two, Barb, can you just articulate the fourth quarter FFO impact? You know, because obviously the number is below where consensus is. So trying to understand how much of that below the implied below is just from, you know, the debt preferred FFO going away versus others. So one is why the dramatic scale back and two the FFO impact in the fourth quarter.

Okay. And then the second question is on your, on your mes platform, you guys have a long track record of making a lot of money. I know that you don't include the gains in in core ffo, but you guys have created a lot of value over time, but it almost sounds like you're maybe not fully exiting but dramatically scaling back. So 2 part 1 why the decision to scale back when you have a successful track record and 2 Barb? Can you just articulate the fourth quarter ffo impact? You know? Because obviously the number is below where consensus is so trying to understand how much of that below the implied below is just from, you know, the, uh, debt and preferred ffo going away versus others. So, 1 is why the dramatic scale back into the ffo impact in the fourth quarter?

Barb Pak: Yeah, Alex, this is Barb. You are correct. We do have a long successful track record in this business, and we are going to remain in the business, just not to the level of scale that we got this book to. So the book got to $700 million, and it became 9% of our FFO back in '22, '23. And, you know, it creates a lot of volatility in the earnings. And, you know, we think it's more appropriate to have it a much smaller size. We think the, you know, investing the money into, you know, stabilized multifamily assets leads to better quality of cash flow and cash flow growth and NAV growth. And so this will be a portion of our company, but it's going to be smaller in that 3% of our FFO going forward.

Yeah, Alex, this is Barb. You are correct. We do have a long successful track record in this business, and we are going to remain in the business just not to the level of scale that we got this book to. So the book got to $700 million, and it became 9% of our FFO back in 2022-2023 and, you know,

it creates a lot of volatility in the earnings and

Barb Pak: And then in terms of our, you know, impact to the fourth quarter, it's about 6 cents because we are, you know, the maturities are kind of evenly balanced between the third and the fourth quarter, and they are pretty meaty. And so that's what's driving that fourth quarter reduction. From a modeling perspective, you should assume that the 10% coupon we're earning on the MEZ and preferred equity investments is rolling down to a five, which is where we're, you know, investing for new stabilized assets at.

You know, we think it's more appropriate to have it a much smaller size. We think the, you know, investing the money into, you know, stabilized multi, Family Assets, leads to better quality of cash flow and cash flow growth and nav growth. And so this will be a portion of our company, but it's going to be smaller in that 3% of our ffo going forward. And then, in terms of our

Analyst: And just to be clear, the six, yeah.

The the maturities are kind of evenly balanced between the 3rd and the fourth quarter and they are pretty meaty and so that's what's driving. That fourth quarter reduction, you from a modeling perspective, you should assume that the 10% coupon we're earning on the mes, and preferred Equity Investments is rolling down to a 5, which is where we're, you know, investing for new stabilized assets at

Barb Pak: Yeah, it's Angela here. I just want to point to you've seen us diverting or reallocating our investment very much focused on fee-simple assets and in Northern California. And back to when the prep equity book was, you know, up to 9% FFO, the dynamics were completely different. We were not developing because cost was going, was increasing higher than revenues or rent growth. That was one. And in addition to that, the rent growth actually was pretty darn close to long-term CAGR. So it made sense to lean into prep equity at that point, and it was a great way to complement our development pipeline. So the world is very different now. And of course, we would want to shift our strategy to make sure that we're optimizing our returns whenever possible.

And just to be clear. Yeah, yeah, it's a Angela here. I just want to point to you've seen us diverting, or reallocating our investments, very much focused on fee simple assets, and in Northern California, and back to when the, um, press Equity book was, you know, up to 9% if so, uh, the Dynamics were completely different, we were not developing because what cost was going was increasing higher than revenues or rent growth, um, that was 1. And in addition to that, the rent growth actually was pretty darn close to long-term care.

Barb Pak: And then the one thing I do want to compliment your firm is that, you know, just on a separate note, that I thought Piper Sandler published a really good note on the impact of AI and jobs and the developers. I thought that was a thoughtful piece. So I thought your tech team should know that.

So it made sense to lean into prep equity at that point, and it was a great way to complement our development pipeline. The world is very different now, and, of course, we would want to shift our strategy to make sure that we're optimizing our returns in one of our possible.

um, and then the 1 thing, I do want to compliment your firm is that you know, to send a separate note that I thought Piper Sandler published a really good note on the impact of AI and um, and and jobs and the developers, I thought that was a thoughtful piece, so I thought you were a tech team to know that

Analyst: I'll pass that on. Thank you.

I'll pass that on. Thank you.

Operator: Thank you. Our next question comes from the line of Brad Heffern with RBC Capital Markets. Please go ahead.

Thank you.

Our next question comes from the line of Brad Hien with RBC Capital Markets. Please go ahead.

Rylan Burns: Yeah, thanks. Can you talk about what you're seeing for concessions in LA? Is the year-over-year activity higher, or is it just, you know, more broad-spread, more widespread, you know, on the rent side and not the concession side?

Yeah thanks. Um, can you talk about what you're seeing for a concessions? In La is the year-over-year activity. Higher is it just you know, more broadspeed more widespread um you know on the rent side and not the concession side.

Barb Pak: Yeah, concessions have remained elevated relative to the rest of the portfolio for LA. So if I compare, you know, just Q2 this year to Q2 last year, it's slightly higher. And going forward, now we're not talking about dramatically higher. We're talking about, you know, somewhere a little over a week. And so it's it's it's it remained more, you know, higher than the portfolio. It's not getting dramatically worse or better.

Yeah, concessions have remained elevated relative to the rest of the portfolio for La. So if I compare, um,

You know, just Q2.

This year to Q2 last year, um, it's slightly higher.

And going forward. Uh, now we're not talking about dramatically higher, we're talking about, you know, um, somewhere a little over a week, um,

And so it remained more, you know, higher than the portfolio. It's not getting dramatically worse or better.

Rylan Burns: Okay. Got it. And then, Barb, you guys have the commercial paper program now. Is there a significant savings on that versus the revolver? And just, you know, how do you plan to leverage that tool versus how you would historically use the revolver?

Um, and then

Barb, you guys have the commercial paper program. Now, is there a significant savings on that versus the revolver? And just, you know, how do you plan to leverage that tool versus how you would historically use the revolver?

Barb Pak: Yeah, yeah, that's correct. It's about 70 basis points difference in borrowing costs between our line of credit and the commercial paper program. Historically, though, we have not utilized our line as a permanent source of capital. We've used it as a temporary bridge to permanent financing. And so going forward, how we'll be using the CP program is very similar. We don't expect to have a large balance on that over long periods of time. You will see it pop up when we are temporary bridging financing. But overall, we don't expect to utilize it in a different way than how we've utilized our line historically.

Yeah, yeah that's correct. It's about a 70 basis point difference in borrowing costs between our line of credit and the commercial paper program. Um, historically though, we have not utilized our line as a permanent source of capital; we've used it as a temporary bridge to permanent financing. Going forward, how we'll be using the CP program is very similar. We don't expect to have a large balance on that over long periods of time. You will see it pop up when we are temporarily bridging financing, but overall, we don't expect to utilize it in a different way than how we've utilized our line historically.

Rylan Burns: Okay. Thank you.

Okay, thank you.

Operator: Thank you. Our next question comes from the line of Eric Wolf with Citibank. Please go ahead.

Thank you.

Our next question comes from the line of Eric Wolf with City Bank. Please go ahead.

Analyst: Hey, thanks. I want to return back to the guidance for blended rent growth in the back half. I mean, it looks like you only lowered it a little bit from around, call it, 3% to 2.7%. And your second quarter was in line with your guidance. So I was just curious if it was, you know, more recent pricing that caused you to lower it. You know, if you're trying to communicate something around market rent growth, sort of shifting in certain markets, and to whatever extent you can discuss recent trends on new and renewal leases, that would help as well. Thanks.

Hey thanks. I want to return um back to the the guidance for Blended wrench in the back half. Um, I mean, it looks like you only lowered it a little bit from around about 3% to 2.7%

And your second quarter was in line with your guidance. So I was just curious if it was, you know, more recent pricing that caused you to lower it. Um, you know, if you're trying to communicate something around market rent growth sort of shifting in certain markets. And to whatever extent you can discuss recent trends on new and renewal leases, that would help as well. Thanks.

Barb Pak: Yeah, no, that's a good question. In terms of our view of the second half, we do have the blended decelerating. Having said that, it's also typical with the normal seasonal curve. It's just the normal seasonality of our business. And, you know, so for example, if I look at our new lease rates for the fourth quarter for the estimate, actual last year, new lease rates declined down to 190 basis points. And we've said this in the past, where our lost to lease by year end actually becomes a gain to lease. Once again, not unusual. This year, you know, the peak obviously is not as strong as last year. It's still unplanned, which means we are expecting a more modest deceleration, but we don't know what that level is. But we're assuming, you know, a negative 70 basis points on new lease rates, just as an example.

Yeah, no, that's a good.

View of the second half. We do have a, the Blended, um, decelerating having said that it's also typical with the normal seasonal curve. It's just that the normal seasonality of our business and, you know, so for example, um, if I look at our, um, new lease rates, for the fourth quarter for the estimate,

The past where our lost at least by year end, actually become a gain to lease. Once again, Not Unusual this year, you know, the peak obviously is not as uh, strong as last year. It's still unplanned and which means we, um, we are expecting a a, uh, a more modest deceleration where you don't know what that level is. But we're assuming, you know, a negative 70 basis points. On new lease rates just as a as an example.

Rylan Burns: Okay. So your original guidance, you know, expected something maybe a little bit stronger because supply is coming down, and you were, you know, putting that into your assumption versus now you're forecasting something that is sort of similar to your historical pattern. Is that the right way to think about it?

Okay, so your original guidance, you know, expected something maybe a little bit stronger. Um, because supplies are coming down and you were, you know, putting that into your assumption versus now you're forecasting something that is sort of similar to your historical pattern. Is that the right way to think about it?

Barb Pak: Yeah, Eric, this is Barb. I think the other component is just LA, you know, it didn't take off like we thought it might. It's been more anemic, and so that has a bigger impact to the fourth quarter because LA seasonality is a little different than maybe the broader, you know, Northern California and PNW markets. So that's the other factor in the fourth quarter that changed.

Yeah, Eric, this is Barb. I think the other component is just LA; you know, it didn't take off like we thought it might. It's been more anemic, and so that has a bigger impact on the fourth quarter because LA seasonality is a little different than maybe the broader Northern California PNW market. So that's the other factor in the fourth quarter that changed.

Rylan Burns: Got it. Okay. Thank you.

Got it. Okay, thank you.

Operator: Thank you. Our next question comes from the line of Jana Kallan with Bank of America. Please go ahead.

Thank you. Our next question comes from the line of China Kalan with Bank of America. Please go ahead.

Rylan Burns: Thank you. Good morning. Question for Rylan, if you could provide some details on the strategy to go forward with a new joint venture focused on structured finance investments. It sounded like your preference at this point in the cycle was to buy on balance sheet, but just curious what's kind of what you're seeing on cap rates.

Thank you. Good morning. Um, question for Ryland: If you could provide some details on the strategy to go forward with a new joint venture focused on structured finance investments, it sounded like your preference at this point in the cycle was to buy on balance sheet, but just curious what you're seeing on cap rates.

Rylan Burns: Yeah, yeah, good question. Again, this goes back to Barb's comment earlier. We're strategically, we're trying to target an FFO contribution from prep MEZ, you know, that sub 4% of FFO. So, you know, we've had a lot of partner interest in this business given our track record of success and relationships as it relates to preferred and MEZ. And so this allows us to stay in the business and really select the highest risk-adjusted reward opportunities while managing that earnings volatility inherent in some of these shorter-term investments.

Yeah, uh, yeah, good question. Again, this goes back to Barb's comment earlier. We're strategically trying to target an FFO comp contribution from preferred mezzanine debt, you know, that sub 4% of FFO. So, you know, we've had a lot of partner interest in this business, given our track record of success and relationships as it relates to preferred and mezzanine debt. And so this allows us to stay in the business and really select the highest risk-adjusted reward opportunities while managing that earnings volatility inherent in some of these shorter-term investments.

Rylan Burns: Thanks, Rylan. And then, Angela, thank you for all the detailed comments on the like-for-like blended rent spreads. But it still seems like the initial guidance, there was an expectation the blended rent growth in the second half would be a little bit lower. Sorry, in the first half would be lower than in the second half. And then, so just trying to better understand kind of if you're seeing, you know, if it's a year-over-year, why that would need to, the blends would need to decelerate in the second half now.

Thanks Ryland and then Angela. Thank you for all the details comments on the like for like Blended rent spreads. Um, but it's still seems like the initial guidance. There was an expectation, the Blended red growth in the second half. Um, would be a little bit lower, um, sorry. In the first half would be lower than in the second half and then so just trying to better understand, kind of if you're seeing, you know, if it's a year-over-year, why that would need to

The Blends would need to decelerate in the second half now.

Barb Pak: Well, the first half blend, hey, Anna, actually we outperformed our expectation in the first half. And it's really, you know, strength of Northern California, which is a good, it's a quality beat. That's what Barb calls it. And so what we're expecting is second half, just the same approach we did when we had our earnings call in last quarter, which was we assume the second quarter will perform as unplanned. And therefore, right now, what we're doing is we are expecting that the second half will perform unplanned as our original plan. And so you may be expecting a greater rate, but it's really not going to because we're just, you know, it's really the strength of the first half driven by the first quarter.

Well, the first half blonde. Hey, Anna.

It.

The first half. And, and it's really, you know, strength of Northern California. Which is a a good. It's a, uh, it's a quality beat. That's, that's uh, what Barb calls it and so what we're expecting is second half just the same approach we did. Um, we had a, a earnings call, uh, in last quarter, which was we assume the second quarter will perform as unplanned. And therefore, right now what we're doing is, we are expecting that the second half

We will perform, uh, unplanned as our original plan. And so the

You may be expecting a greater rate but it's really not going to because we're just, you know, it's it's really the strength of the first half driven by the first quarter.

Rylan Burns: I see. Thank you.

I see. Thank you.

Operator: Thank you. Our next question comes from the line of Austin Worschmidt with KeyBank Capital Markets. Please go ahead.

Thank you.

Our next question comes from the line of Austin Wmid with KeyBanc Capital Markets. Please go ahead.

Analyst: Great, thanks. And good morning, everyone. Angela, I appreciate all the detail on kind of the like-for-like leases versus all leases. I'm interested in how much of that benefit in 2Q to new lease rate growth is seasonal, related, and, you know, typically reverses in the back half of the year. And then, you know, I guess for that all-lease metric, what did you expect at the outset of the year versus what you're expecting now within the revised guidance?

Great, thanks. And uh, good morning everyone, um Angela, appreciate all the detail, on kind of the like for like leases versus all leases. Um, I'm I'm interested in how much of that benefit in too cute. A new lease rake growth is is seasonal um related and and you know, typically reverses in the back half of the year and then, you know, I guess for that. All lease metric. What did you expect at the outset of the Year versus what you're expecting now within the revised guidance?

Barb Pak: Hey, Austin. Good question. On the second quarter, it's about 260 basis points higher on new leases when you look at the all versus just the like-for-like. So it's a big variation. And the blend is, which resulted in the blend, you know, of 100 basis points greater. And of course, as you mentioned, you know, it's going to decel more. And so we are assuming that the full-year blend on an all-lease basis to land close to 3%. And original guidance, Barb, would you comment on that? I don't have one. Yeah, Austin, there's a couple of puts and takes there. So we, in terms of our top line, we assumed 2.3% scheduled rent growth, which is factored with all this blended rent growth. That's what goes into it.

Yeah, awesome. That's a good question on the second quarter. It's about 200 to 600 basis points higher on new leases. When you look at, um,

The all versus just the like-for-like. So, there's a big variation, and the blend is what resulted in the blend of 100 basis points greater.

I'm close to 3%.

and uh,

Barb Pak: Because we outperformed in the first half of the year, there is a carry-forward effect that offsets the lower blends in the fourth quarter. And so we're still in line with our full-year forecast on that aspect of our budget.

Original guidance. Barb would you comment on that? I don't have 1 with me. Yeah, awesome. There's a couple puts and takes their. So we in terms of our Top Line we assume 2.3% scheduled rent growth which is factored with all this Blended rent growth. That's that's what goes into it because of we outperformed in the first half of the Year. There is a carry forward effect that offsets the the lower Blends in the fourth quarter. And so we're still in line with our full year forecast on that aspect of our um budget.

Analyst: That's helpful. And then, I think on last quarter's call, you had talked about achieving renewals around the high 3% range for April. I think it went out a little bit higher than that. And clearly, you know, that metric improved through the quarter. Do you think you can continue to achieve that, you know, low to mid-4% level moving forward, or is some of the pressure you're seeing in Southern California could lead for that, you know, renewal piece to moderate?

And it's helpful. And then, um, I think on last quarter's call, you had talked about achieving renewals around the high 3% range for April. I think it went out a little bit higher than that, and clearly, you know that metric improved through the quarter. Do you think you can continue to achieve that, you know, low to mid 4% level moving forward? Or is some of the pressure you're seeing in Southern California going to lead for that, you know, renewal piece to moderate?

Barb Pak: That's an excellent question. And I wish I had that crystal ball. And what I can tell you is that, you know, for the second quarter as a whole, we sent renewals out at about 4.3% for the whole portfolio. We landed at 4.2%. We didn't need to negotiate much, which is terrific. And if you look at the components, essentially, Southern California remained soft, and it was an offset mostly from the northern regions. As far as August, September, we're sending renewals out slightly higher in Q2, which is, you know, which is a good trend. So in the mid-fourth. The question here is, how much will we need to negotiate? And we just, you know, it's just too early to tell at this point. But it is a good sign that we're sending out renewals at comparable or slightly better levels.

An excellent question and I wish I had that crystal ball. And what I can tell you that, you know, for the second quarter as a whole, we sent renewals out at about 4.3% for the whole portfolio. We landed at 4.2%, we didn't need to negotiate much which is terrific. Um, and if you look at the components essentially, Southern California remains soft and it was a offset mostly from

The northern regions.

As far as August and September were concerned, we are sending renewals out slightly higher in Q2, which is a good trend. So, in the mid-force, the question here is, how much will we need to negotiate? And we just, you know, it's just too early to tell at this point. But it is a good sign that we're sending out renewals at comparable or slightly better levels.

Analyst: Okay. Thank you.

Okay, thank you.

Operator: Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.

Thank you.

Our next question comes from the line of Jamie Feldman with Wells Fargo. Please go ahead.

Analyst: Great. Thanks for taking the question. Rylan, maybe a question for you. I think some of the commentary earlier in the call talked about cap rates compressing. You know, you guys feeling good about buying and ahead of the move. I think you've been buying in the mid-fours, mid to high-fours. So can you talk about where cap rates are now? Are they below four, low-fours, and where do you see them heading?

Great. Uh, thanks for taking the question. Um, Ryland, maybe a question for you. I think some of the commentary earlier in the call talked about cap rates compressing. You know, you guys feeling good about buying ahead of the move. I think you've been buying in the mid-fours, uh, mid to high fours. So, can you talk about where cap rates are now? Are they below 4? Low fours? And where do you see them heading?

Rylan Burns: Hi, Jamie. Yeah, we, I would say, you know, buying market rate for the past year, we've done over almost a billion dollars in Northern California. We've been the largest buyer along the peninsula over the past year. And, you know, market cap rates on average are slightly above 4.5%. But again, on our platform, we've been hitting closer to a 5% cap rate. And that was consistent with the two acquisitions we were able to source in the second quarter in an off-market transaction. We have seen cap rates compress. I think as Northern California and San Francisco have outperformed the nation, you've seen incremental buyers step in. And a lot of the deals that were recently listed in recent months have guided and in several instances traded in that low 4% range.

Hi Jamie. Um,

Yeah, we that I would say, you know, buying market rate for the past year. We've done over almost a billion dollars in Northern California. Uh, we've been the largest buyer in along the peninsula over the past year and you know, market cap rates on average are slightly above 4 and a half percent. But again on our platform we've been hitting closer to a 5% cap rate and that was consistent with the 2 acquisition. We were able to Source in the in the second quarter.

Rylan Burns: I think in the city of San Francisco, it's actually, when you factor in the mansion tax, you're buying an equivalent basis of around 4%. So there are instances of deals transacting in some cases below four caps. But I would say the average now in Northern California is for the market of deals probably in that four and a quarter for a well-located institutional product. So we've been able to do better over the past year. And this is, you know, as you would expect, as prices change, our return expectations change, and our capital allocation preferences will also evolve in light of this environment. So I remain optimistic that we're going to be able to continue to source opportunities at better yields where we can generate accretion and allocate to the highest risk-adjusted returns. But it has gotten more competitive in Northern California.

In an off-market transaction. Uh, we have seen cap rates, compress, I think as Northern California and San Francisco have outperformed, the nation you've seen in, you know, incremental buyers step in and a lot of the deals that were recently listed in, in recent months, have guided and and several instances traded in that low 4% range, I think, uh, in the city of San Francisco, it's actually, when you factor in the The Mansion tax, you're buying it equivalent basis of around 4%. So there are instances of, uh, deals transactions in some cases below forecast, but I would say, the average, uh, now, in in, in Northern, California is for the market of deals, probably in that 4 and a quarter for a well-located institutional product. So,

We've been able to do better over the past year and this is, you know, as you would expect as prices change, our return, expectations change, and our Capital allocation preferences, I will also evolve in light of this environment. So I remain optimistic that we're going to be able to continue to Source, um, opportunities at at better better yields where we can generate accretion, uh, and and, uh, allocate to the, the highest risk adjusted returns. But, uh, it has gotten more competitive in Northern California.

Analyst: Okay. And I guess, you know, given your success there buying ahead of the curve, LA clearly struggling, hard to know when it gets better. I mean, any, and I know you've sold there and redeployed into Northern California, but any thoughts to go in the other way, you know, get very early in the cycle and probably find better opportunities in Los Angeles or still feeling best about, you know, reallocating into Northern California and keeping your chips there?

Okay.

And I guess, um, you know, given your success there, buying ahead of the curve, L.A. clearly struggling. Um, hard to know when it gets better. I mean, any, and I know you were, you've sold there and redeployed into Northern California. But any thoughts that go in the other way, you know, get very early in the cycle and probably find better opportunities in Los Angeles or...?

Still feeling best about, you know, reallocating it in Northern California and keeping your ships there.

Rylan Burns: Yeah, Jamie, as you would expect, as I mentioned, as these prices change, our preferences change. So we underwrite everything on the West Coast, and we are going to be, you know, tracking LA, you know, very closely. What I would say is that, you know, a lot of the well-located submarkets in LA, maybe surprisingly to some people, still trade in that mid to high 4% range. Glendale, Pasadena, West LA, they're still, you know, very competitive markets. You know, downtown LA is, you know, one notable exception where there's been few transactions and cap rates are given some of the property cash flow challenges in that submarket. There's probably a little bit more variability and cap rates are higher. Again, unlimited transaction activity. But we are tracking it closely. And again, for the right opportunity, we would definitely be there.

Did uh uh some markets in La may be surprisingly to some people still trade in that mid to high 4%. Range Glendale Pasadena West LA there's still you know very competitive markets. Uh you know downtown LA is you know, 1 notables and cap rates are uh given some of the the property uh cash flow uh challenges and and that's a market, there's probably a little bit more variability in cap rates are are higher again, unlimited transaction activity but we are tracking it closely. And uh, again for the right opportunity, we would definitely be be be there.

Analyst: Okay, great. Thank you.

Okay, great. Thank you.

Operator: Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please go ahead.

Thank you. Uh, next question comes from the line of Adam Kramer with Morgan Stanley. Please go ahead.

Analyst: Great. Thanks for the time here, guys. Just wanted to ask about 2Q, blended rate growth. I think it was exactly in line with what you had guided to a quarter ago. So I just wanted to ask, you know, kind of what were the puts and takes there, right? Was it, you know, renewals were better, new leases worse, vice versa? In terms of specific markets, I would imagine LA probably came in worse than you thought. But maybe just breaking down that, you know, if you can quantify that at all, you know, sort of how much worse was LA than maybe what you had thought a quarter ago and how much better as a result were the other markets?

Great, thanks. Thanks for the time here, guys. Um, just wanted to ask about 2 Q, pulling the rate growth. I think it was exactly in line with what you were guided to a quarter ago. So just wanted to ask, you know, kind of what what were the puts and takes their right. Was it, you know, renewals or better new leases worse, vice versa. Um, in terms of specific markets, I mean, I would imagine La probably came in worse than you saw it, but maybe just breaking down that, you know, if you can quantify that at all, you know, sort of how much worse was La than maybe what you would thought a quarter ago, and how much better is a resolve? Where, where, where the other markets

Barb Pak: Yeah, no, that's a good question. LA certainly underperformed. You know, LA blended came in below 1.5%, so close to, say, 1.3%. And we had expected that Southern California as a whole, and of course with LA, would do would be a little bit north of that 2%. And so that's probably, you know, the biggest factor on the second quarter. But of course, renewal came in a lot stronger. But keep in mind, you know, our strategy is not to focus just on one specific metric. And I do, and I caution on getting too hyper-focused on whether it's new lease rates specifically or only renewals, because the way we run our business is we want to maximize, excuse me, revenues. And so our goal is to generate new lease rates in a way that can be net positive.

Yeah, I know. That's a good question. Um, La certainly underperformed, you know? La um blended came in.

um,

Below 1 and a half percent so close to say 1.3 and we had expected that um, Southern California as a whole. And of course, with with LA, uh, would do would be um, a little bit north of that, that 2% and

And so I think that's probably, you know, the biggest factor in the second quarter. But of course, renewals came in a lot stronger. But keep in mind our strategy.

Is not to focus, just on 1 specific metric and I do and and I caution um, on getting too, hyper focused, on on whether it's new lease rates, specifically, or only renewals, because the way we run our business is we want to maximize re excuse me revenues.

Barb Pak: Keep in mind, there is a cost to incurring turnover, and it can be expensive. I mean, two weeks of downtime is, I mean, one week of downtime is 2%. And so in the current environment where we're talking about a moderate growth, you know, in the overall economy, especially for Southern California, it's more beneficial to reduce turnover friction and maintain a stable occupancy. And so you'll see us toggle between renewals and new leases with being mindful of our occupancy to maximize rents. And so that's why, you know, we try to point people back to look at the blend, look at the occupancy, and look at our total revenues, because that's the big ball that we just, you know, we're very focused on that.

And so our goal is to generate new lease rates in a way that can be net positive. Uh, keep in mind, there is a cost to incurring turnover and it's it could be expensive. I mean, 2 weeks of downtime, is I mean, 1 week of downtime is 2% and so in the current environment where we're talking about a moderate growth, you know, in overall economy especially for Southern California, it's more beneficial to reduce turnover friction and maintain a stable.

Occupancy. And so you'll see a toggle between um, renewals and new leases, with being mindful of the occupancy to maximize rents. And so that's why, you know, we try to point people back to look at the brand. Look at the occupancy. And look at our total revenues because that's the big ball that we, we just, you know, we're very focused on that.

Analyst: That's really helpful. Thank you. And then just as a follow-up, just capital allocation priorities, and we've talked about acquisitions here a bit. We've talked about the sort of the MEZ book business. You know, how would you sort of stack rank your capital allocation priorities today? And I know development, right, is back as well. I know you started the project last quarter. So Jamie, just stack rank, you know, the different opportunities in terms of capital allocation here.

That's really helpful. Thank you. And then, just as a follow-up, um, just capital allocation priorities. We've talked about acquisitions here a bit. We've talked about the...

The, uh, sort of the MES book business. Um, you know, how would you sort of stack rank or capital allocation priorities today? And I know development right is back as well. I know you started with the project last course, so maybe just stack rank, you know, the different opportunities in terms of capital allocation here.

Rylan Burns: Hi, this is Rylan here. You know, I would still put fee-simple acquisitions relative to our cost of capital and the risk inherent in development as probably our top priority. You know, we are underwriting a lot of development land sites, but the economics continue to remain challenging. So you need to find, you know, the few opportunities. And then again, structured finance book, there's been a lot of capital raised to invest in that prep MEZ space over the past several years. So I think it's really important that we remain disciplined at this point in light of those capitals. So that, you know, the one deal we did this quarter is, you know, we really like the submarket of South San Francisco. We really like the economics of this deal.

Rylan Burns: And as importantly, we've got a great development partner on this project as well that's going to stand behind the project. So again, you just have to be really selective in these types of environments. But we still think there's value to be had on the acquisition opportunity to answer your question most directly.

Hi. This is uh, Ryland here. Uh you know, I would still put fee simple Acquisitions uh relative to our cost of capital and and the risks inherent in development uh as of probably our top priority um you know we are underwriting a lot of development land sites but the economics continue to remain challenging. So you need to find you know, the the the few opportunities. And then again, a structured Finance book, there's been a lot of capital raised to invest in that prep Med space over the past several years. So I think it's really important that we remain disciplined uh, at this point in, in light of those capitals. So that, you know, the 1 deals. This quarter is um, you know, we really like the the submarket of self San Francisco. We really like the economics of this deal and

As importantly as we've got a great development partner on this project as well. It's going to stand behind the project. So again, you just have to be really selective in these types of environments, but we still think there's value to be had on the acquisition opportunity. To answer your question most directly.

Analyst: Great. Thanks, everyone.

Great. Thanks. Everyone.

Operator: Thank you. Our next question comes from the line of John Kim with BMO Park Capital Markets. Please go ahead.

Thank you. Uh, next question comes from the line of John Kim with BMO Park Capital Markets. Please go ahead.

Analyst: Thank you. I'm not sure if you addressed this, but your guidance for blended implies 2.7% in the second half of the year. I was wondering if you could split that out between the third and fourth quarter. I think you implied there's some seasonality in there. And how are you thinking about earning for 2026?

Is 2.7% and the second half of the year. I was wondering if you could split that out between the 3rd and 4th quarters. I think, uh, I think you implied there's some seasonality in there. And how are you thinking about earnings for 2026?

Barb Pak: Hi John, it's Barb. Yeah, in the third quarter, our blended, you know, what's baked in our guidance is a little bit lower than the second quarter, but not too much lower. It's really the fourth quarter where we expect the blended to be, you know, closer to 2% versus being at 3% now. So that's really the decel that we're expecting is really in the fourth quarter of the year. And what was your second question? Sorry.

Hi John, it's Barb. Yeah, and the third quarter is blended. You know, what's baked in our guidance is, um, a little bit lower than the second quarter, but not too much lower. It's really the fourth quarter where we expect the blended to be, you know, closer to 2% versus being at 3% now. So that's really the delta that we're expecting, is really in the fourth quarter of the year. And what was your second question? Sorry.

Analyst: I guess that sort of answers it. But how are you thinking about earning for '26?

I guess that sort of answers it. But how are you thinking about earning for 26?

Barb Pak: Well, earning is, it's way too early. And it's not because we don't want to give it out. It's because we don't, it's too early to see the rate of deceleration. And it could be more moderate, in which case we'll have a better earning. It could be more extreme. We don't really see that, but it's possible, you know, given the economy is a little bit unclear these days, right? But it also could just be flat because we are anticipating, say, lower supply deliveries and Northern California continues to remain strong. So the range of outcome is still wide enough that it just, it's not going to be useful to try to predict it today.

Well, earnings in is, um, it's way too early, and it's not because we don't want to give it out. It's because it's too early to see the rate of deceleration.

And it could be more moderate, in which case we'll have a better earnings outcome. It could be more extreme. We don't really see that, but it's possible, you know, given um.

The economy is a little bit.

Unclear these days, right? But it also could just be flat because we are anticipating, say, lower supply deliveries, and Northern California continues to remain strong. So the range of outcomes is still.

Wide enough that it's just not going to be useful to try to predict it today.

Analyst: Angela, you mentioned a couple of times public policy and its impact on the economy. I was wondering in LA specifically if you've seen an impact from immigration policy on your portfolio. I mean, maybe not directly, but indirectly, as it just creates softer demand and more options, more housing options for some of your tenants.

Angel, you mentioned a couple of times public policy and its impact on the economy.

Um, I was wondering, in LA specifically, if you've seen an impact from immigration policy on your portfolio. I mean, maybe not directly, but indirectly, does it create software demand and more options, more housing options for some of your tenants?

Barb Pak: Yeah, that's a complicated topic. But as it relates to the actual impact on the demand side, we're not seeing a direct impact from the immigration policy. The softness of the demand is really more of the general economy. You know, do we have tariffs today? No, we don't. Is it 100%? Now it's 12. And it's confusing, right? So if you're a business and you're trying to make decisions, whether you want to grow your business or hire people, it's hard to do. And so I think that it's a broader economy. As far as, you know, what we would expect on the immigration or some of these other policy impacts, probably more on the labor side. And it'll depend on the severity of the policy and the duration. And so at this point, we haven't seen a material impact across the board.

Yeah, that's a complicated topic. But as it relates to the actual impact on the demand side, we're not seeing a direct impact from the immigration policy. The softness of the demand is really more about the general economy. You know, do we have terrorists today? No, we don't. Is it 100%? Now it's 12, and it's confusing, right? So if you're a business and you're trying to make decisions about whether you want to grow your business or hire people, it's hard to do. And so I think that's related to the broader economy.

as far as you know,

The, what we would expect on the, um,

Barb Pak: But if, you know, the intensity continues and we end up with a labor shortage, I think that is going to be an issue for the US as a whole. I don't think it's a specific LA issue.

Uh, the the immigration of some of these other policy impact, probably more on the labor side and it'll depend on the severity of the policy and the duration. And so at this point, we haven't seen a, a material impact uh, across the board. But if you know the intensity, uh, continues and we end up with a labor shortage, I think that is going to be an issue for the us as a whole. I don't think it's a specific La issue.

Analyst: Very helpful. Thank you.

Very helpful. Thank you.

Operator: Thank you. Our next question comes from the line of Handel St. Josh with Mizuho Securities. Please go ahead.

Thank you.

Our next question comes from the line of Handel St. Josh with Mizuho Securities. Please go ahead.

Analyst: Hey, good morning out there. Thanks for taking the question. First, it's more of a follow-up. I wanted to get some more color and clarity on the expected cadence of earning from the structured investment book. Sounds like you're expecting the majority of repayment to the next three or four quarters. You mentioned 2 cents of repayment headwinds in 3Q. I think another 6 cents in 4Q. So I was hoping, one, that those numbers are actually accurate. And secondly, you know, a sense of what that headwind could look like in '26 as you right-size the book. Thanks.

Hey, good morning out there. Thanks for taking the question. Uh, first is more of a follow-up. I wanted to get some more clarity on the expected cadence of earnings from the structured investment book. Sounds like you're expecting a majority of repayment until the next.

Uh, 3 to 4 quarters, you mentioned 2 cents of repayment headwinds in Q3, and I think another 6 cents in Q4. So I was hoping, 1, that those numbers are actually accurate and, secondly, you know a sense of what that...

Headwind could look like in 2026. As you write, size the book. Thanks.

Barb Pak: Yeah, this is Barb. You know, from a modeling perspective, let me just try to walk you through the size of the book, and then I think that might help you get there. So right now, at the end of the second quarter, our total book value in the structured finance investments is $550 million. That includes the MEZ investments that we have. And by the end of the year, assuming we don't do any new investments that haven't already been disclosed, the book is expected to be around $400 million. And then as we look to 2026, given the maturities that we have, we expect the book will be $200 to $250 million by the end of the year, although the redemptions are front-end loaded in the first two quarters.

Yeah, this is Barb.

From.

Walk you through the size of the book, and then I think that might help you get there. So, right now, at the end of the second quarter, our total book value in the Structured Finance Investments is $550 million. That includes the MEZ investments that we have, and by the end of the year, assuming we don't do any new investments that haven't already been disclosed, the book is expected to be around $400 million.

And then, as we look to 2026,

Barb Pak: And so from a modeling perspective, you'd want to, you know, take the book down and then take the coupon from a 10% that we're earning on the investments down to a 5%. So that should give you enough color. We haven't modeled out '26 yet. We haven't started our budget process yet. But that should hopefully help you get into the correct zone.

Are front-loaded in the first two quarters.

And so, from a modeling perspective, you'd want to, you know, take the book down and then.

Take the the, um, coupon from a 10% that were earning on the Investments down to a 5% so that should give you enough cover color. We haven't, we haven't modeled out, 26 show. We haven't started our budget process yet, but that should hopefully help you get into the correct Zone.

Analyst: No, that is very helpful. Appreciate that, Barb. And just one more. Angela, I guess I was curious on your thoughts. Last month, the California State Assembly passed and Governor Newsom signed a bill that appears, I guess, aimed at what they say, catalyzing new housing through exemptions to CEQA, the law of the land in California since 1970. So I guess I'm curious what your initial thoughts are on this repeal of CEQA and what you think it could mean for long-term capital flows, asset pricing, development, rents, etc. Thanks.

No, that is very helpful. I appreciate that, Barb. Uh, and just one more, um, Angel, I guess I was curious on your thoughts. Uh, last month, the California State Assembly passed and Governor signed a bill that appears aimed at what they say is catalyzing new housing through exemptions to CEQA, the law of the land in California since 1970. So, I guess I'm curious what your initial thoughts are on this repeal of CEQA and what you think it could mean for long-term capital flows, asset pricing, development, rents, etc. Thanks.

Barb Pak: Yeah, we actually view CEQA to be net positive. It's a great example of California moving toward a more reasonable, or in other words, a more moderate political environment. And as far as the impact to supply and the development business, Rylan can provide more color.

Yeah. If you seek to be net positive, it's a great example of California moving toward a more reasonable.

Um, or in other words, a more moderate political environment. And as far as um, the

Rylan Burns: Yeah, Handel. You know, in the near term, we really expect this is going to have limited impact. You know, I'd remind you that in the past several years, the state legislature has passed several reforms to encourage development. And, you know, over the past three years, permits are down anywhere from 40% to 50% in our submarket. So really had limited impact so far. Now, I acknowledge that CEQA reform is significant given its history and, you know, how it has been used in the past to delay and sometimes prevent projects from occurring. But, you know, to take an example from our development underwriting, we've underwritten approximately 100 development deals over the past year. 80% of those had entitlement. So there was no CEQA risk to begin with. And the vast majority of those, the economics really just don't make sense.

Rylan Burns: I'd call it an untrended return on cost, you know, sub 5% on the majority of those projects. So we think the economics are going to continue to be a limiting factor as it relates to supply in California. And so, yeah, limited near-term impact.

Impact to supply and the development business uh Ryland uh can provide more color. Yeah handle. Um you know in the near term we really expect. This is going to have limited impact. You know I would remind you that in the past several years of the state legislators passed several reforms to encourage development. And you know over that over the past 3 years permits are down anywhere from 40 to 50% in our submarket. So really had limited impact. So far. Now I acknowledge the secret reform is significant given its history and you know how it has been used in the past and delay and sometimes prevent projects from recurring. But you know, to take an example from our development under writing, we've underwritten approximately 100 development deals, over the past year 80% of those had entitlements so there was no sequel risk to begin with and the vast majority of those, the economics really, just don't make sense. I'd call it an untrained return on cost, you know, sub 5% on the, on the majority of those projects. So we think the economics are going to continue to be a limiting factor as it relates to supply in uh in California.

and um,

And so, yeah, limited near-term impact.

Analyst: I appreciate the thoughts. Thank you.

I appreciate the thoughts.

Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Thank you.

Our next question comes from the line of Michael Goldsmith with UBS. Please go ahead.

Rylan Burns: Hi, thank you. This is Amy on for Michael. I was wondering if you have seen any changes in demand in Northern California or Seattle, if renters are being more price sensitive, any changes in foot traffic or conversions or reasons for move-out?

Hi. Thank you. This is Amy, I'm from Michael. Um, I was wondering if you have...

Have you seen any changes in demand in Northern California or Seattle? If renters are being more price-sensitive, have there been any changes in foot traffic or conversions, or reasons for move-outs?

Barb Pak: Yeah, we have seen a steady demand in Northern California and Seattle. And we've not seen any softness as it relates to, you know, whether traffic or otherwise. I think primarily because, especially in Northern California, we are still sitting in one of the best affordability positions that we have been from, you know, for the history of the company because rents are just starting to recover. And income has grown, you know, consistently over the past five years. So it's still catching up. And as far as Seattle is concerned, the demand remains steady. It's a higher supply market. Therefore, the demand is more influenced by the supply landscape than anything else. And what we're seeing is that we're seeing the demand delivery or the demand pressures shift in the second quarter or in the second half to our favor.

so we uh, have seen a study demand in Northern California and Seattle and we've not seen any softness as it relates to, um, you know, whether the traffic or or otherwise, I think, primarily because especially Northern California, we are still sitting in 1 of the best affordability position that we have been from you know for the history of the company because rents are has are just starting to recover and and income has grown uh

Barb Pak: In the first half, the supply delivery was about 60% of total supply. In the second half, it's 40%. So definitely, you know, no cracks. The underlying strength continues to remain solid in our northern regions.

You know, um, consistently over the past 5 years, so it's still catching up and as far as, uh, Seattle is concerned, the demand remains steady, um, it's a higher Supply Market. Therefore, the demand is more influenced by the a supply landscape than anything else. And what we're seeing is that we're seeing the demand delivery, or the demand pressure is a shift, um, in the second quarter or in the second half uh to our favor in the first half the supply.

Delivery was about 60% of total supply, and the second half is 40%. So, uh, so definitely, you know, no cracks. The underlying strength continues to rank solid in our northern regions.

Rylan Burns: Great. Thank you. That's all for me.

Great, thank you. That's all for me.

Operator: Thank you. Our next question comes from the line of Wes Goliday with Bayer. Please go ahead.

Thank you. Uh, next question comes from the line of West Holiday with Bed. Please go ahead.

Analyst: Hey, good morning, everyone. I just want to go back to Los Angeles here, LA County. How do you see a recovery playing out? I think you mentioned supply would be down, but what about the lease-up pressure from that supply?

Yeah, good morning, everyone. I just want to go back to Los Angeles here, LA County. How do you see a recovery plan out? Yeah, I think you mentioned supply would be down. But what about the lease pressure from that supply?

Barb Pak: Well, the lease-up pressure, it typically lasts, depending on the magnitude, you know, around, say, six to nine months on average. And so with the supply abating, that lease pressure is actually going to improve. And what you'll see is the concessions will start to improve better and.And

Well, the lease of the Lisa pressure typically lasts depending on the magnitude.

Angela Kleiman: you know, kind of end up in that maybe half a week versus closer to a week range over time. So that's one, good metric to look at. And the the other, influencing factor with LA is, you know, with other economies, you you you could tell or you could see what are the puts and takes. For example, in Northern California, of course, there's that technology and artificial intelligence, benefit that's, that has been quite steady. In Southern California, particularly LA, there's been a huge amount of infrastructure spending announced, that is specific to LA. And that $80 billion will be a meaningful, injection into that economy and driving demand, driving people, to that market to, you know, to to build and, to do business there.

We'll start to improve, um, better and, you know, kind of end up in that maybe half a week versus closer to a week range over time.

So that's one, uh, good metric to look at. And the other, um, influencing factor with LA is, you know,

With other economies, you, you, you could tell or you could see what are the puts and takes, for example, Northern California. Of course, there's that technology and and artificial intelligence, um, benefit. That's, um, that that has been quite steady in Southern California, particularly La, there's been a huge amount of infrastructure spending announced. Um, that is specific to LA, and that 80 billion dollars will be a meaningful. Um,

Injection into that economy and driving demand driving people, um, to that market to, you know, to, to build and, um, to do business there.

Operator: Got it. Thank you.

Got it. Thank you.

Conference Facilitator: Thank you. Our next question comes from Rich Hightower with Barclays. Please go ahead.

Thank you.

Our next question comes from Rich Hightower with Barkley's. Please go ahead.

Conference Host: Hi. Good morning out there, everybody. Obviously, covered a lot of ground today, but just one question on bad debt. So it looks like, you know, on balance, you're kind of down to that 50 basis point number, which I think is roughly in line with history. But, you know, obviously, trends are still a little bit worse than expected in LA specifically. So does that sort of imply that we're better than expected elsewhere in the portfolio from a bad debt perspective? And what do you expect from here?

Hi, good morning out there, everybody. Um, obviously covered a lot of ground today, but, uh, just one question on bad debt. So, it looks like, you know, on balance, you're kind of down to that 50 basis point number, which I think is roughly in line with history. But, you know, obviously, trends are still a little bit worse than expected in LA specifically. So, does that sort of imply that we're better than expected elsewhere in the portfolio from a bad debt perspective? And what do you expect from here?

Analyst: Hi, Rich. It's Barb. Yeah, your memory is pretty good. We are about 10 basis points off of our long-term historical average, with LA being worse than our average and then being offset by slightly better in NorCal and PNW. But overall, our guidance assumes we're at this level for the rest of the year. Could we do better? Yes, I would just be the higher end of our guidance.

Hi Rich, it's Barb. Um, yeah, your memory's pretty good. We are about 10 basis points off of our long-term historical average, with LA being worse than our average, and then being offset by slightly better in NorCal and PNW.

But overall, our guidance assumes we're at this level for the rest of the year. Could we do better? Yes. I would just be at the higher end of our guidance.

Conference Host: Great. OK. That's all for me. Thanks.

Uh, great. Okay, that's all from me. Thanks.

Conference Facilitator: Thank you. Our next question comes from the line of John Pawlowski with Green Street Capital Advisors. Please go ahead.

Thank you.

Our next question comes from the line of John Paloski with Green Street Capital. Advisors, please go ahead.

Barb Pak: Hey, good morning. Angela, can you provide details around your comment that you believe the Bay Area job growth is better than what the BLS is reporting? Because the job data, just in terms of non-farm jobs, both from an absolute growth rate and momentum, it's actually been better in SoCal relative to NorCal. So just curious why you play devil's advocate against the BLS numbers.

Hey, good morning. Uh Angela. Can you provide details around your comment that you believe the Bay Area. Job growth is better than what the BLS is. Reporting because the jobs data just in terms of non-farm jobs, both from an absolute growth rate and momentum, it's actually been better in SoCal relative to the NorCal. So, just curious. Why you you you play devil Devil's Advocate against the, uh, the BLS numbers?

Angela Kleiman: Yeah. Hey, actually, it's based on data. So this is not, you know, Angela's feeling index here when it comes to the BLS data. It's become less reliable because participation rate has fallen. Pre-COVID, the participation rate was about 60%. And today, the participation is only about half of that, about 30%. And so the BLS data is just, you know, it doesn't, it's just not a good indication of what's really going on in the ground. But a perfect example is that the BLS, you know, shows it's actually the Northern California region produced the worst jobs year to date. It's negative 70 basis points. You contrast that with it's actually our best rent growth market. It's extreme. And that's not possible without job growth.

Yeah. Hey, um, actually it's, uh, based on data. So this is not, you know, Angela's feeling index here when it comes to the BLS data. Uh, it's become less reliable because the participation rate has fallen. Pre-COVID, the participation rate was about 60%, and today the participation is only about half of that, about 30%. So the, um, the BLS data is just, you know, it doesn't...

It is just not a good indication of what's really going on on the ground. But a perfect example is that the bills, you know, show that the Northern California region produced the worst jobs year to date. It's negative 70 basis points.

You contrast that with it's actually our best rent growth. Not, uh, market.

Its extreme.

And that's not possible without job growth.

Barb Pak: No, I understood. I understand BLS data is far from perfect. Just curious if there's other indicators you look at aside of rent growth that suggest that the job growth is really gaining momentum in the Bay Area.

No, I understand. Yeah, I understand. BLS data is far from perfect. Just curious, if there are other indicators you look at, aside from rent growth, that suggest that job growth is really gaining momentum. And then in the Bay Area,

Angela Kleiman: Yes, yes. A good indicator, a good data we use, which is a third-party vendor, is we track the job openings of the top 20 technology companies. And we have seen, once again, not acceleration, but just a gradual, steady increase. And we are now pretty darn close to pre-COVID levels, which is a good sign, you know, because what that means is as these companies backfill the job openings, the open positions remain tied, which means they are still incrementally growing. So we're not in that robust, frothy period, but it's definitely a great start as far as we're concerned.

Yes, yes. Uh, a good indicator of a good day that we use, which is a third-party vendor, is we track the job openings of the top 20 technology companies.

And we have seen once again not acceleration, but just a gradual study, um, increase.

and we are now pre-owned close to pre-COVID levels, um, which is a good sign. You know, it

It is. Because what I mean is, as these companies backfill, the job openings, the open positions, remain high, which means they are still incrementally growing. So we're not in that robust fraud period, but it's definitely a great start as far as we're concerned.

Barb Pak: OK. And the last one for me, Rylan, can you give us a sense where the new preferred equity investment and the new JV sits in the capital stack and how much total leverage is on this, is going to be on this development project? I'm worried and skeptical the borrower can afford 13.5% interest on the loan.

Total Leverage is on this is going to be on this development project, I'm worried and skeptical. Uh the bar we're kind of forward 13 and a half percent uh interest on the on the loan.

Rylan Burns: Yeah, yeah, John, I would say, you know, typically, our underwriting standards, we're typically starting around the 60% loan to cost and willing to go up to 85%, assuming a full accrual stack. So we're not going above that 85% position in this deal on our underwriting numbers too, right? So we'll take the developer's underwriting, and then we'll recast the land value to what we think is an appropriate value for this market. So I think we have a fairly conservative approach as it relates to development underwriting.

Yeah, yeah John. I would say you know typically our underwriting standards were typically starting around the 60% loan to cost and willing to go up to 85% assuming a full approval, a stack. So we're not uh going above that 85% position in this deal.

On, on our underwriting numbers too, right? So we'll take the developer's underwriting and then we'll recap the land value to what we think is an appropriate value for this market. I think we have a fairly conservative approach as it relates to development underwriting.

Barb Pak: So the total loan to cost in this project will be, you know, in the 80-ish percent range?

So the total loan cost in this project will be, you know, in the 80th percent range.

Rylan Burns: Sorry, please repeat the question.

Sorry, please, please repeat the question.

Barb Pak: Yeah, your, you know, preferred equity investment plus any other debt on the property, the total loan to cost on the development will be somewhere in the 70% to 80% range. Is that fair?

Yeah, your your you know, preferred Equity investment plus any other debt on the property, the total loan to cost on the development will be somewhere in the 70 to 80% range. Is that fair?

Rylan Burns: Yeah, that's in the ballpark.

Yeah, that's in the ballpark.

Barb Pak: OK. Thank you.

Okay, thank you.

Conference Facilitator: Thank you. Our final question for today's call comes from Alex Kim from Zelman & Associates. Please go ahead.

Thank you.

A final question for today's call comes from Alex, Kim, from Zelman and Associates. Please go ahead.

Barb Pak: Hey, good morning out there. Thanks for taking my question. Just we saw the spread between renewals and new movings widen again this quarter. And previously, there might have been some expectations for market rents to converge with renewals. Just curious what you think this might mean from a market demand perspective. And then do you expect the spread to tighten moving forward?

Hey, morning out there. Uh, thanks for taking my question. Um

Just we saw this spread between renewals and new move-ins widen. Again, this quarter and previously, there might have been some expectations for market rents to converge with renewals. I'm just curious what you think this might mean from a market demand perspective, and do you expect the spread to tighten moving forward?

Angela Kleiman: Yeah, normally, hey, Alex, normally you would see a wide range between renewal and new lease. I'm sorry, yeah, renewal and new lease rates in an environment if market rents continue to accelerate. So if that happens next year, then that spread is going to remain wide. If market rents, you know, performs closer to, say, the long-term payer between 3% to 4%, then those two metrics will likely converge. And with the caveat that LA will be different because we have, you know, other influences impacting LA.

Yeah, normally um. Hey Alex.

normally, you would see the

Um, a wide range between renewal and new lease rates. I'm sorry. Yeah, renewal and new lease rates in an environment if market rents, uh, continue to accelerate. So if that happens in the next year, then it's desperate is going to remain. Why? If market rents, you know, uh, perform closer to say the long-term behavior between 3 to 4 percent, then those two metrics will likely converge.

And what the caveat of that is, the LA market will be different because we have, you know, other influences impacting LA.

Barb Pak: Got it. OK. No, that's all for me. Thank you.

Got it. Okay. No, that’s all from me. Thank you.

Conference Facilitator: Thank you. Ladies and gentlemen, the conference of ESSEX second quarter earnings call has concluded. Thank you for joining the call. You may disconnect your lines at this time. Thank you for your participation.

Thank you.

Ladies and gentlemen, the conference of

Essex, second quarter earnings call has concluded.

Thank you for joining the call. You may disconnect your lines at this time. Thank you for your participation.