Good day, and welcome to the Essex Property Trust First Quarter 2022 Earnings Conference Call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. 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, Mr. Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you, Mr. Schall. You may begin.

Thank you for joining us today, and welcome to our first quarter earnings conference call. Angela Kleiman and Barb Pak will follow me with prepared remarks, and Adam Berry is here for Q&A. Today, I will comment on our first quarter results, recent housing demand and supply trends, and a brief overview of the apartment transaction market. We are pleased to announce our fourth consecutive quarter of improving core FFO per share and same-store revenue growth with this quarter's core FFO exceeding our guidance midpoint by $0.07 per share. As mentioned in our earnings release, our results and rent growth trajectory support an increase in core FFO and same-property revenue guidance for the year, which Barb will review shortly. Overall, rents have continued to improve. And as of April 2022, net effective rents in the Essex markets are now 11.4% above pre-COVID rent levels and up 22% compared to one year ago. All of our markets have positive sequential rent growth with Northern California leading the portfolio, improving sequentially by approximately 3% in each month of the first quarter. We expect further improvement in Northern California as progress is made on return to office programs for the large technology companies following several COVID-related delays. The top tech companies also continue to hire rapidly in the Essex markets with over 50,000 job openings posted for California and Washington, a 79% increase compared to March of 2020. Other indicators, including job growth, venture capital deployment and office investment continue to support our thesis that Northern California will remain the epicenter of the technology industries. A significant recent example came from Google, which announced a plan to invest more than $3.5 billion on additional office and data centers in Mountain View, Downtown San Jose and elsewhere across the Bay Area. The easing of COVID-related regulations has been pivotal for return to office in our markets. Mask mandates have been significantly relaxed versus prior quarters making it easier to bring employees back to the office. Business travel, in-person meetings, property tours and conferences have resumed, and we look forward to in-person investor meetings once again. As COVID-related regulations continue to subside on the West Coast, the deadline to apply for rental relief in California has now passed as of April 1. The government-sponsored rental relief has been a double-edged sword for California apartment owners as tenants were often encouraged to see government rental relief programs rather than paying rent. Delays in government reimbursements led to the highest delinquency since the onset of the pandemic. With the rental relief program now closed to new applications in California, we are now cautiously optimistic that underlying delinquency trends will improve. California's rental assistance program remains far behind with respect to payments providing potential upside as we continue pursuing the approximately $76 million of rent owed to the company. Given the extraordinary government restrictions during the pandemic, it became clear that our portfolio would need to achieve two inflection points before we could be confident that a full recovery was underway. The first was the reopening of our markets, which occurred in July of 2021, and the second was a return to office for the largest technology companies. Over the past two months, we've seen Google, Microsoft, Meta, and Apple all begin to reopen and restaff their offices. Our leasing specialists are reporting more applicants returning from out-of-state as hybrid and similar arrangements require regular office attendance for employees. Return to office mandates are generating economic activities, which is apparent in the job growth reports with San Francisco leading our portfolio with 8.9% trailing 3-month job growth. On average, the Essex markets reported job growth of 6.7% on a trailing 3-month basis versus the broader U.S. average of 4.7%, marking the second consecutive quarter that Essex markets have outpaced the nation in job growth. We expect this outperformance will continue as Essex has still only recovered 83% of the jobs compared to pre-COVID levels versus the U.S. recovery of 95%. We anticipate service and hospitality-related jobs to continue a strong growth trajectory supported by increased travel generally and demand for services from the well-paid workforce on the West Coast. The confluence of increasing job growth, a lower unemployment rate of 3.6% in the Essex markets and expensive for sale housing all contribute to favorable rental housing tailwinds. Turning to housing supply. The ability to ramp up housing production is more challenging along the West Coast due to long entitlement processes, burdensome regulations, labor shortages, and inflating construction costs. As a result, housing permits in Essex markets remain at levels roughly consistent with our long-term averages. Our bottoms-up supply analysis indicates that new deliveries will moderate for the rest of 2022, and we are also expecting a 15% decline in apartment supply in 2023 which includes a 54% reduction in new supply expected in Northern California. All of our markets remain on the lower end of the supply growth spectrum versus other U.S. metros. Turning to the apartment investment markets. Geopolitical events, turbulent financial market conditions, and high levels of inflation create uncertainty, which may become a headwind for transactions. However, cap rates generally don't move quickly and are mostly a function of investor demand for property. As to the West Coast specifically, strong evidence of recovering apartment market conditions, higher inflationary growth expectations, and significant capital pursuing apartments appear to have mostly offset the impact of higher interest costs keeping cap rates unchanged at this point. Our review of cap rates for recent apartment transactions across the Essex markets indicates most institutional-quality assets trading in the mid-3% range for stabilized properties with little deviation across markets, building class, and location. We will continue to be selective with our capital allocation strategy, focusing on deals that have the best growth potential and generate accretion to our financial benchmarks. In closing, I'd like to briefly highlight the importance of ESG and its impact on the company. As a leading provider of housing along the West Coast, we know that our company has a responsibility to operate in an environmentally conscious way. Consistent with that thesis, we recently released our TCFD report, which is the first step toward alignment with proposed SEC reporting requirements. Last week, we announced that Essex will co-anchor an ESG housing impact fund managed by RET Ventures. Finally, we are also pleased to announce the upcoming publication of our fourth CSR report, which should be available in early May. With that, I'll turn the call over to Angela Kleiman.

Thanks, Mike. First, I would like to express my appreciation for our operations and support teams. As we have implemented new systems and structures to optimize our operations, our team has taken on these challenges in stride and continues to demonstrate exceptional work ethic and dedication to our company's success. In today's comments, I'll begin with key operational highlights on our major regions, including our outlook for 2022 rent growth and conclude with an update on the rollout of our property collections operating model. We are pleased with our first quarter operating results, especially in delivering a 6.5% same-property revenue growth on a year-over-year basis. This is primarily driven by increases in scheduled rents and improvements in concessions detailed on Page 2 of our press release. The first quarter performance exceeded our expectations and included some of our strongest leasing spreads reported in the company's history, with net effective new leases up 20% and renewals up 11.7% compared to the same period last year. Average concessions for the portfolio continue to remain minimal with April loss to lease for the same-store portfolio at 9.5%. We are well positioned heading into the summer leasing season. Here are the key operational highlights from north to south. Beginning with our Washington portfolio. Rents in the Pacific Northwest had a strong start to the year, improving sequentially each month since December. In addition, we successfully decreased concessions in downtown Seattle throughout the quarter. Our supply forecast reflects a modest rate in deliveries throughout 2022, and the Seattle job market remained strong with March average trailing 3-month growth rate of 6.1%. Moving forward, we anticipate steady performance from our Seattle region with a loss to lease in April of 7.7%. On to Northern California. As Mike mentioned earlier, rents in this region are being lifted by the return to office of large tech companies and a solid rebound in job growth. After a typical seasonal slowdown in the fourth quarter, construction usage in San Francisco and San Jose declined throughout the first quarter, leading to a steady improvement in net effective rents. Looking ahead, we expect the supply picture to remain steady for the rest of the year and on the demand side, job growth is accelerating with March average trailing 3 months growth rate of 6.7%. As Northern California is in its early stages of recovery, we are seeing a steady increase to loss to lease, which stands at 5.1% in April, and we continue to expect this region to lead our market rent growth in 2022. Turning to Southern California, which has been our best-performing market throughout the pandemic, we continue to be confident about Southern California as rents did not experience the typical seasonal decline in the fourth quarter and have continued to improve each month in the first quarter. Concessions have been below one week for almost a year. Turnover in Southern California remains at the lowest level relative to the rest of our markets, demonstrating continued strength and stability of this region. For 2022, we have forecasted a modest increase in supply delivery and anticipate concessions may temporarily elevate in areas near those development lease-ups. On the demand side, Southern California was our top-performing region with March average trailing 3-month job growth of 7.9%. Furthermore, our April loss to lease of 14% will provide a tailwind to revenues into 2023. It is with the strong fundamental backdrop that Essex continues to make progress in advancing our property collections operating model. We discussed on previous earnings calls how we successfully improved efficiency last year in San Diego and Orange County by operating closely located properties as a single unified business. The benefits of this operating model include enhancing our customer service through virtual on-demand experience, creating more career advancement opportunities for associates through specialization, and ultimately generating a 10% to 15% reduction in administrative staffing needs through natural attrition, which is also mitigating the inflationary pressures we are experiencing today. Historically, Essex has operated with an employee to unit ratio of 40:1. Today, we are at 43:1, and our target by the end of 2022 is 45:1. At this point, we have completed the rollout of Southern California and expect company-wide implementation by year-end. In addition, we have ongoing digital platform improvements rolling out over the next few years. As such, we have yet to fully optimize our business, and we anticipate further benefits in 2023 and thereafter. With that, I'll turn the call over to Barb Pak.

Thanks, Angela. I'll start with a few comments on our first quarter results, discuss changes to our full year guidance followed by an update on co-investment activity and the balance sheet. I'm pleased to report core FFO for the first quarter exceeded our expectations. The favorable outcome was due to strong operating results and higher co-investment income. For the full year, we are raising the midpoint of core FFO by $0.25 per share to $13.95. The increase is driven by two factors: First, we are raising the midpoint of our same-property revenue growth by 85 basis points to 8.6% on a cash basis. This is driven by our solid first quarter operating results and an improvement in our net delinquency expectations for the year. Our revised guidance now assumes net delinquency of 1.9% of scheduled rent as compared to our original guidance of 2.4% at the midpoint. As Mike mentioned, the deadline for applying for federal tenant relief passed on April 1. We believe this has led to an improvement in our residents paying current, while at the same time, we have also seen an increase in emergency rental assistance over the past two months. As such, our April net delinquencies were 20 basis points of scheduled rent which is below our historical average of 35 basis points. While this is encouraging, underlying gross delinquencies were about 5% in April and thus, we still need to make progress before we can confidently put COVID-related delinquencies behind us. A second factor in our improved core FFO guidance range relates to preferred equity investment as we are now expecting approximately $250 million of redemptions compared to our initial midpoint of $350 million. The reduction in redemptions relates to three investments that we now anticipate being paid off in 2023. Turning to our co-investment platform. We recently monetized the promote income within two ventures unlocking embedded value for our shareholders. In the first quarter, we amended our WESCO joint venture, realizing $17 million of promote income, which was paid in cash. The venture generated a 16% IRR for Essex shareholders. Subsequent to quarter-end, we amended our WESCO 4 joint venture earning $37 million of promote income, which was elected to reinvest back into the venture and increase our ownership to 65%. This venture achieved a 22% IRR. These two transactions are expected to create over $2 million in additional core FFO on an annual basis. Overall, our private equity platform continues to create value for our investors and remains an important alternative source of capital. Finally, turning to the balance sheet. In the first quarter, our net debt-to-EBITDA ratio improved to 6.1x compared to 6.6x at the depth of the pandemic. We expect this ratio will continue to improve throughout 2022, driven by stronger operating results. With over $1 billion of liquidity, limited near-term funding needs, and multiple sources of capital available to us, we remain in a strong financial position. That concludes my prepared remarks. And I will now turn the call back to the operator for questions.

Our first questions come from Rich Hill with Morgan Stanley.

Hopefully, it's a relatively straightforward one. But given the really impressive new and renewal growth that you're putting up right now. I'm hoping you can disclose for us what the earn-in for 2023 is right now?

Rich, it's Angela. I would love to be able to give you the earning for 2023, but it's just too early. I think you can see that our fundamentals are solid, and we're doing quite well.

Okay. I'd figure that try. So maybe just one follow-up question I don't know, some of your peers talk about it. So I know it's not the ESS way, but I figured I'd give it a go. So we did notice that your occupancy dipped a little bit in April, I'm wondering if you can just walk us through if that was intentional pushing rates into the peak leasing season and how you think that might trend given turnover that feels pretty low?

Sure. That's a good question, Rich. And you've seen us do this, which is when we see market strength, we would change our strategy from favoring occupancy to pushing rents, especially when we are anticipating more market strength coming ahead of us. So it is very much intentional. And you'll see that when we are past the leasing season, usually during the third quarter, and especially in the fourth quarter, we would change that strategy back to pushing occupancy instead.

Okay. That's great. Mike, if I had another question, which I don't, I'd ask you about solar payables, but maybe we can table that for NAREIT.

About what I missed that.

Just about solar panels.

Solar panels. Okay. I mean they hold the CSR effort. I will make a few brief comments before we proceed. For over 10 years, we have had our own resource management group, so we have a long-standing history of pursuing initiatives that we believe benefit our properties, enhance values, and promote more efficient operations. Our corporate social responsibility efforts are not new and have been part of our history. However, regarding California, there is a mandate to remove gas cars by 2035, along with other mandates that keep us focused. There is a significant opportunity to add value to our portfolio through many of these ESG initiatives, such as solar panels, but also including electric vehicle charging stations, among others. We are excited about our co-anchoring of the new fund sponsored by RET Ventures, which aligns with our strategy and perspective on ESG.

Our next has come from the line of Nick Joseph with Citi.

You talked about the strong rent growth and demand in Northern California. As you survey those incoming residents, where are they moving from? Are they within the MSA? Are they coming from kind of other areas of California coming from other areas of country, what migration trends are you seeing maybe specific to Northern California?

Nick, it's Mike, and maybe Angela will want to make a comment. But really, it's opening up a number of different things. The normal migration pattern typically has retirees with expensive California homes leading as you enter into a recessionary period, we certainly saw that. And then normally, those retiring workers moving out of California are replaced by younger workers that are coming into California to take higher-paying jobs and some of the opportunities for the tech company. So the younger workers were largely told to stay put until the tech companies had opened up. And so now we are starting to see them return. In addition to that, there are some foreign migration that has picked up also, and we're starting to see more demand for corporate housing units as these big tech companies in terms of their training and onboarding activities. There's definitely a pickup in demand for corporate housing. So it's really across the board. We're seeing more normalization of our activities, and they're coming from a number of different areas.

And then maybe just on the transaction environment and I recognize every environment is different. But just based on your past experience, how are you thinking of asset pricing trending from here? Obviously, there's high rent growth, but negative leverage with higher interest rates. So in the past, as you've seen some of those inputs, what has that done to the transaction market on a lag basis?

Nick, this is Adam. Moving forward, we don't expect to see significant changes in transaction values. Although, as Mike mentioned in his initial comments, there are some pressures from interest rates, the growth we are experiencing in our markets and the substantial capital available for deals means we are not witnessing a major shift in pricing for the current transactions on the market. While there is somewhat less enthusiasm compared to the last 6 to 9 months, we are not observing the additional 5% price increase from the second-best and final rounds that was common before. Overall, we are not anticipating a dramatic shift in pricing going forward.

Our next questions come from the line of Steve Sakwa with Evercore.

Barb, I wanted to clarify some things I'm a bit confused about. I understand there are many figures regarding delinquencies and bad debt. For F-16, you indicated that it was 2.2 in the first quarter and dropped by 0.2% in April. However, I think you mentioned that gross delinquencies were 5% in April, and that your guidance now includes 1.9%. I'm trying to reconcile the gross and net figures and understand how conservative or aggressive you are regarding delinquencies. Additionally, if the rental assistance program, which has mostly ended, leads to better collections, what potential upside can we expect?

Steve, yes, that's a great question. So what I was alluding to in our guidance, we've assumed 1.9% scheduled rent, and that's on a net delinquency basis. So that would be after emergency rental assistance. That's for the full year, which implies 2% in the back half of the year. And that would compare to the in the first quarter in terms of net delinquencies on a cash basis. And then the other number I provided was the 5% on gross because we do still have high underlying gross delinquencies. We're working through those. And we have seen a positive change over the last couple of months. For example, in January and February, we were at 6.5%, and we've come down to 5%. We believe that part of that is a function of the change in the law that occurred in April. That said, we still have a lot of work to do there, and we've only seen 1 month of data. Our guidance doesn't assume that, that materially changes from here, especially with Alameda and LA County where eviction protections remain in place. So the combination of emergency rental assistance and gross delinquencies kind of gets us to our net 1.9% for the full year.

And if you were to just put the 5% gross in perspective, say, pre-pandemic in 2018 or 2019 before all these issues, what are the gross delinquencies sort of look like just to help frame the 5% number?

It would be less than 1%. Because remember, our net delinquencies were 35 basis points historically. So our gross delinquencies were less than 1%. And on average. So the 5% is definitely very high.

Steve, let me throw out one other set of numbers. And that is we're owed $76 million. I think that was in my script, of which we booked, I believe, $4 billion of that as revenue or accounts receivable. So we have a long way to go and a lot of collections, potential collections out there. We just don't know when or how much, given that most of it comes from the state rental relief program, and it is impossible for us to predict when that's going to come in.

Right. No, I understand it’s hard to kind of figure out when you’ll get it. But okay so there’s a fair amount of conservatism there that could lead to further upside. I guess, Mike, I know you’re not big on the development side, but just how are you thinking about new development opportunities, if at all? And are you seeing any changes in land prices or more opportunities coming your way? And how do returns sort of pencil given the big inflation we’ve seen, but also the starting to improve rent growth picture?

Yes, Steve. I mean, I’m going to turn that over to Adam here in a second, but I will say that in the recent past, we press released a couple of development deals, one in Seattle and one in Northern California. And that doesn’t speak to our pipeline. So with that, I’ll turn it over to Adam to talk about development.

Steve, we’re not seeing a huge increase in deals coming out on the development side. Those that we’ve seen to trade in the Bay Area, the per ore price has definitely gone up. They are generally solving to a low 4 cap, which does not provide the spread that we need in order to justify the risk associated with development deals. We probably have seen more tertiary markets increase their potential for new development deals. That really hasn’t been as much our focus either. So generally, we have, as Mike mentioned, press released a deal last year in the Bay Area. We have a couple in the pipeline that we’re working through. But we are staying selective and disciplined as to what kind of spread necessary for these deals.

One additional note, what Adam talks about a 4 cap, he’s saying today, that’s untrended for cap. So we compare an acquisition yield today against a development yield today. So it’s not trended just a flat.

Our next questions come from the line of Jeff Spector with Bank of America.

My first question, Mike, is about your comments on supply. I believe you mentioned that for 2023, supply will be down, possibly around 11%. If I've got the percentage wrong, please let me know. I'm curious about your level of confidence regarding 2023, and whether that has shifted in the past few months. Was the expectation for 2023 lower a few months ago as well, or has there been a change?

Jeff, actually, these numbers didn't change a lot from last quarter. And that overall reduction in 2023 was minus 15%, made up of minus 54% in the Bay Area. So a pretty flat in Southern California and up a little bit in Seattle. So I think what's happened here is that in the early phases of COVID, people pulled back on development. And so we're starting to see the impact of that. Now a couple of years later. And so I think that there will be a low period for development starts and then we'll see what happens in the further along in the cycle. But in my prepared remarks, I noted that the deliveries, we've actually had the peak deliveries in Q1, Q2 '22. So they moderate little bit toward the end for the rest of the year, the next six months and then next year again, down 15%. So the trajectory. And we do our own fundamental analysis on this. So we actually have people look at deals and see where they stand. And so we're accurate than some of the other data that you see out there, not that some of these can't change their construction delays, etc., that happen. But I think our numbers are spot on with respect to what's coming at us.

Great. And then just a follow-up, Mike, on some of the comments about San Francisco and the return to work. It's interesting. It seems to be one of the only markets where really the return to work has been a catalyst for apartment demand. A lot of other cities or most have seen that strong demand without companies, let's say, forcing people back to work? And I guess I'm more of a worry. I guess to me that it feels a bit negative, like why is that? Is that a problem longer term? I guess how would you counter that? Like at the end of the day, why is that a positive? I know it's a positive because you're seeing people come in on the return to work. But I guess what are your thoughts on that?

Well, my initial thought goes back to the first chapter of COVID, which the city is basically shut down. They shut down all the restaurants, they shut down hotels, all the leisure, all the service jobs were pretty much eliminated. And so if you're one of those people who generally is not a high wage earner, what are you going to do? You just lost your job and you don't have any certainty about getting another one because basically everything is shut down in the city. So those people all left. And so now what you're starting to see is the demand for those services really didn't change all that much, but you've got to bring all those workers back in order to reengage in those businesses. And so I think that's what's happening. So this was not a voluntary choice, people had to stay in the cities and pursue their livelihood, they were effectively forced out. So as the cities recover, and again, we have some concerns about the defund the police movements, etc., homelessness. But as the cities recover, we think that there's good upside. And it's entirely due to real demand for travel, for services, for restaurants, for hotels, etc. So we don't view it as artificial at all. We view it as a policy choice largely that caused the deep hole, and now, we're just recovering to a natural place.

Our next questions come from the line of Alexander Goldfarb with Piper Sandler.

So two questions. Mike, in Northern California with the city reopening and jobs coming back, are you seeing more of the renters flood back to San Francisco, the city? Or are you seeing more come back to the burbs because they want the extra space? Or what's sort of the dynamic? Just trying to see where you're seeing more of the demand as people come back to the market to the region?

Well, maybe Angela will add to that because I don't have anything that tells me on a more granular basis exactly what's happening. I do think that suburbia has done better in virtually all cases. And the cities, the concern in the cities is both, I think I mentioned before, hoses, etc., but also there's more supply in the cities like, for example, almost all the supply in Los Angeles, sort of the greatest percentage supply increase in Los Angeles is in the CBD, same with San Diego and kind of same throughout. So it's really the confluence of both more supplies in the cities and the demand is maybe a little bit delayed from the suburban markets. and the suburban markets generally don't have nearly the extent of the problems that there are in the cities. So they are recovering faster and doing very well.

Alex, if it helps, just a few data points on what Mike just said. It's Angela here. When we're looking at the sequential net new leases, the best performing are San Mateo and Santa Clara. Those are the two top ones. So that is evidence of the strength of the suburban Northern California.

Okay. The second question is about delinquencies. Barb, I appreciate your insights regarding previous analyst questions. How soon can you start aggressively turning tenants over to the credit agencies and impacting their credit reports? When can you take a quicker and tougher approach? Additionally, if the state is covering these rents, doesn’t that create a moral hazard where people might think they don’t need to pay rent in the future? It seems to set us up for another similar situation. So, two questions: when can you report to the credit agencies, and is there a risk of repeating this if the state continues to pay?

Alex, it's Angela here. I'll begin by discussing tenant behavior and the associated risks. When considering how assertively we can approach this, there are a few factors to keep in mind. Currently, there are eviction protections in place for Los Angeles and Alameda County, which need to be resolved as part of the legislative process. Regarding our future collection efforts, remember that delinquency protections still apply to any delinquencies that occurred prior to September 2021. Therefore, we are specifically addressing delinquencies from April. For the new April delinquencies, we can take action outside of L.A. in Alameda County. This entails evaluating and creating payment plans with our tenants to navigate this challenging period. At present, we have the capability to report to credit agencies, and our approach will determine how effectively we can optimize our collection efforts.

Okay. Mike, did you want to add?

Maybe again back to where is the delinquency. It's in LA County and Alameda County. And then the other part, which is state law statewide, which effectively says if you have a rental relief application outstanding, the courts will not hear an eviction case through June 30. And so there are still reasons why we can't do the things we would ordinarily do at this point in time. But the good news is, I think, that all of these programs appear to be getting close to their end, and then we'll pretty soon have a good idea of where we stand.

Our next questions come from the line of Austin Wurschmidt with KeyBanc.

Barb, if I heard you correctly, the increase in same-store revenue guidance consisted of two parts, neither of which appeared to change your projections for market rents or occupancy for the remainder of the year. I was wondering about the current market rent growth across the portfolio compared to the 7.7% projection you made for this year.

I'll take the first part, and then I'll let Mike and Angela take the second part. So in terms of the same-store guidance raise, so 50 basis points of the raise was due to delinquency, another 30 basis points was due to lower concessions and higher net effective rents, and then the balance was due to higher Rubs. And then in terms of where we are in terms of market rent.

Yes, I'm happy to cover that. It's Angela here. On the market rents, we are tracking pretty much in line in Northern California and Seattle. We had anticipated that Northern California's recovery would be quite strong, which aligns with our expectations. Southern California is outperforming and is tracking ahead. We are currently re-evaluating our modeling assumptions and will provide a midyear update. It's important to remember that when we look at year-over-year leasing spreads, the strongest results will be in the first half of the year because last year at this time, we were still experiencing negative leasing spreads. In fact, those negative spreads continued through the second quarter, and we didn't see a turnaround until July. For these reasons, we need to assess the impact of these year-over-year comparisons.

We will be examining our financial outlook for 2017 and our rent projections, and overall, we are ahead of schedule. Typically, we assess these figures biannually rather than quarterly, so we will review them again next quarter.

Yes, all very helpful. Just to clarify, Barb, regarding the 35 basis points you mentioned, I thought I heard you say in the prepared remarks that this was mainly driven by first quarter performance. So, it doesn't necessarily mean that you've assumed that, even though it's slowing down in the second half of the year, the growth will exceed what was originally projected. Is that correct?

I mentioned that the strong first quarter results and improved net delinquency collection drove this. We considered a 30 basis points improvement in concessions and higher net effective rents for our full-year guidance, along with a 50 basis points adjustment on delinquency. These points represent the majority of our same-store guidance rates.

Just wanted to ask for an update on where you're sitting at renewals for May and June? And what's your ability to achieve renewal rates that may approach the new lease growth rate of 22%?

So you’re asking about the renewals we are planning for the second quarter, right? I just want to clarify.

Correct.

Okay. So on the renewals, company-wide, we're setting at about slightly above 11%. And the distribution is actually not a huge variance. SoCal at about 10.5%, and Northern California, close to 12% and Seattle close to 13%. So those are the averages. In terms of our confidence level, given where we're seeing the activities and the demand, we are quite confident that these are achievable rates.

If this trend continues into the second quarter, what does your guidance of 8.6% same-store revenue suggest for the second half of the year? Angela, you mentioned that you're facing more challenging comparisons, but the loss lease has increased to 9.5%. You also have a market rent forecast of 7.7%. What do you anticipate will occur in the third and fourth quarters?

In the first quarter, our same-store growth was 6.5%. We anticipate that this will gradually rise from a revenue perspective because there is a lag between revenues and economic grants. As market rents decline, revenues are decreasing, but they are still on an upward trend. Therefore, we should expect a catch-up effect.

I just wanted to go back to the delinquency number. The $76 million, which is the cumulative number. And I know previously, I didn't see an update on this, but in terms of the reimbursement that you've already applied for and haven't received that number back in March was, I think, $59 million. Is that still the number? Did that change?

Nick, it's Barb. The amount is $64 million as of last week, with half pertaining to our current residents and the other half to landlord-initiated applications for past residents. The latter group requires engagement from the former residents, which adds uncertainty to our collection efforts.

Okay. Helpful. And then in terms of the guidance then, how should we think about that $64 million? Is any of that factored into full-year guidance collecting that money?

Yes. What's implied is effectively the first group, the resident, the current resident applications. We have high confidence we'll get the vast majority of that. Given the programs now ended in terms of applying for new applications, we think that, that will come in this year.

Yes. So in the prepared comments, you mentioned the three co-investments that are expected to be paid off in '23 now versus 2022 previously. Is that a headwind that's just moving to 2023? Or does the overall macro environment lead to fewer redemptions and better reinvestment opportunities overall and that some of the headwinds that we've seen lately are abating?

Barb here. The delay in the three investments is primarily due to the current interest rate environment and the status of these properties during their lease-up phase. In 2021, the low interest rates allowed developers to secure financing even before full lease-up. However, with higher interest rates and tighter debt service coverage ratios, that isn't possible anymore. This shift in the environment is why we've seen these investments pushed back. The properties are not behind schedule; it's simply a change in the interest rate landscape.

Okay. And are you seeing any additional reinvestment opportunities, just given I imagine the financing side of things is more difficult now than it was a few months ago?

Brad, I think that we will see more. Again, we have this lag after COVID when construction starts turned downward, and I suspect that we will see many of those deals return, which will create more demand for the food equity program. I believe that this process is also in the midst of rightsizing itself.

Mike, I don't know if you remember, a long time ago, I talked to you about a mood ring. Do you remember that conversation?

I do, as a matter of fact.

I want to ask about your near-term outlook for San Francisco or the Bay Area in a slightly different way. Given S-17, I know you're going to update it, but currently, it's the leader. Northern California is leading in terms of market rent growth, which we've discussed extensively. However, you also reported that same-store revenue in Northern California was the weakest of the three regions. Should we assume that your expectations for market rent growth will reflect in your portfolio, suggesting that Northern California will likely become the leader in store revenue growth in the second half of 2022 compared to the other regions? Or am I misunderstanding that?

Angela might have some comments. Regarding your mood ring analogy, I associate different colors with how we’re feeling, and because of you, Rich, I think red is the right color for us. We feel good, energized, and overall optimistic. Northern California remains our primary market long-term, and I believe it's the top market in the country. Although long-term rent growth rates have lagged behind, rents must align with income levels for sustainable growth. We’re observing some recovery in income, and I believe continuous growth may not be feasible without a rapid increase in incomes. Our move-ins have risen by about 15%, which is encouraging and positively impacts our confidence regarding the rents we're setting, especially in Southern California. I anticipate that Northern California will significantly improve and regain its status as our leading market, as it has historically.

And Rich, it's Angela here. Thanks for making my point for me, which is that in the second half, we do see that flip. We do see Northern California rent growth will then outperform Southern California rent growth.

Thank you. There are no further questions at this time. I would now like to turn the call back over to management for any closing comments.

Okay. Thank you. And thanks, everyone, for joining our call today. We are looking forward to NAREIT, and hopefully, we will see many of you there. Have a great day. Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.