Equity Residential Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 27, 2022

There are 18 speakers on the call.

Operator

Good day, and welcome to Equity Residential's First Quarter 2022 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Marty McKenna. Please go ahead.

Speaker 1

Good morning, and thanks for joining us to discuss Equity Residential's Our featured speakers today are Mark Perel, our President and CEO and Michael Manelis, our Chief Operating Officer Bob Garechana, our Chief Financial Officer and Alec Brackenridge, our Chief Investment Officer are here with us as well for the Q and A. Our earnings release is posted in the Investors section of equityapartments.com. Please be advised that certain matters discussed during this conference call may constitute forward looking statements within the meaning of the federal securities laws. These forward looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.

Speaker 1

Now, I will turn the

Speaker 2

call over to Mark Perel. Thank you, Marty. Good morning and thank you all for joining us today to discuss our Q1 results. In a minute, Michael Manelis will walk you through a market update then we will take your questions. The growth in our business continues as evidenced by our Q1 performance.

Speaker 2

Demand is strong and lease rates are growing faster than we While we are well aware of the recent increases in economic and geopolitical uncertainties, we continue to manage our business by focusing on our operations Dashboards not on the news headlines. Those dashboards continue to nearly universally flash a green signal As our well located properties and excellent service attract our affluent renter demographic in droves, allowing us to retain a record number of our residents And push rents up nearly everywhere we operate. All of this allowed us to increase normalized funds from operations by 13% in the quarter, and we expect this growth to accelerate over the next few quarters. As we mentioned in our March operating update, our first quarter same store revenue results We're negatively impacted by an increase in delinquency in Southern California. It appears to us that a relatively small number Southern California residents who had previously been good payers declined to pay rent in order to apply for state rental relief funds.

Speaker 2

While we remain open to working with residents with true COVID related hardships, this sort of behavior is not acceptable and we will continue to work with these residents to obtain our full rental payment. Translating all this into the numbers, 1st quarter same store revenue results were about 125 basis points lower than we anticipated due to these higher bad debt, partially offset by about 25 basis points of better rate growth, leaving the final quarterly same store revenue number about 100 basis points lower than we expected when we gave you guidance back in very early February 2022. Normalized funds from operations in the quarter ended up being about $0.01 lower than we expected with a $0.02 per share or about $6,000,000 hit from higher bad debt, offset by the better rate performance I just mentioned and the better than expected expense performance that I'll discuss in a moment. As we think about the full year, we feel that we are in a stronger operating position than we had initially contemplated in our full year guidance, With the better lease rate growth trajectory, more than offsetting our now more cautious view of delinquency. Turning to expenses, our residents appreciate the increasingly seamless digital experience we are providing them, which in turn allows We're able to deliver 2.5% same store quarter over quarter expense growth in an increasingly inflationary climate.

Speaker 2

We look forward to continuing to drive innovation and to expanding our operating margins over the balance of the year, while creating remarkable experiences for our customers and for our employees. On the transaction side, as we expected, we did not have much activity in the Q1. We purchased one asset in San Diego that we discussed in the release and after the quarter end sold one asset in New York. With that, I'm going to ask Michael to fill you in on the operating details. Go ahead, Michael.

Speaker 3

Thanks, Mark. We are pleased to report that we are seeing pricing power Head of our expectations, strong demand is being driven by the desire of affluent residents to live in our well located properties, both urban and suburban. Are expected to be in the office and that pattern continues. I have visited several of our markets over the last few months and I'm excited by the vibrancy that I'm seeing. We reported 96.4 percent occupancy for the quarter, which is 140 basis points higher than the Q1 of 2021 and in line with our expectations.

Speaker 3

1st quarter reported turnover of 8.7% was over 100 basis points lower than the first quarter of 2021 and represents the lowest reported turnover in the history of our company. This trend reaffirms the desirability of our product Our existing residents signed renewals at record levels with increases that averaged 11.9% in the 1st quarter. This trend continues into the Q2 with preliminary April renewal increases averaging 12.5% with approximately 60% of our residents renewing. We are limiting rate negotiations given the strength and demand of new residents willing to pay full price to live in our communities. As we begin our primary leasing season, we feel really good about our pricing position, which includes the near elimination of concession usage across the portfolio outside of Seattle and is translating into robust new lease change performance With April on track to deliver just over 17.5% new lease growth after posting over 15% in the Q1.

Speaker 3

Now let me give you some color on the markets. Beginning with Boston. Boston is following normal seasonal patterns with improving demand and pricing We're almost 97% occupied and the market is benefiting from the big college campuses being open and the return of international students and workers and the continued strong demand drivers from lab and life sciences, financial firms, healthcare and education. Competition from new supply will be modest and market performance should be strong. New York continues to thrive and was our best performing market in the Q1 with same store residential revenue growth of 13.6 percent.

Speaker 3

We're 96.9% occupied and We continue to expect this market to be our best performer in 2022. Demand is robust. We're renewing about 60% of our residents, which is healthy, but 5% lower than at the beginning of the year. This is primarily due to deal seekers choosing to move out versus paying the higher current price, but it is not a concern since we are easily able to attract new residents at these higher rates. We still With residential same store revenue growth of 3% in the Q1.

Speaker 3

This market was our best performing East Coast market in 2021 And as I've mentioned in the past has the least ground to make up. As is often the case in DC, new supply is likely to pressure rate growth in the market, That the metro area continues to boast record absorption. Strong employment across job sectors in the market is driving this demand and we are 96.7 percent occupied. We are renewing about 60% of our residents and feel good about our positioning for the spring leasing season. Before I talk about our West Coast markets, let me give you a little color on our expansion markets.

Speaker 3

Denver continues to demonstrate very strong demand. We're almost 98% occupied and delivered same store revenue growth of almost 13% in the Q1. Despite turnover being on the higher end, we are seeing very good pricing power and healthy occupancy. Our acquisitions are performing ahead of their performance as the market continues to produce strong rent growth. Dallas and Austin continue to enjoy robust demand driven by very good in migration and job growth in these markets.

Speaker 3

Now to the West Coast, Seattle continues to be slow to recover compared to the other markets, particularly in the downtown submarket. The good news is that the city's new mayor is focused on the quality of life issues, which we expect will have a positive impact. Also, job postings in the market are at the highest level we have seen with Amazon leading the pack with over 19,000 positions posted with 16,000 of them being in the City of Seattle, which is a good sign for future apartment demand. Market occupancy in Seattle currently sits just above 95%, which remains behind our expectations and turnover, albeit within historical norms, was the highest of all of our markets. The suburban portfolio is outperforming the city with the Bellevue Redmond submarket seeing immediate demand improvement in March after Microsoft's return to the office announcement.

Speaker 3

Year to date pricing remains flat in the downtown submarket with approximately 60% of new applications receiving a concession at just over a month And occupancy in this submarket is at 93%. Overall, we expect continued strength in the suburban portfolio and remain optimistic that pricing power and occupancy will improve in the downtown submarket as we are just now beginning to see signs of increasing demand as the quality of life issues continue to slowly improve. San Francisco has also lagged the recovery, but at the moment feels on Stronger footing than Seattle. We are very encouraged by the recent announcements from Mayor Breed and the local large employers about commitment to bringing office workers back to the city, which should help address quality of life issues downtown. There has been consistently good demand and early signs of improved pricing power that the market lacked in 2021.

Speaker 3

We're almost 97% occupied and resident retention has improved from a year ago. Google, which has asked workers to return this month, Made a recent announcement that it is investing more than $3,500,000,000 in California, including a big chunk in the Bay Area with significant projects in Mountain View, Sunnyvale and Downtown San Jose, all areas where we have a significant number of communities. Pricing trend has increased almost 6.5% since the beginning of the year, which is better than the normal seasonal expectations, which would be in the 4% to 5% range. While this market's pricing remains below pre pandemic levels, the good news is that initial indicators point Now let me move to Southern California, 3 markets that have performed exceptionally well, but for elevated delinquency. First, Orange County and San Diego continue to show remarkable performance with high occupancy and strong retention Supporting very good new lease rents.

Speaker 3

Home prices in these markets are out of reach for many of our residents, which is evident by the significant decline in move out Citing this reason during the quarter. We expect to see continued record high retention likely impacted by the local regulations limiting our allowable increases, Increasing home prices and very limited competitive new supply. The result of these factors should allow us to maintain Elevated pricing power throughout the year in these markets. Next, Los Angeles. Even with elevated The LA continues to be a star performer.

Speaker 3

The entertainment content creation business is really thriving and driving demand. Occupancy is almost 97% and pricing power is strong and better than expected. The urban market's performance is now on par with the suburban a scenario which we have not seen since the onset of the pandemic. The percent of residents renewing is the highest we have seen likely due to the impact of the local regulations limiting our allowable renewal increases and we expect to continue to renew between 60% 70% of our residents. Now that rent relief coverage is no longer available for April 2022 rents, We have seen an early uptick in payment activity, but remain cautious.

Speaker 3

I was in Southern California 2 weeks ago and I am very encouraged by what I saw. Our on-site teams continue to actively engage our non paying residents and are just now beginning to see a few positive signs either through payments being made or in some cases residents deciding to move out and give us their apartments. Overall, the strength in demand and Quality of our portfolio clearly points to above average performance for our Southern California markets as the delinquency issue slowly clears. On the innovation front, we finished deploying our centralized renewal process in the Q1 and are now focused on centralizing our application process. As we mentioned last quarter, the foundation of our operating platform is in place and we are focused on further process automation and multi site coverage that will create additional efficiencies while continuing to meet the ever changing needs of our customers and provide them a seamless digital customer experience.

Speaker 3

Let me thank the entire Equity Residential team for their continued dedication and hard work. These are exciting times for our industry and the overall operations of our company. Not only are we on track to have a very strong year of financial performance, but we are also advancing our platform. Resident expectations are constantly evolving and our teams continue to focus on leveraging technology to meet those needs and drive operational excellence. Thank you.

Speaker 3

I will now turn the call over to the operator to begin the Q and A session.

Operator

We'll take our first question from Nick Joseph with Citi.

Speaker 2

Thank you. I'm hoping to get more color on the Southern California delinquency issues. When did it first start to pop up? How many residents is it? How many are paid now?

Speaker 2

And then is it kind of widespread across Southern California or is it concentrated in

Speaker 4

Hey, Nick, it's Bob. I'll start with that. So We had about we've had concentration of bad debt in Southern California, as you mentioned. And in particular, I think Los Angeles and the City of Los Angeles And if you drill down even a little bit further, there's a handful of specific assets where it's even more concentrated. And that was true of most of 2021.

Speaker 4

It peaked in terms of severity in September of last year and then had pretty stabilized and started to improve slightly in the Q4, which shaped some of our perspective in our guidance. What changed or what happened in the Q1 was you saw a little bit of an uptick In terms of, as Mark mentioned in the prepared remarks, residents again concentrated in those specific areas of about 300 more people that didn't pay. We believe that may have been driven by the fact that they were applying for more rent relief, but they had previously been paying and now they stopped. And so you went from That kind of increase overall. As you go into April, and again, it's early and we haven't finished up the month As Michael mentioned, it appears that many of those people are at least starting to pay their April rent.

Speaker 4

Now what's changed also is that the rent relief program, you could only have March eligibility. So rent that was through March of 2022 is eligible for the rental relief program. April is not. And so that probably is changing the behavior as well as some other opportunities we have to just communicate with residents, etcetera.

Speaker 2

Thanks. That's very helpful. And then Bob, can you just remind us the bad debt policy and then what guidance is assuming for net bad debt for the remainder of this year?

Speaker 4

Yes. So, our bad debt policy in terms of our write ups is once you get 3 times Behind your rent, we would write or reserve against. And we also write off any bad debt associated with people who move out. So there's that combination. Also, if you were kind of 3 times but got rent relief, so you weren't the actual payer, we So it's a pretty conservative policy and looking at kind of what the resident themselves is doing from a payment standpoint.

Speaker 4

And that policy hasn't changed since kind of the beginning of the pandemic or even prior to that overall. And what was the second part

Speaker 2

of your question, Nick, other than the policy? What maintained 2022 guidance assumes for net bad debt?

Speaker 4

Yes. So our initial guidance back in January We would based on kind of our experience in the Q4, to be honest with you that I just mentioned, thought that we would Before rental relief, start seeing improvement in the Q1 and then accelerate improvement, meaning more people paying or just moving out, as we went through the remainder of the year. What happened based on the Q1 has made us adjust that perspective, a little bit in that we still think that we will see the Setting some of that change, so more impactful than number. Offsetting some of that changes, we now think we'll probably have higher rental relief, right? So based on what occurred to us, so that net net, Bad debt is probably going to be flat to maybe marginally helpful to growth between 2021 2022, Whereas previously, we had assumed that it would be a contributor to growth.

Speaker 4

The good news is that everything else that Michael talked about in terms of Pricing and everything else relative to guidance is actually more than offsetting that like, Mark mentioned. So we feel very good about how we're positioned going into the leasing season.

Speaker 2

Thank you very much.

Operator

Thank you. We'll take our next question from Steve Sakwa with Evercore ISI.

Speaker 5

Thanks. Good morning. I was wondering if you could just maybe speak to the June July renewal increases That are being sent out to just help us frame against the April and maybe how those numbers compare to when you set guidance several months ago, where are those renewals and new leases in context of the revenue growth that you have currently out there?

Speaker 3

Yes. So, hey Steve, this is Michael. So, first, basically, when we're looking at renewals right now, we're not completely done issuing quotes Through kind of July, but if we would just step back and look at where we are for April May and even preliminary June, We're still putting out quotes that range somewhere between 14% 15% for these months, which is probably about 200 basis points Stronger than what we originally contemplated, which is just this intra period kind of strength that we see. We do expect that renewal Achieved renewal increase will moderate, especially on a net effective basis as we get into the back half of the year, because when we look at even the July expirations, Only 5% of our expirations for the month of July had a concession when they moved in a year ago. So I think that right there is going to put a little bit of pressure just on our ability to post 12.5% achieve renewal increases.

Speaker 3

But right now, the overall performance and even what we see for the next 90 days, probably trending about 200 bps higher than what we thought.

Speaker 5

Okay, great. And I guess, Bob, maybe just going back to the guidance. I mean, I know the bad debt Caught you guys by surprise and probably certainly limited your desire at this point to kind of raise guidance. Just You see how things play out, but it sounds like all the things Michael has talked about trend wise are definitely better than maybe what you thought at the start of the year. So if this 125 or 100 basis point drag in Q1 really abates in Q2 and beyond, I guess I'm just trying to think through the potential upside to the numbers that you currently got out there.

Speaker 5

Like how much wiggle room do you have to kind of revisit guidance next quarter?

Speaker 2

Hey, Steve, it's Mark. We feel like we're extraordinarily well positioned. I mean, the team would actually tell you we've never been in as good a spot. So we feel really good about that conversation we're going to have with you in July about where the numbers are going to go. But we are entering into the beginning of the leasing season.

Speaker 2

It's really hard to predict on the bad debt side. We may get more reimbursements. California may slow down. It's just really unpredictable. So the exact place we're going to end up, but do we feel like there's upside in numbers?

Speaker 2

Absolutely.

Speaker 5

Great. And then just one last question on transaction. Just given the move we've seen in the bond market in the last call it 6 weeks, 8 weeks, I'm just curious, are you seeing unlevered IRR hurdles Changing at all, levered buyers dropping out. Like I'm just curious the transaction market, the dynamic that's out there with the sharp move in bond yields and How was that influencing your desire to put capital out?

Speaker 6

Sure, Steve. This is Alec. You're right, the market has changed a lot in the last 3 or 4 weeks from an interest rate standpoint, but there are countervailing forces at work. There's still all of this capital flowing into our sector, and operating results are still so good. That it's a really attractive place for people to put money.

Speaker 6

And so I would say more that the frothiness has gone where a month or 2 ago we had multiple bidders Going in over ask and really bidding the pricing up and frankly we didn't buy in that environment because we thought it got so overheated. So right now it's kind of a feeling out process, but I don't see distressed sellers out there. Operations are really strong And there's still, as I said, a lot of interest in buying it. I don't see any fire sales coming and certainly not for us. And When you ask about cost of capital for us, that's really comes from our dispositions and we expect to continue to be able to sell at low cap rates And redeploy that money non dilutive into our new expansion markets.

Speaker 2

And Steve, it's Mark. Just to build on that, I think very Already very complete answer. I mean interest rates right now that 2 year and 10 year treasury are just back to where they were in early to mid-twenty 19. So and I know you know this, we're not at some crazy new interest rate level. And yet our growth prospects are much better now for the industry, for our company Than they were in 2019.

Speaker 2

Now a lot of that's been capitalized into the value of these assets being much higher now than in 2019. But I still think that growth picture, which doesn't have any fractures in it at all for us, and I think for most of the industry is very supportive of values. I'll also add, I think the private market is recognized and I think the public market is increasingly recognizing that apartments are very, very resilient. I mean, this pandemic was about the worst thing that could happen to an urban apartment owner. And yet, we're 25 months out of the We're telling you about how well everything is performing, how well occupied we are again, how we're moving rents up.

Speaker 2

So I think the combination of the market's Perception of the resiliency of the product, especially compared to all the volatility and other investment alternatives, combined with just the growth prospects, Makes us feel pretty good about value going forward. And maybe that exception is if you get into a stagflation environment where the pressures would be a little different, But we feel pretty strongly that values are going to hang in there for us.

Speaker 5

Great. That's it for me. Thanks.

Speaker 7

Thank you.

Operator

We'll take our next question from John Pawlowski with Green Street.

Speaker 7

Thanks for the time. Alec, just a few follow-up questions to the transaction comments. So the dispositions you have teed up out in the market right now, Can you just give us a little bit of color how the bidding tent for those assets has changed in terms of any retrading you're Seeing the number of bidders getting whittled down, particularly on the levered buyer side?

Speaker 6

Sure, John. So I would say at this point, There's some bidders that are stepping back for sure. They're relying on higher leverage. It's harder for them to make it underwrite. But I can tell you that Both what we've been competing to buy and what we've had on the market is seeing a lot of interest and we see a lot of tours on stuff we've just put on the market recently.

Speaker 6

And so far, I haven't seen a dramatic move in pricing. So really can't make a call on that. I would just say there is this feeling out sense That buyers and sellers are just going to determine whether there's a market right now. And at this point, it really feels like there will be. There's just so much capital out

Speaker 7

Okay. New York specifically, the additional sales that we can expect in the coming quarters, Should we expect these low to mid-three cap rates that we saw on 140 Riverside assets?

Speaker 6

Yes, that's generally been the case in the market and certainly for the properties that we're looking or thinking about selling, that would be generally the case.

Speaker 7

Okay. Thanks for the time. Thank you.

Operator

We'll take our next question from Rich Hill with Morgan Stanley.

Speaker 8

Hey, good morning guys. So I want to maybe talk about turnover for a second. I think on an annualized basis, you guys were just shy below 35%.

Speaker 2

Do you think that's

Speaker 8

sort of the new normal? Or do you think that will pick up in the peak leasing season? And maybe more specifically, Can you walk through what's driving the sort of the collapse in the turnover rate? Is it really because there's no place to live and so people are just taking the renewals That you're giving them and saying, well, it's better than trying to find another apartment.

Speaker 3

Yes. Hey, Rich, this is Michael. So first, There is normal seasonality to turnover by quarter. So the Q1 typically is one of the lower Kind of reported turnover numbers and it will tick up as you work your way through the leasing season and then kind of fall back off again in the 4th quarter. But the fact that we reported at 8.7 percent normal historical like going back into 2018 2019 and even 2017, Typically, the Q1 is like right around 10%.

Speaker 3

So you could see that kind of improvement that we're seeing. My guess is that as we work our way through the second and third quarter, yes, it will tick up, but it is still going to stay Relatively low compared to comparative norms, part of which is what you just said, which is the optionality where our residents are going to go. We're delivering great service to our residents, so our customer service scores are kind of maintaining at the all time high level. The price point that we're offering is competitive in the marketplace. And there's still a little bit of this lift that we're seeing in retention regarding Kind of just regulatory limits that we're bumping up against that is keeping some of these quotes while there's still significant increases below what the otherwise market price would be.

Speaker 3

And again, that's just a matter of time as we work our way through kind of another cycle of renewals with those residents that will catch up to Those market rates.

Speaker 8

Got it. And so what that tells me is, I know you've emphasized this a couple of times, Pricing power is significantly in your favor. And so if we're thinking about new leases and renewals, I have a hard time believing that there's very little that could lead that Start to rollover. Is that a fair assessment? And I have a quick follow-up to that.

Speaker 3

Yes. I don't know what exactly what you mean by rollover, But I would tell you just looking at the strength of like the reported new lease renewals and blended, right, knowing where the intra period rent growth is today, We are going to produce stronger results in the 2nd quarter than what we originally anticipated based on that strength, But we still have a difficult comp period as we turn the corner into the second half just based on the recovery of rents last year. So they will start to moderate off In the second half, but relative to our original expectations, strong early intra period rent growth is the biggest Catalyst to produce revenue growth in the current year, and that's what we're seeing right now.

Speaker 8

Understood. That's helpful. I shouldn't have used rollover. I was asking a rate of change question. So thank you for that.

Speaker 8

Could you maybe just talk about supply real quickly? Starts and permits across the United States are pretty high here. Do you think all those permits are going to become starts and do you think those starts are going to be delivered on time?

Speaker 6

Hey, Rich, it's Alec. I'll start and others can chime in. But Generally, there haven't been that many projects that have stopped at all that I'm aware of and that we see in the market. But Everything has gotten harder. So things are taking longer to deliver.

Speaker 6

So typically about a 3 month or so lag. Things that are in the pipeline will deliver a little more slowly. In terms of things that are being underwritten right now to generate future supply, That's certainly gotten more challenging. It's a combination of costs going up and costs that were going up say 0.5 percent a month are now going up 1% a month. And even things like lumber, which may have abated a little bit are now being offset by steel going up pretty dramatically.

Speaker 6

So it's a cost challenge on top of which interest rates are up. So all of those things going to combine to make development a little more challenging to underwrite in the future. We haven't seen that stop anything yet, but if you just look out, it does get harder to make the numbers work.

Speaker 8

Got it. Thank you, guys.

Operator

Thank you. We'll take our next question from Chandni Lutra with Goldman Sachs.

Speaker 9

Hi. Thank you for taking my question. So I wanted to talk about rent control. The narrative has definitely kind of heightened as we have seen some sort of these staggering rate numbers. So could you perhaps talk about what you are seeing in your circles, not necessarily in the markets that you're In already, but just generally in the markets that you're planning to kind of expand your presence in?

Speaker 9

And how do you think The powers to be for housing crisis that rent control is being corporate as one solution to.

Speaker 2

Right. Thank you for that question, Chondri. It's Mark. What I'd say is that rent control continues to be a conversation, Not just in the coastal markets as you implied, but also in places like Florida and other jurisdictions because again, as you noted, rents are up significantly. In some of our coastal markets, they frankly just these big increases are frankly just recovering the rents to where they were in 2019.

Speaker 2

In some places, they're Significantly higher like in Southern California. So there's a little bit of that. We have had residents, especially our residents have their incomes continue to rise, which is an Setting factor. But the biggest thing is we just need to keep as an industry focused and have these conversations with policymakers and in some cases voters About that rent control doesn't work, and we're doing that. The industry is very well organized on these topics.

Speaker 2

We continue to have these conversations. They're Relatively productive. I mean rent control just New York said forms of rent control since World War II and it's the highest Cost housing market in the country, I mean, it just doesn't work. And we're continuing to advocate for zoning reforms, continuing to advocate for regulatory reforms, Public private partnerships like the 485 W program in New York that we do hope gets going. So the industry is aware.

Speaker 2

We acknowledge the problem of a lack of affordable housing in the country, but that problem is a problem that is in some regards of the government's making, and We need their cooperation here with some effective policies to improve. So we do see it as a risk. And one of the reasons you see our strategy Diversifying is to diversify away from that risk. New York is a great market for us. It's going to have league leading revenue growth.

Speaker 2

Some of the assets we're selling, we intended to sell well before the pandemic for tax abatement reasons for 21A type reasons or ground leases or whatnot, but it is also part of just diversifying into some markets that may be a little less political risk And having a company that can have a little less volatility and compound cash flows more reliably going forward. So we're really excited where we're headed and This rent control topic does influence our capital allocation.

Speaker 9

Thank you. Thank you for that insight. And if I could follow-up With a question on seasonality, now that you're entering your peak leasing season, pardon my voice. What are you seeing from a seasonality standpoint? Is it typical?

Speaker 9

Is it still atypical? Any thoughts In terms of are we back to where you were versus 2019 seasonality patterns? Any color on that would be very helpful.

Speaker 3

Yes, sure. So this is Michael. So typically in a normal year, the way to think about kind of transaction Volume seasonality is about 20% occurs in the 1st and fourth quarter and about 30% occurs in the 2nd and third quarter. We did see a little bit of a shift, right, as we were working our way through kind of the recovery in 2021. And right now, I will tell you we are getting very close back to those normal kind of percentages by quarter.

Speaker 3

We did have slightly more expirations in the Q1 of this year, like it was like 24% versus the 20% norm. But as we're working our way through these new leases and renewals, I think it's just a matter of time. By next year, we're going to be right back in line with those numbers.

Speaker 9

All right. Thank you so much.

Operator

We'll take our next question from Nick Yulico with Scotiabank.

Speaker 10

Thanks. I just wanted to go back to the bad debt number that

Speaker 11

you gave. I think you said

Speaker 10

it was $6,000,000 was the uptick in bad debt versus I wasn't sure if that was should we think about that $6,000,000 as only applying to those 300 additional people that Didn't pay that you cited in Southern California? Or is there other pieces within that 6,000,000

Speaker 4

Hey, Nick, it's Bob. There's other pieces associated with it. It's probably about half the 300 people that Didn't pay that we mentioned earlier and the other half is, really we had anticipated improvement based on our 4th quarter experience And we didn't see any improvement, right? So it's staying flat relative to our expectations that you were going to actually go down and then on top of it adding these 300 people.

Speaker 10

Okay, got it. Thanks. That's helpful. And then just other question is on, I know this is an issue that's probably going to play out in New York. I don't know if it's also in Maybe in San Francisco or some other markets that had heightened concessions where you had some residents move into the portfolio over the last 1.5 years at the discounted rents when free months were given.

Speaker 10

Those leases, I think in New York, we've just heard in the market increasingly are starting Turn in second quarter summer. And I guess I'm just wondering if you have any early read on how some of those Conversations are going in terms of the resident who got a bunch of free rent who's now being pushed up to market and What's happening? The market itself is very tight, so maybe the person can't move, but any sort of anecdotal color you're hearing on that topic would be helpful. Thanks.

Speaker 3

Yes. Hey, Nick, this is Michael. So, I said something in my prepared remarks about in New York in the Q1, we were Renewing about 60% of our residents versus like the historical norm from the Q4 and Q3 last year that was up at like 65%. So we did see A little bit of that drop off and what we started to hear back in like late February, early March is some of those folks from Manhattan We're looking at those increases and actually choosing to go across the river into the Hudson Waterfront to trade down from a rent perspective. But given the strength of the demand that we see at the front door, I mean, we are more than okay kind of with that trade off occurring.

Speaker 3

And as we look into April, May and even like This preliminary June, it really isn't materially different. We still expect to renew a large percentage of our residents in New York, But we will allow some of that trade out. We centralized our renewal negotiation team, which really allows us to kind of be very strategic and tighten up Kind of renewal negotiations to ensure that we're consistent in these markets. And right now, the results appear to be very consistent

Speaker 2

And Nick, just to add, you might remember, we qualify everyone on the basis of their base rent. They may have gotten a 1 or 2 month concession from us, but they can afford to pay that face rent. So they may react to any increase above the face rent, But the disappearance of a 1 month concession on our financial statements is an 8% increase in revenues, but they've been paying us 11 months' worth of that higher face rent. So for them, there's no change beyond what Michael and his team push above face rent. So again, it'll look a little different on the financial statements than it will to the resident at hand.

Speaker 3

But we really are at the tail end of this because the concessions really ramped down last year. So by the time we hit July, there's very few of those residents That had those big concessions when they came in.

Speaker 10

Okay, great. That's very helpful. Thanks guys.

Operator

Thank you. We'll take our next question from Brad Heffern with RBC Capital Markets.

Speaker 12

Hey, good morning, everyone. You mentioned in the prepared comments a decline in residents moving out to buy a home in San Diego. I'm curious if That's a trend that you've seen across the rest of the portfolio as well.

Speaker 3

Yes. So, during the Q1, we did see a decline in The percent of residents that site buying home is the reason when they move out. Remember, the turnover was low, so Absolute number of residents leaving to go buy a home is materially down and the percentage ticked down to about 11.5% Of move outs citing that reason, pretty much in line with our historical norms of like an 11% to 12%, but reduced from like the 15% that we were seeing in the Q4 and Q3 of last year. I think right now what you're starting to see is just the supply constraints, the cost of Single family housing in our markets, rising mortgage rates, we expect is going to keep this percent at a very low and which really eliminates Pressure on move outs from this reason going forward.

Speaker 2

And because renewals are so high, the absolute number of people actually moving is really small. I mean, like when you talk about a percentage, that's one thing, but the 10% or 11% is being applied against a much smaller number of people That are in fact leaving us at all for any reason.

Speaker 12

Okay, got it. And then have you seen any change in demand For 1 bedrooms versus 2 bedrooms, I'm just trying to see if people are starting to double up again given the increase in rates?

Speaker 3

Yes. So this is Michael. We really haven't seen kind of any change right now. We're back to like a pre pandemic levels where we average about 1.7 adults per kind of occupied unit in the portfolio. What I will tell you is what we've seen It's through the pandemic, studios were the lowest occupied unit type that we had.

Speaker 3

I talked a little bit that we were seeing the trends of the recovery in the portfolio of that unit type. But even sitting here today in the Q1, studios were 90 95.9 percent occupied and today they're at 96%. So they're still trailing the other unit type mix, Which if we're going to have vacancy in the portfolio, I'm okay with that vacancy being at the lower price point unit of a studio.

Speaker 8

Okay. Thank you.

Operator

Thank you. We'll take our next question from John Kim with BMO Capital Markets.

Speaker 11

Thank you. You have a fair amount of debt expiring this year and next. There's no debt offering in your guidance. What are your thoughts of refinancing some of that debt with equity given your implied cost of equity is lower than your long term cost of debt?

Speaker 4

So I'll start with the debt maturity real quick and then maybe Mark and I will tag team. So this year we don't have much debt Maturing, John, actually. And then next year, we have the bigger amount of the $1,300,000,000 or so, some of which is secured and For various structural reasons, needs to maintain secured and then we literally have no debt maturing at all in 2024. So when you look at the profile over the 3 year time horizon, it's a pretty average to below average kind of maturity profile. And we have lots of flexibility in the markets, at least in the debt markets to refinance whether that's shorter dated, longer dated, fixed, Floating, secured, unsecured, kind of the full access to the capital.

Speaker 4

Our leverage is also very low Relative to kind of targets and other things and it will be continue to be low particularly as the recovery and just the overall business performance is great. So and maybe I'll let Mark talk a little bit about the equity side.

Speaker 2

Yes. And just thinking about cost, I appreciate the point That the sort of FFO yield as compared to interest rates may be lower, but the long term cost of adding partners, which is effectively what equity is To the company, when you have all this, as Bob said, additional debt expansion capability, when you have all this additional Availability on the debt side, that seems to us to be dilutive at this point. I don't feel like the stock Trading above our NAV estimates internally. So again, that doesn't seem to us to be the best idea right now relative to just Refinancing and I think Bob and his team have done a good job of giving us a multitude of options. I mean, we can go short, Doesn't have to be 10 year debt.

Speaker 2

Almost 20% of our debt was issued at 30 year maturities and expires in 28 years or more. So We've got the whole curve to use. We have 5% floating rate debt. Maybe we'll float some debt for a little while on the line. So I think we can manage this increase in rates pretty well Without having issue equity that I appreciate might feel cheaper, but to us kind of doesn't.

Speaker 11

Okay. And Mark, you mentioned some of the reasons for selling more New York assets and deemphasizing the market. Has the strong rebound in rents in New York given you any pause for reconsidering this?

Speaker 2

Yes. Thanks for that question. I think we're really, to your point, kind of in an enviable position in New York. We got great properties and a great team running them. And the assets we're potentially going to sell and have sold have been assets that have had these ground lease accounting issues, have had these 421a tax reassessment increases that are coming up in the near term that maybe have more intensive renovation plays that Maybe aren't our thing to do or we aren't things we believe in, but buyers would.

Speaker 2

So we're keeping the assets that we think are going to drive performance. We're going to have this And we'll continue to have this amazing New York portfolio that will benefit from, I think, very limited supply, from some good job growth. So I think owning New York the next couple of years is going to be great. I think it has to be balanced against these regulatory concerns. So this didn't change our mind on New York.

Speaker 2

This is something We wish we had sold some of these assets in the past, but the pandemic interfered with that and we waited for them to recover. And now our investors are going to harvest those gains and we're going to Help with our diversification plays, so that the company is a little more balanced against some of these regulatory pressures. So, no, it doesn't make us reassess our position, but I mean, we're really pleased to own what we own in New York and what we'll own long term. I think it'll be a big driver the next couple of years.

Speaker 7

Appreciate it. Thank you. Thank you.

Operator

We'll take our next question from Rich Anderson with SMBC. Mr. Anderson, please go ahead. Your line is open.

Speaker 13

Apologies, on mute. So on the topic of guidance and your decision not to raise it, 2 of your peers did this quarter, you had done it last year at this time, so I don't think it's a policy thing for EQR. I'm just curious, is it entirely the unknowns around bad debt that caused you to hold the line? Or were there other Factors behind your decision to wait until next quarter to reassess guidance beyond just the bad debt issue?

Speaker 2

Hey, Rich, it's Mark. Last year was a year like no other. So I would say, saying when our behavior is off of last year, we were We are really challenged trying to figure out guidance. Other folks didn't even bother giving guidance in 2021 and we at least told you what we thought the business was and then obviously the recovery was really vigorous. In 2019 2018, we didn't raise at the April mark.

Speaker 2

So it is kind of our general view here since I've been here in 2007 Not to do much in April. And the reason for that is we try to give you a real hard good look when we issue guidance early in February. I mean, the other guidance changes really took the numbers to our range. We had the highest range. So again, that was only a couple of months ago And there just isn't enough time in the period.

Speaker 2

I mean, we think we gave you a pretty high quality estimate for everyone's portfolio is different, everyone's process is different. But I think we started off with a higher number, so we don't have to adjust it in April. And we're sort of looking at July and going at that point. We'll have a real good sense of where the leasing season is going. We will we hope adjust the guidance ranges appropriately, but It isn't just a matter of you do it, you create guidance ranges, so you can definitely raise every quarter, that isn't our goal.

Speaker 13

Okay. Fair enough. I appreciate that. Second question is, you and your multifamily peers have been kind of gifted with this Incredible environment. And we can all see what 2022 is going to look like.

Speaker 13

And I hate to say it, but the conversation is going to shift to 2023 Really soon here. I'm curious what you're doing differently given this unprecedented level of growth that you're enjoying And how that might be influencing longer term plans. I doubt EQR, given the quality of the organization, is just Taking the money and running and hoping for the best in 2023, is this causing you this environment causing you Maybe do things a little bit differently so you can lock in some of this growth for next year and thereafter, Maybe longer term leases, I don't know what it would be, but I'm just curious if there's a change in strategy so that you can extend the lifeline of what's happening today.

Speaker 2

Maybe we'll split that up into 2 pieces. On the operations side, this custom of 1 year leases is so deep in our business That it's really hard, Rich, for us. I mean, in New York, we have to offer 2 year leases, and we just don't have a lot of uptake on that, and We haven't seen a lot of uptake on that anywhere in the country. So it's an interesting idea and we've tried that before and we just have not had a lot of progress on that. So on the operations side, I think all the things we're doing in Michael's world to manage expenses better, because this inflationary pressure on payroll is real and it isn't going to abate.

Speaker 2

And I think that is part of the 'twenty three conversation and that I think is something we're working really hard on and we're making good progress and you can see that in our numbers. So I think we think about 'twenty three, 'twenty four, 'twenty five, we're thinking we're going to live in an inflationary climate for a while and we need to adjust to that by managing Our people and processes as best we can. On the transaction side, the blessing here is that we're able to do this trade. I would love to have done it accretively. Was a little accretive last year, but we're able to switch into these new markets, much newer product, much less capital intensive product, Without dilution is a wonderful thing and we're taking full advantage of that.

Speaker 2

So the opportunity to sell product that's older product In markets that do have real regulatory challenges that we think a lot of private owners aren't that concerned about because they've got other things on their mind, that's an opportunity from our perspective and we're selling into that opportunity.

Speaker 14

Okay, fair enough. See you in New York.

Speaker 7

Yes, thank you.

Speaker 2

See you there.

Operator

Thank you. We'll take our next question from Joshua Dennerlein with Bank of America. Yes.

Speaker 3

Hey, everyone. I appreciate all

Speaker 4

the market color on the beginning. Just curious on the LA market, looks like year over year same store revenues were up 8.6%. What would that have been if you backed out the delinquency impact? Yes, that would have been a little over 200 basis points better. So something that would have been around, not dissimilar to what the reported Orange County San Diego, we're still like 11 ish percent.

Speaker 4

Okay. Okay. That makes sense. And then Michael, you mentioned in your prepared remarks that you're working on, if I heard correctly, centralizing your the application process. What's the benefit, EHR expects to derive from this?

Speaker 4

Is it more on the expense front or better able to kind of drive revenue growth There's something else.

Speaker 3

So it is this is Michael. So it's really it's just part of the overarching plan of just centralizing a lot of the on-site Kind of tasks into a group where we can create that operating efficiency and running assets with fewer kind of folks in the office and really getting more into this multi site coverage kind of model. So that's really the biggest thing, which is layering in. We started with renewals. We saw the immediate benefit to kind of being able to create the guardrails in negotiation.

Speaker 3

Now we're looking at this application processing and creating efficiencies In that process and having fewer people having to be touch points with that and creating more of that seamless kind of experience kind of for prospects as they're going through. And then we'll move into kind of the evictions and delinquency. So we're looking at every single thing that gets done on-site and saying, is there an opportunity and benefit to the organization to streamline that process and have fewer touch points with it? And that's really the essence of what we're doing right now.

Speaker 7

Awesome. Thanks for the time.

Operator

We'll go next to Haendel St. Juste with Mizuho.

Speaker 3

Hey there.

Speaker 7

So a couple of

Speaker 11

questions for me. First, Mark, maybe another one on transactions, but from a different angle. I know transactions can be lumpy, but I guess I'm curious what the strategy you're thinking today here is. It's almost May and you've only done About $100,000,000 of acquisitions, dollars 200,000,000 on the disposition side, well behind the $2,000,000,000 annualized pace. What are the questions and your comments if you're waiting for the market to settle down a

Speaker 7

bit here? Are you looking to perhaps sell

Speaker 11

a bit more aggressively now and buy more later Given the surge in interest rates, anything under LOI today, so maybe some color on how you're thinking, and maybe how we should think about maybe the pace Of acquisitions, dispositions and if you have anything under LOI or far along today. Thanks.

Speaker 6

Hi, Haendel. This is Alec. The whole market kind of took a pause at the beginning of the year just because it had been so busy at the end of 2021 and certainly we were part of that. We closed literally 5 deals in the last 2 weeks of the year. So the whole market kind of took a break and then it started back up again really in February.

Speaker 6

And from our perspective, as I alluded to earlier, it was super frothy, really a lot of bidding wars going on. We were part of The process, but we didn't feel like it was the time to step in lean into that. Now the market seems to calm down a little bit. I think there's going to be an opportunity for us to get back on pace. And last year, we sold $1,700,000,000 and bought $1,700,000,000 we didn't do anything in the Q1 either.

Speaker 6

So, Picking up to that pace is certainly our goal and certainly my job to make that happen. And we are pricing very actively right now.

Speaker 11

Okay, fair enough. A question maybe on the markets. Based on your comments this quarter versus last quarter, it seems to me that San Francisco might be the market where which is perhaps standing out most in terms of expectations at the start of the year versus now, putting the bad debt issues in LA aside, obviously. So I guess I'm curious, one, is that fair? And maybe what's your sense of the market same store revenue potential today in San Francisco versus kind of the 7% you outlined a few months ago?

Speaker 3

Yes. So this is Michael. So I think the way I would look at this right now, if I think about intra period rent growth, the markets That I kind of alluded to in my prepared remarks that are really kind of outperforming expectations are New York, San Francisco and LA. Relative to San Francisco right now, you're just now starting to see some of that pricing power come back. So from our full year expectation, that was probably a 7.

Speaker 3

At the beginning of the year, it's like a 50, 60 basis point improvement right now to the full year projection. But I think what I said in my prepared remarks is I'm more excited because we're seeing that pricing power improving week after week. So sequentially, right now, we have a great opportunity as we head into May June to write a lot of leases at a rate higher than what we otherwise thought, Which would then add to those numbers.

Speaker 11

Got it. Fair enough. Can you give us an updated loss of lease quote For the portfolio? Thanks. And that's my final question.

Speaker 3

Yes. So, as of April 15, The portfolio loss to lease remains at 11% for all leases in place. So really it's the Strength of this intra period rent growth that has allowed us to maintain this loss to lease at a very high level Sitting here in April, even though we just captured a whole bunch of it in the Q1 through this renewal and new lease process that you can see when you look at that blended rate So I think right now in the portfolio, there's 85% of the leases that are in place That are below current market pricing. And I think as we mentioned in the past, we're not going to be able to capture this full 11% this year. But the fact That this number remains at 11% and is higher than what we otherwise would have expected it to be in April Really does put us in a great position for the portfolio, not only to contribute into 2022 revenue, but position it for 2023 to have stronger embedded

Speaker 11

That's great color. Thank you.

Speaker 15

And next we'll go to Connor Mitchell with Piper Sandler.

Speaker 14

Hi, thank you. So how soon can EQR turn the delinquent tenants over to the credit agencies?

Speaker 3

So this is Michael. So there's a lot of nuances to that. So For residents that have moved out that have balances with us, we are able to turn them over to a collection agency Now and they can begin that process. There's periods of protected rent, so it's not as clean as what it would have been A pre pandemic period. What we are starting to do or what we've started to do in April is we are credit reporting now for folks with their April rent payments.

Speaker 3

And that's something that really kind of the laws shifted around and we were able to kind of have that ability. So we are now reporting to the credit agencies each and every month our residents' ability to pay rent in any balances that they owe.

Speaker 14

Okay. Thank you. That's helpful. And then as EQR moves into the Sunbelt and non coastal markets, the expansion markets, Are you seeing any different affordability

Speaker 6

dynamics? Hey, Connor, it's Alec. When you say affordability about affordable units on-site or are you just saying generally about?

Speaker 3

Is it rent as a percentage?

Speaker 7

Rent as a percentage.

Speaker 6

Rent as a percentage. No, no, we're keeping in track generally low 20 percent rent as a percent of income. And as we've talked about in the past, we're really finding the same general kind of renter Who's working in the same general knowledge based industries and has a growing income that supports rent growth over time.

Speaker 14

Okay. Yes, thank you. Sorry if there was any confusion. So yes, I was really asking about if tenants are willing to spend more, kind of The percent that you're talking about and then compared to other markets like San Diego that's been touched on a few times.

Speaker 6

Yes. So one of the dynamics is that we're growing off of a lower rent base as well. So The average rent is $2,000 $2,500 versus $4,000 We like that spot for a renter who has a good income.

Speaker 2

We could take the next question, operator.

Speaker 15

Thank you. Moving on, we'll go to Anthony Powell with Barclays.

Speaker 16

Hi, good morning. A question on Los Angeles. You cited streaming content contract creation as a source of strength. There's been talk about Some of the streaming providers cutting down their content spend given the competitive market there. How much Franco was driven by content creation and how do you see the overall demand generators in LA?

Speaker 3

Yes. So this is Michael. So I think, well, one, some of the announcements that you're reading today is probably More going to be impacting the future in the like of 2023. The demand in the LA market is really strong. I don't quantify Like how many applications came to us from that content creation, but you can look at like the strength in West LA and really just the overall Inbound leads that we're seeing in the overall LA market, it's really strong on a year over year basis.

Speaker 3

And that's just one component of the Strength of that market to generate demand, but I think the announcements that we just saw in the last week or so really way too soon to understand if it's any Impact on the future demand.

Speaker 2

And you got to feel bullish about entertainment in general. How people will consume it has changed. I mean, we Many of us who are older like me consumed it through network television. Now you're consuming it through streaming services and there may be a different way to consume Entertainment, but LA is the one of the worldwide centers of the entertainment industry. That's a very powerful Economic magnet and again even if streaming kind of does withdraw a little bit and maybe there are tighter budgets there, You may have more people going entertainers going direct to the audience in a TikTok type format and needing Production services for those sort of things outside of the streaming industry.

Speaker 2

So I just think entertainment can be consumed a lot of different ways, but I think LA has a central role and how that's all done. And I think one way or another, we'll benefit from it even if sort of some of the streaming stuff, these very elaborate productions become A little less.

Speaker 16

Got it. Thanks. And maybe one more on rent to income. You said that it's still in the low 20s. So there's really been no movement there even as you Push rents higher and how do you look at rent to income in an inflationary environment?

Speaker 16

Would you maybe like to see a bit lower given there could be Some other cost pressures outside of rent that may be impacting certain renters.

Speaker 6

This is Alec. I mean, I would say our typical renters also seeing their income Pretty aggressively as well. So, you see that particularly within the profile that we typically rent to. So that is keeping pace.

Speaker 3

Yes. And at the overall portfolio, I mean, we're at 19.5 percent rent as a percent of income. And really when you look at move ins from the Q1, The only change that happened was New York that used to be the absolute low point at 17.5% ticked up to 18%, which still shows that From an overall affordability standpoint, those residents are going to be able to absorb additional increases.

Speaker 2

And it's Mark, just to add little to that because this is important in the inflationary climate. We had a lot of we've had a lot of good conversations with investors about this point too. Our higher end rent are paying, call it, 20% of their income to us in rent. With a lot of those folks commuting by public transit, Especially in the East Coast are less susceptible to some of these energy pressures because they are higher earners, they have more disposable income. So even if their energy and food costs are up, they're liable to be pinched less.

Speaker 2

I think the pressure implied in your question is more likely to incur, pardon me, In Class B apartment buildings, in apartment properties in more further suburbs, maybe in the SFR sector where people are a little more stressed Then our renter.

Speaker 16

Got it. Thank you.

Speaker 14

Thank you.

Speaker 15

And next we'll go to Omotayo Aku Sena with Credit Suisse.

Speaker 7

Hi, yes. Good morning, everyone. Hate to go back To the bad debt question, what I'm curious, why did it happen just particularly in LA if the Extension was kind of done statewide through June 30. Why does it only happen in LA? And then by June 30, When the protections all kind of come off, do we kind of expect kind of a repeat of what we just kind of saw in 1Q?

Speaker 3

Yes. So this is Michael. Maybe I'll start and then others can kind of build in. So I think when you look at the Concentration of our delinquency, it has been Southern California focused, but LA has always had The highest concentration of the overall delinquency in the portfolio. What we also saw early on Into January, as we saw rent relief payments actually slow down in January February As the programs were very focused on working on first time rent relief applications and really put everything that they call like a recertification, Residents that were coming back for more, they put those kind of on hold.

Speaker 3

Now what we saw in March is they basically started to work those cases And net net for the whole quarter, we came out right around where we thought we were going to be. But you can really look into April right now and look at this rent relief Volume that we're seeing and we're already over $5,000,000 for the month of April. So you can see these programs catching up. So the concentration in LA is probably just due to the fact that that is where the delinquency is and there's also a lot of publication around these rent programs in that market that kind of influences the behaviors of the renters there. Yes.

Speaker 2

And it's Mark. I'm going to add a little to that because I think there is another regulatory impact Michael alluded to there. I mean in the City of Los Angeles, there is an eviction moratorium. I mean that still exists. There's exceptions to it.

Speaker 2

There's different actions we can take. I think residents have been diluted into thinking that means they don't have to pay their rent when in fact, as Michael said, we can do other things to affect their credit and have other Pointed conversations. So I think in some places, a moral hazard has been created by these, I think initially well intended, but now Well overdue policies and, I think that's part of it. I think the reason you see it a little more in Southern California than in Northern California is because of that. And I think you these as these if these programs get extended, I think you're going to see very much more effective legal challenges to them because we're 25 months into the pandemic and All these emergency measures have expired and the idea that this is the one measure that needs to keep going and that this cost needs to be put on landlords as opposed to Dealing with the housing crisis is a public good that needs to be dealt with.

Speaker 2

That's I don't understand how that's going to work. I think there's going to be Pressure on policymakers on that topic. So I think it's a combination of a little moral hazard, a little regulatory mischief as well as Just I think some PR in that market.

Speaker 7

But what it does expire June 30th, do you think people just kind of Stop paying, what do you expect to shop to the system at that point?

Speaker 2

Our resident base is different. Yes, our resident base is different. We don't I mean, this is troubling to us, sure, but it's not deeply material. We just don't have a lot of evictions. I We need to just keep having conversations with residents.

Speaker 2

There's no rent forgiveness program in EQR. We will continue to pursue you. We'll follow the rules, but we will be persistent. So I guess I'd say that we're going to advocate that these various eviction moratoriums have served their purpose and now should lapse. And we'll continue to have these direct conversations with our residents and the vast, vast majority of whom are paying and paying on time and like their service and like They're property, but you can't live for free and you need to meet your financial obligations, meet your contractual obligations and that's something we'll Be diligent in following up on.

Speaker 2

So I guess I'd say to you, I think it is going to get better, but it's probably going to get better slower in LA than anywhere else.

Speaker 7

Great. Thank you. Thank you.

Speaker 15

Moving on, we'll go to Michael Goetz

Speaker 17

Good morning. Thanks a lot for taking my questions. 1st quarter operating metrics such as same store revenue growth and same NOI growth were below the low end of the full year range for reasons already discussed in-depth. But how should we think about the pace of the acceleration of these metrics Through the year and given the tougher comparisons in the back half, when does this peak or trying to get an updated view of the shape of the year and the exit rate into

Speaker 4

Yes. So, this is Bob. So the shape has actually not Changed all that materially even with the negative impact on the Q1 from bad debt. So the Q1 was always in our mind going to Lower because you're getting this compounding effect of the rent roll, right? You're getting this compounding effect of like putting on these Great new lease changes, great renewal rates, great blended piece.

Speaker 4

And so in our mindsets, really Q2 and Q3 are going to be probably the peak Above kind of midpoint of full year guidance range performance from a same store revenue standpoint. That has to do with the comp Period, right? And just kind of the comp period trajectory from Q2 and 2021, but also just that compounding effect. And we felt like in our original guidance that you would then see more normal seasonality in the Q4 as you went into Q4 and so you'd see a little bit of a dip there. The question will be given where we sit today about how strong the leasing like the lead up to the leasing season is, If that normal seasonality returns or not, right?

Speaker 4

We've had years where we've defied that normal seasonality. The setup, Again, sitting here today, it feels like that normal seasonality might not be as pronounced as what we assumed in our initial guidance. So that feels pretty good. But I think we'll know more in July when we talk to you on the call and we'll be able to give you kind of a robust view on that.

Speaker 17

That's very helpful. And you've invested in technology initiatives and You still have higher than usual staffing vacancies. I'm just kind of wondering, when do these higher vacancies just become the norm and based on your investments, you kind of reach A new equilibrium between technology and employment level.

Speaker 3

Yes. So this is Michael. So in terms of staff Vacancies on-site, right now the portfolio is running just below 7%, which is about 100 basis points higher Than what historically we see in the Q1, it is nowhere near like what we saw in Q3 of last year where we were like 10%, 11% kind of vacant positions on-site. So a lot of that vacancy kind of has evaporated through recruiting efforts. And really all of the work that we're doing right now around the centralization and creating these operating efficiencies, like we're still in the early innings of all of this And I think I've said in my prepared remarks, even last quarter that this stuff is going to go and flow into 2023 as well, because we're redoing a lot of the on-site processes.

Speaker 3

But again, a lot of the gain that you see in payroll is not from vacant positions in the Q1. It's from the efficiencies that were created.

Speaker 17

Great. Thank you very much.

Speaker 15

And there are no further questions. I'd like to turn it back to our presenters for any additional or closing comments.

Speaker 2

Thank you all for your time on the call today. We look forward to seeing many of you in conferences and in your offices Over the next few months, stay well. Thank you.

Speaker 15

Thank you. And that does conclude today's call. We'd like to thank

Powered by Quartr
Earnings Conference Call
Equity Residential Q1 2022
00:00 / 00:00