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Essex Property Trust (NYSE:ESS)
Q1 2021 Earnings Call
Apr 28, 2021, 2:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Essex Property Trust First Quarter 2021 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.

Michael J. Schall -- President and Chief Executive Officer

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, our Chief Investment Officer, is here for Q&A. I'll start today with our first quarter results and expectations for the remainder of the year, including factors that lead us to believe that 2021 will be a year of recovery from the pandemic and then conclude with an overview of the transaction market. I am pleased to note that Essex was founded 50 years ago in 1971 by our Chairman, George Marcus, and we are very proud of all the company has accomplished. George remains keenly focused on the company's mission, strategy and business plan execution. I also want to recognize the extraordinary effort of the Essex team, which has allowed us to emerge from the pandemic in a position of strength and ready to seek opportunity that often comes from associated uncertainty. The Board and senior leadership team greatly appreciate this collaborative effort. Finally, the company's commitment to the balance sheet strength and a growing dividend was reaffirmed with our recent announcement of our 27th consecutive annual dividend increase. Turning to our first quarter results. Severe lockdowns in California and Washington remained a headwind in the quarter after intensifying last November amid a surge in COVID cases and hospitalizations that has only recently abated. Our very strong results in the first quarter of 2020 and a plethora of pandemic-related regulations and associated job loss were significant impediments to the company's performance this past year, as reflected in this quarter's results, with same-property revenues and core FFO down 8.1% and 11.8%, respectively, compared to a year ago.

On a sequential basis, same-property revenues improved by 10 basis points, driven by growth in several suburban areas and particularly in San Diego, Orange and Ventura counties of Southern California. As noted in our earnings release, we reaffirmed our full year 2021 guidance ranges, and we continue to expect improvements in same-property revenue growth, driven by job growth and easier year-over-year comparisons. Apartment demand continues to be strongest in properties farthest from the urban centers and weakest in the cities, both being a function of new apartment supply and pandemic-related job losses. On a trailing three-month basis as of March 2021, year-over-year job losses were 9.2% and 5.4%, respectively, for the Essex markets and the nation, marking significant progress compared to the 14% decline we saw in the Essex market shortly after the onset of the pandemic and also suggesting that our markets remain early in the recovery process. Fortunately, the recovery of jobs appears to be accelerating as reflected in preliminary job losses for the month of March 2021, which were down 7.9% for the Essex markets and 4.4% for the nation. On a sequential basis, California and Washington outpaced the nation in March, gaining nearly 150,000 jobs, representing over 16% of the U.S. job growth with less than 13% of the employment base. As we suggested several quarters ago, we expect rents to recover on the West Coast as we recapture pandemic-related job losses that were directly impacted by shelter-in-place orders, including hospitality and service sectors, entertainment and filming and video production and tech jobs that were displaced to remote locations. Hospitality and service jobs were disproportionately concentrated in the urban areas and wealthy suburbs. For the nation, jobs in hospitality and other services have recovered about 2/3 of their post COVID job losses. By comparison, to date, Essex metros have recovered less than 1/3 of these losses.

Given the widespread recent reopening of California cities, these service sectors are again growing and their potential upside represents a promising differentiator for Essex markets over the next several quarters. Film and video production was disrupted, once again by the COVID shutdowns over the winter months, followed more recently by a surge in film permit applications. Overall, production activity remains below normal for this time of year. However, data released last week from FilmLA highlighted a 45% month-over-month increase in film permit applications for March, as the industry benefited from the recent relaxation of stay at home measures in Los Angeles County. We expect the rebound in production to continue this year due to pent-up demand for content that has been disrupted due to COVID-19. This recovery should provide a positive tailwind for the industry and for rental demand in the LA market. We are also pleased that many of the top tech companies have announced return to office plans supporting our belief that the hybrid model for offices will prevail with most employees spending a significant amount of time in the office for team building, collaboration, career advancement and related necessities. The largest tech employers in our markets had significantly reduced their hiring plans early in the pandemic, while also allowing many of their employees to work from home. With the cities largely shut down, many tech workers moved to suburban or rural locations or back home with their parents. This trend began to reverse late last year, and we expect to see further momentum in the coming quarters as more tech employers reopen their offices. As before, we track the announcements of the largest tech companies, and we have provided a time line of planned office reopenings based on public disclosures on Slide S-17.1 of our supplemental. We also provide a graph indicating the strong recovery in job postings for the top 10 tech companies with open positions in the Essex markets now above pre-COVID levels.

We also track the job locations for open positions, noting that about 57% of their U.S. job postings was California or Washington as the office location. As of last week, California and Washington have dispensed at least the first dose of the COVID-19 vaccine to approximately 47% and 45% of their adult populations, respectively. Overall, accelerating vaccine deployment and pent-up demand for services gives us confidence that we are now on a solid path to recovery. California's counties have begun to remove restrictions on commerce. And Governor Newsom recently announced that California is expected to effectively reopen on June 15, including key indoor and outdoor activities such as conventions and sporting events. These plans are subject to several protective measures tied to continued low hospitalization rates and sufficient vaccine supplies. On the supply outlook, total housing permits, both single and multifamily, in our West Coast markets have declined 9.2% on a trailing 12-month basis compared to the national average increase of 6.4%. The national increase in permits is being driven by a 13.9% increase in single-family housing permits, mostly in markets with low barriers to entry and rising home prices. In California, the median price of a single-family home increased 12.4% year-over-year as of February. Normally, one would assume that higher home values would lead to increased production. However, single-family permits in the Essex markets are down 7.7%, which we attribute to a challenging regulatory environment and limited land availability, ultimately leading to fewer deliveries in late '22 and 2023. With large increases in for-sale housing prices, down payments have increased and the transition from a renter to homeownership has become more challenging. At the same time, the combination of lower rents from the pandemic and higher average incomes in the Essex markets has improved apartment rental affordability.

We have seen these forces in previous recoveries, and they often result in periods of higher-than-average rent growth. Turning to the transaction market. We successfully sold three apartment communities in the first quarter for $275 million at values that were similar to the pre-COVID period when our consensus NAV was almost $300 per share. As a result, we use property sales proceeds to fund preferred equity investments and repurchase common stock, both accretive to per share core FFO and offsetting a portion of COVID-related NOI declines. The strong rebound in REIT valuations over the past six months makes stock buybacks less attractive today, and we are now looking for undervalued or mismanaged property in our core markets to grow externally. There were relatively few property sales during the pandemic, and most were completed by highly motivated buyers using 1031 exchange proceeds and other sources of attractively priced capital. Several of our suburban markets have rent levels that have increased on a year-over-year basis, and recent transactions have priced in the high 3% cap rate range. In the hard hit cities, buyers appear to be looking beyond the COVID impacts with apartments selling near a 4% cap rate using pre-COVID rents and NOI, roughly equivalent to a cap rate in the low 3% range based on current rents. Strong apartment values have led to a greater level of redemptions in our preferred equity portfolio, the impact of which Barb will discuss in a moment. As conditions normalize, we are starting to see more properties being listed for sale. The unprecedented changes and uncertainty experienced during the pandemic will likely lead to a robust apartment transaction market as property owners adjust their strategies going forward.

I will now turn the call over to our COO, Angela Kleiman.

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Thanks, Mike. First, a special recognition to the Essex operating team for their continued focus on delivering solid results under these extraordinary conditions. Thank you for your efforts. As for my comments, I will focus the discussion on our first quarter results and current market dynamics. In general, our markets continue to improve as the economy gradually reopens with the vaccine rollouts, easing of COVID restrictions and the recent announcements for a phased or partial office reopening by the major employers, which has contributed to job growth. Our goal amid the pandemic was to focus on maintaining occupancy and managing scheduled rent, which will position us favorably for revenue growth in the future. Accordingly, we adjusted our concession strategy to match the improvements in demand, which has enabled our same-property revenues to perform slightly better than our expectations. We have been successful with this strategy. And as a result, we maintained occupancy with scheduled rents decline, representing only 3.2% of the 8.1% total revenue decline for the quarter. You may recall the underlying fundamentals in the first quarter of last year consisted of a strong economic backdrop prior to the COVID pandemic. In fact, our first quarter year-over-year same-property revenue growth back then was 3.2%, with revenue levels at historical highs throughout the entire portfolio. The strength of first quarter last year created a more difficult year-over-year comparable, which is also the reason why our new lease rates declined by 9.7% in the first quarter, as shown on the S-16, compared to the fourth quarter where the new lease rate declined by 8.9%. Consistent with the discussion on our last earnings call, the year-over-year decline in our major markets was primarily attributed to a combination of job losses from the pandemic, particularly impacting urban CBDs, which also had a greater concentration of supply deliveries.

Here are a few key highlights of the first quarter year-over-year performance by markets. In Seattle, the 7% revenue decline was primarily driven by Seattle CBD, down 15.7%, whereas the remaining submarkets averaged a 5.2% decline. In Northern California, the 10.9% revenue decline was led by CBD, San Francisco and Oakland and San Mateo, averaging a 15.9% decline, contrasted with a 5% decline in Contra Costa County. In Southern California, the 5.8% revenue decline continues to be primarily driven by L.A. CBD and West L.A., which were down by an average of 13%, while our suburban Southern California submarkets of Ventura, Orange County and San Diego averaged a 2.1% decline. As you can see, our suburban portfolio continues to significantly outperform the urban markets. On the other hand, there are signs of improvement in our tech-centric urban markets. For example, first quarter sequential financial occupancies in San Francisco and Seattle CBD increased by 2.7% and 4.2%, respectively. In addition, the sequential quarterly turnover rates declined at an average of 5.4% in these markets. We continue to anticipate that the urban CBD markets, particularly in downtown Seattle, Oakland and L.A., will remain impacted by greater concentration of supply deliveries, resulting in elevated level of concessions, which will moderate the recovery. Although we typically do not place significant focus on sequential performance, because of the seasonality embedded in our business under normal market conditions, as we emerge from the pandemic, we view the sequential cost trend as a better indicator of our recovery progress. From this perspective, we have delivered two consecutive quarters of modest total same-property revenue growth, supported by comparable periods of job growth in our markets, which began in the fourth quarter of last year and has continued through the first quarter of this year. More notable is the 110 basis points in sequential improvement of our average net effective market rent per unit, with Southern California continue to lead our portfolio growth.

On average, new lease concessions improved from low over two weeks in the fourth quarter to about 1.5 weeks in the first quarter. While the magnitude may vary, this trend is in line with our forecast, where we had expected that market rents in our portfolio, on average, would trough between the fourth quarter and the first quarter. Lastly, although office rental market has softened, major tech employers are continuing to expand in our markets. Google recently procured the rights to build an additional 1.3 million square feet of space in Mountain View and Amazon in Bellevue began construction on a brand-new office tower as well as signing new lease and a development for an additional 600,000 square feet. With our economy approaching 50% reopening, we remain mindful of the market and legislative uncertainties as we continue on the path to recovery. In conclusion, our portfolio is stable with current same-store portfolio occupancy at 96.7%. Our availability 30-day out is at 4.4%.

Thank you, and I will now turn the call over to Barb Pak.

Barb M. Pak -- Executive Vice President and Chief Financial Officer

Thanks, Angela. I'll start with a few comments on our first quarter results, followed by an update on our recent capital markets activities and the balance sheet. I'm pleased to report core FFO for the first quarter exceeded the midpoint of our guidance range by $0.04 per share, of which $0.02 is from consolidated operations and the other $0.02 relate to the joint venture portfolio and lower interest expense. Of the $0.02 beat on operations, $0.01 relates to higher same-property revenues and the other $0.01 is from lower operating expenses, which is timing related. For the second quarter, we expect core FFO to be $2.92 at the midpoint, a $0.15 per share decline sequentially. Half of the decline is attributable to the loss of income on the early redemption of $110 million preferred equity investment, which occurred at the end of March and the $276 million of dispositions that closed at the end of February. There is a temporary mismatch on the timing of the use of a portion of the proceeds. And as such, this is causing a $0.07 decline sequentially. In addition, we expect commercial income to be $0.02 lower as we had onetime benefits related to better delinquency collections in the first quarter that we do not expect to repeat in the second quarter. The remaining decline relates to lower same-property NOI due to higher expected operating expenses and delinquency and higher G&A. For the full year, we are reaffirming our guidance ranges for same-property revenue, expense and NOI growth and core FFO per share. Turning to investments.

During the quarter, we received $120 million for the redemption of two preferred equity investments. One of the investments totaling $110 million was redeemed early as the developer was able to sell the property for a price that exceeded our pre-COVID valuation. We estimate the cap rate at 3.6% on pre-COVID rents and 3.25% on current net effective rents. As a result of the early redemption, the company received $3.5 million in prepayment penalties or $0.05 per share, which compensates us for the lost income on the portion of the investment that was made in the fourth quarter of 2020. However, for FFO purposes, we book this income as a noncore item. Given the strong demand to invest in apartments and cheap financing alternatives currently available, we may experience additional early redemptions of preferred equity investments in 2021. Moving to the balance sheet. During the quarter, we issued $450 million of unsecured bonds with a seven-year term at an effective yield of 1.8%. The proceeds were used to refinance most of our unsecured term loans that matured over the next two years, allowing us to extend our maturity profile with no impact to interest expense.

We now have less than $200 million of debt maturing between now and the end of 2022. Since the beginning of 2020, we have refinanced nearly 30% of our debt, taking advantage of the low interest rate environment and reducing our weighted average interest rate by 60 basis points to 3.2%. This is leading to a significant reduction in interest expense in 2021 and can be seen in the first quarter results via the $4 million reduction to interest expense compared to the prior year. During the quarter, we raised our common dividend by 60 basis points to $8.36 per share on an annual basis, our 27th consecutive dividend increase. This is a sign of our strong balance sheet and cash flow coverage despite the effects of the pandemic. With approximately $1.4 billion of liquidity and minimum near-term funding needs, our balance sheet remains strong, and we will remain disciplined as we look for ways to invest accretively to create shareholder value.

With that, I'll turn the call back to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question has come from the line of Nick Joseph with Citi. Please proceed with your question.

Nick Joseph -- Citi -- Analyst

Thanks. Maybe just starting on guidance. We saw two of your peers increase guidance today. And I guess everyone sets guidance differently initially. So some could be more conservative than others. But just curious, as you thought about revisiting guidance this quarter, in light of the 1Q beat, how things are trending the rest of the year versus your original expectations? Or are you trying to be a little more conservative and just wait for more operating results to come through?

Barb M. Pak -- Executive Vice President and Chief Financial Officer

Nick, it's Barb. Yes, we did have a good first quarter, and we did see some favorable outcome on our same-store growth. However, it is early in the year, and there is some uncertainty related to delinquency in eviction moratorium. So that play a factor into it. And then on the preferred equity redemptions, we do have some uncertainty there. We're likely going to exceed the high end of our guidance range on the redemption side. So we're just working through some of the timing on that, and we'll revisit it in the second quarter.

Nick Joseph -- Citi -- Analyst

Thanks. And how are you seeing the opportunities to redeploy those proceeds into either preferred equity or mezzanine investments?

Adam W. Berry -- Executive Vice President and Chief Investment Officer

Hi, Nick, this is Adam. We have a number of deals in our pref pipeline right now that we're working through. The inherent challenge with pref deals is the timing and the lumpiness of when that money comes back and when it goes out. So we are working through that pipeline. We're also looking -- as more deals hit the market on the investment side, on the acquisition side, we're looking at all those as well. So working through it.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

Thank you. Our next question has come from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Great. Thanks, guys. Just first off on renewals, wanted to touch on that. We saw some softness greater than what we saw earlier in the year. And just wondering when you think with concessions coming down, occupancy holding stable and as we start to lap easier comps, when do you think we can start to see renewal lease rates begin to improve?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Yes. That's a good question there. On the renewals, I think with -- to your point, with a year-over-year comp, that will improve as we lap the pandemic. What we actually are seeing is sequential improvement on our market rents. And so that is starting. And so as concessions continue to abate, and we have built a solid foundation with a strong level of occupancy, I do expect our performance to continue to trend better. But as Barb noted earlier, there are certain factors, right? There's delinquency that's unknown. There's legislative impact that's still uncertain there. And so we wanted to make sure that we factor all those items.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

So your comments, Angela, just as a quick follow-up on the occupancy levels. I mean, are you looking to push occupancy higher before starting to push harder on lease rates? Or is it at a level where maybe as we get into the peak leasing season, you'd feel more comfortable beginning to push a little bit harder on the lease rate front?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

You know, at this point -- at this occupancy level, we're very comfortable holding it. And to us, we see that as a sign of strength to allow us to start pushing rents. But once again, I do want to make sure that we're cautious on our concessions land because that is a function of concentration of supply as well. So there are a couple of different factors. But to your point, yes, we are -- with the occupancy level where they are, we do feel comfortable to start pushing rents as we head into peak leasing season.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Okay. Got it. And then could you just provide an update on what percent of leases are receiving a concession today and sort of what the average concession is? And then maybe compare that to what it's been over the last several months?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Sure, sure. I can give you quarter-by-quarter trends. And if you want to go into more granularly than that, we could talk about that. But we talked about in third quarter of last year, we had -- our concessions was somewhere around 3.5 weeks that represented about 75% of our portfolio. In the fourth quarter, that improved to about 60% of the portfolio at a little over two weeks. In the first quarter, now a further improvement, slightly below 50% of our portfolio at a little over one -- about 1.5 weeks. So that's where things are trending.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Do you have any update for April by chance?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

I do. April is looking a little bit better, although keep in mind, this is the first 28 days. But April is now down to about a one week and at about 45% of our portfolio on average. So things are moving in the right direction.

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Thank you.

Operator

Thank you. Our next question has come from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Alexander Goldfarb -- Piper Sandler -- Analyst

Hey, hey. Good morning [Indecipherable]. So first question is on the accelerated timeline of the California reopening of June 15. Just curious. If you spoke about it in the early part of the call, my apologies. I was still on another multifamily call. Are you seeing an acceleration down in Southern Cal with all the service jobs reopening? Or is the tech hiring, growth in tech still outpacing the demand for apartments versus the recovery of service-based jobs that are trying to quickly reopen as we head to that June 15 timelines?

Michael J. Schall -- President and Chief Executive Officer

Hey, Alex, it's Mike. That's a good question. We look at -- we all look at it a little bit differently. And one of the ways that we're looking at this now is take our portfolio and divide it into three categories: the large cities; let's say, the midsize cities; and suburban -- most suburban markets. And clearly, the most suburban markets have outperformed the cities and -- both on actually a year-over-year basis and on a sequential basis. For example, our best suburban market is Torrance, which sequentially is up 4.3%. And when you look into the midsized cities, we see improvement. I'd say, it's pretty clear that the improvement in our markets is starting in suburbia and moving toward the cities and unfortunately hasn't really benefited the cities to any great extent at this point in time. So best-performing clearly is all the suburban markets. And it doesn't matter whether they're suburban Seattle or suburban Los Angeles. And then the midsized cities are sort of second best in terms of recovery trajectory. And then the large cities are lagging pretty substantially. And again, large city hampered by supply, which is greater in the cities, along with these job levers, which improved pretty significantly for the -- the three-month trailing average job growth was minus 9.2%. And March was minus 7.9%. So there was actually a lot of improvement in the quarter, but we need that to continue. We feel like California got a bit of a late start coming out of in this reopening process. And so maybe from that perspective, we're a step behind where we thought we were, but we're making up ground and things are looking better. Hope that makes sense.

Alexander Goldfarb -- Piper Sandler -- Analyst

I guess, Mike, what you're saying is -- yes, but what you're saying, if I heard you correctly, it doesn't matter what the industry is in the market. The bigger driver of the apartment performance is simply where the property is located. Suburban then midsized cities, and then the last is the urban area. So is that fair?

Michael J. Schall -- President and Chief Executive Officer

Yes, that's fair. And again, the urban areas are where you lost these service jobs, which are concentrated, of course, in the cities, and they have more supply. So it's really that confluence of both of those factors that is causing this. Those -- as you move from the large cities into the midsized cities and into suburban markets, suburban markets have very little supply. So we don't have someone competing with you in a new property next door offering two months free plus whatever else they might throw in. So that dynamic occurs mostly in the cities, and that is what is preventing our pricing power in the cities from improving substantially.

Alexander Goldfarb -- Piper Sandler -- Analyst

Okay. And then the second question is, I think it's you guys and UDR and Mid-America are all part of this SmartRent. You obviously had the news last week in The Journal. What is the impact to you guys? Obviously, great to have your investment -- to hit big on an investment. But beyond making money, which is awesome, what is the practical impact as far as operations or the way you guys interact with SmartRent, etc.?

Michael J. Schall -- President and Chief Executive Officer

Yes. Yes. Thanks for that question. I'd say SmartRent was one of the first investments that was made by this consortium of companies that were started by the three REITs that are equal partners plus other owners of apartments aggregating -- I think we started with one million -- owners of one million units of apartments. And now I think it's -- Fund II is up to like two million units of apartments. So some pretty substantial ownership. And again, the original concept was to create technology improvements in the industry, operating improvements using technology and rolling them out through the portfolio of apartments that the ownership group together controlled. So that's worked out great. And it's interesting because SmartRent is one of the first investments that we made. And as you noted, The Wall Street Journal announced that SmartRent has entered into an agreement with a SPAC to merge for $2.2 billion, less about $500 million in working capital, which would value the company on a net basis at about $1.65 billion we believe. But there are many steps you noted to complete that process. SPACs have been pretty volatile in the recent past. And so there's no assurance that this is going to -- this will go through. But it seems like the sponsorship of the SPAC is pretty well aligned and very motivated for this to happen. So I feel, ultimately, pretty good about that. And so there will be some financial benefits. We were -- RET Ventures was an early investor -- seed round investor and then invested all the way through the B and C rounds of SmartRent, so it's a substantial owner. I don't want to get into all the details, but there will be pretty significant potential gain there. But I guess, maybe more fundamentally in terms of the impact, it goes back to the vision of RET Ventures in the beginning, which is to try to bring technologies -- better technology into these companies to improve efficiency and the way we interact with our customer. And SmartRent is an example of that, but there are many other investments. I think there are 12 additional investments in addition to SmartRent that were made by Fund I and we're on Fund II currently, and we're utilizing a number of those. So I'll give you an example of one, which is a -- it's a -- the customer relationship management function. And we're currently piloting, for example, and we've done several hundred leases in a product that essentially allows you to do the entire lease process from your smartphone and/or from a computer. So we are pretty far into the testing of that. We're also continuing our rollout of SmartRent, which we think is a long-term benefit to both the company and the industry. And so from a technology perspective, we're very excited about what's happening recently.

Alexander Goldfarb -- Piper Sandler -- Analyst

[Indecipherable] Thanks, Mike.

Michael J. Schall -- President and Chief Executive Officer

Thank you, Alex.

Operator

Thank you. Our next question has come from the line of Jeff Spector with Bank of America. Please proceed with your question.

Jeff Spector -- Bank of America -- Analyst

Great. Thank you. Just listening to the comments on the call, and again, the sequential improvements you're seeing, Mike, it feels like from at least where I'm sitting compared to coming out of the tech crash, early 2000s, that there's a pretty good backdrop here. And I don't have the numbers in front of me, but I do remember, I don't know how long it took after the tech crash, but at a pretty nice boom. What are your thoughts? And if you disagree, I guess, what's the big negative regulatory issues today? I mean, what's the negative?

Michael J. Schall -- President and Chief Executive Officer

Yes. Let me hold that negative for a second here. And each of these crash and recovery periods is a little bit different. The thing that was unique about the Internet boom and then the bust period that followed was in Northern California we had roughly 40% growth in market rents before the bust. So you had this huge surge of market rents because these small tech companies, many of which didn't even have a product identified, let alone revenue, were bringing people to the West Coast. And there were no -- we couldn't produce apartments fast enough to keep up with that demand, and we had spiked 40%. Well, we gave all of that back plus then some in the ensuing few years after that period ended in the bust period. And I remember that period very well because we started selling Northern California and buying Southern California, which Southern California had no discernible benefit from that Internet boom and so assets appeared to be really cheap in Southern California, really expensive in Northern California. So -- and then it took a long time for markets to recover from that period. I think that set back from the -- from -- essentially the lack of real businesses that went public was a dramatic setback. I think the IPO markets -- it's 20 years later, and I think the IPO markets are only started to recover a year or two ago from all of that. So it's taken a long time. Fast forward to today, it appears that this pandemic -- I'd say the response to it has been much different. The governmental response in terms of pumping money into -- and liquidity into the markets and making sure that a pandemic doesn't morph into a credit or financial crisis. And so I give the governmental entities a lot of credit for that. So it feels like we're through the worst of this and we're coming out the other side, and there's a lot of money chasing deals and asset values are increasing. And so I'd say all of that's a good thing. I'd say maybe if there is a negative, it goes back to what do you do now with the new knowledge and with what you have? Basically you're worse markets historically in terms of growth rates over the last 20 years and now you're best markets. Does that continue on? Or what does it mean for your portfolio? And we all spend a lot of time on that. And Adam is in the middle of transacting around it. So -- but for us, I think that means that we sell some of our lesser properties, some of the properties that, for whatever reason, we think will underperform. Notably, last quarter, we sold Hidden Valley, which is a property that has 25% very low BMR units, which makes it very difficult to grow. The property is great. It's in a great location, but if you have 25% very low BMR units, the growth rate just can't keep up. So we sell that property, and then we will look for an ability to repurpose those funds into something that has a good long-term growth rate, is in a better area. So that process is ongoing. And as noted -- as Barb noted, there's a little bit of FFO dilution in Q2 as a result of those transactions occurring before we reinvest those proceeds. There's a little bit of drag. And so I'd say that is perhaps a downside, I think. However, the long-term benefits will be very apparent.

Jeff Spector -- Bank of America -- Analyst

Okay. Thank you. And then my one follow-up -- and I'm sorry if I missed this. I know you talked a lot about the increase in jobs and hybrid, how that should benefit the portfolio. Did you specifically discuss tech workers and the return to your portfolio? Are you seeing tech employees return as renters of the portfolio or benefits from these IPOs? Like where is the demand coming from?

Michael J. Schall -- President and Chief Executive Officer

Yes, Jeff. I think we're starting to see it, but if you -- we have S-17.1 that talks about the reopening. Most of these reopenings are still months or a quarter or two away. So yes, I don't think that, that's where we're seeing the benefit. I think it's been recovery as noted in, let's say, the Motion Picture industry is now opening up and there are some service jobs coming back. And so jobs have grown. We're still off a big number, but jobs have grown. I think that the -- in terms of specifically coming back to the office, I think that's been a slow process at this point in time. I don't think it's any -- to any significant degree, it's actually occurred. I think it's ahead of us.

Jeff Spector -- Bank of America -- Analyst

Thank you.

Operator

Thank you. Our next question has come from the line of John Pawlowski with Green Street Advisors. Please proceed with your question.

John Pawlowski -- Green Street Advisors -- Analyst

[Indecipherable] Maybe, Adam, a follow-up on the preferred equity or mezz business. Have the increases in construction costs reached a point where it start -- you think it's going to start dampen -- to dampen deal volume over the coming years? And then a follow-up. Are costs getting to a point where any developers in your current portfolio are having issues covering that service?

Adam W. Berry -- Executive Vice President and Chief Investment Officer

Hey, John, yes. So to answer your question, we have definitely seen, as we're working through our pref pipeline, most of the developments have been in the more suburban areas. So they've been lower density, more garden-style product. And so when you look at the increases specifically to lumber, but also to some of the other materials, it is absolutely having an effect on how these deals underwrite and whether or not they'll get built. So we're seeing it, and this is the beginning of it. And developers are trying to work their way through it, and we're working with them. But we definitely see this as an obvious headwind for new supply. And then, John, what was the second part of your question?

John Pawlowski -- Green Street Advisors -- Analyst

Yes. Just in terms of ongoing projects, any concerns about debt service coverage for in-process deals?

Adam W. Berry -- Executive Vice President and Chief Investment Officer

No. We don't have any of those concerns. Nothing that we see forthcoming.

John Pawlowski -- Green Street Advisors -- Analyst

Okay. Great. And then just final one for me. Angela, any early reads on how retention is faring on leases signed a year ago with generous concessions? Or are you expecting some occupancy slippage or they have to follow up with another round of concessions to keep people signed a year ago in their homes?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Yes. That's a good question. You know, as we go through our renewals and releases and heading into the peak leasing season, what we're seeing is a more normalized behavior relative to pre-COVID. So when I look at numbers like our turns and applications and so that does not lead us to think that concessions itself will be significantly challenging. But keep in mind, concessions is really more of a function of the competitive supply and what the economy is doing. So it's not so much the lease duration itself. And so right now, our markets are only at approximately 50% of the open compared to the rest of the country that is mostly reopened. And so that's more of a factor. And of course, in certain CBD locations like the L.A. and Seattle, where there are still going to be continued supply pressure, we're going to see more because that will be in a more concessionary environment regardless of the lease term.

John Pawlowski -- Green Street Advisors -- Analyst

Thank you.

Operator

Thank you. Our next question has come from the line of John Kim with BMO Capital Markets. Please proceed with your question.

John Kim -- BMO Capital Markets -- Analyst

Good morning. Just a follow-up on the return to work environment with tech companies. Office utilization is the lowest or among the lowest in some of your major markets, including San Francisco, San Jose and L.A. Is this something you track as far as the Castle weekly data? And is that something that you see having a high correlation to applications or interest level in your properties?

Michael J. Schall -- President and Chief Executive Officer

Hi, John, it's Mike. It's -- we don't really know how to track it exactly. So we do try to triangulate across the company with -- we track jobs and we track where our residents are coming from. And certainly, we track migration patterns. But trying to do this at sort of very granular level, I think, is pretty difficult. So what we have tried to do is say, hey, let's keep track of the big tech companies and when they plan to come back to the office. And then we should be able to see the traffic increase as they start coming back in greater volumes. At this point in time, as noted a minute ago, we just haven't seen a whole -- we haven't seen a lot of it. We don't think that's a major part of this recovery at this point in time.

John Kim -- BMO Capital Markets -- Analyst

What about students returning back to the classroom? Are you seeing it as a tailwind? And can you remind us what your typical student profile is pre pandemic versus today?

Michael J. Schall -- President and Chief Executive Officer

That's another good question. I don't have that granular detail. We track supply demand mostly by jobs and obviously supply. And we know that there's some demographic tailwinds. And obviously, we know that the students are out there and -- but they're a relatively small part of our occupancy. So they're not big enough to be a driving factor in the broader scheme. The big picture is jobs, I would say, demographics, i.e., people who living longer and therefore consuming homes longer than they have jobs and the overall supply numbers. So we don't get down to that granular level.

John Kim -- BMO Capital Markets -- Analyst

Great. Thank you.

Michael J. Schall -- President and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question has come from the line of Rich Hill with Morgan Stanley. Please proceed with your question.

Rich Hill -- Morgan Stanley -- Analyst

Hey, hey, guys. I wanted to come back to the guide. And maybe just breaking a part into its components a little bit more. 1Q was a pretty strong quarter for you. I think you beat FFO -- your FFO guide by about $0.04. Yet you maintained the guide for a full year, which implies somewhat of a cut. And the reason I bring that up is our channel check suggests 2Q is off to a pretty strong start and certainly stronger than 1Q, at least on effective rent growth. I don't know where renewals are, but effective rent growth of new leases looks pretty strong. So I'm trying to figure out, is it really driven by one-timers that you included in your bridge, that's making you a little bit more conservative? Or is there something in the business that we should be thinking about? Because as I think about in the economy, our economists certainly increased their projections for GDP growth. I recognize you have and you typically don't in 1Q. But I'm hoping you can square that away. I know it's a mouthful, but I'm trying to understand 1Q, what's happening in 2Q fundamentals versus one timers and what that means for the full year?

Barb M. Pak -- Executive Vice President and Chief Financial Officer

Hi, Rich, this is Barb. So yes, 1Q was strong. And like we mentioned, we are tracking favorable on same-store through the first quarter. And I think what Angela alluded to in her opening remarks was that we just hit 50% reopening at this point within California. And so while we feel good about where we're at, we've had a lot of stops and starts within California over the past year, which leads us to just take a little bit more conservative approach, and we'll revisit in the second quarter. We do feel good about where things are, where fundamentals are. The wildcard is really delinquency, which we've talked about in the past. And you can see in our numbers April did increase from where we were in Q1. And so those are the things that were -- that weighed on us when we looked at our guidance. But it was -- we did trend favorably in the first quarter from a same-property perspective.

Michael J. Schall -- President and Chief Executive Officer

Barb, maybe I can add just one quick thing based on what you said. Because in Q1, we think that we benefited from stimulus payments, specifically because we saw delinquency improve kind of in the light of January, February time frame. And so now we get into SB 91, which is the federal stimulus money, and we haven't seen very much of that at all. That remains a big question mark in terms of what its impact is going to be going forward. And we have no way to -- no historical precedent or even way to anticipate that. So I think that we've always been a little bit conservative and wait to see what happens and let the events occur and then report them as opposed to trying to build them into our guidance. And so I think that's -- it's kind of a philosophical bias that we have. And with respect to delinquencies, specifically, I think it's just hard to predict what's going to happen, not that we think anything bad is going to happen. We'd say SB 91 ultimately can only be good news, but we just don't have a way to time it, to get the timing, nor the magnitude given that we've never seen it before.

Rich Hill -- Morgan Stanley -- Analyst

Okay. That's helpful. And the reason I ask because I think a lot of us, both on sell-side investors themselves, are just trying to understand if this is inherently you being conservative, which, as you noted, is in your DNA versus something that's maybe different on the West Coast. But it sounds like maybe just a little bit of a conservative approach, recognizing that the operating metrics are trending in the right direction.

Michael J. Schall -- President and Chief Executive Officer

Right. Fairly put, yes.

Rich Hill -- Morgan Stanley -- Analyst

Okay. Thank you, guys. I appreciate it.

Michael J. Schall -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question has come from the line of Neil Malkin with Capital One Securities. Please proceed with your question.

Neil Malkin -- Capital One Securities -- Analyst

Hi, everyone. Thank you for taking my question. Mike, I think this one's for you. The job growth assumptions that you put in your supplement, is that from like the government? Or is that an internal projection?

Michael J. Schall -- President and Chief Executive Officer

Are you referring to Page S-17, I'm guessing?

Neil Malkin -- Capital One Securities -- Analyst

Yes, I think it's $396,000 for this year?

Michael J. Schall -- President and Chief Executive Officer

Yes, $396,000. Yes. That's from S-17. No, we do our own fundamental research on our markets. Yes, so definitely ours.

Neil Malkin -- Capital One Securities -- Analyst

Okay. Great. Because the reason I'm asking in that, I'm just in general -- I know it's like a million-dollar question, but trying to understand what the path back -- the recovery path or the back to pre COVID looks like. Looking at your markets, I think you're still down 1.2 million jobs from pre COVID. And so using 400,000, that's basically like three years to get back to, I guess, pre COVID employment. Yes, I mean, is that -- does that math not really work because of when people come back to their tech jobs? Or how do you guys kind of think about that? Or I don't know maybe underwriting that from an operating standpoint, particularly in your kind of urban areas or your bigger kind of coastal markets, how you see the ability to push rents or the absolute level of rents over the next, call it, 24 months?

Michael J. Schall -- President and Chief Executive Officer

Yes. Connecting those dots is definitely observant. Good question. I would say that what happens is people make different choices when rents increase or decrease. And this goes back to kind of our theories as it relates to rent to income and other things. So when rents decline in the cities as much as they have, people come and fill those units. Now where does it exactly come from? I would suspect that a lot of them come from areas that are generally considered less good. I think now people can move into the cities and because rents are pretty dramatically different than -- lower than they were before. So they were priced out previously and now that they can move in. And so that presumes that if you're in the markets, this is our theory -- portfolio theory for a long time. If you're in the markets that have good schools, safety, quality of life, etc., those will be the beneficiaries because people will move there as long as they can afford it. And then people that can't afford it will be pushed out to the very periphery of these markets. So -- and I know that this seems contra -- everything about what we're saying about suburbia doing so well. But there are select really good suburban markets, the beach cities, for example, in Southern California or even Northern California that are doing really well that are still pretty high-quality areas. They're just farther from the market. So we're not necessarily talking about them. We're talking about cities that are less quality cities. And people moving out of those cities in order to move into a good location because you would have to say, well, how can you be 97% occupied almost with all those jobs lost? And the answer is people move based on a better value -- rental value or a better life situation in the better quality assets. So -- and I think that's the key is we are not almost 97% occupied. And given that there's not that many vacant units within our portfolio and as people come back, it's not going to take hundreds of thousands of jobs in order to get to the point where we're eliminating concessions and we have more pricing power, because our base is strong. So that's, in the practical world, how it works. So it's not just jobs. It's the consumer choice, given changes in rev levels. Makes sense?

Neil Malkin -- Capital One Securities -- Analyst

Okay. Yes, yes. I see where you're going there. Other one for me is you guys have done a really good job in most of the REITs, have done a good job minimizing delinquency, kind of taking it to the chin early in terms of concessions and letting people leave or paying people to leave, etc. But you're also impacted by your surrounding properties and owners, etc. So there's obviously a big, I guess, you call it, storm coming in terms of the amount of people who have six-plus months of back rent that "has to be paid back eventually." I have my doubts about that in California, but how do you guys see that playing out when that check needs to be written or the sort of the protection abate? And again, not really a big deal in your specific assets, but a lot of people, I'm sure, operators that you compete against have maybe a lot of that. I guess, do you guys think that's going to have a big impact on vacancy? Could that bring more people to the market for selling their assets? Any commentary there would be great.

Michael J. Schall -- President and Chief Executive Officer

Yes. That's an extraordinarily good question. And it's one that causes us a fair amount of sleeplessness at night, and we don't have the answer to it. We know that the existing eviction moratoriums lapsed on June 30. And we also know that there is a pretty significant number of renters that over that -- the last year, it's more than six months, over the last year or by the time we get to June, it will be almost a year, that will not have paid us even the 25% rent that's required to maintain their eviction protection under SB 91. So we know that this is going to be a problem. I would also say that there's no way that the courts can keep up with foreclosure processing. So I don't know exactly how that's going to work itself out either. So unfortunately, I'm going to have to say that we're going to work through it. We're going to -- we are obviously a public company. Obviously, we have sort of an obligation to treat our residents thoughtfully and carefully. And so we will do our best to work through that. But I can't tell you exactly what we're going to run into as we get into that period of time. We are absolutely very concerned about it. and we'll have to take it a step at a time, I guess, what I'd say.

Neil Malkin -- Capital One Securities -- Analyst

Okay. And is that why you're maybe a little bit more cautious on your guidance just out of curiosity? Is that one of the things that -- I know you didn't talk about it, but could that be one of the things that are making you kind of in pain?

Michael J. Schall -- President and Chief Executive Officer

Yes, it is. But at the same time, the people that have -- let's say, we know that there are people that have received various forms of benefits and/or payments and haven't paid their rents. So finally, we'll be in a position to reconcile some of those situations where people are using the laws to shield themselves from paying anything. So it isn't all bad. There is a good element to it as well. And maybe people face with -- if they want to maintain their eviction protection, they're going to have to pay us the 25% of rents that have accrued from September one through June 30, to the extent they haven't already paid it. So it's not all bad. It's sort of a -- I would say it's kind of a time for reconciliation come June 30. And again, it's difficult to predict exactly what that's going to look like.

Neil Malkin -- Capital One Securities -- Analyst

I appreciate the comment.

Michael J. Schall -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question has come from the line of Dennis McGill with Zelman & Associates. Please proceed with your question.

Dennis McGill -- Zelman & Associates -- Analyst

Hi. Thanks for taking my question. You've talked a bit about some of the extremes as far as suburbs outperforming urban and some of the markets doing better than other markets geographically. Can you maybe just put some numbers behind it and maybe use the down 6% blended rent number from April? How wide are those extremes? And can you give a sense of which markets are most negative and which are most positive?

Michael J. Schall -- President and Chief Executive Officer

Yes. Dennis, it's a good question. I don't think I necessarily haven't broken out the way that you're referring to it. So let me give you some sense of what we're seeing. So let's take the most suburban parts of our market. The best on a sequential basis -- so sequential quarters is Torrance at 4.3% plus rent -- revenue growth. And Snohomish County up there in Seattle, again, there's a Boeing issue in Snohomish, which is minus 0.4%. And then year-over-year Oceanside is plus 2.7%, and San Ramon is minus 4.2%. So that kind of gives you the brackets around what's happening in those most suburban markets. In the midsized cities, the best sequential growth is in actually the city of Long Beach and the worst is in sort of North City, San Diego, Long Beach up 3.4%; North City down 0.5%. And year-over-year, Long Beach is the best at minus 2.3%. and San Jose is the worst at minus 10.5%. Again, Long Beach doesn't get a lot of supply, and it's a decent -- a very decent place to live. So I think it's benefited from that. Then in the large cities, the sequential -- on a sequential basis, the best there is West L.A. at plus 3.5%, and Seattle is the worst at minus 2.5%. And then year-over-year, the best is West L.A. again, at minus 11.9% and San Francisco at minus 20.7%. Does that give you some idea of what's going on?

Dennis McGill -- Zelman & Associates -- Analyst

Yes. I think that does. And those were revenue numbers or those were at least great numbers?

Michael J. Schall -- President and Chief Executive Officer

Those are total revenue. Same-store revenue.

Dennis McGill -- Zelman & Associates -- Analyst

Perfect. Thank you. And then a separate question, just as you look at the -- each distribution of your renters. I'm not sure if you have this in front of you if you have a way to summarize it. But if you were to look at the distribution of your residents pre COVID end segment them by age, is there any difference between that and what you're seeing on new move-ins today?

Michael J. Schall -- President and Chief Executive Officer

I don't think that we have that data. We have move-outs occurred and what categories, but we're not tracking it by age cohort.

Dennis McGill -- Zelman & Associates -- Analyst

Okay. What about -- depending on how you do track it, just the makeup of the tenant base, whether it be income or demographic circumstance, anything that would speak to, whether it's differing from what was common before COVID versus now?

Michael J. Schall -- President and Chief Executive Officer

There is some difference. I don't have any data in front of me. There are some differences in that. Again, because the cities have had such a dramatic drop in rents, a different kind of renter is moving into the cities. And there's definitely more tech workers that are -- given work from home that are occupying housing in the suburbs. But I don't have any of that demographic data. We have it. We just -- I just don't have it with me. So apologize. We can follow-up with you on if we -- if you want to on this.

Dennis McGill -- Zelman & Associates -- Analyst

Yes, we can follow-up on that one. I appreciate it. Thank you. Good luck.

Operator

Thank you. Our next question has come from the line of Brad Heffern with RBC Capital Markets. Please proceed with your question.

Brad Heffern -- RBC Capital Markets -- Analyst

Yes. Hi, everyone. Just going back to the delinquencies again. I just want to make sure I understand the April number. So you had the 2.1% in the first quarter and then the April number is 2.7%. I assume that over time, you collect more of that. So are you, I guess, more concerned about delinquency now than you were a couple of months ago because the payments that continue to come in are maybe less than the tailwind that you saw in the first quarter? And I guess how confident are you that, that was really a stimulus tailwind just because it seems like it wasn't really enough to cover a month of rents? And is that really something that -- is that going to be the first source of that capital for people when you have the tenant protections that you do in California?

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Yes. That's a good question. And it's a complicated one because there's quite a few different moving pieces, right, because this involves legislation, involves behavior and, of course, people's view about their jobs and prospects. And so -- but in terms of -- if you look at the first quarter delinquency, we actually published January and February, and that was about 2.6%. And so March came in significantly better to the point that allowed the first quarter average to be down -- that went down to 2.1%. So April pops back up to 2.7%, which is more of the normalized run rate. And that is why -- while we don't obviously have the exact reason for the sudden improvement in Q1, that is why we can pretty safely point to March, which is when the stimulus was distributed. And so it's not a perfect science, but it's pretty darn good correlation from that perspective. And where we're at is we don't think it's going to deteriorate further. But at the same time, before looking at -- people are asking us, say, Q1 sequential to Q2 sequential gross revenue is where is that headed. You have to factor into the delinquency, which is a 2.1%, just going back to the more normalized level of 2.7%. So that's one piece of it. And as far as the delinquency, Mike talked about SB 91, and we have a team that has really put forth a robust effort to work with our tenants and actively engaging with them to help them apply for this relief. And so while we are going through that and we're seeing -- we're being able to -- we're able to help our tenants and with their eligibility, the question is the timing, when will we get the reimbursement from the government? And that is -- every city has a different timeline. Every city has a different process, and every city approaches the reimbursement differently. And so for us, our view is not so much that it's a huge [Technical Issues] is when. And so you back that into, well, what does that mean for guidance? That's going to be lumpy. It's going to be variable. And therefore, we just felt that it was prudent to give it a few more months and see what numbers come in. Does that make sense?

Brad Heffern -- RBC Capital Markets -- Analyst

Appreciate the color. Yes, it does. I knew it would be complicated. And then I guess moving over to sort of the dispositions that you've had and the redemptions, it's about $400 million of capital or so there. I guess, do you have pretty good line of sight on what the deployment is going to be for that? Or I guess, more generally, what's your confidence in being able to redeploy that just given that obviously assets on the West Coast haven't become distressed or anything like that? And it seems like there are a lot of willing buyers out there. So I'm curious your confidence in being able to redeploy that accretively.

Adam W. Berry -- Executive Vice President and Chief Investment Officer

Hi, Brad, this is Adam. So a couple of things. The three dispositions that happened earlier this quarter. Those -- I actually mentioned them in last quarter's call. Those were essentially baked in Q4 of last year. And so we used most of those proceeds at the time to buy back stock as well as deploy new prefs at that point. What's changed within -- from that time until now is the redemptions. And so with that, that's $120 million that was unexpected to come back this soon. So my confidence level on redeploying that money is very high. Like I mentioned earlier, the pipeline on the prefs -- pref equity deals is pretty robust. And it does take time to work through them, but we are highly motivated to do so. And so that money will be redeployed. It's just getting there and moving as quickly as we can.

Brad Heffern -- RBC Capital Markets -- Analyst

Okay, thank you.

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Michael J. Schall -- President and Chief Executive Officer

Angela L. Kleiman -- Senior Executive Vice President and Chief Operating Officer

Barb M. Pak -- Executive Vice President and Chief Financial Officer

Adam W. Berry -- Executive Vice President and Chief Investment Officer

Nick Joseph -- Citi -- Analyst

Austin Wurschmidt -- KeyBanc Capital Markets -- Analyst

Alexander Goldfarb -- Piper Sandler -- Analyst

Jeff Spector -- Bank of America -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Rich Hill -- Morgan Stanley -- Analyst

Neil Malkin -- Capital One Securities -- Analyst

Dennis McGill -- Zelman & Associates -- Analyst

Brad Heffern -- RBC Capital Markets -- Analyst

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