Q1 2023 Essex Property Trust Inc Earnings Call
Participants
Adam W. Berry; Executive VP & CIO; Essex Property Trust, Inc.
Angela L. Kleiman; President, CEO & Director; Essex Property Trust, Inc.
Barbara M. Pak; Executive VP & CFO; Essex Property Trust, Inc.
Jessica Anderson; SVP of Operations; Essex Property Trust, Inc.
Adam Kramer; Research Associate; Morgan Stanley, Research Division
Alexander David Goldfarb; MD & Senior Research Analyst; Piper Sandler & Co., Research Division
Anthony Franklin Powell; Research Analyst; Barclays Bank PLC, Research Division
Austin Todd Wurschmidt; VP; KeyBanc Capital Markets Inc., Research Division
Bradley Barrett Heffern; Analyst; RBC Capital Markets, Research Division
Chandni Luthra; Associate; Goldman Sachs Group, Inc., Research Division
Eric Wolfe
James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division
John Joseph Pawlowski; MD of Residential and Health Care; Green Street Advisors, LLC, Research Division
John P. Kim; Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research
Joshua Dennerlein; VP; BofA Securities, Research Division
Linda Tsai; Equity Analyst; Jefferies LLC, Research Division
Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division
Nicholas Philip Yulico; Analyst; Scotiabank Global Banking and Markets, Research Division
Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division
Unidentified Analyst
Wesley Keith Golladay; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Presentation
Operator
Good day, and welcome to the Essex Property Trust First Quarter 2023 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, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you. Ms. Kleinman. You may begin.
Angela L. Kleiman
Good morning. Thank you for joining Essex's First Quarter Earnings Call. Barb Pak and Jessica Anderson will follow me with prepared remarks, and Adam Berry is here for Q&A. We are pleased to report a solid first quarter that exceeded our initial expectations and that we are raising the midpoint of our FFO per share guidance for the full year.
Barbara and Jessica will provide more details on the quarter while my comments will focus on our economic outlook, the opportunities within our platform and some perspectives on the apartment transaction market. Beginning with our outlook for the remainder of the year. We continue to anticipate modest economic growth in 2023, resulting from a more restrictive monetary policy, tempering job growth nationally. Our assumptions are detailed on Page S17 of our supplemental package.
As we all know, the West Coast is home to some of the largest companies to announce layoffs over the past 6 months. Even so, the West Coast economies have proven resilient, producing a solid job growth of 2.7% on a trailing 3-month basis through March. We believe there are 2 key factors contributing to the durability of the underlying West Coast fundamentals. First, many of the layoff workers have quickly found new jobs. And second, the vast majority of the layoffs affected people who do not reside on the West Coast.
For example, we continue to monitor warn notices, and of the largest companies to announce layoffs, only 16% of the reductions have occurred in our markets. With the exception of a few specific submarkets, the overall labor market and demand for housing in the West Coast had a healthy start to the year. On the supply side, the outlook remains favorable, with only about 60 basis points of total housing stock forecasted to deliver in 2023, the supply risk in our markets remain low.
We expect that continued housing production challenges such as diminished labor force and high construction costs should lead to relatively light apartment deliveries for the next several years in our market. Thus, we do not need a meaningful job growth to generate modest rent growth in 2023. Since none of us have control of the Fed or the economy, our team will remain focused on what we can control, which is the continued enhancement of our operating platform. We have been thoughtfully transforming our operating model for several years, which has resulted in one of the more efficient operating platforms in the industry.
Relative to our peers, Essex has the highest controllable operating margin and one of the lowest average controllable expense per unit. While the rollout of our property collections model has contributed to this efficiency, we are only midway through implementation. Our next phase of expanding this operating model to the maintenance function will maximize the workflow of our associates, including reducing task time and vendor costs.
These advancements will enable incremental revenue growth to flow more efficiently to the bottom line, ultimately generating additional FFO per share and dividend growth throughout all economic cycles. Lastly, turning to investment activities. We're still seeing institutional quality transactions occur from the mid to high 4% market cap rate with a deeper buyer pool towards the high end of this range.
Keep in mind that the transaction market is still digesting higher interest rates as evidenced by a significant reduction in volume of approximately 70% nationally and 60% in the West Coast in the first quarter compared to last year. In addition to the (inaudible) volume, our cost of capital remains unattractive from an acquisitions perspective. Keep in mind that Essex has a long track record of creating value for our shareholders by arbitraging discrepancies between the stock price and the underlying asset value.
Once again, we demonstrated this strategy in the first quarter, locking in significant FFO and NAV per share accretion for shareholders which is the primary driver of raising our FFO guidance mentioned earlier. We continue to actively evaluate potential deals and are ready to act swiftly and thoughtfully when opportunities emerge.
With that, I'll turn the call over to Barb Pak.
Barbara M. Pak
Thanks, Angela. I'll begin with a few comments on our first quarter results and full year guidance, followed by an update on investment activity and the balance sheet. I'm pleased to report our first quarter core FFO per share grew 8.3% on a year-over-year basis, exceeding the midpoint of our guidance range by $0.08. The better-than-expected results are largely attributable to 2 factors that drove an outperformance in same-property revenue growth.
First, occupancy trended higher than we expected for the quarter; and second, net delinquencies were better than forecasted as we received $1.3 million in emergency rental assistance. As you may recall, we did not assume any rental assistance funds in our 2023 forecast. Overall gross delinquency was 2.5% of scheduled rents for the quarter, in line with our expectations. Given the favorable first quarter results, we are currently running 30 basis points ahead of our full year midpoint for same-property revenue growth.
However, given the macroeconomic uncertainty and the timing of recapturing delinquent units, which remains uncertain, we are holding off on changing our same-property guidance range until we get further into the peak leasing season. As for core FFO, we are raising our full year midpoint by $0.03 per share primarily related to accretion from stock repurchases completed in the first quarter and higher other income.
Turning to our stock repurchases and investments. During the quarter, we sold a 61-year-old student housing community located in a noncore market. The proceeds were used to buy back a stock on a leverage-neutral basis in order to arbitrage the significant disconnect between public and private market pricing. This is another example of how Essex seeks to create value in all environments, while at the same time, improving our portfolio. As it relates to our preferred equity book, we had little activity to report this quarter.
However, for the full year, we still expect about $100 million of early redemption. Our sponsors are able to take advantage of the available financing via Fannie Mae and HUD to redeem it early. We believe the additional sources of financing is one of the many benefits to being in the multifamily sector, which has over time, helped keep cap rates low.
Overall, we remain comfortable with our preferred equity portfolio, especially given how diversified it is both geographically in the West Coast in terms of -- and in terms of the average deal size. Finally, on to the balance sheet. We plan to pay off our upcoming 2023 unsecured bonds that mature May 1 with the proceeds from the $300 million delayed draw term loan, which closed last year. As such, we have no funding needs over the next 12 months. With $1.5 billion in liquidity, limited variable rate debt exposure and access to a variety of capital sources, our balance sheet remains in a strong position.
I will now turn the call to Jessica Anderson.
Jessica Anderson
Thanks, Barb. I'll begin my comments today by providing color on our recent operating results and strategy, followed by regional commentary. I was pleased with our operating results from the first quarter, including a same-property revenue increase of 7.6% year-over-year. As Barb mentioned, one core factor driving these results was the successful execution of our occupancy strategy that resulted in a solid 96.7% for the first quarter, up 70 basis points from the fourth quarter.
This focus began in Q4 and was done proactively in anticipation of elevated turnover from evictions. During the first quarter, we may (inaudible) Recapturing units from nonpaying tenants, and we experienced the highest volume of eviction-related move-outs to date. The number of long-term delinquent residents has declined by 65% from our peak over a year ago, excluding Los Angeles and Alameda County. Additionally, a notable milestone in the first quarter was the ending of the eviction moratoriums in the City and County of Los Angeles, where approximately half of our delinquency resides.
Given backlog court, it will take many months to recapture these units, but steady progress throughout 2023 is expected. I am very proud of the team and appreciate the tremendous amount of work that has gone into recapturing, turning and re-leasing units. Thank you, team. Great job. Throughout the first quarter, we saw positive demand indicators for the portfolio. Lead volume, which reflects the number of initial inquiries into leasing an apartment and as a leading indicator of demand was consistent with and up, in some cases, over the same quarter last year.
Additionally, concession usage has declined from approximately 2 weeks free in the fourth quarter to a half week free in the first quarter. We are experiencing a relatively normal ramp-up to the peak leasing season. Net effective blended rates accelerated through Q1, averaging 2.9% for the quarter and ended with March at 3.8%, although they moderated in April. This was due to a temporary increase in leasing incentives to offset a period of heavy eviction volume.
While April averaged 96.4% occupied, we are at 96.9% today and well positioned to absorb additional turnover while still increasing rents as demand allowed. Moving on to regional specific commentary. In the Pacific Northwest, our most seasonal market, blended net effective rents were up 30 basis points in the first quarter compared to 1 year ago. The elevated supply in the downtown submarket is weighing on our regional performance. The supply outlook for Seattle is comparable to 2022, and similarly, a more challenging second half of the year is expected.
In Northern California, blended net effective rents improved to 2.6% in the first quarter year-over-year. We're seeing strength in the San Jose submarket, offset by supply-driven weakness in Oakland. The supply outlook for Northern California remains relatively muted, which will benefit our ability to push rents presuming job growth continues to outpace the recently announced layoffs.
Finally, in Southern California, blended net effective rents were up 5% in the first quarter as demand remained solid. All regions have fared well to start the year, including Los Angeles. As I mentioned earlier, we're expecting elevated turnover in this region driven by eviction.
In general, supply outlook in Southern California is very manageable. And outside of pockets of supply in submarkets such as West L.A., this market is expected to fare well. In summary, 2023 has started off slightly better than expected. Demand for apartments has been solid. We continue to make progress with evictions and our occupancy-focused strategy positions us well. We are cautiously optimistic as we head into the peak leasing season, but also acknowledge the macroeconomic uncertainty that could influence apartment demand through the balance of this year.
I will now turn the call back to the operator for questions.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from the line of Nick Yulico with Scotiabank.
Nicholas Philip Yulico
Great. Appreciate some of the commentary on the markets and the tech job exposure. I guess if you were to quantify some of the impact to markets, whether it's parts of Oakland, Downtown Seattle, any other more difficult markets right now within the portfolio? How would you come up with that as a percentage of the total company.
Angela L. Kleiman
Yes. Nick, it's Angela here. Good question. On the -- on our portfolio composition, big picture, we have about 20% of exposure in Seattle and 40% in Northern California and 40% in Southern California. And so when we look at the overall portfolio composition, we're actually pretty comfortable at where everything is sitting and our results have delivered, especially in Q1 the way we had anticipated.
Now there are pockets of softness. For example, I think you've heard about Downtown Seattle and certain pockets in downtown L.A. And so Downtown L.A., for example, is about 2% of our portfolio. And so in aggregate, it's not so meaningful that give the pause and as you can see by our Q1 results, we're generally trending well here.
Nicholas Philip Yulico
Great. Now that's helpful. And then just a second question is, I know you talked a little bit about the tracking ahead of same-store revenue growth guidance right now. I guess in terms of what some of the -- you could talk a little bit more about some of the offsets that could prevent the guidance raise in the second quarter. I don't know if it's the delinquent units coming back to market and how they get leased.
And then separately, on the economic forecast, it sounds like the job losses are playing out better than expected year-to-date. And in many cases, large tech has already come out with their announcements. So maybe talk a little bit more about the decision to not change some of the economic forecast as well.
Angela L. Kleiman
Yes. It's Angela here again. Good question. And it's something we debated because as you know, in Q1, jobs did track better than what we expected. Having said that, I do think that visibility this year is just more limited than past years because it's because of Fed's position, right? And the next Fed meeting isn't until May 1. And so we are anticipating a mild recession and that is a factor, and that's nationwide. Of course, it's not Essex. And you're right, with the tech layoffs, especially looking at the warn notices, we have -- we saw that peak in January and appears to be trending down, but it's just too early to really have clear visibility on where the economy is headed. And Barb will talk about guidance.
Barbara M. Pak
Nick, yes, I would say on the guidance piece, delinquency, obviously, is something that's still a little bit uncertain to predict in terms of getting units back. As Jessica mentioned, L.A., Alameda just are coming out of their eviction moratoriums. And so the timing of when we're going to get those units back is uncertain. And so that's a factor. And we also want to get a little further to the peak leasing season given the uncertainty that Angela just mentioned, and then we'll do a full reforecast for the second quarter. But the first quarter was very strong for us, and we feel pretty good going into the second quarter.
Operator
Our next question comes from the line of Eric Wolfe with Citi.
Eric Wolfe
I guess with respect to the stock repurchases, is there an internal limit sort of in the short term or long term? Or just as long as you're able to sell assets and then buy back your stock at a reasonable discount, you'll just keep going.
Barbara M. Pak
This is Barb. We're going to match fund asset sales with stock repurchases. So we know what we're locking in, in terms of value. We do have an internal NAV and we know where the value of our assets are. And so we're going to be cognizant of it. We're going to be mindful of the balance sheet, liquidity and maintain our strong balance sheet structure.
And so if not, we're just going to do it to do it. We want to make sure that we're thoughtful about doing it. And what we did in the first quarter is, we sold an asset that's noncore. It actually doesn't fit with our new operating model. We've got a very attractive price for it, and then we're able to take it and redeploy and buy back the stock and create a lot of value that way. So we're going to be very thoughtful going forward.
Eric Wolfe
Right, right. And I guess what I was trying to understand is just if you're able to sell 200 million, you're able to sell 300 million successfully, you'd be willing to repurchase 300 million? Or is there just sort of a certain point where from a G&A perspective and taking other sort of considerations into account that it's just not as efficient for you to keep selling assets and buy back stock. And then I guess, to sort of add on to that question, for your internal NAV, are you using the cap rates that you see transact in your markets or sort of making adjustments about for where it should be based on debt cost? Because I think the theory is that it's a pretty thin transaction market right now, so the cap rates we're seeing may not be sort of reflective of where things would transact if they had to.
Barbara M. Pak
Yes. Our NAV is based off of -- Adam and I sit down and we talk about where transactions are happening and where we think we could sell our assets today and based off of what is happening and negotiations that are going on behind the scenes. And so we feel like we have a good pulse on the market we have sold assets over the last several years and proven out on the value for then portfolio and so that is the profit on the NED side, and we're very comfortable transacting and selling and then buying back the stock.
Operator
Our next question comes from the line of Stephen Sakwa with Evercore.
Stephen Thomas Sakwa
I guess maybe for Jessica. I was hoping you could speak a little bit to the blended rates that you talked about. I think in April, you said maybe there was some impact from the eviction. So I'm just hoping to see if you could quantify that because I think amongst all your peers, you might be the only one that showed a decline in April. So just trying to get a sense of the magnitude of that and maybe what your expectations are for May and June.
Barbara M. Pak
Steve, yes, the -- overall, those numbers -- those blended numbers that we're looking at, those are net effective trade out numbers. And so I think it's important to point out, as I mentioned in my prepared remarks that through March, they grew sequentially throughout the quarter. So April really reflected a point-in-time pricing strategy rather than underlying market fundamentals.
And we've expected with the evictions we're working through quite a few, and they do come to us in a steady stream, but we do anticipate that there might be some concentrations from time to time. And so that's what's really driven our occupancy-focused strategy. And you really saw that play out with our April occupancy number. We had floated down after seeing a concentration in March to [964]. But ultimately, when we start -- when we think about as far as the markets and how they're progressing through the seasonal ramp-up and the strength there, we really look at our market rent, which is essentially the -- our gross recently achieved leases.
And since the beginning of the year, we have seen our market rates grow sequentially through April in all of our markets. And so those net effective trade outs and of course, incorporate concessions and again, really reflects the point in time. So we saw really great activity in April, and we were roughly 1 week free as far as concessions go, and we've since pulled back to only a couple of days today on average and breakdown by market, we're actually sitting at 97% in Seattle, 97% in Northern California and then 96.8% today. So ultimately, we're pulling back on the concessions, there might be a little bit of a spillover into May, and we expect the trade out rates to reaccelerate from here and then also market rents to continue to grow.
Stephen Thomas Sakwa
And then I guess maybe as a follow-up, just to get a little more color on Seattle. I mean some of your peers had maybe a bit more weakness and spoke to the weakness specifically in downtown Seattle. I know that you have probably more East side exposure, but just any thoughts around Seattle in particular? And does Amazon's kind of May 1st return to office policy have any influence? Or have you seen any influence from that? Or do you think people were sort of already back in the Seattle market? Or do you think there's a wave of people to come back to the market in the near term?
Barbara M. Pak
I think overall for Seattle, we have a pretty conservative outlook for Seattle this year. And as I mentioned, I think it will be more challenging in the back half as we experience more supply. And we've been experiencing that really for the last 6 months. But interestingly, yes, in April, we did see quite a bit of movement from a leasing velocity perspective. So I do feel like that May 1 return to -- mandatory return to office 3 days a week for Amazon, potentially had an impact for us.
And as far as strength goes, I mean, anytime you introduce leasing incentives or adjust your rates, how the market responds and the leasing velocity you're able to get is really telling. And so we weren't necessarily targeting 97% in Seattle. So that really goes just to show that there is some underlying strength there. And so I think Amazon did play out.
But again, we have a pretty conservative outlook, and we're certainly seeing the impact of demand with the diminishing of the hiring with the Amazon and Microsoft last year having -- July, August, 30,000 open positions that essentially disappeared in a matter of a month or 2. And then obviously, we have the supply factors, we have both things working (inaudible) but encouraged and I think Seattle is on track with our expectations for the year.
Operator
Our next question comes from the line of Austin Wurschmidt with KeyBanc.
Austin Todd Wurschmidt
Sort of going back to the stock buyback conversation, I guess, in sort of the sources and uses or match funding any future repurchases, are you guys currently marketing any additional noncore assets today?
Adam W. Berry
Austin, this is Adam. Apologies. So at the moment, we are not actively marketing anything. We're always opportunistically looking at potential for disposing of assets that are either noncore or in noncore markets. And this is how (inaudible) deal we sold last quarter. That's how that came about. But currently, no, not marketing anything right now.
Austin Todd Wurschmidt
Got it. And then just going back to guidance a little bit. I mean you mentioned a couple of components of driving the same-store revenue outperformance in the first quarter first, which is obviously a nonrecurring item in the ERAP payments . Have you received any additional ERAP payments in the second quarter?
And then second, with the dip in April, I guess, how is April trending relative to plan? Is it offsetting some of the benefit you had in 1Q? Or is April occupancy and rents also trending ahead of plan?
Barbara M. Pak
This is Barb. On the emergency rental assistance payments, in April, we had 100,000 in our same-store portfolio, so nothing material, and that is disclosed in our supplemental. And then in terms of factors in the April guidance, the one thing I would say is that for delinquency, we did assume the first half of the year would be in the mid-2% range, 2.5%. And then the back half, we expect it to continue to trend down. So close to 1.5% and 2% for the full year. So we're on plan with delinquency in April and then occupancy at 96.4% is generally in line with plan as well.
Operator
Our next question comes from the line of Jamie Feldman with Wells Fargo.
James Colin Feldman
I was hoping to shift gears to the expense side. Can you talk about just the key line items and expenses. There's been a lot of volatility for insurance, for people and taxes. Just kind of what gives you conviction on your current outlook for the different expense lines? And where do you think maybe there might be some risk either the upside or downside on the growth rates?
Barbara M. Pak
Yes. This is Barb again. So on the expense side, I think the biggest variability we're seeing is really maintenance and repairs because of we have more turnover, we had some more flood damage this quarter. So that's kind of onetime. We don't expect that to reoccur. But we do expect the turnover to be a reoccurring item given evictions. I would say on the insurance, we've already done our insurance renewal for the year, so that line is pretty baked, and we don't expect any surprises from here on out. It is up 20%, but that's going to be the number for the year.
And then on the tax side, we do have the benefit of Prop 13, which is 80% of our tax base. And so that is pretty well known. We'll know Seattle taxes here in the second quarter and then really have that drilled in. And so for us, the variability on our expenses is mostly just tied to R&M. And then utilities, the one thing on utilities is it can be variable. We've put in place some gas hedges, which has helped us on the utility expense side. And so it kept it to a more moderate level, all else being equal.
James Colin Feldman
Okay. And then Orange County seems to have come through this quarter pretty well across most portfolios, including yours. Can you just talk more about what's going on in that submarket specifically?
Barbara M. Pak
Yes. As far as Orange County goes, it has performed well for the last couple of years. We were seeing good trade out numbers, good leasing velocity it's really stable as far as the supply outlook. There's nothing noteworthy there as well. So overall, Orange County is pretty stable as a lot of our Southern California market, San Diego is similar as well.
Operator
Our next question comes from the line of John Kim with BMO Capital Markets.
John P. Kim
Barb can you just elaborate a little bit more on the real estate taxes. You had the rare decline in taxes. And I think you mentioned last quarter you were budgeting 4.25% increase. And given royalty taxes are the largest components of OpEx and insurance came in pretty much where you expected, is there the likelihood of your expense guidance going down during the year?
Barbara M. Pak
John. So on the tax line, it really deals with the comp issue from the first quarter of last year. So in Seattle, if you recall, we did have a favorable surprise last year where our real estate taxes went down 4%. We didn't know that until the second quarter. The first quarter of last year was our budget and what we assumed taxes would be. And so it was way too high. so we're comping off of a really easy comp, and that's why you see the negative 1.6 on the tax line. We -- like I said a few minutes ago, we'll know where Seattle taxes come in, in the second quarter when we pay the bills. And so that's still TBD. We're still assuming 4.25 overall for the tax line for this year. It's really just a comp issue in the first quarter.
John P. Kim
Okay. I mean I saw last year's first quarter wasn't that high, there was like 3%. But anyway, my second question is on your mezz opportunities. It seems like with regional banks having issues that could be a part of the capital stack where you could see more opportunities at higher yields. And I'm wondering if that's the case and how you would stack that up versus buybacks.
Adam W. Berry
John, this is Adam. So over the last couple of months, we've seen, I would say, a slight uptick in possible opportunities come in the mezz and pref world. As you said, some of the lending sources out there have either tightened or disappeared entirely. It remains to be seen if this new wave that we're seeing will actually translate into deals.
There are legacy development deals that have been out there a while. There are some new, actually existing deals that we're seeing as well. But again, this process takes a long time and several months. And so we're assessing a number of new opportunities, but very too early to tell how many of them translate into actual deals. But we'll always -- we'll continue to look at potential options when we have liquidity, whether that's through dispositions or redemptions, What the best use of that capital is.
Operator
Our next question comes from the line of Brad Heffern with RBC.
Bradley Barrett Heffern
So the big tech layoffs have already been touched on, but I'm wondering what effect, if any, do you think the SVB failure and the associated impact on tech company funding they have on your residents. I know you typically talk about a relatively small exposure to big tech in the resident base, but I'm curious if you think that applies to start-ups as well.
Angela L. Kleiman
Brad, it's Angela here. With the SVB failure that occurred recently, we did not see any impact to our portfolio. But looking forward, obviously, we don't know what can happen. But we do know that the parent has filed for bankruptcy. But a subsidiary, which is SVB has -- the Fed stepped in and then it's been sold. And so we certainly don't expect further disruption from that. And just looking at some anecdotal information, looking at the 30-plus companies in our real estate technology ventures, there's no impact there either. So as it relates to kind of a broad banking sector. It could -- it may play into more a broad economy conversation. And for those -- that's one of those reasons that we are forecasting a mild recession in our current expectations.
Bradley Barrett Heffern
Okay. Got it. And then maybe for Barb, another one on the guide. The increase of the guy was smaller than the beat versus the first quarter midpoint guide. I know you mentioned that most things are outperforming, and then you had the repurchase as well, but it seems like there was some sort of offset for the rest of the year, second quarter to fourth quarter. So can you talk about what that is?
Barbara M. Pak
Yes. So the vast majority of the beat in the first quarter was really tied to same-store revenue growth, and we didn't change our revenue outlook. And so that is not carried forward through in the guidance. So that was $0.07 of the $0.08 beat. The reason we changed our guidance the stock repurchase, which will carry forward, that's $0.03.
And then we also have higher other income, mostly tied to better rates on our cash management platform and how we're managing our cash and our marketable securities. And then partially offset by lower co-investment tied to preferred equity redemptions and the timing of those redemptions. So that's what was updated in the guidance. Same-store will be revisited here in the second quarter.
Operator
Next question comes from the line of Adam Kramer with Morgan Stanley.
Adam Kramer
Just wanted to ask about -- look, I know we touched on kind of tech and SVB. Maybe asking the same question a little bit differently, which is just on kind of severance packages. I know some of the early layoffs last year, maybe some even -- later in the year, how long are severance packages right? And so maybe you wouldn't kind of see that change in resident behavior right away. Wondering if maybe since some time has passed since then there are many differences in resident behavior kind of given the severance packages that may be expiring now?
Angela L. Kleiman
Yes. It's Angela here. The severance packages can range up to 3 months. Having said that, given the bulk of the layoff announcements that occurred back in January. And tenants behavior, they tend to make decisions, say, 45 days to 60 days in advance for major events. We -- what our expectation is that we've seen that play through our portfolio. We've digested it already. And once again, I want to point to the job growth numbers as a good indicator. But the other good indicator is the initial unemployment claims in California and Washington. And today, they still remain below the 15-year average. So that's another good data point there.
Adam Kramer
That's good. That's all super helpful. Maybe a follow-up. I think you guys have done a really good job of kind of bringing us into your minds when it comes to kind of managing occupancy versus pushing rents. I think both on this call and in prior calls. Maybe just kind of on a go-forward basis, walk us through kind of that trade-off, right? I know you mentioned concessions now lower than they were earlier in April. Walk us through maybe just kind of how you're thinking about that trade off now, given kind of the demand screen today, right, how you're thinking about kind of managing occupancy versus pushing rents?
Jessica Anderson
Adam, this is Jessica. Yes, so we're progressing through the peak leasing season. And of course, we're always going to be opportunistic with a focus on maximizing revenue. I think overall, with our outlook for the year, I think we'll probably spends the bulk of the year focused on occupancy based on -- we know we're going to continue to have to work through evictions. But also rent growth is moderating. And when you think about as far as rate growth, any time you're turning an apartment, you're experiencing the turn costs and the cost of vacancy. And so you really have to be getting some really strong trade out numbers to make it sense to be focused on rate over occupancy.
But certainly, we'll monitor the markets closely. And just like we pulled back concessions at the end of April and leaving us well positioned for the peak growth period that typically occurs in Q2, we certainly have opportunities again to maximize revenue overall.
Operator
Our next question comes from the line of Alexander Goldfarb with Piper Sandler.
Alexander David Goldfarb
So 2 questions. First, just going back to Silicon Valley. Let me ask the question this way. You guys mentioned that you anticipate the $100 million of deferred equity being taken out this year and that the owners of those properties have capital options in Fannie and Freddie. So are you saying that what's going on in banking and where we see people, lenders pulling back from real estate loans that's having no impact on your debt preferred equity portfolio? Or is it just this $100 million that you're slated for being taken out is fine. But broader speaking, there are bank fallouts to the debt preferred equity business.
Barbara M. Pak
Alex, it's Barb. What I was speaking to is that there is still capital available in the multifamily space. I know in other sectors, it has definitely pulled back. And I definitely think the banks have pulled back. But the government financing is still available. Life insurance companies are stepping in. And I think you're seeing other lenders step in.
And in our preferred book, keep in mind the deals that we're getting taken out of and they were underwritten 2019, 2020, a long time ago when cap rates were in the mid 3.5, and so we can get fully taken out. And so I think they're good situation for us. And we haven't seen any real issues within our own portfolio. It doesn't mean that it's not happening elsewhere. But in terms of distress in the whole market, we haven't seen that in a significant way on the West Coast.
Alexander David Goldfarb
Okay. The second question is going back to supply. It sounded like the only market that was an issue is Seattle, and I'm assuming that's Seattle Downtown, not the suburbs. But in general, as you look at your portfolio into next year and the year after, do you see supply coming down everywhere, like Northern Cal is clearly that's been a pullback. But do you see any area where there's going to be a deluge of supply that's going to deliver next year? Or as you look across your portfolio, whatever this sort of is the peak and next year should be less supply across your markets?
Angela L. Kleiman
Alex, it's Angela here. It's a good question. Trying to figure out looking ahead, what's happening here. In terms of our portfolio, just big picture starting this year compared to last year. Overall, supply is slightly down. But the vast majority, as you pointed out, is Northern California is down over 20%. And Southern California is up slightly about 14%, and the bulk of it is in the downtown L.A. and then some of these other West L.A., certain other markets.
But overall, of course, that supply number is slightly muted. As we look forward to 2024, what we're seeing preliminarily (inaudible) landscape. And so not a huge drop-off but similar level. But keep in mind, we're already operating at a pretty down low level, right? I mean total supply as a percent of total stock is only 60 basis points. And so we do foresee that to continue especially given the environment of much more challenging, labor force available and higher construction costs.
And lastly, rents in the northern region haven't moved significantly past pre-COVID. So Northern California is still slightly below pre-COVID level. And so it didn't surprise us that Southern California supply picked up slightly this year. And I think you kind of see that throughout the country where you have significant rent growth that's where supply will occur. So that's the big picture of our overall this year and next year, similar levels and it's going (technical difficulty) in our markets.
Alexander David Goldfarb
Is, just to clarify, Seattle, it is just Downtown Seattle, that's the issue, right?
Angela L. Kleiman
Seattle overall is slightly down, but downtown is up.
Operator
Next question comes from the line of Anthony Powell of Barclays.
Anthony Franklin Powell
Going back to the share buybacks. Do you have a number of assets or in a dollar number in terms of noncore that you would sell? And if you were to get offers on core assets at those 4 to high 4 cap rates, would you opportunistically sell those to buy back stock accretively.
Adam W. Berry
So on the first -- Anthony, this is Adam. The first part of your question, do we have a list of noncore assets. The answer is yes. And we're constantly having discussions and going through those to see where they could potentially sell and what we could do with the proceeds.
As to the amount with which we can buy stock back, there are challenges always with dispositions. There's always the different ramifications of tax gains, Prop 13. So all of those are taken into account when we assess what we can do with those proceeds. There's also another tool in the shed is to use 1031 exchanges to exchange out of noncore assets into markets that we think will overall affect the portfolio in a positive way.
Anthony Franklin Powell
Got it. And maybe more broadly, it sounds like you're a bit more optimistic on kind of the West Coast markets recovering this year despite the layoff activity. Does this make you -- just reinforce your view on the West Coast has the best use of capital, the best place to invest? Or would you still consider maybe diversifying into the East Coast or Sunbelt as we've talked before about in prior calls.
Angela L. Kleiman
Yes. It's Angela here. On the diversification question or expanding outside of West Coast, it is something that -- we have been disciplined about evaluating. And so that just a basic -- discipline has not changed. We're going to continue to monitor those markets and look for opportunities.
But back to your original point, I think you hit the nail on the head, especially as it relates to Northern California, a couple of things going for our markets where we have the lowest supply deliveries and especially Northern California supply is down 22%. We're just starting to rebound in terms of job growth, getting jobs numbers getting back to pre-COVID levels and market rents still below with gradual improvements.
We're in the best affordability position from a rent-to-income perspective in the northern region, below long-term average. And so that would point to all the best growth prospects. And On the just broad picture on the migration front, and we all experienced meaningful net on migration during COVID, while the migration landscape has been improving gradually as well. And so you put together all those pieces to point to that where we want to deploy our dollar, where we see the most upside ahead of us, it's in the West Coast.
Operator
Our next question comes from the line of Wes Golladay with Robert W. Baird.
Wesley Keith Golladay
Just want to get your view on maybe starting development with the hopes in delivering into a better part of the cycle.
Adam W. Berry
Wes, this is Adam. It's -- the development landscape today is challenging for a number of reasons. Angela has pointed to a few of them. With a challenging labor market, construction costs have remained elevated. And so when solving for a call it, 20% premium over where market cap rates are, it just -- it basically will lead to a lower land price than landowners are willing to go. Sure, we would love to be delivering into a lesser supply market. But right now, it's just the development deals just don't (inaudible)
Wesley Keith Golladay
Got it. And can you remind us, don't you have a few covered land place? Or did you get rid of those?
Adam W. Berry
We do. Yes. And those are still generating active revenue. And now with some, we're pursuing entitlements in the meantime, so parallel processing and others have just longer-term lease commitments.
Wesley Keith Golladay
Okay. And then could you talk about maybe the demand from people that currently have H1B visa? Do you view it as maybe a potential positive with more people getting pieces or with tech layoffs, maybe you might lose a few people.
Angela L. Kleiman
We actually see the international part to be a tailwind for us because it's just starting. And so I think it's no surprise that historically, California has a net out-migration if you only look at domestic numbers. In fact, 17 out of the last 20 years, it's net migration domestically. And even during those periods, we had meaningful rent growth acceleration. So the international component is what drives migration to become positive for California. And that virtually disappeared. I mean it was 0 during COVID. And so that is just starting to come back. And so we are hopeful that will be additive to the demographics piece.
Operator
Our next question comes from the line of Michael Goldsmith with UBS.
Michael Goldsmith
My question is about migration. How is demand from customers -- how has demand been from customers currently living outside Essex market? And how does that compare with normal? And then also the other side, have you seen increased or decreased move-outs to non-Essex markets?
Angela L. Kleiman
Yes, that's a good question. Compared to the migration from outside of Essex markets. We are generally just domestically speaking, of course, we're generally back to pre-COVID levels. And so that's a good thing. And with -- of course, with the international, we do see that's where the tailwind is. As far as the out-migration piece, when we look at the migration numbers, we look at it on a net basis. And so we're continuing to see gradual improvements.
Michael Goldsmith
Got it. And my follow-up, we talked a lot about tech layoffs, but have you seen any specific changes in the reasons for move out?
Angela L. Kleiman
Yes. We really haven't. I mean, we've tracked, of course, the usual move-outs to purchase a home that's below the long-term average, move out for jobs, new jobs or transfers or loss on that one bucket. And in totality, it's generally in line with historical norms. And so what I think is happening is what we're seeing, which is that the job losses are being quickly absorbed and benefited by that gradual migration on a net basis.
Operator
Our next question comes from the line of Chandni Luthra with Goldman Sachs.
Chandni Luthra
Sorry, I was on mute, sorry about that. Could you give us any thoughts around the RealPage issue? Any changes you are making to your operating platform considering those dynamics? And then how are you thinking about the rolled-up transactions booked.
Angela L. Kleiman
Chandni, it's Angela here. we actually have been reducing our usage of RealPage as we develop our revenue management system over the past several years. And so we started as well before the RealPage lawsuit for the reasons that Jessica mentioned earlier. So we believe that their claim is without any merit, and we're very confident about our defense prospects.
Chandni Luthra
Great. And as a follow-up, and sorry if I missed this, but what was gross delinquency in the first quarter? I believe net was 2.1. And then as we sort of think about delinquencies improving faster than expected with eviction moratorium going away and the process becoming easier, could there be upside to that 2% growth delinquency numbers that you laid out earlier?
Barbara M. Pak
Chandni, it's Barb. So in the first quarter, gross delinquencies were 2.5% versus the reported number of 2.1%, so 40 basis point improvement tied to emergency rental assistance. And then for the outlook for the year, the 2%, we're still holding to it.
I think L.A. and Alameda just come off. It's really going to depend on how quickly -- the court on these evictions is taking 6-plus months right now. And so that really is going to depend how quickly either people go through the whole eviction process or whether they just skip. And that's a little unknown at this point. I think in the next few months, we'll have a better visibility on that.
Operator
Our next question comes from the line of John Pawlowski with Green Street.
John Joseph Pawlowski
Maybe just a follow-up question to that bad debt topic. Barb, just 1 question on the longer-term bad debt profile of your markets. Based off the current trajectory of gross delinquencies and just the payment behavior that you're seeing among tenants, do you think when the dust settles, bad debt actually sells out at a structurally higher level versus pre-pandemic behavior? And if not, when is your best guess on when bad debt does get back to pre-pandemic levels.
Barbara M. Pak
Yes, John, it's a great question. Something we talk about internally a lot. We historically have been at 35 basis points pre-COVID. We believe we will ultimately get back there because there won't be any loss to protect tenants like there was during COVID, which allow tenants to have this behavior. And so now that we're coming out of all of the (inaudible), I think the City of Oakland is the only 1 that really remains, we think we will get back there, but it's going to take until into 2024 to get there. And it won't be for the full year of 2024, it's going to take into that year because of the eviction process and how long it's taking. But structurally, we don't believe that there will be a fundamental shift in delinquency and our long-term trends will go up because of COVID.
John Joseph Pawlowski
Okay. In your unregulated submarkets within the portfolio, has bad debt reverted fully back to pre-COVID levels?
Barbara M. Pak
I don't think we -- no, I don't think we've gone back fully to pre-COVID levels in our other markets. As Jessica said, in the call or in our prepared comments that we've gotten over 60% of our long-term delinquent residents out over the past or since the start of 2022. So we're making good progress, but we're not fully back to where we should be at this point.
John Joseph Pawlowski
Okay. And then last question for me is more of a regional question for Angela or Jessica. If you start the clock today, which region do you think would generate the highest and lowest revenue growth for the next 2 or 3 years, Seattle, Northern California or Southern California?
Angela L. Kleiman
Well, it's Angela here. I'll start, and Jessica, welcome to add. In terms of the upside or the most revenue growth, we definitely see Northern California being on the top of that list followed by Seattle and then Southern California. And with Northern California because of, as I said earlier the job growth is just getting back to pre-COVID levels. Market rents are still below pre-COVID, but it has been gradually improving. It has the lowest level of supply deliveries relative to our other portfolio and the best affordability position.
And so that -- for those reasons, it's ranked #1. And Seattle for similar reasons, but it does have a higher supply and then it's more volatile or more seasonal. And so which means that -- so with Southern California coming in less, not because we don't like it, it's just because it's just done so well. I mean it's in some cases, 20%, 30% rent growth above pre-COVID. And we're starting to see some supply pressure, which it's still in check relative to the rest -- the U.S., but relative to our markets, it's starting to creep up. And so that's the order of the ranking. Jessica?
Jessica Anderson
Nothing to add, Chris.
Angela L. Kleiman
Okay. Good.
Operator
Our next question comes from the line of Haendel St. Juste with Mizuho.
Unidentified Analyst
It's Barry Lee on the line for Haendel St. Juste. I just want to have a quick follow-up on the regulatory question. So I was wondering if you could provide any color on the $8.5 million in legal settlements added back to your core FFO. Wondering if that's from 1 big settlement? And if there's any piece of that, that will trickle into future quarters.
Barbara M. Pak
This is Barb. It was primarily related to a legal settlement for construction defect at one of our properties, and there's no carryforward on that. Just a one-time item that occurred in the first quarter. It was paid in cash. So that's done.
Operator
Our next question comes from the line of Joshua Dennerlein with Bank of America.
Joshua Dennerlein
I just wanted to touch base on the new revenue management software you rolled out at the start of the year. Just curious to kind of hear your experience as you're using that now. How it's trending versus your expectations? And just maybe just the capabilities versus your old software.
Jessica Anderson
This is Jessica. Yes, things are going very well. We're very pleased with the platform thus far, and we have a long development pipeline for that revenue management system. So all is going on. I mean a couple of benefits to point out that we're looking at is in alignment and allows us to price at a portfolio level with our property collections model versus the commercially available systems you're often pricing at the property level. And then second, we also see as far as long-term development, the ability to optimize our amenities.
So when you look at like our average rent, it's $2,600 and good $200 of that is actually fixed amenity values. And again, with your commercially available system, that portion of the rent is not optimized. And so if you look at that on an annual basis, what that is for us is over $100 million that's not optimized. So that's one opportunity. We also see moving forward with the system. So there's a few value-add opportunities to give you a couple of examples.
Joshua Dennerlein
Okay. Maybe just 1 follow-up on that. What exactly do you mean by like price at the portfolio level? And like what's the benefit to having it done that way?
Jessica Anderson
Well, when you're looking at -- we have a high geographic concentration. And so when you're pricing properties individually, sometimes you can be kind of cannibalizing yourself based on the occupancy position at a property. And so when you're looking at an entire portfolio collectively 1-bedroom, 2-bedrooms, ultimately, you can maximize revenue through a more stable approach to rents and the balance with occupancy.
Operator
Our next question comes from the line of Linda Tsai with Jefferies.
Linda Tsai
Just 1 on the job market. To the extent that job growth has fully recovered to pre-COVID, WARN notices are below average, and that laid off people are finding jobs quickly again. Do you have a sense of what industries people are getting hired to?
Angela L. Kleiman
Yes. In our markets, well, in the northern regions is, of course, more tech centric. But in southern California, it's more service driven. These are in hospitality. It's much more diversified [mirrors] of the U.S. broad economy with more professional services and, of course, higher income levels.
Linda Tsai
Is the tech hiring from the ones that are also laying off? Or is it more diversified?
Angela L. Kleiman
It's more diversified.
Operator
There are no further questions in the queue. This does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
