Q4 2023 Equity Residential Earnings Call

Participants

Alexander Brackenridge; Executive VP & CIO; Equity Residential

Mark J. Parrell; President, CEO & Trustee; Equity Residential

Martin J. McKenna; First VP of Investor & Public Relations; Equity Residential

Michael L. Manelis; Executive VP & COO; Equity Residential

Robert A. Garechana; Executive VP & CFO; Equity Residential

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

Bradley Barrett Heffern; Analyst; RBC Capital Markets, Research Division

Eric Wolfe

Haendel Emmanuel St. Juste; MD of Americas Research & Senior Equity Research Analyst; Mizuho Securities USA LLC, Research Division

James Colin Feldman; Equity Analyst; Wells Fargo Securities, LLC, Research Division

Jeffrey Alan Spector; MD and Head of United States REITs; BofA Securities, Research Division

John P. Kim; MD & Senior U.S. Real Estate Analyst; BMO Capital Markets Equity Research

Linda Tsai; Equity Analyst; Jefferies LLC, Research Division

Michael Goldsmith; Associate Director and Associate Analyst; UBS Investment Bank, Research Division

Nicholas Gregory Joseph; Director & Senior Analyst; Citigroup Inc., Research Division

Richard Charles Anderson; MD; Wedbush Securities Inc., Research Division

Robert Chapman Stevenson; MD, Head of Real Estate Research & Senior Research Analyst; Janney Montgomery Scott LLC, Research Division

Stephen Thomas Sakwa; Senior MD & Senior Equity Research Analyst; Evercore ISI Institutional Equities, Research Division

Unidentified Analyst

Presentation

Operator

Good day, and welcome to the Equity Residential Fourth Quarter 2023 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Marty McKenna. Please go ahead, sir.

Martin J. McKenna

Good morning, and thanks for joining us to discuss Equity Residential's Fourth Quarter 2023 Results and Outlook for 2024. Our featured speakers today are Mark Parrell, our President and CEO; Michael Manelis, our Chief Operating Officer; Alex Brackenridge, our Chief Investment Officer; and Bob Garechana, our CFO. Our earnings release is posted in the Investors section of equityapartments.com.
Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to certain economic risks and uncertainties. The company assumes no obligation to update or supplement these statements that become untrue because of subsequent events.
Now I'll turn the call over to Mark Parrell.

Mark J. Parrell

Thank you, Marty. Good morning, and thank you all for joining us today to discuss our fourth quarter 2023 results and the outlook for 2024. I will start us off, then Michael Manelis, our COO, will speak to our operating performance in 2024 operating expectations and followed by Alex Brackenridge, our Chief Investment Officer, will give some color on our capital allocation activities in the transactions markets, and then finally, Bob Garechana, our CFO, will review our 2024 guidance and our balance sheet, and then we'll take your questions.
We are pleased with our fourth quarter performance, which was in line with our October expectations. Our performance in 2023 was supported by a strong employment situation more than 2.7 million new jobs created. And while the 2024 outlook for overall jobs is more muted, we should benefit from a continued low unemployment rate for the college educated which currently sits around 2.1% as well as continued good real wage growth. We will also benefit in 2024, having low exposure to new supply in the vast majority of our markets, particularly when compared to the Sunbelt markets as well as the customer comfortably able to pay our rents with current rent to income levels at about 20%.
Overall, with low unemployment and rising real wages, our target renter demographic remains in good shape. They are likely to rent with us longer as the prospect of homeownership in the near term seems less likely. With scarce inventory and relatively high mortgage rates, and 8% of our residents who moved out they bought home as a reason to depart in 2023, which is the lowest we have seen since we started tracking the number.
And over the next decade, the significant net deficit of housing across our country sets us up for good long-term demand.
Drilling down on the West Coast, we do see clear signs of improvement in quality of life and energy in the street in the urban centers of Seattle and San Francisco. We continue to believe a recovery in rental rates in the downtown submarkets of these metros is coming and expect our shareholders will benefit from catch-up rental growth in these places where rents are still at or a fair bit below 2019 levels and where incomes, both on a nominal and real basis have risen substantially since 2019.
So while we have not baked the material improvement in Seattle and San Francisco performance in our 2024 guidance expectations, we do note that other urban centers damaged by the pandemic and other negative trends, for example, New York City, reignited quickly and sharply off of depressed rent levels once quality of life and employment conditions improved. Switching to the cost side of the equation, our consistent ability to grow expenses and overhead more slowly than our competitors will preserve cash flow for our shareholders as rent growth slows across the country and positions us well once growth picks back up.
As it relates to capital allocation, before Alex goes through the details of our recent transaction activities and our view of forward market conditions, I do want to highlight that we bought back some of our stock in the fourth quarter for the first time in many years. We bought back a little more than 864,000 EQR common shares for a total of about $49 million spent at about $57 per share. We funded this repurchase activity with proceeds from sales during January of less desirable assets that were on average 40 years old and were sold at a 5.6% disposition yield and believe that at this stock price and funded with these disposition proceeds, buying our shares makes a very good investment, especially given the lack of available assets to acquire at reasonable prices.
Before I turn the call over, I want to thank our teams across the company for their continued hard work and dedication to serving our customers and producing strong results for our shareholders. Now I'll turn the call over to Michael Manelis.

Michael L. Manelis

Thanks, Mark. This morning, I will review our fourth quarter 2023 operating performance and our outlook for 2024. We produced same-store revenue growth of 3.9% and same-store expense growth of only 1.3% in the fourth quarter, both of which were in line with our expectations. On the expense side, our low growth in the quarter and full year 4.3% growth were helped by modest property tax cost as well as the savings produced as we continue to roll out initiatives focused on creating operating efficiencies and a seamless customer experience. On the revenue side, the momentum in December was a little better than we thought as sequentially, we grew revenue in the fourth quarter by holding on to more occupancy while maintaining positive blended rate growth. This set us up for a good start in 2024.
Demand was solid across our markets and consistent with seasonal expectations. We finished the year with same-store physical occupancy at 96% as we focused on building up occupancy in the slower part of our leasing cycle. Today, the portfolio is above 96%. As expected, we saw new lease rates go negative in the quarter as they typically do. Meanwhile, renewal rates for the quarter came in at 5.1%, which was slightly above our expectations. Together, this resulted in a fourth quarter blended rate growth of positive 80 basis points. These healthy fundamentals led to outstanding revenue growth in our East Coast markets and good growth in Southern California.
As has been the case all year, the East Coast markets outperformed the West Coast and by and large, will likely continue to do so in 2024. As you saw in our earnings release, we have provided 2024 same-store revenue guidance range of up 2% to 3%. The building blocks for this growth starts with embedded growth of 1.4% and a midpoint assumption that both physical occupancy and cash concessions remain consistent with that of 2023. We expect the year to follow the traditional pre-COVID historical patterns with rent growth sequentially picking up in the spring and likely peaking in August.
Our midpoint assumes renewals for the year averaged just over 4%, new lease change is relatively flat, which together produces blended rate growth of about 2%. This is more modest growth than the 2023 full year blended rate growth of 3.1% and is reflective of a slowing job growth environment, offset by a mostly positive supply situation in our coastal markets where we have about 95% of our NOI.
As you can see from the stats in the release, January is starting out the way we would expect, with new lease change improving, a strong percent of residents renewing and a renewal rate achieved that is healthy, albeit moderating a bit.
While still early, all of these January trends support our outlook for the year, which includes a view that resident retention remains very good as a result of both the benefits of a centralized renewal process, our enhanced data and analytics insights, and the high cost and low availability of owned housing in our markets.
Turnover in the portfolio remains some of the lowest that we have seen in the history of our company, and we expect that trend to continue in 2024. Orange County, San Diego, Boston and Washington, D.C. will lead the pack with expected revenue growth of approximately 4%. New York and L.A. will follow closely behind. At the moment, we expect slightly positive same-store revenue growth in San Francisco and Seattle. And in our expansion markets, which reflect only about 5.5% of the total company NOI, we expect to produce negative same-store revenue growth given the unprecedented levels of supply being delivered.
As we look to the individual markets, starting with Boston, with high occupancy and limited new competitive supply, this market should continue to perform well in 2024. The market is supported by a strong employment base and finance, tech, life science, health and education. New supply deliveries will be about the same this year as they were in 2023 and this is a market where our urban assets have outperformed suburban ones lately, and we expect that trend to continue in '24.
New York should continue to perform well this year, but won't reach the high rate growth achieved over the last few years. Occupancies remain high and competitive new supply is limited, which led to record high market rents causing some rate fatigue to be observed in late in '23. New supply deliveries will be similar to last year with very little being delivered in Manhattan, where a large part of our portfolio is located. Washington, D.C. continues to outperform our expectations despite the delivery of a good amount of new supply. The market delivered over 13,000 units in 2023 and saw the great majority of those units absorbed.
This year, the market will see a similar amount of deliveries, but demand has been strong, and we expect this good performance to continue. We are starting the year with occupancies above 97%, which is a great position to be in.
In Los Angeles, we expect a tailwind to growth as we work through the delinquency and bad debt issues that have been concentrated here. We continue to make progress, although the court system remains slow taking at least 6 months from our court filing to being able to get the unit back. Bob will give some more color on the impact of bad debt net on our 2024 earnings expectations.
New supply deliveries will be slightly higher this year with our Mid-Wilshire Koreatown and San Fernando Valley portfolios seeing the largest impact from this new supply. Strong retention and solid demand will continue to aid our ability to fill vacant units with paying residents in this market. Rounding out Southern California, San Diego and Orange County should be some of our highest growth markets this year, driven by high occupancies and a general lack of housing. High homeownership costs make renting in these markets a more attractive option.
San Diego will see more competitive new supply in 2024, while Orange County will see similar amounts to last year. In San Francisco and Seattle, we had little to no pricing power throughout 2023, and our base case expectations for this year assume that situation continues. We have seen periods of stability and in pullbacks. Concession use in both markets is widespread, we have strong physical occupancy with both markets being above 96%, which tells us there is demand, although it is very price sensitive.
As Mark mentioned, the downtown areas of both markets continue to see improvement in the quality of life but are still lacking the catalyst of return to office and/or job growth. New supply in San Francisco this year will be up from last year levels, mostly due to an increase in the South Bay, although continued healthy demand in this submarket should aid the absorption. Seattle is likely to be the most impacted of any of our established markets when it comes to new supply deliveries with increases in both the city of Seattle and the East side. The lack of expected job growth combined with this new supply have driven our low expectations in Seattle for 2024.
Both Seattle and San Francisco continued to see less than normal inbound migration. Seattle in the fourth quarter, however, did see some relative improvement with new residents coming to us from out of state. This positive trend is something that we will keep an eye on as we move through the spring leasing season. Drawing new residents back to the MSAs in both Seattle and San Francisco would be a catalyst for these markets to outperform our expectations. In the expansion markets, our long-term outlook remains positive. That said, high levels of new supply are already pressuring rents and is likely to continue throughout 2024.
At present, we are operating from a defensive position and starting the year with occupancies that are 2 to 3 percentage points above the market averages. Denver has demonstrated the most stability despite having limited pricing power in the portfolio and we expect the market to produce slightly positive same-store revenue growth in 2024.
Currently, Atlanta is using the least amount of concessions, but we expect a few of our assets to be very challenged due to the sheer number of lease-ups in close proximity, which will likely lead to negative revenue growth for the year. In Texas, Dallas and Austin have widespread concession use, and we expect all of our assets to experience direct pressure from new deliveries all year long, resulting in negative same-store revenue growth in these markets.
So putting all of these factors together, our overall same-store revenue outlook for 2024 right now anticipate solid growth led by the East Coast markets and Southern California, which collectively is almost 70% of our NOI. We expect our coastal existing markets to outperform our expansion markets where unprecedented supply will impact operations near term.
On the initiative side, in 2024, we will continue to focus on producing operating efficiencies and driving other income with projects tied to flexible living options, parking, renters insurance and monetizing technology deployed for the benefits of our residents. We are almost complete with the rollout of smart home technology across our portfolio, which will create further opportunities to share teams across properties and enable additional self-service options for residents.
This, along with other ancillary income should lead to total other income growth of 30 basis points, excluding bad debt. As we sit here today, we like our positioning and look forward to capturing the opportunities the spring leasing season brings, which will help frame pricing power for the full year.
I want to give a shout out for our amazing teams across our platform for their continued dedication to their residents and focus on delivering these results. With that, I will turn the call over to Alex to walk through our capital allocation activities and the transaction market.

Alexander Brackenridge

Thank you, Michael. Despite an unsettled transactions market, we remain steadfast in our efforts to continue to reposition our portfolio by increasing our presence in markets like Dallas-Fort Worth, Atlanta, Austin and Denver, and expect to see more opportunity to do so as the year progresses.
As we underwrite potential acquisitions, we are always mindful of heightened levels of supply pressuring rents in our expansion markets and reflect tempered rent growth and concessions as needed in our projections. Currently, the transaction market remains unusually choppy, with volumes down 60% to 70% compared to 2022 and down 40% to 50% compared to a more typical year like 2019. Nonetheless, pressures on sellers to transact continued to mount as does the volume of new developments being delivered in these markets. New developments in particular, are often not capitalized to be held for the long term. And even with rates decreasing over the last few months, carry costs are high. Owners of stabilized assets will also see pressure to transact as loans mature and extensions that were agreed to with lenders last year expire.
Despite the short-term operating challenges in our expansion markets, we remain committed to broadening our footprint in markets that will see strong job growth and household formations over time and lower regulatory risks. As regards to our own transactions activity, we didn't acquire any assets in the fourth quarter, but we did sell three, a small property in Seattle, one in the Bay Area and one in L.A. On average, the properties were 40 years old and total sales proceeds were $185 million at an average 5.8% disposition yield.
While transaction volume overall is very light, we are seeing some opportunities to lighten the load of noncore older assets, primarily in our West Coast markets. Since the beginning of 2024, we've sold two additional properties, one in Southern California and a small deal in Boston for a total of $189 million at an average of 5.6% disposition yield. We've allocated a portion of the capital from these sales to the share buyback activity Mark just mentioned.
With ample access to capital either through asset sales or debt issuance and a property management presence in our expansion markets, we are well positioned to take advantage of opportunities as they arise. In terms of anticipated volume, our guidance for 2024 is $1 billion for both acquisitions and dispositions but market conditions will dictate whether we can hit or even exceed these goals.
Turning to development. In 2024, we'll complete six new apartment properties with a total cost expected to be $624 million and consisting of 1,982 units with lease-ups commencing for two of those projects in Q1 and four in Q2. Three of those lease-ups all through our joint venture program with Toll Brothers are in Dallas, while the remaining three, two in Denver and one in suburban New York City are JVs with other developers. Given the timing for completion and lease up, we don't expect meaningful contribution to NFFO growth in 2024, but would expect these projects to contribute more to 2025 growth.
While our suburban New York project will see limited competition from new supply, not unexpectedly, our lease ups in Dallas and Denver will see substantial new competition. We acknowledge that the competition may be challenging and anticipate that as we may have to adjust pricing and concessions to meet the market, our projected stabilized yields, which at initial underwriting, will on average a mid-6, maybe closer to 6. We believe these lease-ups, once stabilized and past the current supply glut will provide good cash flow growth and be solid long-term investments.
Beyond these deliveries, we will be very selective about starting any new projects with a primary focus on locations where it's hard to buy such as suburban Boston. I'll now turn the call over to Bob.

Robert A. Garechana

Thanks, Alex. As Michael and Mark mentioned, 2023 ended up right in line with our forecast last quarter. So let's get right to guidance. Michael gave you most of the building blocks for same-store revenue, but I'll finish up with bad debt, walk through drivers of same-store expenses and normalized FFO and conclude with the balance sheet.
In 2023, we were able to reduce bad debt significantly once the regulatory environment became more constructive. While we continue to work with nonpaying residents as we have during and after the pandemic, ultimately, we still ended up processing a high volume of skips and evicts. In fact, about 1.5x pre-pandemic activity levels, which, coupled with not adding significant amounts of new nonpaying residents, helped us reduce bad debt as a percentage of same-store revenue from well over 2% to just under 1.5%. So great progress overall, but still a long way from the 50 basis points we were accustomed to pre-pandemic.
Much like last year, we expect 2024 to continue to show improvement. We also expect the pace of this improvement to be dependent on the speed of the court systems, primarily in Southern California, where delinquency remains highest to quickly process evictions, which is a hard thing to predict. As a result, our guidance assumes that 2024 remains another transition year for bad debt and that we don't get all the way back to pre-pandemic levels.
Instead, our guidance midpoint assumes that full year bad debt as a percentage of same-store residential revenue is slightly above 1% or a 30 basis point contribution to 2024 growth overall. If that plays out by the end of 2024, we would expect to be a little under 2x pre-pandemic levels.
Turning to expenses. Expense management is a core strength at Equity Residential as evidenced by the historical performance Mark referenced. Our same-store expense guidance of 4% is also reflective of that discipline. This year, the individual drivers of growth are a little different than those from 2023. So let me give you a high-level assessment, and we can get into more detail in Q&A if required.
In 2024, we expect real estate taxes and utilities to grow faster than they did in 2023, in part due to some 421a step-ups and commodity prices, while payroll and repairs and maintenance should be slower due to various initiatives and an expected normalization of inflationary pressures. Insurance, a small category at less than 5% of total expenses, but a topic often discussed should grow more slowly than last year but remain above the long-term trend with growth in the low double digits.
Turning to normalized FFO. Page 2 of the release provides a detailed reconciliation of our forecasted contributors to NFFO growth. As is typical same-store NOI performance is the primary driver of growth but let me provide some color on transaction activity. We are assuming $1 billion in both acquisitions and dispositions for 2024 with limited dilution yet we show a $0.03 reduction in normalized FFO growth there. This is due to our assumption that our acquisition activity mostly occurs later in the year than our dispositions. This is also partly offset in interest expense and interest income as disposition proceeds are used to pay down debt or invested in interest-bearing 1031 accounts while we await acquisitions.
Now a very brief comment on the balance sheet because we're in really great shape here. We have no debt maturities until the middle of 2025, modest outstanding balances on our commercial paper program and less than 10% floating rate debt. So we're very well positioned. In fact, over 50% of our existing debt doesn't mature until after 2030. The work we've done over the last number of years has reduced our interest rate exposure and allows us for ample debt capacity to run and grow our business. With that, I'll turn it over to the operator.

Question and Answer Session

Operator

(Operator Instructions) Our first question is going to come from Steve Sakwa from Evercore.

Stephen Thomas Sakwa

Great. I guess I wanted to just maybe go through some of the building blocks of growth in '24, either for Michael or Bob. But as you kind of look through the moving pieces here. It seemed like maybe the new rate growth at kind of flattish might be one that could pose maybe a bit more of a challenge here of job growth slow. So just curious how you sort of sized all up those components? And how did you think about the new lease component with the fact that you kept occupancy flat, I guess, within the guidance?

Michael L. Manelis

Steve, this is Michael. I'll start. Maybe Bob can come over the top. So I think when you look at the building blocks for the guidance, you need to realize, one, we're giving you a range. And there's a lot of different ways you can get there, but it's really the top level themes that underline and pin those midpoint assumptions. So when we thought about new lease change, we started with the fact that we know the job growth is moderating this year. And therefore, we would expect market rents or asking rents just to be kind of less than normal across the large majority of our markets. So we kind of model a normal seasonal slope for our kind of rent trend to build and then we plug that in and we say, okay, what does that equate to? And right now, across our market, it's balancing out to basically be about flat on new lease change for the full year.
Some of our markets are still positive. Some of our markets are still positive theme and some of the markets are still coming in at a negative growth through the year. But I think when you start to pull on any one of those, you need to go back to the top level themes and ask yourself okay, what's really changing. So if there's a material shift in job growth, sure. I think we would experience more pressure than we underlined and at the midpoint of our range. But again, it's when does that happen in the year? And where are we? Because today, I'll tell you, we have taken a defensive position. We're starting the year with pretty strong occupancy that really gives us some confidence heading into the spring leasing season, and we'll just see kind of what pricing power emerges from that.

Stephen Thomas Sakwa

Great. And then just maybe one question on the transaction market. I know it's not been terribly robust. But maybe, Alex, can you just speak to where you think maybe IRR hurdles are today, the 10-year sort of plus or minus 4% come down, way off the high, I realize NOI and rent growth is slowing. But where do you think investment hurdles are today, either for EQR for the market, broadly speaking?

Alexander Brackenridge

Steve, it is Al. Thanks for the question. As you state, it's a pretty choppy market right now. And there aren't a whole lot of data points. As you know, the NMHC conference is going on in San Diego right now. So I have some pretty current time information, which is really a reiteration of what we've been experiencing in the last few months, which is a standoff between buyers and sellers. Buyers generally looking for a 5.5-ish cap and sellers generally looking for something closer to 5.
So not an insurmountable gap at some point, but right now, it's hard to peg things. But assuming things kind of land somewhere in between there at a 5.25, I think most people are shooting for an 8-ish IRR. And obviously, it depends on the rent growth assumptions and the residual cap rate, but somewhere in that end, maybe a little bit less if they're going to be more aggressive.

Operator

Our next question is going to come from Eric Wolfe from Citi.

Nicholas Gregory Joseph

It's Nick here with Eric. Maybe just following up on that, so 8-ish or so IRR. I guess more specifically, you talked about obviously the Sunbelt supply and the impact that has on your underwriting on those deals, at least initially. So when you're underwriting deals both on the buy and sell side today, what are you underwriting for IRRs in the Sunbelt? And then what are the IRRs look like for the assets you're planning to sell more coastal.

Alexander Brackenridge

So I'm sorry, it's not Eric. It's Nick, sorry. It's Alex. And the IRRs don't end up being that different if you assume that sure, there's a glut of apartments in the Sunbelt right now. So the next couple of years are going to be tough. But after that, the starts already down a lot. The demand story hasn't changed. I think there's still these cities that we're interested in, that some of which are Sunbelt cities like Dallas, like Atlanta, like Denver and Austin, still are great job growth generators, still have a great long-term demand side story. So I think you see a couple of years that are tough, but then you have a pretty good few years after that. And I think you run that through your pro forma and you're roughly the same.
The difference we're seeing on a lot of the things that we're selling right now and why the IRR for us is lower in terms of the hold scenario and why we choose to sell is a lot of it's older stuff. You saw that we're selling 40 years old property and they have very high capital needs. And some of that has their ROI on it. Some of it is just preserving the asset. And there may be a buyer that sees things differently, sees a little more upside. But in our case, we think the capital is better used elsewhere. So in our eyes, it's probably a 7-ish something or other. And we think that money can be redeployed better elsewhere.

Eric Wolfe

It's Eric. Sorry to keep switching people on you. But maybe just talking about coastal rent growth for a second. You talked about supply being in check, homeownership very unaffordable, solid real wage growth, job growth, okay, maybe getting a little slower. But I guess the question is, why aren't we seeing stronger rent growth today just given all of those positive dynamics? And is there anything that you think in the future would turn it around that you see that sort of more than 3% type rent growth in those coastal markets.

Mark J. Parrell

Eric, it's Mark. Just to start, and the others can contribute. I mean you look at the numbers in D.C. and Boston and New York last year were outstanding. So we're being thoughtful. We're being a little cautious going into a volatile year. But your restatement of the setup is correct. I mean those Northeast markets have steady demand by and large, minimal supply or in DC's case, strong absorption characteristics. I mean we're optimistic those markets can continue to do well. In some cases, like New York and Michael alluded to that, they're coming off really big rent growth years. In some cases, there's a little bit of a pause to catch our breath and let resident incomes grow to catch up to rental growth. But I mean, we're -- if you didn't get that message we're super optimistic about the Northeast markets, and I think they will do very well. It's just trying to handicap all the various cross currents in the economy that are challenging for us.

Operator

Our next question is going to come from Jeff Spector from Bank of America.

Jeffrey Alan Spector

Great. Thank you. My first question is a follow-up. I heard a comment and I think it was on the Sunbelt, "it could be a couple of tough years." I guess, can you expand on that? And then maybe most important is talk about when you expect supply pressure to peak, let's say, in Seattle. And I know again, Sunbelt is smaller markets for you, but if you have a view on the Sunbelt, it would be appreciated. Thank you.

Michael L. Manelis

Jeff, this is Michael. So I'll start. And just specific to the Seattle and the supply that we see, it is back-half loaded for us in the market with basically a lot of concentration in Redmond as well as the city of Seattle. So for us, like the peak is what we expect to experience is going to be somewhere in that back half of this year. And you could already see the starts coming way down. So I think the level of competitive pressure that we face in '25 in Seattle will be less than what we're facing in '24.
Relative to the Sunbelt, I mean, this is a great question because it's going to take a while to absorb the units that are coming to this market. And the supply that we look at is fairly constant across many of the Sunbelt markets all year long by quarter, which tells us that and what I said in the prepared remarks that we expect to feel this pressure at our assets all year long. I think as you turn the corner and you get into '25 you're going to start to see that supply number slow down, but you are still going to have a little bit of the overhang of the pressure from the units that were delivered to the market in '24.

Mark J. Parrell

Yes. I'm just going to add a little bit to that. If you look at '25 expected deliveries and some stuff from '24 will definitely slip. I mean, it's about as big as '23's delivery. So it's not like '25 is an incredible decline. So what we really see, Jeff, as we look at this is still good demand in those markets. That's why we like Dallas, Fort Worth, Denver, Austin and Atlanta. But the supply picture in our experience will spend this whole year with declining new lease rates, occupancy pressure, all of those things. And you as an investor and an analyst may start to see improvement in that so-called second derivative of rent growth late this year, beginning of '25, but same-store revenue growth in our experience will be worse than '25, not in '24 because all those leases that are being rewritten will go through the rent roll and so you may be more optimistic in '25, but your numbers actually likely will be worse.
So that's what we've seen with supply in our history across our markets. And then we don't really see why it'd be any different here. And I think the wildcard is if you have incredible job growth in these markets, you may be able to absorb some of the supply more efficiently and get through it more quickly. But the idea that '24 is the only oversupplied year is kind of a tough one for us to accept.

Jeffrey Alan Spector

That's very helpful. And is that why you're assuming acquisitions in the second half? Or is that just conservative approach, I guess, to the guidance on acquisitions or to your point, are you really expecting these opportunities to arise more second half '25 in your expansion markets.

Mark J. Parrell

Well, the guidance is just to help you model. If Alex can buy things and his team earlier at good prices, we'll buy them earlier. The relationship, I think you're going to see here is that prices now seem okay, maybe not quite good enough, but the discount to basis, the replacement cost, pardon me, is very good. It's the cap rate. And when you look at like 2 years of declining rental growth, you buy in Dallas, your year 2 number might be lower your cap rate than your year 1. But on the other hand, later this year, you'll be past some of that and your year 2 number will look a little better, but you're likely paying a higher price.
So that's what you're going to see us navigate. We like these markets long term. We think owning the four markets that we've tabbed as our expansion markets, say, 25% of the company will create more balance and drive growth better and reduce volatility over time, Jeff. But getting into them is a little bit of an art. There's going to be a little bit that we probably do sooner, a little bit we do later. And you may feel better about the price in one and not as good about the revenue growth in the other and vice versa. But we're prepared to do that. And again, the number you see there is just sort of the guidance assumption. We'd be happy to do more if we can find more.

Operator

Our next question is to come from Robyn Luu from Green Street.

Unidentified Analyst

Good morning. I just want to touch on taxes. From your conversations with cities, are you hearing any markets where lower values are starting to flow through to tax assessments?

Robert A. Garechana

Robyn, it's Bob. Thanks for the question. We are seeing lower values in some markets. In fact, we've gotten some assessed values actually back already as we look at 2024. And on the margin, you are seeing some decreases. So for instance, in Washington state, we saw about a 1% decrease, and we've got most of the values back there, and we're seeing it in other places. Obviously, the income -- as assessors look at values, the income production in 2023 was really quite good. But the offset there was really the cap rate change just given risk-free rates and other things. And so we are seeing some acknowledgment by assessors that values are in fact lower than what they had initially assessed at. The open item, as you think about real estate taxes for 2024 will be where rate comes. And we have rates in some places, and we'll see where they fall out in others.

Unidentified Analyst

So the magnitude of where values have fallen in, let's call it, the last couple of years haven't really fully been baked in yet. They're still sort of trickling into tax assessment. Is that how I can conclude correctly?

Robert A. Garechana

You are correct, and that makes for an excellent appeal activity for our real estate tax team as we challenge values.

Unidentified Analyst

I'm glad I could help. Just on the second question, I did obviously noticed that you did some stock repurchases in the market after a long period of a pause, with, I guess, a little lesser spend in development and no near-term debt maturities, are you expecting -- or how does buybacks ran against other capital uses this year, particularly on the way that you've -- the cadence between dispositions and acquisitions for '24?

Mark J. Parrell

Robyn, it's Mark. Thanks for that question. Our primary capital allocation goal is going to remain building out the portfolio in the way I just described in these expansion markets and lowering exposure in Washington, D.C., New York and California. Again, we believe that portfolio will create the highest returns over time, the lowest volatility and that, that will make the shareholders the most money in the long haul.
All that said, we're going to continue to consider these share buybacks especially when you get this big value dislocation and when you can fund it with assets that are the least desirable among the least desirable in the portfolio against the portfolio that we think is really top notch. And we're -- there isn't a lot to buy. That's an important other ingredient. There wasn't a lot of opportunity cost here. There wasn't a lot else available to buy at prices that made sense. And all those capital structure considerations have to be thought about too, we've talked about on these calls, things like does it create a lot of tax gain, that's hard for a REIT to manage. That worked out okay for us. Bob has done a great job and his team on the balance sheet. So I don't have to worry about debt maturities that we need to kind of husband our capital.
And another thing I want to introduce is you got to be careful about platform scaling, if you sell too many assets, you can really increase your overhead as a percentage of revenue. But all that said, the Board and the management team remain open to buybacks. And for us, it's hard for you to give you a formula. We're just going to kind of see what market conditions are, where the stock goes, what's out there to buy and keep our mind open to doing more stock buybacks.

Operator

Our next question is going to come from Michael Goldsmith from UBS.

Michael Goldsmith

My first question kind of dovetails off of Jeff's one. And if you kind of slice your portfolio between kind of core coastal San Francisco and Seattle and then expansion markets. You talked quite a bit about just the -- when you're expecting to see the second derivative and basically how long it's going to take for the expansion markets to recover. Can you put some more context around San Francisco and Seattle, how that time line compares? And if you're starting to see some of that second derivative recovery now or expect to see it in the near future.

Mark J. Parrell

Michael, it's Mark. And I think Michael Manelis may have something to add here. So we talked a lot about San Francisco on the call, the last one and why we like the market long term, feel the same way. The management team thinks there's going to be elongated recovery in that market. Conditions on the ground are a lot better. The mayor put out some information about crime reductions. They have the biggest class of police cadets at the Police Academy in San Francisco they've had since before the pandemic. So there's some good things going on. But until as Michael said, we get a little more tech job growth which talking to the team and talking to others in the Bay Area and in the city of San Francisco is probably a more later '24, '25 thing. That's probably where you get rent to take off.
But the thing I want you to think about is you've had spectacular growth in incomes in the Bay Area since 2019, over 30% nominal and 12% or 13% on a real basis, yet our rents are down in the city of San Francisco, 20% since 2019 and kind of flattish to up marginally in the Bay Area. So this is a market that, like New York can really take off once you get some job growth because there isn't a lot of new supply, housing costs are pretty high. So the management team is optimistic about the recovery, the timing is kind of tough. I don't know, Michael, if you've got anything you want to add?

Michael L. Manelis

Yes. I mean I think we expect these markets to be volatile this year. And just starting off the year right now, I got both markets at 96%. We issued a lot of concessions in the fourth quarter to get there. But the fact that we got there shows us there is demand in the marketplace. And as we think about even like the new lease change. So both of those markets reported in December about a negative 8% new lease change. When you look at the January results, they're now both at about a negative 3.5%. So it's a pretty material shift.
So the setup heading into the spring leasing season is really good. But we've been there before, and we've seen those markets kind of hit a pause and then kind of retrench a little bit. So that's why we're just being a little cautious. We're going to wait until we see probably a couple of consecutive quarters of improving fundamentals before we kind of change some of our long-term kind of modeling on those markets. The other thing I would just add besides the value proposition at San Francisco is Seattle benefits from having like the lowest rent-to-income ratios out of all of our coastal markets. So we just see this opportunity and the fundamentals for those markets to recover. It's just like Mark said, it's hard to pinpoint when.

Mark J. Parrell

Yes. I forgot to mention something on Seattle, I just want to throw out there. Seattle's nominal wage growth since 2019 is 40%, right? Yet our rents in that market are up 7% and downtown, they're flat. So again, these markets have the ability to pay more for great quality housing. And again, Seattle is a supply push this year. But after that, it gets a lot lighter. So that's about 1/3 of our portfolio, Seattle and San Francisco, and I hope, Michael, we're talking about that second derivative towards the end of this year for you, but we haven't embedded that into our guidance.

Michael Goldsmith

Got it. Very helpful, guys. And then my second question is just related to bad debt as a percentage of revenue, it was flat sequentially. I think there's an expectation that it could be choppy, but continue to trend down. So what's assumed in guidance for 2024? And do you expect a continued slow and steady pace of improvement? Or should we expect that to kind of to get better in a specific quarter or just any sort of visibility around the piecing of improvement?

Robert A. Garechana

Yes. I'll grab that. Michael, it's Bob. So to start with what's assumed in guidance, we do assume that we will get -- we will improve. So we ended the year at, call it, 1.4% of bad debt as a percentage of same-store revenue. I think I said in my remarks, we expect to get to 1% -- a little over 1% for the full year. That means that by the fourth quarter, we're assuming that we're sub 1%.
You're correct in the kind of 3Q to 4Q in 2023 being flattish. And what I would caution and is that it is -- this is a thing that is very hard to predict because of the court systems. It has puts and takes. It is more of a step function than a linear kind of improvement function associated with it. So our expectations and guidance is that Q1, which we're in right now is more flattish and that you started seeing improvement later in Q2, Q3 and Q4, because of that kind of pace of the court system and because there's always been a little bit of seasonality in this number. As you think about like post holidays, bad debt in the first quarter is always -- are typically a little bit higher anyways. So expect a little bit of a choppy step function, but expect improvement overall.

Operator

Our next question is going to come from Jamie Feldman from Wells Fargo.

James Colin Feldman

Great. So I guess just thinking about your comments on Sunbelt versus coastal. You think about the assets you bought last quarter 1 year old, selling assets that are 40 years old. How much of your view on those markets is tied to just the types of assets you own? Are these -- if they're newer assets, are they in lease-up, where it means you have more concessions, more challenging to get leased up. Is there some of that bias in the numbers you're putting out? Or would you say your view of what you're seeing in coastal is truly viewed across the markets?

Mark J. Parrell

Yes. Thanks for that question, Jamie. I guess I attack in another way by certainly lease-ups are different. But remember, the numbers we're telling you are same-store numbers, so they won't include lease-up conversations. But I would say we have relatively small portfolios in those markets. So if one property is being hit hard, it could be one out of eight of our same-store assets in Denver. So I think that is it. I think different people, obviously, different parts of the market feel it differently. So that would be my comment. We have relatively small portfolios. I mean, Austin, we have three same-store assets. So...

Alexander Brackenridge

And Jamie, this is Alex. I would just add that when you're in a market, though, that's got so much supply, and these are historic amounts where concession levels start to get more than 2 months or really excessive I think everyone gets impacted, whether you're a B property or an A property. I can't see how you're immune from some of that pressure.

James Colin Feldman

Okay. That's very helpful. And then as we think about the investment market, I mean, clearly, the debt markets are coming back pretty quickly. We've now seen some real estate M&A. So I assume competition is going to get harder for the types of assets you'd like to acquire in '24 and beyond. How do you think about the importance of just transitioning the portfolio as soon as you can versus really hitting that right number? Do you think maybe your underwriting assumptions have to loosen up a little bit, just so you can achieve some of your strategic goals over the next couple of years if the market gets more competitive?

Mark J. Parrell

We're -- we'd love to move more quickly in completing our repositioning. I don't feel any need to do that by selling assets cheap. I think you'll continue to see us, pardon me, sell assets that are a little bit less desirable from our point of view. It's more about the difference, Jamie, between the sale and the buy. If we can sell things well, we can pay up a little bit on the buy side. And again, we're creating that diversification, we value. So it's a little bit about if we're doing trading like that, it's going to depend on both the sale price and the buy price. The extent we try and expand the company through debt activities, then the interest rate that Bob is borrowing at is going to become more relevant. So I think right now would be somewhere in the neighborhood of 5% for 10-year money.
So well, that's helpful, but we'd like to move faster. We point out that since 2019, when we started this, we've moved billions of dollars of capital into those markets, but the transaction markets have been closed for half of the last 4.5 years because of COVID and because of the Fed. So we're hopeful that in a wide open year, I mean we did, I think, $1.7 billion back in '22. We're capable of doing $2 billion plus a year for sure. if the opportunities present themselves and we push the gas hard, it's got to make some sense. De minimis dilution is one thing. Wholesale dilution would require some sort of justification that we could get on this call, and you all would feel was compelling.

James Colin Feldman

Okay. So it sounds like it's more about the dilution than it is the absolute cap rate or the absolute IRR.

Mark J. Parrell

We would accept some dilution to complete our strategic repositioning. The IRR matters. I mean these deals got to make sense. We like owning newer assets because we'll have less capital. At the end of the day, the portfolios we will own in Atlanta, Dallas, Denver and Austin will be the youngest portfolios of our REIT competitors. We think that's beneficial to our shareholders on the IRR CapEx side, not just on the NOI side.
So yes, we want to push the gas on this. We want to move this along. The IRR matters, the cap rate matters, dilution matters, but getting it done matters a lot.

Operator

Our next question is going to come from Brad Heffern from RBC.

Bradley Barrett Heffern

In the prepared comments, you mentioned some increased price sensitivity in New York late in the year. Can you add some color on that and talk about what gives you confidence to rank that market relatively high for 2024.

Michael L. Manelis

Brad, this is Michael. So I think in the prepared remarks, I was saying we saw just that the overall market level, there was what I would describe as just like rent fatigue, where you started to see certain types of units, one bedrooms all of a sudden hit a price point at like $4,000. And it's just kind of the activity level slowed, the renewal conversations became a little bit more challenging.
So I would say we still expect pretty good growth out of New York in 2024. We're just saying we're tempering those expectations a little bit. The fundamentals there would all suggest that you have pretty good pricing power all year long because you have almost little to no competitive supply in Manhattan. You've got good demand drivers in those markets. But I just think we're realistic that we've had two really good years of rent growth of rate growth that we're just kind of saying, okay, let's just take a pause on that. And let's wait until the spring leasing season shows us exactly what the market is willing to absorb.

Bradley Barrett Heffern

Okay. Got it. And as a follow on to your earlier comments about wage growth on the West Coast versus where rent has gone, I guess, how much of that opens up an opportunity for future rent growth versus how much of that just reflects that those markets have become unaffordable before the downturn, and they've been semi-permanently repriced.

Mark J. Parrell

I guess we'll see. Our sense, again, from all our comments on San Francisco and Seattle is that they still are appealing places for our demographic to live that people will want to live in the center of those cities and the whole market. And that I don't know about some sort of wholesale repricing. You saw New York recover smartly on the rent side, and there's some deals going on in the investment sales market that would support New York trading at a lower cap rate as it historically has than the national average. So I think the story is yet to be told on the West Coast markets because there's just no one selling in the urban centers, but I don't think there's an answer to that. But I think the appeal of those centers is true and obvious and will come, and we've kind of given you our view of that.

Operator

Our next question is going to come from Alexander Goldfarb from Piper Sandler.

Alexander David Goldfarb

Yes. So two questions here. First, on the renewals. In addition to jobs, I guess, renewals also seem to be a wildcard. I realize there's a frictional cost to moving, especially in urban assets. But can you just walk through your views on renewal activity for this year. And it seems like you guys think it will hold up much better than new rents. And I'm sort of curious I would think those same existing residents would see the new rates that newcomers are getting in would want a rent reduction, not a rent increase.

Michael L. Manelis

Yes, Alex, this is Michael. So I think it's a great question. And what I could tell you right now is that the quotes for the next 90 days have already been issued. We do expect to continue to renew about 55% to 60% of our residents and achieve approximately anywhere between a 4% and 4.5% growth, off of about 6% quotes that are out in the marketplace.
You got to remember, in the last couple of years, I mean, we put a lot of effort into this renewal process. We've centralized our renewal negotiations that's really helped us navigate the negotiation conversations with residents. We're leveraging all new processes in both the quote generation as well as the negotiations. We're layering in data science to help enhance some of these results. And right now, we do expect renewal performance to be fairly stable but we have modeled for further deceleration like later in the year. So the full year is expected to come in just over 4%, which is still a pretty solid growth, but we do expect to see some deceleration.
And I think when you look at the spreads right now that you see in the markets with new lease change or market pricing and renewals, sure, there's more stickiness when it comes to the renewals. And we have a lot of great, rich history and data going all the way back to like 2006 that shows us that even when markets are dislocating, and I could use a San Francisco back in like 2016, where it was just getting a lot of new supply right on top of us, that market held up pretty well from the renewal standpoint and landed somewhere in that back half of the year with about 2% averages.
So it's not uncommon to see these spreads in the marketplaces. And the other thing, I guess, I would point out is we start getting into '24, our concession use was elevated back in '23. So I can renew a lot of these residents flat in some of these expansion markets or Seattle and San Francisco and still walk away with a 6%, 8% increase on renewals. So it kind of takes away some of the spread that you're looking at and why we have so much confidence in that renewal number being right around 4%.

Alexander David Goldfarb

Okay. The second question sort of dovetails on the rent fatigue comments. It seems, I mean, using New York as an example, no new supply. People want to be back in the city. And we don't really hear stories anymore about doubling up or even moving to New Jersey, it's still an expensive proposition. So from a pricing perspective, do you feel more comfortable today sort of across your portfolio, especially in markets like New York, in pushing pricing versus years ago when renters -- and I'm not just talking about new supply, but we're doubling up or maybe moving to New Jersey or outer boroughs was something was more of an option. Do you feel like you have more pricing power today to push rents more than historically?

Michael L. Manelis

Yes, Alex, this is Michael. I'll start. Maybe some of you can layer on top of that. I think this is really a market and submarket kind of look. So it really just depends what is the spread? How much is Brooklyn's rents compared to Manhattan? What is that trade-off decision to happen? So I don't know that I'd say I have more pricing powers today than I have had historically. I would say we have really good processes in place today that help us navigate through these situations. And each market is going to deliver different rate growth based on a whole lot of factors that go into the strengths of markets.
And as we look for 2024, all I can say is that the setup feels pretty good. It's like normal. The rents are doing what they seasonally should be doing sequentially building each week. Our application volume is sequentially building each week. I think we need to see that momentum in that early part of the spring leasing season to really be able to answer that question and tell you, do I feel like I got more pricing power or less than historical times.

Operator

And our next question is going to come from Rich Anderson from Wedbush.

Richard Charles Anderson

So on the topic of expansion markets, is it absolutely a fee simple type of investment? Or would you be open given the sort of the complexities of all the lending environment and all that sort of stuff and some distressed balance sheet distress and whatnot. Would you be willing to invest in different areas of the capital stack with an intention to ultimately own? Or are you going to have enough opportunity to keep it simple and just go through equity channels?

Alexander Brackenridge

Rich, it's Alex. Well, we prefer simple, if it's available, but if there's a good opportunity, that would require us to participate elsewhere in the capital stack that would lead to us likely owning the property, we're wide open for that as well. So I do think there's going to be a lot of fee simple stuff out there though. So we'll balance that out. But we're happy to talk to anyone that owns a well-located apartment in the expansion markets about any structures they have.

Richard Charles Anderson

Okay. Great. And then if I could just sort of ask the sort of a different question about what you said, Mark earlier about 2025 being a tougher year in the Sunbelt versus 2024. But then you said something like -- but the second derivative might be thought to be better. I didn't quite understand that, so maybe you can clarify that. But would you say, generally speaking, that the Sunbelt sort of recovery process is maybe a year behind San Francisco and Seattle. Is that like -- does that sort of help define the condition that you see it today?

Mark J. Parrell

Yes. What I'm going to say is just how we've seen things play out in our markets. So the first thing that you see as you start to see a decline in occupancy when you get all of this, when you get a lot of supply or a big demand drop or both. So the markets you've seen competitors in the RealPage numbers sort of show declines in occupancy. That pressures owners to give concessions and lower face rate. And then that, in turn, eventually affects same-store revenue. which is, of course, the interplay between occupancy rate renewals and the whole 9 yards. And so when it reverses, the exact opposite happens. First, you start to see on building my occupancy a little as Michael spoke to Seattle and San Francisco, that gives you a little bit of confidence. So now you're going to take away some of your concessions and you're going to try to move rate up a little, especially in the spring leasing season, you're going to test that. As that improves and eventually that will flow through to your same-store revenue number.
So that's what I mean by that comment. So that this year, same-store revenue might hold up better in a heavily supplied market or a demand-challenged market because you're looking at a situation where your rents, you haven't rewritten every lease down yet. But over the course of 2 years, you will. And in that process, that second year same-store revenue number is often lower but we're often telling you, "Hey, you know what, your lease is going up. We're feeling better in a market". And that's what I'm sort of expecting. We'll see how it goes, but my expectation is sometime in '25, folks will be talking about an improvement in some of those, I call it, second derivative, but new lease rates, street rent numbers. And it isn't going to be dramatic right away, but it's sort of some solidification of that that's really built on occupancy starting to improve. So again, you got all this supply, our experience is it compounds. It gets worse before it gets better. And it just takes a little while to run through the entire P&L. Is that helpful, Rich?

Richard Charles Anderson

Yes, that's really helpful. And then would you then sort of characterize Sunbelt as being x money months behind San Francisco, Seattle, would you -- is it a year in your mind if you were to sort of simplify it?

Mark J. Parrell

I don't have a prediction on that. We told you we didn't put San Francisco and Seattle in this year's improvement bucket. I have high hopes, but it feels like because of supply in Seattle and just job conditions in San Francisco, it could take a little longer. And I think the Sunbelt is just starting its challenges. So I think both areas will be a little challenged in '24.

Operator

And our next caller is going to be John Kim from BMO Capital Markets.

John P. Kim

On your blended lease growth improvement in January, can you comment on how you think these trends for the remainder of the quarter? I realize you expect it to improve in the second quarter. And if there's any discrepancies in the market performance versus what you had in the fourth quarter as shown in Page 17 of resettlement?

Michael L. Manelis

John, this is Michael. I could start with that. So I mean, I think as you look at this, and I've cited before, just the improvement that we saw in San Francisco and Seattle coming off of December and into January with the new lease trends going from like a minus 8 in December, down to like the minus 3.5. The portfolio itself was at minus 5.7 for new lease change in December and is now in January that we put in the release at a minus 3.7. The expectations clearly is that you could see with sequential rents improving each week, that number is going to continue to drop as you work your way through the quarter.
So on the renewal side, it's a little bit of the opposite story. You saw renewals were a 5.2 in the month of December. And in the release, we have January at the 4.9, the quotes are out there, but we do expect this renewal number to keep trending down as we work our way through, somewhere in that 4% to 4.5% range is what we expect to achieve off the quotes that are in the marketplace. So I think you're going to see the interplay between these two shifted a little bit where you're going to have strength because you're going to have new lease change starting to recover. And hopefully turning positive as we start off the spring leasing season. We'll see if we keep this kind of momentum in place to do that, and you'll see the moderation of renewals, but still at a really strong number if we come in anywhere between that 4% and 4.5% growth.

John P. Kim

Okay. And my second question is on your development yields. Like you said, we're trending closer to 6%, given higher concessions. Can you comment on the level of concessions that you're providing today? And is this really driven by your Texas and Denver developments? Or is this broad-based?

Alexander Brackenridge

John, it's Alex. Well, we are literally just starting up our lease-ups right now. So we don't have a lot of data yet. We are assuming a month right now, but that could be flexible over time. And those lease-ups are three in Texas, one in suburban New York, which we'll probably see very little of that kind of concessions and then two in Denver.

Operator

And our next question is going to come from Adam Kramer from Morgan Stanley.

Adam Kramer

Maybe a little bit more of a conceptual question, and I guess, also kind of in line with Alex Goldfarb's question earlier. But just looking at kind of the new lease change by market, comparing that to the renewal change by market. It's kind of interesting, a new lease can vary pretty significantly by some of these markets, but renewals are in a pretty tight band, call it, 200 basis point band, give or take. And so I guess the question is kind of twofold, right? Is there an ability to maybe push renewals even more in, say, a market like D.C. where new leases holding in a lot better versus kind of expansion markets, right, or San Francisco where I guess I'm kind of surprised by that historically why it's wide spread between the new and the renewal rate? And should I be maybe a little bit worried about renewals kind of falling a little bit, getting closer to that kind of deeply negative or somewhat negative new lease change. Again, a little bit more of a conceptual question, so apologies, but hopefully, hopefully, that makes sense.

Michael L. Manelis

Adam, it's Michael. So I mean I think there's just more stickiness into the renewal stats that you look at this. And you're also coming off of a period of time which is low transactions. So there is a little bit of that in these numbers. I think as we think about this, I mean, like I said, we have this data going all the way back in time. It's just not uncommon in the fourth quarter to see new lease change goes negative. Even in a pretty good year with rate growth happening in the marketplace, that new lease change goes negative and renewals stay positive. So it is a really uncommon situation for our renewal growth to go flat or even think that it's going to be negative. And like I said, we've just put so much into our processes. We have so much good information and insights to it. We've got a high degree of confidence.
That being said, if there's a big dislocation in the market, right? Even the deceleration that I mentioned before, could be more robust than what we modeled.

Adam Kramer

Great. That's really helpful. And I appreciate that color and all kind of the building blocks earlier on the call, too.
So maybe on concession use. I know you've talked about it a little bit on the call thus far. Maybe just if you don't mind some of your expansion market. Kind of the level of concessions in terms of number of weeks that are being offered?

Michael L. Manelis

Yes. So I think I would just start by just saying that the concession use right now remains concentrated in the Seattle and San Francisco portfolio for us with about 70% of all the concessions being issued. When you drill into the expansion markets, I mean, it's such a small percent of the absolute portfolio. But right now, when you go across them, it's running between like 30% and 45% of applications receiving about a month. I'd say Dallas right now is the one market where we're up closer to about 6 weeks' worth of concessions being issued. And like I said, we would expect that to kind of continue at that level in those expansion markets and we're watching what's going to be happening with the new lease-ups and how competitive are they so that we know where we need to play. The fact that these markets are now like 96% or even some of them over 96% with that concession use that we did in the fourth quarter is really a good sign because the last thing you want to do is turn on concessions, do leasing and still land in an occupancy like where you started with? That would not be a good situation.
So we feel like the setup right now is defensive. These occupancies are 2% to 3% above. We expect to issue 30% to 40% of our applications receiving concessions of 1 month to 1.5 months in those markets.

Operator

Our next question is going to come from Haendel St. Juste.

Haendel Emmanuel St. Juste

I guess, good morning out there to you guys. Mark, I guess the first question for you, following up on Rich's question earlier about your potential interest in stepping in and participating in other parts of the capital stack. Seems a bit of a departure from how you've responded to mezz investments in the past. So I guess, first, is that fair? And why the change of heart? I'm assuming perhaps is reflective of the opportunities.
But second, I'm assuming -- or is it fair to assume that you'd be solely focused on the Sunbelt?
And then third, what level of return or premium acquisition cap rate would you seek there?

Mark J. Parrell

Okay. I'm going to start with some of that and then Alex may answer parts of it as well, Haendel. But on the mezz investment side, I think the part that Alex emphasized was the path to ownership. So what we've been more hesitant to participate in is to just create a book where we are consistently making mezzanine loans or preferred equity investments in deals where it's improbable that we would end up being the owner. When we're working with the lender and the owner and we get in the capital structure and there's a good chance we're going to end up with the deal, that to us is very different. That is stuff we did do back in '08 or '09 through 2010. So that is a familiar thing for me and Alex and a lot of folks on the team to do. So that's how I would distinguish the two of those. I don't know if there was anything else in that question you wanted to answer, Alex, no.

Alexander Brackenridge

No, I think we're good. I mean we will be opportunistic. That's the history of our company, and we'll keep looking for chances to buy great real estate.

Mark J. Parrell

I guess I will -- you asked about acquiring assets in one form or another in our established coastal markets. We're certainly open to that. We've got some development deals we're likely to start in some of those established markets that are in areas really hard to build. But the primary focus is to get into these expansion markets and add capital there.

Haendel Emmanuel St. Juste

Got you. Got you. That's helpful. But a follow-up. What level of return potentially would you -- or premium to acquisitions, would you seek were you to get involved in some of these mezz or pact ownership type opportunities.

Alexander Brackenridge

Haendel, it's Alex. It's really impossible to peg that without knowing the specifics of the deal and the circumstances around it. But obviously, we're very focused on getting compensated for any risk we would take beyond a typical transaction.

Haendel Emmanuel St. Juste

Okay. Fair enough. One more on the expense side. I was hoping for a bit more detail on the key components. I appreciate the overall high-level thoughts you provided there earlier, but maybe some specifics on the key components like what you're embedding in your guide for specifically taxes, insurance, R&M and also for the ongoing tech initiatives. I think last year, you outlined $10 million or so of savings via that. Just curious what level perhaps we could see from tech initiative savings this year.

Robert A. Garechana

Yes. Haendel, it's Bob. I'll start with some detail on the expenses and then maybe pass it to Michael on the initiatives. I will caveat on the initiative side. Most of our initiatives, as Michael mentioned, are more revenue focused this year than expense focused, but he can touch on initiatives if I don't cover something. So on specifics related to some of the categories we are expecting, as I kind of mentioned, utilities and real estate tax to grow higher than what they did in 2023. That implies or means that at the midpoint, we'd have real estate taxes around, call it, 3% and utilities more around a 6% growth rate relative to what were lower growth rates in '23.
On the other side of the equation on the big categories, you have R&M, which experienced a lot of inflationary pressure in 2023. We expect that to normalize. So we expect R&M to grow something more like 4%. That is where we are realizing some of the opportunities and work that we've done on the initiative front to reduce our dependency on contract labor and places where there's wage pressure. So that's helping us get to that 4% anticipated growth. And payroll, we think we're not anticipating as much challenges on the medical benefit side, and we're just yielding some of the payroll optimization we did was back-end loaded in '23. So we'll realize more of that benefit in 2024. Does that help you on the color side? Is there any categories I missed?

Haendel Emmanuel St. Juste

No, that's helpful. But in relation to -- I believe it was $10 million that you outlined last year from tech-driven efficiencies first, is that accurate? And second, do you have a comparable figure expectation for this year?

Michael L. Manelis

Yes. Hi, Haendel, it's Michael. So let me just start by saying that really, the entire company has been focused around these innovation initiatives for the last several years. And we now have created this foundation that really is going to deliver long-term value creation to the portfolio for many years to come. With the materials that we put in that November investor presentation highlights this technology evolution of this platform really has been focused on creating the mobility and efficiency in the operating model while this seamless experience to our customer improves.
All in, we've identified about $60 million in NOI improvements with about $35 million of that already achieved over the past several years. The early stages of this was clearly more expense focused, and that shows up in our numbers when you look at the low expense growth. And that's mostly in the payroll and some of the R&M accounts over the last couple of years.
Going forward, we've identified and we expect about another $25 million. In 2023, we delivered about $10 million in NOI improvement, and about 2/3 of that was on the expense categories, primarily in the payroll accounts and a couple of million dollars of that was in the revenue front.
Specific to 2024, we've layered in another $10 million included in guidance with about $7.5 million in other income accounts. And this is realized growth as the annualized number from all of these initiatives is greater because some of these are back half loaded, meaning I only get about half of the benefit this year.
So overall, I guess I would just say is this operating foundation is almost in place. and you really should expect that the future years are going to continue to have more revenue enhancement opportunities. But the reality is, I mean, we're never really done with this pursuit of operational excellence. It's something that's wired into the DNA of our company. And I'm sure as this year goes on, we're going to identify new things for future years as well.

Operator

Our next question is going to come from Rob Stevenson from Janney.

Robert Chapman Stevenson

Alex, can you talk about how robust the market is for dispositions in quality of life areas like Urban Seattle, San Francisco or markets with ongoing bad debt issues like LA are things trading and where are they pricing versus a few years ago if they are?

Alexander Brackenridge

Yes. Thanks, Rob, it's Alex. There's almost no activity in the markets you listed. I mean, we test from time to time, not saying we wouldn't sell something, but right now, I don't -- I couldn't tell you what market cap rates are because they just haven't been freed. So it is really frozen there. So frankly, we've concentrated our efforts elsewhere.

Robert Chapman Stevenson

And I mean is that just hold on for a couple of years, hope that the cities get their act together? Or is there something else just simply by lower priced capital that will allow that to sort of come back? Or are there -- you're anticipating some sort of level of permanent impairment on some of those markets and submarkets.

Alexander Brackenridge

No. I think all of the things that you mentioned are likely to happen. There's a tremendous amount of capital on the sidelines. These cities are still great cities. The cities themselves are doing a lot. Particularly in San Francisco and Seattle to improve the quality of life. I mean they're making some really serious headways. And as Mark talked about, we expect them to recover as the jobs recover, but even absent that, we're at 96% occupancy. It's just investor sentiment is really negative right now, and we think that there are better opportunities elsewhere, and we're frankly a buyer of what it sounds like people would transact right now.

Mark J. Parrell

And Rob, just to add to that, I mean, these markets, Seattle and San Francisco, particularly though, you could think about downtown L.A. too. We may have powerful drivers. For us, it's like we talked about New York, when everyone was down on New York City, and we were positive on it still. That recovery has been vibrant. I think it's the same pattern here. It's not a matter of if, it's a matter of when. And I think these markets will recover greatly on the rental side over the next few years.
What we shied away from on this call is excessive enthusiasm too early in the year when you're not really into the leasing season yet in markets that do have volatility associated with them. So I don't feel any sense of permanent impairment in these markets at all. I think that you're going to have great rental growth, you're going to have a recovery that's pretty strong in these markets. And you are likely but not certain to follow a pattern like in New York, where, again, the investment sales market has some deals in it in New York, and they're trading really well. And so I'm not sure why in a few years San Francisco and Seattle wouldn't trade very well as well. But it's just going to take some time.
And again, our hesitancy here is really around the time line for this, not the occurrence of it. And I think it's a catalyst for our investors. I think having a portion of the portfolio in unrecovered markets with rents lower than they were in '19 and income is a lot higher is a huge potential piece of kindling wood to our earnings in future years.

Robert Chapman Stevenson

Okay. That's helpful. And then lastly for me, Bob, what's the $0.06 difference between day REIT normalized FFO guidance? Is that one or two large items that you're expecting or a bunch of small ones given what you know today?

Robert A. Garechana

Yes. There's one larger contributor, which I'll talk about, which is advocacy costs. So we are forecasting higher levels of advocacy costs in 2024, given that it's an election year and some of the balance sheet -- ballot initiatives, sorry, that we are facing, which is not atypical as another election years. And then the remaining pieces are typical forecast for pursuit costs and other items.

Robert Chapman Stevenson

Is that advocacy in California? Or is there other markets as well? Or is that entire spend out there?

Robert A. Garechana

It's predominantly California.

Robert Chapman Stevenson

Okay. And is there anything, I guess, related to that, that you're especially worried about this cycle? I mean, I know that a lot of this stuff keeps being put on every other ballot or every ballot. But I mean, is there anything that's looking like this year or '24 is the chance that it really passes, it would wind up being a negative for you guys?

Mark J. Parrell

Rob, it's Mark. I mean, there's negatives and there's positives in the regulatory area. The ballot measure is by far the biggest point of focus in the industry. And just to remind everyone, this has been on the ballot twice before, the citizens of California rejected it by 20 percentage points each time. The industry is well organized. We're going to make the same good arguments about supply being the solution, more rental voucher funding being the solution. And to be honest, the Governor Newsom and the legislature have done a lot of supply things with the accessory dwelling unit legislation, with some of the zoning reforms. And so to be honest, when I turn to the positive on the regulatory side, people hear us. They hear the industry's point about supply, about zoning reform, Governor DeSantis obviously couldn't be more different than Governor Newsom. He has done some great things in Florida as it relates to housing policy as well and zoning reform to allow more affordable housing to be built. Governor Hochul in New York was trying the same thing and got a lot of resistance, but we hope that is still in place.
So California is, to answer your question, the focal point of us and the industry at large this year. But markets like New York and Massachusetts and Colorado, there's always dialogue going on in those markets. but we're well organized to have that conversation. And I think policymakers by and large understand that supply is the answer, not rental regulation. That's what I think is the positive here. You hear about that a lot more in our conversations and the reaction to rent control is something that we talk through and you get a lot of people calling the other direction after they've heard the arguments.

Operator

Our next question comes from Anthony Powell.

Anthony Franklin Powell

A question on new and renewal lease spreads and the leases. I'm curious what's the absolute, I guess, rent, these two customer groups are paying in terms of both gross and net effective? I'm trying to understand better about what the actual numbers are for these two customer groups.

Michael L. Manelis

Anthony, this is Michael. Can you ask that again? I'm not sure I'm following. The absolute rent part of the equation.

Anthony Franklin Powell

So in terms of this new and renewal leases on absolute rent. Is there a big difference between the two? Are customers paying lower or higher on renewing or new leases? I'm trying to get a sense of the absolute pricing difference between the two groups of customers.

Michael L. Manelis

Yes. I think when you look at it on the new lease side, because of the concessions that we're offering in some of them, I think it lowers like the net effective rate when you look at the absolute average of all the leases that we wrote versus the renewals.

Robert A. Garechana

And one thing to keep in mind too, Anthony, is when you're looking at the spread, so if you're starting with market rate rents, right, and looking at market and that's kind of your pricing trend or whatever, spreads can vary materially depending on who is in the mix of moving in and moving out. So if I have lived in a unit for 1 year and got a big concession as Michael used an example in an expansion market. And I happen to be the one renewing, then that spread can be very different than the absolute. So just keep that in mind as you look at any of these spreads. And then particularly, keep it in mind as you think about seasonal periods like the first quarter and the fourth quarter, where transaction activity is really low, you can have even more volatility in the number.

Anthony Franklin Powell

Thank you. And maybe one more on transaction activity. Do you expect to see any portfolio deals later this year? Or do you expect your deal activity to be more single asset as it had been recently.

Alexander Brackenridge

Anthony, it's Alex. I don't know if I expect to. I certainly hope to, and I think we probably will, but it remains to be seen. But there are some things out there that we've heard about that might be interesting, and we'll certainly be very actively pursuing them.

Operator

Our next question is going to come from Linda Tsai from Jefferies.

Linda Tsai

Just one question. In your prepared comments, you highlighted seeing stability in pullback in Seattle and San Francisco. Could you discuss that dynamic more? Is this volatility associated with job loss and return to work mandates? Or maybe just provide some examples of what drives this push and pull.

Michael L. Manelis

Yes. Linda, this is Michael. So I think clearly, job growth is one of the catalysts that does that. The migration patterns also influence that. So where you see a lot more of your move-ins coming to from within the MSA that's usually deal seekers. Those are people that are responding to seeing the concessions and either breaking their lease where they were to move into it. So it's just -- you just haven't seen like the sustained momentum that you would expect based on seasonal trends. I think last year, you saw some of those layoff announcements, you saw a lot of ambiguity around return to office where people were just waiting to see what their employer was going to do before they decided to make any kind of relocation decisions to get nearer into where their offices were.
I still think some of that exists in the marketplace today. But what we did see and what we see right now is that the setup in both of those markets has positioned us with good occupancy. We are starting to pull back concessions, the marketplace still have concessions in them and we'll just watch and see that build as we get in towards March and April to see what pricing power really looks like. But there's a lot of factors that are going into why a market all of the sudden kind of stalls out and whether or not it shows you sustained momentum more in line with seasonal trends.

Operator

I have no further questions left in the queue. I'll turn it back over to Mark Parrell for closing comments.

Mark J. Parrell

Thank you all for hanging in there on this long call. We appreciate your interest and your time today. Good day.

Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.