We expect to start a deal in suburban Jersey, which is around a 7 because cap rates are higher in that market. And then Mid-Atlantic, it would also be around the 7, and then some of our expansion regions that might be a little lower than that, closer to 6.
Operator: And our next question comes from Adam Kramer with Morgan Stanley.
Adam Kramer: Just wanted to ask about your expectations for West Coast markets. I think these are markets that lagged a little bit if I just look at your kind of market-by-market effective [indiscernible] growth in the supplemental. But they also have pretty high expectations for same-store revenue if I’m looking at your presentation correctly. So I just wanted to ask you about kind of what’s the delta there? Are there kind of outsized growth expected there in — for the rest of the year that’s going to bring same-store revenue to be one of the best-performing markets there, if I’m looking at your slide deck?
Sean Breslin: Yes, Adam, it’s Sean. Good question. And one of the factors to keep in mind is what’s changing in underlying bad debt across the markets. If you think about it, it was like rent change is one component, but changes in occupancy, bad debt, et cetera. And particularly for the Southern California market, I would say that is a meaningful contributor to total revenue growth in 2024. To give you some sense in the first quarter, I think Southern California, roughly 40% of the revenue growth was related to just better underlying bad debt as we’re — those folks out, seeing the churn and then rerenting those units to people who are paying. So that is a driver. There’s a table in the back. There are lots of attachment that gives you the change that we’re seeing over the last few quarters in bad debt, and that may help you kind of map a little bit better.
Adam Kramer: Great. And just maybe as a follow-up. You guys provided a really helpful kind of expectations for new and renewal growth for the whole year. And apologies if you’ve talked about this already today, but maybe just walk us through kind of what the updated expectations would be. I think renewals prior were 4%. New was roughly flat, leading to 2% blended growth. Maybe just walk us through what the updated expectations are assuming with the new guidance that those may be a little bit higher than they were previously.
Sean Breslin: Yes. What I mentioned in my prepared remarks is that we expect like-term effective rent change kind of in the mid-2% range, which is about 50 basis points above our original outlook. What I indicated is that the second quarter should trend up probably in the low 3% range before decelerating in the back half of the year. As it relates to renewals, kind of low to mid-4% range for the balance of the year, while new move-ins averaged roughly 50 basis points, which sort of reflects maybe the low 2% range for Q2, before experiencing kind of the normal seasonal decline in Q3 and Q4. So that’s kind of how we’re looking at it right now.
Operator: Our next question comes from John Kim with BMO Capital Markets.
John Kim: Part of your beat and guidance raise was due to better-than-expected capital markets activity. And I was wondering what component of capital markets outperformed your expectations. Last quarter, you gave a pretty good breakdown on that $0.29 headwind, which has improved slightly.
Kevin O’Shea: Yes, John, this is Kevin. Really, the $0.02 from better-than-expected capital markets activity was primarily driven by a combination of favorable interest expense and interest income as well as slightly higher budgeted — higher-than-budgeted capital interest expense. So it’s really in those categories where most of the favorability was realized.
John Kim: What about your cap rate expectations either on sales or investments?
Kevin O’Shea: Well, I was referring to Q1. We didn’t have any transactions that closed in Q1. So transaction activity cap rates did not really have an impact. As you look at the full year guidance, we expect basically due to adjustments in a range of things that fall with the capital markets activity such as buying and selling assets and then movement of interest rates on existing debt and additional debt activity that we have anticipated. We anticipate getting $0.01 of the $0.02 back and being net favorable by $0.01 for the full year on capital markets, in terms of our core FFO relative to our initial outlook. So we’re early in the year in terms of what we will do broadly in terms of transaction activity, capital markets activity.
So haven’t made a lot of adjustments, but there’s been some movement that caused that additional $0.01 shortfall in the back half, back 3 quarters of the year that leave us sort of getting $0.01 of the $0.02 back later in the year on that line item.
John Kim: Okay. My second question is on the SIP program, where you mentioned that you had a favorable vintage ’22 and ’23 originations. I was wondering when some of those ’22 originations start to get paid off. And forward and reinvest some of the proceeds. What metrics do you look at or monitor whether it’s exit cap rate or or maybe supply that would make you more cautious on reinvesting in the program?
Matthew Birenbaum: John, it’s Matt. So the only deal that we have that matures next year ’25 is a very small $13 million loan in Northern New Jersey, very stable, strong market. So all the other ones don’t mature until ’26 or later. So it wasn’t necessarily kind of first in, first out, so to speak. So it’s still quite a ways out there. And we’re still building the book. So we haven’t really focused too much on reinvesting, getting that money back. We’re still — we’re at $200 million in the program today. I think our long-term goal is for it to be around 400, 400 or 500. So we’re hoping to grow that total balance maybe $75 million this year and then continue from there in ’26. At some point, yes, we’ll have to — we’ll face that revolving door where we start getting redemptions. But we’re still, at least, a couple of years away from that.
Operator: And our next question comes from Joshua Dennerlein with Bank of America.
Joshua Dennerlein: Ben, I just want to explore a big picture topic you mentioned. You were talking about the differential between owning and renting in your markets is really wide. Rents are benefiting from that. Is there any historical time period where we could kind of look back at where the delta was this wide? And if so, just like how did it play out on the rent growth front?
Benjamin Schall: I mean the rent versus own economics that we’re seeing today are really unique, not something that we’ve seen. We’ve obviously, over time, seen small variations in that. But the combination of home price appreciation, particularly in our markets and the rise in mortgage rates has led to all-time levels, right? I mean you’re approaching where it’s some of our markets 2x more expensive to own versus rent. And if we think about it kind of longer term and looking forward, I would frame it as that’s an incremental cushion that we have that’s supporting our demand on rental economics. So it may not stay as peak as it is today. Obviously, part of that is based on the trajectory of interest rates. But there’s a nice cushion that should serve as a tailwind for us for a number of years.
Joshua Dennerlein: Is there anything in your forecast like as far as rent growth goes? Or does your forecast assume any kind of like narrowing of that gap? Or would that be potential like upside? And maybe it’s not just a 1 year dynamic, maybe it’s multiyear. Just trying to think through upside from this.
Sean Breslin: Yes. I mean the forecast for this year reflected being a relatively stable level. Obviously, interest rates bounce around, prices bounce around. But in terms of the current year outlook sort of reflects generally where we are at this point in time have remained relatively stable.
Operator: Our next question comes from [indiscernible] with Green Street.
Unidentified Analyst: I’m just wondering have you seen any examples of things beginning to get more aggressive with property tax assessments of apartments to help fill the hole in budgets left by suppressed commercial real estate values in other sectors?
Sean Breslin: Anne, this is Sean. I mean it’s early in the calendar year for some of the assessment cycles that really are more heavily weighted towards kind of midyear and the back half of the year. What we have seen thus far is a little bit of an uptick in Washington State and Virginia. We don’t have insight into all the jurisdictions just yet. But in terms of our portfolio, that’s what we’re aware of. There’s a lag as it relates to property tax assessed values. So our expectation would be there’ll probably be more pressure on the Sunbelt based on the run-up that occurred sort of through COVID that’s still working its way through the system before you see it in the next couple of years maybe start to move the other direction. So we haven’t seen clear evidence of that for 2024 just yet, but that’s kind of the high-level view.
Unidentified Analyst: All right. Appreciate that. And I’m just curious, what level of CapEx per unit should we expect in the next few years combined between NOI enhancing and asset preservation?
Matthew Birenbaum: Yes. Anne, it’s Matt. So our asset preservation CapEx has been pretty consistent over the last — well, between ’23 and ’24, around $1,600, $1,700 a unit, which is, I guess, roughly 6% or 7% of NOI, 7%. The NOI-enhancing CapEx, that’s where we really increased our investment or we’re looking to increase our investment volume quite a bit. I think we invested about $75 million, $80 million last year across the whole portfolio, most of which I guess was same store. We’re looking to double that this year. A lot of that is driven by expanded solar production and by expanded the opportunity for the accessory dwelling units in California that we talked about it at Investor Day. And we think that’s an opportunity that’s out there for the next couple of years. So we’re excited about that. And I would think that there will be the opportunity to continue to have those increased opportunities, at least, for the next couple of years.
Operator: Our next question comes from Brad Heffern with RBC Capital Markets.
Bradley Heffern: Yes. On the blended rate assumptions, the low 3% for the second quarter, maybe seems a little conservative given you would normally expect those blends to pick up further from here, and you’re already at 3.3% in April. So is your assumed seasonality more muted than normal for the second quarter and for the rest of the year? Or am I perceiving that wrong?
Sean Breslin: No, not really, Brad. I mean low 3%, 3.2%, 3.3%, somewhere in that ballpark. I mean we’ve seen asking rent growth kind of 5.5% or so through yesterday. That’s played through just renewal offers that have already been made in terms of what our expectation is for rate growth. So it seems like somewhere in that range for the second quarter is reasonable. And then you will have to see how asking rent growth continues as we move through the second quarter.
Bradley Heffern: Okay. And then on concessions, you talked a little bit about the Bay Area and Seattle, but can you go through any of the other regions that have concessions and how they trended? I’m particularly thinking about the expansion regions, but anywhere else as well.
Sean Breslin: Yes. What I would say, first, in terms of the expansion regions is we have relatively small portfolios in our same-store basket in those regions. So as you think of the expansion markets in Texas, for example, we don’t have anything in Austin. There’s only 2 assets in Dallas. We have seen — at least in Q1, we saw a year-over-year increase in concession volume in Dallas. In the previous year, it was about 1/3 of all leases. It was roughly about half in Q1. So Dallas — Dallas is really a market, very large geography, broadly diversified, really depends on where you are. There are some submarkets where it’s well over a month for almost every lease. There are other submarkets where it’s half a month for some level of volume.
