Eric Wolfe: Got it. That’s helpful. And then as far as your renewals, when does the concession burn off, sort of, the comp get harder? And where are you sending renewals for the next couple of months if you exclude to that concession burn off?
Jessica Anderson: Eric, this is Jessica. As far as renewal burn off, Barb mentioned it earlier, right now, it’s roughly 50/50, and it becomes less so with regards to concession burn-off as we progress through Q1. Our concession strategy last year, I think we averaged roughly half week free last year, and there were some lumpiness as we dealt with delinquent units. So we may see that show up periodically. But with regards to forward-looking renewals we’ve sent out February and March at roughly 3%, 3.5%, and it’s a little bit less than 50/50. It’s probably more like 60/40, and it will continue to progress that way like I said, unless we have pockets of heavy concession usage from last year.
Eric Wolfe: Got it. Thank you.
Operator: Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb: Hey, good afternoon, actually good morning, it’s afternoon here. So two questions here. First, I do like the updated S-17, it’s much simpler and I think brings the focus to just the data that you guys provide, so that’s good. So two questions here. First, on the pref equity book, I’m assuming that you guys did not underwrite like low three cap deals at the peak or such. But can you just walk through where your investments sit in the capital stack. And as we hear articles or read stories about low 3 cap deals being revalued into the 5s, and what that does to people’s equity and the associated debt. Can you just walk through your pref book and how you underwrote it and how we should think about it from a cap rate perspective?
Barb Pak: Yeah, Alex, this is Barb. There’s a lot of moving parts to that question. And every asset is different. What we have is a comprehensive model where we value every asset every quarter. And what we’re really focused on is where is, our last dollar sit? Where are transactions occurring? And where is — what is the exit strategy and our response is going to continue to fund equity shortfalls. We’re also looking at their debt maturities, their caps and swaps they have in place as well as their interest reserves with their lenders. So there’s a variety of factors that go into it. I do think we’ve scrubbed the book. We stopped accrual on two others. They were in Northern California, and given where we were in the stack, and we’re watching a few others closely.
But for the most part, we’re at very reasonable valuations on the rest of the book and are not concerned with it. And we’ve consistently got redemptions even in the fourth quarter we were redeemed out of one of our assets. And so we feel good about the rest of the book, and we’ve not had to take back an asset. We found solutions, and I think that goes to our disciplined underwriting of our guarantors.
Alexander Goldfarb: Okay. And Barb, just to be clear on that, the two in Northern California, they’re not paying so they’re on non-accrual or you just were precautionary and then the other, I think, let that you’re watching, do you expect those to go on non-accrual?
Barb Pak: So the two in the fourth quarter, we put them on non-accrual. They weren’t required to pay current, but we put them on non-accrual just given where we are in the stack. They have near-term maturities as well and we’re working with the sponsors on those debt refinancing’s. And then the other ones that we’re monitoring, we’re assessing that — we’ll assess that quarter-by-quarter. We have reserved it in the guidance, but we’re assessing it based on current market conditions.
Alexander Goldfarb: Okay. And then, Barb, just on the guidance front, hearing how you guys have described the market, Seattle is the week one. Oakland is weak, but your other Bay Area is fine. Southern Cal is obviously great. You’re recapturing the COVID units the OpEx is what it is. You have very little supply in the rest of the portfolio, and it sounds like the jobs outlook from what Angela described is fine. So are there any addition– like it doesn’t sound like there are really many headwinds in your portfolio. You don’t have the supply issues that are plaguing other markets or geographies. So, are there any other headwinds that we should be thinking about as far as your earnings? Or — is this — or what I’ve outlined is pretty much how you guys are looking at the landscape this year?
Angela Kleiman: Hey, Alex, it’s Angela here. I think you’re on point as far as how we see our portfolio. We do see that we have a very stable portfolio and supply definitely is a benefit for us. The variability really relates to the timing on the delinquency. And that is, that is one aspect of our business that we don’t have as much control as we would like, because we are subject to how long it takes for the court to process these delinquency units. The good news is that, that process timing has begun to decline. So for example, last year, when we’re talking about L.A., it took about 10 to 12 months. And currently, we’re down to 8 months. Everywhere else used to be nine to 10 months, now it’s down to six months. So we’re making good progress there, but that remains an open item for us as far as the risk is concerned.
Alexander Goldfarb: Okay. Thank you.
Operator: Our next question is from Jamie Feldman with Wells Fargo. Please proceed with your question.
Jamie Feldman: Great. Thank you. I just wanted to dig a little more into your comments on insurance. I think you said up 30%. Can you just talk about what you’re seeing there? Is that definitely the number? Is there any kind of variability to that? And — does this last round of storms we’ve seen over the last few weeks impact that at all? Or is it more forward-looking?
Barb Pak: Hi, Jamie, it’s Barb. So we did our property and earthquake insurance renewal in December. So that number is fairly baked for the year. We still have our general liability, but we don’t that to move the needle too much. So 30%, I think, is the number. It is still a very challenging insurance market, and we do have a captive and we utilize the captive as appropriate to minimize our insurance premiums where appropriate and where we – based on the risk that we would take within the captive. So we used all angles to minimize that number, but I think it is still going to be a challenging market for the foreseeable future. In terms of the storms that won’t impact the number this year, but what the carriers will do next year is still it’s undetermined.
I think what we need to see in the insurance market is the reinsurers that come back into the market in a big way for the premiums to start to come down. And in terms of storm damage, we haven’t had anything material. We’ve had obviously some leaks and some minor things, but nothing material related to the storms.
Jamie Feldman: Okay. That’s helpful. I know it’s so hard to like quantify because there’s a waterfall at every tranche of the coverage, but is there a way to give a number of like your captive exposure? Like what percentage of total liability does fall on the company versus third party? It seems like more and more REITs are growing their captives or using their captives more. I just wonder if there’s a way to benchmark that seems so convoluted.
Angela Kleiman: Yes, Angela here. That’s a tough one to quantify because even though there are more REITs looking at the captive and then I think it makes sense to do so. Everyone approach how they take first loss and that first layer differently. And so I don’t know if you can really get apples-to-apples. We’ll look into it and see if there’s a better way to provide some additional context.
Barb Pak: And the other thing I would just add on that is we’ve had a captive for decades, and we have a marketable securities portfolio of over $100 million, which is the premium that we would have paid to third parties that are there to backstop any major insurance loss that we have. So we a substantial amount of money sitting there on our balance sheet because of that.
Jamie Feldman: Okay. That’s very helpful. Have you grown the exposure in recent years or not necessarily?
Barb Pak: Not necessarily. We will ebb and flow earthquake depending on the earthquake premiums that are out there because sometimes the earthquake coverage can be extreme. So we will look at that in a different way, but we do have third-party earthquake on all high rises and five stories enough. But outside of that, we haven’t taken on any real significant risk in the last few years.
Jamie Feldman: Okay. All right. Thank you. I’m sure we’ll talk about this more.
Operator: Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question.
Adam Kramer: Hey, guys. I just wanted to ask you about kind of the new versus renewal spread. And I know it’s been talked about a little bit already, but just wondering if you were to look over whether it’s a long run average, or maybe go back to kind of prior recessions, even and use that as kind of the test case. Wondering what the kind of spread historically was between new and renewals?
Angela Kleiman : Hey, Adam, it’s Angela here. That one — the relationship between renewal and new lease rates is really driven by what the prior year’s new lease rate is. So, for example, in 2022, our market rents or new lease rates were north of 11%. And so that, of course, means that you can have a much higher renewal rate to take it to market. And so that relationship really will be driven by whatever the market rent is going to be and the renewal then follows. It’s really a lagging effect. So there isn’t an exact number that you really can peg just because it’s really one follows the other, not so much that there is a logical relationship that you could just use as a benchmark for trending purposes.
Adam Kramer: Got it. That’s really helpful. Thanks, Angela. And just on the kind of pref equity, you kind of may be getting kind of more and more money back from that than you have in the past. And I know in the past you roll asked about kind of, hey, would you look at other markets in the U.S., right, other markets outside of West Coast. And maybe with getting kind of more proceeds back from the pref equity, having a little bit more dry powder that could enable you to maybe take a harder look at some markets outside of the West Coast. So figure I’d asked that question.
