Essex Property Trust, Inc. (NYSE:ESS) Q2 2022 Results Conference Call July 28, 2022 2:00 PM ET
Company Participants
Michael Schall – President and CEO
Angela Kleiman – Sr. EVP and COO
Barb Pak – EVP and CFO
Adam Berry – EVP and CIO
Conference Call Participants
Jeffrey Spector – Bank of America
Nick Joseph – Citi
Chandni Luthra – Goldman Sachs
John Pawlowski – Green Street
Steve Sakwa – Evercore
Neil Malkin – Capital One
Rich Anderson – SMBC
Brad Heffern – RBC Capital Markets
Austin Wurschmidt – KeyBanc
Operator
Good day, and welcome to the Essex Property Trust Second Quarter 2022 Earnings Call. As a reminder, today’s conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the Company at this time.
A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found on the Company’s filings with the SEC. It is now my pleasure to introduce your host, Mr. Michael Schall, President and Chief Executive Officer for Essex Property Trust. Thank you, Mr. Schall, you may begin.
Michael Schall
Thank you for joining us today, and welcome to our second quarter earnings conference call.
Angela Kleiman and Barb Pak will follow me with prepared remarks and Adam Berry is here for Q&A. I will start with a summary of our second quarter results and then highlight the strong underlying momentum in the Essex portfolio, especially in the markets benefiting from the return-to-office programs of large tech companies and finish with a brief overview of the apartment transaction market.
We are pleased to announce our fourth consecutive quarter of improving results with core FFO up 21.1% from the same quarter last year, exceeding the high end of our guidance range and achieving the second best quarterly growth since the Company’s IPO in 1994. Given our strong year-to-date results, we increased our guidance ranges for same-property revenues, NOI and core FFO for a third time in 2022, which Barb will discuss further in her commentary.
Beginning with operating fundamentals, net effective rents for new leases are now 16% above pre-COVID levels and 20.6% higher year-over-year compared to the second quarter of 2021. Job growth remains robust at 5.6% for June year-over-year, substantially outperforming the U.S. and reflecting the ongoing recovery from the massive COVID-related job losses in 2020.
Page S17.1 of our earnings supplement demonstrates the surge in rents in the tech markets of Northern California and Seattle, the largest and last markets in our portfolio to fully recover from the pandemic. Net effective rents have increased between 18% and 20% year-to-date, reflecting momentum from return-to-office programs and very strong job growth.
Fundamental research from our data analytics team indicates job openings at the largest technology companies have moderated recently off the very high levels throughout the pandemic, with job openings now about 15% above pre-COVID levels compared to about 77% last quarter. Unlike other industries within our markets, the tech sector was better positioned to pivot to hybrid work in response to the pandemic and accelerated hiring. As a result, labor demand for the most highly skilled workers at the large technology companies remained solid, implying job formation in excess of the number of recently announced layoffs in our markets which we highlight on page S17.2 of our earnings supplement.
Given the focus on tech layoffs recently, it’s relevant to note the definition of what constitutes a tech company has broadened to include businesses that have digitized a variety of analog processes and thereby represent a much broader umbrella of organizations not necessarily located in the Bay Area, including Peloton fitness offerings, Carvana’s auto sales process and mortgage companies like Better.com.
Likewise, the venture capital slowdown is now impacting companies across many industries and geographies, consistent with this broader scope. Conversely, it’s the largest tech companies that drive employment in our North Cal and Seattle markets, and they are more insulated from capital market fluctuations, given their growth opportunities and extraordinary financial strength.
Rounding out the overall employment picture in Northern California, we continue to see a recovery of jobs that were eliminated during the pandemic. COVID-related regulations were so stringent that much of the local surface economy workforce had to be fundamentally rebuilt. For example, the Essex markets added 420,000 relatively low paying jobs on a trailing three-month basis, including a 20% to 25% increase in the leisure and hospitality sector, which supports returning tech workers and their demand for services.
Our commentary usually focuses on high-paying jobs but the service jobs are also important because most of their employees need to report to a physical location each day, and they support the ecosystem that creates livable and desirable communities. The strong demand for housing is supported by apartment affordability in our Northern California markets, which has improved sharply relative to long-term averages, reflecting a higher growth rate for median incomes relative to median rents.
From a historical perspective, these markets screen affordable for the first time in the last decade, and rental housing is significantly more affordable versus home ownership. The value of the median-priced home in California is up about 13% year-over-year and with higher mortgage interest rates, apartments are clearly the more affordable option. We estimate that it is now over 2 times more expensive to buy than rent in the Essex markets.
Affordability trends will be impacted by the apartment supply picture of moderated deliveries in the second half of 2022 and a further decline expected in 2023. Sharply lower rents in Northern California during the pandemic resulted in fewer apartment starts in 2020 and 2021 and therefore, a significant drop in new Bay Area apartment deliveries into 2023. Production levels of for-sale housing is also muted on the West Coast with only about 0.4% of existing stock being built annually and production is difficult to increase given zoning restrictions and land availability.
Looking ahead, we recognize that the Federal Reserve is working to fight inflation, which often leads to a recession. Our experience indicates that no two recessions are alike, and clearly, the current situation is unique given West Coast remains in a recovery mode from the pandemic. Given this backdrop, we believe that the following factors will help moderate the impact to the West Coast rental markets in the event that economic conditions deteriorate later this year.
First, large technology companies significantly accelerated hiring during the pandemic, largely because there were beneficiaries of the pandemic-driven preference for touchless interaction. Many newly hired employees were asked to work remotely until offices reopened, which is now occurring and is a key component of our recent market rent growth in Seattle and the Bay Area.
Second, we have extremely tight labor markets and strong job growth on the West Coast, a significant portion of which relates to the recovery of jobs lost in the early part of the pandemic. Recovery of jobs, especially in leisure, hospitality and service sectors has been resilient and should continue for the foreseeable future.
Third, the normal migration pattern from the West Coast includes workers’ approaching retirement who plan to lower their cost of living and use the equity in their homes as part of their retirement plan. We believe that most of these workers left during the pandemic given California’s extraordinary lockdowns, and therefore, it’s likely that retirement-related migration will be muted for at least a few more years.
Finally, foreign immigration was significantly slowed throughout the pandemic. In recent months, new visas for foreign workers are increasing with the large tech companies being a primary beneficiary, restoring an important source of apartment demand.
Before I turn the call over to Angela, let me quickly touch on apartment investment activity. The extraordinary uncertainty and volatility in the financial markets and higher interest rates have disrupted the apartment transaction markets, resulting in fewer closings given diverging buyer and seller expectations. We are in a period of price discovery for apartment transactions and the absence of financial distress means that buyers and sellers are not forced to transact.
Therefore, we expect fewer apartment transactions for the foreseeable future. It’s difficult to pinpoint cap rates in this environment, although limited recent activity indicates cap rates in the high 3% range to low 4% range. We have seen an increase in apartment development activity that was decimated in the pandemic, driven by the strong rent recovery in suburban areas, which should lead to more preferred equity investments going forward.
With that, I will turn the call over to Angela Kleiman.
Angela Kleiman
Thanks, Mike.
First, I would like to express my appreciation for our operations and support teams for delivering some of our highest level of quarterly same-store revenue growth. All this while we continue to roll out our property collections operating model throughout the portfolio, great job team, and thank you.
Today, I’ll start with key operational highlights in our major regions, discuss rent growth expectations for the remainder of 2022 and conclude with an update on the rollout of our transformational initiatives for the operating business.
We are very pleased with our second quarter performance. With strong demand fundamentals and modest supply described by Mike earlier, we maximize revenues by favoring rent growth rather than occupancy. This resulted in same-property revenue growth of 12.7% on a year-over-year basis and a 4.8% on a sequential basis, which are some of the highest growth rates achieved in the Company’s history. As we head into August, so far, we are experiencing a normal leasing season with June and July loss to lease for the same-store portfolio at 9.7% and 10.3%, respectively.
Turning to regional highlights, starting with our Washington portfolio. This region generated a 20.7% year-over-year net effective rent growth on new leases for the second quarter, which was led by Eastside Seattle, where the majority of our portfolio is located. Seattle continues to benefit from strong job growth, which is driving leasing momentum. Our Seattle portfolio is well positioned and 9.7% loss to lease as of July.
On to Northern California. This region generated 17.5% year-over-year net effective rent growth on new leases for the second quarter, which was led by Santa Clara County at 24%, primarily driven by the robust demand from large tech employers in Silicon Valley. Northern California has demonstrated some of the strongest job growth this year. And despite the negative headlines on tech startups, we are not experiencing any softness in rent growth in July or in our third quarter renewals.
We expect positive momentum to continue for Northern California with demand from return to office, which may be further accelerated by incremental job growth throughout the second half of the year. Loss to lease in this region continues to pick up and is 8.7% in July.
Moving on to Southern California, which has been a strong performer with 22.4% year-over-year net effective rent growth on new leases for the second quarter. Healthy job growth has continued to drive incremental demand in Southern California, which is built upon the significant rent growth achieved last year and resulted in our highest level of loss to lease at 12.1% in July.
Turning to our expectations for the remainder of 2022. As you may recall, we had anticipated a deceleration in market rent growth in the second half of the year because of tougher year-over-year comps. As expected, we are seeing this deceleration show up on our new lease spreads on page S16. However, as demonstrated by our current performance and the increase to same-property growth expectations for the year, our fundamentals remain strong. It is with this backdrop that we continue to advance our company-wide implementation of our property collections operating model. By way of background, we have been transitioning from a dedicated team for each property to teams that cover a collection of around 9 to 12 properties thereby transforming our business from a property centric to a customer-centric operating model.
As we have rolled out, this model to our other regions, we’ve been able to replicate the improvements in cross-selling from 15% to 23% achieved at the first asset collection that was rolled out last year in San Diego. This demonstrates our sales team’s ability to sell effectively across multiple properties, reducing customer acquisition costs and improving overall sales efficiency.
Lastly, we have been making good progress codeveloping proprietary applications with partners from the RET Ventures such as Funnel, to enhance our technology platform. We execute approximately 60,000 transactions a year, including move-in, move-out and renewals, and we are focused on automating all manual tasks. Following full deployment of the Funnel suite in late 2023, we anticipate this investment will be an important factor in the 200 to 300 basis points of margin improvement we expect to achieve over the next few years.
With that, I’ll turn the call over to Barb Pak.
Barb Pak
Thanks, Angela.
I’ll start with a brief overview of our second quarter results, discuss changes to our full year guidance followed by an update on investments and the balance sheet. We are pleased to report we achieved core FFO per share of $3.68 in the second quarter. The results exceeded the high end of our updated guidance range published in June. Of the $0.10 beat to the midpoint, $0.03 relates to better-than-expected revenues in June and $0.06 relates to lower property taxes, primarily from a combination of lower assessed values and millage rates at our Washington properties.
For the full year, we are raising the midpoint of core FFO by $0.29 to $14.45. The revised midpoint equates to 15.7% year-over-year growth. The increase to our midpoint is primarily driven by better-than-expected operating fundamentals and an improved outlook on delinquency. As such, we are raising the midpoint of same-property revenue growth by 70 basis points to 10.3% and NOI growth by 140 basis points to 13.5%. In addition, our full year guidance assumes a reduction in expense growth from 4% to 3.3% at the midpoint.
Turning to delinquency. We are encouraged by the continued improvements we are seeing in our delinquency. For the quarter, net delinquency was 60 basis points of scheduled rents, a significant reduction from the first quarter. This was a result of many efforts by our operations team, which led to a 20% reduction in gross delinquency as compared to the first quarter. In addition, we received a higher level of government reimbursement in the second quarter.
Also worth noting, in late June, there were a couple of key events that are positive for the future. First, the State of California allocated an additional $1.9 billion in emergency rental assistance for existing applications after exhausting its initial $5 billion allocation. This gives us more visibility on the remaining funds to be allocated, especially as it relates to our $34 million in outstanding applications.
Second, on July 1st, a California state law expired, which provides landlords additional rates to recapture delinquent units. Thus, outside of L.A. and Alameda counties where eviction protections remain in place, we would expect to see a gradual improvement in gross delinquencies over the coming quarters.
Moving to our stock buyback and investment goals. In the second quarter, we repurchased approximately $61 million of common stock at a significant discount to our internal NAV, using free cash flow and excess proceeds from year-to-date transactions. As for our investment goals this year, we have a strong pipeline of accretive preferred equity deals and remain on track to achieve our goal of $50 million to $150 million of new commitments. However, given the rapidly changing interest rate environment and the sharp increase in our cost of capital relative to cap rates in our markets, we are reducing our acquisition goals, which are outlined in the earnings release to focus on share repurchases instead. This is consistent with our disciplined approach to capital allocation, whereby we will shift capital to what the best use is, given changing market dynamics.
Lastly, I want to conclude my prepared remarks by highlighting the strength of the balance sheet. Over the past year, we have seen a continued reduction in leverage with our net debt-to-EBITDA ratio improving from 6.6 times at the depths of the pandemic to 5.8 times today. We are rapidly approaching our historical low for this ratio and believe we will see continued improvements in this metric over the next few quarters through growth in EBITDA.
As it relates to upcoming capital needs, we are in an advantageous position. Our existing cash flow from operations covers our current dividend, all capital expenditures and development funding needs. As such, our only known funding needs relate to debt maturities, which are minimal, given we proactively took advantage of the low interest rate environment over the last few years to further strengthen the balance sheet. As a result, we have only $300 million in debt maturing in mid-2023 and $400 million maturing in mid-2024. This equates to less than 6% of our debt maturing annually for the next 2.5 years. And while interest rates have increased on new debt, capital markets remain open, and we have access to a variety of secured and unsecured debt sources. This affords us strong financial flexibility, which will enable us to be opportunistic as it relates to these upcoming maturities. With over $1.3 billion in liquidity, we are well positioned.
I will now turn the call back to the operator for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Jeffrey Spector with Bank of America.
Jeffrey Spector
My first question is focused on hybrid working. Mike, you said early on that return to work, but more hybrid working would benefit the company, and clearly, it is. I guess, what are some of the latest comments you’re hearing or what are you hearing from the tech firms in your market on hybrid-verse at this point thinking about going remote fully? Obviously, there’s article out today about one company going remote. Like, what are you hearing in your markets?
Michael Schall
Hey Jeff, that’s a great question. Thank you. I think what we’re hearing is everyone is now pretty much committed to hybrid working model, and they’re trying to figure out what that means and some of the issues are being confronted that I think are embedded in that. So, I think that everyone’s having trouble and I would include us in that in this case. People like hybrid, the hybrid model, and they want to stick with a hybrid model. And so, now, it’s up to the companies to try to figure out what they need to do to modify their offices to accommodate that model. And notably, Amazon paused some of the work they’re doing in Bellevue to take another look at the office format. And so, I think you’re going to see more of that activity going forward.
Jeffrey Spector
Okay. And then I appreciate the charts on — the more detailed charts in the sup on tech openings, open positions, I should say, in your markets. How do you track this data?
Michael Schall
We have a data analytics team that’s run by Paul Morgan. And so, they scrape that data off the various websites and then categorize it by what’s in our markets versus other parts of the U.S. And we’ve been doing this for, I would say, the better part of 10 years now. And so, it definitely tells the story. So, our data analytics team basically is responsible for that data.
Jeffrey Spector
Okay. Thanks. Can I just ask, can you say which markets you’re seeing the most openings versus, I guess, ones towards the bottom?
Michael Schall
We are seeing — the tech markets are continuing to lead in terms of those openings, so. And that is not surprising. I think, some of the details in those top 10 techs. I think it’s interesting that both Google or Alphabet and Apple have hit a new high in job openings, believe it or not, even though made the broader comment that of the top 10 tech companies, they’re off a little bit from their high. But still, the number of jobs they have open is pretty extraordinary, given the backdrop of what we’ve seen over the last several years. So, we’re seeing a lot of strength there ongoing and almost as if all this economic turbulence wasn’t such a big deal.
Operator
Our next question comes from the line of Nick Joseph with Citi.
Nick Joseph
Maybe just on capital allocation. You talked about the share repurchases. So curious, just given the transaction market and how historically you’ve sold assets to fund share repurchases, kind of the appetite today and how you think about funding additional buybacks?
Barb Pak
Hi Nick, it’s Barb. Yes, that has been our strategy historically. In the second quarter, we did have excess cash flow, so we used that to buy back the stock. Going forward though, we would look to sell assets to buy back the stock. So, we could do that. We would like — if we have an asset in contract, we might buy it back a little earlier than the sale. But for the most part, we’re going to maintain our disciplined approach to match funding any future buyback going forward.
Nick Joseph
Thanks. And then, maybe just on operations in terms of the blended rent growth that decelerated a bit in July from the second quarter. I’m wondering how you kind of marry that with the strength in the chart on Northern California and Seattle and the acceleration of the rent growth that you’re seeing there, just the interplay between the two.
Angela Kleiman
Yes. Hi. It’s Angela here. That’s a good question. What we are expecting is the normal seasonality to play out. Having said that, we do have headwinds from tougher year-over-year comps that I described earlier. And just to give you a little more color, last year, in the first half, our blended lease rates was negative, was negative 4%, but in the second half, it surged to about 13.25%. [Ph] So, that’s the tough year-over-year comp. And what we’re seeing is with the strength in Northern California is that it’s a key reason for the shift of expecting So Cal to outperform in the first half. And now in the second half, we’re expecting Seattle and North Cal to lead our growth going forward.
Operator
Our next question comes from the line of Chandni Luthra with Goldman Sachs.
Chandni Luthra
Could you talk about your tenant composition a little bit, please? What portion of your tenants, what mix is employed by big tech versus, say, other industries? And how has that composition changed during the pandemic or more recently?
Michael Schall
Yes. This is Mike, and that’s another great question. Thank you. We have a variety of price points in our portfolio. So, we cover, I’d say, from the B minus to the A plus category. And therefore, our tenant base is a reflection of the broader economy. And so, unless we have a few buildings that are adjacent, very close to the tech companies where we could have 90-plus percent of the tenants working in the tech industry, for the most part, we’re much broader than that. And again, we reflect the broader economy, which includes policemen, firemen, teachers, all the hospitality and restaurant workers, et cetera. And it has not changed a lot. Yes.
Chandni Luthra
And then, as we think about 2023, some of your peers today talked about embedded rent growth. Could you perhaps give us more color in terms of — given the rent roll that’s already priced in right now, how should we think about the earn-in going into 2023?
Angela Kleiman
Hi. It’s Angela here. Another good question. And the embedded earnings for 2023 is really going to be a function of the seasonality curve. And at this point, we are — we have one of the strongest loss to lease in the Company’s history at 10.3%, and it continues to grow because we have not yet peaked. And you add to that the tailwind from the job growth and modest supply, we feel good about our position. But to try to speculate at this point is probably not going to be all that helpful because third quarter is when we tend to have the most transactions, and so it’s the most active quarter. And so, once we see how that plays out, we’ll be able to provide better visibility to the actual shape of that seasonal curve. And so, it’s — so we plan to have a more in-depth discussion on that topic on our October call.
Operator
Our next question comes from the line of John Pawlowski with Green Street.
John Pawlowski
Just one question for me. Adam, I’m curious to get your thoughts on the level of distress you’re seeing in the broader preferred equity and mezzanine lending markets on a scale of 1 to 10, 10 being the most dislocated, where are we on that barometer today?
Adam Berry
Hey John. I would put us at a 1. We’re seeing very little distress on the pref side. We are seeing some opportunities where bridge lenders were able to loan on deals that are in lease-up. We’ve seen a definite pullback in that. So, we’re seeing opportunities for us to come in, in those types of cases, but no, very — I’d say no distress at this point.
John Pawlowski
And to be clear, I’m not talking about your specific book, but just in terms of the broader market, deals that are coming your way. So, other people being in distress, not Essex.
Adam Berry
Understood. Yes. No, it’s same answer. We’re not seeing any…
John Pawlowski
Okay. Thank you for your time.
Operator
Our next question comes from the line of Steve Sakwa with Evercore.
Steve Sakwa
I was wondering if you could talk about the renewals that you’re sending out, I guess, at this point for August or what you sent out for August, September and perhaps October. And can you talk about what’s embedded in the full year guidance for the second half in terms of overall blended spreads? Thank you.
Angela Kleiman
Sure. Happy to. It’s Angela here. I’ll talk about renewals, and I’ll turn it over to Barb to talk about guidance. In terms of our third quarter renewals, we’re coming in at close to 10%. And it’s a pretty tight band within all our key markets, Seattle leading the pack around 11; Northern California in the 10 range; and of course, Southern California close to 9.
Barb Pak
And then, Steve, as it relates to guidance, as what Angela said earlier, the first half of the year, we had much easier comps, but given the surge in rents we saw last year, we have much more difficult comps in the second half of the year, which on new leases, we’re assuming in the second half of the year 7% new lease growth, it was 15% in the first half of the year, so a significant reduction just because of the comp issue.
Steve Sakwa
Great. That’s very helpful. Thanks. And then just in terms of the bad debt, I know this is bouncing around quite a bit based on what you’re getting back from the government. And it sounds like you might get a little bit more in the second half, but how would you sort of think the second half shapes up in terms of the bad debt figure?
Barb Pak
Yes. So, our revised guidance assumes 1.5% for the full year as a percent of our schedule rent. That’s how we’ve been talking about it since the start of the pandemic. And that — we assume the first half and the second half are about the same now. Previously, we had assumed a worse second half, but now we’ve pulled that up now. And that’s really a function of the $1.9 billion in new emergency rental assistance that the states allocated. It does give us more visibility on continued emergency rental assistance in the back half of the year that we were uncertain about going into this quarter.
And then, the other thing is we do have — we have seen improvements in our gross delinquency. They have started to come down. In June, they fell; July, they fell. And so, we do expect a continued moderation in the gross delinquency line, which gets us to the improved outlook on delinquency in the back half of the year.
Operator
Our next question comes from the line of Neil Malkin with Capital One.
Neil Malkin
First question, I guess, capital allocation or external growth kind of thought here. But you don’t really have a land bank development pipeline anymore. I think your last one finished leasing up this quarter. Just curious as your plans, what you see maybe through the end of the year for potential growth given that — I mean, really, you’ve been mainly an acquirer. So, what are your priorities? I know you talked about share repurchases, but JVs an option? Are you looking at — again, just dispositions to fund all those things? And how do you plan on sourcing growth just outside of the organic picture over the next several quarters?
Adam Berry
Hi Neil, this is Adam. So, there was a lot to that question, but just kind of starting at the beginning. Historically, we haven’t really been a land banking shop. We tend to — when we develop, we tend to go after shovel-ready deals. We do have a couple of pre-entitlement deals that are in the pipeline and potentially would build further out. Other than that, though, we’ve seen the most opportunity in our prep book and especially more recently, we’ve seen quite a bit of opportunity. As for as acquisitions, we’re always in the market, but highly dependent on where our cost of capital is and matching funds.
We will — we have seen some opportunities on the development side where we can joint venture and usually couple that with a preferred equity piece as well. And so, we’re highly focused on turning those over as well. So, lots of potential, but on the development side, on the direct development side today, we’re seeing cap rates probably in the mid-4s. And to us, that’s just not — that’s not enough spread to adjust for the risk associated with costs and the other challenges associated with development.
Neil Malkin
Yes. Okay. Thanks for that. And then for Angela, you guys have more recently started talking about the — at least externally, the sort of operating enhancements, operating model expense types of enhancements, about podding and being more efficient, increasing the resident experience. I just wonder if you could maybe kind of put that in perspective. Talk about that a little bit more. And then specifically, on wage pressure you’re seeing, just given the high cost of living there. And then, you talked about like again, improving resident experience by potentially having units that have no people on site. And I guess, how does that improve experience if there’s no one there to help, particularly with sort of like potential issues, lacks DAs, et cetera, things like that. So, if you can just walk through all those, that would be great.
Angela Kleiman
Sure, happy to. So, you brought up a couple of points. I’ll try to hit all of them. So, if I miss anything, please chime in.
So, in terms of wage pressure, I mean, we’re experiencing that just like everybody else. However, I think you can see from our controllable expenses, especially in the admin line item, we’ve been able to find offsets and so have been able to manage through that. And it’s primarily because of how we have transformed our operating business model to this, I think you call — collection because that’s improved inefficiency. So ultimately, what remains is allowing our people to take less time to get the test that they used to do.
From a customer perspective, though, first of all, we’ve been contactless since COVID. So, it’s effectively no change for them in how they interact with us. But as far as availability is concerned, we have — although the office is not open, we do have by appointments available and of customers that access [Technical Difficulty] however, if they want, they can reach us via different, whether it’s online or 800 number, they can make an appointment [Technical Difficulty] and every asset collection has a hub [Technical Difficulty]. So, sometimes it’s an immediate thing, they will get into a car and drive to a hub nearby. And so, once again, that has not been an issue either. And when we look at our customer satisfaction, so they actually have been feeling better than pre-COVID.
Neil Malkin
Okay. Yes. So basically, it sounds like just given the proximity of the pods, a maintenance issue, power, I don’t know, leak issue, payment, whatever, amenity issue could be a few-minute drive away is essentially what you’re saying?
Angela Kleiman
Well, let me just clarify something. The maintenance team is on site. And so, they are responding timely to any customer service request.
Neil Malkin
Okay. I’m sorry. Yes, I guess, I was just confused, because a lot of other peers have mentioned like peopleless buildings in terms of like servicing. But I guess, that doesn’t apply to maintenance is what you’re saying?
Angela Kleiman
Yes. So, what we’re talking about is administration, bookkeeping, those type of activities, but the maintenance is separate.
Operator
Our next question comes from the line of Rich Anderson with SMBC.
Rich Anderson
Thanks. Good morning. Great quarter. So, I’m going to go back to Angela on the earning question. I understand you want to keep that maybe tight to the vest. But if you’re providing guidance, you’re implying you have some guidance about the third quarter in terms of leasing activity. So that would suggest, while you don’t know what’s going to happen, then you would have an assumption of what’s going to happen again. And based on that assumption, do you — would you admit that you have in an earn-in number in mind, but you just don’t want to — you think it’s just premature to share? Is that a fair statement?
Angela Kleiman
Well, it’s a little bit more to it than that. I mean, it’s speculative, right? Because right now, what we’re saying is with 10.3% loss lease, that’s higher than our typical loss lease in the past. Now normal seasonality means that that loss lease will start to decline over time. What I don’t know and that’s an honest statement, I don’t know the rate of that decline or the steepness of that curve. All I can point to is from what we’re seeing right now, the curve looks good. Having said that, there is the broad economy out there, and we will need to see how that plays out to have a better sense.
Michael Schall
Hey Rich, I’ll have my blue mood ring now. I just want to point that out. But one additional comment is I think what Angela is saying is seasonality implies that rents peak in July. We don’t know if rents are going to peak in July. And so that inflection point, once we see that inflection point, we have better visibility going forward about what’s going to happen for the rest of the year.
So again, it’s really a key time in terms of trying to determine where this is going to go, potentially, rents could keep going up or it could follow the normal seasonality, and we reach a peak in July and we start going downhill for the rest of the year. You’re right. Barb has built in an assumption into the guidance. Barb, do you want to just comment on that, just to reiterate it?
Barb Pak
Like I said earlier, we do assume rent growth year-over-year moderates in the second half of the year because of the more difficult comps. And as Angela mentioned, we’ve assumed a normal seasonal curve. So, we will peak at the end of July, like Mike said. So, that is what’s built into the guidance. But we do feel good about the tailwinds that are in front of us or behind us from where we are today.
Rich Anderson
Okay. Fair enough. And then the second question is looking at, let’s say, S-16, I believe, or maybe not S-17, rent growth forecast. Last quarter, Northern California was the leader. All markets, regions have grown, but Northern California by a lesser amount than the others. Now, in the second quarter, actually the laggard, once the leader, even though 10.5% is nothing to sneeze at. So, I’m just curious, you talked about tech layoffs that everyone’s talking about. Is that intermingled in this forecast where Southern California and Seattle have leaped Northern California, again, all growing? So, I’m not really — I don’t mean to throw cold water on it, but Northern California is no longer the leader.
Angela Kleiman
Thanks for acknowledging that these are pretty darn strong numbers across the board. But just to give you a little more background, these — the revised forecast is really a reflection of how we performed in the first half. And because the first half was so strong in Southern California and in Seattle, that’s the driver to the change in order. So, when we look at the second half, so the second half of, say, about 7% for the portfolio, we are seeing that Seattle and Northern California will be the path in the second.
Rich Anderson
Southern California, right? Seattle and Southern California?
Angela Kleiman
No, no, Seattle and Northern California in the second half.
Rich Anderson
Oh, I see. I see what you’re saying. Okay.
Angela Kleiman
Yes. So, that 11.1% [ph] is 15% in the first half, which is big, and that’s driven by So Cal and Seattle and 7% approximately in the second half, and that 7% average will be driven by Northern California and Seattle higher than 7%. And of course, Southern California lower than 7%. It’s average.
Michael Schall
And maybe one other final piece, Rich, and that is that Oakland is obviously lagging in the Northern California recovery as well. Oakland has — Downtown Oakland has been slow to recover, and it’s got quite a bit of development deliveries that are coming there and that’s the part that’s holding them back.
Operator
Our next question comes from the line of Connor Mitchell with Piper Sandler.
Connor Mitchell
Just a couple on back rents. So first, how much of the back rents do you guys anticipate receiving from the government or California programs and then, how much do you think you’ll have to go directly to the tenants to collect? I know you guys discussed a little bit about the additional government funds to be allocated. So, I was wondering about how much more to go to the tenants to collect?
Barb Pak
Hi. This is Barb. We have $34 million in open applications right now and then of our $78 million in cumulative delinquency. So, that’s how you would compare those two, of which — so the $34 million, we’ve assumed some of that will occur this year. We don’t know how quickly they’re going to disperse those funds. We’ve assumed about 50% of that we get this year in our guidance. It’s not all same-store though, either. So keep that in mind. That’s total for the whole portfolio.
And then, the other piece that we have to go after the tenants, we will — we already started that process. We have various means we can do to — their credit, or doing their credit, go after them in small claims court in order to try to recoup our back rent, and we’re actively doing what we can and abiding by the laws, obviously. And LA Alameda is where we’re probably the most restricted, but outside of that, we have a lot of — a lot more ability to go after the tenants.
Connor Mitchell
And then just a follow-up on that. What percent of the residents that owe the back rents are no longer within the Essex properties versus tenants that are paying current, but still owe past rents?
Barb Pak
Yes. No, that’s a good question. I think it’s roughly 50-50 at this point. The $34 million in open applications does relate — bulk of that relates to our current residents. Very little of that is for past due — or past residents.
Operator
Our next question comes from the line of Brad Heffern with RBC Capital Markets.
Brad Heffern
I’m not sure if you track this or not, but do you track move-outs because of job loss? And has there been any sort of change in that statistic, if you do?
Michael Schall
We do track new jobs or job transfers but not job losses exactly per se. And that number, new job or job transfer is roughly 15.7% in our portfolio versus, let’s say — which is down a little bit from the last couple of months. We don’t actually track how many job losses — how many of these people actually lost their job, we just track jobs in general.
Brad Heffern
Okay. Got it. It was worth a shot. And then, I guess, on the other side, on the move-in data, has there been data that suggests that tech workers coming back or indeed what’s driving a lot of this demand?
Michael Schall
Not just tech workers, certainly, tech workers and the return-to-office people. But more broadly, we’ve mentioned in the script that there are awful lot of hospitality, leisure jobs and all the service jobs that are coming back as we fundamentally rebuilt when California shut everything down and many of them left the state. So, it’s really both components. And again, our portfolio is not comprised mostly of tech workers. It is a — it’s intended to be a broad overview of the broader economy. So, we don’t target tech workers per se.
Operator
Our next question comes from the line of Austin Wurschmidt with KeyBanc.
Austin Wurschmidt
Angela, you highlighted the strength in the loss to lease being above that 10% mark and that market rents are still growing at this point. But the portfolio has seen new lease rates decelerate much more quickly than some of your peers. And I certainly understand the difficult comps piece and some of the cross currents in the economy that are kind of blurring the next couple of months, perhaps. But, I’m really trying to understand with that backdrop of strong job growth, growing market rents still through July and the healthy loss to lease in place, why do we get to 7% new lease rate growth versus the 14%, I think you achieved in July for the back half of the year. Can you just put some additional detail in there, please?
Angela Kleiman
Yes, happy to. I think — we try to provide a baseline. And so we don’t tend to say, forecasting recession or excessive growth, for example. Now, I do want to point you to the backdrop of the second half of last year. We grew — our blended lease rates was 13.25%. And so, the new lease rates were much higher. And so, it truly is a function of a tougher year-over-year comp. And to your point, is it possible that we perform better because of the fundamentals? Certainly, that’s on the table.
Austin Wurschmidt
And what percent of the rent roll has been addressed, or what percent do you have strong visibility into at this point for the year?
Michael Schall
Certainly, the renewal side. We have good visibility on. It’s going to be somewhere in the high-single-digit range. It’s the new lease rate that we don’t know, obviously, given all the turmoil in the financial markets, et cetera. So, again, as I think Angela mentioned earlier, so far, we’re following a normal seasonal pattern. But typically, that changes — the weaker portion of the year begins in July and through the end of the year. We just don’t know what that inflection point is going to look like or when we’re going to attain it. And so, it’s a little bit difficult for us to predict the rest of the year given that we don’t know where that peak in rents this year.
Austin Wurschmidt
Sure. No, I get — I was more interested in if 75% of the leases have been addressed either signed or committed to at this point or 85%, whatever that number is. Anyway, maybe Mike, on capital allocation, admittedly, the headlines haven’t helped you guys given your footprint. But you guys have certainly executed three guidance increases through the year. And you stepped in and bought back stock as you historically have when you trade at a wide enough discount to NAV. But I guess if the market isn’t willing to ascribe the value that you see in the portfolio versus the private market aside from just selling assets and buying back a higher volume of shares, are there any other steps that you and the Board are discussing or looking to further close that value gap?
Michael Schall
Well, I don’t think so. I mean broader strategic issues are not things that you would implement quickly, there thoughtful processes and just try to work through things. I think this is more tactical. We don’t know what’s going to happen in the broader economy going forward, and that point was very well made by the investors at NAREIT certainly recently. So, given that backdrop, we’re going to continue to lean toward a relatively conservative approach to capital allocation, and that’s the one that Barb was outlining before and Adam too. And maybe what I would add to what Adam said that trying to focus on the preferred equity book will be something that we’re focused on the remainder of the year. But, in terms of broader choices when you look at where the stock price is trading and we do our own fundamental research on the value of the company on a per share basis. And when you look at those numbers, it’s not a time that we would be aggressively growing the Company, let’s say, just because the pieces are not as compelling as they have been certainly at different points of time.
So, I think it’s the time to just execute, you take what the market gives us and make thoughtful decisions, and that’s what we’ve done. That’s what we’re going to continue to do.
Operator
Our next question comes from the line of Adam Kramer with Morgan Stanley.
Adam Kramer
I think just a quick 1 for me. I think you gave some kind of good color on kind of where you see cap rates kind of high 3% or low 4% range. Wondering, I guess, kind of how much wider is that — or how much has that kind of changed from maybe the all-time tights that you saw, be it 3, 6 months ago? And then, you also kind of mentioned about price discovery, right? And so, kind of wondering what is that gap now, I guess, that bid-ask spread, right, or that gap kind of between that’s kind of causing kind of price discovery rate, causing limited transactions at this point?
Adam Berry
Yes. Hi Adam, this is Adam. To go — cover the back half of the question first. So, transaction volume has actually been fairly consistent. Over the recent probably month to six weeks is where we’ve seen things slow down a little bit. So, we’ve seen some deals drop out of the market, and we have seen that bid-ask spread. Depending on the market, depending on vintage, I’d say for our core, core plus within our kind of core markets, there’s probably a 25 to 50 basis-point bid-ask spread between what sellers are looking and buyers are willing. But again, that’s not to be said that deals aren’t happening because there are still transactions occurring in the market.
Can you restate the first part of the question?
Adam Kramer
Yes. Just kind of how much wider that high-3% to low-4% range for cap rates — how much wider is that kind of maybe the all-time tights of 3 to 6 months ago.
Adam Berry
Yes. So yes, we don’t know where cap rates are going. But based on today — what we’re seeing today, we’re seeing them in that kind of high-3s to low-4s. I might be…
Michael Schall
That’s roughly 50 basis points higher than what we talked about…
Adam Berry
Yes. They were in — okay, yes. So, they’re in the mid-3s, what we talked about a few quarters ago. So yes, I would say 50 basis points is probably on average.
Operator
There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.
Michael Schall
Yes. Thank you, operator. We would like to thank everyone for joining the call today. We feel good about our results, and we feel like we may have a little bit of wind to our back. So, that’s obviously great to see. And we look forward to seeing many of you in the near future. Thank you, and good day.
Operator
Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.
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