Essex Property Trust Q4 2021 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 3, 2022
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Operator

Good day, and welcome to the Essex Property Trust's Fourth Quarter 2021 Earnings Conference Call. As a reminder, today's conference 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 J. Schall
President and Chief Executive Officer at Essex Property Trust

Good day, and welcome to our fourth quarter earnings conference call. Angela Kleiman and Barb Pak will follow me with comments and Adam Berry is here for Q&A. Today, I will provide an overview of fourth quarter and full year results, our expectations for 2022 and an overview of the apartment investment market. Essex experienced a strong recovery in 2021 following the unprecedented and extraordinary challenges of 2020. The fourth quarter was our second consecutive quarter of positive same-store results and core FFO exceeded our original guidance midpoint by $0.05 per share.

Overall, net effective rents remain above pre-COVID levels despite a modest seasonal slowdown that occurs every fourth quarter. In California, the pandemic and related regulation has led to an unprecedented divergence in apartment performance across our portfolio. The suburban areas that under performed for most of the past 30 years are now our top performers, and our historical top performers are now our last. To demonstrate, net effective rents in San Diego, Orange and Ventura Counties are up at least 25% from pre-COVID levels, pushing rent to income ratios in these counties to all time highs. Conversely, rents in the tech markets remain well below pre-COVID levels, especially San Francisco and San Mateo counties which remain down at least 15% and now screen affordable relative to their much higher median household incomes.

There is a similar divergence in performance in the large metros that contain both urban and suburban areas. For example, in Los Angeles county, downtown L.A., net effective rents are flat from pre-COVID levels, while suburban areas such as Long Beach and Santa Clarita are up 15% to 20%. We attribute the under performance of the urban core to the damaging lockdowns in 2020, which resulted in severe job losses in restaurants and the service sectors. More broadly, recoveries in the urban core and major tech companies have been slowed by ongoing government restrictions, worker shortages and delayed return to office plans. While the large tech companies generally did not experience job losses, their hiring slowed during the pandemic, and many employees relocated in the initial phase of the pandemic due to citywide shutdowns.

As of December 2021, the U.S. has recovered about 96% of jobs lost in the pandemic compared to only 78% for the Essex markets. Obviously, we are disappointed that many tech employers push back their office re-openings during the surge of the Omicron variant over the holidays. However, the data indicates that most large tech employers will adopt a hybrid office environment and therefore the return to office should be a significant catalyst for housing demand in our poorest performing markets. With job growth now exceeding the U.S. average, we believe that our recovery is well underway and several observations support our positive outlook.

As highlighted on previous earnings calls, there has been many large investments in office space by the large tech companies this past year, contributing to positive net office absorption in seven of our eight major markets representing 4.8 million square feet of space. Available office sublease space has begun to decline in San Francisco, San Jose, Los Angeles and Seattle, which supports our belief that many companies are moving forward with their return to office plans. As expected, there is a resurgence in service and hospitality related hiring as our cities recover, with year-over-year increases and leisure hospitality employment ranging from about 29% in Ventura to about 56% in San Francisco.

Recent immigration policy changes from the White House announced last week should also support the positive momentum that we're seeing in job growth at the higher income levels. For many years, Santa Clara and San Mateo counties disproportionately benefited from foreign immigration. However, during the COVID pandemic, stricter immigration policies during the previous administration drove net foreign immigration to a 30-year low. We suspect that the recently announced immigration policy changes will contribute to job growth, particularly in the Bay Area.

The venture capital investment in the Essex markets continues unabated. In the fourth quarter, approximately $37.5 billion of capital was invested in West Coast-based companies or approximately 40% of the total venture capital deployed in the United States and representing 124% year-over-year increase. The West Coast remains a leader in venture capital, which is a driver of global innovation and in turn, local economies and job growth. The top 10 tech employers in our markets continue to seek talent and with open positions listed in California or Washington reaching 47,000 in the fourth quarter far exceeding the pre-COVID peak by 62%.

Turning to our expectations for 2022, Page S-17 of our supplemental package summarizes our key operating expectations and assumptions. We continue to expect full year rent growth of 7.7% for Essex's West Coast markets. Our rent estimates are derived from a top down and bottoms-up approach that we continue to refine with each passing year. We are expecting 4.1% job growth in our markets next year, suggesting moderation from the 5.5% trailing three-month average Essex markets achieved as of December. Even at 4.1%, West Coast job growth should significantly outpace the nation. Our research team conducts its own fundamental analysis of apartment supply and they expect around 37,000 apartment deliveries in 2022. This is slightly higher compared to 2021 and should lead to a limited disruption at stabilized communities.

Similar to 2020, there are pockets of apartment supply deliveries in some urban submarkets notably CBD, LA. Similar to 2021, For Sale housing deliveries will remain very muted at about 0.6% of total stock of For Sale homes. Continued improvement in apartment trends in 2022 may be bolstered by inflationary pressures in the United States, currently at the highest level since the early 1980s. While inflation and its countermeasures have the potential to slow the economy, it's worth noting that apartments are resilient with short-lease durations and high operating margins. In addition, it is incredibly difficult to ramp up rental and For Sale housing production on the West Coast, given long entitlement processes, government restrictions and construction labor shortages.

Finally, we have a conservative debt structure characterized by minimal levels of variable rate debt, staggered debt maturities and low leverage. Estimating future supply a few years from now is another important part of Essex's capital allocation process and Page S-17.1 of the supplemental highlights recent increases in housing permit activity in various prominent residential REIT markets. While supply -- while future supply in the Essex markets is expected to drop in 2023 and remain at manageable levels thereafter, supply appears to be increasing in several other markets. It is also important to note that we have limited exposure to the institutional single-family rental market compared to other metros. We continue to believe that housing supply and demand is the fundamental driver of our business and our capital allocation priorities.

I have a few brief comments on the apartment-investment markets where the deal volume in our markets has now surpassed pre-COVID levels as institutional capital targets West Coast apartments. Cap rates were consistently in the low to mid 3% range and we've seen yields converge across markets, construction types, location and age. We sold four properties last year valued at $330 million using the proceeds to fund stock repurchases early on and then acquisitions as the year progressed and our cost to capital improved. For the year, we acquired $432 million with the majority of acquisitions completed in a co-investment format to conserve capital. Generally, we see greater deal volumes during uncertain conditions, so, we are optimistic about more opportunities to create value in the transaction market in 2022, and Barb will detail our '22 guidance assumptions in a moment. With that, I'll turn the call over to Angela Kleiman.

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Thanks, Mike. First, I'd like to express my gratitude for the exceptional operations and support teams we have here at Essex. As the challenge to our business continue to evolve, our team has also continued to step up, which speaks to the dedication, work ethic, and the can-do attitude across the organization.

On today's comments, I'll begin with key operational highlights of our major regions then focus on our outlook for the year, followed by an update on the progress we are making by leveraging technology, data analytics and transforming our operating platform.

We are pleased with our fourth quarter results of 4% year-over-year and 1.6% sequential growth in same property revenues. We have detailed on S-16 of our supplement, which shows the fourth quarter year-over-year, new and renewal rent spreads up by 17.1% and 10.7% respectively. The significant recovery in rents over the last year was bolstered by the occupancy and concession strategies we implemented throughout the pandemic.

To review our markets by region I'll begin in Southern California, which represents almost 45% of our NOI and was our best performing region in 2021. Through many economic cycles, we have consistently relied on Southern California for steady performance and during the pandemic, it has exceeded our expectations. The one caveat is the Los Angeles submarket. While it is also showing strong rent growth, this market faces offsetting challenges from the ongoing eviction moratorium and disproportionate bad debt.

Notwithstanding these challenges, we remain optimistic with the broader Los Angeles submarket because of the continued strategic commercial investments by companies like Warner Brothers, which is planning to develop a 1.3 million square feet of studio and office space in Burbank. This will be the largest studio development in the country and is expected to bring about 1,400 new jobs to the market. Film LA recently reported the production activity hit an all-time high in the fourth quarter and Apple recently proposed a 0.5 million square feet office development in Culver City, which will create approximately 2,500 new jobs.

The continued job growth and high cost of home ownership amidst a slight increase in supply deliveries in Orange County and San Diego are factors considered in our expectation for demand for rental housing and the basis for our 2022 outlook for Southern California market rent growth of 7.1%. Moving north to the Bay Area and Northern California, it is no secret that Northern California's rents have lagged the nation in the Essex portfolio average. We view the region as in early stages of its recovery. Unlike most markets across the country, which are effectively back to normal economic levels, the Bay Area has yet to fully recover due to ongoing COVID regulations such as mask mandates and delayed return to office, tempering the momentum of normal economic activities. We are seeing communications by Bay Area Companies informing employees of plans to return to office after Omicron case subsides and we remain encouraged by the large tech companies' expansion plans and commercial investments in our markets, as highlighted by Mike.

Furthermore, our supply delivery forecasts a decline in 2022. Thus, we anticipate rapid recovery in rent growth without requiring a comparable level of increase in housing demand. Keep in mind that our Northern California portfolio is mostly suburban and should benefit from those employees having fewer commuting days in a hybrid environment. These factors contribute to our expectations for Northern California to be one of our strongest rental markets in 2022 with market rent forecasted to increase by 8.7%.

Turning to our Seattle portfolio, which continues to perform well, we anticipate similar level of supply deliveries this year as last year with the majority concentrated in downtown Seattle. Because our portfolio skews to the East side in Bellevue and surrounding suburbs, the demand for our communities remain strong from the continued investments by several companies, most notably Amazon, which is committed to developing a second tower in Bellevue with construction to start this year, and is expected to create an additional 3,500 jobs. Therefore, we forecast Seattle's market rent growth at 7.2% for 2022.

Moving on to the advancements in our operating model. By way of background, our discipline and focus of investing in high quality submarkets has resulted in 70% of our properties being located within five miles of each other. With this competitive advantage in geographic concentration and innovation in technology and data analytics, we have re-envisioned Essex operating model with property collections. Essentially, we are transitioning from a dedicated team at an individual property to teams that will cover a collection of properties allowing each associate to specialize in specific function and improving our ability to cross sell among nearby properties. By organizing properties into collections and centralizing certain administrative duties, we expect to generate more efficiencies across the portfolio. We have already implemented this collections model in Orange County and San Diego and have achieved a reduction in personnel by approximately 10% to 15% through natural attrition.

In addition, our data analytics has determined that our ability to cross sell neighboring communities has increased by over 800 basis points following the adoption of the collections model. We plan to complete the roll-out of the collections operating model to the remaining regions by the end of this year. While Essex has been efficient historically with each associate covering 40 units prior to 2019, with recent enhancements, we currently have each associate covering 43 units across the entire portfolio. Further benefits are expected in 2022 and thereafter as we complete our technology and other implementation plans. We are currently co-developing proprietary applications with partners from our ET Ventures Fund and other software developers that will enhance the associate and customer experience.

One example of advancements in our operating model over the past months has enabled 100% contactless tours which currently consists of 92% self-guided tours and 8% virtual tours. As part of our technology initiative, we are starting with a roll-out of Alloy Access, a SmartRent common area access solution, which will elevate the resident experience while also further the productivity of our operations team by enhancing security, usability and monitoring along with improving the effectiveness of the self-guided tours for prospective customers.

In addition, we are working with Funnel to co-develop a tailored solution to further automate our platform, which we plan to roll out later this year. We believe this will directly benefit both the associates and customers through streamline systems, on demand features and link communications across properties, which will meaningfully accelerate the timetable to turn prospects into renters. We integrate these advancements with our data analytics platform to provide new operational insights. For example, leveraging newly available data on our leasing patterns from Funnel has improved the quality and effectiveness of our customer interactions. We have also applied advanced analytics with data from site plan to streamline our maintenance workflow, which reduced our unit churn times by 10% in the fourth quarter on a year-over-year basis, despite COVID-related labor challenges.

We expect that these initiatives will continue to provide us with additional levers and insights to improve our revenue growth and operating margins in the coming years. With that, I'll turn the call over to Barb Pak.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Thanks, Angela. Today, I will discuss the key assumptions supporting our 2022 guidance and conclude with an update on the balance sheet. We ended 2021 with strong momentum in the fourth quarter as demonstrated by 4.7% same property NOI growth and 7.6% core FFO growth. We believe the economic recovery has only just begun on the West Coast and thus this positive momentum will continue throughout 2022. As such, we are forecasting core FFO per share growth of 9.7% at the midpoint, which is the highest growth in six years. We are pleased that our 2022 core FFO per share guidance is expected to exceed our pre-pandemic FFO achieved in 2019, despite the challenging operating environment. This is a testament to our disciplined operating strategy and capital allocation process, which is driving results to the bottom line.

Our 2022 FFO growth is primarily driven by a 7.8% increase in our same property revenues on a cash basis and 8.3% on a GAAP basis. For the year, we expect fewer concessions as compared to last year, but delinquency remains a challenge and we are expecting delinquency of 2.4% of scheduled rent in 2022, which is 30 basis points higher than 2021. We have two counties representing 50% of our total delinquency where tenant protections remain in place. In addition, response times on tenant applications seeking emergency rental assistance remained slow and outside of our control leading to large monthly swings in the delinquency line item. As a reminder, our historical annual delinquency has been around 35 basis points of scheduled rent and given our long history of high collections, we believe we can ultimately return to this level once the various restrictions are lifted.

We continue to assist residents in applying for federal tenant relief funds and have received $29 million to date, of which $12 million was in the fourth quarter. As for operating expenses, we are forecasting a 4% increase, which is above our historical average of 2% to 3%. This is the result of wage pressures in the market along with general inflation in the economy for materials. In total, same property NOI is expected to grow 9.4% on a cash basis.

Continuing with our investment expectations for 2022. As we have discussed throughout the past year, we have seen an elevated level of early redemptions of our preferred equity and subordinated loan investments due to high demand for West Coast apartments and low interest rates. In 2021, we had approximately $210 million of redemptions and our 2022 guidance contemplates another $350 million of redemptions, some of this was pushed from the fourth quarter into this year. Over the past year it has become more challenging to find new investments given the influx of capital to this segment. However, we were able to secure a $117 million of new commitments with an average yield of 11% maintaining our disciplined approach to underwriting these projects. Our 2022 guidance contemplates an additional $100 million of new commitments at the midpoint of which we assume $50 million will be funded during the second half of the year. The remainder of the preferred equity redemption proceeds will be used to fund new acquisitions.

Finally, the balance sheet remains in a strong position. During the quarter, we saw continued improvement in our credit metrics and our net debt to EBITDA ratio declined to 6.3 times as EBITDA grew. We expect this trend to continue throughout 2022. Over the past two years, we have taken advantage of the low interest rate environment and refinanced nearly 40% of our debt, locking in low rates and reducing our weighted average interest rate by 70 basis points. As such, we have only 6% of our debt maturing over the next two years. In addition, we have minimal exposure to short-term rates with only 4% of our consolidated debt subject to floating rates. As such, we have minimal risk to the rising interest rate environment. Given limited near term maturities, no material development funding needs and ample liquidity, the company remains in a strong financial position. With that I will now turn the call back to the operator for questions.

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Operator

[Operator Instructions] Our first questions come from the line of Rich Hill with Morgan Stanley. Please proceed with your questions.

Richard Hill
Analyst at Morgan Stanley

Hey, good morning, guys. I wanted to maybe just start off with a question about new leases relative to same-store revenue. I typically view new leases as a leading indicator within the revenue [Phonetic] and you put up just a huge number for new leases in January, I think of around 17%. So, how are we supposed to think about that? And maybe if I can push it a little bit, why isn't same-store revenue higher?

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Sure, Rich. Its Angela here. So, let me just give you a little context on the S-16 that shows our new lease rates. And it is terrific with that 17% but keep in mind that's a year-over-year number, to start. And we had communicated that between fourth quarter of 2020 to first quarter of 2021, so that comparable period, that's when market rent troughed. And so from a year-over-year perspective, we are really hitting the greatest delta, if you will from a differential perspective. So, if we're talking about really the same-store guidance, what we probably -- I think a better indicator is to look to the S-17 that Mike talked about earlier, and you take that market rent of 7.7%, that market rent growth, and then you factor in the loss to lease at year-end. And I know we normally do this -- look to the September loss to lease but you might recall that we were -- we had a typical seasonality and the seasonal peak was pushed. So, we had caution against using the September loss to lease. So, if we look at the December loss to lease, it's around 6% and you factor results, yes. And I know some of these other factors such as legislation and delinquency, that's what ultimately drives our midpoint guidance of 7.8%.

Richard Hill
Analyst at Morgan Stanley

Good, got it. And look that makes sense to me. We spend a lot of time on your macro forecasts. So, I guess your revenue guide was consistent with that which is sort of what we expected.. The new lease spread was just really high and that's helpful color. Just one more question from me. When we're unpacking what you've reported and guided to relative to our numbers, one of the things that's stood out to us was rising interest expenses and then rising non-same-store expenses. Can you just maybe talk through what you're expecting for the interest expense side of the equation and if you're intentionally being conservative given the interest rate environment that we're in right now?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Hi, Rich. It's Barb. In terms of the interest expense line, the biggest factor there is the reduction in cap interest as our develop pipeline has substantially rolled off and so that's a pretty substantial increase in the interest expense. We do have a couple of rate increases forecasted in the guidance and it's really why we have a range, but we don't have a lot of variable rate debt. We only have 4% of our consolidated debt as variable rate. So, that's a small impact to the numbers. It really is the cap interest side of the equation. I think that's a $4 million reduction that we have.

Richard Hill
Analyst at Morgan Stanley

Okay. That's helpful. Guys. I'm sure a lot of people have other questions. So, I'll jump back in, but thank you for that.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thanks Rich.

Operator

Thank you. Our next questions come from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Hey, good morning. Good morning out there. So, just a few questions from me. As far as Southern California goes, the strength that, that market is experiencing in general. Do you think that will continue, so when San Francisco reopens and those tech jobs once again have to be in the office? Are you expecting a migration back of people who migrated down to Southern Cal going back to Northern Cal? Or your view is that everyone who is populated to Southern Cal, loves the lifestyle and is not looking to relocate back?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Hey, Alex, it's Mike. I'll start with this and then flip it to Angela, maybe for some more comments. We think that there is a reversion underway and it will draw people back to where the jobs were pre-pandemic and so the pandemic caused a lot of disruption with respect to where people went and many people went to Southern California and elsewhere. And so, we think as the pandemic winds down, people will go back to where they once were again with the hybrid model being the typical format for a lot of the big companies out here. So, we think that some of the people will move from Southern California back to Northern California, but keep in mind there were people from Southern California that moved to Phoenix and other places as well. So, it's not just a one direction movement and we think that the overall impact will be beneficial for California in total. So, even though some people will move from Southern California back to Northern California, that will be offset by potentially other people moving back for job reasons and or lifestyle deficiency. So, with that I'll turn it over to Angela. Anything to add Angela?

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Maybe just a little historical context, Alex. With -- the Southern California portfolio and in particular San Diego, Ventura and Orange County, these are markets that were at -- that performed at a 97% occupancy even pre-COVID. So, it's already a highly desirable place to be. And we combine that with this region having the most -- the strongest loss to lease and actually has, as far as we can see, pretty long lag. So, in the interim during the reversion that Mike is referring to, it may be more of a net neutral, but long term this market would still -- we would see this market continue to perform well with a good tailwind from loss to lease.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Okay. And then just as a follow-up to that. As part of guidance -- and Mike, you've spoken about the exodus of the high-tech worker and then the service worker who left when their businesses were shut down. But as far as guidance goes, how much of guidance is predicated on the return of tech workers, return of the baristas? Just trying to get a sense. Or if return to office occurs and if service job -- those people who left came back, that's incremental above and beyond what you are already assuming in your numbers.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, Alex, I would say that it's already happening. So, it's not a future event necessarily. I think we're in the middle of the reversion and I think, to point to a statistic, just look at job growth, and job growth is trailing. Three-month job growth is highest in Seattle, 6.2%, followed by Northern California at -- I'm sorry Southern California by 5.8% and Northern California by 5%. So, jobs are coming back. People are starting to move. The Bay area obviously is a step behind but we think it will catch up given the strength and the uniqueness of the tech employers that are there.

And so we think it's all underway and it's just going to take some time to play out. I guess the question is, can it accelerate. I mean we actually expected to accelerate especially in the tech markets, which were, of course, those that were most impacted. By the end of the year, we expect that California will -- or our markets will have about 93% of their jobs that they lost during the pandemic, recovered. We're currently at about 78% now. So, we expect, again, these trends to continue and pretty favorable for our markets given what the impact on jobs is.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Thank you.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thank you.

Operator

Thank you. Our next questions come from the line of Nick Joseph with Citi. Please proceed with your questions.

Nick Joseph
Analyst at Smith Barney Citigroup

Thanks. Maybe just following up on that. It seems like another topic at least for San Francisco and maybe Seattle as well. It's just the quality of life overall. And obviously, a return to the office will help improve things. But do you think there is other steps that need to be taken or will the return to the office really help the quality of life as well?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

I think quality of life considerations really come into play in the CBDs, the homelessness, concerns about defunding the police etc. I think that is where quality of life issues are more manifest and obvious. And -- as they say, they're not creating any more beaches around here, so, that's obviously a benefit. And so I think that the quality of life in suburbia is actually very high and we're -- as we said before, we're going to push out a little bit farther, strategically into some other -- some different markets. And Adam is here, he can talk about this visage here, which we've never bothered -- invested before, but it represents one of those markets that's in suburbia, good community, good decent schools in a very nice Northern San Diego submarket. And we're looking for that and we think that we can find great quality of life in some of those markets and there is great opportunity out there.

Nick Joseph
Analyst at Smith Barney Citigroup

Thanks. So, then, as you think about the co-investment and the preferred and the mezz book, obviously you've gotten good returns from it and it's led to some opportunities. But as you think about earnings and some of the volatility that we're seeing this year associated with it, how do you think about the size going forward from a strategic perspective?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, Nick, I think it's about right actually. So, we have about $700 billion combined between preferred equity and mezz debt. And again, we don't want that business to get to be too large. We -- I think took advantage of an opportunity in 2020 to grow the business a bit given that there was very little else that was working, and I think that's helped. But it will be somewhat lumpy and that's the primary reason why the Board and all of us, think that we should control its size and not let it get too large. So, that's first and foremost on our minds. In our -- from our perspective, it is probably the best risk-reward of what we do in terms of how we generate income and plus there are some other advantages. One of our investments this quarter was a joint venture that came out of the preferred business. So, I thought that was -- having to other types of business tied to that is important. Plus we get a look at many development deals that are going on in the marketplace and that allows us to be more discerning with respect to our development pipeline.

Nick Joseph
Analyst at Smith Barney Citigroup

Thank you.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thanks.

Operator

Thank you. Our next questions come from the line of Rich Hightower with Evercore. Please proceed with your questions.

Rich Hightower
Analyst at Evercore ISI

Hi, good morning out there, guys. I want to go back to a couple of prepared comments in terms of delinquencies and I guess the longer-term assumption that delinquency rate will revert more to historical norms. Every time we talk to your coastal peers, regulatory risk is obviously very prominent in the decision to diversify outside of certain markets. I assume this is part of that. I guess, what over the longer term gives you the confidence that the regulatory environment in that regard will indeed get back to where we were pre-COVID?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, it's a good question and it's definitely something that's on our minds and we will say that it's frustrating from time to time. But I guess, we would ask that everyone take a balanced view of these regulatory risks and look at the other side. And in the other side is that limited housing supply really comes from all the regulations that make it difficult to build housing in these markets, and so we try to balance that equation as best we can and knowing that we are a beneficiary of the supply issues that California has because there's always another regulation that is making it more difficult for us to build housing right around the corner, which is what keeps supply under control in California. So, keep that in mind. And we know that we need to be a strong advocate with respect to sensible housing policies and we're going to be active in that area going forward. But again, we would hate to trade away the unique benefits that we have, given the supply restrictions in California.

Rich Hightower
Analyst at Evercore ISI

Okay. Yeah, I appreciate this. There's two sides to the coin there, Mike. Maybe one quick follow-up. And then just, are you able to delineate for us on this call the bad debt percentages in terms of leases that were signed in the pre-COVID vintage, true sort of COVID hardship at the time versus any leases that were signed when the world started to get better again? I mean people that were gaining the system after COVID was already a factor? Is there a way to do that?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

I'll start and then flip it to Barb. A lot of this -- there was nothing in the pre-COVID period that indicated that there were any issues with delinquency, so I'll make that comment number one. Most of the issues that we have are really related to the government -- the governmental agency, which is -- there's a website called Housing Is Key and they have very recently about $7 billion in applications and they paid out about $1.9 billion. So, they are way behind and so there is this delay in getting reimbursed for all these claims and Barb has some information about what's in process, etc. But I guess, the key here is that the State agencies are way behind and there's a lot of money that has been submitted. And we don't know - we don't have control over what's going to happen with those funds and so we're just going to have to wait, which led to what we hope to be is obviously conservative guidance. We weren't intending to be conservative, but we realized that some of these factors are out of our control. And so then we erred maybe to the conservative perspective, but we just don't know. Barb with that said, I think you have some additional numbers.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, Rich. So, in terms of our cumulative delinquency, we're at about $67 million. We have applied for reimbursement for 80% of that. So, that's $53 million and of that amount $33 million relates to our existing residents. However, the tenant -- the timing and amount of being able to collect that is unknown because the program prioritizes based on the residents area, median income which is, you know something that we're not fully privy to at the time they apply. The remainder is applications we've applied for on behalf of past residents. Now, our ability to collect on that is, if the resident will engage and that's unknown at this time, but we have applied for everything that we can and as Mike said, the State of California has been slow to disburse funds, which is causing a lot of the noise in our numbers at this point.

Rich Hightower
Analyst at Evercore ISI

Okay. Thanks for the color, guys.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thank you.

Operator

Thank you. Our next questions come from the line of Brad Heffern with RBC Capital Markets. Please proceed with your questions.

Brad Heffern
Analyst at RBC Capital Markets

Yeah. Hi, everyone. Thanks. I was wondering about rent to income. You talked in the prepared comments about the big divergence between urban and suburban. Can you give any figures about where rent to incomes have trended in those two splits? And if they've moved, has that largely been because rent has moved or has income moved as well? Thanks.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, this is Mike and there may be -- Angela may have a comment too here. But generally speaking, the good news is that incomes are moving and that affects us in terms of our guidance, but it also helps us charge more brand or allows us to have higher rent levels and helps us much more than what it cost us on the operating expense side. So, we're pleased with higher income levels and we're seeing that throughout our portfolio. And in terms of numbers so Southern California for example has a rent to median income. This is the median -- this is not our data, this is general data that comes from our data vendors, but using median rents and median incomes, we're currently at 26.9% rent to income in Southern California versus the long-term average of 22.3%. So, well in excess of that average.

And then conversely, in Northern California, we're currently at 22.1% rent to income versus a long-term average of 23.1%, So, well below in that regard. Seattle is a little bit different. It's at 21.1% versus 18.7% respectively. So, it suggests that it's higher in the rent to income versus the long-term average, although that market has changed pretty dramatically in terms of it going from being a lower cost to a higher cost or higher-rent market over the last 10 years or so. So, I'd say it's fundamentally changed its nature. Does that help answer your question?

Brad Heffern
Analyst at RBC Capital Markets

It does. I mean one of the things I was trying to get at is specifically for Northern California, when you have the backfill after the initial sort of COVID pain, I'm curious did you see significantly lower incomes from those people, and that's part of what caused the pricing pressure and is there any reversion of that or is the pricing pressure truly just due to other factors?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, if that's the question. Yeah, we see -- so, take the leisure and hospitality segment, which lost a tremendous number of jobs because the State shut down the restaurants and the hotel shut and travel was shut down basically. So, all those people that are generally pretty low wage earners left the Bay Area and went somewhere else. They migrated far and wide or went home with parents etc. And so we're starting to see them come back. They are skewing the data in terms of their impact on rent income. It looks like we'll bringing in a lot of lower income workers, but it's just replacing what we lost a while ago. So, there is nothing fundamentally wrong with the Bay Area or any of our markets with respect to income levels. I think they are still in very good shape. The tech companies continue to -- they didn't lose a lot of employees and they continue to hire at robust levels, that high-income levels. And then those high income levels are what really drive the demand for the services, all the jobs that we lost early on in the pandemic. The high incomes -- people here make enough that they can pay a little bit more for their dinner and some of these other services and so, we just don't see that as a key issue. The key issue with how do you draw back people that left in the early parts of the pandemic? How do you draw them back now? And I think that's an ongoing process. Does that help?

Brad Heffern
Analyst at RBC Capital Markets

Thank you. Yeah, that's perfect.

Operator

Thank you. Our next questions come from the line of John Kim with BMO Capital Markets. Please proceed with your questions.

John P. Kim
Analyst at BMO Capital Markets

Hello. I was wondering if -- you talked about sourcing new preferred to mezz has been challenging in this environment. Would you consider doing deals outside of your core markets, not necessarily to own the equity, but to provide a wider pull of investment opportunities?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

This is Mike. Actually, I'm going to give this to Adam in a minute, but we, the answer is we are to some extent. In other words, we are not going to completely different markets but we're pushing into other markets. Adam, you want to give him a couple of examples of deals that we've done?

Adam W. Berry
Executive Vice President & Chief Investment Officer at Essex Property Trust

Yeah, John. So, we have been tracking other markets since really the platform was put into place and John, we've actually -- we've done -- to echo what Mike said. So, we've looked slightly outside of our markets to where we think the fundamentals are still there, they -- and so, a couple of them we've done. We did one in Broadlands [Phonetic] which is Inland Empire, that one is going well, currently funded. And then we have one round trip in Sacramento, that's -- the stock markets have actually done very well. So, we continue to track markets within our overall footprint, but a little outside and we'll consider a little further beyond that.

John P. Kim
Analyst at BMO Capital Markets

Okay. So, nothing outside of the West Coast really. Yeah. My second question is on your revenue generating CapEx guidance of $100 million, which is more than double of what you invested in last year. How much does this add to same-store revenue growth this year versus 2023? And is it fair to assume that most of this CapEx will be outside of Northern California?

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

We actually are looking at these opportunities throughout the portfolio. So, it's not skewed towards one region because we are seeing strong market rent growth in all of our portfolios, in all of our regions. And as far as when they will be realized, less likely in 2022, just because as you know, it takes time to renovate and then get them leased up until that time -- by the time that's -- that occurs, you certainly wouldn't have a full year of revenue. So, it's more likely going to impact 2023.

John P. Kim
Analyst at BMO Capital Markets

Great, thank you.

Operator

Thank you. Our next questions come from the line of Austin Wurschmidt with KeyBanc. Please proceed with your questions.

Austin Wurschmidt
Analyst at KeyBanc Capital Markets

Hey. Thank you. Mike, in your prepared remarks, you referenced that buyers in the markets are not really discerning, I guess, between location and maybe vintage of product. And so is that simply just a function of the amount of capital that's coming into your markets and chasing deals? And separately, is there really any opportunity for you to pull forward any portfolio management objectives as a result of everything seemingly converging in pricing?

Adam W. Berry
Executive Vice President & Chief Investment Officer at Essex Property Trust

Hey, Austin, this is Adam. I can start with that and then if Mike has any follow-ups. So, we're seeing a different buyer pool for different vintages in different locations, but ultimately what you said in your question is right. There is so much capital chasing these deals, whether it's coming from value-add funds or larger core funds or whomever that the compression between a product edge type, construction type and location has been significant and continues to remain today. As it relates I -- Mike, do you want to cover that?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, I -- could you repeat the question about the portfolio?

Austin Wurschmidt
Analyst at KeyBanc Capital Markets

Yeah. Just portfolio management objections, trading around sub-markets, increasing product quality, whatever sort of is in your purview...

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, the broader management objectives, yes. Well, we continue to believe that we can add value in a variety of ways and it isn't that we're necessarily going to dramatically increase our portfolio allocation to any one market or decrease it. I think that we're overall pretty happy and we want to see how the pandemic recovery plays out. Like everyone else, there's a number of unknowns about portfolio transitions and we would like to get into a more normal world. As I mentioned in the -- in my prepared remarks, the laggards over the last 30 years are now our top-performing markets. Is that possible that that continues or does it revert back and I suspect that there will be some fairly significant amount of reversion.

As we think of the world, we think that probably the urban core -- again given issues with homelessness, crime etc. are probably a mild negative -- mild to significant negative. Hopefully, the cities get control over some of these issues. I think that they can definitely do that with respect to crime. I'm not so sure that there is a plan when it comes to homelessness. But again, that's pretty focused on the urban core much less so in throughout the suburban parts of our portfolio, which is where the vast majority of our property is located. We've commented actually before the pandemic on de-emphasizing the city centers partially due to what I just said. And so that remains a -- something that we will take a look at and potentially transact around going forward. But overall, North-South balance. Seattle I think is doing really incredibly well, great job growth and a couple of key drivers up there in Microsoft and Amazon that are really pushing that market. So, we'd like to increase our portfolio out there actually, but it's difficult to find the product at the price it adds value. So, more of the same. We've been there before.

Austin Wurschmidt
Analyst at KeyBanc Capital Markets

Yeah. Got it. And then just maybe given where the stocks trading, certainly preferred -- I think the preferred equity investments have been one of the most attractive you've referenced. But beyond that, given where your stock is trading is the joint venture still one of the best uses? Do you take a look at issuing from time to time where you're trading today? What's the thinking around your cost to capital and potential uses?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah. We -- when we look at deals, our deal generation is sort of independent of how we capitalize or how we take the deal down. And where we believe that we're adding value to the company and that could be core FFO or cash flow and/or NAV per share to the company, we will take it down on the balance sheet. And at times like now, where we don't think we can add value, we will do it in our -- one of our co-investments worst -- where we're still a substantial owner. We still own about 50% of these transactions and we manage it and therefore we earn some -- a small amount of fee income. But it's really driven by the capital side of the equation and again, at this at this point, we probably wouldn't issue stock. We would prefer to transact in a co-investment format.

Austin Wurschmidt
Analyst at KeyBanc Capital Markets

Thank you.

Operator

Thank you. Our next questions come from the line of John Pawlowski with Green Street. Please proceed with your questions.

John Pawlowski
Analyst at Green Street

Thanks. Just one follow-up question to that, the North and South -- Southern California balance in the portfolio either for Mike or Adam. I guess I'm listening, Mike to your opening remarks in that the unsaid investment takeaways by Northern California or by the laggard then maybe sell or prune the winner is just in terms of dispersion of relative rents, we've seen in the last 24 months. So, you're kind of pounding the table in the mean-reverting trade. Why don't you have as much conviction to go out and tilt the portfolio on the margin towards Northern California more heavily?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

John, it's a great question, and Adam will you bring me 100 buildings in Northern California, please at a 3-8 cap rate. That's the answer. It is not there. And if we could do it, we would. We did buy one property in Fremont, again, in a co-investment. We would buy more if we could, John, but again the markets are going to evolve and perhaps, we'll continue to see more product hit the market and we wouldn't -- for high quality properties in the right areas of the Bay Area, we're not blacklining the Bay Area by any means.

Adam W. Berry
Executive Vice President & Chief Investment Officer at Essex Property Trust

John, just to tack on a little there. We see every deal that's marketed and every deal that's not marketed and so it's always a relative game. And so we're underwriting consistently up and down the portfolio and jumping in where we see opportunity for that value add. Otherwise, we've seen deals in Bay area close at 31-32 gap and that's not where we're going to compete.

John Pawlowski
Analyst at Green Street

Okay. So, going in economic yields are still meaningfully lower in Northern California than LA, Orange County, San Diego?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

You know I keep telling, Adam, I say, "Adam, well interest rates are going up. So, what's going on with cap rates?" and Adam keeps telling me they're pushing down, right? I mean that's effectively what we've seen.

Adam W. Berry
Executive Vice President & Chief Investment Officer at Essex Property Trust

That's effectively right. And it's certain, John, not even going in. So, that 31-32 gap that I quoted is economics. We're taking all units to market as of today. So, there is -- it doesn't include any future growth, but that's still absorbing the loss to lease. So, yes, very competitive.

John Pawlowski
Analyst at Green Street

Okay. Thank you.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thanks, John.

Operator

Thank you. Our next questions come from the line of Haendel St. Juste with Mizuho. Please proceed with your questions.

Haendel St. Juste
Analyst at Mizuho Financial Group

Hey, I guess it's still morning out there. Good morning. I wanted to -- I have a question on your blended breaker. I guess I'm trying to better understand the cadence in the back half of the year versus the first half and some of the key drivers or underlying assumptions. You are starting off the year on a strong foot. You seem to be fairly optimistic about an improvement in [Indecipherable] county into back half of the year. But looking at the guide, in fact, there is a massive drop off to get to your same-store revenue guide. So, maybe you can help me understand that or square that a bit more. Thanks.

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Sure, Haendel. It's really more of a function of the year-over-year comparables. And so we expect the first half to be much stronger because first half of 2021 was still quite soft and of course we started recovering in the second half of 2021. And so from a year-over-year perspective, this year, the second half will be a harder comparable, and that's really what's driving the trends.

Haendel St. Juste
Analyst at Mizuho Financial Group

No, I understand that. I guess maybe helping us understand maybe the delta perhaps between some of the regions in the back half year. Obviously, there is some tailwinds helping No-Cal, but perhaps So-Cal has more headwinds given how well it's performed. So, maybe a bit more color perhaps on that maybe that the spread that you're thinking of there.

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

In terms of the spread, what we see is that Seattle will be highest from a year-over-year on the second half because it has higher loss to lease, and lower delinquency and so, better concession benefits. And Northern California and Southern California are pretty much very comparable. Southern California because of the challenge by delinquency while Northern California has that concessionary benefit and so they end up more similar. But in terms of spread, we're not talking -- we're talking say 40 basis points versus the -- now hundreds of basis points. They are all pretty close.

Haendel St. Juste
Analyst at Mizuho Financial Group

Got you, got you. Okay. No, that's helpful.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

And Haendel, just one question. Are you asking about market rent growth or same-store growth? I am just trying to understand.

Haendel St. Juste
Analyst at Mizuho Financial Group

Yeah, no, I guess the first question was more on the blended rate growth within the same store but the market commentary is helpful.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Okay.

Haendel St. Juste
Analyst at Mizuho Financial Group

Were you guys sending -- I don't know if I missed it, but did you guys mention where you're sending out renewals today for February and March?

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

We didn't Just -- let me take a quick look. So, under renewals we're sending out -- hold on -- 2022. Where is that? Where did it go? Oh here. So, we're sending renewals out per folio average in the low teens. So, around say 13-ish percent, and with Seattle the highest followed by North Cal and then So-Cal around 10-ish.

Haendel St. Juste
Analyst at Mizuho Financial Group

Yes, and that's helpful. Mike, I guess a question for you. I heard your commentary about VC investments and I understand there's a lot of profitable and very viable established companies -- tech companies today. But I guess I'm curious how concerned you might be regarding the ongoing Facebook Meta troubles and the number of not yet profitable startups. So, I guess I'm curious what -- any level of concern you might have at all as to what might happen to your job growth assumption that these companies have to cut G&A?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, Haendel, it's definitely a concern, but I don't think -- in terms of the stem graduates and the workers that are in these fields, I don't think there's any shortage of positions that might be available to them. There's plenty of jobs out there. I was coming out of college. I worked for a venture capital company and so I was there for quite some time and it's amazing how different the world is and these companies are venture finance for a much longer period of time now and the rounds are much larger. In fact, I think most of the money that was deployed that I discussed in the script was mega rounds, rounds exceeding $100 million. So, we have some concern about it. Obviously, those companies are more vulnerable and therefore, I think that's warranted. I've been through that in my career in the late 90s where all these companies went public and without a product and it didn't work out well. So I think the current model of venture capital funding is much better, a much more resilient and a lot of these companies the best ones will see it through and the ones that don't succeed, I think the employees there's plenty of opportunity out there at some of the other companies. That's what makes us -- the Bay Area such a unique place from a technology employment standpoint.

Haendel St. Juste
Analyst at Mizuho Financial Group

That's helpful. And if I could I squeeze one more. I don't know if I missed that number too, but did you guys tell us what's embedded in the guide for rental assistance payments for this year?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Haendel, this is Barb. Like I mentioned we -- earlier, we have applied for $52 million of our accumulated delinquency. $33 million of that is our existing tenants and we feel good about that number. However, the timing is very uncertain and what we do is we forecast on a net basis. So, we've assumed net delinquency does increase this year because of the uncertainty related to the timing of payments on these applications as well as the California Program, which the applications have exceeded the amount that's already been allocated to the States. So, there's a variety of things that led us to that assumption.

Haendel St. Juste
Analyst at Mizuho Financial Group

Okay. So, if I understand it, should you be successful in getting -- well, I guess, I'm trying to understand how -- what level of payment are embedded and where the upside -- where that line lies. I guess I'm having trouble understanding what exactly is the net number, the absolute number that is included in the guides this year.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

So, in our guidance is a 2.4% delinquency as a percent of scheduled rent. That's what will drive our numbers. And one thing that we are seeing is our delinquency has gotten worse over the -- our net delinquency has gotten worse over the last couple of months as more of our tenants are applying for aid, as the program has changed recently to allow tenants to apply for three additional months. Therefore, applications are going up. So, there is a lot of moving parts on that front. But the net numbers, we do expect delinquency to get slightly worse this year before it gets better.

Haendel St. Juste
Analyst at Mizuho Financial Group

Okay. I think will -- I'll follow up offline, but thank you all. Appreciate your time, appreciate your thoughts. Thanks.

Operator

Thank you. Our next questions come from the line of Rich Anderson with SMBC. Please proceed with your questions.

Richard Anderson
Analyst at SMBC

Thanks, good afternoon. So, is there any logic to the concept that regulatory environment could actually be a good thing in terms of being a magnet for residents? I know some of your peers are running because of regulation, but on the other side of that table is, perhaps, a resident. I don't know, I'd like to know that I have tenant-friendly regulation behind me if I'm living in California. Is there any relevance to that line of thinking in your mind, Mike?

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah, Rich, it's a good concept. People generally don't think their landlord very much, we don't hear a great deal of appreciation. But having said that, I think that tenants do appreciate it. I -- candidly, from my perspective, I worry that it's taken advantage of the system as opposed to we're all for a safety net, we're all for helping people out, but it can go too far and trying to find that comfortable middle ground I think is what they are trying to do and I'm very glad I'm not managing that program, by the way. So, I think it's a good point. I mean, people do appreciate that part of California and --

But you know, they're going to do what's best for them, which ultimately will come down to their job and their quality of life and those factors that we spend most of our time thinking about.

Richard Anderson
Analyst at SMBC

Costa-Hawkins' reversal defeated, CPI plus 5% statewide rent cap, these weren't terrible events in the lifecycle of [Indecipherable] family, California. But anyway, second question is, you mentioned that cap rates are still going down with, I guess, what we would call the threat of rising interest rates still 10 years at historical lows. But I look back, 2018 tenure was over 3% and I looked at what you said in your call. At the time you said cap rates are running around 4.25%. So, are you quietly hoping for, perhaps an increase in interest rates to something more like that and also inflation because of the pass-through qualities of multifamily in that you could really start to see some opportunities come. I know it's 3:1 now in the cap rate, but maybe that changes if we get some real change to the interest rate environment and that's perhaps opens up opportunities for you and you're more substantial cost or capital raising opportunities versus your peers.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah. No -- hey, it's a great question, great observation and yeah, we -- I think that the company is positioned sort of for the worst case scenario whatever that might be in terms of the balance sheet and the overall structure. A world in which incomes are inflating and rents are inflating is a good world for us, I think. I mean I think that there will be opportunity -- and even though our -- probably our interest cost would go up in that scenario, the vast majority of our debt is pretty well locked down in terms of maturities and rates. So, that would be a good world for us, and I think there's a reasonable chance that's the road we're on.

Richard Anderson
Analyst at SMBC

So, is a four-handle tight cap rate -- is there anything systemic about your world right now that, that can't happen even if a scenario of 3% plus tenure were to happen? Because I would assume that, that's a very realistic copy for...

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Yeah. it's -- I mean -- the comment I would make is that cap rates tend to be pretty sticky over time. So, they don't just change overnight just because interest rates move up or down. And I would say back in those -- the 2018 period, you're referring to, we were maybe a little frustrated that cap rates were not moving down somewhat, given how much the tenure had rallied. But until the COVID period they remained pretty sticky even though you had pretty significant reductions in interest rates over that period of time. I think that probably, you're not going to see cap rates adjust upward quickly. There's too much money looking for a yield and -- a yield investment and 3% versus some of the options is still 3% and is still in the scheme of things interesting to some investors. So, I wouldn't expect that to change. It really is all about the flow of money and the number of investors that need yield and what the other yield alternatives are.

Richard Anderson
Analyst at SMBC

Right. Okay. Great. Thanks very much.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thank you.

Operator

Thank you. Our next questions come from the line of Chandni Luthra. Please proceed with your questions.

Chandni Luthra
Analyst at The Goldman Sachs Group

Hi. Good afternoon. everyone. Thank you for taking my question. Could you talk about the drivers behind sequential same-store revenue declines in some of your markets in fourth quarter? I'm talking about markets like San Diego 3%, San Fran down about 2%, similarly Contra Costa -- I mean, how much of this was perhaps a disappointment on return to office as we were just crossing that Labor Day mark versus say some seasonal factors that had a role to play here?

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

So, happy to, its Angela here. The sequential revenue decline really was not a concern for us this time because it's really attributed to the timing of the lumpy delinquency recovery. And so, what I mean by that is, in the third quarter, we have very favorable delinquency recovery. So, if you take San Diego for example, if I back out delinquency, the sequential revenue growth would have been 1.6%. And so similar relationship plays out for both Contra Costa and San Francisco as well.

Chandni Luthra
Analyst at The Goldman Sachs Group

Very helpful. Makes sense. And my follow-up question is around your collections operating model. So, you talked about roll-out by the end of 2022 and you also said that you've implemented this in Orange County and San Diego. So, taking that sort of as an example and let's say thinking about a 10% to 15% reduction in personnel to natural attrition across the portfolio, is there a way to contextualize that in some cost savings either in terms of dollars or in terms of margins? That would be very helpful.

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Yeah. I think the one example that we provided with the roll-out and some of our other enhancements has already realized a saving of about 150 basis points in margin improvement and that represents about $15 million to the bottom line, to NOI. And so my point in providing that context is that from a -- if you look at the roll-out, we're only a third way through and that was -- that represents the roll-out of really just two major -- two of our major regions. And so -- which is why I provided indication of an additional 200 or 300 basis points expectation of margin improvement just from the cost savings. And of course, with revenue there is more to come in there, but that's several years down the road.

Chandni Luthra
Analyst at The Goldman Sachs Group

Very helpful. Thank you so much.

Operator

Thank you. Our next questions come from the line of Joshua Dennerlein with Bank of America. Please proceed with your questions.

Joshua Dennerlein
Analyst at Bank of America

Yeah. Hey, everyone. Just maybe, wanted to explore your comments around maybe pushing farther out into suburbs. I guess, how do you think about identifying these new targets further out from the urban core? And maybe does this also imply you'll have more capital recycling for those assets closer in?

Adam W. Berry
Executive Vice President & Chief Investment Officer at Essex Property Trust

Hi, Joshua, this is Adam. I can start off. As Mike noted previously, we've been somewhat rotating outside of the urban centers now here for a few years since before the pandemic. And so we use our research team to just as -- we look at all the top-line metrics to see what areas within our core footprint makes sense and that's how -- so say, Sacramento for instance. That deal was done pre-pandemic and even at that point the -- between between job growth and incomes and affordability, lack of affordability for single-family homes, it may make sense on all of our metrics, which -- that's what drives our investment decisions. So we have a research team that reviews all of those -- all those metrics amongst a number of both our more core markets as well as more secondary markets.

Joshua Dennerlein
Analyst at Bank of America

Got it. Thank you.

Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to Michael Schall for any closing comments.

Michael J. Schall
President and Chief Executive Officer at Essex Property Trust

Thank you. Thank you, everyone, for joining us today. I appreciate your participation on the call and we hope to see many of you in the not distant future at the Citi Conference. Thank you.

Angela Kleiman
Senior Executive Vice President and Chief Operating Officer at Essex Property Trust

Good bye.

Operator

[Operator Instructions]

Corporate Executives
  • Michael J. Schall
    President and Chief Executive Officer
  • Angela Kleiman
    Senior Executive Vice President and Chief Operating Officer
  • Barb Pak
    Executive Vice President and Chief Financial Officer
  • Adam W. Berry
    Executive Vice President & Chief Investment Officer
Analysts

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