Good day, and welcome to the Essex Property Trust First Quarter 2017 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 risk 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 in the company's filings with the SEC. When we get to the question-and-answer portion, Management asks that you be respectful of everyone's time and limit yourself to one question and one follow-up. 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.

Thank you for joining us today and welcome to our first quarter earnings conference call. John Burkart and Angela Kleiman will follow me with comments and John Eudy is here for Q&A. This morning, I will comment on first quarter results, market conditions, regulatory matters and investment activity. Our results for the first quarter were better than expected, as a recovery from a challenging fourth quarter occurred more quickly than we expected, contributing to core FFO growth that was $0.09 per share, above the midpoint of the guidance range. While our sequential revenue growth was modest at 40 basis points, market rents grew 3.1% from year end to the end of the first quarter 2017. While this sounds great, it needs to be evaluated against the challenges we had in Q4 ‘16 where market rents dropped 2% from the end of Q3 to the end of the fourth quarter of 2016. Looking at market rent growth from September 2016 to March 2017, Northern California was the strongest part of our portfolio, followed by Seattle. The results for the quarter do not significantly change our expectations for the remainder of the year and are consistent with our thesis that rental growth rates will approximate long term averages in the West Coast metro areas. Angela will discuss the projections in a moment. Our operations team did a good job of identifying opportunities to make incremental improvements in a variety of areas, saving money and generating additional income, which added a few cents of the core FFO even with wage pressures, weather related challenges and significant utility cost increases in California. I greatly appreciate the skill and effort of our operations team and thank them for their effort. An important part of our expectations are that tight labor markets in California will push…

Thank you, Mike. I also want to thank the E team for another great quarter. Their hard work and persistent focus on our corporate objective has helped us produce year-over-year same-store revenue growth of 5% and NOI growth of 5.6%. Although our quarterly revenue growth was 5% over the prior year’s quarter, our scheduled rent growth was 4.3% in January over the prior year’s month and decreased to 3.9% in March over the prior year’s month as we expected. The difference was due to 50 basis points of increased occupancy over the prior year’s quarter as well as increases in other income and utility reimbursements. Some of the income was related to one-time items such as increased cancellation fees and collection of delinquent utility reimbursement and the rest was related to sustainable increases in various categories, as we continue to focus on the nickels and dimes of the business. We expect the year-over-year earnings comparison to continue to decline through the third quarter due to tougher comps as well as the supply entering the marketplace, moderating the seasonal increase in rents. Although we plan to continue to emphasize occupancy based on the current market conditions, the impact from occupancy on year-over-year revenue growth will be zero in the third quarter since it was the third quarter of 2016 that we had modified our strategy and achieved higher occupancy. The gain to lease of 50 basis points at the end of the fourth quarter, meaning that market rents were below the average rent in the portfolio at that time, led to the relatively low sequential growth of 40 basis points for the portfolio in the first quarter. The good news is that although the market was weaker than expected in the fourth quarter of 2016, it came back stronger than expected…

Thank you, John. I’ll start with a review of our first quarter results, then discuss guidance revision and conclude with an update on capital markets activity and the balance sheet. For the quarter, our core FFO exceeded the midpoint of our guidance by $0.09 per share. The components of the outperformance are outlined in our press release on page 4. Also in the first quarter, we declared a quarterly common dividend of $1.75 per share, which is a 9.4% year-over-year increase and represents 23 years of consecutive dividend growth. Moving on to the full year guidance, we are raising same property revenue growth guidance by 25 basis point to 3.5% at the midpoint. The increase is attributed to favorable first quarter results and an increase in projected other income for the rest of the year. While we are raising our growth outlook for the year, we still expect our revenue growth to decelerate from 5% reported in the first quarter to around 2% by the third quarter. As previously noted, we expected a more difficult second half of the year, largely due to a tough year-over-year occupancy comp and a lower level of [indiscernible]. In conjunction with the same property growth increase, we're raising core FFO guidance by $0.08 per share to $11.76 at the midpoint. This guidance increase primarily reflects the revised revenue growth outlook, partially offset by the timing of expenses. Overall, we are now projecting core FFO to grow at 6.5% for the full year, which is 70 basis points increase compared to our initial guidance. As for the second quarter, we are forecasting core FFO to be $2.87 at the midpoint, which is $0.07 lower than the first quarter results. There are three key factors, contributing to this outcome. First, we benefit from a one-time commercial…

[Operator Instructions] Our first question comes from the line of Nick Joseph from Citigroup. Please proceed with your question.

Thanks. Just want to start on the preferred equity deal. So what’s the opportunity to grow that book today and how large could that book eventually be?

Hi, Nick. It’s Mike Schall here. I think it could be a lot larger than we want it to be and so we're seeing a lot of demand for that product and again, for the reason that I cited in our script. So I think that our limitation is sort of a self-imposed limitation. We're trying to pick the best deals out of the group and the ones that both underwrite the best and are most consistent in terms of higher quality locations and properties. And so the main reason for that is because, the term of these deals is somewhere in the three to four year range and they have a high coupon somewhere between 10% and 12% typically on them. And so when that reverses, if we can't replace them, then we have an FFO decline issue. And so we're trying to be very thoughtful about how we execute that business. We think it's a great opportunity in the marketplace today and we want to take advantage of it. We just want to do it within boundaries. So I think a long time ago, we talked about somewhere around a 5% cap relative to the total market capitalization of the company and we're well under that and we expect to remain well under that.

Thanks. And then appreciate the uncertainty around immigration in H1B visas, but just curious if you've seen any change in traffic of non-US residents in any of your properties or across the portfolio?

Yeah. Nick, this is John. The answer is no. I can't say that we've perfectly tracked that, but we really haven't had any anecdotal or other information indicating any changes in traffic. I mean, frankly traffic overall is about the same as it was last year and specific traffic as it relates to any particular person.

Our next question comes from the line of Austin Wurschmidt from KeyBanc. Please proceed with your question.

Hi. Good morning and thanks for taking the questions. Just want to touch on guidance really quickly. You still talked about there being heavy supply in the first half of the year and we've seen job growth moderate a bit across some of your markets. So I guess just what gave you the confidence to raise the same store this early in the season or before entering the peak leasing season or with the higher earn in I guess, do you have some conservatism baked in now through the rest of the year?

Hi, Austin. It’s Mike Schall. Let me start with this and then maybe Angela will want to follow up. I think as we entered this year, we realized that there was a greater range of outcomes that were potential this year, really driven by the lack of loss to lease. At December 31, we had a negative loss to lease, meaning that market rents were below scheduled rent in our portfolio -- scheduled rent is 90 something percent of our revenue. And so because of that, we had some uncertainty there. We also had uncertainty with respect to how the lease ups, the timing of the lease ups and how aggressive the owners of the lease up properties within the marketplace were going to be with respect to concessions. So those two factors gave us less certainty about this year in terms of projection just in general. And then rolling that out, we noted on the last quarter call that because of a negative loss to lease, we would be building loss to lease this year and obviously, if you're building a loss to lease, you're not going through, the reported results are going into the loss to lease for the portfolio, which has increased pretty substantially as noted on the call. So those were the dynamics behind what was happening with respect to projections. In terms of how the numbers roll out, Angela, do you want to address that?

Sure. Thanks. And so the way the numbers were allowed is that the rent growth midpoint of 25 basis points raised essentially reflects the first quarter achieved results and we added to that other income that we are expecting, which John Burkart alluded to earlier about focusing on the nickels and dimes of our business. So it's primarily driven by those two components and that flows through FFO. And then the additional couple of pennies on the FFO side relates to our preferred business and other small items. So that’s why we're comfortable with our guidance range.

Thanks for the detail there. And then just the one follow-up, that is, I guess what would you need to see or what would get you more comfortable with increasing the unit renovation.

Yeah. This is John. I’ll take that. As I mentioned, there is really kind of two things that were slowing us down a little bit there. One related to the market and the other related to labor shortages. We're seeing some challenges getting the contractors there and that’s had an issue, so that would have to get resolved and that’s not as easy as it sounds. And then of course, the markets are getting stronger, the markets -- I’ll speak by the markets for a moment, they’re really functionally now consistent with our seasonal expectations. At the same time, the first quarter is just the beginning. We’re yet to really get into the second quarter until you really see how they’re moving, but what we're seeing with the marketplace is as is what we expected, it’s generally good and we are planning to increase renovations as much as we can, but again we still have some levels of limitations due to some labor shortages.

In the increases above what you would have anticipated I guess on the fourth quarter call?

No. We're in line with our overall plan. We were a little bit behind in the first quarter from what we had anticipated and will be in line overall for the year or just slightly below that.

Our next question comes from the line of Gaurav Mehta from Cantor Fitzgerald. Please proceed with your question.

Great. Thanks. So in your press release you mentioned that Northern California saw lower apartment supply deliveries and I think on the last call, you mentioned that bulk of supply in Northern California is expected in first half of 2017. So I was wondering when you say lower apartment deliveries, is that compared to your expectations going into the year or compared with last year?

This is Mike and maybe John will want to follow up with this. In general, we said that supply is declining in Northern California and we think that that's going to continue into and through 2018. In fact, from ’17 to ’18, we're forecasting about a 36% reduction in supply, ’18 over ’17. And within ’17, it drops off quarter-to-quarter. The first half remains pretty strong and then the supply should drop off in the second half of the year, although I think there's been some leakage in terms of pushing back some of our expected first and second quarter deliveries in Northern California maybe into the third quarter and beyond. So those are the dynamics there. So again, as I mentioned earlier, the ability to figure out exactly what's going to deliver and how those owners are going to price concessions, we've seen some increase in concessions in Q2. It's one of the variables, one of the difficulties in trying to estimate what's going to happen. But the statement that you made, we agree with basically that Northern California supply is being reduced, we expect in ’18, it will be relatively flat in Southern California and declined about 13% in Seattle.

And this is John. I would just add. We get out into the field and we look at where things are at and we do full scale about twice a year. And then, we spot check and when we went out and spot checked earlier this -- in the first quarter, we found that several of the assets that we thought were going to get delivered were not and I'm guessing they're facing the same issues we're facing on the rental side is shortage of labor for finishing skills employees. And so I think really the whole industry is feeling that pressure.

Okay. And as a follow-up, I think in your remarks, you mentioned opportunity to convert from preferred equity investments to the owning those assets. I was wondering when you are evaluating the preferred equity investments, are you underwriting them the same way as you would for your wholly-owned acquisition platform.

In general, yes. I mean, this would be a supplemental source of potential acquisitions and investments. It would not be something that we're trying to give a preference to one of the -- owners of one of these preferred equity deals. So, no, it’s strictly an acquisition strategy.

Our next question comes from the line of Juan Sanabria from Bank of America. Please proceed with your question.

Good morning. Just hoping to follow up on Gaurav’s supply question. Could you be a little bit more specific in terms of the individual markets within Northern California that are contributing to that 30 plus percent year over-year-decline, ’18 versus ’17 that you’re expecting?

Sure. This is Mike once again, Juan. About 50% in San Francisco, which goes down the peninsula in San Bernardino County. About 25% in Oakland and 26% in San Jose. So we have roughly -- so this year in San Jose, these are obviously multifamily supplies. 3200 units goes to 2400 units approximately in San Jose. So again, we see widespread decline in Northern California, less so in Southern California and a little bit in Seattle next year 2018.

And are you concerned at all because I mean you obviously are talking about some slippage due to labor that that massive decline year-over-year won't materialize in kind of may cause 2017 to play out more differently than you’d expected in your fiscal year guidance?

Well, generically, Juan, I’d say, we’re obviously concerned. So this is a business where you're constantly humble, because what you think is going to happen doesn't always happen, but this is a discipline of trying to understand the market and understand what's happening, what the dynamics are, what the forces are, so that we can get the capital allocation of the portfolio right. So I suspect that we won't be 100% right about these, about the projection for 2018, but I also will suggest it will be more right than wrong and this is the information that gives us a little bit better knowledge and strategic advantage in terms of making good investment decisions and capital allocation.

Okay. And just one quick follow-up on the lease term fee at commercial, could you just give us a little bit more color on a quantum dollar wise and where that was booked?

Well, I'll go back to what it was and I’ll let Angela walk through where it was booked and that, but this relates to an asset we bought and had a space that was -- had a paying tenant, yes, the space was actually vacant and so we worked to negotiate a closure to that situation so we can renovate that center and we're rather excited about that. As far as where it was booked in the financials, I’ll let Angela.

Oh, sure. Yeah. And so in terms of the dollar amount, it was about 1.2 million and it’s booked in other income on same-store.

Our next question comes from the line of Neil Malkin from RBC Capital Markets. Please proceed with your question.

Hey, all. Thanks for taking my questions. As far as I noticed on the development page, looks like land ticked up about $30 million. Am I reading that correctly and if so, can you tell me what that's related to?

Mr. Eudy is here. I hope he’s had his outline.

Sure. It's the Hollywood deal that I think you may be aware of that we put into pre-development if you will, all these things were achieved in the end of the fourth quarter and we will be starting, we get the demo, move the tenant out, and break it in December and we’ll be starting construction we expect late Q2, early Q3.

Okay. Great. And then just circling back to the preferred, can you give us a sense of, I know you have a good amount of those, but one of those going to be maturing, for example, five more are going to be maturing this year and compared to maybe last year or in ’18 and then are you seeing or do you anticipate most of those converting into common, because your partner has way less liquidity than you do, so they’re probably unable to pay you back on that.

Hi. This is Mike. We have no contractual right to convert anything. So just to make that clear, however, we have exceeded the table with respect to the outcome on some of the preferred equity deals and therefore it's just good. It gives us another bite of the apple let’s say. And so from that perspective, I think it works well in terms of the maturity schedule I think what as we've ramped up the business we don't have that many maturities we did we had one other conversion earlier this year and then I think we also had we have another we've actually had several maturities that have come through so what you're seeing and building from I think it was about 100 million last year to 100 to 150 million last year to 250 million, you see in a net booking of transactions relative to repayments, I think the repayments will start hitting a little bit more substantially a year or two from now but I don't think it's going to affect the next year in any material way.

Our next question comes from the line of Drew Babin from Robert W. Baird. Please proceed with your question.

A quick question for Angela on the debt maturity, I have a little over 300 million of secured debt maturing in ’18 with weighted average rate of 53. I was hoping you could comment on what’s the effective rate on that is and whether there's an arbitrage opportunity to potentially prepay that at point this year.

The effective rate was shown here, it’s 53.

So there is a possible average rate?

Yeah there should be right at this point. And as far as the general planning it that we would prefer to refinance our secured debt with unsecured debt. In our ten year maturity and continue with laddering our maturity.

So point the season’s costs become economical?

With secured debt, the prepayment penalty is pretty severe and so you know unless it's built into the agreement itself. And some tends to be more prepay, pay six months in advance but there are quite difference but we won’t incur those kind of cost because it just doesn't make enough economic sense at this point.

So it sounds like there is no impact from anything dealing those maturities in this year’s guidance.

We're not planning for that. And then a question on your operation front, you mentioned rents, I believe it was San Francisco but correct me if I’m wrong, rebounded 3.1% during the first quarter after being down in the fourth quarter. So that you could break that down, was that San Francisco specific and what do those kind of swings in rent growth look like in some of the other sub markets around the bay area. Is kind of the stabilization that happening from inside out, does San Francisco kind of snapping back but other markets maybe not rebounding or how to quantify that.

Yeah this is John, if you want to me to give, let me kind of a broad answer here. So what we're seeing is generally good action in the Bay Area consistent actually the whole portfolio is consistent with historical seasonality. We're seeing a little bit more strength in areas like San Jose, San Francisco that were hit hardest and in a couple of areas like for example in the East Bay where people had moved from the higher priced zones of the San Francisco and San Jose they moved into those areas and probably due to affordability we're seeing a reversal of that which would make sense. So the East Bay is struggling a little bit related to people moving back to San Francisco, San Jose is what the belief is. As it relates to Seattle, we're seeing again strength there. And in LA, a little bit less. LA is a little bit flatter but still five, LA being all so [indiscernible] LA itself is a little flatter, San Diego stronger but Orange County is fine and that’s kind of overview. Does that answer your question?

Hey Drew, just one comment. The 3.1% was the portfolio average so northern California looking at economic rent growth for the quarter for December 31 of March 31 was 3.8%.

Okay I appreciate the clarification. Just one more on the Bay Area, you talked about some supply potentially getting delayed away from the first half of the year this year into the second half. Anyway to quantify kind of what percentage of your overall deliveries you expect in ’17 that’s already delivered versus what's become [indiscernible].

Yeah. This is Mike, we do have it by quarter. And again these change from quarter to quarter because we go out and drive the properties John said and try to gauge when and when they're going to deliver. So in Northern California we have Q1 deliveries for ’17 at 35% dropping to 29% in Q2, 20% Q3 and 16% Q4. And the biggest deliveries were in Santa Jose so far this year according to the schedule.

Our next question comes from the line of Jeffrey Pehl from Goldman Sachs. Please proceed with your question.

Just sticking with the Bay Area on concessions you mentioned earlier in the call you taught an uptick in Q2, just wondering if you can give a little more color on that which sub markets you're seeing the uptick in?

Sure this is Mike. Concessions, I say in general are up maybe two weeks from Q1 to Q2 so far, San Francisco actually the typical confession is still 4 to 8 weeks that applies to San Francisco downtown San Jose. There are some areas that are closer to two months free, Dublin Pleasanton for example and Sunnyvale which has just a bunch of active lease-ups underway right now. So, and the [indiscernible] is a little bit less than that so the San Francisco peninsula has got better, it's about one month free. But again this is a fluid process and they can decline or increase over time almost and they’re constantly changing and we do the same thing on our lease ups as well. We're pricing the smaller units different from the bigger units based on supply and demand for each unit type. And so the concession numbers are a fluid process and they will continue to change throughout the year.

And then just on the portfolio generally, I was just wondering if you can give an update on move outs to purchase a home?

Sure. Yes, move outs to purchase the home roughly because this is a long term average about 10% right now. But materially the same as it's been for a long time, no surprises there.

And actually I'll make one other comment and that is partially because supply of for sale housing is still muted in the West Coast. So we're not building a lot of for sale homes and therefore the ability to transition from an apartment to a home is more challenging out here.

Our next question comes from the line of Dennis McGill from Zelman & Associates. Please proceed with your question.

Firstly just on LA. You toched on the market a little bit throughout but looking at the revision you made just to the market wide stats hoping you could maybe elaborate a little bit on whether that was heavier supply or demand component contract in that down a little bit.

This is Mike, maybe John will want to throw in a comment here. I think part of it is the concessionary nature of different parts of Southern California obviously Southern California is a big place. But we saw a pretty big ramp up in supply in Orange County for example this year and the continuation of supply in downtown LA. So six to eight weeks typically downtown LA, so you know I think it's more of the same but dealing with supply relative to the amount of job growth obviously the southern California area doesn't produce the same amount of jobs that northern California and Seattle have and I think that that is probably the key difference between the two at this point in time because stronger job growth more demand in the tech markets relative to Southern California.

And then sorry to add on to the regulatory theme from earlier too, but one thing you didn't mention was AB 199, and I'm not sure if it necessarily impacts you but something we’ve monitored from the homebuilder side, but it sounds like it's more just related to redevelopment now and I'm sure if that has any impact on your redevelopment business out there..

Yeah actually, I had AB 199 in my script yesterday afternoon. So we decided to drop it, John Eudy is here, he does a lot of this political stuff for us. And our belief is that AB 199 is not likely to survive. This would impose a prevailing wage requirement for any new construction that has agreement with the city and would probably end up further restricting the amount of supply that gets built both for sale and rental. So that is that proposal or that law so we didn't mention it because we thought that was likely not to survive.

And the chance it does, is there any impact on the redevelopment side or as you understand strictly new construction?

This is John Eudy, I’ll further add on to what Mike said. Basically we believe it's going to affect only those developers to get public funds and/or come through the successor agencies and redevelopment agencies, the way it's been modified. So in both cases it would not affect us.

And that would be, that’s the system we’re with now, right. So that’s effectively no change. I believe the way it’s going to be if it gets passed as it will clarify what already is the case.

And if I could just squeeze a quick question on property taxes the 1% or so rate in the first quarter, how are you, what’s embedded in the guidance for the full-year for property tax increases.

We are guiding around 4% for the year. In Q1 we had some refunds which benefited Q1. However we still have not gotten property tax on Seattle and that tends to be the wildcard.

Our next question comes from the line of Alexander Goldfarb from Sandler O'Neill. Please proceed with your question.

So just two questions here. First Mike, you've mentioned that you guys were seeing a lot of opportunity on the mezz finance side. But just curious, as far as it relates to investing and development, my understanding is with the new tighter bank regulation, the developer has to come up with that 35% percent of equity being all equity they can't use prefer or anything of that sort of debt yielding. So are you guys not doing development or are the banks not as strict as of course what the regulators have laid out.

Well, Mr. Eudy is here and he loves to talk about development work. We're active but we're not as active as we could be primarily because we don't see a lot of development deals that generate the types of yields we need to achieve to take the risk of that business. So that is been a choice. But having said that we will always be active in development and we have enough deals over the next couple of years that are you know the next phase of several transactions that are underway now. The Hollywood deal et cetera that we're not going to be completely out of the development world at all. Having said that, as we look at new deals and again keep in mind what's happened here, you have construction costs growing much faster than property NOIs and obviously that causes cap rates to compress measured today. So if you have compressing cap rates. We haven't changed our objectives or goals with respect to development. We're still in the 5% to 5.5% unleveraged yields or cap rates measured today not with trended rents measured today, because we're competing against an acquisition measured today. And we're just not seeing a lot of those deals that that cross that threshold. So I think Mr. Eudy job is…

Mike, I was actually talking when you guys are doing the mezz like investing in another’s people deals, not your own accounts but when you’re doing like preferred equity investments.

I’m getting to that Alex. The mezz deals, we have relationships with some lenders, and so I don’t think that‘s entirely right with the respect to the mezz deals and the yield on the preferred although the yield on preferred is generally doesn't apply to the construction period anyway. So I think that’s probably the key there. It's accrued.

Okay that's helpful and I'm sorry about that. The second in question is, on the guidance you guys did five sticks of NOI in the first quarter but the range is 28 to 46. So is it more year-over-year comp related than the back half adjusted customer or is that that as you're cautious just given you know you want to see how the summer goes and if the supply continues to pull back and the concessions hopefully start to maybe lessen over the year that you're just not sure how the summer is going to go and therefore that's why the range is where it is versus how you got did the first quarter.

Alex, this is Mike. Again, it goes back to that theme that we're talking about before which is we have to build -- we're building loss-to-lease, at San Francisco of $100 today. We don't actually see that hit the bottom line until we turn a unit or turn a lease. And so there's a building lost to lease which means the scheduled brand which is really driving the income statement is declining still. So just to give you some numbers there, January scheduled rent was up 4.3%, by March it was 3.9% and preliminarily in April it was 3.7%. So that trend of declining scheduled grants and building loss to lease is going to continue throughout the year until about Q3 where it turns around.

Yeah and Alex, that is why we view that, we’re going from a 5% revenue growth down to 2% in the third quarter. What that means is, in the second quarter we think that revenue will come in that low the mid 2 range.

Alex, this is John, I’m going to add one more piece here, just so we get the context. As Mike said we went from 4.3 to 3.7 year-over-year in April on scheduled rents and we already said that the loss to lease was 1.8% or 180 basis points in March. In April it went up to 260 basis points or 2.6% in April. So the market's doing as we expected it's moving up but because of this delay our schedule rent continues to go down again as expected. So this is all, according to plan things are good but it's just the way the numbers roll out. And then I mentioned before the occupancy adjustment that will be a net neutral in the third quarter.

Our next question comes from the line of Tayo Okusanya from Jefferies. Please proceed with your question.

I guess my question really is when I think about what you're seeing fundamentally in 4Q versus 1Q there's been a big thing in the Northern California market and things keep swinging around all the time. Could you just talk a little bit but kind of fundamentally what you kind of doing week in week out to kind of make sure your fully capturing the kind of crazy inflection point. Again you know you guys are doing you know you're meeting a budget and things of that like have you kind of think anything procedurally to kind of just make sure that all this volatility you don't kind of get caught on the wrong side of it.

Tayo, I’ve been in this business a long time and honestly there's not a whole lot you can do on a week to week basis. Certainly with respect to you can monitor the lease ups and you can react based on what they're doing now and again we do the same thing we have our own leaseups that are in the marketplace right now and we have a weekly pricing calls and we try to monitor everyone's - what everyone is doing in the marketplace so that we're not out of step with respect everyone else. But you know that's about as much as we can do this business is really driven by the long term trends both with respect to demand and supply. And so we try to make good decisions as to those longer term trends and then just execute well when we're on the ground you know the decision a year ago for example in the third quarter last year to build occupancy by 50 basis points was a strategic decision because we thought okay, if we're not going to have rent growth let’s try to build occupancy and play a little bit of an occupancy game and I think we did that pretty well. So with that said, John, do you have any additional comments?

Yeah I would just add, I mean clearly in the big picture, it’s the supply demand game as Mike said. But on a daily basis our people are working extremely hard, they're trying to understand the market obviously that it is, they just need to understand it and react properly to it. And so we have great communication amongst teams, making decisions. The team is in power to make decisions, we don't make them from corporate. They're empowered to make the good decisions and the communication is often and that's what enabling us to thrive in that pretty challenging market and it does as you point out, change pretty significantly week to week, months to months, but they're doing an awesome job.

Again, could you just talk a little bit about fundamentally what you're seeing in regard to how the Class A versus Class B assets that’s performing within your market.

Sure. Interestingly as the market came back, we are seeing better activity higher growth in some of the Class-A assets for certain and will again watch cautiously watch how the supply enters the market in the competition comes because they'll be the first to feel more significant impact. But as we came back in the first quarter the As did a little bit better than the Bs overall, really across the marekt.

Our last question comes from the line of Conor Wagner from Green Street Advisors. Please proceed with your question.

John I apologize if I missed this earlier did you give new lease growth in renewals for 1Q and then where things are trending thus far into 2Q?

I didn’t and I’m on glad to give you some of that impute. So new lease growth for Q1 in total was roughly 2.4% and pretty consistent in the different markets across SoCal. As we get to NorCal it was actually negative new lease and that does gets part of our numbers all kind of tied together, it was, we were negative about 1.6% and then as we get to Seattle we were again positive about 2.5%. on the renewal side for Q1, SoCal was about 4.5%, the Bay Area was about 2% and Seattle was a little bit closer to 5%. And going forward very, very preliminary input numbers, NorCal has now switched to positive. So we've moved from negative to positive again, we're moving up as Mike as mentioned and so NorCal is a little bit over 1% up year-over-year and Seattle's is over 5%, it’s taken off. SoCal is fairly flat, it is around 2.5 still on new leases, but the movement is going all in the right direction. Does that answer the question what you're looking for?

Yeah. Maybe give me a further portfolio as a whole in 1Q and then as a whole for renewals thus far?

Sure. As a whole, around 90 basis points in 1Q for new and about 3.5% for renewals and looking out, I guess, the last piece for you, looking out the renewals we’re sending out, overall, are about 4.5%. Moving us incrementally for each of the different terms.

Okay. And then you will have some bleed off of that, the 4.5?

Yeah. It’s interesting. It depends because in some cases, sure, people want to negotiate, but oftentimes what happens with renewals is you send them out and we’re typically quoting a 12 month lease when I give you that. We're obviously offering all different types of lease terms. It's not uncommon for people to choose a shorter lease term and pay a premium. And so it really is -- it will vary. Sometimes, we’ll actually do better than that because more people chose the shorter term instead of a 12-month terms if that makes sense.

Okay. And then on the other income items, it looks like in the same-store portfolio, that grew around 10% or 11%, the non-rent items and you highlighted some of those, just want to make sure I understand what’s going on there and the extent that that is going to persist throughout the year, you mentioned utility reimbursement and some break fees, is there anything else there that we need to understand and then just so I get it correctly on the utility reimbursement, does that have a matching item on the expense line where your expenses should be higher, but then it gets washed out.

Yes. Big picture for sure. I think Angela's covered the adjustments in the updated guidance. Again, some of the utility was really related to one-time items, collecting some past delinquencies. As we mentioned last quarter, we pushed very hard and we continue to push and all the nickels and dimes and so some of that just carried over into the first quarter. So that's what some of that was. The lease breaks, those really are one-time items and they've actually started to trend down as we would expect. And so that one-time, there are a few additional ongoing items and that's what Angela has picked up in the guidance.

Brian, kind of just to add on the expense side, the 7% increase in utility expense, that is what we actually expected. So it’s built into our guidance. That was not a surprise to us.

Okay. But the level of reimbursement, right, but I mean just, as we think about it right, like if there was a surprise on utility expenses, you're getting paid back to that by your resident. So this is more of the catch up as John mentioned?

Yeah. It was a catch-up and again going forward, yeah, it is you roughly 60% to 70% of utilities get reimbursed. So if there was a negative increase on utilities that was unexpected, we're going to collect roughly two-thirds of that coming back.

Okay. And then as we’re thinking about the same-store growth just going forward, should we expect that non rent component to grow closer to the overall level of Brent in the future.

I don't think it’s that direct correlation. I mean, we did factor that into our guidance. That’s part of the 25 basis point increase, but it’s not correlation.

That is all the time we have for questions. I'd like to hand the call back over to Mr. Schall for closing comments.

Okay. Very good. Well, all of us thank you for your participation on the call and we look forward to seeing many of you in NAREIT and do the conversation. Have a good day and a good weekend.

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.