Seasonality Expectations
Q: Are you guiding to no deceleration in Q4?
A: Michael stated they expect normal seasonal deceleration in both the third and fourth quarters. They originally modeled full-year blended rates at about 2%, now expecting closer to the mid-2% range. The portfolio is over 96% occupied, with solid application volumes and pricing trends aligning with a normal year.

L.A. Supply and Evictions Impact
Q: When will L.A.'s pricing weakness from evictions improve?
A: Michael mentioned they saw a 70 basis point year-over-year occupancy lift in L.A. but new lease changes remain negative due to new supply in key submarkets like Hollywood and Downtown. They expect continued pressure from supply for the rest of the year but anticipate upside potential in 2025. Despite softer new lease changes, total revenue is strong as they fill units with paying residents.

Capital Deployment and IRR Hurdles
Q: How are you thinking about IRR hurdles today?
A: Alex said they're pricing acquisitions, generally newer products in the suburbs, around a 5% cap rate. Under conservative growth assumptions, they're targeting IRRs around 8%, which fits within their cost of capital.

Expansion Markets and Supply Impact
Q: How will new lease growth progress in expansion markets?
A: Michael noted challenging operating conditions in expansion markets due to supply. They're offering concessions averaging 6 weeks to 35%–50% of applicants. They don't foresee marked deceleration but expect difficult conditions for the balance of the year.

Margin Expansion Opportunity
Q: How should we think about margin expansion opportunity?
A: Mark indicated that with inflation easing, they aim to blunt expense growth but property taxes, being 45% of expenses, make it challenging to consistently keep growth below 3%. They're focusing on revenue opportunities and aim for margins approaching 70% or better by leveraging technology and operational efficiency.

Regulatory Landscape and Advocacy Costs
Q: Can you discuss increased advocacy costs and regulatory risks?
A: Mark explained that advocacy costs are up due to fighting rent control measures in California, expecting to spend $10 million or more this year. Regulatory efforts are focused on state and local levels, particularly in California, where they are working to educate voters against rent control initiatives.

Occupancy Guidance Increase
Q: Does increased occupancy guidance reflect stronger demand or leaning into occupancy?
A: Michael stated the raise reflects achieved occupancy gains, with expectations of normal seasonality ahead. East Coast markets are over 97% occupied. They focus on maximizing revenue, balancing occupancy and rate based on market and submarket conditions.

Sustainability of Lease Pricing Spread
Q: Is the spread between renewal and new lease pricing sustainable?
A: Michael said a spread of 300 to 400 basis points between renewals and new leases is common. Some tightening is expected, but maintaining a spread is normal, and they don't anticipate the rates aligning completely.

Hollywood Impact on L.A. Market
Q: Any impact from Hollywood industry disruption in L.A.?
A: Michael hasn't observed any impact on demand in L.A. from the industry's disruption. Occupancy remains strong at over 95.5%. The primary challenge is the influx of units from evictions, which will take a few quarters to absorb.

Transaction Market and Cap Rates
Q: How are buyers underwriting assets and cap rates?
A: Alex observed that acquisitions are generally priced around a 5% cap rate. Underwriting varies by market; in expansion markets, buyers anticipate initial slight negative rent growth with recovery as supply diminishes.

Commercial Dispute and Construction Charges
Q: Can you explain the commercial dispute and defects charge?
A: Bob stated they took a charge of about $9 million , related to a commercial dispute over a ground lease and a construction defect reserve. These are unique, non-recurring situations, and they may recover some amounts in the future.

Acquisitions vs. Development Strategy
Q: Are you favoring buying existing assets or investing in development?
A: Mark indicated they are open to both but currently lean towards existing assets. They see opportunities as owners sell due to financing pressures and prefer existing assets over development due to funding and execution risks associated with development projects.