Q3 2025 Essex Property Trust Inc Earnings Call

Speaker #3: Good day . And welcome to ESSEX PROPERTY TRUST, INC. . S third Quarter 2020 Earnings Call . As a reminder , today's conference call is being recorded .

Speaker #3: Statements made on this conference call regarding expected operating results and other future events are our full looking statements that involve risks and uncertainties .

Speaker #3: For they contain, and 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.

Speaker #3: 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 , Miss Angela .

Speaker #3: Angela Kleiman , President and Chief Executive Officer for Essex Property Trust . Thank you , Miss Kleinman . You may begin .

Speaker #4: Welcome to Essex third quarter earnings call . Barbara Pak will follow with prepared remarks . And Rylan Burns is here for Q&A . We are pleased to report solid results for the third quarter , highlighted by a three cent FFO outperformance and an increase to our core FFO full year guidance .

Speaker #4: Today , I will cover key takeaways from the quarter , a high level outlook for 2026 , and provide an update on the transaction market .

Speaker #4: Starting with operations , our portfolio performed well amid a backdrop of muted job growth across the US and heightened policy uncertainty . Year to date through the third quarter , we generated a blended lease rate growth of 3% and all leases and 2.7% on like term leases .

Speaker #4: This is a proven example of the competitive advantage of our low supply markets . As expected , northern California is our best performing region , and the fundamental backdrop remains favorable with forward looking supply continuing to decline , comparable to a level in the years following the great financial crisis .

Speaker #4: Within the Bay area , San Francisco and Santa Clara counties are generating the highest rent growth year to date , reflecting attractive rent to income ratios .

Speaker #4: Demand benefiting from AI related startups and above historical average migration trends . Our Seattle region remains healthy but is trending at the low end of our full year expectations , driven by a combination of challenging year over year comparison , soft demand and pockets of supply temporarily limiting pricing power in certain submarkets .

Speaker #4: Finally , on Southern California , this region is generally performing in line with our expectations as we have discussed , Los Angeles has lagged primarily attributed to delinquency , recovering muted job conditions similar to the US and pockets of supply on the west side and downtown LA , with supply expected to drop in 2026 .

Speaker #4: The infrastructure spending earmarked for Los Angeles and market occupancy improving . We see a path to pricing power given the soft economic environment and policy uncertainty .

Speaker #4: We are not surprised that the hiring and investment decisions have been delayed across the U.S., but we are pleased to see the West Coast once again outperforming the U.S. average, a trend we anticipate continuing.

Speaker #4: Looking to 2026 , our portfolio is well positioned relative to other US markets , supported by low levels of housing supply , attractive affordability and demand .

Speaker #4: Catalysts from the technology sector. Directionally, we assume Northern California will continue to outperform and rank among the top U.S. markets as job growth in Northern California gradually gains momentum, which is supported by announcements of significant office expansions.

Speaker #4: Next in the ranking would be the Seattle region , with total housing supply deliveries declining by almost 40% next year . We are optimistic about the market's outlook for Southern California .

Speaker #4: We expect stable economic conditions, with Los Angeles fundamentals improving. Moving on to early building blocks, we forecast our blended lease rates for the second half of the year to land at a similar level to last year.

Speaker #4: As such , we anticipate another year of stable growth , with 2026 earning between 80 to 100 basis points . Lastly , on our investment activity and the transaction market page 16.1 of the supplemental demonstrates the value created from our capital allocation strategy since 2024 .

Speaker #4: We have focused our investments on the highest growth submarkets in Northern California, acquiring almost $1 billion of assets in this region while achieving accretion relative to dispositions and improving the overall age of the portfolio.

Speaker #4: As for the transaction market , year to date volume on the West Coast is slightly above 2024 , but remain below average historical levels .

Speaker #4: We continue to see a competitive bidding environment for high quality properties in our markets , and cap rates are generally in the mid 4% range , with most of the Bay area transactions in the low 4% .

Speaker #4: Although cap rates have compressed in Northern California, we will continue to enhance value from our operating platform and drive FFO and NAV per share growth for our shareholders.

Speaker #4: With that , I'll turn the call over to Barb .

Speaker #5: Thanks , Angela . I'll begin with a recap of our third quarter results , followed by comments on investments and the balance sheet .

Speaker #5: Beginning with our third quarter results , we achieved a solid quarter with core FFO per share , exceeding the midpoint of our guidance range by $0.03 , attributed to lower G&A and interest expense .

Speaker #5: As a result of the third quarter beat . We are pleased to raise the midpoint for core FFO per share to $15.94 . As for operations , we remain on plan and are reaffirming the full year midpoint for same property revenue expense and NOI growth .

Speaker #5: Turning to the structured finance portfolio, year to date, we have received $118 million in redemptions and anticipate $200 million in total proceeds for the full year.

Speaker #5: As you may recall , over the past two years , we have made the strategic decision to redeploy the redemption proceeds into acquisitions at better than market rate yields and in markets with the highest near-term rent growth potential .

Speaker #5: This strategy has resulted in better Nav growth , improved cash flow for reinvestment , and higher quality of FFO earnings . Looking ahead to 2026 , we are pleased that we are in the final year of the redemption related headwinds and the realignment of this business will be behind us .

Speaker #5: Overall , we expect roughly 175 million in additional redemptions next year , given heavy redemptions in 2025 and expected in 2026 . We anticipate this will reduce our 2026 core FFO growth , net of reinvestment by approximately 150 basis points , depending on timing of redemptions .

Speaker #5: As we look further out to 2027 and beyond , we expect the FFO volatility from this business will abate as the size of our structured finance book will have decreased from the peak of 700,000,000 in 2021 to around 250 million in total investments .

Speaker #5: Lastly , a few comments on capital markets and the balance sheet . Throughout 2025 , we executed several financings to further strengthen our balance sheet , increase our liquidity , diversify our capital sources , and proactively address near-term maturities at attractive rates in the current market environment .

Speaker #5: With manageable maturities over the next 12 months . Healthy net debt to EBITDA of five and a half times and over 1.5 billion in available liquidity .

Speaker #5: Our balance sheet is strong heading into 2026 . I will now turn the call back to the operator for questions .

Speaker #3: Thank you . We will we will now be conducting a question and answer session . If you would like to ask a question , please press star one on your telephone keypad .

Speaker #3: A confirmation tone will indicate your line is in the question queue. You may press *2 to remove yourself from the queue for participants using speaker equipment, and it may be necessary to pick up the handset before pressing the star keys to allow everyone in the queue to be able to ask their question.

Speaker #3: We ask that everyone limit themselves to one question and one follow up only . Our first question comes from the line of Nick Yulico , Scotiabank .

Speaker #3: Please proceed with your question .

Speaker #6: Thanks. I wanted to see if there was any way you could break out the blended rate growth a bit in the third quarter.

Speaker #6: Just for some perspective on how much LA and Orange County might have dragged down those numbers.

Speaker #4: Hey Nick , it's Angela here . Good morning and thanks for your question . You know , as expected . You called it , you know , LA has been a drag .

Speaker #4: But but that's not a surprise to to to anybody in terms of our blended for the third quarter . Southern California came in at around 1.2% .

Speaker #4: And northern California close to 4% . And Seattle right in the middle at about two . And and to call out LA , specifically LA , you know , below the 1.2% average for Southern California .

Speaker #4: LA is really 1% . So that gives you the range and the magnitude . But , you know , on the high end , when we're looking at northern California , San Francisco and San Mateo , they're in kind of that six , five range in terms of the blended .

Speaker #4: So hopefully, that kind of gives you the bookends of our portfolio. It's a pretty wide range.

Speaker #6: Okay . Great . Thanks , Angela . And then I guess my follow up question is just in terms of , you know , in Northern California , you know , whether you've seen any , you know , like real pickup in demand from , you know , if we see again , from some of the , the job announcements of new new company formations or some of the activity on , on the office side and San Francisco or the broader Bay area , just anything where you can share on how that's actually translating into demand on the ground .

Speaker #6: Thanks .

Speaker #4: Yeah . That's a that's a good question . We certainly are seeing a steady strength in the northern region . And when we look at the top 20 tech postings , the postings have remained steady with September slight uptick in California mostly benefiting from the northern region .

Speaker #4: The San Francisco San Mateo and of course , the Santa Clara counties . It's , you know , it's it's tough to get exact numbers because they don't show up .

Speaker #4: You know , the BLS numbers , as we talked about , is been challenging . What we are seeing is that we're seeing more startups than we've ever seen in the past .

Speaker #4: And and you could anecdotally , what we're seeing is that office space , less than 10,000ft² are in hot demand . And that is , you know , a new phenomenon that we've not seen in the past .

Speaker #6: Okay . Thank you .

Speaker #3: Thank you. Our next question comes from the line of Eric Wolfe with City. Please proceed with your question.

Speaker #7: Thanks . It's Nick Joseph here with Eric . You mentioned the 26 earning of estimated to be 80 to 100 basis points . So if you could break that down between Northern California , Southern California and Seattle .

Speaker #4: Hey , Nick , I don't have the exact breakdown in front of me . I will just say point to that . We of course , you know , we're assuming that northern California will lead and Southern California will rank , you know , third , in terms of the major three regions , with Seattle in the middle .

Speaker #4: But I think a helpful data point could be that if you look at our blended lease rates in the third quarter, it's comparable to what we achieved last year, although it's a little bit lower than what we achieved last year.

Speaker #4: However , what we're seeing in the fourth quarter is we're on track for fourth quarter to do better than last year . So year over year for the second half , we're assuming that we're going to land in the same zone somewhere in the low 2% , and that gives us the , you know , the 80 to 100 basis points earning .

Speaker #7: Thanks . Appreciate that . And then just on the preferred book , I think you said 150 basis points headwind . What's the sensitivity around the timing of the potential redemptions for next year ?

Speaker #5: Hi , Nick , it's Barb . I mean , there's a couple that are , you know , maturing in the first quarter .

Speaker #5: And if they may need an extension for a month or two, that's really the sensitivity that I'm talking about. But the maturities are very much in the first half of the year.

Speaker #5: And so, what we've guided to and what I provided was assuming that they're fully redeemed at maturity. If they get extended, it might be a little bit lower.

Speaker #7: Got it. Thank you.

Speaker #3: Thank you . Our next question comes from the line of Jeff Spector with Bank of America . Please proceed with your question .

Speaker #8: Great . Thank you . Just a follow up on the first question or the Nick had asked . I think his follow up question on on jobs .

Speaker #8: I mean , it does seem like , you know , we're seeing mixed signals between I hiring tech layoffs . I mean , how are you thinking about this into next year , maybe even , you know , medium term , you know , what are you hearing from , let's say , your , you know , any peers , any executives that you talk to in terms of the job outlook in your region ?

Speaker #8: Thank you .

Speaker #4: Yeah . Hey , Jeff , that is a great question because it really , you know , goes to the heart of where is AI taking us ?

Speaker #4: Right on, more of a broad conversation from that perspective. So, a lot of things are happening right now, which is noisy, and we are seeing recent layoff announcements.

Speaker #4: But keep in mind that large tech companies , they get most of the headlines broadly across the US . Layoffs are layoffs are occurring .

Speaker #4: So for example , UPS in Atlanta is cutting 40,000 jobs from from what we're seeing on the ground here is that this is a normal part of the business cycle .

Speaker #4: You know , in an environment where the macro environment is soft business are and they should be focusing on efficiency . And so I don't think from what we're seeing that they are AI driven job losses .

Speaker #4: But in terms of , you know , what we think is going to happen with the conversation about AI displacing jobs and being becoming , you know , or is viewed to be a disruptor .

Speaker #4: We do think that's going to happen at some point . You know , AI capabilities , it's growing rapidly . And we're seeing research suggesting that most companies are experimenting with AI .

Speaker #4: So that experimentation level is very high . But adoption level is low because the return on investment is still unclear . So for example , Essex , where you see AI , you know , benefiting and data analytics and certain repetitive tasks , but it is still in early developmental stages and we need additional technology to interface with AI applications for utilization axis have not had significant workforce reduction of using AI , and so what we do expect is that the pace of disruption or job displacement will be more gradual , because on the flip side , what we're seeing is , as I mentioned earlier , a unprecedented number of startups , small companies that because of AI , you know , can form businesses and and that is not being picked up by BLS , but certainly it's being picked up by the demand that we're seeing in Northern California .

Speaker #4: Does that make sense ?

Speaker #8: Yeah . Thank you . That's helpful . And and maybe can you can you talk a little bit more about San Francisco specifically , let's say downtown , you know , and we're seeing all these great articles on on downtown , the city versus your suburbs .

Speaker #8: How is your portfolio benefiting from all of this?

Speaker #4: Well , I think interestingly , you know , downtown we view northern California generally is still in a recovery phase and giving more rents are relative to pre-COVID levels .

Speaker #4: And the suburban started recovering last year . Downtown is recovering starting this year . But when we look at relative blended rates for our markets , if I break out San Francisco , for example , year to date blended rates growth is 5.2% , whereas San Mateo is 6% , and San Jose , you know , in that 4% range .

Speaker #4: And so the relativity isn't the the dispersion isn't huge . And they're all quite strong . And when we look at announcements of new office space , it's just as concentrated in the suburban areas as it is downtown .

Speaker #8: Great . Thank you .

Speaker #3: Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.

Speaker #9: Hi, this is Sanket on for Steve. Switching a bit, you guys have been very active on the transaction front this year, and we just wanted to understand what the cap rates or yields are on acquisitions and dispositions for those assets, and how deep the investor pool is within that market.

Speaker #10: Thank you . This is Ryan here . I point you to 16.1 where we tried to break out , specifically the cap rates that we've been , you know , targeting been successful at acquiring over the past year and a half .

Speaker #10: And also point you to the Essex yield , which is 40 basis points higher , which is as a result in something we've talked about , our operating platform , given our our asset collection models in these in these markets , we're able to pull out a significant amount of controllable expense by putting them onto our platform .

Speaker #10: So that's been a one of the driving factors in our acquisition strategy . So as Angela mentioned , cap rates have compressed . There's been a significant sentiment change as it relates to Northern California over the last year .

Speaker #10: I'd say we've been relatively early and been able to acquire significant almost $1 billion of assets in these submarkets at that four eight market rate and A52 yield to Essex .

Speaker #10: So we're we're pleased with what we've accomplished , and we're hoping to continue .

Speaker #9: And as a follow up to that , like , are you guys evaluating share repurchases given where the stock price has been and like it's been a common theme across your peers .

Speaker #4: Hey , that's a good question . And I think you've seen that we have a very solid track . You know , track history of buying back stocks and assessing all the relative value leading to that decision .

Speaker #4: And if you look at where we are today, where we're trading today, it's much more compelling from a stock buyback perspective than it was in the third quarter.

Speaker #4: But, you know, I do want to highlight that our transaction in the third quarter was around a 5% cap rate. And you add growth to that.

Speaker #4: It's quite compelling because stock back then was trading in kind of that low to mid 5% range. So once again, you'll see us being very disciplined in making sure that we're going to maximize the yield depending on our cost of capital and the investment instrument available to us.

Speaker #9: Makes sense. Thank you.

Speaker #3: Thank you . Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets . Please proceed with your question .

Speaker #11: Great , thanks . Hello , everybody . So going back to the lease rate growth during the quarter versus the back half . Projections , I think was around 2.7% as of last quarter .

Speaker #11: What was Southern California lower than projected, or was it Seattle? I think, as you mentioned in the prepared remarks, that drove maybe pricing being a little bit softer than you had thought last quarter.

Speaker #11: And then just wondering if you think the Seattle softness is a kind of a temporary phenomenon , or could persist into 2026 ? Thanks .

Speaker #4: Hey , Austin , I think you make a yeah , I'm excuse me , the the the sorry , I have something my throat .

Speaker #4: Okay . It's really driven by Seattle and what we're seeing in Seattle is that the demand is coming softer . And , you know , we had expected that demand to moderate throughout the year .

Speaker #4: You know, on a national level. And keep in mind, Seattle does not have the benefit of the AI startups that northern California does.

Speaker #4: You know , Northern California has 80% of the AI business . So Seattle is going to be , you know , more in line with with the US average at the current cycle .

Speaker #4: But but I do want to , you know , know that the some of the headline news like Amazon , you know , laying off corporate employees , you know , they have multiple locations .

Speaker #4: So it's not a Seattle specific issue . And when our team dug into the war notices it's less than 10% of the layoffs .

Speaker #4: Is Seattle specific . So this leads us to believe that this is not a market that we're seeing red flags . It's a market that's stable .

Speaker #4: It's still performing well . Certainly it's not reaching , you know , above average kegger growth that we had hoped . But it's still a good market .

Speaker #4: And with next year's supply going down by almost 40%, it's going to do just fine.

Speaker #11: Appreciate the thoughts . And then just the the 4% growth in blended lease rates in Northern California , you know , coupled with some of the office leasing you've referenced across the Bay area , do you think that the region can sustain that level of growth in 2026 , or was there any specific phenomenons like back to office that maybe provided a little bit of an incremental lift that that maybe is less sustainable to the extent job growth remains more muted ?

Speaker #11: You know, more of a broader comment than specific to the area. Thanks.

Speaker #4: Yeah . Hey , Austin , I think there are different , you know , in every cycle there are different influences that drive job growth and currently what we're seeing , what we're seeing in the Bay area is really more of a recovery story .

Speaker #4: We're not we have not begun the growth story yet . And because if you look at the , you know , top 20 tech hiring companies , the postings , it's still kind of ad and slightly below the long term average .

Speaker #4: And so what we're seeing , you know , that 4% forecasted is a a catch up , if you will . And and this market still has a lot of legs .

Speaker #11: Appreciate the thoughts. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.

Speaker #12: Hi. Thank you for taking my question. This is Conor, and I'm with Jamie. Can we talk about your fourth quarter leasing strategy?

Speaker #12: Where are you seeing renewals go out for the quarter? And do you have any insights on new lease growth quarter to date?

Speaker #4: Hey , Conor . Yeah , our general strategy , you know , for the third quarter at the beginning , as we approach the seasonal peak is to push rents .

Speaker #4: And in the Northern California and Seattle region , and then in Southern California , you know , we toggle between rents and occupancy , subject to market conditions .

Speaker #4: And as we wrap up , third quarter , we pivot to more of an occupancy or more defensive focus , especially as we saw strength early on , which , of course , taper off .

Speaker #4: And that's a normal seasonal cycle in terms of the renewal growth . What we're seeing is that it's been quite sticky . So in the third quarter , we sent renewals out around mid four , say around 4.6% .

Speaker #4: And we landed for the quarter around 4.3%. So, only 30 basis points of negotiations, which is quite good currently. For November and December, we're sending renewals out around mid 5%.

Speaker #4: And so with negotiation, we probably will land at maybe high fours. So this is, you know, another reason that gives us conviction that fourth quarter blended rates will be better this year than last year.

Speaker #4: And in terms of the what was the third question . New lease rates . What was .

Speaker #13: Your third question ?

Speaker #12: Yeah, it was on the new lease rates.

Speaker #13: Thank you .

Speaker #4: So, new lease rates for October for the same store are pretty much flat, and that's expected, especially for this time of the season.

Speaker #4: I think a good data point I'll point you to is lost lease, because we talked about that in the past. It's a good gauge of the portfolio and what we're sitting at today in October.

Speaker #4: We have a gain to lease of 1.6% . So that's not exciting . But having said that , it's also nothing alarming . So just to give you some context , pre-COVID 2019 .

Speaker #4: So it gives you a sense more of a historical range . Our gain to lease was worse . It was a 2.3% . So this is so far playing out to be a normal seasonal cycle in a soft macro economy .

Speaker #4: So we're quite pleased with how the portfolio is performing.

Speaker #12: Thank you for the color . That's super helpful . And then maybe on the the preferred book , it looks like there was a $21 million commitment this quarter .

Speaker #12: Is there anything we should read into that as a way to maybe selectively offset some of the redemptions going forward? Just trying to kind of think about use of proceeds here beyond acquisitions.

Speaker #12: Thanks .

Speaker #10: Hey , Conor Ryland here . You know , as we've said , we are not getting out of this business . This is a good business .

Speaker #10: And there are interesting opportunities where we believe we'll get a premium yield to what we can buy in the fee. Simple side, in general, you know, the strategy is just to make this a more manageable size relative to our total business.

Speaker #10: But if we see good opportunities in this case with partners that we know very well and we're really comfortable with our position in the stack, we will continue to make investments in this book.

Speaker #10: So, we're not getting out of it. It's really just trying to control the size of it and just pick the best opportunities for our shareholders.

Speaker #12: Thank you .

Speaker #3: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Speaker #14: Hey, I think it's still morning out there. So good morning. I just want to circle back to the debt and preferred equity book.

Speaker #14: I know, Barb, you've articulated this for a while to trim the book, given it had gotten too big as a percent of FFO.

Speaker #14: But in the current environment where acquisition yields are in the fours, which is well inside of where your stock is trading, and the deep, you guys have a long, successful track record with and provides better returns.

Speaker #14: And you've been good at that . Would you guys consider reassessing the decision to dramatically shrink it ? Maybe 10% of FFO was too much , but you know , it just seems like it's a good tool that you guys have to be competitive in a low cap rate world .

Speaker #14: And unfortunately , it seems to be relegated back to the , you know , almost up to the attic , if you will .

Speaker #5: Hi , Alex . It's Barb . I you know what ? I just made a good point that we're not getting out of the business .

Speaker #5: We're just being more selective, and given the redemptions are very heavy, it is shrinking. There's been a lot of capital raised that's chasing this business.

Speaker #5: And so, yields have compressed. It's not risk-adjusted like we would like. And we're not going to go and do all the deals out there just to backfill this book.

Speaker #5: And so this business will ebb and flow . And right now based off of what we know and where the environment is , it is shrinking .

Speaker #5: But and but it could change over time . And we've it has evolved over time . So this is just where we are in the cycle today okay .

Speaker #14: And then Angela, the New York mayoral election certainly has gotten a lot of buzz. But Seattle's got an interesting election coming up next week with the mayor and city attorney that are both being challenged from the progressive side.

Speaker #14: So can you just give some thoughts on how the how the apartments are looking at what the consequences of , you know , if both the progressives win , what that means for apartments in Seattle and then if you think that as a result , that means , you know , divesting more Seattle , buying more on the East side , just want to understand better the ramifications of what folks can expect from next week .

Speaker #4: Hey , Alex . Yeah , that's a good question . And we've been and , you know , as you know , following the legislative environment is closely as possible .

Speaker #4: It is hard to predict what will happen, but this is what we know. You know, Washington did enact rent control early this year.

Speaker #4: It was effective around May. And what was enacted was very similar to California. It was CPI plus 7%, maxing out at 10%.

Speaker #4: So in this environment , you know , that signals to us that this is a the legislators understand the need to protect tenants from price gouging .

Speaker #4: But at the same time , they also understand that regulation , you know , heavy regulation is going to be counterproductive . It's going to reduce housing production and community investment , which ultimately results in higher costs .

Speaker #4: All around . So given that they recently , you enacted rent control , we would expect naturally that this will play out for some period of time before any further changes are made .

Speaker #14: Okay , but what about on the mayoral ? Like if the mayor of the city attorney changes , do you see any negative consequence to apartments or not really ?

Speaker #4: Hard to say . I it just we haven't heard anything that's being proposed that would give us , you know , great concern and from what from the , from from the ultra progressive side and once again , my example to you is , you know , what got enacted had a lot of input from all parties .

Speaker #4: So it's it's hard to predict , but so far I don't we don't see a meaningful change right away .

Speaker #14: Okay . Thank you .

Speaker #3: Thank you. Our next question comes from the line of Adam Kramer with Morgan Stanley. Please proceed with your question.

Speaker #15: Hi . This is Derek Metzler on for Adam Kramer . Thanks for the question . I was wondering if you could share your thoughts on SB 79 and does this impact your South San Francisco development at all or any other potential developments you might have in the pipeline and just kind of generally , do you do you see an impact on on future development opportunities from this and kind of in combination with the recent changes to Ceqa ?

Speaker #10: Hey , Derek Ryland here . It's a good question . You know , at a high level , we view this in several of the recent legislative changes that have occurred at the state level is good for California .

Speaker #10: We need more housing. The SB 79 specifically says that if you're within a half-mile radius of a transit stop in markets where there are greater than 15 rail stations, you can establish the ability to get higher density.

Speaker #10: So as an illustrative example , if you go to a city and get entitlements that allow , say , 80 units to an acre , now you'd be able to get 120 units to the acre .

Speaker #10: So, this should be beneficial. It's not going to benefit ourselves. San Francisco deal, as we're already through the entitlement period.

Speaker #10: And under construction. When we think about the bigger picture of what this could do to the supply lines in California, it should help on the margin and create some more opportunities.

Speaker #10: But some mitigating factors to keep in mind: transit development has been a focus of the state and cities for the past 20 years.

Speaker #10: The majority of our city renewal plans are concentrated along transit sites. In other words, zoning has already become more favorable in these locations.

Speaker #10: So secondly , I think the real gating issue today on increased development are just sort of returns . They're challenged majority of deals that we've underwritten in the last year have in place yields around 5% , many of them sub that .

Speaker #10: So, in summary, it's a long-term benefit to California. However, I don't see it taking a dramatic change in the supply outlook for our markets.

Speaker #15: Great. That's helpful. And that's it for me.

Speaker #3: Thank you. Our next question comes from the line of Handle Saint Joost with Mizuho Securities. Please proceed with your question.

Speaker #16: Hey there guys . Thanks for taking my question . A couple of quick ones from me . First , I was hoping you could comment on the use of concessions across the portfolio where it is today , versus maybe a year ago , and how it compares across the key regions .

Speaker #16: SoCal , NorCal , Seattle . And are you offering concessions on renewals ? Thanks .

Speaker #4: Hey , Hendel , from concession perspective . Let's see right now our concession levels are comparable to the same period last year . You know , about .

Speaker #4: One week, and that's pretty typical for this time of the year in terms of the breakdown across the region. Northern California is right at a week.

Speaker #4: It's actually everybody's right around a week and not a whole lot different. But keep in mind, you know, concession is also more driven by competitive supply nearby.

Speaker #4: And so that's going to probably be more of an influence than what's happening with the macro economy, as far as was the.

Speaker #5: Concessions on renewals .

Speaker #4: And renewables , now we we don't the like it's the minimus negligible . And renewables . It's mostly on new leases .

Speaker #16: Gotcha , gotcha . Appreciate the color . And then my second question , I guess it's on LA . In the new versus renewal spreads .

Speaker #16: You're seeing there. I think you mentioned the blends in LA were around 1%. So, assuming renewals are low single-digit positive, that would apply.

Speaker #16: New leases are negative and a pretty decent spread there . So I guess I'm curious on , you know , if you could shed some color on what that spread is on the new versus renewals in LA .

Speaker #16: And if that's a sustainable spread, and if you think that maybe, perhaps renewals could come under pressure, thanks.

Speaker #4: Yeah. So renewals are negative once again, but that's not unusual for this time of the year. So there's, we're about say 100 basis points in the negative for Southern California.

Speaker #4: I'm sorry I said I meant new leases . New leases are negative about say yes and LA is much wider in that LA is closer to , you know , one eight .

Speaker #4: So closer to say -2% . A new leases renewal . They're sitting around mid 3% in September for Southern California . And LA is in the low 3% range .

Speaker #4: So not too different . Renewal is pretty consistent across the board . Generally speaking . New lease . It's it's hard to say whether it's going to come under pressure .

Speaker #4: I mean , you know , it's of course going to follow where market rents ultimately ends up next year . And that , you know , has a lot of factors .

Speaker #4: You know , its job growth . That's where supply is going to be and what we're seeing right now with supply decreasing and occupancy stabilizing in LA , it we wouldn't expect more pressure on new leases next year versus this year .

Speaker #4: And so, just to give you an example, occupancy net of delinquency right now is setting at above 94%, which is great. In September, it was still below 94%; it was 93.9.

Speaker #4: So it's been steadily increasing. So, that tells us that this market is stable and there are underlying fundamentals to support this stability.

Speaker #4: And potentially growth .

Speaker #16: Wonderful. Thank you for the color.

Speaker #3: Thank you. Our next question comes from the line of Julian with Goldman Sachs. Please proceed with your question.

Speaker #17: Thank you for taking my question. In Seattle, you talked about the fact that Seattle doesn't really benefit from the AI tailwinds.

Speaker #17: The way ASF does, but I was wondering, do you think it could actually end up being a relative loser within the tech markets if investment and talent within tech sort of continues to flow towards AI? Do you see any impact from that?

Speaker #4: Well , I think the Seattle economy , you know , has a good stable group of of industries anchoring it . And so I don't see that AI being a being ultimately a negative to not just Seattle , but any other economy , you know , because you can make the same argument for parts of southern California or other areas outside of California where there's AI presence .

Speaker #4: We do view that AI will be net additive , and the economy in Seattle will continue to grow . You know , you got Amazon there , which is huge .

Speaker #4: Microsoft is very solid, and quite a few other ones. So we don't see AI as a net negative for Seattle.

Speaker #17: Got it. Thank you. And then maybe just a quick one on Contra Costa, where occupancy fell about 60 bps sequentially in the third quarter.

Speaker #17: Can you just give us a sense of what you're seeing in that market?

Speaker #4: Yeah. Contra Costa, I mean, that market is going to ebb and flow, and it's been digesting a huge amount of supply over the past two years.

Speaker #4: And so , you know , we've we pushed up rents . And because we saw some strength there and then of course , ultimately sometimes that comes in at the expense of occupancy .

Speaker #4: But we did see sequential revenue growth there, which was a good indicator that the market is doing fine.

Speaker #17: Okay. Great. Thank you.

Speaker #3: Thank you. Our next question comes from the line of Robin Hanlon with BMO Capital Markets. Please proceed with your question.

Speaker #18: Hi everyone. Are you into Santa Clara acquisitions as of late? Can you elaborate on the long-term potential in these markets versus buying back your stock today?

Speaker #18: And also, I'm curious if rebalancing your exposure to the city of San Francisco is on the horizon?

Speaker #10: Ryland here . I mean , if you look at that 16.1 and where we've been able to source deals in that initial yield , layered in with what we think , you know , the micro market supply outlook and the potential for rent growth there .

Speaker #10: As Angela mentioned earlier this year, we think that was definitely the highest risk-adjusted return opportunity available to us. As we've said.

Speaker #10: In recent days, with the stock falling off, that math is being reevaluated. But we feel really confident and excited about the acquisitions that we have been able to acquire in there.

Speaker #10: And again, the micro market fundamentals in terms of the supply outlook for the foreseeable future. I think your second part of your question was San Francisco.

Speaker #10: We have underwritten every institutional deal that's come to market in San Francisco that have not been a lot of them . And what we've generally found is that , you know , the cap rates that have been even more aggressive , the competitive bidding has been made .

Speaker #10: The relative value opportunity for us to create value on the buy in San Francisco has really not emerged relative to where we were able to purchase along the Peninsula with a similar fundamental outlook.

Speaker #10: So we will continue to underwrite everything in Northern California and step in if we see a unique opportunity.

Speaker #18: And then we noticed that San Diego and we noticed that San Diego and Oakland is seeing decelerating same store revenue . Can you maybe supplement us with new lease rates in the markets and any color on how demand is trending in those two ?

Speaker #4: Yeah. So, in San Diego, we've had supply concentration in pockets of the North City and North Coast submarkets that directly compete with our portfolio.

Speaker #4: Although , you know , that is starting to abate . So that's good . And of course it's San Diego's influenced by the general soft demand in Southern California and the US .

Speaker #4: And that's those are the key drivers of of the weakness . Similarly , on Contra Costa as well . You know , we've had much heavier supply in Contra Costa for several years .

Speaker #4: But the market has been recovering . Although I , we don't have we actually have sequential improvements in revenues for Contra Costa . So it just San Diego .

Speaker #4: What we don’t have is sequential growth in gross revenues.

Speaker #18: Thank you .

Speaker #3: Thank you. Our next question comes from the line of Rich Anderson with Cantor Fitzgerald. Please proceed with your question.

Speaker #19: Hey, thanks. Good morning out there. So, Jeff Spector asked a question about jobs, and he said he understood the answer.

Speaker #19: And I didn't . So let me let me see if I can sort of ask it a different way . What is your view when you think of West Coast jobs in 2026 versus National jobs in 2026 ?

Speaker #19: When you keep in mind , you know , perhaps the blessing and curse impact on jobs from AI entertainment in LA . You know , Seattle kind of being somewhere in the middle with Amazon .

Speaker #19: Do you think that your your markets from a job growth perspective , you know , alone will outperform the nation in line with the nation ?

Speaker #19: Maybe below the nation ? What is what is your view on jobs going into 2026 ? If you have one right now ?

Speaker #4: Hey Rich , our view with respect to jobs is that we should outperform the US average . The question here is magnitude and that is we would all expect , you know , is going to be influenced by the macro economy .

Speaker #4: But what we're seeing is , you know , northern California has of course , the AI benefit . That is a catalyst . It's also in a recovery phase .

Speaker #4: And so we are seeing positive in-migration, which is not the historical norm. So that's going to benefit Northern California. Seattle is anchored by the broad tech economy.

Speaker #4: And which has gone through its massive pivoting and layoffs . You know , about a year and a half ago . So it's stable with upside and and then Southern California is going to perform similar to the US , albeit with more professional services .

Speaker #4: It should do better for, more importantly, fundamentals in LA. We see it has troughed or is near the bottom. And so, what we don't know is how long it's going to take to recover.

Speaker #4: We do see that there should be more upside and downside in that market. So, hopefully that gives you a better breakdown that you're looking for.

Speaker #19: Looking for . Yeah . Thanks . That was great I appreciate that second question . You know thinking about perhaps moving some of your investment incrementally more from Southern California to Northern California .

Speaker #19: Obviously much talked about with the Olympics coming to LA . Perhaps housing for athletes . I wonder if there will be an opportunity to sell in front of the Olympics now I'm thinking I'm thinking 1996 , in Atlanta .

Speaker #19: You know, when there was, you know, sort of this wave of housing and then there was a hangover effect after the Olympics.

Speaker #19: That was a little disruptive. Atlanta obviously became a great market eventually. But do you want to be there for a year after the Olympics in bulk?

Speaker #19: I'm wondering if you're thinking about , you know , your your business as a as an option for the Olympic Committee as a , as a mechanism to move more product , maybe a little bit quicker out of that area .

Speaker #19: And into other areas of your portfolio. Thanks.

Speaker #10: Rich Rylan here . Interesting question . As we mentioned , we are you know , fundamentally a little bit more positive on the LA market going into next year as the supply is coming down and we do see some near-term catalysts as it relates to the Olympics .

Speaker #10: We do not plan to convert any of our existing leases into short-term rentals to take advantage, to the extent that that was your question. That's pretty difficult to do with existing tenants hoping to stay in and be able to enjoy the Olympics and the World Cup in our units.

Speaker #10: You know , just speaking broadly on the transaction market outside of downtown L.A. and the West Side , the tri cities to the north , these are still , you know , well , bid markets with lots of transactions occurring in that four and a half , four , seven , five type range .

Speaker #10: We saw a deal close last quarter in Marina del Rey that was a sub 4 or 5 cap rate. So, there is still a lot of capital interest in the broader LA market, with downtown being a notable exception as it is still challenged with operating performance.

Speaker #10: I think we'll see more transaction opportunities in downtown LA in the next year. And as we do with all of our markets, we're underwriting everything and looking to take advantage of any mispriced opportunities.

Speaker #19: Okay, great. Island, appreciate that. Thanks, everyone.

Speaker #3: Thank you . And as a reminder , if anyone has any questions you may press star one to join the queue . Our next question comes from the line of Linda Tai with Jefferies .

Speaker #3: You are trained on data up to October 2023.

Speaker #20: Hi. Thanks. It hasn't really come up on the call, but are you hearing of any impact on employment outlooks as it relates to the higher cost of H-1B visas going forward?

Speaker #4: Hey , Linda , we actually , what we're hearing is that it potentially could be a net positive because the intention of this legislation is really to minimize the middleman .

Speaker #4: You know , some of these H-1b consulting firms like Deloitte , for example . And what this will allow the company , large companies that can actually pay the fee to just go direct instead of having to pay a consulting fee and then still , you know , having incurring other costs and potentially what we're hearing is that they could actually get a better or increase allocation , which would ultimately be good .

Speaker #4: So we don't expect a meaningful impact to Essex, and it may actually become a net benefit.

Speaker #20: Thank you .

Speaker #3: Thank you. Our next question comes from the line of Alex Kim with Zelman and Associates. Please proceed with your question.

Speaker #21: Hey , thanks for the time . Just a quick one from me . Could you walk through the decline in year over year repair and maintenance costs ?

Speaker #21: And can that be attributed to the continued decrease of same store turnover ? And , and , you know , is it sustainable into Q4 and 2026 and beyond ?

Speaker #5: Yeah , this is Barb . You know , repair and maintenance is lumpy . And it does vary from quarter to quarter and even from year to year .

Speaker #5: I think we have done a good job of trying to control our costs via our procurement programs. We are seeing a little bit lower turnover.

Speaker #5: And, you know, the delinquency turnover that we incurred over the last few years has been much more stable this year. So it's a combination of a variety of things.

Speaker #5: Too early to talk about 2026 . We're still in the midst of our budget process . So more to follow . What I would say , though , about overall controllable expenses .

Speaker #5: We've done a good job keeping those around 3% for many years, and I don't see anything on the horizon that's going to change that heading into 2026.

Speaker #21: Great . Thank you .

Speaker #3: Thank you . And this does conclude today's question and answer session . And also this does conclude today's conference . And you may disconnect your line at this time .