Essex Property Trust Q4 2025 Essex Property Trust Inc Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 Essex Property Trust Inc Earnings Call
Speaker #1: Good day, and welcome to the Essex Property Trust fourth quarter 2020 earnings call. As a reminder, today's conference is being recorded.
Speaker #1: on this conference Statements made regarding expected operating results other future and events are forward looking statements that involve uncertainties . risks and Forward looking statements are made based on current expectations , assumptions and beliefs , as well as information available to the company at this time .
Speaker #1: 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.
Speaker #1: It is now my pleasure to introduce your host , Miss Angela Kleiman , President and Chief Executive Officer for Essex Property Trust . Thank you .
Angela Kleiman: Good morning. Welcome to Essex Q4 Earnings Call. Barbara Pak will follow with prepared remarks, and Rylan Burns is here for Q&A. Today, I will cover highlights of our Q4 and full-year performance for 2025, provide our outlook for 2026, and conclude with an update on the transaction market. 2025 played out generally in line with our initial macro forecast for the US, with job growth moderating throughout the year. Within this environment, we achieved full-year same-store revenue growth at the high end and FFO per share growth above the midpoint of our guidance range. I'm particularly pleased with the well-coordinated efforts between our property operations and corporate teams to drive results, especially in other income growth and improving delinquency recovery to near pre-COVID levels. From a market perspective, two key factors contributed to our performance in 2025.
Angela Kleiman: Good morning. Welcome to Essex Q4 Earnings Call. Barbara Pak will follow with prepared remarks, and Rylan Burns is here for Q&A. Today, I will cover highlights of our Q4 and full-year performance for 2025, provide our outlook for 2026, and conclude with an update on the transaction market. 2025 played out generally in line with our initial macro forecast for the US, with job growth moderating throughout the year. Within this environment, we achieved full-year same-store revenue growth at the high end and FFO per share growth above the midpoint of our guidance range. I'm particularly pleased with the well-coordinated efforts between our property operations and corporate teams to drive results, especially in other income growth and improving delinquency recovery to near pre-COVID levels. From a market perspective, two key factors contributed to our performance in 2025.
Speaker #1: You may begin .
Speaker #2: Good morning. Welcome to the Essex fourth quarter earnings call for PAC. We will follow with prepared remarks, and Rylan Burns is here for Q&A today.
Speaker #2: I will cover highlights of our fourth quarter and full year performance for 2025, provide our outlook for 2026, and conclude with an update on the market and the transaction. 2025 played out generally in line with our initial macro forecast for the US, with job growth moderating throughout the year.
Speaker #2: Within this environment , we achieved full year , same store revenue growth high at the end and FFO per share growth above the midpoint of our guidance range .
Speaker #2: I'm particularly pleased with the well-coordinated efforts between our property operations and corporate teams to drive results, especially in other income growth.
Speaker #2: And improving delinquency recovery to pre-COVID levels. From a market perspective, there are two key performance indicators in 2025. First, Northern California outperformed expectations as a result of expansion in the technology sector.
Angela Kleiman: First, Northern California outperformed expectations as a result of expansion in the technology sector, favorable migration trends, and limited housing supply. Second, rent growth across most Essex markets outperformed the US average, demonstrating the significant advantage of limited housing supply even in a soft employment environment. Turning to the Q4 property operations, the results were generally consistent with our expectations, with 1.9% blended lease rate growth in the Q4. Occupancy increased by 20 basis points sequentially to 96.3%, and concessions averaged approximately one week, which is typical for this period. Within the portfolio, Los Angeles delivered the best occupancy improvement, increasing 70 basis points sequentially, a good indication that this market continues to progress towards stabilization. As for regional performance, Northern California was our best region, followed by Seattle, then Southern California.
Angela Kleiman: First, Northern California outperformed expectations as a result of expansion in the technology sector, favorable migration trends, and limited housing supply. Second, rent growth across most Essex markets outperformed the US average, demonstrating the significant advantage of limited housing supply even in a soft employment environment. Turning to the Q4 property operations, the results were generally consistent with our expectations, with 1.9% blended lease rate growth in the Q4. Occupancy increased by 20 basis points sequentially to 96.3%, and concessions averaged approximately one week, which is typical for this period. Within the portfolio, Los Angeles delivered the best occupancy improvement, increasing 70 basis points sequentially, a good indication that this market continues to progress towards stabilization. As for regional performance, Northern California was our best region, followed by Seattle, then Southern California.
Speaker #2: Favorable migration and trends limited new housing supply. Second, rent growth across most Essex markets outperformed the average US, demonstrating the significance of limited housing supply, even advantaging supply in a soft employment environment. Turning to the fourth quarter, property operations.
Speaker #2: The results were . generally consistent with our expectations , with 1.9% blended lease rate growth in the fourth quarter , occupancy increased by 20 basis points sequentially to 96.3% , and concessions averaged approximately one week , which is typical for this period within the portfolio .
Speaker #2: Delivered Los Angeles' best occupancy improvement, increasing 70 basis points sequentially. A good indication that this market continues to progress towards stabilization.
Speaker #2: As for regional performance , Northern California was our best region , followed by Seattle . Then Southern California . Moving on to our 2026 outlook , consensus the expectations for point to slow broader US but stable economic growth , employment trends are expected to remain consistent with what seen we have recently , with major employers maintaining a cautious approach to hiring .
Angela Kleiman: Moving on to our 2026 outlook, consensus expectations for the broader US point to slow but stable economic growth. Further, employment trends are expected to remain consistent with what we have seen recently, with major employers maintaining a cautious approach to hiring. Against this backdrop, our base case assumes the current level of demand continues in 2026. On the supply side, we forecast total new housing supply to decline by approximately 20% year-over-year. Accordingly, we anticipate steady West Coast fundamentals to deliver solid blended rent growth above the US average and at a level comparable to 2025 for the Essex markets to be led by Northern California, followed by Seattle, and lastly, Southern California. In terms of scenarios, local uncertainty continues to weigh on the economy and job growth and represents the primary driver of low end of our guidance range.
Angela Kleiman: Moving on to our 2026 outlook, consensus expectations for the broader US point to slow but stable economic growth. Further, employment trends are expected to remain consistent with what we have seen recently, with major employers maintaining a cautious approach to hiring. Against this backdrop, our base case assumes the current level of demand continues in 2026. On the supply side, we forecast total new housing supply to decline by approximately 20% year-over-year. Accordingly, we anticipate steady West Coast fundamentals to deliver solid blended rent growth above the US average and at a level comparable to 2025 for the Essex markets to be led by Northern California, followed by Seattle, and lastly, Southern California. In terms of scenarios, local uncertainty continues to weigh on the economy and job growth and represents the primary driver of low end of our guidance range.
Speaker #2: Against this backdrop, our base case assumes the current level continues through 2026, and on the supply side, we forecast total new housing supply to decline by approximately 20% year over year.
Speaker #2: Accordingly , we year anticipate steady West Coast fundamentals to deliver solid growth above the US average blended rent and at a level comparable to 2025 for the Essex markets , to be led by Northern California , followed by Seattle .
Speaker #2: And lastly, Southern California, in terms of scenarios and political uncertainty, can weigh on the economy and job growth and represents the primary driver of the low end of our guidance range.
Angela Kleiman: This uncertainty has contributed to a measured hiring environment, which has tempered near-term acceleration in demand. On the other hand, we see a path to the high end of our guidance range if hiring trends improve modestly. Given historically low levels of new housing supply across our markets, even a small inflection in demand could have an outsized impact on fundamentals. While broader expectations call for muted hiring nationally, we believe northern regions are better positioned. Activities in the technology sector remain constructive, with companies expanding office footprints and investments in artificial intelligence continuing. In addition, these markets should continue to benefit from ongoing return to office enforcements. In summary, the favorable supply backdrop across West Coast multifamily markets, combined with the continued recovery in Northern California, reinforces our outlook for our markets to outperform over the long term.
Angela Kleiman: This uncertainty has contributed to a measured hiring environment, which has tempered near-term acceleration in demand. On the other hand, we see a path to the high end of our guidance range if hiring trends improve modestly. Given historically low levels of new housing supply across our markets, even a small inflection in demand could have an outsized impact on fundamentals. While broader expectations call for muted hiring nationally, we believe northern regions are better positioned. Activities in the technology sector remain constructive, with companies expanding office footprints and investments in artificial intelligence continuing. In addition, these markets should continue to benefit from ongoing return to office enforcements. In summary, the favorable supply backdrop across West Coast multifamily markets, combined with the continued recovery in Northern California, reinforces our outlook for our markets to outperform over the long term.
Speaker #2: This uncertainty has contributed to a measured hiring environment , which tempered near-term has acceleration in demand . On the other hand , we see a path to the our guidance with range trends hiring improve modestly given historically low levels of new housing across our supply markets , even a small inflection in demand could have an outsized impact on fundamentals .
Speaker #2: While broader expectations call for muted hiring nationally, we believe northern regions are better positioned. Activity in the technology sector remains constructive, with companies expanding office footprints and investments in artificial intelligence continuing.
Speaker #2: In addition , these markets should continue to benefit from ongoing return to office enforcement . In summary , the favorable supply backdrop across West Coast multifamily markets , combined with the continued recovery in northern , reinforces our outlook for our markets to outperform over the long term .
Angela Kleiman: Turning to the investment market, activities in our market remain healthy with $12.6 billion of non-portfolio institutional multifamily transactions in 2025, a substantial increase of 43% compared to 2024. Improving operating fundamentals and minimal forward-looking supply deliveries led to a significant sentiment shift to the West Coast, resulting in deeper bidder pools and cap rate compression, especially in Northern California and Seattle. Generally, cap rates for the highly sought-after submarkets, which represents approximately 1/3 of the total deal volume, occurred in the low 4% range, and cap rates for the remaining 2/3 occurred in the mid 4% range. Lastly, Essex has been the largest investor in Northern California over the past two years, with the majority of our acquisitions transacted ahead of the cap rate compression, resulting in significant NAV appreciation.
Angela Kleiman: Turning to the investment market, activities in our market remain healthy with $12.6 billion of non-portfolio institutional multifamily transactions in 2025, a substantial increase of 43% compared to 2024. Improving operating fundamentals and minimal forward-looking supply deliveries led to a significant sentiment shift to the West Coast, resulting in deeper bidder pools and cap rate compression, especially in Northern California and Seattle. Generally, cap rates for the highly sought-after submarkets, which represents approximately 1/3 of the total deal volume, occurred in the low 4% range, and cap rates for the remaining 2/3 occurred in the mid 4% range. Lastly, Essex has been the largest investor in Northern California over the past two years, with the majority of our acquisitions transacted ahead of the cap rate compression, resulting in significant NAV appreciation.
Speaker #2: Turning to the investment market, activities in our market remain healthy, with $12.6 billion of nonprofit, institutional, and multifamily transactions in 2025.
Speaker #2: substantial increase of 43% compared to 2024 . Improving operating fundamentals and minimal forward looking supply deliveries led to a significant sentiment shift to the West Coast , resulting in deeper , beter pools and cap rate compression , especially in Northern California and Seattle .
Speaker #2: Generally , cap rates for the highly sought after submarkets , which represents approximately one third of the total deal volume , occurred in the low 4% range and cap rates for the remaining two third occurred in the mid 4% range .
Speaker #2: Lastly , Essex has been the largest investor in Northern California over the past two years , with majority of our acquisitions transacted ahead of the cap rate , compression , resulting in significant Nav appreciation .
Angela Kleiman: Looking forward to 2026, we will continue to evaluate all opportunities and allocate capital with a disciplined focus on creating shareholder value. With that, I'll turn the call over to Barb.
Angela Kleiman: Looking forward to 2026, we will continue to evaluate all opportunities and allocate capital with a disciplined focus on creating shareholder value. With that, I'll turn the call over to Barb.
Speaker #2: Looking forward to 2026, we will continue to evaluate opportunities and allocate capital with the discipline and focus on creating shareholder value. With that, .
Barbara Pak: Thanks, Angela. Today, I will briefly discuss 2025 results, the key components toward 2026 guidance, followed by comments on funding needs and the balance sheet. We are pleased with our Q4 and full-year results as we were able to achieve same property revenue growth of 3.3%, which was at the high end of our most recent guidance range and 30 basis points ahead of our original projections for the year. The outperformance in the Q4 was driven by lower concessions, higher occupancy, and other income. Turning to the key drivers of our 2026 outlook, the components of our full-year same property revenue midpoint of 2.4% is outlined on the chart on page S16.1 of the supplemental. There are three key drivers of revenue growth this year. First, as anticipated, our earn-in based on our 2025 results will contribute 85 basis points to growth.
Barb Pak: Thanks, Angela. Today, I will briefly discuss 2025 results, the key components toward 2026 guidance, followed by comments on funding needs and the balance sheet. We are pleased with our Q4 and full-year results as we were able to achieve same property revenue growth of 3.3%, which was at the high end of our most recent guidance range and 30 basis points ahead of our original projections for the year. The outperformance in the Q4 was driven by lower concessions, higher occupancy, and other income. Turning to the key drivers of our 2026 outlook, the components of our full-year same property revenue midpoint of 2.4% is outlined on the chart on page S16.1 of the supplemental. There are three key drivers of revenue growth this year. First, as anticipated, our earn-in based on our 2025 results will contribute 85 basis points to growth.
Speaker #2: I'll turn the call over to Barb.
Speaker #3: Angela: Thanks. Today, I will briefly discuss 2025 results, the key components to our 2026 guidance, comments on funding needs, and the balance sheet.
Speaker #3: We are pleased with our fourth quarter and full year results , as we were able to achieve followed by revenue growth of 3.3% , which was at the high end of our most recent guidance range and 30 basis points ahead of our original projections for the year .
Speaker #3: The outperformance in the fourth quarter was driven by lower concessions , higher occupancy and other income . key Turning to the drivers of our 2026 outlook , the components of our full year same property revenue midpoint of 2.4% is outlined on the on page 16.1 of the supplemental , there are three key drivers of revenue growth this year .
Speaker #3: First , as anticipated , our earn in based on our results will 2025 contribute 85 basis points to growth . our Second , assumes guidance blended lease growth rate of midpoint .
Barbara Pak: Second, our guidance assumes blended lease rate growth of 2.5% at the midpoint. As Angela noted, our outlook for market rent growth is based on tempered job growth, which is partially offset by a meaningful reduction in new supply. As such, this should allow us to achieve similar blended net effective rent growth as last year. And third, we expect 30 basis points contribution from other income. Moving to operating expenses, we forecast 3% same property expense growth at the midpoint, which is the lowest rate of expense growth we have seen in several years. There are a couple of factors contributing to this outcome. First, we expect controllable expenses to increase around 2%, which reflects the continued benefits of our operating model. Second, we expect insurance costs to be down around 5% on a year-over-year basis as the property insurance market has continued to improve over the past year.
Barb Pak: Second, our guidance assumes blended lease rate growth of 2.5% at the midpoint. As Angela noted, our outlook for market rent growth is based on tempered job growth, which is partially offset by a meaningful reduction in new supply. As such, this should allow us to achieve similar blended net effective rent growth as last year. And third, we expect 30 basis points contribution from other income. Moving to operating expenses, we forecast 3% same property expense growth at the midpoint, which is the lowest rate of expense growth we have seen in several years. There are a couple of factors contributing to this outcome. First, we expect controllable expenses to increase around 2%, which reflects the continued benefits of our operating model. Second, we expect insurance costs to be down around 5% on a year-over-year basis as the property insurance market has continued to improve over the past year.
Speaker #3: Angela As noted , our outlook for rent growth is based on tempered job growth , which is partially offset by a meaningful reduction in new supply .
Speaker #3: As such, this should allow us to achieve blended net effective rent growth of 2.5%, similar to last year. And third, we expect a 30 basis point contribution from other income moving to operating expenses.
Speaker #3: We forecast 3% same-property expense growth at the midpoint, which is the lowest rate of expense growth we have seen in several years.
Speaker #3: There are a couple of factors contributing to this outcome. First, we expect controllable expenses to increase around 2%, which reflects the continued benefits of operating the model.
Speaker #3: Second , we expect insurance down around costs to 5% on a year over year basis as the property insurance market has improve over the past year .
Barbara Pak: These benefits will be partially offset by increases in utilities and property taxes. As a result, same-property NOI growth is forecasted to increase 2.1% at the midpoint. As for 2026 Core FFO per share, we expect growth to be flat on a year-over-year basis. The drivers of our forecasts are illustrated on S16.2 of the supplemental. While we expect solid top-line performance and growth in net operating income, it is being offset by recent and expected redemptions within our structured finance portfolio, which are contributing to a 1.8% headwind to growth. This reduction to FFO reflects our conservative modeling approach, which excludes any redemption proceeds and minimal income from the 2026 maturities. We expect 2026 to be the final year of structured finance-related headwinds due to the substantial reduction in the size of this book over the past several years.
Barb Pak: These benefits will be partially offset by increases in utilities and property taxes. As a result, same-property NOI growth is forecasted to increase 2.1% at the midpoint. As for 2026 Core FFO per share, we expect growth to be flat on a year-over-year basis. The drivers of our forecasts are illustrated on S16.2 of the supplemental. While we expect solid top-line performance and growth in net operating income, it is being offset by recent and expected redemptions within our structured finance portfolio, which are contributing to a 1.8% headwind to growth. This reduction to FFO reflects our conservative modeling approach, which excludes any redemption proceeds and minimal income from the 2026 maturities. We expect 2026 to be the final year of structured finance-related headwinds due to the substantial reduction in the size of this book over the past several years.
Speaker #3: These are partially offset by increases in utilities and property taxes. As a result, same property NOI growth is forecasted to increase 2.1% at the midpoint.
Speaker #3: As for 2026, FFO per share growth is expected to be flat on a year-over-year basis. The drivers of our forecasts are illustrated on page 16.2 of the supplemental.
Speaker #3: We top line, while solid, expect performance and net growth in operating income. It is being offset by recent and expected within our structured finance portfolio, which are contributing to a 1.8% headwind to growth. This reduction to.
Speaker #3: Redemptions FFO reflects our conservative modeling, which excludes any redemption proceeds and approach, income from the 2026 maturities. We expect 2026 to be the final year of structured finance–related headwinds, due to the substantial reduction in the size of this book over the past several years.
Barbara Pak: We are pleased to have strategically reallocated redemption proceeds into higher growth, Fee-Simple acquisitions in Northern California, which provides better risk-adjusted returns. Lastly, a few comments on the balance sheet. We are well positioned from a funding perspective as our free cash flow covers our dividend and all planned capital expenditures, and development plans for the year. In addition, our finance team has done a great job proactively reducing our near-term maturity risk, with a portion of our 2026 maturities accounted for via the bond offering we did in December. With strong credit metrics, over $1.7 billion in liquidity, and ample sources of capital available, the company is well positioned. I will now turn the call back to the operator for questions.
Barb Pak: We are pleased to have strategically reallocated redemption proceeds into higher growth, Fee-Simple acquisitions in Northern California, which provides better risk-adjusted returns. Lastly, a few comments on the balance sheet. We are well positioned from a funding perspective as our free cash flow covers our dividend and all planned capital expenditures, and development plans for the year. In addition, our finance team has done a great job proactively reducing our near-term maturity risk, with a portion of our 2026 maturities accounted for via the bond offering we did in December. With strong credit metrics, over $1.7 billion in liquidity, and ample sources of capital available, the company is well positioned. I will now turn the call back to the operator for questions.
Speaker #3: We are pleased to have strategically reallocated redemption into higher proceeds growth fee Northern California , which provides better risk adjusted returns . Lastly , a few comments on the balance sheet .
Speaker #3: We are well positioned from acquisitions in perspective, as our free cash flow covers our dividend and all due simple capital and expenditures development plans for the year.
Speaker #3: In our addition, the finance team proactively has done a great job reducing our near-term maturity risk, with a portion of our 2026 maturities accounted for via the bond offering we did in December.
Speaker #3: With strong credit metrics , over 1.7 billion in liquidity ample sources of company is well available . The positioned . I will now turn the call back to the operator for questions .
Operator: Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Operator: Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Jamie Feldman with Wells Fargo. Please proceed with your question.
Speaker #1: Thank you . We'll now be question conducting a and answer session . If you'd like to ask a question , please press One on your telephone star keypad .
Speaker #1: A confirmation tone will indicate your line is in queue. You may press star two if you'd like to remove yourself from the queue. For participants using speaker, it may be necessary equipment to pick up your handset before pressing the star keys. This is to allow for as many questions as possible.
Speaker #1: We ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Jamie Feldman with Wells Fargo.
[Analyst] (Wells Fargo): Great. Thank you. Maybe just, I mean, there's been so much movement in the tech market in the last couple of weeks. As you think about demand for your assets, especially in Northern California, I mean, what are your latest thoughts on what we should be watching in terms of where the risk is, where the growth is, and what are you seeing on the ground in terms of changes? And I guess we can ask the same question about Seattle.
Jamie Feldman: Great. Thank you. Maybe just, I mean, there's been so much movement in the tech market in the last couple of weeks. As you think about demand for your assets, especially in Northern California, I mean, what are your latest thoughts on what we should be watching in terms of where the risk is, where the growth is, and what are you seeing on the ground in terms of changes? And I guess we can ask the same question about Seattle.
Speaker #1: Please proceed with your question.
Speaker #4: Great . Thank you . Maybe just I mean , there's been so much movement in the tech market in the last couple of weeks , as you think about demand for your especially in northern California .
Speaker #4: I mean , what are your latest thoughts what we should assets , be watching in terms of , you know , where the risk is , where the is and what are you seeing on the ground terms in of growth changes .
Angela Kleiman: Hi, Jamie. Thanks for your question. Northern California is in a very interesting position at this point in time because we had talked about the potential recovery, and it's finally starting to take hold. So it's an exciting time for us from that perspective. And in terms of, we're watching a couple of things. I think it's fair to acknowledge that the jobs environment broadly across the US has been soft, and that relates to my comment on Seattle in a second. But in Northern California, it's done fine. And we look at a couple of things, job openings at the top 20 tech companies. And from that perspective, it's done well in that when we looked at 2025, it ticked up above pre-COVID levels around Q2, but then it retreated in Q4.
Angela Kleiman: Hi, Jamie. Thanks for your question. Northern California is in a very interesting position at this point in time because we had talked about the potential recovery, and it's finally starting to take hold. So it's an exciting time for us from that perspective. And in terms of, we're watching a couple of things. I think it's fair to acknowledge that the jobs environment broadly across the US has been soft, and that relates to my comment on Seattle in a second. But in Northern California, it's done fine. And we look at a couple of things, job openings at the top 20 tech companies. And from that perspective, it's done well in that when we looked at 2025, it ticked up above pre-COVID levels around Q2, but then it retreated in Q4.
Speaker #4: And I guess we can ask the same for Seattle.
Speaker #2: Hi, Jamie, thanks for your question. Northern is in a very interesting position in California at this time because we had talked about the potential recovery, and it's finally starting to take hold.
Speaker #2: So, it's an exciting time for us from that perspective. And in terms of, you know, we're watching a couple of things.
Speaker #2: I think , you know , it's fair to acknowledge that the jobs environment broadly across the US has been and and that , you know , relates to my comment on Seattle in a second .
Speaker #2: But in northern California , done fine . And we look a couple of it's know , job openings of the top 20 tech companies .
Speaker #2: And from that perspective, it's done well in that when we looked at 2025, it ticked up above pre-COVID levels around the second quarter.
Angela Kleiman: Though it's not too inconsistent from the seasonal norm, but it is an indication that this market is not robust when it comes to jobs, but it is stable and it's doing fine. So with that backdrop, when we look forward, we are seeing a couple of activities that gives us encouragement that this area is going to continue to improve. When we look at, for example, VC funding in Q4, it's at the highest level for over 4 years, and it increased by 91%, so almost doubled on a quarter-over-quarter. Over 65% of that spending is in the Bay Area. Now, that doesn't mean that there's going to be job acceleration tomorrow, but it is a great sign of growth to come.
Angela Kleiman: Though it's not too inconsistent from the seasonal norm, but it is an indication that this market is not robust when it comes to jobs, but it is stable and it's doing fine. So with that backdrop, when we look forward, we are seeing a couple of activities that gives us encouragement that this area is going to continue to improve. When we look at, for example, VC funding in Q4, it's at the highest level for over 4 years, and it increased by 91%, so almost doubled on a quarter-over-quarter. Over 65% of that spending is in the Bay Area. Now, that doesn't mean that there's going to be job acceleration tomorrow, but it is a great sign of growth to come.
Speaker #2: But then it retreated in the fourth quarter . So it's not inconsistent from the seasonal too seasonal norm , but an it is indication this that market is robust when it comes to jobs , but it is stable and it's fine .
Speaker #2: And so doing with that backdrop , when we look forward , we are seeing couple of activities that that gives , you know , encouragement that this area is going to continue to , to , to improve .
Speaker #2: we look at , And when for example , VC funding in the it's fourth quarter , at the highest level for , you know , over four years .
Speaker #2: And it increased by 91% . So almost quarter over on a quarter and over 65% of that spending is in the Bay area that .
Angela Kleiman: When we look at office absorption, another indicator, we're seeing positive absorption for the first time in all three major markets in our northern region: San Francisco, San Jose, and Seattle. So that's the backdrop. Seattle, I'll have to acknowledge that in the fourth quarter, it was soft. It did not achieve the expectations that we had planned in terms of the rent growth and the lease numbers. We had several corporate announcements in terms of layoffs. But having said that, looking forward in Seattle, we still like the fundamentals. Supply is down by 30% in that market. And other than, in addition to the positive office absorption, we're also seeing additional leasing activities by OpenAI. They quadrupled their space in Seattle. And so additionally, we have return to office tailwind in Seattle. Amazon starts enforcing return to office in January. Microsoft starts return to office in Q1.
Speaker #2: Doesn't mean that there is going to be job acceleration tomorrow, but it is a big sign of growth to come. Great look at office.
Angela Kleiman: When we look at office absorption, another indicator, we're seeing positive absorption for the first time in all three major markets in our northern region: San Francisco, San Jose, and Seattle. So that's the backdrop. Seattle, I'll have to acknowledge that in the fourth quarter, it was soft. It did not achieve the expectations that we had planned in terms of the rent growth and the lease numbers. We had several corporate announcements in terms of layoffs. But having said that, looking forward in Seattle, we still like the fundamentals. Supply is down by 30% in that market. And other than, in addition to the positive office absorption, we're also seeing additional leasing activities by OpenAI. They quadrupled their space in Seattle. And so additionally, we have return to office tailwind in Seattle. Amazon starts enforcing return to office in January. Microsoft starts return to office in Q1.
Speaker #2: absorption and , you know , another And when we indicator , we're seeing positive absorption for the first time in all markets in three major our northern region San San Francisco , Francisco , Jose and Seattle .
Speaker #2: So , you know , that's the backdrop . San acknowledge that in quarter , it the fourth soft . It it performed . It did not achieve the expectations that we had planned in terms of the rent growth and the lease numbers .
Speaker #2: several corporate announcements in terms of layoffs . But having said We had that , looking forward in Seattle , we still like the fundamentals .
Speaker #2: Supply is down by 30% in that market . And in addition to you positive office absorption , we're seeing additional leasing activities with by know , OpenAI .
Speaker #2: They quadruple their space in Seattle. And so, with an additional return to office, we have office tailwind also, and Amazon starts enforcing office in January—starts return to office in Q1.
Angela Kleiman: There's a path to the high end of our range. I just want to note that with the backdrop of the employment landscape, there is an element of unpredictability with that because it's highly influenced by public policy. Public policy so far has tempered job growth. That's an environment which we are in, and we do have to be sensitive to that.
Angela Kleiman: There's a path to the high end of our range. I just want to note that with the backdrop of the employment landscape, there is an element of unpredictability with that because it's highly influenced by public policy. Public policy so far has tempered job growth. That's an environment which we are in, and we do have to be sensitive to that.
Speaker #2: So there's return to a path to the high . end of our range Microsoft . And I just want to note that , you know , with the backdrop the employment the landscape , there is an element of with that because it's highly influenced by public policy of and public So policy .
Speaker #2: … so far, has tempered job growth, and so we are in an environment that's— that's an issue. And we do have to be sensitive to that.
[Analyst] (Wells Fargo): Okay. Thank you for that. And then can you talk about what you're thinking on new and renewal blends for the year?
Jamie Feldman: Okay. Thank you for that. And then can you talk about what you're thinking on new and renewal blends for the year?
Speaker #4: Okay. Thank you for that. And then can you talk about what you're thinking for new and renewal on, and blends for the year?
Angela Kleiman: Yes, of course. So we're assuming that our blended at this point is going to come in similar to 2025 at about 2.5%. And that's because, as I mentioned earlier, we're assuming that demand is generally flat going forward. So what that means for new and renewal is that, and I'll give you a range because that's probably more relevant because different markets behave differently. So under new leases, we're assuming somewhere around flat to 2%, and under renewals, around 3% to 4% for the year. So not too different from last year.
Angela Kleiman: Yes, of course. So we're assuming that our blended at this point is going to come in similar to 2025 at about 2.5%. And that's because, as I mentioned earlier, we're assuming that demand is generally flat going forward. So what that means for new and renewal is that, and I'll give you a range because that's probably more relevant because different markets behave differently. So under new leases, we're assuming somewhere around flat to 2%, and under renewals, around 3% to 4% for the year. So not too different from last year.
Speaker #2: Yes , of course . assuming that our So blends this point is to come in similar to at 2025 2.5% . about And that's you unpredictability know , as I mentioned earlier , we're assuming that is demand generally flat point forward .
Speaker #2: So what that means for new and renewal is that—and I'll give you a wider range because that's probably more relevant since different markets behave differently.
Speaker #2: So, new under leases, assuming somewhere around flat to 2%. And under renewals, 3% to 4% for the year. So, not too different from last year.
[Analyst] (Wells Fargo): Okay. All right. Thank you for that. Appreciate the color.
Jamie Feldman: Okay. All right. Thank you for that. Appreciate the color.
Speaker #2: different
Operator: Thank you. Our next question comes from the line of Nick Yulico, Scotiabank. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Nick Yulico, Scotiabank. Please proceed with your question.
Speaker #4: color .
[Analyst] (Wells Fargo): Thanks. I guess first off, I just wanted to ask about Los Angeles. You talked about occupancy picking up there in Q4. Where is that market now in terms of where you're hoping it to be on occupancy and to be able to drive rental pricing a little bit better this year? Maybe you could just talk a little bit more about how you're expecting LA to perform this year. Thanks.
Nick Yulico: Thanks. I guess first off, I just wanted to ask about Los Angeles. You talked about occupancy picking up there in Q4. Where is that market now in terms of where you're hoping it to be on occupancy and to be able to drive rental pricing a little bit better this year? Maybe you could just talk a little bit more about how you're expecting LA to perform this year. Thanks.
Speaker #1: Thank you . Our next question comes from the line Nick of Yulico , Please proceed with your question
Speaker #5: First off, I just wanted to ask about Los Angeles. You talked about occupancy picking up there in the fourth quarter. Where is that market now in terms of where you're hoping it to be on occupancy, and will you be able to drive rent a bit better this year?
Angela Kleiman: Hey, Nick. Good morning. Yeah, on LA, what we've seen is a steady increase or improvement in occupancy. So that's good, especially, we all know that the jobs environment has been quite soft. And where we are today, if you look at economic occupancy, which is the financial occupancy we report, less vacancy and delinquency, in Q4, this market sits at 94.7%. So we're just so close to stabilization at 95%. And compared to last quarter, I'm sorry, compared to Q3, 94% economic, and of course, Q2, 93.8%. So it's been steadily improving, which is fantastic. And what we're seeing next year in 2026 is that supply decreases by 20% in this market. So we are hopeful that we will move toward this 95% stabilization sooner rather than later.
Angela Kleiman: Hey, Nick. Good morning. Yeah, on LA, what we've seen is a steady increase or improvement in occupancy. So that's good, especially, we all know that the jobs environment has been quite soft. And where we are today, if you look at economic occupancy, which is the financial occupancy we report, less vacancy and delinquency, in Q4, this market sits at 94.7%. So we're just so close to stabilization at 95%. And compared to last quarter, I'm sorry, compared to Q3, 94% economic, and of course, Q2, 93.8%. So it's been steadily improving, which is fantastic. And what we're seeing next year in 2026 is that supply decreases by 20% in this market. So we are hopeful that we will move toward this 95% stabilization sooner rather than later.
Speaker #5: Expecting L.A. to perform this year. Thanks. How...
Speaker #2: good Hey , Nick , morning . Yeah . On on we've . What seen is a steady LA increase or improvement in occupancy .
Speaker #2: So good . know we
Speaker #2: all know to that the jobs you been quite environment has Especially soft . And where we are you look at if economic today , occupancy , which is the financial occupancy we report less than delinquency in the fourth quarter .
Speaker #2: This market sits at 94.7 . So we're just so we're close to stabilization in 95% . And quarter last sorry . I'm third quarter 94% economic and of and of course quarter 93.8% .
Speaker #2: So, it's second compared to steadily improving, which is seeing. Next, and year in 2026 is that supply decreases by 20% in this.
Speaker #2: So we are what we're will move toward market this 95% stabilization sooner later . having rather than But said again , you know , the timing is not so much in our control that , once because the eviction processing really drives our timeline is ability to move delinquency that number .
Angela Kleiman: But having said that, once again, the timing is not so much in our control because the eviction processing timeline is what really drives our ability to move that delinquency number. And so we try to take a more prudent approach on that front, but it's moving in the right direction.
Angela Kleiman: But having said that, once again, the timing is not so much in our control because the eviction processing timeline is what really drives our ability to move that delinquency number. And so we try to take a more prudent approach on that front, but it's moving in the right direction.
Speaker #2: And so we, you know, try to take more of a prudent approach on that front. It's—but directionally, that's where we're headed.
[Analyst] (Wells Fargo): Okay. Thanks. And then second question is just on San Francisco and, I guess, the Bay Area broadly. I think some of the strong rent growth we've seen from the market data has been helped by removing concessions from that market. And so there was a comp issue, I think, helping the numbers. Does that become a headwind this year in terms of us just thinking about how San Francisco rent growth could look this year versus last year? Thanks.
Nick Yulico: Okay. Thanks. And then second question is just on San Francisco and, I guess, the Bay Area broadly. I think some of the strong rent growth we've seen from the market data has been helped by removing concessions from that market. And so there was a comp issue, I think, helping the numbers. Does that become a headwind this year in terms of us just thinking about how San Francisco rent growth could look this year versus last year? Thanks.
Speaker #2: moving in the right
Speaker #5: Thanks . Okay . And then second question is just on Francisco . And San the Bay area , I think some of the broadly strong know I rent growth we've seen from the market data has been has been helped by removing concessions market .
Speaker #5: So there was a comp issue, it was a helping, I think.
Speaker #5: the know , numbers . , you become like Does that headwind this year in thinking about a terms of us just how San like rent growth could Francisco look this year versus year ?
Angela Kleiman: Yeah. Hey, Nick. I think under concession, the margin, it could be a result of hangover from previous supply pressures. But what we're seeing concession level in this market is not too different from historical averages, and it's not a factor when it comes to the uplift in San Francisco. It's really been more of a recovery story. We are finally at a point where San Francisco, as a market, is at somewhere around 9% above pre-COVID level. And if you look at where it should be, it should be somewhere around 20% above pre-COVID levels. So it's still in the recovery phase. And so it's less of a concessionary story pickup.
Angela Kleiman: Yeah. Hey, Nick. I think under concession, the margin, it could be a result of hangover from previous supply pressures. But what we're seeing concession level in this market is not too different from historical averages, and it's not a factor when it comes to the uplift in San Francisco. It's really been more of a recovery story. We are finally at a point where San Francisco, as a market, is at somewhere around 9% above pre-COVID level. And if you look at where it should be, it should be somewhere around 20% above pre-COVID levels. So it's still in the recovery phase. And so it's less of a concessionary story pickup.
Speaker #5: Thanks last .
Speaker #2: Yeah . Hey , I think you know , on the concession , Nick , the margin , it could be a result of , you know , hangover from previous supply pressures .
Speaker #2: But what we're seeing is this level in the market is not too different from historical averages. And it's not, you know, a factor when it comes to the uplift in San Francisco.
Speaker #2: It's really been more of a concession recovery story. We are at a point where San Francisco, as a market, is at somewhere around 9% above pre-COVID level.
Speaker #2: You look at it, know, you know where it should be, it should be somewhere around— and if levels. So, 20% above the phase.
Speaker #2: So it's less of a pre-COVID, it's still in recovery story pick up.
Operator: Thank you. Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Eric Wolfe with Citi. Please proceed with your question.
Barbara Pak: Thanks. It's Nick Joseph here with Eric. There were reports, I guess, last week about a large Southern California portfolio coming onto the market. So, curious where you see buyer cap rates today in, I guess, across your markets, but maybe specific to Southern California, if there's any differences between the regions. And then just broader, your thoughts on kind of external growth and capital allocation coming into this year.
Nick Joseph: Thanks. It's Nick Joseph here with Eric. There were reports, I guess, last week about a large Southern California portfolio coming onto the market. So, curious where you see buyer cap rates today in, I guess, across your markets, but maybe specific to Southern California, if there's any differences between the regions. And then just broader, your thoughts on kind of external growth and capital allocation coming into this year.
Speaker #1: Thank you. Our next question comes from the line of Eric Wolfe. Eric, you may proceed with your question.
Speaker #6: curious where you cap see portfolio today . And I guess buyer Please markets , but maybe specific California , to Southern if there's about any differences between between regions and then just broader , your thoughts on kind of external growth and capital allocation coming into this year ?
Rylan Burns: Hey, Nick. Rylan here. I'll start on the comment on the portfolio in Southern California. In general, not going to go into details. Don't really want to comment on a live transaction. For background, there's been approximately $11 billion of transactions in Southern California over the past two years. The majority of the transactions last year occurred in that 4.5 to 4.75 cap rate range. This is a healthy environment where there's a lot of capital coming in that I think they're going to do quite well. Obviously, we look at everything that comes through our market, so we will be evaluating. If there's an opportunity to create value, you would expect us to participate there. In terms of just bigger picture, sorry, go ahead, Nick. Yeah.
Rylan Burns: Hey, Nick. Rylan here. I'll start on the comment on the portfolio in Southern California. In general, not going to go into details. Don't really want to comment on a live transaction. For background, there's been approximately $11 billion of transactions in Southern California over the past two years. The majority of the transactions last year occurred in that 4.5 to 4.75 cap rate range. This is a healthy environment where there's a lot of capital coming in that I think they're going to do quite well. Obviously, we look at everything that comes through our market, so we will be evaluating. If there's an opportunity to create value, you would expect us to participate there. In terms of just bigger picture, sorry, go ahead, Nick. Yeah.
Speaker #7: on the general not going to go into details , don't really want to comment on a transaction , but live for background , there's been approximately $11 billion of transactions in Southern California over the past two years .
Speaker #7: The majority of the transactions last year occurred in that 4 or 5 to 4.75, 5 cap rate. So this is the range.
Speaker #7: healthy a environment where there's a lot of capital coming in that , you know , I the well . Obviously we look at everything that comes through our markets .
Speaker #7: So we evaluating . And if there's an opportunity will be to create , you would expect us to participate . to There . value terms of just bigger picture , you know , sorry . Nick .
Speaker #7: So we evaluating . And if there's an opportunity will be to create , you would expect us to participate . to There . value terms of just bigger picture , you know , sorry .
Barbara Pak: No, no, no. Yeah. Go ahead.
Nick Joseph: No, no, no. Yeah. Go ahead.
Rylan Burns: Capital allocation, just a reminder of our broader philosophy, right? So for investment criteria, we have 3 things that we're looking to solve for. 1, FFO per share accretion. 2, NAV per share accretion. And looking for opportunities that are better growth profiles than the rest of our portfolio. And our strategy, which is unchanged, is to allocate capital to those investments that offer the highest potential accretion relative to the cost of capital. So we are going to continue, as we've done for this team being here the past 5 years and over the past 30 years, to look for those opportunities where we can drive the highest potential accretion.
Rylan Burns: Capital allocation, just a reminder of our broader philosophy, right? So for investment criteria, we have 3 things that we're looking to solve for. 1, FFO per share accretion. 2, NAV per share accretion. And looking for opportunities that are better growth profiles than the rest of our portfolio. And our strategy, which is unchanged, is to allocate capital to those investments that offer the highest potential accretion relative to the cost of capital. So we are going to continue, as we've done for this team being here the past 5 years and over the past 30 years, to look for those opportunities where we can drive the highest potential accretion.
Speaker #7: Yeah Go ahead .
Speaker #6: No, no. Yeah. Go now.
Speaker #7: Yeah
Speaker #7: . Capital ahead allocation . You know , just a reminder of our broader You know , in philosophy . Right . for So investment criteria , we have we're looking to solve for .
Speaker #7: One, FFO per share accretion to NAV per share accretion, looking for opportunities—three things: growth profiles that are stronger than the rest of the portfolio, and our strategy, which is unchanged. We allocate investments, offer those capital to the highest potential relative to the rest of the capital.
Speaker #7: So we are going to continue as we've done for the , you know , for this team , been here the past five years and over the past 30 years to look for those opportunities where we can drive the highest potential accretion .
Barbara Pak: Thanks. And so for that 4.5 to 4.7 you quoted, is that buyer or seller, and how wide does that spread typically?
Nick Joseph: Thanks. And so for that 4.5 to 4.7 you quoted, is that buyer or seller, and how wide does that spread typically?
Speaker #6: And so for that four or five to four-seven you quoted, is that buyer or seller, and how wide is that spread typically?
Rylan Burns: That's buyer cap rates. Those are economic cap rates on in-place rents. Obviously, seller, it really depends on when the asset was purchased and what the tax base is involved. That's where you'll see some difference between buyer and seller cap rates in Southern California.
Rylan Burns: That's buyer cap rates. Those are economic cap rates on in-place rents. Obviously, seller, it really depends on when the asset was purchased and what the tax base is involved. That's where you'll see some difference between buyer and seller cap rates in Southern California.
Speaker #7: That's buyer cap rates . Those economic cap are rates on in-place rents seller obviously . It really depends know , when on you the when the asset purchased was and what the tax base is involved .
Barbara Pak: Got it. And then just in terms of the cap allocation, just given where the stock is trading today, how do buybacks play into the stack of opportunity, just given where you're seeing cap rates versus where the implied cap rate for the stock is?
Nick Joseph: Got it. And then just in terms of the cap allocation, just given where the stock is trading today, how do buybacks play into the stack of opportunity, just given where you're seeing cap rates versus where the implied cap rate for the stock is?
Speaker #7: That's where you'll see some difference—seller cap between buyer rates in Southern California.
Speaker #6: Got it. And then just in terms of capital allocation, just given where the stock is trading today, how do buybacks play into the stack of opportunity, just given where you're seeing cap rates versus where the cap rate for the stock is?
Angela Kleiman: Hey, Nick. It's a good question. And it's a calculation that we go through on a regular basis. And so I want to start with everything is on the table: buybacks, preferred equity, development, acquisition, all of the above. And when we think about buyback, we also look at the yield that we can generate from a straight acquisition to a development and the growth thereof. So there's an IR consideration. Based on the stock today, which is, I don't know, in the mid-$255, it's kind of a close tie across the board, if you will. And so then we need to look at how do we create value for the company. And I just want to point to that what we've done.
Angela Kleiman: Hey, Nick. It's a good question. And it's a calculation that we go through on a regular basis. And so I want to start with everything is on the table: buybacks, preferred equity, development, acquisition, all of the above. And when we think about buyback, we also look at the yield that we can generate from a straight acquisition to a development and the growth thereof. So there's an IR consideration. Based on the stock today, which is, I don't know, in the mid-$255, it's kind of a close tie across the board, if you will. And so then we need to look at how do we create value for the company. And I just want to point to that what we've done.
Speaker #2: Hey , Nick . It's
Speaker #2: question . And it's a it's a calculation know , we go that you through on a regular basis . And to start with everything is on the implied the so I want table .
Speaker #2: Buybacks prefer equity development acquisition . All of the above . And when we think about buyback we also at , you know , the look yield we can that from a straight acquisition or a And the development .
Speaker #2: growth thereof . So you know , an IRR consideration there's based on the stock today , which is I don't know , in the mid 255 .
Speaker #2: It's kind of a close tie across the board . If you will . And and so , you know , so then we we at how do we need to value for the company .
Angela Kleiman: When we directed capital deployment toward fee simple properties in Northern California over the past year and a half, it's done well for us, even though our stock was trading in this range, because those assets ended up generating portfolio-leading rent growth with cap rate compression. We really produced a lot of appreciation of these assets and shareholder value. So we have to consider that fact. Also, if you look at if we had done the buyback, say, six months ago, well, the stock has gotten cheaper. So not as attractive. There's a lot of things that we really do consider it. Then I hope you realize that we do try to be very thoughtful about it. You've seen us buy back stock in big chunks when it makes sense to do so.
Angela Kleiman: When we directed capital deployment toward fee simple properties in Northern California over the past year and a half, it's done well for us, even though our stock was trading in this range, because those assets ended up generating portfolio-leading rent growth with cap rate compression. We really produced a lot of appreciation of these assets and shareholder value. So we have to consider that fact. Also, if you look at if we had done the buyback, say, six months ago, well, the stock has gotten cheaper. So not as attractive. There's a lot of things that we really do consider it. Then I hope you realize that we do try to be very thoughtful about it. You've seen us buy back stock in big chunks when it makes sense to do so.
Speaker #2: And I just point to want to that . You know done . You know when we capital what we've directed deployment . Toward fee simple properties in Northern California over the year and a past it's done half , well for Even though our stock was trading in this us .
Speaker #2: range because those assets ended up generating portfolio leading rent growth with cap rate compression , we . Really provided , you know , produced a lot of appreciation of these assets .
Speaker #2: And , and shareholder value . And so we have to consider that . And also , if you fact look at if we had done the buyback , say six months ago , where the stock has gotten cheaper , so attractive .
Speaker #2: not as And so there's a lot of things that we we do consider and really , you know , you realize that that we do try to be very thoughtful about it .
Barbara Pak: Absolutely. Thank you.
Nick Joseph: Absolutely. Thank you.
Speaker #2: you've seen And buy back stock in , you know , big chunks when it makes sense to do so us .
Operator: Thank you. Our next question comes from the line, Steve Sakwa with Evercore ISI. Please proceed with your question.
Operator: Thank you. Our next question comes from the line, Steve Sakwa with Evercore ISI. Please proceed with your question.
Speaker #6: Absolutely . Thank you .
[Analyst] (Wells Fargo): Yeah. Thanks. Good morning. I think, Angela, you had mentioned that renewals would be in the 3 to 4 range for the year. I'm just curious, what have you experienced thus far kind of in the January, February, and presumably March timeframe?
Steve Sakwa: Yeah. Thanks. Good morning. I think, Angela, you had mentioned that renewals would be in the 3 to 4 range for the year. I'm just curious, what have you experienced thus far kind of in the January, February, and presumably March timeframe?
Speaker #1: Thank you. Our next question comes from the line of Steve Sakwa with Evercore ISI. Please proceed with your question.
Speaker #8: Good Yeah . Thanks . morning . I think you had , Angela , mentioned that be in renewals would the 3 to 4 range for the year .
Speaker #8: I'm just curious, have you experienced FAR thus far? Kind of in the February and presumably March timeframe.
Angela Kleiman: Hey, Steve. Right now, our renewal is looking at around 4-ish to mid-4% for February, March. And so we're pretty much on track.
Angela Kleiman: Hey, Steve. Right now, our renewal is looking at around 4-ish to mid-4% for February, March. And so we're pretty much on track.
Speaker #3: Hey .
Speaker #2: Steve , right now is looking at around four ish to mid our 4% for February , March so we're pretty on much track .
[Analyst] (Wells Fargo): Are you doing a lot of discounting? Are you pretty much getting what you're asking for, or is there a gap between kind of what you ask and what you achieve?
Steve Sakwa: Are you doing a lot of discounting? Are you pretty much getting what you're asking for, or is there a gap between kind of what you ask and what you achieve?
Speaker #8: And are a lot of you doing any discounting, or are you pretty much getting what you're asking? Is there a gap between what you ask and what you achieve?
Angela Kleiman: So far, the negotiation is somewhere between 30 to 50 basis points. So to us, that points to just a normal, stabilized environment.
Angela Kleiman: So far, the negotiation is somewhere between 30 to 50 basis points. So to us, that points to just a normal, stabilized environment.
Speaker #8: for , or
Speaker #2: So far , the negotiation is somewhere between 30 to 50 basis points . So it's , you know , to us that points to just a normal stabilized .
[Analyst] (Wells Fargo): Great. Thanks. And then I guess following up on the capital allocation discussion, you talked about sort of acquisitions and buybacks. But I think in the release, you explicitly said you would not have any development starts. I'm just curious, where would development pencil, if you were to start one, and I guess what does that mean about costs having to come down or rents having to grow in order to get to a yield that makes sense to you?
Steve Sakwa: Great. Thanks. And then I guess following up on the capital allocation discussion, you talked about sort of acquisitions and buybacks. But I think in the release, you explicitly said you would not have any development starts. I'm just curious, where would development pencil, if you were to start one, and I guess what does that mean about costs having to come down or rents having to grow in order to get to a yield that makes sense to you?
Speaker #2: environment And
Speaker #8: Then I guess, on capital allocation—thanks. And on the discussion, you talked about sort of acquisitions and buybacks. But I think, recently, you explicitly said you would not have any development starts. Curious, you know, if that’s still the case.
Speaker #8: where would development pencil you were to I'm start one ? if And I guess , what does that about costs having to mean following rents having to order to a yield that makes sense to you ?
Rylan Burns: Hey, Steve. This is Rylan. Currently, in our development pipeline, right, we have two land sites that we continue to work forward with, but they're not expected to start in 2026. Our team underwrote probably about 100 land sites last year, and none of them really made sense from an economic perspective. So you really need to see land sellers take a reduction in their expectation on land prices to make the numbers work today. And/or you're going to have to see 10%-plus rent growth for some of these deals to make economic sense. So we're closer. We have our own pipeline that we continue to work forward to. And if we can find something at a significant premium to that underlying transaction rate where we feel comfortable for the risk that we'd be taking in development, we'd happily step in.
Rylan Burns: Hey, Steve. This is Rylan. Currently, in our development pipeline, right, we have two land sites that we continue to work forward with, but they're not expected to start in 2026. Our team underwrote probably about 100 land sites last year, and none of them really made sense from an economic perspective. So you really need to see land sellers take a reduction in their expectation on land prices to make the numbers work today. And/or you're going to have to see 10%-plus rent growth for some of these deals to make economic sense. So we're closer. We have our own pipeline that we continue to work forward to. And if we can find something at a significant premium to that underlying transaction rate where we feel comfortable for the risk that we'd be taking in development, we'd happily step in.
Speaker #7: Hey, so we were having—you know, you’re closer—the pipeline that we know, our own. We’ll continue to work and see what we can find, too.
Speaker #7: Steve, this is Ryland. The we—
Speaker #7: our in our Currently in development pipeline , right . We have two land sites that we continue to move work forward with , but they're not expected to start in get to 2026 .
Speaker #7: Our team underwrote a about 100 land sites last year . probably And none of them really made sense from an economic really need to see land So you sellers take in their expectation on on land prices to work .
Speaker #7: Numbers today make the, and, or you're going to have to, you know, see 10% plus rent growth for some of these deals to make economic sense.
Speaker #7: And if something is at a significant premium to that underlying, where we feel comfortable for the risk that we're taking, we'd be in development. We'd happily transact at that rate. I think there's still some opportunities on the development side.
Rylan Burns: We do think there's going to be some opportunities on the development side. We're just trying to make sure we're getting the best risk-adjusted returns.
Rylan Burns: We do think there's going to be some opportunities on the development side. We're just trying to make sure we're getting the best risk-adjusted returns.
[Analyst] (Evercore ISI): Sorry, just what would you need on that? Is that a 6? Is that 6.5? Is that 5.5 in your markets?
Steve Sakwa: Sorry, just what would you need on that? Is that a 6? Is that 6.5? Is that 5.5 in your markets?
Speaker #7: We're just trying to make sure we're getting perspective . the the best risk adjusted returns .
Rylan Burns: Yeah. As I said, depending on the submarket in Northern California, as Angela mentioned, where the transaction market feels like it's shaking in that 4.25 type range, something close to a 6, I think, would definitely be worth the risk. If we had clear visibility on entitlements, we knew exactly what we're going to build, felt good about the land basis, those are the types of opportunities that we would jump at.
Rylan Burns: Yeah. As I said, depending on the submarket in Northern California, as Angela mentioned, where the transaction market feels like it's shaking in that 4.25 type range, something close to a 6, I think, would definitely be worth the risk. If we had clear visibility on entitlements, we knew exactly what we're going to build, felt good about the land basis, those are the types of opportunities that we would jump at.
Speaker #8: And sorry , just what on that ? Is that a six . Is that six and a half . Is that markets five and a half in ?
Speaker #8: your
Speaker #7: Yeah . As I said , you depending on the Northern submarket in know , California , as Angela mentioned , where , in .
Speaker #7: you know , the transaction We do market feels shaking in that four and a quarter type range like it's close to a six , I definitely be think would worth the the risk if we , you if we had clear visibility on entitlements , know , we knew exactly what we were going to build .
[Analyst] (Evercore ISI): Great. Thank you.
Steve Sakwa: Great. Thank you.
Speaker #7: Felt good about the land basis. Those are the types of opportunities that we would jump at.
Operator: Thank you. Our next question comes from the line. I'm Brad Heffern with RBC Capital Markets. Please proceed with your question.
Operator: Thank you. Our next question comes from the line. I'm Brad Heffern with RBC Capital Markets. Please proceed with your question.
Speaker #7: . you
Speaker #8: Thank Hey ,
[Analyst] (RBC Capital Markets): Yeah. Thanks. Another question on LA. Obviously, seeing some improvements there. Can you talk about if the guidance assumes a significant improvement in performance year over year? And if not, when you expect LA to become more of a positive contributor?
Brad Heffern: Yeah. Thanks. Another question on LA. Obviously, seeing some improvements there. Can you talk about if the guidance assumes a significant improvement in performance year over year? And if not, when you expect LA to become more of a positive contributor?
Speaker #1: You. Our question comes from Markets. Please proceed with your Capital question.
Speaker #1: With RBC, next line of Heffron from Brad.
Speaker #1: .
Speaker #9: Thanks . Yeah . Another question on on LA . Obviously seeing some improvements you talk there . Can guidance assumes a significant about if the performance improvement in year over year if not when and you expect LA become more of a Great .
Angela Kleiman: Hey, Brad. We are assuming that LA continues to improve gradually. And so we are hopeful that by year and next year, that it returns to the normal delinquency run rate. Long-term for LA is a little elevated than our typical portfolio average, but that's okay. That's what we expected. So we do have that baked in. The potential upside really comes from the general jobs environment, especially with supply going down. Certainly, there's opportunities there with LA.
Angela Kleiman: Hey, Brad. We are assuming that LA continues to improve gradually. And so we are hopeful that by year and next year, that it returns to the normal delinquency run rate. Long-term for LA is a little elevated than our typical portfolio average, but that's okay. That's what we expected. So we do have that baked in. The potential upside really comes from the general jobs environment, especially with supply going down. Certainly, there's opportunities there with LA.
Speaker #9: positive contributor ?
Speaker #2: Brad , we are assuming that LA continues to improve gradually and and , you know , by year end next year that it so returns to normal we are , long delinquency run term for LA is a little elevated than our typical portfolio that's okay .
Speaker #2: Brad , we are assuming that LA continues to improve gradually and and , you know , by year end next year that it so returns to normal we are , long delinquency run term for LA is a little elevated than our typical portfolio average , but we expected .
Speaker #2: So we do have that baked in. The potential upside really comes from the general jobs environment, you know, especially with—
[Analyst] (RBC Capital Markets): Okay. Got it. And then on the immigration front, has there been any sort of noticeable impact on demand or anything that you can see on your dashboards just from the lack of immigration?
Brad Heffern: Okay. Got it. And then on the immigration front, has there been any sort of noticeable impact on demand or anything that you can see on your dashboards just from the lack of immigration?
Speaker #2: Supply going down, and with that, certainly there are opportunities there with L.A.
Speaker #9: Okay. Got it. And then on the immigration front, has there been any sort of impact on anything—demand or that you can see on your dashboards—just from the lack of, or any noticeable change?
Angela Kleiman: We have not seen any direct impact from the immigration on the immigration front. I'm assuming you're talking about international immigration. What we have seen is it's generally returned to pre-COVID historical norm, and activities are at a normalized level. When we look at legislation that relates to an H-1B, we certainly haven't seen any adverse impact from that. In fact, that continues to be viewed as a positive. There's certain carve-outs for students and etc. that really should not hurt our business.
Angela Kleiman: We have not seen any direct impact from the immigration on the immigration front. I'm assuming you're talking about international immigration. What we have seen is it's generally returned to pre-COVID historical norm, and activities are at a normalized level. When we look at legislation that relates to an H-1B, we certainly haven't seen any adverse impact from that. In fact, that continues to be viewed as a positive. There's certain carve-outs for students and etc. that really should not hurt our business.
Speaker #2: We have not seen any direct impact from the immigration and the immigration front . I think I'm you're assuming talking about . International immigration .
Speaker #2: It's what we seen is it's have generally returned to pre-COVID historical norm and activities are at a normalized level , you know , and when we look at , you know , legislation that impacts , that relates to like an H-1b , haven't seen any that .
Speaker #2: adverse from In fact , that to continues be as a viewed positive . And there are certain carve outs , you know , for and etc.
[Analyst] (RBC Capital Markets): Okay. Thank you.
Brad Heffern: Okay. Thank you.
Speaker #2: that , should really students not have , should not , should not hurt our business .
Operator: Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Joshua Dennerlein with Bank of America. Please proceed with your question.
Speaker #9: you Okay . Thank .
[Analyst] (Bank of America): Thank you. Good morning. This year, there's a mayoral election in LA and an election for governor in California, as well as a number of proposals that could impact real estate. I'm curious if you can kind of let us know what you're watching from a policy front that could potentially be beneficial for rental housing.
Jana Galan: Thank you. Good morning. This year, there's a mayoral election in LA and an election for governor in California, as well as a number of proposals that could impact real estate. I'm curious if you can kind of let us know what you're watching from a policy front that could potentially be beneficial for rental housing.
Speaker #1: Thank you . Our next question of Yana from the line with Bank Galen of comes America . with your question . Please proceed
Speaker #10: Thank you. Good morning. This year, there's a mayoral election in L.A. and an election for governor in California, as well as a number of proposals that could impact real.
Speaker #10: Estate kind of can let us know what your policy front that could potentially be beneficial for rental housing.
Angela Kleiman: Hey, Joshua. Thanks for your question. It's an interesting situation here in that we've seen California slowly migrate away from these extreme liberal policies, which has been actually good for the overall economy, and the voter population as well. So there's been a couple of proposals that were more on the extreme end, and we were pleased to see that those proposals actually were not successful. So that's a good indication. What we're watching on the margin, of course, is the outcome. And we don't have any more insight to the election than what's publicly available. But what we can tell from the sentiment is that the general view is people want to have a normal functioning economy. And these extreme measures have not been well received.
Angela Kleiman: Hey, Joshua. Thanks for your question. It's an interesting situation here in that we've seen California slowly migrate away from these extreme liberal policies, which has been actually good for the overall economy, and the voter population as well. So there's been a couple of proposals that were more on the extreme end, and we were pleased to see that those proposals actually were not successful. So that's a good indication. What we're watching on the margin, of course, is the outcome. And we don't have any more insight to the election than what's publicly available. But what we can tell from the sentiment is that the general view is people want to have a normal functioning economy. And these extreme measures have not been well received.
Speaker #10: watching from a
Speaker #2: Hey, Otto, an interesting situation here in that we've seen California slowly migrate away from these extreme liberal policies, which has been actually good for the overall economy.
Speaker #2: And voter the population as well, you know. So, there have been a couple of proposals that were more on the extreme end.
Speaker #2: And and voter the
Speaker #2: pleased to see that those And we were proposals actually did not were not successful . So that's a good indication . What we're watching on the margin , of course , is , you know , the the outcome .
Speaker #2: don't we have any more insight to the than , than what's election publicly available . But what we can tell is that from the sentiment is that , you know , the view general is people want to , functioning have a economy .
Speaker #2: And, you know, these extreme measures have not been well received.
Operator: Thank you. And then on the structured finance book, now that it's kind of right-sized or will be at the end of 2026, just going forward, how should we think about modeling and the growth here?
Jana Galan: Thank you. And then on the structured finance book, now that it's kind of right-sized or will be at the end of 2026, just going forward, how should we think about modeling and the growth here?
Speaker #10: Thank you . And then
Speaker #10: On the structured normal finance book, now that it's kind of right-sized or will be at the end of '26, just going forward, how should we think about and model the growth here?
Angela Kleiman: Hi, Yana. Yeah, that's a good question. So how you should think about it is at the end of the year, our book value is $330 million. But what is in our guidance for 2026 is $175 million that we are having income on that's hitting our numbers. And that is a three-year maturity. So there will be future redemptions, but it'll be much more manageable over the next three years. And we are looking for new opportunities to backfill. We obviously want to make sure they're appropriate risk-adjusted returns, but it is a much more stable book than what we've had two to three years ago. So I think if you take the $175 million, that'll get you a stable number going forward.
Barb Pak: Hi, Yana. Yeah, that's a good question. So how you should think about it is at the end of the year, our book value is $330 million. But what is in our guidance for 2026 is $175 million that we are having income on that's hitting our numbers. And that is a three-year maturity. So there will be future redemptions, but it'll be much more manageable over the next three years. And we are looking for new opportunities to backfill. We obviously want to make sure they're appropriate risk-adjusted returns, but it is a much more stable book than what we've had two to three years ago. So I think if you take the $175 million, that'll get you a stable number going forward.
Speaker #3: Yes , Hi . Barb , question . So how you should think that's a about it is at the end of the year , our book
Speaker #3: value But ? what is in our guidance for 26 is 175 million that we are having income on . hitting our numbers . And that is a three year maturity .
Speaker #3: There will be future redemptions, but they will be much more manageable over the next three years. And we are looking for new opportunities to backfill.
Speaker #3: We obviously want to make sure they're appropriate risk-adjusted returns, but it is a much more stable book than what we've had.
Speaker #3: You know , 2 to 3 years So ago . I if you take 175 million , that will get you a stable number going forward .
Operator: Great. Thank you. Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.
Jana Galan: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.
Speaker #10: Great . Thank you
Speaker #10: .
Speaker #1: Thank you. Our next question comes from the line of KeyBanc Capital Markets. Please proceed with your question.
[Analyst] (KeyBanc Capital Markets): Great. Thank you. Just going back to LA for a minute, are you guys seeing conditions, I guess, broadly in your submarket stabilize and rent growth maybe approaching an inflection, or was this more of a strategic approach on your part to build occupancy back to a stabilized level? Everything you're seeing is kind of specific to your portfolio.
Austin Wurschmidt: Great. Thank you. Just going back to LA for a minute, are you guys seeing conditions, I guess, broadly in your submarket stabilize and rent growth maybe approaching an inflection, or was this more of a strategic approach on your part to build occupancy back to a stabilized level? Everything you're seeing is kind of specific to your portfolio.
Speaker #11: Just going back to you.
Speaker #11: A minute... Great. Thank you. Are you guys—conditions, broadly in your submarket, do you think, are stabilizing? And is rent growth maybe approaching an inflection?
Speaker #11: Or was this more of a strategic on your part to approach build occupancy back to a stabilized level ? And , you know , everything you're seeing is kind of specific to , you know , your portfolio .
Angela Kleiman: Hey, Austin. That's a good question. It's more Essex operational strategy-driven with how we are operating in LA. But ultimately, our goal is, of course, to maximize revenues. And so in an environment where you don't have stabilized occupancy, you really don't have pricing power. And so it's critical to focus on delinquency, which I think our team has done an exceptional job, and focus on building occupancy. And once we get to that 95% occupancy, stabilized Economic Occupancy for our portfolio, then we will have some pricing power.
Angela Kleiman: Hey, Austin. That's a good question. It's more Essex operational strategy-driven with how we are operating in LA. But ultimately, our goal is, of course, to maximize revenues. And so in an environment where you don't have stabilized occupancy, you really don't have pricing power. And so it's critical to focus on delinquency, which I think our team has done an exceptional job, and focus on building occupancy. And once we get to that 95% occupancy, stabilized Economic Occupancy for our portfolio, then we will have some pricing power.
Speaker #2: Hey , Austin , it's a good question . It's more Essex operational strategy driven with how we are . You know , operating in LA but ultimately our goal is , of course , to maximize revenues .
Speaker #2: And so in an environment where you don't have stabilized occupancy , it's just you really don't have pricing power . And so it's critical to , you know , focus on delinquency , which I think our team has done an exceptional job and focus on building occupancy .
Speaker #2: And once we get to that 95% occupancy stabilized, economic occupancy for our portfolio, then we will have some pricing power.
[Analyst] (KeyBanc Capital Markets): Got it. And then just going back, I mean, does that speak a little bit to the -2.4% new lease rate growth in Q4 and maybe what was the driver of that? Because it did seem that was a little lower than it's been in many years outside the COVID period. And have you started to see that reaccelerate into the new year, given that occupancy is now in a better position even than it was a year ago at this time?
Austin Wurschmidt: Got it. And then just going back, I mean, does that speak a little bit to the -2.4% new lease rate growth in Q4 and maybe what was the driver of that? Because it did seem that was a little lower than it's been in many years outside the COVID period. And have you started to see that reaccelerate into the new year, given that occupancy is now in a better position even than it was a year ago at this time?
Speaker #11: Got it. And then just going back, I mean, does that speak a little bit to the negative 2.4% new lease growth in the fourth quarter?
Speaker #11: And maybe, what was the driver of that? Because it did seem that was a little lower than it's been in, you know, many years outside the COVID period.
Speaker #11: And have you started to see , you know that , reaccelerate into the new year , given that occupancy is now in a better position even than it was , you know , rate ?
Angela Kleiman: Yeah, that's a good question. That new lease rate is driven by the weakness in Seattle and weakness in San Diego, more due to supply. LA was not as exciting. It was a little, well, yeah, it was still negative. Okay. It's all not great on that front. Never mind. So I think looking forward, there are a couple of things happening with the supply increasing and also the environment in LA stabilizing. Certainly, it should turn. It should start to turn.
Angela Kleiman: Yeah, that's a good question. That new lease rate is driven by the weakness in Seattle and weakness in San Diego, more due to supply. LA was not as exciting. It was a little, well, yeah, it was still negative. Okay. It's all not great on that front. Never mind. So I think looking forward, there are a couple of things happening with the supply increasing and also the environment in LA stabilizing. Certainly, it should turn. It should start to turn.
Speaker #2: Yeah, that's a question. Good. That new lease rate is—
Speaker #2: driven by , you a year know , the weakness in Seattle and . Diego . in San More due to supply . LA was more , you know , as not not as exciting .
Speaker #2: It was a little well , it was negative . still Okay . It's all not And that front never great . mind . So I think looking forward there are a couple of things happening .
Speaker #2: You know, with the supply decreasing and also the environment in LA stabilizing, it’s certainly something that should turn. It should start to turn.
Operator: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
[Analyst] (KeyBanc Capital Markets): Thank you. On the new lease growth rate expectations of flat to 2%, I'm wondering what your thoughts were on cadence. Last year, it peaked in Q1 at 1%, and I'm wondering if you expect a similar dynamic this year. And as part of that, I was wondering if you could share your new lease rate growth in January.
John Kim: Thank you. On the new lease growth rate expectations of flat to 2%, I'm wondering what your thoughts were on cadence. Last year, it peaked in Q1 at 1%, and I'm wondering if you expect a similar dynamic this year. And as part of that, I was wondering if you could share your new lease rate growth in January.
Speaker #1: Thank you. Our next question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.
Speaker #12: Thank you. On the new lease growth rate, with expectations of flat to 2%, I'm wondering what your thoughts were on cadence last year.
Speaker #12: It peaked in the first quarter at 1%. And I'm wondering if you expect a similar dynamic this year. And as part of that, I was wondering if you could share your new lease rate growth in January.
Angela Kleiman: So that's a good question. In terms of cadence, we do assume that 2026 is going to be pretty moderate. We're not expecting, say, first half to be significantly greater than second half and vice versa. And that's really driven by our view that the current job environment is going to continue just because of political uncertainty. And keep in mind, we have a midterm election in the second half, and we don't know how public policy is going to behave in light of that. So it built in kind of some of those unknowns. As far as January numbers, I mean, I don't think it's all that productive to talk about that because December and January are always, always the worst period in our business because of seasonality. And it's not going to point to anything relevant with what's going to happen for the rest of the year.
Angela Kleiman: So that's a good question. In terms of cadence, we do assume that 2026 is going to be pretty moderate. We're not expecting, say, first half to be significantly greater than second half and vice versa. And that's really driven by our view that the current job environment is going to continue just because of political uncertainty. And keep in mind, we have a midterm election in the second half, and we don't know how public policy is going to behave in light of that. So it built in kind of some of those unknowns. As far as January numbers, I mean, I don't think it's all that productive to talk about that because December and January are always, always the worst period in our business because of seasonality. And it's not going to point to anything relevant with what's going to happen for the rest of the year.
Speaker #2: So that's question . a good In terms of cadence , we do assume that 2026 is going to be pretty moderate . We're not expecting , you know .
Speaker #2: Say first half or to be significantly greater than second half and vice versa . And that's really driven by our view that current job environment is going job , the to continue just because of , you know , political uncertainty .
Speaker #2: Keep in mind, we have a mid-year midterm election in the second half, and we don't know how public policy is going to behave in light of that.
Speaker #2: So , you know , it builds in kind of some of those unknowns as far as , you know , January numbers , I don't I mean , I don't think it's all that productive to talk about because December and January are always , always the worst period in our that business because of seasonality .
Speaker #2: And it's not going to point to anything relevant with what's going to happen for the rest of the year.
[Analyst] (KeyBanc Capital Markets): Okay. And Angela, in the past, I mean, last year, you talked about happily trading out of Southern California or reducing Southern California and buying in Northern California. Based on Rylan's commentary about being perhaps a little bit more opportunistic and the occupancy improvement you saw in LA this quarter, is that trade still the case, or are you more agnostic on markets?
Austin Wurschmidt: Okay. And Angela, in the past, I mean, last year, you talked about happily trading out of Southern California or reducing Southern California and buying in Northern California. Based on Rylan's commentary about being perhaps a little bit more opportunistic and the occupancy improvement you saw in LA this quarter, is that trade still the case, or are you more agnostic on markets?
Speaker #12: Okay . And , Angela , in the past , last year you talked happily about trading out of Southern California or reducing Southern California and buying in Northern California based on Rylan's commentary about being perhaps a little bit more opportunistic and the occupancy improvement you saw in LA this quarter that trade still the case , or are is you more agnostic on markets ?
Angela Kleiman: Well, at this point, let me start with our view, which has always been there's a price for everything. And in an environment where cap rates are generally consistent throughout our markets, we certainly would want to deploy capital in a market where we believe has an elevated level of rent growth ahead of us, which is Northern California. So if you look at the current environment, if all cap rates remain generally in line, Northern California is still the more compelling place to deploy capital because it's just in the recovery phase. But once you start seeing a gap among the cap rates in the different submarkets, then it's a different calculation. And so we're going to have to look at that holistically rather than just based on a specific number.
Angela Kleiman: Well, at this point, let me start with our view, which has always been there's a price for everything. And in an environment where cap rates are generally consistent throughout our markets, we certainly would want to deploy capital in a market where we believe has an elevated level of rent growth ahead of us, which is Northern California. So if you look at the current environment, if all cap rates remain generally in line, Northern California is still the more compelling place to deploy capital because it's just in the recovery phase. But once you start seeing a gap among the cap rates in the different submarkets, then it's a different calculation. And so we're going to have to look at that holistically rather than just based on a specific number.
Speaker #2: Well , at this point , you know , well , let me start with , we our view has always been there's a price for everything .
Speaker #2: And in environment where cap rates are generally consistent , you know , throughout our markets , we certainly would want to deploy capital in a market where we believe has a elevated level of rent growth ahead of us , which is Northern California .
Speaker #2: if you So look at the current environment , if all cap rates remain generally in line , Northern California is still the more place to deploy capital because it's just , you know , it's it's it's in the recovery phase .
Speaker #2: But once you start, you know, seeing a gap between, among the cap rates in the different submarkets, then it's a different calculation.
Speaker #2: And so we're going to have to look at that holistically rather than just, you know, based on a specific number.
[Analyst] (KeyBanc Capital Markets): How much should that gap be in your mind?
John Kim: How much should that gap be in your mind?
Angela Kleiman: Well, it depends on the growth. It really is more submarket-driven. So for example, when I say Northern California, we certainly wouldn't invest in Mountain View at the same cap rate as we would invest in Oakland. And so I wish I could give you a finite number because that would make everyone's life so much easier, but it really depends on the growth rate of that specific asset, which has a lot to do with how it's managed and what's going in the submarket. And it's just not as simple as one dataset that fits all situation.
Angela Kleiman: Well, it depends on the growth. It really is more submarket-driven. So for example, when I say Northern California, we certainly wouldn't invest in Mountain View at the same cap rate as we would invest in Oakland. And so I wish I could give you a finite number because that would make everyone's life so much easier, but it really depends on the growth rate of that specific asset, which has a lot to do with how it's managed and what's going in the submarket. And it's just not as simple as one dataset that fits all situation.
Speaker #12: And how much should that gap be, in your mind?
Speaker #2: Well , it depends on the growth and and it really is more submarket driven . So for example , when I say , you know , Northern California , we certainly wouldn't invest in Mountain View at the same cap rate as we would invest in Oakland .
Speaker #2: And so I wish I could give you a finite number because that would make life so much easier for everyone. But it really depends on the growth rate, which has a lot to do with how it's managed and what's going on in the submarket.
Speaker #2: asset , And , you know , it's it's just not as simple as a , you know , one , one , one one data set that fits all situation .
[Analyst] (KeyBanc Capital Markets): Thank you very much.
John Kim: Thank you very much.
Operator: Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Haendel St. Juste with Mizuho Securities. Please proceed with your question.
Speaker #12: Thank you very much .
[Analyst] (Mizuho Securities): Hey there. Thanks for taking my questions. A couple of follow-ups from me. First, I guess I want to go back to the blends. I know you've talked quite a bit about it, but I just wanted to clarify a few things. I guess by our math, it looks like your outlook for blended rents for the year implies a slight decel in the back half of the year, which seems pretty unlike your peers who are embedding an acceleration in the second half. So first, is that fair? And then second, can you comment on what your expectations are for market rate growth by key region for this year? Thanks.
Haendel St. Juste: Hey there. Thanks for taking my questions. A couple of follow-ups from me. First, I guess I want to go back to the blends. I know you've talked quite a bit about it, but I just wanted to clarify a few things. I guess by our math, it looks like your outlook for blended rents for the year implies a slight decel in the back half of the year, which seems pretty unlike your peers who are embedding an acceleration in the second half. So first, is that fair? And then second, can you comment on what your expectations are for market rate growth by key region for this year? Thanks.
Speaker #1: Thank you. Our next question comes from the line of Handel Saint-Juste with Mizuho Securities. Please proceed with your question.
Speaker #13: there . Hey Thanks for taking my questions . A couple of follow ups for me . First , I just want to go back to the blends .
Speaker #13: I know you've talked quite a bit about it, but I just wanted to clarify a few things. I guess by our math, it looks like your outlook for blended rents for the year implies a slight decel in the back half of the year, which seems pretty different from your peers who are embedding an acceleration in the second half.
Speaker #13: So first, is that fair? And then second, can you comment on what, unlike your expectations, are for market rate growth by key region for this year?
Angela Kleiman: Hey, Haendel. Sure thing. And thanks for your question. I'm not sure where we're seeing a desell in the second half. Maybe we can sync up after the call because we're modeling pretty much a consistent rate. And what we typically assume is that Q1 and Q4 blends are at the lowest level, and then Q2 and Q3 blends are higher. And so they kind of offset each other. As far as the market rents by market, it's actually, in an environment of low growth, not all that different from our blends. So last year, our market rents landed at the mid-2s, and we're assuming that in 2026, market rents will be very similar.
Angela Kleiman: Hey, Haendel. Sure thing. And thanks for your question. I'm not sure where we're seeing a desell in the second half. Maybe we can sync up after the call because we're modeling pretty much a consistent rate. And what we typically assume is that Q1 and Q4 blends are at the lowest level, and then Q2 and Q3 blends are higher. And so they kind of offset each other. As far as the market rents by market, it's actually, in an environment of low growth, not all that different from our blends. So last year, our market rents landed at the mid-2s, and we're assuming that in 2026, market rents will be very similar.
Speaker #13: Thanks .
Speaker #2: Hendel Hey , , sure thanks for your question . I'm not sure where are you seeing a decel in the second half ? Maybe we can sync up after call because we're modeling much , you know , a consistent rate and and what we typically assume .
Speaker #2: What we assume is that first quarter and fourth quarter blends are at the lowest level, and then second and third quarter blends are higher.
Speaker #2: And so they kind of, you know, it kind of offsets each other as far as the market rents by market.
Speaker #2: It's actually , you know , in an environment of low growth , not it's all that different from our blends . So last year our market rents landed at the mid twos .
Angela Kleiman: We're assuming Northern California to be on the higher end, say, in the mid-3s to 4 range, and Seattle in the mid-2s, and Southern California in the mid-1s.
Angela Kleiman: We're assuming Northern California to be on the higher end, say, in the mid-3s to 4 range, and Seattle in the mid-2s, and Southern California in the mid-1s.
Speaker #2: And we're assuming that in 2026 market rents very will be similar . And we would we're assuming Northern the higher , you California to end know , on say in the mid threes to for range .
[Analyst] (Mizuho Securities): Got it. That's helpful. And I guess to your point on the blend, maybe it's not decel, but certainly, there's not an acceleration required in the back half of the year like your peers. Second question, I wanted to talk a little bit about Southern California, but ex-LA, right? Obviously, we know LA is going to be a challenge near term, but curious how you're thinking about the prospects for Orange County and San Diego near term. And then maybe sprinkling in a question on LA, how you would think of LA growth over the next few years. You mentioned cap rates generally being kind of in that sub-5-ish range, but curious how you think an IRR for an LA portfolio would look like. Thanks.
Haendel St. Juste: Got it. That's helpful. And I guess to your point on the blend, maybe it's not decel, but certainly, there's not an acceleration required in the back half of the year like your peers. Second question, I wanted to talk a little bit about Southern California, but ex-LA, right? Obviously, we know LA is going to be a challenge near term, but curious how you're thinking about the prospects for Orange County and San Diego near term. And then maybe sprinkling in a question on LA, how you would think of LA growth over the next few years. You mentioned cap rates generally being kind of in that sub-5-ish range, but curious how you think an IRR for an LA portfolio would look like. Thanks.
Speaker #2: And Seattle in the mid-twos, and Southern California in the mid-ones.
Speaker #13: Got it . That's that's helpful . And I guess to your to your point on the blend maybe it's not decel but certainly there's not an acceleration required in the back half of the year .
Speaker #13: Like like like your peers . Second question I wanted to talk a little bit about southern California , but ex LA obviously , you know , LA is going to be a bit challenged near term , but curious how you're thinking about the prospects for Orange County and San Diego And near term .
Speaker #13: then maybe sprinkle in a question on LA how you would think of LA growth over the next few years . You mentioned cap rates generally being kind of in that , you know , sub five ish range , but curious how you think an IRR for LA portfolio would look like .
Angela Kleiman: Hey, Haendel. Yeah, good questions. Rylan will talk about the cap rates. In terms of Southern California, we're assuming that LA and, I mean, sorry, San Diego and Orange County perform similar to this year. It's really more driven by the fact that we view the job growth to be generally constant. And supply, from what we see in San Diego, it's about at the same level. In Orange County, it's slightly elevated, but not in such a huge magnitude that it's going to drive a significant movement. So stable, not very exciting, but kind of more of the same for Orange County and San Diego.
Barb Pak: Hey, Haendel. Yeah, good questions. Rylan will talk about the cap rates. In terms of Southern California, we're assuming that LA and, I mean, sorry, San Diego and Orange County perform similar to this year. It's really more driven by the fact that we view the job growth to be generally constant. And supply, from what we see in San Diego, it's about at the same level. In Orange County, it's slightly elevated, but not in such a huge magnitude that it's going to drive a significant movement. So stable, not very exciting, but kind of more of the same for Orange County and San Diego.
Speaker #13: Thanks .
Speaker #2: Hey , good , good questions . No . will take Rylan rates the cap talk in terms of Southern California . We're assuming that LA and I mean San Diego and Orange County perform similar to this sorry in year .
Speaker #2: And it's really more driven by the fact that we view the job growth to be generally constant, and supply from what we see in San Diego.
Speaker #2: It's about at the same level . And Orange County , it's slightly elevated , but not in such a huge magnitude that it's going to , you know , drive a significant movement .
Speaker #2: So stable, not very exciting, but kind of more of the same for Orange County and San Diego.
[Analyst] (Ayura): Haendel, jumping on the IRR expectations. I think where we've seen a lot of transactions in Southern California with our growth expectations in these markets, we've seen market clearing trades, I would say, in the low 7 IRR type range. Again, wide variety depending on the asset and the business plan for some of these assets. But we think we've been able to achieve much better returns in our submarket selection in Northern California. So that's where we've really been focused. Now, if any of those assumptions were to change as it relates to the going-in cap rate, the business plan on a specific asset, and/or the growth rates, then you would see us change our capital allocation priorities. But that's where it's been trending in 2025, I'd say.
Rylan Burns: Haendel, jumping on the IRR expectations. I think where we've seen a lot of transactions in Southern California with our growth expectations in these markets, we've seen market clearing trades, I would say, in the low 7 IRR type range. Again, wide variety depending on the asset and the business plan for some of these assets. But we think we've been able to achieve much better returns in our submarket selection in Northern California. So that's where we've really been focused. Now, if any of those assumptions were to change as it relates to the going-in cap rate, the business plan on a specific asset, and/or the growth rates, then you would see us change our capital allocation priorities. But that's where it's been trending in 2025, I'd say.
Speaker #7: And handle jumping on the IRR expectations . I think where we've seen a lot of transactions in Southern California with our growth expectations in these markets , you know , we've seen market clearing trades .
Speaker #7: I would say in seven IRR type, again, you know, range, variety, wide depending asset and the on the business plan for some of these assets.
Speaker #7: But we think we've been , you know , been able to achieve much better returns in our submarket selection in Northern California . So that's where we've really been focused .
Speaker #7: Now , if any of those assumptions were to change , change as it relates to the going in cap rate , the business plan on a specific asset and or the growth rates , then you would see us , you know , change our capital allocation priorities .
[Analyst] (Mizuho Securities): Thank you, guys.
Haendel St. Juste: Thank you, guys.
Speaker #7: But that's where it's been trending in 2025, I'd say.
Operator: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Speaker #13: Thank you guys .
Speaker #1: Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Alexander Goldfarb: Hey, good morning out there. Two questions. First, Angela, you outlined what you expect advocacy costs in your guidance, although it's not part of core FFO. It's just part of NAREIT FFO. But given that advocacy is sort of a recurring part of operating assets and real estate in California, wouldn't these expenses just be a normal part of the business? It's core to the business of being in California, no different than insurance costs, earthquake costs, or any of that in California, weather costs, etc. So just curious about that because I would think, especially as people are contemplating that other portfolio in Southern California, the regulatory costs are part of the calculus of how they look at whether or not to invest.
Alexander Goldfarb: Hey, good morning out there. Two questions. First, Angela, you outlined what you expect advocacy costs in your guidance, although it's not part of core FFO. It's just part of NAREIT FFO. But given that advocacy is sort of a recurring part of operating assets and real estate in California, wouldn't these expenses just be a normal part of the business? It's core to the business of being in California, no different than insurance costs, earthquake costs, or any of that in California, weather costs, etc. So just curious about that because I would think, especially as people are contemplating that other portfolio in Southern California, the regulatory costs are part of the calculus of how they look at whether or not to invest.
Speaker #14: Hey , good morning out there . Two questions . First , Angela , you guys , have you outlined you know , what you expect .
Speaker #14: Advocacy costs in your guidance . Although it's not part of core FFO , it's just part of Nareit FFO . But given that advocacy is sort of a part recurring of operating assets and real estate in California , wouldn't these expenses just be a normal part of the business , like not , it's it's core to the business of being in California .
Speaker #14: different No than , you know , insurance costs . You know , earthquake costs or any of that in weather California or costs , etc.
Speaker #14: . So just curious about that , because I would think , especially as people are contemplating that other portfolio in Southern California , the , you know , the regulatory costs are part of the look calculus of how they at whether or not to invest .
Barbara Pak: Hi, Alex. It's Barb. So in terms of the advocacy costs or the political costs that we had, we had $2 million in 2025. We have not specifically outlined what the cost will be in 2026. We've provided a number, but it does include other legal fees that are outside of our normal core operations. So we don't expect there to be significant advocacy costs in 2026. There will be a small amount, but we don't see them as necessarily recurring. They can be lumpy from year to year. When we have a big ballot measure, we're not expecting a lot on the advocacy front in 2026.
Barb Pak: Hi, Alex. It's Barb. So in terms of the advocacy costs or the political costs that we had, we had $2 million in 2025. We have not specifically outlined what the cost will be in 2026. We've provided a number, but it does include other legal fees that are outside of our normal core operations. So we don't expect there to be significant advocacy costs in 2026. There will be a small amount, but we don't see them as necessarily recurring. They can be lumpy from year to year. When we have a big ballot measure, we're not expecting a lot on the advocacy front in 2026.
Speaker #3: Hi , Alex , it's Barb , so in terms of advocacy the costs or the political costs that we had , we had 2,000,000 in 2025 .
Speaker #3: We have not specifically outlined what the cost will be in 2026. We've provided a number, but it does include other legal fees that are outside of our normal core operations.
Speaker #3: So we expect it to be advocacy significant costs in 2026, but there will be a small amount. We don't see them necessarily reoccurring.
Speaker #3: They can also be lumpy from year to year, for example when we have a big ballot measure. We're not expecting a lot on the advocacy front.
Alexander Goldfarb: Okay. And then Rylan, just in looking at deal flow, it seems like 2021 was a banner year for ultra-low-rate deals that may not have hit their pro forma and maybe have it coming back for debt maturities or restructuring in the next year or two. Do you see a lot of these deals coming to the market to trade, or as you guys take a look at these deals that are having issues, most of them seem to be resolved internally between the existing sponsor and the lenders? I'm just trying to figure out if the 2021 vintage is going to create opportunity for you guys or if it's going to be one of these where most of the stuff gets resolved on its own.
Alexander Goldfarb: Okay. And then Rylan, just in looking at deal flow, it seems like 2021 was a banner year for ultra-low-rate deals that may not have hit their pro forma and maybe have it coming back for debt maturities or restructuring in the next year or two. Do you see a lot of these deals coming to the market to trade, or as you guys take a look at these deals that are having issues, most of them seem to be resolved internally between the existing sponsor and the lenders? I'm just trying to figure out if the 2021 vintage is going to create opportunity for you guys or if it's going to be one of these where most of the stuff gets resolved on its own.
Speaker #3: In 2026 .
Speaker #14: Okay . And then Rylan , just in looking at deal flow , it seems like 2021 was a , you banner year for you know , ultra low rate deals that you know may not have hit their pro forma and maybe , you know , have it coming back for debt maturities or restructuring .
Speaker #14: You know, in the next year or two, do you see a lot of these deals coming to the market to trade, or as you guys take a look at these deals that are having issues, most of them seem to be resolved internally between the existing sponsor and the lenders.
Speaker #14: I'm just trying to figure out if the 2021 vintage is going to create opportunity for you guys, or if it's going to be one of these where most of the stuff gets resolved on its own.
[Analyst] (Ayura): Hey, Alex. I think you're correct in that there were a lot of deals done at very low cap rates in 2021, and most of them were funded with five-year debt as typical. So in theory, there should be a lot of deals coming to market that have lost that attractive debt rate there. However, as you also acknowledge, there is a lot of debt capital out there looking to deploy in the multifamily space. So I think there's been a lot of deals being done between lenders and sponsors, and we really have not seen any indications of distressed sales coming to our market. The other thing to keep in mind is that Southern California, in particular, has done fairly well relative to the rest of the country over the past five years. So NOIs are up, and they've created value in many cases.
Rylan Burns: Hey, Alex. I think you're correct in that there were a lot of deals done at very low cap rates in 2021, and most of them were funded with five-year debt as typical. So in theory, there should be a lot of deals coming to market that have lost that attractive debt rate there. However, as you also acknowledge, there is a lot of debt capital out there looking to deploy in the multifamily space. So I think there's been a lot of deals being done between lenders and sponsors, and we really have not seen any indications of distressed sales coming to our market. The other thing to keep in mind is that Southern California, in particular, has done fairly well relative to the rest of the country over the past five years. So NOIs are up, and they've created value in many cases.
Speaker #7: Hey , I Alex , think your your correct in that , you know , there were a lot of deals done , a pretty low in rates 2021 and most of them were funded , you know , with five year debt as typical .
Speaker #7: So in theory there should be a lot of deals coming to market that have lost that attractive debt rate . They're . However , as you also acknowledged , you know , there is a lot of debt capital out there looking to deploy in the multifamily space .
Speaker #7: So I think there's been a lot of deals being done between lenders and, and we sponsors, really haven’t seen any indications of sales coming to distressed or other markets.
Speaker #7: thing to in mind keep is that The Southern California , in particular , has done , you know , fairly well relative to the rest of the country over the past five years .
[Analyst] (Ayura): So I'm not anticipating a significant onslaught of distress in 2026 for the reasons you mentioned. One, general, really favorable lending environment, and then two, performance has done okay.
Rylan Burns: So I'm not anticipating a significant onslaught of distress in 2026 for the reasons you mentioned. One, general, really favorable lending environment, and then two, performance has done okay.
Speaker #7: So NOI are up and , you know , these they've created value in many cases . So I'm not anticipating a significant onslaught of distress in 26 for the reasons you mentioned .
Alexander Goldfarb: Thank you.
Alexander Goldfarb: Thank you.
Speaker #7: One general , you know , really favorable lending environment . And then two , you know , performance has done okay .
Operator: Thank you. Our next question comes from the line of Wes Golliday with Baird. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Wes Golliday with Baird. Please proceed with your question.
Speaker #14: Thank you .
[Analyst] (Baird): Hey, good morning, everyone. This quarter, you took control of an asset in Los Angeles tied to the preferred portfolio. Can you talk about when you expect that asset to stabilize if it hasn't, and was it much of a drag on earnings this year?
Wes Golladay: Hey, good morning, everyone. This quarter, you took control of an asset in Los Angeles tied to the preferred portfolio. Can you talk about when you expect that asset to stabilize if it hasn't, and was it much of a drag on earnings this year?
Speaker #1: Thank you. Our next question comes from the line of Wes Golladay with Baird. Please proceed with your question.
Speaker #15: Hey, good morning, everyone. This quarter, you took control of an asset in Los Angeles tied to the preferred portfolio. Can you talk about when you expect that asset to stabilize?
[Analyst] (Ayura): Hey, Wes. This is Rylan here. Yeah, this is a unique asset. We expect this to stabilize in the mid-5 range. There was no impact to the economics last year. We just took management of it at the end of last year. Going in, it's probably a low to mid-4 cap. The previous sponsor had a unique business model where a certain portion of the units were rented as fully furnished short-term rentals, which had not done well, elevated delinquency, and a little bit higher controllable expenses. So putting it onto our platform with no assumption of significant rent growth on that asset, we are very confident we're going to be able to get this to a mid-5 by the end of the year.
Rylan Burns: Hey, Wes. This is Rylan here. Yeah, this is a unique asset. We expect this to stabilize in the mid-5 range. There was no impact to the economics last year. We just took management of it at the end of last year. Going in, it's probably a low to mid-4 cap. The previous sponsor had a unique business model where a certain portion of the units were rented as fully furnished short-term rentals, which had not done well, elevated delinquency, and a little bit higher controllable expenses. So putting it onto our platform with no assumption of significant rent growth on that asset, we are very confident we're going to be able to get this to a mid-5 by the end of the year.
Speaker #15: If it hasn't, and was it much of a drag on earnings this year?
Speaker #7: Hey , Wes , this is Ryland here . Yeah , this is a unique asset . It's . We expect this to stabilize in the mid five range .
Speaker #7: There was no impact to the economics last year. We just took management of it at the end of last year, going in.
Speaker #7: It's probably a mid to low four cap. The previous sponsor had a unique business model where a certain portion of the units were rented as fully furnished short-term rentals, which had not done well.
Speaker #7: Elevated delinquency . And , you little bit higher controllable expenses . So putting it onto our platform with no assumption significant rent growth on that asset , we are very we're going to confident be able to get this to a mid five by the end of the year .
[Analyst] (Baird): Okay. Thank you. That's all for me.
Wes Golladay: Okay. Thank you. That's all for me.
Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Speaker #15: Thank you. Okay, that's all for me.
[Analyst] (UBS): Good morning. Thanks a lot for taking my questions. First question is on the legislative front. Are you seeing anything that may be related to the so-called junk fees or Essex's ability to continue to grow non-rental income?
Michael Goldsmith: Good morning. Thanks a lot for taking my questions. First question is on the legislative front. Are you seeing anything that may be related to the so-called junk fees or Essex's ability to continue to grow non-rental income?
Speaker #1: Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.
Speaker #16: Good morning. Thanks a lot for taking my questions. First question is on the legislative front. Are you seeing anything that may be related to the so-called junk fees or ethics, and the ability to continue to grow non-rental income?
Angela Kleiman: Hey, Michael. We have looked at our practices as it relates to other fees, and we've also utilized consultants to make sure that our practices are in compliance. And so we don't expect that to have a meaningful impact to our business.
Angela Kleiman: Hey, Michael. We have looked at our practices as it relates to other fees, and we've also utilized consultants to make sure that our practices are in compliance. And so we don't expect that to have a meaningful impact to our business.
Speaker #2: Hey, Michael, we have looked at our practices as it relates to other fees, and we've also utilized consultants to make sure that our practices are in compliance.
Speaker #2: And so we don't that to be expect an , you know , to to have a meaningful impact to our business .
[Analyst] (UBS): Got it. Thanks for that. And then just as a follow-up, have you seen any changes in the pace of move-ins from outside of Essex's core markets?
Michael Goldsmith: Got it. Thanks for that. And then just as a follow-up, have you seen any changes in the pace of move-ins from outside of Essex's core markets?
Speaker #16: Got it . Thanks for that . And as a then up , follow just seen have you changes any in the pace of move ins from outside of Essex's core markets ?
Angela Kleiman: Would you repeat that question? Sorry.
Angela Kleiman: Would you repeat that question? Sorry.
[Analyst] (UBS): Have you seen any change in the pace of move-ins into Essex's markets from outside markets, the pace of move-ins into the market?
Michael Goldsmith: Have you seen any change in the pace of move-ins into Essex's markets from outside markets, the pace of move-ins into the market?
Speaker #2: Would you repeat that question? Sorry.
Speaker #16: Have you seen any change in the pace of move ins from , know , you into markets , from outside markets ? The pace of move ins into the market ?
Angela Kleiman: Gotcha. Gotcha. Sorry. Good question. We have seen an increase in the immigration trends, especially in our northern region. But I do want to caution you on the immigration numbers in that this is really driven more probably by return to office. It's not driven by a robust job hiring environment. But so far, it's showing positive, and it's been a nice little tailwind for us.
Angela Kleiman: Gotcha. Gotcha. Sorry. Good question. We have seen an increase in the immigration trends, especially in our northern region. But I do want to caution you on the immigration numbers in that this is really driven more probably by return to office. It's not driven by a robust job hiring environment. But so far, it's showing positive, and it's been a nice little tailwind for us.
Speaker #2: Gotcha , gotcha . Sorry . Good question . We have seen a piece in the immigration trends , especially in our northern region .
Speaker #2: But, and you know, I do want to caution you on the in-migration numbers in that this is really driven more probably by return to office.
Speaker #2: It's not driven by a robust job hiring environment. And so, you know, but so far it's showing positive, and it's been a nice little tailwind for us.
[Analyst] (UBS): Great. Thank you very much. Good luck in 2026.
Michael Goldsmith: Great. Thank you very much. Good luck in 2026.
Angela Kleiman: Thank you.
Angela Kleiman: Thank you.
Operator: Thank you. Our next question comes from the line of Julian Blouin with Goldman Sachs. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Julian Blouin with Goldman Sachs. Please proceed with your question.
Speaker #16: Great, thank you very much. Good luck in 2026.
Speaker #2: Thank you .
[Analyst] (Goldman Sachs): Yeah. Thank you for taking my question. I just want to go back to Seattle. You mentioned the return-to-office plans for Amazon and Microsoft. But then on the other hand, both of those companies have announced corporate layoffs there by the thousands over the past six months. I guess, what is your sense of how that push and pull will sort of play out this year? Can the RTO benefit really outweigh the continued layoffs we've seen?
Julien Blouin: Yeah. Thank you for taking my question. I just want to go back to Seattle. You mentioned the return-to-office plans for Amazon and Microsoft. But then on the other hand, both of those companies have announced corporate layoffs there by the thousands over the past six months. I guess, what is your sense of how that push and pull will sort of play out this year? Can the RTO benefit really outweigh the continued layoffs we've seen?
Speaker #1: Thank you. Our next question comes from the line of Julien with Goldman Sachs. Please proceed with your question.
Speaker #17: Yeah . Thank you for taking my question . I just wanted to go back to Seattle . mentioned the return to office plans for Amazon and Microsoft , but then on the other
Speaker #17: Both of those big companies have announced corporate layoffs. They're thousands over the past six months, I guess. What is your sense of how that push and pull will sort of play out this year?
Angela Kleiman: Yeah, that's a good question. And that's really as far as how we judge or how we decide on setting our guidance, right? What does that mean? How long does it take? What we have seen with Seattle, in particular, is that it moves quickly. So yes, there's layoffs offset by return-to-office, but Seattle also is having a 30% reduction in supply. And so absent of, say, additional job growth, for example, this market should fare just fine, if not slightly better than last year. But it's going to do just fine. But secondly, when we look at the layoffs, we do dig into the reason for the layoffs because that really matters. So when we look at the reasons for layoffs from the large companies, including Amazon, the reasons cited are, they're either eliminating nonprofitable businesses, for example, Amazon Fresh, pivoting to Whole Foods, or they're expanding.
Angela Kleiman: Yeah, that's a good question. And that's really as far as how we judge or how we decide on setting our guidance, right? What does that mean? How long does it take? What we have seen with Seattle, in particular, is that it moves quickly. So yes, there's layoffs offset by return-to-office, but Seattle also is having a 30% reduction in supply. And so absent of, say, additional job growth, for example, this market should fare just fine, if not slightly better than last year. But it's going to do just fine. But secondly, when we look at the layoffs, we do dig into the reason for the layoffs because that really matters. So when we look at the reasons for layoffs from the large companies, including Amazon, the reasons cited are, they're either eliminating nonprofitable businesses, for example, Amazon Fresh, pivoting to Whole Foods, or they're expanding.
Speaker #17: Can can two benefit really outweigh , the you know , the continued layoffs we've seen ?
Speaker #2: Yeah , that's a good question . And that's really , you know , the a . As far as , you know , how we judge or how we decide our , on our setting , our guidance .
Speaker #2: Right . What does that long does it take . What we've seen with Seattle in particular that it moves quickly . So there's yes , offset by layoffs office .
Speaker #2: But Seattle also has return having 30% reduction a in supply . And , you know , absent of , say , additional example , this this market should fare just fine so , if not better than last year .
Speaker #2: going to But it's it's going to do just fine . But secondly , you know , when we look at the layoffs , we do dig into the reason for the layoffs , because that really matter .
Speaker #2: So job when we look at the reasons for layoffs from the companies large including Amazon , the reasons cited are they're either eliminating non-profitable businesses , you Amazon Fresh , pivoting to example , Whole Foods know , for or they're expanding .
Angela Kleiman: They're investing to expand into new business units or expand the business. So the layoffs are not because of distress. That's actually a good reason for layoffs. Additional data points to that, of course, the increased office absorption and increase in office leasing activity. All these data points together point to that this is still a good, vibrant market to be in.
Angela Kleiman: They're investing to expand into new business units or expand the business. So the layoffs are not because of distress. That's actually a good reason for layoffs. Additional data points to that, of course, the increased office absorption and increase in office leasing activity. All these data points together point to that this is still a good, vibrant market to be in.
Speaker #2: putting They're in their expand investing to into new business units or the business . And so the layoffs are not because of distress .
Speaker #2: that's And actually a good reason for layoffs . And , you know , additional data points to Of course , increased office that .
Speaker #2: the absorption and increase in office leasing activity , you know , all these data points together point to that . This still a good , vibrant market to in is be .
[Analyst] (Goldman Sachs): Thank you. No, that's very helpful. Maybe digging into the South Bay as well, just in light of the fears that are out there around sort of AI-native companies disrupting legacy tech and software. On the face of it, the South Bay is also one of those sort of more legacy tech or software-heavy markets where companies have been announcing corporate layoffs and has sort of less of that AI-native HQ benefit that maybe San Francisco has. Why do you think the South Bay is sort of holding up so well while Seattle has maybe struggled a little bit more?
Julien Blouin: Thank you. No, that's very helpful. Maybe digging into the South Bay as well, just in light of the fears that are out there around sort of AI-native companies disrupting legacy tech and software. On the face of it, the South Bay is also one of those sort of more legacy tech or software-heavy markets where companies have been announcing corporate layoffs and has sort of less of that AI-native HQ benefit that maybe San Francisco has. Why do you think the South Bay is sort of holding up so well while Seattle has maybe struggled a little bit more?
Speaker #17: Thank you . That's that's very helpful . digging Maybe into South the Bay as Just in light of well . the fears that are out there around sort of AI native companies disrupting legacy tech and software , you know , on the face of it , the South Bay is also one of those sort of more legacy tech or software heavy markets where companies have been announcing layoffs and corporate has sort of less of that AI native HQ benefit that maybe San Francisco has .
Speaker #17: Why do you think the South Bay is sort of holding up so well while Seattle has maybe struggled a little bit more?
Angela Kleiman: Well, I think the South Bay market is a much deeper market than Seattle. And even though, keep in mind, there is some disruption that we would expect from AI. But when you look at what's happening there, so if you're talking about disruption by cloud or coworker, for example, it's creating a demand and increase in usage in Agentic AI. And so you're going from one application that may be deprecated, but there's an expansion in another. And this is all happening still within the same submarket. And so that's one of the foundational benefits of this market and having that concentration of all these tech companies there.
Angela Kleiman: Well, I think the South Bay market is a much deeper market than Seattle. And even though, keep in mind, there is some disruption that we would expect from AI. But when you look at what's happening there, so if you're talking about disruption by cloud or coworker, for example, it's creating a demand and increase in usage in Agentic AI. And so you're going from one application that may be deprecated, but there's an expansion in another. And this is all happening still within the same submarket. And so that's one of the foundational benefits of this market and having that concentration of all these tech companies there.
Speaker #2: think Well , I you the , know , the South Bay is a much market deeper market than Seattle than . And even though keep in mind , you know , is some disruption that we would expect AI .
Speaker #2: But when you what's happening there , you know , so if you're talking about disruption , you know , in by cloud or , for example , it's creating a demand and increase usage in a AI .
Speaker #2: And so you're going from one , you know , application may that be deprecated , but there's an expansion another . And this is all in happening still within the same submarket .
Speaker #2: And so that in that's one of the , you know , foundational benefits of this market . And having that of tech all these there companies ,
[Analyst] (Goldman Sachs): Got it. Thank you very much.
Julien Blouin: Got it. Thank you very much.
Operator: Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please proceed with your question.
Speaker #17: Thank you very much. Got it.
Speaker #17: much . .
[Analyst] (Jefferies): Thanks for taking my question. In 2026, do you expect any year-over-year changes in tax expenses from Seattle and Washington State due to the Seattle Shield Initiative and B&O Surcharge?
Linda Tsai: Thanks for taking my question. In 2026, do you expect any year-over-year changes in tax expenses from Seattle and Washington State due to the Seattle Shield Initiative and B&O Surcharge?
Speaker #1: Thank you. Our next question comes from the line of Linda Tsai with Jefferies. Please go ahead with your question.
Speaker #18: Washington State, and due to the Seattle Shield initiative and B&O Seattle surcharge?
Barbara Pak: Yeah, this is Barb. I mean, we have baked in a Seattle tax increase this year into our guidance in the high single-digit range. And that encompasses kind of everything that you talked about. But that's what we're assuming this year, which is a big change from what we saw in 2025 where we had a pretty meaningful reduction in taxes.
Barb Pak: Yeah, this is Barb. I mean, we have baked in a Seattle tax increase this year into our guidance in the high single-digit range. And that encompasses kind of everything that you talked about. But that's what we're assuming this year, which is a big change from what we saw in 2025 where we had a pretty meaningful reduction in taxes.
Speaker #3: Yeah , this Barb . I mean , is we we have baked in a Seattle tax increase this guidance our in the high digit range .
Speaker #3: But that, in that, encompasses everything that you talked about. But that's what we're seeing this year, which is assuming a big change from what we saw in a pretty meaningful reduction in taxes.
[Analyst] (Jefferies): What would be the dollar amount?
Linda Tsai: What would be the dollar amount?
Barbara Pak: I don't have that off the top of my head. I can follow up with you after.
Barb Pak: I don't have that off the top of my head. I can follow up with you after.
Speaker #18: What would the dollar be?
[Analyst] (Jefferies): Thank you.
Linda Tsai: Thank you.
Speaker #3: I don't off the top of my head. I'll follow up with you after.
Speaker #3: have that Thank you .
Operator: Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of John Pawlowski with Green Street. Please proceed with your question.
Speaker #18: you Thank
Speaker #18: .
[Analyst] (Green Street): Thanks. I had a follow-up to the return-to-office discussion from a few questions ago. I would have thought work patterns are normalized by now. Amazon's policy has been in effect. Five days a week, it's been in effect, I think, for a year now. Is your local team seeing a real second wind of demand to start the year, either in Seattle or the Bay Area, or it's more of you're hoping that the positive momentum in the market continues gradually over time?
John Pawlowski: Thanks. I had a follow-up to the return-to-office discussion from a few questions ago. I would have thought work patterns are normalized by now. Amazon's policy has been in effect. Five days a week, it's been in effect, I think, for a year now. Is your local team seeing a real second wind of demand to start the year, either in Seattle or the Bay Area, or it's more of you're hoping that the positive momentum in the market continues gradually over time?
Speaker #1: Our next question comes from the line of John Pawlowski with Green. Your question.
Speaker #19: Thanks . I the return to up to office discussion from a few questions ago . I would have thought work patterns are normalized by now with Amazon's policies been in effect five days a been in effect , I think , for a week , it's now .
Speaker #19: Is your local team seeing a real second wind of demand to start the year? Either in or the Bay?
Speaker #19: Area, or more, it's up to you. You're single, hoping that momentum in the market continues positive and gradually builds over time.
Angela Kleiman: Hey, John. Our expectations are based on what we've seen actually happen on the ground. What we have seen happening on the ground is that a company announces a return-to-office policy. Some employers would comply, and some will not for various reasons. It is not until they announce enforcement that everyone starts to come back to the office. That happened with Essex as well. We had announced it, let people to get used to it. Then 3 quarters later, we announced that we're going to check key cards, for example, and everybody came back. Our expectation is that this is going to play out similarly. Amazon actually announced that they're starting enforcement in January. They're doing that for a reason. I don't believe that their population would behave drastically different than the norm.
Angela Kleiman: Hey, John. Our expectations are based on what we've seen actually happen on the ground. What we have seen happening on the ground is that a company announces a return-to-office policy. Some employers would comply, and some will not for various reasons. It is not until they announce enforcement that everyone starts to come back to the office. That happened with Essex as well. We had announced it, let people to get used to it. Then 3 quarters later, we announced that we're going to check key cards, for example, and everybody came back. Our expectation is that this is going to play out similarly. Amazon actually announced that they're starting enforcement in January. They're doing that for a reason. I don't believe that their population would behave drastically different than the norm.
Speaker #2: you Hey , know our John , expectation we've actually happen on the is ground and seen have seen happening on the ground that is a what we announces a return to office , and policy some employers some comply and based on what will not .
Speaker #2: For And it various reasons . not until they announce enforcement that all everyone starts to people the office and that happened with Essex as well .
Speaker #2: We had announced it, let people get it, and you then, you know, we announced that we're going to check keycards three quarters later, for example, and came back.
Speaker #2: So our understanding is that this is going to be similar. And Amazon announced that they're starting expectation enforcement in January. They're doing that for a reason.
Speaker #2: I don't—and I believe they think population would behave drastically different than, you know, than the actual.
Speaker #2: I don't And I believe they're think population would behave drastically different than , know , than than the don't
[Analyst] (Green Street): Okay. And then drilling into Seattle again, obviously, it takes a little bit of time for a layoff to get announced, severance policies, etc., to actually flow through the housing decisions and people moving out. So in your Seattle portfolio, are you seeing a real uptick in notices to move out? Can you share any kind of forward-looking blended lease spread expectation, just given the lag between the layoff announcements and the actual decisions renters make?
John Pawlowski: Okay. And then drilling into Seattle again, obviously, it takes a little bit of time for a layoff to get announced, severance policies, etc., to actually flow through the housing decisions and people moving out. So in your Seattle portfolio, are you seeing a real uptick in notices to move out? Can you share any kind of forward-looking blended lease spread expectation, just given the lag between the layoff announcements and the actual decisions renters make?
Speaker #19: takes a , obviously it little bit of time for a layoff to get announced . You know , severance policies , etc. , to actually flow through
Speaker #19: the housing decisions and people moving out . So in Seattle your . Okay . portfolio And you seeing a real to notices in , uptick you know ,
Speaker #19: move used to out ? Can you share any forward kind of looking blended lease spread given expectation just the lag between the layoff announcements and the actual decisions renters make ?
Angela Kleiman: Well, first of all, typically, when there's a layoff, there's the public announcement and there's the private conversations. And employees don't typically find out that they're getting laid off publicly. There's usually a conversation. And people typically make decisions, their housing decisions, 45 days in advance of a job change event. And so our view is that the bulk of that layoff impact already has been felt in Q4 and some spillover in January and less so in February. And when we look at our leasing activities and our blended renewal rates, they're not all that different from historical patterns for Seattle. So we're not expecting a second shoe to drop, if you will, because of the layoff announcements.
Angela Kleiman: Well, first of all, typically, when there's a layoff, there's the public announcement and there's the private conversations. And employees don't typically find out that they're getting laid off publicly. There's usually a conversation. And people typically make decisions, their housing decisions, 45 days in advance of a job change event. And so our view is that the bulk of that layoff impact already has been felt in Q4 and some spillover in January and less so in February. And when we look at our leasing activities and our blended renewal rates, they're not all that different from historical patterns for Seattle. So we're not expecting a second shoe to drop, if you will, because of the layoff announcements.
Speaker #2: Well , first of all , you know , typically when there's a layoff , there's the public announcement and there's the private conversations .
Speaker #2: And in , you know , employees don't typically find getting layoff publicly . There's usually a conversation . And people they're typically make decisions .
Speaker #2: Their housing decisions are made 45 days in advance, so that a job change or event is already factored in. And our view is that the bulk of that layoff impact already has been felt in the fourth quarter.
Speaker #2: And some , you know , spillover in January and less so in And when we look at our February . leasing activities and our Blended renewal rates , they're not all that from different patterns historical for .
Speaker #2: Seattle So I'm not you know , we're not expecting a . You know , second shoe to drop if you will , of the because layoff announcements .
[Analyst] (Green Street): Okay. So blended spreads for the first half of this year in Seattle, you'd expect not to look meaningfully different than the second half of last year?
John Pawlowski: Okay. So blended spreads for the first half of this year in Seattle, you'd expect not to look meaningfully different than the second half of last year?
Speaker #19: Okay. So, blended spreads for this year—Seattle.
Angela Kleiman: Correct. Correct. And I would say the whole year because we're not expecting a huge difference between first half and second half in 2026. And then the one other data point I'll point to is that Seattle supply is declining by 30%. And so that will also benefit the markets.
Angela Kleiman: Correct. Correct. And I would say the whole year because we're not expecting a huge difference between first half and second half in 2026. And then the one other data point I'll point to is that Seattle supply is declining by 30%. And so that will also benefit the markets.
Speaker #19: look meaningfully different than the second half of last year, the first half of.
Speaker #2: Correct ? Correct . And I would say I would say the whole year , . because So not a difference between huge first half and second half in And then the one other , you data point , I'll point to is that Seattle Supply is declining by 30% .
[Analyst] (Green Street): Okay. Great. Thanks for the time.
John Pawlowski: Okay. Great. Thanks for the time.
Speaker #2: And so that will also benefit the market.
Operator: Thank you. Our next question comes from the line of Rich Hightower with Barclays. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Rich Hightower with Barclays. Please proceed with your question.
Speaker #2: .
Speaker #19: time .
[Analyst] (UBS): Good morning out there, guys. Just one from me. I just want to go back to Barb's comment in the prepared comments about, I guess, the conservatism baked into the idea that the structured investment redemptions would not be redeployed. And that's basically what's embedded into guidance at this point in time. I mean, I guess, how conservative is that view? And is it conservative to the point of being a little bit unrealistic based on kind of what's in the pipeline and sort of the real underlying expectations for those redemption proceeds? Thanks.
Rich Hightower: Good morning out there, guys. Just one from me. I just want to go back to Barb's comment in the prepared comments about, I guess, the conservatism baked into the idea that the structured investment redemptions would not be redeployed. And that's basically what's embedded into guidance at this point in time. I mean, I guess, how conservative is that view? And is it conservative to the point of being a little bit unrealistic based on kind of what's in the pipeline and sort of the real underlying expectations for those redemption proceeds? Thanks.
Speaker #1: Thank next question comes you . Our with Barclays . Okay .
Speaker #1: Line up with your great, rich question, Hightower.
Speaker #16: Hey out there, good morning, guys.
Speaker #20: Just one from me. I just want to go back to Barb's comment in
Speaker #20: the prepared comments the , I guess , the conservatism baked about into the idea that the , the structured investment redemptions would not be redeployed .
Speaker #20: And that's basically from the embedded into guidance at this point in time. I guess—I mean, how conservative is that view?
Speaker #20: And is it conservative to the point of being a little bit unrealistic based on the kind of pipeline and sort of the real—what's in the expectations for those underlying redemption proceeds?
Barbara Pak: Yeah, Rich, it's a good question. So what makes 2026 unique in terms of our redemption profile is 90% of the redemptions we expect back are tied to two assets. So they're large redemptions which do move the needle in the guidance. And on one of them, we did stop accrual in Q4. We did a third-party valuation on it. And we're fine from a valuation perspective today. But if we keep accruing, we felt we got a bit stretched. So we did the prudent thing, and we stopped accruing. And then on the other one, we're just in discussions with the sponsor at this time. And so given we don't know the final outcome, we decided to not assume any redemption proceeds. There's no further downside in the guidance from these two assets.
Barb Pak: Yeah, Rich, it's a good question. So what makes 2026 unique in terms of our redemption profile is 90% of the redemptions we expect back are tied to two assets. So they're large redemptions which do move the needle in the guidance. And on one of them, we did stop accrual in Q4. We did a third-party valuation on it. And we're fine from a valuation perspective today. But if we keep accruing, we felt we got a bit stretched. So we did the prudent thing, and we stopped accruing. And then on the other one, we're just in discussions with the sponsor at this time. And so given we don't know the final outcome, we decided to not assume any redemption proceeds. There's no further downside in the guidance from these two assets.
Speaker #20: Thanks
Speaker #20: . Yeah .
Speaker #3: good question . So what makes 26 unique in terms of our redemption profile is 90% of the redemptions . We expect back are tied Rich , it's a to two assets .
Speaker #3: So large redemptions which do they're move the the guidance . needle in And on one of them we did stop accrual in the fourth We quarter .
Speaker #3: Did an evaluation on it, and we're fine from a valuation today. But if we keep accruing, we felt we'd, third party, be stretched.
Speaker #3: got a
Speaker #3: So we did the prudent thing and accrued. And then on the other one, we're just in stopped discussions with the sponsor at this time.
Speaker #3: we given we we final don't know the outcome , we decided to not assume any redemption proceeds . no further downside in And the There's guidance these two assets .
Barbara Pak: There will and could be upside, but we don't know until we get further along in our discussions what that will be.
Barb Pak: There will and could be upside, but we don't know until we get further along in our discussions what that will be.
Speaker #3: There will and could be upside, but we don't know until we get further along in our discussions what that will be.
[Analyst] (UBS): Perfect. Okay. Thanks, Barb.
Rich Hightower: Perfect. Okay. Thanks, Barb.
Operator: Thank you. Our next question comes from the line of Alex Kim with Zelman & Associates. Please proceed with your question.
Operator: Thank you. Our next question comes from the line of Alex Kim with Zelman & Associates. Please proceed with your question.
Speaker #20: Perfect. Okay. Thanks, Barb.
Speaker #20: .
[Analyst] (Goldman Sachs): Hey, good morning out there. Just a quick one from me. I wanted to talk about the delinquencies, and they look to be near pre-COVID trendline. Do you anticipate further improvement to even below pre-COVID norms? And could you quantify how much of a contribution is embedded into that 30 basis point tailwind from the other income bucket for your full-year same-store revenue growth guidance? Thanks.
Alex Kim: Hey, good morning out there. Just a quick one from me. I wanted to talk about the delinquencies, and they look to be near pre-COVID trendline. Do you anticipate further improvement to even below pre-COVID norms? And could you quantify how much of a contribution is embedded into that 30 basis point tailwind from the other income bucket for your full-year same-store revenue growth guidance? Thanks.
Speaker #1: Thank
Speaker #1: From the line of questioning comes you, Kim. Our Alex with Zelman, please proceed with your associates. Question, please.
Speaker #11: Hey .
Speaker #21: There. Just a quick one for me. I wanted to talk about the delinquencies, and they look to be near the pre-COVID trend line.
Speaker #21: Do you anticipate further improvement, even to below pre-COVID norms? And could you quantify how much of a contribution is embedded into that 30 basis point tailwind from the other income bucket for your full year?
Barbara Pak: Yeah, this is Barb. So we are pleased with how much progress we've made on the delinquency front over the last two years. We're at 50 basis points. We're about 10 basis points off of our historical pre-COVID average. So we're really close. And to Angela's earlier point, it's really tied to LA, where eviction courts are still, the processing times are still slightly elevated relative to pre-COVID averages. So we haven't baked any meaningful benefit in from delinquency in 2026. We've gotten the bulk of our delinquency benefit already in the prior years. We're still trying to get back there on the LA front. And maybe by year-end, we could, but it's not going to move the needle like it did in 2025 from that perspective.
Barb Pak: Yeah, this is Barb. So we are pleased with how much progress we've made on the delinquency front over the last two years. We're at 50 basis points. We're about 10 basis points off of our historical pre-COVID average. So we're really close. And to Angela's earlier point, it's really tied to LA, where eviction courts are still, the processing times are still slightly elevated relative to pre-COVID averages. So we haven't baked any meaningful benefit in from delinquency in 2026. We've gotten the bulk of our delinquency benefit already in the prior years. We're still trying to get back there on the LA front. And maybe by year-end, we could, but it's not going to move the needle like it did in 2025 from that perspective.
Speaker #3: Barb. So, you know, we are pleased with the progress we've made on the delinquency front over the last two years. We're at 50 basis points.
Speaker #3: We're about ten basis points off of our historical pre-COVID average . So we're really close . And to Angela's point , earlier tied it's really to LA where eviction courts are still the processing times are still slightly elevated relative to pre-COVID averages .
Speaker #3: So, we haven't baked any meaningful benefit in from delinquency in 2026. We've gotten the bulk of our delinquency benefit in the prior years.
Speaker #3: We're still trying to get back there on the LA front, and maybe by year-end we could. But it's not going to move the needle like it did in, from that 25.
[Analyst] (Green Street): Got it. Thanks for the time.
Alex Kim: Got it. Thanks for the time.
Operator: Thank you. Our final question comes from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your question.
Operator: Thank you. Our final question comes from the line of Omotayo Okusanya with Deutsche Bank. Please proceed with your question.
Speaker #3: perspective .
Speaker #21: Thanks for the time. Got it.
[Analyst] (Deutsche Bank): Hi, yes. Good morning out there. I wondered if you could talk a little bit about technology initiatives you guys are still undertaking to help with things like customer satisfaction, customer retention, rent growth, operating expense management, and just kind of what benefits from that are being built into your 2026 guidance?
Omotayo Okusanya: Hi, yes. Good morning out there. I wondered if you could talk a little bit about technology initiatives you guys are still undertaking to help with things like customer satisfaction, customer retention, rent growth, operating expense management, and just kind of what benefits from that are being built into your 2026 guidance?
Speaker #1: Thank you. Final question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, please proceed with your question.
Speaker #22: Yes . Good morning Hi . out there . I wondered if talk a little bit about technology initiatives . You guys are still undertaking to help with things like you could customer satisfaction , retention growth , customer , rent operating expense management , and just kind of what benefits from that are being built into your 2026 guidance .
Angela Kleiman: Hi. That's a good question. From a technology perspective, we do have a variety of initiatives in our pipeline, both top line and, of course, some on the bottom line benefits. On the sales and leasing front, it's really more AI-focused. And of course, on the bottom line, as it relates to expenses, there's some expense management opportunities and technology that we are implementing. Having said that, you'll see that other income contributions from these initiatives are fantastic, but they are lumpy. And when we start something, it usually takes a year or two to really monetize the opportunity. And so I'll give you an example. Last year, we had a nice pickup, and one of the reasons was EV parking. And that was rolled out in 2024. We captured the bulk of the benefit in 2025, and there's some residual in 2026. And that's a reasonable cadence.
Angela Kleiman: Hi. That's a good question. From a technology perspective, we do have a variety of initiatives in our pipeline, both top line and, of course, some on the bottom line benefits. On the sales and leasing front, it's really more AI-focused. And of course, on the bottom line, as it relates to expenses, there's some expense management opportunities and technology that we are implementing. Having said that, you'll see that other income contributions from these initiatives are fantastic, but they are lumpy. And when we start something, it usually takes a year or two to really monetize the opportunity. And so I'll give you an example. Last year, we had a nice pickup, and one of the reasons was EV parking. And that was rolled out in 2024. We captured the bulk of the benefit in 2025, and there's some residual in 2026. And that's a reasonable cadence.
Speaker #2: Hi. It's a good technology perspective. We
Speaker #2: do have a variety of initiatives in our pipeline , question from both top line and and of course , some on the bottom line benefits already in on you know , on the , the sales and leasing front .
Speaker #2: It's really more AI focused . And of course , on on the bottom line , as the release expenses , there's some expense opportunities management and technology implementing .
Speaker #2: Having said that , you'll see that income other contributions from this , these initiatives are fantastic , but they are lumpy . And when we start something , it usually takes a year or two to , you know , to really monetize the opportunity .
Speaker #2: And so I'll give you an example . You know , last year we had a nice pickup . one of the And reasons was EV parking .
Speaker #2: And rolled out in 2024 . We , you know , captured the bulk of the benefit that was in 25 . And there's some residual in 26 .
Angela Kleiman: So we are not baking anything new from this year because this year is a pilot rollout phase. We're going to see how the pilot performs before we assess the rollout and the ultimate economic benefit for future years.
Angela Kleiman: So we are not baking anything new from this year because this year is a pilot rollout phase. We're going to see how the pilot performs before we assess the rollout and the ultimate economic benefit for future years.
Speaker #2: And that's a reasonable cadence. So, we are not baking anything new from this year because this year is the pilot rollout phase.
Speaker #2: And we're going to see how the pilot performs before we assess the rollout. And the ultimate economic benefit for future years.
[Analyst] (Deutsche Bank): Thank you.
Omotayo Okusanya: Thank you.
Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. We'll conclude our call today. Thank you for your interest and participation. You may now disconnect your lines.
Operator: Thank you. Ladies and gentlemen, that concludes our question and answer session. We'll conclude our call today. Thank you for your interest and participation. You may now disconnect your lines.
Speaker #23: you Thank .
Speaker #1: Thank you , gentlemen , that concludes ladies and our question and answer session . And we'll conclude our call today . Thank you for your in participation .
