ESSEX PROPERTY TRUST, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Year-to-Date Highlights: Record low turnover, excellent delinquency resolution, positive inflection points in demand drivers, muted new housing supply enabled results exceeding high end of 2024 expectations.
• Regional Performance: Seattle was top performer; Northern California performed well; Southern California impacted by LA delinquency but improving.
• 2025 Expectations: Earnings to surpass 2024 by 80-100 bps, 40-60 bps tailwind from delinquency improvements, total supply growth 50 bps in 2025, positive job postings and return to office driving demand.
• Investments: Year-to-date acquired ~$700M in multifamily, funded leverage neutral with dispositions, structured finance redemptions, and free cash flow.
• Balance Sheet: Strong position with low leverage, $200M 10-year unsecured bonds issued at 5.1% effective rate.

Segment Performance

• Seattle: Top performer in 2024, delivered 3.8% blended rate growth in Q3. The East side (70% of portfolio) had 4.7% blended growth. Anticipate heavier supply delivery and more concessions in this region in the rest of the year.
• Northern California: Achieved 2.3% blended rate growth in Q3, led by Santa Clara County with 3.6%. Low overall supply but most San Jose deliveries in Q4, plan for higher concessions.
• Southern California: 2.1% blended lease rate growth in Q3, tempered by delinquency recovery in LA; excluding LA, 3.5% growth. Cautiously optimistic new lease rates will recover in LA next year as delinquent units subside.
• Financial occupancy: 96.1% in October, with year-over-year comps easing in November and December.

Guidance

• 2025 earnings to surpass 2024 by 80-100 basis points, with a 40-60 basis points tailwind from delinquency improvements, totaling ~120-160 basis points of same property revenue growth.
• Total supply growth expected to be 50 basis points in 2025, consistent with low supply in 2024.
• Anticipate $100 million to $150 million in redemptions in 2025, with up to 50% expected by the end of Q1, likely redeployed into acquisitions.

Risks

• Proposition 33 in California: Uncertain impact, but campaign history suggests likely defeat; however, monitoring remains due to potential effects on rent control in municipalities.
• Insurance Market: Moderation in premium increases observed, but still monitoring as the situation evolves.
• Supply in Specific Regions: Temporary concession usage expected in San Jose and Seattle due to supply delivery, but expected to be absorbed timely.

Question and Answer Q: On bad debt and LA Alameda County normalization A: Angela Kleiman mentions delinquency in LA has improved from almost 5% in Dec last year to 1.6% today, with economic benefits from World Cup, Olympics, and film tax credit proposing to double California's film and television tax credit.

Q: On pricing strategy and renewals A: Angela Kleiman states shift to occupancy strategy in Q4, renewals sent in mid-4s, early indications landing in high 3s, within typical negotiation range.

Q: On Proposition 33 repeal impact A: Angela Kleiman notes difficulty in predicting, but campaign history shows previous similar propositions defeated by landslide, confident Prop 33 will be defeated.

Q: On supply in San Jose and Seattle A: Angela Kleiman says San Jose supply impact concentrated in Q4, expected absorption to occur quickly; Seattle supply delivery higher but demand high, temporary concessions expected to be absorbed timely.

Q: On refinancing plans for 2025 maturities A: Barb Pak mentions monitoring market, $500M in unsecured bonds maturing, will evaluate refinancing with consideration of tenor and treasury rates, expecting earnings impact from rolling off lower coupon bonds.