• Core FFO per Share: Increased by 4.9%, surpassing original guidance.

• Blended Lease Rates Growth: Achieved 2.2% growth; 10 basis points on new leases and 3.9% on renewals.

• Regional Performance: Seattle with 3.6% blended rates; Northern California at 2.1%; Southern California at 1.7%.

• Occupancy Rate: Stood at 96% at the end of April.

• Concessions: Averaged only 3.5 days.

• Same-Property Revenue Growth: Midpoint increased by 55 basis points to 2.25% for the full year.

• Delinquency Rate: Improved faster than expected, now projected at 1.1% of scheduled rent for the year.

• Core FFO Revision: Increased by $0.20 per share, a 1.3% rise at the midpoint.

• Joint Venture Portfolio Acquisition: $505 million investment expected to produce almost $2 million of FFO accretion in 2024.

• Debt Management: Issued $350 million in 10-year unsecured bonds at a 5.5% fixed rate.

• Liquidity: Over $1 billion available.

• Leverage: Net debt-to-EBITDA at 5.4x.

• Warning! GuruFocus has detected 6 Warning Signs with ESS.

Release Date: May 01, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Essex Property Trust Inc (NYSE:ESS) reported a notable increase in full year guidance, driven by strong first quarter results with core FFO per share growth of 4.9%, surpassing the high end of initial guidance.

• The company achieved a 2.2% growth in blended lease rates, with significant performance in regions like Seattle and Northern California, indicating robust regional operations.

• Essex Property Trust Inc (NYSE:ESS) has maintained high occupancy rates, reaching 96% at the end of April, positioning the company well for the peak leasing season with minimal concessions.

• The company successfully purchased a partner's interest in a $505 million joint venture portfolio, expected to produce almost $2 million of FFO accretion in 2024, demonstrating effective growth through acquisitions.

• Essex Property Trust Inc (NYSE:ESS) benefits from a structural advantage due to limited housing supply in its markets, supported by a lengthy and costly entitlement process that deters new supply, stabilizing performance during soft demand periods.

Negative Points

• Job growth in high-paying sectors remains soft, with no imminent improvement expected, which is crucial for accelerating demand for housing and rent growth.

• Delinquency-related turnover in specific regions like LA and Alameda has negatively impacted new lease rates, although improvements in eviction processing are being made.

• The transaction market remains thin with limited deal volume, although investor demand for multifamily properties in the company's markets remains strong.

• Elevated uncertainty regarding the path of interest rate cuts persists, influenced by recent economic data and Federal Reserve commentary, potentially impacting financial planning and market stability.

• While there are signs of recovery in tech job openings, the numbers are still well below pre-COVID averages, indicating a slower recovery in key employment sectors that drive housing demand.

Q & A Highlights

Q: You guys flagged the impacted select submarkets are having on your new lease rate growth this year, but I'm just curious if that overhang has been lifted in L.A. and Alameda or if you think that the continued improvement in sort of the long-term delinquency continues to have an impact or impacts others in the market, and you could continue to see kind of that weighing on -- are those markets weighing on new lease rate growth moving forward? A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: L.A. is expected to continue being an overhang on delinquency, while Alameda shows steady improvement. The influence is primarily from L.A. due to its large volume, which will take longer to process. Other markets are performing well without being affected by L.A.'s issues.

Q: Can you expand on the tech hiring trends in your markets? Are you seeing any green shoots from AI companies starting to take office space? Or general tech companies more active in return to work? A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: There's a gradual increase in job openings among the top 20 tech companies, with numbers doubling from last year but still below pre-COVID averages. Hybrid workers are moving closer to offices to reduce commute times, indicating a slow but positive trend in tech hiring.

Q: What's happening in the Seattle market? Could you talk a little bit about what you're seeing throughout the different submarkets, maybe give a breakdown of your portfolio, urban versus suburban exposure? A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: Over 60% of Essex's portfolio in Seattle is suburban, mainly on the east side, which is more insulated from supply issues typically concentrated in the CBD. The east side is showing healthier demand growth, indicating a positive trend for the market.

Q: Angela, you mentioned kind of what's happening in L.A. and the overhang and kind of getting the units back, which obviously is a good thing, medium and longer term. Just curious if you've changed the underwriting in that market specifically to make sure you're rented to tenants that are going to be paying the rent? A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: The underwriting process in L.A. has become more cautious, but the fundamental tenant qualification process remains unchanged. The issues with delinquency are largely legislative, not due to underwriting failures.

Q: Maybe more specifically, I mean trying to get to this in the question a little bit, but can you just give us a sense where renewals are going out for the next couple of months? That would be helpful. A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: Renewal rates for May and June are being set at low to mid-4% range, averaging around 4.3% for the portfolio. The strategy remains to set market-appropriate pricing to maximize revenues, with some negotiation expected.

Q: It's Daniel Tricarico on with Nick. Angela, you talked about the jobs backdrop in your prepared remarks. I was wondering if you could expand on the tech hiring trends in your markets? Are you seeing any green shoots from AI companies starting to take office space? Or general tech companies more active in return to work. Just want to understand the current state of the demand backdrop that many are hoping, obviously, including yourselves to drive an acceleration in the recovery within the Northern California and even Seattle markets. A: Angela L. Kleiman - Essex Property Trust, Inc. - President, CEO & Director: Hybrid workers are moving closer to offices to reduce commute times, and there's a gradual increase in job openings among top tech companies, though still below pre-COVID levels. The fundamentals are improving, but a robust pickup in high-paying jobs is needed for significant market acceleration.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.