• Core FFO per Share: $3.91, exceeding the midpoint of guidance by $0.04.
• Full Year Core FFO Guidance: Raised to $15.56 per share, representing 3.5% year-over-year growth.
• Same-Property Revenue Growth: Midpoint raised by 25 basis points to 3.25% for the year.
• Same-Property NOI Growth: Expected at 2.6%, a 30 basis point increase at the midpoint.
• Blended Rate Growth: 2.5% for the third quarter.
• Seattle Blended Rate Growth: 3.8% in the third quarter.
• Northern California Blended Rate Growth: 2.3% in the third quarter.
• Southern California Blended Rate Growth: 2.1% in the third quarter.
• Financial Occupancy: 96.1% for October.
• Multifamily Property Acquisitions: Approximately $700 million year-to-date at pro rata share.
• Net Debt-to-EBITDA: 5.5 times.
• Liquidity: Over $1 billion available.

• Warning! GuruFocus has detected 10 Warning Sign with ESS.

Release Date: October 30, 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 third guidance raise this year due to strong quarterly performance, with core FFO per share exceeding the midpoint of their guidance range.
• Record low turnover and excellent progress in resolving delinquency have contributed to results exceeding original 2024 expectations.
• Seattle has been a top performer, delivering a strong 3.8% blended rent growth in the third quarter.
• The company has successfully acquired over 1,700 units totaling over $700 million at their pro rata share, with attractive returns relative to their cost of capital.
• Essex Property Trust Inc (NYSE:ESS) has a strong balance sheet with low leverage, defined by a net debt-to-EBITDA ratio of 5.5 times, and over $1 billion in liquidity.

Negative Points

• The company anticipates a heavier supply delivery and increased concessions usage in the Seattle region for the rest of the year.
• Southern California's lease rate growth was tempered by delinquency recovery headwinds in Los Angeles.
• The company expects short-term impacts from higher concessions in Northern California due to anticipated deliveries in San Jose.
• Essex Property Trust Inc (NYSE:ESS) faces potential regulatory challenges, such as California Proposition 33, which could impact housing production and costs.
• The structured finance book's strategic reallocation results in short-term FFO dilution, although it aims to improve long-term growth.

Q & A Highlights

Q: What gives you confidence that bad debt in LA and Alameda County will improve in 2025, and how do broader supply/demand fundamentals play into this? A: Angela Kleiman, President and CEO, explained that delinquency rates have significantly improved, with LA's delinquency dropping from nearly 5% at the end of last year to 1.6% currently. Economic investments, such as the World Cup and Olympics, and increased film and television tax credits, are expected to boost the region's economic viability, supporting further improvements.

Q: Can you expand on the improving tech job market and its impact on demand? A: Angela Kleiman noted that job openings at top tech companies have returned to pre-COVID levels, indicating potential future hiring. This trend is positive but expected to be lumpy, with no immediate impact. The return to office mandates is also contributing to increased demand in regions like San Jose and Seattle.

Q: How are you approaching pricing strategy given the improving bad debt situation and low supply? A: Angela Kleiman stated that the company has shifted to an occupancy-focused strategy for the fourth quarter to address seasonal demand slowdowns. Renewals are being sent out in the mid-4% range, with early indications landing in the high 3% range, consistent with their plan.

Q: What is the impact of potential rent control changes in California, and how does it affect your strategy? A: Angela Kleiman expressed confidence that Proposition 33 will be defeated, as it follows the pattern of previous propositions that were defeated by a landslide. The company is actively campaigning against it, emphasizing that excessive regulation restricts housing production and increases costs.

Q: Can you provide insights into your acquisition and disposition strategy, including cap rate pricing? A: Rylan Burns, Chief Investment Officer, highlighted that recent acquisitions were made at attractive bases, with yields in the high 4% range. Dispositions, such as a 76-year-old asset in San Mateo, were executed at approximately a 5% cap rate, allowing capital redeployment into higher-return investments.

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