Essex Property Trust, Inc.

Good day and welcome to the Essex Property Trust second quarter 2023 earnings conference call. As a reminder, today's conference is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions, and beliefs, as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust.

Thank you, Ms. Kleiman. You may begin. Good morning.

Thank you for joining Essex Second Quarter Earnings Call. BARPAC and Jessica Anderson will follow me with prepared remarks, and Adam Barry is here for Q&A. We delivered a solid second quarter with core FFO per share exceeding the high end of our guidance range. In addition, we are pleased to announce a meaningful increase to our 2023 guidance for same property revenues, NOI, and core FFO per share growth. Barb will discuss this further in a moment. Our performance today demonstrates the underlying strength of the West Coast economy, along with continued refinements to our operating strategy. My remarks today will focus on our 2023 revised outlook for the West Coast and conclude with an update on the transaction market. Starting with expectations for the balance of the year, as shown on page S17 of the supplemental, our improved outlook reflects the year-to-day resilience of the economy and labor markets. both surpassing our initial forecast. This dynamic, coupled with slowing apartment deliveries, have contributed to a healthy demand for rental housing in our markets. As a result, we raised our average market rent growth expectations for the West Coast by 50 basis points to 2.5%, with notable increases to San Diego and San Jose. Demand associated with job growth is a key driver to the revision. We now expect our markets to generate 1.7% job growth for the full year. This is mostly attributable to the growth achieved in the first half of the year, with our markets posting 2.6% job growth on a trailing three-month average through June. Additionally, the layoff announcements from the largest technology companies have proven less consequential than headlines suggested. With only a fraction occurring within our markets, and the vast majority of those affected quickly finding new employment. Turning to the supply outlook, our research forecast a slight reduction in 2023 deliveries as a few delayed projects get pushed into 2024. While we have been pleased with the steady job growth achieved on the West Coast to start the year, we remain cognizant of the potential for more interest rate increases given the Fed's focus on inflation reduction. Outlook contemplates a moderating economy as we approach year end. And accordingly, our base case expectation assumes modest market rent growth for the remainder of the year. Looking forward to the next several years, we see the West Coast as uniquely positioned to generate above average rent growth based on three key factors present today. First and most importantly, the West Coast supply outlook is relatively muted. and a multi-year lead time is required to develop new housing in our markets. With permitting activities declining, we expect to benefit from moderate supply levels for years to come. Second is rental affordability. Since 2020, average personal income in the Essex market has grown over 20% compared to cumulative rent worth of 10% resulting in attractive rental affordability. Furthermore, high cost of home ownership continues to favor renting. It is now over two times more expensive to own compared to rent in the Essex market. Third, solid demand drivers. Our southern region continues to demonstrate stable growth supported by a diverse and vibrant economy. Likewise, the northern region economies are steadily growing. A key driver is the investment in AI companies that are largely concentrated in Northern California. We've seen open positions of the top 10 tech companies improve gradually each month since the trough earlier this year. Lastly, fully remote as percent of total job postings have significantly declined at below 10% in June. For these reasons, we expect the West Coast to continue gaining momentum for the remainder of 2023 and outperform over the next several years. Lastly, turning to the investment markets, Transaction activities in the West Coast have remained muted. Similar to the first quarter, volume in the second quarter was about 55% lower than the same period prior year, with cap rates in the mid four to low 5% range for institutional quality properties. We are starting to see more deals actively marketed at similar valuation levels. Interests from a healthy group of buyers range from local syndicators to large institutional and foreign investors. As expected, Leverage buyers remain largely on the sidelines, waiting for more clarity on interest rates. We continue to diligently underwrite deals as we are well positioned to be opportunistic. With that, I'll turn the call over to Barbara Pack.