Essex Property Trust, Inc.

Good day and welcome to Essex Property Trust first quarter 2025 earnings call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risk 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.

Welcome to Essex First Quarter Earnings Call. Today, I will cover highlights from the quarter, our near-term outlook, and provide an update on the investment market. Barb Haque will follow with prepared remarks, and Rylan Burns is here for Q&A. We reported a healthy first quarter with core FFO per share exceeding the midpoint of our guidance range. Additionally, We are pleased to start the year with $345 million in acquisitions in Northern California, which were funded by dispositions in Southern California. This reallocation into higher rent growth markets and further optimization of our operating platform will enable us to generate above-market returns. Turning to operating highlights. First quarter results trended slightly ahead of plan with 2.8% blended net effective rent growth. and new lease rates improved sequentially from the fourth quarter for the same property portfolio. Two key factors contributed to our performance. First is delinquency improvement to a level close to our historical average, mostly driven by Los Angeles, where delinquency improved to 1.3% of scheduled rent compared to 3.9% for the same period last year. Second, we executed our operating strategy which contributed to a notably low turnover rate of 35% while achieving positive new lease rate growth and stable occupancy levels. Great job, Team Essex, on these accomplishments. From a regional perspective, in the first quarter, new lease rates turned positive in all three major regions, led by Northern California at 1.5%, Seattle at 1.3%, and Southern California in last place, as expected, at 20 basis points. On a more granular level, San Mateo left the same property portfolio with 4.8% and Oakland lagged with negative 1.2% in new rate growth, primarily due to elevated supply. Fortunately, Oakland has begun to demonstrate incremental improvement as supply abates and concessions moderate. Moving on to the full year outlook. With our solid performance today, under normal circumstances, Essex would consider revising our guidance upward, but lack of clarity on the U.S. and global trade policy have led to macroeconomic uncertainty, including the impact on business investment and job growth. As we navigate this complex environment, we will be nimble with our operating and investment strategy, remain focused on our objective to maximize revenues and to generate long-term accretion. Ultimately, the West Coast multifamily fundamental is well positioned for a wide range of economic outcomes. Total new housing supply delivery as a percentage of stock in 2025 is exceptionally low at only 50 basis points in the Essex markets and is expected to moderate throughout the year and to decrease further in 2026. Accordingly, rents should continue to grow even in a low job growth environment. This downside protection is a key reason why our supply-constrained markets have outperformed over multiple economic cycles. Furthermore, the cost to own versus to rent remains prohibited at over two and a half times more expensive. Overall, we remain excited about our portfolio's growth potential as our markets continue to lead in innovation, which provides a solid foundation for economic growth. Concluding with a transaction market update, Deal volume in our markets was higher in the first quarter compared to the same period last year, totaling $2.5 billion with cap rates consistently in the mid to high 4% range. With the onset of broad market volatility in early April, we have limited data points as to the impact of cap rates from ongoing policy changes. However, several deals in our markets have recently been awarded or had contingencies removed, and the valuations have remained consistent. with what we've seen over the past year. Our year-to-date transaction activity has been balance sheet neutral, where we have allocated capital into newer assets in submarkets with the best supply-demand fundamentals and rent growth potential. We look forward to more opportunities to continue our expansion and enhance accretion for our shareholders. With that, I'll turn the call over to Barb.

Thanks, Angela. I'll begin with comments on our first quarter results and fill your guidance. followed by an update on investments and the balance sheet. I'm pleased to report first quarter core FFO per share exceeded the midpoint of our guidance range by 5 cents. There were three factors that led to this outperformance. First, our consolidated portfolio performed ahead of plan, primarily driven by same property revenues, which grew 3.4% compared to one year ago. This was 40 basis points ahead of plan, driven by lower delinquency and higher blended net effective rents. Second, our co-investment portfolio exceeded our forecast due to better NOI growth from our joint venture properties and higher preferred equity income. And third, interest expense came in favorable to our forecast. As for our full year outlook, we are reaffirming our same property growth and core FFO per share guidance ranges. While we have gotten off to a solid start to the year and are trending slightly ahead of plan, we felt it prudent to get further into the year before making any adjustments to our forecast given the heightened economic uncertainty that has recently developed. In regard to the cadence of same property revenue growth at the midpoint, we expect the first quarter will be the highest growth followed by the fourth quarter. The second and third quarters are expected to be our lowest year-over-year growth due to tougher delinquency comps compared to the prior year. Turning to investments, we've made progress on our growth strategy year-to-date while match funding these investments on a leverage neutral basis. While these investments are net neutral to our 2025 FFO forecast, they further position the company for long-term outperformance. We'll continue to remain disciplined as we seek further opportunities to deploy capital, utilizing the most attractive capital sources available to maximize core FFO and NAV per share growth while preserving our balance sheet strength. As it relates to the preferred equity portfolio, we received around $27 million in redemptions so far to date. One of the redemptions was on our watch list that we stopped accruing on over a year ago. Since we were fully redeemed on our investment, we realized $1 million in incremental interest income this quarter that won't repeat next quarter. As it relates to the rest of the year, we expect the remaining $125 million in redemptions will be split evenly between the third and the fourth quarters. Lastly, a few comments on the balance sheet. We are pleased to have refinanced the majority of our 2025 debt maturities earlier this year with the unsecured bond offering in February. Overall, our balance sheet remains a source of strength and has proven durable throughout all economic cycles. With minimal refinancing needs remaining in 2025, access to a variety of capital sources, and over one billion in available liquidity, we are well positioned. I will now turn the call back to the operator for questions.