Essex Property Trust, Inc.

Good day and welcome to the Essex Property Trust third quarter 2026 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 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.

Thank you for joining Essex Third Quarter Earnings Call. Today, I'll cover our operating performance for the quarter, considerations heading to next year, and conclude with a transaction market update. Our PAC will follow with prepared remarks, and Rylan Burns is here for Q&A. We are pleased to achieve another increase in our full year growth outlook for same property revenue growth and core FFO per share. This outperformance has been primarily driven by Northern California, which has exceeded expectations. As such, we are now anticipating full year blended rent growth of around 2.9% close to the high end of our guidance range. Moving on to regional highlights, beginning with Seattle. This market has gradually recovered from a soft start to the year. Blended rent growth turned positive in the second quarter and remained positive in the third quarter, generating 2.1% growth. This improvement has been led by the east side, benefiting our portfolio allocation in the region. Turning to Northern California, which continues to lead the nation in multifamily performance, we achieved blended rent growth of 7.3%, which was elevated by a strong leasing season with an extended peak that continues through September. As for Southern California, operating conditions remain stable, with Orange County and San Diego leading the performance across this region. Our blended rent growth of 90 basis points in the third quarter was in line with plan. Looking ahead to 2027, the outlook for the broader U.S. economy and labor market remains uncertain. Even against this backdrop, West Coast multifamily fundamentals offer a compelling case for continued growth above the U.S. average, with encouraging green shoots supporting the potential for further momentum. Total housing deliveries are expected to remain at a historical low of approximately 40 basis points of total housing stock, positioning our markets comfortably to generate rent growth within a modest job growth environment. At the same time, technology sector innovation continues to attract investments and drive economic activities, supporting our expectation for job and income growth above the national average. Together with favorable rental affordability, these fundamentals provide a solid foundation for the next several years. Concluding with an update on the investment market, West Coast transaction volume for institutional quality assets in the third quarter was generally consistent with same period last year. Recent increases in the treasury rates is still being factored into the transaction market. It would not be a surprise if fourth quarter volume declines as buyers and sellers adjust to the new rate environment. Although, historically, our data shows that rate moves have less impact on pricing and cap rates in markets with strong rental fundamentals. Lastly, I'm pleased to announce that yesterday we closed on an acquisition of a 474-unit community built in 2022, located in the East Bay in Northern California. Priced over $200 million and well below replacement cost, this asset is expected to generate a mid-5% yield. It is another example of our investment team's steel acumen in a competitive environment, leveraging our strong reputation and geographic scale in our market to generate operating efficiencies from day one. Essex remains disciplined in focusing our capital allocation strategy to maximize FFO and NAD per share growth. We continue to be well-positioned to capitalize on market volatility with our efficient operating platform and strong balance sheet. With that, I'll turn the call over to Barb. Thanks, Angela. Today, we'll cover our third quarter results, discuss updates for our foliar guidance, and conclude with comments on the balance sheet.

Beginning with our third quarter results, we reported core FFO per share of $4, representing a one-cent beat to the midpoint of our guidance range. The primary driver relates to better same property revenues, which grew 3% on a year-over-year basis, led by the continued solid performance of our Northern California portfolio. Turning to our full-year outlook. Revenues continue to exceed expectations, and as such, we are raising the midpoint of same property revenue growth by 10 basis points to 2.9%, driven by better scheduled rent growth. As for operating expenses, we remain on plan and are reaffirming our full year midpoint. Our expense guidance reflects higher controllable spend in the fourth quarter, which we have previously discussed. Taken together, we are raising the midpoint of same-property NOI growth by 20 basis points to 3%, representing sector-leading growth as we conclude 2026. The strong operating results led to a $0.02 increase in our core FFO midpoint. Finally, a few comments on the balance sheet amid the current interest rate environment. Our total debt maturities for 2027 at pro rata share are around $575 million of which the lion's share is the $350 million in bonds that mature in May. This represents a very manageable amount of maturities next year, given the size of our balance sheet. Further, we are well positioned as it relates to our floating rate exposure, which is around 12% on a pro-rata basis, of which just over 40% is tied to the SIFMA index, which floats at a cheaper rate than SOFR. Lastly, Over the course of 2026, we have been proactively hedging our floating rate exposure by executing approximately 600 million of swaps at pro rata share at an all-in fixed rate of 4.9% to replace swaps that expire over the next six months. While we will feel the effects of higher interest rates next year, we are favorably positioned relative to the peer group in a higher rate environment. With net debt to EBITDA of 5.4 times, and well over $1 billion of available liquidity, we have ample flexibility to meet our commitments, navigate the current rate environment, and pursue opportunities that support long-term FFO and NEV per share growth. I will now turn the call back to the operator for questions.