The Essex Property Trust First Quarter 2024 Earnings Call began with a statement about forward-looking statements and potential risks. Angela Kleiman, President and CEO, provided an update on the company's financial performance, including an increase in full year guidance. She also discussed market fundamentals and operational highlights, as well as the current state of the job market. The tech industry in the West Coast has seen strong job growth due to a shift towards artificial intelligence opportunities.

The company has seen positive signs, such as an increase in job openings by top tech companies, but there is still uncertainty about interest rate cuts. Job growth in high-paying sectors is not expected to improve soon, but the company's steady performance is attributed to limited housing supply and rental affordability. In the first quarter, there was a 2.2% growth in blended lease rates, with new lease rates being tempered by delinquency-related turnover in certain regions. Excluding these regions, new lease rates would have been higher.

The paragraph discusses the performance of different regions in the company's portfolio. Seattle and Northern California were the top performers, while Southern California faced challenges due to delinquency in Los Angeles. The company's operations team has been successful in recovering delinquent units, leading to lower delinquency overall. The company is in a good position with high occupancy and low concessions, and sees opportunities for rental rate increases. The transaction market is currently slow, but there is still strong demand for multifamily properties in the company's markets.

In the first quarter, the company has created external growth opportunities through joint ventures, resulting in FFO and NAV per share accretion. They have purchased their partner's interest in a joint venture portfolio, which will bring in significant FFO accretion in 2024. Their private equity platform has delivered strong returns and remains an attractive source of capital. The company intends to continue pursuing growth through acquisitions while maintaining a disciplined capital allocation strategy. In the first quarter, core FFO per share exceeded expectations, primarily due to higher same-property revenue growth and one-time lease termination fees. As a result, the company has revised their full year guidance, increasing the midpoint of same-property revenue growth and projecting improved delinquency rates.

The second factor contributing to the increase in core FFO for Essex is higher other income resulting from portfolio optimization initiatives. Although the company is currently performing better than expected in terms of lease growth, they have not factored this into their guidance yet. The consolidation of the BEXAEW joint venture also contributes to the increase in core FFO, with $0.03 of FFO accretion. Essex also made a preferred equity investment, which will benefit their 2024 core FFO forecast. In March, the company issued $350 million in 10-year unsecured bonds to refinance debt and partially fund the BEXAEW transaction.

The company did not issue common stock to fund investments and has alternative sources of equity capital. They have been prudent stewards of shareholder capital and have a strong financial position. The impacted select submarkets are still having an impact on new lease rate growth, and it is uncertain if this will continue in the future.

Angela Kleiman and Austin Wurschmidt discuss the current state of the rental market, specifically in Los Angeles and other regions. Kleiman explains that L.A.'s large volume of delinquencies is causing an overhang on the overall delinquency rate, but this is not bleeding into other markets. Wurschmidt asks about the spread between new and renewal lease rates, and Kleiman says they have not reforecasted yet but Seattle and Northern California are slightly ahead of plan while Southern California is on track with the exception of L.A. due to delinquencies. It is too early to reforecast market rents.

The speaker discusses the company's strong performance in delinquency and quick turnover of units, which reflects the solid fundamentals of the market. They also provide information on renewal rates for the next few months, which are expected to be around 4.3%. The speaker mentions negotiations and setting market appropriate pricing to maximize revenues. In response to a question about tech hiring trends, the speaker mentions that they are seeing hybrid workers moving closer to the office to reduce their commute.

The top 20 tech job openings have doubled since last year but are still below pre-COVID levels. The Seattle market has seen a sequential increase in occupancy and revenues in Q1, with over 60% of the portfolio being in suburban areas. The east side is seeing better activity and is more insulated from new supply compared to the CBD. Downtown is holding its own and the majority of new supply is expected to be delivered between now and next quarter.

The speaker discusses the current market conditions and how they have affected their underwriting strategies, specifically in the L.A. market. They mention the challenges of getting delinquent units back and the cautious approach they are taking in underwriting for this market. However, they have not needed to make any major changes to their tenant underwriting criteria. The delays in evictions due to legislation have contributed to the prolonged timeline for removing nonpaying tenants.

The speaker, Angela Kleiman, responds to a question about the impact of new tenants going delinquent on the company's performance. She states that this is not a major issue and that the company has seen significant improvement in bad debt, particularly in April. The next question asks about the demand for apartments and Kleiman discusses the factors driving the strong recovery, including the housing shortage and other incremental benefits such as a return to office. She emphasizes that the supply of apartments is a significant benefit for their markets and that they don't need much demand to achieve their plan and have a healthy performing market.

The speaker discusses positive trends in domestic and international migration, leading to a positive population growth for the first time in three years. However, they note that high-paying job growth is needed for significant acceleration. They also mention the ongoing efforts to overturn Costa-Hawkins, with the majority of legislators not supporting the initiative. In terms of new lease rate growth, there was a slight decline or flat performance from March to April, and the reason for this is unclear.

The increase in delinquency-related challenges in L.A. and Alameda drove a sequential increase in May, but overall there was still growth. The company has opportunities to continue acquiring from joint venture partnerships, but they are focused on making the best capital allocation decisions. The transaction market has taken a pause, but the company is still looking for the highest and best returning investments.

The company is experiencing low transaction volumes, leading to a scarcity premium for well-located suburban properties. This has resulted in competitive bidding and higher cap rates. The company is considering selling more properties, but is also cautious about where to allocate capital. Renewals for May and June are expected to be in the mid to low 4% range, slightly ahead of schedule. It is too early to predict the cadence for the rest of the year.

The speaker discusses the progress of their company's operations and negotiations in various regions, noting that they are ahead of schedule except for L.A. and Alameda. They also mention the typical negotiation spread for renewals and the remaining impact of concessions. They then provide details on the overall loss and lease of their portfolio, broken down by region.

Barb Pak, speaking on behalf of the company, responds to a question about the health of the mezzanine book and their interest in adding to it. She mentions that in the previous quarter, five loans were on non-accrual status or on watchlist, but one has been resolved and they are working on resolving the remaining four. She also mentions that three of the assets have loans maturing in the next few quarters and they are in productive conversations with the sponsor of one asset to contribute more equity. The book continues to perform well and they have good sponsors. There have been no new additions to the watchlist this quarter and they conduct a comprehensive review of the portfolio every quarter.

During the earnings call, an analyst asked about the impact of consolidating the Sunnyvale asset and the potential earnings benefit. The company's CFO stated that they did not include any accrual for the asset in their initial forecast, but now that they have consolidated it and paid off the debt, they expect a $0.05 benefit this year and growth in the future. The analyst also asked about the impact of reduced concessions on blended spreads, to which the company's representative stated that concessions have had a 60 basis point impact on renewals in the first quarter and are expected to have a similar impact in April. They also mentioned that concessions typically decrease in the second and third quarters and then pick up again in the fourth quarter. Another analyst asked about the demographics of the company's renters and the company's job growth commentary.

The interviewer asks about the impact of the tech industry on the company's portfolio, and the speaker explains that while their exposure to tech is around 5%, their portfolio is well-diversified with job growth mainly in government and health/education services. The interviewer then asks about the company's share buyback and equity issuance, and the speaker confirms that no shares were bought back and no equity was issued.

Barb Pak discusses the company's equity cost of capital and their capital allocation strategy. She mentions that they have not issued any common stock in many years due to their stock price not being where they would like it to be. They will continue to look at all sources of capital and remain disciplined in their approach. The company recently acquired a high-quality condo property in Sunnyvale with a yield of 4.75%. They were able to operate it more efficiently due to their ownership of the neighboring property.

The company paid off $32 million in debt and is unable to provide the interest income for non-accrual assets. They plan to continue increasing their dividend annually, but the percentage may vary. Maintaining the dividend and increasing it every year is important for the company. Job growth has not been a strong area for the company.

During a conference call, Angela Kleiman responds to a question about the job market and how it relates to Essex's properties. She explains that the median income of the job market is good and matches their property profile, so they do not have an issue with demographics not being able to qualify for their properties. She also mentions that their properties are located in diversified submarkets, allowing for a range of tenants to qualify. The quality of jobs mentioned by Kleiman refers to their ability to accelerate rent growth.

This summary was generated with AI and may contain some inaccuracies.