ESS

Welcome to the Essex Property Trust first 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 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 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 and welcome to Essex first quarter earnings call. Today, I will cover our first quarter performance, discuss regional trends and conclude with an update on the transaction market. Barb Pak will follow with prepared remarks and Rylan Burns is here for Q&A. Starting with the macro environment. U.S. economic conditions year to date have generally unfolded in line with our outlook, with national labor trends remaining soft. Additionally, heightened geopolitical tensions and inflationary pressure in recent months have contributed to increased near-term uncertainty. Against this backdrop, we delivered a solid first quarter, with Core FFO per share exceeding the high end of our guidance range and same-property revenues trending ahead of plan. Two key factors contributed to these results. First, we successfully deployed an occupancy-focused strategy to maximize revenues, generating a 20 basis points year-over-year occupancy gain.

Second is the strength in Northern California, combined with the durability of our supply-constrained West Coast markets. There is a direct correlation between housing supply and the cost of housing for consumers. It is no surprise that markets with some of the highest rental rates are typically markets with significant legislative burden on housing providers, which deters building activities leading to a chronic housing shortage. Looking forward, permitting activities remain at a historical low in California. As such, we expect new housing deliveries to remain low at around 0.5% of the existing stock for the next several years. On the demand side, we are seeing early indicators of improvements in three areas. First, job postings from the top 20 technology companies have remained steady despite the layoff headlines. Second, elevated levels of venture capital investments in the Bay Area are funding a new wave of start-up companies.

Third, continued office expansion announcements in our markets. In summary, the low level of housing supply throughout our markets provides resilience across a wide range of economic conditions, while improving demand indicators position the portfolio for sector-leading long-term rent growth. Moving on to property operating highlights. We achieved same-store blended rent growth of 1.4% for the quarter, which is generally in line with our expectations as we executed an occupancy-focused strategy ahead of the peak leasing season. From a regional perspective, Northern California was our best market, performing ahead of plan for the quarter with blended rent growth of 3.2%, led by San Francisco and San Mateo, followed by Santa Clara County. During the quarter, while occupancy increased by 50 basis points sequentially, we were also able to increase rents, demonstrating the strength of this market.

Attractive affordability, favorable demand drivers and limited supply support our expectations for solid growth to continue in this region. As for Seattle, this region performed in line with our expectations for a slow start to the year, with blended rent growth of negative 80 basis points. This was primarily driven by a soft demand environment combined with the absorption of supply delivered last year. Encouragingly, during the quarter, we achieved sequential improvements each month in net effective new lease rent growth and occupancy while reducing concessions. With additional office expansions recently announced in the region, we maintain our conviction with the long-term outlook for this market. On to Southern California, which is closely linked to broader national employment trends. This region also performed on plan with blended rent growth of approximately 1% led by Orange County and Ventura. In Los Angeles, incremental improvements continues at a modest pace.

Heading into peak leasing season, we have shifted our operating strategy to driving rent growth across most markets, and our portfolio is well positioned with April financial occupancy in 96.4% and blended lease rate growth north of 3%. Turning to transaction activities. With minimal forward-looking supply deliveries and favorable fundamentals, interest in multifamily assets on the West Coast remains healthy, especially in the Bay Area, as evidenced by the 50 basis points cap rate compression since 2024. Essex has been the largest investor in this market in the past two years as we allocated approximately $1.7 billion of capital ahead of the cap rate compression, generating substantial value for our shareholders.

Overall, cap rates across our markets remain consistently in the mid-4% range. However, with our stock trading close to a 6% implied cap rate over the past several months, which is a significant discount to private market valuation, we shifted gears and repurchased approximately $62 million of stock, thereby continuing our strong capital allocation track record of maximizing accretion for our shareholders. With that, I'll turn the call over to Barb.

Thanks, Angela. Today, I will discuss our first quarter results and full year guidance and conclude with comments on the balance sheet. We are pleased to report a solid first quarter with Core FFO per share exceeding the midpoint of our guidance range by $0.11. There are three key drivers of the outperformance. First, same-property revenues, which grew 2.9% on a year-over-year basis, was 50 basis points ahead of plan and accounted for $0.04 of the beat. Higher occupancy and other income were the key components of better revenue growth during the quarter. Second, same-property operating expense growth was flat on a year-over-year basis, which was lower than expected and accounted for another $0.04. However, this benefit is timing related and expected to reverse in the second half of the year.

Non-same property and co-investment NOI make up the remaining $0.03 of outperformance. For our full year outlook, we are reaffirming our same-property growth and Core FFO per share guidance ranges. We have started off the year in a solid position with revenue growth trending ahead of plan, we'd like to get further visibility into peak leasing season before adjusting our forecast due to the current macro uncertainty. It relates to the remainder of our FFO forecast, there are two key factors that are different from our original guidance. We expect to receive approximately $90 million in early structured finance redemption proceeds, which are expected to occur in the second quarter. We are pleased to see this early redemption activity despite it causing a $0.07 headwind to our second half forecast as it demonstrates the continued strength of the West Coast markets.

The second factor is share buybacks. We took advantage of the significant discount in our stock price and repurchased approximately $62 million at an average price of $243.76, which equates to an attractive FFO yield of 6.5%. The near term earnings headwinds from the structured finance redemption is largely offset by the benefits from the buybacks, and our full year forecast is unchanged at this time. Concluding with the balance sheet. We recently repaid $450 million in unsecured bonds that matured, resulting in limited remaining maturities for the balance of the year. With net debt to EBITDA of 5.5 times over $1 billion in available liquidity and ample sources of available capital, the balance sheet remains in a strong position.

I will now turn the call back to the operator for questions.

Thank you. Our first question is from Nick Yulico with Scotiabank. Nick, you may go ahead.

Thanks. Hi. In terms of the blended rent growth, I know, Angela, you gave the April stats there. I think you said north of 3%. Can you just remind us how to think about, you know, how that's going to trend this year to get to your 2.5% guidance for the year?

Good morning, Nick, and thanks for your question. We're on plan as it relates to our guidance. If you look at, you know, first quarter coming in at 1.4% and April is already north of 3%, it's, you know, we don't anticipate challenges to hitting that 2.5% for the year. At this point, we're still anticipating the first half and second half are pretty similar to each other, you know, things are on plan.

Okay, great. Thanks. A second question, I guess, Barb, you talked about the FFO guidance and, you know, the $90 million. I just wanted to be clear the $90 million of additional or early redemptions, is that like a pull forward for redemptions you assumed, you know, in the back half of the year? Or is it just an additional level of capital coming back altogether? How should we think about, you know, is there any potential for, you know, that FFO headwind to get even worse throughout the year if this kind of repeats again? Thanks.

Hey, Nick, that's a good question. The $90 million is effectively maturities that were set to mature in 2027 and 2028, so it's been pulled forward into 2026. Because of that, we don't have any redemptions in 2027 and 2028 now. The headwind is effectively behind us at this point.

Our next question is from Jana Galan of Bank of America. You may proceed.

Hi. Thank you. Sorry, just a quick question on the change in methodology for the net effective rate growth. I guess, like, 1, what drove the decision to change it? 2, when comparing with the prior disclosure, it appears like it's, you know, higher in 2Q, 3Q, and then lower in 4Q and 1Q. Would that be correct?

Hey, Jana. You are right on point on the cadence when it comes to the lease rates. Effectively, you know, we made this change, and we actually signaled this change last year when we reported or detailed like for like lease terms. We also reported all lease terms because with feedback from investors that it was easier for everyone to look at how we report the same way as our peers. Just really to be in line with our peers. There's no change to our business and certainly no change to how we approach our business. As far as the cadence, you know, all leases means there'll be a little bit more variability and with the highs in the second and third quarter and lower lows, you know, around the first and the fourth quarter.

Thank you. Appreciate the color on kind of the April operating stats. I was wondering if you could share where renewals are being sent out for the summer.

Yeah. Yeah. We are actually in a good position. You know, we continue to be with renewals sending out around 5%. Of course, that can get negotiated. So far, our renewals have been pretty darn sticky, which is a good indication of the fundamentals of our markets.

All right. Our next question is from Eric Wolfe with Citi. Eric, you may proceed with your question.

Thanks. It's Nick, just here with Eric. Looking at California's off to a strong start, but obviously there have been some recent layoff announcements from some of the larger tech companies. Are you seeing any changes in that market or are all the forward indicators holding strong?

Yeah, Nick, that's a good question. You know, the demand side is something we do watch closely. You know, BLS visibility is not as great nowadays. What we are seeing is the layoff announcements. If you look through to the WARN notices, it shows that majority of the layoffs are not in our markets. These are, you know, these layoffs apply to global locations. A couple of areas that we track that I'm happy to share with you, that, you know, gives you better forward-looking indication. One is that when we look at the top 20 tech job openings, they remain steady. It's actually improved a little bit in the past couple of months, but we don't expect that to accelerate. Having said that, things are just fine on the ground.

We also look at both new and continued unemployment claims, which remains at a low level. This tells us that if people are displaced in our markets, they're able to find another job quickly. Most importantly is our Northern California performance. That market has the highest concentration of tech companies and is our best performing region.

Thank you very much.

All right. Our next question is from Steve Sakwa from Evercore. Steve, you may go ahead.

Yeah, thanks. Good morning out there. Maybe just going back to the, I guess, the repayment. Is there any chance that, you know, you could backfill that with, I guess, new investments? I don't know exactly kind of what the market looks like to make some of these new investments and kind of where your head is in terms of making new investments.

Hey, Steve, Rylan here. As we've communicated, we remain actively involved in many conversations related to new investments on the structured finance side. We were not anticipating going into this year that we'd get that $90 million back. As Barb alluded to, you know, this business has kind of been level set at a lower rate. We're continuing those conversations. We're tracking a few deals that we think could present really attractive risk-adjusted returns. We remain committed to the business, and we'll continue to look for opportunities when the opportunities present themselves.

Okay. Maybe just going back to the expense, can you provide just maybe a little bit more color? I mean, I realize it was pretty flat in the first quarter, and it sounds like a lot of that was timing. Can you maybe just provide a little more detail on kind of where the surprises came in the first quarter and what I guess is likely to reverse itself in the back half of the year?

Yeah. Steve, this is Barb. On the expense side, it really came down to lower controllable expense spend in the first quarter as we delayed several projects from the first quarter into the second and third quarters. That's really what drove it. For the full year, our controllable expense spend is expected to be around 2%, so it's still very low and anemic. We do still think it's gonna hit at this point. It was just a delay in our spend.

Great. Thank you.

Okay. Our next question is from Brad Heffern with RBC. Brad, you may proceed with your question.

Yeah. Hey, everybody. Thank you. Barb, last quarter you said that you were assuming no redemption proceeds for a couple of the 2026 maturities. I was wondering if you have any update there or if that's still the case.

Yeah. Good memory. That is the case. We did have one of our investments did mature at the end of March, and the sponsor did contribute some additional equity. We did grant a small extension on that investment.

There is still a lot of moving parts to that investment, and not everything is finalized. While we could have continued to accrue from an FFO perspective, and it would have benefited our FFO, we given some of the uncertainty related to this investment, we decided not to continue to accrue. There is value there, and there will be upside to our FFO, but it really is depending on the timing of when we can settle a few of these open items. Right now it looks like it's probably an early 2027 event, but more to follow as we go forward. The other large investment that we had stopped accruing on in the fourth quarter, we're in ongoing discussions with the sponsor. That one doesn't mature for a couple more months, so more to follow on that one.

No, no difference in how we budgeted that one as of yet.

Okay, got it. Just to follow on to the change in the spread methodology, do you have the number handy for what 1 Q would have been under the old methodology, just so that we can kind of compare to what we have in our model?

Sure. Happy to. Angela here. On a like-for-like Q1 blended would have been 2%, so a little bit higher than, you know, on all lease. The components are new lease will be negative 1.2% and renewal will be the same, 3.9%.

Okay. Appreciate it.

Our next question is from Jamie Feldman with Wells Fargo. Jamie, you may proceed with your question.

Great. Thanks for taking my question. Appreciate the color on blends in 1Q across the regions and even in April. Can you talk about new versus renewal in April? Then also for 1Q, can you talk about new versus renewal across the regions?

Sure. Happy to. In April. I'll start with April. New versus renewal. Let's see. New is. Where'd it go? Hold on a second. I have it somewhere. Here we go. Thank you. New is about negative 90 basis points, and renewal is about 5%. That takes April to 3.1%. On a regional basis, Northern California, once again the shiny star, with the blend at north of 5% and followed by Seattle with a blend north of 2% and Southern California in around 1.5%. That gets you to that 3.1. It's generally playing out as we had anticipated. I know I had, you know, guided to for the full year renewal around 3%-4% and new around 0%-1%.

All the markets are, pretty much coming in in line with exception of Northern California outperforming.

Okay. Thank you for that. There's been a lot of kind of political tax headlines across some of the West Coast markets. I mean, any thoughts or any feedback from tenants, if there's any implications to demand or it sounds like you're feeling pretty good about the job market and job postings, but any color or conversations with your peers about how people are thinking about the political environment?

Yeah, that's a good question. It's so hard to predict, and it's just too early to know how this will play out. You know, there's the wealth tax that is probably what you're referring to, but at the same time, there's also what we're seeing is a lot of opposition to it. There's actually a counter ballot measure, you know, to advocate responsible expense management rather than imposing more taxes. I think we just need a little more time to see how this plays out. We've not seen any impact to our business. We've not heard, you know, from others about having a direct impact to Essex or multifamily as directly.

Okay. Thank you.

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed with your question.

Hey. Hello there. Could you guys speak to, you know, affordability within Northern California and just, you know, given kind of the optimism that you highlighted around, you know, job trends, and supply conditions, I guess, you know, what the runway looks like for you to continue to push on, you know, blended lease rate growth within that region?

Austin, this is Rylan here. This has been a key component of our fundamental thesis on Northern California for the past several years. You've seen significant steady increases in household income growth over the past decade continued through COVID. As it stands today, our current rent-to-median-income ratios in Northern California stand at around 21.5% compared to a 20-year average of almost 26% and a historical peak over the past 20 years closer to 32%. There is significant rent upside on that, those metrics alone to get back to a point that's more in balance or closer to those historical peaks. Again, it's not the primary driver, but it is a fundamental thesis that we feel very attractive as it relates to Northern California.

Wages continue to increase in these markets. Yeah, again, I think the consumer is feeling very, very healthy in Northern California in particular.

That's helpful. Just switching maybe to Southern California. I mean, last quarter, I think you indicated maybe it was L.A. specifically, that conditions were stabilizing and maybe you were seeing sort of, you know, some early signs of rent growth improving. What's sort of the latest thoughts and outlook for that region as well? Thank you.

Yeah, Austin, good question. You know, L.A. is progressing at a glacial pace. You know, it continues to be our most challenging. For example, if we excluded L.A. portfolio, our April new lease rates actually would be 180 basis points higher. It will flip to 90 basis points positive. Having said that, we didn't anticipate things to move quickly. You know, we expected progress to be slow and choppy, which has been the case. You know, we don't get too caught up by short-term numbers because you'll see puts and takes. For example, if you look at economic occupancy compared sequentially from fourth quarter to first quarter, it's a slight decline. If you look at blended, it actually went up by 70 basis points. You're gonna see that dynamic to continue to play out.

The net-net is that this market is stable. You know, we've seen this trough and there's now it's trending better, but just slow.

Thank you. Appreciate the time.

Our next question is from John Kim with BMO Capital Markets. You may proceed with your question.

Thank you. We're halfway or half an hour into this call. I don't think you've mentioned AI. I'm wondering if you feel like you're getting a direct benefit or a direct beneficiary of AI job growth, or is it more indirect for you or more moderate given most of your assets are in Santa Clara and San Mateo County. I was just wondering if you could just comment on if you're seeing a lot of tenants in your market employed by AI companies.

Sure thing, John. I do believe that we are getting a direct benefit from AI, you know, especially as you get closer to San Francisco. What we don't have clarity on is all the startups that's happening because of AI, and that is throughout our markets. If you look at the strength of our market, well, downtown is doing strong or doing well. It also is still in recovery because it recovered later than, you know, the Peninsula. We certainly anticipate that benefit of AI to continue. More importantly, you know, we are also seeing a lot of these large AI companies expand to the Peninsula as well.

Over the long term, I think all of our markets will continue to benefit, particularly, you know, in the suburban markets.

Okay. I wanted to ask Jana's question maybe a little bit different way, looking at your lease growth, under the old definition, you had a peak in the second quarter and a deceleration of 70 basis points in the third quarter. Under your new definition, that drop-off is steeper. It's 130 basis points. Do you see that a similar dynamic occurring this year, or do you think the seasonal trends will be different and that drop-off will be more moderate?

Yeah, John, that's a good question. You know, big picture from when you look at all lease perspective, you're gonna have more variability. Now, I don't know the exact magnitude at this point because we are just, you know, starting to enter into our peak leasing season. It wouldn't surprise me that that drop becomes more significant. Keep in mind, you know, all leases means you're gonna have different terms, so it's gonna just have a lot more noise in it.

Okay. Thank you.

All right. Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Hey, good morning out there. 2 questions. The first is on Seattle. We sort of hear different things like, you know, East Side super strong, Seattle CBD softer. You know, certainly on the office side we hear that, and then the apartment side sounds like the same. Yet, you know, there's a lot of job growth out there, especially on the East Side. Can you just provide a little bit more color on how the market breaks out? You know, Seattle CBD would certainly seem culturally to be a little bit more exciting than maybe, you know, sort of the nine-to-five Bellevue. Can you just provide more color of how the residents are looking at the broader market and how you guys are thinking about where you want to either own more assets, divest assets, et cetera?

Hey, Alex. Yes, it's a good question. With Seattle, it's a combination of two things. It's demand and supply, because Seattle historically generates, you know, more supply than California. It's the impact of those two playing out that then drives the rent growth. East Side has performed better than CBD, although not by a huge margin from what we're seeing. Over the long term, East Side has historically outperformed, mostly because it has a strong employer base but lower supply. We do expect that to continue. Generally speaking, you know, this is a market that has greater highs and lows because of supply, combination of the supply. You know, with first quarter, demand was soft and we anticipated that. We, you know, the performance was pretty much in line with our expectations.

Okay. The second question is, obviously looking at public information, but, you know, Camden has their portfolio out there for sale. You know, you guys obviously look at everything. The interest that you hear that they're receiving, is it what you expected or are you surprised by maybe the number of people who are coming to look at the portfolio? I'm just trying to get a sense of, you know, the appetite for California real estate, Southern Cal real estate, if it's in line from an institutional perspective, if it's more than, you know, you're like, wow, there are a lot more people coming or wow, I would have thought more people would have come. Just try to get a sense for the investment appetite as people look at California versus other parts of the country.

Hey, Alex, Rylan here. You know, as you mentioned, we do look at everything in our markets. You know, we're also subject to nondisclosure agreements, so I can't elaborate on details on any one deal specifically. What I would say is I feel like there has been a significant uptick in terms of capital interest on the West Coast, partly driven by performance issues you're seeing throughout the rest of the country and the relative strength and the forward-looking fundamentals, particularly as it relates to supply, as well as some of the demand drivers that Angela mentioned. I think there's been an increase in capital interest on assets in the West Coast. You've seen this in terms of the cap rate compression we've seen in Northern California.

As we look at the fundamentals over the next several years, I wouldn't be surprised if that continues. Very healthy demand for assets on the West Coast.

Thank you.

All right. Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question.

Hey, thanks for the time here, guys. Just wanted to ask about renewal growth trends. I recognize sort of the methodological change here that might be, you know, might be sort of impacting this comparison I'm about to make. I guess just bear with me. If I look at Q4 2024 versus Q1 2025, looks like about a 10 basis point decel in renewal growth. If I look at, you know, what you guys just reported yesterday, it looks like it was more about an 80 basis point decel this year. Just wondering, you know, I guess number one, if some of the methodological changes played any impact here on just sort of what's happening with renewal growth.

Maybe there's sort of an operational or strategic change in terms of how you guys are thinking about renewal growth. Yeah, just sort of wanted to focus on that piece here today, just sort of that quarter-over-quarter decel that you reported last night.

Yeah. Hey, Adam, a good question. As far as our pricing methodology or operating strategy hasn't changed. You know, the reporting change to all leases is purely a reflection of what is just to make things easier for comparative purposes versus our peers. Ultimately, we continue to focus on maximizing revenues, and we don't manage to a specific metric. What you're seeing on renewal is really a output, not an input. Ultimately, you know, we can manufacture a high lease rate by reducing occupancy, but you wouldn't want us to do that. You know, just back to the basics, we're running a business here, and the goal is to try to maximize revenues. I wouldn't get too caught up on the renewal rates.

You know, at a minimum, I would point you to look at the blends. The blends have improved, continued to improve, sequentially. Ultimately, that is what really hits the bottom line, the combination of your blended and your occupancy.

That's helpful. Thank you. Just maybe switching gears to capital allocation. I don't think we've touched on that yet. You know, I recognize there was some buyback activity in the quarter and subsequent to quarter end. I don't think you did much, if any, buybacks last year, so a little bit of a shift there. Stock has moved a little bit, you know, versus sort of the average share price that you had bought back at. Just wondering, as, you know, sort of as you sit here today with where the stock is, how do you sort of think about stock ranking capital allocation opportunities and where does the buyback fit into that?

Hey, Adam, it's Angela here again. You know, I do wanna point to last year, the environment was different in that cap rate compression has not, you know, really take hold, and we were very opportunistic in our capital allocation strategy. By buying assets, you know, before cap rate compression, we were actually able to generate a lot of accretion. Also, the pricing level was different back then. You know, I'm very pleased with our finance team executing at that 243 pricing on average. That's a terrific execution. What you'll see us do is we're going to be thoughtful and opportunistic and at every point in, you know, when you look at the investment spectrum, we're gonna pick our spots.

That means that there's not an exact price today because the relative value will change based on what's available to us in the future.

Great. Thank you.

Our next question is from Handal St. Juste of Mizuho Securities. Please proceed with your question.

Hey, good morning out there. Wanted to go back to Seattle. Your tone there seems to be more constructive to relative to L.A., where it sounds like things will be more challenged for a bit longer. Is your view on Seattle, I guess the more constructive, more hopeful view tied to that reduction in supply you're referring to? Perhaps is, are there other KPIs you're watching more closely? I'm curious what those are and what they're telling you. When do you think we can expect Seattle to track a bit more closely to San Francisco, which historically has shared a lot of the same demand drivers? Thanks.

Yeah. Hey, Handal. Yes, I think you picked up on my tone being more constructive on Seattle for a couple of reasons. One, you mentioned on the supply. I think that it certainly, you know, has a direct impact. First quarter, we did expect that legacy absorption for last year is going to have some overhang. It's good that we are mostly behind that. More importantly, as we look at where leases are. You know, while Q1 overall lease rate was negative, the rates actually flipped positive in March and has continued in April. We are aware that, you know, because this is our most seasonal market, it can flip quickly. The fundamentals are quite sound in this market.

You know, we do view that, it already has started to trend toward what the midpoint of our expectations.

May be unfair to ask, but I'll try anyway. Would it be your expectation that Seattle would perform more closely to San Fran next year, narrow the gap?

That's a good question. I'm not sure on the exact timing. You know, we are seeing office announcements and expansions into Seattle. You would expect that Seattle does follow the Northern California market. It's hard to predict the actual timing because once they expand, they're going to have to hire, and we don't know how long that's going to take. I will tell you that, at this point, you know, just even on the renewal side, Seattle is starting to catch up to the Bay Area markets, which is a good sign. It tells us that it's going to get there. I just don't have enough data to be able to tell you when.

Fair enough. Fair enough. My second question is on concessions. Maybe some color on where they stand today across the portfolio, how that compares to a year ago, last quarter, some context. Thank you.

Sure. Happy to. Concessions, it's not a whole lot different. First quarter concession for the portfolio was about 6 days. Last year, first quarter was about 4 days. It's not a huge variation. I think, you know, the largest area is really L.A. continues to be lumpy. L.A. concessions this year is a little bit higher than last year, although that's not anything that we're surprised by. San Diego is a little higher because of supply that I talked about, which you would expect. The rest of it generally performing in line.

Okay. Thank you much.

All right. Our next question is from Julian Leline, with Goldman Sachs. Please proceed with your question.

Yes. Hi. Thank you for taking my question. Sorry if I missed it, but on the new reporting last year, was April the highest blended month? I'm just trying to get a sense on that north of 3% for April. Would you expect it to be even higher as we move into May and June?

Yeah. Typically, you would expect blends to continue to improve as we head into our peak leasing season. On average, you would say, you know, we would anticipate blends to peak, say, around June through July, somewhere in that time period. The question here is really the trajectory, you know, of that increase. I do wanna say that while we're performing well here, we are still in a soft demand environment generally across the U.S. and with, you know, geopolitical uncertainty. How much that blend is going to increase will have some of that impact. One of the reasons why we didn't raise our same-property revenues, we're very comfortable with where we're at.

In fact, you know, our same-property, if it performed consistent with what we had anticipated when we released our guidance, just based on the first quarter results, same-property revenues would be about 15 basis higher. Having said that, when we set our guidance last year in early February, we weren't in a war with any or with a new country. Things are moving around and there's a lot of noise out there in the broader economy.

Okay, great. Thank you. That's helpful. That's all for me.

Our next question is from Wes Golladay with Baird. Please proceed with your question.

Good morning, everyone. Can you comment on what's going on in Alameda? It looks like it's having a little bit of an acceleration. Just curious if this is more of a concession burn-off or a pickup in demand?

Hey, Wes. It's a combination of couple of things. One is that we do have concession burn-off. You know, we had talked about supply abating and starting to benefit this year. Concession in the first quarter of last year was almost 2 weeks, and now it's half a week, which is terrific. We're seeing, you know, both rental rates and financial occupancy improve. We're also seeing that there's, of course, the spillover effect that helps with San Francisco, you know, performing well. There's some demand driver as well. Both of those components are helping Oakland, which is playing out what we had expected.

Okay. Thank you for that. Maybe just one on the financial modeling, do you have a timing expectation for the preferred investments being redeemed for the second half?

They're expected to be redeemed in the second quarter. I think if you model mid-Q2 redemption, that will get you close on the guidance.

Okay. Thank you for that.

Our next question is from Michael Goldsmith with UBS. Please proceed with your question.

Hi, this is Amy. I'm with Michael. We were just wondering, what are you seeing in terms of residents moving in from outside of your MSAs? Has there been any change in either domestic or international immigration?

Hi, Amy, this is Barb. On the immigration front, what we're seeing is domestic immigration within the Bay Area has continued to improve, and it is above pre-COVID levels. I think that's a function of the demand for tech jobs and tech workers. In terms of international immigration on the legal side, we haven't seen any material change on H-1B visas or anything like that. We know that the H-1B visas for 2027, they've already hit the cap, those will all get filled. Overall, it's been a slight benefit on the immigration side to our market, specifically in the Bay Area, no material change from what we've said in the past.

Great. Thank you. Just to follow up on some of the questions about the structured finance opportunities, how has competition trended for these deals? For the deals that you guys look at and underwrite, how far off are you from getting these deals and being the selected bidder?

Hi, Amy. A good question. As we've said for the past couple of years, there was a significant amount of capital raised, you know, in the past several years to, invest in this, app structure. There has been more competition. We have seen yields compress and, you know, somewhat opaque in terms of, like, where on specific deals we might miss out. We're just trying to be diligent and stick to our process. We still feel it's a relationship business. If you start to see developments pick up, that will create some more opportunities for us. We have a long history in this business. We're viewed as a good partner on the preferred side.

We're gonna continue to see opportunities, but we're just trying to stay disciplined as it relates to our underwriting process and not chase the market, you know, as some covenants get weaker and/or yields compress. We're gonna stay disciplined to our return re-requirements.

Yeah. Amy, it's Angela here. Ultimately, there's been a lot of volatility to our earnings because of the preferred book overhang and the size of the preferred book. You know, I for one and poor Barb here has had to deal with the direct impact, and we are quite relieved that this is our last year of that volatility. Going forward, what we have been is much more selective in an effort to maintain a size that's going to be accretive to the portfolio and our business, but not create so much noise that it becomes a distraction to our business.

Absolutely. Makes sense. Thank you.

Our next question is from John Pawlowski with Green Street. Please proceed with your question.

Thanks. On the capital allocation front, assuming your cost to capital stays in a, in a similar zip code as it is today, what rough range of disposition volume can we expect this year, and then the most likely use of those funds?

Hey, John, Rylan here. You know, as Angela mentioned, our capital allocation strategy doesn't change. We're really trying to maximize FFO and NAV per share accretion and improve the growth profile of the company. We have several assets, you know, that are currently on the market. We will probably do several dispositions this year, and those proceeds will be allocated to, you know, whatever is the highest risk-adjusted return at the time of that. We have the ability, you know, as we talked about the health of the transaction market, which I think you're aware of, we have the ability to ramp that up and down as we see fit. Again, the strategy has not changed, and we'll continue to do as we have for many years.

Okay. Today, given the health of the private market pricing, is it fair to assume that currently the best use of the funds is share repurchases in your guys' math?

I don't think so, John. Once again, you know, it depends on what the opportunity is available at the time. I would point back to the transactions that we completed. Over 60% of it was off market. We certainly have incredible network and extensive, you know, relationships and a reputation that gives us an advantage. You know, the stock price is gonna change every day. To pinpoint what we're gonna do based on today's stock price is probably not something you want us to do.

I would add on that, you know, I look at our menu of investment opportunities today. We've got several development land sites that we're quite excited about. We think these are gonna be very attractive, you know, risk-adjusted returns as well as our redevelopment opportunities, particularly ADUs. This is a business that we've been ramping up where we're getting 10% return on cost. The per unit costs are a fraction of in place value. Those are two areas that we're gonna continue to invest in because the returns in many cases exceed, you know, the highest risk-adjusted returns.

Okay. Last one from me. Barb, can you talk a little bit about the insurance market, the property insurance market? I think you're expecting maybe a 5% decline on your insurance and other expenses this year. Curious if the market is healing faster and more dramatically than you thought or if that's still a fair bogey.

Yeah. John, we actually went to the insurance market and did our renewal for property in December. We did see a healthy reduction in our property insurance. I do think that market has held up from what we're hearing even today. I know we're, I think 4 months past or 5 months past the renewal. It sounds like on the commercial side, that is the case. I think if you're talking residential, it's a much more challenging market. We have seen the reinsurers come back in and the insurance premiums have come down from where they were over the last 2 years.

Okay. Thanks for your time.

Our next question is from Omotayo Okusanya of Deutsche Bank. You may proceed with your question. If you're muted, we can't hear you. Okay. If you'd like to ask a question, please proceed. Our next question is from Alex Kim from Zelman & Associates. Please proceed with your question.

Hi. Thanks for taking my question. I wanted to circle back quickly to Los Angeles and the extent to which the eviction processing timeline impacts the pace of improvement. Have those eviction processing timelines improved at all in first quarter? You know, when do you anticipate that the supply reduction in 2020 shows up in meaningful pricing power improvement? Thanks.

Yeah. That's a great question on L.A. Delinquency processing or the core processing time has improved over time. As far as just from fourth quarter to first quarter, it's pretty sticky. It's around four months. You know, this is a huge improvement from wasn't too long ago when it was six months and thereafter. What we would want to see is for that to improve, say, closer to three months, that's closer to a long-term average. That'll definitely help on the delinquency front. As far as pricing power is concerned, we would want that economic occupancy to be at about 95% or better. We are very close right now.

We were, you know, above 94% in the fourth quarter, and we're still above 94% in the first quarter, although it's a little bit lower than the fourth quarter. But pricing power will be available to us once we hit 95, and we're feeling good that we're close to it.

Got it. Just it's taking a bit longer than, occupancy returns. That's all for me. Thank you.

Yeah, it's taken longer, but then again, we didn't expect this to happen quickly. We had thought it was gonna take, you know, multiple years.

All right. Our last question is from Rich Anderson with Cantor Fitzgerald. Please proceed with your question.

Hey, thanks for holding the fort down for me. Angela, when I was just reading the transcript from last quarter, you were talking about Los Angeles, and you described it as just so close to the magic 95% economic occupancy where things perhaps get a little bit better for you. I know you described, you know, SoCal in general is in line, perhaps L.A. in line with your expectations. Deep in your heart, were you expecting more this quarter from L.A. that you didn't get? I'm just curious, I have a follow-up to that.

Hey, Rich. Always happy to hold out for you. Deep in my heart, I always hope for better numbers. I think anybody who works with me knows that we push pretty darn harder. Having said that, the expectations are such, you know, and sometimes things do better. You know, Northern California exceeded expectations and sometimes they meet expectations. With L.A., I think, you know, we have always said that it was gonna take a little bit longer and occupancy once again is so close. But even though we didn't see significant occupancy improvement from quarter to quarter, which we didn't expect, 70 basis points improvement blends, that's not bad. I'll take it.

Okay. On the Camden process, I don't think you're a buyer, but is there anything about it that's informing you strategically around, you know, the, the area, you know, whether it's L.A., Orange County, San Diego, Inland Empire, that, you know, that they're looking to sell that you're sort of tapping the reception that they're getting, which sounds like it's been pretty substantial. Does it inform you about what you might do, as a corollary to the process they're undertaking? Whether as a, as a buyer or a seller or anything?

Yeah. Rich, that's a good question. You know, as far as Southern California is concerned, it's a stable part of our portfolio. We have about, you know, 40% in SoCal, and a little bit more in NorCal, maybe 45%-ish. That allocation makes sense to us. We're in Southern California because it mirrors the U.S. and with more professional services and lower supply as a whole. You know, other companies are gonna make capital allocations differently than us. I will say that, you know, Camden is a good company. It's run by smart people. Dynamics are different, right? Because having a handful of portfolios in a huge region, it's very tough to be efficient.

Versus for us, 70% of our portfolio, of our properties are within 3-5 miles for each other. We can run it incredibly efficiently. It's just very different reasons why people make portfolio allocation decisions.

Okay. Fair enough. Thank you.

Good day, and welcome to the Essex Property Trust Fourth Quarter 2025 Earnings 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. You may begin.

Good morning. Welcome to Essex's fourth quarter earnings call. Barb Pak will follow with prepared remarks, and Roland Burns is here for Q&A. Today, I will cover highlights of our fourth quarter and full year performance for 2025, provide our outlook for 2026 and conclude with an update on the transaction market. '25 played out generally in line with our initial macro forecast for the U.S. with job growth moderating throughout the year. Within this environment, we achieved full year same-store revenue growth at the high end and FFO per share growth above the midpoint of our guidance range. I'm particularly pleased with the well coordinated efforts between our property operations and corporate teams to drive results, especially in other income growth and improving delinquency recovery to near pre-COVID levels. From a market perspective, two key factors contributed to our performance in 2025. First, Northern California outperformed expectations as a result of expansion in the technology sector, favorable migration trends and limited housing supply. Second, rent growth across most Essex markets outperformed the U.S. average, demonstrating the significant advantage of limited housing supply even in a soft employment environment. Turning to the fourth quarter property operations. The results were generally consistent with our expectations with 1.9% blended lease rate growth in the fourth quarter. Occupancy increased by 20 basis points sequentially to 96.3% and concessions averaged approximately one week, which is typical for this period. Within the portfolio, Los Angeles delivered the best occupancy improvement, increasing 70 basis points sequentially, a good indication that this market continues to progress towards stabilization. As for regional performance, Northern California was our best region followed by Seattle then Southern California. Moving on to our 2026 outlook. Consensus expectations for the broader U.S. point to slow but stable economic growth. Further, employment trends are expected to remain consistent with what we have seen recently with major employers maintaining a cautious approach to hiring. Against this backdrop, our base case assumes the current level of demand continues in 2026. On the supply side, we forecast total new housing supply to decline by approximately 20% year-over-year. Accordingly, we anticipate steady West Coast fundamentals to deliver solid blended rent growth above the U.S. average and at a level comparable to 2025 with the Essex markets to be led by Northern California, followed by Seattle and lastly, Southern California. In terms of scenarios, local uncertainty continues to weigh on the economy and job growth and represents the primary driver of low end of our guidance range. This uncertainty has contributed to a measured hiring environment, which has tempered near-term acceleration in demand. On the other hand, we see a path to the high end of our guidance range if hiring trends improve modestly. Given historically low levels of new housing supply across our markets, even a small inflection in demand could have an outsized impact on fundamentals. While broader expectations call for mute hiring internationally, we believe Northern regions are better positioned. Activities in the technology sector remains constructive with companies expanding office footprints and investments in artificial intelligence continuing. In addition, these markets should continue to benefit from ongoing return to office enforcements. In summary, the favorable supply backdrop across West Coast multifamily markets combined with the continued recovery in Northern California, reinforces our outlook for our markets to outperform over the long term. Turning to the investment market. Activities in our market remains healthy with $12.6 billion of non-portfolio institutional multifamily transactions in 2025, a substantial increase of 43% compared to 2024. Improving operating fundamentals and minimal forward-looking supply deliveries led to a significant sentiment shift to the West Coast, resulting in deeper bidder pools and cap rate compression, especially in Northern California and Seattle. Generally, cap rates for the highly sought after submarkets, which represents approximately 1/3 of the total deal volume occurred in the low 4% range and cap rates for the remaining 2/3 occurred in the mid-4% range. Lastly, Essex has been the largest investor in Northern California over the past two years. With the majority of our acquisitions transacted ahead of the cap rate compression, resulting in significant NAV appreciation. Looking forward to 2026, we will continue to evaluate all opportunities and allocate capital with a disciplined focus on creating shareholder value. With that, I'll turn the call over to Barb.

Thanks, Angela. Today, I will briefly discuss 2025 results, the key components to our 2026 guidance, followed by comments on funding needs and the balance sheet. We are pleased with our fourth quarter and full year results as we were able to achieve same property revenue growth of 3.3%, which was at the high end of our most recent guidance range and 30 basis points ahead of our original projections for the year. The outperformance in the fourth quarter was driven by lower concessions, higher occupancy and other income. Turning to the key drivers of our 2026 outlook. The components of our full year same property revenue midpoint of 2.4% is outlined on the chart on Page S-16.1 of the supplemental. There are three key drivers of revenue growth this year. First, as anticipated, our earn-in based on our 2025 results will contribute 85 basis points to growth. Second, our guidance assumes a blended lease rate growth of 2.5% at the midpoint. As Angela noted, our outlook for market rent growth is based on tempered job growth, which is partially offset by a meaningful reduction in new supply. As such, this should allow us to achieve similar blended net effective rent growth as last year. And third, we expect 30 basis points contribution from other income. Moving to operating expenses. We forecast 3% same property expense growth at the midpoint, which is the lowest rate of expense growth we have seen in several years. There are a couple of factors contributing to this outcome. First, we expect controllable expenses to increase around 2%, which reflects the continued benefits of our operating model. Second, we expect insurance costs to be down around 5% on a year-over-year basis as the property insurance market has continued to improve over the past year. These benefits will be partially offset by increases in utilities and property taxes. As a result, same-property NOI growth is forecasted to increase 2.1% at the midpoint. As for 2026 core FFO per share, we expect growth to be flat on a year-over-year basis. The drivers of our forecasts are illustrated on S-16.2 of the supplemental. While we expect solid top line performance and growth in net operating income, it is being offset by recent and expected redemptions within our structured finance portfolio, which are contributing to a 1.8% headwind to growth. This reduction to FFO reflects a conservative modeling approach, which excludes any redemption proceeds and minimal income from the 2026 maturities. We expect 2026 to be the final year of structured finance-related headwinds due to the substantial reduction in the size of this book over the past several years. We are pleased to have strategically reallocated redemption proceeds into higher growth fee simple acquisitions in Northern California, which provides better risk-adjusted returns. Lastly, a few comments on the balance sheet. We are well positioned from a funding perspective as our free cash flow covers our dividend and all planned capital expenditures and development plans for the year. In addition, our finance team has done a great job proactively reducing our near-term maturity risk, with a portion of our 2026 maturities accounted for via the bond offering we did in December with strong credit metrics over $1.7 billion in liquidity and ample sources of capital available, the company is well positioned. I will now turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from the line of Jamie Feldman with Wells Fargo.

Great. Maybe just -- I mean there's been so much movement in the tech market in the last couple of weeks. As you think about demand for your assets, especially in Northern California, I mean what are your latest thoughts on what we should be watching in terms of where the risk is, where the growth is? And what are you seeing on the ground in terms of changes? And I guess we could ask the same question about Seattle.

Jamie, thanks for your question. Northern California is in a very interesting position at this point in time because we had talked about the potential recovery and it's finally starting to take hold. So it's an exciting time for us from that perspective. And in terms of -- we're watching a couple of things. I think it's fair to acknowledge that the jobs environment broadly across the U.S. has been soft, and that relates to my comment on Seattle in a second. But in Northern California, it's done fine. And we look at a couple of things, job openings of the top 20 tech companies. And from that perspective, it's done well in that when we looked at 2025, it ticked up above pre-COVID levels around the second quarter. But then if we treat it in the fourth quarter. Though it's not too inconsistent from a seasonal norm. But it is an indication that this market is not robust when it comes to jobs, but it is stable and it's doing fine. And so with that backdrop, when we look forward, we are seeing a couple of activities that gives us encouragement that this area is going to continue to improve. And when we look at, for example, VC funding in the fourth quarter, it's at the highest level for over 4 years, and it increased by 91%. So almost doubled quarter-over-quarter. And over 65% of that spending is in the Bay Area. Now that doesn't mean that there's going to be job acceleration tomorrow, but it is a great sign of growth to come. And when we look at office absorption, another indicator, we're seeing positive absorption for the first time in all three major markets in our northern region, San Francisco, San Jose and Seattle. So that's the backdrop. In Seattle, I have to acknowledge that in the fourth quarter, it was soft. It performed -- they did not achieve the expectations that we had planned in terms of the rent growth and the lease numbers. We had several corporate announcements in terms of layoffs. But having said that, looking forward in Seattle, we still like the fundamentals. Supply is down by 30% in that market. And other than in addition to the positive office absorption, we're also seeing additional leasing activities with -- by OpenAI. They quadrupled their space in Seattle. And so with -- and additionally, we have return to office tailwind in Seattle. Amazon starts enforcing return to office in January, Microsoft starts return to office in Q1. So there's a path to the high end of our range. And I just want to note that with the backdrop of the employment landscape, there is an element of unpredictability with that because it's highly influenced by public policy and public policy so far has tempered job growth. And so that's an environment which we are in, and we do have to be sensitive to that.

Okay. And then can you talk about what you're thinking on new and renewal blends for the year?

Yes, of course. So we're assuming that our blends at this point is going to come in similar to 2025 at about 2.5%. And that's because, as I mentioned earlier, we're assuming that demand is generally flat going forward. So what that means in renewal is that -- and I'll give you a range because that's probably more relevant because different markets behave differently. So under the new leases, we're assuming somewhere around flat to 2% and the renewals around 3% to 4% for the year. So not too different from last year.

Our next question comes from the line of Nick Yulico with Scotiabank.

I guess, first off, I just wanted to ask about Los Angeles. You talked about occupancy picking up there in the fourth quarter. Where is that market now in terms of where you're hoping it to be on occupancy and to be able to drive rental pricing a little bit better this year. Maybe you can just talk a little bit more about how you're expecting L.A. to perform this year.

Nick, yes, on L.A., what we've seen is a steady increase or improvement in occupancy. So that's good, especially -- we all know that the jobs environment has been quite soft. And where we are today, if you look at economic occupancy, which is the financial occupancy we report less than delinquency. In the fourth quarter, this market sits at 94.7%. So we're just so close to stabilization of 95%. And compared to last quarter, I'm sorry, compared to third quarter, 94% economic and, of course, second quarter, 93.8%. So it's been steadily improving, which is fantastic. And what we're seeing next year in 2026 is that supply decreases by 20% in this market. So we are hopeful that we will move towards this 95% stabilization sooner rather than later. But having said that, once again, the timing is not so much in our control because the eviction processing time line is what really drives our ability to move that delinquency number. And so we try to take a more prudent approach on that front, but it's moving in the right direction.

Okay. And then second question is just on San Francisco and I guess, the Bay Area broadly. I know -- I think some of the strong rent growth we've seen from the market data has been helped by removing concessions from that market. And so there was a comp issue, I think, helping the numbers. Does that become like a headwind this year in terms of us just thinking about like how San Francisco rent growth could look this year versus last year?

Yes. Nick, I think on the concession, the margin, it could be a result of hangover from previous supply pressures. But what we're seeing concession level in this market is not too different from historical averages, and it's not a factor when it comes to the uplift in San Francisco. It's really been more of a recovery story. We are finally at a point where San Francisco as a market is somewhere around 9% above pre-COVID level. And if you look at where it should be, it should be somewhere around 20% above pre-COVID levels. So it's still in the recovery phase. And so it's less of a concessionary story hiccup.

Our next question comes from the line of Eric Wolfe with Citi.

It's Nick Joseph here with Eric. There were reports, I guess, last week about a large Southern California portfolio coming on to the market. So curious where you see buyer cap rates today and, I guess, across your markets, but maybe specific to Southern California if there's any differences between the regions? And then just broader your thoughts on kind of external growth and capital allocation coming into this year.

Nick, Rylan here. I'll start on the comment on the portfolio in Southern California. In general, not going to go into details. I don't really want to comment on a live transaction. But for background, there's been approximately $11 billion of transactions in Southern California over the past two years. The majority of the transactions last year occurred in that 4.5% to 4.75% cap rate range. So this is a healthy environment where there's a lot of capital coming in that I think they're going to do quite well. Obviously, we look at everything that comes through our markets, so we will be evaluating. And if there's an opportunity to create value, you would expect us to participate there. In terms of just bigger picture -- sorry, go ahead, Nick. Yes.

No. Go ahead.

Yes. Capital allocation, just a reminder of our broader philosophy, right? So for investment criteria, we have three things that we're looking to solve for: one, FFO per share accretion; two, per share accretion; and looking for opportunities that are better growth profile than the rest of our portfolio. And our strategy, which is unchanged, is to allocate capital to those investments that offer the highest potential accretion relative to the cost of capital. So we're going to continue, as we've done for this team been here in the past 5 years and over the past 30 years to look for those opportunities where we can drive the highest potential accretion.

And so for that 4.5% to 4.7% you quoted, is that buyer or seller? And how wide is that spread typically?

That's buyer cap rates. Those are economic cap rates on in-place rents. Obviously, seller, it really depends on when the asset was purchased and what the tax base is involved. That's where you'll see some difference between buyer and seller cap rates in Southern California.

Got it. And then just in terms of the capital allocation, just given where the stock is trading today, how do buybacks play into the stack of opportunity just given where you're seeing cap rates versus where the implied cap rate for the stock is?

Nick, it's a good question. And it's a calculation that we go through on a regular basis. And so I want to start with everything is on the table: buybacks, prefer equity, development, acquisition, all of the above. And when we think about buyback, we also look at the yield that we can generate from a straight acquisitions or development and the growth thereof. So there's an IR consideration. Based on the stock today, which is in the mid $255, it's kind of a close tie across the board, if you will. And so then we need to look at how do we create value for the company. And I just want to point to that what we've done, when we directed capital deployment for fee simple properties in Northern California over the past 1.5 years, it's done well for us even though our stock was trading in this range because those assets ended up generating portfolio-leading rent growth with cap rate compression, we really provided -- produced a lot of appreciation of these assets and the shareholder value. And so we have to consider that fact. And also, if you look at if we had done the buyback, say, 6 months ago, well the stock has gotten cheaper. So not as attractive. And so there's a lot of things that we really -- we do consider and I hope that you realize that we do try to be very thoughtful about it. And you've seen us buy back stock in big chunks when it makes sense to do so.

Our next question comes from the line of Steve Sakwa with Evercore ISI.

I think, Angela, you had mentioned that renewals would be in the 3% to 4% range for the year. I'm just curious, what have you experienced thus far kind of in the January, February and presumably March time frame?

Steve, right now, our renewal is looking at around 4-ish to mid-4% for February, March. And so we're pretty much on track.

And are you doing a lot of discounting? Are you pretty much getting what you're asking for? Or is there a gap between kind of what you ask and what you achieved?

So far, the negotiation is somewhere between 30 to 50 basis points. So it's -- to us, that point to just a normal stabilized environment.

Great. And then, I guess, following up on the capital allocation discussion, you talked about sort of acquisitions and buybacks. But I think in the release, you explicitly said you would not have any development starts. So I'm just curious where would development pencil, if you were to start one? And I guess, what does that mean about costs having to come down or rents having to grow in order to get to a yield that makes sense to you?

Steve, this is Rylan. We -- currently in our development pipeline, right, we have two land sites that we continue to move -- work forward with, but they're not expected to start in 2026. Our team underwrote probably about 100 land sites last year, and none of them really made sense from an economic perspective. So you really need to see land sellers take a reduction in their expectation on land prices to make the numbers work today and/or you're going to have to see 10%-plus rent growth for some of these deals to make economic sense. So we're closer. We have our own pipeline that we continue to work forward to. And if we can find something at a significant premium to the transaction rate where we feel comfortable for the risk that we'd be taking in development, we'd happily step in. We do think there's going to be some opportunities on the development side. We're just trying to make sure we're getting the best risk-adjusted returns.

And sorry, just what would you need on that? Is that a 6%? Is that 6.5%? Is that 5.5% in your markets?

Yes. As I said, depending on the submarket in Northern California, as Angela mentioned, where the transaction market feels like it's shaking in that 4.25% type range. Something close to 6%, I think would definitely be worth the risk. If we have clear visibility on entitlements, we knew exactly what we're going to build. We felt good about the land basis. Those are the types of opportunities that we would jump at.

Our next question comes from the line of Brad Heffern with RBC Capital Markets.

Another question on L.A. Obviously, you're seeing some improvements there. Can you talk about if the guidance assumes a significant improvement in performance year-over-year? And if not, when do you expect L.A. to become more of a positive contributor?

Brad, we are assuming that L.A. continues to improve gradually. And so we are hopeful that by year-end next year that if we turn to a normal delinquency rate, long term for L.A. is a little elevated than our typical portfolio average, but that's okay. That's what we expected. So we do have that baked in. The potential upside really comes from the general jobs environment for -- especially with supply going down, certainly, there's opportunities there with L.A.

Okay. Got it. And then on the immigration front, has there been any sort of noticeable impact on demand or anything that you can see on your dashboards just from the lack of immigration?

We have not seen any direct impact from the immigration front. I think -- I'm assuming you're talking about international migration. What we have seen is it's generally returned to pre-COVID historical norm, and activities are at a normalized level. And when we look at legislation -- that impact that really is like an H-1B, we certainly haven't seen any adverse impact from that. In fact, that continues to be viewed as a positive. And there are certain carve-outs for students and et cetera, that really should not hurt our business.

Our next question comes from the line of Jana Galan with Bank of America.

This year, there's a mayoral election in L.A. and an election for Governor in California as well as a number of proposals that could impact real estate. I'm curious if you can kind of let us know what you're watching from a policy front that could potentially be beneficial for rental housing.

Jana, thanks for your question. It's an interesting situation here in that we've seen California slowly migrate away from these extreme liberal policies, which has been actually good for the overall economy and the voter population as well. So there's been a couple of proposals that were more under extreme end, and we were pleased to see that those proposals actually were not successful. So that's a good indication. What we're watching on the margin, of course, is the outcome, and we don't have any more insight to the election than what's publicly available. But what we can tell is that from the sentiment is that the general view is people want to have a normal function and economy. And these extreme measures have not been well received.

And then on the structured finance book, now that it's kind of rightsized or will be at the end of '26. Just going forward, how should we think about modeling the growth here?

Yes, it's Barb. That's a good question. So how you should think about it is at the end of the year, our book value is $330 million, but what is in our guidance for '26 is $175 million that we are having income on that's hitting our numbers. And that is a 3-year maturity. So there will be future redemptions, but it will be much more manageable over the next three years. And we are looking for new opportunities to backfill. We obviously want to make sure the there are appropriate risk-adjusted returns, but it is a much more stable book than what we've had two to three years ago. So I think if you take the $175 million, that will get you a stable number going forward.

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Just going back to L.A. for a minute. Are you guys seeing conditions, I guess, broadly in your submarkets stabilize and rent growth may be approaching an inflection or was this more of a strategic approach on your part to build occupancy back to a stabilized level and everything you're seeing is kind of specific to your portfolio?

Austin, that's a good question. It's more Essex' operational strategy driven with how we are operating in L.A. But ultimately, our goal is, of course, to maximize revenues. And so in an environment where you don't have stabilized occupancy, it's just -- you really don't have pricing power. And so it's critical to focus on delinquency, which I think our team has done an exceptional job and focus on building occupancy. And once we get to that 95% occupancy -- stabilized economic occupancy for our portfolio, then we will have some pricing power.

Got it. And then just going back, I mean, does that speak a little bit to the negative 2.4% new lease rate growth in the fourth quarter and maybe what was the driver of that? Because it did seem that was a little lower than it's been in many years outside the COVID period? And have you started to see that reaccelerate into the new year given that occupancy is now in a better position even than it was a year ago at this time?

Yes, that's a good question. That new lease rate is driven by the weakness in Seattle and weakness in San Diego more due to supply. L.A. was more -- is not as exciting. It was a little -- well, it's still negative. Okay. It's all not great on that front. Never mind. I think looking forward, there are a couple of things happening with the supply decreasing. And also the environment in L.A. stabilizing is certainly that it should turn -- is just starting to turn.

Our next question comes from the line of John Kim with BMO Capital Markets.

On the new lease growth rate expectations of flat to 2%. I'm wondering what your thoughts were on cadence? Last year, it peaked in the first quarter at 1%, and I'm wondering if you expect a similar dynamic this year? And as part of that, I was wondering if you could share your new lease rate growth in January.

So that's a good question. In terms of cadence, we do assume that 2026 is going to be pretty moderate. We're not expecting say, first half to be significantly greater than second half and vice versa. And that's really driven by our view that job -- the current job environment is going to continue just because both political uncertainty. And keep in mind, we have a midyear -- midterm election in the second half, and we don't know how public policy is going to behave in light of that. So it built in, kind of, some of those unknowns. As far as January numbers, I don't -- I mean I don't think it's all that productive to talk about that because December and January are always, always the worst period in our business because of seasonality. And it's not going to point to anything relevant with what's going to happen for the rest of the year.

Okay. And Angela, in the past, meaning last year, you talked about happily trading out of Southern California or would you sell Southern California and buying in Northern California based on Rylan's commentary about being perhaps a little bit more opportunistic and the occupancy improvement you saw in L.A. this quarter, is that trade still the case? Or are you more agnostic on markets?

Well, at this point -- well, let me start with we -- our view has always been there's a price for everything. And in an environment where cap rates are all generally consistent throughout our markets. We certainly would want to deploy capital in a market where we believe has an elevated level of rent growth ahead of us, which is Northern California. So if you look at the current environment, if all cap rates remain generally in line in Northern California is still a more compelling place to deploy capital because it's just -- it's in the recovery space. But once you start seeing a gap between -- among the cap rates in the different submarkets, then it's a different calculation. And so we're going to have to look at that holistically rather than just based on a specific number.

And how much should that gap be in your mind?

Well, it depends on the growth. And it really is more submarket driven. So for example, when I say Northern California, we certainly wouldn't invest in Mountainview at the same cap rate as we would invest in Oakland. And so I wish I could give you a finite number because that will make everyone's life so much easier. But it really depends on the growth rate of that specific asset, which has a lot to do with how it's managed and what's going in the submarket. And it's just not as simple as a one data set that fits all situation.

Our next question comes from the line of Haendel St. Juste with Mizuho Securities.

A couple of follow-ups for me. First, I guess I want to go back to the blends. I know you talked quite a bit about it, but I just wanted to clarify a few things. I guess by our math, it looks like your outlook for blended rents for the year implies a slight decel in the back half of the year, which seems pretty unlike your peers who are embedding an acceleration in the second half. So first, is that fair? And then second, can you comment on what your expectations are for market rate growth by key regions for this year?

Haendel, sure thing, and thanks for your question. I'm not sure where you're seeing a decel in the second half, maybe we can sync up after call because we're modeling pretty much a consistent rate and what we typically assume is that first quarter and fourth quarter blends are at the lowest level and then second and third quarter blends are higher. And so they kind of offset each other as far as the market rents by market. It's actually in an environment of low growth, it's not all that different from our blend. So last year, our market rents landed in the mid-2s and we're assuming that in 2026, market rents will be very similar. And we're assuming Northern California to be on the higher end, say, in the mid 3s to 4 range and Seattle in the mid-2s and Southern California in the mid-1s.

Got it. That's helpful. And I guess to your point on the blend, maybe it's not decel, but certainly, there's not an acceleration required in the back half of the year like your peers. Second question, I wanted to talk a little bit about Southern California, but ex L.A. Obviously, you know L.A. is going to be a bit challenged near term, but curious how you're thinking about the prospects for Orange County and San Diego near term? And then maybe sprinkling a question on L.A., how you would think of L.A. growth over the next few years? You mentioned cap rates generally being kind of in that sub 5-ish range. But curious how you think an IRR for a L.A. portfolio would look like.

Good questions. Ryland will talk about the cap rates. In terms of Southern California, we're assuming that -- I mean, sorry, in San Diego and Orange County performed similar to this year. It's really more driven by the fact that we view the job growth to be generally constant and supply from what we see in San Diego, it's about at the same level and Orange County, it's slightly elevated, but not in such a huge magnitude that it's going to drive a significant movement. So stable, not very exciting, but kind of -- is more of the same for Orange County and San Diego.

Haendel, I'll jump in on the IRR expectations. I think where we've seen a lot of transactions in Southern California with our growth expectations in these markets. We've seen market clearing trades, I would say, in the low 7 IRR type range. Again, a wide variety depending on the asset and the business plan for some of these assets. But we think we've been able to achieve much better returns in our submarket selection in Northern California. So that's where we've really been focused. Now if any of those assumptions were to change as it relates to the going-in cap rate the business plan on a specific asset and/or the growth rates, then you would see us change our capital allocation priorities. But that's where it's been trending in 2025, I'd say.

Our next question comes from the line of Alexander Goldfarb with Piper Sandler.

Two questions. First, Angela, you guys have -- you outlined what you expect advocacy costs in your guidance, although it's not part of core FFO, it's just part of NAREIT FFO, but given that advocacy is sort of a recurring part of operating assets and real estate in California, would these expenses just be a normal part of the business, like not -- it's core to the business of being in California, no different than insurance costs, earthquake costs or any of that in California or weather costs, et cetera. So just curious about that because I would think, especially as people are contemplating that other portfolio in Southern California, the regulatory costs are part of the calculus of how they look at whether or not to invest.

Alex, it's Barb. So in terms of the advocacy costs or the political costs that we had, we had $2 million in 2025. We have not specifically outlined what the cost will be in '26. We've provided a number, but it does include other legal fees that are outside of our normal core operations. So we don't expect there to be significant advocacy costs in 2026. There will be a small amount, but we don't see them as necessarily reoccurring. They can be lumpy from year-to-year when we have a big ballot measure, we're not expecting a lot on the advocacy front in 2026.

Okay. And then Ryland, -- just in looking at deal flow, it seems like 2021 was a banner year for ultra-low rate deals that may not have hit their pro forma and maybe have it coming back for debt maturities or restructuring in the next year or two. Do you see a lot of these deals coming to the market to trade? Or as you guys take a look at these deals that are having issues, most of them seem to be resolved internally between the existing sponsor and the lenders. I'm just trying to figure out if the 2021 vintage is going to create opportunity for you guys or if it's going to be one of these where most of the stuff gets resolved on its own.

Alex, I think you're correct in that there were a lot of deals done at very low cap rates in 2021, and most of them were funded 5-year debt as typical. So in theory, there should be a lot of deals coming to market that have lost an attractive debt rate there. However, as you also acknowledge, there is a lot of debt capital out there looking to report in the multifamily space. So I think there's been a lot of deals being done between lenders and sponsors. And we really have not seen any indications of distressed sales coming to our market. The other thing to keep in mind is that Southern California, in particular, has done fairly well relative to the rest of the country over the past 5 years. So NOIs are up and these -- they've created value in many cases. So I'm not anticipating a significant onslaught of distress in '26 for the reasons you mentioned. One general really favorable lending environment. And then two, performance has done okay.

Our next question comes from the line of Wes Golladay with Baird.

This quarter, you took control of an asset in Los Angeles tied to the preferred portfolio. Can you talk about when you expect that asset to stabilize, if it hasn't? And was it much of a drag on earnings this year?

Wes, this is Ryland here. Yes, this is a unique asset. It's -- we expect this to stabilize in the mid-5 range. There was no impact to the economics last year. We just took management of it at the end of last year. Going in, it's probably a low to mid-4 cap. The previous sponsor had a unique business model where a certain portion of the units were rented is fully furnished short-term rentals, which had not done well elevated delinquency and a little bit higher controllable expenses. So putting it onto our platform with no assumption of significant rent growth on that asset, we are very confident we're going to be able to get this to a mid-5 by the end of the year.

Our next question comes from the line of Michael Goldsmith with UBS.

First question is on the legislative front. Are you seeing anything that may be related to the so-called junk fees or Essex' ability to continue to grow non-rental income?

Michael, we have looked at our practices as it relates to other fees, and we've also utilized consultants to make sure they have our practices are in compliance and so we don't expect that to be -- to have a meaningful impact to our business.

Got it. And then just as a follow-up, have you seen any changes in the pace of move-ins from outside of Essex's core markets?

Would you repeat that question, sorry?

Have you seen any change in the pace of move-ins from -- into Essex' market from outside markets. The pace of move-ins into the market.

Sorry. Good question. We have seen an increase in the migration trends, especially in our northern region. And -- but I do want to caution you on the immigration numbers in that this is really driven more probably by return to office. It's not driven by robust job hiring environment. And so -- but so far, it's showing positive and it's been a nice little tailwind for us.

Our next question comes from the line of Julian Blouin with Goldman Sachs.

I just want to go back to Seattle. You mentioned the return to office plans for Amazon and Microsoft. But then on the other hand, both of those companies have announced corporate layoffs there by the thousands over the past 6 months. I guess, what is your sense of how that push and pull will sort of play out this year? Can the RTO benefit really outweigh the continued layoffs we've seen?

Yes, that's a good question, and that's really -- as far as how we judge or how we decide on setting our guidance, right, what does that mean? How long does it take? What we have seen with Seattle, in particular, is that it moves quickly. So yes, there's layoffs offset by return to office, but Seattle also has -- having a 30% reduction in supply. And so absent of, say, additional job growth, for example, this market should stay just fine if not slightly better than last year, but it's going to do just fine. But secondly, when we look at the layoffs, we do dig into the reason for the layoffs because that really matter. So when we look at the reasons for layoffs with the large companies and including Amazon, the reasons cited are they're either eliminating nonprofitable businesses, for example, Amazon Fresh, pivoting to Whole Foods or they're expanding. They're putting in -- they're investing to expand into new business units or expand the business. And so the layoffs are not because of distress. And that's actually a good reason for layoffs. And additional data points to that, of course, the increased office absorption and increase in office leasing activity, all these data points together point to that. This is still a good vibrant market to be in.

No, that's very helpful. Maybe digging into the South Bay as well, just in light of the fears that are out there around sort of AI native companies disrupting legacy tech and software. On the face of it, the South Bay is also one of those sort of more legacy tech or software-heavy markets where companies have been announcing corporate layoffs and had sort of less of that AI native HQ benefit that maybe San Francisco has. Why do you think the South Bay is sort of holding up so well while Seattle has maybe struggled a little bit more?

Well, I think the South bay market is a much deeper market than Seattle. And even though, keep in mind, there is some disruption that we would expect from AI. But when you look at what's happening there, so if you're talking about disruption in -- by cloud or coworker, for example. It's creating a demand and increase in usage in Agentic AI. And so you're going from one application that may be deprecated, but there's an expansion in another. And this is all happening still within the same submarket and so that's one of the foundational benefits of this market and having that concentration of all these tech companies there.

Our next question comes from the line of Linda Tsai with Jefferies.

In 2026, do you expect any year-over-year changes in tax expenses from Seattle and Washington state due to the Seattle Shield initiative and B&O surcharge?

This is Barb. I mean we have baked in a Seattle tax increase this year into our guidance in the high single-digit range. But that -- and that encompasses kind of everything that you talked about. But that's what we're assuming this year, which is a big change from what we saw in 2025, where we had a pretty meaningful reduction in taxes.

What would be the dollar amount?

I don't have that off the top of my head. I can follow up with you after.

Our next question comes from the line of John Pawlowski with Green Street.

I had a follow-up to the return to office discussion from a few questions ago. I would have thought work patterns are normalized by now. Amazon's policy has been in effect, 5 days a week. It's been in effect, I think, for a year now. Has your local team seen a real second winds of demand to start the year, either in Seattle or the Bay Area or it's more of you're hoping that the positive momentum in the market continues gradually over time?

John, our expectation is based on what we've seen actually happened on the ground. And what we have seen happening on the ground is that a company announces a return to office policy. And some employers would comply and some will not, for various reasons. And it is not until they announce enforcement that people -- all -- everyone starts to come back to the office. And that happened with Essex as well. We had announced it and left people to get used to it. And then three quarters later, we announced that we're going to check key cards, for example, and everybody came back. And so our expectation is that this is going to play out similarly. And Amazon actually announced that they're starting enforcement in January. They're doing that for a reason. And I don't think -- I don't believe that their population would behave drastically different than the norm.

Okay. And then drilling into Seattle again. Obviously, it takes a little bit of time for layoffs to get announced, severance policies, et cetera, to actually flow through the housing decisions and people moving out. So in your Seattle portfolio, are you seeing a real uptick in notices to move out? Can you share any kind of forward-looking [ blendedly ] spread expectation just given the lag between the layoff announcements and the actual decisions renters make?

Well, first of all, typically, when there's a layoff, there's the public announcement and there's the private conversations. And employees don't typically find out that they're getting laid off publicly. There's [ a human ] conversation and people typically make decisions, their housing decisions 45 days in advance of a job change event. And so our view is that the bulk of that layoff impact already has been felt in the fourth quarter and some spillover in January and less so in February. And when we look at our leasing activities and our blended renewal rate, they're not all that different from historical patterns for Seattle. So I'm not -- we're not expecting a second shoe to drop, if you will, because of the layoff announcements.

Okay. So blended spreads for the first half of this year in Seattle, do you expect not to look meaningfully different than the second half of last year?

Correct. And I would say the whole year because we're not expecting a huge difference between first half and second half in 2026. And then the one other data point I'll point to is that Seattle supply is declining by 30%. And so that will also benefit the market.

Our next question comes from the line of Rich Hightower with Barclays.

Just one from me. I just want to go back to Barb's comment in the prepared comments about the -- I guess, the conservatism baked into the idea that the structured investment redemptions would not be redeployed and that's basically what's embedded in the guidance at this point in time. I mean, I guess, how conservative is that view? And is it conservative to the point of being a little bit unrealistic based on kind of what's in the pipeline and sort of the real underlying expectations for those redemption proceeds?

Rich, it's a good question. So what makes '26 unique in terms of our redemption profile is 90% of the redemptions we expect back are tied to two assets. So they're large redemptions, which do move the needle in the guidance. And on one of them, we did stop accrual in the fourth quarter. We did a third-party valuation on it. And we're fine from a valuation perspective today. But if we keep accruing, we felt we got a bit stretched. So we did the prudent thing and we stopped accruing. And then on the other one, we're just in discussions with the sponsor at this time. And so we -- given we don't know the final outcome, we decided to not assume any redemption proceeds. There's no further downside in the guidance from these two assets. There will -- and could be upside, but we don't know until we get further along in our discussions, what that will be.

Our next question comes from the line of Alex Kim with Zelman & Associates.

Just a quick one for me. I wanted to talk about the delinquencies and they look to be near pre-COVID trend line. Do you anticipate further improvement even below pre-COVID norms? And could you quantify how much of a contribution is embedded into that 30 basis point tailwind from the other income bucket for your full year same-store revenue growth guidance?

Yes. This is Barb. So we are pleased with how much progress we've made on the delinquency front over the last two years. We're at 50 basis points, we're about 10 basis points off of our historical pre-COVID average so we're really close. And to Angela's earlier point, it's really tied to L.A., where eviction courts are still -- the processing times are still slightly elevated relative to pre-COVID averages. So we haven't baked any meaningful benefit in from delinquency in 2026. We've gotten the bulk of our delinquency benefit already in the prior years. We're still trying to get back there on the L.A. front. And maybe by year-end, we could, but it's not going to move the needle like it did in '25 from that perspective.

Our final question comes from the line of Omotayo Okusanya with Deutsche Bank.

I wondered if you could talk a little bit about technology initiatives you guys are still undertaking to help with things like customer satisfaction, customer retention, rent growth, operating expense management and just kind of what benefits from that are being built into your 2026 guidance?

It's a good question. From a technology perspective, we do have a variety of initiatives in our pipeline, both top line and, of course, some on the bottom line benefits. On the sales and leasing front, it's really more AI focused. And of course, on the bottom line, as it relates to expenses, there's some expense management opportunities and technology that we are implementing. Having said that, you'll see that other income contributions from these initiatives are fantastic, but they are lumpy. And when we start something, it usually takes a year or two to really monetize the opportunity. And so I'll give you an example. Last year, we had a nice pickup. And one of the reasons was EV parking, and that was rolled out in 2024. We captured the bulk of the benefit in '25, and there's some residual in '26, and that's a reasonable cadence. So we are not baking anything new from this year because this year is a pilot rollout phase, and we're going to see how the pilot performs before we assess the rollout and the ultimate economic benefit for future years.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session, and we'll conclude our call today. Thank you for your interest and participation. You may now disconnect your lines.