Essex Property at Nareit REITweek: Strategic West Coast Focus

On Wednesday, 04 June 2025, Essex Property Trust Inc. (NYSE:ESS) presented at the Nareit REITweek: 2025 Investor Conference, outlining its strategic positioning as a leading West Coast multifamily REIT. CEO Angela Kleinman highlighted the company’s strong performance and disciplined capital allocation amid both opportunities and challenges, such as tech market recovery in Northern California and difficulties in Los Angeles.

Key Takeaways

• Essex focuses on suburban assets near major employers, with strategic capital redeployment in Northern California and the Pacific Northwest.
• The company is optimistic about California’s regulatory environment, seeing a more balanced legislative approach.
• First quarter results exceeded expectations, with strong occupancy levels and reduced delinquencies in LA.
• Essex is actively balancing acquisitions, dispositions, and development to generate shareholder value.
• Challenges persist in LA due to the film industry, but infrastructure projects are expected to stabilize the market.

Financial Results

• Essex is an S&P 500 company, the only dedicated multifamily REIT for West Coast markets.
• It boasts the highest total return since its IPO and has raised dividends for 31 consecutive years.
• First quarter results slightly outperformed expectations, with the second quarter trending on plan.
• Delinquencies in LA decreased significantly to 1.3% from 3.9% in Q1 2024, with improved eviction processes.

Operational Updates

• Northern California leads rent growth, with San Mateo and Santa Clara exceeding expectations.
• Seattle’s performance is average, while Southern California remains soft but grew over 25% during COVID years.
• Essex expects Seattle to peak soon, followed by Northern California in June, and then Southern California.
• Supply remains low due to entitlement and building challenges, with a decrease in total supply deliveries expected.

Future Outlook

• Essex focuses on fee simple acquisitions and developments, especially in Northern California.
• The company plans to redeploy capital from Southern California to Northern California and the Pacific Northwest.
• The acquisition strategy aims to be FFO neutral in the first year, with growth anticipated over time.

Q&A Highlights

• In Northern California, rents are only 5% above pre-COVID levels despite a 20% income growth.
• The AI sector is boosting job growth, with open positions nearing pre-COVID averages.
• Essex monitors macroeconomic factors, such as tariffs, which could impact operating expenses by late 2025 or 2026.
• The company notes a moderate political shift in California, with a more reasonable legislative environment.

In conclusion, Essex Property Trust remains focused on delivering long-term value through strategic asset allocation and disciplined execution. For more detailed insights, refer to the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Angela Kleinman, President and CEO, Essex Company: Welcome to the Essex Company presentations. Good to see you all here. I’m Angela Kleinman, the president and CEO. To my left is Barb Pack, our chief financial officer, and to her left is Ryland Burns, our chief investment officer. I’ll just start with a brief company’s overview and and then a high level operations update, then I’ll turn it over to q and a.

Essex is an S and P 500 company that is the only dedicated multifamily REIT that focuses in the West Coast markets. And we have generated the highest total return since our IPO and have raised our dividends for thirty one consecutive years. So I’m very pleased with that track record. The key driver of our long term outperformance is favorable supply demand fundamentals combined with our capital allocation discipline and unique operating strategy. So let me give you an example as far as the fundamental side.

Supply, for example, we historically produce well below US levels of housing supply, especially in California. Currently, our supply level is only at half a percent of total stock compared to the rest of The US. New stock is coming in at one, two, or even higher percentages of total stock. But having said that, the cost of home ownership is two and a half times more expensive. So that transition from being a renter to an owner is very difficult for our markets.

And so in this environment, we don’t need much job growth to have to achieve healthy rent growth, but our markets have historically generated some of the strongest job growth numbers, particularly in the high paying sectors. And over the long term, this fundamental backdrop is anticipated to continue, especially with center of innovation and technology in our Northern California region. As far as our operating model is concerned, we have produced sector leading operating margins. If you look online, we have our presentation that shows on page nine, our operating margin is on average 300 basis points above our peers. And it’s really how we run the business and how we orient certain functionalities and our disciplined capital allocation.

And that means there are times that we would issue equity to grow, and there are times that we actually would sell assets to buy back stock to benefit the company. And we’re very disciplined about that and generating accretion in all that we do. And that discipline to drive cash flow to the bottom line has enhanced the total return for our shareholders. So as far as the operating update, just high level, first quarter, we slightly outperformed our expectations, but this is incremental. And second quarter, currently we’re trending on plan as expected.

Certain markets are doing better, Certain markets are being soft as we have expected, but overall we are in good shape. Heading into the peak leasing season, we have strong occupancy level and low levels of concessions, so we are well positioned. And with that, I’ll turn it over to Q and A.

Brad, Analyst: Yeah. Thank you. So 2025 has seen sort of a return to form for the West Coast tech markets that had been so negatively impacted by COVID. Can you just give an update on the recovery there?

Angela Kleinman, President and CEO, Essex Company: Sure. No, that’s a good question. It’s interesting to see how the, you know, cycles have performed throughout the different major events. And COVID really hit Northern California hard because everything was shut down. People had to leave because they couldn’t even find jobs.

Where we are today, we are just starting recovery. And so it’s an exciting time for us, and you’ll see how we made investment decisions and capital allocations. But net net, rents are only at about 5% above pre COVID in 2019. That is very muted, but supply is only half a percent of stock and it’s decreasing, and job growth has been steadily improving. But most importantly, even though rents have only grown by 5%, income growth has grown by over 20%.

And so this is very unusual dynamic, and I’ve never seen this in my thirty year career in the business where you have all three major pillars in your favor, supply, affordability, and demand with 85% of technology AI companies based in the Bay Area.

Brad, Analyst: Maybe moving to tariffs. In what ways would you expect tariffs to affect the company?

Barb Pack, Chief Financial Officer, Essex Company: Yeah, no, that’s a great question. I think when we look at it, you know, it’s difficult to know because the rules keep changing and what the tariff is moving around, but we’re watching more closely is on the operating expense side and really on the repairs and maintenance side. Our appliances going to cost more and is it going to cost more just to maintain our buildings. We think you know if we look at this year, know if we do start to see any impact which we haven’t so far, it could start to hit in the fourth quarter and then really it’ll be a ’26 event, but just too difficult to know at this point on the cost side of the equation.

Brad, Analyst: And obviously we just talked about the tech markets. Can you talk about your expectations for hiring in the tech markets just given how uncertain the macro is?

Angela Kleinman, President and CEO, Essex Company: Well, it’s the the AI side, which is really the sector that’s driving job growth has been steadily increasing. And we’re seeing now at a level when you look at open job positions at a level close to near pre COVID averages, and that’s a great sign and it’s continuing. And what I mean by that is if I post a job opening, it takes about two to three months for me to actually hire that job. And if I post a hundred job openings and I fill 50, the next month, you will see job openings decline. We’ve not seen that.

We’ve seen that either stay flat or increasing. So that tells us that they’re hiring and they’re still growing because they’re continuing to have either adding to the job openings or they’re elevating their needs.

Brad, Analyst: Okay. In contrast to the tech markets, LA’s continued to be a struggle. There was a lot of delinquency during COVID that was an issue. We’re also starting to see more sort of existential questions given the fires and struggles in the movie business. What’s your outlook on LA?

Angela Kleinman, President and CEO, Essex Company: Barb, why don’t you talk about delinquency first and I’ll cover the market?

Barb Pack, Chief Financial Officer, Essex Company: Yeah, so as it relates to delinquency, you’re right Brad, it’s been a struggle for five years, but we do see that at the end of the tunnel. Today our delinquencies at 1.3% in LA, that’s a percent of our scheduled rent. A year ago, just to put it in perspective, we were at 3.9 in the first quarter of twenty twenty four. So we’ve made great progress. We’ve seen the courts go from twelve months to evict down to four months to evict.

We’re not quite back to pre COVID levels, but we’re getting there. So we do see that ultimately being a benefit to the market as it continues to improve towards that long term average.

Angela Kleinman, President and CEO, Essex Company: Yeah, and as far as our view on the market as a whole, there are a couple of challenges. Film industry is has not been doing well. You know, it was had been steadily declining since COVID. And lot of the business went to different states or overseas, and there is a concerted effort by the legislatures to bring that back. And so there is hope because at least the conversation is happening.

The governor doubled the film industry tax credit from 350 to 700,000,000. It’s not enough, but it’s a good start. And ultimately, what we would what we anticipate is that there has been a $20,000,000,000 infrastructure spending announced for neck that’s going to start next year for the World Cup and Olympics to come, and that will help stabilize LA as a market. And as we get through delinquency and concurrently build occupancy, you layer on that infrastructure money coming in, which will bring in jobs and construction workers. It will stabilize LA.

What happens after that two, three years? The film industry and that viability will have a an impact. And if that industry does not return to LA, then what we see LA will behave similar to The US average. It’ll grow at that long term CAGR, somewhere in two, two and a quarter percent. So that’s not bad.

It’s not a doomsday scenario. The disappointment is that there will not be a robust acceleration as what we otherwise would have, you know, enjoyed in the past.

Brad, Analyst: Okay. You know, we’ve seen a lot of sort of unusual leasing season trajectories over the past couple of years because of COVID and just recovery. How does this one look versus a normal pre COVID leasing season?

Angela Kleinman, President and CEO, Essex Company: Well, Brad, fortunately we are back to, dare I say it, a normal environment. We had in last year, we had a normal seasonal curve, which is great. And what that means is first quarter and the fourth quarter, that’s our seasonal low. And typically our market peaks around the end of second quarter, middle and the end of second quarter, and that is replicating this year. And so what we’re seeing is Seattle, we’re expecting that Seattle will peak sometime around between now and the next ten days and followed by Northern California, which typically peaks between June and around June, then Southern California.

And so things are so far playing out as expected.

Brad, Analyst: And then how has market level rent trended versus your expectations?

Angela Kleinman, President and CEO, Essex Company: Market level rents have trended generally in line with expectations. And just to give you a little more granularity, LA and, you know, expectations is in the eye of the beholder. Right? And so some people expected much better numbers for LA, for example, we did not. We expect the LA to be soft and LA has met our expectations, unfortunately, but that’s okay.

So Southern California is generally pretty soft, but Southern California has also had 25% plus growth during COVID years. So that’s fine. Northern California has been our shiny star with LA I mean, with San Mateo and Santa Clara leading the pack at slightly above our expectations and Seattle in the middle of the pack.

Brad, Analyst: Okay. You touched on the low supply levels in your markets. Can you just sort of granularly go through the medium term outlook that you have?

Barb Pack, Chief Financial Officer, Essex Company: Yeah, so supply is a benefit to the West Coast. It’s very difficult to entitle and build, and so we deliver very little supply annually. This year we’re expected to deliver 50 basis points of supply as a percent of stock, and when we look at supply, we look at total supply, so it’s single family and multifamily, and we think it’s important that you look at both because single family is a substitute for the multifamily supply. When we look out next year, we do see supply continue to go down, so we’re only at 50 basis points this year, we’re going down to 40 basis points next year. We expect about a 20% reduction in total supply deliveries, mostly driven by LA and Seattle are two of the bigger markets where supply is going to further abate in into 2026.

Brad, Analyst: Okay. And then Oakland has been a really supply challenge market for a while now. What’s the outlook there?

Barb Pack, Chief Financial Officer, Essex Company: Yeah, so we’re getting through the final throws of the supply deliveries in Oakland this year. I think most of the units have delivered and they’re working through the lease ups and most of them are in that the final leg of that. I would say with Oakland, the the bigger challenge is just the crime and the homelessness and the the political factors that are still a challenge in the city, and we’re hopeful that they’ll they’ll make progress on that front, but I think the supply picture looks much better for the next few years than what we’ve had for the last few years.

Brad, Analyst: Your suburban asset base and the price point are both differentiated versus a lot of your peers in the same markets. How does that set you up in the current environment?

Angela Kleinman, President and CEO, Essex Company: Well, the our portfolio mix of about 85% suburban and 15% in the downtown, it’s intentional because California is very different compared to New York in that all the major employers are in the suburbs. And so for example, Google is in Mountain View, Meta is in Menlo Park, Apple is in Cupertino. So having a suburban asset, which most housing decisions is driven by your jobs is important and that has benefited us. And we do expect that those major employers are the key catalyst to job growth, therefore demand for housing and which, you know, we do believe that how we position our portfolio is going to benefit from where these being close to the job nodes.

Brad, Analyst: Maybe moving on to capital, what’s the best use of incremental capital right now?

Ryland Burns, Chief Investment Officer, Essex Company: The company has been targeting fee simple acquisitions as well as developments. So given the fundamental backdrop that Angela detailed, we have been very active as it relates to deploying capital into our Northern California region. We just started a new development project in the city of South San Francisco, and we have purchased over $1,000,000,000 of new acquisitions, relatively new vintage, high quality locations in the Bay Area where we see a very attractive fundamental backdrop at attractive initial valuations. The other thing we’re doing is really targeting asset acquisitions in close proximity to our existing asset base. We have a very unique operating model called the asset collection model, where we’re generating significant accretion just from operating more efficiently by putting them onto our operating model.

So high level looking at the Bay Area and the Pacific Northwest to deploy incremental capital in close proximity to our existing assets.

Brad, Analyst: And then on the acquisition front, what cap rates are you seeing in your markets right now? And are the transaction volumes normal, below normal, above normal?

Ryland Burns, Chief Investment Officer, Essex Company: Yeah, I’ll start with the transaction volumes. Last year we saw about $10,000,000,000 of volumes excluding the portfolio transactions. So for comparison purposes in ’21 and ’22, that was around $20,000,000,000 of volume. So relative to the peak post COVID when interest rates were quite low, we have seen a decline in volumes, but this is relatively healthy if you look over a longer time period. So it feels like a relatively healthy transaction market.

Cap rates broadly up and down our market for well located high quality product is consistently in the mid to high 4% range. There’s very little dispersion as it relates to cap rates across our markets. Again, can do better than that if we’re buying close proximity to our existing assets because we’re can operate them more efficiently.

Brad, Analyst: Okay. You mentioned rotating or putting new capital into Northern California and Seattle. That’s come at the expense of Southern California in terms of the dispositions. Is that something that we should continue to expect that you’ll sort of reweigh the portfolio?

Ryland Burns, Chief Investment Officer, Essex Company: Correct. Yeah. We’ve done $550,000,000 of acquisitions in the Bay Area year to date, funded primarily through free cash flow, as well as two dispositions in our Southern California markets. And each asset disposition typically has a unique story. But where we can do that in an FFO neutral bay, in an FFO neutral manner, improve the average age of the portfolio, which we’ve been able to do and set us up for better rent growth over the next several years, we’re going to continue to target that strategy for the foreseeable future.

Brad, Analyst: Okay. You started your first development in a number of years in the first quarter. What changed about the environment that made you comfortable with pursuing that?

Ryland Burns, Chief Investment Officer, Essex Company: Yeah, that’s a good question. So just some backdrop, our investment team has underwritten approximately 100 land sites a year for the past five years. These are the first development projects that have made sense in several years. So the asset in South San Francisco we purchased in 2019. So we have a very attractive land basis.

We bid out the project in 2022, didn’t make sense. We’re looking for at least 100 basis point premium to where we can buy for shovel ready, fully entitled sites. That did not make sense in 2022. Hard costs came down approximately 8% between ’twenty two and 2024, as well as we started to see some positive rent momentum in that specific submarket. So it’s a combination of factors, a really low basis, hard costs coming down.

And what we really like about this project as well as one other land site that we purchased in Mountain View last year is that we feel very confident that when we deliver these projects, it’s going to be a new environment with very limited competitive supply because broadly we’re seeing permits come down, other developers back out, and we’re trying to be that contrarian investor and developer. And so we’re feeling very excited about the environment in which we will deliver these units.

Brad, Analyst: Okay. Historically, Essex has had a preferred mezzanine sort of book. You guys have been winding that down of late. Can you just talk through the rationale for that and where we would expect that book to level off at?

Barb Pack, Chief Financial Officer, Essex Company: Yeah, so we have over the last two years taken the preferred equity redemption proceeds when we’ve gotten them back and put them into fee simple acquisitions. We do think it’s a better long term growth and cash flow support for our investor base. The reason we got into this business and grew the platform as much as we did is it didn’t pencil to do development, and ground up development was very expensive, and we earned a better risk adjusted return investing in the preferred equity capital stack position. Today though we see different risk adjusted returns, there’s been a lot of capital that’s flowed into the this segment of the book, and so it’s much more competitive and rates have come down, and so we’re not earning that same risk adjusted return that we once were. So for us by taking those proceeds when we get them back and buying wholly owned acquisitions makes a lot more sense.

You will see us continue to wind down this book if we can’t find the appropriate opportunities. Right now we’re at about a little over 500,000,000 total book, preferred equity and mezzanine book outstanding. It’s about 4% of our core FFO and we have a target of three to 5%, but that will depend on the opportunities out there. If we see opportunities, we’ll move forward, but it’s got to be the right position for us.

Brad, Analyst: Okay. And then moving on to valuation, you know, Angela, in your prepared comments, you said sometimes that’s excels equity, sometimes you buy it back. How do you view the current valuation and which of those would you be more inclined to do today?

Angela Kleinman, President and CEO, Essex Company: Right now where our stock prices, you know, what we view is it’s we’re in a no man’s land. We’re not trading in a meaningful premium to NAV. So to issue stock to buy assets, it’s not gonna generate the accretion that we would want. And but once again, it’s not trading at a significant discount to NAV. So selling assets to buy back stock because there’s a frictional cost embedded in there, not compelling.

What we have been doing is we have been selling assets at a very attractive price and using those proceeds and of course free flow and preferred equity redemptions to grow, to buy you know, newer assets in the Bay Area. And that’s how we’ve been thinking about capital allocation.

Brad, Analyst: And then often on the West Coast, we end up talking about the regulatory environment. Is there anything that you’re tracking either, you know, local level, state level, even federal level that investors should be paying attention to?

Angela Kleinman, President and CEO, Essex Company: Well, we actually have been consistently tracking, you know, key legislations and it’s been a positive surprise to us. And I think this is first time I’ve said this in my fifteen years with Essex in that November was almost a moderate sweep in elections. And I think that the the voters have recognized and and the policymakers as well that we need to do better as a society be a little bit more balanced in how we think about legislation and and, you know, enact programs that’s good for businesses and good for the citizens there. And an example is recently there was a proposal to essentially replace the rent control that we have in place, which is the AB fourteen eighty two. That’s CPF plus five, max of 10.

That’s very reasonable. We were supportive of that. Essex has had a self imposed 10% rent cap forever. And there was a proposal to reduce that level. Well, the proposal, was, you know, started by a the the committee chair of a housing committee, it didn’t even make it out of committee, I think.

And that is a dramatic shift to what has happened in the past. So it gives us some hope that California is I won’t say that it’s becoming moderate, but it’s becoming more reasonable. And so while there’s always legislative, you know, proposals out there and we track them, we haven’t seen anything that give us, you know, a concern that it’s going to have a major impact.

Brad, Analyst: Okay. That’s all the questions I have prepared. Do we have anything from the audience?

Barb Pack, Chief Financial Officer, Essex Company: Sure. You mentioned you were a biting asset for a close basis. Can you ask how do you address and complication risk?

Angela Kleinman, President and CEO, Essex Company: That’s a great question. So California, first of all, is the fourth or fifth largest economy in the world. So it’s well diversified. It’s one state, but it’s been very diversified. And what we do is we operate nine to 12 assets as one business unit.

And the reason we can do that is concentration. And so while we have this concentration risk of being in only two states, we’ve converted that concentration into a benefit. And within that nine to 12 properties, we’ll have a different all different range of properties because 80% of our properties are within five miles of each other. And that group will have brand new a all the way to older, you know, more affordable b minus pricing range. And so that gives us the diversity to with which we can operate from.

And in running this as a business unit allows us to be very efficient in terms of acquiring the cost of acquiring a new lead, cross selling, customer service, you know, and then of course allows our personnel to be very efficient that way. That’s a great question. And it’s something that we do debate. We have not decided to red line LA Because at the end the day, if you look at our our portfolio mix, we’re about 40% Northern California, forty % Southern California, and 20% Seattle. So we are 60% weighted to high growth environment.

Southern California to us mirrors The US with a higher level of professional services and lower supply. So in that environment, if you’re growing at pretty darn close to long term CAGR of the national average and you still have a lower supply, people still want to live there, and it has a diversified economy. And thus there’s a secular crack in the fundamentals. You know, I we don’t see a compelling reason to just shift completely out of LA.

Brad, Analyst: Okay. Sure.

Barb Pack, Chief Financial Officer, Essex Company: Yeah, so it’s definitely showing up. We saw it last year in our numbers with Northern California being fairly strong, and we’re seeing it again this year. We thought we were through most of it earlier or through last year, but then you see the Googles of the world ungrandfathering remote work, and you’re like, well, maybe there’s further legs to this this demand cycle. So what they said is, you know, if you were permanently grandfathered to remote, you now have to come back to the office. I do think the, you know, the tech industry is innovate or die, and they know that, and they’re behind on getting their people back to the office.

They wanna recreate that ecosystem they had pre COVID, and so I think there’s a concerted effort to get people back to the office. They’re laying off remote workers, rehiring back in the Bay Area, and so it’s it’s definitely happening on multiple fronts, and we’re seeing it in the demand. If you look at the BLS jobs numbers, Northern California has negative job growth year to date, but it has the best rent growth, and so those two dynamics wouldn’t be occurring if there isn’t some other dynamic happening, which we believe is partly due to return to office.

Ryland Burns, Chief Investment Officer, Essex Company: Yes, it’s a great question. We have funded our acquisitions year to date through a combination of free cash flow as well as two dispositions in Southern California. So the net effect on the FFO is going to be neutral year one, and we anticipate that to grow the disparity to grow over the next several years given our fundamental outlook over those two given what we’ve said about the fundamentals in Northern California versus Southern California. We underwrite everything that comes into our market. So we are looking in Southern California as well.

As I mentioned, there’s very limited cap rate disparity between the regions at this point in time. If that were to change and we were to see some cap rate expansion, I think that would be more we would obviously have to underwrite that in a different way. So we are not agnostic. Continue to evaluate every opportunity and every opportunity has a price at which we would invest. But right now we think the highest risk adjusted returns are in the Northern California California and the Pacific Northwest regions.

Brad, Analyst: Time for one more. Sure.

Angela Kleinman, President and CEO, Essex Company: Yeah.

Barb Pack, Chief Financial Officer, Essex Company: As it relates to insurance in California, I think it’s it’s a tale of two markets. So you’ve got the home insurance market, which is definitely makes a lot of the news, and that’s where a lot of the carriers have left the state. On the commercial side, which is where multifamily sits,

Angela Kleinman, President and CEO, Essex Company: it’s

Barb Pack, Chief Financial Officer, Essex Company: a different story. We’re impacted by national natural disasters, not just wildfires in California, and so it’s one component, but if a hurricane hits in Florida or when the Texas freeze occurred in Texas a few years ago, our premiums could go up, and they did go up, and so what we’re seeing is we saw two big years of big premium increases on the commercial side. This last year though, we renewed our insurance in December, we saw a slight premium reduction, and that’s because the reinsurance carriers came back into the market. We had they had left the market for a while, they’re now back because premiums are much higher, So we’re monitoring it closely, we won’t be back in the market until the fourth quarter, but so far what we’re hearing is that the wildfires in LA aren’t necessarily affecting the commercial premium. The home residential market is a different story and I think there are some challenges there.

Brad, Analyst: Okay. The red light’s gonna turn on right now. Well,

Angela Kleinman, President and CEO, Essex Company: you all very much.

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