Essex Property Trust Q2 2026 Earnings Report

Essex Property Trust EPS Results

• Actual EPS: N/A
• Consensus EPS: $1.46
• Beat/Miss: N/A
• One Year Ago EPS: $4.03

Essex Property Trust Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $485.12 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Essex Property Trust Announcement Details

• Quarter: Q2 2026
• Date: 7/29/2026
• Time: After Market Closes
• Conference Call Date: Thursday, July 30, 2026
• Conference Call Time: 2:00PM ET

Essex Property Trust (NYSE:ESS) (NYSE: ESS) is a publicly traded real estate investment trust that acquires, develops, owns and operates multifamily residential properties. The company focuses on market-rate apartment communities and delivers a full suite of property services including leasing, resident services, asset management, and capital improvement programs designed to preserve and enhance long‑term property values.

Essex concentrates its portfolio in West Coast markets, with a significant presence in California and the Pacific Northwest. Its holdings are concentrated in major coastal and high-demand metropolitan areas, where it pursues new development, selective acquisitions, and redevelopment or repositioning of existing communities. Typical property features include a range of unit types, on-site amenities such as fitness centers and common areas, and professional property management aimed at maintaining occupancy and resident satisfaction.

As a REIT listed on the New York Stock Exchange under the ticker ESS, Essex emphasizes long-term ownership and income-producing residential assets in supply-constrained, high-barrier-to-entry markets. The company’s operating approach combines development and acquisition activity with day-to-day property management to generate recurring rental revenue and to support portfolio growth over time.

Essex Property Trust Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Essex raised full-year guidance, increasing the midpoint of Core FFO per share by $0.20, or 1.3%, and lifting same-property NOI growth guidance by 70 basis points to 2.8%.
• Positive Sentiment: Northern California remained the strongest region, producing 6.5% blended rent growth with strong occupancy; management said demand momentum has not yet peaked and prior acquisitions there are outperforming expectations.
• Neutral Sentiment: Seattle improved to 2.6% blended rent growth in the second quarter, led by 3.2% growth on the East Side, while Southern California remained stable at 1.4% growth. Management expects Seattle to moderate seasonally and views Los Angeles as the primary drag within Southern California.
• Positive Sentiment: The company cited a favorable supply outlook, with apartment deliveries expected to decline further in 2027, and reported a strong balance sheet featuring 5.4x net debt to EBITDA, more than $1 billion of liquidity, and limited near-term maturities.
• Negative Sentiment: Management disclosed a sizeable settlement of an unrelated, multiyear litigation matter, though it said the settlement is subject to court approval and that no other dispute of similar magnitude is expected.

Presentation

[Operator]

Good day, welcome to the Essex Property Trust second quarter 2026 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 you to your host, Mrs. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you. You may begin.

[Angela Kleiman, President and CEO at Essex Property Trust]

Thank you for joining Essex second quarter earnings call. Today, I will cover performance in the first half and outlook for the second half of the year, then conclude with an update on the transaction market. Barb Pak will follow with prepared remarks, and Rylan Burns is here for Q&A. We are pleased to report a solid first half of 2026, highlighted by a substantial outperformance led by strong executions from our operations team in delivering results exceeding our original expectations. While national economic and employment growth have been measured, West Coast multifamily fundamentals continue to demonstrate durability with limited housing supply across our markets and affordability favoring renting. We are meaningfully raising our full-year expectations for same property revenues and Core FFO per share, which Barb will cover in a moment. For regional highlights, starting with Seattle.

[Angela Kleiman, President and CEO at Essex Property Trust]

Operating conditions improved in the second quarter with 2.6% blended rent growth, representing a 340 basis points sequential increase from the first quarter. Consistent with normal seasonality, market rents reached their peak around early July and are expected to moderate through the balance of the year. Performance has been stronger on the East Side, a benefit to our portfolio allocation, which achieved a 3.2% blended rents, a considerably higher growth rate than the 1% in the urban core. We are also encouraged by recent office expansion announcements from several notable companies. These trends are consistent with prior innovation cycles and reinforces Seattle's long-term position as a leading technology market. While it will take time for these commitments to translate into meaningful hiring, they represent a positive signal for future demand. Favorable outlook for this region is supported by declining supply deliveries, which continues to moderate.

[Angela Kleiman, President and CEO at Essex Property Trust]

Turning to Northern California, which remains our strongest performing region and the leading multifamily market in the country, delivering blended rent growth of 6.5% while concurrently maintaining strong occupancy. This performance is attributable to two key factors. First is the compelling supply-demand backdrop with limited housing deliveries and continued investments across the Bay Area from technology sector propelling demand. Second, positive migration trends as talent and entrepreneurs are drawn to the unique concentration of capital and innovation. We are experiencing growing momentum of demand for housing throughout the broader region. These fundamentals have translated into pricing power and outperformance relative to our original expectations, including peak leasing momentum extending beyond typical seasonal patterns. On to Southern California. The region remains closely tied to national economic trends, with job growth generally in line with the U.S. average.

[Angela Kleiman, President and CEO at Essex Property Trust]

Against this tempered employment backdrop, limited new supply has supported relatively stable operating conditions. Accordingly, we generated a 1.4% blended rent growth in the second quarter, led by Orange County, while Los Angeles lagged. Looking ahead to the second half of the year, we expect the broader economy to unfold generally consistent with our initial forecast for the year, with modest job growth and continued macroeconomic and geopolitical uncertainty. While demand is highly correlated to the pace of job growth, West Coast multifamily fundamentals remain well-positioned with attractive affordability for rental housing, combined with new apartment deliveries moderating across most of our markets. Lastly, on the transaction market. Investor interest in West Coast multifamily assets remain healthy, with transaction volume increasing throughout the year across our markets, despite a higher interest rate environment.

[Angela Kleiman, President and CEO at Essex Property Trust]

Cap rates for institutional quality assets have generally remained in the mid 4% range, while the majority of transactions in Northern California pricing in the low 4% range. Overall, the strength of private market valuations reinforces the value of the capital we deployed in Northern California over the past several years. We will continue to evaluate acquisitions, dispositions, and other investment opportunities based on the highest relative return, with a focus on maximizing growth, NAV, and FFO per share accretion. With that, I'll turn the call over to Barb.

[Barb Pak, EVP and CFO at Essex Property Trust]

Thanks, Angela. Today, I will recap our second quarter results, discuss key updates to our revised full-year guidance, and conclude with comments on the balance sheet. Starting with our second quarter results. We achieved another solid quarter with Core FFO per share exceeding the midpoint of our guidance range by $0.10.

[Barb Pak, EVP and CFO at Essex Property Trust]

The outperformance was primarily driven by operations with same-property NOI accounting for $0.05 and non-same-property NOI contributing an additional $0.03. As for the favorable variance within our same-property portfolio, it was comprised of revenue growth, which was 20 basis points ahead of plan. In addition, operating expenses came in lower than expected, which was driven by $0.03 of favorable property taxes, mainly due to successful Prop 8 appeals that are one-time in nature. The benefit from our non-same-property portfolio was largely attributable to prior year acquisitions in Northern California, which continue to perform ahead of plan due to strong rent growth in this region. Turning to our updated full-year guidance, we are pleased to announce a $0.20 increase to the midpoint of Core FFO per share, representing a 1.3% increase at the midpoint. Better operating performance within our portfolio is the key driver of the increase.

[Barb Pak, EVP and CFO at Essex Property Trust]

As it relates to our same-property portfolio, we are raising the midpoint of NOI growth by 70 basis points to 2.8%. The increase is a result of 40 basis points improvement in revenue growth, which is driven by higher scheduled rent, occupancy, and other income. In addition, we are lowering the midpoint of operating expense growth by 25 basis points, primarily reflecting the property tax savings previously discussed. Altogether, higher same-property growth contributed $0.12 to the full-year increase. The balance of the increase to our guidance largely reflects better than expected performance within our non-same-property portfolio, as previously discussed. As for our third quarter Core FFO guidance, we are forecasting $3.99 per share at the midpoint.

[Barb Pak, EVP and CFO at Essex Property Trust]

The $0.09 sequential decline from the second quarter primarily reflects higher operating expenses, including normal seasonal increases in utilities and California property taxes, as well as increased controllable spending during the second half of the year. As I mentioned last quarter, controllable expenses were lower than expected in the first quarter, which was timing related, and as such, we expect these expenses to be $0.09 higher in the second half of the year than the first half. Concluding with the balance sheet, we remain in a strong financial position with net debt to EBITDA of 5.4 times, minimal debt maturities over the next 12 months, over $1 billion of available liquidity, and access to multiple sources of capital. As such, we have ample flexibility to fund our commitments and capitalize on opportunities that support long-term growth. I will now turn the call back to operator for questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. That we may address as many participants as possible, we ask that you limit yourself to one question and one follow-up, and time permitting, you may re-queue to add answer any additional questions. One moment please while we poll for questions. Thank you. Our first question comes to the line of Steve Sakwa with Evercore ISI. Please proceed.

[Steve Sakwa, Analyst at Evercore ISI]

Yeah, thanks. I guess good morning out there. Could you maybe just elaborate a little bit on some of the July trends that you're seeing? It feels like the market certainly improved, quite dramatically from maybe the start of the second quarter to the end of the second quarter. Then I'm just curious how kind of spreads and renewals are trending in July and perhaps August.

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, Steve. Thanks for your question. It's Angela here. Happy to. Maybe I'll start from the blends. I think that's a good data point. July blends are coming in similar to the second quarter. I think things are moving along as planned and our fundamentals remain sound. Just for context, where July is coming in this year, it's slightly better than the same period last year. If you want to compare from a year-over-year perspective, it's interesting how things are trending. Last year, we had a very strong first half and then a pretty significant drop in the second half. We're definitely not seeing that so far this year, and we are assuming that this year, first half and second half are quite similar.

[Steve Sakwa, Analyst at Evercore ISI]

I guess that's kind of the issue is that you're not seeing the drop-off and the market's been very strong. I think maybe it would sort of imply that there should be more momentum into the back half of the year, but yet you're not really assuming that or maybe projecting that within guidance. Is there something holding you back on that, or is that just conservatism on your part at this point in the year?

[Angela Kleiman, President and CEO at Essex Property Trust]

That's a good question, Steve. It's a little bit of both. We are not anticipating a significant drop-off, and our base case is that we're going to land right at that 2.5% blended midpoint. The reason we are not-- obviously, we have a range which would point to a better performance. What we're seeing on the ground here is that Northern California momentum remains strong. We actually haven't peaked yet, and that's

[Angela Kleiman, President and CEO at Essex Property Trust]

Fantastic. Having said that, the broad U.S. economy actually is slower this year than last year, and we are tethered to that, especially Southern California, including L.A. A good data point I'll point you to is if you just look at job growth. Job growth for the first half of this year is actually quite a bit slower or lower than the same period last year. For those reasons, and with the geopolitical uncertainty that remains, if we were 100% Northern California, obviously our numbers would be very different, much more robust. But given that 40% of our footprint is still in Southern California, and it is tied to the broader economy, we needed to essentially make sure that we factor some of these uncertainties out there.

[Angela Kleiman, President and CEO at Essex Property Trust]

At the end of the day, if you look at Southern California, while it is a lag for the West Coast, it is still a solid long-term market, generating 1.4% blended rent growth with occupancy above 95%. It outperforms most of the major metros in the U.S.

[Steve Sakwa, Analyst at Evercore ISI]

Great, thanks. That's it for me.

[Operator]

Thank you. Our next question comes to the line of Brad Heffern with RBC Capital Markets. Please proceed.

[Brad Heffern, Analyst at RBC Capital Markets]

Yeah. Hey, everybody. Thanks. On new lease spreads, we were kind of surprised to see the new lease numbers so much lower than 2Q 2025, just given all the strength in NorCal. You kind of covered it a little bit with your commentary about the broader economy, but I'm just wondering about the dynamic of lower new lease spreads year-over-year, but higher renewals and what's kind of driving that pricing decision.

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, Brad. Thanks for your question. It's interesting how the different regions' performance is quite a bit of variation there. In Northern California, we're definitely seeing very strong new lease spreads. Southern California is not going to have that kind of strength. Of course, Seattle is somewhere in the middle. Overall, if you look at the composition of our portfolio, Southern California plus Seattle is 60%. That gives you a little bit more insight to the different components. What we are seeing this year is that our renewal continues to be quite strong and coming in that 5% range. With new lease, we're expecting that for the trend with that lower new lease to continue and elevated renewal to continue.

[Brad Heffern, Analyst at RBC Capital Markets]

Okay. Thanks for that. Barb, two things on the preferred book. You had the close to $90 million in redemptions in the quarter, but the balance is only down about $40 million sequentially. Can you reconcile that and then just also give your broader perspective on how the current balance should evolve in the coming quarters?

[Barb Pak, EVP and CFO at Essex Property Trust]

Yeah, no, that's a good question. The redemptions that we had this quarter, two were in the preferred equity book. That's the $40 million. One was a mezz investment, which sits in the notes and other receivables on the balance sheet. It's in two different buckets on the income statement and balance sheet. That's why you didn't see it fully drop $90 million in that preferred line. What was your second question?

[Brad Heffern, Analyst at RBC Capital Markets]

Just how you expect the balance there to evolve. I think that was all the redemptions for the year, but I could be wrong.

[Barb Pak, EVP and CFO at Essex Property Trust]

Yeah, we have one other small redemption in the third quarter, which was factored into our guidance originally, but it's offsetting by the new investment that we did. The book value that we're accruing on is $100 million, and I think that's a good run rate to use going forward for guidance purposes, unless we do more investments. At this point, $100 million seems like a good run rate.

[Brad Heffern, Analyst at RBC Capital Markets]

Okay. Thank you.

[Operator]

Thank you. Our next question comes to the line of Eric Wolfe with Citi. Please proceed.

[Eric Wolfe, Analyst at Citi]

Hey, thanks. I think you mentioned a moment ago that you're still expecting a 2.5% blended rent growth for the years. Apologies if I misheard that, could you just talk about what drove the increase in your same-store revenue guidance, what the various components of the change were?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. I'll cover the blend, and Barb will talk about the revenue growth. Just to confirm your question, yes, we are expecting for the full year to land at 2.5%. I had talked about that first year and second half to be similar, and first half is coming in about 2.6, which would imply that the second half comes in at 2.4, not a huge variation there. Barb?

[Barb Pak, EVP and CFO at Essex Property Trust]

In terms of the 40 basis points improvement to our same-store revenue growth, scheduled rent and other income each contribute 15 basis points to growth, then the other 10 basis points is from higher occupancy.

[Eric Wolfe, Analyst at Citi]

Got it. That's helpful. You spent some time talking about Seattle as well as Northern California. I guess I'm just wondering, if you compare those markets, is it very obvious, I guess, that Northern California is sort of seeing stronger demand and it's just that they absorbed the supply earlier and that's why you're seeing much more pricing power? I guess when you look at your dashboards and you look at traffic and you look at other things that signify demand, it's just NorCal just has the stronger demand right now?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah, that's a good question. Couple of things. With Northern California, it had a lower supply to start with relative to Seattle. Seattle last year was closer to 1% versus NorCal was half of that. The base is very different and certainly is beneficial to Northern California. Your point as far as the demand is spot on. Demand starts with Northern California, and that's really the center of the innovation engine. What we have seen over multiple cycles is that it starts with Northern California and then it expands out to Seattle. We're already seeing public announcements of expansion to Seattle. It does take time for companies, once they make the expansion announcements, to then build out the office space, then hiring then follows. There's always a lag.

[Eric Wolfe, Analyst at Citi]

Got it. Helpful. Thank you.

[Operator]

Thank you. Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed.

[Alexander Goldfarb, Analyst at Piper Sandler]

Hey. Morning out there. Angela, if I could just continue that Seattle discussion, sort of a two-parter on Seattle. One, do you think that the East Side has the potential to put up numbers like we're seeing in Northern Cal? Two, just from being out there in the market, it seems like CBD is waking up some of the office demand coming back there just because of lack of space availability on the East Side. Do you think we could be surprised by CBD as well as we look over the next 12 months?

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, Alex. It's a great question. It all hinges on demand and the reason why it's possible for Seattle, especially in the East Side, to perform at a similar level as Northern California is because it does have that tailwind of jobs to come and supply is abating. Having said that, it is a market that historically produces more supply, so it does need more jobs in order for us to have meaningful pricing power. We've seen this before.

[Alexander Goldfarb, Analyst at Piper Sandler]

Okay.

[Angela Kleiman, President and CEO at Essex Property Trust]

As far as the CBD itself, that's a little trickier because CBD historically, and as we look forward, does have higher percentage of total supply for the market. If you look at the location of the large employers, it's throughout the whole Seattle metro, not concentrated in the CBD. I do think that there is a recovery possible for CBD, but I'm not sure about the magnitude specific to pointing to Northern California, that level magnitude.

[Alexander Goldfarb, Analyst at Piper Sandler]

Okay. Barb, just second question is, saw the RealPage litigation, but there was another litigation settlement as well. What was that? Was that also related to RealPage, or what was that?

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, Alex, it's Angela here. I'll cover the litigation. We settled a separate dispute item, which has nothing to do with RealPage. This was a litigation that was ongoing for multiple years, almost four years. I know this magnitude is actually unusual for Essex, but after a protracted litigation and considering the cost to defend, we decided that it was in our best interest to just bring the matter to a resolution. Because the settlement is still subject to court approval, we've been advised to refrain from discussing additional details. I can tell you that we don't have anything else of this magnitude.

[Alexander Goldfarb, Analyst at Piper Sandler]

That's good to hear. Listen, thank you, Angela.

[Operator]

Thank you. Our next question comes from the line of Jana Galan with Bank of America. Please proceed.

[Jana Galan, Analyst at Bank of America]

Thank you. Congratulations on a great quarter. Following up on your comments that Northern California rents have not yet peaked this leasing season, just wanted to confirm, is that also the case for Seattle and Southern California markets?

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, good question. No, that is not the case for Seattle and Southern California. Seattle peaked consistent with typical seasonality, so in that early July. We are expecting and seeing a moderation for the rest of the year. As far as the Southern California, it's a little bit hard to describe the peak itself. I mean, technically it peaked early, but it's a very flat curve, so it's not really much of a peak. I'll point to my earlier comment on the soft economy and very muted job growth as one of the key driver. Southern California is just kind of moving along and not doing much of anything this year.

[Jana Galan, Analyst at Bank of America]

Thank you. Then maybe just looking at the supply outlook for 2027 seems very favorable, especially in some of the little bit slower markets like Seattle. Just curious if there's any early comments you'd like to make on kind of the supply you see, how competitive it is to where you guys are located.

[Barb Pak, EVP and CFO at Essex Property Trust]

Jana, this is Barb. The supply is going to continue to trend lower in 2027 versus 2026, and the backdrop is already very favorable, and it's going to get more favorable. We're not surprised by this given what we've seen on the ground and permits and things like that for the last several years. It's good for us. We won't need a lot of incremental job growth next year just to cover the supply. In terms of where the supply is, it is within our metros. It doesn't necessarily have to be next to our properties, but it is competitive within our sub-markets that we operate in. Overall, though, I think the supply picture continues to look good for the West Coast and our markets for the foreseeable future.

[Jana Galan, Analyst at Bank of America]

Thank you, Barb. Thanks, Angela.

[Angela Kleiman, President and CEO at Essex Property Trust]

Thank you, Jana.

[Operator]

Thank you. Our next question comes from the line of Nick Yulico with Scotiabank. Please proceed.

[Nick Yulico, Analyst at Scotiabank]

Oh, thanks. I wanted to see in terms of the guidance for the year on same-store revenue growth, could we get a feel for what's assumed for the different regions? In particular, I'm just wondering, like for Northern California, I think you're up about 4% year-over-year in the first half of the year. Is that like a similar number for the whole year, or does it get better in the back half of the year?

[Barb Pak, EVP and CFO at Essex Property Trust]

Hi, Nick. Yeah, it's Barb. I would say in terms of the various regions, Northern California, I think continues to improve relative to where we are today through the back half of the year, given the rent growth we're seeing. That's going to be offset by slower growth in Southern California, given the moderation in blended rent growth that we're seeing there. I think Seattle stays pretty much on par.

[Nick Yulico, Analyst at Scotiabank]

Okay. Thanks, Barb. My second question is just maybe you can give us a reminder of how to think about this. I think you said Northern California blended rents were up over 6% in the quarter. We look at market data, and it's all over the place, but somewhere sort of high single digit, maybe even over 10% in San Francisco, specifically. I guess the question is, if that type of rent growth continues in markets, how long does it take to translate into same-store revenue growth going from 4% to some higher number, 6% or more, which is where the market rent growth has been recently? Thanks.

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. That's a good question. Our lease turns pretty quickly, so it doesn't take a long time for rent growth to translate into the bottom line. That's one benefit of the multifamily business. In terms of if your question is how long is this tailwind, is that what you're asking? You're only asking about the timing of the rent to-

[Nick Yulico, Analyst at Scotiabank]

I think my question is like, we're seeing rent growth that's very high coming out of Northern California, but it hasn't fully translated into your same-store revenue growth yet. At some point, you should be accruing that benefit. Just for everyone to kind of manage expectations, how we should think about that. Thanks.

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. I see what you're saying. We do have, if you look at the turnover rate, that's probably a great indication of how quickly we can capture the market rent growth and turnover. Our retention rate is still very high with Northern California in particular. That's not a surprise, right? Because as markets move quickly, and keep in mind, in California, we have AB 1482. It does prolong that recovery. To us, that's not problematic.

[Nick Yulico, Analyst at Scotiabank]

Okay. Thanks, Angela.

[Operator]

Thank you. Our next question comes to the line of Adam Kramer with Morgan Stanley. Please proceed.

[Adam Kramer, Analyst at Morgan Stanley]

Hey, thanks for the time here. I think that at Nareit, if I remember correctly, you guys used the word sort of stabilization or stability in SoCal. Obviously, it is a different market versus NorCal versus Seattle, different employers, et cetera. Just wondering if you could maybe give us an update, sort of what is the latest thinking there. Would you sort of still use that word stabilization or different way to maybe frame what is happening fundamentals wise there and sort of where that market is in terms of the recovery?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. We would still frame it as a stable market. If you look at blend lease rates at 1.4% and occupancy for that region is above 95%, this is by no means a market that is fragile or broken. It is performing as you would expect it in an environment of an overall slow economic environment.

[Adam Kramer, Analyst at Morgan Stanley]

Okay. That is helpful. Just maybe flipping to Seattle. I think on the prior call, you talked about sort of positive lease growth in March and that continuing into April. Maybe just sort of how Seattle trended in terms of either new or blended through the second quarter. I think supply there is supposed to decline pretty meaningfully over the course of this year and into next. Maybe just sort of the outlook for Seattle specifically.

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah, I am happy to go into a little more detail on that. We had talked about blended rates flipped positive in March, and it continued to increase through June, actually. Then, of course, with the peak now, it is starting to taper down. Just to give you high level, March blended lease rate for Seattle that month was 1.4%, and in June was 2.8%. Over 140 basis points in increase. Of course, now it is starting to moderate as we would expect. Does that help give you that color you are looking for?

[Adam Kramer, Analyst at Morgan Stanley]

That's helpful. Thank you, guys. Thank you, Angela.

[Operator]

Thank you. Our next question comes to the line of Jamie Feldman with Wells Fargo. Please proceed.

[Jamie Feldman, Analyst at Wells Fargo]

Great. Thank you. I was hoping to get a little bit more granular on the Southern California submarkets. There's been so much capital raised, especially, and then you listen to some of the industrial calls, and they're definitely getting more enthusiastic about some of the demand drivers, especially aerospace defense. Can you give a little bit more color or maybe a better way to ask it, are you seeing green shoots at all in any of the submarkets? Can you give us more color on what you are seeing as we think ahead?

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, Jamie. Sure thing. Happy to. We had talked about Southern California being generally stable market, definitely seeing that continue. Orange County is leading the pack, and San Diego has starting to turn for the better once it started to work through the bulk of the supply. That's all good sign. What's really dragging our Southern California continues to be L.A. County. Once again, I had talked about L.A. hitting its trough back in 2023 when economic occupancy was only at 91%. Since then, it's improved, and it's hovering around that, kind of between that 93%-94% economic occupancy, that is. It's remained steady. We are seeing green shoots, like you said, from Anduril and some of these aerospace defense, but they're relatively new.

[Angela Kleiman, President and CEO at Essex Property Trust]

It is a positive sign for us, but it's too new to be able to point to what the magnitude will be.

[Jamie Feldman, Analyst at Wells Fargo]

Okay. I guess similarly with all the capital being raised in Northern California, are you seeing people more interested in moving out to buy homes now that they have more capital? It certainly seems like it's helping you push rents. I'm just curious, any just kind of consumer behavior you're seeing that's unique given how much those stocks have moved and how much money's been raised and wealth's been created.

[Angela Kleiman, President and CEO at Essex Property Trust]

No, that's a really good point. A couple of things. I think affordability remains much more attractive to rent, even though we've been able to increase rents, but it's really a recovery increase, right? The way to think about Northern California is this is a market, if you look at since pre-COVID, should be well above 20% rent growth, but we're nowhere near that. It still has quite a bit of catching up to do. More importantly, when we're talking about buying or converting from being a renter to a homeowner, the cost to own is exponentially more expensive. It's very difficult to move from being a renter to a buyer. We've not seen that as a reason for move-out in our portfolio.

[Jamie Feldman, Analyst at Wells Fargo]

Okay. Thank you.

[Operator]

Thank you. Our next question comes to the line of Austin Wurschmidt with KeyBanc Capital Markets. Please proceed.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Great. Thanks. Just wanted to go back to guidance a little bit. Given the 2.4% back half assumed lease rate growth versus, call it 2% or even slightly below 2% that you had last year, is it fair to say we should start to see that scheduled rent accelerate in the back half of the year and that the earn-in for 2027 should be higher than the 85 basis points that you had heading into this year?

[Angela Kleiman, President and CEO at Essex Property Trust]

I think that is possible, but it's way too early to predict because we will need to see the rate of deceleration. Like I said, we're not assuming a significant drop-off, but we still have a couple of more months before we can be able to pinpoint the earn-in. I can give you a couple of building blocks on the earn-in side as it relates to 2027, in that, if you look at our supply is getting lower, that's good. Affordability tailwind continues. Lastly, our preferred equity headwind is now behind us. I do think that we have some pretty good building blocks there, but as far as the actual rate, we really do need to see how the next couple of months perform and how the rents moderate to get a better sense.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Just when you roll up all the differing trends across your regions, is the portfolio operating at a loss or gain to lease today? I guess where does that stand across each of the three regions?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. We do have a loss to lease, that's good. It's mostly driven by Northern California, no surprise there. As far as Southern California, we have a gain to lease. Also not surprised there, since the curve was very flat, Seattle's kind of in the middle. Slight gain to lease.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Could you give some color around the magnitude there, Angela, for each of the regions?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yeah. Let me see. Northern California, let's see, closer to around, say, 6%. Southern California in the twos, Seattle, 70 basis points.

[Austin Wurschmidt, Analyst at KeyBanc Capital Markets]

Great. Thank you.

[Operator]

Thank you. Our next question comes to the line of John Kim with BMO Capital Markets. Please proceed.

[John Kim, Analyst at BMO Capital Markets]

Good morning. I wanted to ask about the change in pricing strategy. I think you said in the past you were a little bit more agnostic on pushing renewals, maybe as hard as your peers, because you were looking to optimize occupancy and achieve better pricing on new leases. Now, as you're pushing renewal rates higher, will that suppress new lease rates going forward? I'm just wondering why this changed.

[Angela Kleiman, President and CEO at Essex Property Trust]

Hey, John. We have not changed our operating philosophy or approach. The goal has always been to maximize revenues. We're agnostic on where we get that from, whether it's new lease or renewals or occupancy. Those are kind of the three big ones, if you will, or the three big levers. One of the reasons why, depending on the market, we favor occupancy, well, that's for obvious reasons. As far as favoring renewals over new lease rates, we talked about the cost of turnover. So, in an environment where unless we're able to push rents above say, 6%, for example, we're better off focusing on renewals and keeping that new lease rates flat and not to incur turnover, because that is very expensive.

[Angela Kleiman, President and CEO at Essex Property Trust]

Ultimately, I will take you back to our strategy, which is to maximize revenues and not to focus on any specific rental rates as a metric.

[John Kim, Analyst at BMO Capital Markets]

Okay. Maybe another subtle change, maybe not, but you did make a couple of preferred investments in one of your West Coast joint ventures. In the past you had said redemptions would be used to buy simple assets. Has that philosophy changed, or is it because it's in a joint venture that you've made these reinvestments back into the preferred?

[Rylan Burns, CIO and EVP at Essex Property Trust]

Hey, John. Rylan here. Our overall philosophy as it relates to this business has not changed in recent years. I'd remind people that we've made a lot of money in this business over the past several decades. It's incredibly synergistic with our development and our investment businesses. What we've done is just strategically resized this book of business, which has the benefit of reducing earnings volatility. We're just going to remain highly selective. When we see the best risk-adjusted returns, that's where we'll step in and lean in. That's what we've seen the more recently, and we've done another one earlier this year. We're just going to remain highly opportunistic and making sure that we're putting our dollars to work where it's really creating value for our shareholders.

[John Kim, Analyst at BMO Capital Markets]

Okay, there's not a stated strategy to reduce the preferred investment book.

[Rylan Burns, CIO and EVP at Essex Property Trust]

As Barb alluded to, it's down to $100 million. We think it's in a very manageable space, and we could grow that if we see the right opportunities.

[John Kim, Analyst at BMO Capital Markets]

Okay, great. Thank you.

[Operator]

Thank you. Our next question comes from the line of Michael Goldsmith with UBS. Please proceed.

[Analyst at UBS]

Hi, this is Amy. I'm with Michael. Given the strengthening rent growth in Northern California, are we getting close to the point where developments start to look more attractive? If not, what conditions need to change for developments to start looking attractive again?

[Rylan Burns, CIO and EVP at Essex Property Trust]

Hey, Amy, this is Rylan again. Development economics have improved over the past year as rent growth has outpaced cost growth. Our philosophy as it relates to new developments is we just want to make sure that we're getting compensated for the risk inherent in all developments. We have the South San Francisco deal, which is trending very favorably relative to our initial underwriting, and we're actually ahead of schedule on that project. We're working toward another project further down the peninsula, and we continue to underwrite all land development sites. Just trying to remain disciplined to make sure that we're fully getting compensated for the risk inherent in development. We continue to look at everything and the economics, to answer your question bluntly, have improved.

[Analyst at UBS]

Thanks. For those deals, what yields would you be targeting approximately?

[Rylan Burns, CIO and EVP at Essex Property Trust]

What we said publicly is anywhere from 100 to 150 basis points spread to where we can go and buy. These yields, I think I've said on the 7 South Linden deal historically, we expect to stabilize closer to a six.

[Analyst at UBS]

Great. Thank you.

[Operator]

Thank you. Our next question comes to the line of Haendel St. Juste with Mizuho Securities. Please proceed.

[Analyst at Mizuho Securities]

Good afternoon. This is Mike on with Haendel at Mizuho. What has the retention rate been in your San Francisco portfolio, and are you seeing a higher retention rate given the stronger new market rent growth pricing?

[Angela Kleiman, President and CEO at Essex Property Trust]

Our retention rate in San Francisco has been elevated, relative to other regions, and it's been that way for quite some time. As far as our expectation, yeah, we expect to maintain that high retention rate, especially in an environment where market rent is moving so quickly. That's not a surprise to us, but to us, that just means that it's a longer tailwind.

[Analyst at Mizuho Securities]

Okay. Helpful. Where are renewals being sent out and executed for August and September, and how much of your Q3 renewals in terms of visibility have been executed so far?

[Angela Kleiman, President and CEO at Essex Property Trust]

August, September, we're sending renewals out in the high fives. We expect negotiation probably around, say, 50 basis points. We'll land in that low fives range. How much of it is out? Well, let's see. August is done, and we're halfway through September.

[Analyst at Mizuho Securities]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Peter Abramowitz with Deutsche Bank. Please proceed. Peter, your line is unmuted on my end. We can't hear you. All right, looks like we lost him. Our next question comes from the line of Anne Tan with Green Street. Please proceed.

[Anne Tan, Analyst at Green Street]

Hey. Thanks for your time. I believe you have three properties with ground leases expiring in 2027 or 2028. Could you give us a sense of whether we should expect either a large step-up on ground rent at those properties, in conjunction with an extension of the ground lease, or if you sell the properties, do you expect a very high cap rate?

[Rylan Burns, CIO and EVP at Essex Property Trust]

Anne, as you can imagine, these are ongoing negotiations that we'll have with the ground holders. In many instances, we'd love to figure out a way that we can renew, but it's going to go back to our broader philosophy. Does this create value, and at what rates? Still too early to say, but those conversations are ongoing. It's a very, very small percentage of our portfolio to have an effect.

[Anne Tan, Analyst at Green Street]

Thanks. Second question for me. On the JV disposition in San Jose, can you share the cap rate on that sale and maybe some color on the decision to sell versus consolidating the property?

[Rylan Burns, CIO and EVP at Essex Property Trust]

It's a fair question. This was a mid four cap rate, sub four, five. This was a joint venture that had debt maturing, that caused us to evaluate the property and the valuation. Unsurprising, we saw very strong interest in the asset, in this instance, we thought we could generate better risk-adjusted rewards by redeploying elsewhere. We made the decision with the partner to sell this asset, and we're very pleased with the execution.

[Anne Tan, Analyst at Green Street]

Got it. Thank you.

[Operator]

Thank you. Our last question comes from the line of Peter Abramowitz with Deutsche Bank. Please proceed.

[Peter Abramowitz, Analyst at Deutsche Bank]

Hi, can you guys hear me?

[Angela Kleiman, President and CEO at Essex Property Trust]

Yes. Hi, Peter.

[Peter Abramowitz, Analyst at Deutsche Bank]

How are you doing? Sorry about that. Yeah. One question about Seattle. One of your peers called out tech layoffs as a pretty specific driver of softer pricing for the first half of the year. I know it's not something we discussed much on the call and wasn't mentioned in the release. Just kind of curious if that's something you've noticed as well. Has it had any impact in your Seattle portfolio or Northern California? Just any color you could provide around that would be helpful.

[Angela Kleiman, President and CEO at Essex Property Trust]

Happy to. It could be depending on the specific location of the asset relative to our peers. I don't know what they're seeing, but certainly on our end, we're not seeing that as a primary reason. As we have noted in the past that these tech announcements, vast majority of them are not in our markets. When we look at the top 20 tech jobs, the job openings have remained steady. Actually, with incremental increase throughout the year, we're pretty on close long-term average despite the layoff headlines. It's not something that we're seeing as a major impact. I'd probably point you back to the broader economy. That probably has a larger influence over all the other markets except for Northern California.

[Peter Abramowitz, Analyst at Deutsche Bank]

All right. Appreciate the color. Thanks for the time.

[Operator]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Angela Kleiman, President and CEO
• Barb Pak, EVP and CFO
• Rylan Burns, CIO and EVP

Analysts

• Steve Sakwa, Analyst at Evercore ISI
• Brad Heffern, Analyst at RBC Capital Markets
• Eric Wolfe, Analyst at Citi
• Alexander Goldfarb, Analyst at Piper Sandler
• Jana Galan, Analyst at Bank of America
• Nick Yulico, Analyst at Scotiabank
• Adam Kramer, Analyst at Morgan Stanley
• Jamie Feldman, Analyst at Wells Fargo
• Austin Wurschmidt, Analyst at KeyBanc Capital Markets
• John Kim, Analyst at BMO Capital Markets
• Analyst at UBS
• Analyst at Mizuho Securities
• Anne Tan, Analyst at Green Street
• Peter Abramowitz, Analyst at Deutsche Bank