ESS - Earnings call transcript Q1 2018 | Essex Property Trust, Inc.

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Operator

Good day, and welcome to the Essex Property Trust First Quarter 2018 Earnings Call.

As a reminder, today’s conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties.

Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated. risks SEC. found these filings the about the with information can on be company’s Further It now Officer Instructions] Schall, Trust. [Operator is President host, introduce and Michael your Chief Executive for Property my Essex pleasure to you. Thank Mr. Schall, you may begin.

Michael Schall

and comment you first Eudy our quarter for to markets. Q&A. is outlook and Kleiman here earnings and with quarter me will Burkart first will John for for follow matters joining on call. comments, regulatory Thank our and today, Angela welcome results three us topics: conference and XXXX, I John investment

significant results from XXXX. Our stronger first quarter were challenging than of expected, half with improvement second a

X.X% growth This with U.S. averaging labor was from last same discuss As by ultralow the to note rents of our markets. and Job the the first markets market expectations year-end for a X.X% better of were Essex U.S. plan moment. of with rent for basis X.X% markets mostly at with growth results in because of the the will Citigroup period trailing higher versus tech X.X% X.X% stronger occupancy March, quarter job income, notable in the these which consistent portfolio average our growth other our the unemployment XXXX in in the grew are from considering first the X.X%, in year. Market year are tight than rates, and and end conference is conditions, quarter, emanating market John demonstrated for the achieving which on outperformance versus Essex the the a relatively growth X-month most

East Coast for year-over-year West metros relieved the wage for our Bay to Essex reduction personal other the quarter. be moving from shortage the forecast our retain indicating of supplemental the been and to of the Page year employers encouraged patterns in continues a Coast by is growth migration XXX and highlighted of by migration are local reproduced ability the Page We report high-cost net job we from migration out positive Bay the S-XX the from Bay X.X% of compared the educated income a report of Area to nation. has source Area network from start growth especially from monthly workers the to growth users part compete million Estimated metros. of labor XXXX On in on XX growth Area that workers. than view trend in metros. U.S. of our in rent X.X% world, skilled The over which workers. and ranges of a to This the Bay skilled months. it dynamic led growth has high pressures to continues supports when are as all recently. successfully for number exceeds the rent-to-income X.X% ratios the Seattle the for intensifies. attractor The to LinkedIn’s in talent, achieved departing. into remain Wage skilled have supplemental, and improve of the the the details outweigh published has visual economies to continues workers areas, XX number S-XX.X innovative past workforce and among The the reevaluate within This which we’ll MSA illustrates as in This that Affordability Area LinkedIn, more strong most next in

consisting the issues the shortfall, housing states. housing key on nature California, housing produced related Growth a million U.S. commutes period. up In shortage than X.X affecting of produced in the America’s Up nation to acknowledged solutions. As potential indicates study of the needed of study Coalition The recent XXXX has roughly of in California Street the shortages proposed fewer period units. for problems total shortage roughly widespread National nearly the housing with of by in The the Journal, million half XX-year economic the long for growth congestion Wall cited that ending in the X study West units over remain analyzed XX total, and in Coast. particular, and chronic keep housing largest housing under has or traffic and

Turning to supply.

supply multi-family vary impact the S-XX markets projections Our across and the Essex submarkets on for remain the deliveries supplemental, widely. of unchanged of

concentrated As multiple periodic power offer to be exceeding of XXXX communities At in expect rent. a an residential disruption submarket land-use increasing pace. lending, mostly construction pricing more regulations, slowing faster be continued in and we construction to when than to when the continue concessions at X lease-ups expect permits point, a flat to rising strong costs weeks strict submarkets. shortages and stabilized result, Factoring downtown conservative though versus supply in construction appears in this share a we with XXXX even of have -- labor, rents

as On on We developments that topic, the pencil. being that pipeline repeal to our the seeks ballot. matters. supply proposed the belief peaked provide I Costa-Hawkins Rental the California’s on the November to seeing slowly XXXX regulatory economics will examples to over residential This my markets don’t appear Act referendum next several years. off likely has Housing wanted in second hold taper our are an that many supports update put on construction and of will

committee get contribute a housing California’s rental control rental of recently housing which cities XXXX, enacting and in XXXX created We in shortages could that to The to economic the including ballot housing -- issues, Santa on headwind thus, did year. part, and of state. California’s in greater clearly the mostly market at This in report legislature of jurisdictions enacting and rent restricts with When of the production major These the control study rates. documented level faculty business to apartments housing repealed Bill housing was any that to vacated the the the shortages factor thought counter to and was understands Legislative may the significant you savecostahawkins.org. ordinances XXXX control, be California housing. February result that failed that in in California, law legislature the passed by academic XXXX the detail of from legislature be to to abolishing As of San of mandates XXXX. both again extreme a of a includes control University even issues have proposed measure been after priced expansion, by than this Francisco Rather and which Assembly needs studies and the growth. AB rent have like affordability government. believe Costa-Hawkins, here, increase researched the passing Costa-Hawkins we XXXX, contributing unintended produced in in control considered The affordability after community recall, due completed would rent and Office. San consideration and on Costa-Hawkins. apartments a you consequences and control not forms In issues, refer XXXX at that Costa-Hawkins, to earlier local cities Francisco, Berkeley rent minimal XXXX is by Analyst’s shortages could primary rent a Stanford housing that studies Internet conclude great rent elaborate Monica, to minimal especially links

remains regulatory rates topic, seen the my no rates. we will And healthy. periodic despite as issues to on updates cap future. markets in continue have The result, higher third markets. We And provide change investment apartment demand in our to a property interest for

around support to close sales often For contract cap the is locations contemplate our disposition higher, a to recent second to cap and and not rate. activities. a XX value-add belief upside currently that continue This are Essex example, at B quality used rate we cap transact transaction basis in have property are X.XX% other quarter on the that the from quality redevelopment though locations and rates to likely A X% in XX X% changed. methodology. assets points generally and/or in low

to noted to slowdown that in quarter, a development. a we consistent new headwind is continue the preferred As This increases pipeline. earlier comments with equity represent last my cost see

our believe close commitments continue we will this that be for preferred We to year. equity to target

today, for commitments and debt of you call equity over preferred concludes the Thank investments the call subordinated comments. I turn John. As aggregated our my for and joining million. XXX end, quarter That to total will

John Burkart

Mike. you, Thank

year-over-year quarter. XXXX to of growth off X.X% good first in We’re revenue of growth for and the NOI X.X% with start a

lease signed Our prior California XX% result year’s turnover prior favorably in in to to the compared limited as Governor the by occupancy growth relates in our a Brown fewer on effectively impacted wildfires, the short-term the of California by Executive which XXXX the the the impacted and operations period portfolio quarter underlying first month-to-month Part was adjustments basis points leases. devastating the revenue annualized of by increased of led year. increases XX% order to Order wildfires housing over been an rent an year. the due utility strong of an reduced to the in utility place It all when Strategic on increase reimbursements end of Turnover to dropped move-outs October the counties the made XXXX. additional occupancy directly increases in extensions, signed for price the higher-than-expected extended XX the was in by selected above of has through expenses. to of through to and XX% timing which basis team in promotion led and

the it we we will operations law working and We selected with markets. are impact that to comply in ensure that where expect applicable,

to continue with change conditions. will the strategy market operations Our

As grew occupancy increase out significant the QX. basis results Preliminary period over weaker the markets X.X% is with XX occupancy that we SoCal gross versus playing expected a stronger little a is only April revenues, first April enter time peak quarter. year-over-year expected Seattle for we sequential versus little is our a of expect XX as In grew Essex achieved at typical this to are X.X%. decrease but performing financial at already show prior basis year. and scheduled increases, and Overall, decline points turnover season, leasing point approximately expectations. we our in as the approximately a rent while revenues year’s indicate results as strategy XXXX slowdown our April, in from

typical expect more rent of is see pattern forecast. seasonal part which Moving in XXXX to assumed forward, as our growth, we

our region provide highest This growth growth Now an third update of the for markets. Essex has first in portfolio, of of quarter on the posting year-over-year the since the I’ll growth XXXX. strongest Seattle, job to the is seen quarter continued In the XXXX. X.X% be

impact Downtown year. to is are Seattle, to XXX,XXX March the was in at WeWork square a the they X.X% market. a loss of Rents as evident period, X.X% there and where year’s feet. slightly compared last time were prior totaling lease supply below In rental leases lease same in the in to XXXX to signed the However, gain

feet preleased. or continued Redmond. east of currently Seattle Downtown the continued has which On making of already Seattle median X.X only of portfolio, the almost Microsoft home square XX% space in X% half it the the markets. side, in second nearly footprint is prices their momentum, region increasing to the March, year-over-year million Essex to by fastest-growing construction, Area MD roughly under expand Bay surpassed month for gain

of CBD, respectively. the X.X% side for grew by revenues submarkets the X.X% submarkets the south same-store in in year-over-year first and Our east X.X% quarter XXXX north X.X%, the were while and

California. with and year’s X.X%, XXXX, first the loss while Market San downtown prior X.X% San XXX,XXX feet trend, WeWork their Jose the Northern the the Bay In XX,XXX X% largest a Bay in were area. up In growth lease X.X% Oakland way to X.X%. jobs job with growth signing leading to Francisco respectively. the on rents Moving year-over-year in square Francisco in X.X% Area in growth added. in lease year-to-date Francisco, and Area of quarter San were period over roughly to job continued averaged San for the the up of city led March

near to the to that square space of in San square approved of continued million to South a build Diridon company $XXX in office preleased has site submarket. office invested Moving X land Station, Sunnyvale. Facebook roughly purchasing feet the million the feet down space. planned Jose In X Google central million Bay. acquire total,

peaks in of median home which led continued thirds of X purchased Francisco prices construction. Jose in the and over San now continues Silicon San X in Francisco XX%, the Silicon having or have Area of San soar, Valley The to Francisco is two to Mountain respectively, Jose X are XX% period. over year’s office million Jose San expand Google North gaining prior and feet by XXXX. additional San in approximately office markets Bay home Jose higher Median their prices approximately Roughly in XXXX XX% X% preleased. properties and under space stock Valley buildings the in View. Additionally, and industrial San and than March total square San the submarkets, and prior

quarter, in Mateo the with X, selected Park Green Phase on six-week a of lease-up Station concessions we located During started units. San

leased. As of XX% April we XX, are

XXXX Job was growth increased to leases West County prior year-over-year expanding their from growth including in lease period presence our with U.S. Oakland revenue strong in over first Culver by for X.X% by the quarter in by down Heading Our submarkets another respectively. and loss Southern X.X% the entertainment LA X.X% March Market Leasing remained tech City Fremont California. and several rents with production. line X.X%, was Amazon was for XXXX year’s and same-store tenants, in which high-profile quarter first lease companies X.X%. Studios, of and in content activity of the the year-over-year, Los Angeles with to averaged led

quarter, with to last in of decline our of LA CBD supply, the submarket quarter causing levels downtown CBD be the continues X.X% XXXX. elevated to challenged revenues discussed same-store first As

first The to market and with to XX submarkets impacted from County, revenue Woodland year-over-year, prior to the the X.X% quarter performed However, Orange improved better X.X% of points ranging point by growth only XX in evident Long from quarter job first QX. in period in growth basis loss downtown rents year’s the basis quarter a points. other X.X% In the much Essex over supply year’s increasing rent XX with prior compared less Beach on was market basis to on supply in Hills. XXXX the March lease increase in is impact

to San X.X%. MSA Revenue first year’s basis. first growth availability out prior submarkets Vista at rents our the continued between the over year-over-year job X.X% was loss to portfolio is in XX.X% Currently, X.X%. the X.X% the perform recording well, in and on quarter to increased quarter XX a March of X% growth our year-over-year XXXX. in lease of Finally, Diego Oceanside X.X% Market of is XXXX in at occupancy period was the in days and Chula

overall. Our X% quarter renewals are I over sent at Thank about to out the Angela CFO, you, second our turn Kleiman. now and being the call for will

Angela Kleiman

full investment I the sheet our John. markets and increase will quarter to start year you, results recent conclude followed a capital balance update. first Thank discussing activities and guidance, with by and by

by on operating outperformance outlined release. as $X.XX For expenses and Page $X.XX this reoccur. the quarter, G&A is share. which to per $X.XX keeps core second in first With This This now is revenue dividend our us dividend year. same-property occupancy XXXX. growth common of expect to primarily not our higher property is declared we quarter The of -- revenue track timing a our increase. quarter we FFO years first X the per of remaining exceeded $X.XX quarterly performance, and due and from quarter, to X.X% to of to the guidance the expected the the consecutive than growth backdrop of Also earlier. related half be dividend press on a commented the growth of first resulted in XX is strategy, aristocrat realized midpoint during half represents to a share, of XXXX the year-over-year John our of become

Moving on XXXX to the guidance.

at are first the basis is the of by X.X% XX $XX.XX thereby $X.XX quarter to to the for increase which by per We XX to primarily core the midpoint. growth points, increasing guidance same-property also FFO basis enable driven midpoint points increasing midpoint. at year share revenue guidance NOI This by growth raise us the by performance,

quarter, by the factors. This two $X.XX of we lower than which is forecasting midpoint, first at caused share are quarter. core second the largely $X.XX For is per FFO the

the will had issuance anticipating due growth results. higher quarter leasing interest are both and enter bond strategy to million quarter And as in year. for coupled quarter First, our the impact that plans occupancy we rent expenses consistent first second shift items closed Note are related with the in $XXX are growth second as we March, the expense to peak operating with in the which lower timing favoring be little the we NOI full to higher over season. second,

to Turning and capital market activities. investments

maintaining structuring platform. that Since disciplined then, $XX allocation. while shareholder by within joint stated I’m of unique year, maximize BEXAEW pleased value quarter, report embedded monetize to Last During to returns to our plan monetized promote million we consistent income. we amendment platform our record track thoughtful enhance nearly to realizing of of private the income. continue to value with venture entity approach $XX.X promote have a is our and through our the we with million a equity This transactions capital the

onto balance sheet. Lastly, the

During of the The a the offering bonds secured X.X% the were quarter, completed bond from needs this we at in unsecured maturities refinancing offering, debt XXXX. coupon. have repay for the $XXX significant proceeds to most million we With issued XX-year used year.

earlier, on sale property. one new will answers. XX% mentioned of projects. capital for to $X.X from Mike we leverage As With de XXXX to positioned. be questions concludes my availability strong XXXX and need turn development subject additional credit near-term in sell will our line Therefore, continues provide comments, for for That are opportunities. under to limited our substantially is The contract proceeds now and the the investment balance debt and billion and minimis, maturities, and to operator our back call sheet of I our well that

Operator

from Rich the Instructions] first of Hill comes [Operator Stanley. Morgan from Our line question

Rich Hill

some about was It’s or first very of I’ve about previously. it you talk beginning and enough the the moving this, just so I’m you migration comments I you bit population I those a population that sustainable probably how on trends want that comments game. mentioned do obviously, hoping about bit talking doesn’t that I and a heard elaborate I’m to sorry migrations. people San you more. peers it’s there, And of little a curious the one Francisco could missed little one We’ve your times go are. back heard at to you that But if zero-sum of think have

this? thinking another moving one market to they you are about from How So are market?

Michael Schall

Rich, the thanks for question.

a in think is than happening compensated fair the respect losing I of think And competitive more metros, we no, you metros some and be with where is there worker demonstrate and that we’re with playing and around that it off and calls. the some made What skilled what our competitive see that workers, attracting Coast think type some invigorating. normal skilled and of were whether whether trying we’re our metros going more Coast because rates are we may was metros the comments other And perhaps similar locate. the about with normal is of process, the we West U.S. on the some out of out the lower to have other evolution. concerned very choices East are compensated are other employers and things. that’s U-Haul But of countering to I’m that facts California and about highly to lower skilled, they’re obviously of share highly

And so markets of the of important. really the competitiveness U.S% California the are

go we’ve some go sense. look other and beyond look on we and so that and in report they basic to evidence metros the published lot as a you movement the into of well. out, that they the seemed supports LinkedIn metro that And information but make Francisco S-XX.X, for San at if And thesis,

is also really competitive really people matter, But well. are that opportunity report. sure to you to respect is And as come are comes costs that think go, housing metros, And obviously, we’re important. these to matter with competitive, we can to here. but something that Coast and back compensation the making So West willing metros, it that on

Rich Hill

question. And one quick just follow-up

guys important think I but seeing migrations there these migrations? you jobs? an because of population because it’s of Or growth population is are distinction, job

Michael Schall

Well, I it’s a think bunch different of things.

year, relative look think and the of industry and the to was best created, specifically expectations why opportunities you our growth jobs metros what West this were the are I job at areas, Coast happen that being competitiveness of the by that talent of that a markets, San for we think the Seattle is commercial outperformance office where that’s clear and lot the going metros two construction when the tech the good tech and it’s attracting confirmed down being are year a a Jose people here, to metro the construction the in the what’s or Francisco, proxy bringing road. pretty San created,

put we’re So growth, competing Coast together are are confirm West whether determine for talent. and metros being successful for metros that all job things looking obviously, attractive. the things patterns, again, migration And whether these to these

Operator

Please from with comes question your question. Joseph the of next from Nick line proceed Citigroup. Our

Nick Joseph

that. Maybe just following up on

out-migration And Looking to expand? you San at Portland, Francisco, you need then from in the to make the Austin? decide would Denver, expansion do trends what consider see to

Michael Schall

There Denver movements companies Clearly, have I a that of has been number is, that made market. other -- attractive. multi-family into have think,

little It’s have say market. the and is I can rental, to where are the I’d small it to been for-sale headwind, a enough in a the a that housing renter and mandate to choices, both actually, Portland, invested a from basic a Portland market. side challenge And relatively the renter in bit don’t from homeowner a we looking therefore, areas less for-sale that a go to the versus at housing and We is transition for-sale our makes and that housing transition be again. housing of homeowner. and of have mean, cost produce once expensive, the Denver a

time. Those are the markets So over that well look primarily long has been a of period we served for. -- us

have that there are of interesting. we markets in. the But are what a where currently we’re so markets think they And relative be invested in a would couple that step-down to I

Nick Joseph

proactively is not you to positioning enacting control portfolio to And your do do enacted, cities if anything think control? there Costa-Hawkins that I to repealed rent is immediately And prone current in terms be you and recognize of then then about any were can how rent mitigate more impact?

Michael Schall

know obviously it, great. couple determine financial of enable It’s of the cities a to if don’t would the that impossible adopt rent And impact their of Costa-Hawkins. which know wants nor to would that control do local comments. measures. Eudy I’ll Obviously, do virtually severity add is here. to make we rent And we to might ordinance. John be Costa-Hawkins jurisdictions John control

without impact. be very difficult X, those So the it to would determine

as goes, of to the leader as rent respect be so issues, some old And I that think goes, the don’t saying with I these the may goes control California nation. but we think Washington the There that proposal repeal We’ve statewide we’re to end ban of was a of a rent in as seen number in other states. well that. that on the control.

So I think this is part of a broader trend.

And going it’s that change not so cause to us respect -- allocations. we’re portfolio something with is direction to to immediately our

Operator

Our the Spector Jeff next America. question from comes of from line Bank of

Jeff Spector

first ‘XX, on you like to even quarter that XX%. maybe I basically changed? on thought I last you were previously My your feel think said question that down is you said new? equal Has ‘XX, saying supply. comments is I down,

Michael Schall

We quarter. XX% worked down last

And number so relative year but a to was think smaller it we XXXX. it declining did next was

XXXX. we end of what happens about year is and from not to X,XXX units XXXX And XXXX the moved we likely. delays to I almost you to assuming probably XXXX units the have get these which that from continue, is think moved yet

talked the so when difficulty last how and in out. the happen more have recently deliveries on And call again, we pinpointing play they exactly about the talked and

small XXXX. we there So could are in so a decrease be --

we’re -- are best numbers guess that looking well. The therefore, at hard not over We’re our permits And as is just of sure. to years the next down. pin couple really

a major little be be but Over will although bit don’t there in relatively years will will it a the drop-offs, that it each significant in if there small. for be Bay example, the a slowdown, of and and you reduction, pretty are grow ‘XX. see look ‘XX down increases will decreases Area next any at couple metro. And We

And so happen. will variations types those of

the is of is get are obviously permits growing construction somewhere single, high range. rents double-digit for about back we low So That given trend the residential costs a the the We good think we not likely still that the earlier a think between relationship X% to down. made in and growing comments thing around construction. pushed lot

amounts. And so not is down think probably we but huge the trend by

Jeff Spector

then May? saw And given just feel you XQ that in in trying the XQ. typically leasing Would at XQ. enter your it any peak say get -- Can this you I in for as to finish are driving enter and is to a April said And strength XQ, sets point XQ general season Okay. as markets fair we you’ve my past comments? rents up know be say that we follow-up April the you and

John Burkart

is speaking. This Yes. John

So as as out April, we information playing are I earlier, on some gave expected. mentioned and we out things

are We market. the following

solid. optimize market according overall, April year-over-year, follow less bit there making portfolio reduced for the little market. markets out up to our was the a big over of the X% our The It’s Now picture so working we than situation looking ‘XX. to vacancy position. ‘XX plan. are best April the And we’re We as our as we’re

whereas, this bit had peaked that little a pattern a we a year, -- standard early. the year, have last seasonal expecting markets We’re we

we maximize higher pattern So returns We into occupancy, portfolio year. this by our do going little ultimately to be part year, we the our expect to to could bit well our to what were position peak do with the normal. benefiting of seasonal a was plan which this leasing

Operator

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

Austin Wurschmidt

in year of kind referenced to significant the and the versus seasonal respect With the for back of second derivative should second throughout deceleration growth this stabilization of in last sort anticipate the about of half expectation in year, early revenue the would we the second year how year? the improvement pattern the of half year? you half the the when standard in you And think

John Burkart

Sure.

again. Let is This me address that. try John to

had in going move quarter. XX did very is well I mentioned, largely points to see related big year’s that to occupancy. you’re really We the prior the occupancy, So over higher because as our basis QX we

that down. go expect We to

will last at that is that so will XX.X%, year plan be occupancy the big about materially change. Our our consistent with be and

the year peak in Our The difference and is right we late about leasing the X% summer expectations year rents do historically at continue midsummer changed to this had. expect X%. And we’re through it as last period really or our haven’t or the is between now, for S-XX, curve which to X%.

to question? And so Did locking answer we higher expect, your in start really benefit that benefit, we’ll will that ‘XX, by not but ‘XX. rents,

Austin Wurschmidt

No, some probably weakness When covers stronger huge Yes. mentioned bit leak the doesn’t West being into then you that it far supply that think a CBD, mostly I surprise. the would to as which would you? expect gist. you come LA? as as And a Or with little in of LA,

John Burkart

leak mean to You the the supply into LA? West of impact

Austin Wurschmidt

Yes, correct.

John Burkart

to LA of demand. interesting tremendous been It’s jobs there and downtown supply. has watch more There’s Yes. there Obviously, an I than -- different submarkets. awful watch the is lot

So balance of itself quality But X.X% everything Small improve, a in people for downtown. county, nonetheless, -- is overall lot to location you’re overall of ultimately, the supply what, downtown supply like a in but out. that. than, now. supply less that in the The life going and of lot LA continues right LA, will there

watched area; impact in they So different in Torrance other Hills. Glendale different movement. And I seems out the we’ve interesting from move other are times, can’t It It’s pulling around. sometimes markets. Pasadena, that be will area; Woodland submarkets. it to that times, explain

does a are Beach that area little and stronger happens This to bigger. Long the it quarter, seem area move our Hills Woodland around. But it is and Tri-Valley

market. the we’re in last supply rotating is in actually the significantly But that end, overall again, the so of the different demand of or over the in seeing impact for years of excess So X.X markets. kind the

which a place and a desirable just their people better and getting of lives and adjustments matter is very it’s better day. making downtown, moving in each So

Austin Wurschmidt

your two into referenced versus supply quarter you think submarkets? out of the LA between then guess, I I and is How West and the last does kind two out portfolio broken downtown. those those supply new XX% break submarkets, of So

John Burkart

I portion big me, a by and front exactly had of it’s that’s our West don’t doubt in is the -- LA. last have impacted but as I the numbers downtown brought of it, as time. about why up that portfolio well the No

are So yes, we impacted.

about no You that in it. see numbers, our doubt

Operator

McGill Associates. question from comes the next & Dennis from Our Zelman line of

Dennis McGill

the the than would going of year of what growth. expected First quarter, revenue you on that today. back you half quarter. it exactly the sounds comments occupancy year, weaker the flipped Last the second question, and to is go But like same-store the first the just had that want to into approach half took then the said on be you

bridge just difference drove for year? maybe the the you can in So what the cadence

Michael Schall

Sure.

where just little rents, the we’re rents we market bit for trailing expectations to our be. in a expect So market

perspective are as as really to on came relates scheduled as signed rent, working whatever comply can was end real we the Order with that to from concession roll, rent community of of we expectations the launched as that the year strategy the at and related ensure Our factors The a together of it combination and, that all laws. Executive on. really a we the change was from well spot fires, to do occupancy, the course, in big that

XX% from our a as up we my our our as meant together lowering renewal. And comments went well about that restricted on I turnover month-to-month the all So X.X% ended mentioned to month-to-month prices that we increasing on down and that again, portfolio XX%. across

kind point that the market is. the overall a this and our our the all together watching of first then we’re gave year really rent us benefit occupancy. the our of end consistent of At operating But is as scheduled expect and we the in quarter into of time, occupancy with from and So decline. expectations came

it’s year. QX some with up a for the It’s ended adjusted and expectations so just accordingly. change not our extra guidance we And our really occupancy in

Dennis McGill

dynamic. bigger-picture then just the And question on supply

the I time, of purposely what realize the just studies talked or academic you noted we penciling, shortage general. in housing think supply I not to the opportunities same all You of new new at is think some those not penciling but or

one together. things I’m a housing cost well shortage doesn’t of of side those on we or soon. I’m like lower to have cost high it go and seem So the If two my necessarily in form to seem going don’t anytime another,

if down So the of causes what that short-term environment? another I there’s a to I’m shortage in said if what would feel issues me? look Or costs I why developer, wouldn’t past breakage, a be go those front in way,

Michael Schall

right? so cost development? he down We would seen have that. you and worked I overall say, ever, I the think have for I have can new But in we the happen a together in how Mr. I go XX to developer John, room in mean, many answer don’t Eudy, years times

John Eudy

recession, growth it the [indiscernible] the went in Well, down dramatically in recession...

Michael Schall

Okay.

that costs so to contrast the construction. at dramatic want issue started, they residential mend I which now, general So willing see XX% with mainly imbalance to perhaps is or contractors the very at again to there’s to it here. again, around profit is that that’s only The what doesn’t by that and they’re driving this the little was And at low have do I driven that’s anytime of something very increase, significant being an and get construction booming, commercial that do housing. of guess, undersupply it construction margins. appear is close various which, And hand. booming, types

So agree you. would with we

Dennis McGill

look prior have catalyst supply? to elevated you been that, If could costs cycles, at the those ever slow

Michael Schall

course. Of

mean, is them. And a -- it Many we the things again, and because in always more them deal. to realize a premium been as caused Of development times times. issues. many planned just when, fact, therefore, on putting does buying course. it’s don’t a loan And in it’s we development usually buildings go I go supply we than require all risky

your squeezed. having is as When forma the think you you fast to some up, starting so And are as question pro now. hope as that fast and being of you’re or are going grow don’t issues, see your start rents these margins costs and as then expected I

things opposed road. has that is option, move risk other the equity forward; that the down to as decide make the subnormal be which go more hold better put hoping and essentially landowners deal those premium to would to what those be Some considered at on and get putting on ahead a deals them transactions into they

limited And of the what market-clearing to -- industry, a run risk that are pretty is of from out ahead, additional soon And that anyway. that we’re people a moving so that’s really seeing them equity to -- in deals general, and hit make on limited basis they’re I’d but typical typically number say a happens. margins the that the happens premiums that work. don’t in throw into threshold deals their

to think again, faster deal trying forces, and rents ground with than costs in I where NOIs. construction is these we’re middle the market up So going that

we’re we at looking so work. pretty challenging that deals. flowing. reason equity transaction we’re to a the see looking And at deal make That’s and It’s deals other primary development preferred

John Eudy

other A fees At couple and requirements on and too, additional go takes city of tend comments. this to stage cycle, of the up. -- exactions

that you to a challenging mentioned make make that it that with and and make and deal items So economic sense. more hard costs more have coupled Mike

Operator

question next the Our line Drew from Baird. of comes Babin from

Alex Kubicek

the you. talking Alex the sounds This My things this a we take the to little make just opportunities for It morning. whole. for with follow-up tough is and bit incremental a advantage Kubicek you attractive on what general as Drew like were guys to hit that do guys of for transaction market it’s a about question taper year? XXXX is where see the of of your But can rest targets you to

Michael Schall

this stock better capital and Well, obviously, off to bit the little traded was a question. that buy better the a shares back. It’s considerably quarter, that’s transaction the and great we pretty the is first or Mike, allocation some unclear. thought In

parameters. the more would scenario XX in have say, to that around that our somewhere overall make to stock the deals look co-investment would recovered were let’s has ordinarily, generally our satisfied we were NAV, that our quarter deals that first in somewhat, in work. platform transaction There Now marketplace

we as deals that at deals So there market. going Again, to at to are a NAV, stock out when opposed we’re pursue have discount buying to trading there.

And in now significant expectations dramatically and platform so the deals. in stock we pretty then make change probably price, are where relying JV is either to guess, on there’s And changes direction, if can I our the quickly. pretty

Alex Kubicek

overhang this in you underwriting the uncertainty side? the nine, general the XX do disposition next, months both it, call in and follow-up, a shift as just on foresee any Costa-Hawkins causing of expectations acquisition Kind

Michael Schall

hard to positive It’s are because we significant well. gone smidgen exactly happen rates into that thrown positive there have a had, very let’s you transactions leverage. where environment say, anticipate maybe from And on what’s going strong, now, as interest an right acquisition to we’ve leverage rates the to interest of equation

don’t I is closed not Costa-Hawkins don’t in think transaction again, concern it’s XX that’s factor. quarter, I them a impacting impacting is that Costa-Hawkins indicate to seem positive So negative -- the or most about of factor, think a market. doesn’t the California in that transactions, but first

even Costa-Hawkins the in cities continues and questions which to to notable dynamics. does be does it happen, perhaps November, -- little rent still a if of we get is As not rent control bit. mean closer overall it’s important But and And the control happen. questions severity to again, going automatically

little a has at So look from it I’d still huge bit it’s -- And I tell. and again, back to shortage. think California housing step early just

You and know forces housing monitor to that continue seems I early out pretty to in situation have that time, there at effects. concerned -- it’s Costa-Hawkins. we the the have decided legislature or it forward too not that like it’s But on closely. that again, going are I And there and don’t is AB it talked overall call conclude push pervasive to this some XXXX point of this California, repeal about about clearly with to the shortages the in the not in

Operator

of Our Sandler from Goldfarb line next Alexander question O’Neill. comes from the

Alexander Goldfarb

rent up Mike, the maybe just following control. on

-- your had they your -- rent of to people an is Or be part is out from in also, -- if with understanding polling are it or handicap sense the the how will And be control be that is is as a overthrow separate? would what’s sense Costa-Hawkins? rentals pass the your control how understand have enough what that one, you is single-family California, development there proposal from you speaking folks un-affordability? would negative in your Just to and of sense your as going rent raising that sentiment and curtailing actually building far increasing guys

Michael Schall

in of a and discussion. has is this amount Yes. he industry tremendous time John here and spends led the really Eudy

you to one? So take John, that want do

John Eudy

Mike. Sure,

First ballot, the on that include is exemption going your removing does first measure question to of on it repeal appears, single-family. single-family, the the

and in smaller on for us California also end General perspective, pre-campaign got means to know, put if now wide passed, we’ve right by units, legislature oppose rental clearly, they June. our the final the get of it owned the recently have XXXX. applied been measure And having that’s into But favor why technically the on lot to is gets done That’s play rent from that ballot been just the it. to control would brings help. understands mom-and-pop which to to in really they officially a single-family way speaking, every intended are be lose. consequences hurts to And study AB signatures the exposed yes, and So to in big to well committee the qualify Attorney be as enough believe unintended collected at you of before working the it of actually X never big one because Generally to the of about majority this office we local-owned those policy is a January. supposedly rent legs a to academic this it ever -- attention it entities that proponents it, months know the it. to in And for control it a out made we it that that

going be we’re the campaign. -- with polling managing encouraged So and our to that initial we’re pretty how

push and tail end, same of to time, this the up bridge and with, affordability back, to going at actually the come on the at end gap issues ways at We’re lower the the housing the want problem the the was because se, was thing to in last XXXX you housing per Costa-Hawkins it and in where really that’s do because Rent production. enacted stopped reason is. range middle control

to fairly if will ballot, going it will, the we’re So And that it it appears we and it there message which confident get that go prevail. we’re does to through.

Alexander Goldfarb

of going -- end to is, think more Okay. rent second still mentioned quarter in effect focus policy I the then But emergency in in on mentioned year John, in -- you the your mentioned question -- submarkets. some are And is some the through boosting also that some -- versus second things of the that occupancy. guys you the rent you

just sort quarter? by the your guys give the in drop second having still think about of impacted So and a limit portfolio we boosting rents versus much is XX% how occupancy you can how of color you for off

John Burkart

Sure.

a that, Alex. little Let me to answer bit give of a broader

Ventura. First that off, in number county is is one impacted operate that in the we

of less impacted. it’s the company that directly would X% than be So

interested However, we been to community. there we’re we with the want the with the be would communities. an has -- work It’s anywhere what in impact, work always do. Essex where would we think

there people situations assets. that moving or if -- that were So our assets just where in or been have impacted by near there’s around found haven’t fire are we the

Seasonally, As a low back wouldn’t and the but it’s -- low, a of it relates from down to then seasonally. January our up -- X% about the how more or X% change, rents the I it December we call portfolio a operate policy, market in down. in grow to

And so the operational strategy season. based we on modify our

mentioned, occupancy And I we’re the, slower during as rents so overall, where about But situation the higher moving a year-over-year emphasize on it’s you best rents our are to might season. X%. again, the say, market and at in meeting season emphasize

We them year. or expect about move X% X% this

adjustment, that our in minor answer QX. question? impact it’s will Does it So occupancy your but a

Alexander Goldfarb

Yes.

So one that is affecting guys? Ventura you County? it’s just only the is That

John Burkart

X%. and other It’s the thing. the mean, under a pieces and here there, bits main Big main about there’s it’s picture, it’s few but county. I

Operator

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

Steve Sakwa

part. some development that about A have just Seattle and put their that’s brakes But answered. the lot XX next questions maybe six how the think this curious maybe and some and of coming risks legislature, asked just sort how through of in there’s think you the months? Mike, like and about guess, been over posturing the you to of my I on I’m that in has head it tax is seems Seattle, on potentially Amazon

Michael Schall

Steve, hard, Amazon slow threatened a that’s seems to question. office And is construction that has good back it space in Seattle. of Yes. down pretty pushing some

We whole thing. the have HQX

Boston moved and there had they announcement think an to I was or that X,XXX jobs BC. Vancouver X,XXX

lot been a Amazon. there’s things So happening with of to respect

a had. try open and and they’ve And positions. we the time, tech actually what track how many same the top XX at they’ve added lot of doing they’re positions to companies However,

has quarter These in at that the last So end X,XXX only. and California Amazon about positions, Washington are open had of grown and X,XXX. to

from make I And just sure that the say a we local important governmental Amazon. to that good options you So see impact to and Seattle back relationship, employer so agencies. on major example the let’s and go you a have I I’d and the can it’s that any think say. Boeing Boeing pressure keep had still give-and-take pretty guess, for

would any I think they’re doing major exactly Does what help? that do. employer

Steve Sakwa

Yes.

growth. any slowing So getting I passed it to doesn’t you’re guess, It create headwind this doesn’t tax, sounds posturing about job but major worried a just maybe city? lot like ultimately overly like the of sound that’s head

Michael Schall

negotiation, of versus a actually couple so quarter part And it’s at thousand think openings thousand again, think a couple look a part you actually quarter I they of jobs, what of just I Well, did, right? there’s when ago. now this a they job more added

So a I’d at looking positive that’s generally specifically. thing, Amazon say

Steve Sakwa

‘XX, falloff about bigger by that given then just And just And it? know costs supply in will there’s going Okay. you rise a construction maybe of of a way be to just views, but Is this lot sure in you rent kind you and to I limited kind back, on think I that even in XXXX, circle development think growth? side. make the get of the understand kind more your so still

Michael Schall

started maybe and is little permits significantly a think differently. disconnect pretty it put what We actually I’d delivered. bit that can from

And are are transaction a -- two was examples pulling pulling we got even is you you the our question up out And building a building example, picked a can years deal, and permit permit. permitted a if or so we for because we’ve permit, grading pull a stretch zoning as had you you Hollywood before tend to that permit permit. a

So on the time Coast. West lines the are much longer

try we at out something what starts, a for team handle we to monitor we but our a get and basis under good get try so econ being and send on job-by-job really construction delivered. And is what’s have because involved when we permits to look is learned

window When to happen you again, Again, trend the little for this for But difficult what’s time. clarity or talk come you remains year bit murky down to slowly to of footprint that hard that to from movement, where said me earlier within a is actually it’s two down I it’s to it’s in So address XXXX and Does to specifically best point it’s last Again, what, about think units almost, that going go hard to XXXX. happen I we year a supply slowly. at under progress. make to when say our construction XXXX its year, across estimate going you’re going unless what our what’s sense? monitor at out. end much can have we moved and have it’s that X less X,XXX exactly the

Operator

Our of the Capital comes Markets. next from Wes RBC question Golladay line from

Wes Golladay

go that just drove labor those it. study, I with the how migration? Bay to your curious about an impact back actually all Or openings, construction LinkedIn more Were all to kind under Area office you seen of within market? job you’ve the outward concerned what want with properties

Michael Schall

our we et have to seen in cetera. anything and Again, have companies Mike, it pitch can metros recognizing that is -- competitiveness the Wes, the of more people choices, too. that’s that periods, in, metros prompted Again, it’s anyone U.S., else long the a it isn’t research choices, properties our other trying understand over was effort this have versus that. in

our is attracting outperform we which a found long you And really U.S. so and allowed to competitive a doing lead trying handle and metros other has metros of LinkedIn major that variety growth, to are study, that is metros the a good around -- have talented indicators it competitiveness to believe to which workers, our job of pretty to a the the other relative you time. comes keeping over are what have so And us seem back mandate job our again of on of period us

Wes Golladay

were guess, Angeles thing bit going California sounds might is to area. me to maybe out bit done -- out Bay it that actually better all Southern it little stood that looks to one I like Area. you the the what post-study. I people And concerning then, Los have was jobs And would most? stood losing the like And little a I thought better tech a the feel it guess, that

Michael Schall

Yes.

study, LinkedIn there. what reproduced the we On was

-- to have guess, a no level added that. So we a it in did we so I job as anything back where look at Northern trailing and California we We look of Southern there’s Seattle. haven’t little just again, bit growth things to that and we -- bit at may differently. better presented just have, did the California. We in little well X-month numbers the

X.X% of Seattle. companies and products. being I strength that is the better X.X% I estimate and the jobs better next over to It these that well. We’re our are created they’re of was, producing adding think unlikely markets the it’s like And trend and it seems and vibrant than and of shows is where pretty what is to companies unlikely are change where And X.X% the Northern situation we’re people wealth expected. front couple doing a number really growth very years. is -- what mean, in better on than in that’s we but exceptional those S-XX job where California that just a on lot

Wes Golladay

overruns, much have I expectations cost changed in preferred me had And development? are the developer. Can get your market you them equity with criteria And on you for so rent the at just to investments? starting they little squeezed have private they for bit estimate, underwriting getting the all more are give you an rates rising one squeezed, development, question growth? and probably below if And equity on how the delays, your see interest a for

John Eudy

range. gone X up having over XX as if are assuming costs the construction are close backside to XX% in XX an XX, went loans answer the was squeezed cost squeezed. bought the last with the be range. The to the into equity in to they Yes, I’ll And a smaller equity double-digit it mentioned, the XX% going without that. because to have months, going getting they’re requirements part have of first developers Mike out, deal, n XX% months,

deal go. we’re less to unless not the because anything As the anything Mike range economics and it’s far If equity people of still that’s on needs development let on they’re to else, side. a safer than the preferred already little They’re focusing seeing preferred mentioned, bought transaction they to really X.XX, that because where capitalization. a bit from make as them a in lot And in of they’re expectations in equity funded. as their it more need they and we’ve are their interest deal necessarily deals, the our opportunities, a just position on X and deals transact put are although be X, perspective subordinate less equity a skinnier good short X.XX-plus us so been and ahead and beyond We’ll them that. return

Michael Schall

would We developer’s keep I just not in Well, our are use markets. upon underwriting. these the add that, we’re our relying mind, so underwriting, in

or is career to loan a enabled development obviously our direct XX% because somewhere cost. construction do lending, our own the cost used and to so loan, in are have we plus again, This effort, in most the area the We underwriting. program minus XX% of be --

program. So that that’s has enabled what

I look that We just want world it’s someone based then with we underwriting all really on make the underwrite it it taking look we activities making at like consistent and and changed investment. the around clear at how it. so else’s we But And haven’t how not to the other we’re here.

I advantage have big selection. deal when comes we think So a it to

Operator

question the line Ford of from comes from next Our Securities. Karin MUFG

Karin Ford

positive there condo mentioned your the for soar many side housing in Has been submarkets. momentum conversion continue prices that any rental? more of You to on

Michael Schall

becomes Mike. transactions pretty values it’s differential more diligently. working excited are we between and diverges, apartment for-sale it more more incrementally it. we about are on that And Karin, values and interesting. as Yes, And

the is question the to so definitely. answer yes, And

Karin Ford

the end something transact see you the year? And we before think do potentially could of

Michael Schall

I don’t think so.

early could happen. the it XXXX I earliest is probably think

Operator

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

John Pawlowski

I to not head your how would Nick’s the the pressures approach to may you’d now, political exactly around the on new Under perhaps allocations repeal Bay high current within question but Area? where markets back be your exploring as California margin Costa-Hawkins, wanted right to as Southern portfolio. of not shift footprint,

Michael Schall

Yes, in control. have that a discussions cities Southern it’s of Mike. rent actually There about significant California number is

are offers don’t for necessarily that of that greater in shortages And great expectation a of that, the I would housing also us and the I so north. think And deal our relief. growth say rent

then I is so there’s that be transacting think -- considerations. you and of as have which well. -- of the And some can -- pretty a And couple cost substantial

until for effect same States, not be this areas. again, So an the I committee reexamine these we again, -- where that come to And over part California we’ll including, the -- the about which decade that have United report next clarity effort are bipartisan rent greater think all just and California assuming we other back Analyst’s Legislative California. is this of are go, the to studies, is in conclusions that the maybe in going to control of will in

I So think that’s where going. transacting little that know we’re I information. are again, bit And we a we good pretty think when more at

Now we’re just -- happen. we’re guessing about might what

there nice the pretty we about And opportunities a on selective our are careful I capital closer and be things we think to I’m sure opportunistic one and way. company present that of that about themselves. is thoughtful pretty it, using As will the get

John Pawlowski

Bay zoning and then perfect, Makes the trend sense. permitting to there acceleration Oakland, the is understand but percent metro, the East data a to consistent from particular. of in permitting I permitting as growth wanted on far I in has go stock. discussion And been back

pro-development Eudy, if of any Area Bay or Bay the shovel off in inflection of it’s terms the done. curious drafting put go to across to get can just zoning been Area Oakland or in on-the-ground Bay John points they or So deals the there’s the just ground in nobody policies the if and so

John Eudy

things. couple There a are of

transit-oriented died state lot a the of surface. and and support level Wiener You sense political-backed at locations. around a of with of things Came committee the all that the on get control again, seemed make to then then, about was the to the zoned bill local out how XXX, heard and attempting in optimistic chute SB change month about because what level ago stopping fairly

in been not were it’s XX easier year. get that to ever has today developments anywhere passed than bills last So of the spite any it

margin, it on easier, to shifting in real we direction is make but the any it momentum seen play -- the On that. haven’t the

cost that it across economically The Oakland is again goes as if will, the to, to the term the the the the near On been referring County. I transaction we of production were is which you to you challenge think And do Bay is economics market. biggest Francisco. housing will of It in the how continue details make makes Northern more they be sense long Alameda direction the as we its in -- work. problem East that have open San assume in the California development, of penciled, Oakland, have because which

Operator

of Our James. Horne final question comes line Buck from from the Raymond

Buck Horne

try I’ll of to terms back to the occupancy the job to I you’re seeing wanted brief. to maybe strategy what supply. growth and be during in go quarter just relative

to Just in you was on boosted if exactly believe if job I you growth Can of you be narrative? help leasing, in quite high circle down occupancy -- coming things why is the better basis. renewal did the just that pricing limiting can’t front year-over-year so going that and peak a circle like and supply me

John Burkart

a Sure. you’re collecting if you’re not We look on it any at income. unit, and vacant sitting say

scenario upon a well. great to from XX% a down which we’re were think think leasing where positioned keep turnover us. good XX%, had, go objective meet a move-outs, really thing. enables it our market to benefited to doing if that, can comes benefited to in very We because create of the means slow peak thing. In able that occupancy which the the was boost accomplish majority us fewer be season so as well I the is unit the And residents our we that’s we occupied we again, and And are we season, that during a

not market we’re rents. issues so our that occupancy with And looking with have struggling buildings and

but range, we’ll the, try of up the will end that able X% at. in to And market is. the expectations the year-over-year meet the X% higher able wherever where the We’re it’s market to again, to our the market are to be market meet meet move

the essence, the occupancy from spot strategy same ended and, income. So our lower for sense we perspective. up in with QX Otherwise, makes but in just have would less

Buck Horne

it I to your the kind reduced into available But going But.. inventory I higher thought. hear price Okay. an of you. with seasonality, ability Yes,

John Burkart

mean. I see what you

increases. turnover Our

natural significantly. Our increases of leases expiration pretty

choose, units. our allow their the And so period It’s a of a That short they out time, at XX-month renewals to go they move And these potential the season. of stay month-to-month. up likely doing them out. lower open just for chose and little expectations. of they for option they’ll lease of stay mean, if supply most we but extended is so have leasing bit, month-to-month some people that to a peak have will again, move premium a remember, a situations on they but during we will I where

Buck Horne

did decline Ann have I I you, about here. hear the But mainly levels. April that thought And was from revenue just XQ quoting mentioned slight apologize I I you a if something quickly, correctly, missed by... the sequential might indicating driven

John Burkart

of our to that’s XX no. decline. now year-over-year XX% and and X.X% rent Yes, at and into because -- ultimately we from understand no, Yes didn’t, wanted Seattle year-over-year expectation point year-over-year a what occupancy we’re April And that in basis had match because where XX year. basis that that because points. -- -- gain did scheduled our going April said. increase in exactly will people occupancy I of QX occupancy last I that at our QX mentioned Yes yes, rolling that was was and is -- we will not we’re no, And I but no, coming our you

that really kind is playing our is well. is not the good. planned. again, and of now So that market the taking of so and market as performing the But your out is doubt, getting year peak leasing occupancy season. yes, positioned, difference as to point, how is planned there’s not it’s we’re portfolio The positioned The advantage in no

Operator

turn reached Michael session. the Ladies the and the to to gentlemen, closing for And of end question-and-answer like call have remarks. back would I we Schall

Michael Schall

good operator, Have at a thank you. call. on the everyone day. to many and of NAREIT conference upcoming for participation you, your in seeing the June. Thank you forward look Thank We

Operator

This concludes today’s conference.

You disconnect for lines this you at participation. your your Thank may time.

Essex Property Trust (ESS) 6 May 182018 Q1 Earnings call transcript