Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Essex Property Trust Inc (ESS, Financial) reported a strong second quarter core FFO per share, exceeding the high end of their guidance range by $0.05.
- The company has increased its full-year guidance for the second time, reflecting strong performance and positive market conditions.
- Demand for West Coast multifamily housing, particularly in Northern California and Seattle, has exceeded expectations.
- Seattle has been the best-performing market with a 4.9% blended rent growth and strong occupancy levels of 97%.
- Essex Property Trust Inc (ESS) has successfully closed over $500 million in acquisitions, with significant upside potential based on favorable market fundamentals.
Negative Points
- Elevated delinquency-related turnover in LA and Alameda counties has negatively impacted blended rent growth.
- Northern California's performance was pulled down by Alameda County due to delinquency turnover and elevated supply in Oakland.
- The company is experiencing higher utility costs and legal fees, contributing to a 50 basis points increase in operating expenses.
- There is a sequential decline expected in the third quarter core FFO due to elevated operating expenses and one-time items from the second quarter.
- The company faces uncertainties related to delinquency and the timing of court processes, which can impact financial performance.
Q & A Highlights
Q: From Angelo, you'd mentioned that you're prepared to shift to an occupancy strategy. So just curious if we should view the pullback in renewal rate growth in recent months as a tactical move to drive occupancy? Or are you getting some pushback on the increases in kind energy retention moderate? What sort of driving the pullback payoffs and good to hear from you.
A: This is more of more in line with our approach to address seasonality in our business. And so typically, as we approach the seasonal peak, we would push on rents. And now as we shift toward the seasonal slower time of demand, we start to migrate toward occupancy. Ultimately, the goal is to match of anything or seeing that is of the house and any red flags on the fundamentals. It's more of how we normally run our business to us to maximize rents by revenue.
Q: Could you breakout on new lease group has trended across the three regions as you get into July? And just curious where you're seeing kind of the most moderation and what's kind of holding stronger maybe a little longer than would have anticipated.
A: So on the new lease rates, net effective new lease rates, we are seeing some Southern California holding studies, slight deceleration, but yes, nothing material like 10, 20 basis points. Northern California is the more just the deceleration, about 200 basis points and then Seattle now about 50 to 60 basis points of deceleration. And once again, under the new lease buyout activity here, it's pretty much what we had expected. There were some nothing here that's giving us any alarm business, normal business now with us normally Northern California peaks earlier than Southern California. And so this is a plan.
Q: Maybe just following up on that portion of the strategy of a more specific to our mall made up of are you getting closer to the point where you can be pushing pricing more right now? Or do you need to get to a certain occupancy level?
A: We are not quite there on Alameda in terms of our operating strategy. We pretty much ran a multi-currency focused strategy starting from late last year. And that has continued throughout the year. We've been able to cast switch back and forth a little bit, but really didn't last long at this point. We made really good progress on delinquency and essentially improved by almost 50%. We reduced by another 50% from began the year. We're making good traction there. We probably will not be able to have pricing power on until we get through the rest of this year. And in L.A., Alameda.
Q: Just on your gross pack data, it looks like it came down by 80 basis points in July of your expectation that will hold around this level for the rest of the year?
A: Yes, our guidance has about 1% and baked into the rest of the year. Remember the number can bounce around a month to month, but we're pleased with it progress that we've made so far and feel comfortable that we'll continue to make progress if we do make more progress in the 80 basis points or I'll just be upside to the high end, but or B to the high end of the guidance range.
Q: My first question is on the bad debt assumption of seems like that's progressing better than expected so far. I wonder if you can give more color on how it how we'll chat for the second half.
A: It isn't difficult number to predict because it does bounce around a month to month, and we are pleased with the progress. Keep in mind. We did take that. We did increase our guidance in the first quarter by 40 basis points because we didn't lower bad debt to 1.1% for the full year. And through July, we are at 1.1% year to date were in line with our forecast. And we do expect we're working hard to make progress, but it does depend on when tenants leave and when the courts on prostheses actions. And so it's a little out of our control. So we've got 1% positive in the back half of the year. How that data.
Q: On the concession refreshers correctly. You said it is less than two days across the markets. I wonder like whether you separate that you have separated out for different regions and how that's trending so far?
A: Yes. We have that detail right. I have concessions. So generally speaking. So Southern California has a heavier concession in L.A. for the most part, no surprise there. And Northern California has concession environment is driven primarily by Auckland because of the higher the elevated supply. So now Southern California TQ. with L.A. and Northern California, Oklahoma was supply. And those are the two primary drivers of higher concession levels we're talking about, say closer to 45 days in those areas versus rest of the region were down. You'll see that all has essentially zero and everywhere else, one around one to two days. So that averages to the two days in July. I'll hop data figures off.
Q: All the way we were looking at those same-store revenue guidance that you guys updated view of the surprises that you didn't update it like you didn't raise the low end more because year to date you guys are running at 3.5%. So you're just curious about how do you get to low end or lower lower end of the guidance raise it unlocks sales to revenue?
A: Yes, there's a lot of factors that go into it and the low end, it just it does depend on how how steep the decline is in the back half of the year. In terms of the peak leasing season, we expect a normal season, but we've seen air pockets in the past. And so that factors into the low end or not could impact occupancy and concessions. And then delinquency has been a wild card. It feels like it's less of a wildcard this year. But once again, that is something where we've seen no blips every now and then. And so those are the factors that really led to the low end where it is on. But we feel very comfortable with where our midpoint is.
Q: You guys sending out renewals for the month of August and September?
A: Yes, for sending out renewals at around low 4% portfolio-wide. And based on the negotiations that we're seeing will probably land somewhere between mid threes to high threes on the renewal side.
Q: What are your main contractor article related factors?
A: Well, let's start with we have expected the ad full year, our blended rents will be about 2.7%, and we achieved was 2.9% in the first half. So there's an implied deceleration of our 35 to 40 basis points. And this is actually quite moderate
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
