Essex (ESS) Q1 2026 Earnings Call Transcript

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Date

Wednesday, Apr. 29, 2026 at 12:00 p.m. ET

Call participants

• President and Chief Executive Officer — Angela L. Kleiman
• Executive Vice President and Chief Financial Officer — Barbara M. Pak
• Executive Vice President, Chief Investment Officer and Treasurer — Rylan K. Burns

Takeaways

• Core FFO per share -- Exceeded the high end of guidance range by $0.11, driven by revenue outperformance, lower operating expenses, and non-same-property/co-investment NOI contributions.
• Same-property revenue -- Increased 2.9% year over year, 50 basis points ahead of plan, supported by higher occupancy and other income.
• Same-property operating expenses -- Remained flat year over year for the quarter, with CFO Pak noting this is "timing related and expected to reverse in the second half of the year."
• Occupancy -- Rose 20 basis points year over year and 50 basis points sequentially from Q4, with April financial occupancy at 96.4%.
• Same-store blended rent growth -- Reached 1.4% for the quarter, with Northern California at 3.2%, Seattle at negative 0.8%, and Southern California at approximately 1%.
• April blended lease rate growth -- Exceeded 3%, with renewal lease rates in April at about 5% and new lease rates at negative 0.9%.
• Cap rate compression -- Observed 50 basis points compression since 2024 in the Bay Area; overall market cap rates remain in the mid-4% range, while the company's implied cap rate has hovered near 6%.
• Share repurchases -- Repurchased approximately $62 million of stock at an average price of $243.76, representing an FFO yield of 6.5%.
• Structured finance redemptions -- Expect approximately $90 million in early redemptions originally set for 2027-2028 to now occur in the second quarter, resulting in a $0.07 FFO headwind for the second half.
• Guidance -- Full-year same-property growth and core FFO per share guidance ranges reaffirmed amid macro uncertainty; management expects first and second half revenue trends to remain similar.
• Balance sheet -- Recently repaid $450 million in unsecured bonds, maintaining net debt to EBITDA at 5.5x and total liquidity above $1 billion.
• Operating strategy shift -- Shifted from occupancy-focused approach to driving rent growth heading into peak leasing season.
• Preferred equity investments -- Management expects volatility from the preferred book to subside after 2026 as the structured finance portfolio is reduced.
• Regional performance -- Northern California outperformed expectations with strong wage growth and rent-to-income ratios at 21.5%, well below the 20-year average of almost 26%.
• Investment pipeline -- Several development land sites and accessory dwelling unit (ADU) projects targeted for investment with returns potentially exceeding 10% on cost.
• Concessions -- Portfolio-wide concessions averaged six days in the quarter, compared to four days a year ago; biggest increases seen in Los Angeles and San Diego due to supply and demand dynamics.
• Insurance expense -- Property insurance renewals are tracking to an expected 5% annual decline, consistent with guidance.

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Risks

• Chief Financial Officer Pak cautioned that "same-property operating expense growth was flat on a year-over-year basis, which was lower than expected and accounted for another $0.04. However, this benefit is timing related and expected to reverse in the second half of the year," indicating a near-term headwind.
• Management noted a "$0.07 headwind to our second-half forecast" from early structured finance redemptions, with proceeds previously scheduled for 2027-2028 now moved into 2026.
• Macroeconomic uncertainty, including soft labor trends and "heightened geopolitical tensions and inflationary pressure," was explicitly cited as a reason for not raising full-year revenue guidance despite Q1 outperformance.
• Demand in Seattle remains "soft" and the Los Angeles market is described as "our most challenging," with Los Angeles new lease rates materially lagging other regions.

Summary

Essex Property Trust (NYSE:ESS) reported that core FFO per share surpassed the upper end of guidance, supported primarily by higher occupancy and stable operating expenses. Management reinforced capital discipline with $62 million of share repurchases executed below prevailing implied cap rates and a $450 million bond repayment. Early $90 million in structured finance redemptions shifted FFO recognition forward but created a temporary second-half earnings headwind. The company observed persistent market demand in Northern California and strong buy-side interest in West Coast multifamily assets, as measured by cap rate compression, while keeping full-year guidance unchanged due to caution about broader economic uncertainty. Positive trends in development land and ADU project opportunities were highlighted as potential sources of future accretive investment.

• President and CEO Kleiman said, "We are on plan as it relates to our guidance," reiterating that blended rate growth is tracking to 2.5% for the year with comparable performance expected in both halves.
• Chief Financial Officer Pak confirmed, "The $90 million is effectively maturities that were set to mature in 2027 and 2028 and have been pulled forward into 2026," eliminating structured finance redemptions from those later years.
• Management stated that the "rent-to-median income ratios in Northern California stand at around 21.5%, compared to a 20-year average of almost 26% and a historical peak over the," supporting assertions of significant rent runway in that submarket.
• Kleiman addressed renewals, reporting, "Yes. We are actually in a good position. We continue to be with renewals sending out around 5%. And of course, that can get negotiated, but so far, our renewals have been pretty darn sticky, which is a good indication of the fundamentals of our markets."
• Pak noted domestic net immigration into the Bay Area "has continued to improve, and it is above pre-COVID levels," offering incremental support to regional fundamentals.
• The company flagged that sequential monthly improvement occurred in Seattle's net expected new lease rent growth and occupancy, with concessions in that market declining.
• Kleiman specifically noted that excluding the Los Angeles portfolio, April new lease rates would have been "180 basis points higher or flip to 90 basis points positive," underscoring L.A.'s drag on broader results.
• Rylan K. Burns described the ADU development business as yielding "10% return on cost," with per-unit costs "a fraction of in-place value," indicating the company will continue to prioritize such opportunities for capital deployment.

Industry glossary

• FFO (Funds From Operations): A key REIT metric representing net income, excluding gains/losses from property sales, plus depreciation and amortization.
• NOI (Net Operating Income): Property-level income after operating expenses, but before interest and depreciation.
• Cap rate: The ratio of a property's net operating income to its purchase price or value, used to estimate returns in real estate.
• Blended rent growth: The average percentage change in rents for both new and renewal leases across a property portfolio.
• Concessions: Incentives, such as free rent days, given to tenants to attract or retain them.
• Financial occupancy: The percentage of apartment units generating rent revenue during a period.
• ADU (Accessory Dwelling Unit): A secondary residential unit on a property, such as a converted garage or basement.

Full Conference Call Transcript

Angela L. Kleiman: Barbara M. Pak will follow with prepared remarks, and Rylan K. Burns is here for Q&A. Starting with the macro environment, U.S. economic conditions year to date have generally unfolded in line with our outlook, with national labor trends remaining soft. Additionally, heightened geopolitical tensions and inflationary pressure in recent months have contributed to increased near-term uncertainty. Against this backdrop, we delivered a solid first quarter with core FFO per share exceeding the high end of our guidance range and same-property revenues trending ahead of plan. Two key factors contributed to these results. First, we successfully deployed an occupancy-focused strategy to maximize revenues, generating a 20 basis points year-over-year occupancy gain.

Second is the strength in Northern California combined with the durability of our supply-constrained West Coast markets. There is a direct correlation between housing supply and the cost of housing for consumers. It is no surprise that markets with some of the highest rental rates are typically markets with significant legislative burden on housing providers, which deters building activities, leading to a chronic housing shortage. Looking forward, permitting activities remain at a historical low in California, and as such, we expect new housing deliveries to remain low at around 0.5% of existing stock for the next several years.

On the demand side, we are seeing early indicators of improvement in three areas: First, job postings from the top 20 technology companies have remained steady despite the layoff headlines. Second, elevated levels of venture capital investments in the Bay Area are funding a new wave of start-up companies. And third, continued office expansion announcements in our markets. In summary, the low level of housing supply throughout our markets provides resilience across a wide range of economic conditions, while improving demand indicators position the portfolio for sector-leading long-term rent growth.

Moving on to property operating highlights, we achieved same-store blended rent growth of 1.4% for the quarter, which is generally in line with our expectations as we executed an occupancy-focused strategy ahead of the peak leasing season. From a regional perspective, Northern California was our best market, performing ahead of plan for the quarter, with blended rent growth of 3.2% led by San Francisco and San Mateo, followed by Santa Clara County. During the quarter, while occupancy increased by 50 basis points sequentially, we were also able to increase rents, demonstrating the strength of this market. Attractive affordability, favorable demand drivers, and limited supply support our expectations for solid growth to continue in this region.

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

In Los Angeles, incremental improvements continue at a modest pace. Heading into peak leasing season, we have shifted our operating strategy to driving rent growth across most markets, and our portfolio is well positioned with April financial occupancy at 96.4% and blended lease rate growth north of 3%. Turning to transaction activities, with minimal forward-looking supply deliveries and favorable fundamentals, interest in multifamily assets on the West Coast remains healthy, especially in the Bay Area, as evidenced by the 50 basis points cap rate compression since 2024.

Essex Property Trust, Inc. has been the largest investor in this in the past two years as we allocated approximately $1.7 billion of capital ahead of the cap rate compression, generating substantial value for our shareholders. Overall, cap rates across our markets remain consistently in the mid-4% range; however, with our stock trading close to a 6% implied cap rate over the past several months, which is a significant discount to private market valuation, we shifted gears and repurchased approximately $62 million of stock, thereby continuing our strong capital allocation track record of maximizing accretion for our shareholders. With that, I will turn the call over to Barb.

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

However, this benefit is timing related and expected to reverse in the second half of the year. Third, non-same-property and co-investment NOI make up the remaining $0.03 of outperformance. As for our full-year outlook, we are reaffirming our same-property growth and core FFO per share guidance ranges. While we have started off the year in a solid position with revenue growth trending ahead of plan, we would like to get further visibility into peak leasing season before adjusting our forecast due to the current macro uncertainty. As it relates to the remainder of our FFO forecast, there are two key factors that are different from our original guidance.

First, we expect to receive approximately $90 million in early structured finance redemption proceeds, which are expected to occur in the second quarter. We are pleased to see this early redemption activity despite it causing a $0.07 headwind to our second-half forecast, as it demonstrates the continued strength of the West Coast markets. The second factor is share buybacks. We took advantage of the significant discount in our stock price and repurchased approximately $62 million at an average price of $243.76, which equates to an attractive FFO yield of 6.5%. As such, the near-term earnings headwinds from the structured finance redemptions are largely offset by the benefits from the buybacks, and our full-year forecast is unchanged at this time.

Concluding with the balance sheet, we recently repaid $450 million in unsecured bonds that matured, resulting in limited remaining maturities for the balance of the year. With net debt to EBITDA of 5.5x, over $1 billion in available liquidity, and ample sources of available capital, the balance sheet remains in a strong position. I will now turn the call back to the operator for questions.

Operator: Thank you. We will now be conducting a question-and-answer session. We ask you please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from Nicholas Philip Yulico with Scotiabank. Nick, you may go ahead.

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

Angela L. Kleiman: Good morning, Nick, and thanks for your question. We are on plan as it relates to our guidance. And so if you look at first quarter coming in at 1.4% and April already north of 3%, we do not anticipate challenges to hitting that 2.5% for the year. At this point, we are still anticipating that first half and second half are pretty similar to each other. And so things are on plan.

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

Barbara M. Pak: Yes, Nick. That is a good question. The $90 million is effectively maturities that were set to mature in 2027 and 2028 and have been pulled forward into 2026. Because of that, we do not have any redemptions in 2027 and 2028 now, so the headwind is effectively behind us at this point.

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

Analyst: Hi, thank you. So just a quick question on the change in methodology for the net effective rate growth. I guess, one, what drove the decision to change it? And then two, when comparing with the prior disclosure, it appears like it is higher in 2Q/3Q and then lower in 4Q and 1Q. Would that be correct?

Angela L. Kleiman: Hey, Jana. You are right on point on the cadence when it comes to the lease rates. We made this change, and we actually signaled this change last year when we reported or detailed like-for-like lease terms, but we also reported all lease terms. With feedback from investors, it was easier for everyone to look at how we report the same way as our peers. So it is just really to be in line with our peers. There is no change to our business, and certainly no change to how we approach our business.

And as far as the cadence, all leases means there will be a little bit more variability, with the highs in the second and third quarter and lower lows around the first and the fourth quarter.

Analyst: Thank you. And appreciate the color on the April operating stats. I was wondering if you could share where renewals are being sent out for the summer.

Angela L. Kleiman: Yes. We are actually in a good position. We continue to be with renewals sending out around 5%. And of course, that can get negotiated, but so far, our renewals have been pretty darn sticky, which is a good indication of the fundamentals of our markets.

Operator: Our next question is from Nicholas Joseph with Citi. Nicholas, you may proceed with your question.

Analyst: Thanks. It is Nicholas Joseph here with Eric. I think California is off to a strong start, but there have obviously been some recent layoff announcements from some of the larger tech companies. Have you seen any changes in that market, or are all the forward indicators holding strong?

Angela L. Kleiman: Yes, Nick, that is a good question. Demand side is something we do watch closely, and BLS visibility is not as great nowadays. But what we are seeing is layoff announcements—if you look through to the WARN notices, it shows that the majority of the layoffs are not in our markets. These layoffs apply to global locations. A couple areas that we track that I am happy to share with you that give a better forward-looking indication: One is that when we look at the top 20 tech job openings, they remain steady and have actually improved a little bit in the past couple of months, though we do not expect that to accelerate.

Having said that, things are just fine on the ground. We also look at both new and continued unemployment claims, which remain at a low level. This tells us that people who are displaced in our markets are able to find another job quickly. Most importantly, our Northern California performance, which has the highest concentration of tech companies, is our best performing region.

Analyst: Thank you very much.

Operator: Our next question is from Steve Sakwa from Evercore. Steve, you may go ahead.

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

Rylan K. Burns: Hey, Steve. As we have communicated, we remain actively involved in many conversations related to new investments on the structured finance side. We were not anticipating, going into this year, that we would get that $90 million back, but as Barb alluded to, this business has kind of been level set at a lower rate. We are continuing those conversations. We are tracking a few deals that we think could present really attractive risk-adjusted returns. So we remain committed to the business and will continue to look for opportunities as the opportunities present themselves.

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

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

Analyst: Great. Thank you.

Operator: Our next question is from Bradley Barrett Heffern with RBC. Brad, you may proceed with your question.

Analyst: Yes. Hey, everybody. Thank you. Barb, last quarter you said that you were assuming no redemption proceeds for a couple of the 2026 maturities. I was wondering if you have any update there, if that is still the case?

Barbara M. Pak: Yes. Good memory. That is the case. We did have one of our investments mature in March, and the sponsor contributed some additional equity, and we granted a small extension on that investment. There are still a lot of moving parts on that investment, and not everything is finalized. While we could have continued to accrue from an FFO perspective, and it would have benefited our FFO, given some of the uncertainty related to this investment, we decided not to continue to accrue. There is value there, and there will be upside to our FFO, but it really depends on the timing of when we can settle a few of these open items.

Right now, it looks like it is probably in early 2H, but more to follow as we go forward. The other large investment that we had stopped accruing on in the fourth quarter—we are in ongoing discussions with the sponsor. That one does not mature for a couple more months, so more to follow on that one. No difference in how we budgeted that one as of yet.

Analyst: Okay. Got it. And then just a follow-on to the spread methodology. Do you have the number handy for what 1Q would have been under the old methodology, just so that we can kind of compare to what we had in our model?

Angela L. Kleiman: Sure. Happy to. So on a like-for-like, Q1 blended would have been 2%. So a little bit higher than on all leases. The components are: new lease would be negative 1.2%, and renewal would be the same, 3.9%.

Analyst: Okay. Appreciate it.

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

Analyst: Great. Thanks for taking my question. So appreciate the color on blends in 1Q across the regions and even in April. Can you talk about new versus renewal in April? And then also for 1Q, can you talk about new versus renewal across the regions?

Angela L. Kleiman: Sure. Happy to. In April, new is about negative 90 basis points, and renewal is about 5%, so that takes April to 3.1%. On a regional basis, Northern California, once again, the shining star, with the blend at north of 5%, followed by Seattle with a blend north of 2%, and Southern California around 1.5%. So that gets you to that 3.1%. It is generally playing out as we had anticipated. For the full year, I had guided to renewal around 3% to 4% and new around 0% to 1%, and all the markets are pretty much coming in line, with the exception of Northern California outperforming.

Analyst: And there have been a lot of political tax headlines across some of the West Coast markets. Any thoughts or feedback from tenants if there are any implications to demand? It sounds like you are feeling pretty good about the job market and job postings, but any color or conversations with your peers about how people are thinking about the political environment?

Angela L. Kleiman: Yes, that is a good question, and it is hard to predict, and it is too early to know how this will play out. There is the wealth tax, which is probably what you are referring to, but at the same time, we are seeing a lot of opposition to it, and there is a counter ballot measure to advocate responsible expense management rather than imposing more taxes. We just need a little more time to see how this plays out. We have not seen any impact to our business, and we have not heard from others about having a direct impact to Essex Property Trust, Inc. or multifamily directly.

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

Analyst: Hey, hello there. You guys spoke to affordability within Northern California and, given the optimism that you highlighted around job trends and supply conditions, what the runway looks like for you to continue to push on blended lease rate growth within that region?

Rylan K. Burns: Hey, Austin. This has been a key component of our fundamental thesis on Northern California for the past several years. You have seen significant, steady increases in household income growth over the past decade that continued through COVID. As it stands today, our current rent-to-median income ratios in Northern California stand at around 21.5%, compared to a 20-year average of almost 26% and a historical peak over the past 20 years closer to 32%. So there is significant rent upside on those metrics alone to get back to a point that is more in balance or closer to those historical peaks.

It is not the primary driver, but it is a fundamental thesis that we feel is very attractive as it relates to Northern California. Wages continue to increase in these markets, and we think the consumer is feeling very healthy in Northern California in particular.

Analyst: That is helpful. And then just switching maybe to Southern California. Last quarter, I think you indicated it was L.A. specifically that conditions were stabilizing and maybe you were seeing some early signs of rent growth improving. What is the latest outlook for that region as well? Thank you.

Angela L. Kleiman: Yes, Austin, good question. L.A. is progressing at a glacial pace. It continues to be our most challenging. For example, if we excluded the L.A. portfolio, our April new lease rates actually would be 180 basis points higher or flip to 90 basis points positive. We did not anticipate things to move quickly. We expected progress to be slow and choppy, which has been the case. We do not get too caught up by short-term numbers because you will see puts and takes. For example, if you look at economic occupancy sequentially from fourth quarter to first quarter, it is a slight decline, but if you look at blended, it actually went up by 70 basis points.

You are going to see that dynamic continue to play out. The net is that this market is stable. We have seen the trough, and now it is trending better, but just slow.

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

Analyst: Thank you. We are half an hour into this call, and I do not think you have mentioned AI. Do you feel like you are getting a direct benefit or you are a direct beneficiary of AI job growth? Or is it more indirect or moderate, given most of your assets are in Santa Clara and San Mateo County? Are you seeing a lot of tenants in your market employed by AI companies?

Angela L. Kleiman: Sure thing, John. I do believe that we are getting a direct benefit from AI, especially as you get closer to San Francisco. More importantly, what we do not have clarity on is all the start-ups that are happening because of AI, and that is throughout our market. If you look at the strength of our market, downtown is doing well, but it is still in recovery because it recovered later than the Peninsula. We certainly anticipate the benefit of AI to continue. We are also seeing a lot of these large AI companies expand to the Peninsula as well. Over the long term, I think all of our markets will continue to benefit, particularly in the suburban markets.

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

Angela L. Kleiman: Yes, John. Big picture, from an all-leases perspective, you are going to have more variability. I do not know the exact magnitude at this point because we are just starting to enter into our peak leasing season. It would not surprise me that the drop becomes more significant because, keep in mind, all leases mean you are going to have different terms, and it is going to have a lot more noise in it.

Analyst: Hey, good morning out there. Two questions. First, on Seattle—we hear different things: Eastside super strong, Seattle CBD softer. On the office side, we hear that, and on the apartment side it sounds similar. There is a lot of job growth on the Eastside. Can you provide more color on how the market breaks out—Seattle CBD versus the Eastside? How are residents looking at the broader market, and how are you thinking about where you want to either own more assets or divest assets?

Angela L. Kleiman: Hey, Alex. It is a combination of demand and supply because Seattle historically generates more supply than California. It is the impact of those two playing out that then drives the rent growth. The Eastside has performed better than the CBD, although not by a huge margin from what we are seeing. Over the long term, the Eastside has historically outperformed, mostly because it has a strong employer base but lower supply, and we do expect that to continue. Generally speaking, this is a market that has greater highs and lows because of supply. In the first quarter, demand was soft, and we anticipated that, so the performance was pretty much in line with our expectations.

Analyst: And then the second question is: looking at public information, Camden has their portfolio out there for sale. You guys obviously look at everything. The interest they are receiving—is it what you expected, or are you surprised by the number of people coming to look at the portfolio? I am trying to get a sense of the appetite for California real estate from an institutional perspective.

Rylan K. Burns: Hey, Alex. As you mentioned, we do look at everything in our markets. We are also subject to non-disclosure agreements, so I cannot elaborate on details on any one deal specifically. What I can say is there has been a significant uptick in capital interest on the West Coast, partly driven by performance issues you are seeing throughout the rest of the country and the relative strength and forward-looking fundamentals here, particularly as it relates to supply, as well as some of the demand drivers that Angela mentioned. You have seen this in terms of the cap rate compression in Northern California.

As we look at the fundamentals over the next several years, I would not be surprised if that continues. So, very healthy demand for assets on the West Coast.

Operator: Thank you. Our next question is from Adam Kramer with Morgan Stanley. Please proceed with your question.

Analyst: Hey, thanks for the time here. I wanted to ask about renewal growth trends. I recognize the methodological change may impact this comparison, but if I look at Q4 2024 versus Q1 2025, it looks like about a 10 basis point deceleration in renewal growth. If I look at what you guys just reported yesterday, it looks like it was more about an 80 basis point deceleration this year. Is the methodology change impacting this, or is there any operational change in how you are thinking about renewals?

Angela L. Kleiman: Hey, Adam. Good question. Our pricing methodology or operating strategy has not changed. The reporting change to all leases is truly to make comparisons easier versus our peers. Ultimately, we continue to focus on maximizing revenues. We do not manage to a specific metric. What you are seeing on renewals is really an output, not an input. We could manufacture a high lease rate by reducing occupancy, but you would not want to do that. We are running a business, and the goal is to maximize revenues. I would not get too caught up on the renewal rates. At a minimum, I would point you to look at the blends. The blends have improved and continue to improve sequentially.

Ultimately, that is what hits the bottom line—the combination of your blended rates and your occupancy.

Analyst: That is helpful. Thank you. Maybe switching gears to capital allocation. I recognize there was some buyback activity in the quarter and into quarter end. I do not think you did much, if any, buybacks last year, so a bit of a shift. The stock has moved a little versus the average share price you bought back at. As you sit here today, how do you think about stack-ranking capital allocation opportunities, and where does the buyback fit into that?

Angela L. Kleiman: Last year, the environment was different in that cap rate compression had not really taken hold, and we were very opportunistic in our capital allocation strategy. By buying assets before cap rate compression, we were able to generate a lot of accretion. The pricing level was different back then. I am very pleased with our finance team executing at that $243.76 pricing on average for the buyback. That is a terrific execution. You will see us be thoughtful and opportunistic. At every point along the investment spectrum, we will pick our spots. There is not an exact price today because the relative value will change based on what is available to us in the future.

Operator: Our next question is from Haendel St. Juste of Mizuho Securities. Please proceed with your question.

Analyst: Hey, good morning out there. I wanted to go back to Seattle. Your tone there seems to be more constructive relative to L.A., where it sounds like things will be more challenged for a bit longer. Is your view on Seattle more constructive tied to that reduction in supply you referenced? Are there other KPIs you are watching more closely, and what are they telling you? When do you think we can expect Seattle to track a bit more closely to San Francisco?

Angela L. Kleiman: Hey, Haendel. Yes, I think you picked up on my tone being more constructive on Seattle for a couple of reasons. One, supply—you are right, that has a direct impact. In the first quarter, we expected that legacy absorption from last year would have some overhang, and it is good that we are mostly behind that. More importantly, as we look at where leases are, while Q1 overall lease rate was negative, the rates flipped positive in March and have continued in April. We are aware that, because this is our most seasonal market, it could flip quickly.

The fundamentals are quite sound in this market, and we view it as already starting to trend toward the midpoint of our expectations.

Analyst: Maybe unfair to ask, but would it be your expectation that Seattle would perform more closely to San Francisco next year, or narrow the gap?

Angela L. Kleiman: That is a good question. I am not sure on the exact timing. We are seeing office announcements and expansions into Seattle, and you would expect that Seattle follows the Northern California market. It is hard to predict the actual timing because once they expand, they have to hire, and we do not know how long that will take. I will tell you that at this point, even on the renewal side, Seattle is starting to catch up to the Bay Area markets, which is a good sign. It tells us that it is going to get there. I just do not have enough data to tell you when.

Analyst: Fair enough. Second question is on concessions. Maybe some color on where they stand today across the portfolio and how that compares to a year ago and last quarter?

Angela L. Kleiman: Sure. Happy to. First quarter concessions for the portfolio were about six days. Last year, first quarter was about four days. It is not a huge variation. The largest area is really L.A., which continues to be lumpy, and L.A. concessions this year are a little bit higher than last year, which is not surprising. San Diego is a little higher because of supply that I talked about, which you would expect. The rest is generally performing in line.

Operator: Our next question is from Julien Blouin with Goldman Sachs. Please proceed with your question.

Analyst: Yes. Hi. Thank you for taking my question, and sorry if I missed this. On the new reporting, last year was April the highest blend month? I am trying to get a sense if that north of 3% for April would be even higher as we move into May and June.

Angela L. Kleiman: Typically, you would expect blends to continue to improve as we head into our peak leasing season. On average, we would anticipate blends to peak around June through July. The question is really the trajectory of that increase. While we are performing well, we are still in a soft demand environment generally across the U.S., with geopolitical uncertainty. How much that blend is going to increase will be impacted by that. One of the reasons we did not raise our same-store revenues is that, while we are very comfortable with where we are, we want to remain prudent.

If performance were consistent with what we anticipated when we released our guidance, based on the first quarter results, same-store revenues would be about 15 basis points higher. That said, when we set our guidance in early February, we were not in a new war with another country. Things are moving around, and there is a lot of noise in the broader economy.

Operator: Our next question is from Wesley Keith Golladay with Baird. Please proceed with your question.

Analyst: Hey, good morning, everyone. Can you comment on what is going on in Alameda? It looks like it is having a bit of an acceleration. Is this more of a concession burn-off or a pickup in demand?

Angela L. Kleiman: Hey, Wes. It is a combination of a couple of things. One is concession burn-off. We had talked about supply abating and starting to benefit this year. Concessions in the first quarter of last year were almost two weeks, and now it is half a week, which is terrific. We are seeing both rental rates and financial occupancy improve. We are also seeing spillover effects from San Francisco performing well. There is a demand driver as well. Both components are helping Oakland/Alameda, which is playing out as we expected.

Analyst: Thank you for that. And then maybe just one on the financial modeling. Do you have a timing expectation for the preferred investments being redeemed for the second half?

Barbara M. Pak: They are expected to be redeemed in the second quarter. If you model mid–Q2 redemption, that will get you close on the guidance.

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

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

Barbara M. Pak: Hi, Amy. On the immigration front, what we are seeing is domestic net immigration within the Bay Area has continued to improve, and it is above pre-COVID levels. I think that is a reflection of the demand for tech jobs and tech workers. In terms of international immigration on the legal side, we have not seen any material change on H-1B visas or anything like that. We know that the H-1B visas for 2027 have already hit the cap, and so those will all get filled. Overall, it has been a slight benefit on the immigration side to our market, specifically in the Bay Area, and no material change from what we said in the past.

Analyst: Great. Thank you. And just to follow up on the structured finance opportunities, how has competition trended for these deals? And for the deals that you look at and underwrite, how far off are you from getting these deals and being the selected bidder?

Rylan K. Burns: Hi, Amy. Good question. We have said for the past couple of years there was a significant amount of capital raised to invest in this structure, so there has been more competition. We have seen yields compress. It is somewhat opaque in terms of where on specific deals we might miss out, but we are just trying to be diligent and stick to our process. We still feel it is a relationship business. If you start to see developments pick up, that will create more opportunities for us. We have a long history in this business, and we are viewed as a good partner on the preferred side.

We are going to continue to see opportunities, but we are staying disciplined as it relates to our underwriting process and not chasing the market as some covenants get weaker or yields compress. We are going to stay disciplined to our return requirements.

Angela L. Kleiman: Ultimately, there has been a lot of volatility to our earnings because of the preferred book overhang and the size of the preferred book. I, for one—and poor Barb here has had to deal with the direct impact—am quite relieved that this is our last year of that volatility. Going forward, we have been much more selective in an effort to maintain a size that is accretive to the portfolio and our business but does not create so much noise that it becomes a distraction.

Analyst: Absolutely. Makes sense. Thank you.

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

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

Rylan K. Burns: Hey, John. As Angela mentioned, our capital allocation strategy does not change. We are trying to maximize FFO and NAV per share accretion and improve the growth profile of the company. We have several assets that are currently on the market, so we will probably do several dispositions this year. Those proceeds will be allocated to whatever is the highest risk-adjusted return at the time. We have the ability to ramp that up and down as we see fit. The strategy has not changed, and we will continue to do as we have for many years.

Analyst: Okay. But today, given the health of the private market pricing, is it fair to assume that currently the best use of the funds is share repurchases on your math?

Angela L. Kleiman: I do not think so, John. It depends on what opportunity is available at the time. I point back to the transactions that we completed—over 60% of them were off market. We have an incredible network, extensive relationships, and a reputation that gives us an advantage. The stock price is going to change every day. Pinpointing what we are going to do based on today’s stock price is probably not something you want us to do.

Rylan K. Burns: I would add that when I look at our menu of investment opportunities today, we have several development land sites that we are quite excited about. We think these are going to be very attractive risk-adjusted returns, as well as our redevelopment opportunities and ADUs. This is a business that we have been ramping up where we are getting 10% return on cost. The per-unit costs are a fraction of in-place value. Those are two areas that we are going to continue to invest in because the returns, in many cases, exceed the alternatives on a risk-adjusted basis.

Analyst: Okay. Last one for me. Barb, can you talk a little about the property insurance market? I think you were expecting maybe a 5% decline on your insurance and other expenses this year. Is the market healing faster than you thought, or is that still a fair bogey?

Barbara M. Pak: Yes, John. We actually went to the market recently, and our renewals are tracking in line with expectations. We continue to expect approximately a 5% decline in insurance expense for the year, consistent with our guidance.

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