Essex Property Trust, Inc. (ESS) Earnings & Analysis

Latest quarter

Essex reported third-quarter revenue of $492.7 million, below the consensus estimate of $493.5 million. Adjusted earnings per share, as the consensus counts them, were $4.00, compared with the $4.01 estimate.

Revenue rose from $473.3 million a year earlier. The filing said same-property revenue increased 3.0%, primarily because average rental rates rose 2.5%. Revenue from properties outside the same-property comparison also increased, primarily because of acquisitions and a property consolidation, partly offset by dispositions.

Diluted earnings per share fell to $1.61 from $2.56. Essex’s filing said equity income from co-investments fell to $9.2 million from $17.8 million, primarily because of lower income from preferred equity investments and lower gains from technology co-investments.

Operating margin fell to 31.8% from 44.5%, while free cash flow declined to $280.6 million from $295.8 million. The filing attributed higher same-property operating expenses, excluding real estate taxes, primarily to maintenance, repairs and utilities.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Angela Kleiman said Northern California drove the increase in Essex’s full-year growth outlook. The region recorded 7.3% blended rent growth in the third quarter, which she attributed to a leasing season whose peak extended through September. Seattle’s blended rent growth was 2.1%, led by the Eastside, while Southern California’s 90-basis-points growth was in line with plan, she said.

Asked about the usual seasonal slowdown, Kleiman said Northern California new-lease rates improved by 20 basis points from the second to the third quarter. She said Essex focuses on blended growth across new leases and renewals rather than pushing new-lease rates at the expense of occupancy or renewals: “that is ultimately what flows to the bottom line.”

Analysts also asked what could improve rents in Los Angeles and Seattle. Kleiman said declining supply could help both markets, and pointed to defense and aerospace as a potential source of Los Angeles demand. She said the timing of that demand catalyst was uncertain. In Seattle, she cited technology job openings and office expansion announcements, and anticipated a rebound toward the end of 2027.

On investment, Kleiman said Essex had closed an off-market purchase of a 474-unit East Bay community for over $200 million. She said the property was expected to generate a mid-5% yield. Kleiman also said recent increases in Treasury rates were still being factored into the transaction market as buyers and sellers adjusted.

Asked about expenses, Barbara Pak said the timing of property projects would drive a fourth-quarter increase of about 5% year over year, with no change from the original plan. For 2027, she said the budget process was continuing, but assumed property-tax growth would return to its historical average of 3% to 4%, after favorable appeals limited the increase in 2026.

Guidance

Essex revised its full-year 2026 core funds from operations guidance to $16.10–$16.22 per diluted share from $16.03–$16.25. It raised its net income guidance to $5.62–$5.74 per diluted share from $5.47–$5.69.

On a cash basis, Essex revised its same-property revenue growth outlook to 2.8% to 3.0% from 2.5% to 3.1%, and its same-property net operating income growth outlook to 2.8% to 3.2% from 2.3% to 3.3%.