Essex Property Trust - Earnings Call - Q4 2024

Executive Summary

• Q4 delivered resilient operations: Core FFO per diluted share rose to $3.92 (+2.3% YoY) on same‑property revenue growth of 2.6%, while GAAP EPS jumped to $4.00 on sizable non-core gains; consolidated rental revenues increased to $452.1M (+7.9% YoY).
• Management issued FY2025 guidance with Core FFO of $15.56–$16.06 (midpoint $15.81; +1.3% vs. FY2024), same‑property revenue growth of 2.25%–3.75% (midpoint 3.0%), and OpEx growth moderating to 3.25%–4.25% (midpoint 3.75%), reflecting headwinds from refinancing and structured finance redemptions offset by improving fundamentals.
• Signs of demand normalization: blended lease rate growth was 1.6% in Q4, concessions averaged ~1 week, and January occupancy improved to 96.3%; cash delinquencies improved to 0.6% of scheduled rent as Essex eliminated remaining AR balances (non‑cash) in Q4.
• Capital allocation remains a catalyst: Essex consolidated/added 13 communities in 2024 and targets $0.5–$1.5B of 2025 acquisitions (midpoint $1.0B), with cap rates mid‑to‑high 4s and a focus on accretion and NAV growth.
• Street estimates context: S&P Global consensus data could not be retrieved at this time due to API limits; comparisons to sell‑side estimates are unavailable. Results were slightly ahead of internal expectations primarily on higher JV income.

What Went Well and What Went Wrong

• What Went Well

  • Core operating outperformance vs company plan: “fourth quarter results…were slightly ahead of our expectations primarily driven by higher income from our joint venture entities”.
  • Same‑property fundamentals improved: revenue +2.6% YoY (ex‑AR elimination +3.2%); cash delinquencies fell to 0.6% of rent; occupancy held at 95.9% in Q4.
  • Execution on external growth: 2024 acquisitions/ownership increases in 13 communities ($1.4B gross) including JV buyouts; 2025 plan to be net acquirers with creativity around cost of capital.

• What Went Wrong

  • Seasonal softness: same‑property revenues fell 0.5% QoQ; blended rate growth was 1.6% in Q4 as supply cadence and seasonality limited pricing power.
  • Expense pressure persisted YoY: same‑property OpEx +4.7% YoY in Q4 (utilities, personnel, insurance), diluting NOI growth to +1.7% despite revenue gains.
  • 2025 Core FFO growth modest: midpoint +1.3% as ~$500M bond refinancing (higher rate) and ~$150M structured finance redemptions drive ~2% headwind, partly offset by OpEx moderation and non‑same‑property NOI from acquisitions.

Transcript

Operator (participant)

Good day, and welcome to Essex Property Trust Fourth Quarter 2024 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. Further information about these risks can be found on the company's filings with the SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you, Ms. Kleiman, and you may begin.

Angela Kleiman (President and CEO)

Good morning. Thank you for joining Essex Fourth Quarter earnings call. Barb Pak will follow with prepared remarks, and Rylan Burns is here for Q&A. Before we begin, on behalf of the entire company, I want to express our condolences to those affected by the tragic wildfires in Los Angeles. While our properties did not incur any loss, my gratitude goes to the Essex team for proactively helping those displaced as we adopted several policies to ease the transition into new housing within our Los Angeles portfolio. As for our earnings call today, I will cover our full year and fourth quarter 2024 results, followed by our outlook for 2025, and an update on the investment market. We are pleased to achieve full year same property revenue growth of 3.3% and core FFO growth of 3.8%, both exceeding the high end of our original guidance.

Our strong performance was the result of improving demand, including return to office and migration patterns, combined with attractive affordability and delinquency resolution by our hardworking associates. With this backdrop, we experienced a typical seasonal rent curve for the first time in several years. Additionally, we successfully shifted the company into growth mode, acquiring and consolidating 13 properties at above-market yields. As for operational highlights, fourth quarter results were generally consistent with expectations. We achieved 1.6% blended lease rate growth, and concessions averaged one week for the same store portfolio in the fourth quarter. On a more granular perspective, Orange County and Santa Clara County led the portfolio with 2.7% blended rate growth, while LA and Alameda County lagged with 20 basis points of blended rate growth.

In January, demand picked up in line with our operating plan, lifting occupancy by 40 basis points to 96.3%, and concessions improved to less than half a week on average. Turning to our 2025 outlook, detailed on page S16, consensus GDP and job growth is forecasted to moderate for the U.S. overall but remain at a healthy level. The West Coast is well positioned with improving economic fundamentals as job growth is forecasted to outperform the U.S. after lagging in 2024. Job growth in the technology sector is the key driver of this outlook as we anticipate job postings to convert into new hires in 2025, resulting in better overall growth. Steady demand, combined with low level of supply deliveries at only 50 basis points of total housing stock and attractive affordability relative to home ownership, leads to our base case forecast of 3% market rent growth.

Seattle and San Jose are projected to lead the portfolio at approximately 4%. As far as the range of outcomes, the low end of our guidance is mainly attributed to policy uncertainty and timing of delinquency recovery. Our optimism for the high end of our guidance is supported by solid fundamentals and based on past precedents that tech job postings still have a runway to grow for this phase of the innovation cycle. It is notable that recent office expansion announcements demonstrate the intention that the majority of new hirings will be focused in headquarters locations, which favors the West Coast economy, particularly the northern regions. Over the long term, we see a path for the West Coast apartment markets to continue to outperform the U.S. average with better job growth and wealth creation driven by centers of innovation, combined with limited level of supply growth.

Lastly, on the investment market, in 2024, the West Coast experienced a meaningful uptick in volume, reaching a level close to the pre-COVID average. Although interest rates increased in the fourth quarter, there remains a deep pool of capital eager to acquire properties on the West Coast, and cap rates in the fourth quarter for high-quality properties remain consistent at around mid- to high-4% range. In 2024, Essex was opportunistic in its acquisition efforts, successfully generating significant accretion by consolidating joint ventures and acquiring several communities in close proximity to our property collections where we can enhance the yield on day one by operating these communities more efficiently. In 2025, we expect to be net acquirers again while optimizing our cost of capital. Our focus remains on being creative and opportunistic to drive FFO and NAV per share growth for our shareholders.

With that, I'll turn the call over to Barb.

Barb Pak (CFO)

Thanks, Angela. Today, we'll discuss our fourth quarter results, key assumptions to our 2025 guidance, followed by comments on the balance sheet. We are pleased with our fourth quarter results, which were slightly ahead of our expectations, primarily driven by higher income from our joint venture entities. As it relates to same property operations, we saw a continued reduction in delinquency during the quarter, which improved to 60 basis points of scheduled rent on a cash basis. For the year, we made substantial progress on the delinquency front, reducing our bad debt by over 50% from one year ago. As such, we are pleased to be in a position to fully eliminate the remaining accounts receivable balance during the quarter, which resulted in same property revenue growth of 2.6% on a year-over-year basis. Without this non-cash adjustment, revenue growth would have been 3.2% for the quarter.

Turning to our 2025 outlook, same property revenues are forecasted to grow by 3% at the midpoint. The key drivers of this growth are outlined on page S16-1 of the supplemental. Continuing on with Angela's comments, stable economic conditions, low supply, and expectations for increased hiring among key West Coast industries lead to our forecast for blended rent growth of 3%. In terms of the cadence, we expect blended rent growth in the first half to be below the full year midpoint and improve in the second half of the year as hiring accelerates and translates into increased demand for housing. Our guidance assumes a 50 basis points improvement in delinquency as we continue to make progress, returning to that long-term run rate. Rounding out the remaining components, we anticipate 30 basis points combined contribution from higher occupancy and other income.

Moving to operating expenses, we forecast 3.75% same property expense growth at the midpoint, a significant improvement from what we've experienced the past two years. The biggest factor driving this outcome is lower insurance expense. We renewed our property insurance in December and saw a small reduction in our premium as compared to the prior year. Regarding controllable expenses, we are forecasting growth of less than 3% as we continue to seek ways to enhance our operating efficiencies to offset wage pressures. Putting it all together, same property NOI growth is expected to increase 2.7% at the midpoint. As for core FFO, our midpoint of $15.81 equates to 1.3% year-over-year growth. The modest increase is driven by two factors which combined represent around 2% headwinds of growth. The first relates to higher interest expense, primarily driven by the refinance of $500 million in unsecured bonds.

Our guidance assumes we refinance this debt in the first half of the year, and given the current interest rate environment, the all-in rate is expected to be meaningfully higher than the 3.5% rate on the maturing bonds. The second factor is lower structured finance income as a result of redemptions in 2024 and those expected in 2025. Our guidance assumes $150 million in redemptions at the midpoint, of which approximately 50% is expected to occur by mid-year. As previously communicated, we expect to reinvest the proceeds into new acquisitions, which will offset a portion of this income and result in better NAV and core FFO growth for our shareholders over the long term. In total, the structured finance book is expected to represent around 4% of our core FFO in 2025, consistent with our target range of 3%-5%.

Turning to investments, the midpoint of our guidance assumes we acquire $1 billion in new apartment communities. As for funding, it will be dependent on market conditions and our cost of capital, utilizing the most attractive equity capital source available at the time and executed on a leveraged neutral basis consistent with our track record of disciplined capital allocation. Concluding with the balance sheet, the balance sheet and credit metrics remain strong, and with over $1 billion in liquidity and ample sources of available capital, the company is well positioned. I will now turn the call back to the operator for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue, and for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow-up question. Our first question is from Nick Yulico with Scotiabank. Please proceed.

Nick Yulico (Managing Director)

Thanks. Hi. Angela, I believe you said that the low end of guidance assumes some sort of potential regulatory impact, and I'm assuming that's in LA. I just wanted to be clear on that, and also if you could provide what is the same store revenue growth range assumed in guidance for LA specifically.

Angela Kleiman (President and CEO)

Hey, Nick. Good morning, and thanks for your question. Yes, legislation is a known factor at this point, and it's a little too early to predict the outcome, and so as it relates to our guidance, we didn't factor that component into our guidance, but that's why we have a range, so a downside is contemplated if something gets enacted that's more extreme in nature. What we are aware of is currently there is an eviction moratorium being considered in LA and a rent freeze proposal.

And as far as the eviction moratorium is concerned, what we are hoping for is a more sensible approach, unlike what was enacted during COVID, and that the legislators understand that eviction moratorium is punitive only to housing providers and a bad policy for LA because it deters investments in LA and housing production in an area that already has an extreme shortage in housing because we all know that the best path to affordable housing is to produce more homes. And so that conversation is ongoing, and we are working closely with our organization to get better visibility on that at some point. As far as the rent freeze is concerned, Governor Newsom declared a state of emergency related to the fires that triggers the existing California law to limit rent increases to 10% above pre-emergency levels.

Since there's already an anti-doubling protection in place, which we also support, we're hoping that nothing more extreme will be passed. Once again, that's the reason for the downside scenario, and that's what is related to the impact to the lower end of the range.

Nick Yulico (Managing Director)

Okay. Thanks. That's helpful. Is it possible to get just the specifics for LA in terms of what's assumed for the same store revenue growth this year?

Barb Pak (CFO)

Hi, Nick. Yeah, it's Barb. So for LA, we have assumed that it will improve from where we are in 2024. As you can see in our supplemental, we were at 2.3%. LA was very challenged in 2024 with low occupancy and negative rent growth, and we think that occupancy improves to a stabilized level of 96% and that rent growth is modest at about 2%. So that's what's baked in. No impact from the wildfires has been forecasted in our numbers. It was just we had assumed the market starts to recover from some of the eviction noise that occurred in 2024.

Nick Yulico (Managing Director)

Okay. Appreciate it. Thanks.

Operator (participant)

Our next question is from Eric Wolfe with Citibank. Please proceed.

Eric Wolfe (REIT Equity Analyst)

Hey, thanks. As part of your guidance, you gave an expectation for 3.5% renewal rate growth through this year. I'm just trying to understand why it wouldn't be a bit higher given the low turnover you've been seeing. And I think you did about 4% last year with weaker market rent growth. They're just trying to understand how you came up with the estimate and why it would be lower than last year.

Angela Kleiman (President and CEO)

Hey, Eric. It's Angela here. It's a good question, and our approach generally has been to essentially be market appropriate with our renewal rates. And what that means is over time, you would expect the renewal rates and market rents to converge. Now, it could be lumpy year over year depending on lease terms, the concessionary environment, and timing of the renewal signed, which is why we experienced a 4% renewal in 2024, even though the market rent growth was quite a bit lower, but net-net is that our focus has been and will continue to be on maximizing revenues rather than individual rates, and these renewal rates can be lumpy from year to year.

Eric Wolfe (REIT Equity Analyst)

Got it. And then you mentioned that you expect the second half to be better from a blended spread perspective. I don't know if you want to give sort of what you expect for the first half and second half, but sort of what gives you that conviction that you'll see that increased hiring trends? Obviously, you can look at the listings, but just curious what gives you the confidence that you'll see that incremental demand in the back half of the year?

Angela Kleiman (President and CEO)

Yeah. It's really a function of two factors. It's both demand and supply. And so as far as the cadence, we're anticipating that the first half to be in the high twos, so say around 275, and the second half to be above a midpoint in the low threes, say around 330, around there. And from a supply perspective, I think that's more straightforward, so I'll cover that first. We are anticipating that the first half delivery to be heavier. So when we look at our supply cadence, about 60% or so of the supply is coming in the first half. So that, of course, will impact our pricing power. And as far as the job growth, we assume that to happen in the second half because what we're seeing is the job postings that have been gradually increasing and have been steady. But it takes time to actually hire.

We're also seeing that, especially in the Bay Area, a meaningful number of tech companies have taken on office expansion. Just from the leases signed, if you just take the actual square footage, that would imply somewhere around 5,000 new headcounts, well, that's not all going to happen at the same time. Certainly, it's not possible for it to all happen or the most of it to happen in the first quarter because, once again, it takes time to recruit and interview and put people in place, so that is why we're assuming the second half. Of course, our conviction is coming from the leading indicators such as job openings and, of course, the office leasing activities.

Eric Wolfe (REIT Equity Analyst)

Great. Thank you.

Operator (participant)

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets. Please proceed.

Austin Wurschmidt (Senior Equity Research Analyst)

Yeah. Great. Thank you. Barb or Angela, I know you mentioned the first-half blends will be lower than the second half for the reasons you just cited, but I guess digging into the 2.5% new lease rate growth assumed at the midpoint of same store revenue growth guidance, I guess should we expect kind of another year of a gradual ramp into the peak leasing season and then kind of the shoulder periods being a little softer? And also curious in your market rent growth assumption, if any, or how much benefit there is from kind of, I guess, a more normal year where you don't have as many long-term delinquent units coming back to market. Just wondering if there's any kind of concession burn-off benefit in that number. Thanks.

Angela Kleiman (President and CEO)

Hey, Austin. No, that's a good question. We do expect the leasing curve to continue to normalize. So in 2024, it's the first time in several years we saw a normal leasing year. And so what we're expecting that in 2025, that it will continue. We haven't really seen anything else in the economy that would provide a meaningful disruption to that. And as far as our market rent is concerned, what happened last year is if you look at our actual market rent, it was slightly lower than our forecast, but that's really driven by LA and Alameda delinquency that created a lot of noise. And so once you factor that in, we are assuming that that's now behind us and the market rent curve is much more steady.

Austin Wurschmidt (Senior Equity Research Analyst)

That's helpful. Then just touching on the bridge from the fourth quarter result to the first quarter guidance, after you remove kind of the $0.04 non-cash charge in the fourth quarter, you did $3.96 of Core FFO, and the Q1 guidance assumes that that dips. Yet you do have some reacceleration in the blended rate growth. You cited January occupancy pickup versus where you were in the fourth quarter. So I guess what's kind of driving that sequential decrease in Core FFO? Just wondering if there's any items to highlight there. Thank you.

Barb Pak (CFO)

Yeah. Austin, this is Barb. So there's really two factors. It's really timing on OpEx. So sequentially between the fourth quarter and the first quarter, we're seeing a little bit more in OpEx spend. And then the other big driver is just higher interest expense as we have a higher line balance and various other assumptions in the guidance. So that's really the two key drivers on the sequential change in Core FFO.

Operator (participant)

Our next question is from Steve Sakwa with Evercore ISI. Please proceed.

Steve Sakwa (Senior Equity Research Analyst)

Yeah. Thanks. I guess I just wanted to come back to that kind of blended number and really more of the spread between new and renewal. I guess many of your peers just have a much wider, I guess, delta between the new and the renewal. And I'm just wondering if there's something going on this year as it relates to the comps and whether some of these renewals are turning into new leases or lack of renewals and there's more pricing power there. I just was a little surprised at the narrowness between those two.

Angela Kleiman (President and CEO)

Hey, Steve. It's Angela here. No, that's a good question because I think what is causing the variation from one company to another is really more related to the operating strategy. And for us, what we have been focusing on is bringing our renewal rates as close to market as possible. And we're sending these ahead of time, and there's some negotiating, so it's not going to be exact. And because ultimately, if we price our renewals appropriately and run an optimal occupancy, then the new lease rates will benefit. And so ultimately, that all relates to how we can maximize revenues. And so what that means is for Essex, the renewal and new lease spread will really—that range or the spread is really subject to market conditions. And in an environment where market rent growth is accelerating, that spread will be much wider.

But in an environment where there's been prolonged moderate growth, that spread is going to be narrower. And of course, there are other factors like concessions and timing of lease signings, which makes it, I understand, hard for all of us to pinpoint exactly what the spread would be. But how we're running the companies is probably driving the spread difference.

Steve Sakwa (Senior Equity Research Analyst)

Okay. Thanks. And then just to follow up, again, other income for you guys is only growing 10 basis points. I know for some of your peers that are doing more of this connectivity and the Wi-Fi, that number's more like 50, 60, 70 basis points. So is there something kind of holding you guys back on that other income? Are you doing something differently, or have you maybe not taken the same steps that they have to kind of roll this out and that's coming for you? Just trying to understand that 10 basis points.

Barb Pak (CFO)

Yeah. Hi, Steve. So this is Barb. So there's a couple of factors that are at play here. So in 2024, we had some outsized, what we would consider outsized lease cancellation fees, and we talked about that on our last call. And that, we think, moderates in 2025 to kind of a more normalized level. So that's muting growth a little bit on the other income side. And then the second factor is in 2023, we rolled out some initiatives, and we got the full benefit in 2024. And right now, we're piloting a few things. We're not sure we're going to roll them out. We need time to vet to make sure it's really going to pay off. And if we roll them out, we will benefit 2026. And so we're kind of in that piloting phase right now on a few different initiatives.

So that's what's leading to that 10 basis points growth this year.

Steve Sakwa (Senior Equity Research Analyst)

Great. Thank you.

Operator (participant)

Our next question is from Jeff Spector with Bank of America. Please proceed.

Jeff Spector (Managing Director and Head of US REIT)

Great. Thank you. First question, Angela, in your opening remarks, you mentioned the company's in growth mode. I know you've been talking about that the past year, but really, can you just dive into that a little bit more, the impetus? And in terms of acquisitions, you mentioned cap rates are in the mid to high fours. Again, how do you plan to acquire? I guess, again, if you could just talk about that as well as maybe IRR expectations. Thank you.

Angela Kleiman (President and CEO)

Hey, Jeff. No, good question. I'll just cover some high-level strategy and then turn it over to Rylan. As far as generating accretion, of course, in an environment where our stock price isn't as attractive, you've seen us do so in other ways. We can sell assets, obviously, that offsets the growth but the growth of the company, but in terms of the growth of the portfolio, it will benefit that, and it would generate accretion because if you've seen what we've done is we acquired pretty heavily in 2024 in the northern region where we were expecting and have seen outperformance relative to the rest of the portfolio. At the same time, we sold a $250 million 1970-built property at an attractive value, so ultimately, you'll continue to see us transact in a way that's going to be accretive.

As you're aware, we have multiple funding sources in addition to dispositions. We, of course, have some cash on hand from operations and joint venture opportunities. Rylan, you want to talk about returns and other stuff?

Rylan Burns (EVP and CIO)

Yeah. Hi, Jeff. This is Rylan here. I think market participants, as we mentioned, buying cap rates in the mid to high fours for well-located, high-quality properties. I think the marginal buyer today is underwriting around an eight unlevered IRR expectation, and we are obviously trying to do better than that.

Jeff Spector (Managing Director and Head of US REIT)

Thank you. And then my follow-up is you've mentioned that there was a pickup in January. Can you talk about that in a historical context? Was it a normal pickup that you see in January? Was it stronger than normal, weaker than normal?

Angela Kleiman (President and CEO)

Oh, yes, Jeff. This is consistent with our expectations, and so it's typical. The occupancy pickup in January was all in Northern California, which was what we had expected because that strength is finally starting, and when we look at just generally from a new lease rate, it also gradually improved as well. And so on all fronts, January is playing out exactly as what we had planned.

Jeff Spector (Managing Director and Head of US REIT)

Thank you.

Operator (participant)

Our next question is from Jamie Feldman with Wells Fargo. Please proceed.

Jamie Feldman (Head of REIT Research)

Great. Thanks for taking the question. So your portfolio tilts more heavily suburban, which has performed better since COVID, given some of the challenges we've seen in urban submarkets. We're wondering if you expect the same theme of suburban outperforming urban in 2025, and maybe to put a finer point on it, can you talk through your views on rent growth in your urban versus suburban portfolios?

Angela Kleiman (President and CEO)

Hi, Jamie. That's a good question and a thoughtful one. As far as our portfolio allocation is concerned, we have favored the suburban location for a specific reason. Yes, from time to time, a particular area might outperform for a short term, but our suburban portfolio is where all the major companies are located, so unlike the East Coast or even the Midwest, you have Apple in Cupertino, Google is in Mountain View, and Meta's in Menlo Park, and so these major hubs are not in the downtowns, and so that is a key reason why we have favored the suburban locations. But in addition to that, the downtowns are more challenging in terms of the quality of life. The homeless issue still needs to be addressed, and I think crime, hopefully, is getting better.

I do think that, yes, the urban centers should rebound, but we do not expect for those areas to outperform the suburbs because they just have not done so over the long term.

Jamie Feldman (Head of REIT Research)

So can you quantify? I know you've talked a lot about your rent growth in the first half versus the second half. I mean, how would you compare your urban rent growth versus your suburban and your 2025 outlook?

Angela Kleiman (President and CEO)

Oh, I don't have that fine of a detail in front of me. We are expecting the suburban to continue to outperform the urban, but it's going to vary differently. So for example, downtown LA is going to be very different than downtown San Francisco because downtown LA has more supply, and so I don't have that exact spread.

Jamie Feldman (Head of REIT Research)

Okay. And then maybe for my follow-up, I mean, I think you had commented you've seen some office leasing in the Bay Area, some expected rent growth in the Bay or job growth in the Bay Area. But we've seen a major hiccup to the AI industry with DeepSeek. I'm just curious, did you guys change your outlook at all for demand on that? It seems like the AI business will be in cost-cutting mode. Or just did that impact your outlook? How are you guys baking that into your expectations for a pickup in the back half of the year?

Angela Kleiman (President and CEO)

Yeah. We don't expect DeepSeek to materially impact the business. Now, first of all, when we look at all the leases that have been signed, it's not dominated by AI. It's companies like Snowflake. That's a data company. We have some fintech. We have some software companies. So it's pretty well diversified. But that said, as far as DeepSeek is concerned, we do think that ultimately, more competition will spur more innovation and investments in this sector. And DeepSeek, there's a disconnect between what they provide and what the end users need. And you still need these companies to come in and create products and tools on top of it for the end users. And so that business will remain robust as far as what we can see.

Jamie Feldman (Head of REIT Research)

Okay. Thanks for your thoughts.

Operator (participant)

Our next question is from Brad Heffern with RBC Capital Markets. Please proceed.

Brad Heffern (REIT Equity Research Analyst)

Yeah. Thanks. Morning, everyone. Obviously, a lot of political uncertainty right now, but can you talk about how you're thinking about the potential impact of shifts in immigration policy? And it would also be great if you could talk about how much of your demand comes from H-1B visas. Thanks.

Angela Kleiman (President and CEO)

Hi. The administration question is an interesting one because it can change from hour to hour from what we can see. But as far as the immigration part of it, fortunately, that's been pretty steady in terms of how the administration has communicated their stance. Their focus has been on illegal immigration. And so we don't expect that will have a meaningful impact on our portfolio, especially since we have a chronic shortage of housing at a level greater than the national average. And anecdotally, I think we've all heard of comments such as, "We want the best and the brightest." And so from what we gather, the administration is actually pro-H-1B visa and wants to provide a path for foreign college students to stay in the country. As far as our business is concerned, in the past, we do have a small portion of tenants from H-1B visa.

They tend to be more transient, and they tend to double up more, and so once again, when they exited early on during the Obama administration, we didn't see any impact to our portfolio.

Brad Heffern (REIT Equity Research Analyst)

Okay. Got it. Thanks for that. And then maybe for Barb, I'm looking at the 2025 Core FFO walk on S16.2. You have a larger growth contribution from the non-same property NOI than you have from same property. Can you just go through that? I think potentially maybe the non-same property is being offset some by the interest bar, but just wondering why it's so large. Thanks.

Barb Pak (CFO)

Yeah. The key takeaway there is the acquisitions that we did this year. And we consolidated several JV properties, and then we bought out others. So it's really that is the contribution. It's the big component of it. So there's a lot of movement within the financials from consolidated to unconsolidated to consolidated. And that's what's driving that.

Brad Heffern (REIT Equity Research Analyst)

Okay. Thank you.

Barb Pak (CFO)

I'm happy to go offline with you on more details if you need anything else.

Operator (participant)

Our next question is from Adam Kramer with Morgan Stanley. Please proceed.

Adam Kramer (Research Analyst)

Great. Thanks, guys. Just wanted to ask about it. And I think, Angela, you mentioned a pickup in January, although maybe not so much in the LA region. And I guess just wondering first, obviously, given these unfortunate wildfires and obviously thoughts with everyone there, maybe just if there's been any kind of contribution to the portfolio, be it on the rate side or maybe more likely in the occupancy side in January. It seems like, again, based on your earlier comments, that's not been the case, but just wondering there.

Angela Kleiman (President and CEO)

Yeah. Hey, Adam. We have not seen any increase in lead volume, if not from the fires. I mean, we've seen inquiries, but the actual activities have not translated. It's really because what we heard was that these fire victims, they're waiting for clarity from the insurance providers before making housing decisions, so it's going to take a lot more time to work that through the system before it has any impact, and secondarily, in terms of the tenants that may be looking for new housing, the impact will mostly be single-family home, and they're going to need larger units, multiple bedrooms, and so once again, I just don't see that as a huge impact in the near term.

Adam Kramer (Research Analyst)

Got it. No, that's helpful, Angela. And then just wanted to ask about kind of the same-store expense growth guide, maybe just taking the midpoint of it. If you could maybe just walk through some of the key drivers there, taxes, utilities, operating expenses, just the kind of contribution to that overall expense growth guide.

Barb Pak (CFO)

Yeah. This is Barb. So as I mentioned in my prepared comments, insurance is kind of the biggest driver of our reduction in same-store expense growth this year from 4.9% to 3.75%. So insurance, we expect to be down 2% based on our December renewal. That's a big reduction from what we saw last year. And then as it relates to real estate taxes, we do think that they're up a little bit from where they were in 2024. Given Seattle is a wild card, we do think Seattle may come in high again in double-digit range this year. And then utilities has also been the wild card. We have seen outsized pressure there and above inflationary increases.

We think it still is elevated in terms of increases in 2024, maybe a little bit more moderate than what we saw in 2020 or a little more moderate in 2025 versus 2024. But overall, real estate taxes and utilities probably blend to about the same number next year in total. So the non-controllable piece will be up about 4.5%, we think. And then the controllable piece will be up just under 3% is how we kind of get to our 3.75% blended number.

Adam Kramer (Research Analyst)

Great. Thank you, Barb.

Operator (participant)

Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed.

Alexander Goldfarb (Managing Director and Senior Research Analyst)

Hey. Morning out there, and Rylan, congrats on selling a 76-year-old asset at a pretty surprising price. So well done. Just, Angela, wanted to follow up on Jamie Feldman's question on the urban markets and suburban. The big narrative, and you guys have talked about it, that tech is trying to make a push to come back, return to office, and people, the tech job openings and people coming back to San Francisco, Seattle, but you also made a comment about the urban area still dealing with crime, homeless, and yet we hear positive things out of the changing political landscape as a result of elections in both markets, so when you cut through it, how do we interpret a rebound of those two markets versus the comments that there's still work to be done?

Obviously, I know stuff takes a while, but are the positive changes being seen? Is that real-time or that's the hope, but right now, not much really has changed on the ground as far as quality of life, and that's why you still prefer the suburbs versus the urban?

Angela Kleiman (President and CEO)

Hey, Alex. Great question. It's really two things. One is that when it comes to tax and public policy, I think that's headed in the right direction, and we are hopeful that they can get there. But I think we've all experienced this, especially you went through this in New York. Once you have a political plan, then you have to set policy, and you have to find funding, and you have to implement it. And these things, it's not even a short-term. It's a multi-year program. And so that's one of the reasons why our view is we are hopeful, but we believe it's going to take some time. As far as the rebound in jobs and the expansion that's taking place by these tech companies, I'll share with you what we've seen. The leasing activities have all been in the suburbs. Snowflake is in Menlo Park.

Robinhood is in Menlo Park. xAI, and we have a couple of small companies that's in South San Francisco, which is great. But another AI company is in Mountain View. I mean, it's predominantly in the suburbs. Maybe one or two small companies in close to the CBD, not San Francisco, but close to it. And that's pretty consistent with historical patterns.

Alexander Goldfarb (Managing Director and Senior Research Analyst)

Okay. And then the second question is just on the regulatory front. There's also the governor's actions with CEQA and the Coastal Commission, which I imagine both of those entities are very protective of their powers. As part of this larger conversation about rebuilding LA and accelerating the process, is there any discussion about dialing back the ultimate powers that both these entities have to improve construction, or is the view that this is a one-time alleviation of those rigorous sort of permission slips, if you will, and that once LA is rebuilt, those entities go back in full force?

Angela Kleiman (President and CEO)

Alex, I wish I had a crystal ball. I think what we're seeing right now is there's an interest and also the need to focus on a massive rebuilding effort that needs to take place. Having said that, how to go about it is complicated. As you mentioned, there are multiple agencies in play here. And I think what is people want to do the right thing, but everyone has their own process. And so I think it's going to take a little bit more time to play out as far as the approval process and the rebuilding process. What we can hope for is that the legislatures are going to try to be more efficient. But keep in mind, LA is a very large and densely populated area, and the economy is huge.

And while their home lost, the jobs remain intact, and it's still in the LA area. The county is the largest county in the U.S. with close to $1 trillion in GDP. And so we are optimistic that LA will figure itself out and that they will benefit from the catalyst of growth with infrastructures and investments coming for the World Cup and Olympics and film industry tax credit. By the way, the fourth quarter is the first time we saw jobs in the film industry improve for the first time in several years. So these things do give us hope about LA.

Alexander Goldfarb (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Our next question is from Haendel St. Juste with Mizuho Securities. Please proceed. Please check and see if your line is muted.

Haendel St. Juste (Senior Equity Research Analyst)

Hey. Good morning there. So I guess, yes, I'm here. So I guess my first question is on the development starts here. Your first starts in about five, six years. So can you expand a bit more about the opportunity set you're seeing here in development, the markets you're a bit more focused on, and how we should be thinking about how you're thinking about yields, IRRs, and potentially appetite for where you might want to grow the development book to?

Rylan Burns (EVP and CIO)

Hey, Angela. Rylan here. So as you mentioned, we haven't started development in over five years because the risk-reward really just didn't make sense. As you're all aware, it is very challenging to develop on the West Coast. And what we're trying to do at a high level, we're seeking with our limited capital the highest risk-adjusted returns. So we feel like we have an opportunity today.

This is in a location adjacent to Oyster Point, one of the largest biotech hubs in the world. Land at a very low basis. Our costs are down in the high single digits from 2022, and the rents have started to show some momentum in 2024. So we are looking for at least a 20% spread to where we think we can buy. And we think we have that today. On untrended rents, this project is projected to achieve a mid- to high-5% cap rate, and that's with a fully negotiated GMP and a healthy contingency buffer. And we think this project will stabilize in the high-6% range.

Haendel St. Juste (Senior Equity Research Analyst)

That's helpful. Appreciate that color. And I wanted to follow back up on a comment I think you made about concessions. You mentioned seeing some declines there recently, but I don't think your 2025 guide reflects any improvement in concessions this year versus last year. So maybe you can give us a sense of where concessions in the portfolio are today and whether it's fair to think this could be a source of upside with the demand improvement you're seeing in Seattle and San Francisco, where markets, I think you've had a bit more concessions of late.

Angela Kleiman (President and CEO)

Yeah. Hey, Haendel. That's a good question on concessions. Today, the portfolio is sitting at less than half a week, and that's an improvement from December of a little over a week. But having said that, normally, you would see concession ticked up if we have supply deliveries in the slow season like December, which we did. We saw in San Jose and, of course, Seattle. And fortunately, San Jose, it's a smaller market in terms of the number of deliveries, and so it quickly abated. Seattle, the supply delivery is comparable to last year, and so we don't expect a meaningful change in terms of the concession environment. And in fact, some of the supply actually is moving to the east side where we have the bulk of our portfolio.

And so even though I think Northern California will be better, there's an offset with Seattle at the end of the day. So net-net, our concessionary position from year to year is going to be about the same.

Operator (participant)

Our next question is from John Kim with BMO Capital Markets. Please proceed.

John Kim (U.S. Real Estate Analyst)

Good morning. So your cash delinquency improved sequentially, but it looks like your gross delinquency went up. I'm not sure if the reported and gross is the same number, but I was wondering if you can comment on that, and then when you talk about the 50 basis points improvement for the year, does that include the impact of the accounting change?

Barb Pak (CFO)

Hi, John. Yeah, it's Barb. So the reported this quarter does factor in the non-cash charge for eliminating the accounts receivable balance. So that impacted the numbers this quarter, and it did show a slightly higher number than what we have been reporting. Cash, on the other hand, did improve from Q3 to Q4, and so we're seeing that consistent pattern that we've talked about over the last couple of years, and then as it relates to the impact of 2025, we have assumed 50 basis points impact to our guidance for delinquency, of which 20 basis points is related to the accounting charge in Q4, and we expect 30 basis points improvement on a cash basis, so for cash for 2025, we expect delinquency to be around 60 basis points, which is where we were in the fourth quarter.

John Kim (U.S. Real Estate Analyst)

Remind us where it was pre-COVID.

Barb Pak (CFO)

Pre-COVID, it was around 40 basis points, and we do expect for 2025 that the first half will be slightly above the 60, and then by the back half of the year, we'll be at that 40 basis points level, so back to pre-COVID levels.

John Kim (U.S. Real Estate Analyst)

Barb, on the debt maturities that you have this year, can you update us on where you could raise ten-year unsecured notes today and what's incorporated in your guidance for the year?

Barb Pak (CFO)

Yeah. So in terms of where the ten-year unsecured bond market is for us today, we're in the mid-5s, and unsecured debt is slightly cheaper than secured debt. Agencies for five-year papers are around the mid-5s as well. So we do like the ten-year unsecured bond market, but when we go to look to refinance our debt, we'll look at all options to see what's the most attractive at that point. In terms of what's in our guidance, there's a variety of assumptions in terms of timing and rates in the numbers, so I'm not going to go into that specifically. But where we are today is kind of consistent with where we were most of last year. We're kind of bouncing around the mid-5 range for most of last year as well.

John Kim (U.S. Real Estate Analyst)

Great. Thank you.

Operator (participant)

Our next question is from Wes Golladay with Baird. Please proceed.

Wes Golladay (Senior Research Analyst)

Hey, good morning, everyone. I just had a quick question on the structured finance book. I think you said you have about $150 million redeeming this year. Do you have the timing of that? And then on a multi-year look, it looks like it has about 1.6 years of term for the just under $500 million of investments. Will most of that mature next year?

Barb Pak (CFO)

Yeah. This is Barb. That's a good question. So in terms of the timing of the $150 million in redemptions, we do expect about 50% to be by mid-year. So most of that's in the second quarter. And then one maturity later in the year in 2025. And then in terms of that timing is obviously subject to some movement as a couple of our redemptions in 2025 are early. Sponsors are looking to term us out as getting permanent financing is cheaper than their construction loan. So some of that timing does move around a little bit or could move on us. But that's our best guess based on talking to our sponsors. And then in terms of the maturities, yeah, there is the short duration. A couple of them are maturing in the next year but do have some extension options.

It may or may not get redeemed. It depends on market conditions.

Wes Golladay (Senior Research Analyst)

Okay. And then, do you expect to invest more? I think you mentioned you wanted 3%-5% of the business to be in Structured Finance. Will you replenish this, or just timing may not be right now?

Barb Pak (CFO)

I think it depends on the opportunities, right? So if we see a good opportunity that's appropriate on a risk-adjusted basis, we'll look at it. We haven't seen a lot of those. There is a lot of money raised for this product type, and so it's become very competitive. And so we focus more on buying hard assets. We think that's actually better long-term for shareholders. But it will be dependent on market conditions and what we see in terms of opportunities out there.

Wes Golladay (Senior Research Analyst)

Okay. Thanks for the time.

Operator (participant)

Our next question is from Rich Hightower with Barclays. Please proceed.

Rich Hightower (Managing Director)

Hey, good morning out there, guys. I'm just piecing together, I guess, a couple of comments made related to the broader transaction market. So Rylan, I think you said for high-quality product, cap rates in your markets are maybe in the mid-4s. And if I heard correctly, agency financing perhaps in the mid-5s. So I just want to make sure that I guess that implies negative leverage going in and maybe outsized growth as you kind of push the model forward. So is that pretty consistent with what you guys are seeing in the marketplace and just maybe a little more color on the transaction market in general?

Rylan Burns (EVP and CIO)

Hey, Rich. That's a fair question, and I think your assessment's correct. I think a lot of buyers today are assuming negative leverage in year one and trying to solve for how quickly they can get out of it. As it relates to the transaction market at a high level, there was around $16 billion of transactions in California and Washington in our product type in 2024 compared to $7 billion in 2023 and the 2021 and 2022 high watermarks in the low 20s. So there was a lot more volume traded last year. It feels relatively healthy. There's a very competitive bidding process, again, for the product that I mentioned that we are targeting. So it feels healthy, and it feels the bidder pool is deep. And we just came from NMHC where there was a similar message that there's a lot of capital out there looking to deploy.

People are, I think, growing more increasingly optimistic about the West Coast. That is the challenge for us in 2025 is to figure out how we can accretively grow despite the competitive market.

Rich Hightower (Managing Director)

That's very helpful. Thanks, Rylan. And then maybe just a quick follow-up on the insurance side of things. I know you said you, Angela, you said you renewed the policy in December. And so maybe in relation to the timing of the wildfires happening after that, but also before most, I think, other companies renew their insurance policies, Essex is in a little bit different spot there. So if you guys could maybe forecast out how you feel like the next round of negotiations and pricing might go later in 2025. On the other hand, Equity Residential yesterday said they did not anticipate too much of an incremental impact to the way insurance gets priced based on the wildfires alone. So just help us understand how that might play out as we think about even 2026 at this point.

Barb Pak (CFO)

Yeah, hi Rich. It's Barb. So you are correct. We did renew our property insurance in December. So we're locked in for 11 months of 2025. So really no risk on our insurance renewal to this year. It's way too early to know what the outcome will be. And we had no damage from the fire, so we're not actively in discussions with our insurance carrier on any claims or anything like that. So we'll just have to see how it plays out as the year goes on. One thing I will note is over the last two years, our insurance is up 50%. So we have seen a steep increase, unlike in the residential home market where it was more limited. So that's the only thing I would comment on. Otherwise, I would say we'll know more as we enter the fall of this year.

Rich Hightower (Managing Director)

Very helpful. Thanks, Barb.

Operator (participant)

Our next question is from Juliane Braun with Goldman Sachs. Please proceed.

Yeah, thank you. You sort of touched on this a little bit earlier, but sort of, Angela, you commented that Seattle and San Jose are projected to lead the portfolio at approximately 4% market rent growth this year. Those were also the markets where you had sort of previously warned about the supply pockets. I guess as you looked at the fourth quarter and so far what you're seeing in the first quarter, how is sort of rent growth compared to your expectations? And I guess what is sort of giving you confidence that those markets will sort of hold up this year?

Angela Kleiman (President and CEO)

Hey, Juliane. On the supply landscape, as far as San Jose is concerned, what we experienced in the fourth quarter was that there was an uptick in terms of the supply delivery, which, of course, put pressure on rents for about two months, and then the supply got absorbed, and we are back to a normalized environment, and so what we expect is that to occur, but the difference with the northern region is that we see a stronger demand relative to the southern region, and that, of course, is going to provide pricing power in an environment where there's low supply, so even though you have supply delivery, it's going to cause some interim disruption, but it's not permanent, and similarly, with Seattle, what we're seeing is the supply delivery, the level is similar to 2024.

And what we're expecting is that the cadence to occur in the first half of the year, which is much better than the second half, because when supply delivery comes during a period of strong demand, that absorption happens quickly, and the disruption is really minimized. It's when they come in December or November, then it lingers on and takes more concessions and takes longer to work through it. But all in all, net-net is that our economy and the fundamentals are quite healthy, and therefore we expect these supply delivers to be absorbed similar to a typical pace. And so there may be interim lumpiness from month to month, but overall, we are well set up for the year.

Got it. Thank you. That's helpful. And following up on John's question on bad debt, so the 50 basis points of same-store benefit in 2025, excluding the non-cash charge, it doesn't seem like you're sort of baking in much improvement from where you ended the year. I guess just wondering if absent eviction moratoriums, if we could see some improvement in the L.A. Alameda delinquency levels, which still sit above 100 basis points right now.

Barb Pak (CFO)

Yeah, this is Barb. I think that's where we need to see the continued improvement. It's taken us the longest to improve L.A. and Alameda. We've made a lot of progress in 2024, but we still need to make further progress to get us back to our long-term run rate, and so that's why we're not making as much progress in 2024 relative to prior years because we've made the vast majority of it already, so we think it'll be incremental, but we've had most of that tailwind already in the prior year.

Got it. Thank you.

Operator (participant)

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

Michael Goldsmith (U.S. REITs Analyst)

Good morning. Thanks a lot for taking my question. We've seen pretty good improvement in operating conditions over the last year with return to office, low supply, favorable affordability for apartments, turnovers low. Yeah, we're still forecasting blended growth of 3% at the midpoint, and this growth is off of relatively muted 2024. And this 3% growth is generally in line with kind of the long term, yet the conditions seem pretty favorable. So over the next few years, are we thinking about growth rates continuing to expand, or is this kind of as good as it gets given the favorable environment? Thanks.

Angela Kleiman (President and CEO)

Hi. Yeah, no, that's a good question. We do see that the fundamentals will continue to build strength, and one of the reasons why it's more gradual an improvement this year is that the overall economy is moderating from 2024, and that's by consensus forecast. And so we can't disconnect from that too much. Now, we do expect the West Coast to outperform given all the fundamentals that we talked about earlier, and we expect that to build and to be gradual. So, for example, October was the first time that we saw job openings from the top 20 tech companies to reach pre-COVID average, and since then, it has remained steady. That's fantastic, but that's three months, and so you will want that to continue to build and gain momentum, and we are seeing that.

So it's going to be more gradual for this year, and we'll see what happens in the following years.

Michael Goldsmith (U.S. REITs Analyst)

That's helpful context, and just a quick clarification. Are you assuming a normal seasonal curve of blends in the first half of this year?

Barb Pak (CFO)

Yeah. Our budget does assume a normal seasonal curve for the entire year.

Michael Goldsmith (U.S. REITs Analyst)

Okay. Thank you very much.

Operator (participant)

Our next question is from Rich Anderson with Wedbush Securities. Please proceed.

Rich Anderson (Managing Director)

Thanks for hanging with me. So on kind of the pie chart of the company in terms of its geographical footprint, I wonder if you'd be leaning more into northern regions in light of some of the regulatory things that have been brought up in this call on LA and with President Musk, I guess, running point and driving tech potentially. I wonder if we could start to see your aggressive, more offense on external growth leaning more into northern areas and selling out of Southern California.

Angela Kleiman (President and CEO)

Hey, Rich. Glad you hang with us as well. On our investment activities, you actually saw that our activities in 2024, and it was heavily focused in the northern region and the Bay Area. And that dominated our focus because really of the supply and demand and affordability drivers. It was the most favorable, lowest supply relative to all the other regions. And of course, with all the centers of innovation and technology companies expanding and growing and the Bay Area in recovery, in the midst of recovery. So Southern California has grown rents by 20%-30% since COVID, and Bay Area is still in the low single digits as an average. So it has the most upside potential. And you throw in affordability metrics, boy, it gets really compelling.

And so our focus will continue to be in the northern regions really for the reasons that it has the most upside, if nothing else, just from the recovery. As far as the legislation, we've been dealing with legislation our entire lives. And so that in itself would not be a reason to significantly pivot from one region to another. And so when we're talking divestitures, which is you're asking us if we're going to just sell out of LA, for example, we've approached it more property-specific rather than a particular city. We like all our markets. They have all generated above U.S. average long-term returns. And so it's going to be driven by asset-specific reasons. So, for example, when we sold the $250 million asset in the Bay Area that Rylan talked about earlier, it was at an attractive valuation, and it was super-duper old.

Rich Anderson (Managing Director)

Super-duper.

Angela Kleiman (President and CEO)

Hopefully, that helps.

Rich Anderson (Managing Director)

Super-duper. I like the technical term, super-duper.

Angela Kleiman (President and CEO)

Super-duper.

Rich Anderson (Managing Director)

The second question for me is on structured finance. It was said earlier today that redeploying the proceeds from the redemptions would be NAV accretive. And you kind of said this, the shorter-term nature of structured finance is FFO accretive, but relative to fee simple ownership, not as accretive to NAV. You mentioned also that you're targeting 4% of your business in structured finance for 2025, the selling point being it's low. So if that's the case, then why doesn't that trend lower? And why don't you sort of step out of this business longer term? Or is there some reason why a rounding error amount of it in the portfolio matters to you and the firm? Thanks.

Angela Kleiman (President and CEO)

Hey, well, let me just provide you with a little context. We got into this business at a time where construction costs were growing in double digits and rents were nowhere near, and so preferred equity business provided a very attractive risk-adjusted yield and complemented our development pipeline because we had effectively stopped developing during those times, and that was really the primary thesis for being in that business, so it's not that we don't like the business. It's that over time, it's grown in such a way that it's lumpy, it's not as predictable, and it makes sense to right-size that platform, but we still like the business, and having a small percentage of that also gives us additional visibility into the activities of the local developers as well and keep us connected that way, so overall, it's still a decent business.

But in terms of Fee Simple, I mean, I just went through the compelling fundamentals on the Northern California region. And so owning Fee Simple and having that durable growth to our NAV per share is really the key focus for us at this cycle.

Rich Anderson (Managing Director)

Okay. Great. Thanks very much for that color. Appreciate it.

Operator (participant)

As a reminder, to star one on your telephone keypad if you would like to ask a question. Our next question is from Tayo Okusanya with Deutsche Bank. Please proceed.

Tayo Okusanya (U.S. REITs Analyst)

Yes. Thanks for hanging in there. Just a very quick one. Barb, again, the AR non-cash charge-off, could you talk exactly about why you decided at this point to charge it off? Is it purely an accounting thing where it aged 90 days or more? Or was there some particular reason why you kind of thought that AR was not going to be collectible going forward?

Angela Kleiman (President and CEO)

Yeah. No, that's a good question. Let me just step back and give you kind of our history. So pre-COVID, Essex always had a cash policy. So if the rent wasn't collected in that month, we reserved against it and had no uncollected revenue on our books. When COVID hit and we had unprecedented delinquency in 2020, we accrued a small amount of revenues that we had yet to collect because we knew we would collect revenue over time. And that is not uncommon in the industry. I think most of our peers actually have some on their books. And over the last few years, we've slowly taken that accounts receivable balance down.

And given where we are in 2024, given the improvements we've seen, and we feel like this is all behind us, we felt it was prudent to take the charge and just write off the remainder and get back to our historical accounting policy of cash-basis accounting on revenues. And that was always the goal to get back there. And four years later, we're finally there. So we're pleased with it. We're happy to be back there. There's no risk to the financials in terms of we've booked any revenues that we haven't collected. And so we feel good about our conservative accounting policy on that front.

Tayo Okusanya (U.S. REITs Analyst)

Thank you.

Operator (participant)

Our final question is from Alex Kim with Zelman & Associates. Please proceed.

Alex Kim (Senior Associate)

Hey. Good morning out there. Thanks for taking my question. I wanted to ask about your assumptions for renewals and market rents to converge. Is there any timeline that you're assuming for this spread to tighten? And then, I guess, just with supply easing on a year-over-year basis in your markets, is there any risk into mid to late 2025, even into 2026, that this spread actually widens once again?

Angela Kleiman (President and CEO)

Hi. No, that's a good question. It's tough to predict on timing just because it does relate to market conditions. So, for example, if we see a much stronger demand than expected, we actually will get better market rents. What that means is that spread would then widen, the renewal and new lease spreads, which is a great thing because that means we have more upside on our renewals. But as far as it relates to our base case, we are very confident in what we can achieve given that supply is knowable. And with this supply landscape, you don't need a lot of job growth to achieve our numbers. And so our view is that we are in good shape with our midpoint.

Alex Kim (Senior Associate)

Got it. Thanks for the color. That's all for me.

Operator (participant)

And that is all the time we have for today. This will conclude today's conference. Essex would like to thank you for joining them for their fourth quarter earnings call. Thank you again for your participation. You may now disconnect.