Pricing Strategy
Q: What's the outlook for pricing and rents in the back half of the year?
A: Essex expects blended rents for the full year to be about 2.7%, having achieved 2.9% in the first half, implying a deceleration of 35 to 40 basis points. This slowdown is due to tougher year-over-year comparisons and renewals converging toward market rates over time. Significant rent growth is unlikely without a substantial increase in job demand. ,

Bad Debt Trends
Q: How is bad debt trending, and what are expectations for the rest of the year?
A: Bad debt improved to 80 basis points in July and is expected to hold around 1% for the rest of the year. Management is pleased with the progress and notes that any further improvement could result in upside to the high end of the guidance range. Delinquency numbers can fluctuate month-to-month, but overall trends are favorable. , ,

Acquisition Activity
Q: Are you considering new acquisitions or developments given market conditions?
A: Essex is actively pursuing acquisitions, noting cap rates in the mid- to high 4% range for high-quality assets. They seek unique opportunities that can provide additional accretion and are open to increasing their development pipeline as hard costs have come down slightly. For development projects, they require at least a 100 basis point spread over acquisition cap rates. , ,

Return to Office and Migration
Q: Is the return to office translating into increased demand or applications?
A: Management is seeing some pricing power and positive migration trends, with about 100,000 people returning to their markets after a 400,000 person outmigration during COVID. They believe there's potential for more returnees, but the timing remains uncertain.

Supply Outlook
Q: How is new supply affecting the market, and what's the outlook for 2025?
A: Multifamily supply forecasts have been adjusted due to delays, resulting in a small reduction in supply this year. Some deliveries have been pushed into next year, but overall supply remains muted at about 50 basis points of total stock, similar to this year. Essex does not see significant competition from new supply, including single-family homes, as indicated by low concession activity averaging 2 days in July. , ,

Guidance and FFO Impact
Q: Why didn't you raise the lower end of same-store revenue guidance more?
A: Factors such as potential declines in the back half of the year, occupancy levels, concessions, and delinquency trends contribute to maintaining the lower end of guidance. The fourth quarter implied Core FFO may be slightly down due to the timing of preferred redemption impacting earnings. ,

Delinquencies and Court Processing
Q: How do delinquency issues compare to the broader market, and could they impact competition?
A: Essex has limited visibility into the broader market but notes that court processing times for evictions have improved from 12 months to less than 6 months, aiding in recovering delinquent units. They expect continued progress as long as court processing times remain stable.

Urban Market Opportunities
Q: Will you pursue more urban market assets as they improve?
A: Essex is starting to see more opportunities in urban markets and is evaluating them. While their portfolio has traditionally been suburban, they are open to acquisitions that meet their return criteria, especially as urban markets show signs of improvement.

Developer Environment
Q: Are you seeing developers exit the market, and does that create opportunities?
A: Some developers are pulling out of the West Coast due to the challenging environment. Essex views fewer developers as leading to less competition and is cautiously optimistic about rebuilding their development pipeline, potentially stepping in countercyclically as they have in past cycles. ,

Rent Control Risks
Q: How do you underwrite rent growth given rent control regulations?
A: Essex does not anticipate changes to statewide rent regulations in the near term and believes that historical attempts to introduce stricter rent controls have been resoundingly defeated. They factor in rent control risks on a case-by-case basis but generally rely on their economic models for long-term rent growth assumptions.