Essex Property Trust (NYSE:ESS) raised its full-year outlook for same-property revenue growth and core funds from operations after third-quarter results benefited from stronger-than-expected performance in Northern California.
President and Chief Executive Officer Angela Kleiman said the company now expects full-year blended rent growth of about 2.9%, near the high end of its prior guidance range. Northern California was the primary source of outperformance, while Seattle continued to recover and Southern California remained stable.
Chief Financial Officer Barb Pak said Essex reported third-quarter core FFO of $4.00 per share, exceeding the midpoint of its guidance range by $0.01. Same-property revenue increased 3% year over year, led by the company’s Northern California portfolio.
Guidance Raised as Revenue Outperforms
Essex raised the midpoint of its full-year same-property revenue growth outlook by 10 basis points to 2.9%, citing stronger scheduled rent growth. The company reaffirmed its full-year operating expense midpoint, though Pak said fourth-quarter expenses are expected to rise as Essex completes projects and increases controllable spending.
As a result, Essex increased the midpoint of its same-property net operating income growth guidance by 20 basis points to 3%. Pak described the projected NOI growth as sector-leading. The company also lifted the midpoint of its core FFO outlook by $0.02 per share.
Pak said fourth-quarter expenses are expected to increase about 5% year over year, mainly because controllable expenses were comparatively light earlier in the year. Looking toward 2027, she said property taxes could present more pressure after favorable California Proposition 8 appeals limited the company’s property-tax increase to 60 basis points in 2026. Essex expects property-tax growth to move closer to its historical 3% to 4% range next year.
Northern California Leads Portfolio Performance
Northern California generated blended rent growth of 7.3% during the third quarter, aided by a strong leasing season that extended through September. Kleiman said the region defied typical seasonal trends, with new-lease rates improving 20 basis points from the second quarter to the third quarter.
She said Northern California’s performance was strongest in Santa Clara, San Mateo and San Francisco counties, where blended rent growth was above 7%. East Bay markets, including Alameda and Contra Costa counties, lagged at roughly 5.5%, a spread of about 300 basis points. Essex sees opportunity in the East Bay as rent growth broadens beyond San Francisco and the Peninsula.
In San Francisco, Kleiman said Essex intentionally reduced occupancy from 96.1% to 95.6% to pursue higher rents. Rylan Burns, executive vice president and chief investment officer, said San Francisco’s rent-to-median-income ratio stood at 25.7%, compared with a long-term average just below 30% and a historical peak of 36%. Oakland and San Jose remained below 21%, according to Burns.
Essex reported portfolio loss to lease of approximately 1.4% in September, with Northern California near 8%. Kleiman said the portfolio had been 30 basis points gain to lease at the same time a year earlier.
Seattle posted 2.1% blended rent growth in the third quarter after turning positive in the second quarter. Kleiman said the Eastside has led the recovery and benefited from the company’s regional portfolio allocation. She also pointed to technology job openings reaching their pre-pandemic average in Seattle for the first time in two years, though she said a more meaningful rebound could emerge toward the end of 2027.
Southern California delivered 90 basis points of blended rent growth, in line with Essex’s plan. Orange County and San Diego were the stronger markets in the region. Kleiman described Los Angeles as stable, citing gross occupancy in the mid-95% range, stable delinquency and a 10-basis-point sequential improvement in Los Angeles County revenue.
The company expects declining apartment supply and potential defense and aerospace hiring to support Southern California over time. Kleiman said defense and aerospace activity is concentrated across the South Bay, including areas around SpaceX in Hawthorne and Anduril in Long Beach, but she cautioned that it remains too early to see announced investment translate into material job growth.
Renewals, Occupancy and Concessions
Essex expects fourth-quarter achieved renewal growth in the mid-4% range, while asking renewal rents are in the low-to-mid-5% range. Kleiman said the company generally prioritizes occupancy entering the seasonal fourth-quarter slowdown, except in selected Northern California markets where it continues to pursue rent growth.
Portfolio occupancy was 96.3% at the time of the call. Northern California new-lease growth remained above 10% in October, while other regions had moved into negative new-lease territory consistent with seasonal patterns, Kleiman said.
Concessions remained limited. Portfolio concessions averaged about 10 days during the third quarter, compared with roughly six days a year earlier, and were about one week entering the fourth quarter. Northern California had effectively no concessions, while the Pacific Northwest was below one week and Southern California was slightly above one week.
Acquisition and Capital Allocation
Essex closed the acquisition of a 474-unit East Bay community built in 2022 for more than $200 million. The property is expected to generate an initial yield in the mid-5% range and was purchased below replacement cost, according to Kleiman.
Burns said Essex expects to benefit from operating efficiencies because it has two nearby communities, and it sees potential to reduce costs and improve retail leasing. He said the acquisition reflects the company’s approach of targeting newer properties in markets where it sees growth potential.
The company said it has allocated capital to five of six potential uses during 2026: acquisitions, development, preferred equity, reinvestment, share repurchases and debt repayment. Burns said Essex will remain flexible and seek the highest risk-adjusted returns.
Burns added that increased interest-rate volatility and tighter financing conditions could create additional acquisition and preferred-equity opportunities, although buyers and sellers are still adjusting to the higher-rate environment. Essex expects its preferred-equity book to total about $100 million at year-end.
Balance Sheet and Interest-Rate Exposure
Pak said Essex has approximately $575 million of debt maturities in 2027, including $350 million of bonds due in May. The company had net debt to EBITDA of 5.4 times and more than $1 billion of available liquidity.
Floating-rate debt represented about 12% of Essex’s pro rata debt, with more than 40% of that exposure tied to the SIFMA index rather than SOFR. During 2026, Essex executed approximately $600 million of swaps at a 4.9% all-in fixed rate to replace swaps expiring over the next six months.
Within its joint-venture portfolio, Essex has hedged 80% of three maturing swaps at an all-in fixed rate of 5.3%. Pak said the swaps are expected to increase joint-venture interest expense by about $0.09 per share next year, while the unhedged portion could add several more cents depending on SOFR. Overall, the company expects a $0.10 to $0.12 increase in interest expense from those swap resets on a pro rata basis.
About Essex Property Trust (NYSE:ESS)
Essex Property Trust, Inc is a self-administered and self-managed real estate investment trust that owns, develops, redevelops, and manages multifamily apartment communities. The company focuses on providing rental housing in high-demand markets and generates revenue primarily from apartment rents and related resident services.
Founded in 1971 and headquartered in San Mateo, California, Essex operates primarily in Southern California, the San Francisco Bay Area, and the Seattle metropolitan area.
