Essex Property Trust Inc (ESS) — Q3 2025 Earnings Call Transcript

Welcome to Essex's third quarter earnings call. Barb Pak will follow with prepared remarks and Rylan Burns is here for Q&A. We are pleased to report solid results for the third quarter, highlighted by a $0.03 FFO performance and an increase to our Core FFO full year guidance. Today, I will cover key takeaways from the quarter, a high-level outlook for 2026 and provide an update on the transaction market. Starting with operations. Our portfolio performed well amid a backdrop of muted job growth across the U.S. and heightened policy uncertainty. Year-to-date, through the third quarter, we generated a blended lease rate growth of 3% on all leases and 2.7% on like-term leases. This is a proven example of the competitive advantage of our low supply markets. As expected, Northern California is our best-performing region and the fundamental backdrop remains favorable with forward-looking supply continuing to decline comparable to a level in the years following the great financial crisis. Within the Bay Area, San Francisco and Santa Clara counties are generating the highest rent growth year-to-date, reflecting attractive rent to income ratios, demand benefiting from AI-related start-ups and above historical average migration trends. Our Seattle region remains healthy, but is trending at the low-end of our full year expectations, driven by a combination of challenging year-over-year comparison, soft demand and pockets of supply temporarily limiting pricing power in certain submarkets. Finally, on Southern California. This region is generally performing in line with our expectations. As we have discussed, Los Angeles has lagged primarily attributed to delinquency recovery, muted job conditions similar to the U.S. and pockets of supply on the West Side and Downtown L.A. With supply expected to drop in 2026, the infrastructure spending earmarked for Los Angeles and market occupancy improving, we see a path to pricing power. Given the soft economic environment and policy uncertainty, we are not surprised that hiring and investment decisions have been delayed across the U.S. But we are pleased to see the West Coast once again outperforming the U.S. average, a trend we anticipate continuing. Looking to 2026, our portfolio is well positioned relative to other U.S. markets, supported by lower levels of housing supply, attractive affordability and demand catalysts from the technology sector. Directionally, we assume Northern California to continue outperforming and to rank among the top U.S. markets as job growth in Northern California gradually gains momentum, which is supported by announcements of significant office expansions. Next in the ranking would be the Seattle region. With total housing supply deliveries declining by almost 40% next year, we are optimistic about the market's outlook. For Southern California, we expect stable economic conditions with Los Angeles fundamentals to improve. Moving on to early building blocks. We forecast our blended lease rates for the second half of the year to land at a similar level to last year. As such, we anticipate another year of stable growth with 2026 earn-in between 80 to 100 basis points. Lastly, on our investment activity in the transaction market. Page S-16.1 of the supplemental demonstrates the value created from our capital allocation strategy since 2024. We have focused our investments in the highest growth submarkets in Northern California, acquiring almost $1 billion of assets in this region while achieving accretion relative to dispositions and improving overall age of the portfolio. As for the transaction in that market, year-to-date volume on the West Coast is slightly above 2024, but remains below average historical levels. We continue to see a competitive bidding environment for high-quality properties in our markets, and cap rates are generally in the mid-4% range, with most of the Bay Area transactions in the low 4%. Although cap rates have compressed in Northern California, we will continue to enhance value from our operating platform and drive FFO and NAV per share growth for our shareholders. With that, I'll turn the call over to Barb.

Thanks, Angela. I'll begin with a recap of our third quarter results, followed by comments on investments and the balance sheet. Beginning with our third quarter results. We achieved a solid quarter with Core FFO per share exceeding the midpoint of our guidance range by $0.03, attributed to lower G&A and interest expense. As a result of the third quarter beat, we are pleased to raise the midpoint for Core FFO per share to $15.94. As for operations, we remain on plan and are reaffirming the full year midpoint for same-property revenue, expense and NOI growth. Turning to the structured finance portfolio. Year-to-date, we have received $118 million in redemptions and anticipate $200 million in total proceeds for the full year. As you may recall, over the past 2 years, we have made the strategic decision to redeploy the redemption proceeds into acquisitions at better-than-market rate yields and in markets with the highest near-term rent growth potential. This strategy has resulted in better NAV growth, improved cash flow for reinvestment and higher quality of FFO earnings. Looking ahead to 2026, we are pleased that we are in the final year of the redemption-related headwinds and the realignment of this business will be behind us. Overall, we expect roughly $175 million in additional redemptions next year. Given heavy redemptions in 2025 and expected in 2026, we anticipate this will reduce our 2026 Core FFO growth, net of reinvestment by approximately 150 basis points depending on the timing of redemptions. As we look further out to 2027 and beyond, we expect that FFO volatility from this business will abate as the size of our structured finance book will have decreased from the peak of $700 million in 2021 to around $250 million in total investments. Lastly, a few comments on capital markets and the balance sheet. Throughout 2025, we executed several financings to further strengthen our balance sheet, increase our liquidity, diversify our capital sources and proactively address near-term maturities at attractive rates in the current market environment. With manageable maturities over the next 12 months, healthy net debt to EBITDA of 5.5x and over $1.5 billion in available liquidity, our balance sheet is strong heading into 2026. I will now turn the call back to the operator for questions.

I wanted to see if there was any way you could break out the blended rate growth a bit in the third quarter, just for some perspective on how much L.A. and Orange County might have been a drag on those numbers?

Nick, it's Angela here, thanks for your question. As expected, you called it. L.A. has been a drag, but that's not a surprise to anybody. In terms of our blended for the third quarter, Southern California came in at around 1.2% and Northern California close to 4% and Seattle right in the middle at about 2%. And to call out L.A., specifically, L.A. is below the 1.2% average for Southern California. L.A. is really 1%. So that gives you the range and the magnitude, but on the high end, when we're looking at Northern California, San Francisco and San Mateo, they're in kind of that 6%, 5% range, in terms of the blended. So hopefully, that kind of gives you the bookends of our portfolio. It's a pretty wide range.

Okay. Great. My follow-up question is about Northern California. Have you noticed any significant increase in demand, particularly in light of recent job announcements related to new companies or office activity in San Francisco and the broader Bay Area? Can you provide any insights on how this is affecting demand on the ground?

Yes, that's a good question. We are definitely noticing consistent strength in the Northern region. When we analyze the top 20 tech job postings, they have remained stable, with a slight increase in California during September, primarily driven by the Northern region, including San Francisco, San Mateo, and Santa Clara counties. It is challenging to obtain precise figures due to the difficulties with the BLS data. However, we are observing more start-ups than ever before. Anecdotally, there is a strong demand for office space under 10,000 square feet, which is a trend we haven't experienced in the past.

It's Nick Joseph here with Eric. You mentioned the '26 earn-in of estimated to be 80 to 100 basis points. I was hoping you could break that down between Northern California, Southern California and Seattle?

Nick, I don't have the exact breakdown available, but I can tell you that we expect Northern California to lead, with Southern California ranking third among the three major regions, and Seattle in the middle. A useful point of reference is that our blended lease rates for the third quarter are similar to last year, though slightly lower. However, we're on track for the fourth quarter to exceed last year’s performance. For the second half of the year, we anticipate being in the low 2% range year-over-year, which provides us with an estimated earn-in of 80 to 100 basis points.

Appreciate that. And then just on the preferred book, I think you said 150 basis points headwind. What's the sensitivity around the timing of the potential redemptions for next year?

Nick, it's Barb. I mean there's a couple that are maturing in the first quarter. And if they may need an extension for 1 month or 2, that's really the sensitivity that I'm talking about. But the maturities are very much in the first half of the year. And so, what we've guided to and what I provided was assuming that they're fully redeemed at maturity. If they get extended, it might be a little bit lower.

Great. Regarding Nick's first question, I believe this is a follow-up about jobs. It appears that we're observing a mix of signals with AI hiring and tech layoffs. How are you viewing this situation for next year and possibly the medium term? What insights are you gathering from your peers or executives you communicate with about the job outlook in your area?

Yes. Jeff, that is a great question because it really goes to the heart of where is AI taking us, right, on more of a broad conversation from that perspective. So a lot of things are happening right now, which is noisy, and we are seeing recent layoff announcements, but keep in mind that large tech companies, they get most of the headlines. Broadly across the U.S. layoffs are occurring. So for example, UPS in Atlanta is cutting 48,000 jobs. From what we're seeing on the ground here is that this is a normal part of the business cycle. In an environment where the macro environment is soft, businesses are and they should be focusing on efficiency. And so I don't think, from what we're seeing that they are AI-driven job losses. But in terms of what we think is going to happen with the conversation about AI displacing jobs and being viewed as a disruptor, we do think that's going to happen at some point. AI capabilities are growing rapidly, and we're seeing research suggesting that most companies are experimenting with AI. So that experimentation level is very high. But the adoption, the level is low because the return on investment is still unclear. So for example, at Essex, where we see AI benefiting data analytics and certain repetitive tasks, but it is still in early developmental stages, and we need additional technology to interface with AI applications for utilization. Essex has not had significant workforce reduction using AI. And so what we do expect is that the pace of disruption or job displacement will be more gradual because on the flip side, what we're seeing is, as I mentioned earlier, an unprecedented number of start-ups, small companies that because of AI can form businesses. And that is not being picked up by BLS. But certainly, it's being picked up by the demand that we're seeing in Northern California. Does that make sense?

Yes. That's helpful. And maybe could you talk a little bit more about San Francisco specifically, let's say, downtown and we're seeing all these great articles on downtown, the city versus your suburbs. How is your portfolio benefiting from all of this?

Well, it's interesting to note that we see Northern California, particularly downtown, as still being in a recovery phase, with rental rates improving relative to pre-COVID levels. The suburbs began their recovery last year, while downtown is just starting this year. When analyzing blended rates in our markets, San Francisco shows a year-to-date growth of 5.2%, San Mateo at 6%, and San Jose around 4%. The differences in these rates aren't vast, and they're all performing well. Additionally, the announcements of new office space are just as prevalent in the suburban areas as they are downtown.

This is Sanket on for Steve. Switching a bit. You guys have been very active on transaction front this year, and we just wanted to understand what are the cap rates are used on acquisitions and exclusions for those assets? And how deep is the investor pool within that market?

This is Rylan here. I'd point you to S-16.1 where we've tried to break out specifically the cap rates that we've been targeting and been successful at acquiring over the past 1.5 years, and also point you to the Essex yield, which is 40 basis points higher, which is as a result in something we've talked about, our operating platform, given our asset collection models in these markets, we're able to pull out a significant amount of controllable expenses by putting them onto our platform. So that's been one of the driving factors in our acquisition strategy. So, as Angela mentioned, cap rates have compressed. There's been a significant sentiment change as it relates to Northern California over the last year. I'd say we've been relatively early and been able to acquire significant, almost $1 billion of assets in these submarkets at that 4.8% market rate and a 5.2% yield to Essex. So we're pleased with what we've accomplished, and we're hoping to continue.

And as a follow-up to that, like are you guys evaluating share repurchases? Given where the stock price has been, it's been a common theme across your peers.

Sanket, that's a good question. And I think you've seen that we have a very solid track history of buying back stocks and assessing all the relative value leading to that decision. And if you look at where we are today, where we're trading today, it's much more compelling from a stock buyback perspective than it was in the third quarter. But I do want to highlight that our transaction in the third quarter was around a 5% cap rate, and you add growth to that. It's quite compelling because stock back then was trading in kind of that low- to mid-5% range. So once again, you will see us being very disciplined in making sure that we're going to maximize the yield depending on our cost of capital and investment instruments available to us.

So going back to the lease rate growth during the quarter versus the back half projections, I think, was around 2.7% as of last quarter. Was Southern California lower than projected? Or was it Seattle? I think as you mentioned in the prepared remarks that drove maybe pricing being a little bit softer than you had thought last quarter? And then just wondering if you think the Seattle softness, is it kind of a temporary phenomenon or could persist into 2026?

Austin, you're right to point out that the situation is primarily influenced by Seattle. We've observed that demand in Seattle has softened recently. While we anticipated a national moderation in demand over the year, Seattle lacks the advantage of AI start-ups that Northern California possesses, which accounts for 80% of the AI sector. Consequently, Seattle's performance will likely align more closely with the national average in the current cycle. I also want to emphasize that some of the headlines regarding layoffs, such as Amazon's corporate workforce reductions, are not specific to Seattle, as they operate in various locations. Our analysis of the WARN notices shows that fewer than 10% of the layoffs are Seattle-related. Therefore, we believe this environment does not present any significant concerns; it's actually quite stable and continues to perform well. While it may not achieve the above-average CAGR growth we had anticipated, it's still a solid market. With supply expected to decrease by nearly 40% next year, we are optimistic about its future performance.

Appreciate the thoughts. And then just the 4% growth in blended lease rates in Northern California coupled with some of the office leasing you've referenced across the Bay Area, do you think that the region can sustain that level of growth in 2026? Or was there any specific phenomenon like back to office, that may provide a little bit of an incremental lift that may be less sustainable to the extent job growth remains more muted, more of a broader comment than specific to the area.

Yes, Austin, I think every cycle has different factors that drive job growth. Currently, what we're seeing in the Bay Area is more of a recovery story, rather than a growth story. If you look at the top 20 tech hiring companies, their job postings are still slightly below the long-term average. So, the 4% forecasted growth is more of a catch-up. This market still has a lot of potential.

This is Connor on with Jamie. Can we talk about your fourth quarter leasing strategy? Where are you seeing renewals go out for the quarter? And if you have any insight on new lease growth quarter-to-date?

Our general strategy for the third quarter, as we approach the seasonal peak, is to increase rents in Northern California and the Seattle region. In Southern California, we alternate between adjusting rents and focusing on occupancy based on market conditions. As we conclude the third quarter, we shift our focus to occupancy, particularly since we experienced early strength that typically tapers off, which is a normal seasonal trend. Regarding renewal growth, we’ve observed that it has remained relatively stable. For the third quarter, we sent out renewal rates around 4.6%, and ended the quarter at approximately 4.3%. This results in only a 30 basis point negotiation, which is quite favorable. Looking ahead to November and December, we are sending renewals out at around 5%. With negotiations, we anticipate landing in the high 4s. This gives us confidence that blended rates for the fourth quarter will outperform last year. Could you remind me of your third question about new lease rates?

Yes, it is on the new lease rates.

So new lease rates for October for the same-store, it's pretty much flat, and that's expected. Especially for this time of the season. I think a good data point I'll point you to is loss to lease because we talked about that in the past is a good gauge of the portfolio. And where we're sitting today in October, we have a gain to lease of 1.6%. So that's not exciting. But having said that, it's also nothing alarming. So just to give you some context, pre-COVID 2019, so it gives you a sense, more of a historical range, our gain to lease was worse, it was at 2.3%. So this is so far playing out to be a normal seasonal cycle in a soft macro economy. So we're quite pleased with how the portfolio is performing.

That's super helpful. And then maybe on the preferred book. It looks like there was a $21 million commitment this quarter. Is there anything we should read into that as a way to maybe selectively offset some of the redemptions going forward? Just trying to think about the use of proceeds here beyond acquisitions?

Connor, Rylan here. As we've said, we are not getting out of this business. This is a good business, and there are interesting opportunities where we believe we'll get a premium yield to what we can buy in the fee simple side. In general, the strategy is just to make this a more manageable size relative to our total business. But if we see good opportunities, in this case, with partners that we know very well, and we're really comfortable with our position in the stack, we will continue to make investments in this book. So we're not getting out of it. It's really just trying to control the size of it and just pick the best opportunities for our shareholders.

I would like to revisit the debt preferred equity book. Barb, you have mentioned for some time now the need to reduce the book since it has become too large in relation to FFO. However, given the current market where acquisition yields are in the 4s, which is significantly below where your stock and the DPE are trading, and considering your history of success in this area, could you think about reevaluating the choice to substantially decrease it? Perhaps limiting it to 10% of FFO was excessive, but it appears to be a valuable tool for remaining competitive in a low cap rate environment, and unfortunately, it seems to have been pushed aside.

Rylan made a good point that we are not exiting the business but rather being more selective. Due to heavy redemptions, our business is shrinking. There's been a significant amount of capital raised looking for opportunities in this area, which has led to compressed yields. The current risk-adjusted returns are not where we would like them to be, and we won't pursue every opportunity just to fill our portfolio. This business will experience fluctuations, and at this moment, considering the current environment, it is declining. However, this situation could change in the future, as it has in the past. This is where we stand in the cycle today.

Okay. And then Angela, the New York Mayor election certainly has gotten a lot of buzz, but Seattle has got an interesting election coming up next week, with the Mayor and City Attorney that are both being challenged from the progressive side. So can you just give some thoughts on how the apartments are looking and what the consequences of both the progressives winning? What that means for apartments in Seattle? And then if you think that as a result, that means divesting more Seattle, buying more on the East side? Just want to understand better the ramifications of what folks can expect from next week.

Alex, that's a good question. We have been closely monitoring the legislative environment. It is hard to predict future developments, but here's what we know. Washington implemented rent control earlier this year, which took effect around May. This legislation is quite similar to what California has in place, allowing for a CPI increase plus 7%, with a maximum cap of 10%. This indicates that legislators recognize the importance of protecting tenants from excessive price increases while also understanding that heavy regulation can hinder housing production and community investment, ultimately leading to higher overall costs. Given the recent implementation of rent control, we expect this situation to continue for some time before any adjustments are made.

Okay. But what about if the Mayor of the City or the Attorney changes? Do you see any negative consequences for apartments or not really?

It's difficult to determine at this point, as we haven't encountered any proposed changes that would raise significant concerns, especially from the ultra-progressive side. To illustrate, we've had significant input from various parties on recently enacted measures. Therefore, while it's tough to make predictions, we currently do not anticipate any immediate meaningful changes.

This is Derrick Metzler on for Adam Kramer. I was wondering if you could share your thoughts on SB 79 and if it impacts your South San Francisco development or any other potential developments you might have in the pipeline. Generally, do you see any impact on future development opportunities from this, especially in combination with the recent changes to Sica?

Derrick, Rylan here. It's a good question. At a high level, we view this in several of the recent legislative changes that have occurred at the state level as good for California. We need more housing. The SB 79 specifically says that if you're within a half-mile radius of a transit stop in markets where there's greater than 15 rail stations, you can establish the ability to get higher density. So as an illustrative example, if you go to a city and get entitlements that allow, say, 80 units to an acre, now you'd be able to get 120 units to the acre. So this should be beneficial. It's not going to benefit our South San Francisco deal as we're already through the entitlement period and under construction there. When we think bigger picture of what this could do to the supply landscape in California, it should help on the margin, create some more opportunities. But some mitigating factors to keep in mind. Transit-oriented development has been a focus of the state and cities for the past 20 years. The majority of our city's arena plans are concentrated along transit sites. So in other words, zoning has already become more favorable in these locations. Secondly, I think the real gating issue today on increased development are just for the returns. The majority of deals that we've underwritten last year have in-place yields around 5%, many of them sub that. So in summary, it's a long-term beneficial to California, but I don't see it taking a dramatic change in the supply outlook for our markets.

A couple of quick ones for me. First, I was hoping you could comment on the use of concessions across the portfolio where it is today versus maybe a year ago and how it compares across the key regions, SoCal, NorCal, Seattle? And are you offering concessions on renewals?

Haendel, from a concession perspective, our levels currently match those of the same time last year, around one week, which is typical for this season. In terms of regional breakdown, Northern California is also at about a week, and generally, conditions are similar across the board. However, it's important to note that concessions are largely influenced by local competitive supply rather than overall economic conditions. Regarding renewals, we don't see significant concessions; they are mainly applicable to new leases.

Got you. Got you. Appreciate the color. And then my second question, I guess, it's on L.A. and the new versus renewal spreads you're seeing there. I think you mentioned the blends in L.A. were around 1%. So assuming renewals are low single-digit positive, that would imply new leases are negative and a pretty decent spread there. So again, I'm curious on if you could set some color on what that spread is on the new versus renewals in L.A.? And if that's a sustainable spread and if you think that maybe perhaps renewals could come under pressure?

Renewals are currently negative, which is typical for this time of year. We're seeing about a 100 basis point decline in Southern California. New leases are also negative, with L.A. experiencing a decline closer to 1.8%, approaching negative 2% on new leases. In terms of renewals, they are around mid-3% for Southern California, while L.A. is in the low-3% range, showing little variation. Generally, renewals remain consistent, but it's unclear if new leases will face additional pressure. Ultimately, they will be influenced by market rents towards the end of next year, which are affected by job growth, supply, and demand. Currently, supply is decreasing and occupancy is stabilizing in L.A., so we do not anticipate more pressure on new leases next year compared to this year. For example, occupancy, adjusted for delinquency, is above 94%, which is an improvement from September when it was at 93.9%. This steady increase indicates market stability, supported by strong underlying fundamentals for potential growth.

In Seattle, you talked about the fact that Seattle doesn't really benefit from the AI tailwinds the way SF does. But I was wondering, do you think it could actually end up being a relative loser within the tech markets if investment in talent within tech sort of continues to flow towards AI. Do you see any impact from that?

Well, I think the Seattle economy has a good stable group of industries anchoring it. And so I don't see that AI being ultimately a negative to not just Seattle, but any other economy, because you can make the same argument for parts of Southern California or other areas outside of California where there's AI presence. We do view that AI will be net additive and the economy in Seattle will continue to grow. You've got Amazon there, which is huge. Microsoft is very solid and quite a few others. So we don't see AI as a net negative for Seattle.

Got it. And then maybe just a quick one on Contra Costa where occupancy fell about 60 bps sequentially in the third quarter. Can you just give us a sense of what you're seeing in that market?

Yes. Contra Costa is a market that experiences fluctuations, and it has been absorbing a significant amount of supply over the last two years. We increased rents there due to the observed strength in the market. While this sometimes affects occupancy, we did see revenue growth in that area, which indicates that the market is performing well.

You leaned into Santa Clara acquisitions as of late. Can you elaborate on the long-term potential in these markets versus buying back your stock today? And also curious if rebalancing your exposure to the city of San Francisco is on the horizon?

Rylan here. If you examine the 16.1% and the deals we’ve sourced with that initial yield, combined with our expectations for micro market supply and potential rent growth, we believe this represents the highest risk-adjusted return opportunity available to us, as Angela mentioned earlier this year. With the recent decline in stock price, we are reassessing that calculation, but we remain confident and enthusiastic about the acquisitions we've made in that area. Additionally, considering the micro market fundamentals and supply outlook for the near future, regarding your second question about San Francisco, we have evaluated every institutional deal that has come to market there, which has been quite limited. We've generally observed that the cap rates in San Francisco have been more aggressive, and the intense competition means that relative value creation opportunities in that market have not materialized compared to our purchases along the Peninsula, where we see a similar fundamental outlook. We will continue to analyze every opportunity in Northern California and proceed if we identify a unique chance.

And then we noticed that San Diego and Oakland, are seeing decelerating same-store revenue. Can you maybe supplement us with new lease rates in the markets? And then color on how demand is trending in those two?

In San Diego, we have seen concentrated supply in certain areas of North City and North Coast that compete directly with our portfolio, although this situation is beginning to improve. Additionally, San Diego is affected by a general decline in demand throughout Southern California and the U.S., which are the main factors contributing to the weakness. Similarly, Contra Costa has experienced much higher supply for several years, but that market is starting to recover. We have actually observed sequential increases in revenues for Contra Costa. However, it's primarily in San Diego where we have not seen sequential growth in gross revenues.

So Jeff Spector asked a question about jobs and he said he understood the answer, and I didn't. So let me see if I can sort of ask it a different way. What is your view when you think of West Coast jobs in 2026 versus national jobs in 2026? When you keep in mind perhaps a blessing and curse impact on jobs from AI, entertainment in L.A., Seattle kind of being somewhere in the middle with Amazon. Do you think that your markets from a job growth perspective alone will outperform the nation, in line with the nation, maybe below the nation? What is your view on jobs going into 2026, if you have one right now?

Rich, our view with respect to jobs is that we should outperform the U.S. average. The question here is magnitude. And that, as we would all expect, is going to be influenced by the macro economy. But what we're seeing is Northern California has, of course, the AI benefit that is a catalyst, it's also in a recovery phase. And so we are seeing positive immigration, which is not the historical norm. So that's going to benefit Northern California. Seattle is anchored by the broad tech economy and which has gone through its massive pivoting and lay off about 1.5 years ago. So it's stable with upside. And in Southern California is going to perform similar to the U.S., albeit with more professional services, it should do better. But more importantly, fundamentals in L.A., we see have troughed or near the bottom. And so while we don't know how long it's going to take to recover, we do see that there should be more upside than downside in that market. So hopefully, that gives you a better breakdown that you're looking for.

That's great. I appreciate that. For my second question, I'm considering the possibility of shifting some of your investments incrementally from Southern California to Northern California. With the upcoming Olympics in L.A., there may be a need for housing for athletes. I'm curious if there will be a chance to sell before the Olympics. I remember the situation in Atlanta during the 1996 Olympics, where there was a surge in housing demand followed by a downturn afterward. While Atlanta eventually became a strong market, I'm wondering if you want to be invested in that area for a year post-Olympics in large quantities. Are you contemplating your business as a potential option for the Olympic Committee to facilitate selling more products, perhaps more swiftly from that region to other areas in your portfolio?

Rich, Rylan here. Interesting question. As we mentioned, we are fundamentally a little bit more positive on the L.A. market going into next year as the supply is coming down. And we do see some near-term catalysts as it relates to the Olympics. We do not plan to convert any of our existing leases into short-term rentals to take advantage to the extent that that was your question, that's pretty difficult to do with existing tenants hoping to stay in and be able to enjoy the Olympics and the World Cup in our units. Just speaking broadly on the transaction market, outside of downtown L.A. and the West side, the tri-cities to the north, these are still well-bid markets with lots of transactions occurring in that 4.5% or 4.75% type range. We saw a deal closed last quarter, Marina del Rey, that was a sub-4.5% cap rate. So there is still a lot of capital interest in the broader L.A. market, with downtown being a notable exception, as it's still challenged with the operating performance. I think we'll see more transaction opportunities in downtown L.A. in the next year. And as we do with all of our markets, we're underwriting everything and looking to take advantage of any mispriced opportunities.

It hasn't really been mentioned on the call, but are you noticing any effects on the employment outlook due to the increasing costs of H-1B visas moving forward?

What we're hearing is that it could potentially be a net positive because the intention of this legislation is to reduce the role of middlemen, such as some H-1B consulting firms like Deloitte. This change will enable large companies that can afford the fee to go directly instead of paying a consulting fee and incurring additional costs. There are indications that this might lead to a better or increased allocation, which would ultimately be beneficial. Therefore, we do not anticipate a significant impact on Essex, and it may actually result in a net benefit.

Could you explain the decrease in year-over-year repair and maintenance costs? Can this be linked to the ongoing reduction in same-store turnover? Also, do you think this trend will continue into the fourth quarter and into 2026 and beyond?

Yes. This is Barb. Repair and maintenance is lumpy and it does vary from quarter-to-quarter and even from year-to-year. I think we have done a good job on trying to control our costs via our procurement programs. We are seeing a little bit lower turnover, and the delinquency turnover that we had incurred the last few years has been much more stable this year. So it's a combination of a variety of things. It's too early to talk about 2026. We're still in the midst of our budget process, so more to follow. What I would say, though, overall controllable expenses. We've done a good job keeping those around 3% for many years. And I don't see anything on the horizon that's going to change that heading into 2026.