Essex Property earnings beat estimates as Bay Area rents recover

West Coast apartment REIT raises outlook, citing tech’s return to office and rent relief rollout

Essex Property Trust's Michael J. Schall (Essex Property Trust, iStock)
Essex Property Trust's Michael J. Schall (Essex Property Trust, iStock)

As California’s rental market rebounded from the pandemic, the Bay Area lagged — an outlier that weighed on the balance sheets of major apartment owners like San Mateo-based REIT Essex Property Trust.

Not any more.

Essex’s Northern California revenues, which overwhelmingly derive from rents on its 23,000 units in the Bay Area, jumped 3.4 percent annually in the first quarter, the company reported Monday. It was the first time since early 2020 that its revenues in the region increased year-over-year.

President and CEO Michael Schall said recent decisions by Google, Microsoft, Meta and Apple to reopen their offices helped bring an increase in out-of-state apartment applications in the Bay Area, including in the suburbs as hybrid work plans allow for longer commute times.

“I expect Northern California to really pick it up here and become, once again, our number one market,” Schall said.

The average monthly rent for an Essex-owned apartment in the region ticked up 1.5 percent year-over-year to $2,657 — slower than the 6.8 percent and 6.3 percent gains seen in its other two regions, Southern California and Seattle, respectively, but still more expensive.

On a whole, Essex posted rosy quarter results. Its funds from operations — a measure of profitability — reached $3.36 per share, a 4 percent jump from the same period last year that also beat consensus estimates of $3.34. Same-property revenues rose to $247 million, a 7 percent increase from the first quarter of 2021.

The firm said it would raise its full-year expectations for core funds from operations by 25 cents per share based on the “solid” first-quarter results and the expectation that delinquencies would subside throughout the year.

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Schall said Essex, which owns 50,000 apartments in California and another 12,500 in and around Seattle, is still short about $76 million in missed rent payments during the pandemic.

But because California’s deadline to apply for rent relief has now passed, the firm is hopeful the state will be able to deploy the necessary funds to pending applicants.

“Rental relief has been a double-edged sword for California apartment owners, as tenants were often encouraged to seek government rental relief programs rather than paying rent,” Schall said.

Essex estimated that approved applications could cover about $64 million of its outstanding arrears, but Barb Pak, the firm’s chief financial officer, said about half of that amount relates to applications submitted by landlords whose tenants have since moved.

Pak said the firm is uncertain whether it will recoup funds from those filings, as approval depends on the former tenant’s willingness to cooperate.

Essex is confident, however, that it will secure funds from the other half applications, those submitted by current residents.

“We think that will come in this year,” Pak said.

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