Welcome to Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Eric Wolfe with Citi Research. I'm pleased to have with us Essex Property Trust and CEO Angela Kleiman. This session is for Citi clients only. Disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to LiveQA.com and enter code GPC26 to submit any questions. Angela, we'll turn it over to you to introduce the company and team, provide any opening remarks, tell the audience the top reasons an investor should buy your stock today, and then we'll get into Q&A. Red is actually on. There we go. Red is on. Great. Thanks, Nick, great being here, and thanks for having us. Here with me is Barb M. Pak, our Chief Financial Officer. Normally, Rylan would be here with us as well, but he's at home having a baby. We're gonna let him off the hook this time. Essex is an S&P 500 company with over 63,000 units. We are the only public apartment REIT that is solely focused in the West Coast of the United States. In our investment strategy, we own, develop, operate, anything multifamily, we're involved and active in. Since our IPO, we have delivered one of the best long-term CAGRs and total returns of the REIT sector, we are pleased to announce that this year is our 32nd year of increasing our dividends consecutively. This track record is really foundational. It's based on,combination of strong fundamentals and our unique operating platform. On the fundamental side, California especially has a widely known characteristic of low supply, and currently we're at a historical low. We're only building at about 0.5% of total supply to stock, and this is total housing, so includes single-family as well. This is incredibly compelling because the downside risk is very low. On the other hand, we have demand catalysts, especially in our northern region, from the technology sectors, and it's over multiple cycles this has continued, with most recently artificial intelligence spurring demand and job growth. We expect that to continue to occur in the foreseeable future. Lastly, what's unique is our operating platform. We operate in a collections model where we're operating about 10 to 12 properties as a single business unit. This gives us fantastic marketing, leasing, and customer service economies of scale and efficiency. Our controllables is expense on our expense per unit or even a percentage basis is significantly better than our peers. One key compelling reason to invest in Essex today is that we are still in the recovery phase. If you look at the post-COVID recovery cycle, Northern California, particularly Santa Clara or San Jose markets, started recovery only in 2024. San Francisco followed in 2025. We are still well below our long-term CAGR of rent growth in a cumulative way. With historically low supply, fantastic affordability, 'cause income growth has been outpacing rent growth, and the demand catalyst ahead of us, these are compelling fundamentals for our markets and for Essex. Great. I'll start off, if I lose my voice, then somebody else please help me out. You know, when I look at Essex over your history, this is in a lot of your presentations, you've had a great rate of Core FFO growth. I think now what people are looking at and trying to understand is whether you can continue that when you have perhaps some increased regulatory burdens in California. Maybe you can say whether that's true or not. You also have artificial intelligence and other things that people are questioning whether job growth just going forward is gonna be structurally lower. You know, my question to you is sort of what gives you the confidence that you're gonna be able to continue this track record of great growth? That's a great question. It's actually an important strategic debate for us because we have a long view of our markets. We are not in the West Coast because we have to. It's really because it has generated one of the best long-term rent growth. As we look forward, while regulatory is probably more challenging in California than other parts of the U.S., there are also benefits of regulation. For example, low supply. You know, when you're competing with a lease-up that's giving two to three months' concessions, forget about regulation. You're a sitting duck for a long period of time. On the flip side, what we're seeing on the regulatory is that the environment has remained quite stable. You know, the November election was a moderate sweep, which is great for the citizens of the state of California. Currently, there's always rhetoric, and there's always noise, and that will continue. In terms of the actual public policy that's getting to the front of the committees, that's getting passed, we're not seeing anything that is on the extreme or that gives us concern. The political environment actually, from our experience, is more stable now than it has been prior to COVID. As far as jobs and AI is concerned. That is an interesting dynamic because we do see AI disrupting certain companies, and some of them are going to be software companies. That disruption in jobs is also getting absorbed or offset by the companies that are new companies that are being created or the growth in AI companies. What we're seeing is the two largest AI companies, they have continued to add jobs, and we're seeing new claims, unemployment claims, or continuing claims to remain at an all-time low. That tells us that people that are losing their jobs in our markets are getting rehired quickly. The question is the long-term durability of AI as a catalyst for job growth. There's actually, in our view, it'll play out in two ways. One is that in the near term, say three-five years, we expect that AI will be a net or neutral add to jobs. The reason is because AI is still in its infancy, and the need for developers is significant, you know, for the right kind of developers. Also, it's facilitating the number of startups that we've never seen before. That was not possible, but now because utilizing AI, they can. Office space that are, say, around 5,000 sq ft are getting absorbed in an accelerated rate. We are seeing VC funding almost doubling this year. That inures to the tailwind that's still possible with AI. What happens after that? It depends on what you believe. There are two schools of thoughts. One is AI will take over, and everybody will lose their jobs, and machines will do everything. In that case, after the run, you're right, we will be looking at a very anemic economy, but not just for Northern California. This will be all of U.S. and probably globally. The other school of thought is perhaps something else will happen because the former means technology and innovation stops with AI, where it's done, it's over. That seems like a stretch to me. Our belief, and we've seen this play out in multiple cycles, you know, over three to five cycles at this point, that there will be something else after AI. We don't know what it is, but what we know is that 20% of the jobs today did not exist just five years ago in 2020. There are possibilities out there. Part of your point there, I think, is that, look, if AI is as disruptive as people believe, it's not like this is a California issue, West Coast issue. This is a everywhere issue. The idea of diversifying away from that into other markets doesn't really eliminate that risk, I guess, if I'm hearing you correctly. Because I think some of your peers would say, "Look, we don't know the answer to a lot of these questions. We actually don't even know where our customers are really going anymore. We thought it was all coastal markets at one point. Now they're going to Sun Belt markets in some instances. We're just gonna diversify, you know, operate, you know, things really well." Your point is that you can't really diversify that risk away, if I'm hearing you correctly. That's correct. It's because technology is now everywhere. It's ubiquitous. AI experimental rate is very high. Adoption rate is low because it's just not ready, and that's what I mean by in its early stages. This will become more of a global issue. At the end of the day, we're all in business here. Where is money gonna go? It's gonna go where there's innovation and wealth creation, and that's going to continue to be in California. It's the same logic that we heard when, you know, Internet of Things or even social media became proliferated. Everybody said, "Well, you can go anywhere. Why do you need to stay in Northern California?" It's sticky. We have on one of our presentation, we show that Walmart, the all-time low-cost provider, just opened another office in Mountain View. They could be anywhere, but they chose Northern California for a very specific reason. Can we talk about what you're seeing, I guess, in real time? You know, my understanding of most companies' pricing system, revenue management systems is that, you know, it sort of gives you a view on where your occupancy will be, where your sort of lease risk is, you know, 30 to 60 days out. Can you talk about what your system is telling you now in terms of, you know, maybe the early part of the peak leasing season, where pricing is going? Is it progressing as planned? Are you seeing some pockets of strength, pockets of weakness? That's a great question. From just a current view perspective, what we're seeing is pockets of strength, and no surprise, mostly in Northern California, which obviously wouldn't happen if everyone's losing their jobs. In certain pockets of east side of Seattle. Where we are tracking right now is that we are slightly ahead of plan. Don't get excited. It's two months into the year, but it's a good sign. It's a good start. Northern region slightly ahead, and southern region playing out on plan. When you say we're two months into the year, I mean, I guess we're two months, but you do have fairly good understanding of where March will be. You have okay understanding of April. Is that misplaced to say? Yeah, I think that's a fair point, and we're worse because we could see by our asking rents or how we're sending out renewals. It's consistent with what we had communicated, you know, in our First Quarter Earnings Call. We're sending out renewals around 4%-mid 4%, but we're negotiating, of course, that always happens, and landing, say, around mid-to-high 3s, depending on the market. Like I said, slightly ahead of plan in some cases, but generally on plan. Maybe you could just talk about demand, for a second, how you measure it? I'm partly asking the question because, you know, the way that people search for things is changing a bit. Like, you know, if I'm looking for something now, I might just go into, you know, Gemini and just say like, "Give me, you know, the best four apartment buildings around this price point." Then I go directly to your site afterwards as opposed to, you know, maybe googling it and clicking on it and all that. I guess, how are you measuring demand internally when you're meeting each other and you're having your weekly meetings or daily meetings about how things are going? What are you talking about? Have you seen sort of a change in how you measure demand based on kind of a different way that people are finding you now? Maybe they're finding the same way as they were, you know, a year ago. Yeah. No, that's a, that's a good comment in terms of the consumer behavior. There has been a change and, of course, more active usage of Gemini or Claude or some of these other applications. We have also tilted our marketing efforts to make sure that we're capturing, you know, a broader segment. We started doing that at about, I wanna say, a year and a half to two years ago. In terms of how our customers are getting to us, they're still able to get to us regardless of how they're doing the search. In terms of our metrics, we continue to look at closing ratios and because traffic is really driven by your marketing efforts. It's really closing ratios and, of course, you know, how much we're negotiating when we're sending out asking rents. When market is really, really strong, which is not right now, we're negotiating very, very little, maybe from 0 to, say, 30 basis points. When it's more normal level, which is consistent with current level, we're negotiating, say, between 30-60 basis points. When it's soft, it's between 75-100 basis points. We're right in that middle zone currently. Okay. You're putting out renewals sort of in a 4% to 4.5% range, and there's like, did you say 50 basis points of negotiation or so? Yeah. Okay. Yeah. That lands you around high threes, depending on where your starting point is. Got it. Four if you're at four and half. I guess in terms of markets, L.A., you know, it's supply's coming down. It feels like it's maybe on the cusp of finding some pricing power. It's obviously an important market for you as well as your peers. I guess most people are sort of guiding, I don't want to say conservatively, but guiding to muted growth there this year. I guess, when do you think we'll sort of know whether this market's finding a bit more pricing power? Do you think we'll have a good sense for it around May or June? Do you think it's gonna take longer to sort of work through, you know, the bad debt situation and some of the other issues going on in that market? Yeah. In terms of timing, Southern California tend to peak a little bit later than Northern. Seattle is usually early June, Northern California early July, and Southern California, say, later in July. That's the timing framework. In terms of our view, Barbara has some good data on that. Yeah. I think you're correct in terms of how we underwrote the market this year and guided. We did guide conservatively. It is expected to be our lowest performing market for the year. That said, we did see meaningful increase in our occupancy in the fourth quarter. When you look at occupancy net of delinquency, what we call economic occupancy, we're at 94.7% in the fourth quarter, 100 basis points higher than a year ago. That's a combination of, you know, the market improving from an occupancy perspective, but also from a delinquency perspective. We're not quite back to our long-term historical run rate on delinquency. We're about 50 basis points shy of that. It's really tied up in the courts. The courts are still a month to two months slower than they were historically. We are continuing to make good progress. What we've said in the past, though, is we need to be above 95% economic occupancy to really start to have pricing power. We're still short of that. That was part of our view of guiding conservatively. Could we get there this year? Potentially. We don't need a lot more incremental demand given supply is coming down pretty significantly this year. It's really what is the job catalyst? That's a little harder to discern in L.A. than it is in our northern regions. Got it. Then maybe on, you know, Northern California, when you see an announcement like, you know, from Block, I'm just using an example, 4,000 employees, is that like sort of irrelevant for your portfolio? I mean, when you have some assets in Oakland, 4,000 people being laid off, like, does that actually impact things on the ground? Or is that so small that, you know, you wouldn't really see much unless you just have like, you know, your building's like right next to Block's headquarters or something? We haven't seen a significant impact, but I think that's primarily because a lot of those jobs are remote. It's not gonna, you know, impact that market's. Figure out their options before telling you. It's actually pretty quick and more often than not, we've seen it ahead of the public announcement because they probably know or have some inclination. We see typically people make housing decisions 45 days in advance of an event. If they're not sure, they probably just wouldn't renew, or they would just go month to month until they have better clarity. You actually, you know, kind of get more of a leading indication or real time right away. Got it. The number of people that are either breaking leases today or telling you there's an issue is just similar to what it normally is. There's no. We have not seen an elevated trend on lease breakage currently. No. Then maybe, on Seattle, and obviously everyone feel free to ask questions and on the live QA if you, if you wanna not do it through the microphone. You know, on Seattle, you talked about how it's one of your more volatile markets because of supply and how, you know, California, you know, historically just hasn't had the same supply issues, which is what makes it a bit more consistent of a grower. I guess, what keeps you committed to the Seattle market in spite of that supply fluctuations, the, you know, the greater volatility? I think you're also seeing some pretty large increases in property taxes there. What keeps you committed to that market? With Seattle, what has been compelling to us is if you just step back and look at it from a long-term CAGR perspective, it's more volatile, but from a long-term growth perspective, it's still a great market. It's better in Southern California, for example, from a longer-term CAGR perspective. If the Bay Area is at a four, Seattle is a three. The U.S. is two or sub two, and Southern California is about 2.25-2.5. Seattle has a couple of things going for it. Even though it is more elevated in supply, we're talking 1%-1.5% generally is a total new supply as a percent of stock. Compare that to other markets that's generating 2%, 3.4%. You know, it's still a market that can quickly absorb the supply pretty efficiently, say, within 6 to 9 months. The reason is because it has strong demand catalysts. It does have a benefit drafting off of technology sector, and we're seeing that already. We're seeing AI taking a foothold, you know, in Northern California. Now it's starting. We're seeing green shoots in Seattle. ChatGPT announced an office in the East Bay. There are several other companies. It's in one of our slides. You could see the map there. There's actually great demand drivers in Seattle that makes it a great market to invest in. Okay. Maybe switching over to capital allocation. I, you know, I'll call Rylan after and tell him, hopefully, congratulations, everything's going well there. Is there any goals, I mean, that Rylan and you all have set for this year? Like, what would you like to see by the end of the year, in terms of... I know you don't guide a certain amount of acquisitions, but you probably talk internally about things that you would like to accomplish if you can, if it makes sense, if your cost of capital supports it. Maybe talk through sort of what the goals are for this year. Yeah. I mean, you know us for a long time. We don't tend to deal in absolutes. You're not gonna hear from me that we're gonna buy $1 billion. What you will hear from me and in my conversation with Rylan is that's focused on investing in such a way that we can generate accretion. If you look at what we've acquired, we've acquired over $2 billion over the past 2 years. Rylan's done a terrific job, and the team has as well. The track record stands. Those deals have all been accretive. We've either sold or used internal cash flow in a way that provided not just FFO accretion, but also NAV accretion. That's the goal, and that's the goal he has to hit. He has to invest in an accretive way. If that means at some point that stock buyback is more compelling, well, you've seen us do that too. Everything's on the table, but we certainly did not invest issuing stock in the past two years. Maybe on the buybacks, I think I've asked you kind of like a version of this question, but I guess I still don't completely get it because maybe our valuation is just completely wrong. You know, I think most people have you trading somewhere between, like, a 5.5% to 6% implied cap rate. I think you've said on the calls that, you know, assets are trading from a buyer's point of view, so I understand there's a, you know, a mark to market on the taxes. You know, somewhere between a 4.5%, kind of 4.5%, you know, maybe even lower. If there's that difference in cap rates, how does it not make sense to sell some assets and buy back stock? That's a great question. You'll see that we did not transact in 4.5%. You know, obviously I'm not gonna comment on what's going on currently on the ground. What we have done in the past is whatever the buyer cap rate is, and we overlay our operating platform, so we do get immediate accretion. You don't have to wait. We ended up close to over 5%. During those time, our stock was trading at around 5.5%, maybe 5.7%. Well, let's do the math here. We're buying at 5%. If we're growing a long-term CAGR in Northern California at 4%, that's a 9% total return. That math works all day long, much better than a stock buyback. What we will do moving forward is we're gonna go through the same exercise with the same discipline. What's the going in yield? What's the growth? Where's the stock? Where can we generate the most accretion? We will execute that way. Got it. Northern California you think has, like, a 4% type of, you know, long-term growth to it? The long-term CAGR for Northern California, yeah, that's proven out to be about 4%. Got it. that would compare to, like, in L.A., where you'd put, like, a two and half on it or three or something like that? probably closer to two and a quarter-ish. Quarter-ish. For L.A. In all these conversations, I mean, you know, you've probably spent way too much time talking about, you know, AI for the better part of the day, are any of these sort of conversations impacting private pricing at all? Like, when you go to conferences, and you meet with, you know, people that are deploying capital either in California or other places, is this top of mind for them? I would assume it would be, it doesn't seem to be showing up much in price. Like, it's very obvious in the public market that there's an element of discount for this, it doesn't seem like there is one in the private market. Like, why is that the case? Let me make sure I understand your question. Are you asking why private buyers are still buying or they're not buying? Well, I guess what I'm saying is this. Yeah, I mean, I assume that they just have to put money to work and, you know, maybe they're getting, you know, good enough debt rates that they're getting positive leverage or something on it. I guess my point is that when you think about the disconnect between public and private. I see. You know, is this something that is top of mind for the private investor right now, the impact that AI could have on, you know, job growth, or it's just not like this conference where you're getting asked about it probably every session? It's interesting with the private market. First of all, you know, their motivation to deploy capital is really driven by what they've raised. Private, you know, investment vehicles typically have a three-year deployment investment period, which means they have money left over from the past two-three years or even last year capital raise, and a lot of them also locked in financing when it was still low. It's a different cost of capital structure. In terms of the AI conversation, we're not seeing that as a deterrent. In fact, if you look at where the most aggressive bids are happening, it's in the Bay Area. The view is there's growth coming and catalyst for demand. Maybe just sticking on AI, but more micro, more Essex specifically. Where are you seeing the opportunity to deploy and use AI within the organization, and how do you think it could drive either efficiencies or better processes? We have rolled out AI leasing capabilities. On the sales front, we piloted that last year. Had to make some tweaks 'cause nothing is off-the-shelf ready. That is one obvious area. In terms of our data analytics and, you know, reporting, those functionality, we're seeing some near-term benefits. Having said that, we're also not seeing that as a reason for attrition. We're piloting several other AI functionalities in the maintenance area, in procurement, and some other customer service and marketing initiatives. Doing a lot, but I don't think we're all that different. Most companies are, you know, have a high experimental rate, but a low adoption rate. We're gonna continue to do that. Near term on the sales front, that definitely most beneficial. I mean, that makes a lot of sense. Are you excited about the opportunity? I mean, it makes sense that you're gonna try a lot of different things and see what works. Do you think there's a meaningful ability to drive either operating margins or G&A savings? Yeah. You know, at an apartment company? We're excited about the possibility, but it's really how you use it. It's not just AI. It's how you run the business using the AI. It's kind of like, I will make it analogous to revenue management. Everybody has it, but that doesn't mean everybody knows how to optimize their total revenue. It's all about how you use it. Does that lend itself more to partnering or building yourself or buying? I mean, kind of the revenue management makes a lot of sense, right? Mm-hmm. You buy it, you really customize it for kind of what you're looking to do. Is that kind of a similar idea for how you think AI plays out? Yeah, it's a combination. There's nothing off the shelf you could just buy and plug it in. We're a real estate company, so we're not set up to build. What we will do and what we have been doing is looking at products that's close to what we need and customize it. Generally, these things takes a year to two to get it right. Once you customize it, you have to pilot it and work out all the kinks. Maybe on the preferred, I think, you know, understand that, it creates some earnings dilution this year. I guess your point on the call is, I guess first that, you know, beyond this year, we're not gonna have this issue again. I guess first I wanna confirm that, and then second, you know, what type of returns would you wanna see if you were to, you know, try to grow your preferred book? Like, what would you need to see to actually wanna grow it? Yeah. That is a good question, and your point is correct. Like, the bulk of our preferred equity book has rolled off, or we're not accruing on it. The headwinds that we're experiencing this year will not carry forward into 2027. We do expect 180 basis points of headwinds this year, and we had a lot last year, given the bulkiness of the maturities over the last two years, which is about $400 million. That is behind us. We'll have about $170 million in book that we are accruing on. The amount that we're gonna have experiencing for the foreseeable future is pretty low in terms of redemption headwinds. In terms of growing the book, we're open to that if we can find the right risk-adjusted return. It's gonna depend on where we are in the capital stack and a variety of factors. If it's a development, we're gonna want a higher return, and if we have to go up, you know, up to 85% in the capital stack, it's gotta be north of at least 13%-14%. It will depend if it's stabilized versus development and then where we are in the stack. For the preferred that's maturing soon, where are you in discussions with that sponsor? I think you said that, you know, you're kind of nearing the maturity date. Curious where the conversation stands there. They're still ongoing. I don't have an update for you on that. We're not at maturity yet, still working through it. The range of options would be effectively they put in more equity or you take control over the asset and like what would be the? We could do an extension, a short-term extension. They could put in more equity to get that extension. We could take back the asset. There is a variety of potential outcomes. It's just too uncertain, so that's why we guided to what we did, where we assumed no redemption proceeds back on the two assets. It's really two assets maturing in 2026 that are the bulk of it. The guidance is de-risk. There could be upside depending on the timing of these negotiations and what the final outcome is. Thank you. We do have a rapid fire to end the session. What will same store and OI growth be for the apartment sector overall next year in 2027? For the sector, we're going to say 2%. A year from now, will there be more, fewer, the same number of public apartment companies? Well, there's not that many of us left. I'm going to go with same or less. I guess is it the Sun Belt dragging that number down for 2027? Most likely, yes. Okay. All right. Thank you. Thank you. Thank you.