Essex Property Trust Q3 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
October 30, 2024
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Operator

Ladies and gentlemen, good afternoon, and welcome to the Essex Property Trust Third Quarter 2024 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Angela Kleiman, President and CEO. Please go-ahead, ma'am.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Good morning. Thank you for joining 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 our third guidance raise this year as a result of another healthy quarter with Core FFO per share exceeding the midpoint of our guidance range. Today, my comments will focus on our performance year-to-date, preliminary considerations for 2025, and an update on the investment market.

Starting with highlights to date. Notable milestones this year include record low turnover, excellent progress resolving delinquencies, and positive inflection points in several key demand drivers. These factors combined with muted level of new housing supply have enabled Essex to deliver results exceeding the high end of our original 2024 expectations. Year-to-date, we've achieved solid results with market rents generally trending consistent with historical patterns as shown in the chart on page S13.2.

In the third quarter, rents peaked in July and remained resilient through August before moderating in September. As we expected, the blended rate growth of 2.5% for the quarter was tempered by the combination of seasonal moderation and rents which started in September and difficult year-over-year comparison. Especially since last year, our rents did not moderate until late October. As we enter the fourth quarter, our market remains stable. We've shifted our operating strategy to focus on occupancy as we've done in prior years in anticipation of slower demand characteristic of normal seasonality.

Moving to regional highlights. Seattle has been our top performer this year, delivering a strong 3.8% blended rate growth in the third quarter. The east side where we approximately 70% of our portfolio was our strongest markets with 4.7% blended growth. For the rest of the year, we anticipate a heavier supply delivery and thus more concessions usage in this region.

Northern California has performed well, achieving 2.3% blended rate growth in the third quarter led by Santa Clara County with 3.6%. The overall supply for this region remains very low, so we anticipate most of the deliveries for San Jose this year to occur in the fourth quarter. Therefore, we plan for higher concessions to address this short-term impact. On to Southern California, which achieved 2.1% blended lease rate growth in the third quarter. Lease rates in this region were tempered by headwinds related to delinquency recovery in Los Angeles

Excluding LA, this region produced 3.5% blended rate growth for the third quarter. While the exact timing is difficult to pinpoint, we are cautiously optimistic that new lease rates will begin to recover next year in LA as volume of delinquent units continue to subside. Heading into year-end, we are well positioned in 96.1% financial occupancy for October with year-over-year comps easing in November and December.

Turning to our expectations for 2025, we've provided high-level revenue drivers on page S16.2 of the supplemental. We expect our earnings for next year to surpass what was achieved in 2024, ranging from 80 basis points to 100 basis points. Additionally, we anticipate a 40 basis points to 60 basis points tailwind from delinquency improvements.

Combined, these two components should generate approximately 120 basis pointsto 160 basis points of same property revenue growth in 2025. As for market rent growth, supply and demand will ultimately be the key building blocks. The fundamental backdrop remains stable and continues to gradually improve.

On the supply side, detailed on page S16 of the supplemental, we expect total supply growth of only 50 basis points in 2025. This is consistent with the low-level supply in 2024 and well below our long-term average of 1% for our markets. On the demand side, we've seen positive inflection points in several major demand drivers this year.

Job hostings at the top 20 technology companies have been steadily recovering, demonstrating a sentiment shift from retrenchment in 2023 to positioning for future growth. Additionally, these same companies continue to increase their return-to-office requirements, which has resulted in increased demand to San Jose and Seattle regions. Related to this is migration back to our markets, which has steadily improved and is rebalancing toward historical patterns. Given the low supply environment in the Essex markets, we are well positioned to achieve new lease rate growth with incremental demand.

Lastly, on the transaction market, strong investor interest for multifamily properties on the West Coast has resulted in cap rates trading consistently in the mid 4% range with numerous transaction in the low 4%. Within this competitive landscape, our investment team has done a terrific job, originating several opportunities at better than market yields, acquiring over 1,700 units to date, tolling over $700 million at our per annum share.

We continue to execute transactions with attractive returns relative to our cost of capital, and we are confident in our ability to generate opportunities to drive NAD and SFO per share accretion for our shareholders. Finally, I'll conclude with a brief comment on California Proposition 33. It is no surprise to anyone that excessive regulations dramatically restrict housing production in California, leading to high cost of housing. As such, we have joined Governor Newsom in endorsing a no vote on Proposition 33. We all know that building more housing is the only solution to the state's housing shortage.

With that, I'll turn the call over to Barb.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Thanks, Angela. I'll begin by briefly discussing our third quarter results, followed by comments on the remainder of 2024, and conclude with investments in the balance sheet. I'm pleased to report third quarter Core FFO per share of $3.91, a $0.04 beat to the midpoint of our guidance range. The outperformance was primarily driven by higher same property revenues.

For the full year, we are raising the midpoint of Core FFO for a third consecutive quarter by $0.06 to $15.56 per share, which represents 3.5% year-over-year growth. A key contributor to the full year increase relates to same property revenue growth, which has outperformed our expectations. As such, we are raising our midpoint by 25 basis points to 3.25% growth for the year. The increase is driven by lower delinquency and higher other income. With no change to our expense outlook, we expect same property NOI growth of 2.6%, a 30 basis points increase at the midpoint.

Turning to investments, year to date, we've acquired approximately $700 million in multifamily properties at pro rata share, which has been funded on a leveraged neutral basis with $200 million of dispositions, $450 million of proceeds from structure finance redemptions and free cash flow, and $25 million in OP units.

As it relates to our structure finance book, we have received $106 million in cash redemptions through October and anticipate an additional $40 million for the balance of the year. We've reinvested these funds into new acquisitions, which offer the most attractive risk adjusted return today, given the growth potential in our markets. While the strategic reallocation results in short term FFO dilution, growing the company via apartment acquisitions improves the quality of our cash flow and the long term growth profile of our portfolio.

This in turn drives better NAD and Core FFO growth for our shareholders. Looking to 2025, we expect between 100 million to 150 million of redemptions, with up to 50% expected by the end of the first quarter. Barring a change in the investment landscape, we are most likely to redeploy these proceeds into acquisitions, resulting in a continued reduction of the structure finance book, and better alignment with our target range for this business at 3% to 5% of Core FFO.

Finally, a few comments on the balance sheet. Over the last several years, we have opportunistically refinanced our debt maturities early when we see an attractive issuance window. We continue that trend this quarter as we issue 200 million in 10 year unsecured bonds, and an effective rate of 5.1%. With a manageable debt maturity schedule next year, we have ample flexibility to be opportunistic. Overall, our balance sheet remains in a strong position with low leverage as defined by net debt to EBITDA at 5.5 times. In addition, with over 1 billion in liquidity and ample sources of available capital, the company is well positioned.

I will now turn the call back to the operator for questions.

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Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] The first question comes from the line of Nick Yulico from Scotiabank. Please go ahead. Hey, good morning. This is Daniel Trocarico. I'm with Nick. I want to ask a question on bad debt. With the 50 basis points of improvement in 2025, what gives you the confidence LA Alameda counties will normalize like your other markets? And just to confirm your comment, Angela, from your prepared remarks, this assumption would imply maybe broader supply demand fundamentals should improve in those markets as well.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, Daniel. Thanks for your question. With respect to LA Alameda, a couple of things are happening on the ground that gives us and also some confidence that things are improving.

So, for example, delinquency in terms of just the volume, let's start there, it has really improved. In fact, at year end, last year in December, our delinquency as percentage of rent for LA was almost 5%. Today, it's a 1.6%. So that is significant progress. And we've seen a direct correlation with the courts continue to move through the eviction. And that's been a key to continuing that trend. But as far as just general economic viability for LA, a couple of things that actually has given us a positive sign.

So, for example, we have, of course, the World Cup coming and the Olympics. And so what we are anticipating is that there'll be benefits from economic investments, both domestically and internationally to this region. But further, just this week, Governor Newsom proposed to double California's film and television tax credit program from current $330 million to about $750 million.

So these are all great signs that we're seeing that gives us that level of optimism, if you will.

Daniel Tricarico
Analyst at Scotiabank

Great, thank you. As a follow up, you mentioned signs of -- I think you mentioned signs of improving tech job backdrop, not something we necessarily heard from office landlords. So maybe you could expand a bit more where and what you're seeing specifically related to that.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Sure, no, happy to. So we track the openings of the top 20 tech companies. And that is, you know, it's just the closest thing to apples to apples that we can see. And they're really the drivers of the overall health of the technology sector. And so we follow that and we use a third party independent report. And we have seen that for the first time, you know, in almost two years, the job openings have reached pre-COVID averages.

And it's a good start, because, you know, openings is an indication of that these companies will be positioning to hire in the future. The one thing that you know, keep as that -- you keep in mind is that this is a lumpy trend and it's not an immediate impact. But obviously, things are going the right direction here.

Operator

Thank you. The next question is from the line of Eric Wolf from Citi. Please go ahead.

Nick Joseph
Analyst at Smith Barney Citigroup

Thanks. It's Nick Joseph here with Eric. Appreciate the 25 building blocks. I guess my question is just around pricing strategy going forward. I mean, you've laid out kind of the improving bad debt situation, you know, particularly in Southern California, continued low supply. So, 0.5% point next year. You know, how are you thinking about the ability to actually push -- push on the new lease side? And how are renewals going out over the next 30 and 60 days?

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, Nick, that's a great question, Angela here. On the -- in terms of our operating strategy, we have shifted to a occupancy fourth quarter strategy in the fourth quarter. And that is typical, you know, to address the seasonal slow demand that's characteristic of our business. That's not anything unusual. What we are expecting is the deceleration that we have seen in September and October, which we of course have factored into our guidance to the headwinds that cause those to start to abate.

And so, you know, for example, in October last year, just to give you one data point, our concessions was only half a week. And this year, it's about a week. Well, that doesn't seem like a big number, you know, half a week is represents 1% of rent. So you can see the year over year impact on the financials.

But as far as the renewal is concerned, we're sending renewals out in the mid fourth. So a strong number from our consistent with our plan and early indication is that we're landing around in the high threes. Once again, also well within the range, you know, typically negotiations range from 0 basis points to 100 basis points. And this is kind of in the middle of that. So these are all good indications for the rest of the year and our ability for pricing power in next year to come.

Nick Joseph
Analyst at Smith Barney Citigroup

Thanks, that's very helpful. And then just on, I guess, the potential repeal of Costa Hopkins, understand all the arguments, you know, on the policy side, but if it were to pass, right, so if the repeal occurred, how do you think about what could happen kind of over the following few months? And what is your exposure to municipalities that have some form of rent control currently?

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Yeah, that is a really good question. And we kind of battle internally on how to think about this risk. Let me just start with a couple of data points that I think may be useful in an assumption like this, because it is a very difficult hypothetical question to answer.

And the reason that's the case is because right now, every city in California can enact rent control on buildings older than 1995. We have about 483 cities in California. And believe it or not, only about 8% of these cities have enacted rent control.

And with a lot of these cities, where the rent control is actually quite moderate. And so as far as Prop 33 is concerned, 23 mayors have actually came out and announced that they are against Proposition 33. And some of these mayors are the same ones that have enacted rent control, like San Jose, for example, and Santa Ana.

So it's, you know, for us to try to interpolate something that is so unlikely, it's just -- it's too difficult to predict. But more importantly, on the campaign itself, what we're seeing is that this is following the same pattern as the 2018 and the 2020 pattern. And both times, they were defeated by a landslide.

And so I understand that, you know, there's an overhang in our stock, just because it isn't unknown. But what we're seeing is that the public and the legislators, they understand the impact of something this onerous. And in fact, this is evident by the most expensive cities in California, are the ones with the most onerous rent control like San Francisco and Santa Monica, and the ones with the highest rents.

So the meta is that the campaign continues to gain momentum, and we are confident this will be defeated.

Operator

Thank you. The next question is from the line of Haendel St. Juste - Mizuho Securities. Please go ahead.

Haendel St. Juste
Analyst at Mizuho Securities

Hey, good morning, guys. So a couple questions from me. I think in your prepared remarks, Angela, you mentioned that rents last year did not moderate until October. So you had tough comps this year in September, in October, but looks like the comps are getting easier ahead. So I guess I'm curious, one, what you're sending out for renewals here today, and any color on October new lease rates? And but more broadly, is there a scenario where we can see a reacceleration in blends on these easy comps? Just curious what kind of embedded in your your near term outlook here.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, Haendel, good morning. Thanks for your question. So we are sending new renewals out in the mid force. And so far, the early indication and those who have signed leases are landing in the three in the high threes. So say it's 3.9%, 3.8 on average. So these are definitely, you know, good trends and positive indication.

As far as the possibility of a reacceleration, it's certainly possible. Just because, you know, as I mentioned, rents continue to increase through October last year. So that's one factor. Renewals remain strong. And if nothing else, we just don't have the same headwind in November and December this year as we did last year. And so that is a possibility.

Haendel St. Juste
Analyst at Mizuho Securities

Okay. And then you also mentioned again this quarter, seeing positive in migration, more employers enforcing return office mandates and now tech job growth for the first time in years being back to pre-COVID levels. So I guess I'm curious if you're seeing any of that translate into better demand applications, things which could forebode, you know, kind of more demand or pricing power rent growth into early next year. Thanks.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Yeah, Haendel, that's a good question. A couple of things on the immigration front. We are seeing that this year has benefited our numbers.

And especially if you look at the job growth environment, it's generally not robust, you know, for the U.S. and the West Coast, it's stable, and it's moving along. And so for us to be able to outperform its demand coming from elsewhere, relative to our original forecast. And so in terms of predicting how that is going to impact next year, it's too early to tell, really, for two reasons.

One is that we do believe most of the return to office benefits were captured this year. And I'll give you a point, one data point, which is our in migration. You know, our in migration as a percentage of our total leases. It's not yet to pre-COVID level, but it's pretty darn close.

So that's one good indication. So maybe you could say, we've captured 70%, 75% of the return to office. So there's some left for next year, but it's not going to be as robust as this year.

But what will really drive demand and for housing next year is going to be all about job growth. You know, fortunately for us, with low demand, our base case is very low risk. Having said that, we'll need better indication on a macro level, where the consensus job forecast is going to land and what that will mean for the West Coast, because we are still all somewhat interrelated to the entire economy.

Operator

Thank you. The next question is from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa
Analyst at Evercore ISI

Yeah, thanks. Good morning out there. Could you provide a little bit of color on the cap rate pricing on the sort of different acquisitions that you did, as well as the dispositions?

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Hey, Steve, Rylan here. Yeah, we were pleased to buy out two of our joint venture partners in the third quarter, and these were long-running negotiations. In both cases, we had debt maturing, which necessitated a conversation, and we believe we were able to buy those a very attractive basis, probably 20% to 25% discounts to replacement costs today at yields in the high fours. So we think better than market pricing. In one instance, we were able to also negotiate an OP unit transaction at a 305 strike price, which was when we negotiated, you know, it was stock was around 270, so that was a necessary requirement for us to make that deal pencil on an accretive basis.

Subsequent to quarter end, the portfolio transaction that was noted in the release, this is similar to the portfolio that we did earlier in the year, where market cap rates are in the low fives, given this is a slightly older portfolio, but one that we've owned for many, many years, we've invested in, we know very well, and with our basis, as we were already majority owners, is going to cap rate to Essex closer to a six. The disposition subsequent to quarter end in San Mateo, this was a 76-year-old asset, and approximately a five cap to Essex inclusive of capital, and the thinking there is that we are seeing better risk-adjusted opportunities elsewhere, and we're able to redeploy that capital into a higher returning investment.

Steve Sakwa
Analyst at Evercore ISI

Okay, thanks. And I realize development may be still a bit of a dirty word, but how are you guys thinking about future developments, and where would developments perhaps pencil today on current costs and in-place rents? I'm trying to just figure out, how far away you think you might be from being able to start some new projects.

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Yeah, no, it's a good question, and something we've been really focused on here over the past year. So, as you know, we haven't started a new development for almost five years. The risk-adjusted returns just really didn't make sense.

What we've seen more recently is that I think others are recognizing that the city is in a very challenging return environment, and we've seen capital pull back. So, permits are starting to come down. Hard costs are starting to come down.

So, if you can secure land at an attractive basis and design an efficient building, I'd say we're getting closer. So, we have a history of being a contra cyclical developer, and I think with others pulling back, we are sharpening our pencils, and we'll have more to come here in the next several quarters.

Operator

Thank you. The next question is from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Alexander Goldfarb
Analyst at Piper Sandler Companies

Hey, good morning out there. Two questions. First, Angela, you mentioned some comments around supply on the east side of Seattle, and I think you also mentioned maybe with San Jose. But just big picture collectively, can you just sort of outline the supply picture that you're looking at, you know, how much of the portfolio you think it impacts, and if it's just sort of in the next six months, or if you think it's something that extends longer and impacts more of '25?

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Yeah, hey, Alex, good question there. On the supply landscape, we do see that the San Jose impact should only really be more concentrated in the fourth quarter, maybe a little bit leads over in the first quarter because it all really depends on how the delivery occurs. So, for example, if they all come at once, or if they're going to go pro rata over the next several months, they'll have a different impact.

But having said that, San Jose, as far as the total stock, is still very low. We're talking about, for the full year, 2,400 units that's supposed to be delivered. Unfortunately, about 1,100 of those happening in the fourth quarter, but it's still very low.

And this is why we expect that absorption to occur quickly. And, well, yes, there will be some concessions involved. It's not going to be as challenging as what we've seen, for example, in Downtown LA or Oakland.

It's a very different beast. And we should get past it, you know, within, say, three months or four months or something along those lines. Seattle is a little bit more in terms of the supply overall. I mean, generally, it has been a higher supply delivery market with, say, a little bit above 1% of total supply. And so having a shift from the east side, we believe that impact will start in the fourth quarter and probably continue in the first quarter. What has helped Seattle in the past and what we continue to see the benefit is that Seattle has also generated the highest level of demand in the market.

So with the higher level of job growth, we expect that the demand or the supply will be absorbed timely. And so while there will be a temporary concession environment, it's not it shouldn't be prolonged because that's how it's been every year with Seattle.

Alexander Goldfarb
Analyst at Piper Sandler Companies

And then, Barb, a question for you on the recycling. As you guys whittle down the preferred and debt book and recycle into assets, sort of in aggregate, especially as we think about '25, is there some sort of pennies or some sort of way that we can think about the dilution impact? Is it $0.05, $0.10? Is it more than that? Just trying to get a sense of how we should think about the redeployment from the preferred and debt book into income-producing assets.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, hi, Alex. That's a good question. I think what you can do is, we're losing a 10% on the preferred and we're redeploying at around a 5%. And so that's kind of the impact that you're seeing from an FFO perspective. But, you know, what I did talk about on the call was, we're targeting 3% to 5% of our Core FFO per share. In 2024, we were at about 5.5%. So structured finance is about 5.5% of our 2024 Core FFO. We do expect that we'll moderate to the low 4% range next year as, you know, a lot of our redemptions this year were back-end loaded, and then we have some front-end loaded redemptions next year. And so we do expect it to moderate throughout next year, but we should have higher NOI as well as we are redeploying this money back into acquisitions.

Operator

Thank you. The next question is from the line of Adam Kramer from Morgan Stanley. Please go ahead.

Adam Kramer
Analyst at Morgan Stanley

Hey, thanks for the time. I just wanted to ask about the kind of advocacy expense, lobbying expense that was disclosed this quarter. Maybe just quantify kind of what it was this quarter and maybe what it's been year-to-date as well. And then if there's more to come here in 4Q still, given kind of the timing of the election versus the timing of the quarter end.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Hi, Adam. It's Barb. So in the third quarter, we spent $10 million. Year-to-date, we're at $16 million. And for the full year, our guidance assumes a little over $30 million on the advocacy front.

Adam Kramer
Analyst at Morgan Stanley

Got it. And are you able to split out whether that's kind of Prop 33 versus Prop 34 versus maybe, I don't know, other legislative lobbying efforts?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

No, it's all related to mostly Prop 33 and Prop 34, but I don't have that breakout in front of me.

Operator

Thank you. The next question is from the line of Jamie Feldman from Wells Fargo. Please go ahead.

Jamie Feldman
Analyst at Wells Fargo & Company

Great. Thank you. So I think you renewed your insurance policy in December. Can you give us your initial thoughts on how that's looking and maybe just frame what you're seeing and hearing on the commercial property insurance market overall?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Hi, Jamie. It's Barb. You have a good memory. We are in the midst of our insurance renewal right now. It's a little too early to know how it's going to play out, but what we have seen in the industry this year is a moderation in insurance premium increases. So just to give some history, the last two years we've seen our premium increase 20% to 30% annually, and we do expect that it will moderate from there next year, but the level is a little difficult to discern at this point. We'll obviously have more color on our fourth quarter call.

Jamie Feldman
Analyst at Wells Fargo & Company

Okay. And I know you're not obviously in Florida, but are you hearing like that spills over everywhere in the country or you think you'll be relatively isolated from the impact?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

You know, that's a good question. It's something that is playing out as we speak, and the November renewals didn't see too big of an impact that we heard, but obviously, we're going after both hurricanes hit, so a little tricky to answer that question right now, and we're in the midst of those discussions at this point.

Operator

Thank you. The next question is from the line of Josh Dennelein from Bank of America. Please go ahead.

Joshua Dennerlein
Analyst at Bank of America

Yeah. Hey, everyone. Thanks for the time. I was looking at an exhibit or I guess page S16.1 in the supplemental. Could you just kind of go over that burn-in? I see that you added exclude concession impacts. I just kind of want to clarify what that means and maybe how we should think about it versus like our models out here.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, Josh, this is Barb. So the earn-in is consistent with how we calculated it last year. It's really just taking the leases that we've signed through October and then our projections for November, December, and what does that kind of carry forward next year, assuming no market rent growth next year?

And it doesn't include concessions because concessions are below the line. This is just the gross rent, not including any concessions. I don't think it's too dissimilar from how the industry calculates this number, but 90 basis points is our projection at this point based on the lease assigned.

Joshua Dennerlein
Analyst at Bank of America

Okay.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Does that answer your question?

Joshua Dennerlein
Analyst at Bank of America

Yeah. No, no, I appreciate that, Barb. That makes sense. And then maybe just why I have you just kind of thinking about, like, the capital recycling, do you guys think you'll lean into maybe taking out or consolidating additional JVs versus just, like, outright open market purchases of income-producing assets, or is it just kind of opportunity set driven?

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Hi, Josh. You know, the joint venture business has really been an efficient source of capital, and so it has and will continue to benefit the company through various points of the cycle. We have great partners who want exposure to West Coast housing, and they like investing alongside a company like Essex that's financially aligned and can provide a best-in-class operating platform.

So in 2024, from Essex's perspective, we saw an opportunity to purchase communities that we knew well, we'd invested in for many years, and most importantly was in creative to shareholders. Going forward, we still have 7,700 units that are owned in joint venture partnerships, and it's going to be a function of our discussion with partners, our cost of capital, and the opportunity set in the market. So we are open and eagerly looking at all avenues to grow.

Operator

Thank you. The next question is from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim
Analyst at BMO Capital Markets

Thank you. I wanted to ask about the spread that you have between renewal and new leases. This quarter it was 330 basis points. Over the last two years, it's been 350 basis points. A lot of your peers are at 600 basis points or more in some cases. So it seems like your renewals are a little bit more sensitive to market rents than maybe some others. And I'm wondering why that's the case.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, John, it's Angela here. I don't know if our renewals and market rent sensitivity is really what's driving the spread. I think it's more the operating strategy that's driving the spread.

And so, you know, what we focus on is maximizing revenues. And so we try to send renewals out where we anticipate what the market is going to be a month or two from today, and negotiate as needed along the way. And, of course, that strategy is influenced by whether we're focusing on occupancy and what else is happening the supply landscape, the job landscape.

And so we try to factor all of that with our maximizing total revenue in mind. What we have seen is some of our peers are more focused on, say, getting a higher lease, new lease rate. And some are more focused on just getting higher renewal rates, for example.

And when you focus on one, of course, it's going to impact the others. And if it's not a rate impact, it's going to be an occupancy impact. So ultimately, I know I'm probably giving you more color than what you're asking for, but ultimately, I do think that we all have different levers that we are pulling. And our business objective is focused on maximizing revenue, not a specific rate per se.

John Kim
Analyst at BMO Capital Markets

Sure. But, I mean, in the case of some companies, they move out to buy a home is at all-time lows. I'm wondering what that ratio is for you right now. But because it's at all-time lows, they're able to push renewals maybe harder than one would expect versus new leases. So I'm wondering, because home prices are so high in your markets, does that present a potential upside for you going forward as far as pushing the needle a little bit more in renewals?

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Yeah, John, that's a good question. For us, the move out to buy homes has not been a meaningful factor in our pricing strategy, whether it's now or in prior cycles, primarily because it's a smaller percentage. So, for example, pre-COVID, during, say, more, even when interest rates were very low, our move out to buy homes was somewhere around 10% range.

So it's already very low. And the cost to own a home is back then almost two times. I think it was 1.8 times more expensive to buy a home than to rent. Today, the move out ratio is about 5%. So it's about half. Having said that, we're talking about a 3 -- almost 2.8%, so almost 3% or three times more expensive to own than to rent. So that incremental increase on that cost of ownership really isn't going to move the needle on our pricing strategy because it's already so expensive.

Operator

Thank you. The next question is from the line of Linda Tsai from Jeffries. Please go ahead.

Linda Tsai
Analyst at Jeffries

Hi. Maybe just relate to some of the topics you covered earlier. Just with comparisons getting a little easier from here, would you expect new rates, new lease rates to inflect more positively for the last two months?

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, Linda. It's Angela here. That's what we are anticipating. And so, you know, new rates obviously went negative in October and it started in September. But with the easier year-over-year comp, we do expect a inflection point where it either becomes neutral or turns positive.

Linda Tsai
Analyst at Jeffries

Thank you. And a quick question for Barb. Could you provide some color on your refinancing plans for the upcoming 2025 maturities? And maybe what kind of impact that would have on earnings for next year?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, Linda, that's a great question. We're constantly monitoring the market and most of the maturities that are due next year is 500 million in unsecured bonds. So we'll be looking at the bond market to refinance that in the near, in the near term. You know, I think it depends on, the tenor and where the treasury is at. When we issued the 10 year paper in August, we were at 5.1 today. That's probably 30 basis points wide of that today. And so there will be an earnings impact because we're rolling off a 3.5% coupon bond and going up into the low 5%. But in terms of opportunities to refinance it, we'll continue to monitor the market to see if there's a window that's a more attractive opportunity.

Operator

Thank you. The next question is from the line of John Pawlowski from Green Street. Please go ahead.

John Pawlowski
Analyst at Green Street

Hey, thanks for the time. I wanted to drill into the return to office theme some more and use Seattle as a case study. So can you share any specific metrics to help us understand how the leasing conditions have improved since Amazon and a few others have announced stricter return to office policies and now ostensibly housing choices need to change ahead of those mandates becoming effective. So we'd love to hear how either foot traffic or leasing spreads have shifted in recent weeks and months.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Hey, John, that's a good question. So in Seattle, what we have seen is our demand increased or in fact, spiked when Amazon and some of these other companies first announced the return to office. And I think back then it was three days.

And so we saw that direct correlation and, you know, usually it was within say 30 to 45 days of that announcement. And as far as we're fast forward to today with the announcement of Amazon going full time in January, the question here is going to be, when do they start enforcing it? Because that's when we will see the benefit. So when Amazon first announced their return to office, they also said they were enforcing it right away. And this time we're waiting to see how, if that's going to hold true as well.

John Pawlowski
Analyst at Green Street

Okay. And then last one for me, Angela, Barb, I want to talk about the exclusion of advocacy costs from, from Core FFO. I just get frustrated when a lot of money gets excluded from, from these metrics. So as these regulatory efforts become more recurring in nature, they're episodic, but they're definitely not one time. How do you guys just deliberate internally as they become more recurring, still excluding meaningful expenses from Core FFO?

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, John, that's a good question. I mean, I -- we don't see them as reoccurring every year. And in this case, we haven't had any costs since 2020 on this front. So it's been four years. And so we do have a plan in terms of how what we define as non-reoccurring costs, and this is one of them. I think it's pretty standard in the industry, but it's something that we do revisit regularly and we've been transparent about how much we're spending. And so we're not trying to hide from it, but we don't see it reoccurring every year.

Operator

Thank you. The next question is from the line of Julien Blouin from Goldman Sachs. Please go ahead.

Julien Blouin
Analyst at The Goldman Sachs Group

Yeah. Thank you for the question. Rylan, maybe digging into your comments on the JV acquisition front, I guess how many of those 7,000 plus remaining JV units would you ultimately be interested in consolidating if you had the opportunity and do most of those have sort of significant prop 13 benefits that help your yield as a buyer sort of come in closer to that 6% buyer cap rate you've been getting?

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Hi, Julian. You know, the fact that we've made these investments to begin with would suggest that we would like to own all of them if we had the opportunity. But, and several of them are structured in such a way that we would have a Prop 13 benefit.

But that being said, we have great partnerships and our strategy or plan is not to consolidate all of them. We will continue to evaluate opportunities as joint venture maturities come forward or as debt maturities come forward. So it represents an opportunity, but we, we are committed to this business and we're committed to our partners that want to be in this business with us. So just manage expectations about how many of those could be consolidated in the near term.

Julien Blouin
Analyst at The Goldman Sachs Group

Okay, great. That's, that's helpful. And it sounds like a lot of these are older assets, I guess. Does that bring any sort of value add redev opportunities to sort of creatively upgrade these assets at attractive yields, maybe putting in capital that would have been difficult to secure from partners, but that maybe now is a little more straightforward for you to do on your own?

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

The -- it's a fair question. I would say that there was one asset that was part of the initial portfolio earlier this year where we had a significant development opportunity that we continue to explore. Typically these are business cases that we discuss with partners and more often than not, again, we have got great partnerships that see the value that we can create, that those are rarely gating issues from our partner's capital.

However, as you can imagine, it is a little bit more efficient when we're doing it internally on a consolidated basis. So these are assets that we've owned for a long time. We have invest in our assets. So we know what we're stepping into. And in some cases, there is some value add opportunity, but nothing significant to highlight from the most recent acquisitions.

Operator

Thank you. The next question is from the line of Alex Kim from Zelman & Associates. Please go ahead.

Alex Kim
Analyst at Zelman & Associates

Hey, thanks for taking my question today. I wanted to ask about your blended bank growth outlook. I noticed that you referenced remaining on plan for your full year outlook of around 2.5%. Could you talk through some of your expectations in November and December that allow you to remain on track? And I guess, especially with the seasonal moderation that occurs in these upcoming months.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Sure thing, Alex. In terms of what we're looking at for November, December, I'll just give you one example that hopefully can give you the appropriate color. So in last year in October, we were giving out half a week of concessions in San Mateo and by November, December concessions went up to 3.2 weeks. So currently sitting at two, we don't see that increasing dramatically because last year we had supply in San Mateo, for example, and some other influences.

And so just from the fact that there is going to be, you know, no headwind on the concessions, that in itself is a beneficial pickup. The second factor is of course with LA working through the evictions in a meaningful way that overhang on new leases will continue to abate. So that'll be another beneficial factor.

And of course, the third piece is lease rates, new lease rates in October and November last year was, it went down to about say average negative 2.5%. And so once again, this year in October, we're sitting here at about 1.5%. We have plenty of room and certainly not a new lease rate headwind on that front.

So on multiple fronts, we actually have either a tailwind or no headwind and which is why we have talked about a potential re-acceleration on the new lease rates. And of course, the last component is our renewals have performed stronger than our original forecast. And so on a blended basis, we see a path to achieving our plan.

Alex Kim
Analyst at Zelman & Associates

Got it. Thanks to the commentary there. And then just to follow up, I wanted to ask about bad debt and some of your assumptions for the delinquencies, not for '25, but for this upcoming fourth quarter, as well as any other specifics you could provide for like the other income piece that helped drive the upward revenue guidance revision. Thanks.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah. In terms of bad debt, we're year to date through October, we're sitting right around 1%. We think we'll be right around 1% maybe slightly under for the full year with the fourth quarter being not too dissimilar.

In terms of the other income drivers for the quarter in the third quarter, we did have higher lease break fees related to corporate tenants, which hit the other income line. But it's not going to reoccur in the fourth quarter, which is causing some sequential decline that you're seeing in the numbers fourth quarter relative to the third quarter.

Operator

Thank you. The next question comes from the line of Ami Probandt from UBS. Please go ahead.

Ami Probandt
Analyst at UBS Group

Hi, thanks. A follow up to a previous question. And sorry if this is coming a little too close to asking for guidance. Are you able to discuss how we should be thinking about the impact of concession burnoff in '25? It seems like San Jose and Seattle could see some tailwinds in the second half of the year. But I'm wondering if there's a way that we can think about quantifying some of this impact.

Angela Kleiman
President and Chief Executive Officer at Essex Property Trust

Yeah, Ami, that's a good question. What we're seeing is that the concessionary level, while it may vary in our sub markets, it's essentially moving from one area to another when it comes to supply. And so, last year was heavier in downtown Seattle. This year, I mean, or this year, I should say 2024, not over yet. It's a little heavier in downtown Seattle. Next year, it's going to be a little heavier in East side. And so it's going to shift, but from one to the other. And therefore overall, we really don't expect the concessionary environment for the full year to vary all that much from one year to the other.

Ami Probandt
Analyst at UBS Group

Great, thanks. And just a quick one on the transaction environment. Do you think that the current transaction levels are kind of back to a pre-COVID norm, or are we still trending lower in terms of absolute volume?

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Yeah, Ami, transaction volumes year to date in California and Washington, and it actually is approximate for the national average are around two thirds of what we would call pre-COVID average, say 15 to 19. It's still well below approximately a third of what we saw in 21 and 22. So we've had an uptick versus last year, which there was very limited volume. It's picked up. That includes some of the large portfolio transactions that I'm sure you're aware of, but we're still below the level of volumes that we've seen in previous years. So there's a good chance if capital markets continue to trend favorably that we'll see an uptick in transaction volume next year.

Ami Probandt
Analyst at UBS Group

Thank you.

Operator

Thank you. Ladies and gentlemen, we take the last question from the line of Conor Peaks from Deutsche Bank. Please go ahead.

Conor Peaks
Analyst at Deutsche Bank Aktiengesellschaft

Great, thank you. Maybe sticking on the acquisition opportunity front, maybe if you could talk a little bit about what kind of regional differences you're seeing in your markets, maybe in regards to available stock for sale or movements in cap rate pricing.

Rylan Burns
Executive Vice President Chief Investment Officer at Essex Property Trust

Yeah, it's a fair question. We're not seeing a wide differentiation in terms of cap rates for core product, well located, you know, newer product in all of our submarkets continue to be well bid. I think you're seeing some, the most aggressive pricing is along the peninsula where I think people are more likely to be underwriting above average rent growth for the next several of years.

But the spread difference in terms of cap rates for high quality product is de minimis. We've seen limited transaction volume in the downtown centers and particularly LA to start the year. That has picked up. We've seen several transactions in downtown LA this year. So they feel like relatively healthy markets. But again, as I mentioned earlier, not to the level of volumes we've seen in previous years.

Conor Peaks
Analyst at Deutsche Bank Aktiengesellschaft

Great, thanks. And then it could be a tougher comp kind of driving this a little bit. But if we were to look at the higher expenses in the Northern California portfolio and the drivers behind that.

Barb Pak
Executive Vice President and Chief Financial Officer at Essex Property Trust

Yeah, it is somewhat comp related. There is, you know, expenses are lumpy quarter to quarter and does depend on what happened a year ago. I would say utility expenses were a little higher there than in some of the other regions. And that represents 20% of our opex. So that can have sometimes a meaningful impact. And so nothing to be alarmed about. Nothing that's really outside the norm. It just really does depend on the comp from the prior year.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Angela Kleiman
    President and Chief Executive Officer
  • Barb Pak
    Executive Vice President and Chief Financial Officer
  • Rylan Burns
    Executive Vice President Chief Investment Officer
Analysts

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