Essex Property Trust, Inc. ($ESS)

Good day, and welcome to the Essex Property Trust First Quarter 2026 Earnings Call. As a reminder, today's conference call is being recorded. Statements made on this conference call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. Forward-looking statements are made based on current expectations, assumptions and beliefs as well as information available to the company at this time. A number of factors could cause actual results to differ materially from those anticipated. Further information about these risks can be found on the company's filings with SEC. It is now my pleasure to introduce your host, Ms. Angela Kleiman, President and Chief Executive Officer for Essex Property Trust. Thank you. Ms. Kleiman, you may begin.

Good morning, and welcome to Essex's first quarter earnings call. Today, I will cover our first quarter performance, discuss regional trends and conclude with an update on the transaction market. Barb Pak will follow with prepared remarks, and Rylan Burns is here for Q&A. Starting with the macro environment. U.S. economic conditions year-to-date have generally unfolded in line with our outlook with national labor trends remaining soft. Additionally, heightened geopolitical tensions and inflationary pressure in recent months have contributed to increased near-term uncertainty. Against this backdrop, we delivered a solid first quarter with core FFO per share exceeding the high end of our guidance range and same property revenues trending ahead of plan. Two key factors contributed to these results. First, we successfully deployed an occupancy-focused strategy to maximize revenues, generating a 20 basis point year-over-year occupancy gain. Second is the strength in Northern California combined with the [ durability ] of our supply-constrained West Coast markets. There is a direct correlation between housing supply and the cost of housing for consumers. It is no surprise that markets with some of the highest rental rates are typically markets with significant legislative burden and housing providers, which deters building activities, leading to a chronic housing shortage. Looking forward, permitting activities remain at a historical low in California. And as such, we expect new housing deliveries to remain low at around 0.5% of existing stock for the next several years. On the demand side, we are seeing early indicators of improvement in 3 areas: first, job postings from the top 20 technology companies have remained steady despite the layoff headlines. Second, elevated levels of venture capital investments in the Bay Area are funding a new wave of startup companies. And third, continue office expansion announcements in our markets. In summary, the low level of housing supply throughout our markets provides resilience across a wide range of economic conditions while improving demand indicators position the portfolio for sector-leading long-term rent growth. Moving on to property operating highlights. We achieved same-store blended rent growth of 1.4% for the quarter, which is generally in line with our expectations as we execute an occupancy-focused strategy ahead of the peak leasing season. From a regional perspective, Northern California was our best market performing ahead of plan for the quarter, with blended rent growth of 3.2% led by San Francisco and San Mateo, followed by Santa Clara County. During the quarter, while occupancy increased by 50 basis points sequentially, we were also able to increase rents, demonstrating the strength of this market. Attractive affordability, favorable demand drivers and limited supply support our expectations for solid growth to continue in this region. As for Seattle, this region performed in line with our expectations for a slow start to the year, with blended rent growth of negative 80 basis points. This was primarily driven by a soft demand environment combined with the absorption of supply delivery last year. Encouragingly, during the quarter, we achieved sequential improvements each month in net effective new lease rent growth and occupancy while reducing concessions. With additional office expansions recently announced in the region, we maintain our conviction with the long-term outlook for this market. On to Southern California, which is closely linked to broader national employment trends. This region also performed on plan with blended rent growth of approximately 1%, led by Orange County and Ventura. In Los Angeles, incremental improvements continues at a modest pace. Heading into peak leasing season, we have shifted our operating strategy to driving rent growth across most markets, and our portfolio is well positioned with April financial occupancy at 96.4% and blended lease rate growth north of 3%. Turning to transaction activities. With minimal forward-looking supply deliveries and favorable fundamentals, interest in multifamily assets on the West Coast remains healthy, especially in the Bay Area as evidenced by the 50 basis point cap rate compression since 2024. Essex has been the largest investor in this market in the past 2 years as we allocated approximately $1.7 billion of capital ahead of the Capri compression, generating substantial value for our shareholders. Overall, cap rates across our markets remain consistently in the mid-4% range. However, with our stock trading close to a 6% implied cap rate over the past several months, which is a significant discount to private market valuation, we shipped the gears and repurchased approximately $62 million of stock, thereby continuing our strong capital allocation track record of maximizing accretion for our shareholders. With that, I'll turn the call over to Barb.

Thanks, Angela. Today, I will discuss our first quarter results and full year guidance and conclude with comments on the balance sheet. We are pleased to report a solid first quarter with core FFO per share exceeding the midpoint of our guidance range by $0.11. There are 3 key drivers of the outperformance. First, same property revenues, which grew 2.9% on a year-over-year basis, was 50 basis points ahead of plan and accounted for $0.04 of the beat, higher occupancy and other income were the key components of better revenue growth during the quarter. Second, same property operating expense growth was flat on a year-over-year basis, which was lower than expected and accounted for another $0.04. However, this benefit is timing related and expected to reverse in the second half of the year. Third, non-same property and co-investment NOI make up the remaining $0.03 of outperformance. As for our full year outlook, we are reaffirming our same-property growth and core FFO per share guidance ranges. While we have started off the year in a solid position with revenue growth trending ahead of plan, we'd like to get further visibility into peak leasing season before adjusting our forecast due to the current macro uncertainty. As it relates to the remainder of our FFO forecast, there are 2 key factors that are different from our original guidance. First, we expect to receive approximately $90 million in early structured finance redemption proceeds, which are expected to occur in the second quarter. We are pleased to see this early redemption activity despite it causing a $0.07 headwind to our second half forecast as it demonstrates the continued strength of the West Coast markets. The second factor is share buybacks. We took advantage of the significant discount in our stock price and repurchased approximately $62 million at an average price of $243.76, which equates to an attractive FFO yield of 6.5%. As such, the near-term earnings headwinds from the structured finance redemptions is largely offset by the benefits from the buybacks and our full year forecast is unchanged at this time. Concluding with the balance sheet. We recently repaid $450 million in unsecured bond that mature, resulting in limited remaining maturities for the balance of the year, with net debt-to-EBITDA of 5.5x, over $1 billion in available liquidity and ample sources of available capital, the balance sheet remains in a strong position. I will now turn the call back to the operator for questions.

[Operator Instructions] Thank you. Our first question is from Nick Yulico with Scotiabank.

In terms of the blended rate growth, I know, Andrea, you gave the April stats there. I think you said north of 3%. Can you just remind us how to think about how that's going to trend this year to get to your 2.5% guidance for the year?

Thanks for your question. We're unplanned as it relates to our guidance. And so if you look at first quarter coming in at 1.4% and April is already north of 3%, it's -- we don't anticipate challenges to hitting that 2.5% for the year. And we -- at this point, we're still anticipating the first half and second half are pretty similar to each other. And so things are on plan.

Okay. Great. And then second question, I guess, Barb, you talked about the FFO guidance and the $90 million. I just want to be clear, the $90 million of additional early redemptions, is that like a pull forward for redemptions you assumed in the back half of the year? Or is it just an additional level of capital coming back altogether? How should we think about -- is there any potential for that FFO headwind to get even worse throughout the year if this kind of repeats again?

Nick, that's a good question. So the $90 million is effectively maturities that were set to mature in '27 and '28. And so it's been pulled forward into 2026. And because of that, we don't have any redemptions in '27 and '28 now. So the headwind is effectively behind us at this point.

Our next question is from Jana Galan of Bank of America.

Sorry, just a quick question on the change in methodology for the net effective rate growth. I guess, like, what drove the decision to change it? And then two, when comparing with the prior disclosure, it appears like it's higher in 2Q, 3Q and then lower in 4Q and 1Q. Would that be correct?

Jana, you are right on point on the cadence when it comes to the lease rates. So effectively, we made this change, and we actually signaled this change last year when we reported our detailed like-for-like lease terms, but we also reported all lease terms because with feedback from investors that it was easier for everyone to look at how we report the same way as our peers. So just really to be in line with our peers. So there's no change to our business and certainly no change to how we approach our business. And as far as the cadence, all leases means there'll be a little bit more variability. And with the highs in the second and third quarter and low around the first and the fourth quarter.

And I appreciate the color on kind of the April operating stats. I was wondering if you could share where renewals are being sent out for the summer.

Yes, yes. We are actually in a good position. We continue to be with renewal sending around 5%. And of course, that can get negotiated. But so far, our renewals have been pretty sticky, which is a good indication of the fundamentals of our markets.

Our next question is from Eric Wolfe with Citi.

It's Nick Joseph here with Eric. California is off to a strong start, but obviously, there have been some recent layoff announcements from some of the larger tech companies. Have you seen any changes in that market or all the forward indicators holding strong?

Yes, Nick, that's a good question. The demand side is something we do watch closely and BLS visibility is not as great nowadays. But what we are seeing is the lay of announcements, if you look through to the war notices, it shows that the majority of the layoffs are in our markets. These are -- these layoffs apply to global locations. And a couple of areas that we track that happy to share with you that gives you a better forward-looking indication. One is that when we look at the top 20 tech job openings, they remain steady. And it's actually improved a little bit in the past couple of months, but we don't expect that to accelerate. Having said that, things are just fine on the ground. We also look at both new and continued unemployment claims, which remains at a low level. Now this tells us that the people that are displayed in our markets, they're able to find another job quickly. But most importantly is our Northern California performance, which is how that market has the highest concentration of tech companies and it's our best-performing region.

Our next question is from Steve Sakwa from Evercore.

Maybe just going back to the, I guess, the repayment. Is there any chance that you could backfill that with, I guess, new investments? I don't know exactly kind of what the market looks like to make some of these new investments and kind of where your head is in terms of making new investments.

Steve, Rylan here. As we communicated, we remain actively involved in many conversations related to new investments on the structured finance side. We were not anticipating going into this year that we get that $90 million back. But as Barb alluded to, this business has kind of been level set at a lower rate. So we're continuing those conversations. We're tracking a few deals that we think could present really attractive risk-adjusted returns. So we remain committed to the business, and we'll continue to look for opportunities when the opportunities present themselves.

Okay. And maybe just going back to the expense. Can you provide just maybe a little bit more color? I mean, I realized it was pretty flat in the first quarter, and it sounds like a lot of that was timing. Can you maybe just provide a little more detail on kind of where the surprises came in the first quarter and what, I guess, is likely to reverse itself in the back half of the year?

Yes, Steve, this is Barb. On the expense side, it really came down to lower controllable expense spend in the first quarter as we delayed projects from the first quarter into the second and third quarters. And so that's really what drove it. For the full year, our controllable expense spend is supposed to -- is expected to be around 2%. So it's still very low and anemic, and we do still think it's going to hit at this point. It was just a delay in our spend.

Our next question is from Brad Heffern with RBC.

Yes. Barb, last quarter, you said that you were assuming no redemption proceeds for a couple of the 2026 maturities. I was wondering if you have any update there, if that's still the case?

Yes. So good memory. That is the case. We did have one of our investments did mature at the end of March, and the sponsor did contribute some additional equity, and we did grant a small extension on that investment. And there is still a lot of moving parts of that investment and not everything is finalized. And while we could have continued to accrue from an FFO perspective and it would have benefited our FFO, given some of the uncertainty related to this investment, we decided not to continue to accrue. There is value there, and there will be upside to our FFO, but it really is depending on the timing of when we can sell a few of these open items. And right now, it looks like it's probably an early '27 event, but more to follow as we go forward. The other large investment that we had stopped accruing on in the fourth quarter, we're in ongoing discussions with the sponsor that one doesn't mature for a couple more months. So more to follow on that one. No difference in how we budgeted that one as of yet.

Okay. Got it. And then just a follow on to the change in the spread methodology. Do you have the number handy for what 1Q would have been under the old methodology, just so that we can kind of compare to what we had in our model?

Sure. Happy to. It's Angela here. So on a like-for-like, Q1 blended would have been 2%. So a little bit higher than on all ease. And the components of our new lease will be negative 1.2% and renewal will be the same, 3.9%.

Our next question is from Jamie Feldman with Wells Fargo.

Great. So I appreciate the color on blends in 1Q across the regions and even in April. Can you talk about new versus renewal in April? And then also for 1Q, can you talk about new versus renewal across the regions?

Sure, happy to. So in April, I'll start with April. New versus renewal, let's see, new is about negative 90 basis points and the renewal is about 5%, so that takes April to 3.1%. And on a regional basis, Northern California once again, the Chinese star, with the blend at north of 5% and followed by Seattle was a blend north of 2% and Southern California around 1.5%. So that gets you to that 3.1. So it's generally playing out as we had anticipated. And I know I had guided to for the full year, renewal around 3 to 4 and new around 0% to 1%, and all the markets are pretty much coming in, in line with the exception of Northern California outperforming.

Okay. And there's been a lot of kind of political tax headlines across some of the West Coast markets. I mean, any thoughts or any feedback from tenants if there's any implications to demand? Or it sounds like you're feeling pretty good about the job market and job postings. But any color or conversations with your peers about how people are thinking about the political environment?

Yes, that's a good question, and it's so hard to predict, and it's just too early to know how this will play out. There is the wealth tax that probably what you're referring to. But at the same time, there's also what we're seeing is a lot of opposition to it, and there's actually a counterbalance measure to advocate responsible expense management rather than posting more taxes. So I think this will -- we just need a little more time to see how this plays out. But we've not seen any impact to our business, and we've not heard from others about having a direct impact to Essex or multifamily directly.

Our next question is from Austin Wurschmidt with KeyBanc Capital Markets.

Could you guys speak to affordability within Northern California and just given kind of the optimism that you highlighted around job trends, and supply conditions. I guess, what the runway looks like for you to continue to push on blended lease rate growth within that region?

Austin, this is Rylan here. I mean this has been a key component of our fundamental thesis on Northern California for the past several years. You've seen significant steady increases in household income growth over the past decade continue through COVID. So as it stands today, our current rent to median income ratios in Northern California stand at around 21.5% compared to a 20-year average of almost 26% and a historical peak over the past 20 years, closer to 32%. So there is significant rent upside on those metrics alone to get back to a point that's more in balance or closer to those historical peaks. So again, it's not the primary driver, but it is a fundamental thesis that we feel very attractive as it relates to Northern California. Wages continue to increase in these markets. And yes, again, I think the consumer is feeling very healthy in Northern California in particular.

That's helpful. And then just switching maybe to Southern California. I mean, last quarter, I think you indicated maybe it was L.A., specifically, that conditions were stabilizing and maybe you were seeing sort of some early signs of rent growth improving. What's sort of the latest thoughts and outlook for that region as well?

Yes, Austin, good question. L.A. is progressing at a glacial pace continues to be our most challenging. So for example, if we excluded L.A. portfolio, our April new lease rates actually would be 180 basis points higher. It will flip to 90 basis points positive. Having said that, we didn't anticipate things to move quickly. We expect the progress to be slow and choppy, which has been the case. And so we don't get too caught up by short-term numbers because you'll see puts and takes. For example, if you look at economic occupancy compared sequentially from fourth quarter to first quarter, it's a slight decline. But if you look at blended, it actually went up by 70 basis points. So you're going to see that dynamic to continue to play out. But the [ net debt ] is that this market is stable. We are -- we've seen the trough, and there's now it's trending better, but just slow.

Our next question is from John Kim with BMO Capital Markets.

We're halfway or half an hour into this call, and I don't think you've mentioned AI. So I'm wondering if you feel like you're getting a direct benefit or beneficiary of AI job growth? Or is it more indirect for you or more moderate given most of your assets are in Santa Clara and San Mateo County. I was just wondering if you could just comments on if you're seeing a lot of tenants in your market employed by AI companies?

Sure thing, John. I do believe that we are getting a direct benefit from AI, especially as you get closer to San Francisco. But more importantly, what we don't have clarity on is all the start-ups that's having because of AI. And that is throughout our markets. And if you look at the strength of our market, while Downtown is doing strong or doing well. It also is still in recovery because it recovered later than the Peninsula. And so we certainly anticipate that benefit of AI to continue. And more importantly, we are also seeing a lot of these large AI companies expand to the Peninsula as well. So over the long term, I think all of our markets will continue to benefit, particularly in the suburban markets.

Okay. And then I wanted to ask Jana's question maybe in a little bit different way, but looking at your lease growth under the old definition, you had a peak in the second quarter and a deceleration of 70 basis points in the third quarter. Under your new definition, that drop-off is steeper. It's 130 basis points. So do you see that a similar dynamic occurring this year? Or do you think the seasonal trends will be different and that drop off be more moderate?

Yes, John, that's a good question. Big picture from -- when you look at all lease perspective, it's going to be -- you're going to have more variability. Now I don't know the exact magnitude at this point because we are just starting to enter into our peak leasing season. But it wouldn't surprise me that, that drop becomes more significant. Because keep in mind, all leases means you're going to have different terms. So it's going to just have a lot more noise in it.

Our next question is from Alexander Goldfarb with Piper Sandler.

So 2 questions. The first is on Seattle. We sort of hear different things like Eastside super strong Seattle CBD softer. Certainly, on the office side, we hear that and then the apartment side sounds like the same. But yet, there's a lot of job growth out there, especially on the east side. So can you just provide a little bit more color on how the market breaks out. Seattle CBD would certainly seem culturally to be a little bit more exciting than maybe sort of the 95 Bellevue. But can you just provide more color of how the residents are looking at the broader market and how you guys are thinking about where you want to own more assets, divest assets, et cetera?

Alex. Yes, it's a good question. With Seattle, it's a combination of 2 things: it's demand and supply because Seattle historically generates more supply than California. So it's the impact of those 2 playing out that then drives the rent growth. So Eastside has performed better than CBD, although not by a huge margin from what we're seeing. But over the long term, Eastside has historically outperformed mostly because it has a strong employer base, but lower supply. And we do expect that to continue. And as far as -- generally speaking, this is a market that has greater highs and lows because of supply combination of the supply. And so with first quarter, demand was soft, and we anticipated that. So we -- the performance was pretty much in line with our expectations.

Okay. And then the second question is -- and obviously, looking at public information, but Camden has their portfolio out there for sale. You guys obviously looked at everything. Are you -- the interest that you hear that they're receiving, is it what you expected? Or are you surprised by maybe the number of people who are coming to look at the portfolio? I'm just trying to get a sense of the appetite for California real estate, Southern Cal real estate. If it's in line from an institutional perspective, if it's more than you're like, wow, there are a lot more people coming or wow, I would have thought more people would have come? Just trying to get a sense for the investment appetite as people look at California versus other parts of the country.

Alex Rylan here. As you mentioned, we do look at everything in our markets. We're also subject to nondisclosure agreements. So I can't elaborate on details on any one deal specifically. But what I would say is I feel like there has been a significant uptick in terms of capital interest on the West Coast, partly driven by performance issues you're seeing throughout the rest of the country and the relative strength and the forward-looking fundamentals, particularly as it related to supply as well as some of the demand drivers that Angela mentioned. So I think there's been an increase in capital interest on assets in the West Coast. You've seen this in terms of the cap rate compression we've seen in Northern California. And as we look at the fundamentals over the next several years, I wouldn't be surprised if that continues. So very healthy demand for assets on the West Coast.

Our next question is from Adam Kramer with Morgan Stanley.

I just wanted to ask about renewal growth trends. And I recognize sort of the methodological change here that might be sort of impacting this comparison I'm about to make, but I guess just bear with me. So if I look at Q4 2024 versus Q1 2025, looks like about a 10 basis point decel in renewal growth. If I look at what you guys just reported yesterday, it looks like it was more about an 80 basis point decel this year. So just wondering I guess, number one, if sort of the methodology changes played any impact here on just sort of what's happening with the renewal growth, maybe they're sort of an operational or strategic change in terms of how you guys are thinking about renewal growth. Maybe just sort of wanted to focus on that piece year-to-date, just sort of that Q-over-Q detail that you reported last night.

Yes. Adam, good question. And as far as our pricing methodology or operating strategy hasn't changed. The reporting change through all leases is really a reflection of what -- just to make things easier for comparative purposes for our peers versus our peers. But ultimately, we continue to focus on maximizing revenues, and we don't manage to a specific metric, so what you're seeing on renewal is really an output, not an input. And ultimately, we can manufacture a high lease rate by reducing occupancy, but you wouldn't want to do that. And just back to the basics, we're running a business here. And the goal is to try to maximize revenues. So I wouldn't get too caught up on the renewal rates. At a minimum, I would I would point you to look at the blend. The ones have improved, continue to improve sequentially. And ultimately, that is what really hits the bottom line. The combination of your blended and your occupancy.

That's helpful. And then just maybe switching gears to capital allocation. I don't think we've touched on that yet. I recognize there was some buyback activity in the quarter and subsequent to quarter end. I don't think you did much, if any, buybacks last year. So a little bit of a shift there. stock has moved a little bit versus sort of the average share price that you bought back at. So just wondering sort of as you sit here today with where the stock is, how do you sort of think about stack ranking capital allocation opportunities? And where does the buyback fit into that?

Adam, it's Angela here again. I do want to point to last year, the environment was different in that cap rate compression has not really take hold, and we were very opportunistic in our capital allocation strategy. And by buying assets before cap compression, we were actually able to generate a lot of accretion. And also the pricing level was different back then. I'm very pleased with our finance team executing at that [ 243 ] pricing, on average, that's a terrific execution. So what you'll see us do is we're going to be thoughtful and opportunistic. And at every point, when you look at the investment spectrum, we're going to pick our spots. And so that means that there's not an exact price today because the relative value will change based on what's available to us in the future.

Our next question is from Haendel St. Juste of Mizuho Securities.

I wanted to go back to Seattle. Your tone there seems to be more constructive to -- relative to L.A., where it sounds like things will be more challenged for a bit longer. So is your view on Seattle, I guess, the more constructive, more hopeful you tied to that reduction in supply you're referring to? Perhaps, are there other KPIs you're watching more closely and curious what those are and what they're telling you? And when do you think we can expect Seattle to track a bit more closely to San Francisco, which historically this year a lot of the same demand drivers?

Yes. I think you picked up on my tone being more constructive on Seattle for a couple of reasons. One, you mentioned on the supply, I think that it certainly has a direct impact. And first quarter, we did expect that legacy absorption for last year is going to have some overhang. So it's good that we are mostly behind that. But more importantly, as we look at where leases are, while Q1 overall lease rate was negative, the rate actually positive in March and has continued in April. And we are aware of that because this is our most seasonal market, it can flip quickly. And so the fundamentals are quite sound in this market. And so we do view that it already has started to trend toward what -- at the midpoint of our expectations.

Maybe unfair to ask, but I'll try anyway. Would it be your expectation that Seattle would perform more closely to San Fran next year narrow the gap?

That's a good question. I have a I'm not sure on the exact timing. We are seeing office announcements and expansions into Seattle, and you would expect that Seattle does follow the Northern California market. It's hard to predict the actual timing because once they expand, they're going to have to hire, and we don't know how long that's going to take. I would tell you that at this point, just even on the renewal side, Seattle is starting to catch up the Bay Area market, which is a good sign. So it tells us it's going to get there. I just don't have enough data to be able to tell you when.

Fair enough. Fair enough. Second question is on concessions. Maybe some color on where they stand today across the portfolio and how that compares to a year ago, last quarter, some context?

Sure. Happy to. So concessions, this -- it's not a whole lot different. So first quarter concession for the portfolio was about 6 days. And last year, first quarter was about 4 days. So it's not a huge variation. I think the largest area is really L.A. continues to be lumpy. And so L.A. concessions this year is a little bit higher than last year, although that's not anything that we're surprised by. San Diego is a little higher because of supply that I talked about, which you would expect. And then the rest of it is generally performing in line.

Our next question is from Julien Blouin with Goldman Sachs.

Yes. I'm sorry if I missed it. But on the new reporting last year, was April the highest blend month? I'm just trying to get a sense on that north of 3% for April. Would you expect it to be even higher as we move into May and June?

Yes. Typically, you would expect one to continue to improve as we head into our peak leasing season. And so on average, you would say we would anticipate blends to peak, say, around June through July somewhere in that time period. The question here is really the trajectory of that increase. And I do want to say that while we're performing well here, we are still in a soft demand environment generally across the U.S. and with geopolitical uncertainty. So how much our blend is going to increase, we'll have some of that impact. And one of the reasons why we didn't raise our same-store revenues. We're very comfortable with where we're at. And in fact, our same-store, if it performed consistent with what we had anticipated when we released our guidance just based on the first quarter results, same-store revenues will be about 15 basis higher. Having said that, when we set our guidance last year, early February, we were in a war with -- or with a new country. So things are moving around, and there's a lot of noise out there in the broader economy.

Okay. Great. That's helpful. That's all for me. Our next question is from Wes Golladay with Baird.

Can you comment on what's going on in Alameda, it looks like it's having a little bit of an acceleration. Just curious if this is more of a concession burn-off or a pickup in demand.

Wes, it's a combination of a couple of things. One is that we do have concession burn off. We had talked about supply abating and starting the benefit this year. So concession in the first quarter of last year was almost 2 weeks and now it's half a week, which is terrific. And we're seeing both rental rates and financial occupancy improve. We're also seeing that there's, of course, the spillover effect that helps with San Francisco performing well. And so there's some demand driver as well. So both of those components are helping Oakland, which is playing out what we had expected.

Okay. And then maybe just one on the financial modeling. Do you have a timing expectation for the preferred investments being redeemed for the second half?

They're expected to be redeemed in the second quarter. I think if you model mid-Q2 redemption that we'll get you close on the guidance.

Our next question is from Michael Goldsmith with UBS.

This is Ami on with Michael. We were just wondering, what are you seeing in terms of residents moving in from outside of your MSAs? Has there been any change in either domestic or international immigration?

Amy, this is Barb. Yes, on the immigration front, what we're seeing is domestic immigration within the Bay Area has continued to improve, and it is above precoded levels. And I think that's a function of the demand for tech jobs and tech workers. In terms of international immigration on the legal side, you haven't seen any material change on H-1B visas or anything like that. We know that the H-1B visas for 2027, they've already hit the cap. And so those will all get filled. So overall, it's been a slight benefit on the immigration side to our markets, specifically in the Bay Area and no material change from what we've said in the past.

Great. And just a follow-up on some of the questions about the structured finance opportunities. How has competition trended for these deals? And for the deals that you guys look at and underwrite how far off are you from getting these deals and being selected better?

Ami, good question. As we've said for the past couple of years, there was a significant amount of capital raised in the past several years to invest in this structure. So there has been more competition we have seen yields compress, and somewhat opaic in terms of like where on specific deals we might miss out, but we're just trying to be diligent and stick to our process. So we still feel it's a relationship business. If you start to see development pick up, that will create some more opportunities for us. We have a long history in this business were viewed as a good partner on the preferred side. So we're going to continue to see opportunities, but we're just trying to stay disciplined as it relates to our underwriting process and not chase the market, some covenants get weaker and or yields compressed. We're going to stay disciplined to our return rate requirements.

Yes, Amy, it's Angela here. Ultimately, ultimately, there's been a lot of volatility to our earnings because of the preferred book overhang and the size of the preferred book. And eye for one and poor Barb here has had to deal with the direct impact, and we are quite relieved that this last year of that volatility. And so going forward, what we have been is much more selective. And in an effort to maintain a size that's going to be accretive to the portfolio in our business but not create so much noise that it becomes a distraction to our business.

Our next question is from John Pawlowski with Green Street.

On the capital allocation front, assuming your cost of capital stays in a similar ZIP code as it is today. What kind of -- what rough range of disposition volumes do we expect this year and then the most likely use of those funds?

Tita, Rylan here. As Angela mentioned, our capital allocation strategy doesn't change. We're really trying to maximize FFO and NAV per share accretion and improve the growth pile of the company. we have several assets that are currently on the market. So we will probably do several dispositions this year, and those proceeds will be allocated to whatever is the highest risk-adjusted return at the time of that. So we have the ability, as we talked about the health of the transaction market, which I think you're aware of, we have the ability to ramp that up and down as we see fit. And again, the strategy has not changed, and we'll continue to do as we have for many, many years.

Okay. But today, given the health of the private market pricing, is it fair to assume that currently the best use of the funds is share repurchases on your guys' math?

I don't think so, John. Once again, it depends on what the opportunity is available at the time. And so I'll point back to the transactions that we completed over 60% of it was off market. And so we certainly have incredible network and extensive relationships and a reputation that gives us an advantage. And the stock price is going to change every day. And so to pinpoint what we're going to do based on today's stock price is probably not something you want us to do.

John, I would add on that when I look at our menu of investment opportunities today, we've got several development land sites that we're quite excited about. We think these are going to be very attractive risk-adjusted returns as well as our redevelopment opportunities, particularly ADUs, this is a business that we've been ramping up for -- we're getting 10% return on cost. The per unit costs are a fraction of of in-place value. So those are 2 areas that we're going to continue to invest in because the returns, in many cases, exceed the highest risk-adjusted returns.

Okay. Last one for me. Barb, can you talk a little bit about the insurance market, the property insurance market, I think you're expecting maybe a 5% decline on your insurance and other expenses this year curious if the market is healing faster and more dramatically than you thought? Or if that's still a fair bogey?

Yes, John, we actually went to the insurance market and did our renewal for property in December. And so we did see a healthy reduction in our property insurance. And so I do think that market has held up from what we're hearing even today. I know we're, I think, 4 months past or 5 months past the renewal. It sounds like on the commercial side, that is the case. I think if you're talking residential, it's a much more challenging market, but we have seen the reinsurers come back in and the insurance premiums have come down from where they were over the last couple of years.

Our next question is from Omotayo Okusanya of Deutsche Bank. [Technical Difficulty]. [Operator Instructions] Our next question is from Alex Kim from Zelman & Associates.

I wanted to circle back quickly to Los Angeles and the extent to which the fiction processing time line impacts the pace of improvement. Have those indiction processing time lines improved at all in the first quarter? And when do you anticipate that the supply reduction in 2026 shows up in meaningful pricing power improvement.

Yes. That's a great question on L.A. So delinquency processing or the core processing time has improved over time. It's -- as far as just from fourth quarter to first quarter, it's pretty sticky. It's around 4 months, but this is a huge improvement from 1 and 2 long ago when it was 6 months and thereafter, and so what we would want to see is for that to improve it closer to 3 months, that's closer to our long-term average. And that will definitely help on the delinquency front. As far as pricing power is concerned, we would want that economic occupancy to be at about 95% or better. We are very close right now. We were above 94% in the fourth quarter. And we're still above 94% in the first quarter, although it's a little bit lower than the fourth quarter. But pricing power is -- will be available to us once we hit 95, and we're feeling good that we're close to it.

Got it. So just taking a bit longer than occupancy returns. That's all for me.

Yes, it's taken longer. But then again, we didn't expect this to happen quickly. We had thought it was going to take multiple years.

Our last question is from Rich Anderson with Cantor Fitzgerald.

[indiscernible] for me. So Angela, when I was just reading the transcript from last quarter, and you were talking about Los Angeles and you describe it as just so close to the magic 95% economic occupancy where things perhaps get a little bit better for you. I know you described SoCal in general is in line, perhaps L.A. in line with your expectations, but deepen your heart Were you expecting more this quarter from L.A. that you didn't get? I'm just curious, and I have a follow-up to that.

Rich, always happy to hold out for you. Deep in my heart. I always hope for better numbers. And I just think [indiscernible] put works with me knows that we push pretty down. Having said that, the expectations are such. And sometimes things do better. Northern California expected -- exceed expectations and sometimes they meet expectations. And with L.A., I think we have always said that it was going to take a little bit longer and occupancy, once again, it's so close. But even though we didn't see significant occupancy improvement from quarter-to-quarter, which we didn't expect, 70 basis points improvement blends, that's not bad. I'll take it.

Okay. And then on the Camden process, I don't think you're a buyer, but -- is there anything about it that's informing you strategically around the area, whether it's L.A., Orange County, San Diego and Inland Empire that they're looking to sell that sort of capping the reception that they're getting, which sounds like it -- it's been pretty substantial. Does it inform you about what you might do as corollary to the process they're undertaking, whether it's as a buyer or a seller or anything?

Yes, Rich, that's a good question. As far as Southern California is concerned, it's a -- it's part of our stable -- or it's a stable part of our portfolio. We have about 40% in SoCal, a little bit more in NorCal, may be 45%-ish. And that allocation makes sense to us. We're in Southern California because of mirror CS and with more professional services and lower supply as a whole. And so other companies are going to make capital allocations differently than us. And I will say that Camden is a good company. It's run by smart people. but dynamics are different, right? Because having a handful of portfolios in a huge region, it's very tough to be efficient. Versus for us, 70% our portfolio -- or of our properties are within 3 to 5 miles for each other. We can run it incredibly efficiently. And so it's just very different reasons why people make portfolio allocation decisions.

This now concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. Please disconnect your lines, and have a wonderful day.