Essex Earnings: Net Operating Income Growth a Little Weak as West-Coast Metro Markets Struggle

Third-quarter results for Essex Property Trust were slightly below our estimates, though we didn't see anything in the quarter that would materially change our $305 fair value estimate for the no-moat company. Same-store occupancy fell 20 basis points sequentially to 96.4%, slightly worse than our estimate of flat occupancy growth. Average rental rates increased 3.3% year over year, in line with our 3.4% growth estimate. Combined, same-store revenues were up 3.2% in the third quarter. However, same-store operating expenses were up 4.4% as utility costs were up 7.0% and personnel costs were up 5.1%. As a result, same-store net operating income only increased 2.7% in the quarter, slightly below our estimate of a 4.1% increase. This led to Essex reporting core funds from operations of $3.78 per share for the quarter, which is 2.4% above the $3.69 core FFO figure reported in the third quarter of 2022 but $0.07 below our $3.85 estimate for the quarter.