Essex Property Trust Absorbs Legal Charges as Core FFO Edges Up
Essex Property Trust (ESS) posted diluted net income of $0.97 a share in the second quarter, down 71.8% from $3.44 a year earlier after $55.8 million in legal settlement charges.
Essex Property Trust (ESS), the West Coast apartment landlord, reported second-quarter net income of $0.97 a diluted share, down from $3.44 a year earlier. The decline traced to the absence of a $126.2 million gain on the sale of real estate booked in the prior-year quarter and to $55.8 million of legal settlement charges recorded in general and administrative expense, including $36.5 million tied to the RealPage antitrust litigation and $19.3 million in other matters.
The settlement charges pushed G&A to $73.1 million from $17.2 million a year earlier, an increase of 326%, and dragged total funds from operations down 17.6% to $3.32 a diluted share from $4.03. Core FFO, which excludes the settlement costs, still grew, rising 1.2% to $4.08 a share from $4.03. That pace decelerated from 2.3% growth in the first quarter and 1.5% in the fourth quarter of 2024, extending a two-quarter slowdown in the company's underlying earnings trajectory.
The same deceleration showed up at the property level. Same-property revenue and net operating income grew 2.7% and 2.6% year over year in the second quarter, down from 2.9%/4.1% in the first quarter and 3.8%/3.8% in the fourth quarter of 2024. Sequentially, growth held up better, with revenue and NOI up 0.8% and 1.2% from the first quarter, close to the 0.7%/1.3% sequential gains reported a quarter earlier.
Regional performance diverged sharply within the portfolio. Northern California same-property NOI rose 6.8% year over year, powered by 4.4% revenue growth and a 1.2% decline in operating expenses. Southern California NOI grew just 1.1% as expenses rose 2.5% against 1.5% revenue growth, while Seattle Metro NOI fell 2.7% as operating expenses jumped 14.2%. The spread widened from the first quarter, when NOI growth ran 2.3% in Southern California, 5.6% in Northern California and 4.9% in Seattle.
Essex raised its full-year same-property revenue guidance to a range of 2.5%-3.1%, a midpoint of 2.8% and an increase of 0.40 percentage point, while narrowing expense guidance down to 2.5%-3.0%, a cut of 0.25 point at the midpoint. NOI guidance moved up to 2.3%-3.3%, a midpoint increase of 0.70 point. Full-year Core FFO guidance rose to a midpoint of $16.14 from $15.94. Net income and total FFO guidance moved the other way, with the net income midpoint cut to $5.58 a share, down $0.29, and the total FFO midpoint cut to $15.48, down $0.48, reflecting the legal charges taken this quarter.
For the third quarter, Essex guided Core FFO to a range of $3.93 to $4.05 a share, a midpoint of $3.99 that implies a sequential decline from the second quarter's $4.08. The company attributed the drop to higher seasonal utility costs, the rolling-off of a one-time property tax refund benefit, and a $0.03 reduction in co-investment FFO.
Essex also disposed of a co-investment community for $105.3 million, $52.6 million on a pro rata basis, generating a $9.2 million pro rata gain, and received $87.8 million from the redemption of three structured finance investments carrying an 11.6% weighted yield. Neither transaction appeared in the first-quarter release, which instead cited $1.7 billion of liquidity and no dispositions. Liquidity fell to approximately $1.4 billion as of June 30, down from more than $1.7 billion at both the end of the first quarter and the end of 2024.
The board approved a new $500.0 million stock repurchase program in May, replacing the prior authorization. Essex repurchased $11.7 million of stock in the second quarter, 48,261 shares at an average price of $242.47, adding to $61.9 million bought back in the first quarter at an average of $243.76.