Balanced Risk/Reward Leads to Hold on Essex Property Amid Slowing FFO Growth and California Regulatory Uncertainty

BMO Capital analyst John Kim downgraded the rating on Essex Property to a Hold today, setting a price target of $280.00.

John Kim has given his Hold rating due to a combination of factors that balance Essex Property’s strengths against emerging challenges. While the company has outperformed its apartment REIT peers on a relative basis, its absolute returns have lagged what would normally be expected from strong Northern California rental fundamentals. Kim notes that growth in funds from operations has slowed, pressured by a weak Los Angeles market and the impact of preferred share redemptions, and he expects these issues to persist as Northern California rent growth cools. He also highlights that California’s evolving regulatory environment, including potential wealth tax and broader rent control measures, adds another layer of uncertainty to future performance.

In his model, Kim projects 2026 core FFO per share that is slightly below consensus, reflecting the drag from roughly $175 million of anticipated preferred redemptions in the first half of the year. He also expects same-store revenue growth to continue easing, with his 2026 forecast modestly under the market’s estimates, indicating a slower operating momentum than previously seen. Additionally, Kim’s on-the-ground assessment of Los Angeles, particularly the Hollywood submarket, suggests that the local recovery is lagging prior expectations, which dampens the near- to medium-term growth outlook for Essex’s portfolio. Taken together, these factors support a view that the risk/reward profile is balanced rather than compelling, leading to a Market Perform (Hold) rating and a target price of $280.

In another report released yesterday, UBS also maintained a Hold rating on the stock with a $274.00 price target.