No public company has more at stake in the outcome of Proposition 10, the November ballot measure that would let California cities impose stricter forms of rent control, than Essex Property Trust, a San Mateo real estate investment trust that develops and owns apartment complexes.

Essex generates 84 percent of its net operating income in California, far more than any other large apartment REIT. That explains why Essex has contributed more to defeat the measure than any other public company, and why a good portion of its second-quarter earnings call with analysts on Thursday focused on the measure.

“Strategically, the outlook for changing rent control is now a critical consideration in all portfolio allocation decisions,” Essex CEO Michael Schall said on the call. Cities “that tighten rent control will be less attractive, leading to greater housing shortages over time, while nearby cities will become more attractive for investment.”

Opponents of Prop. 10 have raised a total of $20.6 million, up from $15.3 million a couple weeks ago, according to data from the secretary of state’s office. Proponents have raised just $2.5 million, but “we will have an amount sufficient to reach the voters that we believe are necessary to win,” said Damien Goodmon, campaign director for Yes on 10.

Essex has contributed $2.4 million to the largest of several campaigns opposing Prop. 10. The only larger contribution from an opponent came from Western National Group, a privately held apartment developer, and its CEO, Michael Hayde. They donated $3.8 million to a different No on Prop. 10 campaign.

California has been an exceptional market for Essex, said John Pawlowski, an analyst with Green Street Advisors, a real estate research firm. “The total return from Essex stock has outpaced the vast majority of its peers over (almost) any period of time, largely due to California operating fundamentals,” he said.

Over the past year, however, its stock has lagged its peer group. In the last few months, that’s mostly because of Prop. 10 concerns, Pawlowski said. “Over a little longer period, they just had a great run, the stock cooled off because of the valuation.”

Prop. 10 would overturn the Costa Hawkins Rent Control Act, passed by the Legislature in 1995 after some cities had enacted strict rent control programs. The law allowed cities to limit rent increases — what we think of as rent control — but with certain exemptions.

They could not impose rent control on single-family homes or condos of any age, or on multifamily buildings first occupied after Feb. 1, 1995 (or earlier if a city already had rent control with a previous cutoff date). It also said owners of rent-controlled properties could charge whatever they want after a tenant moves out, but once the new tenant moves in, rent increases would be subject to the annual limit. This is known as vacancy decontrol.

If Costa Hawkins is repealed, local governments — or voters, through the initiative process — could impose rent control on any type of unit, including single-family homes and apartments of any age. They could also prevent owners from bringing rents up to market rate when units turn over, known as vacancy control.

More Information Rent control overhang Prop. 10 has been weighing on the shares of some real estate investment trusts with large operations in California Company Net operating income One-year total return* Essex Property Trust 0.84 -0.055 Equity Residential 47 -0.9 AvalonBay Communities 41 2.8 Apartment and Investment Management 38 -0.3 UDR 35 4.4 Camden Property Trust 13 8.5 *Includes dividends Source: Chronicle research, Janney, Sandler O’Neill & Partners

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If Prop. 10 passes, nothing would change overnight. Cities (or counties for their unincorporated areas) would still have to adopt or amend rent control rules.

The big fear, over the short term, for companies like Essex is that cities could impose rent control on homes built after February 1995.

Essex has been successful because “rents have been growing faster than inflation for most California markets,” Pawlowski said. If Prop. 10 passed, “the most reasonable path a municipality would follow is to mandate inflation-like rental growth” on newer apartments. That would depress owners’ revenue.

Other big apartment REITs with significant California holdings — Equity Residential, AvalonBay Communities and UDR — have contributed nearly $3.8 million combined to defeat Prop. 10.

The big question, longer term, is whether repealing Costa Hawkins would discourage construction of much-needed new apartments. Slapping rent control on new construction would undoubtedly bring it to a screeching halt. But “there is no evidence of any city anywhere in the history of America enacting rent control on new construction,” said Goodmon, the Yes on 10 spokesman.

Some cities are talking about exempting new construction from rent control for a certain number of years — 12 or 15 in Berkeley’s case — if Costa Hawkins is repealed. But even that could discourage development, said Janney analyst Robert Stevenson.

Developers earn part of their profit from rents and part when they sell their buildings, usually to institutional investors looking for a steady return. If a building is not rent controlled now but will be in a number of years, it’s worth less to a buyer and therefore less to a developer.

“You are investing in a market like Los Angeles or the Bay Area or San Diego because the rental rate can increase at a greater level than in Dallas, Washington, D.C., New York or Boston … and because of a scarcity issue, the property will appreciate also at a faster rate,” Stevenson said. If Costa Hawkins is repealed, “it’s going to make the California markets less attractive. ... Even if they don’t impose something today or tomorrow, the (chance) of eventually getting hit, you have to price that into the asset.”

Cities that impose vacancy controls could also discourage new construction. “It would be disastrous, not only for apartment developers but for California. No one would invest, development would stop, and the housing crisis would be exacerbated.” said Alexander Goldfarb, an analyst with Sandler O’Neill & Partners.

On their earnings call, Essex executives said most California cities understand this. If Costa Hawkins passes, Schall said, there could be a compromise favoring “less severe forms of rent control.” But, he said, “We don’t know and it’s impossible to know at this point in time” what will happen.

Despite the millions of dollars lining up against it, Prop. 10 “has a very legitimate risk of passing,” said Richard Anderson, an analyst with Mizuho Securites USA. “It’ll be a close call.”

Pawlowski gives it a 60 percent chance of passing.

“The likelihood is the public will view rents as too high. They will look for a way to blame someone,” said analyst John Kim of BMO Capital Markets. “I think it will pass.”

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender