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8-K - 8-K - ESSEX PROPERTY TRUST, INC. | brhc10016305_8k.htm |
Exhibit 99.1
Essex Announces Third Quarter 2020 Results
San Mateo, California—October 28, 2020—Essex Property Trust, Inc. (NYSE: ESS) (the
“Company”) announced today its third quarter 2020 earnings results and related business activities.
Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the quarter ended September 30, 2020 are detailed below.
Three Months Ended
September 30,
|
%
|
Nine Months Ended
September 30,
|
%
|
|||||||||||||||||||||
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
|||||||||||||||||||
Per Diluted Share
|
||||||||||||||||||||||||
Net Income
|
|
$1.13
|
$1.51
|
-25.2%
|
|
|
$7.21
|
$4.71
|
53.1%
|
|
||||||||||||||
Total FFO
|
$2.88
|
$3.50
|
-17.7%
|
$9.53
|
$10.19
|
-6.5%
|
||||||||||||||||||
Core FFO
|
$3.15
|
$3.35
|
-6.0%
|
$9.80
|
$9.92
|
-1.2%
|
||||||||||||||||||
Third Quarter 2020 Highlights:
• |
Reported Net Income per diluted share for the third quarter of 2020 of $1.13, compared to $1.51 in the third quarter of 2019.
|
• |
Core FFO declined by 6.0% per diluted share compared to the third quarter of 2019.
|
• |
Disposed of one apartment community during the third quarter for a total contract price of $51.5 million.
|
• |
Repurchased 121,260 shares of common stock totaling $26.6 million at an average price per share of $219.24 under the stock buyback program.
|
• |
In August 2020, the Company issued $600.0 million of senior unsecured notes consisting of two $300.0 million tranches due in 2031 and 2050, respectively. The notes bear an interest
rate per annum of 1.65% and 2.65%, respectively.
|
• |
As of October 22, 2020, the Company’s immediately available liquidity is approximately $1.7 billion.
|
1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com
“The challenges related to the COVID-19 pandemic and subsequent economic recession continued throughout the third quarter of 2020. Local and
state governments on the West Coast adopted strict guidelines for reopening businesses, muting the recovery in job growth and economic activity in the third quarter. However, these restrictions have begun to subside, leading to cautious optimism
that the pace of improvement in job growth and economic activity will accelerate. In the meantime, our strong balance sheet and conservative dividend payout ratio allow us to remain focused on our mission of providing essential housing services
while creating value for our shareholders,” commented Michael Schall, President and CEO of the Company.
Same-Property Operations
Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in
same-property gross revenues for the quarter ended September 30, 2020 compared to the quarter ended September 30, 2019, and the sequential percentage change for the quarter ended September 30, 2020 compared to the quarter ended June 30, 2020, by
submarket for the Company:
Q3 2020 vs.
Q3 2019
|
Q3 2020 vs.
Q2 2020
|
% of Total
|
||||||||||
Gross
Revenues
|
Gross
Revenues
|
Q3 2020
Revenues
|
||||||||||
Southern California
|
||||||||||||
Los Angeles County
|
-13.5%
|
-5.1%
|
17.6%
|
|||||||||
Orange County
|
-2.6%
|
1.9%
|
11.5%
|
|||||||||
San Diego County
|
-2.1%
|
0.1%
|
8.6%
|
|||||||||
Ventura County
|
-2.0%
|
2.2%
|
4.7%
|
|||||||||
Total Southern California
|
-7.3%
|
-1.4%
|
42.4%
|
|||||||||
Northern California
|
||||||||||||
Santa Clara County
|
-7.2%
|
-5.1%
|
18.9%
|
|||||||||
Alameda County
|
-10.9%
|
-4.9%
|
6.7%
|
|||||||||
San Mateo County
|
-9.2%
|
-5.0%
|
4.9%
|
|||||||||
Contra Costa County
|
-4.6%
|
1.6%
|
5.0%
|
|||||||||
San Francisco
|
-15.5%
|
-9.4%
|
3.0%
|
|||||||||
Total Northern California
|
-8.5%
|
-4.6%
|
38.5%
|
|||||||||
Seattle Metro
|
-1.6%
|
-0.1%
|
19.1%
|
|||||||||
Same-Property Portfolio
|
-6.7%
|
-2.4%
|
100.0%
|
The table below illustrates the components that drove the change in Same-Property Revenues on a year-over-year basis.
Same-Property Revenue Components
|
$ Amount
(in millions)
|
% Contribution to
Growth/(Decline)
|
||||||
Q3 2019 Same-Property Revenue
|
$
|
337.7
|
||||||
Scheduled Rents
|
(1.5
|
)
|
(0.4%)
|
|||||
Delinquencies
|
(5.5
|
)
|
(1.6%)
|
|||||
Cash Concessions
|
(16.8
|
)
|
(5.0%)
|
|||||
Vacancy
|
0.2
|
0.1%
|
||||||
Other Income
|
0.9
|
0.3%
|
||||||
Q3 2020 Same-Property Revenues/Growth
|
$
|
315.0
|
(6.7%)
|
- 2 -
Year-Over-Year Growth
|
Year-Over-Year Growth
|
|||||||||||||||||||||||
Q3 2020 compared to Q3 2019
|
YTD 2020 compared to YTD 2019
|
|||||||||||||||||||||||
Gross
Revenues
|
Operating
Expenses
|
NOI
|
Gross
Revenues
|
Operating
Expenses
|
NOI
|
|||||||||||||||||||
Southern California
|
-7.3%
|
2.1%
|
-11.1%
|
-3.4%
|
2.5%
|
-5.8%
|
||||||||||||||||||
Northern California
|
-8.5%
|
3.1%
|
-12.6%
|
-3.0%
|
2.9%
|
-5.0%
|
||||||||||||||||||
Seattle Metro
|
-1.6%
|
8.8%
|
-5.9%
|
0.9%
|
7.8%
|
-1.9%
|
||||||||||||||||||
Same-Property Portfolio
|
-6.7%
|
3.7%
|
-10.8%
|
-2.5%
|
3.7%
|
|
-4.8%
|
Sequential Growth
|
||||||||||||
Q3 2020 compared to Q2 2020
|
||||||||||||
Gross
Revenues
|
Operating
Expenses
|
NOI
|
||||||||||
Southern California
|
-1.4%
|
3.4%
|
-3.6%
|
|||||||||
Northern California
|
-4.6%
|
|
4.1%
|
-7.8%
|
||||||||
Seattle Metro
|
-0.1%
|
-2.1%
|
0.9%
|
|||||||||
Same-Property Portfolio
|
-2.4%
|
2.5%
|
-4.5%
|
Financial Occupancies
|
||||||||||||
Quarter Ended
|
||||||||||||
9/30/2020
|
6/30/2020
|
9/30/2019
|
||||||||||
Southern California
|
95.9%
|
94.5%
|
96.1%
|
|||||||||
Northern California
|
96.2%
|
95.0%
|
95.9%
|
|||||||||
Seattle Metro
|
95.9%
|
95.4%
|
95.9%
|
|||||||||
Same-Property Portfolio
|
96.0%
|
94.9%
|
96.0%
|
Investment Activity
Dispositions
In July 2020, the Company sold a community in Redmond, WA containing 126 apartment homes, for a total contract price of $51.5 million. The Company recognized a $22.7
million gain on sale, which has been excluded from Core FFO.
Subsequent to quarter end, the Company sold a community located in Glendale, CA containing 115 apartment homes, for a total contract price of
$60.0 million.
Other Investments
In the third quarter of 2020, the Company received cash proceeds of $60.3 million from the full redemption of a preferred equity investment and the partial redemption of
an investment in a mortgage backed security. The remaining portion of the mortgage backed security is expected to be redeemed in the fourth quarter of 2020.
- 3 -
In the third quarter of 2020, the Company funded a preferred equity investment totaling $10.5 million for the development of a multifamily community located in Southern
California. The investment has an initial preferred return of 11.0% and is scheduled to mature in August 2025.
Subsequent to quarter end, the Company originated two preferred equity investments totaling $46.8 million. One of the investments is for the
development of a multifamily community and the other is an investment in a stabilized multifamily community, both located in Southern California. The investments have a weighted average return of 10.2% with most of the proceeds funding in late 2020
and early 2021.
Development Activity
During the third quarter of 2020, the Company’s development, Station Park Green – Phase III, reached stabilization.
The table below represents the development communities in lease-up and the current leasing status as of October 22, 2020.
Project Name
|
Location
|
Total
Apartment
Homes
|
ESS
Ownership
|
% Leased as of
10/22/20
|
Status
|
|||||||||
500 Folsom
|
San Francisco, CA
|
537
|
50%
|
84.5%
|
In Lease-Up
|
|||||||||
Mylo
|
Santa Clara, CA
|
476
|
100%
|
58.6%
|
In Lease-Up
|
|||||||||
Patina at Midtown
|
San Jose, CA
|
269
|
50%
|
33.1%
|
In Lease-Up
|
|||||||||
Total/Average % Leased
|
1,282
|
64.1%
|
liquidity and balance sheet
Common Stock
In the third quarter of 2020, the Company repurchased 121,260 shares of its common stock totaling $26.6 million, including commissions, at an average
price of $219.24 per share. Year-to-date through October 22, 2020, the Company has repurchased 985,509 shares of its common stock totaling $223.0 million, including commissions, at an average price of $226.27 per share. As of October 22, 2020, the
Company had $203.3 million of purchase authority remaining under the stock repurchase plan.
The Company did not issue any shares of common stock through its equity distribution program in the third quarter of 2020.
Balance Sheet
In August 2020, the Company issued $600.0 million of senior unsecured notes, consisting of $300.0 million due in January 2031 and $300.0 million due in
September 2050. The senior unsecured notes due in 2031 and 2050 bear an interest rate per annum of 1.65% and 2.65%, respectively, and were issued at effective yields of 1.75% and 2.67%, respectively. A portion of the proceeds were used to prepay
$300.0 million of the Company’s outstanding 3.625% senior notes due in August 2022. The Company incurred $19.1 million in prepayment penalties and write-offs of unamortized costs in the third quarter related to this debt repayment. The remaining
proceeds will be used to repay all remaining 2021 debt maturities.
- 4 -
As of October 22, 2020, the Company had $1.2 billion in undrawn capacity on its unsecured credit facilities and $0.5 billion in cash and marketable
securities.
COVID-19 Update
Due to the uncertain nature of the COVID-19 pandemic and evolving economic re-opening plans, the Company is not reinstating
full-year 2020 guidance. Instead, the Company continues to provide additional disclosures related to its operations on page S-15 of the supplemental financial information.
Conference Call with Management
The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, October 29, 2020 at 9 a.m. PT (12 p.m. ET), which will be
broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.
A rebroadcast of the live call will be available online for 30 days and digitally for 7
days. To access the replay online, go to www.essex.com and select the third quarter 2020 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13710810. If you are unable to access the information via the Company’s website, please contact the Investor Relations Department at investors@essex.com or by calling (650) 655-7800.
Upcoming Events
The Company is scheduled to participate in the National Association of Real Estate Investment Trusts (“NAREIT”) virtual REITWorld conference from November
17 through November 18, 2020, and the Company’s President and Chief Executive Officer, Michael J. Schall, will present at the conference on Tuesday, November 17 at 3:45 p.m. ET. The presentation will be webcast and can be accessed on the Investors
section of the Company’s website at www.essex.com. A copy of any materials provided by the Company at the conference will also be made available on the Investors section of the Company’s website.
Corporate Profile
Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily
residential properties in selected West Coast markets. Essex currently has ownership interests in 246 apartment communities comprising approximately 60,000 apartment homes with an additional 6 properties in various stages of active development.
Additional information about the Company can be found on the Company’s website at www.essex.com.
This press release and accompanying supplemental financial information has been furnished to the Securities and Exchange Commission electronically on Form 8-K and can be
accessed from the Company’s website at www.essex.com. If you are unable to obtain the information via the Web, please contact the Investor Relations Department at (650) 655-7800.
- 5 -
FFO RECONCILIATION
FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered
by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on
sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net
income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By
excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life
estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business
operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their
nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles
(“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT’s operating performance or to cash flows as a
measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows
generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO
may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.
The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three and nine months ended September 30, 2020 and 2019 (in thousands, except
for share and per share amounts):
- 6 -
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
Funds from Operations attributable to common stockholders and unitholders
|
2020
|
2019
|
2020
|
2019
|
||||||||||||
Net income available to common stockholders
|
$
|
73,661
|
$
|
99,335
|
$
|
473,125
|
$
|
310,468
|
||||||||
Adjustments:
|
||||||||||||||||
Depreciation and amortization
|
130,202
|
120,809
|
395,370
|
360,842
|
||||||||||||
Gains not included in FFO
|
(24,879
|
)
|
-
|
(276,170
|
)
|
(32,405
|
)
|
|||||||||
Depreciation and amortization from unconsolidated co-investments
|
12,883
|
15,483
|
38,191
|
45,304
|
||||||||||||
Noncontrolling interest related to Operating Partnership units
|
2,593
|
3,464
|
16,543
|
10,863
|
||||||||||||
Depreciation attributable to third party ownership and other
|
(134
|
)
|
(242
|
)
|
(407
|
)
|
(708
|
)
|
||||||||
Funds from Operations attributable to common stockholders and unitholders
|
$
|
194,326
|
$
|
238,849
|
$
|
646,652
|
$
|
694,364
|
||||||||
FFO per share – diluted
|
$
|
2.88
|
$
|
3.50
|
$
|
9.53
|
$
|
10.19
|
||||||||
Expensed acquisition and investment related costs
|
$
|
2
|
$
|
13
|
$
|
104
|
$
|
69
|
||||||||
Deferred tax expense on unrealized gain on unconsolidated co-investment (1)
|
-
|
1,457
|
1,636
|
1,457
|
||||||||||||
Gain on sale of marketable securities
|
(91
|
)
|
(239
|
)
|
(124
|
)
|
(737
|
)
|
||||||||
Unrealized (gains) losses on marketable securities
|
(3,288
|
)
|
174
|
(2,215
|
)
|
(4,280
|
)
|
|||||||||
Provision for credit losses
|
3
|
-
|
100
|
-
|
||||||||||||
Equity income from non-core co-investment (2)
|
213
|
(4,247
|
)
|
(4,373
|
)
|
(4,561
|
)
|
|||||||||
Interest rate hedge ineffectiveness (3)
|
-
|
-
|
-
|
181
|
||||||||||||
Loss (gain) on early retirement of debt, net
|
19,114
|
(5,475
|
)
|
23,820
|
(7,143
|
)
|
||||||||||
Gain on early retirement of debt from unconsolidated co-investment
|
-
|
-
|
(38
|
)
|
-
|
|||||||||||
Co-investment promote income
|
-
|
-
|
(6,455
|
)
|
(809
|
)
|
||||||||||
Income from early redemption of preferred equity investments
|
-
|
(1,699
|
)
|
(210
|
)
|
(2,531
|
)
|
|||||||||
General and administrative and other, net
|
2,510
|
-
|
5,642
|
-
|
||||||||||||
Insurance reimbursements legal settlements, and other, net
|
132
|
(15
|
)
|
69
|
(263
|
)
|
||||||||||
Core Funds from Operations attributable to common stockholders and unitholders
|
$
|
212,921
|
$
|
228,818
|
$
|
664,608
|
$
|
675,747
|
||||||||
Core FFO per share – diluted
|
$
|
3.15
|
$
|
3.35
|
$
|
9.80
|
$
|
9.92
|
||||||||
Weighted average number of shares outstanding diluted (4)
|
67,495,286
|
68,229,823
|
67,837,336
|
68,117,569
|
(1) |
A deferred tax expense was recorded during the second quarter of 2020 related to the $4.7 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment
discussed below.
|
(2) |
Represents the Company’s share of co-investment income from Real Estate Technology Ventures, L.P. Income for the second quarter of 2020 includes a net unrealized gain of $4.7
million.
|
(3) |
On January 1, 2019, the Company adopted ASU No. 2017-12 “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities,” which resulted in a cumulative
effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes qualifying hedge ineffectiveness through accumulated other
comprehensive income as opposed to current earnings.
|
(4) |
Assumes conversion of all outstanding limited partnership units in Essex Portfolio, L.P. (the “Operating Partnership”) into shares of the Company’s common stock and excludes all
DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
|
- 7 -
Net Operating Income (“NOI”) and Same-Property NOI Reconciliations
NOI and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s
consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the
operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead
structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines
same-property NOI as same-property revenues less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized
properties consolidated by the Company for the periods presented (dollars in thousands):
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Earnings from operations
|
$
|
128,937
|
$
|
124,039
|
$
|
379,510
|
$
|
364,294
|
||||||||
Adjustments:
|
||||||||||||||||
Corporate-level property management expenses
|
8,619
|
8,553
|
26,024
|
25,451
|
||||||||||||
Depreciation and amortization
|
130,202
|
120,809
|
395,370
|
360,842
|
||||||||||||
Management and other fees from affiliates
|
(2,347
|
)
|
(2,428
|
)
|
(7,312
|
)
|
(7,023
|
)
|
||||||||
General and administrative
|
13,310
|
11,345
|
42,244
|
38,731
|
||||||||||||
Expensed acquisition and investment related costs
|
2
|
13
|
104
|
69
|
||||||||||||
Gain on sale of real estate and land
|
(22,654
|
)
|
-
|
(39,251
|
)
|
-
|
||||||||||
NOI
|
256,069
|
262,331
|
796,689
|
782,364
|
||||||||||||
Less: Non-same property NOI
|
(39,196
|
)
|
(19,196
|
)
|
(102,881
|
)
|
(53,575
|
)
|
||||||||
Same-Property NOI
|
$
|
216,873
|
$
|
243,135
|
$
|
693,808
|
$
|
728,789
|
Safe Harbor Statement Under The Private Litigation Reform Act of 1995:
This press release includes “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which are not historical facts, including statements regarding the Company’s expectations,
estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “projects,” “believes,” “seeks,” “future,” “estimates,” and variations of
such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s expectations related to the continued impact of the
COVID-19 pandemic on the Company’s business, financial condition and results of operations and the impact of any additional measures taken to mitigate the impact of the pandemic, the Company’s intent, beliefs or expectations with respect to the
timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities,
the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, the real estate markets in the geographies in which the Company’s properties
are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general
economic conditions including the potential impacts from such economic conditions, including as a result of
- 8 -
the COVID-19 pandemic and governmental measures intended to prevent its spread, trends affecting the Company’s financial condition or results of operations, changes to
U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.
While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and
unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations
of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not
limited to, the following: the continued impact of the COVID-19 pandemic, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of
infectious diseases or other health concerns, could continue to adversely affect the Company’s business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the
Company’s communities are located; the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the
Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or
lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment
projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market
conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or
may be insufficient to provide for dividend payments in accordance with REIT requirements; changes in laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; unexpected difficulties in
leasing of development projects; volatility in financial and securities market; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment
grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in the
Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports that the Company files with the SEC from time to time. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the
reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this
information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this press release.
Definitions and Reconciliations
Non-GAAP financial measures and certain other capitalized terms, as used in this earnings release, are defined and further explained on pages S-17.1 through S-17.4,
“Reconciliations of Non-GAAP Financial Measures and Other Terms,” of the accompanying supplemental financial information. The supplemental financial information is available on the Company’s website at www.essex.com.
- 9 -
Contact Information
Rylan Burns
Vice President of Finance & Investor Relations
(650) 655-7800
rburns@essex.com
- 10 -
Q3 2020 Supplemental Table of Contents
Page(s)
|
|
Consolidated Operating Results
|
S-1 – S-2
|
Consolidated Funds From Operations
|
S-3
|
Consolidated Balance Sheets
|
S-4
|
Debt Summary – September 30, 2020
|
S-5
|
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – September 30, 2020
|
S-6
|
Portfolio Summary by County – September 30, 2020
|
S-7
|
Operating Income by Quarter – September 30, 2020
|
S-8
|
Same-Property Revenue Results by County – Quarters ended September 30, 2020 and 2019, and June 30, 2020
|
S-9
|
Same-Property Revenue Results by County – Nine months ended September 30, 2020 and 2019
|
S-9.1
|
Same-Property Operating Expenses – Quarter and Year to Date as of September 30, 2020 and 2019
|
S-10
|
Development Pipeline – September 30, 2020
|
S-11
|
Redevelopment Pipeline – September 30, 2020
|
S-12
|
Capital Expenditures – September 30, 2020
|
S-12.1
|
Co-investments and Preferred Equity Investments – September 30, 2020
|
S-13
|
Summary of Apartment Community Acquisitions and Dispositions Activity
|
S-14
|
Delinquencies, Operating Statistics, and Same-Property Revenue Growth with Concessions on a GAAP basis
|
S-15
|
California’s Counties are Advancing Through the State’s Re-opening Tiers
|
S-16
|
Reconciliations of Non-GAAP Financial Measures and Other Terms
|
S-17.1 – S-17.4
|
E S S E X P R O P E R T Y T R U S T, I N C.
Consolidated Operating Results
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
(Dollars in thousands, except share and per share amounts)
|
September 30,
|
September 30,
|
||||||||||||||
2020
|
2019
|
2020
|
2019
|
|||||||||||||
Revenues:
|
||||||||||||||||
Rental and other property
|
$
|
368,464
|
$
|
364,504
|
$
|
1,126,363
|
$
|
1,077,767
|
||||||||
Management and other fees from affiliates
|
2,347
|
2,428
|
7,312
|
7,023
|
||||||||||||
370,811
|
366,932
|
1,133,675
|
1,084,790
|
|||||||||||||
Expenses:
|
||||||||||||||||
Property operating
|
112,395
|
102,173
|
329,674
|
295,403
|
||||||||||||
Corporate-level property management expenses
|
8,619
|
8,553
|
26,024
|
25,451
|
||||||||||||
Depreciation and amortization
|
130,202
|
120,809
|
395,370
|
360,842
|
||||||||||||
General and administrative
|
13,310
|
11,345
|
42,244
|
38,731
|
||||||||||||
Expensed acquisition and investment related costs
|
2
|
13
|
104
|
69
|
||||||||||||
264,528
|
242,893
|
793,416
|
720,496
|
|||||||||||||
Gain on sale of real estate and land
|
22,654
|
-
|
39,251
|
-
|
||||||||||||
Earnings from operations
|
128,937
|
124,039
|
379,510
|
364,294
|
||||||||||||
Interest expense, net (1)
|
(52,453
|
)
|
(52,742
|
)
|
(157,275
|
)
|
(156,477
|
)
|
||||||||
Interest and other income
|
6,512
|
8,685
|
12,696
|
29,293
|
||||||||||||
Equity income from co-investments
|
14,960
|
21,700
|
53,514
|
54,935
|
||||||||||||
Deferred tax expense on unrealized gain on unconsolidated co-investment
|
-
|
(1,457
|
)
|
(1,636
|
)
|
(1,457
|
)
|
|||||||||
(Loss) gain on early retirement of debt, net
|
(19,114
|
)
|
5,475
|
(23,820
|
)
|
7,143
|
||||||||||
Gain on remeasurement of co-investment
|
-
|
-
|
234,694
|
31,535
|
||||||||||||
Net income
|
78,842
|
105,700
|
497,683
|
329,266
|
||||||||||||
Net income attributable to noncontrolling interest
|
(5,181
|
)
|
(6,365
|
)
|
(24,558
|
)
|
(18,798
|
)
|
||||||||
Net income available to common stockholders
|
$
|
73,661
|
$
|
99,335
|
$
|
473,125
|
$
|
310,468
|
||||||||
Net income per share - basic
|
$
|
1.13
|
$
|
1.51
|
$
|
7.22
|
$
|
4.72
|
||||||||
Shares used in income per share - basic
|
65,232,837
|
65,850,524
|
65,561,820
|
65,757,914
|
||||||||||||
Net income per share - diluted
|
$
|
1.13
|
$
|
1.51
|
$
|
7.21
|
$
|
4.71
|
||||||||
Shares used in income per share - diluted
|
65,241,428
|
65,973,085
|
65,676,093
|
65,857,660
|
(1) |
Refer to page S-17.2, the section titled “Interest Expense, Net” for additional information.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-1
E S S E X P R O P E R T Y T R U S T, I N C.
Consolidated Operating Results
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
Selected Line Item Detail
|
September 30,
|
September 30,
|
||||||||||||||
(Dollars in thousands)
|
2020
|
2019
|
2020
|
2019
|
||||||||||||
|
||||||||||||||||
Rental and other property
|
||||||||||||||||
Rental income
|
$
|
362,073
|
$
|
358,001
|
$
|
1,108,658
|
$
|
1,058,973
|
||||||||
Other property
|
6,391
|
6,503
|
17,705
|
18,794
|
||||||||||||
Rental and other property
|
$
|
368,464
|
$
|
364,504
|
$
|
1,126,363
|
$
|
1,077,767
|
||||||||
Property operating expenses
|
||||||||||||||||
Real estate taxes
|
$
|
44,358
|
$
|
39,290
|
$
|
132,364
|
$
|
114,993
|
||||||||
Administrative
|
23,155
|
21,381
|
67,491
|
62,887
|
||||||||||||
Maintenance and repairs
|
23,214
|
21,323
|
68,991
|
61,929
|
||||||||||||
Utilities
|
21,668
|
20,179
|
60,828
|
55,594
|
||||||||||||
Property operating expenses
|
$
|
112,395
|
$
|
102,173
|
$
|
329,674
|
$
|
295,403
|
||||||||
Interest and other income
|
||||||||||||||||
Marketable securities and other income
|
$
|
3,268
|
$
|
8,605
|
$
|
10,526
|
$
|
24,013
|
||||||||
Gain on sale of marketable securities
|
91
|
239
|
124
|
737
|
||||||||||||
Provision for credit losses
|
(3
|
)
|
-
|
(100
|
)
|
-
|
||||||||||
Unrealized gains (losses) on marketable securities
|
3,288
|
(174
|
)
|
2,215
|
4,280
|
|||||||||||
Insurance reimbursements, legal settlements, and other, net
|
(132
|
)
|
15
|
(69
|
)
|
263
|
||||||||||
Interest and other income
|
$
|
6,512
|
$
|
8,685
|
$
|
12,696
|
$
|
29,293
|
||||||||
Equity income from co-investments
|
||||||||||||||||
Equity income from co-investments
|
$
|
991
|
$
|
4,430
|
$
|
4,300
|
$
|
14,531
|
||||||||
Income from preferred equity investments
|
11,957
|
11,324
|
35,913
|
31,633
|
||||||||||||
Equity (loss) income from non-core co-investment
|
(213
|
)
|
4,247
|
4,373
|
4,561
|
|||||||||||
Gain on sale of co-investment communities
|
2,225
|
-
|
2,225
|
870
|
||||||||||||
Gain on early retirement of debt from unconsolidated co-investment
|
-
|
-
|
38
|
-
|
||||||||||||
Co-investment promote income
|
-
|
-
|
6,455
|
809
|
||||||||||||
Income from early redemption of preferred equity investments
|
-
|
1,699
|
210
|
2,531
|
||||||||||||
Equity income from co-investments
|
$
|
14,960
|
$
|
21,700
|
$
|
53,514
|
$
|
54,935
|
||||||||
Noncontrolling interest
|
||||||||||||||||
Limited partners of Essex Portfolio, L.P.
|
$
|
2,593
|
$
|
3,464
|
$
|
16,543
|
$
|
10,863
|
||||||||
DownREIT limited partners’ distributions
|
2,123
|
2,016
|
6,393
|
5,225
|
||||||||||||
Third-party ownership interest
|
465
|
885
|
1,622
|
2,710
|
||||||||||||
Noncontrolling interest
|
$
|
5,181
|
$
|
6,365
|
$
|
24,558
|
$
|
18,798
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-2
E S S E X P R O P E R T Y T R U S T, I N C.
Consolidated Funds From Operations (1)
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||
(Dollars in thousands, except share and per share amounts and in footnotes)
|
September 30,
|
September 30,
|
|||||||||||||||||||||
|
2020
|
2019
|
% Change
|
2020
|
2019
|
% Change
|
|||||||||||||||||
Funds from operations attributable to common stockholders and unitholders (FFO)
|
|||||||||||||||||||||||
Net income available to common stockholders
|
$
|
73,661
|
$
|
99,335
|
$
|
473,125
|
$
|
310,468
|
|||||||||||||||
Adjustments:
|
|||||||||||||||||||||||
Depreciation and amortization
|
130,202
|
120,809
|
395,370
|
360,842
|
|||||||||||||||||||
Gains not included in FFO
|
(24,879
|
)
|
-
|
(276,170
|
)
|
(32,405
|
)
|
||||||||||||||||
Depreciation and amortization from unconsolidated co-investments
|
12,883
|
15,483
|
38,191
|
45,304
|
|||||||||||||||||||
Noncontrolling interest related to Operating Partnership units
|
2,593
|
3,464
|
16,543
|
10,863
|
|||||||||||||||||||
Depreciation attributable to third party ownership and other (2)
|
(134
|
)
|
(242
|
)
|
(407
|
)
|
(708
|
)
|
|||||||||||||||
Funds from operations attributable to common stockholders and unitholders
|
$
|
194,326
|
$
|
238,849
|
$
|
646,652
|
$
|
694,364
|
|||||||||||||||
FFO per share-diluted
|
$
|
2.88
|
$
|
3.50
|
-17.7
|
%
|
$
|
9.53
|
$
|
10.19
|
-6.5
|
%
|
|||||||||||
Components of the change in FFO
|
|||||||||||||||||||||||
Non-core items:
|
|||||||||||||||||||||||
Expensed acquisition and investment related costs
|
$
|
2
|
$
|
13
|
$
|
104
|
$
|
69
|
|||||||||||||||
Deferred tax expense on unrealized gain on unconsolidated co-investment (3)
|
-
|
1,457
|
1,636
|
1,457
|
|||||||||||||||||||
Gain on sale of marketable securities
|
(91
|
)
|
(239
|
)
|
(124
|
)
|
(737
|
)
|
|||||||||||||||
Unrealized (gains) losses on marketable securities
|
(3,288
|
)
|
174
|
(2,215
|
)
|
(4,280
|
)
|
||||||||||||||||
Provision for credit losses
|
3
|
-
|
100
|
-
|
|||||||||||||||||||
Equity income from non-core co-investment (4)
|
213
|
(4,247
|
)
|
(4,373
|
)
|
(4,561
|
)
|
||||||||||||||||
Interest rate hedge ineffectiveness (5)
|
-
|
-
|
-
|
181
|
|||||||||||||||||||
Loss (gain) on early retirement of debt, net
|
19,114
|
(5,475
|
)
|
23,820
|
(7,143
|
)
|
|||||||||||||||||
Gain on early retirement of debt from unconsolidated co-investment
|
-
|
-
|
(38
|
)
|
-
|
||||||||||||||||||
Co-investment promote income
|
-
|
-
|
(6,455
|
)
|
(809
|
)
|
|||||||||||||||||
Income from early redemption of preferred equity investments
|
-
|
(1,699
|
)
|
(210
|
)
|
(2,531
|
)
|
||||||||||||||||
General and administrative and other, net
|
2,510
|
-
|
5,642
|
-
|
|||||||||||||||||||
Insurance reimbursements, legal settlements, and other, net
|
132
|
(15
|
)
|
69
|
(263
|
)
|
|||||||||||||||||
Core funds from operations attributable to common stockholders and unitholders
|
$
|
212,921
|
$
|
228,818
|
$
|
664,608
|
$
|
675,747
|
|||||||||||||||
Core FFO per share-diluted
|
$
|
3.15
|
$
|
3.35
|
-6.0
|
%
|
$
|
9.80
|
$
|
9.92
|
-1.2
|
%
|
|||||||||||
Changes in core items:
|
|||||||||||||||||||||||
Same-property NOI
|
$
|
(26,262
|
)
|
$
|
(34,981
|
)
|
|||||||||||||||||
Non-same property NOI
|
20,000
|
49,306
|
|||||||||||||||||||||
Management and other fees, net
|
(81
|
)
|
289
|
||||||||||||||||||||
FFO from co-investments
|
(5,406
|
)
|
(13,064
|
)
|
|||||||||||||||||||
Interest and other income
|
(5,337
|
)
|
(13,487
|
)
|
|||||||||||||||||||
Interest expense
|
289
|
(979
|
)
|
||||||||||||||||||||
General and administrative
|
545
|
2,129
|
|||||||||||||||||||||
Corporate-level property management expenses
|
(66
|
)
|
(573
|
)
|
|||||||||||||||||||
Other items, net
|
421
|
221
|
|||||||||||||||||||||
$
|
(15,897
|
)
|
$
|
(11,139
|
)
|
||||||||||||||||||
Weighted average number of shares outstanding diluted (6)
|
67,495,286
|
68,229,823
|
67,837,336
|
68,117,569
|
(1) |
Refer to page S-17.2, the section titled “Funds from Operations (“FFO”) and Core FFO” for additional information on the Company’s definition and use of FFO and Core FFO.
|
(2) |
The Company consolidates certain co-investments. The noncontrolling interest’s share of net operating income in these investments for the three and nine months ended September
30, 2020 was $0.8 million and $3.1 million, respectively.
|
(3) |
A deferred tax expense was recorded during the second quarter of 2020 related to the $4.7 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment
discussed below.
|
(4) |
Represents the Company’s share of co-investment income from Real Estate Technology Ventures, L.P. Income for the second quarter of 2020 includes a net unrealized gain of $4.7
million.
|
(5) |
On January 1, 2019, the Company adopted ASU No. 2017-12 “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities,” which resulted in a cumulative
effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes qualifying hedge ineffectiveness through accumulated other
comprehensive income as opposed to current earnings.
|
(6) |
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock and excludes all DownREIT limited
partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-3
E S S E X P R O P E R T Y T R U S T, I N C.
Consolidated Balance Sheets
|
||||||||
(Dollars in thousands)
|
||||||||
|
September 30, 2020
|
December 31, 2019
|
||||||
Real Estate:
|
||||||||
Land and land improvements
|
$
|
2,944,521
|
$
|
2,773,805
|
||||
Buildings and improvements
|
12,184,957
|
11,264,337
|
||||||
15,129,478
|
14,038,142
|
|||||||
Less: accumulated depreciation
|
(4,043,496
|
)
|
(3,689,482
|
)
|
||||
11,085,982
|
10,348,660
|
|||||||
Real estate under development
|
364,875
|
546,075
|
||||||
Co-investments
|
1,018,235
|
1,335,339
|
||||||
Real estate held for sale, net
|
32,878
|
-
|
||||||
12,501,970
|
12,230,074
|
|||||||
Cash and cash equivalents, including restricted cash
|
569,075
|
81,094
|
||||||
Marketable securities
|
134,971
|
144,193
|
||||||
Notes and other receivables
|
75,432
|
134,365
|
||||||
Operating lease right-of-use assets
|
72,910
|
74,744
|
||||||
Prepaid expenses and other assets
|
46,684
|
40,935
|
||||||
Total assets
|
$
|
13,401,042
|
$
|
12,705,405
|
||||
Unsecured debt, net
|
$
|
5,907,805
|
$
|
4,763,206
|
||||
Mortgage notes payable, net
|
702,379
|
990,667
|
||||||
Lines of credit
|
-
|
55,000
|
||||||
Operating lease liabilities
|
74,844
|
76,740
|
||||||
Other liabilities
|
417,813
|
378,878
|
||||||
Total liabilities
|
7,102,841
|
6,264,491
|
||||||
Redeemable noncontrolling interest
|
30,719
|
37,410
|
||||||
Equity:
|
||||||||
Common stock
|
7
|
7
|
||||||
Additional paid-in capital
|
6,921,631
|
7,121,927
|
||||||
Distributions in excess of accumulated earnings
|
(821,841
|
)
|
(887,619
|
)
|
||||
Accumulated other comprehensive loss, net
|
(16,800
|
)
|
(13,888
|
)
|
||||
Total stockholders’ equity
|
6,082,997
|
6,220,427
|
||||||
Noncontrolling interest
|
184,485
|
183,077
|
||||||
Total equity
|
6,267,482
|
6,403,504
|
||||||
Total liabilities and equity
|
$
|
13,401,042
|
$
|
12,705,405
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-4
Debt Summary - September 30, 2020
(Dollars in thousands, except in footnotes)
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
|
||||||||||||||||||||||||||||||||||||
Unsecured
|
Secured
|
Total
|
Weighted Average Interest Rate
|
Percentage of Total Debt
|
||||||||||||||||||||||||||||||||
Weighted Average
|
||||||||||||||||||||||||||||||||||||
Balance Outstanding
|
Interest Rate
|
Maturity in Years
|
||||||||||||||||||||||||||||||||||
Unsecured Debt, net
|
||||||||||||||||||||||||||||||||||||
Bonds private - fixed rate
|
$
|
200,000
|
4.4
|
%
|
0.7
|
2020
|
$
|
-
|
$
|
1,000
|
$
|
1,000
|
3.6
|
%
|
0.0
|
%
|
||||||||||||||||||||
Bonds public - fixed rate
|
5,200,000
|
3.5
|
%
|
9.1
|
2021
|
500,000
|
31,653
|
531,653
|
4.3
|
%
|
8.0
|
%
|
||||||||||||||||||||||||
Term loan (1)
|
550,000
|
1.7
|
%
|
1.8
|
2022
|
350,000
|
43,188
|
393,188
|
2.0
|
%
|
5.9
|
%
|
||||||||||||||||||||||||
Unamortized net discounts and debt issuance costs
|
(42,195
|
)
|
-
|
-
|
2023
|
800,000
|
2,945
|
802,945
|
3.1
|
%
|
12.1
|
%
|
||||||||||||||||||||||||
5,907,805
|
3.3
|
%
|
8.2
|
2024
|
400,000
|
3,109
|
403,109
|
4.0
|
%
|
6.1
|
%
|
|||||||||||||||||||||||||
Mortgage Notes Payable, net
|
2025
|
500,000
|
133,054
|
633,054
|
3.5
|
%
|
9.4
|
%
|
||||||||||||||||||||||||||||
Fixed rate - secured
|
445,334
|
3.6
|
%
|
5.3
|
2026
|
450,000
|
99,405
|
549,405
|
3.5
|
%
|
8.3
|
%
|
||||||||||||||||||||||||
Variable rate - secured (2)
|
254,944
|
1.1
|
%
|
16.4
|
2027
|
350,000
|
153,955
|
503,955
|
3.3
|
%
|
7.6
|
%
|
||||||||||||||||||||||||
Unamortized premiums and debt issuance costs, net
|
2,101
|
-
|
-
|
2028
|
-
|
68,332
|
68,332
|
4.1
|
%
|
1.0
|
%
|
|||||||||||||||||||||||||
Total mortgage notes payable
|
702,379
|
2.7
|
%
|
9.3
|
2029
|
500,000
|
31,156
|
531,156
|
3.9
|
%
|
8.0
|
%
|
||||||||||||||||||||||||
2030
|
550,000
|
1,592
|
551,592
|
3.1
|
%
|
8.3
|
%
|
|||||||||||||||||||||||||||||
Unsecured Lines of Credit
|
Thereafter
|
1,550,000
|
130,889
|
1,680,889
|
2.7
|
%
|
25.3
|
%
|
||||||||||||||||||||||||||||
Line of credit (3)
|
-
|
1.0
|
%
|
Subtotal
|
5,950,000
|
700,278
|
6,650,278
|
3.3
|
%
|
100.0
|
%
|
|||||||||||||||||||||||||
Line of credit (4)
|
-
|
1.0
|
%
|
Debt Issuance Costs
|
(33,055
|
)
|
(2,127
|
)
|
(35,182
|
)
|
NA
|
NA
|
||||||||||||||||||||||||
Total lines of credit
|
-
|
1.0
|
%
|
(Discounts)/Premiums
|
(9,140
|
)
|
4,228
|
(4,912
|
)
|
NA
|
NA
|
|||||||||||||||||||||||||
|
Total
|
$
|
5,907,805
|
$
|
702,379
|
$
|
6,610,184
|
3.3
|
%
|
100.0
|
%
|
|||||||||||||||||||||||||
Total debt, net
|
$
|
6,610,184
|
3.3
|
%
|
8.3
|
|||||||||||||||||||||||||||||||
|
Capitalized interest for the three and nine months ended September 30, 2020 was approximately $3.3 million and $12.3 million, respectively.
(1)
|
$350.0 million of the unsecured term loan has a variable interest rate of LIBOR plus 0.95%. The Company has interest rate swap contracts with an aggregate
notional amount of $175.0 million, which effectively converts the interest rate on $175.0 million of the term loan to a fixed rate of 2.3%. In April 2020, the Company obtained a $200.0 million unsecured term loan, that has an interest
rate of LIBOR plus 1.20% with a one-year maturity and two 12-month extension options, exercisable at the Company’s option.
|
(2)
|
$254.9 million of variable rate debt is tax exempt to the note holders.
|
(3)
|
This unsecured line of credit facility has a capacity of $1.2 billion, with a scheduled maturity date in December 2023 with one 18-month extension,
exercisable at the Company’s option. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.825%.
|
(4)
|
This unsecured line of credit facility has a capacity $35.0 million, with a scheduled maturity date in February 2021 with one 18-month extension,
exercisable at the Company’s option. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.825%.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - September 30, 2020
(Dollars and shares in thousands, except per share amounts)
Capitalization Data
|
Public Bond Covenants (1)
|
Actual
|
Requirement
|
||||||||||
Total debt, net
|
$
|
6,610,184
|
|
|
|||||||||
|
Debt to Total Assets:
|
38
|
%
|
< 65%
|
|||||||||
Common stock and potentially dilutive securities
|
|
|
|||||||||||
Common stock outstanding
|
65,210
|
|
|
||||||||||
Limited partnership units (1)
|
2,254
|
|
|
||||||||||
Options-treasury method
|
7
|
Secured Debt to Total Assets:
|
4
|
%
|
< 40%
|
||||||||
Total shares of common stock and potentially dilutive securities
|
67,471
|
|
|
||||||||||
|
|
|
|||||||||||
Common stock price per share as of September 30, 2020
|
$
|
200.79
|
|
|
|||||||||
|
Interest Coverage:
|
485
|
%
|
> 150%
|
|||||||||
Total equity capitalization
|
$
|
13,547,502
|
|
|
|||||||||
|
|
|
|||||||||||
Total market capitalization
|
$
|
20,157,686
|
Unsecured Debt Ratio (2):
|
258
|
%
|
> 150%
|
|||||||
|
|
|
|||||||||||
Ratio of debt to total market capitalization
|
32.8
|
%
|
|
|
|||||||||
Selected Credit Ratios (3)
|
|
Actual
|
|
||||||||||
Credit Ratings
|
|
|
|
|
|||||||||
Rating Agency
|
Rating
|
Outlook
|
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
|
6.3
|
|
||||||||
Fitch
|
BBB+
|
Stable
|
|
|
|||||||||
Moody’s
|
Baa1
|
Stable
|
Unencumbered NOI to Adjusted Total NOI:
|
93
|
%
|
|
|||||||
Standard & Poor’s
|
BBB+
|
Stable
|
|
|
|||||||||
(1) Refer to page S-17.4 for additional information on the Company’s Public Bond Covenants.
|
|||||||||||||
(1) Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock.
|
(2) Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.
|
||||||||||||
(3) Refer to pages S-17.1 to S-17.4, the section titled “Reconciliations of Non-GAAP Financial Measures and Other
Terms” for additional information on the Company’s Selected Credit Ratios.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-6
E S S E X P R O P E R T Y T R U S T, I N C.
Portfolio Summary by County as of September 30, 2020
|
Apartment Homes
|
Average Monthly Rental Rate (1)
|
Percent of NOI (2)
|
|||||||||||||||||||||||||||||||||||||
Region - County
|
Consolidated (3)
|
Unconsolidated
Co-investments (4)
|
Apartment
Homes in
Development (5)
|
Total
|
Consolidated
|
Unconsolidated
Co-investments (6)
|
Total (7)
|
Consolidated
|
Unconsolidated
Co-investments (6)
|
Total (7)
|
||||||||||||||||||||||||||||||
Southern California
|
||||||||||||||||||||||||||||||||||||||||
Los Angeles County
|
9,097
|
1,563
|
200
|
10,860
|
$
|
2,454
|
$
|
2,170
|
$
|
2,431
|
15.8
|
%
|
14.4
|
%
|
15.7
|
%
|
||||||||||||||||||||||||
Orange County
|
5,554
|
1,149
|
-
|
6,703
|
2,244
|
1,975
|
2,219
|
10.4
|
%
|
11.5
|
%
|
10.4
|
%
|
|||||||||||||||||||||||||||
San Diego County
|
4,824
|
616
|
264
|
5,704
|
2,002
|
1,892
|
1,995
|
8.2
|
%
|
5.3
|
%
|
8.0
|
%
|
|||||||||||||||||||||||||||
Ventura County and Other
|
3,200
|
693
|
-
|
3,893
|
1,848
|
2,226
|
1,887
|
5.1
|
%
|
8.5
|
%
|
5.6
|
%
|
|||||||||||||||||||||||||||
Total Southern California
|
22,675
|
4,021
|
464
|
27,160
|
2,221
|
2,084
|
2,209
|
39.5
|
%
|
39.7
|
%
|
39.7
|
%
|
|||||||||||||||||||||||||||
Northern California
|
||||||||||||||||||||||||||||||||||||||||
Santa Clara County (8)
|
8,747
|
1,506
|
-
|
10,253
|
2,827
|
2,861
|
2,830
|
20.4
|
%
|
16.0
|
%
|
20.0
|
%
|
|||||||||||||||||||||||||||
Alameda County
|
3,959
|
1,309
|
-
|
5,268
|
2,535
|
2,467
|
2,525
|
8.1
|
%
|
15.5
|
%
|
8.6
|
%
|
|||||||||||||||||||||||||||
San Mateo County
|
2,651
|
195
|
107
|
2,953
|
3,106
|
3,809
|
3,131
|
6.4
|
%
|
3.5
|
%
|
6.1
|
%
|
|||||||||||||||||||||||||||
Contra Costa County
|
2,619
|
-
|
-
|
2,619
|
2,463
|
-
|
2,463
|
5.5
|
%
|
0.0
|
%
|
5.1
|
%
|
|||||||||||||||||||||||||||
San Francisco
|
1,343
|
537
|
-
|
1,880
|
3,059
|
3,637
|
3,155
|
2.9
|
%
|
5.3
|
%
|
3.1
|
%
|
|||||||||||||||||||||||||||
Total Northern California
|
19,319
|
3,547
|
107
|
22,973
|
2,772
|
2,879
|
2,782
|
43.3
|
%
|
40.3
|
%
|
42.9
|
%
|
|||||||||||||||||||||||||||
Seattle Metro
|
10,217
|
1,890
|
-
|
12,107
|
1,936
|
1,931
|
1,935
|
17.2
|
%
|
20.0
|
%
|
17.4
|
%
|
|||||||||||||||||||||||||||
Total
|
52,211
|
9,458
|
571
|
62,240
|
$
|
2,369
|
$
|
2,347
|
$
|
2,367
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
(1)
|
Average monthly rental rate is defined as the total scheduled monthly rental income (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the
number of apartment homes.
|
(2)
|
Represents the percentage of actual NOI for the quarter ended September 30, 2020. See the section titled “Net Operating Income (“NOI”) and Same-Property NOI Reconciliations” on page S-17.3.
|
(3)
|
Includes one community consisting of 476 apartment homes that is producing partial income due to lease-up.
|
(4)
|
Includes two communities consisting of 806 apartment homes that are producing partial income due to lease-up.
|
(5)
|
Includes development communities with no rental income.
|
(6)
|
Co-investment amounts weighted for Company’s pro rata share.
|
(7)
|
At Company’s pro rata share.
|
(8)
|
Includes all communities in Santa Clara County and one community in Santa Cruz County.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-7
E S S E X P R O P E R T Y T R U S T, I N C.
Operating Income by Quarter (1)
(Dollars in thousands, except in footnotes)
|
Apartment
Homes
|
Q3 ‘20
|
Q2 ‘20
|
Q1 ‘20
|
Q4 ‘19
|
Q3 ‘19
|
||||||||||||||||||
Rental and other property revenues:
|
||||||||||||||||||||||||
Same-property
|
46,989
|
$
|
314,958
|
$
|
322,802
|
$
|
343,677
|
$
|
343,456
|
$
|
337,691
|
|||||||||||||
Acquisitions (2)
|
2,557
|
20,143
|
19,885
|
18,879
|
4,238
|
2,991
|
||||||||||||||||||
Development (3)
|
968
|
5,461
|
4,420
|
4,075
|
3,417
|
1,883
|
||||||||||||||||||
Redevelopment
|
621
|
4,277
|
5,096
|
5,401
|
5,317
|
5,272
|
||||||||||||||||||
Non-residential/other, net (4)
|
1,076
|
23,625
|
15,946
|
17,718
|
16,433
|
16,667
|
||||||||||||||||||
Total rental and other property revenues
|
52,211
|
368,464
|
368,149
|
389,750
|
372,861
|
364,504
|
||||||||||||||||||
Property operating expenses:
|
||||||||||||||||||||||||
Same-property
|
98,085
|
95,683
|
93,861
|
92,632
|
94,556
|
|||||||||||||||||||
Acquisitions (2)
|
6,506
|
6,714
|
5,804
|
1,200
|
961
|
|||||||||||||||||||
Development (3)
|
1,977
|
1,445
|
1,447
|
1,208
|
706
|
|||||||||||||||||||
Redevelopment
|
2,049
|
1,752
|
1,663
|
1,725
|
1,734
|
|||||||||||||||||||
Non-residential/other, net (4) (5)
|
3,778
|
4,542
|
4,368
|
4,359
|
4,216
|
|||||||||||||||||||
Total property operating expenses
|
112,395
|
110,136
|
107,143
|
101,124
|
102,173
|
|||||||||||||||||||
Net operating income (NOI):
|
||||||||||||||||||||||||
Same-property
|
216,873
|
227,119
|
249,816
|
250,824
|
243,135
|
|||||||||||||||||||
Acquisitions (2)
|
13,637
|
13,171
|
13,075
|
3,038
|
2,030
|
|||||||||||||||||||
Development (3)
|
3,484
|
2,975
|
2,628
|
2,209
|
1,177
|
|||||||||||||||||||
Redevelopment
|
2,228
|
3,344
|
3,738
|
3,592
|
3,538
|
|||||||||||||||||||
Non-residential/other, net (4)
|
19,847
|
11,404
|
13,350
|
12,074
|
12,451
|
|||||||||||||||||||
Total NOI
|
$
|
256,069
|
$
|
258,013
|
$
|
282,607
|
$
|
271,737
|
$
|
262,331
|
||||||||||||||
Same-property metrics
|
||||||||||||||||||||||||
Operating margin
|
69
|
%
|
70
|
%
|
73
|
%
|
73
|
%
|
72
|
%
|
||||||||||||||
Annualized turnover (6)
|
58
|
%
|
46
|
%
|
39
|
%
|
41
|
%
|
55
|
%
|
||||||||||||||
Financial occupancy (7)
|
96.0
|
%
|
94.9
|
%
|
96.8
|
%
|
97.1
|
%
|
96.0
|
%
|
(1) |
Includes consolidated communities only.
|
(2) |
Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2019.
|
(3) |
Development includes properties developed which did not have comparable stabilized results as of January 1, 2019.
|
(4) |
Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties
undergoing significant construction activities that do not meet our redevelopment criteria, and three communities located in the California counties of Riverside, Santa Barbara, and Santa Cruz, which the Company does not consider its core
markets and straight-line adjustments for concessions.
|
(5) |
Includes other expenses and intercompany eliminations pertaining to self-insurance.
|
(6) |
Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.
|
(7) |
Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income (actual rent for occupied apartment homes plus
market rent for vacant apartment homes).
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-8
E S S E X P R O P E R T Y T R U S T, I N C.
Same-Property Revenue Results by County - Third Quarter 2020 vs. Third Quarter 2019 and Second Quarter 2020
(Dollars in thousands, except average monthly rental rates)
|
Average Monthly Rental Rate
|
Financial Occupancy
|
Gross Revenues
|
Sequential Gross Revenues
|
||||||||||||||||||||||||||||||||||||||||||||||||
Region - County
|
Apartment Homes
|
Q3 ‘20 %
of Actual
NOI
|
Q3 ‘20
|
Q3 ‘19
|
% Change
|
Q3 ‘20
|
Q3 ‘19
|
% Change
|
Q3 ‘20
|
Q3 ‘19
|
% Change
|
Q2 ‘20
|
% Change
|
|||||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Southern California
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Los Angeles County
|
8,526
|
16.7
|
%
|
$
|
2,458
|
$
|
2,477
|
-0.8
|
%
|
94.7
|
%
|
96.2
|
%
|
-1.6
|
%
|
$
|
55,415
|
$
|
64,028
|
-13.5
|
%
|
$
|
58,383
|
-5.1
|
%
|
|||||||||||||||||||||||||||
Orange County
|
5,554
|
11.4
|
%
|
2,244
|
2,235
|
0.4
|
%
|
96.7
|
%
|
95.4
|
%
|
1.4
|
%
|
36,225
|
37,191
|
-2.6
|
%
|
35,565
|
1.9
|
%
|
||||||||||||||||||||||||||||||||
San Diego County
|
4,582
|
8.8
|
%
|
1,996
|
1,970
|
1.3
|
%
|
97.0
|
%
|
96.5
|
%
|
0.5
|
%
|
27,149
|
27,726
|
-2.1
|
%
|
27,110
|
0.1
|
%
|
||||||||||||||||||||||||||||||||
Ventura County
|
2,577
|
4.9
|
%
|
1,875
|
1,861
|
0.8
|
%
|
97.3
|
%
|
96.8
|
%
|
0.5
|
%
|
14,633
|
14,932
|
-2.0
|
%
|
14,324
|
2.2
|
%
|
||||||||||||||||||||||||||||||||
Total Southern California
|
21,239
|
41.8
|
%
|
2,232
|
2,230
|
0.1
|
%
|
95.9
|
%
|
96.1
|
%
|
-0.2
|
%
|
133,422
|
143,877
|
-7.3
|
%
|
135,382
|
-1.4
|
%
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Northern California
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Santa Clara County
|
7,406
|
19.8
|
%
|
2,808
|
2,852
|
-1.5
|
%
|
96.3
|
%
|
96.0
|
%
|
0.3
|
%
|
59,421
|
64,047
|
-7.2
|
%
|
62,618
|
-5.1
|
%
|
||||||||||||||||||||||||||||||||
Alameda County
|
2,954
|
6.7
|
%
|
2,571
|
2,611
|
-1.5
|
%
|
96.0
|
%
|
96.5
|
%
|
-0.5
|
%
|
21,178
|
23,766
|
-10.9
|
%
|
22,278
|
-4.9
|
%
|
||||||||||||||||||||||||||||||||
San Mateo County
|
1,830
|
5.0
|
%
|
3,018
|
3,077
|
-1.9
|
%
|
96.1
|
%
|
94.6
|
%
|
1.6
|
%
|
15,440
|
16,998
|
-9.2
|
%
|
16,253
|
-5.0
|
%
|
||||||||||||||||||||||||||||||||
Contra Costa County
|
2,270
|
5.1
|
%
|
2,370
|
2,390
|
-0.8
|
%
|
97.9
|
%
|
95.9
|
%
|
2.1
|
%
|
15,864
|
16,621
|
-4.6
|
%
|
15,609
|
1.6
|
%
|
||||||||||||||||||||||||||||||||
San Francisco
|
1,178
|
2.8
|
%
|
2,952
|
3,154
|
-6.4
|
%
|
93.5
|
%
|
95.6
|
%
|
-2.2
|
%
|
9,571
|
11,331
|
-15.5
|
%
|
10,568
|
-9.4
|
%
|
||||||||||||||||||||||||||||||||
Total Northern California
|
15,638
|
39.4
|
%
|
2,735
|
2,788
|
-1.9
|
%
|
96.2
|
%
|
95.9
|
%
|
0.3
|
%
|
121,474
|
132,763
|
-8.5
|
%
|
127,326
|
-4.6
|
%
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Seattle Metro
|
10,112
|
18.8
|
%
|
1,936
|
1,907
|
1.5
|
%
|
95.9
|
%
|
95.9
|
%
|
0.0
|
%
|
60,062
|
61,051
|
-1.6
|
%
|
60,094
|
-0.1
|
%
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Same-Property
|
46,989
|
100.0
|
%
|
$
|
2,336
|
$
|
2,346
|
-0.4
|
%
|
96.0
|
%
|
96.0
|
%
|
0.0
|
%
|
$
|
314,958
|
$
|
337,691
|
-6.7
|
%
|
$
|
322,802
|
-2.4
|
%
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-9
E S S E X P R O P E R T Y T R U S T, I N C.
Same-Property Revenue Results by County - Nine months ended September 30, 2020 vs. Nine months ended September 30, 2019
(Dollars in thousands, except average monthly rental rates)
|
YTD
|
Average Monthly Rental Rate
|
Financial Occupancy
|
Gross Revenues
|
||||||||||||||||||||||||||||||||||||||||
Region - County
|
Apartment Homes
|
2020 % of
Actual
NOI
|
YTD 2020
|
YTD 2019
|
% Change
|
YTD 2020
|
YTD 2019
|
% Change
|
YTD 2020
|
YTD 2019
|
% Change
|
|||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
Southern California
|
||||||||||||||||||||||||||||||||||||||||||||
Los Angeles County
|
8,526
|
17.4
|
%
|
$
|
2,478
|
$
|
2,453
|
1.0
|
%
|
94.8
|
%
|
96.5
|
%
|
-1.8
|
%
|
$
|
178,798
|
$
|
191,535
|
-6.6
|
%
|
|||||||||||||||||||||||
Orange County
|
5,554
|
11.1
|
%
|
2,248
|
2,211
|
1.7
|
%
|
96.0
|
%
|
96.1
|
%
|
-0.1
|
%
|
109,840
|
111,277
|
-1.3
|
%
|
|||||||||||||||||||||||||||
San Diego County
|
4,582
|
8.5
|
%
|
1,993
|
1,951
|
2.2
|
%
|
96.8
|
%
|
96.7
|
%
|
0.1
|
%
|
82,640
|
82,748
|
-0.1
|
%
|
|||||||||||||||||||||||||||
Ventura County
|
2,577
|
4.7
|
%
|
1,875
|
1,844
|
1.7
|
%
|
96.8
|
%
|
97.0
|
%
|
-0.2
|
%
|
44,088
|
44,495
|
-0.9
|
%
|
|||||||||||||||||||||||||||
Total Southern California
|
21,239
|
41.7
|
%
|
2,240
|
2,208
|
1.4
|
%
|
95.7
|
%
|
96.5
|
%
|
-0.8
|
%
|
415,366
|
430,055
|
-3.4
|
%
|
|||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
Northern California
|
||||||||||||||||||||||||||||||||||||||||||||
Santa Clara County
|
7,406
|
20.1
|
%
|
2,844
|
2,809
|
1.2
|
%
|
96.3
|
%
|
96.7
|
%
|
-0.4
|
%
|
187,184
|
190,612
|
-1.8
|
%
|
|||||||||||||||||||||||||||
Alameda County
|
2,954
|
6.9
|
%
|
2,598
|
2,586
|
0.5
|
%
|
95.6
|
%
|
96.5
|
%
|
-0.9
|
%
|
67,274
|
70,487
|
-4.6
|
%
|
|||||||||||||||||||||||||||
San Mateo County
|
1,830
|
5.2
|
%
|
3,067
|
3,023
|
1.5
|
%
|
96.0
|
%
|
96.1
|
%
|
-0.1
|
%
|
49,218
|
50,995
|
-3.5
|
%
|
|||||||||||||||||||||||||||
Contra Costa County
|
2,270
|
5.0
|
%
|
2,380
|
2,360
|
0.8
|
%
|
97.1
|
%
|
96.7
|
%
|
0.4
|
%
|
48,203
|
49,492
|
-2.6
|
%
|
|||||||||||||||||||||||||||
San Francisco
|
1,178
|
3.0
|
%
|
3,078
|
3,101
|
-0.7
|
%
|
94.3
|
%
|
96.1
|
%
|
-1.9
|
%
|
31,606
|
33,650
|
-6.1
|
%
|
|||||||||||||||||||||||||||
Total Northern California
|
15,638
|
40.2
|
%
|
2,774
|
2,749
|
0.9
|
%
|
96.0
|
%
|
96.5
|
%
|
-0.5
|
%
|
383,485
|
395,236
|
-3.0
|
%
|
|||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
Seattle Metro
|
10,112
|
18.1
|
%
|
1,938
|
1,877
|
3.2
|
%
|
96.0
|
%
|
96.4
|
%
|
-0.4
|
%
|
182,586
|
180,941
|
0.9
|
%
|
|||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||
Total Same-Property
|
46,989
|
100.0
|
%
|
$
|
2,353
|
$
|
2,316
|
1.6
|
%
|
95.9
|
%
|
96.5
|
%
|
-0.6
|
%
|
$
|
981,437
|
$
|
1,006,232
|
-2.5
|
%
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-9.1
E S S E X P R O P E R T Y T R U S T, I N C.
Same-Property Operating Expenses - Quarter and Year to Date as of September 30, 2020 and 2019
(Dollars in thousands)
Based on 46,989 apartment homes
|
||||||||||||||||||||||||||||||||
Q3 ‘20
|
Q3 ‘19
|
% Change
|
% of Op. Ex.
|
YTD 2020
|
YTD 2019
|
% Change
|
% of Op. Ex.
|
|||||||||||||||||||||||||
Same-property operating expenses:
|
||||||||||||||||||||||||||||||||
Real estate taxes
|
$
|
37,569
|
$
|
35,578
|
5.6
|
%
|
38.3
|
%
|
$
|
111,651
|
$
|
106,444
|
4.9
|
%
|
38.8
|
%
|
||||||||||||||||
Maintenance and repairs
|
20,684
|
19,664
|
5.2
|
%
|
21.1
|
%
|
60,930
|
57,615
|
5.8
|
%
|
21.2
|
%
|
||||||||||||||||||||
Administrative
|
16,601
|
16,807
|
-1.2
|
%
|
16.9
|
%
|
48,890
|
49,340
|
-0.9
|
%
|
17.0
|
%
|
||||||||||||||||||||
Utilities
|
19,138
|
18,465
|
3.6
|
%
|
19.5
|
%
|
53,301
|
51,397
|
3.7
|
%
|
18.5
|
%
|
||||||||||||||||||||
Insurance and other
|
4,093
|
4,042
|
1.3
|
%
|
4.2
|
%
|
12,857
|
12,646
|
1.7
|
%
|
4.5
|
%
|
||||||||||||||||||||
Total same-property operating expenses
|
$
|
98,085
|
$
|
94,556
|
3.7
|
%
|
100.0
|
%
|
$
|
287,629
|
$
|
277,442
|
3.7
|
%
|
100.0
|
%
|
||||||||||||||||
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-10
E S S E X P R O P E R T Y T R U S T, I N C.
Development Pipeline - September 30, 2020
(Dollars in millions, except per apartment home amounts in thousands and except in footnotes)
Project Name
|
Location
|
Ownership %
|
Estimated Apartment Homes
|
Estimated Commercial sq. feet
|
Incurred to Date
|
Remaining Costs
|
Estimated Total Cost
|
Essex Est. Total Cost (1)
|
Cost per Apartment Home (2)
|
Average % Occupied
|
% Leased as of 9/30/20 (3)
|
% Leased as of 10/22/20 (3)
|
Construction Start
|
Initial Occupancy
|
Stabilized Operations
|
||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Development Projects - Consolidated (4)
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Station Park Green - Phase IV
|
San Mateo, CA
|
100
|
%
|
107
|
-
|
51
|
43
|
94
|
94
|
879
|
0
|
%
|
0
|
%
|
0
|
%
|
Q3 2019
|
Q4 2021
|
Q2 2022
|
||||||||||||||||||||||||||||||||||
Mylo (5)
|
Santa Clara, CA
|
100
|
%
|
476
|
-
|
212
|
14
|
226
|
226
|
475
|
54
|
%
|
57
|
%
|
59
|
%
|
Q3 2016
|
Q3 2019
|
Q2 2021
|
||||||||||||||||||||||||||||||||||
Wallace on Sunset (6)
|
Hollywood, CA
|
100
|
%
|
200
|
4,700
|
92
|
13
|
105
|
105
|
500
|
0
|
%
|
0
|
%
|
0
|
%
|
Q4 2017
|
Q1 2021
|
Q4 2021
|
||||||||||||||||||||||||||||||||||
Total Development Projects - Consolidated
|
|
783
|
4,700
|
355
|
70
|
425
|
425
|
536
|
|||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Land Held for Future Development - Consolidated
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Projects
|
Various
|
100
|
%
|
21
|
-
|
21
|
21
|
||||||||||||||||||||||||||||||||||||||||||||||
Total Development Pipeline - Consolidated
|
|
783
|
4,700
|
376
|
70
|
446
|
446
|
||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Development Projects - Joint Venture (4)
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Patina at Midtown
|
San Jose, CA
|
50
|
%
|
269
|
-
|
134
|
2
|
136
|
68
|
506
|
20
|
%
|
26
|
%
|
33
|
%
|
Q3 2017
|
Q3 2020
|
Q2 2021
|
||||||||||||||||||||||||||||||||||
500 Folsom (7)
|
San Francisco, CA
|
50
|
%
|
537
|
6,000
|
399
|
16
|
415
|
208
|
763
|
77
|
%
|
82
|
%
|
85
|
%
|
Q4 2015
|
Q3 2019
|
Q1 2021
|
||||||||||||||||||||||||||||||||||
Scripps Mesa Apartments (7)
|
San Diego, CA
|
51
|
%
|
264
|
-
|
12
|
90
|
102
|
52
|
386
|
0
|
%
|
0
|
%
|
0
|
%
|
Q3 2020
|
Q4 2022
|
Q3 2023
|
||||||||||||||||||||||||||||||||||
Total Development Projects - Joint Venture
|
|
1,070
|
6,000
|
545
|
108
|
653
|
328
|
$
|
605
|
||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||
Grand Total - Development Pipeline
|
|
1,853
|
10,700
|
$
|
921
|
$
|
178
|
$
|
1,099
|
774
|
|||||||||||||||||||||||||||||||||||||||||||
Essex Cost Incurred to Date - Pro Rata
|
|
(649
|
)
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Essex Remaining Commitment
|
|
$
|
125
|
(1)
|
The Company’s share of the estimated total cost of the project.
|
(2)
|
Net of the estimated allocation to the retail component of the project.
|
(3)
|
Calculations are based on multifamily operations only.
|
(4)
|
For the third quarter of 2020, the Company’s cost includes $3.2 million of capitalized interest, $0.2 million of capitalized overhead and $0.5 million of development fees (such
development fees reduced G&A expenses).
|
(5)
|
Cost incurred to date does not include a deduction of $4.7 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset.
|
(6)
|
Cost incurred to date does not include a deduction of $6.3 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset.
|
(7)
|
Estimated cost incurred to date and total cost are net of a projected value for low income housing tax credit proceeds and the value of the tax exempt bond structure.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-11
E S S E X P R O P E R T Y T R U S T, I N C.
Redevelopment Pipeline - September 30, 2020
(Dollars in thousands)
Apartment
|
Total
Incurred
|
Estimated
Remaining
|
Estimated
Total
|
Project
|
NOI
Nine Months Ended
|
|||||||||||||||||||||||||
Region/Project Name
|
Location
|
Homes
|
To Date
|
Cost
|
Cost
|
Start Date
|
2020
|
2019
|
||||||||||||||||||||||
Consolidated - Redevelopment Projects
|
||||||||||||||||||||||||||||||
Same-Property (1)
|
||||||||||||||||||||||||||||||
Southern California
|
||||||||||||||||||||||||||||||
The Blake LA
|
Los Angeles, CA
|
196
|
$ |
11,200
|
$ |
1,000
|
$ |
12,200
|
Q4 2016
|
|||||||||||||||||||||
The Palms at Laguna Niguel
|
Laguna Niguel, CA
|
460
|
7,100
|
2,400
|
9,500
|
Q4 2016
|
||||||||||||||||||||||||
Total Same-Property - Redevelopment Projects
|
656
|
$
|
18,300
|
$
|
3,400
|
$
|
21,700
|
$
|
8,741
|
$
|
9,039
|
|||||||||||||||||||
|
||||||||||||||||||||||||||||||
Non-Same Property
|
||||||||||||||||||||||||||||||
Southern California
|
||||||||||||||||||||||||||||||
Bunker Hill Towers
|
Los Angeles, CA
|
456
|
$
|
84,900
|
$
|
2,500
|
$
|
87,400
|
Q3 2013
|
|||||||||||||||||||||
Total Non-Same Property - Redevelopment Projects
|
456
|
$
|
84,900
|
$
|
2,500
|
$
|
87,400
|
$
|
5,633
|
$
|
6,356
|
(1)
|
Redevelopment activities are ongoing at these communities, but the communities have stabilized operations, therefore results are classified in same-property results.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-12
E S S E X P R O P E R T Y T R U S T, I N C.
Capital Expenditures - September 30, 2020 (1)
(Dollars in thousands, except in footnotes and per apartment home amounts)
Revenue Generating Capital Expenditures (2)
|
Q3 ‘20
|
Q2 ‘20
|
Q1 ‘20
|
Q4 ‘19
|
Trailing 4 Quarters
|
|||||||||||||||
Same-property portfolio
|
$
|
5,683
|
$
|
7,693
|
$
|
18,059
|
$
|
14,863
|
$
|
46,298
|
||||||||||
Non-same property portfolio
|
3,109
|
1,389
|
3,586
|
1,412
|
9,496
|
|||||||||||||||
Total revenue generating capital expenditures
|
$
|
8,792
|
$
|
9,082
|
$
|
21,645
|
$
|
16,275
|
$
|
55,794
|
||||||||||
Number of same-property interior renovations
|
421
|
492
|
777
|
993
|
2,683
|
|||||||||||||||
Number of total consolidated interior renovations
|
485
|
574
|
917
|
1,154
|
3,130
|
Non-Revenue Generating Capital Expenditures (3)
|
Q3 ‘20
|
Q2 ‘20
|
Q1 ‘20
|
Q4 ‘19
|
Trailing 4 Quarters
|
|||||||||||||||
Non-revenue generating capital expenditures (4)
|
$
|
21,009
|
$
|
16,559
|
$
|
15,315
|
$
|
26,282
|
$
|
79,165
|
||||||||||
Average apartment homes in quarter
|
52,274
|
52,552
|
51,670
|
50,521
|
51,754
|
|||||||||||||||
Capital expenditures per apartment homes in the quarter
|
$
|
402
|
$
|
315
|
$
|
296
|
$
|
520
|
$
|
1,530
|
(1) |
The Company incurred $0.1 million of capitalized interest, $2.5 million of capitalized overhead and $0.1 million of co-investment fees related to redevelopment in Q3 2020.
|
(2) |
Represents revenue generating or expense saving expenditures, such as full-scale redevelopments shown on page S-12, interior unit turn renovations, enhanced amenities and certain
resource management initiatives.
|
(3) |
Represents roof replacements, paving, building and mechanical systems, exterior painting, siding, etc.
|
(4) |
Non-revenue generating capital expenditures does not include expenditures incurred due to changes in governmental regulations that the Company would not have incurred otherwise,
costs related to the COVID-19 pandemic, retail, furniture and fixtures, and expenditures in which the Company expects to be reimbursed.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-12.1
E S S E X P R O P E R T Y T R U S T, I N C.
Co-investments and Preferred Equity Investments - September 30, 2020
(Dollars in thousands)
|
Weighted
Average Essex
Ownership
Percentage
|
Apartment
Homes
|
Total
Undepreciated
Book Value
|
Debt
Amount
|
Essex
Book
Value
|
Weighted
Average
Borrowing Rate
|
Remaining
Term of
Debt (in Years)
|
Three Months
Ended
September 30, 2020
|
Nine Months
Ended
September 30, 2020
|
|||||||||||||||||||||||||
NOI
|
||||||||||||||||||||||||||||||||||
Operating and Other Non-Consolidated Joint Ventures Preferred Equity Investments(5)
|
||||||||||||||||||||||||||||||||||
Wesco I, III, IV, and V
|
51%
|
5,310
|
$
|
1,726,539
|
$
|
1,060,305
|
$
|
181,621
|
3.4%
|
3.7
|
$
|
23,645
|
$
|
73,084
|
||||||||||||||||||||
BEXAEW, BEX II, BEX III, and BEX IV
|
50%
|
2,691
|
827,943
|
421,614
|
154,367
|
3.3%
|
3.2
|
11,237
|
34,485
|
|||||||||||||||||||||||||
CPPIB (1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
516
|
2,524
|
|||||||||||||||||||||||||
Other
|
47%
|
651
|
214,237
|
166,656
|
27,618
|
3.2%
|
3.2
|
3,076
|
9,802
|
|||||||||||||||||||||||||
Total Operating and Other Non-Consolidated Joint Ventures
|
8,652
|
$
|
2,768,719
|
$
|
1,648,575
|
$
|
363,606
|
3.3%
|
3.5
|
$
|
38,474
|
$
|
119,895
|
|||||||||||||||||||||
Pre-Development and Development Non-Consolidated Joint Ventures(2)
|
50%
|
1,070
|
545,306
|
276,323
|
170,314
|
1.8%
|
27.8
|
(3)(4)
|
2,228
|
5,871
|
||||||||||||||||||||||||
Total Non-Consolidated Joint Ventures
|
9,722
|
$
|
3,314,025
|
$
|
1,924,898
|
$
|
533,920
|
3.1%
|
7.0
|
$
|
40,702
|
$
|
125,766
|
|
Essex Portion of NOI and Expenses
|
|||||||||||||||||||||||||||||||||
NOI
|
$
|
21,156
|
$
|
65,385
|
||||||||||||||||||||||||||||||
Depreciation
|
(12,883
|
)
|
(38,191
|
)
|
||||||||||||||||||||||||||||||
Interest expense and other
|
(7,282
|
)
|
(22,894
|
)
|
||||||||||||||||||||||||||||||
Equity (loss) income from non-core co-investment
|
(213
|
)
|
4,373
|
|||||||||||||||||||||||||||||||
Gain on sale of co-investment communities
|
2,225
|
2,225
|
||||||||||||||||||||||||||||||||
Gain on early retirement of debt from unconsolidated co-investment
|
-
|
38
|
||||||||||||||||||||||||||||||||
Co-investment promote income
|
-
|
6,455
|
||||||||||||||||||||||||||||||||
Net income from operating and other co-investments
|
$
|
3,003
|
$
|
17,391
|
Weighted
Average
Preferred
Return
|
Weighted Average Expected
Term
|
Income from Preferred Equity Investments
|
||||||||||||||||||||||||||||||||
Income from preferred equity investments
|
$
|
11,957
|
$
|
35,913
|
||||||||||||||||||||||||||||||
Income from early redemption of preferred equity investments
|
-
|
210
|
||||||||||||||||||||||||||||||||
Preferred Equity Investments(5) |
$
|
484,315
|
|
10.1
|
% |
2.2
|
$
|
11,957
|
$
|
36,123
|
||||||||||||||||||||||||
Total Co-investments
|
$
|
1,018,235
|
$
|
14,960
|
$
|
53,514
|
(1)
|
In January 2020, the Company purchased CPPIB’s 45% interest in each of a land parcel and six communities totaling 2,020 apartment homes. The NOI for the nine months ended September 30, 2020 includes NOI
prior to the acquisition and a true up after the completion of the acquisition recorded during the three months ended September 30, 2020.
|
(2)
|
The Company has ownership interests in development co-investments, which are detailed on page S-11.
|
(3)
|
$132.0 million of the debt related to 500 Folsom, one of the Company’s development co-investments, is financed by tax exempt bonds with a maturity date of January 2052.
|
(4)
|
Scripps Mesa Apartments has a $89.3 million of long-term tax-exempt bond debt that is subject to a total return swap that matures in 2025.
|
(5)
|
As of September 30, 2020, the Company has invested in 18 preferred equity investments.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-13
E S S E X P R O P E R T Y T R U S T, I N C.
Summary of Apartment Community Acquisitions and Dispositions Activity
Year to date as of September 30, 2020
(Dollars in thousands)
Acquisitions
|
Location
|
Apartment
Homes
|
Essex
Ownership
Percentage
|
Entity
|
Date
|
Total
Contract
Price
|
Price per
Apartment Home (2) |
Average
Rent
|
||||||||||||||||||
Property Name | ||||||||||||||||||||||||||
CPPIB Portfolio (1)
|
Various
|
2,020
|
100%
|
|
EPLP
|
Jan-20
|
$
|
463,400
|
$
|
497
|
$
|
2,732
|
||||||||||||||
Q1 2020
|
2,020
|
|
|
$
|
463,400
|
$
|
497
|
Dispositions
|
Location
|
Apartment
Homes
|
Essex
Ownership
Percentage |
Entity
|
Date
|
Total
Sales
Price
|
Price per
Apartment Home (2)
|
||||||||||||||
Property Name
|
|||||||||||||||||||||
One South Market and Museum Park
|
San Jose, CA
|
429
|
100%
|
|
EPLP
|
Jun-20
|
$
|
232,000
|
$
|
534
|
|||||||||||
|
Q2 2020
|
429
|
|
|
$
|
232,000
|
$
|
534
|
|||||||||||||
|
|
|
|||||||||||||||||||
Delano
|
Redmond, WA
|
126
|
100%
|
|
EPLP
|
Jul-20
|
$
|
51,500
|
$
|
409
|
|||||||||||
|
Q3 2020
|
126
|
|
$
|
51,500
|
$
|
409
|
||||||||||||||
|
|
|
|||||||||||||||||||
|
2020 Total
|
555
|
|
$
|
283,500
|
$
|
505
|
(1)
|
In January 2020, the Company purchased the joint venture partner’s 45% membership interest in a land parcel and six communities representing 2,020 apartments homes based on a total valuation of
approximately $1.0 billion.
|
(2)
|
Price per apartment home excludes value allocated to retail space.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-14
E S S E X P R O P E R T Y T R U S T, I N C.
Delinquencies, Operating Statistics, and Same-Property Revenue Growth with Concessions on a GAAP basis
(Dollars in millions, except in footnotes and per share amounts)
Delinquencies for Third Quarter 2020
|
Same-Property
|
Non-Same
Property and
Co-investments |
Total Operating Communities
|
Commercial
|
Total
|
|||||||||||||||||
Operating apartment community units
|
46,989
|
13,398
|
60,387
|
N/A
|
N/A
|
|||||||||||||||||
|
||||||||||||||||||||||
Cash delinquencies as % of scheduled rent
|
2.7
|
%
|
2.8
|
%
|
2.7
|
%
|
N/A
|
N/A
|
||||||||||||||
Reported delinquencies as % of scheduled rent (1)
|
2.0
|
%
|
2.0
|
%
|
2.0
|
%
|
N/A
|
N/A
|
||||||||||||||
Reported delinquencies in 3Q 2020 (2)
|
$
|
(6.7
|
)
|
$
|
(1.3
|
)
|
$
|
(8.0
|
)
|
$
|
(2.6
|
)
|
(3)
|
$
|
(10.6
|
)
|
||||||
Reported delinquencies in 3Q 2019 (2)
|
$
|
(1.2
|
)
|
$
|
(0.2
|
)
|
$
|
(1.4
|
)
|
$
|
-
|
$
|
(1.4
|
)
|
||||||||
|
||||||||||||||||||||||
Impact to 3Q 2020 Core FFO per share
|
$
|
(0.08
|
)
|
$
|
(0.02
|
)
|
$
|
(0.10
|
)
|
$
|
(0.04
|
)
|
$
|
(0.14
|
)
|
|||||||
Impact to Core FFO per share growth
|
-2.4
|
%
|
-0.5
|
%
|
-2.9
|
%
|
-1.1
|
%
|
-4.1
|
%
|
(1)
|
Represents total residential portfolio delinquencies as a % of scheduled rent reflected in the financial statements for the three months ended September 30, 2020.
|
(2)
|
Co-investment delinquencies reported at Company’s pro rata share.
|
(3)
|
Commercial delinquencies in 3Q 2020 includes a straight-line rent reserve of $1.5 million and includes co-investment amounts at the Company’s pro rata share.
|
Operating Statistics
|
Same-Property
Revenue Growth with Concessions on a GAAP basis
|
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||
Same-Property Portfolio (46,989 units)
|
October 2020 (1)
|
3Q 2020
|
|
|||||||||||||||||||||||
Cash delinquencies as % of scheduled rent
|
2.2
|
%
|
2.7
|
%
|
|
3Q 2020
|
3Q 2019
|
YTD 3Q 2020
|
YTD 3Q 2019
|
|||||||||||||||||
|
Reported rental revenue (cash basis)
|
$
|
315.0
|
$
|
337.7
|
$
|
981.4
|
$
|
1,006.2
|
|||||||||||||||||
New lease rates (2)
|
-3.0
|
%
|
-5.8
|
%
|
Straight-line rent impact to rental revenue
|
13.0
|
-
|
15.9
|
-
|
|||||||||||||||||
Renewal rates (3)
|
-1.9
|
%
|
-1.6
|
%
|
GAAP rental revenue
|
$
|
328.0
|
$
|
337.7
|
$
|
997.3
|
$
|
1,006.2
|
|||||||||||||
Blended rates
|
-2.5
|
%
|
-3.8
|
%
|
|
|||||||||||||||||||||
|
% change - cash rental revenue
|
-6.7
|
%
|
-2.5
|
%
|
|||||||||||||||||||||
Financial occupancy
|
96.6
|
%
|
96.0
|
%
|
% change - GAAP rental revenue
|
-2.9
|
%
|
-0.9
|
%
|
(1)
|
Preliminary October 2020 amounts.
|
(2)
|
Represents % change on a gross basis and does not include leasing incentives, which avaraged 3.3 weeks in the third quarter.
|
(3)
|
Represents % change in similar term lease tradeouts, excluding the impact of leasing incentives.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-15
E S S E X P R O P E R T Y T R U S T, I N C. California’s Counties are Advancing Through the
State’s Re-opening TiersCALIFORNIA ADOPTED AMONG THE STRICTEST RE-OPENING REGIMES IN THE UNITED STATES, INCLUDING COVID TEST POSITIVITY RATES AND PER CAPITA CASE RATE THRESHOLDS WELL BELOW THE CURRENT NATIONAL AVERAGE. THESE RESTRICTIONS
REDUCED COVID SEVERITY (ESSEX COUNTY CASE RATES FROM 1.5 TO 7.6 PER 100K ARE WELL BELOW THE U.S. AVERAGE OF 17.9), BUT ALSO SLOWED THE STATE’S ECONOMIC RECOVERY.RECENTLY, SEVERAL ESSEX COUNTIES IN NORTHERN AND SOUTHERN CALIFORNIA HAVE
PROGRESSED THROUGH THE STATE’S RE-OPENING TIERS, INCLUDING SAN FRANCISCO ACHIEVING THE LEAST RESTRICTIVE TIER ON OCTOBER 20TH. BUSINESS CATALYSTS ASSOCIATED WITH HIGHER RE-OPENING TIERS INCLUDE FEWER RESTRICTIONS AT INDOOR RESTAURANTS,
FITNESS CENTERS, CINEMAS, AND BARS, AS WELL AS THE ABILITY OF NON-ESSENTIAL WORKERS TO RETURN TO OFFICE BUILDINGS. Note: Individual counties can selectively implement more restrictive measures than statewide tiers authorize. Source:
California Department of Public Health See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional informationS-16 As of August 29th As of October 27th Widespread – Tier 1, Severe RestrictionsSubstantial – Tier 2Moderate –
Tier 3Minimal – Tier 4, Modest Restrictions
S-16
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Adjusted EBITDAre Reconciliation
The National Association of Real Estate Investment Trusts (“NAREIT”) defines earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) (September 2017 White Paper) as net
income (computed in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated
operating properties, impairment write-downs of depreciated operating properties, impairment write-downs of investments in unconsolidated entities caused by a decrease in value of depreciated operating properties within the joint venture and
adjustments to reflect the Company’s share of EBITDAre of investments in unconsolidated entities.
The Company believes that EBITDAre is useful to investors, creditors and rating agencies as a supplemental measure of the Company’s ability to incur and service debt because it is a recognized measure of performance by the real estate industry, and by excluding gains or losses related to sales or impairment of depreciated operating properties, EBITDAre can help compare the Company’s credit strength between periods or as compared to different companies.
Adjusted EBITDAre represents EBITDAre further adjusted for non-comparable items and is a component of the credit ratio, “Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized,” presented on page S-6, in the section titled “Selected Credit Ratios,” and it is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges.
Adjusted EBITDAre is an important metric in evaluating the credit strength of the Company and its ability to service its debt obligations. The Company believes that Adjusted EBITDAre is useful to investors, creditors and rating agencies because it allows investors to compare the Company’s credit strength to prior reporting periods and to other companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual credit quality.
EBITDAre and Adjusted EBITDAre are not recognized measurements under U.S. GAAP. Because not all companies use identical calculations, the Company’s presentation of EBITDAre and Adjusted EBITDAre may not be comparable to similarly titled measures of other companies.
The reconciliations of Net Income available to common stockholders to EBITDAre and Adjusted EBITDAre are presented in the table below (Dollars in thousands):
Three Months Ended
September 30,
2020
|
||||
Net income available to common stockholders
|
$
|
73,661
|
||
Adjustments:
|
||||
Net income attributable to noncontrolling interest
|
5,181
|
|||
Interest expense, net (1)
|
52,453
|
|||
Depreciation and amortization
|
130,202
|
|||
Gain on sale of real estate and land
|
(22,654
|
)
|
||
Gain on sale of co-investment communities
|
(2,225
|
)
|
||
Co-investment EBITDAre adjustments
|
20,034
|
|||
EBITDAre
|
256,652
|
|||
|
||||
Gain on sale of marketable securities
|
(91
|
)
|
||
Unrealized gains on marketable securities
|
(3,288
|
)
|
||
Provision for credit losses
|
3
|
|||
Equity income from non-core co-investment
|
213
|
|||
General and administrative and other, net
|
2,510
|
|||
Insurance reimbursements and legal settlements, net
|
132
|
|||
Expensed acquisition and investment related costs
|
2
|
|||
Gain on early retirement of debt, net
|
19,114
|
|||
Adjusted EBITDAre
|
$
|
275,247
|
(1)
|
Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.1
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Encumbered
Encumbered means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other
encumbrance of any kind.
Funds From Operations (“FFO”) and Core FFO
FFO, as defined by NAREIT, is generally considered by industry analysts as an appropriate measure of
performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains
on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because,
together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital
expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on
historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not
considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real
estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.
FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. GAAP and are not
intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT’s operating performance or to cash flows as a measure of
liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows
generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation
of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.
The reconciliations of diluted FFO and Core FFO are detailed on page S-3 in the section titled “Consolidated Funds
From Operations”.
Interest Expense, Net
Interest expense, net is presented on page S-1 in the section titled “Consolidated Operating Results”. Interest
expense, net includes items such as gains on derivatives and the amortization of deferred charges and is presented in the table below (Dollars in thousands):
Three Months Ended
September 30,
2020
|
Nine Months Ended
September 30,
2020
|
|||||||
Interest expense
|
$
|
55,430
|
$
|
165,024
|
||||
Adjustments:
|
||||||||
Total return swap income
|
(2,977
|
)
|
(7,749
|
)
|
||||
Interest expense, net
|
$
|
52,453
|
$
|
157,275
|
Immediately Available Liquidity
The Company’s immediately available liquidity as of October 22, 2020, consisted of the following (Dollars in millions):
October 22,
2020
|
||||
Unsecured credit facility - committed
|
$
|
1,235
|
||
Balance outstanding
|
-
|
|||
Undrawn portion of line of credit
|
$
|
1,235
|
||
Cash, cash equivalents & marketable securities (1)
|
473
|
|||
Total liquidity
|
$
|
1,708
|
(1)
|
Excludes an investment in a mortgage backed security.
|
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.2
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Net Indebtedness Divided by Adjusted EBITDAre
This credit ratio is presented on page S-6 in the section titled “Selected Credit Ratios.” This credit ratio is calculated by dividing net
indebtedness by Adjusted EBITDAre, as annualized based on the most recent quarter, and adjusted for estimated net operating income from properties acquired or disposed of during the quarter. This ratio is presented by the Company because it
provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other companies. Net indebtedness is total debt, net less unamortized premiums, discounts, debt issuance costs,
unrestricted cash and cash equivalents, and marketable securities. The reconciliation of Adjusted EBITDAre is set forth in “Adjusted EBITDAre Reconciliation” on page S-17.1. The calculation of this credit ratio and a reconciliation of net
indebtedness to total debt at pro rata share for co-investments, net is presented in the table below (Dollars in thousands):
Total consolidated debt, net
|
$
|
6,610,184
|
||
Total debt from co-investments at pro rata share
|
983,569
|
|||
Adjustments:
|
||||
Consolidated unamortized premiums, discounts, and debt issuance costs
|
40,094
|
|||
Pro rata co-investments unamortized premiums, discounts, and debt issuance costs
|
4,744
|
|||
Consolidated cash and cash equivalents-unrestricted
|
(558,446
|
)
|
||
Pro rata co-investment cash and cash equivalents-unrestricted
|
(22,013
|
)
|
||
Marketable securities (1)
|
(151,755
|
)
|
||
Net Indebtedness
|
$
|
6,906,377
|
||
Adjusted EBITDAre, annualized (2)
|
$
|
1,100,988
|
||
Other EBITDAre normalization adjustments, net, annualized (3)
|
(1,109
|
)
|
||
Adjusted EBITDAre, normalized and annualized
|
$
|
1,099,879
|
||
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized
|
6.3
|
(1)
|
Excludes investment in mortgage backed security
|
(2)
|
Based on the amount for the most recent quarter, multiplied by four.
|
(3)
|
Adjustments made for properties in lease-up, acquired, or disposed of during the most recent quarter and other partial quarter
activity, multiplied by four.
|
Net Operating Income (“NOI”) and Same-Property NOI Reconciliations
NOI and same-property NOI are considered by management to be important supplemental performance measures to earnings from operations included in
the Company’s consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI
reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities.
In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead
by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenues less
same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company
for the periods presented (Dollars in thousands):
Three Months Ended
September 30,
2020
|
Three Months Ended
September 30,
2019
|
Nine Months Ended
September 30,
2020
|
Nine Months Ended
September 30,
2019
|
|||||||||||||
Earnings from operations
|
$
|
128,937
|
$
|
124,039
|
$
|
379,510
|
$
|
364,294
|
||||||||
Adjustments:
|
||||||||||||||||
Corporate-level property management expenses
|
8,619
|
8,553
|
26,024
|
25,451
|
||||||||||||
Depreciation and amortization
|
130,202
|
120,809
|
395,370
|
360,842
|
||||||||||||
Management and other fees from affiliates
|
(2,347
|
)
|
(2,428
|
)
|
(7,312
|
)
|
(7,023
|
)
|
||||||||
General and administrative
|
13,310
|
11,345
|
42,244
|
38,731
|
||||||||||||
Expensed acquisition and investment related costs
|
2
|
13
|
104
|
69
|
||||||||||||
Gain on sale of real estate and land
|
(22,654
|
)
|
-
|
(39,251
|
)
|
-
|
||||||||||
NOI
|
256,069
|
262,331
|
796,689
|
782,364
|
||||||||||||
Less: Non-same property NOI
|
(39,196
|
)
|
(19,196
|
)
|
(102,881
|
)
|
(53,575
|
)
|
||||||||
Same-Property NOI
|
$
|
216,873
|
$
|
243,135
|
$
|
693,808
|
$
|
728,789
|
||||||||
See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.3
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Public Bond Covenants
Public Bond Covenants refer to certain covenants set forth in instruments governing the Company’s unsecured
indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured
indebtedness, leverage and certain investment limitations. These covenants may restrict the Company’s ability to expand or fully pursue its business strategies. The Company’s ability to comply with these covenants may be affected by
changes in the Company’s operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting it. The breach of any of these covenants could result
in a default under the Company’s indebtedness, which could cause those and other obligations to become due and payable. If any of the Company’s indebtedness is accelerated, the Company may not be able to repay it. For risks related to
failure to comply with these covenants, see “Item 1A: Risk Factors - Risks Related to Our Indebtedness and Financings” in the Company’s annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange
Commission (“SEC”).
The ratios set forth on page S-6 in the section titled “Public Bond Covenants” are provided only to show the Company’s compliance with certain
specified covenants that are contained in indentures related to the Company’s issuance of Senior Notes, which indentures are filed by the Company with the SEC. See, for example, the Indenture dated August 24, 2020, filed by the Company as
Exhibit 4.1 to the Company’s Form 8-K, filed on August 24, 2020. These ratios should not be used for any other purpose, including without limitation to evaluate the Company’s financial condition or results of operations, nor do they indicate
the Company’s covenant compliance as of any other date or for any other period. The capitalized terms in the disclosure are defined in the indentures filed by the Company with the SEC and may differ materially from similar terms used by other
companies that present information about their covenant compliance.
Secured Debt
Secured Debt means debt of the Company or any of its subsidiaries which is secured by an encumbrance on any property or assets of the Company or any
of its subsidiaries. The Company’s total amount of Secured Debt is set forth on page S-5.
Unencumbered NOI to Adjusted Total NOI
This ratio is presented on page S-6 in the section titled “Selected Credit Ratios”. Unencumbered NOI means the sum of NOI for those real estate assets
which are not subject to an encumbrance securing debt. The ratio of Unencumbered NOI to Adjusted Total NOI for the three months ended September 30, 2020, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months
ended September 30, 2020 and as further adjusted for pro forma NOI for properties acquired or sold during the recent quarter, by Adjusted Total NOI as annualized. The calculation and reconciliation of NOI is set forth in “Net Operating Income
(“NOI”) and Same-Property NOI Reconciliations” above. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other
companies. The calculation of this ratio is presented in the table below (Dollars in thousands):
Annualized
Q3'20 (1)
|
||||
NOI
|
$
|
1,024,276
|
||
Adjustments:
|
||||
NOI from real estate assets sold
|
(1,109
|
)
|
||
Other, net (2)
|
(62,430
|
)
|
||
Adjusted Total NOI
|
960,737
|
|||
Less: Encumbered NOI
|
(63,608
|
)
|
||
Unencumbered NOI
|
$
|
897,129
|
||
Encumbered NOI
|
$
|
63,608
|
||
Unencumbered NOI
|
897,129
|
|||
Adjusted Total NOI
|
$
|
960,737
|
||
Unencumbered NOI to Adjusted Total NOI
|
93
|
%
|
(1)
|
This table is based on the amounts for the most recent quarter, multiplied by four.
|
(2)
|
Includes intercompany eliminations pertaining to self-insurance and other expenses.
|
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.4