Market Overview

Essex Announces Second Quarter 2018 Results

Share:

Essex Property Trust, Inc. (NYSE:ESS) (the "Company") announced today
its second quarter 2018 earnings results and related business activities.

Net Income and Funds from Operations ("FFO") per diluted share for the
quarter ended June 30, 2018 are detailed below. Core FFO excludes
acquisition and investment related costs and certain non-routine items.

         

Three Months Ended
June 30,

Six Months Ended
June 30,

% %
2018   2017   Change   2018   2017   Change

Per Diluted Share

   
Net Income $1.52 $1.08 40.7% $2.90 $3.80 -23.7%
Total FFO $3.17 $2.97 6.7% $6.52 $5.93 9.9%
Core FFO $3.14 $2.97 5.7% $6.23 $5.91 5.4%
 

Second Quarter 2018 Highlights:

  • Reported Net Income per diluted share for the second quarter of 2018
    of $1.52, compared to $1.08 in the second quarter of 2017, primarily
    due to gains realized on a property sale in the second quarter of 2018.
  • Grew Core FFO per diluted share by 5.7% compared to the second quarter
    of 2017, exceeding the high-end of the guidance range.
  • Achieved same-property gross revenue and net operating income ("NOI")
    growth of 2.8% and 3.0%, respectively, compared to the second quarter
    of 2017.
  • Realized a sequential quarterly increase in same-property revenue
    growth of 0.4%.
  • Raised the midpoint of guidance for same-property revenue and NOI
    growth for the full-year by 15 bps each to 2.8% and 2.9%, respectively.
  • Revised full-year Net Income per diluted share guidance range to $5.15
    to $5.31. Provided Net Income guidance range for the third quarter of
    $1.09 to $1.18 per diluted share.
  • Revised full-year Total FFO per diluted share guidance range to $12.72
    to $12.88, raising the midpoint by $0.09 per share. Provided Total FFO
    guidance range for the third quarter of $3.06 to $3.15 per diluted
    share.
  • Increased full-year Core FFO per diluted share guidance by $0.07 per
    share at the midpoint to a range of $12.44 to $12.62. Provided Core
    FFO guidance range for the third quarter of $3.07 to $3.17 per diluted
    share.

"We are pleased to report another great quarter, with results exceeding
expectations across our West Coast footprint. Improving economic
conditions continued to drive housing demand throughout the 2018 prime
leasing season, driven by job growth and personal income growth that
were well ahead of national averages. Based on the strength of our
second quarter results, we are increasing our 2018 guidance with respect
to same-property revenue, NOI and Core FFO growth," 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
June 30, 2018 compared to the quarter ended June 30, 2017, and the
sequential percentage change for the quarter ended June 30, 2018 versus
the quarter ended March 31, 2018, by submarket for the Company:

       

Q2 2018 vs.
Q2 2017

 

Q2 2018 vs.
Q1 2018

  % of Total

Gross
Revenues

 

Gross
Revenues

 

Q2 2018
Revenues

Southern California
Los Angeles County 3.2% 0.6% 20.4%
Orange County 2.3% -0.1% 11.2%
San Diego County 4.1% 0.9% 8.8%
Ventura County 5.3% 0.6% 4.5%
Other Southern California 0.8%   -0.9%   0.5%
Total Southern California 3.3%   0.5%   45.4%
Northern California
Santa Clara County 1.8% 0.7% 15.6%
Alameda County 2.7% 0.2% 7.1%
San Mateo County 2.4% 0.6% 5.1%
Contra Costa County 1.7% -0.3% 5.0%
San Francisco 0.9% -0.1% 3.3%
Other Northern California 3.2%   -2.0%   0.2%
Total Northern California 2.0%   0.4%   36.3%
Seattle Metro 3.0%   0.1%   18.3%
Same-Property Portfolio 2.8%   0.4%   100.0%
 
         
Year-Over-Year Growth Year-Over-Year Growth
Q2 2018 compared to Q2 2017 YTD 2018 compared to YTD 2017

Gross
Revenues

 

Operating
Expenses

 

 NOI 

Gross
Revenues

 

Operating
Expenses

 

 NOI 

Southern California 3.3%   0.2%   4.6% 3.3%   2.0%   3.9%
Northern California 2.0% 3.3% 1.5% 2.3% 1.2% 2.7%
Seattle Metro 3.0%   4.6%   2.3% 3.7%   5.1%   3.2%
Same-Property Portfolio 2.8%   2.1%   3.0% 3.0%   2.3%   3.3%
 
   
Sequential Growth
Q2 2018 compared to Q1 2018

Gross
Revenues

 

Operating
Expenses

  NOI
Southern California 0.5%   -2.6%   1.7%
Northern California 0.4% -2.8% 1.5%
Seattle Metro 0.1%   9.6%   -3.6%
Same-Property Portfolio 0.4%   -0.4%   0.6%
 
Financial Occupancies
Quarter Ended
6/30/2018   3/31/2018   6/30/2017
Southern California 96.8% 96.9% 96.2%
Northern California 96.7% 97.4% 96.7%
Seattle Metro 96.3%   96.9%   96.2%
Same-Property Portfolio 96.7%   97.1%   96.4%
 

DISPOSITIONS

In June 2018, the Company sold Domain for a total contract price of
$132.0 million. The community, which is located in San Diego, CA,
contains 379 apartment homes. Total gain on the sale was $22.2 million,
which has been excluded from the calculation of FFO.

OTHER INVESTMENTS

In May 2018, the Company originated a $26.5 million preferred equity
investment in a multifamily community located in Ventura, CA. As of June
30, 2018, the Company had funded $20.4 million. The total investment has
an initial preferred return of 10.25% and matures in 2023.

In June 2018, the Company received cash of $26.5 million from the
redemption of a preferred equity investment related to one property in
Seattle, WA. The Company recorded $1.6 million of income from prepayment
penalties as a result of the early redemption, which has been excluded
from Core FFO.

DEVELOPMENT ACTIVITY

Station Park Green – Phase I reached stabilized operations in June 2018.
The community is located in San Mateo, CA and comprises 121 apartment
homes. As of July 30, 2018, Station Park Green – Phase I was 99.2%
leased.

LIQUIDITY AND BALANCE SHEET

Common Stock

The Company did not issue any shares of common stock through its equity
distribution program in the second quarter of 2018.

The Company did not repurchase any shares of common stock in the second
quarter of 2018.

Balance Sheet

In June 2018, Fitch Ratings affirmed the Company's senior unsecured debt
at BBB+ and revised the rating outlook from stable to positive.

As of July 30, 2018, the Company had $1.2 billion in undrawn capacity on
its unsecured credit facilities.

Guidance

For the second quarter of 2018, the Company exceeded the midpoint of the
guidance range provided in its first quarter 2018 earnings release for
Core FFO by $0.09 per share. However, $0.03 per share of the favorable
variance relates to timing differences on same-property operating
expenses, which are now expected to occur in the second half of the year.

The following table provides a reconciliation of second quarter 2018
Core FFO per share to the midpoint of the guidance provided in the first
quarter 2018 earnings release, which was dated May 2, 2018.

   

Per Diluted
Share

Projected midpoint of Core FFO per share for Q2 2018 $ 3.05
NOI from consolidated communities 0.07
FFO from Co-Investments 0.01
Interest expense and other 0.01
Core FFO per share for Q2 2018 reported $ 3.14
 

The following table provides key changes to the 2018 full-year
assumptions for Net Income, Total FFO, Core FFO per diluted share, and
same-property growth. For additional details regarding the Company's
2018 assumptions, please see page S-14 of the accompanying supplemental
financial information. For the third quarter of 2018, the Company has
established a range for Core FFO per diluted share of $3.07 to $3.17.

             

2018 Full-Year Guidance

 
Previous Previous Revised Revised
Range   Midpoint Range   Midpoint
Per Diluted Share
Net Income $4.66 - $5.00 $4.83 $5.15 - $5.31 $5.23
Total FFO $12.54 - $12.88 $12.71 $12.72 - $12.88 $12.80
Core FFO $12.28 - $12.64 $12.46 $12.44 - $12.62 $12.53
Same-Property Growth
Gross Revenues 2.3% to 3.0% 2.7% 2.6% to 3.0% 2.8%
Operating Expenses 2.1% to 3.1% 2.6% 2.4% to 2.8% 2.6%
NOI 2.0% to 3.4% 2.7% 2.5% to 3.2% 2.9%
 

CONFERENCE CALL WITH MANAGEMENT

The Company will host an earnings conference call with management to
discuss its quarterly results on Thursday, August 2, 2018 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 seven days. To access the replay online, go to www.essex.com
and select the second quarter 2018 earnings link. To access the replay
digitally, dial (844) 512-2921 using the replay pin number 13681122. 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.

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. The Company currently has ownership interests in 247 apartment
communities comprising approximately 60,000 apartment homes, excluding
six properties in various stages of active development, one commercial
building, preferred equity co-investments, and loan investments.
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 ("SEC")
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 Internet, please
contact the Investor Relations Department at (650) 655-7800.

FFO RECONCILIATION

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 merger, integration and acquisition
costs and items that are not routine or not related to the Company's
core business activities, which is referred to as "Core FFO", to be
useful financial 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 the ability to pay dividends.

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 an alternative 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 six months ended June 30, 2018 and 2017
(in thousands, except for share and per share amounts):

       
Three Months Ended Six Months Ended
June 30, June 30,
Funds from Operations attributable to common stockholders and
unitholders
2018   2017 2018   2017
Net income available to common stockholders $ 100,440 $ 70,759 $ 191,358 $ 249,723
Adjustments:
Depreciation and amortization 119,330 117,939 238,435 233,442
Gains not included in FFO (22,244) (2,159) (22,244) (114,815)
Depreciation and amortization add back from unconsolidated
co-investments
15,720 13,627 31,579 26,481
Noncontrolling interest related to Operating Partnership units 3,460 2,422 6,592 8,568
Depreciation attributable to third party ownership and other (233) (26) (465) (51)
Funds from Operations attributable to common stockholders and
unitholders
$ 216,473 $ 202,562 $ 445,255 $ 403,348
FFO per share – diluted $ 3.17 $ 2.97 $ 6.52 $ 5.93
Expensed acquisition and investment related costs $ 68 $ 274 $ 125 $ 830
Loss (gain) on sale of marketable securities 131 (13) (549) (1,618)
Unrealized (gains) losses on marketable securities (122) - 754 -
Interest rate hedge ineffectiveness (1) 40 (14) 96 (20)
Co-investment promote income - - (20,541) -
Income from early redemption of preferred equity investments (1,578) (248) (1,602) (248)
Insurance reimbursements, legal settlements, and other, net (450) - 1,983 (25)
Core Funds from Operations attributable to common stockholders
and unitholders
$ 214,562 $ 202,561 $ 425,521 $ 402,267
Core FFO per share – diluted $ 3.14 $ 2.97 $ 6.23 $ 5.91
Weighted average number of shares outstanding diluted (2) 68,331,709 68,145,911 68,324,230 68,058,495
 

(1)

  Interest rate swaps are generally adjusted to fair value through
other comprehensive income (loss). However, because certain of our
interest rate swaps do not have a 0% LIBOR floor, while related
hedged debt in these cases is subject to a 0% LIBOR floor, the
portion of the change in fair value of these interest rate swaps
attributable to this mismatch is recorded as noncash interest rate
hedge ineffectiveness through interest expense.

(2)

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.
 

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 condensed 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 revenue 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 Six Months Ended
June 30, June 30,
2018   2017 2018   2017
Earnings from operations $ 116,272 $ 112,247 $ 226,819 $ 221,478
Adjustments:

Corporate-level property management expenses

7,782 7,522 15,552 15,031
Depreciation and amortization 119,330 117,939 238,435 233,442

Management and other fees from affiliates

(2,197) (2,296) (4,505) (4,532)
General and administrative 11,125 10,337 25,938 20,938

Expensed acquisition and investment related costs

68 274 125 830
NOI 252,380 246,023 502,364 487,187
Less: Non-same property NOI (19,616) (20,082) (38,337) (38,059)
Same-Property NOI $ 232,764 $ 225,941 $ 464,027 $ 449,128
 

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," "believes," "seeks," "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 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, 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 the
economic conditions, 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 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 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; there may be a
downturn in general economic conditions, the real estate industry, and
the markets in which the Company's communities are located; changes in
laws or regulations; the terms of any refinancing may not be as
favorable as the terms of existing indebtedness; and those risks,
special considerations, and other factors referred to in the Company's
quarterly reports on Form 10-Q, in the Company's annual report on Form
10-K for the year ended December 31, 2017, and in the Company's other
filings with the SEC. 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.

View Comments and Join the Discussion!