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Section 1: 8-K (8-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 8-K

Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): October 29, 2018

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact Name of Registrant as Specified in its Charter)

001-13106 (Essex Property Trust, Inc.)
333-44467-01 (Essex Portfolio, L.P.)
 (Commission File Number)

Maryland (Essex Property Trust, Inc.)
California (Essex Portfolio, L.P.)
 
77-0369576 (Essex Property Trust, Inc.)
77-0369575 (Essex Portfolio, L.P.)
(State or Other Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification No.)

1100 Park Place, Suite 200
San Mateo, CA 94403
(Address of principal executive offices) (Zip Code)

(650) 655-7800
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):

Essex Property Trust, Inc.
Emerging growth company
Essex Portfolio, L.P.
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.



Item 2.02.
Results of Operations and Financial Condition.

On October 29, 2018, Essex Property Trust, Inc. (the “Company”) issued a press release and supplemental information announcing the Company’s financial results for the quarter and nine months ended September 30, 2018. The Company has posted a copy of the press release and supplemental information on the Company’s website at www.essex.com. A copy of the press release and supplemental information is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.

Item 9.01.
Financial Statements and Exhibits.

(d) Exhibits.

The exhibit listed below is being furnished with this Form 8-K.

99.1
Press Release and Supplemental Information for the quarter and nine months ended September 30, 2018.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.

Date:  October 29, 2018

 
ESSEX PROPERTY TRUST, INC.
     
 
/s/ Angela L. Kleiman
 
Name:
Angela L. Kleiman
 
Title:
Executive Vice President and Chief Financial Officer
     
 
ESSEX PORTFOLIO, L.P.
     
 
By:  Essex Property Trust, Inc.,
 
its General Partner
     
 
/s/ Angela L. Kleiman
 
Name:
Angela L. Kleiman
 
Title:
Executive Vice President and Chief Financial Officer



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)


Exhibit 99.1




Essex Announces Third Quarter 2018 Results

San Mateo, California—October 29, 2018—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its third quarter 2018 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”) and Core FFO per diluted share for the quarter ended September 30, 2018 are detailed below.

   
Three Months Ended
September 30,
%
Nine Months Ended
September 30,
%
   
2018
2017
Change
2018
2017
Change
 
Per Diluted Share
           
 
Net Income
$1.22
$1.21
0.8%
$4.12
$5.00
-17.6%
 
Total FFO
$3.22
$2.97
8.4%
$9.74
$8.90
9.4%
 
Core FFO
$3.15
$2.98
5.7%
$9.38
$8.90
5.4%
               

Third Quarter 2018 Highlights:

·
Reported Net Income per diluted share for the third quarter of 2018 of $1.22, compared to $1.21 in the third quarter of 2017.


·
Grew Core FFO per diluted share by 5.7% compared to the third quarter of 2017, exceeding the midpoint of the guidance range.


·
Achieved same-property gross revenue and net operating income (“NOI”) growth of 2.2% and 2.4%, respectively, compared to the third quarter of 2017.


·
Realized a sequential quarterly increase in same-property revenue growth of 0.9%.


·
Revised full-year 2018 Net Income per diluted share guidance range to $5.18 to $5.28. Provided Net Income guidance range for the fourth quarter of 2018 of $1.06 to $1.16 per diluted share.


·
Revised full-year 2018 Total FFO per diluted share guidance range to $12.80 to $12.90, raising the midpoint by $0.05 per share. Provided Total FFO guidance range for the fourth quarter of 2018 of $3.07 to $3.17 per diluted share.


·
Increased full-year 2018 Core FFO per diluted share guidance by $0.03 per share at the midpoint to a range of $12.51 to $12.61. Provided Core FFO guidance range for the fourth quarter of 2018 of $3.13 to $3.23 per diluted share.

1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com

“We are pleased to report another quarter of healthy growth, driven by strong apartment fundamentals in the major coastal metros of California and Washington. Job growth continues to outpace national averages, contributing to ongoing shortages of rental housing and pushing personal income higher amid tight labor market conditions. We expect these conditions to continue into 2019, with market rents continuing to grow near long-term averages” 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, 2018 compared to the quarter ended September 30, 2017, and the sequential percentage change for the quarter ended September 30, 2018 versus the quarter ended June 30, 2018, by submarket for the Company:

 
Q3 2018 vs.
Q3 2017
Q3 2018 vs.
Q2 2018
% of Total
Revenues
 
Gross Revenues
Gross Revenues
Q3 2018 Revenues
Southern California
 
Los Angeles County
2.2%
1.0%
20.4%
Orange County
1.8%
1.0%
11.2%
San Diego County
3.1%
1.2%
8.8%
Ventura County
3.2%
0.5%
4.5%
Other Southern California
5.2%
2.3%
0.5%
Total Southern California
2.4%
1.0%
45.4%
Northern California
 
Santa Clara County
2.4%
0.8%
15.6%
Alameda County
2.0%
1.0%
7.1%
San Mateo County
3.4%
1.7%
5.1%
Contra Costa County
2.0%
0.6%
5.0%
San Francisco
0.3%
1.1%
3.3%
Other Northern California
-0.5%
-4.3%
0.2%
Total Northern California
2.2%
0.9%
36.3%
Seattle Metro
1.6%
0.7%
18.3%
Same-Property Portfolio
2.2%
0.9%
100.0%

 
Year-Over-Year Growth
 
Year-Over-Year Growth
 
Q3 2018 compared to Q3 2017
 
YTD 2018 compared to YTD 2017
 
Gross
Revenues
Operating
Expenses
NOI
 
Gross
Revenues
Operating
Expenses
NOI
Southern California
2.4%
2.5%
2.4%
 
3.0%
2.2%
3.4%
Northern California
2.2%
-1.7%
3.6%
 
2.3%
0.2%
3.0%
Seattle Metro
1.6%
6.1%
-0.2%
 
3.0%
5.5%
2.0%
Same-Property Portfolio
2.2%
1.8%
2.4%
 
2.8%
2.1%
3.0%

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Sequential Growth
 
Q3 2018 compared to Q2 2018
 
Gross
Revenues
Operating
Expenses
NOI
Southern California
1.0%
6.0%
-0.9%
Northern California
0.9%
2.8%
0.3%
Seattle Metro
0.7%
-0.6%
1.3%
Same-Property Portfolio
0.9%
3.6%
-0.1%

 
Financial Occupancies
 
Quarter Ended
 
9/30/2018
6/30/2018
9/30/2017
Southern California
96.5%
96.8%
96.8%
Northern California
96.3%
96.7%
97.0%
Seattle Metro
96.1%
96.3%
96.2%
Same-Property Portfolio
96.4%
96.7%
96.7%

Investment Activity

In October 2018, Wesco V, LLC (“Wesco V”), one of the Company’s joint ventures, acquired Meridian at Midtown in San Jose, CA for a total contract price of $104.0 million. As part of the transaction, Wesco V assumed a $69.9 million loan with an effective interest rate of 4.5% and a maturity date in 2026. Meridian was built in 2015 and comprises 218 apartment homes near downtown San Jose.

Other Investments

In October 2018, the Company originated an $18.6 million preferred equity investment in a multifamily development, located in Burlingame, CA. The investment has an initial preferred return of 12.0% and matures in 2024.

Liquidity and Balance Sheet

Common Stock

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

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

Balance Sheet

As of October 22, 2018, the Company had $1.2 billion in undrawn capacity on its unsecured credit facilities.

Guidance

For the third quarter of 2018, the Company exceeded the midpoint of the guidance range provided in its second quarter 2018 earnings release for Core FFO by $0.03 per share.

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The following table provides a reconciliation of third quarter 2018 Core FFO per share to the midpoint of the guidance provided in the second quarter 2018 earnings release, which was dated August 1, 2018.

   
Per Diluted
Share
 
Projected midpoint of Core FFO per share for Q3 2018
 
$
3.12
 
NOI from consolidated communities
   
0.01
 
Interest expense and other
   
0.02
 
Core FFO per share for Q3 2018 reported
 
$
3.15
 

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 fourth quarter of 2018, the Company has established a range for Core FFO per diluted share of $3.13 to $3.23.

2018 Full-Year Guidance
   
Previous
Range
   
Previous
Midpoint
   
Revised
Range
   
Revised
Midpoint
 
Per Diluted Share
                       
Net Income
 
$
5.15 - $5.31
   
$
5.23
   
$
5.18 - $5.28
   
$
5.23
 
Total FFO
 
$
12.72 - $12.88
   
$
12.80
   
$
12.80 - $12.90
   
$
12.85
 
Core FFO
 
$
12.44 - $12.62
   
$
12.53
   
$
12.51 - $12.61
   
$
12.56
 
Same-Property Growth
                               
Gross Revenues
 
2.6% to 3.0%
     
2.8
%
 
2.7% to 2.9%
     
2.8
%
Operating Expenses
 
2.4% to 2.8%
     
2.6
%
 
2.5% to 2.7%
     
2.6
%
NOI
 
2.5% to 3.2%
     
2.9
%
 
2.7% to 3.0%
     
2.9
%

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Monday, October 29, 2018 at 12 p.m. PT (3 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 Investors and the third quarter earnings webcast. To access the replay digitally, dial (844) 512-2921 using the Replay Pin Number – 13683691. 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.

- 4 -

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 248 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 Essex 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 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.

- 5 -

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three and nine months ended September 30, 2018 and 2017 (in thousands, except for share and per share amounts):

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
Funds from Operations attributable to common stockholders and unitholders
 
2018
   
2017
   
2018
   
2017
 
Net income available to common stockholders
 
$
80,975
   
$
79,723
   
$
272,333
   
$
329,446
 
Adjustments:
                               
Depreciation and amortization
   
120,852
     
117,451
     
359,287
     
350,893
 
Gains not included in FFO
   
-
     
(10,307
)
   
(22,244
)
   
(125,122
)
Depreciation and amortization from unconsolidated co-investments
   
15,766
     
13,854
     
47,345
     
40,335
 
Noncontrolling interest related to Operating Partnership units
   
2,789
     
2,721
     
9,381
     
11,289
 
Depreciation attributable to third party ownership and other
   
(234
)
   
(23
)
   
(699
)
   
(74
)
Funds from Operations attributable to common stockholders and unitholders
 
$
220,148
   
$
203,419
   
$
665,403
   
$
606,767
 
FFO per share – diluted
 
$
3.22
   
$
2.97
   
$
9.74
   
$
8.90
 
Expensed acquisition and investment related costs
 
$
31
   
$
324
   
$
156
   
$
1,154
 
Gain on sale of marketable securities
   
(120
)
   
(32
)
   
(669
)
   
(1,650
)
Unrealized gains on marketable securities
   
(1,180
)
   
-
     
(426
)
   
-
 
Interest rate hedge ineffectiveness (1)
   
(35
)
   
1
     
61
     
(19
)
Gain on early retirement of debt from unconsolidated co-investment
   
(3,662
)
   
-
     
(3,662
)
   
-
 
Co-investment promote income
   
-
     
-
     
(20,541
)
   
-
 
Income from early redemption of preferred equity investments
   
-
     
(8
)
   
(1,602
)
   
(256
)
Insurance reimbursements, legal settlements, and other, net
   
30
     
335
     
2,013
     
310
 
Core Funds from Operations attributable to common stockholders and unitholders
 
$
215,212
   
$
204,039
   
$
640,733
   
$
606,306
 
Core FFO per share – diluted
 
$
3.15
   
$
2.98
   
$
9.38
   
$
8.90
 
Weighted average number of shares outstanding diluted (2)
   
68,339,057
     
68,392,419
     
68,328,370
     
68,159,766
 


(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.

- 6 -

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
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
Earnings from operations
 
$
113,897
   
$
112,669
   
$
340,716
   
$
334,147
 
Adjustments:
                               
Corporate-level property management expenses
   
7,761
     
7,573
     
23,313
     
22,604
 
Depreciation and amortization
   
120,852
     
117,451
     
359,287
     
350,893
 
Management and other fees from affiliates
   
(2,307
)
   
(2,395
)
   
(6,812
)
   
(6,927
)
General and administrative
   
10,601
     
9,788
     
36,539
     
30,726
 
Expensed acquisition and investment related costs
   
31
     
324
     
156
     
1,154
 
NOI
   
250,835
     
245,410
     
753,199
     
732,597
 
Less: Non-same property NOI
   
(18,274
)
   
(18,214
)
   
(56,611
)
   
(56,273
)
Same-Property NOI
 
$
232,561
   
$
227,196
   
$
696,588
   
$
676,324
 

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.

- 7 -

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.

Contact Information
Barb Pak
Group Vice President of Finance & Investor Relations
(650) 655-7800
bpak@essex.com

- 8 -

Q3 2018 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, 2018
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios September 30, 2018
S-6
Portfolio Summary by County September 30, 2018
S-7
Operating Income by Quarter September 30, 2018
S-8
Same-Property Revenue Results by County Quarters ended September 30, 2018 and 2017, and June 30, 2018
S-9
Same-Property Revenue Results by County Nine months ended September 30, 2018 and 2017 S-9.1
S-9.1
Same-Property Operating Expenses Quarter and Year to Date as of September 30, 2018 and 2017
S-10
Development Pipeline September 30, 2018
S-11
Redevelopment Pipeline September 30, 2018
S-12
Capital Expenditures September 30, 2018
 S-12.1
Co-investments and Preferred Equity Investments September 30, 2018
S-13
Assumptions for 2018 FFO Guidance Range
S-14
Reconciliation of Projected EPS, FFO and Core FFO per diluted share
S-14.1
Summary of Apartment Community Acquisitions and Dispositions Activity
S-15
Preliminary 2019 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
GDP Growth in Essex Metros Consistently Exceeds U.S. and Supports Stronger Household Earnings Growth
S-16.1
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
(Dollars in thousands, except share and per share amounts)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Revenues:
                       
Rental and other property
 
$
348,610
   
$
341,974
   
$
1,040,083
   
$
1,011,908
 
Management and other fees from affiliates
   
2,307
     
2,395
     
6,812
     
6,927
 
     
350,917
     
344,369
     
1,046,895
     
1,018,835
 
                                 
Expenses:
                               
Property operating
   
97,775
     
96,564
     
286,884
     
279,311
 
Corporate-level property management expenses
   
7,761
     
7,573
     
23,313
     
22,604
 
Depreciation and amortization
   
120,852
     
117,451
     
359,287
     
350,893
 
General and administrative
   
10,601
     
9,788
     
36,539
     
30,726
 
Expensed acquisition and investment related costs
   
31
     
324
     
156
     
1,154
 
     
237,020
     
231,700
     
706,179
     
684,688
 
Earnings from operations
   
113,897
     
112,669
     
340,716
     
334,147
 
                                 
Interest expense, net (1)
   
(53,012
)
   
(53,400
)
   
(159,653
)
   
(159,680
)
Interest and other income
   
8,437
     
5,790
     
21,241
     
17,916
 
Equity income from co-investments
   
16,788
     
19,727
     
64,611
     
40,934
 
Gain on sale of real estate and land
   
-
     
249
     
22,244
     
26,423
 
Gain on remeasurement of co-investment
   
-
     
-
     
-
     
88,641
 
Net income
   
86,110
     
85,035
     
289,159
     
348,381
 
Net income attributable to noncontrolling interest
   
(5,135
)
   
(5,312
)
   
(16,826
)
   
(18,935
)
Net income available to common stockholders
 
$
80,975
   
$
79,723
   
$
272,333
   
$
329,446
 
                                 
Net income per share - basic
 
$
1.23
   
$
1.21
   
$
4.12
   
$
5.01
 
                                 
Shares used in income per share - basic
   
66,052,108
     
65,994,896
     
66,047,990
     
65,759,450
 
                                 
Net income per share - diluted
 
$
1.22
   
$
1.21
   
$
4.12
   
$
5.00
 
                                 
Shares used in income per share - diluted
   
66,103,812
     
66,078,283
     
66,093,004
     
65,836,965
 

(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
Selected Line Item Detail
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
(Dollars in thousands)
 
2018
   
2017
   
2018
   
2017
 
                         
Rental and other property
                       
Rental
 
$
324,780
   
$
319,308
   
$
969,461
   
$
943,976
 
Other property
   
23,830
     
22,666
     
70,622
     
67,932
 
Rental and other property
 
$
348,610
   
$
341,974
   
$
1,040,083
   
$
1,011,908
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
38,675
   
$
37,531
   
$
112,378
   
$
108,283
 
Administrative
   
19,500
     
20,431
     
61,211
     
61,119
 
Maintenance and repairs
   
20,132
     
20,323
     
59,742
     
58,409
 
Utilities
   
19,468
     
18,279
     
53,553
     
51,500
 
Property operating expenses
 
$
97,775
   
$
96,564
   
$
286,884
   
$
279,311
 
                                 
Interest and other income
                               
Marketable securities and other interest income
 
$
6,772
   
$
5,504
   
$
18,824
   
$
15,428
 
Gain on sale of marketable securities
   
120
     
32
     
669
     
1,650
 
Unrealized gains on marketable securities (1)
   
1,180
     
-
     
426
     
-
 
Insurance reimbursements, legal settlements, and other, net
   
365
     
254
     
1,322
     
838
 
Interest and other income
 
$
8,437
   
$
5,790
   
$
21,241
   
$
17,916
 
                                 
Equity income from co-investments
                               
Equity income from co-investments
 
$
4,097
   
$
3,688
   
$
12,878
   
$
13,336
 
Income from preferred equity investments
   
9,029
     
5,973
     
25,928
     
17,284
 
Gain on sale of co-investment communities
   
-
     
10,058
     
-
     
10,058
 
Gain on early retirement of debt from unconsolidated co-investment
   
3,662
     
-
     
3,662
     
-
 
Co-investment promote income
   
-
     
-
     
20,541
     
-
 
Income from early redemption of preferred equity investments
   
-
     
8
     
1,602
     
256
 
Equity income from co-investments
 
$
16,788
   
$
19,727
   
$
64,611
   
$
40,934
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
2,789
   
$
2,721
   
$
9,381
   
$
11,289
 
DownREIT limited partners’ distributions
   
1,590
     
1,692
     
4,770
     
4,937
 
Third-party ownership interest
   
756
     
899
     
2,675
     
2,709
 
Noncontrolling interest
 
$
5,135
   
$
5,312
   
$
16,826
   
$
18,935
 

(1)
The Company adopted ASU No. 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”, as of January 1, 2018 using the modified-retrospective method. As a result of this adoption, the Company recognizes mark to market adjustments on equity securities through its income statement on a prospective basis. Prior period results have not been adjusted.

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)
(Dollars in thousands, except share and per share amounts and in footnotes)
 
Three Months Ended
September 30,
     
Nine Months Ended
September 30,
   
   
2018
   
2017
  % Change  
2018
   
2017
  % Change
                             
Funds from operations attributable to common stockholders and unitholders (FFO)
                       
Net income available to common stockholders
 
$
80,975
   
$
79,723
     
$
272,333
   
$
329,446
   
Adjustments:
                                   
Depreciation and amortization
   
120,852
     
117,451
       
359,287
     
350,893
   
Gains not included in FFO
   
-
     
(10,307
)
     
(22,244
)
   
(125,122
)
 
Depreciation and amortization from unconsolidated co-investments
   
15,766
     
13,854
       
47,345
     
40,335
   
Noncontrolling interest related to Operating Partnership units
   
2,789
     
2,721
       
9,381
     
11,289
   
Depreciation attributable to third party ownership and other (2)
   
(234
)
   
(23
)
     
(699
)
   
(74
)
 
Funds from operations attributable to common stockholders and unitholders
 
$
220,148
   
$
203,419
     
$
665,403
   
$
606,767
   
FFO per share-diluted
 
$
3.22
   
$
2.97
 
8.4%
 
$
9.74
   
$
8.90
 
9.4%
                                     
Components of the change in FFO
                                   
Non-core items:
                                   
Expensed acquisition and investment related costs
 
$
31
   
$
324
     
$
156
   
$
1,154
   
Gain on sale of marketable securities
   
(120
)
   
(32
)
     
(669
)
   
(1,650
)
 
Unrealized gains on marketable securities
   
(1,180
)
   
-
       
(426
)
   
-
   
Interest rate hedge ineffectiveness (3)
   
(35
)
   
1
       
61
     
(19
)
 
Gain on early retirement of debt from unconsolidated co-investment
   
(3,662
)
   
-
       
(3,662
)
   
-
   
Co-investment promote income
   
-
     
-
       
(20,541
)
   
-
   
Income from early redemption of preferred equity investments
   
-
     
(8
)
     
(1,602
)
   
(256
)
 
Insurance reimbursements, legal settlements, and other, net
   
30
     
335
       
2,013
     
310
   
Core funds from operations attributable to common stockholders and unitholders
 
$
215,212
   
$
204,039
     
$
640,733
   
$
606,306
   
Core FFO per share-diluted
 
$
3.15
   
$
2.98
 
5.7%
 
$
9.38
   
$
8.90
 
5.4%
                                     
Changes in core items:
                                   
Same-property NOI
 
$
5,365
             
$
20,349
           
Non-same property NOI
   
60
               
253
           
Management and other fees, net
   
(88
)
             
(115
)
         
FFO from co-investments
   
5,377
               
15,196
           
Interest and other income
   
933
               
3,009
           
Interest expense
   
424
               
(53
)
         
General and administrative
   
(672
)
             
(3,239
)
         
Corporate-level property management expenses
   
(188
)
             
(709
)
         
Other items, net
   
(38
)
             
(264
)
         
   
$
11,173
             
$
34,427
           
                                     
Weighted average number of shares outstanding diluted (4)
   
68,339,057
     
68,392,419
       
68,328,370
     
68,159,766
   

(1)
Refer to page S-17.2, the section titled “Funds from Operations (“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, 2018 was $1.3 million and $3.8 million, respectively.
(3)
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, if any, is recorded as noncash interest rate hedge ineffectiveness through interest expense.
(4)
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, 2018
   
December 31, 2017
 
             
Real Estate:
           
Land and land improvements
 
$
2,710,139
   
$
2,719,064
 
Buildings and improvements
   
10,744,841
     
10,643,009
 
     
13,454,980
     
13,362,073
 
Less:  accumulated depreciation
   
(3,113,386
)
   
(2,769,297
)
     
10,341,594
     
10,592,776
 
Real estate under development
   
403,644
     
355,735
 
Co-investments
   
1,267,593
     
1,155,984
 
     
12,012,831
     
12,104,495
 
Cash and cash equivalents, including restricted cash
   
174,626
     
61,126
 
Marketable securities
   
210,596
     
190,004
 
Notes and other receivables
   
69,166
     
100,926
 
Prepaid expenses and other assets
   
50,924
     
39,155
 
Total assets
 
$
12,518,143
   
$
12,495,706
 
                 
Unsecured debt, net
 
$
3,798,705
   
$
3,501,709
 
Mortgage notes payable, net
   
1,834,967
     
2,008,417
 
Lines of credit
   
-
     
179,000
 
Distributions in excess of investments in co-investments
   
-
     
36,726
 
Other liabilities
   
411,778
     
333,823
 
Total liabilities
   
6,045,450
     
6,059,675
 
Redeemable noncontrolling interest
   
36,665
     
39,206
 
Equity:
               
Common stock
   
7
     
7
 
Additional paid-in capital
   
7,133,587
     
7,129,571
 
Distributions in excess of accumulated earnings
   
(808,085
)
   
(833,726
)
Accumulated other comprehensive loss, net
   
(8,548
)
   
(18,446
)
Total stockholders’ equity
   
6,316,961
     
6,277,406
 
Noncontrolling interest
   
119,067
     
119,419
 
Total equity
   
6,436,028
     
6,396,825
 
Total liabilities and equity
 
$
12,518,143
   
$
12,495,706
 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-4

E S S E X  P R O P E R T Y  T R U S T, I N C.

Debt Summary - September 30, 2018
(Dollars in thousands, except in footnotes)
                                 
                                     
                                     
               
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
 
                                     
     
                         
 
Balance
Outstanding
 

Weighted Average
     
Unsecured
 
Secured
 
Total
 
Weighted
Average
Interest
Rate
 
Percentage
of
Total
Debt
 
Interest
Rate
 
Maturity
in Years
Unsecured Debt, net
                                   
Bonds private - fixed rate
$
275,000
   
4.5
%
 
2.3
   
2018
$
-
 
$
68,054
 
$
68,054
   
5.8
%
 
1.2
%
Bonds public - fixed rate
 
3,200,000
   
3.9
%
 
7.9
   
2019
 
75,000
   
530,688
   
605,688
   
4.4
%
 
10.7
%
Term loan (1)
 
350,000
   
2.8
%
 
3.4
   
2020
 
-
   
693,723
   
693,723
   
5.0
%
 
12.3
%
Unamortized net discounts and debt issuance costs
 
(26,295
)
 
-
   
-
   
2021
 
500,000
   
43,604
   
543,604
   
4.5
%
 
9.6
%
   
3,798,705
   
3.8
%
 
7.1
   
2022
 
650,000
   
41,178
   
691,178
   
3.3
%
 
12.3
%
Mortgage Notes Payable, net
                   
2023
 
600,000
   
852
   
600,852
   
3.7
%
 
10.7
%
Fixed rate - secured
 
1,548,409
   
4.7
%
 
2.2
   
2024
 
400,000
   
932
   
400,932
   
4.0
%
 
7.1
%
Variable rate - secured (2)
 
269,766
   
2.3
%
 
17.9
   
2025
 
500,000
   
14,619
   
514,619
   
3.6
%
 
9.1
%
Unamortized premiums and debt issuance costs, net
 
16,792
   
-
   
-
   
2026
 
450,000
   
53,601
   
503,601
   
3.5
%
 
8.9
%
Total mortgage notes payable
 
1,834,967
   
4.4
%
 
4.5
   
2027
 
350,000
   
153,955
   
503,955
   
3.6
%
 
8.9
%
                     
2028
 
-
   
53,332
   
53,332
   
4.0
%
 
1.0
%
Unsecured Lines of Credit
                   
Thereafter
 
300,000
   
163,637
   
463,637
   
3.8
%
 
8.2
%
Line of credit (3)
 
-
   
3.0
%
       
Subtotal
 
3,825,000
   
1,818,175
   
5,643,175
   
4.0
%
 
100.0
%
Line of credit (4)
 
-
   
3.0
%
       
Debt Issuance Costs
 
(19,334
)
 
(4,418
)
 
(23,752
)
NA
 
NA
 
Total lines of credit
 
-
   
3.0
%
       
(Discounts)/Premiums
 
(6,961
)
 
21,210
   
14,249
 
NA
 
NA
 
                     
Total
$
3,798,705
 
$
1,834,967
 
$
5,633,672
   
4.0
%
 
100.0
%
Total debt, net
$
5,633,672
   
4.0
%
                                         
                                                       

Capitalized interest for the three and nine months ended September 30, 2018 was approximately $4.9 million and $13.3 million, respectively.

(1)
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 million, which effectively converts the interest rate on $175 million of the term loan to a fixed rate of 2.3%.
(2)
$269.8 million of variable rate debt is tax exempt to the note holders. $9.9 million is subject to interest rate cap protection agreements.
(3)
This unsecured line of credit facility has a capacity of $1.2 billion. The line matures in December 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 0.875%.
(4)
This unsecured line of credit facility has a capacity $35.0 million and is scheduled to mature in January 2020. 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 0.875%.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-5

E S S E X  P R O P E R T Y  T R U S T, I N C.

Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - September 30, 2018
(Dollars and shares in thousands, except per share amounts)

                       
Capitalization Data
         
Public Bond Covenants (1)
 
Actual
 
Requirement
 
Total debt, net
 
$
5,633,672
                   
               
Adjusted Debt to Adjusted Total Assets:
   
36%

< 65%
 
Common stock and potentially dilutive securities
                             
Common stock outstanding
   
66,055
                     
Limited partnership units (1)
   
2,235
                     
Options-treasury method
   
59
     
Secured Debt to Adjusted Total Assets:
   
12%

< 40%
 
Total shares of common stock and potentially dilutive securities
   
68,349
                     
                                    
Common stock price per share as of September 30, 2018
 
$
246.71
                     
               
Interest Coverage:
   
433%

> 150%
 
Total equity capitalization
 
$
16,862,382
                     
                                    
Total market capitalization
 
$
22,496,054
     
Unsecured Debt Ratio (2):
   
287%

> 150%
 
                                    
Ratio of debt to total market capitalization
   
25.0
%
 

               
               
Selected Credit Ratios (3)
 
Actual
     
Credit Ratings
                               
Rating Agency
Rating
Outlook
           
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
   
5.5
     
Fitch
BBB+
Positive
                             
Moody’s
Baa1
Stable
           
Unencumbered NOI to Adjusted Total NOI:
   
73%

   
Standard & Poor’s
BBB+
Stable
                             
 
 
 
(1)     Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock.
 
(1)     Refer to page S-17.4 for additional information on the Company’s Public Bond Covenants.
     
   
(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, 2018


Region - County
  
Apartment Homes
   
Average Monthly Rental Rate (1)
   
Percent of NOI (2)
 
Consolidated(3)
   
Unconsolidated
Co-investments(3)
   
Apartment
Homes in
Development(4)
   
Total
   
Consolidated
   
Unconsolidated
Co-investments(5)
   
Total(6)
   
Consolidated
   
Unconsolidated
Co-investments(5)
   
Total(6)
 
                                                             
Southern California
                                                           
Los Angeles County
   
9,387
     
1,563
     
200
     
11,150
   
$
2,436
   
$
2,095
   
$
2,409
     
19.7
%
   
12.4
%
   
19.0
%
Orange County
   
5,553
     
1,149
     
-
     
6,702
     
2,170
     
1,882
     
2,143
     
10.4
%
   
8.3
%
   
10.2
%
San Diego County
   
4,824
     
616
     
-
     
5,440
     
1,924
     
1,789
     
1,916
     
8.2
%
   
4.2
%
   
7.8
%
Ventura County
   
2,577
     
693
     
-
     
3,270
     
1,806
     
2,131
     
1,847
     
4.4
%
   
6.2
%
   
4.6
%
Other Southern CA
   
623
     
249
     
-
     
872
     
1,634
     
1,619
     
1,631
     
0.9
%
   
1.5
%
   
0.9
%
Total Southern California
   
22,964
     
4,270
     
200
     
27,434
     
2,172
     
1,975
     
2,155
     
43.6
%
   
32.6
%
   
42.5
%
                                                                                 
Northern California
                                                                               
Santa Clara County
   
7,356
     
2,266
     
745
     
10,367
     
2,745
     
2,866
     
2,762
     
18.9
%
   
27.1
%
   
19.7
%
Alameda County
   
2,954
     
1,983
     
-
     
4,937
     
2,543
     
2,350
     
2,492
     
6.9
%
   
19.4
%