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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): April 24, 2019

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.)
 
77-0369576 (Essex Property Trust, Inc.)
California (Essex Portfolio, L.P.)
 
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 April 24, 2019 Essex Property Trust, Inc. (the “Company”) issued a press release and supplemental information announcing the Company’s financial results for the quarter ended March 31, 2019. 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 ended March 31, 2019.


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:  April 24, 2019

 
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 First Quarter 2019 Results

San Mateo, California—April 24, 2019—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its first quarter 2019 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the quarter ended March 31, 2019 are detailed below.


  
Three Months Ended
March 31,


%
Change
  
2019
   
2018
Per Diluted Share
                 
Net Income
 

$1.81
   
$1.38
     
31.2%

Total FFO
 

$3.34
   
$3.35
     
-0.3%

Core FFO
 
$3.23
   
$3.09
     
4.5%

                         

First Quarter 2019 Highlights:


Reported Net Income per diluted share for the first quarter of 2019 of $1.81, compared to $1.38 in the first quarter of 2018.  The increase is largely attributable to a gain on remeasurement of co-investments in the first quarter of 2019.


Grew Core FFO per diluted share by 4.5% compared to the first quarter of 2018.


Achieved same-property gross revenue and net operating income (“NOI”) growth of 3.1% and 2.8%, respectively, compared to the first quarter of 2018.


Increased the dividend by 4.8% to an annual distribution of $7.80 per common share, our 25th consecutive annual increase.


Revised full-year Net Income per diluted share guidance range to $5.49 to $5.83. Provided Net Income guidance range for the second quarter of $1.18 to $1.28 per diluted share.


Revised full-year Total FFO per diluted share guidance range to $13.01 to $13.35, raising the midpoint by $0.16 per share. Provided Total FFO guidance range for the second quarter of $3.18 to $3.28 per diluted share.


Increased full-year Core FFO per diluted share guidance by $0.05 per share at the midpoint to a range of $12.90 to $13.25. Provided Core FFO guidance range for the second quarter of $3.17 to $3.27 per diluted share.


Reaffirmed full-year guidance for same-property revenues, expenses, and NOI growth.

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


“We are pleased with our first quarter results as operating fundamentals in our West Coast markets continue to be healthy, resulting in Core FFO exceeding guidance.  Our Northern California and Seattle regions continue to lead the portfolio with solid demand, led by the technology sector, which is driving above-average job and wage growth relative to the U.S.  Our results in Southern California continue to be strong, even though job growth underperformed our expectations. Overall, we remain on-track to achieve rent growth of approximately 3% in our markets for the full-year 2019,” 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 March 31, 2019 compared to the quarter ended March 31, 2018, and the sequential percentage change for the quarter ended March 31, 2019 compared to the quarter ended December 31, 2018, by submarket for the Company:

   
Q1 2019 vs.
Q1 2018
   
Q1 2019 vs.
Q4 2018
   
% of Total
 
   
Gross
Revenues
   
Gross
Revenues
   
Q1 2019
Revenues
 
Southern California
     
Los Angeles County
   
3.7%

   
1.1%

   
19.1%

Orange County
   
2.0%

   
0.2%

   
10.9%

San Diego County
   
2.9%

   
0.5%

   
8.5%

Ventura County and Other
   
3.2%

   
1.3%

   
4.8%

Total Southern California
   
3.0%

   
0.8%

   
43.3%

Northern California
     
Santa Clara County
   
3.8%

   
1.3%

   
18.8%

Alameda County
   
2.6%

   
0.7%

   
6.9%

San Mateo County
   
4.5%

   
1.8%

   
5.0%

Contra Costa County
   
1.7%

   
0.8%

   
4.8%

San Francisco
   
3.1%

   
0.9%

   
3.3%

Total Northern California
   
3.4%

   
1.2%

   
38.8%

Seattle Metro
   
2.6%

   
0.8%

   
17.9%

Same-Property Portfolio
   
3.1%

   
0.9%

   
100.0%


   
Year-Over-Year Growth
 
   
Q1 2019 compared to Q1 2018
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
3.0%

   
3.0%

   
3.1%

Northern California
   
3.4%

   
0.9%

   
4.2%

Seattle Metro
   
2.6%

   
12.2%

   
-1.2%

Same-Property Portfolio
   
3.1%

   
3.9%

   
2.8%


- 2 -

   
Sequential Growth
 
   
Q1 2019 compared to Q4 2018
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
0.8%

   
-0.2%

   
1.1%

Northern California
   
1.2%

   
-2.5%

   
2.5%

Seattle Metro
   
0.8%

   
4.4%

   
-0.8%

Same-Property Portfolio
   
0.9%

   
-0.2%

   
1.3%


   
Financial Occupancies
 
   
Quarter Ended
 
   
3/31/2019
   
12/31/2018
   
3/31/2018
 
Southern California
   
96.8%

   
96.7%

   
96.9%

Northern California
   
97.1%

   
96.9%

   
97.4%

Seattle Metro
   
96.9%

   
96.7%

   
96.9%

Same-Property Portfolio
   
96.9%

   
96.8%

   
97.1%


Investment Activity

Real Estate

In March 2019, the Company purchased its joint venture partner’s 45.0% interest in One South Market, a 312 unit apartment community located in San Jose, CA for a pro rata contract price of $80.6 million. Concurrent with the closing of the acquisition, $86.0 million in mortgage debt was repaid. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of $31.5 million, which has been excluded from Total and Core FFO. Furthermore, the company recognized $0.8 million in promote income, which has been excluded from the calculation of Core FFO.

Preferred Equity

In February 2019, the Company originated a $24.5 million preferred equity investment in a multifamily development, located in Mountain View, CA. The investment has an initial preferred return of 11.0% and matures in 2024.

In February 2019, the Company received cash of $10.9 million from the redemption of a preferred equity investment in a property located in San Jose, CA. The Company recorded $0.1 million of income from prepayment penalties as a result of the early redemption, which has been excluded from Core FFO.

In March 2019, the Company originated a $36.0 million preferred equity investment in a multifamily development, located in Irvine, CA. The initial funding for this investment is expected to occur at the beginning of the third quarter of 2019 and be fully funded by the end of September. The investment has an initial preferred return of 10.2% and matures in 2022.

Subsequent to quarter end, the Company received $16.3 million from the redemption of a preferred equity investment in a property located in Orange County, CA.

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Liquidity and Balance Sheet

Common Stock

In January 2019, the Company repurchased 234,061 shares of its common stock totaling $57.0 million, including commissions, at an average price of $243.48 per share. In February 2019, Essex’s Board of Directors approved the replenishment of the stock repurchase plan, increasing the repurchase authority to $250.0 million.  As of March 31, 2019, the Company had $250.0 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 first quarter of 2019.

Balance Sheet

During the first quarter of 2019, the Company issued $500.0 million of 10-year senior unsecured notes due in 2029 at an interest rate per annum of 4.0% and an effective yield of 4.0%.  The proceeds were used to repay $441.4 million of secured debt during the quarter with a cash rate of 5.3% and an effective rate of 4.0%.

As of April 22, 2019, the Company had $1.1 billion in undrawn capacity on its unsecured credit facilities.

Guidance

For the first quarter of 2019, the Company exceeded the midpoint of the guidance range provided in its fourth quarter 2018 earnings release for Core FFO by $0.04 per share.

The following table provides a reconciliation of first quarter 2019 Core FFO per share to the midpoint of the guidance provided in the fourth quarter 2018 earnings release, which was dated January 30, 2019.

   
Per Diluted
Share
 
Projected midpoint of Core FFO per share for Q1 2019
 
$
3.19
 
NOI from consolidated communities
   
0.04
 
FFO from Co-Investments
   
0.02
 
G&A and other
   
(0.02
)
Core FFO per share for Q1 2019 reported
 
$
3.23
 

The table below provides key changes to the 2019 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth. For additional details regarding the Company’s 2019 assumptions, please see page S-14 of the accompanying supplemental financial information. For the second quarter of 2019, the Company has established a range for Core FFO per diluted share of $3.17 to $3.27.

- 4 -

2019 Full-Year Guidance

   
Previous
Range
   
Previous
Midpoint
   
Revised
Range
   
Revised
Midpoint
 
Per Diluted Share
                       
Net Income
 
$4.81 - $5.21
   
$5.01
   
$5.49 - $5.83
   
$5.66
 
Total FFO
 
$12.82 - $13.22
   
$13.02
   
$13.01 - $13.35
   
$13.18
 
Core FFO
 
$12.83 - $13.23
   
$13.03
   
$12.90 - $13.25
   
$13.08
 
Same-Property Growth
                               
Gross Revenues
 
2.5% to 3.5%
     
3.0%

 
2.5% to 3.5%
     
3.0%

Operating Expenses
 
2.5% to 3.5%
     
3.0%

 
2.5% to 3.5%
     
3.0%

NOI
 
2.1% to 3.9%
     
3.0%

 
2.1% to 3.9%
     
3.0%


Upcoming Events

The Company is scheduled to participate in the National Association of Real Estate Investment Trusts (“NAREIT”) Institutional Investor Forum in New York from June 4 - 6, 2019. The Company’s President and Chief Executive Officer, Michael J. Schall, will present at the conference on June 4, 2019 at 3 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.

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, April 25, 2019 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 first quarter 2019 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13688957. 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. Essex currently has ownership interests in 245 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.

- 5 -

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.

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.

- 6 -

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three months ended March 31, 2019 and 2018 (in thousands, except for share and per share amounts):

   
Three Months Ended
March 31,
 
Funds from Operations attributable to common stockholders and unitholders
 
2019
   
2018
 
Net income available to common stockholders
 
$
118,858
   
$
90,918
 
Adjustments:
               
Depreciation and amortization
   
120,568
     
119,105
 
Gains not included in FFO
   
(31,535
)
   
-
 
Depreciation and amortization add back from unconsolidated co-investments
   
15,190
     
15,859
 
Noncontrolling interest related to Operating Partnership units
   
4,171
     
3,132
 
Depreciation attributable to third party ownership and other
   
(230
)
   
(232
)
Funds from Operations attributable to common stockholders and unitholders
 
$
227,022
   
$
228,782
 
FFO per share – diluted
 
$
3.34
   
$
3.35
 
Expensed acquisition and investment related costs
 
$
32
   
$
57
 
Loss (gain) on sale of marketable securities
   
58
     
(680
)
Unrealized (gains) losses on marketable securities
   
(4,510
)
   
876
 
Unrealized gain on unconsolidated co-investments
   
(314
)
   
-
 
Interest rate hedge ineffectiveness (1)
   
181
     
56
 
Gain on early retirement of debt, net
   
(1,336
)
   
-
 
Co-investment promote income
   
(809
)
   
(20,541
)
Income from early redemption of preferred equity investments
   
(100
)
   
(24
)
General and administrative and other, net
   
-
     
2,433
 
Insurance reimbursements and legal settlements, net
   
(210
)
   
-
 
Core Funds from Operations attributable to common stockholders and unitholders
 
$
220,014
   
$
210,959
 
Core FFO per share – diluted
 
$
3.23
   
$
3.09
 
Weighted average number of shares outstanding diluted (2)
   
68,048,908
     
68,318,012
 


(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. 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 $181,000 from interest expense to accumulated other comprehensive income.

(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.

- 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 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
March 31,
 
   
2019
   
2018
 
Earnings from operations
 
$
115,695
   
$
110,547
 
Adjustments:
               
Corporate-level property management expenses
   
8,153
     
7,770
 
Depreciation and amortization
   
120,568
     
119,105
 
Management and other fees from affiliates
   
(2,335
)
   
(2,308
)
General and administrative
   
13,459
     
14,813
 
Expensed acquisition and investment related costs
   
32
     
57
 
NOI
   
255,572
     
249,984
 
Less: Non-same property NOI
   
(12,738
)
   
(13,662
)
Same-Property NOI
 
$
242,834
   
$
236,322
 

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.

- 8 -

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 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. 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
Rylan Burns
Director of Investor Relations
(650) 655-7800
rburns@essex.com

- 9 -

Q1 2019 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 – March 31, 2019
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – March 31, 2019
S-6
Portfolio Summary by County – March 31, 2019
S-7
Operating Income by Quarter – March 31, 2019
S-8
Same-Property Revenue Results by County – Quarters ended March 31, 2019 and 2018, and December 31, 2018
S-9
Same-Property Operating Expenses – Quarters ended March 31, 2019 and 2018
S-10
Development Pipeline – March 31, 2019
S-11
Redevelopment Pipeline – March 31, 2019
S-12
Capital Expenditures – March 31, 2019
S-12.1
Co-investments and Preferred Equity Investments – March 31, 2019
S-13
Assumptions for 2019 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
2019 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
Slower Pace of Residential Permitting Suggests Gradual Moderation in Supply Deliveries
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
March 31,
 
   
2019
   
2018
 
             
Revenues:
           
Rental and other property
 
$
353,888
   
$
344,947
 
Management and other fees from affiliates
   
2,335
     
2,308
 
     
356,223
     
347,255
 
                 
Expenses:
               
Property operating
   
98,316
     
94,963
 
Corporate-level property management expenses
   
8,153
     
7,770
 
Depreciation and amortization
   
120,568
     
119,105
 
General and administrative
   
13,459
     
14,813
 
Expensed acquisition and investment related costs
   
32
     
57
 
     
240,528
     
236,708
 
Earnings from operations
   
115,695
     
110,547
 
Interest expense, net (1)
   
(51,598
)
   
(52,591
)
Interest and other income
   
12,261
     
5,909
 
Equity income from co-investments
   
16,276
     
32,774
 
Gain on early retirement of debt, net
   
1,336
     
-
 
Gain on remeasurement of co-investment
   
31,535
     
-
 
Net income
   
125,505
     
96,639
 
Net income attributable to noncontrolling interest
   
(6,647
)
   
(5,721
)
Net income available to common stockholders
 
$
118,858
   
$
90,918
 
                 
Net income per share - basic
 
$
1.81
   
$
1.38
 
                 
Shares used in income per share - basic
   
65,702,788
     
66,044,022
 
                 
Net income per share - diluted
 
$
1.81
   
$
1.38
 
                 
Shares used in income per share - diluted
   
65,783,869
     
66,082,517
 

(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
March 31,
 
(Dollars in thousands)
 
2019
   
2018
 
             
Rental and other property (1)
           
Rental income
 
$
347,805
   
$
339,015
 
Other property
   
6,083
     
5,932
 
Rental and other property
 
$
353,888
   
$
344,947
 
                 
Property operating expenses
               
Real estate taxes
 
$
39,418
   
$
37,713
 
Administrative
   
21,386
     
20,877
 
Maintenance and repairs
   
19,666
     
19,448
 
Utilities
   
17,846
     
16,925
 
Property operating expenses
 
$
98,316
   
$
94,963
 
                 
Interest and other income
               
Marketable securities and other income
 
$
7,599
   
$
6,105
 
(Loss) gain on sale of marketable securities
   
(58
)
   
680
 
Unrealized gains (losses) on marketable securities
   
4,510
     
(876
)
Insurance reimbursements and legal settlements, net
   
210
     
-
 
Interest and other income
 
$
12,261
   
$
5,909
 
                 
Equity income from co-investments
               
Equity income from co-investments
 
$
4,985
   
$
4,289
 
Income from preferred equity investments
   
10,068
     
7,920
 
Unrealized gain on unconsolidated co-investments
   
314
     
-
 
Co-investment promote income
   
809
     
20,541
 
Income from early redemption of preferred equity investments
   
100
     
24
 
Equity income from co-investments
 
$
16,276
   
$
32,774
 
                 
Noncontrolling interest
               
Limited partners of Essex Portfolio, L.P.
 
$
4,171
   
$
3,132
 
DownREIT limited partners' distributions
   
1,564
     
1,590
 
Third-party ownership interest
   
912
     
999
 
Noncontrolling interest
 
$
6,647
   
$
5,721
 

(1)
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases.” As a result of this adoption certain amounts previously classified as other property revenue have been reclassified to rental income. Prior period amounts have been adjusted to conform to the current period’s presentation.



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
March 31,
       
   
2019
   
2018
   
% Change
 
                   
Funds from operations attributable to common stockholders and unitholders (FFO)
                 
Net income available to common stockholders
 
$
118,858
   
$
90,918
       
Adjustments:
                     
Depreciation and amortization
   
120,568
     
119,105
       
Gains not included in FFO
   
(31,535
)
   
-
       
Depreciation and amortization from unconsolidated co-investments
   
15,190
     
15,859
       
Noncontrolling interest related to Operating Partnership units
   
4,171
     
3,132
       
Depreciation attributable to third party ownership and other (2)
   
(230
)
   
(232
)
     
Funds from operations attributable to common stockholders and unitholders
 
$
227,022
   
$
228,782
       
FFO per share-diluted
 
$
3.34
   
$
3.35
     
-0.3
%
                         
Components of the change in FFO
                       
Non-core items:
                       
Expensed acquisition and investment related costs
 
$
32
   
$
57
         
Loss (gain) on sale of marketable securities
   
58
     
(680
)
       
Unrealized (gains) losses on marketable securities
   
(4,510
)
   
876
         
Unrealized gain on unconsolidated co-investments
   
(314
)
   
-
         
Interest rate hedge ineffectiveness (3)
   
181
     
56
         
Gain on early retirement of debt, net
   
(1,336
)
   
-
         
Co-investment promote income
   
(809
)
   
(20,541
)
       
Income from early redemption of preferred equity investments
   
(100
)
   
(24
)
       
General and administrative and other, net
   
-
     
2,433
         
Insurance reimbursements and legal settlements, net
   
(210
)
   
-
         
Core funds from operations attributable to common stockholders and unitholders
 
$
220,014
   
$
210,959
         
Core FFO per share-diluted
 
$
3.23
   
$
3.09
     
4.5
%
                         
Changes in core items:
                       
Same-property NOI
 
$
6,512
                 
Non-same property NOI
   
(924
)
               
Management and other fees, net
   
27
                 
FFO from co-investments
   
2,175
                 
Interest and other income
   
1,494
                 
Interest expense
   
1,118
                 
General and administrative
   
(1,079
)
               
Corporate-level property management expenses
   
(383
)
               
Other items, net
   
115
                 
   
$
9,055
                 
                         
Weighted average number of shares outstanding diluted (4)
   
68,048,908
     
68,318,012
         

(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 months ended March 31, 2019 was $1.3 million.
(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. 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 $181,000 from interest expense to accumulated other comprehensive income.
(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)
 
March 31, 2019
   
December 31, 2018
 
             
Real Estate:
           
Land and land improvements
 
$
2,727,878
   
$
2,701,356
 
Buildings and improvements
   
10,844,322
     
10,664,745
 
 
   
13,572,200
     
13,366,101
 
Less:  accumulated depreciation
   
(3,329,743
)
   
(3,209,548
)
     
10,242,457
     
10,156,553
 
Real estate under development
   
497,794
     
454,629
 
Co-investments
   
1,307,561
     
1,300,140
 
     
12,047,812
     
11,911,322
 
Cash and cash equivalents, including restricted cash
   
124,126
     
151,395
 
Marketable securities
   
211,030
     
209,545
 
Notes and other receivables
   
71,154
     
71,895
 
Operating lease right-of-use assets
   
76,996
     
-
 
Prepaid expenses and other assets
   
46,883
     
39,439
 
Total assets
 
$
12,578,001
   
$
12,383,596
 
                 
Unsecured debt, net
 
$
4,293,973
   
$
3,799,316
 
Mortgage notes payable, net
   
1,441,828
     
1,806,626
 
Lines of credit
   
-
     
-
 
Operating lease liabilities
   
79,010
     
-
 
Other liabilities
   
408,826
     
348,335
 
Total liabilities
   
6,223,637
     
5,954,277
 
Redeemable noncontrolling interest
   
37,169
     
35,475
 
Equity:
               
Common stock
   
7
     
7
 
Additional paid-in capital
   
7,028,154
     
7,093,079
 
Distributions in excess of accumulated earnings
   
(822,087
)
   
(812,796
)
Accumulated other comprehensive loss, net
   
(14,817
)
   
(13,217
)
Total stockholders' equity
   
6,191,257
     
6,267,073
 
Noncontrolling interest
   
125,938
     
126,771
 
Total equity
   
6,317,195
     
6,393,844
 
Total liabilities and equity
 
$
12,578,001
   
$
12,383,596
 



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 - March 31, 2019
(Dollars in thousands, except in footnotes)

                         
                     
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows -
excludes lines of credit:
 
                                             
Weighted
Average
Interest Rate
   
Percentage of
Total Debt
 
         
Weighted Average
                         
   
Balance
Outstanding
   
Interest
Rate
   
Maturity
in Years
   
   
Unsecured
   
Secured
   
Total
 
Unsecured Debt, net
                   
                               
Bonds private - fixed rate
 
$
275,000
     
4.5
%
   
1.8
   
2019
   
$
75,000
   
$
154,732
   
$
229,732
     
5.0
%
   
4.0
%
Bonds public - fixed rate
   
3,700,000
     
3.9
%
   
7.8
   
2020
     
-
     
693,723
     
693,723
     
5.0
%
   
12.1
%
Term loan (1)
   
350,000
     
3.0
%
   
2.9
   
2021
     
500,000
     
43,604
     
543,604
     
4.5
%
   
9.4
%
Unamortized net discounts and debt issuance costs
   
(31,027
)
   
-
     
-
   
2022
     
650,000
     
41,178
     
691,178
     
3.4
%
   
12.0
%
     
4,293,973
     
3.9
%
   
7.0
   
2023
     
600,000
     
852
     
600,852
     
3.7
%
   
10.4
%
Mortgage Notes Payable, net
                         
2024
     
400,000
     
932
     
400,932
     
4.0
%
   
7.0
%
Fixed rate - secured
   
1,165,489
     
4.8
%
   
2.7
   
2025
     
500,000
     
14,619
     
514,619
     
3.6
%
   
8.9
%
Variable rate - secured (2)
   
269,480
     
2.5
%
   
17.4
   
2026
     
450,000
     
99,405
     
549,405
     
3.5
%
   
9.5
%
Unamortized premiums and debt issuance costs, net
   
6,859
     
-
     
-
   
2027
     
350,000
     
153,955
     
503,955
     
3.6
%
   
8.8
%
Total mortgage notes payable
   
1,441,828
     
4.4
%
   
5.5
   
2028
     
-
     
68,332
     
68,332
     
4.1
%
   
1.2
%
                           
2029
     
500,000
     
31,156
     
531,156
     
4.0
%
   
9.2
%
Unsecured Lines of Credit
                         
Thereafter
     
300,000
     
132,481
     
432,481
     
3.9
%
   
7.5
%
Line of credit (3)
   
-
     
3.2
%
         
Subtotal
     
4,325,000
     
1,434,969
     
5,759,969
     
4.0
%
   
100.0
%
Line of credit (4)
   
-
     
3.2
%
         
Debt Issuance Costs
     
(21,978
)
   
(3,739
)
   
(25,717
)
 
NA
   
NA
 
Total lines of credit
   
-
     
3.2
%
         
(Discounts)/Premiums
     
(9,049
)
   
10,598
     
1,549
   
NA
   
NA
 
                           
Total
   
$
4,293,973
   
$
1,441,828
   
$
5,735,801
     
4.0
%
   
100.0
%
Total debt, net
 
$
5,735,801
     
4.0
%
                                                     
                                                                       

Capitalized interest for the three months ended March 31, 2019 was approximately $5.9 million.

(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)
$269.5 million of variable rate debt is tax exempt to the note holders. $9.9 million is subject to interest rate cap protection agreements.
(3)
As of March 31, 2019, this unsecured line of credit facility had a capacity of $1.2 billion, with a scheduled maturity date in December 2022 with one 18-month extension, exercisable at the Company's option. The underlying interest rate on this line was based on a tiered rate structure tied to the Company's corporate ratings and was LIBOR plus 0.825%.
(4)
This unsecured line of credit facility has a capacity $35.0 million and is scheduled to mature in February 2021. 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

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 - March 31, 2019
(Dollars and shares in thousands, except per share amounts)


                            
Capitalization Data
         
Public Bond Covenants (1)
 
Actual
 
Requirement
 
Total debt, net
 
$
5,735,801
                   
               
Adjusted Debt to Adjusted Total Assets:
   
36%

< 65%
 
Common stock and potentially dilutive securities
                             
Common stock outstanding
   
65,716
                     
Limited partnership units (1)
   
2,259
                     
Options-treasury method
   
104
     
Secured Debt to Adjusted Total Assets:
   
9%

< 40%
 
Total shares of common stock and potentially dilutive securities
   
68,079
                     
                                    
Common stock price per share as of March 31, 2019
 
$
289.24
                     
               
Interest Coverage:
   
442%

> 150%
 
Total equity capitalization
 
$
19,691,170
                     
                                    
Total market capitalization
 
$
25,426,971
     
Unsecured Debt Ratio (2):
   
273%

> 150%
 
                                    
Ratio of debt to total market capitalization
   
22.6
%
                 
               
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:
   
78%

   
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 March 31, 2019

   
Apartment Homes
   
Average Monthly Rental Rate (1)
   
Percent of NOI (2)
 
Region - County
 
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
   
9,097
     
1,563
     
200
     
10,860
   
$
2,424
   
$
2,114
   
$
2,399
     
18.9
%
   
13.1
%
   
18.3
%
Orange County
   
5,553
     
1,149
     
-
     
6,702
     
2,189
     
1,906
     
2,162
     
10.5
%
   
9.1
%
   
10.4
%
San Diego County
   
4,824
     
616
     
-
     
5,440
     
1,941
     
1,814
     
1,934
     
8.2
%
   
4.5
%
   
7.9
%
Ventura County and Other
   
3,200
     
693
     
-
     
3,893
     
1,793
     
2,157
     
1,831
     
5.5
%
   
6.8
%
   
5.5
%
Total Southern California
   
22,674
     
4,021
     
200
     
26,895
     
2,175
     
2,019
     
2,162
     
43.1
%
   
33.5
%
   
42.1
%
                                                                                 
Northern California
                                                                               
Santa Clara County (7)
   
7,931
     
2,006
     
745
     
10,682
     
2,781
     
2,862
     
2,791
     
19.9
%
   
23.9
%
   
20.2
%
Alameda County
   
2,954
     
1,983
     
-
     
4,937
     
2,558
     
2,362
     
2,506
     
6.7
%
   
20.1
%
   
8.0
%
San Mateo County
   
1,951
     
197
     
371
     
2,519
     
3,001
     
2,982
     
2,999
     
5.3
%
   
2.5
%
   
5.1
%
Contra Costa County
   
2,270
     
49
     
-
     
2,319
     
2,327
     
4,684
     
2,352
     
4.8
%
   
0.7
%
   
4.4
%
San Francisco
   
1,343
     
463
     
545
     
2,351
     
3,164
     
3,301
     
3,186
     
3.6
%
   
6.3
%
   
3.9
%
Total Northern California
   
16,449
     
4,698
     
1,661
     
22,808
     
2,736
     
2,717
     
2,733
     
40.3
%
   
53.5
%
   
41.6
%
                                                                                 
Seattle Metro
   
10,238
     
1,582
     
-
     
11,820
     
1,847
     
1,834
     
1,846
     
16.6
%
   
13.0
%
   
16.3
%
                                                                                 
Total
   
49,361
     
10,301
     
1,861
     
61,523
   
$
2,294
   
$
2,312
   
$
2,296
     
100.0
%
   
100.0
%
   
100.0
%

(1)
Average monthly rental rate is defined as the total potential monthly rental income (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the number of apartment homes.
(2)
Actual NOI for the quarter ended March 31, 2019. See the section titled "Net Operating Income ("NOI") and Same-Property NOI Reconciliations" on page S-17.3.
(3)
Includes all apartment communities with rents.
(4)
Includes development communities with no rental income.
(5)
Co-investment amounts weighted for Company's pro rata share.
(6)
At Company's pro rata share.
(7)
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
   
Q1 '19
   
Q4 '18
   
Q3 '18
   
Q2 '18
   
Q1 '18
 
                                     
Rental and other property revenues:
                                   
Same-property
   
47,902
   
$
337,352
   
$
334,298
   
$
331,695
   
$
328,602
   
$
327,267
 
Acquisitions (2)
   
478
     
2,271
     
259
     
-
     
-
     
-
 
Development (3)
   
121
     
1,133
     
1,153
     
1,091
     
450
     
19
 
Redevelopment
   
621
     
5,212
     
5,160
     
5,125
     
5,036
     
5,024
 
Non-residential/other, net (4)
   
239
     
7,920
     
9,917
     
10,699
     
12,438
     
12,637
 
Total rental and other property revenues
   
49,361
     
353,888
     
350,787
     
348,610
     
346,526
     
344,947
 
                                                 
Property operating expenses:
                                               
Same-property
           
94,518
     
94,681
     
93,702
     
90,041
     
90,945
 
Acquisitions (2)
           
796
     
77
     
-
     
-
     
-
 
Development (3)
           
525
     
535
     
638
     
498
     
64
 
Redevelopment
           
1,654
     
1,569
     
1,647
     
1,468
     
1,469
 
Non-residential/other, net (4) (5)
           
823
     
1,588
     
1,788
     
2,139
     
2,485
 
Total property operating expenses
           
98,316
     
98,450
     
97,775
     
94,146
     
94,963
 
                                                 
Net operating income (NOI):
                                               
Same-property
           
242,834
     
239,617
     
237,993
     
238,561
     
236,322
 
Acquisitions (2)
           
1,475
     
182
     
-
     
-
     
-