Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced
today its third quarter 2023 earnings results and related business
activities.
Net Income, Funds from Operations (“FFO”), and Core FFO per
diluted share for the three and nine months ended September 30,
2023 are detailed below.
Three Months Ended
September 30,
Nine Months Ended September
30,
%
%
2023
2022
Change
2023
2022
Change
Per Diluted
Share
Net Income
$1.36
$1.43
-4.9%
$5.30
$3.42
55.0%
Total FFO
$3.69
$3.45
7.0%
$11.37
$9.93
14.5%
Core FFO
$3.78
$3.69
2.4%
$11.21
$10.75
4.3%
Third Quarter 2023
Highlights:
- Reported Net Income per diluted share for the third quarter of
2023 of $1.36, compared to $1.43 in the third quarter of 2022.
- Achieved Core FFO per diluted share of $3.78, representing 2.4%
growth compared to the third quarter of 2022 and exceeding the
midpoint of the guidance range by $0.03.
- Achieved same-property revenues and net operating income
(“NOI”) growth of 3.2% and 2.7%, respectively, compared to the
third quarter of 2022. On a sequential basis, same-property
revenues improved 1.1%.
- Closed $298.0 million in 10-year secured loans priced at a
5.08% fixed interest rate. The proceeds are intended to repay a
majority of the Company’s $400.0 million unsecured notes due in May
2024 upon maturity. In the interim, the Company has reinvested the
proceeds in short-term cash accounts, which will be slightly
accretive to Total and Core FFO until the notes are repaid.
- Committed $12.3 million to one preferred equity investment at a
preferred return of 13.5%.
- Reaffirmed the midpoint of the full-year 2023 guidance ranges
for Core FFO per diluted share as well as same-property revenues,
expenses, and NOI.
- As of October 24, 2023, the Company’s immediately available
liquidity was approximately $1.6 billion.
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, 2023 compared to the quarter
ended September 30, 2022, and the sequential percentage change for
the quarter ended September 30, 2023 compared to the quarter ended
June 30, 2023, by submarket for the Company:
Q3 2023 vs. Q3 2022
Q3 2023 vs. Q2 2023
% of Total
Revenue
Change
Revenue Change
Q3 2023 Revenues
Southern California
Los Angeles County
1.2%
0.7%
18.6%
Orange County
4.2%
1.3%
10.5%
San Diego County
8.7%
2.5%
9.0%
Ventura County
4.7%
0.7%
4.1%
Total Southern California
3.8%
1.2%
42.2%
Northern California
Santa Clara County
4.9%
1.4%
19.8%
Alameda County
1.4%
0.8%
7.8%
San Mateo County
2.0%
2.2%
4.6%
Contra Costa County
1.2%
0.8%
5.4%
San Francisco
-1.9%
-1.4%
2.5%
Total Northern California
2.9%
1.1%
40.1%
Seattle Metro
2.3%
0.6%
17.7%
Same-Property Portfolio
3.2%
1.1%
100.0%
The table below illustrates the components that drove the change
in same-property revenues on a year-over-year basis for the three
and nine-month periods ending September 30, 2023 and on a
sequential basis for the third quarter of 2023.
Same-Property Revenue
Components
Q3 2023
vs. Q3 2022
YTD 2023
vs. YTD 2022
Q3 2023
vs. Q2 2023
Scheduled Rents
3.3%
5.1%
1.0%
Delinquencies (1)
-0.6%
-0.7%
0.0%
Cash Concessions
-0.2%
0.0%
0.2%
Vacancy
0.3%
0.2%
-0.3%
Other Income
0.4%
0.3%
0.2%
2023 Same-Property Revenue
Growth
3.2%
4.9%
1.1%
- The year-over-year negative impact from delinquencies is
largely due to lower net delinquency in the prior period, which
benefitted from Emergency Rental Assistance payments of $7.4
million and $31.9 million in the third quarter 2022 and
year-to-date 2022, respectively. This compares to Emergency Rental
Assistance payments of $0.4 million and $2.1 million for the third
quarter of 2023 and year-to-date 2023, respectively. For additional
details, please see page S-16 of the accompanying supplemental
financial information.
Year-Over-Year Change
Year-Over-Year Change
Q3 2023 compared to Q3
2022
YTD 2023 compared to YTD
2022
Revenues
Operating
Expenses
NOI
Revenues
Operating
Expenses
NOI
Southern California
3.8%
5.9%
2.9%
5.5%
6.4%
5.1%
Northern California
2.9%
3.1%
2.9%
4.3%
3.7%
4.5%
Seattle Metro
2.3%
3.9%
1.6%
4.9%
2.4%
6.0%
Same-Property Portfolio
3.2%
4.4%
2.7%
4.9%
4.6%
5.0%
Sequential Change
Q3 2023 compared to Q2
2023
Revenues
Operating
Expenses
NOI
Southern California
1.2%
6.2%
-0.7%
Northern California
1.1%
2.1%
0.7%
Seattle Metro
0.6%
6.0%
-1.5%
Same-Property Portfolio
1.1%
4.5%
-0.3%
Financial Occupancies
Quarter Ended
9/30/2023
6/30/2023
9/30/2022
Southern California
96.3%
96.4%
96.2%
Northern California
96.5%
96.7%
96.0%
Seattle Metro
96.3%
96.9%
95.3%
Same-Property Portfolio
96.4%
96.6%
96.0%
Investment Activity
Other Investments
In September 2023, the Company committed $12.3 million to one
preferred equity investment at a preferred return rate of 13.5%.
The investment was fully funded at closing and is scheduled to
mature in 2028.
Liquidity and Balance Sheet
Common Stock
In the third quarter of 2023, the Company did not issue any
shares of common stock through its equity distribution program or
repurchase any shares through its stock repurchase plan.
Year-to-date through October 24, 2023, the Company has
repurchased 437,026 shares of its common stock totaling $95.7
million, including commissions, at an average price per share of
$218.88. As of October 24, 2023, the Company had $302.7 million of
purchase authority remaining under its stock repurchase plan.
Balance Sheet
In July 2023, the Company closed $298.0 million in 10-year
secured loans priced at a 5.08% fixed interest rate. The proceeds
are intended to repay a majority of the Company’s $400.0 million
unsecured notes due in May 2024 upon maturity. In the interim, the
Company has reinvested the proceeds in short-term cash accounts,
which will be slightly accretive to Total and Core FFO until the
notes are repaid.
As of October 24, 2023, the Company had approximately $1.6
billion in liquidity via undrawn capacity on its unsecured credit
facilities, cash and cash equivalents, and marketable
securities.
Guidance
The table below provides the Company’s 2023 full-year
assumptions for Net Income, Total FFO, Core FFO per diluted share,
and same-property growth, as well as the Company’s fourth quarter
2023 assumptions for Core FFO per diluted share. For additional
details regarding the Company’s 2023 assumptions, please see page
S-14 of the accompanying supplemental financial information.
2023 Full-Year and Fourth Quarter
Guidance
Previous
Range
Previous Midpoint
Revised
Range
Revised Midpoint
Change at the Midpoint
Per Diluted Share
Net Income
$6.74 - $6.98
$6.86
$6.69 - $6.81
$6.75
($0.11)
Total FFO
$15.13 - $15.37
$15.25
$15.10 - $15.22
$15.16
($0.09)
Core FFO
$14.88 - $15.12
$15.00
$14.94 – $15.06
$15.00
-
Q4 2023 Core FFO
-
-
$3.73 - $3.85
$3.79
N/A
Same-Property Growth on a
Cash-Basis(1)
Revenues
4.0% to 4.8%
4.4%
4.2% to 4.6%
4.4%
-
Operating Expenses
3.75% to 4.25%
4.0%
3.75% to 4.25%
4.0%
-
NOI
3.9% to 5.1%
4.5%
4.1% to 4.9%
4.5%
-
- The Company’s guidance midpoint for same-property revenues and
NOI growth on a GAAP basis is 4.6% and 4.9%, respectively.
Conference Call with Management
The Company will host an earnings conference call with
management to discuss its quarterly results on Friday, October 27,
2023 at 10:00 a.m. PT (1:00 p.m. ET), which will be broadcast live
via the Internet at www.essex.com, and accessible via phone by
dialing toll-free, (877) 407-0784, or toll/international, (201)
689-8560. No passcode is necessary.
A rebroadcast of the live call will be available online for 30
days and digitally for 7 days. To access the replay online, go to
www.essex.com and select the third quarter 2023 earnings link. To
access the replay, dial (844) 512-2921 using the replay pin number
13741662. If you are unable to access the information via the
Company’s website, please contact the Investor Relations Department
at investors@essex.com or by calling (650) 655-7800.
Upcoming Events
The Company is scheduled to participate in the National
Association of Real Estate Investment Trusts (“NAREIT”) REITWorld
Conference held at the JW Marriott Los Angeles L.A. LIVE in Los
Angeles, CA from November 14 - 15, 2023. A copy of any materials
provided by the Company at the conference will be made available on
the Investors section of the Company’s website at
www.essex.com.
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 252 apartment communities comprising
approximately 62,000 apartment homes with an additional property in
active development. Additional information about the Company can be
found on the Company’s website at www.essex.com.
This press release and accompanying supplemental financial
information has been furnished to the Securities and Exchange
Commission electronically on Form 8-K and can be accessed from the
Company’s website at www.essex.com. If you are unable to obtain the
information via the Web, please contact the Investor Relations
Department at (650) 655-7800.
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 land and excluding real estate
depreciation (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates), FFO can help investors compare the operating
performance of a real estate company between periods or as compared
to different companies. By further adjusting for items that are not
considered part of the Company’s core business operations, Core FFO
allows investors to compare the core operating performance of the
Company to its performance in prior reporting periods and to the
operating performance of other real estate companies without the
effect of items that by their nature are not comparable from period
to period and tend to obscure the Company’s actual operating
results. FFO and Core FFO do not represent net income or cash flows
from operations as defined by U.S. generally accepted accounting
principles (“GAAP”) and are not intended to indicate whether cash
flows will be sufficient to fund cash needs. These measures should
not be considered as alternatives to net income as an indicator of
the REIT's operating performance or to cash flows as a measure of
liquidity. FFO and Core FFO do not measure whether cash flow is
sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to stockholders. FFO and
Core FFO also do not represent cash flows generated from operating,
investing or financing activities as defined under GAAP. Management
has consistently applied the NAREIT definition of FFO to all
periods presented. However, there is judgment involved and other
REITs’ calculation of FFO may vary from the NAREIT definition for
this measure, and thus their disclosures of FFO may not be
comparable to the Company’s calculation.
The following table sets forth the Company’s calculation of
diluted FFO and Core FFO for the three and nine months ended
September 30, 2023 and 2022 (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
2023
2022
2023
2022
Net income available to common
stockholders
$
87,282
$
92,842
$
340,434
$
223,150
Adjustments:
Depreciation and amortization
137,357
135,511
410,422
403,561
Gains not included in FFO
-
(17,423
)
(59,238
)
(17,423
)
Casualty loss
-
-
433
-
Depreciation and amortization from
unconsolidated co-investments
18,029
18,288
53,486
54,532
Noncontrolling interest related to
Operating Partnership units
3,072
3,247
11,982
7,800
Depreciation attributable to third party
ownership and other
(371
)
(357
)
(1,095
)
(1,064
)
Funds from Operations attributable to
common stockholders and unitholders
$
245,369
$
232,108
$
756,424
$
670,556
FFO per share – diluted
$
3.69
$
3.45
$
11.37
$
9.93
Expensed acquisition and investment
related costs
$
31
$
230
$
375
$
248
Tax expense (benefit) on unconsolidated
co-investments (1)
404
1,755
1,237
(7,863
)
Realized and unrealized losses (gains) on
marketable securities, net
4,577
17,115
(4,294
)
51,126
Provision for credit losses
17
(1
)
51
(64
)
Equity (income) loss from non-core
co-investments (2)
(538
)
1,563
(1,422
)
31,117
Loss on early retirement of debt, net
-
2
-
2
Loss on early retirement of debt from
unconsolidated co-investment
-
1
-
988
Co-investment promote income
-
-
-
(17,076
)
Income from early redemption of preferred
equity investments and notes receivable
-
-
(285
)
(858
)
General and administrative and other,
net
1,743
882
2,570
2,327
Insurance reimbursements, legal
settlements, and other, net
(283
)
(5,069
)
(9,082
)
(5,077
)
Core Funds from Operations attributable
to common stockholders and unitholders
$
251,320
$
248,586
$
745,574
$
725,426
Core FFO per share – diluted
$
3.78
$
3.69
$
11.21
$
10.75
Weighted average number of shares
outstanding diluted (3)
66,445,256
67,341,189
66,537,111
67,503,403
- Represents tax related to net unrealized gains or losses on
technology co-investments.
- Represents the Company's share of co-investment income or loss
from technology co-investments.
- 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 DownREIT limited
partnership units.
Net Operating Income (“NOI”) and
Same-Property NOI Reconciliations
NOI and same-property NOI are considered by management to be
important supplemental performance measures to earnings from
operations included in the Company’s consolidated statements of
income. The presentation of same-property NOI assists with the
presentation of the Company’s operations prior to the allocation of
depreciation and any corporate-level or financing-related costs.
NOI reflects the operating performance of a community and allows
for an easy comparison of the operating performance of individual
communities or groups of communities. In addition, because
prospective buyers of real estate have different financing and
overhead structures, with varying marginal impacts to overhead by
acquiring real estate, NOI is considered by many in the real estate
industry to be a useful measure for determining the value of a real
estate asset or group of assets. The Company defines same-property
NOI as same-property revenues less same-property operating
expenses, including property taxes. Please see the reconciliation
of earnings from operations to NOI and same-property NOI, which in
the table below is the NOI for stabilized properties consolidated
by the Company for the periods presented (dollars in
thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Earnings from operations
$
131,784
$
128,608
$
454,001
$
367,086
Adjustments:
Corporate-level property management
expenses
11,504
10,184
34,387
30,532
Depreciation and amortization
137,357
135,511
410,422
403,561
Management and other fees from
affiliates
(2,785
)
(2,886
)
(8,328
)
(8,313
)
General and administrative
14,611
15,172
43,735
40,541
Expensed acquisition and investment
related costs
31
230
375
248
Casualty loss
-
-
433
-
Gain on sale of real estate and land
-
-
(59,238
)
-
NOI
292,502
286,819
875,787
833,655
Less: Non-same property NOI
(12,523
)
(14,108
)
(40,918
)
(38,755
)
Same-Property NOI
$
279,979
$
272,711
$
834,869
$
794,900
Safe Harbor Statement Under The Private
Litigation Reform Act of 1995:
This press release includes “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are statements which are not
historical facts, including statements regarding the Company's
expectations, estimates, assumptions, hopes, intentions, beliefs
and strategies regarding the future. Words such as “expects,”
“assumes,” “anticipates,” “may,” “will,” “intends,” “plans,”
“projects,” “believes,” “seeks,” “future,” “estimates,” and
variations of such words and similar expressions are intended to
identify such forward-looking statements. Such forward-looking
statements include, among other things, statements regarding the
Company’s expectations related to the continued evolution of the
work-from-home trend, the Company’s intent, beliefs or expectations
with respect to the timing of completion of current development and
redevelopment projects and the stabilization of such projects, the
timing of lease-up and occupancy of its apartment communities, the
anticipated operating performance of its apartment communities, the
total projected costs of development and redevelopment projects,
co-investment activities, qualification as a REIT under the
Internal Revenue Code of 1986, as amended, 2023 same-property
revenue and operating expenses generally and in specific regions,
the real estate markets in the geographies in which the Company’s
properties are located and in the United States in general, the
adequacy of future cash flows to meet anticipated cash needs, its
financing activities and the use of proceeds from such activities,
the availability of debt and equity financing, general economic
conditions including the potential impacts from such economic
conditions, inflation, the labor market, supply chain impacts,
geopolitical tensions and regional conflicts, trends affecting the
Company’s financial condition or results of operations, changes to
U.S. tax laws and regulations in general or specifically related to
REITs or real estate, changes to laws and regulations in
jurisdictions in which communities the Company owns are located,
and other information that is not historical information. While the
Company's management believes the assumptions underlying its
forward-looking statements are reasonable, such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, many of which are beyond the Company’s control, which
could cause the actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. The Company cannot assure the future
results or outcome of the matters described in these statements;
rather, these statements merely reflect the Company’s current
expectations of the approximate outcomes of the matters discussed.
Factors that might cause the Company’s actual results, performance
or achievements to differ materially from those expressed or
implied by these forward-looking statements include, but are not
limited to, the following: potential future outbreaks of infectious
diseases or other health concerns, which could adversely affect the
Company’s business and its tenants, and cause a significant
downturn in general economic conditions, the real estate industry,
and the markets in which the Company's communities are located; the
Company may fail to achieve its business objectives; the actual
completion of development and redevelopment projects may be subject
to delays; the stabilization dates of such projects may be delayed;
the Company may abandon or defer development or redevelopment
projects for a number of reasons, including changes in local market
conditions which make development less desirable, increases in
costs of development, increases in the cost of capital or lack of
capital availability, resulting in losses; the total projected
costs of current development and redevelopment projects may exceed
expectations; such development and redevelopment projects may not
be completed; development and redevelopment projects and
acquisitions may fail to meet expectations; estimates of future
income from an acquired property may prove to be inaccurate;
occupancy rates and rental demand may be adversely affected by
competition and local economic and market conditions; there may be
increased interest rates, inflation, escalated operating costs and
possible recessionary impacts; geopolitical tensions, regional
conflicts and the related impacts on macroeconomic conditions,
including, among other things, interest rates and inflation; the
Company may be unsuccessful in the management of its relationships
with its co-investment partners; future cash flows may be
inadequate to meet operating requirements and/or may be
insufficient to provide for dividend payments in accordance with
REIT requirements; changes in laws or regulations; the terms of any
refinancing may not be as favorable as the terms of existing
indebtedness; unexpected difficulties in leasing of development
projects; volatility in financial and securities markets; the
Company’s failure to successfully operate acquired properties;
unforeseen consequences from cyber-intrusion; the Company’s
inability to maintain our investment grade credit rating with the
rating agencies; government approvals, actions and initiatives,
including the need for compliance with environmental requirements;
and those further risks, special considerations, and other factors
referred to in the Company’s annual report on Form 10-K for the
year ended December 31, 2022, quarterly reports on Form 10-Q, and
those risk factors and special considerations set forth in the
Company's other filings with the SEC which may 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. 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-18.1 through S-18.4, "Reconciliations of Non-GAAP
Financial Measures and Other Terms," of the accompanying
supplemental financial information. The supplemental financial
information is available on the Company's website at
www.essex.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231026692634/en/
Loren Rainey Director, Investor Relations (650) 655-7800
lrainey@essex.com
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