Essex Announces First Quarter 2014 Results
Robust Housing Conditions Underlie 7.2% Same-Property Revenue
Growth
PALO ALTO, CA--(Marketwired - May 7, 2014) - Essex Property
Trust, Inc. (NYSE: ESS) announced today its first quarter 2014
earnings results and related business activities.
Funds from Operations ("FFO") and Net Income for the quarter
ended March 31, 2014 are detailed below. Total FFO and Net Income
for the quarter ended March 31, 2014 includes $16.1 million in
merger related expenses. Core FFO excludes merger expenses,
acquisition costs and non-recurring items.
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Quarter Ended |
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March 31, |
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% |
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Earnings (in millions) |
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2014 |
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2013 |
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change |
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Total
FFO |
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$67.8 |
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$77.4 |
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-12.4 |
% |
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Core
FFO |
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$81.1 |
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$73.2 |
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10.8 |
% |
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Net
Income |
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$21.9 |
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$25.2 |
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-13.1 |
% |
Per Diluted Share |
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Total
FFO |
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$1.68 |
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$1.97 |
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-14.6 |
% |
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Core
FFO |
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$2.02 |
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$1.87 |
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8.0 |
% |
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Earnings per Share |
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$0.58 |
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$0.68 |
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-14.7 |
% |
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First Quarter
Highlights:
- Completed the merger with BRE Properties on April 1st, creating
the preeminent West Coast multifamily REIT.
- On March 31, 2014, contributed $888 million in BRE properties
to three new co-investment entities to fund a significant portion
of the cash consideration of the BRE merger.
- Grew Core FFO per diluted share by 8.0% compared to Q1
2013.
- Increased same-property gross revenues and net operating income
("NOI") by 7.2% and 8.3%, respectively, compared to Q1 2013.
- Achieved a 1.4% sequential increase in quarterly gross revenues
and 2.6% sequential increase in net operating income ("NOI") for
the same-property portfolio.
- Completed the lease-up of Connolly Station, a 309 unit
community located in Dublin, CA, and began the lease-up of two
additional development communities during the quarter.
- The Company was added to the S&P 500 Index on April 1,
2014.
- Established Core FFO guidance range for the second quarter of
2014 of $1.96 to $2.04 per diluted share, which incorporates the
BRE portfolio and recent financing transactions.
- Revised the full year Core FFO per diluted share range to $8.15
to $8.45, raising the midpoint by $0.05 per share.
"We are pleased to highlight the Company's strong operating
performance as we begin 2014, demonstrated by 7.2% same-property
revenue growth. Fundamentals on the West Coast continue to be
robust, driven by nation-leading job growth and muted deliveries of
new rental and for-sale housing. We are also pleased with the
performance of the legacy BRE portfolio, which generated a 5.6%
increase in same-property revenues in the first quarter," commented
Michael J. Schall, President and Chief Executive Officer of the
Company. Mr. Schall continued, "We are excited that the
consummation of the merger with BRE occurred substantially as
planned, and we look forward to continuing integration efforts for
the next 12-18 months. Our recent capital markets activities
support our belief that the Company's larger operating platform and
unique geographic profile will provide cost of capital benefits
that will complement a variety of synergies that are expected to be
realized from the merger."
Same-Property Operations
Essex same-property operating results exclude 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, 2014 compared to the quarter ended
March 31, 2013, and the sequential percentage change for the
quarter ended March 31, 2014 versus the quarter ended December 31,
2013 by submarket for the Company:
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Q1 2014 vs. Q1 2013 |
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Q1 2014 vs. Q4 2013 |
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% of Total |
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Gross Revenues |
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Gross Revenues |
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Q1 2014 Revenues |
Southern California |
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Los Angeles County |
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4.7% |
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0.9% |
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17.2% |
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Ventura County |
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4.6% |
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1.6% |
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8.9% |
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Orange County |
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5.3% |
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1.1% |
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11.2% |
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San Diego County |
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4.6% |
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1.2% |
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5.6% |
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Other Southern California |
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6.7% |
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0.4% |
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1.8% |
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Total Southern California |
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4.9% |
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1.1% |
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44.7% |
Northern California |
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Santa Clara County |
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9.2% |
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1.9% |
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18.4% |
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Contra Costa County |
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8.0% |
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2.3% |
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6.4% |
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Alameda County |
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11.3% |
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2.7% |
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5.8% |
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Other Northern California |
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10.2% |
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1.1% |
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5.6% |
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Total Northern California |
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9.5% |
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2.0% |
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36.2% |
Seattle Metro |
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8.3% |
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1.3% |
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19.1% |
Same-Property Portfolio |
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7.2% |
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1.4% |
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100.0% |
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Year Over Year Growth |
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Q1 2014 compared to Q1 2013 |
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Gross Revenues |
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Operating Expenses |
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NOI |
Southern California |
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4.9% |
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4.5% |
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5.1% |
Northern California |
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9.5% |
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3.6% |
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12.0% |
Seattle Metro |
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8.3% |
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6.8% |
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9.1% |
Same-property portfolio |
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7.2% |
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4.6% |
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8.3% |
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Sequential Growth |
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Q1 2014 compared to Q4 2013 |
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Gross Revenues |
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Operating Expenses |
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NOI |
Southern California |
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1.1% |
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-1.8% |
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2.5% |
Northern California |
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2.0% |
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-3.3% |
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4.3% |
Seattle Metro |
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1.3% |
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5.1% |
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-0.6% |
Same-property portfolio |
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1.4% |
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-1.0% |
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2.6% |
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Financial Occupancies |
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Quarter Ended |
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3/31/2014 |
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12/31/2013 |
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3/31/2013 |
Southern California |
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96.4% |
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96.3% |
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96.5% |
Northern California |
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96.5% |
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96.1% |
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96.5% |
Seattle Metro |
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96.5% |
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95.9% |
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96.6% |
Same-property portfolio |
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96.5% |
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96.2% |
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96.5% |
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BRE Merger Closed
As previously announced, Essex completed the merger with BRE
Properties (BRE) on April 1, 2014. On March 31, 2014, 17 BRE
properties were contributed to three joint ventures with a total
estimated property value of $888 million. Properties were
contributed to Wesco III, Wesco IV and a joint venture formed with
AEW Capital Management. Please see page S-14 of the supplement for
the list of properties contributed to the joint ventures. As of
April 1, 2014, Essex has a 50% ownership interest in each of the
joint ventures and will receive property management, acquisition,
and redevelopment fees and a promote interest if certain return
hurdles are achieved. New secured mortgage debt totaling $475
million was placed on the properties at LIBOR plus 160 basis points
for a five year initial term with up to two years of extension
options. The Company has swapped 80% of the $475 million of secured
mortgages to an effective fixed rate of 3.6% for a 5.7 year term.
As a result of the joint venture financing, Essex did not utilize
the committed bridge loan facility it had in place at the time the
merger was announced. Please see the press release dated April 1,
2014 for additional details about the merger.
On March 31, 2014, BRE contributed 14 properties valued at $1.4
billion to Essex Portfolio L.P. (the "Operating Partnership") in
exchange for 8.6 million of Essex Operating Partnership Units ("OP
Units"). The OP Units were subsequently retired by the Company on
April 1, 2014. The purpose of this transaction was tax efficiency.
The balance sheet at March 31, 2014 reflects the acquisition of
these properties on the last day of the quarter along with the
issuance of OP Units.
The table below represents the BRE Properties same-property
revenue results for the stabilized portfolio of properties,
excluding developments and properties held for sale. The Company
did not own BRE during the first quarter 2014 but acquired the
portfolio on March 31, 2014, as described above, and on April 1,
2014. Therefore, these results are not reflected in the Company's
income statement during the quarter. The table below illustrates
the percentage change in same-property revenues for the quarter
ended March 31, 2014 compared to the quarter ended March 31, 2013,
and the sequential percentage change for the quarter ended March
31, 2014 versus the quarter ended December 31, 2013 by
submarket:
BRE Legacy Properties
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Q1 2014 vs. Q1 2013 |
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Q1 2014 vs. Q4 2013 |
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% of Total |
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Total Revenues |
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Total Revenues |
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Q1 2014 Revenues |
Southern California |
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Los Angeles County |
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4.1% |
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-0.4% |
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18.2% |
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Orange County |
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4.5% |
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1.0% |
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18.4% |
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San Diego County |
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3.5% |
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0.3% |
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16.6% |
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Riverside County |
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2.6% |
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0.6% |
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3.7% |
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Total Southern California |
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3.9% |
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0.3% |
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56.9% |
Northern California |
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San Mateo County |
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9.0% |
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0.3% |
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8.6% |
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Santa Clara County |
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5.9% |
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0.0% |
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4.3% |
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Contra Costa County |
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9.6% |
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0.9% |
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3.5% |
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Alameda County |
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8.7% |
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1.0% |
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9.4% |
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Other Northern California |
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9.6% |
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2.6% |
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1.3% |
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Total Northern California |
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8.5% |
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0.7% |
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27.1% |
Seattle Metro |
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6.7% |
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0.8% |
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16.0% |
Same-Property Portfolio |
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5.6% |
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0.5% |
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100.0% |
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MB360 Fire Update
On March 11, 2014, a fire broke out at one of the two buildings
at BRE's MB360 development located in San Francisco, CA. The
building that contained the fire consisted of 172 units, all of
which were destroyed above the podium structure, which was also
damaged. The second phase of the development, containing 188 units,
suffered no damage and is expected to begin delivering apartment
homes in the fourth quarter of 2014. BRE carried comprehensive
insurance coverage, including lost profits, related to the
property. Insurance proceeds will be set up as a receivable on the
balance sheet. We estimate Core FFO for 2014 will be reduced by
$0.03-$0.05 per share as the cost basis of MB360 that qualifies for
interest capitalization is lower than the previous investment
balance and the generation of rental revenue will be delayed. The
insurance policies covering MB360 provide coverage for loss of
rental income and soft costs, although we are not assuming recovery
of these costs in 2014.
Investment Activity
Subsequent to quarter end, the Company acquired Piedmont
Apartments for $76.8 million. The 396 unit community was built in
1969 and subsequently renovated in 1997 and 2005. The Company
assumed a $44.8 million mortgage loan secured by the property at a
fixed rate of 5.6% for a remaining term of three years. The
property is located in Bellevue, a submarket of Seattle and within
one mile of Microsoft's World Headquarters.
Dispositions
In January, the Company sold Vista Capri, a 106 unit community
located in San Diego, CA for $14.4 million. The total gain on sale
was $7.1 million, net of internal disposition costs. The gain has
been excluded from the calculation of FFO.
In March, Essex Apartment Value Fund II, L.P. ("Fund II") sold
one of the two remaining communities for $23.8 million. The total
gain on sale was $11.4 million. The Company has a 28.2% ownership
stake in Fund II and received promote income of $3.8 million which
has been excluded from Core FFO.
During the first quarter, BRE, which was not owned by the
Company at the time, sold three properties located in Sacramento,
CA, Spring Valley, CA and San Diego, CA for total proceeds of
$156.8 million.
Development Activity
During the quarter, Connolly Station, a 309 unit community
located in Dublin, CA achieved stabilized occupancy. As of the end
of April, the community was 99% occupied.
Leasing at Phase II of Epic, located in San Jose, CA, is
proceeding ahead of schedule. As of May 5, 2014, 78% of the 289
units were leased. The Company now expects the community to
stabilize during the second quarter 2014, six months ahead of
schedule.
In March, the Company began leasing The Huxley, a 187 unit
community located in West Hollywood, CA. Through May 5, 2014, 49%
of the apartment homes were leased.
In March, The Avery, located in Los Angeles, CA received final
certificate of occupancy and Essex purchased the property subject
to a pre-sale arrangement, for approximately $35 million. The 121
unit community is currently 62% leased as of May 5, 2014.
As part of the merger agreement, the Company acquired two
development communities that are currently in lease up. Solstice, a
280 unit community located in Sunnyvale, CA was 77% leased as of
May 5, 2014. The Company expects to stabilize the community during
the third quarter of 2014. Wilshire at La Brea, a 478 unit
community located in Los Angeles, CA was 38% leased as of May 5,
2014. The Company expects Wilshire at La Brea to stabilize in the
first quarter of 2015.
Extraordinary Events
During the first quarter, the Company incurred $1.6 million in
damages at two properties that were related to earthquake damages
and unusual wet weather in the Pacific Northwest. These costs were
charged to earnings and excluded from Core FFO in the first quarter
of 2014.
Liquidity and Balance Sheet
Common Stock
During the first quarter, the Company issued 958,055 shares of
common stock for $157.6 million, net of commissions, at an average
per share price of $166.24. Subsequent to quarter end through May
7, 2014, excluding the approximately 23.1 million shares issued in
connection with the BRE merger, the Company has issued 197,600
shares of stock at an average price of $171.62, for total proceeds
of $33.7 million, net of commissions.
Unsecured Notes Offering
In April, the Company issued $400 million of 3.875% senior
unsecured notes that mature in May 2024. Please see our press
release dated April 8, 2014 for additional details about the notes
offering.
Balance Sheet
At the end of April, the Company had $5.1 billion in total debt
outstanding, reflecting the approximately $1.7 billion of debt
assumed from BRE and the new $400 million unsecured notes issued in
April 2014. At the end of April, the Company had $845 million
available on its $1.0 billion revolving line of credit and total
shares and operating partnership units outstanding for Essex was
approximately 64.0 million.
Guidance
The Company has revised its full year guidance for Core FFO per
diluted share from a range of $8.10 - $8.40 to a range of $8.15 to
$8.45. The revised numbers reflect the BRE transaction, timing of
the first quarter equity offering, and the $400 million unsecured
note offering announced in April. The Company has not revised its
same-property NOI growth outlook for the Essex portfolio for the
full year but will do so as part of its second quarter earnings
release. The table below outlines the key assumptions relating to
BRE and additional details can be found on page S-13 of the
Supplemental Financial Information.
Key BRE Assumptions (all dollars are in millions
and at Essex's pro rata share)
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Q2 2014 to Q4 2014 Range |
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Full Year Run Rate Range |
Operating & G&A Synergies |
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$18 to $20 |
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$24 to $27 |
Prop 13 Tax Adjustment |
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($15 to $17) |
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($20 to $23) |
Mark-to-Market Debt |
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$17 to $21 |
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$23 to $28 |
MB360 Fire Impact |
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($2 to $3) |
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($2 to $3) |
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|
For the second quarter, the Company has established a range for
Core FFO per diluted share of $1.96 to $2.04. During the quarter,
the Company does not expect to achieve the full operating synergy
benefits it expects on a full year run rate basis as it will take
several months to implement new processes. In the fourth quarter,
the Company expects the majority of the savings it has initially
identified will be in-place. The second quarter will be impacted by
the amount and timing of capital markets activities and a lower
cost basis of MB360 that qualifies for interest capitalization.
Conference Call with Management
The Company will host an earnings conference call with
management to discuss its quarterly results on Thursday, May 8,
2014 at 10 a.m. PDT (1 p.m. EDT), which will be broadcast live via
the Internet at www.essexpropertytrust.com, and accessible via
phone by dialing (877) 407-0784, no passcode is necessary.
A rebroadcast of the live call will be available online for 90
days and digitally for 7 days. To access the replay online, go to
www.essexpropertytrust.com and select the first quarter earnings
link. To access the replay digitally, dial (877) 870-5176 using the
replay pin number 13578671. If you are unable to access the
information via the Company's website, please contact the Investor
Relations Department at investors@essexpropertytrust.com or by
calling (650) 494-3700.
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 234 apartment communities with an additional
14 properties in various stages of active development. Additional
information about Essex can be found on the Company's web site at
www.essexpropertytrust.com.
This press release and accompanying supplemental financial
information will be filed electronically on Form 8-K with the
Securities and Exchange Commission and can be accessed from the
Company's Web site at www.essexpropertytrust.com. If you are unable
to obtain the information via the Web, please contact the Investor
Relations Department at (650) 494-3700.
Funds from Operations ("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/losses on sales of real
estate and extraordinary items. Management considers FFO and FFO
which excludes acquisition costs and items that are non-recurring
or not related to the Company's core business activities, which is
referred to as ("Core FFO"), to be useful financial performance
measurements of an equity REIT because, together with net income
and cash flows, FFO and Core FFO provide investors with an
additional basis to evaluate the operating performance and ability
of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures and the ability to pay dividends.
FFO does not represent net income or cash flows from operations
as defined by U.S. generally accepted accounting principles
("GAAP") and is not intended to indicate whether cash flows will be
sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the REIT's operating
performance or to cash flows as a measure of liquidity. FFO does
not measure whether cash flow is sufficient to fund all cash needs
including principal amortization, capital improvements and
distributions to shareholders. FFO also does 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 quarters ended March 31, 2014 and
2013:
|
|
|
|
|
Quarter Ended March 31, |
Funds from Operations (In thousands) |
|
2014 |
|
2013 |
Net
income available to common stockholders |
|
$21,912 |
|
$25,203 |
Adjustments: |
|
|
|
|
Depreciation |
|
50,312 |
|
47,144 |
Gains
not included in FFO, net of internal disposition costs |
|
(10,292) |
|
- |
Depreciation add back from unconsolidated co-investments, and add
back convertible preferred dividend - Series G |
|
4,760 |
|
3,842 |
Noncontrolling interest related to Operating Partnership units |
|
1,417 |
|
1,501 |
Depreciation attributable to noncontrolling interests |
|
(329) |
|
(327) |
Funds from Operations |
|
$67,780 |
|
$77,363 |
Acquisition costs |
|
188 |
|
387 |
Gain
on sales of marketable securities and note prepayment |
|
(427) |
|
(2,611) |
Gain
on sale of land |
|
(400) |
|
(1,503) |
Earthquake related and other |
|
1,571 |
|
- |
Loss
on early retirement of debt add back from unconsolidated
co-investments |
|
197 |
|
- |
Merger expenses |
|
16,059 |
|
- |
Co-investment promote income |
|
(3,848) |
|
- |
Income from early redemption of preferred equity investments |
|
- |
|
(423) |
Core Funds from Operations |
|
$81,120 |
|
$73,213 |
|
|
|
|
|
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. Such forward-looking statements include statements and
estimates on page 1 and under the caption "Guidance" on page 6 with
respect to Core FFO and same-property NOI growth for the second
quarter 2014 and for the full year 2014, statements and estimates
regarding plans for a dividend increase, regarding the timing and
realization of cost of capital and synergy benefits from the BRE
merger and regarding the anticipated insurance proceeds in
connection with the MB360 fire and regarding stabilization dates of
the development properties, and statements and estimates set forth
under the captions "Development Pipeline -- March 31, 2014" and
"Redevelopment Pipeline and Capital Expenditures -- March 31, 2014"
on pages S-9 and S-10 of the Company's Supplemental Financial
Information Package, which accompanies this press release,
regarding estimated costs of property development and redevelopment
and regarding the anticipated timing of redevelopments and of the
construction start, initial occupancy and stabilization of property
development and the various financial estimates and assumptions set
forth in the columns "ESS Standalone 2014 Midpoint", "Impact from
BRE Merger" and "2014 Revised Guidance Range for ESS"on page S-13
of the Company's Supplemental Financial Information Package and the
forecasts, set forth on page S-15 of the Company's Supplemental
Financial Information Package, of residential supply, jobs, and
rent growth in various areas. The Company's actual results may
differ materially from those projected in such forward-looking
statements. Factors that might cause such a difference include, but
are not limited to, changes in market demand for rental units and
the impact of competition and competitive pricing, unanticipated
difficulties in integrating the businesses of Essex and BRE and
realizing anticipated synergies, changes in economic conditions,
unexpected delays in the development and stabilization of
development projects, unexpected difficulties in leasing of
development projects, total costs of development investments
exceeding the Company's projections and other risks detailed in the
Company's filings with the Securities and Exchange Commission
(SEC). All forward-looking statements are made as of today, and the
Company assumes no obligation to update this information. For more
details relating to risk and uncertainties that could cause actual
results to differ materially from those anticipated in our
forward-looking statements, and risks to our business in general,
please refer to our SEC filings, including the Company's Report on
Form 10-K for the year ended December 31, 2013.
Contact
Information Barb Pak Director of Investor Relations (650)
494-3700 bpak@essex.com
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