ESS Essex Property Trust Inc

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): February 4, 2016

 

ESSEX PROPERTY TRUST, INC.  

ESSEX PORTFOLIO, L.P. 

 (Exact Name of Registrant as Specified in its Charter)

 

001-13106 (Essex Property Trust, Inc.) 

333-44467-01 (Essex Portfolio, L.P.) 

 (Commission File Number)

 

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

 

1100 Park Place, Suite 200 

San Mateo, CA 94403 

(Address of principal executive offices) (Zip Code)

 

(650) 655-7800 

(Registrant’s telephone number, including area code)

 

Not Applicable 

(Former name or former address, if changed since last report.)

 

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

 

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

 

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

 

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

 

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

 

Item 2.02. Results of Operations and Financial Condition

 

On February 4, 2016, Essex Property Trust, Inc. (the “Company”) issued a press release announcing the Company’s earnings for the three and twelve months ended December 31, 2015. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated by reference herein in its entirety.

 

The information in this report (including Exhibits 99.1 and 99.2) 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.

 

(a) - (b) Not applicable.

 

(c) Exhibits.

 

The exhibits listed below are being furnished with this Form 8-K.

 

99.1		Press Release issued by Essex Property Trust, Inc. dated February 4, 2016
99.2		Supplemental Information

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: February 4, 2016

 

	Essex Property Trust, Inc.
	/s/ Angela L. Kleiman
	Name: Angela L. Kleiman
	Title: Executive Vice President & 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 & Chief Financial Officer

 

EXHIBIT INDEX 

 

Exhibit Number		Description
99.1		Press Release issued by Essex Property Trust, Inc. dated February 4, 2016
99.2		Supplemental Information

 

 

 

Exhibit 99.1

 

 

 

Essex Announces Fourth Quarter 2015 Results and 2016 Guidance 

Core FFO per Diluted Share Grows 17.4% in the Fourth Quarter

 

San Mateo, California—February 4, 2016—Essex Property Trust, Inc. (NYSE:ESS) announced today its fourth quarter 2015 earnings results and related business activities.

 

Funds from Operations (“FFO”) and Net Income per diluted share for the quarter and year ended December 31, 2015 are detailed below. The Company had no merger and integration related expenses in the fourth quarter 2015 and $3.8 million for the year, compared to $7.1 million and $53.5 million of expenses in the prior year periods, respectively. Core FFO excludes merger and integration expenses, acquisition and investment related costs and non-routine items.

 

	Three Months Ended			Year Ended
	December 31,		%	December 31,		%
	2015	2014	Change	2015	2014	Change
Per Diluted Share
Total FFO	$2.53	$2.29	10.5%	$9.72	$7.89	23.2%
Core FFO	$2.63	$2.24	17.4%	$9.82	$8.54	15.0%
Net Income	$1.22	$0.63	93.7%	$3.49	$2.06	69.4%

 

Fourth Quarter and Full-Year Highlights:

 

•

Grew Core FFO per diluted share by 17.4% compared to Q4 2014 and 15.0% for the full-year, which exceeded the high end of the Company’s guidance range.

 

•

Achieved same-property gross revenues and net operating income (“NOI”) growth of 7.5% and 9.2%, respectively, compared to Q4 2014. For the full-year, achieved same-property revenue and NOI growth of 8.0% and 10.7%, respectively.

 

•

Realized a sequential quarterly increase in same-property revenue growth of 1.4%. Adjusted for occupancy, the legacy ESS same-property portfolio had the same sequential revenue growth as the fourth quarter of 2014.

 

•

Completed the sale of Sharon Green Apartments in Menlo Park, CA for $245.0 million ($828,000/apartment home). The property was built in 1970. The proceeds were used to acquire two newly developed apartment communities in the fourth quarter for a total contract price of $166.0 million ($441,000/apartment home).

 

•

For the full-year, the Company acquired seven communities for a total contract price of $638.1 million.

 

•

Achieved a Debt to Total Market Capitalization ratio of 24.6% at year-end, the lowest level for this metric since 2007.

 

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 fourth quarter results, concluding an exceptional year with growth of 17.4% in Core FFO per share. Growth for the full-year was driven by an 8.0% increase in same-property revenue, the highest level achieved in the last 15 years. The results emanated from the focused contribution from all segments of the business including acquisitions and development deliveries, exceptional effort from our property operations team, and significant expansion of our redevelopment effort. I am very grateful for the effort and skill of the Essex team in generating these great results,” commented Michael Schall, President and CEO of the Company. Mr. Schall continued, “Considering recent market volatility, we remain confident that we will carry forward last year’s positive momentum and vibrant housing fundamentals into 2016, leading to another year of sector-leading results.”

 

Same-Property Operations

 

Essex same-property operating results include all properties acquired in the merger with BRE that were stabilized as of April 1, 2014 and 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 December 31, 2015 compared to the quarter ended December 31, 2014, and the sequential percentage change for the quarter ended December 31, 2015 versus the quarter ended September 30, 2015 by submarket for the Company:

 

		Q4 2015 vs. Q4 2014				Q4 2015 vs. Q3 2015				% of Total
		Gross Revenues				Gross Revenues				Q4 2015 Revenues
Southern California
Los Angeles County			6.5	%			1.6	%			17.2	%
Orange County			4.8	%			0.8	%			13.2	%
San Diego County			5.8	%			2.1	%			9.2	%
Ventura County			5.8	%			0.8	%			5.5	%
Other Southern California			6.7	%			10.6	%			1.1	%
Total Southern California			5.8	%			1.6	%			46.2	%
Northern California
Santa Clara County			9.5	%			1.2	%			15.4	%
Alameda County			10.6	%			1.4	%			7.1	%
San Mateo County			9.4	%			1.2	%			4.7	%
Contra Costa County			9.0	%			1.2	%			5.7	%
San Francisco MSA			8.9	%			2.4	%			2.3	%
Other Northern California			16.0	%			8.5	%			0.3	%
Total Northern California			9.6	%			1.4	%			35.5	%
Seattle Metro			7.7	%			1.2	%			18.3	%
Same-Property Portfolio			7.5	%			1.4	%			100.0	%

 

 

		Year Over Year Growth												Year Over Year Growth
		Q4 2015 compared to Q4 2014												YTD 2015 compared to YTD 2014
			Gross  Revenues				Operating  Expenses				NOI				Gross  Revenues				Operating  Expenses				NOI
Southern California			5.8	%			3.5	%			6.9	%			6.0	%			1.0	%			8.4	%
Northern California			9.6	%			3.5	%			12.2	%			10.5	%			3.2	%			13.4	%
Seattle Metro			7.7	%			4.3	%			9.4	%			7.7	%			2.8	%			10.2	%
Same-Property Portfolio			7.5	%			3.7	%			9.2	%			8.0	%			2.1	%			10.7	%

 

 

		Sequential Growth
		Q4 2015 compared to Q3 2015
			Gross  Revenues				Operating  Expenses				NOI
Southern California			1.6	%			-0.3	%			2.5	%
Northern California			1.4	%			1.0	%			1.5	%
Seattle Metro			1.2	%			-1.2	%			2.4	%
Same-Property Portfolio			1.4	%			-0.1	%			2.1	%
		Financial Occupancies
		Quarter Ended
		12/31/2015				9/30/2015				12/31/2014
Southern California			96.1	%			95.8	%			96.4	%
Northern California			96.1	%			96.3	%			96.3	%
Seattle Metro			96.2	%			96.1	%			95.9	%
Same-Property Portfolio			96.1	%			96.0	%			96.3	%

 

Investment Activity

 

In December, the Company acquired Phase II of Avant located in Downtown Los Angeles, CA, for a total contract price of $73.0 million. Completed in 2015, Phase II has 193 apartment homes and is located adjacent to Phase I, which was acquired in June of 2015. Both phases of the property are fully stabilized.

 

In December, the Company acquired Enso Apartments in San Jose, CA for a contract price of $93.0 million. Built in 2014, the community has 183 apartment homes and is located in close proximity to numerous high paying tech employers and within walking distance to public transportation.

 

Subsequent to quarter-end, the Company acquired Mio, a luxury community with 103 apartment homes located in San Jose, CA for a total contract price of $51.3 million. Mio was built in 2015 and is conveniently located near employment and entertainment venues near downtown San Jose and is walking distance to public transit.

 

Dispositions

 

During the fourth quarter, the Company disposed of Sharon Green Apartments located in Menlo Park, CA for $245.0 million, or $828,000 per apartment home. The property was built in 1970 and has 296 apartment homes. Total gain on the sale was $40.2 million, which has been excluded from the calculation of FFO. The unlevered IRR was 17%.

 

In January 2016, the Company sold The Heights, owned by BEXAEW, LLC. The Company has a 50% ownership interest in the BEXAEW, LLC joint venture. Total proceeds from the sale were $93.8 million, of which $50.3 million were used to repay the loan on the property. The apartment community had 332 apartment homes located in Chino Hills, CA. The unlevered IRR was 13% (excludes promoted interest).

 

In January 2016, the Company sold its former headquarters office building located in Palo Alto, CA for total proceeds of $18.0 million.

 

Development Activity

 

The table below represents the development communities in lease-up during the fourth quarter and the current leasing status as of February 1, 2016.

 

Project Name	Location	Total Apartment Homes	ESS Ownership	% Leased as of 2/1/16	Status
One South Market	San Jose, CA	312	55%	98%	Stabilized
Epic Phase III	San Jose, CA	200	55%	91%	In Lease-Up
MB360 Phase II	San Francisco, CA	172	100%	83%	In Lease-Up
Total/Average % Leased		684		92%

 

Liquidity and Balance Sheet

 

Common Stock

 

During the fourth quarter, the Company issued 107,098 shares of common stock through its equity distribution program at an average price of $228.61 for net proceeds of $24.3 million. For 2015, the Company issued 1,481,737 shares of common stock through its equity distribution program at an average price of $226.46 for net proceeds of $332.3 million. Subsequent to quarter-end, no additional shares of common stock have been issued.

 

Balance Sheet

 

During the quarter, the Company refinanced $142.9 million of Fannie Mae credit enhanced bonds.  These bonds now have a variable interest rate of 70 basis points over the SIFMA index.  The Company expects to realize $1.4 million in savings annually over the seven year term.  The Company incurred $6.1 million of loss on early retirement of debt, of which $4.3 million was non-cash. The loss on early retirement of debt has been excluded from Core FFO. 

 

Subsequent to quarter-end, the Company repaid $150.0 million in private placement unsecured bonds that matured in the first quarter of 2016 and had an interest rate of 4.36%.

 

In January 2016, the Company extended the maturity date on its $1.0 billion unsecured line of credit to December 2019 with one 18-month extension, exercisable at the Company's option. The pricing on the line was reduced by 5 basis points to LIBOR plus 90 basis points. As of January 31, 2016, the Company had over $800 million in undrawn capacity on its unsecured credit facilities.

 

Guidance

 

For the fourth quarter, the Company exceeded the midpoint of the guidance range previously provided in its third quarter 2015 earnings release by $0.08 per share; $0.05 of the favorable variance relates to one-time items, which are not expected to reoccur in the first quarter of 2016.

 

The following table provides a reconciliation of fourth quarter Core FFO per share to the midpoint of the guidance as provided in the third quarter 2015 earnings release distributed in October 2015.

 

		Per Diluted Share
Projected midpoint of Core FFO per share for Q4 2015		$	2.55
NOI from consolidated communities			0.05
Interest income and other			0.03
Core FFO per share for Q4 2015, reported		$	2.63

 

2016 Guidance Assumptions

 

Per Diluted Share		Range
Total FFO		$10.64 - $11.05
Core FFO		$10.72 - $11.12
U.S. Economic Assumptions
GDP Growth		2.8%
Job Growth		2.0%
ESS Markets Economic Assumptions
Job Growth		2.5%
Market Rent Growth		6.0%
Estimated Same-Property Portfolio Growth Based on 45,517 Apartment Homes:
Southern California		5.25% - 6.25%
Northern California		8.50% - 9.50%
Seattle Metro		6.00% - 7.00%
Gross Revenue		6.50% - 7.50%
Operating Expense		3.25% - 4.25%
Net Operating Income		7.50% - 9.50%

 

Other Key Assumptions:

 

•	Acquisitions of $400-$600 million to be financed with proceeds from dispositions, joint venture capital, as well as match funding with a combination of debt and equity.
•	Dispositions of $200-$300 million.
•	The Company plans to start three new developments in 2016. Total development spending is expected to be $330 million, with $230 million at the Company’s pro rata share.
•	Revenue generating capital expenditures is expected to be $130 million at the Company’s pro rata share.
•	Redemption of the Series H Preferred Stock outstanding with the assumption that a similar amount of preferred stock will be issued. The redemption is expected to result in a $2.5 million non-cash charge to Total FFO but will be excluded from Core FFO.

 

For additional details regarding our 2016 assumptions, please see page S-14 of the Supplemental Financial Information. For the first quarter of 2016, the Company has established a range for Core FFO per diluted share of $2.55 to $2.65.

 

Conference Call with Management

 

The Company will host an earnings conference call with management to discuss its quarterly results on Friday, February 5, 2016 at 11 a.m. PT (2 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 90 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the fourth quarter earnings link. To access the replay digitally, dial (877) 870-5176 using the replay pin number 13627431. 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 246 apartment communities with an additional 8 properties in various stages of active development. Additional information about Essex can be found on the Company’s web site at www.essex.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.essex.com. If you are unable to obtain the information via the Web, please contact the Investor Relations Department at (650) 655-7800.

 

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 merger, integration and acquisition costs and items that are not routine or not related to the Company’s core business activities, which is referred to as “Core FFO”, to be useful financial performance 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 are 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 three months and year ended December 31, 2015 and 2014:

 

			Three Months Ended  December 31,								Year Ended  December 31,
Funds from Operations attributable to common stockholders and unitholders (In thousands)			2015				2014				2015				2014
Net income available to common stockholders		$	79,624			$	40,175			$	226,865			$	116,859
Adjustments:
Depreciation and amortization			116,477				106,703				453,423				360,592
Gains not included in FFO			(40,221	)			(8,399	)			(81,347	)			(50,064	)
Depreciation add back from unconsolidated co-investments			13,004				10,915				49,826				33,975
Noncontrolling interest related to Operating Partnership units			2,710				1,469				7,824				4,911
Insurance reimbursements			—				—				(1,751	)			—
Depreciation attributable to third party ownership and other			(28	)			(335	)			(781	)			(1,331	)
Funds from Operations attributable to common stockholders and unitholders		$	171,566			$	150,528			$	654,059			$	464,942
Merger and integration expenses			—				7,116				3,798				53,530
Acquisition and investment related costs			1,057				1,109				2,414				1,878
Gain on sale of marketable securities, note prepayment, and other investments			—				—				(598	)			(886	)
Gain on sale of land			—				(2,133	)			—				(2,533	)
Loss on early retirement of debt			6,114				268				6,114				268
Co-investment promote income			—				(5,736	)			(192	)			(10,640	)
Income from early redemption of preferred equity investments			—				(5,250	)			(1,954	)			(5,250	)
Insurance reimbursements			—				—				(2,319	)			—
Other non-core adjustments			(444	)			1,142				(651	)			1,852
Core Funds from Operations attributable to common stockholders and unitholders		$	178,293			$	147,044			$	660,671			$	503,161

 

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 in the "Fourth Quarter Highlights" on page 1 regarding positive trends in 2016 and 2016 being another sector-leading year; statement in the “Balance Sheet” section on page 4 regarding expected savings on bonds; statements and estimates in "2016 Guidance Assumptions" on page 5 regarding 2016 amounts for the following: FFO, Core FFO, U.S. economic assumptions, Essex markets economic assumptions, same-property expense growth, acquisitions and developments, dispositions, redemptions and issuances of preferred stocks and revenue generating capital expenditures; and statements and estimates set forth under the captions “Development Pipeline—December 31, 2015” and “Redevelopment Pipeline—December 31, 2015” on pages S-11 and S-12 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 projections and assumptions, including those regarding 2016 NOI, FFO and Core FFO, set forth in the columns “2016 Guidance Range” on page S-14 of the Company’s Supplemental Financial Information Package and the forecasts, set forth on page S-16 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, unforeseen consequences from cyber-intrusion, 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, 2014.

 

Contact Information  

Barb Pak 

Vice President of Finance & Investor Relations 

(650) 655-7800 

bpak@essex.com

 

Exhibit 99.2

 

Q4 2015 Supplemental

 Table of Contents

 

		Page
Consolidated Operating Results		S-1 – S-2
Consolidated Funds From Operations		S-3
Consolidated Balance Sheets		S-4
Debt Summary – December 31, 2015		S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – December 31, 2015		S-6
Portfolio Summary by County – December 31, 2015		S-7
Operating Income by Quarter – December 31, 2015		S-8
Same-Property Revenue Results by County – Quarters ended December 31, 2015 and 2014, and September 30, 2015		S-9
Same-Property Revenue Results by County – Years ended December 31, 2015 and 2014		S-9.1
Same-Property Operating Expenses		S-10
Development Pipeline – December 31, 2015		S-11
Redevelopment Pipeline – December 31, 2015		S-12
Co-Investments – December 31, 2015		S-13
Assumptions for 2016 FFO Guidance Range		S-14
Summary of Apartment Community Acquisitions and Dispositions Activity		S-15
2016 MSA Level Forecasts: Supply, Jobs and Apartment Market Conditions		S-16

 

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

 

Consolidated Operating Results		Three Months Ended								Twelve Months Ended
(Dollars in thousands, except share and per share amounts)		December 31,								December 31,
		2015				2014 (1)				2015				2014 (1)
Revenues:
Rental and other property		$	308,646			$	276,778			$	1,185,498			$	961,591
Management and other fees			2,100				2,490				8,909				9,347
			310,746				279,268				1,194,407				970,938
Expenses:
Property operating			92,141				88,621				363,508				312,546
Depreciation and amortization			116,477				106,703				453,423				360,592
General and administrative			8,867				12,256				40,090				40,878
Merger and integration expenses			—				7,116				3,798				53,530
Acquisition and investment related costs			1,057				1,109				2,414				1,878
			218,542				215,805				863,233				769,424
Earnings from operations			92,204				63,463				331,174				201,514
Interest expense, net (2)			(50,771	)			(47,529	)			(199,172	)			(164,551	)
Interest and other income			4,323				3,126				19,143				11,811
Equity income from co-investments			5,899				18,828				21,861				39,893
Loss on early retirement of debt			(6,114	)			(268	)			(6,114	)			(268	)
Gain on sale of real estate and land			40,221				7,185				47,333				46,039
Gain on remeasurement of co-investment			—				—				34,014				—
Net income			85,762				44,805				248,239				134,438
Net income attributable to noncontrolling interest			(4,824	)			(3,316	)			(16,119	)			(12,288	)
Net income attributable to controlling interest			80,938				41,489				232,120				122,150
Dividends to preferred stockholders			(1,314	)			(1,314	)			(5,255	)			(5,291	)
Net income available to common stockholders		$	79,624			$	40,175			$	226,865			$	116,859
Net income per share - basic		$	1.22			$	0.63			$	3.50			$	2.07
Shares used in income per share - basic			65,336,773				63,362,624				64,871,717				56,546,959
Net income per share - diluted		$	1.22			$	0.63			$	3.49			$	2.06
Shares used in income per share - diluted			65,519,438				63,544,534				65,061,685				56,696,525

 

(1)	Due to subsequent purchase price allocation adjustments made to the opening balance sheet for the BRE Merger on April 1, 2014, certain amounts do not match prior reported results.
(2)	Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges.

 

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

 

Consolidated Operating Results		Three Months Ended								Twelve Months Ended
Selected Line Item Detail		December 31,								December 31,
(Dollars in thousands)		2015				2014				2015				2014
Rental and other property
Rental		$	288,119			$	258,995			$	1,108,758			$	896,278
Other property			20,527				17,783				76,740				65,313
Rental and other property		$	308,646			$	276,778			$	1,185,498			$	961,591
Property operating expenses
Real estate taxes		$	30,734			$	30,421			$	128,555			$	107,873
Administrative and insurance			18,765				19,551				74,868				69,931
Maintenance and repairs			20,352				17,792				73,002				60,234
Utilities			15,988				15,659				62,196				55,718
Property management			6,302				5,198				24,887				18,790
Property operating expenses		$	92,141			$	88,621			$	363,508			$	312,546
Interest and other income
Marketable securities and other interest income		$	4,323			$	3,126			$	14,475			$	10,925
Gain from sale of marketable securities, note prepayment, and other investments			—				—				598				886
Insurance reimbursements			—				—				4,070				—
Interest and other income		$	4,323			$	3,126			$	19,143			$	11,811
Equity income from co-investments
Equity income from co-investments		$	3,541			$	778			$	9,716			$	2,356
Income from preferred equity investments			2,358				3,717				9,999				15,089
Gain on sale of co-investment communities			—				3,347				—				6,558
Co-investment promote income			—				5,736				192				10,640
Income from early redemption of preferred equity investments			—				5,250				1,954				5,250
Equity income from co-investments		$	5,899			$	18,828			$	21,861			$	39,893
Noncontrolling interest
Limited partners of Essex Portfolio, L.P.		$	2,710			$	1,469			$	7,824			$	4,911
DownREIT limited partners' distributions			1,297				1,142				5,191				4,705
Third-party ownership interest			817				705				3,104				2,672
Noncontrolling interest		$	4,824			$	3,316			$	16,119			$	12,288

 

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		Three Months Ended												Twelve Months Ended
(Dollars in thousands, except share and per share amounts and in footnotes)		December 31,						December 31,
		2015				2014				% Change				2015				2014				% Change
Funds from operations attributable to common stockholders and unitholders (FFO)
Net income available to common stockholders		$	79,624			$	40,175							$	226,865			$	116,859
Adjustments:
Depreciation and amortization			116,477				106,703								453,423				360,592
Gains not included in FFO			(40,221	)			(8,399	)							(81,347	)			(50,064	)
Depreciation add back from unconsolidated co-investments			13,004				10,915								49,826				33,975
Noncontrolling interest related to Operating Partnership units			2,710				1,469								7,824				4,911
Insurance reimbursements (1)			—				—								(1,751	)			—
Depreciation attributable to third party ownership and other (2)			(28	)			(335	)							(781	)			(1,331	)
Funds from operations attributable to common stockholders and unitholders		$	171,566			$	150,528							$	654,059			$	464,942
FFO per share-diluted		$	2.53			$	2.29				10.5	%		$	9.72			$	7.89				23.2	%
Components of the change in FFO
Non-core items:
Merger and integration expenses		$	—				7,116							$	3,798				53,530
Acquisition and investment related costs			1,057				1,109								2,414				1,878
Gain on sale of marketable securities, note prepayment, and other investments			—				—								(598	)			(886	)
Gain on sale of land			—				(2,133	)							—				(2,533	)
Loss on early retirement of debt			6,114				268								6,114				268
Co-investment promote income			—				(5,736	)							(192	)			(10,640	)
Income from early redemption of preferred equity investments			—				(5,250	)							(1,954	)			(5,250	)
Insurance reimbursments			—				—								(2,319	)			—
Other non-core adjustments			(444	)			1,142								(651	)			1,852
Core funds from operations attributable to common stockholders and unitholders			178,293				147,044								660,671				503,161
Core FFO per share-diluted		$	2.63			$	2.24				17.4	%		$	9.82			$	8.54				15.0	%
Changes in core items:
Same-property NOI		$	15,164											$	114,324
Non-same property NOI			12,854												58,527
Management and other fees, net			(390	)											(313	)
FFO from co-investments			3,441												18,040
Interest and other income			1,197												3,550
Interest expense			(3,242	)											(34,621	)
General and administrative			2,185												(1,665	)
Other items, net			40												(332	)
		$	31,249											$	157,510
Weighted average number of shares outstanding diluted (3)			67,785,975				65,740,227								67,310,148				58,921,232

 

(1)	Insurance reimbursements for replacement costs related to a flood at one of our properties.
(2)	The Company consolidates Hidden Valley and Hillsdale Garden Apartments.  Noncontrolling interest's share of net operating income in these investments for the three and twelve months ended December 31, 2015 was $1.0 million and $3.9 million, respectively.
(3)	Assumes conversion of all outstanding operating partnership interests in the Operating Partnership and excludes 744,346 DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.

 

 

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)
		December 31, 2015				December 31, 2014
Real Estate:
Land and land improvements		$	2,522,842			$	2,424,930
Buildings and improvements			9,808,627				8,819,751
			12,331,469				11,244,681
Less:  accumulated depreciation			(1,949,892	)			(1,564,806	)
			10,381,577				9,679,875
Real estate under development			242,326				429,096
Co-investments			1,036,047				1,042,423
Real estate held for sale, net			26,879				56,300
			11,686,829				11,207,694
Cash and cash equivalents			123,055				95,749
Marketable securities and other investments			137,485				117,240
Notes and other receivables			19,285				24,923
Acquired in-place lease value, net			2,857				47,748
Prepaid expenses and other assets			35,580				33,378
Total assets		$	12,005,091			$	11,526,732
Unsecured debt, net		$	3,088,680			$	2,603,548
Mortgage notes payable, net			2,215,077				2,234,317
Lines of credit, net			11,707				242,824
Other liabilities			307,152				286,719
Total liabilities			5,622,616				5,367,408
Redeemable noncontrolling interest			45,452				23,256
Equity:
Common stock			6				6
Cumulative redeemable preferred stock, liquidation value			73,750				73,750
Additional paid-in capital			7,003,317				6,651,165
Distributions in excess of accumulated earnings			(797,329	)			(650,797	)
Accumulated other comprehensive loss, net			(42,011	)			(51,452	)
Total stockholders' equity			6,237,733				6,022,672
Noncontrolling interest			99,290				113,396
Total equity			6,337,023				6,136,068
Total liabilities and equity		$	12,005,091			$	11,526,732

 

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

 

Debt Summary - December 31, 2015
(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
		Balance Outstanding				Interest Rate				Maturity In Years								Unsecured				Secured				Unamortized premiums (discounts) and (debt issuance costs)				Total				Weighted Average Interest Rate				Percentage of Total Debt
Unsecured Debt, net
Bonds private - fixed rate			465,000				4.5	%			3.2				2016			$	350,000			$	29,714			$	24,803			$	404,517				3.3	%			7.6	%
Bonds public - fixed rate			2,400,000				3.5	%			6.7				2017				365,000				199,180				16,324				580,504				3.2	%			11.0	%
Term loan (1)			225,000				2.4	%			0.9				2018				—				320,622				13,246				333,868				5.4	%			6.3	%
Unamortized net premiums and debt issuance costs			(1,320	)			—				—				2019				75,000				586,212				8,654				669,866				4.3	%			12.6	%
			3,088,680				3.6	%			5.8				2020				—				693,088				3,323				696,411				5.0	%			13.1	%
Mortgage Notes Payable, net															2021				500,000				50,764				(3,430	)			547,334				4.3	%			10.3	%
Fixed rate - secured		$	1,866,558				4.9	%			3.6				2022				300,000				774				(3,873	)			296,901				3.7	%			5.6	%
Variable rate - secured (2)			291,709				1.2	%			22.6				2023				600,000				846				(1,603	)			599,243				3.6	%			11.3	%
Unamortized premiums and debt issuance costs			56,810				—				—				2024				400,000				925				(899	)			400,026				4.0	%			7.6	%
Total mortgage notes payable			2,215,077				4.4	%			6.1				2025				500,000				14,611				(212	)			514,399				3.5	%			9.7	%
															2026				—				1,106				(102	)			1,004				1.1	%			0.0	%
Unsecured Lines of Credit, net															Thereafter				—				260,425				(741	)			259,684				1.2	%			4.9	%
Line of credit (3)			15,000				1.9	%
Line of credit (4)			—				—								Total			$	3,090,000			$	2,158,267			$	55,490			$	5,303,757				3.9	%			100.0	%
Unamortized debt issuance costs			(3,293	)			—
Total lines of credit (5)			11,707				1.9	%
Total debt, net		$	5,315,464				3.9	%

 

Capitalized interest for the three and twelve months ended December 31, 2015 was approximately $3.4 million and $15.6 million, respectively.
(1)	The unsecured term loan has a variable interest rate of LIBOR plus 1.05%. The Company has entered into interest rate swap contracts with a notional amount totaling $225 million, which effectively converts the interest rate on of the term loan to a fixed rate of 2.4%.
(2)	$281.7 million of $291.7 million of variable rate debt is tax exempt to the note holders and $267.3 million is subject to interest rate protection agreements or total return swap contracts.
(3)	The unsecured line of credit facility aggregates to $1 billion. In January 2016, the line maturity was extended to December 2019 with one 18-month extension, exercisable at the Company's option.  The underlying interest rate on this line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at LIBOR plus 0.90%.
(4)	The unsecured line of credit facility is $25 million. In January 2016, the maturity was extended to January 2018. 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 0.90%.

 

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 - December 31, 2015

(Dollars and shares in thousands, except per share amounts)

 

Capitalization Data

Public Bond Covenants

Actual

Requirement

Total debt, net

$

5,315,464

Debt to Total Assets:

38%

< 65%

Common stock and potentially dilutive securities

Common stock outstanding

65,379

Limited partnership units (1)

2,295

Options-treasury method

238

Secured Debt to Total Assets:

16%

< 40%

Total shares of common stock and potentially dilutive securities

67,912

Common stock price per share as of December 31, 2015

$

239.41

Interest Coverage:

357%

> 150%

Market value of common stock and potentially dilutive securities

$

16,258,812

Preferred stock

$

73,750

Unsecured Debt Ratio (1) :

292%

> 150%

Total equity capitalization

$

16,332,562

Selected Credit Ratios

Actual

Total market capitalization

$

21,648,026

Ratio of debt to total market capitalization

24.6%

Net Indebtedness Divided by Adjusted EBITDA (2) (3):

5.8

Unencumbered NOI to Total NOI:

66%

(1)

Assumes conversion of all outstanding operating partnership interests in the Operating Partnership into shares of the Company's common stock.

(1)

Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.

(2)

Net Indebtedness is total debt less unamortized premiums, discounts, debt issuance costs, unrestricted cash and cash equivalents, and marketable securities.

Credit Ratings

(3)

Adjusted EBITDA annualizes the proforma NOI for current quarter acquisitions and excludes non-routine items in earnings.

Rating Agency

Rating

Outlook

Fitch

BBB+

Stable

Moody's

Baa2

Positive

Standard & Poor's

BBB

Positive

 

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

Portfolio Summary as of December 31, 2015

 

		Apartment Homes																Average Monthly Rental Rate (1)												Percent of NOI (2)
Region - County		Consolidated (3)				Unconsolidated Co-investments (4)				Apartment Homes in Development (5)				Total				Consolidated				Unconsolidated Co-investments (6)				Total (7)				Consolidated				Unconsolidated Co-investments (6)				Total (7)
Southern California
Los Angeles County			9,438				1,618				—				11,056			$	2,212			$	1,878			$	2,185				20.1	%			14.1	%			19.5	%
Orange County			5,786				1,144				—				6,930				1,951				1,654				1,924				11.3	%			8.5	%			11.0	%
San Diego County			4,962				616				—				5,578				1,709				1,561				1,700				8.2	%			4.2	%			7.8	%
Ventura County			2,898				373				—				3,271				1,610				2,017				1,635				4.8	%			3.3	%			4.7	%
Other Southern CA			623				581				—				1,204				1,516				1,628				1,552				0.9	%			4.4	%			1.3	%
Total Southern California			23,707				4,332				—				28,039				1,949				1,752				1,932				45.3	%			34.5	%			44.3	%
Northern California
Santa Clara County			6,057				2,477				376				8,910				2,558				2,615				2,568				16.2	%			26.1	%			17.2	%
Alameda County			3,138				1,293				—				4,431				2,340				2,220				2,319				7.2	%			13.9	%			7.9	%
San Mateo County			1,830				197				599				2,626				2,677				2,708				2,679				5.2	%			2.7	%			4.9	%
Contra Costa County			2,270				—				555				2,825				2,139				—				2,139				5.1	%			—				4.6	%
San Francisco MSA			1,341				463				545				2,349				3,011				3,503				3,089				3.5	%			8.0	%			3.9	%
Other Northern CA			230				—				—				230				2,054				—				2,054				0.5	%			—				0.4	%
Total Northern California			14,866				4,430				2,075				21,371				2,495				2,603				2,510				37.7	%			50.7	%			38.9	%
Seattle Metro			10,239				1,958				—				12,197				1,599				1,478				1,589				17.0	%			14.8	%			16.8	%
Total			48,812				10,720				2,075				61,607			$	2,040			$	2,065			$	2,043				100.0	%			100.0	%			100.0	%

 

(1)	Average monthly rental rate is defined as the total potential monthly rental revenue (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 December 31, 2015.
(3)	Includes all apartment communities with rents including one development community in lease-up which consists of 172 apartment homes, excluding commercial space.
(4)	Includes one rental income producing development community in lease-up which consists of 200 apartment homes.
(5)	Includes development communities with no rental income.
(6)	Co-investment amounts weighted for Company's pro rata share.
(7)	At Company's pro rata share.

 

 

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				Q4 '15				Q3 '15				Q2 '15				Q1 '15				Q4 '14
Rental and other property revenues:
Same-property (2)			42,734			$	257,824			$	254,157			$	248,287			$	242,759			$	239,873
Acquisitions (3)			3,791				24,445				23,099				20,255				14,269				12,579
Development (4)			1,503				12,482				12,038				11,273				9,753				8,146
Redevelopment			680				4,293				4,214				4,078				3,979				4,134
Non-Residential/Other, net (5)			104				9,602				9,014				10,208				9,469				12,046
Total rental and other property revenues			48,812				308,646				302,522				294,101				280,229				276,778
Property operating expenses:
Same-property (2)							78,627				78,682				76,068				74,883				75,840
Acquisitions (3)							8,526				8,003				7,256				4,867				4,166
Development (4)							3,651				4,024				3,868				3,355				3,167
Redevelopment							1,653				1,611				1,534				1,539				1,515
Non-Residential/Other, net (5) (6)							(316	)			1,799				1,351				2,527				3,933
Total property operating expenses							92,141				94,119				90,077				87,171				88,621
Net operating income (NOI):
Same-property (2)							179,197				175,475				172,219				167,876				164,033
Acquisitions (3)							15,919				15,096				12,999				9,402				8,413
Development (4)							8,831				8,014				7,405				6,398				4,979
Redevelopment							2,640				2,603				2,544				2,440				2,619
Non-Residential/Other, net (5)							9,918				7,215				8,857				6,942				8,113
Total NOI						$	216,505			$	208,403			$	204,024			$	193,058			$	188,157
Same-property metrics
Operating margin							70	%			69	%			69	%			69	%			68	%
Annualized turnover (7)							44	%			60	%			55	%			44	%			45	%
Financial occupancy (8)							96.1	%			96.0	%			96.1	%			96.1	%			96.3	%

 

(1)	Includes consolidated communities only.
(2)	Same-property includes BRE properties acquired April 1, 2014.
(3)	Acquisitions include properties acquired which did not have comparable stabilized results as of April 1, 2014.
(4)	Development includes properties developed which did not have comparable stabilized results as of April 1, 2014.
(5)	Other real estate assets consists mainly of retail space, commercial properties, boat slips, held for sale properties, and disposition properties.
(6)	Includes other expenses and intercompany eliminations pertaining to self-insurance. In Q4'15 there were $1.9 million in reductions to operating expenses related to changes in prior period property tax estimates.
(7)	Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.
(8)	Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes).

 

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

Same-Property Revenue Results by County - Fourth Quarter 2015 vs. Fourth Quarter 2014 and Third Quarter 2015 (1)

(Dollars in thousands, except average monthly rental rates)

  

										Average Monthly Rental Rate												Financial Occupancy												Gross Revenues												Sequential Gross Revenues
Region - County		Apartment Homes				Q4 '15 % of Actual NOI				Q4 '15				Q4 '14				% Change				Q4 '15				Q4 '14				% Change				Q4 '15				Q4 '14				% Change				Q3 '15				% Change
Southern California
Los Angeles County			6,844				16.7	%		$	2,138			$	2,020				5.8	%			96.0	%			95.9	%			0.1	%		$	44,007			$	41,331				6.5	%		$	43,303				1.6	%
Orange County			5,786				13.0	%			1,951				1,849				5.5	%			96.2	%			96.7	%			-0.5	%			34,103				32,532				4.8	%			33,835				0.8	%
San Diego County			4,583				8.7	%			1,694				1,597				6.1	%			96.0	%			96.5	%			-0.5	%			23,696				22,400				5.8	%			23,202				2.1	%
Ventura County			2,898				5.6	%			1,610				1,514				6.3	%			96.0	%			96.4	%			-0.4	%			14,288				13,500				5.8	%			14,170				0.8	%
Other Southern CA			623				1.1	%			1,516				1,407				7.7	%			99.0	%			98.8	%			0.2	%			2,959				2,773				6.7	%			2,676				10.6	%
Total Southern California			20,734				45.1	%			1,895				1,789				5.9	%			96.1	%			96.4	%			-0.3	%			119,053				112,536				5.8	%			117,186				1.6	%
Northern California
Santa Clara County			5,228				16.5	%			2,504				2,285				9.6	%			96.1	%			96.2	%			-0.1	%			39,530				36,112				9.5	%			39,078				1.2	%
Alameda County			2,613				7.1	%			2,309				2,048				12.7	%			95.2	%			96.8	%			-1.7	%			18,184				16,438				10.6	%			17,935				1.4	%
San Mateo County			1,566				4.9	%			2,560				2,344				9.2	%			96.4	%			96.1	%			0.3	%			12,242				11,186				9.4	%			12,098				1.2	%
Contra Costa County			2,270				5.9	%			2,139				1,954				9.5	%			96.6	%			96.1	%			0.5	%			14,799				13,574				9.0	%			14,625				1.2	%
San Francisco MSA			816				2.2	%			2,394				2,219				7.9	%			96.1	%			95.5	%			0.6	%			5,884				5,405				8.9	%			5,745				2.4	%
Other Northern CA			126				0.4	%			2,232				1,899				17.5	%			99.3	%			98.8	%			0.5	%			857				739				16.0	%			790				8.5	%
Total Northern California			12,619				37.0	%			2,395				2,176				10.1	%			96.1	%			96.3	%			-0.2	%			91,496				83,454				9.6	%			90,271				1.4	%
Seattle Metro			9,381				17.9	%			1,594				1,483				7.5	%			96.2	%			95.9	%			0.3	%			47,275				43,883				7.7	%			46,700				1.2	%
Total Same-Property			42,734				100.0	%		$	1,977			$	1,836				7.7	%			96.1	%			96.3	%			-0.2	%		$	257,824			$	239,873				7.5	%		$	254,157				1.4	%

 

(1)	Same-property includes BRE properties acquired April 1, 2014, excluding properties held for sale.

 

 

 

 

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
Same-Property Revenue Results by County - Twelve months ended December 31, 2015 vs. Twelve months ended December 31, 2014 (1)
(Dollars in thousands, except average monthly rental rates)
						YTD		Average Monthly Rental Rate						Financial Occupancy						Gross Revenues
Region - County				Apartment Homes		2015 % of Actual NOI		YTD 2015		YTD 2014		% Change		YTD 2015		YTD 2014		% Change		YTD 2015		YTD 2014		% Change
Southern California
	Los Angeles County			4,400		16.4%		$   2,036		$   1,920		6.0%		96.1%		96.2%		-0.1%		$  108,467		$  102,540		5.8%
	Orange County			2,887		10.7%		2,061		1,941		6.2%		96.3%		96.1%		0.2%		72,093		67,604		6.6%
	San Diego County			2,067		5.1%		1,397		1,308		6.8%		96.1%		96.4%		-0.3%		35,716		33,747		5.8%
	Ventura County			2,898		8.5%		1,569		1,481		5.9%		96.3%		96.5%		-0.2%		56,011		53,077		5.5%
	Other Southern CA			623		1.5%		1,464		1,365		7.3%		96.8%		96.8%		0.0%		11,148		10,445		6.7%
Total Southern California				12,875		42.2%		1,806		1,701		6.2%		96.2%		96.3%		-0.1%		283,435		267,413		6.0%
Northern California
	Santa Clara County			4,279		20.3%		2,402		2,173		10.5%		96.2%		96.1%		0.1%		124,408		112,406		10.7%
	Alameda County			1,542		6.1%		2,086		1,848		12.9%		96.3%		96.9%		-0.6%		39,506		35,478		11.4%
	San Mateo County			768		3.6%		2,470		2,235		10.5%		96.8%		96.6%		0.2%		23,442		21,232		10.4%
	Contra Costa County			1,720		6.6%		2,029		1,842		10.2%		96.6%		96.3%		0.3%		42,681		38,686		10.3%
	San Francisco MSA			645		2.5%		2,277		2,116		7.6%		95.0%		94.7%		0.3%		17,314		16,025		8.0%
	Other Northern CA			126		0.5%		2,058		1,848		11.4%		97.6%		97.8%		-0.2%		3,127		2,852		9.6%
Total Northern California				9,080		39.6%		2,270		2,052		10.6%		96.3%		96.2%		0.1%		250,478		226,679		10.5%
Seattle Metro				6,558		18.2%		1,493		1,388		7.6%		96.2%		96.0%		0.2%		124,143		115,219		7.7%
Total Same-Property				28,513		100.0%		$   1,882		$   1,741		8.1%		96.2%		96.2%		0.0%		$  658,056		$  609,311		8.0%

 

(1)	Same-property excludes BRE properties acquired April 1, 2014, and properties held for sale.

 

 

 

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
Same-Property Operating Expenses - Quarter and Year to Date as of December 31, 2015 and 2014
(Dollars in thousands)
		Based on 42,734 apartment homes (1)										Based on 28,513 apartment homes (2)
		Q4 '15		Q4 '14		% Change		% of Op. Ex.				YTD 2015		YTD 2014		% Change		% of Op. Ex.
Same-property operating expenses:
Real estate taxes		$       25,729		$       25,170		2.2%		32.7%				$           56,891		$           55,147		3.2%		29.4%
Maintenance and repairs		17,379		15,722		10.5%		22.1%				42,104		40,431		4.1%		21.8%
Administrative		14,212		14,487		-1.9%		18.1%				38,584		38,285		0.8%		19.9%
Utilities		13,395		13,463		-0.5%		17.0%				36,068		35,946		0.3%		18.6%
Management fees (3)		5,342		4,518		18.2%		6.8%				13,084		12,751		2.6%		6.8%
Insurance		2,570		2,480		3.6%		3.3%				6,792		6,950		-2.3%		3.5%
Total same-property operating expenses		$       78,627		$       75,840		3.7%		100.0%				$         193,523		$         189,510		2.1%		100.0%
(1) Same-property includes BRE properties acquired starting April 1, 2014.
(2) Same-property excludes BRE properties.
(3) During 2015, the Company changed its allocation to property management fees.

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
Development Pipeline - December 31, 2015
(Dollars in millions, except per apartment home amounts in thousands and except in footnotes)
	Project Name		Location		Ownership %		Estimated Apartment Homes		Estimated Commercial sq. feet		Incurred to   Date		Remaining Costs		Estimated Total Cost		Essex Est. Total Cost (1)		Cost per Apartment Home (2)		Average % Occupied		% Leased		Construction Start		Initial Occupancy		Stabilized Operations
Development Projects - Consolidated (3)
	MB 360 Phase II (4)		San Francisco, CA		100%		172		11,500		$       119		$         16		$       135		$           135		$       744		21.3%		66.0%		Q3 2014		Q4 2015		Q2 2016
	Station Park Green		San Mateo, CA		100%		599		35,000		83		271		354		354		567		0.0%		0.0%		Q3 2015		Q3 2017		Q4 2018
Total Development Projects - Consolidated							771		46,500		202		287		489		489		634
Land Held for Future Development - Consolidated
	Other Projects		Various		100%						40		-		40		40
Total Development Pipeline - Consolidated							771		46,500		242		287		529		529
Development Projects/Land Held for Future Development - Joint Venture (3)
	Epic - Phase III		San Jose, CA		55%		200		-		84		8		92		51		460		75.3%		82.0%		Q3 2013		Q3 2015		Q1 2016
	Agora (5)		Walnut Creek, CA		51%		49		32,188		84		11		95		48		1,140		0.0%		0.0%		Q3 2013		Q1 2016		Q2 2016
	Owens		Pleasanton, CA		55%		255		5,729		55		34		89		49		341		0.0%		0.0%		Q3 2014		Q2 2016		Q2 2017
	Hacienda		Pleasanton, CA		55%		251		-		37		49		86		47		343		0.0%		0.0%		Q1 2015		Q3 2016		Q3 2017
	Century Towers		San Jose, CA		50%		376		2,006		93		79		172		86		456		0.0%		0.0%		Q3 2014		Q1 2017		Q1 2018
	500 Folsom (6)		San Francisco, CA		50%		545		6,000		62		319		381		191		691		0.0%		0.0%		Q4 2015		Q4 2018		Q2 2020
Total Development Projects - Joint Venture							1,676		45,923		415		500		915		472		$       517
Grand Total - Development Pipeline							2,447		92,423		$       657		$       787		$    1,444		1,001
Essex Cost Incurred to Date																	(459)
Essex Remaining Commitment																	$           542

 

(1)	The Company's share of the estimated total costs of the project.
(2)	Net of the estimated allocation to the retail component of the project.
(3)	For the fourth quarter of 2015, the Company's cost includes $3.2 million of capitalized interest, $0.2 million of capitalized overhead and $0.8 million of development fees (such development fees reduced G&A expenses).
(4)	To date the Company has received $43.9 million of the expected $45.0 million of insurance proceeds for constructions costs related to the fire that occurred in March 2014.
(5)	Apartment homes are built to condominium standards and average approximately 1,600 square feet.
(6)	Estimated total cost is net of a projected value for low income housing tax credit proceeds and tax exempt bonds.

 

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
Redevelopment Pipeline - December 31, 2015
(Dollars in thousands, except per apartment home amounts and in footnotes)
					Total		Estimated		Estimated				NOI
			Apartment		Incurred		Remaining		Total		Project		For the year ended
Region/Project Name (1)			Homes		To Date		Cost		Cost		Start Date		2015 (4)		2014 (4)
Same-property - Redevelopment Projects (2) (3)
Northern California
Summerhill Park			100		$       7,300		$       2,600		9,900		Q4 2014
Southern California
Hamptons			215		7,200		16,400		23,600		Q1 2014
Monterras			292		20,300		6,100		26,400		Q1 2014
Seattle Metro
Park Highland			250		7,600		4,900		12,500		Q4 2014
Total Same-property - Redevelopment Projects			857		$     42,400		$     30,000		$     72,400				$        13,557		$       11,544
Non-same property - Redevelopment Projects
Southern California
Bunker Hill Towers			456		$     34,900		$     52,500		$     87,400		Q3 2013
Total Non-same property - Redevelopment Projects			456		$     34,900		$     52,500		$     87,400				$         5,893		$        5,656

(1)	The Company incurred $0.2 million of capitalized interest, $2.4 million of capitalized overhead and $0.2 million of co-investment redevelopment fees related to redevelopment in Q4 2015.
(2)	Redevelopment activities are ongoing at these communities, but the communities have stabilized operations, therefore results are classified in same-property results.
(3)	During the three and twelve months ended December 31, 2015, the Company completed the redevelopment of interiors totaling 618 and 2,370 apartment homes for the same-property portfolio and 704 and 2,996 apartment homes for the total portfolio, respectively.
(4)	Park Highland was acquired on April 1, 2014. As a result, the NOI for the twelve months ended December 31, 2014 reflects three quarters of NOI, amounting to $2.0 million, as opposed to the NOI for the twelve months ended December 31, 2015, which reflects four quarters of NOI, amounting to $2.9 million.

 

 

E S S E XP R O P E R T YT R U S T, I N C.
Co-investments - December 31, 2015					Essex Ownership Percentage		Apartment Homes		Total Undepreciated Book Value		Debt Amount		Essex Book Value		Weighted Average Borrowing Rate		Remaining Term of Debt (in Years)		For the Three Months Ended December 31, 2015		For the Twelve Months Ended December 31, 2015
(Dollars in thousands)
Operating Non-Consolidated Joint Ventures																			NOI
	Wesco I, LLC				50.0%		2,275	$	558,009	$	297,181	$	102,476		3.9%		9.3	$	9,206	$	36,183
	Wesco III, LLC				50.0%		993		237,690		129,599		53,009		3.3%		4.7		3,672		13,647
	Wesco IV, LLC				50.0%		1,116		300,474		155,000		63,417		3.9%		5.2		4,495		17,267
	BEXAEW, LLC				50.0%		2,723		525,540		321,778		88,850		3.0%		5.2		8,183		31,550
	CPPIB				55.0%		1,728		614,651		-		329,723		-		-		9,254		32,266
	Palm Valley				50.0%		1,098		370,832		227,011		68,525		2.5%		1.1		4,943		19,979
	Other				28.2% - 55.0%		587		200,147		134,741		32,927		2.0%		2.6		2,349		7,020
	Total Operating Non-Consolidated Joint Ventures						10,520	$	2,807,343	$	1,265,310	$	738,927		3.2%		5.1	$	42,102	$	157,912
Development Non-Consolidated Joint Ventures (1)					50.0% - 55.0%		1,676		414,950		24,808		190,808		3.3%		1.7		531		611
	Total Non-Consolidated Joint Ventures						12,196	$	3,222,293	$	1,290,118	$	929,735					$	42,633	$	158,523
																			Essex Portion of NOI and Expenses
NOI																		$	21,880	$	81,265
Depreciation																			(13,004)		(49,826)
Interest expense and other																			(5,335)		(21,723)
Promote income																			-		192
	Net income from operating co-investments																	$	3,541	$	9,908

																			Income from Preferred Equity Investments
																			For the Three Months Ended December 31, 2015		For the TwelveMonths Ended December 31, 2015
															Weighted Average Preferred Return		Weighted Average Expected Term
	Income from preferred equity investments																	$	2,358	$	9,999
	Income from early redemption of preferred equity investments																		-		1,954
Preferred Equity Investments (2)												$	106,312		9.8%		2.9	$	2,358	$	11,953
	Total Co-investments											$	1,036,047					$	5,899	$	21,861

 

(1)	The Company has interests in six development co-investments, which are detailed on S-11.
(2)	As of December 31, 2015 the Company has invested in eight preferred equity investments.

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
Assumptions for 2016 FFO Guidance Range
Q4 2015 Earnings Results Supplement
($'s in thousands, except share and per share data) (1)		YTD				2016 Guidance Range
			Actuals				Low End				High End
Net Operating Income ("NOI")
Total NOI from consolidated communities		$	821,990			$	889,900			$	908,100
Management Fees			8,534				7,900				8,900
Interest Expense
Interest expense, before capitalized interest			(214,574	)			(219,600	)			(215,600	)
Forecasted interest capitalized			15,570				12,800				14,800
Net interest expense			(199,004	)			(206,800	)			(200,800	)
Recurring Income and Expenses
Interest and other income			14,476				16,600				17,600
FFO from co-investments			69,540				78,800				81,700
General and administrative expense			(40,534	)			(41,500	)			(43,500	)
Preferred dividends and non-controlling interest			(14,331	)			(14,000	)			(13,600	)
Total recurring income and expenses			29,151				39,900				42,200
Non-Core Income and Expenses
Promote income from co-investment			192
Gains on sales of marketable securities and land			598
Income from early redemption of preferred equity investment			1,954
Loss on early retirement of debt and redemption costs			(6,114	)			(3,000	)			(2,000	)
Merger and integration expenses			(3,798	)
Acquisition and investment related costs			(2,414	)			(2,000	)			(3,000	)
Other non-core adjustments			2,970
Total non-core income and expenses			(6,612	)			(5,000	)			(5,000	)
Funds from Operations attributable to common stockholders and unitholders		$	654,059			$	725,900			$	753,400
Funds from Operations per diluted share		$	9.72			$	10.64			$	11.05
% Change - Funds from Operations			23.2	%			9.5	%			13.7	%
Core Funds from Operations attributable to common stockholders and unitholders		$	660,671			$	730,900			$	758,400
Core Funds from Operations per diluted share		$	9.82			$	10.72			$	11.12
% Change - Core Funds from Operations			15.0	%			9.2	%			13.3	%
Weighted average shares outstanding			67,310				68,200				68,200

 

(1)	All non-core items are excluded from the YTD actuals and included in the non-core income and expense section of the FFO reconciliation.

 

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

Summary of Apartment Community Acquisitions and Dispositions Activity

Year to date as of December 31, 2015

(Dollars in thousands, except average rent amounts and in footnotes)

 

Acquisitions
Property Name		Location		Apartment Homes		Essex Ownership Percentage				Entity				Date				Purchase Price				Price per Apartment Home				Average Rent
8th & Hope		Los Angeles, CA		290			100.0	%			EPLP				Feb-15			$	200,000			$	690			$	3,708
The Huxley (1)		Los Angeles, CA		187			100.0	%			EPLP				Mar-15				48,784				522				2,439
The Dylan (1)		Los Angeles, CA		184			100.0	%			EPLP				Mar-15				51,266				557				2,646
		Q1 2015		661														$	300,050			$	605
Reveal (2)		Woodland Hills, CA		438			99.75	%			EPLP				Apr-15			$	73,013			$	337			$	1,936
Avant		Los Angeles, CA		247			100.0	%			EPLP				Jun-15				99,000				401				2,281
		Q2 2015		685														$	172,013			$	360
Avant II		Los Angeles, CA		193			100.0	%			EPLP				Dec-15			$	73,000			$	378			$	2,302
Enso		San Jose, CA		183			100.0	%			EPLP				Dec-15				93,000				508				2,817
		Q4 2015		376														$	166,000			$	441
		2015 Total		1,722														$	638,063			$	472
Dispositions (3)
Property Name		Location		Apartment Homes			Essex Ownership Percentage				Entity				Date				Sales Price				Price per Apartment Home
Pinnacle South Mountain		Phoenix, AZ		552			100.0	%			EPLP				Jan-15			$	63,750			$	115
		Q1 2015		552														$	63,750			$	115
Sharon Green		Menlo Park, CA		296			100.0	%			EPLP				Dec-15			$	245,000			$	828
		Q4 2015		296														$	245,000			$	828
		2015 Total		848														$	308,750			$	364

 

(1)	In March 2015, the Company purchased the joint venture partner's remaining membership interest in The Huxley and The Dylan co-investments for a purchase price of $100.1 million. The properties are now consolidated.
(2)	In April 2015, the Company purchased the joint venture partner's 49.5% membership interest in the Reveal co-investment for a purchase price of $73.0 million.
(3)	In March 2015, the Company sold two commercial buildings aggregating 120,000 square feet located in Emeryville, CA for $13.0 million.

 

E S S E X  P R O P E R T Y  T R U S T, I N C.
2016 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions
		Residential Supply (1)						Job Forecast (2)			Market Forecast (3)
Market		New MF Supply	New SF Supply	Total Supply	% of MF Supply to MF Stock	% of Total Supply to Total Stock		Est. New Jobs	% Growth		Economic Rent Growth
Los Angeles		10,000	5,700	15,700	0.6%	0.4%		94,600	2.2%		5.4%
Orange		2,850	3,800	6,650	0.7%	0.6%		33,600	2.2%		5.2%
San Diego		3,300	3,800	7,100	0.7%	0.6%		34,500	2.5%		4.9%
Ventura		150	700	850	0.2%	0.3%		5,350	1.8%		5.4%
So. Cal.		16,300	14,000	30,300	0.6%	0.5%		168,050	2.2%		5.2%
San Francisco		4,400	650	5,050	1.1%	0.7%		34,700	3.0%		7.8%
Oakland		1,600	4,300	5,900	0.5%	0.6%		29,300	2.7%		7.0%
San Jose		5,250	2,100	7,350	2.0%	1.1%		31,300	3.0%		7.7%
No. Cal.		11,250	7,050	18,300	1.3%	0.8%		95,300	2.9%		7.5%
Seattle		8,450	7,600	16,050	1.7%	1.3%		43,100	2.7%		4.9%
Weighted Average (4)		36,000	28,650	64,650	1.1%	0.8%		306,450	2.5%		6.0%
All data are based on Essex Property Trust, Inc. forecasts.
U.S. Economic Assumptions: 2016 G.D.P. Growth:  2.8%, 2016 Job Growth: 2.0%

 

(1)	New Residential Supply: MF reflects Company's internal estimate of actual multifamily deliveries; SF is based on 12 month single family trailing permits reported by the US Census Bureau.
(2)	Job Forecast:  refers to the difference between total non-farm industry employment (not seasonally adjusted) projected 4Q over 4Q, expressed as total new jobs and growth rates.
(3)	Market Forecast:  the estimated rent growth represents the forecasted change in effective market rents for full year 2016 vs 2015 (excludes submarkets not targeted by Essex).
(4)	Weighted Average: markets weighted by scheduled rent in the Company's Portfolio.