Essex Portfolio Lp 10-Q Quarterly Report October 2018

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

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

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

Third Quarter 2018 Highlights:

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

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

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

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

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

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

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

1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810

www.essex.com

“We are pleased to report another quarter of healthy growth, driven by strong apartment fundamentals in the major coastal metros of California and Washington. Job growth continues to outpace national averages, contributing to ongoing shortages of rental housing and pushing personal income higher amid tight labor market conditions. We expect these conditions to continue into 2019, with market rents continuing to grow near long-term averages” commented Michael Schall, President and CEO of the company.

Same-Property Operations

Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in same-property gross revenues for the quarter ended September 30, 2018 compared to the quarter ended September 30, 2017, and the sequential percentage change for the quarter ended September 30, 2018 versus the quarter ended June 30, 2018, by submarket for the Company:

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

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

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

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

Investment Activity

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

Other Investments

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

Liquidity and Balance Sheet

Common Stock

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

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

Balance Sheet

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

Guidance

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

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

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

The following table provides key changes to the 2018 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth. For additional details regarding the Company’s 2018 assumptions, please see page S-14 of the accompanying supplemental financial information. For the fourth quarter of 2018, the Company has established a range for Core FFO per diluted share of $3.13 to $3.23.

2018 Full-Year Guidance

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

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Monday, October 29, 2018 at 12 p.m. PT (3 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the live call will be available online for 30 days and digitally for seven days. To access the replay online, go to www.essex.com and select Investors and the third quarter earnings webcast. To access the replay digitally, dial (844) 512-2921 using the Replay Pin Number – 13683691. If you are unable to access the information via the Company’s website, please contact the Investor Relations Department at investors@essex.com or by calling (650) 655-7800.

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Corporate Profile

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. The Company currently has ownership interests in 248 apartment communities comprising approximately 60,000 apartment homes, excluding six properties in various stages of active development, one commercial building, preferred equity co-investments, and loan investments. Additional information about Essex can be found on the Company’s website at www.essex.com.

This press release and accompanying supplemental financial information has been furnished to the Securities and Exchange Commission (“SEC”) electronically on Form 8-K and can be accessed from the Company’s website at www.essex.com. If you are unable to obtain the information via the Internet, please contact the Investor Relations Department at (650) 655-7800.

FFO Reconciliation

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.

FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT’s operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

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

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

₍₁₎

Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch is recorded as noncash interest rate hedge ineffectiveness through interest expense.

₍₂₎

Assumes conversion of all outstanding limited partnership units in Essex Portfolio, L.P. (the “Operating Partnership”) into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

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NOI and Same-Property NOI Reconciliations

NOI and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s condensed consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenue less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented (dollars in thousands):

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

Safe Harbor Statement Under The Private Litigation Reform Act of 1995:

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which are not historical facts, including statements regarding the Company’s expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code, the real estate markets in the geographies in which the Company’s properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from the economic conditions, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

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While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; there may be a downturn in general economic conditions, the real estate industry, and the markets in which the Company’s communities are located; changes in laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; and those risks, special considerations, and other factors referred to in the Company’s quarterly reports on Form 10-Q, in the Company’s annual report on Form 10-K for the year ended December 31, 2017, and in the Company’s other filings with the SEC. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this press release.

Definitions and Reconciliations

Non-GAAP financial measures and certain other capitalized terms, as used in this earnings release, are defined and further explained on pages S-17.1 through S-17.4, “Reconciliations of Non-GAAP Financial Measures and Other Terms,” of the accompanying supplemental financial information. The supplemental financial information is available on the Company’s website at www.essex.com.

Contact Information

Barb Pak

Group Vice President of Finance & Investor Relations

(650) 655-7800

bpak@essex.com

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Q3 2018 Supplemental

Table of Contents

	Page(s)
Consolidated Operating Results	S-1 – S-2
Consolidated Funds From Operations	S-3
Consolidated Balance Sheets	S-4
Debt Summary – September 30, 2018	S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – September 30, 2018	S-6
Portfolio Summary by County – September 30, 2018	S-7
Operating Income by Quarter – September 30, 2018	S-8
Same-Property Revenue Results by County – Quarters ended September 30, 2018 and 2017, and June 30, 2018	S-9
Same-Property Revenue Results by County – Nine months ended September 30, 2018 and 2017 S-9.1	S-9.1
Same-Property Operating Expenses – Quarter and Year to Date as of September 30, 2018 and 2017	S-10
Development Pipeline – September 30, 2018	S-11
Redevelopment Pipeline – September 30, 2018	S-12
Capital Expenditures – September 30, 2018	S-12.1
Co-investments and Preferred Equity Investments – September 30, 2018	S-13
Assumptions for 2018 FFO Guidance Range	S-14
Reconciliation of Projected EPS, FFO and Core FFO per diluted share	S-14.1
Summary of Apartment Community Acquisitions and Dispositions Activity	S-15
Preliminary 2019 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions	S-16
GDP Growth in Essex Metros Consistently Exceeds U.S. and Supports Stronger Household Earnings Growth	S-16.1
Reconciliations of Non-GAAP Financial Measures and Other Terms	S-17.1 – S-17.4

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

Consolidated Operating Results (Dollars in thousands, except share and per share amounts)	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017

Revenues:
Rental and other property	$	348,610		$	341,974		$	1,040,083		$	1,011,908
Management and other fees from affiliates		2,307			2,395			6,812			6,927
		350,917			344,369			1,046,895			1,018,835

Expenses:
Property operating		97,775			96,564			286,884			279,311
Corporate-level property management expenses		7,761			7,573			23,313			22,604
Depreciation and amortization		120,852			117,451			359,287			350,893
General and administrative		10,601			9,788			36,539			30,726
Expensed acquisition and investment related costs		31			324			156			1,154
		237,020			231,700			706,179			684,688
Earnings from operations		113,897			112,669			340,716			334,147

Interest expense, net ⁽¹⁾		(53,012	)		(53,400	)		(159,653	)		(159,680	)
Interest and other income		8,437			5,790			21,241			17,916
Equity income from co-investments		16,788			19,727			64,611			40,934
Gain on sale of real estate and land		-			249			22,244			26,423
Gain on remeasurement of co-investment		-			-			-			88,641
Net income		86,110			85,035			289,159			348,381
Net income attributable to noncontrolling interest		(5,135	)		(5,312	)		(16,826	)		(18,935	)
Net income available to common stockholders	$	80,975		$	79,723		$	272,333		$	329,446

Net income per share - basic	$	1.23		$	1.21		$	4.12		$	5.01

Shares used in income per share - basic		66,052,108			65,994,896			66,047,990			65,759,450

Net income per share - diluted	$	1.22		$	1.21		$	4.12		$	5.00

Shares used in income per share - diluted		66,103,812			66,078,283			66,093,004			65,836,965

⁽¹⁾	Refer to page S-17.2, the section titled “Interest Expense, Net” for additional information.

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

S-1

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

Consolidated Operating Results Selected Line Item Detail	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2018		2017		2018		2017

Rental and other property
Rental	$	324,780	$	319,308	$	969,461	$	943,976
Other property		23,830		22,666		70,622		67,932
Rental and other property	$	348,610	$	341,974	$	1,040,083	$	1,011,908

Property operating expenses
Real estate taxes	$	38,675	$	37,531	$	112,378	$	108,283
Administrative		19,500		20,431		61,211		61,119
Maintenance and repairs		20,132		20,323		59,742		58,409
Utilities		19,468		18,279		53,553		51,500
Property operating expenses	$	97,775	$	96,564	$	286,884	$	279,311

Interest and other income
Marketable securities and other interest income	$	6,772	$	5,504	$	18,824	$	15,428
Gain on sale of marketable securities		120		32		669		1,650
Unrealized gains on marketable securities⁽¹⁾		1,180		-		426		-
Insurance reimbursements, legal settlements, and other, net		365		254		1,322		838
Interest and other income	$	8,437	$	5,790	$	21,241	$	17,916

Equity income from co-investments
Equity income from co-investments	$	4,097	$	3,688	$	12,878	$	13,336
Income from preferred equity investments		9,029		5,973		25,928		17,284
Gain on sale of co-investment communities		-		10,058		-		10,058
Gain on early retirement of debt from unconsolidated co-investment		3,662		-		3,662		-
Co-investment promote income		-		-		20,541		-
Income from early redemption of preferred equity investments		-		8		1,602		256
Equity income from co-investments	$	16,788	$	19,727	$	64,611	$	40,934

Noncontrolling interest
Limited partners of Essex Portfolio, L.P.	$	2,789	$	2,721	$	9,381	$	11,289
DownREIT limited partners’ distributions		1,590		1,692		4,770		4,937
Third-party ownership interest		756		899		2,675		2,709
Noncontrolling interest	$	5,135	$	5,312	$	16,826	$	18,935

⁽¹⁾

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

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

S-2

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

Consolidated Funds From Operations ⁽¹⁾ (Dollars in thousands, except share and per share amounts and in footnotes)	Three Months Ended September 30,							Nine Months Ended September 30,
	2018			2017			% Change	2018			2017			% Change

Funds from operations attributable to common stockholders and unitholders (FFO)
Net income available to common stockholders	$	80,975		$	79,723			$	272,333		$	329,446
Adjustments:
Depreciation and amortization		120,852			117,451				359,287			350,893
Gains not included in FFO		-			(10,307	)			(22,244	)		(125,122	)
Depreciation and amortization from unconsolidated co-investments		15,766			13,854				47,345			40,335
Noncontrolling interest related to Operating Partnership units		2,789			2,721				9,381			11,289
Depreciation attributable to third party ownership and other ⁽²⁾		(234	)		(23	)			(699	)		(74	)
Funds from operations attributable to common stockholders and unitholders	$	220,148		$	203,419			$	665,403		$	606,767
FFO per share-diluted	$	3.22		$	2.97		8.4%	$	9.74		$	8.90		9.4%

Components of the change in FFO
Non-core items:
Expensed acquisition and investment related costs	$	31		$	324			$	156		$	1,154
Gain on sale of marketable securities		(120	)		(32	)			(669	)		(1,650	)
Unrealized gains on marketable securities		(1,180	)		-				(426	)		-
Interest rate hedge ineffectiveness⁽³⁾		(35	)		1				61			(19	)
Gain on early retirement of debt from unconsolidated co-investment		(3,662	)		-				(3,662	)		-
Co-investment promote income		-			-				(20,541	)		-
Income from early redemption of preferred equity investments		-			(8	)			(1,602	)		(256	)
Insurance reimbursements, legal settlements, and other, net		30			335				2,013			310
Core funds from operations attributable to common stockholders and unitholders	$	215,212		$	204,039			$	640,733		$	606,306
Core FFO per share-diluted	$	3.15		$	2.98		5.7%	$	9.38		$	8.90		5.4%

Changes in core items:
Same-property NOI	$	5,365						$	20,349
Non-same property NOI		60							253
Management and other fees, net		(88	)						(115	)
FFO from co-investments		5,377							15,196
Interest and other income		933							3,009
Interest expense		424							(53	)
General and administrative		(672	)						(3,239	)
Corporate-level property management expenses		(188	)						(709	)
Other items, net		(38	)						(264	)
	$	11,173						$	34,427

Weighted average number of shares outstanding diluted ⁽⁴⁾		68,339,057			68,392,419				68,328,370			68,159,766

⁽¹⁾	Refer to page S-17.2, the section titled “Funds from Operations (“FFO”) for additional information on the Company’s definition and use of FFO and Core FFO.

⁽²⁾	The Company consolidates certain co-investments. The noncontrolling interest’s share of net operating income in these investments for the three and nine months ended September 30, 2018 was $1.3 million and $3.8 million, respectively.

⁽³⁾

Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as noncash interest rate hedge ineffectiveness through interest expense.

⁽⁴⁾

Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

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

S-3

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

Consolidated Balance Sheets (Dollars in thousands)
	September 30, 2018			December 31, 2017

Real Estate:
Land and land improvements	$	2,710,139		$	2,719,064
Buildings and improvements		10,744,841			10,643,009
		13,454,980			13,362,073
Less: accumulated depreciation		(3,113,386	)		(2,769,297	)
		10,341,594			10,592,776
Real estate under development		403,644			355,735
Co-investments		1,267,593			1,155,984
		12,012,831			12,104,495
Cash and cash equivalents, including restricted cash		174,626			61,126
Marketable securities		210,596			190,004
Notes and other receivables		69,166			100,926
Prepaid expenses and other assets		50,924			39,155
Total assets	$	12,518,143		$	12,495,706

Unsecured debt, net	$	3,798,705		$	3,501,709
Mortgage notes payable, net		1,834,967			2,008,417
Lines of credit		-			179,000
Distributions in excess of investments in co-investments		-			36,726
Other liabilities		411,778			333,823
Total liabilities		6,045,450			6,059,675
Redeemable noncontrolling interest		36,665			39,206
Equity:
Common stock		7			7
Additional paid-in capital		7,133,587			7,129,571
Distributions in excess of accumulated earnings		(808,085	)		(833,726	)
Accumulated other comprehensive loss, net		(8,548	)		(18,446	)
Total stockholders’ equity		6,316,961			6,277,406
Noncontrolling interest		119,067			119,419
Total equity		6,436,028			6,396,825
Total liabilities and equity	$	12,518,143		$	12,495,706

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

S-4

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

Debt Summary - September 30, 2018 (Dollars in thousands, except in footnotes)


									Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:


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

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

⁽¹⁾	The unsecured term loan has a variable interest rate of LIBOR plus 0.95%. The Company has interest rate swap contracts with an aggregate notional amount of $175 million, which effectively converts the interest rate on $175 million of the term loan to a fixed rate of 2.3%.

⁽²⁾	$269.8 million of variable rate debt is tax exempt to the note holders. $9.9 million is subject to interest rate cap protection agreements.

⁽³⁾

This unsecured line of credit facility has a capacity of $1.2 billion. The line matures in December 2021 with one 18-month extension, exercisable at the Company’s option. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.875%.

⁽⁴⁾	This unsecured line of credit facility has a capacity $35.0 million and is scheduled to mature in January 2020. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.875%.

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

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

Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - September 30, 2018

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

Capitalization Data

Public Bond Covenants ⁽¹⁾

Actual

Requirement

Total debt, net

5,633,672

Adjusted Debt to Adjusted Total Assets:

36%

< 65%

Common stock and potentially dilutive securities

Common stock outstanding

66,055

Limited partnership units ⁽¹⁾

2,235

Options-treasury method

Secured Debt to Adjusted Total Assets:

12%

< 40%

Total shares of common stock and potentially dilutive securities

68,349

Common stock price per share as of September 30, 2018

246.71

Interest Coverage:

433%

> 150%

Total equity capitalization

16,862,382

Total market capitalization

22,496,054

Unsecured Debt Ratio ⁽²⁾:

287%

> 150%

Ratio of debt to total market capitalization

25.0

Selected Credit Ratios ⁽³⁾

Actual

Credit Ratings

Rating Agency

Rating

Outlook

Net IndebtednessDivided by Adjusted EBITDAre, normalized and annualized:

5.5

Fitch

BBB+

Positive

Moody’s

Baa1

Stable

Unencumbered NOI to Adjusted Total NOI:

73%

Standard & Poor’s

BBB+

Stable

⁽¹⁾ Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock.

⁽¹⁾ Refer to page S-17.4 for additional information on the Company’s Public Bond Covenants.

⁽²⁾ Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.

⁽³⁾ Refer to pages S-17.1 to S-17.4, the section titled “Reconciliations of Non-GAAP Financial Measures and Other Terms” for additional information on the Company’s Selected Credit Ratios.

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

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Portfolio Summary by County as of September 30, 2018

Region - County	Apartment Homes								Average Monthly Rental Rate⁽¹⁾						Percent of NOI⁽²⁾
Region - County	Consolidated⁽³⁾		Unconsolidated Co-investments⁽³⁾		Apartment Homes in Development⁽⁴⁾		Total		Consolidated		Unconsolidated Co-investments⁽⁵⁾		Total⁽⁶⁾		Consolidated			Unconsolidated Co-investments⁽⁵⁾			Total⁽⁶⁾

Southern California
Los Angeles County		9,387		1,563		200		11,150	$	2,436	$	2,095	$	2,409		19.7	%		12.4	%		19.0	%
Orange County		5,553		1,149		-		6,702		2,170		1,882		2,143		10.4	%		8.3	%		10.2	%
San Diego County		4,824		616		-		5,440		1,924		1,789		1,916		8.2	%		4.2	%		7.8	%
Ventura County		2,577		693		-		3,270		1,806		2,131		1,847		4.4	%		6.2	%		4.6	%
Other Southern CA		623		249		-		872		1,634		1,619		1,631		0.9	%		1.5	%		0.9	%
Total Southern California		22,964		4,270		200		27,434		2,172		1,975		2,155		43.6	%		32.6	%		42.5	%

Essex Portfolio Lp (1053059) SEC Filing 10-Q Quarterly report for the period ending Sunday, September 30, 2018

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