Exhibit 99.1
 
 
 



Essex Announces Third Quarter 2017 Results

San Mateo, California—November 1, 2017—Essex Property Trust, Inc. (NYSE:ESS) announced today its third quarter 2017 earnings results and related business activities.

Net Income and Funds from Operations (“FFO”) per diluted share for the quarter ended September 30, 2017 are detailed below. Core FFO excludes acquisition and investment related costs and certain non-routine items.


                         
   
Three Months Ended
September 30,
   
%
   
Nine Months Ended
September 30,
   
%
 
   
2017
   
2016
   
Change
   
2017
   
2016
   
Change
 
  Per Diluted Share
                                   
    Net Income
 
$
1.21
   
$
1.00
     
21.0
%
 
$
5.00
   
$
3.29
     
52.0
%
    Total FFO
 
$
2.97
   
$
2.81
     
5.7
%
 
$
8.90
   
$
8.27
     
7.6
%
    Core FFO
 
$
2.98
   
$
2.81
     
6.0
%
 
$
8.90
   
$
8.23
     
8.1
%
                                                 

Third Quarter Highlights:

·
Reported Net Income per diluted share for the third quarter of 2017 of $1.21, compared to $1.00 in the third quarter of 2016.  The increase is primarily due to gains on sale of real estate in our co-investment portfolio.

·
Grew Core FFO per diluted share by 6.0% compared to the third quarter of 2016, achieving the high-end of the guidance range.

·
Achieved same-property gross revenue and net operating income (“NOI”) growth of 3.1% compared to the third quarter of 2016.

·
Realized a sequential quarterly increase in same-property revenue growth of 1.5% compared to the second quarter of 2017.

·
Updated full-year 2017 earnings guidance:

o
Increased full-year Net Income per diluted share guidance range by $0.17 per share at the midpoint to a range of $6.00 to $6.10. Provided Net Income guidance range for the fourth quarter of $1.00 to $1.10 per diluted share.

o
Increased full-year Total FFO per diluted share guidance range by $0.03 per share at the midpoint to a range of $11.82 to $11.92. Provided Total FFO guidance range for the fourth quarter of $2.92 to $3.02 per diluted share.

o
Increased full-year Core FFO per diluted share guidance by $0.06 per share at the midpoint to a range of $11.84 to $11.94. Provided Core FFO guidance range for the fourth quarter of $2.95 to $3.05 per diluted share.
 
o
Reaffirmed the midpoint of full-year 2017 guidance by tightening the ranges for growth in same-property revenues, operating expenses, and NOI set forth in the Company’s second quarter 2017 earnings release.
  
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 favorable third quarter results, carrying forward the momentum from solid rent growth in the first half of 2017 and resulting in Core FFO at the top of our guidance range.  As a result, we are increasing our Core FFO guidance range for the full-year. As noted last quarter, rental growth across our footprint peaked earlier this year compared to seasonal norms, creating a headwind that our operations team overcame with high occupancy levels and other income. Going forward, we continue to expect market conditions to support rental growth near long-term averages in our West Coast markets,” 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, 2017 compared to the quarter ended September 30, 2016, and the sequential percentage change for the quarter ended September 30, 2017 compared to the quarter ended June 30, 2017, by submarket for the Company:


   
Q3 2017 vs.
Q3 2016
   
Q3 2017 vs.
Q2 2017
   
% of Total
 
   
Gross Revenues
   
Gross Revenues
   
Q3 2017 Revenues
 
Southern California
     
   Los Angeles County
   
2.7
%
   
2.0
%
   
19.9
%
   Orange County
   
4.2
%
   
1.5
%
   
11.6
%
   San Diego County
   
3.6
%
   
2.5
%
   
9.2
%
   Ventura County
   
5.3
%
   
2.5
%
   
4.5
%
   Other Southern California
   
5.3
%
   
-2.0
%
   
0.5
%
       Total Southern California
   
3.5
%
   
2.0
%
   
45.7
%
Northern California
     
   Santa Clara County
   
1.3
%
   
0.1
%
   
15.6
%
   Alameda County
   
1.9
%
   
1.7
%
   
7.3
%
   San Mateo County
   
1.0
%
   
0.7
%
   
5.2
%
   Contra Costa County
   
0.9
%
   
0.4
%
   
5.1
%
   San Francisco
   
4.7
%
   
1.7
%
   
2.0
%
   Other Northern California
   
8.5
%
   
-0.9
%
   
0.3
%
       Total Northern California
   
1.5
%
   
0.7
%
   
35.5
%
Seattle Metro
   
4.9
%
   
2.1
%
   
18.8
%
Same-Property Portfolio
   
3.1
%
   
1.5
%
   
100.0
%
                         



   
Year-Over-Year Growth
   
Year-Over-Year Growth
 
   
Q3 2017 compared to Q3 2016
   
YTD 2017 compared to YTD 2016
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
3.5
%
   
2.2
%
   
4.2
%
   
4.1
%
   
2.1
%
   
5.0
%
Northern California
   
1.5
%
   
3.5
%
   
0.8
%
   
2.6
%
   
2.3
%
   
2.7
%
Seattle Metro
   
4.9
%
   
4.2
%
   
5.3
%
   
6.4
%
   
5.8
%
   
6.8
%
Same-Property Portfolio
   
3.1
%
   
3.0
%
   
3.1
%
   
4.0
%
   
2.9
%
   
4.5
%


2



   
Sequential Growth
 
   
Q3 2017 compared to Q2 2017
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
2.0
%
   
4.2
%
   
1.0
%
Northern California
   
0.7
%
   
8.0
%
   
-1.9
%
Seattle Metro
   
2.1
%
   
-1.8
%
   
4.1
%
Same-Property Portfolio
   
1.5
%
   
4.1
%
   
0.4
%

   
Financial Occupancies
 
   
Quarter Ended
 
   
9/30/2017
   
6/30/2017
   
9/30/2016
 
Southern California
   
96.8
%
   
96.2
%
   
96.7
%
Northern California
   
96.9
%
   
96.7
%
   
96.5
%
Seattle Metro
   
96.2
%
   
96.2
%
   
96.1
%
Same-Property Portfolio
   
96.7
%
   
96.4
%
   
96.5
%

Investment Activity

In August 2017, the Company formed a new joint venture entity, Wesco V, LLC (“Wesco V”), in which the Company has a 50% interest. Each partner has an initial equity commitment of $150.0 million. During the third quarter of 2017, Wesco V acquired two communities:

·
360 Residences in San Jose, CA for a total contract price of $133.5 million. In connection with the purchase of the community, Wesco V assumed a $57.9 million loan at an effective rate of 3.4% and a maturity of 2022. 360 Residences was built in 2010 as a 23-story condominium high-rise comprising 213 apartment homes in downtown San Jose and rented as apartments. The community offers high quality interior finishes and common area amenities including an elevated pool deck with city-views.

·
8th & Republican in Seattle, WA for a total contract price of $101.3 million. The community was built in 2016, contains 211 apartment homes and approximately 13,500 square feet of ground floor retail space. 8th & Republican is located in the South Lake Union neighborhood of downtown Seattle, which is home to the expansive Amazon Headquarters.

Subsequent to quarter-end, the Wesco I, LLC (“Wesco I”) joint venture operating agreement was amended to extend the venture. As part of the amendment, the Company and joint venture partner agreed that the Company earned a promote interest, which is expected to be approximately $38.0 million. The Company also agreed to contribute this earned promote to the joint venture, resulting in an increase in the Company’s ownership interest in Wesco I to approximately 58%. It is expected that the promote will be excluded from Net Income, Total FFO and Core FFO.

Dispositions

In August 2017, the Company sold Madrid Apartments, which was owned by Wesco I. The apartment community is located in Mission Viejo, CA, and contains 230 apartment homes. Total proceeds from the sale were $83.0 million. The Company’s share of the total gain on the sale was $10.1 million, which has been excluded from the calculation of Total FFO and Core FFO.
3


Other Investments

During the third quarter of 2017, the Company originated $38.9 million in three preferred equity investments in multifamily developments located in Seattle, WA, Marina del Rey, CA, and Woodland Hills, CA. The total investment has an average preferred return of 10.2% with maturities ranging from 2020 to 2024.

Subsequent to quarter-end, the Company originated a $40.0 million preferred equity investment in a multifamily development located in Los Angeles, CA. The investment has a preferred return of 11.3% and matures in 2021.

Development Activity

During the third quarter of 2017, the Company entered into a joint venture to develop Ohlone, a multifamily community containing 269 apartment homes located in San Jose, CA. The Company has a 50% ownership interest in the development, which has a projected total cost of $136.0 million. Construction began in the third quarter of 2017 and the community is expected to open in the third quarter of 2019. The Company has committed to a $28.9 million preferred equity investment in the project, which accrues an annualized preferred return of 10.0% and matures in 2020.

The following table represents the development communities in lease-up during the third quarter of 2017 and the current leasing status as of October 27, 2017.


Project Name
Location
 
Total
Apartment
Homes
   
ESS
Ownership
   
% Leased
as of
10/27/17
 
Status
The Galloway (at Hacienda)
Pleasanton, CA
   
251
     
55
%
   
97
%
Stabilized
Century Towers
San Jose, CA
   
376
     
50
%
   
98
%
Stabilized
Total/Weighted Average % Leased
   
627
             
97
%
 

Liquidity and Balance Sheet

Common Stock

During the third quarter of 2017, the Company did not issue any common stock through its equity distribution program. Subsequent to quarter-end through October 27, 2017, the Company has issued 33,571 shares of common stock at an average price of $261.19 for net proceeds of $8.7 million. Year-to-date as of October 27, 2017, the Company has issued 345,444 shares of common stock at an average price of $260.38 for net proceeds of $89.1 million.

Balance Sheet

During the fourth quarter of 2017, the Company plans to prepay approximately $90.0 million of secured mortgages with an effective interest rate of 5.7%. The Company will incur approximately $1.8 million of prepayment penalties, which will be excluded from the calculation of Core FFO.

As of October 27, 2017, the Company had approximately $885.0 million in undrawn capacity on its unsecured credit facilities.
4


Guidance

For the third quarter of 2017, the Company exceeded the midpoint of the guidance range provided in its second quarter 2017 earnings release for Core FFO by $0.05 per share.

The following table provides a reconciliation of third quarter Core FFO per share to the midpoint of the guidance provided in the second quarter 2017 earnings release, which was distributed in July 2017.

   
Per Diluted Share
 
Projected midpoint of Core FFO per share for Q3 2017
 
$
2.93
 
NOI from consolidated communities
   
0.03
 
G&A and other income
   
0.02
 
Core FFO per share for Q3 2017 reported
 
$
2.98
 

The following table provides key changes to the full-year 2017 earnings guidance. For additional details regarding the Company’s 2017 assumptions, please see page S-14 of the accompanying supplemental financial information. For the fourth quarter of 2017, the Company has established a range for Core FFO per diluted share of $2.95 to $3.05.

2017 Full-Year Guidance
   
Previous
Range
   
Previous
 Midpoint
   
Revised
Range
   
Revised
 Midpoint
 
Per Diluted Share
                       
  Net Income
 
$
5.75 to $6.00
   
$
5.88
   
$
6.00 to $6.10
   
$
6.05
 
  Total FFO
 
$
11.71 to $11.96
   
$
11.84
   
$
11.82 to $11.92
   
$
11.87
 
  Core FFO
 
$
11.70 to $11.96
   
$
11.83
   
$
11.84 to $11.94
   
$
11.89
 
                                 
Same-Property Growth
                               
  Gross Revenues
 
3.2% to 4.0%
     
3.6
%
 
3.4% to 3.8%
     
3.6
%
  Operating Expenses
 
2.5% to 2.9%
     
2.7
%
 
2.6% to 2.8%
     
2.7
%
  NOI
 
3.3% to 4.6%
     
4.0
%
 
3.7% to 4.3%
     
4.0
%

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, November 2, 2017 at 9 a.m. PT (12 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the call will be available online for 30 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the third quarter 2017 earnings link. To access the replay digitally, dial (844) 512-2921 using the replay pin number 13671501. 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.
5


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 248 apartment communities with an additional 6 properties in various stages of active development. Additional information about Essex can be found on the Company’s website at www.essex.com.

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

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 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 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 the ability to pay dividends.

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 an alternative 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 shareholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.


6

 
The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three and nine months ended September 30, 2017 and 2016 (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
 
2017
   
2016
   
2017
   
2016
 
Net income available to common stockholders
 
$
79,723
   
$
65,561
   
$
329,446
   
$
215,555
 
Adjustments:
                               
Depreciation and amortization
   
117,451
     
110,467
     
350,893
     
329,847
 
Gains not included in FFO
   
(10,307
)
   
-
     
(125,122
)
   
(33,304
)
Deferred tax expense on gain on sale of real estate and land – Taxable REIT Subsidiary activity
   
-
     
-
     
-
     
4,279
 
Depreciation and amortization add back from unconsolidated co-investments
   
13,854
     
12,857
     
40,335
     
37,337
 
Noncontrolling interest related to Operating Partnership units
   
2,721
     
2,223
     
11,289
     
7,457
 
Depreciation attributable to third party ownership and other
   
(23
)
   
(5
)
   
(74
)
   
(3
)
Funds from Operations attributable to common stockholders and unitholders
 
$
203,419
   
$
191,103
   
$
606,767
   
$
561,168
 
FFO per share – diluted
 
$
2.97
   
$
2.81
   
$
8.90
   
$
8.27
 
Acquisition and investment related costs
 
$
324
   
$
284
   
$
1,154
   
$
1,379
 
Gain on sale of marketable securities and other investments
   
(32
)
   
(1,033
)
   
(1,650
)
   
(2,876
)
Interest rate hedge ineffectiveness (1)
   
1
     
-
     
(19
)
   
-
 
Loss on early retirement of debt
   
-
     
211
     
-
     
211
 
Income from early redemption of preferred equity investments
   
(8
)
   
-
     
(256
)
   
-
 
Excess of redemption value of preferred stock over the carrying value
   
-
     
-
     
-
     
2,541
 
Insurance reimbursements, legal settlements and other, net
   
335
     
(31
)
   
310
     
(4,041
)
Core Funds from Operations attributable to common stockholders and unitholders
 
$
204,039
   
$
190,534
   
$
606,306
   
$
558,382
 
Core FFO per share – diluted
 
$
2.98
   
$
2.81
   
$
8.90
   
$
8.23
 
Weighted average number of shares outstanding diluted (2)
   
68,392,419
     
67,914,123
     
68,159,766
     
67,881,126
 

(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”) and excludes all 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.

Net Operating Income (“NOI”) and Same-Property NOI Reconciliations

Net Operating Income ("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):

7


   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
Earnings from operations
 
$
112,669
   
$
109,412
   
$
334,147
   
$
315,280
 
Adjustments:
                               
     Depreciation and amortization
   
117,451
     
110,467
     
350,893
     
329,847
 
     Management and other fees from affiliates
   
(2,395
)
   
(2,093
)
   
(6,927
)
   
(6,145
)
     General and administrative
   
9,788
     
9,647
     
30,726
     
28,527
 
     Acquisition and investment related costs
   
324
     
284
     
1,154
     
1,379
 
        NOI
   
237,837
     
227,717
     
709,993
     
668,888
 
     Less: Non-same property NOI
   
(22,550
)
   
(18,909
)
   
(68,682
)
   
(54,927
)
Same-Property NOI
 
$
215,287
   
$
208,808
   
$
641,311
   
$
613,961
 


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,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In this press release and related materials, forward-looking statements include, among other things, statements relating to the Company’s financial guidance for the fourth quarter and full-year 2017, including guidance relating to same-property portfolio growth, funds from operations, gross revenues, operating expenses, and net operating income; estimated costs of property development and redevelopment, the anticipated timing of completion of current development and redevelopment projects and the stabilization of such projects; financial projections and assumptions; financing and investment activities; forecasts of residential supply, jobs, and rent growth in various areas; and other information that is not historical information. 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, the failure of the Company to achieve its business objectives, 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 or cost increases 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 the date hereof, and the Company assumes no obligation to update or supplement this information for any reason. For more details relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks relating to our business in general, please refer to our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the SEC.
8


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
9

Q3 2017 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, 2017
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios - September 30, 2017
S-6
Portfolio Summary by County - September 30, 2017
S-7
Operating Income by Quarter - September 30, 2017
S-8
Same-Property Revenue Results by County - Quarters ended September 30, 2017 and 2016, and June 30, 2017
S-9
Same-Property Revenue Results by County - Nine months ended September 30, 2017 and 2016
S-9.1
Same-Property Operating Expenses
S-10
Development Pipeline - September 30, 2017
S-11
Redevelopment Pipeline - September 30, 2017
S-12
Capital Expenditures - September 30, 2017
S-12.1
Co-Investments - September 30, 2017
S-13
Assumptions for 2017 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
2017 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
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
 
Three Months Ended
   
Nine Months Ended
 
(Dollars in thousands, except share and per share amounts)
 
September 30,
   
September 30,
 
   
2017
   
2016
   
2017
   
2016
 
                         
Revenues:
                       
Rental and other property
 
$
341,974
   
$
327,078
   
$
1,011,908
   
$
958,818
 
Management and other fees from affiliates
   
2,395
     
2,093
     
6,927
     
6,145
 
     
344,369
     
329,171
     
1,018,835
     
964,963
 
                                 
Expenses:
                               
Property operating
   
104,137
     
99,361
     
301,915
     
289,930
 
Depreciation and amortization
   
117,451
     
110,467
     
350,893
     
329,847
 
General and administrative
   
9,788
     
9,647
     
30,726
     
28,527
 
Acquisition and investment related costs
   
324
     
284
     
1,154
     
1,379
 
     
231,700
     
219,759
     
684,688
     
649,683
 
Earnings from operations
   
112,669
     
109,412
     
334,147
     
315,280
 
                                 
Interest expense, net (1)
   
(53,400
)
   
(53,550
)
   
(159,680
)
   
(155,647
)
Interest and other income
   
5,790
     
4,943
     
17,916
     
19,560
 
Equity income from co-investments
   
19,727
     
9,568
     
40,934
     
38,932
 
Loss on early retirement of debt
   
-
     
(211
)
   
-
     
(211
)
Gain on sale of real estate and land
   
249
     
-
     
26,423
     
20,258
 
Deferred tax expense on gain on sale of real estate and land
   
-
     
-
     
-
     
(4,279
)
Gain on remeasurement of co-investment
   
-
     
-
     
88,641
     
-
 
Net income
   
85,035
     
70,162
     
348,381
     
233,893
 
Net income attributable to noncontrolling interest
   
(5,312
)
   
(4,601
)
   
(18,935
)
   
(14,483
)
Net income attributable to controlling interest
   
79,723
     
65,561
     
329,446
     
219,410
 
Dividends to preferred stockholders
   
-
     
-
     
-
     
(1,314
)
Excess of redemption value of preferred stock over the carrying value
   
-
     
-
     
-
     
(2,541
)
Net income available to common stockholders
 
$
79,723
   
$
65,561
   
$
329,446
   
$
215,555
 
                                 
Net income per share - basic
 
$
1.21
   
$
1.00
   
$
5.01
   
$
3.29
 
                                 
Shares used in income per share - basic
   
65,994,896
     
65,507,669
     
65,759,450
     
65,455,004
 
                                 
Net income per share - diluted
 
$
1.21
   
$
1.00
   
$
5.00
   
$
3.29
 
                                 
Shares used in income per share - diluted
   
66,078,283
     
65,617,551
     
65,836,965
     
65,578,661
 

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

See Company's 10-K and 10-Q for additional disclosures
 
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
 
Three Months Ended
   
Nine Months Ended
 
Selected Line Item Detail
 
September 30,
   
September 30,
 
(Dollars in thousands)
 
2017
   
2016
   
2017
   
2016
 
                         
Rental and other property
                       
Rental
 
$
319,308
   
$
305,314
   
$
943,976
   
$
896,775
 
Other property
   
22,666
     
21,764
     
67,932
     
62,043
 
Rental and other property
 
$
341,974
   
$
327,078
   
$
1,011,908
   
$
958,818
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
37,531
   
$
35,580
   
$
108,283
   
$
104,540
 
Administrative and insurance
   
20,689
     
19,971
     
61,934
     
58,933
 
Maintenance and repairs
   
20,018
     
19,406
     
57,494
     
55,873
 
Utilities
   
18,279
     
16,811
     
51,500
     
47,836
 
Property management
   
7,620
     
7,593
     
22,704
     
22,748
 
Property operating expenses
 
$
104,137
   
$
99,361
   
$
301,915
   
$
289,930
 
                                 
                                 
Interest and other income
                               
Marketable securities and other interest income
 
$
5,504
   
$
3,879
   
$
15,428
   
$
12,643
 
Gain on sale of marketable securities and other investments
   
32
     
1,033
     
1,650
     
2,876
 
Insurance reimbursements, legal settlements, and other
   
254
     
31
     
838
     
4,041
 
Interest and other income
 
$
5,790
   
$
4,943
   
$
17,916
   
$
19,560
 
                                 
Equity income from co-investments
                               
Equity income from co-investments
 
$
3,688
   
$
5,055
   
$
13,336
   
$
14,811
 
Income from preferred equity investments
   
5,973
     
4,513
     
17,284
     
11,075
 
Gain on sale of co-investment communities
   
10,058
     
-
     
10,058
     
13,046
 
Income from early redemption of preferred equity investments
   
8
     
-
     
256
     
-
 
Equity income from co-investments
 
$
19,727
   
$
9,568
   
$
40,934
   
$
38,932
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
2,721
   
$
2,223
   
$
11,289
   
$
7,457
 
DownREIT limited partners' distributions
   
1,692
     
1,423
     
4,937
     
4,282
 
Third-party ownership interest
   
899
     
955
     
2,709
     
2,744
 
Noncontrolling interest
 
$
5,312
   
$
4,601
   
$
18,935
   
$
14,483
 

See Company's 10-K and 10-Q for additional disclosures
 
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)
 
Three Months Ended
         
Nine Months Ended
       
(Dollars in thousands, except share and per share amounts and in footnotes)
 
September 30,
         
September 30,
       
 
2017
   
2016
   
% Change
   
2017
   
2016
   
% Change
 
                                     
Funds from operations attributable to common stockholders and unitholders (FFO)
                                   
Net income available to common stockholders
 
$
79,723
   
$
65,561
         
$
329,446
   
$
215,555
       
Adjustments:
                                           
Depreciation and amortization
   
117,451
     
110,467
           
350,893
     
329,847
       
Gains not included in FFO
   
(10,307
)
   
-
           
(125,122
)
   
(33,304
)
     
Deferred tax expense on gain on sale of real estate and land - Taxable REIT Subsidiary activity
   
-
     
-
           
-
     
4,279
       
Depreciation and amortization add back from unconsolidated co-investments
   
13,854
     
12,857
           
40,335
     
37,337
       
Noncontrolling interest related to Operating Partnership units
   
2,721
     
2,223
           
11,289
     
7,457
       
Depreciation attributable to third party ownership and other (2)
   
(23
)
   
(5
)
         
(74
)
   
(3
)
     
Funds from operations attributable to common stockholders and unitholders
 
$
203,419
   
$
191,103
         
$
606,767
   
$
561,168
       
FFO per share-diluted
 
$
2.97
   
$
2.81
     
5.7%
 
 
$
8.90
   
$
8.27
     
7.6%
 
                                                 
Components of the change in FFO
                                               
Non-core items:
                                               
Acquisition and investment related costs
 
$
324
   
$
284
           
$
1,154
   
$
1,379
         
Gain on sale of marketable securities and other investments
   
(32
)
   
(1,033
)
           
(1,650
)
   
(2,876
)
       
Interest rate hedge ineffectiveness (3)
   
1
     
-
             
(19
)
   
-
         
Loss on early retirement of debt
   
-
     
211
             
-
     
211
         
Income from early redemption of preferred equity investments
   
(8
)
   
-
             
(256
)
   
-
         
Excess of redemption value of preferred stock over the carrying value
   
-
     
-
             
-
     
2,541
         
Insurance reimbursements, legal settlements, and other, net
   
335
     
(31
)
           
310
     
(4,041
)
       
Core funds from operations attributable to common stockholders and unitholders
 
$
204,039
   
$
190,534
           
$
606,306
   
$
558,382
         
Core FFO per share-diluted
 
$
2.98
   
$
2.81
     
6.0%
 
 
$
8.90
   
$
8.23
     
8.1%
 
                                                 
Changes in core items:
                                               
Same-property NOI
 
$
6,479
                   
$
27,350
                 
Non-same property NOI
   
3,641
                     
13,755
                 
Management and other fees, net
   
302
                     
782
                 
FFO from co-investments
   
1,090
                     
7,732
                 
Interest and other income
   
2,214
                     
3,933
                 
Interest expense
   
149
                     
(4,014
)
               
General and administrative
   
(141
)
                   
(2,199
)
               
Other items, net
   
(229
)
                   
585
                 
   
$
13,505
                   
$
47,924
                 
                                                 
Weighted average number of shares outstanding diluted (4)
   
68,392,419
     
67,914,123
             
68,159,766
     
67,881,126
         

(1)
Refer to page S-17.1, 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, 2017 was $1.2 million and $3.6 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 and excludes all 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.

See Company's 10-K and 10-Q for additional disclosures
 
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, 2017
   
December 31, 2016
 
             
Real Estate:
           
Land and land improvements
 
$
2,719,064
   
$
2,559,743
 
Buildings and improvements
   
10,585,742
     
10,116,563
 
     
13,304,806
     
12,676,306
 
Less:  accumulated depreciation
   
(2,651,542
)
   
(2,311,546
)
     
10,653,264
     
10,364,760
 
Real estate under development
   
313,825
     
190,505
 
Co-investments
   
1,124,577
     
1,161,275
 
Real estate held for sale, net
   
-
     
101,957
 
     
12,091,666
     
11,818,497
 
Cash and cash equivalents, including restricted cash
   
63,273
     
170,302
 
Marketable securities
   
184,574
     
139,189
 
Notes and other receivables
   
121,557
     
40,970
 
Prepaid expenses and other assets
   
51,453
     
48,450
 
Total assets
 
$
12,512,523
   
$
12,217,408
 
                 
Unsecured debt, net
 
$
3,501,146
   
$
3,246,779
 
Mortgage notes payable, net
   
2,111,467
     
2,191,481
 
Lines of credit
   
2,609
     
125,000
 
Distributions in excess of investments in co-investments
   
36,245
     
-
 
Other liabilities
   
437,118
     
317,227
 
Total liabilities
   
6,088,585
     
5,880,487
 
Redeemable noncontrolling interest
   
40,044
     
44,684
 
Equity:
               
Common stock
   
6
     
6
 
Additional paid-in capital
   
7,111,866
     
7,029,679
 
Distributions in excess of accumulated earnings
   
(821,732
)
   
(805,409
)
Accumulated other comprehensive loss, net
   
(24,632
)
   
(32,098
)
Total stockholders' equity
   
6,265,508
     
6,192,178
 
Noncontrolling interest
   
118,386
     
100,059
 
Total equity
   
6,383,894
     
6,292,237
 
Total liabilities and equity
 
$
12,512,523
   
$
12,217,408
 

See Company's 10-K and 10-Q for additional disclosures
 
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, 2017
(Dollars in thousands, except in footnotes)

                                                       
                     
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
 
                                           
                                                       
                                             
Weighted
Average
Interest
Rate
   
Percentage
of Total Debt
 
         
Weighted Average
                         
   
Balance
Outstanding
   
Interest
Rate
   
Maturity
in Years
         
Unsecured
   
Secured
   
Total
 
Unsecured Debt, net
                                                     
Bonds private - fixed rate
 
$
275,000
     
4.5
%
   
3.3
   
2017
   
$
-
   
$
7,719
   
$
7,719
     
4.1
%
   
0.1
%
Bonds public - fixed rate
   
2,900,000
     
3.7
%
   
6.7
   
2018
     
-
     
257,108
     
257,108
     
5.5
%
   
4.6
%
Term loan (1)
   
350,000
     
2.4
%
   
4.4
   
2019
     
75,000
     
586,318
     
661,318
     
4.2
%
   
11.8
%
Unamortized net discounts and debt issuance costs
   
(23,854
)
   
-
     
-
   
2020
     
-
     
694,887
     
694,887
     
4.8
%
   
12.4
%
     
3,501,146
     
3.6
%
   
6.2
   
2021
     
500,000
     
44,810
     
544,810
     
4.3
%
   
9.7
%
Mortgage Notes Payable, net
                         
2022
     
650,000
     
42,649
     
692,649
     
3.0
%
   
12.4
%
Fixed rate - secured
   
1,798,959
     
4.6
%
   
3.4
   
2023
     
600,000
     
2,188
     
602,188
     
3.6
%
   
10.7
%
Variable rate - secured (2)
   
281,092
     
1.5
%
   
18.7
   
2024
     
400,000
     
2,317
     
402,317
     
4.0
%
   
7.2
%
Unamortized premiums and debt issuance costs, net
   
31,416
     
-
     
-
   
2025
     
500,000
     
16,056
     
516,056
     
3.5
%
   
9.2
%
Total mortgage notes payable
   
2,111,467
     
4.2
%
   
5.4
   
2026
     
450,000
     
55,091
     
505,091
     
3.4
%
   
9.0
%
                           
2027
     
350,000
     
166,250
     
516,250
     
3.3
%
   
9.2
%
Unsecured Lines of Credit
                         
Thereafter
     
-
     
204,658
     
204,658
     
2.1
%
   
3.7
%
Line of credit (3)
   
-
     
1.9
%
         
Subtotal
     
3,525,000
     
2,080,051
     
5,605,051
     
3.9
%
   
100.0
%
Line of credit (4)
   
2,609
     
1.9
%
         
Debt Issuance Costs
     
(18,856
)
   
(6,003
)
   
(24,859
)
 
NA
   
NA
 
Total lines of credit
   
2,609
     
1.9
%
         
(Discounts)/Premiums
     
(4,998
)
   
37,419
     
32,421
   
NA
   
NA
 
                           
Total
   
$
3,501,146
   
$
2,111,467
   
$
5,612,613
     
3.9
%
   
100.0
%
Total debt, net
 
$
5,615,222
     
3.9
%
                                                     
                                                                       

Capitalized interest for the three and nine months ended September 30, 2017 was approximately $3.4 million and $10.0 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)
$281.1 million of variable rate debt is tax exempt to the note holders. $20.7 million is subject to interest rate cap protection agreements.
(3)
The unsecured line of credit facility aggregates to $1 billion. The line matures in December 2020 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 and is scheduled to mature in 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%.

See Company's 10-K and 10-Q for additional disclosures
 
S-5

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

Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - September 30, 2017
(Dollars and shares in thousands, except per share amounts)

                                
Capitalization Data
       
Public Bond Covenants (1)
 
Actual
 
Requirement
 
Total debt, net
 
$
5,615,222
                 
           
Adjusted Debt to Adjusted Total Assets:
   
37
%
< 65
Common stock and potentially dilutive securities
                           
Common stock outstanding
   
66,002
                   
Limited partnership units (1)
   
2,213
                   
Options-treasury method
   
75
   
Secured Debt to Adjusted Total Assets:
   
14
%
< 40
Total shares of common stock and potentially dilutive securities
   
68,290
                   
                              
Common stock price per share as of September 30, 2017
 
$
254.03
                   
           
Interest Coverage:
   
412
%
> 150
Total equity capitalization
 
$
17,347,709
                   
                              
Total market capitalization
 
$
22,962,931
   
Unsecured Debt Ratio (2):
   
294
%
> 150
                              
Ratio of debt to total market capitalization
   
24.5
%
                 
           
Selected Credit Ratios (3)
 
Actual
     
Credit Ratings
                                 
Rating Agency
Rating
Outlook
         
Net Indebtedness Divided by Adjusted EBITDA, normalized and annualized:
   
5.5
     
Fitch
BBB+
Stable
                           
Moody's
Baa1
Stable
         
Unencumbered NOI to Adjusted Total NOI:
   
70
%
   
Standard & Poor's
BBB+
Stable
                           
       
(1)
Refer to page S-17.3 for additional information on the Company's Public Bond Covenants.
(1)
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company's common stock.
   
(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 10-K and 10-Q for additional disclosures
 
S-6

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

Portfolio Summary by County as of September 30, 2017

                                                             
   
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
   
9,387
     
1,418
     
-
     
10,805
   
$
2,383
   
$
2,059
   
$
2,360
     
19.7
%
   
12.5
%
   
19.1
%
Orange County
   
5,553
     
1,149
     
-
     
6,702
     
2,116
     
1,830
     
2,089
     
10.5
%
   
9.3
%
   
10.4
%
San Diego County
   
5,203
     
616
     
-
     
5,819
     
1,873
     
1,715
     
1,864
     
8.7
%
   
4.5
%
   
8.3
%
Ventura County
   
2,577
     
693
     
-
     
3,270
     
1,737
     
2,049
     
1,774
     
4.3
%
   
6.2
%
   
4.5
%
Other Southern CA
   
623
     
249
     
-
     
872
     
1,588
     
1,576
     
1,586
     
0.8
%
   
1.6
%
   
0.8
%
Total Southern California
   
23,343
     
4,125
     
-
     
27,468
     
2,113
     
1,913
     
2,097
     
44.0
%
   
34.1
%
   
43.1
%
                                                                                 
Northern California
                                                                               
Santa Clara County
   
7,356
     
2,266
     
745
     
10,367
     
2,673
     
2,807
     
2,692
     
18.7
%
   
24.2
%
   
19.2
%
Alameda County
   
2,954
     
1,983
     
-
     
4,937
     
2,494
     
2,344
     
2,455
     
6.8
%
   
20.1
%
   
7.9
%
San Mateo County
   
1,830
     
197
     
492
     
2,519
     
2,844
     
2,880
     
2,846
     
4.9
%
   
2.6
%
   
4.7
%
Contra Costa County
   
2,270
     
49
     
-
     
2,319
     
2,277
     
4,505
     
2,301
     
4.7
%
   
0.6
%
   
4.4
%
San Francisco
   
1,342
     
463
     
545
     
2,350
     
3,074
     
3,304
     
3,111
     
3.7
%
   
2.5
%
   
3.6
%
Other Northern CA
   
96
     
-
     
-
     
96
     
2,870
     
-
     
2,870
     
0.2
%
   
-
     
0.2
%
Total Northern California
   
15,848
     
4,958
     
1,782
     
22,588
     
2,638
     
2,691
     
2,645
     
39.0
%
   
50.0
%
   
40.0
%
                                                                                 
Seattle Metro
   
10,238
     
2,169
     
-
     
12,407
     
1,800
     
1,749
     
1,795
     
17.0
%
   
15.9
%
   
16.9
%
                                                                                 
Total
   
49,429
     
11,252
     
1,782
     
62,463
   
$
2,217
   
$
2,236
   
$
2,219
     
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 September 30, 2017. See the section titled "Net Operating Income ("NOI") and Same-Property NOI Reconciliations" on page S-17.3.
(3)
Includes all apartment communities with rents.
(4)
Includes one rental income producing development community in lease-up which consists of 376 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.

See Company's 10-K and 10-Q for additional disclosures
 
S-7

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

Operating Income by Quarter (1)
(Dollars in thousands)

   
Apartment
Homes
   
Q3 '17
   
Q2 '17
   
Q1 '17
   
Q4 '16
   
Q3 '16
 
                                     
Rental and other property revenues:
                                   
Same-property
   
46,128
   
$
309,308
   
$
304,662
   
$
302,125
   
$
300,808
   
$
300,069
 
Acquisitions (2)
   
2,081
     
16,225
     
15,859
     
13,751
     
3,018
     
2,475
 
Development (3)
   
360
     
4,530
     
4,462
     
4,334
     
4,270
     
4,303
 
Redevelopment
   
621
     
4,913
     
4,909
     
4,814
     
4,757
     
4,775
 
Non-residential/other, net (4)
   
239
     
6,998
     
6,874
     
8,144
     
14,052
     
15,456
 
Total rental and other property revenues
   
49,429
     
341,974
     
336,766
     
333,168
     
326,905
     
327,078
 
                                                 
Property operating expenses:
                                               
Same-property
           
94,021
     
90,308
     
90,455
     
91,522
     
91,261
 
Acquisitions (2)
           
5,288
     
5,273
     
4,552
     
906
     
831
 
Development (3)
           
1,508
     
1,448
     
1,576
     
1,528
     
1,569
 
Redevelopment
           
1,604
     
1,468
     
1,526
     
1,558
     
1,565