Exhibit 99.1



 
Essex Announces third Quarter 2019 Results

San Mateo, California—October 23, 2019—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its third quarter 2019 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the quarter ended September 30, 2019 are detailed below.


Three Months Ended
September 30,

Nine Months Ended
September 30,


%
%

2019
2018
Change
2019
2018
Change
Per Diluted Share
           
Net Income
$1.51
$1.22
23.8%
$4.71
$4.12
14.3%
Total FFO
$3.50
$3.22
8.7%
$10.19
$9.74
4.6%
Core FFO
$3.35
$3.15
6.3%
$9.92
$9.38
5.8%








Third Quarter 2019 Highlights:


Reported Net Income per diluted share for the third quarter of 2019 of $1.51, compared to $1.22 in the third quarter of 2018.


Grew Core FFO per diluted share by 6.3% compared to the third quarter of 2018, exceeding the midpoint of the guidance range by $0.04.


Achieved both same-property gross revenue and net operating income (“NOI”) growth of 3.1% compared to the third quarter of 2018.


Acquired three apartment communities for a total contract price of $414.7 million.


Increased full-year Net Income per diluted share guidance range to $6.04 to $6.14. Provided Net Income guidance range for the fourth quarter of $1.33 to $1.43 per diluted share.


Increased full-year Total FFO per diluted share guidance range to $13.50 to $13.60. Provided Total FFO guidance range for the fourth quarter of $3.31 to $3.41 per diluted share.


Raised full-year Core FFO per diluted share guidance by $0.05 per share at the midpoint to a range of $13.28 to $13.38. Provided Core FFO guidance range for the fourth quarter of $3.36 to $3.46 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 resulting in Core FFO at the top end of our guidance range. As a result, we are increasing our full-year Core FFO per share guidance midpoint for the third time this year. The dramatic reduction in our cost of capital since January has allowed us to exceed the high-end of our acquisition targets and we remain on the hunt for accretive opportunities. Looking forward, our supply-constrained West Coast markets continue to add jobs and grow incomes at a sufficient pace to maintain market rent growth near their 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, 2019 compared to the quarter ended September 30, 2018, and the sequential percentage change for the quarter ended September 30, 2019 compared to the quarter ended June 30, 2019, by submarket for the Company:

 
Q3 2019 vs.
Q3 2018
Q3 2019 vs.
Q2 2019
% of Total
 
Gross Revenues
Gross Revenues
Q3 2019 Revenues
Southern California
 
Los Angeles County
2.7%
0.2%
18.9%
Orange County
1.8%
0.0%
10.8%
San Diego County
2.3%
0.3%
8.5%
Ventura County and Other
3.5%
0.9%
4.9%
Total Southern California
2.5%
0.3%
43.1%
Northern California
 
Santa Clara County
3.6%
0.6%
18.8%
Alameda County
3.4%
1.4%
6.9%
San Mateo County
2.5%
-0.2%
5.0%
Contra Costa County
2.9%
0.8%
4.8%
San Francisco
5.2%
0.3%
3.4%
Total Northern California
3.5%
0.6%
38.9%
Seattle Metro
4.1%
1.3%
18.0%
Same-Property Portfolio
3.1%
0.6%
100.0%


Year-Over-Year Growth

Year-Over-Year Growth

Q3 2019 compared to Q3 2018

YTD 2019 compared to YTD 2018

Gross
Revenues
Operating
Expenses
NOI

Gross
Revenues
Operating
Expenses
NOI
Southern California
2.5%
3.5%
2.0%

2.9%
3.7%
2.6%
Northern California
3.5%
5.8%
2.7%

3.5%
3.4%
3.6%
Seattle Metro
4.1%
-1.5%
6.6%

3.4%
0.8%
4.5%
Same-Property Portfolio
3.1%
3.3%
3.1%

3.2%
3.0%
3.3%

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Sequential Growth
 
Q3 2019 compared to Q2 2019
 
Gross
Revenues
Operating
Expenses
NOI
Southern California
0.3%
4.5%
-1.4%
Northern California
0.6%
5.1%
-0.8%
Seattle Metro
1.3%
5.7%
-0.3%
Same-Property Portfolio
0.6%
4.9%
-1.0%
                                
 
Financial Occupancies
 
Quarter Ended
 
9/30/2019
6/30/2019
9/30/2018
Southern California
96.1%
96.7%
96.5%
Northern California
95.8%
96.6%
96.3%
Seattle Metro
95.9%
96.4%
96.1%
Same-Property Portfolio
96.0%
96.6%
96.4%

Investment Activity

Real Estate

In August 2019, Wesco V, LLC (“Wesco V”), a joint venture in which the Company owns a 50.0% interest, acquired The Courtyards at 65th Street, a 331 unit apartment home community located in Emeryville, CA, for $178.0 million. The property provides convenient commuter access to San Francisco and Oakland and is located near the Company’s Emme and Avenue 64 communities.

In August 2019, BEX IV, LLC (“BEX IV”), a new joint venture in which the company owns a 50.1% interest, acquired 777 Hamilton Apartments for $148.0 million in Menlo Park, CA. Built in 2017, the 195 unit apartment home community is adjacent to Facebook’s global headquarters.

In September 2019, the Company purchased Township, a 132 unit apartment home community located in Redwood City, CA, for $88.7 million. The property is located in a highly desirable commuter location and in close proximity to the Company’s Radius Apartments. As part of the transaction, the Company assumed a $44.3 million mortgage with an effective interest rate of 2.9% and a maturity date of May 2025.

Preferred Equity

In September 2019, the Company received $31.1 million from the redemption of two preferred equity investments. The Company recorded $1.7 million of income from prepayment penalties as a result of the early redemptions, which has been excluded from Core FFO.

Subsequent to quarter end, the Company received $15.8 million from the redemption of a preferred equity investment in a property located in San Jose, CA, including $0.2 million of early redemption fees.
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Development Activity

The table below represents the development communities in lease-up and the current leasing status as of October 22, 2019.

Project Name
Location
Total
Apartment Homes
ESS
Ownership
% Leased
as of
10/22/19
Status
Station Park Green - Phase II
San Mateo, CA
199
100%
63.3%
In Lease-Up
Mylo
Santa Clara, CA
476
100%
27.3%
In Lease-Up
500 Folsom
San Francisco, CA
537
50%
10.8%
In Lease-Up
Total/Average % Leased
1,212
 
25.9%
 

liquidity and balance sheet

Common Stock

During the third quarter of 2019, the Company issued 228,271 shares of its common stock totaling $73.4 million in gross proceeds through its equity distribution program, at an average price per share of $321.56.

Balance Sheet

In August 2019, the Company issued $400.0 million of 10-year senior unsecured notes due in 2030 bearing an interest rate per annum of 3.0% and an effective yield of 3.2%. The proceeds were used to prepay, with no prepayment penalties, certain secured indebtedness under outstanding mortgage notes, including the pre-payment of $289.1 million of secured debt maturing in 2020, as well as to repay indebtedness under its unsecured lines of credit and for other general corporate and working capital purposes.

Subsequent to quarter end, the Company issued $150.0 million of 10-year senior unsecured notes due in January 2030 bearing an interest rate per annum of 3.0% and an effective interest rate of 2.8%. The notes were issued as additional notes pursuant to the notes previously issued in August 2019 described above. The Company expects to use the net proceeds to prepay certain secured mortgages maturing in 2020.

As of October 22, 2019, the Company had $1.0 billion in undrawn capacity on its unsecured credit facilities.

Guidance

For the third quarter of 2019, the Company exceeded the midpoint of the guidance range provided in its second quarter 2019 earnings release for Core FFO by $0.04 per share.

The following table provides a reconciliation of third quarter 2019 Core FFO per share to the midpoint of the guidance provided in the second quarter 2019 earnings release, which was dated July 24, 2019.

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Per Diluted Share
Projected midpoint of Core FFO per share for Q3 2019
$
3.31
NOI from consolidated communities
 
0.02
FFO from co-investments
 
0.02
Interest expense
 
0.02
G&A and other
 
(0.02)
Core FFO per share for Q3 2019 reported
$
3.35

The table below provides key changes to the 2019 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth. For additional details regarding the Company’s 2019 assumptions, please see page S-14 of the accompanying supplemental financial information. For the fourth quarter of 2019, the Company has established a range for Core FFO per diluted share of $3.36 to $3.46.

2019 Full-Year Guidance

 
Previous
Range
Previous
Midpoint
 
Revised
Range
Revised
Midpoint
Per Diluted Share
         
Net Income
$5.84 - $6.02
$5.93
 
$6.04 - $6.14
$6.09
Total FFO
$13.31 - $13.49
$13.40
 
$13.50 - $13.60
$13.55
Core FFO
$13.19 - $13.37
$13.28
 
$13.28 - $13.38
$13.33
Same-Property Growth
         
Gross Revenues
3.0% to 3.5%
3.3%
 
3.1% to 3.4%
3.3%
Operating Expenses
2.0% to 2.4%
2.2%
 
2.0% to 2.4%
2.2%
NOI
3.2% to 4.1%
3.7%
 
3.4% to 3.9%
3.7%

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, October 24, 2019 at 10 a.m. PT (1 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the live call will be available online for 30 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the third quarter 2019 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13694650. 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. Essex currently has ownership interests in 249 apartment communities comprising approximately 60,000 apartment homes with an additional 7 properties in various stages of active development. Additional information about the Company can be found on the Company’s website at www.essex.com.

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

FFO RECONCILIATION

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three and nine months ended September 30, 2019 and 2018 (in thousands, except for share and per share amounts):

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Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
Funds from Operations attributable to common stockholders and unitholders
 
2019
   
2018
   
2019
   
2018
 
Net income available to common stockholders
 
$
99,335
   
$
80,975
   
$
310,468
   
$
272,333
 
Adjustments:
                               
Depreciation and amortization
   
120,809
     
120,852
     
360,842
     
359,287
 
Gains not included in FFO
   
-
     
-
     
(32,405
)
   
(22,244
)
Depreciation and amortization from unconsolidated co-investments
   
15,483
     
15,766
     
45,304
     
47,345
 
Noncontrolling interest related to Operating Partnership units
   
3,464
     
2,789
     
10,863
     
9,381
 
Depreciation attributable to third party ownership and other
   
(242
)
   
(234
)
   
(708
)
   
(699
)
Funds from Operations attributable to common stockholders and unitholders
 
$
238,849
   
$
220,148
   
$
694,364
   
$
665,403
 
FFO per share – diluted
 
$
3.50
   
$
3.22
   
$
10.19
   
$
9.74
 
Expensed acquisition and investment related costs
 
$
13
   
$
31
   
$
69
   
$
156
 
Deferred tax expense on unrealized gain on unconsolidated co-investment (1)
   
1,457
     
-
     
1,457
     
-
 
(Gain) loss on sale of marketable securities
   
(239
)
   
(120
)
   
(737
)
   
(669
)
Unrealized losses (gains) on marketable securities
   
174
     
(1,180
)
   
(4,280
)
   
(426
)
Equity income from non-core co-investment (2)
   
(4,247
)
   
-
     
(4,561
)
   
-
 
Interest rate hedge ineffectiveness (3)
   
-
     
(35
)
   
181
     
61
 
Gain on early retirement of debt, net
   
(5,475
)
   
-
     
(7,143
)
   
-
 
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
(3,662
)
   
-
     
(3,662
)
Co-investment promote income
   
-
     
-
     
(809
)
   
(20,541
)
Income from early redemption of preferred equity investments
   
(1,699
)
   
-
     
(2,531
)
   
(1,602
)
General and administrative and other, net
   
-
     
141
     
-
     
2,574
 
Insurance reimbursements and legal settlements, net
   
(15
)
   
(111
)
   
(263
)
   
(561
)
Core Funds from Operations attributable to common stockholders and unitholders
 
$
228,818
   
$
215,212
   
$
675,747
   
$
640,733
 
Core FFO per share – diluted
 
$
3.35
   
$
3.15
   
$
9.92
   
$
9.38
 
Weighted average number of shares outstanding diluted (4)
   
68,229,823
     
68,339,057
     
68,117,569
     
68,328,370
 


(1)
A deferred tax expense was recorded during the third quarter of 2019 related to the $4.4 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment discussed below.

(2)
Represents the Company's share of co-investment income from Real Estate Technology Ventures, L.P. Income for the third quarter of 2019 includes a net unrealized gain of $4.4 million.

(3)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of the Company’s 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. On January 1, 2019, the Company adopted ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities," which resulted in a cumulative effect adjustment of $181,000 from interest expense to accumulated other comprehensive income.

(4)
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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Net Operating Income (“NOI”) and Same-Property NOI Reconciliations

NOI and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s 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,
 
   
2019
   
2018
   
2019
   
2018
 
Earnings from operations
 
$
124,039
   
$
113,897
   
$
364,294
   
$
362,960
 
Adjustments:
                               
Corporate-level property management expenses
   
8,255
     
7,761
     
24,620
     
23,313
 
Depreciation and amortization
   
120,809
     
120,852
     
360,842
     
359,287
 
Management and other fees from affiliates
   
(2,428
)
   
(2,307
)
   
(7,023
)
   
(6,812
)
General and administrative
   
11,345
     
10,601
     
38,731
     
36,539
 
Expensed acquisition and investment related costs
   
13
     
31
     
69
     
156
 
Gain on sale of real estate and land
   
-
     
-
     
-
     
(22,244
)
NOI
   
262,033
     
250,835
     
781,533
     
753,199
 
Less: Non-same property NOI
   
(16,521
)
   
(12,640
)
   
(45,218
)
   
(40,526
)
Same-Property NOI
 
$
245,512
   
$
238,195
   
$
736,315
   
$
712,673
 

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

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which are not historical facts, including statements regarding the Company's expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “projects,” “believes,” “seeks,” “future,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, 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
- 8 -

to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

While the Company's management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates 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; unexpected difficulties in leasing of development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports that the Company files with the SEC from time to time. 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
Rylan Burns
Director of Investor Relations
(650) 655-7800
rburns@essex.com

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Q3 2019 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, 2019
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – September 30, 2019
S-6
Portfolio Summary by County – September 30, 2019
S-7
Operating Income by Quarter – September 30, 2019
S-8
Same-Property Revenue Results by County – Quarters ended September 30, 2019 and 2018, and June 30, 2019
S-9
Same-Property Revenue Results by County – Nine months ended September 30, 2019 and 2018
S-9.1
Same-Property Operating Expenses – Quarter and Year to Date as of September 30, 2019 and 2018
S-10
Development Pipeline – September 30, 2019
S-11
Redevelopment Pipeline – September 30, 2019
S-12
Capital Expenditures – September 30, 2019
S-12.1
Co-investments and Preferred Equity Investments – September 30, 2019
S-13
Assumptions for 2019 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 2020 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
Essex Markets Continue to Benefit From Superior Long-Term Income and Employment 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,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
                       
Revenues:
                       
Rental and other property
 
$
364,504
   
$
348,610
   
$
1,077,767
   
$
1,040,083
 
Management and other fees from affiliates
   
2,428
     
2,307
     
7,023
     
6,812
 
     
366,932
     
350,917
     
1,084,790
     
1,046,895
 
                                 
Expenses:
                               
Property operating
   
102,471
     
97,775
     
296,234
     
286,884
 
Corporate-level property management expenses
   
8,255
     
7,761
     
24,620
     
23,313
 
Depreciation and amortization
   
120,809
     
120,852
     
360,842
     
359,287
 
General and administrative
   
11,345
     
10,601
     
38,731
     
36,539
 
Expensed acquisition and investment related costs
   
13
     
31
     
69
     
156
 
     
242,893
     
237,020
     
720,496
     
706,179
 
Gain on sale of real estate and land
   
-
     
-
     
-
     
22,244
 
Earnings from operations
   
124,039
     
113,897
     
364,294
     
362,960
 
Interest expense, net (1)
   
(52,742
)
   
(53,012
)
   
(156,477
)
   
(159,653
)
Interest and other income
   
8,685
     
8,437
     
29,293
     
21,241
 
Equity income from co-investments
   
21,700
     
16,788
     
54,935
     
64,611
 
Deferred tax expense on unrealized gain on unconsolidated co-investment
   
(1,457
)
   
-
     
(1,457
)
   
-
 
Gain on early retirement of debt, net
   
5,475
     
-
     
7,143
     
-
 
Gain on remeasurement of co-investment
   
-
     
-
     
31,535
     
-
 
Net income
   
105,700
     
86,110
     
329,266
     
289,159
 
Net income attributable to noncontrolling interest
   
(6,365
)
   
(5,135
)
   
(18,798
)
   
(16,826
)
Net income available to common stockholders
 
$
99,335
   
$
80,975
   
$
310,468
   
$
272,333
 
                                 
Net income per share - basic
 
$
1.51
   
$
1.23
   
$
4.72
   
$
4.12
 
                                 
Shares used in income per share - basic
   
65,850,524
     
66,052,108
     
65,757,914
     
66,047,990
 
                                 
Net income per share - diluted
 
$
1.51
   
$
1.22
   
$
4.71
   
$
4.12
 
                                 
Shares used in income per share - diluted
   
65,973,085
     
66,103,812
     
65,857,660
     
66,093,004
 

(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)
 
2019
   
2018
   
2019
   
2018
 
 
                       
Rental and other property (1)
                       
Rental income
 
$
358,001
   
$
342,246
   
$
1,058,973
   
$
1,021,742
 
Other property
   
6,503
     
6,364
     
18,794
     
18,341
 
Rental and other property
 
$
364,504
   
$
348,610
   
$
1,077,767
   
$
1,040,083
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
39,290
   
$
38,675
   
$
114,993
   
$
112,423
 
Administrative
   
21,678
     
19,733
     
63,718
     
61,832
 
Maintenance and repairs
   
21,324
     
19,899
     
61,929
     
59,076
 
Utilities
   
20,179
     
19,468
     
55,594
     
53,553
 
Property operating expenses
 
$
102,471
   
$
97,775
   
$
296,234
   
$
286,884
 
                                 
Interest and other income
                               
Marketable securities and other income
 
$
8,605
   
$
7,026
   
$
24,013
   
$
19,585
 
Gain (loss) on sale of marketable securities
   
239
     
120
     
737
     
669
 
Unrealized (losses) gains on marketable securities
   
(174
)
   
1,180
     
4,280
     
426
 
Insurance reimbursements and legal settlements, net
   
15
     
111
     
263
     
561
 
Interest and other income
 
$
8,685
   
$
8,437
   
$
29,293
   
$
21,241
 
                                 
Equity income from co-investments
                               
Equity income from co-investments
 
$
4,430
   
$
4,097
   
$
14,531
   
$
12,878
 
Income from preferred equity investments
   
11,324
     
9,029
     
31,633
     
25,928
 
Equity income from non-core co-investment
   
4,247
     
-
     
4,561
     
-
 
Gain on sale of co-investment communities
   
-
     
-
     
870
     
-
 
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
3,662
     
-
     
3,662
 
Co-investment promote income
   
-
     
-
     
809
     
20,541
 
Income from early redemption of preferred equity investments
   
1,699
     
-
     
2,531
     
1,602
 
Equity income from co-investments
 
$
21,700
   
$
16,788
   
$
54,935
   
$
64,611
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
3,464
   
$
2,789
   
$
10,863
   
$
9,381
 
DownREIT limited partners' distributions
   
2,016
     
1,590
     
5,225
     
4,770
 
Third-party ownership interest
   
885
     
756
     
2,710
     
2,675
 
Noncontrolling interest
 
$
6,365
   
$
5,135
   
$
18,798
   
$
16,826
 

(1)
On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases.” As a result of this adoption certain amounts previously classified as other property revenue have been reclassified to rental income. Prior period amounts have been adjusted to conform to the current period’s presentation.



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,
       
 
 
2019
   
2018
   
% Change
   
2019
   
2018
   
% Change
 
                                     
Funds from operations attributable to common stockholders and unitholders (FFO)
                                   
Net income available to common stockholders
 
$
99,335
   
$
80,975
         
$
310,468
   
$
272,333
       
Adjustments:
                                           
Depreciation and amortization
   
120,809
     
120,852
           
360,842
     
359,287
       
Gains not included in FFO
   
-
     
-
           
(32,405
)
   
(22,244
)
     
Depreciation and amortization from unconsolidated co-investments
   
15,483
     
15,766
           
45,304
     
47,345
       
Noncontrolling interest related to Operating Partnership units
   
3,464
     
2,789
           
10,863
     
9,381
       
Depreciation attributable to third party ownership and other (2)
   
(242
)
   
(234
)
         
(708
)
   
(699
)
     
Funds from operations attributable to common stockholders and unitholders
 
$
238,849
   
$
220,148
         
$
694,364
   
$
665,403
       
FFO per share-diluted
 
$
3.50
   
$
3.22
     
8.7
%
 
$
10.19
   
$
9.74
     
4.6
%
                                                 
Components of the change in FFO
                                               
Non-core items:
                                               
Expensed acquisition and investment related costs
 
$
13
   
$
31
           
$
69
   
$
156
         
Deferred tax expense on unrealized gain on unconsolidated co-investment (3)
   
1,457
     
-
             
1,457
     
-
         
(Gain) loss on sale of marketable securities
   
(239
)
   
(120
)
           
(737
)
   
(669
)
       
Unrealized losses (gains) on marketable securities
   
174
     
(1,180
)
           
(4,280
)
   
(426
)
       
Equity income from non-core co-investment (4)
   
(4,247
)
   
-
             
(4,561
)
   
-
         
Interest rate hedge ineffectiveness (5)
   
-
     
(35
)
           
181
     
61
         
Gain on early retirement of debt, net
   
(5,475
)
   
-
             
(7,143
)
   
-
         
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
(3,662
)
           
-
     
(3,662
)
       
Co-investment promote income
   
-
     
-
             
(809
)
   
(20,541
)
       
Income from early redemption of preferred equity investments
   
(1,699
)
   
-
             
(2,531
)
   
(1,602
)
       
General and administrative and other, net
   
-
     
141
             
-
     
2,574
         
Insurance reimbursements and legal settlements, net
   
(15
)
   
(111
)
           
(263
)
   
(561
)
       
Core funds from operations attributable to common stockholders and unitholders
 
$
228,818
   
$
215,212
           
$
675,747
   
$
640,733
         
Core FFO per share-diluted
 
$
3.35
   
$
3.15
     
6.3
%
 
$
9.92
   
$
9.38
     
5.8
%
                                                 
Changes in core items:
                                               
Same-property NOI
 
$
7,317
                   
$
23,642
                 
Non-same property NOI
   
3,881
                     
4,692
                 
Management and other fees, net
   
121
                     
211
                 
FFO from co-investments
   
2,345
                     
5,317
                 
Interest and other income
   
1,579
                     
4,428
                 
Interest expense
   
305
                     
3,296
                 
General and administrative
   
(885
)
                   
(4,766
)
               
Corporate-level property management expenses
   
(494
)
                   
(1,307
)
               
Other items, net
   
(563
)
                   
(499
)
               
   
$
13,606
                   
$
35,014
                 
                                                 
Weighted average number of shares outstanding diluted (6)
   
68,229,823
     
68,339,057
             
68,117,569
     
68,328,370
         

(1)
Refer to page S-17.2, the section titled "Funds from Operations ("FFO") and Core 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, 2019 was $1.3 million and $3.9 million, respectively.
(3)
A deferred tax expense was recorded during the third quarter of 2019 related to the $4.4 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment discussed below.
(4)
Represents the Company's share of co-investment income from Real Estate Technology Ventures, L.P. Income for the third quarter of 2019 includes a net unrealized gain of $4.4 million.
(5)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of the Company's 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. On January 1, 2019, the Company adopted ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities," which resulted in a cumulative effect adjustment of $181,000 from interest expense to accumulated other comprehensive income.
(6)
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, 2019
   
December 31, 2018
 
             
Real Estate:
           
Land and land improvements
 
$
2,766,344
   
$
2,701,356
 
Buildings and improvements
   
11,180,806
     
10,664,745
 
 
   
13,947,150
     
13,366,101
 
Less:  accumulated depreciation
   
(3,567,632
)
   
(3,209,548
)
     
10,379,518
     
10,156,553
 
Real estate under development
   
562,338
     
454,629
 
Co-investments
   
1,413,861
     
1,300,140
 
     
12,355,717
     
11,911,322
 
Cash and cash equivalents, including restricted cash
   
91,726
     
151,395
 
Marketable securities
   
216,894
     
209,545
 
Notes and other receivables
   
216,541
     
71,895
 
Operating lease right-of-use assets
   
75,478
     
-
 
Prepaid expenses and other assets
   
41,536
     
39,439
 
Total assets
 
$
12,997,892
   
$
12,383,596
 
                 
Unsecured debt, net
 
$
4,686,171
   
$
3,799,316
 
Mortgage notes payable, net
   
1,141,970
     
1,806,626
 
Lines of credit
   
220,000
     
-
 
Operating lease liabilities
   
77,495
     
-
 
Other liabilities
   
418,175
     
348,335
 
Total liabilities
   
6,543,811
     
5,954,277
 
Redeemable noncontrolling interest
   
39,077
     
35,475
 
Equity:
               
Common stock
   
7
     
7
 
Additional paid-in capital
   
7,131,642
     
7,093,079
 
Distributions in excess of accumulated earnings
   
(887,521
)
   
(812,796
)
Accumulated other comprehensive loss, net
   
(19,028
)
   
(13,217
)
Total stockholders' equity
   
6,225,100
     
6,267,073
 
Noncontrolling interest
   
189,904
     
126,771
 
Total equity
   
6,415,004
     
6,393,844
 
Total liabilities and equity
 
$
12,997,892
   
$
12,383,596
 



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, 2019
(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
%
   
1.3
   
2019
   
$
75,000
   
$
3,379
   
$
78,379
     
5.0
%
   
1.3
%
Bonds public - fixed rate
   
4,100,000
     
3.8
%
   
7.6
   
2020
     
-
     
408,064
     
408,064
     
5.7
%
   
7.0
%
Term loan (1)
   
350,000
     
2.9
%
   
2.4
   
2021
     
500,000
     
45,537
     
545,537
     
4.5
%
   
9.3
%
Unamortized net discounts and debt issuance costs
   
(38,829
)
   
-
     
-
   
2022
     
650,000
     
43,188
     
693,188
     
3.4
%
   
11.8
%
     
4,686,171
     
3.8
%
   
6.8
   
2023
     
600,000
     
2,945
     
602,945
     
3.7
%
   
10.3
%
Mortgage Notes Payable, net
                         
2024
     
400,000
     
3,109
     
403,109
     
4.0
%
   
6.9
%
Fixed rate - secured
   
869,023
     
4.8
%
   
3.7
   
2025
     
500,000
     
146,654
     
646,654
     
3.5
%
   
11.0
%
Variable rate - secured (2)
   
269,182
     
2.4
%
   
16.9
   
2026
     
450,000
     
99,405
     
549,405
     
3.5
%
   
9.4
%
Unamortized premiums and debt issuance costs, net
   
3,765
     
-
     
-
   
2027
     
350,000
     
153,955
     
503,955
     
3.6
%
   
8.6
%
Total mortgage notes payable
   
1,141,970
     
4.3
%
   
6.8
   
2028
     
-
     
68,332
     
68,332
     
4.1
%
   
1.2
%
                           
2029
     
500,000
     
31,156
     
531,156
     
4.0
%
   
9.0
%
Unsecured Lines of Credit
                         
Thereafter
     
700,000
     
132,481
     
832,481
     
3.5
%
   
14.2
%
Line of credit (3)
   
220,000
     
2.8
%
         
Subtotal
     
4,725,000
     
1,138,205
     
5,863,205
     
3.9
%
   
100.0
%
Line of credit (4)
   
-
     
2.8
%
         
Debt Issuance Costs
     
(24,116
)
   
(2,945
)
   
(27,061
)
 
NA
   
NA
 
Total lines of credit
   
220,000
     
2.8
%
         
(Discounts)/Premiums
     
(14,713
)
   
6,710
     
(8,003
)
 
NA
   
NA
 
                           
Total
   
$
4,686,171
   
$
1,141,970
   
$
5,828,141
     
3.9
%
   
100.0
%
Total debt, net
 
$
6,048,141
     
3.9
%
                                                     
                                                                       

Capitalized interest for the three and nine months ended September 30, 2019 was approximately $6.7 million and $19.0 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)
$269.2 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, with a scheduled maturity date in December 2022 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 0.825%.
(4)
This unsecured line of credit facility has a capacity $35.0 million, with a scheduled maturity date in February 2021. 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 0.825%.



See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
 
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, 2019
(Dollars and shares in thousands, except per share amounts)

 
                     
Capitalization Data
         
Public Bond Covenants (1)
 
Actual
 
Requirement
 
Total debt, net
 
$
6,048,141
     
 
     
   
 
 
           
Adjusted Debt to Adjusted Total Assets:
   
37%

< 65%
 
Common stock and potentially dilutive securities
           
 
               
Common stock outstanding
   
66,082
     
 
             
Limited partnership units (1)
   
2,257
     
 
             
Options-treasury method
   
122
     
Secured Debt to Adjusted Total Assets:
   
7%

< 40%
 
Total shares of common stock and potentially dilutive securities
   
68,461
     
 
             
 
           
 
                  
Common stock price per share as of September 30, 2019
 
$
326.65
     
 
             
 
           
Interest Coverage:
   
457%

> 150%
 
Total equity capitalization
 
$
22,362,786
     
 
             
 
           
 
                  
Total market capitalization
 
$
28,410,927
     
Unsecured Debt Ratio (2):
   
270%

> 150%
 
 
           
 
                  
Ratio of debt to total market capitalization
   
21.3
%
   
 
             
 
           
Selected Credit Ratios (3)
 
Actual
     
Credit Ratings
 
 
           
 
                 
Rating Agency
Rating
Outlook
           
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
   
5.6
     
Fitch
BBB+
Stable
           
 
               
Moody's
Baa1
Stable
           
Unencumbered NOI to Adjusted Total NOI:
   
85%

   
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
 
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, 2019

 
 
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
   
9,097
     
1,563
     
200
     
10,860
   
$
2,471
   
$
2,162
   
$
2,446
     
18.5
%
   
12.5
%
   
17.9
%
Orange County
   
5,553
     
1,149
     
-
     
6,702
     
2,235
     
1,947
     
2,208
     
10.1
%
   
8.6
%
   
10.0
%
San Diego County
   
4,824
     
616
     
-
     
5,440
     
1,978
     
1,850
     
1,970
     
8.0
%
   
4.3
%
   
7.6
%
Ventura County and Other
   
3,200
     
693
     
-
     
3,893
     
1,828
     
2,198
     
1,867
     
5.1
%
   
6.4
%
   
5.4
%
Total Southern California
   
22,674
     
4,021
     
200
     
26,895
     
2,218
     
2,062
     
2,205
     
41.7
%
   
31.8
%
   
40.9
%
                                                                                 
Northern California
                                                                               
Santa Clara County (8)
   
8,407
     
2,006
     
269
     
10,682
     
2,866
     
2,931
     
2,873
     
19.9
%
   
23.0
%
   
20.2
%
Alameda County
   
2,954
     
2,314
     
-
     
5,268
     
2,611
     
2,482
     
2,573
     
6.8
%
   
22.3
%
   
8.2
%
San Mateo County