EX-99.1 2 brhc10030025_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1




Essex Announces Third Quarter 2021 Results and
Increases Full-Year 2021 Guidance
 
San Mateo, California—October 26, 2021—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its third quarter 2021 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the three and nine months ended September 30, 2021 are detailed below.

 
Three Months Ended
September 30,
%
Nine Months Ended
September 30,
%
 
2021
2020
Change
2021
2020
Change
Per Diluted Share
           
Net Income
$1.82
$1.13
61.1%
$5.40
$7.21
-25.1%
Total FFO
$3.34
$2.88
16.0%
$9.67
$9.53
1.5%
Core FFO
$3.12
$3.15
-1.0%
$9.24
$9.80
-5.7%

Third Quarter 2021 Highlights:
 

Reported Net Income per diluted share for the third quarter of 2021 of $1.82, compared to $1.13 in the third quarter of 2020 due to a higher gain on sale of real estate and no loss on early retirement of debt in the current quarter.


Reported Core FFO per diluted share of $3.12, exceeding the high-end of the Company’s guidance range due to better-than-expected operating results.


Same-property revenues and net operating income (“NOI”) increased by 2.7% and 2.2%, respectively, compared to the third quarter of 2020. The improvement is largely attributed to declining concessions in the current period compared to the prior-year period.


Same-property sequential revenues increased 3.2% led by an increase in scheduled rents and lower levels of concessions and delinquencies.


Acquired one apartment community for $53.0 million and two operating commercial properties for future apartment development for contract prices totaling $86.0 million.


Increased full-year Net Income per diluted share guidance range to $6.39 to $6.49. Provided Net Income guidance range for the fourth quarter of 2021 of $0.99 to $1.09 per diluted share.


Raised the midpoint of full-year guidance for same-property revenues and NOI by 0.2% and 0.3% respectively. Raised full-year Core FFO per diluted share guidance by $0.11 at the midpoint, to $12.44, representing a 2.3% increase from the midpoint of the Company’s original guidance.

1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com


“For the second consecutive quarter, we are pleased to report Core FFO that exceeded our expectations, driven by improving net effective rent growth. The economic recovery on the West Coast has led to a significant increase in demand for housing and September net effective rents are 6.4% above pre-COVID levels for our portfolio. The strong recovery in fundamentals and rents has led us to increase our guidance for the third time this year. We remain cautiously optimistic that the West Coast is still in the early stages of the recovery with office re-openings and associated economic growth representing an additional catalyst for continuous rental demand,” commented Michael J. 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, 2021 compared to the quarter ended September 30, 2020, and the sequential percentage change for the quarter ended September 30, 2021 compared to the quarter ended June 30, 2021, by submarket for the Company:

   
Q3 2021 vs.
Q3 2020
   
Q3 2021 vs.
Q2 2021
   
% of Total
 
   
Revenue
Change
   
Revenue
Change
   
Q3 2021
Revenues
 
Southern California
     
Los Angeles County
   
7.9%

   
4.9%

   
18.4%

Orange County
   
8.7%

   
4.6%

   
11.8%

San Diego County
   
11.5%

   
7.0%

   
9.3%

Ventura County
   
8.0%

   
3.5%

   
4.3%

Total Southern California
   
8.9%

   
5.1%

   
43.8%

Northern California
     
Santa Clara County
   
-4.5%

   
1.7%

   
17.5%

Alameda County
   
-0.6%

   
1.5%

   
6.5%

San Mateo County
   
-6.7%

   
-0.9%

   
4.8%

Contra Costa County
   
6.3%

   
4.5%

   
6.0%

San Francisco
   
-0.2%

   
2.9%

   
2.9%

Total Northern California
   
-2.2%

   
1.8%

   
37.7%

Seattle Metro
   
-0.6%
 
   
1.7%
 
   
18.5%
 
Same-Property Portfolio
   
2.7%
 
   
3.2%
 
   
100.0%
 

The table below illustrates the components that drove the change in same-property revenues on a year-over-year basis for the three- and nine- month periods ending September 30, 2021.

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Q3 2021 vs. Q3 2020
   
YTD 2021 vs. YTD 2020
 
Same-Property Revenue Components
 
$ Amount
(in Millions)
   
%
Contribution
   
$ Amount
 
(in Millions)
   
%
Contribution
 
Prior-Period Same-Property Revenues
 
$
316.6
         
$
986.9
       
Scheduled Rents
   
-3.5
     
-1.1%

   
-26.7
     
-2.7%

Delinquencies
   
1.6
     
0.5%

   
-1.3
     
-0.1%

Cash Concessions
   
8.4
     
2.6%

   
-10.6
     
-1.1%

Vacancy
   
1.4
     
0.4%

   
7.7
     
0.8%

Other Income
   
0.7
     
0.2%

   
1.9
     
0.2%

2021 Same-Property Revenues/Change
 
$
325.2
     
2.7%

 
$
957.9
     
-2.9%


The table below illustrates the components that drove the change in same-property revenues on a sequential basis for the three-month period ending September 30, 2021.

   
Q3 2021 vs. Q2 2021
 
Same-Property Revenue Components
 
$ Amount
(in Millions)
   
%
Contribution
 
Prior-Period Same-Property Revenues
 
$
314.9
       
Scheduled Rents
   
4.6
     
1.5%

Delinquencies
   
3.3
     
1.0%

Cash Concessions
   
3.0
     
1.0%

Vacancy
   
-0.9
     
-0.3%

Other Income
   
0.3
     
0.1%

2021 Same-Property Revenues/Change
 
$
325.2
     
3.2%


   
Year-Over-Year Change
   
Year-Over-Year Change
 
   
Q3 2021 compared to Q3 2020
   
YTD 2021 compared to YTD 2020
 
   
Revenues
   
Operating
Expenses
   
NOI
   
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
8.9%

   
3.8%

   
11.3%

   
1.5%

   
1.5%

   
1.5%

Northern California
   
-2.2%

   
3.2%

   
-4.5%

   
-7.3%

   
3.3%

   
-11.3%

Seattle Metro
   
-0.6%

   
5.2%

   
-3.3%

   
-3.3%

   
2.2%

   
-5.8%

Same-Property Portfolio
   
2.7%

   
3.8%

   
2.2%

   
-2.9%

   
2.3%

   
-5.1%


   
Sequential Change
 
   
Q3 2021 compared to Q2 2021
 
   
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
5.1%

   
7.0%

   
4.3%

Northern California
   
1.8%

   
5.4%

   
0.3%

Seattle Metro
   
1.7%

   
8.1%

   
-1.3%

Same-Property Portfolio
   
3.2%

   
6.6%

   
1.8%


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Financial Occupancies
 
   
Quarter Ended
 
   
9/30/2021
   
6/30/2021
   
9/30/2020
 
Southern California
   
97.1%

   
97.0%

   
95.9%

Northern California
   
95.9%

   
96.2%

   
96.2%

Seattle Metro
   
95.8%

   
96.7%

   
95.9%

Same-Property Portfolio
   
96.4%

   
96.6%

   
96.0%


Investment Activity

Real Estate

In September 2021, the Company purchased Third & Broad, a fully leased single tenant commercial property located in downtown Seattle, WA for $52.5 million. The Company will hold the property for future apartment development.

In September 2021, the Company purchased 7 South Linden, a commercial property located in South San Francisco, CA for $33.5 million. The property is fully leased to two commercial tenants. The Company is currently pursuing entitlements to construct an apartment community on the property.

In September 2021, the Company formed a new joint venture, Wesco VI, LLC, (“Wesco VI”) with the State of Wisconsin Investment Board with a $150.0 million equity commitment from each partner and total purchasing power of up to $660.0 million. Essex has a 50% ownership interest in the venture.  Wesco VI acquired two apartment communities for a combined contract price of $108.0 million. Both communities are located in Snohomish County, WA and contain 294 apartment homes. One of these properties closed during the third quarter of 2021 and the other occurred subsequent to quarter end.

Dispositions

In August 2021, the Company sold a non-core multifamily community containing 276 apartment homes in Hemet, CA for a total contract price of $54.5 million. The Company recognized a $42.9 million gain on sale, which has been excluded from Core FFO.

Other Investments

In the third quarter of 2021, the Company originated two preferred equity investments totaling $37.2 million. The investments have a weighted average initial preferred return of 12.2% and were partially funded in the third quarter.

Subsequent to quarter end, the Company originated a subordinated loan investment totaling $50.0 million with an 11.0% return. This investment will fund concurrent with the senior construction loan which is scheduled to begin funding in the second half of 2022.

In August 2021, the Company received cash proceeds of $21.6 million from the partial redemption of a preferred equity investment.

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Development Activity

The Company’s sole development property in lease-up, Wallace on Sunset in Hollywood, CA, is 89.5% leased as of October 22, 2021.

liquidity and balance sheet

Common Stock

In the third quarter of 2021, the Company did not issue any shares of common stock through its equity distribution program or repurchase any shares through its stock repurchase plan.

Balance Sheet

In July 2021, Wesco I, a joint venture in which the Company owns a 57.7% interest, refinanced five apartment communities with a new $275.6 million secured term loan. The loan is priced at LIBOR + 1.35% and matures in 2026.

In September 2021, the Company amended and restated its $1.2 billion unsecured line of credit facility.  The amended facility includes a 5 basis point reduction in borrowing costs  to LIBOR plus 0.775% and an extension of the maturity date to September 2025 with three 6-month extensions, exercisable at the Company’s option. Additionally, the amended facility now incorporates a sustainability-linked pricing component which could reduce the borrowing spread up to 2.5 basis points if certain environmental goals are achieved.
 
As of October 22, 2021, the Company has approximately $1.3 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash, and marketable securities.

Guidance

For the third quarter of 2021, the Company exceeded the midpoint of the guidance range provided in its second quarter 2021 earnings release for Core FFO by $0.08 per diluted share.

The following table provides a reconciliation of third quarter 2021 Core FFO per diluted share to the midpoint of the guidance provided in the Company’s second quarter 2021 earnings release.

   
Per Diluted
Share
 
Projected midpoint of Core FFO per diluted share for Q3 2021
 
$
3.04
 
NOI from consolidated communities
   
0.04
 
FFO from Co-investments
   
0.02
 
G&A and other
   
0.02
 
Core FFO per diluted share for Q3 2021 reported
 
$
3.12
 

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The table below provides key changes to the Company’s 2021 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth. For additional details regarding the Company’s 2021 assumptions, please see page S-14 of the accompanying supplemental financial information. For the fourth quarter of 2021, the Company has established a range for Core FFO per diluted share of $3.15 to $3.25.

2021 Full-Year Guidance

   
Previous
Range
   
Previous
Midpoint
   
Revised
Range
   
Revised
Midpoint
   
Δ at the
Midpoint
 
Per Diluted Share
                             
Net Income
 
$5.42 - $5.66
   
$5.54
   
$6.39 - $6.49
   
$6.44
   
$0.90
 
Total FFO
 
$12.42 - $12.66
   
$12.54
   
$12.82 - $12.92
   
$12.87
   
$0.33
 
Core FFO
 
$12.21 - $12.45
   
$12.33
   
$12.39 - $12.49
   
$12.44
   
$0.11
 
Same-Property Growth
                             
Revenues
 
-1.6% to -1.2%
   
-1.4%

 
-1.3% to -1.1%
   
-1.2%

 
0.2%

Operating Expenses
 
2.0% to 2.5%
   
2.3%

 
2.2% to 2.4%
   
2.3%

 
0.0%

NOI
 
-3.3% to -2.6%
   
-3.0%

 
-2.9% to -2.5%
   
-2.7%

 
0.3%


Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Wednesday, October 27, 2021 at 11:00 a.m. PT (2:00 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 2021 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13723636. 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.

Upcoming Events

The Company is scheduled to participate in the National Association of Real Estate Investment Trusts (“NAREIT”) REITWorld Conference held virtually from November 9 - 11, 2021. A copy of any materials provided by the Company at the conference will be made available on the Investors section of the Company’s website at www.essex.com.

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

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markets. Essex currently has ownership interests in 247 apartment communities comprising approximately 60,000 apartment homes with an additional 3 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, 2021 and 2020 (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
 
2021
   
2020
   
2021
   
2020
 
Net income available to common stockholders
 
$
118,390
   
$
73,661
   
$
351,680
   
$
473,125
 
Adjustments:
                               
Depreciation and amortization
   
130,564
     
130,202
     
387,887
     
395,370
 
Gains not included in FFO
   
(42,897
)
   
(24,879
)
   
(145,253
)
   
(276,170
)
Depreciation and amortization from unconsolidated co-investments
   
15,044
     
12,883
     
44,592
     
38,191
 
Noncontrolling interest related to Operating Partnership units
   
4,168
     
2,593
     
12,403
     
16,543
 
Depreciation attributable to third party ownership and other
   
(145
)
   
(134
)
   
(412
)
   
(407
)
                                 
Funds from Operations attributable to common stockholders and unitholders
 
$
225,124
   
$
194,326
   
$
650,897
   
$
646,652
 
FFO per share – diluted
 
$
3.34
   
$
2.88
   
$
9.67
   
$
9.53
 
Expensed acquisition and investment related costs
 
$
108
   
$
2
   
$
164
   
$
104
 
Deferred tax expense on unrealized gain on unconsolidated co-investment (1)
   
3,041
     
-
     
5,391
     
1,636
 
Gain on sale of marketable securities
   
-
     
(91
)
   
(2,499
)
   
(124
)
Unrealized gains on marketable securities
   
(7,091
)
   
(3,288
)
   
(23,772
)
   
(2,215
)
Provision for credit losses
   
(3
)
   
3
     
(110
)
   
100
 
Equity income from non-core co-investment (2)
   
(10,868
)
   
213
     
(19,266
)
   
(4,373
)
Loss on early retirement of debt, net
   
-
     
19,114
     
18,982
     
23,820
 
Loss (gain) on early retirement of debt from unconsolidated co-investment
   
15
     
-
     
18
     
(38
)
Co-investment promote income
   
-
     
-
     
-
     
(6,455
)
Income from early redemption of preferred equity investments and notes receivable
   
-
     
-
     
(8,260
)
   
(210
)
General and administrative and other, net
   
252
     
2,510
     
765
     
5,642
 
Insurance reimbursements legal settlements, and other, net
   
(4
)
   
132
     
(190
)
   
69
 
Core Funds from Operations attributable to common stockholders and unitholders
 
$
210,574
   
$
212,921
   
$
622,120
   
$
664,608
 
Core FFO per share – diluted
 
$
3.12
   
$
3.15
   
$
9.24
   
$
9.80
 
Weighted average number of shares outstanding diluted (3)
   
67,391,333
     
67,495,286
     
67,324,087
     
67,837,336
 

 
(1)
Represents deferred tax expense related to net unrealized gains on technology co-investments.
 
(2)
Represents the Company’s share of co-investment income from technology co-investments.
 
(3)
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 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 revenues 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,
 
   
2021
   
2020
   
2021
   
2020
 
Earnings from operations
 
$
137,971
   
$
128,937
   
$
428,733
   
$
379,510
 
Adjustments:
                               
Corporate-level property management expenses
   
9,068
     
8,619
     
27,120
     
26,024
 
Depreciation and amortization
   
130,564
     
130,202
     
387,887
     
395,370
 
Management and other fees from affiliates
   
(2,237
)
   
(2,347
)
   
(6,707
)
   
(7,312
)
General and administrative
   
12,712
     
13,310
     
34,746
     
42,244
 
Expensed acquisition and investment related costs
   
108
     
2
     
164
     
104
 
Gain on sale of real estate and land
   
(42,897
)
   
(22,654
)
   
(142,993
)
   
(39,251
)
NOI
   
245,289
     
256,069
     
728,950
     
796,689
 
Less: Non-same property NOI
   
(22,807
)
   
(38,308
)
   
(67,844
)
   
(99,957
)
Same-Property NOI
 
$
222,482
   
$
217,761
   
$
661,106
   
$
696,732
 

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 expectations related to the continued impact of the COVID-19 pandemic and related variants on the Company’s business, financial condition and results of operations and the impact of any additional measures taken to mitigate the impact of the pandemic, 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,

- 9 -

general economic conditions including the potential impacts from such economic conditions, including as a result of the COVID-19 pandemic and governmental measures intended to prevent its spread, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

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 continued impact of the COVID-19 pandemic and related variants, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of infectious diseases or other health concerns could continue to adversely affect the Company’s business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company’s communities are located; 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; 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 market; 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. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic and related variants. 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.

- 10 -

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-18.1 through S-18.4, “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
Group Vice President of Private Equity & Finance
(650) 655-7800
rburns@essex.com

- 11 -

Q3 2021 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, 2021
S-5
   
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – September 30, 2021
S-6
   
Portfolio Summary by County – September 30, 2021
S-7
   
Operating Income by Quarter – September 30, 2021
S-8
   
Same-Property Revenue Results by County – Quarters ended September 30, 2021 and 2020, and June 30, 2021
S-9
   
Same-Property Revenue Results by County – Nine months ended September 30, 2021 and 2020
S-9.1
   
Same-Property Operating Expenses – Quarter and Year to Date as of September 30, 2021 and 2020
S-10
   
Development Pipeline –September 30, 2021
S-11
   
Capital Expenditures – September 30, 2021
S-12
   
Co-investments and Preferred Equity Investments – September 30, 2021
S-13
   
Assumptions for 2021 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
   
Delinquencies, Operating Statistics, and Same-Property Revenue Growth with Concessions on a GAAP basis
S-16
   
Preliminary 2022 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions
S-17
   
Big Tech’s Long-Term Commitment in Essex Markets
S-17.1
   
Reconciliations of Non-GAAP Financial Measures and Other Terms
S-18.1 – S-18.4


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,
 
   
2021
   
2020
   
2021
   
2020
 
                         
Revenues:
                       
Rental and other property
 
$
360,620
   
$
368,464
   
$
1,062,253
   
$
1,126,363
 
Management and other fees from affiliates
   
2,237
     
2,347
     
6,707
     
7,312
 
     
362,857
     
370,811
     
1,068,960
     
1,133,675
 
                                 
Expenses:
                               
Property operating
   
115,331
     
112,395
     
333,303
     
329,674
 
Corporate-level property management expenses
   
9,068
     
8,619
     
27,120
     
26,024
 
Depreciation and amortization
   
130,564
     
130,202
     
387,887
     
395,370
 
General and administrative
   
12,712
     
13,310
     
34,746
     
42,244
 
Expensed acquisition and investment related costs
   
108
     
2
     
164
     
104
 
     
267,783
     
264,528
     
783,220
     
793,416
 
Gain on sale of real estate and land
   
42,897
     
22,654
     
142,993
     
39,251
 
Earnings from operations
   
137,971
     
128,937
     
428,733
     
379,510
 
Interest expense, net (1)
   
(47,359
)
   
(52,453
)
   
(144,502
)
   
(157,275
)
Interest and other income
   
11,998
     
6,512
     
48,756
     
12,696
 
Equity income from co-investments
   
25,433
     
14,960
     
60,692
     
53,514
 
Deferred tax expense on unrealized gain on unconsolidated co-investment
   
(3,041
)
   
-
     
(5,391
)
   
(1,636
)
Loss on early retirement of debt, net
   
-
     
(19,114
)
   
(18,982
)
   
(23,820
)
Gain on remeasurement of co-investment
   
-
     
-
     
2,260
     
234,694
 
Net income
   
125,002
     
78,842
     
371,566
     
497,683
 
Net income attributable to noncontrolling interest
   
(6,612
)
   
(5,181
)
   
(19,886
)
   
(24,558
)
Net income available to common stockholders
 
$
118,390
   
$
73,661
   
$
351,680
   
$
473,125
 
                                 
Net income per share - basic
 
$
1.82
   
$
1.13
   
$
5.41
   
$
7.22
 
                                 
Shares used in income per share - basic
   
65,048,486
     
65,232,837
     
65,013,477
     
65,561,820
 
                                 
Net income per share - diluted
 
$
1.82
   
$
1.13
   
$
5.40
   
$
7.21
 
                                 
Shares used in income per share - diluted
   
65,147,781
     
65,241,428
     
65,075,174
     
65,676,093
 

(1)
Refer to page S-18.2, 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)
  2021     2020     2021     2020  
                         
Rental and other property
                       
Rental income
 
$
355,591
   
$
362,073
   
$
1,046,218
   
$
1,108,658
 
Other property
   
5,029
     
6,391
     
16,035
     
17,705
 
Rental and other property
 
$
360,620
   
$
368,464
   
$
1,062,253
   
$
1,126,363
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
45,802
   
$
44,358
   
$
135,408
   
$
132,364
 
Administrative
   
21,725
     
23,155
     
65,474
     
67,491
 
Maintenance and repairs
   
24,502
     
23,214
     
67,715
     
68,991
 
Utilities
   
23,302
     
21,668
     
64,706
     
60,828
 
Property operating expenses
 
$
115,331
   
$
112,395
   
$
333,303
   
$
329,674
 
                                 
Interest and other income
                               
Marketable securities and other income
 
$
4,900
   
$
3,268
   
$
17,438
   
$
10,526
 
Gain on sale of marketable securities
   
-
     
91
     
2,499
     
124
 
Income from early redemption of notes receivable
   
-
     
-
     
4,747
     
-
 
Provision for credit losses
   
3
     
(3
)
   
110
     
(100
)
Unrealized gains (losses) on marketable securities
   
7,091
     
3,288
     
23,772
     
2,215
 
Insurance reimbursements, legal settlements, and other, net
   
4
     
(132
)
   
190
     
(69
)
Interest and other income
 
$
11,998
   
$
6,512
   
$
48,756
   
$
12,696
 
                                 
Equity income from co-investments
                               
Equity (loss) income from co-investments
 
$
(666
)
 
$
991
   
$
(3,489
)
 
$
4,300
 
Income from preferred equity investments
   
15,246
     
11,957
     
41,420
     
35,913
 
Equity income (loss) from non-core co-investment
   
10,868
     
(213
)
   
19,266
     
4,373
 
Gain on sale of co-investment communities
   
-
     
2,225
     
-
     
2,225
 
(Loss) gain on early retirement of debt from unconsolidated co-investment
   
(15
)
   
-
     
(18
)
   
38
 
Co-investment promote income
   
-
     
-
     
-
     
6,455
 
Income from early redemption of preferred equity investments
   
-
     
-
     
3,513
     
210
 
Equity income from co-investments
 
$
25,433
   
$
14,960
   
$
60,692
   
$
53,514
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
4,168
   
$
2,593
   
$
12,403
   
$
16,543
 
DownREIT limited partners’ distributions
   
2,046
     
2,123
     
6,255
     
6,393
 
Third-party ownership interest
   
398
     
465
     
1,228
     
1,622
 
Noncontrolling interest
 
$
6,612
   
$
5,181
   
$
19,886
   
$
24,558
 
 
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,
       
   
2021
    2020    
% Change
    2021    
2020
   
% Change
 
                                     
Funds from operations attributable to common stockholders and unitholders (FFO)
       
Net income available to common stockholders
 
$
118,390
   
$
73,661
         
$
351,680
   
$
473,125
       
Adjustments:
                                           
Depreciation and amortization
   
130,564
     
130,202
           
387,887
     
395,370
       
Gains not included in FFO
   
(42,897
)
   
(24,879
)
         
(145,253
)
   
(276,170
)
     
Depreciation and amortization from unconsolidated co-investments
   
15,044
     
12,883
           
44,592
     
38,191
       
Noncontrolling interest related to Operating Partnership units
   
4,168
     
2,593
           
12,403
     
16,543
       
Depreciation attributable to third party ownership and other (2)
   
(145
)
   
(134
)
         
(412
)
   
(407
)
     
Funds from operations attributable to common stockholders and unitholders
 
$
225,124
   
$
194,326
         
$
650,897
   
$
646,652
       
FFO per share-diluted
 
$
3.34
   
$
2.88
     
16.0%

 
$
9.67
   
$
9.53
     
1.5%

                                                 
Components of the change in FFO
                                               
Non-core items:
                                               
Expensed acquisition and investment related costs
 
$
108
   
$
2
           
$
164
   
$
104
         
Deferred tax expense on unrealized gain on unconsolidated co-investment (3)
   
3,041
     
-
             
5,391
     
1,636
         
Gain on sale of marketable securities
   
-
     
(91
)
           
(2,499
)
   
(124
)
       
Unrealized gains on marketable securities
   
(7,091
)
   
(3,288
)
           
(23,772
)
   
(2,215
)
       
Provision for credit losses
   
(3
)
   
3
             
(110
)
   
100
         
Equity income from non-core co-investments  (4)
   
(10,868
)
   
213
             
(19,266
)
   
(4,373
)
       
Loss on early retirement of debt, net
   
-
     
19,114
             
18,982
     
23,820
         
Loss (gain) on early retirement of debt from unconsolidated co-investment
   
15
     
-
             
18
     
(38
)
       
Co-investment promote income
   
-
     
-
             
-
     
(6,455
)
       
Income from early redemption of preferred equity investments and notes receivable
   
-
     
-
             
(8,260
)
   
(210
)
       
General and administrative and other, net
   
252
     
2,510
             
765
     
5,642
         
Insurance reimbursements, legal settlements, and other, net
   
(4
)
   
132
             
(190
)
   
69
         
Core funds from operations attributable to common stockholders and unitholders
 
$
210,574
   
$
212,921
           
$
622,120
   
$
664,608
         
Core FFO per share-diluted
 
$
3.12
   
$
3.15
     
-1.0%

 
$
9.24
   
$
9.80
     
-5.7%

                                                 
Weighted average number of shares outstanding diluted (5)
   
67,391,333
     
67,495,286
             
67,324,087
     
67,837,336
         

(1)
Refer to page S-18.2, 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, 2021 was $0.7 million and $2.2 million, respectively.
(3)
Represents deferred tax expense related to net unrealized gains on technology co-investments.
(4)
Represents the Company’s share of co-investment income from technology co-investments.
(5)
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, 2021
   
December 31, 2020
 
             
Real Estate:
           
Land and land improvements
 
$
2,997,904
   
$
2,929,009
 
Buildings and improvements
   
12,414,770
     
12,132,736
 
 
   
15,412,674
     
15,061,745
 
Less: accumulated depreciation
   
(4,509,243
)
   
(4,133,959
)
     
10,903,431
     
10,927,786
 
Real estate under development
   
212,426
     
386,047
 
Co-investments
   
1,081,861
     
1,018,010
 
Real estate held for sale
   
-
     
57,938
 
     
12,197,718
     
12,389,781
 
Cash and cash equivalents, including restricted cash
   
60,952
     
84,041
 
Marketable securities
   
183,140
     
147,768
 
Notes and other receivables
   
213,985
     
195,104
 
Operating lease right-of-use assets
   
69,756
     
72,143
 
Prepaid expenses and other assets
   
63,090
     
47,340
 
Total assets
 
$
12,788,641
   
$
12,936,177
 
                 
Unsecured debt, net
 
$
5,405,520
   
$
5,607,985
 
Mortgage notes payable, net
   
640,118
     
643,550
 
Lines of credit
   
42,662
     
-
 
Distributions in excess of investments in co-investments
   
29,037
     
-
 
Operating lease liabilities
   
71,520
     
74,037
 
Other liabilities
   
435,187
     
395,174
 
Total liabilities
   
6,624,044
     
6,720,746
 
Redeemable noncontrolling interest
   
32,698
     
32,239
 
Equity:
               
Common stock
   
7
     
6
 
Additional paid-in capital
   
6,875,508
     
6,876,326
 
Distributions in excess of accumulated earnings
   
(917,315
)
   
(861,193
)
Accumulated other comprehensive loss, net
   
(8,968
)
   
(14,729
)
Total stockholders’ equity
   
5,949,232
     
6,000,410
 
Noncontrolling interest
   
182,667
     
182,782
 
Total equity
   
6,131,899
     
6,183,192
 
Total liabilities and equity
 
$
12,788,641
   
$
12,936,177
 

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, 2021
(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
                            Weighted
       
   
Balance Outstanding
   
Interest Rate
   
Maturity
in Years
   
   
Unsecured
   
Secured
   
Total
   
Average
Interest Rate
   
Percentage of
Total Debt
 
Unsecured Debt, net
                                                     
Bonds public - fixed rate
 
$
5,350,000
     
3.3
%
   
8.9
   
2021
   
$
-
   
$
893
   
$
893
     
2.9
%
   
0.0
%
Term loan (1)
   
100,000
     
1.1
%
   
0.4
   
2022
     
100,000
     
43,188
     
143,188
     
1.9
%
   
2.4
%
Unamortized net discounts and debt issuance costs
   
(44,480
)
   
-
     
-
   
2023
     
300,000
     
2,945
     
302,945
     
3.4
%
   
5.0
%
     
5,405,520
     
3.2
%
   
8.8
   
2024
     
400,000
     
3,109
     
403,109
     
4.0
%
   
6.6
%
Mortgage Notes Payable, net
                         
2025
     
500,000
     
133,054
     
633,054
     
3.5
%
   
10.4
%
Fixed rate - secured
   
414,271
     
3.5
%
   
4.6
   
2026
     
450,000
     
99,405
     
549,405
     
3.5
%
   
9.0
%
Variable rate - secured (2)
   
224,547
     
0.9
%
   
16.4
   
2027
     
350,000
     
153,955
     
503,955
     
3.3
%
   
8.3
%
Unamortized premiums and debt issuance costs, net
   
1,300
     
-
     
-
   
2028
     
450,000
     
68,332
     
518,332
     
2.2
%
   
8.5
%
Total mortgage notes payable
   
640,118
     
2.6
%
   
8.7
   
2029
     
500,000
     
1,456
     
501,456
     
4.1
%
   
8.2
%
                           
2030
     
550,000
     
1,592
     
551,592
     
3.1
%
   
9.1
%
Unsecured Lines of Credit
                         
2031
     
600,000
     
1,740
     
601,740
     
2.3
%
   
9.9
%
Line of credit (3)
   
35,000
     
1.0
%
   
N/A
   
Thereafter
     
1,250,000
     
129,149
     
1,379,149
     
2.9
%
   
22.6
%
Line of credit (4)
   
7,662
     
1.0
%
   
N/A
   
Subtotal
     
5,450,000
     
638,818
     
6,088,818
     
3.1
%
   
100.0
%
Total lines of credit
   
42,662
     
1.0
%
   
N/A
   
Debt Issuance Costs
     
(34,096
)
   
(1,544
)
   
(35,640
)
 
NA


NA

 
                         
(Discounts)/Premiums
     
(10,384
)
   
2,844
     
(7,540
)
 
NA
   
NA
 
Total debt, net
 
$
6,088,300
     
3.1
%
   
8.8
   
Total
   
$
5,405,520
   
$
640,118
   
$
6,045,638
     
3.1
%
   
100.0
%
                                                                       

Capitalized interest for the three and nine months ended September 30, 2021 was approximately $1.2 million and $5.0 million, respectively.

(1)
$100.0 million of the unsecured term loan has a variable interest rate of LIBOR plus 0.95%.
(2)
$224.5 million of variable rate debt is tax exempt to the note holders.
(3)
This unsecured line of credit facility has a capacity of $1.2 billion, with a scheduled maturity date in September 2025 with three 6-month extensions, 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 0.775%.
(4)
This unsecured line of credit facility has a capacity $35.0 million, with a scheduled maturity date in February 2023. 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 0.775%.

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, 2021
(Dollars and shares in thousands, except per share amounts)

Capitalization Data
         
Public Bond Covenants (1)
 
Actual
 
Requirement
Total debt, net
      
$
6,088,300
                 
                 
Debt to Total Assets:
 
35%

< 65%
Common stock and potentially dilutive securities
                         
Common stock outstanding
     
65,081
                 
Limited partnership units (1)
     
2,239
                 
Options-treasury method
     
95
     
Secured Debt to Total Assets:
 
4%

< 40%
Total shares of common stock and potentially dilutive securities
   
67,415
                 
                                  
Common stock price per share as of September 30, 2021
 
$
319.74
                 
                 
Interest Coverage:
 
494%

> 150%
Total equity capitalization
   
$
21,555,272
                 
                                  
Total market capitalization
   
$
27,643,572
     
Unsecured Debt Ratio (2):
 
277%

> 150%
                                  
Ratio of debt to total market capitalization
     
22.0
%
               
                 
Selected Credit Ratios (3)
 
Actual
   
Credit Ratings
                               
Rating Agency
Rating
Outlook
           
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
 
6.4
   
Moody’s
Baa1
Stable
                         
Standard & Poor’s
BBB+
Stable
           
Unencumbered NOI to Adjusted Total NOI:
 
94%

 
         
(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-18.4 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-18.1 to S-18.4, 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, 2021


 
Apartment Homes
   
Average Monthly Rental Rate (1)
   
Percent of NOI (2)

Region - County
 
Consolidated (3)
   
Unconsolidated
Co-investments
   
Apartment
Homes in
Development (4)
   
Total
   
Consolidated
   
Unconsolidated
Co-investments (5)
   
Total (6)
   
Consolidated
   
Unconsolidated
Co-investments (5)
   
Total (6)
 
                                                             
Southern California
                                                           
Los Angeles County
   
9,327
     
1,418
     
-
     
10,745
   
$
2,443
   
$
2,164
   
$
2,423
     
17.4
%
   
13.2
%
   
17.0
%
Orange County
   
5,439
     
1,149
     
-
     
6,588
     
2,335
     
2,062
     
2,309
     
11.3
%
   
12.2
%
   
11.4
%
San Diego County
   
4,824
     
616
     
264
     
5,704
     
2,096
     
1,980
     
2,089
     
9.3
%
   
6.1
%
   
9.1
%
Ventura County and Other
   
2,600
     
693
     
-
     
3,293
     
1,996
     
2,306
     
2,036
     
4.9
%
   
9.4
%
   
5.2
%
Total Southern California
   
22,190
     
3,876
     
264
     
26,330
     
2,289
     
2,133
     
2,276
     
42.9
%
   
40.9
%
   
42.7
%
                                                                                 
Northern California
                                                                               
Santa Clara County (7)
   
8,749
     
1,506
     
-
     
10,255
     
2,695
     
2,706
     
2,696
     
19.2
%
   
16.3
%
   
19.0
%
Alameda County
   
3,959
     
1,309
     
-
     
5,268
     
2,457
     
2,400
     
2,449
     
7.8
%
   
15.7
%
   
8.4
%
San Mateo County
   
2,454
     
195
     
107
     
2,756
     
2,821
     
3,426
     
2,844
     
5.1
%
   
2.9
%
   
4.9
%
Contra Costa County
   
2,619
     
-
     
-
     
2,619
     
2,483
     
-
     
2,483
     
5.8
%
   
0.0
%
   
5.3
%
San Francisco
   
1,342
     
537
     
-
     
1,879
     
2,748
     
3,070
     
2,802
     
2.8
%
   
4.8
%
   
3.0
%
Total Northern California
   
19,123
     
3,547
     
107
     
22,777
     
2,636
     
2,684
     
2,640
     
40.7
%
   
39.7
%
   
40.6
%
                                                                                 
Seattle Metro
   
10,218
     
2,045
     
-
     
12,263
     
1,920
     
1,889
     
1,917
     
16.4
%
   
19.4
%
   
16.7
%
                                                                                 
Total
   
51,531
     
9,468
     
371
     
61,370
   
$
2,345
   
$
2,289
   
$
2,340
     
100.0
%
   
100.0
%
   
100.0
%

(1)
Average monthly rental rate is defined as the total scheduled monthly rental income (actual rent for occupied apartment homes plus market rent for vacant apartment homes) for the quarter ended September 30, 2021, divided by the number of apartment homes as of September 30, 2021.
(2)
Represents the percentage of actual NOI for the quarter ended September 30, 2021. See the section titled “Net Operating Income (“NOI”) and Same-Property NOI Reconciliations” on page S-18.3.
(3)
Includes one community consisting of 200 apartment homes that is producing partial income due to lease-up.
(4)
Includes development communities with no rental income.
(5)
Co-investment amounts weighted for Company’s pro rata share.
(6)
At Company’s pro rata share.
(7)
Includes all communities in Santa Clara County and one community in Santa Cruz County.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
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 ‘21
   
Q2 ‘21
   
Q1 ‘21
   
Q4 ‘20
   
Q3 ‘20
 
                                     
Rental and other property revenues:
                                   
Same-property
   
47,090
   
$
325,153
   
$
314,949
   
$
317,806
   
$
317,472
   
$
316,639
 
Acquisitions (2)
   
1,968
     
14,789
     
13,948
     
13,673
     
13,924
     
14,237
 
Development (3)
   
1,168
     
8,055
     
7,500
     
6,930
     
6,094
     
5,461
 
Redevelopment
   
620
     
4,340
     
4,149
     
4,590
     
4,280
     
4,277
 
Non-residential/other, net (4)
   
685
     
11,319
     
11,156
     
13,246
     
13,867
     
13,119
 
Straight-line rent concessions (5)
   
-
     
(3,036
)
   
(2,945
)
   
(3,369
)
   
4,150
     
14,731
 
Total rental and other property revenues
   
51,531
     
360,620
     
348,757
     
352,876
     
359,787
     
368,464
 
                                                 
Property operating expenses:
                                               
Same-property
           
102,671
     
96,306
     
97,825
     
97,613
     
98,878
 
Acquisitions (2)
           
4,956
     
4,459
     
4,614
     
4,476
     
4,454
 
Development (3)
           
3,411
     
2,983
     
2,687
     
2,438
     
1,977
 
Redevelopment
           
1,763
     
1,685
     
1,774
     
1,845
     
2,049
 
Non-residential/other, net (4) (6)
           
2,530
     
2,060
     
3,579
     
4,354
     
5,037
 
Total property operating expenses
           
115,331
     
107,493
     
110,479
     
110,726
     
112,395
 
                                                 
Net operating income (NOI):
                                               
Same-property
           
222,482
     
218,643
     
219,981
     
219,859
     
217,761
 
Acquisitions (2)
           
9,833
     
9,489
     
9,059
     
9,448
     
9,783
 
Development (3)
           
4,644
     
4,517
     
4,243
     
3,656
     
3,484
 
Redevelopment
           
2,577
     
2,464
     
2,816
     
2,435
     
2,228
 
Non-residential/other, net (4)
           
8,789
     
9,096
     
9,667
     
9,513
     
8,082
 
Straight-line rent concessions (5)
           
(3,036
)
   
(2,945
)
   
(3,369
)
   
4,150
     
14,731
 
Total NOI
         
$
245,289
   
$
241,264
   
$
242,397
   
$
249,061
   
$
256,069
 
                                                 
Same-property metrics
                                               
Operating margin
           
68
%
   
69
%
   
69
%
   
69
%
   
69
%
Annualized turnover (7)
           
47
%
   
45
%
   
40
%
   
46
%
   
58
%
Financial occupancy (8)
           
96.4
%
   
96.6
%
   
96.7
%
   
96.5
%
   
96.0
%

(1)
Includes consolidated communities only.
(2)
Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2020.
(3)
Development includes properties developed which did not have comparable stabilized results as of January 1, 2020.
(4)
Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties undergoing significant construction activities that do not meet our redevelopment criteria and two communities located in the California counties of Santa Barbara and Santa Cruz, which the Company does not consider its core markets.
(5)
Same-property revenues reflect concessions on a cash basis. Total Rental and Other Property Revenues reflect concessions on a straight-line basis in accordance with U.S. GAAP.
(6)
Includes other expenses and intercompany eliminations pertaining to self-insurance.
(7)
Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.
(8)
Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income (actual rent for occupied apartment homes plus market rent for vacant apartment homes).

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

S-8

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

Same-Property Revenue Results by County - Third Quarter 2021 vs. Third Quarter 2020 and Second Quarter 2021
(Dollars in thousands, except average monthly rental rates)

               
Average Monthly Rental Rate
   
Financial Occupancy
   
Gross Revenues
   
Sequential Gross Revenues
 
Region - County
 
Apartment
Homes
   
Q3 ‘21 %
of Actual
NOI
   
Q3 ‘21
   
Q3 ‘20
   
% Change
   
Q3 ‘21
   
Q3 ‘20
   
% Change
   
Q3 ‘21
   
Q3 ‘20
   
% Change
   
Q2 ‘21
   
% Change
 
                                                                               
Southern California
                                                                             
Los Angeles County
   
8,526
     
17.7
%
 
$
2,445
   
$
2,458
     
-0.5
%
   
96.5
%
   
94.7
%
   
1.9
%
 
$
59,777
   
$
55,415
     
7.9
%
 
$
56,960
     
4.9
%
Orange County
   
5,439
     
12.3
%
   
2,335
     
2,233
     
4.6
%
   
97.5
%
   
96.7
%
   
0.8
%
   
38,447
     
35,359
     
8.7
%
   
36,758
     
4.6
%
San Diego County
   
4,582
     
9.8
%
   
2,091
     
1,996
     
4.8
%
   
97.5
%
   
97.0
%
   
0.5
%
   
30,281
     
27,149
     
11.5
%
   
28,289
     
7.0
%
Ventura County
   
2,253
     
4.6
%
   
1,970
     
1,888
     
4.3
%
   
98.2
%
   
97.5
%
   
0.7
%
   
13,942
     
12,906
     
8.0
%
   
13,469
     
3.5
%
Total Southern California
   
20,800
     
44.4
%
   
2,287
     
2,236
     
2.3
%
   
97.1
%
   
95.9
%
   
1.3
%
   
142,447
     
130,829
     
8.9
%
   
135,476
     
5.1
%
                                                                                                         
Northern California
                                                                                                       
Santa Clara County
   
7,408
     
18.0
%
   
2,674
     
2,808
     
-4.8
%
   
96.1
%
   
96.3
%
   
-0.2
%
   
56,772
     
59,421
     
-4.5
%
   
55,820
     
1.7
%
Alameda County
   
2,954
     
6.3
%
   
2,473
     
2,571
     
-3.8
%
   
96.0
%
   
96.0
%
   
0.0
%
   
21,054
     
21,178
     
-0.6
%
   
20,733
     
1.5
%
San Mateo County
   
1,962
     
4.6
%
   
2,790
     
3,054
     
-8.6
%
   
94.4
%
   
96.2
%
   
-1.9
%
   
15,664
     
16,794
     
-6.7
%
   
15,813
     
-0.9
%
Contra Costa County
   
2,570
     
6.1
%
   
2,441
     
2,420
     
0.9
%
   
96.3
%
   
97.8
%
   
-1.5
%
   
19,384
     
18,229
     
6.3
%
   
18,554
     
4.5
%
San Francisco
   
1,178
     
2.7
%
   
2,681
     
2,952
     
-9.2
%
   
96.0
%
   
93.5
%
   
2.7
%
   
9,552
     
9,571
     
-0.2
%
   
9,286
     
2.9
%
Total Northern California
   
16,072
     
37.7
%
   
2,615
     
2,743
     
-4.7
%
   
95.9
%
   
96.2
%
   
-0.3
%
   
122,426
     
125,193
     
-2.2
%
   
120,206
     
1.8
%
                                                                                                         
Seattle Metro
   
10,218
     
17.9
%
   
1,920
     
1,936
     
-0.8
%
   
95.8
%
   
95.9
%
   
-0.1
%
   
60,280
     
60,617
     
-0.6
%
   
59,267
     
1.7
%
                                                                                                         
Total Same-Property
   
47,090
     
100.0
%
 
$
2,319
   
$
2,344
     
-1.1
%
   
96.4
%
   
96.0
%
   
0.4
%
 
$
325,153
   
$
316,639
     
2.7
%
 
$
314,949
     
3.2
%

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

S-9

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

Same-Property Revenue Results by County - Nine months ended September 30, 2021 vs. Nine months ended September 30, 2020
(Dollars in thousands, except average monthly rental rates)

               
Average Monthly Rental Rate
   
Financial Occupancy
   
Gross Revenues
 





YTD


 


 
   
 
 
Region - County
 
Apartment
Homes
   
2021 % of
Actual
NOI
   
YTD 2021

 
YTD 2020
   
% Change
   
YTD 2021
   
YTD 2020
   
% Change
   
YTD 2021
   
YTD 2020
   
% Change
 
                                                                   
Southern California
                                                                 
Los Angeles County
   
8,526
     
17.5
%
 
$
2,429
   
$
2,478
     
-2.0
%
   
96.2
%
   
94.8
%
   
1.5
%
 
$
175,062
   
$
178,798
     
-2.1
%
Orange County
   
5,439
     
12.0
%
   
2,280
     
2,237
     
1.9
%
   
97.4
%
   
96.0
%
   
1.5
%
   
111,229
     
107,089
     
3.9
%
San Diego County
   
4,582
     
9.4
%
   
2,043
     
1,993
     
2.5
%
   
97.5
%
   
96.8
%
   
0.7
%
   
86,388
     
82,640
     
4.5
%
Ventura County
   
2,253
     
4.6
%
   
1,937
     
1,889
     
2.5
%
   
98.0
%
   
96.8
%
   
1.2
%
   
40,705
     
38,835
     
4.8
%
Total Southern California
   
20,800
     
43.5
%
   
2,252
     
2,244
     
0.4
%
   
97.0
%
   
95.7
%
   
1.4
%
   
413,384
     
407,362
     
1.5
%
                                                                                         
Northern California
                                                                                       
Santa Clara County
   
7,408
     
18.5
%
   
2,676
     
2,844
     
-5.9
%
   
96.5
%
   
96.3
%
   
0.2
%
   
170,891
     
187,184
     
-8.7
%
Alameda County
   
2,954
     
6.5
%
   
2,472
     
2,598
     
-4.8
%
   
96.2
%
   
95.6
%
   
0.6
%
   
63,103
     
67,274
     
-6.2
%
San Mateo County
   
1,962
     
4.9
%
   
2,818
     
3,105
     
-9.2
%
   
95.1
%
   
96.0
%
   
-0.9
%
   
47,760
     
53,453
     
-10.7
%
Contra Costa County
   
2,570
     
6.0
%
   
2,420
     
2,437
     
-0.7
%
   
96.7
%
   
96.9
%
   
-0.2
%
   
56,371
     
55,756
     
1.1
%
San Francisco
   
1,178
     
2.6
%
   
2,674
     
3,078
     
-13.1
%
   
96.0
%
   
94.3
%
   
1.8
%
   
28,219
     
31,606
     
-10.7
%
Total Northern California
   
16,072
     
38.5
%
   
2,615
     
2,783
     
-6.0
%
   
96.2
%
   
96.0
%
   
0.2
%
   
366,344
     
395,273
     
-7.3
%
                                                                                         
Seattle Metro
   
10,218
     
18.0
%
   
1,896
     
1,938
     
-2.2
%
   
96.4
%
   
96.0
%
   
0.4
%
   
178,180
     
184,310
     
-3.3
%
                                                                                         
Total Same-Property
   
47,090
     
100.0
%
 
$
2,298
   
$
2,361
     
-2.7
%
   
96.6
%
   
95.9
%
   
0.7
%
 
$
957,908
   
$
986,945
     
-2.9
%

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

S-9.1

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

Same-Property Operating Expenses - Quarter and Year to Date as of September 30, 2021 and 2020
(Dollars in thousands)

   
Based on 47,090 apartment homes
 
                                                   
   
Q3 ‘21
   
Q3 ‘20
   
% Change
   
% of Op. Ex.
     
YTD 2021
   
YTD 2020
   
% Change
   
% of Op. Ex.
 
                                                   
Same-property operating expenses:
                                                 
Real estate taxes
 
$
39,167
   
$
38,055
     
2.9
%
   
38.1
%
   
$
116,249
   
$
113,092
     
2.8
%
   
39.2
%
Maintenance and repairs
   
22,234
     
20,787
     
7.0
%
   
21.7
%
     
61,112
     
61,530
     
-0.7
%
   
20.6
%
Administrative
   
15,924
     
16,629
     
-4.2
%
   
15.5
%
     
47,169
     
49,032
     
-3.8
%
   
15.9
%
Utilities
   
20,788
     
19,272
     
7.9
%
   
20.2
%
     
57,534
     
53,604
     
7.3
%
   
19.4
%
Insurance and other
   
4,558
     
4,135
     
10.2
%
   
4.5
%
     
14,738
     
12,955
     
13.8
%
   
4.9
%
Total same-property operating expenses
 
$
102,671
   
$
98,878
     
3.8
%
   
100.0
%
   
$
296,802
   
$
290,213
     
2.3
%
   
100.0
%

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

S-10

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

Development Pipeline - September 30, 2021
(Dollars in millions, except per apartment home amounts in thousands and except in footnotes)

Project Name
 
Location
 
Ownership
%
   
Estimated
Apartment
Homes
   
Estimated
Commercial
sq. feet
   
Incurred
to Date
   
Remaining
Costs
   
Estimated
Total Cost
   
Essex Est.
Total Cost (1)
   
Cost per
Apartment
Home (2)
   
Average
 %
 Occupied
   
%
Leased as of
9/30/21 (3)
   
%
Leased as of
10/22/21 (3)
   
Construction
Start
   
Initial
Occupancy
   
Stabilized
Operations
 
                                                                                         
Development Projects - Consolidated (4)
                                                                                       
Station Park Green - Phase IV
 
San Mateo, CA
   
100%

   
107
     
-
   
$
89
   
$
5
   
$
94
   
$
94
   
$
879
   
0%

 
0%

 
0%

 
Q3 2019
   
Q4 2021
   
Q2 2022
 
Wallace on Sunset (5)
 
Hollywood, CA
   
100%

   
200
     
4,700
     
105
     
11
     
116
     
116
     
550
   
75%

 
83%

  90%

 
Q4 2017
   
Q2 2021
   
Q4 2021
 
Total Development Projects - Consolidated
               
307
     
4,700
     
194
     
16
     
210
     
210
     
664
                                     
                                                                                                         
Land Held for Future Development - Consolidated
                                                                                                       
Other Projects
 
Various
   
100%

   
-
     
-
     
24
     
-
     
24
     
24
                                             
Total Development Pipeline - Consolidated
               
307
     
4,700
     
218
     
16
     
234
     
234
                                             
                                                                                                         
Development Projects - Joint Venture (4)
                                                                                                       
Scripps Mesa Apartments (6)
 
San Diego, CA
   
51%

   
264
     
2,000
     
34
     
68
     
102
     
52
     
383
   
0%

 
0%

 
0%

 
Q3 2020
   
Q4 2022
   
Q3 2023
 
Total Development Projects - Joint Venture
               
264
     
2,000
     
34
     
68
     
102
     
52
   
$
383
                                     
                                                                                                         
Grand Total - Development Pipeline
               
571
     
6,700
   
$
252
   
$
84
   
$
336
     
286
                                             
Essex Cost Incurred to Date - Pro Rata
                                                       
(235
)
                                           
Essex Remaining Commitment
                                                     
$
51
                                             

(1)
The Company’s share of the estimated total cost of the project.
(2)
Net of the estimated allocation to the retail component of the project.
(3)
Calculations are based on multifamily operations only.
(4)
For the third quarter of 2021, the Company’s cost includes $1.1 million of capitalized interest, $0.9 million of capitalized overhead and $0.3 million of development fees (such development fees reduced G&A expenses).
(5)
Cost incurred to date does not include a deduction of $6.3 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset and is net of cost incurred on the adjacent theatre at the property.
(6)
Cost incurred to date and estimated total cost are net of a projected value for low income housing tax credit proceeds and the value of the tax exempt bond structure.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-11

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

Capital Expenditures - September 30, 2021 (1)
(Dollars in thousands, except in footnotes and per apartment home amounts)

             
Revenue Generating Capital Expenditures (2)
 
Q3 ‘21
   
Trailing 4
Quarters
 
Same-property portfolio
 
$
10,409
   
$
31,791  
Non-same property portfolio
   
3,046
      8,575  
Total revenue generating capital expenditures
 
$
13,455
   
$
40,366
 
                 
Number of same-property interior renovations
   
741
     
2,022
 
Number of total consolidated interior renovations
   
756
     
2,085
 
                 
Non-Revenue Generating Capital Expenditures (3)
 
Q3 ‘21
   
Trailing 4
Quarters
 
                 
Non-revenue generating capital expenditures (4)
  $
27,464
    $
91,452
 
Average apartment homes in quarter
   
51,669
     
51,809
 
Capital expenditures per apartment homes in the quarter
  $ 532     $
1,765
 

(1)
The Company incurred $0.1 million of capitalized interest, $3.4 million of capitalized overhead and $0.1 million of co-investment fees related to redevelopment in Q3 2021.
(2)
Represents revenue generating or expense saving expenditures, such as full-scale redevelopments, interior unit turn renovations, enhanced amenities and certain resource management initiatives. Q3 2021 excludes costs related to smart home automation.
(3)
Represents roof replacements, paving, building and mechanical systems, exterior painting, siding, etc.
(4)
Non-revenue generating capital expenditures does not include expenditures incurred due to changes in governmental regulations that the Company would not have incurred otherwise, costs related to the COVID-19 pandemic, retail, furniture and fixtures, and expenditures in which the Company expects to be reimbursed.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-12

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

Co-investments and Preferred Equity Investments - September 30, 2021
(Dollars in thousands, except in footnotes)

 
 
Weighted
Average Essex
Ownership
Percentage
   
Apartment
Homes
   
Total
Undepreciated
Book Value
   
Debt
Amount
   
Essex
Book
Value
   
Weighted
Average
Borrowing Rate
   
Remaining
Term of
Debt (in Years)
   
Three Months
Ended
September 30, 2021
   
Nine Months Ended
September 30, 2021
 
                                                       
                                             
NOI
 
Operating and Other Non-Consolidated Joint Ventures
                                                     
Wesco I, III, IV, V, and VI (1)
   
52%

   
5,465
   
$
1,792,073
   
$
1,159,131
   
$
138,745
     
2.2
%
   
3.5
   
$
22,929
   
$
66,614
 
BEXAEW, BEX II, BEX III, BEX IV, and 500 Folsom
   
50%

   
3,083
     
1,233,596
     
520,548
     
273,557
     
2.5
%
   
9.4
(3) 
   
12,924
     
39,385
 
Other
   
46%

   
920
     
349,127
     
257,762
     
58,504
     
2.9
%
   
2.5
     
3,803
     
10,894
 
Total Operating and Other Non-Consolidated Joint Ventures
           
9,468
   
$
3,374,796
   
$
1,937,441
   
$
470,806
     
2.4
%
   
4.9
   
$
39,656
   
$
116,893
 
                                                                         
Development Non-Consolidated Joint Ventures (2)
   
50%

   
264
     
34,301
     
89,250
     
9,965
     
0.8
%
   
38.7
(4) 
   
-
     
-
 
Total Non-Consolidated Joint Ventures
           
9,732
   
$
3,409,097
   
$
2,026,691
   
$
480,771
     
2.3
%
   
6.4
   
$
39,656
   
$
116,893
 
                                                                         
                                                           
Essex Portion of NOI and Expenses
 
NOI                                                           $
20,596
    $
60,602
 
Depreciation                                                            
(15,044
)    
(44,592
)
Interest expense and other
                                                           
(6,218
)    
(19,499
)
Equity income from non-core co-investment
                                                           
10,868
     
19,266
 
Loss on early retirement of debt from unconsolidated co-investment
                                                           
(15
)    
(18
)
Net income from operating and other co-investments
                                                          $
10,187
    $
15,759
 
                                                                         
                                         
Weighted
Average
Preferred
Return
   
Weighted
Average
Expected
Term
   
Income from Preferred Equity
Investments
 
Income from preferred equity investments
                                                          $
15,246
    $
41,420
 
Income from early redemption of preferred equity investments
                                                           
-
     
3,513
 
Preferred Equity Investments (5)
                                  $
572,053
     
10.8
%
   
2.3
    $
15,246
    $
44,933
 
 
                                                           
     
 
Total Co-investments
                                  $
1,052,824
                    $
25,433
    $
60,692
 

(1)
As of September 30, 2021, the Company’s investment in Wesco I was classified as a liability of $29.0 million.
(2)
The Company has ownership interests in development co-investments, which are detailed on page S-11.
(3)
$132.0 million of the debt related to 500 Folsom, one of the Company’s co-investments, is financed by tax exempt bonds with a maturity date of January 2052.
(4)
Scripps Mesa Apartments has $89.3 million of long-term tax-exempt bond debt that is subject to a total return swap that matures in 2025.
(5)
As of September 30, 2021, the Company has invested in 21 preferred equity investments.

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

S-13

E S S E X  P R O P E R T Y  T R U S T, I N C.
Assumptions for 2021 FFO Guidance Range

The guidance projections below are based on current expectations and are forward-looking. The guidance on this page is given for Net Operating Income ("NOI") and Total and Core FFO. See pages S-18.1 to S-18.4 for the definitions of non-GAAP financial measures and other terms.
   
Nine Months
Ended
September 30,
   
2021 Full-Year Guidance Range
   
($'s in thousands, except per share data)
 
2021 (1)
   
Low End
   
High End
 
Comments About Guidance Revisions
   
   
   
 
Total NOI from Consolidated Communities - Excluding Straight-Line Rent Concessions
 
$
738,300
   
$
995,600
   
$
1,000,400
 
Includes a range of same-property NOI growth of -2.90% to -2.50%, an increase from the prior range of -3.30% to -2.60%
                         
Straight-Line Rent Concessions from Consolidated Communities
   
(9,350
)
   
(12,000
)
   
(13,000
)
 
                         
Management Fees
   
6,707
     
8,800
     
9,200
   
                         
Interest Expense
                       
Interest expense, before capitalized interest
   
(149,516
)
   
(198,800
)
   
(197,800
)
 
Interest capitalized
   
5,014
     
5,700
     
6,300
   
Net interest expense
   
(144,502
)
   
(193,100
)
   
(191,500
)
 
                         
Recurring Income and Expenses
                       
Interest and other income
   
17,438
     
22,300
     
22,900
   
FFO from co-investments
   
82,523
     
109,700
     
111,300
 
Reflects improved property operating results compared to prior forecast
General and administrative
   
(33,981
)
   
(50,000
)
   
(51,000
)
 
Corporate-level property management expenses
   
(27,120
)
   
(35,800
)
   
(36,400
)
 
Non-controlling interest
   
(7,895
)
   
(10,700
)
   
(10,300
)
 
  Total recurring income and expenses
   
30,965
     
35,500
     
36,500
   
                         
Non-Core Income and Expenses
                       
Expensed acquisition and investment related costs
   
(164
)
   
(164
)
   
(164
)
 
Deferred tax expense on unrealized gain on unconsolidated co-investments
   
(5,391
)
   
(5,391
)
   
(5,391
)
 
Gain on sale of marketable securities
   
2,499
     
2,499
     
2,499
   
Unrealized gains on marketable securities
   
23,772
     
23,772
     
23,772
   
Provision for credit losses
   
110
     
110
     
110
   
Equity income from non-core co-investments
   
19,266
     
19,266
     
19,266
   
Loss on early retirement of debt, net
   
(18,982
)
   
(18,982
)
   
(18,982
)
 
Loss on early retirement of debt from unconsolidated co-investment
   
(18
)
   
(18
)
   
(18
)
 
Income from early redemption of preferred equity investments and notes receivable
   
8,260
     
8,260
     
8,260
   
General and administrative and other, net
   
(765
)
   
(765
)
   
(765
)
 
Insurance reimbursements, legal settlements, and other, net
   
190
     
190
     
190
   
Total non-core income and expenses
   
28,777
     
28,777
     
28,777
   
                         
Funds from Operations (2)
 
$
650,897
   
$
863,577
   
$
870,377
 
                         
Funds from Operations per diluted Share
 
$
9.67
   
$
12.82
   
$
12.92
   
                         
% Change - Funds from Operations
   
1.5
%
   
0.3
%
   
1.1
%
 
                         
Core Funds from Operations (excludes non-core items)
 
$
622,120
   
$
834,800
   
$
841,600
   
                         
Core Funds from Operations per diluted Share
 
$
9.24
   
$
12.39
   
$
12.49
   
                         
% Change - Core Funds from Operations
   
-5.7
%
   
-3.4
%
   
-2.6
%
 
                         
EPS - Diluted
 
$
5.40
   
$
6.39
   
$
6.49
   
                         
Weighted average shares outstanding - FFO calculation
   
67,324
     
67,375
     
67,375
   

(1)
 All non-core items are excluded from the 2021 actuals and included in the non-core income and expense section of the FFO reconciliation.
(2)
 2021 guidance excludes inestimable projected gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs, and promote income until they are realized within the reporting period presented in the report.

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

S-14

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

Reconciliation of Projected EPS, FFO and Core FFO per diluted share

With respect to the Company's guidance regarding its projected FFO and Core FFO, which guidance is set forth in the earnings release and on page S-14 of this supplement, a reconciliation of projected net income per share to projected FFO per share and projected Core FFO per share, as set forth in such guidance, is presented in the table below.

         
2021 Guidance Range (1)
 
   
Nine Months
   
4th Quarter 2021
   
Full-Year 2021
       
   
Ended
                         
   
September 30,
                         
   
2021
   
Low
   
High
   
Low
   
High
 
EPS - diluted
 
$
5.40
   
$
0.99
   
$
1.09
   
$
6.39
   
$
6.49
 
Conversion from GAAP share count
   
(0.18
)
   
(0.03
)
   
(0.03
)
   
(0.21
)
   
(0.21
)
Depreciation and amortization
   
6.43
     
2.16
     
2.16
     
8.59
     
8.59
 
Noncontrolling interest related to Operating Partnership units
   
0.18
     
0.03
     
0.03
     
0.21
     
0.21
 
Gain on sale of real estate
   
(2.13
)
   
-
     
-
     
(2.13
)
   
(2.13
)
Gain on remeasurement of co-investment
   
(0.03
)
   
-
     
-
     
(0.03
)
   
(0.03
)
FFO per share - diluted
 
$
9.67
   
$
3.15
   
$
3.25
   
$
12.82
   
$
12.92
 
Expensed acquisition and investment related costs
   
-
     
-
     
-
     
-
     
-
 
Deferred tax expense on unrealized gain on unconsolidated co-investments
   
0.08
     
-
     
-
     
0.08
     
0.08
 
Gain on sale of marketable securities
   
(0.04
)
   
-
     
-
     
(0.04
)
   
(0.04
)
Unrealized gains on marketable securities
   
(0.35
)
   
-
     
-
     
(0.35
)
   
(0.35
)
Provision for credit losses
   
-
     
-
     
-
     
-
     
-
 
Equity income from non-core co-investments
   
(0.29
)
   
-
     
-
     
(0.29
)
   
(0.29
)
Loss on early retirement of debt, net
   
0.28
     
-
     
-
     
0.28
     
0.28
 
Loss on early retirement of debt from unconsolidated co-investment
   
-
     
-
     
-
     
-
     
-
 
Income from early redemption of preferred equity investments and notes receivable
   
(0.12
)
   
-
     
-
     
(0.12
)
   
(0.12
)
General and administrative and other, net
   
0.01
     
-
     
-
     
0.01
     
0.01
 
Insurance reimbursements, legal settlements, and other, net
   
-
     
-
     
-
     
-
     
-
 
Core FFO per share - diluted
 
$
9.24
   
$
3.15
   
$
3.25
   
$
12.39
   
$
12.49
 

(1)
2021 guidance excludes inestimable projected gain on sale of real estate and land, gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs,and promote income until they are realized within the reporting period presented in the report.

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

S-14.1

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

Summary of Apartment Community Acquisitions and Dispositions Activity
Year to date as of September 30, 2021
(Dollars in thousands)

                                         
Acquisitions
             
Essex
         
Total
             
         
Apartment
   
Ownership
         
Contract
   
Price per
   
Average
 
Property Name
 
Location
   
Homes
   
Percentage
 
Entity
Date
 
Price
   
Apartment Home
   
Rent
 
                                         
The Village at Toluca Lake (1)
 
Burbank, CA
     
145
   
100%
 
EPLP
Jun-21
 
$
31,750
   
$
438
   
$
2,294
 
 
 
Q2 2021
     
145
       
 
     
 
$
31,750
   
$
438
         
 
                                               
Martha Lake Apartments
 
Lynwood, WA
     
155
   
50%
 
JV
Sep-21
 
$
53,000
(2)
 
$
342
   
$
1,628
 
 
 
Q3 2021
     
155
       
 
     
 
$
53,000
   
$
342
         
                                                 
   
2021 Total
     
300
       
 
     
 
$
84,750
   
$
388
         
                                                 
                                                 
Dispositions                 Essex           Total                  
            Apartment     Ownership          
Sales
     
Price per
         
Property Name
  Location       Homes     Percentage   Entity
Date
    Price      
Apartment Home
         
                                                 
Hidden Valley
 
Simi Valley, CA
      324     100%   EPLP
Feb-21
  $
105,000
    $ 324          
Park 20
 
San Mateo, CA
      197     100%   EPLP
Feb-21
   
113,000
      574          
Axis 2300
 
Irvine, CA
      115     100%   EPLP
Feb-21
   
57,500
      500          
   
Q1 2021
      636               $
275,500
    $ 433          
                             
 
                 
Devonshire Apartments
 
Hemet, CA
      276     100%   EPLP
Aug-21
  $
54,500
    $ 197          
   
Q3 2021
      276               $
54,500
    $ 197          
                                                 
   
2021 Total
      912               $
330,000
    $ 362          
 
(1)
In June 2021, the Company purchased its joint venture partner’s 50.0% membership interest in the BEX III, LLC co-investment that owned The Village at Toluca Lake based on a property valuation of $63.5 million. In conjunction with the acquisition, $29.5 million of mortgage debt that encumbered the property was paid off.
(2)
Represents the contact price for the entire property, not the Company’s share.

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

S-15

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

Delinquencies, Operating Statistics, and Same-Property Revenue Growth with Concessions on a GAAP basis
(Dollars in millions, except in footnotes and per share amounts)

Delinquencies for Third Quarter 2021
 
Same-Property
   
Non-Same
Property and
Co-investments
   
Total
Operating
Communities
   
Commercial
   
Total
 
Operating apartment community units
   
47,090
     
11,935
     
59,025
     
N/A
     
N/A
 
 
                                       
Cash delinquencies as % of scheduled rent
   
1.4
%
   
1.9
%
   
1.4
%
   
N/A
     
N/A
 
Reported delinquencies as % of scheduled rent (1)
   
1.5
%
   
2.1
%
   
1.6
%
   
N/A
     
N/A
 
Reported delinquencies in 3Q 2021 (2) (3)
 
$
(5.1
)
 
$
(1.1
)
 
$
(6.2
)
 
$
0.3
   
$
(5.9
)
Reported delinquencies in 3Q 2020 (2)
 
$
(6.7
)
 
$
(1.1
)
 
$
(7.8
)
 
$
(2.5
)
 
$
(10.3
)
 
                                       
Impact to 3Q 2021 Core FFO per share
 
$
0.02
   
$
-
   
$
0.02
   
$
0.04
   
$
0.07
 
Impact to Core FFO per share growth
   
0.8
%
   
0.0
%
   
0.8
%
   
1.3
%
   
2.1
%
 
                                       
Total cumulative cash delinquencies (4)
 
$
(51.7
)
 
$
(8.6
)
 
$
(60.3
)
   
N/A
     
N/A
 
Net accounts receivable balance
 
$
5.3
   
$
0.8
   
$
6.1
     
N/A
     
N/A
 

(1)
Represents total residential portfolio delinquencies as a percentage of scheduled rent reflected in the financial statements for the three months ended September 30, 2021.
(2)
Co-investment delinquencies reported at the Company’s pro rata share.
(3)
Commercial delinquencies in 3Q 2021 includes a reduction of the straight-line rent reserve of $0.2 million and includes co-investment amounts at the Company’s pro rata share.
(4)
Represents cash delinquencies from the period of April 1, 2020 to September 30, 2021. This includes $6.1 million of the net accounts receivable balance.



Operating Statistics
   
     
Same-Property Revenue Growth with Concessions on a GAAP basis
             

 
Preliminary Estimate
October 2021
     
 
                       
Same-Property Portfolio (47,090 units)
   
3Q 2021
 
 
 
3Q 2021
   
3Q 2020
   
YTD 2021
   
YTD 2020
 
Cash delinquencies as % of scheduled rent
  1.0%    
1.4%
 
Reported rental revenue (cash basis concessions)
 
$
325.2
   
$
316.6
   
$
957.9
   
$
986.9
 







Straight-line rent impact to rental revenue
   
(3.1
)
   
13.2
     
(8.8
)
   
16.0
 
   
 
       
GAAP rental revenue
 
$
322.1
   
$
329.8
   
$
949.1
   
$
1,002.9
 
New lease rates (1)
  18.2%    
17.1%
 
 
                               
Renewal rates (2)
  9.7%    
8.0%
 
% change - reported rental revenue
   
2.7
%
           
-2.9
%
       
Blended rates
  13.5%    
12.6%
 
% change - GAAP rental revenue
   
-2.3
%
           
-5.4
%
       
   
 
       
 
                               
Financial occupancy
  96.1%    
96.4%
 
 
                               

(1)
Represents % change on a net-effective basis, including the impact of leasing incentives.
(2)
Represents % change in similar term lease tradeouts, including the impact of leasing incentives.

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

S-16

 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional informationS-17  E S S E X P R O P E R T Y T R U S T, I N C                                    Preliminary 2022 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions                                                                     Preliminary Forecast Summary:               Forecast Assumptions:                  2022 GDP Growth = +3.7%             Hybrid return-to-office momentum accelerates during 1Q22               2022 U.S. job growth = +2.9%; Dec-22 unemployment rate = 3.9%             Successful vaccines prevent COVID-related shutdowns in 2022               2022 Multifamily supply in ESS markets remains below 1% growth              Inflation rates remain above the trend level of the past three decades                                                                                                  Residential Supply (1)                Job Forecast (2)       Rent Forecast (3)  Market     New MF Supply  New SF Supply  Total Supply  MF Supply as % of MF Stock  % of Total Supply to Total Stock        Est. New Jobs  % Growth     Economic Rent Growth                                         Los Angeles     9,450  6,700  16,150  0.6%  0.5%        200,000  4.6%     8.2%  Orange     3,250  3,900  7,150  0.8%  0.6%        49,000  3.0%     6.9%  San Diego     4,350  3,350  7,700  1.0%  0.6%        54,000  3.7%    5.8%  Ventura     400  300  700  0.6%  0.2%        7,000  2.3%     4.7%  So. Cal.     17,450  14,250  31,700  0.7%  0.5%        310,000  4.0%     7.1%                                         San Francisco     3,300  450  3,750  0.9%  0.5%        69,000  6.3%     10.0%  Oakland     3,900  3,700  7,600  1.1%  0.7%        44,000  3.9%    7.5%  San Jose     4,400  2,400  6,800  1.7%  1.0%        44,000  3.9%     8.9%  No. Cal.     11,600  6,550  18,150  1.2%  0.7%        157,000  4.7%     8.7%                                         Seattle     7,900  6,300  14,200  1.6%  1.1%        63,000  3.6%     7.2%                                         Total/Weighted Avg. (4)     36,950  27,100  64,050  0.9%  0.6%        530,000  4.1%     7.7%                                    All data are based on Essex Property Trust, Inc. forecasts.                                                                         (1) Residential Supply: Total supply includes the Company’s estimate of multifamily deliveries of properties with 50+ units and excludes student, senior and 100% affordable housing communities. Single-family estimates are based on trailing single-family permits. Multifamily estimates incorporate a methodological assumption (“delay-adjusted supply”) to reflect the anticipated impact of continued construction delays in Essex markets, given on-going construction labor constraints and supply-chain delays.                                                                 (2) Job Forecast: Refers to the difference between total non-farm industry employment (not seasonally adjusted) projected 4Q22 over 4Q21, expressed as total new jobs and growth rates.                                                                (3) Rent Forecast: The estimated rent growth represents the forecasted change in effective market rents for full year 2022 vs 2021 (T4Q year-over-year average), and excludes submarkets not targeted by Essex.                                                                (4) Weighted Average: Rent growth rates are weighted by scheduled rent in the Company’s Portfolio.                            

 

 E S S E X P R O P E R T Y T R U S T, I N C                              Big Tech’s Long-Term Commitment in Essex Markets                                                               ●   The largest technology companies have continued to expand their long-term footprint in Essex markets, leasing an additional 6 million square feet and investing $1.6 billion in office space throughout the pandemic(1)                              ●   The largest technology companies continued investing in our markets throughout the pandemic, supporting our expectation for a hybrid work environment for many jobs that are conducive to remote work                                                                                                                        HQ Status      Reopening Details                        Soft Open      Plans “return to office-centric baseline” with “most back in the office by early fall”                        Soft Open      Soft HQ reopening on March 29th, with full re-opening targeted for Labor Day                        April      Soft Bay Area and Seattle re-openings in April; full U.S. return targeted for September 2021                        September      Office-centric opening expected by Labor Day                        Early May      Phased re-openings in SF, Palo Alto, Irvine in May, increasing gradually from 20% to 75%                        Early May      Rolling re-opening starting in May; WFH option until offices can reach 50% capacity                        Soft Open      March 29th soft opening of new Mission Bay (SF) HQ office                                                    Source: CoStar, LA Times, SF Business Journal(1) Reflects investments and leases transacted during the period of Mar 2020 - Oct 2021(2) Key Investments represent the aggregate dollar amount invested over the trailing 36-month period in acquisitions (at contract price), developments (at total development cost), and major redevelopments (at redevelopment cost). Key Leases represent the aggregated square footage leased within Essex markets over the trailing 36-month period              .                Big Tech Aggregate Expansion in Essex Markets(2)(Trailing 36-month)  See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional informationS-17.1  The city of San Jose approves Google’s planned 80-acre development in DT San Jose for a new campus consisting of 7.3M SF of office space. Construction is scheduled to commence early ‘22  In 2021, Apple unveiled plans for major Culver City office expansion totaling 550k SF as part of plan to add 3,000 employees by 2026  In 2021, YouTube receives approval from the City of San Bruno for 2.5M SF expansion of headquarters 
 

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

Reconciliations of Non-GAAP Financial Measures and Other Terms

Adjusted EBITDAre Reconciliation

The National Association of Real Estate Investment Trusts (“NAREIT”) defines earnings before interest, taxes, depreciation and amortization for real estate (“EBITDAre”) (September 2017 White Paper) as net income (computed in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”)) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated operating properties, impairment write-downs of depreciated operating properties, impairment write-downs of investments in unconsolidated entities caused by a decrease in value of depreciated operating properties within the joint venture and adjustments to reflect the Company’s share of EBITDAre of investments in unconsolidated entities.

The Company believes that EBITDAre is useful to investors, creditors and rating agencies as a supplemental measure of the Company’s ability to incur and service debt because it is a recognized measure of performance by the real estate industry, and by excluding gains or losses related to sales or impairment of depreciated operating properties, EBITDAre can help compare the Company’s credit strength between periods or as compared to different companies.

Adjusted EBITDAre represents EBITDAre further adjusted for non-comparable items and is a component of the credit ratio, “Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized,” presented on page S-6, in the section titled “Selected Credit Ratios,” and it is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges.

Adjusted EBITDAre is an important metric in evaluating the credit strength of the Company and its ability to service its debt obligations.  The Company believes that Adjusted EBITDAre is useful to investors, creditors and rating agencies because it allows investors to compare the Company’s credit strength to prior reporting periods and to other 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 credit quality.

EBITDAre and Adjusted EBITDAre are not recognized measurements under U.S. GAAP. Because not all companies use identical calculations, the Company’s presentation of EBITDAre and Adjusted EBITDAre may not be comparable to similarly titled measures of other companies.

The reconciliations of Net Income available to common stockholders to EBITDAre and Adjusted EBITDAre are presented in the table below (Dollars in thousands):

   
Three Months Ended
September 30,
2021
 
Net income available to common stockholders
 
$
118,390
 
Adjustments:
       
Net income attributable to noncontrolling interest
   
6,612
 
Interest expense, net (1)
   
47,359
 
Depreciation and amortization
   
130,564
 
Gain on sale of real estate and land
   
(42,897
)
Co-investment EBITDAre adjustments
   
21,230
 
EBITDAre
   
281,258
 
 
       
Unrealized gains on marketable securities
   
(7,091
)
Provision for credit losses
   
(3
)
Equity income from non-core co-investment
   
(10,868
)
Deferred tax expense on unrealized gain on unconsolidated co-investment
   
3,041
 
General and administrative and other, net
   
252
 
Insurance reimbursements and legal settlements, net
   
(4
)
Expensed acquisition and investment related costs
   
108
 
Loss on early retirement of debt from unconsolidated co-investment
   
15
 
Adjusted EBITDAre
 
$
266,708
 
 
(1)
Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges.

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

S-18.1

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

Reconciliations of Non-GAAP Financial Measures and Other Terms

Encumbered

Encumbered means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other encumbrance of any kind.

Funds From Operations (“FFO”) and Core FFO

FFO, as defined by 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. 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 reconciliations of diluted FFO and Core FFO are detailed on page S-3 in the section titled “Consolidated Funds From Operations”.

Interest Expense, Net

Interest expense, net is presented on page S-1 in the section titled “Consolidated Operating Results”. Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges and is presented in the table below (Dollars in thousands):

   
Three Months Ended
September 30,
2021
   
Nine Months Ended
September 30,
2021
 
Interest expense
 
$
50,019
   
$
152,639
 
Adjustments:
               
Total return swap income
   
(2,660
)
   
(8,137
)
Interest expense, net
 
$
47,359
   
$
144,502
 

Immediately Available Liquidity
The Company’s immediately available liquidity as of October 22, 2021, consisted of the following (Dollars in millions):
 
   
October 22, 2021
 
Unsecured credit facility - committed
 
$
1,235
 
Balance outstanding
   
165
 
Undrawn portion of line of credit
 
$
1,070
 
Cash, cash equivalents & marketable securities
   
190
 
Total liquidity
 
$
1,260
 

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

S-18.2

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

Reconciliations of Non-GAAP Financial Measures and Other Terms

Net Indebtedness Divided by Adjusted EBITDAre

This credit ratio is presented on page S-6 in the section titled “Selected Credit Ratios.” This credit ratio is calculated by dividing net indebtedness by Adjusted EBITDAre, as annualized based on the most recent quarter, and adjusted for estimated net operating income from properties acquired or disposed of during the quarter. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other companies. Net indebtedness is total debt, net less unamortized premiums, discounts, debt issuance costs, unrestricted cash and cash equivalents, and marketable securities. The reconciliation of Adjusted EBITDAre is set forth in “Adjusted EBITDAre Reconciliation” on page S-18.1 The calculation of this credit ratio and a reconciliation of net indebtedness to total debt at pro rata share for co-investments, net is presented in the table below (Dollars in thousands):

Total consolidated debt, net
 
$
6,088,300
 
Total debt from co-investments at pro rata share
   
1,043,899
 
Adjustments:
       
Consolidated unamortized premiums, discounts, and debt issuance costs
   
43,180
 
Pro rata co-investments unamortized premiums, discounts, and debt issuance costs
   
5,430
 
Consolidated cash and cash equivalents-unrestricted
   
(49,910
)
Pro rata co-investment cash and cash equivalents-unrestricted
   
(30,730
)
Marketable securities
   
(225,302
)
Net Indebtedness
 
$
6,874,867
 
         
Adjusted EBITDAre, annualized (1)
 
$
1,066,832
 
Other EBITDAre normalization adjustments, net, annualized (2)
   
5,673
 
Adjusted EBITDAre, normalized and annualized
 
$
1,072,505
 
         
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized
   
6.4
 
 
(1)
Based on the amount for the most recent quarter, multiplied by four.
(2)
Adjustments made for properties in lease-up, acquired, or disposed during the most recent quarter and other partial quarter activity, multiplied by four.

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 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 revenues 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,
2021
   
Three Months Ended
September 30,
2020
   
Nine Months Ended
September 30,
2021
   
Nine Months Ended
September 30,
2020
 
Earnings from operations
 
$
137,971
   
$
128,937
   
$
428,733
   
$
379,510
 
Adjustments:
                               
Corporate-level property management expenses
   
9,068
     
8,619
     
27,120
     
26,024
 
Depreciation and amortization
   
130,564
     
130,202
     
387,887
     
395,370
 
Management and other fees from affiliates
   
(2,237
)
   
(2,347
)
   
(6,707
)
   
(7,312
)
General and administrative
   
12,712
     
13,310
     
34,746
     
42,244
 
Expensed acquisition and investment related costs
   
108
     
2
     
164
     
104
 
Gain on sale of real estate and land
   
(42,897
)
   
(22,654
)
   
(142,993
)
   
(39,251
)
NOI
   
245,289
     
256,069
     
728,950
     
796,689
 
Less: Non-same property NOI
   
(22,807
)
   
(38,308
)
   
(67,844
)
   
(99,957
)
Same-Property NOI
 
$
222,482
   
$
217,761
   
$
661,106
   
$
696,732
 

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

S-18.3

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

Reconciliations of Non-GAAP Financial Measures and Other Terms

Public Bond Covenants

Public Bond Covenants refer to certain covenants set forth in instruments governing the Company’s unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict the Company’s ability to expand or fully pursue its business strategies. The Company’s ability to comply with these covenants may be affected by changes in the Company’s operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting it. The breach of any of these covenants could result in a default under the Company’s indebtedness, which could cause those and other obligations to become due and payable. If any of the Company’s indebtedness is accelerated, the Company may not be able to repay it. For risks related to failure to comply with these covenants, see “Item 1A: Risk Factors - Risks Related to Our Indebtedness and Financings” in the Company’s annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission (“SEC”).

The ratios set forth on page S-6 in the section titled “Public Bond Covenants” are provided only to show the Company’s compliance with certain specified covenants that are contained in indentures related to the Company’s issuance of Senior Notes, which indentures are filed by the Company with the SEC. See, for example, the Indenture dated March 1, 2021, filed by the Company as Exhibit 4.1 to the Company’s Form 8-K, filed on March 1, 2021. These ratios should not be used for any other purpose, including without limitation to evaluate the Company’s financial condition or results of operations, nor do they indicate the Company’s covenant compliance as of any other date or for any other period. The capitalized terms in the disclosure are defined in the indentures filed by the Company with the SEC and may differ materially from similar terms used by other companies that present information about their covenant compliance.

Secured Debt

Secured Debt means debt of the Company or any of its subsidiaries which is secured by an encumbrance on any property or assets of the Company or any of its subsidiaries. The Company’s total amount of Secured Debt is set forth on page S-5.

Unencumbered NOI to Adjusted Total NOI

This ratio is presented on page S-6 in the section titled “Selected Credit Ratios”. Unencumbered NOI means the sum of NOI for those real estate assets which are not subject to an encumbrance securing debt. The ratio of Unencumbered NOI to Adjusted Total NOI for the three months ended September 30, 2021, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months ended September 30, 2021 and as further adjusted for pro forma NOI for properties acquired or sold during the recent quarter, by Adjusted Total NOI as annualized. The calculation and reconciliation of NOI is set forth in “Net Operating Income (“NOI”) and Same-Property NOI Reconciliations” above. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company’s ability to service debt obligations to that of other companies. The calculation of this ratio is presented in the table below (Dollars in thousands):

   
Annualized
Q3’21 (1)
 
NOI
 
$
981,156
 
Adjustments:
       
NOI from real estate assets sold or held for sale
   
(1,779
)
Other, net (2)
   
11,026
 
Adjusted Total NOI
   
990,403
 
Less: Encumbered NOI
   
(55,936
)
Unencumbered NOI
 
$
934,467
 
         
Encumbered NOI
 
$
55,936
 
Unencumbered NOI
   
934,467
 
Adjusted Total NOI
 
$
990,403
 
         
Unencumbered NOI to Adjusted Total NOI
   
94
%

(1)
This table is based on the amounts for the most recent quarter, multiplied by four.
(2)
Includes intercompany eliminations pertaining to self-insurance and other expenses.

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


S-18.4