EX-99.1 2 s002373x1_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1
 

 
Essex Announces Second Quarter 2018 Results

San Mateo, California—August 1, 2018—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its second quarter 2018 earnings results and related business activities.

Net Income and Funds from Operations (“FFO”) per diluted share for the quarter ended June 30, 2018 are detailed below. Core FFO excludes acquisition and investment related costs and certain non-routine items.

 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
 
%
%
 
2018
2017
Change
2018
2017
Change
Per Diluted Share
           
  Net Income
$1.52
$1.08
40.7%
$2.90
$3.80
-23.7%
  Total FFO
$3.17
$2.97
6.7%
$6.52
$5.93
9.9%
  Core FFO
$3.14
$2.97
5.7%
$6.23
$5.91
5.4%
             

Second Quarter 2018 Highlights:
·
Reported Net Income per diluted share for the second quarter of 2018 of $1.52, compared to $1.08 in the second quarter of 2017, primarily due to gains realized on a property sale in the second quarter of 2018.

·
Grew Core FFO per diluted share by 5.7% compared to the second quarter of 2017, exceeding the high-end of the guidance range.

·
Achieved same-property gross revenue and net operating income (“NOI”) growth of 2.8% and 3.0%, respectively, compared to the second quarter of 2017.

·
Realized a sequential quarterly increase in same-property revenue growth of 0.4%.

·
Raised the midpoint of guidance for same-property revenue and NOI growth for the full-year by 15 bps each to 2.8% and 2.9%, respectively.

·
Revised full-year Net Income per diluted share guidance range to $5.15 to $5.31. Provided Net Income guidance range for the third quarter of $1.09 to $1.18 per diluted share.

·
Revised full-year Total FFO per diluted share guidance range to $12.72 to $12.88, raising the midpoint by $0.09 per share. Provided Total FFO guidance range for the third quarter of $3.06 to $3.15 per diluted share.

·
Increased full-year Core FFO per diluted share guidance by $0.07 per share at the midpoint to a range of $12.44 to $12.62. Provided Core FFO guidance range for the third quarter of $3.07 to $3.17 per diluted share.
 
 
1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com

“We are pleased to report another great quarter, with results exceeding expectations across our West Coast footprint.  Improving economic conditions continued to drive housing demand throughout the 2018 prime leasing season, driven by job growth and personal income growth that were well ahead of national averages. Based on the strength of our second quarter results, we are increasing our 2018 guidance with respect to same-property revenue, NOI and Core FFO growth,” commented Michael Schall, President and CEO of the Company.


 Same-Property Operations

Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in same-property gross revenues for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017, and the sequential percentage change for the quarter ended June 30, 2018 versus the quarter ended March 31, 2018, by submarket for the Company:

 
Q2 2018 vs. Q2 2017
Q2 2018 vs. Q1 2018
% of Total
 
Gross Revenues
Gross Revenues
Q2 2018 Revenues
Southern California
 
   Los Angeles County
3.2%
0.6%
20.4%
   Orange County
2.3%
-0.1%
11.2%
   San Diego County
4.1%
0.9%
8.8%
   Ventura County
5.3%
0.6%
4.5%
   Other Southern California
0.8%
-0.9%
0.5%
       Total Southern California
3.3%
0.5%
45.4%
Northern California
 
   Santa Clara County
1.8%
0.7%
15.6%
   Alameda County
2.7%
0.2%
7.1%
   San Mateo County
2.4%
0.6%
5.1%
   Contra Costa County
1.7%
-0.3%
5.0%
   San Francisco
0.9%
-0.1%
3.3%
   Other Northern California
3.2%
-2.0%
0.2%
       Total Northern California
2.0%
0.4%
36.3%
Seattle Metro
3.0%
0.1%
18.3%
Same-Property Portfolio
2.8%
0.4%
100.0%
       

 
Year-Over-Year Growth
 
Year-Over-Year Growth
 
Q2 2018 compared to Q2 2017
 
YTD 2018 compared to YTD 2017
 
Gross
Revenues
Operating
Expenses
NOI
 
Gross
Revenues
Operating
Expenses
NOI
Southern California
3.3%
0.2%
4.6%
 
3.3%
2.0%
3.9%
Northern California
2.0%
3.3%
1.5%
 
2.3%
1.2%
2.7%
Seattle Metro
3.0%
4.6%
2.3%
 
3.7%
5.1%
3.2%
Same-Property Portfolio
2.8%
2.1%
3.0%
 
3.0%
2.3%
3.3%
               
 
- 2 -

 
Sequential Growth
 
 
Q2 2018 compared to Q1 2018
 
 
Gross
Revenues
Operating
Expenses
NOI
 
Southern California
0.5%
-2.6%
1.7%
 
Northern California
0.4%
-2.8%
1.5%
 
Seattle Metro
0.1%
9.6%
-3.6%
 
Same-Property Portfolio
0.4%
-0.4%
0.6%
 
 
Financial Occupancies
 
 
Quarter Ended
 
 
6/30/2018
3/31/2018
6/30/2017
 
Southern California
96.8%
96.9%
96.2%
 
Northern California
96.7%
97.4%
96.7%
 
Seattle Metro
96.3%
96.9%
96.2%
 
Same-Property Portfolio
96.7%
97.1%
96.4%
 
 
 
Dispositions

In June 2018, the Company sold Domain for a total contract price of $132.0 million. The community, which is located in San Diego, CA, contains 379 apartment homes. Total gain on the sale was $22.2 million, which has been excluded from the calculation of FFO.

 
Other Investments

In May 2018, the Company originated a $26.5 million preferred equity investment in a multifamily community located in Ventura, CA. As of June 30, 2018, the Company had funded $20.4 million. The total investment has an initial preferred return of 10.25% and matures in 2023.

In June 2018, the Company received cash of $26.5 million from the redemption of a preferred equity investment related to one property in Seattle, WA. The Company recorded $1.6 million of income from prepayment penalties as a result of the early redemption, which has been excluded from Core FFO.
 
Development Activity

Station Park Green – Phase I reached stabilized operations in June 2018. The community is located in San Mateo, CA and comprises 121 apartment homes. As of July 30, 2018, Station Park Green – Phase I was 99.2% leased.

 
Liquidity and Balance Sheet

Common Stock

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

- 3 -

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

Balance Sheet

In June 2018, Fitch Ratings affirmed the Company’s senior unsecured debt at BBB+ and revised the rating outlook from stable to positive.

As of July 30, 2018, the Company had $1.2 billion in undrawn capacity on its unsecured credit facilities.

Guidance

For the second quarter of 2018, the Company exceeded the midpoint of the guidance range provided in its first quarter 2018 earnings release for Core FFO by $0.09 per share. However, $0.03 per share of the favorable variance relates to timing differences on same-property operating expenses, which are now expected to occur in the second half of the year.


The following table provides a reconciliation of second quarter 2018 Core FFO per share to the midpoint of the guidance provided in the first quarter 2018 earnings release, which was dated May 2, 2018.


   
Per Diluted Share
 
Projected midpoint of Core FFO per share for Q2 2018
 
$
3.05
 
    NOI from consolidated communities
   
0.07
 
    FFO from Co-Investments
   
0.01
 
    Interest expense and other
   
0.01
 
Core FFO per share for Q2 2018 reported
 
$
3.14
 


The following table provides key changes to the 2018 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth. For additional details regarding the Company’s 2018 assumptions, please see page S-14 of the accompanying supplemental financial information. For the third quarter of 2018, the Company has established a range for Core FFO per diluted share of $3.07 to $3.17.


2018 Full-Year Guidance
   
Previous
Range
   
Previous Midpoint
   
Revised
Range
   
Revised Midpoint
 
Per Diluted Share
                       
  Net Income
 
$
4.66 - $5.00
   
$
4.83
   
$
5.15 - $5.31
   
$
5.23
 
  Total FFO
 
$
12.54 - $12.88
   
$
12.71
   
$
12.72 - $12.88
   
$
12.80
 
  Core FFO
 
$
12.28 - $12.64
   
$
12.46
   
$
12.44 - $12.62
   
$
12.53
 
Same-Property Growth
                               
  Gross Revenues
 
2.3% to 3.0%
     
2.7
%
 
2.6% to 3.0%
     
2.8
%
  Operating Expenses
 
2.1% to 3.1%
     
2.6
%
 
2.4% to 2.8%
     
2.6
%
  NOI
 
2.0% to 3.4%
     
2.7
%
 
2.5% to 3.2%
     
2.9
%
                                 
 
- 4 -

Conference Call with Management
The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, August 2, 2018 at 9 a.m. PT (12 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the live call will be available online for 30 days and digitally for seven days. To access the replay online, go to www.essex.com and select the second quarter 2018 earnings link. To access the replay digitally, dial (844) 512-2921 using the replay pin number 13681122. If you are unable to access the information via the Company’s website, please contact the Investor Relations Department at investors@essex.com or by calling (650) 655-7800.


Corporate Profile

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. The Company currently has ownership interests in 247 apartment communities comprising approximately 60,000 apartment homes, excluding six properties in various stages of active development, one commercial building, preferred equity co-investments, and loan investments. Additional information about 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 (“SEC”) electronically on Form 8-K and can be accessed from the Company’s website at www.essex.com. If you are unable to obtain the information via the Internet, please contact the Investor Relations Department at (650) 655-7800.


FFO Reconciliation

FFO, as defined by NAREIT, is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes merger, integration and acquisition costs and items that are not routine or not related to the Company’s core business activities, which is referred to as “Core FFO”, to be useful financial performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and the ability to pay dividends.

FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as an alternative to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to 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.
 
- 5 -

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

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
Funds from Operations attributable to common stockholders and unitholders
 
2018
   
2017
   
2018
   
2017
 
Net income available to common stockholders
 
$
100,440
   
$
70,759
   
$
191,358
   
$
249,723
 
Adjustments:
                               
Depreciation and amortization
   
119,330
     
117,939
     
238,435
     
233,442
 
Gains not included in FFO
   
(22,244
)
   
(2,159
)
   
(22,244
)
   
(114,815
)
Depreciation and amortization add back from unconsolidated co-investments
   
15,720
     
13,627
     
31,579
     
26,481
 
Noncontrolling interest related to Operating Partnership units
   
3,460
     
2,422
     
6,592
     
8,568
 
Depreciation attributable to third party ownership and other
   
(233
)
   
(26
)
   
(465
)
   
(51
)
                                 
Funds from Operations attributable to common stockholders and unitholders
 
$
216,473
   
$
202,562
   
$
445,255
   
$
403,348
 
FFO per share – diluted
 
$
3.17
   
$
2.97
   
$
6.52
   
$
5.93
 
Expensed acquisition and investment related costs
 
$
68
   
$
274
   
$
125
   
$
830
 
Loss (gain) on sale of marketable securities
   
131
     
(13
)
   
(549
)
   
(1,618
)
Unrealized (gains) losses on marketable securities
   
(122
)
   
-
     
754
     
-
 
Interest rate hedge ineffectiveness (1)
   
40
     
(14
)
   
96
     
(20
)
Co-investment promote income
   
-
     
-
     
(20,541
)
   
-
 
Income from early redemption of preferred equity investments
   
(1,578
)
   
(248
)
   
(1,602
)
   
(248
)
Insurance reimbursements, legal settlements, and other, net
   
(450
)
   
-
     
1,983
     
(25
)
Core Funds from Operations attributable to common stockholders and unitholders
 
$
214,562
   
$
202,561
   
$
425,521
   
$
402,267
 
Core FFO per share – diluted
 
$
3.14
   
$
2.97
   
$
6.23
   
$
5.91
 
Weighted average number of shares outstanding diluted (2)
   
68,331,709
     
68,145,911
     
68,324,230
     
68,058,495
 

(1)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch is recorded as noncash interest rate hedge ineffectiveness through interest expense.
(2)
Assumes conversion of all outstanding limited partnership units in Essex Portfolio, L.P. (the “Operating Partnership”) into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

- 6 -


NOI and Same-Property NOI Reconciliations

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

   
Three Months Ended
June 30,
 
Six Months Ended
June 30,
   
2018
 
2017
 
2018
 
2017
Earnings from operations
$
116,272
$
112,247
$
226,819
$
221,478
Adjustments:
               
     Corporate-level property management
     expenses
 
7,782
 
7,522
 
15,552
 
15,031
     Depreciation and amortization
 
119,330
 
117,939
 
238,435
 
233,442
     Management and other fees from
     affiliates
 
(2,197)
 
(2,296)
 
(4,505)
 
(4,532)
     General and administrative
 
11,125
 
10,337
 
25,938
 
20,938
     Expensed acquisition and investment related costs
 
68
 
274
 
125
 
830
        NOI
 
252,380
 
246,023
 
502,364
 
487,187
     Less: Non-same property NOI
 
(19,616)
 
(20,082)
 
(38,337)
 
(38,059)
Same-Property NOI
$
232,764
$
225,941
$
464,027
$
449,128


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

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

- 7 -

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


Definitions and Reconciliations

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


Contact Information
Barb Pak
Group Vice President of Finance & Investor Relations
(650) 655-7800
bpak@essex.com
 
- 8 -

Q2 2018 Supplemental
Table of Contents
 
 
Page(s)
Consolidated Operating Results
S-1 – S-2
Consolidated Funds From Operations
S-3
Consolidated Balance Sheets
S-4
Debt Summary – June 30, 2018
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – June 30, 2018
S-6
Portfolio Summary by County – June 30, 2018
S-7
Operating Income by Quarter – June 30, 2018
S-8
Same-Property Revenue Results by County – Quarters ended June 30, 2018 and 2017, and March 31, 2018
S-9
Same-Property Revenue Results by County – Six months ended June 30, 2018 and 2017
S-9.1
Same-Property Operating Expenses – Quarter and Year to Date as of June 30, 2018 and 2017
S-10
Development Pipeline – June 30, 2018
S-11
Redevelopment Pipeline – June 30, 2018
S-12
Capital Expenditures – June 30, 2018
S-12.1
Co-investments and Preferred Equity Investments – June 30, 2018
S-13
Assumptions for 2018 FFO Guidance Range
S-14
Reconciliation of Projected EPS, FFO and Core FFO per diluted share
S-14.1
Summary of Apartment Community Acquisitions and Dispositions Activity
S-15
2018 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
The Rising Premium to Own vs. Rent in Essex Markets
 S-16.1
Reconciliations of Non-GAAP Financial Measures and Other Terms
S-17.1 – S-17.4
 
 

E S S E X  P R O P E R T Y  T R U S T, I N C. 
                           
Consolidated Operating Results
Three Months Ended
 
Six Months Ended
(Dollars in thousands, except share and per share amounts)
June 30,
 
June 30,
     
2018
 
2017
 
2018
 
2017
                           
Revenues:
                     
 
Rental and other property
$
          346,526
 
$
                    336,766
 
$
           691,473
 
$
                    669,934
 
Management and other fees from affiliates
 
               2,197
   
                          2,296
   
               4,505
   
                          4,532
       
          348,723
   
                    339,062
   
          695,978
   
                    674,466
                           
Expenses:
                       
 
Property operating
 
             94,146
   
                       90,743
   
           189,109
   
                     182,747
 
Corporate-level property management expenses
 
               7,782
   
                          7,522
   
             15,552
   
                         15,031
 
Depreciation and amortization
 
           119,330
   
                      117,939
   
          238,435
   
                    233,442
 
General and administrative
 
              11,125
   
                        10,337
   
            25,938
   
                       20,938
 
Expensed acquisition and investment related costs
 
                     68
   
                              274
   
                   125
   
                              830
       
           232,451
   
                     226,815
   
           469,159
   
                    452,988
Earnings from operations
 
           116,272
   
                      112,247
   
           226,819
   
                     221,478
                           
Interest expense, net (1)
 
           (54,050)
   
                      (54,281)
   
          (106,641)
   
                   (106,280)
Interest and other income
 
               6,895
   
                          5,362
   
             12,804
   
                         12,126
Equity income from co-investments
 
             15,049
   
                        10,308
   
            47,823
   
                        21,207
Gain on sale of real estate and land
 
            22,244
   
                                     -
   
            22,244
   
                        26,174
Gain on remeasurement of co-investment
 
                       -
   
                           2,159
   
                       -
   
                        88,641
 
Net income
 
           106,410
   
                       75,795
   
          203,049
   
                    263,346
Net income attributable to noncontrolling interest
 
             (5,970)
   
                        (5,036)
   
             (11,691)
   
                      (13,623)
 
Net income available to common stockholders
$
           100,440
 
$
                       70,759
 
$
           191,358
 
$
                    249,723
                           
Net income per share - basic
$
1.52
 
$
1.08
 
$
2.90
 
$
3.80
                           
Shares used in income per share - basic
 
66,047,751
   
65,729,074
   
66,045,897
   
65,639,775
                           
Net income per share - diluted
$
1.52
 
$
1.08
 
$
2.90
 
$
3.80
                           
Shares used in income per share - diluted
 
66,096,349
   
65,819,694
   
66,088,803
   
65,942,018
 
(1)
Refer to page S-17.2, the section titled "Interest Expense, Net" for additional information.
 
 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-1

E S S E X  P R O P E R T Y  T R U S T, I N C.   
                           
Consolidated Operating Results
Three Months Ended
 
Six Months Ended
Selected Line Item Detail
June 30,
 
June 30,
(Dollars in thousands)
2018
 
2017
 
2018
 
2017
                           
Rental and other property
                     
 
Rental
 
$
         323,020
 
$
         314,546
 
$
         644,681
 
$
         624,668
 
Other property
 
           23,506
   
           22,220
   
           46,792
   
           45,266
   
Rental and other property
$
         346,526
 
$
         336,766
 
$
         691,473
 
$
         669,934
                           
Property operating expenses
                     
 
Real estate taxes
$
           35,990
 
$
           34,884
 
$
           73,703
 
$
           70,752
 
Administrative
 
           21,010
   
           20,428
   
           41,711
   
           40,688
 
Maintenance and repairs
 
           19,986
   
           18,865
   
           39,610
   
           38,086
 
Utilities
   
           17,160
   
           16,566
   
           34,085
   
           33,221
   
Property operating expenses
$
           94,146
 
$
           90,743
 
$
         189,109
 
$
         182,747
                           
Interest and other income
                     
 
Marketable securities and other interest income
$
            6,201
 
$
            5,044
 
$
           12,052
 
$
            9,924
 
(Loss) gain on sale of marketable securities
 
              (131)
   
                 13
   
               549
   
            1,618
 
Unrealized gains (losses) on marketable securities (1)
 
               122
   
                   -
   
              (754)
   
                   -
 
Insurance reimbursements, legal settlements, and other, net
 
               703
   
               305
   
               957
   
               584
   
Interest and other income
$
            6,895
 
$
            5,362
 
$
           12,804
 
$
           12,126
                           
Equity income from co-investments
                     
 
Equity income from co-investments
$
            4,492
 
$
            4,395
 
$
            8,781
 
$
            9,648
 
Income from preferred equity investments
 
            8,979
   
            5,665
   
           16,899
   
           11,311
 
Co-investment promote income
 
                   -
   
                   -
   
           20,541
   
                   -
 
Income from early redemption of preferred equity investments
 
            1,578
   
               248
   
            1,602
   
               248
   
Equity income from co-investments
$
           15,049
 
$
           10,308
 
$
           47,823
 
$
           21,207
                           
Noncontrolling interest
                     
 
Limited partners of Essex Portfolio, L.P.
$
            3,460
 
$
            2,422
 
$
            6,592
 
$
            8,568
 
DownREIT limited partners' distributions
 
            1,590
   
            1,695
   
            3,180
   
            3,245
 
Third-party ownership interest
 
               920
   
               919
   
            1,919
   
            1,810
   
Noncontrolling interest
$
            5,970
 
$
            5,036
 
$
           11,691
 
$
           13,623
 
(1)
The Company adopted ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabiliies", as of January 1, 2018 using the modified-retrospective method. As a result of this adoption, the Company recognizes mark to market adjustments on equity securities through its income statement on a prospective basis. Prior period results have not been adjusted.
 
 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-2

E S S E X  P R O P E R T Y  T R U S T, I N C.         
                                     
Consolidated Funds From Operations (1)
Three Months Ended
       
Six Months Ended
   
(Dollars in thousands, except share and per share amounts and in footnotes)
June 30,
       
June 30,
   
     
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
                                     
Funds from operations attributable to common stockholders and unitholders (FFO)
                               
Net income available to common stockholders
$
             100,440
 
$
                70,759
       
$
          191,358
 
$
           249,723
   
Adjustments:
                               
 
Depreciation and amortization
 
             119,330
   
              117,939
         
          238,435
   
           233,442
   
 
Gains not included in FFO
 
              (22,244)
   
                (2,159)
         
          (22,244)
   
          (114,815)
   
 
Depreciation and amortization add back from unconsolidated co-investments
 
               15,720
   
                13,627
         
           31,579
   
            26,481
   
 
Noncontrolling interest related to Operating Partnership units
 
                 3,460
   
                 2,422
         
             6,592
   
              8,568
   
 
Depreciation attributable to third party ownership and other (2)
 
                   (233)
   
                     (26)
         
               (465)
   
                  (51)
   
   
Funds from operations attributable to common stockholders and unitholders
$
             216,473
 
$
              202,562
       
$
          445,255
 
$
           403,348
   
   
FFO per share-diluted
$
3.17
 
$
2.97
 
6.7%
   
$
6.52
 
$
5.93
 
9.9%
                                     
Components of the change in FFO
                               
Non-core items:
                               
Expensed acquisition and investment related costs
$
                     68
 
$
                    274
       
$
                125
 
$
                 830
   
Loss (gain) on sale of marketable securities
 
                    131
   
                     (13)
         
               (549)
   
             (1,618)
   
Unrealized (gains) losses on marketable securities
 
                   (122)
   
                        -
         
                754
   
                     -
   
Interest rate hedge ineffectiveness (3)
 
                     40
   
                     (14)
         
                  96
   
                  (20)
   
Co-investment promote income
 
                        -
   
                        -
         
          (20,541)
   
                     -
   
Income from early redemption of preferred equity investments
 
                (1,578)
   
                   (248)
         
            (1,602)
   
                (248)
   
Insurance reimbursements, legal settlements, and other, net
 
                   (450)
   
                        -
         
             1,983
   
                  (25)
   
   
Core funds from operations attributable to common stockholders and unitholders
$
             214,562
 
$
              202,561
       
$
          425,521
 
$
           402,267
   
   
Core FFO per share-diluted
$
3.14
 
$
2.97
 
5.7%
   
$
6.23
 
$
5.91
 
5.4%
                                     
Changes in core items:
                               
Same-property NOI
$
                 6,823
             
$
           14,984
         
Non-same property NOI
 
                   (466)
               
                193
         
Management and other fees, net
 
                    (99)
               
                 (27)
         
FFO from co-investments
 
                 5,504
               
             9,819
         
Interest and other income
 
                 1,105
               
             2,076
         
Interest expense
 
                    177
               
               (477)
         
General and administrative
 
                   (788)
               
            (2,567)
         
Corporate-level property management expenses
 
                   (260)
               
               (521)
         
Other items, net
 
                       5
               
               (226)
         
     
$
               12,001
             
$
           23,254
         
                                     
Weighted average number of shares outstanding diluted (4)
 
68,331,709
   
68,145,911
         
68,324,230
   
68,058,495
   
 
(1)
Refer to page S-17.2, the section titled "Funds from Operations ("FFO") for additional information on the Company's definition and use of FFO and Core FFO.
(2)
The Company consolidates certain co-investments. The noncontrolling interest's share of net operating income in these investments for the three and six months ended June 30, 2018 was $1.3 million and $2.5 million, respectively.
(3)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as noncash interest rate hedge ineffectiveness through interest expense. 
(4)
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company's common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
 
 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-3

E S S E X  P R O P E R T Y  T R U S T, I N C.
                 
 
Consolidated Balance Sheets
         
 
(Dollars in thousands)
         
         
June 30, 2018
   
December 31, 2017
                 
 
Real Estate:
         
   
Land and land improvements
$
                 2,710,139
 
$
                    2,719,064
   
Buildings and improvements
 
                10,693,682
   
                  10,639,108
         
                13,403,821
   
                  13,358,172
   
Less:  accumulated depreciation
 
                (2,992,819)
   
                   (2,769,297)
         
                10,411,002
   
                  10,588,875
 
Real estate under development
 
                    343,841
   
                      355,735
 
Co-investments
 
                 1,291,320
   
                    1,155,984
         
                12,046,163
   
                  12,100,594
 
Cash and cash equivalents, including restricted cash
 
                    177,576
   
                        61,126
 
Marketable securities
 
                    207,191
   
                      190,004
 
Notes and other receivables
 
                      68,386
   
                      100,926
 
Prepaid expenses and other assets
 
                      56,338
   
                        43,056
     
Total assets
$
                12,555,654
 
$
                  12,495,706
                 
 
Unsecured debt, net
$
                 3,798,097
 
$
                    3,501,709
 
Mortgage notes payable, net
 
                 1,890,326
   
                    2,008,417
 
Lines of credit
 
                        2,670
   
                      179,000
 
Distributions in excess of investments in co-investments
 
                               -
   
                        36,726
 
Other liabilities
 
                    353,621
   
                      333,823
     
Total liabilities
 
                 6,044,714
   
                    6,059,675
 
Redeemable noncontrolling interest
 
                      36,257
   
                        39,206
 
Equity:
           
   
Common stock
 
                              7
   
                                7
   
Additional paid-in capital
 
                 7,131,809
   
                    7,129,571
   
Distributions in excess of accumulated earnings
 
                   (766,193)
   
                     (833,726)
   
Accumulated other comprehensive loss, net
 
                     (11,438)
   
                       (18,446)
     
Total stockholders' equity
 
                 6,354,185
   
                    6,277,406
   
Noncontrolling interest
 
                    120,498
   
                      119,419
     
Total equity
 
                 6,474,683
   
                    6,396,825
     
Total liabilities and equity
$
                12,555,654
 
$
                  12,495,706
 
 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-4

E S S E X  P R O P E R T Y  T R U S T, I N C.         
                                                   
Debt Summary - June 30, 2018           
(Dollars in thousands, except in footnotes)       
                                                   
                                                   
                       
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
                                             
 
 
             
Weighted Average
                               
       
Balance
Outstanding
Interest
Rate
Maturity
in Years
       
Unsecured
 
Secured
   
Total
  Weighted Average Interest Rate   Percentage of Total Debt
Unsecured Debt, net
                                             
 
Bonds private - fixed rate
 
$
275,000
 
4.5%
 
2.6
   
2018
 
 $
                -
 
 $
        119,779
 
 $
        119,779
 
5.7%
 
2.1%
 
Bonds public - fixed rate
   
3,200,000
 
3.9%
 
8.2
   
2019
   
          75,000
   
        531,843
   
        606,843
 
4.4%
 
10.6%
 
Term loan (1)
   
350,000
 
2.8%
 
3.6
   
2020
   
                -
   
        694,921
   
        694,921
 
5.0%
 
12.2%
 
Unamortized net discounts and debt issuance costs
   
       (26,903)
 
          -
 
          -
   
2021
   
        500,000
   
          44,846
   
        544,846
 
4.5%
 
9.6%
         
3,798,097
 
3.8%
 
7.4
   
2022
   
        650,000
   
          42,466
   
        692,466
 
3.3%
 
12.1%
Mortgage Notes Payable, net
                 
2023
   
        600,000
   
           2,188
   
        602,188
 
3.7%
 
10.6%
 
Fixed rate - secured
   
1,599,714
 
4.7%
 
3.0
   
2024
   
        400,000
   
           2,317
   
        402,317
 
4.0%
 
7.1%
 
Variable rate - secured (2)
   
269,949
 
2.3%
 
18.2
   
2025
   
        500,000
   
          16,056
   
        516,056
 
3.6%
 
9.0%
 
Unamortized premiums and debt issuance costs, net
   
20,663
 
          -
 
          -
   
2026
   
        450,000
   
          55,091
   
        505,091
 
3.5%
 
8.9%
   
Total mortgage notes payable
   
1,890,326
 
4.4%
 
5.1
   
2027
   
        350,000
   
        155,500
   
        505,500
 
3.6%
 
8.9%
                       
2028
   
                -
   
           2,934
   
           2,934
 
3.1%
 
0.1%
Unsecured Lines of Credit
                 
Thereafter
   
        300,000
   
        201,722
   
        501,722
 
3.8%
 
8.8%
 
Line of credit (3)
   
                -
 
2.7%
       
Subtotal
   
3,825,000
   
1,869,663
   
5,694,663
 
4.0%
 
100.0%
 
Line of credit (4)
   
         2,670
 
2.7%
       
Debt Issuance Costs
   
         (20,122)
   
          (4,500)
   
         (24,622)
 
NA
 
NA
   
Total lines of credit
   
         2,670
 
2.7%
       
(Discounts)/Premiums
   
          (6,781)
   
          25,163
   
          18,382
 
NA
 
NA
                       
Total
 
$
3,798,097
 
$
1,890,326
 
$
5,688,423
 
4.0%
 
100.0%
   
Total debt, net
 
$
5,691,093
 
4.0%
                                   
                                                   
 
Capitalized interest for the three and six months ended June 30, 2018 was approximately $4.2 million and $8.4 million, respectively.
 
(1)
The unsecured term loan has a variable interest rate of LIBOR plus 0.95%. The Company has interest rate swap contracts with an aggregate notional amount of $175 million, which effectively converts the interest rate on $175 million of the term loan to a fixed rate of 2.3%.
(2)
$269.9 million of variable rate debt is tax exempt to the note holders. $9.9 million is subject to interest rate cap protection agreements.
(3)
This unsecured line of credit facility has a capacity of $1.2 billion. The line matures in December 2021 with one 18-month extension, exercisable at the Company's option. The underlying interest rate on this line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at LIBOR plus 0.875%.
(4)
This unsecured line of credit facility has a capacity $35.0 million and is scheduled to mature in January 2020. The underlying interest rate on this line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at LIBOR plus 0.875%.
 
 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
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 - June 30, 2018  
(Dollars and shares in thousands, except per share amounts)
                                 
                                 
Capitalization Data
           
Public Bond Covenants (1)
 
Actual
 
Requirement
   
Total debt, net
$
5,691,093
                   
                 
Adjusted Debt to Adjusted Total Assets:
 
37%
 
< 65%
   
Common stock and potentially dilutive securities
                       
 
Common stock outstanding
 
66,050
                   
 
Limited partnership units (1)
 
2,235
                   
 
Options-treasury method
 
37
   
Secured Debt to Adjusted Total Assets:
 
12%
 
< 40%
   
Total shares of common stock and potentially dilutive securities
 
68,322
                   
                                 
Common stock price per share as of June 30, 2018
$
239.07
                   
                 
Interest Coverage:
 
431%
 
> 150%
   
Total equity capitalization
$
16,333,741
                   
                                 
Total market capitalization
$
22,024,834
   
Unsecured Debt Ratio (2):
 
282%
 
> 150%
   
                                 
Ratio of debt to total market capitalization
 
25.8%
                   
                 
Selected Credit Ratios (3)
 
Actual
       
Credit Ratings
                             
Rating Agency
 
Rating
Outlook
       
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
 
5.5
       
Fitch
 
BBB+
Positive
                       
Moody's
 
Baa1
Stable
       
Unencumbered NOI to Adjusted Total NOI:
 
72%
       
Standard & Poor's
BBB+
Stable
                       
                 
(1)
Refer to page S-17.4 for additional information on the Company's Public Bond Covenants.
   
(1)
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company's common stock.
(2)
Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.
(3)
Refer to pages S-17.1 to S-17.4, the section titled "Reconciliations of Non-GAAP Financial Measures and Other Terms" for additional information on the Company's Selected Credit Ratios.
                                 
                                 
 
 See Company’s 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 June 30, 2018          
                                             
                                             
        Apartment Homes  
Average Monthly Rental Rate (1)
     
Percent of NOI (2)
   
Region - County
  Consolidated (3)  
Unconsolidated
Co-investments (3)
 
Apartment Homes in Development (4)
 
Total
 
Consolidated
 
Unconsolidated Co-investments (5)
 
Total (6)
 
Consolidated
 
Unconsolidated Co-investments (5)
 
Total (6)
                                             
Southern California
                                       
 
Los Angeles County
 
9,387
 
1,563
 
                  200
 
11,150
 
 $         2,405
 
 $                  2,070
 
 $  2,378
 
19.9%
 
12.5%
 
19.2%
 
Orange County
 
5,553
 
1,149
 
                       -
 
6,702
 
            2,148
 
                    1,861
 
     2,121
 
10.5%
 
8.5%
 
10.3%
 
San Diego County
 
4,824
 
616
 
                       -
 
5,440
 
            1,895
 
                    1,759
 
     1,887
 
8.3%
 
4.3%
 
7.9%
 
Ventura County
 
2,577
 
693
 
                       -
 
3,270
 
            1,780
 
                    2,108
 
     1,821
 
4.4%
 
6.2%
 
4.6%
 
Other Southern CA
 
623
 
249
 
                       -
 
872
 
            1,608
 
                    1,604
 
     1,607
 
0.9%
 
1.5%
 
0.9%
Total Southern California
 
22,964
 
4,270
 
                  200
 
27,434
 
            2,144
 
                    1,951
 
     2,127
 
44.0%
 
33.0%
 
42.9%
                                             
Northern California
                                       
 
Santa Clara County
 
7,356
 
2,266
 
745
 
10,367
 
            2,702
 
                    2,830
 
     2,720
 
19.1%
 
24.9%
 
19.8%
 
Alameda County
 
2,954
 
1,983
 
                       -
 
4,937
 
            2,513
 
                    2,331
 
     2,465
 
6.9%
 
19.4%
 
8.1%
 
San Mateo County
 
1,951
 
197
 
371
 
2,519
 
            2,907
 
                    2,896
 
     2,907
 
5.0%
 
2.4%
 
4.7%
 
Contra Costa County
 
2,270
 
49
 
                       -
 
2,319
 
            2,303
 
                    4,577
 
     2,328
 
4.7%
 
1.2%
 
4.4%
 
San Francisco
 
1,343
 
463
 
545
 
2,351
 
            3,087
 
                    3,254
 
     3,114
 
3.5%
 
6.9%
 
3.8%
 
Other Northern CA
 
96
 
                           -
 
                       -
 
96
 
            2,905
 
                           -
 
     2,905
 
0.3%
 
                           -
 
0.2%
Total Northern California
 
15,970
 
4,958
 
1,661
 
22,589
 
            2,669
 
                    2,690
 
     2,672
 
39.5%
 
54.8%
 
41.0%
                                             
Seattle Metro
 
10,238
 
1,582
 
                       -
 
11,820
 
            1,819
 
                    1,816
 
     1,818
 
16.5%
 
12.2%
 
16.1%
                                             
Total
   
49,172
 
10,810
 
1,861
 
61,843
 
 $         2,247
 
 $                  2,275
 
 $  2,250
 
100.0%
 
100.0%
 
100.0%
 
(1)
Average monthly rental rate is defined as the total potential monthly rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the number of apartment homes.
(2)
Actual NOI for the quarter ended June 30, 2018. See the section titled "Net Operating Income ("NOI") and Same-Property NOI Reconciliations" on page S-17.3.
(3)
Includes all apartment communities with rents.
(4)
Includes development communities with no rental income.
(5)
Co-investment amounts weighted for Company's pro rata share.
(6)
At Company's pro rata share.
 
 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, except in footnotes)  
                           
     
Apartment Homes
 
Q2 '18
 
Q1 '18
 
Q4 '17
 
Q3 '17
 
Q2 '17
                           
Rental and other property revenues:
                       
Same-property
 
          46,863
 
 $            321,283
 
 $            320,095
 
 $            317,738
 
 $            317,302
 
 $            312,629
Acquisitions (2)
 
           1,328
 
                10,501
 
                10,383
 
                10,435
 
                10,498
 
                10,170
Development (3)
 
              121
 
                     450
 
                       19
 
                         -
 
                       -
 
                       -
Redevelopment
 
              621
 
                  5,036
 
                  5,024
 
                  5,005
 
                  4,913
 
                  4,909
Non-residential/other, net (4)
 
              239
 
                  9,256
 
                  9,426
 
                  9,239
 
                  9,261
 
                  9,058
Total rental and other property revenues
 
          49,172
 
               346,526
 
               344,947
 
               342,417
 
               341,974
 
               336,766
                           
Property operating expenses:
                       
Same-property
     
                88,519
 
                88,832
 
                89,425
 
                90,106
 
                86,688
Acquisitions (2)
     
                  2,116
 
                  3,074
 
                  3,116
 
                  3,220
 
                  2,926
Development (3)
     
                     498
 
                       64
 
                         -
 
                         -
 
                         -
Redevelopment
     
                  1,468
 
                  1,469
 
                  1,528
 
                  1,529
 
                  1,392
Non-residential/other, net (4) (5)
     
                  1,545
 
                  1,524
 
                  2,005
 
                  1,709
 
                    (263)
Total property operating expenses
     
                94,146
 
                94,963
 
                96,074
 
                96,564
 
                90,743
                           
Net operating income (NOI):
                       
Same-property
     
               232,764
 
               231,263
 
               228,313
 
               227,196
 
               225,941
Acquisitions (2)
     
                  8,385
 
                  7,309
 
                  7,319
 
                  7,278
 
                  7,244
Development (3)
     
                      (48)
 
                      (45)
 
                         -
 
                         -
 
                       -
Redevelopment
     
                  3,568
 
                  3,555
 
                  3,477
 
                  3,384
 
                  3,517
Non-residential/other, net (4)
     
                  7,711
 
                  7,902
 
                  7,234
 
                  7,552
 
                  9,321
Total NOI
     
 $            252,380
 
 $            249,984
 
 $            246,343
 
 $            245,410
 
 $            246,023
                           
Same-property metrics
                       
Operating margin
     
72%
 
72%
 
72%
 
72%
 
72%
Annualized turnover (6)
     
53%
 
40%
 
46%
 
61%
 
54%
Financial occupancy (7)
     
96.7%
 
97.1%
 
96.8%
 
96.7%
 
96.4%
 
(1)
Includes consolidated communities only.
(2)
Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2017.
(3)
Development includes properties developed which did not have comparable stabilized results as of January 1, 2017.
(4)
Other real estate assets consists mainly of retail space, commercial properties, boat slips, held for sale properties, disposition properties, and student housing.
(5)
Includes other expenses and intercompany eliminations pertaining to self-insurance. In Q2 '17, there were $2.0 million in reductions to operating expenses related to changes in prior period property tax estimates.
(6)
Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.
(7)
Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes).
 
 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 Results by County - Second Quarter 2018 vs. Second Quarter 2017 and First Quarter 2018 
(Dollars in thousands, except average monthly rental rates)              
                                                         
                                                         
               
Average Monthly Rental Rate
 
Financial Occupancy 
 
Gross Revenues 
 
Sequential Gross Revenues
Region - County
 
Apartment Homes
 
Q2 '18 % of Actual NOI
 
Q2 '18
 
Q2 '17
 
% Change
 
Q2 '18
 
Q2 '17
 
% Change
 
Q2 '18
 
Q2 '17
 
% Change
 
Q1 '18
 
% Change
                                                         
Southern California
                                                   
 
Los Angeles County
 
8,931
 
20.0%
 
 $   2,416
 
 $   2,379
 
1.6%
 
96.7%
 
95.9%
 
0.8%
 
 $    65,670
 
 $   63,659
 
3.2%
 
 $      65,291
 
0.6%
 
Orange County
 
5,553
 
11.1%
 
      2,148
 
      2,097
 
2.4%
 
96.5%
 
96.3%
 
0.2%
 
       36,043
 
      35,219
 
2.3%
 
        36,074
 
-0.1%
 
San Diego County
 
4,824
 
8.8%
 
      1,895
 
      1,840
 
3.0%
 
97.2%
 
96.1%
 
1.1%
 
       28,168
 
      27,049
 
4.1%
 
        27,921
 
0.9%
 
Ventura County
 
2,577
 
4.7%
 
      1,780
 
      1,714
 
3.9%
 
97.6%
 
96.9%
 
0.7%
 
       14,383
 
      13,660
 
5.3%
 
        14,293
 
0.6%
 
Other Southern CA
 
384
 
0.5%
 
      1,291
 
      1,251
 
3.2%
 
97.4%
 
97.9%
 
-0.5%
 
         1,535
 
        1,523
 
0.8%
 
          1,549
 
-0.9%
Total Southern California
 
22,269
 
45.1%
 
      2,143
 
      2,095
 
2.3%
 
96.8%
 
96.2%
 
0.6%
 
     145,799
 
    141,110
 
3.3%
 
       145,128
 
0.5%
                                                         
Northern California
                                                   
 
Santa Clara County
 
6,028
 
16.5%
 
      2,722
 
      2,673
 
1.8%
 
97.1%
 
97.0%
 
0.1%
 
       50,223
 
      49,343
 
1.8%
 
        49,853
 
0.7%
 
Alameda County
 
2,954
 
7.3%
 
      2,513
 
      2,468
 
1.8%
 
96.6%
 
95.8%
 
0.8%
 
       22,694
 
      22,091
 
2.7%
 
        22,649
 
0.2%
 
San Mateo County
 
1,830
 
5.3%
 
      2,872
 
      2,834
 
1.3%
 
97.0%
 
96.7%
 
0.3%
 
       16,261
 
      15,881
 
2.4%
 
        16,158
 
0.6%
 
Contra Costa County
 
2,270
 
5.0%
 
      2,303
 
      2,267
 
1.6%
 
96.7%
 
97.3%
 
-0.6%
 
       16,020
 
      15,751
 
1.7%
 
        16,072
 
-0.3%
 
San Francisco
 
1,178
 
3.1%
 
      2,977
 
      2,937
 
1.4%
 
95.2%
 
96.3%
 
-1.1%
 
       10,651
 
      10,554
 
0.9%
 
        10,666
 
-0.1%
 
Other Northern CA
 
96
 
0.3%
 
      2,905
 
      2,738
 
6.1%
 
96.5%
 
98.5%
 
-2.0%
 
           839
 
          813
 
3.2%
 
             856
 
-2.0%
Total Northern California
 
14,356
 
37.5%
 
      2,654
 
      2,609
 
1.7%
 
96.7%
 
96.7%
 
0.0%
 
     116,688
 
    114,433
 
2.0%
 
       116,254
 
0.4%
                                                         
Seattle Metro
 
10,238
 
17.4%
 
      1,819
 
      1,768
 
2.9%
 
96.3%
 
96.2%
 
0.1%
 
       58,796
 
      57,086
 
3.0%
 
        58,713
 
0.1%
                                                         
Total Same-Property
 
46,863
 
100.0%
 
 $   2,229
 
 $   2,181
 
2.2%
 
96.7%
 
96.4%
 
0.3%
 
 $  321,283
 
 $ 312,629
 
2.8%
 
 $    320,095
 
0.4%
                                                         
                                                         
 
 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 - Six months ended June 30, 2018 vs. Six months ended June 30, 2017      
(Dollars in thousands, except average monthly rental rates)             
                                                 
                                                 
           
YTD
 
Average Monthly Rental Rate
 
Financial Occupancy 
 
Gross Revenues 
Region - County
 
Apartment Homes
 
2018 % of Actual NOI
 
YTD 2018
 
YTD 2017
 
% Change
 
YTD 2018
 
YTD 2017
 
% Change
 
YTD 2018
 
YTD 2017
 
% Change
                                                 
Southern California
                                           
 
Los Angeles County
 
8,931
 
19.8%
 
 $   2,406
 
 $   2,368
 
1.6%
 
96.7%
 
96.0%
 
0.7%
 
 $    130,961
 
 $    127,189
 
3.0%
 
Orange County
 
5,553
 
11.1%
 
      2,139
 
      2,084
 
2.6%
 
96.7%
 
96.4%
 
0.3%
 
         72,117
 
         70,181
 
2.8%
 
San Diego County
 
4,824
 
8.8%
 
      1,885
 
      1,828
 
3.1%
 
97.1%
 
96.3%
 
0.8%
 
         56,089
 
         53,954
 
4.0%
 
Ventura County
 
2,577
 
4.7%
 
      1,769
 
      1,703
 
3.9%
 
97.7%
 
97.1%
 
0.6%
 
         28,676
 
         27,254
 
5.2%
 
Other Southern CA
 
384
 
0.4%
 
      1,283
 
      1,239
 
3.6%
 
97.2%
 
96.9%
 
0.3%
 
          3,084
 
          2,998
 
2.9%
Total Southern California
 
22,269
 
44.8%
 
      2,134
 
      2,084
 
2.4%
 
96.9%
 
96.3%
 
0.6%
 
       290,927
 
       281,576
 
3.3%
                                                 
Northern California
                                           
 
Santa Clara County
 
6,028
 
16.5%
 
      2,705
 
      2,663
 
1.6%
 
97.3%
 
97.1%
 
0.2%
 
       100,076
 
         98,224
 
1.9%
 
Alameda County
 
2,954
 
7.2%
 
      2,501
 
      2,460
 
1.7%
 
96.8%
 
95.3%
 
1.6%
 
         45,343
 
         43,758
 
3.6%
 
San Mateo County
 
1,830
 
5.2%
 
      2,855
 
      2,816
 
1.4%
 
97.4%
 
97.2%
 
0.2%
 
         32,419
 
         31,742
 
2.1%
 
Contra Costa County
 
2,270
 
5.1%
 
      2,291
 
      2,255
 
1.6%
 
97.2%
 
97.3%
 
-0.1%
 
         32,092
 
         31,386
 
2.2%
 
San Francisco
 
1,178
 
3.1%
 
      2,965
 
      2,929
 
1.2%
 
95.7%
 
96.0%
 
-0.3%
 
         21,317
 
         20,881
 
2.1%
 
Other Northern CA
 
96
 
0.3%
 
      2,895
 
      2,738
 
5.7%
 
98.0%
 
98.0%
 
0.0%
 
          1,695
 
          1,614
 
5.0%
Total Northern California
 
14,356
 
37.4%
 
      2,639
 
      2,598
 
1.6%
 
97.1%
 
96.7%
 
0.4%
 
       232,942
 
       227,605
 
2.3%
                                                 
Seattle Metro
 
10,238
 
17.8%
 
      1,809
 
      1,751
 
3.3%
 
96.6%
 
96.4%
 
0.2%
 
       117,509
 
       113,279
 
3.7%
                                                 
Total Same-Property
 
46,863
 
100.0%
 
 $   2,218
 
 $   2,169
 
2.3%
 
96.9%
 
96.4%
 
0.5%
 
 $    641,378
 
 $    622,460
 
3.0%
                                                 
                                                 
 
 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 June 30, 2018 and 2017       
(Dollars in thousands)            
                                   
                                   
   
Based on 46,863 apartment homes  
                                   
   
Q2 '18
 
Q2 '17
 
% Change
 
% of Op. Ex.
   
YTD 2018
 
YTD 2017
 
% Change
 
% of Op. Ex.
                                   
Same-property operating expenses:
                                 
Real estate taxes
 
 $      34,296
 
 $      34,064
 
0.7%
 
38.7%
   
 $    68,682
 
 $    67,090
 
2.4%
 
38.7%
Maintenance and repairs
 
         18,256
 
         17,379
 
5.0%
 
20.6%
   
       36,531
 
       35,391
 
3.2%
 
20.6%
Administrative
 
         16,974
 
         16,781
 
1.2%
 
19.2%
   
       34,435
 
       33,468
 
2.9%
 
19.4%
Utilities
 
         15,929
 
         15,441
 
3.2%
 
18.0%
   
       31,575
 
       30,723
 
2.8%
 
17.8%
Insurance
 
           3,064
 
           3,023
 
1.4%
 
3.5%
   
         6,128
 
         6,661
 
-8.0%
 
3.5%
Total same-property operating expenses
 
 $      88,519
 
 $      86,688
 
2.1%
 
100.0%
   
 $   177,351
 
 $   173,333
 
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 - June 30, 2018                        
(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 (3)
 
Construction Start
 
Initial Occupancy
 
Stabilized Operations
                                                           
Development Projects - Consolidated (4)
                                                       
 
Station Park Green - Phase II (5)
 
San Mateo, CA
 
100%
 
          199
 
                -
 
           82
 
            59
 
          141
 
              141
 
          709
 
0%
 
0%
 
Q2 2017
 
Q2 2019
 
Q4 2019
 
Station Park Green - Phase III (5)
 
San Mateo, CA
 
100%
 
          172
 
                -
 
           61
 
            63
 
          124
 
              124
 
          721
 
0%
 
0%
 
Q3 2017
 
Q3 2019
 
Q1 2020
 
Gateway Village (6)
 
Santa Clara, CA
 
100%
 
          476
 
                -
 
          110
 
          116
 
          226
 
              226
 
          475
 
0%
 
0%
 
Q3 2016
 
Q1 2019
 
Q1 2020
 
Hollywood (7)
 
Hollywood, CA
 
100%
 
          200
 
         4,700
 
           35
 
            70
 
          105
 
              105
 
          500
 
0%
 
0%
 
Q4 2017
 
Q1 2020
 
Q3 2020
Total Development Projects - Consolidated
         
       1,047
 
         4,700
 
          288
 
          308
 
          596
 
              596
 
          564
                   
                                                           
Land Held for Future Development - Consolidated
                                                   
 
Other Projects (5)(7)
 
Various
 
100%
         
           67
 
               -
 
           67
 
                67
                       
Total Development Pipeline - Consolidated
         
       1,047
 
         4,700
 
          355
 
          308
 
          663
 
              663
                       
                                                           
Development Projects - Joint Venture (4)
                                                       
 
Ohlone
 
San Jose, CA
 
50%
 
          269
 
                -
 
           48
 
            88
 
          136
 
                68
 
          506
 
0%
 
0%
 
Q3 2017
 
Q3 2019
 
Q2 2020
 
500 Folsom (8)
 
San Francisco, CA
 
50%
 
          545
 
         6,000
 
          195
 
          220
 
          415
 
              208
 
          751
 
0%
 
0%
 
Q4 2015
 
Q2 2019
 
Q4 2020
Total Development Projects - Joint Venture
         
814
 
6,000
 
          243
 
          308
 
          551
 
              276
 
 $       670
                   
                                                           
Grand Total - Development Pipeline
         
       1,861
 
        10,700
 
$       598
 
$        616
 
$    1,214
 
              939
                       
Essex Cost Incurred to Date - Pro Rata
                             
             (477)
                       
Essex Remaining Commitment
                             
 $           462
                       
 
(1)
The Company's share of the estimated total costs of the project.
(2)
Net of the estimated allocation to the retail component of the project.
(3)
Calculations are based on multifamily operations only and are as of June 30, 2018.
(4)
For the second quarter of 2018, the Company's cost includes $4.0 million of capitalized interest, $1.6 million of capitalized overhead and $0.9 million of development fees (such development fees reduced G&A expenses).
(5)
Development of Station Park Green - Phases II and III are reflected under Development Projects - Consolidated. Costs incurred for Station Park Green - Phase IV, which consists of 107 apartment homes, are included in Land Held for Future Development - Consolidated.
(6)
Cost incurred to date does not include a deduction of $4.7 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset.
(7)
Cost incurred to date does not include a deduction of $6.3 million for accumulated depreciation recorded during the period when one property was held as a retail operating asset.
(8)
Estimated costs incurred to date and 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.           
                               
Redevelopment Pipeline - June 30, 2018          
(Dollars in thousands)          
                               
         
Total
 
Estimated
 
Estimated
     
NOI 
     
Apartment
 
Incurred
 
Remaining
 
Total
 
Project
 
Six Months Ended
Region/Project Name
 
 Homes
 
To Date
 
Cost
 
Cost
 
Start Date
 
2018
 
2017
                               
Same-Property - Redevelopment Projects (1)
                           
Southern California
                           
Hamptons
 
               215
 
 $     19,600
 
 $       4,000
 
 $     23,600
 
Q1 2014
       
Kings Road
 
               196
 
         4,100
 
8,100
 
        12,200
 
Q4 2016
       
The Palms at Laguna Niguel
 
               460
 
         3,800
 
5,700
 
         9,500
 
Q4 2016
       
Northern California
                           
Crow Canyon
 
               400
 
         5,600
 
1,800
 
         7,400
 
Q1 2017
       
Total Same-Property - Redevelopment Projects
 
            1,271
 
 $     33,100
 
 $     19,600
 
 $     52,700
     
 $        12,010
 
 $       11,671
                               
Non-Same Property - Redevelopment Projects
                           
Southern California
                           
Bunker Hill Towers
 
               456
 
 $     70,600
 
 $     16,800
 
 $     87,400
 
Q3 2013
       
Total Non-Same Property - Redevelopment Projects
 
               456
 
 $     70,600
 
 $     16,800
 
 $     87,400
     
 $         4,331
 
 $        4,056
 
(1)
Redevelopment activities are ongoing at these communities, but the communities have stabilized operations, therefore results are classified in same-property results.
 
 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.       
                           
Capital Expenditures - June 30, 2018         
(Dollars in thousands, except in footnotes and per apartment home amounts)     
                           
                           
Revenue Generating Capital Expenditures (1) (2)
 
Q2 '18
 
Q1 '18
 
Q4 '17
 
Q3 '17
     
 Trailing 4 Quarters
Same-property portfolio
 
 $       14,029
 
 $       9,916
 
 $     14,023
 
 $     18,091
     
 $        56,059
Non-same property portfolio
 
            2,613
 
         2,863
 
         3,171
 
         1,884
     
          10,531
Total revenue generating capital expenditures
 
 $       16,642
 
 $     12,779
 
 $     17,194
 
 $     19,975
     
 $        66,590
                           
Number of same-property interior renovations completed
 
               804
 
            499
 
            426
 
            650
     
            2,379
Number of total consolidated interior renovations completed
 
               860
 
            522
 
            435
 
            660
     
            2,477
                           
Non-Revenue Generating Capital Expenditures (3)
 
Q2 '18
 
Q1 '18
 
Q4 '17
 
Q3 '17
     
 Trailing 4 Quarters
                           
Non-revenue generating capital expenditures (4)
 
 $       16,178
 
 $     11,567
 
 $     19,895
 
 $     20,875
     
 $        68,515
Average apartment homes in quarter
 
          49,362
 
        49,490
 
        49,429
 
        49,429
     
          49,427
Capital expenditures per apartment homes in the quarter
 
 $            328
 
 $          234
 
 $          402
 
 $          422
     
 $          1,386
 
(1)
The Company incurred $0.2 million of capitalized interest, $2.4 million of capitalized overhead and $0.1 million of co-investment fees related to redevelopment in Q2 2018.
(2)
Represents revenue generating or expense saving expenditures, such as full-scale redevelopments shown on page S-12, interior unit turn renovations, enhanced amenities and certain resource management initiatives.
(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, 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-12.1

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 - June 30, 2018               
(Dollars in thousands)              
         
Weighted Average Essex
     
Total
     
Essex
 
Weighted
 
Remaining
 
Three Months Ended
June 30, 2018
Six Months Ended
June 30, 2018
         
Ownership
 
Apartment
 
Undepreciated
 
Debt
 
Book
 
Average
 
Term of
 
         
Percentage
 
Homes
 
Book Value
 
Amount
 
Value
 
Borrowing Rate
 
Debt (in Years)
 
                                           
Operating and Other Non-Consolidated Joint Ventures
                             
NOI
                                           
 
Wesco I, III, IV, and V
 
53%
 
        4,578
$
     1,310,956
$
        728,350
$
      211,574
 
3.7%
 
               5.4
$
                 20,826
$
                 41,865
 
BEXAEW, BEX II, and BEX III
 
50%
 
        2,620
 
        681,207
 
        398,799
 
      120,788
 
3.4%
 
               4.3
 
                 10,243
 
                 20,597
 
CPPIB
 
54%
 
        2,483
 
        952,548
 
                   -
 
      492,382
 
                 -
 
                 -
 
                 14,852
 
                 28,567
 
Other
   
52%
 
        1,129
 
        420,669
 
        313,758
 
        47,367
 
3.7%
 
               6.0
 
                   5,760
 
                 11,509
 
Total Operating and Other Non-Consolidated Joint Ventures
     
      10,810
$
     3,365,380
$
     1,440,907
$
      872,111
 
3.6%
 
               5.2
$
                 51,681
$
               102,538
Development Non-Consolidated Joint Ventures (1)
 
50%
 
          814
 
        242,906
 
        127,489
 
        76,525
 
4.2%
 
             26.2
(2)
                          -
 
                          -
 
Total Non-Consolidated Joint Ventures
     
      11,624
$
     3,608,286
$
     1,568,396
$
      948,636
       
$
                 51,681
$
               102,538
                                           
                                     
 Essex Portion of NOI and Expenses
 
NOI
                               
$
                 27,155
$
                 53,898
 
Depreciation
                             
                (15,720)
 
                (31,579)
 
Interest expense and other
                             
                  (6,943)
 
                (13,538)
 
Promote income
                             
                        -
 
                 20,541
 
Net income from operating and other co-investments
                           
$
                   4,492
$
                 29,322
                                           
                                           
                             
 
 
       
                              Weighted
Average
Preferred
 Return
  Weighted Average Expected Term  
 Income from Preferred Equity Investments
 
Income from preferred equity investments
                           
$
                   8,979
$
                 16,899
 
Income from early redemption of preferred equity investments
                             
                   1,578
 
                   1,602
Preferred Equity Investments (3)
               
$
      342,684
 
10.7%
 
               3.1
$
                 10,557
$
                 18,501
                                           
 
Total Co-investments
               
$
   1,291,320
       
$
                 15,049
$
                 47,823
 
(1)
The Company has interests in two development co-investments, which are detailed on page S-11.
(2)
$97.7 million of the debt related to 500 Folsom is financed by tax exempt bonds with a maturity date of January 2052.
(3)
As of June 30, 2018, the Company has invested in 17 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 2018 FFO Guidance Range     
Q2 2018 Earnings Results Supplement    
                 
The guidance projections below are based on current expectations and are forward-looking. See page S-14.1 for the reconciliations of earnings per share ("EPS") to FFO per share and Core FFO per share. The guidance on this page is given for Net Operating Income ("NOI") and Total and Core FFO. See pages S-17.1 to S-17.4 for the definitions of non-GAAP financial measures and other terms.
 
($'s in thousands, except per share data)
 
Six Months
           
   
Ended June 30,
 
2018 Full-Year Guidance Range
   
   
2018 (1)
 
Low End
 
High End
 
Comments About Guidance Revisions
                 
Total NOI from Consolidated Communities
 
 $                         502,364
 
 $                   1,000,600
 
 $                   1,008,000
 
Includes a range of same-property NOI growth of 2.5% to 3.2%,
an increase from the prior range of 2.0% to 3.4%.
Includes the sale of Domain in June.
                 
Accretion from Acquisitions Net of Dispositions
 
                       -
 
                       -
 
                       -
   
                 
Management Fees
 
                  4,505
 
                  9,000
 
                  9,400
   
                 
Interest Expense
               
Interest expense, before capitalized interest
 
             (114,951)
 
             (231,500)
 
             (229,100)
   
Interest capitalized
 
                  8,406
 
                17,600
 
                18,600
 
Updated for timing of development spend.
  Net interest expense
 
             (106,545)
 
             (213,900)
 
             (210,500)
   
                 
Recurring Income and Expenses
               
Interest and other income
 
                12,559
 
                25,600
 
                26,200
   
FFO from co-investments
 
                57,259
 
              115,000
 
              117,600
   
General and administrative
 
               (23,505)
 
               (43,600)
 
               (45,600)
   
Corporate-level property management expenses
 
               (15,552)
 
               (30,800)
 
               (31,400)
   
Non-controlling interest
 
                 (5,564)
 
               (11,300)
 
               (10,900)
   
  Total recurring income and expenses
 
                25,197
 
                54,900
 
                55,900
   
                 
Non-Core Income and Expenses
               
Gain on sale of marketable securities
 
                     549
 
                     549
 
                     549
   
Unrealized losses on marketable securities
 
                    (754)
 
                    (754)
 
                    (754)
   
Co-investment promote income
 
                20,541
 
                20,541
 
                20,541
   
Expensed acquisition and investment related costs
 
                    (125)
 
                    (500)
 
                 (1,200)
   
Insurance reimbursements, legal settlements, and other, net
 
                    (477)
 
                 (1,300)
 
                 (1,300)
   
  Total non-core income and expenses
 
                19,734
 
                18,536
 
                17,836
   
                 
Funds from Operations (2)
 
 $                         445,255
 
 $                      869,136
 
 $                      880,636
   
                 
Funds from Operations per diluted share
 
 $                               6.52
 
 $                           12.72
 
 $                           12.88
   
% Change - Funds from Operations
 
9.9%
 
6.8%
 
8.2%
   
Core Funds from Operations (excludes non-core items)
 
 $                         425,521
 
 $                      850,600
 
 $                      862,800
   
Core Funds from Operations per diluted share
 
 $                               6.23
 
 $                           12.44
 
 $                           12.62
   
% Change - Core Funds from Operations
 
5.4%
 
4.5%
 
6.0%
   
EPS - Diluted
 
 $                               2.90
 
 $                             5.15
 
 $                             5.31
   
                 
Weighted average shares outstanding - FFO calculation
 
                68,324
 
                68,350
 
                68,350
   
 
(1)
All non-core items are excluded from the YTD actuals and included in the non-core income and expense section of the FFO reconciliation.
(2)
2018 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           
                                       
                                       
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.
                                       
             
2018 Guidance Range (1)  
   
         
Six Months Ended
June 30, 2018
3rd Quarter 2018
   
Full-Year 2018
   
               
Low
   
High
   
Low
   
High
   
 
EPS - diluted
$
                  2.90
 
$
               1.09
 
$
               1.18
 
$
               5.15
 
$
               5.31
   
   
Conversion from GAAP share count
 
(0.09)
   
(0.04)
   
(0.04)
   
(0.17)
   
(0.17)
   
   
Depreciation and amortization
 
                  3.95
   
               1.97
   
               1.97
   
               7.90
   
               7.90
   
   
Noncontrolling interest related to Operating Partnership units
 
                  0.09
   
               0.04
   
               0.04
   
               0.17
   
               0.17
   
   
Gain on sale of real estate
 
                 (0.33)
   
                  -
   
                  -
   
              (0.33)
   
              (0.33)
   
 
FFO per share - diluted
 
                  6.52
   
               3.06
   
               3.15
   
             12.72
   
             12.88
   
   
Gain on sale of marketable securities
 
                 (0.01)
   
                  -
   
                  -
   
              (0.01)
   
              (0.01)
   
   
Unrealized losses on marketable securities
 
                  0.01
   
                  -
   
                  -
   
               0.01
   
               0.01
   
   
Co-investment promote income
 
                 (0.30)
   
                  -
   
                  -
   
              (0.30)
   
              (0.30)
   
   
Expensed acquisition and investment related costs
 
                     -
   
                  -
   
               0.01
   
                  -
   
               0.02
   
   
Insurance reimbursements, legal settlements, and other, net
 
                  0.01
   
               0.01
   
               0.01
   
               0.02
   
               0.02
   
 
Core FFO per share - diluted
$
                  6.23
 
$
               3.07
 
$
               3.17
 
$
             12.44
 
$
             12.62
   
 
(1)
2018 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 June 30, 2018 
(Dollars in thousands)
                         
Acquisitions
     
Essex
             
     
Apartment
 
Ownership
     
Contract
 
Price per
Average
Property Name
Location
 Homes
 
Percentage
Entity
Date
 
Price
 
Apartment Home
Rent
                         
 
Neither the Company nor its unconsolidated joint ventures acquired any apartment communities during the first or second quarters of 2018.
         
                         
                         
Dispositions
     
Essex
             
     
Apartment
 
Ownership
     
Sales
 
Price per
 
Property Name
Location
 Homes
 
Percentage
Entity
Date
 
Price
 
Apartment Home
 
                         
 
Domain
San Diego, CA
379
 
100.0%
EPLP
Jun-18
 
 $            132,000
 
 $                  348
 
   
Q2 2018
379
         
 $            132,000
 
 $                  348
 
                         
                         
 
 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.   
2018 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions
   
Residential Supply (1)
 
Job Forecast (2)
 
Market Forecast (3)
Market
 
New MF
Supply
New SF
Supply
Total Supply
% of MF
Supply to
MF Stock
% of Total
Supply to
Total Stock
 
Est.
New Jobs
% Growth
 
Economic Rent
Growth
                       
Los Angeles
 
9,700
5,600
15,300
0.6%
0.4%
 
57,800
1.3%
 
3.0%
Orange
 
4,650
4,400
9,050
1.1%
0.8%
 
22,250
1.4%
 
2.7%
San Diego
 
4,500
3,500
8,000
1.0%
0.7%
 
26,000
1.8%
 
3.5%
Ventura
 
400
1,050
1,450
0.6%
0.5%
 
4,950
1.6%
 
3.2%
So. Cal.
 
19,250
14,550
33,800
0.8%
0.6%
 
111,000
1.5%
 
3.1%
                       
San Francisco
 
3,100
550
3,650
0.8%
0.5%
 
20,100
1.8%
 
2.8%
Oakland
 
2,100
4,000
6,100
0.6%
0.6%
 
18,500
1.6%
 
2.8%
San Jose
 
2,400
2,100
4,500
1.0%
0.7%
 
30,750
2.8%
 
4.0%
No. Cal.
 
7,600
6,650
14,250
0.8%
0.6%
 
69,350
2.2%
 
3.3%
                       
Seattle
 
11,200
7,550
18,750
2.3%
1.5%
 
47,275
2.8%
 
2.0%
                       
Weighted Average (4)
 
38,050
28,750
66,800
1.1%
0.8%
 
227,625
2.0%
 
3.0%
 
All data are based on Essex Property Trust, Inc. forecasts.
 
U.S. Economic Assumptions: 2018 G.D.P. Growth: 2.7%, 2018 Job Growth: 1.5%
 
(1)
New Residential Supply: total supply includes the Company's estimate of actual multifamily deliveries including properties with 50+ units and excludes student, senior and 100% affordable housing communities. Single family estimates based on an average trailing 12 month single family permits. Previous presentations had included multifamily deliveries of 100+ units and excluded student, senior and 100% affordable housing.
(2)
Job Forecast: refers to the difference between total non-farm industry employment (not seasonally adjusted) projected 4Q over 4Q, expressed as total new jobs and growth rates.
(3)
Market Forecast: the estimated rent growth represents the forecasted change in effective market rents for full year 2018 vs. 2017 (excludes submarkets not targeted by Essex).
(4)
Weighted Average: markets weighted by scheduled rent in the Company's Portfolio.
 
 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 information
S-16.1

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

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," 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 our 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, our 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
 
   
June 30,
 
   
2018
 
Net income available to common stockholders
 
$
100,440
 
Adjustments:
       
Net income attributable to noncontrolling interest
   
5,970
 
Interest expense, net (1)
   
54,050
 
Depreciation and amortization
   
119,330
 
Income tax provision
   
150
 
Co-investment EBITDAre adjustments
   
22,448
 
EBITDAre
   
302,388
 
         
Loss on sale of marketable securities
   
131
 
Unrealized gains on marketable securities
   
(122
)
Insurance reimbursements, legal settlements, and other, net
   
(450
)
Income from early redemption of preferred equity investments
   
(1,578
)
Expensed acquisition and investment related costs
   
68
 
Gain on sale of real estate and land
   
(22,244
)
Adjusted EBITDAre
 
$
278,193
 
 
(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-17.1

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")

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 merger, integration and acquisition costs and items that are not routine or not related to the Company’s core business activities, which is referred to as “Core FFO”, to be useful financial performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and the ability to pay dividends. FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. GAAP and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as an alternative to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to shareholders. FFO and Core FFO do not represent cash flows generated from operating, investing or financing activities as defined under U.S. 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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2018
   
2018
 
Interest expense
 
$
56,278
   
$
111,139
 
Adjustments:
               
Total return swap income
   
(2,228
)
   
(4,498
)
Interest expense, net
 
$
54,050
   
$
106,641
 

 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.2

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-17.1 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
 
$
5,691,093
 
Total debt from co-investments at pro rata share
   
809,280
 
Adjustments:
       
Consolidated unamortized premiums, discounts, and debt issuance costs
   
6,240
 
Pro rata co-investments unamortized premiums, discounts, and debt issuance costs
    5,816  
Consolidated cash and cash equivalents-unrestricted
   
(160,902
)
Pro rata co-investment cash and cash equivalents-unrestricted
   
(36,742
)
Marketable securities
   
(207,191
)
Net Indebtedness
 
$
6,107,594
 
         
Adjusted EBITDAre, annualized (1)
 
$
1,112,772
 
Other EBITDAre normalization adjustments, net, annualized (2)
   
(2,170
)
Adjusted EBITDAre, normalized and annualized
 
$
1,110,602
 
         
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized
   
5.5
 
 
(1)
Based on the amount for the most recent quarter, multiplied by four.
(2)
Adjustments made for properties acquired or disposed of during the most recent quarter and other partial quarter activity, multiplied by four.
 
Net Operating Income ("NOI") and Same-Property NOI Reconciliations

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


   
Three Months Ended
   
Three Months Ended
   
Six Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2018
   
2017
   
2018
   
2017
 
Earnings from operations
 
$
116,272
   
$
112,247
   
$
226,819
   
$
221,478
 
Adjustments:
                               
Corporate-level property management expenses
   
7,782
     
7,522
     
15,552
     
15,031
 
Depreciation and amortization
   
119,330
     
117,939
     
238,435
     
233,442
 
Management and other fees from affiliates
   
(2,197
)
   
(2,296
)
   
(4,505
)
   
(4,532
)
General and administrative
   
11,125
     
10,337
     
25,938
     
20,938
 
Expensed acquisition and investment related costs
   
68
     
274
     
125
     
830
 
NOI
   
252,380
     
246,023
     
502,364
     
487,187
 
Less: Non-same property NOI
   
(19,616
)
   
(20,082
)
   
(38,337
)
   
(38,059
)
Same-Property NOI
 
$
232,764
   
$
225,941
   
$
464,027
   
$
449,128
 

 See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
S-17.3

 

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 8, 2018, filed by the Company as Exhibit 4.1 to the Company's Form 8-K, filed on March 8, 2018. 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 June 30, 2018, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months ended June 30, 2018 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 Reconciliation" 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
Q2'18 (1)
 
NOI
 
$
1,009,520
 
Adjustments:
       
Other, net (2)
   
(12,061
)
Adjusted Total NOI
   
997,459
 
Less: Encumbered NOI
   
(279,705
)
Unencumbered NOI
 
$
717,754
 
         
Encumbered NOI
 
$
279,705
 
Unencumbered NOI
   
717,754
 
Adjusted Total NOI
 
$
997,459
 
         
Unencumbered NOI to Adjusted Total NOI
   
72
%
 
(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-17.4