Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced
today its second quarter 2023 earnings results and related business
activities.
Net Income, Funds from Operations (“FFO”), and Core FFO per
diluted share for the three and six months ended June 30, 2023 are
detailed below.
Three Months Ended
June 30,
Six Months Ended June 30,
%
%
2023
2022
Change
2023
2022
Change
Per Diluted
Share
Net Income
$
1.55
$
0.87
78.2
%
$
3.94
$
2.00
97.0
%
Total FFO
$
3.87
$
3.13
23.6
%
$
7.68
$
6.49
18.3
%
Core FFO
$
3.77
$
3.68
2.4
%
$
7.42
$
7.06
5.1
%
Second Quarter 2023
Highlights:
- Reported Net Income per diluted share for the second quarter of
2023 of $1.55, compared to $0.87 in the second quarter of 2022. The
increase is largely attributable to increased income from
marketable securities and the Company’s non-core
co-investments.
- Grew Core FFO per diluted share by 2.4% compared to the second
quarter of 2022, exceeding the midpoint of the guidance range by
$0.08. The increase was primarily due to higher same-property
revenues and lower property taxes in Washington.
- Same-property revenues and net operating income (“NOI”)
increased by 4.0% and 3.6%, respectively, compared to the second
quarter of 2022. On a sequential basis, same-property revenues and
NOI improved 1.4% and 2.4%, respectively.
- Revised full-year 2023 earnings guidance:
- Increased full-year Net Income per diluted share guidance by
$0.31 at the midpoint to a range of $6.74 to $6.98.
- Increased full-year Core FFO per diluted share guidance by
$0.22 at the midpoint to a range of $14.88 to $15.12.
- Raised the midpoint of full-year same-property revenues and NOI
by 0.4% and 0.9%, respectively. Lowered the full-year same-property
operating expense midpoint by 1.0%.
- Subsequent to quarter end, the Company closed $298.0 million in
10-year secured loans priced at a 5.08% fixed interest rate. The
proceeds are intended to repay a majority of the Company’s $400.0
million unsecured notes due in May 2024 at maturity and will be
reinvested in short-term cash accounts until the notes are
repaid.
- As of July 26, 2023, the Company’s immediately available
liquidity is approximately $1.6 billion.
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 revenues for the
quarter ended June 30, 2023 compared to the quarter ended June 30,
2022, and the sequential percentage change for the quarter ended
June 30, 2023 compared to the quarter ended March 31, 2023, by
submarket for the Company:
Q2 2023 vs. Q2
2022
Q2 2023 vs. Q1 2023
% of Total
Revenue Change
Revenue Change
Q2 2023 Revenues
Southern California
Los Angeles County
0.2
%
1.2
%
18.6
%
Orange County
7.6
%
1.4
%
10.5
%
San Diego County
9.9
%
1.9
%
8.9
%
Ventura County
8.3
%
3.2
%
4.1
%
Total Southern California
4.7
%
1.6
%
42.1
%
Northern California
Santa Clara County
5.0
%
2.2
%
19.7
%
Alameda County
2.9
%
0.7
%
7.8
%
San Mateo County
2.6
%
2.4
%
4.6
%
Contra Costa County
1.8
%
1.0
%
5.4
%
San Francisco
-0.3
%
0.5
%
2.6
%
Total Northern California
3.5
%
1.6
%
40.1
%
Seattle Metro
3.7
%
0.3
%
17.8
%
Same-Property Portfolio
4.0
%
1.4
%
100.0
%
The table below illustrates the components that drove the change
in same-property revenues on a year-over-year and sequential basis
for the second quarter of 2023.
Same-Property Revenue
Components
Q2 2023 vs. Q2
2022
YTD 2023 vs. YTD
2022
Q2 2023 vs. Q1
2023
Scheduled Rents
5.2%
6.0%
1.0%
Delinquencies(1)
-1.5%
-0.8%
0.1%
Cash Concessions
-0.2%
0.0%
0.2%
Vacancy
0.3%
0.3%
-0.1%
Other Income
0.2%
0.3%
0.2%
2023 Same-Property Revenue
Growth
4.0%
5.8%
1.4%
(1)
The year-over-year negative impact from
delinquencies is largely due to lower net delinquency in the prior
period, which benefited from Emergency Rental Assistance payments
of $13.0 million and $24.5 million in the second quarter 2022 and
year-to-date 2022, respectively. This compares to Emergency Rental
Assistance payments of $0.5 million and $1.7 million for the second
quarter of 2023 and year-to-date 2023, respectively.
Year-Over-Year Change
Year-Over-Year Change
Q2 2023 compared to Q2
2022
YTD 2023 compared to YTD
2022
Revenues
Operating
Expenses
NOI
Revenues
Operating
Expenses
NOI
Southern California
4.7
%
4.1
%
4.9
%
6.4
%
6.6
%
6.2
%
Northern California
3.5
%
5.6
%
2.7
%
4.9
%
4.0
%
5.4
%
Seattle Metro
3.7
%
7.5
%
2.3
%
6.3
%
1.6
%
8.3
%
Same-Property Portfolio
4.0
%
5.3
%
3.6
%
5.8
%
4.6
%
6.3
%
Sequential Change
Q2 2023 compared to Q1
2023
Revenues
Operating
Expenses
NOI
Southern California
1.6
%
-4.4
%
4.2
%
Northern California
1.6
%
2.4
%
1.3
%
Seattle Metro
0.3
%
-1.6
%
1.0
%
Same-Property Portfolio
1.4
%
-1.2
%
2.4
%
Financial Occupancies
Quarter Ended
6/30/2023
3/31/2023
6/30/2022
Southern California
96.4
%
96.8
%
95.7
%
Northern California
96.7
%
96.6
%
96.3
%
Seattle Metro
96.9
%
96.6
%
96.2
%
Same-Property Portfolio
96.6
%
96.7
%
96.1
%
Investment Activity
Real Estate
In April 2023, the Company acquired Hacienda at Camarillo Oaks,
a 73-unit apartment home community located in Camarillo, CA for a
total contract price of $23.1 million. The community is located
within an existing Essex community and represents a value-add
opportunity due to expected efficiencies from the Company’s
Property Collections operating model.
Other Investments
In the second quarter of 2023, the Company received cash
proceeds of $25.9 million from a partial and a full redemption of
two preferred equity investments, both yielding a 9.0% return. The
Company recorded $0.3 million of income from prepayment penalties
as the result of an early redemption, which has been excluded from
Core FFO.
Liquidity and Balance Sheet
Common Stock
In the second quarter of 2023, the Company did not issue any
shares of common stock through its equity distribution program or
repurchase any shares through its stock repurchase plan.
Year-to-date through July 26, 2023, the Company has repurchased
437,026 shares of its common stock totaling $95.7 million,
including commissions, at an average price per share of $218.88. As
of July 26, 2023, the Company has $302.7 million of purchase
authority remaining under its stock repurchase plan.
Balance Sheet
Subsequent to quarter end, the Company closed $298.0 million in
10-year secured loans priced at a 5.08% fixed interest rate. The
proceeds are intended to repay a majority of the Company’s $400.0
million unsecured notes due in May 2024 upon maturity. In the
interim, the Company will reinvest the proceeds in short-term cash
accounts, which will be slightly accretive to Total and Core FFO
until the notes are repaid.
As of July 26, 2023, the Company had approximately $1.6 billion
in liquidity via undrawn capacity on its unsecured credit
facilities, cash, and marketable securities.
Guidance
For the second quarter of 2023, the Company exceeded the
midpoint of the guidance range provided in its first quarter 2023
earnings release for Core FFO by $0.08 per diluted share. The
better-than-expected results are primarily attributable to
favorable same-property revenues relating to higher occupancy and
lower property taxes within the Company’s Washington portfolio.
The following table provides a reconciliation of second quarter
2023 Core FFO per diluted share to the midpoint of the guidance
provided in the Company’s first quarter 2023 earnings release.
Per Diluted
Share
Projected midpoint of Core FFO per diluted
share for Q2 2023
$
3.69
NOI from consolidated communities
0.06
FFO from Co-Investments
0.01
G&A and other
0.01
Core FFO per diluted share for Q2 2023
reported
$
3.77
The table below provides key changes to the Company’s 2023
full-year assumptions for Net Income, Total FFO, Core FFO per
diluted share, and same-property growth. For additional details
regarding the Company’s 2023 assumptions, please see page S-14 of
the accompanying supplemental financial information.
2023 Full-Year and Third Quarter Guidance
Previous Range
Previous Midpoint
Revised Range
Revised Midpoint
Change at the Midpoint
Per Diluted Share
Net Income
$6.36 - $6.74
$6.55
$6.74 - $6.98
$6.86
$0.31
Total FFO
$14.74 - $15.12
$14.93
$15.13 - $15.37
$15.25
$0.32
Core FFO
$14.59 - $14.97
$14.78
$14.88 - $15.12
$15.00
$0.22
Q3 2023 Core FFO
-
-
$3.69 - $3.81
$3.75
-
Same-Property Growth on a Cash-Basis(1)
Revenues
3.25% to 4.75%
4.00%
4.00% to 4.75%
4.38%
0.38%
Operating Expenses
4.50% to 5.50%
5.00%
3.75% to 4.25%
4.00%
(1.00%)
NOI
2.30% to 4.90%
3.60%
3.90% to 5.10%
4.50%
0.90%
(1)
The revised midpoint of the Company’s
same-property revenues and NOI on a GAAP basis are 4.7% and 5.0%,
respectively, representing a 0.3% and 0.9% increase to the
Company’s original guidance midpoints.
Conference Call with Management
The Company will host an earnings conference call with
management to discuss its quarterly results on Friday, July 28,
2023 at 10 a.m. PT (1 p.m. ET), which will be broadcast live via
the Internet at www.essex.com, and accessible via phone by dialing
toll-free, (877) 407-0784, or toll/international, (201) 689-8560.
No passcode is necessary.
A rebroadcast of the live call will be available online for 30
days and digitally for 7 days. To access the replay online, go to
www.essex.com and select the second quarter 2023 earnings link. To
access the replay, dial (844) 512-2921 using the replay pin number
13739823. 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. Essex currently has
ownership interests in 252 apartment communities comprising
approximately 62,000 apartment homes with an additional property in
active development. Additional information about the Company can be
found on the Company’s website at www.essex.com.
This press release and accompanying supplemental financial
information has been furnished to the Securities and Exchange
Commission electronically on Form 8-K and can be accessed from the
Company’s website at www.essex.com. If you are unable to obtain the
information via the Web, please contact the Investor Relations
Department at (650) 655-7800.
FFO RECONCILIATION
FFO, as defined by the National Association of Real Estate
Investment Trusts (“NAREIT”), is generally considered by industry
analysts as an appropriate measure of performance of an equity
REIT. Generally, FFO adjusts the net income of equity REITs for
non-cash charges such as depreciation and amortization of rental
properties, impairment charges, gains on sales of real estate and
extraordinary items. Management considers FFO and FFO which
excludes non-core items, which is referred to as “Core FFO,” to be
useful supplemental operating performance measures of an equity
REIT because, together with net income and cash flows, FFO and Core
FFO provide investors with additional bases to evaluate the
operating performance and ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures and to
pay dividends. By excluding gains or losses related to sales of
depreciated operating properties and land and excluding real estate
depreciation (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates), FFO can help investors compare the operating
performance of a real estate company between periods or as compared
to different companies. By further adjusting for items that are not
considered part of the Company’s core business operations, Core FFO
allows investors to compare the core operating performance of the
Company to its performance in prior reporting periods and to the
operating performance of other real estate companies without the
effect of items that by their nature are not comparable from period
to period and tend to obscure the Company’s actual operating
results. FFO and Core FFO do not represent net income or cash flows
from operations as defined by U.S. generally accepted accounting
principles (“GAAP”) and are not intended to indicate whether cash
flows will be sufficient to fund cash needs. These measures should
not be considered as alternatives to net income as an indicator of
the REIT's operating performance or to cash flows as a measure of
liquidity. FFO and Core FFO do not measure whether cash flow is
sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to stockholders. FFO and
Core FFO also do not represent cash flows generated from operating,
investing or financing activities as defined under GAAP. Management
has consistently applied the NAREIT definition of FFO to all
periods presented. However, there is judgment involved and other
REITs’ calculation of FFO may vary from the NAREIT definition for
this measure, and thus their disclosures of FFO may not be
comparable to the Company’s calculation.
The following table sets forth the Company’s calculation of
diluted FFO and Core FFO for the three and six months ended June
30, 2023 and 2022 (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
2023
2022
2023
2022
Net income available to common
stockholders
$
99,620
$
57,054
$
253,152
$
130,308
Adjustments:
Depreciation and amortization
136,718
134,517
273,065
268,050
Gains on sale of real estate and land not
included in FFO
-
-
(59,238
)
-
Casualty loss
-
-
433
-
Depreciation and amortization from
unconsolidated co-investments
17,848
18,129
35,457
36,244
Noncontrolling interest related to
Operating Partnership units
3,506
1,990
8,910
4,553
Depreciation attributable to third party
ownership and other
(365
)
(354
)
(724
)
(707
)
Funds from Operations attributable to
common stockholders and unitholders
$
257,327
$
211,336
$
511,055
$
438,448
FFO per share – diluted
$
3.87
$
3.13
$
7.68
$
6.49
Expensed acquisition and investment
related costs
$
5
$
10
$
344
$
18
Deferred tax expense (benefit) on
unconsolidated co-investments (1)
1,733
(6,864
)
833
(9,618
)
Realized and unrealized (gains) losses on
marketable securities, net
(7,591
)
21,597
(8,871
)
34,011
Provision for credit losses
16
(1
)
34
(63
)
Equity (income) loss from non-core
co-investments (2)
(978
)
20,710
(884
)
29,554
Loss on early retirement of debt from
unconsolidated co-investment
-
901
-
987
Co-investment promote income
-
-
-
(17,076
)
Income from early redemption of preferred
equity investments and notes receivable
(285
)
-
(285
)
(858
)
General and administrative and other,
net
561
997
827
1,445
Insurance reimbursements, legal
settlements, and other, net
(295
)
(8
)
(8,799
)
(8
)
Core Funds from Operations attributable
to common stockholders and unitholders
$
250,493
$
248,678
$
494,254
$
476,840
Core FFO per share – diluted
$
3.77
$
3.68
$
7.42
$
7.06
Weighted average number of shares
outstanding diluted (3)
66,444,114
67,566,748
66,584,049
67,587,362
(1)
Represents deferred tax related to net
unrealized gains or losses on technology co-investments.
(2)
Represents the Company's share of
co-investment income or loss from technology co-investments.
(3)
Assumes conversion of all outstanding
limited partnership units in Essex Portfolio, L.P. (the “Operating
Partnership”) into shares of the Company’s common stock and
excludes DownREIT limited partnership units.
Net Operating Income (“NOI”) and
Same-Property NOI Reconciliations
NOI and same-property NOI are considered by management to be
important supplemental performance measures to earnings from
operations included in the Company’s consolidated statements of
income. The presentation of same-property NOI assists with the
presentation of the Company’s operations prior to the allocation of
depreciation and any corporate-level or financing-related costs.
NOI reflects the operating performance of a community and allows
for an easy comparison of the operating performance of individual
communities or groups of communities. In addition, because
prospective buyers of real estate have different financing and
overhead structures, with varying marginal impacts to overhead by
acquiring real estate, NOI is considered by many in the real estate
industry to be a useful measure for determining the value of a real
estate asset or group of assets. The Company defines same-property
NOI as same-property revenues less same-property operating
expenses, including property taxes. Please see the reconciliation
of earnings from operations to NOI and same-property NOI, which in
the table below is the NOI for stabilized properties consolidated
by the Company for the periods presented (dollars in
thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Earnings from operations
$
134,832
$
128,628
$
322,217
$
238,478
Adjustments:
Corporate-level property management
expenses
11,451
10,176
22,883
20,348
Depreciation and amortization
136,718
134,517
273,065
268,050
Management and other fees from
affiliates
(2,778
)
(2,738
)
(5,543
)
(5,427
)
General and administrative
13,813
13,127
29,124
25,369
Expensed acquisition and investment
related costs
5
10
344
18
Casualty loss
-
-
433
-
Gain on sale of real estate and land
-
-
(59,238
)
-
NOI
294,041
283,720
583,285
546,836
Less: Non-same property NOI
(13,250
)
(12,559
)
(28,395
)
(24,647
)
Same-Property NOI
$
280,791
$
271,161
$
554,890
$
522,189
Safe Harbor Statement Under The Private
Litigation Reform Act of 1995:
This press release includes “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are statements which are not
historical facts, including statements regarding the Company's
expectations, estimates, assumptions, hopes, intentions, beliefs
and strategies regarding the future. Words such as “expects,”
“assumes,” “anticipates,” “may,” “will,” “intends,” “plans,”
“projects,” “believes,” “seeks,” “future,” “estimates,” and
variations of such words and similar expressions are intended to
identify such forward-looking statements. Such forward-looking
statements include, among other things, statements regarding the
Company’s expectations related to the continued evolution of the
work-from-home trend, the Company’s intent, beliefs or expectations
with respect to the timing of completion of current development and
redevelopment projects and the stabilization of such projects, the
timing of lease-up and occupancy of its apartment communities, the
anticipated operating performance of its apartment communities, the
total projected costs of development and redevelopment projects,
co-investment activities, qualification as a REIT under the
Internal Revenue Code of 1986, as amended, 2023 Same-Property
revenue and operating expenses generally and in specific regions,
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 such economic
conditions, inflation, the labor market, supply chain impacts and
ongoing hostilities between Russia and Ukraine, trends affecting
the Company’s financial condition or results of operations, changes
to U.S. tax laws and regulations in general or specifically related
to REITs or real estate, changes to laws and regulations in
jurisdictions in which communities the Company owns are located,
and other information that is not historical information. While the
Company's management believes the assumptions underlying its
forward-looking statements are reasonable, such forward-looking
statements involve known and unknown risks, uncertainties and other
factors, many of which are beyond the Company’s control, which
could cause the actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by such
forward-looking statements. The Company cannot assure the future
results or outcome of the matters described in these statements;
rather, these statements merely reflect the Company’s current
expectations of the approximate outcomes of the matters discussed.
Factors that might cause the Company’s actual results, performance
or achievements to differ materially from those expressed or
implied by these forward-looking statements include, but are not
limited to, the following: potential future outbreaks of infectious
diseases or other health concerns, which could adversely affect the
Company’s business and its tenants, and cause a significant
downturn in general economic conditions, the real estate industry,
and the markets in which the Company's communities are located; the
Company may fail to achieve its business objectives; the actual
completion of development and redevelopment projects may be subject
to delays; the stabilization dates of such projects may be delayed;
the Company may abandon or defer development or redevelopment
projects for a number of reasons, including changes in local market
conditions which make development less desirable, increases in
costs of development, increases in the cost of capital or lack of
capital availability, resulting in losses; the total projected
costs of current development and redevelopment projects may exceed
expectations; such development and redevelopment projects may not
be completed; development and redevelopment projects and
acquisitions may fail to meet expectations; estimates of future
income from an acquired property may prove to be inaccurate;
occupancy rates and rental demand may be adversely affected by
competition and local economic and market conditions; there may be
increased interest rates, inflation, escalated operating costs and
possible recessionary impacts; as well as uncertainties regarding
ongoing hostilities between Russia and Ukraine and the related
impacts on macroeconomic conditions, including, among other things,
interest rates and inflation; the Company may be unsuccessful in
the management of its relationships with its co-investment
partners; future cash flows may be inadequate to meet operating
requirements and/or may be insufficient to provide for dividend
payments in accordance with REIT requirements; changes in laws or
regulations; the terms of any refinancing may not be as favorable
as the terms of existing indebtedness; unexpected difficulties in
leasing of development projects; volatility in financial and
securities markets; the Company’s failure to successfully operate
acquired properties; unforeseen consequences from cyber-intrusion;
the Company’s inability to maintain our investment grade credit
rating with the rating agencies; government approvals, actions and
initiatives, including the need for compliance with environmental
requirements; and those further risks, special considerations, and
other factors referred to in the Company’s annual report on Form
10-K for the year ended December 31, 2022, quarterly reports on
Form 10-Q, and those risk factors and special considerations set
forth in the Company's other filings with the SEC which may 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. 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-18.1 through S-18.4, "Reconciliations of Non-GAAP
Financial Measures and Other Terms," of the accompanying
supplemental financial information. The supplemental financial
information is available on the Company's website at
www.essex.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230727615708/en/
Loren Rainey Director, Investor Relations (650) 655-7800
lrainey@essex.com
Grafico Azioni Essex Property (NYSE:ESS)
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