01—Abstract
Summary
Summary of the 10-K/A filed March 1, 2012. Cited figures are marked; the original filing is the authoritative source.
Essex Property Trust (NYSE: ESS) closed 2011 with a larger, more diversified West Coast apartment portfolio: 159 communities and 32,753 units, plus five commercial buildings and five joint-venture development projects.
Total revenue rose to $475.6 milliona from $413.3 million, driven mainly by 2011 acquisitions (eleven communities for about $533 million) and eight lease-up developments. Same-property revenue grew a more modest 3.9%, with average financial occupancy slipping 50 basis points to 96.4%, as management prioritized rent growth over occupancy. Net income available to common stockholders was $40.4 million ($1.24 per diluted share), down from $33.8 million ($1.14) in 2010 after a $0.9 million-to-$1.2 million swing in preferred-related items.
Funds from operations (FFO) rose to $200.2 millionb from $171.4 million, a useful indicator of the core operating business. Management guided 2012 same-property revenue growth of 5% to 7% and same-property NOI growth of 7% to 9%. The balance sheet grew substantially, with total assets of $4.04 billion and $2.36 billion of indebtedness.
Leverage is managed through a mix of fixed-rate mortgages, a $425 millionc unsecured line of credit, and newly issued private-placement bonds and a $200 million term loan. Management reports the company is rated BBB/Stable by S&P and Fitch and Baa2 by Moody's, and it issued 2.5 million common shares for $323.9 million in 2011.
Key risks include a heavy geographic concentration (82% of rental revenue from California), debt refinancing and interest rate exposure with $593.7 milliond of variable-rate debt, earthquake exposure that is largely self-insured, and governance considerations including the Chairman's outside real estate interests and a Series H preferred stock voting trigger. The dividend was raised 6% to an annualized $4.40 per share starting in the first quarter of 2012.
02—Key points
Key Highlights
- Total revenues rose 15.1% to $475.6 million in 2011, while same-property revenues grew 3.9% to $393.1 million, with the balance of growth coming from newly acquired and lease-up communities.
- Funds from operations (FFO) increased to $200.2 million in 2011 from $171.4 million in 2010, and diluted EPS was $1.24 versus $1.14, a modest improvement in core earnings power.
- Acquisition activity was heavy, with eleven communities bought for about $533 million, including the Wesco I joint venture, which has a $200 million equity commitment and six communities.
- Average same-property financial occupancy fell 50 basis points to 96.4%, as the company pushed for higher rents, while scheduled rents rose 4.1% on average to $1,367 per unit.
- Debt totaled $2.36 billion, including $593.7 million of variable-rate debt, of which $150 million is swapped to fixed and $187.8 million is covered by interest rate caps; 82% of rental revenue comes from California.
- 2012 guidance calls for same-property revenue growth of 5% to 7% and NOI growth of 7% to 9%, and the quarterly dividend was raised to $1.10 per share ($4.40 annualized).
03—One dollar
04—Financials
Financial Highlights
Figures from 10-K/AFY2011filed March 1, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $467.44M$410.28M | +13.9% |
| Operating Expenses | $332.82M$299.65M | +11.1% |
| Operating Income | $134.62M$110.63M | +21.7% |
| Interest Expense | $91.69M$82.76M | +10.8% |
| Net Income | $47.07M$35.93M | +31.0% |
| EPS (Basic) | $1.24$1.14 | +8.8% |
| EPS (Diluted) | $1.24$1.14 | +8.8% |
| Shares Outstanding (Basic) | 32.54M29.67M | +9.7% |
| Shares Outstanding (Diluted) | 32.63M29.73M | +9.7% |
05—Questions
Frequently Asked Questions
How much did Essex's earnings and cash flow improve in 2011?
Net income available to common stockholders rose to $40.4 million ($1.24 per diluted share) from $33.8 million ($1.14) in 2010. Funds from operations, a standard REIT measure, increased to $200.2 million from $171.4 million, and operating cash flow rose to $216.6 million from $175.5 million. Growth was largely driven by acquisitions and new developments rather than same-store performance alone.
How is Essex financing its growth, and how much leverage does it carry?
The company funded growth through a $323.9 million common stock offering, $265 million of private-placement unsecured bonds, a $200 million term loan (with $150 million swapped to a 2.66% fixed rate), and a new $425 million unsecured line of credit. Total indebtedness was about $2.36 billion at year-end. The company reports BBB/Stable ratings from S&P and Fitch and a Baa2 rating from Moody's.
What are the biggest risks for investors?
The main risks are geographic concentration (82% of rental revenue from California), interest rate and refinancing exposure on $593.7 million of variable-rate debt, earthquake risk that is largely self-insured through the company's PWI subsidiary, and the influence of the Chairman George Marcus, who owns about 4.4% of shares and has outside real estate interests that could create conflicts. Future equity issuance could also dilute existing shareholders.
What does management expect for 2012?
Management expects same-property revenue to grow 5% to 7%, with financial occupancy holding near 96.4% and rent increases driving the gain. Same-property operating expenses are expected to rise 2% to 3%, and same-property NOI is projected to grow 7% to 9%. Forward-looking estimates are subject to the risks described in Item 1A.
Is the dividend growing, and is it covered?
The board raised the annualized common dividend by $0.24 to $4.40 per share, with the first 2012 quarterly payment of $1.10 due April 13, 2012. Dividends paid in 2011 totaled $4.16 per share, and FFO of $200.2 million comfortably exceeds the approximately $141.8 million of common and preferred dividends declared, indicating solid coverage from operating cash flow.
06—Continue