01—Abstract
Summary
Summary of the 10-K filed February 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Essex Property Trust (NYSE: ESS) reported a steady 2023 for its West Coast apartment portfolio, with total property revenues up 3.9% to $1.66 billiona and Same-Property revenues up 4.4%, driven by a 4.5% increase in average rental rates to $2,604.
Same-Property NOI rose to $1.12 billionb, and average financial occupancy edged up to 96.4%. Net income available to common stockholders was $405.8 million, or $6.32 per diluted share, roughly flat versus 2022. Core FFO per diluted share rose to $15.03 from $14.51, which is the metric management emphasizes for operating performance.
The balance sheet is conservatively managed, with $391.7 millionc of unrestricted cash, $87.8 million of marketable securities, and an undrawn $1.2 billion unsecured credit line at December 31, 2023. Fixed-rate public bonds total $5.1 billion at a 3.3% average rate, and the company refinanced the $300 million term loan and $298 million of 10-year secured loans at 5.08%, a sign that refinancing costs are rising. Essex remains rated Baa1/Stable by Moody's and BBB+/Stable by S&P.
The company repurchased 437,026 shares for $95.7 milliond and still has $302.7 million of buyback authority remaining. Investors should weigh the regional concentration in Southern California, Northern California and Seattle, along with rising delinquencies (1.9% of scheduled rent in 2023, versus a 0.35% pre-pandemic average), pending RealPage-related antitrust class actions, and 2024 guidance for Same-Property revenue growth of only 0.7% to 2.7% against operating expense growth of 3.5% to 5.0%. These pressures could compress margins in 2024 even though the portfolio's occupancy and pricing held up in 2023.
02—Key points
Key Highlights
- Total property revenues grew 3.9% to $1.66 billion, and Same-Property revenues grew 4.4%, driven by a 4.5% rise in average rental rates to $2,604.
- Core FFO per diluted share increased to $15.03 from $14.51, while GAAP FFO per diluted share rose to $15.24 from $13.70.
- Net income available to common stockholders was $405.8 million ($6.32 per diluted share), essentially flat versus $408.3 million in 2022, as a $59.2 million gain on sale and a $55.6 million swing in marketable securities gains offset lower co-investment income.
- Liquidity is strong, with $391.7 million of unrestricted cash, $87.8 million of marketable securities and an undrawn $1.2 billion unsecured credit facility at year-end 2023.
- Cash delinquencies rose to 1.9% of scheduled rental income in 2023 from 1.3% in 2022, well above the pre-pandemic average of 0.35%, a key watch item for collections.
- 2024 guidance projects Same-Property revenue growth of 0.7% to 2.7% against Same-Property operating expense growth of 3.5% to 5.0%, signaling likely margin compression.
- Essex repurchased 437,026 shares for $95.7 million at an average price of $218.88 and has $302.7 million of repurchase authority remaining under its $500 million plan.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Essex Property Trust, Inc. kept $0.24.
- Revenue$1.67B100.0%
- Cost of revenue−$498.9M29.9%
- Gross profit$1.17B70.1%
- Operating costs−$586.2M35.1%
- Operating income$584.3M35.0%
- Interest, other & tax−$178.5M10.7%
- Net income$405.8M24.3%
Where FY2023 revenue went
$1.67B- Operating costs: $586.2M, 35% of revenue
- Cost of revenue: $498.9M, 30% of revenue
- Net income: $405.8M, 24% of revenue
- Interest, other & tax: $178.5M, 11% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 23, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $1.67B$1.61B | +3.9% |
| Gross Profit | $1.17B$1.13B | +3.7% |
| Operating Expenses | $1.14B$1.11B | +3.5% |
| Operating Income | $584.34M$595.23M | −1.8% |
| Interest Expense | $212.91M$204.80M | +4.0% |
| Net Income | $405.82M$408.31M | −0.6% |
| EPS (Basic) | $6.32$6.27 | +0.8% |
| EPS (Diluted) | $6.32$6.27 | +0.8% |
| Shares Outstanding (Basic) | 64.25M65.08M | −1.3% |
| Shares Outstanding (Diluted) | 64.25M65.10M | −1.3% |
05—Questions
Frequently Asked Questions
How did Essex's core operating performance trend in 2023?
Same-Property revenues rose 4.4% to $1.58 billion, Same-Property NOI increased to $1.12 billion from $1.07 billion, and average financial occupancy improved to 96.4% from 96.1%. Core FFO per diluted share rose about 3.6% to $15.03.
Is Essex's balance sheet and debt position stable?
Yes. The company held $391.7 million in unrestricted cash and had an undrawn $1.2 billion unsecured credit line at year-end. Its $5.1 billion of fixed-rate public bonds carry a 3.3% average rate, and it remains rated Baa1/Stable and BBB+/Stable. Refinancing costs are rising, however: the July 2023 secured loans were priced at 5.08%, and the average rate on mortgage debt increased to 4.3%.
What are the main risks to Essex's outlook for 2024?
Key risks include higher delinquencies, with 2023 cash delinquencies at 1.9% of scheduled rent, pending RealPage-related antitrust class actions, and a 2024 guidance range in which operating expenses are projected to grow faster than revenue. Concentration in California and Washington adds exposure to regional economic and regulatory changes such as rent control, Proposition 13 property tax reassessments, and earthquake risk.
How does Essex return capital to shareholders?
Essex paid $9.24 per share in common dividends in 2023 and declared a Q4 2023 dividend of $2.31 per share, paid in January 2024. In 2023 it also repurchased $95.7 million of stock. The company did not issue any shares under its $900 million at-the-market program during the year.
What did Essex do with its portfolio during 2023?
Essex acquired one community, Hacienda at Camarillo Oaks (73 apartment homes) for $23.1 million, and sold CBC and The Sweeps (239 homes) for $91.7 million, recognizing a $54.5 million gain. The company also sold a Moorpark land parcel for $8.7 million. Its development pipeline consists of one 264-home joint venture project, LIVIA at Scripps Ranch, with total estimated costs of $126 million.
06—Continue