10-QPeriod: Q2 FY2003

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 13, 2003For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its second quarter 2003 results, showcasing continued growth in rental revenues driven by acquisitions and a strategic focus on key West Coast markets. While total revenues increased, net income saw a decline compared to the prior year, largely due to the absence of significant gains from discontinued operations and increased interest expenses associated with expanded debt. The company is actively managing its portfolio, with significant investments in development and redevelopment projects, and has expanded its credit facilities to support future growth. Investors should note the company's emphasis on Funds From Operations (FFO) as a key performance metric, which remained robust, indicating operational strength despite the reported net income decrease. The company's balance sheet reflects growth in real estate assets, with investments in land, buildings, and improvements. Debt levels have increased to finance these expansions, with a notable rise in line of credit usage. The company's diversification across Southern California, Northern California, and the Pacific Northwest appears to be a key strategy, with Southern California showing particularly strong revenue growth. Management remains focused on navigating economic uncertainties and maintaining liquidity through operational cash flow and existing credit lines, while also pursuing strategic capital raises and property dispositions.

Key Highlights

  • 1Total revenues increased by 14.6% to $58.4 million for the three months ended June 30, 2003, compared to $51.0 million in the prior year, primarily driven by new property acquisitions and development activities.
  • 2Net income for the quarter decreased by 50.1% to $10.7 million ($0.50 per diluted share) from $21.4 million ($1.14 per diluted share) in the prior year, largely due to the absence of significant gains from discontinued operations and increased interest expenses.
  • 3Property revenues from Same Store Properties decreased by 1.9% to $40.6 million for the quarter, with declines in Northern California and the Pacific Northwest partially offset by growth in Southern California.
  • 4The company's balance sheet shows an increase in total assets to $1.64 billion from $1.62 billion, driven by additions to rental properties and investments, partially offset by a decrease in real estate under development.
  • 5Total liabilities increased to $890 million from $866 million, reflecting higher balances on mortgage notes payable and lines of credit, indicating increased leverage to fund growth.
  • 6Funds From Operations (FFO) for the quarter increased slightly to $25.6 million from $24.7 million in the prior year, demonstrating ongoing operational performance despite the reported net income decline.
  • 7The company expanded its unsecured revolving credit facility to $185 million from $165 million and currently has $135 million outstanding on this facility, indicating active use of credit lines for liquidity.

Frequently Asked Questions

The primary driver of revenue growth was the acquisition of new multifamily properties and contributions from development and redevelopment communities. Property revenues increased significantly due to acquisitions made subsequent to March 31, 2002.

The decrease in net income was primarily due to the absence of significant gains from discontinued operations (which were present in the prior year's second quarter) and an increase in total expenses, particularly interest expense and property operating expenses, linked to expanded debt and new acquisitions.

Essex Property Trust is utilizing a combination of mortgage notes payable and unsecured lines of credit to fund its operations and growth. The company expanded its revolving credit facility and has a substantial portion of it outstanding, indicating its reliance on these lines for liquidity. Management expects current cash flows and available credit to meet short-term needs.

The decline in same-store property revenues in these regions, despite slight increases in financial occupancy, was mainly attributed to rental rate decreases. This suggests a challenging market environment in those specific sub-markets during the period, which was partially offset by strong performance in Southern California.