10-QPeriod: Q3 FY2003

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 14, 2003For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its third-quarter 2003 financial results, showing a notable increase in total revenues driven by recent property acquisitions and development activities. While same-store property revenues saw a slight decline, particularly in Northern California and the Pacific Northwest, this was offset by strong performance in Southern California and contributions from newly acquired assets. The company continued to expand its portfolio through strategic acquisitions and development projects, signaling a growth-oriented strategy. Despite revenue growth, net income decreased year-over-year due to higher operating expenses associated with new properties and a significant drop in 'interest and other income,' largely from reduced interest on notes receivable and the sale of co-investment assets. The company also undertook significant financing activities, including a preferred stock issuance and an increase in its revolving credit facility, to fund its growth initiatives and manage its capital structure. Investors should note the company's ongoing development pipeline and its strategy of expanding its West Coast presence.

Key Highlights

  • 1Total revenues increased by 19.4% year-over-year for the third quarter of 2003, primarily driven by new property acquisitions and development activities.
  • 2Net income decreased by 12.8% in Q3 2003 compared to Q3 2002, largely due to increased operating expenses and a significant decline in 'interest and other income'.
  • 3Same-store property revenues saw a 3.0% decrease in Q3 2003, with notable declines in Northern California and the Pacific Northwest, though Southern California showed a 3.8% increase.
  • 4The company expanded its unsecured revolving credit facility from $165 million to $185 million during the quarter.
  • 5Essex issued 1,000,000 shares of Series F Cumulative Redeemable Preferred Stock, raising capital for the redemption of Series C Preferred Units.
  • 6Subsequent to the quarter, the company raised approximately $96.8 million in net proceeds from a common stock offering, intended for acquisitions and general corporate purposes.
  • 7The company is actively developing six multifamily residential projects with an aggregate of 1,368 units, with significant remaining commitments for funding.

Frequently Asked Questions

Total revenues increased by 19.4% due to a significant rise in property revenues from properties acquired after June 30, 2002, as well as contributions from office buildings, RV parks, and manufactured housing communities. This growth was partially offset by a decrease in 'interest and other income' and a decline in revenues from established 'Same Store Properties', particularly in Northern California and the Pacific Northwest.

Net income decreased by 12.8% primarily because of a substantial increase in total expenses, which rose by 34.6%. This was driven by higher property operating expenses related to newly acquired properties and increased interest expenses due to higher debt balances. Additionally, 'interest and other income' decreased significantly, impacting overall profitability.

Essex expects to meet its short-term liquidity needs through working capital, cash generated from operations, and its revolving credit facilities. For long-term needs like property acquisitions, development, and debt maturities, the company plans to utilize a combination of working capital, credit lines, proceeds from debt and equity issuances, and property dispositions. The company recently raised substantial capital through preferred and common stock offerings to support these activities.

Essex is primarily exposed to interest rate changes through its lines of credit and long-term debt. The company aims to manage this risk by borrowing at fixed rates and may use derivative instruments. As of September 30, 2003, the company had both fixed-rate and variable-rate debt. While variable-rate debt is currently at low rates, a significant increase could impact interest expenses.