10-QPeriod: Q1 FY2004

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q1 Ended Mar 31, 2004

Filed May 17, 2004For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its first quarter 2004 financial results, highlighting a strategic shift towards a more concentrated portfolio in Southern California. While overall revenues increased by 5.3%, driven by acquisitions and increased interest/other income, net income saw a decrease of 33.1% year-over-year, primarily due to higher depreciation and interest expenses associated with recent property acquisitions and a cumulative depreciation correction. The company's balance sheet shows significant growth in real estate assets, with substantial increases in both rental properties and properties under development, alongside a notable rise in mortgage notes payable and lines of credit to finance these expansions. This period also marked the retroactive adoption of FIN 46 Revised and SFAS 123, impacting prior period reporting and consolidating previously separate entities. Financially, the company demonstrated robust operating cash flow, though investing activities were heavily weighted towards acquisitions, as evidenced by a substantial outflow. Financing activities provided significant inflows, largely from increased borrowings on lines of credit and mortgage notes. Management remains focused on its strategy of investing in submarkets with strong rental growth potential, particularly in Southern California, while navigating a challenging environment in Northern California and the Pacific Northwest. The company also announced plans for a second apartment value fund (Fund II) and renewed its credit facilities, indicating a continued focus on growth and liquidity.

Key Highlights

  • 1Total revenues increased by 5.3% to $69.8 million in Q1 2004 compared to Q1 2003, driven by acquisitions and increased interest and other income.
  • 2Net income decreased by 33.1% to $6.45 million in Q1 2004 compared to $9.65 million in Q1 2003, primarily due to higher depreciation and interest expenses.
  • 3Total assets grew to $2.09 billion as of March 31, 2004, up from $1.92 billion at December 31, 2003, reflecting expansion in real estate holdings.
  • 4Total liabilities increased to $1.23 billion as of March 31, 2004, from $1.04 billion at December 31, 2003, mainly due to increased mortgage notes payable and lines of credit.
  • 5The company adopted FIN 46 Revised and SFAS 123 retroactively, impacting prior period financial statements and consolidating Variable Interest Entities (VIEs).
  • 6Same-store property revenues in Southern California increased by 4.4%, while Northern California saw an 8.2% decrease, reflecting regional performance variations.
  • 7The company renewed its $185 million unsecured line of credit facility for a three-year term and is in the process of forming a second apartment value fund (Fund II).

Frequently Asked Questions

Revenue growth was primarily driven by the acquisition of new properties, particularly 13 multifamily properties acquired after December 31, 2002, and a significant increase in interest and other income. Total revenues rose by 5.3% year-over-year.

Net income decreased by 33.1% because of increased expenses. Key factors include a substantial rise in depreciation and amortization expenses, largely due to the newly acquired properties and a cumulative depreciation correction, as well as higher interest expenses resulting from increased debt levels to finance acquisitions.

The retroactive adoption of FIN 46 Revised and SFAS 123 required Essex to consolidate previously unconsolidated Variable Interest Entities (VIEs). This resulted in restatements of prior period financial statements and increased reported assets and liabilities. For example, total assets and liabilities increased by approximately $192 million and $157 million, respectively, due to the consolidation of these VIEs as of March 31, 2004.

Essex's strategy is to invest in submarkets with the greatest potential for rental growth and lowest relative risk, with a growing concentration in Southern California. In Q1 2004, Southern California showed strong performance with a 4.4% increase in same-store property revenues. In contrast, Northern California experienced an 8.2% decrease in same-store revenues due to job losses, while the Pacific Northwest saw a slight decrease of 0.1%, though expected to improve.