10-QPeriod: Q2 FY2004

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2004

Filed August 9, 2004For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its second quarter 2004 financial results, highlighting revenue growth driven by acquisitions and operational improvements, particularly in Southern California. The company's strategy of focusing on markets with strong job growth and limited housing supply continues to yield positive results in key regions. However, performance in Northern California was impacted by job losses, leading to decreased rental revenues. Financially, ESS saw an increase in total revenues for both the three and six-month periods ended June 30, 2004, compared to the prior year. This growth was primarily attributed to property acquisitions and the stabilization of recently redeveloped and developed communities. Despite overall revenue increases, net income for the quarter and year-to-date periods declined, largely due to increased expenses, including depreciation and amortization, administrative costs, and interest expenses related to recent acquisitions. The company also recorded an impairment charge related to a discontinued operation. Looking ahead, ESS is actively exploring strategic alternatives for its Fund I portfolio, with potential for a sale by December 2004, which could result in a significant incentive payment for the company. Furthermore, the company has closed its initial funding for Fund II, signaling continued expansion and investment in its targeted West Coast markets. ESS maintains a strong liquidity position with substantial cash and available credit lines.

Key Highlights

  • 1Total revenues increased by 11.3% for Q2 2004 and 9.0% for the first six months of 2004 compared to the prior year, primarily driven by property acquisitions and stabilized operations of new developments.
  • 2Southern California continues to be a strong performer, with same-store property revenues increasing by 3.4% for Q2 2004 year-over-year.
  • 3Net income decreased for both the three and six-month periods ended June 30, 2004, compared to 2003, primarily due to higher expenses including depreciation, administrative costs, and interest expenses related to acquisitions.
  • 4An impairment charge of $756,000 was recorded for the Golden Village Recreational Vehicle Park, which is being presented as a discontinued operation.
  • 5The company is exploring strategic alternatives for its Essex Apartment Value Fund I (Fund I), with a potential sale anticipated by December 2004, which could yield over $18 million in incentive payments.
  • 6Essex announced the initial closing of its second investment fund, Essex Apartment Value Fund II (Fund II), with committed equity of $195 million, aiming to invest approximately $700 million in West Coast markets.
  • 7The company maintained strong liquidity, with $11.6 million in unrestricted cash and equivalents and significant availability under its credit lines at the end of the quarter.

Frequently Asked Questions

Revenue growth was primarily driven by the acquisition of seven multifamily properties and the achievement of stabilized operations in two redevelopment and two development communities. Additionally, strong performance in Southern California contributed positively.

Net income decreased primarily due to increased expenses. These included higher depreciation and amortization charges, an increase in administrative costs, and higher interest expenses related to the financing of recent acquisitions. An impairment charge on a discontinued operation also impacted net income.

Essex is evaluating strategic alternatives for Fund I, with a potential sale by December 2004. The company has also initiated Fund II with $195 million in committed equity, targeting significant investment in West Coast markets.

Essex maintains a strong liquidity position with $11.6 million in unrestricted cash and equivalents and ample availability under its credit lines. The company utilizes a mix of fixed and variable rate debt and actively manages its capital structure, including recent refinancing and credit facility renewals.