10-QPeriod: Q3 FY2006

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q3 Ended Nov 7, 2006

Filed November 8, 2006For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its third quarter 2006 financial results, demonstrating continued growth in rental revenues and net operating income across its West Coast multifamily portfolio. The company experienced a 9.1% increase in total property revenues for the nine months ended September 30, 2006, driven by strong performance in its Same-Properties segment, which saw a 6.6% revenue increase due to higher rental rates and improved occupancy. Significant strategic activities during the quarter included the acquisition of a large apartment community in San Mateo, California, and the successful issuance of Series G Cumulative Convertible Preferred Stock, raising substantial capital. Financially, Essex maintained a solid balance sheet with total assets growing to $2.46 billion. While the company incurred increased expenses related to insurance, real estate taxes, and general administrative costs, these were largely offset by revenue growth and disciplined cost management. The company also provided updates on its development pipeline and risk management strategies, particularly concerning interest rate fluctuations, for which it has implemented hedging instruments. The report indicates a generally stable operational outlook, supported by strong market positions and strategic capital allocation.

Key Highlights

  • 1Total property revenues increased by 9.1% to $261.6 million for the nine months ended September 30, 2006, compared to the same period in 2005.
  • 2Same-Property revenues grew by 6.6% to $227.2 million for the nine months ended September 30, 2006, driven by a 5.9% increase in rental rates and stable occupancy.
  • 3The company acquired Hillsdale Garden Apartments, a 697-unit community in San Mateo, California, for approximately $97.3 million in September 2006.
  • 4Essex successfully issued 5.98 million shares of 4.875% Series G Cumulative Convertible Preferred Stock in Q3 2006, raising gross proceeds of $149.5 million.
  • 5Total assets grew to $2.46 billion as of September 30, 2006, up from $2.24 billion at December 31, 2005.
  • 6Funds from Operations (FFO) increased to $32.9 million for the third quarter of 2006, up from $29.7 million in the prior year's quarter.
  • 7The company reported significant activity in its development and predevelopment pipeline, with substantial projected costs for new projects.

Frequently Asked Questions

The primary drivers of revenue growth were increases in rental rates and stable occupancy in the company's Same-Properties portfolio, which saw a 6.6% increase in revenue for the nine months ended September 30, 2006. Additionally, revenues from properties acquired subsequent to the prior year contributed to overall growth.

Essex Property Trust strengthened its capital position by issuing 5.98 million shares of Series G Cumulative Convertible Preferred Stock, which generated gross proceeds of $149.5 million. These proceeds were used to pay down outstanding borrowings, fund development, and for general corporate purposes.

Essex Property Trust is actively engaged in development and redevelopment projects. As of September 30, 2006, the company had two development projects comprising 513 units with an estimated cost of $167.3 million, and eight communities totaling 2,600 units in various stages of redevelopment with a total cost of approximately $65.2 million. The company aims for a 10-12% return on incremental renovation investment for redevelopment projects.

Essex Property Trust utilizes derivative financial instruments, primarily interest rate swaps, as part of its cash flow hedging strategy to manage interest rate risk. As of September 30, 2006, the company had entered into forward-starting interest rate swaps totaling $400 million to hedge against the refinancing of debt maturing between 2007 and early 2011.