10-QPeriod: Q2 FY2007

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 7, 2007For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported solid performance for the second quarter and first half of 2007, demonstrating continued revenue growth and strategic acquisitions. Total property revenues increased by 15.5% for the quarter and 13.8% for the six-month period, driven by both same-property revenue growth (7.3% quarterly, 7.4% year-to-date) and contributions from recently acquired properties. The company continued to expand its portfolio with strategic acquisitions in key West Coast markets, including acquisitions in California and Seattle, totaling approximately $167.7 million in the second quarter. Despite an increase in total expenses, largely due to these acquisitions and ongoing development/redevelopment activities, the company managed its finances effectively, with substantial proceeds from equity offerings bolstering liquidity to fund growth initiatives and pay down debt. Key financial highlights include a notable increase in net income available to common stockholders for the six months ended June 30, 2007, reaching $45.2 million compared to $31.9 million in the prior year. Funds From Operations (FFO) also showed strength, albeit with a slight decrease year-over-year for the quarter ($36.5 million vs. $37.2 million) but an increase for the six-month period ($81.9 million vs. $66.1 million). The company also actively managed its debt, including refinancing efforts and the settlement of a forward-starting swap, enhancing its financial flexibility. Essex remains focused on its core strategy of acquiring, developing, and managing apartment communities in growth-oriented West Coast markets.

Key Highlights

  • 1Total property revenues increased by 15.5% to $96.7 million for the three months ended June 30, 2007, and by 13.8% to $188.9 million for the six months ended June 30, 2007, compared to the prior year periods.
  • 2Same-property revenues grew by 7.3% for the quarter and 7.4% for the six-month period, driven by an 8.0% increase in scheduled rents for the quarter and an 8.3% increase for the six-month period.
  • 3The company completed significant acquisitions in Q2 2007, including Cardiff by the Sea Apartments, Canyon Oaks apartments, Coldwater Canyon apartments, and The Cairns, totaling approximately $167.7 million.
  • 4Net income available to common stockholders was $45.2 million for the six months ended June 30, 2007, a substantial increase from $31.9 million in the same period of 2006.
  • 5Funds From Operations (FFO) per diluted share was $1.32 for the quarter and $3.01 for the six-month period, demonstrating operational strength.
  • 6The company raised substantial capital through equity offerings, including $213.7 million in the second quarter, which was used to pay down debt and fund acquisitions and development projects.
  • 7Debt management included refinancing of mortgage loans and settlement of a forward-starting swap, reducing the effective interest rate on a new loan to 5.19%.

Frequently Asked Questions

The increase in revenue was primarily driven by two factors: growth in same-property revenues, resulting from higher scheduled rents and effective lease-up, and contributions from new properties acquired during the periods. Same-property revenues saw an increase of 7.3% for the quarter and 7.4% year-to-date, fueled by an average rent increase of 8.0% for the quarter and 8.3% for the year-to-date period.

Essex Property Trust is actively managing its debt through refinancing initiatives, such as the Tierra Vista community's mortgage loan, and by utilizing a combination of debt and equity. The company raised significant capital through equity offerings, totaling $213.7 million in the second quarter, which was used to pay down outstanding borrowings and fund acquisitions and development. They also have credit facilities in place, including a $200 million unsecured line of credit and a $100 million Freddie Mac facility.

In the second quarter of 2007, Essex completed several key acquisitions including Cardiff by the Sea Apartments ($72 million), Canyon Oaks apartments ($64.3 million), Coldwater Canyon apartments ($8.3 million), and The Cairns ($28.1 million). The company also has a development pipeline with three development projects, seven predevelopment projects, and three Taxable REIT Subsidiary (TRS) projects, aggregating 2,720 units, with substantial remaining costs estimated at $689.9 million.

Essex Property Trust utilizes derivative instruments, primarily forward-starting interest rate swaps, as part of its cash flow hedging strategy to manage its exposure to interest rate fluctuations. As of June 30, 2007, the company had nine such swaps totaling a notional amount of $450 million, aimed at hedging forecasted interest payments on long-term debt. Additionally, a significant portion of their variable rate indebtedness is subject to interest rate caps.