10-QPeriod: Q3 FY2007

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q3 Ended Sep 30, 2007

Filed November 7, 2007For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its financial results for the third quarter ended September 30, 2007, showcasing robust revenue growth driven by same-property increases and strategic acquisitions. The company's rental revenues saw a significant year-over-year jump, reflecting strong rental rate increases and the addition of new properties to its portfolio. This growth was supported by a strategic focus on its core West Coast markets, with Southern California and Northern California continuing to be significant contributors to revenue and net operating income. The company also demonstrated active capital management, including substantial investments in acquisitions and development projects. Despite increased expenses related to property operations and depreciation from new acquisitions, Essex maintained a healthy financial position. The report highlights the company's commitment to shareholder value through its dividend policy and an authorized stock repurchase program. Investors should note the company's ongoing development and redevelopment pipeline, which signifies future growth potential, alongside its proactive approach to managing interest rate risk through hedging activities.

Key Highlights

  • 1Total property revenues increased by 15.1% to $99.9 million for the third quarter of 2007 compared to the same period in 2006, driven by a 5.8% increase in same-property revenues and significant growth in non-same property revenues.
  • 2Same-property revenues increased by 5.8% due to a 7.0% rise in scheduled rents, leading to an average monthly rental rate of $1,302 per unit in Q3 2007.
  • 3The company completed significant acquisitions in September 2007, including Mill Creek at Windermere ($100.5 million) and Thomas Jefferson Apartments ($28 million), expanding its portfolio in key California markets.
  • 4Total expenses increased by 17.6% to $86.7 million, influenced by higher property operating expenses, depreciation due to new acquisitions, and increased interest expenses from higher debt levels.
  • 5Net income available to common stockholders was $9.997 million ($0.39 per diluted share) for the quarter, compared to $10.686 million ($0.45 per diluted share) in the prior year period.
  • 6The company's development pipeline includes three development projects and seven predevelopment projects, representing significant future growth opportunities.
  • 7Essex has a $200 million unsecured line of credit and a $100 million Freddie Mac credit facility, demonstrating strong access to liquidity, and has entered into interest rate swaps to hedge against refinancing risk on upcoming debt maturities.

Frequently Asked Questions

The primary driver of revenue growth was a combination of a 5.8% increase in same-property revenues, largely due to a 7.0% rise in scheduled rents and higher average rental rates, and a significant increase in non-same property revenues, which grew by 73.3% due to the acquisition of twelve communities since July 1, 2006.

Essex actively managed its debt by drawing on its credit lines for acquisitions and development. Notably, they have a $200 million unsecured line of credit and a $100 million Freddie Mac credit facility. The company also entered into nine forward-starting interest rate swaps totaling $450 million notional amount to hedge against potential increases in interest rates on future debt refinancing.

Future growth is expected from both organic growth in existing properties, driven by rental rate increases and occupancy management, and through its development and redevelopment pipeline. The company had three development projects and seven predevelopment projects underway as of September 30, 2007, with substantial remaining costs, indicating a focus on expanding its property base in key West Coast markets.

Net income available to common stockholders decreased slightly to $9.997 million ($0.39 per diluted share) for the third quarter of 2007, from $10.686 million ($0.45 per diluted share) in the third quarter of 2006. This decrease was influenced by higher expenses related to property operations, depreciation from acquisitions, and increased interest expenses, which offset the revenue growth.