10-QPeriod: Q2 FY2016

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 1, 2016For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported solid financial results for the second quarter and first half of 2016, demonstrating continued growth in rental revenue and net income. The company's primary revenue driver, rental and other property income, saw a notable increase of 8.7% for the quarter and 10.0% for the first half compared to the prior year, driven by both same-property revenue growth and contributions from recent acquisitions. Strategically, Essex has been active in managing its portfolio, including redeeming preferred stock and issuing new unsecured debt to optimize its capital structure. The company also continues to invest in its development pipeline, primarily in key West Coast markets. Despite some increases in operating expenses and interest expenses, driven by portfolio expansion and new debt, the company's strong revenue growth has supported healthy increases in net income and earnings per share, positioning it favorably for continued performance.

Financial Highlights

33 data points
Beta

Revenue

$321.59M

Net Income

$72.01M

22.4% Net Margin

EPS (Diluted)

$1.10

Total Assets

$12.21B

Cash & Equivalents

$182.51M

Free Cash Flow

$149.74M

Financial Statements
Beta
Revenue$321.59M
Operating Expenses$215.72M
Operating Income$105.87M
Interest Expense$55.57M
Net Income$72.01M
EPS (Basic)$1.10
EPS (Diluted)$1.10
Shares Outstanding (Basic)65.45M
Shares Outstanding (Diluted)65.58M

Key Highlights

  • 1Total property revenues increased by 8.7% for Q2 2016 and 10.0% for the first six months of 2016 compared to the prior year, driven by higher average rental rates and contributions from new communities.
  • 2Net income available to common stockholders grew significantly, up 58.1% for the quarter and 42.8% for the first half year-over-year, reflecting strong operational performance.
  • 3Diluted earnings per share (EPS) increased to $1.10 for Q2 2016 from $0.70 in Q2 2015, and to $2.29 for the first six months from $1.62 in the prior year.
  • 4The company redeemed all of its 7.125% Series H Cumulative Redeemable Preferred Stock in April 2016, strengthening its capital structure.
  • 5Essex issued $450 million of 3.375% senior unsecured notes in April 2016, with proceeds used for debt repayment and general corporate purposes, extending its debt maturity profile.
  • 6Same-property Net Operating Income (NOI) increased by 8.2% for Q2 and 8.5% for the first six months of 2016 compared to the prior year, indicating robust performance from its core portfolio.
  • 7The company maintained high financial occupancy rates across its key regions, with overall average financial occupancy at 96.0% for both Q2 and the first six months.

Frequently Asked Questions

The primary driver of revenue growth was an increase in rental and other property revenue, which rose by 8.7% for the quarter and 10.0% for the first six months, largely due to a 7.0% increase in average rental rates on same-property units and contributions from newly acquired or consolidated communities.

Essex Property Trust strategically managed its capital structure by redeeming all of its Series H Cumulative Redeemable Preferred Stock for $73.8 million in April 2016. Additionally, the company issued $450 million of 3.375% senior unsecured notes maturing in 2026, using the proceeds to repay existing debt and for general corporate purposes, thus optimizing its debt maturity profile.

Essex continues to invest in its development pipeline, which as of June 30, 2016, comprised two consolidated and five unconsolidated joint venture projects, totaling 2,272 apartment homes. The company expects to fund these projects using a combination of working capital, credit lines, equity/debt issuances, and asset dispositions.

Property operating expenses, excluding real estate taxes, increased due to portfolio expansion, while same-property operating expenses saw a moderate increase driven by property management fees and maintenance costs. Interest expense also increased, primarily due to the new $450 million senior unsecured notes issued in April 2016, which offset savings from the repayment of other debt. However, these increases were largely absorbed by strong revenue growth.