10-QPeriod: Q1 FY2018

ESSEX PROPERTY TRUST, INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed May 4, 2018For Securities:ESS

Summary

Essex Property Trust, Inc. (ESS) reported its first quarter 2018 financial results, demonstrating continued operational strength in its West Coast multifamily portfolio. Rental revenues saw a healthy increase, driven by both higher rental rates and modest growth in the number of apartment homes. The company continues to invest in its development pipeline and manages its balance sheet effectively, with strong liquidity and access to credit markets. While net income was lower year-over-year, this was primarily due to significant non-operational gains in the prior year's first quarter, including a large gain on the remeasurement of a co-investment and a gain on sale of real estate. Excluding these one-time items, the operational performance remained robust, with increasing Net Operating Income (NOI) across its core geographic segments. The company's strategic focus on its core West Coast markets and ongoing development projects position it well for future growth.

Financial Highlights

32 data points
Beta

Revenue

$347.25M

Net Income

$90.92M

26.2% Net Margin

EPS (Diluted)

$1.38

Total Assets

$12.64B

Cash & Equivalents

$121.95M

Free Cash Flow

$268.36M

Financial Statements
Beta
Revenue$347.25M
Operating Expenses$236.71M
Operating Income$110.55M
Interest Expense$54.86M
Net Income$90.92M
EPS (Basic)$1.38
EPS (Diluted)$1.38
Shares Outstanding (Basic)66.04M
Shares Outstanding (Diluted)66.08M

Key Highlights

  • 1Total rental revenues increased by 3.5% to $344.9 million for the three months ended March 31, 2018, compared to $333.2 million in the prior year period, driven by a 2.4% increase in average rental rates on stabilized same-property assets.
  • 2Net income available to common stockholders decreased to $90.9 million ($1.38 per diluted share) for the first quarter of 2018 from $179.0 million ($2.72 per diluted share) in the prior year period, largely due to significant non-cash gains and sale gains recognized in Q1 2017.
  • 3Net Operating Income (NOI) for the Same-Property portfolio increased by 3.7% to $232.7 million, indicating strong underlying operational performance.
  • 4The company reported $122.0 million in unrestricted cash and cash equivalents and $197.7 million in marketable securities as of March 31, 2018, indicating a strong liquidity position.
  • 5Essex issued $300.0 million of 30-year senior unsecured notes at a 4.500% interest rate in March 2018 to repay indebtedness and for general corporate purposes.
  • 6The development pipeline remains active, with 1,982 apartment homes under development or predevelopment, representing total estimated project costs of $1.3 billion.
  • 7Financial occupancy for stabilized apartment communities remained high at 97.1% for the first quarter of 2018, up from 96.5% in the prior year period.

Frequently Asked Questions

The decrease in Net Income available to common stockholders from $179.0 million in Q1 2017 to $90.9 million in Q1 2018 was primarily due to significant non-operational gains recognized in the prior year. Specifically, Q1 2017 included a gain on the remeasurement of a co-investment ($86.5 million) and a gain on the sale of real estate ($26.2 million), which were not present in the current period. The core operational performance, as indicated by NOI, remained strong.

Essex maintains a robust capital structure. As of March 31, 2018, the company had $3.8 billion in unsecured debt and $1.9 billion in mortgage notes payable. In March 2018, they issued $300 million in long-term senior unsecured notes at 4.500% to repay existing debt and fund general corporate purposes. The company also has access to significant liquidity through $1.24 billion in unsecured lines of credit, of which none were drawn as of the reporting date.

Essex has an active development pipeline comprising five consolidated projects and two unconsolidated joint venture projects, aggregating 1,982 apartment homes. The total estimated project costs are $1.3 billion, with approximately $0.7 billion remaining to be spent. The company expects to fund this pipeline through a combination of working capital, credit facilities, debt and equity issuances, and potential asset dispositions.

The company's performance is segmented by its three core geographic regions: Southern California, Northern California, and Seattle Metro. For the first quarter of 2018, all three regions demonstrated positive Same-Property revenue growth, with Southern California up 3.3%, Northern California up 2.7%, and Seattle Metro up 4.5%. Financial occupancy rates remained strong across all regions, exceeding 96.9%.