Essex Announces First Quarter 2021 Results

Rhea-AI Summary

Essex Property Trust reported its Q1 2021 earnings, highlighting a sharp decline in key financial metrics. Net income fell 45.6% to $2.59 per diluted share, while Total FFO decreased by 6.1% to $3.23, and Core FFO dropped 11.8% to $3.07. Same-property gross revenues and NOI declined by 8.1% and 12.3%, attributed to lower rents and increased cash concessions. The company increased its annual dividend to $8.36, marking the 27th consecutive annual increase. Essex disposed of three apartment communities for $275.5 million and issued $450 million in senior unsecured notes.

Positive

• Increased annual dividend to $8.36, marking the 27th consecutive annual increase.
• Disposed of three apartment communities for $275.5 million, recognizing a $100.1 million gain on sale.
• Improved same-property gross revenues and NOI by 0.1% sequentially from Q4 2020.

Negative

• Net income per diluted share decreased 45.6% from Q1 2020.
• Total FFO fell by 6.1% year-over-year.
• Core FFO declined 11.8% compared to Q1 2020.
• Same-property gross revenues and NOI dropped by 8.1% and 12.3%, respectively.

Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its first quarter 2021 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the quarter ended March 31, 2021 are detailed below.

		Three Months Ended March 31,
							%
		2021		2020			Change
Per Diluted Share
Net Income		$2.59		$4.76			-45.6%
Total FFO		$3.23		$3.44			-6.1%
Core FFO		$3.07		$3.48			-11.8%

First Quarter 2021 Highlights:

• Reported Net Income per diluted share for the first quarter of 2021 of $2.59, compared to $4.76 in the first quarter of 2020. The decrease is largely attributable to a gain on remeasurement of co-investments recorded in the first quarter of 2020.
• Core FFO per diluted share declined by 11.8% compared to the first quarter of 2020.
• Same-property gross revenues and net operating income (“NOI”) declined by 8.1% and 12.3%, respectively, compared to the first quarter of 2020. The decline in same-property gross revenues and NOI is primarily attributed to lower scheduled rents and higher cash concessions compared to the prior-year period.
• On a sequential basis, both same-property gross revenues and NOI improved by 0.1% compared to the fourth quarter of 2020. The improvement is largely attributed to lower cash concessions and delinquency compared to the fourth quarter of 2020.
• Increased the annual dividend by $0.05 to an annual distribution of $8.36 per common share, the Company’s 27^th consecutive annual increase.
• Disposed of three apartment communities during the quarter for a total contract price of $275.5 million.
• Issued $450.0 million of 7-year senior unsecured notes due in 2028 at an interest rate per annum of 1.70% and an effective yield of 1.79%. The Company has less than $200.0 million of debt maturing through the end of 2022.
• Reaffirmed full-year guidance for Core FFO, same-property gross revenues, expenses, and NOI.

“We are pleased with our first quarter results which exceeded the midpoint of our initial guidance. Although the West Coast markets are still in the early stages of an economic recovery, we are cautiously optimistic that declining COVID cases and widespread vaccinations will provide a foundation for a long economic expansion. Encouragingly, the large tech employers in our markets have accelerated hiring and are beginning to reopen their offices which should improve apartment demand, consistent with our expectations at the beginning of the year,” commented Michael J. Schall, President and CEO of the Company.

Same-Property Operations

Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in same-property gross revenues for the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020, and the sequential percentage change for the quarter ended March 31, 2021 compared to the quarter ended December 31, 2020, by submarket for the Company:

		Q1 2021 vs. Q1 2020		Q1 2021 vs. Q4 2020		% of Total
		Gross Revenues		Gross Revenues		Q1 2021 Revenues
Southern California
Los Angeles County		-10.3%		2.8%		18.4%
Orange County		-2.9%		0.6%		11.3%
San Diego County		-2.0%		0.1%		8.8%
Ventura County		-0.1%		1.8%		4.2%
Total Southern California		-5.8%		1.5%		42.7%
Northern California
Santa Clara County		-10.5%		-0.4%		18.3%
Alameda County		-10.5%		0.2%		6.7%
San Mateo County		-14.3%		-2.4%		5.1%
Contra Costa County		-5.0%		-0.4%		5.8%
San Francisco		-18.2%		-1.3%		3.0%
Total Northern California		-10.9%		-0.6%		38.9%
Seattle Metro		-7.0%		-1.6%		18.4%
Same-Property Portfolio		-8.1%		0.1%		100.0%

The table below illustrates the components that drove the change in same-property revenue on a year-over-year basis for the first quarter of 2021.

Same-Property Revenue Components		$ Amount (in Millions)			% Contribution to Growth/(Decline)
Q1 2020 Same-Property Revenues		$	345.7
Scheduled Rents			-11.1		-3.2%
Delinquencies			-5.5		-1.6%
Cash Concessions			-10.4		-3.0%
Vacancy			0.1		0.0%
Other Income			-1.0		-0.3%
Q1 2021 Same-Property Revenues/Change		$	317.8		-8.1%

		Year-Over-Year Change
		Q1 2021 compared to Q1 2020
		Gross		Operating
		Revenues		Expenses		NOI
Southern California		-5.8%		0.3%		-8.2%
Northern California		-10.9%		4.5%		-16.2%
Seattle Metro		-7.0%		6.6%		-12.7%
Same-Property Portfolio		-8.1%		3.1%		-12.3%

		Sequential Change
		Q1 2021 compared to Q4 2020
		Gross Revenues		Operating Expenses		NOI
Southern California		1.5%		-0.7%		2.5%
Northern California		-0.6%		-0.5%		-0.7%
Seattle Metro		-1.6%		3.6%		-4.1%
Same-Property Portfolio		0.1%		0.2%		0.1%
		Financial Occupancies
		Quarter Ended
		3/31/2021		12/31/2020		3/31/2020
Southern California		96.7%		96.8%		96.6%
Northern California		96.6%		96.5%		96.9%
Seattle Metro		96.6%		95.8%		96.8%
Same-Property Portfolio		96.7%		96.5%		96.7%

Investment Activity

Dispositions

In the first quarter of 2021, the Company sold three apartment communities containing 636 apartment homes, two located in Southern California and one in Northern California, for a total contract price of $275.5 million. In total, the Company recognized a $100.1 million gain on sale in the first quarter, which has been excluded from Total and Core FFO.

Other Investments

In the first quarter of 2021, the Company originated a preferred equity investment totaling $20.0 million for the development of a multifamily project located in Washington. The investment has an initial preferred return of 10.0% and matures in 2026.

In the first quarter of 2021, the Company received cash proceeds of $120.2 million from the full redemption of two preferred equity investments. The Company recorded $3.5 million of income from prepayment penalties as a result of an early redemption, which has been excluded from Core FFO.

Development Activity

During the first quarter of 2021 the Company’s development located in San Francisco, 500 Folsom, reached stabilization.

The table below represents the development communities in lease-up and the current leasing status as of April 23, 2021.

Project Name		Location		Total Apartment Homes		ESS Ownership		% Leased as of 04/23/21		Status
Mylo		Santa Clara, CA		476		100%		88.2%		In Lease-Up
Patina at Midtown		San Jose, CA		269		50%		72.1%		In Lease-Up
Wallace on Sunset		Hollywood, CA		200		100%		17.0%		In Lease-Up
Total/Average % Leased				945				68.5%

Liquidity and Balance Sheet

Common Stock

In the first quarter of 2021, the Company repurchased 40,000 shares of its common stock totaling $9.2 million, including commissions, at an average price of $229.30 per share. As of April 23, 2021, the Company has $214.5 million of purchase authority remaining under the stock repurchase plan.

The Company did not issue any shares of common stock through its equity distribution program in the first quarter of 2021.

Balance Sheet

In February 2021, the Company issued $450.0 million of 7-year senior unsecured notes due in 2028 at an interest rate per annum of 1.70% and an effective yield of 1.79%. The proceeds were used to repay the Company’s $200.0 million unsecured term loan due in 2021 and the majority of its $350.0 million unsecured term loan due in 2022.

As of April 23, 2021, the Company has approximately $1.4 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash, and marketable securities.

Guidance

For the first quarter of 2021, the Company exceeded the midpoint of the guidance range provided in its fourth quarter 2020 earnings release for Core FFO by $0.04 per diluted share.

The following table provides a reconciliation of first quarter 2021 Core FFO per diluted share to the midpoint of the guidance provided in the Company’s fourth quarter 2020 earnings release.

		Per Diluted Share
Projected midpoint of Core FFO per diluted share for Q1 2021		$	3.03
NOI from consolidated communities			0.02
FFO from Co-Investments			0.01
Interest expense and other			0.01
Core FFO per diluted share for Q1 2021 reported		$	3.07

For the second quarter of 2021, the Company has established a Core FFO guidance range per diluted share of $2.84 to $3.00. The midpoint of the Company’s second quarter Core FFO guidance range represents a $0.15 sequential decline, which is primarily attributable to the first quarter dispositions ($0.03), the early redemption of a $110 million preferred equity investment ($0.04), lower commercial income ($0.02), lower same-property NOI ($0.03) and higher G&A partially offset by other income ($0.03). The Company is reaffirming its full-year guidance ranges for same-property gross revenues, expenses, NOI, and Core FFO per diluted share as originally provided in its fourth quarter 2020 earnings release. Additional details regarding the Company’s 2021 Core FFO guidance range can be found on page S-14 of the Supplemental Financial Information.

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Wednesday, April 28, 2021 at 11 a.m. PT (2 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the live call will be available online for 30 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the first quarter 2021 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13717988. If you are unable to access the information via the Company’s website, please contact the Investor Relations Department at investors@essex.com or by calling (650) 655-7800.

Upcoming Events

The Company is scheduled to participate in the National Association of Real Estate Investment Trusts (“NAREIT”) Institutional Investor Forum held virtually from June 8 – 10, 2021. The Company’s President and Chief Executive Officer, Michael J. Schall, will present at the conference on June 8, 2021 at 2:15 p.m. ET. To attend the presentation, registration to NAREIT REITWeek is required. The link to register can be accessed on the Investors section of the Company’s website at www.essex.com. A copy of any materials provided by the Company at the conference will also be made available on the Investors section of the Company’s website.

Corporate Profile

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. Essex currently has ownership interests in 244 apartment communities comprising approximately 60,000 apartment homes with an additional 5 properties in various stages of active development. Additional information about the Company can be found on the Company’s website at www.essex.com.

This press release and accompanying supplemental financial information has been furnished to the Securities and Exchange Commission electronically on Form 8-K and can be accessed from the Company’s website at www.essex.com. If you are unable to obtain the information via the Web, please contact the Investor Relations Department at (650) 655-7800.

FFO RECONCILIATION

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three months ended March 31, 2021 and 2020 (dollars in thousands, except for share and per share amounts):

		Three Months Ended March 31,
Funds from Operations attributable to common stockholders and unitholders		2021				2020
Net income available to common stockholders		$	168,444			$	315,006
Adjustments:
Depreciation and amortization			128,587				131,559
Gains not included in FFO			(100,096	)			(234,694	)
Depreciation and amortization from unconsolidated co-investments			14,729				12,544
Noncontrolling interest related to Operating Partnership units			5,947				10,986
Depreciation attributable to third party ownership and other			(129	)			(134	)
Funds from Operations attributable to common stockholders and unitholders		$	217,482			$	235,267
FFO per share – diluted		$	3.23			$	3.44
Expensed acquisition and investment related costs		$	15			$	87
Deferred tax expense on unrealized gain on unconsolidated co-investment(1)			508				-
(Gain) loss on sale of marketable securities			(2,611	)			13
Unrealized (gains) losses on marketable securities			(6,276	)			8,696
Provision for credit losses			38				(50	)
Equity (income) loss from non-core co-investment(2)			(1,627	)			110
Loss (gain) on early retirement of debt, net			2,517				(321	)
Loss on early retirement of debt from unconsolidated co-investment			3				-
Co-investment promote income			-				(6,455	)
Income from early redemption of preferred equity investments			(3,513	)			(210	)
General and administrative and other, net			257				820
Insurance reimbursements, legal settlements, and other, net			(182	)			43
Core Funds from Operations attributable to common stockholders and unitholders		$	206,611			$	238,000
Core FFO per share – diluted		$	3.07			$	3.48
Weighted average number of shares outstanding diluted (3)			67,272,839				68,359,698

(1)		Represents deferred tax expense related to net unrealized gains on technology co-investments.
(2)		Represents the Company’s share of co-investment income from technology co-investments.
(3)		Assumes conversion of all outstanding limited partnership units in Essex Portfolio, L.P. (the “Operating Partnership”) into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

Net Operating Income (“NOI”) and Same-Property NOI Reconciliations

NOI and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenues less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented (dollars in thousands):

		Three Months Ended March 31,
		2021				2020
Earnings from operations		$	197,381			$	130,837
Adjustments:
Corporate-level property management expenses			8,947				8,759
Depreciation and amortization			128,587				131,559
Management and other fees from affiliates			(2,249	)			(2,617	)
General and administrative			9,812				13,982
Expensed acquisition and investment related costs			15				87
Gain on sale of real estate and land			(100,096	)			-
NOI			242,397				282,607
Less: Non-same property NOI			(22,416	)			(31,834	)
Same-Property NOI		$	219,981			$	250,773

Safe Harbor Statement Under The Private Litigation Reform Act of 1995:

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which are not historical facts, including statements regarding the Company's expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “projects,” “believes,” “seeks,” “future,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s expectations related to the continued impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations and the impact of any additional measures taken to mitigate the impact of the pandemic, the Company’s intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, the real estate markets in the geographies in which the Company’s properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from such economic conditions, including as a result of the COVID-19 pandemic and governmental measures intended to prevent its spread, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

While the Company's management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the continued impact of the COVID-19 pandemic, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of infectious diseases or other health concerns could continue to adversely affect the Company’s business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located; the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; changes in laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; unexpected difficulties in leasing of development projects; volatility in financial and securities market; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and other reports that the Company files with the SEC from time to time. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this press release.

Definitions and Reconciliations

Non-GAAP financial measures and certain other capitalized terms, as used in this earnings release, are defined and further explained on pages S-18.1 through S-18.4, "Reconciliations of Non-GAAP Financial Measures and Other Terms," of the accompanying supplemental financial information. The supplemental financial information is available on the Company's website at www.essex.com.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210427006111/en/

FAQ

What were Essex Property Trust's Q1 2021 earnings results?

Essex Property Trust reported Q1 2021 net income of $2.59 per diluted share, Total FFO of $3.23, and Core FFO of $3.07.

How did Essex Property Trust's financial metrics change compared to Q1 2020?

Net income decreased by 45.6%, Total FFO fell by 6.1%, and Core FFO dropped by 11.8%.

What factors contributed to the decline in Essex Property Trust's same-property revenues?

The decline is attributed to lower scheduled rents and increased cash concessions compared to the prior year.

What dividend increase did Essex Property Trust announce in Q1 2021?

Essex increased its annual dividend by $0.05 to $8.36 per common share.

Did Essex Property Trust make any property sales in Q1 2021?

Yes, the company disposed of three apartment communities for a total of $275.5 million.