Essex Announces First Quarter 2024 Results and Raises Full-Year 2024 Guidance

Rhea-AI Summary

Essex Property Trust, Inc. (NYSE: ESS) reported strong first quarter 2024 results with significant growth in Net Income, Funds from Operations (FFO), and Core FFO per diluted share. The company outperformed its guidance and raised full-year 2024 expectations. Key highlights include increased dividend, property acquisitions, debt issuances, and joint venture activities.

Positive

• Significant growth in Net Income, FFO, and Core FFO per diluted share.

• Exceeded guidance and raised full-year 2024 expectations.

• Increased dividend by 6.1% to $9.80 per common share.

• Acquired joint venture partner's interest in four apartment communities.

• Issued $350.0 million of 10-year senior unsecured notes at 5.50%.

Negative

• Recorded non-cash impairment related to preferred equity investment.

• Decrease in Same-Property NOI in some regions.

Insights

Financial Analyst

Essex Property Trust's reported Net Income per diluted share increase of 78.6% year-over-year is quite impressive, signaling strong profitability and effective capital allocation strategies. The disclosed gain on remeasurement of co-investments contributes significantly to this increase, which indicates effective investment management, albeit being a non-recurring factor that investors should be aware of. The dividend hike by 6.1% reflects confidence in Essex's financial health and a commitment to shareholder returns, marking their 30th consecutive annual increase. This action could attract income-focused investors and support the share price. However, the sustainability of such increases should be scrutinized in conjunction with the company's long-term growth strategy and capital expenditure requirements.

Real Estate Investment Analyst

Essex's same-property revenue and NOI growth are key indicators of the underlying real estate portfolio's performance. A 3.6% and 3.0% growth in these metrics, respectively, suggest solid operational efficiency and demand in their selected West Coast markets. The reported acquisition yield of 5.9% from the recently purchased apartment communities falls within a reasonable range, accounting for current market conditions and interest rates. The company's issuance of $350.0 million in senior unsecured notes at a 5.5% interest rate highlights their proactive capital management. Investors should balance the benefits of portfolio expansion against the risks associated with increased leverage, particularly as interest rates fluctuate.

Market Research Analyst

Essex Property Trust's regional focus on the West Coast, specifically in markets like Southern California, Northern California and the Seattle Metro area, is notably resilient, as evidenced by positive same-property revenue changes. Geographical diversification within these submarkets showcases localized demand trends, especially the stronger performance in areas like Ventura County and Orange County. Such granular data allows investors to understand market-specific risks and growth opportunities. The company's forward-looking guidance, raising both Net Income and Core FFO per diluted share projections, reflects management's optimism about future operating performance. This proactive communication may aid investors in aligning their expectations with the company's forecasted trajectory.

SAN MATEO, Calif.--(BUSINESS WIRE)-- Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its first quarter 2024 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the quarter ended March 31, 2024 are detailed below.

	Three Months Ended March 31,
			%
	2024	2023	Change
Per Diluted Share
Net Income	$4.25	$2.38	78.6%
Total FFO	$4.60	$3.80	21.1%
Core FFO	$3.83	$3.65	4.9%

First Quarter 2024 Highlights:

• Reported Net Income per diluted share for the first quarter of 2024 of $4.25, compared to $2.38 in the first quarter of 2023. The increase is largely attributable to a gain on remeasurement of co-investments recognized in the first quarter of 2024.
• Grew Core FFO per diluted share by 4.9% compared to the first quarter of 2023, exceeding the midpoint of the Company’s guidance range by $0.09. The outperformance was primarily driven by favorable same-property revenue growth.
• Achieved same-property revenue and net operating income (“NOI”) growth of 3.6% and 3.0%, respectively, compared to the first quarter of 2023. On a sequential basis, same-property revenues improved 0.6%.
• Acquired its joint venture partner’s 49.9% interest in four apartment communities for a total purchase price of $505.0 million on a gross basis. The Company expects to achieve an acquisition yield of 5.9%.
• Issued $350.0 million of 10-year senior unsecured notes due in April 2034 bearing an interest rate of 5.50% per annum and an effective yield of 5.52%.
• Increased the dividend by 6.1% to an annual distribution of $9.80 per common share, the Company’s 30^th consecutive annual increase.
• Raised full-year 2024 guidance range as detailed in the table below:

Full-Year 2024 Revised Guidance	Revised Range	Revised Midpoint	Change at Midpoint
Net Income per diluted share	$8.04 - $8.44	$8.24	+$2.92
Core FFO per diluted share	$15.03 - $15.43	$15.23	+$0.20
Same-Property Revenues	1.50% to 3.00%	2.25%	+0.55%
Same-Property NOI	0.00% to 2.80%	1.40%	+0.80%

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, 2024 compared to the quarter ended March 31, 2023, and the sequential percentage change for the quarter ended March 31, 2024 compared to the quarter ended December 31, 2023, by submarket for the Company:

	Q1 2024 vs. Q1 2023	Q1 2024 vs. Q4 2023	% of Total
	Revenue Change	Revenue Change	Q1 2024 Revenues
Southern California
Los Angeles County	2.2%	0.7%	18.3%
Orange County	5.6%	1.0%	10.5%
San Diego County	7.2%	1.2%	9.0%
Ventura County	7.4%	1.8%	4.1%
Total Southern California	4.6%	1.0%	41.9%
Northern California
Santa Clara County	3.6%	0.7%	19.3%
Alameda County	1.5%	0.5%	7.6%
San Mateo County	4.1%	-1.8%	5.9%
Contra Costa County	3.1%	-0.4%	5.3%
San Francisco	1.9%	0.5%	2.5%
Total Northern California	3.1%	0.1%	40.6%
Seattle Metro	2.5%	0.8%	17.5%
Same-Property Portfolio	3.6%	0.6%	100.0%

The table below illustrates the components that drove the change in same-property revenue on a year-over-year and sequential basis for the quarter ended March 31, 2024.

Same-Property Revenue Components	Q1 2024 vs. Q1 2023		Q1 2024 vs. Q4 2023
Scheduled Rents	2.2%		0.2%
Delinquencies	0.8%		0.1%
Cash Concessions	0.3%		-0.1%
Vacancy	-0.5%		0.1%
Other Income	0.8%		0.3%
Q1 2024 Same-Property Revenue Growth	3.6%		0.6%

	Year-Over-Year Change
	Q1 2024 compared to Q1 2023
	Revenues	Operating Expenses	NOI
Southern California	4.6%	2.2%	5.6%
Northern California	3.1%	8.4%	0.9%
Seattle Metro	2.5%	4.0%	1.9%
Same-Property Portfolio	3.6%	5.0%	3.0%

	Sequential Change
	Q1 2024 compared to Q4 2023
	Revenues	Operating Expenses	NOI
Southern California	1.0%	2.2%	0.5%
Northern California	0.1%	3.9%	-1.5%
Seattle Metro	0.8%	5.5%	-1.0%
Same-Property Portfolio	0.6%	3.4%	-0.6%
	Financial Occupancies
	Quarter Ended
	3/31/2024	12/31/2023	3/31/2023
Southern California	96.0%	95.9%	96.8%
Northern California	96.2%	96.2%	96.7%
Seattle Metro	97.0%	96.5%	96.6%
Same-Property Portfolio	96.3%	96.1%	96.7%

INVESTMENT ACTIVITY

Real Estate

In March 2024, the Company acquired its joint venture partner’s 49.9% interest in the BEXAEW portfolio, comprising four communities totaling 1,480 apartment homes, for a total purchase price of $505.0 million on a gross basis. Concurrent with the closing, the Company repaid $219.9 million of secured debt bearing an effective rate of approximately 6.7% at closing and consolidated the communities on the Company’s financial statements. The acquisition was funded by the Company’s senior unsecured notes issued at a 5.5% rate in March 2024 and free cash flow. The Company expects to achieve an acquisition yield of 5.9%. The Company recognized $1.5 million in promote income in the first quarter of 2024, which has been excluded from Core FFO. In addition, the Company recorded a gain on remeasurement of co-investments of $138.3 million in the first quarter of 2024, which has been excluded from Total and Core FFO.

Other Investments

Subsequent to quarter end, the Company accepted the third-party sponsor’s common equity interest affiliated with its $14.7 million preferred equity investment in a stabilized community comprising 75 apartment homes located in Sunnyvale, CA. Concurrent with the closing, the Company unencumbered the property and consolidated the community on the Company’s financial statements at a $46.6 million valuation. The Company placed the preferred equity investment on non-accrual in the fourth quarter of 2023 and recorded a $3.7 million non-cash impairment related to the investment in the first quarter of 2024. The non-cash impairment does not impact Total or Core FFO.

DEVELOPMENT ACTIVITY

During the first quarter of 2024, the Company’s co-investment development LIVIA at Scripps Ranch, comprising 264 apartment homes located in San Diego, CA, reached stabilization.

LIQUIDITY AND BALANCE SHEET

Common Stock

Year-to-date through April 29, 2024, the Company has not issued any shares of common stock through its equity distribution program or repurchased any shares through its stock repurchase plan. As of April 29, 2024, the Company had $302.7 million of purchase authority remaining under its stock repurchase plan.

Balance Sheet

In March 2024, the Company issued $350.0 million of 10-year senior unsecured notes due in April 2034 bearing an interest rate of 5.50% per annum and an effective yield of 5.52%. The proceeds were used in part to fund the Company’s acquisition during the quarter, and the remainder of the proceeds will be used to repay the Company’s senior unsecured notes due in May 2024.

As of April 29, 2024, the Company had approximately $1.5 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash and cash equivalents, and marketable securities.

GUIDANCE

For the first quarter of 2024, the Company exceeded the midpoint of the guidance range provided in its fourth quarter 2023 earnings release for Core FFO by $0.09 per diluted share. The better-than-expected results primarily relate to favorable same-property revenue growth driven by lower delinquency and higher other property income.

The following table provides a reconciliation of first quarter 2024 Core FFO per diluted share to the midpoint of the guidance provided in the Company’s fourth quarter 2023 earnings release.

	Per Diluted Share
Guidance midpoint of Core FFO per diluted share for Q1 2024	$3.74
NOI from Consolidated Communities	0.06
One-Time Commercial Lease Break Fees	0.02
G&A and Other	0.01
Core FFO per diluted share for Q1 2024 reported	$3.83

The table below provides key updates to the Company’s 2024 full-year assumptions for Net Income, Total FFO, Core FFO per diluted share, and same-property growth.

2024 FULL-YEAR AND SECOND QUARTER GUIDANCE

	Previous Range		Previous Midpoint		Revised Range		Revised Midpoint	Change at the Midpoint
Per Diluted Share
Net Income	$5.05 - $5.59		$5.32		$8.04 - $8.44		$8.24	+$2.92
Total FFO	$14.46 - $15.00		$14.73		$15.53 - $15.93		$15.73	+$1.00
Core FFO	$14.76 - $15.30		$15.03		$15.03 - $15.43		$15.23	+$0.20
Q2 2024 Core FFO	-		-		$3.77 - $3.89		$3.83	-
Same-Property Growth on a Cash-Basis(1)
Revenues	0.70% to 2.70%		1.70%		1.50% to 3.00%		2.25%	+0.55%
Operating Expenses	3.50% to 5.00%		4.25%		3.50% to 5.00%		4.25%	-
NOI	-1.10% to 2.30%		0.60%		0.00% to 2.80%		1.40%	+0.80%

(1)

The midpoint of the Company’s same-property revenues and NOI on a GAAP basis are 2.40% and 1.60%, respectively, representing a 0.60% and 0.90% increase to the Company’s original guidance midpoints.

For additional details regarding the Company’s 2024 Core FFO guidance range, please see page S-13 of the accompanying supplemental financial information.

CONFERENCE CALL WITH MANAGEMENT

The Company will host an earnings conference call with management to discuss its quarterly results on Wednesday, May 1, 2024 at 10 a.m. PT (1 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 2024 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13745754. 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 in New York from June 4-5, 2024. The Company’s President and Chief Executive Officer, Angela L. Kleiman, will present at the conference on June 4, 2024 at 11:45 a.m. Eastern Time. The presentation will be webcast and 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 254 apartment communities comprising approximately 62,000 apartment homes. 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 land 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, 2024 and 2023 (dollars in thousands, except for share and per share amounts):

	Three Months Ended March 31,
Funds from Operations attributable to common stockholders and unitholders	2024				2023
Net income available to common stockholders	$	272,731			$	153,532
Adjustments:
Depreciation and amortization		139,733				136,347
Gains not included in FFO		(138,326	)			(59,238	)
Casualty loss		-				433
Impairment loss from unconsolidated co-investments		3,726				-
Depreciation and amortization from unconsolidated co-investments		18,470				17,609
Noncontrolling interest related to Operating Partnership units		9,599				5,404
Depreciation attributable to third party ownership and other		(389	)			(359	)
Funds from Operations attributable to common stockholders and unitholders	$	305,544			$	253,728
FFO per share – diluted	$	4.60			$	3.80
Expensed acquisition and investment related costs	$	68			$	339
Tax expense (benefit) on unconsolidated co-investments (1)		49				(900	)
Realized and unrealized gains on marketable securities, net		(3,351	)			(1,280	)
Provision for credit losses		47				18
Equity (income) loss from non-core co-investments (2)		(5,870	)			94
Co-investment promote income		(1,531	)			-
General and administrative and other, net		2,541				266
Insurance reimbursements, legal settlements, and other, net (3)		(42,814	)			(8,504	)
Core Funds from Operations attributable to common stockholders and unitholders	$	254,683			$	243,761
Core FFO per share – diluted	$	3.83			$	3.65
Weighted average number of shares outstanding diluted (4)		66,470,819				66,725,582

(1)		Represents tax related to net unrealized gains or losses on technology co-investments.
(2)		Represents the Company’s share of co-investment income or loss from technology co-investments.
(3)		Includes legal settlement gains of $42.5 million and $7.7 million for the three months ended March 31, 2024 and 2023, respectively.
(4)		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 DownREIT limited partnership units.

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,
		2024				2023
Earnings from operations		$	132,359			$	187,385
Adjustments:
Corporate-level property management expenses			11,731				11,432
Depreciation and amortization			139,733				136,347
Management and other fees from affiliates			(2,713	)			(2,765	)
General and administrative			17,171				15,311
Expensed acquisition and investment related costs			68				339
Casualty loss			-				433
Gain on sale of real estate and land			-				(59,238	)
NOI			298,349				289,244
Less: Non-same property NOI			(11,990	)			(11,266	)
Same-Property NOI		$	286,359			$	277,978

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 second quarter and full-year 2024 guidance (including net income, Total FFO and Core FFO, same-property growth and related assumptions) and anticipated yield on certain investments. 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: assumptions related to our second quarter and full-year 2024 guidance; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates, inflation, escalated operating costs and possible recessionary impacts; geopolitical tensions and regional conflicts, and the related impacts on macroeconomic conditions, including, among other things, interest rates and inflation; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; the Company’s inability to maintain our investment grade credit rating with the rating agencies; the Company may be unsuccessful in the management of its relationships with its co-investment partners; the Company may fail to achieve its business objectives; time of actual completion and/or stabilization of development and redevelopment projects; estimates of future income from an acquired property may prove to be inaccurate; 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; unexpected difficulties in leasing of future development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; 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 for the year ended December 31, 2023, quarterly reports on Form 10-Q, and those risk factors and special considerations set forth in the Company's other filings with the SEC which may 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. 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-17.1 through S-17.4, "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/20240430825063/en/

Loren Rainey

Director, Investor Relations

(650) 655-7800

lrainey@essex.com

Source: Essex Property Trust, Inc.

FAQ

<p>What were Essex's Net Income and FFO results for the first quarter of 2024?</p>

Essex reported Net Income of $4.25 per diluted share and FFO of $4.60 per diluted share for the first quarter of 2024.

<p>What was the increase in Core FFO per diluted share compared to the first quarter of 2023?</p>

Core FFO per diluted share grew by 4.9% compared to the first quarter of 2023.

<p>What was the total purchase price of the four apartment communities acquired by Essex?</p>

The total purchase price for the four communities was $505.0 million on a gross basis.

<p>What was the interest rate on the $350.0 million senior unsecured notes issued by Essex?</p>

The notes bore an interest rate of 5.50% per annum.

<p>What was the increase in the annual dividend per common share?</p>

The dividend was raised by 6.1% to $9.80 per common share.