Essex Property Trust, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Essex is a West Coast apartment REIT; it owned or held interests in 246 operating communities totaling 60,920 homes. The filing combines Essex and its operating partnership, which holds substantially all operating assets and debt.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Change |
|---|---|---|---|
| Total revenue | $351.0 million | $370.5 million | Down 5.3% |
| Net income attributable to common stockholders | $64.8 million | $84.5 million | Down 23.2% |
| Diluted EPS | $1.00 | $1.29 | Down 22.5% |
| FFO per diluted share | $3.09 | $3.21 | Down 3.7% |
| Core FFO per diluted share | $3.04 | $3.16 | Down 3.8% |
| Same-property revenue | $314.9 million | $324.7 million | Down 3.0% |
| Same-property NOI | $218.6 million | $228.2 million | Down 4.2% |
Q2 total property NOI was $241.3 million, or approximately 69.2% of property revenue. Same-property financial occupancy improved to 96.6% from 94.9%, while average rental rates declined 3.6% to $2,287 per home; additional cash concessions were $8.5 million versus the prior-year quarter. Same-property cash delinquencies improved to 2.6% of scheduled rent from 4.3%.
For the six months, revenue was $706.1 million versus $762.9 million; net income was $246.6 million versus $418.8 million; diluted EPS was $3.59 versus $6.08; and Core FFO per diluted share was $6.12 versus $6.64. Same-property revenue fell 5.6% and same-property NOI fell 8.4% to $438.6 million. Six-month GAAP results included $100.1 million in real estate sale gains, compared with $16.6 million in the prior period, and a $234.7 million co-investment remeasurement gain in the 2020 period.
Six-month operating cash flow was $428.1 million, compared with $426.1 million. Investing activities used $5.6 million, versus $287.8 million used; financing activities used $448.3 million, versus $37.1 million provided. Cash and restricted cash ended the period at $58.2 million. Dividends paid were $270.9 million.
At June 30, 2021, total debt, net, was $6.13 billion, down from $6.25 billion at year-end 2020. This included $5.40 billion of unsecured debt, $641.3 million of mortgage debt, and $85.0 million drawn on credit lines. Unrestricted cash was $48.2 million, and marketable securities were $175.8 million. Total assets were $12.75 billion and total liabilities were $6.58 billion.
Material changes and notable items
- Rental and property revenue declines reflected lower average rents and increased concessions, partly offset by improved occupancy. Northern California was the weakest same-property region in Q2, with revenue down 8.4%; Southern California revenue rose 2.0%.
- Interest expense declined 6.3% in Q2 to $51.0 million, principally due to lower average debt and rates. A $16.5 million Q2 loss on early debt retirement primarily reflected redemption of $300 million of 3.375% notes due 2023.
- Essex issued $450 million of 1.700% notes due 2028 and $300 million of 2.550% notes due 2031, using proceeds to refinance debt and for general corporate purposes.
- First-quarter sales of three communities generated $243.4 million in six-month disposition proceeds and a $100.1 million gain. The company acquired its partner’s 50% interest in The Village at Toluca Lake for $31.8 million and recognized a $2.3 million remeasurement gain.
- Development pipeline: 571 homes, with total estimated project costs of approximately $300 million and $96 million of estimated remaining costs, including $58 million attributable to Essex.
Outlook, risks, and contingencies
Management said operating cash flows, cash, marketable securities, and available credit were sufficient for anticipated needs over the next 12 months; it gave no quantified earnings or FFO guidance in the supplied filing text. Management reported continued access to financing and no material risk of failing debt covenants. Credit ratings were Baa1/Stable from Moody’s and BBB+/Stable from S&P.
COVID-19-related uncertainty remained a key risk, including eviction moratoriums, rent-collection constraints, employment and rent-paying capacity, and potential effects on leasing and the economy. Management said increased delinquencies had not materially harmed liquidity. Other identified risks include interest-rate and capital-market volatility, development costs or delays, occupancy and rent pressures, regulatory and environmental matters, and co-investment risks. The company reported no litigation expected to have a material adverse effect and no material change to previously disclosed risk factors.
Investor verification priorities
- Track rent growth, concessions, delinquencies, and same-property NOI—especially recovery in Northern California.
- Separate recurring operating performance from property-sale gains, marketable-security valuation changes, debt-retirement losses, and co-investment items; review Core FFO alongside GAAP results.
- Verify debt maturities, refinancing costs, variable-rate exposure, credit-line availability, and compliance with covenants.
- Monitor development spending, remaining commitments, and the timing and economics of co-investment redemptions and related-party receivables.
- Assess dividend coverage using recurring cash generation, while accounting for capital expenditures, debt service, and changing rent-collection conditions.