Business Context and Reporting Period
Company: Essex Property Trust, Inc. (REIT)
Reporting Period: Quarter and nine months ended September 30, 1999
Portfolio: 68 multifamily properties (14,486 units) and 4 commercial properties located in Northern California, Southern California, and the Pacific Northwest.
Occupancy: Average financial occupancy for same-store properties was 96.5% for the quarter and 96.6% for the nine-month period.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sep 30, 1999 | 9 Months Ended Sep 30, 1999 |
|---|---|---|
| Total Revenues | $37,745 | $106,535 |
| Net Income | $13,073 | $30,405 |
| Net Income Available to Common Stockholders | $12,924 | $29,189 |
| Funds From Operations (FFO) | $17,260 | $49,554 |
| Diluted EPS (Net Income) | $0.71 | $1.64 |
| Dividends Per Share | $0.55 | $1.60 |
| Total Debt (Mortgage + Line of Credit) | $436,663 | $436,663 |
| Unrestricted Cash & Equivalents | $4,338 | $4,338 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 15.6% year-over-year for both the quarter and the nine-month period, driven by acquisitions, development completions, and rental rate increases.
- Profitability: Net income increased 95.8% for the quarter and 37.3% for the nine-month period compared to 1998. The quarter included a significant $4.7 million gain on the sale of a commercial property (777 California).
- Same-Store Performance: Property revenues from same-store properties increased 4.6% for the quarter and 5.5% for the nine months, primarily due to rental rate increases in Southern California.
- Debt Structure: Mortgage notes payable increased to $379.5 million from $325.8 million at year-end 1998. The line of credit balance increased to $57.2 million from $35.7 million.
Guidance, Outlook, and Risks
- Development Pipeline: The Company is developing eight multifamily communities (1,500 units) with remaining funding commitments of approximately $71.1 million. Two new projects were announced in Q3, and two existing projects reached stabilized operations.
- Capital Markets: In Q3 1999, the Operating Partnership sold $102.3 million in preferred units (Series D and E) to reduce line of credit balances. The Company has shelf registration capacity for up to $342 million in equity and $250 million in debt.
- Liquidity: Management expects cash flows from operations and lines of credit to be adequate for operating requirements and dividend payments. Non-revenue generating capital expenditures are estimated at $315 per weighted average unit for 1999.
- Risks:
- Year 2000 Compliance: While systems have been modified, there is no assurance that internal or third-party systems will not be adversely affected by the Y2K date change.
- Development Risks: Projects are subject to delays, cost overruns, and market conditions.
- Interest Rate Risk: The Company has $116 million in variable rate debt (including tax-exempt bonds) and utilizes forward treasury contracts to hedge future financing needs.
Investor Verification Checklist
- Gain on Sale: Verify the impact of the $4.7 million gain on the sale of 777 California (a related-party transaction) on net income and FFO.
- Debt Maturities: Review the maturity schedule of the $320.6 million fixed-rate debt and the $57.2 million line of credit maturing in June 2000.
- Development Commitments: Assess the $71.1 million remaining commitment for development projects and the funding sources (working capital, credit lines, equity).
- Preferred Unit Dilution: Note the issuance of Series D and E preferred units and their potential conversion rights or impact on minority interest distributions.
- Related Party Transactions: Review the sale of the headquarters building to an entity controlled by a Board member and the swap agreement for management stock participation.