Business Context and Reporting Period
Company: Essex Property Trust, Inc. (REIT)
Reporting Period: Quarter ended March 31, 2002
Portfolio: 92 multifamily properties (20,762 units) and 2 office buildings located in Northern California, Southern California, and the Pacific Northwest.
Structure: Operations conducted through Essex Portfolio, L.P. (Operating Partnership), in which the Company holds an 88.9% interest.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Total Revenues | $49,938,000 | $50,110,000 |
| Net Income (Common Stockholders) | $11,296,000 | $11,049,000 |
| Diluted EPS | $0.61 | $0.59 |
| Funds From Operations (FFO) | $23,683,000 | $22,378,000 |
| Net Cash from Operating Activities | $26,751,000 | $22,877,000 |
| Dividend Per Share | $0.77 | $0.70 |
| Total Debt (Mortgage + Lines of Credit) | $647,350,000 | N/A |
| Unrestricted Cash | $6,868,000 | N/A |
Material Changes vs. Prior Period
- Revenue: Total revenues decreased slightly by 0.3% ($172,000). Property revenues from "Same Store" properties declined 5.3% due to lower occupancy and rental rates in Northern California and the Pacific Northwest, partially offset by growth in Southern California and increased interest income.
- Expenses: Total expenses decreased 1.9% ($637,000), driven primarily by a 5.8% reduction in interest expense due to lower rates and capitalization of interest on development projects. Insurance expenses rose 32.8% due to market conditions.
- Occupancy: Average financial occupancy for Same Store properties dropped to 92.7% from 95.7% in the prior year.
- Profitability: Net income increased 2.2% despite revenue declines, aided by lower interest costs and contributions from recently acquired properties.
Outlook, Risks, and Management Commentary
- Development Pipeline: The Company is developing six communities (1,524 units) with total projected costs of $278.9 million; approximately $139.8 million remains to be expended.
- Private Equity Fund: The Essex Apartment Value Fund, L.P. reached final closing with $250 million in commitments. It is the exclusive investment vehicle for new acquisitions until Dec 31, 2003, or until 90% of capital is invested.
- Liquidity: The Company maintains $150 million in unsecured lines of credit ($84.5 million utilized) and expects cash flows to meet operating and dividend requirements. A $50 million stock repurchase authorization is in place.
- Risks:
- Economic Recession: Ongoing recession in Western states may further reduce rental rates and occupancy.
- Insurance: Costs have increased >50% with higher deductibles; some properties are in technical non-compliance with loan covenants regarding insurance, though management does not expect material impact.
- Interest Rates: Exposure to variable rate debt (approx. $143 million) creates risk if rates rise rapidly.
Investor Verification Checklist
- Verify the status of insurance compliance discussions with lenders for properties currently in technical non-compliance.
- Monitor occupancy trends in Northern California and Pacific Northwest, which drove the decline in Same Store revenue.
- Confirm the renewal terms for the $120 million line of credit maturing in May 2002.
- Track progress on the $139.8 million remaining capital commitment for current development projects.
- Review the performance of the Essex Apartment Value Fund, L.P., as it becomes the primary vehicle for future growth.