Business Context and Reporting Period
Company: Essex Property Trust, Inc. (REIT)
Reporting Period: Quarter and six months ended June 30, 1999
Portfolio: 64 multifamily properties (12,974 units) and 5 commercial properties located in Northern California, Southern California, and the Pacific Northwest.
Occupancy: Average financial occupancy for same-store multifamily properties was 96.6% for the quarter and 96.5% for the six-month period, exceeding 95% for the last five years.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1999 |
6 Months Ended June 30, 1999 |
|---|---|---|
| Total Revenues | $34,898 | $68,789 |
| Net Income | $8,876 | $17,329 |
| Net Income Available to Common Stockholders | $8,640 | $16,262 |
| Funds From Operations (FFO) | $16,551 | $32,290 |
| Diluted EPS (Net Income) | $0.49 | $0.94 |
| Dividend Per Share | $0.55 | $1.05 |
| Unrestricted Cash | $1,795 | $1,795 |
| Total Debt (Mortgage + Lines of Credit) | $440,485 | $440,485 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.1% ($3.2M) for the quarter and 15.6% ($9.3M) for the six months compared to 1998. Growth was driven by acquisitions and a 6.0% increase in same-store property revenues due to rental rate increases and higher occupancy.
- Profitability: Net income rose 17.7% ($1.3M) for the quarter and 12.0% ($1.9M) for the six months. This was primarily due to the contribution of new acquisitions and improved net operating income from existing properties.
- Expenses: Total expenses increased 4.1% for the quarter and 12.3% for the six months. Interest expense rose due to increased debt balances for acquisitions, partially offset by lower average interest rates. Property operating expenses increased due to new acquisitions.
- Acquisitions: In Q2 1999, the company acquired three multifamily communities (Glenbrook/Euclid, Fairways, and Columbus/Loraine) totaling 458 units for approximately $42.2 million in contract price.
Guidance, Outlook, and Risks
- Development Pipeline: The company is developing seven multifamily projects (1,333 units). Two are complete; five are expected to be substantially completed by December 31, 1999. Remaining funding commitment is approximately $71 million.
- Liquidity: The company maintains a $100 million unsecured line of credit with $60.45 million outstanding as of June 30, 1999. Management expects cash flows to be adequate for operations and dividends.
- Recent Financing: On July 28, 1999 (subsequent to period end), the Operating Partnership sold $50 million of 9.30% Series D Preferred Units. Proceeds were used to reduce line of credit balances.
- Capital Expenditures: Non-revenue generating capital expenditures are expected to be approximately $315 per weighted average occupancy unit for the full year 1999.
- Risks: Risks include potential delays in development projects, interest rate fluctuations (mitigated by fixed-rate debt and treasury locks), and Year 2000 compliance issues (management believes systems are substantially compliant).
Investor Verification Checklist
- Debt Maturity Profile: Verify the weighted average interest rates and maturity dates of the $321 million fixed-rate debt and $58.8 million variable-rate debt.
- Development Completion: Monitor the completion status of the five remaining development projects scheduled for year-end 1999 and associated funding requirements.
- Occupancy Trends: Track same-store financial occupancy rates to ensure they remain above the 95% historical average.
- Dividend Coverage: Confirm that Funds From Operations continue to cover the quarterly dividend of $0.55 per share.
- Year 2000 Compliance: Review any subsequent reports regarding the actual impact of Year 2000 date changes on internal systems and third-party vendors.