Essex Property Trust, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2022, compared with Q1 2021. Essex is a West Coast apartment REIT operating through Essex Portfolio, L.P. At quarter-end, the Company owned or held interests in 253 apartment communities comprising 62,290 homes, primarily in Southern California, Northern California, and the Seattle metropolitan area.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $381.9 million | $355.1 million | +7.5% |
| Net income | $78.4 million | $176.9 million | Down $98.6 million |
| Net income attributable to common stockholders | $73.3 million; $1.12 per diluted share | $168.4 million; $2.59 per diluted share | Lower year over year |
| Funds from operations (FFO) | $227.1 million; $3.36 per diluted share | $217.5 million; $3.23 per diluted share | FFO +4.4% |
| Core FFO | $228.2 million; $3.37 per diluted share | $206.6 million; $3.07 per diluted share | Core FFO +10.4% |
| Net cash from operating activities | $315.1 million | $195.3 million | +$119.9 million |
| Total debt, net | $6.045 billion | $6.287 billion at Dec. 31, 2021 | Down $242.8 million |
Same-property revenue rose 6.5% to $356.3 million, supported by a 4.5% increase in average rental rates and lower cash concessions. Same-property NOI was $247.8 million, up from $230.9 million; its margin was approximately 69.5% of same-property revenue. Average same-property financial occupancy was 96.3%, versus 96.7% a year earlier. Same-property cash delinquencies were 2.2% of scheduled rent, above the Company’s pre-pandemic typical range of 0.3%–0.4%.
Operating cash flow was $315.1 million. Investing activities provided $105.7 million, including $270.3 million of receivable collections and $88.4 million of non-operating co-investment distributions; financing activities used $370.9 million, including $136.4 million of common dividends paid. Unrestricted and restricted cash totaled $108.6 million at quarter-end. The quarterly dividend declared was $2.20 per share.
Material changes and unusual items
- Net income fell principally because Q1 2021 included a $100.1 million real estate sale gain. Q1 2022 also recorded a $7.6 million loss in interest and other income, primarily reflecting a decline in marketable-security fair values; this included $24.6 million of unrealized equity-security losses, partly offset by $12.2 million of realized gains on securities sales.
- Property operating expenses excluding taxes increased 5.8%, with higher utilities and maintenance costs. Real estate taxes increased 4.2%; depreciation and amortization rose 3.8%.
- Interest expense decreased 2.3% to $50.4 million. Equity income from co-investments increased to $21.2 million, including $17.1 million of co-investment promote income.
- Debt comprised $5.309 billion of unsecured debt, $637.8 million of mortgage notes, and $98.0 million drawn on credit lines. Weighted average rates were 3.3% on fixed-rate unsecured bonds, 2.7% on mortgage notes, and 1.1% on drawn credit lines. The Company reported $1.24 billion of total unsecured credit lines and investment-grade ratings of Baa1/Stable and BBB+/Stable.
- Marketable securities were $169.7 million at quarter-end, down from $191.8 million at year-end. Co-investments totaled $1.145 billion on the balance sheet; related summarized information reports $3.200 billion of co-investment debt.
Outlook, commentary, and risks
Management stated that operating cash flows, cash, marketable securities, and available credit were sufficient for anticipated cash needs over the next 12 months. No specific earnings or FFO guidance was provided. The development pipeline comprised one consolidated and one unconsolidated project plus predevelopment projects, with 371 homes; estimated total costs were $217 million, including approximately $55 million of remaining costs.
Management identified ongoing uncertainty from COVID-19 and related variants, local eviction restrictions and rent regulations, elevated resident delinquencies, inflation in utilities and maintenance, interest-rate and capital-market volatility, development cost and completion risks, and leasing demand and occupancy. The Company said delinquencies had not materially affected liquidity and it was not at material risk of failing debt covenants. It reported no material litigation expected to adversely affect its financial condition, results, or cash flows, and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether rent growth and occupancy trends persist, and whether elevated delinquencies translate into collections or credit losses.
- How much of the decline in GAAP net income reflects nonrecurring prior-year property-sale gains and current-period securities volatility; review FFO and Core FFO reconciliations alongside GAAP results.
- Debt maturities, credit-line availability, exposure to floating rates, and the effect of higher rates on financing costs and co-investment debt.
- Actual development spending, completion and lease-up schedules, and returns on co-investments, including promote income and related-party transactions.
- The effect of local eviction and rent regulations, operating-cost inflation, and other COVID-related or macroeconomic developments on cash flow and dividends.