Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced
today its fourth quarter and full-year 2023 earnings results and
related business activities.
Net Income, Funds from Operations (“FFO”), and Core FFO per
diluted share for the three and twelve months ended December 31,
2023 are detailed below.
Three Months Ended December
31,
Twelve Months Ended December
31,
%
%
2023
2022
Change
2023
2022
Change
Per Diluted
Share
Net Income
$1.02
$2.86
-64.3%
$6.32
$6.27
0.8%
Total FFO
$3.87
$3.77
2.7%
$15.24
$13.70
11.2%
Core FFO
$3.83
$3.77
1.6%
$15.03
$14.51
3.6%
Fourth Quarter and Full-Year 2023
Highlights:
- Reported Net Income per diluted share for the fourth quarter of
2023 of $1.02, compared to $2.86 in the fourth quarter of 2022. For
the full-year 2023, the Company reported Net Income per diluted
share of $6.32 compared to $6.27 in 2022.
- Grew Core FFO per diluted share by 1.6% compared to the fourth
quarter of 2022 and 3.6% compared to the full-year 2022, exceeding
the high-end of the Company’s original guidance range.
- Achieved same-property revenues and net operating income
(“NOI”) growth of 2.9% and 2.3%, respectively, compared to the
fourth quarter of 2022. For the full-year 2023, same-property
revenues and NOI grew 4.4% and 4.3%, respectively, both exceeding
the midpoint of the Company’s original guidance range.
- For the full-year 2023, the Company disposed of one apartment
community in a non-core market for a total contract price of $91.7
million.
- For the full-year 2023, the Company committed $18.8 million to
two preferred equity investments at a weighted average return rate
of 12.6%. The Company received $72.3 million in redemption proceeds
from four preferred equity investments at a weighted average return
rate of 9.1%.
- For the full-year 2023, the Company repurchased 437,026 shares
of its common stock, totaling $95.7 million at an average price per
share of $218.88.
- As of February 2, 2024, the Company’s immediately available
liquidity was approximately $1.6 billion.
Same-Property Operations
Same-property operating results exclude any properties that are
not comparable for the periods presented. The table below
illustrates the percentage change in same-property gross revenues
for the quarter ended December 31, 2023 compared to the quarter
ended December 31, 2022, and the sequential percentage change for
the quarter ended December 31, 2023 compared to the quarter ended
September 30, 2023, by submarket for the Company:
Q4 2023 vs. Q4 2022
Q4 2023 vs. Q3 2023
% of Total
Revenue Change
Revenue Change
Q4 2023 Revenues
Southern California
Los Angeles County
-0.4%
-0.6%
18.4%
Orange County
4.0%
1.8%
10.7%
San Diego County
8.2%
1.3%
9.1%
Ventura County
7.2%
1.5%
4.1%
Total Southern California
3.2%
0.6%
42.3%
Northern California
Santa Clara County
3.7%
-0.7%
19.6%
Alameda County
1.6%
-0.5%
7.7%
San Mateo County
6.1%
1.7%
4.7%
Contra Costa County
3.4%
1.6%
5.4%
San Francisco
0.0%
2.3%
2.5%
Total Northern California
3.3%
0.1%
39.9%
Seattle Metro
1.3%
0.8%
17.8%
Same-Property Portfolio
2.9%
0.5%
100.0%
The table below illustrates the components that drove the change
in same-property revenues on a year-over-year basis for the three
and twelve-month periods ended December 31, 2023 and on a
sequential basis for the three months ended December 31, 2023.
Same-Property Revenue
Components
Q4 2023 vs. Q4
2022
YTD 2023 vs. YTD
2022
Q4 2023 vs. Q3
2023
Scheduled Rents
2.4%
4.4%
0.1%
Delinquencies (1)
-0.4%
-0.7%
0.5%
Cash Concessions
0.7%
0.1%
0.0%
Vacancy
0.0%
0.2%
-0.3%
Other Income
0.2%
0.4%
0.2%
2023 Same-Property Revenue
Growth
2.9%
4.4%
0.5%
- The year-over-year negative impact from delinquencies is
largely due to lower net delinquency in the prior period, which
benefitted from Emergency Rental Assistance payments of $2.6
million and $34.5 million in the fourth quarter and full-year 2022,
respectively. This compares to Emergency Rental Assistance payments
of $0.5 million and $2.6 million in the fourth quarter and
full-year 2023, respectively. For additional details, please see
page S-16 of the accompanying supplemental financial
information.
Year-Over-Year Change
Year-Over-Year Change
Q4 2023 compared to Q4
2022
YTD 2023 compared to YTD
2022
Revenues
Operating
Expenses
NOI
Revenues
Operating
Expenses
NOI
Southern California
3.2%
6.1%
2.1%
4.9%
6.3%
4.3%
Northern California
3.3%
5.5%
2.4%
4.0%
4.1%
4.0%
Seattle Metro
1.3%
-1.6%
2.5%
4.0%
1.4%
5.1%
Same-Property Portfolio
2.9%
4.5%
2.3%
4.4%
4.5%
4.3%
Sequential Change
Q4 2023 compared to Q3
2023
Revenues
Operating
Expenses
NOI
Southern California
0.6%
-1.4%
1.5%
Northern California
0.1%
-0.1%
0.3%
Seattle Metro
0.8%
-5.5%
3.5%
Same-Property Portfolio
0.5%
-1.6%
1.3%
Financial Occupancies
Quarter Ended
12/31/2023
9/30/2023
12/31/2022
Southern California
95.9%
96.3%
96.4%
Northern California
96.2%
96.5%
95.8%
Seattle Metro
96.5%
96.3%
95.8%
Same-Property Portfolio
96.1%
96.4%
96.0%
Investment Activity
Other Investments
In December 2023, the Company received cash proceeds of $40.5
million from the full redemption of one preferred equity investment
yielding a 9.0% rate of return.
Liquidity and Balance Sheet
Common Stock
In the fourth quarter of 2023, the Company did not issue any
shares of common stock through its equity distribution program or
repurchase any shares through its stock repurchase plan. For the
full-year 2023, the Company repurchased 437,026 shares of its
common stock totaling $95.7 million, including commissions, at an
average price per share of $218.88. As of February 2, 2024, the
Company had $302.7 million of purchase authority remaining under
its stock repurchase plan.
Balance Sheet
In the fourth quarter of 2023, the Company recognized a $33.7
million impairment on one preferred equity investment located in
Oakland, CA. The impairment does not impact Total or Core FFO. The
Company stopped accruing income on the investment in the fourth
quarter of 2022 and therefore did not recognize income from this
investment in 2023. The investment is not currently in default.
As of February 2, 2024, the Company had approximately $1.6
billion in liquidity via undrawn capacity on its unsecured credit
facilities, cash and cash equivalents, and marketable
securities.
2024 Full-Year Guidance and Key
Assumptions
Per Diluted
Share
Range
Midpoint
Net Income
$5.05 - $5.59
$5.32
Total FFO
$14.46 - $15.00
$14.73
Core FFO
$14.76 - $15.30
$15.03
Q1 2024 Core FFO
$3.68 - $3.80
$3.74
U.S. Economic
Assumptions
GDP Growth
1.30%
Job Growth
1.20%
ESS Markets
Economic Assumptions
Job Growth
1.30%
Market Rent Growth
1.25%
Estimated Same-Property Portfolio
Growth
Based on 50,884 Apartment Homes
Range
Midpoint Cash-Basis
Midpoint GAAP-Basis
Revenues
0.70% to 2.70%
1.70%
1.80%
Operating Expenses
3.50% to 5.00%
4.25%
4.25%
Net Operating Income
-1.10% to 2.30%
0.60%
0.70%
Key Assumptions
- Acquisition and disposition activities will be influenced by
market conditions and cost of capital, consistent with the
Company’s historical practice of creating NAV and FFO per
share.
- Structured finance redemptions are expected to be $50 - $150
million. The proceeds will be prioritized to fund future
acquisitions, subject to market conditions.
- The Company has minimal development funding needs and does not
currently plan to start any new developments in 2024.
- Revenue generating capital expenditures are expected to be
approximately $50 million at the Company’s pro rata share.
2024 Core FFO Per Diluted Share Guidance
Midpoint versus Full-Year 2023
The table below provides a summary of changes between the
Company’s 2023 Core FFO per diluted share and its 2024 Core FFO per
diluted share guidance midpoint.
2024 Core FFO Per Diluted Share
Guidance Midpoint versus 2023
Midpoint
2023 Core FFO Per Diluted Share
$
15.03
NOI from Consolidated Communities
0.14
Consolidated Net Interest Expense
0.04
Interest and Other Income
0.02
FFO from Co-Investments, including
preferred equity
(0.16)
G&A and Other
(0.04)
2024 Core FFO Per Diluted Share
Guidance Midpoint
$
15.03
For additional details regarding the Company’s 2024 FFO guidance
range, please see page S-14 of the supplemental financial
information.
Conference Call with Management
The Company will host an earnings conference call with
management to discuss its quarterly results on Wednesday, February
7, 2024 at 11:00 a.m. PT (2:00 p.m. ET), which will be broadcast
live via the Internet at www.essex.com, and accessible via phone by
dialing toll-free, (877) 407-0784, or toll/international, (201)
689-8560. No passcode is necessary.
A rebroadcast of the live call will be available online for 30
days and digitally for 7 days. To access the replay online, go to
www.essex.com and select the fourth quarter 2023 earnings link. To
access the replay, dial (844) 512-2921 using the replay pin number
13743418. If you are unable to access the information via the
Company’s website, please contact the Investor Relations Department
at investors@essex.com or by calling (650) 655-7800.
Corporate Profile
Essex Property Trust, Inc., an S&P 500 company, is a fully
integrated real estate investment trust (REIT) that acquires,
develops, redevelops, and manages multifamily residential
properties in selected West Coast markets. Essex currently has
ownership interests in 252 apartment communities comprising
approximately 62,000 apartment homes with an additional property in
active development. Additional information about the Company can be
found on the Company’s website at www.essex.com.
This press release and accompanying supplemental financial
information has been furnished to the Securities and Exchange
Commission electronically on Form 8-K and can be accessed from the
Company’s website at www.essex.com. If you are unable to obtain the
information via the Web, please contact the Investor Relations
Department at (650) 655-7800.
FFO RECONCILIATION
FFO, as defined by the National Association of Real Estate
Investment Trusts (“NAREIT”), is generally considered by industry
analysts as an appropriate measure of performance of an equity
REIT. Generally, FFO adjusts the net income of equity REITs for
non-cash charges such as depreciation and amortization of rental
properties, impairment charges, gains on sales of real estate and
extraordinary items. Management considers FFO and FFO which
excludes non-core items, which is referred to as “Core FFO,” to be
useful supplemental operating performance measures of an equity
REIT because, together with net income and cash flows, FFO and Core
FFO provide investors with additional bases to evaluate the
operating performance and ability of a REIT to incur and service
debt and to fund acquisitions and other capital expenditures and to
pay dividends. By excluding gains or losses related to sales of
depreciated operating properties and land and excluding real estate
depreciation (which can vary among owners of identical assets in
similar condition based on historical cost accounting and useful
life estimates), FFO can help investors compare the operating
performance of a real estate company between periods or as compared
to different companies. By further adjusting for items that are not
considered part of the Company’s core business operations, Core FFO
allows investors to compare the core operating performance of the
Company to its performance in prior reporting periods and to the
operating performance of other real estate companies without the
effect of items that by their nature are not comparable from period
to period and tend to obscure the Company’s actual operating
results. FFO and Core FFO do not represent net income or cash flows
from operations as defined by U.S. generally accepted accounting
principles (“GAAP”) and are not intended to indicate whether cash
flows will be sufficient to fund cash needs. These measures should
not be considered as alternatives to net income as an indicator of
the REIT's operating performance or to cash flows as a measure of
liquidity. FFO and Core FFO do not measure whether cash flow is
sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to stockholders. FFO and
Core FFO also do not represent cash flows generated from operating,
investing or financing activities as defined under GAAP. Management
has consistently applied the NAREIT definition of FFO to all
periods presented. However, there is judgment involved and other
REITs’ calculation of FFO may vary from the NAREIT definition for
this measure, and thus their disclosures of FFO may not be
comparable to the Company’s calculation.
The following table sets forth the Company’s calculation of
diluted FFO and Core FFO for the three and twelve months ended
December 31, 2023 and 2022 (in thousands, except for share and per
share amounts):
Three Months Ended December
31,
Twelve Months Ended December
31,
Funds from Operations attributable to
common stockholders and unitholders
2023
2022
2023
2022
Net income available to common
stockholders
$
65,391
$
185,165
$
405,825
$
408,315
Adjustments:
Depreciation and amortization
138,016
135,758
548,438
539,319
Gains not included in FFO
-
(94,416
)
(59,238
)
(111,839
)
Casualty loss
-
-
433
-
Impairment loss from unconsolidated
co-investments
33,700
2,105
33,700
2,105
Depreciation and amortization from
unconsolidated co-investments
18,259
18,053
71,745
72,585
Noncontrolling interest related to
Operating Partnership units
2,302
6,497
14,284
14,297
Depreciation attributable to third party
ownership and other
(379
)
(357
)
(1,474
)
(1,421
)
Funds from Operations attributable to
common stockholders and unitholders
$
257,289
$
252,805
$
1,013,713
$
923,361
FFO per share – diluted
$
3.87
$
3.77
$
15.24
$
13.70
Expensed acquisition and investment
related costs
$
220
$
1,884
$
595
$
2,132
Tax (benefit) expense on unconsolidated
co-investments (1)
(540
)
(2,373
)
697
(10,236
)
Realized and unrealized (gains) losses on
marketable securities, net
(5,712
)
(5,579
)
(10,006
)
45,547
Provision for credit losses
19
(317
)
70
(381
)
Equity (income) loss from non-core
co-investments (2)
(263
)
6,928
(1,685
)
38,045
Loss on early retirement of debt, net
-
-
-
2
Loss on early retirement of debt from
unconsolidated co-investment
-
-
-
988
Co-investment promote income
-
-
-
(17,076
)
Income from early redemption of preferred
equity investments and notes receivable
-
(811
)
(285
)
(1,669
)
General and administrative and other,
net
4,059
209
6,629
2,536
Insurance reimbursements, legal
settlements, and other, net
(739
)
(315
)
(9,821
)
(5,392
)
Core Funds from Operations attributable
to common stockholders and unitholders
$
254,333
$
252,431
$
999,907
$
977,857
Core FFO per share – diluted
$
3.83
$
3.77
$
15.03
$
14.51
Weighted average number of shares
outstanding diluted (3)
66,447,394
67,003,718
66,514,456
67,374,526
- Represents tax related to net unrealized gains or losses on
technology co-investments.
- Represents the Company's share of co-investment income or loss
from technology co-investments.
- Assumes conversion of all outstanding limited partnership units
in Essex Portfolio, L.P. (the “Operating Partnership”) into shares
of the Company’s common stock and excludes DownREIT limited
partnership units.
Net Operating Income (“NOI”) and Same-Property NOI
Reconciliations
NOI and same-property NOI are considered by management to be
important supplemental performance measures to earnings from
operations included in the Company’s consolidated statements of
income. The presentation of same-property NOI assists with the
presentation of the Company’s operations prior to the allocation of
depreciation and any corporate-level or financing-related costs.
NOI reflects the operating performance of a community and allows
for an easy comparison of the operating performance of individual
communities or groups of communities. In addition, because
prospective buyers of real estate have different financing and
overhead structures, with varying marginal impacts to overhead by
acquiring real estate, NOI is considered by many in the real estate
industry to be a useful measure for determining the value of a real
estate asset or group of assets. The Company defines same-property
NOI as same-property revenues less same-property operating
expenses, including property taxes. Please see the reconciliation
of earnings from operations to NOI and same-property NOI, which in
the table below is the NOI for stabilized properties consolidated
by the Company for the periods presented (dollars in
thousands):
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2023
2022
2023
2022
Earnings from operations
$
130,341
$
228,143
$
584,342
$
595,229
Adjustments:
Corporate-level property management
expenses
11,485
10,172
45,872
40,704
Depreciation and amortization
138,016
135,758
548,438
539,319
Management and other fees from
affiliates
(2,803
)
(2,826
)
(11,131
)
(11,139
)
General and administrative
19,739
16,036
63,474
56,577
Expensed acquisition and investment
related costs
220
1,884
595
2,132
Casualty loss
-
-
433
-
Gain on sale of real estate and land
-
(94,416
)
(59,238
)
(94,416
)
NOI
296,998
294,751
1,172,785
1,128,406
Less: Non-same property NOI
(13,261
)
(17,303
)
(54,179
)
(56,058
)
Same-Property NOI
$
283,737
$
277,448
$
1,118,606
$
1,072,348
Safe Harbor Statement Under The Private
Litigation Reform Act of 1995:
This press release includes “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are statements which are not
historical facts, including statements regarding the Company's
expectations, estimates, assumptions, hopes, intentions, beliefs
and strategies regarding the future. Words such as “expects,”
“assumes,” “anticipates,” “may,” “will,” “intends,” “plans,”
“projects,” “believes,” “seeks,” “future,” “estimates,” and
variations of such words and similar expressions are intended to
identify such forward-looking statements. Such forward-looking
statements include, among other things, statements regarding the
Company’s expectations related to the continued evolution of the
work-from-home trend, the Company’s intent, beliefs or expectations
with respect to the timing of completion of current development and
redevelopment projects and the stabilization of such projects, the
timing of lease-up and occupancy of its apartment communities, the
anticipated operating performance of its apartment communities, the
total projected costs of development and redevelopment projects,
co-investment activities, qualification as a REIT under the
Internal Revenue Code of 1986, as amended, the Company’s first
quarter and full-year 2024 guidance (including net income, Total
FFO and Core FFO and related assumptions, including with respect to
GDP growth, job growth and market rent growth), 2024 same-property
revenue, operating expenses and net operating income generally and
in specific regions, the real estate markets in the geographies in
which the Company’s properties are located and in the United States
in general, the adequacy of future cash flows to meet anticipated
cash needs, its financing activities and the use of proceeds from
such activities, the availability of debt and equity financing,
general economic conditions including the potential impacts from
such economic conditions, inflation, the labor market, supply chain
impacts, geopolitical tensions and regional conflicts, trends
affecting the Company’s financial condition or results of
operations, changes to U.S. tax laws and regulations in general or
specifically related to REITs or real estate, changes to laws and
regulations in jurisdictions in which communities the Company owns
are located, and other information that is not historical
information. While the Company's management believes the
assumptions underlying its forward-looking statements are
reasonable, such forward-looking statements involve known and
unknown risks, uncertainties and other factors, many of which are
beyond the Company’s control, which could cause the actual results,
performance or achievements of the Company to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. The
Company cannot assure the future results or outcome of the matters
described in these statements; rather, these statements merely
reflect the Company’s current expectations of the approximate
outcomes of the matters discussed. Factors that might cause the
Company’s actual results, performance or achievements to differ
materially from those expressed or implied by these forward-looking
statements include, but are not limited to, the following:
potential future outbreaks of infectious diseases or other health
concerns, which could adversely affect the Company’s business and
its tenants, and cause a significant downturn in general economic
conditions, the real estate industry, and the markets in which the
Company's communities are located; the Company may fail to achieve
its business objectives; the actual completion of development and
redevelopment projects may be subject to delays; the stabilization
dates of such projects may be delayed; the Company may abandon or
defer development or redevelopment projects for a number of
reasons, including changes in local market conditions which make
development less desirable, increases in costs of development,
increases in the cost of capital or lack of capital availability,
resulting in losses; the total projected costs of current
development and redevelopment projects may exceed expectations;
such development and redevelopment projects may not be completed;
development and redevelopment projects and acquisitions may fail to
meet expectations; estimates of future income from an acquired
property may prove to be inaccurate; occupancy rates and rental
demand may be adversely affected by competition and local economic
and market conditions; there may be increased interest rates,
inflation, escalated operating costs and possible recessionary
impacts; geopolitical tensions and regional conflicts, and the
related impacts on macroeconomic conditions, including, among other
things, interest rates and inflation; the Company may be
unsuccessful in the management of its relationships with its
co-investment partners; future cash flows may be inadequate to meet
operating requirements and/or may be insufficient to provide for
dividend payments in accordance with REIT requirements; changes in
laws or regulations; the terms of any refinancing may not be as
favorable as the terms of existing indebtedness; unexpected
difficulties in leasing of development projects; volatility in
financial and securities markets; the Company’s failure to
successfully operate acquired properties; unforeseen consequences
from cyber-intrusion; the Company’s inability to maintain our
investment grade credit rating with the rating agencies; government
approvals, actions and initiatives, including the need for
compliance with environmental requirements; and those further
risks, special considerations, and other factors referred to in the
Company’s annual report on Form 10-K for the year ended December
31, 2022, quarterly reports on Form 10-Q, and those risk factors
and special considerations set forth in the Company's other filings
with the SEC which may cause the actual results, performance or
achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. All forward-looking statements are
made as of the date hereof, the Company assumes no obligation to
update or supplement this information for any reason, and
therefore, they may not represent the Company’s estimates and
assumptions after the date of this press release.
Definitions and Reconciliations
Non-GAAP financial measures and certain other capitalized terms,
as used in this earnings release, are defined and further explained
on pages S-18.1 through S-18.4, "Reconciliations of Non-GAAP
Financial Measures and Other Terms," of the accompanying
supplemental financial information. The supplemental financial
information is available on the Company's website at
www.essex.com.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240206039162/en/
Loren Rainey Director, Investor Relations (650) 655-7800
lrainey@essex.com
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