UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 8-K



Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): August 3, 2020

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact Name of Registrant as Specified in Its Charter)

001-13106 (Essex Property Trust, Inc.)
333-44467-01 (Essex Portfolio, L.P.)
(Commission File Number)

Maryland (Essex Property Trust, Inc.)
 
77-0369576 (Essex Property Trust, Inc.)
California (Essex Portfolio, L.P.)
 
77-0369575 (Essex Portfolio, L.P.)
     
(State or Other Jurisdiction of Incorporation)
 
(I.R.S. Employer Identification No.)

1100 Park Place, Suite 200
San Mateo, CA 94403
 (Address of principal executive offices, including zip code)

(650) 655-7800
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:


Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)


Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))


Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.)
 
ESS
 
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):

Essex Property Trust, Inc.
Emerging growth company

Essex Portfolio, L.P.
Emerging growth company


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Item 2.02.
Results of Operations and Financial Condition.
 
On August 3, 2020, Essex Property Trust, Inc. (the “Company”) issued a press release and supplemental information announcing the Company’s financial results for the three and six months ended June 30, 2020. The Company has posted a copy of the press release and supplemental information on the Company’s website at www.essex.com. A copy of the press release and supplemental information is attached hereto as Exhibit 99.1 and incorporated by reference herein.

The information in this report (including Exhibit 99.1) is being furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act.
 
Item 9.01.
Financial Statements and Exhibits.
 
(d) Exhibits.

Exhibit No.
 
Description
   
 
Press Release and Supplemental Information for the quarter and six months ended June 30, 2020.
     
104
 
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrants have duly caused this report to be signed on their behalf by the undersigned, hereunto duly authorized.

Date: August 3, 2020
ESSEX PROPERTY TRUST, INC.
     
 
/s/ Angela L. Kleiman
 
Name:
Angela L. Kleiman
 
Title:
Executive Vice President and Chief Financial Officer
     
 
ESSEX PORTFOLIO, L.P.
     
 
By:
Essex Property Trust, Inc.
 
Its:
General Partner
     
 
/s/ Angela L. Kleiman
 
Name:
Angela L. Kleiman
 
Title:
Executive Vice President and Chief Financial Officer




Exhibit 99.1



 
Essex Announces Second Quarter 2020 Results
 
San Mateo, California—August 3, 2020—Essex Property Trust, Inc. (NYSE: ESS) (the “Company”) announced today its second quarter 2020 earnings results and related business activities.

Net Income, Funds from Operations (“FFO”), and Core FFO per diluted share for the three and six months ended June 30, 2020 are detailed below.

                         
   
Three Months Ended
June 30,
   
%
   
Six Months Ended
June 30,
   
%
 
   
2020
   
2019
   
Change
   
2020
   
2019
   
Change
 
Per Diluted Share
                                   
Net Income
 

$1.29
   
$1.40
     
-7.9%

 
$6.07
   

$3.21
     
89.1%

Total FFO
 
$3.21
   
$3.36
     
-4.5%

 

$6.65
   

$6.69
     
-0.6%

Core FFO
 
$3.16
   

$3.33
     
-5.1%

 
$6.64
   
$6.57
     
1.1%

                                                 

Second Quarter 2020 Highlights:


Reported Net Income per diluted share for the second quarter of 2020 of $1.29, compared to $1.40 in the second quarter of 2019.


Core FFO per diluted share declined by 5.1% compared to the second quarter of 2019.


Same-property gross revenue and net operating income (“NOI”) declined by 3.8% and 7.4%, respectively, compared to the second quarter of 2019. The Company recorded an additional $9.7 million of delinquencies in the second quarter compared to the prior year period. Excluding these delinquencies, same-property revenue and NOI would have declined 0.9% and 3.5%, respectively.


Same-property operating expenses increased 6.0% compared to the second quarter of 2019.  The increase is largely due to a 9.6% increase in real estate taxes, driven by higher taxes in Seattle.


Disposed of two apartment communities during the second quarter for a total contract price of $232.0 million.


Repurchased 87,988 shares of common stock totaling $20.1 million at an average price per share of $228.36 under the stock buyback program.


In June 2020, the Company issued $150.0 million of 12-year senior unsecured notes due in March 2032 bearing an interest rate per annum of 2.65% and an effective yield of 2.09%.


As of July 31, 2020, the Company’s immediately available liquidity exceeded $1.4 billion.

1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com


“The second quarter of 2020 proved to be one of the most challenging environments in company history and we are proud of how the Essex team responded to the COVID-19 pandemic, providing compassionate service, emphasizing safety, and complying with an unprecedented regulatory regime. Following a sharp decline in rental demand early in the quarter as a result of the COVID-19 pandemic and shelter-in-place ordinances, we saw employment trends significantly improve at the end of the quarter and we are cautiously optimistic that these trends will continue. The Company is well positioned with a strong balance sheet and ample liquidity, providing opportunity to create value for our shareholders through these unprecedented economic times,” commented Michael Schall, President and CEO of the Company.

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 June 30, 2020 compared to the quarter ended June 30, 2019, and the sequential percentage change for the quarter ended June 30, 2020 compared to the quarter ended March 31, 2020, by submarket for the Company:

   
Q2 2020 vs.
Q2 2019
   
Q2 2020 vs.
Q1 2020
   
% of Total
 
   
Gross
Revenues
   
Gross
Revenues
   
Q2 2020
Revenues
 
Southern California
     
Los Angeles County
   
-8.6%

   
-10.2%

   
18.3%

Orange County
   
-4.3%

   
-6.5%

   
11.0%

San Diego County
   
-2.0%

   
-4.5%

   
8.4%

Ventura County
   
-3.2%

   
-5.3%

   
4.4%

Total Southern California
   
-5.7%

   
-7.7%

   
42.1%

Northern California
     
Santa Clara County
   
-1.5%

   
-3.9%

   
19.3%

Alameda County
   
-4.9%

   
-6.5%

   
6.9%

San Mateo County
   
-4.6%

   
-7.3%

   
5.0%

Contra Costa County
   
-5.3%

   
-6.7%

   
4.8%

San Francisco
   
-6.5%

   
-7.8%

   
3.3%

Total Northern California
   
-3.4%

   
-5.5%

   
39.3%

Seattle Metro
   
-0.2%

   
-3.7%

   
18.6%

Same-Property Portfolio
   
-3.8%

   
-6.1%

   
100.0%


The table below illustrates the components that drove the change in Same-Property Revenues on a year-over-year basis.

Same-Property Revenue Components
 
$ Amount
(in millions)
   
% Contribution to
Growth/(Decline)
 
Q2 2019 Same-Property Revenue
 
$
336.5
       
Scheduled Rents
   
6.7
     
2.0%

Delinquencies
   
(9.7
)
   
-2.9%

Concessions
   
(3.4
)
   
-1.0%

Vacancy
   
(5.9
)
   
-1.7%

Other Income
   
(0.5
)
   
-0.1%

Q2 2020 Same-Property Revenues/Growth
 
$
323.7
     
-3.8%


- 2 -

   
Year-Over-Year Growth
   
Year-Over-Year Growth

   
Q2 2020 compared to Q2 2019
   
YTD 2020 compared to YTD 2019

   
Gross
Revenues

 
Operating
Expenses

 
NOI


Gross
Revenues

 
Operating
Expenses

 
NOI

Southern California
   
-5.7%

   
3.1%

   
-9.1%


 
-1.5%

   
2.8%

   
-3.2%

Northern California
   
-3.4%

   
3.9%

   
-5.9%


 
-0.2%

   
2.8%

   
-1.2%

Seattle Metro
   
-0.2%

   
17.2%

   
-7.0%


 
2.2%

   
7.2%

   
0.1%

Same-Property Portfolio
   
-3.8%

   
6.0%

   
-7.4%


 
-0.3%

   
3.6%

   
-1.8%


   
Sequential Growth

   
Q2 2020 compared to Q1 2020

   
Gross
Revenues
   
Operating
Expenses
   
NOI

Southern California
   
-7.7%

   
0.1%

   
-10.7%

Northern California
   
-5.5%

   
0.9%

   
-7.6%

Seattle Metro
   
-3.7%

   
8.1%

   
-8.6%

Same-Property Portfolio
   
-6.1%

   
1.9%

   
-9.1%


   
Financial Occupancies

   
Quarter Ended

   
6/30/2020
   
3/31/2020
   
6/30/2019

Southern California
   
94.5%

   
96.6%

   
96.6%

Northern California
   
95.0%

   
96.9%

   
96.6%

Seattle Metro
   
95.4%

   
96.8%

   
96.4%

Same-Property Portfolio
   
94.9%

   
96.8%

   
96.6%


Investment Activity

Dispositions

In June 2020, the Company completed a portfolio sale which consisted of two apartment communities, One South Market and Museum Park, both located in San Jose, CA for a total contract price of $232.0 million. Combined, the two communities contain 429 apartment homes and approximately 6,534 sq. ft of retail. The Company recognized a $16.6 million gain on sale, which has been excluded from Core FFO.

Subsequent to quarter end, the Company sold a 126-unit apartment community located in Redmond, WA, at a total contract price of $51.5 million. The community was originally acquired in 2011 at a total contract price of $30.1 million.

Other Investments

In April 2020, the Company originated a subordinated loan investment totaling $29.2 million to fund the development of a multifamily community located in Northern California. The investment has an initial preferred return of 11.0% and matures in 2023. As of June 30, 2020, the Company had funded $6.7 million, with the full commitment expected to be funded by the second quarter of 2021.

- 3 -

Development Activity

In the second quarter of 2020, the Company entered into a joint venture to develop Scripps Mesa Apartments, a 264-unit apartment community located in the Scripps Ranch area of San Diego, CA. The Company has a 50.5% ownership in the development, which has a total projected cost of $102.0 million. The project will be financed with $89.3 million of tax-exempt bonds that mature in 2060. The joint venture has entered into a total return swap, converting the tax-exempt bonds to a variable rate of SIFMA + 0.75%. Construction on the project commenced in July 2020 with a projected opening in the fourth quarter of 2022.

The table below represents the development communities in lease-up and the current leasing status as of July 31, 2020.

Project Name
Location
 
Total
Apartment
Homes
   
ESS
Ownership
   
% Leased
as of
07/31/20
 
Status
Station Park Green – Phase III
San Mateo, CA
   
172
     
100%

   
88.4%

In Lease-Up
500 Folsom
San Francisco, CA
   
537
     
50%

   
73.4%

In Lease-Up
Mylo
Santa Clara, CA
   
476
     
100%

   
45.8%

In Lease-Up
Patina at Midtown
San Jose, CA
   
269
     
50%

   
9.3%

In Lease-Up
Total/Average % Leased
   
1,454
       
   
54.3%

 

liquidity and balance sheet

Common Stock

In the second quarter of 2020, the Company repurchased 87,988 shares of its common stock totaling $20.1 million, including commissions, at an average price of $228.36 per share. Year-to-date through July 31, 2020, the Company repurchased 985,509 shares of its common stock totaling $223.0 million, including commissions, at an average price of $226.27 per share. As of July 31, 2020, the Company had $203.3 million of purchase authority remaining under the stock repurchase plan.

The Company did not issue any shares of common stock through its equity distribution program in the second quarter of 2020.

Balance Sheet

In April 2020, the Company originated a $200.0 million unsecured term loan, priced at LIBOR + 1.20% with a one-year maturity and two 12-month extension options, exercisable at the Company’s option. The proceeds were used to repay all remaining consolidated debt maturing in 2020.

In June 2020, the Company issued $150.0 million of 12-year senior unsecured notes due in March 2032 bearing an interest rate per annum of 2.65% and an effective yield of 2.09%. The notes were issued as additional notes pursuant to the notes previously issued in February 2020. The proceeds were used to repay indebtedness under the Company’s unsecured credit facilities and for other general corporate and working capital purposes.

As of July 31, 2020, the Company had $1.2 billion in undrawn capacity on its unsecured credit facilities.

- 4 -

COVID-19 Update

The Company has established the Essex Cares fund to support the Company’s residents and stakeholders that are experiencing financial hardships caused by the COVID-19 pandemic. Initially funded by donations from the Company’s employees, officers and directors, the Company intends to distribute up to $3.0 million dollars in financial assistance to those in need.

Due to the uncertain nature of the COVID-19 pandemic and evolving economic re-opening plans, the Company is not reinstating full-year 2020 guidance. Instead, the Company continues to provide additional disclosures related to its operations on page S-15 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 Tuesday, August 4, 2020 at 10 a.m. PT (1 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 second quarter 2020 earnings link. To access the replay, dial (844) 512-2921 using the replay pin number 13706365. 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 247 apartment communities comprising approximately 60,000 apartment homes with an additional 7 properties in various stages of 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.

- 5 -

By excluding gains or losses related to sales of depreciated operating properties 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.

- 6 -

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three and six months ended June 30, 2020 and 2019 (in thousands, except for share and per share amounts):

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
Funds from Operations attributable to common
stockholders and unitholders
 
2020
   
2019
   
2020
   
2019
 
Net income available to common stockholders
 
$
84,458
   
$
92,275
   
$
399,464
   
$
211,133
 
Adjustments:
                               
Depreciation and amortization
   
133,609
     
119,465
     
265,168
     
240,033
 
Gains not included in FFO
   
(16,597
)
   
(870
)
   
(251,291
)
   
(32,405
)
Depreciation and amortization from unconsolidated co-investments
   
12,764
     
14,631
     
25,308
     
29,821
 
Noncontrolling interest related to Operating Partnership units
   
2,964
     
3,228
     
13,950
     
7,399
 
Depreciation attributable to third party ownership and other
   
(139
)
   
(236
)
   
(273
)
   
(466
)
Funds from Operations attributable to common
stockholders and unitholders
 
$
217,059
   
$
228,493
   
$
452,326
   
$
455,515
 
FFO per share – diluted
 
$
3.21
   
$
3.36
   
$
6.65
   
$
6.69
 
Expensed acquisition and investment related costs
 
$
15
   
$
24
   
$
102
   
$
56
 
Deferred tax expense on unrealized gain on unconsolidated co-investment (1)
   
1,636
     
-
     
1,636
     
-
 
Gain on sale of marketable securities
   
(46
)
   
(556
)
   
(33
)
   
(498
)
Unrealized (gains) losses on marketable securities
   
(7,623
)
   
56
     
1,073
     
(4,454
)
Provision for credit losses
   
147
     
-
     
97
     
-
 
Equity income from non-core co-investment (2)
   
(4,696
)
   
-
     
(4,586
)
   
(314
)
Interest rate hedge ineffectiveness (3)
   
-
     
-
     
-
     
181
 
Loss (gain) on early retirement of debt, net
   
5,027
     
(332
)
   
4,706
     
(1,668
)
Gain on early retirement of debt from unconsolidated co-investment
   
(38
)
   
-
     
(38
)
   
-
 
Co-investment promote income
   
-
     
-
     
(6,455
)
   
(809
)
Income from early redemption of preferred equity investments
   
-
     
(732
)
   
(210
)
   
(832
)
General and administrative and other, net
   
2,312
     
-
     
3,132
     
-
 
Insurance reimbursements, legal settlements, and other, net
   
(106
)
   
(38
)
   
(63
)
   
(248
)
Core Funds from Operations attributable to
common stockholders and unitholders
 
$
213,687
   
$
226,915
   
$
451,687
   
$
446,929
 
Core FFO per share – diluted
 
$
3.16
   
$
3.33
   
$
6.64
   
$
6.57
 
Weighted average number of shares outstanding diluted (4)
   
67,682,034
     
68,079,855
     
68,017,414
     
68,063,937
 


(1)
A deferred tax expense was recorded during the second quarter of 2020 related to the $4.7 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment.

(2)
Represents the Company’s share of co-investment income from Real Estate Technology Ventures, L.P. Income for the second quarter of 2020 includes a net unrealized gain of $4.7 million.

(3)
On January 1, 2019, the Company adopted ASU No. 2017-12 “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities,” which resulted in a cumulative effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes qualifying hedge ineffectiveness through accumulated other comprehensive income as opposed to current earnings.

(4)
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 all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

- 7 -

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
June 30,
   
Six Months Ended
June 30,
 
   
2020
   
2019
   
2020
   
2019
 
Earnings from operations
 
$
119,736
   
$
124,560
   
$
250,573
   
$
240,255
 
Adjustments:
                               
Corporate-level property management expenses
   
8,646
     
8,469
     
17,405
     
16,898
 
Depreciation and amortization
   
133,609
     
119,465
     
265,168
     
240,033
 
Management and other fees from affiliates
   
(2,348
)
   
(2,260
)
   
(4,965
)
   
(4,595
)
General and administrative
   
14,952
     
13,927
     
28,934
     
27,386
 
Expensed acquisition and investment related costs
   
15
     
24
     
102
     
56
 
Gain on sale of real estate and land
   
(16,597
)
   
-
     
(16,597
)
   
-
 
NOI
   
258,013
     
264,185
     
540,620
     
520,033
 
Less: Non-same property NOI
   
(30,333
)
   
(18,217
)
   
(62,445
)
   
(33,088
)
Same-Property NOI
 
$
227,680
   
$
245,968
   
$
478,175
   
$
486,945
 

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 impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations and the impact of any measures taken to mitigate the impact of the pandemic, 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 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, including as a result of the COVID-19 pandemic, 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.

- 8 -

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: the impact of the COVID-19 pandemic, which remains inherently uncertain as the situation is unprecedented and continuously evolving, and other potential future outbreaks of infectious diseases or other health concerns, and measures taken to limit their impact, 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 and operating costs; 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 market; 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, quarterly reports on Form 10-Q, and other reports that the Company files with the SEC from time to time. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 pandemic. 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.

- 9 -

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-16.1 through S-16.4, “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.

Contact Information
Rylan Burns
Vice President of Finance & Investor Relations
(650) 655-7800
rburns@essex.com

- 10 -

Q2 2020 Supplemental Table of Contents
 

Page(s)
Consolidated Operating Results
S-1 – S-2
   
Consolidated Funds From Operations
S-3
   
Consolidated Balance Sheets
S-4
   
Debt Summary – June 30, 2020
S-5
   
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – June 30, 2020
S-6
   
Portfolio Summary by County – June 30, 2020
S-7
   
Operating Income by Quarter – June 30, 2020
S-8
   
Same-Property Revenue Results by County – Quarters ended June 30, 2020 and 2019, and March 31, 2020
S-9
   
Same-Property Revenue Results by County – Six months ended June 30, 2020 and 2019
S-9.1
   
Same-Property Operating Expenses – Quarter and Year to Date as of June 30, 2020 and 2019
S-10
   
Development Pipeline – June 30, 2020
S-11
   
Redevelopment Pipeline – June 30, 2020
S-12
   
Capital Expenditures – June 30, 2020
S-12.1
   
Co-investments and Preferred Equity Investments – June 30, 2020
S-13
   
Summary of Apartment Community Acquisitions and Dispositions Activity
S-14
   
Delinquencies, Operating Statistics, and Same-Property Portfolio Growth with Concessions on a GAAP basis
S-15
   
Reconciliations of Non-GAAP Financial Measures and Other Terms
S-16.1-S-16.4


E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Operating Results
(Dollars in thousands, except share and per share amounts)
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
 
2020
   
2019
   
2020
   
2019
 
 
                       
Revenues:
                       
Rental and other property
 
$
368,149
   
$
359,375
   
$
757,899
   
$
713,263
 
Management and other fees from affiliates
   
2,348
     
2,260
     
4,965
     
4,595
 
     
370,497
     
361,635
     
762,864
     
717,858
 
                                 
Expenses:
                               
Property operating
   
110,136
     
95,190
     
217,279
     
193,230
 
Corporate-level property management expenses
   
8,646
     
8,469
     
17,405
     
16,898
 
Depreciation and amortization
   
133,609
     
119,465
     
265,168
     
240,033
 
General and administrative
   
14,952
     
13,927
     
28,934
     
27,386
 
Expensed acquisition and investment related costs
   
15
     
24
     
102
     
56
 
     
267,358
     
237,075
     
528,888
     
477,603
 
Gain on sale of real estate and land
   
16,597
     
-
     
16,597
     
-
 
Earnings from operations
   
119,736
     
124,560
     
250,573
     
240,255
 
Interest expense, net (1)
   
(51,659
)
   
(52,137
)
   
(104,822
)
   
(103,735
)
Interest and other income
   
11,405
     
8,347
     
6,184
     
20,608
 
Equity income from co-investments
   
17,257
     
16,959
     
38,554
     
33,235
 
Deferred tax expense on unrealized gain on unconsolidated co-investment
   
(1,636
)
   
-
     
(1,636
)
   
-
 
(Loss) gain on early retirement of debt, net
   
(5,027
)
   
332
     
(4,706
)
   
1,668
 
Gain on remeasurement of co-investment
   
-
     
-
     
234,694
     
31,535
 
Net income
   
90,076
     
98,061
     
418,841
     
223,566
 
Net income attributable to noncontrolling interest
   
(5,618
)
   
(5,786
)
   
(19,377
)
   
(12,433
)
Net income available to common stockholders
 
$
84,458
   
$
92,275
   
$
399,464
   
$
211,133
 
                                 
Net income per share - basic
 
$
1.29
   
$
1.40
   
$
6.08
   
$
3.21
 
                                 
Shares used in income per share - basic
   
65,412,407
     
65,718,806
     
65,728,119
     
65,710,842
 
                                 
Net income per share - diluted
 
$
1.29
   
$
1.40
   
$
6.07
   
$
3.21
 
                                 
Shares used in income per share - diluted
   
65,427,935
     
65,821,815
     
65,855,347
     
65,802,417
 

(1)
Refer to page S-16.2, the section titled “Interest Expense, Net” for additional information.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-1

E S S E X  P R O P E R T Y  T R U S T, I N C.
 
Consolidated Operating Results
Selected Line Item Detail
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
(Dollars in thousands)
 
2020
   
2019
   
2020
   
2019
 
                         
Rental and other property
                       
Rental income
 
$
363,087
   
$
353,167
   
$
746,585
   
$
700,972
 
Other property
   
5,062
     
6,208
     
11,314
     
12,291
 
Rental and other property
 
$
368,149
   
$
359,375
   
$
757,899
   
$
713,263
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
44,994
   
$
36,285
   
$
88,006
   
$
75,703
 
Administrative
   
21,579
     
20,396
     
44,336
     
41,506
 
Maintenance and repairs
   
23,906
     
20,940
     
45,777
     
40,606
 
Utilities
   
19,657
     
17,569
     
39,160
     
35,415
 
Property operating expenses
 
$
110,136
   
$
95,190
   
$
217,279
   
$
193,230
 
                                 
Interest and other income
                               
Marketable securities and other income
 
$
3,777
   
$
7,809
   
$
7,258
   
$
15,408
 
Gain on sale of marketable securities
   
46
     
556
     
33
     
498
 
Provision for credit losses
   
(147
)
   
-
     
(97
)
   
-
 
Unrealized gains (losses) on marketable securities
   
7,623
     
(56
)
   
(1,073
)
   
4,454
 
Insurance reimbursements, legal settlements, and other, net
   
106
     
38
     
63
     
248
 
Interest and other income
 
$
11,405
   
$
8,347
   
$
6,184
   
$
20,608
 
                                 
Equity income from co-investments
                               
Equity income from co-investments
 
$
246
   
$
5,116
   
$
3,309
   
$
10,101
 
Income from preferred equity investments
   
12,277
     
10,241
     
23,956
     
20,309
 
Equity income from non-core co-investment
   
4,696
     
-
     
4,586
     
314
 
Gain on sale of co-investment communities
   
-
     
870
     
-
     
870
 
Gain on early retirement of debt from unconsolidated co-investment
   
38
     
-
     
38
     
-
 
Co-investment promote income
   
-
     
-
     
6,455
     
809
 
Income from early redemption of preferred equity investments
   
-
     
732
     
210
     
832
 
Equity income from co-investments
 
$
17,257
   
$
16,959
   
$
38,554
   
$
33,235
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
2,964
   
$
3,228
   
$
13,950
   
$
7,399
 
DownREIT limited partners’ distributions
   
2,134
     
1,645
     
4,270
     
3,209
 
Third-party ownership interest
   
520
     
913
     
1,157
     
1,825
 
Noncontrolling interest
 
$
5,618
   
$
5,786
   
$
19,377
   
$
12,433
 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-2

E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Funds From Operations  (1)
(Dollars in thousands, except share and per share amounts and in footnotes)
 
Three Months Ended
June 30,
         
Six Months Ended
June 30,
       
   
2020
   
2019
   
% Change
   
2020
   
2019
   
% Change
 
                                     
Funds from operations attributable to common stockholders and unitholders (FFO)
                                   
Net income available to common stockholders
 
$
84,458
   
$
92,275
         
$
399,464
   
$
211,133
       
Adjustments:
                                           
Depreciation and amortization
   
133,609
     
119,465
           
265,168
     
240,033
       
Gains not included in FFO
   
(16,597
)
   
(870
)
         
(251,291
)
   
(32,405
)
     
Depreciation and amortization from unconsolidated co-investments
   
12,764
     
14,631
           
25,308
     
29,821
       
Noncontrolling interest related to Operating Partnership units
   
2,964
     
3,228
           
13,950
     
7,399
       
Depreciation attributable to third party ownership and other  (2)
   
(139
)
   
(236
)
         
(273
)
   
(466
)
     
Funds from operations attributable to common stockholders and unitholders
 
$
217,059
   
$
228,493
         
$
452,326
   
$
455,515
       
FFO per share-diluted
 
$
3.21
   
$
3.36
     
-4.5%

 
$
6.65
   
$
6.69
     
-0.6%

                                                 
Components of the change in FFO
                                               
Non-core items:
                                               
Expensed acquisition and investment related costs
 
$
15
   
$
24
           
$
102
   
$
56
         
Deferred tax expense on unrealized gain on unconsolidated co-investment (3)
   
1,636
     
-
             
1,636
     
-
         
Gain on sale of marketable securities
   
(46
)
   
(556
)
           
(33
)
   
(498
)
       
Unrealized (gains) losses on marketable securities
   
(7,623
)
   
56
             
1,073
     
(4,454
)
       
Provision for credit losses
   
147
     
-
             
97
     
-
         
Equity income from non-core co-investment  (4)
   
(4,696
)
   
-
             
(4,586
)
   
(314
)
       
Interest rate hedge ineffectiveness  (5)
   
-
     
-
             
-
     
181
         
Loss (gain) on early retirement of debt, net
   
5,027
     
(332
)
           
4,706
     
(1,668
)
       
Gain on early retirement of debt from unconsolidated co-investment
   
(38
)
   
-
             
(38
)
   
-
         
Co-investment promote income
   
-
     
-
             
(6,455
)
   
(809
)
       
Income from early redemption of preferred equity investments
   
-
     
(732
)
           
(210
)
   
(832
)
       
General and administrative and other, net
   
2,312
     
-
             
3,132
     
-
         
Insurance reimbursements, legal settlements, and other, net
   
(106
)
   
(38
)
           
(63
)
   
(248
)
       
Core funds from operations attributable to common stockholders and unitholders
 
$
213,687
   
$
226,915
           
$
451,687
   
$
446,929
         
Core FFO per share-diluted
 
$
3.16
   
$
3.33
     
-5.1%

 
$
6.64
   
$
6.57
     
1.1%

                                                 
Changes in core items:
                                               
Same-property NOI
 
$
(18,288
)
                 
$
(8,770
)
               
Non-same property NOI
   
12,116
                     
29,357
                 
Management and other fees, net
   
88
                     
370
                 
FFO from co-investments
   
(4,701
)
                   
(7,658
)
               
Interest and other income
   
(4,032
)
                   
(8,150
)
               
Interest expense
   
478
                     
(1,268
)
               
General and administrative
   
1,287
                     
1,584
                 
Corporate-level property management expenses
   
(177
)
                   
(507
)
               
Other items, net
   
1
                     
(200
)
               
   
$
(13,228
)
                 
$
4,758
                 
                                                 
Weighted average number of shares outstanding diluted  (6)
   
67,682,034
     
68,079,855
             
68,017,414
     
68,063,937
         

(1)
Refer to page S-16.2, the section titled “Funds from Operations (“FFO”) and Core FFO” for additional information on the Company’s definition and use of FFO and Core FFO.
(2)
The Company consolidates certain co-investments. The noncontrolling interest’s share of net operating income in these investments for the three and six months ended June 30, 2020 was $0.9 million and $2.3 million, respectively.
(3)
A deferred tax expense was recorded during the second quarter of 2020 related to the $4.7 million net unrealized gain on the Real Estate Technology Ventures, L.P. co-investment discussed below.
(4)
Represents the Company’s share of co-investment income from Real Estate Technology Ventures, L.P. Income for the second quarter of 2020 includes a net unrealized gain of $4.7 million.
(5)
On January 1, 2019, the Company adopted ASU No. 2017-12 “Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities,” which resulted in a cumulative effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes qualifying hedge ineffectiveness through accumulated other comprehensive income as opposed to current earnings.
(6)
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-3

E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Balance Sheets
(Dollars in thousands)
 
 
June 30, 2020
   
December 31, 2019
 
             
Real Estate:
           
Land and land improvements
 
$
2,933,690
   
$
2,773,805
 
Buildings and improvements
   
12,088,080
     
11,264,337
 
 
   
15,021,770
     
14,038,142
 
Less: accumulated depreciation
   
(3,927,746
)
   
(3,689,482
)
     
11,094,024
     
10,348,660
 
Real estate under development
   
467,915
     
546,075
 
Co-investments
   
1,008,758
     
1,335,339
 
Real estate held for sale, net
   
24,495
     
-
 
     
12,595,192
     
12,230,074
 
Cash and cash equivalents, including restricted cash
   
256,475
     
81,094
 
Marketable securities
   
154,433
     
144,193
 
Notes and other receivables
   
44,748
     
134,365
 
Operating lease right-of-use assets
   
73,669
     
74,744
 
Prepaid expenses and other assets
   
52,894
     
40,935
 
Total assets
 
$
13,177,411
   
$
12,705,405
 
                 
Unsecured debt, net
 
$
5,615,795
   
$
4,763,206
 
Mortgage notes payable, net
   
703,617
     
990,667
 
Lines of credit
   
-
     
55,000
 
Operating lease liabilities
   
75,626
     
76,740
 
Other liabilities
   
396,251
     
378,878
 
Total liabilities
   
6,791,289
     
6,264,491
 
Redeemable noncontrolling interest
   
33,241
     
37,410
 
Equity:
               
Common stock
   
7
     
7
 
Additional paid-in capital
   
6,944,805
     
7,121,927
 
Distributions in excess of accumulated earnings
   
(760,028
)
   
(887,619
)
Accumulated other comprehensive loss, net
   
(18,710
)
   
(13,888
)
Total stockholders’ equity
   
6,166,074
     
6,220,427
 
Noncontrolling interest
   
186,807
     
183,077
 
Total equity6uj
   
6,352,881
     
6,403,504
 
Total liabilities and equity
 
$
13,177,411
   
$
12,705,405
 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information
 
S-4

E S S E X  P R O P E R T Y  T R U S T, I N C.

Debt Summary - June 30, 2020
(Dollars in thousands, except in footnotes)


       
   
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
 
         
Weighted Average
   
   
Unsecured
   
Secured
   
Total
   
Weighted
Average
Interest Rate
   
Percentage
of Total Debt
 
   
Balance
Outstanding
   
Interest
Rate
   
Maturity
in Years
 
Unsecured Debt, net
                                                     
Bonds private - fixed rate
 
$
200,000
     
4.4
%
   
1.0
   
2020
   
$
-
   
$
1,983
   
$
1,983
     
3.5
%
   
0.0
%
Bonds public - fixed rate
   
4,900,000
     
3.6
%
   
7.6
   
2021
     
500,000
     
31,653
     
531,653
     
4.3
%
   
8.4
%
Term loan (1)
   
550,000
     
1.8
%
   
2.1
   
2022
     
650,000
     
43,188
     
693,188
     
2.8
%
   
10.9
%
Unamortized net discounts and debt issuance costs
   
(34,205
)
   
-
     
-
   
2023
     
800,000
     
2,945
     
802,945
     
3.1
%
   
12.6
%
     
5,615,795
     
3.5
%
   
6.8
   
2024
     
400,000
     
3,109
     
403,109
     
4.0
%
   
6.3
%
Mortgage Notes Payable, net
                         
2025
     
500,000
     
133,054
     
633,054
     
3.5
%
   
10.0
%
Fixed rate - secured
   
446,152
     
3.6
%
   
5.5
   
2026
     
450,000
     
99,405
     
549,405
     
3.5
%
   
8.7
%
Variable rate - secured (2)
   
255,109
     
1.3
%
   
16.7
   
2027
     
350,000
     
153,955
     
503,955
     
3.4
%
   
7.9
%
Unamortized premiums and debt issuance costs, net
   
2,356
     
-
     
-
   
2028
     
-
     
68,332
     
68,332
     
4.1
%
   
1.1
%
Total mortgage notes payable
   
703,617
     
2.8
%
   
9.5
   
2029
     
500,000
     
31,156
     
531,156
     
4.0
%
   
8.4
%
                           
2030
     
550,000
     
1,592
     
551,592
     
3.1
%
   
8.7
%
Unsecured Lines of Credit
                         
Thereafter
     
950,000
     
130,889
     
1,080,889
     
3.0
%
   
17.0
%
Line of credit (3)
   
-
     
1.0
%
         
Subtotal
     
5,650,000
     
701,261
     
6,351,261
     
3.4
%
   
100.0
%
Line of credit (4)
   
-
     
1.0
%
         
Debt Issuance Costs
     
(28,496
)
   
(2,215
)
   
(30,711
)
 
NA
   
NA
 
Total lines of credit
   
-
     
1.0
%
         
(Discounts)/Premiums
     
(5,709
)
   
4,571
     
(1,138
)
 
NA
   
NA
 
                           
Total
   
$
5,615,795
   
$
703,617
   
$
6,319,412
     
3.4
%
   
100.0
%
Total debt, net
 
$
6,319,412
     
3.4
%