Essex Announces Fourth Quarter and Full-Year 2021 Results and 2022 Guidance
San Mateo, California—February 2, 2022—Essex Property Trust, Inc. (NYSE:ESS) announced today its fourth quarter and full-year 2021 earnings results and related business activities.
Net Income and Funds from Operations (“FFO”) per diluted share for the quarter ended and year ended December 31, 2021 are detailed below.
| | Three Months Ended December 31, | | Year Ended December 31, | |
| | % | % |
| | 2021 | 2020 | Change | 2021 | 2020 | Change |
Per Diluted Share | | | | | | |
| Net Income | $2.10 | $1.47 | 42.9% | $7.51 | $8.69 | -13.6% |
| Total FFO | $4.30 | $3.24 | 32.7% | $13.98 | $12.78 | 9.4% |
| Core FFO | $3.25 | $3.02 | 7.6% | $12.49 | $12.82 | -2.6% |
Fourth Quarter and Full-Year Highlights:
| • | Reported Net Income per diluted share for the fourth quarter of 2021 of $2.10, compared to $1.47 in the fourth quarter of 2020. For the full-year, the Company reported Net Income per diluted share of $7.51. |
| • | Reported Total FFO per diluted share of $4.30, a 32.7% increase over the fourth quarter of 2020. The increase is primarily attributed to an unrealized gain related to the Company’s investment in technology co-investments and a one-time legal settlement. |
| • | Core FFO per diluted share improved by 7.6% compared to the fourth quarter of 2020. For the full-year, Core FFO per diluted share declined by 2.6%, exceeding the high-end of the Company’s original guidance range. |
| • | Achieved same-property gross revenue and net operating income (“NOI”) growth of 4.0% and 4.7%, respectively, compared to the fourth quarter of 2020. For the full-year, same-property gross revenue and NOI declined by 1.2% and 2.7%, respectively, both exceeding the high-end of the Company’s original guidance range. |
| • | On a sequential basis, same-property revenues and NOI improved by 1.6% and 3.5%, respectively, representing a second consecutive quarter of positive improvement. |
| • | Acquired or increased ownership interest in four apartment communities during the fourth quarter of 2021 for a total contract price of $347.5 million. For the full-year, the Company acquired or increased its ownership interest in six apartment communities for a total contract price of $432.3 million, exceeding the midpoint of the Company’s full-year guidance range. |
| • | For the full-year, the Company sold four apartment communities for a total contract price of $330.0 million. |
| • | Committed $60.0 million in two structured finance investments in the fourth quarter of 2021. For the full-year, the Company committed $117.2 million in five structured finance investments at a weighted average return of 11.2%. |
1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com
“We are pleased to report Core FFO that exceeded our expectations for the fourth quarter and all of 2021, despite persistent headwinds from pandemic-related regulatory challenges. Our results reflect a remarkable year of rent growth for Southern California and solid positive momentum in Northern California and Seattle. We attribute our progress to improving economic conditions, including better job growth compared to the U.S., record job openings for the largest tech employers in the Essex markets, and record venture capital investment,” commented Michael J. 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 December 31, 2021 compared to the quarter ended December 31, 2020, and the sequential percentage change for the quarter ended December 31, 2021 compared to the quarter ended September 30, 2021, by submarket for the Company:
| | | Q4 2021 vs. Q4 2020 |
| | Q4 2021 vs. Q3 2021 |
| | % of Total |
|
| | | Revenue Change |
| | Revenue Change |
| | Q4 2021 Revenues |
|
| Southern California | | |
|
| Los Angeles County | | | 9.0% |
| | | 3.4% |
| | | 18.7% |
|
| Orange County | | | 9.6% |
| | | 2.1% |
| | | 11.9% |
|
| San Diego County | | | 5.6% |
| | | -3.0% |
| | | 8.9% |
|
| Ventura County | | | 7.8% |
| | | 1.0% |
| | | 4.3% |
|
| Total Southern California | | | 8.3% |
| | | 1.5% |
| | | 43.8% |
|
| Northern California | | |
|
| Santa Clara County | | | -0.4% |
| | | 2.6% |
| | | 17.6% |
|
| Alameda County | | | 1.6% |
| | | 2.7% |
| | | 6.5% |
|
| San Mateo County | | | -4.9% |
| | | 1.3% |
| | | 4.8% |
|
| Contra Costa County | | | 2.8% |
| | | -1.8% |
| | | 5.8% |
|
| San Francisco | | | -1.2% |
| | | -1.7% |
| | | 2.8% |
|
| Total Northern California | | | -0.2% |
| | | 1.4% |
| | | 37.5% |
|
| Seattle Metro | | | 3.4% |
| | | 2.3% |
| | | 18.7% |
|
| Same-Property Portfolio | | | 4.0% |
| | | 1.6% |
| | | 100.0% |
|
The table below illustrates the components that drove the change in Same-Property Revenues on a year-over-year basis for the fourth quarter and full-year 2021.
| | Q4 2021 vs. Q4 2020 |
| | YTD 2021 vs. YTD 2020 |
| Same-Property Revenue Components | | $ Amount (in Millions) | | | % Contribution |
| | $ Amount (in Millions) | | | % Contribution |
|
| Prior-Period Same-Property Revenues | | $ | 317.5 | | | |
| | $ | 1,304.4 | | | |
|
| Scheduled Rents | | | 6.7 | | | | 2.1% |
| | | -20.0 | | | | -1.5% |
|
| Delinquencies | | | 2.5 | | | | 0.8% |
| | | 1.2 | | | | 0.1% |
|
| Cash Concessions | | | 5.2 | | | | 1.6% |
| | | -5.3 | | | | -0.4% |
|
| Vacancy | | | -1.6 | | | | -0.5% |
| | | 6.1 | | | | 0.5% |
|
| Other Income | | | 0.0 | | | | 0.0% |
| | | 1.8 | | | | 0.1% |
|
| 2021 Same-Property Revenues/Change | | $ | 330.3 | | | | 4.0% |
| | $ | 1,288.2 | | | | -1.2% |
|
| | | Year-Over-Year Change | | | Year-Over-Year Change |
|
| | | Q4 2021 compared to Q4 2020 | | | YTD 2021 compared to YTD 2020 |
|
| | | Revenues |
| | Operating Expenses |
| | NOI |
| | Revenues |
| | Operating Expenses |
| | NOI |
|
| Southern California | | | 8.3% |
| | | 3.4% |
| | | 10.6% |
| | | 3.2% |
| | | 1.9% |
| | | 3.7% |
|
| Northern California | | | -0.2% |
| | | 1.2% |
| | | -0.9% |
| | | -5.6% |
| | | 2.7% |
| | | -8.9% |
|
| Seattle Metro | | | 3.4% |
| | | 3.0% |
| | | 3.7% |
| | | -1.7% |
| | | 2.4% |
| | | -3.5% |
|
| Same-Property Portfolio | | | 4.0% |
| | | 2.5% |
| | | 4.7% |
| | | -1.2% |
| | | 2.3% |
| | | -2.7% |
|
| | | Sequential Change | |
| | | Q4 2021 compared to Q3 2021 |
|
| | | Revenues |
| | Operating Expenses |
| | NOI |
|
| Southern California | | | 1.5% |
| | | -2.7% |
| | | 3.3% |
|
| Northern California | | | 1.4% |
| | | -2.0% |
| | | 3.0% |
|
| Seattle Metro | | | 2.3% |
| | | -3.3% |
| | | 5.1% |
|
| Same-Property Portfolio | | | 1.6% |
| | | -2.6% |
| | | 3.5% |
|
| | | Financial Occupancies |
|
| | | Quarter Ended |
|
| | | 12/31/2021 |
| | 9/30/2021 |
| | 12/31/2020 |
|
| Southern California | | | 96.2% |
| | | 97.1% |
| | | 96.8% |
|
| Northern California | | | 96.1% |
| | | 95.9% |
| | | 96.5% |
|
| Seattle Metro | | | 95.7% |
| | | 95.8% |
| | | 95.8% |
|
| Same-Property Portfolio | | | 96.1% |
| | | 96.4% |
| | | 96.5% |
|
Investment Activity
Real Estate
In October 2021, Wesco VI, LLC (“Wesco VI”), a joint venture in which the Company owns a 50.0% interest, acquired Monterra in Mill Creek, a 139-unit apartment home community located in Mill Creek, WA for a total contract price of $55.0 million. In November 2021, Wesco VI acquired The Rexford, a 203-unit apartment home community located in Fremont, CA for a total contract price of $112.5 million.
In November 2021, the Company purchased a managing interest in a single asset entity owning a 179-unit apartment home community located in Vista, CA for a contract price of $44.0 million, at the Company’s pro rata share.
In December 2021, the Company acquired Canvas, a 123-unit apartment home community located in Seattle, WA for a total contract price of $47.6 million.
In January 2022, Wesco VI acquired a 379-unit apartment home community located in Woodland Hills, CA for a total contract price of $183.0 million.
Other Investments
In November 2021, the Company converted $11.0 million of its existing preferred equity investment in Silver, a 268-unit apartment home community located in San Jose, CA, into a 58.0% common equity interest in the property. The Company will retain $13.5 million of its preferred equity investment in the property at a preferred return of 8.0%. The property is encumbered by $100.0 million of mortgage debt at a rate of 3.15%.
In the fourth quarter of 2021, the Company originated two structured finance investments totaling $60.0 million. The first is a $50.0 million subordinated loan earning an 11.0% interest rate and the second is a $10.0 million preferred equity investment earning an initial preferred return of 11.0%. The subordinated loan investment will not begin funding until the second quarter of 2022 and the preferred equity investment is expected to be fully funded by the second quarter of 2022.
In the fourth quarter of 2021, the Company received total cash proceeds of $35.7 million from the full redemption of a subordinated loan investment and the partial redemption of two preferred equity investments.
Development Activity
In the fourth quarter of 2021, the Company’s sole development property in lease-up, Wallace on Sunset, a 200-unit apartment home community located in Hollywood, CA, reached stabilization.
Liquidity and Balance Sheet
Common Stock
In the fourth quarter of 2021, the Company did not issue any shares of common stock through its equity distribution program or repurchase any shares through its stock repurchase plan.
Balance Sheet
As of January 31, 2022, the Company has approximately $1.2 billion in liquidity via undrawn capacity on its unsecured credit facilities, cash, and marketable securities.
2022 Full-Year Guidance and Key Assumptions
| | Range |
| | Midpoint | |
| Net Income | |
| $4.62 - $5.10 |
| |
| $4.86 | |
| Total FFO | |
| $13.46 - $13.94 |
| |
| $13.70 | |
| Core FFO | |
| $13.46 - $13.94 |
| |
| $13.70 | |
| | |
| |
| |
| | |
U.S. Economic Assumptions | |
| |
| |
| | |
| GDP Growth | |
| 3.7% |
| |
| | |
| Job Growth | |
| 2.9% |
| |
| | |
| | |
| |
| |
| | |
ESS Markets Economic Assumptions | |
| |
| |
| | |
| Job Growth | |
| 4.1% |
| |
| | |
| Market Rent Growth | |
| 7.7% |
| |
| | |
| Estimated Same-Property Portfolio Growth based on 49,369 Apartment Homes | | Midpoint Cash-Basis | | | Midpoint GAAP-Basis | |
| Revenues | 7.0% to 8.5% | | | 7.8% |
| | | 8.3% |
|
| Operating Expenses | 3.5% to 4.5% | | | 4.0% |
| | | 4.0% |
|
| Net Operating Income | 8.0% to 10.8% | | | 9.4% |
| | | 10.2% |
|
2022 Core FFO Per Diluted Share Guidance Range versus Full-Year 2021
The table below provides a summary of income statement changes between the Company’s 2021 Core FFO per diluted share and its 2022 Core FFO per diluted share guidance range.
| 2022 Core FFO Per Diluted Share Guidance versus 2021 | | Low-End | | | High-End | |
| 2021 Core FFO Per Diluted Share | | $ | 12.49 | | | $ | 12.49 | |
| NOI from Consolidated Communities, Excluding Straight-Line Concessions | | | 1.25 | | | | 1.62 | |
| Change in Straight-Line Concessions from Consolidated Communities | | | 0.12 | | | | 0.05 | |
| Net Interest Expense | | | (0.09) |
| | | (0.01) |
|
| Interest and Other Income | | | (0.10) |
| | | (0.07) |
|
| FFO from Co-Investments | | | (0.11) |
| | | (0.05) |
|
| G&A and Other | | | (0.03) |
| | | (0.02) |
|
| Impact from Weighted Average Shares Outstanding | | | (0.07) |
| | | (0.07) |
|
| 2022 Core FFO Per Diluted Share Guidance | | $ | 13.46 | | | $ | 13.94 |
|
Other Key Assumptions
| • | Acquisitions of $500 - $700 million, subject to market conditions and cost of capital. |
| • | Dispositions of $100 - $300 million, subject to cost of capital. |
| • | Structured finance commitments of $50 - $150 million. |
| • | Redemptions of structured finance investments expected to be approximately $350 million in 2022. |
| • | Total development spending in 2022 for existing projects under construction is expected to be approximately $30 million at the Company’s pro rata share. The Company does not currently plan to start any new developments during 2022. |
| • | Revenue generating capital expenditures are expected to be approximately $100 million at the Company’s pro rata share. |
For additional details regarding the Company’s 2022 FFO guidance range, please see page S-14 of the supplemental financial information. For the first quarter of 2022, the Company has established a guidance range of Core FFO per diluted share of $3.24 to $3.36.
Conference Call with Management
The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, February 3, 2022 at 11 a.m. PT (2 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 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 2021 earnings link. To access the replay digitally, dial (844) 512-2921 using the replay pin number 13726045. 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 253 apartment communities comprising approximately 62,000 apartment homes with an additional 2 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 investors@essex.com or by calling (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 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 months and years ended December 31, 2021 and 2020 (dollars in thousands, except for share and per share amounts):
| | Three Months Ended | | | Year Ended | |
| | | December 31, | | | December 31, | |
| Funds from Operations attributable to common stockholders and unitholders | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Net income available to common stockholders | | $ | 136,874 | | | $ | 95,745 | | | $ | 488,554 | | | $ | 568,870 | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 132,179 | | | | 130,127 | | | | 520,066 | | | | 525,497 | |
| Gains not included in FFO | | | - | | | | (25,716 | ) | | | (145,253 | ) | | | (301,886 | ) |
| Impairment loss | | | - | | | | 1,825 | | | | - | | | | 1,825 | |
| Depreciation and amortization from unconsolidated co-investments | | | 16,467 | | | | 13,403 | | | | 61,059 | | | | 51,594 | |
| Noncontrolling interest related to Operating Partnership units | | | 4,788 | | | | 3,369 | | | | 17,191 | | | | 19,912 | |
| Depreciation attributable to third party ownership and other | | | (159 | ) | | | (132 | ) | | | (571 | ) | | | (539 | ) |
| Funds from operations attributable to common stockholders and unitholders | | $ | 290,149 | | | $ | 218,621 | | | $ | 941,046 | | | $ | 865,273 | |
| FFO per share – diluted | | $ | 4.30 | | | $ | 3.24 | | | $ | 13.98 | | | $ | 12.78 | |
| Expensed acquisition and investment related costs | | $ | 39 | | | $ | 1,487 | | | $ | 203 | | | $ | 1,591 | |
Deferred tax expense (income) on unrealized gain on unconsolidated co-investment (1) | | | 10,277 | | | | (105 | ) | | | 15,668 | | | | 1,531 | |
| Gain on sale of marketable securities | | | (901 | ) | | | (2,007 | ) | | | (3,400 | ) | | | (2,131 | ) |
| Unrealized gains on marketable securities | | | (9,332 | ) | | | (10,300 | ) | | | (33,104 | ) | | | (12,515 | ) |
| Provision for credit losses | | | 251 | | | | 587 | | | | 141 | | | | 687 | |
Equity income from non-core co-investments (2) | | | (36,336 | ) | | | (916 | ) | | | (55,602 | ) | | | (5,289 | ) |
| Loss (gain) on early retirement of debt, net | | | 28 | | | | (937 | ) | | | 19,010 | | | | 22,883 | |
| Loss (gain) on early retirement of debt from unconsolidated co-investment | | | 7 | | | | - | | | | 25 | | | | (38 | ) |
| Co-investment promote income | | | - | | | | - | | | | - | | | | (6,455 | ) |
| Income from early redemption of preferred equity investments and notes receivable | | | (209 | ) | | | - | | | | (8,469 | ) | | | (210 | ) |
| Accelerated interest income from maturity of investment in mortgage backed security | | | - | | | | (11,753 | ) | | | - | | | | (11,753 | ) |
| General and administrative and other, net | | | 261 | | | | 9,316 | | | | 1,026 | | | | 14,958 | |
| Insurance reimbursements, legal settlements, and other, net | | | (35,044 | ) | | | (150 | ) | | | (35,234 | ) | | | (81 | ) |
| Core Funds from operations attributable to common stockholders and unitholders | | $ | 219,190 | | | $ | 203,843 | | | $ | 841,310 | | | $ | 868,451 | |
| Core FFO per share – diluted | | $ | 3.25 | | | $ | 3.02 | | | $ | 12.49 | | | $ | 12.82 | |
Weighted average number of shares outstanding diluted (3) | | | 67,480,346 | | | | 67,398,487 | | | | 67,335,261 | | | | 67,725,692 | |
| | (1) | Represents deferred tax expense related to net unrealized gains on technology co-investments. |
| | (2) | Represents the Company’s share of co-investment income from technology co-investments. |
| | (3) | 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 December 31, | | | Year Ended December 31, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Earnings from operations | | $ | 101,262 | | | $ | 111,931 | | | $ | 529,995 | | | $ | 491,441 | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Corporate-level property management expenses | | | 9,068 | | | | 8,549 | | | | 36,188 | | | | 34,573 | |
| Depreciation and amortization | | | 132,179 | | | | 130,127 | | | | 520,066 | | | | 525,497 | |
| Management and other fees from affiliates | | | (2,431 | ) | | | (2,286 | ) | | | (9,138 | ) | | | (9,598 | ) |
| General and administrative | | | 17,092 | | | | 23,144 | | | | 51,838 | | | | 65,388 | |
| Expensed acquisition and investment related costs | | | 39 | | | | 1,487 | | | | 203 | | | | 1,591 | |
| Impairment loss | | | - | | | | 1,825 | | | | - | | | | 1,825 | |
| Gain on sale of real estate and land | | | - | | | | (25,716 | ) | | | (142,993 | ) | | | (64,967 | ) |
| NOI | | | 257,209 | | | | 249,061 | | | | 986,159 | | | | 1,045,750 | |
| Less: Non-same property NOI | | | (26,911 | ) | | | (29,201 | ) | | | (94,755 | ) | | | (129,158 | ) |
| Same-Property NOI | | $ | 230,298 | | | $ | 219,860 | | | $ | 891,404 | | | $ | 916,592 | |
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 impact of the COVID-19 pandemic and related variants on the Company’s business, financial condition and results of operations and the impact of any additional 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 and related variants, governmental measures intended to prevent its spread, inflation, labor shortages, supply chain impacts, 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: the continued impact of the COVID-19 pandemic and related variants, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of infectious diseases or other health concerns, which could continue to 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; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain its 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 and related variants. 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.
Contact Information
Rylan Burns
Group VP of Private Equity & Finance
(650) 655-7800
rburns@essex.com
E S S E X P R O P E R T Y T R U S T, I N C.
Capital Expenditures - December 31, 2021 (1) | | | | | | |
| (Dollars in thousands, except in footnotes and per apartment home amounts) | | | | | | |
| | | | | | | |
| | | | | | | |
Revenue Generating Capital Expenditures (2) | | Q4 '21 | | | Trailing 4 Quarters | |
| Same-property portfolio | | $ | 11,859 | | | $ | 38,038 | |
| Non-same property portfolio | | | 1,987 | | | | 7,038 | |
| Total revenue generating capital expenditures | | $ | 13,846 | | | $ | 45,076 | |
| | | | | | | | | |
| Number of same-property interior renovations | | | 468 | | | | 2,293 | |
| Number of total consolidated interior renovations | | | 505 | | | | 2,390 | |
| | | | | | | | | |
Non-Revenue Generating Capital Expenditures (3) | | Q4 '21 | | | Trailing 4 Quarters | |
Non-revenue generating capital expenditures | | $ | 26,052 | | | $ | 98,890 | |
Average apartment homes in quarter | | | 51,593 | | | | 51,669 | |
Capital expenditures per apartment homes in the quarter | | $ | 505 | | | $ | 1,914 | |
(1) | The Company incurred $0.1 million of capitalized interest, $3.7 million of capitalized overhead and $0.1 million of co-investment fees related to redevelopment in Q4 2021. |
(2) | Represents revenue generating or expense saving expenditures, such as full-scale redevelopments, interior unit turn renovations, enhanced amenities and certain resource management initiatives. Q4 2021 excludes costs related to smart home automation. |
(3) | Represents roof replacements, paving, building and mechanical systems, exterior painting, siding, etc. Non-revenue generating capital expenditures does not include expenditures incurred due to changes in governmental regulations that the Company would not have incurred otherwise, costs related to the COVID-19 pandemic, retail, furniture and fixtures, and expenditures in which the Company expects to be reimbursed. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
| Co-investments and Preferred Equity Investments - December 31, 2021 | | | | | | | | | | | | | | | | | | | | | | |
| (Dollars in thousands, except in footnotes) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted Average Essex Ownership Percentage | | | | | Book Value | | | Amount | | | Value | | | Borrowing Rate | | | Debt (in Years) | | | Three Months Ended
December 31, 2021 | | | Twelve Months Ended
December 31, 2021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating and Other Non-Consolidated Joint Ventures | | | | | | | | | | | | | | | | | | | | | | NOI | |
Wesco I, III, IV, V, and VI (1) | | 52% |
| | 5,807 | | | $ | 1,962,643 | | | $ | 1,262,730 | | | $ | 168,198 | | | | 2.3 | % | | | 3.1 | | | $ | 24,333 | | | $ | 90,947 | |
| BEXAEW, BEX II, BEX III, BEX IV, and 500 Folsom | | 50% |
| | 3,083 | | | | 1,235,663 | | | | 519,657 | | | | 270,550 | | | | 2.5 | % | | | 9.1 | (4) | | | 13,560 | | | | 52,945 | |
Other (2) | | 52% |
| | 1,367 | | | | 554,170 | | | | 405,926 | | | | 126,503 | | | | 2.9 | % | | | 2.6 | | | | 4,816 | | | | 15,710 | |
| Total Operating and Other Non-Consolidated Joint Ventures | | |
| | 10,257 | | | $ | 3,752,476 | | | $ | 2,188,313 | | | $ | 565,251 | | | | 2.5 | % | | | 4.4 | | | $ | 42,709 | | | $ | 159,602 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Development Non-Consolidated Joint Ventures (3) | | 50% |
| | 264 | | | | 43,451 | | | | 89,250 | | | | 11,076 | | | | 0.8 | % | | | 38.4 | (5) | | | - | | | | - | |
| Total Non-Consolidated Joint Ventures | | |
| | 10,521 | | | $ | 3,795,927 | | | $ | 2,277,563 | | | $ | 576,327 | | | | 2.4 | % | | | 5.8 | | | $ | 42,709 | | | $ | 159,602 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Essex Portion of NOI and Expenses | |
| NOI | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 22,166 | | | $ | 82,776 | |
| Depreciation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (16,467 | ) | | | (61,059 | ) |
| Interest expense and other | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7,042 | ) | | | (26,549 | ) |
| Equity income from non-core co-investment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 36,336 | | | | 55,602 | |
| Loss on early retirement of debt from unconsolidated co-investment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (7 | ) | | | (25 | ) |
| Legal settlement from unconsolidated co-investment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 857 | | | | 857 | |
| Net income from operating and other co-investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 35,843 | | | $ | 51,602 | |
| | | | | | | | | | | | | | | | | | | | | | Weighted Average Preferred Return | | | Weighted Average Expected Term | | | Income from Preferred Equity Investments | |
| Income from preferred equity investments | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 15,169 | | | $ | 56,589 | |
| Income from early redemption of preferred equity investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | 17 | | | | 3,530 | |
Preferred Equity Investments (6) | | | | | | | | | | | | | | | | | | $ | 565,930 | | | | 10.2 | % | | | 2.6 | | | $ | 15,186 | | | $ | 60,119 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Co-investments | | | | | | | | | | | | | | | | | | $ | 1,142,257 | | | | | | | | | | | $ | 51,029 | | | $ | 111,721 | |
(1) | As of December 31, 2021, the Company’s investment in Wesco I was classified as a liability of $35.3 million due to distributions received in excess of the Company's investment. |
(2) | As of December 31, 2021, the Company’s investment in Expo was classified as a liability of $0.2 million due to distributions received in excess of the Company's investment. The weighted average Essex ownership percentage excludes our investments in non-core technology co-investments which are carried at fair value. |
(3) | The Company has ownership interests in development co-investments, which are detailed on page S-11. |
(4) | $132.0 million of the debt related to 500 Folsom, one of the Company's co-investments, is financed by tax exempt bonds with a maturity date of January 2052. |
(5) | Scripps Mesa Apartments has $89.3 million of long-term tax-exempt bond debt that is subject to a total return swap that matures in 2025. |
(6) | As of December 31, 2021, the Company has invested in 22 preferred equity investments. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
| Assumptions for 2022 FFO Guidance Range | | | | | | | | | | |
| The guidance projections below are based on current expectations and are forward-looking. The guidance on this page is given for Net Operating Income ("NOI") and Total and Core FFO. See pages S-18.1 to S-18.4 for the definitions of non-GAAP financial measures and other terms. |
| | | 2021 | | | 2022 Full-Year Guidance Range | | |
($'s in thousands, except per share data) | | Actuals (1) | | | Low End | | | High End | | Comments About 2022 Full-Year Guidance |
| | | | | | | | | | | |
| Total NOI from Consolidated Communities - Excluding Straight-Line Rent Concessions | | $ | 996,970 | | | $ | 1,081,000 | | | $ | 1,106,000 | | Includes a range of same-property NOI growth of 8.0% to 10.8% |
| | | | | | | | | | | | | | |
| Straight-Line Rent Concessions from Consolidated Communities | | | (10,811 | ) | | | (2,600 | ) | | | (7,600 | ) | Reflects the non-cash impact of recording lease concessions on a straight-line basis |
| | | | | | | | | | | | | | |
| Accretion from Acquisitions/Dispositions/Preferred Equity | | | - | | | | 4,300 | | | | 6,300 | | Assumes reinvestment of preferred equity redemption proceeds into new acquisitions and new preferred equity investments |
| | | | | | | | | | | | | | |
| Management Fees | | | 9,138 | | | | 10,400 | | | | 11,400 | | |
| | | | | | | | | | | | | | |
Interest Expense | | | | | | | | | | | | | |
| Interest expense, before capitalized interest | | | (198,510 | ) | | | (199,300 | ) | | | (195,700 | ) | |
| Interest capitalized | | | 6,159 | | | | 600 | | | | 2,600 | | |
| Net interest expense | | | (192,351 | ) | | | (198,700 | ) | | | (193,100 | ) | |
| | | | | | | | | | | | | | |
Recurring Income and Expenses | | | | | | | | | | | | | |
| Interest and other income | | | 23,065 | | | | 16,400 | | | | 18,400 | | |
| FFO from co-investments | | | 112,816 | | | | 105,600 | | | | 109,500 | | |
| General and administrative | | | (50,812 | ) | | | (53,000 | ) | | | (55,000 | ) | |
| Corporate-level property management expenses | | | (36,188 | ) | | | (40,000 | ) | | | (41,000 | ) | |
| Non-controlling interest | | | (10,517 | ) | | | (12,000 | ) | | | (11,000 | ) | |
| Total recurring income and expenses | | | 38,364 | | | | 17,000 | | | | 20,900 | | |
| | | | | | | | | | | | | | |
Non-Core Income and Expenses | | | | | | | | | | | | | |
| Expensed acquisition and investment related costs | | | (203 | ) | | | | | | | | | |
| Deferred tax expense on unrealized gain on unconsolidated co-investments | | | (15,668 | ) | | | | | | | | | |
| Gain on sale of marketable securities | | | 3,400 | | | | | | | | | | |
| Unrealized gains on marketable securities | | | 33,104 | | | | | | | | | | |
| Provision for credit losses | | | (141 | ) | | | | | | | | | |
| Equity income from non-core co-investments | | | 55,602 | | | | | | | | | | |
| Loss on early retirement of debt, net | | | (19,010 | ) | | | | | | | | | |
| Loss on early retirement of debt from unconsolidated co-investment | | | (25 | ) | | | | | | | | | |
| Income from early redemption of preferred equity investments and notes receivable | | | 8,469 | | | | | | | | | | |
| General and administrative and other, net | | | (1,026 | ) | | | | | | | | | |
| Insurance reimbursements, legal settlements, and other, net | | | 35,234 | | | | | | | | | | |
| Total non-core income and expenses | | | 99,736 | | | | - | | | | - | | |
| | | | | | | | | | | | | | |
Funds from Operations (2) | | $ | 941,046 | | | $ | 911,400 | | | $ | 943,900 | | |
| | | | | | | | | | | | | | |
| Funds from Operations per diluted Share | | $ | 13.98 | | | $ | 13.46 | | | $ | 13.94 | | |
| | | | | | | | | | | | | | |
| % Change - Funds from Operations | | | 9.4 | % | | | -3.7 | % | | | -0.3 | % | |
| | | | | | | | | | | | | | |
| Core Funds from Operations (excludes non-core items) | | $ | 841,310 | | | $ | 911,400 | | | $ | 943,900 | | |
| | | | | | | | | | | | | | |
| Core Funds from Operations per diluted Share | | $ | 12.49 | | | $ | 13.46 | | | $ | 13.94 | | |
| | | | | | | | | | | | | | |
| % Change - Core Funds from Operations | | | -2.6 | % | | | 7.8 | % | | | 11.6 | % | |
| | | | | | | | | | | | | | |
| EPS - Diluted | | $ | 7.51 | | | $ | 4.62 | | | $ | 5.10 | | |
| | | | | | | | | | | | | | |
| Weighted average shares outstanding - FFO calculation | | | 67,335 | | | | 67,700 | | | | 67,700 | | |
(1) | All non-core items are excluded from the 2021 actuals and included in the non-core income and expense section of the FFO reconciliation. |
(2) | 2022 guidance excludes inestimable projected gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs, and promote income until they are realized within the reporting period presented in the report. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliation of Projected EPS, FFO and Core FFO per diluted share
With respect to the Company's guidance regarding its projected FFO and Core FFO, which guidance is set forth in the earnings release and on page S-14 of this supplement, a reconciliation of projected net income per share to projected FFO per share and projected Core FFO per share, as set forth in such guidance, is presented in the table below.
| | | | | | 2022 Guidance Range (1) | |
| | | | | | 1st Quarter 2022 | | | Full-Year 2022 | |
| | | | | | | | | | | | | | | | |
| | | 2021 | | | | | | | | | | | | | |
| | | Actuals | | | Low | | | High | | | Low | | | High | |
| EPS - diluted | | $ | 7.51 | | | $ | 1.03 | | | $ | 1.15 | | | $ | 4.62 | | | $ | 5.10 | |
| Conversion from GAAP share count | | | (0.25 | ) | | | (0.04 | ) | | | (0.04 | ) | | | (0.16 | ) | | | (0.16 | ) |
| Depreciation and amortization | | | 8.63 | | | | 2.21 | | | | 2.21 | | | | 8.84 | | | | 8.84 | |
| Noncontrolling interest related to Operating Partnership units | | | 0.24 | | | | 0.04 | | | | 0.04 | | | | 0.16 | | | | 0.16 | |
| Gain on sale of real estate | | | (2.12 | ) | | | - | | | | - | | | | - | | | | - | |
| Gain on remeasurement of co-investment | | | (0.03 | ) | | | - | | | | - | | | | - | | | | - | |
| FFO per share - diluted | | $ | 13.98 | | | $ | 3.24 | | | $ | 3.36 | | | $ | 13.46 | | | $ | 13.94 | |
| Expensed acquisition and investment related costs | | | - | | | | - | | | | - | | | | - | | | | - | |
| Deferred tax expense on unrealized gain on unconsolidated co-investments | | | 0.23 | | | | - | | | | - | | | | - | | | | - | |
| Gain on sale of marketable securities | | | (0.05 | ) | | | - | | | | - | | | | - | | | | - | |
| Unrealized gains on marketable securities | | | (0.49 | ) | | | - | | | | - | | | | - | | | | - | |
| Provision for credit losses | | | - | | | | - | | | | - | | | | - | | | | - | |
| Equity income from non-core co-investments | | | (0.83 | ) | | | - | | | | - | | | | - | | | | - | |
| Loss on early retirement of debt, net | | | 0.28 | | | | - | | | | - | | | | - | | | | - | |
| Loss on early retirement of debt from unconsolidated co-investment | | | - | | | | - | | | | - | | | | - | | | | - | |
| Income from early redemption of preferred equity investments and notes receivable | | | (0.13 | ) | | | - | | | | - | | | | - | | | | - | |
| General and administrative and other, net | | | 0.02 | | | | - | | | | - | | | | - | | | | - | |
| Insurance reimbursements, legal settlements, and other, net | | | (0.52 | ) | | | - | | | | - | | | | - | | | | - | |
| Core FFO per share - diluted | | $ | 12.49 | | | $ | 3.24 | | | $ | 3.36 | | | $ | 13.46 | | | $ | 13.94 | |
(1) | 2022 guidance excludes inestimable projected gain on sale of real estate and land, gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs, and promote income until they are realized within the reporting period presented in the report. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Summary of Apartment Community Acquisitions and Dispositions Activity
Year to date as of December 31, 2021
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | |
Acquisitions (1) | | | | | | | | Essex | | | | | | Total | | | | | | | |
| | | | | | Apartment | | | Ownership | | | | | | Contract | | | Price per | | | Average | |
| Property Name | | Location | | | Homes | | | Percentage | | Entity | | Date | | Price | | | Apartment Home (2) | | | Rent | |
| | | | | | | | | | | | | | | | | | | | | | |
The Village at Toluca Lake (3) | | Burbank, CA | | | | 145 | | | | 100% |
| EPLP | | Jun-21 | | $ | 31,750 | | | $ | 438 | | | $ | 2,294 | |
| | | Q2 2021 | | | | 145 | | | | | | | | | | $ | 31,750 | | | $ | 438 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Martha Lake Apartments | | Lynwood, WA | | | | 155 | | | | 50% |
| JV | | Sep-21 | | $ | 53,000 | (4) |
| $ | 342 | | | $ | 1,628 | |
| | | Q3 2021 | | | | 155 | | | | | | | | | | $ | 53,000 | (4) |
| $ | 342 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Monterra in Mill Creek
| | Mill Creek, WA | | | | 139 | | | | 50% |
| JV | | Oct-21 | | $ | 55,000 | (4) |
| $ | 396 | | | $ | 1,786 | |
The Rexford
| | Fremont, CA | | | | 203 | | | | 50% |
| JV | | Nov-21 | | | 112,500 | (4) |
| | 549 | | | $ | 2,835 | |
Silver (5) | | San Jose, CA | | | | 268 | | | | 58% |
| JV | | Nov-21 | | | 132,400 | (4) |
| | 494 | | | $ | 2,569 | |
| Canvas Apartments | | Seattle, WA | | | | 123 | | | | 100% |
| EPLP | | Dec-21 | | | 47,600 | | | | 387 | | | $ | 1,721 | |
| | | Q4 2021 | | | | 733 | | | | | | | | | | $ | 347,500 | | | $ | 473 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 Total | | | | 1,033 | | | | | | | | | | $ | 432,250 | | | $ | 448 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Dispositions
Property Name | | Location | | | | | | | | Entity | | Date | | Price | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Hidden Valley | | Simi Valley, CA | | | | 324 | | | | 100% |
| EPLP | | Feb-21 | | $ | 105,000 | | | $ | 324 | | | | | |
| Park 20 | | San Mateo, CA | | | | 197 | | | | 100% |
| EPLP | | Feb-21 | | | 113,000 | | | | 574 | | | | | |
| Axis 2300 | | Irvine, CA | | | | 115 | | | | 100% |
| EPLP | | Feb-21 | | | 57,500 | | | | 500 | | | | | |
| | | Q1 2021 | | | | 636 | | | | | | | | | | $ | 275,500 | | | $ | 433 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Devonshire Apartments
| | Hemet, CA | | | | 276 | | | | 100% |
| EPLP | | Aug-21 | | $ | 54,500 | | | $ | 197 | | | | | |
| | | Q3 2021 | | | | 276 | | | | | | | | | | $ | 54,500 | | | $ | 197 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2021 Total | | | | 912 | | | | | | | | | | $ | 330,000 | | | $ | 362 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | In November 2021, the Company purchased a managing interest in a single asset entity owning a 179-unit apartment home community located in Vista, CA for a contract price of $44.0 million, at the Company’s pro rata share. |
(2) | Price per apartment home excludes value allocated to retail space. |
(3) | In June 2021, the Company purchased its joint venture partner's membership interest in the BEX III, LLC co-investment that owned The Village at Toluca Lake based on a property valuation of $63.5 million. In conjunction with the acquisition, $29.5 million of mortgage debt that encumbered the property was paid off. |
(4) | Represents the contract price for the entire property, not the Company’s share. |
(5) | In November 2021, the Company converted its existing $11.0 million preferred equity investment in Silver into an equity ownership interest in the property. Based on a VIE analysis, the Company accounts for this investment under the equity method. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Delinquencies, Operating Statistics, and Same-Property Revenue Growth with Concessions on a GAAP basis
(Dollars in millions, except in footnotes and per share amounts)
Delinquencies for Fourth Quarter 2021 | | Same-Property | | | Non-Same Property and Co-investments | | | Total Operating Communities | | | Commercial | | | Total | |
| Operating apartment community units | | | 47,090 | | | | 11,935 | | | | 59,025 | | | | N/A | | | | N/A | |
| | | | | | | | | | | | | | | | | | | | | |
| Cash delinquencies as % of scheduled rent | | | 1.6 | % | | | 2.0 | % | | | 1.6 | % | | | N/A | | | | N/A | |
Reported delinquencies as % of scheduled rent (1) | | | 1.9 | % | | | 2.8 | % | | | 2.0 | % | | | N/A | | | | N/A | |
Reported delinquencies in 4Q 2021 (2) (3) | | $ | (6.2 | ) | | $ | (1.5 | ) | | $ | (7.7 | ) | | $ | 0.8 | | | $ | (6.9 | ) |
Reported delinquencies in 4Q 2020 (2) | | $ | (8.7 | ) | | $ | (1.6 | ) | | $ | (10.3 | ) | | $ | (1.2 | ) | | $ | (11.5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Impact to 4Q 2021 Core FFO per share | | $ | 0.04 | | | $ | 0.00 | | | $ | 0.04 | | | $ | 0.03 | | | $ | 0.07 | |
| Impact to Core FFO per share growth | | | 1.2 | % | | | 0.0 | % | | | 1.3 | % | | | 1.0 | % | | | 2.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
Total cumulative cash delinquencies (4) | | $ | (57.0 | ) | | $ | (9.7 | ) | | $ | (66.7 | ) | | | N/A | | | | N/A | |
| Net accounts receivable balance | | $ | 4.3 | | | $ | 0.4 | | | $ | 4.7 | | | | N/A | | | | N/A | |
(1) | Represents total residential portfolio delinquencies as a percentage of scheduled rent reflected in the financial statements for the three months ended December 31, 2021. |
(2) | Co-investment delinquencies reported at the Company's pro rata share. |
(3) | Commercial delinquencies in 4Q 2021 includes a reduction of the straight-line rent reserve of $0.7 million and includes co-investment amounts at the Company's pro rata share. |
(4) | Represents cash delinquencies from the period of April 1, 2020 to December 31, 2021. This includes $4.7 million of the net accounts receivable balance. |
Operating Statistics | | | | | | Same-Property Revenue Growth with Concessions on a GAAP basis | | | | | |
| | | Preliminary Estimate | | | | | | | | | | | | | | | | | |
| Same-Property Portfolio | | January 2022 | | 4Q 2021 | | | | 4Q 2021 | | | 4Q 2020 | | | YTD 2021 | | | YTD 2020
| |
| Cash delinquencies as % of scheduled rent | | | 2.7% |
| | 1.6% |
| Reported rental revenue (cash basis concessions) | | $ | 330.3 | | | $ | 317.5 | | | $ | 1,288.2 | | | $
| 1,304.4
| |
| | | | | | | | | Straight-line rent impact to rental revenue | | | (1.4 | ) | | | 3.4 | | | | (10.2 | ) | | | 19.4
| |
New lease rates (1) | | | 17.2% |
| | 17.1% |
| GAAP rental revenue | | $ | 328.9 | | | $ | 320.9 | | | $ | 1,278.0 | | | $
| 1,323.8
| |
Renewal rates (2) | | | 12.2% |
| | 10.7% |
| | | | | | | | | | | | | | | | | |
| Blended rates | | | 15.4% |
| | 13.9% |
| % change - reported rental revenue | | | 4.0 | % | | | | | | | -1.2 | % | | | | |
| | | | | | | | | % change - GAAP rental revenue | | | 2.5 | % | | | | | | | -3.5 | % | | | | |
| Financial occupancy | | | 96.4% |
| | 96.1% |
| | | | | | | | | | | | | | | | | |
(1) | Represents % change on a net-effective basis, including the impact of leasing incentives. |
(2) | Represents % change in similar term lease tradeouts, including the impact of leasing incentives. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Adjusted EBITDAre Reconciliation
The National Association of Real Estate Investment Trusts ("NAREIT”) defines earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") (September 2017 White Paper) as net income (computed in accordance with U.S. generally accepted accounting principles ("U.S. GAAP")) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated operating properties, impairment write-downs of depreciated operating properties, impairment write-downs of investments in unconsolidated entities caused by a decrease in value of depreciated operating properties within the joint venture and adjustments to reflect the Company’s share of EBITDAre of investments in unconsolidated entities.
The Company believes that EBITDAre is useful to investors, creditors and rating agencies as a supplemental measure of the Company’s ability to incur and service debt because it is a recognized measure of performance by the real estate industry, and by excluding gains or losses related to sales or impairment of depreciated operating properties, EBITDAre can help compare the Company’s credit strength between periods or as compared to different companies.
Adjusted EBITDAre represents EBITDAre further adjusted for non-comparable items and is a component of the credit ratio, "Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized," presented on page S-6, in the section titled "Selected Credit Ratios," and it is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges.
Adjusted EBITDAre is an important metric in evaluating the credit strength of the Company and its ability to service its debt obligations. The Company believes that Adjusted EBITDAre is useful to investors, creditors and rating agencies because it allows investors to compare the Company’s credit strength to prior reporting periods and to other 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 credit quality.
EBITDAre and Adjusted EBITDAre are not recognized measurements under U.S. GAAP. Because not all companies use identical calculations, the Company's presentation of EBITDAre and Adjusted EBITDAre may not be comparable to similarly titled measures of other companies.
The reconciliations of Net Income available to common stockholders to EBITDAre and Adjusted EBITDAre are presented in the table below (Dollars in thousands):
| | | Three Months Ended December 31,2021 | |
| Net income available to common stockholders | | $ | 136,874 | |
| Adjustments: | | | | |
| Net income attributable to noncontrolling interest | | | 7,251 | |
Interest expense, net (1) | | | 47,849 | |
| Depreciation and amortization | | | 132,179 | |
| Income tax provision | | | 61 | |
| Co-investment EBITDAre adjustments | | | 23,398 | |
| EBITDAre | | | 347,612 | |
| | | | | |
| Gain on sale of marketable securities | | | (901 | ) |
| Unrealized gains on marketable securities | | | (9,332 | ) |
| Provision for credit losses | | | 251 | |
| Equity income from non-core co-investment | | | (36,336 | ) |
| Deferred tax expense on unrealized gain on unconsolidated co-investment | | | 10,277 | |
| General and administrative and other, net | | | 261 | |
| Insurance reimbursements and legal settlements, net | | | (35,044 | ) |
| Income from early redemption of preferred equity investments | | | (209 | ) |
| Expensed acquisition and investment related costs | | | 39 | |
| Loss on early retirement of debt from unconsolidated co-investment | | | 7 | |
| Adjusted EBITDAre | | $ | 276,653 | |
(1) | Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Encumbered
Encumbered means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other encumbrance of any kind.
Funds From Operations ("FFO") and Core FFO
FFO, as defined by 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 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. 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 reconciliations of diluted FFO and Core FFO are detailed on page S-3 in the section titled "Consolidated Funds From Operations".
Interest Expense, Net
Interest expense, net is presented on page S-1 in the section titled "Consolidated Operating Results". Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges and is presented in the table below (Dollars in thousands):
| | | Three Months Ended December 31, 2021 | | | Twelve Months Ended December 31, 2021 | |
| Interest expense | | $ | 50,487 | | | $ | 203,125 | |
| Adjustments: | | | | | | | | |
| Total return swap income | | | (2,638 | ) | | | (10,774 | ) |
| Interest expense, net | | $ | 47,849 | | | $ | 192,351 | |
Immediately Available Liquidity
The Company's immediately available liquidity as of January 31, 2022, consisted of the following (Dollars in millions):
| | | January 31, 2022 | |
| Unsecured credit facility - committed | | $ | 1,235 | |
| Balance outstanding | | | 265
| |
| Undrawn portion of line of credit | | $ | 970 | |
| Cash, cash equivalents & marketable securities | | | 219 | |
| Total liquidity | | $ | 1,189 | |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Net Indebtedness Divided by Adjusted EBITDAre
This credit ratio is presented on page S-6 in the section titled "Selected Credit Ratios." This credit ratio is calculated by dividing net indebtedness by Adjusted EBITDAre, as annualized based on the most recent quarter, and adjusted for estimated net operating income from properties acquired or disposed of during the quarter. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company's ability to service debt obligations to that of other companies. Net indebtedness is total debt, net less unamortized premiums, discounts, debt issuance costs, unrestricted cash and cash equivalents, and marketable securities. The reconciliation of Adjusted EBITDAre is set forth in "Adjusted EBITDAre Reconciliation" on page S-18.1 The calculation of this credit ratio and a reconciliation of net indebtedness to total debt at pro rata share for co-investments, net is presented in the table below (Dollars in thousands):
| Total consolidated debt, net | | $ | 6,287,410 | |
| Total debt from co-investments at pro rata share | | | 1,132,320 | |
| Adjustments: | | | | |
| Consolidated unamortized premiums, discounts, and debt issuance costs | | | 41,772 | |
Pro rata co-investments unamortized premiums, discounts, and debt issuance costs | | | 6,539 | |
| Consolidated cash and cash equivalents-unrestricted | | | (48,420 | ) |
| Pro rata co-investment cash and cash equivalents-unrestricted | | | (28,100 | ) |
| Loans to unconsolidated co-investments | | | (169,675 | ) |
| Marketable securities | | | (228,021 | ) |
| Net Indebtedness | | $ | 6,993,825 | |
| | | | | |
Adjusted EBITDAre, annualized (1) | | $ | 1,106,612 | |
Other EBITDAre normalization adjustments, net, annualized (2) | | | 2,106 | |
| Adjusted EBITDAre, normalized and annualized | | $ | 1,108,718 | |
| | | | | |
| Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized | | | 6.3 | |
(1) | Based on the amount for the most recent quarter, multiplied by four. |
(2) | Adjustments made for properties in lease-up, acquired, or disposed during the most recent quarter and other partial quarter activity, multiplied by four. |
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 December 31, 2021 | | | Three Months Ended December 31, 2020 | | | Twelve Months Ended December 31, 2021 | | | Twelve Months Ended December 31, 2020 | |
| Earnings from operations | | $ | 101,262 | | | $ | 111,931 | | | $ | 529,995 | | | $ | 491,441 | |
| Adjustments: | | | | | | | | | | | | | | | | |
| Corporate-level property management expenses | | | 9,068 | | | | 8,549 | | | | 36,188 | | | | 34,573 | |
| Depreciation and amortization | | | 132,179 | | | | 130,127 | | | | 520,066 | | | | 525,497 | |
| Management and other fees from affiliates | | | (2,431 | ) | | | (2,286 | ) | | | (9,138 | ) | | | (9,598 | ) |
| General and administrative | | | 17,092 | | | | 23,144 | | | | 51,838 | | | | 65,388 | |
| Expensed acquisition and investment related costs | | | 39 | | | | 1,487 | | | | 203 | | | | 1,591 | |
| Impairment loss | | | - | | | | 1,825 | | | | - | | | | 1,825 | |
| Gain on sale of real estate and land | | | - | | | | (25,716 | ) | | | (142,993 | ) | | | (64,967 | ) |
| NOI | | | 257,209 | | | | 249,061 | | | | 986,159 | | | | 1,045,750 | |
| Less: Non-same property NOI | | | (26,911 | ) | | | (29,201 | ) | | | (94,755 | ) | | | (129,158 | ) |
| Same-Property NOI | | $ | 230,298 | | | $ | 219,860 | | | $ | 891,404 | | | $ | 916,592 | |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
E S S E X P R O P E R T Y T R U S T, I N C.
Reconciliations of Non-GAAP Financial Measures and Other Terms
Public Bond Covenants
Public Bond Covenants refer to certain covenants set forth in instruments governing the Company's unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict the Company's ability to expand or fully pursue its business strategies. The Company's ability to comply with these covenants may be affected by changes in the Company's operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting it. The breach of any of these covenants could result in a default under the Company's indebtedness, which could cause those and other obligations to become due and payable. If any of the Company's indebtedness is accelerated, the Company may not be able to repay it. For risks related to failure to comply with these covenants, see "Item 1A: Risk Factors - Risks Related to Our Indebtedness and Financings" in the Company's annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission ("SEC").
The ratios set forth on page S-6 in the section titled "Public Bond Covenants" are provided only to show the Company's compliance with certain specified covenants that are contained in indentures related to the Company's issuance of Senior Notes, which indentures are filed by the Company with the SEC. See, for example, the Indenture dated March 1, 2021, filed by the Company as Exhibit 4.1 to the Company's Form 8-K, filed on March 1, 2021. These ratios should not be used for any other purpose, including without limitation to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period. The capitalized terms in the disclosure are defined in the indentures filed by the Company with the SEC and may differ materially from similar terms used by other companies that present information about their covenant compliance.
Secured Debt
Secured Debt means debt of the Company or any of its subsidiaries which is secured by an encumbrance on any property or assets of the Company or any of its subsidiaries. The Company's total amount of Secured Debt is set forth on page S-5.
Unencumbered NOI to Adjusted Total NOI
This ratio is presented on page S-6 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate assets which are not subject to an encumbrance securing debt. The ratio of Unencumbered NOI to Adjusted Total NOI for the three months ended December 31, 2021, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months ended December 31, 2021 and as further adjusted for pro forma NOI for properties acquired or sold during the recent quarter, by Adjusted Total NOI as annualized. The calculation and reconciliation of NOI is set forth in "Net Operating Income ("NOI") and Same-Property NOI Reconciliations" above. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company's ability to service debt obligations to that of other companies. The calculation of this ratio is presented in the table below (Dollars in thousands):
| | | | |
| NOI | | $ | 1,028,836 | |
| Adjustments: | | | | |
| NOI from real estate assets sold or held for sale | | | 481 | |
Other, net (2) | | | 2,281 | |
| Adjusted Total NOI | | | 1,031,598 | |
| Less: Encumbered NOI | | | (58,996 | ) |
| Unencumbered NOI | | $ | 972,602 | |
| | | | | |
| Encumbered NOI | | $ | 58,996 | |
| Unencumbered NOI | | | 972,602 | |
| Adjusted Total NOI | | $ | 1,031,598 | |
| | | | | |
| Unencumbered NOI to Adjusted Total NOI | | | 94 | % |
(1) | This table is based on the amounts for the most recent quarter, multiplied by four. |
(2) | Includes intercompany eliminations pertaining to self-insurance and other expenses. |
See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information
