FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-13106
ESSEX PROPERTY TRUST, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 77-0369576
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
925 East Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices)
(Zip code)
(650) 494-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months for such shorter period that the Registrant was required
to file such report, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
18,655,207 shares of Common Stock
as of November 09, 2000
TABLE OF CONTENTS
FORM 10-Q
Part I Page No.
--------
Item 1 Financial Statements (Unaudited) 3
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 4
Consolidated Statements of Operationsfor the three months
ended September 30, 2000 and 1999 5
Consolidated Statements of Operations for the nine months
ended September 30, 2000 and 1999 6
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 2000
and the year ended December 31, 1999 7
Condensed Consolidated Statements of Cash Flows
for the nine months ended September 30, 2000 and 1999 8
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 3 Quantitative and Qualitative Disclosure About Market Risk 22
Part II
Item 6 Exhibits and Reports on Form 8-K 23
Signatures 24
2
Part I Financial Information
- ------ ---------------------
Item 1: Financial Statements (Unaudited)
--------------------------------
"Essex" or the "Company" means Essex Property Trust, Inc., a real
estate investment trust incorporated in the State of Maryland, or
where the context otherwise requires, Essex Portfolio, L.P., a limited
partnership in which Essex Property Trust, Inc. is the sole general
partner.
The information furnished in the accompanying consolidated unaudited
balance sheets, statements of operations, stockholders' equity and
cash flows of the Company reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
3
ESSEX PROPERTY TRUST, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share amounts)
September 30, December 31,
Assets 2000 1999
------ ------------- -------------
Real estate:
Rental properties:
Land and land improvements $ 276,492 $ 234,497
Buildings and improvements 850,359 694,579
-------------- --------------
1,126,851 929,076
Less accumulated depreciation (111,041) (96,605)
-------------- --------------
1,015,810 832,471
Investments 50,732 47,992
Real estate under development 48,757 120,414
-------------- --------------
1,115,299 1,000,877
Cash and cash equivalents-unrestricted 6,724 12,348
Cash and cash equivalents-restricted 17,853 17,216
Notes and other related party receivables 26,894 13,654
Notes and other receivables 50,357 9,001
Prepaid expenses and other assets 5,573 3,495
Deferred charges, net 6,475 5,722
-------------- --------------
$ 1,229,175 $ 1,062,313
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Mortgage notes payable $ 470,256 $ 373,608
Line of credit 74,857 10,500
Accounts payable and accrued liabilities 28,086 28,379
Dividends payable 14,404 13,248
Other liabilities 6,578 5,594
Deferred gain 5,002 5,002
-------------- --------------
Total liabilities 599,183 436,331
Minority interests 238,451 238,289
Stockholders' equity:
8.75% Convertible Preferred Stock, Series 1996A: $.0001
par value, 0 and 184.687 authorized
issued and outstanding - 1
Common stock, $.0001 par value, 656,682,178 and
656,497,491 authorized, 18,392,933 and 18,049,952
issued and outstanding 2 2
Cumulative redeemable preferred stock; $.0001 par
value, no shares issued and outstanding:
7.875% Series B 2,000,000 shares authorized - -
9.125% Series C 500,000 shares authorized - -
9.30% Series D 2,000,000 shares authorized - -
9.25% Series E 2,200,000 shares authorized - -
Excess stock, $.0001 par value, 330,000,000 shares
authorized and no shares issued and outstanding - -
Additional paid-in capital 428,019 425,089
Distributions in excess of accumulated earnings (36,480) (37,399)
-------------- --------------
Total stockholders' equity 391,541 387,693
-------------- --------------
$ 1,229,175 $ 1,062,313
============== ==============
See accompanying notes to the consolidated unaudited financial statements.
4
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended
-------------------------------------
September 30, September 30,
2000 1999
---------------- -------------------
Revenues:
Rental $ 42,587 $ 35,699
Other property 1,131 772
-------------- --------------
Total property 43,718 36,471
Interest and other 3,640 1,274
-------------- --------------
Total revenues 47,358 37,745
-------------- --------------
Expenses:
Property operating expenses
Maintenance and repairs 2,630 2,210
Real estate taxes 2,815 2,686
Utilities 2,140 2,214
Administrative 3,508 2,581
Advertising 657 509
Insurance 253 232
Depreciation and amortization 8,689 7,084
-------------- --------------
20,692 17,516
-------------- --------------
Interest 8,345 5,560
Amortization of deferred financing costs 160 147
General and administrative 2,215 1,096
-------------- --------------
Total expenses 31,412 24,319
-------------- --------------
Income before gain on the sales of real estate,
minority interests and extraordinary item 15,946 13,426
Gain on the sales of real estate - 4,708
-------------- --------------
Income before minority interests
and extraordinary item 15,946 18,134
Minority interests (5,697) (5,061)
-------------- --------------
Income before extraordinary item 10,249 13,073
Extraordinary item:
Loss on early extinguishment of debt - -
-------------- --------------
Net income 10,249 13,073
Preferred stock dividends - (149)
-------------- --------------
Net income available to common stockholders $ 10,249 $ 12,924
============== ==============
Per share data:
Basic:
Income before extraordinary item $ 0.56 $ 0.72
Extraordinary item - debt extinguishment - -
-------------- --------------
Net income $ 0.56 $ 0.72
============== ==============
Weighted average number of shares
outstanding during the period 18,328,001 18,036,066
============== ==============
Diluted:
Income before extraordinary item $ 0.54 $ 0.71
Extraordinary item - debt extinguishment - -
-------------- --------------
Net income $ 0.54 $ 0.71
============== ==============
Weighted average number of shares
outstanding during the period 20,891,729 18,471,975
============== ==============
Dividend per share $ 0.61 $ 0.55
============== ==============
See accompanying notes to the consolidated unaudited financial statements.
5
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Nine months ended
----------------------------------
September 30, September 30,
2000 1999
---------------- ---------------
Revenues:
Rental $ 118,489 $ 100,675
Other property 3,236 2,258
-------------- -------------
Total property 121,725 102,933
Interest and other 7,581 3,602
-------------- -------------
Total revenues 129,306 106,535
-------------- -------------
Expenses:
Property operating expenses
Maintenance and repairs 7,194 6,595
Real estate taxes 8,276 7,646
Utilities 6,163 6,222
Administrative 10,280 7,680
Advertising 1,669 1,510
Insurance 723 675
Depreciation and amortization 22,306 19,376
-------------- -------------
56,611 49,704
-------------- -------------
Interest 20,620 15,744
Amortization of deferred financing costs 479 415
General and administrative 4,510 3,218
-------------- -------------
Total expenses 82,220 69,081
-------------- -------------
Income before gain on the sales of real estate,
minority interests and extraordinary item 47,086 37,454
Gain on the sales of real estate 4,022 4,708
-------------- -------------
Income before minority interests
and extraordinary item 51,108 42,162
Minority interests (17,836) (11,667)
-------------- -------------
Income before extraordinary item 33,272 30,495
Extraordinary item:
Loss on early extinguishment of debt - (90)
-------------- -------------
Net income 33,272 30,405
Preferred stock dividends (246) (1,216)
-------------- -------------
Net income available to common stockholders $ 33,026 $ 29,189
============== =============
Per share data:
Basic:
Income before extraordinary item $ 1.82 $ 1.69
Extraordinary item - debt extinguishment - (0.01)
-------------- -------------
Net income $ 1.82 $ 1.68
============== =============
Weighted average number of shares
outstanding during the period 18,169,655 17,341,636
============== =============
Diluted:
Income before extraordinary item $ 1.79 $ 1.67
Extraordinary item - debt extinguishment - (0.01)
-------------- -------------
Net income $ 1.79 $ 1.66
============== =============
Weighted average number of shares
outstanding during the period 18,610,593 18,498,445
============== =============
Dividend per share $ 1.77 $ 1.60
============== =============
See accompanying notes to the consolidated unaudited financial statements.
6
ESSEX PROPERTY TRUST, INC.
Consolidated Statements of Stockholders' Equity
for the nine months ended September 30, 2000 and the
year ended December 31, 1999
(Unaudited)
(Dollars and shares in thousands)
Distributions
Preferred stock Common stock Additional in excess of
-------------------- ------------------- paid - in accumulated
Shares Amount Shares Amount capital earnings Total
--------- --------- -------- --------- ----------- -------------- -----------
Balances at December 31, 1998 1,600 $ 1 16,641 $ 2 $ 431,278 $ (41,481) $ 389,800
Shares issued from conversion
of Convertible Preferred Stock (1,415) - 1,618 - - - -
Shares purchased by Operating
Partnership - - (262) - (7,119) - (7,119)
Net proceeds from options exercised - - 53 - 930 - 930
Net income - - - - - 43,564 43,564
Dividends declared - - - - - (39,482) (39,482)
--------- -------- --------- --------- ------------ ------------ ----------
Balances at December 31, 1999 185 1 18,050 2 425,089 (37,399) 387,693
Shares issued from conversion
of Convertible Preferred Stock (185) (1) 211 - - - (1)
Net proceeds from options exercised - - 132 - 2,930 - 2,930
Net income - - - - - 33,272 33,272
Dividends declared - - - - - (32,353) (32,353)
--------- -------- --------- --------- ------------ ------------ ----------
Balances at September 30, 2000 - $ - 18,393 $ 2 $ 428,019 $ (36,480) $ 391,541
========= ======== ========= ========= ============ ============ ==========
See accompanying notes to the consolidated unaudited financial statements
7
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine months ended
-------------------------------------
September 30, September 30,
2000 1999
--------------- -----------------
Net cash provided by operating activities: $ 67,501 $ 61,328
-------------- -------------
Cash flows from investing activities:
Additions to real estate (69,193) (135,882)
Proceeds received from the disposition of real estate 31,302 18,400
Decrease in restricted cash (637) (1,290)
Additions to related party notes and other receivables (60,700) (10,049)
Repayment of related party notes and other receivables 3,615 9,299
Additions to real estate under development (33,326) (51,636)
Net (contribution to) / distributions from investments
in corporations and limited partnerships (4,241) (2,806)
-------------- -------------
Net cash used in investing activities (133,180) (173,964)
-------------- -------------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit 234,544 216,650
Repayment of mortgage and other notes payable
and lines of credit (127,439) (157,302)
Additions to deferred charges (1,232) (876)
Net proceeds from preferred units sales - 103,215
Net proceeds from stock options exercised and shares
issued through dividend reinvestment plan 2,929 922
(Payment of) offering related costs - 95
Shares purchased by Operating Partnership - (6,991)
Distributions to minority interest/partners (17,332) (10,472)
Redemption of operating partnership units (218) (2,084)
Dividends paid (31,197) (28,731)
-------------- -------------
Net cash provided by financing activities 60,055 114,426
-------------- -------------
Net (decrease) in cash and cash equivalents (5,624) 1,790
Cash and cash equivalents at beginning of period 12,348 2,548
-------------- -------------
Cash and cash equivalents at end of period $ 6,724 $ 4,338
============== =============
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $1,779 and
$3,963 capitalized $ 19,803 $ 10,579
============== =============
Supplemental disclosure of non-cash investing and
financing activities:
Real estate under development transferred to
rental properties $ 89,483 $ 21,700
============== =============
Mortgage note payable assumed in connection
with the purchase of real estate $ 53,900 $ 15,800
============== =============
Issuance of Operating Partnership Units in
connection with the purchase of real estate $ 2,365 $ 7,469
============== =============
Consolidation of previously unconsolidated investment $ 2,771 $ -
============== =============
See accompanying notes to consolidated unaudited financial statements.
8
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unadudited)
(Dollars in thousands, except for per share and per unit amounts)
(1) Organization and Basis of Presentation
--------------------------------------
The unaudited consolidated financial statements of the Company are prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q.
In the opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations and cash
flows for the periods presented have been included and are normal and
recurring in nature. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements included in the Company's annual report on Form 10-K for the
year ended December 31, 1999.
The unaudited consolidated financial statements for the three and nine
months ended September 30, 2000 and 1999 include the accounts of the
Company and Essex Portfolio, L.P. (the "Operating Partnership", which holds
the operating assets of the Company). The Company is the sole general
partner in the Operating Partnership, owning an 89.6%, 89.7% and 89.6%
general partnership interest as of September 30, 2000, December 31, 1999
and September 30, 1999, respectively.
As of September 30, 2000, the Company operates and has ownership interests
in 77 multifamily properties (containing 16,721 units) and four commercial
properties (with approximately 250,000 square feet) (collectively, the
"Properties"). The Properties are located in Northern California (the San
Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and
San Diego counties), and the Pacific Northwest (the Seattle, Washington and
Portland, Oregon metropolitan areas).
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
(2) Significant Transactions
------------------------
(A) Acquisition Activities
---------------------------
On August 17, 2000 the Company purchased El Encanto Apartments, a 116-unit
apartment community located in Tustin, California, for a contract price of
$10,250.
On September 20, 2000 the Company purchased Rosebeach Apartments, a 174-
unit apartment community located in La Mirada, California, for a contract
price of $11,700. The Company plans to invest an additional amount of
approximately $4,900 in conjunction with a major renovation and
repositioning program at the property.
In connection with the acquisition of the Carlyle Apartments (completed in
April, 2000) and Waterford Place (completed in June, 2000), Essex issued
179,367 and 54,291 respectively , of Operating Partnership interests
convertible into Common Stock.
(B) Development Activities
---------------------------
The Company defines development communities as new apartment properties
that are being constructed or are newly constructed and in a phase of
lease-up and have not yet reached stabilized operations. At September 30,
2000, the Company has ownership interests in six development communities,
with an aggregate of 1,256 multifamily units. During the third quarter, the
Company announced one new development community, Vista del Mar. In
connection with the properties currently under development, the Company has
directly, or in some cases through its joint ventures, entered into
contractual construction related commitments with unrelated third parties.
At September 30, 2000, the Company, together with its joint venture
partners, has committed to fund approximately $209,400 under these
commitments, of which $123,500 is remaining.
9
Vista del Mar is a new development community. In September 2000, the
Company purchased a vacant land parcel in Richmond, California on which it
intends to build up to 504 apartment homes. The first phase of the project
consists of 312 apartment homes having an estimated total capitalized cost
of $43,800.
(C) Redevelopment Activities
-----------------------------
The Company defines redevelopment communities as existing properties owned
or recently acquired which have been targeted for investment by the Company
with the expectation of increased financial returns through property
improvement. Redevelopment communities typically have apartment units that
are not available for rent and, as a result, may have less than stabilized
operations. At September 30, 2000, the Company has ownership interests in
six redevelopment communities, which contain an aggregate of 1,801 units
with a total projected investment of $30,820 and approximately $12,291
remaining cost in costs for completion of redevelopment.
These third quarter 2000 acquisitions and development and redevelopment
activities were funded through the Company's line of credit.
(D) Debt Transactions
---------------------
On September 12, 2000 the Company entered into two long-term non-recourse
mortgages totaling $58,100. The two loans are secured by one property each
and are cross collateralized. Both properties were previously unencumbered.
The loans bear interest at a fixed rate of 8.18% and are due in September
2010. The proceeds were used to reduce outstanding balances under the
Company's unsecured lines of credit.
(3) Related Party Transactions
--------------------------
All general and administrative expenses of the Company and Essex Management
Corporation, an unconsolidated preferred stock subsidiary of the Company
("EMC"), are initially borne by the Company, with a portion subsequently
allocated to EMC. Expenses allocated to EMC for the three months ended
September 30, 2000 and 1999 totaled $447 and $112, respectively and $950 and
$324 for the nine months ended September 30, 2000 and 1999, respectively.
The allocation is reflected as a reduction in general and administrative
expenses in the accompanying consolidated statements of operations.
Other income includes interest income of $235 and $84 for the three months
ended September 30, 2000 and 1999, respectively, and $534 and $256 for the
nine months ended September 30, 2000 and 1999, respectively. The majority of
interest income was earned on the notes receivable from related party
partnerships in which the Company has an ownership interest. Other income
also includes management fee income and investment income from the Company's
related party partnerships of $358 and $107 for the three months ended
September 30, 2000 and 1999, respectively and $1,389 and $416 for the six
months ended September 30, 2000 and 1999, respectively.
10
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unadudited)
(Dollars in thousands, except for per share and per unit amounts)
Notes and other related party receivables as of September 30, 2000 and December
31, 1999 consist of the following:
September 30, December 31,
---------------- ---------------
Notes receivable from Joint Ventures: 2000 1999
---- ----
Note receivable from Highridge Apartments, secured,
bearing interest at 9.4%, due March 2008 $ 1,047 $ 1,047
Note receivable from Highridge Apartments, secured,
bearing interest at 10%, due on demand 2,950 2,950
Note receivable from Fidelity 1, secured
bearing interest at 10.0%, due on demand 500 -
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5-10%, due 2015 - 800
Note receivable from Mountain Vista, secured,
bearing interest at 11.5%, due 2004 9,540 -
Receivables from Joint Ventures:
Barkley, non-interest bearing, due on demand 1,116 -
Highridge, non-interest bearing, due on demand 4,726 3,624
Brookside Oaks, non-interest bearing, due on demand 168 -
Las Hadas, non-interest bearing, due on demand 3,053 1,209
Anchor Village, non-interest bearing, due on demand 1,554 1,282
Other related party receivables:
Loans to officers, secured, bearing interest at 8%, due April 2006 633 633
Other related party receivables, substantially due on demand 1,607 2,109
--------- ---------
$ 26,894 $ 13,654
========= =========
Other related party receivables consist primarily of accrued interest
income on related party notes receivables and loans to officers, advances
and accrued management fees from joint venture investees and unreimbursed
expenses due from EMC.
(4) New Accounting Pronouncements
-----------------------------
In June 1998, the FASB issued Financial Accounting Statement No. 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities. The
Company will adopt SFAS 133 for interim periods beginning in 2001, the
effective date of SFAS 133, as amended. Management believes that the
adoption of these statements will not have a material impact on the
Company's financial position or results of operations.
(5) Segment Information
-------------------
The Company defines its reportable operating segments as the three
geographical regions in which it's multifamily residential properties are
located: Northern California, Southern California and the Pacific
Northwest. Non-segment property revenues and net operating income included
in the
11
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unaudited)
(Dollar in thousands, except for per share and per unit amounts)
following schedule consists of revenue generated from the Company's
commercial properties. One of the commercial properties was sold in September
of 1999, the remaining commercial property houses the Company's corporate
headquarters. Excluded from segment revenues are interest and other corporate
income. Other non-segment assets include investments, real estate under
development, cash, receivables and other assets. The revenues, net operating
income, and assets for each of the reportable operating segments are
summarized as follows for the periods presented.
Three months ended
September 30, 2000 September 30, 1999
- --------------------------------------------------------------------------------------------
Revenues
Northern California $15,446 $11,898
Southern California 17,551 15,723
Pacific Northwest 10,721 8,366
------- -------
Total segment revenues 43,718 35,987
Non-segment property revenues - 484
Interest and other income 3,640 1,274
------- -------
Total revenues $47,358 $37,745
======= =======
Net operating income:
Northern California $11,952 9,214
Southern California 12,167 11,161
Pacific Northwest 7,596 5,639
------- -------
Total segment net operating income 31,715 26,014
Non-segment net operating income - 25
Interest and other income 3,640 1,274
Depreciation and amortization (8,689) (7,084)
Interest (8,345) (5,560)
Amortization of deferred financing costs (160) (147)
General and administrative (2,215) (1,096)
------- -------
Income before gain on the sales of real
estate, minority interests and $15,946 $13,426
======= =======
Nine months ended
September 30, 2000 September 30, 1999
------------------- -------------------
Revenues
Northern California $ 41,636 $ 34,803
Southern California 50,096 41,533
Pacific Northwest 29,993 24,855
-------- --------
Total segment revenues 121,725 101,191
Non-segment property revenues - 1,742
Interest and other income 7,581 3,602
-------- --------
Total revenues $129,306 $106,535
======== ========
Net operating income:
Northern California $ 32,166 $ 26,734
Southern California 34,580 28,623
Pacific Northwest 20,674 16,710
-------- --------
Total segment net operating income 87,420 72,067
Non-segment net operating income - 538
Interest and other income 7,581 3,602
Depreciation and amortization (22,306) (19,376)
Interest (20,620) (15,744)
Amortization of deferred financing costs (479) (415)
General and administrative (4,510) (3,218)
-------- --------
Income before gain on the sales of real
estate, minority interests and
extraordinary item $ 47,086 $ 37,454
======== ========
12
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unadudited)
(Dollars in thousands, except for per share and per unit amounts)
(6) Segment Information (continued)
-------------------------------
September 30, 2000 December 31, 1999
- --------------------------------------------------------------------------------------
Assets:
Northern California $ 286,146 $ 216,946
Southern California 469,950 415,374
Pacific Northwest 254,607 195,011
---------- ----------
Total segment net real estate assets 1,010,703 827,331
Non-segment net real estate assets 5,107 5,140
---------- ----------
Net real estate assets 1,015,810 832,471
Non-segment assets 213,365 229,842
---------- ----------
Total assets $1,229,175 $1,062,313
========== ==========
13
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(7) Net Income Per Share
--------------------
Three months ended September 30, 2000 and 1999
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
--------- --------- ---------- -------- ---------- ---------
Income before extraordinary item $ 10,249 $ 13,073
Less: dividends on preferred stock - (149)
--------- --------
Basic:
Income before extraordinary
item available to
common stockholders 10,249 18,328 $ 0.56 12,924 18,036 $ 0.72
--------- --------- ========== -------- ---------- =========
Effect of Dilutive Securities:
Convertible limited partnership
units 1,069 2,136 - -(1)
Convertible preferred stock - 41 149 211
Stock options - 387 - 225
--------- --------- -------- ----------
Diluted:
Income before extraordinary
item available to common
stockholders plus assumed
conversions $ 11,318 20,892 $ 0.54 $ 13,073 18,472 $ 0.71
========= ========= ========== ======== ========== =========
Nine months ended September 30, 2000 and 1999
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
--------- --------- ---------- -------- ---------- ---------
Income before extraordinary item $ 33,272 $ 30,495
Less: dividends on preferred stock (246) (1,216)
--------- --------
Basic:
Income before extraordinary
item available to
common stockholders 33,026 18,170 $ 1.82 29,279 17,342 $ 1.69
--------- -------- ========== -------- ---------- =========
Effect of Dilutive Securities:
Convertible limited partnership
units - - (1) - -(1)
Convertible preferred stock 245 154 1,216 980
Stock options - 287 - 176
--------- -------- -------- ----------
Diluted:
Income before extraordinary
item available to common
stockholders plus assumed
conversions $ 33,271 18,611 $ 1.79 $ 30,495 18,498 $ 1.65
========= ======== ========== ======== ====== =======
(1) Securities not included because they were anti-dilutive.
14
Item 2: Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
The following discussion is based primarily on the consolidated unaudited
financial statements of Essex Property Trust, Inc. ("Essex" or the "Company")
for the three and nine months ended September 30, 2000 and 1999. This
information should be read in conjunction with the accompanying consolidated
unaudited financial statements and notes thereto. These consolidated financial
statements include all adjustments which are, in the opinion of management,
necessary to reflect a fair presentation of financial position and operating
results and all such adjustments are of a normal recurring nature.
Substantially all of the assets of the Company are held by, and substantially
all operations are conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and, as of September 30, 2000, December 31, 1999 and September 30,
1999, owned an 89.6%, 89.7% and 89.6% general partnership interest in the
Operating Partnership, respectively. The Company has elected to be treated as a
real estate investment trust (a "REIT") for federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in the quarterly report on
Form 10-Q which are not historical facts may be considered forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities and Exchange Act of 1934, as amended,
including statements regarding the Company's expectations, hopes, intentions,
beliefs and strategies regarding the future. Forward looking statements include
statements regarding the Company's expectation as to the timing of completion of
current development projects, beliefs as to the adequacy of future cash flows to
meet operating requirements, and to provide for dividend payments in accordance
with REIT requirements and expectations as to the amount of non-revenue
generating capital expenditures for the year ended December 31, 2000, potential
acquisitions and developments, the anticipated performance of existing
properties, future acquisitions and developments and statements regarding the
Company's financing activities. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors including, but not limited
to, that the actual completion of development projects will be subject to
delays, that such development projects will not be completed, that future cash
flows will be inadequate to meet operating requirements and/or will be
insufficient to provide for dividend payments in accordance with REIT
requirements, that the actual non-revenue generating capital expenditures will
exceed the Company's current expectations, as well as those risks, special
considerations, and other factors discussed under the caption "Other
Matters/Risk Factors" in Item 1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, and those other risk factors and special
considerations set forth in the Company's other filings with the Securities and
Exchange Commission (the "SEC") which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
General Background
The Company's property revenues are generated primarily from multifamily
property operations, which accounted for greater than 99% of its property
revenues for the three and nine months ended September 30, 2000 and 1999. The
Company's multifamily properties (the "Properties") are located in Northern
California (the San Francisco Bay Area), Southern California (Los Angeles,
Ventura, Orange and San Diego counties) and the Pacific Northwest (the Seattle,
Washington and Portland, Oregon metropolitan areas). The average occupancy
levels of the Company's portfolio has exceeded 95% for the last five years.
The Company has elected to be treated as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the year ended December 31,
1994. The Company provides some of its fee-based asset management and
disposition services as well as third-party property management and leasing
services through Essex Management Corporation ("EMC"), in order to maintain
compliance with REIT tax rules. The Company owns 100% of EMC's 19,000 shares of
non-voting Preferred Stock. Executives of the Company own 100% of EMC's 1,000
shares of Common Stock.
15
Since the Company's initial public offering (the "IPO") in June 1994, the
Company has acquired ownership interests in 66 multifamily residential
properties and its headquarters building. Of the multifamily properties
acquired since the IPO, 15 are located in Northern California, 33 are located in
Southern California, 17 are located in the Seattle, Washington metropolitan area
and one is located in the Portland, Oregon metropolitan area. In total, these
acquisitions consist of 13,165 multifamily units with total capitalized
acquisition costs of approximately $1,092.6 million. Additionally since its
IPO, the Company has developed and has ownership interests in nine multifamily
development properties that have reached stabilized operations. These
development properties consist of 1,778 units with total capitalized development
costs of $221.4 million. As part of its active portfolio management strategy,
the Company has disposed of, since its IPO, 12 multifamily residential
properties (seven in Northern California, four in Southern California and one in
the Pacific Northwest) consisting of a total of 1,748 units, six retail shopping
centers in the Portland, Oregon metropolitan area and one commercial property in
Northern California at an aggregate gross sales price of approximately $190.7
million resulting in total net realized gains of approximately $29.6 million and
a deferred gain of $5.0 million.
The Company is currently developing six multifamily residential communities,
with an aggregate of 1,256 multifamily units. In connection with these
development projects, the Company has directly, or in some cases through its
joint venture partners, entered into contractual construction related
commitments with unrelated third parties for approximately $209.4 million. As of
September 30, 2000, together with its joint venture partners, the Company's
remaining development commitment is approximately $123.5 million.
Results of Operations
Comparison of the Three Months Ended September 30, 2000 to the Three Months
- ---------------------------------------------------------------------------
Ended September 30, 1999.
- ------------------------
Average financial occupancy rates of the Company's multifamily Quarterly Same
Store Properties (properties owned by the Company for each of the three months
ended September 30, 2000 and 1999) increased to 97.0% for the three months ended
September 30, 2000 from 96.3%, for the three months ended September 30, 1999.
"Financial Occupancy" is defined as the percentage resulting from dividing
actual rental income by total possible rental income. Total possible rental
income is determined by valuing occupied units at contractual rents and vacant
units at market rents. The regional breakdown of financial occupancy for the
multifamily Quarterly Same Store Properties for the three months ended September
30, 2000 and 1999 are as follows:
September 30, September 30,
2000 1999
---- ----
Northern California 98.1% 96.9%
Southern California 96.4% 96.9%
Pacific Northwest 96.4% 94.9%
16
Total Revenues increased by $9,613,000 or 25.5% to $47,358,000 in the third
quarter of 2000 from $37,745,000 in the third quarter of 1999. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to the Quarterly Same Store Properties.
Three Months Ended
Number of September 30, Dollar Percentage
--------------------
Properties 2000 1999 Change Change
------------- -------- ------- -------- --------
Revenues
Property revenues Quarterly
Same Store Properties
Northern California 12 $ 11,650 $10,020 $ 1,607 16.3%
Southern California 13 9,655 9,033 622 6.9
Pacific Northwest 19 8,875 8,366 509 6.1
------- -------- ------- ------- ------
Properties 44 30,180 27,419 2,761 10.1
=======
Property revenues properties
acquired/disposed of
subsequent to June 30, 1999 13,538 9,052 4,486 49.6
-------- ------- ------- ------
Total property revenues 43,718 36,471 7,247 19.9
-------- ------- ------- ------
Interest and other income 3,640 1,274 2,366 185.7
-------- ------- ------- ------
Total revenues $ 47,358 $37,745 $ 9,613 25.5%
======== ======= ======= ======
As set forth in the above table, $4,486,000 of the $9,613,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to June 30, 1999, redevelopment communities, development communities and one
commercial property. During this period, the Company acquired interests in
twelve multifamily properties and reached stabilized operations at eight
development communities (the "Quarterly Acquisition Properties"), disposed of
six multifamily properties and one commercial property (the "Quarterly
Disposition Properties").
Of the increase in total revenues, $2,761,000 is attributable to increases in
property revenues from the Quarterly Same Store Properties. Property revenues
from the Quarterly Same Store Properties increased by approximately 10.1% to
$30,180,000 in the third quarter of 2000 from $27,419,000 in the third quarter
of 1999. The majority of this increase was attributable to the 12 Quarterly Same
Store Properties located in Northern California. The property revenues of the
Quarterly Same Store Properties in Northern California increased by $1,630,000
or 16.3% to $11,650,000 in the third quarter of 2000 from $10,020,000 in the
third quarter of 1999. This $1,630,000 increase is primarily attributable to
rental rate increases and an increase in financial occupancy to 98.1% in the
third quarter of 2000 from 96.9% in the third quarter of 1999. The 13 Quarterly
Same Store Properties located in Southern California accounted for the next
largest regional component of the Quarterly Same Store Property revenue
increase. The property revenues of these properties increased by $622,000 or
6.9% to $9,655,000 in the third quarter of 2000 from $9,033,000 in the third
quarter of 1999. The $622,000 increase is attributable to rental rate increases
which was offest by a slight decrease in financial occupancy to 96.4% in the
third quarter of 2000 from 96.9% in the third quarter of 1999. The 19
multifamily residential properties located in the Pacific Northwest also
contributed to the Quarterly Same Store Properties property revenues increase.
The property revenues of these properties increased by $509,000 or 6.1% to
$8,875,000 in the third quarter of 2000 from $8,366,000 in the third quarter of
1999. The $509,000 increase is primarily attributable to rental rate increase
and an increase in financial occupancy to 96.4% in the third quarter of 2000
from 94.9% in the third quarter of 1999. The increase in total revenue also
reflected an increase of $2,366,000 attributable to interest and other income,
which primarily relates to interest income on outstanding notes receivables and
income earned on the Company's joint venture investments.
Total Expenses increased by $7,093,000 or approximately 29.2% to $31,412,000 in
the third quarter of 2000 from $24,319,000 in the third quarter of 1999.
Interest expense increased by $2,785,000 or 50.1% to $8,345,000 in the third
quarter from $5,560,000 in the third quarter of 1999. Such increase was
primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions which was offset in part by
capitalization of interest charges relating to the Company's development and
redevelopment communities. Property operating expenses, exclusive of
depreciation and amortization, increased by $1,571,000 or 15.1% to $12,003,000
in the third quarter of 2000 from
17
$10,432,000 in the third quarter of 1999. Of such increase, $1,417,000 was
attributable to the Quarterly Acquisition Properties and the Disposition
Properties. Depreciation and amortization increased by $1,605,000 or
approximately 22.7% to $8,689,000 in the third quarter of 2000 from $7,084,000
in the third quarter of 1999, primarily due to the acquisition of assets
during that period.
General and administrative expenses represent the costs of the Company's various
acquisition and administrative departments as well as partnership administration
and non-operating expenses. Such expenses increased by $1,119,000 in the third
quarter of 2000 from the amount for the third quarter of 1999. This increase is
largely due to increased accruals for anticipated bonuses based on the Company's
performance and additional staffing requirements resulting from the growth of
the Company as offset by an increase in the allocation of general and
administrative expenses to EMC.
Net income decreased by $2,824,000 to $10,249,000 in the third quarter of 2000
from $13,073,000 in the third quarter of 1999. This decrease is primarily
attributable to the gain on the sales of real estate of $4,708,000 in the third
quarter of 1999. There was no gain on the sales of real estate in the third
quarter of 2000. This decrease was offset by the net contribution of the
Quarterly Acquisition Properties and the increase in net operating income from
the Quarterly Same Store Properties.
Results of Operations
Comparison of the Nine Months Ended September 30, 2000 to the Nine Months
- --------------------------------------------------------------------------
Ended September 30, 1999.
- ------------------------
Average financial occupancy rates of the Company's multifamily Same Store
Properties (properties owned by the Company for each of the nine months ended
September 30, 2000 and 1999) increased to 96.9% for the nine months ended
September 30, 2000 from 96.2% for the nine months ended September 30, 1999.
"Financial Occupancy" is defined as the percentage resulting from dividing
actual rental income by total possible rental income. Total possible rental
income is determined by valuing occupied units at contractual rents and vacant
units at market rents. The regional breakdown of financial occupancy for the
multifamily Same Store Properties for the nine months ended September 30, 2000
and 1999 are as follows:
September 30, September 30,
2000 1999
---- ----
Northern California 98.1% 96.8%
Southern California 96.4% 96.6%
Pacific Northwest 95.9% 94.9%
Total Revenues increased by $22,771,000 or 21.4% to $129,306,000 for the first
nine months of 2000 from $106,535,000 for the first nine months of 1999. The
following table sets forth a breakdown of these revenue amounts, including the
revenues attributable to the Same Store Properties.
Nine Months Ended
Number of September 30, Dollar Percentage
--------------
Properties 2000 1999 Change Change
-------------- -------- --------- --------- ------------
Revenues
Property revenues Same
Store Properties
Northern California 12 $ 33,111 $ 29,563 $ 3,548 12.0%
Southern California 13 28,468 26,548 1,920 7.2
Pacific Northwest 19 26,001 24,855 1,146 4.6
---- -------- --------- ------- --------
Same Store
Properties 44 87,580 80,966 6,614 8.2
====
Property revenues properties
acquired/disposed of
subsequent to December 31, 1998 34,145 21,967 12,178 55.4
-------- --------- ------- --------
Total property revenues 121,725 102,933 18,792 18.3
-------- --------- ------- --------
Interest and other income 7,581 3,602 3,979 110.5
-------- --------- ------- --------
Total revenues $129,306 $ 106,535 $22,771 21.4%
======== ========= ======= ========
18
As set forth in the above table, $12,178,000 of the $22,771,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to December 31, 1998, redevelopment communities, development communities and one
commercial property. During this period, the Company acquired 17 multifamily
properties and reached stabilized operations at eight development communities
(the "Post 1998 Acquisition Properties"), and disposed of six multifamily
properties and one commercial property (the "Post 1998 Disposition Properties").
Of the increase in total revenues, $6,614,000 is attributable to increases in
property revenues from the Same Store Properties. Property revenues from the
Same Store Properties increased by approximately 8.2% to $87,580,000 in the
first nine months of 2000 from $80,966,000 in the first nine months of 1999.
The majority of this increase was attributable to the 12 Same Store Properties
located in Northern California. The property revenues of these properties
increased by $3,548,000 or 12.0% to $33,111,000 in the first nine months of 2000
from $29,563,000 in the first nine months of 1999. The $3,548,000 increase is
attributable to rental rate increases in financial occupancy to 98.1% in the
first nine months of 2000 from 96.8% in the first nine months of 1999. The 13
multifamily Same Store Properties located in Southern California accounted for
the next largest regional component of the Same Store Properties property
revenues increase. The property revenues of the Same Store Properties in
Southern California increased by $1,920,000 or 7.2% to $28,468,000 in the first
nine months of 2000 from $26,548,000 in the fist nine months of 1999. This
$1,920,000 increase is primarily attributable to rental rate increases as offset
by a slight decrease in financial occupancy to 96.4% in the first nine months of
2000 from 96.6% in the first nine months of 1999. The 19 multifamily residential
properties located in the Pacific Northwest also contributed to the Same Store
Properties property revenues increase. The property revenues of these
properties increased by $1,146,000 or 4.6% to $26,001,000 in the first nine
months of 2000 from $24,855,000 in the first nine months of 1999. The
$1,146,000 increase is primarily attributable to rental rate increase and an
increase in financial occupancy to 95.9% in the first nine months of 2000 from
94.9% in the first nine months of 1999. The increase in total revenue also
reflected an increase of $3,979,000 attributable to interest and other income,
which primarily relates to interest income on outstanding notes receivables and
income earned on the Company's joint venture investments.
Total Expenses increased by $13,139,000 or approximately 19.0% to $82,220,000 in
the first nine months of 2000 from $69,081,000 in the first nine months of 1999.
Interest expense increased by $4,876,000 or 31.0% to $20,620,000 in the first
nine months from $15,744,000 in the first nine months of 1999. Such increase
was primarily due to the net addition of outstanding mortgage debt in connection
with property and investment acquisitions which was offset in part by
capitalization of interest charges relating to the Company's development and
redevelopment communities. Property operating expenses, exclusive of
depreciation and amortization, increased by $3,977,000 or 13.1% to $34,305,000
in the first nine months of 2000 from $30,328,000 in the first nine months of
1999. Of such increase, $$3,909,000 was attributable to the Post 1998
Acquisition Properties and the Post 1998 Disposition Properties. Depreciation
and amotization increased by $2,930,000 or approximately 15.1% to $22,306,000
in the first nine months of 2000 from $19,376,000 in the first nine months of
1999, primarily due to the acquisition of assets during that period.
General and administrative expenses represent the costs of the Company's various
acquisition and administrative departments as well as partnership administration
and non-operating expenses. Such expenses increased by $1,292,000 in the first
nine months of 2000 from the amount for the first nine months of 1999. This
increase is largely due to additional staffing requirements resulting from the
growth of the Company as offset by an increase in the allocation of general and
administrative expenses to EMC.
Net income increased by $2,867,000 to $33,272,000 in the first nine months of
2000 from $30,405,000 in the first nine months of 1999. The increase is
primarily attributable to the net contribution of the Post 1998 Acquisition
Properties and the increase in net operating income from the Same Store
Properties.
Liquidity and Capital Resources
At September 30, 2000 the Company had $6,724,000 of unrestricted cash and cash
equivalents. The Company expects to meet its short-term liquidity requirements
by using its working capital, cash generated from operations and amounts
available under lines of credit. The Company believes that its current net cash
flows will be adequate to meet operating requirements and to provide for payment
of dividends by the
19
Company in accordance with REIT qualification requirements. The Company expects
to meet its long-term funding requirements relating to property acquisition and
development (beyond the next 12 months) by using working capital, amounts
available from its line of credit, net proceeds from public and private debt and
equity issuances, and proceeds from the disposition of properties that may be
sold from time to time. There can, however, be no assurance that the Company
will have access to the debt and equity markets in a timely fashion to meet such
future funding requirements or that future working capital, and borrowings under
its line of credit will be available, or if available, will be sufficient to
meet the Company's requirements or that the Company will be able to dispose of
properties in a timely manner and under terms and conditions that the Company
deems acceptable.
The Company has two outstanding unsecured lines of credit for an aggregate
amount of $150,000,000. The first line, in the amount of $120,000,000, matures
in May 2002, with an option to extend for one year thereafter. Outstanding
balances under this line of credit bear interest based on a tiered rate
structure currently at a rate which uses a tiered rate structure tied to the
Company's corporate ratings, if any, and leverage rating (7.9% at September 30,
2000). At September 30, 2000 the Company had $74,857,000 outstanding on this
line of credit. A Second line of credit in the amount of $30,000,000 matures in
September 2001, with an option to extend for one year thereafter. Outstanding
balances, if any, under the second line bear interest based on a tiered rate
structure currency at LIBOR plus 1.175%. At September 30, 2000, the Company had
no balances outstanding under the second line of credit. During the quarter
ended September 30, 2000, the Company's outstanding balances under these two
lines bore interest rates ranging from 7.8% to 9.5%.
In addition to the unsecured line of credit, the Company had $470,256,000 of
secured indebtedness at September 30, 2000. Such indebtedness consisted of
$361,826,000 in fixed rate debt with interest rates varying from 6.5% to 8.8%
and maturity dates ranging from 2000 to 2026. The indebtedness also included
$58,820,000 of debt represented by tax exempt variable rate demand bonds with
interest rates paid during the third quarter of 2000 ranging from 5.0% to 6.0%
and maturity dates ranging from 2020 to 2026. The tax exempt variable rate
demand bonds are capped at maximum interest rates ranging from 7.1% to 7.3%. The
Company also had $49,610,000 in variable rate debt with interest rates at LIBOR
plus 1.75% and maturing in October 2000. The interest rate on the LIBOR based
variable rate debt ranged from 8.4% to 8.6% for the first nine months of 2000.
The Company's unrestricted cash balance decreased by $5,624,000 from $12,348,000
as of December 31, 1999 to $6,724,000 as of September 30, 2000. This decrease
was primarily a result of $133,180,000 of net cash used in investing activities,
which was offset by $67,501,000 of net cash provided by operating activities and
$60,055,000 of net cash provided by financing activities. The $133,180,000 of
net cash used in investing activities was primarily a result of $69,193,000 of
cash used to purchase and upgrade rental properties, $33,326,000 used to fund
real estate under development and $60,700,000 of additions to related party
notes and other receivables, which was offset by $31,302,000 of proceeds
received from the disposition of real estate. Of the $60,055,000 net cash
provided by financing activities, $234,544,000 of proceeds were received from
mortgage and other notes payable and lines of credit which was offset by
$127,439,000 of repayments of mortgage and other notes payable and lines of
credit and $48,780,000 of dividends/distributions paid and redemption of
operating partnership units.
Non-revenue generating capital expenditures are improvements and upgrades that
extend the useful life of the property and are not related to preparing a
multifamily property unit to be rented to a tenant. The Company expects to
incur approximately $320 per weighted average occupancy unit in non-revenue
generating capital expenditures for the year ended December 31, 2000. These
expenditures do not include the improvements required in connection with the
origination of mortgage loans, expenditures for renovations and improvements on
recently acquired properties which are expected to generate additional revenue,
and renovation expenditures required pursuant to tax-exempt bond financings.
The Company expects that cash from operations and/or its lines of credit will
fund such expenditures. However, there can be no assurance that the actual
expenditures incurred during 2000 and/or the funding thereof will not be
significantly different than the Company's current expectations.
The Company is developing six multifamily residential communities, with an
aggregate of 1,256 multifamily units. Such projects involve certain risks
inherent in real estate development. See "Other
20
Matters/Risk Factors - Risks That Development Activities Will Be Delayed or Not
Completed" in Item 1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. In connection with these development projects, the
Company has directly, or in some cases through its joint venture partners,
entered into contractual construction related commitments with unrelated third
parties for a total amount of approximately $209,400,000. As of September 30,
2000, the Company's remaining commitment to fund the estimated cost to complete
is approximately $123,500,000. The Company expects to fund such commitments with
a combination of its working capital, operating cash flows, amounts available on
its lines of credit, net proceeds from public and private equity and debt
issuances, and proceeds from the disposition of properties, which may be sold
from time to time. During the third quarter of 2000, the Company announced one
new development project.
Pursuant to existing shelf registration statements, the Company has the capacity
to issue up to $342,000,000 of equity securities and the Operating Partnership
has the capacity to issue up to $250,000,000 of debt securities.
The Company pays quarterly dividends from cash available for distribution.
Until it is distributed, cash available for distribution is invested by the
Company primarily in short-term investment grade securities or is used by the
Company to reduce balances outstanding under its line of credit.
Funds from Operations
Industry analysts generally consider funds from operations, ("Funds From
Operations"), an appropriate measure of performance of an equity REIT.
Generally, Funds From Operations adjusts the net income of equity REITs for non-
cash charges such as depreciation and amortization of rental properties,
gains/losses on sales of real estate property and extraordinary items .
Management considers Funds from Operations to be a useful financial performance
measurement of an equity REIT because, together with net income and cash flows,
Funds from Operations provides investors with an additional basis to evaluate
the ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds From Operations does not represent net income
or cash flows from operations as defined by generally accepted accounting
principles ("GAAP") and is not intended to indicate whether cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative to
net income as an indicator of the REIT's operating performance or to cash flows
as a measure of liquidity. Funds From Operations does not measure whether cash
flow is sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to shareholders. Funds From Operations
also does not represent cash flows generated from operating, investing or
financing activities as defined under GAAP. Further, Funds from Operations as
21
disclosed by other REITs may not be comparable to the Company's presentation of
Funds From Operations. The following table sets forth the Company's calculation
of Funds from Operations for the three and nine months ended September 30, 2000
and 1999.
Three months ended Nine months ended
-------------------------- ---------------------------
September 30, September 30, September 30, September 30,
------------ ------------ ------------- ------------
2000 1999 2000 1999
---- ---- ---- ----
Income before gain on the sales of
real estate, minority interests and
extraordinary item $15,946,000 $13,426,000 $ 47,086,000 $37,454,000
Adjustments:
Depreciation and amortization 8,689,000 7,084,000 22,306,000 19,376,000
Unconsolidated joint ventures 1,232,000 366,000 3,295,000 1,102,000
Minority interests (1) (4,602,000) (3,616,000) (14,105,000) (8,378,000)
----------- ----------- ------------ -----------
Funds From Operations $21,265,000 $17,260,000 $ 58,582,000 $49,554,000
=========== =========== ============ ===========
Weighted average number
shares outstanding diluted (1) 20,891,729 20,573,866 20,658,467 20,236,763
============ =========== ============ ===========
(1) Assumes conversion of all outstanding operating partnership interests in
the Operating Partnership and Convertible Preferred Stock, Series 1996 A, into
shares of the Company's Common Stock. Minority interests have been adjusted to
reflect such conversion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows
primarily at fixed rates and may enter into derivative financial instruments
such as interest rate swaps, caps and treasury locks in order to mitigate its
interest rate risk on a related financial instrument. The Company does not
enter into derivative or interest rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques.
The table below presents the principal amounts and weighted average interest
rates by year of expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes. The Company believes that the principal
amounts of the Company's mortgage notes payable and line of credit approximate
fair value as of September 30, 2000 as interest rates and other terms are
consistent with yields currently available to the Company for similar
instruments.
For Year Ended: 2000 2001 2002 2003 2004 Thereafter Total
- ------------------------------------------------------------------------------------------------------------------------
Fixed rate debt (In thousands)
Amount $ 19,265 2,916 11,396 20,855 2,888 304,506 $ 361,826
Average interest rate 7.1% 6.6% 6.6% 6.9% 6.9% 6.9%
Variable rate LIBOR debt (In thousands)
Amount $ 49,610 - 74,857 - - 58,820(1) $ 183,287
Average interest 8.3% - 7.7% - - 5.50%
(1) Capped at interest rates ranging from 7.1% to 7.3%.
The Company does not have any exposures related to forward contracts at
September 30, 2000.
22
Part II Other Information
- ------- -----------------
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
--------
10.1 Form of Revolving Loan Agreement among Essex Portfolio L.P.,
Bank of America and other banks as specified therein.
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only)
B. Reports on Form 8-K
-------------------
None
23
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PROPERTY TRUST, INC.
/S/ MARK J. MIKL
---------------------------------------
Mark J. Mikl, Vice President and Controller
(Authorized Officer and
Principal Accounting Officer)
November 10, 2000
---------------------
Date
24