Essex Announces Fourth Quarter 2016 Results and 2017 Guidance
SAN MATEO, CA -- (Marketwired) -- 02/02/17 -- Essex Property Trust, Inc. (NYSE: ESS) announced today its fourth quarter 2016 earnings results, 2017 operating assumptions and guidance, and related business activities.
Net Income and Funds from Operations ("FFO") per diluted share for the quarter ended December 31, 2016 are detailed below. Core FFO excludes acquisition and investment related costs and certain non-routine items.
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Three Months Ended Year Ended
December 31, December 31,
% %
2016 2015 Change 2016 2015 Change
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Per Diluted Share
-------------------
Net Income $2.98 $1.22 144.3% $6.27 $3.49 80.0%
Total FFO $2.85 $2.53 12.6% $11.12 $9.72 14.4%
Core FFO $2.81 $2.63 6.8% $11.04 $9.82 12.4%
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Fourth Quarter and Full-Year Highlights:
- Reported Net Income per diluted share for the fourth quarter of 2016 of $2.98, compared to $1.22 in the fourth quarter of 2015. The increase is primarily due to gains on sale of real estate.
- Grew Core FFO per diluted share by 6.8% compared to Q4 2015 and 12.4% for the full-year.
- Achieved same-property gross revenues and net operating income ("NOI") growth of 5.8% and 7.1%, respectively, compared to Q4 2015. For the full-year, achieved same-property revenue and NOI growth of 6.7% and 8.1%, respectively.
- Realized a sequential quarterly increase in same-property revenue growth of 0.3%.
- Raised $153.2 million of capital through the contribution of four wholly-owned properties to a new joint venture. The total contract price of the four properties was $307.0 million. The Company retained a majority ownership in the entity.
- Sold two communities for a total contract price of $50.3 million. For the full-year, the Company sold five communities for a total contract price of $228.1 million. The dispositions exclude the four properties contributed to the above-referenced joint venture.
- Acquired two communities for a total contract price of $185.0 million. For the full-year, the Company acquired four communities for a total contract price of $333.7 million.
"Essex had another solid year in 2016, with FFO and Core FFO per diluted share growth of 14.4% and 12.4%, respectively. The results were driven from all segments of the business, including the 8.1% same-property NOI growth achieved by the operations team and accretive investment activities involving acquisitions, development deliveries, dispositions, and preferred equity. As we look to 2017, we expect rent growth to moderate to long-term averages in the Essex portfolio. Our expectations assume that the U.S. economy will continue to generate slow yet steady growth, and our targeted coastal urban and suburban markets will continue to outperform the nation, although less dramatically as compared to the past several years," commented Michael Schall, President and CEO of the Company.
Same-Property Operations
Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in same-property gross revenues for the quarter ended December 31, 2016 compared to the quarter ended December 31, 2015, and the sequential percentage change for the quarter ended December 31, 2016 versus the quarter ended September 30, 2016 by submarket for the Company:
Q4 2016 vs. Q4 2016 vs.
Q4 2015 Q3 2016 % of Total
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Gross Gross Q4 2016
Revenues Revenues Revenues
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Southern California
Los Angeles County 5.5% 0.6% 17.1%
Orange County 5.7% 0.9% 12.2%
San Diego County 6.3% 0.1% 9.6%
Ventura County 6.6% 1.4% 4.7%
Other Southern California 2.7% 9.9% 1.1%
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Total Southern California 5.8% 0.8% 44.7%
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Northern California
Santa Clara County 4.3% -0.6% 16.2%
Alameda County 2.9% -2.8% 6.9%
San Mateo County 6.7% 0.4% 4.6%
Contra Costa County 5.3% -0.6% 5.5%
San Francisco 2.6% 2.0% 2.1%
Other Northern California 10.3% 8.3% 0.3%
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Total Northern California 4.4% -0.7% 35.6%
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Seattle Metro 8.3% 0.9% 19.7%
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Same-Property Portfolio 5.8% 0.3% 100%
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Year-Over-Year Growth Year-Over-Year Growth
---------------------------- -----------------------------
Q4 2016 compared to Q4 2015 YTD 2016 compared to YTD 2015
---------------------------- -----------------------------
Gross Operating Gross Operating
Revenues Expenses NOI Revenues Expenses NOI
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Southern
California 5.8% 1.7% 7.7% 6.2% 2.4% 8.0%
Northern
California 4.4% 3.5% 4.8% 6.8% 4.1% 7.9%
Seattle Metro 8.3% 4.1% 10.3% 7.9% 6.4% 8.6%
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Same-Property
Portfolio 5.8% 2.8% 7.1% 6.7% 3.7% 8.1%
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Sequential Growth
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Q4 2016 compared to Q3 2016
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Gross Operating
Revenues Expenses NOI
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Southern California 0.8% -0.9% 1.7%
Northern California -0.7% 0.4% -1.1%
Seattle Metro 0.9% -4.0% 3.3%
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Same-Property Portfolio 0.3% -1.1% 0.9%
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Financial Occupancies
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Quarter Ended
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12/31/2016 9/30/2016 12/31/2015
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Southern California 96.8% 96.6% 96.1%
Northern California 96.5% 96.5% 95.9%
Seattle Metro 96.7% 96.1% 96.1%
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Same-Property Portfolio 96.7% 96.5% 96.0%
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Investment Activity
In December, the Company acquired two communities in Los Angeles, CA for a total contract price of $185.0 million. The communities, which were built in 2012 and 2014, contain 408 apartment homes and are located less than one mile from each other within the Valley Village neighborhood of Los Angeles.
In January 2017, the Company purchased its joint venture partner's 50% interest in Palm Valley for a contract price of $183.0 million. Prior to the purchase, an approximately $220.0 million mortgage encumbered the property. Concurrent with the closing, the entire mortgage balance of $220.0 million was repaid and the property is now unencumbered. Palm Valley has 1,098 apartment homes within four communities on 37 acres and is located in San Jose, CA.
Dispositions
In October, the Company disposed of Tuscana Apartments located in Tracy, CA for a total contract price of $6.7 million. Total gain on the sale was $0.4 million, which has been excluded from the calculation of FFO.
In November, the Company sold Candlewood North Apartments for a total contract price of $43.6 million. The community has 189 apartment homes located in Northridge, CA. Total gain on the sale was $7.3 million, which has been excluded from the calculation of FFO.
In December, the Company raised $153.2 million of capital through the contribution of four wholly-owned apartment communities to a new joint venture entity, BEX II LLC. The total contract price of the four apartment communities was $307.0 million. The Company has a majority ownership interest in the entity. Total gain on the sale was $126.6 million, which has been excluded from the calculation of FFO. Additional information about the communities included in the transaction can be found in the following table.
Apartment Age of
Community Region Location Homes Community
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Bridgeport Northern CA Newark, CA 184 29
Hillsborough Park Southern CA La Habra, CA 235 17
Meadowood Southern CA Simi Valley, CA 320 30
The Carlyle Northern CA San Jose, CA 132 16
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Total/Weighted Average 871 24
In January 2017, the Company sold Jefferson at Hollywood for a total contract price of $132.5 million. The community, which is located in Los Angeles, CA, contains 270 apartment homes.
Other Investments
In November, the Company converted its existing $12.9 million preferred equity investment in Marquis Apartments to a 50% joint venture common equity interest in the property. The property is encumbered by $45.8 million of mortgage debt at a rate of 3.4%. Built in 2015, Marquis is located in downtown San Jose, CA and has 166 apartment homes.
In November, the Company originated two preferred equity investments in multifamily developments totaling $33.7 million with an average preferred return of 11.0% and maturities ranging from 2019-2020. The multifamily developments are located in San Jose, CA and Redmond, WA.
Development Activity
The table below represents the development communities in lease-up during the fourth quarter and the current leasing status as of January 30, 2017.
Total % Leased
Apartment ESS as of
Project Name Location Homes Ownership 1/30/17 Status
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The Galloway (at
Owens) Pleasanton, CA 255 55% 85% In Lease-Up
Century Towers San Jose, CA 376 50% 15% In Lease-Up
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Total/Weighted Average % Leased 631 43%
Liquidity and Balance Sheet
Common Stock
The Company did not issue any shares of common stock through its equity distribution program in the fourth quarter of 2016 or for the full-year. Subsequent to quarter-end, the Company did not issue any common stock through its equity distribution program.
Balance Sheet
In November, the Company repaid its existing $225 million term loan and entered into a new $350 million term loan. The new five-year loan has a delayed draw feature for the first year and carries a variable rate of LIBOR + 95 basis points. The Company has swapped $150 million of the loan to a fixed rate of 2.2%. As of January 30, 2017, the Company had drawn $350 million on the loan.
In January, the Company extended its $1 billion unsecured line of credit facility to mature in December 2020 with one 18-month extension, exercisable at the Company's option. The pricing on the line remains unchanged at LIBOR + 90 basis points.
As of January 30, 2017, the Company had $935 million in undrawn capacity on its unsecured credit facilities.
2017 Full-Year Guidance and Assumptions
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Per Diluted Share Range
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Net Income $3.98 to $4.38
Total FFO $11.46 to $11.86
Core FFO $11.48 to $11.88
U.S. Economic Assumptions
--------------------------------
GDP Growth 2.2%
Job Growth 1.6%
ESS Markets Economic Assumptions
--------------------------------
Job Growth 2.2%
Market Rent Growth 3.6%
Estimated Same-Property Portfolio Growth based on 46,128 Apartment Homes
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Southern California 3.50% to 4.50%
Northern California 1.25% to 2.25%
Seattle 3.75% to 4.75%
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Gross Revenue 2.75% to 3.75%
Operating Expense 2.50% to 3.50%
Net Operating Income 2.50% to 4.25%
Other Key Assumptions
- Acquisitions of $400-$600 million to be financed with proceeds from dispositions or joint venture capital.
- Dispositions of $400-$700 million.
- Preferred equity investments of $100 million to be financed with disposition proceeds.
- The Company plans to start three new developments in 2017. Total development spending in 2017 for existing projects under construction and for projected new starts is expected to be $215 million at the Company's pro rata share.
- Revenue generating capital expenditures are expected to be $90 million at the Company's pro rata share.
For additional details regarding the 2017 assumptions, please see page S-14 of the Supplemental Financial Information. For the first quarter of 2017, the Company has established a range of Core FFO per diluted share of $2.80 to $2.90.
Conference Call with Management
The Company will host an earnings conference call with management to discuss its quarterly results on Friday, February 3, 2017 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 live call will be available online for 90 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the fourth quarter earnings link. To access the replay digitally, dial (844) 512-2921 using the replay pin number 13652246. If you are unable to access the information via the Company's website, please contact the Investor Relations Department at [email protected] 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 244 apartment communities with an additional 6 properties in various stages of active development. Additional information about Essex can be found on the Company's website at www.essex.com.
This press release and accompanying supplemental financial information will be filed electronically on Form 8-K with the Securities and Exchange Commission and can be accessed from the Company's website at www.essex.com. If you are unable to obtain the information via the Web, please contact the Investor Relations Department at (650) 655-7800.
Funds from Operations ("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 merger, integration and acquisition costs and items that are not routine or not related to the Company's core business activities, which is referred to as "Core FFO", to be useful financial performance measurements 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 the ability to pay dividends.
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 an alternative 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 shareholders. 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 year ended December 31, 2016 and 2015:
Three Months Ended Year Ended
December 31, December 31,
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Funds from Operations
attributable to common
stockholders and
unitholders (In thousands) 2016 2015 2016 2015
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Net income available to
common stockholders $195,569 $79,624 $411,124 $226,865
Adjustments:
Depreciation and
amortization 111,835 116,477 441,682 453,423
Gains not included in FFO (134,303) (40,221) (167,607) (81,347)
Deferred tax expense on gain
on sale of real estate and
land - Taxable REIT
Subsidiary activity 131 - 4,410 -
Depreciation add back from
unconsolidated co-
investments 13,619 13,004 50,956 49,826
Noncontrolling interest
related to Operating
Partnership units 6,632 2,710 14,089 7,824
Insurance reimbursements - - - (1,751)
Depreciation attributable to
third party ownership and
other (6) (28) (9) (781)
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Funds from Operations
attributable to common
stockholders and
unitholders $193,477 $171,566 $754,645 $654,059
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Merger and integration
expenses - - - 3,798
Acquisition and investment
related costs 462 1,057 1,841 2,414
Gain on sale of marketable
securities and other
investments (2,843) - (5,719) (598)
Interest rate hedge
ineffectiveness (1) (250) - (250) -
Loss on early retirement of
debt 395 6,114 606 6,114
Co-investment promote income - - - (192)
Income from early redemption
of preferred equity
investments - - - (1,954)
Excess of redemption value
of preferred stock over the
carrying value - - 2,541 -
Insurance reimbursements,
legal settlement, and
other, net (429) (444) (4,470) (2,970)
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Core Funds from Operations
attributable to common
stockholders and
unitholders $190,812 $178,293 $749,194 $660,671
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(1) Interest rate swaps are adjusted to fair value through other
comprehensive income (loss). However, because certain of our interest
rate swaps do not have a 0% LIBOR floor, while related hedged debt in
these cases is subject to a 0% LIBOR floor, the portion of the change in
fair value of these interest rate swaps attributable to this mismatch is
recorded as noncash interest rate hedge ineffectiveness through interest
expense.
Net Operating Income ("NOI") and Same-Property NOI Reconciliations
Net Operating Income ("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 revenue 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 Year Ended
December 31, December 31,
-------------------- --------------------
2016 2015 2016 2015
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Earnings from operations $ 105,520 $ 92,204 $ 420,800 $ 331,174
Adjustments:
Depreciation and amortization 111,835 116,477 441,682 453,423
Management and other fees (2,133) (2,100) (8,278) (8,909)
General and administrative 12,224 8,867 40,751 40,090
Merger and integration
expenses - - - 3,798
Acquisition and investment
related costs 462 1,057 1,841 2,414
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NOI 227,908 216,505 896,796 821,990
Less: Non-same property NOI (28,517) (30,316) (115,934) (99,320)
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Same-Property NOI $ 199,391 $ 186,189 $ 780,862 $ 722,670
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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. Such forward-looking statements include statements regarding rent growth and economic growth in 2017, statements in the "2017 Full-Year Guidance and Assumptions" sections regarding Net Income, FFO, and Core FFO per diluted share for the full-year 2017, estimated same-property portfolio growth, 2017 gross revenue, 2017 operating expense, 2017 net operating income, and the assumptions set forth in that section regarding economic growth, job and market rent growth, acquisitions, preferred equity investments, new developments and revenue generating capital expenditures; statements and estimates set forth under the captions "Development Pipeline-December 31, 2016" and "Redevelopment Pipeline-December 31, 2016" on pages S-11 and S-12 of the Company's Supplemental Financial Information Package, which accompanies this press release, regarding estimated costs of property development and redevelopment and regarding the anticipated timing of redevelopments and of the construction start, initial occupancy and stabilization of property development; the various financial projections and assumptions, including those regarding 2017 NOI, FFO, Core FFO and EPS, set forth in the columns "2017 Guidance Range" on page S-14 of the Company's Supplemental Financial Information Package and in the guidance range reconciliation columns on page S-17.3 of that Package for the first quarter 2017 and full-year 2017; and the forecasts, set forth on page S-16 of the Company's Supplemental Financial Information Package, of residential supply, jobs, and rent growth in various areas. The Company's actual results may differ materially from those projected in such forward-looking statements. Factors that might cause such a difference include, but are not limited to, changes in market demand for rental units and the impact of competition and competitive pricing, unforeseen consequences from cyber-intrusion, changes in economic conditions, unexpected delays in the development and stabilization of development projects, unexpected difficulties in leasing of development projects, total costs of development investments exceeding the Company's projections and other risks detailed in the Company's filings with the Securities and Exchange Commission (SEC). All forward-looking statements are made as of today, and the Company assumes no obligation to update this information. For more details relating to risks and uncertainties that could cause actual results to differ materially from those anticipated in our forward-looking statements, and risks to our business in general, please refer to our SEC filings, including the Company's Report on Form 10-K for the year ended December 31, 2015.
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-17.1 through S-17.4, "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 InformationBarb Pak Vice President of Finance & Investor Relations (650) 655-7800 [email protected]
Source: Essex Property Trust, Inc.