UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 20172021
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
001-13106 (Essex Property Trust, Inc.)
333-44467-01 (Essex Portfolio, L.P.)
(Commission file number 001-13106File Number)
ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as Specified in its Charter)
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Maryland (Essex | | 77-0369576 |
(Essex Property Trust, Inc.) | | (Essex Property Trust, Inc.) |
California | | 77-0369575 |
(Essex Portfolio, L.P.) | | 77-0369576 (Essex Property Trust, Inc.)
77-0369575 (Essex(Essex Portfolio, L.P.)
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(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification Number) |
1100 Park Place, Suite 200
San Mateo, California 94403
(Address of Principal Executive Offices, includingIncluding Zip Code)
(650) 655-7800
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $.0001 par value (Essex Property Trust, Inc.) | | ESS | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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Essex Property Trust, Inc. Yes x No o | Yes | ☒ | No | ☐ | Essex Portfolio, L.P. | Yesx | ☒ | Noo | ☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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Essex Property Trust, Inc. Yes x No o | Yes | ☒ | No | ☐ | Essex Portfolio, L.P. | Yesx | ☒ | Noo | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Essex Property Trust, Inc.:
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Large accelerated filer | ☒
| Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
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Large accelerated filer x
| Accelerated filer o
| Non-accelerated filer o (Do not check if a smaller reporting company)
| Smaller reporting company o
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| | | Emerging growth companyo
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Essex Portfolio, L.P.:
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Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒
| Smaller reporting company | ☐ |
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Large accelerated filer o
| Accelerated filer o
| Non-accelerated filer x (Do not check if a smaller reporting company)
| Smaller reporting company o
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| | | Emerging growth companyo
| ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Essex Property Trust, Inc.o | ☐ | Essex Portfolio, L.P.o | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Essex Property Trust, Inc. Yes o No x | Yes | ☐ | No | ☒ | Essex Portfolio, L.P. | Yeso | ☐ | Nox | ☒ |
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: 66,037,02965,087,831 shares of Common Stock ($0.0001.0001 par value) of Essex Property Trust, Inc. were outstanding as of October 30, 2017.
EXPLANATORY NOTE
This report combines the reports on Form 10-Q for the three and nine month periods ended September 30, 20172021 of Essex Property Trust, Inc., a Maryland corporation, and Essex Portfolio, L.P., a Delaware limited partnership of which Essex Property Trust, Inc. is the sole general partner.
Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us" or "our" mean collectively Essex Property Trust, Inc. and those entities/subsidiaries owned or controlled by Essex Property Trust, Inc., including Essex Portfolio, L.P., and references to the "Operating Partnership" mean Essex Portfolio, L.P. and those entities/subsidiaries owned or controlled by Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “Essex”"Essex" mean Essex Property Trust, Inc., a Maryland corporation thatnot including any of its subsidiaries.
Essex operates as a self-administered and self-managed real estate investment trust (“REIT”("REIT"), and references to “EPLP” mean Essex Portfolio, L.P. References to the “Company,” “we,” “us” or “our” mean collectively Essex, EPLP and those entities/subsidiaries owned or controlled by Essex and/or EPLP. References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.
Essex is the general partner of EPLP and as the sole general partner of EPLP,the Operating Partnership. As the sole general partner of the Operating Partnership, Essex has exclusive control of EPLP'sthe Operating Partnership's day-to-day management.
The Company is structured as an umbrella partnership REIT (“UPREIT”("UPREIT") and Essex contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, Essex receives a number of Operating Partnership limited partnership units ("OP Units"Units," and the holders of such OP Units, "Unitholders") equal to the number of shares of common stock it has issued in the equity offering.offerings. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units, which is one of the reasons why the Company is structured in the manner outlined above. Based on the terms of EPLP'sthe Operating Partnership's partnership agreement, OP Units can be exchanged into Essex common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units issued to Essex and shares of common stock.
The Company believes that combining the reports on Form 10-Q of Essex and EPLPthe Operating Partnership into this single report provides the following benefits:
•enhances investors' understanding of the CompanyEssex and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the CompanyEssex and the Operating Partnership; and
•creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
Management operates the CompanyEssex and the Operating Partnership as one business. The management of Essex consists of the same members as the management of EPLP.the Operating Partnership.
All of the Company's property ownership, development, and related business operations are conducted through the Operating Partnership and Essex has no material assets, other than its investment in EPLP.the Operating Partnership. Essex's primary function is acting as the general partner of EPLP.the Operating Partnership. As general partner with control of the Operating Partnership, the CompanyEssex consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of the CompanyEssex and the Operating Partnership are the same on their respective financial statements. Essex also issues equity from time to time and guarantees certain debt of EPLP,the Operating Partnership, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures.co-investments. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional OP Units (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources of capital include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.co-investments.
The Company believes it is important to understand the few differences between Essex and EPLPthe Operating Partnership in the context of how Essex and EPLPthe Operating Partnership operate as a consolidated company. Stockholders' equity, partners' capital and noncontrolling interest are the main areas of difference between the condensed consolidated financial statements of the CompanyEssex and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's condensed consolidated financial statements and as noncontrolling interest in Essex’s condensed consolidated financial statements. The noncontrolling interest in the Operating Partnership's condensed consolidated financial statements include the interest of unaffiliated partners in various condensed consolidated partnerships and joint ventureco-investment partners. The noncontrolling interest in the Company'sEssex's condensed consolidated financial statements include (i) the same noncontrolling interest as
presented in the Operating Partnership’s condensed consolidated financial statements and (ii) OP Unit holders.Unitholders. The differences between stockholders' equity and partners' capital result from differences in the equity issued at the CompanyEssex and Operating Partnership levels.
To help investors understand the significant differences between the CompanyEssex and the Operating Partnership, this report on Form 10-Q provides separate condensed consolidated financial statements for the CompanyEssex and the Operating Partnership; a single set of consolidated
notes to such financial statements that includes separate discussions of stockholders' equity or partners' capital, and earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report on Form 10-Q also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the CompanyEssex and the Operating Partnership in order to establish that the requisite certifications have been made and that the CompanyEssex and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. §1350.
In order to highlight the differences between the CompanyEssex and the Operating Partnership, the separate sections in this report on Form 10-Q for the CompanyEssex and the Operating Partnership specifically refer to the CompanyEssex and the Operating Partnership. In the sections that combine disclosure of the CompanyEssex and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint venturesco-investments and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the CompanyEssex and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
The information furnished in the accompanying unaudited condensed consolidated balance sheets, statements of income and comprehensive income, equity, capital, and cash flows of the Company and the Operating Partnership reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned condensed consolidated financial statements for the interim periods and are normal and recurring in nature, except as otherwise noted.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to such unaudited condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Additionally, these unaudited condensed 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, 2016.2020.
ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
FORM 10-Q
INDEXTABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION | Page No. |
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PART I. FINANCIAL INFORMATION | Page No. |
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Item 1. | Condensed Consolidated Financial Statements of Essex Property Trust, Inc. (Unaudited) | |
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| Condensed Consolidated Financial Statements of Essex Portfolio, L.P. (Unaudited) | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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PART II. OTHER INFORMATION | |
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Item 1. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Item 5. | | |
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Item 6. | | |
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Part I – Financial Information
Item 1. Condensed Consolidated Financial Statements
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and share amounts)
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ASSETS | September 30, 2021 | | December 31, 2020 |
Real estate: | | | |
Rental properties: | | | |
Land and land improvements | $ | 2,997,904 | | | $ | 2,929,009 | |
Buildings and improvements | 12,414,770 | | | 12,132,736 | |
| 15,412,674 | | | 15,061,745 | |
Less: accumulated depreciation | (4,509,243) | | | (4,133,959) | |
| 10,903,431 | | | 10,927,786 | |
Real estate under development | 212,426 | | | 386,047 | |
Co-investments | 1,081,861 | | | 1,018,010 | |
Real estate held for sale | — | | | 57,938 | |
| 12,197,718 | | | 12,389,781 | |
Cash and cash equivalents-unrestricted | 49,910 | | | 73,629 | |
Cash and cash equivalents-restricted | 11,042 | | | 10,412 | |
Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020 | 183,140 | | | 147,768 | |
Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively) | 213,985 | | | 195,104 | |
Operating lease right-of-use assets | 69,756 | | | 72,143 | |
Prepaid expenses and other assets | 63,090 | | | 47,340 | |
Total assets | $ | 12,788,641 | | | $ | 12,936,177 | |
LIABILITIES AND EQUITY | | | |
Unsecured debt, net | $ | 5,405,520 | | | $ | 5,607,985 | |
Mortgage notes payable, net | 640,118 | | | 643,550 | |
Lines of credit | 42,662 | | | — | |
Accounts payable and accrued liabilities | 220,428 | | | 152,855 | |
Construction payable | 32,777 | | | 31,417 | |
Dividends payable | 143,036 | | | 141,917 | |
Distributions in excess of investments in co-investments | 29,037 | | | — | |
Operating lease liabilities | 71,520 | | | 74,037 | |
Liabilities associated with real estate held for sale | — | | | 29,845 | |
Other liabilities | 38,946 | | | 39,140 | |
Total liabilities | 6,624,044 | | | 6,720,746 | |
Commitments and contingencies | 0 | | 0 |
Redeemable noncontrolling interest | 32,698 | | | 32,239 | |
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Equity: | | | |
Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,081,032 and 64,999,015 shares issued and outstanding, respectively | 7 | | | 6 | |
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Additional paid-in capital | 6,875,508 | | | 6,876,326 | |
Distributions in excess of accumulated earnings | (917,315) | | | (861,193) | |
Accumulated other comprehensive loss, net | (8,968) | | | (14,729) | |
Total stockholders' equity | 5,949,232 | | | 6,000,410 | |
Noncontrolling interest | 182,667 | | | 182,782 | |
Total equity | 6,131,899 | | | 6,183,192 | |
Total liabilities and equity | $ | 12,788,641 | | | $ | 12,936,177 | |
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ASSETS | September 30, 2017 | | December 31, 2016 |
Real estate: | | | |
Rental properties: | | | |
Land and land improvements | $ | 2,719,064 |
| | $ | 2,559,743 |
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Buildings and improvements | 10,585,742 |
| | 10,116,563 |
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| 13,304,806 |
| | 12,676,306 |
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Less: accumulated depreciation | (2,651,542 | ) | | (2,311,546 | ) |
| 10,653,264 |
| | 10,364,760 |
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Real estate under development | 313,825 |
| | 190,505 |
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Co-investments | 1,124,577 |
| | 1,161,275 |
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Real estate held for sale, net | — |
| | 101,957 |
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| 12,091,666 |
| | 11,818,497 |
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Cash and cash equivalents-unrestricted | 46,507 |
| | 64,921 |
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Cash and cash equivalents-restricted | 16,766 |
| | 105,381 |
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Marketable securities | 184,574 |
| | 139,189 |
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Notes and other receivables (includes related party receivables of $65.6 million and $11.3 million as of September 30, 2017 and December 31, 2016, respectively) | 121,557 |
| | 40,970 |
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Prepaid expenses and other assets | 51,453 |
| | 48,450 |
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Total assets | $ | 12,512,523 |
| | $ | 12,217,408 |
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LIABILITIES AND EQUITY | |
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Unsecured debt, net | $ | 3,501,146 |
| | $ | 3,246,779 |
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Mortgage notes payable, net | 2,111,467 |
| | 2,191,481 |
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Lines of credit | 2,609 |
| | 125,000 |
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Accounts payable and accrued liabilities | 222,122 |
| | 138,226 |
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Construction payable | 59,767 |
| | 35,909 |
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Dividends payable | 121,496 |
| | 110,170 |
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Distributions in excess of investments in co-investments | 36,245 |
| | — |
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Other liabilities | 33,733 |
| | 32,922 |
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Total liabilities | 6,088,585 |
| | 5,880,487 |
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Commitments and contingencies |
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Redeemable noncontrolling interest | 40,044 |
| | 44,684 |
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Equity: | |
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Common stock; $0.0001 par value, 670,000,000 shares authorized; 66,002,487 and 65,527,993 shares issued and outstanding, respectively | 6 |
| | 6 |
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Additional paid-in capital | 7,111,866 |
| | 7,029,679 |
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Distributions in excess of accumulated earnings | (821,732 | ) | | (805,409 | ) |
Accumulated other comprehensive loss, net | (24,632 | ) | | (32,098 | ) |
Total stockholders' equity | 6,265,508 |
| | 6,192,178 |
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Noncontrolling interest | 118,386 |
| | 100,059 |
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Total equity | 6,383,894 |
| | 6,292,237 |
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Total liabilities and equity | $ | 12,512,523 |
| | $ | 12,217,408 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except share and per share amounts)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | |
Rental and other property | $ | 360,620 | | | $ | 368,464 | | | $ | 1,062,253 | | | $ | 1,126,363 | |
Management and other fees from affiliates | 2,237 | | | 2,347 | | | 6,707 | | | 7,312 | |
| 362,857 | | | 370,811 | | | 1,068,960 | | | 1,133,675 | |
Expenses: | | | | | | | |
Property operating, excluding real estate taxes | 69,529 | | | 68,037 | | | 197,895 | | | 197,310 | |
Real estate taxes | 45,802 | | | 44,358 | | | 135,408 | | | 132,364 | |
Corporate-level property management expenses | 9,068 | | | 8,619 | | | 27,120 | | | 26,024 | |
Depreciation and amortization | 130,564 | | | 130,202 | | | 387,887 | | | 395,370 | |
General and administrative | 12,712 | | | 13,310 | | | 34,746 | | | 42,244 | |
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Expensed acquisition and investment related costs | 108 | | | 2 | | | 164 | | | 104 | |
| 267,783 | | | 264,528 | | | 783,220 | | | 793,416 | |
Gain on sale of real estate and land | 42,897 | | | 22,654 | | | 142,993 | | | 39,251 | |
Earnings from operations | 137,971 | | | 128,937 | | | 428,733 | | | 379,510 | |
Interest expense | (50,019) | | | (55,430) | | | (152,639) | | | (165,024) | |
Total return swap income | 2,660 | | | 2,977 | | | 8,137 | | | 7,749 | |
Interest and other income | 11,998 | | | 6,512 | | | 48,756 | | | 12,696 | |
Equity income from co-investments | 25,433 | | | 14,960 | | | 60,692 | | | 53,514 | |
Deferred tax expense on unrealized gain on unconsolidated co-investment | (3,041) | | | — | | | (5,391) | | | (1,636) | |
Loss on early retirement of debt, net | — | | | (19,114) | | | (18,982) | | | (23,820) | |
Gain on remeasurement of co-investment | — | | | — | | | 2,260 | | | 234,694 | |
Net income | 125,002 | | | 78,842 | | | 371,566 | | | 497,683 | |
Net income attributable to noncontrolling interest | (6,612) | | | (5,181) | | | (19,886) | | | (24,558) | |
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Net income available to common stockholders | $ | 118,390 | | | $ | 73,661 | | | $ | 351,680 | | | $ | 473,125 | |
Comprehensive income | $ | 125,829 | | | $ | 80,818 | | | $ | 377,529 | | | $ | 494,668 | |
Comprehensive income attributable to noncontrolling interest | (6,639) | | | (5,247) | | | (20,088) | | | (24,455) | |
Comprehensive income attributable to controlling interest | $ | 119,190 | | | $ | 75,571 | | | $ | 357,441 | | | $ | 470,213 | |
Per share data: | | | | | | | |
Basic: | | | | | | | |
Net income available to common stockholders | $ | 1.82 | | | $ | 1.13 | | | $ | 5.41 | | | $ | 7.22 | |
Weighted average number of shares outstanding during the period | 65,048,486 | | | 65,232,837 | | | 65,013,477 | | | 65,561,820 | |
Diluted: | | | | | | | |
Net income available to common stockholders | $ | 1.82 | | | $ | 1.13 | | | $ | 5.40 | | | $ | 7.21 | |
Weighted average number of shares outstanding during the period | 65,147,781 | | | 65,241,428 | | | 65,075,174 | | | 65,676,093 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Rental and other property | $ | 341,974 |
| | $ | 327,078 |
| | $ | 1,011,908 |
| | $ | 958,818 |
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Management and other fees from affiliates | 2,395 |
| | 2,093 |
| | 6,927 |
| | 6,145 |
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| 344,369 |
| | 329,171 |
| | 1,018,835 |
| | 964,963 |
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Expenses: | |
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Property operating, excluding real estate taxes | 66,606 |
| | 63,781 |
| | 193,632 |
| | 185,390 |
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Real estate taxes | 37,531 |
| | 35,580 |
| | 108,283 |
| | 104,540 |
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Depreciation and amortization | 117,451 |
| | 110,467 |
| | 350,893 |
| | 329,847 |
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General and administrative | 9,788 |
| | 9,647 |
| | 30,726 |
| | 28,527 |
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Acquisition and investment related costs | 324 |
| | 284 |
| | 1,154 |
| | 1,379 |
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| 231,700 |
| | 219,759 |
| | 684,688 |
| | 649,683 |
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Earnings from operations | 112,669 |
| | 109,412 |
| | 334,147 |
| | 315,280 |
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Interest expense | (55,938 | ) | | (56,693 | ) | | (167,333 | ) | | (164,727 | ) |
Total return swap income | 2,538 |
| | 3,143 |
| | 7,653 |
| | 9,080 |
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Interest and other income | 5,790 |
| | 4,943 |
| | 17,916 |
| | 19,560 |
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Equity income from co-investments | 19,727 |
| | 9,568 |
| | 40,934 |
| | 38,932 |
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Loss on early retirement of debt | — |
| | (211 | ) | | — |
| | (211 | ) |
Gain on sale of real estate and land | 249 |
| | — |
| | 26,423 |
| | 20,258 |
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Deferred tax expense on gain on sale of real estate and land | — |
| | — |
| | — |
| | (4,279 | ) |
Gain on remeasurement of co-investment | — |
| | — |
| | 88,641 |
| | — |
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Net income | 85,035 |
| | 70,162 |
| | 348,381 |
| | 233,893 |
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Net income attributable to noncontrolling interest | (5,312 | ) | | (4,601 | ) | | (18,935 | ) | | (14,483 | ) |
Net income attributable to controlling interest | 79,723 |
| | 65,561 |
| | 329,446 |
| | 219,410 |
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Dividends to preferred stockholders | — |
| | — |
| | — |
| | (1,314 | ) |
Excess of redemption value of preferred stock over the carrying value | — |
| | — |
| | — |
| | (2,541 | ) |
Net income available to common stockholders | $ | 79,723 |
| | $ | 65,561 |
| | $ | 329,446 |
| | $ | 215,555 |
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Comprehensive income | $ | 88,870 |
| | $ | 73,173 |
| | $ | 356,102 |
| | $ | 235,874 |
|
Comprehensive income attributable to noncontrolling interest | (5,438 | ) | | (4,700 | ) | | (19,190 | ) | | (14,548 | ) |
Comprehensive income attributable to controlling interest | $ | 83,432 |
| | $ | 68,473 |
| | $ | 336,912 |
| | $ | 221,326 |
|
Per share data: | |
| | |
| | | | |
Basic: | |
| | |
| | | | |
Net income available to common stockholders | $ | 1.21 |
| | $ | 1.00 |
| | $ | 5.01 |
| | $ | 3.29 |
|
Weighted average number of shares outstanding during the period | 65,994,896 |
| | 65,507,669 |
| | 65,759,450 |
| | 65,455,004 |
|
Diluted: | |
| | |
| | | | |
Net income available to common stockholders | $ | 1.21 |
| | $ | 1.00 |
| | $ | 5.00 |
| | $ | 3.29 |
|
Weighted average number of shares outstanding during the period | 66,078,283 |
| | 65,617,551 |
| | 65,836,965 |
| | 65,578,661 |
|
Dividend per common share | $ | 1.75 |
| | $ | 1.60 |
| | $ | 5.25 |
| | $ | 4.80 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Equity for the three and nine months ended September 30, 20172021 and 2020
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional paid-in capital | | Distributions in excess of accumulated earnings | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
Three months ended September 30, 2021 | | | | | Shares | | Amount | | | | | |
Balances at June 30, 2021 | | | | | 65,004 | | | $ | 7 | | | $ | 6,862,879 | | | $ | (899,663) | | | $ | (9,768) | | | $ | 183,248 | | | $ | 6,136,703 | |
Net income | | | | | — | | | — | | | — | | | 118,390 | | | — | | | 6,612 | | | 125,002 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Change in fair value of derivatives and amortization of swap settlements | | | | | — | | | — | | | — | | | — | | | 704 | | | 24 | | | 728 | |
Change in fair value of marketable debt securities, net | | | | | — | | | — | | | — | | | — | | | 96 | | | 3 | | | 99 | |
Issuance of common stock under: | | | | | | | | | | | | | | | | | |
Stock option and restricted stock plans, net | | | | | 68 | | | — | | | 15,572 | | | — | | | — | | | — | | | 15,572 | |
Sale of common stock, net | | | | | — | | | — | | | (118) | | | — | | | — | | | — | | | (118) | |
Equity based compensation costs | | | | | — | | | — | | | 1,573 | | | — | | | — | | | 55 | | | 1,628 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Changes in the redemption value of redeemable noncontrolling interest | | | | | — | | | — | | | 1,253 | | | — | | | — | | | 420 | | | 1,673 | |
| | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interest | | | | | — | | | — | | | — | | | — | | | — | | | (7,257) | | | (7,257) | |
Redemptions of noncontrolling interest | | | | | 9 | | | — | | | (5,651) | | | — | | | — | | | (438) | | | (6,089) | |
Common stock dividends ($2.09 per share) | | | | | — | | | — | | | — | | | (136,042) | | | — | | | — | | | (136,042) | |
Balances at September 30, 2021 | | | | | 65,081 | | | $ | 7 | | | $ | 6,875,508 | | | $ | (917,315) | | | $ | (8,968) | | | $ | 182,667 | | | $ | 6,131,899 | |
| | | | | | | | | | | | | | | | | | | | Common stock | | Additional paid-in capital | | Distributions in excess of accumulated earnings | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | | | Shares | | Amount | |
Balances at December 31, 2020 | | Balances at December 31, 2020 | | | 64,999 | | | $ | 6 | | | $ | 6,876,326 | | | $ | (861,193) | | | $ | (14,729) | | | $ | 182,782 | | | $ | 6,183,192 | |
Net income | | Net income | | | — | | | — | | | — | | | 351,680 | | | — | | | 19,886 | | | 371,566 | |
| | Common stock | | Additional paid-in capital | | Distributions in excess of accumulated earnings | | Accumulated other comprehensive loss, net | | Noncontrolling Interest | | | |
| | Shares | | Amount | | Total | |
Balances at December 31, 2016 | | 65,528 |
| | $ | 6 |
| | $ | 7,029,679 |
| | $ | (805,409 | ) | | $ | (32,098 | ) | | $ | 100,059 |
| | $ | 6,292,237 |
| |
Net income | | — |
| | — |
| | — |
| | 329,446 |
| | — |
| | 18,935 |
| | 348,381 |
| |
Reversal of unrealized gains upon the sale of marketable securities | | — |
| | — |
| | — |
| | — |
| | (1,596 | ) | | (54 | ) | | (1,650 | ) | |
Change in fair value of derivatives and amortization of swap settlements | | — |
| | — |
| | — |
| | — |
| | 7,160 |
| | 245 |
| | 7,405 |
| Change in fair value of derivatives and amortization of swap settlements | | | — | | | — | | | — | | | — | | | 5,417 | | | 190 | | | 5,607 | |
Change in fair value of marketable securities, net | | — |
| | — |
| | — |
| | — |
| | 1,902 |
| | 64 |
| | 1,966 |
| |
Change in fair value of marketable debt securities, net | | Change in fair value of marketable debt securities, net | | | — | | | — | | | — | | | — | | | 344 | | | 12 | | | 356 | |
Issuance of common stock under: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| Issuance of common stock under: | | |
Stock option and restricted stock plans, net | | 160 |
| | — |
| | 24,079 |
| | — |
| | — |
| | — |
| | 24,079 |
| Stock option and restricted stock plans, net | | | 112 | | | 1 | | | 12,401 | | | — | | | — | | | — | | | 12,402 | |
Sale of common stock, net | | 312 |
| | — |
| | 80,377 |
| | — |
| | — |
| | — |
| | 80,377 |
| Sale of common stock, net | | | — | | | — | | | (202) | | | — | | | — | | | — | | | (202) | |
Equity based compensation costs | | — |
| | — |
| | 3,814 |
| | — |
| | — |
| | 1,080 |
| | 4,894 |
| Equity based compensation costs | | | — | | | — | | | 9,172 | | | — | | | — | | | 323 | | | 9,495 | |
| Retirement of common stock, net | | Retirement of common stock, net | | | (40) | | | — | | | (9,172) | | | — | | | — | | | — | | | (9,172) | |
| Changes in the redemption value of redeemable noncontrolling interest | | — |
| | — |
| | (916 | ) | | — |
| | — |
| | 13 |
| | (903 | ) | Changes in the redemption value of redeemable noncontrolling interest | | | — | | | — | | | (5,499) | | | — | | | — | | | 577 | | | (4,922) | |
Contributions from noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | 22,506 |
| | 22,506 |
| Contributions from noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | 1,900 | | | 1,900 | |
Distributions to noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | — |
| | (21,072 | ) | | (21,072 | ) | Distributions to noncontrolling interest | | | — | | | — | | | — | | | — | | | — | | | (22,114) | | | (22,114) | |
Redemptions of noncontrolling interest | | 2 |
| | — |
| | (25,167 | ) | | — |
| | — |
| | (3,390 | ) | | (28,557 | ) | Redemptions of noncontrolling interest | | | 10 | | | — | | | (7,518) | | | — | | | — | | | (889) | | | (8,407) | |
Common stock dividends | | — |
| | — |
| | — |
| | (345,769 | ) | | — |
| | — |
| | (345,769 | ) | |
Balances at September 30, 2017 | | 66,002 |
| | $ | 6 |
| | $ | 7,111,866 |
| | $ | (821,732 | ) | | $ | (24,632 | ) | | $ | 118,386 |
| | $ | 6,383,894 |
| |
Common stock dividends ($6.27 per share) | | Common stock dividends ($6.27 per share) | | | — | | | — | | | — | | | (407,802) | | | — | | | — | | | (407,802) | |
Balances at September 30, 2021 | | Balances at September 30, 2021 | | | 65,081 | | | $ | 7 | | | $ | 6,875,508 | | | $ | (917,315) | | | $ | (8,968) | | | $ | 182,667 | | | $ | 6,131,899 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional paid-in capital | | Distributions in excess of accumulated earnings | | Accumulated other comprehensive loss, net | | Noncontrolling Interest | | Total |
Three months ended September 30, 2020 | | | | | Shares | | Amount | | | | | |
Balances at June 30, 2020 | | | | | 65,331 | | | $ | 7 | | | $ | 6,944,805 | | | $ | (760,028) | | | $ | (18,710) | | | $ | 186,807 | | | $ | 6,352,881 | |
Net income | | | | | — | | | — | | | — | | | 73,661 | | | — | | | 5,181 | | | 78,842 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Change in fair value of derivatives and amortization of swap settlements | | | | | — | | | — | | | — | | | — | | | 1,821 | | | 63 | | | 1,884 | |
Change in fair value of marketable debt securities, net | | | | | — | | | — | | | — | | | — | | | 89 | | | 3 | | | 92 | |
Issuance of common stock under: | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Sale of common stock, net | | | | | — | | | — | | | (95) | | | — | | | — | | | — | | | (95) | |
Equity based compensation costs | | | | | — | | | — | | | 2,279 | | | — | | | — | | | 82 | | | 2,361 | |
| | | | | | | | | | | | | | | | | |
Retirement of common stock, net | | | | | (121) | | | — | | | (26,586) | | | — | | | — | | | — | | | (26,586) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Changes in the redemption value of redeemable noncontrolling interest | | | | | — | | | — | | | 2,346 | | | — | | | — | | | 176 | | | 2,522 | |
| | | | | | | | | | | | | | | | | |
Distributions to noncontrolling interest | | | | | — | | | — | | | — | | | — | | | — | | | (7,677) | | | (7,677) | |
Redemptions of noncontrolling interest | | | | | — | | | — | | | (1,118) | | | — | | | — | | | (150) | | | (1,268) | |
Common stock dividends ($2.0775 per share) | | | | | — | | | — | | | — | | | (135,474) | | | — | | | — | | | (135,474) | |
Balances at September 30, 2020 | | | | | 65,210 | | | $ | 7 | | | $ | 6,921,631 | | | $ | (821,841) | | | $ | (16,800) | | | $ | 184,485 | | | $ | 6,267,482 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common stock | | Additional paid-in capital | | Distributions in excess of accumulated earnings | | Accumulated other comprehensive loss, net | | Noncontrolling Interest | | Total |
Nine months ended September 30, 2020 | | | | | Shares | | Amount | | | | | |
Balances at December 31, 2019 | | | | | 66,092 | | | $ | 7 | | | $ | 7,121,927 | | | $ | (887,619) | | | $ | (13,888) | | | $ | 183,077 | | | $ | 6,403,504 | |
Net income | | | | | — | | | — | | | — | | | 473,125 | | | — | | | 24,558 | | | 497,683 | |
| | | | | | | | | | | | | | | | | |
Cash flow hedge losses reclassified to earnings | | | | | — | | | — | | | — | | | — | | | 3,171 | | | 111 | | | 3,282 | |
Change in fair value of derivatives and amortization of swap settlements | | | | | — | | | — | | | — | | | — | | | (5,911) | | | (208) | | | (6,119) | |
Change in fair value of marketable debt securities, net | | | | | — | | | — | | | — | | | — | | | (172) | | | (6) | | | (178) | |
Issuance of common stock under: | | | | | | | | | | | | | | | | | |
Stock option and restricted stock plans, net | | | | | 95 | | | — | | | 9,201 | | | — | | | — | | | — | | | 9,201 | |
Sale of common stock, net | | | | | — | | | — | | | (228) | | | — | | | — | | | — | | | (228) | |
Equity based compensation costs | | | | | — | | | — | | | 8,956 | | | — | | | — | | | 338 | | | 9,294 | |
| | | | | | | | | | | | | | | | | |
Retirement of common stock, net | | | | | (985) | | | — | | | (222,990) | | | — | | | — | | | — | | | (222,990) | |
Cumulative effect upon adoption of ASU No. 2016-13 | | | | | — | | | — | | | — | | | (190) | | | — | | | — | | | (190) | |
| | | | | | | | | | | | | | | | | |
Changes in the redemption value of redeemable noncontrolling interest | | | | | — | | | — | | | 6,888 | | | — | | | — | | | (197) | | | 6,691 | |
Changes in noncontrolling interest from acquisition | | | | | — | | | — | | | — | | | — | | | — | | | 1,349 | | | 1,349 | |
Distributions to noncontrolling interest | | | | | — | | | — | | | — | | | — | | | — | | | (23,689) | | | (23,689) | |
Redemptions of noncontrolling interest | | | | | 8 | | | — | | | (2,123) | | | — | | | — | | | (848) | | | (2,971) | |
Common stock dividends ($6.2325 per share) | | | | | — | | | — | | | — | | | (407,157) | | | — | | | — | | | (407,157) | |
Balances at September 30, 2020 | | | | | 65,210 | | | $ | 7 | | | $ | 6,921,631 | | | $ | (821,841) | | | $ | (16,800) | | | $ | 184,485 | | | $ | 6,267,482 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)thousands, except parenthetical amounts)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net income | $ | 371,566 | | | $ | 497,683 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Straight-lined rents | 8,734 | | | (15,485) | |
Depreciation and amortization | 387,887 | | | 395,370 | |
Amortization of discount on marketable securities | — | | | (6,598) | |
Amortization of discount and debt financing costs, net | 7,987 | | | 5,177 | |
Gain on sale of marketable securities | (2,499) | | | (124) | |
Income from early redemption of notes receivable | (4,747) | | | — | |
Provision for credit losses | (110) | | | 100 | |
Unrealized gains on equity securities recognized through income | (23,772) | | | (2,215) | |
| | | |
| | | |
Earnings from co-investments | (60,692) | | | (53,514) | |
Operating distributions from co-investments | 78,360 | | | 41,202 | |
Accrued interest from notes and other receivables | (12,253) | | | (1,574) | |
Gain on the sale of real estate and land | (142,993) | | | (39,251) | |
| | | |
| | | |
| | | |
Equity-based compensation | 5,399 | | | 4,923 | |
Loss on early retirement of debt, net | 18,982 | | | 23,820 | |
Gain on remeasurement of co-investment | (2,260) | | | (234,694) | |
Changes in operating assets and liabilities: | | | |
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 2,470 | | | (5,088) | |
Accounts payable, accrued liabilities, and operating lease liabilities | 62,699 | | | 43,095 | |
Other liabilities | 5,119 | | | 610 | |
Net cash provided by operating activities | 699,877 | | | 653,437 | |
Cash flows from investing activities: | | | |
Additions to real estate: | | | |
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (105,469) | | | (459,355) | |
Redevelopment | (39,092) | | | (41,592) | |
Development acquisitions of and additions to real estate under development | (45,381) | | | (90,273) | |
Capital expenditures on rental properties | (81,063) | | | (64,269) | |
| | | |
Investments in notes receivable | (102,012) | | | (20,431) | |
Collections of notes and other receivables | 88,744 | | | 98,711 | |
Proceeds from insurance for property losses | 591 | | | 612 | |
Proceeds from dispositions of real estate | 297,454 | | | 280,246 | |
Contributions to co-investments | (223,175) | | | (61,056) | |
| | | |
Changes in refundable deposits | (8,356) | | | 96 | |
Purchases of marketable securities | (23,740) | | | (38,909) | |
Sales and maturities of marketable securities | 14,995 | | | 56,890 | |
Non-operating distributions from co-investments | 131,297 | | | 37,342 | |
Net cash used in investing activities | (95,207) | | | (301,988) | |
Cash flows from financing activities: | | | |
Proceeds from unsecured debt and mortgage notes | 745,505 | | | 1,452,808 | |
Payments on unsecured debt and mortgage notes | (952,608) | | | (587,057) | |
Proceeds from lines of credit | 601,435 | | | 1,038,426 | |
Repayments of lines of credit | (558,773) | | | (1,093,426) | |
| | | |
Retirement of common stock | (9,172) | | | (222,990) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash flows from operating activities: | | | |
Net income | $ | 348,381 |
| | $ | 233,893 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 350,893 |
| | 329,847 |
|
Amortization of discount on marketable securities and other investments | (11,128 | ) | | (10,771 | ) |
Amortization of (premium) discount and debt financing costs, net | (5,132 | ) | | (11,432 | ) |
Gain on sale of marketable securities and other investments | (1,650 | ) | | (2,876 | ) |
Company's share of gain on the sales of co-investments | (10,058 | ) | | (13,046 | ) |
Earnings from co-investments | (30,876 | ) | | (25,886 | ) |
Operating distributions from co-investments | 47,702 |
| | 45,342 |
|
Gain on the sale of real estate and land | (26,423 | ) | | (20,258 | ) |
Equity-based compensation | 4,894 |
| | 4,436 |
|
Loss on early retirement of debt, net | — |
| | 211 |
|
Gain on remeasurement of co-investment | (88,641 | ) | | — |
|
Changes in operating assets and liabilities: | | | |
Prepaid expenses, receivables and other assets | (7,862 | ) | | 656 |
|
Accounts payable and accrued liabilities | 50,788 |
| | 49,961 |
|
Other liabilities | 399 |
| | 420 |
|
Net cash provided by operating activities | 621,287 |
| | 580,497 |
|
Cash flows from investing activities: | |
| | |
|
Additions to real estate: | |
| | |
|
Acquisitions of real estate and acquisition related capital expenditures | (200,028 | ) | | (124,054 | ) |
Redevelopment | (50,642 | ) | | (62,983 | ) |
Development acquisitions of and additions to real estate under development | (92,936 | ) | | (58,575 | ) |
Capital expenditures on rental properties | (46,455 | ) | | (40,503 | ) |
Investments in notes receivable | (76,961 | ) | | (4,375 | ) |
Proceeds from insurance for property losses | 648 |
| | 3,288 |
|
Proceeds from dispositions of real estate | 132,039 |
| | 48,008 |
|
Contributions to co-investments | (231,552 | ) | | (121,972 | ) |
Changes in restricted cash and refundable deposits | 91,209 |
| | 65,858 |
|
Purchases of marketable securities | (65,668 | ) | | (18,779 | ) |
Sales and maturities of marketable securities and other investments | 33,377 |
| | 14,708 |
|
Non-operating distributions from co-investments | 112,572 |
| | 34,564 |
|
Net cash used in investing activities | (394,397 | ) | | (264,815 | ) |
Cash flows from financing activities: | |
| | |
|
Proceeds from unsecured debt and mortgage notes | 597,981 |
| | 499,724 |
|
Payments on unsecured debt and mortgage notes | (460,040 | ) | | (244,583 | ) |
Proceeds from lines of credit | 564,833 |
| | 321,373 |
|
Repayments of lines of credit | (687,224 | ) | | (336,373 | ) |
Repayment of cumulative redeemable preferred stock | — |
| | (73,750 | ) |
Additions to deferred charges | (4,108 | ) | | (5,300 | ) |
Net proceeds from issuance of common stock | 80,377 |
| | (382 | ) |
Net proceeds from stock options exercised | 24,079 |
| | 17,878 |
|
Payments related to tax withholding for share-based compensation | (118 | ) | | (222 | ) |
Distributions to noncontrolling interest | (20,405 | ) | | (19,844 | ) |
Redemption of noncontrolling interest | (4,849 | ) | | (2,435 | ) |
Redemption of redeemable noncontrolling interest | (720 | ) | | — |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Additions to deferred charges | (8,237) | | | (13,761) | |
Payments related to debt prepayment penalties | (18,342) | | | (19,605) | |
Net proceeds from issuance of common stock | (202) | | | (228) | |
| | | |
Net proceeds from stock options exercised | 17,847 | | | 14,865 | |
Payments related to tax withholding for share-based compensation | (5,445) | | | (5,664) | |
Contributions from noncontrolling interest | 1,900 | | | — | |
Distributions to noncontrolling interest | (21,979) | | | (23,302) | |
Redemption of noncontrolling interest | (8,407) | | | (2,971) | |
Redemption of redeemable noncontrolling interest | (4,463) | | | — | |
Common stock dividends paid | (406,818) | | | (400,563) | |
Net cash (used in) provided by financing activities | (627,759) | | | 136,532 | |
| | | |
Net (decrease) increase in unrestricted and restricted cash and cash equivalents | (23,089) | | | 487,981 | |
Unrestricted and restricted cash and cash equivalents at beginning of period | 84,041 | | | 81,094 | |
Unrestricted and restricted cash and cash equivalents at end of period | $ | 60,952 | | | $ | 569,075 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively) | $ | 147,371 | | | $ | 160,927 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 5,225 | | | $ | 5,192 | |
Supplemental disclosure of noncash investing and financing activities: | | | |
| | | |
| | | |
Transfers between real estate under development and rental properties, net | $ | 222,055 | | | $ | 252,946 | |
Transfer from real estate under development to co-investments | $ | 1,853 | | | $ | 1,387 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Reclassifications to (from) redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest | $ | 4,922 | | | $ | (6,691) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Common and preferred stock dividends paid | (335,110 | ) | | (306,284 | ) |
Net cash used in financing activities | (245,304 | ) | | (150,198 | ) |
Net (decrease) increase in cash and cash equivalents | (18,414 | ) | | 165,484 |
|
Cash and cash equivalents at beginning of period | 64,921 |
| | 29,683 |
|
Cash and cash equivalents at end of period | $ | 46,507 |
| | $ | 195,167 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of $10.0 million and $9.4 million capitalized in 2017 and 2016, respectively | $ | 148,742 |
| | $ | 140,183 |
|
Supplemental disclosure of noncash investing and financing activities: | |
| | |
|
Issuance of DownREIT units in connection with acquisition of real estate | $ | 22,506 |
| | $ | — |
|
Transfers between real estate under development to rental properties, net | $ | 2,195 |
| | $ | 106,255 |
|
Transfer from real estate under development to co-investments | $ | 4,122 |
| | $ | 8,332 |
|
Reclassifications to (from) redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest | $ | 903 |
| | $ | (1,343 | ) |
Debt assumed in connection with acquisition | $ | 51,882 |
| | $ | 48,832 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and unit amounts)
| | | | | | | | | | | |
ASSETS | September 30, 2021 | | December 31, 2020 |
Real estate: | | | |
Rental properties: | | | |
Land and land improvements | $ | 2,997,904 | | | $ | 2,929,009 | |
Buildings and improvements | 12,414,770 | | | 12,132,736 | |
| 15,412,674 | | | 15,061,745 | |
Less: accumulated depreciation | (4,509,243) | | | (4,133,959) | |
| 10,903,431 | | | 10,927,786 | |
Real estate under development | 212,426 | | | 386,047 | |
Co-investments | 1,081,861 | | | 1,018,010 | |
Real estate held for sale, net | — | | | 57,938 | |
| 12,197,718 | | | 12,389,781 | |
Cash and cash equivalents-unrestricted | 49,910 | | | 73,629 | |
Cash and cash equivalents-restricted | 11,042 | | | 10,412 | |
Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020 | 183,140 | | | 147,768 | |
Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively) | 213,985 | | | 195,104 | |
Operating lease right-of-use assets | 69,756 | | | 72,143 | |
Prepaid expenses and other assets | 63,090 | | | 47,340 | |
Total assets | $ | 12,788,641 | | | $ | 12,936,177 | |
LIABILITIES AND CAPITAL | | | |
Unsecured debt, net | $ | 5,405,520 | | | $ | 5,607,985 | |
Mortgage notes payable, net | 640,118 | | | 643,550 | |
Lines of credit | 42,662 | | | — | |
Accounts payable and accrued liabilities | 220,428 | | | 152,855 | |
Construction payable | 32,777 | | | 31,417 | |
Distributions payable | 143,036 | | | 141,917 | |
Distributions in excess of investments in co-investments | 29,037 | | | — | |
Operating lease liabilities | 71,520 | | | 74,037 | |
Liabilities associated with real estate held for sale | — | | | 29,845 | |
Other liabilities | 38,946 | | | 39,140 | |
Total liabilities | 6,624,044 | | | 6,720,746 | |
Commitments and contingencies | 0 | | 0 |
Redeemable noncontrolling interest | 32,698 | | | 32,239 | |
| | | |
Capital: | | | |
General Partner: | | | |
Common equity (65,081,032 and 64,999,015 units issued and outstanding, respectively) | 5,958,200 | | | 6,015,139 | |
| | | |
| 5,958,200 | | | 6,015,139 | |
Limited Partners: | | | |
Common equity (2,282,464 and 2,294,760 units issued and outstanding, respectively) | 56,385 | | | 58,184 | |
Accumulated other comprehensive loss | (5,340) | | | (11,303) | |
Total partners' capital | 6,009,245 | | | 6,062,020 | |
Noncontrolling interest | 122,654 | | | 121,172 | |
Total capital | 6,131,899 | | | 6,183,192 | |
Total liabilities and capital | $ | 12,788,641 | | | $ | 12,936,177 | |
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
ASSETS | | | |
Real estate: | | | |
Rental properties: | | | |
Land and land improvements | $ | 2,719,064 |
| | $ | 2,559,743 |
|
Buildings and improvements | 10,585,742 |
| | 10,116,563 |
|
| 13,304,806 |
| | 12,676,306 |
|
Less: accumulated depreciation | (2,651,542 | ) | | (2,311,546 | ) |
| 10,653,264 |
| | 10,364,760 |
|
Real estate under development | 313,825 |
| | 190,505 |
|
Co-investments | 1,124,577 |
| | 1,161,275 |
|
Real estate held for sale, net | — |
| | 101,957 |
|
| 12,091,666 |
| | 11,818,497 |
|
Cash and cash equivalents-unrestricted | 46,507 |
| | 64,921 |
|
Cash and cash equivalents-restricted | 16,766 |
| | 105,381 |
|
Marketable securities | 184,574 |
| | 139,189 |
|
Notes and other receivables (includes related party receivables of $65.6 million and $11.3 million as of September 30, 2017 and December 31, 2016, respectively) | 121,557 |
| | 40,970 |
|
Prepaid expenses and other assets | 51,453 |
| | 48,450 |
|
Total assets | $ | 12,512,523 |
|
| $ | 12,217,408 |
|
| | | |
LIABILITIES AND CAPITAL | |
| | |
|
Unsecured debt, net | $ | 3,501,146 |
| | $ | 3,246,779 |
|
Mortgage notes payable, net | 2,111,467 |
| | 2,191,481 |
|
Lines of credit | 2,609 |
| | 125,000 |
|
Accounts payable and accrued liabilities | 222,122 |
| | 138,226 |
|
Construction payable | 59,767 |
| | 35,909 |
|
Distributions payable | 121,496 |
| | 110,170 |
|
Distributions in excess of investments in co-investments | 36,245 |
| | — |
|
Other liabilities | 33,733 |
| | 32,922 |
|
Total liabilities | 6,088,585 |
|
| 5,880,487 |
|
Commitments and contingencies |
|
| |
|
|
Redeemable noncontrolling interest | 40,044 |
| | 44,684 |
|
Capital: | |
| | |
|
General Partner: | | | |
Common equity (66,002,487 and 65,527,993 units issued and outstanding, respectively) | 6,290,140 |
| | 6,224,276 |
|
| 6,290,140 |
|
| 6,224,276 |
|
Limited Partners: | | | |
Common equity (2,251,112 and 2,237,290 units issued and outstanding, respectively) | 49,498 |
| | 49,436 |
|
Accumulated other comprehensive loss | (21,627 | ) | | (29,348 | ) |
Total partners' capital | 6,318,011 |
|
| 6,244,364 |
|
Noncontrolling interest | 65,883 |
| | 47,873 |
|
Total capital | 6,383,894 |
|
| 6,292,237 |
|
Total liabilities and capital | $ | 12,512,523 |
|
| $ | 12,217,408 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except unit and per unit amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | |
Rental and other property | $ | 360,620 | | | $ | 368,464 | | | $ | 1,062,253 | | | $ | 1,126,363 | |
Management and other fees from affiliates | 2,237 | | | 2,347 | | | 6,707 | | | 7,312 | |
| 362,857 | | | 370,811 | | | 1,068,960 | | | 1,133,675 | |
Expenses: | | | | | | | |
Property operating, excluding real estate taxes | 69,529 | | | 68,037 | | | 197,895 | | | 197,310 | |
Real estate taxes | 45,802 | | | 44,358 | | | 135,408 | | | 132,364 | |
Corporate-level property management expenses | 9,068 | | | 8,619 | | | 27,120 | | | 26,024 | |
Depreciation and amortization | 130,564 | | | 130,202 | | | 387,887 | | | 395,370 | |
General and administrative | 12,712 | | | 13,310 | | | 34,746 | | | 42,244 | |
| | | | | | | |
Expensed acquisition and investment related costs | 108 | | | 2 | | | 164 | | | 104 | |
| 267,783 | | | 264,528 | | | 783,220 | | | 793,416 | |
Gain on sale of real estate and land | 42,897 | | | 22,654 | | | 142,993 | | | 39,251 | |
Earnings from operations | 137,971 | | | 128,937 | | | 428,733 | | | 379,510 | |
Interest expense | (50,019) | | | (55,430) | | | (152,639) | | | (165,024) | |
Total return swap income | 2,660 | | | 2,977 | | | 8,137 | | | 7,749 | |
Interest and other income | 11,998 | | | 6,512 | | | 48,756 | | | 12,696 | |
Equity income from co-investments | 25,433 | | | 14,960 | | | 60,692 | | | 53,514 | |
Deferred tax expense on unrealized gain on unconsolidated co-investment | (3,041) | | | — | | | (5,391) | | | (1,636) | |
Loss on early retirement of debt, net | — | | | (19,114) | | | (18,982) | | | (23,820) | |
Gain on remeasurement of co-investment | — | | | — | | | 2,260 | | | 234,694 | |
Net income | 125,002 | | | 78,842 | | | 371,566 | | | 497,683 | |
Net income attributable to noncontrolling interest | (2,444) | | | (2,588) | | | (7,483) | | | (8,015) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net income available to common unitholders | $ | 122,558 | | | $ | 76,254 | | | $ | 364,083 | | | $ | 489,668 | |
Comprehensive income | $ | 125,829 | | | $ | 80,818 | | | $ | 377,529 | | | $ | 494,668 | |
Comprehensive income attributable to noncontrolling interest | (2,444) | | | (2,588) | | | (7,483) | | | (8,015) | |
Comprehensive income attributable to controlling interest | $ | 123,385 | | | $ | 78,230 | | | $ | 370,046 | | | $ | 486,653 | |
Per unit data: | | | | | | | |
Basic: | | | | | | | |
Net income available to common unitholders | $ | 1.82 | | | $ | 1.13 | | | $ | 5.41 | | | $ | 7.22 | |
Weighted average number of common units outstanding during the period | 67,336,164 | | | 67,528,346 | | | 67,307,259 | | | 67,858,961 | |
Diluted: | | | | | | | |
Net income available to common unitholders | $ | 1.82 | | | $ | 1.13 | | | $ | 5.40 | | | $ | 7.21 | |
Weighted average number of common units outstanding during the period | 67,435,459 | | | 67,536,937 | | | 67,368,956 | | | 67,973,234 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Rental and other property | $ | 341,974 |
| | $ | 327,078 |
| | $ | 1,011,908 |
| | $ | 958,818 |
|
Management and other fees from affiliates | 2,395 |
| | 2,093 |
| | 6,927 |
| | 6,145 |
|
| 344,369 |
| | 329,171 |
| | 1,018,835 |
| | 964,963 |
|
Expenses: | |
| | |
| | | | |
Property operating, excluding real estate taxes | 66,606 |
| | 63,781 |
| | 193,632 |
| | 185,390 |
|
Real estate taxes | 37,531 |
| | 35,580 |
| | 108,283 |
| | 104,540 |
|
Depreciation and amortization | 117,451 |
| | 110,467 |
| | 350,893 |
| | 329,847 |
|
General and administrative | 9,788 |
| | 9,647 |
| | 30,726 |
| | 28,527 |
|
Acquisition and investment related costs | 324 |
| | 284 |
| | 1,154 |
| | 1,379 |
|
| 231,700 |
| | 219,759 |
| | 684,688 |
| | 649,683 |
|
Earnings from operations | 112,669 |
| | 109,412 |
| | 334,147 |
| | 315,280 |
|
Interest expense | (55,938 | ) | | (56,693 | ) | | (167,333 | ) | | (164,727 | ) |
Total return swap income | 2,538 |
| | 3,143 |
| | 7,653 |
| | 9,080 |
|
Interest and other income | 5,790 |
| | 4,943 |
| | 17,916 |
| | 19,560 |
|
Equity income from co-investments | 19,727 |
| | 9,568 |
| | 40,934 |
| | 38,932 |
|
Loss on early retirement of debt, net | — |
| | (211 | ) | | — |
| | (211 | ) |
Gain on sale of real estate and land | 249 |
| | — |
| | 26,423 |
| | 20,258 |
|
Deferred tax expense on gain on sale of real estate and land | — |
| | — |
| | — |
| | (4,279 | ) |
Gain on remeasurement of co-investment | — |
| | — |
| | 88,641 |
| | — |
|
Net income | 85,035 |
| | 70,162 |
| | 348,381 |
| | 233,893 |
|
Net income attributable to noncontrolling interest | (2,591 | ) | | (2,378 | ) | | (7,646 | ) | | (7,026 | ) |
Net income attributable to controlling interest | 82,444 |
| | 67,784 |
| | 340,735 |
| | 226,867 |
|
Preferred interest distributions | — |
| | — |
| | — |
| | (1,314 | ) |
Excess of redemption value of preferred units over the carrying value | — |
| | — |
| | — |
| | (2,541 | ) |
Net income available to common unitholders | $ | 82,444 |
| | $ | 67,784 |
| | $ | 340,735 |
| | $ | 223,012 |
|
Comprehensive income | $ | 88,870 |
| | $ | 73,173 |
| | $ | 356,102 |
| | $ | 235,874 |
|
Comprehensive income attributable to noncontrolling interest | (2,591 | ) | | (2,378 | ) | | (7,646 | ) | | (7,026 | ) |
Comprehensive income attributable to controlling interest | $ | 86,279 |
| | $ | 70,795 |
| | $ | 348,456 |
| | $ | 228,848 |
|
Per unit data: | |
| | |
| | | | |
Basic: | |
| | |
| | | | |
Net income available to common unitholders | $ | 1.21 |
| | $ | 1.00 |
| | $ | 5.01 |
| | $ | 3.30 |
|
Weighted average number of common units outstanding during the period | 68,246,008 |
| | 67,728,621 |
| | 68,011,123 |
| | 67,679,240 |
|
Diluted: | | | | | | | |
Net income available to common unitholders | $ | 1.21 |
| | $ | 1.00 |
| | $ | 5.00 |
| | $ | 3.29 |
|
Weighted average number of common units outstanding during the period | 68,329,395 |
| | 67,838,503 |
| | 68,088,638 |
| | 67,802,897 |
|
Distribution per common unit | $ | 1.75 |
| | $ | 1.60 |
| | $ | 5.25 |
| | $ | 4.80 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated StatementStatements of Capital for the three and nine months ended September 30, 20172021 and 2020
(Unaudited)
(In thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner | | | | Limited Partners | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
| Common Equity | | | | Common Equity | | | |
Three months ended September 30, 2021 | Units | | Amount | | | Units | | Amount | | | |
Balances at June 30, 2021 | 65,004 | | | $ | 5,963,223 | | | | | 2,294 | | | $ | 56,950 | | | $ | (6,167) | | | $ | 122,697 | | | $ | 6,136,703 | |
Net income | — | | | 118,390 | | | | | — | | | 4,168 | | | — | | | 2,444 | | | 125,002 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Change in fair value of derivatives and amortization of swap settlements | — | | | — | | | | | — | | | — | | | 728 | | | — | | | 728 | |
Change in fair value of marketable debt securities, net | — | | | — | | | | | — | | | — | | | 99 | | | — | | | 99 | |
Issuance of common units under: | | | | | | | | | | | | | | | |
General partner's stock based compensation, net | 68 | | | 15,572 | | | | | — | | | — | | | — | | | — | | | 15,572 | |
Sale of common stock by general partner, net | — | | | (118) | | | | | — | | | — | | | — | | | — | | | (118) | |
Equity based compensation costs | — | | | 1,573 | | | | | — | | | 55 | | | — | | | — | | | 1,628 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in the redemption value of redeemable noncontrolling interest | — | | | 1,253 | | | | | — | | | 141 | | | — | | | 279 | | | 1,673 | |
| | | | | | | | | | | | | | | |
Distributions to noncontrolling interest | — | | | — | | | | | — | | | — | | | — | | | (2,488) | | | (2,488) | |
Redemptions | 9 | | | (5,651) | | | | | (12) | | | (160) | | | — | | | (278) | | | (6,089) | |
Distributions declared ($2.09 per unit) | — | | | (136,042) | | | | | — | | | (4,769) | | | — | | | — | | | (140,811) | |
Balances at September 30, 2021 | 65,081 | | | $ | 5,958,200 | | | | | 2,282 | | | $ | 56,385 | | | $ | (5,340) | | | $ | 122,654 | | | $ | 6,131,899 | |
| | | | | | | | | | | | | | | | | General Partner | | | Limited Partners | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
| General Partner | | Limited Partners | | Accumulated other comprehensive loss | | | | | | Common Equity | | | Common Equity | |
Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | Units | | Amount | | | Units | | Amount | | Total |
Balances at December 31, 2020 | | Balances at December 31, 2020 | 64,999 | | | $ | 6,015,139 | | | | 2,295 | | | $ | 58,184 | | | $ | (11,303) | | | $ | 121,172 | | $ | 6,183,192 | |
Net income | | Net income | — | | | 351,680 | | | | — | | | 12,403 | | | — | | | 7,483 | | 371,566 | |
| Common Equity | | Common Equity | | Accumulated other comprehensive loss | | Noncontrolling Interest | | | |
| Units | | Amount | | Units | | Amount | | Total | |
Balances at December 31, 2016 | 65,528 |
| | $ | 6,224,276 |
| | 2,237 |
| | $ | 49,436 |
| | $ | 47,873 |
| | $ | 6,292,237 |
| |
Net income | — |
| | 329,446 |
| | — |
| | 11,289 |
| | — |
| | 7,646 |
| | 348,381 |
| |
Reversal of unrealized gains upon the sale of marketable securities | — |
| | — |
| | — |
| | — |
| | (1,650 | ) | | — |
| | (1,650 | ) | |
Change in fair value of derivatives and amortization of swap settlements | — |
| | — |
| | — |
| | — |
| | 7,405 |
| | — |
| | 7,405 |
| Change in fair value of derivatives and amortization of swap settlements | — | | | — | | | | — | | | — | | | 5,607 | | | — | | | 5,607 | |
Change in fair value of marketable securities, net | — |
| | — |
| | — |
| | — |
| | 1,966 |
| | — |
| | 1,966 |
| |
Change in fair value of marketable debt securities, net | | Change in fair value of marketable debt securities, net | — | | | — | | | | — | | | — | | | 356 | | | — | | | 356 | |
Issuance of common units under: | |
| | |
| | |
| | |
| | |
| | |
| | |
| Issuance of common units under: | | | | | | | | | | | | | |
General partner's stock based compensation, net | 160 |
| | 24,079 |
| | — |
| | — |
| | — |
| | — |
| | 24,079 |
| General partner's stock based compensation, net | 112 | | | 12,402 | | | | — | | | — | | | — | | | — | | | 12,402 | |
Sale of common stock by general partner, net | 312 |
| | 80,377 |
| | — |
| | — |
| | — |
| | — |
| | 80,377 |
| Sale of common stock by general partner, net | — | | | (202) | | | | — | | | — | | | — | | | — | | | (202) | |
Equity based compensation costs | — |
| | 3,814 |
| | 16 |
| | 1,080 |
| | — |
| | — |
| | 4,894 |
| Equity based compensation costs | — | | | 9,172 | | | | — | | | 323 | | | — | | | — | | | 9,495 | |
Changes in redemption value of redeemable noncontrolling interest | — |
| | (916 | ) | | — |
| | 78 |
| | — |
| | (65 | ) | | (903 | ) | |
| Retirement of common units, net | | Retirement of common units, net | (40) | | | (9,172) | | | | — | | | — | | | — | | | — | | | (9,172) | |
| Changes in the redemption value of redeemable noncontrolling interest | | Changes in the redemption value of redeemable noncontrolling interest | — | | | (5,499) | | | | — | | | 129 | | | — | | | 448 | | | (4,922) | |
Contributions from noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | 22,506 |
| | 22,506 |
| Contributions from noncontrolling interest | — | | | — | | | | — | | | — | | | — | | | 1,900 | | | 1,900 | |
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | — |
| | (9,092 | ) | | (9,092 | ) | Distributions to noncontrolling interest | — | | | — | | | | — | | | — | | | — | | | (7,756) | | | (7,756) | |
Redemptions | 2 |
| | (25,167 | ) | | (2 | ) | | (405 | ) | | — |
| | (2,985 | ) | | (28,557 | ) | Redemptions | 10 | | | (7,518) | | | | (13) | | | (296) | | | — | | | (593) | | | (8,407) | |
Distributions declared | — |
| | (345,769 | ) | | — |
| | (11,980 | ) | | — |
| | — |
| | (357,749 | ) | |
Balances at September 30, 2017 | 66,002 |
| | $ | 6,290,140 |
| | 2,251 |
| | $ | 49,498 |
| | $ | (21,627 | ) | | $ | 65,883 |
| | $ | 6,383,894 |
| |
Distributions declared ($6.27 per unit) | | Distributions declared ($6.27 per unit) | — | | | (407,802) | | | | — | | | (14,358) | | | — | | | — | | | (422,160) | |
Balances at September 30, 2021 | | Balances at September 30, 2021 | 65,081 | | | $ | 5,958,200 | | | | 2,282 | | | $ | 56,385 | | | $ | (5,340) | | | $ | 122,654 | | | $ | 6,131,899 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner | | | | Limited Partners | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
| Common Equity | | | | Common Equity | | | |
Three months ended September 30, 2020 | Units | | Amount | | | Units | | Amount | | | |
Balances at June 30, 2020 | 65,331 | | | $ | 6,184,784 | | | | | 2,296 | | | $ | 61,437 | | | $ | (15,423) | | | $ | 122,083 | | | $ | 6,352,881 | |
Net income | — | | | 73,661 | | | | | — | | | 2,593 | | | — | | | 2,588 | | | 78,842 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Change in fair value of derivatives and amortization of swap settlements | — | | | — | | | | | — | | | — | | | 1,884 | | | — | | | 1,884 | |
Change in fair value of marketable debt securities, net | — | | | — | | | | | — | | | — | | | 92 | | | — | | | 92 | |
Issuance of common units under: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Sale of common stock by general partner, net | — | | | (95) | | | | | — | | | — | | | — | | | — | | | (95) | |
Equity based compensation costs | — | | | 2,279 | | | | | — | | | 82 | | | — | | | — | | | 2,361 | |
| | | | | | | | | | | | | | | |
Retirement of common units, net | (121) | | | (26,586) | | | | | — | | | — | | | — | | | — | | | (26,586) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in redemption value of redeemable noncontrolling interest | — | | | 2,346 | | | | | — | | | 98 | | | — | | | 78 | | | 2,522 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Distributions to noncontrolling interest | — | | | — | | | | | — | | | — | | | — | | | (2,908) | | | (2,908) | |
Redemptions | — | | | (1,118) | | | | | — | | | — | | | — | | | (150) | | | (1,268) | |
Distributions declared ($2.0775 per unit) | — | | | (135,474) | | | | | — | | | (4,769) | | | — | | | — | | | (140,243) | |
Balances at September 30, 2020 | 65,210 | | | $ | 6,099,797 | | | | | 2,296 | | | $ | 59,441 | | | $ | (13,447) | | | $ | 121,691 | | | $ | 6,267,482 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| General Partner | | | | Limited Partners | | Accumulated other comprehensive loss, net | | Noncontrolling interest | | Total |
| Common Equity | | | | Common Equity | | | |
Nine months ended September 30, 2020 | Units | | Amount | | | Units | | Amount | | | |
Balances at December 31, 2019 | 66,092 | | | $ | 6,234,315 | | | | | 2,302 | | | $ | 57,359 | | | $ | (10,432) | | | $ | 122,262 | | | $ | 6,403,504 | |
Net income | — | | | 473,125 | | | | | — | | | 16,543 | | | — | | | 8,015 | | | 497,683 | |
| | | | | | | | | | | | | | | |
Cash flow hedge losses reclassified to earnings | — | | | — | | | | | — | | | — | | | 3,282 | | | — | | | 3,282 | |
Change in fair value of derivatives and amortization of swap settlements | — | | | — | | | | | — | | | — | | | (6,119) | | | — | | | (6,119) | |
Change in fair value of marketable debt securities, net | — | | | — | | | | | — | | | — | | | (178) | | | — | | | (178) | |
Issuance of common units under: | | | | | | | | | | | | | | | |
General partner's stock based compensation, net | 95 | | | 9,201 | | | | | — | | | — | | | — | | | — | | | 9,201 | |
Sale of common stock by general partner, net | — | | | (228) | | | | | — | | | — | | | — | | | — | | | (228) | |
Equity based compensation costs | — | | | 8,956 | | | | | 2 | | | 338 | | | — | | | — | | | 9,294 | |
| | | | | | | | | | | | | | | |
Retirement of common units, net | (985) | | | (222,990) | | | | | — | | | — | | | — | | | — | | | (222,990) | |
Cumulative effect upon adoption of ASU No. 2016-13 | — | | | (190) | | | | | — | | | — | | | — | | | — | | | (190) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in redemption value of redeemable noncontrolling interest | — | | | 6,888 | | | | | — | | | (318) | | | — | | | 121 | | | 6,691 | |
| | | | | | | | | | | | | | | |
Changes in noncontrolling interest from acquisition | — | | | — | | | | | — | | | — | | | — | | | 1,349 | | | 1,349 | |
Distributions to noncontrolling interest | — | | | — | | | | | — | | | — | | | — | | | (9,381) | | | (9,381) | |
Redemptions | 8 | | | (2,123) | | | | | (8) | | | (173) | | | — | | | (675) | | | (2,971) | |
Distributions declared ($6.2325 per unit) | — | | | (407,157) | | | | | — | | | (14,308) | | | — | | | — | | | (421,465) | |
Balances at September 30, 2020 | 65,210 | | | $ | 6,099,797 | | | | | 2,296 | | | $ | 59,441 | | | $ | (13,447) | | | $ | 121,691 | | | $ | 6,267,482 | |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)thousands, except parenthetical amounts)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net income | $ | 371,566 | | | $ | 497,683 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Straight-lined rents | 8,734 | | | (15,485) | |
Depreciation and amortization | 387,887 | | | 395,370 | |
Amortization of discount on marketable securities | — | | | (6,598) | |
Amortization of discount and debt financing costs, net | 7,987 | | | 5,177 | |
Gain on sale of marketable securities | (2,499) | | | (124) | |
Income from early redemption of notes receivable | (4,747) | | | — | |
Provision for credit losses | (110) | | | 100 | |
Unrealized gains on equity securities recognized through income | (23,772) | | | (2,215) | |
| | | |
| | | |
Earnings from co-investments | (60,692) | | | (53,514) | |
Operating distributions from co-investments | 78,360 | | | 41,202 | |
Accrued interest from notes and other receivables | (12,253) | | | (1,574) | |
Gain on the sale of real estate and land | (142,993) | | | (39,251) | |
| | | |
| | | |
| | | |
Equity-based compensation | 5,399 | | | 4,923 | |
Loss on early retirement of debt, net | 18,982 | | | 23,820 | |
Gain on remeasurement of co-investment | (2,260) | | | (234,694) | |
Changes in operating assets and liabilities: | | | |
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 2,470 | | | (5,088) | |
Accounts payable, accrued liabilities, and operating lease liabilities | 62,699 | | | 43,095 | |
Other liabilities | 5,119 | | | 610 | |
Net cash provided by operating activities | 699,877 | | | 653,437 | |
Cash flows from investing activities: | | | |
Additions to real estate: | | | |
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (105,469) | | | (459,355) | |
Redevelopment | (39,092) | | | (41,592) | |
Development acquisitions of and additions to real estate under development | (45,381) | | | (90,273) | |
Capital expenditures on rental properties | (81,063) | | | (64,269) | |
| | | |
Investments in notes receivable | (102,012) | | | (20,431) | |
Collections of notes and other receivables | 88,744 | | | 98,711 | |
Proceeds from insurance for property losses | 591 | | | 612 | |
| | | |
Proceeds from dispositions of real estate | 297,454 | | | 280,246 | |
Contributions to co-investments | (223,175) | | | (61,056) | |
Changes in refundable deposits | (8,356) | | | 96 | |
Purchases of marketable securities | (23,740) | | | (38,909) | |
Sales and maturities of marketable securities | 14,995 | | | 56,890 | |
Non-operating distributions from co-investments | 131,297 | | | 37,342 | |
Net cash used in investing activities | (95,207) | | | (301,988) | |
Cash flows from financing activities: | | | |
Proceeds from unsecured debt and mortgage notes | 745,505 | | | 1,452,808 | |
Payments on unsecured debt and mortgage notes | (952,608) | | | (587,057) | |
Proceeds from lines of credit | 601,435 | | | 1,038,426 | |
Repayments of lines of credit | (558,773) | | | (1,093,426) | |
| | | |
Retirement of common units | (9,172) | | | (222,990) | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash flows from operating activities: | | | |
Net income | $ | 348,381 |
| | $ | 233,893 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 350,893 |
| | 329,847 |
|
Amortization of discount on marketable securities and other investments | (11,128 | ) | | (10,771 | ) |
Amortization of (premium) discount and debt financing costs, net | (5,132 | ) | | (11,432 | ) |
Gain on sale of marketable securities and other investments | (1,650 | ) | | (2,876 | ) |
Company's share of gain on the sales of co-investment | (10,058 | ) | | (13,046 | ) |
Earnings from co-investments | (30,876 | ) | | (25,886 | ) |
Operating distributions from co-investments | 47,702 |
| | 45,342 |
|
Gain on the sale of real estate and land | (26,423 | ) | | (20,258 | ) |
Equity-based compensation | 4,894 |
| | 4,436 |
|
Loss on early retirement of debt | — |
| | 211 |
|
Gain on remeasurement of co-investment | (88,641 | ) | | — |
|
Changes in operating assets and liabilities: | |
| | |
|
Prepaid expense, receivables and other assets | (7,862 | ) | | 656 |
|
Accounts payable and accrued liabilities | 50,788 |
| | 49,961 |
|
Other liabilities | 399 |
| | 420 |
|
Net cash provided by operating activities | 621,287 |
| | 580,497 |
|
Cash flows from investing activities: | |
| | |
|
Additions to real estate: | |
| | |
|
Acquisitions of real estate and acquisition related capital expenditures | (200,028 | ) | | (124,054 | ) |
Redevelopment | (50,642 | ) | | (62,983 | ) |
Development acquisitions of and additions to real estate under development | (92,936 | ) | | (58,575 | ) |
Capital expenditures on rental properties | (46,455 | ) | | (40,503 | ) |
Investments in notes receivable | (76,961 | ) | | (4,375 | ) |
Proceeds from insurance for property losses | 648 |
| | 3,288 |
|
Proceeds from dispositions of real estate | 132,039 |
| | 48,008 |
|
Contributions to co-investments | (231,552 | ) | | (121,972 | ) |
Changes in restricted cash and refundable deposits | 91,209 |
| | 65,858 |
|
Purchases of marketable securities | (65,668 | ) | | (18,779 | ) |
Sales and maturities of marketable securities and other investments | 33,377 |
| | 14,708 |
|
Non-operating distributions from co-investments | 112,572 |
| | 34,564 |
|
Net cash used in investing activities | (394,397 | ) | | (264,815 | ) |
Cash flows from financing activities: | |
| | |
|
Proceeds from unsecured debt and mortgage notes | 597,981 |
| | 499,724 |
|
Payments on unsecured debt and mortgage notes | (460,040 | ) | | (244,583 | ) |
Proceeds from lines of credit | 564,833 |
| | 321,373 |
|
Repayments of lines of credit | (687,224 | ) | | (336,373 | ) |
Repayment of cumulative redeemable preferred stock | — |
| | (73,750 | ) |
Additions to deferred charges | (4,108 | ) | | (5,300 | ) |
Net proceeds from issuance of common units | 80,377 |
| | (382 | ) |
Net proceeds from stock options exercised | 24,079 |
| | 17,878 |
|
Payments related to tax withholding for share-based compensation | (118 | ) | | (222 | ) |
Distributions to noncontrolling interest | (5,568 | ) | | (5,171 | ) |
Redemption of noncontrolling interest | (4,849 | ) | | (2,435 | ) |
Redemption of redeemable noncontrolling interest | (720 | ) | | — |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Additions to deferred charges | (8,237) | | | (13,761) | |
Payments related to debt prepayment penalties | (18,342) | | | (19,605) | |
Net proceeds from issuance of common units | (202) | | | (228) | |
| | | |
Net proceeds from stock options exercised | 17,847 | | | 14,865 | |
Payments related to tax withholding for share-based compensation | (5,445) | | | (5,664) | |
Contributions from noncontrolling interest | 1,900 | | | — | |
Distributions to noncontrolling interest | (6,323) | | | (6,287) | |
Redemption of noncontrolling interests | (8,407) | | | (2,971) | |
Redemption of redeemable noncontrolling interests | (4,463) | | | — | |
Common units distributions paid | (422,474) | | | (417,578) | |
Net cash (used in) provided by financing activities | (627,759) | | | 136,532 | |
| | | |
Net (decrease) increase in unrestricted and restricted cash and cash equivalents | (23,089) | | | 487,981 | |
Unrestricted and restricted cash and cash equivalents at beginning of period | 84,041 | | | 81,094 | |
Unrestricted and restricted cash and cash equivalents at end of period | $ | 60,952 | | | $ | 569,075 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively) | $ | 147,371 | | | $ | 160,927 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 5,225 | | | $ | 5,192 | |
Supplemental disclosure of noncash investing and financing activities: | | | |
| | | |
| | | |
Transfers between real estate under development and rental properties, net | $ | 222,055 | | | $ | 252,946 | |
Transfer from real estate under development to co-investments | $ | 1,853 | | | $ | 1,387 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Reclassifications to (from) redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest | $ | 4,922 | | | $ | (6,691) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2017 | | 2016 |
Common and preferred units and preferred interest distributions paid | (349,947 | ) | | (320,957 | ) |
Net cash used in financing activities | (245,304 | ) | | (150,198 | ) |
Net (decrease) increase in cash and cash equivalents | (18,414 | ) | | 165,484 |
|
Cash and cash equivalents at beginning of period | 64,921 |
| | 29,683 |
|
Cash and cash equivalents at end of period | $ | 46,507 |
| | $ | 195,167 |
|
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest, net of $10.0 million and $9.4 million capitalized in 2017 and 2016, respectively | $ | 148,742 |
| | $ | 140,183 |
|
Supplemental disclosure of noncash investing and financing activities: | |
| | |
|
Issuance of DownREIT units in connection with acquisition of real estate | $ | 22,506 |
| | $ | — |
|
Transfers between real estate under development to rental properties, net | $ | 2,195 |
| | $ | 106,255 |
|
Transfer from real estate under development to co-investments | $ | 4,122 |
| | $ | 8,332 |
|
Reclassifications to (from) redeemable noncontrolling interest to or from general partner capital and noncontrolling interest | $ | 903 |
| | $ | (1,343 | ) |
Debt assumed in connection with acquisition | $ | 51,882 |
| | $ | 48,832 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
(1) Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements present the accounts of Essex Property Trust, Inc. (“Essex”("Essex" or the “Company”"Company"), which include the accounts of the Company and Essex Portfolio, L.P. and its subsidiaries (the “Operating"Operating Partnership,”" which holds the operating assets of the Company), prepared in accordance with U.S. generally accepted accounting principles (“("U.S. GAAP”GAAP") 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 condensed 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, 2016.2020.
All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. Certain reclassifications have been made to conform to the current year’s presentation.
The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 20172021 and 20162020 include the accounts of the Company and the Operating Partnership. Essex is the sole general partner of the Operating Partnership, with a 96.7%96.6% general partnership interest as of both September 30, 20172021 and December 31, 2016.2020. Total Operating Partnership limited partnership units ("OP Units"Units," and the holders of such OP Units, "Unitholders") outstanding were 2,251,1122,282,464 and 2,237,2902,294,760 as of September 30, 20172021 and December 31, 2016,2020, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $571.8approximately $729.8 million and $520.2$544.8 million as of September 30, 20172021 and December 31, 2016,2020, respectively.
As of September 30, 2017,2021, the Company owned or had ownership interests in 247 stabilized246 operating apartment communities, aggregating 60,30560,799 apartment homes, excluding the Company’s ownership interest in preferred interest co-investments, (collectively, the “Communities”, and individually, a “Community”), oneloan investments, 3 operating commercial buildingbuildings, and seven active developments (collectively, the “Portfolio”).a development pipeline comprised of 2 consolidated projects and 1 unconsolidated joint venture project. The Communitiesoperating apartment communities are located in Southern California (Los(primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.
Recent Accounting Pronouncements Adopted in the Current Year
In May 2014,January 2021, the Financial Accounting Standards Board ("FASB"(the "FASB") issued Accounting Standards Update ("ASU")ASU No. 2014-09 "Revenue from Contracts with Customers.2021-01 "Reference Rate Reform (Topic 848): Scope." The new standard provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts)amendments in ASU No. 2021-01 provide optional expedients to improve comparability within industries.the current guidance on contract modifications and hedge accounting from the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The new standard requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. In August 2015, the FASB deferred the effective date of the new standard by one year, and it is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The new standard maygenerally can be applied using either a full retrospective or a modified approach upon adoption.to applicable contract modifications through December 31, 2022. The Company does not expect to early adopt and expects to adopt using the modified approach. The Company is currently evaluating the impact the adoption ofadopted this new standard will haveguidance in January 2021 on its recording of revenue related to its revenue streams and related disclosures. The Company doesa prospective basis. This adoption did not expect that the adoption of this new standard will have a material effectimpact on itsthe Company's consolidated results of operations or financial position.
In January 2016,Revenues and Gains on Sale of Real Estate
Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned which generally approximates a straight-line basis, else, adjustments are made to conform to a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 9 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the FASB issued ASU No. 2016-01 "Recognition and Measurementlife of Financial Assets and Financial Liabilities", which requires changes to the classification and measurement of investments in certain equity securities and to the presentation of certain fair value changesrespective lease. See Note 3, Revenues, for financial liabilities measured at fair value. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect that this amendment will have a material effect on its consolidated results of operations or financial position.additional information regarding such revenues.
In February 2016, the FASB issued ASU No. 2016-02 "Leases", which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less will be accounted for similar to existing guidance for operating leases today. For lessors, accounting for leases under the new standard will be substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
The Company also generates other property-related revenue associated with the leasing of apartment homes, including storage income, pet rent, and other miscellaneous revenue. Similar to rental income, such revenues are recorded when due from tenants and recognized monthly as they are earned.
initial direct costs.
Apart from rental and other property-related revenue, revenues from contracts with customers are recognized as control of the promised services is passed to the customer. For customer contracts related to management and other fees from affiliates (which includes asset management and property management), the transaction price and amount of revenue to be recognized is determined each quarter based on the management fee calculated and earned for that month or quarter. The new standardcontract will be effectivecontain a description of the service and the fee percentage for management services. Payments from such services are one month or one quarter in arrears of the service performed.
The Company recognizes any gains on sales of real estate when it transfers control of a property and when it is probable that the Company beginning on January 1, 2019 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
In June 2016, the FASB issued ASU No. 2016-13 "Measurement of Credit Losses on Financial Instruments", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only when losses are probable and loss reversals are not permitted. The new standard will be effective for the Company beginning on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which requires entities to adhere to a uniform classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the impact of this amendment to be material on its consolidated results of operations or financial position.
In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows", which requires entities to include restricted cash and restricted cash equivalents in the reconciliation of beginning-of-period to the end-of-period of cash and cash equivalents in the statement of cash flows. This new standard seeks to eliminate the current diversity in practice in how changes in restricted cash and restricted cash equivalents is presented in the statement of cash flows. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company does not expect the impact of this amendment to be material on its consolidated results of operations or financial position.
In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations: Clarifying the Definition of a Business", which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, U.S. GAAP does not specify the minimum inputs and processes required for an integrated set of assets and activities to meet the definition of a business, causing a broad interpretation of the definition of a business. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company expects thatcollect substantially all of its acquisitions of communities will qualify as asset acquisitions and transaction coststhe related to these acquisitions will be capitalized upon adoption.consideration.
In February 2017, the FASB issued ASU No. 2017-05 "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets", which adds guidance for partial sales of nonfinanical assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. This new standard reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. Partial sales of nonfinancial assets are common in the real estate industry and include transactions in which the seller retains an equity interest in the entity that owns the assets or has an equity interest in the buyer. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company will adopt this new standard concurrently with the adoption of ASU 2014-09 "Revenue from Contracts with Customers" and is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities", which, among other things, requires entities to present the earnings effect of hedging instruments in the same income statement line item in which the earnings effect of the hedged item is reported. The new standard also adds new disclosure requirements. This new standard will be effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 and 2016
(Unaudited)
Marketable Securities
The Company reports its equity securities and available for sale debt securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds and Level 2 for the unsecured bonds and Level 3 for investments in mortgage backed securities,debt, as defined by the FASB standard for fair value measurements),. As of both September 30, 2021 and anyDecember 31, 2020, $2.5 million of equity securities were presented within common stock and stock funds in the tables below, which represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy.
Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. RealizedUnrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income on the condensed consolidated statements of income and comprehensive income.
As of September 30, 20172021 and December 31, 2016, marketable2020, equity securities and available for sale debt securities consisted primarily of investment-grade unsecured bonds,debt, and common stock investments in mortgage backed securities, and investment funds that invest in U.S. treasury or agency securities. As of September 30, 2017 and December 31, 2016, the Company classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost. The discount on the mortgage backed securities is being amortized to interest income based on an estimated yield and the maturity date of the securities.stock funds.
As of September 30, 20172021 and December 31, 2016,2020, marketable securities consistconsisted of the following ($ in thousands):
| | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Cost | | Gross Unrealized Gain (Loss) | | Carrying Value | | |
Equity securities: | | | | | | | |
Investment funds - debt securities | $ | 61,885 | | | $ | 24 | | | $ | 61,909 | | | |
Common stock and stock funds | 80,079 | | | 39,734 | | | 119,813 | | | |
| | | | | | | |
Debt securities: | | | | | | | |
Available for sale | | | | | | | |
| | | | | | | |
Investment-grade unsecured debt | 1,050 | | | 368 | | | 1,418 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total - Marketable securities | $ | 143,014 | | | $ | 40,126 | | | $ | 183,140 | | | |
|
| | | | | | | | | | | |
| September 30, 2017 |
| Amortized Cost | | Gross Unrealized Gain (Loss) | | Carrying Value |
Available for sale: | | | | | |
Investment-grade unsecured bonds | $ | 4,450 |
| | $ | (14 | ) | | $ | 4,436 |
|
Investment funds - debt securities | 28,067 |
| | 146 |
| | 28,213 |
|
Investment funds - U.S. treasuries | 10,910 |
| | (29 | ) | | 10,881 |
|
Common stock and stock funds | 33,816 |
| | 1,687 |
| | 35,503 |
|
Held to maturity: | |
| | |
| | |
|
Mortgage backed securities | 105,541 |
| | — |
| | 105,541 |
|
Total - Marketable securities | $ | 182,784 |
| | $ | 1,790 |
| | $ | 184,574 |
|
| | | | | |
| December 31, 2016 |
| Amortized Cost | | Gross Unrealized Gain (Loss) | | Carrying Value |
Available for sale: | |
| | |
| | |
|
Investment funds - debt securities | $ | 19,604 |
| | $ | (73 | ) | | $ | 19,531 |
|
Investment funds - U.S. treasuries | 10,022 |
| | (22 | ) | | 10,000 |
|
Common stock and stock funds | 13,696 |
| | 1,569 |
| | 15,265 |
|
Held to maturity: | |
| | |
| | |
|
Mortgage backed securities | 94,393 |
| | — |
| | 94,393 |
|
Total - Marketable securities | $ | 137,715 |
| | $ | 1,474 |
| | $ | 139,189 |
|
The Company uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.
For the three months ended September 30, 2017 and 2016, the proceeds from sales and maturities of available for sale securities totaled $4.6 million and $3.5 million, respectively, which resulted in $32,000 realized gains and $1.0 million realized gains, respectively, for such periods. For the nine months ended September 30, 2017 and 2016, the proceeds from sales and maturities of available for sale securities totaled $33.4 million and $14.7 million, respectively, which resulted in $1.7 million realized gains and $2.9 million realized gains, respectively, for such periods.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Cost | | Gross Unrealized Gain (Loss) | | Carrying Value | | | | |
Equity securities: | | | | | | | | | |
Investment funds - debt securities | $ | 49,646 | | | $ | 985 | | | $ | 50,631 | | | | | |
Common stock and stock funds | 81,074 | | | 15,001 | | | 96,075 | | | | | |
| | | | | | | | | |
Debt securities: | | | | | | | | | |
Available for sale | | | | | | | | | |
| | | | | | | | | |
Investment-grade unsecured debt | 1,050 | | | 12 | | | 1,062 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total - Marketable securities | $ | 131,770 | | | $ | 15,998 | | | $ | 147,768 | | | | | |
The Company uses the specific identification method to determine the cost basis of a debt security sold and to reclassify amounts from accumulated other comprehensive income for such securities.
For the three months ended September 30, 2021 and 2020, the proceeds from sales and maturities of marketable securities totaled $0.1 million and $52.6 million, respectively, which resulted in zero realized loss and $91 thousand in realized gains, respectively, for such periods. For the nine months ended September 30, 2021 and 2020, the proceeds from sales and maturities of marketable securities totaled $15.0 million and $56.9 million, respectively, which resulted in $2.5 million and $0.1 million in realized gains, respectively, for such periods.
For the three and nine months ended September 30, 2021, the portion of equity security unrealized gains that were recognized in income totaled $7.1 million and $23.8 million, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income. For the three and nine months ended September 30, 2020, the portion of equity security unrealized gains or losses that were recognized in income totaled $3.3 million and $2.2 million in gains, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income.
Variable Interest Entities
In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidatesconsolidated the Operating Partnership, 1618 DownREIT limited partnershipsentities (comprising eight Communities)9 communities), and eight6 co-investments as of September 30, 2017.2021. As of December 31, 2020, the Company consolidated the Operating Partnership, 17 DownREIT entities (comprising 9 communities) and 5 co-investments. The Company consolidates these entities because it is deemed the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the eightabove consolidated co-investments and 16 DownREIT limited partnerships,entities, net of intercompany eliminations, were approximately $842.7$909.1 million and $278.7$323.3 million, respectively, as of September 30, 20172021 and $746.1$898.5 million and $221.3$326.8 million, respectively, as of December 31, 2016.2020. Noncontrolling interests in these entities were $66.1$122.4 million and $45.4$120.8 million as of September 30, 20172021 and December 31, 2016,2020, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of September 30, 20172021 and December 31, 2016,2020, the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.
Equity-based Compensation
The cost of shareshare- and unit basedunit-based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 12, “Equity14, "Equity Based Compensation Plans,”" in the Company’s annual report on Form 10-K for the year ended December 31, 2016)2020) are being amortized over the expected service periods.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
Fair Value of Financial Instruments
Management believes that the carrying amounts of the outstanding balances under its lines of credit, and notes and other receivables approximate fair value as of September 30, 20172021 and December 31, 2016,2020, because interest rates, yields, and other terms for these instruments are consistent with interest rates, yields, and other terms currently available for similar instruments. Management has estimated that the fair value of the Company’s $5.0 billion of fixed rate debt including unsecured debt,with a carrying value of $5.7 billion and $5.5 billion at both September 30, 20172021 and December 31, 2016,2020, respectively, was approximately $5.1 billion. The$6.1 billion and $6.0 billion, respectively. Management has estimated that the fair value of the Company’s $366.4 million and $775.1 million of variable rate debt at September 30, 20172021 and December 31, 2016 approximates its fair value2020, respectively, was approximately $364.3 million and $770.1 million, respectively, based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities, and dividends payable approximate fair value as of September 30, 20172021 and December 31, 20162020 due to the short-term maturity of these instruments. Marketable securities except mortgage backed securities, and derivatives are carried at fair value as of September 30, 20172021 and December 31, 2016.2020.
At September 30, 2017, the Company’s investments in mortgage backed securities had a carrying value of $105.5 million and the Company estimated the fair value to be approximately $117.6 million. At December 31, 2016, the Company’s investments in mortgage backed securities had a carrying value of $94.4 million and the Company estimated the fair value to be approximately $108.8 million. The Company determines the fair value of the mortgage backed securities based on unobservable inputs (level 3 of the fair value hierarchy) considering the assumptions that market participants would make in valuing these securities. Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.
Capitalization of Costs
The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of interest and employee compensation and totaled $4.9$5.6 million and $4.8$6.1 million during the three months ended September 30, 20172021 and 2016,2020, respectively, and $15.0$17.5 million and $14.0$24.9 million duringfor the nine months ended September 30, 20172021 and 2016,2020, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 and 2016
(Unaudited)
Co-investments
The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company's equity in earnings less distributions received and the Company's share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.
Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the condensed consolidated statement of income and comprehensive income equal to the amount by which the fair value of the Company's previously owned co-investment interest the Company previously owned exceeds its carrying value. A majority of the co-investments, excluding themost preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote income if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.
The Company reports investments in co-investments where accumulated distributions have exceeded the Company’s investment as distributions in excess of investments in co-investments in the accompanying condensed consolidated balance sheets. The net investment of one of the Company’s co-investments is less than zero as a result of financing distributions in excess of the Company's investment in that co-investment.
Changes in Accumulated Other Comprehensive Loss, Net by Component
Essex Property Trust, Inc.
|
| | | | | | | | | | | |
| Change in fair value and amortization of swap settlements | | Unrealized gains/(losses) on available for sale securities | | Total |
Balance at December 31, 2016 | $ | (32,963 | ) | | $ | 865 |
| | $ | (32,098 | ) |
Other comprehensive income before reclassification | 13,512 |
| | 1,902 |
| | 15,414 |
|
Amounts reclassified from accumulated other comprehensive loss | (6,352 | ) | | (1,596 | ) | | (7,948 | ) |
Other comprehensive income | 7,160 |
| | 306 |
| | 7,466 |
|
Balance at September 30, 2017 | $ | (25,803 | ) | | $ | 1,171 |
| | $ | (24,632 | ) |
Changes in Accumulated Other Comprehensive Loss, by Component
Essex Portfolio, L.P.
($ in thousands):
| | | | | | | | | | Change in fair value and amortization of swap settlements | | Unrealized gain on available for sale securities | | Total |
Balance at December 31, 2020 | | Balance at December 31, 2020 | $ | (14,771) | | | $ | 42 | | | $ | (14,729) | |
| Change in fair value and amortization of swap settlements | | Unrealized gains/(losses) on available for sale securities | | Total | |
Balance at December 31, 2016 | $ | (30,161 | ) | | $ | 813 |
| | $ | (29,348 | ) | |
Other comprehensive income before reclassification | 13,974 |
| | 1,966 |
| | 15,940 |
| Other comprehensive income before reclassification | 5,406 | | | 344 | | | 5,750 | |
Amounts reclassified from accumulated other comprehensive loss | (6,569 | ) | | (1,650 | ) | | (8,219 | ) | Amounts reclassified from accumulated other comprehensive loss | 11 | | | — | | | 11 | |
Other comprehensive income | 7,405 |
| | 316 |
| | 7,721 |
| Other comprehensive income | 5,417 | | | 344 | | | 5,761 | |
Balance at September 30, 2017 | $ | (22,756 | ) | | $ | 1,129 |
| | $ | (21,627 | ) | |
Balance at September 30, 2021 | | Balance at September 30, 2021 | $ | (9,354) | | | $ | 386 | | | $ | (8,968) | |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
Essex Portfolio, L.P.
($ in thousands):
| | | | | | | | | | | | | | | | | |
| Change in fair value and amortization of swap settlements | | Unrealized gain on available for sale securities | | Total |
Balance at December 31, 2020 | $ | (11,346) | | | $ | 43 | | | $ | (11,303) | |
| | | | | |
Other comprehensive income before reclassification | 5,595 | | | 356 | | | 5,951 | |
Amounts reclassified from accumulated other comprehensive loss | 12 | | | — | | | 12 | |
Other comprehensive income | 5,607 | | | 356 | | | 5,963 | |
Balance at September 30, 2021 | $ | (5,739) | | | $ | 399 | | | $ | (5,340) | |
Amounts reclassified from accumulated other comprehensive loss in connection with derivatives are recorded in interest expense on the condensed consolidated statementstatements of income and comprehensive income. Realized gains and losses on available for sale debt securities are included in interest and other income on the condensed consolidated statementstatements of income and comprehensive income.
Redeemable Noncontrolling Interest
The carrying value of redeemable noncontrolling interestinterests in the accompanying condensed consolidated balance sheets was $40.0$32.7 million and $44.7$32.2 million as of September 30, 20172021 and December 31, 2016,2020, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.
The changes to the redemption value of redeemable noncontrolling interests for the nine months ended September 30, 20172021 is as follows ($ in thousands):
| | | | | |
Balance at December 31, 2020 | $ | 32,239 | |
Reclassification due to change in redemption value and other | 4,922 | |
Redemptions | (4,463) | |
| |
Balance at September 30, 2021 | $ | 32,698 | |
Cash, Cash Equivalents and Restricted Cash
Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
Cash and cash equivalents - unrestricted | $ | 49,910 | | | $ | 73,629 | | | $ | 558,446 | | | $ | 70,087 | |
Cash and cash equivalents - restricted | 11,042 | | | 10,412 | | | 10,629 | | | 11,007 | |
Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows | $ | 60,952 | | | $ | 84,041 | | | $ | 569,075 | | | $ | 81,094 | |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
|
| | | |
Balance at December 31, 2016 | $ | 44,684 |
|
Reclassification due to change in redemption value and other | 903 |
|
Redemptions | (5,543 | ) |
Balance at September 30, 2017 | $ | 40,044 |
|
Accounting Estimates
The preparation of condensed consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, its notes receivables, and its qualification as a real estate investment trust (“REIT”("REIT"). The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.
(2) Significant Transactions During Thethe Nine Months Ended 2017September 30, 2021 and Subsequent Events
Significant Transactions
Acquisitions
In January 2017,September 2021, the Company purchasedacquired 7 South Linden, a commercial property located in South San Francisco, CA for $33.5 million. The property is fully leased to 2 commercial tenants. The Company is currently pursuing entitlements to construct an apartment community on the property.
In September 2021, Wesco VI, LLC ("Wesco VI"), a new joint venture with one of the Company's institutional partners, acquired Martha Lake Apartments, a 155 unit apartment home community located in Lynwood, WA, for a total contract price of $53.0 million. The property is encumbered by a $29.2 million related party bridge loan from the Company, with an interest rate of 2.15% and is scheduled to mature in December 2021. See the "Co-Investments" section below for further details related to the creation of Wesco VI. See Note 6, Related Party Transactions, for additional details.
In September 2021, the Company acquired Third & Broad, a fully-leased single tenant commercial property located in downtown Seattle, WA for $52.5 million. The Company will hold the property for future apartment development.
In June 2021, the Company acquired its joint venture partner'spartner, BEX III, LLC's ("BEX III") 50.0% interest in Palm Valley,The Village at Toluca Lake, a community totaling 145 homes located in Burbank, CA, for a contract pricetotal consideration of $183.0$31.8 million. Prior to the purchase, an approximately $220.0 million mortgage encumbered the property. Concurrent with the closing of the acquisition, the entireCompany repaid $29.5 million in mortgage balance was repaid anddebt that encumbered the property is now unencumbered. Palm Valley has 1,098 apartment homes, within four communities, and is located in San Jose, CA.property. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of $88.6$2.3 million upon consolidation.
Dispositions
In March 2017,August 2021, the Company converted its existing $15.3sold Devonshire, a non-core apartment community with 276 apartment homes, located in Hemet, CA, for a total contract price of $54.5 million. The Company recognized a $42.9 million preferred equity investmentgain on sale.
In February 2021, the Company sold Hidden Valley, a 324 apartment home community located in Sage at Cupertino,Simi Valley, CA, for a 230total contract price of $105.0 million. The Company recognized a $69.2 million gain on sale. In conjunction with the sale, the Company repaid $29.7 million of mortgage debt that encumbered the property.
In February 2021, the Company sold Park 20, a 197 apartment home community located in San Jose,Mateo, CA, intofor a 40.5% common equity ownership interest in the property.total contract price of $113.0 million. The Company issued DownREIT units torecognized an immaterial gain on sale.
In February 2021, the other members, including an affiliateCompany sold Axis 2300, a 115 apartment home community located in Irvine, CA, for a total contract price of the Marcus & Millichap Company, based on an estimated property valuation of $90.0$57.5 million. See Note 5, Related Party Transactions, for additional details. At the time of acquisition, the property was encumbered by a $52.0 million bridge loan from the Company. The Company consolidates the property basedrecognized a $30.8 million gain on a VIE analysis performed by the Company.sale.
The consolidated fair value of acquired communities listed in the preceding paragraphs above were included on the Company's condensed consolidated balance sheet as follows: $169.5 million was included in land and land improvements, $365.7 million was included in buildings and improvements, and $3.2 million was included in prepaid expenses and other assets.Co-Investments
Joint Ventures
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
In August 2017, a Company co-investment, Wesco V, LLC ("Wesco V") acquired 8th & Republican, a 211 apartment home community located in Seattle, WA, for a total contract price of $101.3 million. The property is encumbered by a $55.0 million related party bridge loan from the Company, which accrues interest at 3.5% and is scheduled to mature on December 16, 2017. See the "Co-Investments" section below for further details related to the creation of Wesco V. See Note 5, Related Party Transactions, for additional details related to the related party bridge loan.
Also in August 2017, Wesco V acquired 360 Residences, a 213 apartment home community, located in San Jose, CA, for a total contract price of $133.5 million. In connection with this acquisition, Wesco V assumed $57.9 million of mortgage debt, with an effective interest rate of 3.4% and a maturity date of May 2022.
Dispositions
In January 2017, the Company sold Jefferson at Hollywood, a 270 apartment home community located in Los Angeles, CA, for $132.5 million, resulting in a gain of $26.2 million.
In August 2017, a Company co-investment, Wesco I, LLC ("Wesco I") sold Madrid, a 230 apartment home community located in Mission Viejo, CA, for $83.0 million, which resulted in a gain of $10.1 million for the Company, recorded in the statement of income as equity income in co-investments. Wesco I used $30.1 million of proceeds to repay the loan on the property.
Preferred Equity Investments
During the nine months ended September 30, 2017, the Company made commitments to fund $89.3 million in five preferred equity investments, located in Irvine, CA, Seattle, WA, Marina del Rey, CA, Woodland Hills, CA, and San Jose, CA. These investments have initial accrued preferred returns ranging from 9.5%-11.0%, with maturities ranging from March 2020 to August 2024. As of September 30, 2017, the Company has funded $38.0 million of the $89.3 million commitment.
In April 2017, the Company received cash of $12.6 million from the partial redemption of a preferred equity investment in a joint venture that holds a property located in Seattle, WA. The Company recorded a reduction of $12.4 million in its preferred equity investment. The Company recognized a gain of $0.3 million as a result of this early redemption, which is included in equity income from co-investments in the condensed consolidated statement of income and comprehensive income.
In August 2017, the Company received cash of $11.7 million for a full redemption of a preferred equity investment class and $6.9 million for a partial redemption of another preferred equity investment class in a joint venture that holds a property in San Jose, CA. The Company's remaining preferred equity investment in this joint venture was $13.4 million as of September 30, 2017.
Notes Receivable
In May 2017, the Company made a commitment to fund a mezzanine loan of $13.2 million to a limited liability company that owns a development project located in Anaheim, CA. The investment will initially accrue interest based on a 10.0% compounded return. This investment is scheduled to mature in May 2021. As of September 30, 2017, the Company had fully funded the $13.2 million commitment.
Co-investments
In August 2017,2021, the Company formed a new joint venture entity, Wesco V,VI, with an institutional partner. Each partner has a 50.0% ownership interest and an initial equity commitment of $150.0 million. The joint venture is unconsolidated for financial reporting purposes.
Preferred Equity Investments
In September 2021, the Company originated a preferred equity investment totaling $26.2 million in one multifamily community located in Southern California. The investment has an initial preferred return of 12.5% and is scheduled to mature in September 2026.
In August 2021, the Company originated a preferred equity investment totaling $11.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 11.5% and is scheduled to mature in August 2026.
In January 2021, the Company originated a preferred equity investment totaling $20.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 10.0% and is scheduled to mature in January 2026.
In August 2021, the Company received cash of $21.6 million, for the partial redemption of a preferred equity investment in a joint venture that holds property located in Northern California.
In March 2021, the Company received cash of $10.0 million for the full redemption of a preferred equity investment in a joint venture that holds property located in Southern California.
In March 2021, the Company received cash of $110.2 million, including an early redemption fee of $3.5 million for the full redemption of a preferred equity investment in a joint venture that holds property located in Southern California.
Notes Receivable
In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco VI. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets. See Note 6, Related Party Transactions for additional details.
In March 2021, the Company provided a $52.5 million related party bridge loan to Wesco I, LLC ("Wesco I") in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 2.55% and was paid off in July 2021.
In June 2021, the Company received cash of $36.5 million, including an early redemption fee of $4.7 million, for the full redemption of a mezzanine loan on a property located in Northern California.
Common Stock
During the three months ended March 31, 2021, the Company repurchased and retired 40,000 shares totaling $9.2 million, including commissions. The Company did not repurchase any shares subsequent to March 31, 2021. As of September 30, 2021, the Company had $214.5 million of purchase authority remaining under its $250.0 million stock repurchase plan.
Senior Unsecured Debt
In March 2017,2021, the Company paid off $300.0Operating Partnership issued $450.0 million of 5.500% senior unsecured notes.
In April 2017, the Company issued $350.0 millionnotes due on March 1, 2028 with a coupon rate of 10-year 3.625% senior unsecured notes. The interest is paid semi-annually in arrears1.700% per annum (the "2028 Notes"), which are payable on MayMarch 1 and NovemberSeptember 1 of each year, commencingbeginning on NovemberSeptember 1, 2017 until2021. The 2028 Notes were offered to investors at a price of 99.423% of par value. The 2028 Notes are general unsecured senior obligations of the maturity dateOperating Partnership, rank equally in right of May 1, 2027.payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay upcoming debt maturities, including all or a portion of certain unsecured term loans, and for general corporate and working capital purposes.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
In June 2021, the Operating Partnership issued $300.0 million of senior unsecured notes due on June 15, 2031 with a coupon rate of 2.550% per annum (the "2031 Notes"), which are payable on June 15 and December 15 of each year, beginning on December 15, 2021. The 2031 Notes were offered to investors at a price of 99.367% of par value. The 2031 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay indebtedness underupcoming debt maturities, including to fund the redemption of $300.0 million aggregate principal amount (plus the make-whole amount and accrued and unpaid interest) of its outstanding 3.375% senior unsecured lines of creditnotes due January 2023, and for other general corporate and working capital purposes.
Private Placement Bond RedemptionSubsequent Events
In July 2017,October 2021, Wesco VI acquired Monterra, a 139 unit apartment home community in Mill Creek, WA, near Martha Lake, for a total contract price of $55.0 million.
In October 2021, the Company repaid $40.0committed to fund a $50.0 million mezzanine loan in private placement bondsa multifamily development community located in Northern California, with a couponan initial 11.0% interest rate of 4.5% and a stated maturity date of October 2025, with options to extend for up to two years. The investment will fund concurrent with the senior construction loan which is scheduled to begin funding in the second half of 2022.
(3) Revenues
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Rental income | $ | 355,591 | | | $ | 362,073 | | | $ | 1,046,218 | | | $ | 1,108,658 | |
Other property | 5,029 | | | 6,391 | | | 16,035 | | | 17,705 | |
Management and other fees from affiliates | 2,237 | | | 2,347 | | | 6,707 | | | 7,312 | |
Total revenues | $ | 362,857 | | | $ | 370,811 | | | $ | 1,068,960 | | | $ | 1,133,675 | |
The following table presents the Company’s rental and other property revenues disaggregated by geographic operating segment ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Southern California | $ | 150,807 | | | $ | 136,651 | | | $ | 434,926 | | | $ | 426,987 | |
Northern California | 145,807 | | | 147,081 | | | 435,883 | | | 457,655 | |
Seattle Metro | 60,280 | | | 60,617 | | | 178,180 | | | 184,310 | |
Other real estate assets (1) | 3,726 | | | 24,115 | | | 13,264 | | | 57,411 | |
Total rental and other property revenues | $ | 360,620 | | | $ | 368,464 | | | $ | 1,062,253 | | | $ | 1,126,363 | |
(1) Other real estate assets consist of revenues generated from retail space, commercial properties, held for sale properties, disposition properties and straight-line rent adjustments for concessions. Executive management does not evaluate such operating performance geographically.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 2017. This represented30, 2021 and 2020
(Unaudited)
The following table presents the Company’s rental and other property revenues disaggregated by current property category status ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Same-property (1) | $ | 325,153 | | | $ | 316,639 | | | $ | 957,908 | | | $ | 986,945 | |
Acquisitions (2) | 14,789 | | | 14,237 | | | 42,410 | | | 40,491 | |
Development (3) | 8,055 | | | 5,461 | | | 22,485 | | | 13,956 | |
Redevelopment | 4,340 | | | 4,277 | | | 13,079 | | | 14,774 | |
Non-residential/other, net (4) | 11,319 | | | 13,119 | | | 35,721 | | | 52,491 | |
Straight line rent concession (5) | (3,036) | | | 14,731 | | | (9,350) | | | 17,706 | |
Total rental and other property revenues | $ | 360,620 | | | $ | 368,464 | | | $ | 1,062,253 | | | $ | 1,126,363 | |
(1) Properties that have comparable stabilized results as of January 1, 2020 and are consolidated by the Company for the three and nine months ended September 30, 2021 and 2020. A community is generally considered to have reached stabilized operations once it achieves an initial occupancy of 90%.
(2) Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2020.
(3) Development includes properties developed which did not have stabilized results as of January 1, 2020.
(4) Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties undergoing significant construction activities that do not meet our redevelopment criteria, and 2 communities located in the California counties of Santa Barbara and Santa Cruz, which the Company does not consider its core markets.
(5) Same-property revenues reflect concessions on a cash basis. Total rental and other property revenues reflect concessions on a straight-line basis in accordance with U.S. GAAP.
Deferred Revenues and Remaining Performance Obligations
When cash payments are received or due in advance of the Company’s performance of contracts with customers, deferred revenue is recorded. The total outstandingdeferred revenue balance related to such contracts was $2.6 million and $3.1 million as of these unsecured bonds.
Common Stock
DuringSeptember 30, 2021 and December 31, 2020, respectively, and was included in accounts payable and accrued liabilities within the accompanying condensed consolidated balance sheets. The amount of revenue recognized for the nine months ended September 30, 2017,2021 that was included in the December 31, 2020 deferred revenue balance was $0.5 million, which was included in interest and other income within the condensed consolidated statements of income and comprehensive income.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the revenue recognition accounting standard. As of September 30, 2021, the Company issued 311,873 shareshad $2.6 million of common stock,remaining performance obligations. The Company expects to recognize approximately 7% of these remaining performance obligations in 2021, an additional 55% through our equity distribution program at an average price of $260.30 per share for proceeds of $80.4 million, net of fees2023, and commissions. There were no such sales during the three months ended remaining balance thereafter.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017.2021 and 2020
(Unaudited)
Subsequent to quarter end through October 30, 2017, the Company issued 33,571 additional shares of common stock through its equity distribution program at an average price of $261.19 per share for proceeds of $8.7 million, net of fees and commissions.
Subsequent Events
In October 2017, the Company entered into an amendment to the Wesco I operating agreement to extend the joint venture. Under the amendment, the Company received an additional ownership interest in exchange for promote interest earned which is expected to be approximately $38.0 million. As a result of the amendment, the Company's ownership interest in Wesco I increased to approximately 58.0%.
In October 2017, the Company made a commitment to fund a $40.0 million preferred equity investment in a multifamily development project located in Los Angeles, CA with an accrued initial preferred return of 11.3% and an October 2021 maturity date.
(3)(4) Co-investments
The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments, including BEXAEW, LLC ("BEXAEW"), BEX II, LLC ("BEX II"), BEX IV, LLC (""BEX IV"), 500 Folsom, Wesco I, Wesco III, LLC ("Wesco III"), Wesco IV, LLC ("Wesco IV"), Wesco V, LLC ("Wesco V"), and Wesco VI, own, operate, and develop apartment communities. The carrying values of the Company's co-investments as of September 30, 20172021 and December 31, 20162020 are as follows (in($ in thousands, except in parenthetical)parenthetical amounts):
|
| | | | | | | | | | |
| Weighted Average Essex Ownership Percentage | | September 30, 2017 | | December 31, 2016 |
Membership interest/Partnership interest in: | | | | | |
CPPIB | 54 | % | | $ | 502,419 |
| | $ | 422,068 |
|
Wesco I, III, IV, and V | 50 | % | | 225,041 |
| | 180,687 |
|
Palm Valley (1) | 50 | % | | — |
| | 68,396 |
|
BEXAEW | 50 | % | | 45,523 |
| | 47,963 |
|
BEX II (2) | 50 | % | | (36,245 | ) | | 19,078 |
|
Other | 53 | % | | 40,471 |
| | 43,713 |
|
Total operating and other co-investments, net | | | 777,209 |
| | 781,905 |
|
Total development co-investments, net | 50 | % | | 85,670 |
| | 157,317 |
|
Total preferred interest co-investments (includes related party investments of $20.7 million and $35.9 million as of September 30, 2017 and December 31, 2016, respectively) | | | 225,453 |
| | 222,053 |
|
Total co-investments, net | | | $ | 1,088,332 |
| | $ | 1,161,275 |
|
| | | | | | | | | | | | | | | | | |
| Weighted Average Company Ownership Percentage (1) | | September 30, 2021 | | December 31, 2020 |
Ownership interest in: | | | | | |
| | | | | |
Wesco I (2), Wesco III, Wesco IV, Wesco V, and Wesco VI | 52 | % | | 138,745 | | | 178,322 | |
BEXAEW, BEX II, BEX III (3), BEX IV, and 500 Folsom (4) | 50 | % | | 273,557 | | | 152,309 | |
Other | 46 | % | | 58,504 | | | 27,635 | |
Total operating and other co-investments, net | | | 470,806 | | | 358,266 | |
Total development co-investments | 50 | % | | 9,965 | | | 157,433 | |
Total preferred interest co-investments (includes related party investments of $87.5 million and $81.4 million as of September 30, 2021 and December 31, 2020, respectively) | | | 572,053 | | | 502,311 | |
Total co-investments, net | | | $ | 1,052,824 | | | $ | 1,018,010 | |
(1) Weighted average Company ownership percentages are as of September 30, 2021.
(2) As of September 30, 2021, the Company's investment in Wesco I was classified as a liability of $29.0 million.
(3) In June 2021, the Company purchased the additional 50% interest in BEX III.
(4) 500 Folsom had not stabilized as of December 31, 2020. Its carrying value was included in the development co-investments balance as of December 31, 2020.
The combined summarized financial information of co-investments is as follows ($ in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Combined balance sheets: (1) | | | |
Rental properties and real estate under development | $ | 4,216,981 | | | $ | 4,242,611 | |
Other assets | 228,721 | | | 200,777 | |
Total assets | $ | 4,445,702 | | | $ | 4,443,388 | |
Debt | $ | 2,705,882 | | | $ | 2,611,365 | |
Other liabilities | 221,022 | | | 189,515 | |
Equity | 1,518,798 | | | 1,642,508 | |
Total liabilities and equity | $ | 4,445,702 | | | $ | 4,443,388 | |
Company's share of equity | $ | 1,052,824 | | | $ | 1,018,010 | |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Combined statements of income: (1) | | | | | | | |
Property revenues | $ | 71,195 | | | $ | 76,581 | | | $ | 211,359 | | | $ | 226,125 | |
Property operating expenses | (27,588) | | | (28,047) | | | (81,932) | | | (79,621) | |
Net operating income | 43,607 | | | 48,534 | | | 129,427 | | | 146,504 | |
| | | | | | | |
Interest expense | (15,347) | | | (19,369) | | | (48,012) | | | (59,700) | |
General and administrative | (3,331) | | | (5,161) | | | (11,641) | | | (12,636) | |
Depreciation and amortization | (32,290) | | | (29,732) | | | (96,812) | | | (86,947) | |
Net loss | $ | (7,361) | | | $ | (5,728) | | | $ | (27,038) | | | $ | (12,779) | |
Company's share of net income (2) | $ | 25,433 | | | $ | 14,960 | | | $ | 60,692 | | | $ | 53,514 | |
(1) In January 2017, the Company purchased its joint venture partner's 50.0% interest in Palm Valley and as a result of this acquisition, the Company consolidates Palm Valley.
(2) This co-investment was classified as a liability as of September 30, 2017.
The combined summarized entity financial information of co-investments and(1) Includes preferred equity investments is as follows ($ in thousands).held by the Company.
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Combined balance sheets: | | | |
Rental properties and real estate under development | $ | 3,671,101 |
| | $ | 3,807,245 |
|
Other assets | 111,372 |
| | 121,505 |
|
Total assets | $ | 3,782,473 |
| | $ | 3,928,750 |
|
Debt | $ | 1,597,597 |
| | $ | 1,617,639 |
|
Other liabilities | 65,865 |
| | 74,607 |
|
Equity (1) | 2,119,011 |
| | 2,236,504 |
|
Total liabilities and equity | $ | 3,782,473 |
| | $ | 3,928,750 |
|
Company's share of equity | $ | 1,088,332 |
| | $ | 1,161,275 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Combined statements of income: | | | | | | | |
Property revenues | $ | 76,303 |
| | $ | 72,124 |
| | $ | 224,319 |
| | $ | 216,434 |
|
Property operating expenses | (27,753 | ) | | (24,976 | ) | | (79,028 | ) | | (75,377 | ) |
Net operating income | 48,550 |
| | 47,148 |
| | 145,291 |
| | 141,057 |
|
Gain on sale of real estate | 10,058 |
| | — |
| | 10,058 |
| | 28,291 |
|
Interest expense | (13,718 | ) | | (10,978 | ) | | (39,663 | ) | | (35,260 | ) |
General and administrative | (2,452 | ) | | (1,496 | ) | | (6,147 | ) | | (4,276 | ) |
Depreciation and amortization | (27,884 | ) | | (25,569 | ) | | (84,211 | ) | | (79,676 | ) |
Net income | $ | 14,554 |
| | $ | 9,105 |
| | $ | 25,328 |
| | $ | 50,136 |
|
Company's share of net income (1) | $ | 19,727 |
| | $ | 9,568 |
| | $ | 40,934 |
| | $ | 38,932 |
|
(1)(2) Includes the Company's share of equity income from co-investmentsjoint ventures and preferred equity investments, gain on sales of co-investments, co-investment promote income and income from early redemption of preferred equity investments. Includes related party income of $0.5$2.4 million and $0.8$2.2 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $1.5$7.0 million and $2.5$6.4 million for the nine months ended September 30, 20172021 and 2016,2020, respectively.
(5) Notes and Other Receivables
Notes and other receivables consist of the following as of September 30, 2021 and December 31, 2020 ($ in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018) | $ | 15,337 | | | $ | 14,216 | |
Notes receivable, secured, bearing interest at 10.50%, due February 2023 (Originated March 2020) | 16,591 | | | 15,299 | |
Note receivable, secured, bearing interest at 11.00%, due October 2023 (Originated April 2020) (1) | — | | | 25,461 | |
Notes receivable, secured, bearing interest at 9.00%, due December 2023 (Originated November 2020) | 84,896 | | | 79,827 | |
Notes receivable, secured, bearing interest at 11.50%, due November 2024 (Originated November 2020) | 28,850 | | | 15,423 | |
Related party note receivable, secured, bearing interest at 2.15%, due December 2021 (Originated September 2021) (2) | 29,157 | | | — | |
Notes and other receivables from affiliates (3) | 4,744 | | | 4,744 | |
Straight line rent receivables (4) | 16,464 | | | 25,214 | |
Other receivables | 18,689 | | | 15,671 | |
Allowance for credit losses | (743) | | | (751) | |
Total notes and other receivables | $ | 213,985 | | | $ | 195,104 | |
(1) In June 2021, the Company received cash of $36.5 million, including an early redemption fee of $4.7 million, from the payoff of this note receivable.
(2) See Note 6, Related Party Transactions, for additional details.
(3) These amounts consist of short-term loans outstanding and due from various joint ventures as of September 30, 2021 and
December 31, 2020. See Note 6, Related Party Transactions, for additional details.
(4) These amounts are receivables from lease concessions recorded on a straight-line basis for the Company's operating
properties.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
(4) Notes and Other Receivables
Notes receivable, secured by real estate,The following table presents the activity in the allowance for credit losses for notes and other receivables consist of the following as of September 30, 2017 and December 31, 2016by loan type ($ in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Notes receivable, secured, bearing interest at 10.00%, due May 2021 | $ | 13,416 |
| | $ | — |
|
Notes receivable, secured, bearing interest at 10.75%, due September 2020 | 28,532 |
| | 17,685 |
|
Related party note receivable, secured, bearing interest at 9.50%, due October 2019(1) | 6,599 |
| | 6,593 |
|
Related party note receivable, secured, bearing interest at 3.50%, due December 2017(1) | 55,000 |
| | — |
|
Notes and other receivables from affiliates (2) | 3,981 |
| | 4,695 |
|
Other receivables | 14,029 |
| | 11,997 |
|
Total notes and other receivables | $ | 121,557 |
| | $ | 40,970 |
|
| | | | | | | | | | | | | | | | | |
| Mezzanine Loans | | Bridge Loans | | Total |
Balance at December 31, 2020 | $ | 751 | | | $ | — | | | $ | 751 | |
| | | | | |
Provision for credit losses | (23) | | | 15 | | | (8) | |
Balance at September 30, 2021 | $ | 728 | | | $ | 15 | | | $ | 743 | |
(1) See Note 5, Related Party Transactions, for additional details.
(2) These amounts consist of short-termNo loans outstanding and due from various joint ventures as ofwere placed on nonaccrual status or charged off during the nine months ended September 30, 2017 and December 31, 2016, respectively. See Note 5, Related Party Transactions, for additional details.2021 or 2020.
(5)(6) Related Party Transactions
The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates totaled $3.1$2.7 million and $3.0 million during both the three months ended September 30, 20172021 and 2016,2020, respectively, and $9.0$7.5 million and $9.6$8.7 million during the nine months ended September 30, 20172021 and 2016,2020, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of $0.7approximately $0.5 million and $1.0$0.6 million against general and administrative expenses for the three months ended September 30, 20172021 and 2016, respectively,2020, and $2.1$0.8 million and $3.4$1.4 million for the nine months ended September 30, 20172021 and 2016,2020, respectively.
The Company’s Chairman and founder, Mr. George M. Marcus, is the Chairman of the Marcus & Millichap Company (“MMC”("MMC"), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”("MMI"), and Mr. Marcus owns a controlling interest in MMI, a national brokerage firm listed on the New York Stock Exchange. For the three and nine months ended September 30, 2021, the Company did not pay any brokerage commissions related to real estate transactions to MMC and its affiliates. For the three and nine months ended September 30, 2020, the Company paid brokerage commissions totaling zero and $0.2 million, respectively, to MMC and its affiliates related to real estate transactions.
In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco VI in connection with the acquisition of Martha Lake Apartments. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets and had an outstanding balance of $29.2 million as of September 30, 2021.
In March 2021, the Company provided a $52.5 million related party bridge loan to Wesco I in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 2.55% and was paid off in July 2021.
In November 2019, the Company provided an $85.5 million related party bridge loan to Wesco V in connection with the acquisition of Velo and Ray, a 308 unit apartment home community located in Seattle, WA. The note receivable accrued interest at LIBOR plus 1.30% and was scheduled to mature in February 2020, but was paid off in January 2020. The bridge loan was classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
In June 2019, the Company acquired Brio, a 300 unit apartment home community located in Walnut Creek, CA. The Company issued DownREIT units to an affiliate of MMC, based on a contract price of $164.9 million. The property was encumbered by $98.7 million of mortgage debt which was assumed by the Company at the time of acquisition. As a result of this transaction, the Company consolidated the property, based on a VIE analysis performed by the Company.
In February 2019, the Company funded a $24.5 million preferred equity investment in an entity whose sponsor is an affiliate of MMC, which owns a multifamily development community located in Mountain View, CA. The investment has an initial preferred return of 11.0% and is scheduled to mature in February 2024.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
In October 2018, the Company funded a $18.6 million preferred equity investment in an entity whose sponsor is an affiliate of MMC. The entity wholly owns a 268 apartment home community development located in Burlingame, CA. This investment accrues interest based on an initial 12.0% preferred return. The investment is scheduled to mature in April 2024.
In May 2018, the Company made a commitment to fund a $26.5 million preferred equity investment in an entity whose sponsors include an affiliate of MMC. The entity wholly owns a 400 apartment home community located in Ventura, CA. This investment accrues interest based on a 10.25% preferred return. The investment is scheduled to mature in May 2023. As of September 30, 2021, the Company had funded $23.4 million of the commitment. The remaining committed amount will be funded if and when requested by the sponsors.
In March 2017, the Company converted its existing $15.3 million preferred equity investment in Sage at Cupertino, a 230 apartment home community located in San Jose, CA, into a 40.5% common equity ownership interest in the property. The Company issued DownREIT units to the other members, including an MMC affiliate, based on an estimated property valuation of $90.0 million. At the time of the conversion, the property was encumbered by $52.0 million of mortgage debt. As a result of this transaction, the Company consolidates the property, based on a VIEconsolidation analysis performed by the Company.
In 2015, the Company made preferred equity investments totaling $20.0 million in three entities affiliated with MMC that own apartment communities in California. The Company earns a 9.5% preferred return on each such investment, all of which are scheduled to mature in 2022.
As described in Note 4,5, Notes and Other Receivables, the Company has provided short-term loans to affiliates. As of September 30, 20172021 and December 31, 2016, $4.02020, $33.9 million and $4.7 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying condensed consolidated balance sheets. In November 2016,
(7) Debt
Essex does not have indebtedness as debt is incurred by the Company provided a $6.6Operating Partnership. Essex guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of the facilities.
Debt consists of the following ($ in thousands):
| | | | | | | | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 | | Weighted Average Maturity In Years as of September 30, 2021 |
Unsecured bonds private placement - fixed rate | $ | — | | | $ | 199,950 | | | 0.0 |
Term loan - variable rate | 99,969 | | | 549,380 | | | 0.4 |
Bonds public offering - fixed rate | 5,305,551 | | | 4,858,655 | | | 8.9 |
Unsecured debt, net (1) | 5,405,520 | | | 5,607,985 | | | |
Lines of credit (2) | 42,662 | | | — | | | |
Mortgage notes payable, net (3) | 640,118 | | | 643,550 | | | 8.7 |
Total debt, net | $ | 6,088,300 | | | $ | 6,251,535 | | | |
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering | 3.3 | % | | 3.4 | % | | |
Weighted average interest rate on variable rate term loan | 1.1 | % | | 1.7 | % | | |
Weighted average interest rate on lines of credit | 1.0 | % | | 1.0 | % | | |
Weighted average interest rate on mortgage notes payable | 2.6 | % | | 2.7 | % | | |
(1) Includes unamortized discount of $10.4 million mezzanine loanand $10.1 million and unamortized debt issuance costs of $34.1 million and $31.9 million, as of September 30, 2021 and December 31, 2020, respectively.
(2) Lines of credit, related to a limited liability companythe Company's 2 lines of unsecured credit aggregating $1.24 billion as of September 30, 2021, excludes unamortized debt issuance costs of $4.6 million and $3.7 million as of September 30, 2021 and December 31, 2020, respectively. These debt issuance costs are included in which MMC holds a significant ownership interest through subsidiaries. The mezzanine loan is classified within notesprepaid expenses and other receivables inassets on the accompanying condensed consolidated balance sheets andsheets. As of September 30, 2021, the Company’s $1.2 billion credit facility had an outstanding balanceinterest rate of $6.6 million asLIBOR plus 0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of both September 30, 2017 and December 31, 2016.
2025 with
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
In August 2017,3 six-month extensions, exercisable at the Company provided a $55.0 million related party bridge loan to a property acquired by Wesco V. The note receivable accrues interest at 3.5% and is scheduled to mature on December 16, 2017. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets and had an outstanding balance of $55.0 million asCompany’s option. As of September 30, 2017, and no balance as2021, the Company’s $35.0 million working capital unsecured line of December 31, 2016.
(6) Debt
The Company does not have indebtedness as debt is incurred by the Operating Partnership. The Company guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of such debt.
Debt consists of the following ($ in thousands):
|
| | | | | | | | | |
| September 30, 2017 | | December 31, 2016 | | Weighted Average Maturity In Years |
Unsecured bonds private placement - fixed rate | $ | 274,378 |
| | $ | 314,190 |
| | 3.3 |
Term loan - variable rate | 348,457 |
| | 98,189 |
| | 4.4 |
Bonds public offering - fixed rate | 2,878,311 |
| | 2,834,400 |
| | 6.7 |
Unsecured debt, net (1) | 3,501,146 |
| | 3,246,779 |
| | |
Lines of credit (2) | 2,609 |
| | 125,000 |
| |
|
Mortgage notes payable, net (3) | 2,111,467 |
| | 2,191,481 |
| | 5.4 |
Total debt, net | $ | 5,615,222 |
| | $ | 5,563,260 |
| | |
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering | 3.7 | % | | 3.6 | % | | |
Weighted average interest rate on variable rate term loan | 2.4 | % | | 2.3 | % | | |
Weighted average interest rate on lines of credit | 1.9 | % | | 1.8 | % | | |
Weighted average interest rate on mortgage notes payable | 4.2 | % | | 4.3 | % | | |
(1) Includes unamortized discount of $5.0 million and $0.1 million and unamortized debt issuance costs of $18.9 million and $18.1 million, as of September 30, 2017 and December 31, 2016, respectively.
(2) Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.03 billion as of September 30, 2017, excludes unamortized debt issuance costs of $3.4 million and $3.3 million as of September 30, 2017 and December 31, 2016, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. The Company’s $1.0 billion credit facility had an interest rate of LIBOR plus 0.90%0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings. In January 2017, the Company’s $1.0 billion credit facility’sratings, and a scheduled maturity date was extended to December 2020 with one 18-month extension, exercisable at the Company’s option. The Company’s $25.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.90%, which is based on a tiered rate structure tied to the Company’s credit ratings. The $25.0 million credit facility matures in January 2018.February 2023.
(3) Includes total unamortized premium of $37.4$2.8 million and $50.8$3.9 million, reduced by unamortized debt issuance costs of $6.0$1.5 million and $7.4$1.8 million, as of September 30, 20172021 and December 31, 2016,2020, respectively.
The aggregate scheduled principal payments of the Company’s outstanding debt, excluding lines of credit, as of September 30, 20172021 are as follows (excluding lines of credit) ($ in thousands):
| | | | | |
Remaining in 2021 | $ | 893 | |
2022 | 143,188 | |
2023 | 302,945 | |
2024 | 403,109 | |
2025 | 633,054 | |
Thereafter | 4,605,629 | |
Total | $ | 6,088,818 | |
|
| | | |
Remaining in 2017 | $ | 7,719 |
|
2018 | 257,108 |
|
2019 | 661,318 |
|
2020 | 694,887 |
|
2021 | 544,810 |
|
Thereafter | 3,439,209 |
|
Total | $ | 5,605,051 |
|
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2017 and 2016
(Unaudited)
(7)(8) Segment Information
The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. Essex'sThe Company's chief operating decision makers are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenuerevenues less direct property operating expenses.
The executive management team generally evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the three3 geographical regions in which its communities are located: Southern California, Northern California, and Seattle Metro.
Excluded from segment revenues and NOI are management and other fees from affiliates and interest and other income. Non-segment revenues and NOI included in the following schedule also consist of revenuerevenues generated from commercial properties and properties that have been sold. Other non-segment assets include items such as real estate under development, co-investments, real estate held for sale, net, cash and cash equivalents, marketable securities, notes and other receivables, and prepaid expenses and other assets.
The revenues and NOI for each of the reportable operating segments are summarized as follows for the three and nine months ended September 30, 20172021 and 20162020 ($ in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | |
Southern California | $ | 150,413 |
| | $ | 142,112 |
| | $ | 445,296 |
| | $ | 417,114 |
|
Northern California | 127,673 |
| | 115,318 |
| | 377,531 |
| | 338,761 |
|
Seattle Metro | 58,285 |
| | 55,543 |
| | 171,564 |
| | 161,192 |
|
Other real estate assets | 5,603 |
| | 14,105 |
| | 17,517 |
| | 41,751 |
|
Total property revenues | $ | 341,974 |
| | $ | 327,078 |
| | $ | 1,011,908 |
| | $ | 958,818 |
|
Net operating income: | | | | | | | |
Southern California | $ | 102,699 |
| | $ | 96,486 |
| | $ | 305,894 |
| | $ | 284,345 |
|
Northern California | 91,018 |
| | 83,042 |
| | 271,224 |
| | 243,876 |
|
Seattle Metro | 39,674 |
| | 37,688 |
| | 116,733 |
| | 109,352 |
|
Other real estate assets | 4,446 |
| | 10,501 |
| | 16,142 |
| | 31,315 |
|
Total net operating income | 237,837 |
| | 227,717 |
| | 709,993 |
| | 668,888 |
|
Management and other fees from affiliates | 2,395 |
| | 2,093 |
| | 6,927 |
| | 6,145 |
|
Depreciation and amortization | (117,451 | ) | | (110,467 | ) | | (350,893 | ) | | (329,847 | ) |
General and administrative | (9,788 | ) | | (9,647 | ) | | (30,726 | ) | | (28,527 | ) |
Acquisition and investment related costs | (324 | ) | | (284 | ) | | (1,154 | ) | | (1,379 | ) |
Interest expense | (55,938 | ) | | (56,693 | ) | | (167,333 | ) | | (164,727 | ) |
Total return swap income | 2,538 |
| | 3,143 |
| | 7,653 |
| | 9,080 |
|
Interest and other income | 5,790 |
| | 4,943 |
| | 17,916 |
| | 19,560 |
|
Equity income from co-investments | 19,727 |
| | 9,568 |
| | 40,934 |
| | 38,932 |
|
Loss on early retirement of debt | — |
| | (211 | ) | | — |
| | (211 | ) |
Gain on sale of real estate and land | 249 |
| | — |
| | 26,423 |
| | 20,258 |
|
Deferred tax expense on gain on sale of real estate and land | — |
| | — |
| | — |
| | (4,279 | ) |
Gain on remeasurement of co-investment | — |
| | — |
| | 88,641 |
| | — |
|
Net income | $ | 85,035 |
| | $ | 70,162 |
| | $ | 348,381 |
| | $ | 233,893 |
|
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues: | | | | | | | |
Southern California | $ | 150,807 | | | $ | 136,651 | | | $ | 434,926 | | | $ | 426,987 | |
Northern California | 145,807 | | | 147,081 | | | 435,883 | | | 457,655 | |
Seattle Metro | 60,280 | | | 60,617 | | | 178,180 | | | 184,310 | |
Other real estate assets | 3,726 | | | 24,115 | | | 13,264 | | | 57,411 | |
Total property revenues | $ | 360,620 | | | $ | 368,464 | | | $ | 1,062,253 | | | $ | 1,126,363 | |
Net operating income: | | | | | | | |
Southern California | $ | 103,660 | | | $ | 91,639 | | | $ | 300,761 | | | $ | 295,402 | |
Northern California | 98,948 | | | 102,559 | | | 299,489 | | | 329,338 | |
Seattle Metro | 39,876 | | | 41,216 | | | 119,041 | | | 126,422 | |
Other real estate assets | 2,805 | | | 20,655 | | | 9,659 | | | 45,527 | |
Total net operating income | 245,289 | | | 256,069 | | | 728,950 | | | 796,689 | |
Management and other fees from affiliates | 2,237 | | | 2,347 | | | 6,707 | | | 7,312 | |
Corporate-level property management expenses | (9,068) | | | (8,619) | | | (27,120) | | | (26,024) | |
Depreciation and amortization | (130,564) | | | (130,202) | | | (387,887) | | | (395,370) | |
General and administrative | (12,712) | | | (13,310) | | | (34,746) | | | (42,244) | |
| | | | | | | |
Expensed acquisition and investment related costs | (108) | | | (2) | | | (164) | | | (104) | |
Gain on sale of real estate and land | 42,897 | | | 22,654 | | | 142,993 | | | 39,251 | |
Interest expense | (50,019) | | | (55,430) | | | (152,639) | | | (165,024) | |
Total return swap income | 2,660 | | | 2,977 | | | 8,137 | | | 7,749 | |
Interest and other income | 11,998 | | | 6,512 | | | 48,756 | | | 12,696 | |
Equity income from co-investments | 25,433 | | | 14,960 | | | 60,692 | | | 53,514 | |
Deferred tax expense on unrealized gain on unconsolidated co-investment | (3,041) | | | — | | | (5,391) | | | (1,636) | |
Loss on early retirement of debt, net | — | | | (19,114) | | | (18,982) | | | (23,820) | |
Gain on remeasurement of co-investment | — | | | — | | | 2,260 | | | 234,694 | |
Net income | $ | 125,002 | | | $ | 78,842 | | | $ | 371,566 | | | $ | 497,683 | |
Total assets for each of the reportable operating segments are summarized as follows as of September 30, 2017 and December 31, 2016 ($ in thousands):
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Assets: | | | |
Southern California | $ | 4,822,941 |
| | $ | 4,924,792 |
|
Northern California | 4,241,460 |
| | 3,791,549 |
|
Seattle Metro | 1,532,784 |
| | 1,570,340 |
|
Other real estate assets | 56,079 |
| | 78,079 |
|
Net reportable operating segment - real estate assets | 10,653,264 |
| | 10,364,760 |
|
Real estate under development | 313,825 |
| | 190,505 |
|
Co-investments | 1,124,577 |
| | 1,161,275 |
|
Real estate held for sale, net | — |
| | 101,957 |
|
Cash and cash equivalents, including restricted cash | 63,273 |
| | 170,302 |
|
Marketable securities | 184,574 |
| | 139,189 |
|
Notes and other receivables | 121,557 |
| | 40,970 |
|
Prepaid expenses and other assets | 51,453 |
| | 48,450 |
|
Total assets | $ | 12,512,523 |
| | $ | 12,217,408 |
|
(8) Net Income Per Common Share and Net Income Per Common Unit
($ in thousands, except share and unit data)
Essex Property Trust, Inc.
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Income | | Weighted- average Common Shares | | Per Common Share Amount | | Income | | Weighted- average Common Shares | | Per Common Share Amount |
Basic: | | | | | | | | | | | |
Net income available to common stockholders | $ | 79,723 |
| | 65,994,896 |
| | $ | 1.21 |
| | $ | 65,561 |
| | 65,507,669 |
| | $ | 1.00 |
|
Effect of Dilutive Securities: | | | | | | | | | | | |
|
Stock options | — |
| | 83,387 |
| | | | — |
| | 109,882 |
| | |
Diluted: | |
| | |
| | |
| | |
| | |
| | |
|
Net income available to common stockholders | $ | 79,723 |
| | 66,078,283 |
| | $ | 1.21 |
| | $ | 65,561 |
| | 65,617,551 |
| | $ | 1.00 |
|
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
Total assets for each of the reportable operating segments are summarized as follows as of September 30, 2021 and December 31, 2020 ($ in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
Assets: | | | |
Southern California | $ | 3,949,224 | | | $ | 3,981,650 | |
Northern California | 5,489,918 | | | 5,408,019 | |
Seattle Metro | 1,369,129 | | | 1,403,678 | |
Other real estate assets | 95,160 | | | 134,439 | |
Net reportable operating segment - real estate assets | 10,903,431 | | | 10,927,786 | |
Real estate under development | 212,426 | | | 386,047 | |
Co-investments | 1,081,861 | | | 1,018,010 | |
Real estate held for sale | — | | | 57,938 | |
Cash and cash equivalents, including restricted cash | 60,952 | | | 84,041 | |
Marketable securities | 183,140 | | | 147,768 | |
Notes and other receivables | 213,985 | | | 195,104 | |
Operating lease right-of-use assets | 69,756 | | | 72,143 | |
Prepaid expenses and other assets | 63,090 | | | 47,340 | |
Total assets | $ | 12,788,641 | | | $ | 12,936,177 | |
(9) Net Income Per Common Share and Net Income Per Common Unit
($ in thousands, except share and unit data):
Essex Property Trust, Inc.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
| Income | | Weighted- average Common Shares | | Per Common Share Amount | | Income | | Weighted- average Common Shares | | Per Common Share Amount |
Basic: | | | | | | | | | | | |
Net income available to common stockholders | $ | 118,390 | | | 65,048,486 | | | $ | 1.82 | | | $ | 73,661 | | | 65,232,837 | | | $ | 1.13 | |
Effect of Dilutive Securities: | | | | | | | | | | | |
Stock options | — | | | 99,295 | | | | | — | | | 8,591 | | | |
| | | | | | | | | | | |
Diluted: | | | | | | | | | | | |
Net income available to common stockholders | $ | 118,390 | | | 65,147,781 | | | $ | 1.82 | | | $ | 73,661 | | | 65,241,428 | | | $ | 1.13 | |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
| Income | | Weighted- average Common Shares | | Per Common Share Amount | | Income | | Weighted- average Common Shares | | Per Common Share Amount | | Income | | Weighted- average Common Shares | | Per Common Share Amount | | Income | | Weighted- average Common Shares | | Per Common Share Amount |
Basic: | | | | | | | | | | | | Basic: | | | | | | | | | | | |
Net income available to common stockholders | $ | 329,446 |
| | 65,759,450 |
| | $ | 5.01 |
| | $ | 215,555 |
| | 65,455,004 |
| | $ | 3.29 |
| Net income available to common stockholders | $ | 351,680 | | | 65,013,477 | | | $ | 5.41 | | | $ | 473,125 | | | 65,561,820 | | | $ | 7.22 | |
Effect of Dilutive Securities: | | | | | | | | | | | |
| Effect of Dilutive Securities: | | | | |
Stock options | — |
| | 77,515 |
| | | | — |
| | 123,657 |
| | | Stock options | — | | | 61,697 | | | — | | | 20,026 | | |
DownREIT units | | DownREIT units | — | | | — | | | 587 | | | 94,247 | | |
Diluted: | |
| | |
| | |
| | |
| | |
| | |
| Diluted: | | | | | | | | | | | |
Net income available to common stockholders | $ | 329,446 |
| | 65,836,965 |
| | $ | 5.00 |
| | $ | 215,555 |
| | 65,578,661 |
| | $ | 3.29 |
| Net income available to common stockholders | $ | 351,680 | | | 65,075,174 | | | $ | 5.40 | | | $ | 473,712 | | | 65,676,093 | | | $ | 7.21 | |
The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of 2,251,1122,287,678 and 2,220,952,2,295,510, which include vested Series Z Incentive Units, Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units for the three months ended September 30, 20172021 and 2016,2020, respectively, and 2,251,6732,291,725 and 2,224,2362,297,141 for the nine months ended September 30, 20172021 and 2016,2020, respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated $2.7$4.2 million and $2.2$2.6 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $11.3$12.4 million and $7.5$16.5 million for the nine months ended September 30, 20172021 and 2016,2020, respectively. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT units for cash and does not consider them to be common stock equivalents.
Stock options of zero and 40,900493,567 for the three months ended September 30, 20172021 and 2016,2020, respectively, and 2,352116,380 and 76,054299,046 for the nine months ended September 30, 20172021 and 2016,2020, respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share of such options plus the average unearned compensation were greater than the average market price of the common stock for the periods ended and, therefore, were anti-dilutive.
| | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 | | Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2020 |
| Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount |
Basic: | | | | | | | | | | | | Basic: | | | | | | | | | | | |
Net income available to common unitholders | $ | 82,444 |
| | 68,246,008 |
| | $ | 1.21 |
| | $ | 67,784 |
| | 67,728,621 |
| | $ | 1.00 |
| Net income available to common unitholders | $ | 122,558 | | | 67,336,164 | | | $ | 1.82 | | | $ | 76,254 | | | 67,528,346 | | | $ | 1.13 | |
Effect of Dilutive Securities: | | | | | | | | | | | |
| Effect of Dilutive Securities: | | | | |
Stock options | — |
| | 83,387 |
| | | | — |
| | 109,882 |
| | | Stock options | — | | | 99,295 | | | — | | | 8,591 | | |
| Diluted: | |
| | |
| | |
| | |
| | |
| | |
| Diluted: | | | | | | | | | | | |
Net income available to common unitholders | $ | 82,444 |
| | 68,329,395 |
| | $ | 1.21 |
| | $ | 67,784 |
| | 67,838,503 |
| | $ | 1.00 |
| Net income available to common unitholders | $ | 122,558 | | | 67,435,459 | | | $ | 1.82 | | | $ | 76,254 | | | 67,536,937 | | | $ | 1.13 | |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
| | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2020 |
| Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount | | Income | | Weighted- average Common Units | | Per Common Unit Amount |
Basic: | | | | | | | | | | | | Basic: | | | | | | | | | | | |
Net income available to common unitholders | $ | 340,735 |
| | 68,011,123 |
| | $ | 5.01 |
| | $ | 223,012 |
| | 67,679,240 |
| | $ | 3.30 |
| Net income available to common unitholders | $ | 364,083 | | | 67,307,259 | | | $ | 5.41 | | | $ | 489,668 | | | 67,858,961 | | | $ | 7.22 | |
Effect of Dilutive Securities: | | | | | | | | | | | |
| Effect of Dilutive Securities: | | | | |
Stock options | — |
| | 77,515 |
| | | | — |
| | 123,657 |
| | | Stock options | — | | | 61,697 | | | — | | | 20,026 | | |
DownREIT units | | DownREIT units | — | | | — | | | 587 | | | 94,247 | | |
Diluted: | |
| | |
| | |
| | |
| | |
| | |
| Diluted: | | | | | | | | | | | |
Net income available to common unitholders | $ | 340,735 |
| | 68,088,638 |
| | $ | 5.00 |
| | $ | 223,012 |
| | 67,802,897 |
| | $ | 3.29 |
| Net income available to common unitholders | $ | 364,083 | | | 67,368,956 | | | $ | 5.40 | | | $ | 490,255 | | | 67,973,234 | | | $ | 7.21 | |
Stock options of zero0 and 40,900493,567 for the three months ended September 30, 20172021 and 2016,2020, respectively, 116,380 and 2,352 and 76,054299,046 for the nine months ended September 30, 20172021 and 2016,2020, respectively, were excluded from the calculation of diluted earnings per unit because the assumed proceeds per unit of these options plus the average unearned compensation were greater than the average market price of the common unit for the periods ended and, therefore, were anti-dilutive. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT units for cash and does not consider them to be common stock equivalents.
(9)(10) Derivative Instruments and Hedging Activities
As of September 30, 2017, the Company had entered into interest rate swap contracts with an aggregate notional amount of $175.0 million that effectively fixed the interest rate on the $175.0 million unsecured term loan at 2.3%. These derivatives qualify for hedge accounting.
As of September 30, 2017, the Company had interest rate caps, which are not accounted for as hedges, totaling a notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.
As of September 30, 20172021 and December 31, 2016,2020, the aggregate carrying value of the interest rate swap contracts waswere a liability of zero and $2.4 million, respectively. As of September 30, 2021 and December 31, 2020, the swap contracts were presented in the condensed consolidated balance sheets as an asset of $3.8 millionzero for both periods and $4.4a liability of zero and $2.4 million, respectively, and iswere included in prepaid expenses and other assetsliabilities on the condensed consolidated balance sheets. The aggregate carrying value of the interest rate caps was zero on the condensed consolidated balance sheets as of both September 30, 2017 and December 31, 2016.
Hedge ineffectiveness related to cash flow hedges, which is included in interest expense on the condensed consolidated income statements, net was not significant for both the three and nine months ended September 30, 2017 and 2016.
Additionally, theThe Company has entered into4 total return swapsswap contracts, with an aggregate notional amount of $224.5 million, that effectively convert $256.8$224.5 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to the counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call all of its total return swaps, with $256.8$224.5 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero at both September 30, 20172021 and December 31, 2016.2020. These total return swaps are scheduled to mature between September 2021November 2022 and November 2022. RealizedDecember 2024. The realized gains of $2.5$2.7 million and $3.1$3.0 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $7.7$8.1 million and $9.1$7.7 million for the nine months ended September 30, 20172021 and 2016,2020, respectively, arewere reported in the condensed consolidated statements of income and comprehensive income as total return swap income.
(11) Commitments and Contingencies
The Company is subject to various lawsuits in the normal course of its business operations. Such lawsuits have not had a material adverse effect on the Company's financial condition, results of operations or cash flows. While no assurances can be given, the Company does not believe there is any pending or threatened litigation against the Company that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company.
The Company is subject to various federal, state, and local environmental and other laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new, changed or expired laws or regulations on its current portfolio or on other assets that the Company may acquire in the future,
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 20172021 and 20162020
(Unaudited)
(10) Commitmentsincluding, without limitation, certain eviction moratoriums and Contingencies
The Company is subject to various lawsuitsother mandates that have been, or may be, enacted or extended in connection with the normal course of its business operations. Such lawsuits could, but are not expected to, have a material adverse effect on the Company's financial condition, results of operations or cash flows.
The Company is subject to various federal, state, and local environmental laws.COVID-19 pandemic. To the extent that an environmental or other matter arises or is identified in the future that has other than a remote risk of having a material impact on the condensed consolidated financial statements, the Company will disclose the estimated range of possible outcomes associated with it, and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, impairment will be recognized.
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with the Company’s 20162020 annual report on Form 10-K for the year ended December 31, 2016. We make2020. Capitalized terms not defined in this section have the meaning ascribed to them elsewhere in this Quarterly Report on Form 10-Q. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Forward Looking"Forward-Looking Statements."
The CompanyEssex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located primarily inon the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of September 30, 2017,2021, had an approximately 96.7%96.6% general partnerpartnership interest in the Operating Partnership.
The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the Company's portfolio.
As of September 30, 2017,2021, the Company owned or had ownership interests in 247 stabilized246 operating apartment communities, comprising 60,30560,799 apartment homes, excluding the Company’s ownership interest in preferred equity interest co-investments, and the Company also had ownership interests in oneloan investments, three operating commercial building with approximately 106,564 square feetbuildings, and seven active developments. a development pipeline comprised of two consolidated projects and one unconsolidated joint venture project.
The Company’s apartment communities are predominately located in the following major regions:
Southern California (Los (primarily Los Angeles, Orange, San Diego, and Ventura counties)
Northern California (the San Francisco Bay Area)
SeattleMetro (Seattle metropolitan area)
As of September 30, 2017,2021, the Company’s development pipeline was comprised of fourtwo consolidated projects under development, threeone unconsolidated joint venture projectsproject under development, and various consolidated predevelopment projects aggregating 2,158571 apartment homes, with total incurred costs of $0.6 billion,$252.0 million, and estimated remaining project costs of $0.8 billion, $0.5 billionapproximately $84.0 million, $51.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of $1.4 billion.$336.0 million.
The Company’s consolidated apartment communities are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2021 | | As of September 30, 2020 |
| Apartment Homes | | % | | Apartment Homes | | % |
Southern California | 22,190 | | | 43 | % | | 22,675 | | | 43 | % |
Northern California | 19,123 | | | 37 | % | | 19,319 | | | 37 | % |
Seattle Metro | 10,218 | | | 20 | % | | 10,217 | | | 20 | % |
Total | 51,531 | | | 100 | % | | 52,211 | | | 100 | % |
|
| | | | | | | | | | | |
| As of September 30, 2017 | | As of September 30, 2016 |
| Apartment Homes | | % | | Apartment Homes | | % |
Southern California | 23,343 |
| | 47 | % | | 23,949 |
| | 49 | % |
Northern California | 15,848 |
| | 32 | % | | 14,865 |
| | 30 | % |
Seattle Metro | 10,238 |
| | 21 | % | | 10,239 |
| | 21 | % |
Total | 49,429 |
| | 100 | % | | 49,053 |
| | 100 | % |
Co-investments, including Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, LLC (“Wesco IV”), Wesco V, LLC ("Wesco V"), Canadian Pension Plan Investment Board ("CPPIB" or "CPP"),VI, BEXAEW, LLC (“BEXAEW”), and BEX II, LLC ("BEX II")IV, and 500 Folsom communities, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods. The community previously held in the BEX III co-investment, which was consolidated in the second quarter of 2021, is excluded from the September 30, 2020 table but included in the September 30, 2021 table.
ComparisonCurrent Material Development – the COVID-19 Pandemic
The United States and other countries around the world are continuing to experience impacts related to COVID-19 pandemic and related variants which has created considerable instability, disruption, and uncertainty. Governmental authorities in impacted regions are continuing to take dramatic and unpredictable actions in an effort to slow COVID-19’s spread. Federal, state and local jurisdictions have implemented varying forms of requirements on sponsors and patrons of public gatherings and
requiring businesses to make changes to their operations in a manner that may negatively affect profitability, result in job losses and related financial impacts that may affect future operations to an unknown extent. While the California eviction moratorium sunsetted during the quarter, other state and local eviction moratoriums and, laws that limit rent increases during times of emergency and prohibit the ability to collect unpaid rent during certain timeframes, continue to be in effect in various formats at various regions in which Essex's communities are located, impacting Essex properties. The Company is working to comply with the stated intent of local, county, state and federal laws. In that regard, the Company has implemented a wide range of practices to protect and support its employees and residents. Such measures include:
•instituting a hybrid work model for corporate associates to work at the Company's corporate offices and remotely;
•transitioning many public interactions with leasing staff to on-line and telephonic communications;
•increasing cleaning practices for common areas and community amenities and opening common areas and community amenities with limited hours, limited capacity or by reservation only, depending in part on jurisdictional requirements; and
•delaying the response to maintenance orders in certain circumstances in order to promote the protection of our employees and residents.
Due to the COVID-19 pandemic, some of the Three Months Ended September 30, 2017Company's residents, their health, their employment, and, thus, their ability to pay rent, have been and may continue to be impacted. To support residents, the Company has implemented the following steps, including, but not limited to:
•assembling a Resident Response Team to effectively and efficiently respond to resident needs and concerns with respect to the Three Months Ended September 30, 2016pandemic;
•structuring payment plans for residents who are unable to pay their rent as a result of the outbreak and waiving late fees where required or applicable for those residents; and
•establishing the Essex Cares fund for the purpose of supporting the Company’s residents and communities that are experiencing financial hardships caused by the COVID-19 pandemic.
The Company’s average financial occupanciesimpact of the COVID-19 pandemic on the U.S. and world economies generally, and on the Company's results in particular, has been, and may continue to be significant. The long-term impact will largely depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, whether employees and employers will continue to promote remote work if and when the pandemic concludes. This includes new information which may emerge concerning the severity of COVID-19 and related variants, the success of actions taken to contain or treat COVID-19 including but not limited to vaccination rates and the impacts of varying vaccine mandates, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The labor shortage due partly to various government mandates and vaccine requirements implemented during the COVID-19 pandemic and supply chain disruptions may negatively impact the Company's results of operations.
Primarily as a result of the impact of the COVID-19 pandemic, the Company's cash delinquencies as a percentage of scheduled rental income for the Company’s stabilized apartment communities or “Same-Property”"Same-Property" (stabilized properties consolidated by the Company for the quarters ended September 30, 20172021 and 2016) was 96.7% and 96.5%2020) remained higher than the pre-pandemic period but improved from 2.7% for the three months ended September 30, 20172020 to 1.4% for the three months ended September 30, 2021. The Company has executed some payment plans and 2016,will continue to work with residents to collect such cash delinquencies. As of September 30, 2021, the increase in delinquencies has not had a material adverse impact on the Company's liquidity position. The Company's average financial occupancy for the Company’s Same-Property portfolio increased from 96.0% for the three months ended September 30, 2020 to 96.4% for the three months ended September 30, 2021.
The COVID-19 pandemic has not negatively impacted the Company's ability to access traditional funding sources on the same or reasonably similar terms as were available in recent periods prior to the pandemic, as demonstrated by the Company's financing activity during the three months ended September 30, 2021 discussed in the "Liquidity and Capital Resources" section below. The Company is not at material risk of not meeting the covenants in its credit agreements and is able to timely service its debt and other obligations.
Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020
The Company’s average financial occupancy for the Company’s Same-Property portfolio was 96.4% and 96.0% for the three months ended September 30, 2021 and 2020, respectively. Financial occupancy is defined as the percentage resulting from dividing actual rental revenueincome by total potentialscheduled rental revenue.income. Actual rental revenueincome represents contractual rental revenueincome pursuant to leases without considering delinquency and concessions. Total potentialscheduled rental revenueincome represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. We believeThe Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate.
Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on a variety of factors, including overall supply and demand for housing, concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity, and rental affordability. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates, and the Company's calculation of financial occupancy may not be comparable to financial occupancy disclosed by other REITs.
The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions. For apartment communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual revenue,income, is not considered the best metric to quantify occupancy.
The regional breakdown of the Company’s Same-Property portfolio for financial occupancy for the three months ended September 30, 20172021 and 20162020 is as follows:
| | | | | | | | | | | |
| Three Months Ended September 30, |
| 2021 | | 2020 |
Southern California | 97.1 | % | | 95.9 | % |
Northern California | 95.9 | % | | 96.2 | % |
Seattle Metro | 95.8 | % | | 95.9 | % |
|
| | | | | |
| Three Months Ended September 30, |
| 2017 | | 2016 |
Southern California | 96.8 | % | | 96.7 | % |
Northern California | 96.9 | % | | 96.5 | % |
Seattle Metro | 96.2 | % | | 96.1 | % |
The following table provides a breakdown of revenuerevenues amounts, including revenues attributable to the Same-Properties:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Apartment | | Three Months Ended September 30, | | Dollar | | Percentage |
Property Revenues ($ in thousands) | | Homes | | 2021 | | 2020 | | Change | | Change |
Same-Property Revenues: | | | | | | | | | | |
Southern California | | 20,800 | | | $ | 142,447 | | | $ | 130,829 | | | $ | 11,618 | | | 8.9 | % |
Northern California | | 16,072 | | | 122,426 | | | 125,193 | | | (2,767) | | | (2.2) | % |
Seattle Metro | | 10,218 | | | 60,280 | | | 60,617 | | | (337) | | | (0.6) | % |
Total Same-Property Revenues | | 47,090 | | | 325,153 | | | 316,639 | | | 8,514 | | | 2.7 | % |
Non-Same Property Revenues | | | | 35,467 | | | 51,825 | | | (16,358) | | | (31.6) | % |
Total Property Revenues | | | | $ | 360,620 | | | $ | 368,464 | | | $ | (7,844) | | | (2.1) | % |
|
| | | | | | | | | | | | | | | | | | |
| | Number of Apartment | | Three Months Ended September 30, | | Dollar | | Percentage |
Property Revenues ($ in thousands) | | Homes | | 2017 | | 2016 | | Change | | Change |
Same-Property Revenues: | | | | | | | | | | |
Southern California | | 21,998 |
| | $ | 141,203 |
| | $ | 136,368 |
| | $ | 4,835 |
| | 3.5 | % |
Northern California | | 13,892 |
| | 109,820 |
| | 108,156 |
| | 1,664 |
| | 1.5 | % |
Seattle Metro | | 10,238 |
| | 58,285 |
| | 55,545 |
| | 2,740 |
| | 4.9 | % |
Total Same-Property Revenues | | 46,128 |
| | 309,308 |
| | 300,069 |
| | 9,239 |
| | 3.1 | % |
Non-Same Property Revenues | | |
| | 32,666 |
| | 27,009 |
| | 5,657 |
| | 20.9 | % |
Total Property Revenues | | |
| | $ | 341,974 |
| | $ | 327,078 |
| | $ | 14,896 |
| | 4.6 | % |
Same-Property Revenues increased by $9.2$8.5 million or 3.1%2.7% to $309.3$325.2 million in the third quarter of 20172021 from $300.1$316.6 million in the third quarter of 2016.2020. The increase was primarily attributable to an increase of 3.0% in average rental ratesfinancial occupancy from $2,118 per apartment home96.0% in the third quarter of 20162020 to $2,182 per apartment home96.4% in the third quarter of 2017.
Non-Same Property Revenues increased by $5.7 million or 20.9% to $32.72021, a decrease in concessions from $17.9 million in the third quarter of 2017 from $27.02020 to $9.5 million in the third quarter of 2016. The increase was primarily due2021, as well as a decrease in cash delinquencies from 2.7% for the three months ended September 30, 2020 to revenue generated1.4% for the three months ended September 30, 2021.
Non-Same Property Revenues decreased by the consolidation of Palm Valley in January 2017.
Management and other fees from affiliates increased by $0.3$16.4 million or 14.3%31.6% to $2.4$35.5 million in the third quarter of 20172021 from $2.1$51.8 million in the third quarter of 2016,2020. The decrease was primarily due to property management fee revenuethe sale of 416 on Broadway in the fourth quarter of 2020 and the sales of Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments in 2021.
Management and other fees from joint venture development communities that went into lease-up fromaffiliates decreased by $0.1 million or 4.3% to $2.2 million in the third quarter of 2016 through2021 from $2.3 million in the third quarter of 2017.2020. The decrease was primarily due to a decrease of the management fee rate for one of the joint ventures.
Property operating expenses, excluding real estate taxes increased $2.8by $1.5 million or 4.4%2.2% to $66.6$69.5 million for the third quarter of 20172021 compared $63.8to $68.0 million for to the third quarter of 20162020, primarily due to an increaseincreases of $1.5$1.6 million in utilities expense.expense
and $1.3 million in maintenance and repairs expenses, offset by a decrease of $1.4 million in administrative expenses. Same-Property operating expenses, excluding real estate taxes, increased by $2.1$2.7 million or 3.6% for4.4% to $63.5 million in the third quarter of 20172021 compared to $60.8 million in the third quarter of 2016,2020, primarily due to increases of $1.5 million in utilities expense, $1.4 million in maintenance and repairs expenses, and $0.5 million in insurance and other expenses, offset by a $1.3decrease of $0.7 million increase in utilities.administrative expenses.
Real estate taxes increased $1.9$1.4 million or 5.3%3.2% to $37.5$45.8 million for the third quarter of 20172021 compared to $35.6$44.4 million for the third quarter of 20162020, primarily due primarily to the consolidation of Palm Valley in January 2017 and increases in assessed valuations and tax rates and property valuations.rates. Same-Property real estate taxes increased by $0.6$1.1 million or 1.9%2.9% to $32.7$39.2 million in the third quarter of 20172021 compared to $32.1$38.1 million in the third quarter of 20162020, primarily due to increasesan increase in assessed valuations and tax rates andrates.
Corporate-level property valuations.
Depreciation and amortization expensemanagement expenses increased by $7.0$0.5 million or 6.3%5.8% to $117.5$9.1 million for the third quarter of 20172021 compared to $110.5$8.6 million for the third quarter of 2016, primarily due2020.
Gain on sale of real estate and land of $42.9 million in the third quarter of 2021 was attributable to the consolidationsale of Palm Valley in January 2017.Devonshire Apartments.
InterestDepreciation and amortization expense decreased $0.8 increased by $0.4 million or 1.4%0.3% to $55.9$130.6 million for the third quarter of 20172021 compared to $56.7$130.2 million for the third quarter of 2016,2020, primarily due to variousthe recently completed development properties, Mylo, Station Park Green (Phase II and Phase III) and Wallace on Sunset as well as the acquisition of Village at Toluca Lake during the second quarter of 2021. The increases were partially offset by decreases in depreciation expense resulting from property dispositions in 2021, and amortization expense resulting from certain lease intangibles becoming fully amortized during 2020.
Interest expense decreased by $5.4 million or 9.7% to $50.0 million for the third quarter of 2021 compared to $55.4 million for the third quarter of 2020, primarily due to a decrease in average outstanding debt primarily as a result of debt that was paid off or matured, regular principal amortization during and after the third quarter of 2016,2020, and lower average interest rates, which resulted in a decrease in interest expense of $4.1$11.5 million for the third quarter of 2017,2020. These decreases to interest expense were partially offset by an increase primarily due to the $350.0issuance of $300 million of senior unsecured notes due June 15, 2031 in May 1, 2027 issued in April 2017 and the2021, $450.0 million of senior unsecured notes due on AprilMarch 1, 2028 in February 2021, $650 million of senior unsecured notes due March 15, 2026 issued2032 in April 2016,February and June 2020, and $600 million of senior unsecured notes due January 15, 2031 and September 1, 2050 in August 2020, which resulted in $7.3an increase of $4.1 million interest expense for the third quarter of 2017 compared to $4.02021. Additionally, there was a $2.0 million fordecrease in capitalized interest in the third quarter of 2016.2021, due to a decrease in development activity as compared to the same period in 2020.
Total return swap income of $2.5$2.7 million in the third quarter of 20172021 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015 in connection with issuing $257.3an aggregate notional amount of $224.5 million.
Interest and other income increased by $5.5 million of fixed rate tax-exempt mortgage notes payable. The decrease of $0.6or 84.6% to $12.0 million for the third quarter of 20172021 compared to the third quarter of 2016 was due to less favorable interest rates.
Interest and other income increased by $0.9 million or 18.4% to $5.8$6.5 million for the third quarter of 2017 compared2020, primarily due to $4.9increases of $3.8 million in unrealized gains on marketable securities and $1.6 million in marketable securities and other income.
Equity income from co-investments increased by $10.4 million or 69.3% to $25.4 million for the third quarter of 2016 primarily due2021 compared to an increase in marketable securities and other interest income of $1.6 million offset by a $1.0 million decrease in gain on sale of marketable securities and other investments.
Equity income from co-investments increased $10.1 million or 105.2% to $19.7$15.0 million for the third quarter of 2017 compared2020, primarily due to $9.6increases of $11.1 million in equity income from non-core co-investments and $3.3 million in income from preferred equity investments, offset by decreases of $2.2 million in gain on sale of co-investment communities and $1.7 million in equity income from co-investments.
Deferred tax expense on unrealized gain on unconsolidated co-investment of $3.0 million for the third quarter of 2016 primarily due to the sale of2021 resulted from a property by Wesco I during the third quarter of 2017, which resulted in anet unrealized gain of $10.1$10.7 million for the Company.from unconsolidated co-investments.
Comparison of the Nine Months Ended September 30, 20172021 to the Nine Months Ended September 30, 20162020
OurThe Company's average financial occupanciesoccupancy for the Company'sits stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the nine months ended September 30, 20172021 and 2016)2020) was 96.5%96.6% and 96.2%95.9% for the nine months ended September 30, 20172021 and 2016,2020, respectively.
The regional breakdown of the Company’sCompany's Same-Property portfolio for financial occupancy for the nine months ended September 30, 20172021 and 20162020 is as follows:
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2021 | | 2020 |
Southern California | 96.5 | % | | 96.2 | % | Southern California | 97.0 | % | | 95.7 | % |
Northern California | 96.8 | % | | 96.2 | % | Northern California | 96.2 | % | | 96.0 | % |
Seattle Metro | 96.3 | % | | 95.9 | % | Seattle Metro | 96.4 | % | | 96.0 | % |
The following table provides a breakdown of revenue amounts, including revenues attributable to the Same-Properties: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Apartment | | Nine Months Ended September 30, | | Dollar | | Percentage |
Property Revenues ($ in thousands) | | Homes | | 2021 | | 2020 | | Change | | Change |
Same-Property Revenues: | | | | | | | | | | |
Southern California | | 20,800 | | | $ | 413,384 | | | $ | 407,362 | | | $ | 6,022 | | | 1.5 | % |
Northern California | | 16,072 | | | 366,344 | | | 395,273 | | | (28,929) | | | (7.3) | % |
Seattle Metro | | 10,218 | | | 178,180 | | | 184,310 | | | (6,130) | | | (3.3) | % |
Total Same-Property Revenues | | 47,090 | | | 957,908 | | | 986,945 | | | (29,037) | | | (2.9) | % |
Non-Same Property Revenues | | | | 104,345 | | | 139,418 | | | (35,073) | | | (25.2) | % |
Total Property Revenues | | | | $ | 1,062,253 | | | $ | 1,126,363 | | | $ | (64,110) | | | (5.7) | % |
|
| | | | | | | | | | | | | | | | | | |
| | Number of Apartment | | Nine Months Ended September 30, | | Dollar | | Percentage |
Property Revenues ($ in thousands) | | Homes | | 2017 | | 2016 | | Change | | Change |
Same-Property Revenues: | | | | | | | | | | |
Southern California | | 21,998 |
| | $ | 417,651 |
| | $ | 401,321 |
| | $ | 16,330 |
| | 4.1 | % |
Northern California | | 13,892 |
| | 326,880 |
| | 318,498 |
| | 8,382 |
| | 2.6 | % |
Seattle Metro | | 10,238 |
| | 171,564 |
| | 161,193 |
| | 10,371 |
| | 6.4 | % |
Total Same-Property Revenues | | 46,128 |
| | 916,095 |
| | 881,012 |
| | 35,083 |
| | 4.0 | % |
Non-Same Property Revenues | | |
| | 95,813 |
| | 77,806 |
| | 18,007 |
| | 23.1 | % |
Total Property Revenues | | |
| | $ | 1,011,908 |
| | $ | 958,818 |
| | $ | 53,090 |
| | 5.5 | % |
Same-Property Revenues increased decreased by $35.1$29.0 million or 4.0%2.9% to $916.1$957.9 million in the nine months ended September 30, 20172021 from $881.0$986.9 million in the nine months ended September 30, 2016.2020. The increasedecrease was primarily attributable to an increaseadditional $10.6 million of 3.6%cash concessions compared to the prior year period and a decrease of 2.7% in average rental rates from $2,084$2,361 per apartment home in the nine months ended September 30, 20162020 to $2,159$2,298 per apartment home in the nine months ended September 30, 2017. 2021.
Non-Same Property Revenues increased decreased by $18.0$35.1 million or 23.1%25.2% to $95.8$104.3 million in the nine months ended September 30, 20172021 from $77.8$139.4 million in the nine months ended September 30, 2016.2020. The increasedecrease was primarily due to revenue generated byproperty dispositions in 2020 and the consolidationsale of PalmHidden Valley, Axis 2300, Park 20, and Devonshire Apartments in January 2017.2021.
Management and other fees from affiliates increased decreased by $0.8$0.6 million or 13.1%8.2% to $6.9$6.7 million in the nine months ended September 30, 20172021 from $6.1$7.3 million in the nine months ended September 30, 2016,2020. The decrease was primarily due to propertya decrease in asset management fee revenue from joint venture development communities that went into lease-upfees resulting from the thirdconsolidation of six communities as part of the Company's purchase of Canada Pension Plan Investment Board's ("CPPIB") 45.0% co-investment interests in the first quarter of 2016 through the third quarter of 2017.2020, and a decrease in revenues used to calculate management fees.
Property operating expenses, excluding real estate taxes increased $8.2by $0.6 million or 4.4%0.3% to $193.6$197.9 million for the nine months ended September 30, 20172021 compared to $185.4$197.3 million for the nine months ended September 30, 20162020, primarily due to an increase of $3.9 million in utilities expense offset by decreases of $2.0 million in administrative expenses and $1.3 million in maintenance and repairs expenses partially driven by sales in 2020 and the consolidationsales of PalmHidden Valley, Axis 2300, Park 20, and Devonshire Apartments in January 2017.2021. Same-Property operating expenses, excluding real estate taxes, increased by $5.7$3.5 million or 3.3%2.0% to $178.1$180.6 million in the nine months ended September 30, 2021 compared to $177.1 million in the nine months ended September 30, 2020, primarily due to increases of $3.9 million in utilities expenses and $1.8 million in insurance and other expenses, offset by decreases of $1.8 million in administrative expenses and $0.4 million in maintenance and repairs expenses.
Real estate taxes increased by $3.0 million or 2.3% to $135.4 million for the nine months ended September 30, 20172021 compared to $172.4$132.4 million for the nine months ended September 30, 2016,2020, primarily due to a $3.3increases in assessed valuations and tax rates. Same-Property real estate taxes increased by $3.1 million or 2.8% to $116.2 million in the nine months ended September 30, 2021 compared to $113.1 million in the nine months ended September 30, 2020, primarily due to an increase in utilitiesassessed valuations and an increase of $1.3 million in maintenance and repairs.tax rates.
Real estate taxesCorporate-level property management expenses increased $3.8by $1.1 million or 3.6%4.2% to $108.3$27.1 million for the nine months ended September 30, 20172021 compared to $104.5$26.0 million for the nine months ended September 30, 2016 due primarily to the consolidation of Palm Valley in January 20172020.
Depreciation and increases in tax rates and property valuations. Same-Property real estate taxes increasedamortization expense decreased by $2.1$7.5 million or 2.2%1.9% to $96.7$387.9 million for the nine months ended September 30, 20172021 compared to $94.6$395.4 million for the nine months ended September 30, 20162020, primarily due to increasesa decrease in tax ratesamortization expense resulting from certain lease intangibles becoming fully amortized during 2020 and property valuations.the sale of Hidden Valley, Axis 2300, and Park 20 in the first quarter of 2021.
Depreciation
Gain on sale of real estate and amortizationland of $143.0 million in the nine months ended September 30, 2021 was attributable to the sale of Hidden Valley, Axis 2300, and Park 20 in the first quarter of 2021 and Devonshire Apartments in the third quarter of 2021.
Interest expense increased decreased by $21.1$12.4 million or 6.4%7.5% to $350.9$152.6 million for the nine months ended September 30, 20172021 compared to $329.8$165.0 million for the nine months ended September 30, 2016,2020, primarily due to a decrease in average outstanding debt primarily as a result of debt that was paid off or matured, regular principal amortization during and after the consolidationthird quarter of Palm Valley2020, and lower average interest rates, which resulted in January 2017.
Interesta decrease in interest expense increased $2.6 of $36.6 million or 1.6%from the third quarter of 2020. These decreases to $167.3interest expense were partially offset by the issuance of $300 million for the nine months ended September 30, 2017 compared to $164.7 million for the nine months ended September 30, 2016, primarily due to the $350.0 millionof senior unsecured notes due June 15, 2031 in May 1, 2027 issued in April 2017 and the2021, $450.0 million of senior unsecured notes due on AprilMarch 1, 2028 in February 2021, $650 million of senior unsecured notes due March 15, 2026 issued2032 in April 2016
February and June 2020, and $600 million of senior unsecured notes due January 15, 2031 and September 1, 2050 in August 2020, which resulted in $18.6an increase of $16.9 million interest expense for the nine months ended September 30, 2017 and $7.52021. Additionally, there was a $7.3 million fordecrease in capitalized interest in the nine months ended September 30, 2016. The increase was partially offset by various debt that was paid off or matured during and after2021, due to a decrease in development activity as compared to the same period in 2020.
Total return swap income of $8.1 million in the nine months ended September 30, 2016, which resulted in a decrease in interest expense of $8.6 million for the nine months ended September 30, 2017.
Total return swap income of $7.7 million for the nine months ended September 30, 20172021 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015with an aggregate notional amount of $224.5 million.
Interest and other income increased by $36.1 million or 284.3% to $48.8 million in connection with issuing $257.3 million of fixed rate tax-exempt mortgage notes payable. The decrease of $1.4income for the nine months ended September 30, 2021 compared to $12.7 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was2020, primarily due to less favorable interest rates.
Interestincreases of $21.6 million in unrealized gains on marketable securities, $6.9 million in marketable securities and other income, decreased $4.7 million in income from early redemption of notes receivable, and $2.4 million in gain on sale of marketable securities.
Equity income from co-investments increased by $1.7$7.2 million or 8.7%13.5% to $17.9$60.7 million for the nine months ended September 30, 20172021 compared to $19.6$53.5 million for the nine months ended September 30, 20162020, primarily due to an decreaseincreases of $3.2$14.9 million in equity income from non-core co-investments and $8.8 million in income from insurance reimbursements, legal settlements, and other,preferred equity investments including income from early redemptions. The increases were partially offset by an increasedecreases of $7.8 million in marketable securities and other interest income.
Equityequity income from co-investments, increased $2.0 $6.5 million or 5.1% to $40.9in co-investment promote income, and $2.2 million in gain on sale of co-investment communities.
Deferred tax expense on unrealized gain on unconsolidated co-investment of $5.4 million for the nine months ended September 30, 2017 compared to $38.92021 resulted from a net unrealized gain on $18.8 million from unconsolidated co-investments.
Loss on early retirement of debt, net of $19.0 million for the nine months ended September 30, 20162021 was primarily due to the saleearly termination of a property by Wesco I during the nine months ended September 30, 2017, which resultedCompany's five interest rate swap contracts in a gainconjunction with the partial repayment of $10.1the Company's unsecured term debt and the early repayment of $300.0 million as well as increases in preferred equity income of approximately $6.2 million. This increase was offset by the sale of two properties by BEXAEW, LLC during the nine months ended September 30, 2016, which resulted in gains of $13.0 million for the Company during that period.senior unsecured notes.
Gain on saleremeasurement of real estate and land increased $6.1co-investment of $2.3 million or 30.0% to $26.4resulted from the Company's purchase of BEX III's 50.0% interest in The Village at Toluca Lake community in the second quarter of 2021. The gain on remeasurement of $234.7 million for the nine months ended September 30, 2017 compared to $20.3 million for the nine months ended September 30, 2016 due primarily to a $26.2 million gain on the sale of Jefferson at Hollywood during the nine months ended September 30, 2017 as compared to a $10.7 million gain on the sale of Harvest Park and a $9.6 million gain on the sale of the Company's former headquarters office building during the nine months ended September 30, 2016.
Deferred tax expense on gain on sale of real estate and land of $4.3 million for thenine months ended September 30, 2016 was recorded due to the sale of Harvest Park, which was owned by our wholly owned taxable REIT subsidiary. There was no current tax expense on the sale of real estate and land for the nine months ended September 30, 2016 as the Harvest Park proceeds were used in a like-kind exchange transaction. There were no such transactions during the nine months ended September 30, 2017.
Gain on remeasurement of co-investment of $88.6 million for the nine months ended September 30, 20172020 resulted from the Company's purchase of the Company's joint venture partner's 50% interest in Palm Valley. There were no such transactionsCPPIB's 45.0% co-investment interests during the nine months ended September 30, 2016.first quarter of 2020.
Liquidity and Capital Resources
The United States and other countries around the world are continuing to experience an unprecedented health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in affected regions have taken extraordinary steps in an effort to slow down the spread of the virus and mitigate its impact on affected populations.
As of September 30, 2017,2021, the Company had $46.5$49.9 million of unrestricted cash and cash equivalents and $184.6$183.1 million in marketable securities, all of which $79.0 million were equity securities or available for sale. We believesale debt securities. The Company believes that cash flows generated by ourits operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit accessare sufficient to meet all of its anticipated cash needs during the next twelve months. Additionally, the capital markets continue to be available and the abilityCompany is able to generate cash from the disposition of real estate are sufficientassets to meet allfinance additional cash flow needs, including continued development and select acquisitions. In the event that conditions become further exacerbated due to the COVID-19 pandemic and related economic disruptions, the Company may further utilize other resources such as its cash reserves, lines of our reasonably anticipatedcredit, or decreased investment in redevelopment activities to supplement operating cash needs during the next twelve months.flows. The Company is carefully monitoring and managing its cash position in light of ongoing conditions and levels of operations. The timing, source and amounts of cash flows provided by financing activities and used in investing
activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect ourthe Company's plans for acquisitions, dispositions, development and redevelopment activities.
As of September 30, 2017, Fitch Ratings ("Fitch"),2021, Moody’s Investor Service, ("Moody's"), and Standard and Poor's (“S&P”) credit agencies rate Essex Property Trust, Inc.rated the Company and Essex Portfolio, L.P. BBB+/Stable,the Operating Partnership, Baa1/Stable, and BBB+/Stable, respectively.
TheAs of September 30, 2021, the Company hashad two unsecured lines of credit aggregating $1.03$1.24 billion. The Company has a $1.0 billion unsecured line of credit, and asAs of September 30, 2017,2021, there were no amountswas $35.0 million outstanding on thisthe Company's $1.2 billion unsecured line of credit. The underlying interest rate is based on a tiered rate structure tied to the Company's credit ratings and sustainability-linked metrics and was LIBOR plus 0.90%0.775% as of September 30, 2017.2021. This facility maturesis scheduled to mature in December 2020September 2025, with one 18-month extension,three 6-month extensions, exercisable at the Company's option. The Company also has a $25.0As of September 30, 2021, there was $7.7 million outstanding on the Company's $35.0 million working capital unsecured line of credit. This facility matures in January 2018. As of September 30, 2017, there was $2.6 million outstanding on the $25.0 million unsecured line. The underlying
interest rate on the $25.0$35.0 million line is based on a tiered rate structure tied to the Company's credit ratings and sustainability-linked metrics and was LIBOR plus 0.90%0.775% as of September 30, 2017.2021. This facility is scheduled to mature in February 2023.
In March 2017,June 2021, the Company paid offOperating Partnership issued $300.0 million of 5.500% senior unsecured notes at maturity.
In April 2017, the Company issued $350.0 milliondue on June 15, 2031 with a coupon rate of 10-year 3.625% senior unsecured notes. The interest is paid semi-annually in arrears2.550% per annum (the "2031 Notes"), which are payable on May 1June 15 and November 1December 15 of each year, commencingbeginning on November 1, 2017 untilDecember 15, 2021. The 2031 Notes were offered to investors at a price of 99.367% of par value. The 2031 Notes are general unsecured senior obligations of the maturity dateOperating Partnership, rank equally in right of May 1, 2027.payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay indebtedness underupcoming debt maturities, including to fund the redemption of $300.0 million aggregate principal amount (plus the make-whole amount and accrued and unpaid interest) of its outstanding 3.375% senior unsecured lines of creditnotes due January 2023, and for other general corporate and working capital purposes.
In July 2017,March 2021, the Company repaid $40.0Operating Partnership issued $450.0 million in private placement bondsof senior unsecured notes due on March 1, 2028 with a coupon rate of 4.5%1.700% per annum (the "2028 Notes"), which are payable on March 1 and September 1 of each year, beginning on September 1, 2021. The 2028 Notes were offered to investors at a stated maturity dateprice of 99.423% of par value. The 2028 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay upcoming debt maturities, including all or a portion of certain unsecured term loans, and for general corporate and working capital purposes.
In September 2017.2021, the Company entered into a new equity distribution agreement pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million (the “2021 ATM Program”). In connection with the 2021 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the 2021 ATM Program under forward sales agreements. The use of a forward sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date.
The Company has2021 ATM Program replaces the Company’s prior equity distribution agreement entered into equity distribution agreements with Cantor Fitzgerald & Co, Barclays Capital Inc.in September 2018 (the “2018 ATM Program”), BMO Capital Markets Corp., BNP Paribas Securities Corp., Capital One Securities, Inc., Citigroup Global Markets Inc., Jefferies LLC, J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA), Inc., and UBS Securities LLC. Pursuant to its equity distribution program, duringwhich was terminated upon the establishment of the 2021 ATM Program. During the nine months ended September 30, 2017,2021, the Company issued 311,873did not sell any shares of its common stock through the 2021 ATM Program or through the 2018 ATM Program. As of September 30, 2021, there are no outstanding forward purchase agreements, and $900.0 million of shares remains available to be sold under the 2021 ATM Program.
In December 2015, the Company’s Board of Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $250.0 million. In February 2019, the Board of Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the stock repurchase plan. In each of May and December 2020, the Board of Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. During the nine months ended September 30, 2021, the Company repurchased and retired 40,000 shares of its common stock totaling $9.2 million, including commissions, at an average price of $260.30$229.30 per share, for proceeds of $80.4 million, net of fees and commissions. There were no such sales during the three months ended September 30, 2017. Under this program, the Company may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to pay down debt, acquire apartment communities, fund the development pipeline and other general corporate purposes.share. As of September 30, 2017,2021, the Company may sell an additional 4,688,127 shareshad $214.5 million of purchase authority remaining under the current equity distribution program. Subsequent to quarter end through October 30, 2017, the Company issued 33,571 additional shares of common stock through its equity distribution program at an average price of $261.19 per share for proceeds of $8.7 million, net of fees and commissions.repurchase plan.
Essex pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Company primarily in investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its line of credit.
Development and Predevelopment Pipeline
The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of September 30, 2017,2021, the Company’s development pipeline was comprised of fourtwo consolidated projects under development, threeone unconsolidated joint venture projectsproject under development and various consolidated predevelopment projects, aggregating 2,158571 apartment homes, with total incurred costs of $0.6 billion,$252.0 million, and estimated remaining project costs of approximately $0.8 billion, $0.5 billion$84.0 million, $51.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of $1.4 billion.$336.0 million.
The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. The Company may also acquire land for future development purposes or sale.
The Company expects to fund the development and predevelopment pipelinecommunities by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of assets, if any.
Redevelopment Pipeline
The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations. As of September 30, 2017, the Company had ownership interests in five major redevelopment communities aggregating 1,727 apartment homes with estimated redevelopment costs of $138.2 million, of which approximately $49.2 million remains to be expended. The Company has the ability to cease funding of the redevelopment pipeline as needed.
Derivative Activity
The Company uses interest rate swaps, interest rate caps, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash
receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
Alternative Capital Sources
The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of September 30, 2017,2021, the Company had an interest in 1,190264 apartment homes ofin communities actively under development with joint ventures for total estimated costs of $0.7$0.1 billion. Total estimated remaining costs totalare approximately $0.4 billion,$68.0 million, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $0.2 billion.$34.7 million. In addition, the Company had an interest in 10,8769,468 apartment homes of operating communities with joint ventures for a total book value of $0.8 billion$470.8 million as of September 30, 2017.2021.
Off-Balance Sheet Arrangements
The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operations. See Note 3,4, Co-investments, in the Notes to Condensed Consolidated Financial Statements, for carrying values and combined summarized financial information of these unconsolidated investments.
Critical Accounting Policies and Estimates
The preparation of condensed consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. The Company defines critical accounting policies as those accounting policies that require the Company’s management to exercise their most difficult, subjective and complex judgments. The Company’s critical accounting policies and estimates relate principally to the following key areas: (i) accounting for business combinations; (ii) consolidation under applicable accounting standards for entities that are not wholly owned; (iii) assessing the carrying valuesacquisition of ourinvestments in real estate (specifically, the allocation between land and buildings); and (ii) evaluation of events and changes in circumstances indicating whether the Company’s rental properties and investments in and advances to joint ventures and affiliates; and (iv) internal cost capitalization.may be impaired. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.
The Company’s critical accounting policies and estimates have not changed materially from the information reported in Note 2, “SummarySummary of Critical and Significant Accounting Policies,” in the Company’s annual report on Form 10-K for the year ended December 31, 2016.2020.
Forward-Looking Statements
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this 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 (the "Securities Act"), and Section 21E of the Exchange Act, 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 asrelated 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, expectations as tothe 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, beliefsco-investment activities, qualification as toa 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, statements regarding Company'sits 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 governmental measures intended to prevent its spread, 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. ManyThe Company cannot assure the future results or outcome of the matters described in these uncertainties and risks are difficult to predict and beyond management's control.statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause such differencesthe 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, that the Company will failfollowing: the continued impact of the COVID-19 pandemic and related variants, which remains inherently uncertain as to achieveduration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of infectious diseases or other health concerns could continue to adversely affect the Company’s business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current developmentits tenants, and redevelopment projects will exceed expectations, that such development and redevelopment projects will not
be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that there may be increased interest rates and operating costs, 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 there may because a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located, thatlocated; 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, as well asindebtedness; unexpected difficulties in leasing of development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in this quarterly report on Form 10-Q, in the Company's annual report on Form 10-K for the year ended December 31, 2016,2020, and those risk factors and special considerations set forth in the Company's other filings with the Securities and Exchange Commission (the “SEC”"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. 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, and the Company assumes no obligation to
update or supplement this information for any reason.reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this report.
Funds from Operations Attributable to Common Stockholders and Unitholders
Funds from Operations Attributable to Common Stockholders and Unitholders ("FFO") is a financial measure that is commonly used in the REIT industry. The Company presents FFO and FFO excluding non-core items (referred to as a"Core FFO") as supplemental operating performance measure.measures. FFO isand Core FFO are not used by the Company as, nor should itthey be considered to be, an alternativealternatives to net earningsincome computed under U.S. GAAP as an indicator of the Company’s operating performance or as an alternativealternatives to cash from operating activities computed under U.S. GAAP as an indicator of the Company’s ability to fund its cash needs.
FFO isand Core FFO are not meant to represent a comprehensive system of financial reporting and doesdo not present, nor does itdo they intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net earningsincome computed under U.S. GAAP is the primary measure of performance and that FFO isand Core FFO are only meaningful when it isthey are used in conjunction with net earnings. income.
The Company considers FFO and Core FFO excluding non-recurring items and acquisition costs (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 operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and ability to pay dividends. Further,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. The Company believes that its condensed consolidated financial statements, prepared in accordance with U.S. GAAP, provide the most meaningful picture of its financial condition and its operating performance.
In calculating FFO, the Company follows the definition for this measure published by the National Association of REITs (“NAREIT”Real Estate Investment Trusts ("NAREIT"), which is athe leading REIT tradeindustry association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. The Company agrees that these two NAREIT adjustments are useful to investors for the following reason:reasons:
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(a) | historical cost accounting for real estate assets in accordance with U.S. GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by U.S. GAAP do not reflect the underlying economic realities. |
(a)historical cost accounting for real estate assets in accordance with U.S. GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations "since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by U.S. GAAP do not reflect the underlying economic realities.
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(b) | REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods. |
(b)REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.
Management believes that it 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 disclosure of FFO may not be comparable to the Company’s calculation.
The following table is a reconciliation of net income available to common stockholders to FFO and Core FFO for the three and nine months ended September 30, 20172021 and 20162020 (in thousands, except share and per share amounts):
Essex Property Trust, Inc. |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net income available to common stockholders | $ | 79,723 |
| | $ | 65,561 |
| | $ | 329,446 |
| | $ | 215,555 |
|
Adjustments: | |
| | |
| | |
| | |
|
Depreciation and amortization | 117,451 |
| | 110,467 |
| | 350,893 |
| | 329,847 |
|
Gains not included in Funds from Operations attributable to common stockholders and unitholders | (10,307 | ) | | — |
| | (125,122 | ) | | (33,304 | ) |
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity | — |
| | — |
| | — |
| | 4,279 |
|
Depreciation and amortization add back from unconsolidated co-investments | 13,854 |
| | 12,857 |
| | 40,335 |
| | 37,337 |
|
Noncontrolling interest related to Operating Partnership units | 2,721 |
| | 2,223 |
| | 11,289 |
| | 7,457 |
|
Depreciation attributable to third party ownership and other | (23 | ) | | (5 | ) | | (74 | ) | | (3 | ) |
Funds from Operations attributable to common stockholders and unitholders | $ | 203,419 |
| | $ | 191,103 |
| | $ | 606,767 |
| | $ | 561,168 |
|
Funds from Operations attributable to common stockholders and unitholders per share - diluted | $ | 2.97 |
| | $ | 2.81 |
| | $ | 8.90 |
| | $ | 8.27 |
|
Non-core items: | |
| | |
| | |
| | |
|
Acquisition and investment related costs | 324 |
| | 284 |
| | 1,154 |
| | 1,379 |
|
Gain on sale of marketable securities and other investments | (32 | ) | | (1,033 | ) | | (1,650 | ) | | (2,876 | ) |
Interest rate hedge ineffectiveness (1) | 1 |
| | — |
| | (19 | ) | | — |
|
Loss on early retirement of debt | — |
| | 211 |
| | — |
| | 211 |
|
Income from early redemption of preferred equity investments | (8 | ) | | — |
| | (256 | ) | | — |
|
Excess of redemption value of preferred stock over carrying value | — |
| | — |
| | — |
| | 2,541 |
|
Insurance reimbursements, legal settlements, and other, net | 335 |
| | (31 | ) | | 310 |
| | (4,041 | ) |
Core Funds from Operations attributable to common stockholders and unitholders | $ | 204,039 |
| | $ | 190,534 |
|
| $ | 606,306 |
|
| $ | 558,382 |
|
Core Funds from Operations attributable to common stockholders and unitholders per share-diluted | $ | 2.98 |
| | $ | 2.81 |
| | $ | 8.90 |
| | $ | 8.23 |
|
Weighted average number shares outstanding diluted (2) | 68,392,419 |
| | 67,914,123 |
| | 68,159,766 |
| | 67,881,126 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net income available to common stockholders | $ | 118,390 | | | $ | 73,661 | | | $ | 351,680 | | | $ | 473,125 | |
Adjustments: | | | | | | | |
Depreciation and amortization | 130,564 | | | 130,202 | | | 387,887 | | | 395,370 | |
Gains not included in FFO attributable to common stockholders and unitholders | (42,897) | | | (24,879) | | | (145,253) | | | (276,170) | |
| | | | | | | |
Depreciation and amortization from unconsolidated co-investments | 15,044 | | | 12,883 | | | 44,592 | | | 38,191 | |
Noncontrolling interest related to Operating Partnership units | 4,168 | | | 2,593 | | | 12,403 | | | 16,543 | |
| | | | | | | |
Depreciation attributable to third party ownership and other | (145) | | | (134) | | | (412) | | | (407) | |
Funds from operations attributable to common stockholders and unitholders | $ | 225,124 | | | $ | 194,326 | | | $ | 650,897 | | | $ | 646,652 | |
Funds from operations attributable to common stockholders and unitholders per share - diluted | $ | 3.34 | | | $ | 2.88 | | | $ | 9.67 | | | $ | 9.53 | |
Non-core items: | | | | | | | |
| | | | | | | |
Expensed acquisition and investment related costs | 108 | | | 2 | | | 164 | | | 104 | |
Deferred tax expense on unrealized gain on unconsolidated co-investment (1) | 3,041 | | | — | | | 5,391 | | | 1,636 | |
Gain on sale of marketable securities | — | | | (91) | | | (2,499) | | | (124) | |
Unrealized gains on marketable securities | (7,091) | | | (3,288) | | | (23,772) | | | (2,215) | |
Provision for credit losses | (3) | | | 3 | | | (110) | | | 100 | |
| | | | | | | |
Equity income from non-core co-investments (2) | (10,868) | | | 213 | | | (19,266) | | | (4,373) | |
| | | | | | | |
Loss on early retirement of debt, net | — | | | 19,114 | | | 18,982 | | | 23,820 | |
Loss (gain) on early retirement of debt from unconsolidated co-investment | 15 | | | — | | | 18 | | | (38) | |
| | | | | | | |
Co-investment promote income | — | | | — | | | — | | | (6,455) | |
Income from early redemption of preferred equity investments and notes receivable | — | | | — | | | (8,260) | | | (210) | |
| | | | | | | |
General and administrative and other, net | 252 | | | 2,510 | | | 765 | | | 5,642 | |
Insurance reimbursements, legal settlements, and other, net | (4) | | | 132 | | | (190) | | | 69 | |
Core Funds from Operations attributable to common stockholders and unitholders | $ | 210,574 | | | $ | 212,921 | | | $ | 622,120 | | | $ | 664,608 | |
Core Funds from Operations attributable to common stockholders and unitholders per share-diluted | $ | 3.12 | | | $ | 3.15 | | | $ | 9.24 | | | $ | 9.80 | |
Weighted average number shares outstanding, diluted (3) | 67,391,333 | | | 67,495,286 | | | 67,324,087 | | | 67,837,336 | |
(1) Interest rate swaps generally are adjusted Represents deferred tax expense related to fair value through other comprehensivenet unrealized gains on technology co-investments.
(2) Represents the Company's share of co-investment 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, if any, is recorded as a non-cash interest rate hedge ineffectiveness through interest expense.from technology co-investments.
(2)(3) Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership limited partnership units ("OP Units") into shares of the Company's common stock and excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.
Net Operating Income
NOINet operating income ("NOI") and Same-Property NOI are considered by management to be an important supplemental performance measuremeasures to earnings from operations included in the Company’s condensed consolidated statements of income and comprehensive 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 revenuerevenues 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 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Earnings from operations | $ | 137,971 | | | $ | 128,937 | | | $ | 428,733 | | | $ | 379,510 | |
Adjustments: | | | | | | | |
Corporate-level property management expenses | 9,068 | | | 8,619 | | | 27,120 | | | 26,024 | |
Depreciation and amortization | 130,564 | | | 130,202 | | | 387,887 | | | 395,370 | |
Management and other fees from affiliates | (2,237) | | | (2,347) | | | (6,707) | | | (7,312) | |
General and administrative | 12,712 | | | 13,310 | | | 34,746 | | | 42,244 | |
| | | | | | | |
Expensed acquisition and investment related costs | 108 | | | 2 | | | 164 | | | 104 | |
Gain on sale of real estate and land | (42,897) | | | (22,654) | | | (142,993) | | | (39,251) | |
NOI | 245,289 | | | 256,069 | | | 728,950 | | | 796,689 | |
Less: Non-Same Property NOI | (22,807) | | | (38,308) | | | (67,844) | | | (99,957) | |
Same-Property NOI | $ | 222,482 | | | $ | 217,761 | | | $ | 661,106 | | | $ | 696,732 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Earnings from operations | $ | 112,669 |
| | $ | 109,412 |
| | $ | 334,147 |
| | $ | 315,280 |
|
Adjustments: | |
| | |
| | |
| | |
|
Depreciation and amortization | 117,451 |
| | 110,467 |
| | 350,893 |
| | 329,847 |
|
Management and other fees from affiliates | (2,395 | ) | | (2,093 | ) | | (6,927 | ) | | (6,145 | ) |
General and administrative | 9,788 |
| | 9,647 |
| | 30,726 |
| | 28,527 |
|
Acquisition and investment related costs | 324 |
| | 284 |
| | 1,154 |
| | 1,379 |
|
NOI | 237,837 |
| | 227,717 |
| | 709,993 |
| | 668,888 |
|
Less: Non-Same Property NOI | (22,550 | ) | | (18,909 | ) | | (68,682 | ) | | (54,927 | ) |
Same-Property NOI | $ | 215,287 |
| | $ | 208,808 |
| | $ | 641,311 |
| | $ | 613,961 |
|
Item 3: Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Hedging Activities
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company uses interest rate swaps as part of its cash flow hedging strategy. As of September 30, 2017, theThe Company has entered intopreviously had five interest rate swap contracts to mitigateswaps that were designated as cash flow hedges of interest rate risk and were terminated as of March 31, 2021 in conjunction with the risk of changes in the interest-related cash outflows on $175.0 millionpartial repayment of the Company's five-year unsecured term debt. As of September 30, 2017,2021, the Company also had $281.1$224.5 million of secured variable rate indebtedness, of which $20.7 million is subject to interest rate cap protection. All of the Company's interest rate swaps are designated as cash flow hedges as of September 30, 2017. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s cash flow hedge derivative instruments used to hedge interest rates as of September 30, 2017. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates, or market risks. The table also includes a sensitivity analysis to demonstrate the impact on the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of September 30, 2017.indebtedness.
|
| | | | | | | | | | | | | | | | | |
| | | | | Carrying and | | Estimated Carrying Value |
| Notional | | Maturity | | Estimated | | 50 | | -50 |
(in thousands) | Amount | | Date Range | | Fair Value | | Basis Points | | Basis Points |
Cash flow hedges: | | | | | | | |
| | |
|
Interest rate swaps | $ | 175,000 |
| | 2022 | | $ | 3,814 |
| | $ | 7,389 |
| | $ | 214 |
|
Interest rate caps | 20,674 |
| | 2018-2019 | | — |
| | — |
| | — |
|
Total cash flow hedges | $ | 195,674 |
| | 2018-2022 | | $ | 3,814 |
| | $ | 7,389 |
| | $ | 214 |
|
Additionally, the Company has entered into four total return swap contracts, with an aggregate notional amount of $256.8$224.5 million that effectively convert $256.8$224.5 million of fixed mortgage notes payable to a floating interest rate based on the SIFMA plus a spread and have a carrying value of zero at September 30, 2017.2021. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.
Interest Rate Sensitive Liabilities
The Company is exposed to interest rate changes primarily as a result of its lines of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows
and to lower its overall borrowing costs. To achieve its objectives, the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps, and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows.
| | For the Years Ended | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | | Total | | Fair value | For the Years Ended | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair value |
(in thousands, except for interest rates) | | | | | | | | | | | |
($ in thousands, except for interest rates) | | ($ in thousands, except for interest rates) | | | | | | | | | | |
Fixed rate debt | $ | 7,590 |
| | 256,567 |
| | 660,726 |
| | 694,241 |
| | 544,103 |
| | 2,810,732 |
| | $ | 4,973,959 |
| | $ | 5,102,418 |
| Fixed rate debt | $ | 709 | | | 42,408 | | | 302,093 | | | 402,177 | | | 632,035 | | | 4,384,849 | | | $ | 5,764,271 | | | $ | 6,057,802 | |
Average interest rate | 4.5 | % | | 5.7 | % | | 4.2 | % | | 4.8 | % | | 4.3 | % | | 3.6 | % | | 4.0 | % | | |
| Average interest rate | 3.4 | % | | 3.7 | % | | 3.4 | % | | 4.0 | % | | 3.5 | % | | 3.1 | % | | 3.2 | % | | |
Variable rate debt (1) | $ | 2,738 |
|
| 541 |
|
| 592 |
| | 646 |
| | 707 |
| | 628,477 |
| (2) (3) | $ | 633,701 |
| | $ | 629,127 |
| Variable rate debt (1) | $ | 184 | | | 100,780 | | | 8,514 | | | 932 | | | 1,019 | | | 255,780 | | | $ | 367,209 | | | $ | 364,250 | |
Average interest rate | 1.9 | % | | 1.9 | % | | 1.9 | % | | 1.9 | % | | 1.9 | % | | 2.1 | % | | 2.1 | % | | |
| Average interest rate | 1.2 | % | | 1.1 | % | | 1.0 | % | | 1.2 | % | | 1.2 | % | | 1.0 | % | | 1.0 | % | | |
(1) $175.0 million is subject to interest rate swap agreements.
(2) $20.7 million is subject to interest rate caps.
(3) $256.8 $224.5 million is subject to total return swaps.
The table incorporates only those exposures that exist as of September 30, 2017.2021. It does not consider those exposures or positions that could arise after that date. As a result, the Company's ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise prior to settlement.
Item 4: Controls and Procedures
Essex Property Trust, Inc.
As of September 30, 2017,2021, Essex carried out an evaluation, under the supervision and with the participation of management, including Essex’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Essex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, Essex’s Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017,2021, Essex's disclosure controls and procedures were effective to ensure that the information required to be disclosed by Essex in the reports that Essex files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that Essex files or submits under the Exchange Act is accumulated and communicated to Essex’s management, including Essex’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in Essex’sEssex's internal control over financial reporting, that occurred during the quarter ended September 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, Essex’s internal control over financial reporting.
Essex Portfolio, L.P.
As of September 30, 2017,2021, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2017,2021, the Operating Partnership's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the Operating Partnership files or submitsubmits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including Essex's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in the Operating Partnership’sPartnership's internal control over financial reporting, that occurred during the quarter ended September 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Part II -- Other Information
Item 1: Legal Proceedings
The Company is subject to various lawsuits in the normal course of its business operations. While the resolution of any such matter cannot be predicted with certainty, the Company is not currently a party to any legal proceedings nor is any legal proceeding currently threatened against the Company that the Company believes, individually or in the aggregate, would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Item 1A: Risk Factors
In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors discussed in "Part I. Item A.1A. Risk Factors" in ourthe Company's annual report on Form 10-K for the year ended December 31, 2016,2020, which could materially affect ourthe Company's financial condition, results of operations or cash flows. There have been no material changes to the Risk Factors disclosed in Item 1A of the Company's annual report on Form 10-K for the year ended December 31, 2016,2020, as filed with the SEC and available at www.sec.gov. The risks described in ourthe Company's annual report on Form 10-K and subsequent quarterly reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that wethe Company currently deemdeems to be immaterial may also materially adversely affect ourthe Company's financial condition, results of operations or cash flows.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities; Essex Portfolio, L.P.
During the three months ended September 30, 2017,2021, the Operating Partnership issued partnership unitsOP Units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the three months ended September 30, 2017,2021, Essex issued an aggregate of 13,72677,036 shares of its common stock upon the exercise of stock options.options, the vesting of restricted stock awards, and the exchange of OP Units and DownREIT units by limited partners or members into shares of common stock. Essex contributed the net proceeds of $2.0$15.6 million from the option exercises during the three months ended September 30, 20172021 to the Operating Partnership in exchange for an aggregate of 13,72667,743 OP Units, as required by the Operating Partnership’s partnership agreement. Furthermore, for each share of common stock issued by Essex in connection with vesting of restricted stock awards and the exchange of OP Units and DownREIT units, the Operating Partnership issued OP Units to Essex, as required by the partnership agreement. During the three months ended September 30, 2021, 9,293 OP Units were issued to Essex pursuant to this mechanism.
In December 2020, the Board of Directors approved the replenishment of the Company's stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. As a result of the replenishment, as of September 30, 2021, the Company had $214.5 million of purchase authority remaining under the stock repurchase plan. The Company did not repurchase any of its common stock during the three months ended September 30,
2021.
Item 3: Defaults Upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5: Other Information
None.
Item 6: Exhibits
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101.INS | XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
SIGNATURE* Filed or furnished herewith.
** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on itstheir behalf by the undersigned thereunto duly authorized.
| | | | | |
| ESSEX PROPERTY TRUST, INC. |
| (Registrant) |
| |
| ESSEX PROPERTY TRUST, INC.Date: October 27, 2021 |
| (Registrant) |
| By: /s/ BARBARA PAK |
| Date: November 3, 2017 |
| Barbara Pak |
| By: /S/ ANGELA L. KLEIMAN |
| |
| Angela L. Kleiman |
| Executive Vice President, and Chief Financial Officer (Authorized Officer, Principal Financial Officer)
|
| | | | | |
| Date: October 27, 2021 |
| |
| Date: November 3, 2017 |
| |
| By: /S//s/ JOHN FARIAS |
| |
| John Farias |
| Senior Vice President and Chief Accounting Officer |
|
| |
| John Farias |
| Senior Vice President, Chief Accounting Officer |
| | | | | |
| ESSEX PORTFOLIO, L.P. By Essex Property Trust, Inc., its general partner |
| (Registrant) |
| |
| Date: November 3, 2017October 27, 2021 |
| |
| By: /S/ ANGELA L. KLEIMAN/s/ BARBARA PAK |
| |
| Angela L. KleimanBarbara Pak |
| Executive Vice President, and Chief Financial Officer (Authorized Officer, Principal Financial Officer)
|
| | | | | |
| Date: October 27, 2021 |
| |
| Date: November 3, 2017By: /s/ JOHN FARIAS |
| |
| By: /S/ JOHN FARIASJohn Farias |
| |
| John Farias |
| Senior Vice President, and Chief Accounting Officer |