ESSEX PROPERTY TRUST INC

Previous wording

As of March 31, 2024, the Company owned or had ownership interests in 253 operating apartment communities, comprising 62,271 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, and three operating commercial buildings.

Current wording

As of June 30, 2024, the Company owned or had ownership interests in 255 operating apartment communities, comprising 62,510 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, and three operating commercial buildings.

Previous wording

The Company is emerging from restrictions resulting from the COVID-19 pandemic and continues to comply with the stated intent of local, county, state and federal laws, some of which limit rent increases during times of emergency and impair the ability to collect unpaid rent during certain timeframes and in various regions in which our communities are located, impacting the Company and its properties. Concurrently, geopolitical tensions and regional conflicts have increased uncertainty during 2023 and 2024. Inflation has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a recession. Due to increased inflation, the U.S. Federal Reserve raised the federal funds rate a total of seven times during 2022 and four times in 2023. In response, market interest rates have increased significantly during this time.

Current wording

The Company is emerging from restrictions resulting from the COVID-19 pandemic and continues to comply with the stated intent of local, county, state and federal laws, some of which limit rent increases during times of emergency and impair the ability to collect unpaid rent during certain timeframes and in various regions in which our communities are located, impacting the Company and its properties. Concurrently, geopolitical tensions and regional conflicts have increased uncertainty during 2023 and 2024. Inflation has caused an increase in consumer prices, thereby reducing purchasing power and elevating the risks of a recession. Due to increased inflation, the U.S. Federal Reserve raised the federal funds rate a total of seven times during 2022 and four times in 2023. In response, market interest rates have increased significantly during this time. Although recent public statements by the U.S. Federal Reserve have indicated that if inflation declines further towards its target range, it will consider reducing interest rates, there can be no assurance as to when or if benchmark interest rates or market interest rates may be reduced.

Previous wording

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" (stabilized properties consolidated by the Company for the quarters ended March 31, 2024 and 2023) have generally remained higher than the pre-pandemic historical average of 0.35% since the second quarter of 2020. Cash delinquencies were elevated at 2.1% for the three months ended March 31, 2023 and has decreased to 1.3% for the three months ended March 31, 2024. Delinquency benefited from Emergency Rental Assistance payments of $1.1 million for the three months ended March 31, 2023 compared to payments of $0.4 million for the three months ended March 31, 2024; however, current tenant delinquencies remained well above pre-pandemic levels. The Company continues to work with residents to collect such cash delinquencies. As of March 31, 2024, the delinquencies have not had a material adverse impact on the Company's liquidity position.

Current wording

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" (stabilized properties consolidated by the Company for the quarters ended June 30, 2024 and 2023) have generally remained higher than the pre-pandemic historical average of 0.35% since the second quarter of 2020. Cash delinquencies were elevated at 2.1% for the three months ended June 30, 2023 and has decreased to 0.9% for the three months ended June 30, 2024. Delinquency benefited from Emergency Rental Assistance payments of $0.4 million for the three months ended June 30, 2023 compared to payments of $0.5 million for the three months ended June 30, 2024; however, current tenant delinquencies remained above pre-pandemic levels. The Company continues to work with residents to collect such cash delinquencies. As of June 30, 2024, the delinquencies have not had a material adverse impact on the Company's liquidity position.

Previous wording

The Company’s average financial occupancy for the Company’s Same-Property portfolio was 96.3% and 96.7% for the three months ended March 31, 2024 and 2023, respectively. Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income. Actual rental income represents contractual rental income pursuant to leases without considering delinquency and concessions. Total scheduled rental income 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. The 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.

Current wording

The Company’s average financial occupancy for the Company’s Same-Property portfolio was 96.2% and 96.6% for the three months ended June 30, 2024 and 2023, respectively. Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income. Actual rental income represents contractual rental income pursuant to leases without considering delinquency and concessions. Total scheduled rental income 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. The 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.

Previous wording

Same-Property Revenues increased by $14.3 million or 3.6% to $409.8 million in the first quarter of 2024 from $395.5 million in the first quarter of 2023. The increase was primarily attributable to an increase of 2.1% in average rental rates from $2,576 in the first quarter of 2023 to $2,631 in the first quarter of 2024 and 0.8% of the increase was attributable to a decrease in delinquencies in the first quarter of 2024 compared to the first quarter of 2023.

Current wording

Same-Property Revenues increased by $13.8 million or 3.4% to $414.8 million for the second quarter of 2024 from $401.1 million for the second quarter of 2023. The increase was primarily attributable to an increase of 1.8% in average rental rates from $2,602 per apartment home for the second quarter of 2023 to $2,649 per apartment home for the second quarter of 2024, and 1.1% of the increase was attributable to a decrease in delinquencies for the second quarter of 2024 compared to the second quarter of 2023.

Previous wording

Property operating expenses, excluding real estate taxes increased by $5.0 million or 6.8% to $78.9 million for the first quarter of 2024 compared to $73.9 million for the first quarter of 2023, primarily due to increases of $2.3 million in utilities expenses, $1.2 million in insurance expenses, $0.9 million in personnel costs, and $0.4 million in administrative expenses. Same-Property operating expenses, excluding real estate taxes, increased by $5.7 million or 7.8% to $78.6 million in the first quarter of 2024 compared to $72.9 million in the first quarter of 2023, primarily due to increases of $2.2 million in utilities expenses, $2.0 million in insurance and other expenses, $0.8 million in personnel costs, $0.5 million in administrative expenses and $0.2 million in maintenance and repairs expenses.

Current wording

Property operating expenses, excluding real estate taxes increased by $4.9 million or 6.6% to $78.7 million for the second quarter of 2024 compared to $73.8 million for the second quarter of 2023, primarily due to increases of $2.6 million in administrative expenses, $2.0 million in utilities expenses, and $1.1 million in personnel costs, offset by a decrease of $0.8 million in maintenance and repairs expenses. Same-Property operating expenses, excluding real estate taxes, increased by $3.6 million or 4.9% to $76.5 million in the second quarter of 2024 compared to $72.9 million in the second quarter of 2023, primarily due to increases of $2.5 million in insurance and other expenses, $1.3 million in utilities expenses, $0.6 million in personnel costs, and $0.3 million in administrative expenses, offset by a decrease of $1.1 million in maintenance and repairs expenses.

Previous wording

Interest expense increased by $4.9 million or 9.6% to $55.9 million for the first quarter of 2024 compared to $51.0 million for the first quarter of 2023, primarily due to borrowing on the $300.0 million unsecured term loan in April 2023, the $298.0 million of 10-year secured loans closed in July 2023, and the issuance in March 2024 of $350.0 million senior unsecured notes due April 2034 which resulted in an increase in interest expense of $8.1 million for the first quarter of 2024. Additionally, there was a $0.2 million decrease in capitalized interest in the first quarter of 2024, due to a decrease in development activity as compared to the same period in 2023. These increases to interest expense were partially offset by various debt that was paid off, matured, or due to regular principal amortization during and after the first quarter of 2023, primarily due to the payoff of the $300.0 million of senior unsecured notes due May 1, 2023, which resulted in a decrease in interest expense of $3.4 million for the first quarter of 2024.

Current wording

Interest expense increased by $6.5 million or 12.4% to $59.1 million for the second quarter of 2024 compared to $52.6 million for the second quarter of 2023, primarily due to borrowing on the $300.0 million unsecured term loan in April 2023, the $298.0 million of 10-year secured loans closed in July 2023, the issuance in March 2024 of $350.0 million senior unsecured notes due April 2034, and increased borrowing on the two unsecured lines of credit which resulted in an increase in interest expense of $10.1 million for the second quarter of 2024. Additionally, there was a $0.1 million decrease in capitalized interest in the second quarter of 2024, due to a decrease in development activity as compared to the same period in 2023. These increases to interest expense were partially offset by various debt that was paid off, matured, or due to regular principal amortization during and after the second quarter of 2023, primarily due to the payoff of the $300.0 million of senior unsecured notes due May 1, 2023 and the $400.0 million of senior unsecured notes due May 1, 2024, which resulted in a decrease in interest expense of $3.7 million for the second quarter of 2024.

Previous wording

Depreciation and amortization expense increased by $3.4 million or 2.5% to $139.7 million for the first quarter of 2024 compared to $136.3 million for the first quarter of 2023, primarily due to an increase in depreciation expense from the acquisition of Hacienda at Camarillo Oaks in 2023 and due to the consolidation of four apartment home communities as part of the Company's purchase of its joint venture partner's 49.9% interest in the BEXAEW portfolio in 2024. The increase was partially offset by the sale of CBC and The Sweeps in the first quarter of 2023.

Current wording

Depreciation and amortization expense increased by $12.2 million or 4.5% to $285.3 million for the six months ended June 30, 2024 compared to $273.1 million for the six months ended June 30, 2023, primarily due to the acquisition of Hacienda at Camarillo Oaks in 2023 and the acquisitions of the BEXAEW portfolio, ARLO Mountain View, and Maxwell Sunnyvale in 2024. These increases were offset by the sale of CBC and The Sweeps in the first quarter of 2023.

Previous wording

Interest and other income increased by $44.8 million or 358.4% to $57.3 million for the first quarter of 2024 compared to $12.5 million for the first quarter of 2023, primarily due to increases of $34.8 million in legal settlements and $7.9 million in interest income.

Current wording

Interest and other income increased by $42.2 million or 171.5% to $66.8 million in income for the six months ended June 30, 2024 compared to $24.6 million for the six months ended June 30, 2023, primarily due to increases of $34.8 million in legal settlements and $10.9 million in interest income, offset by a decrease of $3.9 million in realized and unrealized gains on marketable securities, net.

Previous wording

Equity income from co-investments increased by $1.5 million or 13.8% to $12.4 million for the first quarter of 2024 compared to $10.9 million for the first quarter of 2023, primarily due to increases of $6.0 million in equity income from non-core technology co-investments and $1.5 million in co-investment promote income. The increases were offset by a $3.7 million non-cash impairment loss from an unconsolidated preferred equity co-investment, and a decrease of $1.1 million in income from preferred equity investments.

Current wording

Equity income from co-investments decreased by $1.1 million or 4.8% to $22.0 million for the six months ended June 30, 2024 compared to $23.1 million for the six months ended June 30, 2023, primarily due to $3.7 million of impairment loss from an unconsolidated co-investment, and decreases of $3.0 million in income from preferred equity investments, including income from early redemption of preferred equity investments, and $0.7 million in insurance reimbursements, legal settlements, and other, net. These decreases were partially offset by increases of $4.8 million in equity income from non-core technology co-investments, and $1.5 million in co-investment promote income.

Previous wording

Gain on remeasurement of co-investment of $138.3 million resulted from the Company's acquisition of its joint venture partner's 49.9% co-investment interest in the BEXAEW portfolio comprised of four apartment home communities.

Current wording

Gain on remeasurement of co-investmentof $138.3 million resulted from the Company's acquisition of its joint venture partner's 49.9% co-investment interest in the BEXAEW portfolio comprised of four apartment home communities.

Previous wording

As of March 31, 2024, the Company had $499.0 million of unrestricted cash and cash equivalents and $91.3 million in marketable securities, all of which were equity securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to meet all of its anticipated cash needs during the next twelve months. Additionally, the capital markets continue to be available and the Company is able to generate cash from the disposition of real estate assets to finance additional cash flow needs, including continued development and select acquisitions. In the event that economic disruptions occur, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash 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 the Company's plans for acquisitions, dispositions, development and redevelopment activities.

Current wording

As of June 30, 2024, the Company had $55.2 million of unrestricted cash and cash equivalents and $84.3 million in marketable securities, all of which were equity securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to meet all of its anticipated cash needs during the next twelve months. Additionally, the capital markets continue to be available and the Company is able to generate cash from the disposition of real estate assets to finance additional cash flow needs, including continued development and select acquisitions. In the event that economic disruptions occur, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash 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 the Company's plans for acquisitions, dispositions, development and redevelopment activities.

Previous wording

As of March 31, 2024, the Company had two unsecured lines of credit aggregating $1.24 billion. As of March 31, 2024, there was no outstanding balance on the 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, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.75% as of March 31, 2024. This facility is scheduled to mature in January 2027, with two six-month extensions, exercisable at the Company's option. As of March 31, 2024, there was no outstanding balance on the Company's $35.0 million working capital unsecured line of credit. The underlying interest rate on the $35.0 million line is based on a tiered rate structure tied to the Company's credit ratings, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.75% as of March 31, 2024. This facility is scheduled to mature in July 2024.

Current wording

As of June 30, 2024, the Company had two unsecured lines of credit aggregating $1.24 billion. As of June 30, 2024, there was $105.0 million outstanding balance on the 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, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.765% as of June 30, 2024. This facility is scheduled to mature in January 2027, with two six-month extensions, exercisable at the Company's option. As of June 30, 2024, there was $24.4 million outstanding balance on the Company's $35.0 million working capital unsecured line of credit. The underlying interest rate on the $35.0 million line is based on a tiered rate structure tied to the Company's credit ratings, adjusted for the Company's sustainability metric grid, and was at Adjusted SOFR plus 0.765% as of June 30, 2024. Prior to its maturity in July 2024 the line of credit facility was amended such that the line's capacity increased to $75 million and the scheduled maturity date was extended to July 2026.

Previous wording

In March 2024, the Operating Partnership issued $350.0 million of senior unsecured notes due on April 1, 2034 with a coupon rate of 5.500% per annum (the "2034 Notes"), which are payable on April 1 and October 1 of each year, beginning on October 1, 2024. The 2034 Notes were offered to investors at a price of 99.752% of par value. The 2034 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 intends to use the net proceeds of this offering to repay upcoming debt maturities, including to fund a portion of the repayment of its outstanding 3.875% senior unsecured notes due May 2024 and for other general corporate and working capital purposes, including funding of potential acquisition opportunities.

Current wording

In March 2024, the Operating Partnership issued $350.0 million of senior unsecured notes due on April 1, 2034 with a coupon rate of 5.500% per annum (the "2034 Notes"), which are payable on April 1 and October 1 of each year, beginning on October 1, 2024. The 2034 Notes were offered to investors at a price of 99.752% of the principal amount. The 2034 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 debt maturities, including to fund a portion of the repayment of its outstanding 3.875% senior unsecured notes due May 2024 and for other general corporate and working capital purposes.

Previous wording

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 each 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. In September 2022, the Company's Board of Directors approved a new stock repurchase plan to allow the Company to acquire shares of common stock up to an aggregate value of $500.0 million. The plan supersedes the Company's previous common stock repurchase plan announced in December 2015. During the three months ended March 31, 2024, the Company did not repurchase any shares and as of March 31, 2024, the Company had $302.7 million of purchase authority remaining under its $500.0 million stock repurchase plan.

Current wording

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 each 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. In September 2022, the Company's Board of Directors approved a new stock repurchase plan to allow the Company to acquire shares of common stock up to an aggregate value of $500.0 million. The plan supersedes the Company's previous common stock repurchase plan announced in December 2015. During the six months ended June 30, 2024, the Company did not repurchase any shares and as of June 30, 2024, the Company had $302.7 million of purchase authority remaining under its $500.0 million stock repurchase plan.

Previous wording

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 March 31, 2024, the Company’s development pipeline was comprised of various consolidated predevelopment projects, with total incurred costs of $24.6 million.

Current wording

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 June 30, 2024, the Company’s development pipeline was comprised of various consolidated predevelopment projects, with total incurred costs of $24.5 million.

Previous wording

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. The Company had an interest in 9,210 apartment homes of operating communities with joint ventures for a total book value of $446.5 million as of March 31, 2024.

Current wording

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. The Company had an interest in 9,210 apartment homes of operating communities with joint ventures and technology co-investments for a total book value of $434.5 million as of June 30, 2024.

Previous wording

The table below is a reconciliation of net income available to common stockholders to FFO and Core FFO for the three months ended March 31, 2024 and 2023 (in thousands, except share and per share amounts):

Current wording

The table below is a reconciliation of net income available to common stockholders to FFO and Core FFO for the three and six months ended June 30, 2024 and 2023 (in thousands, except share and per share amounts):

Previous wording

(1) The Company consolidates certain co-investments. The noncontrolling interest's share of net operating income in these investments for the three months ended March 31, 2024 was $0.9 million.

Current wording

(1) The Company consolidates certain co-investments. The noncontrolling interest's share of net operating income in these investments for the three and six months ended June 30, 2024 was $0.8 million and $1.7 million, respectively.

Previous wording

(4) Includes legal settlement gains of $42.5 million and $7.7 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

(4) Includes legal settlement gains of $42.5 million and $7.7 million for the six months ended June 30, 2024 and 2023, respectively.