Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Presentation (September 2018)
48 slides from Essex Property Trust's investor presentation, Sep 24, 2018
Slide 1: Investor Presentation September 2018
INVESTOR PRESENTATIONSEPTEMBER 2018
Slide 2: Table of Contents
ABOUT ESSEX EXECUTIVE SUMMARYWEST COAST FUNDAMENTALSINVESTMENT OVERVIEW AND CAPITAL STRUCTUREFINANCIAL PERFORMANCE AND 2018 GUIDANCEAPPENDIXPROVEN TRACK RECORD ESSEX PORTFOLIODEFINITIONS & RECONCILIATIONS PAGE(S)23 4 – 16 17 – 2425 – 2930 31 – 3334 – 3738 – 47 TABLE OF CONTENTS *
Slide 3: Essex at a Glance
(1) Represents percent of pro rata NOI as of 6/30/18.(2) Oakland includes Alameda and Contra Costa Counties.(3) As of 6/30/18. * San Francisco MD 9%Oakland(2) 13%Santa Clara 20% Ventura 5%Los Angeles 19%Orange County 10%San Diego 8% SOUTHERN CA43% of NOI(1) NORTHERN CA41% of NOI(1) Washington & Cali
Slide 4: Executive Summary: Key Highlights
EXECUTIVE SUMMARY * KEY HIGHLIGHTS The embedded housing shortage of 7.3 million units remains a key issue – California represents roughly half of the nation’s underproduction of housing from 2000-2015 (p. 6)Due to severe for-sale housing shortages and recent tax reform, the premium to own a home vs.
Slide 5: West Coast Fundamentals
WEST COAST FUNDAMENTALS The DylanLos Angeles, CA
Slide 6: Why West Coast Markets? Long-Term Favorable Supply/Demand Dynamics
WHY WEST COAST MARKETS? * LONG-TERM FAVORABLE SUPPLY/DEMAND DYNAMICS
Slide 7: California's Chronic Housing Shortage
* CALIFORNIA’S CHRONIC HOUSING SHORTAGE Source: Up for Growth National Coalition - Housing Underproduction in the U.S., April 2018 IN THE U.S., 23 STATES HAVE PRODUCED ~7.3 MILLION TOO FEW HOUSING UNITS FROM 2000-2015CALIFORNIA REPRESENTS NEARLY 50% OF THE HOUSING SHORTFALL AT ~3.4 MILLION UNITS
Slide 8: Limited Supply in Essex Markets
Sources: Census, Essex, and Rosen LIMITED SUPPLY IN ESSEX MARKETS ESSEX CA SUPPLY AS A PERCENT OF STOCK HAS HISTORICALLY REMAINED BELOW 1% RELATIVE TO THE NATION, ESSEX’S CA MARKETS HAVE LESS HOUSING SUPPLY WITH BETTER JOB GROWTH *
Slide 9: The Rising Premium to Own vs. Rent in Essex Markets
THE RISING PREMIUM TO OWN VS. RENT IN ESSEX MARKETS SEVERE FOR-SALE HOUSING SHORTAGES AND TAX REFORM HAVE PUSHED THE PREMIUM FOR HOMEOWNERSHIP TO EXTREME LEVELS IN ESSEX MARKETS AS OF THE SECOND QUARTER OF 2018, IT IS 77% MORE COSTLY TO OWN A MEDIAN-PRICED HOME THAN TO RENT IN ESSEX METROS, A 20% IN
Slide 10: Essex Near-Term Supply Outlook
MULTIFAMILY SUPPLY AND TOTAL SUPPLY AS A % OF STOCK ARE EXPECTED TO REMAIN RELATIVELY FLAT ACROSS THE ESSEX MARKETS IN 2018 AND 2019 Source: Essex(1) Weighted by ESS June 2018 year-to-date same-property scheduled rent. ESSEX NEAR-TERM SUPPLY OUTLOOK *
Slide 11: Wealth Creation Strongest on the West Coast
* WEALTH CREATION STRONGEST ON THE WEST COAST CALIFORNIA AND WASHINGTON’S KNOWLEDGE-BASED ECONOMIES HAVE LED THE NATION IN PER CAPITA GDP GROWTH OVER THE PAST 5 YEARS, DRIVING WEALTH CREATION ACROSS THE ESSEX MARKETS Source: Bureau of Economic Analysis
Slide 12: Top Tech vs. Non-Tech Companies
* TOP 10 TECH VS. NON-TECH COMPANIES SINCE 2005, THE TOP 10 PUBLIC TECH FIRMS HAVE CREATED $4.3 TRILLION IN EQUITY MARKET VALUE, GROWING 5.5X FASTER THAN NON-TECH FIRMSALL TOP 10 TECH FIRMS AND 3 OF THE TOP 10 NON-TECH FIRMS ARE HEADQUARTERED IN ESSEX MARKETSSINCE 2005, GLOBAL EMPLOYMENT FOR THE TOP
Slide 13: West Coast Job Growth
WEST COAST JOB GROWTH WEST COAST JOB GROWTH REMAINS STRONG, WITH MOST OF THE OUTPERFORMANCE EMANATING FROM THE TECHNOLOGY MARKETS Source: Bureau of Labor Statistics (not seasonally adjusted)(1) For those markets included in this graph which represent 94% of Essex’s NOI at the Company’s pro rata shar
Slide 14: Recent Migration Trends
* RECENT MIGRATION TRENDS REFLECT THE INFLUX OF WORKERS TO ESSEX’S WEST COAST MARKETS, PRIMARILY FROM MAJOR EAST COAST METROS LINKEDIN WORKER MIGRATION TRENDS Note: LinkedIn defines migration as a member changing their location on their LinkedIn profile. The maps reflect the cities the most LinkedIn
Slide 15: Personal Income Growth Expected to Accelerate
* PERSONAL INCOME GROWTH IS EXPECTED TO ACCELERATE ACROSS ALL ESSEX MARKETS IN 2018, REDUCING AFFORDABILITY PRESSURES WAGE GROWTH SHOULD IMPROVE AFFORDABILITY Sources: Rosen and Economy.comRepresents forecasted data using average of Rosen and Economy.com estimates.ESS markets weighted by December 20
Slide 16: Personal Income Growth vs. Rent Growth
* Sources: Axiometrics, Rosen and Bureau of Economic Analysis WE EXPECT PERSONAL INCOMES TO GROW FASTER THAN RENTS FOR THE 2nd CONSECUTIVE YEAR IN 2018, WHICH IS HELPING ALLEVIATE AFFORDABILITY PRESSURES IN ESSEX MARKETS PERSONAL INCOME GROWTH VS. RENT GROWTH
Slide 17: Demand to Exceed Supply in Essex's Markets
* DEMAND TO EXCEED SUPPLY IN ESSEX’S MARKETS IN ESSEX’S SUPPLY CONSTRAINED MARKETS, DEMAND IS EXPECTED TO EXCEED SUPPLY RELATIVE TO OTHER MAJOR METROS FOR THE NEXT SEVERAL YEARS Sources: National Association of Realtors, CoreLogic, and Essex*Essex Portfolio weighted by % of same-property revenueNew
Slide 18: Investment Overview and Capital Structure
Palm ValleySan Jose, CA MB360San Francisco, CA(2014 Development) INVESTMENT OVERVIEW AND CAPITAL STRUCTURE TO BE UPDATED Station Park GreenSan Mateo, CA(2018 Development)
Slide 19: Core Competencies to Create Value
CORE COMPETENCIES TO CREATE VALUE * The GallowayPleasanton, CA CONDO OPTIONALITY:Potential value creation through 8,600 condo convertible apartment homes in the Essex Portfolio DEVELOPMENT:Develop high-quality tenant-desired apartment homes near transportation nodes ACQUISITIONS:Improve the NAV/shar
Slide 20: Strategic Capital Allocation
STRATEGIC CAPITAL ALLOCATION * 360 ResidencesSan Jose, CA(2017 Acquisition) KEY INVESTMENT TARGETSImprove portfolio growth through dispositions of select assetsUtilize co-investment platform to optimize cost of capital Large discounts to NAV (>10%) would likely result in increased disposition activi
Slide 21: Development Pipeline Update
Based on initial occupancy.Total cost in millions and not ESS share. Includes only those projects under construction as of 6/30/18 and Station Park Green - Phase I, which was delivered in 2018. Excludes land held for future development.Data as of 6/30/18. FORECASTED SPEND OF $250M AT PRO RATA SHARE
Slide 22: Disciplined Capital Allocation Process
DISCIPLINED CAPITAL ALLOCATION PROCESS * DEALS MUST BE ACCRETIVE TO 3 METRICS:
Slide 23: Capital Structure & Liquidity Profile
$22.0 Billion Total Capitalization As of 6/30/18Consolidated portfolio only. CAPITAL STRUCTURE & LIQUIDITY PROFILE Debt Composition(1) STRONG BALANCE SHEET WITH AMPLE LIQUIDITY AND FINANCIAL FLEXIBILITY
Slide 24: Strong Credit Profile
STRONG CREDIT PROFILE * Source: Company DisclosuresUnsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.Net Indebtedness is total debt less unamortized premiums, debt issuance costs, unrestricted cash and cash equivalents, and marketabl
Slide 25: Well Laddered Debt Maturity Schedule
WELL LADDERED DEBT MATURITY SCHEDULE % of Total Debt Maturing/Year 2.1% 10.6% 12.2% 9.6% 12.1% 10.6% 7.1% 9.0% 8.9% 8.9% 0.1% 8.8% Debt Maturity Schedule(1) (1) Data as of 6/30/2018. Excludes lines of credit. Weighted Average Interest Rate 5.7% 4.4% 5.0% 4.5% 3.3% 3.7% 4.0% 3.6% 3.5% 3.6% 3.1% 3.8%
Slide 26: Financial Performance and 2018 Guidance
AnnalieseSeattle, WA FINANCIAL PERFORMANCE AND 2018 GUIDANCE
Slide 27: Continued Outperformance vs. Peers
Source: Company Disclosures 2018E represents the midpoint of guidance as set forth in the earnings release for the second quarter of 2018. Peer average represents 6 multifamily REITs. CPT and MAA provide Total FFO, not Core FFO. CONTINUED OUTPERFORMANCE VS. PEERS ESSEX SAME-PROPERTY NOI AND CORE FFO
Slide 28: Operating Strategy Favoring Market Rents Over Occupancy
DUE TO THE STRENGTH OF THE MARKET, OUR OPERATING STRATEGY HAS SHIFTED TO FAVORING MARKET RENTS OVER OCCUPANCY IN ORDER TO MAXIMIZE REVENUESWE EXPECT Q3 2018 OCCUPANCY TO BE ABOUT 30 BASIS POINTS BELOW THE PRIOR YEAR’S PERIOD, WHICH IS A PRIMARY CONTRIBUTOR TO THE DECLINE IN SAME-PROPERTY REVENUE GRO
Slide 29: 2018 Full-Year Guidance
Source: Company DisclosuresCore FFO excludes acquisition costs and non-routine items. * 2018 FULL-YEAR GUIDANCE (UNCHANGED FROM Q2 2018)
Slide 30: 2018 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions
E S S E X P R O P E R T Y T R U S T, I N C. 2018 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions Residential Supply (1) Job Forecast (2) Market Forecast (3) Market New MF Supply New SF Supply Total Supply % of MF Supply to MF Stock % of Total Supply to Total Stock Est. New Jobs Dec
Slide 31: Appendix
Gas Company LoftsLos Angeles, CA(Renovation included the addition of rooftop amenity with pool) Agora at South MainWalnut Creek, CA(2016 Development) WEST COAST FUNDAMENTALS EmmeEmeryville, CA APPENDIX AviaraMercer Island, WA
Slide 32: Proven History of Strategic Capital Allocation
Acquires BRE in a deal valued at $6B, creating the only public apartment REIT dedicated exclusively to West Coast markets. Increases investment in preferred equity and subordinated debt program due to attractive risk-adjusted returns relative to ground-up development. Acquires and begins developing
Slide 33: Investment Strategy Leads to Superior Total Returns
INVESTMENT STRATEGY LEADS TO SUPERIOR TOTAL RETURNS SUPERIOR VALUE CREATION FOR SHAREHOLDERS SINCE THE IPOHIGHEST TOTAL RETURN OF ALL PUBLIC U.S. REITS SINCE IPO IN 1994 Sources: SNL Financial, NAREITJune 1994 – June 2018 * ESS CAGR: 16% 3,766% 1,217% 944% 851% 2018
Slide 34: Significant Dividend and FFO per Share Growth
* SINCE THE IPO, WE HAVE GENERATED COMPOUND ANNUAL DIVIDEND/SH AND TOTAL FFO/SH GROWTH OF 6.4% AND 8.5%, RESPECTIVELY(1)RAISED THE DIVIDEND EVERY YEAR SINCE THE IPO AND PAID ENTIRELY IN CASH SIGNIFICANT DIVIDEND PER SHARE AND TOTAL FFO PER SHARE GROWTH (1) Includes 2018 estimated growth.(2) 2018E To
Slide 35: Los Angeles Portfolio and Highlights
Sources: Axiometrics, CoreLogic, LinkedIn, CoStar, JLL Office Report, CBRE, Moody's, RCG, S&P Global Market Intelligence, BLS, NAR, Census and Essex Disclosures as of June 2018. Trailing 3 months ended July 2018.Home Prices and YOY % Increase as of June 2018. U.S. uses NAR 2Q18.2018 Estimate. LOS AN
Slide 36: Orange County Portfolio and Highlights
Sources: Axiometrics, CoreLogic, LinkedIn, CoStar, JLL Office Report, CBRE, Moody's, RCG, S&P Global Market Intelligence, BLS, NAR, Census and Essex Disclosures as of June 2018. Trailing 3 months ended July 2018.Home Prices and YOY % Increase as of June 2018. U.S. uses NAR 2Q18.2018 Estimate. ORANGE
Slide 37: Northern California Highlights
San Jose job growth nearly doubled the U.S. over the trailing three month period ending in July 2018 with 3.1%. San Francisco performed in-line with the U.S. with 1.7% job growth over the same period. San Francisco has the lowest unemployment rate of all Essex markets at 2.4% as of July 2018.As of t
Slide 38: Seattle Highlights and Portfolio
SEATTLE HIGHLIGHTS SEATTLE PORTFOLIO Market Data U.S. Seattle Trailing 3-Month Job Growth 1.7% 3.2% Personal Income Growth 2018(f)(2) 3.7% 5.4% Median Home Price(1) $246,000 $600,000 Median Household Income(2) $61,000 $92,000 Median Home Price to Median Household Income 4.0x 6.5x Median Home Price Y
Slide 39: Definitions & Reconciliations
DEFINITIONS &RECONCILIATIONS
Slide 40: Disclaimers
* DISCLAIMERS SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
Slide 41: FFO and Core FFO Guidance Reconciliation
* With respect to the Company's guidance regarding its projected FFO and Core FFO for the third quarter of 2018, which guidance is set forth in the earnings release for the second quarter of 2018 and on page S-14.1 of the earnings supplement, a reconciliation of projected net income per share to pro
Slide 42: Reconciliations of Non-GAAP Financial Measures: Adjusted EBITDAre
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS ADJUSTED EBITDAre RECONCILIATION The National Association of Real Estate Investment Trusts ("NAREIT”) defines earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") (September 2017 White Paper) as ne
Slide 43: Adjusted EBITDAre Reconciliation (Continued)
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS ADJUSTED EBITDAre RECONCILIATION (CONTINUED)The reconciliations of Net Income available to common stockholders to EBITDAre and Adjusted EBITDAre are presented in the table below (Dollars in thousands): (1) Interest expense, net includes
Slide 44: Funds From Operations (FFO)
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS FUNDS FROM OPERATIONS (“FFO”) FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, F
Slide 45: Net Indebtedness Divided by Adjusted EBITDAre
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS Total consolidated debt, net $ 5,691,093 Total debt from co-investments at pro rata share 809,280 Adjustments: Consolidated unamortized premiums, discounts, and debt issuance costs 6,240 Pro rata co-investments unamortized premiums, dis
Slide 46: NOI and Same-Property NOI Reconciliations
* NET OPERATING INCOME (“NOI”) AND SAME-PROPERTY NOI RECONCILIATIONSNet Operating Income ("NOI") and same-property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s consolidated statements of income. The presentat
Slide 47: Public Bond Covenants
* PUBLIC BOND COVENANTSPublic Bond Covenants refers to certain covenants set forth in instruments governing the Company's unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt servic
Slide 48: Unencumbered NOI to Adjusted Total NOI
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS UNENCUMBERED NOI TO ADJUSTED TOTAL NOIThis ratio is presented on page S-6 of the earnings supplement for second quarter of 2018 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate
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