Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Presentation (May 2019)
49 slides from Essex Property Trust's investor presentation, May 31, 2019
Slide 1: June 2019 – 25 Years of Success
June 2019 25 Years of Success GRESB Green Star 2016 – 2018 High-YieldDividend Aristocrat
Slide 2: Table of Contents
ABOUT ESSEX 2 WEST COAST FUNDAMENTALS 6 OPERATING PERFORMANCE 21INVESTMENTS AND CAPITAL ALLOCATION 252019 GUIDANCE AND BALANCE SHEET 31DEFINITIONS & RECONCILIATIONS 37 TABLE OF CONTENTS *
Slide 3: Essex at a Glance
(1) Represents percent of pro rata NOI as of 03/31/19.(2) Oakland includes Alameda and Contra Costa Counties.(3) As of 03/31/19. San Francisco MD 9%Oakland(2) 12%Santa Clara 20% Ventura 6%Los Angeles 18%Orange County 10%San Diego 8% SOUTHERN CA42% of NOI(1) NORTHERN CA42% of NOI(1) Washington & Cali
Slide 4: 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: S&P Global Market Intelligence, NAREITJune 1994 – March 2019 ESS CAGR: 16.9% 4,681% 1,471% 1,058% 906% *
Slide 5: Significant Dividend per Share and Total FFO per Share Growth
SINCE THE IPO, WE HAVE GENERATED COMPOUND ANNUAL DIVIDEND/SH AND TOTAL FFO/SH GROWTH OF 6.4% AND 8.2%, 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 2019 estimated growth.(2) 2019E Tota
Slide 6: Superior Same-Property NOI & Core FFO Growth Through a Cycle
SUPERIOR SAME-PROPERTY NOI & CORE FFO GROWTH THROUGH A CYCLE Source: Company Disclosures Peer average for Same-Property NOI, Core FFO, and dividend growth includes four multifamily REITs (EQR, AVB, UDR, AIV) SINCE THE PREVIOUS CYCLE PEAK, ESSEX HAS SIGNIFICANTLY OUTPERFORMED PEERS IN CUMULATIVE SAME
Slide 7: West Coast Fundamentals
WEST COAST FUNDAMENTALS Meridian at MidtownSan Jose, CA
Slide 8: West Coast Fundamentals: Key Highlights
WEST COAST FUNDAMENTALS: KEY HIGHLIGHTS CALIFORNIA’S CHRONIC HOUSING SHORTAGE REMAINS A KEY ISSUE AND SHOWS NO SIGNS OF ABATING (p.9)THE AFTER-TAX COST PREMIUM TO OWN A HOME VS. RENT HAS RISEN TO 80% IN ESSEX’S MARKETS, INCREASING THE ECONOMIC INCENTIVE TO RENT (p.12)DEMAND DRIVERS ON THE WEST COAST
Slide 9: Why West Coast Markets?
WHY WEST COAST MARKETS? LONG-TERM FAVORABLE SUPPLY/DEMAND DYNAMICS *
Slide 10: 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 11: Limited Supply in Essex Markets
Sources: Census, Essex, and Rosen LIMITED SUPPLY IN ESSEX MARKETS IN ESSEX’S CALIFORNIA SUBMARKETS, NEW SUPPLY AS A PERCENT OF STOCK HAS HISTORICALLY REMAINED BELOW 1% *
Slide 12: Permits and Near Term Supply
TOTAL RESIDENTIAL PERMITTING IN ESSEX’S MARKETS ARE DOWN 10% FROM MID-2018PERMITTING HAS DECLINED IN NINE OF ESSEX’S TEN LARGEST CITIES(1) SINCE MID-2018, INCLUDING LARGE DECLINES IN SEATTLE (-26%) AND SAN DIEGO (-55%)PERMITS IN SAN FRANCISCO ARE UP 9% OVER MID-2018 BUT CONCENTRATED NEAR THE SOMA SU
Slide 13: The Rising Premium to Own vs. Rent in Essex Markets
THE RISING PREMIUM TO OWN VS. RENT IN ESSEX MARKETS CHRONIC HOUSING SHORTAGE AND TAX LAW CHANGES HAVE PUSHED THE COST TO OWN A MEDIAN PRICED HOME TO 80% ABOVE THE COST TO RENT IN ESSEX METROS Essex Metros Have Created Over 5x More Jobs Than Housing Units This Cycle After-Tax Cost Premium to Own vs.
Slide 14: West Coast Job Growth
WEST COAST JOB GROWTH Source: Bureau of Labor Statistics (not seasonally adjusted)(1) For those markets included in this graph which represent 99% of Essex’s NOI at the Company’s pro rata share as of 03/31/19. ESS Portfolio Wtd. Avg.(1) = 1.8% ESS Market Non-ESS Market TECH-DRIVEN MARKETS CONTINUE T
Slide 15: Job Growth in ESS Markets – High vs. Low-Wage Industries
JOB GROWTH IN ESS MARKETS – HIGH VS. LOW-WAGE INDUSTRIES Source: BLSTrailing 3-month average through April 2019. Weighted by Essex 1Q19 same-property NOI. HIGH-PAYING INDUSTRIES CONTINUE TO ADD MORE JOBS THAN LOW PAYING INDUSTRIES IN ESS’ MARKETS, HELPING IMPROVE INCOMES AND RENTAL AFFORDABILITY *
Slide 16: Job Openings – Top Tech Firms
JOB OPENINGS – TOP 10 TECH FIRMS Sources: Company Websites and LinkedIn JOB OPENINGS AT THE TOP 10 TECH FIRMS IS CURRENTLY OVER 26,000 POSITIONS, THE HIGHEST LEVEL IN THREE YEARS AND UP 33% COMPARED TO ONE YEAR AGO *
Slide 17: San Francisco Migration Trends
SAN FRANCISCO MIGRATION TRENDS HIGHLIGHT THE FLOW OF LABOR FROM THE EAST COAST TO THE WEST COAST 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 members moved to and from in
Slide 18: Rental Affordability Began to Improve in 2015
RENTAL AFFORDABILITY IN ESS MARKETS BEGAN TO IMPROVE IN 2015 AS INCOME GROWTH OUTPACED RENTAL GROWTH. THE DIFFERENCE BETWEEN CUMULATIVE RENT GROWTH AND INCOME GROWTH IN ESS MARKETS SINCE 2010 HAS FALLEN FROM 20% IN 2015 TO 13% IN 2019 AFFORDABILITY IS IMPROVING Sources: Axio/RealPage, Moody's, Censu
Slide 19: Rental Affordability Is Improving in Essex's Markets
RENTAL AFFORDABILITY IS IMPROVING IN ESSEX’S MARKETS AS MEDIAN HOUSEHOLD INCOMES RISE FASTER THAN RENTSALL ESSEX MARKETS REMAIN BELOW THEIR HISTORICAL PEAK RENT-TO-INCOME RATIOS AND NEAR THEIR RESPECTIVE LONG-TERM AVERAGES AFFORDABILITY IS IMPROVING Sources: Moody’s, Rosen, Costar and ESS1) Represen
Slide 20: Demand to Exceed Supply in Essex's Markets
DEMAND TO EXCEED SUPPLY IN ESSEX’S MARKETS IN ESSEX’S MARKETS, WHERE HOME PRICES ARE GREATER THAN 3X THE NATIONAL AVERAGE, HOUSING DEMAND IS EXPECTED TO EXCEED SUPPLY RELATIVE TO OTHER MAJOR METROS IN 2019 AND 2020 Sources: National Association of Realtors, CoreLogic, and Essex*Essex Portfolio weigh
Slide 21: Legislation Update… A More Balanced Discussion
LEGISLATION UPDATE… A MORE BALANCED DISCUSSION * A MORE BALANCED DISCUSSION IS NEEDEDSTATE AND LOCAL GOVERNMENTS ARE ATTEMPTING TO ADDRESS CALIFORNIA’S CHRONIC SHORTAGE OF HOUSING AND EXPAND RENTER PROTECTIONS“NEED FOR 3.5 MILLION HOMES BY 2025” – GOVERNOR NEWSOM CALIFORNIA HAS A CHRONIC HOUSING SHO
Slide 22: Operating Performance
Pinnacle at MacArthurSanta Ana, CA OPERATING PERFORMANCE
Slide 23: Operational Update
OPERATIONAL UPDATE PRELIMINARY APRIL/MAY SAME-PROPERTY REVENUES GREW 3.4%YEAR-TO-DATE, SAME-PROPERTY REVENUE GROWTH IS TRENDING SLIGHTLY AHEAD OF THE MIDPOINT OF OUR GUIDANCE RANGEESSEX MARKET RENT GROWTH FOR APRIL/MAY IS 3.2% *
Slide 24: Essex's Operational Improvement Process
Scan Market for Potential Solutions ESSEX’S OPERATIONAL IMPROVEMENT PROCESS Proof of Concept with Return On Investment Analysis Pilot Program Monitor Peer Implementation Review Results, Refine Process, Expand Pilot Program Portfolio Rollout PLATFORM INVESTMENTS ARE SUBJECT TO ESSEX’S WELL-DEFINED PR
Slide 25: Property Maps & Key Market Stats
Sources: Axiometrics, CoreLogic, LinkedIn, CoStar, JLL Office Report, CBRE, Moody's, RCG, S&P Global Market Intelligence, BLS, NAR, Census and Essex Disclosures.(1) Trailing three months as of April 2019.(2) Trailing three months as of Feb 2019. PROPERTY MAPS & KEY MARKET STATS LOS ANGELES ORANGE CO
Slide 26: Investments and Capital Allocation
AnaviaAnaheim, CA INVESTMENTS AND CAPITAL ALLOCATION
Slide 27: Core Competencies to Create Value
CORE COMPETENCIES TO CREATE VALUE CONDO OPTIONALITY:Potential value creation through ~9,000 condo convertible apartment homes in the Essex Portfolio DEVELOPMENT:Develop high-quality tenant-desired apartment homes near transportation nodes ACQUISITIONS:Improve the NAV/share, cash flow/share and growt
Slide 28: Disciplined Capital Allocation Process
DISCIPLINED CAPITAL ALLOCATION PROCESS DEALS MUST BE ACCRETIVE TO 3 METRICS: *
Slide 29: 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 30: Current Capital Allocation Priorities
CURRENT CAPITAL ALLOCATION PRIORITIES 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 activityOriginate preferred equity transacti
Slide 31: Development Pipeline Update
(1) Reflected at 100% and not Essex Share. Essex share of remaining costs as of 3/31/19 was $247M. DEVELOPMENT PIPELINE UPDATE 500 FolsomSan Francisco, CA Development Property Location Apartment Homes Total Cost(1) $M Remaining Costs(1) $M Initial Occupancy Stabilized Operations Mylo Santa Clara, CA
Slide 32: 2019 Guidance & Balance Sheet
Station Park GreenSan Mateo, CA 2019 GUIDANCE & BALANCE SHEET
Slide 33: 2019 Full-Year Guidance – No Change from Q1'19
Source: Company DisclosuresCore FFO excludes acquisition costs and non-routine items. 2019 FULL-YEAR GUIDANCE – NO CHANGE FROM Q1’19 *
Slide 34: 2019 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. 2019 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 % G
Slide 35: Capital Structure & Liquidity Profile
$25.4 Billion Total Capitalization As of 03/31/19Consolidated portfolio only. CAPITAL STRUCTURE & LIQUIDITY PROFILE Debt Composition(1) *
Slide 36: 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 marketable
Slide 37: Well Laddered Debt Maturity Schedule
WELL LADDERED DEBT MATURITY SCHEDULE % of Total Debt Maturing/Year 4.0% 12.0% 9.4% 12.1% 10.4% 7.0% 8.9% 9.5% 8.8% 1.2% 9.2% 7.5% Debt Maturity Schedule(1) (1) Data as of 03/31/2019. Excludes lines of credit. Weighted Average Interest Rate 5.0% 5.0% 4.5% 3.4% 3.7% 4.0% 3.6% 3.5% 3.6% 4.1% 4.0% 3.9%
Slide 38: Definitions & Reconciliations
DEFINITIONS &RECONCILIATIONS
Slide 39: Disclaimers
DISCLAIMERS SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995This presentation 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 st
Slide 40: Projected EPS, FFO, and Core FFO per Diluted Share
With respect to the Company's guidance regarding its projected FFO and Core FFO for the second quarter of 2019, which guidance is set forth in the earnings release for the first quarter of 2019 on page S-14.1 of the earnings supplement, a reconciliation of projected net income per share to projected
Slide 41: Adjusted EBITDAre Reconciliation
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 net
Slide 42: 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 i
Slide 43: Funds from Operations (FFO) and Core FFO
RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS FUNDS FROM OPERATIONS (“FFO”) AND CORE FFOFFO, 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. Ge
Slide 44: Net Indebtedness Divided by Adjusted EBITDAre
RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS NET INDEBTEDNESS DIVIDED BY ADJUSTED EBITDAreThis credit ratio is presented on page S-6 of the earnings supplement for the first quarter of 2019 in the section titled "Selected Credit Ratios." This credit ratio is calculated by dividing n
Slide 45: 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 presentatio
Slide 46: Public Bond Covenants
RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS PUBLIC BOND COVENANTS Public Bond Covenants refer to certain covenants set forth in instruments governing the Company's unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenan
Slide 47: 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 the first quarter of 2019 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate
Slide 48: Notes
NOTES _ESSEX_ PROPERTY TAUST. ING.
Slide 49: Essex Property Trust, Inc.
ESSEX PROPERTY TAUST. ING.
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