Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Presentation (September 2017)
48 slides from Essex Property Trust's investor presentation, Sep 12, 2017
Slide 1: Investor Presentation September 2017
OCTOBER 2015 INVESTOR PRESENTATIONSEPTEMBER 2017
Slide 2: Table of Contents
ABOUT ESSEXPROVEN TRACK RECORDWEST COAST INVESTMENT STRATEGYINVESTMENT OVERVIEWFINANCIAL PERFORMANCE, 2017 GUIDANCE, & CAPITAL STRUCTUREAPPENDIX ESSEX PORTFOLIO SUSTAINABILITYDEFINITIONS & RECONCILIATIONS PAGE(S)2 – 3 4 – 7 8 – 1718 – 2223 – 2930 31 – 3435 – 3839 – 47 TABLE OF CONTENTS 1
Slide 3: Essex Is the Only Public Multifamily REIT Dedicated Exclusively to the West Coast
Represents percent of pro rata NOI as of 6/30/17.Oakland includes Alameda and Contra Costa Counties.Multifamily REITs represent the total return of 6 peers through 6/30/17. ESSEX IS THE ONLY PUBLIC MULTIFAMILY REIT DEDICATED EXCLUSIVELY TO THE WEST COAST SEATTLE16% of NOI(1) 2 San Francisco MD 9%Oak
Slide 4: Key Strategic Objectives
KEY STRATEGIC OBJECTIVES Add value through strategic redevelopmentAcquire and develop West Coast properties near transportation nodes in submarkets with highest expected rent growth Drive rent growth on high occupancyMaintain strong balance sheet and financial flexibility The DylanLos Angeles, CA 3
Slide 5: Proven Track Record
PROVEN TRACK RECORD EmmeEmeryville, CA(Development)
Slide 6: 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 7: Investment Strategy Leads to Superior Total Returns
INVESTMENT STRATEGY LEADS TO SUPERIOR TOTAL RETURNS Total Shareholder Return Since IPOThrough 6/30/17 HIGHEST TOTAL RETURN OF ALL PUBLIC U.S. REITS SINCE IPO IN 1994 3,939% 877% 715% 1,234% Source: SNL Financial, NAREITJune 1994 – June 2017 6 INVESTMENT STRATEGY HAS LED TO SUPERIOR VALUE CREATION FO
Slide 8: Compound Annual FFO/Share and Dividend/Share Growth
7 SINCE THE IPO, WE HAVE GENERATED COMPOUND ANNUAL FFO/SH AND DIVIDEND/SH GROWTH OF 8.5% AND 6.4%, RESPECTIVELY(1)RAISED THE DIVIDEND EVERY YEAR SINCE THE IPO AND PAID ENTIRELY IN CASH SIGNIFICANT TOTAL FFO PER SHARE AND DIVIDEND PER SHARE GROWTH (1) Includes 2017 estimated growth.(2) 2017E FFO/shar
Slide 9: Solid West Coast Fundamentals
SOLID WEST COAST FUNDAMENTALS Gas Company LoftsLos Angeles, CA(Recently Redeveloped)
Slide 10: Why West Coast Markets?
WHY WEST COAST MARKETS? FAVORABLE DEMOGRAPHICSHigher incomesHigher percentage of educated 25-34 year oldsMillennials often choose to rent rather than own DIVERSE DEMAND DRIVERSHighest GDP in the U.S.Centers of innovation drive job creation and income growth LOW SUPPLYLong-term at below 1% of total s
Slide 11: Long-Term Rent Growth Outperformance
10 LONG-TERM RENT GROWTH OUTPERFORMANCE SINCE 1998, ESS MARKETS HAVE HAD COMPOUND ANNUAL RENT GROWTH OF 3.5%, OUTPERFORMING OTHER MAJOR METROS AND THE U.S. ESS Markets Wtd. Avg.(1): 3.5% Source: Essex and Axiometrics(1) Markets weighted by scheduled rent in the Company’s portfolio. ESS Markets Non-E
Slide 12: West Coast Job Growth
WEST COAST JOB GROWTH JOB GROWTH IN ESS MARKETS HAS MODESTLY OUTPERFORMED THE U.S. JOB OPENINGS REMAIN STRONG, BUT LOW UNEMPLOYMENT RATES AND A SHORTAGE OF SKILLED WORKERS ARE HAVING AN IMPACT ON EMPLOYERS ABILITY TO HIRE Source: BLS (not seasonally adjusted)(1) For those markets included in this gr
Slide 13: Favorable Demographic Trends Indicate Continued Strong Rental Demand
FAVORABLE DEMOGRAPHIC TRENDS INDICATE CONTINUED STRONG RENTAL DEMAND FROM THE KEY RENTAL COHORT Source: Census FAVORABLE DEMOGRAPHICS 12 Key Rental Cohort
Slide 14: Strong Household Income Growth vs. Rent Growth
HOUSEHOLD INCOME GROWTH IS OUTPACING RENT GROWTH IN MANY ESS MARKETS, WHICH IS IMPROVING AFFORDABILITY IN THE NORTHERN CALIFORNIA MARKETS Source: Moody’s, RCG, Axio, and Essex 13 STRONG HOUSEHOLD INCOME GROWTH VS. RENT GROWTH
Slide 15: Demand to Exceed Supply in ESS Markets
14 DEMAND TO EXCEED SUPPLY IN ESS MARKETS IN ESS’ SUPPLY CONSTRAINED MARKETS, DEMAND IS EXPECTED TO EXCEED SUPPLY RELATIVE TO OTHER MAJOR METROS FOR THE NEXT SEVERAL YEARS Source: NAR, CoreLogic, Economy.com permits, and Essex*Essex Portfolio weighted by % of SS Revenue.(1) New Home demand based upo
Slide 16: Limited Supply in ESS Markets
Source: Census, Essex, and Rosen Consulting Group LIMITED SUPPLY IN ESS MARKETS ESS CA SUPPLY AS A PERCENT OF STOCK HAS HISTORICALLY REMAINED BELOW 1% RELATIVE TO THE NATION, ESS’ CA MARKETS HAVE LESS HOUSING SUPPLY WITH BETTER JOB GROWTH 15
Slide 17: Multifamily Supply Outlook
MULTIFAMILY SUPPLY AS A % OF MULTIFAMILY STOCK IS EXPECTED TO DECREASE IN ESS’ NORTHERN CALIFORNIA AND SEATTLE MARKETS IN 2018SUPPLY IS EXPECTED TO REMAIN RELATIVELY FLAT IN OUR SOUTHERN CALIFORNIA MARKETS Source: Essex(1) 2017 represents forecasted data and 2018 represents preliminary estimates. MU
Slide 18: Rent Growth Outlook - Axio Forecast
RENT GROWTH OUTLOOK-AXIO FORECAST Source: AxiometricsRepresents the Company’s pro rata share as of 6/30/17.Orange County (3.4%) and Seattle (3.3%) rank 35 and 38, respectively. ESS’ NORTHERN CALIFORNIA MARKETS ARE PROJECTED TO BE THE TOP PERFORMING MARKETS IN 2018 AND 2019MORE THAN 70% OF ESS’ TOTAL
Slide 19: Investment Overview
INVESTMENT OVERVIEW EnsoSan Jose, CA(2015 Acquisition)
Slide 20: Core Competencies to Create Value
ACQUISITIONSImprove the NAV/sh, cash flow/sh and growth prospects of the CompanyDEVELOPMENTDevelop high-quality tenant desired apartment homes near transportation nodesREDEVELOPMENTFocused on rent justified improvements to maximize NOI and valueCO-INVESTMENT PLATFORMFacilitates growth via private ca
Slide 21: Strategic Capital Allocation: Key Investment Targets
STRATEGIC CAPITAL ALLOCATION KEY INVESTMENT TARGETS Acquisitions Property Name City Location Apartment Homes Age ContractPrice (‘000’s) Price/ Home Palm Valley San Jose Northern CA 1,098 9 $ 183,000(1) $ 333 Sage San Jose Northern CA 230 46 $ 90,000(2) $ 391 8th & Republican Seattle Seattle 211 1 $
Slide 22: Development Pipeline Update
Based on initial occupancy.Total cost in millions and not ESS share. Includes only those projects under construction as of 6/30/17. As of 6/30/17. FORECASTED SPEND OF $215M AT PRO RATA SHARE ON DEVELOPMENT PROJECTS IN 2017 DEVELOPMENT PIPELINE UPDATE Delivery of Development Timeline(1) # of Properti
Slide 23: Strong Capital Allocation Process
STRONG CAPITAL ALLOCATION PROCESS 22 INTEGRATING THE INVESTING DECISION AND THE FINANCING DECISION LEADS TO VALUE CREATION FOR SHAREHOLDERSThe investing decision begins with our research driven process, which includes the ranking of our various submarkets by our in-house research teamThe financing d
Slide 24: Financial Performance, 2017 Guidance, & Capital Structure
FINANCIAL PERFORMANCE, 2017 GUIDANCE, & CAPITAL STRUCTURE Form 15San Diego, CA(2016 Acquisition)
Slide 25: Continued Outperformance vs. Peers
Source: Company Disclosures 2017E represents the midpoint of guidance as of Second Quarter Earnings Releases. Peer average represents 6 multifamily REITs. CONTINUED OUTPERFORMANCE VS. PEERS ESS SAME-PROPERTY NOI AND CORE FFO GROWTH HAVE EXCEEDED THE PEER AVERAGE BY 3.2% AND 5.8% ANNUALLY SINCE 2012,
Slide 26: 2017 Full-Year Guidance
Current Guidance as of Q2’ 17 Change to Midpoint of Initial Guidance National GDP Forecast 2.2% No Change National Job Growth 1.6% No Change ESS Job Growth 1.8% (0.4%) ESS Market Rent Growth 3.5% (0.1%) ESS Same-Property Revenue Growth 3.6% 0.35% ESS Same-Property Expense Growth 2.7% (0.3%) ESS Same
Slide 27: 2017 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. 2017 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 28: Capital Structure & Liquidity Profile
$23.3 BILLION TOTAL CAPITALIZATION Source: Company Disclosures as of 6/30/17(1) Variable rate debt represents 8.1% of total consolidated debt. 27 DEBT SUMMARY ($ MILLION) Unsecured Debt Bonds $3,215 Term Loan(1) 350 Line of Credit - Unamortized Premiums & Debt Issuance Costs (24) Total Unsecured Deb
Slide 29: Select Balance Sheet Ratios
SELECT BALANCE SHEET RATIOS Q2 ‘17 Q1 ‘17 COVENANT TARGETS Secured Debt / Adjusted Total Assets 14% 15% < 40% < 15% Total Debt / Adjusted Total Assets 38% 38% < 65% < 40% Interest Coverage 402% 394% > 150% > 325% Unsecured Debt Ratio(1) 289% 292% > 150% > 250% Net Indebtedness to Adjusted EBITDA(2)(
Slide 30: Well Laddered Debt Maturity Schedule
Debt Maturities in Millions ($) 1.0% 4.5% 11.6% 12.3% 9.8% 12.3% 10.7% 7.1% 9.1% 8.9% 9.1% 3.6% % of Total Debt Maturing/Year WELL LADDERED DEBT MATURITY SCHEDULE Debt Maturity Schedule(1) (1) As of 6/30/2017. Excludes lines of credit. 4.4% 5.5% 4.3% 4.8% 4.3% 3.0% 3.6% 4.0% 3.5% 3.4% 3.3% 2.1% Weig
Slide 31: Appendix
APPENDIX EpicSan Jose, CA(Development)
Slide 32: Northern California Highlights
San Francisco MD job growth continues to outpace the U.S. with 2.4% over the trailing three month period ended in July, while San Jose is in-line with the U.S at 1.4%.San Francisco has the lowest unemployment rate of all Essex markets at 3.1% as of July.There was 8.9M sf of office space under constr
Slide 33: Los Angeles Portfolio and Highlights
Source: Axiometrics, Core Logic, Moody's, RCG, SNL, BLS, NAR, Census and Essex Disclosures as of June 2017. Trailing 3 months ended July 2017.Home Prices and YOY % Increase as of June 2017. Home prices in Los Angeles represent the entire county and not ESS submarkets, which had a weighted average ho
Slide 34: Orange County Portfolio and Highlights
Source: Axiometrics, CoreLogic, Moody's, RCG, SNL, BLS,NAR Census and Essex Disclosures as of June 2017. Trailing 3 months ended July 2017.Home Prices and YOY % Increase as of June 2017. U.S. uses NAR 2Q17. ORANGE COUNTY PORTFOLIO ORANGE COUNTY HIGHLIGHTS Job growth in Orange County lagged the U.S.
Slide 35: Seattle Portfolio and Highlights
Source: Axiometrics, Moody's, RCG, SNL, BLS, NAR, NWMLS, Census and Essex Disclosures as of June 2017. Trailing 3 months ended July 2017.Home Prices and YOY % Increase as of June 2017. U.S. uses NAR 2Q17. SEATTLE HIGHLIGHTS SEATTLE PORTFOLIO Market Data U.S. Seattle Trailing 3 Month Job Growth 1.5%
Slide 36: Commitment to Sustainability
COMMITMENT TO SUSTAINABILITY Huntington BreakersHuntington Beach, CA(Recently Redeveloped)
Slide 37: LEED and Build It Green Certifications
36 U.S. GREEN BUILDING COUNCIL: LEADERSHIP IN ENERGY AND ENVIRONMENTAL DESIGN (LEED)Since 2009, Essex has developed seven apartment communities that are LEED Certified, including two Gold and five Silver certifications, with three additional certifications currently pending. A nationally recognized
Slide 38: Sustainability Initiatives
2016 2015 2014 2009 2008 2006 SUSTAINABLE COMMITMENTFor the past 10+ years, Essex has been incorporating green initiatives within its apartment communities In 2016, Essex participated in the GRESB Survey for the first time and achieved GREEN STAR Rated StatusRanked second among the multifamily peers
Slide 39: Sustainable Initiatives Throughout the Organization
SUSTAINABLE INITIATIVES THROUGHOUT THE ORGANIZATION *LEED is a nationally recognized program established by the U.S. Green Building Council to encourage the design of environmentally responsible buildings. GreenPoint Rated is California-specific program through Build It Green, which encourages healt
Slide 40: Definitions & Reconciliations
DEFINITIONS & RECONCILIATIONS
Slide 41: Disclaimers: Safe Harbor Statement
40 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
Slide 42: Guidance Reconciliation of Net Income to FFO
41 With respect to the Company's guidance regarding its projected FFO and Core FFO for the third quarter of 2017 and full-year 2017, which guidance is set forth in the earnings release for the second quarter of 2017 and on page S-14 of the earnings supplement for the second quarter of 2017, a reconc
Slide 43: Adjusted EBITDA Reconciliation
42 RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS ADJUSTED EBITDA RECONCILIATION Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a component of the credit ratio, "Net Indebtedness Divided by Adjusted EBITDA", presented on page S-6 of the earnings s
Slide 44: Funds From Operations (FFO)
43 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,
Slide 45: Net Indebtedness Divided by Adjusted EBITDA
44 RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS Total debt, net $ 5,663,395 Adjustments: Unamortized premiums, discounts, and debt issuance costs (10,958) Cash and cash equivalents-unrestricted (183,885) Marketable securities (151,995) Net Indebtedness $ 5,316,557 Adjusted EBITDA, a
Slide 46: NOI and Same-Property NOI Reconciliations
45 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 presenta
Slide 47: Public Bond Covenants
46 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 servi
Slide 48: Unencumbered NOI to Adjusted Total NOI
47 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 second quarter of 2017 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real es
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