Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Presentation (September 2019)
51 slides from Essex Property Trust's investor presentation, Sep 9, 2019
Slide 1: Investor Presentation September 2019
INVESTOR PRESENTATIONSEPTEMBER 2019
Slide 2: Table of Contents
TABLE OF CONTENTS * ABOUT ESSEX 3 EXECUTIVE SUMMARY 4WEST COAST FUNDAMENTALS 9OPERATING PERFORMANCE 22INVESTMENTS AND CAPITAL ALLOCATION 262019 GUIDANCE AND BALANCE SHEET 33DEFINITIONS & RECONCILIATIONS 39
Slide 3: The Only Public Multifamily REIT Dedicated to the West Coast: Essex at a Glance
THE ONLY PUBLIC MULTIFAMILY REIT DEDICATED TO THE WEST COAST ESSEX AT A GLANCE (1) Represents percent of pro rata NOI as of 6/30/19, rounded to the nearest percent.(2) Oakland includes Alameda and Contra Costa Counties.(3) As of 6/30/19. San Francisco MD 9%Oakland(2) 12%Santa Clara 20% Ventura 6%Los
Slide 4: Executive Summary – Key Highlights
EXECUTIVE SUMMARY – KEY HIGHLIGHTS *
Slide 5: 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 1,506% 950% 4,758% ESS CAGR: 16.7% 1,079% INVESTMENT STRATEGY LEADS TO SUPERIOR TOTAL RETURNS Source: Company Disclosures, S&P Global Market IntelligenceJune 1994 – December 2018 *
Slide 6: 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 8.3%, respectively (1)Raised the Dividend every year since the IPO and paid entirely in cash Great Recession FFO per share ↑ 150% since the Great Recession(2) SIGNIFICANT DIVIDEND PER SHARE AND TOTAL FFO
Slide 7: Superior Same-Property NOI & Core FFO Growth Through a Cycle
Since the previous cycle peak, Essex has significantly outperformed peers in cumulative same-property NOI, Core FFO, and Dividend growth. SUPERIOR SAME-PROPERTY NOI & CORE FFO GROWTH THROUGH A CYCLE Source: Company Disclosures Peer average for Same-Property NOI, Core FFO, and dividend growth include
Slide 8: West Coast Fundamentals
WEST COAST FUNDAMENTALS Brio | Walnut Creek, CA
Slide 9: Why West Coast Markets?
WHY WEST COAST MARKETS? * LONG-TERM FAVORABLE SUPPLY/DEMAND DYNAMICS DIVERSE DEMAND DRIVERS Highest GDP in the U.S.Centers of innovation drive job creation and income growthHigher median household incomesHigher percentage of renters vs. ownersFavorable demographics New supply (multifamily & for-sale
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
In Essex’s California markets, new supply as a percent of stock has historically remained below 1% LIMITED SUPPLY IN ESSEX MARKETS Source: Census, Essex, and Rosen * U.S. Essex
Slide 12: Permits and Near Term Supply
Total residential permits as a percent of stock for ESS Markets is decelerating while the U.S. increases. PERMITS AND NEAR TERM SUPPLY Source: Census, ESS, Rosen Consulting Group(1) Trailing twelve months (TTM) includes all residential permits for single-family and multifamily * Permits have fallen
Slide 13: 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 5x More Jobs Than Housing Units This Cycle After-Tax Cost Premium to Own vs. Rent in Essex Markets(1) After-tax cost of home purchase
Slide 14: Tech-driven markets continue to grow jobs faster than the U.S.
Tech-driven markets continue to grow jobs at faster rate than the U.S.ESS Portfolio weighted-average outperforms the U.S. by approx. 60bps. ESS Market Non-ESS Market PERMITS AND NEAR TERM SUPPLY Source: Census, ESS(1) Weighted by ESS Same-Property Scheduled Rent Jul’19 YTD *
Slide 15: Job Growth in ESS Markets – High vs. Low Wage Industries
High-paying industries continue to add more jobs than low paying industries in ESS’ markets, helping improve incomes and rental affordability. JOB GROWTH IN ESS MARKETS – HIGH VS. LOW WAGE INDUSTRIES Source: BLSEssex Markets Weighted by 1Q19 Same-Property NOI. *
Slide 16: Job Openings – Top 10 Tech Firms
Job openings at the Top 10 Tech firms in CA and WA is nearly 26,000 positions, +19% compared to one year ago. JOB OPENINGS – TOP 10 TECH FIRMS Source: Company Websites and LinkedIn *
Slide 17: LinkedIn Worker Migration Trends
San Francisco migration trends highlight the flow of labor from the East Coast to the West Coast Top Three: Seattle, WAPortland, ORSacramento, CA Top Three: New York City, NYBoston, MAChicago, IL LINKEDIN WORKER MIGRATION TRENDS Note: LinkedIn defines migration as a member changing their location on
Slide 18: Affordability Is Improving
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, Census
Slide 19: Affordability Is Improving (rent-to-income)
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. AFFORDABILITY IS IMPROVING Sources: Moody’s, Rosen, Costar and ESSRepresents median household income to average rents wei
Slide 20: 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 DEMAND TO EXCEED SUPPLY IN ESSEX’S MARKETS Sources: National Association of Realtors, CoreLogic, and Essex*Essex Portfolio weigh
Slide 21: Legislation Update
LEGISLATION UPDATE * Housing costs remain a key political and business issue across the country with many states implementing rent control legislation including Oregon, Colorado, Florida, Illinois, Massachusetts, and New York. New York landlords are currently challenging the constitutionality of the
Slide 22: Operating Performance
OPERATING PERFORMANCE 5600 Wilshire | Los Angeles, CA
Slide 23: Operational Update
Preliminary July/August same-property revenues grew 3.1%, driven by solid rent growth and a decline in occupancy, consistent with our operating strategyEssex market rent growth for July/August is 3.6%Year-to-date, same-property revenue growth is trending inline with the midpoint of our revised guida
Slide 24: Essex's Operational Improvement Process
Y Currently piloting or rolling out several programs that improve the customer experience, improve efficiencies, and/or grow ancillary income: Platform investments are subject to Essex’s well-defined process to limit risk and enhance shareholder value Scan Market for Potential Solutions Proof of Con
Slide 25: Property Maps & Key Market Stats
Job Growth(1) 2019F Personal Income Growth Median Home Price to Median Income Home Price Growth(2) Office Construction / Renovation SF (in millions) Office Construction as % of Inventory Office % Preleased Los Angeles 1.4% 5.3% 7.5x 2.1% 8.3 2.7% 58% Orange County 1.4% 5.4% 7.7x -0.2% 0.3 0.3% 72% S
Slide 26: Investments and Capital Allocation
INVESTMENTS AND CAPITAL ALLOCATION One South Market | San Jose, CA
Slide 27: Core Competencies to Create Value
ACQUISITIONS: Improve the NAV/share, cash flow/share and growth prospects of the company DEVELOPMENT:Develop high-quality tenant-desired apartment homes near transportation nodes REDEVELOPMENT: Focused on rent justified improvements to maximize NOI and value CONDO OPTIONALITY:Potential value creatio
Slide 28: Disciplined Capital Allocation Process
Y DEALS MUST BE ACCRETIVE TO 3 METRICS: DISCIPLINED CAPITAL ALLOCATION PROCESS *
Slide 29: Proven History of Strategic Capital Allocation
Our innovative management team is responsive to changing market dynamics with the ability to source and structure unique opportunities within the multifamily spaceDisciplined underwriting, rigorous analysis, and total return driven Y Capital Allocation Select Highlights PROVEN HISTORY OF STRATEGIC C
Slide 30: Case Study: 8th and Hope Transaction
Y Opportunistic asset sale given discrepancy between private market values and our cost of capital led to value creation for shareholders CASE STUDY: 8TH AND HOPE TRANSACTION *
Slide 31: Year-to-Date Investment Activities
One South Market | San Jose, CA (2019 Acquisition of JV Partner’s Share) YEAR-TO-DATE INVESTMENT ACTIVITIES * Through August 30, 2019. Includes properties closed or contingencies removed. Significantly improved cost of capital driving increased capacity for external growthAcquisition and Preferred E
Slide 32: Development Pipeline Update
Development Property Location Apartment Homes Total Cost(1) $M Remaining Costs(1) $M Initial Occupancy Stabilized Operations % Leased as of 8/22/19 Mylo Santa Clara, CA 476 $226 $36 Q3 2019 Q4 2020 28.2% Station Park Green Phase II San Mateo, CA 199 $141 $13 Q3 2019 Q1 2020 33.2% 500 Folsom(1) San F
Slide 33: 2019 Guidance & Balance Sheet
2019 GUIDANCE & BALANCE SHEET Station Park Green | Mateo, CA
Slide 34: 2019 Full-Year Guidance
2019 Full-Year Guidance GuidanceMidpoint National GDP Forecast 2.5% 2.5% National Job Growth 1.3% 1.3% ESS Job Growth 1.9% 1.9% ESS Market Rent Growth 3.1% 3.1% ESS Same-Property Revenue Growth 3.0% - 3.5% 3.3% ESS Same-Property Expense Growth 2.0% - 2.4% 2.2% ESS Same-Property NOI Growth 3.2% - 4.1
Slide 35: Capital Structure & Liquidity Profile
CAPITAL STRUCTURE & LIQUIDITY PROFILE As of 6/30/19(1) Consolidated portfolio only. * $25.7 Billion Total Capitalization Debt Composition(1)
Slide 36: Strong Credit Profile
Public Bond Covenants and Selected Credit Ratios Q2 ’19 Q1 ’19 Q4 ’18 Q3 ’18 Covenant Adjusted Debt / Adjusted Total Assets 36% 36% 36% 36% < 65% Secured Debt / Adjusted Total Assets 9% 9% 12% 12% < 40% Interest Coverage 450% 442% 437% 433% > 150% Unsecured Debt Ratio(1) 272% 273% 285% 287% > 150% N
Slide 37: Well Laddered Debt Maturity Schedule
% of Total Debt Maturing/Year 2.1% 12.1% 9.5% 12.0% 10.5% 7.0% 10.5% 9.6% 8.8% 1.2% 9.2% 7.5% Debt Maturity Schedule(1) Weighted Average Interest Rate 5.0% 4.9% 4.5% 3.4% 3.7% 4.0% 3.6% 3.5% 3.6% 4.1% 4.0% 3.9% Weighted Average Interest Rate: 4.0% WELL LADDERED DEBT MATURITY SCHEDULE (1) Data as of
Slide 38: 2019 MSA Level Forecast
All data are based on Essex Data Science and Advanced Analytics team forecasts.U.S. Macroeconomic Assumptions: 2019 G.D.P. Growth: 2.5% , 2019 Job Growth: 1.3% 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) Jo
Slide 39: Definitions & Reconciliations
DEFINITIONS & RECONCILIATIONS
Slide 40: Safe Harbor Statement
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 statements are
Slide 41: 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 third quarter of 2019, which guidance is set forth in the earnings release for the second quarter of 2019 on page S-14 of the earnings supplement, a reconciliation of projected net income per share to projected F
Slide 42: Adjusted EBITDAre Reconciliation
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 income (computed in accordance with U.S. generally accepted ac
Slide 43: Adjusted EBITDAre Reconciliation (Continued)
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): RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES AND OTHER TERMS (1) Interest expense, net includes
Slide 44: Encumbered; FFO and Core FFO Definitions
ENCUMBEREDEncumbered means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other encumbrance of any kind.FUNDS FROM OPERATIONS (“FFO”) AND CORE FFOFFO, as defined by NAREIT, is generally considered by industry analysts as an appropriate measure of performa
Slide 45: Net Indebtedness Divided by Adjusted EBITDAre
NET INDEBTEDNESS DIVIDED BY ADJUSTED EBITDAreThis credit ratio is presented on page S-6 of the earnings supplement for the second quarter of 2019 in the section titled "Selected Credit Ratios." This credit ratio is calculated by dividing net indebtedness by Adjusted EBITDAre, as annualized based on
Slide 46: NOI and Same-Property NOI Reconciliations
NET OPERATING INCOME (“NOI”) AND SAME-PROPERTY NOI RECONCILIATIONSNOI and same-property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s condensed consolidated statements of income. The presentation of same-prope
Slide 47: Public Bond Covenants
PUBLIC BOND COVENANTSPublic 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 covenants relating to net worth, fixed charge coverage, debt service c
Slide 48: Unencumbered NOI to Adjusted Total NOI
UNENCUMBERED NOI TO ADJUSTED TOTAL NOIThis ratio is presented on page S-6 of the earnings supplement for the second quarter of 2019 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate assets which are not subject to an encumbrance securing debt
Slide 49: Notes
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Slide 50: Notes
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Slide 51: Notes
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