Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Day (August 2010)
61 slides from Essex Property Trust's investor day presentation, Aug 13, 2010
Slide 1: Investor/Analyst Day
Investor/Analyst Day Orange County, California August 12, 2010
Slide 2: Keith Guericke, President & CEO
Keith Guericke President & CEO Essex Skyline at MacArthur Place Pool Deck
Slide 3: Forward Looking Statement
Forward Looking Statement SAFE HARBOR STATEMENT UNDER THE PRIVATE LITIGATION REFORM ACT OF 1995: This presentation by Essex Property Trust, Inc. (the “Company”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the S
Slide 4: Agenda
Essex Market Strategy Keith Guericke Current Operating Environment & Forecast Michael Schall Acquisitions Craig Zimmerman Development John Eudy Redevelopment & Resource Management John Burkart Financial Overview Michael Dance Orange County Market Update Erik Alexander Agenda
Slide 5: Why Western Coastal Markets?
Why Western Coastal Markets? • Requirements for long term success – Stable occupancy – Low affordability – Growing and diverse economy – Limited Housing supply • Coastal Region Characteristics – Permanent constraints on new supply – Job growth expectations drive income growth – High cost of home own
Slide 6: Economic Research Model
Income Growth Household Growth Population Growth Job Growth Housing Supply Single Family Affordability Ranking of 27 submarkets to determine allocation of investment capital Economic Research Model
Slide 7: Northern California Portfolio
Units: 8,857 Percentage of Portfolio: 32% Average Rent: $1,430 Occupancy: 97.5% Essex Properties Development Communities Northern California
Slide 8: Southern California Portfolio
Units: 13,082 Percentage of Portfolio: 47% Average Rent: $1,337 Occupancy: 97.1% Essex Properties Southern California
Slide 9: Seattle Metro Area Portfolio
Units: 6,053 Percentage of Portfolio: 22% Average Rent: $998 Occupancy: 97.3% Essex Properties Development Communities Seattle Metro Area
Slide 10: Limited Supply in Our Markets
Limited Supply in Our Markets (Multifamily and Single Family supply as a % of total housing stock)
Slide 11: Essex Markets: High Home Prices
Essex Markets Major U.S. Metros High Home Prices In Our Markets
Slide 12: Essex Markets: Job Growth vs. Vacancy
Essex Markets: Job Growth vs. Vacancy
Slide 13: Essex Markets: Rent Growth vs. Job Growth
Essex Markets: Rent Growth vs. Job Growth
Slide 14: Michael Schall, Chief Operating Officer
Michael Schall Chief Operating Officer Essex Skyline at MacArthur Place Fire Pit
Slide 15: The Big Picture - Demand Considerations
The Big Picture - Demand Considerations • Echo Boomers (60 million strong) are coming (but need jobs) • Declining homeownership rates (back to 65%) • Increased longevity contributes to housing demand • Lower rents stimulate demand (roommates often uncouple) • Quality of life factors favor the West C
Slide 16: Venture Capital Spending
Source: PriceWaterhouseCoopers Venture Capital Spending Second Quarter 2010
Slide 17: The Big Picture - Housing Supply Considerations
The Big Picture - Housing Supply Considerations • Supply of housing (single family & multifamily) at 30-year lows • Expensive single family homes • Fewer developers and reluctant banks restrict development • Home mortgages now require proven income and down payments
Slide 18: Second Quarter Performance
Q2 2010 compared to Q2 2009 Revenues Expenses NOI Southern California -2.4% 0.3% -3.7% Northern California -5.3% 0.3% -8.0% Seattle Metro -9.1% -2.7% -12.6% Same-property average -4.4% -0.2% -6.5% • Market Rents Increased 4.3% from December 2009 • Positive ancillary indicators • Delinquency down 30%
Slide 19: Why Didn't Operating Results Improve Quicker?
Why Didn’t Operating Results Improve Quicker?
Slide 20: Southern California Cumulative Rent Growth
Southern California Cumulative Reported Quarterly Rent Growth
Slide 21: Northern California Cumulative Rent Growth
Northern California Cumulative Reported Quarterly Rent Growth
Slide 22: Seattle Metro Area Cumulative Rent Growth
Seattle Metro Area Cumulative Reported Quarterly Rent Growth
Slide 23: San Jose: Average Rents as % of Median Income
San Jose Average Rents as a % of Median Household Income
Slide 24: San Jose: Residential Supply
llth Single Family m Multi-Family
Slide 25: San Jose: Total Housing Supply as % of Stock
San Jose Total Housing Supply as a % of Stock
Slide 26: Seattle: Average Rents as % of Median Income
Seattle Metro Area Average Rents as a % of Median Household Income
Slide 27: Seattle Metro Area Residential Supply
Seattle Metro Area Residential Supply
Slide 28: Seattle: Total Housing Supply as % of Stock
Seattle Metro Area Total Housing Supply as a % of Stock
Slide 29: Orange County: Average Rents as % of Median Income
Orange County Average Rents as a % of Median Household Income
Slide 30: Orange County Residential Supply
Orange County Residential Supply
Slide 31: Orange County: Total Housing Supply as % of Stock
Orange County Total Housing Supply as a % of Stock
Slide 32: Craig Zimmerman, EVP Acquisitions
Craig Zimmerman Exec. Vice President, Acquisitions Essex Skyline at MacArthur Place Resident Lounge
Slide 33: Current Acquisitions Environment
Current Acquisitions Environment • Economic Cap Rates: 4.75% - 5.5% – Cap rate compression in last 18 months – A & B Product in Essex markets – Still a good value given depressed rents – Ability to acquire below replacement cost • Current Opportunities in the market – Distressed / Opportunistic sell
Slide 34: Essex Skyline at MacArthur Place
Location: Santa Ana, CA Acquired: March 2010 Units: 349 Year Built: 2009 Price: $128 million Joint Venture Essex Skyline at MacArthur Place
Slide 35: Axis 2300
Location: Irvine, CA Acquired: December 2009 Units: 115 Year Built: 2010 Purchase Price: $27 million Total Cost to complete: $38.8 million Axis 2300
Slide 36: The Commons
Location: Campbell, CA Acquired: July 2010 Units: 264 Year Built: 1973 Price: $42.5 million The Commons
Slide 37: 101 San Fernando
Location: San Jose, CA Acquired: June 2010 Units: 323 Year Built: 2001 Price: $64.1 million 101 San Fernando
Slide 38: Eagle Rim
Location: Redmond, WA Acquired: June 2010 Units: 156 Year Built: 1986 Price: $18.6 million Eagle Rim
Slide 39: Santee Court
Location: Los Angeles, CA Note Amount: $21 million 20% discount to par value Units: 165 Santee Court
Slide 40: John Eudy, EVP Development
John Eudy Exec. Vice President, Development Essex Skyline at MacArthur Place Presentation Kitchen
Slide 41: Current Development Environment
Current Development Environment • Land prices (Values) down significantly from ‘07 highs, few transactions occurring… Bid/Ask spread issue on price….. • Numerous re-hashed and re-marketed land opportunies at ‘07 prices back on the market….no REAL takers…. • Construction costs down 25-30% from peak l
Slide 42: Current Development Strategy
Current Development Strategy • Broken projects requiring completion, buy and complete below replacement cost. • REO land purchases • Joint venture opportunities with land owners • Required stabilized yield of mid 7 to low 8 cap rate to go forward
Slide 43: Joule
Location: Seattle, WA Units: 295 Cost: $92.8 million Completion Date: June 2010 Stabilization: August 2010 Joule
Slide 44: Fourth & U
Location: Berkeley, CA Units: 171 Cost: $63 million Completion Date: June 2010 Stabilization: September 2010 Fourth & U
Slide 45: Tasman Place
Location: Sunnyvale, CA Units: 284 Cost: $125 million Completion Date: January 2012 Stabilization: September 2012 Tasman Place
Slide 46: John Burkart, EVP Asset Management
John Burkart Exec. Vice President, Asset Management Essex Skyline at MacArthur Place Putting Green
Slide 47: Redevelopment
Redevelopment • Opportunity to capitalize on strategy of owning Class B quality assets in “A” locations • Estimated yield: 8% - 10% • Current material & labor costs at attractive lows • 4 projects in various phases of redevelopment • Anticipate $23 million spend in 2010
Slide 48: Before: Foothill Commons
BEFORE Foothill Commons Bellevue, WA (388 units)
Slide 49: After: Marina Cove
AFTER Marina Cove Santa Clara, CA (292 units)
Slide 50: Resource Management
Resource Management • Focus on identifying opportunities to save money via saving energy/resources – Separate the theory and the lab tested initiatives from the field tested opportunities with appropriate financial returns. • Typical areas of initiative: – Water heating • Domestic • Pool – Lighting
Slide 51: Michael Dance, Chief Financial Officer
Michael Dance Chief Financial Officer Essex Skyline at MacArthur Place Apartment Interior
Slide 52: External Growth Initiatives: Joint Venture/Fund vs. Balance Sheet
PROS • Facilitate external growth via private capital • Allows for higher leverage • Shared risk of ownership • Disproportionate share of upside through promoted interest • Fees for asset, property and construction management • Fosters relationships to leverage future opportunities • Broader acquisi
Slide 53: Debt Refinancing Activity
2 nd Half 2010 $215 $330 $132 $132 $167 $230 Sources Sources Sources Uses Uses Uses *Forward Starting Swaps - Assumes July 31 settlement liability of $70 million on $375 million notional amount **Expected Refinancing Proceeds assuming 2010 budgeted NOI on 5.25% interest rate and debt service coverag
Slide 54: Constructing FFO Guidance
*See Assumptions on following slide Constructing FFO Guidance * (at midpoint)
Slide 55: Assumptions for Constructing FFO Guidance
Assumptions for Constructing FFO Guidance • Same-property NOI - Includes The Grand, Belmont Station, Regency @ Encino, Woodland/Foothill Commons and Q4 rents and normalized operating expenses in Q1/Q2 ’11 • 2010 Acquisitions - Eagle Rim, 101 San Fernando, The Commons • Co-investments - Essex Skyline
Slide 56: Santee Court Note Receivable Accounting
Principal value: $25.8 million Coupon Rate: 4.95% Interest recorded at a 10% yield as it accretes the discount on the note over the expected life of the loan. There are three probable outcomes related to the pay off of the note receivable and accounting are outlined below: Santee Court Note Receivab
Slide 57: Erik Alexander, SVP Operations
Erik Alexander Senior Vice President, Operations Essex Skyline at MacArthur Place Bocce Ball Court
Slide 58: Orange County: Job Growth vs. Vacancy Rates
Orange County Job Growth vs. Vacancy Rates
Slide 59: Axis 2300
Units: 115 Current Average Rent: $2,524 Concession: Up to 6 weeks Current % Leased: 30% 15% BMR Axis 2300
Slide 60: Skyline at MacArthur Place
Units: 349 Current Average Rent: $3,162 Concession: Up to 2 months Current Occupancy: 28.7% Current % Leased: 37.1% Skyline at MacArthur Place
Slide 61: Huntington Breakers
Units: 342 Current Average Rent: $1,449 1-year ago Average Rent: $1,443 Current Occupancy: 94.6% Year Built: 1984 Huntington Breakers