Essex Property Trust, Inc. · NYSE:ESS
Essex Property Trust — Investor Presentation (March 2019)
50 slides from Essex Property Trust's investor presentation, Mar 4, 2019
Slide 1: Investor Presentation March 2019
INVESTOR PRESENTATIONMARCH 2019
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 – 17 18 – 2526 – 2930 31 – 3435 – 3839 – 48 TABLE OF CONTENTS *
Slide 3: Essex at a Glance
(1) Represents percent of pro rata NOI as of 12/31/18.(2) Oakland includes Alameda and Contra Costa Counties.(3) As of 12/31/18. * San Francisco MD 9%Oakland(2) 13%Santa Clara 20% Ventura 5%Los Angeles 18%Orange County 11%San Diego 8% SOUTHERN CA42% of NOI(1) NORTHERN CA41% of NOI(1) Washington & Ca
Slide 4: Executive Summary
EXECUTIVE SUMMARY * KEY HIGHLIGHTS:CALIFORNIA’S HOUSING SHORTAGE REMAINS A KEY ISSUE AND SHOWS NO SIGNS OF ABATING (p.6)THE AFTER-TAX COST PREMIUM TO OWN A HOME VS. RENT AN APARTMENT HAS RISEN TO 78% IN ESSEX’S MARKETS, INCREASING THE ECONOMIC INCENTIVE TO RENT (p.8)ACROSS ESSEX MARKETS, TOTAL SUPPL
Slide 5: West Coast Fundamentals
WEST COAST FUNDAMENTALS Meridian at MidtownSan Jose, CA
Slide 6: Why West Coast Markets?
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 IN ESSEX’S CALIFORNIA SUBMARKETS, NEW 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 * CA?WHY DON’T WE SAY CALIFORNIA?
Slide 9: 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 78% 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 10: Essex Near-Term Supply Outlook
2019 SUPPLY AS A % OF STOCK IS EXPECTED TO BE SIMILAR TO 2018 IN ESSEX SUBMARKETSDOWNTOWN MARKETS CONTINUE TO FACE HIGHER SUPPLY RISK; ONLY 9% OF ESS PORTFOLIO IS LOCATED DOWNTOWN Source: Essex(1) Stock-Weighted as a % of total supply ESSEX NEAR-TERM SUPPLY OUTLOOK *
Slide 11: GDP Growth in Essex Markets Exceeds U.S.
* GDP GROWTH IN ESSEX MARKETS EXCEEDS U.S. AND SELECT EAST COAST MARKETS GDP IN ESSEX MARKETS GREW 33% FROM 2012-2017, WELL ABOVE THE NATIONAL AVERAGESTRONG GDP GROWTH SUPPORTS STRONG HOUSEHOLD EARNINGS GROWTH AND ATTRACTS NEW, HIGHLY-SKILLED WORKERS TO ESSEX METROS Source: Department of Commerce’s
Slide 12: West Coast Job Growth
WEST COAST JOB GROWTH WEST COAST JOB GROWTH CONTINUES TO OUTPACE THE NATIONAL AVERAGE, LED BY SEATTLE AND SAN JOSE 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 12/31/1
Slide 13: Job Growth in ESS Markets – High vs. Low-Wage Industries
* JOB GROWTH IN ESS MARKETS – HIGH VS. LOW-WAGE INDUSTRIES Source: BLSWeighted by ESS December 2018 year-to-date same-property scheduled rent. IN 2018, JOB GAINS IN HIGH-PAYING INDUSTRIES SIGNIFICANTLY OUTPACED LOW PAYING JOBS, HELPING RENTAL AFFORDABILITYTHE SPREAD BETWEEN HIGH & LOW PAYING JOB GRO
Slide 14: 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 23,700 POSITIONS, THE HIGHEST LEVEL IN THREE YEARS AND UP 49% COMPARED TO ONE YEAR AGO
Slide 15: Planned Office Expansion by Leading Tech Companies
Sources: CBRE, CoStar, Cushman & Wakefield, company and press reports.(1) Companies included: Adobe, Amazon, Apple, Dropbox, Facebook, Google, Microsoft, Netflix, Nvidia, Oracle, Salesforce, Splunk, Spotify, Square, and Uber.(2) Square foot totals include office space leased in Q3-Q4 2018 for 2019 o
Slide 16: Net Migration Trends To/From San Francisco
* NET MIGRATION TRENDS TO/FROM SAN FRANCISCO 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
Slide 17: Personal Income Growth in Essex Markets
* PERSONAL INCOME GROWTH IN ESSEX MARKETS CONTINUES TO OUTPACE THE NATIONIN 2018 & 2019, INCOME GROWTH IN ESSEX MARKETS IS EXPECTED TO GROW AT A 5.7% CAGR, 1.6% HIGHER THAN THE U.S. AVERAGE WAGE GROWTH CONTINUES TO ACCELERATE Sources: BEA, Rosen and Economy.com2018-2019 represents forecasted data us
Slide 18: 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 wei
Slide 19: Investment Overview and Capital Structure
Pinnacle at MacArthurSanta Ana, CA INVESTMENT OVERVIEW AND CAPITAL STRUCTURE
Slide 20: Core Competencies to Create Value
CORE COMPETENCIES TO CREATE VALUE * The GallowayPleasanton, CA 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/sha
Slide 21: Strategic Capital Allocation
STRATEGIC CAPITAL ALLOCATION * 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 transactions wit
Slide 22: Development Pipeline Update
Based on initial occupancy.Total cost in millions including JV partners’ share. Includes only those projects under construction as of 12/31/18. Excludes land held for future development.Data as of 12/31/18. OVER 85% OF OUR DEVELOPMENT PIPELINE BEGINS LEASING IN 2019 DEVELOPMENT PIPELINE UPDATE * 500
Slide 23: Disciplined Capital Allocation Process
DISCIPLINED CAPITAL ALLOCATION PROCESS * DEALS MUST BE ACCRETIVE TO 3 METRICS:
Slide 24: Capital Structure & Liquidity Profile
$22.3 Billion Total Capitalization As of 12/31/18Consolidated portfolio only. CAPITAL STRUCTURE & LIQUIDITY PROFILE Debt Composition(1) *
Slide 25: 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 26: Well Laddered Debt Maturity Schedule
WELL LADDERED DEBT MATURITY SCHEDULE % of Total Debt Maturing/Year 10.5% 12.3% 9.7% 12.3% 10.7% 7.1% 9.2% 9.8% 9.0% 1.2% 0.5% 7.7% Debt Maturity Schedule(1) (1) Data as of 12/31/2018. Excludes lines of credit. Weighted Average Interest Rate 4.4% 5.0% 4.5% 3.4% 3.7% 4.0% 3.6% 3.5% 3.6% 4.1% 2.4% 3.9%
Slide 27: Financial Performance and 2019 Guidance
8th & RepublicanSeattle, WA FINANCIAL PERFORMANCE AND 2019 GUIDANCE
Slide 28: Year-to-Date 2019 Same-Property Revenue Growth
YEAR-TO-DATE 2019 SAME-PROPERTY REVENUE GROWTH YEAR-TO-DATE SAME PROPERTY REVENUE GROWTH IS SLIGHTLY BELOW THE MIDPOINT OF OUR FULL-YEAR GUIDANCE RANGE WHICH IS CONSISTENT WITH OUR PLAN FOR THE YEARWE EXPECT GROWTH WILL BE BELOW THE MIDPOINT IN 1H19 AND HIGHER IN THE 2H19 DUE TO DIFFICULT OCCUPANCY
Slide 29: 2019 Full-Year Guidance
Source: Company DisclosuresCore FFO excludes acquisition costs and non-routine items. * 2019 FULL-YEAR GUIDANCE -(UNCHANGED FROM INITIAL 2019 GUIDANCE)
Slide 30: 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 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: S&P Global Market Intelligence, NAREITJune 1994 – December 2018 * ESS CAGR: 16% 3,926% 1,253% 888% 786% 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 8.2%, 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 To
Slide 35: Superior Same-Property NOI & Core FFO Growth
* SUPERIOR SAME-PROPERTY NOI & CORE FFO GROWTH THIS CYCLE Source: Company Disclosures Peer average for Same-Property NOI and Core FFO growth includes four multifamily REITs (EQR, AVB, UDR, AIV) SINCE 2010, ESSEX HAS ACHIEVED THE HIGHEST GROWTH AMONG THE PEERS IN CUMULATIVE SAME-PROPERTY NOI AND CORE
Slide 36: Los Angeles Portfolio
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 December 2018. Trailing 3 months ended December 2018.Home Prices and YOY % Increase as of November 2018. U.S. uses NAR 3Q18, which ex
Slide 37: Orange County Portfolio
ORANGE COUNTY PORTFOLIO ORANGE COUNTY HIGHLIGHTS Home prices are 8.1x the median income in Orange County compared to 4.4x in the US Job growth has slowed but the unemployment rate in Orange County was 2.8%, down 90bps from two years ago, and remains the lowest in Southern California Market Data U.S.
Slide 38: Northern California Portfolio
Job and wage growth in our major Northern California markets continue to increase faster than the U.S. 2018 Personal income growth per capita increased 7.7% in San Jose10,800 job openings from the top-10 tech firms in California as of 4Q18, a 24% increase year over yearApproximately 12.3M sf of offi
Slide 39: Seattle Portfolio
SEATTLE HIGHLIGHTS SEATTLE PORTFOLIO Market Data U.S. Seattle Trailing 3-Month Job Growth 1.7% 3.5% Personal Income Growth 2018(f) 3.9% 6.5% Median Home Price(1) $267,000 $551,000 Median Household Income(2) $61,000 $91,000 Median Home Price to Median Household Income 4.4x 6.1x Median Home Price YOY
Slide 40: Definitions & Reconciliations
DEFINITIONS &RECONCILIATIONS
Slide 41: 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
Slide 42: FFO and Core FFO Guidance Reconciliation
* With respect to the Company's guidance regarding its projected FFO and Core FFO for the first 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 projecte
Slide 43: 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 ne
Slide 44: 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 45: 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 46: Net Indebtedness Divided by Adjusted EBITDAre
* RECONCILIATIONS OF NON-GAAP FINANCIALMEASURES AND OTHER TERMS Total consolidated debt, net $ 5,605,942 Total debt from co-investments at pro rata share 830,492 Adjustments: Consolidated unamortized premiums, discounts, and debt issuance costs 14,953 Pro rata co-investments unamortized premiums, di
Slide 47: 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 48: 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
Slide 49: 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 fourth quarter of 2018 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate
Slide 50: Notes
NOTES _ESSEX_ PROPERTY TAUST. ING.
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