FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File No. 1-13106
ESSEX PROPERTY TRUST, INC.
(Exact name of Registrant as specified in its Charter)
Maryland 77-0369576
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
925 E. Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices)
(Zip code)
(650) 494-3700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months for such shorter period that the Registrant
was required to file such report, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date:
16,634,030 shares of Common Stock
as of May 11, 1998
<PAGE>
INDEX
-----
Exhibit
- -------
Number Description Page Number
- ------ ----------- -----------
Part I: Financial Information
- ------- ---------------------
Item 1: Financial Statements (Unaudited) 3
Condensed Consolidated Balance Sheets
as of March 31, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Stockholders'
Equity for the three months ended March 31, 1998
and the year ended December 31, 1997 6
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II: Other Information
- --------------------------
Item 2: Changes in Securities and Use of Proceeds 17
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
Page 2 of 21
<PAGE>
Part I Financial Information
- ------ ---------------------
Item 1: Financial Statements (Unaudited)
- ------- --------------------------------
"Essex" or "The Company" means Essex Property Trust, Inc., a real
estate investment trust incorporated in the State of Maryland, or
where the context otherwise requires, Essex Portfolio, L.P., a limited
partnership in which Essex Property Trust, Inc. is the sole general
partner.
The information furnished in the accompanying condensed consolidated
balance sheets, statements of operations, stockholders' equity and
cash flows of Essex reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the aforementioned
financial statements for the interim periods.
The accompanying unaudited financial statements should be read in
conjunction with the notes to such financial statements and
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Page 3 of 21
<PAGE>
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
March 31, December 31,
Assets 1998 1997
------
---------------- --------------
<S> .................................................................................... <C> <C>
Real estate:
Rental properties:
Land and land improvements ..................................................... $ 206,030 $ 182,416
Buildings and improvements ..................................................... 619,010 548,571
--------- ---------
825,040 730,987
Less accumulated depreciation .................................................. (61,236) (58,040)
--------- ---------
763,804 672,947
Investments ....................................................................... 2,134 2,347
Real estate under development ..................................................... 29,534 27,422
--------- ---------
795,472 702,716
Cash and cash equivalents-unrestricted ................................................. 5,574 4,282
Restricted cash ........................................................................ 14,274 6,093
Notes and other related party receivables .............................................. 10,267 9,264
Notes and other receivables ............................................................ 8,923 8,602
Prepaid expenses and other assets ...................................................... 6,685 3,838
Deferred charges, net .................................................................. 4,320 4,040
--------- ---------
$ 845,515 $ 738,835
========= =========
Liabilities and Stockholders' Equity
Mortgage notes payable ................................................................. $ 281,547 $ 248,997
Lines of credit ........................................................................ 28,775 27,600
Accounts payable and accrued liabilities ............................................... 30,046 21,337
Dividends payable ...................................................................... 9,919 9,189
Deferred gain........................................................................... 5,002 --
Other liabilities ...................................................................... 4,649 4,208
--------- ---------
Total liabilities .......................................... 359,938 311,331
Minority interests ..................................................................... 86,881 28,589
Stockholders' equity:
8.75% Convertible Preferred Stock, Series 1996A: $.0001
par value, 1,600,000 authorized, issued, and outstanding ........................ 1 1
Common stock, $.0001 par value per share, 668,400,000
and 668,400,000 authorized, 16,629,425 and 16,614,687
issued and outstanding .......................................................... 2 2
Excess stock, $.0001 par value per share, 330,000,000
shares authorized, no shares issued or outstanding............................... -- --
Additional paid-in capital ........................................................ 431,012 430,804
Accumulated deficit ............................................................... (32,319) (31,892)
--------- ---------
Total stockholders' equity ................................. 398,696 398,915
--------- ---------
$ 845,515 $ 738,835
========= =========
</TABLE>
See accompanying notes to the condensed consolidated unaudited financial
statements.
4 of 21
<PAGE>
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
Three months ended
-----------------------------------
March 31, March 31,
1998 1997
---------------- --------------
<S> ............................................................................ <C> <C>
Revenues:
Rental .................................................................... $ 26,530 $ 17,356
Interest and other income ................................................. 1,306 1,195
------------ ------------
27,836 18,551
------------ ------------
Expenses:
Property operating expenses
Maintenance and repairs ................................................ 2,268 1,494
Real estate taxes ...................................................... 2,187 1,422
Utilities .............................................................. 1,717 1,138
Administrative ......................................................... 1,903 1,152
Advertising ............................................................ 378 270
Insurance .............................................................. 300 238
Depreciation and amortization .......................................... 4,669 3,088
------------ ------------
13,422 8,802
------------ ------------
Interest .................................................................. 3,797 3,363
Amortization of deferred financing costs .................................. 144 127
General and administrative ................................................ 818 516
------------ ------------
Total expenses ......................................................... 18,181 12,808
------------ ------------
Income before minority interests ....................................... 9,655 5,743
Minority interests ........................................................ (1,730) (875)
------------ ------------
Net income ......................................................... $ 7,925 $ 4,868
============ ============
Per share data:
Basic:
Net income ......................................................... 0.42 $ 0.38
============ ============
Weighted average number of shares
outstanding during the period ........................................ 16,618,186 11,594,606
============ ============
Diluted:
Net income ......................................................... $ 0.42 $ 0.38
============ ============
Weighted average number of shares
outstanding during the period ........................................ 18,677,372 12,699,238
============ ============
Dividend per share ........................................................ $ 0.450 $ 0.435
============ ============
See accompanying notes to the condensed consolidated unaudited financial statements.
</TABLE>
5 of 21
<PAGE>
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of
Stockholders' Equity For the three months
ended March 31, 1998 and the
year ended December 31, 1997
(Unaudited)
(Dollars and shares in thousands)
Preferred stock Common stock Additional
------------------- ------------------- paid-in Accumulate
Shares Amount Shares Amount capital deficit Total
--------- --------- ---------- --------- ---------- ---------- ------------
<S> .......................................... <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 ................ 800 $ 1 11,592 $ 1 $ 256,106 $ (33,301) $ 222,807
Net proceeds from preferred
stock offering ............................. 800 -- -- -- 20,000 -- 20,000
Net proceeds from common
stock offerings ............................ -- -- 4,995 1 154,012 -- 154,013
Net proceeds from options exercised .......... -- -- 28 -- 686 -- 686
Net income ................................... -- -- -- -- -- 29,316 29,316
Dividends declared ........................... -- -- -- -- -- (27,907) (27,907)
--------- --------- --------- --------- --------- --------- ---------
Balances at December 31, 1997 ................ 1,600 1 16,615 2 430,804 (31,892) 398,915
Shares issued from Dividend
Reinvestment Plan ......................... -- -- 2 -- -- -- --
Net proceeds from options exercised .......... -- -- 12 -- 208 -- 208
Net income ................................... -- -- -- -- -- 7,925 7,925
Dividends declared ........................... -- -- -- -- -- (8,352) (8,352)
--------- --------- --------- --------- --------- --------- ---------
Balances at March 31, 1998 ................... 1,600 $ 1 16,629 $ 2 $ 431,012 $ (32,319) $ 398,696
========= ========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to the condensed consolidated unaudited financials
statements
Page 6 of 21
<PAGE>
<TABLE>
<CAPTION>
ESSEX PROPERTY TRUST, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three months ended
-------------------------------------
March 31, March 31,
1998 1997
---------------- ------------
<S> ........................................................................................ <C> <C>
Net cash provided by operating activities ................................................. $ 13,683 $ 12,674
-------- --------
Cash flows from investing activities:
Additions to rental properties ........................................................ (99,578) (51,032)
Additions to restricted cash .......................................................... (8,181) --
Dispositions of rental properties ..................................................... 15,842 --
Additions to notes receivable ......................................................... (140) (785)
Additions to real estate under development ............................................ (2,112) --
Investments in corporations and limited partnerships .................................. 161 (64)
-------- --------
Net cash used in investing activities ............................................ (94,008) (51,881)
-------- --------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit .............................................................. 74,275 34,420
Repayment of mortgage and other notes payable
and lines of credit .............................................................. (40,550) (665)
Additions to deferred charges ......................................................... (424) (267)
Additions to related party notes
and other receivables ............................................................ (3,836) (22,805)
Repayment of related party notes
and other receivables ............................................................ 2,833 1,361
Increase (decrease) in offering related accounts payable .............................. 25 (630)
Net proceeds from perpetual preferred units sale ...................................... 58,275 --
Net proceeds from stock options exercised ............................................. 208 99
Distributions to minority interest/partners ........................................... (843) (807)
Dividends paid ........................................................................ (8,346) (5,482)
-------- --------
Net cash provided by financing activities ........................................ 81,617 5,224
-------- --------
Net increase (decrease) in cash and cash equivalents ....................................... 1,292 (33,983)
Cash and cash equivalents at beginning of period ........................................... 4,282 46,899
-------- --------
Cash and cash equivalents at end of period ................................................. $ 5,574 $ 12,916
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest net of amount capitalized ................................. $ 3,410 $ 3,126
======== ========
Supplemental disclosure of non-cash investing and Financing activities:
Mortgage notes payable assumed in connection
with purchase of real estate ........................................... $ -- $ 30,818
======== ========
Dividends payable ........................................................... $ 9,919 $ 6,289
======== ========
</TABLE>
See accompanying notes to condensed consolidated unaudited financial statements.
Page 7 of 21
<PAGE>
Notes to Condensed Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(1) Organization and Basis of Presentation
- --- --------------------------------------
The unaudited condensed consolidated financial statements of Essex are
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to
Form 10-Q. In the opinion of management, all adjustments necessary for a
fair presentation of the financial position, results of operations and
cash flows for the periods presented have been included and are normal
and recurring in nature. These unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements included in the Company's annual report on Form 10-K
for the year ended December 31, 1997.
The condensed consolidated financial statements for the three months
ended March 31, 1998 and 1997 include the accounts of the Company and
Essex Portfolio, L.P. (the "Operating Partnership", which holds the
operating assets of the Company). The Company is the sole general partner
in the Operating Partnership, owning an 89.9% and 88.0% general
partnership interest as of March 31, 1998 and 1997, respectively.
All significant intercompany balances and transactions have been
eliminated in the condensed consolidated financial statements.
(2) Significant Transactions
- --- ------------------------
(A) Equity Transactions
-----------------------
On February 6, 1998 the Operating Partnership completed the sale of
1,200,000 units of its 7.875% Series B Cumulative Redeemable Preferred
Units ("Perpetual Preferred Units") to an institutional investor in a
private placement, at a price of $50.00 per unit. The net proceeds from
this offering were, $58,275. This preferred equity is included in
minority interests in the Company's condensed consolidated balance sheet
at March 31, 1998.
(B) Acquisitions
----------------
(i) On February 25, 1998, the Company acquired Mirabella Apartments, a
608 unit apartment community in Newbury Park, California, for a contract
price of $50,500. In connection with this acquisition the Company
obtained a $25,000 variable rate, secured loan which carries interest at
1.5% over LIBOR and is due in February 2000. The community features a
swimming pool, spa, exercise room, volleyball court and golf putting
green.
(ii) On March 3, 1998, the Company acquired Wimbledon Woods Apartments, a
560 unit apartment community in Hayward, California, for a contract price
of $44,000. The community features tennis courts, spas, swimming pools
and a weight room.
These first quarter 1998 acquisitions were funded with proceeds from the
Operating Partnership's February 1998 Perpetual Preferred Units offering,
a loan secured by the Mirabella Apartment property as indicated above,
the Company's lines of credit, and proceeds from the disposition of the
Company's three retail shopping centers.
Page 8 of 21
<PAGE>
Notes to Condensed Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(Dollars in thousands, except for per share and per unit amounts)
(C) Dispositions
--- ------------
On February 25, 1998, the Company sold its remaining three retail shopping
centers, Canby Square, Garrison Square and Powell Villa located in the
Portland, Oregon metropolitan area for a net sales price of $15,842. The
properties were sold to partnerships in which the Operating Partnership
holds a 1% limited partnership interest and Essex Management Corporation
("EMC") holds a 1% general partnership interest. The other limited partners
were granted the right to require the applicable partnership to redeem
their interest for cash. Subject to certain conditions, the Company may
elect to deliver an equivalent number of shares of the Company's Common
Stock in satisfaction of the applicable partnership's cash redemption
obligation. Due to the structure of the transaction. Generally accepted
accounting principles requires that the net gain of $5,002 be deferred.
(D) Debt Related Transactions
--- -------------------------
On March 12, 1998, the Company obtained a 6.885% ten year fixed rate loan
in the amount of $8,500. This loan is secured by The Bluffs Apartments.
(E) Subsequent Events
--- -----------------
On April 20, 1998 the Operating Partnership completed the sale of 400,000
units of its Perpetual Preferred Units to the same institutional investor
who had purchased 1,200,000 Perpetual Preferred Units in February 1998,
at a price of $50.00 per unit.
The net proceeds from this offering were $19,500.
(3) Related Party Transactions
- --- --------------------------
All general and administrative expenses of the Company and EMC are
initially borne by the Company, with a portion subsequently allocated to
EMC. Expenses allocated to EMC for the three months ended March 31, 1998
totaled $76 and are reflected as a reduction in general and
administrative expenses in the accompanying consolidated statements of
operations.
Rental income in the accompanying condensed consolidated statements of
operations includes related party rents earned from space leased to The
Marcus & Millichap Company ("M&M"), including operating expense
reimbursement, of $201 and $171 for the three months ended March 31, 1998
and 1997, respectively.
Other income for the three months ended March 31, 1998 includes interest
income of $205 earned principally under notes receivable from the
partnerships which collectively own Highridge Apartments, a 255 unit
multifamily property located in Rancho Palos Verde, California
("Highridge"), the partnerships which collectively own an approximate
30.7% minority interest in Pathways Apartments, a 296 unit multifamily
property located in Long Beach, California ("Pathways") and from the
investment of short term excess cash. For the three months ended March
31, 1998, the Company earned $101 and $95 of dividend income from Essex
Sacramento Corporation and Essex Fidelity I Corporation, respectively. In
addition, Essex earned management fee income of $105 for the three months
ended March 31, 1998, from Anchor Village, Highridge, Pathways, and the
partnerships which collectively own the three retail shopping centers
located in the Portland, Oregon metropolitan area.
Page 9 of 21
<PAGE>
Notes to Condensed Consolidated Financial Statements
March 31, 1998 and 1997
(Unaudited)
(Dollars in thousands, except for per share amounts)
Prior to Essex's February 1998 disposition of its remaining three retail
shopping centers, EMC provided property management services to the
Company for these centers. The fee paid by the Company for such services
for the three months ended March 31, 1998 was $7, and is included in
administrative expense in the accompanying consolidated statements of
operations.
Notes and other related party receivables as of March 31, 1998 and
December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> ......................................................... <C> <C>
Notes and other related party receivables:
Note receivable from Highridge Apartments
secured, bearing interest at 9%, due March, 2008 .. $ 2,750 $ 2,750
Notes receivable from Fidelity I, secured,
bearing interest at 12%, due December 1998 ........ 1,580 1,580
Note receivable from Fidelity I and JSV, secured,
bearing interest at 9.5%-10%, due 2015 ........... 1,026 726
Notes receivable from Highridge Apartments,
non-interest bearing, due on demand .............. 2,566 1,699
Loans to officers, bearing interest at 8%, due April
2006.............................................. 375 375
Other related party receivables, substantially
due on demand .................................... 1,970 2,134
------- -------
$10,267 $ 9,264
======= =======
</TABLE>
Other related party receivables consist primarily of accrued interest
income on related party notes receivables, loans to officers, advances and
accrued management fees from joint venture partnerships and unreimbursed
expenses due from EMC.
(4) New Accounting Pronouncements:
- --- ------------------------------
In June 1997, the FASB issued Financial Accounting Standard No. 130
(SFAS130), Reporting Comprehensive Income. SFAS 130 is effective with the
year-end 1998 financial statements; however, the total comprehensive income
is required in the financial statements for interim periods beginning in
1998. In June 1997, the FASB issued Financial Accounting Standard No. 131,
Disclosure About Segments of An Enterprise and Related Information. SFAS
131 is effective with the year-end 1998 financial statements. In February
1998, the FASB issued Financial Accounting Standards No. 132, Employees'
Disclosures about Pensions and Other Postretirement Benefits. SFAS 132 is
effective with the year-end 1998 Financial Statements. Management believes
that the adoption of these statements will not have a material impact on
the Company's financial statements.
(5) Net Income Per Share
- --- --------------------
Net income per share in the accompanying condensed consolidated statements
of operations is calculated for March 31, 1998 and 1997, respectively, by
dividing net income applicable to Common Stockholders of $7,050 and $4,430
by weighted average shares outstanding, during the period. Net income
applicable to Common Stockholders is calculated by deducting preferred
dividends of $875 and $438 for March 31, 1998 and 1997, respectively, from
net income.
Page 10 of 21
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operation
--------------------
The following discussion is based primarily on the condensed consolidated
financial statements of Essex Property Trust, Inc. ("Essex" or the
"Company") for the three months ended March 31, 1998 and 1997.
This information should be read in conjunction with the accompanying
condensed consolidated financial statements and notes thereto. These
financial statements include all adjustments which are, in the opinion of
management, necessary to reflect a fair statement of the results and all
such adjustments are of a normal recurring nature.
Substantially all of the assets of Essex are held by, and substantially all
operations were conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). Essex is the sole general partner of the Operating
Partnership and, as of March 31, 1998 and 1997, owned an 89.9% and 88.0%
general partnership interest in the Operating Partnership, respectively.
The Company has elected to be treated as a real estate investment trust (a
"REIT") for federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in the
quarterly report on Form 10-Q which are not historical facts may be
considered forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended, including statements regarding the
Company's expectations, hopes, intentions, beliefs and strategies regarding
the future. Forward looking statements include statements regarding
potential acquisitions, the anticipated performance of future acquisitions,
recently completed acquisitions and existing properties, and statements
regarding the Company's financing activities. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
including, but not limited to, those risks, special considerations, an
other factors discussed under the caption "Other Matters" in Item 1 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997,
and those other risk factors and special considerations set forth in
Essex's other filings with the Securities and Exchange Commission (the
"SEC") which may cause the actual results, performance or achievements of
Essex to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
General Background
Essex's revenues are generated primarily from multifamily residential,
retail and commercial property operations, which accounted for 97% and 95%
of its revenues for the three months ended March 31, 1998 and 1997,
respectively. Essex's properties (the "Properties") are located in
California, Washington and Oregon. Occupancy levels of the multifamily
residential Properties in these markets have generally remained high
(averaging over 95% for the last five years).
Essex has elected to be treated as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the year ended December
31, 1994. In order to maintain compliance with REIT tax rules, Essex
provides some of its fee-based asset management and disposition services as
well as third-party property management and leasing services through Essex
Management Corporation ("EMC"). Essex owns 100% of EMC's 19,000 shares of
non-voting Preferred Stock. Executives of Essex own 100% of EMC's 1,000
shares of Common Stock.
Since the Company's initial public offering (the "IPO") in June 1994, the
Company has acquired ownership interests in forty-six multifamily
residential properties, of which twenty-nine are located in California,
sixteen are located in Washington and one is located in Oregon. In
aggregate, these acquisitions consist of a total of 8,867 units and had a
total capitalized cost of approximately $653.1 million. As part of its
active portfolio management strategy, the Company has sold, since its IPO,
five multifamily residential properties in Northern California consisting
of a total of 579 units and six retail shopping centers in the Portland,
Oregon metropolitan area at an aggregate gross sales price of approximately
$59.0 million resulting in net aggregate gain recognition of approximately
$13.6 million.
Page 11 of 21
<PAGE>
Average financial occupancy rates ( the percentage resulting from dividing
actual rents by total possible rents as determined by valuing occupied
units at contractual rates and vacant units at market rents) of the
Company's multifamily properties on a same-property basis decreased to
95.7% for the three months ended March 31, 1998 from 96.4%, for the three
months ended March 31, 1997. The regional breakdown of such financial
occupancy for the three months ended March 31, 1998 and 1997 is as follows:
March 31, March 31,
1998 1997
---- ----
Northern California 97.1% 97.2%
Pacific Northwest 94.0% 96.7%
Southern California 95.0% 93.8%
The Company's commercial property was 98% occupied (based on square footage) as
of March 31, 1998.
Results of Operations
Comparison of the Three Months Ended March 31, 1998 to the Three Months Ended
- --------------------------------------------------------------------------------
March 31, 1997.
- ---------------
Total Revenues increased by $9,285,000 or 50.1% to $27,836,000 in the first
quarter of 1998 from $18,551,000 in the first quarter of 1997. The following
table sets forth a breakdown of these revenue amounts, including the revenues
attributable to properties that Essex owned for both of the quarters ended March
31, 1998 and 1997 ("Quarterly Same Store Properties").
<TABLE>
<CAPTION>
Three Months Ended
March 31, Dollar Percentage
1998 1997 Change Change
---- ---- ------ ------
(dollars in thousands)
<S> .......................................... <C> <C> <C> <C> <C>
Number of
Rental income ................................ Properties
Quarterly Same Store Properties
Northern California ...................... 11 $ 8,021 $ 7,184 $ 837 11.7%
Pacific Northwest ........................ 12 5,328 5,142 186 3.6
Southern California ...................... 3 2,048 1,917 131 6.8
Commercial ............................... 1 466 402 64 15.9
--- ------- ------- ------- --------
Total Quarterly Same
Store Properties ......................... 27 15,863 14,645 1,218 8.3%
===
Properties acquired/
disposed of subsequent
to January 1, 1996 .................. 10,667 2,711 7,956 293.5%
------- ------- ------ ----------
Total rental income ........................ 26,530 17,356 9,174 52.9
Other income ............................... 1,306 1,195 111 9.3
------- ------- ------ ----------
Total revenues ............................. $27,836 $18,551 $9,285 50.1%
======= ======= ======= ==========
</TABLE>
As set forth in the above table, $7,956,000 of the $9,285,000 increase in
total revenues is attributable to properties acquired or disposed of
subsequent to January 1, 1997. During this period, Essex acquired interests
in thirty-two multifamily properties (the "Acquisition Properties"), and
disposed of one multifamily property and six retail shopping centers (the
"Disposition Properties").
Of the increase in total revenues, $1,218,000 is attributable to increases
in rental income from the Quarterly Same Store Properties. Rental income
from the Quarterly Same Store Properties increased by approximately 8.3% to
$15,863,000 in the first quarter of 1998 from $14,645,000 in the first
quarter of 1997. The majority of this increase was attributable to the
eleven multifamily Quarterly Same Store Properties located in Northern
California, the rental income of which increased by $837,000 or 11.7% to
Page 12 of 21
<PAGE>
$8,021,000 in the first quarter of 1998 from $7,184,000 in the first
quarter of 1997. This $837,000 increase is primarily attributable to rental
rate increases as reduced by the effect of the decrease in financial
occupancy to 97.1% in the first quarter of 1998 from 97.2% in the first
quarter of 1997. The twelve multifamily residential properties located in
the Pacific Northwest, accounted for the next largest regional component of
the Quarterly Same Store Properties rental income increase. The rental
income of these properties increased by $186,000 or 3.6% to $5,328,000 in
the first quarter of 1998 from $5,142,000 in the first quarter of 1997. The
$186,000 increase is primarily attributable to rental rate increases as
reduced by the effect of the decrease in financial occupancy to 94.0% in
the first quarter of 1998, from 96.7% in the first quarter of 1997. The
three properties in Southern California also contributed towards this
Quarterly Same Store Properties rental income increase. The rental income
of these properties increased by $131,000 or 6.8% to $2,048,000 in the
first quarter of 1998 from $1,917,000 in the first quarter of 1997. The
$131,000 increase is attributable to rental rate increases and the increase
in financial occupancy to 95.0% in the first quarter of 1998 from 93.8% in
the first quarter of 1997.
The increase in total revenue also reflected an increase of $111,000
attributable to other income, the most significant component of which was
dividend income from two related corporations in which the Company has a
preferred stock investment.
Total Expenses increased by $5,373,000 or approximately 41.9% to
$18,181,000 in the first quarter of 1998 from $12,808,000 in the first
quarter of 1997. Interest expense increased by $434,000 or 12.9% to
$3,797,000 in the first quarter of 1998 from $3,363,000 in the first
quarter of 1997. Such increase was primarily due to the net addition of
outstanding mortgage debt in connection with property and investment
acquisitions. Property operating expenses, exclusive of depreciation and
amortization, increased by $3,039,000 or 53.2% to $8,753,000 in the first
quarter of 1998 from $5,714,000 in the first quarter of 1997. Of such
increase, $2,902,000 was attributable to the Acquisition Properties and the
Disposition Properties. General and administrative expenses represents the
costs of Essex's various acquisition and administrative departments as well
as partnership administration and non-operating expenses. Such expenses
increased by $302,000 in the first quarter of 1998 from the amount for the
first quarter of 1997. This increase is largely due to additional staffing
requirements resulting from the growth of Essex.
Net income increased by $3,057,000 to $7,925,000 in the first quarter of
1998 from $4,868,000 in the first quarter of 1997. A significant component
of the increase in net income was primarily a result of the net
contribution of the Acquisition Properties and the increase in net
operating income from the Quarterly Same Store Properties.
Liquidity and Capital Resources
At March 31, 1998, Essex had $5,574,000 of unrestricted cash and cash
equivalents. The Company expects to meet its short-term liquidity
requirements by using its working capital, the net proceeds from the sale
of Perpetual Preferred Units (as stated below), and amounts available under
lines of credit. The Company believes that its future net cash flows will
be adequate to meet operating requirements and to provide for payment of
dividends by the Company in accordance with REIT requirements. Essex has
credit facilities in the committed amount of approximately $87,000,000. At
March 31, 1998 Essex had $28,775,000 outstanding on its lines of credit,
with interest rates during the first quarter of 1998 ranging from 7.2% to
7.5%. Subsequent to the quarter ended March 31, 1998, the Company repaid a
portion of its outstanding lines of credit balance with the proceeds from
the sale of additional Perpetual Preferred Units. Essex expects to meet its
long-term liquidity requirements relating to property acquisition and
development (beyond the next 12 months) by using working capital, amounts
available on lines of credit, net proceeds from public and private debt and
equity issuances, and proceeds from the disposition of properties that may
be sold from time to time. There can, however, be no assurance that Essex
will have access to the debt and equity markets in a timely fashion to meet
long-term liquidity requirements or that future working capital, and
borrowings under the lines of credit will be available, or if available,
will be sufficient to meet the Company's requirements or that the Company
will be able to dispose of properties in a timely manner and under terms
and conditions that the Company deems acceptable.
Page 13 of 21
<PAGE>
Essex's unrestricted cash balance increased by $1,292,000 from $4,282,000
as of December 31, 1997 to $5,574,000 as of March 31, 1998. This increase
was primarily a result of $13,683,000 of cash provided by operating
activities, and $81,617,000 of cash provided by financing activities, which
were reduced by $94,008,000 of cash used in investing activities. Of the
$94,008,000 net cash used in investing activities, $99,578,000 was used to
purchase and upgrade rental properties, $2,112,000 was used to fund real
estate under development, and $8,181,000 was used to fund an increase in
the Company's restricted cash; these expenditures were primarily offset by
$15,842,000 of proceeds received from the disposition of three retail
properties. The $81,617,000 net cash provided by financing activities was
primarily a result of $74,275,000 of proceeds from mortgage and other notes
payable and lines of credit and $58,275,000 net proceeds from the Perpetual
Preferred Units sale as offset by $40,550,000 of repayments of mortgages
and other notes payable and lines of credit, and $9,189,000 of
dividends/distributions paid.
As of March 31, 1998, the total amount of Essex's outstanding debt was
$310,322,000. Such indebtedness consisted of $197,727,000 in fixed rate
debt, $53,775,000 of variable rate debt and $58,820,000 of debt represented
by tax exempt variable rate demand bonds, of which $29,220,000 is capped at
a maximum interest rate of 7.2%.
As of March 31, 1998, 34 of the Company's majority owned Properties were
encumbered by debt. The agreements underlying these encumbrances contain
customary restrictive covenants which the Company believes do not have a
material adverse effect on the Company's operations. As of March 31, 1998,
the Company was in compliance with such covenants. Also, of the Company's
34 Properties encumbered by debt, 17 were secured by deeds of trust
relating solely to those Properties. With respect to the remaining 17
Properties, three cross collaterized mortgages were secured by 8
Properties, 3 Properties and 3 Properties, respectively, and a separate
line of credit was secured by 3 Properties.
Essex expects to incur approximately $300 per weighted average occupancy
unit in non-revenue generating capital expenditures for the year ended
December 31, 1998. These expenditures do not include the improvements
required in connection with the origination of mortgage loans, expenditures
for Acquisition Properties renovations and improvements, which are expected
to generate additional revenue, and renovation expenditures required
pursuant to tax-exempt bond financings. Essex expects that cash from
operations and/or its lines of credit will fund such expenditures. However,
there can be no assurance that the actual expenditures incurred during 1998
and/or funded thereof will not be significantly different than the
Company's current expectations.
Essex is developing six multifamily residential projects, which are
anticipated to have an aggregate of approximately 1,330 multifamily units.
Essex expects that such projects will be completed during the next two
years (1998 and 1999). Such projects involve certain risks inherent in real
estate development. See "Other Matters - Development Activities; Risks That
Developments Will Be Delayed or Not Completed" in Item 1 of Essex's Annual
Report on Form 10-K for the year ended December 31, 1997. In connection
with these development projects, Essex has directly, or in some cases
through its joint venture partners, entered into contractual construction
related commitments with unrelated third parties for approximately
$77,000,000. Essex expects to fund such commitments with some combination
of its working capital amounts available on its lines of credit, net
proceeds from public and private equity and debt issuances, and proceeds
from the disposition of properties, which may be sold from time to time.
Essex pays quarterly dividends from cash available for distribution. Until
it is distributed, cash available for distribution is invested by the
Company primarily in short-term investment grade securities or is used by
the Company to reduce balances outstanding under its lines of credit.
On March 31, 1997, the Company completed the sale of 2,000,000 shares of
its Common Stock to Cohen & Steers at a price of $29.125 per share.
On June 20, 1997, the Company completed the sale of an additional
$20,000,000 of its convertible preferred stock to Tiger/Westbrook.
Page 14 of 21
<PAGE>
On September 10, 1997, the Company completed a public offering of 1,495,000
shares of its Common Stock at a net price of $31.00 per share.
On December 8, 1997, the Company completed a public offering of 1,500,000
shares of Common Stock at a net price of $35.50 per share.
On February 6, 1998, the Operating Partnership completed the sale of
1,200,000 units of its 7.875% Series B Cumulative Redeemable Preferred
Units ("Perpetual Preferred Units") to an institutional investor at a price
of $50.00 per unit. The net proceeds were used primarily to fund property
acquisitions.
On April 20, 1998, The Operating Partnership completed the sale of 400,000
units of its Perpetual Preferred Units at a $50.00 per unit price to the
same institutional investor who purchased the 1,200,000 units in February
1998.
The proceeds from these offerings were used primarily to reduce balances
under the Company's lines of credit and to fund acquisitions and
development of multifamily properties.
In the first quarter of 1998, Essex and the Operating Partnership filed a
registration statement (the "1998 Shelf Registration Statement") with the
Securities and Exchange Commission (the "SEC") to register $300,000,000 of
equity securities of Essex and $250,000,000 of debt securities of the
Operating Partnership. Prior to the filing of the 1998 Shelf Registration
Statement, Essex had approximately $42,000,000 of capacity remaining on a
previously filed registration statement which registered shares of common
stock, preferred stock, depository shares and warrants to purchase common
and preferred stock.
The Company is currently evaluating appropriate courses of action regarding
"year 2000" compliance. The Company has contacted its current software
vendor and had determined that an upgraded package will be available for
implementation. Total costs are not expected to have a material impact on
operations.
Funds from Operations
Industry analysts generally consider funds from operations, ("Funds From
Operations"), an appropriate measure of performance of an equity REIT.
Generally, Funds From Operations adjusts the net income of equity REITs for
non-cash charges such as depreciation and amortization of rental properties
and non-recurring gains or losses. Management generally considers Funds
from Operations to be a useful financial performance measurement of an
equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds From Operations does not represent net
income or cash flows from operations as defined by GAAP and is not intended
to indicate whether cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income as an indicator of
the REIT's operating performance or to cash flows as a measure of
liquidity. Funds From Operations does not measure whether cash flow is
sufficient to fund all cash needs including principal amortization, capital
improvements and distributions to shareholders. Funds From Operations also
does not represent cash flows generated from operating, investing or
financing activities as defined under GAAP. Further, Funds from Operations
as disclosed by other REITs may not be comparable to the Company's
calculation of Funds From Operations.
Page 15 of 21
<PAGE>
The following table sets forth Essex's calculation of Funds from Operations for
the quarters ended March 31, 1998 and 1997.
Three months ended
------------------
March 31, 1998 March 31, 1997
-------------- --------------
Income before minority interests $ 9,655,000 $ 5,743,000
Adjustments:
Depreciation & amortization 4,669,000 3,088,000
Adjustment for unconsolidated
joint ventures 296,000 --
Minority interests (1) (907,000) (138,000)
-------- --------
Funds from Operations $ 13,713,000 $ 8,693,000
========== =========
Weighted average number
shares outstanding diluted (1) 20,550,845 14,524,238
========== ==========
(1) Assumes conversion of all outstanding operating partnership interests in the
Operating Partnership into shares of Essex's Common Stock. Minority interests
have been adjusted to reflect such conversion.
The National Association of Real Estate Investment Trust ("NAREIT"), a leading
industry trade group, has approved a revised interpretation of Funds from
Operations, which provides that the amortization of deferred financing costs is
no longer added back to net income to calculate Funds from Operations. Essex
adopted the revised NAREIT definition of Funds from Operations as of January 1,
1996.
Page 16 of 21
<PAGE>
Part II Other Information
- ------- -----------------
Item 2: Changes in Securities and Use of Proceeds
- ------- -----------------------------------------
(c) Recent Sales of Unregistered Securities
On February 6, 1998, Essex Portfolio, L.P., the "Operating
Partnership" as to which the Company is the sole general partner,
completed the private placement of 1,200,000 7.875% Series B
Preferred Limited Partnership Units (the "Perpetual Preferred
Units"), representing a limited partnership interest in the
Operating Partnership, to an institutional investor in return for
a contribution to the Operating Partnership of $60,000,000. The
Perpetual Preferred Units will become exchangeable, on a one for
one basis, in whole or in part at any time on or after the tenth
anniversary of the date of this private placement (or earlier
under certain circumstances) for shares of the Company's 7.875%
Series B Cumulative Redeemable Preferred Stock, par value $.0001
per share (the "Series B Preferred Stock"). Pursuant to the terms
of a registration rights agreement, entered into in connection
with this private placement, the holders of Series B Preferred
Stock will have certain rights to cause the Company to register
such shares of Series B Preferred Stock. On February 10, 1998, the
Company filed Articles Supplementary reclassifying 2,000,000
shares of its Common Stock par value $.0001 per share, as
2,000,000 shares of Series B Preferred Stock and setting forth the
rights, preferences and privileges of the Series B Preferred
Stock.
On April 20, 1998, the Operating Partnership completed the private
placement of an additional 400,000 Perpetual Preferred Units with
the same institutional investor in return of an additional
contribution to the Operating Partnership of $20,000,000. The sale
of the additional 400,000 Perpetual Preferred Units was on
substantially the same terms as the sale by the Operating
Partnership of 1,200,000 Series B Preferred Units in February
1998.
The net proceeds from the above private placements were used or
are planned to be used primarily to fund acquisition and
development activities and for general purposes.
Each of the above private placements was completed pursuant to the
exemption from registration contained in Section 4(2) the
Securities Act of 1933, as amended.
Page 17 of 21
<PAGE>
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits Page
-- -------- ----
3.1 Articles Supplementary reclassifying 2,000,000
shares of Common Stock as 2,000,000 shares of 7.875%
Series B Cumulative Redeemable Preferred Stock,
filed with the State of Maryland on February 10, 1998
(incorporated by reference to the identically numbered
exhibit to the Company's Current Report on Form 8-K,
filed March 3, 1998). --
10.1First Amendment to the First Amended and Restated
Agreement of Limited Partnership of Essex Portfolio,
L.P., dated February 6, 1998 (incorporated by reference
to the identically numbered exhibit to the Company's
Current Report on Form 8-K, filed March 3, 1998). --
10.2 Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Essex Portfolio,
L.P., dated April 20, 1998 (incorporated by reference
to Exhibit No. 10.1 to the Company's Current Report
on Form 8-K, filed April 23, 1998). --
11.1 Statement regarding Computation of Earnings per Share 20
12.1 Schedule of Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends 21
27.1 Article 5 Financial Data Schedule (EDGAR Filing Only) --
B. Reports on Form 8-K
----------------------
On March 3, 1998, Essex filed a current report on Form 8-K, regarding
its private placement of 1,200,000 units of its 7.875% Series B
Cumulative Redeemable Preferred Units to an institutional investor.
On March 30, 1998, Essex filed a current report on Form 8-K, regarding
its purchase of Casa Mango, Village at Cascade Park and Mirabella
Apartments.
On April 23, 1998, Essex filed a current report on Form 8-K, regarding
its private placement of 400,000 units of its 7.875% Series B
Cumulative Redeemable Preferred Units to the same institutional
investor who previously purchased 1,200,000 of such units.
On May 14, 1998, Essex filed a current report on Form 8-K, regarding
its purchase of Wimbledon Woods and Bunker Hill Towers.
Page 18 of 21
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESSEX PROPERTY TRUST, INC.
/s/ Mark J. Mikl
------------------
Mark J. Mikl, Controller
(Authorized Officer and
Principal Accounting Officer)
May 15, 1998
------------
Date
Page 19 of 21
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.1
ESSEX PROPERTY TRUST, INC.
Statement of Computation of Earnings per Share
(Dollars in thousands except per share amounts)
Quarter ended March 31,
-----------------------
1998 1997
------- -------
<S> .................................................................... <C> <C>
Basic:
Net income ........................................................ $ 7,925 $ 4,868
Less:
Dividends on 8.75% Convertible Preferred Stock, Series 1996A 875 438
----------- -----------
Net income applicable to common stockholders ...................... $ 7,050 $ 4,430
=========== ===========
Weighted average number of shares outstanding
during the period .......................................... 16,618,186 11,594,606
=========== ===========
Net income per share .............................................. $ 0.42 $ 0.38
=========== ===========
Diluted:
Adjusted shares - basic, from above ............................... 16,618,186 11,594,606
Weighted average shares issuable upon conversion of the
8.75% Convertible Preferred Stock, Series 1996A ............ 1,828,572(2) 914,286
Additional weighted average shares of dilutive stock options
using the average stock price under the treasury stock
method ..................................................... 230,614 190,346
----------- -----------
Weighted average number of shares outstanding
during the period .......................................... 16,848,800 12,699,238(1)
=========== ===========
Net income per share .............................................. $ 0.42 $ 0.38
=========== ===========
(1) In accordance with Statement of Accounting Standards Board No.
128, the conversion of all of the outstanding operating partnership
interests in the Operating Partnership into shares of Essex's Common Stock
is not included as the effect would be anti- dilutive.
(2) Not included for quarter ended March 31, 1998 because effect is
anti-dilutive
</TABLE>
Page 20 of 21
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.1
ESSEX PROPERTY TRUST, INC.
Schedule of computation of Ratio of
Earnings to Fixed Charges and
Preferred Stock Dividends (in
thousands, except ratios)
Three months ended Year ended Year ended Year ended
March 31, December 31, December 31, December 31,
1998 1997 1996 1995
------------- ------------ ----------- ------------
<S> ........................................................ <C> <C> <C> <C>
Earnings:
Income before minority interests .......................... $ 9,655 $34,146 $14,970 $14,244
Interest expense ......................................... 3,797 12,659 11,442 10,928
Amortization of deferred financing costs ................. 144 509 639 1,355
------- ------- ------- -------
Total earnings ........................................... $13,596 $47,314 $27,051 $26,527
------- ------- ------- -------
Fixed charges:
Interest expense ......................................... 3,797 12,659 11,442 10,928
Convertible preferred stock dividends .................... 875 2,681 635 --
Amortization of deferred financing costs ................. 144 509 639 1,355
Capitalized interest ..................................... 875 1,276 115 92
Total fixed charges and preferred ------- ------- ------- -------
stock dividends ........................................ $ 5,691 $17,125 $12,831 $12,375
Ratio of earnings to fixed charges
(excluding preferred stock dividends) .................... 2.82 X 3.28 X 2.22 X 2.14 X
======= ======= ======= =======
Ratio of earnings to combined fixed
charges and preferred dividends .......................... 2.39 X 2.76 X 2.11 X 2.14 X
======= ======= ======= =======
Page 21 of 21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains financial information extracted from Essex
Property Trust, Inc. year ended report for the three months ended
March 31, 1998
</LEGEND>
<CIK> 0000920522
<NAME> Essex Property Trust, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,848
<SECURITIES> 0
<RECEIVABLES> 19,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,723
<PP&E> 854,574
<DEPRECIATION> 61,236
<TOTAL-ASSETS> 845,515
<CURRENT-LIABILITIES> 44,614
<BONDS> 310,322
0
1
<COMMON> 2
<OTHER-SE> 403,198
<TOTAL-LIABILITY-AND-EQUITY> 845,515
<SALES> 0
<TOTAL-REVENUES> 27,836
<CGS> 0
<TOTAL-COSTS> 13,422
<OTHER-EXPENSES> 2,548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,941
<INCOME-PRETAX> 7,925
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,925
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
