filings.toolsEssex Property Trust 10-Q 2021-09-30
Filed 2021-10-27. 8 sections, 259K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _________
001-13106 (Essex Property Trust, Inc.)
333-44467-01 (Essex Portfolio, L.P.)
(Commission File Number)
ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as Specified in its Charter)
| Maryland | 77-0369576 | |||||||
| (Essex Property Trust, Inc.) | (Essex Property Trust, Inc.) | |||||||
| California | 77-0369575 | |||||||
| (Essex Portfolio, L.P.) | (Essex Portfolio, L.P.) | |||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification Number) |
1100 Park Place, Suite 200
San Mateo, California 94403
(Address of Principal Executive Offices, Including Zip Code)
(650) 655-7800
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, $.0001 par value (Essex Property Trust, Inc.) | ESS | New York Stock Exchange |
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
| Essex Property Trust, Inc. | Yes | ☒ | No | ☐ | Essex Portfolio, L.P. | Yes | ☒ | No | ☐ |
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
| Essex Property Trust, Inc. | Yes | ☒ | No | ☐ | Essex Portfolio, L.P. | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Essex Property Trust, Inc.:
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||||||||||||
| Emerging growth company | ☐ |
Essex Portfolio, L.P.:
| Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☐ | ||||||||||||||||
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
| Essex Property Trust, Inc. | ☐ | Essex Portfolio, L.P. | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Essex Property Trust, Inc. | Yes | ☐ | No | ☒ | Essex Portfolio, L.P. | Yes | ☐ | 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: 65,087,831 shares of Common Stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding as of October 25, 2021.
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EXPLANATORY NOTE
This report combines the reports on Form 10-Q for the three and nine month periods ended September 30, 2021 of Essex Property Trust, Inc., a Maryland corporation, and Essex Portfolio, L.P., a Delaware limited partnership of which Essex Property Trust, Inc. is the sole general partner.
Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us" or "our" mean collectively Essex Property Trust, Inc. and those entities/subsidiaries owned or controlled by Essex Property Trust, Inc., including Essex Portfolio, L.P., and references to the "Operating Partnership" mean Essex Portfolio, L.P. and those entities/subsidiaries owned or controlled by Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to "Essex" mean Essex Property Trust, Inc., not including any of its subsidiaries.
Essex operates as a self-administered and self-managed real estate investment trust ("REIT"), and is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Essex has exclusive control of the Operating Partnership's day-to-day management.
The Company is structured as an umbrella partnership REIT ("UPREIT") and Essex contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, Essex receives a number of Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") equal to the number of shares of common stock it has issued in the equity offerings. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units, which is one of the reasons why the Company is structured in the manner outlined above. Based on the terms of the Operating Partnership's partnership agreement, OP Units can be exchanged into Essex common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units issued to Essex and shares of common stock.
The Company believes that combining the reports on Form 10-Q of Essex and the Operating Partnership into this single report provides the following benefits:
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enhances investors' understanding of Essex and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
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eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both Essex and the Operating Partnership; and
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creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.
Management operates Essex and the Operating Partnership as one business. The management of Essex consists of the same members as the management of the Operating Partnership.
All of the Company's property ownership, development, and related business operations are conducted through the Operating Partnership and Essex has no material assets, other than its investment in the Operating Partnership. Essex's primary function is acting as the general partner of the Operating Partnership. As general partner with control of the Operating Partnership, Essex consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of Essex and the Operating Partnership are the same on their respective financial statements. Essex also issues equity from time to time and guarantees certain debt of the Operating Partnership, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its co-investments. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for OP Units (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources of capital include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and co-investments.
The Company believes it is important to understand the few differences between Essex and the Operating Partnership in the context of how Essex and the Operating Partnership operate as a consolidated company. Stockholders' equity, partners' capital and noncontrolling interest are the main areas of difference between the condensed consolidated financial statements of Essex and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's condensed consolidated financial statements and as noncontrolling interest in Essex’s condensed consolidated financial statements. The noncontrolling interest in the Operating Partnership's condensed consolidated financial statements include the interest of unaffiliated partners in various consolidated partnerships and co-investment partners. The noncontrolling interest in Essex's condensed consolidated financial statements include (i) the same noncontrolling interest as
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presented in the Operating Partnership’s condensed consolidated financial statements and (ii) OP Unitholders. The differences between stockholders' equity and partners' capital result from differences in the equity issued at Essex and Operating Partnership levels.
To help investors understand the significant differences between Essex and the Operating Partnership, this report on Form 10-Q provides separate condensed consolidated financial statements for Essex and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of stockholders' equity or partners' capital, and earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report on Form 10-Q also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Essex and the Operating Partnership in order to establish that the requisite certifications have been made and that Essex and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. §1350.
In order to highlight the differences between Essex and the Operating Partnership, the separate sections in this report on Form 10-Q for Essex and the Operating Partnership specifically refer to Essex and the Operating Partnership. In the sections that combine disclosure of Essex and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and co-investments and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of Essex and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
The information furnished in the accompanying unaudited condensed consolidated balance sheets, statements of income and comprehensive income, equity, capital, and cash flows of the Company and the Operating Partnership reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned condensed consolidated financial statements for the interim periods and are normal and recurring in nature, except as otherwise noted.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to such unaudited condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Additionally, 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, 2020.
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ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
FORM 10-Q
TABLE OF CONTENTS
Part I – Financial Information
Item 1. Condensed Consolidated Financial Statements
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and share amounts)
| ASSETS | September 30, 2021 | December 31, 2020 | |||||||||
| Real estate: | |||||||||||
| Rental properties: | |||||||||||
| Land and land improvements | $ | 2,997,904 | $ | 2,929,009 | |||||||
| Buildings and improvements | 12,414,770 | 12,132,736 | |||||||||
| 15,412,674 | 15,061,745 | ||||||||||
| Less: accumulated depreciation | (4,509,243) | (4,133,959) | |||||||||
| 10,903,431 | 10,927,786 | ||||||||||
| Real estate under development | 212,426 | 386,047 | |||||||||
| Co-investments | 1,081,861 | 1,018,010 | |||||||||
| Real estate held for sale | — | 57,938 | |||||||||
| 12,197,718 | 12,389,781 | ||||||||||
| Cash and cash equivalents-unrestricted | 49,910 | 73,629 | |||||||||
| Cash and cash equivalents-restricted | 11,042 | 10,412 | |||||||||
| Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020 | 183,140 | 147,768 | |||||||||
| Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively) | 213,985 | 195,104 | |||||||||
| Operating lease right-of-use assets | 69,756 | 72,143 | |||||||||
| Prepaid expenses and other assets | 63,090 | 47,340 | |||||||||
| Total assets | $ | 12,788,641 | $ | 12,936,177 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Unsecured debt, net | $ | 5,405,520 | $ | 5,607,985 | |||||||
| Mortgage notes payable, net | 640,118 | 643,550 | |||||||||
| Lines of credit | 42,662 | — | |||||||||
| Accounts payable and accrued liabilities | 220,428 | 152,855 | |||||||||
| Construction payable | 32,777 | 31,417 | |||||||||
| Dividends payable | 143,036 | 141,917 | |||||||||
| Distributions in excess of investments in co-investments | 29,037 | — | |||||||||
| Operating lease liabilities | 71,520 | 74,037 | |||||||||
| Liabilities associated with real estate held for sale | — | 29,845 | |||||||||
| Other liabilities | 38,946 | 39,140 | |||||||||
| Total liabilities | 6,624,044 | 6,720,746 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable noncontrolling interest | 32,698 | 32,239 | |||||||||
| Equity: | |||||||||||
| Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,081,032 and 64,999,015 shares issued and outstanding, respectively | 7 | 6 | |||||||||
| Additional paid-in capital | 6,875,508 | 6,876,326 | |||||||||
| Distributions in excess of accumulated earnings | (917,315) | (861,193) | |||||||||
| Accumulated other comprehensive loss, net | (8,968) | (14,729) | |||||||||
| Total stockholders' equity | 5,949,232 | 6,000,410 | |||||||||
| Noncontrolling interest | 182,667 | 182,782 | |||||||||
| Total equity | 6,131,899 | 6,183,192 | |||||||||
| Total liabilities and equity | $ | 12,788,641 | $ | 12,936,177 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except share and per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental and other property | $ | 360,620 | $ | 368,464 | $ | 1,062,253 | $ | 1,126,363 | |||||||||||||||
| Management and other fees from affiliates | 2,237 | 2,347 | 6,707 | 7,312 | |||||||||||||||||||
| 362,857 | 370,811 | 1,068,960 | 1,133,675 | ||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Property operating, excluding real estate taxes | 69,529 | 68,037 | 197,895 | 197,310 | |||||||||||||||||||
| Real estate taxes | 45,802 | 44,358 | 135,408 | 132,364 | |||||||||||||||||||
| Corporate-level property management expenses | 9,068 | 8,619 | 27,120 | 26,024 | |||||||||||||||||||
| Depreciation and amortization | 130,564 | 130,202 | 387,887 | 395,370 | |||||||||||||||||||
| General and administrative | 12,712 | 13,310 | 34,746 | 42,244 | |||||||||||||||||||
| Expensed acquisition and investment related costs | 108 | 2 | 164 | 104 | |||||||||||||||||||
| 267,783 | 264,528 | 783,220 | 793,416 | ||||||||||||||||||||
| Gain on sale of real estate and land | 42,897 | 22,654 | 142,993 | 39,251 | |||||||||||||||||||
| Earnings from operations | 137,971 | 128,937 | 428,733 | 379,510 | |||||||||||||||||||
| Interest expense | (50,019) | (55,430) | (152,639) | (165,024) | |||||||||||||||||||
| Total return swap income | 2,660 | 2,977 | 8,137 | 7,749 | |||||||||||||||||||
| Interest and other income | 11,998 | 6,512 | 48,756 | 12,696 | |||||||||||||||||||
| Equity income from co-investments | 25,433 | 14,960 | 60,692 | 53,514 | |||||||||||||||||||
| Deferred tax expense on unrealized gain on unconsolidated co-investment | (3,041) | — | (5,391) | (1,636) | |||||||||||||||||||
| Loss on early retirement of debt, net | — | (19,114) | (18,982) | (23,820) | |||||||||||||||||||
| Gain on remeasurement of co-investment | — | — | 2,260 | 234,694 | |||||||||||||||||||
| Net income | 125,002 | 78,842 | 371,566 | 497,683 | |||||||||||||||||||
| Net income attributable to noncontrolling interest | (6,612) | (5,181) | (19,886) | (24,558) | |||||||||||||||||||
| Net i |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with the Company’s 2020 annual report on Form 10-K for the year ended December 31, 2020. Capitalized terms not defined in this section have the meaning ascribed to them elsewhere in this Quarterly Report on Form 10-Q. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Forward-Looking Statements."
Essex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located on the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of September 30, 2021, had an approximately 96.6% general partnership interest in the Operating Partnership.
The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the Company's portfolio.
As of September 30, 2021, the Company owned or had ownership interests in 246 operating apartment communities, comprising 60,799 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of two consolidated projects and one unconsolidated joint venture project.
The Company’s apartment communities are located in the following major regions:
Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties)
Northern California (the San Francisco Bay Area)
Seattle Metro (Seattle metropolitan area)
As of September 30, 2021, the Company’s development pipeline was comprised of two consolidated projects under development, one unconsolidated joint venture project under development, and various predevelopment projects aggregating 571 apartment homes, with total incurred costs of $252.0 million, and estimated remaining project costs of approximately $84.0 million, $51.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of $336.0 million.
The Company’s consolidated apartment communities are as follows:
| As of September 30, 2021 | As of September 30, 2020 | ||||||||||||||||||||||
| Apartment Homes | % | Apartment Homes | % | ||||||||||||||||||||
| Southern California | 22,190 | 43 | % | 22,675 | 43 | % | |||||||||||||||||
| Northern California | 19,123 | 37 | % | 19,319 | 37 | % | |||||||||||||||||
| Seattle Metro | 10,218 | 20 | % | 10,217 | 20 | % | |||||||||||||||||
| Total | 51,531 | 100 | % | 52,211 | 100 | % |
Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, Wesco VI, BEXAEW, BEX II, BEX IV, and 500 Folsom communities, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods. The community previously held in the BEX III co-investment, which was consolidated in the second quarter of 2021, is excluded from the September 30, 2020 table but included in the September 30, 2021 table.
Current Material Development – the COVID-19 Pandemic
The United States and other countries around the world are continuing to experience impacts related to COVID-19 pandemic and related variants which has created considerable instability, disruption, and uncertainty. Governmental authorities in impacted regions are continuing to take dramatic and unpredictable actions in an effort to slow COVID-19’s spread. Federal, state and local jurisdictions have implemented varying forms of requirements on sponsors and patrons of public gatherings and
requiring businesses to make changes to their operations in a manner that may negatively affect profitability, result in job losses and related financial impacts that may affect future operations to an unknown extent. While the California eviction moratorium sunsetted during the quarter, other state and local eviction moratoriums and, laws that limit rent increases during times of emergency and prohibit the ability to collect unpaid rent during certain timeframes, continue to be in effect in various formats at various regions in which Essex's communities are located, impacting Essex properties. The Company is working to comply with the stated intent of local, county, state and federal laws. In that regard, the Company has implemented a wide range of practices to protect and support its employees and residents. Such measures include:
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instituting a hybrid work model for corporate associates to work at the Company's corporate offices and remotely;
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transitioning many public interactions with leasing staff to on-line and telephonic communications;
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increasing cleaning practices for common areas and community amenities and opening common areas and community amenities with limited hours, limited capacity or by reservation only, depending in part on jurisdictional requirements; and
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delaying the response to maintenance orders in certain circumstances in order to promote the protection of our employees and residents.
Due to the COVID-19 pandemic, some of the Company's residents, their health, their employment, and, thus, their ability to pay rent, have been and may continue to be impacted. To support residents, the Company has implemented the following steps, including, but not limited to:
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assembling a Resident Response Team to effectively and efficiently respond to resident needs and concerns with respect to the pandemic;
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structuring payment plans for residents who are unable to pay their rent as a result of the outbreak and waiving late fees where required or applicable for those residents; and
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establishing the Essex Cares fund for the purpose of supporting the Company’s residents and communities that are experiencing financial hardships caused by the COVID-19 pandemic.
The impact of the COVID-19 pandemic on the U.S. and world economies generally, and on the Company's results in particular, has been, and may continue to be significant. The long-term impact will largely depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, whether employees and employers will continue to promote remote work if and when the pandemic concludes. This includes new information which may emerge concerning the severity of COVID-19 and related variants, the success of actions taken to contain or treat COVID-19 including but not limited to vaccination rates and the impacts of varying vaccine mandates, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The labor shortage due partly to various government mandates
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Item 3. Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Hedging Activities
The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company uses interest rate swaps as part of its cash flow hedging strategy. The Company previously had five interest rate swaps that were designated as cash flow hedges of interest rate risk and were terminated as of March 31, 2021 in conjunction with the partial repayment of the Company's unsecured term debt. As of September 30, 2021, the Company also had $224.5 million of secured variable rate indebtedness.
Additionally, the Company has entered into four total return swap contracts, with an aggregate notional amount of $224.5 million that effectively convert $224.5 million of fixed mortgage notes payable to a floating interest rate based on the SIFMA plus a spread and have a carrying value of zero at September 30, 2021. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.
Interest Rate Sensitive Liabilities
The Company is exposed to interest rate changes primarily as a result of its lines of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company's real estate investment portfolio and operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives, the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps, and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.
The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows.
| For the Years Ended | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | Total | Fair value | |||||||||||||||||||||||||||||||||||||||
| ($ in thousands, except for interest rates) | |||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate debt | $ | 709 | 42,408 | 302,093 | 402,177 | 632,035 | 4,384,849 | $ | 5,764,271 | $ | 6,057,802 | ||||||||||||||||||||||||||||||||||||
| Average interest rate | 3.4 | % | 3.7 | % | 3.4 | % | 4.0 | % | 3.5 | % | 3.1 | % | 3.2 | % | |||||||||||||||||||||||||||||||||
| Variable rate debt (1) | $ | 184 | 100,780 | 8,514 | 932 | 1,019 | 255,780 | $ | 367,209 | $ | 364,250 | ||||||||||||||||||||||||||||||||||||
| Average interest rate | 1.2 | % | 1.1 | % | 1.0 | % | 1.2 | % | 1.2 | % | 1.0 | % | 1.0 | % |
(1) $224.5 million is subject to total return swaps.
The table incorporates only those exposures that exist as of September 30, 2021. It does not consider those exposures or positions that could arise after that date. As a result, the Company's ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise prior to settlement.
Item 4. Controls and Procedures
Essex Property Trust, Inc.
As of September 30, 2021, Essex carried out an evaluation, under the supervision and with the participation of management, including Essex’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Essex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, Essex’s Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, Essex's disclosure controls and procedures were effective to ensure that the information required to be disclosed by Essex in the reports that Essex files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that Essex files or submits under the Exchange Act is accumulated and communicated to Essex’s management, including Essex’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in Essex's internal control over financial reporting, that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, Essex’s internal control over financial reporting.
Essex Portfolio, L.P.
As of September 30, 2021, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, 2021, the Operating Partnership's disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the Operating Partnership files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including Essex's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in the Operating Partnership's internal control over financial reporting, that occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Part II -- Other Information
Item 1: Legal Proceedings
The Company is subject to various lawsuits in the normal course of its business operations. While the resolution of any such matter cannot be predicted with certainty, the Company is not currently a party to any legal proceedings nor is any legal proceeding currently threatened against the Company that the Company believes, individually or in the aggregate, would have a material adverse effect on the Company's financial condition, results of operations or cash flows.
Item 1A. Risk Factors
In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors discussed in "Part I. Item 1A. Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2020, which could materially affect the Company's financial condition, results of operations or cash flows. There have been no material changes to the Risk Factors disclosed in Item 1A of the Company's annual report on Form 10-K for the year ended December 31, 2020, as filed with the SEC and available at www.sec.gov. The risks described in the Company's annual report on Form 10-K and subsequent quarterly reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known or that the Company currently deems to be immaterial may also materially adversely affect the Company's financial condition, results of operations or cash flows.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities; Essex Portfolio, L.P.
During the three months ended September 30, 2021, the Operating Partnership issued OP Units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:
During the three months ended September 30, 2021, Essex issued an aggregate of 77,036 shares of its common stock upon the exercise of stock options, the vesting of restricted stock awards, and the exchange of OP Units and DownREIT units by limited partners or members into shares of common stock. Essex contributed the net proceeds of $15.6 million from the option exercises during the three months ended September 30, 2021 to the Operating Partnership in exchange for an aggregate of 67,743 OP Units, as required by the Operating Partnership’s partnership agreement. Furthermore, for each share of common stock issued by Essex in connection with vesting of restricted stock awards and the exchange of OP Units and DownREIT units, the Operating Partnership issued OP Units to Essex, as required by the partnership agreement. During the three months ended September 30, 2021, 9,293 OP Units were issued to Essex pursuant to this mechanism.
Stock Repurchases
In December 2020, the Board of Directors approved the replenishment of the Company's stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. As a result of the replenishment, as of September 30, 2021, the Company had $214.5 million of purchase authority remaining under the stock repurchase plan. The Company did not repurchase any of its common stock during the three months ended September 30,
Item 3: Defaults Upon Senior Securities
None.
Item 4: Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
- Filed or furnished herewith.
** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
| ESSEX PROPERTY TRUST, INC. | |||||
| (Registrant) | |||||
| Date: October 27, 2021 | |||||
| By: /s/ BARBARA PAK | |||||
| Barbara Pak | |||||
| Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer) |
| Date: October 27, 2021 | |||||
| By: /s/ JOHN FARIAS | |||||
| John Farias | |||||
| Senior Vice President, Chief Accounting Officer |
| ESSEX PORTFOLIO, L.P. By Essex Property Trust, Inc., its general partner | |||||
| (Registrant) | |||||
| Date: October 27, 2021 | |||||
| By: /s/ BARBARA PAK | |||||
| Barbara Pak | |||||
| Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer) |
| Date: October 27, 2021 | |||||
| By: /s/ JOHN FARIAS | |||||
| John Farias | |||||
| Senior Vice President, Chief Accounting Officer |