filings.toolsItem 1. Condensed Consolidated Financial Statements
156K characters. Original on sec.gov · Markdown
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 income available to common stockholders | $ | 118,390 | $ | 73,661 | $ | 351,680 | $ | 473,125 | |||||||||||||||
| Comprehensive income | $ | 125,829 | $ | 80,818 | $ | 377,529 | $ | 494,668 | |||||||||||||||
| Comprehensive income attributable to noncontrolling interest | (6,639) | (5,247) | (20,088) | (24,455) | |||||||||||||||||||
| Comprehensive income attributable to controlling interest | $ | 119,190 | $ | 75,571 | $ | 357,441 | $ | 470,213 | |||||||||||||||
| Per share data: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | 1.82 | $ | 1.13 | $ | 5.41 | $ | 7.22 | |||||||||||||||
| Weighted average number of shares outstanding during the period | 65,048,486 | 65,232,837 | 65,013,477 | 65,561,820 | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | 1.82 | $ | 1.13 | $ | 5.40 | $ | 7.21 | |||||||||||||||
| Weighted average number of shares outstanding during the period | 65,147,781 | 65,241,428 | 65,075,174 | 65,676,093 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity for the three and nine months ended September 30, 2021 and 2020
(Unaudited)
(In thousands)
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2021 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 7 | $ | 6,862,879 | $ | (899,663) | $ | (9,768) | $ | 183,248 | $ | 6,136,703 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 118,390 | — | 6,612 | 125,002 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 704 | 24 | 728 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 96 | 3 | 99 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 68 | — | 15,572 | — | — | — | 15,572 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (118) | — | — | — | (118) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 1,573 | — | — | 55 | 1,628 | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | 1,253 | — | — | 420 | 1,673 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (7,257) | (7,257) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 9 | — | (5,651) | — | — | (438) | (6,089) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($2.09 per share) | — | — | — | (136,042) | — | — | (136,042) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 65,081 | $ | 7 | $ | 6,875,508 | $ | (917,315) | $ | (8,968) | $ | 182,667 | $ | 6,131,899 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2021 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 64,999 | $ | 6 | $ | 6,876,326 | $ | (861,193) | $ | (14,729) | $ | 182,782 | $ | 6,183,192 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 351,680 | — | 19,886 | 371,566 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 5,417 | 190 | 5,607 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 344 | 12 | 356 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 112 | 1 | 12,401 | — | — | — | 12,402 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (202) | — | — | — | (202) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 9,172 | — | — | 323 | 9,495 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (40) | — | (9,172) | — | — | — | (9,172) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | (5,499) | — | — | 577 | (4,922) | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 1,900 | 1,900 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (22,114) | (22,114) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 10 | — | (7,518) | — | — | (889) | (8,407) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($6.27 per share) | — | — | — | (407,802) | — | — | (407,802) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 65,081 | $ | 7 | $ | 6,875,508 | $ | (917,315) | $ | (8,968) | $ | 182,667 | $ | 6,131,899 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2020 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2020 | 65,331 | $ | 7 | $ | 6,944,805 | $ | (760,028) | $ | (18,710) | $ | 186,807 | $ | 6,352,881 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 73,661 | — | 5,181 | 78,842 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 1,821 | 63 | 1,884 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 89 | 3 | 92 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (95) | — | — | — | (95) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 2,279 | — | — | 82 | 2,361 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (121) | — | (26,586) | — | — | — | (26,586) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | 2,346 | — | — | 176 | 2,522 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (7,677) | (7,677) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | — | — | (1,118) | — | — | (150) | (1,268) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($2.0775 per share) | — | — | — | (135,474) | — | — | (135,474) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2020 | 65,210 | $ | 7 | $ | 6,921,631 | $ | (821,841) | $ | (16,800) | $ | 184,485 | $ | 6,267,482 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2020 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 66,092 | $ | 7 | $ | 7,121,927 | $ | (887,619) | $ | (13,888) | $ | 183,077 | $ | 6,403,504 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 473,125 | — | 24,558 | 497,683 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash flow hedge losses reclassified to earnings | — | — | — | — | 3,171 | 111 | 3,282 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | (5,911) | (208) | (6,119) | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | (172) | (6) | (178) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 95 | — | 9,201 | — | — | — | 9,201 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (228) | — | — | — | (228) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 8,956 | — | — | 338 | 9,294 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (985) | — | (222,990) | — | — | — | (222,990) | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative effect upon adoption of ASU No. 2016-13 | — | — | — | (190) | — | — | (190) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | 6,888 | — | — | (197) | 6,691 | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from acquisition | — | — | — | — | — | 1,349 | 1,349 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (23,689) | (23,689) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 8 | — | (2,123) | — | — | (848) | (2,971) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($6.2325 per share) | — | — | — | (407,157) | — | — | (407,157) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2020 | 65,210 | $ | 7 | $ | 6,921,631 | $ | (821,841) | $ | (16,800) | $ | 184,485 | $ | 6,267,482 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except parenthetical amounts)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 371,566 | $ | 497,683 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Straight-lined rents | 8,734 | (15,485) | |||||||||
| Depreciation and amortization | 387,887 | 395,370 | |||||||||
| Amortization of discount on marketable securities | — | (6,598) | |||||||||
| Amortization of discount and debt financing costs, net | 7,987 | 5,177 | |||||||||
| Gain on sale of marketable securities | (2,499) | (124) | |||||||||
| Income from early redemption of notes receivable | (4,747) | — | |||||||||
| Provision for credit losses | (110) | 100 | |||||||||
| Unrealized gains on equity securities recognized through income | (23,772) | (2,215) | |||||||||
| Earnings from co-investments | (60,692) | (53,514) | |||||||||
| Operating distributions from co-investments | 78,360 | 41,202 | |||||||||
| Accrued interest from notes and other receivables | (12,253) | (1,574) | |||||||||
| Gain on the sale of real estate and land | (142,993) | (39,251) | |||||||||
| Equity-based compensation | 5,399 | 4,923 | |||||||||
| Loss on early retirement of debt, net | 18,982 | 23,820 | |||||||||
| Gain on remeasurement of co-investment | (2,260) | (234,694) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 2,470 | (5,088) | |||||||||
| Accounts payable, accrued liabilities, and operating lease liabilities | 62,699 | 43,095 | |||||||||
| Other liabilities | 5,119 | 610 | |||||||||
| Net cash provided by operating activities | 699,877 | 653,437 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to real estate: | |||||||||||
| Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (105,469) | (459,355) | |||||||||
| Redevelopment | (39,092) | (41,592) | |||||||||
| Development acquisitions of and additions to real estate under development | (45,381) | (90,273) | |||||||||
| Capital expenditures on rental properties | (81,063) | (64,269) | |||||||||
| Investments in notes receivable | (102,012) | (20,431) | |||||||||
| Collections of notes and other receivables | 88,744 | 98,711 | |||||||||
| Proceeds from insurance for property losses | 591 | 612 | |||||||||
| Proceeds from dispositions of real estate | 297,454 | 280,246 | |||||||||
| Contributions to co-investments | (223,175) | (61,056) | |||||||||
| Changes in refundable deposits | (8,356) | 96 | |||||||||
| Purchases of marketable securities | (23,740) | (38,909) | |||||||||
| Sales and maturities of marketable securities | 14,995 | 56,890 | |||||||||
| Non-operating distributions from co-investments | 131,297 | 37,342 | |||||||||
| Net cash used in investing activities | (95,207) | (301,988) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from unsecured debt and mortgage notes | 745,505 | 1,452,808 | |||||||||
| Payments on unsecured debt and mortgage notes | (952,608) | (587,057) | |||||||||
| Proceeds from lines of credit | 601,435 | 1,038,426 | |||||||||
| Repayments of lines of credit | (558,773) | (1,093,426) | |||||||||
| Retirement of common stock | (9,172) | (222,990) |
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Additions to deferred charges | (8,237) | (13,761) | |||||||||
| Payments related to debt prepayment penalties | (18,342) | (19,605) | |||||||||
| Net proceeds from issuance of common stock | (202) | (228) | |||||||||
| Net proceeds from stock options exercised | 17,847 | 14,865 | |||||||||
| Payments related to tax withholding for share-based compensation | (5,445) | (5,664) | |||||||||
| Contributions from noncontrolling interest | 1,900 | — | |||||||||
| Distributions to noncontrolling interest | (21,979) | (23,302) | |||||||||
| Redemption of noncontrolling interest | (8,407) | (2,971) | |||||||||
| Redemption of redeemable noncontrolling interest | (4,463) | — | |||||||||
| Common stock dividends paid | (406,818) | (400,563) | |||||||||
| Net cash (used in) provided by financing activities | (627,759) | 136,532 | |||||||||
| Net (decrease) increase in unrestricted and restricted cash and cash equivalents | (23,089) | 487,981 | |||||||||
| Unrestricted and restricted cash and cash equivalents at beginning of period | 84,041 | 81,094 | |||||||||
| Unrestricted and restricted cash and cash equivalents at end of period | $ | 60,952 | $ | 569,075 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively) | $ | 147,371 | $ | 160,927 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 5,225 | $ | 5,192 | |||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Transfers between real estate under development and rental properties, net | $ | 222,055 | $ | 252,946 | |||||||
| Transfer from real estate under development to co-investments | $ | 1,853 | $ | 1,387 | |||||||
| Reclassifications to (from) redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest | $ | 4,922 | $ | (6,691) | |||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except parenthetical and unit 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, net | — | 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 CAPITAL | |||||||||||
| 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 | |||||||||
| Distributions 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 | |||||||||
| Capital: | |||||||||||
| General Partner: | |||||||||||
| Common equity (65,081,032 and 64,999,015 units issued and outstanding, respectively) | 5,958,200 | 6,015,139 | |||||||||
| 5,958,200 | 6,015,139 | ||||||||||
| Limited Partners: | |||||||||||
| Common equity (2,282,464 and 2,294,760 units issued and outstanding, respectively) | 56,385 | 58,184 | |||||||||
| Accumulated other comprehensive loss | (5,340) | (11,303) | |||||||||
| Total partners' capital | 6,009,245 | 6,062,020 | |||||||||
| Noncontrolling interest | 122,654 | 121,172 | |||||||||
| Total capital | 6,131,899 | 6,183,192 | |||||||||
| Total liabilities and capital | $ | 12,788,641 | $ | 12,936,177 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
(In thousands, except unit and per unit 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 | (2,444) | (2,588) | (7,483) | (8,015) | |||||||||||||||||||
| Net income available to common unitholders | $ | 122,558 | $ | 76,254 | $ | 364,083 | $ | 489,668 | |||||||||||||||
| Comprehensive income | $ | 125,829 | $ | 80,818 | $ | 377,529 | $ | 494,668 | |||||||||||||||
| Comprehensive income attributable to noncontrolling interest | (2,444) | (2,588) | (7,483) | (8,015) | |||||||||||||||||||
| Comprehensive income attributable to controlling interest | $ | 123,385 | $ | 78,230 | $ | 370,046 | $ | 486,653 | |||||||||||||||
| Per unit data: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net income available to common unitholders | $ | 1.82 | $ | 1.13 | $ | 5.41 | $ | 7.22 | |||||||||||||||
| Weighted average number of common units outstanding during the period | 67,336,164 | 67,528,346 | 67,307,259 | 67,858,961 | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net income available to common unitholders | $ | 1.82 | $ | 1.13 | $ | 5.40 | $ | 7.21 | |||||||||||||||
| Weighted average number of common units outstanding during the period | 67,435,459 | 67,536,937 | 67,368,956 | 67,973,234 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Capital for the three and nine months ended September 30, 2021 and 2020
(Unaudited)
(In thousands)
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2021 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 5,963,223 | 2,294 | $ | 56,950 | $ | (6,167) | $ | 122,697 | $ | 6,136,703 | |||||||||||||||||||||||||||||||||||
| Net income | — | 118,390 | — | 4,168 | — | 2,444 | 125,002 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 728 | — | 728 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 99 | — | 99 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 68 | 15,572 | — | — | — | — | 15,572 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (118) | — | — | — | — | (118) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 1,573 | — | 55 | — | — | 1,628 | ||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | 1,253 | — | 141 | — | 279 | 1,673 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (2,488) | (2,488) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 9 | (5,651) | (12) | (160) | — | (278) | (6,089) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($2.09 per unit) | — | (136,042) | — | (4,769) | — | — | (140,811) | ||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 65,081 | $ | 5,958,200 | 2,282 | $ | 56,385 | $ | (5,340) | $ | 122,654 | $ | 6,131,899 |
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2021 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | 64,999 | $ | 6,015,139 | 2,295 | $ | 58,184 | $ | (11,303) | $ | 121,172 | $ | 6,183,192 | |||||||||||||||||||||||||||||||||||
| Net income | — | 351,680 | — | 12,403 | — | 7,483 | 371,566 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 5,607 | — | 5,607 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 356 | — | 356 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 112 | 12,402 | — | — | — | — | 12,402 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (202) | — | — | — | — | (202) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 9,172 | — | 323 | — | — | 9,495 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (40) | (9,172) | — | — | — | — | (9,172) | ||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | (5,499) | — | 129 | — | 448 | (4,922) | ||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 1,900 | 1,900 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (7,756) | (7,756) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 10 | (7,518) | (13) | (296) | — | (593) | (8,407) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($6.27 per unit) | — | (407,802) | — | (14,358) | — | — | (422,160) | ||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | 65,081 | $ | 5,958,200 | 2,282 | $ | 56,385 | $ | (5,340) | $ | 122,654 | $ | 6,131,899 |
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended September 30, 2020 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2020 | 65,331 | $ | 6,184,784 | 2,296 | $ | 61,437 | $ | (15,423) | $ | 122,083 | $ | 6,352,881 | |||||||||||||||||||||||||||||||||||
| Net income | — | 73,661 | — | 2,593 | — | 2,588 | 78,842 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 1,884 | — | 1,884 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 92 | — | 92 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (95) | — | — | — | — | (95) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 2,279 | — | 82 | — | — | 2,361 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (121) | (26,586) | — | — | — | — | (26,586) | ||||||||||||||||||||||||||||||||||||||||
| Changes in redemption value of redeemable noncontrolling interest | — | 2,346 | — | 98 | — | 78 | 2,522 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (2,908) | (2,908) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | — | (1,118) | — | — | — | (150) | (1,268) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($2.0775 per unit) | — | (135,474) | — | (4,769) | — | — | (140,243) | ||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2020 | 65,210 | $ | 6,099,797 | 2,296 | $ | 59,441 | $ | (13,447) | $ | 121,691 | $ | 6,267,482 |
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Nine months ended September 30, 2020 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2019 | 66,092 | $ | 6,234,315 | 2,302 | $ | 57,359 | $ | (10,432) | $ | 122,262 | $ | 6,403,504 | |||||||||||||||||||||||||||||||||||
| Net income | — | 473,125 | — | 16,543 | — | 8,015 | 497,683 | ||||||||||||||||||||||||||||||||||||||||
| Cash flow hedge losses reclassified to earnings | — | — | — | — | 3,282 | — | 3,282 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | (6,119) | — | (6,119) | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | (178) | — | (178) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 95 | 9,201 | — | — | — | — | 9,201 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (228) | — | — | — | — | (228) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 8,956 | 2 | 338 | — | — | 9,294 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (985) | (222,990) | — | — | — | — | (222,990) | ||||||||||||||||||||||||||||||||||||||||
| Cumulative effect upon adoption of ASU No. 2016-13 | — | (190) | — | — | — | — | (190) | ||||||||||||||||||||||||||||||||||||||||
| Changes in redemption value of redeemable noncontrolling interest | — | 6,888 | — | (318) | — | 121 | 6,691 | ||||||||||||||||||||||||||||||||||||||||
| Changes in noncontrolling interest from acquisition | — | — | — | — | — | 1,349 | 1,349 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (9,381) | (9,381) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 8 | (2,123) | (8) | (173) | — | (675) | (2,971) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($6.2325 per unit) | — | (407,157) | — | (14,308) | — | — | (421,465) | ||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2020 | 65,210 | $ | 6,099,797 | 2,296 | $ | 59,441 | $ | (13,447) | $ | 121,691 | $ | 6,267,482 |
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands, except parenthetical amounts)
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 371,566 | $ | 497,683 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Straight-lined rents | 8,734 | (15,485) | |||||||||
| Depreciation and amortization | 387,887 | 395,370 | |||||||||
| Amortization of discount on marketable securities | — | (6,598) | |||||||||
| Amortization of discount and debt financing costs, net | 7,987 | 5,177 | |||||||||
| Gain on sale of marketable securities | (2,499) | (124) | |||||||||
| Income from early redemption of notes receivable | (4,747) | — | |||||||||
| Provision for credit losses | (110) | 100 | |||||||||
| Unrealized gains on equity securities recognized through income | (23,772) | (2,215) | |||||||||
| Earnings from co-investments | (60,692) | (53,514) | |||||||||
| Operating distributions from co-investments | 78,360 | 41,202 | |||||||||
| Accrued interest from notes and other receivables | (12,253) | (1,574) | |||||||||
| Gain on the sale of real estate and land | (142,993) | (39,251) | |||||||||
| Equity-based compensation | 5,399 | 4,923 | |||||||||
| Loss on early retirement of debt, net | 18,982 | 23,820 | |||||||||
| Gain on remeasurement of co-investment | (2,260) | (234,694) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 2,470 | (5,088) | |||||||||
| Accounts payable, accrued liabilities, and operating lease liabilities | 62,699 | 43,095 | |||||||||
| Other liabilities | 5,119 | 610 | |||||||||
| Net cash provided by operating activities | 699,877 | 653,437 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to real estate: | |||||||||||
| Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (105,469) | (459,355) | |||||||||
| Redevelopment | (39,092) | (41,592) | |||||||||
| Development acquisitions of and additions to real estate under development | (45,381) | (90,273) | |||||||||
| Capital expenditures on rental properties | (81,063) | (64,269) | |||||||||
| Investments in notes receivable | (102,012) | (20,431) | |||||||||
| Collections of notes and other receivables | 88,744 | 98,711 | |||||||||
| Proceeds from insurance for property losses | 591 | 612 | |||||||||
| Proceeds from dispositions of real estate | 297,454 | 280,246 | |||||||||
| Contributions to co-investments | (223,175) | (61,056) | |||||||||
| Changes in refundable deposits | (8,356) | 96 | |||||||||
| Purchases of marketable securities | (23,740) | (38,909) | |||||||||
| Sales and maturities of marketable securities | 14,995 | 56,890 | |||||||||
| Non-operating distributions from co-investments | 131,297 | 37,342 | |||||||||
| Net cash used in investing activities | (95,207) | (301,988) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from unsecured debt and mortgage notes | 745,505 | 1,452,808 | |||||||||
| Payments on unsecured debt and mortgage notes | (952,608) | (587,057) | |||||||||
| Proceeds from lines of credit | 601,435 | 1,038,426 | |||||||||
| Repayments of lines of credit | (558,773) | (1,093,426) | |||||||||
| Retirement of common units | (9,172) | (222,990) |
| Nine Months Ended September 30, | |||||||||||
| 2021 | 2020 | ||||||||||
| Additions to deferred charges | (8,237) | (13,761) | |||||||||
| Payments related to debt prepayment penalties | (18,342) | (19,605) | |||||||||
| Net proceeds from issuance of common units | (202) | (228) | |||||||||
| Net proceeds from stock options exercised | 17,847 | 14,865 | |||||||||
| Payments related to tax withholding for share-based compensation | (5,445) | (5,664) | |||||||||
| Contributions from noncontrolling interest | 1,900 | — | |||||||||
| Distributions to noncontrolling interest | (6,323) | (6,287) | |||||||||
| Redemption of noncontrolling interests | (8,407) | (2,971) | |||||||||
| Redemption of redeemable noncontrolling interests | (4,463) | — | |||||||||
| Common units distributions paid | (422,474) | (417,578) | |||||||||
| Net cash (used in) provided by financing activities | (627,759) | 136,532 | |||||||||
| Net (decrease) increase in unrestricted and restricted cash and cash equivalents | (23,089) | 487,981 | |||||||||
| Unrestricted and restricted cash and cash equivalents at beginning of period | 84,041 | 81,094 | |||||||||
| Unrestricted and restricted cash and cash equivalents at end of period | $ | 60,952 | $ | 569,075 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively) | $ | 147,371 | $ | 160,927 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 5,225 | $ | 5,192 | |||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Transfers between real estate under development and rental properties, net | $ | 222,055 | $ | 252,946 | |||||||
| Transfer from real estate under development to co-investments | $ | 1,853 | $ | 1,387 | |||||||
| Reclassifications to (from) redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest | $ | 4,922 | $ | (6,691) | |||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
(1) Organization and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements present the accounts of Essex Property Trust, Inc. ("Essex" or the "Company"), which include the accounts of the Company and Essex Portfolio, L.P. and its subsidiaries (the "Operating Partnership," which holds the operating assets of the Company), prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") 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, 2020.
All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements.
The unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 include the accounts of the Company and the Operating Partnership. Essex is the sole general partner of the Operating Partnership, with a 96.6% general partnership interest as of both September 30, 2021 and December 31, 2020. Total Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") outstanding were 2,282,464 and 2,294,760 as of September 30, 2021 and December 31, 2020, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $729.8 million and $544.8 million as of September 30, 2021 and December 31, 2020, respectively.
As of September 30, 2021, the Company owned or had ownership interests in 246 operating apartment communities, aggregating 60,799 apartment homes, excluding the Company’s ownership interest in preferred interest co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of two consolidated projects and one unconsolidated joint venture project. The operating apartment communities are located in Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.
Accounting Pronouncements Adopted in the Current Year
In January 2021, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2021-01 "Reference Rate Reform (Topic 848): Scope." The amendments in ASU No. 2021-01 provide optional expedients to the current guidance on contract modifications and hedge accounting from the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The guidance generally can be applied to applicable contract modifications through December 31, 2022. The Company adopted this new guidance in January 2021 on a prospective basis. This adoption did not have a material impact on the Company's consolidated results of operations or financial position.
Revenues and Gains on Sale of Real Estate
Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned which generally approximates a straight-line basis, else, adjustments are made to conform to a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 9 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease. See Note 3, Revenues, for additional information regarding such revenues.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
The Company also generates other property-related revenue associated with the leasing of apartment homes, including storage income, pet rent, and other miscellaneous revenue. Similar to rental income, such revenues are recorded when due from tenants and recognized monthly as they are earned.
Apart from rental and other property-related revenue, revenues from contracts with customers are recognized as control of the promised services is passed to the customer. For customer contracts related to management and other fees from affiliates (which includes asset management and property management), the transaction price and amount of revenue to be recognized is determined each quarter based on the management fee calculated and earned for that month or quarter. The contract will contain a description of the service and the fee percentage for management services. Payments from such services are one month or one quarter in arrears of the service performed.
The Company recognizes any gains on sales of real estate when it transfers control of a property and when it is probable that the Company will collect substantially all of the related consideration.
Marketable Securities
The Company reports its equity securities and available for sale debt securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds and Level 2 for the unsecured debt, as defined by the FASB standard for fair value measurements). As of both September 30, 2021 and December 31, 2020, $2.5 million of equity securities were presented within common stock and stock funds in the tables below, which represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy.
Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. Unrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income on the condensed consolidated statements of income and comprehensive income.
As of September 30, 2021 and December 31, 2020, equity securities and available for sale debt securities consisted primarily of investment-grade unsecured debt, and common stock and stock funds.
As of September 30, 2021 and December 31, 2020, marketable securities consisted of the following ($ in thousands):
| September 30, 2021 | |||||||||||||||||||||||
| Cost | Gross Unrealized Gain (Loss) | Carrying Value | |||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Investment funds - debt securities | $ | 61,885 | $ | 24 | $ | 61,909 | |||||||||||||||||
| Common stock and stock funds | 80,079 | 39,734 | 119,813 | ||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||
| Investment-grade unsecured debt | 1,050 | 368 | 1,418 | ||||||||||||||||||||
| Total - Marketable securities | $ | 143,014 | $ | 40,126 | $ | 183,140 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| December 31, 2020 | |||||||||||||||||||||||||||||
| Cost | Gross Unrealized Gain (Loss) | Carrying Value | |||||||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||||||||
| Investment funds - debt securities | $ | 49,646 | $ | 985 | $ | 50,631 | |||||||||||||||||||||||
| Common stock and stock funds | 81,074 | 15,001 | 96,075 | ||||||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||||||||
| Investment-grade unsecured debt | 1,050 | 12 | 1,062 | ||||||||||||||||||||||||||
| Total - Marketable securities | $ | 131,770 | $ | 15,998 | $ | 147,768 |
The Company uses the specific identification method to determine the cost basis of a debt security sold and to reclassify amounts from accumulated other comprehensive income for such securities.
For the three months ended September 30, 2021 and 2020, the proceeds from sales and maturities of marketable securities totaled $0.1 million and $52.6 million, respectively, which resulted in zero realized loss and $91 thousand in realized gains, respectively, for such periods. For the nine months ended September 30, 2021 and 2020, the proceeds from sales and maturities of marketable securities totaled $15.0 million and $56.9 million, respectively, which resulted in $2.5 million and $0.1 million in realized gains, respectively, for such periods.
For the three and nine months ended September 30, 2021, the portion of equity security unrealized gains that were recognized in income totaled $7.1 million and $23.8 million, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income. For the three and nine months ended September 30, 2020, the portion of equity security unrealized gains or losses that were recognized in income totaled $3.3 million and $2.2 million in gains, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income.
Variable Interest Entities
In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities), and six co-investments as of September 30, 2021. As of December 31, 2020, the Company consolidated the Operating Partnership, 17 DownREIT entities (comprising nine communities) and five co-investments. The Company consolidates these entities because it is deemed the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were approximately $909.1 million and $323.3 million, respectively, as of September 30, 2021 and $898.5 million and $326.8 million, respectively, as of December 31, 2020. Noncontrolling interests in these entities were $122.4 million and $120.8 million as of September 30, 2021 and December 31, 2020, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of September 30, 2021 and December 31, 2020, the Company did not have any VIEs of which it was not deemed to be the primary beneficiary.
Equity-based Compensation
The cost of share- and unit-based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 14, "Equity Based Compensation Plans," in the Company’s annual report on Form 10-K for the year ended December 31, 2020) are being amortized over the expected service periods.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
Fair Value of Financial Instruments
Management believes that the carrying amounts of the outstanding balances under its lines of credit, and notes and other receivables approximate fair value as of September 30, 2021 and December 31, 2020, because interest rates, yields, and other terms for these instruments are consistent with interest rates, yields, and other terms currently available for similar instruments. Management has estimated that the fair value of the Company’s fixed rate debt with a carrying value of $5.7 billion and $5.5 billion at September 30, 2021 and December 31, 2020, respectively, was approximately $6.1 billion and $6.0 billion, respectively. Management has estimated that the fair value of the Company’s $366.4 million and $775.1 million of variable rate debt at September 30, 2021 and December 31, 2020, respectively, was approximately $364.3 million and $770.1 million, respectively, based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities, and dividends payable approximate fair value as of September 30, 2021 and December 31, 2020 due to the short-term maturity of these instruments. Marketable securities are carried at fair value as of September 30, 2021 and December 31, 2020.
Capitalization of Costs
The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of interest and employee compensation and totaled $5.6 million and $6.1 million during the three months ended September 30, 2021 and 2020, respectively, and $17.5 million and $24.9 million for the nine months ended September 30, 2021 and 2020, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented.
Co-investments
The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company's equity in earnings less distributions received and the Company's share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.
Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of income equal to the amount by which the fair value of the Company's previously owned co-investment interest exceeds its carrying value. A majority of the co-investments, excluding most preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote income if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.
Changes in Accumulated Other Comprehensive Loss, Net by Component
Essex Property Trust, Inc.
($ in thousands):
| Change in fair value and amortization of swap settlements | Unrealized gain on available for sale securities | Total | |||||||||||||||
| Balance at December 31, 2020 | $ | (14,771) | $ | 42 | $ | (14,729) | |||||||||||
| Other comprehensive income before reclassification | 5,406 | 344 | 5,750 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 11 | — | 11 | ||||||||||||||
| Other comprehensive income | 5,417 | 344 | 5,761 | ||||||||||||||
| Balance at September 30, 2021 | $ | (9,354) | $ | 386 | $ | (8,968) |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
Essex Portfolio, L.P.
($ in thousands):
| Change in fair value and amortization of swap settlements | Unrealized gain on available for sale securities | Total | |||||||||||||||
| Balance at December 31, 2020 | $ | (11,346) | $ | 43 | $ | (11,303) | |||||||||||
| Other comprehensive income before reclassification | 5,595 | 356 | 5,951 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 12 | — | 12 | ||||||||||||||
| Other comprehensive income | 5,607 | 356 | 5,963 | ||||||||||||||
| Balance at September 30, 2021 | $ | (5,739) | $ | 399 | $ | (5,340) |
Amounts reclassified from accumulated other comprehensive loss in connection with derivatives are recorded in interest expense on the condensed consolidated statements of income and comprehensive income. Realized gains and losses on available for sale debt securities are included in interest and other income on the condensed consolidated statements of income and comprehensive income.
Redeemable Noncontrolling Interest
The carrying value of redeemable noncontrolling interests in the accompanying condensed consolidated balance sheets was $32.7 million and $32.2 million as of September 30, 2021 and December 31, 2020, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.
The changes to the redemption value of redeemable noncontrolling interests for the nine months ended September 30, 2021 is as follows ($ in thousands):
| Balance at December 31, 2020 | $ | 32,239 | |||
| Reclassification due to change in redemption value and other | 4,922 | ||||
| Redemptions | (4,463) | ||||
| Balance at September 30, 2021 | $ | 32,698 |
Cash, Cash Equivalents and Restricted Cash
Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows ($ in thousands):
| September 30, 2021 | December 31, 2020 | September 30, 2020 | December 31, 2019 | ||||||||||||||||||||
| Cash and cash equivalents - unrestricted | $ | 49,910 | $ | 73,629 | $ | 558,446 | $ | 70,087 | |||||||||||||||
| Cash and cash equivalents - restricted | 11,042 | 10,412 | 10,629 | 11,007 | |||||||||||||||||||
| Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows | $ | 60,952 | $ | 84,041 | $ | 569,075 | $ | 81,094 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
Accounting Estimates
The preparation of condensed consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, its notes receivables, and its qualification as a real estate investment trust ("REIT"). The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.
(2) Significant Transactions During the Nine Months Ended September 30, 2021 and Subsequent Events
Significant Transactions
Acquisitions
In September 2021, the Company acquired 7 South Linden, a commercial property located in South San Francisco, CA for $33.5 million. The property is fully leased to two commercial tenants. The Company is currently pursuing entitlements to construct an apartment community on the property.
In September 2021, Wesco VI, LLC ("Wesco VI"), a new joint venture with one of the Company's institutional partners, acquired Martha Lake Apartments, a 155 unit apartment home community located in Lynwood, WA, for a total contract price of $53.0 million. The property is encumbered by a $29.2 million related party bridge loan from the Company, with an interest rate of 2.15% and is scheduled to mature in December 2021. See the "Co-Investments" section below for further details related to the creation of Wesco VI. See Note 6, Related Party Transactions, for additional details.
In September 2021, the Company acquired Third & Broad, a fully-leased single tenant commercial property located in downtown Seattle, WA for $52.5 million. The Company will hold the property for future apartment development.
In June 2021, the Company acquired its joint venture partner, BEX III, LLC's ("BEX III") 50.0% interest in The Village at Toluca Lake, a community totaling 145 homes located in Burbank, CA, for total consideration of $31.8 million. Concurrent with the closing of the acquisition, the Company repaid $29.5 million in mortgage debt that encumbered the property. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of $2.3 million upon consolidation.
Dispositions
In August 2021, the Company sold Devonshire, a non-core apartment community with 276 apartment homes, located in Hemet, CA, for a total contract price of $54.5 million. The Company recognized a $42.9 million gain on sale.
In February 2021, the Company sold Hidden Valley, a 324 apartment home community located in Simi Valley, CA, for a total contract price of $105.0 million. The Company recognized a $69.2 million gain on sale. In conjunction with the sale, the Company repaid $29.7 million of mortgage debt that encumbered the property.
In February 2021, the Company sold Park 20, a 197 apartment home community located in San Mateo, CA, for a total contract price of $113.0 million. The Company recognized an immaterial gain on sale.
In February 2021, the Company sold Axis 2300, a 115 apartment home community located in Irvine, CA, for a total contract price of $57.5 million. The Company recognized a $30.8 million gain on sale.
Co-Investments
Joint Ventures
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
In September 2021, the Company formed a new joint venture entity, Wesco VI, with an institutional partner. Each partner has a 50.0% ownership interest and an initial equity commitment of $150.0 million. The joint venture is unconsolidated for financial reporting purposes.
Preferred Equity Investments
In September 2021, the Company originated a preferred equity investment totaling $26.2 million in one multifamily community located in Southern California. The investment has an initial preferred return of 12.5% and is scheduled to mature in September 2026.
In August 2021, the Company originated a preferred equity investment totaling $11.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 11.5% and is scheduled to mature in August 2026.
In January 2021, the Company originated a preferred equity investment totaling $20.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 10.0% and is scheduled to mature in January 2026.
In August 2021, the Company received cash of $21.6 million, for the partial redemption of a preferred equity investment in a joint venture that holds property located in Northern California.
In March 2021, the Company received cash of $10.0 million for the full redemption of a preferred equity investment in a joint venture that holds property located in Southern California.
In March 2021, the Company received cash of $110.2 million, including an early redemption fee of $3.5 million for the full redemption of a preferred equity investment in a joint venture that holds property located in Southern California.
Notes Receivable
In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco VI. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets. See Note 6, Related Party Transactions for additional details.
In March 2021, the Company provided a $52.5 million related party bridge loan to Wesco I, LLC ("Wesco I") in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 2.55% and was paid off in July 2021.
In June 2021, the Company received cash of $36.5 million, including an early redemption fee of $4.7 million, for the full redemption of a mezzanine loan on a property located in Northern California.
Common Stock
During the three months ended March 31, 2021, the Company repurchased and retired 40,000 shares totaling $9.2 million, including commissions. The Company did not repurchase any shares subsequent to March 31, 2021. As of September 30, 2021, the Company had $214.5 million of purchase authority remaining under its $250.0 million stock repurchase plan.
Senior Unsecured Debt
In March 2021, the Operating Partnership issued $450.0 million of senior unsecured notes due on March 1, 2028 with a coupon rate of 1.700% per annum (the "2028 Notes"), which are payable on March 1 and September 1 of each year, beginning on September 1, 2021. The 2028 Notes were offered to investors at a price of 99.423% of par value. The 2028 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay upcoming debt maturities, including all or a portion of certain unsecured term loans, and for general corporate and working capital purposes.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
In June 2021, the Operating Partnership issued $300.0 million of senior unsecured notes due on June 15, 2031 with a coupon rate of 2.550% per annum (the "2031 Notes"), which are payable on June 15 and December 15 of each year, beginning on December 15, 2021. The 2031 Notes were offered to investors at a price of 99.367% of par value. The 2031 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay upcoming debt maturities, including to fund the redemption of $300.0 million aggregate principal amount (plus the make-whole amount and accrued and unpaid interest) of its outstanding 3.375% senior unsecured notes due January 2023, and for other general corporate and working capital purposes.
Subsequent Events
In October 2021, Wesco VI acquired Monterra, a 139 unit apartment home community in Mill Creek, WA, near Martha Lake, for a total contract price of $55.0 million.
In October 2021, the Company committed to fund a $50.0 million mezzanine loan in a multifamily development community located in Northern California, with an initial 11.0% interest rate and a maturity date of October 2025, with options to extend for up to two years. The investment will fund concurrent with the senior construction loan which is scheduled to begin funding in the second half of 2022.
(3) Revenues
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Rental income | $ | 355,591 | $ | 362,073 | $ | 1,046,218 | $ | 1,108,658 | |||||||||||||||
| Other property | 5,029 | 6,391 | 16,035 | 17,705 | |||||||||||||||||||
| Management and other fees from affiliates | 2,237 | 2,347 | 6,707 | 7,312 | |||||||||||||||||||
| Total revenues | $ | 362,857 | $ | 370,811 | $ | 1,068,960 | $ | 1,133,675 |
The following table presents the Company’s rental and other property revenues disaggregated by geographic operating segment ($ in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Southern California | $ | 150,807 | $ | 136,651 | $ | 434,926 | $ | 426,987 | |||||||||||||||
| Northern California | 145,807 | 147,081 | 435,883 | 457,655 | |||||||||||||||||||
| Seattle Metro | 60,280 | 60,617 | 178,180 | 184,310 | |||||||||||||||||||
| Other real estate assets (1) | 3,726 | 24,115 | 13,264 | 57,411 | |||||||||||||||||||
| Total rental and other property revenues | $ | 360,620 | $ | 368,464 | $ | 1,062,253 | $ | 1,126,363 |
(1) Other real estate assets consist of revenues generated from retail space, commercial properties, held for sale properties, disposition properties and straight-line rent adjustments for concessions. Executive management does not evaluate such operating performance geographically.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
The following table presents the Company’s rental and other property revenues disaggregated by current property category status ($ in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Same-property (1) | $ | 325,153 | $ | 316,639 | $ | 957,908 | $ | 986,945 | |||||||||||||||
| Acquisitions (2) | 14,789 | 14,237 | 42,410 | 40,491 | |||||||||||||||||||
| Development (3) | 8,055 | 5,461 | 22,485 | 13,956 | |||||||||||||||||||
| Redevelopment | 4,340 | 4,277 | 13,079 | 14,774 | |||||||||||||||||||
| Non-residential/other, net (4) | 11,319 | 13,119 | 35,721 | 52,491 | |||||||||||||||||||
| Straight line rent concession (5) | (3,036) | 14,731 | (9,350) | 17,706 | |||||||||||||||||||
| Total rental and other property revenues | $ | 360,620 | $ | 368,464 | $ | 1,062,253 | $ | 1,126,363 |
(1) Properties that have comparable stabilized results as of January 1, 2020 and are consolidated by the Company for the three and nine months ended September 30, 2021 and 2020. A community is generally considered to have reached stabilized operations once it achieves an initial occupancy of 90%.
(2) Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2020.
(3) Development includes properties developed which did not have stabilized results as of January 1, 2020.
(4) Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties undergoing significant construction activities that do not meet our redevelopment criteria, and two communities located in the California counties of Santa Barbara and Santa Cruz, which the Company does not consider its core markets.
(5) Same-property revenues reflect concessions on a cash basis. Total rental and other property revenues reflect concessions on a straight-line basis in accordance with U.S. GAAP.
Deferred Revenues and Remaining Performance Obligations
When cash payments are received or due in advance of the Company’s performance of contracts with customers, deferred revenue is recorded. The total deferred revenue balance related to such contracts was $2.6 million and $3.1 million as of September 30, 2021 and December 31, 2020, respectively, and was included in accounts payable and accrued liabilities within the accompanying condensed consolidated balance sheets. The amount of revenue recognized for the nine months ended September 30, 2021 that was included in the December 31, 2020 deferred revenue balance was $0.5 million, which was included in interest and other income within the condensed consolidated statements of income and comprehensive income.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the revenue recognition accounting standard. As of September 30, 2021, the Company had $2.6 million of remaining performance obligations. The Company expects to recognize approximately 7% of these remaining performance obligations in 2021, an additional 55% through 2023, and the remaining balance thereafter.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
(4) Co-investments
The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments, including BEXAEW, LLC ("BEXAEW"), BEX II, LLC ("BEX II"), BEX IV, LLC (""BEX IV"), 500 Folsom, Wesco I, Wesco III, LLC ("Wesco III"), Wesco IV, LLC ("Wesco IV"), Wesco V, LLC ("Wesco V"), and Wesco VI, own, operate, and develop apartment communities. The carrying values of the Company's co-investments as of September 30, 2021 and December 31, 2020 are as follows ($ in thousands, except parenthetical amounts):
| Weighted Average Company Ownership Percentage (1) | September 30, 2021 | December 31, 2020 | |||||||||||||||
| Ownership interest in: | |||||||||||||||||
| Wesco I (2), Wesco III, Wesco IV, Wesco V, and Wesco VI | 52 | % | 138,745 | 178,322 | |||||||||||||
| BEXAEW, BEX II, BEX III (3), BEX IV, and 500 Folsom (4) | 50 | % | 273,557 | 152,309 | |||||||||||||
| Other | 46 | % | 58,504 | 27,635 | |||||||||||||
| Total operating and other co-investments, net | 470,806 | 358,266 | |||||||||||||||
| Total development co-investments | 50 | % | 9,965 | 157,433 | |||||||||||||
| Total preferred interest co-investments (includes related party investments of $87.5 million and $81.4 million as of September 30, 2021 and December 31, 2020, respectively) | 572,053 | 502,311 | |||||||||||||||
| Total co-investments, net | $ | 1,052,824 | $ | 1,018,010 |
(1) Weighted average Company ownership percentages are as of September 30, 2021.
(2) As of September 30, 2021, the Company's investment in Wesco I was classified as a liability of $29.0 million.
(3) In June 2021, the Company purchased the additional 50% interest in BEX III.
(4) 500 Folsom had not stabilized as of December 31, 2020. Its carrying value was included in the development co-investments balance as of December 31, 2020.
The combined summarized financial information of co-investments is as follows ($ in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Combined balance sheets: (1) | |||||||||||
| Rental properties and real estate under development | $ | 4,216,981 | $ | 4,242,611 | |||||||
| Other assets | 228,721 | 200,777 | |||||||||
| Total assets | $ | 4,445,702 | $ | 4,443,388 | |||||||
| Debt | $ | 2,705,882 | $ | 2,611,365 | |||||||
| Other liabilities | 221,022 | 189,515 | |||||||||
| Equity | 1,518,798 | 1,642,508 | |||||||||
| Total liabilities and equity | $ | 4,445,702 | $ | 4,443,388 | |||||||
| Company's share of equity | $ | 1,052,824 | $ | 1,018,010 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Combined statements of income: (1) | |||||||||||||||||||||||
| Property revenues | $ | 71,195 | $ | 76,581 | $ | 211,359 | $ | 226,125 | |||||||||||||||
| Property operating expenses | (27,588) | (28,047) | (81,932) | (79,621) | |||||||||||||||||||
| Net operating income | 43,607 | 48,534 | 129,427 | 146,504 | |||||||||||||||||||
| Interest expense | (15,347) | (19,369) | (48,012) | (59,700) | |||||||||||||||||||
| General and administrative | (3,331) | (5,161) | (11,641) | (12,636) | |||||||||||||||||||
| Depreciation and amortization | (32,290) | (29,732) | (96,812) | (86,947) | |||||||||||||||||||
| Net loss | $ | (7,361) | $ | (5,728) | $ | (27,038) | $ | (12,779) | |||||||||||||||
| Company's share of net income (2) | $ | 25,433 | $ | 14,960 | $ | 60,692 | $ | 53,514 |
(1) Includes preferred equity investments held by the Company.
(2) Includes the Company's share of equity income from joint ventures and preferred equity investments, gain on sales of co-investments, co-investment promote income and income from early redemption of preferred equity investments. Includes related party income of $2.4 million and $2.2 million for the three months ended September 30, 2021 and 2020, respectively, and $7.0 million and $6.4 million for the nine months ended September 30, 2021 and 2020, respectively.
(5) Notes and Other Receivables
Notes and other receivables consist of the following as of September 30, 2021 and December 31, 2020 ($ in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018) | $ | 15,337 | $ | 14,216 | |||||||
| Notes receivable, secured, bearing interest at 10.50%, due February 2023 (Originated March 2020) | 16,591 | 15,299 | |||||||||
| Note receivable, secured, bearing interest at 11.00%, due October 2023 (Originated April 2020) (1) | — | 25,461 | |||||||||
| Notes receivable, secured, bearing interest at 9.00%, due December 2023 (Originated November 2020) | 84,896 | 79,827 | |||||||||
| Notes receivable, secured, bearing interest at 11.50%, due November 2024 (Originated November 2020) | 28,850 | 15,423 | |||||||||
| Related party note receivable, secured, bearing interest at 2.15%, due December 2021 (Originated September 2021) (2) | 29,157 | — | |||||||||
| Notes and other receivables from affiliates (3) | 4,744 | 4,744 | |||||||||
| Straight line rent receivables (4) | 16,464 | 25,214 | |||||||||
| Other receivables | 18,689 | 15,671 | |||||||||
| Allowance for credit losses | (743) | (751) | |||||||||
| Total notes and other receivables | $ | 213,985 | $ | 195,104 |
(1) In June 2021, the Company received cash of $36.5 million, including an early redemption fee of $4.7 million, from the payoff of this note receivable.
(2) See Note 6, Related Party Transactions, for additional details.
(3) These amounts consist of short-term loans outstanding and due from various joint ventures as of September 30, 2021 and
December 31, 2020. See Note 6, Related Party Transactions, for additional details.
(4) These amounts are receivables from lease concessions recorded on a straight-line basis for the Company's operating
properties.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
The following table presents the activity in the allowance for credit losses for notes and other receivables by loan type ($ in thousands):
| Mezzanine Loans | Bridge Loans | Total | |||||||||||||||
| Balance at December 31, 2020 | $ | 751 | $ | — | $ | 751 | |||||||||||
| Provision for credit losses | (23) | 15 | (8) | ||||||||||||||
| Balance at September 30, 2021 | $ | 728 | $ | 15 | $ | 743 |
No loans were placed on nonaccrual status or charged off during the nine months ended September 30, 2021 or 2020.
(6) Related Party Transactions
The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates totaled $2.7 million and $3.0 million during the three months ended September 30, 2021 and 2020, respectively, and $7.5 million and $8.7 million during the nine months ended September 30, 2021 and 2020, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of approximately $0.5 million and $0.6 million against general and administrative expenses for the three months ended September 30, 2021 and 2020, and $0.8 million and $1.4 million for the nine months ended September 30, 2021 and 2020, respectively.
The Company’s Chairman and founder, Mr. George M. Marcus, is the Chairman of the Marcus & Millichap Company ("MMC"), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. ("MMI"), and Mr. Marcus owns a controlling interest in MMI, a national brokerage firm listed on the New York Stock Exchange. For the three and nine months ended September 30, 2021, the Company did not pay any brokerage commissions related to real estate transactions to MMC and its affiliates. For the three and nine months ended September 30, 2020, the Company paid brokerage commissions totaling zero and $0.2 million, respectively, to MMC and its affiliates related to real estate transactions.
In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco VI in connection with the acquisition of Martha Lake Apartments. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets and had an outstanding balance of $29.2 million as of September 30, 2021.
In March 2021, the Company provided a $52.5 million related party bridge loan to Wesco I in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 2.55% and was paid off in July 2021.
In November 2019, the Company provided an $85.5 million related party bridge loan to Wesco V in connection with the acquisition of Velo and Ray, a 308 unit apartment home community located in Seattle, WA. The note receivable accrued interest at LIBOR plus 1.30% and was scheduled to mature in February 2020, but was paid off in January 2020. The bridge loan was classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
In June 2019, the Company acquired Brio, a 300 unit apartment home community located in Walnut Creek, CA. The Company issued DownREIT units to an affiliate of MMC, based on a contract price of $164.9 million. The property was encumbered by $98.7 million of mortgage debt which was assumed by the Company at the time of acquisition. As a result of this transaction, the Company consolidated the property, based on a VIE analysis performed by the Company.
In February 2019, the Company funded a $24.5 million preferred equity investment in an entity whose sponsor is an affiliate of MMC, which owns a multifamily development community located in Mountain View, CA. The investment has an initial preferred return of 11.0% and is scheduled to mature in February 2024.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
In October 2018, the Company funded a $18.6 million preferred equity investment in an entity whose sponsor is an affiliate of MMC. The entity wholly owns a 268 apartment home community development located in Burlingame, CA. This investment accrues interest based on an initial 12.0% preferred return. The investment is scheduled to mature in April 2024.
In May 2018, the Company made a commitment to fund a $26.5 million preferred equity investment in an entity whose sponsors include an affiliate of MMC. The entity wholly owns a 400 apartment home community located in Ventura, CA. This investment accrues interest based on a 10.25% preferred return. The investment is scheduled to mature in May 2023. As of September 30, 2021, the Company had funded $23.4 million of the commitment. The remaining committed amount will be funded if and when requested by the sponsors.
In March 2017, the Company converted its existing $15.3 million preferred equity investment in Sage at Cupertino, a 230 apartment home community located in San Jose, CA, into a 40.5% common equity ownership interest in the property. The Company issued DownREIT units to the other members, including an MMC affiliate, based on an estimated property valuation of $90.0 million. At the time of the conversion, the property was encumbered by $52.0 million of mortgage debt. As a result of this transaction, the Company consolidates the property, based on a consolidation analysis performed by the Company.
As described in Note 5, Notes and Other Receivables, the Company has provided short-term loans to affiliates. As of September 30, 2021 and December 31, 2020, $33.9 million and $4.7 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
(7) Debt
Essex does not have indebtedness as debt is incurred by the Operating Partnership. Essex guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of the facilities.
Debt consists of the following ($ in thousands):
| September 30, 2021 | December 31, 2020 | Weighted Average Maturity In Years as of September 30, 2021 | |||||||||||||||
| Unsecured bonds private placement - fixed rate | $ | — | $ | 199,950 | 0.0 | ||||||||||||
| Term loan - variable rate | 99,969 | 549,380 | 0.4 | ||||||||||||||
| Bonds public offering - fixed rate | 5,305,551 | 4,858,655 | 8.9 | ||||||||||||||
| Unsecured debt, net (1) | 5,405,520 | 5,607,985 | |||||||||||||||
| Lines of credit (2) | 42,662 | — | |||||||||||||||
| Mortgage notes payable, net (3) | 640,118 | 643,550 | 8.7 | ||||||||||||||
| Total debt, net | $ | 6,088,300 | $ | 6,251,535 | |||||||||||||
| Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering | 3.3 | % | 3.4 | % | |||||||||||||
| Weighted average interest rate on variable rate term loan | 1.1 | % | 1.7 | % | |||||||||||||
| Weighted average interest rate on lines of credit | 1.0 | % | 1.0 | % | |||||||||||||
| Weighted average interest rate on mortgage notes payable | 2.6 | % | 2.7 | % |
(1) Includes unamortized discount of $10.4 million and $10.1 million and unamortized debt issuance costs of $34.1 million and $31.9 million, as of September 30, 2021 and December 31, 2020, respectively.
(2) Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.24 billion as of September 30, 2021, excludes unamortized debt issuance costs of $4.6 million and $3.7 million as of September 30, 2021 and December 31, 2020, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of September 30, 2021, the Company’s $1.2 billion credit facility had an interest rate of LIBOR plus 0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of September 2025 with
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
three six-month extensions, exercisable at the Company’s option. As of September 30, 2021, the Company’s $35.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings, and a scheduled maturity date of February 2023.
(3) Includes total unamortized premium of $2.8 million and $3.9 million, reduced by unamortized debt issuance costs of $1.5 million and $1.8 million, as of September 30, 2021 and December 31, 2020, respectively.
The aggregate scheduled principal payments of the Company’s outstanding debt, excluding lines of credit, as of September 30, 2021 are as follows ($ in thousands):
| Remaining in 2021 | $ | 893 | |||
| 2022 | 143,188 | ||||
| 2023 | 302,945 | ||||
| 2024 | 403,109 | ||||
| 2025 | 633,054 | ||||
| Thereafter | 4,605,629 | ||||
| Total | $ | 6,088,818 |
(8) Segment Information
The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. The Company's chief operating decision makers are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenues less direct property operating expenses.
The executive management team generally evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the three geographical regions in which its communities are located: Southern California, Northern California, and Seattle Metro.
Excluded from segment revenues and NOI are management and other fees from affiliates and interest and other income. Non-segment revenues and NOI included in the following schedule also consist of revenues generated from commercial properties and properties that have been sold. Other non-segment assets include items such as real estate under development, co-investments, real estate held for sale, cash and cash equivalents, marketable securities, notes and other receivables, and prepaid expenses and other assets.
The revenues and NOI for each of the reportable operating segments are summarized as follows for the three and nine months ended September 30, 2021 and 2020 ($ in thousands):
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Southern California | $ | 150,807 | $ | 136,651 | $ | 434,926 | $ | 426,987 | |||||||||||||||
| Northern California | 145,807 | 147,081 | 435,883 | 457,655 | |||||||||||||||||||
| Seattle Metro | 60,280 | 60,617 | 178,180 | 184,310 | |||||||||||||||||||
| Other real estate assets | 3,726 | 24,115 | 13,264 | 57,411 | |||||||||||||||||||
| Total property revenues | $ | 360,620 | $ | 368,464 | $ | 1,062,253 | $ | 1,126,363 | |||||||||||||||
| Net operating income: | |||||||||||||||||||||||
| Southern California | $ | 103,660 | $ | 91,639 | $ | 300,761 | $ | 295,402 | |||||||||||||||
| Northern California | 98,948 | 102,559 | 299,489 | 329,338 | |||||||||||||||||||
| Seattle Metro | 39,876 | 41,216 | 119,041 | 126,422 | |||||||||||||||||||
| Other real estate assets | 2,805 | 20,655 | 9,659 | 45,527 | |||||||||||||||||||
| Total net operating income | 245,289 | 256,069 | 728,950 | 796,689 | |||||||||||||||||||
| Management and other fees from affiliates | 2,237 | 2,347 | 6,707 | 7,312 | |||||||||||||||||||
| 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) | |||||||||||||||||||
| Gain on sale of real estate and land | 42,897 | 22,654 | 142,993 | 39,251 | |||||||||||||||||||
| 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 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
Total assets for each of the reportable operating segments are summarized as follows as of September 30, 2021 and December 31, 2020 ($ in thousands):
| September 30, 2021 | December 31, 2020 | ||||||||||
| Assets: | |||||||||||
| Southern California | $ | 3,949,224 | $ | 3,981,650 | |||||||
| Northern California | 5,489,918 | 5,408,019 | |||||||||
| Seattle Metro | 1,369,129 | 1,403,678 | |||||||||
| Other real estate assets | 95,160 | 134,439 | |||||||||
| Net reportable operating segment - real estate assets | 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 | |||||||||
| Cash and cash equivalents, including restricted cash | 60,952 | 84,041 | |||||||||
| Marketable securities | 183,140 | 147,768 | |||||||||
| Notes and other receivables | 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 |
(9) Net Income Per Common Share and Net Income Per Common Unit
($ in thousands, except share and unit data):
Essex Property Trust, Inc.
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Income | Weighted- average Common Shares | Per Common Share Amount | Income | Weighted- average Common Shares | Per Common Share Amount | ||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 118,390 | 65,048,486 | $ | 1.82 | $ | 73,661 | 65,232,837 | $ | 1.13 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 99,295 | — | 8,591 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 118,390 | 65,147,781 | $ | 1.82 | $ | 73,661 | 65,241,428 | $ | 1.13 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Income | Weighted- average Common Shares | Per Common Share Amount | Income | Weighted- average Common Shares | Per Common Share Amount | ||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 351,680 | 65,013,477 | $ | 5.41 | $ | 473,125 | 65,561,820 | $ | 7.22 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 61,697 | — | 20,026 | |||||||||||||||||||||||||||||||
| DownREIT units | — | — | 587 | 94,247 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 351,680 | 65,075,174 | $ | 5.40 | $ | 473,712 | 65,676,093 | $ | 7.21 |
The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of 2,287,678 and 2,295,510, which include vested 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units for the three months ended September 30, 2021 and 2020, respectively, and 2,291,725 and 2,297,141 for the nine months ended September 30, 2021 and 2020, respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated $4.2 million and $2.6 million for the three months ended September 30, 2021 and 2020, respectively, and $12.4 million and $16.5 million for the nine months ended September 30, 2021 and 2020, respectively. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
Stock options of zero and 493,567 for the three months ended September 30, 2021 and 2020, respectively, and 116,380 and 299,046 for the nine months ended September 30, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share of such options plus the average unearned compensation were greater than the average market price of the common stock for the periods ended and, therefore, were anti-dilutive.
Essex Portfolio, L.P.
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Income | Weighted- average Common Units | Per Common Unit Amount | Income | Weighted- average Common Units | Per Common Unit Amount | ||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 122,558 | 67,336,164 | $ | 1.82 | $ | 76,254 | 67,528,346 | $ | 1.13 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 99,295 | — | 8,591 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 122,558 | 67,435,459 | $ | 1.82 | $ | 76,254 | 67,536,937 | $ | 1.13 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Income | Weighted- average Common Units | Per Common Unit Amount | Income | Weighted- average Common Units | Per Common Unit Amount | ||||||||||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 364,083 | 67,307,259 | $ | 5.41 | $ | 489,668 | 67,858,961 | $ | 7.22 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 61,697 | — | 20,026 | |||||||||||||||||||||||||||||||
| DownREIT units | — | — | 587 | 94,247 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 364,083 | 67,368,956 | $ | 5.40 | $ | 490,255 | 67,973,234 | $ | 7.21 |
Stock options of 0 and 493,567 for the three months ended September 30, 2021 and 2020, respectively, 116,380 and 299,046 for the nine months ended September 30, 2021 and 2020, respectively, were excluded from the calculation of diluted earnings per unit because the assumed proceeds per unit of these options plus the average unearned compensation were greater than the average market price of the common unit for the periods ended and, therefore, were anti-dilutive. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.
(10) Derivative Instruments and Hedging Activities
As of September 30, 2021 and December 31, 2020, the aggregate carrying value of the interest rate swap contracts were a liability of zero and $2.4 million, respectively. As of September 30, 2021 and December 31, 2020, the swap contracts were presented in the condensed consolidated balance sheets as an asset of zero for both periods and a liability of zero and $2.4 million, respectively, and were included in other liabilities on the condensed consolidated balance sheets.
The Company has four total return swap contracts, with an aggregate notional amount of $224.5 million, that effectively convert $224.5 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to the counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call all of its total return swaps, with $224.5 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero at both September 30, 2021 and December 31, 2020. These total return swaps are scheduled to mature between November 2022 and December 2024. The realized gains of $2.7 million and $3.0 million for the three months ended September 30, 2021 and 2020, respectively, and $8.1 million and $7.7 million for the nine months ended September 30, 2021 and 2020, respectively, were reported in the condensed consolidated statements of income and comprehensive income as total return swap income.
(11) Commitments and Contingencies
The Company is subject to various lawsuits in the normal course of its business operations. Such lawsuits have not had a material adverse effect on the Company's financial condition, results of operations or cash flows. While no assurances can be given, the Company does not believe there is any pending or threatened litigation against the Company that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company.
The Company is subject to various federal, state, and local environmental and other laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new, changed or expired laws or regulations on its current portfolio or on other assets that the Company may acquire in the future,
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2021 and 2020
(Unaudited)
including, without limitation, certain eviction moratoriums and other mandates that have been, or may be, enacted or extended in connection with the COVID-19 pandemic. To the extent that an environmental or other matter arises or is identified in the future that has other than a remote risk of having a material impact on the condensed consolidated financial statements, the Company will disclose the estimated range of possible outcomes associated with it, and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, impairment will be recognized.
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