filings.toolsItem 1. Condensed Consolidated Financial Statements
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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 | June 30, 2022 | December 31, 2021 | |||||||||
| Real estate: | |||||||||||
| Rental properties: | |||||||||||
| Land and land improvements | $ | 3,045,100 | $ | 3,032,678 | |||||||
| Buildings and improvements | 12,797,454 | 12,597,249 | |||||||||
| 15,842,554 | 15,629,927 | ||||||||||
| Less: accumulated depreciation | (4,913,145) | (4,646,854) | |||||||||
| 10,929,409 | 10,983,073 | ||||||||||
| Real estate under development | 21,950 | 111,562 | |||||||||
| Co-investments | 1,093,235 | 1,177,802 | |||||||||
| 12,044,594 | 12,272,437 | ||||||||||
| Cash and cash equivalents-unrestricted | 37,756 | 48,420 | |||||||||
| Cash and cash equivalents-restricted | 10,707 | 10,218 | |||||||||
| Marketable securities, net of allowance for credit losses of zero as of both June 30, 2022 and December 31, 2021 | 154,513 | 191,829 | |||||||||
| Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of June 30, 2022 and December 31, 2021, respectively (includes related party receivables of $6.9 million and $176.9 million as of June 30, 2022 and December 31, 2021, respectively) | 175,345 | 341,033 | |||||||||
| Operating lease right-of-use assets | 67,345 | 68,972 | |||||||||
| Prepaid expenses and other assets | 67,751 | 64,964 | |||||||||
| Total assets | $ | 12,558,011 | $ | 12,997,873 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Unsecured debt, net | $ | 5,310,486 | $ | 5,307,196 | |||||||
| Mortgage notes payable, net | 636,589 | 638,957 | |||||||||
| Lines of credit | 63,175 | 341,257 | |||||||||
| Accounts payable and accrued liabilities | 171,616 | 180,751 | |||||||||
| Construction payable | 30,912 | 29,136 | |||||||||
| Dividends payable | 150,501 | 143,213 | |||||||||
| Distributions in excess of investments in co-investments | 43,983 | 35,545 | |||||||||
| Operating lease liabilities | 68,924 | 70,675 | |||||||||
| Other liabilities | 42,027 | 39,969 | |||||||||
| Total liabilities | 6,518,213 | 6,786,699 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable noncontrolling interest | 33,213 | 34,666 | |||||||||
| Equity: | |||||||||||
| Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,124,355 and 65,248,393 shares issued and outstanding, respectively | 7 | 7 | |||||||||
| Additional paid-in capital | 6,875,863 | 6,915,981 | |||||||||
| Distributions in excess of accumulated earnings | (1,073,577) | (916,833) | |||||||||
| Accumulated other comprehensive income (loss), net | 25,554 | (5,552) | |||||||||
| Total stockholders' equity | 5,827,847 | 5,993,603 | |||||||||
| Noncontrolling interest | 178,738 | 182,905 | |||||||||
| Total equity | 6,006,585 | 6,176,508 | |||||||||
| Total liabilities and equity | $ | 12,558,011 | $ | 12,997,873 | |||||||
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental and other property | $ | 397,240 | $ | 348,757 | $ | 776,456 | $ | 701,633 | |||||||||||||||
| Management and other fees from affiliates | 2,738 | 2,221 | 5,427 | 4,470 | |||||||||||||||||||
| 399,978 | 350,978 | 781,883 | 706,103 | ||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Property operating, excluding real estate taxes | 69,761 | 63,258 | 138,619 | 128,343 | |||||||||||||||||||
| Real estate taxes | 43,759 | 44,278 | 91,001 | 89,606 | |||||||||||||||||||
| Corporate-level property management expenses | 10,176 | 9,062 | 20,348 | 18,075 | |||||||||||||||||||
| Depreciation and amortization | 134,517 | 128,736 | 268,050 | 257,323 | |||||||||||||||||||
| General and administrative | 13,127 | 12,222 | 25,369 | 22,034 | |||||||||||||||||||
| Expensed acquisition and investment related costs | 10 | 41 | 18 | 56 | |||||||||||||||||||
| 271,350 | 257,597 | 543,405 | 515,437 | ||||||||||||||||||||
| Gain on sale of real estate and land | — | — | — | 100,096 | |||||||||||||||||||
| Earnings from operations | 128,628 | 93,381 | 238,478 | 290,762 | |||||||||||||||||||
| Interest expense | (50,477) | (50,971) | (100,854) | (102,620) | |||||||||||||||||||
| Total return swap income | 2,283 | 2,633 | 4,827 | 5,477 | |||||||||||||||||||
| Interest and other (loss) income | (17,208) | 22,371 | (24,775) | 36,758 | |||||||||||||||||||
| Equity (loss) income from co-investments | (8,400) | 18,248 | 12,771 | 35,259 | |||||||||||||||||||
| Deferred tax benefit (expense) on unconsolidated co-investments | 6,864 | (1,842) | 9,618 | (2,350) | |||||||||||||||||||
| Loss on early retirement of debt, net | — | (16,465) | — | (18,982) | |||||||||||||||||||
| Gain on remeasurement of co-investment | — | 2,260 | — | 2,260 | |||||||||||||||||||
| Net income | 61,690 | 69,615 | 140,065 | 246,564 | |||||||||||||||||||
| Net income attributable to noncontrolling interest | (4,636) | (4,769) | (9,757) | (13,274) | |||||||||||||||||||
| Net income available to common stockholders | $ | 57,054 | $ | 64,846 | $ | 130,308 | $ | 233,290 | |||||||||||||||
| Comprehensive income | $ | 73,400 | $ | 70,259 | $ | 172,256 | $ | 251,700 | |||||||||||||||
| Comprehensive income attributable to noncontrolling interest | (5,029) | (4,791) | (10,842) | (13,449) | |||||||||||||||||||
| Comprehensive income attributable to controlling interest | $ | 68,371 | $ | 65,468 | $ | 161,414 | $ | 238,251 | |||||||||||||||
| Per share data: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | 0.87 | $ | 1.00 | $ | 2.00 | $ | 3.59 | |||||||||||||||
| Weighted average number of shares outstanding during the period | 65,262,517 | 65,001,677 | 65,269,109 | 64,995,682 | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | 0.87 | $ | 1.00 | $ | 2.00 | $ | 3.59 | |||||||||||||||
| Weighted average number of shares outstanding during the period | 65,289,603 | 65,080,746 | 65,307,572 | 65,048,016 |
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 six months ended June 30, 2022 and 2021
(Unaudited)
(In thousands)
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive income, net | Noncontrolling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | 65,332 | $ | 7 | $ | 6,930,072 | $ | (987,333) | $ | 14,237 | $ | 181,224 | $ | 6,138,207 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 57,054 | — | 4,636 | 61,690 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 11,416 | 396 | 11,812 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | (99) | (3) | (102) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 3 | — | 172 | — | — | — | 172 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (66) | — | — | — | (66) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 2,572 | — | — | 90 | 2,662 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (219) | — | (60,830) | — | — | — | (60,830) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | 6,065 | — | — | 230 | 6,295 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (7,622) | (7,622) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 8 | — | (2,122) | — | — | (213) | (2,335) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($2.20 per share) | — | — | — | (143,298) | — | — | (143,298) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | 65,124 | $ | 7 | $ | 6,875,863 | $ | (1,073,577) | $ | 25,554 | $ | 178,738 | $ | 6,006,585 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive income (loss), net | Noncontrolling interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 65,248 | $ | 7 | $ | 6,915,981 | $ | (916,833) | $ | (5,552) | $ | 182,905 | $ | 6,176,508 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 130,308 | — | 9,757 | 140,065 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 30,820 | 1,075 | 31,895 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 286 | 10 | 296 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 87 | — | 17,039 | — | — | — | 17,039 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (207) | — | — | — | (207) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 4,952 | — | — | 173 | 5,125 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (219) | — | (60,830) | — | — | — | (60,830) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | 1,051 | — | — | 172 | 1,223 | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 125 | 125 | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (15,241) | (15,241) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 8 | — | (2,123) | — | — | (238) | (2,361) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($4.40 per share) | — | — | — | (287,052) | — | — | (287,052) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | 65,124 | $ | 7 | $ | 6,875,863 | $ | (1,073,577) | $ | 25,554 | $ | 178,738 | $ | 6,006,585 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | 64,999 | $ | 6 | $ | 6,864,185 | $ | (828,625) | $ | (10,390) | $ | 185,755 | $ | 6,210,931 | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 64,846 | — | 4,769 | 69,615 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 456 | 16 | 472 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 166 | 6 | 172 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 5 | 1 | 573 | — | — | — | 574 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (84) | — | — | — | (84) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 2,571 | — | — | 214 | 2,785 | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | (2,574) | — | — | 62 | (2,512) | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (7,303) | (7,303) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | — | — | (1,792) | — | — | (271) | (2,063) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($2.09 per share) | — | — | — | (135,884) | — | — | (135,884) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 7 | $ | 6,862,879 | $ | (899,663) | $ | (9,768) | $ | 183,248 | $ | 6,136,703 |
| Common stock | Additional paid-in capital | Distributions in excess of accumulated earnings | Accumulated other comprehensive loss, net | Noncontrolling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 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 | — | — | — | 233,290 | — | 13,274 | 246,564 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 4,713 | 166 | 4,879 | ||||||||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 248 | 9 | 257 | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock under: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option and restricted stock plans, net | 44 | 1 | (3,171) | — | — | — | (3,170) | ||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net | — | — | (84) | — | — | — | (84) | ||||||||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | — | 7,599 | — | — | 268 | 7,867 | ||||||||||||||||||||||||||||||||||||||||||||||
| Retirement of common stock, net | (40) | — | (9,172) | — | — | — | (9,172) | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | — | (6,752) | — | — | 157 | (6,595) | ||||||||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | 1,900 | 1,900 | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (14,857) | (14,857) | ||||||||||||||||||||||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | 1 | — | (1,867) | — | — | (451) | (2,318) | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock dividends ($4.18 per share) | — | — | — | (271,760) | — | — | (271,760) | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 7 | $ | 6,862,879 | $ | (899,663) | $ | (9,768) | $ | 183,248 | $ | 6,136,703 |
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)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 140,065 | $ | 246,564 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Straight-lined rents | 4,570 | 5,825 | |||||||||
| Depreciation and amortization | 268,050 | 257,323 | |||||||||
| Amortization of discount and debt financing costs, net | 3,332 | 6,311 | |||||||||
| Loss on sale of marketable securities | (12,430) | (2,499) | |||||||||
| Income from early redemption of notes receivable | — | (4,747) | |||||||||
| Provision for credit losses | 63 | (107) | |||||||||
| Unrealized losses (gains) on equity securities recognized through income | 46,441 | (16,681) | |||||||||
| Earnings from co-investments | (12,771) | (35,259) | |||||||||
| Operating distributions from co-investments | 67,834 | 57,364 | |||||||||
| Accrued interest from notes and other receivables | (6,974) | (8,530) | |||||||||
| Gain on the sale of real estate and land | — | (100,096) | |||||||||
| Equity-based compensation | 4,788 | 3,776 | |||||||||
| Loss on early retirement of debt, net | — | 18,982 | |||||||||
| Gain on remeasurement of co-investment | — | (2,260) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 15,406 | (5,348) | |||||||||
| Accounts payable, accrued liabilities, and operating lease liabilities | (10,887) | 3,209 | |||||||||
| Other liabilities | 2,058 | 4,244 | |||||||||
| Net cash provided by operating activities | 509,545 | 428,071 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to real estate: | |||||||||||
| Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (223) | (18,418) | |||||||||
| Redevelopment | (47,674) | (19,981) | |||||||||
| Development acquisitions of and additions to real estate under development | (12,862) | (34,640) | |||||||||
| Capital expenditures on rental properties | (62,576) | (49,044) | |||||||||
| Investments in notes receivable | (136,513) | (71,613) | |||||||||
| Collections of notes and other receivables | 303,088 | 36,244 | |||||||||
| Proceeds from insurance for property losses | 135 | 117 | |||||||||
| Proceeds from dispositions of real estate | — | 243,365 | |||||||||
| Contributions to co-investments | (96,187) | (160,719) | |||||||||
| Changes in refundable deposits | (16,318) | (968) | |||||||||
| Purchases of marketable securities | (12,168) | (23,509) | |||||||||
| Sales and maturities of marketable securities | 30,025 | 14,931 | |||||||||
| Non-operating distributions from co-investments | 152,924 | 78,600 | |||||||||
| Net cash provided by (used in) investing activities | 101,651 | (5,635) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from unsecured debt and mortgage notes | — | 745,505 | |||||||||
| Payments on unsecured debt and mortgage notes | (1,820) | (951,727) | |||||||||
| Proceeds from lines of credit | 670,758 | 453,359 | |||||||||
| Repayments of lines of credit | (948,840) | (368,359) | |||||||||
| Retirement of common stock | (60,830) | (9,172) |
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Additions to deferred charges | — | (6,361) | |||||||||
| Payments related to debt prepayment penalties | — | (18,342) | |||||||||
| Net proceeds from issuance of common stock | (207) | (84) | |||||||||
| Net proceeds from stock options exercised | 19,255 | 2,275 | |||||||||
| Payments related to tax withholding for share-based compensation | (2,216) | (5,445) | |||||||||
| Contributions from noncontrolling interest | 125 | 1,900 | |||||||||
| Distributions to noncontrolling interest | (14,858) | (14,787) | |||||||||
| Redemption of noncontrolling interest | (2,361) | (2,318) | |||||||||
| Redemption of redeemable noncontrolling interest | (230) | (3,808) | |||||||||
| Common stock dividends paid | (280,147) | (270,937) | |||||||||
| Net cash used in financing activities | (621,371) | (448,301) | |||||||||
| Net decrease in unrestricted and restricted cash and cash equivalents | (10,175) | (25,865) | |||||||||
| Unrestricted and restricted cash and cash equivalents at beginning of period | 58,638 | 84,041 | |||||||||
| Unrestricted and restricted cash and cash equivalents at end of period | $ | 48,463 | $ | 58,176 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest (net of $1.5 million and $3.8 million capitalized in 2022 and 2021, respectively) | $ | 97,688 | $ | 96,541 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 3,480 | $ | 5,316 | |||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Transfers between real estate under development and rental properties, net | $ | 96,887 | $ | 218,835 | |||||||
| Transfer from real estate under development to co-investments | $ | 1,827 | $ | 1,337 | |||||||
| Reclassifications (from) to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest | $ | (1,223) | $ | 6,593 | |||||||
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 | June 30, 2022 | December 31, 2021 | |||||||||
| Real estate: | |||||||||||
| Rental properties: | |||||||||||
| Land and land improvements | $ | 3,045,100 | $ | 3,032,678 | |||||||
| Buildings and improvements | 12,797,454 | 12,597,249 | |||||||||
| 15,842,554 | 15,629,927 | ||||||||||
| Less: accumulated depreciation | (4,913,145) | (4,646,854) | |||||||||
| 10,929,409 | 10,983,073 | ||||||||||
| Real estate under development | 21,950 | 111,562 | |||||||||
| Co-investments | 1,093,235 | 1,177,802 | |||||||||
| Real estate held for sale, net | — | — | |||||||||
| 12,044,594 | 12,272,437 | ||||||||||
| Cash and cash equivalents-unrestricted | 37,756 | 48,420 | |||||||||
| Cash and cash equivalents-restricted | 10,707 | 10,218 | |||||||||
| Marketable securities, net of allowance for credit losses of zero as of both June 30, 2022 and December 31, 2021 | 154,513 | 191,829 | |||||||||
| Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of June 30, 2022 and December 31, 2021, respectively (includes related party receivables of $6.9 million and $176.9 million as of June 30, 2022 and December 31, 2021, respectively) | 175,345 | 341,033 | |||||||||
| Operating lease right-of-use assets | 67,345 | 68,972 | |||||||||
| Prepaid expenses and other assets | 67,751 | 64,964 | |||||||||
| Total assets | $ | 12,558,011 | $ | 12,997,873 | |||||||
| LIABILITIES AND CAPITAL | |||||||||||
| Unsecured debt, net | $ | 5,310,486 | $ | 5,307,196 | |||||||
| Mortgage notes payable, net | 636,589 | 638,957 | |||||||||
| Lines of credit | 63,175 | 341,257 | |||||||||
| Accounts payable and accrued liabilities | 171,616 | 180,751 | |||||||||
| Construction payable | 30,912 | 29,136 | |||||||||
| Distributions payable | 150,501 | 143,213 | |||||||||
| Operating lease liabilities | 68,924 | 70,675 | |||||||||
| Distributions in excess of investments in co-investments | 43,983 | 35,545 | |||||||||
| Other liabilities | 42,027 | 39,969 | |||||||||
| Total liabilities | 6,518,213 | 6,786,699 | |||||||||
| Commitments and contingencies | |||||||||||
| Redeemable noncontrolling interest | 33,213 | 34,666 | |||||||||
| Capital: | |||||||||||
| General Partner: | |||||||||||
| Common equity (65,124,355 and 65,248,393 units issued and outstanding, respectively) | 5,802,293 | 5,999,155 | |||||||||
| 5,802,293 | 5,999,155 | ||||||||||
| Limited Partners: | |||||||||||
| Common equity (2,273,496 and 2,282,464 units issued and outstanding, respectively) | 51,233 | 56,502 | |||||||||
| Accumulated other comprehensive loss | 30,387 | (1,804) | |||||||||
| Total partners' capital | 5,883,913 | 6,053,853 | |||||||||
| Noncontrolling interest | 122,672 | 122,655 | |||||||||
| Total capital | 6,006,585 | 6,176,508 | |||||||||
| Total liabilities and capital | $ | 12,558,011 | $ | 12,997,873 |
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Rental and other property | $ | 397,240 | $ | 348,757 | $ | 776,456 | $ | 701,633 | |||||||||||||||
| Management and other fees from affiliates | 2,738 | 2,221 | 5,427 | 4,470 | |||||||||||||||||||
| 399,978 | 350,978 | 781,883 | 706,103 | ||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Property operating, excluding real estate taxes | 69,761 | 63,258 | 138,619 | 128,343 | |||||||||||||||||||
| Real estate taxes | 43,759 | 44,278 | 91,001 | 89,606 | |||||||||||||||||||
| Corporate-level property management expenses | 10,176 | 9,062 | 20,348 | 18,075 | |||||||||||||||||||
| Depreciation and amortization | 134,517 | 128,736 | 268,050 | 257,323 | |||||||||||||||||||
| General and administrative | 13,127 | 12,222 | 25,369 | 22,034 | |||||||||||||||||||
| Expensed acquisition and investment related costs | 10 | 41 | 18 | 56 | |||||||||||||||||||
| 271,350 | 257,597 | 543,405 | 515,437 | ||||||||||||||||||||
| Gain on sale of real estate and land | — | — | — | 100,096 | |||||||||||||||||||
| Earnings from operations | 128,628 | 93,381 | 238,478 | 290,762 | |||||||||||||||||||
| Interest expense | (50,477) | (50,971) | (100,854) | (102,620) | |||||||||||||||||||
| Total return swap income | 2,283 | 2,633 | 4,827 | 5,477 | |||||||||||||||||||
| Interest and other (loss) income | (17,208) | 22,371 | (24,775) | 36,758 | |||||||||||||||||||
| Equity income from co-investments | (8,400) | 18,248 | 12,771 | 35,259 | |||||||||||||||||||
| Deferred benefit (tax) expense on unconsolidated co-investments | 6,864 | (1,842) | 9,618 | (2,350) | |||||||||||||||||||
| Loss on early retirement of debt, net | — | (16,465) | — | (18,982) | |||||||||||||||||||
| Gain on remeasurement of co-investment | — | 2,260 | — | 2,260 | |||||||||||||||||||
| Net income | 61,690 | 69,615 | 140,065 | 246,564 | |||||||||||||||||||
| Net income attributable to noncontrolling interest | (2,646) | (2,481) | (5,204) | (5,039) | |||||||||||||||||||
| Net income available to common unitholders | $ | 59,044 | $ | 67,134 | $ | 134,861 | $ | 241,525 | |||||||||||||||
| Comprehensive income | $ | 73,400 | $ | 70,259 | $ | 172,256 | $ | 251,700 | |||||||||||||||
| Comprehensive income attributable to noncontrolling interest | (2,646) | (2,481) | (5,204) | (5,039) | |||||||||||||||||||
| Comprehensive income attributable to controlling interest | $ | 70,754 | $ | 67,778 | $ | 167,052 | $ | 246,661 | |||||||||||||||
| Per unit data: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Net income available to common unitholders | $ | 0.87 | $ | 1.00 | $ | 2.00 | $ | 3.59 | |||||||||||||||
| Weighted average number of common units outstanding during the period | 67,539,662 | 67,295,437 | 67,548,899 | 67,289,464 | |||||||||||||||||||
| Diluted: | |||||||||||||||||||||||
| Net income available to common unitholders | $ | 0.87 | $ | 1.00 | $ | 2.00 | $ | 3.59 | |||||||||||||||
| Weighted average number of common units outstanding during the period | 67,566,748 | 67,374,506 | 67,587,362 | 67,341,798 |
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 six months ended June 30, 2022 and 2021
(Unaudited)
(In thousands)
| General Partner | Limited Partners | Accumulated other comprehensive income (loss), net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | 65,332 | $ | 5,942,746 | 2,282 | $ | 54,112 | $ | 18,677 | $ | 122,672 | $ | 6,138,207 | |||||||||||||||||||||||||||||||||||
| Net income | — | 57,054 | — | 1,990 | — | 2,646 | 61,690 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 11,812 | — | 11,812 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | (102) | — | (102) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 3 | 172 | — | — | — | — | 172 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (66) | — | — | — | — | (66) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 2,572 | — | 90 | — | — | 2,662 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (219) | (60,830) | — | — | — | — | (60,830) | ||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | 6,065 | — | 136 | — | 94 | 6,295 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (2,621) | (2,621) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 8 | (2,122) | (9) | (94) | — | (119) | (2,335) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($2.20 per unit) | — | (143,298) | — | (5,001) | — | — | (148,299) | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | 65,124 | $ | 5,802,293 | 2,273 | $ | 51,233 | $ | 30,387 | $ | 122,672 | $ | 6,006,585 |
| General Partner | Limited Partners | Accumulated other comprehensive income (loss), net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | 65,248 | $ | 5,999,155 | 2,282 | $ | 56,502 | $ | (1,804) | $ | 122,655 | $ | 6,176,508 | |||||||||||||||||||||||||||||||||||
| Net income | — | 130,308 | — | 4,553 | — | 5,204 | 140,065 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 31,895 | — | 31,895 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 296 | — | 296 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 87 | 17,039 | — | — | — | — | 17,039 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (207) | — | — | — | — | (207) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 4,952 | — | 173 | — | — | 5,125 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (219) | (60,830) | — | — | — | — | (60,830) | ||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | 1,051 | — | 122 | — | 50 | 1,223 | ||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 125 | 125 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (5,218) | (5,218) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 8 | (2,123) | (9) | (94) | — | (144) | (2,361) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($4.40 per unit) | — | (287,052) | — | (10,023) | — | — | (297,075) | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2022 | 65,124 | $ | 5,802,293 | 2,273 | $ | 51,233 | $ | 30,387 | $ | 122,672 | $ | 6,006,585 |
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | Units | Amount | Units | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | 64,999 | $ | 6,035,566 | 2,294 | $ | 59,328 | $ | (6,811) | $ | 122,848 | $ | 6,210,931 | |||||||||||||||||||||||||||||||||||
| Net income | — | 64,846 | — | 2,288 | — | 2,481 | 69,615 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 472 | — | 472 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 172 | — | 172 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 5 | 574 | — | — | — | — | 574 | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (84) | — | — | — | — | (84) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 2,571 | — | 214 | — | — | 2,785 | ||||||||||||||||||||||||||||||||||||||||
| Changes in redemption value of redeemable noncontrolling interest | — | (2,574) | — | (85) | — | 147 | (2,512) | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (2,508) | (2,508) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | — | (1,792) | — | — | — | (271) | (2,063) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($2.09 per unit) | — | (135,884) | — | (4,795) | — | — | (140,679) | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 5,963,223 | 2,294 | $ | 56,950 | $ | (6,167) | $ | 122,697 | $ | 6,136,703 |
| General Partner | Limited Partners | Accumulated other comprehensive loss, net | Noncontrolling interest | Total | |||||||||||||||||||||||||||||||||||||||||||
| Common Equity | Common Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 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 | — | 233,290 | — | 8,235 | — | 5,039 | 246,564 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of derivatives and amortization of swap settlements | — | — | — | — | 4,879 | — | 4,879 | ||||||||||||||||||||||||||||||||||||||||
| Change in fair value of marketable debt securities, net | — | — | — | — | 257 | — | 257 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common units under: | |||||||||||||||||||||||||||||||||||||||||||||||
| General partner's stock based compensation, net | 44 | (3,170) | — | — | — | — | (3,170) | ||||||||||||||||||||||||||||||||||||||||
| Sale of common stock by general partner, net | — | (84) | — | — | — | — | (84) | ||||||||||||||||||||||||||||||||||||||||
| Equity based compensation costs | — | 7,599 | — | 268 | — | — | 7,867 | ||||||||||||||||||||||||||||||||||||||||
| Retirement of common units, net | (40) | (9,172) | — | — | — | — | (9,172) | ||||||||||||||||||||||||||||||||||||||||
| Changes in the redemption value of redeemable noncontrolling interest | — | (6,752) | — | (12) | — | 169 | (6,595) | ||||||||||||||||||||||||||||||||||||||||
| Contributions from noncontrolling interest | — | — | — | — | — | 1,900 | 1,900 | ||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | — | — | — | — | — | (5,268) | (5,268) | ||||||||||||||||||||||||||||||||||||||||
| Redemptions | 1 | (1,867) | (1) | (136) | — | (315) | (2,318) | ||||||||||||||||||||||||||||||||||||||||
| Distributions declared ($4.18 per unit) | — | (271,760) | — | (9,589) | — | — | (281,349) | ||||||||||||||||||||||||||||||||||||||||
| Balances at June 30, 2021 | 65,004 | $ | 5,963,223 | 2,294 | $ | 56,950 | $ | (6,167) | $ | 122,697 | $ | 6,136,703 | |||||||||||||||||||||||||||||||||||
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)
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 140,065 | $ | 246,564 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Straight-lined rents | 4,570 | 5,825 | |||||||||
| Depreciation and amortization | 268,050 | 257,323 | |||||||||
| Amortization of discount and debt financing costs, net | 3,332 | 6,311 | |||||||||
| Gain on sale of marketable securities | (12,430) | (2,499) | |||||||||
| Income from early redemption of notes receivable | — | (4,747) | |||||||||
| Provision for credit losses | 63 | (107) | |||||||||
| Unrealized losses (gains) on equity securities recognized through income | 46,441 | (16,681) | |||||||||
| Earnings from co-investments | (12,771) | (35,259) | |||||||||
| Operating distributions from co-investments | 67,834 | 57,364 | |||||||||
| Accrued interest from notes and other receivables | (6,974) | (8,530) | |||||||||
| Gain on the sale of real estate and land | — | (100,096) | |||||||||
| Equity-based compensation | 4,788 | 3,776 | |||||||||
| Loss on early retirement of debt, net | — | 18,982 | |||||||||
| Gain on remeasurement of co-investment | — | (2,260) | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses, receivables, operating lease right-of-use assets, and other assets | 15,406 | (5,348) | |||||||||
| Accounts payable, accrued liabilities, and operating lease liabilities | (10,887) | 3,209 | |||||||||
| Other liabilities | 2,058 | 4,244 | |||||||||
| Net cash provided by operating activities | 509,545 | 428,071 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to real estate: | |||||||||||
| Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired | (223) | (18,418) | |||||||||
| Redevelopment | (47,674) | (19,981) | |||||||||
| Development acquisitions of and additions to real estate under development | (12,862) | (34,640) | |||||||||
| Capital expenditures on rental properties | (62,576) | (49,044) | |||||||||
| Investments in notes receivable | (136,513) | (71,613) | |||||||||
| Collections of notes and other receivables | 303,088 | 36,244 | |||||||||
| Proceeds from insurance for property losses | 135 | 117 | |||||||||
| Proceeds from dispositions of real estate | — | 243,365 | |||||||||
| Contributions to co-investments | (96,187) | (160,719) | |||||||||
| Changes in refundable deposits | (16,318) | (968) | |||||||||
| Purchases of marketable securities | (12,168) | (23,509) | |||||||||
| Sales and maturities of marketable securities | 30,025 | 14,931 | |||||||||
| Non-operating distributions from co-investments | 152,924 | 78,600 | |||||||||
| Net cash provided by (used in) investing activities | 101,651 | (5,635) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from unsecured debt and mortgage notes | — | 745,505 | |||||||||
| Payments on unsecured debt and mortgage notes | (1,820) | (951,727) | |||||||||
| Proceeds from lines of credit | 670,758 | 453,359 | |||||||||
| Repayments of lines of credit | (948,840) | (368,359) | |||||||||
| Retirement of common units | (60,830) | (9,172) |
| Six Months Ended June 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Additions to deferred charges | — | (6,361) | |||||||||
| Payments related to debt prepayment penalties | — | (18,342) | |||||||||
| Net proceeds from issuance of common units | (207) | (84) | |||||||||
| Net proceeds from stock options exercised | 19,255 | 2,275 | |||||||||
| Payments related to tax withholding for share-based compensation | (2,216) | (5,445) | |||||||||
| Contributions from noncontrolling interest | 125 | 1,900 | |||||||||
| Distributions to noncontrolling interest | (4,197) | (4,238) | |||||||||
| Redemption of noncontrolling interests | (2,361) | (2,318) | |||||||||
| Redemption of redeemable noncontrolling interests | (230) | (3,808) | |||||||||
| Common units distributions paid | (290,808) | (281,486) | |||||||||
| Net cash used in financing activities | (621,371) | (448,301) | |||||||||
| Net decrease in unrestricted and restricted cash and cash equivalents | (10,175) | (25,865) | |||||||||
| Unrestricted and restricted cash and cash equivalents at beginning of period | 58,638 | 84,041 | |||||||||
| Unrestricted and restricted cash and cash equivalents at end of period | $ | 48,463 | $ | 58,176 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest (net of $1.5 million and $3.8 million capitalized in 2022 and 2021, respectively) | $ | 97,688 | $ | 96,541 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||
| Operating cash flows from operating leases | $ | 3,480 | $ | 5,316 | |||||||
| Supplemental disclosure of noncash investing and financing activities: | |||||||||||
| Transfers between real estate under development and rental properties, net | $ | 96,887 | $ | 218,835 | |||||||
| Transfer from real estate under development to co-investments | $ | 1,827 | $ | 1,337 | |||||||
| Reclassifications (from) to redeemable noncontrolling interest from general and limited partner capital and noncontrolling interest | $ | (1,223) | $ | 6,593 | |||||||
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
June 30, 2022 and 2021
(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, 2021.
All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. Certain reclassifications have been made to conform to the current year's presentation.
The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2022 and 2021 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 June 30, 2022 and December 31, 2021. Total Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") outstanding were 2,273,496 and 2,282,464 as of June 30, 2022 and December 31, 2021, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $594.5 million and $804.0 million as of June 30, 2022 and December 31, 2021, respectively.
As of June 30, 2022, the Company owned or had ownership interests in 253 operating apartment communities, comprising 62,397 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, three operating commercial buildings, and a development pipeline comprised of 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 YearIn January 2021, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2020-06 "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity." The amendments in ASU 2020-06 modifies the if-converted method of calculating diluted earnings per share ("EPS"). For instruments that may be settled in cash or shares, and are not classified as a liability, the guidance requires entities to include the effect of potential share settlement in the diluted EPS calculation, if the effect is more dilutive. The Company adopted this guidance on January 1, 2022 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.
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
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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 June 30, 2022 and December 31, 2021, $0.2 million and $0.8 million, respectively, of equity securities presented within common stock and stock funds in the tables below represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy.
Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. Unrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income on the condensed consolidated statements of income and comprehensive income.
As of June 30, 2022 and December 31, 2021, equity securities and available for sale debt securities consisted primarily of investment funds-debt securities, common stock and stock funds, and investment-grade unsecured debt.
As of June 30, 2022 and December 31, 2021, marketable securities consisted of the following ($ in thousands):
| June 30, 2022 | |||||||||||||||||||||||
| Cost | Gross Unrealized (Loss) Gain | Carrying Value | |||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||
| Investment funds - debt securities | $ | 63,409 | $ | (8,747) | $ | 54,662 | |||||||||||||||||
| Common stock and stock funds | 86,767 | 11,396 | 98,163 | ||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||
| Investment-grade unsecured debt | 1,051 | 637 | 1,688 | ||||||||||||||||||||
| Total - Marketable securities | $ | 151,227 | $ | 3,286 | $ | 154,513 |
| December 31, 2021 | |||||||||||||||||||||||||||||
| Cost | Gross Unrealized (Loss) Gain | Carrying Value | |||||||||||||||||||||||||||
| Equity securities: | |||||||||||||||||||||||||||||
| Investment funds - debt securities | $ | 62,192 | $ | (502) | $ | 61,690 | |||||||||||||||||||||||
| Common stock and stock funds | 79,155 | 49,592 | 128,747 | ||||||||||||||||||||||||||
| Debt securities: | |||||||||||||||||||||||||||||
| Available for sale | |||||||||||||||||||||||||||||
| Investment-grade unsecured debt | 1,051 | 341 | 1,392 | ||||||||||||||||||||||||||
| Total - Marketable securities | $ | 142,398 | $ | 49,431 | $ | 191,829 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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 June 30, 2022 and 2021, the proceeds from sales and maturities of marketable securities totaled $2.1 million and $0.1 million, respectively, which resulted in $0.3 million in realized gains and $0.1 million in realized losses, respectively, for such periods. For the six months ended June 30, 2022 and 2021, the proceeds from sales and maturities of marketable securities totaled $30.0 million and $14.9 million, respectively, which resulted in $12.4 million and $2.5 million in realized gains, respectively, for such periods.
For the three and six months ended June 30, 2022, the portion of equity security unrealized losses that were recognized in income totaled $21.9 million and $46.4 million, respectively, and were included in interest and other (loss) income on the Company's condensed consolidated statements of income and comprehensive income. For the three and six months ended June 30, 2021, the portion of equity security unrealized gains that were recognized in income totaled $10.4 million and $16.7 million, respectively, and were included in interest and other (loss) 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 June 30, 2022 and December 31, 2021. 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 $917.9 million and $319.2 million, respectively, as of June 30, 2022 and $909.3 million and $320.1 million, respectively, as of December 31, 2021. Noncontrolling interests in these entities were $122.5 million and $122.4 million as of June 30, 2022 and December 31, 2021, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of June 30, 2022 and December 31, 2021, 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, 2021) are being amortized over the expected service periods.
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 June 30, 2022 and December 31, 2021, 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 as of both, June 30, 2022 and December 31, 2021, was approximately $5.4 billion and $6.0 billion, respectively. Management has estimated that the fair value of the Company’s $286.5 million and $564.9 million of variable rate debt at June 30, 2022 and December 31, 2021, respectively, was approximately $284.6 million and $561.7 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 June 30, 2022 and December 31, 2021 due to the short-term maturity of these instruments. Marketable securities are carried at fair value as of June 30, 2022 and December 31, 2021.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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 $5.8 million and $5.5 million during the three months ended June 30, 2022 and 2021, respectively, and $11.2 million and $11.9 million, for the six months ended June 30, 2022 and 2021, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented.
Co-investments
The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company's equity in earnings less distributions received and the Company's share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.
Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of income equal to the amount by which the fair value of the Company's previously owned co-investment interest exceeds its carrying value. A majority of the co-investments, excluding most preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote income if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.
Changes in Accumulated Other Comprehensive Income (Loss), Net by Component
Essex Property Trust, Inc.
($ in thousands):
| Change in fair value and amortization of swap settlements | Unrealized gain on available for sale securities | Total | |||||||||||||||
| Balance at December 31, 2021 | $ | (5,912) | $ | 360 | $ | (5,552) | |||||||||||
| Other comprehensive income before reclassification | 30,810 | 286 | 31,096 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 10 | — | 10 | ||||||||||||||
| Other comprehensive income | 30,820 | 286 | 31,106 | ||||||||||||||
| Balance at June 30, 2022 | $ | 24,908 | $ | 646 | $ | 25,554 |
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, 2021 | $ | (2,176) | $ | 372 | $ | (1,804) | |||||||||||
| Other comprehensive income before reclassification | 31,885 | 296 | 32,181 | ||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | 10 | — | 10 | ||||||||||||||
| Other comprehensive income | 31,895 | 296 | 32,191 | ||||||||||||||
| Balance at June 30, 2022 | $ | 29,719 | $ | 668 | $ | 30,387 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
Amounts reclassified from accumulated other comprehensive income 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 $33.2 million and $34.7 million as of June 30, 2022 and December 31, 2021, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.
The changes to the redemption value of redeemable noncontrolling interests for the six months ended June 30, 2022 is as follows ($ in thousands):
| Balance at December 31, 2021 | $ | 34,666 | |||
| Reclassification due to change in redemption value and other | (1,223) | ||||
| Redemptions | (230) | ||||
| Balance at June 30, 2022 | $ | 33,213 |
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):
| June 30, 2022 | December 31, 2021 | June 30, 2021 | December 31, 2020 | ||||||||||||||||||||
| Cash and cash equivalents - unrestricted | $ | 37,756 | $ | 48,420 | $ | 48,155 | $ | 73,629 | |||||||||||||||
| Cash and cash equivalents - restricted | 10,707 | 10,218 | 10,021 | 10,412 | |||||||||||||||||||
| Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows | $ | 48,463 | $ | 58,638 | $ | 58,176 | $ | 84,041 |
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.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
(2) Significant Transactions During the Six Months Ended June 30, 2022 and Subsequent Events
Significant Transactions
Acquisitions
In January 2022, Wesco VI, LLC (“Wesco VI”), one of the Company's joint ventures with an institutional partner, acquired Vela, a 379-unit apartment home community located in Woodland Hills, CA, for a total contract price of $183.0 million. The property was encumbered by a $100.7 million bridge loan from the Company, with an interest rate of 2.64% that was paid off in January 2022 and replaced by permanent secured debt with an institutional lender.
Co-Investments
In April 2022, the Wesco IV, LLC (“Wesco IV”) joint venture operating agreement was amended to extend the venture. As part of the amendment, the Company and the joint venture partner agreed that the Company earned a promote interest of approximately $37.5 million. The Company agreed to contribute the earned promote interest to the joint venture, resulting in an increase in the Company’s ownership interest in Wesco IV to 65.1%.
Preferred Equity Investments
In June 2022, the Company received cash of $3.0 million for the partial redemption of a preferred equity investment in a joint venture that holds property located in Northern California.
In the first quarter of 2022, the Company originated three preferred equity investments totaling $29.5 million in multifamily communities located in Southern California and Washington. The preferred equity investments have a weighted average return of 10.0% and are scheduled to mature in March 2027.
In the first quarter of 2022, the Company received cash proceeds of $106.9 million, including an early redemption fee of $0.9 million, for the full redemption of two preferred equity investments and partial redemption of two preferred equity investments in joint ventures that held properties in California.
Notes Receivable
In January 2022, the Company provided a $100.7 million related party bridge loan to Wesco VI in connection with the acquisition of Vela. The note receivable accrued interest at 2.64% and was paid off in January 2022. Additionally, the Company received cash of $121.3 million in January 2022, for the payoff of the remaining related party bridge loans to Wesco VI. See Note 6, Related Party Transactions, for additional details.
In January 2022, the Company received cash of $48.5 million, for the payoff of the related party bridge loan to a single asset entity owning apartment home community in Vista, CA. See Note 6, Related Party Transactions, for additional details.
In February 2022, the Company provided a $32.8 million related party bridge loan to BEX II in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 1.35% and was scheduled to mature in March 2022, but was subsequently paid off in April 2022. See Note 6, Related Party Transactions, for additional details.
Common StockDuring the three months ended June 30, 2022, the Company repurchased and retired 218,960 shares totaling $60.8 million, including commissions, at an average price per share of $277.81. As a result, as of June 30, 2022, the Company had $153.6 million of purchase authority remaining under its $250.0 million repurchase plan.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
(3) Revenues
Disaggregated Revenue
The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Rental income | $ | 391,778 | $ | 343,322 | $ | 765,203 | $ | 690,627 | |||||||||||||||
| Other property | 5,462 | 5,435 | 11,253 | 11,006 | |||||||||||||||||||
| Management and other fees from affiliates | 2,738 | 2,221 | 5,427 | 4,470 | |||||||||||||||||||
| Total revenues | $ | 399,978 | $ | 350,978 | $ | 781,883 | $ | 706,103 |
The following table presents the Company’s rental and other property revenues disaggregated by geographic operating segment ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Southern California | $ | 164,511 | $ | 142,150 | $ | 321,480 | $ | 284,119 | |||||||||||||||
| Northern California | 160,498 | 143,386 | 313,088 | 290,076 | |||||||||||||||||||
| Seattle Metro | 67,707 | 59,267 | 131,910 | 117,900 | |||||||||||||||||||
| Other real estate assets (1) | 4,524 | 3,954 | 9,978 | 9,538 | |||||||||||||||||||
| Total rental and other property revenues | $ | 397,240 | $ | 348,757 | $ | 776,456 | $ | 701,633 |
(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.
The following table presents the Company’s rental and other property revenues disaggregated by current property category status ($ in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Same-property (1) | $ | 373,331 | $ | 331,221 | $ | 729,604 | $ | 665,658 | |||||||||||||||
| Acquisitions (2) | 1,753 | 319 | 3,500 | 319 | |||||||||||||||||||
| Development (3) | 11,184 | 7,500 | 20,611 | 14,430 | |||||||||||||||||||
| Redevelopment | 1,491 | 1,506 | 2,926 | 3,138 | |||||||||||||||||||
| Non-residential/other, net (4) | 12,748 | 11,156 | 25,666 | 24,402 | |||||||||||||||||||
| Straight line rent concession (5) | (3,267) | (2,945) | (5,851) | (6,314) | |||||||||||||||||||
| Total rental and other property revenues | $ | 397,240 | $ | 348,757 | $ | 776,456 | $ | 701,633 |
(1) Properties that have comparable stabilized results as of January 1, 2021 and are consolidated by the Company for the three and six months ended June 30, 2022 and 2021. 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, 2021.
(3) Development includes properties developed which did not have stabilized results as of January 1, 2021.
(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
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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 $2.1 million and $2.4 million as of June 30, 2022 and December 31, 2021, respectively, and was included in accounts payable and accrued liabilities within the accompanying condensed consolidated balance sheets. The amount of revenue recognized for the six months ended June 30, 2022 that was included in the December 31, 2021 deferred revenue balance was $0.3 million, which was included in interest and other (loss) 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 June 30, 2022, the Company had $2.1 million of remaining performance obligations. The Company expects to recognize approximately 19% of these remaining performance obligations in 2022, and an additional 66% through 2024, and the remaining balance thereafter.
(4) Co-investments
The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments, including BEXAEW, LLC ("BEXAEW"), BEX II, LLC ("BEX II"), BEX IV, LLC (""BEX IV"), 500 Folsom, Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, Wesco V, LLC ("Wesco V"), Wesco VI, and Essex JV LLC ("Essex JV"), own, operate, and develop apartment communities. The carrying values of the Company's co-investments as of June 30, 2022 and December 31, 2021 are as follows ($ in thousands, except parenthetical amounts):
| Weighted Average Company Ownership Percentage (1) | June 30, 2022 | December 31, 2021 | |||||||||||||||
| Ownership interest in: | |||||||||||||||||
| Wesco I (2), Wesco III, Wesco IV, Wesco V, Wesco VI, and Essex JV | 54 | % | $ | 178,960 | $ | 168,198 | |||||||||||
| BEXAEW, BEX II, BEX IV, and 500 Folsom | 50 | % | 248,782 | 270,550 | |||||||||||||
| Other (3) | 52 | % | 88,533 | 126,503 | |||||||||||||
| Total operating and other co-investments, net | 516,275 | 565,251 | |||||||||||||||
| Total development co-investments | 51 | % | 12,808 | 11,076 | |||||||||||||
| Total preferred interest co-investments (includes related party investments of $73.2 million and $71.1 million as of June 30, 2022 and December 31, 2021, respectively) | 520,169 | 565,930 | |||||||||||||||
| Total co-investments, net | $ | 1,049,252 | $ | 1,142,257 |
(1) Weighted average Company ownership percentages are as of June 30, 2022.
(2) As of June 30, 2022, the Company's investments in Wesco I, Wesco III, and Wesco IV were classified as a liability of $43.7 million due to distributions in excess of the Company's investment.
(3) As of June 30, 2022, the Company's investment in Expo was classified as a liability of $0.3 million due to distributions received in excess of the Company's investment. The weighted average Essex ownership percentage excludes the Company's investments in non-core technology co-investments which are carried at fair value.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
The combined summarized financial information of co-investments is as follows ($ in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Combined balance sheets: (1) | |||||||||||
| Rental properties and real estate under development | $ | 4,740,837 | $ | 4,603,465 | |||||||
| Other assets | 328,851 | 278,411 | |||||||||
| Total assets | $ | 5,069,688 | $ | 4,881,876 | |||||||
| Debt | $ | 3,326,245 | $ | 3,046,765 | |||||||
| Other liabilities | 170,222 | 200,129 | |||||||||
| Equity | 1,573,221 | 1,634,982 | |||||||||
| Total liabilities and equity | $ | 5,069,688 | $ | 4,881,876 | |||||||
| Company's share of equity | $ | 1,049,252 | $ | 1,142,257 |
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Combined statements of income: (1) | |||||||||||||||||||||||
| Property revenues | $ | 93,576 | $ | 68,405 | $ | 178,176 | $ | 140,164 | |||||||||||||||
| Property operating expenses | (29,509) | (27,013) | (65,302) | (54,344) | |||||||||||||||||||
| Net operating income | 64,067 | 41,392 | 112,874 | 85,820 | |||||||||||||||||||
| Interest expense | (21,779) | (15,965) | (40,081) | (32,665) | |||||||||||||||||||
| General and administrative | (6,392) | (4,029) | (10,359) | (8,310) | |||||||||||||||||||
| Depreciation and amortization | (39,381) | (31,813) | (78,188) | (64,522) | |||||||||||||||||||
| Net loss | $ | (3,485) | $ | (10,415) | $ | (15,754) | $ | (19,677) | |||||||||||||||
| Company's share of net income (2) | $ | (8,400) | $ | 18,248 | $ | 12,771 | $ | 35,259 |
(1) Includes preferred equity investments held by the Company and excludes investments in technology co-investments.
(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 $1.8 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $3.6 million and $4.6 million for the six months ended June 30, 2022 and 2021, respectively.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
(5) Notes and Other Receivables
Notes and other receivables consist of the following as of June 30, 2022 and December 31, 2021 ($ in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Notes receivable, secured, weighted average interest rate of 10.10% as of June 30, 2022 and 10.50% as of December 31, 2021, due February 2023 (Originated March 2020) | $ | 17,987 | $ | 17,051 | |||||||
| Note receivable, secured, bearing interest at 9.00%, due December 2023 (Originated November 2020) | 89,148 | 87,365 | |||||||||
| Note receivable, secured, bearing interest at 11.50%, due November 2024 (Originated November 2020) | 31,535 | 29,729 | |||||||||
| Related party note receivable, secured, bearing interest at 2.15%, due March 2022 (Originated September 2021) (1) | — | 29,314 | |||||||||
| Related party note receivable, secured, bearing interest at 2.30%, due April 2022 (Originated October 2021) (2) | — | 30,399 | |||||||||
| Related party note receivable, secured, bearing interest at 2.36%, due February 2022 (Originated November 2021) (3) | — | 62,058 | |||||||||
| Related party note receivable, secured, bearing interest at 2.36%, due February 2022 (Originated November 2021) (4) | — | 48,562 | |||||||||
| Notes and other receivables from affiliates (5) | 6,854 | 6,556 | |||||||||
| Straight line rent receivables (6) | 10,976 | 15,523 | |||||||||
| Other receivables | 19,546 | 15,232 | |||||||||
| Allowance for credit losses | (701) | (756) | |||||||||
| Total notes and other receivables | $ | 175,345 | $ | 341,033 |
(1) In January 2022, the Company received cash of $29.2 million to payoff the principal of this note receivable.
(2) In January 2022, the Company received cash of $30.3 million to payoff the principal of this note receivable.
(3) In January 2022, the Company received cash of $61.9 million to payoff the principal of this note receivable.
(4) In January 2022, the Company received cash of $48.4 million to payoff the principal of this note receivable.
(5) These amounts consist of short-term loans outstanding and due from various joint ventures as of June 30, 2022 and December 31, 2021, respectively. See Note 6, Related Party Transactions, for additional details.
(6) These amounts are receivables from lease concessions recorded on a straight-line basis for the Company's operating properties.
The following table presents the activity in the allowance for credit losses for notes and other receivables by loan type ($ in thousands):
| Mezzanine Loans | Bridge Loans | Total | |||||||||||||||
| Balance at December 31, 2021 | $ | 671 | $ | 85 | $ | 756 | |||||||||||
| Provision for credit losses | 30 | (85) | (55) | ||||||||||||||
| Balance at June 30, 2022 | $ | 701 | $ | — | $ | 701 |
No loans were placed on nonaccrual status or charged off during the six months ended June 30, 2022 or 2021.
(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 $3.5 million and $2.6 million during the three months ended June 30, 2022 and 2021, respectively, and $6.6 million and $4.8 million during the six months ended June 30, 2022 and 2021, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of approximately $0.7 million and $0.3 million against general and administrative expenses for the three months ended June 30, 2022 and 2021, respectively, and $1.1 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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 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 six months ended June 30, 2022 and 2021, the Company did not pay brokerage commissions related to real estate transactions to MMC and its affiliates.
In February 2022, the Company provided a $32.8 million related party bridge loan to BEX II in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 1.35% and was scheduled to mature in March 2022, but was subsequently paid off in April 2022.
In January 2022, the Company provided a $100.7 million related party bridge loan to Wesco VI in connection with the purchase of Vela. The note receivable accrued interest at 2.64% and was scheduled to mature in February 2022, but was paid off in January 2022.
In November 2021, the Company provided a $48.4 million related party bridge loan in connection with the purchase of an interest in a single asset entity owning an apartment home community in Vista, CA. The note receivable accrued interest at 2.36% and was scheduled to mature in February 2022, but was paid off in January 2022. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
In November 2021, the Company provided a $61.9 million related party bridge loan to Wesco VI in connection with the acquisition of The Rexford. The note receivable accrued interest at 2.36% and was scheduled to mature in February 2022, but was paid off in January 2022. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
In October 2021, the Company provided a $30.3 million related party bridge loan to Wesco VI in connection with the acquisition of Monterra in Mill Creek. The note receivable accrued interest at 2.30% and was scheduled to mature in April 2022, but was paid off in January 2022. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
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 accrued interest at 2.15% and was scheduled to mature in December 2021. In December 2021, the maturity date of the note receivable was extended to March 2022, but was paid off in January 2022. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
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 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 initially accrued interest based on an 11.0% preferred return which was reduced to 9.0% upon completion and lease-up of the project. The investment is scheduled to mature in February 2024.
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-unit apartment home community development located in Burlingame, CA. The investment initially accrued interest based on a 12.0% preferred return which was reduced to 9.0% upon completion and lease-up of the project. The investment is scheduled to mature in April 2024.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
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-unit apartment home community located in Ventura, CA. The investment accrued interest based on a 10.25% preferred return. The investment was scheduled to mature in May 2023. In November 2021, the Company received cash of $18.3 million, for the partial redemption of this preferred equity investment, and the maturity of the remaining commitment was extended to December 2028. As of June 30, 2022, the Company had a remaining commitment of $13.0 million and accrues interest on a 9.0% preferred return. The remaining committed amount is expected to 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-unit 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 June 30, 2022 and December 31, 2021, $6.9 million and $6.6 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.
(7) Debt
Essex does not have indebtedness as debt is incurred by the Operating Partnership. Essex guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of the facilities.
Debt consists of the following ($ in thousands):
| June 30, 2022 | December 31, 2021 | Weighted Average Maturity In Years as of June 30, 2022 | |||||||||||||||
| Unsecured debt, net (1) | 5,310,486 | 5,307,196 | 8.2 | ||||||||||||||
| Lines of credit (2) | 63,175 | 341,257 | |||||||||||||||
| Mortgage notes payable, net (3) | 636,589 | 638,957 | 8.0 | ||||||||||||||
| Total debt, net | $ | 6,010,250 | $ | 6,287,410 | |||||||||||||
| Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering | 3.3 | % | 3.3 | % | |||||||||||||
| Weighted average interest rate on lines of credit | 1.4 | % | 1.0 | % | |||||||||||||
| Weighted average interest rate on mortgage notes payable | 2.9 | % | 2.7 | % |
(1) Unsecured debt, net, consists of fixed rate public bond offerings which includes unamortized discount, net of premiums, of $8.9 million and $9.9 million and unamortized debt issuance costs of $30.6 million and $32.9 million, as of June 30, 2022 and December 31, 2021, respectively.
(2) Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.24 billion as of June 30, 2022, excludes unamortized debt issuance costs of $3.8 million and $4.4 million as of June 30, 2022 and December 31, 2021, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of June 30, 2022, the Company’s $1.2 billion credit facility had an interest rate of LIBOR plus 0.75%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of September 2025 with three six-month extensions, exercisable at the Company’s option. During the second quarter, the borrowing spread on this facility was reduced by 2.5 basis points as a result of achieving the Enhanced Sustainability Metric Target for 2021 as defined by the facility's sustainability-linked pricing component. In July 2022, the credit facility was amended such that the scheduled maturity date was extended to January 2027 with two 6-month extension options, exercisable at the Company's option. The underlying interest rate on the line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at the Adjusted Secured Overnight Financing Rate ("SOFR") plus 0.75%.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
As of June 30, 2022, 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. In July 2022, the line of credit facility was amended such that the scheduled maturity date was extended to July 2024. The underlying interest rate on the line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at Adjusted SOFR plus 0.75%.
(3) Includes total unamortized premium, net of discounts of $1.8 million and $2.5 million, reduced by unamortized debt issuance costs of $1.3 million and $1.5 million, as of June 30, 2022 and December 31, 2021, respectively.
The aggregate scheduled principal payments of the Company’s outstanding debt, excluding lines of credit, as of June 30, 2022 are as follows ($ in thousands):
| Remaining in 2022 | $ | 41,369 | |||
| 2023 | 302,945 | ||||
| 2024 | 403,109 | ||||
| 2025 | 633,054 | ||||
| 2026 | 549,405 | ||||
| Thereafter | 4,056,224 | ||||
| Total | $ | 5,986,106 |
(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 six months ended June 30, 2022 and 2021 ($ in thousands):
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Southern California | $ | 164,511 | $ | 142,150 | $ | 321,480 | $ | 284,119 | |||||||||||||||
| Northern California | 160,498 | 143,386 | 313,088 | 290,076 | |||||||||||||||||||
| Seattle Metro | 67,707 | 59,267 | 131,910 | 117,900 | |||||||||||||||||||
| Other real estate assets | 4,524 | 3,954 | 9,978 | 9,538 | |||||||||||||||||||
| Total property revenues | $ | 397,240 | $ | 348,757 | $ | 776,456 | $ | 701,633 | |||||||||||||||
| Net operating income: | |||||||||||||||||||||||
| Southern California | $ | 117,667 | $ | 98,533 | $ | 227,880 | $ | 197,110 | |||||||||||||||
| Northern California | 113,080 | 98,900 | 218,065 | 200,549 | |||||||||||||||||||
| Seattle Metro | 49,268 | 40,377 | 92,564 | 79,169 | |||||||||||||||||||
| Other real estate assets | 3,705 | 3,411 | 8,327 | 6,856 | |||||||||||||||||||
| Total net operating income | 283,720 | 241,221 | 546,836 | 483,684 | |||||||||||||||||||
| Management and other fees from affiliates | 2,738 | 2,221 | 5,427 | 4,470 | |||||||||||||||||||
| Corporate-level property management expenses | (10,176) | (9,062) | (20,348) | (18,075) | |||||||||||||||||||
| Depreciation and amortization | (134,517) | (128,736) | (268,050) | (257,323) | |||||||||||||||||||
| General and administrative | (13,127) | (12,222) | (25,369) | (22,034) | |||||||||||||||||||
| Expensed acquisition and investment related costs | (10) | (41) | (18) | (56) | |||||||||||||||||||
| Gain on sale of real estate and land | — | — | — | 100,096 | |||||||||||||||||||
| Interest expense | (50,477) | (50,971) | (100,854) | (102,620) | |||||||||||||||||||
| Total return swap income | 2,283 | 2,633 | 4,827 | 5,477 | |||||||||||||||||||
| Interest and other (loss) income | (17,208) | 22,371 | (24,775) | 36,758 | |||||||||||||||||||
| Equity income from co-investments | (8,400) | 18,248 | 12,771 | 35,259 | |||||||||||||||||||
| Deferred tax benefit (expense) on unconsolidated co-investments | 6,864 | (1,842) | 9,618 | (2,350) | |||||||||||||||||||
| Loss on early retirement of debt, net | — | (16,465) | — | (18,982) | |||||||||||||||||||
| Gain on remeasurement of co-investment | — | 2,260 | — | 2,260 | |||||||||||||||||||
| Net income | $ | 61,690 | $ | 69,615 | $ | 140,065 | $ | 246,564 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
Total assets for each of the reportable operating segments are summarized as follows as of June 30, 2022 and December 31, 2021 ($ in thousands):
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets: | |||||||||||
| Southern California | $ | 3,951,932 | $ | 4,018,839 | |||||||
| Northern California | 5,480,837 | 5,460,701 | |||||||||
| Seattle Metro | 1,386,956 | 1,407,033 | |||||||||
| Other real estate assets | 109,684 | 96,500 | |||||||||
| Net reportable operating segment - real estate assets | 10,929,409 | 10,983,073 | |||||||||
| Real estate under development | 21,950 | 111,562 | |||||||||
| Co-investments | 1,093,235 | 1,177,802 | |||||||||
| Cash and cash equivalents, including restricted cash | 48,463 | 58,638 | |||||||||
| Marketable securities | 154,513 | 191,829 | |||||||||
| Notes and other receivables | 175,345 | 341,033 | |||||||||
| Operating lease right-of-use assets | 67,345 | 68,972 | |||||||||
| Prepaid expenses and other assets | 67,751 | 64,964 | |||||||||
| Total assets | $ | 12,558,011 | $ | 12,997,873 |
(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 June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 57,054 | 65,262,517 | $ | 0.87 | $ | 64,846 | 65,001,677 | $ | 1.00 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 27,086 | — | 79,069 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 57,054 | 65,289,603 | $ | 0.87 | $ | 64,846 | 65,080,746 | $ | 1.00 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 130,308 | 65,269,109 | $ | 2.00 | $ | 233,290 | 64,995,682 | $ | 3.59 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 38,463 | — | 52,334 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common stockholders | $ | 130,308 | 65,307,572 | $ | 2.00 | $ | 233,290 | 65,048,016 | $ | 3.59 | |||||||||||||||||||||||||
The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of 2,277,145 and 2,293,760, which include vested 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units, for the three months ended June 30, 2022 and 2021, respectively, and 2,279,790 and 2,293,782 for the six months ended June 30, 2022 and 2021, respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated $2.0 million and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $4.6 million and $8.2 million for the six months ended June 30, 2022 and 2021, respectively.
Stock options of 230,326 and 136,172 for the three months ended June 30, 2022 and 2021, respectively, and 124,892 and zero for the six months ended June 30, 2022 and 2021, 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 June 30, 2022 | Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 59,044 | 67,539,662 | $ | 0.87 | $ | 67,134 | 67,295,437 | $ | 1.00 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 27,086 | — | 79,069 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 59,044 | 67,566,748 | $ | 0.87 | $ | 67,134 | 67,374,506 | $ | 1.00 |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(Unaudited)
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||
| 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 | $ | 134,861 | 67,548,899 | $ | 2.00 | $ | 241,525 | 67,289,464 | $ | 3.59 | |||||||||||||||||||||||||
| Effect of Dilutive Securities: | |||||||||||||||||||||||||||||||||||
| Stock options | — | 38,463 | — | 52,334 | |||||||||||||||||||||||||||||||
| Diluted: | |||||||||||||||||||||||||||||||||||
| Net income available to common unitholders | $ | 134,861 | 67,587,362 | $ | 2.00 | $ | 241,525 | 67,341,798 | $ | 3.59 |
Stock options of 230,326 and 136,172 for the three months ended June 30, 2022 and 2021, respectively, and 124,892 and zero for the six months ended June 30, 2022 and 2021, 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.
(10) Derivative Instruments and Hedging Activities
As of June 30, 2022 and December 31, 2021, the Company had no interest rate swap contracts.
The Company has four total return swap contracts, with an aggregate notional amount of $224.0 million, that effectively convert $224.0 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 four of its total return swaps, with $224.0 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 June 30, 2022 and December 31, 2021. These total return swaps are scheduled to mature between November 2022 and December 2024. The realized gains of $2.3 million and $2.7 million for the three months ended June 30, 2022 and 2021, respectively, and $4.8 million and $5.5 million for the six months ended June 30, 2022 and 2021, 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, 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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