EX-99.1 2 ex99_1.htm EXHIBIT 99.1

Exhibit 99.1




Essex Announces Fourth Quarter and Full-Year 2018 Results and 2019 Guidance

San Mateo, California—January 30, 2019—Essex Property Trust, Inc. (NYSE:ESS) announced today its fourth quarter and full-year 2018 earnings results and related business activities.

Net Income and Funds from Operations (“FFO”) per diluted share for the quarter ended and year ended December 31, 2018 are detailed below.

     
Three Months Ended
December 31,
   
%
   
Year Ended
December 31,
   
%
 
     
2018
   
2017
   
Change
   
2018
   
2017
   
Change
 
 
Per Diluted Share
                                   
 
Net Income
 
$1.78
   
$1.57
   
13.4%

 
$5.90
   
$6.57
     
-10.2%

 
Total FFO
 
$3.02
   
$3.01
   
0.3%

 
$12.76
   
$11.91
     
7.1%

 
Core FFO
 
$3.19
   
$3.01
   
6.0%

 
$12.57
   
$11.91
     
5.5%

                                         

Fourth Quarter and Full-Year Highlights:


·
Reported Net Income per diluted share for the fourth quarter of 2018 of $1.78, compared to $1.57 in the fourth quarter of 2017.  The increase was primarily due to gain on sale of real estate during the current quarter.


·
Grew Core FFO per diluted share by 6.0% compared to the fourth quarter of 2017 and 5.5% for the full-year 2018.


·
Achieved same-property gross revenue and net operating income (“NOI”) growth of 2.9% and 2.5%, respectively, compared to the fourth quarter of 2017. For the full-year, achieved same-property gross revenue and NOI growth of 2.8% and 2.9%, respectively.


·
Sold three communities during the fourth quarter of 2018 for a total contract price of $285.3 million. For the full-year, the Company sold four communities for a total contract price of $417.3 million.


·
Committed $57.6 million in three preferred equity and subordinated debt investments for the full-year 2018.


·
Repurchased $47.5 million in common stock under the stock buyback program during the fourth quarter of 2018 and $51.2 million for the full-year 2018.

“We continued to produce favorable results in the fourth quarter and full-year 2018, reflecting an improving economy and a stable operating environment in our West Coast markets. We expect these conditions to continue into 2019, leading once again to market rent growth near long-term averages. Solid job growth and higher income growth rates underlie our belief that housing affordability pressures are slowly abating, improving our outlook longer term” commented Michael Schall, President and CEO of the Company.

1100 Park Place Suite 200 San Mateo California 94403 telephone 650 655 7800 facsimile 650 655 7810
www.essex.com


Same-Property Operations

Same-property operating results exclude any properties that are not comparable for the periods presented. The table below illustrates the percentage change in same-property gross revenues for the quarter ended December 31, 2018 compared to the quarter ended December 31, 2017, and the sequential percentage change for the quarter ended December 31, 2018 compared to the quarter ended September 30, 2018, by submarket for the Company:

   
Q4 2018 vs.
Q4 2017
   
Q4 2018 vs.
Q3 2018
   
% of Total
 
   
Gross
Revenues
   
Gross
Revenues
   
Q4 2018
Revenues
 
Southern California
     
Los Angeles County
   
3.2%

   
1.0%

   
19.7%

Orange County
   
2.1%

   
0.8%

   
11.3%

San Diego County
   
3.2%

   
0.3%

   
8.8%

Ventura County
   
3.5%

   
0.8%

   
4.5%

Other Southern California
   
4.5%

   
-0.1%

   
0.5%

Total Southern California
   
3.0%

   
0.8%

   
44.8%

Northern California
   
Santa Clara County
   
3.2%

   
0.9%

   
15.8%

Alameda County
   
2.6%

   
0.7%

   
7.1%

San Mateo County
   
4.2%

   
0.4%

   
5.1%

Contra Costa County
   
1.7%

   
0.6%

   
5.0%

San Francisco
   
1.9%

   
1.2%

   
3.4%

Other Northern California
   
3.0%

   
10.3%

   
0.3%

Total Northern California
   
2.9%

   
0.8%

   
36.7%

Seattle Metro
   
2.5%

   
0.9%

   
18.5%

Same-Property Portfolio
   
2.9%

   
0.8%

   
100%


   
Year-Over-Year Growth
   
Year-Over-Year Growth
 
   
Q4 2018 compared to Q4 2017
   
YTD 2018 compared to YTD 2017
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
3.0%

   
2.6%

   
3.1%

   
3.1%

   
2.4%

   
3.3%

Northern California
   
2.9%

   
5.1%

   
2.1%

   
2.4%

   
1.4%

   
2.8%

Seattle Metro
   
2.5%

   
4.4%

   
1.7%

   
2.9%

   
5.2%

   
1.9%

Same-Property Portfolio
   
2.9%

   
3.8%

   
2.5%

   
2.8%

   
2.6%

   
2.9%


   
Sequential Growth
 
   
Q4 2018 compared to Q3 2018
 
   
Gross
Revenues
   
Operating
Expenses
   
NOI
 
Southern California
   
0.8%

   
-0.1%

   
1.1%

Northern California
   
0.8%

   
4.3%

   
-0.4%

Seattle Metro
   
0.9%

   
-1.4%

   
2.0%

Same-Property Portfolio
   
0.8%

   
1.1%

   
0.7%


- 2 -

   
Financial Occupancies
 
   
Quarter Ended
 
   
12/31/2018

 
9/30/2018

 
12/31/2017
 
Southern California
   
96.7%

   
96.5%

   
96.9%

Northern California
   
96.9%

   
96.3%

   
96.9%

Seattle Metro
   
96.7%

   
96.1%

   
96.4%

Same-Property Portfolio
   
96.8%

   
96.4%

   
96.8%


Investment Activity

In October 2018, Wesco V, LLC (“Wesco V”), one of the Company’s joint ventures, acquired Meridian at Midtown in San Jose, CA for a total contract price of $104.0 million. As part of the transaction, Wesco V assumed a $69.9 million loan with an effective interest rate of 4.5% and a maturity date in 2026. Meridian was built in 2015 and comprises 218 apartment homes near downtown San Jose. The Company had a preferred equity investment in Meridian which was repaid in 2015.

In December, the Company purchased its joint venture partner’s 49.9% interest in Marquis, a 166 unit apartment community located in San Jose, CA for a pro rata contract price of $35.4 million. The property is encumbered by a mortgage totaling $45.8 million. Upon consolidation of this property, the Company recorded a $1.3 million gain to remeasure the Company’s investment in the joint venture to fair value. The gain is not included in the calculation of FFO.

Dispositions

In November, the Company sold two communities located in Chino Hills, CA that were owned as part of the co-investment platform, in which Essex has a 50% ownership interest. Enclave at Town Square, a 31-year old community containing 124 apartment homes, which was owned by BEXAEW, LLC, was sold for a total contract price of $30.5 million. The Summit, a 29-year old community containing 125 apartment homes, which was owned by Wesco III, LLC, was sold for a total contract price of $34.8 million. Total gain on sale was $10.6 million, which has been excluded from the calculation of FFO.

In December, the Company sold its 8th and Hope apartment community for a total contract price of $220.0 million, representing $739,000 per apartment home. The property contains 290 luxury apartment homes and approximately 5,900 sq. ft. of retail space located in downtown Los Angeles, CA. Essex acquired 8th and Hope in 2015 for a total contract price of $200.0 million. Total gain on sale was $39.6 million, which has been excluded from the calculation of FFO. Michael Schall, President and CEO of the Company commented, “We were able to opportunistically sell our 8th and Hope community in downtown Los Angeles at an attractive cap rate. Given the market volatility in the fourth quarter, we used the proceeds to repurchase stock at a discount to net asset value and paydown debt.” Michael Schall, President and CEO of the Company commented, “We were able to opportunistically sell our 8th and Hope community in downtown Los Angeles at an attractive cap rate. Given the market volatility in the fourth quarter, we used the proceeds to repurchase stock at a discount to net asset value and paydown debt.”

Other Investments

During the fourth quarter of 2018, the Company originated a $12.5 million subordinated loan on a multifamily development located in Vista, CA. The funding for this investment is expected to occur over nine months in 2019. The subordinated loan has a 9.9% interest rate and matures in 2021.

- 3 -

Liquidity and Balance Sheet

Common Stock

During the fourth quarter of 2018, the Company repurchased 193,649 shares of its common stock totaling $47.5 million, including commissions, at an average price of $245.08 per share. For the full-year, the Company repurchased 210,483 shares of common stock totaling $51.2 million, including commissions, at an average price of $243.40 per share.

Subsequent to quarter end through January 28, 2019, the Company repurchased 234,061 shares of common stock totaling $57.0 million, including commissions, at an average price of $243.48 per share.  As of January 28, 2019, the Company had $140.7 million of purchase authority remaining under the stock repurchase program.

In 2018, the Company did not issue any shares of common stock through its equity distribution program.

Balance Sheet

In January 2019, the Company extended the maturity date of its $1.2 billion unsecured line of credit facility to mature in December 2022 with one 18-month extension, exercisable at the Company’s option.  The pricing on the line of credit is LIBOR + 0.825%, a reduction of 0.05% from prior pricing.

As of January 28, 2019, the Company had approximately $1.2 billion in undrawn capacity on its unsecured credit facilities.

2019 Full-Year Guidance and Assumptions

Per Diluted Share
 
Range
 
Net Income
 
$4.81 - $5.21
 
Total FFO
 
$12.82 - $13.22
 
Core FFO
 
$12.83 - $13.23
 
       
U.S. Economic Assumptions
     
GDP Growth
 
2.5%

Job Growth
 
1.3%

       
ESS Markets Economic Assumptions
     
Job Growth
 
1.8%

Market Rent Growth
 
3.1%

       
Estimated Same-Property Portfolio Growth based on 47,902 Apartment Homes
     
Southern California
 
2.5% to 3.5%
 
Northern California
 
2.6% to 3.6%
 
Seattle
 
2.3% to 3.3%
 
Gross Revenue
 
2.5% to 3.5%
 
Operating Expense
 
2.5% to 3.5%
 
Net Operating Income
 
2.1% to 3.9%
 

- 4 -

Other Key Assumptions


·
Acquisitions of $200 - $400 million.

·
Dispositions of $300 - $500 million.

·
Preferred equity investments of $50 - $100 million.

·
Total development spending in 2019 for existing projects under construction is expected to be approximately $250 million at the Company’s pro rata share. The Company does not currently plan to start any new developments during 2019.

·
Revenue generating capital expenditures are expected to be approximately $80 million at the Company’s pro rata share.

·
The repayment of $887 million of secured and unsecured debt that originally matures in 2019 and 2020 with a weighted average effective rate of 4.1%.

For additional details regarding the 2019 assumptions, please see page S-14 of the accompanying supplemental financial information. For the first quarter of 2019, the Company has established a guidance range of Core FFO per diluted share of $3.14 to $3.24.

Conference Call with Management

The Company will host an earnings conference call with management to discuss its quarterly results on Thursday, January 31, 2019 at 10 a.m. PT (1 p.m. ET), which will be broadcast live via the Internet at www.essex.com, and accessible via phone by dialing toll-free, (877) 407-0784, or toll/international, (201) 689-8560. No passcode is necessary.

A rebroadcast of the call will be available online for 30 days and digitally for 7 days. To access the replay online, go to www.essex.com and select the fourth quarter 2018 earnings link. To access the replay digitally, dial (844) 512-2921 using the replay pin number 13685822. If you are unable to access the information via the Company’s website, please contact the Investor Relations Department at investors@essex.com or by calling (650) 655-7800.

Corporate Profile

Essex Property Trust, Inc., an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets. Essex currently has ownership interests in 245 apartment communities with an additional 6 properties in various stages of active development. Additional information about Essex can be found on the Company’s website at www.essex.com.

This press release and accompanying supplemental financial information will be furnished to the Securities and Exchange Commission electronically on Form 8-K and can be accessed from the Company’s website at www.essex.com. If you are unable to obtain the information via the Web, please contact the Investor Relations Department at (650) 655-7800.

- 5 -

FFO Reconciliation

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.

FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT’s operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

- 6 -

The following table sets forth the Company’s calculation of diluted FFO and Core FFO for the three months and years ended December 31, 2018 and 2017 (in thousands, except for share and per share amounts):

   
Three Months Ended
December 31,
   
Year Ended
December 31,
 
Funds from Operations attributable to common stockholders and unitholders
 
2018
   
2017
   
2018
   
2017
 
Net income available to common stockholders
 
$
117,820
   
$
103,613
   
$
390,153
   
$
433,059
 
Adjustments:
                               
Depreciation and amortization
   
120,597
     
117,988
     
479,884
     
468,881
 
Gains not included in FFO
   
(51,439
)
   
(34,779
)
   
(73,683
)
   
(159,901
)
Depreciation and amortization from unconsolidated co-investments
   
15,609
     
15,196
     
62,954
     
55,531
 
Noncontrolling interest related to Operating Partnership units
   
4,071
     
3,536
     
13,452
     
14,825
 
Depreciation attributable to third party ownership and other
   
(241
)
   
(212
)
   
(940
)
   
(286
)
Funds from Operations attributable to common stockholders and unitholders
 
$
206,417
   
$
205,342
   
$
871,820
   
$
812,109
 
FFO per share – diluted
 
$
3.02
   
$
3.01
   
$
12.76
   
$
11.91
 
Expensed acquisition and investment related costs
 
$
38
   
$
415
   
$
194
   
$
1,569
 
Gain on sale of marketable securities
   
(68
)
   
(259
)
   
(737
)
   
(1,909
)
Unrealized losses on marketable securities
   
5,585
     
-
     
5,159
     
-
 
Interest rate hedge ineffectiveness (1)
   
87
     
(59
)
   
148
     
(78
)
Loss on early retirement of debt
   
-
     
1,796
     
-
     
1,796
 
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
-
     
(3,662
)
   
-
 
Co-investment promote income
   
-
     
-
     
(20,541
)
   
-
 
Income from early redemption of preferred equity investments
   
(50
)
   
(100
)
   
(1,652
)
   
(356
)
General and administrative and other, net
   
6,171
     
(1,418
)
   
8,745
     
(1,083
)
Insurance reimbursements and legal settlements, net
   
-
     
-
     
(561
)
   
(25
)
Core Funds from Operations attributable to common stockholders and unitholders
 
$
218,180
   
$
205,717
   
$
858,913
   
$
812,023
 
Core FFO per share – diluted
 
$
3.19
   
$
3.01
   
$
12.57
   
$
11.91
 
Weighted average number of shares outstanding diluted (2)
   
68,322,115
     
68,321,214
     
68,322,207
     
68,194,472
 


(1)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as noncash interest rate hedge ineffectiveness through interest expense.

(2)
Assumes conversion of all outstanding limited partnership units in Essex Portfolio, L.P. (the “Operating Partnership”) into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

- 7 -

NOI and Same-Property NOI Reconciliations

NOI and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s condensed consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenue less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented (dollars in thousands):

   
Three Months Ended
December 31,
   
Year Ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
Earnings from operations
 
$
109,412
   
$
112,375
   
$
450,128
   
$
446,522
 
Adjustments:
                               
Corporate-level property management expenses
   
7,749
     
7,552
     
31,062
     
30,156
 
Depreciation and amortization
   
120,597
     
117,988
     
479,884
     
468,881
 
Management and other fees from affiliates
   
(2,371
)
   
(2,647
)
   
(9,183
)
   
(9,574
)
General and administrative
   
16,912
     
10,659
     
53,451
     
41,385
 
Expensed acquisition and investment related costs
   
38
     
415
     
194
     
1,569
 
NOI
   
252,337
     
246,342
     
1,005,536
     
978,939
 
Less: Non-same property NOI
   
(20,140
)
   
(19,796
)
   
(82,998
)
   
(82,177
)
Same-Property NOI
 
$
232,197
   
$
226,546
   
$
922,538
   
$
896,762
 

Safe Harbor Statement Under The Private Litigation Reform Act of 1995:

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements which are not historical facts, including statements regarding the Company’s expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as “expects,” “assumes,” “anticipates,” “may,” “will,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code, the real estate markets in the geographies in which the Company’s properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from the economic conditions, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

- 8 -

While the Company’s management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the Company may fail to achieve its business objectives; the actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; there may be a downturn in general economic conditions, the real estate industry, and the markets in which the Company’s communities are located; changes in laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; and those risks, special considerations, and other factors referred to in the Company’s annual report on Form 10-K, quarterly reports on form 10-Q, and other reports that the Company files with the SEC from time to time. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to update or supplement this information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this press release.

Definitions and Reconciliations

Non-GAAP financial measures and certain other capitalized terms, as used in this earnings release, are defined and further explained on pages S-17.1 through S-17.4, “Reconciliations of Non-GAAP Financial Measures and Other Terms,” of the accompanying supplemental financial information.  The supplemental financial information is available on the Company’s website at www.essex.com.

Contact Information
Barb Pak
Group Vice President of Finance & Investor Relations
(650) 655-7800

- 9 -

Q4 2018 Supplemental
Table of Contents


Page(s)
Consolidated Operating Results
S-1 – S-2
Consolidated Funds From Operations
S-3
Consolidated Balance Sheets
S-4
Debt Summary – December 31, 2018
S-5
Capitalization Data, Public Bond Covenants, Credit Ratings, and Selected Credit Ratios – December 31, 2018
S-6
Portfolio Summary by County – December 31, 2018
S-7
Operating Income by Quarter – December 31, 2018
S-8
Same-Property Revenue Results by County – Quarters ended December 31, 2018 and 2017, and September 30, 2018
S-9
Same-Property Revenue Results by County – Years ended December 31, 2018 and 2017
S-9.1
Same-Property Operating Expenses – Quarter and Years ended as of December 31, 2018 and 2017
S-10
Development Pipeline – December 31, 2018
S-11
Redevelopment Pipeline – December 31, 2018
S-12
Capital Expenditures – December 31, 2018
S-12.1
Co-investments and Preferred Equity Investments – December 31, 2018
S-13
Assumptions for 2019 FFO Guidance Range
S-14
Reconciliation of Projected EPS, FFO and Core FFO per diluted share
S-14.1
Summary of Apartment Community Acquisitions and Dispositions Activity
S-15
2019 MSA Level Forecast: Supply, Jobs and Apartment Market Conditions
S-16
Expansion by Leading West Coast Tech Companies Set to Continue Fueling Job Creation in Essex Markets
S-16.1
Reconciliations of Non-GAAP Financial Measures and Other Terms
S-17.1 – S-17.4


E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Operating Results
(Dollars in thousands, except share and per share amounts)
 
Three Months Ended
December 31,
   
Twelve Months Ended
December 31,
 
   
2018
   
2017
   
2018
   
2017
 
                         
Revenues:
                       
Rental and other property
 
$
350,787
   
$
342,417
   
$
1,390,870
   
$
1,354,325
 
Management and other fees from affiliates
   
2,371
     
2,647
     
9,183
     
9,574
 
     
353,158
     
345,064
     
1,400,053
     
1,363,899
 
                                 
Expenses:
                               
Property operating
   
98,450
     
96,075
     
385,334
     
375,386
 
Corporate-level property management expenses
   
7,749
     
7,552
     
31,062
     
30,156
 
Depreciation and amortization
   
120,597
     
117,988
     
479,884
     
468,881
 
General and administrative
   
16,912
     
10,659
     
53,451
     
41,385
 
Expensed acquisition and investment related costs
   
38
     
415
     
194
     
1,569
 
     
243,746
     
232,689
     
949,925
     
917,377
 
Earnings from operations
   
109,412
     
112,375
     
450,128
     
446,522
 
                                 
Interest expense, net (1)
   
(52,132
)
   
(53,116
)
   
(211,785
)
   
(212,796
)
Interest and other income
   
1,769
     
6,688
     
23,010
     
24,604
 
Equity income from co-investments
   
24,521
     
45,511
     
89,132
     
86,445
 
Loss on early retirement of debt
   
-
     
(1,796
)
   
-
     
(1,796
)
Gain on sale of real estate and land
   
39,617
     
-
     
61,861
     
26,423
 
Gain on remeasurement of co-investment
   
1,253
     
-
     
1,253
     
88,641
 
Net income
   
124,440
     
109,662
     
413,599
     
458,043
 
Net income attributable to noncontrolling interest
   
(6,620
)
   
(6,049
)
   
(23,446
)
   
(24,984
)
Net income available to common stockholders
 
$
117,820
   
$
103,613
   
$
390,153
   
$
433,059
 
                                 
Net income per share - basic
 
$
1.78
   
$
1.57
   
$
5.91
   
$
6.58
 
                                 
Shares used in income per share - basic
   
66,020,487
     
66,035,998
     
66,041,058
     
65,829,155
 
                                 
Net income per share - diluted
 
$
1.78
   
$
1.57
   
$
5.90
   
$
6.57
 
                                 
Shares used in income per share - diluted
   
66,079,796
     
66,103,882
     
66,085,089
     
65,898,255
 

(1)
Refer to page S-17.2, the section titled “Interest Expense, Net” for additional information.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-1

E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Operating Results
Selected Line Item Detail
 
Three Months Ended
December 31,
   
Twelve Months Ended
December 31,
 
(Dollars in thousands)
 
2018
   
2017
   
2018
   
2017
 
                         
Rental and other property
                       
Rental
 
$
326,974
   
$
319,500
   
$
1,296,435
   
$
1,263,476
 
Other property
   
23,813
     
22,917
     
94,435
     
90,849
 
Rental and other property
 
$
350,787
   
$
342,417
   
$
1,390,870
   
$
1,354,325
 
                                 
Property operating expenses
                               
Real estate taxes
 
$
39,147
   
$
38,027
   
$
151,525
   
$
146,310
 
Administrative
   
20,600
     
20,597
     
81,811
     
81,716
 
Maintenance and repairs
   
20,721
     
19,685
     
80,463
     
78,094
 
Utilities
   
17,982
     
17,766
     
71,535
     
69,266
 
Property operating expenses
 
$
98,450
   
$
96,075
   
$
385,334
   
$
375,386
 
                                 
Interest and other income
                               
Marketable securities and other income
 
$
7,286
   
$
6,429
   
$
26,871
   
$
22,670
 
Gain on sale of marketable securities
   
68
     
259
     
737
     
1,909
 
Unrealized losses on marketable securities (1)
   
(5,585
)
   
-
     
(5,159
)
   
-
 
Insurance reimbursements and legal settlements, net
   
-
     
-
     
561
     
25
 
Interest and other income
 
$
1,769
   
$
6,688
   
$
23,010
   
$
24,604
 
                                 
Equity income from co-investments
                               
Equity income from co-investments
 
$
4,143
   
$
3,998
   
$
17,021
   
$
17,334
 
Income from preferred equity investments
   
9,759
     
6,634
     
35,687
     
23,918
 
Gain on sale of co-investment communities
   
10,569
     
34,779
     
10,569
     
44,837
 
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
-
     
3,662
     
-
 
Co-investment promote income
   
-
     
-
     
20,541
     
-
 
Income from early redemption of preferred equity investments
   
50
     
100
     
1,652
     
356
 
Equity income from co-investments
 
$
24,521
   
$
45,511
   
$
89,132
   
$
86,445
 
                                 
Noncontrolling interest
                               
Limited partners of Essex Portfolio, L.P.
 
$
4,071
   
$
3,536
   
$
13,452
   
$
14,825
 
DownREIT limited partners’ distributions
   
1,580
     
1,496
     
6,350
     
6,433
 
Third-party ownership interest
   
969
     
1,017
     
3,644
     
3,726
 
Noncontrolling interest
 
$
6,620
   
$
6,049
   
$
23,446
   
$
24,984
 

(1)
The Company adopted ASU No. 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities”, as of January 1, 2018 using the modified-retrospective method. As a result of this adoption, the Company recognizes mark to market adjustments on equity securities through its income statement on a prospective basis. Prior period results have not been adjusted.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-2

E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Funds From Operations (1)
(Dollars in thousands, except share and per share amounts and in footnotes)
 
Three Months Ended
December 31,
       
Twelve Months Ended
December 31,
     
   
2018
   
2017
 
% Change
   
2018
   
2017
 
% Change
 
                                 
Funds from operations attributable to common stockholders and unitholders (FFO)
                               
Net income available to common stockholders
 
$
117,820
   
$
103,613
       
$
390,153
   
$
433,059
     
Adjustments:
                                       
Depreciation and amortization
   
120,597
     
117,988
         
479,884
     
468,881
     
Gains not included in FFO
   
(51,439
)
   
(34,779
)
       
(73,683
)
   
(159,901
)
   
Depreciation and amortization from unconsolidated co-investments
   
15,609
     
15,196
         
62,954
     
55,531
     
Noncontrolling interest related to Operating Partnership units
   
4,071
     
3,536
         
13,452
     
14,825
     
Depreciation attributable to third party ownership and other (2)
   
(241
)
   
(212
)
       
(940
)
   
(286
)
   
Funds from operations attributable to common stockholders and unitholders
 
$
206,417
   
$
205,342
       
$
871,820
   
$
812,109
     
FFO per share-diluted
 
$
3.02
   
$
3.01
 
0.3
%
 
$
12.76
   
$
11.91
 
7.1
%
                                         
Components of the change in FFO
                                       
Non-core items:
                                       
Expensed acquisition and investment related costs
 
$
38
   
$
415
       
$
194
   
$
1,569
     
Gain on sale of marketable securities
   
(68
)
   
(259
)
       
(737
)
   
(1,909
)
   
Unrealized losses on marketable securities
   
5,585
     
-
         
5,159
     
-
     
Interest rate hedge ineffectiveness (3)
   
87
     
(59
)
       
148
     
(78
)
   
Loss on early retirement of debt
   
-
     
1,796
         
-
     
1,796
     
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
-
         
(3,662
)
   
-
     
Co-investment promote income
   
-
     
-
         
(20,541
)
   
-
     
Income from early redemption of preferred equity investments
   
(50
)
   
(100
)
       
(1,652
)
   
(356
)
   
General and administrative and other, net
   
6,171
     
(1,418
)
       
8,745
     
(1,083
)
   
Insurance reimbursements and legal settlements, net
   
-
     
-
         
(561
)
   
(25
)
   
Core funds from operations attributable to common stockholders and unitholders
 
$
218,180
   
$
205,717
       
$
858,913
   
$
812,023
     
Core FFO per share-diluted
 
$
3.19
   
$
3.01
 
6.0
%
 
$
12.57
   
$
11.91
 
5.5
%
                                         
Changes in core items:
                                       
Same-property NOI
 
$
5,651
               
$
25,776
             
Non-same property NOI
   
344
                 
821
             
Management and other fees, net
   
(276
)
               
(391
)
           
FFO from co-investments
   
3,229
                 
18,425
             
Interest and other income
   
1,192
                 
4,201
             
Interest expense
   
838
                 
785
             
General and administrative
   
1,456
                 
(1,783
)
           
Corporate-level property management expenses
   
(197
)
               
(906
)
           
Other items, net
   
226
                 
(38
)
           
   
$
12,463
               
$
46,890
             
                                         
Weighted average number of shares outstanding diluted (4)
   
68,322,115
     
68,321,214
         
68,322,207
     
68,194,472
     

(1)
Refer to page S-17.2, the section titled “Funds from Operations (“FFO”) for additional information on the Company’s definition and use of FFO and Core FFO.
(2)
The Company consolidates certain co-investments. The noncontrolling interest’s share of net operating income in these investments for the three and twelve months ended December 31, 2018 was $1.3 million and $5.1 million, respectively.
(3)
Interest rate swaps are generally adjusted to fair value through other comprehensive income (loss). However, because certain of our interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as noncash interest rate hedge ineffectiveness through interest expense.
(4)
Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-3

E S S E X  P R O P E R T Y  T R U S T, I N C.

Consolidated Balance Sheets
(Dollars in thousands)
                
 
 
 
December 31, 2018
   
December 31, 2017
 
             
Real Estate:
           
Land and land improvements
 
$
2,701,356
   
$
2,719,064
 
Buildings and improvements
   
10,664,745
     
10,643,009
 
     
13,366,101
     
13,362,073
 
Less:  accumulated depreciation
   
(3,209,548
)
   
(2,769,297
)
     
10,156,553
     
10,592,776
 
Real estate under development
   
454,629
     
355,735
 
Co-investments
   
1,300,140
     
1,155,984
 
     
11,911,322
     
12,104,495
 
Cash and cash equivalents, including restricted cash
   
151,395
     
61,126
 
Marketable securities
   
209,545
     
190,004
 
Notes and other receivables
   
71,895
     
100,926
 
Prepaid expenses and other assets
   
39,439
     
39,155
 
Total assets
 
$
12,383,596
   
$
12,495,706
 
                 
Unsecured debt, net
 
$
3,799,316
   
$
3,501,709
 
Mortgage notes payable, net
   
1,806,626
     
2,008,417
 
Lines of credit
   
-
     
179,000
 
Distributions in excess of investments in co-investments
   
-
     
36,726
 
Other liabilities
   
348,335
     
333,823
 
Total liabilities
   
5,954,277
     
6,059,675
 
Redeemable noncontrolling interest
   
35,475
     
39,206
 
Equity:
               
Common stock
   
7
     
7
 
Additional paid-in capital
   
7,093,079
     
7,129,571
 
Distributions in excess of accumulated earnings
   
(812,796
)
   
(833,726
)
Accumulated other comprehensive loss, net
   
(13,217
)
   
(18,446
)
Total stockholders’ equity
   
6,267,073
     
6,277,406
 
Noncontrolling interest
   
126,771
     
119,419
 
Total equity
   
6,393,844
     
6,396,825
 
Total liabilities and equity
 
$
12,383,596
   
$
12,495,706
 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-4

E S S E X  P R O P E R T Y  T R U S T, I N C.

Debt Summary - December 31, 2018
                                 
(Dollars in thousands, except in footnotes)
                                 
                                     
                                     
               
Scheduled principal payments, unamortized premiums (discounts) and (debt issuance costs) are as follows - excludes lines of credit:
 
                             
Weighted
Average
Interest Rate
 
Percentage
of Total Debt
 
     
Weighted Average
                 
 
Balance
Outstanding
 
Interest
Rate
 
Maturity
in Years
     
Unsecured
 
Secured
 
Total
 
Unsecured Debt, net
                                   
Bonds private - fixed rate
$
275,000
   
4.5
%
 
2.1
   
2019
$
75,000
 
$
515,658
 
$
590,658
   
4.4
%
 
10.5
%
Bonds public - fixed rate
 
3,200,000
   
3.9
%
 
7.7
   
2020
 
-
   
693,723
   
693,723
   
5.0
%
 
12.3
%
Term loan (1)
 
350,000
   
3.0
%
 
3.1
   
2021
 
500,000
   
43,604
   
543,604
   
4.5
%
 
9.7
%
Unamortized net discounts and debt issuance costs
 
(25,684
)
 
-
   
-
   
2022
 
650,000
   
41,178
   
691,178
   
3.4
%
 
12.3
%
   
3,799,316
   
3.8
%
 
6.9
   
2023
 
600,000
   
852
   
600,852
   
3.7
%
 
10.7
%
Mortgage Notes Payable, net
                   
2024
 
400,000
   
932
   
400,932
   
4.0
%
 
7.1
%
Fixed rate - secured
 
1,526,270
   
4.6
%
 
2.3
   
2025
 
500,000
   
14,619
   
514,619
   
3.6
%
 
9.2
%
Variable rate - secured (2)
 
269,625
   
2.5
%
 
17.7
   
2026
 
450,000
   
99,405
   
549,405
   
3.5
%
 
9.8
%
Unamortized premiums and debt issuance costs, net
 
10,731
   
-
   
-
   
2027
 
350,000
   
153,955
   
503,955
   
3.6
%
 
9.0
%
Total mortgage notes payable
 
1,806,626
   
4.3
%
 
4.6
   
2028
 
-
   
68,332
   
68,332
   
4.1
%
 
1.2
%
                     
2029
 
-
   
31,156
   
31,156
   
2.4
%
 
0.5
%
Unsecured Lines of Credit
                   
Thereafter
 
300,000
   
132,481
   
432,481
   
3.9
%
 
7.7
%
Line of credit (3)
 
-
   
3.2
%
       
Subtotal
 
3,825,000
   
1,795,895
   
5,620,895
   
4.0
%
 
100.0
%
Line of credit (4)
 
-
   
3.2
%
       
Debt Issuance Costs
 
(18,543
)
 
(4,181
)
 
(22,724
)
NA
 
NA
 
Total lines of credit
 
-
   
3.2
%
       
(Discounts)/Premiums
 
(7,141
)
 
14,912
   
7,771
 
NA
 
NA
 
                     
Total
$
3,799,316
 
$
1,806,626
 
$
5,605,942
   
4.0
%
 
100.0
%
Total debt, net
$
5,605,942
   
4.0
%
                                       
                                                     

Capitalized interest for the three and twelve months ended December 31, 2018 was approximately $5.4 million and $18.7 million, respectively.

(1)
The unsecured term loan has a variable interest rate of LIBOR plus 0.95%. The Company has interest rate swap contracts with an aggregate notional amount of $175 million, which effectively converts the interest rate on $175 million of the term loan to a fixed rate of 2.3%.
(2)
$269.6 million of variable rate debt is tax exempt to the note holders. $9.9 million is subject to interest rate cap protection agreements.
(3)
As of December 31, 2018, this unsecured line of credit facility had a capacity of $1.2 billion, with a scheduled maturity date in December 2021 with one 18-month extension, exercisable at the Company’s option. The underlying interest rate on this line was based on a tiered rate structure tied to the Company’s corporate ratings and was LIBOR plus 0.875% as of December 31, 2018. In January 2019, the line of credit facility was amended such that the scheduled maturity date was extended to December 2022 with one 18-month extension, exercisable at the Company’s option. The underlying interest rate on the amended line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.825%.
(4)
This unsecured line of credit facility has a capacity $35.0 million and is scheduled to mature in January 2020. The underlying interest rate on this line is based on a tiered rate structure tied to the Company’s corporate ratings and is currently at LIBOR plus 0.875%.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-5

E S S E X  P R O P E R T Y  T R U S T, I N C.

Capitalization Data, Public Bond Covenants, Credit Ratings and Selected Credit Ratios - December 31, 2018
(Dollars and shares in thousands, except per share amounts)

 
         
 
     
        
 
Capitalization Data
         
Public Bond Covenants (1)
 
Actual
 
Requirement
 
Total debt, net
 
$
5,605,942
     
 
     
   
 
             
Adjusted Debt to Adjusted Total Assets:
   
36%

< 65%
 
Common stock and potentially dilutive securities
           
 
               
Common stock outstanding
   
65,890
     
 
             
Limited partnership units (1)
   
2,265
     
 
             
Options-treasury method
   
51
     
Secured Debt to Adjusted Total Assets:
   
12%

< 40%
 
Total shares of common stock and potentially dilutive securities
   
68,206
     
 
             
 
           
 
                  
Common stock price per share as of December 31, 2018
 
$
245.21
     
 
             
 
           
Interest Coverage:
   
437%

> 150%
 
Total equity capitalization
 
$
16,724,793
     
 
             
 
           
 
                  
Total market capitalization
 
$
22,330,735
     
Unsecured Debt Ratio (2):
   
285%

> 150%
 
 
           
 
       
        
 
Ratio of debt to total market capitalization
   
25.1
%
   
 
       
   
 
 
 
 
           
Selected Credit Ratios (3)
 
Actual
 
 
 
Credit Ratings
           
 
       
     
 
Rating Agency
Rating
Outlook
           
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized:
   
5.4
 
 
 
Fitch
BBB+
Positive
           
 
       
     
 
Moody’s
Baa1
Stable
           
Unencumbered NOI to Adjusted Total NOI:
   
74%

 
 
Standard & Poor’s
BBB+
Stable
           
 
       
     
 
                               
(1)    Assumes conversion of all outstanding limited partnership units in the Operating Partnership into shares of the Company’s common stock.
     
(1)    Refer to page S-17.4 for additional information on the Company’s Public Bond Covenants.
 
               
(2)   Unsecured Debt Ratio is unsecured assets (excluding investments in co-investments) divided by unsecured indebtedness.
 
               
(3)    Refer to pages S-17.1 to S-17.4, the section titled “Reconciliations of Non-GAAP Financial Measures and Other Terms” for additional information on the Company’s Selected Credit Ratios.
 
                             

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-6

E S S E X  P R O P E R T Y  T R U S T, I N C.

Portfolio Summary by County as of December 31, 2018

 
 
Apartment Homes
   
Average Monthly Rental Rate (1)
   
Percent of NOI (2)
 
Region - County
 
Consolidated (3)
   
Unconsolidated
Co-investments (3)
   
Apartment
Homes in
Development (4)
   
Total
   
Consolidated
   
Unconsolidated
Co-investments (5)
   
Total (6)
   
Consolidated
   
Unconsolidated
Co-investments (5)
   
Total (6)
 
 
                                                           
Southern California
                                                           
Los Angeles County
   
9,097
     
1,563
     
200
     
10,860
   
$
2,411
   
$
2,107
   
$
2,386
     
19.0
%
   
12.1
%
   
18.4
%
Orange County
   
5,553
     
1,149
     
-
     
6,702
     
2,182
     
1,897
     
2,155
     
10.8
%
   
8.8
%
   
10.6
%
San Diego County
   
4,824
     
616
     
-
     
5,440
     
1,934
     
1,802
     
1,926
     
8.2
%
   
4.2
%
   
7.8
%
Ventura County
   
2,577
     
693
     
-
     
3,270
     
1,816
     
2,145
     
1,858
     
4.4
%
   
6.4
%
   
4.6
%
Other Southern CA
   
623
     
-
     
-
     
623
     
1,645
     
-
     
1,645
     
0.9
%
   
-
     
0.8
%
Total Southern California
   
22,674
     
4,021
     
200
     
26,895
     
2,165
     
2,010
     
2,152
     
43.3
%
   
31.5
%
   
42.2
%
                                                                                 
Northern California
                                                                               
Santa Clara County
   
7,522
     
2,318
     
745
     
10,585
     
2,754
     
2,878
     
2,772
     
19.1
%
   
26.3
%
   
19.7
%
Alameda County
   
2,954
     
1,983
     
-
     
4,937
     
2,545
     
2,353
     
2,494
     
6.7
%
   
20.3
%
   
8.1
%
San Mateo County
   
1,951
     
197
     
371
     
2,519
     
2,972
     
2,969
     
2,972
     
5.3
%
   
2.3
%
   
5.0
%
Contra Costa County
   
2,270
     
49
     
-
     
2,319
     
2,316
     
4,648
     
2,341
     
4.9
%
   
0.7
%
   
4.4
%
San Francisco
   
1,343
     
463
     
545
     
2,351
     
3,142
     
3,279
     
3,164
     
3.4
%
   
6.0
%
   
3.7
%
Other Northern CA
   
96
     
-
     
-
     
96
     
3,006
     
-
     
3,006
     
0.3
%
   
-
     
0.3
%
Total Northern California
   
16,136
     
5,010
     
1,661
     
22,807
     
2,714
     
2,727
     
2,716
     
39.7
%
   
55.6
%
   
41.2
%
                                                                                 
Seattle Metro
   
10,238
     
1,582
     
-
     
11,820
     
1,840
     
1,829
     
1,839
     
17.0
%
   
12.9
%
   
16.6
%
                                                                                 
Total
   
49,048
     
10,613
     
1,861
     
61,522
   
$
2,276
   
$
2,325
   
$
2,281
     
100.0
%
   
100.0
%
   
100.0
%

(1)
Average monthly rental rate is defined as the total potential monthly rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes) divided by the number of apartment homes.
(2)
Actual NOI for the quarter ended December 31, 2018. See the section titled “Net Operating Income (“NOI”) and Same-Property NOI Reconciliations” on page S-17.3.
(3)
Includes all apartment communities with rents.
(4)
Includes development communities with no rental income.
(5)
Co-investment amounts weighted for Company’s pro rata share.
(6)
At Company’s pro rata share.

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-7

E S S E X  P R O P E R T Y  T R U S T, I N C.

Operating Income by Quarter (1)
(Dollars in thousands, except in footnotes)

   
Apartment
Homes
   
Q4 ‘18
   
Q3 ‘18
   
Q2 ‘18
   
Q1 ‘18
   
Q4 ‘17
 
                                     
Rental and other property revenues:
                                   
Same-property
   
46,573
   
$
323,655
   
$
321,000
   
$
318,101
   
$
316,884
   
$
314,651
 
Acquisitions (2)
   
1,494
     
10,902
     
10,695
     
10,501
     
10,383
     
10,435
 
Development (3)
   
121
     
1,153
     
1,091
     
450
     
19
     
-
 
Redevelopment
   
621
     
5,160
     
5,125
     
5,036
     
5,024
     
5,005
 
Non-residential/other, net (4)
   
239
     
9,917
     
10,699
     
12,438
     
12,637
     
12,326
 
Total rental and other property revenues
   
49,048
     
350,787
     
348,610
     
346,526
     
344,947
     
342,417
 
                                                 
Property operating expenses:
                                               
Same-property
           
91,458
     
90,471
     
87,516
     
87,657
     
88,105
 
Acquisitions (2)
           
2,917
     
2,842
     
2,116
     
3,074
     
3,116
 
Development (3)
           
535
     
638
     
498
     
64
     
-
 
Redevelopment
           
1,569
     
1,647
     
1,468
     
1,469
     
1,528
 
Non-residential/other, net (4) (5)
           
1,971
     
2,177
     
2,548
     
2,699
     
3,326
 
Total property operating expenses
           
98,450
     
97,775
     
94,146
     
94,963
     
96,075
 
                                                 
Net operating income (NOI):
                                               
Same-property
           
232,197
     
230,529
     
230,585
     
229,227
     
226,546
 
Acquisitions (2)
           
7,985
     
7,853
     
8,385
     
7,309
     
7,319
 
Development (3)
           
618
     
453
     
(48
)
   
(45
)
   
-
 
Redevelopment
           
3,591
     
3,478
     
3,568
     
3,555
     
3,477
 
Non-residential/other, net (4)
           
7,946
     
8,522
     
9,890
     
9,938
     
9,000
 
Total NOI
         
$
252,337
   
$
250,835
   
$
252,380
   
$
249,984
   
$
246,342
 
                                                 
Same-property metrics
                                               
Operating margin
           
72
%
   
72
%
   
72
%
   
72
%
   
72
%
Annualized turnover (6)
           
41
%
   
56
%
   
53
%
   
40
%
   
46
%
Financial occupancy (7)
           
96.8
%
   
96.4
%
   
96.7
%
   
97.1
%
   
96.8
%

(1)
Includes consolidated communities only.
(2)
Acquisitions include properties acquired which did not have comparable stabilized results as of January 1, 2017.
(3)
Development includes properties developed which did not have comparable stabilized results as of January 1, 2017.
(4)
Other real estate assets consists mainly of retail space, commercial properties, boat slips, held for sale properties, disposition properties, and student housing.
(5)
Includes other expenses and intercompany eliminations pertaining to self-insurance.
(6)
Annualized turnover is defined as the number of apartment homes turned over during the quarter, annualized, divided by the total number of apartment homes.
(7)
Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rent for occupied apartment homes plus market rent for vacant apartment homes).

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-8

E S S E X  P R O P E R T Y  T R U S T, I N C.

Same-Property Results by County - Fourth Quarter 2018 vs. Fourth Quarter 2017 and Third Quarter 2018
(Dollars in thousands, except average monthly rental rates)

 
         
Average Monthly Rental Rate
 
Financial Occupancy
 
Gross Revenues
 
Sequential Gross
Revenues
 
Region - County
 
Apartment
Homes
 
Q4 ‘18 %
of Actual
NOI
 
Q4 ‘18
 
Q4 ‘17
 
% Change
 
Q4 ‘18
 
Q4 ‘17
 
% Change
 
Q4 ‘18
 
Q4 ‘17
   
% Change
 
Q3 ‘18
 
% Change
 
 
                                                       
Southern California
                                                       
Los Angeles County
   
8,641
   
19.3
%
$
2,420
 
$
2,351
   
2.9
%
 
96.6
%
 
96.7
%
 
-0.1
%
$
63,700
 
$
61,723
     
3.2
%
$
63,053
   
1.0
%
Orange County
   
5,553
   
11.4
%
 
2,182
   
2,125
   
2.7
%
 
96.6
%
 
96.9
%
 
-0.3
%
 
36,705
   
35,944
     
2.1
%
 
36,417
   
0.8
%
San Diego County
   
4,824
   
8.7
%
 
1,934
   
1,870
   
3.4
%
 
97.0
%
 
96.8
%
 
0.2
%
 
28,585
   
27,708
     
3.2
%
 
28,510
   
0.3
%
Ventura County
   
2,577
   
4.7
%
 
1,816
   
1,750
   
3.8
%
 
97.1
%
 
97.5
%
 
-0.4
%
 
14,562
   
14,069
     
3.5
%
 
14,453
   
0.8
%
Other Southern CA
   
384
   
0.4
%
 
1,326
   
1,265
   
4.8
%
 
96.4
%
 
97.4
%
 
-1.0
%
 
1,569
   
1,502
     
4.5
%
 
1,570
   
-0.1
%
Total Southern California
   
21,979
   
44.5
%
 
2,163
   
2,099
   
3.0
%
 
96.7
%
 
96.9
%
 
-0.2
%
 
145,121
   
140,946
     
3.0
%
 
144,003
   
0.8
%
 
                                                                                 
Northern California
                                                                                 
Santa Clara County
   
6,028
   
16.7
%
 
2,779
   
2,679
   
3.7
%
 
96.9
%
 
96.9
%
 
0.0
%
 
51,062
   
49,455
     
3.2
%
 
50,610
   
0.9
%
Alameda County
   
2,954
   
7.1
%
 
2,545
   
2,488
   
2.3
%
 
96.8
%
 
97.0
%
 
-0.2
%
 
23,084
   
22,504
     
2.6
%
 
22,930
   
0.7
%
San Mateo County
   
1,830
   
5.3
%
 
2,938
   
2,828
   
3.9
%
 
96.8
%
 
96.6
%
 
0.2
%
 
16,597
   
15,931
     
4.2
%
 
16,534
   
0.4
%
Contra Costa County
   
2,270
   
5.1
%
 
2,316
   
2,275
   
1.8
%
 
97.4
%
 
97.4
%
 
0.0
%
 
16,225
   
15,953
     
1.7
%
 
16,124
   
0.6
%
San Francisco
   
1,178
   
3.0
%
 
3,029
   
2,953
   
2.6
%
 
95.9
%
 
96.1
%
 
-0.2
%
 
10,895
   
10,694
     
1.9
%
 
10,765
   
1.2
%
Other Northern CA
   
96
   
0.3
%
 
3,006
   
2,895
   
3.8
%
 
100.0
%
 
99.8
%
 
0.2
%
 
886
   
860
     
3.0
%
 
803
   
10.3
%
Total Northern California
   
14,356
   
37.5
%
 
2,700
   
2,619
   
3.1
%
 
96.9
%
 
96.9
%
 
0.0
%
 
118,749
   
115,397
     
2.9
%
 
117,766
   
0.8
%
 
                                                                                 
Seattle Metro
   
10,238
   
18.0
%
 
1,840
   
1,799
   
2.3
%
 
96.7
%
 
96.4
%
 
0.3
%
 
59,785
   
58,308
     
2.5
%
 
59,231
   
0.9
%
 
                                                                                 
Total Same-Property
   
46,573
   
100.0
%
$
2,257
 
$
2,193
   
2.9
%
 
96.8
%
 
96.8
%
 
0.0
%
$
323,655
 
$
314,651
     
2.9
%
$
321,000
   
0.8
%
 
                                                                                 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-9

E S S E X  P R O P E R T Y  T R U S T, I N C.

Same-Property Revenue Results by County - Twelve months ended December 31, 2018 vs. Twelve months ended December 31, 2017
(Dollars in thousands, except average monthly rental rates)

 
                                                                 
 
       
YTD
   
Average Monthly Rental Rate
   
Financial Occupancy
   
Gross Revenues
 
Region - County
 
Apartment
Homes
   
2018 % of
Actual
NOI
   
YTD
2018
   
YTD
2017
   
%
Change
   
YTD
2018
   
YTD
2017
   
%
Change
   
YTD
2018
   
YTD
2017
   
%
Change
 
 
                                                                 
Southern California
                                                                 
Los Angeles County
   
8,641
     
19.2
%
 
$
2,389
   
$
2,338
     
2.2
%
   
96.6
%
   
96.3
%
   
0.3
%
 
$
251,321
   
$
244,118
     
3.0
%
Orange County
   
5,553
     
11.2
%
   
2,158
     
2,103
     
2.6
%
   
96.5
%
   
96.7
%
   
-0.2
%
   
145,239
     
141,886
     
2.4
%
San Diego County
   
4,824
     
8.8
%
   
1,907
     
1,848
     
3.2
%
   
97.0
%
   
96.5
%
   
0.5
%
   
113,184
     
109,305
     
3.5
%
Ventura County
   
2,577
     
4.7
%
   
1,790
     
1,723
     
3.9
%
   
97.3
%
   
97.3
%
   
0.0
%
   
57,691
     
55,329
     
4.3
%
Other Southern CA
   
384
     
0.5
%
   
1,301
     
1,251
     
4.0
%
   
97.0
%
   
97.0
%
   
0.0
%
   
6,223
     
5,992
     
3.9
%
Total Southern California
   
21,979
     
44.4
%
   
2,135
     
2,080
     
2.6
%
   
96.7
%
   
96.6
%
   
0.1
%
   
573,658
     
556,630
     
3.1
%
 
                                                                                       
Northern California
                                                                                       
Santa Clara County
   
6,028
     
16.6
%
   
2,738
     
2,674
     
2.4
%
   
97.0
%
   
97.0
%
   
0.0
%
   
201,748
     
197,106
     
2.4
%
Alameda County
   
2,954
     
7.2
%
   
2,523
     
2,476
     
1.9
%
   
96.7
%
   
96.0
%
   
0.7
%
   
91,357
     
88,739
     
3.0
%
San Mateo County
   
1,830
     
5.3
%
   
2,893
     
2,826
     
2.4
%
   
97.1
%
   
97.0
%
   
0.1
%
   
65,550
     
63,659
     
3.0
%
Contra Costa County
   
2,270
     
5.1
%
   
2,304
     
2,265
     
1.7
%
   
97.1
%
   
97.3
%
   
-0.2
%
   
64,441
     
63,153
     
2.0
%
San Francisco
   
1,178
     
3.2
%
   
2,994
     
2,944
     
1.7
%
   
95.6
%
   
96.3
%
   
-0.7
%
   
42,977
     
42,303
     
1.6
%
Other Northern CA
   
96
     
0.3
%
   
2,947
     
2,810
     
4.9
%
   
96.6
%
   
97.5
%
   
-0.9
%
   
3,384
     
3,281
     
3.1
%
Total Northern California
   
14,356
     
37.7
%
   
2,667
     
2,611
     
2.1
%
   
96.8
%
   
96.8
%
   
0.0
%
   
469,457
     
458,241
     
2.4
%
 
                                                                                       
Seattle Metro
   
10,238
     
17.9
%
   
1,824
     
1,775
     
2.8
%
   
96.5
%
   
96.4
%
   
0.1
%
   
236,525
     
229,872
     
2.9
%
 
                                                                                       
Total Same-Property
   
46,573
     
100.0
%
 
$
2,231
   
$
2,177
     
2.5
%
   
96.7
%
   
96.6
%
   
0.1
%
 
$
1,279,640
   
$
1,244,743
     
2.8
%
                                                                                         

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-9.1

E S S E X  P R O P E R T Y  T R U S T, I N C.

Same-Property Operating Expenses - Quarter and Year to Date as of December 31, 2018 and 2017
(Dollars in thousands)

       
   
Based on 46,573 apartment homes
 
                                                 
   
Q4 ‘18
   
Q4 ‘17
   
% Change
   
% of Op. Ex.
   
YTD 2018
   
YTD 2017
   
% Change
   
% of Op. Ex.
 
                                                 
Same-property operating expenses:
                                               
Real estate taxes
 
$
35,835
   
$
34,188
     
4.8
%
   
39.2
%
 
$
138,445
   
$
133,522
     
3.7
%
   
38.8
%
Maintenance and repairs
   
19,116
     
17,943
     
6.5
%
   
20.9
%
   
73,808
     
71,632
     
3.0
%
   
20.7
%
Administrative
   
16,851
     
16,840
     
0.1
%
   
18.4
%
   
67,028
     
66,975
     
0.1
%
   
18.8
%
Utilities
   
16,454
     
16,154
     
1.9
%
   
18.0
%
   
65,552
     
63,324
     
3.5
%
   
18.4
%
Insurance
   
3,202
     
2,980
     
7.4
%
   
3.5
%
   
12,269
     
12,528
     
-2.1
%
   
3.3
%
Total same-property operating expenses
 
$
91,458
   
$
88,105
     
3.8
%
   
100.0
%
 
$
357,102
   
$
347,981
     
2.6
%
   
100.0
%
                                                                 

See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-10

E S S E X  P R O P E R T Y  T R U S T, I N C.

Development Pipeline - December 31, 2018
(Dollars in millions, except per apartment home amounts in thousands and except in footnotes)

Project Name
 
Location
 
Ownership
%
 
Estimated
Apartment
Homes
 
Estimated
Commercial
sq. feet
 
Incurred to
Date
 
Remaining
Costs
 
Estimated Total
Cost
 
Essex Est.
Total Cost (1)
 
Cost per
Apartment
Home (2)
 
Average
%
Occupied
 
%
Leased
(3)
 
Construction
Start
 
Initial
Occupancy
 
Stabilized
Operations
                                                         
Development Projects - Consolidated (4)
                                                       
Station Park Green - Phase II (5)
 
San Mateo, CA
 
100
%
199
 
-
  $
110
  $
31
  $
141
  $
141
  $
709  
0
%
0
%
Q2 2017
 
Q2 2019
 
Q4 2019
Station Park Green - Phase III (5)
 
San Mateo, CA
 
100
%
172
 
-
   
87
   
37
   
124
   
124
 
721
 
0
%
0
%
Q3 2017
 
Q3 2019
 
Q1 2020
Gateway Village (6)
 
Santa Clara, CA
 
100
%
476
 
-
   
155
   
71
   
226
   
226
 
475
 
0
%
0
%
Q3 2016
 
Q2 2019
 
Q2 2020
Hollywood (7)
 
Hollywood, CA
 
100
%
200
 
4,700
   
43
   
62
   
105
   
105
 
500
 
0
%
0
%
Q4 2017
 
Q1 2020
 
Q3 2020
Total Development Projects - Consolidated
       
1,047
 
4,700
 

395
 

201
 

596
 
596   564                    
                                                                 
Land Held for Future Development - Consolidated
                                                             
Other Projects (5)(7)
 
Various
 
100
%
         
71
   
-
   
71
   
71
                       
Total Development Pipeline - Consolidated
       
1,047
 
4,700
 
466
 

201
 
667
 
667                        
                                                                 
Development Projects - Joint Venture (4)
                                                               
Ohlone
 
San Jose, CA
 
50
%
269
 
-
   
70
   
66
   
136
   
68
 
506
 
0
%
0
%
Q3 2017
 
Q4 2019
 
Q3 2020
500 Folsom (8)
 
San Francisco, CA
 
50
%
545
 
6,000
   
265
   
150
   
415
   
208
 
751
 
0
%
0
%
Q4 2015
 
Q3 2019
 
Q4 2020
Total Development Projects - Joint Venture
       
814
 
6,000
 
335  
216  

551
 

276
 
$
670                    
                                                                 
Land Held for Future Development - Joint Venture
                                                             
Other Projects
 
Various
 
50
%
         
11
   
-
   
11
   
6
                       
Total Development Pipeline - Joint Venture
       
814
 
6,000
 

346
 
216  
562
 

282
                       
                                                                 
Grand Total - Development Pipeline
         
1,861
 
10,700
 
$
812
 
$
417
 
$
1,229
   
949
                       
Essex Cost Incurred to Date - Pro Rata
                                     
(639
)
                     
Essex Remaining Commitment
                                   
$
310
                       

(1)
The Company’s share of the estimated total cost of the project.
(2)
Net of the estimated allocation to the retail component of the project.
(3)
Calculations are based on multifamily operations only and are as of December 31, 2018.
(4)
For the fourth quarter of 2018, the Company’s cost includes $5.2 million of capitalized interest, $1.2 million of capitalized overhead and $1.5 million of development fees (such development fees reduced G&A expenses).
(5)
Development of Station Park Green - Phases II and III are reflected under Development Projects - Consolidated. Costs incurred for Station Park Green - Phase IV, which consists of 107 apartment homes, are included in Land Held for Future Development - Consolidated.
(6)
Cost incurred to date does not include a deduction of $4.7 million for accumulated depreciation recorded during the period when the property was held as a retail operating asset.
(7)
Cost incurred to date does not include a deduction of $6.3 million for accumulated depreciation recorded during the period when one property was held as a retail operating asset.
(8)
Estimated cost incurred to date and total cost are net of a projected value for low income housing tax credit proceeds and the value of the tax exempt bond structure.



See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-11

E S S E X  P R O P E R T Y  T R U S T, I N C.

Redevelopment Pipeline - December 31, 2018
(Dollars in thousands)

 
Region/Project Name
  
Apartment
Homes
     
Total
Incurred
To Date
     

Estimated
Remaining
Cost
     

Estimated
Total
Cost
     

Project
Start Date
     
NOI
Twelve Months Ended
 
2018
   
2017
 
                                           
Same-Property - Redevelopment Projects (1)
                                         
Southern California
                                         
Hamptons
   
215
   
$
20,200
   
$
3,400
   
$
23,600
     
Q1 2014
             
Kings Road
   
196
     
7,200
     
5,000
     
12,200
     
Q4 2016
             
The Palms at Laguna Niguel
   
460
     
4,400
     
5,100
     
9,500
     
Q4 2016
             
Northern California
                                                   
Crow Canyon
   
400
     
6,200
     
1,200
     
7,400
     
Q1 2017
             
Total Same-Property - Redevelopment Projects
   
1,271
   
$
38,000
   
$
14,700
   
$
52,700
           
$
24,124
   
$
23,378
 
                                                         
Non-Same Property - Redevelopment Projects
                                                       
Southern California
                                                       
Bunker Hill Towers
   
456
   
$
74,300
   
$
13,100
   
$
87,400
     
Q3 2013
                 
Total Non-Same Property - Redevelopment Projects
   
456
   
$
74,300
   
$
13,100
   
$
87,400
           
$
8,522
   
$
8,109
 

(1)
Redevelopment activities are ongoing at these communities, but the communities have stabilized operations, therefore results are classified in same-property results.



See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-12

E S S E X  P R O P E R T Y  T R U S T, I N C.

Capital Expenditures - December 31, 2018 (1)
(Dollars in thousands, except in footnotes and per apartment home amounts)

Revenue Generating Capital Expenditures (2)
 
Q4 ‘18
   
Q3 ‘18
   
Q2 ‘18
   
Q1 ‘18
   
Trailing 4
Quarters
 
Same-property portfolio
 
$
12,958
   
$
16,215
   
$
13,989
   
$
9,910
   
$
53,072
 
Non-same property portfolio
   
3,220
     
3,652
     
2,653
     
2,869
     
12,394
 
Total revenue generating capital expenditures
 
$
16,178
   
$
19,867
   
$
16,642
   
$
12,779
   
$
65,466
 
                                         
Number of same-property interior renovations completed
   
538
     
777
     
804
     
499
     
2,618
 
Number of total consolidated interior renovations completed
   
580
     
846
     
860
     
522
     
2,808
 
                                         
Non-Revenue Generating Capital Expenditures (3)
 
Q4 ‘18
   
Q3 ‘18
   
Q2 ‘18
   
Q1 ‘18
   
Trailing 4
Quarters
 
Non-revenue generating capital expenditures (4)
 
$
20,863
   
$
17,554
   
$
16,178
   
$
11,567
   
$
66,162
 
Average apartment homes in quarter
   
49,110
     
49,172
     
49,362
     
49,490
     
49,283
 
Capital expenditures per apartment homes in the quarter
 
$
425
   
$
357
   
$
328
   
$
234
   
$
1,342
 

(1)
The Company incurred $0.2 million of capitalized interest, $2.4 million of capitalized overhead and $0.1 million of co-investment fees related to redevelopment in Q4 2018.
(2)
Represents revenue generating or expense saving expenditures, such as full-scale redevelopments shown on page S-12, interior unit turn renovations, enhanced amenities and certain resource management initiatives.
(3)
Represents roof replacements, paving, building and mechanical systems, exterior painting, siding, etc.
(4)
Non-revenue generating capital expenditures does not include expenditures incurred due to changes in governmental regulations that the Company would not have incurred otherwise, retail, furniture and fixtures, and expenditures in which the Company expects to be reimbursed.



See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-12.1

E S S E X P R O P E R T Y T R U S T, I N C.

Co-investments and Preferred Equity Investments - December 31, 2018
(Dollars in thousands)

 
 
Weighted
Average Essex
Ownership
Percentage
   
Apartment
Homes
   
Total
Undepreciated
Book Value
   
Debt
Amount
   
Essex
Book
Value
   
Weighted
Average
Borrowing Rate
   
Remaining
Term of
Debt (in Years)
   
Three Months Ended
December 31, 2018
   
Twelve Months Ended
December 31, 2018
 
Operating and Other Non-Consolidated Joint Ventures                                            
NOI
 
Wesco I, III, IV, and V
   
52
%
   
4,671
   
$
1,391,602
   
$
809,836
   
$
194,890
     
4.0
%
   
3.9
   
$
21,486
   
$
83,947
 
BEXAEW, BEX II, and BEX III
   
50
%
   
2,496
     
666,724
     
368,816
     
121,780
     
3.5
%
   
4.3
     
10,283
     
41,104
 
CPPIB
   
54
%
   
2,483
     
955,832
     
-
     
482,507
     
-
     
-
     
14,860
     
57,532
 
Other
   
51
%
   
963
     
350,985
     
267,569
     
34,093
     
3.8
%
   
5.1
     
6,013
     
24,568
 
Total Operating and Other Non-Consolidated Joint Ventures
           
10,613
   
$
3,365,143
   
$
1,446,221
   
$
833,270
     
3.8
%
   
4.2
   
$
52,642
   
$
207,151
 
Pre-Development and Development Non-Consolidated Joint Ventures (1)
   
50
%
   
814
     
345,982
     
167,968
     
94,060
     
4.1
%
   
26.3
(2) 
   
-
     
-
 
Total Non-Consolidated Joint Ventures
           
11,427
   
$
3,711,125
   
$
1,614,189
   
$
927,330
     
4.1
%
   
26.3
   
$
52,642
   
$
207,151
 

   
Essex Portion of NOI and Expenses
 
NOI
 
$
27,824
   
$
109,474
 
Depreciation
   
(15,609
)
   
(62,954
)
Interest expense and other
   
(8,072
)
   
(29,499
)
Gain on early retirement of debt from unconsolidated co-investment
   
-
     
3,662
 
Gain on sale of co-investment communities
   
10,569
     
10,569
 
Promote income
   
-
     
20,541
 
Net income from operating and other co-investments
 
$
14,712
   
$
51,793
 

         
Weighted
Average
Preferred
Return
   
Weighted
Average
Expected
Term
   
Income from Preferred Equity
Investments
 
Income from preferred equity investments
                   
$
9,759
   
$
35,687
 
Income from early redemption of preferred equity investments
                     
50
     
1,652
 
Preferred Equity Investments (3)
 
$
372,810
     
10.8
%
   
2.7
   
$
9,809
   
$
37,339
 
                                         
Total Co-investments
 
$
1,300,140
                   
$
24,521
   
$
89,132
 

(1)
The Company has ownership interests in development co-investments, which are detailed on page S-11.
(2)
$132.0 million of the debt related to 500 Folsom, one of the Company’s development co-investments, is financed by tax exempt bonds with a maturity date of January 2052.
(3)
As of December 31, 2018, the Company has invested in 17 preferred equity investments.



See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional information

S-13

E S S E X  P R O P E R T Y  T R U S T, I N C.
Assumptions for 2019 FFO Guidance Range
Q4 2018 Earnings Results Supplement

The guidance projections below are based on current expectations and are forward-looking. See page S-14.1 for the reconciliations of earnings per share (“EPS”) to FFO per share and Core FFO per share. The guidance on this page is given for Net Operating Income (“NOI”) and Total and Core FFO. See pages S-17.1 to S-17.4 for the definitions of non-GAAP financial measures and other terms.

($'s in thousands, except per share data)
                 
   
2018
   
2019 Full-Year Guidance Range
 
   
Actuals (1)
   
Low End
   
High End
 
                   
Total NOI from Consolidated Communities
 
$
1,005,536
   
$
1,021,000
   
$
1,039,000
 
                         
Accretion from Acquisitions/Dispositions/Preferred Equity
   
-
     
500
     
1,500
 
                         
Management Fees
   
9,183
     
9,100
     
10,100
 
                         
Interest Expense
                       
Interest expense, before capitalized interest
   
(230,345
)
   
(236,100
)
   
(232,700
)
Interest capitalized
   
18,708
     
19,000
     
21,000
 
Net interest expense
   
(211,637
)
   
(217,100
)
   
(211,700
)
                         
Recurring Income and Expenses
                       
Interest and other income
   
26,871
     
29,700
     
30,700
 
FFO from co-investments
   
115,734
     
117,800
     
121,000
 
General and administrative
   
(44,778
)
   
(45,200
)
   
(47,300
)
Corporate-level property management expenses
   
(31,062
)
   
(32,100
)
   
(33,100
)
Non-controlling interest
   
(10,934
)
   
(11,500
)
   
(10,500
)
Total recurring income and expenses
   
55,831
     
58,700
     
60,800
 
                         
Non-Core Income and Expenses
                       
Expensed acquisition and investment related costs
   
(194
)
   
(300
)
   
(900
)
Gain on sale of marketable securities
   
737
     
-
     
-
 
Unrealized losses on marketable securities
   
(5,159
)
   
-
     
-
 
Interest rate hedge ineffectiveness
   
(148
)
   
-
     
-
 
Gain on early retirement of debt from unconsolidated co-investment
   
3,662
     
-
     
-
 
Co-investment promote income
   
20,541
     
-
     
-
 
Income from early redemption of preferred equity investments
   
1,652
     
-
     
-
 
General and administrative and other, net
   
(8,745
)
   
-
     
-
 
Insurance reimbursements and legal settlements, net
   
561
     
-
     
-
 
Total non-core income and expenses
   
12,907
     
(300
)
   
(900
)
                         
Funds from Operations (2)
 
$
871,820
   
$
871,900
   
$
898,800
 
                         
Funds from Operations per diluted share
 
$
12.76
   
$
12.82
   
$
13.22
 
                         
% Change - Funds from Operations
   
7.1
%
   
0.5
%
   
3.6
%
                         
Core Funds from Operations (excludes non-core items)
 
$
858,913
   
$
872,200
   
$
899,700
 
                         
Core Funds from Operations per diluted share
 
$
12.57
   
$
12.83
   
$
13.23
 
                         
% Change - Core Funds from Operations
   
5.5
%
   
2.0
%
   
5.3
%
                         
EPS - Diluted
 
$
5.90
   
$
4.81
   
$
5.21
 
                         
Weighted average shares outstanding - FFO calculation
   
68,322
     
68,000
     
68,000
 

(1)
All non-core items are excluded from the 2018 actuals and included in the non-core income and expense section of the FFO reconciliation.
(2)
2019 guidance excludes inestimable projected gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs, and promote income until they are realized within the reporting period presented in the report.
 

See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-14

E S S E X  P R O P E R T Y  T R U S T, I N C.

Reconciliation of Projected EPS, FFO and Core FFO per diluted share

Projected EPS, FFO and Core FFO per diluted share

With respect to the Company's guidance regarding its projected FFO and Core FFO, which guidance is set forth in the earnings release and on page S-14 of this supplement, a reconciliation of projected net income per share to projected FFO per share and projected Core FFO per share, as set forth in such guidance, is presented in the table below.

         
2019 Guidance Range (1)
 
   
2018 Actuals
   
1st Quarter 2019
   
Full-Year 2019
 
   
Low
   
High
   
Low
   
High
 
EPS - diluted
 
$
5.90
   
$
1.14
   
$
1.24
   
$
4.81
   
$
5.21
 
Conversion from GAAP share count
   
(0.19
)
   
(0.04
)
   
(0.04
)
   
(0.17
)
   
(0.17
)
Depreciation and amortization
   
7.95
     
2.00
     
2.00
     
8.01
     
8.01
 
Noncontrolling interest related to Operating Partnership units
   
0.18
     
0.04
     
0.04
     
0.17
     
0.17
 
Gain on sale of real estate
   
(1.08
)
   
-
     
-
     
-
     
-
 
FFO per share - diluted
   
12.76
     
3.14
     
3.24
     
12.82
     
13.22
 
Expensed acquisition and investment related costs
   
-
     
-
     
-
     
0.01
     
0.01
 
Gain on sale of marketable securities
   
(0.01
)
   
-
     
-
     
-
     
-
 
Unrealized losses on marketable securities
   
0.08
     
-
     
-
     
-
     
-
 
Interest rate hedge ineffectiveness
   
-
     
-
     
-
     
-
     
-
 
Gain on early retirement of debt from unconsolidated co-investment
   
(0.05
)
   
-
     
-
     
-
     
-
 
Co-investment promote income
   
(0.30
)
   
-
     
-
     
-
     
-
 
Income from early redemption of preferred equity investments
   
(0.02
)
   
-
     
-
     
-
     
-
 
General and administrative and other, net
   
0.12
     
-
     
-
     
-
     
-
 
Insurance reimbursements and legal settlements, net
   
(0.01
)
   
-
     
-
     
-
     
-
 
Core FFO per share - diluted
 
$
12.57
   
$
3.14
   
$
3.24
   
$
12.83
   
$
13.23
 

(1)
2019 guidance excludes inestimable projected gain on sale of real estate and land, gain on sale of marketable securities, loss on early retirement of debt, political/legislative costs, and promote income until they are realized within the reporting period presented in the report.

 

See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-14.1

E S S E X  P R O P E R T Y  T R U S T, I N C.

Summary of Apartment Community Acquisitions and Dispositions Activity
Year to date as of December 31, 2018
(Dollars in thousands)

Acquisitions
             
        
                 
Property Name
 
Location
   
Apartment
Homes
   
Essex
Ownership
Percentage
 
Entity
Date
 
Total
Contract
Price
     
Price per
Apartment Home
     
Average
Rent
 
                                             
Meridian at Midtown
 
San Jose, CA
     
218
     
50
%
JV
Oct-18
 
$
104,000
(1)

 
$
446
(2)
   
$
2,787
 
Marquis(3)
 
San Jose, CA
     
166
     
100
%
EPLP
Dec-18
   
35,400
       
427
     
$
2,570
 
   
Q4 2018
     
384
                 
$
139,400
     
$
438
           
                                                         
   
2018 Total
     
384
                 
$
139,400
     
$
438
           

Dispositions
                 
        
             
Property Name
 
Location
   
Apartment
Homes
   
Essex
Ownership
Percentage
 
Entity
Date
 
Total
Sales
Price
     
Price per
Apartment Home
   
                                                 
Domain
 
San Diego, CA
     
379
     
100
%
EPLP
Jun-18
 
$
132,000
     
$
348
   
 
 
Q2 2018
     
379
                 
$
132,000
     
$
348
   
 
                                               
Enclave at Town Square
 
Chino Hills, CA
     
124
     
50
%
JV
Nov-18
 
$
30,500
(4)
   
$
246
   
The Summit
 
Chino Hills, CA
     
125
     
50
%
JV
Nov-18
   
34,800
(4)
     
278
   
8th & Hope
 
Los Angeles, CA
     
290
     
100
%
EPLP
Dec-18
   
220,000
       
739
(2)
 
   
Q4 2018
     
539
                 
$
285,300
     
$
519
   
                                                 
   
2018 Total
     
918
                 
$
417,300
     
$
448
   
 

(1)
Meridian at Midtown contract price represents the total contract price at 100%.
(2)
Price per apartment home excludes value allocated to retail space.
(3)
In December 2018, the Company purchased the joint venture partner's 49.9% membership interest in the Marquis co-investment. As part of the acquisition, the Company paid $4.7 million in cash and issued Operating Partnership units for the remaining equity based on an estimated property valuation of $71.0 million and an encumbrance of $45.8 million of mortgage debt.
(4)
Enclave at Town Square and The Summit sales prices represent the total sales price at 100%.



See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-15

E S S E X  P R O P E R T Y  T R U S T, I N C.

U.S. Macro Economic Assumptions: 2019 G.D.P. Growth: 2.5%, 2019 Job Growth: 1.3%
2019 MSA Level Forecast: Supply, Jobs, and Apartment Market Conditions

   
Residential Supply (1)
   
Job Forecast (2)
   
Market Forecast (3)
 
Market
 
New MF
Supply
   
New SF
Supply
   
Total Supply
   
% of MF
Supply to
MF Stock
   
% of Total
Supply to
Total Stock
   
Est. New
Jobs
   
%
Growth
   
Economic Rent
Growth
 
                                                 
Los Angeles
 
11,750
   
6,000
   
17,750
   
0.8%

 
0.5%

 
55,700
   
1.2%

 
2.8%

Orange
 
3,500
   
4,500
   
8,000
   
0.9%

 
0.7%

 
20,350
   
1.2%

 
3.0%

San Diego
 
2,250
   
4,250
   
6,500
   
0.5%

 
0.5%

 
24,250
   
1.6%

 
3.6%

Ventura
 
500
   
750
   
1,250
   
0.8%

 
0.4%

 
4,450
   
1.4%

 
3.2%

So. Cal.
 
18,000
   
15,500
   
33,500
   
0.7%

 
0.6%

 
104,750
   
1.3%

 
3.1%

                       
   
         
   
San Francisco
 
2,500
   
500
   
3,000
   
0.7%

 
0.4%

 
19,800
   
1.7%

 
3.2%

Oakland
 
3,500
   
4,000
   
7,500
   
1.0%

 
0.7%

 
18,150
   
1.5%

 
2.3%

San Jose
 
2,750
   
2,500
   
5,250
   
1.1%

 
0.8%

 
27,550
   
2.4%

 
3.6%

No. Cal.
 
8,750
   
7,000
   
15,750
   
1.0%

 
0.7%

 
65,500
   
2.0%

 
3.1%

                       
   
         
   
Seattle
 
9,000
   
8,000
   
17,000
   
1.8%

 
1.3%

 
45,900
   
2.6%

 
2.9%

                       
   
         
   
Weighted Average (4)
 
35,750
   
30,500
   
66,250
   
1.0%

 
0.7%

 
216,150
   
1.8%

 
3.1%


All data are based on Essex Property Trust, Inc. forecasts.

(1)
New Residential Supply: total supply includes the Company's estimate of multifamily deliveries of properties with 50+ units and excludes student, senior and 100% affordable housing communities. Single-family estimates based on an average trailing 12-month single family permits. Multifamily estimates include a new methodological enhancement to reflect the impact of continued construction delays in Essex markets. The delay-adjusted estimates reduce scheduled 2019 units by approximately 8% to reflect the recent cadence of delays in project completions.

(2)
Job Forecast: refers to the difference between total non-farm industry employment (not seasonally adjusted) projected 4Q over 4Q, expressed as total new jobs and growth rates.

(3)
Market Forecast: the estimated rent growth represents the forecasted change in effective market rents for full year 2019 vs 2018 (excludes submarkets not targeted by Essex).

(4)
Weighted Average: markets weighted by scheduled rent in the Company's Portfolio.
 

See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-16


 (1) Companies included: Adobe, Amazon, Apple, Dropbox, Facebook, Google, Microsoft, Netflix, Nvidia, Oracle, Salesforce, Splunk, Spotify, Square, and Uber.(2) Square foot totals include office space leased in Q3-Q4 2018 for 2019 occupancy, space presently under construction, and campus expansions currently in planning.(3) Job estimates based on historical ratio of 225 sqft/employee; however, recent trends in office density (~150-200sf/employee or lower) would imply higher new job totals. Sources: CBRE, CoStar, Cushman & Wakefield, company and press reports.  Expansion by Leading West Coast Tech Companies Set to Continue Fueling Job Creation in Essex Markets  Planned office expansion by leading tech companies in Essex’s West Coast markets is approximately 2x the rest of the nation. (1)Since mid-2018, tech leaders have pursued 33 million square feet of expansion in Essex metros, including newly-leased office space, developments under construction, and planned campus growth. (2) These expansions are poised to add more than 147,000 tech industry jobs.(3)  See Company’s Form 10-K and Form 10-Qs filed with the SEC for additional informationS-16.1  E S S E X P R O P E R T Y T R U S T, I N C.   SeattleTotal new and planned expansions: 6.5Msf (29,000+ employees)Examples of new & planned expansions: Amazon (CBD, Bellevue), Google (CBD), Microsoft (Redmond), Facebook (CBD, Redmond), Apple (NA), Uber (CBD)  San Francisco Bay AreaTotal new and planned expansions: 25.0Msf (110,000+ employees)Examples: Amazon (SF, Sunnyvale), Google (Mtn. View, SF, San Jose, Sunnyvale, San Bruno), Facebook (Menlo Park, Burlingame, Fremont, Mtn. View), Nvidia (Santa Clara), Salesforce (SF), Splunk (San Jose), LinkedIn (Mtn View), Dropbox (SF), Square (Oakland)  Southern CaliforniaTotal new and planned expansions: 1.9Msf (8,000 employees)Examples: Google (Westside Pavilion), Facebook (Playa Vista), Apple (Culver City, San Diego), Netflix (Hollywood), Spotify (DTLA), Amazon (Culver City)
S-16.1

E S S E X  P R O P E R T Y  T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Adjusted EBITDAre Reconciliation

The National Association of Real Estate Investment Trusts ("NAREIT”) defines earnings before interest, taxes, depreciation and amortization for real estate ("EBITDAre") (September 2017 White Paper) as net income (computed in accordance with U.S. generally accepted accounting principles ("U.S. GAAP")) before interest expense, income taxes, depreciation and amortization expense, and further adjusted for gains and losses from sales of depreciated operating properties, impairment write-downs of depreciated operating properties, impairment write-downs of investments in unconsolidated entities caused by a decrease in value of depreciated operating properties within the joint venture and adjustments to reflect the Company’s share of EBITDAre of investments in unconsolidated entities.

The Company believes that EBITDAre is useful to investors, creditors and rating agencies as a supplemental measure of the Company’s ability to incur and service debt because it is a recognized measure of performance by the real estate industry, and by excluding gains or losses related to sales or impairment of depreciated operating properties, EBITDAre can help compare the Company’s credit strength between periods or as compared to different companies.

Adjusted EBITDAre represents EBITDAre further adjusted for non-comparable items and is a component of the credit ratio, "Net Indebtedness Divided by Adjusted EBITDAre,normalized and annualized," presented on page S-6, in the section titled "Selected Credit Ratios," and it is not intended to be a measure of free cash flow for our management’s discretionary use, as it does not consider certain cash requirements such as income tax payments, debt service requirements, capital expenditures and other fixed charges.

Adjusted EBITDAre is an important metric in evaluating the credit strength of the Company and its ability to service its debt obligations.  The Company believes that Adjusted EBITDAre is useful to investors, creditors and rating agencies because it allows investors to compare the Company’s credit strength to prior reporting periods and to other companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual credit quality.

EBITDAre and Adjusted EBITDAre are not recognized measurements under U.S. GAAP. Because not all companies use identical calculations, our presentation of EBITDAre and Adjusted EBITDAre may not be comparable to similarly titled measures of other companies.

The reconciliations of Net Income available to common stockholders to EBITDAre and Adjusted EBITDAre are presented in the table below (Dollars in thousands):

   
Three Months Ended
December 31,
2018
 
Net income available to common stockholders
 
$
117,820
 
Adjustments:
       
Net income attributable to noncontrolling interest
   
6,620
 
Interest expense, net (1)
   
52,132
 
Depreciation and amortization
   
120,597
 
Gain on sale of real estate and land
   
(39,617
)
Gain on sale of co-investment communities
   
(10,569
)
Gain on remeasurement of co-investment communities
   
(1,253
)
Co-investment EBITDAre adjustments
   
23,590
 
EBITDAre
   
269,320
 
         
Gain on sale of marketable securities
   
(68
)
Unrealized losses on marketable securities
   
5,585
 
General and administrative and other, net
   
6,171
 
Income from early redemption of preferred equity investments
   
(50
)
Expensed acquisition and investment related costs
   
38
 
Adjusted EBITDAre
 
$
280,996
 

(1)
Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges.
 

See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-17.1

E S S E X  P R O P E R T Y  T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Encumbered

Encumbered means any mortgage, deed of trust, lien, charge, pledge, security interest, security agreement or other encumbrance of any kind.

Funds From Operations ("FFO")

FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is generally considered by industry analysts as an appropriate measure of performance of an equity REIT. Generally, FFO adjusts the net income of equity REITs for non-cash charges such as depreciation and amortization of rental properties, impairment charges, gains on sales of real estate and extraordinary items. Management considers FFO and FFO which excludes non-core items, which is referred to as “Core FFO,” to be useful supplemental operating performance measures of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate the operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results.

FFO and Core FFO do not represent net income or cash flows from operations as defined by U.S. generally accepted accounting principles (“GAAP”) and are not intended to indicate whether cash flows will be sufficient to fund cash needs. These measures should not be considered as alternatives to net income as an indicator of the REIT's operating performance or to cash flows as a measure of liquidity. FFO and Core FFO do not measure whether cash flow is sufficient to fund all cash needs including principal amortization, capital improvements and distributions to stockholders. FFO and Core FFO also do not represent cash flows generated from operating, investing or financing activities as defined under GAAP. Management has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosures of FFO may not be comparable to the Company’s calculation.

The reconciliations of diluted FFO and Core FFO are detailed on page S-3 in the section titled "Consolidated Funds From Operations".

Interest Expense, Net

Interest expense, net is presented on page S-1 in the section titled "Consolidated Operating Results". Interest expense, net includes items such as gains on derivatives and the amortization of deferred charges and is presented in the table below (Dollars in thousands):

   
Three Months Ended
December 31,
2018
   
Twelve Months Ended
December 31,
2018
 
Interest expense
 
$
54,157
   
$
220,492
 
Adjustments:
               
Total return swap income
   
(2,025
)
   
(8,707
)
Interest expense, net
 
$
52,132
   
$
211,785
 



See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-17.2

E S S E X  P R O P E R T Y  T R U S T, I N C.

Reconciliations of Non-GAAP Financial Measures and Other Terms

Net Indebtedness Divided by Adjusted EBITDAre

This credit ratio is presented on page S-6 in the section titled "Selected Credit Ratios." This credit ratio is calculated by dividing net indebtedness by Adjusted EBITDAre, as annualized based on the most recent quarter, and adjusted for estimated net operating income from properties acquired or disposed of during the quarter. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company's ability to service debt obligations to that of other companies. Net indebtedness is total debt, net less unamortized premiums, discounts, debt issuance costs, unrestricted cash and cash equivalents, and marketable securities. The reconciliation of Adjusted EBITDAre is set forth in "Adjusted EBITDAre Reconciliation" on page S-17.1 The calculation of this credit ratio and a reconciliation of net indebtedness to total debt at pro rata share for co-investments, net is presented in the table below (Dollars in thousands):

Total consolidated debt, net
 
$
5,605,942
 
Total debt from co-investments at pro rata share
   
830,492
 
Adjustments:
       
Consolidated unamortized premiums, discounts, and debt issuance costs
   
14,953
 
Pro rata co-investments unamortized premiums, discounts, and debt issuance costs
   
4,120
 
Consolidated cash and cash equivalents-unrestricted
   
(134,465
)
Pro rata co-investment cash and cash equivalents-unrestricted
   
(31,191
)
Marketable securities
   
(209,545
)
Net Indebtedness
 
$
6,080,306
 
         
Adjusted EBITDAre, annualized (1)
 
$
1,123,984
 
Other EBITDAre normalization adjustments, net, annualized (2)
   
(5,200
)
Adjusted EBITDAre, normalized and annualized
 
$
1,118,784
 
         
Net Indebtedness Divided by Adjusted EBITDAre, normalized and annualized
   
5.4
 

(1)
Based on the amount for the most recent quarter, multiplied by four.
(2)
Adjustments made for properties in lease-up, acquired, or disposed of during the most recent quarter and other partial quarter activity, multiplied by four.

Net Operating Income ("NOI") and Same-Property NOI Reconciliations

Net Operating Income ("NOI") and same-property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s consolidated statements of income. The presentation of same-property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities.
In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines same-property NOI as same-property revenue less same-property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and same-property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented (Dollars in thousands):

   
Three Months Ended
December 31,
2018
   
Three Months Ended
December 31,
2017
   
Twelve Months Ended
December 31,
2018
   
Twelve Months Ended
December 31,
2017
 
Earnings from operations
 
$
109,412
   
$
112,375
   
$
450,128
   
$
446,522
 
Adjustments:
                               
Corporate-level property management expenses
   
7,749
     
7,552
     
31,062
     
30,156
 
Depreciation and amortization
   
120,597
     
117,988
     
479,884
     
468,881
 
Management and other fees from affiliates
   
(2,371
)
   
(2,647
)
   
(9,183
)
   
(9,574
)
General and administrative
   
16,912
     
10,659
     
53,451
     
41,385
 
Expensed acquisition and investment related costs
   
38
     
415
     
194
     
1,569
 
NOI
   
252,337
     
246,342
     
1,005,536
     
978,939
 
Less: Non-same property NOI
   
(20,140
)
   
(19,796
)
   
(82,998
)
   
(82,177
)
Same-Property NOI
 
$
232,197
   
$
226,546
   
$
922,538
   
$
896,762
 
 

See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information

S-17.3

E S S E X  P R O P E R T Y  T R U S T, I N C

Reconciliations of Non-GAAP Financial Measures and Other Terms

Public Bond Covenants

Public Bond Covenants refer to certain covenants set forth in instruments governing the Company's unsecured indebtedness. These instruments require the Company to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict the Company's ability to expand or fully pursue its business strategies. The Company's ability to comply with these covenants may be affected by changes in the Company's operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting it. The breach of any of these covenants could result in a default under the Company's indebtedness, which could cause those and other obligations to become due and payable. If any of the Company's indebtedness is accelerated, the Company may not be able to repay it. For risks related to failure to comply with these covenants, see "Item 1A: Risk Factors - Risks Related to Our Indebtedness and Financings" in the Company's annual report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission ("SEC").

The ratios set forth on page S-6 in the section titled "Public Bond Covenants" are provided only to show the Company's compliance with certain specified covenants that are contained in indentures related to the Company's issuance of Senior Notes, which indentures are filed by the Company with the SEC. See, for example, the Indenture dated March 8, 2018, filed by the Company as Exhibit 4.1 to the Company's Form 8-K, filed on March 8, 2018. These ratios should not be used for any other purpose, including without limitation to evaluate the Company's financial condition or results of operations, nor do they indicate the Company's covenant compliance as of any other date or for any other period. The capitalized terms in the disclosure are defined in the indentures filed by the Company with the SEC and may differ materially from similar terms used by other companies that present information about their covenant compliance.

Secured Debt

Secured Debt means debt of the Company or any of its subsidiaries which is secured by an encumbrance on any property or assets of the Company or any of its subsidiaries. The Company's total amount of Secured Debt is set forth on page S-5.

Unencumbered NOI to Adjusted Total NOI

This ratio is presented on page S-6 in the section titled "Selected Credit Ratios". Unencumbered NOI means the sum of NOI for those real estate assets which are not subject to an encumbrance securing debt. The ratio of Unencumbered NOI to Adjusted Total NOI for the three months ended December 31, 2018, annualized, is calculated by dividing Unencumbered NOI, annualized for the three months ended December 31, 2018 and as further adjusted for pro forma NOI for properties acquired or sold during the recent quarter, by Adjusted Total NOI as annualized. The calculation and reconciliation of NOI is set forth in "Net Operating Income ("NOI") and Same-Property NOI Reconciliation" above. This ratio is presented by the Company because it provides rating agencies and investors an additional means of comparing the Company's ability to service debt obligations to that of other companies. The calculation of this ratio is presented in the table below (Dollars in thousands):

   
Annualized
Q4'18 (1)
 
NOI
 
$
1,009,348
 
Adjustments:
       
NOI from real estate assets sold
   
(7,716
)
Other, net (2)
   
(6,861
)
Adjusted Total NOI
   
994,771
 
Less: Encumbered NOI
   
(260,420
)
Unencumbered NOI
 
$
734,351
 
         
Encumbered NOI
 
$
260,420
 
Unencumbered NOI
   
734,351
 
Adjusted Total NOI
 
$
994,771
 
         
Unencumbered NOI to Adjusted Total NOI
   
74
%

(1)
This table is based on the amounts for the most recent quarter, multiplied by four.
(2)
Includes intercompany eliminations pertaining to self-insurance and other expenses.



See Company's Form 10-K and Form 10-Qs filed with the SEC for additional information


S-17.4