Essex Property Trust, Inc. 2004 ANNUAL REPORT on FORM 10-K
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2004 annual report 2004 annual 1994 the proven leader in west coast apartments 1995 1996 1997 essexpropertytrust.com 1998 1999 2000 2001 2004 ANNUAL REPORT serving essex’s shareholders 1994 to 2004 2002 2003 2004 essex 2004 annual report financial highlights property revenues ffo per diluted share(2) essex Years Ended December 31 Years Ended December 31 ($ in millions) 4.39 4.38 4.49 $300 283.5 $4.50 4.09 3.90 251.6 4.00 250 3.50 ESSEX’S BEGINNINGS GO BACK TO 1971, WHEN REAL ESTATE ENTREPRENEUR, GEORGE M. MARCUS 211.1 200 181.4 3.00 FORMED ESSEX PROPERTY CORPORATION. IN 1994, WITH A PORTFOLIO OF 16 MULTIFAMILY 165.9 2.50 150 COMMUNITIES, THE COMPANY MADE ITS PUBLIC DEBUT AS ESSEX PROPERTY TRUST, INC. (NYSE: 2.00 1.83 100 1.50 ESS)-A FULLY INTEGRATED REAL ESTATE INVESTMENT TRUST (REIT) THAT ACQUIRES, DEVELOPS, 1.00 $ 50 39.0 .50 REDEVELOPS, AND MANAGES MULTIFAMILY APARTMENT COMMUNITIES FOCUSED ON SUPPLY $ 94 00 01 02 03 04 94 00 01 02 03 04 CONSTRAINED MARKETS ALONG THE WEST COAST – THE SAN FRANCISCO BAY AREA, SOUTHERN common stock ffo payout ratio dividends per share Years Ended December 31 CALIFORNIA, AND THE SEATTLE METROPOLITAN AREA. TODAY, ESSEX HAS OWNERSHIP INTERESTS Years Ended December 31 100% $4.00 IN OVER 120 MULTIFAMILY PROPERTIES, AGGREGATING APPROXIMATELY 26,000 APARTMENT 91 90 3.16 HOMES, WITH 777 UNITS IN VARIOUS STAGES OF DEVELOPMENT. 80 76 3.08 3.12 70 70 3.00 2.80 70 64 61 60 2.38 50 2.00 40 1.67 30 20 $1.00 10% 94 00 01 02 03 04 94 00 01 02 03 04 1994 results are annualized for comparative purposes As of December 31 ($ in Thousands) 2004 2003 (1) 2002(1) 2001 (1) 2000 (1) Revenues $ 283,483 $ 251,576 $ 211,083 $ 181,387 $ 165,887 Income from property $ 186,627 $ 169,795 $ 146,404 $ 129,110 $ 119,796 operations before depreciation Net income $ 79,693 $ 35,090 $ 48,640 $ 48,545 $ 44,353 Funds from operations (2) $ 114,380 $ 97,870 $ 91,989 $ 92,277 $ 80,775 Common stock dividends $ 71,964 $ 67,138 $ 56,767 $ 51,705 $ 43,466 As of December 31 Real estate owned $ 2,371,194 $ 1,984,122 $ 1,762,076 $ 1,175,200 $ 1,156,408 Mortgage and other $ 1,316,984 $ 984,898 $ 949,889 $ 638,660 $ 595,535 notes payable Number of multifamily 120 121 112 92 83 properties focused strategy (1) The above financial and operating information from January 1, 2002 through December 31, 2003 reflects the retroactive adoption of FIN 46R and SFAS 123. The above financial and operating information fromJanuary 1, 2000 through December 31, 2001 does not reflect the retroactive adoption of FIN 46R and SFAS 123. Because such retroactive adoption was not applied to the 2000 and 2001 periods, the results for those periods may not be comparable to the results for the later periods set forth above. Essex’s business strategy was founded on the belief that successful real estate investing is accomplished through (2) A reconciliation of FFO from net income (the primary measure of performance as prepared in accordance with the generally accepted accounting principles) can be found in extensive regional economic research and local market knowledge, which has been demonstrated by Essex’s steady Item 7 of the enclosed form 10-K. growth over the last decade. A proprietary research model has been developed over the last 20 years, and is utilized by Essex’s executive team as an essential tool in identifying value – added opportunities in targeted real estate markets. Several factors that underlie rental growth are analyzed: diverse economic conditions and job growth, demographics, housing supply expectations and affordability, and various socioeconomic trends. The Company targets markets in highly desirable coastal communities where there are significant constraints on development of additional multifamily and single-family housing and where rental demand is reinforced through the high cost of owning a home. Canyon Pointe Windsor Court Woodside Village Bothell, Washington Los Angeles, California Ventura, California 1 essex 2004 annual report financial highlights property revenues ffo per diluted share(2) essex Years Ended December 31 Years Ended December 31 ($ in millions) 4.39 4.38 4.49 $300 283.5 $4.50 4.09 3.90 251.6 4.00 250 3.50 ESSEX’S BEGINNINGS GO BACK TO 1971, WHEN REAL ESTATE ENTREPRENEUR, GEORGE M. MARCUS 211.1 200 181.4 3.00 FORMED ESSEX PROPERTY CORPORATION. IN 1994, WITH A PORTFOLIO OF 16 MULTIFAMILY 165.9 2.50 150 COMMUNITIES, THE COMPANY MADE ITS PUBLIC DEBUT AS ESSEX PROPERTY TRUST, INC. (NYSE: 2.00 1.83 100 1.50 ESS)-A FULLY INTEGRATED REAL ESTATE INVESTMENT TRUST (REIT) THAT ACQUIRES, DEVELOPS, 1.00 $ 50 39.0 .50 REDEVELOPS, AND MANAGES MULTIFAMILY APARTMENT COMMUNITIES FOCUSED ON SUPPLY $ 94 00 01 02 03 04 94 00 01 02 03 04 CONSTRAINED MARKETS ALONG THE WEST COAST – THE SAN FRANCISCO BAY AREA, SOUTHERN common stock ffo payout ratio dividends per share Years Ended December 31 CALIFORNIA, AND THE SEATTLE METROPOLITAN AREA. TODAY, ESSEX HAS OWNERSHIP INTERESTS Years Ended December 31 100% $4.00 IN OVER 120 MULTIFAMILY PROPERTIES, AGGREGATING APPROXIMATELY 26,000 APARTMENT 91 90 3.16 HOMES, WITH 777 UNITS IN VARIOUS STAGES OF DEVELOPMENT. 80 76 3.08 3.12 70 70 3.00 2.80 70 64 61 60 2.38 50 2.00 40 1.67 30 20 $1.00 10% 94 00 01 02 03 04 94 00 01 02 03 04 1994 results are annualized for comparative purposes As of December 31 ($ in Thousands) 2004 2003 (1) 2002(1) 2001 (1) 2000 (1) Revenues $ 283,483 $ 251,576 $ 211,083 $ 181,387 $ 165,887 Income from property $ 186,627 $ 169,795 $ 146,404 $ 129,110 $ 119,796 operations before depreciation Net income $ 79,693 $ 35,090 $ 48,640 $ 48,545 $ 44,353 Funds from operations (2) $ 114,380 $ 97,870 $ 91,989 $ 92,277 $ 80,775 Common stock dividends $ 71,964 $ 67,138 $ 56,767 $ 51,705 $ 43,466 As of December 31 Real estate owned $ 2,371,194 $ 1,984,122 $ 1,762,076 $ 1,175,200 $ 1,156,408 Mortgage and other $ 1,316,984 $ 984,898 $ 949,889 $ 638,660 $ 595,535 notes payable Number of multifamily 120 121 112 92 83 properties focused strategy (1) The above financial and operating information from January 1, 2002 through December 31, 2003 reflects the retroactive adoption of FIN 46R and SFAS 123. The above financial and operating information fromJanuary 1, 2000 through December 31, 2001 does not reflect the retroactive adoption of FIN 46R and SFAS 123. Because such retroactive adoption was not applied to the 2000 and 2001 periods, the results for those periods may not be comparable to the results for the later periods set forth above. Essex’s business strategy was founded on the belief that successful real estate investing is accomplished through (2) A reconciliation of FFO from net income (the primary measure of performance as prepared in accordance with the generally accepted accounting principles) can be found in extensive regional economic research and local market knowledge, which has been demonstrated by Essex’s steady Item 7 of the enclosed form 10-K. growth over the last decade. A proprietary research model has been developed over the last 20 years, and is utilized by Essex’s executive team as an essential tool in identifying value – added opportunities in targeted real estate markets. Several factors that underlie rental growth are analyzed: diverse economic conditions and job growth, demographics, housing supply expectations and affordability, and various socioeconomic trends. The Company targets markets in highly desirable coastal communities where there are significant constraints on development of additional multifamily and single-family housing and where rental demand is reinforced through the high cost of owning a home. Canyon Pointe Windsor Court Woodside Village Bothell, Washington Los Angeles, California Ventura, California 1 essex 2004 annual report essex 2004 annual report dear fellow shareholder investments and will enhance our profitability. Accordingly, we analyzed the returns we would realize from investment opportunities funded by traditional capital sources on the one hand, and by Fund II on the other, which supported Once again, the Company achieved its primary operating objectives in 2004. Funds From Operations (FFO), our our decision to proceed with Fund II. The key factors that led us to this conclusion were the higher leverage rates primary financial benchmark, increased 10 percent to $4.49 per diluted share, surpassing our expectations. This positive combined with exceptionally low interest rates available today, and the potential to receive up to a 20 percent incentive result was mostly attributable to non-recurring revenues, which were generated primarily through the sale of assets in distribution in addition to our pro rata limited partnership interest. our Essex Apartment Value Fund I (“Fund I”). As expected, we experienced a difficult property operating environment After announcing the formation of Fund II, we raised $266 million in equity (including $75 million from Essex), in 2004, due to a slow (though steady) recovery in job growth and a preference for home ownership given low mortgage which can be leveraged to provide approximately $750 million in investment capacity. We are pleased that seven of the rates. Reflecting this environment, same-property net operating income (revenues minus direct operating expenses) nine Fund I investors decided to participate in Fund II. increased by 0.9 percent, which was nevertheless better than the 0.5 percent we had projected in our initial guidance.