ESSEX PROPERTY TRUST, INC. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

ESSEX PROPERTY TRUST, INC.

10-K

Annual report

Filing date:

02/21/2025

TLDR:

Essex Property Trust’s 10-K filing for FY 2024 shows increased revenue but also rising operating expenses. Strategic acquisitions and dispositions are ongoing, with risks including geographic concentration and rent control.

ELI5:

Essex Property Trust, a company that owns apartments on the West Coast, made more money this year, but also spent more. They’re buying and selling properties, but face risks like rent control laws and being located in only a few areas.

Accession #:

0000920522-25-000024

Published on

March 16, 2025

Analyst Summary

Total property revenues increased by 6.4% to $1,764.2 million in 2024.
Same-property revenues increased by 3.3%, driven by rental rate increases and reduced delinquencies.
Property operating expenses (excluding real estate taxes) increased by 8.8% to $326.1 million.
Operating Profit Margin: 39.62%
Net Profit Margin: 41.79%
Return on Assets (ROA): 5.74%
Return on Equity (ROE): 13.39%
Earnings Per Share (EPS) – Basic: $11.55
Earnings Per Share (EPS) – Diluted: $11.54
Debt-to-Equity Ratio: 1.30
Debt-to-Assets Ratio: 0.55
Interest Coverage Ratio (Times Interest Earned): 2.99
Asset Turnover: 0.14
Price-to-Earnings Ratio (P/E): 25.54
Price-to-Book Ratio (P/B): 3.42
Price-to-Sales Ratio (P/S): 10.67
Revenue Growth: 6.29%
Net Income Growth: 88.37%
EPS Growth: 82.59%
FFO attributable to common stockholders and unitholders was $1,063,878 in 2024, compared to $1,013,713 in 2023.
Core FFO was $1,038,167 in 2024, compared to $999,907 in 2023.
Same-Property NOI was $1,147,993 in 2024, compared to $1,119,300 in 2023.

Opportunities and Risks

Real Estate Investment Risks: General real estate investment risks, including changes in economic climate, demand for rental housing, and supply and cost of housing.
Rent Control: Existing and future rent control laws could materially adversely affect the Company’s stock price, business, financial condition and results of operations.
Pandemics: Future pandemics could materially affect our business, financial condition, stock price, and results of operations.
Geographic Concentration: Concentration of communities in California and the Seattle metropolitan area.
Competition: Competition in the apartment community market and other housing alternatives.
Cybersecurity: Any material failure, inadequacy, interruption or breach of the Company’s privacy or information systems, or those of our vendors or other third parties, could materially adversely affect the Company’s business, financial condition and results of operations.
Reliance on Third Party Software Providers: Reliance on third party software providers to host systems is critical to our operations and to provide the Company with data, and regulation of those providers and practices may impact operational capabilities.
Litigation: The Company may from time to time be subject to litigation or regulatory investigation, which could have a material adverse effect on our business, financial condition and results of operations.
Indebtedness: Debt financing has inherent risks.
Loss of REIT Status: Loss of the Company’s REIT status would have a material adverse effect on the Company and the value of the Company’s common stock.
Climate Change: Climate change may materially adversely affect our business.
West Coast Market Strength: Continued strong demand for rental housing in supply-constrained West Coast markets.
Strategic Acquisitions: Acquisitions of well-located apartment communities.
Redevelopment and Densification: Redevelopment and densification projects to improve property value and rental income.
Capital Allocation: Strategic allocation of capital through dispositions and reinvestments.
Human Capital Management: The Company’s mission is to create quality communities in premier locations and it is critical to the Company’s mission that it attracts, trains and retains a talented and diverse team by providing a compelling place to work and opportunities for professional growth.

Potential Implications

Company Performance

Rising operating expenses and geographic concentration pose challenges.
Ability to manage expenses and capitalize on growth opportunities in its core markets will be crucial.

Stock Price

Existing and future rent control laws could materially adversely affect the Company’s stock price.
Loss of the Company’s REIT status would have a material adverse effect on the Company and the value of the Company’s common stock.
High valuation ratios indicate that the market may have already priced in future growth expectations.

Essex Property Trust, Inc. (ESS) – 10-K Report Analysis (FY 2024)

Executive Summary

This report analyzes Essex Property Trust, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. Essex, a REIT focused on West Coast apartment communities, demonstrates a mixed performance. While revenue increased, operating expenses also rose, impacting profitability. Strategic acquisitions and dispositions indicate active portfolio management. Key risks include geographic concentration, rent control, and cybersecurity threats. Opportunities lie in continued West Coast market strength and strategic capital allocation. Overall, a cautious “Hold” recommendation is suggested, pending further clarity on expense management and macroeconomic factors.

Company Overview

Essex Property Trust, Inc. (ESS) is a self-administered and self-managed REIT primarily focused on acquiring, developing, redeveloping, and managing apartment communities on the West Coast of the United States. The company operates as an UPREIT, with Essex Property Trust, Inc. as the sole general partner of Essex Portfolio, L.P. The company’s strategy focuses on supply-constrained markets with strong rental demand. Recent activities include strategic acquisitions and dispositions, debt financing, and equity transactions.

Detailed Financial Analysis

Revenue Analysis

Total property revenues increased by 6.4% to $1,764.2 million in 2024, compared to $1,658.3 million in 2023. Same-property revenues increased by 3.3%, driven by rental rate increases and reduced delinquencies, partially offset by a slight decrease in occupancy.

Expense Analysis

Property operating expenses (excluding real estate taxes) increased by 8.8% to $326.1 million. Real estate taxes increased by 4.1% to $193.4 million. Depreciation and amortization expense increased by 5.8% to $580.2 million.

Key Ratios and Trends

Metric	2024	2023	Change
Financial Occupancy (Same-Property)	96.1%	96.5%	-0.4%
Average Rental Rate (Same-Property)	$2,655	$2,605	+1.9%
Property Revenue Growth	6.4%	3.9%	+2.5%
Interest Expense Growth	10.6%	4.0%	+6.6%

Management’s Discussion and Analysis (MD&A) Insights

Management attributes revenue growth to strong West Coast markets. Increased operating expenses are a concern. Strategic acquisitions and dispositions are aimed at optimizing the portfolio. The MD&A highlights the impact of macroeconomic factors, including inflation and interest rate fluctuations.

Red Flags and Uncommon Metrics

Increased Operating Expenses: The significant rise in operating expenses warrants close monitoring.
Geographic Concentration: The portfolio’s concentration in California and the Seattle metropolitan area exposes the company to regional economic risks.
Preferred Equity Investments: The company’s preferred equity investments may not yield the expected returns or be repaid in a timely manner.

Risk and Opportunity Assessment

Key Risks

Real Estate Investment Risks: General real estate investment risks, including changes in economic climate, demand for rental housing, and supply and cost of housing.
Rent Control: Existing and future rent control laws could materially adversely affect the Company’s stock price, business, financial condition and results of operations.
Pandemics: Future pandemics could materially affect our business, financial condition, stock price, and results of operations.
Geographic Concentration: Concentration of communities in California and the Seattle metropolitan area.
Competition: Competition in the apartment community market and other housing alternatives.
Cybersecurity: Any material failure, inadequacy, interruption or breach of the Company’s privacy or information systems, or those of our vendors or other third parties, could materially adversely affect the Company’s business, financial condition and results of operations.
Reliance on Third Party Software Providers: Reliance on third party software providers to host systems is critical to our operations and to provide the Company with data, and regulation of those providers and practices may impact operational capabilities.
Litigation: The Company may from time to time be subject to litigation or regulatory investigation, which could have a material adverse effect on our business, financial condition and results of operations.
Indebtedness: Debt financing has inherent risks.
Loss of REIT Status: Loss of the Company’s REIT status would have a material adverse effect on the Company and the value of the Company’s common stock.
Climate Change: Climate change may materially adversely affect our business.

Key Opportunities

West Coast Market Strength: Continued strong demand for rental housing in supply-constrained West Coast markets.
Strategic Acquisitions: Acquisitions of well-located apartment communities.
Redevelopment and Densification: Redevelopment and densification projects to improve property value and rental income.
Capital Allocation: Strategic allocation of capital through dispositions and reinvestments.
Human Capital Management: The Company’s mission is to create quality communities in premier locations and it is critical to the Company’s mission that it attracts, trains and retains a talented and diverse team by providing a compelling place to work and opportunities for professional growth.

Conclusion and Actionable Insights

Essex Property Trust demonstrates a solid revenue base and strategic portfolio management. However, rising operating expenses and geographic concentration pose challenges. The company’s ability to manage expenses and capitalize on growth opportunities in its core markets will be crucial. Given these factors, a “Hold” recommendation is appropriate. Investors should monitor expense trends, macroeconomic conditions, and the company’s progress in mitigating risks.

Essex Property Trust, Inc. Financial Analysis

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin:
- Calculation: Gross Profit / Total Revenue. Data not available to calculate Gross Profit.
Operating Profit Margin:
- Calculation: Earnings from Operations / Total Revenue = 703,095 / 1,774,450 = 39.62%
- Trend: Previous period’s value not available in the filing.
Net Profit Margin:
- Calculation: Net Income Available to Common Stockholders / Total Revenue = 741,522 / 1,774,450 = 41.79%
- Trend: Previous period’s value not available in the filing.
Return on Assets (ROA):
- Calculation: Net Income Available to Common Stockholders / Total Assets = 741,522 / 12,927,359 = 5.74%
- Trend: Previous period’s value not available in the filing.
Return on Equity (ROE):
- Calculation: Net Income Available to Common Stockholders / Total Stockholders’ Equity = 741,522 / 5,537,046 = 13.39%
- Trend: Previous period’s value not available in the filing.
Earnings Per Share (EPS) – Basic:
- Calculation: Net Income Available to Common Stockholders / Weighted Average Shares Outstanding = 741,522 / 64,228,356 = $11.55
- Trend: Previous period’s value not available in the filing.
Earnings Per Share (EPS) – Diluted:
- Calculation: Net Income Available to Common Stockholders / Weighted Average Shares Outstanding (Diluted) = 741,522 / 64,251,234 = $11.54
- Trend: Previous period’s value not available in the filing.

Liquidity

Current Ratio:
- Calculation: Current Assets / Current Liabilities. Data not available to calculate Current Assets and Current Liabilities.
Quick Ratio (Acid-Test Ratio):
- Calculation: (Current Assets – Inventory) / Current Liabilities. Data not available to calculate Current Assets, Inventory and Current Liabilities.
Cash Ratio:
- Calculation: (Cash and Cash Equivalents + Marketable Securities) / Current Liabilities. Data not available to calculate Current Liabilities.

Solvency/Leverage

Debt-to-Equity Ratio:
- Calculation: Total Liabilities / Total Stockholders’ Equity = 7,176,120 / 5,537,046 = 1.30
- Trend: Previous period’s value not available in the filing.
Debt-to-Assets Ratio:
- Calculation: Total Liabilities / Total Assets = 7,176,120 / 12,927,359 = 0.55
- Trend: Previous period’s value not available in the filing.
Interest Coverage Ratio (Times Interest Earned):
- Calculation: Earnings from Operations / Interest Expense = 703,095 / 235,529 = 2.99
- Trend: Previous period’s value not available in the filing.

Activity/Efficiency

Inventory Turnover:
- Not applicable for REITs like Essex Property Trust as they primarily lease properties rather than sell inventory.
Days Sales Outstanding (DSO):
- Calculation: (Accounts Receivable / Total Revenue) * 365. Data not available to calculate Accounts Receivable.
Days Payable Outstanding (DPO):
- Calculation: (Accounts Payable / Cost of Revenue) * 365. Data not available to calculate Cost of Revenue.
Asset Turnover:
- Calculation: Total Revenue / Total Assets = 1,774,450 / 12,927,359 = 0.14
- Trend: Previous period’s value not available in the filing.

Valuation

Price-to-Earnings Ratio (P/E):
- Calculation: Stock Price / EPS = 294.74 / 11.54 = 25.54
- Trend: Previous period’s value not available in the filing.
Price-to-Book Ratio (P/B):
- Calculation: Market Cap / Total Stockholders’ Equity = (64,280,466 * 294.74) / 5,537,046 = 3.42
- Trend: Previous period’s value not available in the filing.
Price-to-Sales Ratio (P/S):
- Calculation: Market Cap / Total Revenue = (64,280,466 * 294.74) / 1,774,450 = 10.67
- Trend: Previous period’s value not available in the filing.
Enterprise Value to EBITDA (EV/EBITDA):
- Calculation: (Market Cap + Total Debt – Cash) / EBITDA. Data not available to calculate EBITDA.

Growth Rates

Revenue Growth:
- Calculation: (Current Revenue – Previous Revenue) / Previous Revenue = (1,774,450 – 1,669,395) / 1,669,395 = 6.29%
Net Income Growth:
- Calculation: (Current Net Income – Previous Net Income) / Previous Net Income = (811,306 – 430,708) / 430,708 = 88.37%
EPS Growth:
- Calculation: (Current EPS – Previous EPS) / Previous EPS = (11.54 – 6.32) / 6.32 = 82.59%

Other Relevant Metrics

Funds From Operations (FFO):
- FFO is a non-GAAP measure commonly used by REITs. It represents net income excluding gains/losses from sales of property and depreciation/amortization, among other adjustments. Core FFO further adjusts for non-core items.
- Calculation: FFO attributable to common stockholders and unitholders was $1,063,878 in 2024, compared to $1,013,713 in 2023. Core FFO was $1,038,167 in 2024, compared to $999,907 in 2023.
- Trend: FFO increased by 5.05% and Core FFO increased by 3.83%
- Significance: FFO and Core FFO are key indicators of a REIT’s operating performance. The adjustments made to arrive at Core FFO provide a more consistent view of the company’s recurring earnings.
Same-Property Net Operating Income (NOI):
- Same-Property NOI reflects the performance of properties owned and operated for the entirety of both reporting periods, providing a like-for-like comparison.
- Calculation: Same-Property NOI was $1,147,993 in 2024, compared to $1,119,300 in 2023.
- Trend: Same-Property NOI increased by 2.56%
- Significance: This metric is a key indicator of the REIT’s ability to grow income from its existing portfolio.

Commentary

Essex Property Trust’s financial performance in 2024 shows a mixed picture. Revenue and net income experienced substantial growth, indicating strong operational performance and efficient cost management. However, the company’s leverage remains high, as indicated by the debt-to-equity ratio, which could pose risks in a rising interest rate environment. The increase in FFO and Core FFO, along with the growth in Same-Property NOI, suggests a healthy underlying business, but the high valuation ratios indicate that the market may have already priced in future growth expectations.