. Keith Guericke, Essex Property Trust, CEO . John Eudy, Essex Property Trust, EVP of Development . Mike Schall, Essex Property Trust, COO . Mike Dance, Essex Property Trust, CFO . Michael Salinsky, RBC Capital Markets, Analyst . Joe Lopez, Essex Property Trust, Economist . Michelle Ko, UBS, Analyst . Mike Bilerman, Citigroup, Analyst . Jay Habermann, Goldman Sachs, Analyst . Rich Anderson, BMO Capital Markets, Analyst . Philip Martin, Cantor Fitzgerald, Analyst . Rob Stevenson, Fox-Pitt Kelton, Analyst . Karin Ford, Keybanc Capital Markets, Analyst
ESS reported that 4Q08 core FFO per share was up 10.2%. Expects 2009 FFO per diluted share to be $5.50-5.90.
A. Key Data From Call 1. 4Q08 core FFO per share growth = up 10.2%. 2. Cash and marketable securities as of Dec. = over $100m. 3. 2009 FFO per diluted share guidance = $5.50-5.90.
S1. Business Review (K.G.) 1. 4Q08 Highlights: 1. Core FFO, up 10.2% per share. 2. Portfolio grew revenue 3.4% greater than 4Q07 and 0.6% sequentially with occupancies at 96.6%. 3. Believes  is going to be tough year and 2010 is probably not going to be much better. 4. National job losses are going to be somewhere $2-3m and is going to hit all markets. 5. Built 2009 guidance off the optimistic end of that range assuming 2m jobs will be lost nationally with approx. 100,000 of those job losses in Co.'s markets. 6. Large differential in cost of single family vs. multi-family and quality of life factor that historically has kept population in place even during economic downturns. 2. Markets: 1. Single family transactions have increased due to: 1. Price corrections. 2. Low borrowing rates. 2. Lower oil and other commodity prices resulted in flat CPI for Dec. 2008. 3. Current trends indicate significant YoverY CPI declines by summer of 2009. 4. Majority of home sector jobs particularly corporate finance have already been cut back to [pre-bubble] levels. 5. When financial markets do thaw: 1. Market fundamental will be strong for departments. 2. Consumers will be stronger positioned. 3. Residential supply pipeline, apartments and single family will be low. 6. Modest job growth should drive, has in past driven strong rental growth. 3. Seattle: 1. Demand conditions have changed. 2. Expects a loss of 15,000 jobs based on expectations of lay offs at: 1. WaMu. 2. Boeing. 3. Related sub-contractors. 3. New apartment supply is forecasted 5,100 units or 1.3%. 1. Job losses in new apartment supply is tampered by steep drop in single family production. 2. Only 4,400 new homes or 0.6% will be delivered in 2009 leading to total supply of 9,500 units or less than 1%. 1. Down from 12,600 units in 2008. 4. Lowest previous growth of new single family homes was 1.2% in 2002 or an avg. production rate since 1990 has been 1.6%. 5. Seattle has low exposure to financial jobs after loss of WaMu. 6. Expects market occupancy, 95% and market ramp declines of 2%. 7. Performance by sub-market will vary with weakest components being Downtown Seattle, where job layoffs and overlap with new supply. 8. Newer high rise buildings will be weakest segment of Seattle apartment market. 4. Northern California: 1. San Francisco and San Jose had minimal exposure to single family construction and mortgage finance jobs. 2. Expects tech sector to continue to outperform the general economy. 3. San Francisco has lowest exposure to manufacturing among major metros. 4. San Jose economy has already experienced steep manufacturing cutbacks in last downturn in early 2000. 1. San Francisco and San Jose are expected to lose approx. 11,000 jobs or 0.6%, split almost equal across those two markets. 5. In 2009, expects: 1. Occupancies to stay at or above 95%. 2. Rents to be flat. 6. New total supply in San Francisco and San Jose is 5,900 units or 0.4%. 7. Oakland has more exposure to manufacturing and had a larger exposure to single family construction industry. 1. Area has shed most of those jobs. 2. Jobs are expected to decline by 10,000 in 2009 vs. 27,000 in 2008. 8. Single family construction and financing jobs have been cut back to pre-2001 levels. 5. Southern California: 1. Overall, markets remain some of the most supply constrained in US. 2. Like Seattle, recent multi-family supply pipeline was concentrated in high-end, often high rise condo projects. 1. This pipeline will be all, but completed by 2009-end, particularly in: 1. West LA. 2. Downtown Los Angeles. 3. (indiscernible) County. 4. Downtown San Diego. 3. Majority of portfolio in (indiscernible) San Diego are older, lower-priced product outside of these central notes. 4. New total supply is forecast at 7,400 single family units and 13,400 multi-family units, which is approx. 0.4%. 5. Housing finance jobs concentrated in Ventura and Orange have been cut back to 2002 and 1998 levels respectively. 6. Job losses of 68,000 are forecast for 2009. 1. Down from 86,000 in 2008. 7. Rent growth will range from flat in San Diego to down 4% in Los Angeles. 1. Each market performance will vary across sub-markets. 8. Occupancies will range from 93-95 across sub-markets. 6. Expectations: 1. Believes that all metros will experience job losses in 2009, some more than others. 1. Business strategy in place since 1994, which focuses on locating and supply constrained market with high exposure to technology-oriented service jobs will continue to service well. 2. In preparation for the coming tough times, took the painful step in Dec. of reducing workforce by 22 employees, primarily in development and redevelopment areas. 3. Going to continue strategy of defensively operating portfolio, keeping occupancies high. 4. Balance sheet will remain one of the strongest in multi-family sector maintaining: 1. Low debt-to-market ratio. 2. Strong fixed charge coverage ratio. 5. Going to remain flexible with respect to opportunities.
S2. Development Activity (J.E.) 1. Highlights: 1. Been conservative in development activities. 2. Remaining committed exposure to complete developments under construction is $259m of which: 1. $88m is funded by un-disbursed construction financing. 2. Remaining $171m comes from cash and lines of credit. 1. Of $171m, $100m of estimated remaining costs related to Tasman Place, Sunnyvale can be postponed further by delaying unit starts if financial markets continue to deteriorate leaving Co. with a net current committed cash requirement of $71m. 3. Well positioned to adjust timing of all of pre-development and land held for development starts to accommodate financing issues in the market. 4. Building during cost compression stage of cycle and delivering into recovery phase of economy would be best execution. 5. Most important thing to note in pipeline is avg. negotiation date on land purchase price of entire development exposure is 2004. 1. Avoided overheated acquisition market of mid-2005 to early 2008. 6. During 4Q08, had no additions to pipeline. 1. Defensively, decided to lease one of Co.'s pre-development projects known as Essex-Hollywood to a credit tenant through July 2012 hence: 1. Delaying development. 2. Lowering overall exposure. 7. Sold one of Co.'s land held for future development transactions, 90 Archer. 1. On remaining development activity, Belmont Station in LA is now complete and 80% leased. 2. Anticipates getting to 95% leased by mid-2Q09 if current leasing pace continues. 8. The Grand in Oakland is substantially complete. 1. To-date, has pre-leased 74 units out of offsite trailer. 2. On-site leasing office and building will open for occupancy, Feb. 15. 9. Fourth Street in Berkeley and Joule Broadway in Seattle are progressing ahead of schedule. 1. Below original development cost estimates to-date. 10. On Tasman Place, Sunnyvale, moved back anticipated start date to Sept. 2009 to better time delivery date into early 2012, a time when Co. believes there will be dearth of new inventory and current job market will improve. 11. Seeing construction numbers substantially below initial estimates. 1. Expects this cost compression trend to continue for near future. 12. Two fund developments, Studio 40-41 in Studio City and Cielo in Chatsworth are slightly below scheduled development cost estimate. 1. Studio 40-41 will be delivered on time and Cielo will be one month late. 13. Has been able to avoid pitfalls of development by: 1. Limiting exposure, having income operating options to delay development much like Essex-Hollywood deal, where Co. extended the lease to its tenant for three years. 2. Not being aggressive on land acquisitions over last four years. 14. Conservative platform has positioned Co. to have flexibility to better time some risks inherent in this business.
S3. Operational Review (M.S.) 1. Highlights: 1. Despite gloomy economic conditions, 4Q08 ended on a positive note with revenue growth in each region of Co.'s portfolio vs. 4Q07. 1. Northern Cal and Seattle led the portfolio, performing near or above high-end of original guidance range. 2. For the year, revenue growth was 4.5%. 1. Equal to high-end of guidance range. 3. For 4Q08, most of operating metrics were positive given back drop of deteriorating economy. 4. Made decision to increase occupancy in each region of portfolio early in 4Q08, and then held that level throughout qtr. 1. Financial occupancy thus increased 0.3% to 96.6%, helping push sequential revenues up 0.6%. 2. Has been able to continue high occupancy execution so far in 2009 as indicated by physical occupancy and net to lease for portfolio as of 01/26/09 of 97% and 4.3% respectively. 5. Delinquencies continued to be less than budget …