20th anniversary 2014 annual report

132 Pages·2015·10.84 MB·English

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20TH ANNIVERSARY

2014 ANNUAL REPORT
BELCARRA
BELLEVEUE, WA
THEN & NOW
1994 2014
# OF UNITS 3,385 57,455
# OF PROPERTIES 16 239
SHARE PRICE $19.50 $206.60
EQUITY
$158MM $13.7BN
MARKET CAP
TOTAL
$250MM $18.8BN
MARKET CAP
ANNUALIZED
$1.67 $5.20
DIVIDEND/SH
FOR THE PAST 20 YEARS,
Essex has upheld its disciplined research-driven approach to investing in supply-constrained
West Coast markets and has maintained its solid balance sheet. These founding principles
underlie the success of the Company as demonstrated by a 2,932% total return to shareholders
since the IPO. With a strong management team and well-defined strategy, Essex has the
necessary tools to create shareholder value in the years to come.
BELCARRA
BELLEVEUE, WA
THEN & NOW
1994 2014
# OF UNITS 3,385 57,455
# OF PROPERTIES 16 239
SHARE PRICE $19.50 $206.60
EQUITY
$158MM $13.7BN
MARKET CAP
TOTAL
$250MM $18.8BN
MARKET CAP
ANNUALIZED
$1.67 $5.20
DIVIDEND/SH
FOR THE PAST 20 YEARS,
Essex has upheld its disciplined research-driven approach to investing in supply-constrained
West Coast markets and has maintained its solid balance sheet. These founding principles
underlie the success of the Company as demonstrated by a 2,932% total return to shareholders
since the IPO. With a strong management team and well-defined strategy, Essex has the
necessary tools to create shareholder value in the years to come.
THE DYLAN
WEST HOLLYWOOD, CA
20 YEARS OF SUCCESS
1994 2001 2002 2004 2010 2010 2011 2011 2013 2014
Priced IPO at $19.50 per Established the Essex First platform acquisition— Monetized Fund I generating a Acquired early in the recov- Increased the regular divi- Michael Schall succeeded Began developing early in Announced the merger with Closed the merger with BRE
share ($158 million in Apartment Value Fund John M. Sachs portfolio— +40% IRR and announced the ery. First acquisition was a dend, the only multifamily Keith Guericke as President the recovery by starting over BRE Properties, creating the Properties in a transaction
equity) with interests in (“Fund I”), raising $301 million creation of Fund II—raising foreclosed condo at 55% of REIT to do so during the and CEO $900 million in nine projects largest West Coast pure play valued at +$6 billion &
16 apartment communities $250 million of equity $266 million in equity cost. Acquired over $1 billion Great Recession over the next two years and multifamily REIT inclusion in S&P 500
located on the West Coast of properties over the next Issued first unsecured bonds formed multiple program-
two years matic joint ventures
THE DYLAN
WEST HOLLYWOOD, CA
20 YEARS OF SUCCESS
1994 2001 2002 2004 2010 2010 2011 2011 2013 2014
Priced IPO at $19.50 per Established the Essex First platform acquisition— Monetized Fund I generating a Acquired early in the recov- Increased the regular divi- Michael Schall succeeded Began developing early in Announced the merger with Closed the merger with BRE
share ($158 million in Apartment Value Fund John M. Sachs portfolio— +40% IRR and announced the ery. First acquisition was a dend, the only multifamily Keith Guericke as President the recovery by starting over BRE Properties, creating the Properties in a transaction
equity) with interests in (“Fund I”), raising $301 million creation of Fund II—raising foreclosed condo at 55% of REIT to do so during the and CEO $900 million in nine projects largest West Coast pure play valued at +$6 billion &
16 apartment communities $250 million of equity $266 million in equity cost. Acquired over $1 billion Great Recession over the next two years and multifamily REIT inclusion in S&P 500
located on the West Coast of properties over the next Issued first unsecured bonds formed multiple program-
two years matic joint ventures
TO OUR SHAREHOLDERS,
OVERVIEW
We are pleased to report that 2014 was a year of exceptional growth and significant accomplishment for Essex. The Company
delivered another year of sector-leading operating results, completed the largest acquisition in the Company’s history, and
achieved the highest total return to shareholders in over a decade. For the year, Core Funds from Operations (Core FFO) per
diluted share, a primary operating metric, grew 12.4%, attributable to vibrant economic conditions and strong job growth in
coastal California and Seattle which drove same-property revenue growth of 7.4%. In addition, the Company achieved a
major milestone by completing the merger with BRE Properties, creating the only apartment REIT dedicated to the West
Coast. These achievements contributed to the Company’s 48.0% total return to shareholders in 2014, exceeding the share-
holder returns for both the NAREIT Apartment and All Equity REIT indices.
In April, the Company completed the merger with BRE Properties in a transaction valued at over $6 billion. The merger pro-
vided Essex with an opportunity to acquire a highly complementary apartment portfolio concentrated in its target markets.
We were able to quickly improve revenue growth in the BRE portfolio, narrowing the growth differential between the two
portfolios, while implementing a number of operating and expense synergies. We believe that the BRE merger will be a trans-
formative event, enabling us to implement best practices from both companies while providing the scale to create a world-
class operating platform allowing greater efficiency and an improved customer experience. While this past year was busy with
merger-related activities, the Company also exceeded its primary objectives in acquisitions, development and redevelopment.
We acquired seven apartment communities representing a total investment of $641 million, targeting properties in urban and
suburban markets in close proximity to public transit systems. In development, our focus was on leasing-up 11 recently com-
pleted communities representing a total investment of over $1 billion. Finally, we continued to improve the portfolio through
our redevelopment program while generating attractive returns on invested capital.
In June, we celebrated the 20 year anniversary of Essex’s Initial Public Offering (IPO) in 1994. While the Company has
grown significantly over the past 20 years, from an enterprise value of $250 million to roughly $20 billion, the geographic
profile of the Company’s properties, its research-driven approach to investing and its strong balance sheet management
remain the same guiding principles today as at the time of the IPO. These principles underlie the success of the Company as
demonstrated by its 2,932% total return to shareholders since the IPO, the highest total return of any public REIT over this
same period. In addition, we have created a collaborative and engaging work environment for our employees and high-quality
communities for our residents to call home.

2014 ACCOMPLISHMENTS
The Company is pleased to report the following achievements for 2014:
• Acquired BRE Properties on April 1, 2014, expanding the total market capitalization of the Company from $10 billion
to $16 billion at the close of the merger.
DIVIDENDS PER SHARE
21 CONSECUTIVE YEARS OF DIVIDEND GROWTH FOLLOWING IPO
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
0
’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15E
• Led the apartment REITs in same-property revenue growth of 7.4%, which led to 9.2% net operating income (NOI)
growth, exceeding the midpoint of our original revenue and NOI guidance for the year.
• A dded to the S&P 500 Index in April 2014.
• C elebrated our 20th anniversary as a public Company in June 2014.
• Increased our dividend by 7%, our 20th consecutive annual increase, while continuing our commitment to dividend
safety and maintaining our strong balance sheet.
LOOKING AHEAD
We believe 2015 will be another promising year for Essex as we expect our targeted West Coast markets to remain among the
strongest apartment markets in the nation. We expect coastal California and Washington to lead the nation in job growth
given vibrant technology and life science employment sectors. As such, we expect rent growth in Northern California to gen-
erate portfolio-leading revenue growth, followed by a modest improvement in revenue growth in Southern California. We are
carefully monitoring the supply of new housing in Seattle and expect its results to moderate relative to 2014. Overall, we
anticipate leading the apartment REITs in same-property revenue growth in 2015.
A key focus will be continuing the transformational opportunities related to the BRE merger. We will continue to identify and
implement new processes for leveraging technology while identifying more efficient and effective ways of interacting and
responding to our customers. Finally, we will continue to use our market research process, scale and capital advantages to
pursue accretive investments that improve the quality and growth rate of the portfolio.
IN CONCLUSION
We are very pleased with the growth and accomplishments of the Company over the last 20 years, and we believe the Company
remains well positioned to take advantage of opportunities in 2015 and beyond. We realize that our success over the years is
directly attributable to our shareholders, employees, partners and residents, and we are grateful for your support.

Sincerely,
George M. Marcus Michael J. Schall
Chairman President & CEO
TOTAL SHAREHOLDER RETURN SINCE IPO
YEARS ENDING DECEMBER 31
$3,500
ESSEX $3,032
$3,000
$2,500
$2,000
$1,500
$1,000 NAREIT ALL EQUITY $846
$500
S&P 500 $670
0
’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14
SOURCE: SNL FINANCIAL & NAREIT. REPRESENTS THE VALUE OF A $100 INVESTMENT AND THE REINVESTMENT OF ALL DIVIDENDS.
RADIUS
REDWOOD CITY, CA
PAGE SIX
2014
FORM 10-K
10 YEARS OF COMPOUND ANNUAL OUTPERFORMANCE
RELATIVE TO PEER GROUP
16%
14%
12%
10%
8%
6%
4%
2%
0
Annual Total Return Annual NAV Per
Share Growth
ESS Peer Average
SOURCE: SNL FINANCIAL AND GREEN STREET ADVISORS.
ANNUAL TOTAL RETURN AND NET ASSET VALUE (NAV) PER SHARE ARE FOR THE 10-YEAR PERIOD ENDING 12/31/14.
PEER AVERAGE REPRESENTS 9 MULTIFAMILY REITS.
RADIUS
REDWOOD CITY, CA
PAGE SIX
2014
FORM 10-K
10 YEARS OF COMPOUND ANNUAL OUTPERFORMANCE
RELATIVE TO PEER GROUP
16%
14%
12%
10%
8%
6%
4%
2%
0
Annual Total Return Annual NAV Per
Share Growth
ESS Peer Average
SOURCE: SNL FINANCIAL AND GREEN STREET ADVISORS.
ANNUAL TOTAL RETURN AND NET ASSET VALUE (NAV) PER SHARE ARE FOR THE 10-YEAR PERIOD ENDING 12/31/14.
PEER AVERAGE REPRESENTS 9 MULTIFAMILY REITS.