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Organization and Basis of Presentation | 3 Months Ended
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Mar. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Organization and Basis of Presentation | Organization and Basis of Presentation The accompanying unaudited condensed consolidated financial statements present the accounts of Essex Property Trust, Inc. ("Essex" or the "Company"), which include the accounts of the Company and Essex Portfolio, L.P. and its subsidiaries (the "Operating Partnership," which holds the operating assets of the Company), prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included and are normal and recurring in nature. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, 2023. All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 include the accounts of the Company and the Operating Partnership. Essex is the sole general partner of the Operating Partnership, with a 96.6% general partnership interest as of both March 31, 2024 and December 31, 2023. Total Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") outstanding was 2,258,812 as of both March 31, 2024 and December 31, 2023, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $553.0 million and $560.0 million as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, the Company owned or had ownership interests in 253 operating apartment communities, comprising 62,271 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, and three operating commercial buildings. The operating apartment communities are located in Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas. Recent Accounting Pronouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." Among other new disclosure requirements, ASU 2023-07 requires companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker. ASU 2023-07 will be effective for the Company's 2024 annual reporting. ASU 2023-07 must be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect the adoption to have a material impact on its consolidated results of operations and financial position. In August 2023, the FASB issued ASU No. 2023-05 "Business Combinations—Joint Venture Formations (Subtopic 805-60)" under which an entity that qualifies as a joint venture is required to apply a new basis of accounting upon the formation of the joint venture. The amendments in ASU 2023-05 require that a joint venture must initially measure its assets and liabilities at fair value on the formation date. ASU 2023-05 is effective for all joint ventures that are formed on or after January 1, 2025 and early adoption is permitted. The Company does not expect the adoption to have a material impact on its consolidated results of operations and financial position. Revenues and Gains on Sale of Real Estate Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned which generally approximates a straight-line basis, else, adjustments are made to conform to a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 9 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease. See Note 3, Revenues, for additional information regarding such revenues. The Company also generates other property-related revenue associated with the leasing of apartment homes, including storage income, pet rent, and other miscellaneous revenue. Similar to rental income, such revenues are recorded when due from tenants and recognized monthly as they are earned. Apart from rental and other property-related revenue, revenues from contracts with customers are recognized as control of the promised services is passed to the customer. For customer contracts related to management and other fees from affiliates (which includes asset management and property management), the transaction price and amount of revenue to be recognized is determined each quarter based on the management fee calculated and earned for that month or quarter. The contract will contain a description of the service and the fee percentage for management services. Payments from such services are one month or one quarter in arrears of the service performed. The Company recognizes any gains on sales of real estate when it transfers control of a property and when it is probable that the Company will collect substantially all of the related consideration. Marketable Securities The Company reports its equity securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds and Level 2 for the unsecured debt, as defined by the FASB standard for fair value measurements). As of both March 31, 2024 and December 31, 2023, $0.1 million of equity securities presented within common stock, preferred stock, and stock funds in the tables below represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy. Any realized and unrealized gains and losses in equity securities and interest income are included in interest and other income on the condensed consolidated statements of income and comprehensive income. As of March 31, 2024 and December 31, 2023, equity securities consisted primarily of investment funds-debt securities, common stock, preferred stock and stock funds. As of March 31, 2024 and December 31, 2023, marketable securities consisted of the following ($ in thousands):
| March 31, 2024
| Cost |  | Gross Unrealized Gain (Loss) |  | Carrying Value |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |
Investment funds - debt securities | $ | 26,590 |  |  | $ | (1,636) |  |  | $ | 24,954 |  |  |  |  |
Common stock, preferred stock, and stock funds | 51,341 |  |  | 15,000 |  |  | 66,341 |  |  |  |  |
Total - Marketable securities | $ | 77,931 |  |  | $ | 13,364 |  |  | $ | 91,295 |  |  |  |  |
| December 31, 2023
| Cost |  | Gross Unrealized Gain (loss) |  | Carrying Value |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |
Investment funds - debt securities | $ | 26,460 |  |  | $ | (1,584) |  |  | $ | 24,876 |  |  |  |  |
Common stock, preferred stock, and stock funds | 51,328 |  |  | 11,591 |  |  | 62,919 |  |  |  |  |
Total - Marketable securities | $ | 77,788 |  |  | $ | 10,007 |  |  | $ | 87,795 |  |  |  |  |
Variable Interest Entities In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidated the Operating Partnership, 18 DownREIT entities (comprising nine communities), and six co-investments as of March 31, 2024 and December 31, 2023. The Company consolidates these entities because it is the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were approximately $963.5 million and $326.1 million, respectively, as of March 31, 2024 and $956.7 million and $324.5 million, respectively, as of December 31, 2023. Noncontrolling interests in these entities was $121.0 million and $121.1 million as of March 31, 2024 and December 31, 2023, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of March 31, 2024 and December 31, 2023, the Company did not have any VIEs of which it was not the primary beneficiary. Equity-based Compensation The cost of share- and unit-based compensation awards is measured at the grant date based on the estimated fair value of the awards. The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period. The estimated grant date fair values of the long term incentive plan units (discussed in Note 14, "Equity Based Compensation Plans," in the Company’s annual report on Form 10-K for the year ended December 31, 2023) are being amortized over the expected service periods. Fair Value of Financial Instruments Management estimates that the carrying amounts of the outstanding balances under its lines of credit, and notes and other receivables approximate fair value as of March 31, 2024 and December 31, 2023, because interest rates, yields, and other terms for these instruments are consistent with interest rates, yields, and other terms currently available for similar instruments. Management has estimated that the fair value of the Company’s fixed rate debt with a carrying value of $6.0 billion and $5.7 billion as of March 31, 2024 and December 31, 2023, respectively, was approximately $5.6 billion and $5.3 billion, respectively. Management has estimated that the fair value of the Company’s $520.0 million of variable rate debt at both March 31, 2024 and December 31, 2023, was approximately $518.8 million and $519.0 million, respectively, based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes compared to those available in the marketplace. Management estimates that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities, and dividends payable approximate fair value as of March 31, 2024 and December 31, 2023 due to the short-term maturity of these instruments. Marketable securities are carried at fair value as of March 31, 2024 and December 31, 2023. Capitalization of Costs The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of interest and employee compensation and totaled $5.3 million and $4.8 million during the three months ended March 31, 2024 and 2023, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented. Co-investments The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company's equity in earnings, less distributions received and the Company's share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects. Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of income equal to the amount by which the fair value of the Company's previously owned co-investment interest exceeds its carrying value. A majority of the co-investments, excluding most preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote income if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments. Changes in Accumulated Other Comprehensive Income, Net by Component Essex Property Trust, Inc. ($ in thousands):
| Change in fair value and amortization of swap settlements |  |  |  |
Balance at December 31, 2023 | $ | 33,556 |  |  |  |  |
Other comprehensive income before reclassification | 7,715 |  |  |  |  |
Amounts reclassified from accumulated other comprehensive income | 8 |  |  |  |  |
Other comprehensive income | 7,723 |  |  |  |  |
Balance at March 31, 2024 | $ | 41,279 |  |  |  |  |
Essex Portfolio, L.P. ($ in thousands):
| Change in fair value and amortization of swap settlements |  |  |  |
Balance at December 31, 2023 | $ | 38,646 |  |  |  |  |
Other comprehensive income before reclassification | 7,986 |  |  |  |  |
Amounts reclassified from accumulated other comprehensive income | 9 |  |  |  |  |
Other comprehensive income | 7,995 |  |  |  |  |
Balance at March 31, 2024 | $ | 46,641 |  |  |  |  |
Amounts reclassified from accumulated other comprehensive income in connection with derivatives are recorded in interest expense on the condensed consolidated statements of income and comprehensive income. Redeemable Noncontrolling Interest The carrying value of redeemable noncontrolling interests in the accompanying condensed consolidated balance sheets was $32.2 million as of both March 31, 2024 and December 31, 2023, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances. The changes in the redemption value of redeemable noncontrolling interests for the three months ended March 31, 2024 is as follows ($ in thousands):
Balance at December 31, 2023 | $ | 32,205 |
Reclassification due to change in redemption value and other | (13) |
Balance at March 31, 2024 | $ | 32,192 |
Cash, Cash Equivalents and Restricted Cash Highly liquid investments generally with original maturities of three months or less when purchased are classified as cash equivalents. Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows ($ in thousands):
| March 31, 2024 |  | December 31, 2023 |  | March 31, 2023 |  | December 31, 2022
Cash and cash equivalents - unrestricted | $ | 499,036 |  |  | $ | 391,749 |  |  | $ | 67,712 |  |  | $ | 33,295 |
Cash and cash equivalents - restricted | 8,834 |  |  | 8,585 |  |  | 9,446 |  |  | 9,386 |
Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows | $ | 507,870 |  |  | $ | 400,334 |  |  | $ | 77,158 |  |  | $ | 42,681 |
Gain Contingencies Contingencies, commonly resulting from legal settlements, will periodically arise that may result in a gain. Gain contingencies are typically not recognized in the financial statements until all uncertainties related to the contingency have been resolved. In the case of legal settlements, the Company determines that all uncertainties have been resolved when cash or other consideration has been received by the Company. Gain contingencies resulting from legal settlements of $42.5 million and $7.7 million were recognized during the three months ended March 31, 2024 and 2023, respectively, and are included in interest and other income on the condensed consolidated statements of income and comprehensive income. Accounting Estimates The preparation of condensed consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, its notes receivables, and its qualification as a real estate investment trust ("REIT"). The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

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