The company has made the West Coast its primary focus for acquisition, development, and redevelopment for several reasons. Washington state and California combined comprise the fifth-largest GDP in the world, with ample job opportunities in industries like film production and tech. Favorable tenant demographics, combined with the high cost to enter, develop, and compete in these markets, have helped Essex Property Trust dominate these markets and grow to $1.3 billion in revenues for the year 2020.
Essex Property Trust news
The unique geographic makeup of the company portfolio surely helped build it to what we see today, but the coronavirus pandemic has shook the company's investment strategy. Large cities, including all markets Essex Property Trust operates in, in addition to many others across the central region and East Coast, are experiencing a decline in demand, as tenants look outside of high-density cities for more affordable housing. Work-from-home orders have allowed fluidity in where people reside and put tremendous pressure on apartment owners in these markets.
For the year ending 2020, net income increased 30.5% when compared to 2019. However, core funds from operations (FFO) decreased 4.2%, while NOI fell 6.8%. By year end 2020, the company's portfolio was 96.5% occupied, a slight increase from the prior quarter and just under 1% shy of fourth-quarter 2019 occupancy levels. Delinquencies and concessions were the biggest culprit for the company's loss in revenues in 2020, having earned -$23.5 million in delinquencies and -$31.8 million in cash concessions.
Aggressive anti-eviction policies in the state of California and nationwide eviction moratoriums have continued to put a strain on the company's ability to evict. But with the delinquency rate for the company at 2.2% in October 2020, the bigger issue is lack of demand, which has driven rental rates to -2.5%. Large employers in the company's markets aren't leaving like in other cities, but it's still unknown as to when work and life will resume back to normal, as well as when those who have fled will return.
In a down market, the strength of the company's financial profile is the largest determinant for its future and will determine if the company is able to sustain its financial, development, and shareholder obligations. Thankfully, Essex Property Trust has that on its side.
Despite challenging 2020 results, the company increased its dividend for the 27th consecutive quarter, pushing its payout ratio to 69%, well within a healthy range by REIT standards. While 8% of the company's debt matures in 2021, the company's $269.3 million debt issuance in the form of stock repurchases and bonds earlier in 2020 covers the debt repayment. In 2022, 5.9% of its debt portfolio will mature.
Essex currently has $1.2 billion in cash and cash equivalents, including an undrawn line of credit, which should be more than enough to cover its financial obligations over the next year, which includes the $73 million of uncommitted capital to complete developments underway.
Essex Property Trust stock price
The company's share values plummeted in March 2020, having yet to recover to pre-pandemic highs. Right now, shares are still down 20.5%. Looking at the company's price and total return over the past five years, Essex has done OK, but when compared to the S&P 500, its returns are less than stellar.