EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Executive Summary and 2015 Accomplishments
In 2015, Essex delivered yet another year of sector-leading results. Extraordinary job growth and vibrant economic conditions in coastal California and Seattle, coupled with limited new housing supply, fueled robust apartment operating fundamentals. Under these favorable conditions, we surpassed our goals in each major segment of the Company.
Operating and Core FFO growth:
In 2015, Essex had same-property revenue growth of 8.0%, the highest level reached in the last 15 years, and Net Operating Income (NOI) growth of 10.7%. For the year, Core Funds from Operations (Core FFO) per diluted share, grew 15.0%, the fifth consecutive year of double digit growth.
Acquisition and Development:
Acquired ownership interests in seven apartment communities, located in urban and suburban neighborhoods in proximity to public transit systems, for $638 million. In development, we completed the lease-up of seven communities comprising 1,617 units.
Redevelopment:
Expanded our redevelopment and resource management platforms. Through these programs, we seek to improve the quality of our communities based on consumer needs and expectations, while earning an attractive return on investment. Furthermore, our resource management efforts implement sustainable practices to conserve water and reduce energy consumption at our existing communities, decreasing our impact on the environment.
Portfolio Management:
Opportunistically sold $308 million of apartment communities at attractive pricing, including Sharon Green Apartments, built in 1970 and located in Menlo Park, CA, for $245.0 million, or $828,000 per unit.
Balance Sheet Management:
Achieved a Debt, net of deferred financing costs, premiums and discounts, to Total Market Capitalization (defined as total debt, net of deferred financing costs, premiums and discounts plus total equity capitalization) ratio of 24.6% at year-end, the lowest level for this metric since 2007.
Dividend Growth:
In February 2016, we announced a dividend increase of 11.1%, continuing a long history of strong dividend growth during our 20+ year life as a public company.
For a discussion of the calculation of Core FFO and NOI, see Item 6. Selected Financial Data and Item 7. Managements Discussion and Analysis of Financial Conditions and Results of Operations, respectively, in our Form 10-K for the year ended December 31, 2015.
Objectives of Executive Compensation
The primary objectives of Essexs executive compensation program are to (i) attract, motivate and retain experienced, effective executives, (ii) direct the performance of those executives with clearly defined goals and measures of achievement, and (iii) align the interests of management with the interests of Essexs stockholders. With regard to absolute levels of executive compensation and the compensation programs, the Compensation Committee of the Essex Board periodically reviews relevant information about competitive pay levels and structures but also considers a number of other factors, as described below.
Each year, the Essex Board sets annual corporate goals that are generally designed to promote stockholder value creation over a multiple year period. These corporate goals are used as the basis for measuring management performance, a key consideration in granting both cash bonuses and long-term equity. These goals, which include measures of performance on both an absolute basis as well as relative to peers, are described in more detail in the discussion below. Goals for 2015 included:
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specific company performance metrics such as per share growth in Funds from Operations (FFO),
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yields from recent investment transactions relative to the pro-forma underwriting, increasing same property NOI, and,
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dispositions of underperforming assets and discretionary objectives, including progress on specific corporate initiatives such as the successful integration of the BRE merger.
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