ITEM 1A: RISK FACTORS

For purposes of this section, the term “stockholders” means the holders of shares of Essex Property Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unit holders. You should carefully consider the following factors in evaluating our ~~company,~~Company, our properties and our business.

Our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause our actual operating results to vary materially from recent results or from our anticipated future results.

Risks Related to Our Real Estate Investments and Operations

General real estate investment risks may adversely affect property income and values. Real estate investments are subject to a variety of risks. If the communities and other real estate investments do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:

the general economic climate;

local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;

the attractiveness of the communities to tenants;

competition from other available housing alternatives;

changes in rent control or stabilization laws or other laws regulating housing;

the Company’s ability to provide for adequate maintenance and insurance;

declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;

rising crime rates in our markets; and

changes in interest rates and availability of financing.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company. Income and real estate values also may be adversely affected by such factors as applicable laws ~~(ex:~~(e.g., the Americans with Disabilities Act of 1990 and tax laws). Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.

Real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on our financial condition and results of operations. In addition, if we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”).

Short-term leases expose us to the effects of declining market rents, and the Company may be unable to renew leases or relet units as leases expire. Substantially all of our apartment leases are for a term of one year or less. If the Company is unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then the Company’s results of operations and financial condition will be adversely affected. With these short term leases, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.

~~We may pursue acquisitions, dispositions, investments and joint ventures, which could adversely affect our results of operations.~~ We may make acquisitions of and investments in businesses that offer complementary properties and communities to augment our market coverage, or enhance our property offerings. We may also enter into strategic alliances or joint ventures to achieve these goals. We cannot assure you that we will be able to identify suitable acquisition, investment, alliance, or joint venture opportunities, that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates and assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition. From time to time, we may also divest portions of our business that are no longer strategically important or exit minority investments, which could materially affect our FFO, cash flows and results of operations.

These transactions or any other acquisitions or dispositions involve risks and uncertainties. For example, as a consequence of such transactions, we may assume unknown liabilities, which could ultimately lead to material costs for us. In addition, the integration of acquired businesses or other acquisitions may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses or other acquisitions, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition property due diligence will have identified all material issues that might arise with respect to such acquired business and its properties or as to any such other acquisitions.

Any acquisition may also cause us to assume liabilities and ongoing lawsuits, acquire goodwill and other non-amortizable intangible assets that will be subject to impairment testing and potential impairment charges, incur amortization expense related

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to certain intangible assets, increase our expenses and working capital requirements, and subject us to litigation, which would reduce our return on invested capital. In addition, if the businesses or properties that we acquire have a different pricing or cost structure than we do, such acquisitions may adversely affect our profitability and reduce our overall margin. Failure to manage and successfully integrate the acquisitions we make or to improve margins of the acquired businesses and products could materially harm our business, operating results and margins. Any dispositions we may make may also result in ongoing obligations to us following any such divestiture, for example as a result of any transition services or indemnities we agree to provide to the purchaser in any such transaction, which may result in additional expenses and may adversely affect our financial condition and results of operation.

Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, could be dilutive to our existing stockholders. Any downgrades in our credit ratings associated with an acquisition could adversely affect our ability to borrow by resulting in more restrictive borrowing terms. As a result of the foregoing, we also may not be able to complete acquisitions or other strategic transactions in the future to the same extent as in the past, or at all. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.

National and regional economic environments can negatively impact the Company’s operating results. The Company's forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the west coast states. In the event of a recession, the Company could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.

Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates ~~and~~and/or property operating expenses.

Acquisitions of communities involve various risks and uncertainties and may fail to meet expectations. The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will fail to meet the Company’s expectations. The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. Also, in connection with such acquisitions, we may assume unknown liabilities, which could ultimately lead to material costs for us. The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company. The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to undertake additional borrowing for further acquisitions or developments or such borrowing may be not available on advantageous terms.

Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results. The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including, among others, the following:

funds may be expended and management's time devoted to projects that may not be completed;

construction costs of a project may exceed original estimates possibly making the project economically unfeasible;

projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage, or environmental remediation;

occupancy rates and rents at a completed project may be less than anticipated;

expenses at completed development projects may be higher than anticipated, including, without limitation, due to costs of environmental remediation;

we may be unable to obtain, or experience a delay in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities;

we may be unable to obtain financing with favorable terms, or at all, for the proposed development of community, which may cause us to delay or abandon an opportunity; and

we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements.)

These risks may reduce the funds available for distribution to the Company’s stockholders. Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see the risk factor above titled “General real estate investment risks may adversely affect property income and values.”

Investments in mortgages and other real estate and other marketable securities could adversely affect the Company’s cash flow from operations. The Company may invest in equity, preferred equity or debt securities related to real estate and/or other investment securities and/or cash investments, which could adversely affect the Company’s ability to make distributions to stockholders, including, without limitation, due to a decline in the value of such investments. The Company may also purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. Such mortgages may be first, second or third mortgages, and these mortgages and/or other investments may not be insured or otherwise guaranteed. The Company may acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity or entities that owns the interest in the entity owning the property. In general, investments in mortgages include the following risks:

that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;

the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;

that interest rates payable on the mortgages may be lower than the Company’s cost of funds;

in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage; and

delays in the collection of principal and interest if a borrower claims bankruptcy.

If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.

Our apartment communities may be subject to unknown or contingent liabilities which could cause us to incur substantial costs. The properties that the Company owns or may acquire are or may be subject to unknown or contingent liabilities for which the Company may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the properties may not survive the closing of the transactions. While the Company will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with apartment communities may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our business, financial condition and results of operations.

~~Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results.~~ The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including the following:

~~funds may be expended and management's time devoted to projects that may not be completed;~~

~~construction costs of a project may exceed original estimates possibly making the project economically unfeasible;~~

~~projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage;~~

~~occupancy rates and rents at a completed project may be less than anticipated;~~

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~~expenses at completed development projects may be higher than anticipated; and~~

These risks may reduce the funds available for distribution to the Company’s stockholders. Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see the risk factor above titled “~~General real estate investment risks may adversely affect property income and values.~~”

~~Difficulty of selling apartment communities could limit liquidity and financial flexibility.~~ If we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”). In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on our financial condition and results of operations.

The geographic concentration of the Company’s communities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results. The Company generated significant amounts of rental revenues for the year ended December 31, ~~2015,~~2016, from the Company’s communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area. For the year ended December 31, ~~2015,~~2016, 83% of the Company’s rental revenues were generated from communities located in California. This geographic concentration could present risks if local property market performance falls below expectations. In general, factors that may adversely affect local market and economic conditions include, among others, the following:

the economic climate, which may be adversely impacted by a reduction in jobs or income levels, industry slowdowns and other factors;

local conditions, such as oversupply of, or reduced demand for, apartment homes;

declines in household formation;

~~favorable residential mortgage rates;~~

rent control or stabilization laws, or other laws regulating rental housing, which could prevent the Company from raising rents to offset increases in operating costs; ~~and~~

competition from other available apartments and other housing alternatives and changes in market rental ~~rates.~~rates; and

regional specific acts of nature (e.g., earthquakes).

The Company may experience various increased costs, including increased property taxes, to own and maintain its properties. Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Thus, our real estate taxes in the State of Washington could increase as a result of property value reassessments or increased property tax rates in that state. A current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value. However, under Proposition 13, property tax reassessment generally occurs as a result of a “change in ownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial and industrial property and/or introduce split tax roll legislation. Such initiatives, if successful, could increase the assessed value and/or tax rates applicable to commercial property in California, including our apartment communities.

The Company may experience increased costs associated with capital improvements and routine property maintenance, such as repairs to the foundation, exterior walls, and rooftops of its properties, as its properties advance through their life-cycles. Increases in the Company’s expenses to own and maintain its properties could adversely impact the Company’s financial condition and results of operations.

Competition in the apartment community market and other housing alternatives may adversely affect operations and the rental demand for the Company’s communities. There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which the communities are located. Competitive housing in a particular area and the increasing affordability of

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owner occupied single and multi-family homes caused by lower housing prices, mortgage interest rates and government programs to promote home ownership or create additional rental and/or other types of housing, could adversely affect the Company’s ability to retain its residents, lease apartment homes and increase or maintain rents. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. The Company also faces competition from other real estate investment trusts, businesses and other entities in the

acquisition, development and operation of apartment communities. This competition may result in an increase in ~~costs~~prices and ~~prices~~costs of apartment communities that the Company acquires and/or develops.

~~Investments in mortgages and other real estate securities could affect the Company’s ability to make distributions to stockholders.~~ The Company may invest in equity, preferred equity or debt securities related to real estate, which could adversely affect the Company’s ability to make distributions to stockholders. The Company may purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. These mortgages may be first, second or third mortgages that may or may not be insured or otherwise guaranteed. The Company may acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity or entities that owns the interest in the entity owning the property. In general, investments in mortgages include the following risks:

~~that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;~~

~~the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;~~

~~that interest rates payable on the mortgages may be lower than the Company’s cost of funds;~~

~~in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage; and~~

~~delays in the collection of principal and interest if a borrower claims bankruptcy.~~

~~If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.~~

The Company’s joint ventures and joint ownership of communities, its ownership of properties with shared facilities with a home owners' association or other entity, its ownership of properties subject to a ground lease and its preferred equity investments and its other partial interests in corporations and limited partnerships that own communities could limit the Company’s ability to control such communities and ~~partial interests.~~ ~~Instead~~may restrict our ability to finance, sell or otherwise transfer our interests in these properties and expose us to loss of ~~purchasing~~the properties if such agreements are breached by us or terminated.

The Company defines development projects as new communities that are being constructed or are newly constructed and ~~developing apartment communities directly,~~are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2016, the Company ~~has invested~~had two consolidated development projects and ~~may continue~~four joint venture development projects comprised of 2,223 apartment homes for an estimated cost of $1.3 billion, of which $0.7 billion remains to ~~invest~~be expended, and $0.5 billion is the Company's share. In addition, as of December 31, 2016, the Company had an interest in 11,274 apartment homes in operating communities with joint ~~ventures.~~ ventures for a total book value of $0.8 billion.

Joint venture partners often have shared control over the development and operation of the joint venture assets. Therefore, it is possible that a joint venture partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with the Company’s business interests or goals, or be in a position to take action contrary to the Company’s instructions or requests, or its policies or objectives. Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk. Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ ~~approval, or joint venture partners could take actions binding on the joint venture without its consent.~~approval. A joint venture partner might fail to approve decisions that are in the Company’s best interest. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would have not have initiated such a transaction.

From time to time, the Company, through the Operating Partnership, invests in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing, financing, or managing real property. For example, the Company has made preferred equity investments in third party entities that own real estate. With preferred equity investments and certain other investments, the Operating Partnership’s interest in a particular entity is typically less than a majority of the outstanding voting interests of that entity. Therefore, the Operating Partnership’s ability to control the daily operations of such an entity may be limited. Furthermore, the Operating Partnership may not have the power to remove a majority of the board of directors (in the case of a corporation) or the general partner or partners (in the case of a limited partnership) of such an entity in the event that its operations conflict with the Operating Partnership’s objectives. The Operating Partnership may not be able to dispose of its interests in such an entity. In the event that such an entity becomes insolvent, the Operating Partnership may lose up to its entire investment in and any advances to the entity. The Company may also incur losses if any guarantees or indemnifications were made by the Company. The Company also owns properties indirectly under "downREIT" structures. The Company has, and in the future may, enter into transactions that could require the Company to pay the tax liabilities of partners, which contribute assets into downREITs, joint ventures or the Operating Partnership, in the event that certain taxable events, which are within the Company’s control, occur. Although the Company plans to hold the contributed assets or defer recognition of gain on sale pursuant to the like-kind exchange rules under Section 1031 of the Code, the Company can provide no assurance that the Company will be able to do so and if such tax liabilities were incurred they could have a material impact on its financial position.

~~Table~~Also, from time to time, the Company invests in properties which may be subject to certain shared facilities agreements with homeowners' associations and other entities and/or invests in properties subject to ground leases where a subtenant may have certain similar rights to that of ~~Contents~~a party under such a shared facilities agreement. For such properties, the Company's ability to control the expenditure of capital improvements and its allocation with such other parties may adversely affect the Company's business, financial condition and results of operations.

We may pursue acquisitions of other REITs and real estate companies, which could adversely affect our results of operations. We may make acquisitions of and investments in other REITs and real estate companies that offer properties and communities to augment our market coverage, or enhance our property offerings. We may also enter into strategic alliances or joint ventures to achieve these goals. There can be no assurance that we will be able to identify suitable acquisition, investment, alliance, or joint venture opportunities, that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates and

assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition.

These transactions or any other acquisitions involve risks and uncertainties. For example, as a consequence of such transactions, we may assume unknown liabilities, which could ultimately lead to material costs for us. In addition, the integration of acquired businesses or other acquisitions may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses or other acquisitions, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition property due diligence will have identified all material issues that might arise with respect to such acquired business and its properties or as to any such other acquisitions. Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, could be dilutive to our existing stockholders. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.

Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy. A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction. Legislation or regulations adopted in the future may impose further burdens or restrictions on the Company with respect to improved access by disabled persons. The costs of compliance with these laws and regulations may be substantial. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any noncomplying feature, which could result in substantial capital expenditures.

The Company may not be able to lease its retail/commercial space consistent with its projections or at market rates. The Company has retail/commercial space in its portfolio. The retail/commercial space at our properties, among other things, serve as additional amenity for our residents. The long term nature of our retail/commercial leases, and characteristics of many of our tenants (small, local businesses) may subject us to certain risks. We may not be able to lease new space for rents that are consistent with our projections or at market rates. Also, when leases for our existing retail/commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable that the current lease terms. Our properties compete with other properties with retail/commercial space. The presence of competitive alternatives may affect our ability to lease space and the level of rents we can obtain. If our retail/commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely impact our results of operations and financial condition. The revenue from our retail/commercial space represents approximately 2% of our total rental revenue.

The Company’s portfolio may have environmental liabilities. Under various federal, state and local environmental and public health laws, regulations and ordinances we have been from time to time, and may be required in the future, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases naturally occurring substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for response costs, property damage, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the impacts resulting from such releases. While the Company is unaware of any such response action required or damage claims associated with its existing properties which individually or in aggregate would have a materially adverse effect on our business, assets, financial condition or results of operations, potential future costs and damage claims may be substantial and could exceed any insurance coverage we may have for such events or such coverage may not exist. Further, the presence of such substances, or the failure to properly remediate any such impacts, may adversely affect our ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the impacted ~~site~~property in favor of the government for damages and costs it incurs as a result of responding to hazardous or toxic substance or petroleum product ~~releases .~~releases.

Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of our communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.

Investments in real property create a potential for environmental liabilities on the part of the owner of such real property. The Company carries certain limited insurance coverage for this type of environmental risk as to its properties; however, such coverage is not fully available for all properties and, as to those properties for which limited coverage is fully available it may not apply to certain claims arising from known conditions present on those properties. In general, in connection with the ownership (direct or indirect), operation, financing, management and development of its communities, the Company could be considered as the owner or operator of such properties or as having arranged for disposal or treatment of hazardous substances

present there and therefore may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities. The Company may also be subject to governmental fines and costs related to injuries to third persons and damage to their property.

Properties which we intend to acquire undergo a pre-acquisition Phase I environmental site assessment, which is intended to afford the Company protection against so-called “owner liability” under the primary federal environmental law, as well as further environmental assessment, which ~~generally does not~~may involve invasive techniques such as soil or ground water sampling ~~except~~ where conditions warranting such further assessment are identified and seller’s consent is obtained. While such assessments are conducted in accordance with applicable “all appropriate inquiry" standards, no assurance can be given that all environmental conditions present on or beneath or emanating from a given property will be discovered or that the full nature and extent of those conditions which are discovered will be adequately ascertained and quantified.

In connection with our ownership, operation and development of communities, from time to time we undertake remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. The Company does so pursuant to appropriate environmental regulatory requirements with the objective of obtaining regulatory closure or a no further action determination that will allow for future use, development and sale of any impacted community.

Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air or exposure to lead-based paint ("LBP"), and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs or LBP.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed in a timely manner. Although the occurrence of mold at multi-family and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any

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impact mold might have on residents of the property. The Company believes its mold policies and proactive response to address any known mold existence reduce its risk of loss from these cases; however, no assurance can be provided that the Company has identified and responded to all mold occurrences.

California has enacted legislation, commonly referred to as "Proposition 65," requiring that "clear and reasonable" warnings be given to persons who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke. Although the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that the Company will not be adversely affected by litigation relating to Proposition 65.

Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas. Methane is a non-toxic gas, but is flammable and can be explosive at sufficient concentrations when in confined spaces and exposed to an ignition source. Naturally-occurring, methane gas is regulated at the state and federal level as a greenhouse gas but is not otherwise regulated as a hazardous substance; however some local governments, such as Los Angeles County, require that new buildings constructed in areas designated methane gas zones install detection and/or venting systems. Methane gas is also associated with certain industrial activities, such as former municipal waste landfills. Radon is also a naturally-occurring gas that is found below the surface and can pose a threat to human health requiring abatement action if present in sufficient concentration within occupied areas. The Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.

We cannot assure you that costs or liabilities incurred as a result of environmental matters will not affect our ability to make distributions to stockholders, or that such costs or liabilities will not have a material adverse effect on our financial condition and results of operations; provided, however, the Company is unaware of any pending or threatened alleged claim resulting from such matters which would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

The Company may incur general uninsured losses. The Company purchases general liability and ~~all risk~~ property, including loss of rent, insurance coverage for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and ~~all risk~~ property

losses. As of December 31, ~~2015,~~2016, PWI has cash and marketable securities of approximately ~~$60.3~~$69.9 million, and is consolidated in the Company's financial statements.

All the communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. Purchasing seismic insurance coverage can be costly and such seismic insurance is in limited supply. As a result, the Company may experience a shortage in desired coverage levels if market conditions are such that insurance is not available, or the cost of the insurance makes it, in managements view, not economically practical. The Company purchases limited earthquake insurance for certain high-density properties and assets owned by the Company's co-investments.

The Company carries other types of insurance coverage related to a variety of risks and exposures. Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, we cannot assure you that the ~~company~~Company will not incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.

We have significant investments in large metropolitan markets, such as the metropolitan markets in Southern California, the San Francisco Bay Area and Seattle. These markets may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets could directly or indirectly damage our communities, both physically and financially, or cause losses that exceed our insurance coverage.

Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental

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considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed.

Accidental death or ~~horrendous~~severe injuries due to fire, natural disasters or other hazards could adversely affect our business and results of operations. The accidental death or ~~horrendous~~severe injuries of persons living in our communities due to fire, natural disasters or other hazards could have a material adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have a material adverse effect on our business and results of operations.

Adverse changes in laws may adversely affect the Company's ~~liability~~liabilities and/or operating costs relating to its properties and its operations. Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residents or users in the form of higher rents, and may adversely affect the Company's cash available for distribution and its ability to make distributions to its stockholders and pay amounts due on its debt. Similarly, changes in laws increasing the potential liability of the Company and/or its operating costs on a range of issues, including those regarding potential liability for other environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws ~~including those~~ affecting development, construction and safety requirements, may result in significant unanticipated expenditures, including without limitation, those related to structural or seismic retrofit or more costly operational safety systems and programs, which could have a material adverse effect on the ~~Company and its ability to make distributions to its stockholders and pay amounts due on our debt.~~Company. For example, (1) the California statute, the "Sustainable Communities and Climate Protection Act of 2009, also known as "SB375"", provides that, in order to reduce greenhouse emissions, there should be regional planning to coordinate housing needs with regional ~~transportation. Such~~transportation and such planning could lead to restrictions on, or increases in, property development that adversely affect the ~~Company.~~Company and (2) the Environmental Protection Agency has implemented a program for long-term phase out of HCFC-22 coolant (freon) by 2030, which could lead to increased capital and/or operating costs. In addition, in Richmond and Mountain View, California, both of which are in the San Francisco Bay Area, rent control initiatives were recently passed by the voters. These initiatives and any other future ~~enactment~~enactments of rent control or rent stabilization laws or other laws regulating multi-family housing, as well as any lawsuits against the Company arising from such rent control or other laws, may reduce rental revenues or increase operating costs.

The soundness of financial institutions could adversely affect us. We maintain cash and cash equivalent balances, including significant cash amounts of our wholly owned insurance subsidiary, Pacific Western Insurance LLC, as well as 401(k) plan assets in a limited number of financial institutions. Our cash balances are generally in excess of federally insured limits. The

failure or collapse of one or more of these financial institutions may materially adversely affect our ability to recover our cash balances or the 401(k) assets. Certain financial institutions are lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry. In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our business and results of operations.

Failure to succeed in new markets may limit the Company’s growth. The Company may ~~from time to time~~ make acquisitions or commence development activity outside of its existing market areas if appropriate opportunities arise. The Company’s historical experience in its existing markets does not ensure that it will be able to operate successfully in new markets. The Company may be exposed to a variety of risks if it chooses to enter new markets. These risks include, among others:

an inability to evaluate accurately local apartment market conditions and local economies;

an inability to identify appropriate acquisition opportunities or to obtain land for development;

an inability to hire and retain key personnel; and

lack of familiarity with local governmental and permitting procedures.

The Company’s real estate assets may be subject to impairment charges.The Company continually evaluates the recoverability of the carrying value of its real estate assets under U.S. generally accepted accounting principles ("U.S. GAAP"). Factors considered in evaluating impairment of the Company’s existing multi-family real estate assets held for investment include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Generally, a multi-family real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. Assumptions used to estimate annual and residual cash flow and the estimated holding period of such assets require the judgment of management. There can be no assurance that the Company will not take charges in the future related to the impairment of the Company’s assets. Any future impairment charges could have a material adverse effect on the Company’s results of operations.

We face risks associated with land holdings and related activities. We hold land for future development and may in the future acquire additional land holdings. The risks inherent in purchasing, owning and developing land increase as demand for apartments, or rental rates, decrease. Real estate markets are highly uncertain and, as a result, the value of undeveloped land may fluctuate significantly. In addition, carrying costs can be significant and can result in losses or reduced profitability. As a result, we hold certain land, and may, in the future acquire additional land, in our development pipeline at a cost we may not be able to fully recover or at a cost which may preclude our developing a profitable multi-family community. If there are

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subsequent changes in the fair value of our land holdings which we determine is less that the carrying basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future impairment changes which could have a material adverse effect on our results of operations.

Risks Related to Our Indebtedness and Financings

Capital and credit market conditions may affect the Company’s access to sources of capital and/or the cost of capital, which could negatively affect the Company’s business, results of operations, cash flows and financial condition. In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to the Company may be adversely affected. Our current balance sheet, the debt capacity available on the unsecured line of credit with a diversified bank group, access to the public and private placement debt markets and secured debt financing providers such as Fannie Mae and Freddie Mac provides some insulation from volatile capital markets. We primarily use external financing, including sales of equity securities, to fund acquisitions, developments, and redevelopments and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition, development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. In general, to the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing without a corresponding change to investment cap rates) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely affected, which would impact the Company's financial standing and related credit rating. In addition, if our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of our liquidity, which, in the case of secured financings, could result in lender foreclosure on the apartment communities securing such debt.

The Company could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing. Historically, the Company has utilized borrowing from Fannie Mae and Freddie Mac. There

are no assurances that these entities will lend to the Company in the future. Beginning in 2011, the Company has primarily utilized unsecured debt and has repaid secured debt at or near their respective maturity and has placed less reliance on agency mortgage debt financing. ~~The Administration and lawmakers~~Potential options have been proposed ~~potential options~~ for the future of agency mortgage finance in the U.S. that could involve the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government or if there is reduced government support for ~~support for~~ multi-family housing more generally, it may adversely affect interest rates, capital availability, development of multi-family communities and the value of multi-family residential real estate and, as a result, may adversely affect the Company and its growth and operations.

Debt financing has inherent risks. At December 31, ~~2015,~~2016, the Company had approximately ~~$5.3~~$5.6 billion of indebtedness (including ~~$525.3~~$506.7 million of variable rate indebtedness, of which ~~$225.0~~$25.0 million is subject to an interest rate ~~swaps~~swap effectively fixing the interest rate ~~and~~on $25.0 million in debt. The Company has also entered into interest rate swaps with a notional amount of $150.0 million, with settlement payments starting in March 2017. $20.7 million is subject to interest rate cap protection)~~.The~~. The Company is subject to the risks normally associated with debt financing, including, among others, the following:

cash flow may not be sufficient to meet required payments of principal and interest;

inability to refinance maturing indebtedness on encumbered apartment communities;

inability to comply with debt covenants could cause defaults and an acceleration of maturity dates; and

paying debt before the scheduled maturity date could result in prepayment penalties.

The Company may not be able to renew, repay or refinance its indebtedness when due or may be required to refinance its indebtedness at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness. If the Company is unable to refinance its indebtedness on acceptable terms, or not at all, the Company might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses. Such losses could have an adverse effect on the Company and its ability to make distributions to its stockholders and pay amounts due on its debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and the Company is unable to meet mortgage payments, the mortgagee could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequential loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.

Debt financing of communities may result in insufficient cash flow to service debt and fund distributions. Where appropriate, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to provide for additional investments that the Company could not otherwise make. There is a risk that the cash flow from the

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communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, regional, financial, competitive, operating, legislative, regulatory, taxation and other factors, many of which are beyond our control.

As of December 31, ~~2015,~~2016, the Company had 6961 consolidated communities encumbered by debt. With respect to the 6961 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities. The holders of this indebtedness will have rights with respect to these communities and, if debt payment obligations are not met, lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.

Compliance requirements of tax-exempt financing and below market rent requirements may limit income from certain communities. At December 31, ~~2015,~~2016, the Company had approximately $281.7 million of variable rate tax-exempt financing. This tax-exempt financing provides for certain deed restrictions and restrictive covenants. The Company expects to engage in tax-exempt financings in the future. ~~The Code and rules and regulations thereunder impose various restrictions, conditions and~~If the compliance requirements in order to allow the note holder to exclude interest on qualified bond obligations from gross income for federal income tax purposes. The Code also requires that at least 20% of apartment units be made available to residents with gross incomes that do not exceed a specified percentage, generally 50%, of the ~~median~~tax-exempt financing restrict our ability to increase our rental rates to low or moderate income ~~for~~residents, or eligible/qualified residents, then our income from these properties may be limited. While we generally believe that the ~~applicable family size as determined by~~interest rate benefit attendant to properties with tax-exempt bonds more than outweigh any loss of income due to restrictive covenants or deed restrictions, this may not always be the ~~Housing~~case. Some of these requirements are complex and ~~Urban Development Department of the federal government.~~our failure to comply with them may subject us to material fines or liabilities. Certain state and local authorities may impose additional rental restrictions. These restrictions may limit income from the tax-exempt financed communities if the Company is required to lower rental rates to attract residents who satisfy the median income test. If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability. Besides the limitations due to tax-exempt financing requirements, the income

from certain communities may be limited due to below market rent ("BMR") requirements imposed by local authorities in connection with the original development of the community.

The indentures governing our notes and other financing arrangements contain restrictive covenants that limit our operating flexibility. The indentures that govern our publicly registered notes contain financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to:

consummate a merger, consolidation or sale of all or substantially all of our assets; and

incur additional secured and unsecured indebtedness.

The instruments governing our other unsecured indebtedness require us to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these provisions and those contained in the indentures governing the notes, may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us. The breach of any of these covenants, including those contained in our indentures, could result in a default under our indebtedness, which could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.

Rising interest rates may affect the Company’s costs of capital and financing activities and results of operation. Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt. Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities with positive economic returns on investment and the Company’s ability to refinance existing borrowings.

Interest rate hedging arrangements may result in losses.The Company from time to time uses interest rate swaps and interest rate caps contracts to manage certain interest rate risks. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to the Company if interest rates decline. If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, the Company may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the hedging arrangement may subject the Company to increased credit risks. In order to minimize counterparty credit risk, the Company enters into hedging arrangements only with investment grade financial institutions.

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A downgrade in the Company's investment grade credit rating could materially and adversely affect its business and financial condition.The Company plans to manage its operations to maintain its investment grade credit rating with a capital structure consistent with its current profile, but there can be no assurance that it will be able to maintain its current credit ratings. Any downgrades in terms of ratings or outlook by any of the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on its financial condition, results of operations and liquidity.

Changes in the Company’s financing policy may lead to higher levels of indebtedness. The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred. The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility, unsecured debt and senior unsecured bonds. Although pursuant to this policy the Company manages its debt to be in compliance with the debt covenants, the Company may increase the amount of outstanding debt at any time without a concurrent improvement in the Company’s ability to service the additional debt. Accordingly, the Company could become more leveraged, resulting in an increased risk of default of its debt covenants or on its debt obligations and in an increase in debt service requirements. Any covenant breach or significant increase in the Company’s leverage could materially adversely affect the Company’s financial condition and ability to access debt and equity capital markets in the future.

If the Company or its subsidiaries defaults on an obligation to repay outstanding indebtedness when due, the default could trigger a cross-default or cross-acceleration under other indebtedness. If the Company or one of its subsidiaries defaults on its obligations to repay outstanding indebtedness, the default could cause a cross-default or cross-acceleration under other indebtedness. A default under the agreements governing the Company’s or its subsidiaries’ indebtedness, including a default under mortgage indebtedness, lines of credit, bank term loan, or the indenture for the Company’s outstanding senior notes, that is not waived by the required lenders or holders of outstanding notes, could trigger cross-default or cross-acceleration provisions under one or more agreements governing the Company’s indebtedness, which could cause an immediate default or allow the lenders to declare all funds borrowed thereunder to be due and payable.

Risks Related to the Company in General and the Ownership of Essex’s Stock

The Company depends on its key personnel, whose continued service is not guaranteed. The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of any of the Company’s key personnel could have an adverse effect on the Company.

The price per share of the Company’s stock may fluctuate significantly. The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation:

regional, national and global economic conditions;

actual or anticipated variations in the Company’s quarterly operating results or dividends;

changes in the Company’s funds from operations or earnings estimates;

issuances of common stock, preferred stock or convertible debt ~~securities;~~securities, or the perception that such issuances might occur;

publication of research reports about the Company or the real estate industry;

the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);

general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the Company’s stock to demand a higher annual yield from dividends;

availability to capital markets and cost of capital;

a change in analyst ratings or the Company’s credit ratings;

terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; ~~and~~

natural disasters such as ~~earthquakes.~~earthquakes; and

changes in public policy and tax law.

Many of the factors listed above are beyond the Company’s control. These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.

The Company’s future issuances of common stock, preferred stock or convertible debt securities could be dilutive to current stockholders and adversely affect the market price of the Company’s common stock. In order to finance the Company’s acquisition and development activities, the Company has issued and sold common stock, preferred stock and convertible debt securities. For example, during the years ended December 31, ~~2015~~2016 and ~~2014,~~2015, the Company issued zero and 1.5 million ~~and 3.0 million~~

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~~(excluding shares issued in connection with the BRE merger)~~ shares of common stock for ~~$332.3 million~~zero and ~~$534.0~~$332.3 million, net of fees and commissions, respectively. The Company may in the future sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Capital One Securities, Inc., Citigroup Global Markets Inc., Jefferies LLC, ~~("Jefferies"),~~ J.P. Morgan Securities LLC, ~~("JP Morgan"), Liquidnet, Inc.,~~ Mitsubishi UFJ Securities (USA), Inc., and UBS Securities ~~LLC ("UBS").~~LLC.

In ~~2014,~~2016, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined in the prospectus. Future sales of common stock, preferred stock or convertible debt securities may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock.

The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest. The Company’s Chairman, George M. Marcus, is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments. He is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.

Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by the Company's Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies. Notwithstanding this agreement, Mr.

Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company. In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of the Company’s stockholders.

The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock. As of December 31, ~~2015,~~2016, George M. Marcus, the Chairman of the Company’s Board of Directors, wholly or partially owned approximately 1.6 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships, indirectly held shares of common stock and assuming exercise of all vested options). Mr. Marcus currently does not have majority control over the Company. However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions. Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders.

Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for certain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with the Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the Company. Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.

Our related party guidelines may not adequately address all of the issues that may arise with respect to related party transactions. The Company has adopted "Related Party Transaction Approval Process Guidelines" that provide generally that any transaction in which a director or executive officer has an interest must have the prior approval of the Audit Committee of the Company's Board of Directors. The review and approval procedures in these guidelines are intended to determine whether a particular related party transaction is fair, reasonable and serves the interests of the Company's stockholders. Pursuant to these guidelines, related party transactions have been approved from time to time. There is no assurance that this policy will be adequate for determining whether a particular related party transaction is suitable and fair for the Company. Also, the policy's procedures may not identify and address all the potential issues and conflicts of interests with a related party transaction.

Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders. A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our acquisition and development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.

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The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations. The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.

We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive. We may distribute taxable dividends that are payable in part in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends.

The ~~voting rights of preferred stock may allow holders of preferred stock to impede actions that might otherwise benefit holders of common stock.~~ Essex currently has outstanding shares of 7.125% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”). In general, the holders of the Company’s outstanding shares of Series H Preferred Stock do not have any voting rights. However, if full distributions are not made on outstanding Series H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock upon which like voting rights have been conferred, will have the right to elect two additional directors to serve on the Company’s Board of Directors.

These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the Series H Preferred Stock have been paid in full. At that time, the holders of the Series H Preferred Stock are divested of these voting rights, and the term of office of the directors so elected immediately terminates. These voting rights of the holders of the Series H Preferred Stock, or that of holders of other preferred stock that the Company may issue in the future, may allow such holders to impede or prevent actions that would otherwise benefit the holders of the Company’s common stock.

~~The~~ Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders. Under the Maryland General Corporation Law, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more

of the voting power of the then-outstanding voting stock of the corporation. The law also requires a two supermajority stockholder votes for such transactions. This means that the transaction must be approved by at least:

80% of the votes entitled to be cast by holders of outstanding voting shares; and

Two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. These voting provisions do not apply if the stockholders receive a minimum price, as defined under the Maryland General Corporation Law. As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination among the Company, George M. Marcus, who is the chairman of the Company, and MMC or any entity owned or controlled by Mr. Marcus and MMC. Consequently, the five-year prohibition and supermajority vote requirements described above will not apply to any business combination between the Company, Mr. Marcus, or MMC. As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland Business Combination Act.

Certain provisions contained in the Operating Partnership agreement, Charter and Bylaws, and certain provisions of the Maryland General Corporation Law could delay, defer or prevent a change in control. While the Company is the sole general partner of the Operating Partnership, and generally has full and exclusive responsibility and discretion in the management and control of the Operating Partnership, certain provisions of the Operating Partnership agreement place limitations on the Company’s power to act with respect to the Operating Partnership. Such limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for the Company’s stock or otherwise be in the

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best interests of its stockholders or that could otherwise adversely affect their interests. The partnership agreement provides that if the limited partners own at least 5% of the outstanding units of partnership interest in the Operating Partnership, the Company may not, without first obtaining the consent of a majority in interest of the limited partners in the Operating Partnership, transfer all or any portion of the Company’s general partner interest in the Operating Partnership to another entity. Such limitations on the Company’s power to act may result in the Company’s being precluded from taking action that the Board of Directors otherwise believes is in the best interests of the Company or its stockholders.

The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such stock without the approval of the holders of the common stock. The Company may establish one or more classes or series of stock that could delay, defer or prevent a transaction or a change in control. Such a transaction might involve a premium price for the Company’s stock or otherwise be in the best interests of the holders of common stock. Also, such a class or series of stock could have dividend, voting or other rights that could adversely affect the interests of holders of common stock.

The Company’s Charter contains provisions limiting the transferability and ownership of shares of capital stock, which may delay, defer or prevent a transaction or a change in control. For example, subject to receiving an exemption from the Board of Directors, potential acquirers may not purchase more than 6% in value of the stock (other than qualified pension trusts which can acquire 9.9%). This may discourage tender offers that may be attractive to the holders of common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock.

The Maryland General Corporation Law restricts the voting rights of holders of shares deemed to be “control shares.” Under the Maryland General Corporation Law, “control shares” are those which, when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges. Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporation Law, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in the future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporation Law not only to control shares which may be acquired in the future, but also to control shares previously acquired. If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporation Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.

The Company’s Charter and Bylaws as well as Maryland General Corporation Law also contain other provisions that may impede various actions by stockholders without approval of the Company’s Board of Directors, and that in turn may delay, defer or prevent a transaction, including a change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company's stockholders. Those provisions ~~include:~~include, among others:

directors may be removed by stockholders, without cause, only upon the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of the directors, and with cause, only upon the affirmative vote of a majority of the votes entitled to be cast generally in the election of the directors;

the Company’s board can fix the number of directors and fill vacant directorships upon the vote of a majority of the ~~directors;~~directors and the Company's board can classify the board such that the entire board is not up for re-election annually;

stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and

for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.

A breach of the Company’s privacy or information security systems could materially adversely affect the Company’s business and financial condition. The protection of tenant, employee, and company data is critically important to the Company. Our business requires us, including some of our vendors, to use and store personally identifiable and other sensitive information of its tenants and employees. The collection and use of personally identifiable information is governed by federal and state laws and regulations. Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.

The security measures put in place by the Company, and such vendors, cannot provide absolute security, and the Company and our vendors' information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents, including, ransom of data, such as, without limitation, tenant and/or employee information, due to employee error, malfeasance, or other vulnerabilities. Any such incident could compromise the Company’s or such vendors' networks, and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed,

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corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm. Moreover, if a data security incident or breach affects the Company’s systems or such vendors' systems or results in the unauthorized release of personally identifiable information, the Company’s reputation and brand could be materially damaged and the Company may be exposed to a risk of loss or litigation and possible liability, including, without limitation, loss related to the fact that agreements with such vendors, or such vendors' financial condition, may not allow the Company to recover all costs related to a cyber breach for which they alone or they and the Company should be jointly responsible for, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition.

In the third quarter of 2014, the Company discovered and reported that certain of its computer networks containing personal and proprietary information were compromised by a cyber-intrusion. Based on information from our forensic investigation, the Company has confirmed that evidence exists of exfiltration of data on Company ~~systems. The precise nature of the data has not been identified, and the Company does not presently have any~~systems, but found no evidence that any individual's information or any Company data ~~belonging to the Company has been~~was misused.

After detecting unusual activity, the Company took immediate steps to assess and contain the intrusion and secure its systems. The Company retained independent forensic computer experts to analyze the impacted data systems and consulted with law enforcement.

As described in Note 16, "Commitments and Contingencies", of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, on December 19, 2014, a putative class action was filed against the Company in the U.S. District Court for the Northern District of California, entitled ~~Foster v. Essex Property Trust, Inc.~~ alleging that the Company failed to properly secure the personally-identifying information of its residents. At this point, the Company is unable to predict the developments in, outcome of, and/or economic and/or other consequences of such pending litigation or future litigation or predict the developments in, outcome of, and/or other consequences arising as a result of any potential government inquiries related to this matter.

Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware, and the increased sophistication and activities of perpetrators of cyber-attacks. In light of this network intrusion we discovered in the third quarter of 2014, we have dedicated additional Company resources to strengthening the security of the Company’s computer systems. In the future, the Company may ~~be required to~~ expend additional resources to continue to enhance the Company’s information security measures and/or to investigate and remediate any information security vulnerabilities. Despite these steps, there can be no assurance that the Company will not suffer a similar data security incident in the future, that unauthorized parties will not gain access to sensitive data stored on the Company’s systems, or that any such incident will be discovered in a timely manner. Further, the techniques used by criminals to obtain unauthorized access to sensitive data, such as phishing and other forms of human engineering, are increasing in sophistication and are often novel or change frequently; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures.

Expanding social media vehicles present new risks. The use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us on any social networking website could damage our reputation. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks.

Employee theft or fraud could result in loss. Certain of our employees have access to, or signature authority with respect to, bank accounts or other ~~company~~Company assets, which exposes us to the risk of fraud or theft. In addition, certain employees have access to key information technology (IT) infrastructure and to tenant and other information that is commercially valuable. Should any employee compromise our IT systems, or misappropriate tenant or other information, we could incur losses, including significant financial or reputational harm, from which full recovery cannot be assured. We also may not have

insurance that covers any losses in full or that covers losses from particular criminal acts. As of December 31, ~~2015,~~2016, potential liabilities for theft or fraud are not quantifiable and an estimate of possible loss cannot be made.

Any material weaknesses identified in the Company's internal control over financial reporting could have an adverse effect on the Company’s stock price. Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate and report on its internal control over financial reporting. If the Company identifies one or more material weaknesses in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which in turn could have an adverse effect on the Company’s stock price.

Tax Risks

Sales of apartment communities could incur tax risks. If we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”).

There are various U.S. tax risks in connection with an investment in the Company and in Essex Portfolio, L.P.The Company has elected to be taxed as a REIT under the Code. The Company’s qualification as a REIT requires it to satisfy numerous annual and quarterly requirements, including income, asset and distribution tests, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations.

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To qualify under the income test, (i) at least 75% of the Company’s annual gross income generally must be derived from rents from real property, mortgage interest, gain from the sale or other disposition of real property held for investment, dividends or other distributions on, and gain from the sale or other disposition of shares of other REITs and certain other limited categories of income and (ii) at least 95% of the Company’s annual gross income generally must be derived from the preceding sources plus other dividends, interest other than mortgage interest, and gain from the sale or other disposition of stock and securities held for investment. To qualify under the asset test, at the end of each quarter, at least 75% of the value of the Company’s assets must consist of cash, cash items, government securities and qualified real estate assets and there are significant additional limitations regarding the Company’s investment in securities other than government securities and qualified real estate assets, including limitations on the percentage of our assets that can be represented by the Company’s ~~taxable REIT subsidiaries (“TRS’s”).~~TRSs. To qualify under the distribution test, the Company generally must distribute to its shareholders each calendar year at least 90% of its REIT taxable income, determined before a deduction for dividends paid and excluding any net capital gain. In addition, to the extent the Company satisfies the 90% test, but distributes less than 100% of its REIT taxable income, it will be subject to corporate income tax on such undistributed income and could be subject to an additional 4% excise tax. Because the Company needs to meet these tests to maintain its qualification as a REIT, it could cause the Company to have to forego certain business opportunities and potentially require the Company to liquidate otherwise attractive investments.

In addition to the income, asset and distribution tests described above, the Company’s qualification as a REIT involves the determination of various factual matters and circumstances not entirely within the Company’s control. Although the Company intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future. Future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect the Company’s ability to qualify as a REIT or adversely affect the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on the Company’s taxable income at corporate rates, and the Company would not be allowed to deduct dividends paid to its stockholders in computing its taxable income. The Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which the Company failed to qualify. The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status.

Changes in tax laws, future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect the Company’s ability to qualify as a REIT or could generally result in REITs having fewer tax advantages, and may lead REIT’s to determine that it would be more advantageous to elect to be taxed, for federal income tax purposes, as corporations. Changes in the Code may not necessarily lead to conforming changes in the tax laws of various states. Some states use the legislative process to decide whether it is in their best interests to conform or not to various provisions of the Code. This could increase the complexity of our compliance efforts, increase compliance costs, and may subject us to additional taxes and audit risk.

The Company has established several TRSs. The TRSs must pay U.S. federal income tax on their taxable income. While the Company will attempt to ensure that its dealings with its TRSs do not adversely affect its REIT qualification, it cannot provide assurances that it will successfully achieve that result. Furthermore, the Company may be subject to a 100% penalty tax, or its

TRSs may be denied deductions, to the extent dealings between the Company and its TRSs are not deemed to be arm’s length in nature. The Company intends that its dealings with its TRSs will be on an arm’s length basis. No assurances can be given, however, that the Internal Revenue Service will not assert a contrary position.

The Company owns interests in multiple subsidiary REITs that have elected to be taxed as REITs under the Code. These subsidiary REITs are subject to the various REIT qualification requirements and other limitations that are applicable to the Company. If any of the Company’s subsidiary REITs were to fail to qualify as a REIT, then (i) the subsidiary REIT would become subject to federal income tax and (ii) the Company’s ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If any of the Company’s subsidiary REITs were to fail to qualify as REITs, it is possible that the Company could also fail to qualify as a REIT.

From time to time, the Company may transfer or otherwise dispose of some of its properties. Under the Code, unless certain exceptions apply, any gain resulting from transfers of properties that the Company holds as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax. Since the Company acquires properties for investment purposes, it does not believe that its occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by the Company are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the Company would be required to pay a 100% penalty tax on any gain allocable to it from the prohibited transaction, and the Company’s ability to retain proceeds from real property sales may be jeopardized. Income from a prohibited transaction might adversely affect the Company’s ability to satisfy the income tests for qualification as a REIT for U.S. federal income tax purposes. Therefore, no assurances can be given that the Company will be able to satisfy the income tests for qualification as a REIT if the Company transferred or disposed of property in a transaction treated as a prohibited transaction.

Dividends paid by REITs to U.S. stockholders that are individuals, trusts or estates are generally not eligible for the reduced tax rate applicable to qualified dividends received from non-REIT corporations (the maximum rate on qualified dividends is

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currently 23.8%). Rather, U.S. individual, trust or estate stockholders who receive dividends from a REIT that are not designated as capital gain dividends will be taxed on such dividends at ordinary income rates (at a current maximum rate of 43.4%). This may cause investors to view REIT investments to be less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of stock in REITs, including the Company’s stock.

Non-U.S. investors that invest in the Company should be aware of the following U.S. federal income tax considerations in connection with such investment. First, distributions by the Company from its current and accumulated earnings and profits are subject to a 30% U.S. withholding tax in the hands of non-U.S. investors, unless the 30% is reduced by an applicable income tax treaty. Such distributions may also be subject to a 30% withholding tax under the “Foreign Account Tax Compliance Act” (“FATCA”) unless a non-U.S. investor complies with certain requirements prescribed by FATCA. Second, distributions by the Company that are attributable to gains from dispositions of U.S. real property (“capital gain dividends”) will be treated as income that is effectively connected with a U.S. trade or business in the hands of a non-U.S. investor, such that a non-U.S. investor will have U.S. federal income tax payment and filing obligations with respect to capital gain dividends. Furthermore, capital gain dividends may be subject to an additional 30% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a non-U.S. investor that is a corporation. Third, any gain derived by a non-U.S. investor on a disposition of such investor’s stock in the Company will subject such investor to U.S. federal income tax payment and filing requirements unless the Company is treated as a domestically-controlled REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s capital stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. The Company believes that it is a domestically-controlled REIT, but no assurances can be given in this regard. Notwithstanding the foregoing, even if the Company were not a domestically-controlled REIT, under a special exception non-U.S. investors should not have U.S. federal income tax payment and filing obligations on capital gain dividends or a disposition of their stock in the Company if (i) they did not own more than 10% of such stock at any time during the one-year period ending on the date of the disposition, and (ii) the Company’s stock continues to be regularly traded on an established securities market located in the United States and certain other non-U.S. investors may also not be subject to these payment and filing obligations. Non-U.S. investors should consult with their independent advisors as to the above U.S. tax considerations and other U.S. tax consequences of an investment in the Company’s stock, in light of their particular circumstances.

The Company believes that its operating partnership, Essex Portfolio, L.P., will continue to be treated as a partnership for U.S. federal income tax purposes. As a partnership, Essex Portfolio, L.P. is not subject to U.S. federal income tax on its income. Instead, each of its partners is required to pay tax on the partner’s allocable share of the income of Essex Portfolio, L.P. No assurances can be given, however, that the Internal Revenue Service will not challenge Essex Portfolio, L.P.’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating Essex Portfolio, L.P. as a corporation for U.S. federal income tax purposes, the Company

could fail to meet the income tests and/or the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of Essex Portfolio, L.P. to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for distribution to its partners.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s portfolio as of December 31, ~~2015~~2016 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of ~~246~~245 operating apartment communities ~~(comprising 59,160~~

(comprising 59,645 apartment homes), of which ~~28,039~~27,968 apartment homes are located in Southern California, ~~18,924~~19,480 apartment homes are located in the San Francisco Bay Area, and 12,197 apartment homes are located in the Seattle metropolitan area. The Company’s apartment communities accounted for ~~99.3%~~99.4% of the Company’s revenues for the year ended December 31, ~~2015.~~2016.

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Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). When calculating actual rents for occupied apartment homes and market rents for vacant apartment homes, delinquencies and concessions are not taken into account. Total possible rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs. Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market. The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant apartment homes. The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.

For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.

Communities

The Company’s communities are primarily suburban garden-style communities ~~and town homes~~ comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land. As of December 31, ~~2015,~~2016, the Company’s communities include ~~162~~156 garden-style, 7883 mid-rise, and 6 high-rise communities. The communities have an average of approximately ~~240~~243 apartment homes, with a mix of studio, one, two and some three-bedroom apartment homes. A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.

The Company hires, trains and supervises on-site service and maintenance personnel. The Company believes that the following primary factors enhance the Company’s ability to retain tenants:

located near employment centers;

attractive communities that are well maintained; and

proactive customer service.

Commercial Buildings

The Company’s former corporate headquarters was located in two office buildings with approximately 39,600 square feet located at 925/935 East Meadow Drive, Palo Alto, California and was classified as held for sale at December 31, 2015. The Company owns an office building with approximately 106,564 square feet located in Irvine, California, of which the Company occupies approximately 8,000 square feet at December 31, ~~2015.~~2016. The Company owns Essex-Hollywood, a 34,000 square foot commercial ~~building and a 138,915 square foot retail site in Santa Clara, California as future development sites that are currently 100% leased.~~building.

The following tables describe the Company’s operating portfolio as of December 31, ~~2015.~~2016. The first table describes the Company’s communities and the second table describes the Company’s other real estate assets. (See Note 87 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s portfolio.)

Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
Southern California
Alpine Village Alpine, CA 301
254,400
1971 2002 97%
Anavia Anaheim, CA 250
312,343
2009 2010 96%

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Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
Barkley, The ⁽³⁾⁽⁴⁾
Anaheim, CA 161
139,800
1984 2000 98%
Park Viridian Anaheim, CA 320
254,600
2008 2014 96%
Bonita Cedars Bonita, CA 120
120,800
1983 2002 97%
Camarillo Oaks Camarillo, CA 564
459,000
1985 1996 96%
Camino Ruiz Square Camarillo, CA 160
105,448
1990 2006 97%
Enclave at Town Square ⁽²¹⁾
Chino Hills, CA 124
89,948
1987 2014 97%
The Heights I & II ⁽²¹⁾
Chino Hills, CA 332
324,370
2004 2014 96%
The Summit ⁽⁵⁾
Chino Hills, CA 125
98,420
1989 2014 98%
Pinnacle at Otay Ranch Chula Vista, CA 364
384,192
2001 2014 95%
Mesa Village Clairemont, CA 133
43,600
1963 2002 98%
Villa Siena Costa Mesa, CA 272
262,842
1974 2014 96%
Emerald Pointe Diamond Bar, CA 160
134,816
1989 2014 96%
Regency at Encino Encino, CA 75
78,487
1989 2009 97%
The Havens ⁽²¹⁾
Fountain Valley, CA 440
414,040
1969 2014 96%
Valley Park ⁽⁴⁾
Fountain Valley, CA 160
169,700
1969 2001 97%
Capri at Sunny Hills ⁽⁴⁾
Fullerton, CA 100
128,100
1961 2001 97%
Haver Hill ⁽⁵⁾
Fullerton, CA 264
224,130
1973 2012 96%
Pinnacle at Fullerton Fullerton, CA 192
174,336
2004 2014 96%
Wilshire Promenade Fullerton, CA 149
128,000
1992 1997 96%
Montejo ⁽⁴⁾
Garden Grove, CA 124
103,200
1974 2001 97%
CBC Apartments Goleta, CA 148
91,538
1962 2006 97%
The Sweeps Goleta, CA 91
88,370
1967 2006 97%
416 on Broadway Glendale, CA 115
126,782
2009 2010 96%
Hampton Court Glendale, CA 83
71,500
1974 1999 93%
Hampton Place Glendale, CA 132
141,500
1970 1999 93%
Devonshire Hemet, CA 276
207,200
1988 2002 96%
Huntington Breakers Huntington Beach, CA 342
241,700
1984 1997 95%
The Huntington Huntington Beach, CA 276
202,256
1975 2012 97%
Axis 2300 Irvine, CA 115
170,714
2010 2010 97%
Hillsborough Park La Habra, CA 235
215,500
1999 1999 97%
Village Green La Habra, CA 272
175,762
1971 2014 97%
The Palms at Laguna Niguel Laguna Niguel, CA 460
362,136
1988 2014 96%
Trabuco Villas Lake Forest, CA 132
131,000
1985 1997 97%
Marbrisa Long Beach, CA 202
122,800
1987 2002 96%
Pathways Long Beach, CA 296
197,700
1975 1991 96%
8th & Hope Los Angeles, CA 290
298,437
2014 2015 79%
5600 Wilshire Los Angeles, CA 284
243,910
2008 2014 96%
Alessio Los Angeles, CA 624
552,716
2001 2014 95%
Avant Los Angeles, CA 440
305,989
2014 2015 95%
The Avery ⁽⁴⁾
Los Angeles, CA 121
129,393
2014 2014 97%
Bellerive Los Angeles, CA 63
79,296
2011 2011 97%
Belmont Station Los Angeles, CA 275
225,000
2009 2009 97%
Bunker Hill Los Angeles, CA 456
346,600
1968 1998 88%
Catalina Gardens Los Angeles, CA 128
117,585
1987 2014 97%
Cochran Apartments Los Angeles, CA 58
51,400
1989 1998 97%
Gas Company Lofts ⁽⁵⁾
Los Angeles, CA 251
226,666
2004 2013 97%
Jefferson at Hollywood Los Angeles, CA 270
238,119
2010 2014 94%
Kings Road Los Angeles, CA 196
132,100
1979 1997 96%

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Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
Marbella Los Angeles, CA 60
50,108
1991 2005 97%
Muse Los Angeles, CA 152
135,292
2011 2011 97%
Pacific Electric Lofts ⁽⁶⁾
Los Angeles, CA 314
277,980
2006 2012 94%
Park Catalina Los Angeles, CA 90
72,864
2002 2012 96%
Park Place Los Angeles, CA 60
48,000
1988 1997 97%
Regency Palm Court ⁽⁵⁾
Los Angeles, CA 116
54,844
1987 2014 96%
Santee Court Los Angeles, CA 165
132,040
2004 2010 97%
Santee Village Los Angeles, CA 73
69,817
2011 2011 97%
Tiffany Court Los Angeles, CA 101
74,538
1987 2014 98%
Wilshire La Brea Los Angeles, CA 478
354,972
2014 2014 95%
Windsor Court ⁽⁵⁾
Los Angeles, CA 95
51,266
1987 2014 95%
Windsor Court Los Angeles, CA 58
46,600
1988 1997 97%
Aqua at Marina Del Rey Marina Del Rey, CA 500
479,312
2001 2014 95%
Marina City Club ⁽⁷⁾
Marina Del Rey, CA 101
127,200
1971 2004 96%
Mirabella Marina Del Rey, CA 188
176,800
2000 2000 97%
Mira Monte Mira Mesa, CA 355
262,600
1982 2002 96%
Madrid Apartments ⁽⁶⁾
Mission Viejo, CA 230
228,099
2000 2012 97%
Hillcrest Park Newbury Park, CA 608
521,900
1973 1998 96%
Fairways ⁽⁸⁾
Newport Beach, CA 74
107,100
1972 1999 96%
Candlewood North Northridge, CA 189
166,910
1964 2014 96%
Canyon Creek ⁽²¹⁾
Northridge, CA 200
148,150
1986 2014 96%
Country Villas Oceanside, CA 180
179,700
1976 2002 96%
Mission Hills Oceanside, CA 282
244,000
1984 2005 96%
Renaissance at Uptown Orange Orange, CA 460
432,836
2007 2014 96%
Mariner's Place Oxnard, CA 105
77,200
1987 2000 97%
Monterey Villas Oxnard, CA 122
122,100
1974 1997 97%
Tierra Vista Oxnard, CA 404
387,100
2001 2001 96%
Arbors Parc Rose ⁽⁶⁾
Oxnard, CA 373
503,196
2001 2011 95%
The Hallie del Mar Pasadena, CA 123
74,400
1972 1997 92%
The Hallie del Rey Pasadena, CA 84
73,100
1972 1999 92%
The Hallie del Sol Pasadena, CA 85
69,200
1972 1999 92%
Stuart at Sierra Madre Villa Pasadena, CA 188
168,630
2007 2014 96%
Villa Angelina ⁽⁴⁾
Placentia, CA 256
217,600
1970 2001 97%
Fountain Park Playa Vista, CA 705
608,900
2002 2004 97%
Highridge ⁽⁴⁾
Rancho Palos Verdes, CA 255
290,200
1972 1997 98%
Cortesia at Rancho Santa Margarita Rancho Santa Margarita, CA 308
277,580
1999 2014 96%
Pinnacle at Talega San Clemente, CA 362
355,764
2002 2014 96%
Allure at Scripps Ranch San Diego, CA 194
207,052
2002 2014 96%
Bernardo Crest San Diego, CA 216
205,548
1988 2014 96%
Cambridge Park San Diego, CA 320
317,958
1998 2014 95%
Carmel Creek San Diego, CA 348
384,216
2000 2014 96%
Carmel Landing San Diego, CA 356
283,426
1989 2014 94%
Carmel Summit San Diego, CA 246
225,880
1989 2014 97%
CentrePointe San Diego, CA 224
126,700
1974 1997 94%
Domain San Diego, CA 379
345,044
2013 2013 94%
Esplanade ⁽²¹⁾
San Diego, CA 616
479,600
1986 2014 96%

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Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
Montanosa San Diego, CA 472
414,968
1990 2014 96%
Summit Park San Diego, CA 300
229,400
1972 2002 96%
Essex Skyline at MacArthur Place ⁽⁹⁾
Santa Ana, CA 349
512,791
2008 2010 96%
Fairhaven ⁽⁴⁾
Santa Ana, CA 164
135,700
1970 2001 98%
Parkside Court ⁽²¹⁾
Santa Ana, CA 210
152,400
1986 2014 97%
Pinnacle at MacArthur Place Santa Ana, CA 253
262,867
2002 2014 96%
Hope Ranch Santa Barbara, CA 108
126,700
1965 / 1973 2007 98%
Bridgeport Coast ⁽²²⁾
Santa Clarita, CA 188
168,198
2006 2014 97%
Hidden Valley ⁽¹⁰⁾
Simi Valley, CA 324
310,900
2004 2004 97%
Meadowood Simi Valley, CA 320
264,500
1986 1996 96%
Shadow Point Spring Valley, CA 172
131,200
1983 2002 96%
The Fairways at Westridge ⁽²²⁾
Valencia, CA 234
223,330
2004 2014 96%
Vistas of West Hills ⁽²²⁾
Valencia, CA 220
221,119
2009 2014 96%
Allegro Valley Village, CA 97
127,812
2010 2010 97%
Lofts at Pinehurst, The Ventura, CA 118
71,100
1971 1997 97%
Pinehurst ⁽¹¹⁾
Ventura, CA 28
21,200
1973 2004 98%
Woodside Village Ventura, CA 145
136,500
1987 2004 97%
Walnut Heights Walnut, CA 163
146,700
1964 2003 95%
The Dylan West Hollywood, CA 184
150,678
2014 2014 92%
The Huxley West Hollywood, CA 187
154,776
2014 2014 93%
Reveal Woodland Hills, CA 438
414,892
2010 2011 95%
Avondale at Warner Center Woodland Hills, CA 446
331,000
1970 1999 96%
28,039

24,850,294
96%
Northern California
Belmont Terrace Belmont, CA 71
72,951
1974 2006 94%
Fourth & U Berkeley, CA 171
146,255
2010 2010 96%
The Commons Campbell, CA 264
153,168
1973 2010 97%
The Pointe at Cupertino Cupertino, CA 116
135,200
1963 1998 98%
Connolly Station ⁽²³⁾
Dublin, CA 309
286,348
2014 2014 96%
Avenue 64 Emeryville, CA 224
196,896
2007 2014 94%
Emme ⁽²³⁾
Emeryville, CA 190
148,935
2015 2015 81%
Foster's Landing Foster City, CA 490
415,130
1987 2014 96%
Stevenson Place Fremont, CA 200
146,200
1975 2000 95%
Mission Peaks Fremont, CA 453
404,034
1995 2014 96%
Mission Peaks II Fremont, CA 336
294,720
1989 2014 96%
Paragon Apartments Fremont, CA 301
267,047
2013 2014 94%
Boulevard Fremont, CA 172
131,200
1978 1996 97%
Briarwood ⁽⁶⁾
Fremont, CA 160
111,160
1978 2011 96%
The Woods ⁽⁶⁾
Fremont, CA 160
105,280
1978 2011 96%
City Centre ⁽²²⁾
Hayward, CA 192
175,420
2000 2014 97%
City View Hayward, CA 572
462,400
1975 1998 97%
Lafayette Highlands Lafayette, CA 150
151,790
1973 2014 97%
Apex Milpitas, CA 366
350,961
2014 2014 96%
Regency at Mountain View ⁽⁵⁾
Mountain View, CA 142
127,600
1970 2013 96%
Bridgeport Newark, CA 184
139,000
1987 1987 98%
The Landing at Jack London Square Oakland, CA 282
257,796
2001 2014 95%

~~Table of Contents~~

Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
The Grand Oakland, CA 243
205,026
2009 2009 96%
Radius Redwood City, CA 264
245,862
2015 2015 94%
San Marcos Richmond, CA 432
407,600
2003 2003 96%
Bennett Lofts San Francisco, CA 165
184,713
2004 2012 95%
Fox Plaza San Francisco, CA 443
230,017
1968 2013 95%
MB 360 Phase I San Francisco, CA 188
222,810
2014 2014 96%
Mosso ⁽²³⁾
San Francisco, CA 463
607,549
2014 2014 87%
Park West San Francisco, CA 126
90,060
1958 2012 95%
101 San Fernando San Jose, CA 323
296,078
2001 2010 96%
Bella Villagio San Jose, CA 231
227,511
2004 2010 97%
Enso San Jose, CA 183
179,562
2014 2015 100%
Epic - Phase I & II ^{(13) (23)}
San Jose, CA 569
472,236
2013 2013 95%
Esplanade San Jose, CA 278
279,000
2002 2004 96%
Fountains at River Oaks San Jose, CA 226
209,954
1990 2014 97%
Museum Park San Jose, CA 117
121,329
2002 2014 97%
One South Market ⁽²³⁾
San Jose, CA 312
283,268
2015 2015 46%
Palm Valley ⁽¹⁶⁾
San Jose, CA 1,098
1,132,284
2008 2014 96%
The Carlyle San Jose, CA 132
129,200
2000 2000 97%
The Waterford San Jose, CA 238
219,600
2000 2000 97%
Willow Lake San Jose, CA 508
471,744
1989 2012 96%
Lakeshore Landing San Mateo, CA 308
223,972
1988 2014 95%
Hillsdale Garden San Mateo, CA 697
611,505
1948 2006 97%
Park 20 ⁽²³⁾
San Mateo, CA 197
140,547
2015 2015 79%
Deer Valley San Rafael, CA 171
167,238
1996 2014 97%
Bel Air San Ramon, CA 462
391,000
1988 1995 96%
Canyon Oaks San Ramon, CA 250
237,894
2005 2007 98%
Crow Canyon San Ramon, CA 400
337,064
1992 2014 96%
Foothill Gardens San Ramon, CA 132
155,100
1985 1997 97%
Mill Creek at Windermere San Ramon, CA 400
381,060
2005 2007 97%
Twin Creeks San Ramon, CA 44
51,700
1985 1997 97%
1000 Kiely Santa Clara, CA 121
128,486
1971 2011 95%
Le Parc Santa Clara, CA 140
113,200
1975 1994 97%
Marina Cove ⁽¹⁴⁾
Santa Clara, CA 292
250,200
1974 1994 96%
Riley Square ⁽⁶⁾
Santa Clara, CA 156
126,900
1972 2012 95%
Villa Granada Santa Clara, CA 270
238,841
2010 2014 96%
Chestnut Street Apartments Santa Cruz, CA 96
87,640
2002 2008 97%
Harvest Park Santa Rosa, CA 104
116,628
2004 2007 97%
Bristol Commons Sunnyvale, CA 188
142,600
1989 1995 95%
Brookside Oaks ⁽⁴⁾
Sunnyvale, CA 170
119,900
1973 2000 95%
Lawrence Station Sunnyvale, CA 336
297,188
2012 2014 96%
Magnolia Lane ⁽¹⁵⁾
Sunnyvale, CA 32
31,541
2001 2007 97%
Magnolia Square ⁽⁴⁾
Sunnyvale, CA 156
110,824
1963 2007 97%
Montclaire Sunnyvale, CA 390
294,100
1973 1988 97%
Reed Square Sunnyvale, CA 100
95,440
1970 2011 97%
Solstice Sunnyvale, CA 280
571,466
2014 2014 96%
Summerhill Park Sunnyvale, CA 100
78,500
1988 1988 95%
Via Sunnyvale, CA 284
309,421
2011 2011 96%
Windsor Ridge Sunnyvale, CA 216
161,800
1989 1989 96%

~~Table of Contents~~

Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
Vista Belvedere Tiburon, CA 76
78,300
1963 2004 95%
Tuscana Tracy, CA 30
29,088
2007 2007 99%
Verandas ⁽²²⁾
Union City, CA 282
199,092
1989 2014 96%
18,924
17,173,129
95%
Seattle, Washington Metropolitan Area
Belcarra Bellevue, WA 296
241,567
2009 2014 96%
BellCentre Bellevue, WA 248
181,288
2001 2014 96%
Cedar Terrace Bellevue, WA 180
174,200
1984 2005 96%
Courtyard off Main Bellevue, WA 110
108,388
2000 2010 96%
Ellington at Bellevue Bellevue, WA 220
165,794
1994 2014 96%
Emerald Ridge Bellevue, WA 180
144,000
1987 1994 96%
Foothill Commons Bellevue, WA 394
288,300
1978 1990 96%
Palisades, The Bellevue, WA 192
159,700
1977 1990 97%
Park Highland Bellevue, WA 250
224,750
1993 2014 95%
Piedmont Bellevue, WA 396
348,969
1969 2014 96%
Sammamish View Bellevue, WA 153
133,500
1986 1994 97%
Woodland Commons Bellevue, WA 302
217,878
1978 1990 95%
Bothell Ridge ⁽²¹⁾
Bothell, WA 214
167,370
1988 2014 96%
Canyon Pointe Bothell, WA 250
210,400
1990 2003 95%
Inglenook Court Bothell, WA 224
183,600
1985 1994 97%
Pinnacle Sonata Bothell, WA 268
343,095
2000 2014 95%
Salmon Run at Perry Creek Bothell, WA 132
117,100
2000 2000 98%
Stonehedge Village Bothell, WA 196
214,800
1986 1997 97%
Highlands at Wynhaven Issaquah, WA 333
424,674
2000 2008 96%
Park Hill at Issaquah Issaquah, WA 245
277,700
1999 1999 97%
Wandering Creek Kent, WA 156
124,300
1986 1995 97%
Ascent Kirkland, WA 90
75,840
1988 2012 97%
Bridle Trails Kirkland, WA 108
99,700
1986 1997 97%
Corbella at Juanita Bay Kirkland, WA 169
103,339
1978 2010 96%
Evergreen Heights Kirkland, WA 200
188,300
1990 1997 97%
Slater 116 Kirkland, WA 108
81,415
2013 2013 96%
Montebello Kirkland, WA 248
272,734
1996 2012 96%
Aviara ⁽¹²⁾
Mercer Island, WA 166
147,033
2013 2014 96%
Laurels at Mill Creek Mill Creek, WA 164
134,300
1981 1996 97%
Parkwood at Mill Creek Mill Creek, WA 240
257,160
1989 2014 95%
The Elliot at Mukilteo ⁽⁴⁾
Mukilteo, WA 301
245,900
1981 1997 95%
Castle Creek Newcastle, WA 216
191,900
1998 1998 97%
Delano Redmond, WA 126
116,340
2005 2011 97%
Elevation Redmond, WA 158
138,916
1986 2010 97%
Redmond Hill ⁽⁶⁾
Redmond, WA 442
350,275
1985 2011 96%
Shadowbrook Redmond, WA 418
338,880
1986 2014 97%
The Trails of Redmond Redmond, WA 423
376,000
1985 2014 97%
Vesta ⁽⁶⁾
Redmond, WA 440
381,675
1998 2011 96%
Brighton Ridge Renton, WA 264
201,300
1986 1996 97%
Fairwood Pond Renton, WA 194
189,200
1997 2004 97%
Forest View Renton, WA 192
182,500
1998 2003 97%
Pinnacle on Lake Washington Renton, WA 180
190,908
2001 2014 96%
Annaliese Seattle, WA 56
48,216
2009 2013 96%

~~Table of Contents~~

Apartment Rentable Year Year
Communities ⁽¹⁾
Location Homes Square Footage Built Acquired
Occupancy⁽²⁾
The Audrey at Belltown Seattle, WA 137
94,119
1992 2014 97%
Ballinger Commons ⁽²¹⁾
Seattle, WA 485
407,253
1989 2014 96%
The Bernard Seattle, WA 63
43,151
2008 2011 96%
Cairns, The Seattle, WA 100
70,806
2006 2007 97%
Citywalk ⁽²¹⁾
Seattle, WA 102
92,010
1988 2014 97%
Collins on Pine Seattle, WA 76
48,733
2013 2014 97%
Domaine Seattle, WA 92
79,421
2009 2012 95%
Expo ⁽¹⁶⁾
Seattle, WA 275
190,176
2012 2012 97%
Fountain Court Seattle, WA 320
207,000
2000 2000 95%
Joule ⁽¹⁷⁾
Seattle, WA 295
191,109
2010 2010 96%
Taylor 28 Seattle, WA 197
155,630
2008 2014 95%
Vox Seattle, WA 58
42,173
2013 2013 97%
Wharfside Pointe Seattle, WA 155
119,200
1990 1994 94%
12,197
10,503,985
96%

Total/Weighted Average 59,160
52,527,408
95%

Apartment

Rentable

Year

Communities ⁽¹⁾

Location

Homes

Square Footage

Built

Acquired

Occupancy⁽²⁾

Southern California

Alpine Village

Alpine, CA

301

254,400

1971

2002

97%

Square Year Year
Other real estate assets ⁽¹⁾
Location Tenants Footage Built Acquired
Occupancy ⁽²⁾
925 / 935 East Meadow Drive ⁽¹⁸⁾
Palo Alto, CA — 39,600
1988 / 1962 1997 / 2007 —%
Essex - Hollywood ⁽¹⁹⁾
Los Angeles, CA 1 34,000
1938 2006 100%
Derian Office Building ⁽²⁰⁾
Irvine, CA 8 106,564
1983 2000 100%
Santa Clara Retail Santa Clara, CA 3 138,915
1970 2011 100%
12 319,079
88%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
Anavia	Anaheim, CA	250	312,343	2009	2010	96%
Barkley, The ⁽³⁾⁽⁴⁾	Anaheim, CA	161	139,800	1984	2000	97%
Park Viridian	Anaheim, CA	320	254,600	2008	2014	97%
Bonita Cedars	Bonita, CA	120	120,800	1983	2002	97%
Camarillo Oaks	Camarillo, CA	564	459,000	1985	1996	97%
Camino Ruiz Square	Camarillo, CA	159	105,448	1990	2006	97%
Enclave at Town Square ⁽¹⁸⁾	Chino Hills, CA	124	89,948	1987	2014	98%
The Summit ⁽⁵⁾	Chino Hills, CA	125	98,420	1989	2014	98%
Pinnacle at Otay Ranch I & II	Chula Vista, CA	364	384,192	2001	2014	96%
Mesa Village	Clairemont, CA	133	43,600	1963	2002	97%
Villa Siena	Costa Mesa, CA	272	262,842	1974	2014	96%
Emerald Pointe	Diamond Bar, CA	160	134,816	1989	2014	97%
Regency at Encino	Encino, CA	75	78,487	1989	2009	97%
The Havens ⁽¹⁸⁾	Fountain Valley, CA	440	414,040	1969	2014	96%
Valley Park ⁽⁴⁾	Fountain Valley, CA	160	169,700	1969	2001	98%
Capri at Sunny Hills ⁽⁴⁾	Fullerton, CA	102	128,100	1961	2001	97%
Haver Hill ⁽⁵⁾	Fullerton, CA	264	224,130	1973	2012	96%
Pinnacle at Fullerton	Fullerton, CA	192	174,336	2004	2014	96%
Wilshire Promenade	Fullerton, CA	149	128,000	1992	1997	96%
Montejo Apartments ⁽⁴⁾	Garden Grove, CA	124	103,200	1974	2001	97%
CBC	Goleta, CA	148	91,538	1962	2006	96%
The Sweeps	Goleta, CA	91	88,370	1967	2006	96%
416 on Broadway	Glendale, CA	115	126,782	2009	2010	97%
Hampton Court	Glendale, CA	83	71,500	1974	1999	94%
Hampton Place	Glendale, CA	132	141,500	1970	1999	94%
Devonshire	Hemet, CA	276	207,200	1988	2002	97%
Huntington Breakers	Huntington Beach, CA	342	241,700	1984	1997	96%
The Huntington	Huntington Beach, CA	276	202,256	1975	2012	96%
Axis 2300	Irvine, CA	115	170,714	2010	2010	97%
Hillsborough Park ⁽²⁴⁾	La Habra, CA	235	215,500	1999	1999	96%
Village Green	La Habra, CA	272	175,762	1971	2014	97%
The Palms at Laguna Niguel	Laguna Niguel, CA	460	362,136	1988	2014	96%
Trabuco Villas	Lake Forest, CA	132	131,000	1985	1997	98%
Marbrisa	Long Beach, CA	202	122,800	1987	2002	96%
Pathways at Bixby Village	Long Beach, CA	296	197,700	1975	1991	96%
8th & Hope	Los Angeles, CA	290	298,437	2014	2015	96%
5600 Wilshire	Los Angeles, CA	284	243,910	2008	2014	96%
Alessio	Los Angeles, CA	624	552,716	2001	2014	95%
Ashton Sherman Village	Los Angeles, CA	264	296,186	2014	2016	100%
Avant	Los Angeles, CA	440	305,989	2014	2015	95%
The Avery ⁽⁴⁾	Los Angeles, CA	121	129,393	2014	2014	98%
Bellerive	Los Angeles, CA	63	79,296	2011	2011	97%
Belmont Station	Los Angeles, CA	275	225,000	2009	2009	98%
Bunker Hill	Los Angeles, CA	456	346,600	1968	1998	90%
Catalina Gardens	Los Angeles, CA	128	117,585	1987	2014	96%
Cochran Apartments	Los Angeles, CA	58	51,400	1989	1998	96%
Emerson Valley Village	Los Angeles, CA	144	179,060	2012	2016	100%
Gas Company Lofts ⁽⁵⁾	Los Angeles, CA	251	226,666	2004	2013	96%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
Jefferson at Hollywood	Los Angeles, CA	270	238,119	2010	2014	95%
Kings Road	Los Angeles, CA	196	132,100	1979	1997	97%
Marbella	Los Angeles, CA	60	50,108	1991	2005	96%
Pacific Electric Lofts ⁽⁶⁾	Los Angeles, CA	314	277,980	2006	2012	95%
Park Catalina	Los Angeles, CA	90	72,864	2002	2012	96%
Park Place	Los Angeles, CA	60	48,000	1988	1997	96%
Regency Palm Court ⁽⁵⁾	Los Angeles, CA	116	54,844	1987	2014	95%
Santee Court	Los Angeles, CA	165	132,040	2004	2010	97%
Santee Village	Los Angeles, CA	73	69,817	2011	2011	97%
Tiffany Court	Los Angeles, CA	101	74,538	1987	2014	98%
Wilshire La Brea	Los Angeles, CA	478	354,972	2014	2014	96%
Windsor Court ⁽⁵⁾	Los Angeles, CA	95	51,266	1987	2014	96%
Windsor Court	Los Angeles, CA	58	46,600	1988	1997	96%
Aqua Marina Del Rey	Marina Del Rey, CA	500	479,312	2001	2014	96%
Marina City Club ⁽⁷⁾	Marina Del Rey, CA	101	127,200	1971	2004	97%
Mirabella	Marina Del Rey, CA	188	176,800	2000	2000	97%
Mira Monte	Mira Mesa, CA	354	262,600	1982	2002	97%
Madrid ⁽⁶⁾	Mission Viejo, CA	230	228,099	2000	2012	97%
Hillcrest Park	Newbury Park, CA	608	521,900	1973	1998	96%
Fairway Apartments at Big Canyon ⁽⁸⁾	Newport Beach, CA	74	107,100	1972	1999	96%
Muse	North Hollywood, CA	152	135,292	2011	2011	97%
Country Villas	Oceanside, CA	180	179,700	1976	2002	97%
Mission Hills	Oceanside, CA	282	244,000	1984	2005	97%
Renaissance at Uptown Orange	Orange, CA	460	432,836	2007	2014	97%
Mariner's Place	Oxnard, CA	105	77,200	1987	2000	96%
Monterey Villas	Oxnard, CA	122	122,100	1974	1997	96%
Tierra Vista	Oxnard, CA	404	387,100	2001	2001	97%
Arbors at Parc Rose ⁽⁶⁾	Oxnard, CA	373	503,196	2001	2011	96%
The Hallie	Pasadena, CA	292	216,700	1972	1997	94%
The Stuart	Pasadena, CA	188	168,630	2007	2014	96%
Villa Angelina ⁽⁴⁾	Placentia, CA	256	217,600	1970	2001	97%
Fountain Park	Playa Vista, CA	705	608,900	2002	2004	97%
Highridge ⁽⁴⁾	Rancho Palos Verdes, CA	255	290,200	1972	1997	97%
Cortesia	Rancho Santa Margarita, CA	308	277,580	1999	2014	97%
Pinnacle at Talega	San Clemente, CA	362	355,764	2002	2014	96%
Allure at Scripps Ranch	San Diego, CA	194	207,052	2002	2014	97%
Bernardo Crest	San Diego, CA	216	205,548	1988	2014	97%
Cambridge Park	San Diego, CA	320	317,958	1998	2014	96%
Carmel Creek	San Diego, CA	348	384,216	2000	2014	95%
Carmel Landing	San Diego, CA	356	283,426	1989	2014	97%
Carmel Summit	San Diego, CA	246	225,880	1989	2014	97%
CentrePointe	San Diego, CA	224	126,700	1974	1997	96%
Domain	San Diego, CA	379	345,044	2013	2013	96%
Esplanade ⁽¹⁸⁾	San Diego, CA	616	479,600	1986	2014	96%
Form 15	San Diego, CA	242	184,190	2014	2016	96%
Montanosa	San Diego, CA	472	414,968	1990	2014	96%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
Summit Park	San Diego, CA	300	229,400	1972	2002	96%
Essex Skyline ⁽⁹⁾	Santa Ana, CA	349	512,791	2008	2010	96%
Fairhaven Apartments ⁽⁴⁾	Santa Ana, CA	164	135,700	1970	2001	97%
Parkside Court ⁽¹⁸⁾	Santa Ana, CA	210	152,400	1986	2014	97%
Pinnacle at MacArthur Place	Santa Ana, CA	253	262,867	2002	2014	96%
Hope Ranch	Santa Barbara, CA	108	126,700	1965	2007	98%
Bridgeport Coast ⁽¹⁹⁾	Santa Clarita, CA	188	168,198	2006	2014	97%
Hidden Valley ⁽¹⁰⁾	Simi Valley, CA	324	310,900	2004	2004	98%
Meadowood ⁽²⁴⁾	Simi Valley, CA	320	264,500	1986	1996	96%
Shadow Point	Spring Valley, CA	172	131,200	1983	2002	97%
The Fairways at Westridge ⁽¹⁹⁾	Valencia, CA	234	223,330	2004	2014	96%
The Vistas of West Hills ⁽¹⁹⁾	Valencia, CA	220	221,119	2009	2014	96%
Allegro	Valley Village, CA	97	127,812	2010	2010	98%
Lofts at Pinehurst, The	Ventura, CA	118	71,100	1971	1997	97%
Pinehurst ⁽¹¹⁾	Ventura, CA	28	21,200	1973	2004	98%
Woodside Village	Ventura, CA	145	136,500	1987	2004	97%
Walnut Heights	Walnut, CA	163	146,700	1964	2003	97%
The Dylan	West Hollywood, CA	184	150,678	2014	2014	96%
The Huxley	West Hollywood, CA	187	154,776	2014	2014	95%
Reveal	Woodland Hills, CA	438	414,892	2010	2011	96%
Avondale at Warner Center	Woodland Hills, CA	446	331,000	1970	1999	97%
		27,968	24,870,300			96%
Northern California
Belmont Terrace	Belmont, CA	71	72,951	1974	2006	96%
Fourth & U	Berkeley, CA	171	146,255	2010	2010	96%
The Commons	Campbell, CA	264	153,168	1973	2010	97%
Pointe at Cupertino	Cupertino, CA	116	135,200	1963	1998	97%
Connolly Station ⁽²⁰⁾	Dublin, CA	309	286,348	2014	2014	97%
Avenue 64	Emeryville, CA	224	196,896	2007	2014	96%
Emme ⁽²⁰⁾	Emeryville, CA	190	148,935	2015	2015	97%
Foster's Landing	Foster City, CA	490	415,130	1987	2014	97%
Stevenson Place	Fremont, CA	200	146,200	1975	2000	93%
Mission Peaks	Fremont, CA	453	404,034	1995	2014	93%
Mission Peaks II	Fremont, CA	336	294,720	1989	2014	95%
Paragon Apartments	Fremont, CA	301	267,047	2013	2014	97%
Boulevard	Fremont, CA	172	131,200	1978	1996	93%
Briarwood ⁽⁶⁾	Fremont, CA	160	111,160	1978	2011	94%
The Woods ⁽⁶⁾	Fremont, CA	160	105,280	1978	2011	96%
City Centre ⁽¹⁹⁾	Hayward, CA	192	175,420	2000	2014	97%
City View	Hayward, CA	572	462,400	1975	1998	97%
Lafayette Highlands	Lafayette, CA	150	151,790	1973	2014	97%
Apex	Milpitas, CA	366	350,961	2014	2014	96%
Regency at Mountain View ⁽⁵⁾	Mountain View, CA	142	127,600	1970	2013	93%
Bridgeport ⁽²⁴⁾	Newark, CA	184	139,000	1987	1987	97%
The Landing at Jack London Square	Oakland, CA	282	257,796	2001	2014	96%
The Grand	Oakland, CA	243	205,026	2009	2009	97%
Radius	Redwood City, CA	264	245,862	2015	2015	96%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
San Marcos	Richmond, CA	432	407,600	2003	2003	96%
Bennett Lofts	San Francisco, CA	165	184,713	2004	2012	95%
Fox Plaza	San Francisco, CA	443	230,017	1968	2013	95%
MB 360	San Francisco, CA	360	441,489	2014	2014	92%
Mosso ⁽²⁰⁾	San Francisco, CA	463	607,549	2014	2014	96%
Park West	San Francisco, CA	126	90,060	1958	2012	94%
101 San Fernando	San Jose, CA	323	296,078	2001	2010	96%
Bella Villagio	San Jose, CA	231	227,511	2004	2010	97%
Enso	San Jose, CA	183	179,562	2014	2015	96%
Epic ⁽²⁰⁾	San Jose, CA	769	660,030	2013	2013	95%
Esplanade	San Jose, CA	278	279,000	2002	2004	96%
Fountains at River Oaks	San Jose, CA	226	209,954	1990	2014	97%
Marquis ⁽²¹⁾	San Jose, CA	166	136,467	2015	2016	91%
Mio	San Jose, CA	103	92,405	2015	2016	97%
Museum Park	San Jose, CA	117	121,329	2002	2014	97%
One South Market ⁽²³⁾	San Jose, CA	312	283,268	2015	2015	96%
Palm Valley ⁽¹⁵⁾	San Jose, CA	1,098	1,132,284	2008	2014	95%
The Carlyle ⁽²⁴⁾	San Jose, CA	132	129,200	2000	2000	96%
The Waterford	San Jose, CA	238	219,600	2000	2000	97%
Willow Lake	San Jose, CA	508	471,744	1989	2012	97%
Lakeshore Landing	San Mateo, CA	308	223,972	1988	2014	96%
Hillsdale Garden	San Mateo, CA	697	611,505	1948	2006	97%
Park 20 ⁽²⁰⁾	San Mateo, CA	197	140,547	2015	2015	96%
Deer Valley	San Rafael, CA	171	167,238	1996	2014	96%
Bel Air	San Ramon, CA	462	391,000	1988	1995	97%
Canyon Oaks	San Ramon, CA	250	237,894	2005	2007	98%
Crow Canyon	San Ramon, CA	400	337,064	1992	2014	96%
Foothill Gardens	San Ramon, CA	132	155,100	1985	1997	97%
Mill Creek at Windermere	San Ramon, CA	400	381,060	2005	2007	98%
Twin Creeks	San Ramon, CA	44	51,700	1985	1997	97%
1000 Kiely	Santa Clara, CA	121	128,486	1971	2011	97%
Le Parc	Santa Clara, CA	140	113,200	1975	1994	98%
Marina Cove ⁽¹³⁾	Santa Clara, CA	292	250,200	1974	1994	96%
Riley Square ⁽⁶⁾	Santa Clara, CA	156	126,900	1972	2012	96%
Villa Granada	Santa Clara, CA	270	238,841	2010	2014	97%
Chestnut Street Apartments	Santa Cruz, CA	96	87,640	2002	2008	97%
Bristol Commons	Sunnyvale, CA	188	142,600	1989	1995	97%
Brookside Oaks ⁽⁴⁾	Sunnyvale, CA	170	119,900	1973	2000	97%
Lawrence Station	Sunnyvale, CA	336	297,188	2012	2014	97%
Magnolia Lane ⁽¹⁴⁾	Sunnyvale, CA	32	31,541	2001	2007	97%
Magnolia Square ⁽⁴⁾	Sunnyvale, CA	156	110,824	1963	2007	97%
Montclaire	Sunnyvale, CA	390	294,100	1973	1988	97%
Reed Square	Sunnyvale, CA	100	95,440	1970	2011	97%
Solstice	Sunnyvale, CA	280	257,659	2014	2014	96%
Summerhill Park	Sunnyvale, CA	100	78,500	1988	1988	96%
Via	Sunnyvale, CA	284	309,421	2011	2011	98%
Windsor Ridge	Sunnyvale, CA	216	161,800	1989	1989	97%
Vista Belvedere	Tiburon, CA	76	78,300	1963	2004	93%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
Verandas ⁽¹⁹⁾	Union City, CA	282	199,092	1989	2014	96%
Agora⁽²²⁾	Walnut Creek, CA	49	106,228	2016	2016	71%
		19,480	17,455,179			96%
Seattle, Washington Metropolitan Area
Belcarra	Bellevue, WA	296	241,567	2009	2014	96%
BellCentre	Bellevue, WA	248	181,288	2001	2014	96%
Cedar Terrace	Bellevue, WA	180	174,200	1984	2005	96%
Courtyard off Main	Bellevue, WA	110	108,388	2000	2010	97%
Ellington	Bellevue, WA	220	165,794	1994	2014	95%
Emerald Ridge	Bellevue, WA	180	144,000	1987	1994	96%
Foothill Commons	Bellevue, WA	394	288,300	1978	1990	96%
Palisades, The	Bellevue, WA	192	159,700	1977	1990	97%
Park Highland	Bellevue, WA	250	224,750	1993	2014	95%
Piedmont	Bellevue, WA	396	348,969	1969	2014	96%
Sammamish View	Bellevue, WA	153	133,500	1986	1994	97%
Woodland Commons	Bellevue, WA	302	217,878	1978	1990	95%
Bothell Ridge ⁽¹⁸⁾	Bothell, WA	214	167,370	1988	2014	96%
Canyon Pointe	Bothell, WA	250	210,400	1990	2003	96%
Inglenook Court	Bothell, WA	224	183,600	1985	1994	97%
Pinnacle Sonata	Bothell, WA	268	343,095	2000	2014	96%
Salmon Run at Perry Creek	Bothell, WA	132	117,100	2000	2000	97%
Stonehedge Village	Bothell, WA	196	214,800	1986	1997	97%
Highlands at Wynhaven	Issaquah, WA	333	424,674	2000	2008	95%
Park Hill at Issaquah	Issaquah, WA	245	277,700	1999	1999	96%
Wandering Creek	Kent, WA	156	124,300	1986	1995	97%
Ascent	Kirkland, WA	90	75,840	1988	2012	97%
Bridle Trails	Kirkland, WA	108	99,700	1986	1997	97%
Corbella at Juanita Bay	Kirkland, WA	169	103,339	1978	2010	96%
Evergreen Heights	Kirkland, WA	200	188,300	1990	1997	96%
Slater 116	Kirkland, WA	108	81,415	2013	2013	96%
Montebello	Kirkland, WA	248	272,734	1996	2012	95%
Aviara ⁽¹²⁾	Mercer Island, WA	166	147,033	2013	2014	96%
Laurels at Mill Creek	Mill Creek, WA	164	134,300	1981	1996	97%
Parkwood at Mill Creek	Mill Creek, WA	240	257,160	1989	2014	96%
The Elliot at Mukilteo ⁽⁴⁾	Mukilteo, WA	301	245,900	1981	1997	96%
Castle Creek	Newcastle, WA	216	191,900	1998	1998	97%
Delano	Redmond, WA	126	116,340	2005	2011	97%
Elevation	Redmond, WA	158	138,916	1986	2010	97%
Redmond Hill ⁽⁶⁾	Redmond, WA	442	350,275	1985	2011	96%
Shadowbrook	Redmond, WA	418	338,880	1986	2014	96%
The Trails of Redmond	Redmond, WA	423	376,000	1985	2014	97%
Vesta ⁽⁶⁾	Redmond, WA	440	381,675	1998	2011	97%
Brighton Ridge	Renton, WA	264	201,300	1986	1996	96%
Fairwood Pond	Renton, WA	194	189,200	1997	2004	97%
Forest View	Renton, WA	192	182,500	1998	2003	97%
Pinnacle on Lake Washington	Renton, WA	180	190,908	2001	2014	96%
Annaliese	Seattle, WA	56	48,216	2009	2013	96%
The Audrey at Belltown	Seattle, WA	137	94,119	1992	2014	96%



		Apartment	Rentable	Year	Year
Communities ⁽¹⁾	Location	Homes	Square Footage	Built	Acquired	Occupancy⁽²⁾
Ballinger Commons ⁽¹⁸⁾	Seattle, WA	485	407,253	1989	2014	96%
The Bernard	Seattle, WA	63	43,151	2008	2011	96%
Cairns, The	Seattle, WA	100	70,806	2006	2007	97%
Citywalk ⁽¹⁸⁾	Seattle, WA	102	92,010	1988	2014	97%
Collins on Pine	Seattle, WA	76	48,733	2013	2014	97%
Domaine	Seattle, WA	92	79,421	2009	2012	97%
Expo ⁽¹⁵⁾	Seattle, WA	275	190,176	2012	2012	97%
Fountain Court	Seattle, WA	320	207,000	2000	2000	96%
Joule ⁽¹⁶⁾	Seattle, WA	295	191,109	2010	2010	97%
Taylor 28	Seattle, WA	197	155,630	2008	2014	96%
Vox Apartments	Seattle, WA	58	42,173	2013	2013	97%
Wharfside Pointe	Seattle, WA	155	119,200	1990	1994	95%
		12,197	10,503,985			96%

Total/Weighted Average		59,645	52,829,464			96%



			Square	Year	Year
Other real estate assets ⁽¹⁾	Location	Tenants	Footage	Built	Acquired	Occupancy ⁽²⁾
Essex - Hollywood	Los Angeles, CA	—	34,000	1938	2006	—%
Derian Office Building ⁽¹⁷⁾	Irvine, CA	8	106,564	1983	2000	100%
		8	140,564			76%

Footnotes to the Company’s Portfolio Listing as of December 31, ~~2015~~2016


⁽¹⁾	Unless otherwise specified, the Company has a 100% ownership interest in each community.


⁽²⁾	For communities, occupancy rates are based on financial occupancy for the year ended December 31, ~~2015;~~2016; for the commercial buildings occupancy rates are based on physical occupancy as of December 31, ~~2015.~~2016. For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.


⁽³⁾	The community is subject to a ground lease, which, unless extended, will expire in 2082.

⁽⁴⁾

The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby Essex Management Company became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.


⁽⁵⁾	This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.


⁽⁶⁾	This community is owned by Wesco I. The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.


⁽⁷⁾	This community is subject to a ground lease, which, unless extended, will expire in 2067.


⁽⁸⁾	This community is subject to a ground lease, which, unless extended, will expire in 2027.


⁽⁹⁾	The Company has a 97% interest and an Executive Vice President of the Company has a 3% interest in this community.


⁽¹⁰⁾	The Company has a 75% member interest.


⁽¹¹⁾	The community is subject to a ground lease, which, unless extended, will expire in 2028.


⁽¹²⁾	This community is subject to a ground lease, which, unless extended, will expire in ~~2030.~~2070.


⁽¹³⁾	~~The community is being developed in three phases with one remaining phase currently under development.~~


⁽¹⁴⁾	A portion of this community on which 84 apartment homes are presently located is subject to a ground lease, which, unless extended, will expire in 2028.

~~Table of Contents~~


^(15)(14)	The community is subject to a ground lease, which, unless extended, will expire in 2070.


^(16)(15)	The Company has 50% ownership in each of these communities which is accounted for using the equity method of accounting.


^(17)(16)	The Company has 99% ownership in this community.


⁽¹⁸⁾	~~This property was the Company's previous headquarters until December 2015 and was unoccupied at December 31, 2015.~~


⁽¹⁹⁾	~~The property is leased through January 2016 to a single tenant.~~


^(20)(17)	The Company occupies 8% of space in this property.


^(21)(18)	This community is owned by BEXAEW. The Company has a 50% interest in BEXAEW which is accounted for using the equity method of accounting.


^(22)(19)	This community is owned by Wesco IV. The Company has a 50% interest in Wesco IV which is accounted for using the equity method of accounting.


^(23)(20)	This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 55% ownership in this community which is accounted for using the equity method of accounting.


⁽²¹⁾	The Company has a 50.1% membership interest in this community which is accounted for using the equity method of accounting.


⁽²²⁾	This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 51% membership interest in this community which is accounted for using the equity method of accounting.


⁽²³⁾	The Company has a 55% membership interest in this community which is accounted for using the equity method of accounting.


⁽²⁴⁾	This community is owned by BEX II. The Company has a 50.1% interest in BEX II which is accounted for using the equity method of accounting.

Item 3. Legal Proceedings

The information, which regards lawsuits, other proceedings and claims, set forth in Note ~~16,~~15, “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3. In addition to such matters referred to in Note ~~16,~~15, the Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations. We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not Applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS. ESS common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:


Quarter Ended	High		Low		Close		High		Low		Close
December 31, 2016							$	234.07	$	200.01	$	232.50
September 30, 2016							$	236.56	$	217.16	$	222.70
June 30, 2016							$	237.50	$	207.20	$	228.09
March 31, 2016							$	240.55	$	191.25	$	233.86
December 31, 2015	$	244.71	$	214.29	$	239.41	$	244.71	$	214.29	$	239.41
September 30, 2015	$	232.20	$	205.72	$	223.42	$	232.20	$	205.72	$	223.42
June 30, 2015	$	231.90	$	208.85	$	212.50	$	231.90	$	208.85	$	212.50
March 31, 2015	$	243.17	$	207.26	$	229.90	$	243.17	$	207.26	$	229.90
December 31, 2014	$	214.43	$	176.70	$	206.60
September 30, 2014	$	196.08	$	177.68	$	178.75
June 30, 2014	$	185.99	$	164.76	$	184.91
March 31, 2014	$	173.01	$	141.79	$	170.05

The closing price of ESS stock as of February ~~22, 2016~~21, 2017 was ~~$209.53.~~$230.97.

There is no established public trading market for Essex Portfolio, L.P.’s OP Units.

Holders

The approximate number of holders of record of the shares of ESS common stock was ~~1,395~~1,336 as of February ~~22, 2016.~~21, 2017. This number does not include stockholders whose shares are held in investment accounts by other entities. ESS believes the actual number of stockholders is greater than the number of holders of record.

~~Table of Contents~~

As of February ~~22, 2016,~~21, 2017, there were ~~172~~184 holders of record of Essex Portfolio, L.P.’s OP Units, including ESS.

Return of Capital

Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.

The status of the cash dividends distributed for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014 related to common stock, and Series ~~G and~~ H preferred stock for tax purposes are as follows:


	2015		2014		2013		2016		2015		2014
Common Stock
Ordinary income	99.28	%	70.03	%	77.34	%	86.68	%	99.28	%	70.03	%
Capital gain	0.72	%	21.95	%	17.64	%	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	—	%	8.02	%	5.02	%	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

	2015		2014		2013		2016		2015		2014
Series G, and H Preferred stock
Series G and H Preferred stock
Ordinary income	99.28	%	70.03	%	77.34	%	86.68	%	99.28	%	70.03	%
Capital gains	0.72	%	21.95	%	17.64	%	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	—	%	8.02	%	5.02	%	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

Dividends and Distributions

Since ESS’s initial public offering on June 13, 1994, ESS and the Operating Partnership have paid regular quarterly dividends/distributions to its stockholders and unitholders. ESS paid the following dividends per share of common stock and the Operating Partnership paid the following distributions per limited partner OP unit:


Year Ended	Annual Dividend/Distribution		Quarter Ended	2015	2014	2013	Annual Dividend/Distribution		Quarter Ended	2016	2015	2014
1995	$	1.69	March 31,	$1.44	$1.21	$1.21	$	1.69	March 31,	$1.60	$1.44	$1.21
1996	$	1.72	June 30,	$1.44	$1.30	$1.21	$	1.72	June 30,	$1.60	$1.44	$1.30
1997	$	1.77	September 30,	$1.44	$1.30	$1.21	$	1.77	September 30,	$1.60	$1.44	$1.30
1998	$	1.95	December 31,	$1.44	$1.30	$1.21	$	1.95	December 31,	$1.60	$1.44	$1.30
1999	$	2.15					$	2.15
2000	$	2.38	Annual Dividend/Distribution	$5.76	$5.11	$4.84	$	2.38	Annual Dividend/Distribution	$6.40	$5.76	$5.11
2001	$	2.80					$	2.80
2002	$	3.08					$	3.08
2003	$	3.12					$	3.12
2004	$	3.16					$	3.16
2005	$	3.24					$	3.24
2006	$	3.36					$	3.36
2007	$	3.72					$	3.72
2008	$	4.08					$	4.08
2009	$	4.12					$	4.12
2010	$	4.13					$	4.13
2011	$	4.16					$	4.16
2012	$	4.40					$	4.40
2013							$	4.84

~~Table of Contents~~

PART IV

Item 15. Exhibits and Financial Statement Schedules

(A) Financial Statements



(1) Consolidated Financial Statements of Essex Property Trust, Inc.	Page

Reports of Independent Registered Public Accounting Firm	F- 1

Consolidated Balance Sheets: As of December 31, ~~2015~~2016 and ~~2014~~2015	F- 4

Consolidated Statements of Income: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 5

Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 6

Consolidated Statements of Equity: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 7

Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 10

Notes to Consolidated Financial Statements	F- 20

(2) Consolidated Financial Statements of Essex Portfolio, L.P.

Report of Independent Registered Public Accounting Firm	F- 3

Consolidated Balance Sheets: As of December 31, ~~2015~~2016 and ~~2014~~2015	F- 12

Consolidated Statements of Income: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 13

Consolidated Statements of Comprehensive Income: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 14

Consolidated Statements of Capital: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 15

Consolidated Statements of Cash Flows: Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014	F- 18

Notes to Consolidated Financial Statements	F- 20

(3) Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, ~~2015~~2016	F- 5251

(4) See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report.

(B) Exhibits

The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(4) above.

~~Table of Contents~~

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, ~~2015~~2016 and ~~2014,~~2015, and the related consolidated statements of income, comprehensive income, equity, and cash

flows for each of the years in the three-year period ended December 31, ~~2015.~~2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Essex Property Trust, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Property Trust, Inc. and subsidiaries as of December 31, ~~2015~~2016 and ~~2014,~~2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2015,~~2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, ~~2015,~~2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February ~~26, 2016~~24, 2017 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February ~~26, 2016~~24, 2017

~~F- 1~~

~~Table of Contents~~

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Essex Property Trust, Inc.:

We have audited Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, ~~2015,~~2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Essex Property Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust, Inc.'s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2015,~~2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, ~~2015~~2016 and ~~2014,~~2015, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, ~~2015,~~2016, and our report dated February ~~26, 2016,~~24, 2017, expressed an unqualified opinion on those consolidated financial statements.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February ~~26, 2016~~24, 2017

~~F- 2~~

~~Table of Contents~~

Report of Independent Registered Public Accounting Firm

The General Partner

Essex Portfolio, L.P.:

We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. (the Operating Partnership) and subsidiaries as of December 31, ~~2015~~2016 and ~~2014,~~2015, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, ~~2015.~~2016. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Portfolio, L.P. and subsidiaries as of December 31, ~~2015~~2016 and ~~2014,~~2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2015,~~2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ KPMG LLP

KPMG LLP

San Francisco, California

February ~~26, 2016~~24, 2017

~~F- 3~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, ~~2015~~2016 and ~~2014~~2015

(Dollars in thousands, except share amounts)


	2015			2014			2016			2015
ASSETS
Real estate:
Rental properties:
Land and land improvements	$	2,522,842		$	2,424,930		$	2,559,743		$	2,522,842
Buildings and improvements	9,808,627			8,819,751			10,116,563			9,808,627
	12,331,469			11,244,681			12,676,306			12,331,469
Less accumulated depreciation	(1,949,892		)	(1,564,806		)	(2,311,546		)	(1,949,892		)
	10,381,577			9,679,875			10,364,760			10,381,577
Real estate under development	242,326			429,096			190,505			242,326
Co-investments	1,036,047			1,042,423			1,161,275			1,036,047
Real estate held for sale, net	26,879			56,300			101,957			26,879
	11,686,829			11,207,694			11,818,497			11,686,829
Cash and cash equivalents-unrestricted	29,683			25,610			64,921			29,683
Cash and cash equivalents-restricted	93,372			70,139			105,381			93,372
Marketable securities and other investments	137,485			117,240
Marketable securities							139,189			137,485
Notes and other receivables	19,285			24,923			40,970			19,285
Acquired in-place lease value, net	2,857			47,748
Prepaid expenses and other assets	35,580			33,378			48,450			41,730
Total assets	$	12,005,091		$	11,526,732		$	12,217,408		$	12,008,384
LIABILITIES AND EQUITY
Unsecured debt, net	$	3,088,680		$	2,603,548		$	3,246,779		$	3,088,680
Mortgage notes payable, net	2,215,077			2,234,317			2,191,481			2,215,077
Lines of credit, net	11,707			242,824
Lines of credit							125,000			15,000
Accounts payable and accrued liabilities	131,415			135,162			138,226			131,415
Construction payable	40,953			30,892			35,909			40,953
Dividends payable	100,266			88,221			110,170			100,266
Other liabilities	34,518			32,444			32,922			34,518
Total liabilities	5,622,616			5,367,408			5,880,487			5,625,909
Commitments and contingencies
Redeemable noncontrolling interest	45,452			23,256			44,684			45,452
Equity:
Common stock; $.0001 par value, 656,020,000 shares authorized; 65,379,359 and 63,682,646 shares issued and outstanding, respectively	6			6
Common stock; $.0001 par value, 670,000,000 and 656,020,000 shares authorized, respectively; 65,527,993 and 65,379,359 shares issued and outstanding, respectively							6			6
Cumulative redeemable 7.125% Series H preferred stock at liquidation value	73,750			73,750			—			73,750
Additional paid-in capital	7,003,317			6,651,165			7,029,679			7,003,317
Distributions in excess of accumulated earnings	(797,329		)	(650,797		)	(805,409		)	(797,329		)
Accumulated other comprehensive loss, net	(42,011		)	(51,452		)	(32,098		)	(42,011		)
Total stockholders' equity	6,237,733			6,022,672			6,192,178			6,237,733
Noncontrolling interest	99,290			113,396			100,059			99,290
Total equity	6,337,023			6,136,068			6,292,237			6,337,023
Total liabilities and equity	$	12,005,091		$	11,526,732		$	12,217,408		$	12,008,384

See accompanying notes to consolidated financial statements.

~~F- 4~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014

(Dollars in thousands, except per share and share amounts)


	2015			2014			2013			2016			2015			2014
Revenues:
Rental and other property	$	1,185,498		$	961,591		$	603,327		$	1,285,723		$	1,185,498		$	961,591
Management and other fees from affiliates	8,909			9,347			7,263			8,278			8,909			9,347
	1,194,407			970,938			610,590			1,294,001			1,194,407			970,938
Expenses:
Property operating, excluding real estate taxes	234,953			204,673			140,060			249,765			234,953			204,673
Real estate taxes	128,555			107,873			57,276			139,162			128,555			107,873
Depreciation and amortization	453,423			360,592			192,420			441,682			453,423			360,592
General and administrative	40,090			40,878			26,684			40,751			40,090			40,878
Merger and integration expenses	3,798			53,530			4,284			—			3,798			53,530
Acquisition and investment related costs	2,414			1,878			1,161			1,841			2,414			1,878
	863,233			769,424			421,885			873,201			863,233			769,424
Earnings from operations	331,174			201,514			188,705			420,800			331,174			201,514
Interest expense	(204,827		)	(164,551		)	(116,524		)	(219,654		)	(204,827		)	(164,551		)
Total return swap income	5,655			—			—			11,716			5,655			—
Interest and other income	19,143			11,811			11,633			27,305			19,143			11,811
Equity income from co-investments	21,861			39,893			55,865			48,698			21,861			39,893
Loss on early retirement of debt, net	(6,114		)	(268		)	(300		)
Gains on sale of real estate and land	47,333			46,039			1,503
Gains on remeasurement of co-investment	34,014			—			—
Income before discontinued operations	248,239			134,438			140,882
Income from discontinued operations	—			—			31,173
Loss on early retirement of debt										(606		)	(6,114		)	(268		)
Gain on sale of real estate and land										154,561			47,333			46,039
Deferred tax expense on gain on sale of real estate and land										(4,410		)	—			—
Gain on remeasurement of co-investment										—			34,014			—
Net income	248,239			134,438			172,055			438,410			248,239			134,438
Net income attributable to noncontrolling interest	(16,119		)	(12,288		)	(15,772		)	(23,431		)	(16,119		)	(12,288		)
Net income attributable to controlling interest	232,120			122,150			156,283			414,979			232,120			122,150
Dividends to preferred stockholders	(5,255		)	(5,291		)	(5,472		)	(1,314		)	(5,255		)	(5,291		)
Excess of redemption value of preferred stock over the carrying value										(2,541		)	—			—
Net income available to common stockholders	$	226,865		$	116,859		$	150,811		$	411,124		$	226,865		$	116,859
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	3.50		$	2.07		$	3.26
Income from discontinued operations available to common stockholders	—			—			0.79
Net income available to common stockholders	$	3.50		$	2.07		$	4.05		$	6.28		$	3.50		$	2.07
Weighted average number of shares outstanding during the year	64,871,717			56,546,959			37,248,960			65,471,540			64,871,717			56,546,959
Diluted:
Income before discontinued operations available to common stockholders	$	3.49		$	2.06		$	3.25
Income from discontinued operations available to common stockholders	—			—			0.79
Net income available to common stockholders	$	3.49		$	2.06		$	4.04		$	6.27		$	3.49		$	2.06
Weighted average number of shares outstanding during the year	65,061,685			56,696,525			37,335,295			65,587,816			65,061,685			56,696,525

See accompanying notes to consolidated financial statements.

~~F- 5~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014

(Dollars in thousands)


	2015			2014			2013			2016			2015			2014
Net income	$	248,239		$	134,438		$	172,055		$	438,410		$	248,239		$	134,438
Other comprehensive income (loss):
Changes in fair value of cash flow hedges and reclassification to interest expense	7,893			4,168			12,614
Changes in fair value of marketable securities	1,865			6,302			(1,556		)
Change in fair value of derivatives and amortization of swap settlements										15,926			7,893			4,168
Changes in fair value of marketable securities, net										(828		)	1,865			6,302
Reversal of unrealized gains upon the sale of marketable securities	—			(886		)	(1,767		)	(4,848		)	—			(886		)
Total other comprehensive income	9,758			9,584			9,291			10,250			9,758			9,584
Comprehensive income	257,997			144,022			181,346			448,660			257,997			144,022
Comprehensive income attributable to noncontrolling interest	(16,436		)	(12,852		)	(16,274		)	(23,768		)	(16,436		)	(12,852		)
Comprehensive income attributable to controlling interest	$	241,561		$	131,170		$	165,072		$	424,892		$	241,561		$	131,170

See accompanying notes to consolidated financial statements.

~~F- 6~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Equity

Years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014

(Dollars and shares in thousands)


	Series H Preferred stock			Common stock			Additional paid-in			Distributions in excess of accumulated			Accumulated other comprehensive			Noncontrolling						Series H Preferred stock		Common stock		Additional paid-in		Distributions in excess of accumulated		Accumulated other comprehensive		Noncontrolling
	Shares	Amount		Shares	Amount		capital			earnings			loss, net			Interest			Total			Shares	Amount	Shares	Amount	capital		earnings		loss, net		Interest		Total
Balances at December 31, 2012	2,950	$	73,750	36,443	$	3	$	2,204,778		$	(444,466	)	$	(69,261	)	$	115,312		$	1,880,116
Net income	—	—		—	—		—			156,283			—			15,772			172,055
Reversal of unrealized gains upon the sale of marketable securities	—	—		—	—		—			—			(1,673		)	(94		)	(1,767		)
Change in fair value of cash flow hedges and amortization of swap settlements	—	—		—	—		—			—			11,934			680			12,614
Change in fair value of marketable securities	—	—		—	—		—			—			(1,472		)	(84		)	(1,556		)
Issuance of common stock under:
Stock option plans	—	—		65	—		7,244			—			—			—			7,244
Sale of common stock	—	—		913	1		138,365			—			—			—			138,366
Equity-based compensation costs	—	—		—	—		(907		)	—			—			2,515			1,608
Redemptions of noncontrolling interest	—	—		—	—		(3,717		)	—			—			(1,994		)	(5,711		)
Distributions to noncontrolling interest	—	—		—	—		—			—			—			(18,488		)	(18,488		)
Common and preferred stock dividends	—	—		—	—		—			(186,243		)	—			—			(186,243		)
Balances at December 31, 2013	2,950	73,750		37,421	4		2,345,763			(474,426		)	(60,472		)	113,619			1,998,238			2,950	73,750	37,421	4	2,345,763		(474,426	)	(60,472	)	113,619		1,998,238
Net income	—	—		—	—		—			122,150			—			12,288			134,438			—	—	—	—	—		122,150		—		12,288		134,438
Reversal of unrealized gains upon the sale of marketable securities	—	—		—	—		—			—			(841		)	(45		)	(886		)	—	—	—	—	—		—		(841	)	(45	)	(886	)
Changes in fair value derivatives and amortization of swap settlements	—	—		—	—		—			—			3,721			447			4,168
Changes in fair value of derivatives and amortization of swap settlements																						—	—	—	—	—		—		3,721		447		4,168
Changes in fair value of marketable securities	—	—		—	—		—			—			6,140			162			6,302			—	—	—	—	—		—		6,140		162		6,302
Issuance of common stock under:
Stock consideration in the Merger, net	—	—		23,067	2		3,774,085			—			—			—			3,774,087			—	—	23,067	2	3,774,085		—		—		—		3,774,087
Stock option and restricted stock plans, net																						—	—	218	—	11,024		—		—		—		11,024
Equity distribution agreements, net																						—	—	2,943	—	532,670		—		—		—		532,670
Equity-based compensation costs																						—	—	—	—	5,719		—		—		6,153		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest																						—	—	—	—	(19,823	)	—		—		(1,067	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest																						—	—	—	—	312		—		—		—		312
Conversion of Series G preferred stock																						—	—	34	—	4,349		—		—		—		4,349
Contributions from noncontrolling interest																						—	—	—	—	—		—		—		1,419,816		1,419,816
Retirement of noncontrolling interest																						—	—	—	—	—		—		—		(1,419,816	)	(1,419,816	)
Distributions to noncontrolling interest																						—	—	—	—	—		—		—		(17,069	)	(17,069	)
Redemptions of noncontrolling interest																						—	—	—	—	(2,934	)	—		—		(1,092	)	(4,026	)

~~F- 7~~

~~Table of Contents~~


Stock option and restricted stock plans	—	—	218	—	11,024		—		—		—		11,024
Equity distribution agreements, net	—	—	2,943	—	532,670		—		—		—		532,670
Equity-based compensation costs	—	—	—	—	5,719		—		—		6,153		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	—	—	—	(19,823	)	—		—		(1,067	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest	—	—	—	—	312		—		—		—		312
Conversion of Series G preferred stock	—	—	34	—	4,349		—		—		—		4,349
Contributions from noncontrolling interest	—	—	—	—	—		—		—		1,419,816		1,419,816
Retirement of noncontrolling interest	—	—	—	—	—		—		—		(1,419,816	)	(1,419,816	)
Distributions to noncontrolling interest	—	—	—	—	—		—		—		(17,069	)	(17,069	)
Redemptions of noncontrolling interest	—	—	—	—	(2,934	)	—		—		(1,092	)	(4,026	)
Common and preferred stock dividends	—	—	—	—	—		(298,521	)	—		—		(298,521	)	—	—		—	—		—			(298,521		)	—			—			(298,521		)
Balances at December 31, 2014	2,950	73,750	63,683	6	6,651,165		(650,797	)	(51,452	)	113,396		6,136,068		2,950	73,750		63,683	6		6,651,165			(650,797		)	(51,452		)	113,396			6,136,068
Net income	—	—	—	—	—		232,120		—		16,119		248,239		—	—		—	—		—			232,120			—			16,119			248,239
Change in fair value of derivatives and amortization of swap settlements	—	—	—	—	—		—		7,637		256		7,893		—	—		—	—		—			—			7,637			256			7,893
Change in fair value of marketable securities	—	—	—	—	—		—		1,804		61		1,865		—	—		—	—		—			—			1,804			61			1,865
Issuance of common stock under:
Stock option and restricted stock plans	—	—	207	—	26,540		—		—		—		26,540
Sale of common stock	—	—	1,489	—	332,137		—		—		—		332,137
Stock option and restricted stock plans, net															—	—		207	—		26,540			—			—			—			26,540
Sale of common stock, net															—	—		1,482	—		332,137			—			—			—			332,137
Equity based compensation costs	—	—	—	—	5,946		—		—		3,700		9,646		—	—		—	—		5,946			—			—			3,700			9,646
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	—	—	—	(7,657	)	—		—		(12,115	)	(19,772	)	—	—		—	—		(7,657		)	—			—			(12,115		)	(19,772		)
Changes in the redemption value of redeemable noncontrolling interest	—	—	—	—	(2,615	)	—		—		—		(2,615	)	—	—		—	—		(2,615		)	—			—			—			(2,615		)
Distributions to noncontrolling interest	—	—	—	—	—		—		—		(21,705	)	(21,705	)	—	—		—	—		—			—			—			(21,705		)	(21,705		)
Redemptions of noncontrolling interest															—	—		7	—		(2,199		)	—			—			(422		)	(2,621		)
Common and preferred stock dividends															—	—		—	—		—			(378,652		)	—			—			(378,652		)
Balances at December 31, 2015															2,950	$	73,750	65,379	$	6	$	7,003,317		$	(797,329	)	$	(42,011	)	$	99,290		$	6,337,023
Net income															—	—		—	—		—			414,979			—			23,431			438,410
Reversal of unrealized gains upon the sale of marketable securities															—	—		—	—		—			—			(4,689		)	(159		)	(4,848		)
Change in fair value of derivatives and amortization of swap settlements															—	—		—	—		—			—			15,403			523			15,926
Change in fair value of marketable securities, net															—	—		—	—		—			—			(801		)	(27		)	(828		)
Issuance of common stock under:
Stock option and restricted stock plans, net															—	—		140	—		18,949			—			—			—			18,949
Sale of common stock, net															—	—		—	—		(384		)	—			—			—			(384		)
Equity based compensation costs															—	—		—	—		8,246			—			—			2,653			10,899

~~F- 8~~

~~Table of Contents~~


Redemption of Series H preferred stock																						(2,950	)	(73,750		)	—		—		2,541			(2,541		)	—			—			(73,750		)
Retirement of common stock, net																						—		—			(5	)	—		(1,045		)	—			—			—			(1,045		)
Changes in the redemption value of redeemable noncontrolling interest																						—		—			—		—		172			—			—			596			768
Distributions to noncontrolling interest																						—		—			—		—		—			—			—			(25,854		)	(25,854		)
Redemptions of noncontrolling interest	—	—		—	—		(2,199		)	—			—			(422		)	(2,621		)	—		—			14		—		(2,117		)	—			—			(394		)	(2,511		)
Common and preferred stock dividends	—	—		—	—		—			(378,652		)	—			—			(378,652		)	—		—			—		—		—			(420,518		)	—			—			(420,518		)
Balances at December 31, 2015	2,950	$	73,750	65,379	$	6	$	7,003,317		$	(797,329	)	$	(42,011	)	$	99,290		$	6,337,023
Balances at December 31, 2016																						—		$	—		65,528		$	6	$	7,029,679		$	(805,409	)	$	(32,098	)	$	100,059		$	6,292,237

See accompanying notes to consolidated financial statements.

~~F- 9~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014

(Dollars in thousands)


	2015			2014			2013			2016			2015			2014
Cash flows from operating activities:
Net income	$	248,239		$	134,438		$	172,055		$	438,410		$	248,239		$	134,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	453,423			360,592			193,518			441,682			453,423			360,592
Amortization of discount on marketable securities and other investments										(14,211		)	(12,389		)	(9,325		)
Amortization of (premium) discount and financing costs, net										(15,234		)	(19,361		)	(14,672		)
Gain on sale of marketable securities and other investments										(5,719		)	(598		)	(886		)
Company's share of gain on the sales of co-investments										(13,046		)	—			(6,558		)
Earnings from co-investments	(21,392		)	(33,335		)	(14,613		)	(35,652		)	(21,861		)	(33,335		)
Company's share of gain on the sales of co-investments	(469		)	(6,558		)	(41,252		)
Operating distributions from co-investments	46,608			49,486			19,636			60,472			46,608			49,486
Gain on the sales of real estate and land	(47,333		)	(46,039		)	(30,725		)	(154,561		)	(47,333		)	(46,039		)
Equity-based compensation										10,899			6,061			8,740
Loss on early retirement of debt, net	6,114			268			300			606			6,114			268
Gains on sale of marketable securities and other investments	(598		)	(886		)	(1,767		)
Amortization of (premium) discount and financing costs, net	(19,361		)	(14,672		)	12,216
Amortization of discount on notes receivables	—			—			(844		)
Amortization of discount on marketable securities and other investments	(12,389		)	(9,325		)	(6,556		)
Non cash merger and integration expenses	—			9,025			—
Equity-based compensation	6,061			8,740			4,508
Gains on remeasurement of co-investment	(34,014		)	—			—
Gain on remeasurement of co-investments										—			(34,014		)	—
Noncash merger and integration expenses										—			—			9,025
Changes in operating assets and liabilities:
Prepaid expenses, in-place lease value, receivables and other assets	267			15,828			(1,588		)
Prepaid expenses, receivables and other assets										(2,328		)	267			15,828
Accounts payable and accrued liabilities	(9,633		)	24,233			72			1,701			(9,633		)	24,233
Other liabilities	1,887			1,517			22			(496		)	1,887			1,517
Net cash provided by operating activities	617,410			493,312			304,982			712,523			617,410			493,312
Cash flows from investing activities:
Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures	(515,726		)	(387,547		)	(348,774		)	(315,632		)	(515,726		)	(387,547		)
Redevelopment	(99,346		)	(81,429		)	(47,289		)	(83,927		)	(99,346		)	(81,429		)
Development acquisitions of and additions to real estate under development	(157,900		)	(152,766		)	(17,757		)	(76,455		)	(157,900		)	(152,766		)
Capital expenditures on rental properties	(57,277		)	(78,864		)	(56,919		)	(60,013		)	(57,277		)	(78,864		)
Acquisition of membership interest in co-investments										—			(115,724		)	—
Collections of notes and other receivables										4,070			—			76,585
Investments in notes receivable										(24,070		)	—			—
Proceeds from insurance for property losses	16,811			35,547			—			5,543			16,811			35,547
BRE merger consideration paid	—			(555,826		)	—			—			—			(555,826		)
Acquisition of membership interest in co-investment	(115,724		)	—			—
Dispositions of real estate	319,008			141,189			65,496
Dispositions of co-investments	31,556			13,900			—
Proceeds from dispositions of real estate										239,289			319,008			141,189
Contributions to co-investments										(183,989		)	(127,879		)	(246,006		)
Changes in restricted cash and refundable deposits	(14,068		)	(36,582		)	(9,149		)	(14,138		)	(14,068		)	(36,582		)
Purchases of marketable securities	(14,300		)	(20,516		)	(16,442		)	(18,779		)	(14,300		)	(20,516		)
Sales and maturities of marketable securities and other investments	8,907			8,753			24,172			30,458			8,907			8,753
Purchases of and advances under notes and other receivables	—			—			(56,750		)
Collections of notes and other receivables	—			76,585			53,438
Contributions to co-investments	(127,879		)	(246,006		)	(162,578		)
Non-operating distributions from co-investments	382			136,406			118,856			76,231			31,938			150,306
Net cash used in investing activities										(421,412		)	(725,556		)	(1,147,156		)
Cash flows from financing activities:

~~F- 10~~

~~Table of Contents~~


Net cash used in investing activities	(725,556		)	(1,147,156		)	(453,696		)
Cash flows from financing activities:
Borrowings under debt agreements	1,345,855			2,093,406			969,061			1,265,388			1,345,855			2,093,406
Repayment of debt	(1,197,351		)	(1,814,020		)	(750,900		)	(1,018,126		)	(1,197,351		)	(1,814,020		)
Repayment of cumulative redeemable preferred stock										(73,750		)	—			—
Retirement of common stock										(1,045		)	—			—
Additions to deferred charges	(8,034		)	(17,402		)	(7,402		)	(7,926		)	(8,034		)	(17,402		)
Net proceeds from issuance of common stock										(384		)	332,137			531,379
Net proceeds from stock options exercised	26,540			11,039			4,958			18,949			26,540			11,039
Net proceeds from issuance of common stock	332,137			531,379			137,749
Distributions to noncontrolling interest	(21,055		)	(17,465		)	(18,488		)	(25,334		)	(21,055		)	(17,465		)
Redemption of noncontrolling interest	(2,621		)	(5,753		)	(5,711		)	(2,511		)	(2,621		)	(5,753		)
Common and preferred stock dividends paid	(367,257		)	(260,574		)	(180,668		)	(411,134		)	(367,257		)	(260,574		)
Net cash provided by financing activities	108,214			520,610			148,599
Net cash (used in) provided by financing activities										(255,873		)	108,214			520,610
Cash acquired from the BRE merger	—			140,353			—			—			—			140,353
Cash acquired from consolidation of co-investment	4,005			—			—			—			4,005			—
Net increase (decrease) in cash and cash equivalents	4,073			7,119			(115		)
Net increase in cash and cash equivalents										35,238			4,073			7,119
Cash and cash equivalents at beginning of year	25,610			18,491			18,606			29,683			25,610			18,491
Cash and cash equivalents at end of year	$	29,683		$	25,610		$	18,491		$	64,921		$	29,683		$	25,610

Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest	$	181,106		$	130,691		$	103,516		$	203,743		$	181,106		$	130,691
Interest capitalized	$	15,571		$	22,510		$	16,486		$	12,486		$	15,571		$	22,510

Supplemental disclosure of noncash investing and financing activities:
Issuance of Operating Partnership units for contributed properties	$	—		$	1,419,816		$	—		$	—		$	—		$	1,419,816
Retirement of Operating Partnership units	$	—		$	(1,419,816	)	$	—		$	—		$	—		$	(1,419,816	)
Transfer from real estate under development to rental properties	$	308,704		$	10,203		$	68
Transfers between real estate under development to rental properties, net										$	104,159		$	308,704		$	10,203
Transfer from real estate under development to co-investments	$	6,234		$	83,574		$	27,906		$	9,919		$	6,234		$	83,574
Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest	$	22,387		$	18,766		$	—
Debt assumed in connection with acquisition of co-investment	$	114,435		$	—		$	—
Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded	$	—		$	72,568		$	—
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest										$	(768	)	$	22,387		$	18,766
Debt assumed in connection with acquisition (excluding BRE merger)										$	48,832		$	114,435		$	72,568
Debt deconsolidated in connection with BEX II transaction										$	20,195		$	—		$	—

See accompanying notes to consolidated financial statements

~~F- 11~~

~~Table of Contents~~

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, ~~2015~~2016 and ~~2014~~2015

(Dollars in thousands, except per unit amounts)


	2015			2014			2016			2015
ASSETS
Real estate:
Rental properties:
Land and land improvements	$	2,522,842		$	2,424,930		$	2,559,743		$	2,522,842
Buildings and improvements	9,808,627			8,819,751			10,116,563			9,808,627
	12,331,469			11,244,681			12,676,306			12,331,469
Less: accumulated depreciation	(1,949,892		)	(1,564,806		)	(2,311,546		)	(1,949,892		)
	10,381,577			9,679,875			10,364,760			10,381,577
Real estate under development	242,326			429,096			190,505			242,326
Co-investments	1,036,047			1,042,423			1,161,275			1,036,047
Real estate held for sale, net	26,879			56,300			101,957			26,879
	11,686,829			11,207,694			11,818,497			11,686,829
Cash and cash equivalents-unrestricted	29,683			25,610			64,921			29,683
Cash and cash equivalents-restricted	93,372			70,139			105,381			93,372
Marketable securities and other investments	137,485			117,240
Marketable securities							139,189			137,485
Notes and other receivables	19,285			24,923			40,970			19,285
Acquired in-place lease value, net	2,857			47,748
Prepaid expenses and other assets	35,580			33,378			48,450			41,730
Total assets	$	12,005,091		$	11,526,732		$	12,217,408		$	12,008,384
LIABILITIES AND CAPITAL
Unsecured debt, net	$	3,088,680		$	2,603,548		$	3,246,779		$	3,088,680
Mortgage notes payable, net	2,215,077			2,234,317			2,191,481			2,215,077
Lines of credit, net	11,707			242,824
Lines of credit							125,000			15,000
Accounts payable and accrued liabilities	131,415			135,162			138,226			131,415
Construction payable	40,953			30,892			35,909			40,953
Distributions payable	100,266			88,221			110,170			100,266
Other liabilities	34,518			32,444			32,922			34,518
Total liabilities	5,622,616			5,367,408			5,880,487			5,625,909
Commitments and contingencies
Redeemable noncontrolling interest	45,452			23,256			44,684			45,452
Capital:
General Partner:
Common equity (65,379,359 and 63,682,646 units issued and outstanding, respectively)	6,208,535			6,002,915
Series H 7.125% Preferred interest (liquidation value of $73,750)	71,209			71,209
Common equity (65,527,993 and 65,379,359 units issued and outstanding, respectively)							6,224,276			6,208,535
Series H 7.125% Preferred interest (liquidation value $0 and $73,750, respectively)							—			71,209
	6,279,744			6,074,124			6,224,276			6,279,744
Limited Partners:
Common equity (2,214,545 and 2,168,158 units issued and outstanding, respectively)	47,235			48,665
Common equity (2,237,290 and 2,214,545 units issued and outstanding, respectively)							49,436			47,235
Accumulated other comprehensive loss	(39,598		)	(49,356		)	(29,348		)	(39,598		)
Total partners' capital	6,287,381			6,073,433			6,244,364			6,287,381
Noncontrolling interest	49,642			62,635			47,873			49,642
Total capital	6,337,023			6,136,068			6,292,237			6,337,023
Total liabilities and capital	$	12,005,091		$	11,526,732		$	12,217,408		$	12,008,384

See accompanying notes to consolidated financial statements

~~F- 12~~

~~Table of Contents~~

ESSEX PORTFOLIO, L.P. AND SUBSIDIARES

Consolidated Statements of Income

Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(Dollars in thousands, except per unit and unit amounts)


	2015			2014			2013			2016			2015			2014
Revenues:
Rental and other property	$	1,185,498		$	961,591		$	603,327		$	1,285,723		$	1,185,498		$	961,591
Management and other fees from affiliates	8,909			9,347			7,263			8,278			8,909			9,347
	1,194,407			970,938			610,590			1,294,001			1,194,407			970,938
Expenses:
Property operating, excluding real estate taxes	234,953			204,673			140,060			249,765			234,953			204,673
Real estate taxes	128,555			107,873			57,276			139,162			128,555			107,873
Depreciation and amortization	453,423			360,592			192,420			441,682			453,423			360,592
General and administrative	40,090			40,878			26,684			40,751			40,090			40,878
Merger and integration expenses	3,798			53,530			4,284			—			3,798			53,530
Acquisition and investment related costs	2,414			1,878			1,161			1,841			2,414			1,878
	863,233			769,424			421,885			873,201			863,233			769,424
Earnings from operations	331,174			201,514			188,705			420,800			331,174			201,514
Interest expense	(204,827		)	(164,551		)	(116,524		)	(219,654		)	(204,827		)	(164,551		)
Total return swap income	5,655			—			—			11,716			5,655			—
Interest and other income	19,143			11,811			11,633			27,305			19,143			11,811
Equity income from co-investments	21,861			39,893			55,865			48,698			21,861			39,893
Loss on early retirement of debt, net	(6,114		)	(268		)	(300		)	(606		)	(6,114		)	(268		)
Gains on sale of real estate and land	47,333			46,039			1,503
Gains on remeasurement of co-investment	34,014			—			—
Income before discontinued operations	248,239			134,438			140,882
Income from discontinued operations	—			—			31,173
Gain on sale of real estate and land										154,561			47,333			46,039
Deferred tax expense on gain on sale of real estate and land										(4,410		)	—			—
Gain on remeasurement of co-investment										—			34,014			—
Net income	248,239			134,438			172,055			438,410			248,239			134,438
Net income attributable to noncontrolling interest	(8,295		)	(7,421		)	(6,834		)	(9,342		)	(8,295		)	(7,421		)
Net income attributable to controlling interest	239,944			127,017			165,221			429,068			239,944			127,017
Preferred interest distributions	(5,255		)	(5,291		)	(5,472		)	(1,314		)	(5,255		)	(5,291		)
Excess of redemption value of preferred units over the carrying value										(2,541		)	—			—
Net income available to common unitholders	$	234,689		$	121,726		$	159,749		$	425,213		$	234,689		$	121,726
Per unit data:
Basic:
Income before discontinued operations available to common unitholders	$	3.50		$	2.07		$	3.27
Income from discontinued operations	—			—			0.79
Net income available to common unitholders	$	3.50		$	2.07		$	4.06		$	6.28		$	3.50		$	2.07
Weighted average number of common units outstanding during the year	67,054,184			58,771,666			39,380,385			67,695,640			67,054,184			58,771,666
Diluted:
Income before discontinued operations available to common unitholders	$	3.49		$	2.07		$	3.26
Income from discontinued operations	—			—			0.79
Net income available to common unitholders	$	3.49		$	2.07		$	4.05		$	6.27		$	3.49		$	2.07
Weighted average number of common units outstanding during the year	67,244,152			58,921,232			39,466,720			67,811,916			67,244,152			58,921,232

See accompanying notes to consolidated financial statements

~~F- 13~~

~~Table of Contents~~

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(Dollars in thousands)


	2015			2014			2013			2016			2015			2014
Net income	$	248,239		$	134,438		$	172,055		$	438,410		$	248,239		$	134,438
Other comprehensive income (loss):
Changes in fair value of cash flow hedges and reclassification to interest expense	7,893			4,168			12,614
Changes in fair value of marketable securities	1,865			6,302			(1,556		)
Change in fair value of derivatives and amortization of swap settlements										15,926			7,893			4,168
Changes in fair value of marketable securities, net										(828		)	1,865			6,302
Reversal of unrealized gains upon the sale of marketable securities	—			(886		)	(1,767		)	(4,848		)	—			(886		)
Total other comprehensive income	9,758			9,584			9,291			10,250			9,758			9,584
Comprehensive income	257,997			144,022			181,346			448,660			257,997			144,022
Comprehensive income attributable to noncontrolling interest	(8,295		)	(7,421		)	(6,834		)	(9,342		)	(8,295		)	(7,421		)
Comprehensive income attributable to controlling interest	$	249,702		$	136,601		$	174,512		$	439,318		$	249,702		$	136,601

See accompanying notes to consolidated financial statements.

~~F- 14~~

~~Table of Contents~~

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Capital

Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(Dollars and units in thousands)


	General Partner							Limited Partners						Accumulated									General Partner					Limited Partners					Accumulated
					Preferred							Preferred		other												Preferred						Preferred	other
	Common Equity				Equity			Common Equity				Equity		comprehensive			Noncontrolling						Common Equity			Equity		Common Equity				Equity	comprehensive		Noncontrolling
	Units	Amount			Amount			Units	Amount			Amount		loss, net			Interest			Total			Units	Amount		Amount		Units		Amount		Amount	loss, net		Interest		Total
Balances at December 31, 2012	36,443	$	1,762,856		$	71,209		2,122	$	45,593		$	—	$	(68,231	)	$	68,689		$	1,880,116
Net income	—	150,811			5,472			—	8,938			—		—			6,834			172,055
Reversal of unrealized gains upon the sale of marketable securities	—	—			—			—	—			—		(1,767		)	—			(1,767		)
Change in fair value of cash flow hedges and amortization of swap settlements	—	—			—			—	—			—		12,614			—			12,614
Changes in fair value of marketable securities	—	—			—			—	—			—		(1,556		)	—			(1,556		)
Issuance of common units under:
Stock and unit based compensation plans	65	7,244			—			—	—			—		—			—			7,244
Sale of common stock by the general partner	913	138,366			—			—	—			—		—			—			138,366
Stock and unit based compensation costs	—	(907		)	—			28	2,515			—		—			—			1,608
Redemptions	—	(3,717		)	—			—	(617		)	—		—			(1,377		)	(5,711		)
Distributions to noncontrolling interest	—	—			—			—	—			—		—			(8,016		)	(8,016		)
Distributions declared	—	(180,771		)	(5,472		)	—	(10,472		)	—		—			—			(196,715		)
Balances at December 31, 2013	37,421	1,873,882			71,209			2,150	45,957			—		(58,940		)	66,130			1,998,238			37,421	1,873,882		71,209		2,150		45,957		—	(58,940	)	66,130		1,998,238
Net income	—	116,859			5,291			—	4,867			—		—			7,421			134,438			—	116,859		5,291		—		4,867		—	—		7,421		134,438
Reversal of unrealized gains upon the sale of marketable securities	—	—			—			—	—			—		(886		)	—			(886		)	—	—		—		—		—		—	(886	)	—		(886	)
Changes in fair value of derivatives and amortization of swap settlements	—	—			—			—	—			—		4,168			—			4,168			—	—		—		—		—		—	4,168		—		4,168
Changes in fair value of marketable securities	—	—			—			—	—			—		6,302			—			6,302			—	—		—		—		—		—	6,302		—		6,302
Issuance of common units under:
Common stock issued as consideration by general partner in merger																							23,067	3,774,087		—		—		—		—	—		—		3,774,087
General partner's stock based compensation, net																							218	11,024		—		—		—		—	—		—		11,024
Sale of common stock by the general partner, net																							2,943	532,670		—		—		—		—	—		—		532,670
Equity-based compensation costs																							—	5,719		—		28		6,153		—	—		—		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest																							—	(19,823	)	—		(10	)	4,017		—	—		(5,084	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest																							—	312		—		—		—		—	—		—		312
Conversion of Series G preferred stock																							34	4,349		—		—		—		—	—		—		4,349
Contributions from noncontrolling interest																							—	—		—		8,561		1,419,816		—	—		—		1,419,816
Retirement of noncontrolling interest																							—	—		—		(8,561	)	(1,419,816	)	—	—		—		(1,419,816	)
Distributions to noncontrolling interests																							—	—		—		—		—		—	—		(4,890	)	(4,890	)
Redemptions																							—	(3,374	)	—		—		(1,181	)	—	—		(942	)	(5,497	)
Distributions declared																							—	(292,790	)	(5,291	)	—		(11,148	)	—	—		—		(309,229	)

~~F- 15~~

~~Table of Contents~~


Common stock issued as consideration by general partner in merger	23,067	3,774,087		—		—		—		—	—		—		3,774,087
General partner's stock based compensation	218	11,024		—		—		—		—	—		—		11,024
Sale of common stock by the general partner	2,943	532,670		—		—		—		—	—		—		532,670
Equity-based compensation costs	—	5,719		—		28		6,153		—	—		—		11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	(19,823	)	—		(10	)	4,017		—	—		(5,084	)	(20,890	)
Changes in the redemption value of redeemable noncontrolling interest	—	312		—		—		—		—	—		—		312
Conversion of Series G preferred stock	34	4,349		—		—		—		—	—		—		4,349
Contributions from noncontrolling interest	—	—		—		8,561		1,419,816		—	—		—		1,419,816
Retirement of noncontrolling interest	—	—		—		(8,561	)	(1,419,816	)	—	—		—		(1,419,816	)
Distributions to noncontrolling interests	—	—		—		—		—		—	—		(4,890	)	(4,890	)
Redemptions	—	(3,374	)	—		—		(1,181	)	—	—		(942	)	(5,497	)
Distributions declared	—	(292,790	)	(5,291	)	—		(11,148	)	—	—		—		(309,229	)
Balances at December 31, 2014	63,683	6,002,915		71,209		2,168		48,665		—	(49,356	)	62,635		6,136,068		63,683		6,002,915			71,209			2,168		48,665			—		(49,356		)	62,635			6,136,068
Net income	—	226,865		5,255		—		7,824		—	—		8,295		248,239		—		226,865			5,255			—		7,824			—		—			8,295			248,239
Change in fair value of derivatives and amortization of swap settlements	—	—		—		—		—		—	7,893		—		7,893		—		—			—			—		—			—		7,893			—			7,893
Changes in fair value of marketable securities	—	—		—		—		—		—	1,865		—		1,865		—		—			—			—		—			—		1,865			—			1,865
Issuance of common units under:
General partner's stock based compensation	207	26,540		—		—		—		—	—		—		26,540
Sale of common stock by the general partner	1,482	332,137		—		—		—		—	—		—		332,137
General partner's stock based, net compensation																	207		26,540			—			—		—			—		—			—			26,540
Sale of common stock by the general partner, net																	1,482		332,137			—			—		—			—		—			—			332,137
Equity based compensation costs	—	5,946		—		54		3,700		—	—		—		9,646		—		5,946			—			54		3,700			—		—			—			9,646
Changes in redemption value of redeemable noncontrolling interest	—	(2,615	)	—		—		—		—	—		—		(2,615	)	—		(2,615		)	—			—		—			—		—			—			(2,615		)
Reclassification of noncontrolling interest to redeemable noncontrolling interest	—	(7,657	)	—		—		—		—	—		(12,115	)	(19,772	)	—		(7,657		)	—			—		—			—		—			(12,115		)	(19,772		)
Distributions to noncontrolling interests																	—		—			—			—		—			—		—			(8,751		)	(8,751		)
Redemptions																	7		(2,199		)	—			(7	)	—			—		—			(422		)	(2,621		)
Distributions declared																	—		(373,397		)	(5,255		)	—		(12,954		)	—		—			—			(391,606		)
Balances at December 31, 2015																	65,379		$	6,208,535		$	71,209		2,215		$	47,235		$	—	$	(39,598	)	$	49,642		$	6,337,023
Net income																	—		411,124			3,855			—		14,089			—		—			9,342			438,410
Reversal of unrealized gains upon the sale of marketable securities																	—		—			—			—		—			—		(4,848		)	—			(4,848		)
Change in fair value of derivatives and amortization of swap settlements																	—		—			—			—		—			—		15,926			—			15,926
Change in fair value of marketable securities, net																	—		—			—			—		—			—		(828		)	—			(828		)
Issuance of common stock under:
General partner's stock based compensation, net																	140		18,949			—			—		—			—		—			—			18,949
Sale of common stock by general partner, net																	—		(384		)	—			—		—			—		—			—			(384		)
Equity based compensation costs																	—		8,246			—			37		2,653			—		—			—			10,899
Redemption of Series H preferred units																	—		—			(73,750		)	—		—			—		—			—			(73,750		)
Retirement of common units, net																	(5	)	(1,045		)	—			—		—			—		—			—			(1,045		)

~~F- 16~~

~~Table of Contents~~


Distributions to noncontrolling interests	—	—			—			—		—			—		—			(8,751		)	(8,751		)
Changes in the redemption value of redeemable noncontrolling interest																								—	172			—			—		—			—		—			596			768
Distributions to noncontrolling interest																								—	—			—			—		—			—		—			(11,296		)	(11,296		)
Redemptions	7	(2,199		)	—			(7	)	—			—		—			(422		)	(2,621		)	14	(2,117		)	—			(15	)	17			—		—			(411		)	(2,511		)
Distributions declared	—	(373,397		)	(5,255		)	—		(12,954		)	—		—			—			(391,606		)	—	(419,204		)	(1,314		)	—		(14,558		)	—		—			—			(435,076		)
Balances at December 31, 2015	65,379	$	6,208,535		$	71,209		2,215		$	47,235		$	—	$	(39,598	)	$	49,642		$	6,337,023
Balances at December 31, 2016																								65,528	$	6,224,276		$	—		2,237		$	49,436		$	—	$	(29,348	)	$	47,873		$	6,292,237

See accompanying notes to consolidated financial statements

~~F- 17~~

~~Table of Contents~~

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(Dollars in thousands)


	2015			2014			2013			2016			2015			2014
Cash flows from operating activities:
Net income	$	248,239		$	134,438		$	172,055		$	438,410		$	248,239		$	134,438
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	453,423			360,592			193,518			441,682			453,423			360,592
Amortization of discount on marketable securities and other investments										(14,211		)	(12,389		)	(9,325		)
Amortization of (premium) discount and financing costs, net										(15,234		)	(19,361		)	(14,672		)
Gain on sale of marketable securities and other investments										(5,719		)	(598		)	(886		)
Company's share of gain on the sales of co-investments										(13,046		)	—			(6,558		)
Earnings from co-investments	(21,392		)	(33,335		)	(14,613		)	(35,652		)	(21,861		)	(33,335		)
Operating Partnership's share of gain on the sales of co-investments	(469		)	(6,558		)	(41,252		)
Operating distributions from co-investments	46,608			49,486			19,636			60,472			46,608			49,486
Gain on the sales of real estate and land	(47,333		)	(46,039		)	(30,725		)	(154,561		)	(47,333		)	(46,039		)
Equity-based compensation										10,899			6,061			8,740
Loss on early retirement of debt, net	6,114			268			300			606			6,114			268
Gains on sale of marketable securities and other investments	(598		)	(886		)	(1,767		)
Amortization of (premium) discount and financing costs, net	(19,361		)	(14,672		)	12,216
Amortization of discount on notes receivables	—			—			(844		)
Amortization of discount on marketable securities and other investments	(12,389		)	(9,325		)	(6,556		)
Non cash merger and integration expenses	—			9,025			—
Equity-based compensation	6,061			8,740			4,508
Gains on remeasurement of co-investment	(34,014		)	—			—
Gain on remeasurement of co-investment										—			(34,014		)	—
Noncash merger and integration expenses										—			—			9,025
Changes in operating assets and liabilities:
Prepaid expenses, in-place lease value, receivables and other assets	267			15,828			(1,588		)
Prepaid expenses, receivables and other assets										(2,328		)	267			15,828
Accounts payable and accrued liabilities	(9,633		)	24,233			72			1,701			(9,633		)	24,233
Other liabilities	1,887			1,517			22			(496		)	1,887			1,517
Net cash provided by operating activities	617,410			493,312			304,982			712,523			617,410			493,312
Cash flows from investing activities:
Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures	(515,726		)	(387,547		)	(348,774		)	(315,632		)	(515,726		)	(387,547		)
Redevelopment	(99,346		)	(81,429		)	(47,289		)	(83,927		)	(99,346		)	(81,429		)
Development acquisitions of and additions to real estate under development	(157,900		)	(152,766		)	(17,757		)	(76,455		)	(157,900		)	(152,766		)
Capital expenditures on rental properties	(57,277		)	(78,864		)	(56,919		)	(60,013		)	(57,277		)	(78,864		)
Acquisition of membership interest in co-investments										—			(115,724		)	—
Collections of notes and other receivables										4,070			—			76,585
Investments in notes receivable										(24,070		)	—			—
Proceeds from insurance for property losses	16,811			35,547			—			5,543			16,811			35,547
BRE merger consideration paid	—			(555,826		)	—			—			—			(555,826		)
Acquisition of membership interest in co-investment	(115,724		)	—			—
Dispositions of real estate	319,008			141,189			65,496
Dispositions of co-investments	31,556			13,900			—
Proceeds from dispositions of real estate										239,289			319,008			141,189
Contributions to co-investments										(183,989		)	(127,879		)	(246,006		)
Changes in restricted cash and refundable deposits	(14,068		)	(36,582		)	(9,149		)	(14,138		)	(14,068		)	(36,582		)
Purchases of marketable securities	(14,300		)	(20,516		)	(16,442		)	(18,779		)	(14,300		)	(20,516		)
Sales and maturities of marketable securities and other investments	8,907			8,753			24,172			30,458			8,907			8,753
Purchases of and advances under notes and other receivables	—			—			(56,750		)
Collections of notes and other receivables	—			76,585			53,438
Contributions to co-investments	(127,879		)	(246,006		)	(162,578		)
Non-operating distributions from co-investments	382			136,406			118,856			76,231			31,938			150,306
Net cash used in investing activities										(421,412		)	(725,556		)	(1,147,156		)
Cash flows from financing activities:

~~F- 18~~

~~Table of Contents~~


Net cash used in investing activities	(725,556		)	(1,147,156		)	(453,696		)
Cash flows from financing activities:
Borrowings under debt agreements	1,345,855			2,093,406			969,061			1,265,388			1,345,855			2,093,406
Repayment of debt	(1,197,351		)	(1,814,020		)	(750,900		)	(1,018,126		)	(1,197,351		)	(1,814,020		)
Repayment of cumulative redeemable preferred stock										(73,750		)	—			—
Retirement of common stock										(1,045		)	—			—
Additions to deferred charges	(8,034		)	(17,402		)	(7,402		)	(7,926		)	(8,034		)	(17,402		)
Net proceeds from issuance of common units										(384		)	332,137			531,379
Net proceeds from stock options exercised	26,540			11,039			4,958			18,949			26,540			11,039
Net proceeds from issuance of common units	332,137			531,379			137,749
Distributions to noncontrolling interest	(7,615		)	(4,841		)	(8,016		)	(6,960		)	(7,615		)	(4,841		)
Redemption of limited partners units and noncontrolling interests	(2,621		)	(802		)	(5,711		)
Common units and preferred units and preferred interests distributions paid	(380,697		)	(278,149		)	(191,140		)
Net cash provided by financing activities	108,214			520,610			148,599
Redemption of noncontrolling interests										(2,511		)	(2,621		)	(802		)
Common and preferred units and preferred interests distributions paid										(429,508		)	(380,697		)	(278,149		)
Net cash (used in) provided by financing activities										(255,873		)	108,214			520,610
Cash acquired from the BRE merger	—			140,353			—			—			—			140,353
Cash acquired from consolidation of co-investment	4,005			—			—			—			4,005			—
Net increase (decrease) in cash and cash equivalents	4,073			7,119			(115		)
Net increase in cash and cash equivalents										35,238			4,073			7,119
Cash and cash equivalents at beginning of year	25,610			18,491			18,606			29,683			25,610			18,491
Cash and cash equivalents at end of year	$	29,683		$	25,610		$	18,491		$	64,921		$	29,683		$	25,610

Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest	$	181,106		$	130,691		$	103,516		$	203,743		$	181,106		$	130,691
Interest capitalized	$	15,571		$	22,510		$	16,486		$	12,486		$	15,571		$	22,510

Supplemental disclosure of noncash investing and financing activities:
Issuance of Operating Partnership units for contributed properties	$	—		$	1,419,816		$	—		$	—		$	—		$	1,419,816
Retirement of Operating Partnership units	$	—		$	(1,419,816	)	$	—		$	—		$	—		$	(1,419,816	)
Transfer from real estate under development to rental properties	$	308,704		$	10,203		$	68
Transfers between real estate under development to rental properties, net										$	104,159		$	308,704		$	10,203
Transfer from real estate under development to co-investments	$	6,234		$	83,574		$	27,906		$	9,919		$	6,234		$	83,574
Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest	$	22,387		$	18,766		$	—
Debt assumed in connection with acquisition of co-investment	$	114,435		$	—		$	—
Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded	$	—		$	72,568		$	—
Reclassifications (from) to redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest										$	(768	)	$	22,387		$	18,766
Debt assumed in connection with acquisition (excluding BRE merger)										$	48,832		$	114,435		$	72,568
Debt deconsolidated in connection with BEX II transaction										$	20,195		$	—		$	—

See accompanying notes to consolidated financial statements

~~F- 19~~

~~Table of Contents~~

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(1) Organization

The accompanying consolidated financial statements present the accounts of Essex Property Trust, Inc. (“Essex”, “ESS”, or the “Company”), which include the accounts of the Company and Essex Portfolio, L.P. and subsidiaries (the “Operating Partnership,” which holds the operating assets of the Company). Unless otherwise indicated, the notes to consolidated financial statements apply to both the Company and the Operating Partnership.

ESS is the sole general partner in the Operating Partnership with a 96.7% general partner interest and the limited partners owned a 3.3% interest as of December 31, ~~2015.~~2016. The limited partners may convert their Operating Partnership units into an equivalent number of shares of common stock. Total Operating Partnership limited partnership units outstanding were ~~2,214,545~~2,237,290 and ~~2,168,158~~2,214,545 as of December 31, ~~2015~~2016 and ~~2014,~~2015, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately ~~$530.2~~$520.2 million and ~~$447.9~~$530.2 million, as of December 31, ~~2015~~2016 and ~~2014,~~2015, respectively. The Company has reserved shares of common stock for such conversions.

As of December 31, ~~2015,~~2016, the Company owned or had ownership interests in ~~246~~245 apartment communities, (aggregating ~~59,160~~59,645 apartment homes), ~~four~~two operating commercial buildings, and ~~eight~~six active development projects (collectively, the “Portfolio”). The communities are located in Southern California (Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.

On April 1, 2014, Essex completed the merger with BRE Properties, Inc. (“BRE”). In connection with the closing of the merger, (1) BRE merged into a wholly owned subsidiary of Essex, and (2) each outstanding share of BRE common stock was converted into (i) 0.2971 shares (the “Stock Consideration”) of Essex common stock, and (ii) $7.18 in cash, (the “Cash Consideration”), plus cash in lieu of fractional shares for total consideration of approximately $4.3 billion. The Cash Consideration was adjusted as a result of the authorization and declaration of a special distribution to the stockholders of BRE of $5.15 per share of BRE common stock payable to BRE stockholders of record as of the close of business on March 31, 2014 (the “Special Dividend”). The Special Dividend was payable as a result of the closing of the sale of certain interests in assets of BRE to certain parties, which closed on March 31, 2014. Pursuant to the terms of the merger agreement, the amounts payable as a Special Dividend reduced the Cash Consideration of $12.33 payable by Essex in the merger to $7.18 per share of BRE common stock.

Essex issued approximately 23.1 million shares of Essex common stock as Stock Consideration in the merger. For purchase accounting, the value of the common stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014. BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014. As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration. After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex common stock issued.

(2) Summary of Critical and Significant Accounting Policies

(a) Principles of Consolidation and Basis of Presentation

The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements and prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). 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. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made toin prior ~~year~~period amounts to conform to the current year’s ~~presentation.~~presentation including the reclassification of $3.3 million in deferred financing costs related to lines of credit which were reclassified from lines of credit to prepaid expenses and other assets as of December 31, 2015. Such reclassifications had no net effect on previously reported financial results.

F- 20

Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

Noncontrolling interest includes the 3.3% limited partner interests in the Operating Partnership not held by the Company at both December 31, ~~2015~~2016 and ~~2014.~~2015. These percentages include the Operating Partnership’s vested long term incentive plan units (see Note ~~13)~~12).

The Company consolidates the Operating Partnership and 19 DownREIT limited partnerships (comprising eleven communities), since the Company is the primary beneficiary of these variable interest entities (“VIEs”). The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to these DownREIT VIEs, net of intercompany eliminations, were approximately $241.0 million and $206.7 million, respectively, as of December 31, 2015, and $235.1 million and $209.1 million, respectively, as of December 31, 2014.

The DownREIT VIEs collectively own eleven apartment communities in which Essex Management Company (“EMC”) is the general partner, the Operating Partnership is a special limited partner, and the other limited partners were granted rights of redemption for their interests. Such limited partners can request to be redeemed and the Company, subject to certain restrictions, can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis. Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under the above arrangements. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. Total DownREIT units outstanding were 963,172 and 974,790 as of December 31, 2015 and 2014 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $230.6 million and $201.4 million, as of December 31, 2015 and 2014, respectively. The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $45.5 million and $23.3 million as of December 31, 2015 and 2014, respectively. The amounts represent units of limited partners' interests in DownREIT VIEs as to which it is outside of the Company’s control to redeem the DownREIT units with Company common stock and may potentially be redeemed for cash, and are presented at either their redemption value or historical cost, depending on the limited partner's right to redeem their units as of the balance sheet date. The carrying value of DownREIT units as to which it is within the control of the Company to redeem the units with its common stock is $18.4 million and $30.8 million as of December 31, 2015 and 2014, respectively and is classified within noncontrolling interests in the accompanying consolidated balance sheets.

Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders or distributions from cash flow. The remaining results of operations are generally allocated to the Company.

~~As of December 31, 2015 and 2014, the Company did not have any VIEs of which it was not deemed to be the primary beneficiary.~~

(b) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The new standard provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. The new standard requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. In August 2015, the FASB deferred the effective date of the new standard by one year, and it is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is ~~permitted but not before the original effective date.~~permitted. The new standard may be applied using either a full retrospective or a modified approach upon adoption. The Company ~~has~~does not ~~yet selected~~expect that this will have a ~~transition method and is currently evaluating the impact of adopting the new standard~~material effect on its consolidated results of operations ~~and~~or financial position.

In February 2015, the FASB issued ASU No. 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation Analysis", which provides new consolidation guidance and makes changes to both the variable interest model and the voting model. Among other changes, the new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. Generally, only a single limited partner that is able to exercise substantive kick-out rights will consolidate. The new standard will be effective for the Company beginning on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity/capital

~~F- 21~~

~~Table of Contents~~

~~ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~

as of the beginning of the period of adoption or retrospectively to each period presented. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.

In April 2015, the FASB issued ASU No. 2015-03 "Simplifying the Presentation of Debt Issuance Costs", which requires companies to present debt financing costs as a direct deduction from the carrying amount of the associated debt liability rather than as an asset, consistent with the presentation of debt discounts on the consolidated balance sheets. The new standard will be effective for the Company beginning on January 1, 2016 and early adoption is permitted. The Company adopted this standard during the second quarter of 2015. This adoption resulted in a reclassification of $29.4 million in debt issuance costs, net of accumulated amortization, from an asset to a reduction to associated debt liabilities as of December 31, 2014.

In January 2016, the FASB issued ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities", which requires changes to the classification and measurement of investments in certain equity securities and to the presentation of certain fair value changes for financial liabilities measured at fair value. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In February 2016, the FASB issued ASU No. 2016-02 "Leases", which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less will be accounted for similar to existing guidance for operating leases today. For lessors, accounting for leases under the new standard will be substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs. The new standard will be effective for the Company beginning on January 1, 2019 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

In March 2016, the FASB issued ASU No. 2016-07 "Simplifying the Transition to the Equity Method of Accounting", which eliminates the requirement to retroactively adjust an investment, results of operations, and retained earnings when the investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. The new standard will be effective for the Company beginning on January 1, 2017 and early adoption is permitted. The Company does not expect the impact of this to be material on its consolidated results of operations or financial position.

In March 2016, the FASB issued ASU No. 2016-09 "Improvement to Employee Share-Based Payment Accounting", which amends certain aspects of how an entity accounts for share-based payments to employees. This amendment requires entities to recognize the income tax effects of share-based awards in the income statement when the awards vest or are settled, rather than recording such effects in additional paid-in capital. Entities will also be permitted to elect to account for forfeitures of share-based payments as they occur or continue with the current practice which requires estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change. The new standard will be effective January 1, 2017, with early adoption permitted. The change in recognition of income tax effects of share-based awards will be applied prospectively. If the Company elects to account for forfeitures of share-based payments as they occur, such change will be applied using a modified retrospective approach, with a cumulative-effect adjustment to distributions in excess of accumulated earnings. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In June 2016, the FASB issued ASU No. 2016-13 "Measure of Credit Losses on Financial Instruments", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

when losses are probable and loss reversals are not permitted. The new standard will be effective for the Company beginning on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which requires entities to adhere to a uniform classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company does not expect the impact of the other items identified in the ASU to be material on its consolidated results of operations or financial position.

In October 2016, the FASB issued ASU No. 2016-17 "Interests Held through Related Parties that are Under Common Control", which further refines the consolidation guidance of variable interest entities as outlined in ASU 2015-02 "Consolidation: Amendments to the Consolidation Analysis" (which became effective for the Company since January 2016) and requires entities to consider only their proportionate indirect interest in a variable interest entity held through an entity under common control. Currently, U.S. GAAP requires entities to consider such proportionate indirect interests as if the entities held the interest themselves. This new standard will be effective for the Company beginning January 1, 2017 and early adoption is permitted. The Company does not expect that this will have a material effect on its consolidated results of operations or financial position.

In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows", which requires entities to include restricted cash and restricted cash equivalents in the reconciliation of beginning-of period to the end-of-period of cash and cash equivalents in the statement of cash flows. This new standard seeks to eliminate the current diversity in practice in how changes in restricted cash and restricted cash equivalents is presented in the statement of cash flows. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated statements of cash flows.

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations: Clarifying the Definition of a Business", which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, U.S. GAAP does not specify the minimum inputs and processes required for an integrated set of assets and activities to meet the definition of a business, causing a broad interpretation of the definition of a business. This new standard will be effective for the Company beginning January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

Significant expenditures, which improve or extend the life of an asset and have a useful life of greater than one year, are capitalized. Operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition. Expenditures for maintenance and repairs are charged to expense as incurred.

The depreciable life of various categories of fixed assets is as follows:



Computer software and equipment	3 - 5 years
Interior apartment home improvements	5 years
Furniture, fixtures and equipment	5 - 10 years
Land improvements and certain exterior components of real property	10 years
Real estate structures	30 years

The Company capitalizes all costs incurred with the predevelopment, development or redevelopment of real estate assets or are associated with the construction or expansion of real property. Such capitalized costs include land, land improvements, allocated costs of the Company’s project management staff, construction costs, as well as interest and related loan fees, property taxes and insurance. Capitalization begins for predevelopment, development, and redevelopment projects when activity commences. Capitalization ends when the apartment home is completed and the property is available for a new resident or if the development activities cease.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

The Company allocates the purchase price of real estate to land and building including personal property, and identifiable intangible assets, such as the value of above, below and in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired, which in the case of below market leases the Company assumes lessees will elect to renew their leases. The value of acquired in-place leases are amortized to expense over the average remaining term of the ~~Company expects to retain the acquired tenant, which is generally 15 months.~~leases acquired. The net carrying value of acquired in-place leases is $1.4 million and $2.9 million as of December 31, 2016 and 2015, ~~of $2.9 million is expected to be recognized~~respectively, and are included in ~~amortization expense primarily in 2016.~~prepaid expenses and other assets on the Company's consolidated balance sheets.

The Company performs the following evaluation for communities acquired:


(1)	adjust the purchase price for any fair value adjustments resulting from such things as assumed debt or contingencies;


(2)	estimate the value of the real estate “as if vacant” as of the acquisition date;


(3)	allocate that value among land and buildings including personal property;


(4)	compute the value of the difference between the “as if vacant” value and the adjusted purchase price, which will represent the total intangible assets;

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~


(5)	compute the value of the above and below market leases and determine the associated life of the above market/ below market leases;


(6)	compute the value of the in-place leases and customer relationships, if any, and the associated lives of these assets.

Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment or held for sale may not be fully recoverable, the carrying amount will be evaluated for impairment. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of a property held for investment, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available. Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell. As of December 31, 2016 one property was classified as held for sale. As of December 31, 2015 ~~and 2014,~~ two ~~and one~~ properties were classified as held for ~~sale, respectively.~~sale. No impairment charges were recorded in 2016, 2015 ~~2014~~ or ~~2013.~~2014.

In the normal course of business, the Company will receive purchase offers for its communities, either solicited or unsolicited. For those offers that are accepted, the prospective buyer will usually require a due diligence period before consummation of the transaction. It is not unusual for matters to arise that result in the withdrawal or rejection of the offer during this process. The Company classifies real estate as "held for sale" when all criteria under the accounting standard for the disposals of long-lived assets have been met.

(d) Co-investments

The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with the accounting standards. Therefore, the Company accounts for these 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.

A majority of the co-investments, excluding the preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote distributions 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 ~~(loss)~~ from co-investments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(e) 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 is not materially different than on a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 6 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.

The Company recognizes gains on sales of real estate when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement with the property.

(f) Cash Equivalents and Restricted Cash

Highly liquid investments 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.

(g) Marketable Securities ~~and Other Investments~~

The Company reports its available for sale securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for ~~the limited partnership interests,~~investments in mortgage backed securities, as defined by the

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~

FASB standard for fair value measurements as discussed later in Note 2), and any unrealized gain or loss is recorded as other comprehensive ~~income (loss).~~income. There were no other than temporary impairment charges for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013.~~2014. Realized gains and losses, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated ~~statement~~statements of income.

As of December 31, ~~2015~~2016 and ~~2014,~~2015, marketable securities ~~and other investments~~ consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities, investment funds that invest in U.S. treasury or agency securities, and other limited partnership investments. As of December 31, ~~2015~~2016 and ~~2014,~~2015, the Company classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost. The discount on the mortgage backed securities is being amortized to interest income based on an estimated yield and the maturity date of the securities.

As of December 31, ~~2015~~2016 and ~~2014~~2015 marketable securities ~~and other investments~~ consist of the following ($ in thousands):


	December 31, 2015							December 31, 2016
	Amortized Cost		Gross Unrealized Gain (Loss)			Carrying Value		Amortized Cost		Gross Unrealized Gain (Loss)			Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	11,618	$	68		$	11,686	$	19,604	$	(73	)	$	19,531
Investment funds - US treasuries	3,675		(9		)	3,666
Investment funds - U.S. treasuries								10,022		(22		)	10,000
Common stock and stock funds	34,655		7,091			41,746		13,696		1,569			15,265
Held to maturity:
Mortgage backed securities	80,387		—			80,387		94,393		—			94,393
Total - Marketable securities and other investments	$	130,335	$	7,150		$	137,485
Total - Marketable securities								$	137,715	$	1,474		$	139,189

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014


	December 31, 2014						December 31, 2015
	Amortized Cost		Gross Unrealized Gain		Carrying Value		Amortized Cost		Gross Unrealized Gain (Loss)			Carrying Value
Available for sale:
Investment-grade unsecured bonds	$	9,435	$	145	$	9,580	$	11,618	$	68		$	11,686
Investment funds - US treasuries	3,769		3		3,772
Investment funds - U.S. treasuries							3,675		(9		)	3,666
Common stock and stock funds	25,755		5,137		30,892		34,655		7,091			41,746
Held to maturity:
Mortgage backed securities	67,996		—		67,996		80,387		—			80,387
Total - Marketable securities	106,955		5,285		112,240		$	130,335	$	7,150		$	137,485
Other investments	5,000		—		5,000
Total - Marketable securities and other investments	$	111,955	$	5,285	$	117,240

The Company uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.

For the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013,~~2014, the proceeds from sales of available for sale securities totaled $30.5 million, $3.3 million ~~$8.8 million~~ and ~~$24.2~~$8.8 million, respectively. For the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013~~2014 these sales resulted in gains of $4.8 million, no net gains or losses, and gains of $0.9 million, ~~and $1.8 million,~~ respectively.

For the year ended December 31, 2015, the proceeds from the sale of other investments totaled $5.6 million, which resulted in a realized gain of $0.6 million recorded in interest and other income on the consolidated statements of income. ~~For~~There were no such sales for the years ended December 31, ~~2014~~2016 and ~~2013, there were no such sales.~~2014.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~

(h) Notes Receivable

Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans and are secured by real estate. Interest is recognized over the life of the note as interest income.

Each note is analyzed to determine if it is impaired. A note is impaired if it is probable that the Company will not collect all contractually due principal and interest. The Company does not accrue interest when a note is considered impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be collectible. All cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and, thereafter, are recognized as interest income. As of December 31, ~~2015~~2016 and ~~2014,~~2015, no notes were impaired.

(i) Capitalization Policy

The Company capitalizes all direct and certain indirect costs, including interest, real estate taxes and insurance, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development. ~~The Company’s~~Those costs as well as capitalized ~~internal costs related to~~ development and redevelopment ~~projects were comprised primarily of employee compensation and~~fees totaled ~~$10.9~~$18.5 million, ~~$10.4~~$17.6 million and ~~$7.5~~$17.6 million for the years ended December 31, 2016, 2015 ~~2014~~ and ~~2013,~~2014, respectively, most of which relates to development projects. The Company capitalizes leasing costs associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized are immaterial for all periods presented.

(j) Fair Value of Financial Instruments

The Company values its financial instruments based on the fair value hierarchy of valuation techniques described in the FASB’s accounting standard for fair value measurements. Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

markets and inputs other than quoted prices observable for the asset or liability. Level 3 inputs are unobservable inputs for the asset or liability. The Company uses Level 1 inputs for the fair values of its cash equivalents and its marketable securities except for unsecured bonds and mortgage backed securities. The Company uses Level 2 inputs for its investments in unsecured bonds, notes receivable, notes payable, and derivative assets/liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 9.8. The Company uses Level 3 inputs to estimate the fair value of its mortgage backed securities. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Management believes that the carrying amounts of the outstanding balances under its notes and other receivables approximate fair value as of December 31, ~~2015~~2016 and ~~2014,~~2015, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments. Management has estimated that the fair value of fixed rate debt with a carrying value of $5.1 billion and $4.8 billion, including premiums, discounts and ~~$4.4 billion,~~debt financing costs, at December 31, ~~2015~~2016 and ~~2014,~~2015, respectively, to be ~~$4.8~~$5.1 billion and ~~$4.6~~$4.8 billion. Management has estimated the fair value of the Company’s ~~$525.3~~$499.7 million and ~~$651.7~~$525.3 million of variable rate debt, including debt financing costs, at December 31, 2016 and 2015, ~~and 2014,~~ respectively, ~~is $527.6~~to be $502.8 million and ~~$656.3~~$527.6 million based on the terms of the Company’s existing variable rate debt compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payable, other liabilities and dividends payable approximate fair value as of December 31, ~~2015~~2016 and ~~2014~~2015 due to the short-term maturity of these instruments. Marketable securities, excluding mortgage backed securities, and derivative assets/liabilities are carried at fair value as of December 31, ~~2015~~2016 and ~~2014.~~2015.

At December 31, ~~2015~~2016 and ~~2014,~~2015, the Company’s investments in mortgage backed securities had a carrying value of ~~$80.4~~$94.4 million and ~~$68.0~~$80.4 million, respectively. The Company estimated the fair value of investment in mortgage backed securities at December 31, ~~2015~~2016 and ~~2014~~2015 to be approximately ~~$110.2~~$108.8 million and ~~$96.0~~$110.2 million, respectively. The Company determines the fair value of the mortgage backed securities based on unobservable inputs ~~(level~~(Level 3 of the fair value hierarchy) considering the

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~~ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~

assumptions that market participants would make in valuing these securities. Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.

(k) Interest Rate Protection, Swap, and Forward Contracts

The Company uses interest rate swaps, interest rate cap contracts, and forward starting swaps to manage interest rate risks. The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy.

The Company records all derivatives on its consolidated balance ~~sheet~~sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated for accounting purposes as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated for accounting purposes as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

For derivatives not designated for accounting purposes as cash flow hedges, changes in fair value are recognized in earnings. All of the Company’s interest rate swaps are considered cash flow hedges. The change in fair value of the total return swaps is reported as total return swap income in the consolidated statements of income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, and 2014

(l) Income Taxes

Generally in any year in which ESS qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below, has been made in the accompanying consolidated financial statements for each of the years in the three-year period ended December 31, ~~2015~~2016 as ESS has elected to be and believes it qualifies under the IRC as a REIT and has made distributions during the periods in amounts to preclude ESS from paying federal income tax.

In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Company. ~~The~~In general, the activities and tax related provisions, assets and liabilities are not material. In 2016, a taxable REIT subsidiary sold two properties that it had acquired in 2007, resulting in Company's recognition of a deferred income tax expense of approximately $4.4 million.

As a partnership, the Operating Partnership is not subject to federal or state income taxes except that in order to maintain ESS’s compliance with REIT tax rules that are applicable to ESS, the Operating Partnership utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Operating Partnership.

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~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2015, 2014, and 2013~~

The status of cash dividends distributed for the years ended December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014 related to common stock, Series G and Series H preferred stock are classified for tax purposes as follows:


	2015		2014		2013		2016		2015		2014
Common Stock
Ordinary income	99.28	%	70.03	%	77.34	%	86.68	%	99.28	%	70.03	%
Capital gain	0.72	%	21.95	%	17.64	%	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	—	%	8.02	%	5.02	%	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%


	2015		2014		2013		2016		2015		2014
Series G and H Preferred stock
Ordinary income	99.28	%	70.03	%	77.34	%	86.68	%	99.28	%	70.03	%
Capital gains	0.72	%	21.95	%	17.64	%	7.11	%	0.72	%	21.95	%
Unrecaptured section 1250 capital gain	—	%	8.02	%	5.02	%	6.21	%	—	%	8.02	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

(m) 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 ~~13)~~12) are being amortized over the expected service periods.

~~(n) Changes in Accumulated Other Comprehensive Loss by Component~~

~~Essex Property Trust, Inc. ($ in thousands)~~

Change in fair
value and
amortization
of swap settlements

Unrealized
gains on
available for sale
securities
Total
Balance at December 31, 2014 $ (56,003 ) $ 4,551
$ (51,452 )
Other comprehensive income before reclassification (393 ) 1,804
1,411
Amounts reclassified from accumulated other comprehensive loss 8,030
—
8,030
Other comprehensive income 7,637
1,804
9,441
Balance at December 31, 2015 $ (48,366 ) $ 6,355
$ (42,011 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016, 2015, ~~2014,~~ and ~~2013~~2014

(n) Changes in Accumulated Other Comprehensive Loss, by Component

Changes in Accumulated Other Comprehensive Loss, Net, by Component

Essex Property Trust, Inc. ($ in thousands)



	Change in fair value and amortization of swap settlements			Unrealized gains on available for sale securities			Total
Balance at December 31, 2015	$	(48,366	)	$	6,355		$	(42,011	)
Other comprehensive income before reclassification	25,371			(801		)	24,570
Amounts reclassified from accumulated other comprehensive loss	(9,968		)	(4,689		)	(14,657		)
Other comprehensive income	15,403			(5,490		)	9,913
Balance at December 31, 2016	$	(32,963	)	$	865		$	(32,098	)

Changes in Accumulated Other Comprehensive Loss, by Component

Essex Portfolio, L.P. ($ in thousands)


	Change in fair value and amortization of swap settlements			Unrealized gains on available for sale securities		Total			Change in fair value and amortization of swap settlements			Unrealized gains on available for sale securities			Total
Balance at December 31, 2014	$	(53,980	)	$	4,624	$	(49,356	)
Balance at December 31, 2015									$	(46,087	)	$	6,489		$	(39,598	)
Other comprehensive income before reclassification	(407		)	1,865		1,458			26,234			(828		)	25,406
Amounts reclassified from accumulated other comprehensive loss	8,300			—		8,300			(10,308		)	(4,848		)	(15,156		)
Other comprehensive income	7,893			1,865		9,758			15,926			(5,676		)	10,250
Balance at December 31, 2015	$	(46,087	)	$	6,489	$	(39,598	)
Balance at December 31, 2016									$	(30,161	)	$	813		$	(29,348	)



Maryland (Essex Property Trust, Inc.) California (Essex Portfolio, L.P.)		77-0369576 (Essex Property Trust, Inc.) 77-0369575 (Essex Portfolio, L.P.)
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)



Title of each class		Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.)		New York Stock Exchange

~~7.125% Series H Cumulative Redeemable Preferred Stock (Essex Property Trust, Inc.)~~		~~New York Stock Exchange~~



Large accelerated filer x	Accelerated filer o	Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o



Large accelerated filer o	Accelerated filer o	Non-accelerated filer x (Do not check if a smaller reporting company)	Smaller reporting company o



Part I.		Page
Item 1.	Business	1
Item 1A.	Risk Factors	76
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
Part II.
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	30
Item 6.	Selected Financial Data	3433
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3837
Item 7A.	Quantitative and Qualitative Disclosures About Market Risks	49
Item 8.	Financial Statements and Supplementary Data	50
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	50
Item 9B.	Other Information	51
Part III.
Item 10.	Directors, Executive Officers and Corporate Governance	51
Item 11.	Executive Compensation	51
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	51
Item 13.	Certain Relationships and Related Transactions, and Director Independence	51
Item 14.	Principal Accounting Fees and Services	5152
Part IV.
Item 15.	Exhibits and Financial Statement Schedules	5253
Signatures		~~S-1~~S-0



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Essex Property Trust, Inc. Yes x No o	Essex Portfolio, L.P. Yes o No x



Essex Property Trust, Inc. Yes o No x	Essex Portfolio, L.P. Yes o No x



Essex Property Trust, Inc. Yes x No o	Essex Portfolio, L.P. Yes x No o



Property Name	Location	Apartment Homes	Essex Ownership Percentage		Ownership	Quarter in 2015	Purchase Price
8th & Hope	Los Angeles, CA	290	100	%	EPLP	Q1	$	200.0
The Huxley ⁽¹⁾	Los Angeles, CA	187	100	%	EPLP	Q1	48.8
The Dylan ⁽¹⁾	Los Angeles, CA	184	100	%	EPLP	Q1	51.3
Reveal ⁽²⁾	Woodland Hills, CA	438	99.75	%	EPLP	Q2	73.0
Avant	Los Angeles, CA	247	100	%	EPLP	Q2	99.0
Avant II	Los Angeles, CA	193	100	%	EPLP	Q4	73.0
Enso	San Jose, CA	183	100	%	EPLP	Q4	93.0
Total 2015		1,722					$	638.1


⁽¹⁾	In March 2015, the Company purchased the joint venture partner's remaining membership interest in The Huxley and The Dylan co-investments for a purchase price of $100.1 million. The properties are now consolidated.


⁽²⁾	~~In April 2015, the Company purchased the joint venture partner's 49.5% membership interest in the Reveal co-investment for a purchase price of $73.0 million. The property is now consolidated.~~


					As of								As of
					12/31/2015								12/31/2016
		Essex			Incurred		Estimated			Essex			Incurred		Estimated
Development Pipeline	Location	Ownership%		Apartment Homes	Project Cost ⁽¹⁾		Project Cost⁽¹⁾		Location	Ownership%		Apartment Homes	Project Cost ⁽¹⁾		Project Cost⁽¹⁾
Development Projects - Consolidated
MB 360 - Phase II	San Francisco, CA	100	%	172	$	119	$	135
Station Park Green	San Mateo, CA	100	%	599	83		354		San Mateo, CA	100	%	320	$	78	$	239
Gateway Village									Santa Clara, CA	100	%	476	37		226
Total - Consolidated Development Projects				771	202		489					796	115		465
Development Projects - Joint Venture
Epic - Phase III	San Jose, CA	55	%	200	84		92
Agora⁽²⁾	Walnut Creek, CA	51	%	49	84		95
Owens	Pleasanton, CA	55	%	255	55		89
Hacienda	Pleasanton, CA	55	%	251	37		86
The Galloway (at Owens)									Pleasanton, CA	55	%	255	87		89
The Galloway (at Hacienda)									Pleasanton, CA	55	%	251	71		86
Century Towers	San Jose, CA	50	%	376	93		172		San Jose, CA	50	%	376	143		172
500 Folsom ⁽³⁾	San Francisco, CA	50	%	545	62		381
500 Folsom ⁽²⁾									San Francisco, CA	50	%	545	107		415
Total - Joint Venture Development Projects				1,676	415		915					1,427	408		762
Predevelopment Projects - Consolidated
Other Projects	various	100	%	—	40		40		Various	100	%	—	80		80
Total - Predevelopment Projects				—	40		40					—	80		80
Grand Total - Development and Predevelopment Pipeline				2,447	$	657	$	1,444				2,223	$	603	$	1,307


⁽¹⁾	Includes costs related to the entire project, including both the Company's and joint venture partners' costs. Includes incurred costs and estimated costs to complete these development projects. For predevelopment projects, only incurred costs are included in estimated costs.


⁽²⁾	~~Estimated project costs for this development include costs to develop both residential and commercial space.~~


⁽³⁾	Estimated project cost for this development is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.


	Period Ending						Period Ending
Index	12/31/2010	12/31/2011	12/31/2012	12/31/2013	12/31/2014	12/31/2015	12/31/2011	12/31/2012	12/31/2013	12/31/2014	12/31/2015	12/31/2016
Essex Property Trust, Inc.	100.00	127.06	136.59	138.04	204.30	242.85	100.00	107.51	108.64	160.79	191.14	190.89
NAREIT All Equity REIT Index	100.00	108.28	129.62	133.32	170.68	175.51	100.00	119.70	123.12	157.63	162.08	176.07
S&P 500	100.00	102.11	118.45	156.82	178.28	180.75	100.00	116.00	153.57	174.60	177.01	198.18


⁽¹⁾	Common stock performance data is provided by SNL Financial.


	Years Ended December 31,										Years Ended December 31,
	2015		2014		2013		2012		2011		2016		2015		2014		2013		2012
	($ in thousands, except per share amounts)										($ in thousands, except per share amounts)
OPERATING DATA:⁽¹⁾
Rental and other property	$	1,185,498	$	961,591	$	603,327	$	527,945	$	461,866	$	1,285,723	$	1,185,498	$	961,591	$	603,327	$	527,945
Management and other fees from affiliates	8,909		9,347		7,263		8,457		5,428		8,278		8,909		9,347		7,263		8,457

Income before discontinued operations	$	248,239	$	134,438	$	140,882	$	127,653	$	46,958	$	438,410	$	248,239	$	134,438	$	140,882	$	127,653
Income from discontinued operations	—		—		31,173		11,937		10,558		—		—		—		31,173		11,937
Net income	248,239		134,438		172,055		139,590		57,516		438,410		248,239		134,438		172,055		139,590
Net income available to common stockholders	$	226,865	$	116,859	$	150,811	$	119,812	$	40,368	$	411,124	$	226,865	$	116,859	$	150,811	$	119,812
Per share data:
Basic:
Income before discontinued operations available to common stockholders	$	3.50	$	2.07	$	3.26	$	3.10	$	0.94	$	6.28	$	3.50	$	2.07	$	3.26	$	3.10
Net income available to common stockholders	$	3.50	$	2.07	$	4.05	$	3.42	$	1.24	$	6.28	$	3.50	$	2.07	$	4.05	$	3.42
Weighted average common stock outstanding	64,872		56,547		37,249		35,032		32,542		65,472		64,872		56,547		37,249		35,032
Diluted:
Income before discontinued operations available to common stockholders	$	3.49	$	2.06	$	3.25	$	3.09	$	0.94	$	6.27	$	3.49	$	2.06	$	3.25	$	3.09
Net income available to common stockholders	$	3.49	$	2.06	$	4.04	$	3.41	$	1.24	$	6.27	$	3.49	$	2.06	$	4.04	$	3.41
Weighted average common stock outstanding	65,062		56,697		37,335		35,125		32,629		65,588		65,062		56,697		37,335		35,125
Cash dividend per common share	$	5.76	$	5.11	$	4.84	$	4.40	$	4.16	$	6.40	$	5.76	$	5.11	$	4.84	$	4.40


⁽¹⁾	Reclassifications have been made in prior periods to conform to the current year’s presentation.


	As of December 31,										As of December 31,
	2015		2014		2013		2012		2011		2016		2015		2014		2013		2012
	($ in thousands)										($ in thousands)
BALANCE SHEET DATA:⁽¹⁾
Investment in rental properties (before accumulated depreciation)	$	12,331,469	$	11,244,681	$	5,443,757	$	5,033,672	$	4,313,064	$	12,676,306	$	12,331,469	$	11,244,681	$	5,443,757	$	5,033,672
Net investment in rental properties	10,381,577		9,679,875		4,188,871		3,952,155		3,393,038		10,364,760		10,381,577		9,679,875		4,188,871		3,952,155
Real estate under development	242,326		429,096		50,430		66,851		44,280		190,505		242,326		429,096		50,430		66,851
Co-investments	1,036,047		1,042,423		677,133		571,345		383,412		1,161,275		1,036,047		1,042,423		677,133		571,345
Total assets	12,005,091		11,526,732		5,162,320		4,826,356		4,019,519		12,217,408		12,008,384		11,530,299		5,164,171		4,828,821
Total indebtedness	5,315,464		5,080,689		3,009,005		2,797,816		2,343,413		5,563,260		5,318,757		5,084,256		3,010,856		2,800,281
Redeemable noncontrolling interest	45,452		23,256		—		—		—		44,684		45,452		23,256		—		—
Cumulative convertible preferred stock	—		—		4,349		4,349		4,349		—		—		—		4,349		4,349
Cumulative redeemable preferred stock	73,750		73,750		73,750		73,750		73,750		—		73,750		73,750		73,750		73,750
Stockholders' equity	6,237,733		6,022,672		1,884,619		1,764,804		1,437,527		6,192,178		6,237,733		6,022,672		1,884,619		1,764,804


	As of and for the years ended December 31,															As of and for the years ended December 31,
	2015			2014			2013			2012			2011			2016			2015			2014			2013			2012
	($ in thousands, except per share amounts)															($ in thousands, except per share amounts)
OTHER DATA:
Funds from operations (FFO)⁽¹⁾ attributable to common stockholders and unitholders:
Net income available to common stockholders	$	226,865		$	116,859		$	150,811		$	119,812		$	40,368		$	411,124		$	226,865		$	116,859		$	150,811		$	119,812
Adjustments:
Depreciation and amortization	453,423			360,592			193,518			170,686			152,543			441,682			453,423			360,592			193,518			170,686
Gains not included in FFO attributable to common stockholders and unitholders	(81,347		)	(50,064		)	(67,975		)	(60,842		)	(7,543		)	(167,607		)	(81,347		)	(50,064		)	(67,975		)	(60,842		)
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity																4,410			—			—			—			—
Depreciation add back from unconsolidated co-investments	49,826			33,975			15,748			14,467			12,642			50,956			49,826			33,975			15,748			14,467
Noncontrolling interest related to Operating Partnership units	7,824			4,911			8,938			7,950			3,228			14,089			7,824			4,911			8,938			7,950
Insurance reimbursements	(1,751		)	—			—			—			—			—			(1,751		)	—			—			—
Depreciation attributable to third party ownership and other	(781		)	(1,331		)	(1,309		)	(1,223		)	(1,066		)	(9		)	(781		)	(1,331		)	(1,309		)	(1,223		)
Funds from operations attributable to common stockholders and unitholders	$	654,059		$	464,942		$	299,731		$	250,850		$	200,172		$	754,645		$	654,059		$	464,942		$	299,731		$	250,850
Non-core items:
Merger and integration expenses	3,798			53,530			4,284			—			—			—			3,798			53,530			4,284			—
Acquisition and investment related costs	2,414			1,878			1,161			2,255			1,231			1,841			2,414			1,878			1,161			2,255
Gain on sale of marketable securities, note prepayment, and other investments	(598		)	(886		)	(2,519		)	(819		)	(4,956		)	(5,719		)	(598		)	(886		)	(2,519		)	(819		)
Gain on sale of co-investments	—			—			—			—			(919		)
Gain on sale of land	—			(2,533		)	(1,503		)	—			(180		)	—			—			(2,533		)	(1,503		)	—
Interest rate hedge ineffectiveness ⁽²⁾																(250		)	—			—			—			—
Loss on early retirement of debt	6,114			268			300			5,009			1,163			606			6,114			268			300			5,009
Co-investment promote income	(192		)	(10,640		)	—			(2,299		)	—			—			(192		)	(10,640		)	—			(2,299		)
Income from early redemption of preferred equity investments	(1,954		)	(5,250		)	(1,358		)	—			—			—			(1,954		)	(5,250		)	(1,358		)	—
Insurance reimbursements	(2,319		)	—			—			—			—
Other non-core items, net ⁽²⁾	(651		)	1,852			—			—			268
Excess of redemption value of preferred stock over carrying value																2,541			—			—			—			—
Insurance reimbursements, legal settlements, and other, net ⁽³⁾																(4,470		)	(2,970		)	1,852			—			—
Core funds from operations (Core FFO) attributable to common stockholders and unitholders	$	660,671		$	503,161		$	300,096		$	254,996		$	196,779		$	749,194		$	660,671		$	503,161		$	300,096		$	254,996
Weighted average number of shares outstanding, diluted (FFO)⁽³⁾	67,310			58,921			39,501			37,378			34,861
Weighted average number of shares outstanding, diluted (FFO)⁽⁴⁾																67,890			67,310			58,921			39,501			37,378
Funds from operations attributable to common stockholders and unitholders per share - diluted	$	9.72		$	7.89		$	7.59		$	6.71		$	5.74		$	11.12		$	9.72		$	7.89		$	7.59		$	6.71
Core funds from operations attributable to common stockholders and unitholders per share - diluted	$	9.82		$	8.54		$	7.60		$	6.82		$	5.64		$	11.04		$	9.82		$	8.54		$	7.60		$	6.82


⁽⁴⁾	Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership and excludes ~~744,346~~all DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.



	Years ended December 31,
	2016		2015
Southern California	96.4	%	95.9	%
Northern California	96.3	%	96.1	%
Seattle Metro	96.1	%	96.1	%



	Number of Apartment	Years Ended December 31,				Dollar		Percentage
Property Revenues ($ in thousands)	Homes	2016		2015		Change		Change
2016/2015 Same-Properties: ⁽¹⁾
Southern California	20,698	$	497,448	$	468,614	$	28,834	6.2	%
Northern California	13,220	401,642		376,019		25,623		6.8	%
Seattle Metro	10,239	217,259		201,417		15,842		7.9	%
Total 2016/2015 Same-Property revenues	44,157	1,116,349		1,046,050		70,299		6.7	%
2016/2015 Non-Same Property Revenues		169,374		139,448		29,926		21.5	%
Total property revenues		$	1,285,723	$	1,185,498	$	100,225	8.5	%


	Number of	Years Ended December 31,				Dollar		Percentage		Number of Apartment	Years Ended December 31,				Dollar		Percentage
Property Revenues ($ in thousands)	Properties	2015		2014		Change		Change		Homes	2015		2014		Change		Change
2015/2014 Same-Properties: ⁽¹⁾
Southern California	58	$	283,435	$	267,413	$	16,022	6.0	%	12,875	$	283,435	$	267,413	$	16,022	6.0	%
Northern California	37	250,478		226,679		$	23,799	10.5	%	9,080	250,478		226,679		23,799		10.5	%
Seattle Metro	34	124,143		115,219		8,924		7.7	%	6,558	124,143		115,219		8,924		7.7	%
Total 2015/2014 Same-Property revenues	129	658,056		609,311		48,745		8.0	%	28,513	658,056		609,311		48,745		8.0	%
2015/2014 Non-Same Property Revenues		527,442		352,280		175,162		49.7	%		527,442		352,280		175,162		49.7	%
Total property revenues		$	1,185,498	$	961,591	$	223,907	23.3	%		$	1,185,498	$	961,591	$	223,907	23.3	%


⁽¹⁾	Same-property excludes BRE properties acquired April 1, 2014 and properties held for sale.


⁽¹⁾	~~Includes eleven communities acquired after January 1, 2013, three sold communities and one redevelopment community.~~


⁽²⁾	~~Includes 55 stabilized properties acquired in connection with the BRE merger on April 1, 2014, and two development communities in lease-up.~~


	For the year ended December 31,									For the year ended December 31,
	2015			2014			2013			2016			2015			2014
Cash flow provided by (used in):
Operating activities	$	617,410		$	493,312		$	304,982		$	712,523		$	617,410		$	493,312
Investing activities	$	(725,556	)	$	(1,147,156	)	$	(453,696	)	$	(421,412	)	$	(725,556	)	$	(1,147,156	)
Financing activities	$	108,214		$	520,610		$	148,599		$	(255,873	)	$	108,214		$	520,610


	2016		2017 and 2018		2019 and 2020		Thereafter		Total		2017		2018 and 2019		2020 and 2021		Thereafter		Total
Mortgage notes payable	$	29,714	$	519,802	$	1,279,300	$	329,451	$	2,158,267	$	82,796	$	878,529	$	745,452	$	441,313	$	2,148,090
Unsecured debt	350,000		365,000		75,000		2,300,000		3,090,000		340,000		75,000		500,000		2,350,000		3,265,000
Lines of credit	—		—		15,000		—		15,000		—		125,000		—		—		125,000
Interest on indebtedness ⁽¹⁾	221,917		373,819		266,313		223,734		1,085,783		217,709		379,762		243,695		262,494		1,103,660
Ground leases	2,742		5,484		5,484		131,851		145,561		2,897		5,794		5,794		106,111		120,596
Operating leases	1,695		3,557		3,792		12,350		21,394		1,750		3,673		3,915		10,361		19,699
Development commitments (including co-investments) ⁽²⁾	195,218		329,207		17,235		—		541,660		287,827		308,219		107,954		—		704,000
	$	801,286	$	1,596,869	$	1,662,124	$	2,997,386	$	7,057,665	$	932,979	$	1,775,977	$	1,606,810	$	3,170,279	$	7,486,045


⁽¹⁾	Interest on indebtedness for variable debt was calculated using interest rates as of December 31, ~~2015.~~2016.


⁽²⁾	Estimated project cost for development of the Company's 500 Folsom project is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.


				Carrying and			Estimated Carrying Value									Carrying and		Estimated Carrying Value
			Maturity	Estimated			+ 50			- 50					Maturity	Estimated		+ 50		- 50
($ in thousands)	Notional Amount		Date Range	Fair Value			Basis Points			Basis Points			Notional Amount		Date Range	Fair Value		Basis Points		Basis Points
Cash flow hedges:
Interest rate swaps	$	225,000	2016-2017	$	(1,032	)	$	(56	)	$	(2,003	)	$	175,000	2017-2022	$	4,406	$	7,930	$	883
Interest rate caps	20,674		2018-2019	—			—			—			20,674		2018-2019	—		1		—
Total cash flow hedges	$	245,674	2016-2019	$	(1,032	)	$	(56	)	$	(2,003	)	$	195,674	2017-2022	$	4,406	$	7,931	$	883