UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20072013
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file numbernumber: 1-13106 (Essex Property Trust, Inc.)
Commission file number: 333-44467-01 (Essex Portfolio, L.P.)
(Exact name of Registrant as Specified in its Charter)
Maryland (Essex Property Trust, Inc.) California (Essex Portfolio, L.P.) | 77-0369576(Essex Property Trust, Inc.) 77-0369575(Essex Portfolio, L.P.) | |
| (I.R.S. Employer Identification Number) |
925 East Meadow Drive
Palo Alto, California 94303
(Address of Principal Executive Offices including Zip Code)
(650) 494-3700
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
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 |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes [X] No [ ]Act.
Essex Property Trust, Inc. Yes x No o | Essex Portfolio, L.P. Yes o No x |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Essex Property Trust, Inc. Yes o No x | Essex Portfolio, L.P. Yes o No x |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Essex Property Trust, Inc. Yes x No o | Essex Portfolio, L.P. Yes x No o |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Essex Property Trust, Inc. Yes x No o | Essex Portfolio, L.P. Yes x No o |
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ ]
Essex Property Trust, Inc. o | Essex Portfolio, L.P. o |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Essex Property Trust, Inc.:
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
Essex Portfolio, L.P.:
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Essex Property Trust, Inc. Yes o No x | Essex Portfolio, L.P. Yes o No x |
As of June 30, 2013, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $5,855,449,673. The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. Shares of common stock held by executive officers, directors and holders of more than ten percent of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates. This exclusion does not reflect a determination that such persons are affiliates for any other purposes.
As of February 24, 2014, 38,606,706 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be held May 6, 2008
filed within 120 days of December 31, 2013.
This report combines the annual reports on Form 10-K for the year ended December 31, 2013 of Essex Property Trust, Inc and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT ”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership” ). References to the “Company,” “we,” “us” or “our” mean collectively ESS, EPLP and those entities/subsidiaries owned or controlled by ESS and/or EPLP. References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.
ESS is the general partner of, and as of December 31, 2013 owned an approximate 94.6% ownership interest in EPLP. The remaining 5.4% interest is owned by limited partners. As the sole general partner of EPLP, ESS has exclusive control of EPLP's day-to-day management.
The Company is structured as an umbrella partnership REIT (“UPREIT”) and ESS contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, ESS receives a number of OP Units (see definition below) in the Operating Partnership equal to the number of shares of common stock it has issued in the equity offering. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units in the Operating Partnership, which is one of the reasons why the Company is structured in the manner shown above. Based on the terms of EPLP's partnership agreement, OP Units can be exchanged with ESS common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units of the Operating Partnership issued to ESS and shares of common stock.
The Company believes that combining the reports on Form 10-K of ESS and EPLP into this single report provides the following benefits:
| · | enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business; |
| · | eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and |
| · | creates time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
Management operates the Company and the Operating Partnership as one business. The management of ESS consists of the same members as the management of EPLP.
All of the Company's property ownership, development and related business operations are conducted through the Operating Partnership and ESS has no material assets, other than its investment in EPLP. ESS's primary function is acting as the general partner of EPLP. As general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. ESS also issues equity from time to time and guarantees certain debt of EPLP, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.
The Company believes it is important to understand the few differences between ESS and EPLP in the context of how ESS and EPLP operate as a consolidated company. Shareholders' equity, partners' capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's consolidated financial statements and as noncontrolling interests in the Company's consolidated financial statements. The noncontrolling interests in the Operating Partnership's consolidated financial statements include the interests of unaffiliated partners in various consolidated partnerships and development joint venture partners. The noncontrolling interests in the Company's consolidated financial statements include (i) the same noncontrolling interests as presented in the Operating Partnership’s consolidated financial statements and (ii) limited partner OP Unit holders of the Operating Partnership. The differences between stockholders' equity and partners' capital result from differences in the equity issued at the Company and Operating Partnership levels.
iii
To help investors understand the significant differences between the Company and the Operating Partnership, this report provides separate consolidated financial statements for the Company and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of shareholders' equity or partners' capital, earnings per share/unit; as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.
This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
iv
ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
2013 ANNUAL REPORT ON FORM 10-K
| Part I. | Page | |
| Item 1. | 1 | |
| Item 1A. | ||
| Item 1B. | ||
| Item 2. | ||
| Item 3. | ||
| Item 4. | ||
| Part II. | ||
| Item 5. | ||
| Item 6. | ||
| Item 7. | ||
| Item 7A. | ||
| Item 8. | ||
| Item 9. | ||
| Item 9A. | ||
| Item 9B. | ||
| Part III. | ||
| Item 10. | ||
| Item 11. | ||
| Item 12. | ||
| Item 13. | ||
| Item 14. | ||
| Part IV. | ||
| Item 15. | ||
| S-1 |
PART I
Forward Looking Statements
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section, “Forward Looking Statements.” Our actualActual results could differ materially from those set forth in each forward-looking statement. Certain factors that might cause such a difference are discussed in this report, including Item in 1A, Risk Factors of this Form 10-K.
OVERVIEW
Essex Property Trust, Inc. (“Essex” or the “Company”). The Company is a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”) and. The Company owns all of its interest in its real estate investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership” or “EPLP”). The Company is the sole general partner of the Operating Partnership and as of December 31, 20072013 owns a 90.9%94.6% general partnership interest. In this report, the terms “we,” “us” and “our”“Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating Partnership’s subsidiaries.Partnership.
The Company has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994 as the Company completed an initial public offering on June 13, 1994. In order to maintain compliance with REIT tax rules, the Operating PartnershipCompany utilizes taxable REIT subsidiaries for various revenue generating or investment activities. Each of theAll taxable REIT subsidiary entitiessubsidiaries are consolidated by the Operating Partnership.Company.
The Operating Partnership’s and the Company’s website address is http://www.essexpropertytrust.com.www.essexpropertytrust.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are available, free of charge, on ourits website as soon as practicable after we filethe Company files the reports with the U.S. Securities and Exchange Commission (“SEC”).
BUSINESS OBJECTIVES AND STRATEGIES
The following is a discussion of ourthe Company’s business objectives and strategies in regards to real estate investment and management. One or more of these criteria may be amended or rescinded from time to time without stockholder vote.
Business Strategies
Research Driven Approach to Investments – We believeThe Company believes that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge. Utilizing a proprietary research model that we have developed over the last two decades, weThe Company continually assessassesses markets where we currently operate,the Company operates, as well as markets where we considerthe Company considers future investment opportunities by evaluating:evaluating the following:
| Focus on markets in major metropolitan areas that have regional population |
| · | Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways; |
| · | Rental demand is enhanced by affordability of rents |
| · | Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life |
Recognizing that all real estate markets are cyclical, wethe Company regularly evaluateevaluates the results of ourits regional economic, as well as, ourand local market research, and adjustadjusts the geographic focus of ourits portfolio accordingly. We seekThe Company seeks to increase our portfolioits Portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets projected to have declining economic conditions. Likewise, the Operating PartnershipCompany also seeks to increase its portfolioPortfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.
Property Operations – We manage our PropertiesThe Company manages its communities by focusing on strategiesactivities that willmay generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation. We intendThe Company intends to achieve this by utilizing the strategies set forth below:
· | Property Management – |
· | Capital Preservation – |
· | Business Planning and Control – Comprehensive business plans are implemented in conjunction with every investment decision. These plans include benchmarks for future financial performance, based on collaborative discussions between on-site managers and senior management. |
· | Development and Redevelopment |
CURRENT BUSINESS ACTIVITIES
Summary of Proposed Merger with BRE Properties, Inc.
The board of directors of Essex Property Trust, Inc. and the board of directors of BRE Properties, Inc. have each unanimously approved an Agreement and Plan of Merger, dated as of December 19, 2013, as it may be amended from time to time, which we refer to as the merger agreement, by and among Essex, Bronco Acquisition Sub, Inc., a direct wholly owned subsidiary of Essex, which we refer to as Merger Sub, and BRE. On February 5, 2014, Bronco Acquisition Sub, Inc. changed its name to BEX Portfolio, Inc. Pursuant to the merger agreement, Essex and BRE will combine through a merger of BRE with and into Merger Sub, with Merger Sub surviving the merger. The combined company, which we refer to as the Combined Company, will retain the name “Essex Property Trust, Inc.” and will continue to trade on the New York Stock Exchange, or NYSE, under the symbol “ESS.” The executive officers of Essex immediately prior to the effective time of the merger will continue to serve as the executive officers of the Combined Company, with Michael J. Schall continuing to serve as the President and Chief Executive Officer of the Combined Company. The obligations of Essex and BRE to effect the merger are subject to the satisfaction or waiver of certain customary conditions set forth in the merger agreement (including the applicable approvals of each company’s stockholders).
If the merger is completed pursuant to the merger agreement, each share of BRE common stock outstanding immediately prior to the effective time of the merger will convert into the right to receive (i) 0.2971 shares of Essex common stock and (ii) $12.33 in cash, without interest, which we collectively refer to as the merger consideration, each subject to certain adjustments provided for in the merger agreement and subject to any applicable withholding tax. As explained in more detail in the joint proxy statement/prospectus filed with a registration statement on Form S-4 filed with the SEC on January 29, 2014, by Essex (as the same may thereafter be amended), the cash amount of the merger consideration will be reduced to the extent a special distribution is authorized and declared to be paid to BRE stockholders of record as of the close of business on the business day immediately prior to the effective time of the merger as a result of any applicable asset sale (as described in the joint proxy statement/prospectus). Essex stockholders will continue to hold their existing shares of Essex common stock. The exchange ratio and cash amount will not be adjusted to reflect changes in the price of Essex common stock or the price of BRE common stock occurring prior to the completion of the merger. Based on the closing price of Essex common stock on the NYSE of $147.70 on December 18, 2013, the last trading date before the announcement of the proposed merger, the merger consideration (based on the value of $43.88 in Essex common stock plus the $12.33 in cash per share) represented approximately $56.21 for each share of BRE common stock. The value of the merger consideration will fluctuate with changes in the market price of Essex common stock. The cash portion of the merger consideration will be reduced by the amount of any special distribution in connection with or as a result of any applicable asset sale.
Upon completion of the merger, we estimate that continuing Essex stockholders will own approximately 62% of the issued and outstanding common stock of the Combined Company, and former BRE stockholders will own approximately 38% of the issued and outstanding common stock of the Combined Company.
In connection with the proposed merger, Essex and BRE will each hold a special meeting of their respective stockholders. At the Essex special meeting, Essex stockholders will be asked to vote on (i) a proposal to approve the issuance of Essex common stock to BRE stockholders in the merger and (ii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of Essex common stock to BRE stockholders in the merger. At the BRE special meeting, BRE stockholders will be asked to vote on (i) a proposal to approve the merger and the other transactions contemplated by the merger agreement, (ii) an advisory (non-binding) proposal to approve certain compensation that may be paid or become payable to the named executive officers of BRE in connection with the merger, and (iii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement.
The merger agreement may also be terminated prior to the effective time of the merger by either BRE or Essex under certain conditions, including if the merger has not been consummated on or before June 17, 2014.
Acquisitions have been a significant growthof Real Estate
Acquisitions are an important component of our business. During 2007, we completedthe Company’s business plan, and during 2013, the Company and its co-investments acquired ownership interests in eight communities comprising of 1,472 units for $462.5 million. The following is a seriessummary of 2013 acquisitions that added to our overall Portfolio.($ in millions):
| Essex Ownership | Purchase | |||||||||||||||||
| Property Name | Location | Units | Percentage | Ownership | Date | Price | ||||||||||||
| Fox Plaza Apartments | San Francisco, CA | 444 | 100 | % | EPLP | Q1 2013 | $ | 135.0 | ||||||||||
Bennett Lofts (formerly Q Lofts) (1) | San Francisco, CA | 34 | 100 | % | EPLP | Q1 2013 | 22.2 | |||||||||||
| Annaliese | Seattle, WA | 56 | 100 | % | EPLP | Q1 2013 | 19.0 | |||||||||||
| Gas Company Lofts | Los Angeles, CA | 251 | 50 | % | Wesco III | Q2 2013 | 71.0 | |||||||||||
| Regency at Mountain View | Mountain View, CA | 142 | 50 | % | Wesco III | Q2 2013 | 42.5 | |||||||||||
| Slater 116 | Kirkland, WA | 108 | 100 | % | EPLP | Q3 2013 | 29.6 | |||||||||||
| Domain | San Diego, CA | 379 | 100 | % | EPLP | Q4 2013 | 121.0 | |||||||||||
| Vox | Seattle, WA | 58 | 100 | % | EPLP | Q4 2013 | 22.2 | |||||||||||
| Total 2013 | 1,472 | $ | 462.5 | |||||||||||||||
| The 147 unit apartment community was acquired in two phases for $96.0 million. Approximately 75% was acquired in December 2012 with the |
Dispositions of Real Estate
As part of ourits strategic plan to own quality real estate in supply-constrained markets, wethe Company continually evaluate our Propertiesevaluates all the communities and sellsells those which no longer meet ourits strategic criteria. WeThe Company may use the capital generated from the dispositions to invest in higher-return Properties, repurchase our common stock,communities or other real estate investments, or repay debts. We believeThe Company believes that the sale of these Propertiescommunities will not have a material impact on ourits future results of operations or cash flows nor will their sale materially affect ourits ongoing operations. Generally, the Company seeks to have any impact of earnings dilution resulting from these dispositions will be offset by the positive impact of ourits acquisitions, development and redevelopment activities.
Also in 2013, the Company sold a land parcel held for future development located in Palo Alto, California for $9.1 million, resulting in a gain of $1.5 million.
Development Pipeline
The Company defines development projects as new communities that are in various stages of active development, or are in the process of leasing activities prior to stabilization. As of December 31, 2013, the Company had threetwo consolidated development projects and nine joint venture development projects comprised of 6842,501 units for an estimated cost of $236.7 million,$1.1 billion, of which $125.8$407.0 million remains to be expended.
The Operating PartnershipCompany defines the predevelopment pipelineprojects as new propertiesproposed communities in negotiation or in the entitlement process with aan expected high likelihood of becoming entitled development activities.projects. As of December 31, 2007,2013, the Operating PartnershipCompany had five development communities aggregating 1,658 units that were classified asone consolidated predevelopment projects.project comprised of 200 units. The estimated total cost of the predevelopment pipeline at December 31, 2007 was $508.4 million, of which $411.3 million remains to be expended. The Operating PartnershipCompany may also acquire land for future development purposes. The Operating Partnership owned five land parcels held for future development aggregating 434 units as of December 31, 2007. The Operating Partnership had incurred $25.5 million in costs related to these five land parcels as of December 31, 2007.purposes or sale.
The following table sets forth information regarding the Operating Partnership’s consolidatedCompany’s development pipeline:
| Essex | As of 12/31/13 ($ in millions) | ||||||||||||||||
| Ownership | Incurred | Estimated | |||||||||||||||
| Development Pipeline | Location | % | Units | Project Cost | Project Cost(1) | ||||||||||||
Development Projects - Consolidated | |||||||||||||||||
| The Emme (formerly 64th & Christie) | Emeryville, CA | 100 | % | 190 | $ | 34.1 | $ | 61.6 | |||||||||
The Avery (2) | Los Angeles, CA | 100 | % | 121 | 2.5 | 37.6 | |||||||||||
| Total - Consolidated Development Projects | 311 | 36.6 | 99.2 | ||||||||||||||
Development Projects - Joint Venture | |||||||||||||||||
| Epic - Phase II | San Jose, CA | 55 | % | 289 | 87.1 | 97.3 | |||||||||||
| Epic - Phase III | San Jose, CA | 55 | % | 200 | 28.0 | 96.3 | |||||||||||
| Connolly Station | Dublin, CA | 55 | % | 309 | 88.6 | 94.5 | |||||||||||
| The Huxley | West Hollywood, CA | 50 | % | 187 | 71.8 | 75.0 | |||||||||||
| The Dylan | West Hollywood, CA | 50 | % | 184 | 64.6 | 75.4 | |||||||||||
| Mosso I and Mosso II | San Francisco, CA | 55 | % | 463 | 191.2 | 250.0 | |||||||||||
| Park 20 (formerly Elkhorn) | San Mateo, CA | 55 | % | 197 | 47.8 | 76.1 | |||||||||||
| One South Market | San Jose, CA | 55 | % | 312 | 30.9 | 145.1 | |||||||||||
| The Village | Walnut Creek, CA | 50 | % | 49 | 36.3 | 81.0 | |||||||||||
| Total - Joint Venture Development Projects | 2,190 | 646.3 | 990.7 | ||||||||||||||
| Predevelopment Projects - Consolidated | |||||||||||||||||
| City Centre | Moorpark, CA | 100 | % | 200 | 11.6 | 11.6 | |||||||||||
| Other Projects | various | 100 | % | - | 2.2 | 2.2 | |||||||||||
| Total - Predevelopment Projects | 200 | 13.8 | 13.8 | ||||||||||||||
| Grand Total - Development and Predevelopment Pipeline | 2,701 | $ | 696.7 | $ | 1,103.7 | ||||||||||||
| As of 12/31/07 ($ in millions) | ||||||||||||
| Estimated | Incurred | Projected | ||||||||||
| Development Pipeline | Location | Units | Project Cost(1) | Project Cost | Stabilization | |||||||
| Development Projects | ||||||||||||
| Belmont Station | Los Angeles, CA | 275 | $ | 71.1 | $ | 55.5 | Dec-08 | |||||
| The Grand | Oakland, CA | 238 | 96.2 | 42.0 | May-09 | |||||||
| Fourth Street | Berkeley, CA | 171 | 69.4 | 13.4 | Aug-10 | |||||||
| 684 | 236.7 | 110.9 | ||||||||||
| Predevelopment projects | various | 1,658 | 508.4 | 97.1 | Nov-10 to Jul-14 | |||||||
| Land held for future development | various | 434 | 25.5 | 25.5 | - | |||||||
| Consolidated Development Pipeline | 2,776 | $ | 770.6 | $ | 233.5 | |||||||
| (1) | Includes incurred costs and estimated costs to complete these development projects. |
| (2) | The Company invested $1.0 million and has incurred $1.5 million of additional internal costs as part of an agreement to purchase the property upon receipt of certificate of occupancy for total estimated cost of $37.6 million, which is expected in the first quarter of 2014. |
In April 2013, the Company stabilized Expo, a 275 unit community in Seattle, Washington with total costs and estimated costs to complete these development projects.of approximately $66.9 million. The Company has a 50% interest in this joint venture.
Redevelopment Pipeline
The Operating PartnershipCompany defines redevelopment communitiespipeline as existing properties owned or recently acquired, which have been targeted for additional investment by the Operating PartnershipCompany with the expectation of increased financial returns through property improvement. During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2007,2013, the Operating PartnershipCompany had ownership interests in thirteen majorfive redevelopment communities aggregating 3,8911,312 apartment units with estimated redevelopment costs of $135.6$124.7 million, of which approximately $74.6$86.1 million remains to be expended. These amounts exclude redevelopment projects owned by Fund II. The following table illustrates these consolidated redevelopment projects:
4
| As of 12/31/07 ($ in thousands) | ||||||||||
| Estimated | Incurred | |||||||||
| Redevelopment Pipeline | Location | Units | Renovation Cost(1) | Project Cost | ||||||
| Southern California | ||||||||||
| Avondale at Warner Center | Woodland Hills, CA | 446 | $ | 14,070 | $ | 11,188 | ||||
| Highridge | Rancho Palos Verde, CA | 255 | 16,063 | 1,976 | ||||||
| Mira Monte | Mira Mesa, CA | 355 | 6,060 | 5,900 | ||||||
| Pathways | Long Beach, CA | 296 | 10,721 | 5,788 | ||||||
| Northern California | ||||||||||
| Boulevard (Treetops) | Fremont, CA | 172 | 8,387 | 5,757 | ||||||
| Bridgeport (Summerhill Commons) | Newark, CA | 184 | 4,586 | 3,869 | ||||||
| Marina Cove | Santa Clara, CA | 292 | 9,858 | 805 | ||||||
| Montclaire (Oak Pointe) - Phase I-III | Sunnyvale, CA | 390 | 15,106 | 5,688 | ||||||
| Wimbledon Woods | Hayward, CA | 560 | 9,350 | 7,195 | ||||||
| Seattle Metro | ||||||||||
| Palisades - Phase I and II | Bellevue, WA | 192 | 6,951 | 6,461 | ||||||
Sammamish View(2) | Bellevue, WA | 153 | 3,875 | 3,875 | ||||||
| Woodland Commons | Bellevue, WA | 236 | 11,779 | 1,240 | ||||||
| Foothill Commons | Bellevue, WA | 360 | 18,804 | 1,298 | ||||||
| Total Redevelopment Pipeline | 3,891 | $ | 135,610 | $ | 61,040 | |||||
Contents
Long Term Debt Transactions
In April 2013, the Company issued $300.0 million of The Cairns community in the amount of $12.0 million,senior unsecured notes due on May 1, 2023 with a fixed interestcoupon rate of 5.5%, which matures in3.25% per annum and is payable on May 2014. Finally,1st and November 1st of each year, beginning November 1, 2013 (the 2023 Notes). The 2023 Notes were offered to investors at a price of 99.152% of par value. The 2023 Notes are general unsecured senior obligations of the Operating Partnership, refinanced $18.6 millionrank equally in right of debt secured by the Highridge communitypayment with a $44.8 million fixed interest rate loanall other senior unsecured indebtedness of 6.05%, which matures in June 2017.
As of December 31, 20072013, Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa2/Stable, and BBB/Stable, respectively.
In December 2013, in connection with the Operating Partnership had entered into nine forward-startingBRE merger, the Company obtained committed financing up to $1.0 billion (the “bridge loan”) which is available if needed to fund the cash portion of the purchase price. The bridge loan facility is structured as a 364-day unsecured loan facility available in a single draw on the closing date of the merger. The company is exploring several alternatives to fund the cash needs of the transaction including asset sales, joint ventures or new financing.
In January 2014, the Company increased the capacity of the unsecured line of credit facility from $600.0 million to $1.0 billion and included an accordion feature pursuant to which the Company could expand to $1.5 billion. This facility matures in December 2017 with one 18-month extension option. The new facility carries an interest rate swaps totalingbased on its current credit ratings of LIBOR plus 0.95%.
In January 2014, the Company extended the $25.0 million working capital unsecured line of credit for two additional years and reduced the pricing which carries an interest rate based on a notional amounttiered rate structure tied to Fitch and S&P ratings on the credit facility of $450LIBOR plus 0.95%.
In January 2014, the Company reduced the pricing on its $350.0 million with interest rates ranging from 4.9%unsecured term loan by 15 basis points to 5.9% and settlements dates ranging from April 2008 to October 2011. These derivatives qualify for hedge accounting as they are expected to economically hedge the cash flows associated with the refinancing of debt that matures between April 2008 and October 2011. The fair value of the derivatives decreased $8.0 million during the year ended December 31, 2007 to a liability value of $10.2 million as of December 31, 2007, and the derivative liability was recorded in other liabilities in the Operating Partnership’s consolidated financial statements. The changes in the fair values of the derivatives are reflected in accumulated other comprehensive (loss) income in the Operating Partnership’s consolidated financial statements. No hedge ineffectiveness on cash flow hedges was recognized during the year ended December 31, 2007 and 2006.LIBOR plus 1.05%.
Equity Transactions
During the second quarter of 2007, the Company2013, ESS issued and sold 1,670,500913,344 shares of its common stock for $213.7 million at an average stockshare price of $127.91 per share, net$152.92 for proceeds of underwriter fees and expenses.
WESCO
In 2011, the Company entered into a 50/50 programmatic joint venture, Wesco I LLC (“Wesco I”), with an institutional partner for a total equity commitment of $300.0 million. Each partner’s equity commitment was $150.0 million, and Wesco I will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate. The Company has repurchased 460,759 shares for $45.8 million at an average stock price of $99.30 per share since the stock repurchase plan was approved in August.
During 2012, the Company entered into a 50/50 programmatic joint venture, Wesco III LLC (“Wesco III”), with an institutional partner for a total equity commitment from the parties of $120.0 million. Each partner’s equity commitment is $60.0 million, and Redevelopment Pipeline
| As of 12/31/07 ($ in millions) | ||||||||||||
| Estimated | Incurred | Projected | ||||||||||
| Development Pipeline - Fund II | Location | Units | Project Cost(1) | Project Cost | Stabilization | |||||||
| Development Projects | ||||||||||||
| Eastlake 2851 on Lake Union | Seattle, WA | 127 | $ | 35.4 | $ | 24.7 | Jul-08 | |||||
| Studio 40-41 | Studio City, CA | 149 | 60.6 | 30.7 | Aug-09 | |||||||
| Cielo | Chatsworth, CA | 119 | 39.4 | 12.3 | Sep-09 | |||||||
| Fund II - Development Pipeline | 395 | $ | 135.4 | $ | 67.7 | |||||||
| Redevelopment Pipeline - Fund II | ||||||||||||
| Redevelopment Projects | ||||||||||||
| Regency Tower - Phase I - II | Oakland, CA | 178 | $ | 4.5 | $ | 3.7 | ||||||
| The Renaissance | Los Angeles, CA | 168 | 5.0 | 3.6 | ||||||||
| Fund II - Redevelopment Pipeline | 346 | $ | 9.5 | $ | 7.3 | |||||||
OFFICES AND EMPLOYEES
The Operating PartnershipCompany is headquartered in Palo Alto, California, and has regional offices in Woodland Hills, California; Irvine, California; San Diego, California and Bellevue, Washington. As of December 31, 2007,2013, the Operating PartnershipCompany had approximately 9171,173 employees.
INSURANCE
The Operating PartnershipCompany carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Properties with a $5.0 million deductible per incident.communities. There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism or earthquake,earthquakes, for which the Operating PartnershipCompany does not have insurance coverage.
Substantially all of the Propertiescommunities are located in areas that are subject to earthquake activity. The Operating PartnershipCompany has established a wholly owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”). Through PWI, the Company is self-insured as it relates to earthquake related losses. Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident. As of December 31, 2013, PWI has cash and marketable securities of approximately $40 million. These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in which it holds an ownership interest in.
The Company believes it has a proactive approach to its potential earthquake losses. The Operating PartnershipCompany utilizes third-party seismic consultants for its acquisitions and performsmay perform seismic upgrades to those acquisitions that are determined to have a higher level of potential loss from an earthquake. The Operating PartnershipCompany utilizes internal and third-party loss models to help to determine its exposure. The majority of the Operating Partnership’s Propertiescommunities are lower density garden-style apartments which may be less susceptible to material earthquake damage. The Operating PartnershipCompany will continue to monitor third-party earthquake insurance pricing and conditions and may consider obtaining third-party coverage if it deems it cost effective.effective.
Although the Operating PartnershipCompany may carry insurance for potential losses associated with its Properties,communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material.
COMPETITION
There are numerous housing alternatives that compete with our apartmentthe Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes that are available for rent in the markets in which the properties are located. The Properties also compete for residents with new and existing homes and condominiums that are for sale.homes. If the demand for our Propertiesthe Company’s communities is reduced or if competitors develop and/or acquire competing properties on a more cost-effective basis,housing, rental rates and occupancy may drop which may have a material adverse affecteffect on ourthe Company’s financial condition and results of operations.
WORKING CAPITAL
The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect ourthe Company’s plans for acquisitions, dispositions, development and redevelopment activities.
ENVIRONMENTAL CONSIDERATIONS
See the discussion under the caption, “Possible“The Company’s Portfolio may have environmental liabilities”liabilities” in Item 1A, Risk Factors, for information concerning the potential effect of environmental regulations on our operations.its operations, which discussion under the caption “The Company’s Portfolio may have environmental liabilities” is incorporated by reference into this Item 1.
OTHER MATTERS
Certain Policies of the Operating PartnershipCompany
interests in partnerships and joint ventures, either directly or indirectly through subsidiaries of the Operating Partnership,Company, when such entities’ underlying assets are real estate. In general, the Operating Partnership does not (i) underwrite securities of other issuers or (ii) actively trade in loans or other investments.
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, our properties and our business.
Our business, operating results, cash flows and financial conditionscondition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause the our actual results to vary materially from recent results or from our anticipated future results.
Risk Factors Relating to the Proposed Merger with BRE
The exchange ratio and the cash consideration will not be adjusted in the event of any change in the stock prices of either Essex or BREWe depend. Upon the consummation of the merger, each outstanding share of BRE common stock will be converted automatically into the right to receive 0.2971 shares of Essex common stock, with cash paid in lieu of any fractional shares, plus $12.33 in cash, without interest, each subject to certain adjustments provided for in the merger agreement. The exchange ratio of 0.2971 and cash consideration will not be adjusted for changes in the market prices of either shares of Essex common stock or shares of BRE common stock. Changes in the market price of shares of Essex common stock prior to the merger will affect the market value of the merger consideration that will be paid to BRE shareholders upon completion of the merger. Stock price changes may result from a variety of factors (many of which are beyond the control of Essex and BRE), including the following factors:
| — | market reaction to the announcement of the merger; |
| — | changes in the respective businesses, operations, assets, liabilities and prospects of Essex and BRE; |
| — | changes in market assessments of the business, operations, financial position and prospects of either company or the Combined Company; |
| — | market assessments of the likelihood that the merger will be completed; |
| — | interest rates, general market and economic conditions and other factors generally affecting the market prices of Essex common stock and BRE common stock; |
| — | federal, state and local legislation, governmental regulation and legal developments in the businesses in which Essex and BRE operate; and |
| — | other factors beyond the control of Essex and BRE. |
The market price of shares of Essex common stock at the closing of the merger may vary from its price on ourthe date the merger agreement was executed and thereafter. As a result, the market value of the merger consideration represented by the exchange ratio will also vary.
Therefore, while the number of shares of Essex common stock to be issued per share of BRE common stock is fixed, Essex stockholders cannot be sure of the market value of the merger consideration that will be paid to BRE stockholders upon completion of the merger.
Essex stockholders and unitholders of the Operating Partnership will be diluted by the merger. The merger will dilute the ownership position of Essex stockholders and unitholders of the Operating Partnership. Upon completion of the merger, we estimate that continuing Essex stockholders will own approximately 62% of the issued and outstanding shares of Combined Company common stock, and former BRE stockholders will own approximately 38% of the issued and outstanding common stock of the Combined Company. Consequently, Essex stockholders and unitholders of the Operating Partnership, as a general matter, will have less influence over the management and policies of the Combined Company after the effective time of the merger than they currently exercise over the management and policies of Essex.
Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Essex. If the merger is not completed, the ongoing business of Essex could be adversely affected and Essex will be subject to a variety of risks associated with the failure to complete the merger, including the following:
| — | Essex being required, under certain circumstances, to pay to BRE up to $10 million in expense reimbursement; |
| — | Essex having to pay certain costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and |
| — | diversion of Essex management focus and resources from operational matters and other strategic opportunities while working to implement the merger. |
If the merger is not completed, these risks could materially affect the business, financial results and stock prices of Essex.
The pendency of the merger could adversely affect the business and operations of Essex. Prior to the effective time of the merger, some tenants or vendors of Essex may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of Essex, regardless of whether the merger is completed. Similarly, current and prospective employees of Essex may experience uncertainty about their future roles with the Combined Company following the merger, which may materially adversely affect the ability of Essex to attract and retain key personnel during the pendency of the merger. In addition, due to operating restrictions in the merger agreement, Essex may be unable, during the pendency of the merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
There can be no assurance that Essex will be able to secure the financing necessary to pay the cash portion of the merger consideration on acceptable terms, in a timely manner, or at all. - OurIn connection with the merger, Essex has obtained commitments for up to $1.0 billion in a senior unsecured bridge loan facility to finance the cash portion of the merger consideration. In addition, Essex is exploring additional alternatives to fund the cash portion of the merger consideration including through existing unsecured credit facilities, asset sales, joint ventures or other financing arrangements. However, Essex has not entered into a definitive agreement for the debt financing, nor has it secured alternative financing, nor has it entered into a definitive agreement for the potential asset sales (the “Asset Sale”) in connection with the merger. There can be no assurance that Essex will be able to secure financing to pay the cash portion of the merger consideration on acceptable terms, in a timely manner, or at all. If Essex is unable to secure such financing, Essex will nonetheless be required to close the merger under the terms of the merger agreement. In addition, the bridge loan facility expires on April 18, 2014 (with a right to extend up to an additional 30 days in certain circumstances) whereas the merger agreement may not be terminable until June 17, 2014.
Risk Factors Relating to the Combined Company Following the Merger
If the proposed merger closes, we will face various additional risks. If the proposed merger closes, the Combined Company (the combination of Essex and BRE pursuant to the merger) will face various additional risks, including, among others, the following:
| — | the Combined Company expects to incur substantial expenses related to the merger; |
| — | following the merger, the Combined Company may be unable to integrate the businesses of Essex and BRE successfully and realize the anticipated synergies and other benefits of the merger or do so within the anticipated timeframe; |
| — | following the merger, the Combined Company may be unable to retain key employees; |
| — | the Combined Company’s anticipated level of indebtedness will increase upon completion of the merger and will increase the related risks Essex now faces; |
| — | the future results of the Combined Company will suffer if the Combined Company does not effectively manage its expanded operations following the merger; |
| — | counterparties to certain significant agreements with Essex or BRE may exercise contractual rights under such agreements in connection with the merger; and |
| — | the Combined Company’s joint ventures, including any joint venture entered into in connection with the asset sale (as described in the joint proxy statement/prospectus), assuming the asset sale occurs, could be adversely affected by the Combined Company’s lack of sole decision-making authority, its reliance on its joint venture partner’s financial condition and disputes between the Combined Company and its joint venture partner. |
Any of these risks could adversely affect the business and financial results of the Combined Company.
If the proposed merger closes, there will be additional risks relating to an investment in our common stock. The results of operations of the Combined Company, as well as the market price of the common stock of the Combined Company, after the merger may be affected by other factors in addition to those currently affecting Essex’s results of operations and the market prices of Essex common stock. Such factors include:
| — | there will be a greater number of shares of the Combined Company common stock outstanding as compared to the number of currently outstanding shares of Essex common stock; |
| — | there will be different stockholders; |
| — | there will be different assets and capitalizations; |
| — | the market price of the Combined Company’s common stock may decline as a result of the merger; |
| — | the Combined Company cannot assure you that it will be able to continue paying dividends at or above the rate currently paid by Essex; |
| — | the Combined Company may need to incur additional indebtedness in the future; |
| — | the Combined Company may incur adverse tax consequences if Essex or BRE has failed or fails to qualify as a REIT for U.S. federal income tax purposes; and |
| — | in certain circumstances, even if the Combined Company qualifies as a REIT, it and its subsidiaries may be subject to certain U.S. federal, state, and other taxes, which would reduce the Combined Company’s cash available for distribution to its stockholders. |
Any of these factors could adversely affect Essex's common stock price and financial results. Accordingly, the historical market prices and financial results of Essex may not be indicative of these matters for the Combined Company after the merger.
The risks set forth in the foregoing risk factors titled "If the proposed merger closes, we will face various additional risks" and "If the proposed merger closes, there will be additional risks relating to an investment in our common stock", and additional risks associated with the merger, are described in more detail under the heading “Risk Factors” in the joint proxy statement/prospectus contained in our Registration Statement on Form S-4, which was filed with the SEC on January 29, 2014. Neither the Form S-4 nor the joint proxy statement/prospectus contained therein is incorporated by reference or constitutes a part of this Annual Report on Form 10-K.
In connection with the announcement of the merger agreement, three lawsuits have been filed and are pending as of February 10, 2014, seeking, among other things, to enjoin the merger, and an injunction or other adverse ruling being entered in this lawsuit may prevent the merger from being effective or from becoming effective within the expected timeframe (if at all).
Since the announcement of the merger agreement on December 19, 2013, three putative class action and shareholder derivative actions have been filed on behalf of alleged BRE stockholders and/or BRE itself in the Circuit Court for Baltimore City, Maryland, under the following captions: Sutton v. BRE Properties, Inc., et al., No. 24-C-13-008425, filed December 23, 2013; Applegate v. BRE Properties, Inc., et al., No. 24-C-14-00002, filed December 30, 2013; and Lee v. BRE Properties, Inc., et al., No. 24-C-14-00046, filed January 3, 2014.
All of these complaints name as defendants BRE, the BRE Board, Essex, and Merger Sub, and allege that the BRE Board breached its fiduciary duties to BRE’s stockholders and/or to BRE itself, and that the merger involves an unfair price, an inadequate sales process, and unreasonable deal protection devices that purportedly preclude competing offers. The complaints further allege that Essex, Merger Sub, and, in some cases, BRE aided and abetted those alleged breaches of duty. The complaints seek injunctive relief, including enjoining or rescinding the merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief.
On February 7, 2014, Plaintiffs filed identical, amended complaints in the three pending actions. The amended complaints add allegations that disclosures regarding the proposed merger in the joint proxy statement/prospectus filed with the SEC on January 29, 2014 are inadequate.
We cannot assure you as to the outcome of these, or any similar future lawsuits, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. If the plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the merger on the agreed-upon terms, such an injunction may prevent the completion of the merger in the expected time frame, or may prevent it from being completed altogether. Whether or not the plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operation of the businesses of BRE and Essex.
Risks Relating to Essex Property Trust, Inc. Regardless of Whether
the Proposed Merger with BRE is Consummated
The Company depends on its key personnel. The Company’s success depends on ourits 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 severalany of ourthe Company’s key personnel could have an adverse effect on us.the Company.
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. The Company’s strong balance sheet, the debt capacity available on the unsecured line of credit with a bank group and access to the public debt and private placement markets and Fannie Mae and Freddie Mac secured debt financing provides some insulation from volatile markets. The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future. 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) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely impacted. For the past two years the Company has primarily issued unsecured debt and repaid secured debt when it has matured to place less reliance on mortgage debt financing.
Debt financing has inherent risks –. At December 31, 2007, we2013, the Company had approximately $1.66$3.0 billion of indebtedness (including $233.1$737.0 million of variable rate indebtedness, of which $152.7$300.0 million is subject to interest rate swaps effectively fixing the interest rate and $156.9 million is subject to interest rate protection agreements). We areThe Company is subject to the risks normally associated with debt financing, including the following:
| — | cash flow may not be sufficient to meet required payments of principal and interest; |
| — | inability to refinance maturing indebtedness on encumbered |
| inability to comply with debt covenants could cause an acceleration of the maturity date; and |
| — | repaying debt before the scheduled maturity date could result in prepayment penalties. |
Debt financing on Propertiesof communities may result in insufficient cash flow to service debt. - Where possible, we intendappropriate, the Company intends to continue to use leverage to increase the rate of return on ourthe Company’s investments and to provide for additional investments that wethe Company could not otherwise make. There is a risk that the cash flow from the Propertiescommunities 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. WeCode of 1986, as amended. The Company may obtain additional debt financing in the future through mortgages on some or all of the Properties.communities. These mortgages may be recourse, non-recourse, or cross-collateralized.
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, 2007,2013, the Operating PartnershipCompany had 7449 of its 123139 consolidated apartment communities
encumbered by debt. OfWith respect to the 7449 communities 51encumbered by debt, all of them are secured by deeds of trust relating solely to those properties. With respect to the remaining 23 communities, there are 5 cross-collateralized mortgages secured by 8 communities, 7 communities, 3 communities, 3 communities, and 2 communities, respectively.communities. The holders of this indebtedness will have claims againstrights with respect to these communities and to the extent indebtedness is cross-collateralized, lenders may seek to foreclose uponforeclosure of communities which are not the primary collateral for their loan. This may accelerate other indebtedness secured by communities. Foreclosure of communities would reduce ourthe Company’s income and net asset value.value, and its ability to service other debt.
Bond compliance requirements may limit income from certain propertiescommunities -. At December 31, 2007, we2013, the Company had approximately $220.9$167.6 million of variable rate tax-exempt financing relating to the following apartment communities: Inglenook Court, Wandering Creek, Boulevard (Treetops), Huntington Breakers, Camarillo Oaks, Fountain Park, Anchor Village and Hidden Valley (Parker Ranch).financing. This tax-exempt financing subjects these properties toprovides for certain deed restrictions and restrictive covenants. We expectThe Company expects to engage in tax-exempt financings in the future. In addition, theThe Internal Revenue Code and rules and regulations thereunder impose various restrictions, conditions and requirements excludingin order to allow the note holder to exclude interest on qualified bond obligations from gross income for federal income tax purposes. The Internal Revenue 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 income for the applicable family size as determined by the Housing and Urban Development Department of the federal government. In addition to federal requirements, certainCertain state and local authorities may impose additional rental restrictions. These restrictions may limit income from the tax-exempt financed propertiescommunities if we arethe Company is required to lower rental rates to attract residents who satisfy the median income test. If the Operating PartnershipCompany 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 wethe Company may be subject to additional contractual liability.
| — | the general economic climate; |
| — | local economic conditions in which the |
| — | the attractiveness of the |
| — | competition from other available |
| — | the |
As leases onat the Propertiescommunities expire, tenants may enter into new leases on terms that are less favorable to us.the Company. Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws), interest rate levels and the availability and terms of financing.. Real estate investments are relatively illiquid and, therefore, ourthe Company’s ability to vary ourits portfolio promptly in response to changes in economic or other conditions may be quite limited.
12
| — | funds may be expended and |
| — | 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, |
| — | occupancy rates and rents at a completed project may be less than anticipated; and |
| — | expenses at completed development projects may be higher than anticipated. |
These risks may reduce the funds available for distribution to the Company’s stockholders. Further, the development and redevelopment of propertiescommunities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see “Adverse Effect to Property Incomethe risk factor “General real estate investment risks may adversely affect property income and Value Due to General Real Estate Investment Risks.values.”
The geographic concentration of the Operating Partnership’s PropertiesCompany’s communities and fluctuations in local markets may adversely impact ourthe Company’s financial condition and operating results –. The Operating PartnershipCompany generated significant amounts of rental revenues for the year ended December 31, 2007,2013, from propertiesthe 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. As ofFor the year ended December 31, 2007, 81%2013, 82% of the Operating Partnership’s propertyCompany’s rental revenues were generated from Propertiescommunities located in California. This geographic concentration could present risks if local property market performance falls below expectations. The economic condition of these markets could affect occupancy, market rental rates,property revenues, and expenses, as well as impact the income generated from the Propertiescommunities and their underlying asset values. The financial results of major local employers also may impact the cash
flow and value of certain of the Properties.communities. This could have a negative impact on ourthe Company’s financial condition and operating results, which could affect ourthe Company’s ability to pay expected dividends to our stockholders.its stockholders and the Operating Partnership’s ability to pay expected distributions to unit holders.
Competition in the apartment community market may adversely affect operations and the rental demand for our Propertiesthe Company’s communities -. There are numerous housing alternatives that compete with our apartmentthe Company’s communities in attracting residents. These include other apartment communities and single-family homes that are available for rent in the markets in which the Propertiescommunities are located. The Properties also compete for residents with new and existing homes and condominiums that are for sale. If the demand for our Propertiesthe Company’s communities is reduced or if competitors develop and/or acquire competing properties on a more cost-effective basis,apartment communities, rental rates may drop, which may have a material adverse affecteffect on ourthe Company’s financial condition and results of operations.
| 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; |
| — | 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 |
| — | availability to capital markets and |
| — | 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. |
In 2006, the Company issued 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock for gross proceeds of approximately $149.5 million. In 2005, the Operating Partnership sold $225 million principal amount of 3.625% Exchangeable Senior Notes, which are exchangeable into the Company’s common stock under certain conditions.
The indentures governing our publicly registered notes contain restrictive covenants that limit our operating flexibility. The indentures that govern these 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 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 publicly registered 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.
A downgrade in our investment grade credit rating could materially and adversely affect our 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.
The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest - Our. The Company’s Chairman, George M. Marcus is not an employee of the Operating Partnership,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 Thethe Marcus & Millichap Company or (“TMMC”MMC”), which is a holdingparent company for certainof a diversified group of real estate brokerageservice, investment and services companies. TMMC has andevelopment firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in Pacific Property Company,MMI. MMI is a companynational brokerage firm listed on the NYSE that investsunderwent its initial public offering in apartment communities.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 abstain his vote onabsent himself from any and all resolutionsdiscussions by the Company’sCompany 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 usthe Company in acquiring and/or developing apartment communities, which competition may be detrimental to us.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 us,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, 2007,2013, George M. Marcus, the Chairman of ourthe Company’s Board of Directors, wholly or partially owned 1,768,7731.6 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships and assuming exercise of all vested options). This represents approximately 7.1%4.3% of the outstanding shares of ourthe Company’s common stock. Mr. Marcus currently does not have majority control over us.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 ourthe Company’s stockholders.
Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for any amendmentcertain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with us, ourthe Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on us.the Company. Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.
The voting rights of preferred stock may allow holders of preferred stock to impede actions that 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 ourthe Company’s outstanding shares of preferred stockSeries H Preferred Stock do not have any voting rights. However, if full distributions are not made on any outstanding preferred stockSeries H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock whoupon which like voting rights have not received distributions, voting together as a single class,been conferred, will have the right to elect two additional directors to serve on ourEssex’s Board of Directors.
These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the preferred stockSeries H Preferred Stock have been paid in full. At that time, the holders of the preferred stockSeries H Preferred Stock are divested of these voting rights, and the term andof office of the directors so elected immediately terminates.
While any shares of our preferred stockthe Company’s Series H Preferred Stock are outstanding, the Company may not, without the consent of the holders of two-thirds of the outstanding shares of each series of preferred stock, each voting separately as a single class:Series H Preferred Stock:
| — | authorize or create any class or series of stock that ranks senior to |
| — | amend, alter or repeal the provisions of the Company’s Charter, |
| the Series H Preferred Stock; provided that in the case of a merger or consolidation, so long as the |
These voting rights of the holders of the Series H Preferred Stock and of other preferred stock may allow such holders of preferred stock to impede or veto actions that would otherwise benefit the holders of ourthe Company’s common stock.
The redemption rights of the Series B preferred units, Series D preferred units, Series F preferred stock and Series G preferred stock may be detrimental to holders of the Company’s common stock - Upon the occurrence of one of the following events, the terms of the Operating Partnership’s Series B and D Preferred Units require it to redeem all of such units and the terms of the Company’s Series F Preferred Stock and the Series G Preferred Stock provide the holders of the majority of the outstanding Series F Preferred Stock and Series G Preferred Stock the right to require the Company to redeem all of such stock:
Maryland business combination law may not allow certain transactions between the Company and its affiliates to proceed without compliance with such law - .Under Maryland law, “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. The law also requires a supermajority stockholder vote 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 Maryland law. As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination by us,the Company, George M. Marcus, William A. Millichap, who areis the chairman and a director of the Company, respectively, and TMMCMMC or any entity owned or controlled by Messrs.Mr. Marcus and Millichap and TMMC.MMC. Consequently, the five-year prohibition and supermajority vote requirement described above will not apply to any business combination between us andthe Company, Mr. Marcus, Mr. Millichap, or TMMC.MMC. As a result, wethe Company may in the future enter into business combinations with Messrs.Mr. Marcus and Millichap and TMMC,MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland General Corporation Law.Business Combination Act.
Anti-takeover provisions contained in the Operating Partnership agreement, charter, bylaws, and certain provisions of Maryland 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 ability 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 ourthe Company’s stock or otherwise be in the best interest of the stockholders or that could otherwise adversely affect the interest of the Company’s stockholders. 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 cannot, without first obtaining the consent of a majority-in-interest of the limited partners in the Operating Partnership, transfer all or any portion of ourthe Company’s general partner interest in the Operating Partnership to another entity. Such limitations on the Company’s ability to act may result in ourthe Company’s being precluded from taking action that the Board of Directors believes is in the best interests of the Company’s stockholders. As of December 31, 2007,2013, the limited partners held or controlled approximately 9.1%5.4% of the outstanding units of partnership interest in the Operating Partnership, allowing such actions to be blocked by the limited partners.
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 preferred stock without the approval of the holders of the common stock. WeThe Company may establish one or more series of preferred stock that could delay defer or prevent a transaction or a change in control. Such a transaction might involve a premium price for ourthe Company’s stock or otherwise be in the best interests of the holders of common stock. Also, such a class of preferred stock could have dividend, voting or other rights that could adversely affect the interest of holders of common stock.
The Company’s Charter as well as the Company’s stockholder rights plan, contains other provisions that may delay, defer or prevent a transaction or a change in control that might be in the best interest of the Company’s stockholders. The Company’s stockholder rights plan is designed, among other things, to prevent a person or group from gaining control of the Company without offering a fair price to all of the Company’s stockholders. The Bylaws may be amended by the Board of Directors to include provisions that would have a similar effect, although the Company presently has no such intention. The Charter contains ownership provisions limiting the transferability and ownership of shares of capital stock, which may have the effect of delaying, deferring or preventing 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 Corporations Law restricts the voting rights of shares deemed to be “control shares.” Under the Maryland General Corporations 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 Corporations 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 Corporations 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 Corporations 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 also contain other provisions that may impede various actions by stockholders without approval of the Company’s board of directors, which in turn may delay, defer or prevent a transaction, including a change in control. Those provisions include:
| — | directors may be removed, without cause, only upon a two-thirds vote of stockholders, and with cause, only upon a majority vote of stockholders; |
| — | the Company’s board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors; |
| — | 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. |
The Operating Partnership’sCompany’s joint ventures and joint ownership of Propertiescommunities and partial interests in corporations and limited partnerships could limit the Operating Partnership’sCompany’s ability to control such Propertiescommunities and partial interests -. Instead of purchasing and developing apartment communities directly, we havethe Company has invested and may continue to invest in joint ventures. 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 ourthe Company’s business interests or goals, or be in a position to take action contrary to ourthe Company’s instructions or requests, or ourits policies or objectives. Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk. Although we seekthe Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, wethe Company may be unable to take action without ourits joint venture partners’ approval, or joint venture partners could take actions binding on the joint venture without ourits consent. A joint venture partner might fail to approve decisions that are in the Company’s best interest. Should a joint venture partner become bankrupt, wethe 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, we,the Company, through the Operating Partnership, investinvests 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. In certain circumstances, the Operating Partnership’s interest in a particular entity may be 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. We have,The Company may also incur losses if any guarantees were made by the Company. The Company has, and in the future may, enter into transactions that could require usthe Company to pay the tax liabilities of partners, which contribute assets into joint ventures or the Operating Partnership, in the event that certain taxable events, which are within ourthe Company’s control, occur. Although we planthe Company plans to hold the contributed assets or defer recognition of gain on their sale pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue Code, wethe Company can provide no assurance that wethe Company will be able to do so and if such tax liabilities were incurred they can expect tocould have a material impact on ourits financial position.
Investments in mortgages and other real estate securities could affect the Company’s ability to make distributions to stockholders. – The Operating PartnershipCompany may invest in securities related to real estate, which could adversely affect ourthe Company’s ability to make distributions to stockholders. The Operating PartnershipCompany may purchase securities issued by entities which own real estate and 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. 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 |
| — | that interest rates payable on the mortgages may be lower than |
| — | in the case of junior mortgages, that foreclosure of a senior mortgage |
If any of the above were to occur, it could adversely affect cash flows from operations and ourthe Company’s ability to make expected dividends to stockholders could be adversely affected.and the Operating Partnership’s ability to make expected distributions to unit holders.
Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategyPossible. 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.
The Company’s Portfolio may have environmental liabilities -. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on, in, to or migrating from such property. Such laws often impose liability without regard as to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s or operator’s ability to sell or rent such property or to borrow using such property as collateral. Persons exposed to such substances, either through soil vapor or ingestion of the substances may claim personal injury damages. Persons who arrange for the disposal or treatment of hazardous or toxic substances or wastes also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility to which such substances or wastes were sent, whether or not such facility is owned or operated by such person. 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 real propertiesapartment communities for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of real properties,apartment communities, the Operating PartnershipCompany 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. We carryThe Company carries certain limited insurance coverage for this type of environmental risk. We haveThe Company has conducted environmental studies which revealed the presence of groundwater contamination at certain Properties.communities. Such contamination at certain of these propertiesapartment communities was reported to have migrated on-site from adjacent industrial manufacturing operations. The former industrial users of the Propertiescommunities were identified as the source of contamination. The environmental studies noted that certain Propertiescommunities are located adjacent to any possibleor possibly down gradient from sites with known groundwater contamination, the lateral limits of which may extend onto such properties.apartment communities. The environmental studies also noted that at certain of these properties,apartment communities, contamination existed because of the presence of underground fuel storage tanks, which have been removed. In general, in connection with the ownership, operation, financing, management and development of real properties, weapartment communities, the Company may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities. WeThe Company may also be subject to governmental fines and costs related to injuries to persons and property.
California has enacted legislation commonly referred to as “Proposition 65” requiring that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke. Although we havethe Company has sought to comply with Proposition 65 requirements, wethe Company cannot assure you that wethe 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 can be ignitable in confined spaces. Although naturally-occurring, methane gas is not regulated at the state or federal level, however some local governments, such as the County of Los Angeles, have imposed requirements that new buildings install detection systems in areas where methane gas is known to be located.
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. The Operating PartnershipCompany 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.
The Operating PartnershipCompany has almost no indemnification agreements from third parties for potential environmental clean-up costs at its Properties.communities. The Operating PartnershipCompany has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions or violations with respect to the propertiescommunities formerly owned by the Operating Partnership.Company. No assurance can be given that existing environmental studies with respect to any of the Propertiescommunities reveal all environmental liabilities, that any prior owner or operator of a Propertyan apartment community did not create any material environmental condition not known to the Operating Partnership,Company, or that a material environmental condition does not exist as to any one or more of the Properties.communities. The Operating PartnershipCompany has limited insurance coverage for the types of environmental liabilities described above.
Although the Operating PartnershipCompany may carry insurance for potential losses associated with its Properties,communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, co-paymentscopayments 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 current market value of replacement cost of the Operating Partnership’sCompany’s lost investment. Inflation, changesinvestment, 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 considerations and other factors might also affect the Operating Partnership’sCompany’s ability to replace or renovate an apartment community after it has been damaged or destroyed.
Changes in the Company’s financing policy; no limitation on debt –policy may lead to higher levels of indebtedness. We haveThe Company has adopted a policy of maintaining a debt-to-total-market-capitalization ratiolimit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of less than 50%.credit bank facility, unsecured debt and senior unsecured bonds. The calculation of debt-to-total-market-capitalization is as follows: total indebtedness divided by the sum of total indebtedness plus total equity market capitalization. As used in this calculation, total equity market capitalization is equal to the aggregate market value of the outstanding shares of common stock (based on the greater of current market price or the gross proceeds per share from public offerings of the outstanding shares plus any undistributed net cash flow), assuming the conversion of all limited partnership interests in the Operating Partnership into shares of common stock and the gross proceeds of the preferred units and preferred stock. Based on this calculation (including the current market price and excluding undistributed net cash flow), our debt-to-total-market-capitalization ratio was approximately 35.7% as of December 31, 2007.
The Company has established several taxable REIT subsidiaries.subsidiaries (“TRSs”). Despite the Company’sits qualification as a REIT, its taxable REIT subsidiariesthe Company’s TRSs must pay U.S. federal income tax on their taxable income. While the Company will attempt to ensure that its dealingdealings with its taxable REIT subsidiaries doesTRSs do not adversely affect itsESS’s REIT qualification, the Companyit cannot provide assurance that it will successfully achieve that result. Furthermore, the Companyit may be subject to a 100% penalty tax, or its taxable REIT subsidiariesTRSs may be denied deductions, to the extent its dealings with its taxable REIT subsidiaries’TRSs are not deemed to be arm’s length in nature. No assurances can be given that Thethe Company’s dealings with its taxable REIT subsidiaries’TRSs will be arm’s length in nature.
From time to time, wethe Company may transfer or otherwise dispose of some of ourits Properties. Under the Internal Revenue Code, any gain resulting from transfers of Properties that we holdthe Company holds as inventory or primarily for sale to customers in the ordinary course of business would be treated as income from a prohibited transaction subject to a 100% penalty tax. Since we acquirethe Company acquires properties for investment purposes, we doit does not believe that ourits occasional transfers or disposals of property are prohibited transactions. However, whether property is held for investment purposes is a question of fact that 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 usthe 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 the Companyit from the prohibited transaction and the Company’s ability to retain future gains on real property sales may be jeopardized. Income from a prohibited transaction might adversely affect the Company’sESS’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 CompanyESS will be able to satisfy the income tests for qualification as a REIT.REIT if the Company transferred or disposed of property in a transaction treated as a prohibited transaction.
Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates (the current maximum rate is 20%) applicable to individual U.S. stockholders who receive dividends from taxable subchapter C corporations. With limited exceptions, dividends received by individual U.S. stockholders from the Company that are not designated as capital gain dividends will continue to be taxed at rates applicable to ordinary income, which are as high as 39.6%. 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.
None.
Occupancy Rates
For communities that are development properties in lease-up without stabilized occupancy figures, arethe 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 “physical occupancy” which referscontractual revenue is not considered the best metric to the percentage resulting from dividing leased and occupied square footage by rentable square footage. With respect to recreational vehicle parks, manufactured housing communities, or apartment communities which have not yet stabilized or have insufficient operating history, occupancy figures are based on “physical occupancy” which refers to the percentage resulting from dividing leased and occupied units by rentable units.
· | located near employment |
| attractive communities that |
| · | proactive customer |
The Operating Partnership’sCompany’s corporate headquarters is located in antwo office buildingbuildings with approximately 17,40031,900 square feet located at 925925/935 East Meadow Drive, Palo Alto, California. The Operating Partnership acquired the property in 1997. In December 2007, the Operating Partnership acquired the adjacent property at 935 East Meadow Drive, and the Operating Partnership will be making improvements to the building though the third quarter of 2008. This building is approximately 14,500 square feet and will be solely occupied by the Operating Partnership. The Operating Partnership alsoCompany owns an office building in Southern California (Woodland Hills), comprised of approximately 38,900 square feet building, of which the Operating Partnership occupies approximately 11,500 square feet at December 31, 2007. The building has nine third-party tenants occupying approximately 27,400 square feet. The largest single tenant occupies approximately 10,900 square feet. The Operating Partnership acquired the Woodland Hills property in 2001. The Operating Partnership has a mortgage loan receivable on an office building with approximately 110,000 square feet located in Irvine, California, of which is consolidated in accordance with GAAP. The Operating Partnership also has two predevelopment projects, Cadence Campus which is an office building comprised of 262,500the Company occupies approximately 7,150 square feet andat December 31, 2013. The Company owns Essex-Hollywood, a 35,000 square foot commercial building and a 139,000 square foot retail site in Santa Clara, California as future development sites that are currently utilitized as a production studio of 35,000 square feet, and both properties are 100% leased to single tenants.leased.
The following tables describe the Operating Partnership’s PropertiesCompany’s Portfolio as of December 31, 2007.2013. The first table describes the Operating Partnership’s apartmentCompany’s communities and the second table describes the Operating Partnership’sCompany’s other real estate assets. (See Note 7 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.)
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
| Communities (1) | Location | Units | 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% | ||||||
| Barkley, The(3)(4) | Anaheim, CA | 161 | 139,800 | 1984 | 2000 | 97% | ||||||
| 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 | 98% | ||||||
| Mesa Village | Clairemont, CA | 133 | 43,600 | 1963 | 2002 | 97% | ||||||
| Regency at Encino | Encino, CA | 75 | 78,487 | 1989 | 2009 | 97% | ||||||
| Valley Park(4) | Fountain Valley, CA | 160 | 169,700 | 1969 | 2001 | 98% | ||||||
| Capri at Sunny Hills(4) | Fullerton, CA | 100 | 128,100 | 1961 | 2001 | 94% | ||||||
| Haver Hill(5) | Fullerton, CA | 264 | 224,130 | 1973 | 2012 | 94% | ||||||
| Wilshire Promenade | Fullerton, CA | 149 | 128,000 | 1992 | 1997 | 96% | ||||||
| Montejo(4) | Garden Grove, CA | 124 | 103,200 | 1974 | 2001 | 96% | ||||||
| CBC Apartments | Goleta, CA | 148 | 91,538 | 1962 | 2006 | 95% | ||||||
| The Sweeps | Goleta, CA | 91 | 88,370 | 1967 | 2006 | 95% | ||||||
| 416 on Broadway | Glendale, CA | 115 | 126,782 | 2009 | 2010 | 97% | ||||||
| Hampton Court | Glendale, CA | 83 | 71,500 | 1974 | 1999 | 97% | ||||||
| Hampton Place | Glendale, CA | 132 | 141,500 | 1970 | 1999 | 97% | ||||||
| Devonshire | Hemet, CA | 276 | 207,200 | 1988 | 2002 | 91% | ||||||
| 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 | 96% | ||||||
| Hillsborough Park | La Habra, CA | 235 | 215,500 | 1999 | 1999 | 97% | ||||||
| Trabuco Villas | Lake Forest, CA | 132 | 131,000 | 1985 | 1997 | 97% | ||||||
| Madrid Apartments(6) | Mission Viejo, CA | 230 | 228,099 | 2000 | 2012 | 96% | ||||||
| Marbrisa | Long Beach, CA | 202 | 122,800 | 1987 | 2002 | 96% | ||||||
| Pathways | Long Beach, CA | 296 | 197,700 | 1975(7) | 1991 | 95% | ||||||
| Belmont Station | Los Angeles, CA | 275 | 225,000 | 2008 | 2008 | 96% | ||||||
| Bellerive | Los Angeles, CA | 63 | 79,296 | 2011 | 2011 | 98% | ||||||
| Bunker Hill | Los Angeles, CA | 456 | 346,600 | 1968 | 1998 | 95% | ||||||
| Cochran Apartments | Los Angeles, CA | 58 | 51,400 | 1989 | 1998 | 97% | ||||||
| Kings Road | Los Angeles, CA | 196 | 132,100 | 1979 | 1997 | 94% | ||||||
| Gas Company Lofts(5) | Los Angeles, CA | 251 | 226,666 | 2004 | 2013 | 94% | ||||||
| Marbella, The | Los Angeles, CA | 60 | 50,108 | 1991 | 2005 | 97% | ||||||
| Pacific Electric Lofts(6) | Los Angeles, CA | 314 | 277,980 | 2006 | 2012 | 96% | ||||||
| Park Catalina | Los Angeles, CA | 90 | 72,864 | 2002 | 2012 | 97% | ||||||
| Park Place | Los Angeles, CA | 60 | 48,000 | 1988 | 1997 | 97% | ||||||
| Santee Court | Los Angeles, CA | 165 | 132,040 | 2004 | 2010 | 95% | ||||||
| Santee Village | Los Angeles, CA | 73 | 69,817 | 2011 | 2010 | 95% | ||||||
| Windsor Court | Los Angeles, CA | 58 | 46,600 | 1988 | 1997 | 97% | ||||||
| Marina City Club(8) | Marina Del Rey, CA | 101 | 127,200 | 1971 | 2004 | 96% | ||||||
| Mirabella | Marina Del Rey, CA | 188 | 176,800 | 2000 | 2000 | 96% | ||||||
| Mira Monte | Mira Mesa, CA | 355 | 262,600 | 1982 | 2002 | 96% | ||||||
| Hillcrest Park | Newbury Park, CA | 608 | 521,900 | 1973 | 1998 | 97% | ||||||
| Fairways(9) | Newport Beach, CA | 74 | 107,100 | 1972 | 1999 | 94% | ||||||
| Muse | North Hollywood, CA | 152 | 135,292 | 2011 | 2011 | 97% | ||||||
| Country Villas | Oceanside, CA | 180 | 179,700 | 1976 | 2002 | 96% | ||||||
| Mission Hills | Oceanside, CA | 282 | 244,000 | 1984 | 2005 | 97% | ||||||
| Mariners Place | Oxnard, CA | 105 | 77,200 | 1987 | 2000 | 98% | ||||||
| Monterey Villas | Oxnard, CA | 122 | 122,100 | 1974 | 1997 | 98% | ||||||
| Tierra Vista | Oxnard, CA | 404 | 387,100 | 2001 | 2001 | 96% | ||||||
| Arbors Parc Rose(6) | Oxnard, CA | 373 | 503,196 | 2001 | 2011 | 95% | ||||||
| Monterra del Mar | Pasadena, CA | 123 | 74,400 | 1972 | 1997 | 96% | ||||||
| Monterra del Rey | Pasadena, CA | 84 | 73,100 | 1972 | 1999 | 96% | ||||||
| Monterra del Sol | Pasadena, CA | 85 | 69,200 | 1972 | 1999 | 96% | ||||||
| Villa Angelina(4) | Placentia, CA | 256 | 217,600 | 1970 | 2001 | 97% | ||||||
| (continued) | ||||||||||||
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
| Communities (1) | Location | Units | Footage | Built | Acquired | Occupancy(2) | ||||||
| Southern California (continued) | ||||||||||||
| Fountain Park | Playa Vista, CA | 705 | 608,900 | 2002 | 2004 | 97% | ||||||
| Highridge(4) | Rancho Palos Verdes, CA | 255 | 290,200 | 1972(10) | 1997 | 94% | ||||||
| CentrePointe | San Diego, CA | 224 | 126,700 | 1974(11) | 1997 | 90% | ||||||
| Summit Park | San Diego, CA | 300 | 229,400 | 1972 | 2002 | 97% | ||||||
| Domain | San Diego, CA | 379 | 345,044 | 2013 | 2013 | 82% | ||||||
| Vista Capri - North | San Diego, CA | 106 | 51,800 | 1975 | 2002 | 97% | ||||||
| Essex Skyline at MacArthur Place (12) | Santa Ana, CA | 349 | 512,791 | 2008 | 2012 | 95% | ||||||
| Fairhaven(4) | Santa Ana, CA | 164 | 135,700 | 1970 | 2001 | 97% | ||||||
| Hope Ranch Collection | Santa Barbara, CA | 108 | 126,700 | 1965&73 | 2007 | 97% | ||||||
| Hidden Valley(13) | Simi Valley, CA | 324 | 310,900 | 2004 | 2004 | 96% | ||||||
| Meadowood | Simi Valley, CA | 320 | 264,500 | 1986 | 1996 | 97% | ||||||
| Shadow Point | Spring Valley, CA | 172 | 131,200 | 1983 | 2002 | 95% | ||||||
| Coldwater Canyon | Studio City, CA | 39 | 34,125 | 1979 | 2007 | 97% | ||||||
| Allegro | Valley Village, CA | 97 | 127,812 | 2010 | 2010 | 98% | ||||||
| Lofts at Pinehurst, The | Ventura, CA | 118 | 71,100 | 1971 | 1997 | 97% | ||||||
| Pinehurst(14) | Ventura, CA | 28 | 21,200 | 1973 | 2004 | 97% | ||||||
| Woodside Village | Ventura, CA | 145 | 136,500 | 1987 | 2004 | 97% | ||||||
| Walnut Heights | Walnut, CA | 163 | 146,700 | 1964 | 2003 | 96% | ||||||
| Reveal(6) | Woodland Hills, CA | 438 | 414,892 | 2010 | 2011 | 95% | ||||||
| Avondale at Warner Center | Woodland Hills, CA | 446 | 331,000 | 1970(15) | 1997 | 97% | ||||||
| 15,725 | 13,957,790 | 96% | ||||||||||
| Northern California | ||||||||||||
| Belmont Terrace | Belmont, CA | 71 | 72,951 | 1974 | 2006 | 97% | ||||||
| Davey Glen(16) | Belmont, CA | 69 | 65,974 | 1962 | 2006 | 96% | ||||||
| Fourth and U | Berkeley, CA | 171 | 146,255 | 2010 | 2010 | 96% | ||||||
| Commons, The | Campbell, CA | 264 | 153,168 | 1973 | 2010 | 98% | ||||||
| Pointe at Cupertino, The | Cupertino, CA | 116 | 135,200 | 1963(17) | 1998 | 93% | ||||||
| Stevenson Place | Fremont, CA | 200 | 146,200 | 1971 | 1983 | 96% | ||||||
| Boulevard | Fremont, CA | 172 | 131,200 | 1978(18) | 1996 | 97% | ||||||
| Briarwood(6) | Fremont, CA | 160 | 111,160 | 1975 | 2011 | 98% | ||||||
| The Woods(6) | Fremont, CA | 160 | 105,280 | 1978 | 2011 | 98% | ||||||
| City View | Hayward, CA | 572 | 462,400 | 1975(19) | 1998 | 97% | ||||||
| Alderwood Park(16) | Newark, CA | 96 | 74,624 | 1987 | 2006 | 97% | ||||||
| Bridgeport | Newark, CA | 184 | 139,000 | 1987(20) | 1987 | 96% | ||||||
| Regency at Mountain View(5) | Mountain View, CA | 142 | 127,600 | 1970 | 2013 | 93% | ||||||
| The Grand | Oakland, CA | 243 | 205,026 | 2009 | 2009 | 97% | ||||||
| San Marcos | Richmond, CA | 432 | 407,600 | 2003 | 2003 | 97% | ||||||
| Mt. Sutro | San Francisco, CA | 99 | 64,000 | 1973 | 2001 | 93% | ||||||
| Park West | San Francisco, CA | 126 | 90,060 | 1958 | 2012 | 92% | ||||||
| Fox Plaza | San Francisco, CA | 444 | 230,017 | 1968 | 2013 | 94% | ||||||
| Bennett Lofts | San Francisco, CA | 147 | 184,607 | 2004 | 2012 | 81% | ||||||
| Epic, Phase I(21) | San Jose, CA | 280 | 249,080 | 2013 | 2013 | 49% | ||||||
| 101 San Fernando | San Jose, CA | 323 | 296,078 | 2001 | 2010 | 96% | ||||||
| Willow Lake | San Jose, CA | 508 | 471,744 | 1989 | 2012 | 95% | ||||||
| Bella Villagio | San Jose, CA | 231 | 227,511 | 2004 | 2010 | 97% | ||||||
| Carlyle, The | San Jose, CA | 132 | 129,200 | 2000 | 2000 | 98% | ||||||
| Esplanade | San Jose, CA | 278 | 279,000 | 2002 | 2004 | 97% | ||||||
| Waterford, The | San Jose, CA | 238 | 219,600 | 2000 | 2000 | 97% | ||||||
| Hillsdale Garden | San Mateo, CA | 697 | 611,505 | 1948 | 2006 | 97% | ||||||
| Bel Air | San Ramon, CA | 462 | 391,000 | 1988/2000 | 1997 | 95% | ||||||
| Canyon Oaks | San Ramon, CA | 250 | 237,894 | 2005 | 2007 | 97% | ||||||
| Foothill Gardens | San Ramon, CA | 132 | 155,100 | 1985 | 1997 | 95% | ||||||
| Mill Creek at Windermere | San Ramon, CA | 400 | 381,060 | 2005 | 2007 | 97% | ||||||
| Twin Creeks | San Ramon, CA | 44 | 51,700 | 1985 | 1997 | 95% | ||||||
| 1000 Kiely | Santa Clara, CA | 121 | 128,486 | 1971 | 2011 | 93% | ||||||
| Le Parc Luxury Apartments | Santa Clara, CA | 140 | 113,200 | 1975 | 1994 | 97% | ||||||
| Marina Cove(22) | Santa Clara, CA | 292 | 250,200 | 1974(23) | 1994 | 94% | ||||||
| Riley Square(6) | Santa Clara, CA | 156 | 126,900 | 1972 | 2012 | 96% | ||||||
| Chestnut Street | Santa Cruz, CA | 96 | 87,640 | 2002 | 2008 | 94% | ||||||
| Harvest Park | Santa Rosa, CA | 104 | 116,628 | 2004 | 2007 | 96% | ||||||
| Bristol Commons | Sunnyvale, CA | 188 | 142,600 | 1989 | 1997 | 97% | ||||||
| (continued) | ||||||||||||
24
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
Apartment Communities (1) | Location | Units | Footage | Built | Acquired | Occupancy(2) | ||||||
| Southern California (continued) | ||||||||||||
| Fountain Park | Playa Vista, CA | 705 | 608,900 | 2002 | 2004 | 96% | ||||||
| Highridge(6) | Rancho Palos Verdes, CA | 255 | 290,200 | 1972(23) | 1997 | 92% | ||||||
| Bluffs II, The(24) | San Diego, CA | 224 | 126,700 | 1974 | 1997 | 98% | ||||||
| Summit Park | San Diego, CA | 300 | 229,400 | 1972 | 2002 | 97% | ||||||
| Vista Capri - North | San Diego, CA | 106 | 51,800 | 1975 | 2002 | 98% | ||||||
| Brentwood (Hearthstone)(6) | Santa Ana, CA | 140 | 154,800 | 1970 | 2001 | 96% | ||||||
| Treehouse(6) | Santa Ana, CA | 164 | 135,700 | 1970 | 2001 | 95% | ||||||
| Hope Ranch Collection | Santa Barbara, CA | 108 | 126,700 | 1965&73 | 2007 | 95% | ||||||
| Carlton Heights | Santee, CA | 70 | 48,400 | 1979 | 2002 | 94% | ||||||
| Hidden Valley (Parker Ranch)(25) | Simi Valley, CA | 324 | 310,900 | 2004 | 2004 | 94% | ||||||
| Meadowood | Simi Valley, CA | 320 | 264,500 | 1986 | 1996 | 91% | ||||||
| Shadow Point | Spring Valley, CA | 172 | 131,200 | 1983 | 2002 | 97% | ||||||
| Coldwater Canyon | Studio City, CA | 39 | 34,125 | 1979 | 2007 | 70% | ||||||
| Lofts at Pinehurst, The | Ventura, CA | 118 | 71,100 | 1971(26) | 1997 | 97% | ||||||
| Pinehurst(27) | Ventura, CA | 28 | 21,200 | 1973 | 2004 | 98% | ||||||
| Woodside Village | Ventura, CA | 145 | 136,500 | 1987 | 2004 | 96% | ||||||
| Walnut Heights | Walnut, CA | 163 | 146,700 | 1964 | 2003 | 94% | ||||||
| Avondale at Warner Center | Woodland Hills, CA | 446 | 331,000 | 1970(28) | 1997 | 92% | ||||||
| 13,205 | 11,038,017 | 95% | ||||||||||
| Northern California | ||||||||||||
| Belmont Terrace | Belmont, CA | 71 | 72,951 | 1974 | 2006 | 96% | ||||||
| Carlmont Woods(5) | Belmont, CA | 195 | 107,200 | 1971 | 2004 | 98% | ||||||
| Davey Glen(5) | Belmont, CA | 69 | 65,974 | 1962 | 2006 | 92% | ||||||
| Pointe at Cupertino, The | Cupertino, CA | 116 | 135,200 | 1963(29) | 1998 | 98% | ||||||
| Harbor Cove(5) | Foster City, CA | 400 | 306,600 | 1971 | 2004 | 97% | ||||||
| Stevenson Place | Fremont, CA | 200 | 146,200 | 1971(30) | 1983 | 95% | ||||||
| Boulevard (Treetops) | Fremont, CA | 172 | 131,200 | 1978(31) | 1996 | 87% | ||||||
| Waterstone at Fremont (Mountain Vista)(32) | Fremont, CA | 526 | 433,100 | 1975 | 2000 | 94% | ||||||
| City View (Wimbledon Woods) | Hayward, CA | 560 | 462,400 | 1975(33) | 1998 | 95% | ||||||
| Alderwood Park(5) | Newark, CA | 96 | 74,624 | 1987 | 2006 | 97% | ||||||
| Bridgeport (Summerhill Commons) | Newark, CA | 184 | 139,000 | 1987(34) | 1987 | 96% | ||||||
| Regency Towers(5) | Oakland, CA | 178 | 140,900 | 1975(35) | 2005 | 92% | ||||||
| San Marcos (Vista del Mar) | Richmond, CA | 432 | 407,600 | 2003 | 2003 | 96% | ||||||
| Mt. Sutro | San Francisco, CA | 99 | 64,000 | 1973 | 2001 | 98% | ||||||
| Carlyle, The | San Jose, CA | 132 | 129,200 | 2000 | 2000 | 97% | ||||||
| Enclave, The(5) | San Jose, CA | 637 | 525,463 | 1998 | 2005 | 96% | ||||||
| Esplanade | San Jose, CA | 278 | 279,000 | 2002 | 2004 | 97% | ||||||
| Waterford, The | San Jose, CA | 238 | 219,600 | 2000 | 2000 | 98% | ||||||
| Hillsdale Garden Apartments(36) | San Mateo, CA | 697 | 611,505 | 1948 | 2006 | 96% | ||||||
| Bel Air | San Ramon, CA | 462 | 391,000 | 1988(37) | 1997 | 96% | ||||||
| Canyon Oaks | San Ramon, CA | 250 | 237,894 | 2005 | 2007 | 94% | ||||||
| Foothill Gardens | San Ramon, CA | 132 | 155,100 | 1985 | 1997 | 94% | ||||||
| Mill Creek at Windermere | San Ramon, CA | 400 | 381,060 | 2005 | 2007 | 93% | ||||||
| Twin Creeks | San Ramon, CA | 44 | 51,700 | 1985 | 1997 | 94% | ||||||
| Le Parc Luxury Apartments | Santa Clara, CA | 140 | 113,200 | 1975(38) | 1994 | 98% | ||||||
| Marina Cove(39) | Santa Clara, CA | 292 | 250,200 | 1974(40) | 1994 | 98% | ||||||
| Harvest Park | Santa Rosa, CA | 104 | 116,628 | 2004 | 2007 | 95% | ||||||
| Bristol Commons | Sunnyvale, CA | 188 | 142,600 | 1989 | 1997 | 97% | ||||||
| Brookside Oaks(6) | Sunnyvale, CA | 170 | 119,900 | 1973 | 2000 | 99% | ||||||
| Magnolia Lane(41) | Sunnyvale, CA | 32 | 31,541 | 2001 | 2007 | 97% | ||||||
| Montclaire, The (Oak Pointe) | Sunnyvale, CA | 390 | 294,100 | 1973(42) | 1988 | 90% | ||||||
| Summerhill Park | Sunnyvale, CA | 100 | 78,500 | 1988 | 1988 | 98% | ||||||
| Thomas Jefferson(6) | Sunnyvale, CA | 156 | 110,824 | 1969 | 2007 | 100% | ||||||
| Windsor Ridge | Sunnyvale, CA | 216 | 161,800 | 1989 | 1989 | 96% | ||||||
| Vista Belvedere | Tiburon, CA | 76 | 78,300 | 1963 | 2004 | 94% | ||||||
| Tuscana | Tracy, CA | 30 | 29,088 | 2007 | 2007 | 84% | ||||||
| 8,462 | 7,195,152 | 96% | ||||||||||
| (continued) | ||||||||||||
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
| Communities (1) | Location | Units | Footage | Built | Acquired | Occupancy(2) | ||||||
| Northern California (continued) | ||||||||||||
| Brookside Oaks(4) | Sunnyvale, CA | 170 | 119,900 | 1973 | 2000 | 95% | ||||||
| Magnolia Lane(24) | Sunnyvale, CA | 32 | 31,541 | 2001 | 2007 | 94% | ||||||
| Magnolia Square(4) | Sunnyvale, CA | 156 | 110,824 | 1969 | 2007 | 94% | ||||||
| Montclaire, The | Sunnyvale, CA | 390 | 294,100 | 1973(25) | 1988 | 97% | ||||||
| Reed Square | Sunnyvale, CA | 100 | 95,440 | 1970 | 2012 | 97% | ||||||
| Summerhill Park | Sunnyvale, CA | 100 | 78,500 | 1988 | 1988 | 98% | ||||||
| Sunnyvale, CA | 216 | 161,800 | 1989 | 1989 | 97% | |||||||
| Via | Sunnyvale, CA | 284 | 309,421 | 2011 | 2011 | 97% | ||||||
| Vista Belvedere | Tiburon, CA | 76 | 78,300 | 1963 | 2004 | 93% | ||||||
| Tuscana | Tracy, CA | 30 | 29,088 | 2007 | 2007 | 100% | ||||||
| 10,494 | 9,027,362 | 96% | ||||||||||
| Seattle, Washington Metropolitan Area | ||||||||||||
| Cedar Terrace | Bellevue, WA | 180 | 174,200 | 1984 | 2005 | 97% | ||||||
| Courtyard off Main | Bellevue, WA | 109 | 108,388 | 2000 | 2010 | 96% | ||||||
| Emerald Ridge | Bellevue, WA | 180 | 144,000 | 1987 | 1994 | 97% | ||||||
| Foothill Commons | Bellevue, WA | 388 | 288,300 | 1978(26) | 1990 | 95% | ||||||
| Palisades, The | Bellevue, WA | 192 | 159,700 | 1977 | 1990 | 97% | ||||||
| Sammamish View | Bellevue, WA | 153 | 133,500 | 1986 | 1994 | 97% | ||||||
| Woodland Commons | Bellevue, WA | 302 | 220,066 | 1978(27) | 1990 | 96% | ||||||
| Canyon Pointe | Bothell, WA | 250 | 210,400 | 1990 | 2003 | 97% | ||||||
| Inglenook Court | Bothell, WA | 224 | 183,600 | 1985 | 1994 | 96% | ||||||
| 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 | 95% | ||||||
| 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 | 95% | ||||||
| Bridle Trails | Kirkland, WA | 108 | 99,700 | 1986(28) | 1997 | 96% | ||||||
| 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 | 60% | ||||||
| Montebello | Kirkland, WA | 248 | 272,734 | 1996 | 2012 | 97% | ||||||
| Laurels at Mill Creek | Mill Creek, WA | 164 | 134,300 | 1981 | 1996 | 97% | ||||||
| The Elliot at Mukilteo(4) | Mukilteo, WA | 301 | 245,900 | 1981 | 1997 | 94% | ||||||
| Castle Creek | Newcastle, WA | 216 | 191,900 | 1997 | 1997 | 96% | ||||||
| Delano/Bon Terra | Redmond, WA | 126 | 116,340 | 2011/2005 | 2011/2012 | 97% | ||||||
| Elevation | Redmond, WA | 157 | 138,916 | 1986 | 2010 | 95% | ||||||
| Vesta(6) | Redmond, WA | 440 | 381,675 | 1998 | 2011 | 94% | ||||||
| Redmond Hill West(6) | Redmond, WA | 442 | 350,275 | 1985 | 2011 | 97% | ||||||
| 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% | ||||||
| The Bernard | Seattle, WA | 63 | 43,151 | 2008 | 2011 | 97% | ||||||
| Annaliese | Seattle, WA | 56 | 48,216 | 2009 | 2013 | 94% | ||||||
| Vox | Seattle, WA | 58 | 42,173 | 2013 | 2013 | 96% | ||||||
| Expo(29) | Seattle, WA | 275 | 190,176 | 2012 | 2012 | 96% | ||||||
| Cairns, The | Seattle, WA | 100 | 70,806 | 2006 | 2007 | 96% | ||||||
| Domaine | Seattle, WA | 92 | 79,421 | 2009 | 2012 | 95% | ||||||
| Fountain Court | Seattle, WA | 320 | 207,000 | 2000 | 2000 | 94% | ||||||
| Joule (30) | Seattle, WA | 295 | 191,109 | 2010 | 2010 | 96% | ||||||
| Wharfside Pointe | Seattle, WA | 142 | 119,200 | 1990 | 1994 | 93% | ||||||
| 7,860 | 6,725,614 | 96% | ||||||||||
| Total/Weighted Average | 34,079 | 29,710,766 | 96% | |||||||||
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
Other real estate assets(1) | Location | Tenants | Footage | Built | Acquired | Occupancy(2) | ||||||
| 925 / 935 East Meadow Drive(31) | Palo Alto, CA | 1 | 31,900 | 1988 / 1962 | 1997 / 2007 | 100% | ||||||
| 6230 Sunset Blvd(32) | Los Angeles, CA | 1 | 35,000 | 1938 | 2006 | 100% | ||||||
| 17461 Derian Ave(33) | Irvine, CA | 6 | 110,000 | 1983 | 2000 | 93% | ||||||
| Santa Clara Retail | Santa Clara, CA | 3 | 139,000 | 1970 | 2011 | 100% | ||||||
| 11 | 315,900 | 99% |
25
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
Apartment Communities (1) | Location | Units | Footage | Built | Acquired | Occupancy(2) | ||||||
| Seattle, Washington Metropolitan Area | ||||||||||||
| Cedar Terrace | Bellevue, WA | 180 | 174,200 | 1984 | 2005 | 95% | ||||||
| Emerald Ridge-North | Bellevue, WA | 180 | 144,000 | 1987 | 1994 | 95% | ||||||
| Foothill Commons | Bellevue, WA | 360 | 288,300 | 1978(43) | 1990 | 99% | ||||||
| Palisades, The | Bellevue, WA | 192 | 159,700 | 1977(44) | 1990 | 94% | ||||||
| Sammamish View | Bellevue, WA | 153 | 133,500 | 1986(45) | 1994 | 87% | ||||||
| Woodland Commons | Bellevue, WA | 236 | 172,300 | 1978(43) | 1990 | 99% | ||||||
| Canyon Pointe | Bothell, WA | 250 | 210,400 | 1990 | 2003 | 97% | ||||||
| Inglenook Court | Bothell, WA | 224 | 183,600 | 1985 | 1994 | 94% | ||||||
| Salmon Run at Perry Creek | Bothell, WA | 132 | 117,100 | 2000 | 2000 | 97% | ||||||
| Stonehedge Village | Bothell, WA | 196 | 214,800 | 1986 | 1997 | 95% | ||||||
| Park Hill at Issaquah | Issaquah, WA | 245 | 277,700 | 1999 | 1999 | 96% | ||||||
| Wandering Creek | Kent, WA | 156 | 124,300 | 1986 | 1995 | 98% | ||||||
| Bridle Trails | Kirkland, WA | 108 | 73,400 | 1986(46) | 1997 | 97% | ||||||
| Evergreen Heights | Kirkland, WA | 200 | 188,300 | 1990 | 1997 | 96% | ||||||
| Laurels at Mill Creek, The | Mill Creek, WA | 164 | 134,300 | 1981 | 1996 | 97% | ||||||
| Morning Run(5) | Monroe, WA | 222 | 221,786 | 1991 | 2005 | 97% | ||||||
| Anchor Village(6) | Mukilteo, WA | 301 | 245,900 | 1981 | 1997 | 96% | ||||||
| Castle Creek | Newcastle, WA | 216 | 191,900 | 1997 | 1997 | 95% | ||||||
| Brighton Ridge | Renton, WA | 264 | 201,300 | 1986 | 1996 | 96% | ||||||
| Fairwood Pond | Renton, WA | 194 | 189,200 | 1997 | 2004 | 95% | ||||||
| Forest View | Renton, WA | 192 | 182,500 | 1998 | 2003 | 96% | ||||||
| Cairns, The | Seattle, WA | 100 | 70,806 | 2006 | 2007 | 95% | ||||||
| Fountain Court | Seattle, WA | 320 | 207,000 | 2000 | 2000 | 96% | ||||||
| Linden Square | Seattle, WA | 183 | 142,200 | 1994 | 2000 | 97% | ||||||
| Maple Leaf | Seattle, WA | 48 | 35,500 | 1986 | 1997 | 99% | ||||||
| Spring Lake | Seattle, WA | 69 | 42,300 | 1986 | 1997 | 99% | ||||||
| Tower @ 801(5) | Seattle, WA | 173 | 118,500 | 1970 | 2005 | 97% | ||||||
| Wharfside Pointe | Seattle, WA | 142 | 119,200 | 1990 | 1994 | 97% | ||||||
| Echo Ridge(5) | Snoqualmie, WA | 120 | 124,539 | 2000 | 2005 | 97% | ||||||
| 5,520 | 4,688,531 | 96% | ||||||||||
| Other Region | ||||||||||||
| St. Cloud | Houston, TX | 302 | 306,800 | 1968 | 2002 | 93% | ||||||
| 302 | 306,800 | 93% | ||||||||||
| Total/Weighted Average | 27,489 | 23,228,500 | 96% |
| Rentable | ||||||||||||
| Square | Year | Year | ||||||||||
Other real estate assets(1) | Location | Tenants | Footage | Built | Acquired | Occupancy(2) | ||||||
| Office Buildings | ||||||||||||
| 535 - 575 River Oaks(47) | San Jose, CA | 1 | 262,500 | 1990 | 2007 | 100% | ||||||
| 925 East Meadow Drive(48) | Palo Alto, CA | 1 | 17,400 | 1988 | 1997 | 100% | ||||||
| 935 East Meadow Drive(49) | Palo Alto, CA | - | 14,500 | 1962 | 2007 | 0% | ||||||
| 6230 Sunset Blvd(47) | Los Angeles, CA | 1 | 35,000 | 1938 | 2006 | 100% | ||||||
| 17461 Derian Ave(50) | Irvine, CA | 3 | 110,000 | 1983 | 2000 | 100% | ||||||
| 22110-22120 Clarendon Street(51) | Woodland Hills, CA | 9 | 38,940 | 1982 | 2001 | 100% | ||||||
| Total Office Buildings | 15 | 478,340 | 100% | |||||||||
| Recreational Vehicle Parks | ||||||||||||
| Circle RV | El Cajon, CA | 179 spaces | 1977 | 2002 | (52) | |||||||
| Vacationer | El Cajon, CA | 159 spaces | 1973 | 2002 | (52) | |||||||
| Total Recreational Vehicle Parks | 338 spaces | |||||||||||
| Manufactured Housing Community | ||||||||||||
| Green Valley | Vista, CA | 157 sites | 1973 | 2002 | (52) | |||||||
| Total Manufactured Housing Community | 157 sites |
Footnotes to the Operating Partnership’s PropertiesCompany’s Portfolio Listing as of December 31, 2007
2013
| (1) | Unless otherwise specified, the |
| (2) | For |
| (3) | ||
| The community is subject to a ground lease, which, unless extended, will expire in 2082. |
| The |
| This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the |
| (6) | This community is owned by Wesco I. The |
| (7) | The |
| This community is subject to a ground lease, which, unless extended, will expire in 2067. |
| This community is subject to a ground lease, which, unless extended, will expire in 2027. |
| (10) | The |
| (11) | The |
(12) | The |
| (13) | The |
| The community is subject to a ground lease, which, unless extended, will expire in 2028. |
| (15) | The |
| (16) | This community is owned by Fund II. The Company has a 28.2% interest in Fund II which is accounted for using the equity method of accounting. |
| (17) | The Company is in the process of performing a |
| (18) | The |
| (19) | The |
| (20) | The |
| (21) | The |
| A portion of this community on which 84 units are presently located is subject to a ground lease, which, unless extended, will expire in 2028. |
| (23) | The |
| (24) | The community is subject to a ground lease, which, unless extended, will expire in 2070. |
| (25) | The |
| (26) | The Company completed a $36.3 million redevelopment in 2012, which included the construction of 28 in-fill units in 2009. |
| (27) | The Company completed the construction of 66 additional apartment homes in 2012 and is in the process of performing a |
| (28) | The |
| (29) | The |
| (30) | The |
| (31) | The Company occupies 100% of this property. |
| (32) | The property is |
| (33) | The |
The Operating Partnership carries comprehensive liability, fire, extended coverageinformation set forth and rental loss insurance for eachdiscussed regarding litigation relating to the merger transaction with BRE in note 16, “Commitments and Contingencies”, of the Properties. There are, however, certain typesour notes to consolidated financial statements included in Part IV, Item 15 of extraordinary losses, such as, for example, losses for terrorism or earthquake, for which the Operating Partnership does not have insurance coverage. Substantially all of the Properties are located in areas that are subject to earthquake activity.this Annual Report on Form 10-K is incorporated by reference into this Item 3.
The Operating PartnershipCompany is subject to various other lawsuits in the normal course of its business operations. Such lawsuits are not expected to have a material adverse effect on the Operating Partnership’sCompany’s financial condition, results of operations or cash flows.
Not Applicable.
27
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 | |||||||||
| December 31, 2013 | $ | 165.44 | $ | 137.53 | $ | 143.51 | ||||||
| September 30, 2013 | $ | 172.16 | $ | 139.64 | $ | 147.70 | ||||||
| June 30, 2013 | $ | 171.11 | $ | 147.56 | $ | 158.92 | ||||||
| March 31, 2013 | $ | 156.36 | $ | 147.06 | $ | 150.58 | ||||||
| December 31, 2012 | $ | 150.71 | $ | 136.38 | $ | 146.65 | ||||||
| September 30, 2012 | $ | 160.64 | $ | 147.38 | $ | 148.24 | ||||||
| June 30, 2012 | $ | 161.53 | $ | 146.05 | $ | 153.92 | ||||||
| March 31, 2012 | $ | 151.54 | $ | 136.43 | $ | 151.51 | ||||||
The closing price of ESS stock as of February 24, 2014 was $166.38.
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 256 as of February 24, 2014. 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.
As of February 24, 2014, there were 45 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, 2013, 2012, and 2011 related to common stock, and Series F, G and H preferred stock for tax purposes are as follows:
| 2013 | 2012 | 2011 | ||||||||||
| Common Stock | ||||||||||||
| Ordinary income | 77.34 | % | 70.58 | % | 63.68 | % | ||||||
| Capital gain | 17.64 | % | 8.75 | % | 11.16 | % | ||||||
| Unrecaptured section 1250 capital gain | 5.02 | % | 7.97 | % | 0.74 | % | ||||||
| Return of capital | 0.00 | % | 12.70 | % | 24.42 | % | ||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
| 2013 | 2012 | 2011 | ||||||||||
| Series F, G, and H Preferred stock | ||||||||||||
| Ordinary income | 77.34 | % | 80.85 | % | 100.00 | % | ||||||
| Capital gains | 17.64 | % | 10.02 | % | 0.00 | % | ||||||
| Unrecaptured section 1250 capital gain | 5.02 | % | 9.13 | % | 0.00 | % | ||||||
| 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 | 2013 | 2012 | 2011 | ||||||||||||
| 1995 | $ | 1.69 | March 31, | $ | 1.21 | $ | 1.10 | $ | 1.04 | ||||||||
| 1996 | $ | 1.72 | June 30, | $ | 1.21 | $ | 1.10 | $ | 1.04 | ||||||||
| 1997 | $ | 1.77 | September 30, | $ | 1.21 | $ | 1.10 | $ | 1.04 | ||||||||
| 1998 | $ | 1.95 | December 31, | $ | 1.21 | $ | 1.10 | $ | 1.04 | ||||||||
| 1999 | $ | 2.15 | |||||||||||||||
| 2000 | $ | 2.38 | Annual Dividend/Distribution | $ | 4.84 | $ | 4.40 | $ | 4.16 | ||||||||
| 2001 | $ | 2.80 | |||||||||||||||
| 2002 | $ | 3.08 | |||||||||||||||
| 2003 | $ | 3.12 | |||||||||||||||
| 2004 | $ | 3.16 | |||||||||||||||
| 2005 | $ | 3.24 | |||||||||||||||
| 2006 | $ | 3.36 | |||||||||||||||
| 2007 | $ | 3.72 | |||||||||||||||
| 2008 | $ | 4.08 | |||||||||||||||
| 2009 | $ | 4.12 | |||||||||||||||
| 2010 | $ | 4.13 | |||||||||||||||
Future dividends/distributions by ESS and the Operating Partnership will be at the discretion of the Board of Directors of ESS and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on ESS and the Operating Partnership present or future ability to pay dividends and distributions.
The Board of Directors has declared a dividend/distribution for the first quarter of 2014 of $1.21 per share. The dividend/distribution will be payable on March 31, 2014 to shareholders/unitholders of record as of March 14, 2014. The timing of the first quarter dividend/distribution is coordinated with BRE’s first quarter dividend, pursuant to the merger agreement.
On February 18, 2014, the ESS Board of Directors acknowledged management’s recommendation to increase the quarterly dividend by 9 cents to $1.30 per share/unit an annualized cash dividend/distribution of $5.20 per share/unit.
Future distributions by Essex Portfolio, L.P., will be at the discretion of the Board of Directors of Essex Portfolio, L.P.’s general partner, Essex Property Trust, Inc. and will depend on our actual cash flows from operations, our financial condition, capital requirements, Essex Property Trust, Inc.’s annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on Essex Portfolio, L.P.’s present or future ability to pay distributions.
Dividend Reinvestment and Share Purchase Plan
ESS has adopted a dividend reinvestment and share purchase plan designed to provide holders of common stock with a convenient and economical means to reinvest all or a portion of their cash dividends in shares of common stock and to acquire additional shares of common stock through voluntary purchases. Computershare, LLC, which serves as ESS transfer agent, administers the dividend reinvestment and share purchase plan. For a copy of the plan, contact Computershare, LLC at (312) 360-5354.
Securities Authorized for Issuance under Equity Compensation Plans
See ourthe Company’s disclosure in the 20072014 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.
Issuance of Registered Equity Securities
| Period | Total Number of Shares Sold | Average Price per Share | Proceeds (net of fees and commissions) | |||
| 4/5/07 to 5/6/07 | 1,670,500 | $127.91 | $213,672,000 | |||
During the second quarter of 2007 the Company2013, ESS sold 1,670,500913,344 shares of common stock for proceeds of $213.7$138.4 million, net of underwritercommissions, at an average price of $152.92. During the first quarter of 2014 through February 24, 2014, ESS has issued 462,555 shares of common stock at an average price of $162.97 for proceeds of $74.9 million, net of fees and expenses. The Operating Partnershipcommissions. These sales were pursuant to a registration statement and ESS used the net proceeds from the stock offerings to pay down outstanding borrowings under the Operating Partnership’s lines of credit and todebt, fund acquisitionredevelopment and development projects.pipelines, fund acquisitions, and for general corporate purposes.
Issuer Purchases of Equity Securities – Common Stock, Series G Cumulative Convertible Preferred Stock
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Total Amount that May Yet be Purchased Under the Plans or Programs | |||||
| 9/12/07 to 9/17/07 | 12,600 | $111.60 | 12,600 | $198,593,456 | |||||
| 11/13/07 to 11/31/07 | 196,059 | $101.90 | 208,659 | $178,615,425 | |||||
| 12/4/07 to 12/21/07 | 114,600 | $98.20 | 323,259 | $167,358,504 | |||||
| Total | 323,259 | $100.90 | 323,259 | $167,358,504 | |||||
In August 2007, the Company’sESS Board of Directors authorized a stock repurchase plan to allow the CompanyESS to acquire shares in an aggregate of up to $200 million. The program supersedes the common stockESS did not repurchase plan that Essex announced on May 16, 2001. During 2007 the Company repurchasedany shares during 2013, 2012 and retired 323,259 shares of its common stock for approximately $32.6 million. During January 2008, the Company repurchased and retired 137,500 shares of its common stock for approximately $13.2 million.2011. Since the CompanyESS announced the inception of the stock repurchase plan, the CompanyESS has repurchased and retired 460,759816,659 shares for $45.8$66.6 million at an average stock price of $99.40$81.56 per share, including commissions.commissions as of December 31, 2013.
Performance Graph
The line graph below compares the cumulative total stockholder return on ESS common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period. This comparison assumes that the value of the investment in the common stock and each index was $100 on December 31, 2008 and that all dividends were reinvested (1).
| Period Ending | |||||||||||||||||||||||||
| Index | 12/31/08 | 12/31/09 | 12/31/10 | 12/31/11 | 12/31/12 | 12/31/13 | |||||||||||||||||||
| Essex Property Trust, Inc. | 100.00 | 115.60 | 164.28 | 208.73 | 224.40 | 226.77 | |||||||||||||||||||
| NAREIT All Equity REIT Index | 100.00 | 127.99 | 163.76 | 177.32 | 212.26 | 218.32 | |||||||||||||||||||
| S&P 500 | 100.00 | 126.46 | 145.51 | 148.59 | 172.37 | 228.19 | |||||||||||||||||||
(1) Common stock performance data is provided by SNL Financial.
The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.
Unregistered SaleSales of Equity Securities and Use of Proceeds
During September 2007,the year ended December 31, 2013, the Operating Partnership acquired the Thomas Jefferson apartments in Sunnyvale, California, by acquiring ownership interests in the two limited partnerships that collectively owned the property. In connection with this acquisition, the limited partnerships were restructured to provide for limitedissued partnership units or DownREIT units, that are redeemable for cash, or at the Operating Partnership's sole discretion, cash or shares of the common stock of the Company. A total of 62,873 such units were issued. The issuance of such units was pursuant toin private placements in reliance on the exemption from registration set forth inprovided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
On December 10, 2013, Essex Portfolio, L.P. issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to twelve senior executives of 1933,the Company for no cash consideration.
During the year ended December 31, 2013, Essex Property Trust, Inc. issued an aggregate of 52,970 shares of its common stock upon the exercise of stock options. Essex Property Trust, Inc. contributed the proceeds from the option exercises of $5.0 million to our Operating Partnership in exchange for an aggregate of 52,970 common OP Units, as amended.required by the Operating Partnership’s partnership agreement.
The following tables set forth summary financial and operating information for the Company and the Operating Partnership from January 1, 20032009 through December 31, 2007.2013.
| Years Ended December 31, | |||||||||||||||
| 2007 | 2006(1) | 2005(1) | 2004(1) | 2003(1) | |||||||||||
| (In thousands, except per unit amounts) | |||||||||||||||
| OPERATING DATA: | |||||||||||||||
| REVENUES | |||||||||||||||
| Rental and other property | $ | 383,433 | $ | 334,770 | $ | 303,235 | $ | 266,722 | $ | 233,800 | |||||
| Management and other fees from affiliates | 5,090 | 5,030 | 10,951 | 23,146 | 6,027 | ||||||||||
| 388,523 | 339,800 | 314,186 | 289,868 | 239,827 | |||||||||||
| EXPENSES | |||||||||||||||
| Property operating expenses, excluding depreciation | |||||||||||||||
| and amortization | 128,424 | 114,398 | 104,479 | 93,666 | 77,307 | ||||||||||
| Depreciation and amortization | 100,389 | 78,094 | 74,849 | 66,414 | 51,814 | ||||||||||
| Amortization of deferred financing costs | 3,071 | 2,745 | 1,947 | 1,560 | 1,187 | ||||||||||
| General and administrative | 26,273 | 22,234 | 19,148 | 18,042 | 9,549 | ||||||||||
| Interest | 80,995 | 72,898 | 70,784 | 60,709 | 49,985 | ||||||||||
| Other expenses | 800 | 1,770 | 5,827 | - | - | ||||||||||
| 339,952 | 292,139 | 277,034 | 240,391 | 189,842 | |||||||||||
| Earnings from operations | 48,571 | 47,661 | 37,152 | 49,477 | 49,985 | ||||||||||
| Gain on the sales of real estate | - | - | 6,391 | 7,909 | - | ||||||||||
| Interest and other income | 10,310 | 6,176 | 8,524 | 3,077 | 668 | ||||||||||
| Equity income (loss) in co-investments | 3,120 | (1,503) | 18,553 | 40,683 | 2,349 | ||||||||||
| Minority interests | (4,847) | (4,977) | (5,340) | (4,550) | (4,696) | ||||||||||
| Income from continuing operations before income tax provision | 57,154 | 47,357 | 65,280 | 96,596 | 48,306 | ||||||||||
| Income tax provision | (400) | (525) | (2,538) | (257) | - | ||||||||||
| Income from continuing operations | 56,754 | 46,832 | 62,742 | 96,339 | 48,306 | ||||||||||
| Income from discontinued operations (net of minority interests | 80,546 | 33,015 | 35,558 | 7,469 | 8,660 | ||||||||||
| Net income | 137,300 | 79,847 | 98,300 | 103,808 | 56,966 | ||||||||||
| Write off of Series C preferred units offering costs | - | - | - | - | (625) | ||||||||||
| Write off of Series E preferred units offering costs | - | - | - | (1,575) | - | ||||||||||
| Amortization of discount on Series F preferred equity | - | - | - | - | (336) | ||||||||||
| Distributions on preferred units - Series F & G | (9,174) | (5,145) | (1,953) | (1,952) | (195) | ||||||||||
| Distributions on preferred units - limited partners | (10,238) | (10,238) | (10,238) | (14,175) | (17,996) | ||||||||||
| Net income available to common units | $ | 117,888 | $ | 64,464 | $ | 86,109 | $ | 86,106 | $ | 37,814 | |||||
| Per unit data: | |||||||||||||||
| Basic: | |||||||||||||||
| Net income from continuing operations available to | |||||||||||||||
| common units | $ | 1.38 | $ | 1.23 | $ | 2.00 | $ | 3.11 | $ | 1.23 | |||||
| Net income available to common units | $ | 4.36 | $ | 2.52 | $ | 3.40 | $ | 3.41 | $ | 1.59 | |||||
| Weighted average common units outstanding | 27,044 | 25,560 | 25,344 | 25,255 | 23,737 | ||||||||||
| Diluted: | |||||||||||||||
| Net income from continuing operations available to | |||||||||||||||
| common units | $ | 1.35 | $ | 1.21 | $ | 1.97 | $ | 3.09 | $ | 1.22 | |||||
| Net income available to common units | $ | 4.27 | $ | 2.48 | $ | 3.35 | $ | 3.38 | $ | 1.58 | |||||
| Weighted average common units outstanding | 27,597 | 26,030 | 25,694 | 25,490 | 23,948 | ||||||||||
| Cash dividend per common unit | $ | 3.72 | $ | 3.36 | $ | 3.24 | $ | 3.16 | $ | 3.12 | |||||
Essex Property Trust, Inc. and Subsidiaries
| Years Ended December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| ($ in thousands, except per share amounts) | ||||||||||||||||||||
| OPERATING DATA: | ||||||||||||||||||||
| Rental and other property | $ | 602,003 | $ | 526,696 | $ | 460,660 | $ | 400,841 | $ | 396,498 | ||||||||||
| Management and other fees from affiliates | 11,700 | 11,489 | 6,780 | 4,551 | 4,325 | |||||||||||||||
| Income before discontinued operations | $ | 140,882 | $ | 127,653 | $ | 46,958 | $ | 47,424 | $ | 41,244 | ||||||||||
| Income from discontinued operations | 31,173 | 11,937 | 10,558 | 3,358 | 12,495 | |||||||||||||||
| Net income | 172,055 | 139,590 | 57,516 | 50,782 | 53,739 | |||||||||||||||
| Net income available to common stockholders | $ | 150,811 | $ | 119,812 | $ | 40,368 | $ | 33,764 | $ | 82,200 | ||||||||||
| Per share data: | ||||||||||||||||||||
| Basic: | ||||||||||||||||||||
| Income before discontinued operations available to common stockholders | $ | 3.26 | $ | 3.10 | $ | 0.94 | $ | 1.03 | $ | 2.59 | ||||||||||
| Net income available to common stockholders | $ | 4.05 | $ | 3.42 | $ | 1.24 | $ | 1.14 | $ | 3.01 | ||||||||||
| Weighted average common stock outstanding | 37,249 | 35,032 | 32,542 | 29,667 | 27,270 | |||||||||||||||
| Diluted: | ||||||||||||||||||||
| Income before discontinued operations available to common stockholders | $ | 3.25 | $ | 3.09 | $ | 0.94 | $ | 1.03 | $ | 2.51 | ||||||||||
| Net income available to common stockholders | $ | 4.04 | $ | 3.41 | $ | 1.24 | $ | 1.14 | $ | 2.91 | ||||||||||
| Weighted average common stock outstanding | 37,335 | 35,125 | 32,629 | 29,734 | 29,747 | |||||||||||||||
| Cash dividend per common share | $ | 4.84 | $ | 4.40 | $ | 4.16 | $ | 4.13 | $ | 4.12 | ||||||||||
| As of December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| BALANCE SHEET DATA: | ||||||||||||||||||||
| Investment in rental properties (before accumulated depreciation) | $ | 5,443,757 | $ | 5,033,672 | $ | 4,313,064 | $ | 3,964,561 | $ | 3,412,930 | ||||||||||
| Net investment in rental properties | 4,188,871 | 3,952,155 | 3,393,038 | 3,189,008 | 2,663,466 | |||||||||||||||
| Real estate under development | 50,430 | 66,851 | 44,280 | 217,531 | 274,965 | |||||||||||||||
| Total assets | 5,186,839 | 4,847,223 | 4,036,964 | 3,732,887 | 3,254,637 | |||||||||||||||
| Total secured indebtedness | 1,404,080 | 1,565,599 | 1,745,858 | 2,082,745 | 1,832,549 | |||||||||||||||
| Total unsecured indebtedness | 1,629,444 | 1,253,084 | 615,000 | 176,000 | 14,893 | |||||||||||||||
| Cumulative convertible preferred stock | 4,349 | 4,349 | 4,349 | 4,349 | 4,349 | |||||||||||||||
| Cumulative redeemable preferred stock | 73,750 | 73,750 | 73,750 | 25,000 | 25,000 | |||||||||||||||
| Stockholders' equity | 1,884,619 | 1,764,804 | 1,437,527 | 1,149,946 | 1,053,096 | |||||||||||||||
| As of and for the years ended December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| ($ in thousands, except per share amounts) | ||||||||||||||||||||
| OTHER DATA: | ||||||||||||||||||||
Funds from operations (FFO)(1): | ||||||||||||||||||||
| Net income available to common stockholders | $ | 150,811 | $ | 119,812 | $ | 40,368 | $ | 33,764 | $ | 82,200 | ||||||||||
| Adjustments: | ||||||||||||||||||||
| Depreciation and amortization | 193,518 | 170,686 | 152,543 | 129,711 | 118,522 | |||||||||||||||
| Gains not included in FFO, net of internal disposition costs | (67,975 | ) | (60,842 | ) | (7,543 | ) | - | (7,943 | ) | |||||||||||
| Depreciation add back from unconsolidated co-invetsments and other, net | 23,377 | 21,194 | 14,804 | 7,893 | 7,607 | |||||||||||||||
| Funds from operations | $ | 299,731 | $ | 250,850 | $ | 200,172 | $ | 171,368 | $ | 200,386 | ||||||||||
| Non-core items: | ||||||||||||||||||||
| Loss (gain) on early retirement of debt | 300 | 5,009 | 1,163 | - | (4,750 | ) | ||||||||||||||
| Acquisition and merger costs | 5,445 | 2,255 | 1,231 | 1,250 | - | |||||||||||||||
| Gain on sale of marketable securities and note prepayment | (2,519 | ) | (819 | ) | (4,956 | ) | (12,491 | ) | (1,014 | ) | ||||||||||
| Co-investment promote income | - | (2,299 | ) | - | (500 | ) | - | |||||||||||||
| CEO retirement and non-recurring payroll costs | - | - | - | 2,127 | 4,358 | |||||||||||||||
| Redemption of preferred stock | - | - | 1,949 | - | (49,952 | ) | ||||||||||||||
| Impairment of development projects | - | - | - | - | 12,428 | |||||||||||||||
Other items. net (2) | (2,861 | ) | - | (2,780 | ) | (959 | ) | 32 | ||||||||||||
| Core funds from operations (Core FFO) | $ | 300,096 | $ | 254,996 | $ | 196,779 | $ | 160,795 | $ | 161,488 | ||||||||||
Weighted average number of shares outstanding, diluted (FFO)(3) | 39,501 | 37,378 | 34,861 | 32,028 | 29,747 | |||||||||||||||
| Funds from operations per share - diluted | $ | 7.59 | $ | 6.71 | $ | 5.74 | $ | 5.35 | $ | 6.74 | ||||||||||
| Core funds from operations per share - diluted | $ | 7.60 | $ | 6.82 | $ | 5.64 | $ | 5.02 | $ | 5.43 | ||||||||||
| As of December 31, | ||||||||||||||||
| 2007 | 2006(1) | 2005(1) | 2004(1) | 2003(1) | ||||||||||||
| BALANCE SHEET DATA: | ||||||||||||||||
| Investment in rental properties (before accumulated | ||||||||||||||||
| depreciation) | $ | 3,117,759 | $ | 2,669,187 | $ | 2,431,629 | $ | 2,371,194 | $ | 1,984,122 | ||||||
| Net investment in rental proerties | 2,575,772 | 2,204,172 | 2,042,589 | 2,041,542 | 1,718,359 | |||||||||||
| Real estate under development | 233,445 | 107,620 | 54,416 | 38,320 | 55,183 | |||||||||||
| Total assets | 2,980,323 | 2,485,840 | 2,239,290 | 2,217,217 | 1,916,811 | |||||||||||
| Total secured indebtedness | 1,362,873 | 1,186,554 | 1,129,918 | 1,161,184 | 976,545 | |||||||||||
| Total unsecured indebtedness | 294,818 | 225,000 | 225,000 | 155,800 | 12,500 | |||||||||||
| Cumulative convertible preferred equity | 145,912 | 145,912 | - | - | - | - | ||||||||||
| Cumulative redeemable preferred equity | 24,412 | 24,412 | 24,412 | 24,412 | 24,412 | |||||||||||
| Partners' capital (less redeemable preferred equity) | 972,769 | 774,217 | 737,497 | 752,991 | 787,396 | |||||||||||
| As of and for the years ended December 31, | ||||||||||||||||
| 2007 | 2006(1) | 2005(1) | 2004(1) | 2003(1) | ||||||||||||
| OTHER DATA: | ||||||||||||||||
Interest coverage ratio(2) | 3.0 | X | 2.8 | X | 2.7 | X | 3.0 | X | 3.1 | X | ||||||
Same-property gross operating margin(3)(4) | 67% | 67% | 66% | 65% | 66% | |||||||||||
| Average same-property monthly rental rate per | ||||||||||||||||
apartment unit(4)(5) | $ | 1,314 | $ | 1,225 | $ | 1,149 | $ | 1,055 | $ | 1,088 | ||||||
| Average same-property monthly operating expenses | ||||||||||||||||
per apartment unit(4)(6) | $ | 437 | $ | 421 | $ | 395 | $ | 331 | $ | 325 | ||||||
| Total apartment units (at end of period) | 27,489 | 27,553 | 26,587 | 25,518 | 26,012 | |||||||||||
Same-property occupancy rate(7) | 96% | 96% | 97% | 96% | 96% | |||||||||||
| Total Properties (at end of period) | 134 | 130 | 126 | 131 | 132 | |||||||||||
| (1) | FFO is a financial measure that is commonly used in the REIT industry. The Company presents funds from operations as a supplemental operating performance measure. FFO is not used by the Company, nor should it be considered to be, as an alternative to net earnings computed under GAAP as an indicator of the Company’s operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of the Company's ability to fund its cash needs. |
FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does it intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net earnings computed under GAAP remain the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings. The Company considers FFO and FFO excluding non-routine items (referred to as “Core FFO”) to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and its ability to pay dividends. Further, the Company believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.
| Years Ended December 31, | ||||||||||||||||
| 2007 | 2006(1) | 2005(1) | 2004(1) | 2003(1) | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
| RECONCILIATION OF NET INCOME TO | ||||||||||||||||
ADJUSTED EBITDA (2): | ||||||||||||||||
| Net income | $ | 137,300 | $ | 79,847 | $ | 98,300 | $ | 103,808 | $ | 56,966 | ||||||
| Interest expense | 80,995 | 72,898 | 70,784 | 60,709 | 49,985 | |||||||||||
| Tax expense | 400 | 525 | 2,538 | 257 | - | |||||||||||
| Depreciation and amortization | 100,389 | 78,094 | 74,849 | 66,414 | 51,814 | |||||||||||
| Amortization of deferred financing costs | 3,071 | 2,745 | 1,947 | 1,560 | 1,187 | |||||||||||
| Gain on the sales of real estate | - | - | (6,391) | (7,909) | - | |||||||||||
| Gain on the sales of co-investment activities, net | (2,046) | - | (18,116) | (39,242) | - | |||||||||||
| Minority interests | 4,847 | 4,977 | 5,340 | 4,550 | 4,696 | |||||||||||
| Income from discontinued operations (net of minority interest) | (80,546) | (33,015) | (35,558) | (7,469) | (8,660) | |||||||||||
Adjusted EBITDA(2) | 244,410 | 206,071 | 193,693 | 182,678 | 155,988 | |||||||||||
| Interest expense | 80,995 | 72,898 | 70,784 | 60,709 | 49,985 | |||||||||||
Interest coverage ratio(2) | 3.0 | X | 2.8 | X | 2.7 | X | 3.0 | X | 3.1 | X | ||||||
In calculating FFO, the Company follows the definition for this measure published by the National Association of Real Estate Investment Trusts (“NAREIT”), which is a REIT trade association. The Company believes that, under the NAREIT FFO definition, the three most significant adjustments made to net income are (i) the exclusion of historical cost depreciation, (ii) the exclusion of gains and losses from the sale of previously depreciated properties and (iii) the exclusion of impairment losses on depreciated properties. Essex agrees that these three NAREIT adjustments are useful to investors for the following reasons:
| historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and |
| (b) | REITs were created as a legal form of |
Essex Portfolio, L.P. and Subsidiaries
| Years Ended December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| ($ in thousands, except per unit amounts) | ||||||||||||||||||||
| OPERATING DATA: | ||||||||||||||||||||
| Rental and other property | $ | 602,003 | $ | 526,696 | $ | 460,660 | $ | 400,841 | $ | 396,498 | ||||||||||
| Management and other fees from affiliates | 11,700 | 11,489 | 6,780 | 4,551 | 4,325 | |||||||||||||||
| Income before discontinued operations | $ | 140,882 | $ | 127,653 | $ | 46,958 | $ | 47,424 | $ | 41,244 | ||||||||||
| Income from discontinued operations | 31,173 | 11,937 | 10,558 | 3,358 | 12,495 | |||||||||||||||
| Net income | 172,055 | 139,590 | 57,516 | 50,782 | 53,739 | |||||||||||||||
| Net income available to common unitholders | $ | 159,749 | $ | 127,771 | $ | 43,593 | $ | 42,842 | $ | 92,724 | ||||||||||
| Per unit data: | ||||||||||||||||||||
| Basic: | ||||||||||||||||||||
| Income before discontinued operations available to common unitholders | $ | 3.27 | $ | 3.11 | $ | 0.95 | $ | 1.04 | $ | 2.49 | ||||||||||
| Net income available to common unitholders | $ | 4.06 | $ | 3.43 | $ | 1.25 | $ | 1.14 | $ | 2.91 | ||||||||||
| Weighted average common units outstanding | 39,380 | 37,252 | 34,774 | 31,961 | 29,717 | |||||||||||||||
| Diluted: | ||||||||||||||||||||
| Income before discontinued operations available to common unitholders | $ | 3.26 | $ | 3.10 | $ | 0.95 | $ | 1.03 | $ | 2.49 | ||||||||||
| Net income available to common unitholders | $ | 4.05 | $ | 3.42 | $ | 1.25 | $ | 1.14 | $ | 2.91 | ||||||||||
| Weighted average common units outstanding | 39,467 | 37,344 | 34,861 | 32,028 | 29,747 | |||||||||||||||
| Cash distributions per common unit | $ | 4.84 | $ | 4.40 | $ | 4.16 | $ | 4.13 | $ | 4.12 | ||||||||||
| As of December 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||
| BALANCE SHEET DATA: | ||||||||||||||||||||
| Investment in rental properties (before accumulated depreciation) | $ | 5,443,757 | $ | 5,033,672 | $ | 4,313,064 | $ | 3,964,561 | $ | 3,412,930 | ||||||||||
| Net investment in rental properties | 4,188,871 | 3,952,155 | 3,393,038 | 3,189,008 | 2,663,466 | |||||||||||||||
| Real estate under development | 50,430 | 66,851 | 44,280 | 217,531 | 274,965 | |||||||||||||||
| Total assets | 5,186,839 | 4,847,223 | 4,036,964 | 3,732,887 | 3,254,637 | |||||||||||||||
| Total secured indebtedness | 1,404,080 | 1,565,599 | 1,745,858 | 2,082,745 | 1,832,549 | |||||||||||||||
| Total unsecured indebtedness | 1,629,444 | 1,253,084 | 615,000 | 176,000 | 14,893 | |||||||||||||||
| Cumulative convertible preferred interest | 4,349 | 4,349 | 4,349 | 4,349 | 4,349 | |||||||||||||||
| Cumulative redeemable preferred interest | 71,209 | 71,209 | 71,209 | 104,412 | 104,412 | |||||||||||||||
| Partners' capital | 1,932,108 | 1,811,427 | 1,486,914 | 1,284,515 | 1,200,208 | |||||||||||||||
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto. These consolidated financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results and all such adjustments are of a normal recurring nature.
On December 19, 2013, ESS and BRE Properties, Inc. (“BRE”) entered into a definitive agreement to combine the two companies. Under the terms of the agreement, each BRE common share will be converted into 0.2971 newly issued shares of ESS common stock plus $12.33 in cash. The merger is subject to customary closing conditions, including receipt of approval of ESS shareholders and BRE shareholders. Additional information about the merger can be found in the Form S-4 filed with the SEC on January 29, 2014 and in other relevant documents that the Company files with the SEC, which are available free of charge on the Company’s website at www.essexpropertytrust.com and on the SEC’s website at www.sec.gov.
Certain statements below discuss the Company’s estimates of its 2014 regional Same-Property revenues; these estimates are for Essex on a standalone basis, excluding the impact of the proposed merger with BRE.
OVERVIEW
The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. OurThe Company’s strong financial condition supports ourits investment strategy by enhancing ourits ability to quickly shift our acquisition, development, and disposition activities to markets that will optimize the performance of the portfolio.
As of December 31, 2007, we2013, the Company had ownership interests in 134 apartment164 communities, comprising 27,48934,079 apartment units. Ourunits, and the apartment communities are located in the following major West Coast regions:
Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties)
Northern California (the San Francisco Bay Area)
Seattle Metro (Seattle metropolitan area)
As of December 31, 2007, we2013, the Company also had ownership interests in six officefour commercial buildings (with approximately 478,340315,900 square feet), two recreational vehicle parks (comprising 338 spaces) and one manufactured housing community (containing 157 sites).
As of December 31, 2007, our consolidated2013, the Company’s development pipeline was comprised of threetwo consolidated projects under development, nine unconsolidated joint venture projects fiveunder development and one consolidated predevelopment projects and five land parcels held for future developmentproject aggregating 2,7762,701 units, with total incurred costs of $233.5$696.7 million, and estimated remaining project costs of approximately $537.1$407.0 million for total estimated project costs of $770.6 million.
$1.1 billion. By region, the Operating Partnership'sCompany's operating results for 20072013 and rent2012 and projections for 2014 new housing supply, job growth, analysis for 2008and rental income are as follows:
Southern California Region: As of December 31, 2007,2013, this region represented 48%46% of ourthe Company’s consolidated apartment units. During the year ended December 31, 2007, Same-Property2013, revenues for “2013/2012 Same-Properties” (as defined below), or “Same-Property revenues,” increased 4.4% in 2013 as compared to 2006. The Operating Partnership2012. In 2014, the Company expects in 2008 new residential supply of 12,20015,400 multifamily and 10,500 single family homes, and 15,600 apartment units which represents a total new multifamily supply of 0.7% and 0.5% of existing stock.total housing stock, respectively. The Operating Partnership expects this regionCompany assumes an increase of 132,400 jobs or 1.9%, and an increase in same-property revenues between 3.8% to add 40,000 new jobs and generate market rent growth ranging from 1% to 3%5.0% in 2008.2014.
Northern California Region: As of December 31, 2007,2013, this region represented 31%32% of ourthe Company’s consolidated apartment units. Same-Property revenues increased 9.4%8.2% in 20072013 as compared to 2006. The Operating Partnership2012. In 2014, the Company expects in 2008 new residential supply of 5,80010,800 multifamily and 5,225 single family homes, and 7,200 apartment units which represents a total new multifamily supply of 0.4%1.3% and 0.7%, respectively, of existingtotal housing stock. The Operating Partnership expects this regionCompany assumes an increase of 73,000 jobs or 2.5%, and an increase in same-property revenues between 6.3% to add 38,000 new jobs and generate market rent growth ranging from 5% to 7%7.8% in 2008.2014.
Seattle Metro Region: As of December 31, 2007,2013, this region represented 20%22% of ourthe Company’s consolidated apartment units. Same-Property revenues increase 11.0%increased 7.7% in 20072013 as compared to 2006. The Operating Partnership2012. In 2014, the Company expects in 2008 new residential supply of 8,0008,500 multifamily and 6,500 single family homes, and 4,500 apartment units which represents a total new multifamily supply of 1.2%1.9% and 1.3%, respectively, of existingtotal housing stock. The Operating Partnership expects this regionCompany assumes an increase of 39,000 jobs or 2.6%, and an increase in same-property revenues between 5.5% to add 28,000 new jobs and generate market rent growth ranging from 5% to 7%7.0% in 2008.2014.
The Operating Partnership’sCompany expects 2014 Same-Property revenues to increase compared to 2013 results, as renewal and new leases are signed at higher rents in 2014 than 2013. Same-Property operating expenses are expected to increase in 2014, and forecasted increases in property taxes account for approximately 56% of the forecasted increase in property expenses in 2014 compared to 2013.
The Company’s consolidated apartment communities are as follows:
| As of December 31, 2013 | As of December 31, 2012 | |||||||||||||||
| Apartment Units | % | Apartment Units | % | |||||||||||||
| Southern California | 13,855 | 46 | % | 13,656 | 47 | % | ||||||||||
| Northern California | 9,431 | 32 | % | 8,987 | 31 | % | ||||||||||
| Seattle Metro | 6,703 | 22 | % | 6,598 | 22 | % | ||||||||||
| Total | 29,989 | 100 | % | 29,241 | 100 | % | ||||||||||
| As of December 31, 2007 | As of December 31, 2006 | ||||
| Apartment Units | % | Apartment Units | % | ||
| Southern California | 12,725 | 52% | 12,965 | 55% | |
| Northern California | 6,361 | 26% | 5,389 | 23% | |
| Seattle Metro | 5,005 | 21% | 4,905 | 21% | |
| Other Regions | 302 | 1% | 302 | 1% | |
| Total | 24,393 | 100% | 23,561 | 100% | |
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 20072013 to the Year Ended December 31, 20062012
Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant units. The Company may increase or decrease 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. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates, as disclosed by other REITs, may not be comparable to ourthe Company’s calculation of financial occupancy.
The Company does not take into account delinquency and concessions to calculate actual rent for occupied units and market rents for vacant units. The calculation of financial occupancy compares contractual rates for occupied units to estimated market rents for unoccupied units, thus the calculation compares the gross value of all apartment units excluding delinquency and concessions. For apartment 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 an apartment 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.
The regional breakdown of the Operating Partnership’s 2007/2006Company’s 2013/2012 Same-Property portfolio for financial occupancy for the years ended December 31, 20072013 and 20062012 is as follows:
| Years ended | ||||||||
| December 31, | ||||||||
| 2013 | 2012 | |||||||
| Southern California | 96.1 | % | 96.1 | % | ||||
| Northern California | 96.3 | % | 96.7 | % | ||||
| Seattle Metro | 96.1 | % | 96.1 | % | ||||
| Years ended | |||
| December 31, | |||
| 2007 | 2006 | ||
| Southern California | 95.6% | 96.3% | |
| Northern California | 96.8% | 96.7% | |
| Seattle Metro | 96.3% | 96.8% | |
| Other Regions | 92.5% | 90.6% | |
The following table provides a breakdown of revenue amounts, including the revenues attributable to 2007/20062013/2012 Same-Properties.
| Years Ended | ||||||||||||||||||||
| Number of | December 31, | Dollar | Percentage | |||||||||||||||||
| Properties | 2013 | 2012 | Change | Change | ||||||||||||||||
Property Revenues ($ in thousands) | ||||||||||||||||||||
| 2013/2012 Same-Properties: | ||||||||||||||||||||
| Southern California | 58 | $ | 235,306 | $ | 225,435 | $ | 9,871 | 4.4 | % | |||||||||||
| Northern California | 35 | 184,508 | 170,578 | 13,930 | 8.2 | |||||||||||||||
| Seattle Metro | 29 | 93,139 | 86,483 | 6,656 | 7.7 | |||||||||||||||
| Total 2013/2012 Same-Property revenues | 122 | 512,953 | 482,496 | 30,457 | 6.3 | |||||||||||||||
| 2013/2012 Non-Same Property Revenues (1) | 89,050 | 44,200 | 44,850 | 101.5 | ||||||||||||||||
| Total property revenues | $ | 602,003 | $ | 526,696 | $ | 75,307 | 14.3 | % | ||||||||||||
| Years Ended | ||||||||||||||
| Number of | December 31, | Dollar | Percentage | |||||||||||
| Properties | 2007 | 2006 | Change | Change | ||||||||||
Property Revenues (dollars in thousands) | ||||||||||||||
| 2007/2006 Same-Properties: | ||||||||||||||
| Southern California | 56 | $ | 185,060 | $ | 177,336 | $ | 7,724 | 4.4 | % | |||||
| Northern California | 16 | 60,024 | 54,887 | 5,137 | 9.4 | |||||||||
| Seattle Metro | 22 | 56,427 | 50,852 | 5,575 | 11.0 | |||||||||
| Other Regions | 1 | 2,015 | 1,980 | 35 | 1.8 | |||||||||
| Total 2007/2006 Same-Property revenues | 95 | 303,526 | 285,055 | 18,471 | 6.5 | |||||||||
| 2007/2006 Non-Same Property Revenues (1) | 79,907 | 49,715 | 30,192 | 60.7 | ||||||||||
| Total property revenues | $ | 383,433 | $ | 334,770 | $ | 48,663 | 14.5 | % | ||||||
(1) Includes twelvefifteen communities acquired after January 1, 2006, eleven2012, two redevelopment communities, and three office buildings and one development community.commercial buildings.
36
Management and other fees from affiliates increased only slightly by $0.1$0.2 million or 1.8% to $5.1$11.7 million in 2007. These fees consist of $4.82013 compared to $11.5 million in fee income2012. The increase is primarily due to the asset and property management fees earned from Wesco I and II co-investments formed during 2011, and development fees earned from the joint ventures formed during 2012, and development fees earned from the development joint venture formed in 2013 and 2012 to develop Epic, Expo, Connolly Station, Park 20 (fka Elkhorn), Mosso I and II, The Huxley, The Dylan, The Village and One South Market. The increase in management fees was offset by a reduction of $2.3 million in asset and property management fees from the sale of eight Fund II and $0.3 million in promote income from Fund I in 2007, compared to $3.8 million in fee income primarily fromcommunities since the fourth quarter of 2012. An additional four communities owned by Fund II were sold in 2013, and $1.2 millionthe remaining two communities are expected to be sold in promote income from Fund I in 2006.2014.
Real estate taxes increased $8.9 million or 18.5% in 2013 compared to 2012, due primarily to the acquisition of fifteen communities. 2013/2012 Same-Property real estate taxes increased by $2.6 million or 6.0% for the 2013 compared to 2012 due to $1.3 million or 17.5% increase in the numberproperty taxes for Seattle Metro due to higher assessed values for 2013, and an increase of communities, increase3.7% in assessmentsproperty taxes for the Operating Partnership’s California communities that are limited to 2% per year and large increases in assessmentsmajority of the communitiesproperties located in the Seattle metropolitan area. California.
Depreciation expense increased by $22.3$23.2 million or 28.5% for 2007,13.7% in 2013 compared to 2012, due to the acquisition of twelve communities after January 1, 2006fifteen communities. The increase is due to the capitalization of approximately $104.2 million in additions to rental properties through 2013, including $42.0 million spent on redevelopment, $21.2 million on improvements to recent acquisitions, $8.6 million on lessor required capital expenditures, and recording depreciation$5.3 million spent on revenue generating capital expenditures. Approximately $92.0 million in additions to rental properties was capitalized for 2012, including $39.0 million spent on redevelopment, $13.7 million spent on improvements to recent acquisitions, and $7.7 million spent on revenue generating capital expenditures.
General and administrative expense increased $2.3 million or 9.8% in 2013 compared to 2012 primarily due to annual compensation increases for merit, investments in technology, and the Cadence Campusaddition of staff.
Merger expenses include, but are not limited to, advisor fees, legal fees, and Hollywood commercial buildings, which are predevelopment propertiesaccounting fees related to the pending merger with short-term tenant leases. BRE Properties, Inc. (“BRE”). The Company entered into a definitive agreement to combine with BRE in December 2013. Merger expenses were $4.3 million for 2013 and zero for 2012.
Interest expense before amortization increased $8.1$4.4 million or 11.1% due4.3% in 2013, primarily to due to an increase in average outstanding debt for the funding of redevelopment2012 and 2013 acquisitions and development pipeline.
Interest and other income decreased by $2.2 million in 2013 primarily due to $2.3 million of promote income earned from achieving certain performance hurdles related to the Essex Skyline co-investment in 2012.
Equity income in co-investments increased by $14.2 million to $55.9 million in 2013 compared to $41.7 million in 2012. The increase was primarily due to the Company’s share of the gain on the Operating Partnership’s linessale of creditfive Fund II communities of $38.8 million, net of internal disposition costs, and an increase$1.4 million income earned from the early prepayment of outstanding mortgage notes payable. Generala preferred equity investment in 2013. Additionally, equity income increased with income earned from four communities acquired by the Wesco joint ventures in the second half of 2012 and administrative costs increased $4.0 million or 18.2% due to antwo communities in the second quarter of 2013. The increase in costs related to employees working on Fund II development and redevelopment projects that can not be capitalizedequity income in 2013 by the Operating Partnership of approximately $1.5 million, an increaseWesco joint venture was offset by a decrease in the number of employees, annual increases in compensation and increased bonuses.
Loss on Lake Merritt in 2004. Other expensesearly retirement of $1.8debt, net was $0.3 million for the year ended 2006, relate2013 compared to $1.0$5.0 million in pursuit2012. The $0.3 million loss in 2013 reflects a gain of $1.5 million earned from the redemption of bonds in the second quarter of 2013 offset by losses incurred from the write-off of deferred financing costs and prepayment penalties related to the Operating Partnership’s attempt to acquire the Town & Country REIT, and a $0.8 million impairment charge resulting from a write-downprepayment of a communitysecured debt loans in Houston, Texas.
Income from discontinued operations for 2007 includes the gain2013 was $31.2 million and included gains of $29.2 million from the salesales of four communities in the Portland metropolitan region of $51.9 million, sale of the City Heights joint venture property net of minority interest for a gain of $13.7 million, $10.3 million in fees from the joint venture partner,Linden Square, Brentwood and the net gain on sale of 21 condominiums at Peregrine Point for $1.0 million. During the year ended 2006,Cambridge. For 2012, income from discontinued operations was $11.9 million and included a gain of $8.8$9.8 million from the sale of Tierra del Sol/Norte and Alpine Country, net of internal disposition costs. Discontinued operations for 2013 and 2012 reflect the Vista Pointe joint venture property and $8.2 million in fees, a gain of $3.1 million on the sales of Vista Capri East, Casa Tierra, and Diamond Valley properties, and a gain of $2.0 million from the saleoperating results of the first 45 condominiums at Peregrine Point.three communities sold in 2013 and the two communities sold in 2012.
Comparison of Year Ended December 31, 20062012 to the Year Ended December 31, 20052011
2012 and 2011. The regional breakdown of the Operating Partnership’sCompany’s stabilized 2006/20052012/2011 Same-Property portfolio for financial occupancy for the years ended December 31, 20062012 and 20052011 is as follows:
| Years ended | ||||||||
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Southern California | 96.1 | % | 96.3 | % | ||||
| Northern California | 96.7 | % | 96.6 | % | ||||
| Seattle Metro | 96.1 | % | 96.4 | % | ||||
| Years ended | |||
| December 31, | |||
| 2006 | 2005 | ||
| Southern California | 96.3% | 96.5% | |
| Northern California | 96.7% | 97.1% | |
| Seattle Metro | 96.9% | 96.7% | |
| Other Regions | 90.6% | 88.1% | |
The following table provides a breakdown of revenue amounts, including the revenues attributable to 2006/20052012/2011 Same-Properties.
| Years Ended | ||||||||||||||||||||
| Number of | December 31, | Dollar | Percentage | |||||||||||||||||
| Properties | 2012 | 2011 | Change | Change | ||||||||||||||||
Property Revenues ($ in thousands) | ||||||||||||||||||||
| 2012/2011 Same-Properties: | ||||||||||||||||||||
| Southern California | 56 | $ | 224,779 | $ | 215,738 | $ | 9,041 | 4.2 | % | |||||||||||
| Northern California | 33 | 159,993 | 146,008 | 13,985 | 9.6 | |||||||||||||||
| Seattle Metro | 27 | 83,153 | 76,650 | 6,503 | 8.5 | |||||||||||||||
| Total 2012/2011 Same-Property revenues | 116 | 467,925 | 438,396 | 29,529 | 6.7 | |||||||||||||||
| 2012/2011 Non-Same Property Revenues (1) | 58,771 | 22,264 | 36,507 | 164.0 | ||||||||||||||||
| Total property revenues | $ | 526,696 | $ | 460,660 | $ | 66,036 | 14.3 | % | ||||||||||||
| Years Ended | ||||||||||||||
| Number of | December 31, | Dollar | Percentage | |||||||||||
| Properties | 2006 | 2005 | Change | Change | ||||||||||
Property Revenues (dollars in thousands) | ||||||||||||||
| 2006/2005 Same-Properties: | ||||||||||||||
| Southern California | 53 | $ | 174,156 | $ | 164,550 | $ | 9,606 | 5.8 | % | |||||
| Northern California | 16 | 54,887 | 50,625 | 4,262 | 8.4 | |||||||||
| Seattle Metro | 21 | 48,663 | 44,551 | 4,112 | 9.2 | |||||||||
| Other Regions | 1 | 1,980 | 1,843 | 137 | 7.4 | |||||||||
| Total 2006/2005 Same-Property revenues | 91 | 279,686 | 261,569 | 18,117 | 6.9 | |||||||||
| 2006/2005 Non-Same Property Revenues (1) | 55,084 | 41,666 | 13,418 | 32.2 | ||||||||||
| Total property revenues | $ | 334,770 | $ | 303,235 | $ | 31,535 | 10.4 | % | ||||||
(1) Includes eightthirteen communities acquired subsequent toafter January 1, 2005, ten2011, one redevelopment community, five development communities, and three officecommercial buildings.
Management and other fees from affiliates increased $4.7 million or 69.5% to $11.5 million in 2012 compared to $6.8 million in 2011. The increase is primarily due to the asset and property management fees earned from Wesco I and II co-investments formed during 2011, and development fees earned from the joint ventures formed in 2011 and 2012 to develop Epic, Expo, Connolly Station, Park 20 (fka Elkhorn), Mosso I and Mosso II (fka Folsom and Fifth), The Huxley and The Dylan development projects.
Property operating expenses, excluding real estate taxes increased $10.1 million or 8.9% in 2012 compared to 2011, primarily due to the acquisition of thirteen communities and the lease-up of five development properties. 2012/2011 Same-Property operating expenses excluding real estate taxes increased by $1.9 million or 1.7% for 2012 compared to 2011, due mainly to a $1.5 million increase in salaries, marketing, and administration costs and a $0.3 million increase in utilities due to increases in rates for water and sewer.
Real estate taxes increased $4.6 million or 10.5% in 2012 compared to 2011, due primarily to the acquisition of thirteen communities and expensing property taxes instead of capitalizing the cost for communities that were previously under development. 2012/2011 Same-Property real estate taxes increased by $0.9 million or 2.3% for 2012 compared to 2011 due to an increase of 5.3% in property taxes for the Seattle Metro and 2.0% in property taxes for the majority of properties located in California regulated by Proposition 13 offset by temporary reductions in assessed property valuations for selected communities located in California.
Depreciation expense increased by $19.2 million or 12.8% in 2012 compared to 2011, due to the acquisition of thirteen communities and the lease-up of five development properties. The increase is due to the capitalization of approximately $92.0 million in additions to rental properties in 2012, including $39.0 million spent on redevelopment, $13.7 million spent on improvement to recent acquisitions, and $7.7 million spent on revenue generating capital expenditures. Approximately $95.3 million in additions to rental properties was capitalized for 2011, including $45.1 million spent on redevelopment, $16.4 million spent on improvements to recent acquisitions, and $7.6 million spent on revenue generating capital expenditures.
General and administrative expense increased $2.6 million or 12.6% in 2012 compared to 2011 primarily due to an increase of acquisitions cost of $1.3 million compared to 2011 related to the increase in acquisitions in 2012 compared to 2011, annual compensation adjustments for merit, and the cost of hiring additional staff to manage the new acquisitions.
Cost of management and other fees increased $1.9 million or 41.3% in 2012 compared to 2011 primarily due to an increase in administrative costs due to hiring of additional staff to assist with the management of the Company’s co-investments including Wesco I and II and the development joint ventures formed in 2011 and 2012.
Interest expense before amortization increased $8.6 million or 9.3% in 2012 compared to 2011, primarily due to the payoff of the $250 million secured line of credit in the fourth quarter of 2011 which had an average interest rate of 1.3%. The Company replaced the secured line with an unsecured term loan at an average interest rate of 2.7%. Also, on March 31, 2011, the Company issued $150 million of private placement notes with an average interest rate of 4.5%, on August 15, 2012 the Company issued $300 million of new unsecured bonds with an interest rate of 3.625%, and the Company drew an additional $150 million on a bank term loan in the fourth quarter of 2012. Thus, interest expense increased due to an increase in average outstanding debt for the funding of 2012 acquisitions and the development pipeline and a higher average interest rate for 2012 compared to 2011.
Interest and other income decreased by approximately $5.9 million or 54.1% for 2006 due primarily to $7.1$3.3 million in 2012 primarily due to $2.3 million of promote income recorded during the year ended 2005earned from achieving certain performance hurdles related to the Essex Skyline co-investment and the sale of Fund I assets, asmarketable securities for a gain of $0.8 million in 2012, compared to $1.2a gain of $5.0 million from the sale of marketable securities, $0.2 million gain from the sale of a land parcel, and a $1.7 million income tax benefit from a taxable REIT subsidiary that met the “more likely than not” threshold in the fourth quarter of 2011. This tax benefit relates to the write-off of an investment in a joint venture development project recognized during 2009.
Equity income (loss) in co-investments was income of $41.7 million in promote income from Fund I during 2006.
Gain on remeasurement of co-investment of $21.9 million in 2012 was due to the Company’s acquisition of the joint venture partner’s membership interest in Essex Skyline at MacArthur Place which the Company subsequently consolidated. Upon consolidation, a gain was recorded equal to the amount by which the fair value of the Company’s previously noncontrolling interest exceeded its carrying value.
Loss on early retirement of debt was $5.0 million for 2012 and (iv) pre-payment penalties andwas due to the write-off of deferred charges in the amount of $1.6 millionfinancing costs and prepayment penalties related to the early termination of various mortgage notes payable duringsecured debt related to six communities. The loss for 2012 also included the fourth quarterCompany’s pro-rata share of 2005.
Income from discontinued operations for 2006 relates primarily to the gain on sale of 45 Peregrine Point condominiums for $2.02012 was $11.9 million a gain on sale of the Vista Pointe joint venture property for $8.8 million plus fees and promote income from that sale of $8.2 million,included a gain of $3.1$9.8 million onfrom the salessale of the Vista Capri East, Casa Tierra del Sol/Norte and Diamond Valley properties,Alpine Country, net of internal disposition costs. For 2011, income from discontinued operations was $10.6 million and included a gain of $6.7$7.5 million onfrom the sale of Emerald Palms community.Woodlawn Colonial and Clarendon, net of internal disposition costs. Discontinued operations for 2005 relates primarily to2012 and 2011 reflect the saleoperating results of the Eastridge Apartmentstwo communities sold in the second quarter of 2005, for a gain on sale of $28.5 million, a gain of $0.7 million attributed to the sale of four small assets,both 2012 and $1.2 million in rental revenues related to the Eastridge community.2011.
Liquidity and Capital Resources
The following table sets forth the Company’s cash flows for 2013 and 2012 ($ in thousands):
| For the year | ||||||||||||||||||||
| ended | For the quarter ended | |||||||||||||||||||
| 12/31/13 | 12/31/2013 | 9/30/2013 | 6/30/2013 | 3/31/2013 | ||||||||||||||||
| Cash flow provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 304,982 | $ | 79,900 | 74,496 | 64,894 | 85,692 | |||||||||||||
| Investing activities | (453,696 | ) | (144,709 | ) | (27,306 | ) | (175,944 | ) | (105,737 | ) | ||||||||||
| Financing activities | 148,599 | 73,791 | (57,898 | ) | 100,423 | 32,283 | ||||||||||||||
| For the year | ||||||||||||||||||||
| ended | For the quarter ended | |||||||||||||||||||
| 12/31/12 | 12/31/2012 | 9/30/2012 | 6/30/2012 | 3/31/2012 | ||||||||||||||||
| Cash flow provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 267,499 | $ | 48,164 | $ | 89,943 | $ | 57,232 | $ | 72,160 | ||||||||||
| Investing activities | (812,138 | ) | (294,072 | ) | (201,888 | ) | (272,127 | ) | (44,051 | ) | ||||||||||
| Financing activities | 550,356 | 262,571 | 109,756 | 205,283 | (27,254 | ) | ||||||||||||||
ESS’s business is operated primarily through the Operating Partnership. ESS issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. ESS itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. ESS’s principal funding requirement is the payment of dividends on its common stock and preferred stock. ESS’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.
As of December 31, 2013, ESS owned an a 94.6% general partner interest and the limited partners owned the remaining 5.4% interest in the Operating Partnership.
The liquidity of ESS is dependent on the Operating Partnership’s ability to make sufficient distributions to ESS. The primary cash requirement of ESS is its payment of dividends to its stockholders. ESS also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 7 and 8 of the Notes to Consolidated Financial Statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the ESS’s guarantee obligations, then ESS will be required to fulfill its cash payment commitments under such guarantees. However, ESS’s only significant asset is its investment in the Operating Partnership.
For ESS to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically ESS has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, ESS’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. ESS may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.
Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) has issued a corporate credit rating of BBB/Stable foragencies rate Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa2/Stable, and BBB/Stable, respectively.
At December 31, 2007,2013, the Operating PartnershipCompany had $10.0$18.5 million of unrestricted cash and cash equivalents. We believeequivalents and $90.1 million in marketable securities, of which $31.4 million were held available for sale. The Company believes that cash flows generated by ourits operations, existing cash, cash equivalents, marketable securities balances, availability under existing lines of credit and the $1.0 billion bridge loan, access to capital markets and the ability to generate cash gains from the disposition of real estate are sufficient to meet all of ourthe Company’s reasonably anticipated cash needs during 2008.2014. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect ourthe Company’s plans for acquisitions, dispositions, development and redevelopment activities.
During April 2013, the Company issued $300 million of senior unsecured bonds due May 1, 2023 with a coupon rate of 3.25% per annum. The interest is payable semi-annually in arrears on May 1 and November 1 of each year, commencing November 1, 2013 until the maturity date of May 1, 2023. The Company used the net proceeds of this offering to repay indebtedness under the Company’s $600 million unsecured line of credit facility and asfor other general corporate and working capital purposes.
As of December 31, 2007, there was $61.02013, the Company had a $350 million balance on the lineunsecured term loan outstanding at an average interest rate of 6.2%2.5%. This facility matures in March 2009, with an optionThe term loan has a variable interest rate of LIBOR plus 1.2%. During the fourth quarter of 2012, the Company increased the size of the term loan from $200 million to $350 million. The Company entered into interest rate swap contracts for a one-year extension. Theterm of five years with a notional amount totaling $300 million, which effectively converted the interest rate on $300 million of the term loan to a fixed rate. In January 2014, the term loan was amended and the underlying interest rate on this linethe term loan, which is based on a tiered rate structure tied to an S&P rating on the credit facility (currently BBB-) atCompany’s corporate ratings, was reduced from LIBOR plus 0.8%1.20% to LIBOR plus 1.05%. We also have a $100.0 million credit facility from Freddie Mac, which is secured by eight apartment communities and which matures in January 2009.
As of December 31, 2007,2013, the Operating PartnershipCompany’s mortgage notes payable totaled $1.4 billion which consisted of $1.2 billion in fixed rate debt with interest rates varying from 4.3% to 6.4% and maturity dates ranging from 2015 to 2021 and $167.6 million of tax-exempt variable rate demand notes with a weighted average interest rate of 1.6%. The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2039, and $156.9 million are subject to interest rate caps.
As of December 31, 2013, the Company had $100.0$465 million outstanding under this line of creditunsecured bonds outstanding at an average interest rate of 5.4%. 4.5% with maturity dates ranging from March 2016 through August 2021.
During the third quarter of 2012, the Company issued $300 million of senior unsecured bonds due August 2022 with a coupon rate of 3.625% per annum and payable on February 15th and August 15th of each year, beginning February 15, 2013.
The underlying interest rate on this line is between 55 and 59 basis points over the Freddie Mac Reference Rate. In 2007, the Operating Partnership entered into anCompany’s unsecured revolving line of credit for $10.0 million with a commercial bank with an initial maturity date of March 2008. Borrowing under this revolving line of credit bears an interest rate at the bank’s Prime Rate less 2.0%. As of December 31, 2007 there was an $8.8 million balance on the revolving line of credit at an average interest rate of 5.6%. The line is used to fund short-term working capital needs. The Operating Partnership’s line of creditand unsecured debt agreements contain debt covenants related to limitations on indebtedness
and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth. Certain terms and covenants of the $200.0 million unsecured line of credit were amended during the third quarter of 2007.amortization. The Operating PartnershipCompany was in compliance with the line of creditdebt covenants as of December 31, 20072013 and 2012.
The Company pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Company primarily in investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its line of credit.
The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future. 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) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely impacted. For the past two years the Company has primarily issued unsecured debt and repaid secured debt when it has matured to place less reliance on mortgage debt financing, and to unencumber more of the Company's communities.
Derivative Activity
The Company uses interest rate swaps and interest rate cap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
The Company has entered into interest rate swap contracts with an aggregate notional amount of $300 million that effectively fixed the interest rate on $300 million of the $350 million unsecured term loan at 2.29%. These derivatives qualify for hedge accounting.
As of December 31, 2006. Fund II has2013 the Company also had nine interest rate cap contracts totaling a credit facility aggregating $21.0 million. This line bearsnotional amount of $156.9 million that qualify for hedge accounting as they effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $156.9 million of the $167.6 million of the Company’s tax exempt variable rate debt.
During the third quarter 2012, the Company terminated a swap transaction with respect to the $38.0 million of tax-exempt bonds for the 101 San Fernando apartment community with Citibank because the bonds were repurchased by the Company at LIBOR plus 0.875%par.
As of December 31, 2013 and matures2012, the aggregate carrying value of the interest rate swap contracts was a liability of $2.7 million and $6.6 million, respectively. The aggregate carrying value of the interest rate cap contracts was zero on May 30, 2008.
the balance sheets as of December 31, 2013 and 2012.During the first quarter of 2007,2011, the Company settled its remaining $20.0 million forward starting swap contract for $2.3 million which was applied to the $32.0 million mortgage obtained in February 2011, increasing the effective borrowing rate from 5.4% to 6.2%.
No hedge ineffectiveness on cash flow hedges was incurred during the years ended December 31, 2013 and 2012.
Issuance of Common Stock
During March 2013, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity (only ESS) and debt securities as defined in the prospectus.
42
Capital Expenditures
Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property. For the year ended December 31, 2007,2013, non-revenue generating capital expenditures totaled approximately $919$1,051 per unit. The Operating PartnershipCompany expects to incur approximately $950$1,200 per unit in non-revenue generating capital expenditures for the year endedending December 31, 2008.2014. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, and expenditures for property renovations and improvements which are expected to generate additional revenue, and renovation expenditures required pursuant to tax-exempt bond financings. Revenue-generating expenditures totaled $11.0 million during 2007, and the Operating Partnership expects to incur approximately $6.0 million in revenue generating capital expenditures for the year ended December 31, 2008.revenue. The Operating PartnershipCompany expects that cash from operations and/or its lines of credit will fund such expenditures. However, there can be no assurance that the actual expenditures incurred during 20082014 and/or the funding thereof will not be significantly different than the Operating Partnership’sCompany’s current expectations.
Development and Predevelopment Pipeline
The Operating PartnershipCompany defines development activities as new propertiescommunities that are being constructed,in various stages of active development, or are newly constructed and,the community is in the case of development communities, are in a phase of lease-up and havephases of the project are not yet reached stabilized operations.completed. As of December 31, 2007, excluding development projects owned by Fund II,2013, the Operating PartnershipCompany had threetwo consolidated development projects comprised of 684311 units forwith an estimated cost of $236.7$99.2 million of which $125.8$62.6 million remains to be expended. See discussion in the section, “Risks thatexpended, and nine unconsolidated joint venture active development activities willprojects comprised of 2,190 units with an estimated cost of $990.7 million, of which $344.4 million remains to be delayed or not completed and/or fail to achieve expected results” in Item 1A, Risk Factors, of this Form 10-K.expended.
The Operating PartnershipCompany defines the predevelopment pipeline as new propertiesproposed communities in negotiation or in the entitlement process with a high likelihood of becoming entitled development activities.projects. As of December 31, 2007,2013, the Operating PartnershipCompany had five development communitiesone consolidated joint venture predevelopment project aggregating 1,658 units that were classified as predevelopment projects.200 units. The estimated total cost of the predevelopment pipeline at December 31, 2007 was $508.4 million, of which $411.3 million remains to be expended. The Operating PartnershipCompany may also acquire land for future development purposes. The Operating Partnership owned five land parcels held for future development aggregating 434 units as of December 31, 2007. The Operating Partnership had incurred $25.5 million in costs related to these five land parcels as of December 31, 2007.purposes or sale.
The Operating PartnershipCompany expects to fund the development and predevelopment pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.
Redevelopment Pipeline
The Operating PartnershipCompany defines redevelopment activitiescommunities as existing properties owned or recently acquired, which have been targeted for additional investment by the Operating PartnershipCompany with the expectation of increased financial returns through property improvement. The Operating Partnership’s redevelopment strategy strives to improve the financial and physical aspects of the Operating Partnership’s redevelopment apartment communities and to target a 10 percent return on the incremental renovation investment. Many of the Operating Partnership’s properties are older and in excellent neighborhoods, providing lower density with large floor plans that represent attractive redevelopment opportunities. During redevelopment, apartment units may not be available for rent and, as a result, may have less than stabilized operations. As of December 31, 2007,2013, the Operating PartnershipCompany had thirteenownership interests in five major redevelopment communities aggregating 3,8911,312 apartment units with estimated redevelopment costs of $135.6$124.7 million, of which approximately $74.6$86.1 million remains to be expended. These amounts exclude redevelopment projects owned by Fund II.
Alternative Capital Sources
During 2012, the Company entered into a 50/50 programmatic joint venture, Wesco III LLC (“Wesco III”), with an institutional partner for a total equity commitment from the parties of $120.0 million. Each partner’s equity commitment is $60.0 million, and Wesco III will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate. The Company has contributed $39.7 million to Wesco III and, as of December 31, 2013, Wesco III owned three development projects. Essexapartment communities with 657 units for an aggregate carrying value of approximately $164 million.
Investments with Wesco I or Wesco III must meet certain criteria to qualify for inclusion in the joint ventures and both partners must approve any new acquisitions and material dispositions. The joint ventures have an investment period of up to two years. The Company records revenue for its asset management, property management, development, and redevelopment services when earned, and promote income when realized, if Fund IIWesco I or Wesco III exceeds certain financial return benchmarks.
During 2012, the Company provided a $26.0 million short term bridge loan to Wesco III at a rate of LIBOR + 2.50% to assist with the purchase of Haver Hill. In March 2013, Wesco III repaid the Company for the $26.0 million short-term bridge loan. During the second quarter of 2013, the Company provided two short-term bridge loans to Wesco III totaling $56.8 million to assist with the purchase of the Regency at Mountain View and Gas Company Lofts and both loans were at a rate of LIBOR + 2.50%. In January 2014, Wesco III repaid the Company $35.5 million for the Gas Company Lofts short-term bridge loan. The Company expects the remaining bridge loan related to the Regency at Mountain View to be paid in the first quarter of 2014.
Contractual Obligations and Commercial Commitments
The following table summarizes the maturationmaturity or due dates of ourthe Company’s contractual obligations and other commitments at December 31, 2007,2013, and the effect such obligations could have on ourthe Company’s liquidity and cash flow in future periods:periods ($ in thousands):
| 2015 and | 2017 and | |||||||||||||||||||
| 2014 | 2016 | 2018 | Thereafter | Total | ||||||||||||||||
| Mortgage notes payable | $ | - | $ | 79,851 | $ | 453,887 | $ | 870,342 | $ | 1,404,080 | ||||||||||
| Unsecured debt | - | 350,000 | 190,000 | 870,023 | 1,410,023 | |||||||||||||||
| Lines of credit | - | 20,421 | 199,000 | - | 219,421 | |||||||||||||||
| Interest on indebtedness (1) | 121,500 | 233,737 | 184,031 | 188,418 | 727,686 | |||||||||||||||
| Development commitments (including co-investments) | 170,900 | 78,300 | - | - | 249,200 | |||||||||||||||
| $ | 292,400 | $ | 762,309 | $ | 1,026,918 | $ | 1,928,783 | $ | 4,010,410 | |||||||||||
| (1) | Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2013. |
| 2009 and | 2011 and | ||||||||||||||
| (In thousands) | 2008 | 2010 | 2012 | Thereafter | Total | ||||||||||
| Mortgage notes payable | $ | 116,357 | $ | 179,502 | $ | 198,728 | $ | 768,286 | $ | 1,262,873 | |||||
| Exchangeable bonds | - | - | - | 225,000 | 225,000 | ||||||||||
| Lines of credit | 8,818 | 161,000 | - | - | 169,818 | ||||||||||
| Interest on indebtedness | 87,000 | 93,100 | 57,900 | 204,800 | 442,800 | ||||||||||
| Development commitments | 153,000 | 260,600 | 89,800 | 33,700 | 537,100 | ||||||||||
| Redevelopment commitments | 42,700 | 31,900 | - | - | 74,600 | ||||||||||
| Essex Apartment Value Fund II, L.P. | |||||||||||||||
| capital commitment | 13,383 | - | - | - | 13,383 | ||||||||||
| $ | 421,258 | $ | 726,102 | $ | 346,428 | $ | 1,231,786 | $ | 2,725,574 |
Variable Interest Entities
In accordance with Financial Accounting Standards Board (FASB) Interpretation No. 46 Revised (FIN 46R), “Consolidationaccounting standards for consolidation of Variable Interest Entities, an Interpretation of ARB No. 51”,variable interest entities, the Operating PartnershipCompany consolidates 19 DownREIT limited partnerships (comprising twelve properties), and an office building that is subject to loans made by the Operating Partnership.eleven communities). The Operating PartnershipCompany consolidates these entities because it is deemed the primary beneficiary under FIN 46R.beneficiary. The consolidated total assets and liabilities related to these variable interest entities (VIEs),VIEs, net of intercompany eliminations, were approximately $222.7$194.9 million and $163.9$178.3 million, respectively, as of December 31, 20072013, and $178.3$201.1 million and $110.9$178.6 million respectively, as of December 31, 2006, respectively.2012. Interest holders in VIEs consolidated by the Operating PartnershipCompany are allocated net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow. The remaining results of operations are generally allocated to the Operating Partnership.Company. As of December 31, 2007 and 2006,2013, the Operating Partnership was involved with two VIEs,Company did not have any VIE’s of which it iswas not deemed to be the primary beneficiary. Total assets and liabilities of these entities were approximately $71.7 million and $78.5 million and $58.3 million and $58.4 million, as of December 31, 2007 and 2006, respectively. The Operating Partnership does not have a significant exposure to loss from its involvement with these unconsolidated VIEs.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting
principles, requires the Operating PartnershipCompany to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We defineThe Company defines critical accounting policies as those accounting policies that require ourthe Company's management to exercise their most difficult, subjective and complex judgments. OurThe Company’s critical accounting policies relate principally to the following key areas: (i) consolidation under applicable accounting standards of various entities; (ii) assessing the carrying values of ourthe Company's real estate properties and investments in and advances to joint ventures and affiliates; and (iii) internal cost capitalization. The Operating PartnershipCompany bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.
The Operating PartnershipCompany assesses each entity in which it has an investment or contractual relationship to determine if it may be deemed to be a VIE. If such an entity is a VIE, then the Operating Partnership analyzes the expected losses and expected residual returnsCompany performs an analysis to determine who is the primary beneficiary. If the Operating PartnershipCompany is the primary beneficiary, then the entity is consolidated. The analysis required to identify VIEs and primary beneficiaries is complex and judgmental, and the analysis must be applied to various types of entities and legal structures.
The Operating PartnershipCompany assesses the carrying value of its real estate investments by monitoring investment market conditions and performance compared to budget for operating properties and joint ventures, and by monitoring estimated costs for properties under development. Local market knowledge and data is used to assess carrying values of properties and the market value of acquisition opportunities. Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment may not be fully recoverable, the carrying amount is evaluated. If the sum of the property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the property, then the Operating PartnershipCompany will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Adverse changes in market conditions or poor operating results of real estate investments could result in impairment charges. When the Operating PartnershipCompany determines that a property is held for sale, it discontinues the periodic depreciation of that property. The criteria for determining when a property is held for sale requires judgment and has potential financial statement impact as depreciation would cease and an impairment loss could occur upon determination of held for sale status. Assets held for sale are reported at the lower of the carrying amount or estimated fair value less costs to sell. With respect to investments in and advances to joint ventures and affiliates, the Operating PartnershipCompany looks to the underlying properties to assess performance and the recoverability of carrying amounts for those investments in a manner similar to direct investments in real estate properties. An
Further, the Company evaluates whether its co-investments have other than temporary impairment charge or investment valuation charge is recordedand, if the carrying value of the investment exceeds its fair value.so, records a write down.
The Operating PartnershipCompany capitalizes all direct and certain indirect costs, including interest and real estate taxes, 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 accounting estimates of the direct and incremental personnel costs and indirect project costs associated with ourthe 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 office costs that clearly relate to projects under development.
The Operating PartnershipCompany bases its accounting estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.
Net Operating Income (“NOI”)
Same-Property net operating income (“NOI”) is considered by management to be an important supplemental performance measure to earnings from operations included in the Company’s consolidated statements of operations. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. Prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, and NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenue less Same-Property operating expenses, including property taxes.
The reconciliation of earnings from operations to Same-Property NOI for the periods presented:
| 2013 | 2012 | 2011 | ||||||||||
| Earnings from operations | $ | 188,705 | $ | 167,025 | $ | 134,617 | ||||||
| Adjustments: | ||||||||||||
| General and administrative | 25,601 | 23,307 | 20,694 | |||||||||
| Management and other fees from affiliates | (11,700 | ) | (11,489 | ) | (6,780 | ) | ||||||
| Cost of management and other fees | 6,681 | 6,513 | 4,610 | |||||||||
| Depreciation | 192,420 | 169,173 | 150,009 | |||||||||
| Merger expenses | 4,284 | - | - | |||||||||
| Net operating income | 405,991 | 354,529 | 303,150 | |||||||||
| Less: Non Same-Property NOI | (55,424 | ) | (28,235 | ) | (13,457 | ) | ||||||
| Same-Property NOI | $ | 350,567 | $ | 326,294 | $ | 289,693 | ||||||
Forward Looking Statements
Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K which are not historical facts may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Operating Partnership'sCompany's expectations, hopes, intentions, beliefs and strategies regarding the future. Forward looking statements include statements regarding the Operating Partnership'sCompany's expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectationstatements regarding a potential increase of the quarterly dividend paid by ESS ,expectation as to the total projected costs and rental rates of development and redevelopment projects, beliefs as to the adequacy of future cash flows to meet operating requirements and anticipated cash needs and to provide for dividend payments in accordance with REIT requirements, expectations as to the amount of capital expenditures, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, the Operating Partnership's and Fund II’sCompany's development and redevelopment pipeline and the
sources of funding for it, the anticipated performance of existing properties, the effect of property sales on future results, anticipated results fromproperty and growth trends in various geographic regions, statements regarding the Operating Partnership'sCompany’s expected 2014 Same-Property revenue, and 2014 Same-Property operating expenses , statements regarding the Company's financing activities, and the use of proceeds from such activities.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Operating PartnershipCompany will fail to achieve its business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development and redevelopment projects will exceed expectations, , that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that the actual non-revenue generating capital expenditures will exceed the Operating Partnership'sCompany's current expectations, that there may be a downturn in the markets in which the Operating Partnership's propertiesCompany's communities are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed under the caption “Potential Factors Affecting Future Operating Results” below and those discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Operating Partnership'sCompany’s other filings with the Securities and Exchange Commission (the "SEC")SEC which may cause the actual results, performance or achievements of the Operating PartnershipCompany to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements are made as of today, and the Operating PartnershipCompany assumes no obligation to update this information.
Interest Rate Hedging Activities
The Operating Partnership’sCompany’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 Operating Partnership primarilyCompany uses interest rate swaps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. As of December 31, 2007, we have2013, the Company has entered into nine forward-startingten interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on forecasted issuance of long-term debt. The forward-starting swaps are cash flow hedges$300.0 million of the variability of forecasted interest payments associated with the refinancing of the Operating Partnership’s long-term debt between 2007 and 2011.five-year unsecured term debt. As of December 31, 2007,2013, the Operating PartnershipCompany also had $233.1$167.6 million of variable rate indebtedness, of which $152.7$156.9 million is subject to interest rate cap protection. All of ourthe Company’s derivative instruments are designated as cash flow hedges, and the Operating PartnershipCompany does not have any fair value hedges as of December 31, 2007.2013. The following table summarizes the notional amount, carrying value, and estimated fair value of ourthe Company’s derivative instruments used to hedge interest rates as of December 31, 2007.2013. The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on ourthe Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2007.2013.
| Carrying and | Estimated Carrying Value | |||||||||||||||||||
| Notional | Maturity | Estimate Fair | + 50 | - 50 | ||||||||||||||||
($ in thousands) | Amount | Date Range | Value | Basis Points | Basis Points | |||||||||||||||
| Cash flow hedges: | ||||||||||||||||||||
| Interest rate swaps | $ | 300,000 | 2016-2017 | $ | (2,682 | ) | $ | 1,989 | $ | (6,500 | ) | |||||||||
| Interest rate caps | 156,904 | 2014-2018 | - | 48 | - | |||||||||||||||
| Total cash flow hedges | $ | 456,904 | 2014-2018 | $ | (2,682 | ) | $ | 2,037 | $ | (6,500 | ) | |||||||||
46
| Carrying and | ||||||||||||
| Notional | Maturity | Estimate Fair | + 50 | - 50 | ||||||||
| (Dollars in thousands) | Amount | Date Range | Value | Basis Points | Basis Points | |||||||
| Cash flow hedges: | ||||||||||||
| Interest rate forward-starting swaps | $ | 450,000 | 2008-2011 | $ | (10,240) | $ | 5,828 | $ | (27,504) | |||
| Interest rate caps | 152,749 | 2008-2011 | 13 | 42 | 3 | |||||||
| Total cash flow hedges | $ | 602,749 | 2008-2011 | $ | (10,227) | $ | 5,870 | $ | (27,501) | |||
Interest Rate Sensitive Liabilities
The Operating PartnershipCompany is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Operating Partnership’sCompany’s real estate investment portfolio and operations. The Operating Partnership’sCompany’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Operating PartnershipCompany borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Operating PartnershipCompany does not enter into derivative or interest rate transactions for speculative purposes.
The Operating Partnership’sCompany’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management believes that the carrying amounts of its LIBOR debt approximates fair value as of December 31, 2007 because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available to the Operating Partnership for similar instruments. Management has estimated that the fair value of the Operating Partnership’s $1.25Company’s $2.30 billion and $2.13 billion of fixed rate mortgage notes payable and exchangeable bondsdebt at December 31, 20072013 and 2012 respectively, to be $2.33 billion and $2.24 billion. Management has estimated the fair value of the Company’s $737.0 million and $692.9 million of variable rate debt at December 31, 2013 and 2012, respectively, is approximately $1.30 billion$719.4 million and $671.7 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace.marketplace ($ in thousands).
| For the Years Ended December 31 | For the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2008(1) | 2009 | 2010(2) | 2011(3) | 2012 | Thereafter | Total | Fair value | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | Fair value | ||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fixed rate debt | $ | 116,357 | $ | 24,689 | $ | 154,813 | $ | 166,545 | $ | 32,183 | $ | 760,148 | $ | 1,254,735 | $ | 1,301,938 | $ | - | $ | 67,461 | $ | 162,390 | $ | 222,731 | $ | 271,156 | $ | 1,572,764 | $ | 2,296,502 | $ | 2,329,482 | |||||||||||||||||||||||||
| Average interest rate | 6.8% | 7.2% | 8.0% | 6.3% | 5.2% | 5.2% | - | 5.2 | % | 4.5 | % | 5.5 | % | 5.9 | % | 5.0 | % | ||||||||||||||||||||||||||||||||||||||||
| Variable rate LIBOR debt | $ | 8,818 | $ | 173,150 | $ | - | $ | - | $ | - | $ | 220,988 | (4) | $ | 402,956 | $ | 402,956 | ||||||||||||||||||||||||||||||||||||||||
| Variable rate debt | $ | 20,421 | $ | 199,000 | $ | 200,000 | $ | 150,000 | $ | - | $ | 167,601 | (1 | ) | $ | 737,022 | $ | 719,414 | |||||||||||||||||||||||||||||||||||||||
| Average interest rate | 5.6% | 5.7% | - | - | - | 4.5% | 2.2 | % | 2.2 | % | 2.5 | % | 2.5 | % | - | 1.6 | % | ||||||||||||||||||||||||||||||||||||||||
| (1) | $156.9 million subject to interest rate caps. |
The table incorporates only those exposures that exist as of December 31, 2007;2013; it does not consider those exposures or positions that could arise after that date. As a result, ourthe Company’s ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise during the period, our hedging strategies at the time, and interest rates.period.
The response to this item is submitted as a separate section of this Form 10-K. See Item 15.
Essex Property Trust, Inc.
As of December 31, 2007, we2013, ESS carried out an evaluation, under the supervision and with the participation of management, including ourits Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of ourits disclosure controls and procedures pursuant to(as defined in Rules 13a-15 of13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”)). Based upon that evaluation, theESS’s Chief Executive Officer and Chief Financial Officer concluded that ouras of December 31, 2013, ESS’s disclosure controls and procedures arewere effective in timely alerting management to materialensure that the information relating to the Operating Partnership that is required to be includeddisclosed by ESS in our periodic filings with the Securitiesreports that ESS files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that ESS files or submits under the Exchange Commission.Act is accumulated and communicated to the ESS’s management, including ESS’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes in the Operating Partnership’sESS’s internal control over financial reporting, that occurred during the quarter ended December 31, 2007,2013, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’sESS’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Essex Portfolio, L.P.
As of December 31, 2013, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer of the general partner, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the general partner concluded that as of December 31, 2013, the Operating Partnership’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of the general partner, to allow timely decisions regarding required disclosure.
There were no changes in the Operating Partnership’s internal control over financial reporting, that occurred during the quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The Operating Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2013. In making this assessment, the Operating Partnership’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (1992)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Operating Partnership’s management has concluded that, as of December 31, 2013, its internal control over financial reporting was effective based on these criteria.
None.
PART III
The information required by this Item 10 is incorporated herein by reference from our Proxy Statement, relating to our 2014 Annual Meeting of Shareholders, under the Company’s definitive proxy statement for its annual stockholders’ meetingheading “Board and Corporate Governance Matters,” to be held on May 6, 2008.filed with the SEC within 120 days of December 31, 2013.
The information required by this Item 11 is incorporated herein by reference from our Proxy Statement, relating to our 2014 Annual Meeting of Shareholders, under the Company’s definitive proxy statement for its annual stockholders’ meetingheadings “Executive Compensation and Other Information” and “Election of Directors – Governance, Board, and Committee Meetings: Compensation of Directors,” to be held on May 6, 2008.filed with the SEC within 120 days of December 31, 2013.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 is incorporated herein by reference from our Proxy Statement, relating to our 2014 Annual Meeting of Shareholders, under the Company’s definitive proxy statement for its annual stockholders’ meetingheading “Security Ownership of Certain Beneficial Owners and Management,” to be held on May 6, 2008.filed with the SEC within 120 days of December 31, 2013.
The information required by this Item 13 is incorporated herein by reference from our Proxy Statement, relating to our 2014 Annual Meeting of Shareholders, under the Company’s definitive proxy statement for its annual stockholders’ meetingheading “Certain Relationships and Related Transactions,” to be held on May 6, 2008.filed with the SEC within 120 days of December 31, 2013.
The information required by this Item 14 is incorporated herein by reference from our Proxy Statement, relating to our 2014 Annual Meeting of Shareholders, under the Company’s definitive proxy statement for its annual stockholders’ meetingheadings “Report of the Audit Committee” and “Fees of KPMG LLP,” to be held on May 6, 2008.filed with the SEC within 120 days of December 31, 2013.
PART IV
(A) Financial Statements
| (1) Consolidated Financial Statements of Essex Property Trust, Inc. | Page |
| Report of Independent Registered Public Accounting Firm | F-1 |
| Consolidated Balance Sheets: As of December 31, 2012 | |
| Consolidated Statements of Operations: Years ended December 31, 2011 | |
| Consolidated Statements of Comprehensive Income: Years ended December 31, 2011 | |
| Consolidated Statements of Equity: Years ended December 31, 2013, 2012, and 2011 | F-8 |
| Consolidated Statements of Cash Flows: Years ended December 31, 2011 | F-9 |
| Notes to | F-17 |
| (2) Consolidated Financial Statements of Essex Portfolio, L.P. | |
| Report of Independent Registered Public Accounting Firm | F-4 |
| Consolidated Balance Sheets: As of December 31, 2013 and 2012 | F-11 |
| Consolidated Statements of Operations: Years ended December 31, 2013, 2012, and 2011 | F-12 |
| Consolidated Statements of Comprehensive Income: Years ended December 31, 2013, 2012, and 2011 | F-13 |
| Consolidated Statements of Capital: Years ended December 31, 2013, 2012, and 2011 | F-14 |
| Consolidated Statements of Cash Flows: Years ended December 31, 2013, 2012, and 2011 | F-15 |
| Notes to Consolidated Financial Statements | F-17 |
| (3) Financial Statement Schedule | |
| (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 Operating PartnershipCompany hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(3) above.
Report of Independent Registered Public Accounting Firm
The General PartnerBoard of Directors and Stockholders
Essex Portfolio, L.P.Property Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P.Property Trust, Inc. and subsidiaries as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2013. 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, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013, 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, 2007,2013, based on criteria established in Internal Control–Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2014 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, 2014
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, 2013, based on criteria established in Internal Control–Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Essex Portfolio, L.P.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 Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on the Partnership’sEssex 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 Portfolio, L.P.Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007,2013, based on criteria established in Internal Control–Integrated Framework (1992) 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 Portfolio, L.P.Property Trust, Inc. and subsidiaries as of December 31, 20072013 and 2006,2012, and the related consolidated statements of operations, partners’comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and our report dated February 26, 2014, expressed an unqualified opinion on those consolidated financial statements.
/S/ KPMG LLP | |
| KPMG LLP |
San Francisco, California
February 26, 2014
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, 2013 and 2012, and the related consolidated statements of operations, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2007, and our report dated February 27, 2008, expressed an unqualified opinion on those consolidated financial statements.
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 Portfolio, L.P. and subsidiaries as of December 31, 20072013 and 2006,2012, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007,2013, 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 27, 200826, 2014
Consolidated Balance Sheets
December 31, 20072013 and 20062012
(Dollars in thousands, except unitshare amounts)
| 2013 | 2012 | |||||||
ASSETS | ||||||||
| Real estate: | ||||||||
| Rental properties: | ||||||||
| Land and land improvements | $ | 1,083,552 | $ | 1,003,171 | ||||
| Buildings and improvements | 4,360,205 | 4,030,501 | ||||||
| 5,443,757 | 5,033,672 | |||||||
| Less: accumulated depreciation | (1,254,886 | ) | (1,081,517 | ) | ||||
| 4,188,871 | 3,952,155 | |||||||
| Real estate under development | 50,430 | 66,851 | ||||||
| Co-investments | 677,133 | 571,345 | ||||||
| 4,916,434 | 4,590,351 | |||||||
| Cash and cash equivalents-unrestricted | 18,491 | 18,606 | ||||||
| Cash and cash equivalents-restricted | 35,275 | 23,520 | ||||||
| Marketable securities | 90,084 | 92,713 | ||||||
| Notes and other receivables | 68,255 | 66,163 | ||||||
| Prepaid expenses and other assets | 33,781 | 35,003 | ||||||
| Deferred charges, net | 24,519 | 20,867 | ||||||
| Total assets | $ | 5,186,839 | $ | 4,847,223 | ||||
LIABILITIES AND EQUITY | ||||||||
| Mortgage notes payable | $ | 1,404,080 | $ | 1,565,599 | ||||
| Unsecured debt | 1,410,023 | 1,112,084 | ||||||
| Lines of credit | 219,421 | 141,000 | ||||||
| Accounts payable and accrued liabilities | 67,183 | 64,858 | ||||||
| Construction payable | 8,047 | 5,392 | ||||||
| Dividends payable | 50,627 | 45,052 | ||||||
| Derivative liabilities | 2,682 | 6,606 | ||||||
| Other liabilities | 22,189 | 22,167 | ||||||
| Total liabilities | 3,184,252 | 2,962,758 | ||||||
| Commitments and contingencies | ||||||||
| Cumulative convertible 4.875% Series G preferred stock; $.0001 par value: 5,980,000 issued, and 178,249 outstanding | 4,349 | 4,349 | ||||||
| Equity: | ||||||||
| Common stock; $.0001 par value, 656,020,000 shares authorized;37,421,219 and 36,442,994 shares issued and outstanding | 4 | 3 | ||||||
| Cumulative redeemable 7.125% Series H preferred stock at liquidation value | 73,750 | 73,750 | ||||||
| Excess stock, $.0001 par value, 330,000,000 shares authorized and no shares issued or outstanding | - | - | ||||||
| Additional paid-in capital | 2,345,763 | 2,204,778 | ||||||
| Distributions in excess of accumulated earnings | (474,426 | ) | (444,466 | ) | ||||
| Accumulated other comprehensive loss, net | (60,472 | ) | (69,261 | ) | ||||
| Total stockholders' equity | 1,884,619 | 1,764,804 | ||||||
| Noncontrolling interest | 113,619 | 115,312 | ||||||
| Total equity | 1,998,238 | 1,880,116 | ||||||
| Total liabilities and equity | $ | 5,186,839 | $ | 4,847,223 | ||||
| 2007 | 2006 | |||||
| ASSETS | ||||||
| Real estate: | ||||||
| Rental properties: | ||||||
| Land and land improvements | $ | 670,494 | $ | 560,880 | ||
| Buildings and improvements | 2,447,265 | 2,108,307 | ||||
| 3,117,759 | 2,669,187 | |||||
| Less accumulated depreciation | (541,987) | (465,015) | ||||
| 2,575,772 | 2,204,172 | |||||
| Real estate - held for sale, net | - | 41,221 | ||||
| Real estate under development | 233,445 | 107,620 | ||||
| Co-investments | 64,191 | 56,318 | ||||
| 2,873,408 | 2,409,331 | |||||
| Cash and cash equivalents-unrestricted | 9,956 | 9,662 | ||||
| Cash and cash equivalents-restricted | 12,527 | 13,948 | ||||
| Marketable securities | 2,017 | - | ||||
| Notes receivable and other receivables from related parties | 904 | 1,209 | ||||
| Notes and other receivables | 49,632 | 18,195 | ||||
| Prepaid expenses and other assets | 20,286 | 20,632 | ||||
| Deferred charges, net | 11,593 | 12,863 | ||||
| Total assets | $ | 2,980,323 | $ | 2,485,840 | ||
| LIABILITIES AND PARTNERS' CAPITAL | ||||||
| Mortgage notes payable | $ | 1,262,873 | $ | 1,060,704 | ||
| Mortgage notes payable - held for sale | - | 32,850 | ||||
| Exchangeable bonds | 225,000 | 225,000 | ||||
| Lines of credit | 169,818 | 93,000 | ||||
| Accounts payable and accrued liabilities | 58,148 | 38,614 | ||||
| Dividends payable | 28,521 | 24,910 | ||||
| Other liabilities | 15,580 | 14,328 | ||||
| Deferred gain | 2,193 | 2,193 | ||||
| Total liabilities | 1,762,133 | 1,491,599 | ||||
| Commitments and contingencies | ||||||
| Minority interests | 70,347 | 44,950 | ||||
| Redeemable convertible limited partnership units | 4,750 | 4,750 | ||||
| Cumulative convertible preferred equity (liquidation value of $149,500) | 145,912 | 145,912 | ||||
| Partners' Capital: | ||||||
| General Partner: | ||||||
| Common equity | 774,894 | 590,070 | ||||
| Preferred equity (liquidation value of $25,000) | 24,412 | 24,412 | ||||
| 799,306 | 614,482 | |||||
| Limited Partners: | ||||||
| Common equity | 80,173 | 59,730 | ||||
| Preferred equity (liquidation value of $130,000) | 126,690 | 126,690 | ||||
| 206,863 | 186,420 | |||||
| Accumulated other comprehensive (loss) income | (8,988) | (2,273) | ||||
| Total partners' capital | 997,181 | 798,629 | ||||
| Total liabilities and partners' capital | $ | 2,980,323 | $ | 2,485,840 |
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
Years ended December 31, 2007, 20062013, 2012 and 20052011
(Dollars in thousands, except per share and share amounts)
| 2013 | 2012 | 2011 | ||||||||||
| Revenues: | ||||||||||||
| Rental and other property | $ | 602,003 | $ | 526,696 | $ | 460,660 | ||||||
| Management and other fees from affiliates | 11,700 | 11,489 | 6,780 | |||||||||
| 613,703 | 538,185 | 467,440 | ||||||||||
| Expenses: | ||||||||||||
| Property operating, excluding real estate taxes | 138,736 | 123,813 | 113,733 | |||||||||
| Real estate taxes | 57,276 | 48,354 | 43,777 | |||||||||
| Depreciation | 192,420 | 169,173 | 150,009 | |||||||||
| General and administrative | 25,601 | 23,307 | 20,694 | |||||||||
| Cost of management and other fees | 6,681 | 6,513 | 4,610 | |||||||||
| Merger expenses | 4,284 | - | - | |||||||||
| 424,998 | 371,160 | 332,823 | ||||||||||
| Earnings from operations | 188,705 | 167,025 | 134,617 | |||||||||
| Interest expense before amortization | (104,600 | ) | (100,244 | ) | (91,694 | ) | ||||||
| Amortization expense | (11,924 | ) | (11,644 | ) | (11,474 | ) | ||||||
| Interest and other income | 11,633 | 13,833 | 17,139 | |||||||||
| Equity income (loss) from co-investments | 55,865 | 41,745 | (467 | ) | ||||||||
| Loss on early retirement of debt, net | (300 | ) | (5,009 | ) | (1,163 | ) | ||||||
| Gain on sale of land | 1,503 | - | - | |||||||||
| Gain on remeasurement of co-investment | - | 21,947 | - | |||||||||
| Income before discontinued operations | 140,882 | 127,653 | 46,958 | |||||||||
| Income from discontinued operations | 31,173 | 11,937 | 10,558 | |||||||||
| Net income | 172,055 | 139,590 | 57,516 | |||||||||
| Net income attributable to noncontrolling interest | (15,772 | ) | (14,306 | ) | (10,446 | ) | ||||||
| Net income attributable to controlling interest | 156,283 | 125,284 | 47,070 | |||||||||
| Dividends to preferred stockholders | (5,472 | ) | (5,472 | ) | (4,753 | ) | ||||||
| Excess of cash paid to redeem preferred stock and units over the carrying value | - | - | (1,949 | ) | ||||||||
| Net income available to common stockholders | $ | 150,811 | $ | 119,812 | $ | 40,368 | ||||||
| Per share data: | ||||||||||||
| Basic: | ||||||||||||
| Income before discontinued operations available to common stockholders | $ | 3.26 | $ | 3.10 | $ | 0.94 | ||||||
| Income from discontinued operations available to common stockholders | 0.79 | 0.32 | 0.30 | |||||||||
| Net income available to common stockholders | $ | 4.05 | $ | 3.42 | $ | 1.24 | ||||||
| Weighted average number of shares outstanding during the year | 37,248,960 | 35,032,491 | 32,541,792 | |||||||||
| Diluted: | ||||||||||||
| Income before discontinued operations available to common stockholders | $ | 3.25 | $ | 3.09 | $ | 0.94 | ||||||
| Income from discontinued operations available to common stockholders | 0.79 | 0.32 | 0.30 | |||||||||
| Net income available to common stockholders | $ | 4.04 | $ | 3.41 | $ | 1.24 | ||||||
| Weighted average number of shares outstanding during the year | 37,335,295 | 35,124,921 | 32,628,714 | |||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2013, 2012 and 2011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Net income | $ | 172,055 | $ | 139,590 | $ | 57,516 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Changes in fair value of cash flow hedges and amortization of settlement swaps | 12,614 | 3,402 | 7,707 | |||||||||
| Changes in fair value of marketable securities | (1,556 | ) | 1,411 | 1,330 | ||||||||
| Reversal of unrealized gains upon the sale of marketable securities | (1,767 | ) | (1,082 | ) | (4,286 | ) | ||||||
| Total other comprehensive income | 9,291 | 3,731 | 4,751 | |||||||||
| Comprehensive income | 181,346 | 143,321 | 62,267 | |||||||||
| Comprehensive income attributable to noncontrolling interest | (16,274 | ) | (14,527 | ) | (10,751 | ) | ||||||
| Comprehensive income attributable to controlling interest | $ | 165,072 | $ | 128,794 | $ | 51,516 | ||||||
See accompanying notes to consolidated financial statements.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2013, 2012 and 2011
(Dollars and shares in thousands)
| Preferred stock | Common stock | Additional paid-in | Distributions in excess of | Accumulated other | Noncontrolling | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | earnings | net | Interest | Total | ||||||||||||||||||||||||||||
| Balances at December 31, 2010 | 1,000 | $ | 25,000 | 31,325 | $ | 3 | $ | 1,515,468 | $ | (313,308 | ) | $ | (77,217 | ) | $ | 205,068 | $ | 1,355,014 | ||||||||||||||||||
| Net income | - | - | - | - | - | 47,070 | - | 10,446 | 57,516 | |||||||||||||||||||||||||||
| Reversal of unrealized gains upon the sale of marketable securities | - | - | - | - | - | - | (4,011 | ) | (275 | ) | (4,286 | ) | ||||||||||||||||||||||||
| Changes in fair value of cash flow hedges and amortization of settlement swaps | - | - | - | - | - | - | 7,212 | 495 | 7,707 | |||||||||||||||||||||||||||
| Changes in fair value of marketable securities | - | - | - | - | - | - | 1,245 | 85 | 1,330 | |||||||||||||||||||||||||||
| Issuance of common stock under: | ||||||||||||||||||||||||||||||||||||
| Stock option plans | - | - | 103 | - | 8,412 | - | - | - | 8,412 | |||||||||||||||||||||||||||
| Sale of common stock | - | - | 2,460 | - | 323,931 | - | - | - | 323,931 | |||||||||||||||||||||||||||
| Equity based compensation costs | - | - | - | - | (725 | ) | - | - | 1,598 | 873 | ||||||||||||||||||||||||||
| Issuance of Series H Preferred | 2,950 | 73,750 | - | - | (2,541 | ) | - | - | - | 71,209 | ||||||||||||||||||||||||||
| Redemptions of Series F Preferred | (1,000 | ) | (25,000 | ) | - | - | - | - | - | - | (25,000 | ) | ||||||||||||||||||||||||
| Redemptions of Series B Preferred | - | - | - | - | 1,200 | - | - | (80,000 | ) | (78,800 | ) | |||||||||||||||||||||||||
| Redemptions of noncontrolling interest | - | - | - | - | (1,134 | ) | - | - | (4,253 | ) | (5,387 | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interest | - | - | - | - | - | - | - | (16,963 | ) | (16,963 | ) | |||||||||||||||||||||||||
| Common and preferred stock dividends declared | - | - | - | - | - | (141,828 | ) | - | - | (141,828 | ) | |||||||||||||||||||||||||
| Balances at December 31, 2011 | 2,950 | 73,750 | 33,888 | 3 | 1,844,611 | (408,066 | ) | (72,771 | ) | 116,201 | 1,553,728 | |||||||||||||||||||||||||
| Net income | - | - | - | - | - | 125,284 | - | 14,306 | 139,590 | |||||||||||||||||||||||||||
| Reversal of unrealized gains upon the sale of marketable securities | - | - | - | - | - | - | (1,018 | ) | (64 | ) | (1,082 | ) | ||||||||||||||||||||||||
| Changes in fair value of cash flow hedges and amortization of settlement swaps | - | - | - | - | - | - | 3,183 | 219 | 3,402 | |||||||||||||||||||||||||||
| Changes in fair value of marketable securities | - | - | - | - | - | - | 1,345 | 66 | 1,411 | |||||||||||||||||||||||||||
| Issuance of common stock under: | ||||||||||||||||||||||||||||||||||||
| Stock option plans | - | - | 151 | - | 4,675 | - | - | - | 4,675 | |||||||||||||||||||||||||||
| Sale of common stock | - | - | 2,404 | - | 357,720 | - | - | - | 357,720 | |||||||||||||||||||||||||||
| Equity based compensation costs | - | - | - | - | (430 | ) | - | - | 2,231 | 1,801 | ||||||||||||||||||||||||||
| Contributions from noncontrollong interest | - | - | - | - | - | - | - | 4,232 | 4,232 | |||||||||||||||||||||||||||
| Redemptions of noncontrolling interest | - | - | - | - | (1,798 | ) | - | - | (5,188 | ) | (6,986 | ) | ||||||||||||||||||||||||
| Distributions to noncontrolling interest | - | - | - | - | - | - | - | (16,691 | ) | (16,691 | ) | |||||||||||||||||||||||||
| Common and preferred stock dividends declared | - | - | - | - | - | (161,684 | ) | - | - | (161,684 | ) | |||||||||||||||||||||||||
| 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 | ) | ||||||||||||||||||||||||
| Changes in fair value of cash flow hedges and amortization of settlement swaps | - | - | - | - | - | - | 11,934 | 680 | 12,614 | |||||||||||||||||||||||||||
| Changes 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 declared | - | - | - | - | - | (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 | ||||||||||||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 172,055 | $ | 139,590 | $ | 57,516 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Gain on sale of marketable securities | (1,767 | ) | (819 | ) | (4,956 | ) | ||||||
| Gain on remeasurement of co-investment | - | (21,947 | ) | - | ||||||||
| Company's share of gain on the sales of co-investment | (41,252 | ) | (29,112 | ) | (919 | ) | ||||||
| Gain on the sales of real estate | (30,725 | ) | (10,870 | ) | (8,562 | ) | ||||||
| Loss on early retirement of debt | 300 | 5,009 | 1,163 | |||||||||
| Co-investments | 5,023 | 1,626 | 7,929 | |||||||||
| Amortization expense | 12,216 | 11,644 | 11,474 | |||||||||
| Amortization of discount on notes receivables | (844 | ) | (1,832 | ) | (1,757 | ) | ||||||
| Amortization of discount on marketable securities | (6,556 | ) | (5,127 | ) | (4,794 | ) | ||||||
| Depreciation | 193,518 | 170,686 | 152,542 | |||||||||
| Equity-based compensation | 4,508 | 4,141 | 2,927 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other assets | (1,588 | ) | (9,488 | ) | (1,172 | ) | ||||||
| Accounts payable and accrued liabilities | 72 | 12,360 | 3,620 | |||||||||
| Other liabilities | 22 | 1,638 | 1,560 | |||||||||
| Net cash provided by operating activities | 304,982 | 267,499 | 216,571 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Additions to real estate: | ||||||||||||
| Acquisitions of real estate | (348,774 | ) | (393,771 | ) | (57,478 | ) | ||||||
| Improvements to recent acquisitions | (21,240 | ) | (13,704 | ) | (16,446 | ) | ||||||
| Redevelopment | (42,035 | ) | (39,027 | ) | (45,130 | ) | ||||||
| Revenue generating capital expenditures | (5,254 | ) | (7,620 | ) | (7,616 | ) | ||||||
| Lessor required capital expenditures | (8,641 | ) | (1,173 | ) | - | |||||||
| Non-revenue generating capital expenditures | (27,038 | ) | (30,491 | ) | (26,090 | ) | ||||||
| Acquisition of and additions to real estate under development | (17,757 | ) | (29,196 | ) | (79,194 | ) | ||||||
| Acquisition of membership interest in co-investment | - | (85,000 | ) | - | ||||||||
| Dispositions of real estate | 65,496 | 27,800 | 23,003 | |||||||||
| Changes in restricted cash and refundable deposits | (9,149 | ) | (6,069 | ) | (1,376 | ) | ||||||
| Purchases of marketable securities | (16,442 | ) | (73,735 | ) | (8,048 | ) | ||||||
| Sales and maturities of marketable securities | 24,172 | 61,703 | 32,998 | |||||||||
| Purchases of and advances under notes and other receivables | (56,750 | ) | (26,000 | ) | (12,325 | ) | ||||||
| Collections of notes and other receivables | 53,438 | 14,525 | 884 | |||||||||
| Contributions to co-investments | (162,578 | ) | (260,153 | ) | (246,106 | ) | ||||||
| Non-operating distributions from co-investments | 118,856 | 49,773 | 17,141 | |||||||||
| Net cash used in investing activities | (453,696 | ) | (812,138 | ) | (425,783 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Borrowings under debt agreements | 969,061 | 1,745,853 | 1,514,684 | |||||||||
| Repayment of debt | (750,900 | ) | (1,371,317 | ) | (1,435,135 | ) | ||||||
| Additions to deferred charges | (7,402 | ) | (6,707 | ) | (5,533 | ) | ||||||
| Payments to settle derivative instruments | - | - | (2,395 | ) | ||||||||
| Net proceeds from issuance of Preferred stock, Series H | - | - | 71,209 | |||||||||
| Retirement of Series B preferred units and Series F Preferred stock | - | - | (103,800 | ) | ||||||||
| Equity related issuance cost | (617 | ) | (309 | ) | (627 | ) | ||||||
| Net proceeds from stock options exercised | 4,958 | 2,643 | 6,986 | |||||||||
| Net proceeds from issuance of common stock | 138,366 | 357,720 | 323,931 | |||||||||
| Contributions from noncontrolling interest | - | 2,400 | - | |||||||||
| Distributions to noncontrolling interest | (18,488 | ) | (16,691 | ) | (16,963 | ) | ||||||
| Redemption of noncontrolling interest | (5,711 | ) | (6,986 | ) | (5,387 | ) | ||||||
| Common and preferred stock dividends paid | (180,668 | ) | (156,250 | ) | (138,622 | ) | ||||||
| Net cash provided by financing activities | 148,599 | 550,356 | 208,348 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (115 | ) | 5,717 | (864 | ) | |||||||
| Cash and cash equivalents at beginning of year | 18,606 | 12,889 | 13,753 | |||||||||
| Cash and cash equivalents at end of year | $ | 18,491 | $ | 18,606 | $ | 12,889 | ||||||
(Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2013, 2012 and 2011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest, net of $16,486, $10,346, and $8,240 capitalized in 2013, 2012 and 2011, respectively | $ | 103,516 | $ | 95,597 | $ | 89,691 | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||||||
| Transfer from real estate under development to rental properties | $ | 68 | $ | 6,632 | $ | 165,214 | ||||||
| Transfer from real estate under development to co-investments | $ | 27,906 | $ | - | $ | 54,472 | ||||||
| Transfer from co-investments to rental properties | $ | - | $ | 148,053 | $ | - | ||||||
| Mortgage notes assumed in connection with purchases | ||||||||||||
| of real estate including the loan premiums recorded | $ | - | $ | 82,133 | $ | 20,927 | ||||||
| Contribution of note receivable to co-investment | $ | - | $ | 12,325 | $ | - | ||||||
| Change in accrual of dividends | $ | 5,575 | $ | 5,441 | $ | 3,206 | ||||||
| Change in fair value of derivative liabilities | $ | 4,185 | $ | 4,461 | $ | 230 | ||||||
| Change in fair value of marketable securities | $ | 3,222 | $ | 459 | $ | 2,836 | ||||||
| Change in construction payable | $ | 2,655 | $ | 1,113 | $ | 2,518 | ||||||
See accompanying notes to consolidated financial statements
Consolidated Balance Sheets
December 31, 2013 and 2012
(Dollars in thousands, except per unit amounts)
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Real estate: | ||||||||
| Rental properties: | ||||||||
| Land and land improvements | $ | 1,083,552 | $ | 1,003,171 | ||||
| Buildings and improvements | 4,360,205 | 4,030,501 | ||||||
| 5,443,757 | 5,033,672 | |||||||
| Less accumulated depreciation | (1,254,886 | ) | (1,081,517 | ) | ||||
| 4,188,871 | 3,952,155 | |||||||
| Real estate under development | 50,430 | 66,851 | ||||||
| Co-investments | 677,133 | 571,345 | ||||||
| 4,916,434 | 4,590,351 | |||||||
| Cash and cash equivalents-unrestricted | 18,491 | 18,606 | ||||||
| Cash and cash equivalents-restricted | 35,275 | 23,520 | ||||||
| Marketable securities | 90,084 | 92,713 | ||||||
| Notes and other receivables | 68,255 | 66,163 | ||||||
| Prepaid expenses and other assets | 33,781 | 35,003 | ||||||
| Deferred charges, net | 24,519 | 20,867 | ||||||
| Total assets | $ | 5,186,839 | $ | 4,847,223 | ||||
| LIABILITIES AND CAPITAL | ||||||||
| Mortgage notes payable | $ | 1,404,080 | $ | 1,565,599 | ||||
| Unsecured debt | 1,410,023 | 1,112,084 | ||||||
| Lines of credit | 219,421 | 141,000 | ||||||
| Accounts payable and accrued liabilities | 67,183 | 64,858 | ||||||
| Construction payable | 8,047 | 5,392 | ||||||
| Distributions payable | 50,627 | 45,052 | ||||||
| Derivative liabilities | 2,682 | 6,606 | ||||||
| Other liabilities | 22,189 | 22,167 | ||||||
| Total liabilities | 3,184,252 | 2,962,758 | ||||||
| Commitments and contingencies | ||||||||
| Cumulative convertible Series G preferred interest (liquidation value of $4,456) | 4,349 | 4,349 | ||||||
| Capital: | ||||||||
| General Partner: | ||||||||
| Common equity (37,421,219 and 36,442,994 units issued and outstanding at December 31, 2013 and December 31, 2012, respectively) | 1,873,882 | 1,762,856 | ||||||
| Preferred interest (liquidation value of $73,750) | 71,209 | 71,209 | ||||||
| 1,945,091 | 1,834,065 | |||||||
| Limited Partners: | ||||||||
| Common equity (2,149,802 and 2,122,381 units issued and outstanding for the year ended December 31, 2013 and 2012, respectively) | 45,957 | 45,593 | ||||||
| Accumulated other comprehensive loss | (58,940 | ) | (68,231 | ) | ||||
| Total partners' capital | 1,932,108 | 1,811,427 | ||||||
| Noncontrolling interest | 66,130 | 68,689 | ||||||
| Total capital | 1,998,238 | 1,880,116 | ||||||
| Total liabilities and capital | $ | 5,186,839 | $ | 4,847,223 | ||||
See accompanying notes to consolidated financial statements
ESSEX PORTFOLIO, L.P. AND SUBSIDIARES
Consolidated Statements of Operations
Years ended December 31, 2013, 2012, and 2011
(Dollars in thousands, except per unit and unit amounts)
| 2013 | 2012 | 2011 | ||||||||||
| Revenues: | ||||||||||||
| Rental and other property | $ | 602,003 | $ | 526,696 | $ | 460,660 | ||||||
| Management and other fees from affiliates | 11,700 | 11,489 | 6,780 | |||||||||
| 613,703 | 538,185 | 467,440 | ||||||||||
| Expenses: | ||||||||||||
| Property operating, excluding real estate taxes | 138,736 | 123,813 | 113,733 | |||||||||
| Real estate taxes | 57,276 | 48,354 | 43,777 | |||||||||
| Depreciation | 192,420 | 169,173 | 150,009 | |||||||||
| General and administrative | 25,601 | 23,307 | 20,694 | |||||||||
| Cost of management and other fees | 6,681 | 6,513 | 4,610 | |||||||||
| Merger Expenses | 4,284 | - | - | |||||||||
| 424,998 | 371,160 | 332,823 | ||||||||||
| Earnings from operations | 188,705 | 167,025 | 134,617 | |||||||||
| Interest expense before amortization | (104,600 | ) | (100,244 | ) | (91,694 | ) | ||||||
| Amortization expense | (11,924 | ) | (11,644 | ) | (11,474 | ) | ||||||
| Interest and other income | 11,633 | 13,833 | 17,139 | |||||||||
| Equity income (loss) from co-investments | 55,865 | 41,745 | (467 | ) | ||||||||
| Loss on early retirement of debt, net | (300 | ) | (5,009 | ) | (1,163 | ) | ||||||
| Gain on sale of land | 1,503 | - | - | |||||||||
| Gain on remeasurement of co-investment | - | 21,947 | - | |||||||||
| Income before discontinued operations | 140,882 | 127,653 | 46,958 | |||||||||
| Income from discontinued operations | 31,173 | 11,937 | 10,558 | |||||||||
| Net income | 172,055 | 139,590 | 57,516 | |||||||||
| Net income attributable to noncontrolling interest | (6,834 | ) | (6,347 | ) | (5,571 | ) | ||||||
| Net income attributable to controlling interest | 165,221 | 133,243 | 51,945 | |||||||||
| Preferred interest distributions - Series F, G, & H | (5,472 | ) | (5,472 | ) | (4,753 | ) | ||||||
| Preferred interest distributions - limited partner | - | - | (1,650 | ) | ||||||||
| Excess of the carrying amount of preferred interest redeemed over the cash paid to redeem preferred interest | - | - | (1,949 | ) | ||||||||
| Net income available to common unitholders | $ | 159,749 | $ | 127,771 | $ | 43,593 | ||||||
| Per unit data: | ||||||||||||
| Basic: | ||||||||||||
| Income before discontinued operations available to common unitholders | $ | 3.27 | $ | 3.11 | $ | 0.95 | ||||||
| Income from discontinued operations | 0.79 | 0.32 | 0.30 | |||||||||
| Net income available to common unitholders | $ | 4.06 | $ | 3.43 | $ | 1.25 | ||||||
| Weighted average number of common units outstanding during the period | 39,380,385 | 37,251,537 | 34,773,599 | |||||||||
| Diluted: | ||||||||||||
| Income before discontinued operations available to common unitholders | $ | 3.26 | $ | 3.10 | $ | 0.95 | ||||||
| Income from discontinued operations | 0.79 | 0.32 | 0.30 | |||||||||
| Net income available to common unitholders | $ | 4.05 | $ | 3.42 | $ | 1.25 | ||||||
| Weighted average number of common units outstanding during the period | 39,466,720 | 37,343,967 | 34,860,521 | |||||||||
See accompanying notes to consolidated financial statements
| 2007 | 2006 | 2005 | |||||||
| Revenues: | |||||||||
| Rental and other property | $ | 383,433 | $ | 334,770 | $ | 303,235 | |||
| Management and other fees from affiliates | 5,090 | 5,030 | 10,951 | ||||||
| 388,523 | 339,800 | 314,186 | |||||||
| Expenses: | |||||||||
| Property operating, excluding real estate taxes | 95,849 | 85,811 | 78,715 | ||||||
| Real estate taxes | 32,575 | 28,587 | 25,764 | ||||||
| Depreciation and amortization | 100,389 | 78,094 | 74,849 | ||||||
| Interest | 80,995 | 72,898 | 70,784 | ||||||
| Amortization of deferred financing costs | 3,071 | 2,745 | 1,947 | ||||||
| General and administrative | 26,273 | 22,234 | 19,148 | ||||||
| Other expenses | 800 | 1,770 | 5,827 | ||||||
| 339,952 | 292,139 | 277,034 | |||||||
| Earnings from operations | 48,571 | 47,661 | 37,152 | ||||||
| Gain on sale of real estate | - | - | 6,391 | ||||||
| Interest and other income | 10,310 | 6,176 | 8,524 | ||||||
| Equity income (loss) in co-investments | 3,120 | (1,503) | 18,553 | ||||||
| Minority interests | (4,847) | (4,977) | (5,340) | ||||||
| Income before discontinued operations and tax provision | 57,154 | 47,357 | 65,280 | ||||||
| Income tax provision | (400) | (525) | (2,538) | ||||||
| Income before discontinued operations | 56,754 | 46,832 | 62,742 | ||||||
| Income from discontinued operations (net of minority interests) | 80,546 | 33,015 | 35,558 | ||||||
| Net income | 137,300 | 79,847 | 98,300 | ||||||
| Distribution on preferred units - Series F & G | (9,174) | (5,145) | (1,953) | ||||||
| Distribution on preferred units - limited partners | (10,238) | (10,238) | (10,238) | ||||||
| Net income available to common units | $ | 117,888 | $ | 64,464 | $ | 86,109 | |||
| Per unit data: | |||||||||
| Basic: | |||||||||
| Income before discontinued operations available to common units | $ | 1.38 | $ | 1.23 | $ | 2.00 | |||
| Income from discontinued operations | 2.98 | 1.29 | 1.40 | ||||||
| Net income available to common units | $ | 4.36 | $ | 2.52 | $ | 3.40 | |||
| Weighted average number of units outstanding during the year | 27,043,697 | 25,560,415 | 25,343,695 | ||||||
| Diluted: | |||||||||
| Income before discontinued operations available to common units | $ | 1.35 | $ | 1.21 | $ | 1.97 | |||
| Income from discontinued operations | 2.92 | 1.27 | 1.38 | ||||||
| Net income available to common units | $ | 4.27 | $ | 2.48 | $ | 3.35 | |||
| Weighted average number of units outstanding during the year | 27,596,668 | 26,029,775 | 25,693,637 | ||||||
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2013, 2012, and 2011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Net income | $ | 172,055 | $ | 139,590 | $ | 57,516 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Changes in fair value of cash flow hedges and amortization of settlement swaps | 12,614 | 3,402 | 7,707 | |||||||||
| Changes in fair value of marketable securities | (1,556 | ) | 1,411 | 1,330 | ||||||||
| Reversal of unrealized gains upon the sale of marketable securities | (1,767 | ) | (1,082 | ) | (4,286 | ) | ||||||
| Total other comprehensive income | 9,291 | 3,731 | 4,751 | |||||||||
| Comprehensive income | 181,346 | 143,321 | 62,267 | |||||||||
| Comprehensive income attributable to noncontrolling interest | (6,834 | ) | (6,347 | ) | (5,571 | ) | ||||||
| Comprehensive income attributable to controlling interest | $ | 174,512 | $ | 136,974 | $ | 56,696 | ||||||
See accompanying notes to consolidated financial statements.
Consolidated Statements of Partners’ Capital
Years ended December 31, 2007, 20062013, 2012, and 20052011
| General Partner | Limited Partners | Accumulated | ||||||||||||||||||||||||||||||||||
| Preferred | Preferred | other | ||||||||||||||||||||||||||||||||||
| Common Equity | Equity | Common Equity | Equity | comprehensive | Noncontrolling | |||||||||||||||||||||||||||||||
| Units | Amount | Amount | Units | Amount | Amount | (loss) income | Interest | Total | ||||||||||||||||||||||||||||
| Balances at December 31, 2010 | 31,325 | $ | 1,202,751 | $ | 24,412 | 2,201 | $ | 54,065 | $ | 80,000 | $ | (76,713 | ) | $ | 70,499 | $ | 1,355,014 | |||||||||||||||||||
| Net income | - | 42,317 | 4,753 | - | 3,225 | 1,650 | - | 5,571 | 57,516 | |||||||||||||||||||||||||||
| Reversal of unrealized gains upon the sale of marketable securities | - | - | - | - | - | - | (4,286 | ) | - | (4,286 | ) | |||||||||||||||||||||||||
| Change in fair value of cash flow hedges and amortization of gain on settlement of swap | - | - | - | - | - | 7,707 | 7,707 | |||||||||||||||||||||||||||||
| Changes in fair value of marketable securities | - | - | - | - | - | - | 1,330 | - | 1,330 | |||||||||||||||||||||||||||
| Issuance of common units under: | ||||||||||||||||||||||||||||||||||||
| Stock and unit based compensation plans | 103 | 8,412 | - | - | - | - | - | - | 8,412 | |||||||||||||||||||||||||||
| Sale of common stock by the general partner | 2,460 | 323,931 | - | - | - | - | - | - | 323,931 | |||||||||||||||||||||||||||
| Stock and unit based compensation costs | - | (725 | ) | - | 28 | 1,598 | - | - | - | 873 | ||||||||||||||||||||||||||
| Issuance of Series H Preferred | - | - | 71,209 | - | - | - | - | - | 71,209 | |||||||||||||||||||||||||||
| Redemptions of Series F Preferred | - | (588 | ) | (24,412 | ) | - | - | - | - | - | (25,000 | ) | ||||||||||||||||||||||||
Redemptions of Series B Preferred | - | 1,200 | - | - | - | (80,000 | ) | - | - | (78,800 | ) | |||||||||||||||||||||||||
| Redemptions | - | (1,134 | ) | - | - | (1,049 | ) | - | - | (3,204 | ) | (5,387 | ) | |||||||||||||||||||||||
| Distribution to noncontrolling interests | - | - | - | - | - | - | - | (6,052 | ) | (6,052 | ) | |||||||||||||||||||||||||
| Distributions declared | - | (137,075 | ) | (4,753 | ) | - | (9,261 | ) | (1,650 | ) | - | - | (152,739 | ) | ||||||||||||||||||||||
| Balances at December 31, 2011 | 33,888 | 1,439,089 | 71,209 | 2,229 | 48,578 | - | (71,962 | ) | 66,814 | 1,553,728 | ||||||||||||||||||||||||||
| Net income | - | 119,812 | 5,472 | - | 7,959 | - | - | 6,347 | 139,590 | |||||||||||||||||||||||||||
| Reversal of unrealized gains upon the sale of marketable securities | - | - | - | - | - | - | (1,082 | ) | - | (1,082 | ) | |||||||||||||||||||||||||
| Change in fair value of cash flow hedges and amortization of gain on settlement of swap | - | - | - | - | - | 3,402 | 3,402 | |||||||||||||||||||||||||||||
| Changes in fair value of marketable securities | - | - | - | - | - | - | 1,411 | - | 1,411 | |||||||||||||||||||||||||||
| Issuance of common units under: | ||||||||||||||||||||||||||||||||||||
| Stock and unit based compensation plans | 151 | 4,675 | - | - | - | - | - | - | 4,675 | |||||||||||||||||||||||||||
| Sale of common stock by the general partner | 2,404 | 357,720 | - | - | - | - | - | - | 357,720 | |||||||||||||||||||||||||||
| Stock and unit based compensation costs | - | (430 | ) | - | (107 | ) | 2,231 | - | - | - | 1,801 | |||||||||||||||||||||||||
| Capital contributions | - | - | - | - | - | - | - | 4,232 | 4,232 | |||||||||||||||||||||||||||
| Redemptions | - | (1,798 | ) | - | - | (3,441 | ) | - | - | (1,747 | ) | (6,986 | ) | |||||||||||||||||||||||
| Distribution to noncontrolling interests | - | - | - | - | - | - | - | (6,957 | ) | (6,957 | ) | |||||||||||||||||||||||||
| Distributions declared | - | (156,212 | ) | (5,472 | ) | - | (9,734 | ) | - | - | - | (171,418 | ) | |||||||||||||||||||||||
| 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 settlement swaps | - | - | - | - | - | - | 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 interests | - | - | - | - | - | - | - | (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 | |||||||||||||||||||
| General Partner | Limited Partners | Accumulated | ||||||||||||||||||||
| Preferred | Preferred | other | ||||||||||||||||||||
| Common Equity | Equity | Common Equity | Equity | comprehensive | ||||||||||||||||||
| Units | Amount | Amount | Units | Amount | Amount | (loss) income | Total | |||||||||||||||
| Balances at December 31, 2004 | 23,041 | $ | 566,865 | $ | 24,412 | 2,478 | $ | 59,436 | $ | 126,690 | $ | - | $ | 777,403 | ||||||||
| Comprehensive income: | ||||||||||||||||||||||
| Net income | - | 77,763 | 1,953 | - | 8,346 | 10,238 | - | 98,300 | ||||||||||||||
| Change in fair value of cash flow hedges | - | - | - | - | - | - | 660 | 660 | ||||||||||||||
| Comprehensive income | 98,960 | |||||||||||||||||||||
| Issuance of common units under | ||||||||||||||||||||||
| stock-based compensation plans | 103 | 5,767 | - | - | - | - | - | 5,767 | ||||||||||||||
| Retirement of Essex Property Trust, Inc. | ||||||||||||||||||||||
| common stock | (286) | (25,000) | - | - | - | - | - | (25,000) | ||||||||||||||
| Redemption of limited partner common units | - | - | - | (89) | (2,861) | - | - | (2,861) | ||||||||||||||
| Vested series Z and Z-1 incentive units | - | - | - | 48 | 2,351 | - | - | 2,351 | ||||||||||||||
| Reallocation of partners' capital | - | 5,135 | - | - | (5,135) | - | - | - | ||||||||||||||
| Partners' distributions | - | (74,635) | (1,953) | - | (7,885) | (10,238) | - | (94,711) | ||||||||||||||
| Balances at December 31, 2005 | 22,858 | $ | 555,895 | $ | 24,412 | 2,437 | $ | 54,252 | $ | 126,690 | $ | 660 | $ | 761,909 | ||||||||
| Comprehensive income: | ||||||||||||||||||||||
| Net income | - | 57,603 | 5,145 | - | 6,861 | 10,238 | - | 79,847 | ||||||||||||||
| Change in fair value of cash flow hedges | - | - | - | - | - | - | (2,933) | (2,933) | ||||||||||||||
| Comprehensive income | 76,914 | |||||||||||||||||||||
| Issuance of common units under | ||||||||||||||||||||||
| Stock-based compensation plans | 92 | 5,575 | - | - | - | - | - | 5,575 | ||||||||||||||
| Sale of common stock | 427 | 48,273 | - | - | - | - | - | 48,273 | ||||||||||||||
| Issuance of general partner common units | 39 | 443 | - | - | - | - | - | 443 | ||||||||||||||
| Issuance of limited partners' common units | - | - | - | 73 | 7,704 | - | - | 7,704 | ||||||||||||||
| Redemption of limited partner common units | - | - | - | (57) | (2,863) | - | - | (2,863) | ||||||||||||||
| Vested series Z and Z-1 incentive units | - | - | - | 42 | 1,759 | - | - | 1,759 | ||||||||||||||
| Reallocation of partners' capital | - | - | - | - | 307 | - | - | 307 | ||||||||||||||
| Partners' distributions | - | (77,719) | (5,145) | - | (8,290) | (10,238) | - | (101,392) | ||||||||||||||
| Balances at December 31, 2006 | 23,416 | $ | 590,070 | $ | 24,412 | 2,495 | $ | 59,730 | $ | 126,690 | $ | (2,273) | $ | 798,629 | ||||||||
| Comprehensive income: | ||||||||||||||||||||||
| Net income | - | 106,464 | 9,174 | - | 11,424 | 10,238 | - | 137,300 | ||||||||||||||
| Settlement of forward-starting swap | - | - | - | - | - | - | 1,311 | 1,311 | ||||||||||||||
| Change in fair value of cash flow hedges and | ||||||||||||||||||||||
| amortization of gain on settlement of swap | - | - | - | - | - | - | (8,026) | (8,026) | ||||||||||||||
| Comprehensive income | 130,585 | |||||||||||||||||||||
| Issuance of common units under | ||||||||||||||||||||||
| Stock-based compensation plans | 87 | 5,648 | - | - | - | - | - | 5,648 | ||||||||||||||
| Sale of common stock | 1,671 | 213,672 | - | - | - | - | - | 213,672 | ||||||||||||||
Retirement of common units from retirement of common stock | (323) | (32,644) | - | - | - | - | - | (32,644) | ||||||||||||||
Issuance of general partner common units and reallocation between general partner and limited partners | 26 | (16,504) | - | - | 18,767 | - | - | 2,263 | ||||||||||||||
| Issuance of limited partners' common units | - | - | - | - | - | - | - | - | ||||||||||||||
| Redemption of limited partner common units | - | - | - | (37) | (2,088) | - | - | (2,088) | ||||||||||||||
| Vested series Z and Z-1 incentive units | - | - | - | 29 | 1,595 | - | - | 1,595 | ||||||||||||||
| Partners' distributions | - | (91,812) | (9,174) | - | (9,255) | (10,238) | - | (120,479) | ||||||||||||||
| Balances at December 31, 2007 | 24,877 | $ | 774,894 | $ | 24,412 | 2,487 | $ | 80,173 | $ | 126,690 | $ | (8,988) | $ | 997,181 | ||||||||
See accompanying notes to consolidated financial statements.statements
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 20062013, 2012, and 20052011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 172,055 | $ | 139,590 | $ | 57,516 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Gain on sale of marketable securities | (1,767 | ) | (819 | ) | (4,956 | ) | ||||||
| Gain on remeasurement of co-investment | - | (21,947 | ) | - | ||||||||
| Company's share of gain on the sales of co-investment | (41,252 | ) | (29,112 | ) | (919 | ) | ||||||
| Gain on the sales of real estate | (30,725 | ) | (10,870 | ) | (8,562 | ) | ||||||
| Loss on early retirement of debt | 300 | 5,009 | 1,163 | |||||||||
| Co-investments | 5,023 | 1,626 | 7,929 | |||||||||
| Amortization expense | 12,216 | 11,644 | 11,474 | |||||||||
| Amortization of discount on notes receivables | (844 | ) | (1,832 | ) | (1,757 | ) | ||||||
| Amortization of discount on marketable securities | (6,556 | ) | (5,127 | ) | (4,794 | ) | ||||||
| Depreciation | 193,518 | 170,686 | 152,542 | |||||||||
| Equity-based compensation | 4,508 | 4,141 | 2,927 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Prepaid expenses and other assets | (1,588 | ) | (9,488 | ) | (1,172 | ) | ||||||
| Accounts payable and accrued liabilities | 72 | 12,360 | 3,620 | |||||||||
| Other liabilities | 22 | 1,638 | 1,560 | |||||||||
| Net cash provided by operating activities | 304,982 | 267,499 | 216,571 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Additions to real estate: | ||||||||||||
| Acquisitions of real estate | (348,774 | ) | (393,771 | ) | (57,478 | ) | ||||||
| Improvements to recent acquisitions | (21,240 | ) | (13,704 | ) | (16,446 | ) | ||||||
| Redevelopment | (42,035 | ) | (39,027 | ) | �� | (45,130 | ) | |||||
| Revenue generating capital expenditures | (5,254 | ) | (7,620 | ) | (7,616 | ) | ||||||
| Lessor required capital expenditures | (8,641 | ) | (1,173 | ) | - | |||||||
| Non-revenue generating capital expenditures | (27,038 | ) | (30,491 | ) | (26,090 | ) | ||||||
| Acquisition of and additions to real estate under development | (17,757 | ) | (29,196 | ) | (79,194 | ) | ||||||
| Acquisition of membership interest in co-investment | - | (85,000 | ) | - | ||||||||
| Dispositions of real estate | 65,496 | 27,800 | 23,003 | |||||||||
| Changes in restricted cash and refundable deposits | (9,149 | ) | (6,069 | ) | (1,376 | ) | ||||||
| Purchases of marketable securities | (16,442 | ) | (73,735 | ) | (8,048 | ) | ||||||
| Sales and maturities marketable securities | 24,172 | 61,703 | 32,998 | |||||||||
| Purchases of and advances under notes and other receivables | (56,750 | ) | (26,000 | ) | (12,325 | ) | ||||||
| Collections of notes and other receivables | 53,438 | 14,525 | 884 | |||||||||
| Contributions to co-investments | (162,578 | ) | (260,153 | ) | (246,106 | ) | ||||||
| Non-operating distributions from co-investments | 118,856 | 49,773 | 17,141 | |||||||||
| Net cash used in investing activities | (453,696 | ) | (812,138 | ) | (425,783 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Borrowings under debt agreements | 969,061 | 1,745,853 | 1,514,684 | |||||||||
| Repayment of debt | (750,900 | ) | (1,371,317 | ) | (1,435,135 | ) | ||||||
| Additions to deferred charges | (7,402 | ) | (6,707 | ) | (5,533 | ) | ||||||
| Payments to settle derivative instruments | - | - | (2,395 | ) | ||||||||
| Net proceeds from issuance of Series H Preferred interests | - | - | 71,209 | |||||||||
| Retirement of Series B preferred interests and Series F Preferred interests | - | - | (103,800 | ) | ||||||||
| Equity related issuance cost | (617 | ) | (309 | ) | (627 | ) | ||||||
| Net proceeds from stock options exercised | 4,958 | 2,643 | 6,986 | |||||||||
| Net proceeds from issuance of common units | 138,366 | 357,720 | 323,931 | |||||||||
| Contributions from noncontrolling interest | - | 2,400 | - | |||||||||
| Distributions to noncontrolling interest | (8,016 | ) | (6,957 | ) | (6,052 | ) | ||||||
| Redemption of limited partners units and noncontrolling interests | (5,711 | ) | (6,986 | ) | (5,387 | ) | ||||||
| Common units and preferred units and preferred interests distributions paid | (191,140 | ) | (165,984 | ) | (149,533 | ) | ||||||
| Net cash provided by financing activities | 148,599 | 550,356 | 208,348 | |||||||||
| Net increase (decrease) in cash and cash equivalents | (115 | ) | 5,717 | (864 | ) | |||||||
| Cash and cash equivalents at beginning of year | 18,606 | 12,889 | 13,753 | |||||||||
| Cash and cash equivalents at end of year | $ | 18,491 | $ | 18,606 | $ | 12,889 | ||||||
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2007, 20062013, 2012, and 20052011
(Dollars in thousands)
| 2013 | 2012 | 2011 | ||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid for interest, net of $16,486, $10,346, and $8,240capitalized in 2013, 2012 and 2011, respectively | $ | 103,516 | $ | 95,597 | $ | 89,691 | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||||||
| Transfer from real estate under development to rental properties | $ | 68 | $ | 6,632 | $ | 165,214 | ||||||
| Transfer from real estate under development to co-investments | $ | 27,906 | $ | - | $ | 54,472 | ||||||
| Transfer from co-investments to rental properties | - | 148,053 | - | |||||||||
| Mortgage notes assumed in connection with purchases of real estate including the loan premiums recorded | $ | - | $ | 82,133 | $ | 20,927 | ||||||
| Contribution of note receivable to co-investment | - | 12,325 | - | |||||||||
| Change in accrual of distributions | $ | 5,575 | $ | 5,441 | $ | 3,206 | ||||||
| Change in fair value of derivative liabilities | $ | 4,185 | $ | 4,461 | $ | 230 | ||||||
| Change in fair value of marketable securities | $ | 3,222 | $ | 459 | $ | 2,836 | ||||||
| Change in construction payable | $ | 2,655 | $ | 1,113 | $ | 2,518 | ||||||
| 2007 | 2006 | 2005 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||
| Cash paid for interest, net of $5,100, $3,900 and $1,100 | |||||||||
| capitalized in 2007, 2006 and 2005, respectively | $ | 74,397 | $ | 68,686 | $ | 71,619 | |||
| Supplemental disclosure of noncash investing and | |||||||||
| financing activities: | |||||||||
| Mortgage notes assumed in connection with purchases | |||||||||
| of real estate | $ | 43,839 | - | - | |||||
| Land contributed by a partner in a consolidated joint venture | $ | 22,200 | - | - | |||||
| Issuance of DownREIT units in connection with | |||||||||
| purchase of real estate | $ | 7,067 | - | - | |||||
| Issuance of Operating Partnership units in | |||||||||
| connection with the purchase of real estate | - | $ | 7,704 | - | |||||
| Land contributed by a partner in a consolidated joint venture | |||||||||
| Accrual of distributions | $ | 28,521 | $ | 24,910 | $ | 22,496 | |||
| Change in value of cash flow hedges and amortization of swap settlement | |||||||||
| included in other liabilities or other assets as applicable | $ | (8,026) | $ | (2,933) | $ | 660 | |||
| Accruals for capital expenditures included in the year-end balance of | |||||||||
| accounts payable and accrued liabilities | $ | 8,703 | $ | 4,804 | $ | 4,636 |
See accompanying notes to consolidated financial statements.statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
(1) Organization
The accompanying consolidated financial statements present the accounts of Essex Portfolio, L.P. (the “Operating Partnership”), and its subsidiaries. Essex Property Trust, Inc. (the(“Essex”, “ESS”, or the “Company”) was incorporated in, which include the stateaccounts of Maryland in March 1994. On June 13, 1994, the Company commenced operations withand Essex Portfolio, L.P. and subsidiaries (the “Operating Partnership,” which holds the completion of an initial public offering (the “Offering”) in which it issued 6,275,000 shares of common stock at $19.50 per share. The net proceedsoperating assets of the Offering of $112.1 million were usedCompany). Unless otherwise indicated, the notes to acquire a 77.2% general partnership interest inconsolidated financial statements apply to both the Company and the Operating Partnership.
As of December 31, 2007,2013, the Operating PartnershipCompany owned or had ownership interests in 134164 apartment communities, (aggregating 27,48934,079 units), six officefour commercial buildings, two recreational vehicle parks (totaling 338 spaces), and one manufactured housing community (containing 157 sites)eleven active development projects (collectively, the “Properties”“Portfolio”). The Propertiescommunities are located in Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area
In December 2013, the Company and other region (Houston, Texas).BRE Properties, Inc. (“BRE”) entered into a definitive agreement under which BRE will merge with Essex. Under the terms of the agreement, each BRE common share will be converted into 0.2971 newly issued shares of Essex common stock plus $12.33 in cash. The Company has obtained committed financing up to $1.0 billion (the “bridge loan”) which is available if needed to fund the cash portion of the purchase price. The bridge loan facility is structured as a 364-day unsecured loan facility available in a single draw on the closing date of the merger. The company is exploring several alternatives to fund the cash needs of the transaction including asset sales, joint ventures or new financing. The merger is subject to customary closing conditions, including receipt of approval of Essex and BRE shareholders. Additional information about the merger and the bridge loan can be found in the Form S-4 filed with the SEC on January 29, 2014.
(2) Summary of Critical and Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The accounts of the Operating Partnership,Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to conform to the current year’s presentation.
The Company consolidates 19 DownREIT limited partnerships (comprising twelve properties)eleven communities), an office building thatsince the Company is subject to loans made by the Operating Partnership, and prior to the sale of the property during 2007, the buildings and improvements that were owned by a third-party subject to a ground lease on land that was owned by the Operating Partnership. The Operating Partnership consolidates these entities because it is deemed the primary beneficiary under FIN 46R.of these variable interest entities (“VIEs”). The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $222.7$194.9 million and $163.9$178.3 million, respectively, as of December 31, 20072013, and $269.5$201.1 million and $145.5$178.6 million, respectively, as of December 31, 2006.2012.
The DownREIT entities thatVIEs collectively own twelveeleven apartment communities were investments made under arrangements wherebyin which Essex Management Company (“EMC”) becameis the general partner, the Operating Partnership becameis 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 Operating PartnershipCompany can elect to redeem their rights for cash or by issuing shares of the Company'sits 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 1,007,879 and 1,039,431 as of December 31, 2013 and 2012 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $144.6 million and $152.4 million, as of December 31, 2013 and 2012, respectively. As of December 31, 2007, the maximum number of shares that could be issued to meet redemption of these DownREIT entities is 1,201,012. As of December 31, 20072013 and 2006,2012, the carrying value of the other limited partners' interests is presented at their historical cost and is classified within minority interestsnoncontrolling interest in the accompanying consolidated balance sheets.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,20072013, 2012, and 2006, respectively. The Company periodically adjusts the carrying value of minority interest in the Operating Partnership to reflect its share of the book value of the Operating Partnership. Such adjustments are recorded to stockholders’ equity as a reallocation of minority interest in the Operating Partnership in the accompanying consolidated statements of stockholders’ equity. The minority interest balance also includes the Operating Partnership’s cumulative redeemable preferred units (see Note 12).2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
Interest holders in VIEs consolidated by the Operating PartnershipCompany are allocated a priority of net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow. The remaining results of operations are generally allocated to the Operating Partnership.Company.
As of December 31, 20072013 and 20062012, the Operating Partnership was involved with two VIEs,Company did not have any VIE’s of which it iswas not deemed to be the primary beneficiary. Total assets of these entities were approximately $71.7 million and $78.5 million and total liabilities were approximately $58.3 million and $58.4 million, as of December 31, 2007 and 2006, respectively. The Operating Partnership does not have a significant exposure to loss from its involvement with these unconsolidated VIEs.
(b) Real Estate Rental Properties
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 unit improvements | 5 years |
| Land improvements and certain exterior components of real property | 10 years |
| Real estate structures | 30 years |
| (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 |
| (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; |
| compute the value of the above and below market leases |
| compute the |
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
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 property’s expected future cash flows (undiscounted and without interest charges) is less than the carrying amount
In the normal course of business, the Operating PartnershipCompany will receive purchase offers for sale of its Properties,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 Operating PartnershipCompany classifies real estate as "held for sale" when all criteria under Statement of Financial Accounting Standard No. 144 (“SFAS No. 144”), "Accountingthe accounting standard for the Impairment or Disposaldisposals of Long-Lived Assets"long-lived assets have been met. In accordance with SFAS No. 144, the Operating Partnershipstandard, the Company presents income and gains/losses on propertiescommunities sold or held for sale as discontinued operations net of minority interests. Realoperations. The Company’s equity in income or loss from real estate investments accounted for under the equity method of accounting remain classified in continuing operations upon disposition. (See Note 76 for a description of the Operating Partnership’sCompany’s discontinued operations for 2007, 2006,2013, 2012, and 2005)2011).
(c) Co-investments
The Operating PartnershipCompany 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 FIN 46R or Emerging Issues Task Force Consensus No. 04-05 (“EITF 04-05”), “Determining Whether a General Partner or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.”accounting standards. Therefore, the Operating PartnershipCompany 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 Operating Partnership’sCompany’s equity in earnings less distributions received and the Operating Partnership’sCompany’s share of losses.
A majority of thesethe co-investments, excluding the preferred equity investments, compensate the Operating PartnershipCompany 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. Asset management fees andAny promote fees are reflected in interest and other and equity income in co-investments, respectively, in the accompanying consolidated statements of operations.(loss) from co-investments.
(d) Revenues and Gains on Sale of Real Estate
Revenues from tenants renting or leasing apartment units recreational vehicle park spaces or manufactured housing community spaces 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. Units or spaces are rented under short-term leases (generally, lease terms of 6 to 12 months) and may provide no rent for one or two months, depending on the market conditions and leasing practices of the Operating Partnership’sCompany’s competitors in each sub-market at the time the leases are executed. Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.
The Operating PartnershipCompany 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 Operating PartnershipCompany does not have a substantial continuing involvement in the property.
(e) 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 Propertiescommunities in connection with the Operating Partnership’sCompany’s mortgage debt.
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(f) Marketable Securities
As of December 31, 2013 and 2012, marketable securities consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities and investment funds that invest in U.S. treasury or agency securities. As of December 31, 2013 and 2012, 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, 2013 and 2012 marketable securities consist of the following ($ in thousands):
| December 31, 2013 | ||||||||||||
| Gross | ||||||||||||
| Amortized | Unrealized | Carrying | ||||||||||
| Cost | Gain (Loss) | Value | ||||||||||
| Available for sale: | ||||||||||||
| Investment-grade unsecured bonds | $ | 15,446 | $ | 509 | $ | 15,955 | ||||||
| Investment funds - US treasuries | 3,675 | 3 | 3,678 | |||||||||
| Common stock | 13,104 | (1,304 | ) | 11,800 | ||||||||
| Held to maturity: | ||||||||||||
| Mortgage backed securities | 58,651 | - | 58,651 | |||||||||
| Total | $ | 90,876 | $ | (792 | ) | $ | 90,084 | |||||
| December 31, 2012 | ||||||||||||
| Gross | ||||||||||||
| Amortized | Unrealized | Carrying | ||||||||||
| Cost | Gain | Value | ||||||||||
| Available for sale: | ||||||||||||
| Investment-grade unsecured bonds | $ | 15,475 | $ | 826 | $ | 16,301 | ||||||
| Investment funds - US treasuries | 3,788 | 1 | 3,789 | |||||||||
| Common stock | 18,917 | 1,704 | 20,621 | |||||||||
| Held to maturity: | ||||||||||||
| Mortgage backed securities | 52,002 | - | 52,002 | |||||||||
| Total | $ | 90,182 | $ | 2,531 | $ | 92,713 | ||||||
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, 2013, 2012 and 2011, the proceeds from sales of available for sale securities totaled $24.2 million, $61.7 million and $33.0 million, respectively. These sales all resulted in gains, which totaled $1.8 million, $0.8 million and $5.0 million for the years ended December 31, 2013, 2012 and 2011, respectively.
(g) Notes Receivable and Interest Income
Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans that exceed one year. They bear interest at a rate based on the borrower’s credit quality and are recorded at face value.secured by real estate. Interest is recognized over the life of the note. The Operating Partnership requires collateral for the notes.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Each note is analyzed to determine if it is impaired pursuant to SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”.impaired. A note is impaired if it is probable that the Operating PartnershipCompany will not collect all contractually due principal and interest contractually due.interest. The Operating PartnershipCompany does not accrue interest when a note is considered impaired.impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be collectable. 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, 2013 and 2012, no notes were impaired.
(h) 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 office costs that clearly relate to projects under development. The Company’s capitalized internal costs related to development and redevelopment projects totaled $7.5 million, $6.2 million and $4.3 million for the years ended December 31, 2013, 2012 and 2011, respectively, most of which relates to development projects. These totals include capitalized salaries of $2.6 million, $2.4 million and $2.2 million, for the years ended December 31, 2013, 2012 and 2011, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized are immaterial for all periods presented.
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 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 liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 9. 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 lines of credit and notes and other receivables approximate fair value as of December 31, 2013 and 2012, 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 the Company’s $2.30 billion and $2.13 billion of fixed rate debt at December 31, 2013 and 2012, respectively, to be $2.33 billion and $2.24 billion. Management has estimated the fair value of the Company’s $737.0 million and $692.9 million of variable rate debt at December 31, 2013 and 2012, respectively, is $719.4 million and $671.7 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, 2013 and 2012 due to the short-term maturity of these instruments. Marketable securities and derivative liabilities are carried at fair value as of December 31, 2013 and 2012.
At December 31, 2013, the Company’s investments in mortgage backed securities had a carrying value of $58.7 million and the Company estimated the fair value to be approximately $86.2 million. At December 31, 2012, the estimated fair values of the mortgage backed securities were approximately equal to the carrying values. The Company determines the fair value of the mortgage backed securities based on unobservable inputs (level 3 of the fair value hierarchy) considering the 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.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(j) Interest Rate Protection, Swap, and Forward Contracts
The Operating Partnership has from timeCompany uses interest rate swaps, interest rate cap contracts, and forward starting swaps to timemanage 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 used interest rate protection, swapswaps and forward contracts to manage its interest rate exposure on current or identified future debt transactions. The Operating Partnership accounts for such derivative contracts using SFAS No. 133. Under SFAS No. 133, derivative instruments are required to be included in the balance sheet at fair value. The changes in the fair value of the derivatives are accounted for depending on the use of the derivative and whether it has been designated and qualifiesforward-starting swaps as a part of its cash flow hedging strategy. The Company was hedging its exposure to the variability in future cash flows for a hedging relationship.portion of its forecasted transactions.
As of December 31, 2013 and 2012, there were no outstanding forward starting swaps. The Operating PartnershipCompany records all derivatives on theits consolidated balance sheet 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 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 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 Operating PartnershipCompany 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 as cash flow hedges, changes in fair value are recognized in earnings. All existing instrumentsof the Company’s interest rate swaps and interest rate caps are considered cash flow hedges andexcept for the Operating Partnership doesswap related to the multifamily revenue refunding bonds for the 101 San Fernando community that was terminated in 2012 as described in detail in Note 9. The Company did not have any fair value hedges as ofduring the years end December 31, 2007.2013, 2012 and 2011.
Deferred charges are principally comprised of loan fees and related costs which are amortized over the terms of the related borrowing in a manner which approximates the effective interest method.
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, 2013 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 activities and tax related provisions, assets and liabilities are not material.
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’subsidiaries are consolidated by the Operating Partnership.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
The activitiesstatus of cash dividends distributed for the years ended December 31, 2013, 2012, and 2011 related to common stock, Series F, Series G, and Series H preferred stock are classified for tax related provisions, assets and liabilities are not material.purposes as follows:
| 2013 | 2012 | 2011 | ||||||||||
| Common Stock | ||||||||||||
| Ordinary income | 77.34 | % | 70.58 | % | 63.68 | % | ||||||
| Capital gain | 17.64 | % | 8.75 | % | 11.16 | % | ||||||
| Unrecaptured section 1250 capital gain | 5.02 | % | 7.97 | % | 0.74 | % | ||||||
| Return of capital | 0.00 | % | 12.70 | % | 24.42 | % | ||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
| 2013 | 2012 | 2011 | ||||||||||
| Series F, G, and H Preferred stock | ||||||||||||
| Ordinary income | 77.34 | % | 80.85 | % | 100.00 | % | ||||||
| Capital gains | 17.64 | % | 10.02 | % | 0.00 | % | ||||||
| Unrecaptured section 1250 capital gain | 5.02 | % | 9.13 | % | 0.00 | % | ||||||
| 100.00 | % | 100.00 | % | 100.00 | % | |||||||
(m) Preferred EquityStock
The Operating Partnership classifies itsCompany’s Series G Cumulative Convertible Preferred EquityStock (“Series G Preferred Equity”Stock”) based on Emerging Issues Task Force Topic D-98, (“EITF D-98”) “Classification and Measurement of Redeemable Securities.” The Series G Preferred Equity contains fundamental change provisions that allow the holder to redeem the preferred stock for cash if certain events occur. The redemption under these provisions is not solely within the Operating Partnership’sCompany’s control, thus the Operating PartnershipCompany has classified the Series G Preferred EquityStock as temporary equity in the accompanying consolidated balance sheets.sheets as of December 31, 2013 and 2012.
(n) Equity-based Compensation
The Operating Partnership classifies its Series F Cumulative Redeemable Preferred Equity (“Series F Preferred Equity”)cost of share and unit based compensation awards is measured at the grant date based on EITF D-98. The Series F Preferred Stock contains fundamental change provisions that allow the holder to redeem the preferred stock for cash if certain events occur. The redemption under these provisions is within the Operating Partnership’s control, and thus the Operating Partnership has classified the Series F Preferred Equity as permanent equity in the accompanying consolidated balance sheets.
| Change in fair | Unrealized | |||||||||||
| gains/(losses) on | ||||||||||||
| amortization | available for sale | |||||||||||
| of derivatives | securities | Total | ||||||||||
| Balance at December 31, 2012, net of noncontrolling interest | $ | (71,658 | ) | $ | 2,397 | $ | (69,261 | ) | ||||
| Other comprehensive income (loss) before reclassification | 3,468 | (1,472 | ) | 1,996 | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | 8,466 | (1,673 | ) | 6,793 | ||||||||
| Net other comprehensive income (loss) | 11,934 | (3,145 | ) | 8,789 | ||||||||
| Balance at December 31, 2013, net of noncontrolling interest | $ | (59,724 | ) | $ | (748 | ) | $ | (60,472 | ) | |||
F-23
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Essex Portfolio, L.P.
| Change in fair | Unrealized | |||||||||||
| value and | gains/(losses) on | |||||||||||
| amortization | available for sale | |||||||||||
| of derivatives | securities | Total | ||||||||||
| Balance at December 31, 2012 | $ | (70,762 | ) | $ | 2,531 | $ | (68,231 | ) | ||||
| Other comprehensive income (loss) before reclassification | 4,148 | (1,556 | ) | 2,592 | ||||||||
| Amounts reclassified from accumulated other comprehensive loss | 8,466 | (1,767 | ) | 6,699 | ||||||||
| Net other comprehensive income (loss) | 12,614 | (3,323 | ) | 9,291 | ||||||||
| Balance at December 31, 2013 | $ | (58,148 | ) | $ | (792 | ) | $ | (58,940 | ) | |||
Amounts reclassified from accumulated other comprehensive loss in connection with non-recurring litigation that is not covered by insurancederivatives are accrued when amountsrecorded to interest expense before amortization on the consolidated statement of operations. Realized gains and losses on available for sale securities are probableincluded in interest and estimable.other income on the consolidated statement of operations.
The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles (“GAAP”), requires the Operating PartnershipCompany to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Operating PartnershipCompany evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate properties,portfolio, its investments in and advances to joint ventures and affiliates, its notes receivable and its qualification as a REIT. The Operating PartnershipCompany bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.
(3) Real Estate Investments
(a) SalesAcquisitions of Real Estate and Assets Held for Sale
For the year ended December 31, 2005,2013, the gain on the saleCompany purchased six communities consisting of the Eastridge apartment community was $28.51,079 units for $349.1 million. An additional $2.2 million was deferred as of December 31, 2007 and 2006. The $2.2 million was deferred because it is due and payable to the Operating Partnership only upon the sale of units following a condominium conversion which was still in progress as of December 31, 2007. This transaction was included in discontinued operations as we had no other ongoing involvement with the Property.
For the year ended December 31, 2005, $5.0 million previously deferred gain on2012, the saleCompany purchased eleven communities, comprising of The Essex on Lake Merritt apartment community was recognized on the cost recovery method when the cash was received. The $5.0 million was deferred because it was due and payable to the Operating Partnership only upon the sale of2,052 units following a condominium conversion. The sale transaction was included in continuing operations as we continued to manage the rented apartment units in the project during the conversion process.for $551.1 million.
(b) Sales of Real Estate investments
During 2013, the Company sold three communities consisting of 363 units for $57.5 million resulting in gains totaling $29.2 million.
During the first quarter of 2013, the Company sold a land parcel held for future development located in Palo Alto, California for $9.1 million, which resulted in a gain of $1.5 million.
During 2012, the Company sold two communities consisting of 264 units for $28.3 million resulting in gains totaling $10.9 million.
(c) Co-investments
The Operating PartnershipCompany has joint venture investments in a number of co-investments which are accounted for under the equity method. The co-investments’ accounting policies are similar to the Company’s accounting policies. The joint ventures own, operate, and operatedevelop apartment communities.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Wesco I, LLC
Wesco, I LLC (“Wesco I”) is a 50/50 programmatic joint venture with an institutional partner for a total equity commitment of $300.0 million. Each partner’s equity commitment is $150.0 million. Wesco I will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate. The Company has contributed $150.0 million to Wesco I, and as of December 31, 2013, Wesco I owned nine apartment communities with 2,713 units with an aggregate carrying value of approximately $670 million.
Wesco III, LLC
During 2012, the Company entered into a 50/50 programmatic joint venture, Wesco III LLC (“Wesco III”), with an institutional partner for a total equity commitment from the parties of $120.0 million. Each partner’s equity commitment is $60.0 million. Wesco III will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate. The Company has contributed $39.7 million to Wesco III, and as of December 31, 2013, Wesco III owned three apartment communities with 657 units with an aggregate carrying value of approximately $164 million.
Essex Apartment Value Fund II, L.P. (“Fund I”), was an investment fund organized by the Operating Partnership in 2001 to add value through rental growth and asset appreciation, utilizing the Operating Partnership’s acquisition, development, redevelopment and asset management capabilities. Fund I was considered fully invested in 2003. An affiliate of the Operating Partnership, Essex VFGP, L.P. (“VFGP”), was a 1% general partner and was a 20.4% limited partner. The Operating Partnership owned a 99% limited partnership interest in VFGP. Fund I acquired or developed ownership interests in 19 apartment communities, representing 5,406 apartment units.
Essex Apartment Value Fund II, L.P. (“Fund II”), has eight institutional investors and the Operating Partnership, with combined partner equity commitmentscontributions of $265.9 million. Essex has committedThe Company contributed $75.0 million to Fund II, which represents a 28.2% interest as general partner and limited partner. Fund II utilized debt as leverage equal to approximately 65% of55% upon the estimated valueinitial acquisition of the underlying real estate. Fund II investsinvested in apartment communities in the Operating Partnership’sCompany’s targeted West Coast markets with an emphasis on investment opportunities in the Seattle metropolitan area and the San Francisco Bay Area. Subject to certain exceptions, Fund II had been Essex’s primary investment vehicle during 2005 and 2006. As of October 2006, Fund II was fully invested and closed for any future acquisitions or development. As of December 31, 2007,2013, Fund II owned eleventwo apartment communities.
During the year ended December 31, 2013, Fund II sold five communities for gross proceeds of $320.4 million. In connection with the 2013 sales, Fund II incurred a prepayment penalty on debt of which the Company’s pro rata share was $0.4 million. The total gain on the sales was $146.8 million, of which the Company’s pro rata share was $38.8 million, net of internal disposition costs. There are two remaining properties in the Fund II portfolio that are expected to be sold in 2014.
During the year ended December 31, 2012, Fund II sold seven communities for gross proceeds of $413.0 million. In connection with the 2012 sales, Fund II incurred a prepayment penalty on debt of which the Company’s pro rata share was $2.3 million. The total gain on the sales was $106.0 million, of which the Company’s pro rata share was $29.1 million.
Canada Pension Plan Investment Board – Joint Venture Developments
The Company has entered into six development joint ventures with the Canada Pension Plan Investment Board (“CPPIB”) to develop six apartment communities. For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and threewill earn customary management fees and may earn development, projects. No properties have been sold by Fund II. Consistent with Fund I, Essex records revenue for its asset, management,and property management developmentfees. The Company may also earn a promote interest. These co-investments are not variable interest entities since they have sufficient equity without additional subordinated support, and redevelopment services when earned,the Company and promote income when realized if Fund II exceeds certain financial return benchmarks.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Epic – Phase I, a 280 unit community in San Jose, California, a development joint venture with CPPIB, stabilized its remaining investmentoperations in the amendedfourth quarter of 2013. Epic – Phase II and restated Mountain Vista Apartments, LLCPhase III are currently still under development.
The Huxley and The Dylan – Joint Venture Developments
During the third quarter 2011, the Company entered into a development joint venture with a regional developer for the construction of The Huxley, a 187 unit community with approximately 18,200 square feet of retail located in West Hollywood, California. The regional developer contributed the land and the Company contributed approximately $9.0 million in cash for a 50% interest in the venture. The joint venture obtained bond financing for the project in the amount of $54.5 million with a maturity date of October 2046 and entered into an interest rate swap transaction with respect to the bonds that terminates in September 2016 that effectively converts the interest rate to the Securities Industry and Financial Market Association Municipal Swap Index (“SIFMA Municipal Swap Index”) plus 150 basis points through December 2016.
In the fourth quarter 2011, the Company entered into another development joint venture with the same regional developer for the construction of The Dylan, a 184 unit apartment community with approximately 12,750 square feet of retail located in West Hollywood, California. The 50/50 joint venture was $1.2 million. During January 2008, the Operating Partnership collected $7.5 million in connectioncreated with the contribution of $5.8 million by the Company and the contribution of entitled land by the regional developer. The joint venture secured bond financing in the amount of $59.9 million, maturing in December 2046. The joint venture entered into a total return swap agreement that effectively converts the interest rate to SIFMA Municipal Swap Index plus 150 basis points through December 2016.
The bond financing for these two development projects have joint and several liability for the joint venture partners. Additionally, if either partner fails to make capital contributions to one of its remainingthese joint ventures in certain instances, then the ownership interest of the defaulting partner in the other joint venture may be reduced.
One South Market
During May 2013, the Company entered into a development joint venture to develop a 312 unit community in San Jose, California. The Company holds a 55% non-controlling interest in the joint venture and recognized incomewill earn customary management fees and may earn development, asset, and property management fees. The Company may also earn a promote interest. The co-investment is not a variable interest entity since it has sufficient equity without additional subordinated support, and the Company and the partner jointly have the power to direct activities that most significantly impact the co-investment economic performance. The co-investment has a single general partner, which is a subsidiary consolidated by the Company. However, the Company, as general partner of $6.3 million from its preferred interest.the co-investment, does not control the co-investments because the limited partners have substantive participating rights. Therefore, the presumption of control by the Company as general partner is overcome by the rights held by the partner, and the Company records the co-investments on the equity method of accounting.
As of December 31, 2013, the project’s total estimated costs were $145.1 million. At December 31, 2013, the total remaining estimated costs to be incurred on this project was $114.2 million of which the Company’s portion of the remaining costs were $62.8 million.
Preferred Equity Investments
During the first quarter of 2013, the Company made an $8.6 million preferred equity interest investment in an apartment development located in Redwood City, California to a related party entity. The Operating Partnership hadinvestment has a developer agreementpreferred return of 12% and matures in January 2016.
In March 2013, the Company received the redemption of $9.7 million of preferred equity related to distributetwo properties located in downtown Los Angeles, California. The Company recorded $0.4 million of income from redemption penalties due to the general contractorearly redemption of Mirabella apartments 20%these preferred equity investments.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
During the property’s cash flow aftersecond quarter of 2013, the Operating Partnership receivesCompany received the redemption of $13.1 million of preferred equity related to a 9% cumulativeproperty located in downtown Los Angeles, California. The Company recorded $0.5 million of income from redemption penalties due to the early redemption of these preferred equity investments.
In August 2013, the Company made an $8.5 million preferred equity investment in a multifamily development project located in San Jose, California. The investment has a preferred return on its investment from operating cash flowof 12% and a 12% preferred return on its investment from capital transactions cash flow. matures in 3 years.
During the third quarter of 2007,2013, the Operating Partnership acquiredCompany restructured the general contractor's interestterms of a preferred equity investment with a related party entity on a property located in Anaheim, California, reducing the Mirabella property for $9rate from 13% to 9%, while extending the maximum term by one year. The Company recorded a $0.4 million in lieu of distributing a percentage of future cash flowsrestructuring fee related to the general contractor perrestructured investment.
During the second quarter 2012, the Company made a $14 million preferred equity investment in an apartment community located in Cupertino, California to a related party entity. The investment has a preferred return of 9.5% and matures in May 2016. The preferred equity agreement provides for up to $4 million of additional funding for renovation costs.
The carrying values of the Company’s co-investments, all accounted for under the equity method of accounting as of December 31, 2013 and 2012 are as follows ($ in thousands):
| 2013 | 2012 | |||||||
| Membership interest in Wesco I | $ | 142,025 | $ | 143,874 | ||||
| Membership interest in Wesco III | 39,073 | 9,941 | ||||||
| Partnership interest in Fund II | 4,166 | 53,601 | ||||||
| Membership interest in a limited liability company that owns Expo | 12,041 | 18,752 | ||||||
| Total operating co-investments | 197,305 | 226,168 | ||||||
| Membership interests in limited liability companies with CPPIB that own and are developing Epic, Connolly Station, Mosso I & II, Park 20 (fka Elkhorn) and The Village | 301,538 | 186,362 | ||||||
| Membership interests in limited liability companies that own and are developing The Huxley and The Dylan | 18,545 | 16,552 | ||||||
| Membership interest in a limited liability company that owns and is developing One South Market | 17,115 | - | ||||||
| Total development co-investments | 337,198 | 202,914 | ||||||
| Membership interest in Wesco II that owns a preferred equity interest in Parkmerced with a preferred return of 10.1% | 94,711 | 91,843 | ||||||
| Preferred interest in related party limited liability company that owns Sage at Cupertino with a preferred return of 9.5% | 15,775 | 14,438 | ||||||
| Preferred interest in a related party limited liability company that owns Madison Park at Anaheim with a preferred return of 9% | 13,824 | 13,175 | ||||||
| Preferred interest in related party limited liability company that owns an apartment development in Redwood City with a preferred return of 12% | 9,455 | - | ||||||
| Preferred interest in a limited liability company that owns an apartment development in San Jose with a preferred return of 12% | 8,865 | - | ||||||
| Preferred interests in limited liability companies that own apartment communities in downtown Los Angeles with preferred returns of 9% and 10% repaid in 2013 | - | 22,807 | ||||||
| Total preferred interest investments | 142,630 | 142,263 | ||||||
| Total co-investments | $ | 677,133 | $ | 571,345 | ||||
| 2007 | 2006 | |||
| Investments in joint ventures accounted for under the equity | ||||
| method of accounting: | ||||
| Limited partnership interest of 27.2% and general partner | ||||
| interest of 1% in Essex Apartment Value Fund II, L.P (Fund II) | $ | 58,419 | $ | 45,598 |
| Preferred limited partnership interest in Mountain Vista | ||||
| Apartments LLC (A) | 1,182 | 6,806 | ||
| Development joint venture | 4,090 | 3,414 | ||
| 63,691 | 55,818 | |||
| Investments accounted for under the cost method of accounting: | ||||
| Series A Preferred Stock interest in Multifamily Technology Solutions, Inc | 500 | 500 | ||
| Total investments | $ | 64,191 | $ | 56,318 |
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
The combined summarized financial information of co-investments, which are accounted for under the equity method, is as follows:
| December 31, | ||||||||
| 2007 | 2006 | |||||||
| Balance sheets: | ||||||||
| Rental properties and real estate under development | $ | 614,266 | $ | 576,134 | ||||
| Other assets | 16,184 | 20,681 | ||||||
| Total assets | $ | 630,450 | $ | 596,815 | ||||
| Mortgage notes payable | $ | 322,615 | $ | 301,665 | ||||
| Other liabilities | 24,014 | 74,793 | ||||||
| Partners' capital | 283,821 | 220,357 | ||||||
| Total liabilities and partners' capital | $ | 630,450 | $ | 596,815 | ||||
| Operating Partnership's share of capital | $ | 63,691 | $ | 55,818 | ||||
| Years ended | ||||||||
| December 31, | ||||||||
| 2007 | 2006 | 2005 | ||||||
| Statements of operations: | ||||||||
| Property revenues | $ | 46,559 | $ | 43,031 | $ | 28,156 | ||
| Property operating expenses | (18,551) | (20,464) | (11,761) | |||||
| Net operating income | 28,008 | 22,567 | 16,395 | |||||
| Gain on the sale of real estate | - | - | 41,985 | |||||
| Interest expense | (13,888) | (17,000) | (11,042) | |||||
| Depreciation and amortization | (14,116) | (12,395) | (7,037) | |||||
| Net income (loss) | $ | 4 | $ | (6,828) | $ | 40,301 | ||
| Operating Partnership's share of co-investment net income (loss) | 1,074 | (1,503) | 18,553 | |||||
| Operating Partnership's gain on partial sale of its interest | 2,046 | - | - | |||||
| Income (loss) for co-investments | $ | 3,120 | $ | (1,503) | $ | 18,553 | ||
| December 31, | ||||||||
| 2013 | 2012 | |||||||
| Balance sheets: | ||||||||
| Rental properties and real estate under development | $ | 1,953,328 | $ | 1,745,147 | ||||
| Other assets | 61,578 | 168,061 | ||||||
| Total assets | $ | 2,014,906 | $ | 1,913,208 | ||||
| Debt | $ | 667,641 | $ | 820,895 | ||||
| Other liabilities | 125,479 | 91,922 | ||||||
| Equity | 1,221,786 | 1,000,391 | ||||||
| Total liabilities and partners' equity | $ | 2,014,906 | $ | 1,913,208 | ||||
| Company's share of equity | $ | 677,133 | $ | 571,345 | ||||
| Years ended | ||||||||||||
| December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| Statements of operations: | ||||||||||||
| Property revenues | $ | 100,402 | $ | 130,128 | $ | 106,386 | ||||||
| Property operating expenses | (37,518 | ) | (55,990 | ) | (43,066 | ) | ||||||
| Net operating income | 62,884 | 74,138 | 63,320 | |||||||||
| Gain on sale of real estate | 146,758 | 106,016 | - | |||||||||
| Interest expense | (24,155 | ) | (34,959 | ) | (27,843 | ) | ||||||
| General and administrative | (5,344 | ) | (3,697 | ) | (1,748 | ) | ||||||
| Depreciation and amortization | (36,831 | ) | (47,917 | ) | (44,412 | ) | ||||||
| Net income (loss) | $ | 143,312 | $ | 93,581 | $ | (10,683 | ) | |||||
| Company's share of net income (loss) | $ | 55,865 | $ | 41,745 | $ | (467 | ) | |||||
(d) Real Estate Underfor Development
The Operating PartnershipCompany defines real estate under development activities as new properties that are being constructed, or are newly constructed and, in the case of development communities, are in a phase of lease-up and
have not yet reached stabilized operations. As of December 31, 2007, excluding2013, the Company had two consolidated development projects, owned by Fund II, the Operating Partnership had threeand eight unconsolidated joint venture development projects comprised of 684aggregating 2,501 units for an estimated cost of $236.7 million, of which $125.8 million remains to be expended.
As of December 31, 2007. The Operating Partnership2013, the Company had incurred $25.5 million in costs related to these five land parcels asone consolidated predevelopment project consisting of 200 units.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,2007.2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
(4) Notes Receivable and Other Receivables from Related Parties
| 2007 | 2006 | ||||
| Related party receivables, unsecured: | |||||
| Loans to officers made prior to July 31, 2002, secured, | |||||
| bearing interest of 8%, due beginning April 2007 | $ | - | $ | 375 | |
| Other related party receivables, substantially due on demand | 904 | 834 | |||
| Total notes and other receivable from related parties | $ | 904 | $ | 1,209 | |
Notes receivables, secured by real estate, and other receivables consist of the following as December 31, 20072013 and 2006:
| 2007 | 2006 | ||||
| Note receivable, secured, bearing interest at 12%, due June 2008 | $ | 2,193 | $ | 2,193 | |
| Note receivable, secured, bearing interest at LIBOR + 3.69%, due June 2009 | 7,346 | 7,309 | |||
| Note receivable, secured, bearing interest at LIBOR + 4.65%, due January 2008 | 5,448 | 7,807 | |||
| Note receivable, secured, bearing interest at LIBOR + 3.38%, due February 2009 | 7,128 | - | |||
| Note receivable, secured, bearing interest at LIBOR + 4.75%, due March 2011 | 10,999 | - | |||
| Note receivable, secured, bearing interest at LIBOR + 2.95%, due April 2009 | 14,010 | - | |||
| Other receivables | 2,508 | 886 | |||
| $ | 49,632 | $ | 18,195 |
| 2013 | 2012 | |||||||
Note receivable, secured, bearing interest at 4.0%, due December 2014 (1) | $ | 3,212 | $ | 3,212 | ||||
Notes and other receivables from affiliates (2) | 60,968 | 28,896 | ||||||
| Other receivables | 4,075 | 3,785 | ||||||
| Note receivable, secured, bearing interest at 8.0%, paid in full May 2013 | - | 971 | ||||||
| Note receivable, secured, bearing interest at 8.8%, paid in full March 2013 | - | 10,800 | ||||||
| Note receivable, secured, effective interest at 9.6%, paid in full March 2013 | - | 18,499 | ||||||
| $ | 68,255 | $ | 66,163 | |||||
| (1) | The borrower funds an impound account for capital replacement. |
| (2) | During the second quarter of 2013, the Company provided a short-term bridge loans to Fund II $42.4 million at a rate of LIBOR + 1.75%. In July 2013, Fund II repaid the Company for $42.4 million in short term loans. The Company has provided two bridge loans totaling $56.8 million to Wesco III at a rate of LIBOR + 2.50%, permanent financing is expected to be placed on the Gas Company Lofts and Regency at Mt. View by the end of Q1 2014. In January 2014, Wesco III repaid the loan on Gas Company Lofts. |
During the twelve months ended December 31, 2007,2013, the Operating Partnership originated fiveCompany received the repayment of three notes receivables totaling $47.4$30.5 million. One of the notes was repaid early, and as such the Company recorded $0.8 million which are mezzanine orof income related to a change in estimate on the discount to the note receivable.
During the first quarter of 2013, Wesco III repaid the Company for a $26.0 million short-term bridge loans. The borrowers under each note receivable have the rightloan to extend the maturity date if certain criteria are met specific to each agreement. During August 2006, the Operating Partnership originated a loanassist with the ownerspurchase of a 26-unit apartment community in Sherman Oaks, California. The proceeds from the loan financed the conversion of the units to condominiums for sale. Effective July 1, 2007, the Operating Partnership had ceased accruing interest on the note, due to the current velocity of sales, pricing, and status of the interest reserve. During the fourth quarter of 2007, the Operating Partnership recorded an allowance for loan loss in the amount of $0.5 million on this impaired note receivable, which is approximately equal to accrued and unpaid interest recorded from inception of the note through June 30, 2007. The Operating Partnership believes that the current loan balance of $5.4 million is collectible through the future sales of 17 unsold condominium units.Haver Hill.
The Company has adopted written related party transaction guidelines that are intended to cover transactions in which the Company (including entities it controls) is a party and in which any “related person” has a direct or indirect interest. A “related person” means any Company director, director nominee, or executive officer, any beneficial owner of more than 5% of the Company’s outstanding common stock, and any immediate family member of any of the foregoing persons. A related person may be considered to have an indirect interest in a transaction if he or she (i) is an owner, director, officer or employee of or otherwise associated with another company that is engaging in a transaction with the Company, or (ii) otherwise, through one or more entities or arrangements, has an indirect financial interest in or personal benefit from the transaction.
The related person transaction review and approval process is intended to determine, among any other relevant issues, the dollar amount involved in the transaction; the nature and value of any related person’s direct or indirect interest (if any) in the transaction; and whether or not (i) a related person’s interest is material, (ii) the transaction is fair, reasonable, and serves the best interest of the Company and its shareholders, and (iii) whether the transaction or relationship should be entered into, continued or ended.
Management and other fees from affiliates includesis comprised primarily of asset management, promote,property management, development and redevelopment fees
During 2013, the Company has provided short-term bridge loans to Wesco III and Fund II as discussed in Note 4 above. In January 2014, Wesco III repaid the short-term bridge loan to Gas Company Lofts in full.
The Company provided a $26.0 million short-term bridge loan to Wesco III at a rate of LIBOR plus 2.50%, to assist with the purchase of Haver Hill in 2012. The short term bridge loan was repaid in March 2013.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
The Company’s Chairman and founder, Mr. George Marcus, is the Chairman of TMMC,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. Duringfirm listed on the years ended December 31, 2007, 2006, and 2005, the Operating PartnershipNYSE that underwent its initial public offering in 2013. Fund II paid brokerage commissions totaling $1.3 million, $0.8$0.6 million and $0$0.4 million, respectively, to TMMC an affiliate of MMI related to the sales of properties in 2013 and 2012, respectively, and there were no brokerage commissions paid during 2011. There were no brokerage commissions paid by the Company to MMI or its affiliates during 2013, 2012, and 2011.
As described in Note 3, the Company restructured the terms of a preferred equity investment in a property located in Anaheim, California, reducing the rate from 13% to 9%, while extending the maximum term by one year. The Company recorded $0.4 million of income related to the restructured investment. The entity that owns the property is an affiliate of MMC. Independent directors (other than Mr. Marcus) on the purchaseCompany’s Board of Directors that serve on the Nominating and salesCorporate Governance and Audit Committees approved the restructuring of real estate.the investment in this entity.
In January 2013, the Company invested $8.6 million as a preferred equity interest investment in an entity affiliated with MMC that owns an apartment development in Redwood City, California. Independent directors (other than Mr. Marcus wasMarcus) on the Company’s Board of Directors that serve on the Nominating and Corporate Governance and Audit Committees approved the investment in this entity.
During the third quarter of 2012, the Company invested $14.0 million as a preferred equity interest investment in an investorentity affiliated with MMC that owns an apartment community in Cupertino, California. The investment has a preferred return of 9.5% and matures in May 2016. The Company expects to invest an additional $4.0 million in preferred equity to fund renovation costs. Independent directors (other than Mr. Marcus) on the two partnerships that owned the Thomas Jefferson Apartments that was acquired by the Operating Partnership during September 2007 in a DownREIT transaction. In conjunction with that transaction, Mr. Marcus received 7,006 DownREIT units in exchange for his partnership interests in those apartments. The Company’s independent Board of Directors approved the acquisition of the apartment community.investment in this entity.
An Executive Vice President of the rightsCompany invested $4.0 million for a 3% limited partnership interest in a partnership with the Company that owns Essex Skyline at MacArthur Place. The Executive Vice President’s investment is equal to a pro-rata share of the contributions to the land parcel.limited partnership. The Executive Vice President’s investment also receives pro-rata distributions resulting from distributable cash generated by the property if and when distributions are made.
During 2012, the saleCompany sold two communities, Tierra Del Sol/Norte and Alpine Country, for a total of these assets. $28.3 million resulting in gains totaling $10.9 million.
During 2011, the Company sold one apartment community, Woodlawn Colonial, and one office building, Clarendon, for a total of $23.4 million resulting in gains totaling $8.4 million.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
The Operating PartnershipCompany has recorded the gaingains on salesales and operations for these various assets sold described above as part of discontinued operations in the accompanying consolidated statements of operations.
The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Operating PartnershipCompany owned such assets, as described above.above ($ in thousands):
| 2013 | 2012 | 2011 | ||||||||||
| Revenues | $ | 4,454 | $ | 5,848 | $ | 9,133 | ||||||
| Property operating expenses | (1,406 | ) | (2,181 | ) | (3,584 | ) | ||||||
| Depreciation and amortization | (1,098 | ) | (1,513 | ) | (2,534 | ) | ||||||
| Expenses | (2,504 | ) | (3,694 | ) | (6,118 | ) | ||||||
| Operating income from real estate sold | 1,950 | 2,154 | 3,015 | |||||||||
| Gain on sale of real estate | 29,223 | 10,870 | 8,382 | |||||||||
| Internal disposition costs | - | (1,087 | ) | (839 | ) | |||||||
| Income from discontinued operations | $ | 31,173 | $ | 11,937 | $ | 10,558 | ||||||
| 2007 | 2006 | 2005 | |||||||
| Rental revenues | $ | 9,466 | $ | 19,537 | $ | 21,267 | |||
| Interest and other income | 290 | 41 | 1,231 | ||||||
| Equity income co-investments | - | 238 | 477 | ||||||
| Revenues | 9,756 | 19,816 | 22,975 | ||||||
| Property operating expenses | (3,779) | (7,611) | (8,159) | ||||||
| Interest expense | (416) | (2,314) | (2,830) | ||||||
| Depreciation and amortization | (1,861) | (4,940) | (5,300) | ||||||
| Minority interests | - | (660) | (347) | ||||||
| Expenses | (6,056) | (15,525) | (16,636) | ||||||
| Income from real estate sold | 3,700 | 4,291 | 6,339 | ||||||
| Gain on sale of real estate | 52,874 | 20,503 | 29,219 | ||||||
| Gain on sale of real estate - City Heights | 78,306 | - | - | ||||||
| Promote interest and fees | 10,290 | 8,221 | - | ||||||
| Minority interests - City Heights | (64,624) | - | - | ||||||
| 76,846 | 28,724 | 29,219 | |||||||
| Income from discontinued operations | $ | 80,546 | $ | 33,015 | $ | 35,558 |
ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. Mortgage notes payable and exchangeable bonds consist of the following as of December 31, 20072013 and 2006:2012 ($ in thousands):
| 2013 | 2012 | |||||||
| Fixed rate mortgage notes payable | $ | 1,236,479 | $ | 1,363,731 | ||||
Variable rate mortgage notes payable(1) | 167,601 | 201,868 | ||||||
| $ | 1,404,080 | $ | 1,565,599 | |||||
| Number of properties securing mortgage notes | 49 | 55 | ||||||
| Remaining terms | 1-26 years | 1-27 years | ||||||
| Weighted average interest rate | 5.6 | % | 5.4 | % | ||||
| 2007 | 2006 | |||||
| Mortgage notes payable to a pension fund, secured by deeds of trust, bearing interest | ||||||
| at rates ranging from 6.62% to 8.18%, principal and interest payments due monthly, | ||||||
| and maturity dates ranging from October 2008 through October 2010. Under certain | ||||||
| conditions a portion of these loans can be converted to an unsecured note payable. | ||||||
| Three loans are cross-collateralized by a total of 13 properties | $ | 224,876 | $ | 228,663 | ||
| Mortgage notes payable, secured by deeds of trust, bearing interest at ranges | ||||||
| ranging from 4.86% to 7.90%, principal and interest payments due monthly, | ||||||
| and maturity dates ranging from March 2008 through June 2018 | 804,859 | 645,702 | ||||
| Mortgage notes payable - held for sale, secured by deed of trust, bearing interest | ||||||
| at 6.90%, principal and interest payments due monthly, and maturity date of | ||||||
| January 2008. Repaid in February 2007 | - | 32,850 | ||||
| Multifamily housing mortgage revenue bonds secured by deeds of trust on | ||||||
| rental properties and guaranteed by collateral pledge agreements, payable | ||||||
| monthly at a variable rate as defined in the Loan Agreement | ||||||
| (approximately 4.50% at December 2007 and 4.60% at December 2006), | ||||||
| plus credit enhancement and underwriting fees ranging from approximately | ||||||
| 1.2% to 1.9%. The bonds are primarily convertible to a fixed rate at the Operating | ||||||
| Partnership's option. Among the terms imposed on the properties, which are security for | ||||||
| the bonds, is a requirement that 20% of the units are subject to tenant income | ||||||
| criteria. Principal balances are due in full at various maturity dates from December | ||||||
| 2009 through December 2039. $152.7 million of these bonds are subject to various | ||||||
| interest rate cap agreements which limit the maximum interest rate to such bonds | 233,138 | 186,339 | ||||
| Exchangeable bonds, unsecured obligations of the Operating Partnership and guaranteed | ||||||
| by the Company, bearing interest at 3.625% per year, payable November 1 and May 1 | ||||||
| of each year, which mature on November 1, 2025. The bonds are exchangeable at the | ||||||
| option of the holder into cash and, in certain circumstances at the Operating Partnership's | ||||||
| option, shares of the Company's common stock at an initial exchange price of | ||||||
| $103.25 per share subject to certain adjustments. These bonds will also be exchangeable | ||||||
| prior to November 1, 2020 under certain circumstances. The bonds are redeemable at | ||||||
| the Operating Partnership's option for cash at any time on or after November 4, | ||||||
| 2010 and are subject to repurchase for cash at the option of the holder on November 1st | ||||||
| in years 2010, 2015, and 2020 or upon the occurrence of certain events | 225,000 | 225,000 | ||||
| $ | 1,487,873 | $ | 1,318,554 | |||
The aggregate scheduled principal payments of mortgage notes payable and exchangeable bondsat December 31, 2013 are as follows:follows ($ in thousands):
| 2014 | $ | - | ||
| 2015 | 67,461 | |||
| 2016 | 12,390 | |||
| 2017 | 182,731 | |||
| 2018 | 271,156 | |||
| Thereafter | 870,342 | |||
| $ | 1,404,080 |
| 2008 | $ | 116,357 |
| 2009 | 24,689 | |
| 2010 | 154,813 | |
| 2011 | 166,545 | |
| 2012 | 32,183 | |
| Thereafter | 993,286 | |
| $ | 1,487,873 |
| (1) | Variable rate mortgage notes payable consists of multifamily housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 1.6% at December 2013 and 1.9% at December 2012) plus credit enhancement and underwriting fees ranging from approximately 1.2% to 1.9%. Among the terms imposed on the properties, which are security for the bonds, is a requirement that 20% of the units are subject to tenant income criteria. Principal balances are due in full at various maturity dates from May 2025 through December 2039. Of these bonds $156.9 million are subject to various interest rate cap agreements which limit the maximum interest rate to such bonds. |
For the Company’s mortgage notes payable as of December 31, 2013, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $6.1 million and $1.9 million, respectively. Second deeds of trust accounted for $58.4 million of the $1.4 billion in mortgage notes payable as of December 31, 2013. Repayment of debt before the scheduled maturity date could result in prepayment penalties. The prepayment penalty on the majority of the Company’s mortgage notes payable are computed by the greater of (a) 1% of the amount of the principal being prepaid or (b) the present value of the mortgage note payable which is calculated by multiplying the principal being prepaid by the difference between the interest rate of the mortgage note and the stated yield rate on a specified U.S. treasury security as defined in the mortgage note agreement.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(8) Unsecured Debt and Lines of Credit
Unsecured debt and lines of credit consist of the following as of December 31, 2013 and 2012 ($ in thousands):
| Weighted Average | ||||||||||||
| Maturity | ||||||||||||
| 2013 | 2012 | In Years | ||||||||||
| Bonds private placement - fixed rate | $ | 465,000 | $ | 465,000 | 5.2 | |||||||
| Term loan - variable rate | 350,000 | 350,000 | 3.2 | |||||||||
| Bonds public offering - fixed rate | 595,023 | 297,084 | 9.0 | |||||||||
| Unsecured debt | 1,410,023 | 1,112,084 | ||||||||||
| Lines of credit | 219,421 | 141,000 | 4.3 | |||||||||
| Total unsecured debt | $ | 1,629,444 | $ | 1,253,084 | ||||||||
| Weighted average interest rate on fixed rate unsecured bonds | 4.0 | % | 4.2 | % | ||||||||
| Weighted average interest rate on variable rate term loan | 2.5 | % | 2.7 | % | ||||||||
| Weighted average interest rate on line of credit | 2.2 | % | 2.3 | % | ||||||||
As of December 31 2013 and 2012, the Company had $465 million of unsecured bonds outstanding at an average effective interest rate of 4.5%.
The following is a summary of the Company’s unsecured private placement bonds as of December 31, 2013 and 2012 ($ in thousands):
| Coupon | |||||||||||||
| Maturity | 2013 | 2012 | Rate | ||||||||||
| Senior unsecured private placement notes | March 2016 | $ | 150,000 | $ | 150,000 | 4.36 | % | ||||||
| Senior unsecured private placement notes | September 2017 | 40,000 | 40,000 | 4.50 | % | ||||||||
| Senior unsecured private placement notes | December 2019 | 75,000 | 75,000 | 4.92 | % | ||||||||
| Senior unsecured private placement notes | April 2021 | 100,000 | 100,000 | 4.27 | % | ||||||||
| Senior unsecured private placement notes | June 2021 | 50,000 | 50,000 | 4.30 | % | ||||||||
| Senior unsecured private placement notes | August 2021 | 50,000 | 50,000 | 4.37 | % | ||||||||
| $ | 465,000 | $ | 465,000 | ||||||||||
As of December 31, 2013 and 2012, the Company had a $350 million unsecured term loan outstanding at an average interest rate of 2.5%. The term loan has a variable interest rate of LIBOR plus 1.2%. During the fourth quarter of 2012, the Company increased the size of the term loan from $200 million to $350 million. The Company entered into interest rate swap contracts for a term of five years with a notional amount totaling $300 million, which effectively converted the interest rate on $300 million of the term loan to a fixed rate.
In April 2013, the Company issued $300.0 million of senior unsecured notes due on May 1, 2023 with a coupon rate of 3.25% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2013 (the 2023 Notes). The 2023 Notes were offered to investors at a price of 99.152% of par value. The 2023 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the aggregate committed amountline “Bonds public offering-fixed rate” in the table above, and as of $310.0December 31, 2013, the carrying value of the 2023 Notes, net of discount was $297.7 million.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
During the third quarter 2012, the Company issued $300.0 million of senior unsecured notes due August 2022 with a coupon rate of 3.625% per annum and are payable on February 15th and August 15th of each year, beginning February 15, 2013 (the 2022 Notes). The 2022 Notes were offered to investors at a price of 98.99% of par value. The 2022 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. On August 15th, 2012, in connection with the 2022 Notes issuance, the Company entered into a registration rights agreement whereby the Operating Partnership agreed to conduct an offer to exchange the 2022 Notes for a new series of publicly registered notes with substantially identical terms. In May 2013, the Operating Partnership completed the exchange and these bonds are included in the line “Bonds public offering-fixed rate” in the table above. As of December 31, 2013 and 2012, the carrying value of the 2022 Notes, net of discount was $297.3 million and $297.1 million, respectively.
The Company has two lines of credit aggregating $625.0 million as of December 31, 2007. In March 2006, the Operating Partnership renegotiated its revolving line of2013. The Company has a $600 million credit to increase the maximum principal amount to $200.0 million from $185.0 million. Additionally, the maturity date
The Company’s unsecured line of credit at an average interest rate of 5.6%. The creditand unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization and maintenance of minimum tangible net worth.amortization. The Operating PartnershipCompany was in compliance with the line of creditdebt covenants as of December 31, 20072013 and 2006.
2012.The Company has entered into a ten-year forward-starting interest rate swap for acontracts with an aggregate notional amount of $50$300 million and a settlement date on or before October 1, 2011.
As of December 31, 20072013 the Operating PartnershipCompany also had entered into nine forward-starting interest rate swapscap contracts totaling a notional amount of $450$156.9 million with interest rates ranging from 4.9% to 5.9% and settlements dates ranging from April 2008 to October 2011. These derivativesthat qualify for hedge accounting as they are expectedeffectively limit the Company’s exposure to economically hedgeinterest rate risk by providing a ceiling on the cash flows associated withunderlying variable interest rate for $156.9 million of the refinancingCompany’s tax exempt variable rate debt.
As of debt that matures between April 2008December 31, 2013 and October 2011. The fair2012, the aggregate carrying value of the derivatives decreased $7.9 million during the year ended December 31, 2007 tointerest rate swap contracts was a liability of $2.7 million and $6.6 million, respectively. The aggregate carrying value of $10.2 millionthe interest rate cap contracts was zero on the balance sheet as of December 31, 2007,2013 and December 31, 2012.
During the derivative liability was recorded in other liabilities inthird quarter 2012, the Operating Partnership’s consolidated financial statements. The changes inCompany terminated a swap transaction with respect to the fair values$38.0 million of tax-exempt bonds for the derivatives are reflected in accumulated other comprehensive (loss) income in101 San Fernando apartment community with Citibank because the Operating Partnership’s consolidated financial statements. bonds were repurchased by the Company at par.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
No hedge ineffectiveness on cash flow hedges was recognizedoccurred during the yearyears ended December 31, 20072013, 2012 and 2006.2011.
| Future | ||
| Minimum | ||
| Rent | ||
| 2008 | $ | 6,184 |
| 2009 | 4,149 | |
| 2010 | 1,439 | |
| 2011 | 695 | |
| 2012 | 183 | |
| 2013 and thereafter | 474 | |
| $ | 13,124 |
| Future | ||||
| Minimum | ||||
| Rent | ||||
| 2014 | $ | 8,624 | ||
| 2015 | 7,104 | |||
| 2016 | 4,908 | |||
| 2017 | 4,158 | |||
| 2018 | 3,613 | |||
| Thereafter | 15,271 | |||
| $ | 43,678 | |||
Preferred Securities Offerings
As of December 31, 2007,2013 and 2012, the Operating Partnership,Company has the following cumulative preferred securities outstanding:
| Shares | Shares | Liquidation | ||||||||||||
| Description | Issue Date | Authorized | Outstanding | Preference | ||||||||||
| 4.875% Series G | July 2006 | 5,980,000 | 178,249 | $ | 4,456 | |||||||||
| 7.125% Series H | April 2011 | 8,000,000 | 2,950,000 | $ | 73,750 | |||||||||
During the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock (“Series G”) for gross proceeds of $149.5 million. Holders may convert Series G Preferred Stock into shares of the Company’sESS common stock subject to certain conditions. The conversion rate willwas initially be .1830 shares of common stock per the $25 share liquidation preference, which is equivalent to an initial conversion price of approximately $136.62 per share of common stock (the conversion rate will be subject to adjustment upon the occurrence of specified events). On or after July 31, 2011, the CompanyESS may, under certain circumstances, cause some or all of the Series G Preferred Stock to be converted into that number of shares of common stock at the then prevailing conversion rate.As of December 31, 2013 and 2012, shares of Series G with an aggregate liquidation value of $4.5 million were outstanding.
During the second quarter of 2011, the Company issued 2,950,000 shares of 7.125% Series H Cumulative Redeemable Preferred Stock (“Series H”) at a price of $25.00 per share for net proceeds of $71.2 million, net of costs and original issuance discounts. The Series H has no maturity date and generally may not be called by the Company before April 13, 2016. Net proceeds from the Series H offering were used to redeem all of the 7.875% Series B Cumulative Redeemable Preferred Units of Essex Portfolio, L.P. (“Series B”) with a liquidation value of $80.0 million, which resulted in excess of cash paid of $1.0 million over the carrying value of Series B due to deferred offering costs and original issuance discounts.
Also during the second quarter of 2011, ESS redeemed its 7.8125% Series F Preferred Stock (“Series F”) at liquidation value for $25.0 million which resulted in excess of cash paid of $0.9 million over the carrying value of Series F due to deferred offering costs and original issuance discounts.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Common Stock Offerings
During 2006, the Company issued and2013, ESS sold approximately 427,700913,344 shares of common stock for $48.3proceeds of $138.4 million, net of fees and commissions, under its Controlled Equity Offering program. Under this program, the Company may from time to time sellat an average price of $152.92.
During 2012 and 2011, ESS issued 2.4 million shares of common stock into the existing trading market at current market prices,in each period for proceeds of $357.7 million and the Operating Partnership used the net proceeds from such sales to primarily fund the development, redevelopment pipelines, and pay down outstanding borrowing under the Operating Partnership’s lines of credit.
As of December 31, 2013, the Company sold 1,500,000Operating Partnership had outstanding 2,031,612 operating partnership units and 118,190 vested LTIP units. The Operating Partnership’s general partner, ESS, owned 94.6% of the partnership interests in the Operating Partnership at December 31, 2013, and ESS is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, ESS effectively controls the ability to issue common stock of ESS upon a limited partner’s notice of redemption. In addition, ESS has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit ESS to settle in either cash or common stock for proceedsat the option of $191.9 million, net of underwriter fees and expenses.ESS further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Operating Partnership used net proceeds fromevaluated this guidance, including the common stock salesrequirement to reduce outstanding borrowings undersettle in unregistered shares, and determined that these OP units meet the Operating Partnership’s lines of credit.requirements to qualify for presentation as permanent equity.
The redemption value of the OP units owned by the limited partners, not including ESS, had such units been redeemed at December 31, 2013, was approximately $308.5 million based on the property.
(12) Net Income Per Common Share and the Operating Partnership assumed $20.0 million in mortgage loans in the transaction.
Essex Property Trust, Inc.
Basic and diluted income from continuing and discontinued operations per unit areshare is calculated as follows for the years ended December 31:31 ($ in thousands, except share and per share amounts
):
):
| 2007 | 2006 | 2005 | |||||||||||||||||||
| Weighted- | Per | Weighted- | Per | Weighted- | Per | ||||||||||||||||
| average | Common | average | Common | average | Common | ||||||||||||||||
| Common | Unit | Common | Unit | Common | Unit | ||||||||||||||||
| Income | Units | Amount | Income | Units | Amount | Income | Units | Amount | |||||||||||||
| Basic: | |||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||
| available to common units | $ | 37,342 | 27,043,697 | $ | 1.38 | $ | 31,449 | 25,560,415 | $ | 1.23 | $ | 50,551 | 25,343,695 | $ | 2.00 | ||||||
| Income from discontinued operations | 80,546 | 27,043,697 | 2.98 | 33,015 | 25,560,415 | 1.29 | 35,558 | 25,343,695 | 1.40 | ||||||||||||
| 117,888 | 4.36 | 64,464 | 2.52 | 86,109 | 3.40 | ||||||||||||||||
| Effect of Dilutive Securities (1) | - | 552,971 | - | 469,360 | - | 349,942 | |||||||||||||||
| Diluted: | |||||||||||||||||||||
| Income from continuing operations | |||||||||||||||||||||
| available to common units | 37,342 | 27,596,668 | 1.35 | 31,449 | 26,029,775 | 1.21 | 50,551 | 25,693,637 | 1.97 | ||||||||||||
| Income from discontinued operations | 80,546 | 27,596,668 | 2.92 | 33,015 | 26,029,775 | 1.27 | 35,558 | 25,693,637 | 1.38 | ||||||||||||
| $ | 117,888 | $ | 4.27 | $ | 64,464 | $ | 2.48 | $ | 86,109 | $ | 3.35 | ||||||||||
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
| 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
| Weighted- | Per | Weighted- | Per | Weighted- | Per | |||||||||||||||||||||||||||||||
| average | Common | average | Common | average | Common | |||||||||||||||||||||||||||||||
| Common | Share | Common | Share | Common | Share | |||||||||||||||||||||||||||||||
| Income | Shares | Amount | Income | Shares | Amount | Income | Shares | Amount | ||||||||||||||||||||||||||||
| Basic: | ||||||||||||||||||||||||||||||||||||
| Income from continuing operations available to common stockholders | $ | 121,324 | 37,248,960 | $ | 3.26 | $ | 108,532 | 35,032,491 | $ | 3.10 | $ | 30,570 | 32,541,792 | $ | 0.94 | |||||||||||||||||||||
| Income from discontinued operations available to common stockholders | 29,487 | 37,248,960 | 0.79 | 11,280 | 35,032,491 | 0.32 | 9,798 | 32,541,792 | 0.30 | |||||||||||||||||||||||||||
| $ | 150,811 | $ | 4.05 | $ | 119,812 | $ | 3.42 | $ | 40,368 | $ | 1.24 | |||||||||||||||||||||||||
| Effect of Dilutive Securities (1) | - | 86,335 | - | 92,430 | - | 86,922 | ||||||||||||||||||||||||||||||
| Diluted: | ||||||||||||||||||||||||||||||||||||
| Income from continuing operations available to common stockholders (1) | $ | 121,324 | 37,335,295 | $ | 3.25 | $ | 108,532 | 35,124,921 | $ | 3.09 | $ | 30,570 | 32,628,714 | $ | 0.94 | |||||||||||||||||||||
| Income from discontinued operations available to common stockholders | 29,487 | 37,335,295 | 0.79 | 11,280 | 35,124,921 | 0.32 | 9,798 | 32,628,714 | 0.30 | |||||||||||||||||||||||||||
| $ | 150,811 | $ | 4.04 | $ | 119,812 | $ | 3.41 | $ | 40,368 | $ | 1.24 | |||||||||||||||||||||||||
| Weighted average convertible limited partnership units of 2,131,425, 2,219,046, and 2,231,807, which include vested Series Z and Series Z-1 incentive units, for the |
Stock options of 25,326, 1,014,168,325; 263,613; and 22,229175,500; for 2007, 2006, 2005,the years ended December 31, 2013, 2012, and 2011, respectively, were not included in the diluted earnings per share calculation because the exercise price of thethese options waswere greater than the average market price of the common shares for the twelve monthsyears ended and, therefore, were anti-dilutive.
Basic and diluted income from continuing and discontinued operations per unit is calculated as follows for the years ended December 31 ($ in thousands, except unit and per unit amounts):
| 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
| Weighted- | Per | Weighted- | Per | Weighted- | Per | |||||||||||||||||||||||||||||||
| average | Common | average | Common | average | Common | |||||||||||||||||||||||||||||||
| Common | Unit | Common | Unit | Common | Unit | |||||||||||||||||||||||||||||||
| Income | Units | Amount | Income | Units | Amount | Income | Units | Amount | ||||||||||||||||||||||||||||
| Basic: | ||||||||||||||||||||||||||||||||||||
| Income from continuing operations available to common unitholders | $ | 128,576 | 39,380,385 | $ | 3.27 | $ | 115,834 | 37,251,537 | $ | 3.11 | $ | 33,035 | 34,773,599 | $ | 0.95 | |||||||||||||||||||||
| Income from discontinued operations | 31,173 | 39,380,385 | 0.79 | 11,937 | 37,251,537 | 0.32 | 10,558 | 34,773,599 | 0.30 | |||||||||||||||||||||||||||
| Income available to common unitholders | $ | 159,749 | $ | 4.06 | $ | 127,771 | $ | 3.43 | $ | 43,593 | $ | 1.25 | ||||||||||||||||||||||||
| Effect of Dilutive Securities (1) | - | 86,335 | - | 92,430 | - | 67,319 | ||||||||||||||||||||||||||||||
| Diluted: | ||||||||||||||||||||||||||||||||||||
| Income from continuing operations available to common unitholders (1) | $ | 128,576 | 39,466,720 | $ | 3.26 | $ | 115,834 | 37,343,967 | $ | 3.10 | $ | 33,035 | 34,860,521 | $ | 0.95 | |||||||||||||||||||||
| Income from discontinued operations | 31,173 | 39,466,720 | 0.79 | 11,937 | 37,343,967 | 0.32 | 10,558 | 34,860,521 | 0.30 | |||||||||||||||||||||||||||
| Income available to common unitholders | $ | 159,749 | $ | 4.05 | $ | 127,771 | $ | 3.42 | $ | 43,593 | $ | 1.25 | ||||||||||||||||||||||||
| (1) | The Operating Partnership has the ability to redeem DownREIT limited partnership units for cash and does not consider them to be potentially dilutive securities. |
Stock options of 168,325; 263,613; and 175,500; for the years ended December 31, 2013, 2012, and 2011, respectively, were not included in the diluted earnings per unit calculation because the exercise price of these options were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive.
All units of cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the years ended 2013, 2012, and 2011 respectively, as the effect was anti-dilutive.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(13) Equity Based Compensation Plans
Stock Options and Restricted Stock
The Essex Property Trust, Inc. 2004 Stock IncentiveCompany’s 2013 Plan provides incentives to attract and retain officers, directors and key employees. The Stock Incentive2013 Plan provides for the grants of options to purchase a specified number of shares of common stock, or grants of restricted shares of common stock.stock and other award types. Under the Stock Incentive2013 Plan, the totalmaximum aggregate number of shares availablethat may be issued is 1,000,000, plus any shares that have not been issued under the 2004 Plan, including shares subject to outstanding awards under the 2004 Plan that are not issued or delivered to a participant for grant is approximately 1,200,000.any reason. The 2004 Stock Incentive2013 Plan is administered by the Compensation Committee of the Board of Directors. The Compensation CommitteeDirectors and is comprised of independent directors. The Compensation Committee is authorized to establish the exercise price; however, the exercise price cannot be less than 100% of the fair market value of the common stock on the grant date. The Operating Partnership’sCompany’s options have a life of five to ten years. Option grants for officers and employees fully vest between one year and five years after the grant date.
Stock-based compensation expense for options and restricted stock under the fair value method totaled approximately $1.2$2.3 million, $1.1$2.0 million, and $0.8$1.5 million for years ended December 31, 2013, 2012 and 2011 respectively. Stock-based compensation capitalized for options and restricted stock totaled $0.4 million, $0.3 million, and $0.2 million for the years ended December 31, 2007, 20062013, 2012 and 2005, respectively. Stock-based compensation capitalized for options totaled approximately $0.2 million, $0.2 million and none for the year ended December 31, 2007, 2006 and 2005,2011, respectively. The intrinsic value of the options exercised totaled $6.3$3.0 million, $6.0$2.9 million, and $4.1$3.8 million, for the years ended December 31, 2007, 2006,2013, 2012, and 2005,2011 respectively. The intrinsic value of the options outstanding and fully vested totaled $7.6 million, $9.9 million, $14.3 million, and $10.8$10.6 million, for the years ended December 31, 2007, 2006,2013, 2012 and 2005,2011, respectively.
Total unrecognized compensation cost related to unvested share-based compensation granted under the stock option and restricted plansoptions totaled $0.8$5.1 million as of
December 31, 2007. The2013 and the unrecognized compensation cost is expected to be recognized over a weighted-average period of 31 to 5 years for the stock option plans.years.
The average fair value of stock options granted for the years ended December 31, 2007, 20062013, 2012 and 20052011 was $11.58, $17.40$15.80, $12.64 and $10.06 per share, respectively,$14.49, respectively. Certain stock options grated in 2013, 2012, and 2011 included a $75 cap or a $100 cap on the appreciation of the market price over the exercise price. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:
| 2013 | 2012 | 2011 | ||||||||||
| Stock price | $ | 153.54 | $ | 143.95 | $ | 131.87 | ||||||
| Risk-free interest rates | 2.68 | % | 1.16 | % | 2.23 | % | ||||||
| Expected lives | 10 years | 5 - 10 years | 10 years | |||||||||
| Volatility | 18.03 | % | 20.05 | % | 19.63 | % | ||||||
| Dividend yield | 3.15 | % | 3.26 | % | 3.29 | % | ||||||
| | 2007 | 2006 | 2005 | |||
| Stock price | $95.34-$126.73 | $101.01-$132.62 | $69.11-$91.88 | |||
| Risk-free interest rates | 3.52%-4.58% | 4.45%-5.15% | 3.64%-4.50% | |||
| Expected lives | 7-9 years | 4-7 years | 5-6 years | |||
| Volatility | 18.52%-20.31% | 18.44%-18.54% | 18.09%-18.54% | |||
| Dividend yield | 3.99%-5.26% | 3.12%-4.29% | 4.22%-5.13% |
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
A summary of the status of the Company’s stock option plans as of December 31, 2007, 2006,2013, 2012, and 20052011 and changes during the years ended on those dates is presented below:
| 2013 | 2012 | 2011 | ||||||||||||||||||||||
| Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
| average | average | average | ||||||||||||||||||||||
| exercise | exercise | exercise | ||||||||||||||||||||||
| Shares | price | Shares | price | Shares | price | |||||||||||||||||||
| Outstanding at beginning of year | 623,434 | $ | 125.96 | 415,020 | $ | 109.71 | 300,642 | $ | 88.11 | |||||||||||||||
| Granted | 150,325 | 153.54 | 263,113 | 143.95 | 197,500 | 131.87 | ||||||||||||||||||
| Exercised | (52,970 | ) | 102.43 | (41,603 | ) | 77.21 | (83,122 | ) | 84.24 | |||||||||||||||
| Forfeited and canceled | (25,301 | ) | 135.25 | (13,096 | ) | 128.36 | - | - | ||||||||||||||||
| Outstanding at end of year | 695,488 | 133.37 | 623,434 | 125.96 | 415,020 | 109.71 | ||||||||||||||||||
| Options exercisable at year end | 300,632 | 119.09 | 250,620 | 107.12 | 219,820 | 92.31 | ||||||||||||||||||
| 2007 | 2006 | 2005 | ||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||
| average | average | average | ||||||||||||||
| exercise | exercise | exercise | ||||||||||||||
| Shares | price | Shares | price | Shares | price | |||||||||||
| Outstanding at beginning of year | 570,542 | $ | 72.60 | 530,375 | $ | 57.73 | 463,376 | $ | 47.07 | |||||||
| Granted | 29,250 | 119.98 | 170,350 | 106.63 | 188,800 | 78.01 | ||||||||||
| Exercised | (86,056) | 50.23 | (90,633) | 47.57 | (103,201) | 43.47 | ||||||||||
| Forfeited and canceled | (20,033) | 94.29 | (39,550) | 80.85 | (18,600) | 76.70 | ||||||||||
| Outstanding at end of year | 493,703 | 79.83 | 570,542 | 72.60 | 530,375 | 57.73 | ||||||||||
| Options exercisable at year end | 288,889 | 64.69 | 272,074 | 52.42 | 248,015 | 43.77 | ||||||||||
The following table summarizes information about stock options outstanding as of December 31, 2007:2013:
| Options outstanding | Options exercisable | ||||||||||||||||||||
| Number | Weighted- | Number | |||||||||||||||||||
| outstanding | average | Weighted- | exercisable | Weighted- | |||||||||||||||||
| as of | remaining | average | as of | average | |||||||||||||||||
| Range of | December 31, | contractual | exercise | December 31, | exercise | ||||||||||||||||
| exercise prices | 2013 | life (years) | price | 2013 | price | ||||||||||||||||
| $62.34 - $101.01 | 74,261 | 2.7 | $ | 79.18 | 72,261 | $ | 79.02 | ||||||||||||||
| 105.64 - 161.98 | 604,902 | 7.2 | 139.18 | 228,371 | 131.77 | ||||||||||||||||
| 164.76 - 164.76 | 16,325 | 9.4 | 164.76 | - | - | ||||||||||||||||
| 695,488 | 6.8 | 133.37 | 300,632 | 119.09 | |||||||||||||||||
| Options outstanding | Options exercisable | ||||||||||||
| Number | Weighted- | Number | |||||||||||
| outstanding | average | Weighted- | exercisable | Weighted- | |||||||||
| as of | remaining | average | as of | average | |||||||||
| Range of | December 31, | contractual | exercise | December 31, | exercise | ||||||||
| exercise prices | 2007 | | life | price | 2007 | price | |||||||
| $13.26-26.52 | 600 | 0.1 years | $ | 19.08 | 600 | $ | 19.08 | ||||||
| 26.52-39.79 | 41,547 | 1.4 years | 32.64 | 41,547 | 32.64 | ||||||||
| 39.78-53.05 | 90,027 | 3.8 years | 49.33 | 87,427 | 49.28 | ||||||||
| 53.05-66.31 | 40,680 | 5.7 years | 59.10 | 38,230 | 59.37 | ||||||||
| 66.31-79.57 | 90,775 | 7.2 years | 75.69 | 52,795 | 76.37 | ||||||||
| 79.57-92.83 | 58,704 | 7.5 years | 83.18 | 25,170 | 82.95 | ||||||||
| 92.83-106.10 | 39,620 | 8.3 years | 101.51 | 7,720 | 102.63 | ||||||||
| 106.10-119.36 | 103,500 | 8.4 years | 107.36 | 34,100 | 107.42 | ||||||||
| 119.36-132.62 | 28,250 | 9.3 years | 125.27 | 1,300 | 128.02 | ||||||||
| 493,703 | 6.6 years | 79.83 | 288,889 | 64.69 | |||||||||
During
The following table summarizes information about restricted stock outstanding as of December 31, 2013, 2012 and 2011 and changes during the years ended:
| 2013 | 2012 | 2011 | ||||||||||||||||||||||
| Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
| average | average | average | ||||||||||||||||||||||
| grant | grant | grant | ||||||||||||||||||||||
| Shares | price | Shares | price | Shares | price | |||||||||||||||||||
| Unvested at beginning of year | 24,922 | $ | 104.52 | 35,219 | $ | 98.57 | 44,877 | $ | 102.46 | �� | ||||||||||||||
| Granted | 1,556 | 158.75 | 1,614 | 149.68 | 1,540 | 134.44 | ||||||||||||||||||
| Vested | (7,211 | ) | 109.86 | (8,641 | ) | 106.69 | (9,532 | ) | 104.91 | |||||||||||||||
| Forfeited and canceled | (3,091 | ) | 100.84 | (3,270 | ) | 102.00 | (1,666 | ) | 94.35 | |||||||||||||||
| Unvested at end of year | 16,176 | 108.06 | 24,922 | 104.52 | 35,219 | 98.57 | ||||||||||||||||||
Long Term Incentive PlanPlans – Z Units and 2014 LTIP Units
On December 10, 2013, the Operating Partnership issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to twelve senior executives of the Company. Pursuant to the 2014 Long-Term Incentive Plan Awards, each recipient was initially granted a number of 2014 Long-Term Incentive Plan Units (the “2014 LTIP Units”), 90% of which are subject to performance-based vesting, and 10% of which are subject to service-based vesting based on continued employment. One-third of the performance-based vesting of the 2014 LTIP Units initially granted will be eligible to be earned by recipients based on Essex’s absolute total stockholder return and two-thirds will be eligible to be earned based on Essex’s relative total stockholder return, in each case, during a one-year performance period beginning on the initial grant date of the awards.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIESThe
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Prior to 2013, the Company has adopted an incentive program involving the issuance of Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership. Vesting in the Z Units is based on performance criteria established in the plan. The criteria can be revised at the beginning of the year by the Board's Compensation Committee if the Committee deems that the plan's criterion is unachievable for any given year. The sale of Z unitsUnits is contractually prohibited and cannot be convertedprohibited. Z Units are convertible into Operating Partnership units until certain conditionswhich are met or 15 years after the inceptionexchangeable for shares of the plan.Company’s common stock that have marketability restrictions. The estimated fair value of a Z unitUnit is determined on the grant date and considers the Company's current stock price, the dividends
that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity. Compensation expense is calculated by taking annualmultiplying estimated vesting increases multipliedfor the period by the estimated fair value as of the grant date less its $1.00 per unit purchase price.
The Operating Partnershipissuance of Z Units and 2014 LTIP Units are administered by the Compensation Committee which has the optionauthority to redeemselect participants and determine the awards to be made up to a maximum of 600,000 Z Units held by any executive whose employment has been terminated with either common unitsand 2014 LTIP Units.
Stock-based compensation expense for Z Units and 2014 LTIP Units under the fair value method totaled approximately $2.2 million, $2.1 million and $1.5 million for the years ended December 31, 2013, 2012 and 2011, respectively. Stock-based compensation capitalized for Z Units and 2014 LTIP Units totaled approximately $0.5 million, $0.5 million, and $0.3 million, for the years ended December 31, 2013, 2012, and 2011, respectively. The intrinsic value of the Operating Partnership or sharesunvested Z Units and 2014 LTIP Units totaled $21.4 million as of December 31, 2013. Total unrecognized compensation cost related to the unvested Z Units and 2014 LTIP Units under the Z Units and 2014 LTIP Units plans totaled $7.6 million as of December 31, 2013. The unamortized cost for the Z Units and LTIP Units is recognized up to 14 years and four years, respectively, subject to the achievement of the Company’s common stock based on the then-effective conversion ratchet. stated performance criteria.
During 2001,2011, the Operating Partnership issued 200,00046,500 Series ZZ-1 Incentive Units (the “2011 Z-1 Units”) of limited partner interest to eleven senior executives of the Company in exchange for a capital commitment of $1.00 per Series Z Incentive Unit, for an aggregate offering price of $200. The 2001 Z Unit grant had a conversion ratchet of 45, 55, and 65 percent as of January 1, 2005, 2006, and 2007 respectively.
During 2010, the Operating Partnership on a per unit basis.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
The following table summarizes information about the Z Units and 2014 LTIP Units will vestoutstanding as of December 31, 2013 ($ in three substantially equal installments on thousands):
| Long Term Incentive Plan - Z Units and 2014 LTIP Units | ||||||||||||||||||||||||
| Aggregate | Weighted- | |||||||||||||||||||||||
| Intrinsic | Weighted- | average | ||||||||||||||||||||||
| Total | Total | Value | Total | average | Remaining | |||||||||||||||||||
| Vested | Unvested | of Unvested | Outstanding | Grant-date | Contractual | |||||||||||||||||||
| Units | Units | Units | Units | Fair Value | Life (years) | |||||||||||||||||||
| Balance, December 2010 | 326,280 | 171,902 | $ | 19,463 | 498,182 | $ | 54.15 | 11.2 | ||||||||||||||||
| Granted | - | 46,500 | 46,500 | |||||||||||||||||||||
| Vested | 44,520 | (44,520 | ) | - | ||||||||||||||||||||
| Converted | (191,718 | ) | - | (191,718 | ) | |||||||||||||||||||
| Cancelled | - | (3,863 | ) | (3,863 | ) | |||||||||||||||||||
| Balance, December 2011 | 179,082 | 170,019 | 23,719 | 349,101 | 58.17 | 12.3 | ||||||||||||||||||
| Granted | - | - | - | |||||||||||||||||||||
| Vested | 28,163 | (28,163 | ) | - | ||||||||||||||||||||
| Converted | (16,541 | ) | - | (16,541 | ) | |||||||||||||||||||
| Cancelled | - | (1,813 | ) | (1,813 | ) | |||||||||||||||||||
| Balance, December 2012 | 190,704 | 140,043 | 20,800 | 330,747 | 58.44 | 11.3 | ||||||||||||||||||
| Granted | - | 50,500 | 50,500 | |||||||||||||||||||||
| Vested | 35,919 | (35,919 | ) | - | ||||||||||||||||||||
| Converted | (108,433 | ) | - | (108,433 | ) | |||||||||||||||||||
| Cancelled | - | (5,243 | ) | (5,243 | ) | |||||||||||||||||||
| Balance, December 2013 | 118,190 | 149,381 | $ | 21,438 | 267,571 | $ | 63.53 | 9.3 | ||||||||||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December4, 201031, 2013, 2012, and on each of the first two anniversaries thereafter, based on the officer’s continued employment through the applicable vesting date. In the case of awards granted to non-employee directors, such awards will vest in full on December 4, 2010 if the benchmark is achieved and only to the extent the board members have continued to serve through such date. 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December
The revenues and net operating income and assets for each of the reportable operating segments are summarized as follows for the years ended December 31, 2013, 2012, and 2011 ($ in thousands):
| Years Ended December 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
| Revenues: | ||||||||||||
| Southern California | $ | 265,226 | $ | 246,534 | $ | 220,416 | ||||||
| Northern California | 214,402 | 175,325 | 149,457 | |||||||||
| Seattle Metro | 107,553 | 92,489 | 79,832 | |||||||||
| Other real estate assets | 14,822 | 12,348 | 10,955 | |||||||||
| Total property revenues | $ | 602,003 | $ | 526,696 | $ | 460,660 | ||||||
| Net operating income: | ||||||||||||
| Southern California | $ | 176,675 | $ | 164,092 | $ | 145,353 | ||||||
| Northern California | 148,204 | 120,540 | 99,047 | |||||||||
| Seattle Metro | 71,407 | 60,853 | 51,477 | |||||||||
| Other real estate assets | 9,705 | 9,044 | 7,273 | |||||||||
| Total net operating income | 405,991 | 354,529 | 303,150 | |||||||||
| Depreciation | (192,420 | ) | (169,173 | ) | (150,009 | ) | ||||||
| Interest expense before amortization | (104,600 | ) | (100,244 | ) | (91,694 | ) | ||||||
| Amortization expense | (11,924 | ) | (11,644 | ) | (11,474 | ) | ||||||
| Management and other fees from affiliates | 11,700 | 11,489 | 6,780 | |||||||||
| General and administrative | (25,601 | ) | (23,307 | ) | (20,694 | ) | ||||||
| Cost of management and other fees | (6,681 | ) | (6,513 | ) | (4,610 | ) | ||||||
| Merger expenses | (4,284 | ) | - | - | ||||||||
| Interest and other income | 11,633 | 13,833 | 17,139 | |||||||||
| Loss on early retirement of debt | (300 | ) | (5,009 | ) | (1,163 | ) | ||||||
| Gain on sale of land | 1,503 | - | - | |||||||||
| Equity income (loss) income from co-investments | 55,865 | 41,745 | (467 | ) | ||||||||
| Gain on remeasurement of co-investment | - | 21,947 | - | |||||||||
| Income before discontinued operations | $ | 140,882 | $ | 127,653 | $ | 46,958 | ||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Total assets for each of the reportable operating segments are summarized as follows as of December 31, 2007, 2006,2013 and 2005:2012 ($ in thousands):
| As of December 31, | ||||||||
| Assets: | 2013 | 2012 | ||||||
| Southern California | $ | 1,746,434 | $ | 1,675,265 | ||||
| Northern California | 1,614,159 | 1,489,095 | ||||||
| Seattle Metro | 741,533 | 699,465 | ||||||
| Other real estate assets | 86,745 | 88,330 | ||||||
| Net reportable operating segments - real estate assets | 4,188,871 | 3,952,155 | ||||||
| Real estate under development | 50,430 | 66,851 | ||||||
| Co-investments | 677,133 | 571,345 | ||||||
| Cash and cash equivalents, including restricted cash | 53,766 | 42,126 | ||||||
| Marketable securities | 90,084 | 92,713 | ||||||
| Notes and other receivables | 68,255 | 66,163 | ||||||
| Other non-segment assets | 58,300 | 55,870 | ||||||
| Total assets | $ | 5,186,839 | $ | 4,847,223 | ||||
| Years Ended December 31, | |||||||||
| 2007 | 2006 | 2005 | |||||||
| Revenues: | |||||||||
| Southern California | $ | 215,090 | $ | 198,929 | $ | 181,048 | |||
| Northern California | 99,734 | 75,624 | 67,099 | ||||||
| Seattle Metro | 64,079 | 55,721 | 50,936 | ||||||
| Other Regions | 4,530 | 4,496 | 4,152 | ||||||
| Total property revenues | $ | 383,433 | $ | 334,770 | $ | 303,235 | |||
| Net operating income: | |||||||||
| Southern California | $ | 147,340 | $ | 135,969 | $ | 122,551 | |||
| Northern California | 65,143 | 49,907 | 44,528 | ||||||
| Seattle Metro | 42,137 | 35,138 | 31,792 | ||||||
| Other Regions | 389 | (642) | (115) | ||||||
| Total net operating income | 255,009 | 220,372 | 198,756 | ||||||
| Depreciation and amortization: | |||||||||
| Southern California | (49,551) | (43,017) | (39,219) | ||||||
| Northern California | (27,892) | (17,568) | (15,984) | ||||||
| Seattle Metro | (15,491) | (13,170) | (12,343) | ||||||
| Other Regions | (7,455) | (4,339) | (7,303) | ||||||
| (100,389) | (78,094) | (74,849) | |||||||
| Interest: | |||||||||
| Southern California | (31,626) | (26,432) | (27,690) | ||||||
| Northern California | (18,741) | (18,295) | (17,201) | ||||||
| Seattle Metro | (6,892) | (6,904) | (6,508) | ||||||
| Other Regions | (23,736) | (21,267) | (19,385) | ||||||
| (80,995) | (72,898) | (70,784) | |||||||
| Amortization of deferred financing costs | (3,071) | (2,745) | (1,947) | ||||||
| General and administrative | (26,273) | (22,234) | (19,148) | ||||||
| Other expenses | (800) | (1,770) | (5,827) | ||||||
| Management and other fees from affiliates | 5,090 | 5,030 | 10,951 | ||||||
| Gain on sale or real estate | - | - | 6,391 | ||||||
| Interest and other income | 10,310 | 6,176 | 8,524 | ||||||
| Equity income in co-investments | 3,120 | (1,503) | 18,553 | ||||||
| Minority interests | (4,847) | (4,977) | (5,340) | ||||||
| Income tax provision | (400) | (525) | (2,538) | ||||||
| Income from continuing operations | $ | 56,754 | $ | 46,832 | $ | 62,742 | |||
| Assets: | |||||||||
| Southern California | $ | 1,354,818 | $ | 1,244,037 | |||||
| Northern California | 829,879 | 565,405 | |||||||
| Pacific Northwest | 353,737 | 317,848 | |||||||
| Other Regions | 37,338 | 76,882 | |||||||
| Net reportable operating segments - real estate assets | 2,575,772 | 2,204,172 | |||||||
| Real estate - held for sale, net | - | 41,221 | |||||||
| Real estate under development | 233,445 | 107,620 | |||||||
| Co-investments | 64,191 | 56,318 | |||||||
| Notes and other receivables | 50,536 | 19,404 | |||||||
| Other non-segment assets | 56,379 | 57,105 | |||||||
| Total assets | $ | 2,980,323 | $ | 2,485,840 | |||||
The Operating PartnershipCompany has a 401(k) benefit plan (the Plan)“Plan”) for all full-time employees who have completed six months of service. Employees may contribute up to 23% of their compensation,Employee contributions are limited by the maximum allowed under Section 401(k) of the Internal Revenue Code. The Operating PartnershipCompany matches the employee contributions for non-highly compensated personnel, up to 50% of their contribution up to a specified maximum. Operating PartnershipCompany contributions to the Plan were approximately $267, $226,$0.2 million, $0.2 million, and $98$0.3 million for the years ended December 31, 2007, 2006,2013, 2012, and 2005.2011, respectively.
To the extent that an environmental matter arises or is identified in the future that has other than a remote risk as defined in SFAS 5, of having a material impact on the financial statements, the Operating PartnershipCompany will disclose the estimated range of possible outcomes, and, if an outcome is probable, accrue an appropriate liability for remediation and other potential liability. The Operating PartnershipCompany will consider whether such occurrence results in an impairment of value on the affected property and, if so, accrue an appropriate reserve for impairment.impairment will be recognized.
Except with respect to three Properties,communities, the Operating PartnershipCompany has no indemnification agreements from third parties for potential environmental clean-up costs at its Properties.communities. The Operating PartnershipCompany has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of unknown environmental conditions or violations with respect to the propertiescommunities formerly owned by the Operating Partnership.Company. No assurance can be given that existing environmental studies with respect to any of the Propertiescommunities reveal all environmental liabilities, that any prior owner or operator of a Property did not create any material environmental condition not known to the Operating Partnership,Company, or that a material environmental condition does not otherwise exist as to any one or more of the Properties.communities. The Operating PartnershipCompany has limited insurance coverage for the types of environmental liabilities described above.
The Operating Partnership may enterCompany has entered into transactions that couldmay require the Operating PartnershipCompany to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities. These transactions which are within the Operating Partnership’sCompany’s control. Although the Operating PartnershipCompany plans to hold the contributed assets or defer recognition of gain on their sale pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue Code the Operating PartnershipCompany can provide no assurance that it will be able to do so and if such tax liabilities were incurred they may to have a material impact on the Operating Partnership’sCompany’s financial position.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
There have been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate. Some of these lawsuits have resulted in substantial monetary judgments or settlements. The Operating PartnershipCompany has been sued for mold related matters and has settled some, but not all, of such matters. Insurance carriers have reacted to mold
related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates. The Operating PartnershipCompany has, however, purchased pollution liability insurance, which includes some coverage for mold. The Operating PartnershipCompany has adopted programs designedpolicies to manage the existencepromptly address and resolve reports of mold in its properties as well as guidelines for promptly addressingwhen it is detected, and resolving reports of mold to minimize any impact mold might have on residents orof the property. The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases. There can be no assurances that the Company has identified and responded to all mold occurrences, but the company promptly addresses all known reports of mold. Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Operating Partnership’sCompany’s financial condition, results of operations or cash flows. As of December 31, 2013, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.
The Operating PartnershipCompany carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the Properties.communities. There are, however, certain types of extraordinary losses, such as, for example, losses forfrom terrorism or earthquake,earthquakes, for which the Operating PartnershipCompany does not have insurance coverage. Substantially all of the Propertiescommunities are located in areas that are subject to earthquake activity. The Company has established a wholly owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”). Through PWI, the Company is self-insured as it relates to earthquake related losses. Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident. As of December 31, 2013, PWI has cash and marketable securities of approximately $40 million. These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in which it holds an ownership interest in.
The Company provided a payment guarantee to the counterparties in relation to the total return swaps entered into by the joint venture responsible for the development of The Huxley and The Dylan communities. Further the Company has guaranteed completion of development and made certain debt service guarantees for The Huxley and The Dylan. The outstanding balance for the loans is included in the debt line item in the balance sheet of the co-investments included in Note 3. The payment guarantee is for the payment of the amounts due to the counterparty related total return swaps which are scheduled to mature in September and December 2016. The maximum exposure of the guarantee as of December 31, 2013 was $96.3 million based on the aggregate outstanding debt amount.
Since the announcement of the merger agreement on December 19, 2013, three putative class action and shareholder derivative actions have been filed on behalf of alleged BRE stockholders and/or BRE itself in the Circuit Court for Baltimore City, Maryland, under the following captions: Sutton v. BRE Properties, Inc., et al., No. 24-C-13-008425, filed December 23, 2013; Applegate v. BRE Properties, Inc., et al., No. 24-C-14-00002, filed December 30, 2013; and Lee v. BRE Properties, Inc., et al., No. 24-C-14-00046, filed January 3, 2014.
On February 7, 2014, Plaintiffs filed identical, amended complaints in the three pending actions. The amended complaints add allegations that disclosures regarding the proposed merger in the joint proxy statement/prospectus filed with the SEC on January 29, 2014 are inadequate.
All of these complaints name as defendants BRE, the BRE Board, Essex, and Merger Sub, and allege that the BRE Board breached its fiduciary duties to BRE’s stockholders and/or to BRE itself, and that the merger involves an unfair price, an inadequate sales process, and unreasonable deal protection devices that purportedly preclude competing offers. The Operating Partnershipcomplaints further allege that Essex, Merger Sub, and, in some cases, BRE aided and abetted those alleged breaches of duty. The complaints seek injunctive relief, including enjoining or rescinding the merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief. Essex management believes that the allegations in the complaints against them are without merit and intend to defend vigorously against them.
The Company is subject to various other lawsuits in the normal course of its business operations. Such lawsuits couldare not expected to have a material adverse effect on the Operating Partnership’sCompany’s financial condition, results of operations or cash flows.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(17) Subsequent Events
In January 2014, the Company sold Vista Capri, a 106 unit apartment community located in San Diego, CA for $14.4 million.
In January 2014, the Company expanded its unsecured revolving credit facility to $1.0 billion from $600 million, and included an accordion feature pursuant to which the Company could expand to $1.5 billion. The facility matures in December 2017, with one 18-month extension option, subject to specified conditions and the payment of an extension fee. The new facility carries an interest rate of LIBOR plus 0.95% based on the Company’s current credit ratings.
In January 2014, the Company extended the $25.0 million working capital unsecured line of credit for two additional years and reduced the pricing which carries an interest rate of LIBOR plus 0.95% based on a tiered rate structure tied to the Company’s current credit ratings.
In January 2014, the Company’s $350 million unsecured term loan was amended and the underlying interest rate on the term loan, which is based on a tiered rate structure tied to the Company’s corporate ratings, was reduced from LIBOR plus 1.20% to LIBOR plus 1.05%.
During the first quarter of 2014 through February 24, 2014, ESS sold 462,555 shares of common stock for $74.9 million, net of fees and commissions at an average price of $162.97.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(18) Quarterly Results of Operations (Unaudited)
Essex Property Trust, Inc.
The following is a summary of quarterly results of operations for 20072013 and 2006:2012 ($ in thousands, except per share and dividend amounts):
| Quarter ended | Quarter ended | Quarter ended | Quarter ended | |||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
| 2013: | ||||||||||||||||
| Total property revenues | $ | 155,986 | $ | 152,177 | $ | 148,783 | $ | 145,057 | ||||||||
| Income before discontinued operations | $ | 20,020 | $ | 62,718 | $ | 28,983 | $ | 29,161 | ||||||||
| Net income | $ | 36,903 | $ | 75,875 | $ | 29,575 | $ | 29,702 | ||||||||
| Net income available to common stockholders | $ | 31,874 | $ | 68,788 | $ | 24,946 | $ | 25,203 | ||||||||
| Per share data: | ||||||||||||||||
| Net income: | ||||||||||||||||
| Basic | $ | 0.85 | $ | 1.84 | $ | 0.67 | $ | 0.68 | ||||||||
| Diluted | $ | 0.85 | $ | 1.84 | $ | 0.67 | $ | 0.68 | ||||||||
| Market price: | ||||||||||||||||
| High | $ | 165.44 | $ | 172.16 | $ | 171.11 | $ | 156.36 | ||||||||
| Low | $ | 137.53 | $ | 139.64 | $ | 147.56 | $ | 147.06 | ||||||||
| Close | $ | 143.51 | $ | 147.70 | $ | 158.92 | $ | 150.58 | ||||||||
| Dividends declared | $ | 1.21 | $ | 1.21 | $ | 1.21 | $ | 1.21 | ||||||||
| 2012: | ||||||||||||||||
| Total property revenues | $ | 140,294 | $ | 133,760 | $ | 128,465 | $ | 124,177 | ||||||||
| Income before discontinued operations | $ | 49,158 | $ | 19,731 | $ | 42,050 | $ | 16,714 | ||||||||
| Net income | $ | 49,640 | $ | 20,221 | $ | 42,490 | $ | 27,239 | ||||||||
| Net income available to common stockholders | $ | 43,793 | $ | 16,219 | $ | 37,078 | $ | 22,722 | ||||||||
| Per share data: | ||||||||||||||||
| Net income: | ||||||||||||||||
| Basic | $ | 1.22 | $ | 0.46 | $ | 1.07 | $ | 0.67 | ||||||||
| Diluted | $ | 1.22 | $ | 0.45 | $ | 1.07 | $ | 0.67 | ||||||||
| Market price: | ||||||||||||||||
| High | $ | 150.71 | $ | 160.64 | $ | 161.53 | $ | 151.54 | ||||||||
| Low | $ | 136.38 | $ | 147.38 | $ | 146.05 | $ | 136.43 | ||||||||
| Close | $ | 146.65 | $ | 148.24 | $ | 153.92 | $ | 151.51 | ||||||||
| Dividends declared | $ | 1.10 | $ | 1.10 | $ | 1.10 | $ | 1.10 | ||||||||
F-45
| Quarter ended | Quarter ended | Quarter ended | Quarter ended | |||||||||
| December 31(1) | September 30(1) | June 30(1) | March 31(1) | |||||||||
| 2007: | ||||||||||||
| Total property revenues | $ | 101,138 | $ | 97,780 | $ | 94,508 | $ | 90,007 | ||||
| Income before discontinued operations | $ | 8,384 | $ | 15,454 | $ | 15,010 | $ | 17,906 | ||||
| Net income | $ | 61,175 | $ | 16,164 | $ | 16,085 | $ | 43,876 | ||||
| Net income available to common | ||||||||||||
| units | $ | 56,304 | $ | 11,294 | $ | 11,216 | $ | 39,074 | ||||
| Per unit data: | ||||||||||||
| Net income: | ||||||||||||
| Basic | $ | 2.04 | $ | 0.41 | $ | 0.42 | $ | 1.51 | ||||
| Diluted | $ | 2.02 | $ | 0.40 | $ | 0.41 | $ | 1.46 | ||||
| Distributions per common unit | $ | 0.93 | $ | 0.93 | $ | 0.93 | $ | 0.93 | ||||
| 2006: | ||||||||||||
| Total property revenues | $ | 88,118 | $ | 84,740 | $ | 81,665 | $ | 80,247 | ||||
| Income before discontinued operations | $ | 13,440 | $ | 14,281 | $ | 9,215 | $ | 9,896 | ||||
| Net income | $ | 21,926 | $ | 16,412 | $ | 27,450 | $ | 14,059 | ||||
| Net income available to common | ||||||||||||
| units | $ | 16,988 | $ | 12,062 | $ | 24,402 | $ | 11,012 | ||||
| Per unit data: | ||||||||||||
| Net income: | ||||||||||||
| Basic | $ | 0.65 | $ | 0.47 | $ | 0.97 | $ | 0.44 | ||||
| Diluted | $ | 0.64 | $ | 0.46 | $ | 0.95 | $ | 0.43 | ||||
| Distributions per common unit | $ | 0.84 | $ | 0.84 | $ | 0.84 | $ | 0.84 | ||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
Essex Portfolio, L.P.
The following is a summary of quarterly results of operations for 2013 and 2012 ($ in thousands)thousands, except per unit and distribution amounts):
Initial cost | Costs | Gross amount carried at close of period | |||||||||||||||||||||||||
| Buildings and | capitalized subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||
| Encumbered apartment communities | |||||||||||||||||||||||||||
| Foothill Commons | 360 | Bellevue, WA | $ | $ | 2,435 | $ | 9,821 | $ | 6,074 | $ | 2,440 | $ | 15,890 | $ | 18,330 | $ | 9,298 | 1978 | 03/90 | 3-30 | |||||||
| Montclaire, The (Oak Pointe) | 390 | Sunnyvale, CA | 4,842 | 19,776 | 12,774 | 4,847 | 32,545 | 37,392 | 17,967 | 1973 | 12/88 | 3-30 | |||||||||||||||
| Palisades, The | 192 | Bellevue, WA | 1,560 | 6,242 | 9,421 | 1,565 | 15,658 | 17,223 | 6,617 | 1969/1977(2) | 05/90 | 3-30 | |||||||||||||||
| Pathways | 296 | Long Beach, CA | 4,083 | 16,757 | 15,174 | 6,239 | 29,775 | 36,014 | 13,093 | 1975 | 02/91 | 3-30 | |||||||||||||||
| Stevenson Place | 200 | Fremont, CA | 996 | 5,582 | 7,879 | 1,001 | 13,456 | 14,457 | 8,763 | 1971 | 04/83 | 3-30 | |||||||||||||||
| Bridgeport (Summerhill Commons) | 184 | Newark, CA | 1,608 | 7,582 | 5,984 | 1,525 | 13,649 | 15,174 | 7,019 | 1987 | 07/87 | 3-30 | |||||||||||||||
| Summerhill Park | 100 | Sunnyvale, CA | 2,654 | 4,918 | 1,149 | 2,656 | 6,065 | 8,721 | 3,978 | 1988 | 09/88 | 3-30 | |||||||||||||||
| Woodland Commons | 236 | Bellevue, WA | 2,040 | 8,727 | 4,293 | 2,044 | 13,016 | 15,060 | 7,236 | 1978 | 03/90 | 3-30 | |||||||||||||||
| 90,005 | 20,218 | 79,405 | 62,748 | 22,317 | 140,054 | 162,371 | 73,972 | ||||||||||||||||||||
| Fountain Court | 320 | Seattle, WA | 6,702 | 27,306 | 1,691 | 6,985 | 28,714 | 35,699 | 7,679 | 2000 | 03/00 | 3-30 | |||||||||||||||
| Hillcrest Park | 608 | Newbury Park, CA | 15,318 | 40,601 | 12,353 | 15,755 | 52,517 | 68,272 | 16,713 | 1973 | 03/98 | 3-30 | |||||||||||||||
| Hillsborough Park | 235 | La Habra, CA | 6,291 | 15,455 | 827 | 6,272 | 16,302 | 22,573 | 4,728 | 1999 | 09/99 | 3-30 | |||||||||||||||
| 76,732 | 28,311 | 83,362 | 14,871 | 29,012 | 97,532 | 126,544 | 29,120 | ||||||||||||||||||||
| Bel Air | 462 | San Ramon, CA | 12,105 | 18,252 | 18,642 | 12,682 | 36,317 | 48,999 | 12,687 | 1988 | 01/97 | 3-30 | |||||||||||||||
| Waterford, The | 238 | San Jose, CA | 11,808 | 24,500 | 11,688 | 15,165 | 32,831 | 47,996 | 7,659 | 2000 | 06/00 | 3-30 | |||||||||||||||
| 58,139 | 23,913 | 42,752 | 30,329 | 27,847 | 69,147 | 96,994 | 20,346 | ||||||||||||||||||||
| Bonita Cedars | 120 | Bonita, CA | 2,496 | 9,913 | 977 | 2,503 | 10,883 | 13,386 | 1,983 | 1983 | 12/02 | 3-30 | |||||||||||||||
| Bristol Commons | 188 | Sunnyvale, CA | 5,278 | 11,853 | 2,447 | 5,293 | 14,285 | 19,578 | 5,889 | 1989 | 01/97 | 3-30 | |||||||||||||||
| Castle Creek | 216 | Newcastle, WA | 4,149 | 16,028 | 2,020 | 4,833 | 17,364 | 22,197 | 6,593 | 1997 | 12/97 | 3-30 | |||||||||||||||
| Forest View | 192 | Renton, WA | 3,731 | 14,530 | 689 | 3,731 | 15,219 | 18,950 | 2,233 | 1998 | 10/03 | 3-30 | |||||||||||||||
| Mira Monte | 355 | Mira Mesa, CA | 7,165 | 28,459 | 6,909 | 7,186 | 35,347 | 42,533 | 6,243 | 1982 | 12/02 | 3-30 | |||||||||||||||
| Mission Hills | 282 | Oceanside, CA | 10,099 | 38,778 | 1,920 | 10,167 | 40,630 | 50,797 | 3,611 | 1984 | 7/05 | 3-30 | |||||||||||||||
| Walnut Heights | 163 | Walnut, CA | 4,858 | 19,168 | 1,140 | 4,887 | 20,280 | 25,166 | 2,927 | 1964 | 10/03 | 3-30 | |||||||||||||||
| Windsor Ridge | 216 | Sunnyvale, CA | 4,017 | 10,315 | 3,855 | 4,021 | 14,167 | 18,187 | 8,183 | 1989 | 03/89 | 3-30 | |||||||||||||||
| 100,000 | 41,793 | 149,044 | 19,959 | 42,621 | 168,174 | 210,796 | 37,662 | ||||||||||||||||||||
| Alpine Village | 306 | Alpine, CA | 17,016 | 4,967 | 19,728 | 1,994 | 4,982 | 21,707 | 26,689 | 3,845 | 1971 | 12/02 | 3-30 | ||||||||||||||
| Anchor Village | 301 | Mukilteo, WA | 10,750 | 2,498 | 10,595 | 5,433 | 2,681 | 15,845 | 18,526 | 7,092 | 1981 | 01/97 | 3-30 | ||||||||||||||
| Barkley, The | 161 | Anaheim, CA | 4,883 | 2,272 | 8,520 | 1,705 | 2,353 | 10,144 | 12,497 | 3,253 | 1984 | 04/00 | 3-30 | ||||||||||||||
| Bluffs II, The | 224 | San Diego, CA | 12,137 | 3,405 | 7,743 | 5,979 | 3,442 | 13,685 | 17,127 | 3,756 | 1974 | 06/97(3) | 3-30 | ||||||||||||||
| Brentwood (Hearthstone) | 140 | Santa Ana, CA | 9,333 | 2,833 | 11,303 | 4,341 | 3,502 | 14,975 | 18,477 | 2,798 | 1970 | 11/01 | 3-30 | ||||||||||||||
| Brighton Ridge | 264 | Renton, WA | 16,013 | 2,623 | 10,800 | 3,789 | 2,656 | 14,555 | 17,212 | 6,030 | 1986 | 12/96 | 3-30 | ||||||||||||||
| Brookside Oaks | 170 | Sunnyvale, CA | 14,130 | 7,301 | 16,310 | 16,792 | 10,301 | 30,102 | 40,403 | 5,312 | 1973 | 06/00 | 3-30 | ||||||||||||||
| Cairns, The | 100 | Seattle, WA | 11,552 | 6,937 | 20,679 | 62 | 6,939 | 20,739 | 27,678 | 396 | 2006 | 06/07 | 3-30 | ||||||||||||||
| Camarillo Oaks | 564 | Camarillo, CA | 53,052 | 10,953 | 25,254 | 5,109 | 11,075 | 30,241 | 41,316 | 13,871 | 1985 | 07/96 | 3-30 | ||||||||||||||
| Camino Ruiz Square | 160 | Camarillo, CA | 21,110 | 6,871 | 26,119 | 64 | 6,878 | 26,176 | 33,054 | 876 | 1990 | 12/06 | 3-30 | ||||||||||||||
| Canyon Point | 250 | Bothell, WA | 15,736 | 4,692 | 18,288 | 1,082 | 4,693 | 19,370 | 24,062 | 2,785 | 1990 | 10/03 | 3-30 | ||||||||||||||
| Capri at Sunny Hills | 100 | Fullerton, CA | 19,150 | 3,337 | 13,320 | 3,962 | 3,867 | 16,752 | 20,619 | 3,444 | 1961 | 09/01 | 3-30 | ||||||||||||||
| Cardiff by the Sea | 300 | Cardiff, CA | 42,200 | 13,724 | 57,395 | 439 | 14,224 | 57,881 | 72,105 | 1,355 | 1986 | 04/07 | 3-30 | ||||||||||||||
| (Continued) | |||||||||||||||||||||||||||
| Quarter ended | Quarter ended | Quarter ended | Quarter ended | |||||||||||||
| December 31 | September 30 | June 30 | March 31 | |||||||||||||
| 2013: | ||||||||||||||||
| Total property revenues | $ | 155,986 | $ | 152,177 | $ | 148,783 | $ | 145,057 | ||||||||
| Income before discontinued operations | $ | 20,020 | $ | 62,718 | $ | 28,983 | $ | 29,161 | ||||||||
| Net income | $ | 36,903 | $ | 75,875 | $ | 29,575 | $ | 29,702 | ||||||||
| Net income available to common unitholders | $ | 33,776 | $ | 72,777 | $ | 26,493 | $ | 26,703 | ||||||||
| Per unit data: | ||||||||||||||||
| Net income: | ||||||||||||||||
| Basic | $ | 0.87 | $ | 1.84 | $ | 0.67 | $ | 0.68 | ||||||||
| Diluted | $ | 0.86 | $ | 1.84 | $ | 0.67 | $ | 0.68 | ||||||||
| Distributions declared | $ | 1.21 | $ | 1.21 | $ | 1.21 | $ | 1.21 | ||||||||
| 2012: | ||||||||||||||||
| Total property revenues | $ | 140,294 | $ | 133,760 | $ | 128,465 | $ | 124,177 | ||||||||
| Income before discontinued operations | $ | 49,158 | $ | 19,731 | $ | 42,050 | $ | 16,714 | ||||||||
| Net income | $ | 49,640 | $ | 20,221 | $ | 42,490 | $ | 27,239 | ||||||||
| Net income available to common unitholders | $ | 46,581 | $ | 17,296 | $ | 39,580 | $ | 24,314 | ||||||||
| Per unit data: | ||||||||||||||||
| Net income: | ||||||||||||||||
| Basic | $ | 1.23 | $ | 0.46 | $ | 1.08 | $ | 0.67 | ||||||||
| Diluted | $ | 1.23 | $ | 0.45 | $ | 1.07 | $ | 0.67 | ||||||||
| Distributions declared | $ | 1.10 | $ | 1.10 | $ | 1.10 | $ | 1.10 | ||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
| Costs | ||||||||||||||||||||||||||||||||||||
| Initial cost | capitalized subsequent | Gross amount carried at close of period | ||||||||||||||||||||||||||||||||||
| Buildings and | to | Land and | Buildings and | Accumulated | Date of | Date | Lives | |||||||||||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | |||||||||||||||||||||||
| Encumbered communities | ||||||||||||||||||||||||||||||||||||
| The Elliot at Mukilteo | 301 | Mukilteo, WA | 10,750 | 2,498 | 10,595 | 13,805 | 2,824 | 24,075 | 26,898 | (11,185 | ) | 1981 | 01/97 | 3-30 | ||||||||||||||||||||||
| Avondale at Warner Center | 446 | Woodland Hills, CA | 46,077 | 10,536 | 24,522 | 15,162 | 10,601 | 39,619 | 50,220 | (21,737 | ) | 1970 | 01/97 | 3-30 | ||||||||||||||||||||||
| Bridgeport | 184 | Newark, CA | 21,374 | 1,608 | 7,582 | 6,595 | 1,525 | 14,260 | 15,785 | (10,670 | ) | 1987 | 07/87 | 3-30 | ||||||||||||||||||||||
Barkley, The(2) | 161 | Anaheim, CA | 16,534 | - | 8,520 | 4,817 | 2,353 | 10,984 | 13,337 | (5,006 | ) | 1984 | 04/00 | 3-30 | ||||||||||||||||||||||
| Bel Air | 462 | San Ramon, CA | 54,858 | 12,105 | 18,252 | 25,571 | 12,682 | 43,246 | 55,928 | (21,280 | ) | 1988 | 01/97 | 3-30 | ||||||||||||||||||||||
| Belmont Station | 275 | Los Angeles, CA | 30,045 | 8,100 | 66,666 | 3,262 | 8,267 | 69,760 | 78,027 | (16,096 | ) | 2008 | 12/08 | 3-30 | ||||||||||||||||||||||
| Bella Villagio | 231 | San Jose, CA | 36,992 | 17,247 | 40,343 | 1,735 | 17,247 | 42,079 | 59,325 | (4,849 | ) | 2004 | 09/10 | 3-30 | ||||||||||||||||||||||
| Brookside Oaks | 170 | Sunnyvale, CA | 19,652 | 7,301 | 16,310 | 20,824 | 10,328 | 34,107 | 44,435 | (12,736 | ) | 1973 | 06/00 | 3-30 | ||||||||||||||||||||||
| Camino Ruiz Square | 160 | Camarillo, CA | 21,110 | 6,871 | 26,119 | 940 | 6,931 | 26,999 | 33,930 | (6,507 | ) | 1990 | 12/06 | 3-30 | ||||||||||||||||||||||
| Canyon Oaks | 250 | San Ramon, CA | 28,559 | 19,088 | 44,473 | 1,512 | 19,088 | 45,985 | 65,073 | (10,550 | ) | 2005 | 05/07 | 3-30 | ||||||||||||||||||||||
| Carlyle, The | 132 | San Jose, CA | 18,274 | 3,954 | 15,277 | 9,956 | 5,801 | 23,387 | 29,187 | (10,159 | ) | 2000 | 04/00 | 3-30 | ||||||||||||||||||||||
| City View | 572 | Hayward, CA | 62,008 | 9,883 | 37,670 | 21,261 | 10,350 | 58,464 | 68,814 | (32,305 | ) | 1975 | 03/98 | 3-30 | ||||||||||||||||||||||
| Coldwater Canyon | 39 | Studio City, CA | 5,446 | 1,674 | 6,640 | 1,289 | 1,676 | 7,928 | 9,603 | (2,308 | ) | 1979 | 05/07 | 3-30 | ||||||||||||||||||||||
| Courtyard off Main | 109 | Bellevue, WA | 16,016 | 7,465 | 21,405 | 2,718 | 7,465 | 24,123 | 31,588 | (2,752 | ) | 2000 | 10/10 | 3-30 | ||||||||||||||||||||||
| Domaine | 92 | Seattle, WA | 16,336 | 9,059 | 27,177 | 375 | 9,059 | 27,552 | 36,611 | (1,191 | ) | 2009 | 09/12 | 3-30 | ||||||||||||||||||||||
| Elevation | 157 | Redmond, WA | 11,579 | 4,758 | 14,285 | 5,498 | 4,757 | 19,784 | 24,541 | (3,054 | ) | 1986 | 06/10 | 3-30 | ||||||||||||||||||||||
| Esplanade | 278 | San Jose, CA | 43,965 | 18,170 | 40,086 | 6,786 | 18,429 | 46,613 | 65,042 | (15,128 | ) | 2002 | 11/04 | 3-30 | ||||||||||||||||||||||
| Fairhaven | 164 | Santa Ana, CA | 16,954 | 2,626 | 10,485 | 5,561 | 2,957 | 15,715 | 18,672 | (5,989 | ) | 1970 | 11/01 | 3-30 | ||||||||||||||||||||||
| Fairwood Pond | 194 | Renton, WA | 13,024 | 5,296 | 15,564 | 2,111 | 5,297 | 17,674 | 22,971 | (5,979 | ) | 1997 | 10/04 | 3-30 | ||||||||||||||||||||||
| Fountain Park | 705 | Playa Vista, CA | 83,179 | 25,073 | 94,980 | 23,673 | 25,203 | 118,523 | 143,726 | (41,416 | ) | 2002 | 02/04 | 3-30 | ||||||||||||||||||||||
| Harvest Park | 104 | Santa Rosa, CA | 10,473 | 6,700 | 15,479 | 984 | 6,690 | 16,473 | 23,163 | (4,043 | ) | 2004 | 03/07 | 3-30 | ||||||||||||||||||||||
| Hampton Place /Hampton Court | 215 | Glendale, CA | 20,967 | 6,695 | 16,753 | 5,574 | 6,733 | 22,289 | 29,022 | (10,899 | ) | 1970 | 06/99 | 3-30 | ||||||||||||||||||||||
| Hidden Valley | 324 | Simi Valley, CA | 30,027 | 14,174 | 34,065 | 1,535 | 9,674 | 40,101 | 49,774 | (12,830 | ) | 2004 | 12/04 | 3-30 | ||||||||||||||||||||||
| Highridge | 255 | Rancho Palos Verdes, CA | 44,807 | 5,419 | 18,347 | 26,326 | 6,073 | 44,019 | 50,092 | (19,916 | ) | 1972 | 05/97 | 3-30 | ||||||||||||||||||||||
| Highlands at Wynhaven | 333 | Issaquah, WA | 32,793 | 16,271 | 48,932 | 5,541 | 16,271 | 54,473 | 70,744 | (10,576 | ) | 2000 | 08/08 | 3-30 | ||||||||||||||||||||||
| Hillcrest Park | 608 | Newbury Park, CA | 68,339 | 15,318 | 40,601 | 15,868 | 15,755 | 56,031 | 71,787 | (27,474 | ) | 1973 | 03/98 | 3-30 | ||||||||||||||||||||||
| Hillsborough Park | 235 | La Habra, CA | 37,218 | 6,291 | 15,455 | 1,625 | 6,272 | 17,099 | 23,371 | (8,182 | ) | 1999 | 09/99 | 3-30 | ||||||||||||||||||||||
| Huntington Breakers | 342 | Huntington Beach, CA | 38,108 | 9,306 | 22,720 | 7,218 | 9,315 | 29,929 | 39,244 | (15,046 | ) | 1984 | 10/97 | 3-30 | ||||||||||||||||||||||
| Inglenook Court | 224 | Bothell, WA | 8,300 | 3,467 | 7,881 | 5,766 | 3,474 | 13,640 | 17,114 | (8,870 | ) | 1985 | 10/94 | 3-30 | ||||||||||||||||||||||
Magnolia Square/Magnolia Lane(3) | 188 | Sunnyvale, CA | 18,017 | 8,190 | 24,736 | 12,716 | 8,191 | 37,451 | 45,642 | (8,282 | ) | 1969 | 09/07 | 3-30 | ||||||||||||||||||||||
| Mirabella | 188 | Marina Del Rey, CA | 45,470 | 6,180 | 26,673 | 13,583 | 6,270 | 40,165 | 46,436 | (16,059 | ) | 2000 | 05/00 | 3-30 | ||||||||||||||||||||||
| Mill Creek at Windermere | 400 | San Ramon, CA | 49,212 | 29,551 | 69,032 | 1,975 | 29,551 | 71,008 | 100,558 | (15,298 | ) | 2005 | 09/07 | 3-30 | ||||||||||||||||||||||
| Montclaire, The | 390 | Sunnyvale, CA | 46,580 | 4,842 | 19,776 | 20,091 | 4,997 | 39,712 | 44,709 | (29,766 | ) | 1973 | 12/88 | 3-30 | ||||||||||||||||||||||
| Montebello | 248 | Kirkland, WA | 29,300 | 13,857 | 41,575 | 2,707 | 13,858 | 44,281 | 58,139 | (2,351 | ) | 1996 | 07/12 | 3-30 | ||||||||||||||||||||||
| Montejo | 124 | Garden Grove, CA | 13,064 | 1,925 | 7,685 | 2,420 | 2,194 | 9,835 | 12,030 | (4,167 | ) | 1974 | 11/01 | 3-30 | ||||||||||||||||||||||
| Park Hill at Issaquah | 245 | Issaquah, WA | 28,966 | 7,284 | 21,937 | 2,317 | 7,284 | 24,254 | 31,538 | (7,853 | ) | 1999 | 02/99 | 3-30 | ||||||||||||||||||||||
| Palisades, The | 192 | Bellevue, WA | 20,935 | 1,560 | 6,242 | 10,733 | 1,565 | 16,971 | 18,535 | (11,333 | ) | 1977 | 05/90 | 3-30 | ||||||||||||||||||||||
| Pathways | 296 | Long Beach, CA | 37,651 | 4,083 | 16,757 | 18,730 | 6,239 | 33,332 | 39,570 | (22,575 | ) | 1975 | 02/91 | 3-30 | ||||||||||||||||||||||
| Stevenson Place | 200 | Fremont, CA | 21,724 | 996 | 5,582 | 7,076 | 1,001 | 12,653 | 13,654 | (9,216 | ) | 1971 | 04/83 | 3-30 | ||||||||||||||||||||||
| Stonehedge Village | 196 | Bothell, WA | 12,390 | 3,167 | 12,603 | 4,726 | 3,201 | 17,296 | 20,496 | (9,341 | ) | 1986 | 10/97 | 3-30 | ||||||||||||||||||||||
| Summerhill Park | 100 | Sunnyvale, CA | 13,554 | 2,654 | 4,918 | 1,287 | 2,656 | 6,202 | 8,859 | (4,814 | ) | 1988 | 09/88 | 3-30 | ||||||||||||||||||||||
| The Bernard | 63 | Seattle, WA | 9,776 | 3,699 | 11,345 | 95 | 3,689 | 11,451 | 15,139 | (887 | ) | 2008 | 09/11 | 3-30 | ||||||||||||||||||||||
| The Huntington | 276 | Huntington Beach, CA | 33,121 | 10,374 | 41,495 | 2,026 | 10,374 | 43,522 | 53,895 | (2,301 | ) | 1975 | 06/12 | 3-30 | ||||||||||||||||||||||
| Tierra Vista | 404 | Oxnard, CA | 56,359 | 13,652 | 53,336 | 3,497 | 13,661 | 56,824 | 70,485 | (18,565 | ) | 2001 | 01/01 | 3-30 | ||||||||||||||||||||||
| Valley Park | 160 | Fountain Valley, CA | 22,180 | 3,361 | 13,420 | 3,319 | 3,761 | 16,339 | 20,100 | (6,817 | ) | 1969 | 11/01 | 3-30 | ||||||||||||||||||||||
| (Continued) | ||||||||||||||||||||||||||||||||||||
Initial cost | Costs | Gross amount carried at close of period | |||||||||||||||||||||||||
| Buildings and | capitalized subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||
| Encumbered apartment communities (continued) | |||||||||||||||||||||||||||
| Carlyle, The | 132 | San Jose, CA | 15,424 | 3,954 | 15,277 | 9,270 | 5,801 | 22,701 | 28,501 | 5,266 | 2000 | 04/00 | 3-30 | ||||||||||||||
| City View (Wimbledon Woods) | 560 | Hayward, CA | 51,600 | 9,883 | 37,670 | 15,069 | 10,350 | 52,272 | 62,622 | 15,861 | 1975 | 03/98 | 3-30 | ||||||||||||||
| Coldwater Canyon | 39 | Studio City, CA | 5,919 | 1,674 | 6,640 | 367 | 1,676 | 7,005 | 8,681 | 143 | 1979 | 05/07 | 3-30 | ||||||||||||||
| Coral Gardens | 200 | El Cajon, CA | 10,943 | 3,638 | 14,452 | 936 | 3,649 | 15,377 | 19,026 | 2,770 | 1976 | 12/02 | 3-30 | ||||||||||||||
| Devonshire | 276 | Hemet, CA | 11,078 | 3,470 | 13,786 | 1,548 | 3,482 | 15,322 | 18,804 | 2,905 | 1988 | 12/02 | 3-30 | ||||||||||||||
| Emerald Ridge - North | 180 | Bellevue, WA | 10,721 | 3,449 | 7,801 | 3,036 | 3,449 | 10,837 | 14,286 | 5,018 | 1987 | 11/94 | 3-30 | ||||||||||||||
| Esplanade | 278 | San Jose, CA | 38,956 | 18,170 | 40,086 | 2,946 | 18,425 | 42,777 | 61,202 | 4,635 | 2002 | 11/04 | 3-30 | ||||||||||||||
| Evergreen Heights | 200 | Kirkland, WA | 10,910 | 3,566 | 13,395 | 2,134 | 3,649 | 15,446 | 19,095 | 5,847 | 1990 | 06/97 | 3-30 | ||||||||||||||
| Fairwood Pond | 194 | Renton, WA | 14,514 | 5,296 | 15,564 | 709 | 5,300 | 16,269 | 21,569 | 1,755 | 1997 | 10/04 | 3-30 | ||||||||||||||
| Fountain Park | 705 | Playa Vista, CA | 98,665 | 25,073 | 94,980 | 17,327 | 25,208 | 112,173 | 137,380 | 13,407 | 2002 | 02/04 | 3-30 | ||||||||||||||
| Harvest Park | 104 | Santa Rosa, CA | 11,603 | 6,700 | 15,479 | 192 | 6,690 | 15,681 | 22,371 | 413 | 2004 | 03/07 | 3-30 | ||||||||||||||
| Hidden Valley (Parker Ranch) | 324 | Simi Valley, CA | 33,303 | 14,174 | 34,065 | 287 | 11,724 | 36,802 | 48,526 | 4,334 | 2004 | 12/04 | 3-30 | ||||||||||||||
| Highridge | 255 | Rancho Palos Verde, CA | 44,807 | 5,419 | 18,347 | 8,220 | 5,841 | 26,145 | 31,986 | 9,376 | 1972 | 05/97 | 3-30 | ||||||||||||||
| Huntington Breakers | 342 | Huntington Beach, CA | 20,962 | 9,306 | 22,720 | 3,882 | 9,315 | 26,593 | 35,908 | 9,494 | 1984 | 10/97 | 3-30 | ||||||||||||||
| Inglenook Court | 224 | Bothell, WA | 8,300 | 3,467 | 7,881 | 6,502 | 3,474 | 14,375 | 17,850 | 5,757 | 1985 | 10/94 | 3-30 | ||||||||||||||
| Kings Road | 196 | Los Angeles, CA | 14,618 | 4,023 | 9,527 | 5,675 | 4,031 | 15,194 | 19,225 | 4,932 | 1979 | 06/97 | 3-30 | ||||||||||||||
| Le Pac Luxury Apartments | 140 | Santa Clara, CA | 13,713 | 3,090 | 7,421 | 4,768 | 3,092 | 12,187 | 15,279 | 4,889 | 1975 | 02/94 | 3-30 | ||||||||||||||
| Marbrisa | 202 | Long Beach, CA | 20,923 | 4,700 | 18,605 | 1,323 | 4,760 | 19,869 | 24,628 | 3,806 | 1987 | 09/02 | 3-30 | ||||||||||||||
| Mariners Place | 105 | Oxnard, CA | 3,872 | 1,555 | 6,103 | 1,029 | 1,562 | 7,126 | 8,687 | 2,166 | 1987 | 05/00 | 3-30 | ||||||||||||||
| Montejo | 124 | Garden Grove, CA | 5,812 | 1,925 | 7,685 | 1,332 | 2,110 | 8,833 | 10,942 | 1,959 | 1974 | 11/01 | 3-30 | ||||||||||||||
| Monterey Villas | 122 | Oxnard, CA | 13,802 | 2,349 | 5,579 | 4,395 | 2,424 | 9,900 | 12,323 | 3,206 | 1974 | 07/97 | 3-30 | ||||||||||||||
| Monterra del Rey | 84 | Pasadena, CA | 10,130 | 2,312 | 4,923 | 4,292 | 2,825 | 8,702 | 11,527 | 2,494 | 1972 | 04/99 | 3-30 | ||||||||||||||
| Mt. Sutro | 99 | San Francisco, CA | 5,725 | 2,334 | 8,507 | 1,850 | 2,810 | 9,881 | 12,691 | 2,942 | 1973 | 06/01 | 3-30 | ||||||||||||||
| Park Place/Windsor Court/Cochran | 176 | Los Angeles, CA | 21,964 | 4,965 | 11,806 | 5,090 | 5,015 | 16,846 | 21,861 | 5,682 | 1988 | 08/97 | 3-30 | ||||||||||||||
| Pointe at Cupertino, The | 116 | Cupertino, CA | 13,033 | 4,505 | 17,605 | 606 | 4,505 | 18,211 | 22,716 | 2,282 | 1963 | 08/98(4) | 3-30 | ||||||||||||||
| Sammamish View | 153 | Bellevue, WA | 10,778 | 3,324 | 7,501 | 5,942 | 3,331 | 13,436 | 16,767 | 4,724 | 1986 | 11/94 | 3-30 | ||||||||||||||
| San Marcos | 432 | Richmond, CA | 49,225 | 15,563 | 36,204 | 24,269 | 22,866 | 53,170 | 76,036 | 7,372 | 2003 | 11/03 | 3-30 | ||||||||||||||
| Stonehedge Village | 196 | Bothell, WA | 13,786 | 3,167 | 12,603 | 3,198 | 3,201 | 15,767 | 18,968 | 5,363 | 1986 | 10/97 | 3-30 | ||||||||||||||
| Summit Park | 300 | San Diego, CA | 21,100 | 5,959 | 23,670 | 2,011 | 5,977 | 25,663 | 31,640 | 4,773 | 1972 | 12/02 | 3-30 | ||||||||||||||
| Thomas Jefferson | 156 | Sunnyvale, CA | 19,529 | 8,190 | 19,306 | 91 | 8,195 | 19,392 | 27,587 | 340 | 1969 | 09/07 | 3-30 | ||||||||||||||
| Tierra Vista | 404 | Oxnard, CA | 62,037 | 13,652 | 53,336 | 669 | 13,661 | 53,997 | 67,657 | 6,665 | 2001 | 01/01(4) | 3-30 | ||||||||||||||
| Treehouse | 164 | Santa Ana, CA | 7,825 | 2,626 | 10,485 | 1,440 | 2,843 | 11,708 | 14,551 | 2,706 | 1970 | 11/01 | 3-30 | ||||||||||||||
| Boulevard (Treetops) | 172 | Fremont, CA | 9,800 | 3,520 | 8,182 | 7,717 | 3,580 | 15,839 | 19,419 | 4,925 | 1978 | 01/96 | 3-30 | ||||||||||||||
| Valley Park | 160 | Fountain Valley, CA | 9,913 | 3,361 | 13,420 | 3,001 | 3,761 | 16,021 | 19,782 | 3,458 | 1969 | 11/01 | 3-30 | ||||||||||||||
| Villa Angelina | 256 | Placentia, CA | 13,405 | 4,498 | 17,962 | 2,860 | 4,962 | 20,359 | 25,320 | 4,282 | 1970 | 11/01 | 3-30 | ||||||||||||||
| Vista Belvedere | 76 | Tiburon, CA | 11,297 | 5,573 | 11,901 | 1,973 | 5,573 | 13,874 | 19,447 | 1,520 | 1963 | 08/04 | 3-30 | ||||||||||||||
| Wandering Creek | 156 | Kent, WA | 5,300 | 1,285 | 4,980 | 3,762 | 1,296 | 8,731 | 10,027 | 3,615 | 1986 | 11/95 | 3-30 | ||||||||||||||
| Wharfside Pointe | 142 | Seattle, WA | 7,827 | 2,245 | 7,020 | 4,180 | 2,256 | 11,189 | 13,445 | 4,645 | 1990 | 06/94 | 3-30 | ||||||||||||||
| 1,325,057 | 408,608 | 1,283,091 | 342,554 | 432,055 | 1,602,745 | 2,034,800 | 391,640 | (Continued) | |||||||||||||||||||
ESSEX PORTFOLIO, L.P.PROPERTY TRUST, INC. AND SUBSIDIARIES
Initial cost | Costs | Gross amount carried at close of period | ||||||||||||||||||||||||||
| Buildings and | capitalized subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | |||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | |||||||||||||||
| Unencumbered apartment communities | ||||||||||||||||||||||||||||
| Alpine Country | 108 | Alpine, CA | 1,741 | 6,914 | 456 | 1,746 | 7,364 | 9,111 | 1,335 | 1986 | 12/02 | 3-30 | ||||||||||||||||
| Avondale at Warner Center | 446 | Woodland Hills, CA | 10,536 | 24,522 | 14,962 | 10,601 | 39,419 | 50,020 | 12,858 | 1970 | 01/97 | 3-30 | ||||||||||||||||
| Belmont Terrace | 71 | Belmont, CA | 4,446 | 10,290 | 647 | 4,474 | 10,909 | 15,383 | 433 | 1974 | 10/06 | 3-30 | ||||||||||||||||
| Bridle Trails | 108 | Kirkland, WA | 1,500 | 5,930 | 4,982 | 1,531 | 10,881 | 12,412 | 3,182 | 1986 | 10/97 | 3-30 | ||||||||||||||||
| Bunker Hill | 456 | Los Angeles, CA | 11,498 | 27,871 | 3,350 | 11,639 | 31,080 | 42,719 | 11,324 | 1968 | 03/98 | 3-30 | ||||||||||||||||
| Cambridge | 40 | Chula Vista, CA | 497 | 1,973 | 214 | 498 | 2,186 | 2,684 | 387 | 1965 | 12/02 | 3-30 | ||||||||||||||||
| Canyon Oaks | 250 | San Ramon, CA | 19,088 | 44,473 | 119 | 19,088 | 44,591 | 63,680 | 934 | 2005 | 05/07 | 3-30 | ||||||||||||||||
| Carlton Heights | 70 | Santee, CA | 1,099 | 4,368 | 318 | 1,103 | 4,682 | 5,785 | 855 | 1979 | 12/02 | 3-30 | ||||||||||||||||
| CBC Apartments | 148 | Goleta, CA | 6,283 | 24,000 | 96 | 6,288 | 24,091 | 30,379 | 1,587 | 1962 | 01/06 | 3-30 | ||||||||||||||||
| Cedar Terrace | 180 | Bellevue, WA | 5,543 | 16,442 | 2,077 | 5,652 | 18,410 | 24,062 | 1,857 | 1984 | 01/05 | 3-30 | ||||||||||||||||
| Chimney Sweep Apartments | 91 | Goleta, CA | 5,558 | 21,320 | 1,561 | 5,618 | 22,820 | 28,439 | 1,670 | 1967 | 01/06 | 3-30 | ||||||||||||||||
| Country Villas | 180 | Oceanside, CA | 4,174 | 16,583 | 2,180 | 4,187 | 18,750 | 22,937 | 3,404 | 1976 | 12/02 | 3-30 | ||||||||||||||||
| Monterra del Sol (Euclid) | 85 | Pasadena, CA | 2,202 | 4,794 | 4,364 | 2,824 | 8,536 | 11,360 | 2,274 | 1972 | 04/99 | 3-30 | ||||||||||||||||
Fairways(5) | 74 | Newport Beach, CA | - | 7,850 | 2,876 | 9 | 10,717 | 10,726 | 3,877 | 1972 | 06/99 | 3-30 | ||||||||||||||||
| Foothill Gardens/Twin Creeks | 176 | San Ramon, CA | 5,875 | 13,992 | 3,435 | 5,964 | 17,339 | 23,302 | 6,957 | 1985 | 02/97 | 3-30 | ||||||||||||||||
| Grand Regency | 60 | Escondido, CA | 881 | 3,498 | 217 | 883 | 3,713 | 4,596 | 669 | 1967 | 12/02 | 3-30 | ||||||||||||||||
| Hampton Park | 83 | Glendale, CA | 2,407 | 5,672 | 1,563 | 2,426 | 7,216 | 9,642 | 2,055 | 1974 | 06/99 | 3-30 | ||||||||||||||||
| Hampton Place | 132 | Glendale, CA | 4,288 | 11,081 | 2,323 | 4,307 | 13,385 | 17,692 | 3,817 | 1970 | 06/99 | 3-30 | ||||||||||||||||
| Hillsdale Garden Apartments | 697 | Hillsdale Garden, CA | 22,000 | 94,681 | 1,976 | 22,325 | 97,184 | 119,509 | 3,971 | 1948 | 09/06(6) | 3-30 | ||||||||||||||||
| Hope Ranch Collection | 108 | Santa Barbara, CA | 16,877 | 4,078 | 122 | 4,208 | 16,869 | 21,077 | 384 | 1965 | 03/07 | 3-30 | ||||||||||||||||
| Linden Square | 183 | Seattle, WA | 4,374 | 11,588 | 931 | 4,202 | 12,691 | 16,893 | 3,464 | 1994 | 06/00 | 3-30 | ||||||||||||||||
| Pinehurst | 118 | Ventura, CA | 1,570 | 3,912 | 3,962 | 1,618 | 7,826 | 9,444 | 2,546 | 1971 | 06/97 | 3-30 | ||||||||||||||||
Magnonlia Lane(7) | 32 | Sunnyvale, CA | - | 5,430 | 8 | 3 | 5,434 | 5,438 | 98 | 2001 | 06/07 | 3-30 | ||||||||||||||||
| Maple Leaf | 48 | Seattle, WA | 805 | 3,283 | 749 | 828 | 4,010 | 4,837 | 1,376 | 1986 | 10/97 | 3-30 | ||||||||||||||||
| Marbella, The | 60 | Los Angeles, CA | 2,826 | 11,269 | 147 | 2,871 | 11,371 | 14,242 | 865 | 1991 | 09/05 | 3-30 | ||||||||||||||||
Marina City Club(8) | 101 | Marina Del Rey, CA | - | 28,167 | 2,669 | - | 30,836 | 30,836 | 4,070 | 1971 | 01/04 | 3-30 | ||||||||||||||||
Marina Cove(9) | 292 | Santa Clara, CA | 5,320 | 16,431 | 4,136 | 5,324 | 20,563 | 25,887 | 10,377 | 1974 | 06/94 | 3-30 | ||||||||||||||||
| Meadowood | 320 | Simi Valley, CA | 7,852 | 18,592 | 3,829 | 7,898 | 22,375 | 30,273 | 9,088 | 1986 | 11/96 | 3-30 | ||||||||||||||||
| Mesa Village | 133 | Clairemont, CA | 1,888 | 7,498 | 494 | 1,894 | 7,986 | 9,880 | 1,382 | 1963 | 12/02 | 3-30 | ||||||||||||||||
| Mill Creek at Windermere | 400 | San Ramon, CA | 29,551 | 70,430 | 37 | 29,551 | 69,070 | 98,620 | 671 | 1974 | 09/07 | 3-30 | ||||||||||||||||
| Mirabella | 188 | Marina Del Rey, CA | 6,180 | 26,673 | 10,264 | 6,270 | 36,847 | 43,117 | 7,557 | 2000 | 05/00 | 3-30 | ||||||||||||||||
| Monterra del Mar (Windsor Terrace) | 123 | Pasadena, CA | 2,188 | 5,263 | 3,951 | 2,735 | 8,666 | 11,402 | 3,016 | 1972 | 09/97 | 3-30 | ||||||||||||||||
| Mountain View | 106 | Camarillo, CA | 3,167 | 11,106 | 667 | 3,117 | 11,823 | 14,940 | 1,581 | 1980 | 01/04 | 3-30 | ||||||||||||||||
| Park Hill at Issaquah | 245 | Issaquah, CA | 7,284 | 21,937 | 810 | 7,284 | 22,747 | 30,031 | 2,530 | 1999 | 02/99(10) | 3-30 | ||||||||||||||||
| Pinehurst | 28 | Ventura, CA | 355 | 1,356 | 269 | 6 | 1,975 | 1,980 | 252 | 1973 | 12/04 | 3-30 | ||||||||||||||||
| Salmon Run at Perry Creek | 132 | Bothell, WA | 3,717 | 11,483 | 501 | 3,801 | 11,900 | 15,701 | 2,877 | 2000 | 10/00 | 3-30 | ||||||||||||||||
| Shadow Point | 172 | Spring Valley, CA | 2,812 | 11,170 | 1,386 | 2,820 | 12,548 | 15,368 | 2,373 | 1983 | 12/02 | 3-30 | ||||||||||||||||
| Spring Lake | 69 | Seattle, WA | 838 | 3,399 | 359 | 859 | 3,737 | 4,596 | 1,441 | 1986 | 10/97 | 3-30 | ||||||||||||||||
| St. Cloud | 302 | Houston, TX | 2,140 | 7,782 | 247 | 2,146 | 8,022 | 10,169 | 1,915 | 1968 | 12/02 | 3-30 | ||||||||||||||||
| (Continued) | ||||||||||||||||||||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
| Initial cost | Costs capitalized | Gross amount carried at close of period | |||||||||||||||||||||||||||||||||
Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||||||||||
| Encumbered communities (continued) | |||||||||||||||||||||||||||||||||||
| Villa Angelina | 256 | Placentia, CA | 27,040 | 4,498 | 17,962 | 5,714 | 4,962 | 23,213 | 28,174 | (8,818 | ) | 1970 | 11/01 | 3-30 | |||||||||||||||||||||
| Wandering Creek | 156 | Kent, WA | 5,300 | 1,285 | 4,980 | 3,569 | 1,296 | 8,538 | 9,834 | (5,395 | ) | 1986 | 11/95 | 3-30 | |||||||||||||||||||||
| Waterford, The | 238 | San Jose, CA | 31,705 | 11,808 | 24,500 | 12,570 | 15,165 | 33,713 | 48,878 | (15,024 | ) | 2000 | 06/00 | 3-30 | |||||||||||||||||||||
| Wilshire Promenade | 149 | Fullerton, CA | 17,975 | 3,118 | 7,385 | 7,245 | 3,797 | 13,951 | 17,748 | (6,745 | ) | 1992 | 01/97 | 3-30 | |||||||||||||||||||||
| 1,404,080 | 393,037 | 1,199,123 | 380,286 | 406,809 | 1,565,636 | 1,972,445 | (564,341 | ) | |||||||||||||||||||||||||||
| Unencumbered communities | |||||||||||||||||||||||||||||||||||
| Allegro | 97 | Valley Village, CA | 5,869 | 23,977 | 1,144 | 5,869 | 25,121 | 30,990 | (3,944 | ) | 2010 | 10/10 | 3-30 | ||||||||||||||||||||||
| Alpine Village | 301 | Alpine, CA | 4,967 | 19,728 | 4,511 | 4,982 | 24,224 | 29,206 | (9,201 | ) | 1971 | 12/02 | 3-30 | ||||||||||||||||||||||
| Anavia | 250 | Anaheim, CA | 15,925 | 63,712 | 5,633 | 15,925 | 69,345 | 85,270 | (7,077 | ) | 2009 | 12/10 | 3-30 | ||||||||||||||||||||||
| Annaliese | 56 | Seattle, WA | 4,727 | 14,229 | 67 | 4,726 | 14,297 | 19,023 | (459 | ) | 2009 | 01/13 | 3-30 | ||||||||||||||||||||||
| Ascent | 90 | Kirkland, WA | 3,924 | 11,862 | 1,344 | 3,924 | 13,206 | 17,130 | (582 | ) | 1988 | 10/12 | 3-30 | ||||||||||||||||||||||
| Axis 2300 | 115 | Irvine, CA | 5,405 | 33,585 | 780 | 5,405 | 34,365 | 39,770 | (5,348 | ) | 2010 | 08/10 | 3-30 | ||||||||||||||||||||||
| Bellerive | 63 | Los Angeles, CA | 5,401 | 21,803 | 568 | 5,401 | 22,370 | 27,772 | (2,378 | ) | 2011 | 08/11 | 3-30 | ||||||||||||||||||||||
| Belmont Terrace | 71 | Belmont, CA | 4,446 | 10,290 | 2,454 | 4,473 | 12,717 | 17,190 | (4,187 | ) | 1974 | 10/06 | 3-30 | ||||||||||||||||||||||
| Bennett Lofts | 147 | San Francisco, CA | 21,771 | 50,800 | 23,304 | 28,371 | 67,503 | 95,875 | (2,456 | ) | 2004 | 12/12 | 3-30 | ||||||||||||||||||||||
| Bonita Cedars | 120 | Bonita, CA | 2,496 | 9,913 | 1,773 | 2,503 | 11,678 | 14,182 | (4,608 | ) | 1983 | 12/02 | 3-30 | ||||||||||||||||||||||
| Boulevard | 172 | Fremont, CA | 3,520 | 8,182 | 10,606 | 3,580 | 18,729 | 22,308 | (11,311 | ) | 1978 | 01/96 | 3-30 | ||||||||||||||||||||||
| Bridle Trails | 108 | Kirkland, WA | 1,500 | 5,930 | 5,388 | 1,531 | 11,287 | 12,818 | (5,860 | ) | 1986 | 10/97 | 3-30 | ||||||||||||||||||||||
| Brighton Ridge | 264 | Renton, WA | 2,623 | 10,800 | 3,086 | 2,656 | 13,852 | 16,509 | (8,080 | ) | 1986 | 12/96 | 3-30 | ||||||||||||||||||||||
| Bristol Commons | 188 | Sunnyvale, CA | 5,278 | 11,853 | 3,361 | 5,293 | 15,199 | 20,492 | (8,004 | ) | 1989 | 01/97 | 3-30 | ||||||||||||||||||||||
| 416 on Broadway | 115 | Glendale, CA | 8,557 | 34,235 | 992 | 8,557 | 35,226 | 43,784 | (3,750 | ) | 2009 | 12/10 | 3-30 | ||||||||||||||||||||||
| Bunker Hill | 456 | Los Angeles, CA | 11,498 | 27,871 | 9,067 | 11,639 | 36,798 | 48,436 | (17,548 | ) | 1968 | 03/98 | 3-30 | ||||||||||||||||||||||
| Cairns, The | 100 | Seattle, WA | 6,937 | 20,679 | 443 | 6,939 | 21,121 | 28,059 | (4,694 | ) | 2006 | 06/07 | 3-30 | ||||||||||||||||||||||
| Camarillo Oaks | 564 | Camarillo, CA | 10,953 | 25,254 | 3,361 | 11,075 | 28,493 | 39,568 | (16,613 | ) | 1985 | 07/96 | 3-30 | ||||||||||||||||||||||
| Canyon Pointe | 250 | Bothell, WA | 4,692 | 18,288 | 3,856 | 4,693 | 22,143 | 26,836 | (8,091 | ) | 1990 | 10/03 | 3-30 | ||||||||||||||||||||||
| Capri at Sunny Hills | 100 | Fullerton, CA | 3,337 | 13,320 | 6,848 | 4,048 | 19,457 | 23,505 | (7,745 | ) | 1961 | 09/01 | 3-30 | ||||||||||||||||||||||
| Castle Creek | 216 | Newcastle, WA | 4,149 | 16,028 | 2,240 | 4,833 | 17,584 | 22,417 | (10,037 | ) | 1997 | 12/97 | 3-30 | ||||||||||||||||||||||
| CBC Apartments | 148 | Goleta, CA | 6,283 | 24,000 | 2,645 | 6,288 | 26,641 | 32,928 | (7,948 | ) | 1962 | 01/06 | 3-30 | ||||||||||||||||||||||
| CentrePointe | 224 | San Diego, CA | 3,405 | 7,743 | 17,571 | 3,442 | 25,277 | 28,719 | (7,522 | ) | 1974 | 06/97 | 3-30 | ||||||||||||||||||||||
| Cedar Terrace | 180 | Bellevue, WA | 5,543 | 16,442 | 4,065 | 5,652 | 20,397 | 26,050 | (6,996 | ) | 1984 | 01/05 | 3-30 | ||||||||||||||||||||||
| Chestnut Street | 96 | Santa Cruz, CA | 6,582 | 15,689 | 1,029 | 6,582 | 16,718 | 23,300 | (3,249 | ) | 2002 | 07/08 | 3-30 | ||||||||||||||||||||||
| Commons, The | 264 | Campbell, CA | 12,555 | 29,307 | 3,839 | 12,556 | 33,145 | 45,701 | (4,451 | ) | 1973 | 07/10 | 3-30 | ||||||||||||||||||||||
| Corbella at Juanita Bay | 169 | Kirkland, WA | 5,801 | 17,415 | 1,081 | 5,801 | 18,496 | 24,297 | (2,070 | ) | 1978 | 11/10 | 3-30 | ||||||||||||||||||||||
| Country Villas | 180 | Oceanside, CA | 4,174 | 16,583 | 2,650 | 4,187 | 19,220 | 23,407 | (7,669 | ) | 1976 | 12/02 | 3-30 | ||||||||||||||||||||||
| Delano/Bon Terra | 126 | Redmond, WA | 7,470 | 22,511 | 834 | 7,470 | 23,345 | 30,815 | (1,585 | ) | 2005/2011 | 12/11 | 3-30 | ||||||||||||||||||||||
| Devonshire | 276 | Hemet, CA | 3,470 | 13,786 | 2,400 | 3,482 | 16,174 | 19,656 | (6,481 | ) | 1988 | 12/02 | 3-30 | ||||||||||||||||||||||
| Domain | 379 | San Diego, CA | 23,848 | 95,394 | 17 | 23,848 | 95,411 | 119,259 | (398 | ) | 2013 | 11/13 | 3-30 | ||||||||||||||||||||||
| Emerald Ridge | 180 | Bellevue, WA | 3,449 | 7,801 | 2,992 | 3,449 | 10,793 | 14,242 | (7,244 | ) | 1987 | 11/94 | 3-30 | ||||||||||||||||||||||
| Essex Skyline at MacArthur Place | 349 | Santa Ana, CA | 21,537 | 146,099 | 1,216 | 21,537 | 147,314 | 168,852 | (8,472 | ) | 2008 | 04/12 | 3-30 | ||||||||||||||||||||||
| Evergreen Heights | 200 | Kirkland, WA | 3,566 | 13,395 | 3,654 | 3,649 | 16,966 | 20,615 | (9,184 | ) | 1990 | 06/97 | 3-30 | ||||||||||||||||||||||
Fairways(4) | 74 | Newport Beach, CA | - | 7,850 | 5,290 | 9 | 13,131 | 13,140 | (5,354 | ) | 1972 | 06/99 | 3-30 | ||||||||||||||||||||||
| Foothill Commons | 388 | Bellevue, WA | 2,435 | 9,821 | 33,746 | 2,440 | 43,562 | 46,002 | (22,333 | ) | 1978 | 03/90 | 3-30 | ||||||||||||||||||||||
| Foothill Gardens/Twin Creeks | 176 | San Ramon, CA | 5,875 | 13,992 | 5,273 | 5,964 | 19,176 | 25,140 | (10,015 | ) | 1985 | 02/97 | 3-30 | ||||||||||||||||||||||
| Forest View | 192 | Renton, WA | 3,731 | 14,530 | 1,361 | 3,731 | 15,891 | 19,622 | (5,742 | ) | 1998 | 10/03 | 3-30 | ||||||||||||||||||||||
| Fountain Court | 320 | Seattle, WA | 6,702 | 27,306 | 7,607 | 6,985 | 34,631 | 41,615 | (15,071 | ) | 2000 | 03/00 | 3-30 | ||||||||||||||||||||||
| Fourth & U | 171 | Berkeley, CA | 8,879 | 52,351 | 2,227 | 8,879 | 54,577 | 63,457 | (7,644 | ) | 2010 | 04/10 | 3-30 | ||||||||||||||||||||||
| Fox Plaza | 444 | San Francisco, CA | 39,731 | 92,706 | 2,627 | 39,731 | 95,333 | 135,064 | (2,771 | ) | 1968 | 02/13 | 3-30 | ||||||||||||||||||||||
| Hillsdale Garden | 697 | San Mateo, CA | 22,000 | 94,681 | 18,717 | 22,244 | 113,154 | 135,398 | (28,418 | ) | 1948 | 09/06 | 3-30 | ||||||||||||||||||||||
| Hope Ranch Collection | 108 | Santa Barbara, CA | 4,078 | 16,877 | 2,394 | 4,208 | 19,141 | 23,349 | (4,108 | ) | 1965 | 03/07 | 3-30 | ||||||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES(Dollars in thousands)
Initial cost | Costs capitalized | Gross amount carried at close of period | |||||||||||||||||||||||||
| Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||
| Unencumbered apartment communities (continued) | |||||||||||||||||||||||||||
| The Laurels | 164 | Mill Creek, WA | 1,559 | 6,430 | 1,916 | 1,595 | 8,309 | 9,905 | 3,435 | 1981 | 12/96 | 3-30 | |||||||||||||||
| Tierra del Sol/Norte | 156 | El Cajon, CA | 2,455 | 9,753 | 654 | 2,463 | 10,399 | 12,862 | 1,881 | 1969 | 12/02 | 3-30 | |||||||||||||||
| Trabucco Villas | 132 | Lake Forest, CA | 3,638 | 8,640 | 1,548 | 3,890 | 9,936 | 13,826 | 4,011 | 1985 | 10/97 | 3-30 | |||||||||||||||
| Tuscana | 30 | Tracy, CA | 2,828 | 6,599 | 153 | 2,870 | 6,710 | 9,580 | 140 | 2007 | 02/07 | 3-30 | |||||||||||||||
| Vista Capri - North | 106 | San Diego, CA | 1,663 | 6,609 | 489 | 1,668 | 7,093 | 8,761 | 1,192 | 1975 | 12/02 | 3-30 | |||||||||||||||
| Wilshire Promenade | 149 | Fullerton, CA | 3,118 | 7,385 | 5,215 | 3,797 | 11,921 | 15,718 | 4,572 | 1992 | 01/97 | 3-30 | |||||||||||||||
| Woodlawn Colonial | 159 | Chula Vista, CA | 2,344 | 9,311 | 943 | 2,351 | 10,248 | 12,598 | 1,923 | 1974 | 12/02 | 3-30 | |||||||||||||||
| Woodside Village | 145 | Ventura, CA | 5,331 | 21,036 | 1,145 | 5,342 | 22,170 | 27,512 | 2,221 | 1987 | 12/04 | 3-30 | |||||||||||||||
| 24,393 | 1,325,057 | 640,904 | 1,985,955 | 437,870 | 654,629 | 2,410,099 | 3,064,729 | 532,323 | |||||||||||||||||||
Initial cost | Costs capitalized | Gross amount carried at close of period | |||||||||||||||||||||||||
| Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||
| Other real estate assets | |||||||||||||||||||||||||||
| Office Buildings | |||||||||||||||||||||||||||
| 925 East Meadow | Palo Alto, CA | - | 1,401 | 3,172 | 1,105 | 1,857 | 3,822 | 5,678 | 2,211 | 1988 | 11/97 | 3-30 | |||||||||||||||
935 East Meadow(11) | Palo Alto, CA | - | 1,290 | 3,078 | 0 | 1,290 | 3,078 | 4,368 | - | 1962 | 12/07 | 3-30 | |||||||||||||||
| 17461 Derian | Irvine, CA | - | 3,079 | 12,315 | 5,220 | 3,105 | 17,509 | 20,614 | 4,527 | 1983 | 07/00 | 3-30 | |||||||||||||||
| 22120 Clarendon | Woodland Hills, CA | - | 903 | 3,600 | 1,205 | 1,014 | 4,694 | 5,708 | 1,538 | 1982 | 03/01 | 3-30 | |||||||||||||||
| Recreational vehicle parks | |||||||||||||||||||||||||||
| Circle RV | El Cajon, CA | - | 2,375 | 2,347 | 140 | 2,505 | 2,357 | 4,862 | 400 | 1977 | 12/02 | 3-30 | |||||||||||||||
| Vacationer | El Cajon, CA | - | 1,975 | 1,951 | 138 | 2,100 | 1,964 | 4,064 | 338 | 1973 | 12/02 | 3-30 | |||||||||||||||
| Manufactured housing communities | |||||||||||||||||||||||||||
| Green Valley | Vista, CA | 6,216 | 3,750 | 3,710 | 275 | 3,993 | 3,742 | 7,735 | 650 | 1973 | 12/02 | 3-30 | |||||||||||||||
| Total apartment communities and other real estate assets | $ | 1,331,273 | $ | 655,677 | $ | 2,016,128 | $ | 445,954 | $ | 670,494 | $ | 2,447,265 | $ | 3,117,759 | $ | 541,987 | (Continued) | ||||||||||
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31,
| Costs | ||||||||||||||||||||||||||||
| Initial cost | capitalized | Gross amount carried at close of period | ||||||||||||||||||||||||||
| Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | �� | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | |||||||||||||||
| Other real estate assets (continued) | ||||||||||||||||||||||||||||
Development Projects(12) | ||||||||||||||||||||||||||||
| Belmont Station | 275 | Los Angeles, CA | $ | 19,450 | $ | 8,100 | $ | - | $ | 47,378 | $ | 55,478 | $ | - | $ | 55,478 | $ | - | - | 12/04 | - | |||||||
| The Grand | 238 | Oakland, CA | - | 4,838 | - | 37,211 | 42,049 | - | 42,049 | - | - | 08/05 | - | |||||||||||||||
| Fourth Street | 171 | Berkeley, CA | - | 8,772 | 4,601 | 13,373 | - | 13,373 | - | - | 12/07 | - | ||||||||||||||||
Predevelopment Projects(13) | 1,658 | various | 12,150 | 87,845 | - | 9,248 | 97,093 | - | 97,093 | - | - | - | ||||||||||||||||
| Land held for future development | 434 | various | - | - | - | 25,452 | 25,452 | - | 25,452 | - | - | - | ||||||||||||||||
| Consolidated Development Pipeline | 2,776 | $ | 31,600 | $ | 109,555 | $ | - | $ | 123,890 | $ | 233,445 | $ | - | $ | 233,445 | $ | - | |||||||||||
| (1) The aggregate cost for federal income tax purposes is approximately $2,379,000,000 (unaudited). | ||||||||||||||||||||||||||||
| (2) Phase I was built in 1969 and Phase II was built in 1977. | ||||||||||||||||||||||||||||
| (3) The Operating Partnership's initial ownership was 85%, and the remaining 15% interest was acquired in 2007. | ||||||||||||||||||||||||||||
| (4) The Operating Partnership's initial ownership was 20%, and the remaining 80% interest was acquired in 2004. | ||||||||||||||||||||||||||||
| (5) The land is leased pursuant to a ground lease expiring 2027. | ||||||||||||||||||||||||||||
| (6) The land was subject to a ground lease that would have expired in 2047. In the second quarter of 2007, the Operating Partnership entered into a joint venture with a third-party, and the Operating Partnership contributed the improvements for an 81.5% interest and the joint venture partner contributed title to the land for an 18.5% interest in the partnership. | ||||||||||||||||||||||||||||
| (7) The land is leased pursuant to a ground lease expiring 2070. | ||||||||||||||||||||||||||||
| (8) The land is leased pursuant to a ground lease expiring 2067. | ||||||||||||||||||||||||||||
| (9) A portion of land is leased pursuant to a ground lease expiring in 2028. | ||||||||||||||||||||||||||||
| (10) The Operating Partnership's initial ownership was 45%, and the remaining 55% interest was acquired in 2004. | ||||||||||||||||||||||||||||
| (11) The office building is currently under renovation through approximately the third quarter of 2008. | ||||||||||||||||||||||||||||
| (12) All construction costs are reflected as real estate under development in the Operating Partnership's consolidated balance sheets until the project reaches stabilization. | ||||||||||||||||||||||||||||
| (13) The 535 - 575 River Oaks and 6230 Sunset Blvd. commercial buildings are accounted as part of predevelopment projects for the year ended December 31, 2007. | ||||||||||||||||||||||||||||
| A summary of activity for rental properties and accumulated depreciation is as follows: | ||||||||||||||||||||||||||
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |||||||||||||||||||||
| Rental properties: | Accumulated depreciation: | |||||||||||||||||||||||||
| Balance at beginning of year | $ | 2,669,187 | $ | 2,431,629 | $ | 2,371,194 | Balance at beginning of year | $ | 465,015 | $ | 389,040 | $ | 329,652 | |||||||||||||
| Improvements | 105,673 | 40,885 | 24,000 | Depreciation expense - Acquisitions | 4,838 | 2,314 | 1,406 | |||||||||||||||||||
| Acquisition of real estate | 397,605 | 202,459 | 90,065 | Depreciation expense - Development | 5,540 | - | - | |||||||||||||||||||
| Development of real estate | - | - | 20,460 | Depreciation expense - Discontinued operations | 1,820 | 4,941 | 5,777 | |||||||||||||||||||
| Disposition of real estate | (54,706) | (5,786) | (22,473) | Depreciation and amortization expense - Rental properties | 83,274 | 73,241 | 66,409 | |||||||||||||||||||
| Real estate investment held for sale | - | - | (51,617) | Dispositions | (18,500) | (2,362) | (4,768) | |||||||||||||||||||
| Balance at the end of year | $ | 3,117,759 | $ | 2,669,187 | $ | 2,431,629 | Real estate investment held for sale | - | (2,159) | (9,436) | ||||||||||||||||
| Balance at the end of year | $ | 541,987 | $ | 465,015 | $ | 389,040 | ||||||||||||||||||||
| Initial cost | Costs capitalized | Gross amount carried at close of period | |||||||||||||||||||||||||
| Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | ||||||||||||||||||||
| Property | Units | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||
| Unencumbered communities (continued) | |||||||||||||||||||||||||||
| Joule | 295 | Seattle, WA | 14,558 | 69,417 | 3,142 | 14,558 | 72,559 | 87,117 | (10,435) | 2010 | 03/10 | 3-30 | |||||||||||||||
| 1000 Kiely | 121 | Santa Clara, CA | 9,359 | 21,845 | 5,118 | 9,359 | 26,963 | 36,322 | (2,745) | 1971 | 03/11 | 3-30 | |||||||||||||||
| Kings Road | 196 | Los Angeles, CA | 4,023 | 9,527 | 8,817 | 4,031 | 18,336 | 22,367 | (8,792) | 1979 | 06/97 | 3-30 | |||||||||||||||
| Laurels at Mill Creek | 164 | Mill Creek, WA | 1,559 | 6,430 | 5,107 | 1,595 | 11,501 | 13,096 | (6,330) | 1981 | 12/96 | 3-30 | |||||||||||||||
| Le Parc Luxury Apartments | 140 | Santa Clara, CA | 3,090 | 7,421 | 10,794 | 3,092 | 18,212 | 21,305 | (10,219) | 1975 | 02/94 | 3-30 | |||||||||||||||
| Lofts at Pinehurst, The | 118 | Ventura, CA | 1,570 | 3,912 | 4,346 | 1,618 | 8,210 | 9,828 | (3,824) | 1971 | 06/97 | 3-30 | |||||||||||||||
| Marbrisa | 202 | Long Beach, CA | 4,700 | 18,605 | 4,116 | 4,760 | 22,662 | 27,421 | (8,395) | 1987 | 09/02 | 3-30 | |||||||||||||||
Marina City Club(5) | 101 | Marina Del Rey, CA | - | 28,167 | 17,390 | - | 45,557 | 45,557 | (12,066) | 1971 | 01/04 | 3-30 | |||||||||||||||
Marina Cove(6) | 292 | Santa Clara, CA | 5,320 | 16,431 | 9,971 | �� 5,324 | 26,398 | 31,722 | (15,114) | 1974 | 06/94 | 3-30 | |||||||||||||||
| Mariners Place | 105 | Oxnard, CA | 1,555 | 6,103 | 1,813 | 1,562 | 7,909 | 9,471 | (3,847) | 1987 | 05/00 | 3-30 | |||||||||||||||
| Meadowood | 320 | Simi Valley, CA | 7,852 | 18,592 | 6,239 | 7,898 | 24,785 | 32,683 | (13,426) | 1986 | 11/96 | 3-30 | |||||||||||||||
| Mesa Village | 133 | Clairemont, CA | 1,888 | 7,498 | 1,099 | 1,894 | 8,592 | 10,485 | (3,253) | 1963 | 12/02 | 3-30 | |||||||||||||||
| Mira Monte | 355 | Mira Mesa, CA | 7,165 | 28,459 | 8,392 | 7,186 | 36,830 | 44,016 | (15,701) | 1982 | 12/02 | 3-30 | |||||||||||||||
| Miracle Mile/Marbella | 236 | Los Angeles, CA | 7,791 | 23,075 | 12,201 | 7,886 | 35,181 | 43,067 | (17,228) | 1988 | 08/97 | 3-30 | |||||||||||||||
| Mission Hills | 282 | Oceanside, CA | 10,099 | 38,778 | 4,009 | 10,167 | 42,719 | 52,886 | (13,413) | 1984 | 07/05 | 3-30 | |||||||||||||||
| Monterra del Mar/Rey/Sol | 292 | Pasadena, CA | 2,202 | 4,794 | 28,416 | 8,385 | 27,027 | 35,412 | (13,253) | 1972 | 04/99 | 3-30 | |||||||||||||||
| Monterey Villas | 122 | Oxnard, CA | 2,349 | 5,579 | 5,478 | 2,424 | 10,982 | 13,406 | (5,199) | 1974 | 07/97 | 3-30 | |||||||||||||||
| Mt. Sutro | 99 | San Francisco, CA | 2,334 | 8,507 | 3,450 | 2,809 | 11,482 | 14,291 | (5,435) | 1973 | 06/01 | 3-30 | |||||||||||||||
| Muse | 152 | North Hollywood, CA | 7,822 | 33,436 | 1,550 | 7,823 | 34,985 | 42,808 | (4,888) | 2011 | 02/11 | 3-30 | |||||||||||||||
| Park Catalina | 90 | Los Angeles, CA | 4,710 | 18,839 | 876 | 4,710 | 19,716 | 24,425 | (1,051) | 2002 | 06/12 | 3-30 | |||||||||||||||
| Park West | 126 | San Francisco, CA | 9,424 | 21,988 | 1,895 | 9,424 | 23,883 | 33,307 | (1,060) | 1958 | 09/12 | 3-30 | |||||||||||||||
Pinehurst(7) | 28 | Ventura, CA | 355 | 1,356 | 453 | 6 | 2,159 | 2,164 | (836) | 1973 | 12/04 | 3-30 | |||||||||||||||
| Pointe at Cupertino, The | 116 | Cupertino, CA | 4,505 | 17,605 | 10,179 | 4,505 | 27,784 | 32,289 | (8,131) | 1963 | 08/98 | 3-30 | |||||||||||||||
| Reed Square | 100 | Sunnyvale, CA | 6,873 | 16,037 | 6,377 | 6,873 | 22,414 | 29,287 | (1,490) | 1970 | 01/12 | 3-30 | |||||||||||||||
| Regency at Encino | 75 | Encino, CA | 3,184 | 12,737 | 1,754 | 3,184 | 14,490 | 17,675 | (2,407) | 1989 | 12/09 | 3-30 | |||||||||||||||
| Salmon Run at Perry Creek | 132 | Bothell, WA | 3,717 | 11,483 | 1,263 | 3,801 | 12,662 | 16,463 | (5,544) | 2000 | 10/00 | 3-30 | |||||||||||||||
| 101 San Fernando | 323 | San Jose, CA | 4,173 | 58,961 | 5,425 | 4,173 | 64,386 | 68,559 | (7,966) | 2001 | 07/10 | 3-30 | |||||||||||||||
| Sammamish View | 153 | Bellevue, WA | 3,324 | 7,501 | 5,868 | 3,331 | 13,361 | 16,693 | (8,810) | 1986 | 11/94 | 3-30 | |||||||||||||||
| San Marcos | 432 | Richmond, CA | 15,563 | 36,204 | 26,551 | 22,866 | 55,452 | 78,318 | (19,483) | 2003 | 11/03 | 3-30 | |||||||||||||||
| Santee Court/Santee Village | 238 | Los Angeles, CA | 9,581 | 40,317 | 2,967 | 9,582 | 43,283 | 52,865 | (4,811) | 2004 | 10/10 | 3-30 | |||||||||||||||
| Shadow Point | 172 | Spring Valley, CA | 2,812 | 11,170 | 1,833 | 2,820 | 12,995 | 15,815 | (5,146) | 1983 | 12/02 | 3-30 | |||||||||||||||
| Slater 116 | 108 | Kirkland, WA | 7,379 | 22,138 | 158 | 7,379 | 22,296 | 29,675 | (220) | 2013 | 09/13 | 3-30 | |||||||||||||||
| Summit Park | 300 | San Diego, CA | 5,959 | 23,670 | 3,840 | 5,977 | 27,492 | 33,469 | (10,845) | 1972 | 12/02 | 3-30 | |||||||||||||||
| The Grand | 243 | Oakland, CA | 4,531 | 89,208 | 4,199 | 4,531 | 93,407 | 97,938 | (17,784) | 2009 | Jan-09 | 3-30 | |||||||||||||||
| The Sweeps | 91 | Goleta, CA | 5,558 | 21,320 | 1,947 | 5,618 | 23,206 | 28,825 | (7,273) | 1967 | 01/06 | 3-30 | |||||||||||||||
| Trabucco Villas | 132 | Lake Forest, CA | 3,638 | 8,640 | 2,177 | 3,890 | 10,565 | 14,455 | (5,485) | 1985 | 10/97 | 3-30 | |||||||||||||||
| Tuscana | 30 | Tracy, CA | 2,828 | 6,599 | 162 | 2,870 | 6,719 | 9,589 | (1,484) | 2007 | 02/07 | 3-30 | |||||||||||||||
| Via | 284 | Sunnyvale, CA | 22,000 | 82,270 | 317 | 22,016 | 82,571 | 104,587 | (8,246) | 2011 | 07/11 | 3-30 | |||||||||||||||
| Vista Belvedere | 76 | Tiburon, CA | 5,573 | 11,901 | 5,224 | 5,573 | 17,125 | 22,698 | (5,945) | 1963 | 08/04 | 3-30 | |||||||||||||||
| Vista Capri - North | 106 | San Diego, CA | 1,663 | 6,609 | 901 | 1,668 | 7,505 | 9,173 | (2,825) | 1975 | 12/02 | 3-30 | |||||||||||||||
| Vox | 58 | Seattle, WA | 5,545 | 16,635 | 22 | 5,545 | 16,657 | 22,202 | (116) | 2013 | 10/13 | 3-30 | |||||||||||||||
| Walnut Heights | 163 | Walnut, CA | 4,858 | 19,168 | 2,592 | 4,887 | 21,731 | 26,618 | (7,648) | 1964 | 10/03 | 3-30 | |||||||||||||||
| Wharfside Pointe | 142 | Seattle, WA | 2,245 | 7,020 | 7,537 | 2,258 | 14,545 | 16,802 | (7,773) | 1990 | 06/94 | 3-30 | |||||||||||||||
| Willow Lake | 508 | San Jose, CA | 43,194 | 101,030 | 3,887 | 43,194 | 104,917 | 148,111 | (4,365) | 1989 | 10/12 | 3-30 | |||||||||||||||
| Windsor Ridge | 216 | Sunnyvale, CA | 4,017 | 10,315 | 8,365 | 4,021 | 18,676 | 22,697 | (12,239) | 1989 | 03/89 | 3-30 | |||||||||||||||
| Woodland Commons | 302 | Bellevue, WA | 2,040 | 8,727 | 18,174 | 2,044 | 26,897 | 28,941 | (11,363) | 1978 | 03/90 | 3-30 | |||||||||||||||
| Woodside Village | 145 | Ventura, CA | 5,331 | 21,036 | 3,242 | 5,341 | 24,268 | 29,609 | (7,663) | 1987 | 12/04 | 3-30 | |||||||||||||||
| 29,989 | 1,404,080 | 1,021,942 | 3,474,800 | 863,981 | 1,059,824 | 4,300,898 | 5,360,723 | (1,232,604) | |||||||||||||||||||
| (Continued) | |||||||||||||||||||||||||||
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
| Costs | |||||||||||||||||||||||||||||||||||||||||||||
| Rentable | Initial cost | capitalized | Gross amount carried at close of period | ||||||||||||||||||||||||||||||||||||||||||
| Square | Buildings and | subsequent to | Land and | Buildings and | Accumulated | Date of | Date | Lives | |||||||||||||||||||||||||||||||||||||
| Property | Footage | Location | Encumbrance | Land | improvements | acquisition | improvements | improvements | Total(1) | depreciation | construction | acquired | (years) | ||||||||||||||||||||||||||||||||
| Other real estate assets | |||||||||||||||||||||||||||||||||||||||||||||
| Hollywood | 35,000 | Los Angeles, CA | 10,200 | 13,800 | 2,441 | 10,200 | 16,241 | 26,441 | (4,747 | ) | 1938 | 07/06 | 3-30 | ||||||||||||||||||||||||||||||||
| Santa Clara Retail | 139,000 | Santa Clara, CA | 6,472 | 11,704 | 3,616 | 6,472 | 15,320 | 21,792 | (2,687 | ) | 1970 | 09/11 | 3-30 | ||||||||||||||||||||||||||||||||
| 925/935 East Meadow Drive | 31,900 | Palo Alto, CA | 1,401 | 3,172 | 8,006 | 3,147 | 9,433 | 12,579 | (4,561 | ) | 1988 | 11/97 | 3-30 | ||||||||||||||||||||||||||||||||
| 17461 Derian Ave | 110,000 | Irvine, CA | 3,079 | 12,315 | 6,829 | 3,909 | 18,314 | 22,223 | (10,286 | ) | 1983 | 07/00 | 3-30 | ||||||||||||||||||||||||||||||||
| Consolidated Development Pipeline | 10,658 | - | 39,772 | 50,430 | - | 50,430 | - | ||||||||||||||||||||||||||||||||||||||
| Total apartment communities and other real estate assets | $ 1,404,080 | $ | 1,053,752 | $ | 3,515,791 | $ | 924,645 | $ | 1,133,982 | $ | 4,360,205 | $ | 5,494,188 | $ | (1,254,886 | ) | |||||||||||||||||||||||||||||
| (1) | The aggregate cost for federal income tax purposes is approximately $4.6 billion (unaudited). |
| (2) | The land is leased pursuant to a ground lease expiring 2082. |
| (3) | The land is leased pursuant to a ground lease expiring 2070. |
| (4) | The land is leased pursuant to a ground lease expiring 2027. |
| (5) | The land is leased pursuant to a ground lease expiring 2067. |
| (6) | A portion of land is leased pursuant to a ground lease expiring in 2028. |
| (7) | The land is leased pursuant to a ground lease expiring in 2028. |
A summary of activity for rental properties and accumulated depreciation is as follows:
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | ||||||||||||||||||||
| Rental properties: | Accumulated depreciation: | ||||||||||||||||||||||||
| Balance at beginning of year | $ | 5,033,672 | $ | 4,313,064 | $ | 3,964,561 | Balance at beginning of year | $ | 1,081,517 | $ | 920,026 | $ | 775,553 | ||||||||||||
| Improvements | 92,016 | 97,947 | 219,692 | Depreciation expense - Acquisitions | 6,203 | 3,744 | 1,279 | ||||||||||||||||||
| Acquisition of real estate | 344,476 | 619,743 | 103,300 | Depreciation expense - Discontinued operations | 12,290 | 2,108 | 315 | ||||||||||||||||||
| Development of real estate | 14,111 | 25,545 | 44,280 | Depreciation expense - Rental properties | 168,092 | 161,492 | 148,337 | ||||||||||||||||||
| Disposition of real estate | (40,518 | ) | (22,627 | ) | (18,769 | ) | Dispositions | (13,216 | ) | (5,853 | ) | (5,458 | ) | ||||||||||||
| Balance at the end of year | $ | 5,443,757 | $ | 5,033,672 | $ | 4,313,064 | Balance at the end of year | $ | 1,254,886 | $ | 1,081,517 | $ | 920,026 | ||||||||||||
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange Act of 1934, theeach Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.authorized, in the City of Palo Alto, State of California, on February 26, 2014.
.
ESSEX | |
By: /S/ MICHAEL T. DANCE | |
| Michael T. Dance | |
Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial and Accounting Officer) | |
ESSEX PORTFOLIO, L.P. By: Essex Property Trust, Inc., its general partner | |
By: /S/ | |
| Michael T. Dance | |
Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial and Accounting |
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith R. GuerickeMichael J. Schall and Michael T. Dance, and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theeach Registrant and in the capacity and on the date indicated.
Signature | Title | Date |
/S/ MICHAEL J. SCHALL Michael J. Schall | Chief Executive Officer and President, and Director (Principal Executive Officer) | February 26, 2014 |
/S/ KEITH R. GUERICKE Keith R. Guericke | Vice Chairman of the Board | February |
/S/ GEORGE M. MARCUS George M. Marcus | Director and Chairman of the Board | February |
/S/ DAVID W. BRADY David W. Brady | Director | February |
/S/ GARY P. MARTIN Gary P. Martin | Director | February |
/S/ ISSIE N. RABINOVITCH Issie N. Rabinovitch | Director | February |
/S/ THOMAS E. RANDLETT Thomas E. Randlett | Director | February |
/S/ | Director | February |
/S/ JANICE L. SEARS. Janice L. Sears | Director | February 26, 2014 |
/S/ CLAUDE J. ZINNGRABE Claude J. Zinngrabe | Director | February 26, 2014 |
Exhibit No. | Document | |
| 2.1 | Agreement and Plan of | |
| Third Amended and Restated Bylaws of Essex Property Trust, Inc., | ||
| Certificate of | ||
| 4.1 | ||
| Form of 4.875% Series G Cumulative Convertible Preferred Stock Certificate, attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed July 27, 2006, and incorporated herein by reference. | ||
| 4.2 | Form of 7.125% Series H Cumulative Redeemable Preferred Stock Certificate, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 13, 2011, and incorporated herein by reference. | |
| 4.3 | Indenture, dated August 15, 2012, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.625% Senior Notes due 2022 and the guarantee thereof, attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed August 15, 2012, and incorporated herein by reference. | |
4.4 | Indenture, dated April 15, 2013, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.25% Senior Notes due 2023 and the guarantee thereof, attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed April 15, 2013, and incorporated herein by reference. | |
| 4.5 | Form of Common Stock Certificate of Essex Property Trust, Inc., filed as Exhibit 4.5 to the Company’s Form S-4 Registration Statement, filed January 29, 2014 and incorporated herein by reference. | |
| 10.1 | Essex Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated), attached as Exhibit 10.1 to the | |
| 10.2 | ||
| Form of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock Incentive Plan, attached as Exhibit 10.3 to the | ||
| Agreement between Essex Property Trust, Inc. and George M. Marcus, dated March 27, 2003 attached as Exhibit 10.32 to the | ||
| Essex Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference.* | ||
| 10.6 | Form of Indemnification Agreement between Essex Property Trust, Inc. and | |
| 10.7 | Note Purchase Agreement, dated |
| 10.9 | Amended and Restated 2004 Non-Employee Director Equity Award Program, dated May 1, 2011, attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and incorporated herein by reference.* |
| 10.10 | Amended and Restated Revolving Credit Agreement, dated as of September |
| Note Purchase Agreement, | |
| 10.12 | First Amendment to Amended and Restated Revolving Credit Agreement, dated May 31, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference. |
| 10.13 | Modification Agreement, dated July 30, 2012, attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference |
| 10.14 | Registration Rights Agreement, dated August 15, 2012, among Essex Portfolio, L.P., the Company and Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC as representatives of the several initial purchasers, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on August 15, 2012, and incorporated herein by reference. |
| 10.15 | Amendment to Agreement, dated as of September 11, 2012, between the Company and George Marcus, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference. |
| 10.16 | Essex Property Trust, Inc. Executive Severance Plan (as Amended and Restated effective March 12, 2013), |
| 10.17 | Form of Equity Distribution Agreement, dated March 29, 2013, between Essex |
| 10.18 | Second Amendment to Amended and Restated Revolving Credit Agreement, dated August 30, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference. |
| 10.19 | Third Amendment to Amended and Restated Revolving Credit Agreement, dated January 22, 2013, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference. |
| 10.20 | Essex Property Trust, Inc. 2013 Stock Award and Incentive Compensation Plan, attached as Appendix B to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.* |
| 10.21 | Essex Property Trust, Inc. 2013 Employee Stock Purchase Plan, attached as Appendix C to the | |
| 10.22 | Forms of equity award agreements for officers under the 2013 Stock Award and Incentive Compensation Plan, attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.* | |
| 10.23 | Company’s Non-Employee Director Equity Award Program and forms of equity award agreements thereunder, attached as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, | |
| 10.24 | Third Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December | |
| 10.26 | Third Modification Agreement, dated as of January 29, 2014 by and among Essex Portfolio, L.P., U.S. Bank National Association, as Administrative Agent and Lender and the other lenders party thereto, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference. | |
| Schedule of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. | ||
| 14.1 | Code of Business Conduct and Ethics, | |
| List of Subsidiaries of Essex Property Trust, | ||
| Consent of KPMG LLP, Independent Registered Public Accounting Firm. | ||
| Consent of KPMG LLP, Independent Registered Public Accounting Firm. | ||
| 24.1 | Power of Attorney (see signature page) | |
| Certification of | ||
| Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| Certification of | ||
| Certification of Michael T. Dance, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Certification of Michael T. Dance, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| * Management contract or compensatory plan or arrangement. | |
| † The schedules and certain exhibits to this agreement, as set forth in the agreement, have not been filed herewith. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request. |