UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-K

 
(MARK ONE)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20132014
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number:   1-13106 (Essex Property Trust, Inc.)
Commission file number:   333-44467-01 (Essex Portfolio, L.P.)

ESSEX PROPERTY TRUST, INC.
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 (Essex Property Trust, Inc.)
77-0369575(Essex (Essex Portfolio, L.P.)
(State or Other Jurisdiction of Incorporation or Organization)
(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:
 
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.

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.

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.

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

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).

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

As of June 30, 2013,2014, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $5,855,449,673.$11,430,740,862.  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. There is no public trading market for the common units of Essex Portfolio, L.P. As a result, the aggregate market value of the common units held by non-affiliates of Essex Portfolio, L.P., cannot be determined.

As of February 24, 2014, 38,606,7062015, 65,125,801 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 filed within 120 days of December 31, 2013.2014.



EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 20132014 of Essex Property Trust, IncInc. and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, Inc., a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT ”)REIT”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership” ). References). Unless stated otherwise or the context otherwise requires, references to the “Company,” “Essex,” “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, 20132014 owned an approximate 94.6%96.7% ownership interest in EPLP.  The remaining 5.4%3.3% 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 withfor 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

iii

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.
20132014 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Part I. Page
Item 1.
Business
1
Item 1A.
Risk Factors
7
Item 1B.
Unresolved Staff Comments
21
20
Item 2.
Properties
21
20
Item 3.
Legal Proceedings
27
28
Item 4.
Mine Safety Disclosures
27
28
Part II.  
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
28
Item 6.
Selected Financial Data
31
32
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
34
36
Item 7A.
Quantitative and Qualitative Disclosures About Market Risks
46
47
Item 8.
Financial Statements and Supplementary Data
47
49
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
47
49
Item 9A.
Controls and Procedures
47
49
Item 9B.
Other Information
48
50
Part III.  
Item 10.
Directors, Executive Officers and Corporate Governance
48
50
Item 11.
Executive Compensation
48
50
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
49
50
Item 13.
Certain Relationships and Related Transactions, and Director Independence
49
50
Item 14.
Principal Accounting Fees and Services
49
50
Part IV.
Item 15.
Exhibits and Financial Statement Schedules
50
51
Signatures
S-1



v
Table of Contents

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.”  Actual 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.

Item 1. Business

OVERVIEW

Essex Property Trust, Inc. (“Essex” or the “Company”) is a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”).  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, 20132014 owns a 94.6%96.7% general partnership interest.  In this report, the terms “Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating 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 Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. All taxable REIT subsidiaries are consolidated by the Company.

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities.  As of December 31, 2013,2014, the Company owned or held an interest in 164239 communities, aggregating 34,07957,455 units, located along the West Coast, as well as four commercial buildings (totaling approximately 315,900325,200 square feet), and eleventwelve active development projects with 2,5012,920 units in various stages of development (collectively, the “Portfolio”).

The Company’s website address is http://www.essexpropertytrust.com.www.essex.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 its website as soon as practicable after the Company files the reports with the U.S. Securities and Exchange Commission (“SEC”).

BUSINESS STRATEGIES

The following is a discussion of the Company’s business strategies in regards to real estate investment and management.

Business Strategies

Research Driven Approach to Investments– The Company believes that successful real estate investment decisions and portfolio growth begin with extensive regional economic research and local market knowledge.  The Company continually assesses markets where the Company operates, as well as markets where the Company considers future investment opportunities by evaluating the following:

·Focus on markets in major metropolitan areas that have regional population in excess of one million;
·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 relative to costs of for-sale housing; and
·Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.
1

Recognizing that all real estate markets are cyclical, the Company regularly evaluates the results of its regional economic, and local market research, and adjusts the geographic focus of its portfolio accordingly.  The Company seeks to increase its Portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets

1
Table of Contents

projected to have declining economic conditions.  Likewise, the Company also seeks to increase its Portfolio 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 – The Company manages its communities by focusing on activities that may generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation.  The Company intends to achieve this by utilizing the strategies set forth below:

·Property Management – Oversee delivery of and quality of the housing provided to our residents and manage the properties financial performance.
Property Management– Oversee delivery of and quality of the housing provided to our residents and manage the properties financial performance.
·Capital Preservation –Asset Management is responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s communities.
Capital Preservation –Asset Management is responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s communities.
·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.
Business Planning and Control – Comprehensive business plans are implemented in conjunction with significant investment decisions.  These plans include benchmarks for future financial performance, based on collaborative discussions between on-site managers and senior management.
·Development and Redevelopment – The Company focuses on acquiring and developing apartment communities in supply constrained markets, and redeveloping its existing communities to improve the financial and physical aspects of the Company’s communities.
Development and Redevelopment – The Company focuses on acquiring and developing apartment communities in supply constrained markets, and redeveloping its existing communities to improve the financial and physical aspects of the Company’s communities.

CURRENT BUSINESS ACTIVITIES

Summary of Proposed Merger with BRE Properties, Inc.
 
The board of directors ofOn April 1, 2014, Essex Property Trust, Inc. andcompleted the board of directors ofmerger with BRE Properties, Inc. have each unanimously approved an Agreement and Plan(“BRE”).  In connection with the closing 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.,(1) BRE merged into 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(2) each company’s stockholders).
If the merger is completed pursuant to the merger agreement, eachoutstanding share of BRE common stock outstanding immediately prior to the effective time of the merger will convertwas converted into the right to receive (i) 0.2971 shares (the “Stock Consideration”) of Essex common stock, and (ii) $12.33$7.18 in cash, without interest, which we collectively refer to(the “Cash Consideration”), plus cash in lieu of fractional shares for total consideration of approximately $4.3 billion.  The Cash Consideration was adjusted 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 amountresult of the merger consideration will be reduced to the extentauthorization and declaration of a special distribution is authorized and declared to be paidthe stockholders of BRE of $5.15 per share of BRE common stock payable to BRE stockholders of record as of the close of business on the business day immediately prior to the effective time of the mergerMarch 31, 2014 (the “Special Dividend”).  The Special Dividend was payable as a result of any applicable assetthe closing of the sale (as describedof certain interests in assets of BRE to certain parties, which closed on March 31, 2014.  Pursuant to the terms of the merger agreement, the amounts payable as a Special Dividend reduced the Cash Consideration of $12.33 payable by Essex in the joint proxy statement/prospectus). merger to $7.18 per share of BRE common stock.

Essex stockholders will continue to hold their existingissued approximately 23.1 million shares of Essex common stock. The exchange ratio and cash amount will not be adjusted to reflect changesstock as Stock Consideration in the pricemerger.  For purchase accounting, the value of Essexthe common stock orissued by Essex upon the price of BRE common stock occurring prior to the completionconsummation of the merger. Basedmerger was determined based on the closing price of EssexBRE’s common stock on the NYSE of $147.70 on December 18, 2013, the last tradingclosing date before the announcement of the proposed merger,merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, consideration (basedEssex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014.  BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014.  As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of $43.88the equity consideration.  After deducting the Special Dividend and the Cash Consideration per share, this resulted in Essex common stock plus the $12.33 in casha value of $48.67 per share) represented approximately $56.21 for each share of BRE common stock.  The valuestock which is the equivalent 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$164 per share 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.issued.

 
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 of Real Estate

Acquisitions are an important component of the Company’s business plan, and during 2013,2014, the Company and its co-investments acquired ownership interests in eightseven communities comprising of 1,4722,578 units for $462.5$640.7 million.  The following is a summary of 20132014 acquisitions ($ in millions):
 

 
 
 
  Essex Ownership 
 
 
  Purchase 
Property NameLocation Units  Percentage Ownership Date  Price 
Fox Plaza ApartmentsSan 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 
AnnalieseSeattle, WA  56   100%EPLP  Q1 2013   19.0 
Gas Company LoftsLos Angeles, CA  251   50%Wesco III  Q2 2013   71.0 
Regency at Mountain ViewMountain View, CA  142   50%Wesco III  Q2 2013   42.5 
Slater 116Kirkland, WA  108   100%EPLP  Q3 2013   29.6 
DomainSan Diego, CA  379   100%EPLP  Q4 2013   121.0 
VoxSeattle, WA  58   100%EPLP  Q4 2013   22.2 
Total 2013  1,472     
 
     $462.5 
2
Table of Contents

      Essex Ownership     Purchase
Property Name Location Units Percentage Ownership Quarter in 2014 Price
The Avery Los Angeles, CA 121
 100% EPLP Q1 2014 $35.0
Piedmont Bellevue, WA 396
 100% EPLP Q2 2014 76.8
Collins on Pine Seattle, WA 76
 100% EPLP Q2 2014 29.2
Paragon Fremont, CA 301
 100% EPLP Q3 2014 111.0
Apex Milpitas, CA 366
 100% EPLP Q3 2014 150.0
Ellington at Bellevue Bellevue, WA 220
 100% EPLP Q3 2014 58.7
Palm Valley (1) San Jose, CA 1,098
 50% JV Q4 2014 180.0
Total 2014 2,578
  
     $640.7
 (1) The Palm Valley purchase price represents the Company's share of the property.
(1)The 147 unit apartment community was acquired in two phases for $96.0 million.  Approximately 75% was acquired in December 2012 with the remainder in January 2013.


Dispositions of Real Estate

As part of its strategic plan to own quality real estate in supply-constrained markets, the Company continually evaluates all the communities and sells those which no longer meet its strategic criteria.  The Company may use the capital generated from the dispositions to invest in higher-return communities or other real estate investments, or repay unsecured and line of credit debts.  The Company believes that the sale of these communities will not have a material impact on its future results of operations or cash flows nor will their sale materially affect its ongoing operations.  Generally, the Company seeks to have any impact of earnings dilution resulting from these dispositions offset by the positive impact of its acquisitions, development and redevelopment activities.

During 2013,2014, the Company sold threefour apartment communities, Linden Square, Cambridge, Vista Capri, Coldwater Canyon, Mt. Sutro,and BrentwoodPinnacle Town Center for a total of $57.5$120.4 million, resulting in total gains on the transactions of $29.2$43.6 million.

During the second quarter 2013,2014, Essex Apartment Value Fund II, L.P. (“Fund II”) sold Morning RunDavey Glen for a total of $26.4 million. In connection with the sale, Fund II incurred a prepayment penalty on debt of which the Company’s pro rata share was $0.2 million. In the third quarter 2013, Fund II sold four properties$23.8 million and Alderwood Park for gross proceeds of $294.0$23.5 million. In connection with the sales, in the third quarter, Fund II incurred a prepayment penaltiespenalty on debt of which the Company’s pro rata share was $0.2 million. The total gains on the transactions in 20132014 were $146.8$23.3 million, of which the Company’s pro-rata share was $38.8 million net of internal disposition costs. The two remaining properties in the Fund II portfolio are expected to be sold in 2014.
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$6.6 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, 2013,2014, the Company had two consolidated development projects and nineten joint venture development projects comprised of 2,5012,920 units for an estimated cost of $1.1$1.5 billion, of which $407.0$420.0 million remains to be expended.

The Company defines the predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects.  As of December 31, 2013,2014, the Company had onevarious consolidated predevelopment project comprised of 200 units.projects.  The Company may also acquire land for future development purposes or sale.

The following table sets forth information regarding the Company’s development pipeline:pipeline ($ in millions):

 
  
 Essex  
  As of 12/31/13 ($ in millions) 
 
  
 Ownership  
  Incurred  Estimated 
Development PipelineLocation %  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 IISan Jose, CA  55%  289   87.1   97.3 
Epic - Phase IIISan Jose, CA  55%  200   28.0   96.3 
Connolly StationDublin, CA  55%  309   88.6   94.5 
The HuxleyWest Hollywood, CA  50%  187   71.8   75.0 
The DylanWest Hollywood, CA  50%  184   64.6   75.4 
Mosso I and Mosso IISan Francisco, CA  55%  463   191.2   250.0 
Park 20 (formerly Elkhorn)San Mateo, CA  55%  197   47.8   76.1 
One South MarketSan Jose, CA  55%  312   30.9   145.1 
The VillageWalnut Creek, CA  50%  49   36.3   81.0 
Total - Joint Venture Development Projects
 
      2,190   646.3   990.7 
 
 
                
Predevelopment Projects - Consolidated
 
                
City CentreMoorpark, CA  100%  200   11.6   11.6 
Other Projectsvarious  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 

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         As of
        12/31/2014
     Essex   Incurred Estimated
Development Pipeline Location Ownership% Units Project Cost 
Project Cost(1)
Development Projects - Consolidated          
MB 360 San Francisco, CA 100% 360
 $226
 $275
Radius Redwood City, CA 100% 264
 163
 172
Total - Consolidated Development Projects    
 624
 389
 447
Development Projects - Joint Venture    
  
  
  
Epic - Phase III San Jose, CA 55% 200
 64
 97
The Dylan West Hollywood, CA 50% 184
 78
 78
Mosso II San Francisco, CA 55% 282
 143
 150
Park 20 San Mateo, CA 55% 197
 74
 77
One South Market San Jose, CA 55% 312
 120
 145
The Village Walnut Creek, CA 50% 49
 60
 89
Emme Emeryville, CA 55% 190
 62
 62
Owens Pleasanton, CA 55% 255
 26
 89
Hacienda Pleasanton, CA 55% 251
 16
 86
Century Towers San Jose, CA 50% 376
 40
 172
Total - Joint Venture Development Projects    
 2,296
 683
 1,045
Predevelopment Projects - Consolidated    
  
  
  
Other Projects various 100% —
 45
 45
Total - Predevelopment Projects    
 —
 45
 45
Grand Total - Development and Predevelopment Pipeline    
 2,920
 $1,117
 $1,537

(1)Includes incurred costs and estimated costs to complete these development projects. For predevelopment projects, only incurred costs are included in estimated costs.
(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 of approximately $66.9 million.  The Company has a 50% interest in this joint venture.

Redevelopment Pipeline

The Company defines redevelopment pipeline as existing properties owned or recently acquired, which have been targeted for additional investment by the Company 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, 2013,2014, the Company had ownership interests in fivethree redevelopment communities aggregating 1,312963 apartment units with estimated redevelopment costs of $124.7$122.0 million, of which approximately $86.1$96.4 million remains to be expended.
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Long Term Debt

During 2013,2014, the Company repaid $103.7$24.1 million in secured debt includingof principal outstanding on its secured mortgage debt totaling $84.3 million at an average interest rate of 5.4% and $19.4 million of tax-exempt bonds.  In addition, the Company repaid $14.2 million of Mello Roos bonds related to one property.  The Company replaced the construction loan on Expo with a seven year, $45.0 million term loan. The loan has a variable interest rate of LIBOR plus 1.50% and in connection with the loan the Company entered into a $45.0 million interest rate swap to fix the rate to 3.7% for the entire seven year period.4.9%.

In April 2013,2014, the Company issued $300.0$400 million of 3.875% senior unsecured notes duethat mature in May 2024. The interest is payable semi-annually in arrears on May 1 2023 with a coupon rate of 3.25% per annum and is payable on May 1stand November 1st of each year, beginningcommencing November 1, 2013 (the 2023 Notes).2014 until the maturity date in May 2024. The 2023 Notes were offeredCompany used the net proceeds of this offering to investors at a pricerepay indebtedness under the Company’s $1.0 billion unsecured line of 99.152% of par value.  The 2023 Notes arecredit facility and for other 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.corporate purposes. The carrying value of the 20232024 Notes, net of discount was $297.7$397.2 million as of December 31, 2013.2014.


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In April 2014, the Company, assumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). The carrying value of the BRE Notes, net of premium, was $934.7 million as of December 31, 2014. Also, in connection with the Merger, the Company assumed approximately $711.3 million of secured debt with remaining loan terms ranging from one to seven years and a weighted average interest rate of 5.6%.

Bank Debt

As of December 31, 2013,2014, 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 BRE 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, exercisable at the Company's option. In January 2015, the facility maturity date was extended to December 31, 2018 with one 18-month extension, exercisable by the Company. The new facility carries an interest rate based 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 tiered rate structure tied to Fitch and S&P ratings on the credit facility of LIBOR plus 0.95%.

In January 2014, the Company reduced the pricing on its $350.0 million unsecured term loan by 15 basis points to LIBOR plus 1.05%. In December 2014, the Company repaid $125.0 million outstanding on this term loan.

Equity Transactions

During 2013,Essex issued approximately 23,067,446 shares of Essex common stock as Stock Consideration in the BRE merger. Excluding shares issued in connection with the BRE merger, during 2014, ESS issued 913,3442,964,315 shares of common stock at an average share price of $152.92$181.56 for proceeds of $138.4$534.0 million, net of fees and commissions.  During the first quarter of 20142015 through February 24, 2014,2015, ESS has issued 462,555636,021 shares of common stock at an average price of $162.97$224.76 for proceeds of $74.9$142.0 million, net of fees and commissions.  ESS contributed the net proceeds to the Operating Partnership and used the proceeds to pay down debt, fund redevelopment and development pipelines, fund acquisitions,external growth and for general corporate purposes.

WESCOCo-investments

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 contributed $150.0 millionentered into, and may continue in the future to Wesco I, and asenter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest in less than 100% of December 31, 2013, Wesco Ithe community or land owned nine apartment communities with 2,713 units with an aggregate carrying value of approximately $670 million.  Investments must meet certain criteria to qualify for inclusion indirectly by the joint venture or partnership. For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and both partners must approve any new acquisitionswill earn customary management fees and material dispositions. The Company records revenue for itsmay earn development, asset management, property management development,fees and redevelopment services when earned, andmay also earn a promote income when realized, if Wesco I exceeds certain financial return benchmarks.interest.

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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 millionalso made, and may continue in the future to Wesco III and, as of December 31, 2013, Wesco III owned three apartment communities with 657 units for an aggregate carrying value of approximately $164 million. Both partners must approve all major decisions including dispositions. The joint venture has an investment period of up to two years.make, preferred equity investments in various multifamily development projects. The Company records revenue for its asset management, property management, development, and redevelopment services when earned, and promote income when realized, if Wesco III exceeds certain financialearns a preferred rate of return benchmarks.on these investments.


OFFICES AND EMPLOYEES

The Company 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, 2013,2014, the Company had 1,1731,725 employees.

INSURANCE

The Company carries comprehensivepurchases general liability fire, extendedand all risk property, including loss of rent, insurance coverage and rental loss insurance for each of theits communities.  The Company also purchases limited earthquake, terrorism, environmental and flood insurance.  There are however, certain types of extraordinary losses such as, for example, losses from terrorismwhich may not be covered or earthquakes, for whichcould exceed coverage limits.  The insurance programs are subject to deductibles and self-insured retentions in varying amounts.  The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and all risk losses. As of December 31, 2014, PWI has cash and marketable securities of approximately $57.6 million, and is consolidated in the Company does not have insurance coverage.  Substantially allCompany's financial statements.


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All the communities are located in areas that are subject to earthquake activity.  The Company has established a wholly ownedevaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Throughindustry and property vulnerability based on structural evaluations of seismic consultants.  The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI 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 inand/or by purchasing seismic insurance. Since 2013, the Company has obtained limited third party seismicaccessed the commercial marketplace to purchase Earthquake insurance for certain properties.  
In addition, the Company carries other types of insurance coverage related to a variety of risks and exposures, including cyber-attack.  
Based 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 Company utilizes third-party seismic consultants for its acquisitions and may perform seismic upgrades to those acquisitions that are determined to have a higher level of potential loss from an earthquake.  The Company utilizes third-party loss models to help to determine its exposure.  The majority of the communities are lower density garden-style apartments which may be less susceptible to material earthquake damage.  The Company will continue to monitor third-party earthquake insurance pricing andmarket conditions, and may consider obtaining third-party coverage if it deems it cost effective.

Although the Company may carrychange or potentially eliminate insurance for potentialcoverages, or increase levels of self-insurance.  Further, we cannot assure you that the company will not incur losses, associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losseswhich could be material, due to uninsured risks, deductibles co-payments and self-insured retentions, and/or losses in excess of applicable insurance coverage and those losses may be material.limits.

COMPETITION

There are numerous housing alternatives that compete with the Company’s communities in attracting residents.  These include other apartment communities, condominiums and single-family homes.  If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing housing, rental rates and occupancy may drop which may have a material adverse effect on the Company’s financial condition and results of operations.

The Company faces competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities.  Some competitors are larger and have greater financial resources than the Company.  This competition may result in increased costs of apartment communities the Company acquires and or develops.

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WORKING CAPITAL

The Company believes that cash flows generated by its operations, existing cash and marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during 2014.  As noted above, in connection with the BRE merger, the Company obtained committed financing up to $1.0 billion which is available if needed to fund the cash portion of the purchase price.  The company is exploring several alternatives to fund the cash needs of the transaction including asset sales, joint ventures or new financing.2015.

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 the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

ENVIRONMENTAL CONSIDERATIONS

See the discussion under the caption, ““Risks Related to Real Estate Investments and Our Operations - The Company’s Portfolio may have environmental liabilities” in Item 1A, Risk Factors, for information concerning the potential effect of environmental regulations on 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 Company

The Company intends to continue to operate in a manner that will not subject it to regulation under the Investment Company Act of 1940. The Company has in the past five years and may in the future (i) issue securities senior to its common stock, (ii) fund acquisition activities with borrowings under its line of credit and (iii) offer shares of common stock and/or units of limited partnership interest in the Operating Partnership or affiliated partnerships as partial consideration for property acquisitions. The Company from time to time acquires partnership interests in partnerships and joint ventures, either directly or indirectly through subsidiaries of the Company, when such entities’ underlying assets are real estate.

The Company invests primarily in apartment communities that are located in predominantly coastal markets within Southern California, the San Francisco Bay Area, and the Seattle metropolitan area. The Company currently intends to continue to invest in apartment communities in such regions.  However, these practices may be reviewed and modified periodically by management.

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Item 1A.  Risk Factors
ITEM 1A: RISK FACTORS
For purposes of this section, the term “stockholders” means the holders of shares of Essex Property Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unit holders. You should carefully consider the following factors in evaluating our company, our properties and our business.
Our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause the our actual operating results to vary materially from recent results or from our anticipated future results.
Risk Factors RelatingRisks Related to the Proposed Merger with BRE
Real Investments and Our Operations
The exchange ratioGeneral real estate investment risks may adversely affect property income and the cash consideration will not be adjusted in the event of any change in the stock prices of either Essex or BREvalues..  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 Real estate investments 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 the 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.
risks. If the merger iscommunities do not completed,generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:
the general economic climate;
local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;
the attractiveness of the communities to tenants;
competition from other available housing;
rent control or stabilization laws or other laws regulating housing; and
the Company’s ability to provide for adequate maintenance and insurance.

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company. Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws). Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.
Short-term leases expose us to the effects of declining market rents.  Substantially all of our apartment leases are for a term of one year or less. Because these risks could materially affectleases generally permit the business, financial results and stock pricesresidents to leave at the end of Essex.
the lease term without penalty, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
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.  In 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 torealize the Combinedexpected benefits of its merger with BRE because of transition difficulties and other challenges. As a result of its merger with BRE Properties, Inc., the 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 Company has incurred substantial expenses related to the merger;
—the Combined Company expects to incur substantial expenses related to the merger;
the Company may be unable to integrate 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 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;
properties acquired pursuant to the merger are subject to property value reassessments by taxing authorities, which may in turn lead to property tax increases that are higher than anticipated;
—following the merger, the Combined Company may be unable to retain key employees;
the Company's future results will suffer if the Company does not effectively manage its expanded operations resulting from the merger; and
—the Combined Company’s anticipated level of indebtedness will increase upon completion of the merger and will increase the related risks Essex now faces;
joint ventures entered into in connection with the merger could be adversely affected by the Company’s lack of sole decision-making authority, its reliance on its joint venture partner’s financial condition and disputes between the Company and its joint venture partner. 
—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 Company's business and financial results.
We may pursue acquisitions, dispositions, investments and joint ventures, which could adversely affect our results of the Combined Company.
operations.If the proposed merger closes, there We may make acquisitions of and investments in businesses that offer complementary properties and communities to augment our market coverage, or enhance our property offerings, such as our recent acquisition of BRE. We may also enter into strategic alliances or joint ventures to achieve these goals. We cannot assure you that we will be additional risks relatingable to anidentify suitable acquisition, 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 mayalliance, or joint venture opportunities, that we will be affected by other factors inable to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, 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;

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our original estimates and assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition. From time to time, we may also divest portions of our business that are no longer strategically important or exit minority investments, which could materially affect our FFO, cash flows and results of operations.
—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.
These transactions or any other acquisitions or dispositions involve risks and uncertainties. For example, the integration of acquired businesses may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition property due diligence will have identified all material issues that might arise with respect to such acquired business and its properties.
Any acquisition may also cause us to assume liabilities and ongoing lawsuits, acquire goodwill and other non-amortizable intangible assets that will be subject to impairment testing and potential impairment charges, incur amortization expense related to certain intangible assets, increase our expenses and working capital requirements, and subject us to litigation, which would reduce our return on invested capital. In addition, if the businesses or properties that we acquire have a different pricing or cost structure than we do, such acquisitions may adversely affect our profitability and reduce our overall margin. Failure to manage and successfully integrate the acquisitions we make or to improve margins of these factorsthe acquired businesses and products could materially harm our business, operating results and margins. Any dispositions we may make may also result in ongoing obligations to us following any such divestiture, for example as a result of any transition services or indemnities we agree to provide to the purchaser in any such transaction, which may result in additional expenses and may adversely affect our financial condition and results of operation.
Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, would be dilutive to our existing stockholders. We also assumed a significant amount of debt in connection with our acquisition of BRE, which is secured by the substantial majority of the properties acquired. Any downgrades in our credit ratings associated with an acquisition could adversely affect Essex's common stock price and financial results.  Accordingly,our ability to borrow by resulting in more restrictive borrowing terms. As a result of the historical market prices and financial results of Essexforegoing, we also may not be indicative of these matters for the Combined Company after the merger.
The risks set forthable to complete acquisitions or other strategic transactions in the foregoing risk factors titled "Iffuture to 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”same extent as 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 referencepast, 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’all. These and other feesfactors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, 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 operationour business, financial condition and results of operations. All of the businessesabove factors apply to our acquisition of BREBRE.
National and Essex.regional economic environments can negatively impact the Company’s operating results. During the recent past, a confluence of factors has resulted in job losses, turmoil and volatility in the capital markets, and caused a national and global recession. The Company's forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the west coast states. In the event of another recession, the Company could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.
Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.
10Acquisitions of communities may fail to meet expectations. The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will fail to meet the Company’s expectations. The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company. The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to secure further lines of credit for new development or such lines of credit may be not available on advantageous terms.
Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results. The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including the following:
funds may be expended and management's time devoted to projects that may not be completed;

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construction costs of a project may exceed original estimates possibly making the project economically unfeasible;
Risks Relatingprojects may be delayed due to, Essex Property Trust, Inc. Regardlesswithout limitation, adverse weather conditions, labor or material shortage;
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 Whether
communities is also subject to the Proposed Mergergeneral risks associated with BRE is Consummated
real estate investments. For further information regarding these risks, please see the risk factor titled “General real estate investment risks may adversely affect property income and values.”
The Company depends on its key personnel.  The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers.  There is substantial competition for qualified personnel in the real estate industry and the loss of anygeographic concentration of the Company’s key personnelcommunities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results. The Company generated significant amounts of rental revenues for the year ended December 31, 2014, from the Company’s communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area. For the year ended December 31, 2014, 80% of the Company’s rental revenues were generated from communities located in California. This geographic concentration could present risks if local property market performance falls below expectations. The economic condition of these markets could adversely affect underlying asset values and the occupancy, property revenues, and expenses of the Company's communities. The financial results of major local employers also may impact the cash flow and value of certain of the communities. This could have ana negative impact on the Company’s financial condition and operating results, which could affect the Company’s ability to pay expected dividends to its stockholders and the Operating Partnership’s ability to pay expected distributions to unit holders.
Our property taxes could increase due to reassessment or property tax rate changes. Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Thus, our real estate taxes in the State of Washington could increase as a result of property value reassessments or increased property tax rates in that state. A current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value. However, under Proposition 13, property tax reassessment generally occurs as a result of a “change in ownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13to eliminate its application to commercial and industrial property and/or introduce split tax roll legislation. Such initiatives, if successful, would increase the assessed value and/or tax rates applicable to commercial property in California, including our apartment communities. An increase in the assessed value of our properties or our property tax rates could adversely impact our financial condition and results of operations.
Competition in the apartment community market may adversely affect operations and the rental demand for the Company’s communities. There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities and single-family homes that are available for rent in the markets in which the communities are located. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company.
CapitalCompany’s financial condition 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.operations. The Company has benefitedalso faces competition from borrowing from Fannie Maeother real estate investment trusts, businesses and Freddie Mac, and there are no assurances that theseother entities will lend to the Company in the future.  To the extent that the Company’s access to capitalacquisition, development 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, 2013, the Company had approximately $3.0 billionoperation of indebtedness (including $737.0 million of variable rate indebtedness, of which $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).  The 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 apartment communities;
—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.
The Company may not be able to refinance its indebtedness.apartment communities. This indebtedness includes secured mortgages, and the communities subject to these mortgages could be foreclosed upon or otherwise transferred to the lender.  This could cause the Company to lose income and asset value.  The Company may be required to refinance the debt at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness.
Debt financing of communitiescompetition may result in insufficient cash flow to service debt.  Where appropriate, the Company intends to continue to use leverage toan increase the ratein costs and prices of return on the Company’s investments and to provide for additional investmentsapartment communities that the Company could not otherwise make.  There is a risk that the cash flow from the communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended.  The Company may obtain additional debt financing in the future through mortgages on some acquires and/or all of the 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, 2013, the Company had 49 of its 139 consolidated communities encumbered by debt.  With respect to the 49 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities.  The holders of this indebtedness will have rights with respect to these communities and lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.
Rising interest rates may affect the Company’s costs of capital and financing activities and results of operationdevelops..  Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt.  Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities with positive economic returns on investment and the Company’s ability to refinance existing borrowings.
Interest rate hedging arrangements may result in losses.  Periodically, the Company has entered into agreements to reduce the risks associated with increases in interest rates, and may continue to do so. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to the Company if interest rates decline.  If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, the Company may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other.  Finally, nonperformance by the other party to the hedging arrangement may subject the Company to increased credit risks.  In order to minimize counterparty credit risk, the Company enters into hedging arrangements only with financial institutions that have a current rating of A or higher.
Bond compliance requirements may limit income from certain communitiescommunities.. At December 31, 2013,2014, the Company had approximately $167.6$179.2 million of variable rate tax-exempt financing. This tax-exempt financing provides for certain deed restrictions and restrictive covenants. The Company expects to engage in tax-exempt financings in the future. The Internal Revenue Code and rules and regulations thereunder impose various restrictions, conditions and requirements in 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. Certain state and local authorities may impose additional rental restrictions. These restrictions may limit income from the tax-exempt financed communities if the Company is required to lower rental rates to attract residents who satisfy the median income test. If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability.
General real estate investment risks may adversely affect property income and values.  Real estate investments are subject to a variety of risks.  If the communities do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected.  Income from the communities may be further adversely affected by, among other things, the following factors:
—the general economic climate;
—local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;
—the attractiveness of the communities to tenants;
—competition from other available housing; and
—the Company’s ability to provide for adequate maintenance and insurance.
As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company.  Income and real estate values also may be adversely affected by such factors as applicable laws (e.g., the Americans with Disabilities Act of 1990 and tax laws).  Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.
National and regional economic environments can negatively impact the Company’s operating results.  During recent years, a confluence of factors has resulted in job losses, turmoil and volatility in the capital markets, and caused a national and global recession.  The Company’s forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the western states.  In the event of another recession, the Company could incur reduction in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.

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Inflation/Deflation may affect rental rates and operating expenses.  Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.
Acquisitions of communities may fail to meet expectations.  The Company intends to continue to acquire apartment communities.  However, there are risks that acquisitions will fail to meet the Company’s expectations.  The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that is necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate.  The Company expects to finance future acquisitions,Investments in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company.  The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders.  If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to secure further lines of credit for new development or such lines of credit may be not available on advantageous terms.
Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results.  The Company pursues development and redevelopment projects and these projects generally require various governmentalmortgages and other approvals, which have no assurance of being received.  The Company’s development and redevelopment activities generally entail certain risks, including the following:
—funds may be expended and management’s time devoted to projects that may not be completed;
—construction costs of a project may exceed original estimates possibly making the project economically unfeasible;
—projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage;
—occupancy rates and rents at a completed project may be less than anticipated; 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 communities is also subject to the general risks associated with real estate investments.  For further information regarding these risks, please see the risk factor “General real estate investment risks may adversely affect property income and values.”
The geographic concentration of the Company’s communities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results.  The Company generated significant amounts of rental revenues for the year ended December 31, 2013, from the Company’s communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area.  For the year ended December 31, 2013, 82% of the Company’s rental revenues were generated from communities located in California.  This geographic concentration could present risks if local property market performance falls below expectations.  The economic condition of these markets could affect occupancy, property revenues, and expenses, from the communities and their underlying asset values.  The financial results of major local employers also may impact the cash flow and value of certain of the communities.  This could have a negative impact on the Company’s financial condition and operating results, whichsecurities could affect the Company’s ability to make distributions to stockholders. The Company may invest in securities related to real estate, which could adversely affect the Company’s ability to make distributions to stockholders. The Company 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 the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;
that interest rates payable on the mortgages may be lower than the Company’s cost of funds; and
in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage.

If any of the above were to occur, it could adversely affect cash flows from operations and the Company’s ability to make expected dividends to its stockholders and the Operating Partnership’s ability to paymake expected distributions to unit holders.
CompetitionCompliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy. A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction. Legislation or regulations adopted in the apartment community marketfuture 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 environmental and public health laws, regulations and ordinances we have been from time to time, and may be required in the future, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases naturally occurring substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for response costs, property damage, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination resulting from such releases. While the Company is unaware of any such response action required or damage claims associated with its existing properties which individually or in aggregate would have a materially adverse effect on our business, assets, financial condition or results of operations, potential future costs and damage claims may be substantial and could exceed any insurance coverage we may or may not have for such events. Further, the presence of such substances, or the failure to properly remediate the contamination, may adversely affect operationsour ability to borrow against, develop, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs. In connection with the ownership (direct or indirect), operation, management and development of our communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.
Investments in real property create a potential for environmental liabilities on the part of the owner of such real property. The Company carries certain limited insurance coverage for this type of environmental risk as to its properties; however, such coverage is not fully available for all properties and, as to those properties for which limited coverage is fully available it may not apply to certain claims arising from known conditions present on those properties. In general, in connection with the ownership, operation, financing, management and development of its communities, the Company may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities. The Company may also be subject to governmental fines and costs related to injuries to third persons and damage to their property.
Properties which we intend to acquire undergo a pre-acquisition Phase I environmental site assessment before acquisition intended to afford the Company protection against so-called “owner liability” under the primary federal environmental law, as well as further environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling except where conditions warranting such further assessment are identified and seller’s consent is obtained. While such assessments are conducted in accordance with applicable “appropriate inquiry" standards, no assurance can be given that all environmental conditions present will be discovered or that the full nature and extent of those conditions which are discovered will be adequately ascertained and quantified.

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In connection with our ownership, operation and development of communities, from time to time we undertake remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. The Company does so under appropriate environmental regulatory requirements with the objective of obtaining regulatory closure or a no further action determination that will allow for future use, development and sale of any impacted community.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the rental demandneed to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of the Company’s communities.  Thereproperty. The Company believes its mold policies and proactive response to address any known existence reduces its risk of loss from these cases; however, no assurance can be provided that the Company has identified and responded to all mold occurrences.
California has enacted legislation commonly referred to as "Proposition 65" requiring that "clear and reasonable" warnings be given to consumers who are numerous housing alternativesexposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke. Although the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that compete with the Company’s communitiesCompany 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 attracting residents.  These include other apartment communities and single-family homes that are available for rentseveral areas, particularly in the marketsSouthern California coastal areas. Methane is a non-toxic gas, but can be flammable and can be explosive at sufficient concentrations when in whichconfined spaces and exposed to an ignition source. Naturally-occurring, methane gas is regulated at the communities are located.  Ifstate and federal level as a greenhouse gas but is not otherwise regulated as a hazardous substance, however some local governments, such as the demand for the Company’s communities is reduced or if competitors developCounty of Los Angeles, have imposed requirements that new buildings install detection and/or acquire competing apartment communities, rental rates may drop,venting systems in areas where naturally occurring methane gas is known to be located and can accumulate. 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 Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.
We cannot assure you that costs or liabilities incurred as a result of environmental matters will not affect our ability to make distributions to stockholders, or that such costs or liabilities will not have a material adverse effect on our financial condition and results of operations; provided, however, the Company is unaware of any pending or threatened alleged claim resulting from such matters which maywould have a material adverse effect on the Company’s financial condition, and results of operations or cash flows.

Adverse changes in laws may affect the Company's liability relating to its properties and its operations.  The Company also faces competition from other Increases in real estate investment trusts, businessestaxes and other entitiesincome, service and transfer taxes cannot always be passed through to residents or users in the acquisition,form of higher rents, and may adversely affect the Company's cash available for distribution and its ability to make distributions to its stockholders and pay amounts due on its debt. Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, construction and operation of apartment communities.  This competitionsafety requirements, may result in an increase in costs and prices of apartment communities thatsignificant unanticipated expenditures, which could have a material adverse effect on the Company acquiresand its ability to make distributions to its stockholders and pay amounts due on our debt. For example, the California statute known as "SB375" provides that, in order to reduce greenhouse emissions, there should be regional planning to coordinate housing needs with regional transportation. Such planning could lead to restrictions on property development that adversely affect the Company. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing, as well as any lawsuits against the Company arising from such rent control or other laws, may reduce rental revenues or increase operating costs.
Risks Related to Our Indebtedness and Financings
Capital and credit market conditions may affect the Company’s access to sources of capital and/or develops.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 current balance sheet, the debt capacity available on the unsecured line of credit with a diversified bank group, access to the public and private placement debt markets and secured debt financing providers such as Fannie Mae and Freddie Mac provides some insulation from volatile capital markets.

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The price per share of the Company’s stock may fluctuate significantly.  The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation:
—regional, national and global economic conditions;
—actual or anticipated variations in the Company’s quarterly operating results or dividends;
—changes in the Company’s funds from operations or earnings estimates;
—issuances of common stock, preferred stock or convertible debt securities;
—publication of research reports about the Company or the real estate industry;
—the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);
—general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the Company’s stock to demand a higher annual yield from dividends;
—availability to capital markets and cost of capital;
—a change in analyst ratings or the Company’s credit ratings;
—terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; and
—Natural disasters such as earthquakes.
Many of the factors listed above are beyond the Company’s control.  These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.
The Company’s future issuances of common stock, preferred stock or convertible debt securities could adversely affect the market price of the Company’s common stock.  In order to finance the Company’s acquisition and development activities,Historically, the Company has issuedutilized borrowing from Fannie Mae and sold common stock, preferred stock and convertible debt securities.  For example, during 2013 and 2012,Freddie Mac. There are no assurances that these entities will lend to the Company issued and sold 0.9 million and 2.4 million shares of common stock for $138.4 million and $357.7 million, net of fees and commissions, respectively.  The Company may in the future sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., Liquidnet, Inc., and Mitsubishi UFJ Securities (USA), Inc., and Citigroup Global Markets Inc., and BNP Paribas Securities Corp.  Infuture.  Beginning in 2011, the Company issued 2,950,000 shareshas primarily utilized unsecured debt and has repaid secured debt at or near their respective maturity and has placed less reliance on agency mortgage debt financing. The Administration and lawmakers have proposed potential options for the future of 7.125% Series H Cumulative Redeemable Preferred Stock at a price of $25.00 per share for net proceeds of $71.2 million, net of costs and original issuance discounts.
In 2013, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as definedagency mortgage finance in the prospectus.  Future salesU.S. that could involve the phase out of common stock, preferred stockFannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or convertiblereduced or be disbanded or reorganized by the government, it would reduce our access to debt securities may dilute stockholder ownership in the Companycapital and could adversely affect the market price of the common stock.
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 themfinance or refinance existing indebtedness at competitive rates and it may adversely affect our ability to sell assets. In general, to the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing without corresponding change to investment cap rates) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could adversely impact the Company's financial standing and related credit rating.
Debt financing has inherent risks. At December 31, 2014, the Company had approximately $5.1 billion of indebtedness (including $660.6 million of variable rate indebtedness, of which $225.0 million is subject to interest rate swaps effectively fixing the interest rate and $153.2 million is subject to interest rate cap protection). The 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 apartment communities;
inability to comply with debt covenants could cause an acceleration of the maturity date; and
paying debt before the scheduled maturity date could result in prepayment penalties.

The Company may not be able to refinance its indebtedness. This indebtedness includes secured mortgages, and the communities subject to these mortgages could be foreclosed upon or otherwise transferred to the lender. This could cause the Company to lose income and asset value. The Company may be required to refinance the debt at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness.
Debt financing of communities may result in insufficient cash flow to service debt. Where appropriate, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to provide for additional investments that the Company could not otherwise make. There is a risk that the cash flow from the communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended (the “Code”). The Company may obtain additional debt financing in the future through mortgages on some or all of the communities. These mortgages may be recourse, non-recourse, or cross-collateralized.
Our ability to make payments on and to refinance our best interest, including restrictionsindebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to: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, 2014, the Company had 68 consolidated communities encumbered by debt. With respect to the 68 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities. The holders of this indebtedness will have rights with respect to these communities and lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.
—consummate a merger, consolidation or sale of all or substantially all of our assets; and
Rising interest rates may affect the Company’s costs of capital and financing activities and results of operation. Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt. Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities with positive economic returns on investment and the Company’s ability to refinance existing borrowings.
—incur additional secured and unsecured indebtedness.
Interest rate hedging arrangements may result in losses. Periodically, the Company has entered into agreements to reduce the risks associated with increases in interest rates, and may continue to do so. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to the Company if interest rates decline. If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, the Company may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the hedging arrangement may subject the Company to increased credit risks. In order to

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The instruments governing unsecured indebtedness require us to meet specifiedminimize counterparty credit risk, the Company enters into hedging arrangements only with financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amountsinstitutions that have a current rating of total indebtedness and secured indebtedness, leverage and certain investment limitations.  These covenants may restrict our ability to expandA 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.
higher.
A downgrade in ourthe Company's investment grade credit rating could materially and adversely affect ourits business and financial conditioncondition.. The Company plans to manage its operations to maintain its investment grade credit rating with a capital structure consistent with its current profile, but there can be no assurance that it will be able to maintain its current credit ratings. Any downgrades in terms of ratings or outlook by any of the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on its financial condition, results of operations and liquidity.
Changes in the Company’s financing policy may lead to higher levels of indebtedness. The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred. The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility, unsecured debt and senior unsecured bonds. If the Company changed this policy, the Company could incur more debt, which could result in a default under the Company's existing indebtedness, thereby causing such indebtedness to become due and payable, and an increase in debt service requirements that could adversely affect the Company’s financial condition and results of operations. Such increased debt could exceed the underlying value of the communities.
Risks Related to Our Organization and Ownership of Essex’s Stock
The Company depends on its key personnel.The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of any of the Company’s key personnel could have an adverse effect on the Company.
The price per share of the Company’s stock may fluctuate significantly. The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation:
regional, national and global economic conditions;
actual or anticipated variations in the Company’s quarterly operating results or dividends;
changes in the Company’s funds from operations or earnings estimates;
issuances of common stock, preferred stock or convertible debt securities;
publication of research reports about the Company or the real estate industry;
the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);
general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the Company’s stock to demand a higher annual yield from dividends;
availability to capital markets and cost of capital;
a change in analyst ratings or the Company’s credit ratings;
terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; and
natural disasters such as earthquakes.

Many of the factors listed above are beyond the Company’s control. These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.
The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflictsfuture issuances of interest.  The Company’s Chairman, George M. Marcus is not an employee ofcommon stock, preferred stock or convertible debt securities could adversely affect the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest.  Mr. Marcus owns interests in various other real estate-related businesses and investments.  He is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment and development firms.  Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI.  MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.
Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by the Company Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies.  Notwithstanding this agreement, Mr. Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company.  In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interestsmarket price of the Company’s stockholders.
common stock.The influence of executive officers, directors In order to finance the Company’s acquisition and significant stockholders may be detrimental to holders ofdevelopment activities, the Company has issued and sold common stock, preferred stock and convertible debt securities. For example, during the years ended .  As of December 31, 2014 and 2013 George M. Marcus,, the Chairman ofCompany issued 3.0 million (excluding shares issued in connection with the Company’s Board of Directors, wholly or partially owned 1.6BRE merger) and 0.9 million shares of common stock (including shares issuable upon exchangefor $534.0 million and $138.4 million, net of limited partnership interestsfees and commissions, respectively. The Company may in the Operating Partnership and certain other partnerships and assuming exercise of all vested options).  This represents approximately 4.3% of the outstandingfuture sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Jefferies LLC ("Jefferies"), J.P. Morgan Securities LLC ("JP Morgan"), Liquidnet, Inc., Mitsubishi UFJ Securities (USA), Inc., and UBS Securities LLC ("UBS").
In 2014, the Company’s common stock.  Mr. Marcus currently does not have majority control over the Company.  However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions.  Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders.
Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for certain amendments of the agreement and for certain extraordinary actions.  Through their ownership of limited partnership interests and their positionsCompany filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined in the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the Company.  Consequently, their influence could result in decisions that do not reflect the interestsprospectus. Future sales of all stockholders.
The voting rights ofcommon stock, 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 the Company’s outstanding shares of Series H Preferred Stock do not have any voting rights.  However, if full distributions are not made on outstanding Series H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock upon which like voting rights have been conferred, will have the right to elect two additional directors to serve on Essex’s Board of Directors.or convertible

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These voting rights continue until all distributionsdebt securities may dilute stockholder ownership in arrears and distributions for the current quarterly period on the Series H Preferred Stock have been paid in full.  At that time, the holders of the Series H Preferred Stock are divested of these voting rights, and the term of office of the directors so elected immediately terminates.
While any shares of the 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 Series H Preferred Stock:
—authorize or create any class or series of stock that ranks senior to the Series H Preferred Stock with respect to the payment of dividends, rights upon liquidation, dissolution or winding-up of the Company’s business; or
—amend, alter or repeal the provisions of the Company’s Charter, including by merger or consolidation, that would materially and adversely affect the rights of the Series H Preferred Stock; provided that in the case of a merger or consolidation, so long as the Series H Preferred Stock remains outstanding with the terms thereof materially unchanged or the holders of shares of Series H Preferred Stock receive shares of stock or other equity securities with rights, preferences, privileges and voting powers substantially similar to that of the Series H Preferred Stock, the occurrence of such merger or consolidation shall not be deemed to materially and adversely affect the rights of the holders of the Series H Preferred Stock.
These voting rights of the holders of the Series H Preferred Stock and of other preferred stock may allow such holders to impede or veto actions that would otherwise benefit the holders of the Company’s common stock.
The 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 the Company, George M. Marcus, who is the chairman of the Company, and MMC or any entity owned or controlled by Mr. Marcus and MMC.  Consequently, the five-year prohibition and supermajority vote requirement described above will not apply to any business combination between the Company, Mr. Marcus, or MMC.  As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland Business Combination Act.
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 the 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 the Company’s general partner interest in the Operating Partnership to another entity.  Such limitations on the Company’s ability to act may result in the 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, 2013, the limited partners held or controlled approximately 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.  The 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 the 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 contains other provisions that may delay, defer or prevent a transaction or a change in control that might be in the best interestmarket price of the Company’s stockholders.  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 Company’s joint ventures and joint ownership of communities and partial interests in corporations and limited partnerships could limit the Company’s ability to control such communities and partial interestsinterests.. Instead of purchasing and developing apartment communities directly, the 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 the Company’s business interests or goals, or be in a position to take action contrary to the Company’s instructions or requests, or its policies or objectives. Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk. Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ approval, or joint venture partners could take actions binding on the joint venture without its consent. A joint venture partner might fail to approve decisions that are in the Company’s best interest. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would have not have initiated such a transaction.
From time to time, the Company, through the Operating Partnership, invests in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing, financing, or managing real property. 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. The Company may also incur losses if any guarantees or indemnifications were made by the Company. The Company also owns properties indirectly under "downREIT" structures. The Company has, and in the future may, enter into transactions that could require the Company to pay the tax liabilities of partners, which contribute assets into downREITs, joint ventures or the Operating Partnership, in the event that certain taxable events, which are within the Company’s control, occur. Although the Company plans to hold the contributed assets or defer recognition of gain on sale pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue Code, the Company can provide no assurance that the Company will be able to do so and if such tax liabilities were incurred they could have a material impact on its financial position.
InvestmentsThe Company’s Chairman is involved in mortgages and other real estate securities could affectactivities and investments, which may lead to conflicts of interest. The Company’s Chairman, George M. Marcus is not an employee of the Company’s ability to make distributions to stockholders.  The Company, may investand is involved in securities related toother real estate activities and investments, which could adversely affectmay lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments. He is the Company’s ability to make distributions to stockholders.  TheChairman of the Marcus & Millichap Company may purchase securities issued by entities(“MMC”), which ownis a parent company of a diversified group of real estate service, investment and investdevelopment firms.  Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in mortgagesMMI.  MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.
Mr. Marcus has agreed not to divulge any confidential or unsecured debt obligations.  These mortgagesproprietary information that may be first, second or third mortgages that may or may not be insured or otherwise guaranteed.  In general, investmentsreceived by him in mortgages include the following risks:
—that the valuehis capacity as Chairman of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;
—the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;
—that interest rates payable on the mortgages may be lower than the Company’s cost of funds; and
—in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage.
If any of the above were to occur, it could adversely affect cash flows from operations and the Company’s ability to make expected dividends to stockholders 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 any of his affiliated companies and that he will absent himself from any and all resolutions by the Company's Board of Directors regarding any proposed acquisition and/or impactdevelopment of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies. Notwithstanding this agreement, Mr. Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company. In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of the Company’s investment strategystockholders.
The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock. .  A numberAs of federal, state and local lawsDecember 31, 2014, George M. Marcus, the Chairman of the Company’s Board of Directors, wholly or partially owned 1.6 million shares of common stock (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 costshares issuable upon exchange of buildings under construction.  Legislation or regulations adoptedlimited partnership interests in the future may impose further burdens or restrictions onOperating Partnership and certain other partnerships, indirectly held common shares and assuming exercise of all vested options), respectively.  Mr. Marcus currently does not have majority control over the CompanyCompany. However, he currently has, and likely will continue to have, significant influence with respect to improved access by disabled persons.  The coststhe election of compliance with these lawsdirectors and regulations may be substantial.
The Company’s Portfolio may have environmental liabilities.  Under various federal, state and local laws, ordinances and regulations, an ownerapproval or operatordisapproval 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 apartment communities for personal injury associated with ACMs.  In connection with the ownership (direct or indirect), operation, management and development of apartment communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.significant

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corporate actions. Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders.
Investments in real property create a potentialUnder the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for environmental liabilitiescertain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with the Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the partCompany. 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 the ownerCompany’s outstanding shares of Series H Preferred Stock do not have any voting rights. However, if full distributions are not made on outstanding Series H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock upon which like voting rights have been conferred, will have the right to elect two additional directors to serve on Essex’s Board of Directors.
These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the Series H Preferred Stock have been paid in full. At that time, the holders of the Series H Preferred Stock are divested of these voting rights, and the term of office of the directors so elected immediately terminates. While any shares of the 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 Series H Preferred Stock:
authorize or create any class or series of stock that ranks senior to the Series H Preferred Stock with respect to the payment of dividends, rights upon liquidation, dissolution or winding-up of the Company’s business; or
amend, alter or repeal the provisions of the Company’s Charter, including by merger or consolidation, that would materially and adversely affect the rights of the Series H Preferred Stock; provided that in the case of a merger or consolidation, so long as the Series H Preferred Stock remains outstanding with the terms thereof materially unchanged or the holders of shares of Series H Preferred Stock receive shares of stock or other equity securities with rights, preferences, privileges and voting powers substantially similar to that of the Series H Preferred Stock, the occurrence of such real property.merger or consolidation shall not be deemed to materially and adversely affect the rights of the holders of the Series H Preferred Stock.

These voting rights of the holders of the Series H Preferred Stock and of other preferred stock may allow such holders to impede or veto actions that would otherwise benefit the holders of the Company’s common stock.
The indentures governing our notes contain restrictive covenants that limit our operating flexibility. The indentures that govern our publicly registered notes contain financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to:
consummate a merger, consolidation or sale of all or substantially all of our assets; and
incur additional secured and unsecured indebtedness.

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

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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 the Company, George M. Marcus, who is the chairman of the Company, and MMC or any entity owned or controlled by Mr. Marcus and MMC. Consequently, the five-year prohibition and supermajority vote requirement described above will not apply to any business combination between the Company, Mr. Marcus, or MMC. As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland Business Combination Act.
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 the 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 the Company’s general partner interest in the Operating Partnership to another entity. Such limitations on the Company’s ability to act may result in the Company’s being precluded from taking action that the Board of Directors believes is in the best interests of the Company’s stockholders.
The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such preferred stock without the approval of the holders of the common stock. The Company carries certain limited insurance coveragemay 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 this type of environmental risk.  The Company has conducted environmental studies which revealed the presence of groundwater contamination at certain communities.  Such contamination at certain of these apartment communities was reported to have migrated on-site from adjacent industrial manufacturing operations.  The former industrial usersCompany’s stock or otherwise be in the best interests of the communities were identified asholders of common stock. Also, such a class of preferred stock could have dividend, voting or other rights that could adversely affect the sourceinterest of contamination.  holders of common stock.
The environmental studies notedCompany’s Charter contains other provisions that certain communities are located adjacent tomay delay, defer or possibly down gradient from sites with known groundwater contamination,prevent a transaction or a change in control that might be in the lateral limitsbest interest of the Company’s stockholders. The Charter contains ownership provisions limiting the transferability and ownership of shares of capital stock, which may extend onto such apartment communities.  The environmental studies also noted that at certainhave the effect of these apartment communities, contamination existed becausedelaying, 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 presencestock (other than qualified pension trusts which can acquire 9.9%). This may discourage tender offers that may be attractive to the holders of underground fuel storage tanks,common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock.
The Maryland General Corporation Law restricts the voting rights of shares deemed to be “control shares.” Under the Maryland General Corporation Law, “control shares” are those which, have been removed.  In general,when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges. Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporation Law, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in connectionthe future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporation Law not only to control shares which may be acquired in the future, but also to control shares previously acquired. If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporation Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.
The Company’s Charter and bylaws 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;

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the ownership, operation, financing, managementCompany’s board can fix the number of directors and developmentfill vacant directorships upon the vote of apartment communities,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.

A breach of the Company’s privacy or information security systems could materially adversely affect the Company’s business and financial condition. The protection of customer, employee, and company data is critically important to the Company. Our business requires us, including some of our vendors, to use and store personally identifiable and other sensitive information of its customers and employees. The collection and use of personally identifiable information is governed by federal and state laws and regulations. Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.
The security measures put in place by the Company, and such vendors, cannot provide absolute security, and the Company and our vendors' information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents due to employee error, malfeasance, or other vulnerabilities.  Any such incident could compromise the Company’s or such vendors' networks, and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed, corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm.  Moreover, if a data security incident or breach affects the Company’s systems or such vendors' systems or results in the unauthorized release of personally identifiable information, the Company’s reputation and brand could be materially damaged and the Company may be potentially liable for removalexposed to a risk of loss or clean-up costs, as well aslitigation and possible liability, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition.
In the third quarter of 2014, the Company discovered and reported that certain other costsof its computer networks containing personal and environmental liabilities.proprietary information were compromised by a cyber-intrusion. Based on information from our forensic investigation, the Company has confirmed that evidence exists of exfiltration of data on Company systems. The precise nature of the data has not yet been identified, and the Company does not presently have any evidence that data belonging to the Company has been misused.
After detecting unusual activity, the Company took immediate steps to assess and contain the intrusion and secure its systems. The Company retained independent forensic computer experts to analyze the impacted data systems and is consulting with law enforcement. The investigation into this cyber-intrusion is ongoing, and the Company is working as quickly as possible to identify whether any employee or resident data may also be subjectat risk.  As a precaution, the Company has purchased identity protection services for all current residents and employees.
As described in Note 16, "Commitments and Contingencies", of our notes to governmental fines and costsconsolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, on December 19, 2014, a punitive class action was filed against the Company in the U.S. District Court for the Northern District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the personally-identifying information of its residents. At this point, the Company is unable to predict the developments in, outcome of, and/or economic and/or other consequences of such pending litigation or future litigation or predict the developments in, outcome of, and/or other consequences arising as a result of any potential government inquiries related to injuries to persons and property.this matter.
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 Company has been sued for mold related mattersrecorded $1.6 million and has settled some, but not all,$2.8 million in cyber-intrusion expenses in the fourth quarter and year ended December 31, 2014, respectively, including legal fees, investigative fees, costs of such matters.  Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policiescommunications with the Company’s residents and pricing mold endorsements at prohibitively high rates.employees, and identity protection services.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies for promptly addressingexpects to incur additional costs as investigation and resolving reports of mold when it is detected,remediation efforts continue.  Such costs are not currently estimable but could be material to the Company’s future operating results.
Privacy and to minimize any impact mold mightinformation security risks have on residentsgenerally increased in recent years because of the property.  Theproliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. In light of this recent network intrusion, we have dedicated additional Company believes its mold policiesresources to strengthening the security of the Company’s computer systems.  In the future, the Company may be required to expend additional resources to continue to enhance the Company’s information security measures and/or to investigate and proactive response to addressremediate any known existence, reduces its risk of loss frominformation security vulnerabilities.  Despite these cases.  Theresteps, there can be no assurance that the Company has identified and respondedwill not suffer a similar data security incident in the future, that unauthorized parties will not gain access to all mold occurrences.  Liabilities resulting from such mold related matters are not expected to have a material adverse effectsensitive data stored on the Company’s systems, or that any such incident will be discovered in a timely manner.  Further, the

17

techniques used by criminals to obtain unauthorized access to sensitive data are often novel or change frequently; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures.
Employee theft or fraud could result in loss. Certain of our employees have access to, or signature authority with respect to, bank accounts or other company assets, which exposes us to the risk of fraud or theft. In addition, certain employees have access to key information technology (IT) infrastructure and to tenant and other information that is commercially valuable. Should any employee compromise our IT systems, or misappropriate tenant or other information, we could incur losses, including significant financial condition, results of operations or cash flows.reputational harm, from which full recovery cannot be assured. We also may not have insurance that covers any losses in full or that covers losses from particular criminal acts. As of December 31, 2013,2014, potential liabilities for mold and other environmental liabilitiestheft or fraud are not quantifiable and an estimate of possible loss cannot be made.
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 the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that the Company will not be adversely affected by litigation relating to Proposition 65.
Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas.  Methane is a non-toxic gas, but 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 Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.
The Company has almost no indemnification agreements from third parties for potential environmental clean-up costs at its communities.  The Company has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of environmental conditions or violations with respect to communities formerly owned by the Company.  No assurance can be given that existing environmental studies with respect to any of the communities reveal all environmental liabilities, that any prior owner or operator of an apartment community did not create any material environmental condition not known to the Company, or that a material environmental condition does not exist as to any one or more of the communities.  The Company has limited insurance coverage for the types of environmental liabilities described above.
The Company may incur general uninsured losseslosses.. The Company carries comprehensivepurchases general liability fire, extendedand all risk property, including Loss of Rent, insurance coverage and rental loss insurance for each of theits communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are however, certain types of extraordinary losses such as, for example, losses from terrorismwhich may not be covered or earthquakes, for whichcould exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and all risk losses. As of December 31, 2014, PWI has cash and marketable securities of approximately $57.6 million, and is consolidated in the Company does not have insurance coverage.  Substantially all ofCompany's financial statements.
All the communities are located in areas that are subject to earthquake activity. The Company has established a wholly ownedevaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Throughindustry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI 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 inand/or by purchasing seismic insurance. Since 2013, the Company has obtained limited third party seismicaccessed the commercial marketplace to purchase Earthquake insurance for certain high-density properties.

In addition, the Company carries other types of insurance coverage related to a variety of risks and exposures, including cyber-attack.

Based on selected assetsmarket conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, we cannot assure you that the company will not incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in which it holds an ownership interest in.excess of coverage limits.

Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed.
Adverse changesRisk of accidental death due to fire, natural disasters or other hazards. The accidental death of persons living in laws may affect our liability relatingcommunities due to our properties and our operations.  Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residentsfire, natural disasters or users in the form of higher rents, and may adversely affect our cash available for distribution and our ability to make distributions to our shareholders and pay amounts dueother hazards could have a material adverse effect on our debt.  Similarly, changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws affecting development, constructionbusiness and safety requirements,results of operations. Our insurance coverage may result in significant unanticipated expenditures,not cover all losses associated with such events, and we may experience difficulty marketing communities where such any such events have occurred, which could have a material adverse effect on usour business and our abilityresults of operations.
Any material weaknesses identified in the Company's internal control over financial reporting could have an adverse effect on the Company’s stock price. Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to make distributions to our shareholdersevaluate and pay amounts duereport on our debt.  In addition, future enactmentits internal control over financial reporting. If the Company identifies one or more material weaknesses in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenues or increase operating costs.
its financial reports, which in turn could have an adverse effect on the Company’s stock price.
Changes in the Company’s financing policysystem for establishing U.S. accounting standards may lead to higher levelsmaterially and adversely affect our reported results of indebtedness.operations. Accounting for public companies in the United States has historically been conducted in accordance with generally accepted accounting principles as in effect in the United States (“GAAP”). GAAP is established by the Financial Accounting Standards Board (the “FASB”), an independent body whose standards are recognized by the SEC as authoritative for publicly held companies. The Company has adoptedInternational Accounting Standards Board (the “IASB”) is a policyLondon-based independent board

18

established in 2001 and charged with the existing covenants requireddevelopment of International Financial Reporting Standards (“IFRS”). IFRS generally reflects accounting practices that prevail in Europe and in developed nations around the world.
We are monitoring the SEC’s activity with respect to maintain the Company’s unsecured lineproposed adoption of credit bank facility, unsecured debtIFRS by United States public companies. It is unclear at this time how the SEC will propose that GAAP and senior unsecured bonds.  The Company’s organizational documents do not limitIFRS be harmonized if the amount or percentageproposed change is adopted. In addition, switching to a new method of indebtedness that mayaccounting and adopting IFRS would be incurred.  If the Company changed this policy, the Company could incur more debt, resulting in an increased risk of defaulta complex undertaking. We would potentially need to develop new systems and controls based on the Company’s obligationsprinciples of IFRS. Since these are new endeavors, and the obligationsprecise requirements of the Operating Partnership, and an increase in debt service requirements that could adversely affectpronouncements ultimately to be adopted are not now known, the Company’smagnitude of costs associated with this conversion are uncertain.
We are currently evaluating the impact of the adoption of IFRS on our financial conditionposition and results of operations. Such increased debtevaluation cannot be completed, however, without more clarity regarding the specific IFRS standards that would potentially be adopted. Until there is more certainty with respect to the IFRS standards that could exceedbe adopted, prospective investors should consider that our conversion to IFRS could have a material adverse impact on our reported results of operations.
Tax Risks
There are various U.S. tax risks in connection with an investment in the underlying value of the communities.
Company and in Essex Portfolio, L.P.The Company is subject to various tax risks.  ESS has elected to be taxed as a REIT under the Internal Revenue Code. ESS’sThe Company’s qualification as a REIT (i) requires it to satisfy numerous requirements (some on an annual and quarterly basis)requirements, including income tests and asset tests, established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations, and (ii) involves the determination of various factual matters and circumstances not entirely within the Company’s control. Although ESSthe Company intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future. Future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect ESS’sthe Company’s ability to qualify as a REIT or adversely affect the Company’s stockholders. If ESSthe Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on the Company’s taxable income at corporate rates, and ESSthe Company would not be allowed to deduct dividends paid to its shareholdersstockholders in computing its taxable income. ESS mayThe Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which ESSthe Company failed to qualify. The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and ESSthe Company would no longer be required to make distributions to its stockholders.  Even if ESS continues to qualify as a REIT, it will continue to be subject to certain federal, state and local taxes on ESS’s  income and property.
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The Company has established several taxable REIT subsidiaries (“TRSs”). Despite its qualification as a REIT, the Company’sThe TRSs must pay U.S. federal income tax on their taxable income. While the Company will attempt to ensure that its dealings with its TRSs do not adversely affect ESS’sits REIT qualification, it cannot provide assuranceassurances that it will successfully achieve that result. Furthermore, itthe Company may be subject to a 100% penalty tax, or its TRSs may be denied deductions, to the extent its dealings withbetween the Company and its TRSs are not deemed to be arm’s length in nature. No assurances can be givenThe Company intends that the Company’sits dealings with its TRSs will be on an arm’s length in nature.basis. No assurances can be given, however, that the Internal Revenue Service will not challenge such dealings.
 
From time to time, the Company may transfer or otherwise dispose of some of its Properties.properties.  Under the Internal Revenue Code, any gain resulting from transfers of Propertiesproperties that the 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 the Company acquires properties for investment purposes, it does not believe that its occasional transfers or disposals of property areshould be treated as 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 the Company are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the Company would be required to pay a 100% penalty tax on any gain allocable to it from the prohibited transaction, and the Company’s ability to retain future gains onproceeds from real property sales may be jeopardized. Income from a prohibited transaction might adversely affect ESS’sthe Company’s ability to satisfy the income tests for qualification as a REIT for U.S. federal income tax purposes. Therefore, no assurances can be given that ESSthe Company will be able to satisfy the income tests for qualification as a REIT if the Company transferred or disposed of property in a transaction treated as a prohibited transaction.
 
Dividends received frompaid by REITs to U.S. stockholders that are individuals, trusts or estates are generally not eligible for the reduced tax rate applicable to be taxed at the preferential qualified dividend income ratesdividends received from non-REIT corporations (the current maximum rate on qualified dividends is 20%currently 23.8%) applicable to. U.S. individual, U.S.trust or estate stockholders who receive dividends from taxable subchapter C corporations.  With limited exceptions, dividends received by individual U.S. stockholders from the Companya REIT that are not designated as

19

capital gain dividends will continue to be taxed on such dividends at rates applicable to ordinary income which are as high as 39.6%rates (at a current maximum rate of 43.4%). This may cause investors to view REIT investments to be less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of stock in REITs, including the Company’s stock.

Non-U.S. investors that invest in the Company should be aware of the following U.S. federal income tax considerations in connection with such investment. First, distributions by the Company from its current and accumulated earnings and profits are subject to a 30% U.S. withholding tax in the hands of non-U.S. investors, unless the 30% may be reduced by an applicable income tax treaty. Such distributions may also be subject to a 30% withholding tax under the “Foreign Account Tax Compliance Act” (“FATCA”) unless a non-U.S. investor complies with certain requirements prescribed by FATCA. Second, distributions by the Company that are attributable to gains from dispositions of U.S. real property (“capital gain dividends”) will be treated as income that is effectively connected with a U.S. trade or business in the hands of a non-U.S. investor, such that a non-U.S. investor will have U.S. federal income tax payment and filing obligations with respect to capital gain dividends. Furthermore, capital gain dividends are subject to an additional 30% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a non-U.S. investor that is a corporation. Third, any gain derived by a non-U.S. investor on a disposition of such investor’s stock in the Company will subject such investor to U.S. federal income tax payment and filing requirements if the Company were not treated as a domestically-controlled REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s capital stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. The Company believes that it is a domestically-controlled REIT, but no assurances can be given in this regard. Even if the Company were not a domestically-controlled REIT, however, under a special exception non-U.S. investors should not have U.S. federal income tax payment and filing obligations on a disposition of their stock in the Company if (i) they did not own more than 5% of such stock at any time during the one-year period ending on the date of the disposition, and (ii) the Company’s stock continues to be regularly traded on an established securities market located in the United States. Non-U.S. investors should consult with their independent advisors as to the above U.S. tax considerations and other U.S. tax consequences of an investment in the Company’s stock, in light of their particular circumstances.

The Company believes that its operating partnership, Essex Portfolio, L.P., will continue to qualify to be treated as a partnership for U.S. federal income tax purposes. As a partnership, Essex Portfolio, L.P. is not subject to U.S. federal income tax on its income. Instead, each of its partners will be required to pay tax on such partner’s allocable share of the income of Essex Portfolio, L.P. No assurances can be given, however, that the Internal Revenue Service will not challenge Essex Portfolio, L.P.’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating Essex Portfolio, L.P. as a corporation for U.S. federal income tax purposes, the Company could fail to meet the income tests and/or the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of Essex Portfolio, L.P. to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for distribution to its partners.



Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s Portfolio as of December 31, 20132014 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 164239 apartment communities (comprising 34,07957,455 apartment units), of which 15,72527,125 units are located in Southern California, 10,49417,604 units are located in the San Francisco Bay Area, and 7,86012,174 units are located in the Seattle metropolitan area.  The Company’s apartment communities accounted for 97.5%99.0% of the Company’s revenues for the year ended December 31, 2013.2014.

Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue.  When calculating actual rents for occupied units and market rents for vacant units, delinquencies and concessions are not taken into account.  Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual

20

rental rates pursuant to leases and vacant units valued at estimated market rents.   The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.  Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to the Company’s calculation of financial occupancy.  Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market.  The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant units.  The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market.  The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.
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For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric.  While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.

Communities

The Company’s communities are primarily suburban garden-style communities and town homes comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land.  As of December 31, 2013,2014, the Company’s communities include 113163 garden-style, 4672 mid-rise, and 54 high-rise communities.  The communities have an average of approximately 208240 units, with a mix of studio, one, two and some three-bedroom units.  A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.
 
The Company hires, trains and supervises on-site service and maintenance personnel.  The Company believes that the following primary factors enhance the Company’s ability to retain tenants:
 
·located near employment centers;
·attractive communities that are well maintained; and
·proactive customer service.

Commercial Buildings

The Company’s corporate headquarters is located in two office buildings with approximately 31,90039,600 square feet located at 925/935 East Meadow Drive, Palo Alto, California.   The Company owns an office building with approximately 110,000107,720 square feet located in Irvine, California, of which the Company occupies approximately 7,1505,000 square feet at December 31, 2013.2014.  The Company owns Essex-Hollywood, a 35,00034,000 square foot commercial building and a 139,000138,915 square foot retail site in Santa Clara, California as future development sites that are currently 100% leased.

The following tables describe the Company’s Portfoliooperating portfolio as of December 31, 2013.2014. The first table describes the Company’s communities and the second table describes the Company’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.)


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      Rentable   Year  
Communities (1) Location Units Square Footage Year 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%
Park Viridian Anaheim, CA 320
 254,600
 2008 2014 96%
Bonita Cedars Bonita, CA 120
 120,800
 1983 2002 97%
Camarillo Oaks Camarillo, CA 564
 459,000
 1985 1996 96%
Camino Ruiz Square Camarillo, CA 160
 105,448
 1990 2006 97%

21
 
 
 
 
 
 
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 EncinoEncino, 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)

23
      Rentable   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
Enclave at Town Square (34) Chino Hills, CA 124
 89,948
 1987 2014 97%
The Heights I & II (34) Chino Hills, CA 332
 324,370
 2004 2014 96%
The Summit (5) Chino Hills, CA 125
 98,420
 1989 2014 96%
Pinnacle at Otay Ranch Chula Vista, CA 364
 384,192
 2001 2014 95%
Mesa Village Clairemont, CA 133
 43,600
 1963 2002 97%
Villa Siena Costa Mesa, CA 272
 262,842
 1974 2014 96%
Emerald Pointe Diamond Bar, CA 160
 134,816
 1989 2014 96%
Regency at Encino Encino, CA 75
 78,487
 1989 2009 96%
The Havens (34) Fountain Valley, CA 440
 414,040
 1969 2014 96%
Valley Park Fountain Valley, CA 160
 169,700
 1969 2001 98%
Capri at Sunny Hills (4) Fullerton, CA 100
 128,100
 1961 2001 97%
Haver Hill (5) Fullerton, CA 264
 224,130
 1973 2012 96%
Pinnacle at Fullerton Fullerton, CA 192
 174,336
 2004 2014 96%
Wilshire Promenade Fullerton, CA 149
 128,000
 1992 1997 96%
Montejo (4) Garden Grove, CA 124
 103,200
 1974 2001 97%
CBC Apartments Goleta, CA 148
 91,538
 1962 2006 97%
The Sweeps Goleta, CA 91
 88,370
 1967 2006 97%
416 on Broadway Glendale, CA 115
 126,782
 2009 2010 97%
Hampton Court Glendale, CA 83
 71,500
 1974 1999 95%
Hampton Place Glendale, CA 132
 141,500
 1970 1999 95%
Devonshire Hemet, CA 276
 207,200
 1988 2002 96%
Jefferson at Hollywood Hollywood, CA 270
 238,119
 2010 2014 94%
Huntington Breakers Huntington Beach, CA 342
 241,700
 1984 1997 94%
The Huntington Huntington Beach, CA 276
 202,256
 1975 2012 97%
Axis 2300 Irvine, CA 115
 170,714
 2010 2010 95%
Hillsborough Park La Habra, CA 235
 215,500
 1999 1999 97%
Village Green La Habra, CA 272
 175,762
 1971 2014 96%
The Palms at Laguna Niguel Laguna Niguel, CA 460
 362,136
 1988 2014 96%
Trabuco Villas Lake Forest, CA 132
 131,000
 1985 1997 98%
Madrid Apartments (6) Mission Viejo, CA 230
 228,099
 2000 2012 97%
Marbrisa Long Beach, CA 202
 122,800
 1987 2002 96%
Pathways Long Beach, CA 296
 197,700
 1975 (7) 1991 96%
5600 Wilshire Los Angeles, CA 284
 243,910
 2008 2014 95%
Alessio Los Angeles, CA 624
 552,716
 2001 2014 95%
The Avery (4) Los Angeles, CA 121
 129,393
 2014 2014 73%
Belmont Station Los Angeles, CA 275
 225,000
 2008 2008 97%
Bellerive Los Angeles, CA 63
 79,296
 2011 2011 97%
Bunker Hill Los Angeles, CA 456
 346,600
 1968 1998 92%
Catalina Gardens Los Angeles, CA 128
 117,585
 1987 2014 97%
Cochran Apartments Los Angeles, CA 58
 51,400
 1989 1998 97%
Kings Road Los Angeles, CA 196
 132,100
 1979 1997 95%
Gas Company Lofts (5) Los Angeles, CA 251
 226,666
 2004 2013 96%
Marbella, The Los Angeles, CA 60
 50,108
 1991 2005 97%
Pacific Electric Lofts (6) Los Angeles, CA 314
 277,980
 2006 2012 94%

22
Table of Contents
 
 
 
 
 
 
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, CA255
 
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   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
Park Catalina Los Angeles, CA 90
 72,864
 2002 2012 96%
Park Place Los Angeles, CA 60
 48,000
 1988 1997 97%
Regency Palm Court (5) Los Angeles, CA 116
 54,844
 1987 2014 96%
Santee Court Los Angeles, CA 165
 132,040
 2004 2010 97%
Santee Village Los Angeles, CA 73
 69,817
 2011 2011 97%
Tiffany Court Los Angeles, CA 101
 74,538
 1987 2014 98%
Wilshire La Brea Los Angeles, CA 478
 354,972
 2014 2014 65%
Windsor Court (5) Los Angeles, CA 95
 51,266
 1987 2014 96%
Windsor Court Los Angeles, CA 58
 46,600
 1988 1997 97%
Aqua at Marina Del Rey Marina Del Rey, CA 500
 479,312
 2001 2014 95%
Marina City Club (8) Marina Del Rey, CA 101
 127,200
 1971 2004 97%
Mirabella Marina Del Rey, CA 188
 176,800
 2000 2000 97%
Mira Monte Mira Mesa, CA 355
 262,600
 1982 2002 96%
Hillcrest Park Newbury Park, CA 608
 521,900
 1973 1998 96%
Fairways (9) Newport Beach, CA 74
 107,100
 1972 1999 95%
Muse North Hollywood, CA 152
 135,292
 2011 2011 97%
Candlewood North Northridge, CA 189
 166,910
 1964 2014 97%
Canyon Creek (34) Northridge, CA 200
 148,150
 1986 2014 95%
Country Villas Oceanside, CA 180
 179,700
 1976 2002 96%
Mission Hills Oceanside, CA 282
 244,000
 1984 2005 97%
Renaissance at Uptown Orange Orange, CA 460
 432,836
 2007 2014 96%
Mariners Place Oxnard, CA 105
 77,200
 1987 2000 98%
Monterey Villas Oxnard, CA 122
 122,100
 1974 1997 96%
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 92%
Monterra del Rey Pasadena, CA 84
 73,100
 1972 1999 92%
Monterra del Sol Pasadena, CA 85
 69,200
 1972 1999 92%
Stuart at Sierra Madre Villa Pasadena, CA 188
 168,630
 2007 2014 95%
Villa Angelina Placentia, CA 256
 217,600
 1970 2001 96%
Fountain Park Playa Vista, CA 705
 608,900
 2002 2004 97%
Highridge (4) Rancho Palos Verdes, CA 255
 290,200
 1972 (10) 1997 95%
Cortesia at Rancho Santa Margarita Rancho Santa Margarita, CA 308
 277,580
 1999 2014 95%
Pinnacle at Talega San Clemente, CA 362
 355,764
 2002 2014 96%
Allure at Scripps Ranch San Diego, CA 194
 207,052
 2002 2014 97%
Bernardo Crest San Diego, CA 216
 205,548
 1988 2014 97%
Cambridge Park San Diego, CA 320
 317,958
 1998 2014 96%
Carmel Creek San Diego, CA 348
 384,216
 2000 2014 96%
Carmel Landing San Diego, CA 356
 283,426
 1989 2014 96%
Carmel Summit San Diego, CA 246
 225,880
 1989 2014 97%
CentrePointe San Diego, CA 224
 126,700
 1974 (11) 1997 94%
Domain San Diego, CA 379
 345,044
 2013 2013 93%
Esplanade (34) San Diego, CA 616
 479,600
 1986 2014 96%
Montanosa San Diego, CA 472
 414,968
 1990 2014 96%

23
Table of Contents

 
 
 
 
 
 
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%
Windsor Ridge
 
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%
AnnalieseSeattle, WA
 
56
 
48,216
 
2009
 
2013
 
94%
VoxSeattle, 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   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
Summit Park San Diego, CA 300
 229,400
 1972 2002 96%
Essex Skyline at MacArthur Place (12) Santa Ana, CA 349
 512,791
 2008 2012 96%
Fairhaven (4) Santa Ana, CA 164
 135,700
 1970 2001 97%
Parkside Court (34) Santa Ana, CA 210
 152,400
 1986 2014 96%
Hope Ranch Collection Santa Barbara, CA 108
 126,700
 1965&73 2007 98%
Bridgeport Coast (35) Santa Clarita, CA 188
 168,198
 2006 2014 95%
Hidden Valley (13) Simi Valley, CA 324
 310,900
 2004 2004 97%
Meadowood Simi Valley, CA 320
 264,500
 1986 1996 96%
Pinnacle at MacArthur Place South Coast Metro, CA 253
 262,867
 2002 2014 97%
Shadow Point Spring Valley, CA 172
 131,200
 1983 2002 96%
The Fairways at Westridge (35) Valencia, CA 234
 223,330
 2004 2014 96%
Vistas of West Hills (35) Valencia, CA 220
 221,119
 2009 2014 96%
Allegro Valley Village, CA 97
 127,812
 2010 2010 96%
Lofts at Pinehurst, The Ventura, CA 118
 71,100
 1971 1997 98%
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 97%
The Huxley (29) West Hollywood, CA 187
 154,776
 2014 2014 67%
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%
    27,125

24,095,190
     95%
Northern California            
Belmont Terrace Belmont, CA 71
 72,951
 1974 2006 95%
Fourth & U Berkeley, CA 171
 146,255
 2010 2010 96%
The Commons Campbell, CA 264
 153,168
 1973 2010 96%
The Pointe at Cupertino (17) Cupertino, CA 116
 135,200
 1963 1998 94%
Connolly Station (36) Dublin, CA 309
 286,348
 2014 2014 93%
Avenue 64 Emeryville, CA 224
 196,896
 2007 2014 95%
Foster's Landing Foster City, CA 490
 415,130
 1987 2014 95%
Stevenson Place Fremont, CA 200
 146,200
 1971 1983 97%
Mission Peaks Fremont, CA 453
 404,034
 1995 2014 96%
Mission Peaks II Fremont, CA 336
 294,720
 1989 2014 96%
Paragon Apartments Fremont, CA 301
 267,047
 2013 2014 97%
Boulevard Fremont, CA 172
 131,200
 1978 (18) 1996 97%
Briarwood (6) Fremont, CA 160
 111,160
 1978 2011 96%
The Woods (6) Fremont, CA 160
 105,280
 1978 2011 96%
City Centre (35) Hayward, CA 192
 175,420
 2000 2014 97%
City View Hayward, CA 572
 462,400
 1975 (19) 1998 97%
Lafayette Highlands Lafayette, CA 150
 151,790
 1973 2014 96%
Sharon Green Menlo Park, CA 296
 328,024
 1970 2014 95%
Apex Milpitas, CA 366
 350,961
 2014 2014 96%
Regency at Mountain View (5) Mountain View, CA 142
 127,600
 1970 2013 95%
Bridgeport Newark, CA 184
 139,000
 1987 (20) 1987 97%
The Landing Jack London Sq Oakland, CA 282
 257,796
 2001 2014 95%
The Grand Oakland, CA 243
 205,026
 2009 2009 97%

24
Table of Contents

      Rentable   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
San Marcos Richmond, CA 432
 407,600
 2003 2003 97%
Bennett Lofts San Francisco, CA 165
 184,713
 2004 2012 86%
Fox Plaza San Francisco, CA 443
 230,017
 1968 2013 95%
Mosso I San Francisco, CA 181
 223,222
 2014 2014 32%
Park West San Francisco, CA 126
 90,060
 1958 2012 94%
101 San Fernando San Jose, CA 323
 296,078
 2001 2010 97%
Bella Villagio San Jose, CA 231
 227,511
 2004 2010 97%
Epic - Phase I & II (21) San Jose, CA 569
 472,236
 2013 2013 86%
Esplanade San Jose, CA 278
 279,000
 2002 2004 96%
Fountains at River Oaks San Jose, CA 226
 209,954
 1990 2014 96%
Museum Park San Jose, CA 117
 121,329
 2002 2014 96%
Palm Valley (29) San Jose, CA 1,098
 1,132,284
 2008 2014 97%
The Carlyle San Jose, CA 132
 129,200
 2000 2000 97%
The Waterford San Jose, CA 238
 219,600
 2000 2000 97%
Willow Lake San Jose, CA 508
 471,744
 1989 2012 95%
Lakeshore Landing San Mateo, CA 308
 223,972
 1988 2014 95%
Hillsdale Garden San Mateo, CA 697
 611,505
 1948 2006 97%
Deer Valley San Rafael, CA 171
 167,238
 1996 2014 97%
Bel Air San Ramon, CA 462
 391,000
 1988 1995 96%
Canyon Oaks San Ramon, CA 250
 237,894
 2005 2007 97%
Crow Canyon San Ramon, CA 400
 337,064
 1992 2014 96%
Foothill/Twins Creeks San Ramon, CA 132
 155,100
 1985 1997 95%
Mill Creek at Windermere San Ramon, CA 400
 381,060
 2005 2007 97%
Twin Creeks/Foothill San Ramon, CA 44
 51,700
 1985 1997 95%
1000 Kiely Santa Clara, CA 121
 128,486
 1971 2011 96%
Le Parc Santa Clara, CA 140
 113,200
 1975 1994 96%
Marina Cove (22) Santa Clara, CA 292
 250,200
 1974 (23) 1994 96%
Riley Square (6) Santa Clara, CA 156
 126,900
 1972 2012 95%
Villa Granada Santa Clara, CA 270
 238,841
 2010 2014 96%
Chestnut Street Apartments Santa Cruz, CA 96
 87,640
 2002 2008 98%
Harvest Park Santa Rosa, CA 104
 116,628
 2004 2007 96%
Bristol Commons Sunnyvale, CA 188
 142,600
 1989 1995 96%
Brookside Oaks (4) Sunnyvale, CA 170
 119,900
 1973 2000 95%
Lawrence Station Sunnyvale, CA 336
 297,188
 2012 2014 97%
Magnolia Lane (24) Sunnyvale, CA 32
 31,541
 2001 2007 95%
Magnolia Square (4) Sunnyvale, CA 156
 110,824
 1969 2007 95%
Montclaire Sunnyvale, CA 390
 294,100
 1973 (25) 1988 97%
Reed Square Sunnyvale, CA 100
 95,440
 1970 2011 95%
Solstice Sunnyvale, CA 280
 571,466
 2014 2014 87%
Summerhill Park Sunnyvale, CA 100
 78,500
 1988 1988 94%
Via Sunnyvale, CA 284
 309,421
 2011 2011 96%
Windsor Ridge Sunnyvale, CA 216
 161,800
 1989 1989 97%
Vista Belvedere Tiburon, CA 76
 78,300
 1963 2004 95%
Tuscana Tracy, CA 30
 29,088
 2007 2007 99%
Verandas (35) Union City, CA 282
 199,092
 1989 2014 97%
    17,604
 15,895,842
     95%
Seattle, Washington Metropolitan Area          

25
Table of Contents

      Rentable   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
Belcarra Bellevue, WA 296
 241,567
 2009 2014 96%
BellCentre Bellevue, WA 248
 181,288
 2001 2014 96%
Cedar Terrace Bellevue, WA 180
 174,200
 1984 2005 97%
Courtyard off Main Bellevue, WA 109
 108,388
 2000 2010 96%
Ellington at Bellevue Bellevue, WA 220
 165,794
 1994 2014 95%
Emerald Ridge Bellevue, WA 180
 144,000
 1987 1994 96%
Foothill Commons Bellevue, WA 388
 288,300
 1978 (26) 1990 95%
Palisades, The Bellevue, WA 192
 159,700
 1977 1990 97%
Park Highland Bellevue, WA 250
 224,750
 1993 2014 94%
Piedmont Bellevue, WA 396
 348,969
 1969 2014 94%
Sammamish View Bellevue, WA 153
 133,500
 1986 1994 97%
Woodland Commons Bellevue, WA 302
 217,878
 1978 (27) 1990 95%
Bothell Ridge (34) Bothell, WA 214
 167,370
 1988 2014 96%
Canyon Pointe Bothell, WA 250
 210,400
 1990 2003 95%
Inglenook Court Bothell, WA 224
 183,600
 1985 1994 96%
Pinnacle Sonata Bothell, WA 268
 343,095
 2000 2014 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 96%
Bridle Trails Kirkland, WA 108
 99,700
 1986 (28) 1997 97%
Corbella at Juanita Bay Kirkland, WA 169
 103,339
 1978 2010 96%
Evergreen Heights Kirkland, WA 200
 188,300
 1990 1997 95%
Slater 116 Kirkland, WA 108
 81,415
 2013 2013 93%
Montebello Kirkland, WA 248
 272,734
 1996 2012 95%
Aviara (16) Mercer Island, WA 166
 147,033
 2013 2014 94%
Laurels at Mill Creek Mill Creek, WA 164
 134,300
 1981 1996 97%
Parkwood at Mill Creek Mill Creek, WA 240
 257,160
 1989 2014 96%
The Elliot at Mukilteo (4) Mukilteo, WA 301
 245,900
 1981 1997 97%
Castle Creek Newcastle, WA 216
 191,900
 1995 1995 96%
Delano/Bon Terra Redmond, WA 126
 116,340
 2005 2011 98%
Elevation Redmond, WA 157
 138,916
 1986 2010 97%
Redmond Hill West (6) Redmond, WA 442
 350,275
 1985 2011 95%
Shadowbrook Redmond, WA 416
 338,880
 1986 2014 96%
The Trails of Redmond Redmond, WA 423
 376,000
 1985 2014 96%
Vesta (6) Redmond, WA 440
 381,675
 1998 2011 95%
Brighton Ridge Renton, WA 264
 201,300
 1986 1996 97%
Fairwood Pond Renton, WA 194
 189,200
 1997 2004 96%
Forest View Renton, WA 192
 182,500
 1998 2003 97%
Pinnacle on Lake Washington Renton, WA 180
 190,908
 2001 2014 96%
Annaliese Seattle, WA 56
 48,216
 2009 2013 95%
The Audrey at Belltown Seattle, WA 137
 94,119
 1992 2014 96%
Ballinger Commons (34) Seattle, WA 485
 407,253
 1989 2014 96%
The Bernard Seattle, WA 63
 43,151
 2008 2011 96%
Cairns, The Seattle, WA 100
 70,806
 2006 2007 96%

26
Table of Contents

      Rentable   Year  
Communities (1) Location Units Square Footage Year Built Acquired Occupancy(2)
Citywalk (34) Seattle, WA 102
 92,010
 1988 2014 96%
Collins on Pine Seattle, WA 76
 53,474
 2013 2014 98%
Domaine Seattle, WA 92
 79,421
 2009 2012 96%
Expo (29) Seattle, WA 275
 190,176
 2012 2012 95%
Fountain Court Seattle, WA 320
 207,000
 2000 2000 95%
Joule (30) Seattle, WA 295
 191,109
 2010 2010 96%
Taylor 28 Seattle, WA 197
 155,630
 2008 2014 97%
Vox Seattle, WA 58
 42,173
 2013 2013 95%
Wharfside Pointe Seattle, WA 142
 119,200
 1990 1994 93%
    12,174
 10,508,726
     96%
Pinnacle South Mountain (36) Phoenix, AZ 552
 569,876
 1988 2014 94%
Total/Weighted Average   57,455
 51,069,634
     95%

      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 39,600
 1988 / 1962 1997 / 2007 100%
6230 Sunset Blvd (32) Los Angeles, CA 1 34,000
 1938 2006 100%
17461 Derian Ave (33) Irvine, CA 8 107,720
 1983 2000 98%
Santa Clara Retail Santa Clara, CA 3 138,915
 1970 2011 100%
    13 320,235
     99%



Footnotes to the Company’s Portfolio Listing as of December 31, 20132014

(1)Unless otherwise specified, the Company has a 100% ownership interest in each community.
(2)For communities, occupancy rates are based on financial occupancy for the year ended December 31, 2013;2014; for the commercial buildings or properties which have not yet stabilized, or have insufficient operating history, occupancy rates are based on physical occupancy as of December 31, 2013.2014.  For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.
(3)The community is subject to a ground lease, which, unless extended, will expire in 2082.
(4)The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby EMC became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.
(5)This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.
(6)This community is owned by Wesco I.  The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.
(7)The Company completed a $10.8 million redevelopment in 2009.
(8)This community is subject to a ground lease, which, unless extended, will expire in 2067.
(9)This community is subject to a ground lease, which, unless extended, will expire in 2027.
(10)The Company completed a $16.6 million redevelopment in 2010.
(11)The Company is in the processlate phases of performing a $13.0 million redevelopment.
(12)The Company has a 97% interest and an executive vice president of the Company has a 3% interest in this community.
(13)The Company has a 75% member interest.
(14)The community is subject to a ground lease, which, unless extended, will expire in 2028.
(15)The Company completed a $12.0 million redevelopment in 2008.
(16)This community is owned by Fund II.  The Company hassubject to a 28.2% interestground lease, which, unless extended, will expire in Fund II which is accounted for using the equity method of accounting.2030.
(17)The Company is in the process of performing a $10.0 million redevelopment.

27
Table of Contents

(18)The Company completed an $8.9 million redevelopment in 2008.
(19)The Company completed a $9.4 million redevelopment in 2009.
(20)The Company completed a $4.6 million redevelopment in 2009.
(21)The Company has 55% ownership in this community.  The community is being developed in three phases with theone remaining two phasesphase currently under development.
(22)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 Company is in the process of performing a $14.1 million redevelopment.
(24)The community is subject to a ground lease, which, unless extended, will expire in 2070.
(25)The Company completed a $12.5 million redevelopment in 2009.
(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 redevelopment for a total cost of $15.4 million.
(28)The Company completed a $5.1 million redevelopment and completed construction of 16 units of the community’s 108 units in 2006.
(29)The Company has 50% ownership in this community.each of these communities which is accounted for using the equity method of accounting.
(30)The Company has 99% ownership in this community.
(31)The Company occupies 100% of this property.
(32)The property is leased through July 20142015 to a single tenant.
(33)The Company occupies 7%5% of space in this property.
(34)This community is owned by BEXAEW.  The Company has a 50% interest in BEXAEW which is accounted for using the equity method of accounting.
(35)This community is owned by Wesco IV. The Company has a 50% interest in Wesco IV which is accounted for using the equity method of accounting.
(36)The Company has a 55% ownership in this community. 

Item 3. Legal Proceedings

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 Company 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 Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any impact mold might have on residents of 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 Company’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 information, which regards lawsuits, other proceedings and claims, set forth and discussed  regarding  litigation relating to the merger transaction with BRE  in noteNote 16,  “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3.

TheIn addition to such matters referred to in said Note 16, the Company is subject to various other lawsuitslegal and/or regulatory proceedings arising in the normal course of its business operations. Such lawsuitsWe believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not expected to haveresult in a material adverse effect on the Company’s financial condition, results of operations or cash flows.


Item 4. Mine Safety Disclosures

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 

28

Quarter Ended High Low Close
December 31, 2014 $211.91
 $206.35
 $206.60
September 30, 2014 $180.65
 $178.27
 $178.75
June 30, 2014 $185.66
 $183.36
 $184.91
March 31, 2014 $171.70
 $166.95
 $170.05
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

The closing price of ESS stock as of February 24, 20142015 was $166.38.$223.17.
 
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 2561,551 as of February 24, 2014.2015.  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, 2014,2015, there were 45174 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, 2014, 2013, 2012, and 20112012 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%
28
  2014 2013 2012
Common Stock      
Ordinary income 70.03% 77.34% 70.58%
Capital gain 21.95% 17.64% 8.75%
Unrecaptured section 1250 capital gain 8.02% 5.02% 7.97%
Return of capital —% —% 12.70%
  100.00% 100.00% 100.00%
       
  2014 2013 2012
Series F, G, and H Preferred stock  
  
  
Ordinary income 70.03% 77.34% 80.85%
Capital gains 21.95% 17.64% 10.02%
Unrecaptured section 1250 capital gain 8.02% 5.02% 9.13%
  100.00% 100.00% 100.00%
Table of Contents

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 
 
            

29
Table of Contents

Year Ended Annual Dividend/Distribution Quarter Ended 2014 2013 2012
1995 $1.69
 March 31, $1.21 $1.21 $1.10
1996 $1.72
 June 30, $1.30 $1.21 $1.10
1997 $1.77
 September 30, $1.30 $1.21 $1.10
1998 $1.95
 December 31, $1.30 $1.21 $1.10
1999 $2.15
        
2000 $2.38
 Annual Dividend/Distribution $5.11 $4.84 $4.40
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
        
2011 $4.16
        

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 20142015 of $1.21$1.44 per share.  The dividend/distribution will be payable on March 31, 2014April 15, 2015 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.31, 2015.
 
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.
29

Securities Authorized for Issuance under Equity Compensation Plans

See the Company’s disclosure in the 20142015 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.

Issuance of Registered Equity Securities

In April 2014, Essex issued approximately 23,067,446 shares of Essex common stock as Stock Consideration in the BRE merger at an average price of $163.82.


30
Table of Contents

During 2013,2014, ESS sold 913,3442,964,315 shares of common stock for proceeds of $138.4$534.0 million, net of commissions, at an average price of $152.92.  $181.56.  During the first quarter of 20142015 through February 24, 2014,2015, ESS has issued 462,555636,021 shares of common stock at an average price of $162.97$224.76 for proceeds of $74.9$142.0 million, net of fees and commissions.  These sales were pursuant to a registration statement and ESS used the net proceeds from the stock offerings to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes.

Issuer Purchases of Equity Securities – Common Stock, Series G Cumulative Convertible Preferred Stock

In August 2007, ESS Board of Directors authorized a stock repurchase plan to allow ESS to acquire shares in an aggregate of up to $200 million.  ESS did not repurchase any shares during 2014, 2013 2012 and 2011.2012.  Since ESS announced the inception of the stock repurchase plan, ESS has repurchased and retired 816,659 shares fortotaling $66.6 million at an average stock price of $81.56 per share, including commissions as of December 31, 2013.2014.

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, 20082009 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 
  Period Ending
Index 12/31/2009
 12/31/2010
 12/31/2011
 12/31/2012
 12/31/2013
 12/31/2014
Essex Property Trust, Inc. 100.00
 142.12
 180.57
 194.12
 196.17
 290.34
NAREIT All Equity REIT Index 100.00
 127.95
 138.55
 165.84
 170.58
 218.38
S&P 500 100.00
 115.06
 117.49
 136.30
 180.44
 205.14
 

31
Table of Contents

(1) Common stock performance data is provided by SNL Financial.
30

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 Sales of Equity Securities
 
During the yearyears ended December 31, 2014 and 2013, the Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
 
On December 10, 2013,2014, Essex Portfolio, L.P. issued 50,50068,750 units under the 20142015 Long-Term Incentive Plan Award agreements to twelveeighteen senior executives of the Company for no cash consideration.
 
During the year ended December 31, 2014 and 2013, Essex Property Trust, Inc. issued an aggregate of 185,387 and 52,970 shares of its common stock upon the exercise of stock options.options, respectively. Essex Property Trust, Inc. contributed the proceeds from the option exercises of $11.0 million and $5.0 million to our Operating Partnership in exchange for an aggregate of 185,387 and 52,970 common OP Units, as required by the Operating Partnership’s partnership agreement.agreement, respectively.
 
During the year ended December 31, 2014 and 2013, Essex Property Trust, Inc. issued an aggregate of 126,931 and 7,211 shares of its common stock in connection with restricted stock awards for no cash consideration.consideration, respectively. For each share of common stock issued by Essex Property Trust, Inc. in connection with such awards, our operating partnership issued a common unit to Essex Property Trust, Inc. as required by the partnership agreement, for an aggregate of 126,931 and 7,211 units during the year ended December 31, 2013.2014 and 2013, respectively.

During the years ended December 31, 2014 and 2013, Essex Property Trust, Inc. issued and sold an aggregate of 2,964,315 and 913,344 shares of its common stock, respectively, pursuant to a registration statement and its equity distribution program. Essex Property Trust, Inc. contributed the net proceeds from these share issuances of $534.0 million and $138.4 million in exchange for an aggregate of 2,964,315 and 913,344 common OP Units, respectively, as required by the Operating Partnership's partnership agreement.
 
Item 6. Selected Financial Data
 
The following tables set forth summary financial and operating information for the Company and the Operating Partnership from January 1, 20092010 through December 31, 2013.2014.


32
31

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 
 
                    
  Years Ended December 31,
  2014 2013 2012 2011 2010
  ($ in thousands, except per share amounts)
OPERATING DATA:          
Rental and other property $959,958
 $602,003
 $526,696
 $460,660
 $400,841
Management and other fees from affiliates(1)
 9,347
 7,263
 8,457
 5,428
 3,836
           
Income before discontinued operations $134,438
 $140,882
 $127,653
 $46,958
 $47,424
Income from discontinued operations —
 31,173
 11,937
 10,558
 3,358
Net income 134,438
 172,055
 139,590
 57,516
 50,782
Net income available to common stockholders $116,859
 $150,811
 $119,812
 $40,368
 $33,764
Per share data:  
  
  
  
  
Basic:  
  
  
  
  
Income before discontinued operations available to common stockholders $2.07
 $3.26
 $3.10
 $0.94
 $1.03
Net income available to common stockholders $2.07
 $4.05
 $3.42
 $1.24
 $1.14
Weighted average common stock outstanding 56,547
 37,249
 35,032
 32,542
 29,667
Diluted:  
  
  
  
  
Income before discontinued operations available to common stockholders $2.06
 $3.25
 $3.09
 $0.94
 $1.03
Net income available to common stockholders $2.06
 $4.04
 $3.41
 $1.24
 $1.14
Weighted average common stock outstanding 56,697
 37,335
 35,125
 32,629
 29,734
Cash dividend per common share $5.11
 $4.84
 $4.40
 $4.16
 $4.13
 
 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  $5.43 
(1)Reclassifications have been made in prior periods to conform to the current year’s presentation.
  As of December 31,
  2014 2013 2012 2011 2010
  ($ in thousands)
BALANCE SHEET DATA:          
Investment in rental properties (before accumulated depreciation) $11,252,511
 $5,443,757
 $5,033,672
 $4,313,064
 $3,964,561
Net investment in rental properties 9,687,705
 4,188,871
 3,952,155
 3,393,038
 3,189,008
Real estate under development 434,371
 50,430
 66,851
 44,280
 217,531
Co-investments 1,036,411
 677,133
 571,345
 383,412
 107,840
Total assets 11,562,874
 5,186,839
 4,847,223
 4,036,964
 3,732,887
Total secured indebtedness 2,245,944
 1,404,080
 1,565,599
 1,745,858
 2,082,745
Total unsecured indebtedness 2,863,873
 1,629,444
 1,253,084
 615,000
 176,000
Redeemable noncontrolling interest 23,256
 —
 —
 —
 —
Cumulative convertible preferred stock —
 4,349
 4,349
 4,349
 4,349
Cumulative redeemable preferred stock 73,750
 73,750
 73,750
 73,750
 25,000
Stockholders' equity 6,022,672
 1,884,619
 1,764,804
 1,437,527
 1,149,946


33
32

  As of and for the years ended December 31,
  2014 2013 2012 2011 2010
  ($ in thousands, except per share amounts)
OTHER DATA:  
Funds from operations (FFO)(1):
          
Net income available to common stockholders $116,859
 $150,811
 $119,812
 $40,368
 $33,764
Adjustments:  
  
  
  
  
Depreciation and amortization 360,592
 193,518
 170,686
 152,543
 129,711
Gains not included in FFO, net of internal disposition costs (50,064) (67,975) (60,842) (7,543) —
Depreciation add back from unconsolidated co-investments and other, net 37,555
 23,377
 21,194
 14,804
 7,893
Funds from operations $464,942
 $299,731
 $250,850
 $200,172
 $171,368
Non-core items:  
  
  
  
  
Loss on early retirement of debt 268
 300
 5,009
 1,163
 —
Merger and acquisition costs 55,408
 5,445
 2,255
 1,231
 1,250
Gain on sale of marketable securities and note prepayment (886) (2,519) (819) (4,956) (12,491)
Co-investment promote income (10,640) —
 (2,299) —
 (500)
Income from early redemption of preferred equity investments (5,250) (1,358) —
 —
 —
Other items, net (2)
 (681) (1,503) —
 (831) 1,168
Core funds from operations (Core FFO) $503,161
 $300,096
 $254,996
 $196,779
 $160,795
Weighted average number of shares outstanding, diluted (FFO)(3)
 58,921
 39,501
 37,378
 34,861
 32,028
Funds from operations per share - diluted $7.89
 $7.59
 $6.71
 $5.74
 $5.35
Core funds from operations per share - diluted $8.54
 $7.60
 $6.82
 $5.64
 $5.02

(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.
 
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:
 
(a)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 depreciation charges required by GAAP do not reflect the underlying economic realities.

34

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 depreciation charges required by GAAP do not reflect the underlying economic realities.
(b)REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains from the sales and impairment losses of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.

Management has consistently applied the NAREIT definition of FFO to all periods presented.  However, other REITs in calculating FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.

(2)Other items, net are non-recurring in nature and include items such as gains on non-operating assets and tax related items and early redemption of preferred equity investments.items.

(3)Assumes conversion of all dilutive outstanding operating partnership interests in the Operating PartnershipPartnership.

Essex Portfolio, L.P. and Subsidiaries
33
  Years Ended December 31,
  2014 2013 2012 2011 2010
  ($ in thousands, except per unit amounts)
OPERATING DATA:          
Rental and other property $959,958
 $602,003
 $526,696
 $460,660
 $400,841
Management and other fees from affiliates(1)
 9,347
 7,263
 8,457
 5,428
 3,836
           
Income before discontinued operations $134,438
 $140,882
 $127,653
 $46,958
 $47,424
Income from discontinued operations —
 31,173
 11,937
 10,558
 3,358
Net income 134,438
 172,055
 139,590
 57,516
 50,782
Net income available to common unitholders $121,726
 $159,749
 $127,771
 $43,593
 $42,842
Per unit data:  
  
  
  
  
Basic:  
  
  
  
  
Income before discontinued operations available to common unitholders $2.07
 $3.27
 $3.11
 $0.95
 $1.04
Net income available to common unitholders $2.07
 $4.06
 $3.43
 $1.25
 $1.14
Weighted average common units outstanding 58,772
 39,380
 37,252
 34,774
 31,961
Diluted:  
  
  
  
  
Income before discontinued operations available to common unitholders $2.07
 $3.26
 $3.10
 $0.95
 $1.03
Net income available to common unitholders $2.07
 $4.05
 $3.42
 $1.25
 $1.14
Weighted average common units outstanding 58,921
 39,467
 37,344
 34,861
 32,028
Cash distributions per common unit $5.11
 $4.84
 $4.40
 $4.16
 $4.13
(1)Reclassifications have been made in prior periods to conform to the current year’s presentation.


35

Essex Portfolio, L.P. and Subsidiaries
  As of December 31,
  2014 2013 2012 2011 2010
  ($ in thousands)
BALANCE SHEET DATA:          
Investment in rental properties (before accumulated depreciation) $11,252,511
 $5,443,757
 $5,033,672
 $4,313,064
 $3,964,561
Net investment in rental properties 9,687,705
 4,188,871
 3,952,155
 3,393,038
 3,189,008
Real estate under development 434,371
 50,430
 66,851
 44,280
 217,531
Co-investments 1,036,411
 677,133
 571,345
 383,412
 107,840
Total assets 11,562,874
 5,186,839
 4,847,223
 4,036,964
 3,732,887
Total secured indebtedness 2,245,944
 1,404,080
 1,565,599
 1,745,858
 2,082,745
Total unsecured indebtedness 2,863,873
 1,629,444
 1,253,084
 615,000
 176,000
Redeemable noncontrolling interest 23,256
 —
 —
 —
 —
Cumulative convertible preferred interest —
 4,349
 4,349
 4,349
 4,349
Cumulative redeemable preferred interest 71,209
 71,209
 71,209
 71,209
 104,412
Partners' capital 6,073,433
 1,932,108
 1,811,427
 1,486,914
 1,284,515

 
 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 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 andApril 1, 2014, we completed the merger with 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.   For further details regarding the merger, can be foundsee the discussion set forth under the caption “Current Business Activities - Merger with BRE Properties, Inc.” in thePart I, Item 1 of this Annual Report on Form S-4 filed with the SEC on January 29, 201410-K, which is incorporated herein by reference.   The net assets and results of operations of BRE are included in other relevant documents that the Company files with the SEC, which are available freeour consolidated financial statements as of charge on the Company’s website at www.essexpropertytrust.com and on the SEC’s website at www.sec.gov.

April 1, 2014.  Certain statements below discuss the Company’s estimates of its 20142015 regional Same-Property revenues; these estimates are for Essex on a standalone basis, excluding the impact of the proposed merger with BRE.


OVERVIEW

ESS is a self-administered and self-managed REIT that acquires, develops, redevelops and manages apartment communities in selected residential areas located primarily in the West Coast of the United States.  ESS owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership.  ESS is the sole general partner of the Operating Partnership and, as of December 31, 2013,2014, had an approximately 94.6%96.7% general partner interest in the Operating Partnership.
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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.  The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, and disposition activities to markets that will optimize the performance of the portfolio.

As of December 31, 2013,2014, the Company had ownership interests in 164239 communities, comprising 34,07957,455 apartment units, and theunits.

The Company’s apartment communities are predominately located in the following major West Coast regions:


Southern California (Los Angeles, Orange, Riverside, San Diego, Santa Barbara, San Diego, and Ventura counties)
Northern California (the San Francisco Bay Area)
SeattleMetro (Seattle metropolitan area)

As of December 31, 2013,2014, the Company’s development pipeline was comprised of two consolidated projects under development, ten unconsolidated joint venture projects under development and various consolidated predevelopment projects aggregating 2,920 units, with total incurred costs of $1.1 billion, and estimated remaining project costs of approximately $0.4 billion for total estimated project costs of $1.5 billion. 


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As of December 31, 2014, the Company also had ownership interests in four commercial buildings (with approximately 315,900325,200 square feet).

As of December 31, 2013, the Company’s development pipeline was comprised of two consolidated projects under development, nine unconsolidated joint venture projects under development and one consolidated predevelopment project aggregating 2,701 units, with total incurred costs of $696.7 million, and estimated remaining project costs of approximately $407.0 million for total estimated project costs of $1.1 billion.  By region, the Company's operating results for 20132014 and 20122013 and projections for 20142015 new housing supply, job growth, and rental income are as follows:

Southern California Region:  As of December 31, 2013,2014, this region represented 46%47% of the Company’s consolidated apartment units.  During the year ended December 31, 2013,2014, revenues for “2013/2012“2014/2013 Same-Properties” (as defined below), or “Same-Property revenues,” increased 4.4%5.5% in 20132014 as compared to 2012.2013.  In 2014,2015, the Company expects new residential supply of 15,40017,950 multifamily and 10,50014,300 single family homes, which represents a total new multifamily supply of 0.7%0.8% and 0.5%0.6% of total housing stock, respectively.  The Company assumes an increase of 132,400150,000 jobs or 1.9%2.1%, and an increase in same-property revenues between 3.8%4.50% to 5.0%5.50% in 2014.2015.
 
Northern California Region:  As of December 31, 2013,2014, this region represented 32%31% of the Company’s consolidated apartment units.  Same-Property revenues increased 8.2%9.6% in 20132014 as compared to 2012.2013.  In 2014,2015, the Company expects new residential supply of 10,80011,400 multifamily and 5,2257,000 single family homes, which represents a total new multifamily supply of 1.3% and 0.7%0.8%, respectively, of total housing stock.  The Company assumes an increase of 73,00090,200 jobs or 2.5%2.9%, and an increase in same-property revenues between 6.3%8.25% to 7.8%9.25% in 2014.2015.
 
Seattle Metro Region: As of December 31, 2013,2014, this region represented 22%21% of the Company’s consolidated apartment units.  Same-Property revenues increased 7.7%7.5% in 20132014 as compared to 2012.2013.  In 2014,2015, the Company expects new residential supply of 8,5009,000 multifamily and 6,5007,500 single family homes, which represents a total new multifamily supply of 1.9% and 1.3%1.4%, respectively, of total housing stock.  The Company assumes an increase of 39,00043,300 jobs or 2.6%2.8%, and an increase in same-property revenues between 5.5%5.75% to 7.0%6.75% in 2014.2015.

The Company expects 20142015 Same-Property revenues to increase compared to 20132014 results, as renewal and new leases are signed at higher rents in 20142015 than 2013.2014.  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 compared2015 by 3% to 2013.4%.

The Company’s consolidated communities are as follows:
 As of As of
 December 31, 2014 December 31, 2013
 Apartment Units % Apartment Units %
Southern California22,168
 47% 13,855
 46%
Northern California14,789
 31% 9,431
 32%
Seattle Metro10,216
 21% 6,703
 22%
Other real estate assets(1)
552
 1% —
 —%
Total47,725
 100% 29,989
 100%

  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%
(1) Includes one property in Arizona. With the sale of Pinnacle South Mountain, executed in January 2015, the Company has exited the Arizona apartment market (see Note 17, "Subsequent Events" for details).

Co-investments including Fund II, Wesco Icommunities, developments under construction and Wesco III communities, andeight preferred equity interest co-investment communities are not included in the table presented above for both years.periods.

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RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 20132014 to the Year Ended December 31, 20122013

The Company’s average financial occupancies for the Company’s stabilized apartment communities or “2013/2012“2014/2013 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 20132014 and 2012) decreased2013) increased 10 basis points to 96.2% in 20132014 from 96.3%96.1% in 2012.2013.  Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue.  Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions.  Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents. 

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We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.

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 the 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 Company’s 2014/2013 Same-Property portfolio for financial occupancy for the years ended December 31, 2014 and 2013 is as follows:

 
Years ended
December 31,
 2014 2013
Southern California96.3% 96.1%
Northern California96.3% 96.1%
Seattle Metro96.0% 96.1%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2014/2013 Same-Properties.

  Number of 
Years Ended
December 31,
 Dollar Percentage
Property Revenues ($ in thousands)
 Properties 2014 2013 Change Change
2014/2013 Same-Properties:          
Southern California 58
 $266,917
 $253,007
 $13,910
 5.5%
Northern California 35
 218,014
 198,832
 $19,182
 9.6%
Seattle Metro 29
 114,962
 106,982
 7,980
 7.5%
Total 2014/2013 Same-Property revenues 122
 599,893
 558,821
 41,072
 7.3%
2014/2013 Non-Same Property Revenues (1)  
 79,978
 43,182
 36,796
 85.2%
2014 BRE Legacy Property Revenues (2)   280,087
 —
 280,087
  
Total property revenues  
 $959,958
 $602,003
 $357,955
 59.5%
(1) Includes eleven communities acquired after January 1, 2013, three sold communities and one redevelopment community.
(2) Includes 55 stabilized properties acquired in connection with the BRE merger on April 1, 2014, and two development communities in lease-up.
2014/2013 Same-Property Revenues increased by $41.1 million or 7.3% to $599.9 million for 2014 compared to $558.8 million in 2013.  The increase was primarily attributable to an increase in scheduled rents of $39.1 million as reflected in an increase of 7.1% in average rental rates from $1,619 per unit for 2013 to $1,734 per unit for 2014.  Scheduled rents increased in all regions by 5.2%, 9.5%, and 7.4% in Southern California, Northern California, and Seattle Metro, respectively.  Income from utility billings and other income increased by $2.2 million and $1.1 million, respectively in 2014 compared to 2013.  Financial occupancy increased 10 basis points in 2014 to 96.2% compared to 96.1% in 2013.

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2014/2013 Non-Same Property Revenues increased by $36.8 million or 85.2% to $80.0 million in 2014 compared to $43.2 million to 2013.  The increase was primarily due to revenue generated from twelve communities acquired or consolidated since January 1, 2013.

Management and other fees from affiliates increased $2.0 million or 28.7% to $9.3 million in 2014 compared to $7.3 million in 2013.  The increase is primarily due to the asset and property management fees earned from the Wesco III, Wesco IV, and BEXAEW co-investments formed during 2014. The increase in management fees was offset by a reduction of $1.2 million in asset and property management fees from the sale of two Fund II communities in 2014.

Property operating expenses, excluding real estate taxes increased $64.3 million or 46.3% in 2014 compared to 2013, primarily due to properties acquired in connection with the BRE merger and six other communities in 2014.  2014/2013 Same-Property operating expenses excluding real estate taxes, increased by $3.8 million or 3.0% in 2014 compared to 2013, due mainly to a $1.6 million increase in repairs and maintenance and a $1.3 million increase in utilities expense.

Real estate taxes increased $50.6 million or 88.3% in 2014 compared to 2013, due primarily to properties acquired in connection with the BRE merger and six other communities in 2014.  2014/2013 Same-Property real estate taxes increased by $2.3 million or 4.5% for 2014 compared to 2013 due to a $1.6 million or 15.6% increase in property taxes for Seattle Metro due to higher assessed values for 2014.

Depreciation and amortization expense increased by $168.2 million or 87.4% in 2014 compared to 2013, due to the acquisition of BRE and six other communities.  The increase is due to the capitalization of approximately $313.1 million in additions to rental properties through 2014, including $152.8 million spent on acquisition of and additions to real estate under development, $81.4 million spent on redevelopment, and $78.9 million spent on capital expenditures on rental properties.  Approximately $122.0 million in additions to rental properties were capitalized for 2013, including $17.8 million spent on acquisition of and additions to real estate under development, $47.3 million spent on redevelopment, and $56.9 million spent on capital expenditures on rental properties.

General and administrative expense increased $14.2 million or 53.2% in 2014 compared to 2013 primarily due to additional corporate employees from the BRE merger and $2.8 million in expenses related to the cyber-intrusion.

Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the BRE merger. The Company completed the merger with BRE on April 1, 2014. Merger and integration expenses were $53.5 million for 2014 and $4.3 million for 2013.

Interest expense increased $48.0 million or 41.2% in 2014, primarily due to additional debt assumed as part of the BRE merger, offset by an increase in capitalized interest from development and redevelopment projects.

Equity income from co-investments decreased by $16.0 million to $39.9 million in 2014 compared to $55.9 million in 2013.  The decrease was primarily due to the Company’s share of the gain on the sale of two Fund II communities of $6.6 million, promote income of $10.6 million, and income from early redemption of preferred equity investments of $5.3 million in 2014, compared to the Company's share of gain on the sale of five Fund II communities of $38.8 million, net of internal dispositions costs in 2013.

Comparison of Year Ended December 31, 2013 to the Year Ended December 31, 2012

The Company’s average financial occupancies for the Company’s stabilized apartment communities for “2013/2012 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2013 and 2012) decreased 10 basis points to 96.2% in 2013 from 96.3% in 2012.  The regional breakdown of the Company’s stabilized 2013/2012 Same-Property portfolio for financial occupancy for the years ended December 31, 2013 and 2012 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,
 2013 2012
Southern California96.1% 96.1%
Northern California96.3% 96.7%
Seattle Metro96.1% 96.1%

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The following table provides a breakdown of revenue amounts, including the revenues attributable to 2013/2012 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  $75,307   14.3%
  Number of 
Years Ended
December 31,
 Dollar Percentage
Property Revenues ($ in thousands)
 Properties 2013 2012 Change Change
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%

(1)  Includes fifteen communities acquired after January 1, 2012, two redevelopment communities, and three commercial buildings.

2013/2012 Same-Property Revenues increased by $30.5 million or 6.3% to $513.0 million for 2013 compared to $482.5 million in 2012.  The increase was primarily attributable to an increase in scheduled rents of $29.6 million as reflected in an increase of 6.3% in average rental rates from $1,502 per unit for 2012 to $1,597 per unit for 2013.  Scheduled rents increased in all regions by 4.1%, 8.4%, and 7.7% in Southern California, Northern California, and Seattle Metro, respectively.  Income from utility billings and other income increased by $1.0 million and $1.2 million, respectively in 2013 compared to 2012.  Occupancy decreased 10 basis points in 2013 to 96.2% compared to 96.3% in 2012.
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2013/2012 Non-Same Property Revenues increased by $44.9 million or 102% to $89.1 million in 2013 compared to $44.2 million to 2012.  The increase was primarily due to revenue generated from fifteen communities acquired or consolidated since January 1, 2012 (Annaliese, Ascent, Bennett Lofts, Domain, Domaine, Essex Skyline at MacArthur Place, Fox Plaza, Montebello, Park Catalina, Park West, Reed Square, Slater 116, The Huntington, Vox and Willow Lake).

Management and other fees from affiliatesincreased $0.2 decreased $1.2 million or 1.8%14.1% to $11.7$7.3 million in 2013 compared to $11.5$8.5 million in 2012.  The increasedecrease 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 communities since the fourth quarter of 2012. An additional four communities owned by Fund II were sold in 2013, and the remaining two communities are expected to be sold in 2014.2013.

Property operating expenses, excluding real estate taxes increased $14.9 million or 12.1% in 2013 compared to 2012, primarily due to the acquisition of fifteen communities.  2013/2012 Same-Property operating expenses excluding real estate taxes, increased by $3.6 million or 3.2% in 2013 compared to 2012, due mainly to a $1.4 million increase in repairs and maintenance, a $1.2 million increase in utilities expense, and a $0.9 million increase in administration costs.

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 property taxes for Seattle Metro due to higher assessed values for 2013, and an increase of 3.7% in property taxes for the majority of the properties located in California.

Depreciation and amortization expense increased by $23.2 million or 13.7% in 2013 compared to 2012, due to the acquisition of fifteen communities.  The increase is due to the capitalization of approximately $104.2$122.0 million in additions to rental properties through 2013, including $42.0$17.8 million spent on acquisition of and additions to real estate under development, $47.3 million spent on redevelopment, $21.2 million on improvements to recent acquisitions, $8.6 million on lessor required capital expenditures, and $5.3$56.9 million spent on revenue generating capital expenditures.expenditures on rental properties.  Approximately $92.0$121.2 million in additions to rental properties waswere capitalized for 2012, including $39.0$29.2 million spent on acquisitions of and additions to real estate under development, $46.6 million spent on redevelopment, $13.7and $45.4 million spent on improvements to recent acquisitions, and $7.7 million spentcapital expenditures on revenue generating capital expenditures.rental properties.

General and administrative expenseincreased $2.3$2.1 million or 9.8%8.6% in 2013 compared to 2012 primarily due tooffset by annual compensation increases for merit, investments in technology, and the addition of staff.


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Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the pending merger with BRE Properties, Inc. (“BRE”).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 $4.4$4.6 million or 4.3%4.1% in 2013,, primarily due to an increase in average outstanding debt for the funding of 2012 and 2013 acquisitions and costs incurred on the development pipeline.

Interest and other incomedecreased 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 infrom co-investmentsincreased 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 sale of five Fund II communities of $38.8 million, net of internal disposition costs, and $1.4 million income earned from the early prepayment of a 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 two communities in the second quarter of 2013. The increase in equity income in 2013 by the Wesco joint venture was offset by a decrease in income related to the sale of eight Fund II communities since the fourth quarter of 2012 including four communities sold in the third quarter of 2013.
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Loss on early retirement of debt, netwas $0.3 million for 2013 compared to $5.0 million in 2012. 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 prepayment of secured debt loans in 2013. The 2012 loss was due to the write-off of deferred financing costs and prepayment penalties related to the early termination of secured debt related to six communities.  The loss for 2012 also included the Company’s pro-rata share of the write-off of deferred financing costs and prepayment penalties incurred for the prepayment of the secured debt for the Essex Skyline joint venture and seven Fund II communities sold in 2012.

Income from discontinued operations for 2013 was $31.2 million and included gains of $29.2 million from the sales of Linden Square, Brentwood and Cambridge.  For 2012, income from discontinued operations was $11.9 million and included a gain of $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 operating results of the three communities sold in 2013 and the two communities sold in 2012.

Comparison of Year Ended December 31, 2012 to the Year Ended December 31, 2011

The Company’s average financial occupancies for the Company’s stabilized apartment communities for “2012/2011 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2012 and 2011) remained consistent at 96.3% for 2012 and 2011.  The regional breakdown of the Company’s stabilized 2012/2011 Same-Property portfolio for financial occupancy for the years ended December 31, 2012 and 2011 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%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2012/2011 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%

(1)  Includes thirteen communities acquired after January 1, 2011, one redevelopment community, five development communities, and three commercial buildings.

2012/2011 Same-Property Revenues increased by $29.5 million or 6.7% to $467.9 million in 2012 compared to $438.4 million in 2011.  The increase was primarily attributable to an increase in scheduled rents of $27.7 million as reflected in an increase of 6.5% in average rental rates from $1,393 per unit for 2011 to $1,483 per unit for 2012.  Scheduled rents increased in all regions by 3.8%, 9.5%, and 8.3% in Southern California, Northern California, and Seattle Metro, respectively.  Income from utility billings and other income increased by $1.2 million and $1.4 million, respectively in 2012 compared to 2011.  Occupancy was consistent between years at 96.3%.

2012/2011 Non-Same Property Revenues increased $36.5 million or 164% to $58.8 million in 2012 compared to $22.3 million in 2011.  The increase was primarily due to revenue generated from five development communities (Via, Allegro, Bellerive, Muse, and Santee Village), thirteen communities acquired or consolidated since January 1, 2011 (Bernard, 1000 Kiely, Delano/Bon Terra, Reed Square, Essex Skyline at MacArthur Place, Park Catalina, The Huntington, Montebello, Park West, Domaine, Ascent, Willow Lake, and Bennett Lofts).

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 $3.3 million in 2012 primarily due to $2.3 million of promote income earned from achieving certain performance hurdles related to the Essex Skyline co-investment and the sale of marketable securities for a gain of $0.8 million in 2012, compared to a 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 2012 compared to a loss of $0.5 million in 2011. The increase was primarily due to the Company’s pro-rata share of the gain of $29.1 million from the sale of seven properties owned by Fund II, and income of $13.5 million in 2012 compared to $3.5 million for 2011, related to the Company’s preferred equity investments made in 2011.  In the fourth quarter of 2011, the Company made a preferred equity investment in Wesco II which earned $9.0 million in 2012 compared to $0.5 million in 2011.

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 was due to the write-off of deferred financing costs and prepayment penalties related to the early termination of secured debt related to six communities. The loss for 2012 also included the Company’s pro-rata share of the write-off of deferred financing costs and prepayment penalties incurred for the prepayment of the secured debt for the Essex Skyline joint venture and seven Fund II communities sold in 2012. During 2011, the loss on early retirement of debt was due to the write-off of deferred financing costs related to the termination of the Company’s $250 million secured line of credit with Freddie Mac and mortgages paid-off before maturity in 2011.

Income from discontinued operations for 2012 was $11.9 million and included a gain of $9.8 million from the sale of Tierra del Sol/Norte and Alpine Country, net of internal disposition costs.  For 2011, income from discontinued operations was $10.6 million and included a gain of $7.5 million from the sale of Woodlawn Colonial and Clarendon, net of internal disposition costs. Discontinued operations for 2012 and 2011 reflect the operating results of the two communities sold in both 2012 and 2011.

Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for 2014, 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)
  For the year ended
  12/31/2014 12/31/2013 12/31/2012
Cash flow provided by (used in):      
Operating activities $492,983
 $304,982
 $267,499
Investing activities $(1,147,156) $(453,696) $(812,138)
Financing activities $520,610
 $148,599
 $550,356

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, 2013,2014, ESS owned an a 94.6%96.7% general partner interest and the limited partners owned the remaining 5.4%3.3% 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 Notesnotes to Consolidated Financial Statementsconsolidated financial statements included elsewhere

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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.
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Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rate Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa2/Stable, and BBB/Stable, respectively.

At December 31, 2013,2014, the Company had $18.5$25.3 million of unrestricted cash and cash equivalents and $90.1$117.2 million in marketable securities, of which $31.4$44.2 million were held available for sale.  The Company believes that cash flows generated by its operations, existing cash and 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 from the disposition of real estate are sufficient to meet all of the Company’s reasonably anticipated cash needs during 2014.2015.  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 the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

The Company has two lines of credit aggregating $625.0 million$1.03 billion as of December 31, 20132014 including a $600.0 million$1.0 billion unsecured line of credit.  As of December 31, 2013,2014, there was a $199.0$229.8 million balance on this unsecured line of credit with andan underlying interest rate of LIBOR plus 1.075%0.95%.  In January 2014,2015, the Company increased the capacity of this unsecured line of credit facility from $600.0 millionmaturity date was extended to $1.0 billion and included an accordion feature pursuant to which the Company could expand to $1.5 billion.  The new facility carries an interest rate of LIBOR plus 0.95%, based on the Company’s current credit ratings, and matures in December 201731, 2018 with one 18-month extension, option.exercisable by the Company. The Company also has a $25.0 million working capital unsecured line of credit agreement.  As of December 31, 2013,2014, there was a $20.4$16.6 million balance on this unsecured line with an underlying interest rate of LIBOR plus 1.075%0.95%.  This facility maturedmatures in January 2016.

In April 2014, and the Company, extendedassumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). The carrying value of the $25.0BRE Notes, plus premium, was $934.7 million working capitalas of December 31, 2014.

In April 2014, the Company issued $400.0 million of senior unsecured notes due on May 1, 2024 with a coupon rate of 3.875% per annum. The interest is payable semi-annually in arrears on May 1 and November 1 of each year, commencing November 1, 2014 until the maturity date of May 1, 2024. The Company used the net proceeds of this offering to repay indebtedness under the Company's $1.0 billion unsecured line of credit facility and for two additional years.   The pricing was reduced toother general corporate purposes.

As of December 31, 2014, the Company had $465.0 million of private placement unsecured bonds outstanding at an average interest rate of LIBOR plus 0.95%, based on the Company’s current credit ratings.4.5% with maturity dates ranging from March 2016 through August 2021.

DuringIn April 2013, the Company issued $300$300.0 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.maturity.  The Company used the net proceeds of this offering to repay indebtedness under the Company’s $600$600.0 million unsecured line of credit facility and for other general corporate and working capital purposes.

As of December 31, 2013, 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 January 2014, the 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%.

As of December 31, 2013, the Company’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 $465 million of unsecured bonds outstanding at an average interest rate of 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.

As of December 31, 2014, the Company had a $225.0 million unsecured term loan outstanding at a weighted average effective interest rate of 2.4%.  The term loan has a variable interest rate of LIBOR plus 1.05%. The Company has entered into interest rate swap contracts for a term of five years with a notional amount totaling $225.0 million, which effectively converted the interest rate on $225.0 million of the term loan to a fixed rate of 2.4%.

As of December 31, 2014, the Company’s mortgage notes payable totaled $2.2 billion which consisted of $2.1 billion in fixed rate debt with interest rates varying from 4.3% to 6.4% and maturity dates ranging from 2015 to 2021 and $179.2 million of

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tax-exempt variable rate demand notes with a weighted average interest rate of 1.8%. The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2040, and $153.2 million are subject to interest rate caps.

The Company’s unsecured line of credit and 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.  The Company was in compliance with the debt covenants as of December 31, 20132014 and 2012.2013.
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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$225.0 million that effectively fixed the interest rate on $300 million of the $350$225.0 million unsecured term loan at 2.29%2.4%.  These derivatives qualify for hedge accounting.
 
As of December 31, 20132014 the Company also had nine interest rate cap contracts totaling a notional amount of $156.9$153.2 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$153.2 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 par.

As of December 31, 20132014 and 2012,2013, the aggregate carrying value of the interest rate swap contracts was a liability of $2.7$1.8 million and $6.6$2.7 million, respectively. The aggregate carrying value of the interest rate cap contracts was zero on the balance sheets as of December 31, 20132014 and 2012.2013.

During the first quarter of 2011, the Company settled its remaining $20.0 million forward starting swap contract for $2.3 million which was appliedHedge ineffectiveness related 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, which is reported in current year income as interest expense was incurred duringnot significant for the years ended December 31, 2014, 2013 and 2012.

Issuance of Common Stock

During March 2013,In 2014, 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.

ESS has entered into equity distribution agreements with Cantor Fitzgerald & Co, KeyBanc Capital Markets Inc.Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Citigroup Global Markets Inc, Jefferies LLC ("Jefferies"), J.P. Morgan Securities LLC ("JP Morgan"), Liquidnet, Inc., Mitsubishi UFJ Securities(USA), Inc, and UBS Securities (USA), Inc., and Citigroup Global Markets Inc.  LLC ("UBS").  Pursuant to its equity distribution program, in 2014, ESS issued 2,964,315 shares of common stock for $534.0 million, net of fees and commissions, and in 2013, ESS issued 913,344 shares of common stock for $138.4 million, net of fees and commissions, and in 2012, ESS issued 2,404,096 shares of common stock for proceeds of $357.7$138.4 million, net of fees and commissions.  During the first quarter of 20142015 through February 24, 2014,2015, ESS has issued 462,555636,021 shares of common stock at an average price of $162.97$224.76 for proceeds of $74.9$142.0 million, net of fees and commissions.  Under this program, ESS may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to pay down debt, acquire apartment communities and fund the

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development pipeline.  As of February 24, 2014,2015, ESS may sell an additional 4,441,546413,979,566 shares under the current equity distribution program.
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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, 2013,2014, non-revenue generating capital expenditures totaled approximately $1,051$1,198 per unit. The Company expects to incur approximately $1,200 per unit in non-revenue generating capital expenditures for the year ending December 31, 2014.2015.  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.  The Company 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 20142015 and/or the funding thereof will not be significantly different than the Company’s current expectations.

Development and Predevelopment Pipeline

The Company defines development activities as new communities that are in various stages of active development, or the community is in lease-up and phases of the project are not completed.  As of December 31, 2013,2014, the Company had two consolidated development projects comprised of 311624 units with an estimated cost of $99.2$447.0 million of which $62.6$58.0 million remains to be expended, and nineten unconsolidated joint venture active development projects comprised of 2,1902,296 units with an estimated cost of $990.7 million,$1.0 billion, of which $344.4$362.0 million remains to be expended. The Company's share of these estimated remaining project costs is approximately $192.0 million.
 
The Company defines the predevelopment pipeline as proposed communities in negotiation or in the entitlement process with a high likelihood of becoming entitled development projects.  As of December 31, 2013, the Company had one consolidated joint venture predevelopment project aggregating 200 units.  The Company may also acquire land for future development purposes or sale.
 
The Company 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 Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company 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, 2013,2014, the Company had ownership interests in fivethree major redevelopment communities aggregating 1,312963 apartment units with estimated redevelopment costs of $124.7$122.0 million, of which approximately $86.1$96.4 million remains to be expended.

Alternative Capital Sources

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, 2013,2014, Wesco I owned nine apartment communities with 2,713 units with an aggregate carrying value of approximately $670$682.4 million.

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. During the first quarter of 2014, BRE contributed three assets to Wesco III. The Company has contributed $39.7 million to Wesco III and, as of December 31, 2013,2014, Wesco III owned threesix apartment communities with 657993 units for an aggregate carrying value of approximately $164$230.7 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 Wesco I or Wesco III exceeds certain financial return benchmarks.

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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 thethese two loans on Regency at Mountain View to be paidand Gas Company Lofts in the first quarter of 2014.January 2014 and April 2014, respectively.

On April 1, 2014, in connection with the merger, the Company acquired a 50% interest in Wesco IV LLC (“Wesco IV”) and a
50% interest in BEXAEW LLC (“BEXAEW”). Wesco IV and BEXAEW’s remaining 50% interest is owned by institutional partners. Wesco IV and BEXAEW expect to utilize debt targeted at approximately 50% and 60%, respectively, of the cost to acquire and improve real estate. Under the terms of Wesco IV’s and BEXAEW’s operating agreements, Essex is entitled to asset management, property management, development and redevelopment service fees. In addition, Essex is entitled to its 50% pro rata share of the income or loss generated by these entities and, upon the achievement of certain performance measures, is entitled to promote income. As of December 31, 2014, Wesco IV owned five apartment communities with 1,116 units with an aggregate carrying value of approximately $297.9 million. As of December 31, 2014, BEXAEW owned nine apartment communities with 2,723 units with an aggregate carrying value of approximately $519.2 million.

Contractual Obligations and Commercial Commitments

The following table summarizes the maturity or due dates of the Company’s contractual obligations and other commitments at December 31, 2013,2014, and the effect such obligations could have on the Company’s liquidity and cash flow in future 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 
  2015 
2016 and
2017
 
2018 and
2019
 Thereafter Total
Mortgage notes payable $94,580
 $240,164
 $885,881
 $941,526
 $2,162,151
Unsecured debt —
 715,000
 75,000
 1,800,000
 2,590,000
Lines of credit —
 16,577
 —
 229,814
 246,391
Interest on indebtedness (1) 188,481
 353,889
 286,471
 326,666
 1,155,507
Development commitments (including co-investments) 185,651
 63,319
 578
 —
 249,548
  $468,712
 $1,388,949
 $1,247,930
 $3,298,006
 $6,403,597

(1)Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2013.2014.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities (VIEs), the Company consolidates 1917 DownREIT limited partnerships (comprising eleventen communities).  The Company consolidates these entities because it is deemed the primary beneficiary.  The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $200.0 million and $196.6 million, respectively, as of December 31, 2014, and $194.9 million and $178.3 million respectively, as of December 31, 2013, and $201.1 million and $178.6 million respectively, as of December 31, 2012.2013.  Interest holders in VIEs consolidated by the Company 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 Company.  As of December 31, 2013,2014, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.  The Company defines critical accounting policies as those accounting policies that require the Company's management to exercise their most difficult, subjective and complex judgments.  The Company’s critical accounting policies relate principally to the following key areas: (i) accounting for business combinations; (ii) consolidation under applicable accounting standards of various entities; (ii)(iii) assessing the carrying values of the Company's real estate and investments in and advances to joint ventures and affiliates; and (iii)(iv) internal cost capitalization.  The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.


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The Company accounts for its business combinations, including the merger and other acquisitions of investments in real estate, in accordance with ASC 805-10, Business Combinations, which requires the acquired tangible and intangible assets and liabilities to be recorded at fair value, with excess purchase price, if any, recorded to goodwill. The Company must make significant assumptions in determining the fair value of the tangible and intangible assets and liabilities acquired and consideration transferred. The use of different assumptions in estimating the fair value could affect the measurement and timing of recognition of acquired assets and liabilities and related expenses.

The consideration transferred in a business combination is generally measured at fair value. For debt assumed by the Company, the fair value is determined using estimated market interest rates for debt with comparable terms in place at the time of the acquisition. For equity issued by the Company, the fair value is generally based on the fair value of the Company’s equity interests at the date of issuance.

The fair value of the tangible assets, which principally includes land and building, is determined first by valuing the property as a whole as if it were vacant, using stabilized net operating income and market specific capitalization rates. The fair value of the land and building is then recorded based on its estimated fair value.

In calculating the fair value of identified intangible assets of an acquired property, the in-place leases are valued based on in-place rent rates and estimated time and cost to lease a unit.

The initial purchase accounting is based on the Company’s preliminary assessment, which may differ when additional information becomes available. Subsequent adjustments made to the initial purchase accounting, if any, are made within the measurement period, which will be finalized within one year of the acquisition date.

The Company 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 Company performs an analysis to determine who is the primary beneficiary.  If the Company 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.
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The Company 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 Company 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 Company 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 Company 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.

Further, the Company evaluates whether its co-investments haveare other than temporary impairmenttemporarily impaired and, if so, records a write down.an impairment loss equal to the excess of the co-investments' carrying value over its estimated fair value.

The Company 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 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 officecorporate and community onsite costs that clearly relate to projects under development.

The Company 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”)


46

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.expenses.

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 

45
 2014 2013 2012
Earnings from operations$201,514
 $188,705
 $167,025
Adjustments: 
  
  
General and administrative40,878
 26,684
 24,573
Management and other fees from affiliates(9,347) (7,263) (8,457)
Depreciation and amortization360,592
 192,420
 169,173
Merger and integration expenses53,530
 4,284
 —
Acquisition and disposition costs1,878
 1,161
 2,215
Net operating income649,045
 405,991
 354,529
Less: Non Same-Property NOI(234,147) (26,073) (16,698)
Same-Property NOI$414,898
 $379,918
 $337,831
Table of Contents

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 Company's expectations, hopes, intentions, beliefs and strategies regarding the future.  Forward looking statements include statements regarding the Company's expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, statements regarding a potential increase of the quarterly dividend paid by ESS ,expectationexpectation as to the total projected costs 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 non-revenue generating capital expenditures, future acquisitions, the Company'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 property and growth trends in various geographic regions, statements regarding the Company’s expected 20142015 Same-Property revenue, and 20142015 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 Company 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 Company's current expectations, that there may be a downturn in the markets in which the Company'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 in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with the SEC which may cause the actual results, performance or achievements of the Company 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 Company assumes no obligation to update this information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

47


Interest Rate Hedging Activities

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 usesentered into interest rate swaps as part of its cash flow hedging strategy.  As of December 31, 2013,2014, the Company has entered into tenseven interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $300.0$225.0 million of the five-year unsecured term debt.  As of December 31, 2013,2014, the Company also had $167.6$189.2 million of variable rate indebtedness, of which $156.9$153.2 million is subject to interest rate cap protection.   All of the Company’s derivative instruments are designated as cash flow hedges, and the Company does not have any fair value hedges as of December 31, 2013.2014.  The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s derivative instruments used to hedge interest rates as of December 31, 2013.2014.   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 the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2013.2014.

 
 
  
  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 Estimated Carrying Value
    Maturity Estimate + 50 - 50
($ in thousands)
 Notional Amount Date Range Fair Value Basis Points Basis Points
Cash flow hedges:        
  
Interest rate swaps $225,000
 2016-2017 $(1,767) $148
 $(3,846)
Interest rate caps 153,239
 2015-2019 —
 50
 —
Total cash flow hedges $378,239
 2015-2019 $(1,767) $198
 $(3,846)
Table of Contents

Interest Rate Sensitive Liabilities

The Company 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 Company’s real estate investment portfolio and operations. The Company’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 Company 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 Company does not enter into derivative or interest rate transactions for speculative purposes.

The Company’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 has estimated that the fair value of the Company’s $2.30 billion and $2.13$4.4 billion of fixed rate debt at December 31, 2013 and 2012 respectively,2014, to be $2.33 billion and $2.24$4.6 billion.  Management has estimated the fair value of the Company’s $737.0 million and $692.9$660.6 million of variable rate debt at December 31, 2013 and 2012, respectively,2014, is $719.4 million and $671.7$656.3 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace ($ in thousands).
 
 
 For the Years Ended December 31, 
 
 2014  2015  2016  2017  2018  Thereafter 
 Total  Fair value 
 
 
  
  
  
  
  
 
 
  
 
Fixed rate debt $-  $67,461  $162,390  $222,731  $271,156  $1,572,764 
 $2,296,502  $2,329,482 
Average interest rate  -   5.2%  4.5%  5.5%  5.9%  5.0%
        
Variable rate debt $20,421  $199,000  $200,000  $150,000  $-  $167,601 (1)$737,022  $719,414 
Average interest rate  2.2%  2.2%  2.5%  2.5%  -   1.6%         
 For the Years Ended December 31,
 2015 2016 2017 2018 2019 Thereafter Total Fair value
Fixed rate debt$94,580
 $191,481
 $538,683
 $320,080
 $630,801
 $2,562,324
 $4,337,949
 $4,531,964
Average interest rate5.1% 4.5% 3.3% 5.5% 4.3% 3.9%  
  
Variable rate debt$—
 $216,577
 $25,000
 $—
 $239,814
 $179,202
(1)$660,593
 $656,345
Average interest rate—
 2.2% 2.2% —
 1.7% 1.9% 
 
  
 
(1)$156.9153.2 million subject to interest rate caps.


48

The table incorporates only those exposures that exist as of December 31, 2013;2014; it does not consider those exposures or positions that could arise after that date.  As a result, the 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.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.


Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Essex Property Trust, Inc.

As of December 31, 2013,2014, ESS carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, 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, ESS’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2013,2014, ESS’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by ESS in the reports 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 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 ESS’s internal control over financial reporting, that occurred during the quarter ended December 31, 2013,2014, that have materially affected, or are reasonably likely to materially affect, ESS’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

ESS’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). ESS’s management assessed the effectiveness of ESS’s internal control over financial reporting as of December 31, 2013.2014. In making this assessment, ESS’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”). ESS’s management has concluded that, as of December 31, 2013,2014, its internal control over financial reporting was effective based on these criteria. ESS’s independent registered public accounting firm, KPMG LLP, has issued an attestation report over ESS’s internal control over financial reporting, which is included herein.

Essex Portfolio, L.P.

As of December 31, 2013,2014, 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, 2013,2014, 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, 2013,2014, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

49


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, 2013.2014. 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, 2013,2014, its internal control over financial reporting was effective based on these criteria.
 
Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 20142015 Annual Meeting of Shareholders, under the heading “Board and Corporate Governance Matters,” to be filed with the SEC within 120 days of December 31, 2013.2014.

Item 11. Executive Compensation
 
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 20142015 Annual Meeting of Shareholders, under the headings “Executive Compensation and Other Information” and “Election of Directors – Governance, Board, and Committee Meetings: Compensation of Directors,” to be filed with the SEC within 120 days of December 31, 2013.2014.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 20142015 Annual Meeting of Shareholders, under the heading “Security Ownership of Certain Beneficial Owners and Management,” to be filed with the SEC within 120 days of December 31, 2013.2014.
 
Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 20142015 Annual Meeting of Shareholders, under the heading “Certain Relationships and Related Transactions,” to be filed with the SEC within 120 days of December 31, 2013.2014.


Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 20142015 Annual Meeting of Shareholders, under the headings “Report of the Audit Committee” and “Fees of KPMG LLP,” to be filed with the SEC within 120 days of December 31, 2013.2014.


50
49

PART IV

Item 15. Exhibits and Financial Statement Schedules
 
(A) Financial Statements
 
(1)   Consolidated Financial Statements of Essex Property Trust, Inc.
Page
 
Report of Independent Registered Public Accounting FirmF-1
F- 1
 
Consolidated Balance Sheets: As of December 31, 20132014 and 20122013
F-5F- 4
 
Consolidated Statements of Operations:Income: Years ended December 31, 2014, 2013, 2012, and 20112012
F-6F- 5
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2014, 2013, 2012, and 20112012F-7
F- 6
 
Consolidated Statements of Equity: Years ended December 31, 2014, 2013, 2012, and 20112012F-8
F- 7
 
Consolidated Statements of Cash Flows: Years ended December 31, 2014, 2013, 2012, and 20112012
F-9 10
 
Notes to Consolidated Financial Statements
F-17 21
 
(2)   Consolidated Financial Statements of Essex Portfolio, L.P.
 
Report of Independent Registered Public Accounting Firm
F-4 3
 
Consolidated Balance Sheets: As of December 31, 20132014 and 20122013
F-11F- 12
 
Consolidated Statements of Operations:Income: Years ended December 31, 2014, 2013, 2012, and 20112012
F-12F- 14
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2014, 2013, 2012, and 20112012F-13
F- 15
 
Consolidated Statements of Capital: Years ended December 31, 2014, 2013, 2012, and 20112012F-14
F- 16
 
Consolidated Statements of Cash Flows: Years ended December 31, 2014, 2013, 2012, and 20112012
F-15 19
 
Notes to Consolidated Financial Statements
F-17 21
 
(3)  Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2013.2014.F-47
F- 56
 
(4)   See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report.
 
(B) Exhibits
 
The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(3)(4) above.

51
F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Essex Property Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 20132014 and 2012,2013, and the related consolidated statements of operations,income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2013.2014. 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, 20132014 and 2012,2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013,2014, 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, 2013,2014, based on criteria established in Internal Control–Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2014March 2, 2015 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.

As discussed in note 2 to the consolidated financial statements, Essex Property Trust, Inc. changed its method for reporting discontinued operations in 2014 due to the adoption of FASB Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.

 
/S/ KPMG LLP
KPMG LLP
 
San Francisco, California
February 26, 2014March 2, 2015


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, 2013,2014, based on criteria established in Internal Control–Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Essex Property Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust, Inc.'s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013,2014, based on criteria established in Internal Control–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 Property Trust, Inc. and subsidiaries as of December 31, 20132014 and 2012,2013, and the related consolidated statements of operations,income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2013,2014, and our report dated February 26, 2014,March 2, 2015, expressed an unqualified opinion on those consolidated financial statements.
 

/S/ KPMG LLP
KPMG LLP
 
San Francisco, California
February 26, 2014March 2, 2015

F- 2
F-3

Report of Independent Registered Public Accounting Firm

The General Partner
Essex Portfolio, L.P.:

We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. (the Operating Partnership) and subsidiaries as of December 31, 20132014 and 2012,2013, and the related consolidated statements of operations,income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2013.2014. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

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, 20132014 and 2012,2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2013,2014, 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.

As discussed in note 2 to the consolidated financial statements, Essex Portfolio, L.P. changed its method for reporting discontinued operations in 2014 due to the adoption of FASB Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.


/S/ KPMG LLP
KPMG LLP

San Francisco, California
February 26, 2014March 2, 2015

F- 3
F-4

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 20132014 and 20122013
(Dollars in thousands, except share 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 

 2014 2013
ASSETS   
Real estate:   
Rental properties:   
Land and land improvements$2,426,496
 $1,083,552
Buildings and improvements8,826,015
 4,360,205
 11,252,511
 5,443,757
Less: accumulated depreciation(1,564,806) (1,254,886)
 9,687,705
 4,188,871
Real estate under development434,371
 50,430
Co-investments1,036,411
 677,133
Real estate held for sale, net56,300
 —
 11,214,787
 4,916,434
Cash and cash equivalents-unrestricted25,281
 18,491
Cash and cash equivalents-restricted70,139
 35,275
Marketable securities and other investments117,240
 90,084
Notes and other receivables24,923
 68,255
Prepaid expenses and other assets33,318
 29,268
Acquired in-place lease value47,747
 4,513
Deferred charges, net29,439
 24,519
Total assets$11,562,874
 $5,186,839
LIABILITIES AND EQUITY 
  
Mortgage notes payable$2,245,944
 $1,404,080
Unsecured debt2,617,482
 1,410,023
Lines of credit246,391
 219,421
Accounts payable and accrued liabilities142,135
 67,183
Construction payable30,892
 8,047
Dividends payable88,221
 50,627
Other liabilities32,485
 24,871
Total liabilities5,403,550
 3,184,252
Commitments and contingencies

 

Redeemable noncontrolling interest23,256
 —
Cumulative convertible 4.875% Series G preferred stock; $.0001 par value: 5,980,000 issued, and 0 and 178,249 outstanding—
 4,349
Equity: 
  
Common stock; $.0001 par value, 656,020,000 shares authorized; 63,682,646 and 37,421,219 shares issued and outstanding, respectively6
 4
Cumulative redeemable 7.125% Series H preferred stock at liquidation value73,750
 73,750
Excess stock; $.0001 par value, 330,000,000 shares authorized and no shares issued or outstanding—
 —
Additional paid-in capital6,651,165
 2,345,763
Distributions in excess of accumulated earnings(650,797) (474,426)
Accumulated other comprehensive loss, net(51,452) (60,472)
Total stockholders' equity6,022,672
 1,884,619
Noncontrolling interest113,396
 113,619
Total equity6,136,068
 1,998,238
Total liabilities and equity$11,562,874
 $5,186,839
See accompanying notes to consolidated financial statements.

F- 4
F-5

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of OperationsIncome
Years ended December 31, 2014, 2013 2012 and 20112012
(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 

 2014 2013 2012
Revenues:     
Rental and other property$959,958
 $602,003
 $526,696
Management and other fees from affiliates9,347
 7,263
 8,457
 969,305
 609,266
 535,153
Expenses: 
  
  
Property operating, excluding real estate taxes203,040
 138,736
 123,813
Real estate taxes107,873
 57,276
 48,354
Depreciation and amortization360,592
 192,420
 169,173
General and administrative40,878
 26,684
 24,573
Merger and integration expenses53,530
 4,284
 —
Acquisition and disposition costs1,878
 1,161
 2,215
 767,791
 420,561
 368,128
Earnings from operations201,514
 188,705
 167,025
Interest expense(164,551) (116,524) (111,888)
Interest and other income11,811
 11,633
 13,833
Equity income from co-investments39,893
 55,865
 41,745
Loss on early retirement of debt, net(268) (300) (5,009)
Gain on sale of real estate and land46,039
 1,503
 —
Gain on remeasurement of co-investment—
 —
 21,947
Income before discontinued operations134,438
 140,882
 127,653
Income from discontinued operations—
 31,173
 11,937
Net income134,438
 172,055
 139,590
Net income attributable to noncontrolling interest(12,288) (15,772) (14,306)
Net income attributable to controlling interest122,150
 156,283
 125,284
Dividends to preferred stockholders(5,291) (5,472) (5,472)
Net income available to common stockholders$116,859
 $150,811
 $119,812
Per share data: 
  
  
Basic: 
  
  
Income before discontinued operations available to common stockholders$2.07
 $3.26
 $3.10
Income from discontinued operations available to common stockholders—
 0.79
 0.32
Net income available to common stockholders$2.07
 $4.05
 $3.42
Weighted average number of shares outstanding during the year56,546,959
 37,248,960
 35,032,491
Diluted: 
  
  
Income before discontinued operations available to common stockholders$2.06
 $3.25
 $3.09
Income from discontinued operations available to common stockholders—
 0.79
 0.32
Net income available to common stockholders$2.06
 $4.04
 $3.41
Weighted average number of shares outstanding during the year56,696,525
 37,335,295
 35,124,921
See accompanying notes to consolidated financial statements.

F- 5

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2014, 2013 2012 and 20112012
(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 
 2014 2013 2012
Net income$134,438
 $172,055
 $139,590
Other comprehensive income (loss): 
  
  
Changes in fair value of cash flow hedges and reclassification to interest expense4,168
 12,614
 3,402
Changes in fair value of marketable securities6,302
 (1,556) 1,411
Reversal of unrealized gains upon the sale of marketable securities(886) (1,767) (1,082)
Total other comprehensive income9,584
 9,291
 3,731
Comprehensive income144,022
 181,346
 143,321
Comprehensive income attributable to noncontrolling interest(12,852) (16,274) (14,527)
Comprehensive income attributable to controlling interest$131,170
 $165,072
 $128,794

See accompanying notes to consolidated financial statements.

F- 6
F-7

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2014, 2013 2012 and 20112012
(Dollars and shares in thousands)
 Preferred stock Common stock 
Additional
paid-in
 
Distributions
in excess of
accumulated
 
Accumulated
other
comprehensive(loss) income,
 Noncontrolling  
 Shares Amount Shares Amount capital earnings net Interest Total
Balances at December 31, 20112,950
 $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 noncontrolling 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, 20122,950
 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: 
  
  
  
  
  
  
  
  

F- 7
 
 Preferred stock  Common stock  
Additional
paid-in
  
Distributions
in excess of
accumulated
  
Accumulated
other
comprehensive(loss) income,
  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 

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, 20132,950
 73,750
 37,421
 4
 2,345,763
 (474,426) (60,472) 113,619
 1,998,238
Net income—
 —
 —
 —
 —
 122,150
 —
 12,288
 134,438
Reversal of unrealized gains upon the sale of marketable securities—
 —
 —
 —
 —
 —
 (841) (45) (886)
Changes in fair value derivatives and amortization of settlement swaps—
 —
 —
 —
 —
 —
 3,721
 447
 4,168
Changes in fair value of marketable securities—
 —
 —
 —
 —
 —
 6,140
 162
 6,302
Issuance of common stock under:                 
Stock consideration in the Merger, net    23,067
 2
 3,774,085
     —
 3,774,087
Stock option and restricted stock plans—
 —
 218
 —
 11,024
 —
 —
 —
 11,024
Equity distribution agreements, net—
 —
 2,943
 —
 532,670
 —
 —
 —
 532,670
Equity-based compensation costs—
 —
 —
 —
 5,719
 —
 —
 6,153
 11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest—
 —
 —
 —
 (19,823) —
 —
 (1,067) (20,890)
Changes in the redemption value of redeemable noncontrolling interest—
 —
 —
 —
 312
 —
 —
 —
 312
Conversion of Series G preferred stock—
 —
 34
 —
 4,349
 —
 —
 —
 4,349
Contributions from noncontrolling interest—
 —
 —
 —
 —
 —
 —
 1,419,816
 1,419,816
Retirement of noncontrolling interest—
 —
 —
 —
 —
 —
 —
 (1,419,816) (1,419,816)
Distributions to noncontrolling interest—
 —
 —
 —
 —
 —
 —
 (17,069) (17,069)

F- 8

Redemptions of noncontrolling interest—
 —
 —
 —
 (2,934) —
 —
 (1,092) (4,026)
Common and preferred stock dividends declared—
 —
 —
 —
 —
 (298,521) —
 —
 (298,521)
Balances at December 31, 20142,950
 $73,750
 63,683
 $6
 $6,651,165
 $(650,797) $(51,452) $113,396
 $6,136,068

See accompanying notes to consolidated financial statements.

F- 9

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013 2012 and 20112012
(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)

F-9
 2014 2013 2012
Cash flows from operating activities:     
Net income$134,438
 $172,055
 $139,590
Adjustments to reconcile net income to net cash provided by operating activities: 
  
  
Depreciation and amortization360,592
 193,518
 170,686
Earnings from co-investments(33,335) (14,613) (12,633)
Company's share of gain on the sales of co-investments(6,558) (41,252) (29,112)
Operating distributions from co-investments49,486
 19,636
 14,259
Gain on the sales of real estate and land(46,039) (30,725) (10,870)
Loss on early retirement of debt, net268
 300
 5,009
Gain on sale of marketable securities(886) (1,767) (819)
Amortization of (premium) discount and financing costs, net(14,672) 12,216
 11,644
Amortization of discount on notes receivables—
 (844) (1,832)
Amortization of discount on marketable securities(9,325) (6,556) (5,127)
Non cash merger and integration expenses9,025
 —
 —
Equity-based compensation8,740
 4,508
 4,141
Gain on remeasurement of co-investment—
 —
 (21,947)
Changes in operating assets and liabilities: 
  
  
Prepaid expenses, in-place lease value, receivables and other assets15,828
 (1,588) (9,488)
Accounts payable and accrued liabilities24,233
 72
 12,360
Other liabilities1,188
 22
 1,638
Net cash provided by operating activities492,983
 304,982
 267,499
Cash flows from investing activities: 
  
  
Additions to real estate: 
  
  
Acquisitions of real estate(387,547) (348,774) (393,771)
Redevelopment(81,429) (47,289) (46,647)
Acquisition of and additions to real estate under development(152,766) (17,757) (29,196)
Capital expenditures on rental properties(78,864) (56,919) (45,368)
Proceeds from insurance for property losses35,547
 —
 —
BRE merger consideration paid(555,826) —
 —
Acquisition of membership interest in co-investment—
 —
 (85,000)
Dispositions of real estate141,189
 65,496
 27,800
Dispositions of co-investments13,900
 —
 —
Changes in restricted cash and refundable deposits(36,582) (9,149) (6,069)
Purchases of marketable securities(20,516) (16,442) (73,735)
Sales and maturities of marketable securities8,753
 24,172
 61,703
Purchases of and advances under notes and other receivables—
 (56,750) (26,000)
Collections of notes and other receivables76,585
 53,438
 14,525
Contributions to co-investments(246,006) (162,578) (260,153)
Non-operating distributions from co-investments136,406
 118,856
 49,773
Net cash used in investing activities(1,147,156) (453,696) (812,138)
Cash flows from financing activities: 
  
  

F- 10
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
F-10
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Borrowings under debt agreements2,093,406
 969,061
 1,745,853
Repayment of debt(1,814,020) (750,900) (1,371,317)
Additions to deferred charges(17,402) (7,402) (6,707)
Equity related issuance cost(1,391) (617) (309)
Net proceeds from stock options exercised11,039
 4,958
 2,643
Net proceeds from issuance of common stock532,770
 138,366
 357,720
Contributions from noncontrolling interest—
 —
 2,400
Distributions to noncontrolling interest(17,465) (18,488) (16,691)
Redemption of noncontrolling interest(5,753) (5,711) (6,986)
Common and preferred stock dividends paid(260,574) (180,668) (156,250)
Net cash provided by financing activities520,610
 148,599
 550,356
Cash acquired from the BRE merger140,353
 —
 —
Net increase (decrease) in cash and cash equivalents6,790
 (115) 5,717
Cash and cash equivalents at beginning of year18,491
 18,606
 12,889
Cash and cash equivalents at end of year$25,281
 $18,491
 $18,606
      
Supplemental disclosure of cash flow information:     
Cash paid for interest, net of capitalized interest$130,691
 $103,516
 $95,597
Interest capitalized$22,510
 $16,486
 $10,346
      
Supplemental disclosure of noncash investing and financing activities (1): 
  
  
Issuance of Operating Partnership units for contributed properties$1,419,816
 $—
 $—
Retirement of Operating Partnership units$(1,419,816) $—
 $—
Transfer from real estate under development to rental properties$10,203
 $68
 $6,632
Transfer from real estate under development to co-investments$83,574
 $27,906
 $—
Transfer from co-investments to rental properties$—
 $—
 $148,053
Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest$18,766
 $—
 $—
Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded$72,568
 $—
 $82,133
Contribution of note receivable to co-investment$—
 $—
 $12,325
Change in accrual of dividends$37,594
 $5,575
 $5,441
Change in construction payable$22,845
 $2,655
 $1,113
Common stock proceeds receivables$1,258
 $—
 $—
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 
(1)See note 2(r) for details of noncash investing and financing activities related to the BRE merger.

See accompanying notes to consolidated financial statements


F- 11
F-11

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2014 and 2013
(Dollars in thousands, except per unit amounts)
 2014 2013
ASSETS   
Real estate:   
Rental properties:   
Land and land improvements$2,426,496
 $1,083,552
Buildings and improvements8,826,015
 4,360,205
 11,252,511
 5,443,757
Less: accumulated depreciation(1,564,806) (1,254,886)
 9,687,705
 4,188,871
Real estate under development434,371
 50,430
Co-investments1,036,411
 677,133
Real estate held for sale, net56,300
 —
 11,214,787
 4,916,434
Cash and cash equivalents-unrestricted25,281
 18,491
Cash and cash equivalents-restricted70,139
 35,275
Marketable securities and other investments117,240
 90,084
Notes and other receivables24,923
 68,255
Prepaid expenses and other assets33,318
 29,268
Acquired in-place lease value47,747
 4,513
Deferred charges, net29,439
 24,519
Total assets$11,562,874
 $5,186,839
LIABILITIES AND CAPITAL 
  
Mortgage notes payable$2,245,944
 $1,404,080
Unsecured debt2,617,482
 1,410,023
Lines of credit246,391
 219,421
Accounts payable and accrued liabilities142,135
 67,183
Construction payable30,892
 8,047
Distributions payable88,221
 50,627
Other liabilities32,485
 24,871
Total liabilities5,403,550
 3,184,252
Commitments and contingencies

 

Redeemable noncontrolling interest23,256
 —
Cumulative convertible Series G 4.875% preferred interest (liquidation value of $4,456 at December 31, 2013)—
 4,349
Capital: 
  
General Partner: 
  
Common equity (63,682,646 and 37,421,219 units issued and outstanding, respectively)6,002,915
 1,873,882
Series H 7.125% Preferred interest (liquidation value of $73,750)71,209
 71,209
 6,074,124
 1,945,091
Limited Partners: 
  
Common equity (2,201,810 and 2,149,802 units issued and outstanding, respectively)48,665
 45,957
Accumulated other comprehensive loss(49,356) (58,940)
Total partners' capital6,073,433
 1,932,108
Noncontrolling interest62,635
 66,130
Total capital6,136,068
 1,998,238
Total liabilities and capital$11,562,874
 $5,186,839

F- 12

See accompanying notes to consolidated financial statements

F- 13

ESSEX PORTFOLIO, L.P. AND SUBSIDIARES
Consolidated Statements of OperationsIncome
Years ended December 31, 2014, 2013, 2012, and 20112012
(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 

 2014 2013 2012
Revenues:     
Rental and other property$959,958
 $602,003
 $526,696
Management and other fees from affiliates9,347
 7,263
 8,457
 969,305
 609,266
 535,153
Expenses: 
  
  
Property operating, excluding real estate taxes203,040
 138,736
 123,813
Real estate taxes107,873
 57,276
 48,354
Depreciation and amortization360,592
 192,420
 169,173
General and administrative40,878
 26,684
 24,573
Merger and integration expenses53,530
 4,284
 —
Acquisition and disposition costs1,878
 1,161
 2,215
 767,791
 420,561
 368,128
Earnings from operations201,514
 188,705
 167,025
Interest expense(164,551) (116,524) (111,888)
Interest and other income11,811
 11,633
 13,833
Equity income from co-investments39,893
 55,865
 41,745
Loss on early retirement of debt, net(268) (300) (5,009)
Gain on sale of real estate and land46,039
 1,503
 —
Gain on remeasurement of co-investment—
 —
 21,947
Income before discontinued operations134,438
 140,882
 127,653
Income from discontinued operations—
 31,173
 11,937
Net income134,438
 172,055
 139,590
Net income attributable to noncontrolling interest(7,421) (6,834) (6,347)
Net income attributable to controlling interest127,017
 165,221
 133,243
Preferred interest distributions - Series F, G, & H(5,291) (5,472) (5,472)
Net income available to common unitholders$121,726
 $159,749
 $127,771
Per unit data: 
  
  
Basic: 
  
  
Income before discontinued operations available to common unitholders$2.07
 $3.27
 $3.11
Income from discontinued operations—
 0.79
 0.32
Net income available to common unitholders$2.07
 $4.06
 $3.43
Weighted average number of common units outstanding during the year58,771,666
 39,380,385
 37,251,537
Diluted: 
  
  
Income before discontinued operations available to common unitholders$2.07
 $3.26
 $3.10
Income from discontinued operations—
 0.79
 0.32
Net income available to common unitholders$2.07
 $4.05
 $3.42
Weighted average number of common units outstanding during the year58,921,232
 39,466,720
 37,343,967
See accompanying notes to consolidated financial statements

F- 14
F-12

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2014, 2013, 2012, and 20112012
(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 
 2014 2013 2012
Net income$134,438
 $172,055
 $139,590
Other comprehensive income (loss): 
  
  
Changes in fair value of cash flow hedges and reclassification to interest expense4,168
 12,614
 3,402
Changes in fair value of marketable securities6,302
 (1,556) 1,411
Reversal of unrealized gains upon the sale of marketable securities(886) (1,767) (1,082)
Total other comprehensive income9,584
 9,291
 3,731
Comprehensive income144,022
 181,346
 143,321
Comprehensive income attributable to noncontrolling interest(7,421) (6,834) (6,347)
Comprehensive income attributable to controlling interest$136,601
 $174,512
 $136,974

See accompanying notes to consolidated financial statements.

F- 15
F-13

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Capital
Years ended December 31, 2014, 2013, 2012, and 20112012
 (Dollars(Dollars and units in thousands)
 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, 201133,888
 $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 settlement of swaps—
 —
 —
 —
 —
 —
 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 plans151
 4,675
 —
 —
 —
 —
 —
 —
 4,675
Sale of common stock by the general partner2,404
 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)
Distributions to noncontrolling interest—
 —
 —
 —
 —
 —
 —
 (6,957) (6,957)
Distributions declared—
 (156,212) (5,472) —
 (9,734) —
 —
 —
 (171,418)
Balances at December 31, 201236,443
 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 of swaps—
 —
 —
 —
 —
 —
 12,614
 —
 12,614
Changes in fair value of marketable securities—
 —
 —
 —
 —
 —
 (1,556) —
 (1,556)
Issuance of common units under: 
  
  
  
  
  
  
  
  

F- 16
 
 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 

Stock and unit based compensation plans65
 7,244
 —
 —
 —
 —
 —
 —
 7,244
Sale of common stock by the general partner913
 138,366
 —
 —
 —
 —
 —
 —
 138,366
Stock and unit based compensation costs—
 (907) —
 28
 2,515
 —
 —
 —
 1,608
Redemptions—
 (3,717) —
 —
 (617) —
 —
 (1,377) (5,711)
Distributions to noncontrolling interest—
 —
 —
 —
 —
 —
 —
 (8,016) (8,016)
Distributions declared—
 (180,771) (5,472) —
 (10,472) —
 —
 —
 (196,715)
Balances at December 31, 201337,421
 1,873,882
 71,209
 2,150
 45,957
 —
 (58,940) 66,130
 1,998,238
Net income—
 116,859
 5,291
 —
 4,867
 —
 —
 7,421
 134,438
Reversal of unrealized gains upon the sale of marketable securities—
 —
 —
 —
 —
 —
 (886) —
 (886)
Changes in fair value of derivatives and amortization of settlement swaps—
 —
 —
 —
 —
 —
 4,168
 —
 4,168
Changes in fair value of marketable securities—
 —
 —
 —
 —
 —
 6,302
 —
 6,302
Issuance of common units under: 
  
  
  
  
  
  
  
  
Common stock issued as consideration by general partner in merger23,067
 3,774,087
 —
 —
 —
 —
 —
 —
 3,774,087
General partner's stock based compensation218
 11,024
 —
 —
 —
 —
 —
 —
 11,024
Sale of common stock by the general partner2,943
 532,670
 —
 —
 —
 —
 —
 —
 532,670
Equity-based compensation costs—
 5,719
 —
 62
 6,153
 —
 —
 —
 11,872
Reclassification of noncontrolling interest to redeemable noncontrolling interest—
 (19,823) —
 (10) 4,017
 —
 —
 (5,084) (20,890)
Changes in the redemption value of redeemable noncontrolling interest—
 312
 —
 —
 —
 —
 —
 —
 312
Conversion of Series G preferred stock34
 4,349
 —
 —
 —
 —
 —
 —
 4,349
Contributions from noncontrolling interest—
 —
 —
 8,561
 1,419,816
 —
 —
 —
 1,419,816
Retirement of noncontrolling interest—
 —
 —
 (8,561) (1,419,816) —
 —
 —
 (1,419,816)
Distributions to noncontrolling interests—
 —
 —
 —
 —
 —
 —
 (4,890) (4,890)

F- 17

Redemptions—
 (3,374) —
 —
 (1,181) —
 —
 (942) (5,497)
Distributions declared—
 (292,790) (5,291) —
 (11,148) —
 —
 —
 (309,229)
Balances at December 31, 201463,683
 $6,002,915
 $71,209
 2,202
 $48,665
 $—
 $(49,356) $62,635
 $6,136,068

See accompanying notes to consolidated financial statements

F- 18
F-14
ESSEX PORTFOLIO, L.P. 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 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 
(Continued)

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013, 2012, and 20112012
(Dollars in thousands)
 2014 2013 2012
Cash flows from operating activities:     
Net income$134,438
 $172,055
 $139,590
Adjustments to reconcile net income to net cash provided by operating activities: 
  
  
Depreciation and amortization360,592
 193,518
 170,686
Earnings from co-investments(33,335) (14,613) (12,633)
Operating Partnership's share of gain on the sales of co-investments(6,558) (41,252) (29,112)
Operating distributions from co-investments49,486
 19,636
 14,259
Gain on the sales of real estate and land(46,039) (30,725) (10,870)
Loss on early retirement of debt, net268
 300
 5,009
Gain on sale of marketable securities(886) (1,767) (819)
Amortization of (premium) discount and financing costs, net(14,672) 12,216
 11,644
Amortization of discount on notes receivables—
 (844) (1,832)
Amortization of discount on marketable securities(9,325) (6,556) (5,127)
Non cash merger and integration expenses9,025
 —
 —
Equity-based compensation8,740
 4,508
 4,141
Gain on remeasurement of co-investment—
 —
 (21,947)
Changes in operating assets and liabilities: 
  
  
Prepaid expenses, in-place lease value, receivables and other assets15,828
 (1,588) (9,488)
Accounts payable and accrued liabilities24,233
 72
 12,360
Other liabilities1,188
 22
 1,638
Net cash provided by operating activities492,983
 304,982
 267,499
Cash flows from investing activities: 
  
  
Additions to real estate: 
  
  
Acquisitions of real estate(387,547) (348,774) (393,771)
Redevelopment(81,429) (47,289) (46,647)
Acquisition of and additions to real estate under development(152,766) (17,757) (29,196)
Capital expenditures on rental properties(78,864) (56,919) (45,368)
Proceeds from insurance for property losses35,547
 —
 —
BRE merger consideration paid(555,826) —
 —
Acquisition of membership interest in co-investment—
 —
 (85,000)
Dispositions of real estate141,189
 65,496
 27,800
Dispositions of co-investments13,900
 —
 —
Changes in restricted cash and refundable deposits(36,582) (9,149) (6,069)
Purchases of marketable securities(20,516) (16,442) (73,735)
Sales and maturities of marketable securities8,753
 24,172
 61,703
Purchases of and advances under notes and other receivables—
 (56,750) (26,000)
Collections of notes and other receivables76,585
 53,438
 14,525
Contributions to co-investments(246,006) (162,578) (260,153)
Non-operating distributions from co-investments136,406
 118,856
 49,773
Net cash used in investing activities(1,147,156) (453,696) (812,138)
Cash flows from financing activities: 
  
  

F- 19
 
 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 

Borrowings under debt agreements2,093,406
 969,061
 1,745,853
Repayment of debt(1,814,020) (750,900) (1,371,317)
Additions to deferred charges(17,402) (7,402) (6,707)
Equity related issuance cost(1,391) (617) (309)
Net proceeds from stock options exercised11,039
 4,958
 2,643
Net proceeds from issuance of common units532,770
 138,366
 357,720
Contributions from noncontrolling interest—
 —
 2,400
Distributions to noncontrolling interest(4,841) (8,016) (6,957)
Redemption of limited partners units and noncontrolling interests(802) (5,711) (6,986)
Common units and preferred units and preferred interests distributions paid(278,149) (191,140) (165,984)
Net cash provided by financing activities520,610
 148,599
 550,356
Cash acquired from the BRE merger140,353
 —
 —
Net increase (decrease) in cash and cash equivalents6,790
 (115) 5,717
Cash and cash equivalents at beginning of year18,491
 18,606
 12,889
Cash and cash equivalents at end of year$25,281
 $18,491
 $18,606
      
Supplemental disclosure of cash flow information:     
Cash paid for interest, net of capitalized interest$130,691
 $103,516
 $95,597
Interest capitalized$22,510
 $16,486
 $10,346
      
Supplemental disclosure of noncash investing and financing activities (1): 
  
  
Issuance of Operating Partnership units for contributed properties$1,419,816
 $—
 $—
Retirement of Operating Partnership units$(1,419,816) $—
 $—
Transfer from real estate under development to rental properties$10,203
 $68
 $6,632
Transfer from real estate under development to co-investments$83,574
 $27,906
 $—
Transfer from co-investments to rental properties$—
 $—
 $148,053
Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest$18,766
 $—
 $—
Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded$72,568
 $—
 $82,133
Contribution of note receivable to co-investment$—
 $—
 $12,325
Change in accrual of dividends$37,594
 $5,575
 $5,441
Change in construction payable$22,845
 $2,655
 $1,113
Common stock proceeds receivables$1,258
 $—
 $—
(1)See note 2(r) for details of noncash investing and financing activities related to the BRE merger.

See accompanying notes to consolidated financial statements


F- 20
F-16

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014, 2013, 2012, and 20112012


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

ESS is the sole general partner in the Operating Partnership with a 94.6%96.7% general partner interest and the limited partners owned a 5.4%3.3% interest as of December 31, 2013.2014.  The limited partners may convert their Operating Partnership units into an equivalent number of shares of common stock.  Total Operating Partnership limited partnership units outstanding were 2,149,8022,201,810 and 2,122,3812,149,802 as of December 31, 20132014 and 2012,2013, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $308.5approximately $455 million and $311.2$309 million, as of December 31, 20132014 and 2012,2013, respectively.  The Company has reserved shares of common stock for such conversions.

As of December 31, 2013,2014, the Company owned or had ownership interests in 164239 apartment communities, (aggregating 34,07957,455 units), four commercial buildings, and eleventwelve active development projects (collectively, the “Portfolio”).  The communities 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 and Phoenix metropolitan area
areas.

In December 2013,On April 1, 2014, Essex completed the Company andmerger with BRE Properties, Inc. (“BRE”) entered.  In connection with the closing of the merger, (1) BRE merged into a definitive agreement underwholly owned subsidiary of Essex, and (2) each outstanding share of BRE common stock was converted into (i) 0.2971 shares (the “Stock Consideration”) of Essex common stock, and (ii) $7.18 in cash, (the “Cash Consideration”), plus cash in lieu of fractional shares for total consideration of approximately $4.3 billion.  The Cash Consideration was adjusted as a result of the authorization and declaration of a special distribution to the stockholders of BRE of $5.15 per share of BRE common stock payable to BRE stockholders of record as of the close of business on March 31, 2014 (the “Special Dividend”).  The Special Dividend was payable as a result of the closing of the sale of certain interests in assets of BRE to certain parties, which BRE will merge with Essex. Underclosed on March 31, 2014.  Pursuant to the terms of the merger agreement, eachthe amounts payable as a Special Dividend reduced the Cash Consideration of $12.33 payable by Essex in the merger to $7.18 per share of BRE common share will be converted into 0.2971 newlystock.

Essex issued approximately 23.1 million shares of Essex common stock plus $12.33as Stock Consideration 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 portionmerger.  For purchase accounting, the value of the purchase price.   The bridge loan facility is structured as a 364-day unsecured loan facility available in a single drawcommon stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. The company is exploring several alternativesAs a result of Essex being admitted to fund the cash needsS&P 500 on the same date as the closing of the transaction including asset sales, joint ventures or new financing. The merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014.  BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014.  As a result, given that a substantial component of the purchase price is subject to customaryan exchange of equity instruments, Essex used the closing conditions, including receiptprice of approvalBRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration.  After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex 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.common stock issued.


(2) Summary of Critical and Significant Accounting Policies

(a) Principles of Consolidation and Basis of Presentation

The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. Such reclassifications had no net effect on previously reported financial results.


F- 21
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


Noncontrolling interest includes the 5.4%3.3% and 5.5%5.4% limited partner interests in the Operating Partnership not held by the Company at December 31, 20132014 and 2012,2013, respectively. These percentages include the Operating Partnership’s vested long term incentive plan units (see Note 13).

The Company consolidates 1917 DownREIT limited partnerships (comprising eleventen communities), since the Company is the primary beneficiary of these variable interest entities (“VIEs”).  The consolidated total assets and liabilities related to these VIEs, net of intercompany eliminations, were approximately $200.0 million and $196.6 million, respectively, as of December 31, 2014, and $194.9 million and $178.3 million, respectively, as of December 31, 2013, and $201.1 million and $178.6 million, respectively, as of December 31, 2012.2013.

The DownREIT VIEs collectively own eleventen apartment communities in which Essex Management Company (“EMC”) is the general partner, the Operating Partnership is a special limited partner, and the other limited partners were granted rights of redemption for their interests.  Such limited partners can request to be redeemed and the Company can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis.  Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under the above arrangements.  The other limited partners receive distributions based on the Company's current dividend rate times the number of units held.  Total DownREIT units outstanding were 1,007,879941,138 and 1,039,4311,007,879 as of December 31, 20132014 and 20122013 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled $144.6approximately $194 million and $152.4$145 million, as of December 31, 20132014 and 2012,2013, respectively.  As of December 31, 20132014 and 2012,2013, the carrying value of the other limited partners' interests is presented at their historical cost and is classified within noncontrolling interest in the accompanying consolidated balance sheets.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders or distributions from cash flow.  The remaining results of operations are generally allocated to the Company.

As of December 31, 20132014 and 2012,2013, the Company did not have any VIE’sVIEs of which it was not deemed to be the primary beneficiary.

(b) Recent Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. ASU No. 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU No. 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early adoption is not permitted. We are currently evaluating the impact of this amendment on our financial position and results of operations.

In April 2014, the FASB issued ASU, No. 2014-018, Presentation of Financial Statements, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-018 changes the requirements for reporting discontinued operation under Subtopic 205-20, Presentation of Financial Statements—Discontinued Operations. The amendment updates the definition of discontinued operations and defines discontinued operations to be those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU is effective for disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014 with early adoption permitted, but only for disposals that have not been reported in financial statements previously issued. The Company adopted ASU 2014-018 in the first quarter of 2014. The Company determined that the disposals through the year ended December 31, 2014 were not a discontinued operation in accordance with ASU 2014-018. The gains related to these disposals are recorded in gains on sale of real estate and land in the consolidated statements of income.
(c) 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.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The depreciable life of various categories of fixed assets is as follows:
Computer software and equipment
3 - 5 years
Interior unit improvements5 years
Furniture, fixtures and equipment5 years
Land improvements and certain exterior components of real property
10 years
Real estate structures30 years
 
The Company capitalizes all costs incurred with the predevelopment, development or redevelopment of real estate assets or are associated with the construction or expansion of real property.  Such capitalized costs include land, land improvements, allocated costs of the Company’s project management staff, construction costs, as well as interest and related loan fees, property taxes and insurance.  Capitalization begins for predevelopment, development, and redevelopment projects when activity commences.  Capitalization ends when the apartment home is completed and the property is available for a new resident or if the development activities are put on hold.cease.

The Company allocates the purchase price of real estate to land and building including personal property, and identifiable intangible assets, such as the value of above, below and in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired, which in the case of below market leases the Company assumes lessees will elect to renew their leases.  The value of acquired in-place leases are amortized to expense over the term the Company expects to retain the acquired tenant, which is generally 20 months. The net carrying value of acquired in-place leases as of December 31, 2014 of $47.7 million is expected to be recognized in amortization expense primarily in 2015.

The Company performs the following evaluation for communities acquired:
 
(1)adjust the purchase price for any fair value adjustments resulting from such things as assumed debt or contingencies;
(2)estimate the value of the real estate “as if vacant” as of the acquisition date;
(3)allocate that value among land and buildings;buildings including personal property;
(4)compute the value of the difference between the “as if vacant” value and the adjusted purchase price, which will represent the total intangible assets;
(5)compute the value of the above and below market leases and determine the associated life of the above market/ below market leases;
(6)compute the value of the in-place leases and customer relationships, if any, and the associated lives of these assets.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
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 expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of a property held for investment, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property.  Fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available.  Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell.  As of December 31, 2014, one community was classified as held for sale. As of December 31, 2013 and 2012, no communities werecommunity was classified as held for sale and no impairment charges were recorded in 2014, 2013 2012 or 2011.2012.

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

In April 2014, the FASB issued ASU, No. 2014-018, Presentation of Financial Statements, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-018 changes the requirements for reporting discontinued

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


operation under Subtopic 205-20, Presentation of Financial Statements—Discontinued Operations. The amendment updates the definition of discontinued operations and defines discontinued operations to be those disposals of components of an entity that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. This ASU is effective for disposals of components of an entity that occur within annual periods beginning on or after December 15, 2014 with early adoption permitted, but only for disposals that have not been reported in financial statements previously issued. The Company adopted ASU 2014-018 in its first quarter of 2014. The Company determined that the disposals through the year ended December 31, 2014 were not a discontinued operation in accordance with ASU 2014-018. The gains related to these disposals are recorded in gains on sale of real estate and land in the standard, the Company presents income and gains/losses on communities sold or held for sale as discontinued operations.consolidated statements of income. 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 6 for a description of the Company’s discontinued operations for 2013 2012, and 2011)2012).

(c)(d) Co-investments

The Company owns investments in joint ventures (“co-investments”) in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with the accounting standards.  Therefore, the Company accounts for these investments using the equity method of accounting.  Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company’s equity in earnings less distributions received and the Company’s share of losses.

A majority of the co-investments, excluding the preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote distributions if certain financial return benchmarks are achieved.  Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible.  Any promote fees are reflected in equity income (loss) from co-investments.

(d)(e) Revenues and Gains on Sale of Real Estate

Revenues from tenants renting or leasing apartment units 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 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 Company’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 Company recognizes gains on sales of real estate when a contract is in place, a closing has taken place, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property and the Company does not have a substantial continuing involvement in the property.

(e)(f) Cash Equivalents and Restricted Cash

Highly liquid investments with original maturities of three months or less when purchased are classified as cash equivalents.  Restricted cash balances relate primarily to reserve requirements for capital replacement at certain communities in connection with the Company’s mortgage debt.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
(f)(g)  Marketable Securities and Other Investments

The Company reports its available for sale securities at fair value, based on quoted market prices (Level 2 for the unsecured bonds and Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for the limited partnership interests, as defined by the Financial Accounting Standards Board (“FASB”)FASB standard for fair value measurements as discussed later in Note 2), and any unrealized gain or loss is recorded as other comprehensive income (loss).  There were no other than temporary impairment charges for the years ended December 31, 2014, 2013, 2012, and 2011.2012.  Realized gains and losses, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated statement of operations.income.

As of December 31, 20132014 and 2012,2013, marketable securities and other investments consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities, and investment funds that invest in U.S. treasury or

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


agency securities.securities, and other limited partnership investments.  As of December 31, 20132014 and 2012,2013, 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, 20132014 and 20122013 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, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Carrying
Value
Available for sale:     
Investment-grade unsecured bonds$9,435
 $145
 $9,580
Investment funds - US treasuries3,769
 3
 3,772
Common stock and stock funds25,755
 5,137
 30,892
Held to maturity: 
  
  
Mortgage backed securities67,996
 —
 67,996
Total - Marketable securities106,955
 5,285
 112,240
Other investments (1)5,000
 —
 5,000
Total - Marketable securities and other investments$111,955
 $5,285
 $117,240

 
 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 
(1) Limited partnership interests
 December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
Gain (Loss)
 
Carrying
Value
Available for sale:     
Investment-grade unsecured bonds$15,446
 $509
 $15,955
Investment funds - US treasuries3,675
 3
 3,678
Common stock13,104
 (1,304) 11,800
Held to maturity: 
  
  
Mortgage backed securities58,651
 —
 58,651
Total - Marketable securities and other investments$90,876
 $(792) $90,084

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, 2014, 2013 2012 and 2011,2012, the proceeds from sales of available for sale securities totaled $8.8 million, $24.2 million $61.7 million and $33.0$61.7 million, respectively.  These sales all resulted in gains, which totaled $0.9 million, $1.8 million $0.8 million and $5.0$0.8 million for the years ended December 31, 2014, 2013 2012 and 2011,2012, respectively.

(g)(h) Notes Receivable
 
Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans and are secured by real estate.  Interest is recognized over the life of the note.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
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.  A note is impaired if it is probable that the Company will not collect all contractually due principal and interest.  The Company does not accrue interest when a note is considered impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be 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, 20132014 and 2012,2013, no notes were impaired.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012



(h)(i) Capitalization Policy

The Company capitalizes all direct and certain indirect costs, including interest, real estate taxes and insurance, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use.  The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period.  Included in capitalized costs are management’s estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities.  Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various officecorporate and community onsite costs that clearly relate to projects under development.  The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of employee compensation and totaled $10.4 million, $7.5 million $6.2 million and $4.3$6.2 million for the years ended December 31, 2014, 2013 2012 and 2011,2012, 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 commissionscosts 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.

(i)(j) Fair Value of Financial Instruments

The Company values its financial instruments based on the fair value hierarchy of valuation techniques described in the FASB’s accounting standard for fair value measurements.  Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.  Level 2 inputs include quoted prices for similar assets and liabilities in active 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, 20132014 and 2012,2013, 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$4.4 billion and $2.13$2.3 billion of fixed rate debt at December 31, 20132014 and 2012,2013, respectively, to be $2.33$4.6 billion and $2.24$2.3 billion.  Management has estimated the fair value of the Company’s $737.0$660.6 million and $692.9$737.0 million of variable rate debt at December 31, 20132014 and 2012,2013, respectively, is $719.4$656.3 million and $671.7$719.4 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, 20132014 and 20122013 due to the short-term maturity of these instruments.  Marketable securities and derivative liabilities are carried at fair value as of December 31, 20132014 and 2012.2013.

At December 31, 2014 and 2013, the Company’s investments in mortgage backed securities had a carrying value of $58.7$68.0 million and the$58.7 million. The Company estimated the fair value of investment in mortgage backed securities at December 31, 2014 and 2013 to be approximately $96.0 million and $86.2 million. At December 31, 2012, the estimated fair values of the mortgage backed securities were approximately equal to the carrying values.million, respectively. 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.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011

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

The Company uses interest rate swaps, interest rate cap contracts, and forward starting swaps to manage interest rate risks.  The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks.  To accomplish this objective, the Company primarily used interest rate swaps and interest rate forward-starting swaps as part of its cash flow hedging strategy.  The Company was hedging its exposure to the variability in future cash flows for a portion of its forecasted transactions.
 

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


As of December 31, 20132014 and 2012,2013, there were no outstanding forward starting swaps.  The Company records all derivatives on its 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 Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

For derivatives not designated as cash flow hedges, changes in fair value are recognized in earnings.  All of the Company’s interest rate swaps and interest rate caps are considered cash flow hedges except for the swap 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 during the years end December 31, 2014, 2013 2012 and 2011.2012.

(k)(l) Deferred Charges

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.

(l)(m) Income Taxes

Generally in any year in which ESS qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below, has been made in the accompanying consolidated financial statements for each of the years in the three-year period ended December 31, 20132014 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 subsidiariesfor 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 subsidiariesfor various revenue generating or investment activities. The taxable REIT 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

The status of cash dividends distributed for the years ended December 31, 2014, 2013, 2012, and 20112012 related to common stock, Series F, Series G, and Series H preferred stock are classified for tax 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%
 
            
 2014 2013 2012
Common Stock     
Ordinary income70.03% 77.34% 70.58%
Capital gain21.95% 17.64% 8.75%
Unrecaptured section 1250 capital gain8.02% 5.02% 7.97%
Return of capital—% —% 12.70%
 100.00% 100.00% 100.00%

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012

 
 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)
 2014 2013 2012
Series F, G, and H Preferred stock     
Ordinary income70.03% 77.34% 80.85%
Capital gains21.95% 17.64% 10.02%
Unrecaptured section 1250 capital gain8.02% 5.02% 9.13%
 100.00% 100.00% 100.00%

(n) Preferred Stock

The Company’s Series G Cumulative Convertible Preferred Stock (“Series G 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 not solely within the Company’s control, thus the Company has classified the Series G Preferred Stock as temporary equity in the accompanying consolidated balance sheets as of December 31, 2013 and 2012.2013. During the second quarter of 2014, all of the shares of Series G Preferred Stock were converted into shares of common stock.

(n)(o) Equity-based Compensation

The cost of share and unit based compensation awards is measured at the grant date based on the estimated fair value of the awards.  The estimated fair value of stock options and restricted stock granted by the Company are being amortized over the vesting period.  The estimated grant date fair values of the long term incentive plan units (discussed in Note 13) are being amortized over the expected service periods.

(o)(p) Changes in Accumulated Other Comprehensive Loss by Component

Essex Property Trust, Inc.

 
 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)
 
Change in fair value and
amortization
of derivatives
 
Unrealized
gains/(losses) on
available for sale
securities
 Total
Balance at December 31, 2013,  net of noncontrolling interest$(59,724) $(748) $(60,472)
Other comprehensive income before reclassification758
 6,140
 6,898
Amounts reclassified from accumulated other comprehensive loss2,963
 (841) 2,122
Net other comprehensive income3,721
 5,299
 9,020
Balance at December 31, 2014, net of noncontrolling interest$(56,003) $4,551
 $(51,452)

Essex Portfolio, L.P.
F-23
 
Change in fair
value and
amortization
of derivatives
 
Unrealized
gains/(losses) on
available for sale
securities
 Total
Balance at December 31, 2013$(58,148) $(792) $(58,940)
Other comprehensive income before reclassification1,205
 6,302
 7,507
Amounts reclassified from accumulated other comprehensive loss2,963
 (886) 2,077
Net other comprehensive income4,168
 5,416
 9,584
Balance at December 31, 2014$(53,980) $4,624
 $(49,356)


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012

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 derivatives are recorded to interest expense before amortization on the consolidated statement of operations.income.  Realized gains and losses on available for sale securities are included in interest and other income on the consolidated statement of operations.income.

(p)(q) Accounting Estimates

The preparation of consolidated financial statements, in accordance with U.S. generally accepted accounting principles (“GAAP”), requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, its notes receivable and its qualification as a REIT.  The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may vary from those estimates and those estimates could be different under different assumptions or conditions.

(r) BRE Merger

The merger with BRE was a two-step process. First, 14 of the BRE properties were acquired on March 31, 2014 in exchange for $1.4 billion of OP units.  The preliminary fair value of these properties was substantially all attributable to rental properties which included land, buildings and improvements, and real estate under development and approximately $19 million was attributable to acquired in-place lease value.  Second, the BRE merger closed on April 1, 2014 in exchange for the total consideration of approximately $4.3 billion.

The preliminary fair values of the assets and liabilities acquired on April 1, 2014 (including the 14 properties acquired on March 31, 2014 as the OP units issued were retired on April 1, 2014) recorded were based upon a preliminary valuation and the estimates and assumptions used in such valuation are subject to change, which could be significant, within the measurement period. The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure the assets and liabilities acquired in the business combination, not to exceed one year from the acquisition date. The preliminary valuation of the assets acquired and liabilities assumed for the BRE merger is as follows (in millions):

Cash assumed$140
Rental properties and real estate under development5,618
Real estate held for sale, net108
Co-investments218
Acquired in-place lease value77
Other assets16
Mortgage notes payable and unsecured debt(1,747)
Other liabilities(94)
Redeemable noncontrolling interest
(5)
 $4,331
  
Cash consideration for BRE merger$556
Equity consideration for BRE merger3,775
Total consideration for BRE merger$4,331

During the measurement period related to the BRE merger, the Company recorded an adjustment to increase the preliminary fair value of personal property by $100.9 million with an estimated useful life of 5 years with an offsetting decrease in real property with an estimated useful life of 30 years, all of which are classified within rental properties and real estate under development. The changes in estimates were the result of additional accounting information identified by management. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


Company believes that the information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize the fair values related to insurance recoveries and legal contingencies. Thus, the provisional measurements of fair value set forth above are subject to change further. The Company expects to complete the purchase accounting process as soon as practicable but no later than one year from the acquisition date.

The unaudited pro forma financial information set forth below is based on Essex’s historical consolidated statement of income for the years ended December 31, 2014 and December 31, 2013, adjusted to give effect to the merger with BRE including the 14 BRE properties acquired on March 31, 2014, as if they occurred on January 1, 2013. The pro forma adjustments primarily relate to merger expenses, depreciation expense on acquired buildings and improvements, amortization of acquired intangibles, and estimated interest expense related to assumed debt.

Essex Property Trust, Inc.
 
Pro forma (unaudited)
year ended December 31
(in thousands, except per share data)
 2014 2013
Total Revenue$1,055,460
 $944,410
Net income available to common stockholders (1) (2)$263,440
 $141,504
Earnings per share, diluted (1)$4.08
 $2.26


Essex Portfolio, L.P.
 
Pro forma (unaudited)
year ended December 31
(in thousands, except per unit data)
 2014 2013
Total Revenue$1,055,460
 $944,410
Net income available to common unitholders (1) (2)$263,585
 $141,175
Earnings per unit, diluted (1)$4.08
 $2.26

(1) 2014 supplemental pro forma net income available to common stockholders was adjusted to exclude $53.5 million of merger and integration related costs incurred by Essex during the year ended December 31, 2014. 2013 supplemental pro forma net income available to common stockholders was adjusted to include these charges. 2014 and 2013 supplemental pro forma earnings per share, diluted, were adjusted by approximately 23.1 million shares due to the common stock issued in connection with the merger.

(2) The supplemental pro forma net income available to common shareholders for the year ended December 31, 2014 include approximately $105 million from discontinued operations related to the sale of three BRE properties during the quarter ended March 31, 2014 that are non-recurring transactions.

Revenues of approximately $283.3 million and net loss of approximately $17.2 million associated with properties acquired in 2014 in the BRE merger are included in the consolidated statements of income for the twelve months ended December 31, 2014 for both Essex and the Operating Partnership.

(3) Real Estate Investments

(a)Acquisitions of Real Estate

For the year ended December 31, 2014, in addition to the BRE merger, the Company purchased six communities consisting of 1,480 units for $460.7 million.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


For the year ended December 31, 2013, the Company purchased six communities consisting of 1,079 units for $349.1 million.

For the year ended December 31, 2012, the Company purchased eleven communities, comprising of 2,052 units for $551.1 million.

(b) Sales of Real Estate investmentsInvestments

During 2014, the Company sold four communities consisting of 594 units for $120.4 million resulting in gains totaling $43.6 million.

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 Company has joint venture investments in 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 develop apartment communities. The Company also has preferred equity investments included in co-investments which are accounted for under the equity method.

F-24Palm Valley Apartments

TableOn October 31, 2014, the Company acquired a 50% interest in Palm Valley Apartments ("Palm Valley") located in San Jose, California for $180 million. The property is encumbered by a $220 million mortgage loan, bearing interest at 5.6% per annum and maturing in February 2017, of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
which Essex’s pro-rata share is approximately $110 million. As of December 31, 2013, 2012, and 20112014, Palm Valley Apartments had an aggregate undepreciated carrying value of approximately $370.8 million.

Wesco I LLCand Wesco III

Wesco I LLC (“Wesco I”) is aand III are 50/50 programmatic joint ventureventures with an institutional partner for a total equity commitmentpartner. Under the terms of $300.0 million.  Each partner’s equity commitmentWesco I's and III’s operating agreements, Essex is $150.0 million. Wesco I will utilize debt targeted at approximatelyentitled to asset management, property management, development and redevelopment service fees. Essex is entitled to its 50% pro rata share of the costincome or loss generated by these entities and upon the achievement of certain performance measures, is entitled to acquire and improve real estate.promote income. The Company has contributed $150.0$270 million to Wesco I and asIII. As of December 31, 2013,2014, Wesco I owned nine apartment communities with 2,713 units with an aggregate undepreciated carrying value of approximately $670$682.4 million and Wesco III owned six apartment communities with 993 units with an aggregate undepreciated carrying value of approximately $230.7 million.

Wesco III, LLCIV and BEXAEW

During 2012,On April 1, 2014, in connection with the merger, the Company entered intoacquired a 50/50 programmatic joint venture,50% interest in Wesco IIIIV and a 50% interest in BEXAEW LLC (“BEXAEW”). Wesco III”), with anIV and BEXAEW’s remaining 50% interest is owned by institutional partner for a total equity commitment from the parties of $120.0 million. Each partner’s equity commitment is $60.0 million.partners. Wesco III willIV and BEXAEW expect to utilize debt targeted at approximately 50% and 60%, respectively, of the cost to acquire and improve real estate. The Company has contributed $39.7 millionUnder the terms of Wesco IV’s and BEXAEW’s operating agreements, Essex is entitled to Wesco III,asset management, property management, development and asredevelopment service fees. Essex is entitled to its 50% pro rata share of the income or loss generated by these entities and, upon the achievement of certain performance measures, is entitled to promote income. As of December 31, 2013,2014, Wesco IIIIV owned threefive apartment communities with 6571,116 units with an aggregate undepreciated carrying value of approximately $164$297.9 million. As of December 31, 2014, BEXAEW owned nine apartment communities with 2,723 units with an aggregate undepreciated carrying value of approximately $519.2 million.

Essex Apartment Value Fund II, L.P.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The Company contributed $75.0 million to Essex Apartment Value Fund II, L.P. (“Fund II”),has eight institutional investors with combined partner equity contributions of $265.9 million.  The 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 55% upon the initial acquisition of the underlying real estate.  Fund II invested in apartment communities in the Company’s targeted West Coast markets with an emphasis on investment opportunities in the Seattle metropolitan area and the San Francisco Bay Area.  As of October 2006, Fund II was fully invested and closed for any future acquisitions or development.  As of December 31, 2013,2014, Fund II ownedwas in liquidation.

During the year ended December 31, 2014, Fund II sold the two apartment communities.remaining communities for gross proceeds of $47.3 million and the Company recognized promote income of $9.5 million.   In connection with the 2014 sales, Fund II incurred a prepayment penalty on debt of which the Company’s pro rata share was $0.2 million. The total gain on the sales was $23.3 million, of which the Company’s pro rata share was $6.6 million, net of internal disposition costs.

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.

Expo

In December 2010, the Company entered into a 275 unit development joint venture in Seattle, Washington with a partner who contributed a land parcel during the first quarter of 2011 in return for a 50% interest in the venture and the Company contributed cash equal to the value of the land in return for a 50% interest in the joint venture. As of December 31, 2014 the aggregate undepreciated carrying value was approximately $65.3 million.

Canada Pension Plan Investment Board – Joint Venture Developments

The Company has entered into sixseven development joint ventures with the Canada Pension Plan Investment Board (“CPPIB”) to develop sixseven apartment communities.  For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and will earn customary management fees and may earn development, asset and property management fees.  The Companyfees and may also earn a promote interest. These co-investments are not variable interest entities since they have sufficient equity without additional subordinated support, and the Company and CPPIB jointly have the power to direct activities that most significantly impact the co-investments’ economic performance.  Each of the co-investments between the Company and CPPIB has a single general partner, which is a subsidiary consolidated by the Company.  However, the Company, as general partner of the co-investments, 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 CPPIB, and the Company records the co-investments with CPPIB on the equity method of accounting.

As of December 31, 2013,2014, the Company and CPPIB have sixseven active developments projects comprised of 1,5071,424 units for total estimated costs of $695.2$650.0 million.  At December 31, 2013,2014, the total remaining estimated costs to be incurred on these projects was $216.2$205.0 million of which the Company’s portion of the remaining costs were $118.9$111.3 million.
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011

Epic – Phase I,Connolly Station, a 280309 unit community in San Jose,Dublin, California, a development joint venture with CPPIB, stabilized its operations in the first quarter of 2014.

Epic is a development joint venture with CPPIB in San Jose, California. Phase I, a 280 unit community, stabilized its operations in the fourth quarter of 2013.2013 and Phase II, a 289 unit community, stabilized its operations in the second quarter of 2014.  Epic – Phase II and Phase III areis currently still under development.

The Huxley and The Dylan – Joint Venture Developments

During the third quarterIn 2011, the Company entered into atwo development joint ventureventures with a regional developer for the construction of The Huxley a 187 unit communityand The Dylan, two communities with 371 units and approximately 18,20030,950 square feet of retail located in West Hollywood, California.  The regional developer contributed the land and the Company contributed approximately $9.0$14.8 million in cash for a 50% interest in the venture.ventures. The joint ventureventures obtained bond financing for the project in the amount of $54.5$114.4 million with a maturity datedates of October 2046 and December 2046 and entered into an interest rate swap transaction with respect

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


to the bonds that terminates in September 2016 and December 2016 and 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. The Huxley stabilized its operations in the second quarter of 2014. As of December 31, 2014 the aggregate undepreciated carrying values of The Huxley and The Dylan were approximately $72.2 million and $74.1 million respectively.

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 created 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 these joint ventures in certain instances, then the ownership interest of the defaulting partner in the other joint venture may be reduced.

One South Market
 
DuringIn 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 venture and will earn customary management fees and may earn development, asset, and property management fees.  The Companyfees and 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 the co-investment, does not control the co-investments because the limited partnerspartner has substantive participating rights.  Therefore, the presumption of control by the Company as general partner is overcome by the rights held by the limited partner, and the Company records the co-investments on the equity method of accounting.
As of December 31, 2014, the project’s total estimated costs were $145.0 million.  At December 31, 2014, the total remaining estimated costs to be incurred on this project were $25.0 million of which the Company’s portion of the remaining costs was $13.8 million.

Century Towers

In July 2014, the Company entered into a joint venture to develop Century Towers, a multifamily community containing 376 apartment homes located in San Jose, California.  The Company has a 50% ownership interest in the development which has a projected total cost of $172 million. The joint venture has obtained a $90 million construction loan that floats at LIBOR plus 175 basis points for a three year term with two one-year extension options. Construction began in the third quarter of 2014 and the property is expected to open in the first quarter of 2017. The Company has also committed to a $27 million preferred equity investment in the project, which accrues an annualized preferred return of 8.1%. The Company will earn customary development, asset, and property management fees and 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 the co-investment, does not control the co-investments because the limited partner has 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, 2013,2014, the project’s total estimated costs were $145.1$172 million.  At December 31, 2013,2014, the total remaining estimated costs to be incurred on this project was $114.2were $132 million, of which the Company’s portion of the remaining costs were $62.8was $66 million.

Preferred Equity Investments

During the firstfourth quarter of 2013,2014, the Company made an $8.6received cash of $101.0 million for its share of the redemption of a preferred equity interest investment in an apartment developmentrelated to a property located in Redwood City, CaliforniaSan Francisco, California.  The Company recorded $5.3 million of income from penalties due to a related party entity.  Thethe early redemption of this preferred equity investment has a preferred returnwhich is included in equity income from co-investments in the consolidated statements of 12% and matures in January 2016.

income.
In March 2013, the Company received the redemption of $9.7$22.8 million of preferred equity related to twothree properties located in downtown Los Angeles, California.  The Company recorded $0.4$0.9 million of income from redemption penalties due to the early redemption of these preferred equity investments.

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F-26
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012

During the second quarter of 2013, the Company received the redemption of $13.1 million of preferred equity related to a property 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 of 12% and matures in 3 years.

During the third quarter of 2013, the Company restructured the terms of a preferred equity investment with a related party entity on a property located in Anaheim, California, reducing the rate from 13% to 9%, while extending the maximum term by one year. The Company recorded a $0.4 million restructuring fee related to the restructured investment.

During the second quarterIn 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, 20132014 and 20122013 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 

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


 2014 2013
Membership interest/Partnership interest in:   
Wesco I and III$188,404
 $181,098
Fund II696
 4,166
Expo7,352
 12,041
The Huxley11,471
 11,224
Connolly Station46,653
 45,242
Epic Phase I and II122,968
 106,845
Wesco IV86,289
 —
BEXAEW73,771
 —
Palm Valley70,186
 —
Total operating co-investments607,790
 360,616
Membership interest in:   
Limited liability companies with CPPIB that own and are developing Epic Phase III, Mosso I and II, Park 20, The Emme, The Owens and Hacienda268,016
 149,451
One South Market30,919
 17,115
The Dylan7,874
 7,321
Century Towers13,121
 —
Total development co-investments319,930
 173,887
    
Membership interest in Wesco II that owns a preferred equity interest in Park Merced with a preferred return of 10.1%—
 94,711
Preferred interest in related party limited liability company that owns Sage at Cupertino with a preferred return of  9.5% (matures in May 2016)16,571
 15,775
Preferred interest in a related party limited liability company that owns Madison Park at Anaheim with a preferred return of 9% (matures in September 2020)13,824
 13,824
Preferred interest in related party limited liability company that owns an apartment development in Redwood City with a preferred return of 12% (matures in July 2016 with one one-year extension option)10,396
 9,455
Preferred interest in a limited liability company that owns an apartment development in San Jose with a preferred return of 12% (matures in August 2016 with one one-year extension option)10,011
 8,865
Preferred interest in a limited liability company that owns 8th & Thomas with a preferred return of 10.0% (matures in June 2018 with one one-year extension option)13,145
 —
Preferred interest in a limited liability company that owns Newbury Park with a preferred return of 12.0% (matures in January 2019)13,150
 —
Preferred interest in a limited liability company that owns Century Towers (1) (matures in August 2019)
12,357
 —
Preferred interest in a limited liability company that owns an apartment development in San Jose with a preferred return of 9% (matures in January 2023)19,237
 —
Total preferred interest investments108,691
 142,630
Total co-investments$1,036,411
 $677,133


(1) The Company has committed to a total preferred equity investment in the project of $27.0 million at an effective preferred return rate of 8.1%. As of December 31, 2014 the Company has made a preferred equity investment of $12.0 million.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The combined summarized financial information of co-investments which are accounted for under the equity method, is as follows ($ in thousands):
 
 
 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 
 December 31,
 2014 2013
Balance sheets:   
Rental properties and real estate under development$3,426,574
 $1,953,328
Other assets107,902
 61,578
Total assets$3,534,476
 $2,014,906
Debt (1)
$1,677,089
 $690,132
Other liabilities91,579
 125,479
Equity1,765,808
 1,199,295
Total liabilities and partners' equity$3,534,476
 $2,014,906
Company's share of equity$1,036,411
 $677,133

 
 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)
 
Years ended
December 31,
 2014 2013 2012
Statements of operations:     
Property revenues$188,548
 $100,402
 $130,128
Property operating expenses(71,419) (37,518) (55,990)
Net operating income117,129
 62,884
 74,138
Gain on sale of real estate23,333
 146,758
 106,016
Interest expense(39,990) (24,155) (34,959)
General and administrative(6,321) (5,344) (3,697)
Equity income from co-investments (2)
26,798
 18,703
 18,051
Depreciation and amortization(74,657) (36,831) (47,917)
Net income$46,292
 $162,015
 $111,632
Company's share of net income (3)
$39,893
 $55,865
 $41,745
(1)Includes preferred equity investments held by the Company.
(2)Represents income from Wesco II's preferred equity investment in Park Merced.
(3)Includes the Company's share of equity income from co-investments, income from preferred equity investments, gain on sale of co-investments, co-investment promote income, and income from early redemption of preferred equity investments.


(d) Real Estate forunder Development

The Company defines 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, 2013,2014, the Company had two consolidated development projects, and eightten unconsolidated joint venture development projects, and various consolidated predevelopment projects, aggregating 2,5012,920 units for an estimated total cost of $1.1$1.5 billion, of which $407.0$420.0 million remains to be expended.   The Company’s portion of the remaining costs was $249.2$250.0 million.

As of December 31, 2013, the Company had one consolidated predevelopment project consisting of 200 units.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


(4) Notes and Other Receivables
 
Notes receivables, secured by real estate, and other receivables consist of the following as December 31, 20132014 and 20122013 ($ in thousands):
 
 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 
 2014 2013
Note receivable, secured, bearing interest at 6.0%, due December 2016$3,212
 $3,212
Notes and other receivables from affiliates (1)
8,105
 60,968
Other receivables (2)
13,606
 4,075
 $24,923
 $68,255

(1)The borrower funds an impound accountCompany had $8.1 million of short-term loans outstanding and due from various legacy and BRE joint ventures. See Note 5, Related Party Transactions, for capital replacement.

(2)During the second quarter ofadditional details. In 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,+2.50%. Wesco III repaid the loan on Gas Company Lofts.these two loans in 2014.
(2)Represents receivables for utilities, rents, and other receivables.

During the twelve monthsyear ended December 31, 2013, the Company received the repayment of three notes receivables totaling $30.5 million. One of the notes was repaid early, and as such the Company recorded $0.8 million of 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 loan to assist with the purchase of Haver Hill.

(5) Related Party Transactions

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 is comprised primarily of asset management, property management, development and redevelopment fees from co-investments.  These fees from affiliates total $11.5 million, $10.9 million, and $6.1 million for the years ended December 31, 2013, 2012, and 2011, respectively. All of these fees are net of intercompany amounts eliminated by the Company.

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


The Company’s Chairman and founder, Mr. George Marcus, is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.   Fund II paid brokerage commissions totaling $0.6 million and $0.4 million, respectively, to an affiliate of MMI related to the sales of properties in 2013 and 2012, respectively, and there were no brokerage commissions paid during 2011.respectively.  There were no brokerage commissions paid by the Company to MMI or its affiliates during 2014, 2013, and 2012.

The Company charges certain fees to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates total $16.5 million, $11.5 million, and $10.9 million for the years ended December 31, 2014, 2013, and 2012, respectively. All of these fees are net of intercompany amounts eliminated by the Company.

In July 2014, the Company acquired Paragon Apartments, a 301 unit apartment community located in Fremont, CA for $111.0 million from an entity that was partially owned by an affiliate of MMC. Independent members of the Company's Board of Directors that serve on the Nominating and 2011.Corporate Governance and Audit Committees approved the investment.

As described in Note 4, the Company has provided short-term bridge loans to affiliates. As of December 31, 2014, $8.1 million of short-term loans remained outstanding from various legacy and BRE joint ventures.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012



In 2012, 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.

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 Company’s Board of Directors that serve on the Nominating and Corporate Governance and Audit Committees approved the restructuring of 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) 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 ofIn 2012, the Company invested $14.0 million as a preferred equity interest investment in an entity 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 Company’s Board of Directors approved the investment in this entity.

Also during the third quarter ofIn 2012, the Company acquired Montebello, a 248 unit apartment community in Kirkland, Washington for $52.0 million from an entity affiliated with MMC, and Wesco I acquired Riley Square (formerly Waterstone Santa Clara), a 156 unit apartment community in Santa Clara, California for $38.3 million from an entity affiliated with MMC.  Independent directors (other than Mr. Marcus) on the Company’s Board of Directors approved the acquisitions of Montebello and Riley Square.

An Executive Vice President of the Company 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 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.

(6) Discontinued Operations

The Company classifiesdetermined that the disposals through the year ended December 31, 2014 were not a discontinued operation in accordance with ASU 2014-018. The gains related to these disposals are recorded in gains on sale of real estate as “held for sale” whenand land in the sale is considered probable and expected to sell within a year.  consolidated statements of income.

During 2013, the Company sold Linden Square, a 183 unit community located in Seattle, Washington for $25.3 million, resulting in a gain of $12.7 million. Also during 2013, the Company sold Cambridge, a 40 unit property located in Chula Vista, California for $4.7 million, resulting in a gain of $2.5 million, and Brentwood, a 140 unit property located in Santa Ana, California for $27.5 million, resulting in a gain of $14.0 million. As of December 31, 2013 and 2012, no communities were held for sale.

During 2012, the Company sold two communities Tierra Del Sol/Norte and Alpine Country, for a total of $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

The Company has recorded the gains on sales and operations for these various assets sold described above as part of discontinued operations in the accompanying consolidated statements of operations.income.  The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets, as described 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 

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


 2013 2012
Revenues$4,454
 $5,848
Property operating expenses(1,406) (2,181)
Depreciation and amortization(1,098) (1,513)
Expenses(2,504) (3,694)
Operating income from real estate sold1,950
 2,154
Gain on sale of real estate29,223
 10,870
Internal disposition costs—
 (1,087)
Income from discontinued operations$31,173
 $11,937

(7) Mortgage Notes Payable

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. Mortgage notes payable consist of the following as of December 31, 20132014 and 20122013 ($ 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%

 2014 2013
Fixed rate mortgage notes payable$2,056,742
 $1,236,479
Variable rate mortgage notes payable (1)189,202
 167,601
Total mortgage notes payable (2)$2,245,944
 $1,404,080
Number of properties securing mortgage notes67
 49
Remaining terms1-26 years
 1-26 years
Weighted average interest rate4.6% 5.6%

The aggregate scheduled principal payments of mortgage notes payable at December 31, 20132014 are as follows ($ in thousands):

2014 $- 
2015  67,461 
2016  12,390 
2017  182,731 
2018  271,156 
Thereafter  870,342 
 
    
 
 $1,404,080 
2015$94,580
201641,481
2017198,683
2018320,080
2019565,801
Thereafter941,526
 $2,162,151

(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 1.8% at December 2014 and 1.6% at December 2013 and 1.9% at December 2012)2013) 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 2025February 2015 through December 2039.April 2040.  Of these bonds $156.9$153.2 million are subject to various interest rate cap agreements, which limit the maximum interest rate to such bonds.
(2)
Includes total unamortized premium of $83.8 million and $11.5 million as of December 31, 2014 and December 31, 2013, respectively.

For the Company’s mortgage notes payable as of December 31, 2013,2014, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $6.1$9.4 million and $1.9$3.3 million, respectively.  Second deeds of trust accounted for $58.4$58.2 million of the $1.4$2.2 billion in mortgage notes payable as of December 31, 2013.2014.  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.

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012



(8) Unsecured Debt and Lines of Credit

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership.  ESS guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities up to the maximum amounts and for the full term of the facilities.
 
Unsecured debt and lines of credit consist of the following as of December 31, 20132014 and 20122013 ($ in thousands):
 2014 2013 
Weighted Average
Maturity
In Years
Bonds private placement - fixed rate$465,000
 $465,000
 4.2
Term loan - variable rate225,000
 350,000
 1.9
Bonds public offering - fixed rate1,927,482
 595,023
 7.1
Unsecured debt (1)
2,617,482
 1,410,023
  
Lines of credit246,391
 219,421
 
Total unsecured debt$2,863,873
 $1,629,444
  
Weighted average interest rate on fixed rate unsecured bonds3.6% 4.0%  
Weighted average interest rate on variable rate term loan2.4% 2.5%  
Weighted average interest rate on lines of credit1.8% 2.2%  

 
 
  
  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%    
(1) Includes unamortized premium of $27.5 million and discount of $5.0 million as of December 31, 2014 and December 31, 2013, respectively.

As of December 31, 20132014 and 2012,2013, the Company had $465$465.0 million of private placement 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, 20132014 and 20122013 ($ in thousands):
 
 
 
  
  Coupon 
 Maturity20132012Rate
 
 
 
  
  
 
Senior unsecured private placement notesMarch 2016 $150,000  $150,000   4.36%
Senior unsecured private placement notesSeptember 2017  40,000   40,000   4.50%
Senior unsecured private placement notesDecember 2019  75,000   75,000   4.92%
Senior unsecured private placement notesApril 2021  100,000   100,000   4.27%
Senior unsecured private placement notesJune 2021  50,000   50,000   4.30%
Senior unsecured private placement notesAugust 2021  50,000   50,000   4.37%
 
  
 $465,000  $465,000     
 Maturity 2014 2013 
Coupon
Rate
Senior unsecured private placement notesMarch 2016 $150,000
 $150,000
 4.36%
Senior unsecured private placement notesSeptember 2017 40,000
 40,000
 4.50%
Senior unsecured private placement notesDecember 2019 75,000
 75,000
 4.92%
Senior unsecured private placement notesApril 2021 100,000
 100,000
 4.27%
Senior unsecured private placement notesJune 2021 50,000
 50,000
 4.30%
Senior unsecured private placement notesAugust 2021 50,000
 50,000
 4.37%
    $465,000
 $465,000
  


As of December 31, 20132014 and 2012,2013, the Company had a $350 million unsecured term loanloans outstanding of $225.0 million and $350.0 million at an average interest rate of 2.4% and 2.5%., respectively.  The term loan hasloans are at a variable interest rate of LIBOR plus 1.2%1.05%. 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$225.0 million, which effectively converted the interest rate on $300$225.0 million of the term loanloans to a fixed rate.rate of 2.4%.

In April 2014, the Company, assumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). The carrying value of the BRE Notes, plus premium was $934.7 million as of December 31, 2014.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012



In April 2014, the Company issued $400.0 million of senior unsecured notes due on May 1, 2024 with a coupon rate of 3.875% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2014 (the 2024 Notes). The 2024 Notes were offered to investors at a price of 99.234% of par value. The 2024 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 line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2014, the carrying value of the 2024 Notes, net of discount was $397.2 million.

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 line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2014 and 2013, the carrying value of the 2023 Notes, net of discount was $298.0 million and $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

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, 20132014 and 2012,2013, the carrying value of the 2022 Notes, net of discount was $297.6 million and $297.3 million, respectively.

The following is a summary of the Company’s senior unsecured notes as of December 31, 2014 and $297.1 million, respectively.2013 ($ in thousands):
 Maturity 2014 2013 Coupon
Rate
Senior notesMarch 2017 300,000
 —
 5.500%
Senior notesMarch 2021 300,000
 —
 5.200%
Senior notesAugust 2022 300,000
 300,000
 3.625%
Senior notesJanuary 2023 300,000
 —
 3.375%
Senior notesMay 2023 300,000
 300,000
 3.250%
Senior notesMay 2024 400,000
 —
 3.875%
    1,900,000
 600,000
  

The aggregate scheduled principal payments of unsecured debt payable, excluding lines of credit, at December 31, 2014 are as follows ($ in thousands):
2015$—
2016350,000
2017365,000
2018—
201975,000
Thereafter1,800,000
 $2,590,000

The Company has two lines of credit aggregating $625.0 million$1.03 billion as of December 31, 2013.2014.  The Company has a $600 million$1 billion credit facility with an underlying interest rate based on a tiered rate structure tied to Fitch and S&P ratings on the credit facility and the rate was LIBOR plus 1.075%0.95% as of December 31, 2013.2014.  As of December 31, 20132014 and 2012,2013, the balance of the $600 million$1 billion credit facility was $229.8 million and $199.0 million, respectively.  On January 2015, the facility maturity date was extended to

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and $141.0 million, respectively.  This facility matures in 2012


December 201531, 2018 with two one-year extensions,one 18-month extension, exercisable by the Company.  The Company also has a working capital unsecured line of credit agreement for $25.0 million.  This facility matures in January 2014,2016, with a one year extension option.  The underlying interest rate on the $25.0 million line is based on a tiered rate structure tied to Fitch and S&P ratings on the credit facility of LIBOR plus 1.075%0.95%.  As of December 31, 20132014 and 2012,2013, there was a $20.4$16.6 million and zero$20.4 million balance, respectively, outstanding on this unsecured line.

The Company’s unsecured line of credit and 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.  The Company was in compliance with the debt covenants as of December 31, 20132014 and 2012.2013.

(9) Derivative Instruments and Hedging Activities

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$225.0 million that effectively fixed the interest rate on $300 million of the $350$225.0 million unsecured term loan at 2.29%2.4% through November 2016.July 2017.  These derivatives qualify for hedge accounting.

During the fourth quarter 2014, the Company terminated $125.0 million of swaps with respect to the $225.0 million of the unsecured term loan.

As of December 31, 20132014 the Company also had nine interest rate cap contracts totaling a notional amount of $156.9$153.2 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$153.2 million of the Company’s tax exempt variable rate debt.

As of December 31, 20132014 and 2012,2013, the aggregate carrying value of the interest rate swap contracts was a liability of $2.7$1.8 million and $6.6$2.7 million, respectively. The aggregate carrying value of the interest rate cap contracts was zero on the balance sheet as of December 31, 20132014 and December 31, 2012.2013.

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 par.
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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011

No hedgeHedge ineffectiveness onrelated to cash flow hedges, occurred duringwhich is reported in current year income as interest expense, net was not significant for the years ended December 31, 2014, 2013 2012 and 2011.2012.

(10) Lease Agreements

As of December 31, 20132014 the Company is a lessor for threefour commercial buildings and the commercial portions of 2032 mixed use communities. The tenants’ lease terms expire at various times through 2028.2031.  The future minimum non-cancelable base rent to be received under these operating leases for each of the years ending after December 31 is summarized as follows ($ in thousands):

F- 42
 
 Future 
 
 Minimum 
 
 Rent 
2014 $8,624 
2015  7,104 
2016  4,908 
2017  4,158 
2018  3,613 
Thereafter  15,271 
 
 $43,678 
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


 Future
 Minimum
 Rent
2015$12,348
20169,898
20179,003
20188,123
20197,350
Thereafter28,647
 $75,369

(11) Equity Transactions
 
Preferred Securities Offerings
As of December 31, 2013 and 2012, the Company has the following cumulative preferred securities outstanding:
 
  
 Shares  Shares  Liquidation 
    DescriptionIssue Date Authorized  Outstanding  Preference 
  4.875% Series GJuly 2006  5,980,000   178,249  $4,456 
  7.125% Series HApril 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 into shares of ESS common stock subject to certain conditions.  The conversion rate was initially .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).  ESS may, under certain circumstances, cause some or all of the Series G to be converted into that number of shares of common stock at the then prevailing conversion rate.  During the second quarter of 2014, each share of the Company's Series G was converted into 0.19301 shares of common stock. There were 178,249 shares of Series G converted into 34,403 shares of Common Stock. As of December 31, 2013, and 2012,there were 178,249 shares outstanding of Series G with an aggregate liquidation value of $4.5 million were outstanding.million.

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 usedcontributed to redeem all of the 7.875%Operating Partnership for a 7.125% Series BH Cumulative Redeemable Preferred UnitsInterest. As of Essex Portfolio, L.P. (“December 31, 2014 and 2013, there were 8,000,000 shares authorized and 2,950,000 shares outstanding of Series B”)H with aan aggregate 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.$73.8 million.

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

Common Stock Offerings

During 2013,In April 2014, Essex issued approximately 23,067,446 shares of Essex common stock as Stock Consideration in the BRE merger at an average price of $163.82.

In addition, during 2014, ESS sold 913,3442,964,315 shares of common stock for proceeds of $138.4$534.0 million, net of fees and commissions, at an average price of $152.92.$181.56.

During 20122013 and 2011,2012, ESS issued 2.4 million913,344 and 2,404,096 shares of common stock in each period for proceeds of $357.7$138.4 million and $323.9$357.7 million, net of fees and commissions, respectively.

Operating Partnership Units and Long Term Incentive Plan (“LTIP”) Units

As of December 31, 2014 and 2013, the Operating Partnership had outstanding 2,110,462 and 2,031,612 operating partnership units and 91,348 and 118,190 vested LTIP units.units, respectively. The Operating Partnership’s general partner, ESS, owned 96.7% and 94.6% of the partnership interests in the Operating Partnership at December 31, 2014 and 2013, respectively, 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 at the

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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


option of ESS were 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 evaluated this guidance, including the requirement to settle in unregistered shares, and determined that these OP units meet the requirements to qualify for presentation as permanent equity.

LTIP units represent an interest in the Operating Partnership for services rendered or to be rendered by the LTIP unit holder in its capacity as a partner, or in anticipation of becoming a partner, in the Operating Partnership. Upon the occurrence of specified events, LTIP units may over time achieve full parity with common units of the Operating Partnership for all purposes. Upon achieving full parity, LTIP units maywill be redeemedexchanged for an equal number of the ESS’s common stock.OP Units.

The redemption value of the OP units owned by the limited partners, not including ESS, had such units been redeemed at December 31, 2013,2014, was approximately $308.5$455 million based on the closing price of ESS’s common stock as of December 31, 2013.2014.

(12) Net Income Per Common Share and Net Income Per Common Unit

Essex Property Trust, Inc.

Basic and diluted income from continuing and discontinued operations per share is calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):
F-35
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
 2014 2013 2012
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 Income 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
Basic:                 
Income from continuing operations available to common stockholders$116,859
 56,546,959
 $2.07
 $121,324
 37,248,960
 $3.26
 $108,532
 35,032,491
 $3.10
                  
Income from discontinued operations available to common stockholders—
 56,546,959
 —
 29,487
 37,248,960
 0.79
 11,280
 35,032,491
 0.32
 $116,859
  
 $2.07
 $150,811
  
 $4.05
 $119,812
  
 $3.42
Effect of Dilutive Securities (1)—
 149,566
  
 —
 86,335
  
 —
 92,430
  
Diluted: 
  
  
  
  
  
  
  
  
Income from continuing operations available to common stockholders (1)$116,859
 56,696,525
 $2.06
 $121,324
 37,335,295
 $3.25
 $108,532
 35,124,921
 $3.09
                  
Income from discontinued operations available to common stockholders—
 56,696,525
 —
 29,487
 37,335,295
 0.79
 11,280
 35,124,921
 0.32
 $116,859
  
 $2.06
 $150,811
  
 $4.04
 $119,812
  
 $3.41

 
 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 
 
                                    

(1)Weighted average convertible limited partnership units of 2,224,707, 2,131,425, 2,219,046, and 2,231,807,2,219,046, which include vested Series Z andIncentive Units, Series Z-1 incentive units,Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units (collectively referred to as “LTIP Units”), for the years ended December 31, 2014, 2013 2012 and 2011,2012, respectively, were not included in the determination of diluted earnings per share calculation because they were anti-dilutive. The Company has the ability to redeem DownREIT limited partnership units for cash and does not consider them to be potentially dilutive securities.


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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


Stock options of 10,843; 168,325; 263,613; and 175,500;263,613; for the years ended December 31, 2014, 2013, 2012, and 2011,2012, respectively, were not included in the diluted earnings per share calculation because the exercise priceassumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive.

All shares of cumulative convertible Series G preferred stock have been excluded from diluted earnings per share for the years ended 2014, 2013, 2012, and 20112012 respectively, as the effect was anti-dilutive.

Essex Portfolio, L.P.

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 
 2014 2013 2012
 Income 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
 Income 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
 Income 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
Basic:                 
Income from continuing operations available to common unitholders$121,726
 58,771,666
 $2.07
 $128,576
 39,380,385
 $3.27
 $115,834
 37,251,537
 $3.11
Income from discontinued operations—
 58,771,666
 —
 31,173
 39,380,385
 0.79
 11,937
 37,251,537
 0.32
Income available to common unitholders$121,726
  
 $2.07
 $159,749
  
 $4.06
 $127,771
  
 $3.43
Effect of Dilutive Securities (1)—
 149,566
  
 —
 86,335
  
 —
 92,430
  
                  
Diluted: 
  
  
  
  
  
  
  
  
Income from continuing operations available to common unitholders (1)$121,726
 58,921,232
 $2.07
 $128,576
 39,466,720
 $3.26
 $115,834
 37,343,967
 $3.10
Income from discontinued operations—
 58,921,232
 —
 31,173
 39,466,720
 0.79
 11,937
 37,343,967
 0.32
Income available to common unitholders$121,726
  
 $2.07
 $159,749
  
 $4.05
 $127,771
  
 $3.42
 
(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 10,843; 168,325; 263,613; and 175,500;263,613; for the years ended December 31, 2014, 2013, 2012, and 2011,2012, respectively, were not included in the diluted earnings per unit calculation because the exercise priceassumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive.

All units ofThe cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the years ended 2014, 2013, 2012, and 20112012 respectively, as the effect was anti-dilutive.

F-36
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
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
 
In May 2013, stockholders approved the Company’s 2013 Stock Award and Incentive Compensation Plan (“2013 Plan”). The 2013 Plan became effective on June 1, 2013 and serves as the successor to the Company’s 2004 Stock Incentive Plan (the “2004 Plan”), and no additional equity awards can be granted under the 2004 Plan after the date the 2013 Plan became effective.
 

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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The Company’s 2013 Plan provides incentives to attract and retain officers, directors and key employees.  The 2013 Plan provides for the grants of options to purchase shares of common stock, grants of restricted stock and other award types.  Under the 2013 Plan, the maximum aggregate number of shares that 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 any reason.  The 2013 Plan is administered by the Compensation Committee of the Board of Directors 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 Company’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 $6.1 million, $2.3 million, $2.0 million, and $1.5$2.0 million for years ended December 31, 2014, 2013 2012 and 20112012 respectively.  Stock-based compensation capitalizedexpense for options and restricted stock for the year ended December 31, 2014 includes $3.6 million related to the BRE merger, of which $1.7 million relates to merger and integration expenses, which is recorded in merger and integration expense in the consolidated statements of income. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $0.4 million, $0.3$0.4 million, and $0.2$0.3 million for the years ended December 31, 2014, 2013 2012 and 2011,2012, respectively.  The intrinsic value of the options exercised totaled $12.7 million, $3.0 million, $2.9 million, and $3.8$2.9 million, for the years ended December 31, 2014, 2013, 2012, and 20112012 respectively.  The intrinsic value of the options outstanding and fully vested totaled $7.6$28.9 million, $9.9 million, and $10.6 million, for the years endedas of December 31, 2013, 2012 and 2011, respectively.2014.
 
Total unrecognized compensation cost related to unvested stock options totaled $5.1$3.6 million as of December 31, 20132014 and the unrecognized compensation cost is expected to be recognized over a period of 1 to 5 years.
 
The average fair value of stock options granted for the years ended December 31, 2014, 2013 and 2012 was $20.56, $15.80 and 2011 was $15.80, $12.64, and $14.49, respectively. Certain stock options gratedgranted in 2014, 2013, 2012, and 20112012 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%

F-37
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011
 2014 2013 2012
Stock price$176.65
 $153.54
 $143.95
Risk-free interest rates2.37% 2.68% 1.16%
Expected lives8 years
 8 years
 5 - 8 years
Volatility18.00% 18.03% 20.05%
Dividend yield2.90% 3.15% 3.26%

A summary of the status of the Company’s stock option plans as of December 31, 2014, 2013, 2012, and 20112012 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 
 2014 2013 2012
 Shares 
Weighted-
average
exercise
price
 Shares 
Weighted-
average
exercise
price
 Shares 
Weighted-
average
exercise
price
Outstanding at beginning of year695,488
 $133.37
 623,434
 $125.96
 415,020
 $109.71
Granted42,518
 176.65
 150,325
 153.54
 263,113
 143.95
Granted - BRE options converted133,766
 121.03
 —
 —
 —
 —
Exercised(185,387) 113.72
 (52,970) 102.43
 (41,603) 77.21
Forfeited and canceled(21,600) 144.29
 (25,301) 135.25
 (13,096) 128.36
Outstanding at end of year664,785
 138.78
 695,488
 133.37
 623,434
 125.96
Options exercisable at year end395,986
 133.99
 300,632
 119.09
 250,620
 107.12


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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The following table summarizes information about stock options outstanding as of December 31, 2013:2014:
  Options outstanding Options exercisable
  
Number
outstanding
as of
 
Weighted-
average
remaining
 
Weighted-
average
 
Number
exercisable
as of
 
Weighted-
average
Range of December 31, contractual exercise December 31, exercise
exercise prices 2014 life (years) price 2014 price
$66.05 - $101.01 39,590
 2.8 $79.64
 39,590
 $79.64
$103.82 - $161.98 561,626
 6.1 139.05
 303,670
 134.22
$164.76 - $179.48 63,569
 8.2 173.22
 52,726
 173.49
  664,785
 6.1 138.78
 395,986
 133.99

  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 

During 2013, 2012, and 2011 the Company issued 1,556, 1,614 and 1,540 shares of restricted stock, respectively.  The unrecognized compensation cost related to unvested restricted stock totaled $1.2 million as of December 31, 2013 and is expected to be recognized over a period of 1 to 7 years.
 
The following table summarizes information about restricted stock outstanding as of December 31, 2014, 2013 2012 and 20112012 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 
 2014 2013 2012
 Shares 
Weighted-
average
grant
price
 Shares 
Weighted-
average
grant
price
 Shares 
Weighted-
average
grant
price
Unvested at beginning of year16,176
 $108.06
 24,922
 $104.52
 35,219
 $98.57
Granted22,014
 194.03
 1,556
 158.75
 1,614
 149.68
Granted - BRE restricted stock converted119,411
 173.82
 —
 —
 —
 —
Vested(126,931) 171.56
 (7,211) 109.86
 (8,641) 106.69
Forfeited and canceled(4,850) 135.10
 (3,091) 100.84
 (3,270) 102.00
Unvested at end of year25,820
 168.22
 16,176
 108.06
 24,922
 104.52

The unrecognized compensation cost related to unvested restricted stock totaled $3.5 million as of December 31, 2014 and is expected to be recognized over a period of 1 to 7 years.

Long Term Incentive Plans – Z Units and 2014 LTIP Units

On December 10,9, 2014, the Operating Partnership issued 44,750 units under the 2015 Long-Term Incentive Plan Award agreements to executives of the Company. The 2015 Long-Term Incentive Plan Units (the “2015 LTIP Units”) are subject to forfeiture based on performance-based and service based conditions. An additional 24,000 units were granted subject only to performance-based criteria and are fully vested on the date granted. The 2015 LTIP Units, that are subject to vesting, will vest at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement ends December 9, 2015. The 2015 LTIP Units, once earned and vested, are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction. 2015 LTIP Units not earned based on the performance-based criteria shall be automatically forfeited by the recipient.

In December 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 ofThe 2014 Long-Term Incentive Plan Units (the “2014 LTIP Units”), 90% of which are were subject to forfeiture based on performance-based vesting,conditions and 10% of which are currently subject to service-based vestingservice based vesting. The 2014 LTIP Units vest 25% per year on continued employment.  One-thirdeach of the performance-based vestingfirst four anniversaries of the initial grant date. In December 2014, the Company achieved the performance criteria and all of the 2014 LTIP Units initially granted will be eligible to beawarded were earned by the recipients, subject to satisfaction of service 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 datevesting conditions. The 2014 LTIP Units are convertible one-for-one into common units of the awards.Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012



The estimated fair value of the 2015 LTIP Units and 2014 LTIP Units are determined on the grant date using Monte Carlo simulations under a risk-neutral premise and considers Essex’s current stock price, the unpaid dividends on unvested units and the discount factor for 10 years of illiquidity.

Prior to 2013, the Company adopted an incentive program involving the issuance ofissued 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 Units is contractually prohibited.  Z Units are convertible into Operating Partnership units which are exchangeable for shares of the Company’s common stock that have marketability restrictions.  The estimated fair value of a Z Unit 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 multiplying estimated vesting increases for the period by the estimated fair value as of the grant date less its $1.00 per unit purchase price.  Effective January 1 of each year for each participating executive who remains employed by the Company if the Company has met a specified “funds from operations” per share target, or such other target as the Compensation Committee deems appropriate, for the prior year, up to a maximum conversion ratchet of 100%.  Z units issued in 2011 and 2010 are discussed below.
The issuance of Z Units and 2014 LTIP Units are administered by the Compensation Committee which has the authority to select participants and determine the awards to be made up to a maximum of 600,000 Z Units and 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 unvested 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 stated performance criteria.date.
 
During 2011 and 2010, the Operating Partnership issued 46,500154,500 Series Z-1 Incentive Units (the “2011 Z-1“Z-1 Units”) of limited partner interest to fourteen executives of the Company in exchange for cash from eight executive officers of the Company, and a capital commitment from the remaining six executives of $1.00 per 2011 Z-1 Unit.Company.  The 2011 Z-1 Units are convertible one-for-one into common units of the Operating Partnership (which, in turn, are convertible into common stock of the Company) upon the earlier to occur of 100 percent vesting of the units or the year 2026.  The conversion ratchet (accounted for as vesting) of the 2011 Z-1 Units into common units, increasedis to 10 percent effective January 1, 2012 because the Company achieved the FFO minimum target of $5.65 per diluted share in 2011.  Each year thereafter, vesting of the 2011 Z-1 Units will beincrease consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent.  The 2011  Z-1 Unit holders are entitled to receive distributions, on vested units, that are approximately the same as dividends distributed to common stockholders.

During 2010,LTIP Units are administered by the Operating Partnership issued 108,000 Series Z-1 IncentiveCompensation Committee which has the authority to select participants and determine the awards to be made up to a maximum of 600,000 LTIP Units.
Stock-based compensation expense for LTIP Units (the “2010 Z-1 Units”)under the fair value method totaled approximately $6.0 million, $2.2 million and $2.1 million for the years ended December 31, 2014, 2013 and 2012, respectively. Stock-based compensation expense for the year ended December 31, 2014 includes $1.7 million related to merger and integration expenses and is recorded in merger and integration expense in the consolidated statements of limited partner interestincome. In the fourth quarter of 2014, stock-based compensation expense included $2.4 million related to twenty executivesan immediate vesting of certain of the Company.2015 LTIP Units.  Stock-based compensation related to LTIP Units attributable to recipients who are direct and incremental to these projects was capitalized to real estate under development and totaled approximately $0.4 million, $0.5 million, and $0.5 million, for the years ended December 31, 2014, 2013, and 2012, respectively.  The conversion ratchet (accounted for as vesting)intrinsic value of the 2010 Z-1vested and unvested LTIP Units into common units, increasedtotaled $68.8 million as of December 31, 2014.  Total unrecognized compensation cost related to 20 percent effective January 1, 2011 because the Company achievedunvested LTIP Units under the FFO minimum targetLTIP Units plans totaled $11.7 million as of $4.75 per diluted share in 2010.  OnceDecember 31, 2014.  On a weighted average basis, the units are vested, Z-1 Unit holders receive quarterly distributions of approximatelyunamortized cost for the dividend rate paid on common shares.  Each year thereafter, vesting2014 and 2015 LTIP Units and the Z Units is expected to be recognized over the next 4.2 years and 10.5 years, respectively, subject to the achievement of the 2010 Z-1 Units will be consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent.stated performance criteria.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


The following table summarizes information about the Z Units and 2014 LTIP Units outstanding as of December 31, 20132014 ($ in 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
December 31, 2013, 2012, and 2011
 Long Term Incentive Plan - LTIP Units
 
Total
Vested
Units
 
Total
Unvested
Units
 
Total
Outstanding
Units
 
Weighted-
average
Grant-date
Fair Value
 
Weighted-
average
Remaining
Contractual
Life (years)
Balance, December 31, 2011179,082
 170,019
 349,101
 $58.17
 12.3
Granted—
 —
 —
  
  
Vested28,163
 (28,163) —
  
  
Converted(16,541) —
 (16,541)  
  
Cancelled—
 (1,813) (1,813)  
  
Balance, December 31, 2012190,704
 140,043
 330,747
 58.44
 11.3
Granted—
 50,500
 50,500
  
  
Vested35,919
 (35,919) —
  
  
Converted(108,433) —
 (108,433)  
  
Cancelled—
 (5,243) (5,243)  
  
Balance, December 31, 2013118,190
 149,381
 267,571
 63.53
 9.3
Granted24,000
 44,750
 68,750
 

 
Vested41,729
 (41,729) —
 

 
Converted(2,000) —
 (2,000) 

 
Cancelled—
 (1,335) (1,335) 

 
Balance, December 31, 2014181,919
 151,067
 332,986
 $71.14
 10.5

(14) Segment Information

The Company defines its reportable operating segments as the three geographical regions in which its communities are located: Southern California, Northern California and Seattle Metro.  Excluded from segment revenues and net operating income are communities classified in discontinued operations, management and other fees from affiliates, and interest and other income.  Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties.  Other non-segment assets include real estate under development, co-investments, cash and cash equivalents, marketable securities, notes and other receivables, prepaid expenses and other assets and deferred charges.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


The revenues and net operating income for each of the reportable operating segments are summarized as follows for the years ended December 31, 2014, 2013, 2012, and 20112012 ($ 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 
 Years Ended December 31,
 2014 2013 2012
Revenues:     
Southern California$422,899
 $263,064
 $248,150
Northern California338,006
 212,167
 173,264
Seattle Metro168,053
 107,553
 92,489
Other real estate assets31,000
 19,219
 12,793
Total property revenues$959,958
 $602,003
 $526,696
Net operating income: 
  
  
Southern California$279,178
 $175,557
 $164,841
Northern California236,927
 146,699
 119,154
Seattle Metro112,384
 71,407
 60,853
Other real estate assets20,556
 12,328
 9,681
Total net operating income649,045
 405,991
 354,529
Depreciation and amortization(360,592) (192,420) (169,173)
Interest expense(164,551) (116,524) (111,888)
Management and other fees from affiliates9,347
 7,263
 8,457
General and administrative(40,878) (26,684) (24,573)
Merger and integration expenses(53,530) (4,284) —
Acquisition and disposition costs(1,878) (1,161) (2,215)
Interest and other income11,811
 11,633
 13,833
Loss on early retirement of debt, net(268) (300) (5,009)
Gain on sale of real estate and land46,039
 1,503
 —
Equity income from co-investments39,893
 55,865
 41,745
Gain on remeasurement of co-investment—
 —
 21,947
Income before discontinued operations$134,438
 $140,882
 $127,653


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


Total assets for each of the reportable operating segments are summarized as follows as of December 31, 20132014 and 20122013 ($ 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 
 As of December 31,
Assets:2014 2013
Southern California$4,249,107
 $1,732,791
Northern California3,641,720
 1,605,303
Seattle Metro1,647,058
 741,533
Other real estate assets149,820
 109,244
Net reportable operating segments - real estate assets9,687,705
 4,188,871
Real estate under development434,371
 50,430
Co-investments1,036,411
 677,133
Real estate held for sale, net56,300
 —
Cash and cash equivalents, including restricted cash95,420
 53,766
Marketable securities and other investments117,240
 90,084
Notes and other receivables24,923
 68,255
Other non-segment assets110,504
 58,300
Total assets$11,562,874
 $5,186,839

(15) 401(k) Plan
 
The Company has a 401(k) benefit plan (the “Plan”) for all full-time employees who have completed six months of service.eligible employees. Employee contributions are limited by the maximum allowed under Section 401(k) of the Internal Revenue Code.  The Company matches 50% of the employee contributions for non-highly compensated personnel, up to 50% of their contribution up to a specified maximum.  Company contributions to the Plan were approximately $0.2$0.9 million, $0.2$0.7 million, and $0.3$0.6 million for the years ended December 31, 2014, 2013, 2012, and 2011,2012, respectively.
 
(16) Commitments and Contingencies
 
As of December 31, 2013,2014, the Company had fivesix non-cancelable ground leases for certain apartment communities and buildings that expire between 2027 and 2082.  Ground lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities.  Total minimum lease commitments, under ground leases and operating leases, are approximately $1.7$2.5 million per year for the next five years.
 
To the extent that an environmental matter arises or is identified in the future that has other than a remote risk of having a material impact on the financial statements, the Company 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 Company will consider whether such occurrence results in an impairment of value on the affected property and, if so, impairment will be recognized.
 
Except with respect to three communities, the Company has no indemnification agreements from third parties for potential environmental clean-up costs at its communities.  The Company 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 communities formerly owned by the Company.  No assurance can be given that existing environmental studies with respect to any of the communities reveal all environmental liabilities, that any prior owner or operator of a Propertyproperty did not create any material environmental condition not known to the Company, or that a material environmental condition does not otherwise exist as to any one or more of the communities.  The Company has limited insurance coverage for some of the types of environmental liabilities described above.

The Company has entered into transactions that may require the Company to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities.  These transactions are within the Company’s control. Although the Company 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 Company 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 Company’s financial position.
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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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, and 2012


substantial monetary judgments or settlements.  The Company 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 Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  The Company has adopted policies to promptly address and resolve reports of mold when it is detected, and to minimize any impact mold might have on residents of 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 Company’s financial condition, results of operations or cash flows.  As of December 31, 2013,2014, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the communities.  There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism or earthquakes, for which the Company does not have insurance coverage.  Substantially all of the communities 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, 2013,2014, PWI has cash and marketable securities of approximately $40$57.6 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 sheetwas $114.4 million as of the co-investments included in Note 3.December 31, 2014.  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, 20132014 was $96.3$114.4 million based on the aggregate outstanding debt amount.

Since the announcement of the merger agreement on December 19, 2013, threeThree putative class action and shareholder derivative actions have beenwere 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-13-008425,24-C-13-8425, filed December 23, 2013; Applegate v. BRE Properties, Inc., et al.,No. 24-C-14-00002,24-C-14-2, filed December 30, 2013; and Lee v. BRE Properties, Inc., et al.,No. 24-C-14-0004624-C-14-46,filed January 3, 2014. On March 18, 2014, the parties reached an agreement in principle that provided for the settlement of action on the terms and conditions set forth in a memorandum of understanding. On October 28, 2014, the Court entered an Order and Final Judgment Settlement granting final approval of the Settlement. The Order and Final Judgment Settlement included a judgment of the dismissal of all claims against BRE, Essex and the other defendants with prejudice as well as a full release of any and all claims related to the Merger. The $500,000 to be paid by BRE or its successor(s) has been paid in full by Essex.

On February 7,December 19, 2014, Plaintiffsa punitive class action was filed identical, amended complaintsagainst the Company in the three pending actions.U.S. District Court for the Northern District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the personally-identifying information of its residents. The amended complaints add allegationslawsuit seeks the recovery of unspecified damages and certain injunctive relief. This lawsuit was filed in connection with a cyber-intrusion that disclosures regarding the proposed mergerCompany discovered in the joint proxy statement/prospectus filed withthird quarter of 2014. At this point, the SEC on January 29, 2014 are inadequate.
AllCompany is unable to predict the developments in, outcome of, these complaints name as defendants BRE,and/or economic and/or other consequences of this litigation or predict the BRE Board, Essex, and Merger Sub, and allege that the BRE Board breached its fiduciary dutiesdevelopments in, outcome of, and/or other consequences arising out of any potential future litigation or government inquiries related 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.  Essex management believes that the allegations in the complaints against them are without merit and intend to defend vigorously against them.this matter.

The Company is subject to various other lawsuitslegal and/or regulatory proceedings arising in the normal course of its business operations.  Such lawsuitsWe believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not expected to haveresult in a material adverse effect on the Company’s financial condition, results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2013, 2012, and 2011

(17) Subsequent Events

In January 2014,2015, the Company sold Vista Capri,Pinnacle South Mountain, a 106552 unit apartment community, located in San Diego, CAPhoenix, AZ for $14.4$63.8 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, the Company expanded its unsecured revolving credit facility to $1.0 billion from $600 million,2013, 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.2012

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 20142015 through February 24, 2014,2015, ESS sold 462,555636,021 shares of common stock for $74.9$142.0 million, net of fees and commissions at an average price of $162.97.$224.76.

F-44In February 2015, the Company purchased a parcel of land located in San Francisco, CA for a contract price of $43.6 million. The Company plans to develop a forty-two story apartment community comprising 545 homes and 5,900 square feet of ground floor retail space.

In February 2015, the Company acquired 8th and Hope, a 290 unit community in Los Angeles, CA for $200 million. The property was completed in 2014 and has roughly 4,000 square feet of ground floor retail space.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


(18) Quarterly Results of Operations (Unaudited)

Essex Property Trust, Inc.

The following is a summary of quarterly results of operations for 2014 and 2013 and 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
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2014 (1):       
Total property revenues$276,209
 $268,118
 $256,614
 $159,017
Income before discontinued operations$44,805
 $58,582
 $4,645
 $26,406
Net income$44,805
 $58,582
 $4,645
 $26,406
Net income available to common stockholders$40,175
 $53,565
 $1,207
 $21,912
Per share data: 
  
  
  
Net income: 
  
  
  
Basic (2)$0.63
 $0.85
 $0.02
 $0.58
Diluted (2)$0.63
 $0.85
 $0.02
 $0.58
Market price: 
  
  
  
High$211.91
 $180.65
 $185.66
 $171.70
Low$206.35
 $178.27
 $183.36
 $166.95
Close$206.60
 $178.75
 $184.91
 $170.05
Dividends declared$1.30
 $1.30
 $1.30
 $1.21
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 (2)$0.85
 $1.84
 $0.67
 $0.68
Diluted (2)$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

(1)Includes BRE results of operations after the merger date, April 1, 2014.
(2)Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.
.


F- 54
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2014, 2013, 2012, and 20112012


Essex Portfolio, L.P.

The following is a summary of quarterly results of operations for 2014 and 2013 and 2012 ($ in thousands, except per unit and distribution amounts):
 
Quarter ended
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2014 (1):       
Total property revenues$276,209
 $268,118
 $256,614
 $159,017
Income before discontinued operations$44,805
 $58,582
 $4,645
 $26,406
Net income$44,805
 $58,582
 $4,645
 $26,406
Net income available to common unitholders$41,599
 $55,382
 $1,416
 $23,329
Per unit data: 
  
  
  
Net income: 
  
  
  
Basic (2)$0.63
 $0.85
 $0.02
 $0.58
Diluted (2)$0.63
 $0.85
 $0.02
 $0.58
Distributions declared$1.30
 $1.30
 $1.30
 $1.21
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 (2)$0.87
 $1.84
 $0.67
 $0.68
Diluted (2)$0.86
 $1.84
 $0.67
 $0.68
Distributions declared$1.21
 $1.21
 $1.21
 $1.21

 
 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 
(1)Includes BRE results of operations after the merger date, April 1, 2014.
(2)Quarterly earnings per common unit amounts may not total to the annual amounts due to rounding and the changes in the number of weighted common units outstanding and included in the calculation of basic and diluted shares.

F- 55
F-46
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2013, 2012, and 20112014
(Dollars in thousands)


 
  
 
       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 
 Highridge255Rancho Palos Verdes, CA44,8075,41918,34726,3266,07344,01950,092(19,916)197205/973-30
 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) 
F-47
      Costs       
    Initial costcapitalizedGross amount carried at close of period    
     Buildings andsubsequent toLand andBuildings and AccumulatedDate ofDateLives
PropertyUnitsLocationEncumbranceLandimprovementsacquisitionimprovementsimprovementsTotal (1)depreciationconstructionacquired(years)
Encumbered communities             
 The Elliot at Mukilteo301
 Mukilteo, WA10,750
2,498
10,595
14,371
2,824
24,640
27,464
(12,928)1981Jan-97    3-30
 Avondale at Warner Center446
 Woodland Hills, CA45,349
10,536
24,522
15,722
10,601
40,179
50,780
(23,899)1970Jan-97    3-30
 Bridgeport184
 Newark, CA21,003
1,608
7,582
7,465
1,525
15,130
16,655
(11,592)1987Jul-87    3-30
 Barkley, The (2)161
 Anaheim, CA16,269
—
8,520
5,195
2,353
11,362
13,715
(5,536)1984Apr-00    3-30
 Bel Air462
 San Ramon, CA53,835
12,105
18,252
28,826
12,682
46,501
59,183
(23,898)1988Jan-97    3-30
 Belmont Station275
 Los Angeles, CA30,045
8,100
66,666
3,968
8,267
70,467
78,734
(18,446)2008Dec-08    3-30
 Bella Villagio231
 San Jose, CA35,870
17,247
40,343
1,983
17,247
42,326
59,573
(6,432)2004Sep-10    3-30
 Brookside Oaks170
 Sunnyvale, CA19,312
7,301
16,310
22,116
10,328
35,399
45,727
(14,425)1973Jun-00    3-30
  Camino Ruiz Square160
 Camarillo, CA21,110
6,871
26,119
1,317
6,931
27,376
34,307
(7,498)1990Dec-06    3-30
  Canyon Oaks250
 San Ramon, CA28,101
19,088
44,473
2,244
19,088
46,717
65,805
(12,259)2005May-07    3-30
  Carlyle, The132
 San Jose, CA22,419
3,954
15,277
10,147
5,801
23,577
29,378
(11,057)2000Apr-00    3-30
  City View572
 Hayward, CA74,903
9,883
37,670
21,926
10,350
59,129
69,479
(35,386)1975Mar-98    3-30
  Courtyard off Main109
 Bellevue, WA15,757
7,465
21,405
2,766
7,465
24,171
31,636
(3,701)2000Oct-10    3-30
  Domaine92
 Seattle, WA15,793
9,059
27,177
473
9,059
27,650
36,709
(2,151)2009Sep-12    3-30
  Elevation157
 Redmond, WA11,308
4,758
14,285
5,667
4,757
19,953
24,710
(4,178)1986Jun-10    3-30
  Esplanade278
 San Jose, CA42,950
18,170
40,086
8,307
18,429
48,134
66,563
(17,173)2002Apr-11    3-30
  Fairhaven164
 Santa Ana, CA20,721
2,626
10,485
5,761
2,957
15,915
18,872
(6,850)1970Nov-01    3-30
  Fairwood Pond194
 Renton, WA12,725
5,296
15,564
2,232
5,297
17,795
23,092
(6,688)1997Oct-04    3-30
  Fountain Park705
 Playa Vista, CA83,179
25,073
94,980
25,540
25,203
120,390
145,593
(48,601)2002Feb-04    3-30
  Harvest Park104
 Santa Rosa, CA10,241
6,700
15,479
1,099
6,690
16,588
23,278
(4,693)2004Mar-07    3-30
  Hampton Place /Hampton Court215
 Glendale, CA20,616
6,695
16,753
8,310
6,733
25,025
31,758
(11,951)1970Jun-99    3-30
  Hidden Valley324
 Simi Valley, CA30,053
14,174
34,065
2,063
9,674
40,628
50,302
(14,322)2004Dec-04    3-30
  Highridge255
 Rancho Palos Verdes, CA44,807
5,419
18,347
28,623
6,073
46,316
52,389
(23,162)1972May-97    3-30
  Highlands at Wynhaven333
 Issaquah, WA32,212
16,271
48,932
6,609
16,271
55,541
71,812
(12,981)2000Aug-08    3-30
  Hillcrest Park608
 Newbury Park, CA67,064
15,318
40,601
16,690
15,755
56,854
72,609
(29,850)1973Mar-98    3-30
  Huntington Breakers342
 Huntington Beach, CA37,446
9,306
22,720
13,803
9,315
36,514
45,829
(16,859)1984Oct-97    3-30
  Inglenook Court224
 Bothell, WA8,300
3,467
7,881
6,418
3,474
14,292
17,766
(9,683)1985Oct-94    3-30
  Magnolia Square/Magnolia Lane (3)188
 Sunnyvale, CA17,701
8,190
24,736
14,056
8,191
38,791
46,982
(10,633)1969Sep-07    3-30
  Mirabella188
 Marina Del Rey, CA44,556
6,180
26,673
13,877
6,270
40,460
46,730
(17,813)2000May-00    3-30
  Mill Creek at Windermere400
 San Ramon, CA48,348
29,551
69,032
2,974
29,551
72,006
101,557
(17,916)2005Sep-07    3-30

F- 56
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
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 Lofts147San Francisco, CA21,77150,80023,30428,37167,50395,875(2,456)200412/123-30
 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
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2013, 2012, and 20112014
(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 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)


      Costs       
    Initial costcapitalizedGross amount carried at close of period    
     Buildings andsubsequent toLand andBuildings and AccumulatedDate ofDateLives
PropertyUnitsLocationEncumbranceLandimprovementsacquisitionimprovementsimprovementsTotal (1)depreciationconstructionacquired(years)
  Montclaire, The390
 Sunnyvale, CA45,833
4,842
19,776
20,330
4,997
39,951
44,948
(31,729)1973Dec-88    3-30
  Montebello248
 Kirkland, WA28,423
13,857
41,575
3,500
13,858
45,074
58,932
(4,057)1996Jul-12    3-30
  Montejo124
 Garden Grove, CA15,728
1,925
7,685
2,509
2,194
9,925
12,119
(4,566)1974Nov-01    3-30
  Park Hill at Issaquah245
 Issaquah, WA28,426
7,284
21,937
3,733
7,284
25,670
32,954
(9,049)1999Feb-99    3-30
  Palisades, The192
 Bellevue, WA20,573
1,560
6,242
11,006
1,565
17,243
18,808
(12,559)1977May-90    3-30
 Pathways296
 Long Beach, CA37,046
4,083
16,757
18,993
6,239
33,594
39,833
(24,284)1975Feb-91    3-30
  Stevenson Place200
 Fremont, CA21,394
996
5,582
7,314
1,001
12,891
13,892
(9,713)1971Apr-83    3-30
  Stonehedge Village196
 Bothell, WA12,109
3,167
12,603
5,064
3,201
17,633
20,834
(10,210)1986Oct-97    3-30
  Summerhill Park100
 Sunnyvale, CA13,326
2,654
4,918
2,326
2,656
7,242
9,898
(5,133)1988Sep-88    3-30
  The Bernard63
 Seattle, WA9,479
3,699
11,345
171
3,689
11,526
15,215
(1,291)2008Sep-11    3-30
  The Huntington276
 Huntington Beach, CA32,096
10,374
41,495
2,594
10,374
44,089
54,463
(3,980)1975Jun-12    3-30
  Tierra Vista404
 Oxnard, CA55,212
13,652
53,336
3,863
13,661
57,190
70,851
(20,787)2001Jan-01    3-30
  Valley Park160
 Fountain Valley, CA26,479
3,361
13,420
3,516
3,761
16,536
20,297
(7,460)1969Nov-01    3-30
  Villa Angelina256
 Placentia, CA32,674
4,498
17,962
5,988
4,962
23,486
28,448
(9,902)1970Nov-01    3-30
  Wandering Creek156
 Kent, WA5,300
1,285
4,980
3,695
1,296
8,664
9,960
(5,853)1986Nov-95    3-30
  Waterford, The238
 San Jose, CA31,275
11,808
24,500
12,916
15,165
34,059
49,224
(16,320)2000Jun-00    3-30
  Wilshire Promenade149
 Fullerton, CA17,657
3,118
7,385
7,493
3,797
14,199
17,996
(7,518)1992Jan-97    3-30
  Ellington at Bellevue220
 Bellevue, WA23,279
15,066
45,249
98
15,066
45,347
60,413
(556)1994Jul-14    3-30
  Piedmont396
 Bellevue, WA48,180
19,848
59,606
1,557
19,848
61,163
81,011
(1,288)1969May-14    3-30
  The Avery121
 Los Angeles, CA10,000
6,964
29,922
—
6,964
29,922
36,886
(787)2014Mar-14    3-30
 BRE acquired properties2,899
 Southern California424,041
163,608
659,448
3,344
163,608
662,792
826,400
(18,178)1987 - 2008Apr-14    3-30
 BRE acquired properties1,074
 Northern California219,244
170,747
363,720
1,383
170,747
365,103
535,850
(10,149)1970 - 2010Apr-14    3-30
 BRE acquired properties1,111
 Seattle Metro145,427
64,301
265,474
1,703
64,301
267,177
331,478
(7,304)1992 - 2009Apr-14    3-30
   2,245,944
825,606
2,600,447
423,644
839,395
3,010,302
3,849,697
(665,234)   
              
Unencumbered Communities             
  Apex366
 Milpitas, CA 44,240
103,251
89
44,240
103,340
147,580
(1,249)2014Aug-14    3-30
  Collins on Pine76
 Seattle, WA 7,276
22,226
7
7,276
22,233
29,509
(464)2013May-14    3-30
  Paragon301
 Fremont, CA 32,230
77,320
40
32,230
77,360
109,590
(1,183)2013Jul-14    3-30
  Allegro97
 Valley Village, CA 5,869
23,977
1,385
5,869
25,362
31,231
(5,293)2010Oct-10    3-30
  Alpine Village301
 Alpine, CA 4,967
19,728
5,362
4,982
25,075
30,057
(10,302)1971Dec-02    3-30
  Anavia250
 Anaheim, CA 15,925
63,712
5,968
15,925
69,680
85,605
(9,491)2009Dec-10    3-30

F- 57
F-49
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2013, 2012, and 20112014
(Dollars in thousands)

 
 
 
 
 
 
  
  Costs  
  
  
  
  
  
 
 
 Rentable 
 
 
 Initial cost  capitalized  Gross amount carried at close of period  
  
  
 
 
 Square 
 
 
 
  Buildings and  subsequent to  Land and  Buildings and  
  Accumulated  Date of  DateLives 
Property Footage LocationEncumbrance 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   07/063-30 
   Santa Clara Retail  139,000 Santa Clara, CA
 
  6,472   11,704   3,616   6,472   15,320   21,792   (2,687)  1970   09/113-30 
   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   11/973-30 
   17461 Derian Ave  110,000 Irvine, CA
 
  3,079   12,315   6,829   3,909   18,314   22,223   (10,286)  1983   07/003-30 
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)        

      Costs       
    Initial costcapitalizedGross amount carried at close of period    
     Buildings andsubsequent toLand andBuildings and AccumulatedDate ofDateLives
PropertyUnitsLocationEncumbranceLandimprovementsacquisitionimprovementsimprovementsTotal (1)depreciationconstructionacquired(years)
  Annaliese56
 Seattle, WA 4,727
14,229
153
4,726
14,383
19,109
(949)2009Jan-13    3-30
  Ascent90
 Kirkland, WA 3,924
11,862
1,538
3,924
13,400
17,324
(1,143)1988Oct-12    3-30
  Axis 2300115
 Irvine, CA 5,405
33,585
965
5,405
34,550
39,955
(7,071)2010Aug-10    3-30
  Bellerive63
 Los Angeles, CA 5,401
21,803
629
5,401
22,432
27,833
(3,412)2011Aug-11    3-30
  Belmont Terrace71
 Belmont, CA 4,446
10,290
3,100
4,473
13,363
17,836
(4,706)1974Oct-06    3-30
  Bennett Lofts165
 San Francisco, CA 21,771
50,800
24,463
28,371
68,663
97,034
(4,919)2004Dec-12    3-30
  Bonita Cedars120
 Bonita, CA 2,496
9,913
1,985
2,503
11,891
14,394
(5,084)1983Dec-02    3-30
  Boulevard172
 Fremont, CA 3,520
8,182
10,690
3,580
18,812
22,392
(12,518)1978Jan-96    3-30
  Bridle Trails108
 Kirkland, WA 1,500
5,930
5,474
1,531
11,373
12,904
(6,483)1986Oct-97    3-30
  Brighton Ridge264
 Renton, WA 2,623
10,800
4,070
2,656
14,837
17,493
(8,809)1986Dec-96    3-30
  Bristol Commons188
 Sunnyvale, CA 5,278
11,853
4,993
5,293
16,831
22,124
(8,832)1989Jan-97    3-30
  416 on Broadway115
 Glendale, CA 8,557
34,235
1,543
8,557
35,778
44,335
(5,115)2009Dec-10    3-30
  Bunker Hill456
 Los Angeles, CA 11,498
27,871
21,173
11,639
48,903
60,542
(19,993)1968Mar-98    3-30
  Cairns, The100
 Seattle, WA 6,937
20,679
967
6,939
21,644
28,583
(5,498)2006Jun-07    3-30
  Camarillo Oaks564
 Camarillo, CA 10,953
25,254
3,984
11,075
29,116
40,191
(17,860)1985Jul-96  �� 3-30
  Canyon Pointe250
 Bothell, WA 4,692
18,288
5,099
4,693
23,386
28,079
(9,143)1990Oct-03    3-30
  Capri at Sunny Hills100
 Fullerton, CA 3,337
13,320
8,060
4,048
20,669
24,717
(9,439)1961Sep-01    3-30
  Castle Creek216
 Newcastle, WA 4,149
16,028
2,412
4,833
17,756
22,589
(10,781)1997Dec-97    3-30
  CBC Apartments & The Sweeps239
 Goleta, CA 11,841
45,320
4,882
11,906
50,137
62,043
(17,174)1962Jan-06    3-30
  CentrePointe224
 San Diego, CA 3,405
7,743
18,330
3,442
26,036
29,478
(9,454)1974Jun-97    3-30
  Cedar Terrace180
 Bellevue, WA 5,543
16,442
4,297
5,652
20,630
26,282
(7,810)1984Jan-05    3-30
  Chestnut Street96
 Santa Cruz, CA 6,582
15,689
1,083
6,582
16,772
23,354
(3,894)2002Jul-08    3-30
  Commons, The264
 Campbell, CA 12,555
29,307
4,484
12,556
33,790
46,346
(5,920)1973Jul-10    3-30
  Corbella at Juanita Bay169
 Kirkland, WA 5,801
17,415
2,008
5,801
19,423
25,224
(2,819)1978Nov-10    3-30
  Country Villas180
 Oceanside, CA 4,174
16,583
2,954
4,187
19,524
23,711
(8,457)1976Dec-02    3-30
  Delano/Bon Terra126
 Redmond, WA 7,470
22,511
911
7,470
23,422
30,892
(2,419)2005Dec-11    3-30
  Devonshire276
 Hemet, CA 3,470
13,786
2,748
3,482
16,522
20,004
(7,166)1988Dec-02    3-30
  Domain379
 San Diego, CA 23,848
95,394
390
23,848
95,784
119,632
(3,616)2013Nov-13    3-30
  Emerald Ridge180
 Bellevue, WA 3,449
7,801
3,220
3,449
11,021
14,470
(7,768)1987Nov-94    3-30
  Essex Skyline at MacArthur Place349
 Santa Ana, CA 21,537
146,099
1,846
21,537
147,945
169,482
(13,566)2008Apr-12    3-30
  Evergreen Heights200
 Kirkland, WA 3,566
13,395
4,426
3,649
17,738
21,387
(10,019)1990Jun-97    3-30

F- 58
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(Dollars in thousands)


      Costs       
    Initial costcapitalizedGross amount carried at close of period    
     Buildings andsubsequent toLand andBuildings and AccumulatedDate ofDateLives
PropertyUnitsLocationEncumbranceLandimprovementsacquisitionimprovementsimprovementsTotal (1)depreciationconstructionacquired(years)
  Fairways (4)74
 Newport Beach, CA —
7,850
6,107
9
13,948
13,957
(6,203)1972Jun-99    3-30
  Foothill Commons388
 Bellevue, WA 2,435
9,821
35,126
2,440
44,942
47,382
(26,268)1978Mar-90    3-30
  Foothill Gardens/Twin Creeks176
 San Ramon, CA 5,875
13,992
6,870
5,964
20,773
26,737
(11,064)1985Feb-97    3-30
  Forest View192
 Renton, WA 3,731
14,530
1,530
3,731
16,060
19,791
(6,358)1998Oct-03    3-30
  Fountain Court320
 Seattle, WA 6,702
27,306
9,252
6,585
36,675
43,260
(16,960)2000Mar-00    3-30
  Fourth & U171
 Berkeley, CA 8,879
52,351
2,336
8,879
54,687
63,566
(9,859)2010Apr-10    3-30
  Fox Plaza443
 San Francisco, CA 39,731
92,706
5,046
39,731
97,752
137,483
(6,255)1968Feb-13    3-30
  Hillsborough Park235
 La Habra, CA 6,291
15,455
1,785
6,272
17,259
23,531
(8,882)1999Sep-99    3-30
  Hillsdale Garden697
 San Mateo, CA 22,000
94,681
19,608
22,000
114,289
136,289
(33,598)1948Sep-06    3-30
  Hope Ranch Collection108
 Santa Barbara, CA 4,078
16,877
2,461
4,208
19,208
23,416
(4,854)1965Mar-07    3-30
  Joule295
 Seattle, WA 14,558
69,417
3,366
14,558
72,783
87,341
(13,492)2010Mar-10    3-30
  1000 Kiely121
 Santa Clara, CA 9,359
21,845
5,773
9,359
27,618
36,977
(4,107)1971Mar-11    3-30
  Kings Road196
 Los Angeles, CA 4,023
9,527
9,926
4,031
19,445
23,476
(9,944)1979Jun-97    3-30
  Laurels at Mill Creek164
 Mill Creek, WA 1,559
6,430
5,237
1,595
11,631
13,226
(7,021)1981Dec-96    3-30
  Le Parc Luxury Apartments140
 Santa Clara, CA 3,090
7,421
10,906
3,092
18,325
21,417
(11,312)1975Feb-94    3-30
  Lofts at Pinehurst, The118
 Ventura, CA 1,570
3,912
4,463
1,618
8,327
9,945
(4,195)1971Jun-97    3-30
  Marbrisa202
 Long Beach, CA 4,700
18,605
5,099
4,760
23,644
28,404
(9,508)1987Sep-02    3-30
  Marina City Club (5)101
 Marina Del Rey, CA —
28,167
22,885
—
51,052
51,052
(14,347)1971Jan-04    3-30
  Marina Cove (6)292
 Santa Clara, CA 5,320
16,431
11,125
5,324
27,552
32,876
(16,710)1974Jun-94    3-30
  Mariners Place105
 Oxnard, CA 1,555
6,103
2,079
1,562
8,175
9,737
(4,213)1987May-00    3-30
  Meadowood320
 Simi Valley, CA 7,852
18,592
6,654
7,898
25,200
33,098
(14,710)1986Nov-96    3-30
  Mesa Village133
 Clairemont, CA 1,888
7,498
1,177
1,894
8,669
10,563
(3,613)1963Dec-02    3-30
  Mira Monte355
 Mira Mesa, CA 7,165
28,459
8,766
7,186
37,204
44,390
(17,380)1982Dec-02    3-30
  Miracle Mile/Marbella236
 Los Angeles, CA 7,791
23,075
13,028
7,886
36,008
43,894
(19,131)1988Aug-97    3-30
  Mission Hills282
 Oceanside, CA 10,099
38,778
4,446
10,167
43,156
53,323
(15,073)1984Jul-05    3-30
  Monterra del Mar/Rey/Sol292
 Pasadena, CA 2,202
4,794
37,612
8,385
36,223
44,608
(14,718)1972Apr-99    3-30
  Monterey Villas122
 Oxnard, CA 2,349
5,579
5,669
2,424
11,173
13,597
(5,739)1974Jul-97    3-30
  Muse152
 North Hollywood, CA 7,822
33,436
1,748
7,823
35,183
43,006
(6,717)2011Feb-11    3-30
  Park Catalina90
 Los Angeles, CA 4,710
18,839
1,781
4,710
20,620
25,330
(1,823)2002Jun-12    3-30
  Park West126
 San Francisco, CA 9,424
21,988
4,701
9,424
26,689
36,113
(2,120)1958Sep-12    3-30
  Pinehurst (7)28
 Ventura, CA 355
1,356
481
6
2,186
2,192
(943)1973Dec-04    3-30
  Pointe at Cupertino, The116
 Cupertino, CA 4,505
17,605
11,290
4,505
28,895
33,400
(10,003)1963Aug-98    3-30

F- 59
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(Dollars in thousands)


      Costs       
    Initial costcapitalizedGross amount carried at close of period    
     Buildings andsubsequent toLand andBuildings and AccumulatedDate ofDateLives
PropertyUnitsLocationEncumbranceLandimprovementsacquisitionimprovementsimprovementsTotal (1)depreciationconstructionacquired(years)
  Reed Square100
 Sunnyvale, CA 6,873
16,037
7,708
6,873
23,745
30,618
(2,853)1970Jan-12    3-30
  Regency at Encino75
 Encino, CA 3,184
12,737
2,202
3,184
14,939
18,123
(3,151)1989Dec-09    3-30
  Salmon Run at Perry Creek132
 Bothell, WA 3,717
11,483
1,430
3,801
12,829
16,630
(6,057)2000Oct-00    3-30
  101 San Fernando323
 San Jose, CA 4,173
58,961
6,876
4,173
65,837
70,010
(10,762)2001Jul-10    3-30
  Sammamish View153
 Bellevue, WA 3,324
7,501
6,035
3,331
13,529
16,860
(9,553)1986Nov-94    3-30
  San Marcos432
 Richmond, CA 15,563
36,204
26,908
22,866
55,809
78,675
(21,628)2003Nov-03    3-30
  Santee Court/Santee Village238
 Los Angeles, CA 9,581
40,317
2,726
9,582
43,042
52,624
(6,655)2004Oct-10    3-30
  Shadow Point172
 Spring Valley, CA 2,812
11,170
1,950
2,820
13,112
15,932
(5,659)1983Dec-02    3-30
  Slater 116108
 Kirkland, WA 7,379
22,138
322
7,379
22,460
29,839
(994)2013Sep-13    3-30
  Summit Park300
 San Diego, CA 5,959
23,670
4,392
5,977
28,044
34,021
(11,974)1972Dec-02    3-30
  The Grand243
 Oakland, CA 4,531
89,208
4,426
4,531
93,634
98,165
(21,286)2009Jan-09    3-30
  Trabucco Villas132
 Lake Forest, CA 3,638
8,640
2,451
3,890
10,839
14,729
(6,013)1985Oct-97    3-30
  Tuscana30
 Tracy, CA 2,828
6,599
165
2,870
6,722
9,592
(1,708)2007Feb-07    3-30
  Via284
 Sunnyvale, CA 22,000
82,270
540
22,016
82,794
104,810
(11,895)2011Jul-11    3-30
  Vista Belvedere76
 Tiburon, CA 5,573
11,901
5,861
5,573
17,762
23,335
(6,804)1963Aug-04    3-30
  Vox58
 Seattle, WA 5,545
16,635
67
5,545
16,702
22,247
(674)2013Oct-13    3-30
  Walnut Heights163
 Walnut, CA 4,858
19,168
3,645
4,887
22,784
27,671
(8,553)1964Oct-03    3-30
  Wharfside Pointe142
 Seattle, WA 2,245
7,020
9,697
2,258
16,704
18,962
(8,780)1990Jun-94    3-30
  Willow Lake508
 San Jose, CA 43,194
101,030
5,312
43,194
106,342
149,536
(8,351)1989Oct-12    3-30
  Windsor Ridge216
 Sunnyvale, CA 4,017
10,315
14,104
4,021
24,415
28,436
(13,679)1989Mar-89    3-30
  Woodland Commons302
 Bellevue, WA 2,040
8,727
19,311
2,044
28,034
30,078
(12,937)1978Mar-90    3-30
  Woodside Village145
 Ventura, CA 5,331
21,036
3,384
5,341
24,410
29,751
(8,669)1987Dec-04    3-30
 BRE acquired properties5,438
 Southern California 368,894
1,394,794
12,180
368,894
1,406,974
1,775,868
(39,591)1964 - 2014Apr-14    5-30
 BRE acquired properties3,265
 Northern California 375,703
944,881
8,147
375,703
953,028
1,328,731
(27,762)1992 - 2014Apr-14    5-30
 BRE acquired properties1,710
 Seattle Metro 80,464
373,710
1,958
80,464
375,668
456,132
(10,461)1989 - 2013Apr-14    5-30
 46,739
 —
1,540,006
5,192,199
585,858
1,562,973
5,755,090
7,318,063
(873,388)   
              


F- 60
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2014
(Dollars in thousands)


       Costs       
     Initial cost capitalized Gross amount carried at close of period    
  Square    Buildings and subsequent Land and Buildings and  AccumulatedDate ofDateLives
Property FootageLocationEncumbrance Landimprovementsto acquisitionimprovementsimprovementsTotal(1)depreciationconstructionacquired(years)
Other real estate assets             
 Hollywood34,000
 Los Angeles, CA 10,200
13,800
2,402
10,200
16,202
26,402
(5,262)1938Jul-06    3-30
 Santa Clara Retail138,915
 Santa Clara, CA 6,472
11,704
4,586
6,472
16,290
22,762
(3,665)1970Sep-11    3-30
 925/935 East Meadow Drive39,600
 Palo Alto, CA 1,401
3,172
8,758
3,547
9,784
13,331
(3,481)1988Nov-97    3-30
 17461 Derian Ave107,720
 Irvine, CA 3,079
12,315
6,862
3,909
18,347
22,256
(11,322)1983Jul-00    3-30
   —
21,152
40,991
22,608
24,128
60,623
84,751
(23,730)   
              
ESS Consolidated real estate under development 17,948
—
416,423
59,598
374,773
434,371
(2,454)   
              
Total2,245,944
2,404,712
7,833,637
1,448,533
2,486,094
9,200,788
11,686,882
(1,564,806)   
 
(1)The aggregate cost for federal income tax purposes is approximately $4.6(1) The aggregate cost for federal income tax purposes is approximately $8.2 billion (unaudited).
(2)(2) The land is leased pursuant to a ground lease expiring 2082.
(3)(3) The land is leased pursuant to a ground lease expiring 2070.
(4)(4) The land is leased pursuant to a ground lease expiring 2027.
(5)(5) The land is leased pursuant to a ground lease expiring 2067.
(6)(6) A portion of land is leased pursuant to a ground lease expiring in 2028.
(7)(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 
 2014 2013 2012 2014 2013 2012
Rental properties:     Accumulated depreciation:     
Balance at beginning of year$5,443,757
 $5,033,672
 $4,313,064
Balance at beginning of year$1,254,886
 $1,081,517
 $920,026
Improvements135,812
 92,016
 97,947
Depreciation expense - Acquisitions121,426
 6,203
 3,744
Acquisition of real estate (1)
5,685,884
 344,476
 619,743
Depreciation expense - Discontinued operations—
 12,290
 2,108
Development of real estate19,751
 14,111
 25,545
Depreciation expense - Rental properties199,495
 168,092
 161,492
Disposition of real estate(32,693) (40,518) (22,627)Dispositions(11,001) (13,216) (5,853)
Balance at the end of year$11,252,511
 $5,443,757
 $5,033,672
Balance at the end of year$1,564,806
 $1,254,886
 $1,081,517

(1) Amount for 2014 includes $5.2 billion related to BRE merger.

F- 61
F-50
Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 ofor 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto, State of California, on February 26, 2014.March 2, 2015.
.
ESSEX PROPERTY TRUST, INC.
By:  /S/ MICHAEL T. DANCE
 Michael T. Dance
Executive Vice President, Chief Financial Officer
(Authorized Officer, Principal Financial and Accounting Officer)
By:  /S/ JOHN FARIAS
John Farias
Group Vice President, Chief Accounting Officer
ESSEX PORTFOLIO, L.P.
By: Essex Property Trust, Inc., its general partner
By:  /S/ MICHAEL T. DANCE
Michael T. Dance
Executive Vice President, Chief Financial Officer

(Authorized Officer, Principal Financial andOfficer)
By:  /S/ JOHN FARIAS
John Farias
Group Vice President, Chief Accounting Officer)Officer


S- 1
S-1
Table of Contents

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael 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 each Registrant and in the capacitycapacities and on the datedates indicated.
 
 
Signature
 
 
Title
 
 
Date
 
/S/ MICHAEL J. SCHALL
Michael J. Schall
Chief Executive Officer and President, and Director (Principal Executive Officer)February 26, 2014March 2, 2015
 
/S/ KEITH R. GUERICKE
Keith R. Guericke
Director, and Vice Chairman of the Board
 
February 26, 2014March 2, 2015
 
/S/ GEORGE M. MARCUS
George M. Marcus
Director and Chairman of the BoardFebruary 26, 2014March 2, 2015
 
/S/ DAVID W. BRADY
David W. Brady
DirectorFebruary 26, 2014March 2, 2015
 
/S/ IRVING F. LYONS, III
Irving F. Lyons, III
DirectorMarch 2, 2015
/S/ GARY P. MARTIN
Gary P. Martin
DirectorFebruary 26, 2014March 2, 2015
 
/S/ ISSIE N. RABINOVITCH
Issie N. Rabinovitch
DirectorFebruary 26, 2014March 2, 2015
 
/S/ THOMAS E. RANDLETT
Thomas E. Randlett
DirectorFebruary 26, 2014March 2, 2015
 
/S/ THOMAS E. ROBINSON
Thomas E. Robinson
DirectorMarch 2, 2015
/S/ BYRON A. SCORDELIS.SCORDELIS
Byron A. Scordelis
DirectorFebruary 26, 2014March 2, 2015
 
/S/ JANICE L. SEARS.SEARS
Janice L. Sears
DirectorFebruary 26, 2014March 2, 2015
 
/S/ THOMAS P. SULLIVAN
Thomas P. Sullivan
DirectorMarch 2, 2015
/S/ CLAUDE J. ZINNGRABE
Claude J. Zinngrabe
DirectorFebruary 26, 2014March 2, 2015


S- 2
S-2
Table of Contents

EXHIBIT INDEX
Exhibit No.
Document
 
2.1Agreement and Plan of Merger, dated as of December 19, 2013, by and among Essex Property Trust, Inc., BRE Properties, Inc. and Bronco Acquisition Sub, Inc., a Delaware corporation, attached as Exhibit 2.1 to the Company's Form 8-K, filed on December 20, 2013, and incorporated herein by reference.
 
3.1Articles of Amendment and Restatement of Essex Property Trust, Inc., attached as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed May 17, 2013, and incorporated herein by reference.
 
3.2Third Amended and Restated Bylaws of Essex Property Trust, Inc., dated as of May 14, 2013, attached as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed May 17, 2013, and incorporated herein by reference.
 
3.3
Certificate of Limited Partnership of Essex Portfolio, L.P. and amendments thereto.
4.1Form of 4.875% Series G Cumulative Convertible Preferred Stock Certificate,thereto, attached as Exhibit 4.13.3 to the Company’s CurrentCompany's Annual Report on Form 8-K, filed July 27, 2006,10-K for the year ended December 31, 2013, and incorporated herein by reference.
 
4.24.1Form 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.
 
4.34.2Indenture, 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
4.3		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.
 
4.54.4Form 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.
 
10.14.5Indenture governing 5.500% Senior Notes due 2017, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated)U.S. Bank National Association, as trustee, including the form of 5.500% Senior Notes due 2017, attached as Exhibit 4.1 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.6Indenture governing 5.200% Senior Notes due 2021, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.200% Senior Notes due 2021, attached as Exhibit 4.2 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.7Indenture governing 3.375% Senior Notes due 2023, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 3.375% Senior Notes due 2023, attached as Exhibit 4.3 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.8Registration Rights Agreement related to the 5.500% Senior Notes due 2017, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.7 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.9Registration Rights Agreement related to the 5.200% Senior Notes due 2021, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.8 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.10Registration Rights Agreement related to the 3.375% Senior Notes due 2023, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.9 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
4.11Indenture, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.875% Senior Notes due 2024 and the guarantee thereof, attached as Exhibit 4.1 to Essex Property Trust, Inc.’s Current Report on Form 8-K, filed April 16, 2014, and incorporated herein by reference.

Table of Contents

4.12Registration Rights Agreement, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., 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'sEssex Property Trust, Inc.’s Current Report on Form 10-Q for the quarter ended June 30, 2000,8-K, filed April 16, 2014, and incorporated herein by reference.*
 
10.2Form of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock Incentive Plan, attached as Exhibit 10.3 to the Company's Registration Statement on Form S-11 (Registration No. 33-76578), which became effective on June 6, 1994, and incorporated herein by reference.*
10.310.1Agreement between Essex Property Trust, Inc. and George M. Marcus, dated March 27, 2003 attached as Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
 
10.410.2Essex 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.*
 
10.510.32005 Deferred Compensation Plan (as amended and restated) of Essex Portfolio, L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 8, 2008, and incorporated herein by reference.*
 
10.610.4Form of Indemnification Agreement between Essex Property Trust, Inc. and its directors and officers, attached as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed February 25, 2011, and incorporated herein by reference.*
 
10.710.5Note Purchase Agreement, dated as of March 31, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the form of the 4.36% Senior Guaranteed Notes, due March 31, 2016), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 1, 2011, and incorporated herein by reference.†
10.8
10.6Note Purchase Agreement, dated as of June 30, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the forms of the 4.50% Senior Guaranteed Notes, Series A, due September 30,  2017, and the 4.92% Senior Guaranteed Notes, Series B, due December 30, 2019) , attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 5, 2011, and incorporated herein by reference.†
 
10.910.7Amended 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.*
 
10.1010.8Amended and Restated Revolving Credit Agreement, dated as of September 16, 2011, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent, Swing Line Lender and L/C Issuer, and other lenders as specified therein, attached as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.
 
10.1110.9Note Purchase Agreement, dated as of March 14, 2012, among Essex Portfolio, L.P., the Company and the purchasers of the notes party thereto (including the forms of the 4.27% Senior Guaranteed Notes, Series C, due April 30, 2021, the 4.30% Senior Guaranteed Notes, Series D, due June 29, 2021, and the 4.37% Senior Guaranteed Notes, Series E, due August 30, 2021), attached as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on March 20, 2012, and incorporated herein by reference. †
 
10.1210.10First 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.
 
10.1310.11Modification 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
10.14Registration 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.
 
10.1510.12Amendment 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.
 
10.1610.13Essex Property Trust, Inc. Executive Severance Plan (as Amended and Restated effective March 12, 2013), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 18, 2013, and incorporated herein by reference.*
 
10.17Form of Equity Distribution Agreement, dated March 29, 2013, between Essex Property Trust, Inc. and various entities, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 2, 2013, and incorporated herein by reference.
10.1810.14Second 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.
 
10.1910.15Third 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.

Table of Contents

10.20
10.16Essex 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
10.17Essex Property Trust, Inc. 2013 Employee Stock Purchase Plan, attached as Appendix C 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.*
 
10.2210.18Forms 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.*
 
10.2310.19Company’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, 2013, and incorporated herein by reference.*
 
10.2410.20Third Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December 10, 2013, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 12, 2013, and incorporated herein by reference.*
 
10.2510.21Fourth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014, 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 Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.
 
10.2610.22Third 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.
 
10.23
BRE Properties, Inc. 1999 Stock Incentive Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.1 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
10.24BRE Properties, Inc. Fifth Amended and Restated Non-Employee Stock Option and Restricted Stock Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.2 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
10.25Form of Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated August 28, 2014, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed September 2, 2014, and incorporated herein by reference.
10.26Form of Amended & Restated Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated August 28, 2014, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed September 2, 2014, and incorporated herein by reference.
10.27Fifth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 22, 2015, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto.
10.28Forms of Essex Property Trust, Inc., Essex Portfolio L.P., Long-Term Incentive Plan Award Agreements.*
12.1Schedule of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
 
14.1Code of Business Conduct and Ethics, attached as Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and incorporated herein by reference.
 
21.1
List of Subsidiaries of Essex Property Trust, Inc and Essex Portfolio, L.P.
 
23.1
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
 
23.2
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
 
24.1Power of Attorney (see signature page)
 
31.1
Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2
Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 

Table of Contents

31.3Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.4
Certification of Michael T. Dance, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1
Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2
Certification of Michael T. Dance, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.3
Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.4Certification of Michael T. Dance, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
101.INSXBRL Instance Document
 
101.SCHXBRL Taxonomy Extension Schema Document
 
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
 
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
 
101.LABXBRL Taxonomy Extension Label Linkbase Document
 
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan or arrangement.
* 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.