UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, ~~2020~~2021

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

For the transition period from ________to _________

001-13106 (Essex Property Trust, Inc.)

333-44467-01 (Essex Portfolio, L.P.)

(Commission File Number)

ESSEX PROPERTY TRUST, INC.

ESSEX PORTFOLIO, L.P.

(Exact name of Registrant as Specified in its Charter)


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

1100 Park Place, Suite 200

San Mateo, California 94403

(Address of Principal Executive Offices, Including Zip Code)

(650) 655-7800

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, $.0001 par value (Essex Property Trust, Inc.)

ESS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or ~~15 (d)~~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

☒

☐

Essex Portfolio, L.P.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Essex Property Trust, Inc.

Yes

☒

☐

Essex Portfolio, L.P.

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Essex Property Trust, Inc.:

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

Essex Portfolio, L.P.:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Essex Property Trust, Inc.			☐			Essex Portfolio, L.P.			☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Essex Property Trust, Inc.

Yes

☐

☒

Essex Portfolio, L.P.

Yes

☐

☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: ~~65,204,624~~65,087,831 shares of Common Stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding as of October ~~28, 2020.~~25, 2021.

EXPLANATORY NOTE

This report combines the reports on Form 10-Q for the three and nine month periods ended September 30, ~~2020~~2021 of Essex Property Trust, Inc., a Maryland corporation, and Essex Portfolio, L.P., a Delaware limited partnership of which Essex Property Trust, Inc. is the sole general partner.

Unless stated otherwise or the context otherwise requires, references to the "Company," "we," "us" or "our" mean collectively Essex Property Trust, Inc. and those entities/subsidiaries owned or controlled by Essex Property Trust, Inc., including Essex Portfolio, L.P., and references to the "Operating Partnership" mean Essex Portfolio, L.P. and those entities/subsidiaries owned or controlled by Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to "Essex" mean Essex Property Trust, Inc., not including any of its subsidiaries.

Essex operates as a self-administered and self-managed real estate investment trust ("REIT"), and is the sole general partner of the Operating Partnership. As the sole general partner of the Operating Partnership, Essex has exclusive control of the Operating Partnership's day-to-day management.

The Company is structured as an umbrella partnership REIT ("UPREIT") and Essex contributes all net proceeds from its various equity offerings to the Operating Partnership. In return for those contributions, Essex receives a number of Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") equal to the number of shares of common stock it has issued in the equity offerings. Contributions of properties to the Company can be structured as tax-deferred transactions through the issuance of OP Units, which is one of the reasons why the Company is structured in the manner outlined above. Based on the terms of the Operating Partnership's partnership agreement, OP Units can be exchanged into Essex common stock on a one-for-one basis. The Company maintains a one-for-one relationship between the OP Units issued to Essex and shares of common stock.

The Company believes that combining the reports on Form 10-Q of Essex and the Operating Partnership into this single report provides the following benefits:

•enhances investors' understanding of Essex 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 Essex and the Operating Partnership; and

•creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

Management operates Essex and the Operating Partnership as one business. The management of Essex consists of the same members as the management of the Operating Partnership.

All of the Company's property ownership, development, and related business operations are conducted through the Operating Partnership and Essex has no material assets, other than its investment in the Operating Partnership. Essex's primary function is acting as the general partner of the Operating Partnership. As general partner with control of the Operating Partnership, Essex consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of Essex and the Operating Partnership are the same on their respective financial statements. Essex also issues equity from time to time and guarantees certain debt of the Operating Partnership, 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 co-investments. 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 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 of capital include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facilities, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and co-investments.

The Company believes it is important to understand the few differences between Essex and the Operating Partnership in the context of how Essex and the Operating Partnership operate as a consolidated company. Stockholders' equity, partners' capital and noncontrolling interest are the main areas of difference between the condensed consolidated financial statements of Essex and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's condensed consolidated financial statements and as noncontrolling interest in Essex’s condensed consolidated financial statements. The noncontrolling interest in the Operating Partnership's condensed consolidated financial statements include the interest of unaffiliated partners in various consolidated partnerships and co-investment partners. The noncontrolling interest in Essex's condensed consolidated financial statements include (i) the same noncontrolling interest as

iii

presented in the Operating Partnership’s condensed consolidated financial statements and (ii) OP Unitholders. The differences between stockholders' equity and partners' capital result from differences in the equity issued at Essex and Operating Partnership levels.

To help investors understand the significant differences between Essex and the Operating Partnership, this report on Form 10-Q provides separate condensed consolidated financial statements for Essex and the Operating Partnership; a single set of consolidated notes to such financial statements that includes separate discussions of stockholders' equity or partners' capital, and earnings per share/unit, as applicable; and a combined Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report on Form 10-Q also includes separate Part I, Item 4. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of Essex and the Operating Partnership in order to establish that the requisite certifications have been made and that Essex and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. §1350.

In order to highlight the differences between Essex and the Operating Partnership, the separate sections in this report on Form 10-Q for Essex and the Operating Partnership specifically refer to Essex and the Operating Partnership. In the sections that combine disclosure of Essex 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 co-investments 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 Essex 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.

The information furnished in the accompanying unaudited condensed consolidated balance sheets, statements of income and comprehensive income, equity, capital, and cash flows of the Company and the Operating Partnership reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the aforementioned condensed consolidated financial statements for the interim periods and are normal and recurring in nature, except as otherwise noted.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to such unaudited condensed consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. Additionally, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

ESSEX PROPERTY TRUST, INC.

ESSEX PORTFOLIO, L.P.

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		Page No.

Item 1.	Condensed Consolidated Financial Statements of Essex Property Trust, Inc. (Unaudited)

	Condensed Consolidated Balance Sheets as of September 30 ~~2020~~, 2021 and December 31, ~~2019~~2020	2

	Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	3

	Condensed Consolidated Statements of Equity for the three and nine months ended ~~September~~Se ptember 30, ~~2020~~2021 and ~~2019~~2020	4

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~n ine months ended ~~September~~Septem ber 30, ~~2020~~2021 and ~~2019~~2020	8

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

	Condensed Consolidated Balance Sheets as of ~~September~~Se ptem ber 30, ~~2020~~2021 and December 31, ~~2019~~2020	10

	Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	11

	Condensed Consolidated Statements of Capital for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	12

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	16

	Notes to Condensed Consolidated Financial Statements	18

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3937

Item 3.	Quantitative and Qualitative Disclosures About Market Risks	5148

Item 4.	Controls and Procedures	5249

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5349

Item 1A.	Risk Factors	5350

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5550

Item 3.	Defaults Upon Senior Securities	5550

Item 4.	Mine Safety Disclosures	5550

Item 5.	Other Information	5550

Item 6.	Exhibits	5651

Signatures		5752

Table of Contents

Part I – Financial Information

Item 1. Condensed Consolidated Financial Statements

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except parenthetical and share amounts)


ASSETS	ASSETS	September 30, 2020		December 31, 2019		ASSETS	September 30, 2021		December 31, 2020
Real estate:	Real estate:					Real estate:
Rental properties:	Rental properties:					Rental properties:
Land and land improvements	Land and land improvements	$	2,944,521	$	2,773,805	Land and land improvements	$	2,997,904	$	2,929,009
Buildings and improvements	Buildings and improvements	12,184,957		11,264,337		Buildings and improvements	12,414,770		12,132,736
		15,129,478		14,038,142			15,412,674		15,061,745
Less: accumulated depreciation	Less: accumulated depreciation	(4,043,496)		(3,689,482)		Less: accumulated depreciation	(4,509,243)		(4,133,959)
		11,085,982		10,348,660			10,903,431		10,927,786
Real estate under development	Real estate under development	364,875		546,075		Real estate under development	212,426		386,047
Co-investments	Co-investments	1,018,235		1,335,339		Co-investments	1,081,861		1,018,010
Real estate held for sale, net		32,878		0
Real estate held for sale						Real estate held for sale	—		57,938
		12,501,970		12,230,074			12,197,718		12,389,781
Cash and cash equivalents-unrestricted	Cash and cash equivalents-unrestricted	558,446		70,087		Cash and cash equivalents-unrestricted	49,910		73,629
Cash and cash equivalents-restricted	Cash and cash equivalents-restricted	10,629		11,007		Cash and cash equivalents-restricted	11,042		10,412
Marketable securities, net of allowance for credit losses of $13.6 million and 0 as of September 30, 2020 and December 31, 2019, respectively		134,971		144,193
Notes and other receivables, net of allowance for credit losses of $0.2 million and 0 as of September 30, 2020 and December 31, 2019, respectively (includes related party receivables of $5.5 million and $90.2 million as of September 30, 2020 and December 31, 2019, respectively)		75,432		134,365
Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020						Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020	183,140		147,768
Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively)						Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively)	213,985		195,104
Operating lease right-of-use assets	Operating lease right-of-use assets	72,910		74,744		Operating lease right-of-use assets	69,756		72,143
Prepaid expenses and other assets	Prepaid expenses and other assets	46,684		40,935		Prepaid expenses and other assets	63,090		47,340
Total assets	Total assets	$	13,401,042	$	12,705,405	Total assets	$	12,788,641	$	12,936,177

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Unsecured debt, net	Unsecured debt, net	$	5,907,805	$	4,763,206	Unsecured debt, net	$	5,405,520	$	5,607,985
Mortgage notes payable, net	Mortgage notes payable, net	702,379		990,667		Mortgage notes payable, net	640,118		643,550
Lines of credit	Lines of credit	0		55,000		Lines of credit	42,662		—
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	205,520		158,017		Accounts payable and accrued liabilities	220,428		152,855
Construction payable	Construction payable	30,292		48,912		Construction payable	32,777		31,417
Dividends payable	Dividends payable	142,365		135,384		Dividends payable	143,036		141,917

Distributions in excess of investments in co-investments						Distributions in excess of investments in co-investments	29,037		—
Operating lease liabilities	Operating lease liabilities	74,844		76,740		Operating lease liabilities	71,520		74,037
Liabilities associated with real estate held for sale						Liabilities associated with real estate held for sale	—		29,845
Other liabilities	Other liabilities	39,636		36,565		Other liabilities	38,946		39,140
Total liabilities	Total liabilities	7,102,841		6,264,491		Total liabilities	6,624,044		6,720,746
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Redeemable noncontrolling interest	Redeemable noncontrolling interest	30,719		37,410		Redeemable noncontrolling interest	32,698		32,239

Equity:	Equity:					Equity:
Common stock; $.0001 par value, 670,000,000 shares authorized; 65,209,946 and 66,091,954 shares issued and outstanding, respectively		7		7
Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,081,032 and 64,999,015 shares issued and outstanding, respectively						Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,081,032 and 64,999,015 shares issued and outstanding, respectively	7		6

Additional paid-in capital	Additional paid-in capital	6,921,631		7,121,927		Additional paid-in capital	6,875,508		6,876,326
Distributions in excess of accumulated earnings	Distributions in excess of accumulated earnings	(821,841)		(887,619)		Distributions in excess of accumulated earnings	(917,315)		(861,193)
Accumulated other comprehensive loss, net	Accumulated other comprehensive loss, net	(16,800)		(13,888)		Accumulated other comprehensive loss, net	(8,968)		(14,729)
Total stockholders' equity	Total stockholders' equity	6,082,997		6,220,427		Total stockholders' equity	5,949,232		6,000,410
Noncontrolling interest	Noncontrolling interest	184,485		183,077		Noncontrolling interest	182,667		182,782
Total equity	Total equity	6,267,482		6,403,504		Total equity	6,131,899		6,183,192
Total liabilities and equity	Total liabilities and equity	$	13,401,042	$	12,705,405	Total liabilities and equity	$	12,788,641	$	12,936,177

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(In thousands, except share and per share amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Rental and other property	Rental and other property	$	368,464	$	364,504	$	1,126,363	$	1,077,767	Rental and other property	$	360,620	$	368,464	$	1,062,253	$	1,126,363
Management and other fees from affiliates	Management and other fees from affiliates	2,347		2,428		7,312		7,023		Management and other fees from affiliates	2,237		2,347		6,707		7,312
		370,811		366,932		1,133,675		1,084,790			362,857		370,811		1,068,960		1,133,675
Expenses:	Expenses:									Expenses:
Property operating, excluding real estate taxes	Property operating, excluding real estate taxes	68,037		62,883		197,310		180,410		Property operating, excluding real estate taxes	69,529		68,037		197,895		197,310
Real estate taxes	Real estate taxes	44,358		39,290		132,364		114,993		Real estate taxes	45,802		44,358		135,408		132,364
Corporate-level property management expenses	Corporate-level property management expenses	8,619		8,553		26,024		25,451		Corporate-level property management expenses	9,068		8,619		27,120		26,024
Depreciation and amortization	Depreciation and amortization	130,202		120,809		395,370		360,842		Depreciation and amortization	130,564		130,202		387,887		395,370
General and administrative	General and administrative	13,310		11,345		42,244		38,731		General and administrative	12,712		13,310		34,746		42,244

Expensed acquisition and investment related costs	Expensed acquisition and investment related costs	2		13		104		69		Expensed acquisition and investment related costs	108		2		164		104
		264,528		242,893		793,416		720,496			267,783		264,528		783,220		793,416
Gain on sale of real estate and land	Gain on sale of real estate and land	22,654		0		39,251		0		Gain on sale of real estate and land	42,897		22,654		142,993		39,251
Earnings from operations	Earnings from operations	128,937		124,039		379,510		364,294		Earnings from operations	137,971		128,937		428,733		379,510
Interest expense	Interest expense	(55,430)		(54,896)		(165,024)		(162,651)		Interest expense	(50,019)		(55,430)		(152,639)		(165,024)
Total return swap income	Total return swap income	2,977		2,154		7,749		6,174		Total return swap income	2,660		2,977		8,137		7,749
Interest and other income	Interest and other income	6,512		8,685		12,696		29,293		Interest and other income	11,998		6,512		48,756		12,696
Equity income from co-investments	Equity income from co-investments	14,960		21,700		53,514		54,935		Equity income from co-investments	25,433		14,960		60,692		53,514
Deferred tax expense on unrealized gain on unconsolidated co-investment	Deferred tax expense on unrealized gain on unconsolidated co-investment	0		(1,457)		(1,636)		(1,457)		Deferred tax expense on unrealized gain on unconsolidated co-investment	(3,041)		—		(5,391)		(1,636)
(Loss) gain on early retirement of debt, net		(19,114)		5,475		(23,820)		7,143
Loss on early retirement of debt, net										Loss on early retirement of debt, net	—		(19,114)		(18,982)		(23,820)
Gain on remeasurement of co-investment	Gain on remeasurement of co-investment	0		0		234,694		31,535		Gain on remeasurement of co-investment	—		—		2,260		234,694
Net income	Net income	78,842		105,700		497,683		329,266		Net income	125,002		78,842		371,566		497,683
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	(5,181)		(6,365)		(24,558)		(18,798)		Net income attributable to noncontrolling interest	(6,612)		(5,181)		(19,886)		(24,558)

Net income available to common stockholders	Net income available to common stockholders	$	73,661	$	99,335	$	473,125	$	310,468	Net income available to common stockholders	$	118,390	$	73,661	$	351,680	$	473,125
Comprehensive income	Comprehensive income	$	80,818	$	105,663	$	494,668	$	323,071	Comprehensive income	$	125,829	$	80,818	$	377,529	$	494,668
Comprehensive income attributable to noncontrolling interest	Comprehensive income attributable to noncontrolling interest	(5,247)		(6,364)		(24,455)		(18,589)		Comprehensive income attributable to noncontrolling interest	(6,639)		(5,247)		(20,088)		(24,455)
Comprehensive income attributable to controlling interest	Comprehensive income attributable to controlling interest	$	75,571	$	99,299	$	470,213	$	304,482	Comprehensive income attributable to controlling interest	$	119,190	$	75,571	$	357,441	$	470,213
Per share data:	Per share data:									Per share data:
Basic:	Basic:									Basic:
Net income available to common stockholders	Net income available to common stockholders	$	1.13	$	1.51	$	7.22	$	4.72	Net income available to common stockholders	$	1.82	$	1.13	$	5.41	$	7.22
Weighted average number of shares outstanding during the period	Weighted average number of shares outstanding during the period	65,232,837		65,850,524		65,561,820		65,757,914		Weighted average number of shares outstanding during the period	65,048,486		65,232,837		65,013,477		65,561,820
Diluted:	Diluted:									Diluted:
Net income available to common stockholders	Net income available to common stockholders	$	1.13	$	1.51	$	7.21	$	4.71	Net income available to common stockholders	$	1.82	$	1.13	$	5.40	$	7.21
Weighted average number of shares outstanding during the period	Weighted average number of shares outstanding during the period	65,241,428		65,973,085		65,676,093		65,857,660		Weighted average number of shares outstanding during the period	65,147,781		65,241,428		65,075,174		65,676,093

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(In thousands)

Common stock Additional paid-in capital Distributions
in excess of accumulated
earnings Accumulated
other
comprehensive loss, net Noncontrolling interest Total
Three Months Ended September 30, 2020 Shares Amount
Balances at June 30, 2020 65,331 $ 7 $ 6,944,805 $ (760,028) $ (18,710) $ 186,807 $ 6,352,881
Net income — — — 73,661 — 5,181 78,842
Change in fair value of derivatives and amortization of swap settlements — — — — 1,821 63 1,884
Change in fair value of marketable debt securities, net — — — — 89 3 92
Issuance of common stock under:
Sale of common stock, net — — (95) — — — (95)
Equity based compensation costs — — 2,279 — — 82 2,361
Retirement of common stock, net (121) 0 (26,586) — — — (26,586)
Changes in the redemption value of redeemable noncontrolling interest — — 2,346 — — 176 2,522
Distributions to noncontrolling interest — — — — — (7,677) (7,677)
Redemptions of noncontrolling interest 0 — (1,118) — — (150) (1,268)
Common stock dividends ($2.0775 per share) — — — (135,474) — — (135,474)
Balances at September 30, 2020 65,210 $ 7 $ 6,921,631 $ (821,841) $ (16,800) $ 184,485 $ 6,267,482


	Common stock		Additional paid-in capital			Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net		Noncontrolling interest		Total
Three months ended September 30, 2021		Shares			Amount
Balances at June 30, 2021		65,004	$	7		$	6,862,879	$	(899,663)	$	(9,768)	$	183,248	$	6,136,703
Net income		—	—			—		118,390		—		6,612		125,002


Change in fair value of derivatives and amortization of swap settlements		—	—			—		—		704		24		728
Change in fair value of marketable debt securities, net		—	—			—		—		96		3		99
Issuance of common stock under:
Stock option and restricted stock plans, net		68	—			15,572		—		—		—		15,572
Sale of common stock, net		—	—			(118)		—		—		—		(118)
Equity based compensation costs		—	—			1,573		—		—		55		1,628



Changes in the redemption value of redeemable noncontrolling interest		—	—			1,253		—		—		420		1,673

Distributions to noncontrolling interest		—	—			—		—		—		(7,257)		(7,257)
Redemptions of noncontrolling interest		9	—			(5,651)		—		—		(438)		(6,089)
Common stock dividends ($2.09 per share)		—	—			—		(136,042)		—		—		(136,042)
Balances at September 30, 2021		65,081	$	7		$	6,875,508	$	(917,315)	$	(8,968)	$	182,667	$	6,131,899

Table of Contents


		Common stock		Additional paid-in capital			Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net				Noncontrolling interest		Total					Common stock			Additional paid-in capital		Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net			Noncontrolling interest			Total
Nine Months Ended September 30, 2020			Shares			Amount
Balances at December 31, 2019			66,092	$	7		$	7,121,927			$	(887,619)			$	(13,888)	$	183,077			$	6,403,504
Nine months ended September 30, 2021																			Nine months ended September 30, 2021					Shares					Additional paid-in capital	Amount		Distributions in excess of accumulated earnings			Accumulated other comprehensive loss, net			Noncontrolling interest			Total
Balances at December 31, 2020																			Balances at December 31, 2020				64,999										$	6,183,192
Net income	Net income		—	—			—		473,125				—		24,558		497,683		Net income				—		—		—					351,680			—			19,886			371,566

Cash flow hedge losses reclassified to earnings													3,171		111		3,282

Change in fair value of derivatives and amortization of swap settlements	Change in fair value of derivatives and amortization of swap settlements		—	—			—		—				(5,911)		(208)		(6,119)		Change in fair value of derivatives and amortization of swap settlements				—		—		—			—			5,417			190			5,607
Change in fair value of marketable debt securities, net	Change in fair value of marketable debt securities, net		—	—			—		—				(172)		(6)		(178)		Change in fair value of marketable debt securities, net				—		—		—			—			344			12			356
Issuance of common stock under:	Issuance of common stock under:																		Issuance of common stock under:
Stock option and restricted stock plans, net	Stock option and restricted stock plans, net		95	—			9,201		—				—		—		9,201		Stock option and restricted stock plans, net				112		1		12,401			—			—			—			12,402
Sale of common stock, net	Sale of common stock, net		—	—			(228)		—				—		—		(228)		Sale of common stock, net				—		—		(202)			—			—			—			(202)
Equity based compensation costs	Equity based compensation costs		—	—			8,956		—				—		338		9,294		Equity based compensation costs				—		—		9,172			—			—			323			9,495

Retirement of common stock, net	Retirement of common stock, net		(985)	—			(222,990)		—				—		—		(222,990)		Retirement of common stock, net				(40)		—		(9,172)			—			—			—			(9,172)
Cumulative effect upon adoption of ASU No. 2016-13			—	—			—		(190)				—		—		(190)

Changes in the redemption value of redeemable noncontrolling interest	Changes in the redemption value of redeemable noncontrolling interest		—	—			6,888		—				—		(197)		6,691		Changes in the redemption value of redeemable noncontrolling interest				—		—		(5,499)			—			—			577			(4,922)
Changes in noncontrolling interest from acquisition			—	—			—		—				—		1,349		1,349
Contributions from noncontrolling interest																			Contributions from noncontrolling interest				—		—		—			—			—			1,900			1,900
Distributions to noncontrolling interest	Distributions to noncontrolling interest		—	—			—		—				—		(23,689)		(23,689)		Distributions to noncontrolling interest				—		—		—			—			—			(22,114)			(22,114)
Redemptions of noncontrolling interest	Redemptions of noncontrolling interest		8	—			(2,123)		—				—		(848)		(2,971)		Redemptions of noncontrolling interest				10		—		(7,518)			—			—			(889)			(8,407)
Common stock dividends ($6.2325 per share)			—	—			—		(407,157)				—		—		(407,157)
Balances at September 30, 2020			65,210	$	7		$	6,921,631	$	(821,841)			$	(16,800)	$	184,485	$	6,267,482
Common stock dividends ($6.27 per share)																			Common stock dividends ($6.27 per share)				—		—		—			(407,802)			—			—			(407,802)
Balances at September 30, 2021																			Balances at September 30, 2021				65,081		$	7	$	6,875,508		$	(917,315)		$	(8,968)		$	182,667		$	6,131,899

Table of Contents


		Common stock		Additional paid-in capital			Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net				Noncontrolling Interest		Total					Common stock			Additional paid-in capital		Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net			Noncontrolling Interest			Total
Three Months Ended September 30, 2019			Shares			Amount
Balances at June 30, 2019			65,727	$	7		$	7,031,886			$	(857,994)			$	(18,992)	$	190,209			$	6,345,116
Three months ended September 30, 2020																			Three months ended September 30, 2020					Shares					Additional paid-in capital	Amount		Distributions in excess of accumulated earnings			Accumulated other comprehensive loss, net			Noncontrolling Interest			Total
Balances at June 30, 2020																			Balances at June 30, 2020				65,331										$	6,352,881
Net income	Net income		—	—			—		99,335				—		6,365		105,700		Net income				—		—		—					73,661			—			5,181			78,842

Change in fair value of derivatives and amortization of swap settlements	Change in fair value of derivatives and amortization of swap settlements		—	—			—		—				(12)		—		(12)		Change in fair value of derivatives and amortization of swap settlements				—		—		—			—			1,821			63			1,884
Change in fair value of marketable debt securities, net	Change in fair value of marketable debt securities, net		—	—			—		—				(24)		(1)		(25)		Change in fair value of marketable debt securities, net				—		—		—			—			89			3			92
Issuance of common stock under:	Issuance of common stock under:																		Issuance of common stock under:
Stock option and restricted stock plans, net			126	—			27,679		—				—		—		27,679

Sale of common stock, net	Sale of common stock, net		228	—			72,631		—				—		—		72,631		Sale of common stock, net				—		—		(95)			—			—			—			(95)
Equity based compensation costs	Equity based compensation costs		—	—			1,544		—				—		270		1,814		Equity based compensation costs				—		—		2,279			—			—			82			2,361

Retirement of common stock, net																			Retirement of common stock, net				(121)		—		(26,586)			—			—			—			(26,586)

Changes in the redemption value of redeemable noncontrolling interest	Changes in the redemption value of redeemable noncontrolling interest		—	—			(2,309)		—				—		62		(2,247)		Changes in the redemption value of redeemable noncontrolling interest				—		—		2,346			—			—			176			2,522

Distributions to noncontrolling interest	Distributions to noncontrolling interest		—	—			—		—				—		(6,789)		(6,789)		Distributions to noncontrolling interest				—		—		—			—			—			(7,677)			(7,677)
Redemptions of noncontrolling interest	Redemptions of noncontrolling interest		1	—			211		—				—		(212)		(1)		Redemptions of noncontrolling interest				—		—		(1,118)			—			—			(150)			(1,268)
Common stock dividends ($1.95 per share)			—	—			—		(128,862)				—		—		(128,862)
Balances at September 30, 2019			66,082	$	7		$	7,131,642	$	(887,521)			$	(19,028)	$	189,904	$	6,415,004
Common stock dividends ($2.0775 per share)																			Common stock dividends ($2.0775 per share)				—		—		—			(135,474)			—			—			(135,474)
Balances at September 30, 2020																			Balances at September 30, 2020				65,210		$	7	$	6,921,631		$	(821,841)		$	(16,800)		$	184,485		$	6,267,482

Table of Contents

Common stock Additional paid-in capital Distributions
in excess of accumulated
earnings Accumulated
other
comprehensive loss, net Noncontrolling Interest Total
Nine Months Ended September 30, 2019 Shares Amount
Balances at December 31, 2018 65,890 $ 7 $ 7,093,079 $ (812,796) $ (13,217) $ 126,771 $ 6,393,844
Net income — — — 310,468 — 18,798 329,266
Reversal of unrealized gains upon the sale of marketable debt securities — — — — (31) (1) (32)
Change in fair value of derivatives and amortization of swap settlements — — — — (6,152) (214) (6,366)
Change in fair value of marketable debt securities, net — — — — 197 6 203
Issuance of common stock under:
Stock option and restricted stock plans, net 188 — 32,907 — — — 32,907
Sale of common stock, net 228 — 72,549 — — — 72,549
Equity based compensation costs — — 7,016 — — 898 7,914
Retirement of common stock, net (234) 0 (56,989) — — — (56,989)
Cumulative effect upon adoption of ASU No. 2017-12
— — — — 175 6 181
Changes in the redemption value of redeemable noncontrolling interest — — (5,048) — — 1,373 (3,675)
Changes in noncontrolling interest from acquisition — — — — — 65,472 65,472
Distributions to noncontrolling interest — — — — — (20,897) (20,897)
Redemptions of noncontrolling interest 10 — (11,872) — — (2,308) (14,180)
Common stock dividends ($5.85 per share) — — — (385,193) — — (385,193)
Balances at September 30, 2019 66,082 $ 7 $ 7,131,642 $ (887,521) $ (19,028) $ 189,904 $ 6,415,004


	Common stock		Additional paid-in capital			Distributions in excess of accumulated earnings		Accumulated other comprehensive loss, net		Noncontrolling Interest		Total
Nine months ended September 30, 2020		Shares			Amount
Balances at December 31, 2019		66,092	$	7		$	7,121,927	$	(887,619)	$	(13,888)	$	183,077	$	6,403,504
Net income		—	—			—		473,125		—		24,558		497,683

Cash flow hedge losses reclassified to earnings		—	—			—		—		3,171		111		3,282
Change in fair value of derivatives and amortization of swap settlements		—	—			—		—		(5,911)		(208)		(6,119)
Change in fair value of marketable debt securities, net		—	—			—		—		(172)		(6)		(178)
Issuance of common stock under:
Stock option and restricted stock plans, net		95	—			9,201		—		—		—		9,201
Sale of common stock, net		—	—			(228)		—		—		—		(228)
Equity based compensation costs		—	—			8,956		—		—		338		9,294

Retirement of common stock, net		(985)	—			(222,990)		—		—		—		(222,990)
Cumulative effect upon adoption of ASU No. 2016-13		—	—			—		(190)		—		—		(190)

Changes in the redemption value of redeemable noncontrolling interest		—	—			6,888		—		—		(197)		6,691
Changes in noncontrolling interest from acquisition		—	—			—		—		—		1,349		1,349
Distributions to noncontrolling interest		—	—			—		—		—		(23,689)		(23,689)
Redemptions of noncontrolling interest		8	—			(2,123)		—		—		(848)		(2,971)
Common stock dividends ($6.2325 per share)		—	—			—		(407,157)		—		—		(407,157)
Balances at September 30, 2020		65,210	$	7		$	6,921,631	$	(821,841)	$	(16,800)	$	184,485	$	6,267,482

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands, except parenthetical amounts)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	497,683	$	329,266	Net income	$	371,566	$	497,683
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Straight-lined rents	Straight-lined rents	(15,485)		(230)		Straight-lined rents	8,734		(15,485)
Depreciation and amortization	Depreciation and amortization	395,370		360,842		Depreciation and amortization	387,887		395,370
Amortization of discount on marketable securities	Amortization of discount on marketable securities	(6,598)		(16,673)		Amortization of discount on marketable securities	—		(6,598)
Amortization of discount and debt financing costs, net	Amortization of discount and debt financing costs, net	5,177		3,454		Amortization of discount and debt financing costs, net	7,987		5,177
Gain on sale of marketable securities	Gain on sale of marketable securities	(124)		(737)		Gain on sale of marketable securities	(2,499)		(124)
Income from early redemption of notes receivable						Income from early redemption of notes receivable	(4,747)		—
Provision for credit losses	Provision for credit losses	100		—		Provision for credit losses	(110)		100
Unrealized gains on equity securities recognized through income	Unrealized gains on equity securities recognized through income	(2,215)		(4,280)		Unrealized gains on equity securities recognized through income	(23,772)		(2,215)

Company's share of gain on the sales of co-investments		0		(870)

Earnings from co-investments	Earnings from co-investments	(53,514)		(54,065)		Earnings from co-investments	(60,692)		(53,514)
Operating distributions from co-investments	Operating distributions from co-investments	41,202		64,628		Operating distributions from co-investments	78,360		41,202
Accrued interest from notes and other receivables	Accrued interest from notes and other receivables	(1,574)		(4,523)		Accrued interest from notes and other receivables	(12,253)		(1,574)
Gain on the sale of real estate and land	Gain on the sale of real estate and land	(39,251)		0		Gain on the sale of real estate and land	(142,993)		(39,251)

Equity-based compensation	Equity-based compensation	4,923		6,748		Equity-based compensation	5,399		4,923
Loss (gain) on early retirement of debt, net		23,820		(7,143)
Loss on early retirement of debt, net						Loss on early retirement of debt, net	18,982		23,820
Gain on remeasurement of co-investment	Gain on remeasurement of co-investment	(234,694)		(31,535)		Gain on remeasurement of co-investment	(2,260)		(234,694)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	(5,088)		(3,962)		Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	2,470		(5,088)
Accounts payable, accrued liabilities, and operating lease liabilities	Accounts payable, accrued liabilities, and operating lease liabilities	43,095		64,281		Accounts payable, accrued liabilities, and operating lease liabilities	62,699		43,095
Other liabilities	Other liabilities	610		1,726		Other liabilities	5,119		610
Net cash provided by operating activities	Net cash provided by operating activities	653,437		706,927		Net cash provided by operating activities	699,877		653,437
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to real estate:	Additions to real estate:					Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	(459,355)		(93,389)		Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	(105,469)		(459,355)
Redevelopment	Redevelopment	(41,592)		(55,027)		Redevelopment	(39,092)		(41,592)
Development acquisitions of and additions to real estate under development	Development acquisitions of and additions to real estate under development	(90,273)		(130,593)		Development acquisitions of and additions to real estate under development	(45,381)		(90,273)
Capital expenditures on rental properties	Capital expenditures on rental properties	(64,269)		(69,348)		Capital expenditures on rental properties	(81,063)		(64,269)

Investments in notes receivable	Investments in notes receivable	(20,431)		(140,663)		Investments in notes receivable	(102,012)		(20,431)
Collections of notes and other receivables	Collections of notes and other receivables	98,711		2,500		Collections of notes and other receivables	88,744		98,711
Proceeds from insurance for property losses	Proceeds from insurance for property losses	612		3,599		Proceeds from insurance for property losses	591		612
Proceeds from dispositions of real estate	Proceeds from dispositions of real estate	280,246		0		Proceeds from dispositions of real estate	297,454		280,246
Contributions to co-investments	Contributions to co-investments	(61,056)		(306,233)		Contributions to co-investments	(223,175)		(61,056)

Changes in refundable deposits	Changes in refundable deposits	96		325		Changes in refundable deposits	(8,356)		96
Purchases of marketable securities	Purchases of marketable securities	(38,909)		(42,653)		Purchases of marketable securities	(23,740)		(38,909)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	56,890		57,165		Sales and maturities of marketable securities	14,995		56,890
Non-operating distributions from co-investments	Non-operating distributions from co-investments	37,342		70,064		Non-operating distributions from co-investments	131,297		37,342
Net cash used in investing activities	Net cash used in investing activities	(301,988)		(704,253)		Net cash used in investing activities	(95,207)		(301,988)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from unsecured debt and mortgage notes	Proceeds from unsecured debt and mortgage notes	1,452,808		892,762		Proceeds from unsecured debt and mortgage notes	745,505		1,452,808
Payments on unsecured debt and mortgage notes	Payments on unsecured debt and mortgage notes	(587,057)		(800,746)		Payments on unsecured debt and mortgage notes	(952,608)		(587,057)
Proceeds from lines of credit	Proceeds from lines of credit	1,038,426		1,485,034		Proceeds from lines of credit	601,435		1,038,426
Repayments of lines of credit	Repayments of lines of credit	(1,093,426)		(1,265,034)		Repayments of lines of credit	(558,773)		(1,093,426)

Retirement of common stock	Retirement of common stock	(222,990)		(56,989)		Retirement of common stock	(9,172)		(222,990)
Additions to deferred charges		(13,761)		(9,446)

Table of Contents


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Additions to deferred charges						Additions to deferred charges	(8,237)		(13,761)
Payments related to debt prepayment penalties	Payments related to debt prepayment penalties	(19,605)		0		Payments related to debt prepayment penalties	(18,342)		(19,605)
Net proceeds from issuance of common stock	Net proceeds from issuance of common stock	(228)		72,549		Net proceeds from issuance of common stock	(202)		(228)

Net proceeds from stock options exercised	Net proceeds from stock options exercised	14,865		36,422		Net proceeds from stock options exercised	17,847		14,865
Payments related to tax withholding for share-based compensation	Payments related to tax withholding for share-based compensation	(5,664)		(3,515)		Payments related to tax withholding for share-based compensation	(5,445)		(5,664)

Contributions from noncontrolling interest						Contributions from noncontrolling interest	1,900		—
Distributions to noncontrolling interest	Distributions to noncontrolling interest	(23,302)		(20,269)		Distributions to noncontrolling interest	(21,979)		(23,302)
Redemption of noncontrolling interest	Redemption of noncontrolling interest	(2,971)		(14,180)		Redemption of noncontrolling interest	(8,407)		(2,971)
Redemption of redeemable noncontrolling interest	Redemption of redeemable noncontrolling interest	0		(73)		Redemption of redeemable noncontrolling interest	(4,463)		—
Common stock dividends paid	Common stock dividends paid	(400,563)		(378,858)		Common stock dividends paid	(406,818)		(400,563)
Net cash provided by (used in) financing activities		136,532		(62,343)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(627,759)		136,532

Net increase (decrease) in unrestricted and restricted cash and cash equivalents		487,981		(59,669)
Net (decrease) increase in unrestricted and restricted cash and cash equivalents						Net (decrease) increase in unrestricted and restricted cash and cash equivalents	(23,089)		487,981
Unrestricted and restricted cash and cash equivalents at beginning of period	Unrestricted and restricted cash and cash equivalents at beginning of period	81,094		151,395		Unrestricted and restricted cash and cash equivalents at beginning of period	84,041		81,094
Unrestricted and restricted cash and cash equivalents at end of period	Unrestricted and restricted cash and cash equivalents at end of period	$	569,075	$	91,726	Unrestricted and restricted cash and cash equivalents at end of period	$	60,952	$	569,075

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest (net of $12.3 million and $19.0 million capitalized in 2020 and 2019, respectively)		$	160,927	$	145,001
Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively)						Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively)	$	147,371	$	160,927
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	5,192	$	5,097	Operating cash flows from operating leases	$	5,225	$	5,192
Supplemental disclosure of noncash investing and financing activities:	Supplemental disclosure of noncash investing and financing activities:					Supplemental disclosure of noncash investing and financing activities:
Issuance of DownREIT units in connection with acquisition of real estate		$	0	$	65,472

Transfers between real estate under development and rental properties, net	Transfers between real estate under development and rental properties, net	$	252,946	$	14,501	Transfers between real estate under development and rental properties, net	$	222,055	$	252,946
Transfer from real estate under development to co-investments	Transfer from real estate under development to co-investments	$	1,387	$	106	Transfer from real estate under development to co-investments	$	1,853	$	1,387

Reclassifications (from) to redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest		$	(6,691)	$	3,675

Initial recognition of operating lease right-of-use assets		$	0	$	77,645
Initial recognition of operating lease liabilities		$	0	$	79,693
Debt assumed in connection with acquisition		$	0	$	143,006
Reclassifications to (from) redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest						Reclassifications to (from) redeemable noncontrolling interest to/from additional paid in capital and noncontrolling interest	$	4,922	$	(6,691)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except parenthetical and unit amounts)


ASSETS	ASSETS	September 30, 2020		December 31, 2019		ASSETS	September 30, 2021		December 31, 2020
Real estate:	Real estate:					Real estate:
Rental properties:	Rental properties:					Rental properties:
Land and land improvements	Land and land improvements	$	2,944,521	$	2,773,805	Land and land improvements	$	2,997,904	$	2,929,009
Buildings and improvements	Buildings and improvements	12,184,957		11,264,337		Buildings and improvements	12,414,770		12,132,736
		15,129,478		14,038,142			15,412,674		15,061,745
Less: accumulated depreciation	Less: accumulated depreciation	(4,043,496)		(3,689,482)		Less: accumulated depreciation	(4,509,243)		(4,133,959)
		11,085,982		10,348,660			10,903,431		10,927,786
Real estate under development	Real estate under development	364,875		546,075		Real estate under development	212,426		386,047
Co-investments	Co-investments	1,018,235		1,335,339		Co-investments	1,081,861		1,018,010
Real estate held for sale, net	Real estate held for sale, net	32,878		0		Real estate held for sale, net	—		57,938
		12,501,970		12,230,074			12,197,718		12,389,781
Cash and cash equivalents-unrestricted	Cash and cash equivalents-unrestricted	558,446		70,087		Cash and cash equivalents-unrestricted	49,910		73,629
Cash and cash equivalents-restricted	Cash and cash equivalents-restricted	10,629		11,007		Cash and cash equivalents-restricted	11,042		10,412
Marketable securities, net of allowance for credit losses of $13.6 million and 0 as of September 30, 2020 and December 31, 2019, respectively		134,971		144,193
Notes and other receivables, net of allowance for credit losses of $0.2 million and 0 as of September 30, 2020 and December 31, 2019, respectively (includes related party receivables of $5.5 million and $90.2 million as of September 30, 2020 and December 31, 2019, respectively)		75,432		134,365
Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020						Marketable securities, net of allowance for credit losses of zero as of both September 30, 2021 and December 31, 2020	183,140		147,768
Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively)						Notes and other receivables, net of allowance for credit losses of $0.7 million and $0.8 million as of September 30, 2021 and December 31, 2020, respectively (includes related party receivables of $33.9 million and $4.7 million as of September 30, 2021 and December 31, 2020, respectively)	213,985		195,104
Operating lease right-of-use assets	Operating lease right-of-use assets	72,910		74,744		Operating lease right-of-use assets	69,756		72,143
Prepaid expenses and other assets	Prepaid expenses and other assets	46,684		40,935		Prepaid expenses and other assets	63,090		47,340
Total assets	Total assets	$	13,401,042	$	12,705,405	Total assets	$	12,788,641	$	12,936,177

LIABILITIES AND CAPITAL	LIABILITIES AND CAPITAL					LIABILITIES AND CAPITAL
Unsecured debt, net	Unsecured debt, net	$	5,907,805	$	4,763,206	Unsecured debt, net	$	5,405,520	$	5,607,985
Mortgage notes payable, net	Mortgage notes payable, net	702,379		990,667		Mortgage notes payable, net	640,118		643,550
Lines of credit	Lines of credit	0		55,000		Lines of credit	42,662		—
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	205,520		158,017		Accounts payable and accrued liabilities	220,428		152,855
Construction payable	Construction payable	30,292		48,912		Construction payable	32,777		31,417
Distributions payable	Distributions payable	142,365		135,384		Distributions payable	143,036		141,917

Distributions in excess of investments in co-investments						Distributions in excess of investments in co-investments	29,037		—
Operating lease liabilities	Operating lease liabilities	74,844		76,740		Operating lease liabilities	71,520		74,037
Liabilities associated with real estate held for sale						Liabilities associated with real estate held for sale	—		29,845
Other liabilities	Other liabilities	39,636		36,565		Other liabilities	38,946		39,140
Total liabilities	Total liabilities	7,102,841		6,264,491		Total liabilities	6,624,044		6,720,746
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Redeemable noncontrolling interest	Redeemable noncontrolling interest	30,719		37,410		Redeemable noncontrolling interest	32,698		32,239

Capital:	Capital:					Capital:
General Partner:	General Partner:					General Partner:
Common equity (65,209,946 and 66,091,954 units issued and outstanding, respectively)		6,099,797		6,234,315
Common equity (65,081,032 and 64,999,015 units issued and outstanding, respectively)						Common equity (65,081,032 and 64,999,015 units issued and outstanding, respectively)	5,958,200		6,015,139

		6,099,797		6,234,315			5,958,200		6,015,139
Limited Partners:	Limited Partners:					Limited Partners:
Common equity (2,295,510 and 2,301,653 units issued and outstanding, respectively)		59,441		57,359
Common equity (2,282,464 and 2,294,760 units issued and outstanding, respectively)						Common equity (2,282,464 and 2,294,760 units issued and outstanding, respectively)	56,385		58,184
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(13,447)		(10,432)		Accumulated other comprehensive loss	(5,340)		(11,303)
Total partners' capital	Total partners' capital	6,145,791		6,281,242		Total partners' capital	6,009,245		6,062,020
Noncontrolling interest	Noncontrolling interest	121,691		122,262		Noncontrolling interest	122,654		121,172
Total capital	Total capital	6,267,482		6,403,504		Total capital	6,131,899		6,183,192
Total liabilities and capital	Total liabilities and capital	$	13,401,042	$	12,705,405	Total liabilities and capital	$	12,788,641	$	12,936,177

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

(In thousands, except unit and per unit amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues:	Revenues:									Revenues:
Rental and other property	Rental and other property	$	368,464	$	364,504	$	1,126,363	$	1,077,767	Rental and other property	$	360,620	$	368,464	$	1,062,253	$	1,126,363
Management and other fees from affiliates	Management and other fees from affiliates	2,347		2,428		7,312		7,023		Management and other fees from affiliates	2,237		2,347		6,707		7,312
		370,811		366,932		1,133,675		1,084,790			362,857		370,811		1,068,960		1,133,675
Expenses:	Expenses:									Expenses:
Property operating, excluding real estate taxes	Property operating, excluding real estate taxes	68,037		62,883		197,310		180,410		Property operating, excluding real estate taxes	69,529		68,037		197,895		197,310
Real estate taxes	Real estate taxes	44,358		39,290		132,364		114,993		Real estate taxes	45,802		44,358		135,408		132,364
Corporate-level property management expenses	Corporate-level property management expenses	8,619		8,553		26,024		25,451		Corporate-level property management expenses	9,068		8,619		27,120		26,024
Depreciation and amortization	Depreciation and amortization	130,202		120,809		395,370		360,842		Depreciation and amortization	130,564		130,202		387,887		395,370
General and administrative	General and administrative	13,310		11,345		42,244		38,731		General and administrative	12,712		13,310		34,746		42,244

Expensed acquisition and investment related costs	Expensed acquisition and investment related costs	2		13		104		69		Expensed acquisition and investment related costs	108		2		164		104
		264,528		242,893		793,416		720,496			267,783		264,528		783,220		793,416
Gain on sale of real estate and land	Gain on sale of real estate and land	22,654		0		39,251		0		Gain on sale of real estate and land	42,897		22,654		142,993		39,251
Earnings from operations	Earnings from operations	128,937		124,039		379,510		364,294		Earnings from operations	137,971		128,937		428,733		379,510
Interest expense	Interest expense	(55,430)		(54,896)		(165,024)		(162,651)		Interest expense	(50,019)		(55,430)		(152,639)		(165,024)
Total return swap income	Total return swap income	2,977		2,154		7,749		6,174		Total return swap income	2,660		2,977		8,137		7,749
Interest and other income	Interest and other income	6,512		8,685		12,696		29,293		Interest and other income	11,998		6,512		48,756		12,696
Equity income from co-investments	Equity income from co-investments	14,960		21,700		53,514		54,935		Equity income from co-investments	25,433		14,960		60,692		53,514
Deferred tax expense on unrealized gain on unconsolidated co-investment	Deferred tax expense on unrealized gain on unconsolidated co-investment	0		(1,457)		(1,636)		(1,457)		Deferred tax expense on unrealized gain on unconsolidated co-investment	(3,041)		—		(5,391)		(1,636)
(Loss) gain on early retirement of debt, net		(19,114)		5,475		(23,820)		7,143
Loss on early retirement of debt, net										Loss on early retirement of debt, net	—		(19,114)		(18,982)		(23,820)
Gain on remeasurement of co-investment	Gain on remeasurement of co-investment	0		0		234,694		31,535		Gain on remeasurement of co-investment	—		—		2,260		234,694
Net income	Net income	78,842		105,700		497,683		329,266		Net income	125,002		78,842		371,566		497,683
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	(2,588)		(2,901)		(8,015)		(7,935)		Net income attributable to noncontrolling interest	(2,444)		(2,588)		(7,483)		(8,015)

Net income available to common unitholders	Net income available to common unitholders	$	76,254	$	102,799	$	489,668	$	321,331	Net income available to common unitholders	$	122,558	$	76,254	$	364,083	$	489,668
Comprehensive income	Comprehensive income	$	80,818	$	105,663	$	494,668	$	323,071	Comprehensive income	$	125,829	$	80,818	$	377,529	$	494,668
Comprehensive income attributable to noncontrolling interest	Comprehensive income attributable to noncontrolling interest	(2,588)		(2,901)		(8,015)		(7,935)		Comprehensive income attributable to noncontrolling interest	(2,444)		(2,588)		(7,483)		(8,015)
Comprehensive income attributable to controlling interest	Comprehensive income attributable to controlling interest	$	78,230	$	102,762	$	486,653	$	315,136	Comprehensive income attributable to controlling interest	$	123,385	$	78,230	$	370,046	$	486,653
Per unit data:	Per unit data:									Per unit data:
Basic:	Basic:									Basic:
Net income available to common unitholders	Net income available to common unitholders	$	1.13	$	1.51	$	7.22	$	4.72	Net income available to common unitholders	$	1.82	$	1.13	$	5.41	$	7.22
Weighted average number of common units outstanding during the period	Weighted average number of common units outstanding during the period	67,528,346		68,148,913		67,858,961		68,058,802		Weighted average number of common units outstanding during the period	67,336,164		67,528,346		67,307,259		67,858,961
Diluted:	Diluted:									Diluted:
Net income available to common unitholders	Net income available to common unitholders	$	1.13	$	1.51	$	7.21	$	4.71	Net income available to common unitholders	$	1.82	$	1.13	$	5.40	$	7.21
Weighted average number of common units outstanding during the period	Weighted average number of common units outstanding during the period	67,536,937		68,271,474		67,973,234		68,158,548		Weighted average number of common units outstanding during the period	67,435,459		67,536,937		67,368,956		67,973,234

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Capital for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(In thousands)


		General Partner				Limited Partners				Accumulated other comprehensive loss			Noncontrolling interest			Total				General Partner								Limited Partners				Accumulated other comprehensive loss, net				Noncontrolling interest			Total
		Common Equity				Common Equity									Common Equity											Common Equity
Three months ended September 30, 2020		Units	Amount		Units		Amount					Total
Balances at June 30, 2020		65,331	$	6,184,784		2,296		$	61,437				$	(15,423)				$	122,083		$	6,352,881
Three months ended September 30, 2021																		Three months ended September 30, 2021		Units				Amount			Units		Amount			Accumulated other comprehensive loss, net				Noncontrolling interest		Total
Balances at June 30, 2021																		Balances at June 30, 2021		65,004				$	5,963,223			2,294		$	56,950			$	6,136,703
Net income	Net income	—	73,661			—		2,593					—			2,588					78,842		Net income	—		118,390				—				4,168							125,002

Change in fair value of derivatives and amortization of swap settlements	Change in fair value of derivatives and amortization of swap settlements	—	—			—		—		1,884			—			1,884		Change in fair value of derivatives and amortization of swap settlements		—				—				—		—		728				—			728
Change in fair value of marketable debt securities, net	Change in fair value of marketable debt securities, net	—	—			—		—		92			—			92		Change in fair value of marketable debt securities, net		—				—				—		—		99				—			99
Issuance of common units under:	Issuance of common units under:																	Issuance of common units under:

General partner's stock based compensation, net																		General partner's stock based compensation, net		68				15,572				—		—		—				—			15,572
Sale of common stock by general partner, net	Sale of common stock by general partner, net	—	(95)			—		—		—			—			(95)		Sale of common stock by general partner, net		—				(118)				—		—		—				—			(118)
Equity based compensation costs	Equity based compensation costs	—	2,279			—		82		—			—			2,361		Equity based compensation costs		—				1,573				—		55		—				—			1,628

Retirement of common units, net		(121)	(26,586)			—		—		—			—			(26,586)

Changes in the redemption value of redeemable noncontrolling interest	Changes in the redemption value of redeemable noncontrolling interest	—	2,346			—		98		—			78			2,522		Changes in the redemption value of redeemable noncontrolling interest		—				1,253				—		141		—				279			1,673

Distributions to noncontrolling interest	Distributions to noncontrolling interest	—	—			—		—		—			(2,908)			(2,908)		Distributions to noncontrolling interest		—				—				—		—		—				(2,488)			(2,488)
Redemptions	Redemptions	—	(1,118)			—		0					(150)			(1,268)		Redemptions		9				(5,651)				(12)		(160)		—				(278)			(6,089)
Distributions declared ($2.0775 per unit)		—	(135,474)			—		(4,769)		—			—			(140,243)
Balances at September 30, 2020		65,210	$	6,099,797		2,296		$	59,441	$	(13,447)		$	121,691		$	6,267,482
Distributions declared ($2.09 per unit)																		Distributions declared ($2.09 per unit)		—				(136,042)				—		(4,769)		—				—			(140,811)
Balances at September 30, 2021																		Balances at September 30, 2021		65,081				$	5,958,200			2,282		$	56,385	$	(5,340)			$	122,654		$	6,131,899

Table of Contents


		General Partner				Limited Partners				Accumulated other comprehensive loss			Noncontrolling interest			Total				General Partner								Limited Partners				Accumulated other comprehensive loss, net				Noncontrolling interest			Total
		Common Equity				Common Equity									Common Equity											Common Equity
Nine months ended September 30, 2020		Units	Amount		Units		Amount					Total
Balances at December 31, 2019		66,092	$	6,234,315		2,302		$	57,359				$	(10,432)				$	122,262		$	6,403,504
Nine months ended September 30, 2021																		Nine months ended September 30, 2021		Units				Amount			Units		Amount			Accumulated other comprehensive loss, net				Noncontrolling interest		Total
Balances at December 31, 2020																		Balances at December 31, 2020		64,999				$	6,015,139			2,295		$	58,184			$	6,183,192
Net income	Net income	—	473,125			—		16,543					—			8,015					497,683		Net income	—		351,680				—				12,403							371,566
Reversal of unrealized gains upon the sale of marketable debt securities		—	—			—		—		—			—			—
Cash flow hedge losses reclassified to earnings		—	—			—		—		3,282			—			3,282

Change in fair value of derivatives and amortization of swap settlements	Change in fair value of derivatives and amortization of swap settlements	—	—			—		—		(6,119)			—			(6,119)		Change in fair value of derivatives and amortization of swap settlements		—				—				—		—		5,607				—			5,607
Change in fair value of marketable debt securities, net	Change in fair value of marketable debt securities, net	—	—			—		—		(178)			—			(178)		Change in fair value of marketable debt securities, net		—				—				—		—		356				—			356
Issuance of common units under:	Issuance of common units under:																	Issuance of common units under:
General partner's stock based compensation, net	General partner's stock based compensation, net	95	9,201			—		—		—			—			9,201		General partner's stock based compensation, net		112				12,402				—		—		—				—			12,402
Sale of common stock by general partner, net	Sale of common stock by general partner, net	0	(228)			—		—		—			—			(228)		Sale of common stock by general partner, net		—				(202)				—		—		—				—			(202)
Equity based compensation costs	Equity based compensation costs	—	8,956			2		338		—			—			9,294		Equity based compensation costs		—				9,172				—		323		—				—			9,495

Retirement of common units, net	Retirement of common units, net	(985)	(222,990)			—		—		—			—			(222,990)		Retirement of common units, net		(40)				(9,172)				—		—		—				—			(9,172)
Cumulative effect upon adoption of ASU No. 2016-13		—	(190)			—		—		—			—			(190)

Changes in the redemption value of redeemable noncontrolling interest	Changes in the redemption value of redeemable noncontrolling interest	—	6,888			—		(318)		—			121			6,691		Changes in the redemption value of redeemable noncontrolling interest		—				(5,499)				—		129		—				448			(4,922)
Changes in noncontrolling interest from acquisition		—	—			—		—		—			1,349			1,349
Contributions from noncontrolling interest																		Contributions from noncontrolling interest		—				—				—		—		—				1,900			1,900
Distributions to noncontrolling interest	Distributions to noncontrolling interest	—	—			—		—		—			(9,381)			(9,381)		Distributions to noncontrolling interest		—				—				—		—		—				(7,756)			(7,756)
Redemptions	Redemptions	8	(2,123)			(8)		(173)		—			(675)			(2,971)		Redemptions		10				(7,518)				(13)		(296)		—				(593)			(8,407)
Distributions declared ($6.2325 per unit)		—	(407,157)			—		(14,308)		—			—			(421,465)
Balances at September 30, 2020		65,210	$	6,099,797		2,296		$	59,441	$	(13,447)		$	121,691		$	6,267,482
Distributions declared ($6.27 per unit)																		Distributions declared ($6.27 per unit)		—				(407,802)				—		(14,358)		—				—			(422,160)
Balances at September 30, 2021																		Balances at September 30, 2021		65,081				$	5,958,200			2,282		$	56,385	$	(5,340)			$	122,654		$	6,131,899

Table of Contents


		General Partner				Limited Partners				Accumulated other comprehensive loss			Noncontrolling interest			Total				General Partner								Limited Partners				Accumulated other comprehensive loss, net				Noncontrolling interest			Total
		Common Equity				Common Equity									Common Equity											Common Equity
Three months ended September 30, 2019		Units	Amount		Units		Amount					Total
Balances at June 30, 2019		65,727	$	6,173,899		2,299		$	57,726				$	(15,715)				$	129,206		$	6,345,116
Three months ended September 30, 2020																		Three months ended September 30, 2020		Units				Amount			Units		Amount			Accumulated other comprehensive loss, net				Noncontrolling interest		Total
Balances at June 30, 2020																		Balances at June 30, 2020		65,331				$	6,184,784			2,296		$	61,437			$	6,352,881
Net income	Net income	—	99,335			—		3,464					—			2,901					105,700		Net income	—		73,661				—				2,593								78,842

Change in fair value of derivatives and amortization of swap settlements	Change in fair value of derivatives and amortization of swap settlements	—	—			—		—		(12)			—			(12)		Change in fair value of derivatives and amortization of swap settlements		—				—				—		—				1,884				—			1,884
Change in fair value of marketable debt securities, net	Change in fair value of marketable debt securities, net	—	—			—		—		(25)			—			(25)		Change in fair value of marketable debt securities, net		—				—				—		—		92				—			92
Issuance of common units under:	Issuance of common units under:																	Issuance of common units under:
General partner's stock based compensation, net		126	27,679			—		—		—			—			27,679

Sale of common stock by general partner, net	Sale of common stock by general partner, net	228	72,631			—		—		—			—			72,631		Sale of common stock by general partner, net		—				(95)				—		—		—				—			(95)
Equity based compensation costs	Equity based compensation costs	—	1,544			0		270		—			—			1,814		Equity based compensation costs		—				2,279				—		82		—				—			2,361

Retirement of common units, net																		Retirement of common units, net		(121)				(26,586)				—		—		—				—			(26,586)

Changes in redemption value of redeemable noncontrolling interest	Changes in redemption value of redeemable noncontrolling interest	—	(2,309)			—		61		—			1			(2,247)		Changes in redemption value of redeemable noncontrolling interest		—				2,346				—		98		—				78			2,522

Distributions to noncontrolling interest	Distributions to noncontrolling interest	—	—			—		—		—			(2,302)			(2,302)		Distributions to noncontrolling interest		—				—				—		—		—				(2,908)			(2,908)
Redemptions	Redemptions	1	211			(1)		(32)		—			(180)			(1)		Redemptions		—				(1,118)				—		—		—				(150)			(1,268)
Distributions declared ($1.95 per unit)		—	(128,862)			—		(4,487)		—			—			(133,349)
Balances at September 30, 2019		66,082	$	6,244,128		2,298		$	57,002	$	(15,752)		$	129,626		$	6,415,004
Distributions declared ($2.0775 per unit)																		Distributions declared ($2.0775 per unit)		—				(135,474)				—		(4,769)		—				—			(140,243)
Balances at September 30, 2020																		Balances at September 30, 2020		65,210				$	6,099,797			2,296		$	59,441	$	(13,447)			$	121,691		$	6,267,482

Table of Contents

General Partner Limited Partners Accumulated other
comprehensive loss Noncontrolling interest Total
Common Equity Common Equity
Nine months ended September 30, 2019 Units Amount Units Amount
Balances at December 31, 2018 65,890 $ 6,280,290 2,305 $ 59,061 $ (9,738) $ 64,231 $ 6,393,844
Net income — 310,468 — 10,863 — 7,935 329,266
Reversal of unrealized gains upon the sale of marketable debt securities — — — — (32) — (32)
Change in fair value of derivatives and amortization of swap settlements — — — — (6,366) — (6,366)
Change in fair value of marketable debt securities, net — — — — 203 — 203
Issuance of common units under:
General partner's stock based compensation, net 188 32,907 — — — — 32,907
Sale of common stock by general partner, net 228 72,549 — — — — 72,549
Equity based compensation costs — 7,016 3 898 — — 7,914
Retirement of common units, net (234) (56,989) — — — — (56,989)
Cumulative effect upon adoption of ASU No. 2017-12
— 0 — — 181 — 181
Changes in redemption value of redeemable noncontrolling interest — (5,048) — 63 — 1,310 (3,675)
Changes in noncontrolling interest from acquisition — — — — — 65,472 65,472
Distributions to noncontrolling interest — — — — — (7,412) (7,412)
Redemptions 10 (11,872) (10) (398) — (1,910) (14,180)
Distributions declared ($5.85 per unit) — (385,193) — (13,485) — — (398,678)
Balances at September 30, 2019 66,082 $ 6,244,128 2,298 $ 57,002 $ (15,752) $ 129,626 $ 6,415,004


	General Partner				Limited Partners				Accumulated other comprehensive loss, net		Noncontrolling interest		Total
	Common Equity				Common Equity
Nine months ended September 30, 2020	Units	Amount		Units		Amount
Balances at December 31, 2019	66,092	$	6,234,315		2,302		$	57,359	$	(10,432)	$	122,262	$	6,403,504
Net income	—	473,125			—		16,543		—		8,015		497,683

Cash flow hedge losses reclassified to earnings	—	—			—		—		3,282		—		3,282
Change in fair value of derivatives and amortization of swap settlements	—	—			—		—		(6,119)		—		(6,119)
Change in fair value of marketable debt securities, net	—	—			—		—		(178)		—		(178)
Issuance of common units under:
General partner's stock based compensation, net	95	9,201			—		—		—		—		9,201
Sale of common stock by general partner, net	—	(228)			—		—		—		—		(228)
Equity based compensation costs	—	8,956			2		338		—		—		9,294

Retirement of common units, net	(985)	(222,990)			—		—		—		—		(222,990)
Cumulative effect upon adoption of ASU No. 2016-13	—	(190)			—		—		—		—		(190)


Changes in redemption value of redeemable noncontrolling interest	—	6,888			—		(318)		—		121		6,691

Changes in noncontrolling interest from acquisition	—	—			—		—		—		1,349		1,349
Distributions to noncontrolling interest	—	—			—		—		—		(9,381)		(9,381)
Redemptions	8	(2,123)			(8)		(173)		—		(675)		(2,971)
Distributions declared ($6.2325 per unit)	—	(407,157)			—		(14,308)		—		—		(421,465)
Balances at September 30, 2020	65,210	$	6,099,797		2,296		$	59,441	$	(13,447)	$	121,691	$	6,267,482

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands, except parenthetical amounts)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	497,683	$	329,266	Net income	$	371,566	$	497,683
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Straight-lined rents	Straight-lined rents	(15,485)		(230)		Straight-lined rents	8,734		(15,485)
Depreciation and amortization	Depreciation and amortization	395,370		360,842		Depreciation and amortization	387,887		395,370
Amortization of discount on marketable securities	Amortization of discount on marketable securities	(6,598)		(16,673)		Amortization of discount on marketable securities	—		(6,598)
Amortization of discount and debt financing costs, net	Amortization of discount and debt financing costs, net	5,177		3,454		Amortization of discount and debt financing costs, net	7,987		5,177
Gain on sale of marketable securities	Gain on sale of marketable securities	(124)		(737)		Gain on sale of marketable securities	(2,499)		(124)
Income from early redemption of notes receivable						Income from early redemption of notes receivable	(4,747)		—
Provision for credit losses	Provision for credit losses	100		0		Provision for credit losses	(110)		100
Unrealized gains on equity securities recognized through income	Unrealized gains on equity securities recognized through income	(2,215)		(4,280)		Unrealized gains on equity securities recognized through income	(23,772)		(2,215)

Company's share of gain on the sales of co-investment		0		(870)

Earnings from co-investments	Earnings from co-investments	(53,514)		(54,065)		Earnings from co-investments	(60,692)		(53,514)
Operating distributions from co-investments	Operating distributions from co-investments	41,202		64,628		Operating distributions from co-investments	78,360		41,202
Accrued interest from notes and other receivables	Accrued interest from notes and other receivables	(1,574)		(4,523)		Accrued interest from notes and other receivables	(12,253)		(1,574)
Gain on the sale of real estate and land	Gain on the sale of real estate and land	(39,251)		0		Gain on the sale of real estate and land	(142,993)		(39,251)

Equity-based compensation	Equity-based compensation	4,923		6,748		Equity-based compensation	5,399		4,923
Loss (gain) on early retirement of debt, net		23,820		(7,143)
Loss on early retirement of debt, net						Loss on early retirement of debt, net	18,982		23,820
Gain on remeasurement of co-investment	Gain on remeasurement of co-investment	(234,694)		(31,535)		Gain on remeasurement of co-investment	(2,260)		(234,694)
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	(5,088)		(3,962)		Prepaid expenses, receivables, operating lease right-of-use assets, and other assets	2,470		(5,088)
Accounts payable, accrued liabilities, and operating lease liabilities	Accounts payable, accrued liabilities, and operating lease liabilities	43,095		64,281		Accounts payable, accrued liabilities, and operating lease liabilities	62,699		43,095
Other liabilities	Other liabilities	610		1,726		Other liabilities	5,119		610
Net cash provided by operating activities	Net cash provided by operating activities	653,437		706,927		Net cash provided by operating activities	699,877		653,437
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to real estate:	Additions to real estate:					Additions to real estate:
Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	(459,355)		(93,389)		Acquisitions of real estate and acquisition related capital expenditures, net of cash acquired	(105,469)		(459,355)
Redevelopment	Redevelopment	(41,592)		(55,027)		Redevelopment	(39,092)		(41,592)
Development acquisitions of and additions to real estate under development	Development acquisitions of and additions to real estate under development	(90,273)		(130,593)		Development acquisitions of and additions to real estate under development	(45,381)		(90,273)
Capital expenditures on rental properties	Capital expenditures on rental properties	(64,269)		(69,348)		Capital expenditures on rental properties	(81,063)		(64,269)

Investments in notes receivable	Investments in notes receivable	(20,431)		(140,663)		Investments in notes receivable	(102,012)		(20,431)
Collections of notes and other receivables	Collections of notes and other receivables	98,711		2,500		Collections of notes and other receivables	88,744		98,711
Proceeds from insurance for property losses	Proceeds from insurance for property losses	612		3,599		Proceeds from insurance for property losses	591		612

Proceeds from dispositions of real estate	Proceeds from dispositions of real estate	280,246		0		Proceeds from dispositions of real estate	297,454		280,246
Contributions to co-investments	Contributions to co-investments	(61,056)		(306,233)		Contributions to co-investments	(223,175)		(61,056)
Changes in refundable deposits	Changes in refundable deposits	96		325		Changes in refundable deposits	(8,356)		96
Purchases of marketable securities	Purchases of marketable securities	(38,909)		(42,653)		Purchases of marketable securities	(23,740)		(38,909)
Sales and maturities of marketable securities	Sales and maturities of marketable securities	56,890		57,165		Sales and maturities of marketable securities	14,995		56,890
Non-operating distributions from co-investments	Non-operating distributions from co-investments	37,342		70,064		Non-operating distributions from co-investments	131,297		37,342
Net cash used in investing activities	Net cash used in investing activities	(301,988)		(704,253)		Net cash used in investing activities	(95,207)		(301,988)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from unsecured debt and mortgage notes	Proceeds from unsecured debt and mortgage notes	1,452,808		892,762		Proceeds from unsecured debt and mortgage notes	745,505		1,452,808
Payments on unsecured debt and mortgage notes	Payments on unsecured debt and mortgage notes	(587,057)		(800,746)		Payments on unsecured debt and mortgage notes	(952,608)		(587,057)
Proceeds from lines of credit	Proceeds from lines of credit	1,038,426		1,485,034		Proceeds from lines of credit	601,435		1,038,426
Repayments of lines of credit	Repayments of lines of credit	(1,093,426)		(1,265,034)		Repayments of lines of credit	(558,773)		(1,093,426)

Retirement of common units	Retirement of common units	(222,990)		(56,989)		Retirement of common units	(9,172)		(222,990)
Additions to deferred charges		(13,761)		(9,446)

Table of Contents


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Payments related to debt prepayments penalties		(19,605)		0
Additions to deferred charges						Additions to deferred charges	(8,237)		(13,761)
Payments related to debt prepayment penalties						Payments related to debt prepayment penalties	(18,342)		(19,605)
Net proceeds from issuance of common units	Net proceeds from issuance of common units	(228)		72,549		Net proceeds from issuance of common units	(202)		(228)

Net proceeds from stock options exercised	Net proceeds from stock options exercised	14,865		36,422		Net proceeds from stock options exercised	17,847		14,865
Payments related to tax withholding for share-based compensation	Payments related to tax withholding for share-based compensation	(5,664)		(3,515)		Payments related to tax withholding for share-based compensation	(5,445)		(5,664)

Contributions from noncontrolling interest						Contributions from noncontrolling interest	1,900		—
Distributions to noncontrolling interest	Distributions to noncontrolling interest	(6,287)		(5,978)		Distributions to noncontrolling interest	(6,323)		(6,287)
Redemption of noncontrolling interests	Redemption of noncontrolling interests	(2,971)		(14,180)		Redemption of noncontrolling interests	(8,407)		(2,971)
Redemption of redeemable noncontrolling interests	Redemption of redeemable noncontrolling interests	0		(73)		Redemption of redeemable noncontrolling interests	(4,463)		—
Common units distributions paid	Common units distributions paid	(417,578)		(393,149)		Common units distributions paid	(422,474)		(417,578)
Net cash provided by (used in) financing activities		136,532		(62,343)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(627,759)		136,532

Net increase (decrease) in unrestricted and restricted cash and cash equivalents		487,981		(59,669)
Net (decrease) increase in unrestricted and restricted cash and cash equivalents						Net (decrease) increase in unrestricted and restricted cash and cash equivalents	(23,089)		487,981
Unrestricted and restricted cash and cash equivalents at beginning of period	Unrestricted and restricted cash and cash equivalents at beginning of period	81,094		151,395		Unrestricted and restricted cash and cash equivalents at beginning of period	84,041		81,094
Unrestricted and restricted cash and cash equivalents at end of period	Unrestricted and restricted cash and cash equivalents at end of period	$	569,075	$	91,726	Unrestricted and restricted cash and cash equivalents at end of period	$	60,952	$	569,075

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid for interest (net of $12.3 million and $19.0 million capitalized in 2020 and 2019, respectively)		$	160,927	$	145,001
Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively)						Cash paid for interest (net of $5.0 million and $12.3 million capitalized in 2021 and 2020, respectively)	$	147,371	$	160,927
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	5,192	$	5,097	Operating cash flows from operating leases	$	5,225	$	5,192
Supplemental disclosure of noncash investing and financing activities:	Supplemental disclosure of noncash investing and financing activities:					Supplemental disclosure of noncash investing and financing activities:
Issuance of DownREIT units in connection with acquisition of real estate		$	0	$	65,472

Transfers between real estate under development and rental properties, net	Transfers between real estate under development and rental properties, net	$	252,946	$	14,501	Transfers between real estate under development and rental properties, net	$	222,055	$	252,946
Transfer from real estate under development to co-investments	Transfer from real estate under development to co-investments	$	1,387	$	106	Transfer from real estate under development to co-investments	$	1,853	$	1,387

Reclassifications (from) to redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest		$	(6,691)	$	3,675

Initial recognition of operating lease right-of-use assets		$	0	$	77,645
Initial recognition of operating lease liabilities		$	0	$	79,693
Debt assumed in connection with acquisition		$	0	$	143,006
Reclassifications to (from) redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest						Reclassifications to (from) redeemable noncontrolling interest to/from general and limited partner capital and noncontrolling interest	$	4,922	$	(6,691)

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(1) Organization and Basis of Presentation

The accompanying unaudited condensed consolidated financial statements present the accounts of Essex Property Trust, Inc. ("Essex" or the "Company"), which include the accounts of the Company and Essex Portfolio, L.P. and its subsidiaries (the "Operating Partnership," which holds the operating assets of the Company), prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q. In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included and are normal and recurring in nature. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

All significant intercompany accounts and transactions have been eliminated in the unaudited condensed consolidated financial statements. ~~Certain reclassifications have been made to conform to the current year’s presentation.~~

The unaudited condensed consolidated financial statements for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 include the accounts of the Company and the Operating Partnership. Essex is the sole general partner of the Operating Partnership, with a 96.6% general partnership interest as of both September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. Total Operating Partnership limited partnership units ("OP Units," and the holders of such OP Units, "Unitholders") outstanding were ~~2,295,510~~2,282,464 and ~~2,301,653~~2,294,760 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately ~~$460.9~~$729.8 million and ~~$692.5~~$544.8 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

As of September 30, ~~2020,~~2021, the Company owned or had ownership interests in ~~247~~246 operating apartment communities, aggregating ~~60,387~~60,799 apartment homes, excluding the Company’s ownership interest in preferred interest co-investments, loan investments, 13 operating commercial ~~building,~~buildings, and a development pipeline comprised of 32 consolidated projects and 31 unconsolidated joint venture ~~projects.~~project. The operating apartment communities are located in Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.

Accounting Pronouncements Adopted in the Current Year

In ~~June 2016,~~January 2021, the Financial Accounting Standards Board ~~("FASB"~~(the "FASB") issued Accounting Standards Update ("ASU") No. 2016-13 "Measurement of Credit Losses on Financial Instruments," which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Previously, U.S. GAAP required entities to write down credit losses only when losses were probable and loss reversals were not permitted. The FASB additionally issued various updates to clarify and amend the guidance provided in ASU No. 2016-13. In May 2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments," which, with respect to credit losses, among other things, clarifies and addresses issues related to accrued interest, transfers between classifications of loans or debt securities, recoveries, and variable interest rates. Additionally, in May 2019, the FASB issued ASU No. 2019-05, "Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief," which allows entities to irrevocably elect the fair value option on certain financial instruments. The Company adopted ~~ASU No. 2016-13~~, ASU No. 2019-04, and ASU No. 2019-05 as of January 1, 2020, using the modified retrospective approach by applying a cumulative effect adjustment of $0.2 million representing estimated accumulated credit losses to the opening balance of retained earnings.

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which eliminates certain disclosure requirements affecting all levels of measurements, and modifies and adds new disclosure requirements for Level 3 measurements. The Company adopted ASU No. 2018-13 as of January 1, 2020. This adoption did not have a material impact on the Company's consolidated results of operations or financial position.

~~In March 2020, the FASB issued ASU No. 2020-04~~2021-01 "Reference Rate Reform (Topic 848): ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting,~~Scope." ~~which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.~~ The ~~guidance~~amendments in ASU No. ~~2020-04 is~~2021-01 provide optional ~~and may be elected over time as reference rate reform activities occur. During~~expedients to the ~~first quarter of 2020, the Company elected to apply the~~current guidance on contract modifications and hedge accounting ~~expedients related~~from the expected market transition from LIBOR and other interbank offered rates to ~~probability and the assessments of effectiveness for future LIBOR-indexed cash flows~~alternative reference rates. The guidance generally can be applied to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable ~~as additional changes in the market occur.~~

In April 2020, the FASB issued a Staff Question-and-Answer (Q&A) to clarify whether lease concessions related to the effects of COVID-19 require the application of the lease modification guidance under Accounting Standards Codification ("ASC") Topic 842, Leases. The Q&A allows companies to not apply the lease modification guidance to rent concessions that result in deferred rent where the total cash flows required by the modified lease agreement are materially the same as the cash flows required under the original lease and the changes to the lease do not result in a substantial increase to the rights of the lessor or the obligations of the lessee.contract modifications through December 31, 2022. The Company adopted ~~the~~this new guidance during the three months ended June 30, 2020 for eligible residential lease concessions. The lease concessions that met the criteria of the Q&A are treated as if they were part of the enforceable rights and obligations of the parties under the existing lease contract. The amount of rent concessions subject to the Q&A were not material and thisin January 2021 on a prospective basis. This adoption did not have a material impact on the Company's consolidated results of operations or financial position.

Revenues and Gains on Sale of Real Estate

Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned which generally approximates a straight-line basis, else, adjustments are made to conform to a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 9 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease. See Note 3, Revenues, for additional information regarding such revenues.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 and 2020

(Unaudited)

The Company also generates other property-related revenue associated with the leasing of apartment homes, including storage income, pet rent, and other miscellaneous revenue. Similar to rental income, such revenues are recorded when due from tenants and recognized monthly as they are earned.

Apart from rental and other property-related revenue, revenues from contracts with customers are recognized as control of the promised services is passed to the customer. For customer contracts related to management and other fees from affiliates (which includes asset management and property management), the transaction price and amount of revenue to be recognized is determined each quarter based on the management fee calculated and earned for that month or quarter. The contract will contain a description of the service and the fee percentage for management services. Payments from such services are one month or one quarter in arrears of the service performed.

~~Subsequent to the adoption of ASC 610-20 "Gains and Losses from the Derecognition of Nonfinancial Assets" on January 1, 2018, the~~The Company recognizes any gains on sales of real estate when it transfers control of a property and when it is probable that the Company will collect substantially all of the related consideration.

Marketable Securities

The Company reports its equity securities and available for sale debt securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds and Level 2 for the unsecured ~~bonds and Level 3 for investments in mortgage~~

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

~~backed securities,~~debt, as defined by the FASB standard for fair value measurements). As of both September 30, ~~2020~~2021 and December 31, ~~2019, $2.7~~2020, $2.5 million ~~and $3.6 million, respectively,~~ of equity securities were presented within common stock and stock funds in the tables below, which represent investments measured at fair value, using net asset value as a practical expedient, and are not categorized in the fair value hierarchy.

Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. Unrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income on the condensed consolidated statements of income and comprehensive income.

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, equity securities and available for sale debt securities consisted primarily of investment-grade unsecured ~~bonds, U.S. treasury securities,~~debt, and common stock and stock funds. As of September 30, 2020 and December 31, 2019, the Company classified its mortgage backed securities as held to maturity, and accordingly, the securities are stated at its amortized cost. The mortgage backed security investment which had an initial maturity date of September 2020 was partially repaid in September with the balance being extended until January 2021. The discount on the mortgage backed securities are amortized to interest income based on an estimated yield and the maturity date.

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, marketable securities ~~consist~~consisted of the following ($ in thousands):


		September 30, 2020									September 30, 2021
		Amortized Cost/Cost		Gross Unrealized Gain (Loss)		Carrying Value		Allowance for Credit Losses			Cost		Gross Unrealized Gain (Loss)		Carrying Value
Equity securities:	Equity securities:									Equity securities:
Investment funds - debt securities	Investment funds - debt securities	$	31,127	$	1,135	$	32,262			Investment funds - debt securities	$	61,885	$	24	$	61,909
Common stock and stock funds	Common stock and stock funds	67,636		4,551		72,187				Common stock and stock funds	80,079		39,734		119,813

Debt securities:	Debt securities:									Debt securities:
Available for sale	Available for sale									Available for sale

Investment-grade unsecured debt	Investment-grade unsecured debt	1,049		(105)		944		0		Investment-grade unsecured debt	1,050		368		1,418
Held to maturity
Mortgage backed security		29,578		0		29,578		13,644

Total - Marketable securities	Total - Marketable securities	$	129,390	$	5,581	$	134,971	$	13,644	Total - Marketable securities	$	143,014	$	40,126	$	183,140

2019

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)


		December 31, 2019						December 31, 2020
		Amortized Cost/Cost		Gross Unrealized Gain (Loss)		Carrying Value				Cost		Gross Unrealized Gain (Loss)		Carrying Value
Equity securities:	Equity securities:								Equity securities:
Investment funds - debt securities	Investment funds - debt securities	$	29,588	$	544	$	30,132		Investment funds - debt securities	$	49,646	$	985	$	50,631
Common stock and stock funds	Common stock and stock funds	34,941		2,927		37,868			Common stock and stock funds	81,074		15,001		96,075

Debt securities:	Debt securities:								Debt securities:
Available for sale	Available for sale								Available for sale
U.S. treasury securities		2,421		13		2,434
Investment-grade unsecured bonds		1,048		60		1,108
Held to maturity
Mortgage backed securities		72,651		0		72,651

Investment-grade unsecured debt									Investment-grade unsecured debt	1,050		12		1,062

Total - Marketable securities	Total - Marketable securities	$	140,649	$	3,544	$	144,193		Total - Marketable securities	$	131,770	$	15,998	$	147,768

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

For the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the proceeds from sales and maturities of marketable securities totaled ~~$52.6~~$0.1 million and ~~$7.0~~$52.6 million, respectively, which resulted in zero realized loss and $91 thousand ~~and $0.2 million~~ in realized gains, respectively, for such periods. For the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the proceeds from sales and maturities of marketable securities totaled ~~$56.9~~$15.0 million and ~~$57.2~~$56.9 million, respectively, which resulted in ~~$0.1~~$2.5 million and ~~$0.7~~$0.1 million in realized gains, respectively, for such periods.

For the three and nine months ended September 30, 2021, the portion of equity security unrealized gains that were recognized in income totaled $7.1 million and $23.8 million, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income. For the three and nine months ended September 30, 2020, the portion of equity security unrealized gains or losses that were recognized in income totaled $3.3 million and $2.2 million in gains, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income. For the three and nine months ended September 30, 2019, the portion of equity security unrealized losses or gains that were recognized in income totaled $0.2 million in losses and $4.3 million in gains, respectively, and were included in interest and other income on the Company's condensed consolidated statements of income and comprehensive income.

Unrealized losses on Investment-grade unsecured bonds as of September 30, 2020 have not been recognized into income because the debts of the issuers are of high credit quality, management does not intend to sell the securities, it is likely that the Company will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to other market conditions.

The Company monitors the credit quality of its held to maturity mortgage backed security through the review of remittance reports and individual loan watchlists, which are prepared quarterly and provide most recent debt service coverage ratios for each loan within the security, when available. The Company monitors such reports to determine the likelihood that a particular loan within the mortgage backed security may be foreclosed upon.

The Company measures the expected credit loss on its held to maturity mortgage backed security based on the present value of expected future cash flows, which takes into account current market conditions and available credit information obtained from the individual loans held within the mortgage backed security. The following table presents the allowance for credit losses rollforward for the mortgage backed security ($ in thousands):

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~


~~Balance at December 31, 2019~~	$	0
~~Impact of adoption ASC 326~~ ~~(1)~~	~~13,644~~
~~Provision for credit losses~~	0
~~Balance at September 30, 2020~~	$	~~13,644~~

~~(1)~~ As part of the adoption of ASC 326, effective January 1, 2020, the Company recorded a gross up of the mortgage backed security and related allowance for credit losses of $13.6 million. This gross up had no effect on the Company's consolidated results of operations or financial position.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidated the Operating Partnership, 1718 DownREIT entities (comprising 9 communities), and 56 co-investments as of September 30, ~~2020.~~2021. As of December 31, ~~2019,~~2020, the Company consolidated the Operating Partnership, 17 DownREIT entities (comprising 9 communities) and 65 co-investments. The Company consolidates these entities because it is deemed the primary beneficiary. ~~Essex~~The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the above consolidated co-investments and DownREIT entities, net of intercompany eliminations, were approximately ~~$0.9 billion~~$909.1 million and ~~$329.9~~$323.3 million, respectively, as of September 30, ~~2020~~2021 and ~~$1.0 billion~~$898.5 million and ~~$364.3~~$326.8 million, respectively, as of December 31, ~~2019.~~2020. Noncontrolling interests in these entities were ~~$121.2~~$122.4 million and ~~$122.5~~$120.8 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company did not have any VIEs of which it was not deemed to be the primary beneficiary.

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 14, "Equity Based Compensation Plans," in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019)~~2020) are being amortized over the expected service periods.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 and 2020

(Unaudited)

Fair Value of Financial Instruments

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 September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, because interest rates, yields, and other terms for these instruments are consistent with interest rates, yields, and other terms currently available for similar instruments. Management has estimated that the fair value of the Company’s fixed rate debt with a carrying value of ~~$5.8~~$5.7 billion and ~~$5.2~~$5.5 billion at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, was approximately ~~$6.0~~$6.1 billion and ~~$5.4~~$6.0 billion, respectively. Management has estimated that the fair value of the Company’s ~~$804.9~~$366.4 million and ~~$660.4~~$775.1 million of variable rate debt at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, was approximately ~~$799.6~~$364.3 million and ~~$655.8~~$770.1 million, respectively, based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes 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 payables, other liabilities, and dividends payable approximate fair value as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 due to the short-term maturity of these instruments. Marketable securities ~~except mortgage backed securities,~~ are carried at fair value as of September 30, ~~2020~~2021 and December 31, ~~2019.~~

At September 30, 2020, the Company’s investment in its mortgage backed security had a net carrying value of $29.6 million and the Company estimated the fair value to be approximately $29.6 million. At December 31, 2019, the Company’s investment in mortgage backed securities had a carrying value of $72.7 million and the Company estimated the fair value to be approximately $72.7 million. 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 the

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

~~securities. Assumptions such as estimated default rates and discount rates are used to determine the expected, discounted cash flows to estimate fair value.~~2020.

Capitalization of Costs

The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of interest and employee compensation and totaled ~~$6.1~~$5.6 million and ~~$11.0~~$6.1 million during the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$24.9~~$17.5 million and ~~$32.1~~$24.9 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company capitalizes leasing commissions associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized for leasing commissions are immaterial for all periods presented.

Co-investments

The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-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. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.

Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of income equal to the amount by which the fair value of the Company's previously owned co-investment interest ~~the Company previously owned~~ exceeds its carrying value. A majority of the co-investments, excluding ~~the~~most preferred equity investments, compensate the Company for its asset management services and some of these investments may provide promote income 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 from co-investments.

Changes in Accumulated Other Comprehensive Loss, Net by Component

Essex Property Trust, Inc.

($ in thousands):

Change in fair
value and amortization
of swap settlements Unrealized
gain/(loss) on
available for sale securities Total
Balance at December 31, 2019 $ (13,989) $ 101 $ (13,888)
Other comprehensive loss before reclassification 2,263 (172) 2,091
Amounts reclassified from accumulated other comprehensive loss (5,003) 0 (5,003)
Other comprehensive loss (2,740) (172) (2,912)
Balance at September 30, 2020 $ (16,729) $ (71) $ (16,800)


	Change in fair value and amortization of swap settlements		Unrealized gain on available for sale securities		Total
Balance at December 31, 2020	$	(14,771)	$	42	$	(14,729)

Other comprehensive income before reclassification	5,406		344		5,750
Amounts reclassified from accumulated other comprehensive loss	11		—		11
Other comprehensive income	5,417		344		5,761
Balance at September 30, 2021	$	(9,354)	$	386	$	(8,968)

2321

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

~~Changes in Accumulated Other Comprehensive Loss, by Component~~

Essex Portfolio, L.P.

($ in thousands):

Change in fair
value and amortization
of swap settlements Unrealized
gain/(loss) on
available for sale securities Total
Balance at December 31, 2019 $ (10,536) $ 104 $ (10,432)
Other comprehensive loss before reclassification 2,341 (178) 2,163
Amounts reclassified from accumulated other comprehensive loss (5,178) 0 (5,178)
Other comprehensive loss (2,837) (178) (3,015)
Balance at September 30, 2020 $ (13,373) $ (74) $ (13,447)


	Change in fair value and amortization of swap settlements		Unrealized gain on available for sale securities		Total
Balance at December 31, 2020	$	(11,346)	$	43	$	(11,303)

Other comprehensive income before reclassification	5,595		356		5,951
Amounts reclassified from accumulated other comprehensive loss	12		—		12
Other comprehensive income	5,607		356		5,963
Balance at September 30, 2021	$	(5,739)	$	399	$	(5,340)

Amounts reclassified from accumulated other comprehensive loss in connection with derivatives are recorded in interest expense on the condensed consolidated statements of income and comprehensive income. Realized gains and losses on available for sale debt securities are included in interest and other income on the condensed consolidated statements of income and comprehensive income.

Redeemable Noncontrolling Interest

The carrying value of redeemable noncontrolling ~~interest~~interests in the accompanying condensed consolidated balance sheets was ~~$30.7~~$32.7 million and ~~$37.4~~$32.2 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.

The changes to the redemption value of redeemable noncontrolling interests for the nine months ended September 30, ~~2020~~2021 is as follows ($ in thousands):


Balance at December 31, ~~2019~~2020	$	~~37,410~~32,239
Reclassification due to change in redemption value and other	~~(6,691)~~4,922
Redemptions	0 (4,463)

Balance at September 30, ~~2020~~2021	$	~~30,719~~32,698

Cash, 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.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows ($ in thousands):


		September 30, 2020		December 31, 2019		September 30, 2019		December 31, 2018			September 30, 2021		December 31, 2020		September 30, 2020		December 31, 2019
Cash and cash equivalents - unrestricted	Cash and cash equivalents - unrestricted	$	558,446	$	70,087	$	74,031	$	134,465	Cash and cash equivalents - unrestricted	$	49,910	$	73,629	$	558,446	$	70,087
Cash and cash equivalents - restricted	Cash and cash equivalents - restricted	10,629		11,007		17,695		16,930		Cash and cash equivalents - restricted	11,042		10,412		10,629		11,007
Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows	Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows	$	569,075	$	81,094	$	91,726	$	151,395	Total unrestricted and restricted cash and cash equivalents shown in the condensed consolidated statement of cash flows	$	60,952	$	84,041	$	569,075	$	81,094

2422

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

Accounting Estimates

The preparation of condensed consolidated financial statements, in accordance with U.S. 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 receivables, and its qualification as a real estate investment trust ("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.

(2) Significant Transactions During ~~The~~the Nine Months Ended September 30, ~~2020~~2021 and Subsequent Events

Significant Transactions

Acquisitions

In ~~January 2020,~~September 2021, the Company ~~purchased Canada Pension Plan Investment Board's~~acquired 7 South Linden, a commercial property located in South San Francisco, CA for $33.5 million. The property is fully leased to 2 commercial tenants. The Company is currently pursuing entitlements to construct an apartment community on the property.

In September 2021, Wesco VI, LLC ("~~CPPIB"~~Wesco VI"), a new joint venture with one of the Company's institutional partners, acquired Martha Lake Apartments, a 155 unit apartment home community located in Lynwood, WA, for a total contract price of $53.0 million. The property is encumbered by a $29.2 million related party bridge loan from the Company, with an interest rate of 2.15% and is scheduled to mature in December 2021. See the "Co-Investments" section below for further details related to the creation of Wesco VI. See Note 6, Related Party Transactions, for additional details.

In September 2021, the Company acquired Third & Broad, a fully-leased single tenant commercial property located in downtown Seattle, WA for $52.5 million. The Company will hold the property for future apartment development.

In June 2021, the Company acquired its joint venture partner, BEX III, LLC's ("BEX III") ~~45.0%~~50.0% interest in ~~each~~The Village at Toluca Lake, a community totaling 145 homes located in Burbank, CA, for total consideration of ~~a land parcel and 6 communities totaling 2,020 apartment homes, valued at $1.0 billion on a gross basis.~~$31.8 million. Concurrent with the closing of the acquisition, the Company repaid $29.5 million in mortgage debt that encumbered the property. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of ~~$234.7 million. Furthermore, the Company recognized $6.5~~$2.3 million ~~in promote income as a result of the transaction, which is included in equity income from co-investments on the condensed consolidated statements of income and comprehensive income.~~upon consolidation.

Dispositions

In ~~June 2020,~~August 2021, the Company ~~completed~~sold Devonshire, a ~~portfolio sale which consisted of 2~~non-core apartment ~~communities, One South Market and Museum Park, both~~community with 276 apartment homes, located in ~~San Jose,~~Hemet, CA, for a total contract price of ~~$232.0~~$54.5 million. The Company recognized a ~~$16.6~~$42.9 million gain on sale.

In ~~July 2020,~~February 2021, the Company sold ~~Delano,~~Hidden Valley, a ~~126~~324 apartment home community located in ~~Redmond, WA,~~Simi Valley, CA, for a total contract price of ~~$51.5~~$105.0 million. The Company recognized a ~~$22.7~~$69.2 million gain on sale. In conjunction with the sale, the Company repaid $29.7 million of mortgage debt that encumbered the property.

In February 2021, the Company sold Park 20, a 197 apartment home community located in San Mateo, CA, for a total contract price of $113.0 million. The Company recognized an immaterial gain on sale.

~~As of September 30, 2020,~~In February 2021, the Company ~~had 1 community totaling~~sold Axis 2300, a 115 apartment ~~homes that is qualified as held~~home community located in Irvine, CA, for a total contract price of $57.5 million. The Company recognized a $30.8 million gain on sale.

Co-Investments

~~Preferred Equity Investments~~

In the first quarter of 2020, the Company originated 2 preferred equity investments totaling $91.4 million in two multifamily communities located in California. The investments have a weighted average initial return of 11.3% with most of the proceeds expected to fund in late 2020 and early 2021.

In March 2020, the Company received cash of $11.3 million, including an early redemption fee of $0.2 million, for the partial redemption of a preferred equity investment in a joint venture that holds property located in Southern California.

In the third quarter of 2020, the Company funded a $10.5 million preferred equity investment in a multifamily development community located in Southern California. The investment has an initial preferred return of 11.0% and is scheduled to mature in August 2025.

~~In September 2020, the Company received cash of $10.6 million for the full redemption of a preferred equity investment in a property located in Southern California.~~

Joint Ventures

2523

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

~~Notes Receivable~~In September 2021, the Company formed a new joint venture entity, Wesco VI, with an institutional partner. Each partner has a 50.0% ownership interest and an initial equity commitment of $150.0 million. The joint venture is unconsolidated for financial reporting purposes.

Preferred Equity Investments

In September 2021, the Company originated a preferred equity investment totaling $26.2 million in one multifamily community located in Southern California. The investment has an initial preferred return of 12.5% and is scheduled to mature in September 2026.

In August 2021, the Company originated a preferred equity investment totaling $11.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 11.5% and is scheduled to mature in August 2026.

In January ~~2020,~~2021, the Company originated a preferred equity investment totaling $20.0 million in one multifamily community located in Washington. The investment has an initial preferred return of 10.0% and is scheduled to mature in January 2026.

In August 2021, the Company received cash of ~~$16.9~~$21.6 million, for the partial redemption of a preferred equity investment in a joint venture that holds property located in Northern California.

In March 2021, the Company received cash of $10.0 million for the full redemption of a ~~mezzanine loan~~preferred equity investment in a joint venture that holds property located in Southern California.

In ~~January 2020,~~March 2021, the Company received ~~$85.8~~cash of $110.2 million, including an early redemption fee of $3.5 million for the ~~payoff~~full redemption of a preferred equity investment in a joint venture that holds property located in Southern California.

Notes Receivable

In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco ~~V, LLC ("Wesco V").~~VI. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets. See Note 6, Related Party Transactions for additional details.

In March ~~2020,~~2021, the Company ~~committed~~provided a $52.5 million related party bridge loan to ~~fund an investment~~Wesco I, LLC ("Wesco I") in ~~mezzanine loans totaling $15.0 million as part of~~connection with the ~~development~~payoff of a ~~multifamily community~~debt related to one of its properties located in Southern California. The ~~investment has an initial 10.5%~~note receivable accrued interest ~~rate~~at 2.55% and ~~maturity date of February 2023, with options to extend for up to two years. As of September 30, 2020, the Company had funded $7.5 million of this commitment.~~was paid off in July 2021.

In ~~April 2020,~~June 2021, the Company ~~committed to fund~~received cash of $36.5 million, including an early redemption fee of $4.7 million, for the full redemption of a ~~$29.2 million~~ mezzanine loan inon a ~~multifamily community~~property located in Northern California, with an 11.0% interest rate and an initial maturity date of October 2023, with options to extend for up to two years. As of September 30, 2020, the Company had funded $12.9 million of this commitment.California.

Common Stock

During the three months ended March 31, ~~2020,~~2021, the Company repurchased and retired ~~776,261~~40,000 shares totaling ~~$176.3~~$9.2 million, including commissions. ~~In May 2020, the board~~The Company did not repurchase any shares subsequent to March 31, 2021. As of ~~directors approved the replenishment of the stock repurchase plan such that, as of such date,~~September 30, 2021, the Company had $250.0 million of purchase authority remaining under the replenished plan. During the three months ended June 30, 2020, the Company repurchased and retired 87,988 shares totaling $20.1 million, including commissions, all of which were repurchased after the replenishment in May 2020. During the three months ended September 30, 2020, the Company repurchased and retired 121,260 shares totaling $26.6 million, including commissions. As a result, as of September 30, 2020, the Company had $203.3$214.5 million of purchase authority remaining under its $250.0 million stock repurchase plan.

Senior Unsecured Debt

In ~~February 2020,~~March 2021, the Operating Partnership issued ~~$500.0~~$450.0 million of senior unsecured notes due on March ~~15, 2032~~1, 2028 with a coupon rate of ~~2.650%~~1.700% per annum (the ~~"2032~~"2028 Notes"), which are payable on March 151 and September 151 of each year, beginning on September ~~15, 2020.~~1, 2021. The ~~2032~~2028 Notes were offered to investors at a price of ~~99.628%~~99.423% of par value. The ~~2032~~2028 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 unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay ~~indebtedness under its unsecured lines~~upcoming debt maturities, including all or a portion of ~~credit, which had been used to fund the buyout of CPPIB's 45.0% joint venture interests discussed above, as well as repay $100.3 million of secured debt during the quarter.~~

~~In April 2020, the Company originated a $200.0 million~~certain unsecured term ~~loan with a one-year maturity~~loans, and 2 12-month extension options, exercisable at the Company’s option. The unsecured term loan bears a variable interest rate of LIBOR plus 1.20% and the proceeds were used to repay all remaining consolidated debt maturing in 2020.

In June 2020, the Operating Partnership issued an additional $150.0 million of the 2032 Notes at a price of 105.660% of par value, plus accrued interest from February 2020 up to, but not including, the date of delivery of the additional notes, with an effective yield of 2.093%. These additional notes have substantially identical terms as the 2032 Notes issued in February 2020. The proceeds were used to repay indebtedness under the Company's unsecured credit facilities and for ~~other~~ general corporate and working capital purposes.

In August 2020, the Operating Partnership issued $600.0 million of senior unsecured notes, consisting of $300.0 million aggregate principal amount due on January 15, 2031 with a coupon rate of 1.650% (the “2031 Notes”) and $300.0 million aggregate principal amount due on September 1, 2050 with a coupon rate of 2.650% (the “2050 Notes” and together with the 2031 Notes, the “Notes”). The 2031 Notes were offered to investors at a price of 99.035% of par value and the 2050 Notes at 99.691% of par value. Interest is payable on the 2031 Notes semiannually on January 15 and July 15 of each year, beginning

2624

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

~~January~~In June 2021, the Operating Partnership issued $300.0 million of senior unsecured notes due on June 15, ~~2021. Interest is~~2031 with a coupon rate of 2.550% per annum (the "2031 Notes"), which are payable on ~~the 2050 Notes semiannually on March 1~~June 15 and ~~September 1~~December 15 of each year, beginning ~~March 1,~~on December 15, 2021. The 2031 Notes were offered to investors at a price of 99.367% of par value. The 2031 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 unconditionally guaranteed by Essex. The Company used ~~a portion of~~ the net proceeds of this offering to repay upcoming debt maturities, including to fund the redemption of $300.0 million aggregate principal amount (plus the make-whole amount and accrued and unpaid interest) of its outstanding ~~3.625%~~3.375% senior unsecured notes due ~~August 2022. The Company incurred $19.1 million of prepayment penalties related to this debt repayment.~~January 2023, and for other general corporate and working capital purposes.

Subsequent Events

In October ~~2020, the Company sold 416 on Broadway,~~2021, Wesco VI acquired Monterra, a ~~115~~139 unit apartment home community ~~located~~ in ~~Glendale, CA,~~Mill Creek, WA, near Martha Lake, for a total contract price of ~~$60.0~~$55.0 million.

In October ~~2020,~~2021, the Company ~~originated 2 preferred equity investments totaling $46.8 million. One of the investments is for the development of~~committed to fund a $50.0 million mezzanine loan in a multifamily development community ~~and the other is an investment in a stabilized multifamily community, both~~ located in ~~Southern California.~~Northern California, with an initial 11.0% interest rate and a maturity date of October 2025, with options to extend for up to two years. The ~~investments have a weighted average return~~investment will fund concurrent with the senior construction loan which is scheduled to begin funding in the second half of ~~10.2% with most of the proceeds expected to fund in later 2020 and early 2021.~~2022.

(3) Revenues

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Rental income	Rental income	$	362,073	$	358,001	$	1,108,658	$	1,058,973	Rental income	$	355,591	$	362,073	$	1,046,218	$	1,108,658
Other property	Other property	6,391		6,503		17,705		18,794		Other property	5,029		6,391		16,035		17,705
Management and other fees from affiliates	Management and other fees from affiliates	2,347		2,428		7,312		7,023		Management and other fees from affiliates	2,237		2,347		6,707		7,312
Total revenues	Total revenues	$	370,811	$	366,932	$	1,133,675	$	1,084,790	Total revenues	$	362,857	$	370,811	$	1,068,960	$	1,133,675

The following table presents the Company’s rental and other property revenues disaggregated by geographic operating segment ($ in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Southern California	Southern California	$	140,271	$	151,841	$	438,087	$	453,873	Southern California	$	150,807	$	136,651	$	434,926	$	426,987
Northern California	Northern California	148,712		140,509		462,558		411,694		Northern California	145,807		147,081		435,883		457,655
Seattle Metro	Seattle Metro	60,617		61,052		184,310		180,942		Seattle Metro	60,280		60,617		178,180		184,310
Other real estate assets (1)	Other real estate assets (1)	18,864		11,102		41,408		31,258		Other real estate assets (1)	3,726		24,115		13,264		57,411
Total rental and other property revenues	Total rental and other property revenues	$	368,464	$	364,504	$	1,126,363	$	1,077,767	Total rental and other property revenues	$	360,620	$	368,464	$	1,062,253	$	1,126,363

(1) Other real estate assets consist of revenues generated from retail space, commercial properties, held for sale properties, disposition properties and straight-line rent adjustments for concessions. Executive management does not evaluate such operating performance geographically.

2725

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

The following table presents the Company’s rental and other property revenues disaggregated by current property category status ($ in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Same-property (1)	Same-property (1)	$	314,958	$	337,691	$	981,437	$	1,006,232	Same-property (1)	$	325,153	$	316,639	$	957,908	$	986,945
Acquisitions (2)	Acquisitions (2)	20,143		2,991		58,907		3,466		Acquisitions (2)	14,789		14,237		42,410		40,491
Development (3)	Development (3)	5,461		1,883		13,956		4,258		Development (3)	8,055		5,461		22,485		13,956
Redevelopment	Redevelopment	4,277		5,272		14,774		15,741		Redevelopment	4,340		4,277		13,079		14,774
Non-residential/other, net (4)	Non-residential/other, net (4)	23,625		16,667		57,289		48,070		Non-residential/other, net (4)	11,319		13,119		35,721		52,491
Straight line rent concession (5)										Straight line rent concession (5)	(3,036)		14,731		(9,350)		17,706
Total rental and other property revenues	Total rental and other property revenues	$	368,464	$	364,504	$	1,126,363	$	1,077,767	Total rental and other property revenues	$	360,620	$	368,464	$	1,062,253	$	1,126,363

(1) Properties that have comparable stabilized results as of January 1, ~~2019~~2020 and are consolidated by the Company for the three and nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. A community is generally considered to have reached stabilized operations once it achieves an initial occupancy of 90%.

(2) Acquisitions ~~includes~~include properties acquired which did not have comparable stabilized results as of January 1, ~~2019.~~2020.

(3) Development includes properties developed which did not have stabilized results as of January 1, ~~2019.~~2020.

(4) Non-residential/other, net consists of revenues generated from retail space, commercial properties, held for sale properties, disposition properties, student housing, properties undergoing significant construction activities that do not meet our redevelopment criteria, and 32 communities located in the California counties of ~~Riverside,~~ Santa Barbara and Santa Cruz, which the Company does not consider its core ~~markets~~markets.

(5) Same-property revenues reflect concessions on a cash basis. Total rental and other property revenues reflect concessions on a straight-line ~~rent adjustments for concessions.~~basis in accordance with U.S. GAAP.

Deferred Revenues and Remaining Performance Obligations

When cash payments are received or due in advance of the Company’s performance of contracts with customers, deferred revenue is recorded. The total deferred revenue balance related to such contracts was ~~$3.3~~$2.6 million and ~~$3.9~~$3.1 million as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and was included in accounts payable and accrued liabilities within the accompanying condensed consolidated balance sheets. The amount of revenue recognized for the nine months ended September 30, ~~2020~~2021 that was included in the December 31, ~~2019~~2020 deferred revenue balance was ~~$0.6~~$0.5 million, which was included in interest and other income within the condensed consolidated statements of income and comprehensive income.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the revenue recognition accounting standard. As of September 30, ~~2020,~~2021, the Company had ~~$3.3~~$2.6 million of remaining performance obligations. The Company expects to recognize approximately 6%7% of these remaining performance obligations in ~~2020,~~2021, an additional ~~44%~~55% through ~~2022,~~2023, and the remaining balance thereafter.

2826

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

(4) Co-investments

The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments, including BEXAEW, LLC ("BEXAEW"), BEX II, LLC ("BEX ~~III, and~~II"), BEX IV, LLC (""BEX IV"), 500 Folsom, Wesco I, ~~LLC ("Wesco I"),~~ Wesco III, LLC ("Wesco III"), Wesco IV, LLC ("Wesco IV"), Wesco V, LLC ("Wesco V"), and Wesco V,VI, own, operate, and develop apartment communities. The carrying values of the Company's co-investments as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 are as follows ($ in thousands, except parenthetical amounts):

Weighted Average Company Ownership Percentage (1)
September 30, 2020 December 31, 2019
Ownership interest in:
CPPIB (2)
0 % $ 0 $ 345,466
Wesco I, Wesco III, Wesco IV, and Wesco V 51 % 181,621 216,756
BEXAEW, BEX II, BEX III, and BEX IV 50 % 154,367 160,888
Other 47 % 27,618 20,351
Total operating and other co-investments, net 363,606 743,461
Total predevelopment and development co-investments 50 % 170,314 146,944
Total preferred interest co-investments (includes related party investments of $79.3 million and $73.2 million as of September 30, 2020 and December 31, 2019, respectively) 484,315 444,934
Total co-investments, net $ 1,018,235 $ 1,335,339


	Weighted Average Company Ownership Percentage (1)		September 30, 2021		December 31, 2020
Ownership interest in:

Wesco I (2), Wesco III, Wesco IV, Wesco V, and Wesco VI	52	%	138,745		178,322
BEXAEW, BEX II, BEX III (3), BEX IV, and 500 Folsom (4)	50	%	273,557		152,309
Other	46	%	58,504		27,635
Total operating and other co-investments, net			470,806		358,266
Total development co-investments	50	%	9,965		157,433
Total preferred interest co-investments (includes related party investments of $87.5 million and $81.4 million as of September 30, 2021 and December 31, 2020, respectively)			572,053		502,311
Total co-investments, net			$	1,052,824	$	1,018,010

(1) Weighted average Company ownership percentages are as of September 30, ~~2020.~~2021.

(2)As of September 30, 2021, the Company's investment in Wesco I was classified as a liability of $29.0 million.

(3) In ~~January 2020,~~June 2021, the Company purchased ~~CPPIB's 45.0%~~the additional 50% interest in ~~each~~BEX III.

(4) 500 Folsom had not stabilized as of ~~a land parcel and 6 communities totaling 2,020 apartment homes.~~December 31, 2020. Its carrying value was included in the development co-investments balance as of December 31, 2020.

The combined summarized financial information of co-investments is as follows ($ in thousands):


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Combined balance sheets: (1)	Combined balance sheets: (1)					Combined balance sheets: (1)
Rental properties and real estate under development	Rental properties and real estate under development	$	4,391,064	$	4,733,762	Rental properties and real estate under development	$	4,216,981	$	4,242,611
Other assets	Other assets	216,357		139,562		Other assets	228,721		200,777
Total assets	Total assets	$	4,607,421	$	4,873,324	Total assets	$	4,445,702	$	4,443,388
Debt	Debt	$	2,692,418	$	2,442,213	Debt	$	2,705,882	$	2,611,365
Other liabilities	Other liabilities	179,121		117,160		Other liabilities	221,022		189,515
Equity	Equity	1,735,882		2,313,951		Equity	1,518,798		1,642,508
Total liabilities and equity	Total liabilities and equity	$	4,607,421	$	4,873,324	Total liabilities and equity	$	4,445,702	$	4,443,388
Company's share of equity	Company's share of equity	$	1,018,235	$	1,335,339	Company's share of equity	$	1,052,824	$	1,018,010

2927

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Combined statements of income: (1)	Combined statements of income: (1)									Combined statements of income: (1)
Property revenues	Property revenues	$	76,581	$	84,071	$	226,125	$	249,628	Property revenues	$	71,195	$	76,581	$	211,359	$	226,125
Property operating expenses	Property operating expenses	(28,047)		(29,214)		(79,621)		(85,768)		Property operating expenses	(27,588)		(28,047)		(81,932)		(79,621)
Net operating income	Net operating income	48,534		54,857		146,504		163,860		Net operating income	43,607		48,534		129,427		146,504

Interest expense	Interest expense	(19,369)		(16,089)		(59,700)		(47,284)		Interest expense	(15,347)		(19,369)		(48,012)		(59,700)
General and administrative	General and administrative	(5,161)		(2,603)		(12,636)		(6,774)		General and administrative	(3,331)		(5,161)		(11,641)		(12,636)
Depreciation and amortization	Depreciation and amortization	(29,732)		(30,411)		(86,947)		(89,283)		Depreciation and amortization	(32,290)		(29,732)		(96,812)		(86,947)
Net (loss) income		$	(5,728)	$	5,754	$	(12,779)	$	20,519
Net loss										Net loss	$	(7,361)	$	(5,728)	$	(27,038)	$	(12,779)
Company's share of net income (2)	Company's share of net income (2)	$	14,960	$	21,700	$	53,514	$	54,935	Company's share of net income (2)	$	25,433	$	14,960	$	60,692	$	53,514

(1) Includes preferred equity investments held by the Company.

(2) Includes the Company's share of equity income from joint ventures and preferred equity investments, gain on sales of co-investments, co-investment promote income and income from early redemption of preferred equity investments. Includes related party income of ~~$2.2~~$2.4 million and ~~$2.0~~$2.2 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$6.4~~$7.0 million and ~~$5.5~~$6.4 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

(5) Notes and Other Receivables

Notes and other receivables consist of the following as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020 ($ in thousands):


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
Note receivable, secured, bearing interest at 9.00%, due May 2021 (Originated May 2017) (1)		$	0	$	16,828
Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018)	Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018)	13,857		12,838		Note receivable, secured, bearing interest at 9.90%, due November 2021 (Originated November 2018)	$	15,337	$	14,216

Related party note receivable, secured, bearing variable rate interest, due February 2020 (Originated November 2019) (2)(3)		0		85,713
Notes receivable, secured, bearing interest at 10.50%, due February 2023 (Originated March 2020)	Notes receivable, secured, bearing interest at 10.50%, due February 2023 (Originated March 2020)	7,499		0		Notes receivable, secured, bearing interest at 10.50%, due February 2023 (Originated March 2020)	16,591		15,299
Note receivable, secured, bearing interest at 11.00%, due October 2023 (Originated April 2020)		13,134		0
Note receivable, secured, bearing interest at 11.00%, due October 2023 (Originated April 2020) (1)						Note receivable, secured, bearing interest at 11.00%, due October 2023 (Originated April 2020) (1)	—		25,461
Notes receivable, secured, bearing interest at 9.00%, due December 2023 (Originated November 2020)						Notes receivable, secured, bearing interest at 9.00%, due December 2023 (Originated November 2020)	84,896		79,827
Notes receivable, secured, bearing interest at 11.50%, due November 2024 (Originated November 2020)						Notes receivable, secured, bearing interest at 11.50%, due November 2024 (Originated November 2020)	28,850		15,423
Related party note receivable, secured, bearing interest at 2.15%, due December 2021 (Originated September 2021) (2)						Related party note receivable, secured, bearing interest at 2.15%, due December 2021 (Originated September 2021) (2)	29,157		—
Notes and other receivables from affiliates ~~(4)~~(3)	Notes and other receivables from affiliates ~~(4)~~(3)	5,505		4,442		Notes and other receivables from affiliates ~~(4)~~(3)	4,744		4,744
Straight line rent receivables(4)	Straight line rent receivables(4)	21,373		6,083		Straight line rent receivables(4)	16,464		25,214
Other receivables	Other receivables	14,236		8,461		Other receivables	18,689		15,671
Allowance for credit losses	Allowance for credit losses	(172)		0		Allowance for credit losses	(743)		(751)
Total notes and other receivables	Total notes and other receivables	$	75,432	$	134,365	Total notes and other receivables	$	213,985	$	195,104

(1) In ~~January 2020,~~June 2021, the Company received cash of ~~$16.9~~$36.5 million, including an early redemption fee of $4.7 million, from the payoff of this note receivable.

(2) See Note 6, Related Party Transactions, for additional details.

(3) ~~In January 2020, the Company received cash of $85.8 million from the payoff of this note receivable.~~

~~(4)~~These amounts consist of short-term loans outstanding and due from various joint ventures as of September 30, ~~2020~~2021 and

December 31, ~~2019.~~2020. See Note 6, Related Party Transactions, for additional details.

(4) These amounts are receivables from lease concessions recorded on a straight-line basis for the Company's operating

properties.

In the normal course of business, the Company originates and holds two types of loans: mezzanine loans issued to entities that are pursuing apartment development and short-term bridge loans issued to joint ventures with the Company.

The Company categorizes development project mezzanine loans into risk categories based on relevant information about the ability of the borrowers to service their debt, such as: current financial information, credit documentation, public information,

3028

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

and previous experience with the borrower. The Company initially analyzes each mezzanine loan individually to classify the credit risk of the loan. On a periodic basis the Company evaluates and performs site visits of the development projects associated with the mezzanine loans to confirm whether they are on budget and whether there are any delays in development that could impact the Company's assessment of credit loss.

All bridge loans that the Company issues are, by their nature, short-term and meant only to provide time for the Company’s joint ventures to obtain long-term funding for newly acquired communities. As the Company is a partner in the joint ventures that are borrowing such funds and has performed a detailed review of each community as part of the acquisition process, there is little to no credit risk associated with such loans. As such, the Company does not review credit quality indicators for bridge loans on an ongoing basis.

The Company estimates the allowance for credit losses for each loan type using relevant available information from internal and external sources, relating to past events, current conditions, and reasonable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made, if necessary, for differences in current loan-specific risk characteristics. For example, in the case of mezzanine loans, adjustments may be made due to differences in track record and experience of the mezzanine loan sponsor as well as the percent of equity that the sponsor has contributed to the project. The following table presents the activity in the allowance for credit losses for notes and other receivables by loan type ($ in thousands):

Mezzanine Loans Bridge Loans Total
Balance at December 31, 2019 $ 0 $ 0 $ 0
Impact of adoption ASC 326 147 43 190
Provision for credit losses 25 (43) (18)
Balance at September 30, 2020 $ 172 $ 0 $ 172


	Mezzanine Loans		Bridge Loans		Total
Balance at December 31, 2020	$	751	$	—	$	751

Provision for credit losses	(23)		15		(8)
Balance at September 30, 2021	$	728	$	15	$	743

No loans were placed on nonaccrual status or charged off during the nine months ended September 30, ~~2020~~2021 or ~~2019.~~2020.

(6) Related Party Transactions

The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates totaled ~~$3.0~~$2.7 million and ~~$3.7~~$3.0 million during the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$8.7~~$7.5 million and ~~$10.6~~$8.7 million during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of ~~$0.6~~approximately $0.5 million and ~~$1.2~~$0.6 million against general and administrative expenses for the three months ended September 30, 2021 and 2020, and ~~2019, respectively,~~$0.8 million and $1.4 ~~million and $3.6~~ million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

The Company’s Chairman and founder, Mr. George M. 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, a national brokerage firm listed on the New York Stock Exchange. For the three and nine months ended September 30, 2021, the Company did not pay any brokerage commissions related to real estate transactions to MMC and its affiliates. For the three and nine months ended September 30, 2020, the Company paid brokerage commissions totaling 0zero and $0.2 million, respectively, to MMC and its affiliates related to real estate transactions.

In September 2021, the Company provided a $29.2 million related party bridge loan to Wesco VI in connection with the acquisition of Martha Lake Apartments. The note receivable accrues interest at 2.15% and is scheduled to mature in December 2021. The bridge loan is classified within notes and other receivables in the accompanying condensed consolidated balance sheets and had an outstanding balance of $29.2 million as of September 30, 2021.

In March 2021, the Company provided a $52.5 million related party bridge loan to Wesco I in connection with the payoff of a debt related to one of its properties located in Southern California. The note receivable accrued interest at 2.55% and was paid off in July 2021.

In November 2019, the Company provided an $85.5 million related party bridge loan to Wesco V in connection with the acquisition of Velo and ~~Ray.~~Ray, a 308 unit apartment home community located in Seattle, WA. The note receivable accrued interest at LIBOR plus 1.30% and was scheduled to mature in February 2020, but was paid off in January 2020. The bridge loan was classified within notes and other receivables in the accompanying condensed consolidated balance sheets.

In August 2019, the Company provided an $89.0 million related party bridge loan to Wesco V in connection with the acquisition of The Courtyards at 65th Street. The note receivable accrued interest at LIBOR plus 1.30% and was paid off in November 2019.

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

In August 2019, the Company provided a $44.4 million related party bridge loan to BEX IV in connection with the acquisition of 777 Hamilton. The note receivable accrued interest at 3.25%. In November 2019, the term of the bridge loan was extended to February 2020, but was paid off in December 2019.

In June 2019, the Company acquired Brio, a 300 unit apartment home community located in Walnut Creek, CA. The Company issued DownREIT units to an affiliate of MMC, based on a contract price of $164.9 million. The property was encumbered by $98.7 million of mortgage debt which was assumed by the Company at the time of acquisition. As a result of this transaction, the Company consolidated the property, based on a VIE analysis performed by the Company.

In February 2019, the Company funded a $24.5 million preferred equity investment in an entity whose sponsor is an affiliate of MMC, which owns a multifamily development community located in Mountain View, CA. The investment has an initial preferred return of 11.0% and is scheduled to mature in February 2024.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 and 2020

(Unaudited)

In October 2018, the Company funded a $18.6 million preferred equity investment in an entity whose sponsor is an affiliate of MMC. The entity wholly owns a 268 apartment home community development located in Burlingame, CA. This investment accrues interest based on an initial 12.0% preferred return. The investment is scheduled to mature in April 2024.

In May 2018, the Company made a commitment to fund a $26.5 million preferred equity investment in an entity whose sponsors include an affiliate of MMC. The entity wholly owns a 400 apartment home community located in Ventura, CA. This investment accrues interest based on a 10.25% preferred return. The investment is scheduled to mature in May 2023. As of September 30, ~~2020,~~2021, the Company had funded ~~$23.3~~$23.4 million of the commitment. The remaining committed amount will be funded if and when requested by the sponsors.

In ~~November 2016,~~March 2017, the Company ~~provided~~converted its existing $15.3 million preferred equity investment in Sage at Cupertino, a ~~$6.6 million mezzanine loan to~~230 apartment home community located in San Jose, CA, into a ~~limited liability company in which MMC holds a significant~~40.5% common equity ownership interest ~~through subsidiaries. The mezzanine loan was classified within notes and other receivables~~ in the ~~accompanying condensed consolidated balance sheets and~~property. The Company issued DownREIT units to the other members, including an MMC affiliate, based on an estimated property valuation of $90.0 million. At the time of the conversion, the property was ~~paid off in October 2019.~~

~~In 2015,~~encumbered by $52.0 million of mortgage debt. As a result of this transaction, the Company ~~made preferred equity investments totaling $20.0 million in 3 entities affiliated with MMC that own apartment communities in California. The Company earned~~consolidates the property, based on a 9.5% preferred return on each such investment. One $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2017. Another $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2018. The remaining investment was fully redeemed in February 2019.consolidation analysis performed by the Company.

As described in Note 5, Notes and Other Receivables, the Company has provided short-term loans to affiliates. As of September 30, ~~2020~~2021 and December 31, ~~2019, $5.5~~2020, $33.9 million and ~~$4.4~~$4.7 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying condensed consolidated balance sheets.

(7) Debt

Essex does not have indebtedness as debt is incurred by the Operating Partnership. Essex guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities for the full term of the facilities.

Debt consists of the following ($ in thousands):


	September 30, 2021			December 31, 2020			Weighted Average Maturity In Years as of September 30, 2021
Unsecured bonds private placement - fixed rate	$	—		$	199,950		0.0
Term loan - variable rate	99,969			549,380			0.4
Bonds public offering - fixed rate	5,305,551			4,858,655			8.9
Unsecured debt, net (1)	5,405,520			5,607,985
Lines of credit (2)	42,662			—
Mortgage notes payable, net (3)	640,118			643,550			8.7
Total debt, net	$	6,088,300		$	6,251,535
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering	3.3		%	3.4		%
Weighted average interest rate on variable rate term loan	1.1		%	1.7		%
Weighted average interest rate on lines of credit	1.0		%	1.0		%
Weighted average interest rate on mortgage notes payable	2.6		%	2.7		%

(1) Includes unamortized discount of $10.4 million and $10.1 million and unamortized debt issuance costs of $34.1 million and $31.9 million, as of September 30, 2021 and December 31, 2020, respectively.

(2) Lines of credit, related to the Company's 2 lines of unsecured credit aggregating $1.24 billion as of September 30, 2021, excludes unamortized debt issuance costs of $4.6 million and $3.7 million as of September 30, 2021 and December 31, 2020, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of September 30, 2021, the Company’s $1.2 billion credit facility had an interest rate of LIBOR plus 0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of September 2025 with

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

~~Debt consists of the following ($ in thousands):~~

September 30, 2020 December 31, 2019 Weighted Average
Maturity
In Years as of September 30, 2020
Unsecured bonds private placement - fixed rate $ 199,917 $ 199,820 0.7
Term loan - variable rate 549,138 349,189 1.8
Bonds public offering - fixed rate 5,158,750 4,214,197 9.1
Unsecured debt, net (1)
5,907,805 4,763,206
Lines of credit (2)
0 55,000
Mortgage notes payable, net (3)
702,379 990,667 9.3
Total debt, net $ 6,610,184 $ 5,808,873
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering 3.5 % 3.8 %
Weighted average interest rate on variable rate term loan 1.7 % 2.7 %
Weighted average interest rate on lines of credit 1.0 % 2.5 %
Weighted average interest rate on mortgage notes payable 2.7 % 4.1 %

3 six

~~(1)~~ ~~Includes unamortized discount of $9.1 million and $12.2 million and unamortized debt issuance costs of $33.1 million and $24.5 million, as of September 30, 2020 and December 31, 2019, respectively.~~

~~(2)~~ Lines of credit, related to the Company's 2 lines of unsecured credit aggregating $1.24 billion as of September 30, 2020, excludes unamortized debt issuance costs of $3.9 million and $3.8 million as of September 30, 2020 and December 31, 2019, respectively. These debt issuance costs are included in prepaid expenses and other assets on the condensed consolidated balance sheets. As of September 30, 2020, the Company’s $1.2 billion credit facility had an interest rate of LIBOR plus 0.825%, which is based on a tiered rate structure tied to the Company’s credit ratings and a scheduled maturity date of December 2023 with 1 18-month extension,-month extensions, exercisable at the Company’s option. As of September 30, ~~2020,~~2021, the Company’s $35.0 million working capital unsecured line of credit had an interest rate of LIBOR plus ~~0.825%~~0.775%, which is based on a tiered rate structure tied to the Company’s credit ratings, and a scheduled maturity date of February ~~2021.~~2023.

(3) Includes total unamortized premium of ~~$4.2~~$2.8 million and ~~$5.9~~$3.9 million, reduced by unamortized debt issuance costs of ~~$2.1~~$1.5 million and ~~$2.6~~$1.8 million, as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The aggregate scheduled principal payments of the Company’s outstanding debt, excluding lines of credit, as of September 30, ~~2020~~2021 are as follows ($ in thousands):


Remaining in 2020		$	1,000
2021		531,653
Remaining in 2021				Remaining in 2021	$	893
2022	2022	393,188		2022	143,188
2023	2023	802,945		2023	302,945
2024	2024	403,109		2024	403,109
2025				2025	633,054
Thereafter	Thereafter	4,518,383		Thereafter	4,605,629
Total	Total	$	6,650,278	Total	$	6,088,818

(8) Segment Information

The Company's segment disclosures present the measure used by the chief operating decision makers for purposes of assessing each segment's performance. The Company's chief operating decision makers are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company's reportable operating segments. NOI represents total property revenues less direct property operating expenses.

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

The executive management team generally evaluates the Company's operating performance geographically. The Company defines its reportable operating segments as the 3 geographical regions in which its communities are located: Southern California, Northern California, and Seattle Metro.

Excluded from segment revenues and NOI are management and other fees from affiliates and interest and other income. Non-segment revenues and NOI included in the following schedule also consist of revenues generated from commercial properties and properties that have been sold. Other non-segment assets include items such as real estate under development, co-investments, real estate held for sale, ~~net,~~ cash and cash equivalents, marketable securities, notes and other receivables, and prepaid expenses and other assets.

The revenues and NOI for each of the reportable operating segments are summarized as follows for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 ($ in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Revenues:
Southern California $ 140,271 $ 151,841 $ 438,087 $ 453,873
Northern California 148,712 140,509 462,558 411,694
Seattle Metro 60,617 61,052 184,310 180,942
Other real estate assets 18,864 11,102 41,408 31,258
Total property revenues $ 368,464 $ 364,504 $ 1,126,363 $ 1,077,767
Net operating income:
Southern California $ 94,163 $ 106,926 $ 303,328 $ 322,891
Northern California 103,657 103,232 332,566 304,975
Seattle Metro 41,216 43,401 126,422 128,081
Other real estate assets 17,033 8,772 34,373 26,417
Total net operating income 256,069 262,331 796,689 782,364
Management and other fees from affiliates 2,347 2,428 7,312 7,023
Corporate-level property management expenses (8,619) (8,553) (26,024) (25,451)
Depreciation and amortization (130,202) (120,809) (395,370) (360,842)
General and administrative (13,310) (11,345) (42,244) (38,731)
Expensed acquisition and investment related costs (2) (13) (104) (69)
Gain on sale of real estate and land 22,654 0 39,251 0
Interest expense (55,430) (54,896) (165,024) (162,651)
Total return swap income 2,977 2,154 7,749 6,174
Interest and other income 6,512 8,685 12,696 29,293
Equity income from co-investments 14,960 21,700 53,514 54,935
Deferred tax expense on unrealized gain on unconsolidated co-investment 0 (1,457) (1,636) (1,457)
(Loss) gain on early retirement of debt, net (19,114) 5,475 (23,820) 7,143
Gain on remeasurement of co-investment 0 0 234,694 31,535
Net income $ 78,842 $ 105,700 $ 497,683 $ 329,266

3431

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

~~Total assets for each of the reportable operating segments are summarized as follows as of September 30, 2020 and December 31, 2019 ($ in thousands):~~

September 30, 2020 December 31, 2019
Assets:
Southern California $ 4,089,875 $ 4,199,377
Northern California 5,566,802 4,408,404
Seattle Metro 1,417,753 1,456,187
Other real estate assets 11,552 284,692
Net reportable operating segment - real estate assets 11,085,982 10,348,660
Real estate under development 364,875 546,075
Co-investments 1,018,235 1,335,339
Real estate held for sale, net 32,878 0
Cash and cash equivalents, including restricted cash 569,075 81,094
Marketable securities 134,971 144,193
Notes and other receivables 75,432 134,365
Operating lease right-of-use assets 72,910 74,744
Prepaid expenses and other assets 46,684 40,935
Total assets $ 13,401,042 $ 12,705,405


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Southern California	$	150,807	$	136,651	$	434,926	$	426,987
Northern California	145,807		147,081		435,883		457,655
Seattle Metro	60,280		60,617		178,180		184,310
Other real estate assets	3,726		24,115		13,264		57,411
Total property revenues	$	360,620	$	368,464	$	1,062,253	$	1,126,363
Net operating income:
Southern California	$	103,660	$	91,639	$	300,761	$	295,402
Northern California	98,948		102,559		299,489		329,338
Seattle Metro	39,876		41,216		119,041		126,422
Other real estate assets	2,805		20,655		9,659		45,527
Total net operating income	245,289		256,069		728,950		796,689
Management and other fees from affiliates	2,237		2,347		6,707		7,312
Corporate-level property management expenses	(9,068)		(8,619)		(27,120)		(26,024)
Depreciation and amortization	(130,564)		(130,202)		(387,887)		(395,370)
General and administrative	(12,712)		(13,310)		(34,746)		(42,244)

Expensed acquisition and investment related costs	(108)		(2)		(164)		(104)
Gain on sale of real estate and land	42,897		22,654		142,993		39,251
Interest expense	(50,019)		(55,430)		(152,639)		(165,024)
Total return swap income	2,660		2,977		8,137		7,749
Interest and other income	11,998		6,512		48,756		12,696
Equity income from co-investments	25,433		14,960		60,692		53,514
Deferred tax expense on unrealized gain on unconsolidated co-investment	(3,041)		—		(5,391)		(1,636)
Loss on early retirement of debt, net	—		(19,114)		(18,982)		(23,820)
Gain on remeasurement of co-investment	—		—		2,260		234,694
Net income	$	125,002	$	78,842	$	371,566	$	497,683

~~(9) Net Income Per Common Share and Net Income Per Common Unit~~

~~($ in thousands, except share and unit data):~~

~~Essex Property Trust, Inc.~~

Three Months Ended September 30, 2020 Three Months Ended September 30, 2019
Income Weighted-
average
Common
Shares Per
Common
Share
Amount Income Weighted-
average
Common
Shares Per
Common
Share
Amount
Basic:
Net income available to common stockholders $ 73,661 65,232,837 $ 1.13 $ 99,335 65,850,524 $ 1.51
Effect of Dilutive Securities:
Stock options — 8,591 — 122,561
Diluted:
Net income available to common stockholders $ 73,661 65,241,428 $ 1.13 $ 99,335 65,973,085 $ 1.51

3532

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Income Weighted-
average
Common
Shares Per
Common
Share
Amount Income Weighted-
average
Common
Shares Per
Common
Share
Amount
Basic:
Net income available to common stockholders $ 473,125 65,561,820 $ 7.22 $ 310,468 65,757,914 $ 4.72
Effect of Dilutive Securities:
Stock options — 20,026 — 99,746
DownREIT units 587 94,247 0 0
Diluted:
Net income available to common stockholders $ 473,712 65,676,093 $ 7.21 $ 310,468 65,857,660 $ 4.71
Total assets for each of the reportable operating segments are summarized as follows as of September 30, 2021 and December 31, 2020 ($ in thousands):


	September 30, 2021		December 31, 2020
Assets:
Southern California	$	3,949,224	$	3,981,650
Northern California	5,489,918		5,408,019
Seattle Metro	1,369,129		1,403,678
Other real estate assets	95,160		134,439
Net reportable operating segment - real estate assets	10,903,431		10,927,786
Real estate under development	212,426		386,047
Co-investments	1,081,861		1,018,010
Real estate held for sale	—		57,938
Cash and cash equivalents, including restricted cash	60,952		84,041
Marketable securities	183,140		147,768
Notes and other receivables	213,985		195,104
Operating lease right-of-use assets	69,756		72,143
Prepaid expenses and other assets	63,090		47,340
Total assets	$	12,788,641	$	12,936,177

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

($ in thousands, except share and unit data):

Essex Property Trust, Inc.


	Three Months Ended September 30, 2021					Three Months Ended September 30, 2020
	Income		Weighted- average Common Shares	Per Common Share Amount		Income		Weighted- average Common Shares	Per Common Share Amount
Basic:
Net income available to common stockholders	$	118,390	65,048,486	$	1.82	$	73,661	65,232,837	$	1.13
Effect of Dilutive Securities:
Stock options	—		99,295			—		8,591

Diluted:
Net income available to common stockholders	$	118,390	65,147,781	$	1.82	$	73,661	65,241,428	$	1.13

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 and 2020

(Unaudited)


	Nine Months Ended September 30, 2021					Nine Months Ended September 30, 2020
	Income		Weighted- average Common Shares	Per Common Share Amount		Income		Weighted- average Common Shares	Per Common Share Amount
Basic:
Net income available to common stockholders	$	351,680	65,013,477	$	5.41	$	473,125	65,561,820	$	7.22
Effect of Dilutive Securities:
Stock options	—		61,697			—		20,026
DownREIT units	—		—			587		94,247
Diluted:
Net income available to common stockholders	$	351,680	65,075,174	$	5.40	$	473,712	65,676,093	$	7.21

The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of ~~2,295,510~~2,287,678 and ~~2,298,389,~~2,295,510, which include vested ~~Series Z-1 Incentive Units,~~ 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~2,297,141~~2,291,725 and ~~2,300,888~~2,297,141 for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated ~~$2.6~~$4.2 million and ~~$3.5~~$2.6 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$16.5~~$12.4 million and ~~$10.9~~$16.5 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

Stock options of ~~493,567~~zero and 0493,567 for the three months ended September 30, 2021 and 2020, respectively, and ~~2019,~~116,380 and 299,046 ~~and 0~~ for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share of such options plus the average unearned compensation were greater than the average market price of the common stock for the periods ended and, therefore, were anti-dilutive.

Essex Portfolio, L.P.


		Three Months Ended September 30, 2020					Three Months Ended September 30, 2019						Three Months Ended September 30, 2021					Three Months Ended September 30, 2020
		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		Income		Weighted- average Common Units	Per Common Unit Amount
Basic:	Basic:											Basic:
Net income available to common unitholders	Net income available to common unitholders	$	76,254	67,528,346	$	1.13	$	102,799	68,148,913	$	1.51	Net income available to common unitholders	$	122,558	67,336,164	$	1.82	$	76,254	67,528,346	$	1.13
Effect of Dilutive Securities:	Effect of Dilutive Securities:											Effect of Dilutive Securities:
Stock options	Stock options	—		8,591			—		122,561			Stock options	—		99,295			—		8,591

Diluted:	Diluted:											Diluted:
Net income available to common unitholders	Net income available to common unitholders	$	76,254	67,536,937	$	1.13	$	102,799	68,271,474	$	1.51	Net income available to common unitholders	$	122,558	67,435,459	$	1.82	$	76,254	67,536,937	$	1.13

3634

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, ~~2020~~2021 and ~~2019~~2020

(Unaudited)

Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Income Weighted-
average
Common Units Per
Common
Unit
Amount Income Weighted-
average
Common Units Per
Common
Unit
Amount
Basic:
Net income available to common unitholders $ 489,668 67,858,961 $ 7.22 $ 321,331 68,058,802 $ 4.72
Effect of Dilutive Securities:
Stock options — 20,026 — 99,746
DownREIT units 587 94,247 0 0
Diluted:
Net income available to common unitholders $ 490,255 67,973,234 $ 7.21 $ 321,331 68,158,548 $ 4.71


	Nine Months Ended September 30, 2021					Nine Months Ended September 30, 2020
	Income		Weighted- average Common Units	Per Common Unit Amount		Income		Weighted- average Common Units	Per Common Unit Amount
Basic:
Net income available to common unitholders	$	364,083	67,307,259	$	5.41	$	489,668	67,858,961	$	7.22
Effect of Dilutive Securities:
Stock options	—		61,697			—		20,026
DownREIT units	—		—			587		94,247
Diluted:
Net income available to common unitholders	$	364,083	67,368,956	$	5.40	$	490,255	67,973,234	$	7.21

Stock options of ~~493,567~~0 and 0493,567 for the three months ended September 30, 2021 and 2020, ~~and 2019,~~ respectively, 116,380 and 299,046 ~~and 0~~ for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, were excluded from the calculation of diluted earnings per unit because the assumed proceeds per unit of these options plus the average unearned compensation were greater than the average market price of the common unit for the periods ended and, therefore, were anti-dilutive. Additionally, the table excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

(10) Derivative Instruments and Hedging Activities

As of September 30, 2020, the Company had interest rate swap contracts with an aggregate notional amount of $175.0 million that effectively fixed the interest rate on the $175.0 million unsecured term loan at 2.3%. These derivatives qualify for hedge accounting.

~~As of September 30, 2020~~2021 and December 31, ~~2019,~~2020, the aggregate carrying value of the interest rate swap contracts were a liability of ~~$2.9 million~~zero and ~~an asset of $0.8~~$2.4 million, respectively. As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the swap contracts were presented in the condensed consolidated balance sheets as an asset of ~~0 and $1.0 million, respectively, and were included in prepaid expenses and other assets on the condensed consolidated balance sheets,~~zero for both periods and a liability of ~~$2.9 million~~zero and ~~$0.2~~$2.4 million, respectively, and were included in other liabilities on the condensed consolidated balance sheets.

Hedge ineffectiveness related to cash flow hedges, which is included in interest expense on the condensed consolidated statements of income and comprehensive income, was not significant for the three and nine months ended September 30, 2020 and 2019.

~~Additionally, the~~The Company has 4 total return swap contracts, with an aggregate notional amount of ~~$254.9~~$224.5 million, that effectively convert ~~$254.9~~$224.5 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to the counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call all of its total return swaps, with ~~$254.9~~$224.5 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of 0zero at both September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. These total return swaps are scheduled to mature between November 2022 and December 2024. The realized gains of ~~$2.9~~$2.7 million and ~~$2.2~~$3.0 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, and ~~$7.7~~$8.1 million and ~~$6.2~~$7.7 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively, were reported in the condensed consolidated statements of income and comprehensive income as total return swap income.

~~ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES~~

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

~~Notes to Condensed Consolidated Financial Statements~~

~~September 30, 2020 and 2019~~

~~(Unaudited)~~

(11) Commitments and Contingencies

The Company is subject to various lawsuits in the normal course of its business operations. Such lawsuits have not had a material adverse effect on the Company's financial condition, results of operations or cash flows. While no assurances can be given, the Company does not believe there is any pending or threatened litigation against the Company that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the Company.

The Company is subject to various federal, state, and local environmental and other laws. Compliance by the Company with existing laws has not had a material adverse effect on the Company. However, the Company cannot predict the impact of new, changed or ~~changed~~expired laws or regulations on its current portfolio or on other assets that the Company may acquire in the future,

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2021 and 2020

(Unaudited)

including, without limitation, certain eviction moratoriums and other mandates that have been, or may be, enacted or extended in connection with the COVID-19 pandemic. To the extent that an environmental or other matter arises or is identified in the future that has other than a remote risk of having a material impact on the condensed consolidated financial statements, the Company will disclose the estimated range of possible outcomes associated with it, and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, impairment will be recognized.

3836

Table of Contents

Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with the Company’s ~~2019~~2020 annual report on Form 10-K for the year ended December 31, ~~2019.~~2020. Capitalized terms not defined in this section have the meaning ascribed to them elsewhere in this Quarterly Report on Form 10-Q. The Company makes statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-Q entitled "Forward-Looking Statements."

Essex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located on the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of September 30, ~~2020,~~2021, had an approximately 96.6% general partnership interest in the Operating Partnership.

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, redevelopment, and disposition activities to markets that will optimize the performance of the Company's portfolio.

As of September 30, ~~2020,~~2021, the Company owned or had ownership interests in ~~247~~246 operating apartment communities, comprising ~~60,387~~60,799 apartment homes, excluding the Company’s ownership interest in preferred equity co-investments, loan investments, ~~one~~three operating commercial ~~building,~~buildings, and a development pipeline comprised of ~~three~~two consolidated projects and ~~three~~one unconsolidated joint venture ~~projects.~~project.

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

Southern California (primarily Los Angeles, Orange, San Diego, and Ventura counties)

Northern California (the San Francisco Bay Area)

Seattle Metro (Seattle metropolitan area)

As of September 30, ~~2020,~~2021, the Company’s development pipeline was comprised of ~~three~~two consolidated projects under development, ~~three~~one unconsolidated joint venture ~~projects~~project under development, and various predevelopment projects aggregating ~~1,853~~571 apartment homes, with total incurred costs of ~~$0.9 billion,~~$252.0 million, and estimated remaining project costs of approximately ~~$178.0~~$84.0 million, ~~$125.0~~$51.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of ~~$1.1 billion.~~$336.0 million.

The Company’s consolidated apartment communities are as follows:


		As of September 30, 2020			As of September 30, 2019				As of September 30, 2021			As of September 30, 2020
		Apartment Homes	%		Apartment Homes	%			Apartment Homes	%		Apartment Homes	%
Southern California	Southern California	22,675	43	%	22,674	45	%	Southern California	22,190	43	%	22,675	43	%
Northern California	Northern California	19,319	37	%	17,556	35	%	Northern California	19,123	37	%	19,319	37	%
Seattle Metro	Seattle Metro	10,217	20	%	10,238	20	%	Seattle Metro	10,218	20	%	10,217	20	%
Total	Total	52,211	100	%	50,468	100	%	Total	51,531	100	%	52,211	100	%

Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, Wesco VI, BEXAEW, BEX II, BEX ~~III,~~IV, and ~~BEX IV~~500 Folsom communities, developments under construction, and preferred equity interest co-investment communities are not included in the table presented above for both periods. The community previously held in the BEX III co-investment, which was consolidated in the second quarter of 2021, is excluded from the September 30, 2020 table but included in the September 30, 2021 table.

Current Material Development – the COVID-19 Pandemic

The United States and other countries around the world are continuing to experience ~~an unprecedented health pandemic~~impacts related to COVID-19 pandemic and related variants which has created considerable instability, disruption, and uncertainty. Governmental authorities in impacted regions are ~~taking~~continuing to take dramatic and unpredictable actions in an effort to slow COVID-19’s spread. Federal, state and local jurisdictions have ~~issued and revised~~implemented varying forms of ~~"Shelter-in-Place" orders, halted or restricted~~requirements on sponsors and patrons of public gatherings and ~~restricted business to only those that are considered "essential" or~~

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requiring businesses to make changes to their operations in a

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manner that may negatively ~~affects~~affect profitability, ~~resulting~~result in ~~extraordinary~~ job losses and related financial impacts that ~~will~~may affect future operations to an unknown extent. ~~Moreover,~~While the California eviction moratorium sunsetted during the quarter, other state and local eviction moratoriums and, laws that limit rent increases during times of emergency and prohibit the ability to collect unpaid rent during certain timeframes, ~~have been enacted~~continue to be in effect in various formats at various ~~levels of government, including~~ regions in which Essex's communities are located, impacting Essex properties. The Company is working to comply with the stated intent of local, county, state and federal laws. In that regard, the Company has implemented a wide range of practices to protect and support its employees and residents. Such measures include:

•~~closing~~instituting a hybrid work model for corporate associates to work at the Company's corporate offices and ~~instituting “work from home” measures for corporate associates;~~

•closing leasing offices to non-Essex personnel, reducing on-site staff so that hygiene and “social distancing” standards can be effectively managed and applied, and requiring face coverings to be worn;remotely;

•transitioning ~~most~~many public interactions with leasing staff to on-line and telephonic communications;

•increasing cleaning practices for common areas and community amenities and ~~temporarily closing~~opening common areas and community amenities ~~or opening~~ with limited hours, limited capacity or by reservation only, depending in part on jurisdictional requirements; and

•delaying the response to maintenance orders in certain circumstances in order to promote the protection of our employees and residents.

Due to the COVID-19 pandemic, some of the Company's residents, their health, their employment, and, thus, their ability to pay rent, have been and may continue to be impacted. To support residents, the Company has implemented the following steps, including, but not limited to:

•assembling a Resident Response Team to effectively and efficiently respond to resident needs and concerns with respect to the pandemic;

•structuring payment plans for residents who are unable to pay their rent as a result of the outbreak and waiving late fees where required or applicable for those residents; and

•establishing the Essex Cares fund for the purpose of supporting the Company’s residents and communities that are experiencing financial hardships caused by the COVID-19 pandemic.

The impact of the COVID-19 pandemic on the U.S. and world economies generally, and on the Company's ~~future~~ results in particular, has been, and may continue to be significant. The long-term impact will largely depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, ~~when a vaccine is developed and can be safely and widely distributed and~~ whether employees and employers will continue to promote remote work if and when the pandemic concludes. This includes new information which may emerge concerning the severity of COVID-19 and related variants, the success of actions taken to contain or treat COVID-19 including but not limited to vaccination rates and the impacts of varying vaccine mandates, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The labor shortage due partly to various government mandates and vaccine requirements implemented during the COVID-19 pandemic and supply chain disruptions may negatively impact the Company's results of operations.

Primarily as a result of the impact of the COVID-19 pandemic, the Company's cash delinquencies as a percentage of scheduled rental income for the Company’s stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the quarters ended September 30, ~~2020~~2021 and ~~2019) increased~~2020) remained higher than the pre-pandemic period but improved from ~~0.4%~~2.7% for the three months ended September 30, ~~2019~~2020 to ~~2.7%~~1.4% for the three months ended September ~~2020.~~30, 2021. The Company has executed some payment plans and will continue to work with residents to ~~execute payment plans related to~~collect such cash delinquencies. As part of this process, the Company assessed the collectability reserve attributable to those deferred payments and the anticipated execution of payment plans in the future, which partially mitigated the delinquencies resulting in actual delinquencies as a percentage of scheduled rent for the Company's Same-Property portfolio of 2.0% for the three months ended September 30, 2020. As of September 30, ~~2020,~~2021, the increase in delinquencies has not had a material adverse impact toon the Company's liquidity position. The Company's average financial occupancy for the Company’s Same-Property portfolio ~~remained consistent at~~increased from 96.0% for the three months ended September 30, 2020 ~~and 2019.~~to 96.4% for the three months ended September 30, 2021.

The COVID-19 pandemic has not negatively impacted the Company's ability to access traditional funding sources on the same or reasonably similar terms as were available in recent periods prior to the pandemic, as demonstrated by the Company's financing activity during the ~~nine~~three months ended September 30, ~~2020~~2021 discussed in the "Liquidity and Capital Resources" section below. The Company is not at material risk of not meeting the covenants in its credit agreements and is able to timely service its debt and other obligations.

Comparison of the Three Months Ended September 30, ~~2020~~2021 to the Three Months Ended September 30, ~~2019~~2020

The Company’s average financial occupancy for the Company’s Same-Property portfolio was 96.4% and 96.0% for the three months ended September 30, 2021 and 2020, ~~and 2019.~~respectively. Financial occupancy is defined as the percentage resulting from dividing actual rental income by total scheduled rental income. Actual rental income represents contractual rental income pursuant to leases without considering delinquency and concessions. Total scheduled rental income represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated

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market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate.

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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 apartment homes. The Company may increase or decrease these rates based on a variety of factors, including overall supply and demand for housing, concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity, and rental affordability. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates, and the Company's calculation of financial occupancy may not be comparable to financial occupancy disclosed by other REITs.

The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes 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 income, is not considered the best metric to quantify occupancy.

The regional breakdown of the Company’s Same-Property portfolio for financial occupancy for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 is as follows:


		Three Months Ended September 30,					Three Months Ended September 30,
		2020		2019			2021		2020
Southern California	Southern California	95.9	%	96.1	%	Southern California	97.1	%	95.9	%
Northern California	Northern California	96.2	%	95.9	%	Northern California	95.9	%	96.2	%
Seattle Metro	Seattle Metro	95.9	%	95.9	%	Seattle Metro	95.8	%	95.9	%

The following table provides a breakdown of revenues amounts, including revenues attributable to the Same-Properties:


		Number of Apartment	Three Months Ended September 30,				Dollar		Percentage			Number of Apartment	Three Months Ended September 30,				Dollar		Percentage
Property Revenues ($ in thousands)	Property Revenues ($ in thousands)	Homes	2020		2019		Change		Change		Property Revenues ($ in thousands)	Homes	2021		2020		Change		Change
Same-Property Revenues:	Same-Property Revenues:										Same-Property Revenues:
Southern California	Southern California	21,239	$	133,422	$	143,877	$	(10,455)	(7.3)	%	Southern California	20,800	$	142,447	$	130,829	$	11,618	8.9	%
Northern California	Northern California	15,638	121,474		132,763		(11,289)		(8.5)	%	Northern California	16,072	122,426		125,193		(2,767)		(2.2)	%
Seattle Metro	Seattle Metro	10,112	60,062		61,051		(989)		(1.6)	%	Seattle Metro	10,218	60,280		60,617		(337)		(0.6)	%
Total Same-Property Revenues	Total Same-Property Revenues	46,989	314,958		337,691		(22,733)		(6.7)	%	Total Same-Property Revenues	47,090	325,153		316,639		8,514		2.7	%
Non-Same Property Revenues	Non-Same Property Revenues		53,506		26,813		26,693		99.6	%	Non-Same Property Revenues		35,467		51,825		(16,358)		(31.6)	%
Total Property Revenues	Total Property Revenues		$	368,464	$	364,504	$	3,960	1.1	%	Total Property Revenues		$	360,620	$	368,464	$	(7,844)	(2.1)	%

Same-Property Revenues ~~decreased~~increased by ~~$22.7~~$8.5 million or ~~6.7%~~2.7% to ~~$315.0~~$325.2 million in the third quarter of 2021 from $316.6 million in the third quarter of 2020. The increase was primarily attributable to an increase in financial occupancy from 96.0% in the third quarter of 2020 to 96.4% in the third quarter of 2021, a decrease in concessions from $17.9 million in the third quarter of 2020 ~~from $337.7~~to $9.5 million in the third quarter of ~~2019. The decrease was primarily attributable to an additional $16.8 million of cash concessions compared to the prior year period and~~2021, as well as a decrease ~~of 0.4%~~ in ~~average rental rates~~cash delinquencies from ~~$2,346 per apartment home in~~2.7% for the ~~third quarter of 2019~~three months ended September 30, 2020 to ~~$2,336 per apartment home in~~1.4% for the ~~third quarter of 2020. Additionally, delinquencies as a percentage of scheduled rent increased from 0.4% in the third quarter of 2019 to 2.0% in the third quarter of 2020.~~ three months ended September 30, 2021.

Non-Same Property Revenues ~~increased~~decreased by ~~$26.7~~$16.4 million or ~~99.6%~~31.6% to ~~$53.5~~$35.5 million in the third quarter of ~~2020~~2021 from ~~$26.8~~$51.8 million in the third quarter of ~~2019.~~2020. The ~~increase~~decrease was primarily due to ~~revenues generated from~~ the ~~six communities that were consolidated as part~~sale of ~~the Company's purchase of CPPIB's 45.0% co-investment interests~~416 on Broadway in the ~~first~~fourth quarter of 2020 ~~slightly offset by~~and the ~~sale~~sales of ~~One South Market~~Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments in ~~the second quarter of 2020.~~2021.

Management and other fees from affiliates decreased by $0.1 million or ~~4.2%~~4.3% to $2.2 million in the third quarter of 2021 from $2.3 million in the third quarter of ~~2020 from $2.4 million in~~2020. The decrease was primarily due to a decrease of the ~~third quarter~~management fee rate for one of ~~2019.~~the joint ventures.

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Property operating expenses, excluding real estate taxes increased ~~$5.1~~by $1.5 million or ~~8.1%~~2.2% to $69.5 million for the third quarter of 2021 compared to $68.0 million for the third quarter of 2020, ~~compared to $62.9 million for the third quarter of 2019,~~ primarily due to ~~an increase~~increases of ~~$1.9~~$1.6 million in utilities expense

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and $1.3 million in maintenance and repairs expenses, ~~an increase~~offset by a decrease of ~~$1.5 million in utilities expenses, and an increase of $1.8~~$1.4 million in administrative expenses. The increases were primarily due to expenses generated from the six communities that were consolidated as part of the Company's purchase of CPPIB's 45.0% co-investment interests in the first quarter of 2020. Same-Property operating expenses, excluding real estate taxes, increased by ~~$1.5~~$2.7 million or ~~2.5%~~4.4% to ~~$60.5~~$63.5 million in the third quarter of 2021 compared to $60.8 million in the third quarter of 2020, ~~compared to $59.0 million in the third quarter of 2019,~~ primarily due to ~~an increase~~increases of ~~$1.0~~$1.5 million in utilities expense, $1.4 million in maintenance and repairs expenses, and ~~an increase of $0.6~~$0.5 million in ~~utilities~~insurance and other expenses, offset by a decrease of ~~$0.2~~$0.7 million in administrative expenses.

Real estate taxes increased ~~$5.1~~$1.4 million or ~~13.0%~~3.2% to $45.8 million for the third quarter of 2021 compared to $44.4 million for the third quarter of 2020, ~~compared to $39.3 million for the third quarter of 2019,~~ primarily due to ~~the additions of six communities that were consolidated~~increases in ~~the first quarter of 2020 as part of the Company's purchase of CPPIB's 45.0% co-investment interests, and due to increase in property~~assessed valuations and tax ~~rates in the Seattle Metro region.~~rates. Same-Property real estate taxes increased by ~~$2.0~~$1.1 million or ~~5.6%~~2.9% to ~~$37.6~~$39.2 million in the third quarter of 2021 compared to $38.1 million in the third quarter of 2020, ~~compared to $35.6 million in the third quarter of 2019,~~ primarily due to an increase in ~~property~~assessed valuations and tax ~~rates in the Seattle Metro region.~~rates.

Corporate-level property management expenses ~~remained relatively flat at~~increased by $0.5 million or 5.8% to $9.1 million for the third quarter of 2021 compared to $8.6 million for the third quarter of 2020.

Gain on sale of real estate and land of $42.9 million in the third quarter of ~~2020 compared~~2021 was attributable to the ~~third quarter~~sale of ~~2019.~~Devonshire Apartments.

Depreciation and amortization expense increased by ~~$9.4~~$0.4 million or ~~7.8%~~0.3% to $130.6 million for the third quarter of 2021 compared to $130.2 million for the third quarter of 2020, ~~compared to $120.8 million for the third quarter of 2019,~~ primarily due to the ~~additions~~recently completed development properties, Mylo, Station Park Green (Phase II and Phase III) and Wallace on Sunset as well as the acquisition of ~~six communities that were consolidated in~~Village at Toluca Lake during the ~~first~~second quarter of ~~2020 as part of the Company's purchase of CPPIB's 45.0% co-investment interests.~~2021. The increases were partially offset by decreases in depreciation expense resulting from property dispositions in 2021, and amortization expense resulting from certain lease intangibles becoming fully amortized during 2020.

Interest expense ~~increased~~decreased by ~~$0.5~~$5.4 million or ~~0.9%~~9.7% to $50.0 million for the third quarter of 2021 compared to $55.4 million for the third quarter of 2020, ~~compared to $54.9 million for the third quarter of 2019,~~ primarily due to ~~an increase~~a decrease in average outstanding debt primarily as a result of debt that was paid off or matured, regular principal amortization during and after the third quarter of 2020, and lower average interest rates, which resulted in a decrease in interest expense of $11.5 million for the third quarter of 2020. These decreases to interest expense were partially offset by the issuance of ~~$400.0~~$300 million of senior unsecured notes due ~~January~~June 15, ~~2030~~2031 in ~~August 2019,~~May 2021, $450.0 million of senior unsecured notes due March 1, 2028 in February 2021, $650 million of senior unsecured notes due March 15, 2032 in February and June 2020, and $600 million of senior unsecured notes due January 15, 2031 and September 1, 2050 in August 2020, which resulted in an increase of ~~$9.2~~$4.1 million interest expense for the third quarter of ~~2020.~~2021. Additionally, there was a ~~$3.5~~$2.0 million decrease in capitalized interest in the third quarter of ~~2020,~~2021, due to a decrease in development activity as compared to the same period in 2019. These increases to interest expense were partially offset by debt that was paid off or matured, regular principal amortization during and after the third quarter of 2019, and lower average interest rates, which resulted in a decrease in interest expense of $12.2 million for the third quarter of 2020.

Total return swap income of ~~$3.0~~$2.7 million in the third quarter of ~~2020~~2021 consists of monthly settlements related to the Company's total return swap contracts ~~that were entered into during 2015 in connection~~ with ~~issuing fixed rate tax-exempt mortgage notes.~~an aggregate notional amount of $224.5 million.

Interest and other income ~~decreased~~increased by ~~$2.2~~$5.5 million or ~~25.3%~~84.6% to $12.0 million for the third quarter of 2021 compared to $6.5 million for the third quarter of 2020, ~~compared to $8.7 million for the third quarter of 2019,~~ primarily due to ~~a $5.3~~increases of $3.8 million ~~decrease~~in unrealized gains on marketable securities and $1.6 million in marketable securities and other ~~income offset by a $3.5 million increase in unrealized gains on marketable securities.~~income.

Equity income from co-investments ~~decreased~~increased by ~~$6.7~~$10.4 million or ~~30.9%~~69.3% to $25.4 million for the third quarter of 2021 compared to $15.0 million for the third quarter of 2020, ~~compared to $21.7 million for the third quarter of 2019,~~ primarily due to ~~a decrease in net unrealized gain~~increases of ~~$4.5 million from an unconsolidated co-investment, a decrease of $3.4~~$11.1 million in equity income from non-core co-investments and ~~a decrease of $1.1~~$3.3 million in income from preferred equity investments, ~~including income from early redemptions. The decrease was partially~~ offset by ~~an increase~~decreases of $2.2 million in gain on sale of co-investment ~~communities.~~communities and $1.7 million in equity income from co-investments.

~~Loss~~Deferred tax expense on ~~early retirement of debt, net~~unrealized gain on unconsolidated co-investment of ~~$19.1~~$3.0 million for the third quarter of ~~2020 was due to the early repayment~~2021 resulted from a net unrealized gain of ~~$300.0~~$10.7 million ~~of senior unsecured notes, due in August 2022, during the third quarter of 2020.~~from unconsolidated co-investments.

Comparison of the Nine Months Ended September 30, ~~2020~~2021 to the Nine Months Ended September 30, ~~2019~~2020

~~Our~~The Company's average financial occupancy for ~~the Company's~~its stabilized apartment communities or "Same-Property" (stabilized properties consolidated by the Company for the nine months ended September 30, ~~2020~~2021 and ~~2019)~~2020) was ~~95.9%~~96.6% and ~~96.5%~~95.9% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

The regional breakdown of the ~~Company’s~~Company's Same-Property portfolio for financial occupancy for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 is as follows:

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		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
Southern California	Southern California	95.7	%	96.5	%	Southern California	97.0	%	95.7	%
Northern California	Northern California	96.0	%	96.5	%	Northern California	96.2	%	96.0	%
Seattle Metro	Seattle Metro	96.0	%	96.4	%	Seattle Metro	96.4	%	96.0	%

~~The following table provides a breakdown of revenues amounts, including revenues attributable to the Same-Properties:~~


		Number of Apartment	Nine Months Ended September 30,				Dollar		Percentage			Number of Apartment	Nine Months Ended September 30,				Dollar		Percentage
Property Revenues ($ in thousands)	Property Revenues ($ in thousands)	Homes	2020		2019		Change		Change		Property Revenues ($ in thousands)	Homes	2021		2020		Change		Change
Same-Property Revenues:	Same-Property Revenues:										Same-Property Revenues:
Southern California	Southern California	21,239	$	415,366	$	430,055	$	(14,689)	(3.4)	%	Southern California	20,800	$	413,384	$	407,362	$	6,022	1.5	%
Northern California	Northern California	15,638	383,485		395,236		(11,751)		(3.0)	%	Northern California	16,072	366,344		395,273		(28,929)		(7.3)	%
Seattle Metro	Seattle Metro	10,112	182,586		180,941		1,645		0.9	%	Seattle Metro	10,218	178,180		184,310		(6,130)		(3.3)	%
Total Same-Property Revenues	Total Same-Property Revenues	46,989	981,437		1,006,232		(24,795)		(2.5)	%	Total Same-Property Revenues	47,090	957,908		986,945		(29,037)		(2.9)	%
Non-Same Property Revenues	Non-Same Property Revenues		144,926		71,535		73,391		102.6	%	Non-Same Property Revenues		104,345		139,418		(35,073)		(25.2)	%
Total Property Revenues	Total Property Revenues		$	1,126,363	$	1,077,767	$	48,596	4.5	%	Total Property Revenues		$	1,062,253	$	1,126,363	$	(64,110)	(5.7)	%

Same-Property Revenues decreased by ~~$24.8~~$29.0 million or ~~2.5%~~2.9% to ~~$981.4~~$957.9 million in the nine months ended September 30, ~~2020~~2021 from ~~$1.0 billion~~$986.9 million in the nine months ended September 30, ~~2019.~~2020. The decrease was primarily attributable to an ~~increase in delinquencies as a percentage~~additional $10.6 million of ~~scheduled rent from 0.3% for the nine months ended September 30, 2019 as~~cash concessions compared to ~~1.9% for~~the prior year period and a decrease of 2.7% in average rental rates from $2,361 per apartment home in the nine months ended September 30, 2020 ~~and a decrease of 0.6% in financial occupancy from 96.5%~~to $2,298 per apartment home in the nine months ended September 30, ~~2019 to 95.9% in the nine months ended September 30, 2020~~2021.

Non-Same Property Revenues ~~increased~~decreased by ~~$73.4~~$35.1 million or ~~102.6%~~25.2% to ~~$144.9~~$104.3 million in the nine months ended September 30, ~~2020~~2021 from ~~$71.5~~$139.4 million in the nine months ended September 30, ~~2019.~~2020. The ~~increase~~decrease was primarily due to ~~revenues generated from the six communities that were consolidated as part of the Company's purchase of CPPIB's 45.0% co-investment interests~~property dispositions in ~~the first quarter of~~ 2020 ~~slightly offset by~~and the sale of ~~One South Market~~Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments in ~~the second quarter of 2020.~~2021.

Management and other fees from affiliates ~~increased~~decreased by ~~$0.3~~$0.6 million or ~~4.3%~~8.2% to $6.7 million in the nine months ended September 30, 2021 from $7.3 million in the nine months ended September 30, ~~2020 compared to $7.0 million in the nine months ended September 30, 2019.~~2020. The ~~increase~~decrease was primarily due to ~~the addition of The Courtyards at 65th Street, 777 Hamilton, and Velo and Ray communities to the Company's joint venture portfolio~~a decrease in ~~2019, offset slightly by the disposition of Mosso joint venture community in the fourth quarter of 2019, and by~~asset management fees resulting from the consolidation of six communities as part of the Company's purchase of ~~CPPIB's~~Canada Pension Plan Investment Board's ("CPPIB") 45.0% co-investment ~~interests.~~interests in the first quarter of 2020, and a decrease in revenues used to calculate management fees.

Property operating expenses, excluding real estate taxes increased ~~$16.9~~by $0.6 million or ~~9.4%~~0.3% to $197.9 million for the nine months ended September 30, 2021 compared to $197.3 million for the nine months ended September 30, 2020, ~~compared to $180.4 million for the nine months ended September 30, 2019,~~ primarily due to an increase of ~~$7.1~~$3.9 million in utilities expense offset by decreases of $2.0 million in administrative expenses and $1.3 million in maintenance and repairs expenses ~~an increase~~partially driven by sales in 2020 and the sales of ~~$5.2 million~~Hidden Valley, Axis 2300, Park 20, and Devonshire Apartments in utilities expenses, and an increase of $4.6 million in administrative expenses. The increases were primarily due to expenses generated from the six communities that were consolidated as part of the Company's purchase of CPPIB's 45.0% co-investment interests in the first quarter of 2020.2021. Same-Property operating expenses, excluding real estate taxes, increased by ~~$5.0~~$3.5 million or ~~2.9%~~2.0% to ~~$176.0~~$180.6 million in the nine months ended September 30, 2021 compared to $177.1 million in the nine months ended September 30, 2020, ~~compared to $171.0 million in the nine months ended September 30, 2019,~~ primarily due to ~~an increase~~increases of ~~$3.3~~$3.9 million in utilities expenses and $1.8 million in insurance and other expenses, offset by decreases of $1.8 million in administrative expenses and $0.4 million in maintenance and repairs ~~expenses and an increase of $1.9 million in utilities~~ expenses.

Real estate taxes increased ~~$17.4~~by $3.0 million or ~~15.1%~~2.3% to $135.4 million for the nine months ended September 30, 2021 compared to $132.4 million for the nine months ended September 30, 2020, ~~compared~~primarily due to ~~$115.0~~increases in assessed valuations and tax rates. Same-Property real estate taxes increased by $3.1 million ~~for~~or 2.8% to $116.2 million in the nine months ended September 30, ~~2019, primarily due~~2021 compared to the additions of six communities that were consolidated in the first quarter of 2020 as part of the Company's purchase of CPPIB's 45.0% co-investment interests. Same-Property real estate taxes increased by $5.3 million or 4.9% to $111.7$113.1 million in the nine months ended September 30, 2020, ~~from $106.4 million in the nine months ended September 30, 2019,~~ primarily due to an increase in ~~property~~assessed valuations and tax ~~rates in Seattle Metro region.~~rates.

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Corporate-level property management expenses increased ~~$0.5~~by $1.1 million or ~~2.0%~~4.2% to ~~$26.0~~$27.1 million infor the nine months ended September 30, ~~2020~~2021 compared to ~~$25.5~~$26.0 million infor the nine months ended September 30, ~~2019, primarily due to an increase in corporate-level property management and staffing costs supporting the communities.~~2020.

Depreciation and amortization expense ~~increased~~decreased by ~~$34.6~~$7.5 million or ~~9.6%~~1.9% to $387.9 million for the nine months ended September 30, 2021 compared to $395.4 million for the nine months ended September 30, 2020, ~~compared~~primarily due to ~~$360.8~~a decrease in amortization expense resulting from certain lease intangibles becoming fully amortized during 2020 and the sale of Hidden Valley, Axis 2300, and Park 20 in the first quarter of 2021.

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Gain on sale of real estate and land of $143.0 million in the nine months ended September 30, 2021 was attributable to the sale of Hidden Valley, Axis 2300, and Park 20 in the first quarter of 2021 and Devonshire Apartments in the third quarter of 2021.

Interest expense decreased by $12.4 million or 7.5% to $152.6 million for the nine months ended September 30, ~~2019, primarily due to the additions of six communities that were consolidated in the first quarter of 2020 as part of the Company's purchase of CPPIB's 45.0% co-investment interests.~~

~~Interest expense~~ ~~increased by $2.3 million or 1.4%~~2021 compared to $165.0 million for the nine months ended September 30, 2020, ~~compared to $162.7 million for the nine months ended September 30, 2019,~~ primarily due to ~~an increase~~a decrease in average outstanding debt primarily as a result of debt that was paid off or matured, regular principal amortization during and after the third quarter of 2020, and lower average interest rates, which resulted in a decrease in interest expense of $36.6 million from the third quarter of 2020. These decreases to interest expense were partially offset by the issuance of ~~$500.0~~$300 million of senior unsecured notes due June 15, 2031 in May 2021, $450.0 million of senior unsecured notes due March 1, ~~2029~~2028 in February ~~and March 2019, $550.0 million of senior unsecured notes due January 15, 2030 in August and October 2019, and~~2021, $650 million of senior unsecured notes due March 15, 2032 in February and June 2020, and $600 million of senior unsecured notes due January 15, 2031 and September 1, 2050 in August 2020, which resulted in an increase of ~~$28.9~~$16.9 million interest expense for the nine months ended September 30, ~~2020.~~2021. Additionally, there was a ~~$6.8~~$7.3 million decrease in capitalized interest in the nine months ended September 30, ~~2020,~~2021, due to a decrease in development activity as compared to the same period in 2019. These increases to interest expense were partially offset by debt that was paid off or matured, regular principal amortization during and after the nine months ended September 30, 2019, and lower average interest rates, which resulted in a decrease in interest expense of $33.4 million for the nine months ended September 30, 2020.

Total return swap income of ~~$7.7~~$8.1 million ~~for~~in the nine months ended September 30, ~~2020~~2021 consists of monthly settlements related to the Company's total return swap contracts ~~that were entered into during 2015 in connection~~ with ~~issuing fixed rate tax-exempt mortgage notes.~~an aggregate notional amount of $224.5 million.

Interest and other income ~~decreased~~increased by ~~$16.6~~$36.1 million or ~~56.7%~~284.3% to $48.8 million in income for the nine months ended September 30, 2021 compared to $12.7 million for the nine months ended September 30, 2020, ~~compared to $29.3 million for the nine months ended September 30, 2019,~~ primarily due to ~~a $13.5~~increases of $21.6 million ~~decrease~~in unrealized gains on marketable securities, $6.9 million in marketable securities and other income, $4.7 million in income from early redemption of notes receivable, and ~~a $2.1~~$2.4 million ~~decrease~~ in ~~unrealized gains~~gain on sale of marketable securities.

Equity income from co-investments ~~decreased~~increased by ~~$1.4~~$7.2 million or ~~2.6%~~13.5% to $60.7 million for the nine months ended September 30, 2021 compared to $53.5 million for the nine months ended September 30, 2020, ~~compared to $54.9 million for the nine months ended September 30, 2019,~~ primarily due to ~~a decrease~~increases of ~~$10.2~~$14.9 million in equity income from ~~co-investments. The decrease was offset by an increase of $5.6 million in co-investment promote income,~~non-core co-investments and ~~increase of $2.0~~$8.8 million in income from preferred equity investments including income from early ~~redemptions,~~redemptions. The increases were partially offset by decreases of $7.8 million in equity income from co-investments, $6.5 million in co-investment promote income, and ~~an increase of $1.4~~$2.2 million in gain on sale of co-investment communities.

Deferred tax expense on unrealized gain on unconsolidated co-investmentof ~~$1.6~~$5.4 million for the nine months ended September 30, ~~2020~~2021 resulted from a net unrealized gain ~~of $4.7~~on $18.8 million from an unconsolidated ~~co-investment in the second quarter of 2020.~~co-investments.

Loss on early retirement of debt, net of ~~$23.8~~$19.0 million for the nine months ended September 30, ~~2020~~2021 was primarily due to the early termination of the Company's five interest rate swap contracts in conjunction with the partial repayment of ~~$297.7 million of secured mortgage notes payable in~~ the ~~first and second quarters of 2020~~Company's unsecured term debt and the early repayment of $300.0 million of senior unsecured ~~notes during the third quarter of 2020.~~notes.

Gain on remeasurement of co-investment of $2.3 million resulted from the Company's purchase of BEX III's 50.0% interest in The Village at Toluca Lake community in the second quarter of 2021. The gain on remeasurement of $234.7 million for the nine months ended September 30, 2020 resulted from the Company's purchase of CPPIB's 45.0% co-investment ~~interests.~~interests during the first quarter of 2020.

Liquidity and Capital Resources

The United States and other countries around the world are ~~experiencing~~continuing to experience an unprecedented health pandemic related to COVID-19, which has created considerable instability and disruption in the U.S. and world economies. Governmental authorities in affected regions ~~are taking~~have taken extraordinary steps in an effort to slow down the spread of the virus and mitigate its impact on affected populations.

As of September 30, ~~2020,~~2021, the Company had ~~$558.4~~$49.9 million of unrestricted cash and cash equivalents and ~~$135.0~~$183.1 million in marketable securities, all of which ~~$105.4 million~~ were equity securities or available for sale debt securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances and availability under existing lines of credit are sufficient to meet all of its anticipated cash needs during the next twelve months. Additionally, the capital markets continue to be available and the Company is able to generate cash from the disposition of real estate assets to finance additional cash flow needs, including continued development and select acquisitions. In the event that

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conditions become further exacerbated due to the COVID-19 pandemic and related economic disruptions, the Company may further utilize other resources such as its cash reserves, lines of credit, or decreased investment in redevelopment activities to supplement operating cash flows. The Company is carefully monitoring and managing its cash position in light of ongoing conditions and levels of operations. The timing, source and amounts of cash flows provided by financing activities and used in investing

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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.

As of September 30, ~~2020, Fitch Ratings,~~2021, Moody’s Investor Service, and Standard and Poor's credit agencies rated the Company and the Operating Partnership, ~~BBB+/Stable,~~ Baa1/Stable, and BBB+/Stable, respectively.

As of September 30, ~~2020,~~2021, the Company had two unsecured lines of credit aggregating $1.24 billion. As of September 30, ~~2020,~~2021, there was ~~no amount~~$35.0 million outstanding on the Company's $1.2 billion unsecured line of credit. The underlying interest rate is based on a tiered rate structure tied to the Company's credit ratings and sustainability-linked metrics and was LIBOR plus ~~0.825%~~0.775% as of September 30, ~~2020.~~2021. This facility is scheduled to mature in ~~December 2023,~~September 2025, with ~~one 18-month extension,~~three 6-month extensions, exercisable at the Company's option. As of September 30, ~~2020,~~2021, there was ~~no amount~~$7.7 million outstanding on the Company's $35.0 million working capital unsecured line of credit. The underlying interest rate on the $35.0 million line is based on a tiered rate structure tied to the Company's credit ratings and sustainability-linked metrics and was LIBOR plus ~~0.825%~~0.775% as of September 30, ~~2020.~~2021. This facility is scheduled to mature in February ~~2021.~~2023.

In ~~August 2020,~~June 2021, the Operating Partnership issued ~~$600.0~~$300.0 million of senior unsecured notes ~~consisting of $300.0 million aggregate principal amount~~ due on ~~January~~June 15, 2031 with a coupon rate of ~~1.650%~~2.550% per annum (the ~~“2031 Notes”~~"2031 Notes"), which are payable on June 15 and ~~$300.0 million aggregate principal amount due~~December 15 of each year, beginning on ~~September 1, 2050 with a coupon rate of 2.650% (the “2050 Notes” and together with the 2031 Notes, the “Notes”).~~December 15, 2021. The 2031 Notes were offered to investors at a price of ~~99.035% of par value and the 2050 Notes at 99.691%~~99.367% of par value. ~~Interest is payable on the~~The 2031 Notes semiannually on January 15 and July 15 of each year, beginning January 15, 2021. Interest is payable on the 2050 Notes semiannually on March 1 and September 1 of each year, beginning March 1, 2021. The 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 unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay upcoming debt maturities, including ~~certain unsecured private placement notes, secured mortgage notes, and~~ to fund the redemption of $300.0 million aggregate principal amount (plus the make-whole amount and accrued and unpaid interest) of its outstanding ~~3.625%~~3.375% senior unsecured notes due ~~August 2022,~~January 2023, and for other general corporate and working capital purposes.

In April 2020, the Company obtained a $200.0 million unsecured term loan with a one-year maturity and two 12-month extension options, exercisable at the Company’s option. The unsecured term loan bears a variable interest rate of LIBOR plus 1.20% and the proceeds were used to repay all remaining consolidated debt maturing in 2020.

~~In February 2020,~~March 2021, the Operating Partnership issued ~~$500.0~~$450.0 million of senior unsecured notes due on March ~~15, 2032,~~1, 2028 with a coupon rate of ~~2.650%~~1.700% per annum (the ~~"2032~~"2028 Notes"), which are payable on March 151 and September 151 of each year, beginning on September ~~15, 2020.~~1, 2021. The ~~2032~~2028 Notes were offered to investors at a price of ~~99.628%~~99.423% of par value. The ~~2032~~2028 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 unconditionally guaranteed by Essex. The Company used the net proceeds of this offering to repay ~~indebtedness under its~~upcoming debt maturities, including all or a portion of certain unsecured ~~lines of credit, which had been used to fund the buyout of CPPIB's 45.0% joint venture interests, as well as repay $100.3 million of secured debt during the quarter that ended March 31, 2020.~~

In June 2020, the Operating Partnership issued an additional $150.0 million of the 2032 Notes at a price of 105.660% of par value, plus accrued interest from February 2020 up to, but not including, the date of delivery of the additional notes, with an effective yield of 2.093%. These additional notes have substantially identical terms as the 2032 Notes issued in February 2020. The proceeds were used to repay indebtedness under the Company's unsecured credit facilitiesterm loans, and for ~~other~~ general corporate and working capital purposes.

In September ~~2018,~~2021, the Company entered into ana new equity distribution agreement pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million (the ~~"2018~~“2021 ATM ~~Program"~~Program”). In connection with the ~~2018~~2021 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the ~~2018~~2021 ATM Program under forward sales agreements. The use of a forward ~~sales~~sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date.

The 2021 ATM Program replaces the Company’s prior equity distribution agreement entered into in September 2018 (the “2018 ATM Program”), which was terminated upon the establishment of the 2021 ATM Program. During the nine months ended September 30, ~~2020,~~2021, the Company did not ~~issue~~sell any shares of its common stock through the 2021 ATM Program or through the 2018 ATM Program. As of September 30, ~~2020,~~2021, there are no outstanding forward purchase agreements, and ~~$826.6~~$900.0 million of shares ~~remain~~remains available to be sold under ~~this program.~~the 2021 ATM Program.

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In December 2015, the Company’s ~~board~~Board of ~~directors~~Directors authorized a stock repurchase plan to allow the Company to acquire shares in an aggregate of up to $250.0 million. In February 2019, the ~~board~~Board of ~~directors~~Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the stock repurchase plan. In each of May and December 2020, the ~~board~~Board of ~~directors~~Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. During the nine months ended September 30, ~~2020,~~2021, the Company repurchased and retired ~~985,509~~40,000 shares of its common stock totaling ~~$223.0~~$9.2 million, including commissions, at an average price of ~~$226.27~~$229.30 per share. As of September 30, ~~2020,~~2021, the Company had ~~$203.3~~$214.5 million of purchase authority remaining under the stock repurchase plan.

Essex 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.

Development and Predevelopment Pipeline

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The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of September 30, ~~2020,~~2021, the Company’s development pipeline was comprised of ~~three~~two consolidated projects under development, ~~three~~one unconsolidated joint venture ~~projects~~project under development and various consolidated predevelopment projects, aggregating ~~1,853~~571 apartment homes, with total incurred costs of ~~$0.9 billion,~~$252.0 million, and estimated remaining project costs of approximately ~~$178.0~~$84.0 million, ~~$125.0~~$51.0 million of which represents the Company's share of estimated remaining costs, for total estimated project costs of ~~$1.1 billion.~~$336.0 million.

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. The Company may also acquire land for future

development purposes or sale.

The Company expects to fund the development and predevelopment ~~pipeline~~communities 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 assets, 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 homes may not be available for rent and, as a result, may have less than stabilized operations. As of September 30, 2020, the Company had ownership interests in three major redevelopment communities aggregating 1,112 apartment homes with estimated redevelopment costs of $109.1 million, of which approximately $5.9 million remains to be expended. The Company has the ability to cease funding of the redevelopment pipeline as needed.

Derivative Activity

The Company uses interest rate swaps, interest rate caps, and total return swap 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 and total return 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.

Alternative Capital Sources

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of September 30, ~~2020,~~2021, the Company had an interest in ~~1,070~~264 apartment homes in communities actively under development with joint ventures for total estimated costs of ~~$0.7~~$0.1 billion. Total estimated remaining costs are approximately ~~$108.0~~$68.0 million, of which the Company estimates its remaining investment in these development joint ventures will be approximately ~~$55.0~~$34.7 million. In addition, the Company had an interest in ~~8,652~~9,468 apartment homes of operating communities with joint ventures for a total book value of ~~$363.6~~$470.8 million as of September 30, ~~2020.~~

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2021.

Off-Balance Sheet Arrangements

The Company has various unconsolidated interests in certain joint ventures. The Company does not believe that these unconsolidated investments have a materially different impact on its liquidity, cash flows, capital resources, credit or market risk than its consolidated operations. See Note 4, Co-investments, in the Notes to Condensed Consolidated Financial Statements, for carrying values and combined summarized financial information of these unconsolidated investments.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements, in accordance with U.S. 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. 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 and estimates relate principally to the following key areas: (i) accounting for the acquisition of investments in real estate (specifically, the allocation between land and buildings); and (ii) evaluation of events and changes in circumstances indicating whether the Company’s rental properties may be impaired. 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.

The Company’s critical accounting policies and estimates have not changed materially from the information reported in Note 2, Summary of Critical and Significant Accounting Policies, in the Company’s annual report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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Forward-Looking Statements

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this quarterly report on Form 10-Q 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 (the "Securities Act"), and Section 21E of the Exchange Act, including statements regarding the Company's expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as "expects," "assumes," "anticipates," "may," "will," "intends," "plans," "projects," "believes," "seeks," "future," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, among other things, statements regarding the Company’s expectations related to the continued impact of the COVID-19 pandemic and related variants on the Company’s business, financial condition and results of operations and the impact of any additional measures taken to mitigate the impact of the pandemic, the Company's intent, beliefs or expectations with respect to the timing of completion of current development and redevelopment projects and the stabilization of such projects, the timing of lease-up and occupancy of its apartment communities, the anticipated operating performance of its apartment communities, the total projected costs of development and redevelopment projects, co-investment activities, qualification as a REIT under the Internal Revenue Code of 1986, as amended, the real estate markets in the geographies in which the Company’s properties are located and in the United States in general, the adequacy of future cash flows to meet anticipated cash needs, its financing activities and the use of proceeds from such activities, the availability of debt and equity financing, general economic conditions including the potential impacts from such economic conditions, including as a result of the COVID-19 pandemic and governmental measures intended to prevent its spread, trends affecting the Company’s financial condition or results of operations, changes to U.S. tax laws and regulations in general or specifically related to REITs or real estate, changes to laws and regulations in jurisdictions in which communities the Company owns are located, and other information that is not historical information.

While the Company's management believes the assumptions underlying its forward-looking statements are reasonable, such forward-looking statements involve known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s control, which could 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. The Company cannot assure the future results or outcome of the matters described in these statements; rather, these statements merely reflect the Company’s current expectations of the approximate outcomes of the matters discussed. Factors that might cause the Company’s actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, but are not limited to, the following: the continued impact of the COVID-19 pandemic and related variants, which remains inherently uncertain as to duration and severity, and any additional governmental measures taken to limit its spread and other potential future outbreaks of infectious diseases or other health concerns could continue to adversely affect the Company’s business and its tenants, and cause a significant downturn in general economic conditions, the real estate industry, and the markets in which the Company's communities are located; the Company may fail to achieve its business objectives; the

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actual completion of development and redevelopment projects may be subject to delays; the stabilization dates of such projects may be delayed; the Company may abandon or defer development or redevelopment projects for a number of reasons, including changes in local market conditions which make development less desirable, increases in costs of development, increases in the cost of capital or lack of capital availability, resulting in losses; the total projected costs of current development and redevelopment projects may exceed expectations; such development and redevelopment projects may not be completed; development and redevelopment projects and acquisitions may fail to meet expectations; estimates of future income from an acquired property may prove to be inaccurate; occupancy rates and rental demand may be adversely affected by competition and local economic and market conditions; there may be increased interest rates and operating costs; the Company may be unsuccessful in the management of its relationships with its co-investment partners; future cash flows may be inadequate to meet operating requirements and/or may be insufficient to provide for dividend payments in accordance with REIT requirements; changes in laws or regulations; the terms of any refinancing may not be as favorable as the terms of existing indebtedness; unexpected difficulties in leasing of development projects; volatility in financial and securities markets; the Company’s failure to successfully operate acquired properties; unforeseen consequences from cyber-intrusion; the Company’s inability to maintain our investment grade credit rating with the rating agencies; government approvals, actions and initiatives, including the need for compliance with environmental requirements; and those further risks, special considerations, and other factors referred to in this quarterly report on Form 10-Q, in the Company's annual report on Form 10-K for the year ended December 31, ~~2019,~~2020, and those risk factors and special considerations set forth in the Company's other filings with the Securities and Exchange Commission (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. Additionally, the risks, uncertainties and other factors set forth above or otherwise referred to in the reports that the Company has filed with the SEC may be further amplified by the global impact of the COVID-19 ~~pandemic.~~pandemic and related variants. All forward-looking statements are made as of the date hereof, the Company assumes no obligation to

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update or supplement this information for any reason, and therefore, they may not represent the Company’s estimates and assumptions after the date of this report.

Funds from Operations Attributable to Common Stockholders and Unitholders

Funds from Operations Attributable to Common Stockholders and Unitholders ("FFO") is a financial measure that is commonly used in the REIT industry. The Company presents FFO and FFO excluding non-core items (referred to as "Core FFO") as supplemental operating performance measures. FFO and Core FFO are not used by the Company as, nor should they be considered to be, alternatives to net income computed under U.S. GAAP as an indicator of the Company’s operating performance or as alternatives to cash from operating activities computed under U.S. GAAP as an indicator of the Company’s ability to fund its cash needs.

FFO and Core FFO are not meant to represent a comprehensive system of financial reporting and do not present, nor do they intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net income computed under U.S. GAAP is the primary measure of performance and that FFO and Core FFO are only meaningful when they are used in conjunction with net income.

The Company considers FFO and Core FFO to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. The Company believes that its condensed consolidated financial statements, prepared in accordance with U.S. 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 the leading REIT industry association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. The Company agrees that these two NAREIT adjustments are useful to investors for the following reasons:

(a)historical cost accounting for real estate assets in accordance with U.S. GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on

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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 U.S. 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 and losses from the sales 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 believes that it has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs’ calculation of 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.

The following table is a reconciliation of net income available to common stockholders to FFO and Core FFO for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 (in thousands, except share and per share amounts):

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Essex Property Trust, Inc.


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Net income available to common stockholders	Net income available to common stockholders	$	73,661	$	99,335	$	473,125	$	310,468	Net income available to common stockholders	$	118,390	$	73,661	$	351,680	$	473,125
Adjustments:	Adjustments:									Adjustments:
Depreciation and amortization	Depreciation and amortization	130,202		120,809		395,370		360,842		Depreciation and amortization	130,564		130,202		387,887		395,370
Gains not included in FFO attributable to common stockholders and unitholders	Gains not included in FFO attributable to common stockholders and unitholders	(24,879)		—		(276,170)		(32,405)		Gains not included in FFO attributable to common stockholders and unitholders	(42,897)		(24,879)		(145,253)		(276,170)

Depreciation and amortization from unconsolidated co-investments	Depreciation and amortization from unconsolidated co-investments	12,883		15,483		38,191		45,304		Depreciation and amortization from unconsolidated co-investments	15,044		12,883		44,592		38,191
Noncontrolling interest related to Operating Partnership units	Noncontrolling interest related to Operating Partnership units	2,593		3,464		16,543		10,863		Noncontrolling interest related to Operating Partnership units	4,168		2,593		12,403		16,543

Depreciation attributable to third party ownership and other	Depreciation attributable to third party ownership and other	(134)		(242)		(407)		(708)		Depreciation attributable to third party ownership and other	(145)		(134)		(412)		(407)
Funds from operations attributable to common stockholders and unitholders	Funds from operations attributable to common stockholders and unitholders	$	194,326	$	238,849	$	646,652	$	694,364	Funds from operations attributable to common stockholders and unitholders	$	225,124	$	194,326	$	650,897	$	646,652
Funds from operations attributable to common stockholders and unitholders per share - diluted	Funds from operations attributable to common stockholders and unitholders per share - diluted	$	2.88	$	3.50	$	9.53	$	10.19	Funds from operations attributable to common stockholders and unitholders per share - diluted	$	3.34	$	2.88	$	9.67	$	9.53
Non-core items:	Non-core items:									Non-core items:

Expensed acquisition and investment related costs	Expensed acquisition and investment related costs	2		13		104		69		Expensed acquisition and investment related costs	108		2		164		104
Deferred tax expense on unrealized gain on unconsolidated co-investment (1)	Deferred tax expense on unrealized gain on unconsolidated co-investment (1)	—		1,457		1,636		1,457		Deferred tax expense on unrealized gain on unconsolidated co-investment (1)	3,041		—		5,391		1,636
Gain on sale of marketable securities	Gain on sale of marketable securities	(91)		(239)		(124)		(737)		Gain on sale of marketable securities	—		(91)		(2,499)		(124)
Unrealized (gains) losses on marketable securities		(3,288)		174		(2,215)		(4,280)
Unrealized gains on marketable securities										Unrealized gains on marketable securities	(7,091)		(3,288)		(23,772)		(2,215)
Provision for credit losses	Provision for credit losses	3		—		100		—		Provision for credit losses	(3)		3		(110)		100

Equity income from non-core co-investment (2)		213		(4,247)		(4,373)		(4,561)
Interest rate hedge ineffectiveness (3)		—		—		—		181
Loss (gain) on early retirement of debt, net		19,114		(5,475)		23,820		(7,143)
Gain on early retirement of debt from unconsolidated co-investment		—		—		(38)		—
Equity income from non-core co-investments (2)										Equity income from non-core co-investments (2)	(10,868)		213		(19,266)		(4,373)

Loss on early retirement of debt, net										Loss on early retirement of debt, net	—		19,114		18,982		23,820
Loss (gain) on early retirement of debt from unconsolidated co-investment										Loss (gain) on early retirement of debt from unconsolidated co-investment	15		—		18		(38)

Co-investment promote income	Co-investment promote income	—		—		(6,455)		(809)		Co-investment promote income	—		—		—		(6,455)
Income from early redemption of preferred equity investments		—		(1,699)		(210)		(2,531)
Income from early redemption of preferred equity investments and notes receivable										Income from early redemption of preferred equity investments and notes receivable	—		—		(8,260)		(210)

General and administrative and other, net	General and administrative and other, net	2,510		—		5,642		—		General and administrative and other, net	252		2,510		765		5,642
Insurance reimbursements, legal settlements, and other, net	Insurance reimbursements, legal settlements, and other, net	132		(15)		69		(263)		Insurance reimbursements, legal settlements, and other, net	(4)		132		(190)		69
Core Funds from Operations attributable to common stockholders and unitholders	Core Funds from Operations attributable to common stockholders and unitholders	$	212,921	$	228,818	$	664,608	$	675,747	Core Funds from Operations attributable to common stockholders and unitholders	$	210,574	$	212,921	$	622,120	$	664,608
Core Funds from Operations attributable to common stockholders and unitholders per share-diluted	Core Funds from Operations attributable to common stockholders and unitholders per share-diluted	$	3.15	$	3.35	$	9.80	$	9.92	Core Funds from Operations attributable to common stockholders and unitholders per share-diluted	$	3.12	$	3.15	$	9.24	$	9.80
Weighted average number shares outstanding, diluted ~~(4)~~(3)	Weighted average number shares outstanding, diluted ~~(4)~~(3)	67,495,286		68,229,823		67,837,336		68,117,569		Weighted average number shares outstanding, diluted ~~(4)~~(3)	67,391,333		67,495,286		67,324,087		67,837,336

(1) ARepresents deferred tax expense ~~was recorded during the second quarter of 2020~~ related to ~~the $4.7 million~~ net unrealized ~~gain~~gains on ~~the Real Estate Technology Ventures, L.P. co-investment.~~technology co-investments.

(2) Represents the Company's share of co-investment income from ~~Real Estate Technology Ventures, L.P. Income for the second quarter of 2020 includes a net unrealized gain of $4.7 million.~~technology co-investments.

(3) On January 1, 2019, the Company adopted ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities," which resulted in a cumulative effect adjustment of approximately $181,000 from interest expense to accumulated other comprehensive income. As a result of the adoption of this standard, the Company recognizes

~~qualifying hedge ineffectiveness through accumulated other comprehensive income as opposed to current earnings.~~

~~(4)~~ Assumes conversion of all outstanding Operating Partnership limited partnership units ("OP Units") into shares of the Company's common stock and excludes all DownREIT units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

5047

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Net Operating Income

Net operating income ("NOI") and Same-Property NOI are considered by management to be important supplemental performance measures to earnings from operations included in the Company’s condensed consolidated statements of income and comprehensive income. 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. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, 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 revenues less Same-Property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to NOI and Same-Property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented ($ in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
Earnings from operations	Earnings from operations	$	128,937	$	124,039	$	379,510	$	364,294	Earnings from operations	$	137,971	$	128,937	$	428,733	$	379,510
Adjustments:	Adjustments:									Adjustments:
Corporate-level property management expenses	Corporate-level property management expenses	8,619		8,553		26,024		25,451		Corporate-level property management expenses	9,068		8,619		27,120		26,024
Depreciation and amortization	Depreciation and amortization	130,202		120,809		395,370		360,842		Depreciation and amortization	130,564		130,202		387,887		395,370
Management and other fees from affiliates	Management and other fees from affiliates	(2,347)		(2,428)		(7,312)		(7,023)		Management and other fees from affiliates	(2,237)		(2,347)		(6,707)		(7,312)
General and administrative	General and administrative	13,310		11,345		42,244		38,731		General and administrative	12,712		13,310		34,746		42,244

Expensed acquisition and investment related costs	Expensed acquisition and investment related costs	2		13		104		69		Expensed acquisition and investment related costs	108		2		164		104
Gain on sale of real estate and land	Gain on sale of real estate and land	(22,654)		—		(39,251)		—		Gain on sale of real estate and land	(42,897)		(22,654)		(142,993)		(39,251)
NOI	NOI	256,069		262,331		796,689		782,364		NOI	245,289		256,069		728,950		796,689
Less: Non-Same Property NOI	Less: Non-Same Property NOI	(39,196)		(19,196)		(102,881)		(53,575)		Less: Non-Same Property NOI	(22,807)		(38,308)		(67,844)		(99,957)
Same-Property NOI	Same-Property NOI	$	216,873	$	243,135	$	693,808	$	728,789	Same-Property NOI	$	222,482	$	217,761	$	661,106	$	696,732

Item 3: Quantitative and Qualitative Disclosures About Market Risks

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 uses interest rate swaps as part of its cash flow hedging strategy. ~~As of September 30, 2020, the~~The Company ~~has entered into~~previously had five interest rate ~~swap contracts to mitigate~~swaps that were designated as cash flow hedges of interest rate risk and were terminated as of March 31, 2021 in conjunction with the ~~risk of changes in the interest-related cash outflows on $175.0 million~~partial repayment of the Company's unsecured term debt. As of September 30, ~~2020,~~2021, the Company also had ~~$254.9~~$224.5 million of secured variable rate indebtedness. All of the Company's interest rate swaps are designated as cash flow hedges as of September 30, 2020. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s cash flow hedge derivative instruments used to hedge interest rates as of September 30, 2020. 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 September 30, 2020.

Notional
Amount Maturity
Date Range Carrying and
Estimated
Fair Value Estimated Carrying Value
+50 -50
($ in thousands) Basis Points Basis Points
Cash flow hedges:
Interest rate swaps $ 175,000 2022 $ (2,882) $ (1,700) $ (4,092)
Total cash flow hedges $ 175,000 2022 $ (2,882) $ (1,700) $ (4,092)

~~Table of Contents~~

Additionally, the Company has entered into four total return swap contracts, with an aggregate notional amount of ~~$254.9~~$224.5 million that effectively convert ~~$254.9~~$224.5 million of fixed mortgage notes payable to a floating interest rate based on the SIFMA plus a spread and have a carrying value of zero at September 30, ~~2020.~~2021. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.

Interest Rate Sensitive Liabilities

The Company is exposed to interest rate changes primarily as a result of its lines 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.

Table of Contents

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.


For the Years Ended	For the Years Ended	2020			2021		2022		2023		2024		Thereafter		Total			Fair value		For the Years Ended	2021			2022		2023		2024		2025		Thereafter		Total			Fair value
($ in thousands, except for interest rates)	($ in thousands, except for interest rates)																			($ in thousands, except for interest rates)
Fixed rate debt	Fixed rate debt	$	832		530,940		42,408		602,093		402,177		4,266,884		$	5,845,334		$	6,019,516	Fixed rate debt	$	709		42,408		302,093		402,177		632,035		4,384,849		$	5,764,271		$	6,057,802
Average interest rate	Average interest rate	3.9		%	4.3	%	3.7	%	3.7	%	4.0	%	3.3	%	3.5		%			Average interest rate	3.4		%	3.7	%	3.4	%	4.0	%	3.5	%	3.1	%	3.2		%
Variable rate debt (1)	Variable rate debt (1)	$	168		713		350,780		200,852		932		251,499		$	804,944		$	799,645	Variable rate debt (1)	$	184		100,780		8,514		932		1,019		255,780		$	367,209		$	364,250
Average interest rate	Average interest rate	1.3		%	1.3	%	1.8	%	1.5	%	1.3	%	1.1	%	1.5		%			Average interest rate	1.2		%	1.1	%	1.0	%	1.2	%	1.2	%	1.0	%	1.0		%

(1) ~~$175.0 million is subject to interest rate protection agreements ($254.9~~$224.5 million is subject to total return ~~swaps).~~swaps.

The table incorporates only those exposures that exist as of September 30, ~~2020.~~2021. 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 prior to settlement.

Item 4: Controls and Procedures

Essex Property Trust, Inc.

As of September 30, ~~2020,~~2021, Essex carried out an evaluation, under the supervision and with the participation of management, including Essex’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Essex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, Essex’s Chief Executive Officer and Chief Financial Officer concluded that as of September 30, ~~2020,~~2021, Essex's disclosure controls and procedures were effective to ensure that the information required to be disclosed by Essex in the reports that Essex files or submits under the Exchange Act was 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 Essex files or submits under the Exchange Act is accumulated and communicated to Essex’s management, including Essex’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in Essex's internal control over financial reporting, that occurred during the quarter ended September 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, Essex’s internal control over financial reporting.

~~Table of Contents~~

Essex Portfolio, L.P.

As of September 30, ~~2020,~~2021, the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of September 30, ~~2020,~~2021, 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 Operating Partnership files or submits under the Exchange Act was 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 Essex's Chief Executive Officer and Chief Financial Officer, 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 September 30, ~~2020,~~2021, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Part II -- Other Information

Item 1: Legal Proceedings

Table of Contents

The Company is subject to various lawsuits in the normal course of its business operations. While the resolution of any such matter cannot be predicted with certainty, the Company is not currently a party to any legal proceedings nor is any legal proceeding currently threatened against the Company that the Company believes, individually or in the aggregate, would have a material adverse effect on the Company's financial condition, results of operations or cash flows.

Item 1A: Risk Factors

In addition to the other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors discussed in "Part I. Item 1A. Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, ~~2019,~~2020, which could materially affect the Company's financial condition, results of operations or cash flows. Except as disclosed in "Part II. Item 1A. Risk Factors" in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2020 as filed with the SEC on August 5, 2020 or as set forth below, thereThere have been no material changes to the Risk Factors disclosed in Item 1A of the Company's annual report on Form 10-K for the year ended December 31, ~~2019,~~2020, as filed with the SEC and available at www.sec.gov. The risks described in the Company's annual report on Form 10-K and subsequent quarterly reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known or that the Company currently deems to be immaterial may also materially adversely affect the Company's financial condition, results of operations or cash flows.

The current COVID-19 pandemic, or the future outbreak of other highly infectious or contagious diseases, could materially and adversely affect our business, financial condition and results of operations.

The outbreak of COVID-19, which has rapidly spread to a growing number of countries, including the United States and the specific regions in which our apartment communities are located, has created considerable instability and disruption in the U.S. and world economies. Considerable uncertainty still surrounds COVID-19, including when the pandemic will conclude and the potential short-term and long-term effects, including but not limited to shifts in consumer housing demand based on geography, affordability, housing type (e.g. multi-family vs. single-family) and unit type (e.g. studio vs. multi-bedroom), mainly resulting from the paradigm shift of work culture and the success of “work from home” models. Moreover, local, state and national measures taken to limit the spread of COVID-19, including “social distancing” and other restrictions on travel, congregation and business operations have already resulted in significant negative economic impacts. The long-term impact of COVID-19 on the U.S. and world economies remains uncertain, but has resulted in increased health issues and mortality rates, increased unemployment, and a world-wide economic downturn, the duration and scope of which cannot currently be predicted. The extent to which the Company’s financial condition or operating results will continue to be affected by the COVID-19 pandemic will largely depend on future demand and developments, which are highly uncertain and cannot be accurately predicted.

The Company’s operating results depend, in large part, on revenues derived from leasing space in our apartment communities to residential tenants and the ability of tenants to generate sufficient income to pay their rents in a timely manner. The market and economic challenges created by the COVID-19 pandemic, and measures implemented to prevent its spread, have, and may continue to, adversely affect our returns and profitability. As a result, our ability to make distributions to Essex’s stockholders

~~Table of Contents~~

and the Operating Partnership’s unitholders may be compromised and we could experience volatility with respect to the market value of our properties and common stock and Operating Partnership units. The continued spread of COVID-19 could result in further increases in unemployment, and tenants that experience deteriorating financial conditions as a result of the pandemic may be unwilling or unable to pay rent on a timely basis, or at all. In some cases, we may be legally required to or otherwise agree to restructure tenants’ rent obligations, and may not be able to do so on terms as favorable to us as those currently in place. Numerous state, local, federal and industry-initiated efforts have and may continue to affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations or prohibitions on evicting tenants unwilling or unable to pay rent and prohibitions on the ability to collect unpaid rent during certain timeframes. Additionally, eviction moratoriums have passed in various formats at every level of government, with considerable differences between county and state orders, as well as between individual county orders and how cities are interpreting and enforcing them. Various city, county and state laws restricting rent increases in times of emergency may have applicability to the pandemic as well. This patchwork of conflicting standards may continue to create a great deal of confusion and challenges with compliance. While the Company believes it is in compliance and intends to comply with the framework of local, county, state and federal laws, given the confusion, strict compliance might be difficult. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our property, and have limited ability to renew existing leases or sign new leases at projected rents.

Our properties may also incur significant costs or losses related to legislative mandates, including shelter-in-place orders, business shut-downs, quarantines, infection or other related factors, which may result in a negative impact on our occupancy levels. For example, many companies initially required, and now are continuing to allow, employees to “work from home” for an extended period of time, causing some tenants to relocate farther away from the urban centers temporarily or permanently. Some businesses have been ordered to temporarily shut down, such as indoor dining, which has contributed to the shuttering of some commercial spaces in downtown areas, and the temporary deterioration of neighborhoods in and around some of our urban communities. Moreover, we typically conduct aspects of our leasing activity on-site at our apartment communities. Reductions in the ability and willingness of prospective residents to visit our communities due to the COVID-19 pandemic could reduce rental revenue and ancillary operating revenue produced by our properties. Additionally, in connection with an outbreak that directly impacts one or more of our corporate offices or apartment communities, we may experience negative publicity and/or an unwillingness of prospective residents to visit or ultimately choose to live in our communities, which could directly affect our rental revenue. In addition, we have incurred costs associated with protecting our employees and residents and disinfecting our properties and those costs may continue to increase. There may also be an increased risk of litigation due to the effects of the COVID-19 pandemic. To the extent our management or personnel are impacted in significant numbers by the COVID-19 pandemic and are not available or allowed to conduct work, our business and operating results may be negatively impacted. Additionally, we closed our corporate offices and instituted “work from home” measures for our corporate associates, which may impact productivity.

Additionally, market fluctuations as a result of the COVID-19 pandemic may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. We may be unable to obtain financing for the acquisition of investments or re-financing for existing assets on satisfactory terms, or at all. In addition, moratoriums on construction and macro-economic factors have caused some construction delays and may cause construction contractors to be unable to perform, which may cause the delivery date of certain development projects or investments in third-party development projects to be materially extended. Market fluctuations and construction delays experienced by the Company’s third-party mezzanine loan borrowers and preferred equity investment sponsors may also negatively impact their ability to repay the Company. Further, while the Company carries general liability, pollution, and property insurance along with other insurance policies that may provide some coverage for any losses or costs incurred in connection with the COVID-19 pandemic, given the novelty of the issue and the scale of losses incurred throughout the world, there is no guarantee that we will be able to recover all or any portion of our losses and costs under these policies. We may be additionally impacted by changes in legislation relating to insurance coverages with respect to the pandemic, including, but not limited to, workers’ compensation. The occurrence of any of the foregoing events or any other related matters could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

The global impact of the COVID-19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others. However, the COVID-19 pandemic presents material uncertainty and risk with respect to our business, financial condition and results of operations. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, the Company and our properties may be subject to similar risks as posed by COVID-19.

~~Table of Contents~~

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities; Essex Portfolio, L.P.

During the three months ended September 30, 2021, the Operating Partnership issued OP Units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:

During the three months ended September 30, 2021, Essex ~~may issue~~issued an aggregate of 77,036 shares of its common stock upon the exercise of stock options, the vesting of restricted stock awards, and the exchange of OP Units and DownREIT units by limited partners or members into shares of common stock. ~~For~~Essex contributed the net proceeds of $15.6 million from the option exercises during the three months ended September 30, 2021 to the Operating Partnership in exchange for an aggregate of 67,743 OP Units, as required by the Operating Partnership’s partnership agreement. Furthermore, for each share of common stock issued by Essex in connection with vesting of restricted stock awards and the exchange of OP Units and DownREIT units, the Operating Partnership ~~issues~~issued OP Units to Essex, as required by the partnership agreement. During the three months ended September 30, ~~2020,~~2021, 9,293 OP Units were issued to Essex ~~did not issue any shares of its common stock.~~pursuant to this mechanism.

Stock Repurchases

~~The following table summarizes the Company's purchases of its common stock during the three months ended September 30, 2020.~~

Total Number of
Shares Purchased Average Price
Paid Per Share
Total Number of Shares
Purchased as Part of a
Publicly Announced
Program(1)
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)(1)
July 1, 2020 - July 31, 2020 121,260 $ 219.24 121,260 $ 203.3
Total 121,260 $ 219.24 121,260 $ 203.3

~~(1)~~ In ~~May~~December 2020, the ~~board~~Board of ~~directors~~Directors approved the replenishment of the Company's stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan. As a result of the replenishment, as of September 30, 2021, the Company had $214.5 million of purchase authority remaining under the stock repurchase plan. The Company did not repurchase any of its common stock during the three months ended September 30,

2021.

Item 3: Defaults Upon Senior Securities

None.

Item 4: Mine Safety Disclosures

Not applicable.

Item 5: Other Information

None.

5550

Table of Contents

Item 6: Exhibits


A. Exhibits
~~4.1~~10.1*			~~Indenture,~~Third Ame nded and Restated Revolving Credit Agreement, dated as of Se ~~August 24~~ptember 30, 2021 , ~~2020,~~ among Essex Portfolio, L.P., ~~Essex Property Trust, Inc., and U.S.~~PNC Bank, National Association, as ~~trustee, including the form of~~ ~~1.650% Senior Notes due 2031 and the form for~~ ~~2.650% Senior Notes due 20~~50Administrative Agent and ~~the guarantee thereof, attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K filed~~L/C Issuer and other ~~August 24,~~ ~~2020, and incorporated herein by reference.~~lenders party thereto.

31.1*			Certification of Michael J. Schall, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*			Certification of ~~Angela L. Kleiman,~~Barbara Pak, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.3*			Certification 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 ~~Angela L. Kleiman,~~Barbara Pak, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*			Certification of Michael J. Schall, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2*			Certification of ~~Angela L. Kleiman,~~Barbara Pak, Chief 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.**

32.4*			Certification of ~~Angela L. Kleiman,~~Barbara Pak, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS			XBRL Instance Document - the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.LAB			XBRL Taxonomy Extension Label Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

104			Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

* Filed or furnished herewith.

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.


			ESSEX PROPERTY TRUST, INC.
			(Registrant)

			Date: October ~~30, 2020~~27, 2021

			By: /s/ ~~ANGELA L. KLEIMAN~~BARBARA PAK

			~~Angela L. Kleiman~~Barbara Pak
			Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)


			Date: October ~~30, 2020~~27, 2021

			By: /s/ JOHN FARIAS

			John Farias
			Senior Vice President, Chief Accounting Officer


			ESSEX PORTFOLIO, L.P. By Essex Property Trust, Inc., its general partner
			(Registrant)

			Date: October ~~30, 2020~~27, 2021

			By: /s/ ~~ANGELA L. KLEIMAN~~BARBARA PAK

			~~Angela L. Kleiman~~Barbara Pak
			Executive Vice President, Chief Financial Officer (Authorized Officer, Principal Financial Officer)


			Date: October ~~30, 2020~~27, 2021

			By: /s/ JOHN FARIAS

			John Farias
			Senior Vice President, Chief Accounting Officer

5752


	Change in fair value and amortization of swap settlements		Unrealized gain/(loss) on available for sale securities		Total
Balance at December 31, 2019	$	(13,989)	$	101	$	(13,888)

Other comprehensive loss before reclassification	2,263		(172)		2,091
Amounts reclassified from accumulated other comprehensive loss	(5,003)		0		(5,003)
Other comprehensive loss	(2,740)		(172)		(2,912)
Balance at September 30, 2020	$	(16,729)	$	(71)	$	(16,800)


	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
	Income		Weighted- average Common Shares	Per Common Share Amount		Income		Weighted- average Common Shares	Per Common Share Amount
Basic:
Net income available to common stockholders	$	473,125	65,561,820	$	7.22	$	310,468	65,757,914	$	4.72
Effect of Dilutive Securities:
Stock options	—		20,026			—		99,746
DownREIT units	587		94,247			0		0

Diluted:
Net income available to common stockholders	$	473,712	65,676,093	$	7.21	$	310,468	65,857,660	$	4.71


	Notional Amount		Maturity Date Range	Carrying and Estimated Fair Value		Estimated Carrying Value
						+50		-50
($ in thousands)						Basis Points		Basis Points
Cash flow hedges:
Interest rate swaps	$	175,000	2022	$	(2,882)	$	(1,700)	$	(4,092)

Total cash flow hedges	$	175,000	2022	$	(2,882)	$	(1,700)	$	(4,092)


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of a Publicly Announced Program(1)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in millions)(1)
July 1, 2020 - July 31, 2020	121,260	$	219.24	121,260	$	203.3
Total	121,260	$	219.24	121,260	$	203.3