UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-13106
ESSEX PROPERTY TRUST, INC.
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(Exact name of registrant as specified in its charter)
Maryland 77-0369576
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
925 East Meadow Drive, Palo Alto, California 94303
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(Address of principal executive offices) (Zip code)
(650) 494-3700
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $.0001 par value New York Stock Exchange
Rights to purchase Series A Junior New York Stock Exchange
Participating Preferred Stock, par value $.0001
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X] Yes [ ] No.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
As of March 21, 2001, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $636,434,438. The aggregate market value
was computed with reference to the closing price on the New York Stock Exchange
on such date. This calculation does not reflect a determination that persons
are affiliates for any other purpose.
As of March, 21, 2001, 18,701,013 shares of Common Stock ($.0001 par value) were
outstanding.
LOCATION OF EXHIBIT INDEX: The index exhibit is contained in Part IV, Item 14,
on page number 29.
DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual
Report on Form 10K: Proxy statement for the annual meeting of stockholders of
Essex Property Trust, Inc. to be held May 15, 2001.
TABLE OF CONTENTS
FORM 10-K
PART I Page No.
Item 1 Business.................................................................................... 1
Item 2 Properties.................................................................................. 14
Item 3 Legal Proceedings........................................................................... 17
Item 4 Submission of Matters to a Vote of Security Holders......................................... 17
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters........................ 17
Item 6 Summary Financial and Operating Data........................................................ 19
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 22
Item 7A Quantitative and Qualitative Disclosures About Market Risk................................. 28
Item 8 Financial Statements and Supplementary Data................................................. 28
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................................................... 28
PART III
Item 10 Directors and Executive Officers of the Registrant.......................................... 28
Item 11 Executive Compensation...................................................................... 28
Item 12 Security Ownership of Certain Beneficial Owners and Management.............................. 28
Item 13 Certain Relationships and Related Transactions.............................................. 28
PART IV
Item 14 Exhibits, Financial Statements Schedules and
Reports on Form 8-K......................................................................... 29
Signatures............................................................................................. S-1
PART I
Forward Looking Statements
Certain statements in this Report on Form 10-K which are not historical facts
may be considered forward looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934, as amended, including statements regarding the Company's
expectations, hopes, intentions, beliefs and strategies regarding the future.
Forward looking statements include statements regarding the Company's
expectation as to the timing of completion of current development projects,
expectation as to the total projected costs and rental rates of current
development projects, beliefs as to the adequacy of future cash flows to meet
operating requirements and to provide for dividend payments in accordance with
REIT requirements and expectations as to the amount of non-revenue generating
capital expenditures for the year ended December 31, 2001, potential
acquisitions and developments, the anticipated performance of existing
properties projected stabilization dates for development properties , future
acquisitions and developments and statements regarding the Company's financing
activities. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, but not limited to, that the actual
completion of development projects will be subject to delays, that the total
projected costs of current development projects will exceed expectations, that
such development projects will not be completed, that future cash flows will be
inadequate to meet operating requirements and/or will be insufficient to provide
for dividend payments in accordance with REIT requirements, that the actual non-
revenue generating capital expenditures will exceed the Company's current
expectations, as well as those risks, special considerations, and other factors
discussed under the caption "Other Matters/Risk Factors" in Item 1 of this
Report on Form 10-K for the year ended December 31, 2000, and those other 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.
Item 1. Business
Description of Business
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Essex Property Trust, Inc. ("the Company" or "Essex") is a self-administered and
self-managed equity real estate investment trust ("REIT") engaged in the
ownership, acquisition, development and management of multifamily apartment
communities. The Company's multifamily portfolio consists of ownership
interests in 83 properties (comprising 18,673 apartment units), 9,446 units are
located in Southern California (Los Angeles, Ventura, Orange and San Diego
counties), 4,023 units of which are located in Northern California (the San
Francisco Bay Area) and 5,204 of which are located in the Pacific Northwest
(4,073 units in the Seattle metropolitan area and 1,131 units in the Portland,
Oregon metropolitan area). The Company also has ownership interests in an
office building located in Northern California (Palo Alto) which houses the
Company's headquarters, and three retail shopping centers located in the Pacific
Northwest (the "Commercial Properties," and together with the Company's
multifamily residential properties, the "Properties"). The Company and
affiliated entities and joint ventures also have entered into commitments for
the development of 1,349 units in 5 multifamily communities; two in Northern
California and three in Southern California.
The Company was incorporated in the state of Maryland in March 1994. On June
13, 1994, the Company commenced operations with the completion of an initial
public offering ("the Offering") in which it issued 6,275,000 shares of common
stock at $19.50 per share. The net proceeds of the Offering of $112.1 million
were used to acquire an approximate 77.2% general partnership interest in Essex
Portfolio, L.P. (the "Operating Partnership").
The Company conducts substantially all of its activities through the Operating
Partnership. The Company currently owns an approximate 89.6% general
partnership interest and senior members of the Company's Board of Directors,
management and certain outside investors own approximately 10.4% limited
partnership interests in the Operating Partnership. As the sole general partner
of the Operating Partnership, the Company has control over the management of the
Operating Partnership and over each of the Properties.
Business Objectives
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The Company's primary business objective is to maximize funds from operations
and total returns to stockholders through active property and portfolio
management including redevelopment of properties. The Company's strategies
include:
. Active Property Marketing and Management. Maximize, on a per share
basis, cash available for distribution and the capital appreciation of
its property portfolio through active property marketing and
management and, if applicable, redevelopment.
. Selected Expansion of Property Portfolio. Increase, on a per share
basis, cash available for distribution through the acquisition and
development of multifamily residential properties in selected major
metropolitan areas located in the west coast region of the United
States.
. Optimal Portfolio Asset Allocations. Produce predictable financial
performance through a portfolio asset allocation program that seeks to
increase or decrease the investments in each market based on changes
in regional economic and local market conditions.
. Management of Capital and Financial Risk. Optimize the Company's
capital and financial risk positions by maintaining a conservative
leverage ratio and minimizing the Company's cost of capital. The
Company evaluates
1
financing alternatives including alternative financing sources through
joint ventures, broadening the Company's access to capital.
Business Principles
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The Company was founded on, has followed, and intends to continue to follow the
business principles set forth below:
Property Management. Through its long-standing philosophy of active property
management and a customer satisfaction approach, coupled with a discipline of
internal cost control, the Company seeks to retain tenants, maximize cash flow,
enhance property values and compete effectively for new tenants in the
marketplace. The Company's Senior Vice President of Operations and the regional
portfolio managers are accountable for overall property operations and
performance. They supervise on-site managers, provide training for the on-site
staff, monitor fiscal performance against budgeted expectations, monitor
property performance against the performance of competing properties in the
area, prepare operating and capital budgets for executive approval, and
implement new strategies focused on enhancing tenant satisfaction, increasing
revenue, controlling expenses, and creating a more efficient operating
environment.
Business Planning and Control. Real estate investment decisions are accompanied
by a multiple year plan, to which executives and other managers responsible for
obtaining future financial performance must agree. Performance versus plan
serves as a significant factor in determining compensation.
Property Type Focus. The Company focuses on acquisition and development of
multifamily residential communities, containing between 75 and 750 units. These
types of properties offer attractive opportunities because such properties (i)
are often mispriced by real estate sellers and buyers who lack the Company's
ability to obtain and use real-time market information, (ii) provide
opportunities for value enhancement since many of these properties have been
owned by parties that are either inadequately capitalized or lack the
professional property management expertise of the Company.
Geographic Focus. The Company focuses its property investments in markets that
meet the following criteria:
. Major Metropolitan Areas. The Company focuses on metropolitan areas
having a regional population in excess of one million people. Real
estate markets in these areas are typically characterized by a
relatively greater number of buyers and sellers and are, therefore,
more liquid. Liquidity is an important element for implementing the
Company's strategy of varying its portfolio in response to changing
market conditions.
. Supply Constraints. The Company believes that properties located in
real estate markets with limited development or redevelopment
opportunities are well suited to produce increased rental income. When
evaluating supply constraints, The Company reviews: (i) availability
of developable land sites on which competing properties could be
readily constructed; (ii) political barriers to growth resulting from
a restrictive local political environment regarding development and
redevelopment (such an environment, in addition to the restrictions on
development itself, is often associated with a lengthy development
process and expensive development fees); and (iii) physical barriers
to growth, resulting from natural limitations to development, such as
mountains or waterways.
. Rental Demand Created by High Cost of Housing. The Company
concentrates on markets in which the cost of renting compares
favorably to the cost of owning a home. In such markets, rent levels
tend to be higher and operating expenses and capital expenditures, as
a percentage of rent, are lower in comparison with markets that have a
lower cost of owning a home.
. Job Proximity. The company believes that most renters select housing
based on its proximity to their jobs and on related commuting factors.
The Company obtains local area information relating to its residential
properties and uses this information when making multifamily
residential property acquisition decisions. The Company also reviews
the location of major employers relative to its portfolio and
potential acquisition properties.
Following the above criteria, the Company is currently pursuing investment
opportunities in selected markets of Northern and Southern California and the
Pacific Northwest.
Active Portfolio Management Through Regional Economic Research and Local Market
Knowledge. The Company was founded on the belief that the key elements of
successful real estate investment and portfolio growth include extensive
regional economic research and local market knowledge. The Company utilizes its
economic research and local market knowledge to make appropriate portfolio
allocation decisions that it believes result in better overall operating
performance and lower portfolio risk. The Company maintains and evaluates:
. Regional Economic Data. The Company evaluates and reviews regional
economic factors for the markets in which it owns properties and where
it considers expanding its operations. The Company's research focuses
on regional and sub-market supply and demand, economic diversity, job
growth, market depth and the comparison of rents to down payments and
occupancy costs associated with single-family housing.
. Local Market Conditions. Local market knowledge includes (i) local
factors that influence whether a sub-market is desirable to tenants;
(ii) the extent to which the area surrounding a property is improving
or deteriorating; and (iii) local investment market dynamics,
including the relationship between the value of a property and its
yield, the prospects for capital appreciation and market depth.
2
Recognizing that all real estate markets are cyclical, the Company regularly
evaluates the results of regional economic and local market research and adjusts
portfolio allocations accordingly. The Company actively manages the allocation
of assets within its portfolio. The Company seeks to increase its portfolio
allocation in markets projected to have economic growth and to decrease such
allocations in markets projected to have declining economic conditions.
Likewise, the Company also seeks to increase its portfolio allocation in markets
that have attractive property valuations and to decrease such allocations in
markets that have inflated valuations and low relative yields. Although the
Company is generally a long-term investor, it does not establish defined or
preferred holding periods for its Properties.
Current Business Activities
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The Company conducts substantially all of its activities through the Operating
Partnership, of which it owns an approximate 89.6% general partnership interest.
The approximate 10.4% limited partnership interests in the Operating Partnership
are owned by directors, officers and employees of the Company and certain third-
party investors. As the sole general partner of the Operating Partnership, the
Company has operating control over the management of the Operating Partnership
and each of the Properties. From time to time, the Company may invest in
properties through the acquisition of an interest in another entity, based upon
the criteria described above. The Company does not plan to invest in any
securities of other entities not engaged in real estate related activities.
The Company has elected to be treated as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the year ended December 31,
1994. The Company provides some of its fee-based asset management and
disposition services as well as third-party property management and leasing
services through Essex Management Corporation ("EMC"), in order to maintain
compliance with REIT tax rules. The Company owns 100% of EMC's 19,000 shares of
nonvoting preferred stock. Executives of the Company own 100% of EMC's 1,000
shares of common stock.
In the second quarter of 2000, The Company invested in three joint venture
partnerships in which it holds limited partnership interests. Two of these
partnerships own one multifamily property and the other partnership owns another
multifamily property. These investments were made under arrangements whereby
EMC became the general partner and the other limited partners were granted the
right to require the applicable partnership to redeem their interest for cash.
Subject to certain conditions, the Company may, however, elect to deliver an
equivalent number of shares of the Company's Common Stock in satisfaction of the
applicable partnerships cash redemption obligation.
California and other western states have experienced shortages of electricity
and significantly higher natural gas prices, caused by the failure to expand
capacity and transmission Infrastructure consistent with the region's economic
growth. Residents of the multifamily properties operated by the Company are
typically billed directly for the cost of gas and electricity, or energy, used
in their apartment home. As a result, the Company's responsibility for energy
costs is typically associated with the operation of the leasing office, swimming
pools, spas and other amenities, site lighting, and vacant apartment units. In
addition, many of the multifamily properties utilize a boiler system to produce
hot water that is provided to residents at the Company's expense. In 2000, the
Company incurred costs for natural gas and electricity in the operations of its
Communities averaged $22 per unit per month. Electrical power disruption, and
higher energy costs could adversely affect the local economies in which the
Company's multifamily properties are located, which in turn, could adversely
affect the revenues from those properties and the Company's results of
operations in general.
Acquisitions
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During 2000, the Company acquired ownership interests in twelve multifamily
properties consisting of 2,813 units with an aggregate purchase price of
approximately $227,600,000. These investments were primarily funded by the
contribution of equity from joint venture partners, issuance of Operating
Partnership units which are convertible into Common Stock of the Company, cash
generated from operations, proceeds from the dispositions of properties,
proceeds from new and assumed loans and the Company's lines of credit. Of the
twelve properties purchased in 2000, seven properties (1,834 units) are located
in Southern California, three (540 units) are located in Northern California and
two (439 units) are located in the Pacific Northwest.
3
Multifamily property ownership interests acquired in 2000 are as follows:
Purchase
Price
Property Name Location Units (in millions)
- ------------------------------ --------------- ----- -------------
Southern California
Barkley Apartments (1) Anaheim, CA 161 $ 10.7
Mariners Place Oxnard, CA 105 7.6
El Encanto Tustin, CA 116 10.8
Rosebeach La Mirada, CA 174 11.7
City Heights (2) Los Angeles, CA 687 9.7
Woodland (3) Orange, CA 90 10.1
The Crest (3) Pomona, CA 501 56.8
Northern California
The Carlyle (4) San Jose, CA 132 18.5
Brookside Oaks (1) Sunnyvale, CA 170 23.6
Waterford Place (4) San Jose, CA 238 35.1
Pacific Northwest
Linden Square Seattle, CA 183 15.5
Hunt Club (3) Lake Orange, CA 256 17.5
- ------------------------------ --------------- ----- ------
Total Acquisitions 2,813 $227.6
============================== ===== ======
(1) The Company holds a limited partner interest in the partnerships which own
these multifamily properties. These investments were made under
arrangements whereby EMC became the general partner and the existing
partners were granted the right to require the applicable partnership to
redeem their interest for cash. Subject to certain conditions, the Company
may, however, elect to deliver an equivalent number of shares of the
Company's Common Stock in satisfaction of the applicable partnership's cash
redemption obligation.
(2) Represents the acquisition of land underlying the property. Of the total
purchase price of $45.3 million, $9.7 million was allocated to land, which
is owned by Essex, and $35.6 million to building and improvements, which
are owned by an unaffiliated third party and are subject to a lease
agreement with Essex.
(3) The Company plans to contribute this property to a joint venture that may
be formed in the future. Accordingly, the Company's investment in this
asset is reflected in the Company's financial statements as notes
receivable from investees and other related party receivables and
investments.
(4) The Company issued an aggregate of 59,291 Operating Partnerships units
convertible into Common Stock in conjunction with these transactions. The
purchase price indicated above does not include a contingent payment to be
determined at a future date. This additional payment will be based on an
amount which provides Essex with a targeted yield on the property.
Dispositions
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In 2000 the Company sold one property in Northern California for $15.8 million.
There was a $9,000 gain recognized on this sale. The Company also sold the
buildings, land improvements, and a leasehold interest in the land for a
property in Southern California for $15.3 million and realized a gain in the
amount of $4.0 million. The land lease entitles Essex to receive a fixed land
lease payment over a thirty four year term, which is subordinated to a
$12,622,000, 8.25% fixed rate loan secured by the property, which matures in
February 2007 and an interest in future appreciation. Essex can be required to
sell the land after six years as specified in the buyout provisions of the
agreement. The proceeds were used to fund acquisitions of multifamily
properties and to repay borrowings under the Company's lines of credit.
Development
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Development communities are defined by the Company as new apartment properties
that are being constructed or are newly constructed and in a phase of lease-up
and have not yet reached stabilized operations. As of December 31, 2000, the
Company had five development communities, with an aggregate of 1,349 multifamily
units. During 2000, the Company announced three new development communities and
also reached stabilized operations at five apartment properties containing units
that were previously reported as development communities. In connection with the
properties currently under development, the Company has directly, or in some
cases through its joint venture entities, entered into contractual construction
related commitments with unrelated third parties. As of December 31, 2000, the
Company is committed to fund approximately $108.6 million. The following table
sets forth information regarding the development communities at December 31,
2000.
4
Project Project Cost
Estimated Cost (1) Incurred (1)
as of as of
12/31/00 12/31/00 Projected
Development Communities Location Units (in millions) (in millions) Stabilization
- ----------------------- ------------- ----- ----------------- ------------ -------------
Joint Venture (2)
Tierra Vista Oxnard, CA 404 $ 58.0 $43.0 Jul. 2001
Predevelopment
Chesapeake (3) San Diego, CA 225 8.0 8.0 n/a
Direct Development (4)
Kelvin Avenue (3) Irvine, CA 138 21.5 4.2 Dec. 2002
Vista Del Mar Richmond, CA 312 43.8 14.5 Mar. 2003
Essex at Lake Merritt Oakland, CA 270 66.5 19.5 May 2003
Predevelopment (5) n/a 3.9 3.9 n/a
- ----------------------- ------------- ----- ------ ----- ---------
Total Development Communities 1,349 $201.7 $93.1 $20.5
============================= ===== ====== ===== =========
(1) Project estimated cost as of December 31, 2000 includes total estimated and
incurred costs for the development projects.
(2) The Company is a 20% partner in the entity which is developing Tierra
Vista.
(3) The Company plans to contribute this asset to a joint venture that may be
formed in the future.
(4) The Company is the sole owner of these development projects.
(5) Represents development projects which have not been finalized regarding
estimated costs and units to be developed.
The Company intends to continue to pursue the development of multifamily
communities to the extent that the market conditions and the specific project
terms are considered favorable.
Redevelopment
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Redevelopment communities are defined by the Company as existing properties
owned or recently acquired which have been targeted for additional investment by
the Company with the expectation of increased financial returns. Redevelopment
communities typically have apartment units that are under construction and as a
result, may have less than stabilized operations. The Company is entitled to
receive redevelopment fee income on the joint venture redevelopment communities.
As of December 31, 2000, the Company had the following five redevelopment
communities.
Total Cost
Estimated incurred
Renovation Cost as of
At 12/31/00 (2) 12/31/00 Projected
Redevelopment Communities (1) Location Units (in millions) (in millions) Completion
- --------------------------------- ----------------- --------- ------------ ------------ ----------
Coronado @ Newport North (3) Newport Beach, CA 732 $13.6 $ 7.3 Sep. 2001
Hillcrest Park Newbury Park, CA 608 10.7 9.6 Jul. 2001
Westwood (4) Cupertino, CA 116 2.7 2.2 Sep. 2001
Glenbrook Pasadena, CA, 84 1.8 1.0 May 2001
Foothill/Twincreeks (5) San Ramon, CA 176 0.4 0.4 n/a
- --------------------------------- ----------------- ----- ----- ----- ----------
Total Redevelopment Communities 1,716 $29.2 $20.5
================================= ===== ===== =====
(1) The Company owns 100% of each redevelopment community unless otherwise
noted.
(2) Represents the projected cost of renovation of the apartment community
excluding the original cost of land and buildings.
(3) The Company holds an approximate 49.9% interest in the joint venture that
owns this property.
(4) The Company holds a 20% interest in the joint venture that owns this
property.
(5) The redevelopment for this property includes renovation of the leasing
center only.
Offices and Employees
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The Company is headquartered in Palo Alto, California, and has regional offices
in Seattle, Washington, Portland, Oregon, Calabasas, California and Tustin,
California. As of December 31, 2000, the Company had approximately 636
employees.
5
Environmental Matters
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Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on, or in such property.
Such laws often impose liability without regard as to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances or wastes also may be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility to which
such substances or wastes were sent, whether or not such facility is owned or
operated by such person. In addition, certain environmental laws impose
liability for release of asbestos-containing materials ("ACMs"), into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injury associated with ACMs. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
the Company could be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, may be potentially liable for removal or remediation costs, as
well as certain other costs, including governmental fines and costs related to
injuries of persons and property.
All of the Properties have been subjected to preliminary environmental
assessments, including a review of historical and public data ("Phase I
assessments"), by independent environmental consultants. Phase I assessments
generally consist of an investigation of environmental conditions at the
Property, including a preliminary investigation of the site, an identification
of publicly known conditions occurring at properties in the vicinity of the
site, an investigation as to the presence of polychlorinated biphenyl's
("PCBs"), ACMs and above-ground and underground storage tanks presently or
formerly at the sites, and preparation and issuance of written reports. As a
result of information collected in the Phase I assessments, certain of the
Properties were subjected to additional environmental investigations, including,
in a few cases, soil sampling or ground water analysis to further evaluate the
environmental conditions of those Properties.
The environmental studies revealed the presence of groundwater contamination on
certain of the Properties. Certain of these Properties had contamination which
was reported to have migrated on-site from adjacent industrial manufacturing
operations, and one Property was previously occupied by an industrial user that
was identified as the source of contamination. The environmental studies noted
that certain of the Properties are located adjacent to and possibly down
gradient from sites with known groundwater contamination, the lateral limits of
which may extend onto such Properties. The environmental studies also noted
that contamination existed at certain Properties because of the former presence
of underground fuel storage tanks that have been removed. There are asbestos-
containing material in a number of the properties, primarily in the form of
ceiling texture, floor tiles and adhesives, which are generally in good
condition. At properties where radon, hydrogen sulfide or methane has been
identified as a potential concern, the Company has implemented remediating
measures and/or additional testing. Based on its current knowledge, the Company
does not believe that future liabilities associated with asbestos, radon,
hydrogen sulfide or methane will be material. Based on the information contained
in the environmental studies, the Company believes that the costs, if any, it
might bear as a result of environmental contamination or other conditions at
these Properties would not have a material adverse effect on the Company's
financial condition, result of operations, or liquidity.
Certain Properties that have been sold by the Company were identified as having
potential groundwater contamination. While the Company does not anticipate any
losses or costs related to groundwater contamination on Properties that have
been sold, it is possible that such losses or costs may materialize in the
future.
Except with respect to one Property, the Company has no indemnification
agreements from third parties for potential environmental clean-up costs at its
Properties. The Company has no way of determining at this time the magnitude
of any potential liability to which it may be subject arising out of unknown
environmental conditions or violations with respect to the properties formerly
owned by the Company. No assurance can be given that existing environmental
studies with respect to any of the Properties reveal all environmental
liabilities, that any prior owner or operator of a Property did not create any
material environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist as to any one or more of the
Properties. The Company has limited insurance coverage for the types of
environmental liabilities described above.
Insurance
- ---------
The Company carries comprehensive liability, fire, extended coverage and rental
loss insurance for each of the Properties. There are, however, certain types of
extraordinary losses for which the Company does not have insurance. All of the
Properties are located in areas that are subject to earthquake activity. The
Company has obtained earthquake insurance for all the Properties. This
earthquake insurance is subject to an aggregate limit of $40.0 million payable
upon a covered loss in excess of a $7.5 million self-insured retention amount
and a 5% deductible. The Company may selectively exclude properties from being
covered by earthquake insurance based on management's evaluation of the
following factors: (i) the availability of coverage on terms acceptable to the
Company, (ii) the location of the property and the amount of seismic activity
affecting that region, and, (iii) the age of the property and building codes in
effect at the time of construction. Despite earthquake coverage on all of the
Company's Properties, should a property sustain damage as a result of an
earthquake, the Company may incur losses due to deductibles, co-payments and
losses in excess of applicable insurance, if any.
Although the Company carries certain insurance for non-earthquake damages to its
properties and liability insurance, the Company may still incur losses due to
uninsured risks, deductibles, co-payments or losses in excess of applicable
insurance coverage.
6
Competition
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The Company's Properties compete for tenants with similar properties primarily
on the basis of location, rent charged, services provided, and the design and
condition of the improvements. Competition for tenants from competing
properties affects the amount of rent charged as well as rental growth rates,
vacancy rates, deposit amounts, and the services and features provided at each
property. While economic conditions are generally stable in the Company's target
markets, a prolonged economic downturn could have a material adverse effect on
the Company's financial position, results of operations or liquidity.
The Company also experiences competition when attempting to acquire properties
that meet its investment criteria. Such competing buyers include domestic and
foreign financial institutions, other REIT's, life insurance companies, pension
funds, trust funds, partnerships and individual investors.
Working Capital
- ---------------
The Company expects to meet its short-term liquidity requirements by using its
working capital, cash generated from operations, and its amounts available on
its lines of credit. The Company believes that its future net cash flows will
be adequate to meet operating requirements and to provide for payment of
dividends by the Company in accordance with REIT qualification requirements.
The Company has credit facilities in the committed amount of approximately
$150,000,000. At December 31, 2000 the Company had an outstanding balance of
$93,469,000 under these facilities.
Other Matters/Risk Factors
Debt Financing
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At December 31, 2000, the Company had approximately $595,535,000 of indebtedness
(including $170,513,000 of variable rate indebtedness, of which $58,820,000 is
capped at interest rates ranging from 7.1% to 7.3%).
Essex is subject to the risks normally associated with debt financing,
including the following:
. cash flow may not be sufficient to meet required payments of principal and
interest;
. inability to refinance existing indebtedness on encumbered Properties; and
. the terms of any refinancing may not be as favorable as the terms of existing
indebtedness.
Uncertainty of Ability to Refinance Balloon Payments
At December 31, 2000, the Company had an aggregate of approximately $595,535,000
of mortgage debt and line of credit borrowings, some of which are subject to
balloon payments of principal. The Company does not expect to have sufficient
cash flows from operations to make all of such balloon payments when due under
these mortgages and the line of credit borrowings. At December 31, 2000, these
mortgages and lines of credit borrowings had the following scheduled maturity
dates: 2001 - $28.1 million; 2002 - $97.8 million; 2003 - $20.9 million; 2004 -
$2.9 million, 2005 - $34.9 million, 2006 and thereafter - $410.9 million. The
Company may not be able to refinance such mortgage indebtedness. The Properties
subject to these mortgages could be foreclosed upon or otherwise transferred to
the mortgage. This could mean a loss to the Company of income and asset value.
Alternatively, the Company may be required to refinance the debt at higher
interest rates. If the Company is unable to make such payments when due, a
mortgage lender could foreclose on the property securing the mortgage, which
could have a material adverse effect on the financial condition and results of
operations of the Company.
Risk Of Rising Interest Payments
At December 31, 2000, the Company had approximately $58,820,000 of long-term
variable rate indebtedness bearing interest at a floating rate tied to the rate
of short-term tax exempt securities (which matures at various dates from 2020
through 2026), $18,224,000 of long-term variable rate indebtedness bearing
interest at 1.75% over LIBOR, which matures in May, 2001 and $93,469,000 of
variable rate indebtedness under its lines of credit bearing interest at rates
ranging from 1.15% - 1.175% over LIBOR. Although, $58,820,000 of long-term
variable rate indebtedness is subject to an interest rate protection agreement,
which may reduce the risks associated with fluctuations in interest rates, the
remaining $111,693,000 of long-term variable rate indebtedness is not subject to
any interest rate protection agreement, consequently, an increase in interest
rates may have an adverse effect on net income and results of operations of the
Company.
Risk of losses on Interest Rate Hedging Arrangements
The Company has, from time to time, entered into agreements to reduce the risks
associated with increases in interest rates, and may continue to do so.
Although these agreements may partially protect against rising interest rates,
these agreements also may reduce the benefits to the Company when interest rates
decline. There can be no assurance that any such hedging arrangements can be
refinanced or that the Company will be able to enter into other hedging
arrangements to replace existing ones if interest rates decline. Furthermore,
interest rate movements during the term of interest rate hedging arrangements
may result in a gain or loss on the Company's investment in the hedging
arrangement. In addition, if a hedging arrangement is not indexed to the same
rate as the indebtedness that is hedged, the Company may be exposed to losses to
the extent that the rate governing the indebtedness and the rate governing the
hedging arrangement change independently of each other. Finally, nonperformance
by the other party to the hedging arrangement may subject the Company to
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increased credit risks. In order to minimize counterparty credit risk, the
Company's policy is to enter into hedging arrangements only with large financial
institutions.
Acquisition Activities: Risks That Acquisitions Will Fail To Meet Expectations
The Company intends to continue to acquire multifamily residential properties.
There are risks that acquired properties will fail to perform as expected.
Estimates of future income, expenses and the costs of improvements necessary to
allow the Company to market an acquired property as originally intended may
prove to be inaccurate. In addition, the Company expects to finance future
acquisitions, in whole or in part, under various forms of secured or unsecured
financing or through the issuance of partnership units by the Operating
Partnership or additional equity by the Company. The use of equity financing,
rather than debt, for future developments or acquisitions could dilute the
interest of the Company's existing stockholders. If new acquisitions are
financed under existing lines of credit, there is a risk that, unless substitute
financing is obtained, further availability under the lines of credit for new
development may not be available or may be available only on disadvantageous
terms. Also, the Company may not be able to refinance its existing lines of
credit upon maturity, or the terms of such refinancing may not be as favorable
as the terms of the existing indebtedness. Further, acquisitions of properties
are subject to the general risks associated with real estate investments. See
"Adverse Effect to Property Income and Value Due to General Real Estate
Investment Risks."
Risks That Development Activities Will Be Delayed,Not Completed, and/ or Fail to
Achieve Expected Results
The Company pursues multifamily residential property development projects from
time to time. Development projects generally require various governmental and
other approvals, the receipt of which cannot be assured. The Company's
development activities generally entail certain risks, including the following:
. funds may be expended and management's time devoted to projects that may not
be completed;
. construction costs of a project may exceed original estimates possibly making
the project economically unfeasible;
. development projects may be delayed due to, among other things, adverse
weather conditions;
. occupancy rates and rents at a completed project may be less than
anticipated; and
. expenses at a completed development may be higher than anticipated.
These risks may reduce the funds available for distribution to the Company's
stockholders. Further, the development of properties is also subject to the
general risks associated with real estate investments. See "Adverse Effect to
Property Income and Value Due to General Real Estate Investment Risks."
The Geographic Concentration Of The Properties And Fluctuations In Local Market
May Adversely Impact Income
Significant amounts of rental revenues for the year ended December 31, 2000,
were derived from Properties concentrated in Northern California (the San
Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and San
Diego counties), and the Pacific Northwest (the Seattle, Washington and
Portland, Oregon metropolitan areas). As a result of this geographic
concentration, if a local property market performs poorly, the income from the
Properties in that market could decrease. As a result of such a decrease in
income, the Company may be unable to pay expected dividends to the Company's
stockholders. The performance of the economy in each of these areas affects
occupancy, market rental rates and expenses and, consequently impacts the income
generated from the Properties and their underlying values. The financial results
of major local employers may also impact the cash flow and value of certain of
the Properties. Economic downturns in the local markets in which the Company
owns properties could have a negative impact on the financial condition and
results from operations of the Company.
Of our 83 ownership interests in multi-family residential properties, 57 are
located in California. A downturn in either the California economy or in
California real estate conditions could adversely affect our financial condition
and results of operations.
Competition In The Multifamily Residential Market May Adversely Affect
Operations And The Rental Demand For the Company's Properties
There are numerous housing alternatives that compete with the multifamily
Properties in attracting residents. These include other multifamily rental
apartments and single family homes that are available for rent in the markets in
which the Properties are located. The Properties also compete for residents with
new and existing homes and condominiums that are for sale. If the demand for the
Company's Properties is reduced or if competitors develop and/or acquire
competing properties on a more cost-effective basis, rental rates may drop,
which may have a material adverse affect on the financial condition and results
of operations of the Company.
The Company also faces competition from other real estate investment trusts,
businesses and other entities in the acquisition, development and operation of
properties. Some of the competitors are larger and have greater financial
resources than the Company. This competition may result in increased costs of
properties the Company acquires and/or develops.
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Debt Financing On Properties May Result In Insufficient Cash Flow
Where possible, the Company intends to continue to use leverage to increase the
rate of return on its investments and to provide for additional investments that
the Company could not otherwise make. There is a risk that the cash flow from
the Properties will be insufficient to meet both debt payment obligations and
the distribution requirements of the real estate investment trust provisions of
the Internal Revenue Code of 1986, as amended. The Company may obtain additional
debt financing in the future, through mortgages on some or all of the
Properties. These mortgages may be recourse, non-recourse, or cross-
collateralized. As of December 31, 2000, the Company had 41 properties
encumbered by debt. Of the 41 properties, 22 are secured by deeds of trust
relating solely to those properties, and with respect to the remaining 19
properties, five cross-collateralized mortgages are secured by eight properties,
three properties, three properties, three properties and two properties,
respectively. The holders of this indebtedness will have a claim against these
Properties and to the extent indebtedness is cross-collateralized, lenders may
seek to foreclose upon properties which are not the primary collateral for their
loan. This may, in turn, accelerate other indebtedness secured by Properties.
Foreclosure of Properties would cause a loss to the Company of income and asset
value.
Increase In Dividend Requirements As A Result Of Preferred Stock May Lead To A
Possible Inability To Sustain Dividends
In 1998 and 1999, the Operating Partnership issued $210 million in aggregate of
Series B Cumulative Redeemable Preferred Units (the "Series B Preferred Units"),
Series C Cumulative Redeemable Preferred Units, (the "Series C Preferred
Units"), Series D Cumulative Redeemable Preferred Units (the "Series D Preferred
Units") and Series E Cumulative Redeemable Preferred Units (the "Series E
Preferred Units"). The Series B Preferred Units, the Series C Preferred Units,
the Series D Preferred Units and the Series E Preferred Units are collectively
referred to herein as the "Preferred Units".
The terms of the preferred stock into which each series of Preferred Units are
exchangeable provide for certain cumulative preferential cash distributions per
each share of preferred stock. These terms also provide that while such
preferred stock is outstanding, no distributions may be authorized, declared or
paid on the Common Stock unless all distributions accumulated on all shares of
such preferred stock have been paid in full. The distributions payable on such
preferred stock and on the Convertible Preferred Stock may impair the Company's
ability to pay dividends on its Common Stock.
If the Company wishes to issue any Common Stock in the future (including, upon
exercise of stock options), the funds required to continue to pay cash dividends
at current levels will be increased. The Company's ability to pay dividends
will depend largely upon the performance of the Properties and other properties
that may be acquired in the future.
The Company's ability to pay dividends on the Company's stock is further limited
by the Maryland General Corporation Law. Under the Maryland General Corporation
Law, the Company may not make a distribution on stock if, after giving effect to
such distribution, either:
. the Company would not be able to pay its indebtedness as it becomes due in
the usual course of business; or
. the Company's total assets would be less than its total liabilities.
If the Company cannot pay dividends on its stock, its status as a real estate
investment trust may be jeopardized.
Existing Registration Rights And Preemptive Rights May Have An Adverse Effect On
The Market Price Of The Shares
Registration rights are held by the senior members of the Company's management
and certain outside investors (collectively, the "Operating Partnership
Holders") who as of December 31, 2000 owned approximately 10.4% limited
partnership interests in the Operating Partnership. These rights include certain
"demand" and "piggyback" registration rights with respect to shares of Common
Stock issuable in connection with the exchange of their limited partnership
interests in the Operating Partnership. The aggregate 10.4% limited partnership
interests held by the "Operating Partnership Holders" in the Operating
Partnership is exchangeable for an aggregate of 2,129,430 shares of Common
Stock. In addition, the Operating Partnership has invested in certain real
estate partnerships. Certain partners in such limited partnerships have the
right to have their limited partnership interests in such partnerships redeemed
for cash or, at the Company's option, for 1,070,450 shares of Common Stock.
These partners also have certain "demand" and "piggyback" registration rights
with respect to the shares of Common Stock that may be issued in exchange for
such limited partnership interests. All of the registration rights discussed
above could materially adversely affect the market price for the shares of
Common Stock.
Our Chairman is Involved in Other Real Estate Activities and Investments, Which
May Lead to Conflicts of Interest
Our Chairman, George Marcus, owns interests in various other real estate-related
business and investments. He is the Chairman of the Marcus & Millichap Company
("M&M"), which is a real estate brokerage firm. M&M has an interest in Pacific
Properties, a company that invests in West Coast multifamily residential
properties. The Company has sold an office building which it previously
occupied the Marcus & Millichap Company.
Mr. Marcus has entered into an agreement with the Company whereby the Company
has the right of first refusal to acquire multifamily properties under contract
by Marcus & Millichap and its affiliates. Notwithstanding this agreement, Mr.
Marcus and affiliated entities, may potentially compete with the Company in
acquiring multifamily properties, which competition may be detrimental to the
Company. In addition, due to such potential competition for real estate
investments, Mr. Marcus and affiliated entities may have a conflict of interest
with the Company, which may be detrimental to the interests of the Company's
shareholders.
9
The Influence of Executive Officers, Directors and Significant Stockholders May
Be Detrimental To Holders of Common Stock
As of December 31, 2000, George M. Marcus, the Chairman of the Company's Board
of Directors, beneficially owned 1,969,183 shares of Common Stock (including
shares issuable upon exchange of limited partnership interests in the Operating
Partnership and assuming exercise of all vested options). This represents
approximately 9.6% of the outstanding shares of Common Stock. Mr. Marcus
currently does not have majority control over the Company. However, he currently
has, and likely will continue to have, significant influence with respect to the
election of directors and approval or disapproval of significant corporate
actions. Consequently, his influence could result in decisions that do not
reflect the interests of all stockholders of the Company.
Under the partnership agreement of the Operating Partnership, the consent of the
holders of limited partnership interests is generally required for any amendment
of the agreement and for certain extraordinary actions. Through their ownership
of limited partnership interests and their positions in the Company, the
Company's directors and executive officers, including Messrs. Marcus and
Millichap, have substantial influence on the Company. Consequently, their
influence could result in decisions that do not reflect the interests of all
stockholders of the Company.
The Voting Rights Of Preferred Stock May Allow Holders Of Preferred Stock To
Impede Actions That Otherwise Benefit Holders Of Common Stock
In general, the holders of the preferred stock into which the Company's
Preferred Units are exchangeable do not have any voting rights. However, if
full distributions are not made on any outstanding preferred stock for six
quarterly distributions periods, the holders of preferred stock who have not
received distributions, voting together as a single class, will have the right
to elect two additional directors to serve on the Company's Board of Directors.
These voting rights continue until all distributions in arrears and
distributions for the current quarterly period on the preferred stock have been
paid in full. At that time, the holders of the preferred stock are divested of
these voting rights, and the term and office of the directors so elected
immediately terminates.
In addition, while any shares of preferred stock (into which the preferred units
are exchangeable) are outstanding, the Company (1) may not authorize or create
any class of series of stock that ranks senior to this preferred stock with
respect to the payment of dividends, rights upon liquidation, dissolution or
winding-up of the Company, or (2) amend, alter or repeal the provisions of the
Company's Charter or Bylaws, that would materially and adversely affect these
rights without the consent of the holders of two-thirds of the outstanding
shares of each series of preferred stock (as applicable), each voting separately
as a single class. Also, while any shares of preferred stock are outstanding,
the Company may not (1) merge or consolidate with another entity, or (2)
transfer substantially all of its assets to any corporation or other entity,
without the affirmative vote of the holders of at least two-thirds of each
series of preferred stock, each voting separately as a class, unless the
transaction meets certain criteria. These voting rights of the preferred stock
may allow holders of preferred stock to impede or veto actions by the Company
that would otherwise benefit the holders of the Company's Common Stock.
Exemption Of George Marcus From The Maryland Business Combination Law May Allow
Certain Transactions Between The Company And George Marcus To Proceed Without
Compliance With Such Law
The Maryland General Corporation Law establishes special requirements for
"business combinations" between a Maryland corporation and "interested
stockholders" unless exemptions are applicable. An interested stockholder is any
person who beneficially owns ten percent or more of the voting power of the
then-outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between the Company
and an interested stockholder unless the Board of Directors approved the
transaction prior to the party becoming an interested stockholder. The five year
period runs from the most recent date on which the interested stockholder became
an interested stockholder. The law also requires a supermajority stockholder
vote for such transactions after the end of the five year period. This means
that the transaction must be approved by at least:
. 80% of the votes entitled to be cast by holders of outstanding voting shares;
and
. 66% of the votes entitled to be cast by holders of outstanding voting shares
other than shares held by the interested stockholder with whom the business
combination is to be effected.
However, as permitted by the statute, the Board of Directors irrevocably has
elected to exempt any business combination by the Company George M. Marcus,
William A. Millichap, who are the chairman and a director of the Company,
respectively, and The Marcus & Millichap Company ("M&M") or any entity owned or
controlled by Messrs Marcus and Millichap and M&M. Consequently, the five-year
prohibition and the super-majority vote requirement described above will not
apply to any business combination between the Company and, Mr. Marcus, Mr.
Millichap, or M&M. As a result, the Company may in the future enter into
business combinations with Messrs Marcus and Millichap and M&M, without
compliance with the super-majority vote requirements and other provisions of the
Maryland General Corporation Law.
Anti-Takeover Provisions Contained In The Operating Partnership Agreement,
Charter, Bylaws, And Certain Provisions Of Maryland Law Could Delay, Defer Or
Prevent A Change In Control Of the Company
While the Company is the sole general partner of the Operating Partnership, and
generally has full and exclusive responsibility and discretion in the management
and control of the Operating Partnership, certain provisions of the Operating
Partnership's Partnership Agreement place limitations on the Company's ability
to act with respect to the Operating Partnership. Such limitations could delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the stock or otherwise be in the best interest of
the stockholders or that could otherwise adversely affect the interest of the
stockholders. The Partnership Agreement provides that if the limited partners
own at least 5% of the outstanding units of limited partnership interest in the
Operating Partnership, the
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Company cannot, without first obtaining the consent of a majority-in-interest of
the limited partners in the Operating Partnership, transfer all or any portion
of the Company's general partner interest in the Operating Partnership to
another entity. Such limitations on the Company's ability to act may result in
the Company being precluded from taking action that the Board of Directors
believes is in the best interests of the Company's stockholders. In addition, as
of December 31, 2000, two individuals together held more than 50% of the
outstanding units of limited partnership interest in the Operating Partnership,
allowing such actions to be blocked by a small number of limited partners.
The Company's charter authorizes the issuance of additional shares of Common
Stock or preferred stock and the setting of the preferences, rights and other
terms of such preferred stock without the approval of the holders of the Common
Stock. Although the Company has no intention to issue any additional shares of
preferred stock at the present time, the Company may establish one or more
series of preferred stock that could delay, defer or prevent a transaction or a
change in control of the Company. Such a transaction might involve a premium
price for the Company's stock or otherwise be in the best interests of the
holders of Common Stock. Also, such a class of preferred stock could have
dividend, voting or other rights that could adversely affect the interest of
holders of Common Stock.
The Company's charter, as well as its stockholder rights plan, also contains
other provisions that may delay, defer or prevent a transaction or a change in
control of the Company that might be in the best interest of the Company's
stockholders. The Company's stockholder rights plan is designed, among other
things, to prevent a person or group from gaining control of the Company without
offering a fair price to all of the Company's stockholders. Also, the Bylaws may
be amended by the Board of Directors to include provisions that would have a
similar effect, although the Company presently has no such intention. The
Charter contains ownership provisions limiting the transferability and ownership
of shares of capital stock, which may have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company. For example,
subject to receiving an exemption from the Board of Directors, potential
acquirers may not purchase more than 6% percent in value of the stock (other
than qualified pension trusts which can acquire 9.9%). This may discourage
tender offers that may be attractive to the holders of Common Stock and limit
the opportunity for stockholders to receive a premium for their shares of Common
Stock.
In addition, the Maryland General Corporations Law restricts the voting rights
of shares deemed to be "control shares." Under the Maryland General Corporations
Law, "control shares" are those which, when aggregated with any other shares
held by the acquirer, entitle the acquirer to exercise voting power within
specified ranges. Although the Bylaws exempt the Company from the control share
provisions of the Maryland General Corporations Law, the provisions of the
Bylaws may be amended or eliminated by the Board of Directors at any time in the
future. Moreover, any such amendment or elimination of such provision of the
Bylaws may result in the application of the control share provisions of the
Maryland General Corporations Law not only to control shares which may be
acquired in the future, but also to control shares previously acquired. If the
provisions of the Bylaws are amended or eliminated, the control share provisions
of the Maryland General Corporations Law could delay, defer or prevent a
transaction or change in control of the Company that might involve a premium
price for the stock or otherwise be in the best interests of its stockholders.
The Company's Guarantee of the Director and Executive Stock Purchase Program May
Lead to Liability For the Company
In September 1999, the Company formed a program in which directors and
management of the Company can participate indirectly in an investment in the
Company's Common Stock. The participants have entered into a swap agreement
with a securities broker whereby the securities broker has acquired, in open
marked transactions, 223,475 shares of the Company's Common Stock. The
agreement terminates in five years, or earlier under certain circumstances, at
which time the settlement amount is determined by comparing the original
purchase price of the stock plus interest at a rate of LIBOR plus 1.5% to the
termination date market value of the shares and all dividends received during
the investment period. In certain circumstances the participants may be
required to provide collateral to the securities broker. The Company has
guaranteed performance of the participants with respect to any obligations
relating to the swap agreement. Due to this guarantee, if the swap agreement,
upon its termination, results in a net loss to participants, the Company could
be liable for paying the loss. Further, if collateral is required to be advanced
to the securities broker, the Company could be obligated to make such advance,
which in turn could be costly to the Company.
Bond Compliance Requirements May Limit Income From Certain Properties
At December 31, 2000, the Company had approximately $58.8 million of tax-exempt
financing relating to the Inglenook Court Apartments, Wandering Creek
Apartments, Treetops Apartments, Meadowood Apartments and Camarillo Oaks
Apartments. This tax-exempt financing subjects these Properties to certain deed
restrictions and restrictive covenants. The Company expects to engage in tax-
exempt financings in the future. In addition, the Internal Revenue Code of 1986,
as amended, (the "Code") and its related regulations impose various
restrictions, conditions and requirements excluding interest on qualified bond
obligations from gross income for federal income tax purposes. The Code also
requires that at least 20% of apartment units be made available to residents
with gross incomes that do not exceed 50% of the median income for the
applicable family size as determined by the Housing and Urban Development
Department of the federal government. In addition to federal requirements,
certain state and local authorities may impose additional rental restrictions.
These restrictions may limit income from the tax-exempt financed properties if
the Company is required to lower rental rates to attract residents who satisfy
the median income test. If the Company does not reserve the required number of
apartment homes for residents satisfying these income requirements, the tax-
exempt status of the bonds may be terminated, the obligations under the bond
documents may be accelerated and the Company may be subject to additional
contractual liability.
Adverse Effect To Property Income And Value Due To General Real Estate
Investment Risks
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Properties do not generate sufficient
income to meet operating expenses, including debt service and capital
expenditures, cash flow and ability to make distributions to stockholders will
be adversely affected. The
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performance of the economy in each of the areas in which the Properties are
located affects occupancy, market rental rates and expenses. Consequently, the
income from the Properties and their underlying values may be impacted. The
financial results of major local employers may have an impact on the cash flow
and value of certain of the Properties as well.
Income from the Properties may be further adversely affected by, among other
things, the following factors:
. the general economic climate;
. local economic conditions in which the Properties are located, such as
oversupply of space or a reduction in demand for rental space;
. the attractiveness of the Properties to tenants;
. competition from other available space;
. the Company's ability to provide for adequate maintenance and insurance; and
. increased operating expenses.
Also, as leases on the Properties expire, tenants may enter into new leases on
terms that are less favorable to the Company. Income and real estate values may
also be adversely affected by such factors as applicable laws (e.g., the
Americans With Disabilities Act of 1990 and tax laws), interest rate levels and
the availability and terms of financing. In addition, real estate investments
are relatively illiquid and, therefore, the Company's ability to vary its
portfolio promptly in response to changes in economic or other conditions may be
adversely affected.
The Company's Joint Ventures And Joint Ownership Of Properties And Partial
Interests In Corporations And Limited Partnerships Could Limit the Company's
Ability To Control Such Properties And Partial Interests
Instead of purchasing properties directly, the Company has invested and may
continue to invest as a co-venturer. Joint venturers often have shared control
over the operation of the joint venture assets. Therefore, it is possible that
the co-venturer in an investment might become bankrupt, or have economic or
business interests or goals that are inconsistent with the Company's business
interests or goals, or be in a position to take action contrary to the Company's
instructions or requests, or to Company policies or objectives. Consequently, a
co-venturer's actions might subject property owned by the joint venture to
additional risk. Although the Company seeks to maintain sufficient control of
any joint venture to achieve its objectives, the Company may be unable to take
action without the Company's joint venture partners' approval, or joint venture
partners could take actions binding on the joint venture without consent.
Additionally, should a joint venture partner become bankrupt, the Company could
become liable for such partner's share of joint venture liabilities.
From time to time, the Company, through the Operating Partnership, invests in
corporations, limited partnerships, limited liability companies or other
entities that have been formed for the purpose of acquiring, developing or
managing real property. In certain circumstances, the Operating Partnership's
interest in a particular entity may be less than a majority of the outstanding
voting interests of that entity. Therefore, the Operating Partnership's ability
to control the daily operations of such an entity may be limited. Furthermore,
the Operating Partnership may not have the power to remove a majority of the
board of directors (in the case of a corporation) or the general partner or
partners (in the case of a limited partnership) of such an entity in the event
that its operations conflict with the Operating Partnership's objectives. In
addition, the Operating Partnership may not be able to dispose of its interests
in such an entity. In the event that such an entity becomes insolvent, the
Operating Partnership may lose up to its entire investment in and any advances
to the entity.
In addition, the Company has and in the future may enter into transactions that
could require it to pay the tax liabilities of partners which contribute assets
into joint ventures or the Company's Operating Partnership for negotiated
periods of the years in the event that certain taxable events, which are within
the Company's control, occur. Although the Company plans to hold the contributed
assets or defer recognition per Internal Revenue Code Section 1031, this is no
assurance that it will be able to do so and if such tax liabilities were
incurred they would have a material impact on the Company's financial position.
Investments In Mortgages And Other Real Estate Securities
The Company may invest in securities related to real estate which could
adversely affect its ability to make distributions to stockholders. The Company
may purchase securities issued by entities which own real estate and may also
invest in mortgages. These mortgages may be first, second or third mortgages
that may or may not be insured or otherwise guaranteed. The Company anticipates
that such investment in mortgage receivables will not in the aggregate be
significant. In general, investments in mortgages include the following risks:
. that the value of mortgaged property may be less than the amounts owed;
. that interest rates payable on the mortgages may be lower than the Company's
cost of funds; and
. in the case of junior mortgages, that foreclosure of a senior mortgage would
eliminate the junior mortgage.
If any of the above were to occur, cash flows from operations and the Company's
ability to make expected dividends to stockholders could be adversely affected.
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Possible Environmental Liabilities
Investments in real property create a potential for environmental liabilities on
the part of the owner of such real property. The Company carries certain
insurance coverage for this type of environmental risk. The Company has
conducted environmental studies which revealed the presence of groundwater
contamination at certain properties; such contamination at certain of these
properties was reported to have migrated on-site from adjacent industrial
manufacturing operations. The former industrial users of the properties were
identified as the source of contamination. The environmental studies noted that
certain properties are located adjacent to any possible down gradient from sites
with known groundwater contamination, the lateral limits of which may extend
onto such properties. The environmental studies also noted that at certain of
these properties, contamination existed because of the presence of underground
fuel storage tanks, which have been removed. In general, in connection with the
ownership, operation, financing, management and development of real properties,
the Company may be potentially liable for removal or clean-up costs, as well as
certain other costs and environmental liabilities. The Company may also be
subject to governmental fines and costs related to injuries to persons and
property.
General Uninsured Losses
The Company carries comprehensive liability, fire, extended coverage and rental
loss insurance for each of the Properties. There are, however, certain types of
extraordinary losses for which the Company does not have insurance. Certain of
the Properties are located in areas that are subject to earthquake activity. The
Company has obtained certain limited earthquake insurance coverage. The Company
may sustain losses due to insurance deductibles, co-payments on insured losses
or uninsured losses, or losses in excess of applicable coverage.
Changes In Real Estate Tax And Other Laws
Generally the Company does not directly pass through costs resulting from
changes in real estate tax laws to residential property tenants. The Company
also does not generally pass through increases in income, service or other
taxes, to tenants under leases. These costs may adversely affect funds from
operations and the ability to make distributions to stockholders. Similarly,
compliance with changes in (i) laws increasing the potential liability for
environmental conditions existing on properties or the restrictions on
discharges or other conditions or (ii) rent control or rent stabilization laws
or other laws regulating housing may result in significant unanticipated
expenditures, which would adversely affect funds from operations and the ability
to make distributions to stockholders.
Changes In Financing Policy; No Limitation On Debt
The Company has adopted a policy of maintaining a debt-to-total-market-
capitalization ratio of less than 50%. The calculation of debt-to-total-market-
capitalization is as follows:
total property indebtedness
---------------------------------------------------------------- = debt-to-total-market-capitalization
total property indebtedness + total equity market capitalization
As used in the above formula, total market capitalization is equal to the
aggregate market value of the outstanding shares of Common Stock (based on the
greater of current market price or the gross proceeds per share from public
offerings of the outstanding shares plus any undistributed net cash flow),
assuming the conversion of all limited partnership interests in the Operating
Partnership into shares of Common Stock and the gross proceeds of the preferred
units of the Operating Partnership. Based on this calculation (including the
current market price and excluding undistributed net cash flow), the Company's
debt-to-total-market-capitalization ratio was approximately 30.5% as of December
31, 2000.
The Company's organizational documents and the organizational documents of the
Operating Partnership do not limit the amount or percentage of indebtedness that
may be incurred. Accordingly, the Board of Directors could change current
policies and the policies of the Operating Partnership regarding indebtedness.
If these policies were changed, the Company and the Operating Partnership could
incur more debt, resulting in an increased risk of default on the Company's
obligations and the obligations of the Operating Partnership, and an increase in
debt service requirements that could adversely affect the financial condition
and results of operations of the Company. Such increased debt could exceed the
underlying value of the Properties.
Failure To Qualify As A Real Estate Investment Trust
The Company has operated as a qualified real estate investment trust under the
Internal Revenue Code of 1986, as amended, commencing with the taxable year
ended December 31, 1994. Although the Company believes that it has operated in a
manner which satisfies the real estate investment trust qualification
requirements, no assurance can be given that the Company will continue to do so.
A real estate investment trust is generally not taxed on its net income
distributed to its stockholders. It is required to distribute at least 90% of
its taxable income to maintain qualification as a real estate investment trust.
Qualification as a real estate investment trust involves the satisfaction of
numerous requirements (some on an annual or quarterly basis) established under
the highly technical and complex Internal Revenue Code of 1986, as amended,
provisions for which there are only limited judicial or administrative
interpretations and involves the determination of various factual matters and
circumstances not entirely within the Company's control.
If the Company fails to qualify as a real estate investment trust in any taxable
year, it would generally be subject to federal and state income tax (including
any applicable alternative minimum tax) at corporate rates on its taxable income
for such year. Moreover, unless
13
entitled to relief under certain statutory provisions, the Company would also be
disqualified from treatment as a real estate investment trust for the four
taxable years following the year of disqualification. This treatment would
reduce net earnings available for investment or distribution to stockholders
because of the additional tax liability for the years involved. In addition,
distributions would no longer be required to be made.
Other Matters
Certain Policies of the Company
- -------------------------------
The Company intends to continue to operate in a manner that will not subject it
to regulation under the Investment Company Act of 1940. The Company has in the
past five years and may in the future (i) issue securities senior to its Common
Stock, (ii) fund acquisition activities with borrowings under its line of credit
and (iii) offer shares of Common Stock and/or units of limited partnership
interest in the Operating Partnership as partial consideration for property
acquisitions. The Company from time to time acquires partnership interests in
partnerships and joint ventures, either directly or indirectly through
subsidiaries of the Company, when such entities' underlying assets are real
estate. In general, the Company does not (i) underwrite securities of other
issuers or (ii) actively trade in loans or other investments.
The Company primarily invests in multifamily properties in Northern California
(the San Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange
and San Diego counties), and the Pacific Northwest ( the Seattle, Washington and
Portland, Oregon metropolitan areas). The Company currently intends to continue
to invest in multifamily properties in such regions, but may change such policy
without a vote of the stockholders.
The policies discussed above may be reviewed and modified from time to time by
the Board of Directors without the vote of the stockholders.
Item 2. Properties
The Company's property portfolio (including partial ownership interests)
consists of the following 87 Properties: 83 multifamily residential Properties
containing 18,673 apartment units, one office building, which houses the
Company's headquarters, with approximately 17,400 square feet and three retail
properties with approximately 236,000 square feet. The Properties are located in
Northern California (the San Francisco Bay Area), Southern California ( Los
Angeles, Ventura, Orange and San Diego counties), and the Pacific Northwest (the
Seattle, Washington and Portland, Oregon metropolitan areas). The Company's
multifamily Properties accounted for approximately 94% of the Company's revenues
for the year ended December 31, 2000. The 83 multifamily residential Properties
had an average occupancy rate (based on "Financial Occupancy", which refers to
the percentage resulting from dividing actual rents by total possible rents as
determined by valuing occupied units at contractual rates and vacant units at
market rents) during the year ended December 31, 2000 of approximately 97%. As
of December 31, 2000, the headquarters building was 100% occupied by the Company
and the three retail centers had an occupancy rate of 92%. With respect to
stabilized multifamily properties with sufficient operating history, occupancy
figures are based on Financial Occupancy. With respect to commercial properties
or properties which have not yet stabilized or have insufficient operating
history, occupancy figures are based on " Physical Occupancy" which refers to
the percentage resulting from dividing leased and occupied square footage by
rentable square footage.
For the year ended December 31, 2000, none of the Company's Properties had book
values equal to 10% or more of total assets of the Company or gross revenues
equal to 10% or more of aggregate gross revenues of the Company.
Multifamily Residential Properties
- ----------------------------------
The Company's multifamily Properties are generally suburban garden apartments
and townhomes comprising multiple clusters of two and three story buildings
situated on three to fifteen acres of land. The multifamily properties have on
average 225 units, with a mix of studio, one, two and some three bedroom units.
A wide variety of amenities are available at each apartment community,
including, covered parking, wood-burning fireplaces, swimming pools, clubhouses
with complete fitness facilities, volleyball and playground areas and tennis
courts.
Most of the multifamily Properties are designed for and marketed to people in
white-collar or technical professions. The Company selects, trains and
supervises a full team of on-site service and maintenance personnel. The Company
believes that its customer service approach enhances its ability to retain
tenants and that its multifamily Properties were built well and have been
maintained well since acquisition.
Office Buildings
- ----------------
The Company's corporate headquarters are located in a two-story office building
with approximately 17,400 square feet located at 925 East Meadow Drive, Palo
Alto, California. The Company acquired this property in 1997.
The following tables describe the Company's Properties as of December 31, 2000.
The first table describes the Company's multifamily residential properties and
the second table describes the Company's commercial properties.
14
Rentable
Square Year Year
Multifamily Residential Properties (1) Location Units Footage Built Acquired Occupancy(2)
- -----------------------------------------------------------------------------------------------------------------------
Northern California
Brookside Oaks (3)(4) Cupertino, CA 170 119,980 1973 2000 98%
Westwood (5) Cupertino, CA 116 135,288 1963(6) 1998 97%(7)
Stevenson Place Fremont, CA 200 146,296 1971(8) 1982 97%
Treetops (9) Fremont, CA 172 131,270 1978 1996 99%
Wimbledon Woods Hayward, CA 560 462,400 1975 1998 96%
Summerhill Commons Newark, CA 184 139,012 1987 1987 98%
Marina Cove (10) Santa Clara, CA 292 250,294 1974 1994 99%
Plumtree Santa Clara, CA 140 113,260 1975 1994 99%
Mt. Sutro Terrace (11) San Francisco, CA 99 64,095 1973 1999 99%
Carlye, The (12) San Jose, CA 132 129,216 2000 2000 94%
Waterford Place (12) San Jose, Ca 238 219,642 2000 2000 94%
Bel Air San Ramon. CA 462 391,136 1988(13) 1995 97%
Eastridge San Ramon, CA 188 174,104 1988 1996 97%
Foothill Gardens San Ramon, CA 132 155,100 1985 1997 97%
Twin Creeks San Ramon, CA 44 51,700 1985 1997 97%
Bristol Commons (9) Sunnyvale, CA 188 142,668 1989 1995 99%
Oak Pointe Sunnyvale, CA 390 294,180 1973 1988 99%
Summerhill Park Sunnyvale, CA 100 78,584 1988 1988 99%
Windsor Ridge Sunnyvale, CA 216 161,892 1989 1989 99%
------ ---------- -------
4,023 3,360,117 98%
Pacific Northwest
Seattle, Washington Metropolitan Area
Emerald Ridge Bellevue, WA 180 144,036 1987 1994 95%
Foothill Commons (9) Bellevue, WA 360 288,317 1978 1990 97%
The Palisades (9) Bellevue, WA 192 159,792 1977 1990 97%
Sammamish View Bellevue, WA 153 133,590 1986 1994 97%
Woodland Commons (9) Bellevue, WA 236 172,316 1978 1990 93%
Inglenook Court Bothell, WA 224 183,624 1985 1994 97%
Salmon Run at Perry Creek Bothell, WA 132 117,125 2000 2000 96% (14)
Stonehedge Village (9) Bothell, WA 196 214,872 1986 1997 95%
Park Hill at Issaquah (15) Issaquah, WA 245 277,778 1999 1999 92%
Wandering Creek Kent, WA 156 124,366 1986 1995 96%
Bridle Trails (9) Kirkland, WA 92 73,448 1986 1997 97%
Evergreen Heights Kirkland, WA 200 188,340 1990 1997 96%
Laurels at Mill Creek Mill Creek, WA 164 134,360 1981 1996 96%
Anchor Village (3) Mukilteo, WA 301 245,928 1981 1997 89%
Castle Creek Newcastle, WA 216 191,935 1997 1997 95%
Brighton Ridge Renton, WA 264 201,300 1986 1996 96%
Fountain Court (9) Seattle, WA 320 207,037 2000 2000 90% (14)
Linden Square Seattle, WA 183 142,271 1994 2000 92%
Maple Leaf (9) Seattle, WA 48 35,584 1986 1997 96%
Spring Lake (9) Seattle, WA 69 42,325 1986 1997 97%
Wharfside Pointe Seattle, WA 142 119,290 1990 1994 92%
Portland, Oregon Metropolitan Area
Jackson School Village (9) Hillsboro, OR 200 196,896 1996 1996 97%
Landmark Hillsboro, OR 285 282,934 1990 1996 97%
Hunt Club (16) Lake Oswego, OR 256 198,056 1985 2000 93%
Meadows at Cascade Park Vancouver, WA 198 199,377 1989 1997 97%
Village at Cascade Park Vancouver, WA 192 178,144 1989 1997 96%
------ ---------- -------
5,204 4,453,041 95%
Southern California
Barkley Apartments (4)(17) Anaheim, CA 161 139,835 1984(18) 2000 95%
Vista Pointe (19) Anaheim, CA 286 242,410 1968 1985 94%
Camarillo Oaks (9) Camarillo, CA 564 459,072 1985 1996 94%
Casa Mango (5) Del Mar, CA 96 88,112 1981 1997 96%
Wilshire Promenade Fullerton, CA 128 108,470 1992 1997 96%
Hampton Court (Columbus) (9) Glendale, CA 83 71,573 1974(20) 1999 92%
Hampton Place (Loraine) (9) Glendale, CA 132 141,591 1970(21) 1999 92%
15
Huntington Breakers (9) HuntingtonBeach,CA 342 241,763 1984 1997 96%
Hillsborough Park La Habra, CA 235 215,510 1999 1999 97%
Rosebeach (16) La Mirada, CA 174 172,202 1970 2000 98%
Trabuco Villas Lake Forest, CA 132 131,032 1985 1997 96%
Pathways Long Beach, CA 296 197,720 1975 1991 97%
Bunker Hill (9) Los Angeles, CA 456 346,672 1968 1998 97%
City Heights (19) Los Angeles, CA 687 424,170 1968 2000 92%
Cochran Apartments Los Angeles, CA 58 51,468 1989 1998 96%
Kings Road Los Angeles, CA 196 132,112 1979 1997 98%
Park Place Los Angeles, CA 60 48,000 1988 1997 96%
Windsor Court Los Angeles, CA 58 46,600 1988 1997 96%
Mirabella Marina Del Rey 188 176,860 2000 2000 98%(14)
Hillcrest Park (Mirabella) Newbury Park, CA 608 521,968 1973(22) 1998 97%(7)
Coronado at Newport North (23) Newport Beach, CA 732 459,677 1968(24) 1999 81%(7)
Coronado at Newport South (23) Newport Beach, CA 715 498,716 1968 1999 92%
Fairways (9)(25) Newport Beach, CA 74 107,160 1972 1999 94%
Woodland Apartments (16) Orange, CA 90 108,000 1969 2000 98%
Mariners Place Oxnard, CA 105 77,254 1987 2000 96%
Village Apartments Oxnard, CA 122 122,120 1974 1997 97%
Monterra Del Mar (Windsor Terrace) Pasadena, CA 122 74,475 1972(26) 1999 93%
Monterra del Rey (Glenbrook) Pasadena, CA 84 73,101 1972(27) 1999 83%(7)
Monterra del Sol (Euclid) Pasadena, CA 85 69,295 1972(28) 1999 83%
Crest, The (16) Pomona, CA 501 498,036 1986 2000 87%
Highridge (3) Rancho Palos, CA 255 290,250 1972 1997 96%
Bluffs II, The (29) San Diego, CA 224 126,744 1974 1997 98%
Riverfront (5) San Diego, CA 229 231,006 1990 1997 98%
Meadowood (9) Simi Valley, CA 320 264,568 1986 1996 96%
Tara Village Tarzana, CA 168 173,600 1972 1997 96%
El Encanto (16) Tustin, CA 116 92,760 1969 2000 95%
Villa Scandia Ventura, CA 118 71,160 1971 1997 97%
Avondale at Warner Center Woodland Hills, CA 446 331,072 1970 1999 94%
------ ---------- -------
9,446 7,626,134 96%
====== =========== =======
Total/Weighted Average 18,673 15,323,244 97%
====== ========== =======
Number
of Rentable Year Year
Property Name(1) Location Tenants Square Footage Built Acquired Occupancy(2)
- ---------------------------------------------------------------------------------------------------------------------
Office Buildings
925 East Meadow Drive Palo Alto, CA 1 17,404 1988 1997 100%
---
Shopping Centers
Canby Square (3) Canby, OR 18 102,403 1976 1990 84%
Powell Villa Center (3) Portland, OR 8 63,645 1959 1990 100%
Garrison Square (3) Vancouver, WA 15 69,790 1962 1990 93%
-- ------- ---
Total Shopping Centers 41 235,838
-- -------
Total Commercial Properties 42 253,242 94%
== ======= ===
(1) Unless otherwise specified, the Company has a 100% ownership interest in
each Property.
(2) For multifamily residential Properties, occupancy rates are based on
Financial Occupancy for the year ended December 31, 2000; for the
Commercial Properties, occupancy rates are based on Physical Occupancy as
of December 31, 2000.
(3) The Company has a 1.0% special limited partnership interest in this
property.
(4) The Company holds a limited partner interest in the partnerships which own
these multifamily properties. These investments were made under
arrangements whereby EMC became the general partner and the existing
partners were granted the right to require the applicable partnership to
redeem their interest for cash. Subject to certain conditions, the Company
may, however, elect to deliver an equivalent number of shares of the
Company's Common Stock in satisfaction of the applicable partnership's cash
redemption obligation.
16
(5) The Company has a 20.0% ownership interest in this property.
(6) The Company is in the process of performing a $2.7 million
redevelopment on this property.
(7) Financial Occupancy includes the impact of units that were not
occupied due to redevelopment activity at this property.
(8) The Company completed an approximately $4.5 million redevelopment on
this property in 1998.
(9) This Property is owned by a single asset limited partnership in which
the Company has a minimum 99.0% limited partnership interest.
(10) A portion of this Property on which 84 units are presently located is
subject to a ground lease, which, unless extended, will expire in
2028.
(11) The Company has an approximate 46% limited partnership interest in
this property.
(12) The Company issued an aggregate 59,291 Operating Partnerships units
convertible into Common Stock in conjunction with these transactions.
The purchase price does not include a contingent payment to be
determined at a future date. This additional payment will be based on
an amount which provides Essex with a targeted yield on the property.
(13) The Company completed construction of 114 units of the property's 462
total units in 2000.
(14) Financial occupancy on development properties that have reached
stabilization is computed from the date of stabilization through
December 31, 2000.
(15) The Company has as approximate 45% limited partnership interest in
this property.
(16) The Company plans to contribute the property to a joint venture that
may be formed in the future. Accordingly, the Company's net investment
in this asset is reflected in the Company's financial statements as
notes receivable from investees and related parties and investments.
(17) The Company has a 30% special limited partnership interest in this
property.
(18) The property is subject to a ground lease, which, unless extended,
will expire in 2082.
(19) The Company owns the land of this property and has entered into a
leasehold interest for which it receives a monthly payment for the 34
year term of the lease. The Company may be required to sell its
interest after 7 years.
(20) The Company completed an approximate $1.6 million redevelopment on
this property in 2000.
(21) The Company completed a approximate $2.3 million redevelopment on this
property in 2000.
(22) The Company is in the process of performing a $10.7 million
redevelopment on this property.
(23) The Company has an approximate 49.9% ownership interest in this
property.
(24) The Company is in the process of performing a $13.6 million
redevelopment on this property.
(25) This property is subject to a ground lease, which, unless extended,
will expire in 2027.
(26) The Company completed an approximate $1.9 million redevelopment on the
property in 2000.
(27) The Company is in the process of performing a $1.8 million
redevelopment on this property.
(28) The Company is in the process of performing a $1.7 million
redevelopment on this property.
(29) The Company has an 84.0% limited partnership interest in this
property.
Item 3. Legal Proceedings
Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is there any material
litigation threatened against the Company or the Properties. The Properties are
subject to certain routine litigation and administrative proceedings arising in
the ordinary course of business, which, taken together, are not expected to have
a material adverse impact on the Company's financial position, results of
operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2000, no matters were submitted to a vote of
security holders.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The shares of the Company's common stock are traded on the New York Stock
Exchange ("NYSE") under the symbol ESS.
Market Information
- ------------------
The Company's common stock has been traded on the NYSE since June 13, 1994. The
high, low and closing price per share of common stock reported on the NYSE for
the quarters indicated are as follows:
Quarter Ended High Low Close
- -------------------- ------- ------- -------
December 31, 2000 $57.750 $50.500 $54.750
September 30, 2000 $56.500 $42.000 $55.375
June 30, 2000 $44.000 $36.000 $42.016
March 31, 2000 $36.313 $32.563 $36.000
December 31,1999 $34.000 $33.688 $34.000
September 30,1999 $34.938 $34.125 $34.938
June 30, 1999 $35.500 $34.313 $35.375
March 31, 1999 $26.250 $25.688 $26.125
The closing price as of March 21, 2001 was $50.13
17
Holders
- -------
The approximate number of holders of record of the shares of the Company's
common stock was 177 as of March 21, 2001. This number does not include
stockholders whose shares are held in trust by other entities. The actual number
of stockholders is greater than this number of holders of record.
Return of Capital
- -----------------
Under provisions of the Internal Revenue Code of 1986, as amended, the portion
of cash dividend that exceeds earnings and profits is a return of capital. The
return of capital is generated due to the deduction of non-cash expenses,
primarily depreciation, in the determination of earnings and profits. The
status of the cash dividends distributed for the years ended December 31, 2000,
1999 and 1998 for tax purposes is as follows:
2000 1999 1998
---- ---- ----
Taxable portion 100.00% 100.00% 85.00%
Return of capital - - 15.00%
------- ------- -------
100.00% 100.00% 100.00%
======= ======= =======
The most significant factor that caused an increase in the 1998 return of
capital percentage as compared to 2000 and 1999 was that in 1998 the Company
incurred a loss on the early extinguishment of debt of $4,718,000 as compared to
$119,000 and $214,000 in 2000 and 1999, respectively.
Dividends and Distributions
- ---------------------------
Since its initial public offering on June 13, 1994, the Company has paid regular
quarterly dividends to its stockholders. From inception, the Company has paid
the following dividends per share of common stock:
Quarter Ended 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------- ------- ------- ------- ------- ------ ------
3/31 N/A $0.4175 $0.4250 $0.4350 $0.4500 $.5000 $.5500
6/30 $0.0800 $0.4175 $0.4250 $0.4350 $0.5000 $.5500 $.6100
9/30 $0.4175 $0.4250 $0.4350 $0.4500 $0.5000 $.5500 $.6100
12/31 $0.4175 $0.4250 $0.4350 $0.4500 $0.5000 $.5500 $.6100
Future distributions by the Company will be at the discretion of the Board of
Directors and will depend on the actual funds from operations of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code, applicable
legal restrictions and such other factors as the Board of Directors deems
relevant. There are currently no contractual restrictions on the Company's
present or future ability to pay dividends.
Dividend Reinvestment and Share Purchase Plan
- ---------------------------------------------
The Company has adopted a dividend reinvestment and share purchase plan designed
to provide holders of Common Stock with a convenient and economical means to
reinvest all or a portion of their cash dividends in shares of Common Stock and
to acquire additional shares of Common Stock through voluntary purchases.
Boston EquiServe, which serves as the Company's transfer agent, administers the
dividend reinvestment and share purchase plan. For a copy of the plan, contact
Boston EquiServe at (800) 945-8245.
Stockholder Rights Plan
- -----------------------
In 1998, the Company adopted a stockholder rights plan that is designed to
enhance the ability of all of the Company's stockholders to realize the long-
term value of their investment. The rights plan is designed, among other
things, to prevent a person or group from gaining control of the Company without
offering a fair price to all of the Company's stockholders.
On October 13, 1998, the Board declared a one of one preferred share purchase
right (a "Right") for each outstanding share of Common Stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $.0001 per
share, of the Company, at a price of $99.13 per one-hundredth of a share,
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement dated as of November 11, 1998, between the Company and
BankBoston, N.A. as Rights Agent.
18
Unregistered Sales of Securities
- --------------------------------
In connection with the acquisition of The Carlyle Apartments (completed in April
2000) and The Waterford Place (completed in June 2000), a portion of the amount
paid for the properties was funded through the issuance of units of limited
partnership interest ("Units") in the Operating Partnership. Any time after one
year from the date of issuance of the Units, the holders of the Units can
require the Operating Partnership to redeem the Units for either cash, or at the
Company's option an aggregate of 59,291 shares of the Company's common stock.
This private placement of Units was completed pursuant to the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended.
Item 6. Summary Financial and Operating Data
The following tables set forth summary financial and operating information for
the Company from January 1, 1996 through December 31, 2000.
19
As of December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
(Dollars in thousands, except per share amounts)
OPERATING DATA:
Revenues
Rental $ 162,959 $ 137,262 $ 119,397 $ 79,936 $ 47,780
Other property income 4,812 3,165 2,645 1,464 756
Interest and other income 10,969 5,618 3,217 3,169 2,157
--------- --------- --------- --------- ---------
Total revenues 178,740 146,045 125,259 84,569 50,693
--------- --------- --------- --------- ---------
EXPENSES
Property operating expenses 46,690 41,706 37,933 25,826 15,505
Depreciation and amortization 30,765 26,150 21,948 13,992 8,855
Amortization of deferred financing costs 639 566 718 509 639
General and administrative 6,062 4,263 3,765 2,413 1,717
Other expenses - - 930 138 42
Interest 30,384 21,268 19,374 12,659 11,442
--------- --------- --------- --------- ---------
Total expenses 114,540 93,953 84,668 55,537 38,200
--------- --------- --------- --------- ---------
Income before gain on sales, minority interests and
extraordinary item 64,200 52,092 40,591 29,032 12,493
Gain on sales of real estate 4,022 9,524 9 5,114 2,477
Minority interests (23,750) (17,838) (9,554) (4,469) (2,648)
Extraordinary item-loss on early extinguishment of debt (119) (214) (4,718) (361) (3,441)
--------- --------- --------- --------- ---------
Net income $ 44,353 $ 43,564 26,328 $ 29,316 $ 8,881
========= ========= ========= ========= =========
Net income per share - diluted $ 2.37 $ 2.36 1.36 $ 1.92 $ 1.12
========= ========= ========= ========= =========
Weighted average common stock outstanding -
diluted (in thousands) 18,658 18,491 16,809 15,285 7,348
Cash dividend per common share $ 2.38 $ 2.15 1.95 $ 1.77 $ 1.72
As of December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
BALANCE SHEET DATA:
Investment in real estate (before accumulated
depreciation) 1,156,408 929,076 889,964 730,987 393,809
Net investment in real estate 1,036,909 832,471 812,175 702,716 354,715
Real estate under development 38,231 120,414 53,213 20,234 -
Total assets 1,281,849 1,062,313 931,796 738,835 417,174
Total property indebtedness 595,535 384,108 361,515 276,597 153,205
Stockholders' equity 391,675 387,693 389,800 398,915 222,807
As of December 31,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------
OTHER DATA:
Debt service coverage ratio (1) 4.2x 4.7x 4.3x 4.4x 2.9x
Gross operating margin (2) 72% 70% 68% 68% 68%
Average same property monthly rental rate per
apartment unit (3)(4) $ 1,039 $ 950 944 $ 852 $ 798
Average same property monthly operating expenses
per apartment unit (3)(5) $ 271 $ 259 256 $ 257 $ 248
Total multifamily units (at end of period) 18,673 15,106 12,267 10,700 6,624
Multifamily residential property occupancy rate(6) 97% 96% 96% 96% 97%
Total multifamily properties (at end of period) 83 72 63 59 36
20
(1) Debt service coverage ratio represents earnings before interest expense,
taxes, depreciation and amortization ("EBITDA") divided by interest expense.
(2) Gross operating margin represents rental revenues and other property income
less property operating expenses, exclusive of depreciation and amortization
divided by rental revenues and other property income.
(3) Same property apartment units are those units in properties that the Company
has consolidated for the entire two years ended as of the end of the period
set forth. The number of same property apartment units in such properties
may vary at each year end. Percentage changes in averages per unit do not
correspond to total same property revenues and expense percent changes as
discussed in Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
(4) Average same property monthly rental rate per apartment unit represents
total scheduled rent for the same property apartment units for the period
(actual rental rates on occupied apartment units plus market rental rates on
vacant apartment units) divided by the number of such apartment units and
further divided by the number of months in the period.
(5) Average same property monthly expenses per apartment unit represents total
monthly operating expenses, exclusive of depreciation and amortization, for
the same property apartment units for the period divided by the total number
of such apartment units and further divided by the number of months in the
period.
(6) Occupancy rates are based on Financial Occupancy which refers to the
percentage resulting from dividing actual rents by total possible rents as
determined by valuing occupied units at contractual rates and vacant units
at market rates.
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion is based on the consolidated financial statements of
Essex Property Trust, Inc. ("Essex" or the "Company") as of and for the years
ended December 31, 2000, 1999 and 1998. This information should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto.
Substantially all the assets of the Company are held by, and substantially all
operations are conducted through, Essex Portfolio, L.P. (the "Operating
Partnership"). The Company is the sole general partner of the Operating
Partnership and, as of December 31, 2000, 1999, and 1998 owned an approximate
89.6%, 89.7% and 89.9% general partnership interest in the Operating
Partnership, respectively. The Company has elected to be treated as a real
estate investment trust (a "REIT") for federal income tax purposes.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and elsewhere in this Annual Report which
are not historical facts may be considered forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities and Exchange Act of 1934, as amended, including statements
regarding the Company's expectations, hopes, intentions, beliefs and strategies
regarding the future. Forward looking statements include statements regarding
the Company's expectation as to the timing of completion of current development
projects, expectation as to the total projected costs of current development
projects, beliefs as to the adequacy of future cash flows to meet operating
requirements, and to provide for dividend payments in accordance with REIT
requirements and expectations as to the amount of non-revenue generating capital
expenditures for the year ended December 31, 2001, potential acquisitions and
developments, the anticipated performance of existing properties, future
acquisitions and developments and statements regarding the Company's financing
activities. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors including, but not limited to, that the actual
completion of development projects will be subject to delays, that the total
projected costs of current development projects will exceed expectations, that
such development projects will not be completed, that future cash flows will be
inadequate to meet operating requirements and/or will be insufficient to provide
for dividend payments in accordance with REIT requirements, that the actual non-
revenue generating capital expenditures will exceed the Company's current
expectations, as well as those risks, special considerations, and other factors
discussed under the caption "Other Matters/Risk Factors" in Item 1 of this
Annual Report on Form 10-K for the year ended December 31, 2000, and those other
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.
General Background
The Company's property revenues are generated primarily from multifamily
property operations, which accounted for greater than 96% of its property
revenues for the years ended December 31, 2000, 1999, and 1998. The Company's
properties ("the Properties") are located in Northern California (the San
Francisco Bay Area), Southern California (Los Angeles, Ventura, Orange and San
Diego counties) and the Pacific Northwest (The Seattle, Washington and Portland,
Oregon metropolitan areas). The average occupancy level of the Company's
portfolio has exceeded 95% for the last five years.
The Company has elected to be treated as a real estate investment trust ("REIT")
for federal income tax purposes, commencing with the year ended December 31,
1994. The Company provides some of its fee based asset management and
disposition services as well as third-party property management and leasing
services through Essex Management Corporation ("EMC"), in order to maintain
compliance with REIT tax rules. The Company owns 100% of EMC's 19,000 shares of
nonvoting preferred stock. Executives of the Company own 100% of EMC's 1,000
shares of Common Stock.
Since the Company's initial public offering (the "IPO") in June 1994, the
Company has acquired ownership interests in 70 multifamily residential
properties and its headquarters building, of which 15 are located in Northern
California, 36 are located in Southern California, 15 are located in the Seattle
Metropolitan Area and 4 are located in the Portland Metropolitan Area. In
total, these acquisitions consist of 14,767 units with total capitalized
acquisition costs of approximately $1,178.3 million. Additionally, since its
IPO, the Company has acquired ownership interests in 8 multifamily development
properties that have reached stabilized operations. These development
properties consist of 1,540 units with total capitalized development costs of
$164.9 million. As part of its active portfolio management strategy, the
Company has disposed of, since its IPO, eight multifamily residential properties
(six in Northern California, one in Southern California and one in the Pacific
Northwest) consisting of a total of 1,021 units, six retail shopping centers in
the Portland, Oregon metropolitan area and its former headquarters building
located in Northern California at an aggregate gross sales price of
approximately $115.9 million resulting in a net realized gain of approximately
$27.2 million and a deferred gain of $5.0 million.
The Company is developing 5 multifamily residential communities, with an
aggregate of 1,349 multifamily units. In connection with these development
projects, the Company has directly, or in some cases through its joint venture
partners, entered into contractual construction related commitments with
unrelated third parties for approximately $124.1 million. As of December 31,
2000, the Company's remaining development commitment is approximately $108.6
million.
Results of Operations
Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999.
- ---------------------------------------------------------------------------
Average financial occupancy rates of the Company's multifamily "Same Store
Properties" (properties consolidated by the Company for each of the years ended
December 31, 2000 and 1999) increased to 96.8% for the year ended December 31,
2000 from 96.0% for the year ended December 31, 1999. Financial occupancy is
defined as the percentage resulting from dividing actual rental income by total
possible
22
rental income. Total possible rental income is determined by valuing
occupied units at contract rates and vacant units at market rents. The regional
breakdown of financial occupancy for the Same Store Properties for the years
ended December 31, 2000 and 1999 are as follows:
December 31, December 31,
2000 1999
---- ----
Northern California 98.2% 96.6%
Southern California 96.3% 96.8%
Pacific Northwest 95.9% 94.7%
Total Revenues increased by $32,695,000 or 22.4% to $178,740,000 in 2000 from
$146,045,000 in 1999. The following table sets forth a breakdown of these
revenue amounts, including the revenues attributable to the 2000/1999 Same Store
Properties.
Years Ended
December 31,
Number of ------------------ Dollar Percentage
Properties 2000 1999 Change Change
---------- -------- -------- ------ ----------
(dollars in thousands)
Revenues
Property revenues
Same Store Properties
Northern California 12 $ 45,408 $ 39,705 $ 5,703 14.3%
Southern California 13 38,306 35,821 2,485 6.9
Pacific Northwest 19 35,122 33,315 1,807 5.4
-- -------- -------- ------- ----------
Total property revenues
Same Store Properties
44 118,836 108,841 9,995 9.2
==
Property revenues properties
acquired/disposed of
subsequent to January 1, 1999 (1) 48,935 31,586 17,349 54.9
-------- -------- ------- ----------
Total property revenues 167,771 140,427 27,344 19.5
-------- -------- ------- ----------
Interest and other income 10,969 5,618 5,351 95.3
-------- -------- ------- ----------
Total revenues $178,740 $146,045 $32,695 22.4%
======== ======== ======= ==========
(1) Also includes one commercial property, redevelopment communities and
development communities.
As set forth in the above table, $17,349,000 of the $32,695,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to January 1, 1999; the commercial property, redevelopment communities and
development communities. During this period, the Company acquired interests in
12 properties, (the "Acquisition Properties"), and disposed of 1 multifamily
property and six retail shopping centers, (the "Disposition Properties").
Of the increase in total revenues, $9,995,000 is attributable to increases in
property revenues from the Same Store Properties. Property revenues from the
Same Store Properties increased by approximately 9.2% to $118,836,000 in 2000
from $108,841,000 in 1999. The majority of this increase was attributable to
the 12 multifamily Same Store Properties located in Northern California, the
property revenues of which increased by $5,703,000 or 14.3% to $45,408,000 in
2000 from $39,705,000 in 1999. This $5,703,000 increase is primarily
attributable to rental rate increases, and an increase in average financial
occupancy to 98.2% in 2000 from 96.6% in 1999. The 13 multifamily Same Store
Properties located in Southern California accounted for the next largest
contribution to this Same Store Property revenues increase. The property
revenues of these properties increased by $2,485,000 or 6.9% to $38,306,000 in
2000 from $35,821,000 in 1999. This $2,485,000 increase is primarily
attributable to rental rate increases, which were offset in part by a decrease
in average financial occupancy to 96.3% in 2000 from 96.8% in 1999. The 19
multifamily Same Store Properties located in the Pacific Northwest accounted for
the next largest contribution to this Same Store Property revenues increase.
The property revenues of these properties increased by $1,807,000 or 5.4% to
$35,122,000 in 2000 from $33,315,000 in 1999. This $1,807,000 increase is
attributable to rental rate increases, and an increase in financial occupancy to
95.9% in 2000 from 94.7% in 1999.
The increase in total revenue also reflected an increase of $5,351,000
attributable to interest and other income, which primarily relates to income and
fees earned on the Company's investments in joint ventures and interest income
earned on outstanding notes receivable and cash balances.
Total Expenses increased by $20,587,000 or approximately 21.9% to $114,540,000
in 2000 from $93,953,000 in 1999. The most significant factor contributing to
this increase was the growth in the Company's multifamily portfolio from 68
properties (15,106 units) at January 1, 1999 to 83 properties (18,673 units) at
December 31, 2000. Interest expense increased by $9,116,000 or 42.9% to
$30,384,000 in 2000 from $21,268,000 in 1999. Such interest expense increase
was primarily due to the net addition of mortgage debt in connection with
property and investment acquisitions and a decrease in the capitalization of
interest charges on the Company's development and redevelopment communities of
$2,266,000 or approximately 43.8% to $2,906,000 from $5,172,000 in 1999.
Property operating expenses, exclusive of depreciation and amortization,
increased by $4,984,000 or 12.0% to $46,690,000 in 2000 from $41,706,000 in
1999. Of such increase, $5,066,000 is attributable to properties acquired or
disposed of subsequent to January 1, 1999, which was offset by a decrease in
operating expenses for the Same Store Properties. Property operating expenses,
exclusive of depreciation and amortization, as a
23
percentage of property revenues were 27.8% for 2000 and 29.7% for 1999. General
and administrative expenses represent the costs of the Company's various
acquisition and administrative departments as well as corporate and partnership
administration and non- operating expenses. Such expenses increased by
$1,799,000 in 2000 from the 1999 amount. This increase is largely due to
additional staffing requirements resulting from the growth of the Company.
General and administrative expenses as a percentage of total revenues were 3.4%
for 2000 and 2.9% for 1999.
Minority interests increased by $5,912,000 to $23,750,000 in 2000 from
$17,838,000 in 1999. This is primarily due to an issuance of perpetual preferred
units in 1999.
Net income increased by $789,000 to $44,353,000 in 2000 from $43,564,000 in
1999. Net income for 2000 also included a gain on sales of real estate of
$4,022,000 as compared with $9,524,000 in 1999. The net effect of this item was
offset by the net operating income of the Acquisition Properties and an increase
in net operating income from the Same Store Properties.
Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998.
- ---------------------------------------------------------------------------
Average financial occupancy rates of the Company's multifamily "1999/1998 Same
Store Properties" (properties consolidated by the Company for each of the years
ended December 31, 1999 and 1998) increased to 96.4% for the year ended December
31, 1999 from 96.0% for the year ended December 31, 1998. The regional
breakdown of financial occupancy for the 1999/1998 Same Store Properties for the
years ended December 31, 1999 and 1998 are as follows:
December 31, December 31,
1999 1998
------------- -------------
Northern California 97.2% 96.9%
Southern California 97.1% 96.5%
Pacific Northwest 94.9% 94.5%
Total Revenues increased by $20,786,000 or 16.6% to $146,045,000 in 1999 from
$125,259,000 in 1998. The following table sets forth a breakdown of these
revenue amounts, including the revenues attributable to the 1999/ 1998 Same
Store Properties.
Years Ended
December 31,
Number of ------------------ Dollar Percentage
Properties 1999 1998 Change Change
---------- -------- -------- ------- -----------
(dollars in thousands)
Revenues
Property revenues
Same Store Properties
Northern California 12 $ 37,506 $ 35,943 $ 1,563 4.3%
Pacific Northwest 18 30,946 29,611 1,335 4.5
Southern California 12 30,042 27,942 2,100 7.5
-- -------- -------- ------- ----------
Total property revenues
1999/1998 Same Store Properties 42 98,494 93,496 4,998 5.4
==
Property revenues properties
acquired/disposed of
subsequent to January 1, 1998 (1) 41,933 28,546 13,387 46.9
-------- -------- ------- ----------
Total property revenues 140,427 122,042 18,385 15.1
-------- -------- ------- ----------
Interest and other income 5,618 3,217 2,401 74.6
-------- -------- ------- ----------
Total revenues $146,045 $125,259 $20,786 16.6%
======== ======== ======= ==========
(1) Also includes one commercial property, redevelopment communities and
development communities.
As set forth in the above table, $13,387,000 of the $20,786,000 net increase in
total revenues is attributable to properties acquired or disposed of subsequent
to January 1, 1998, the commercial property, redevelopment communities and
development communities. During this period, the Company acquired interests in
11 properties and achieved stabilized operations at one development community,
(the "1999/1998 Acquisition Properties"), and disposed of two multifamily
properties, three retail shopping centers and one commercial property (the
"1999/1998 Disposition Properties").
Of the increase in total revenues, $4,998,000 is attributable to increases in
property revenues from the 1999/1998 Same Store Properties. Property revenues
from the 1999/1998 Same Store Properties increased by approximately 5.4% to
$98,494,000 in 1999 from $93,496,000 in 1998. A significant portion of this
increase was attributable to the 12 multifamily 1999/1998 Same Store Properties
located in Southern California, the property revenues of which increased by
$2,100,000 or 7.5 % to $30,042,000 in 1999 from $27,942,000 in 1998. This
$2,100,000 increase is primarily attributable to rental rate increases and an
increase in average financial occupancy to 97.1% in 1999 from 96.5% in 1998.
The 12 multifamily 1999/1998 Same Store Properties located in Northern
California accounted for the next largest contribution to the 1999/1998 Same
Store Properties revenues increase. The property revenues of these properties
increased by
24
$1,563,000 or 4.3% to $37,506,000 in 1999 from $35,943,000 in 1998. This
$1,563,000 increase is primarily attributable to rental rate increases, and an
increase in average financial occupancy to 97.2% in 1999 from 96.9% in 1998. The
18 multifamily 1999/ 1998 Same Store Properties located in the Pacific Northwest
accounted for the next largest contribution to the 1999/1998 Same Store
Properties revenues increase. The property revenues of these properties
increased by $1,335,000 or 4.5% to $30,946,000 in 1999 from $29,611,000 in 1998.
This $1,335,000 increase is attributable to rental rate increases, and an
increase in financial occupancy to 94.9% in 1999 from 94.5% in 1998.
The increase in total revenue also reflected an increase of $2,401,000
attributable to interest and other income, which primarily relates to income and
fees earned on the Company's investments in joint ventures and interest income
earned on outstanding notes receivable and cash balances.
Total Expenses increased by $9,285,000 or approximately 11.0% to $93,953,000 in
1999 from $84,668,000 in 1998. The most significant factor contributing to this
increase was the growth in the Company's multifamily portfolio from 54
properties (10,700 units) at January 1, 1998 to 68 properties (15,106 units) at
December 31, 1999. Interest expense increased by $1,894,000 or 9.8% to
$21,268,000 in 1999 from $19,374,000 in 1998. Such interest expense increase
was primarily due to the net addition of mortgage debt in connection with
property acquisitions and investments, which was offset by an increase in the
capitalization of interest charges on the Company's development and
redevelopment communities of $1,678,000 or approximately 48.0% to $5,172,000
from $3,494,000 in 1998. Property operating expenses, exclusive of depreciation
and amortization, increased by $3,773,000 or 9.9% to $41,706,000 in 1999 from
$37,933,000 in 1998. Of such increase, $4,093,000 is attributable to properties
acquired or disposed of subsequent to January 1, 1998, which was offset by a
decrease in operating expenses for the 1999/1998 Same Store Properties.
Property operating expenses, exclusive of depreciation and amortization, as a
percentage of property revenues were 29.7% for 1999 and 31.1% for 1998. General
and administrative expenses represent the costs of the Company's various
acquisition and administrative departments as well as corporate and partnership
administration and non-operating expenses. Such expenses increased by $498,000
in 1999 from the amount incurred in 1998. This increase is largely due to
additional staffing requirements resulting from the growth of the Company.
General and administrative expenses as a percentage of total revenues were 2.9%
for 1999 and 3.0% for 1998.
Net income increased by $17,236,000 to $ 6,600,000 in 1999 from $26,328,000 in
1998. Net income included an extraordinary loss on early extinguishment of debt
of $214,000 in 1999 compared to $4,718,000 in 1998. Net income for 1999 also
included a gain on sales of real estate of $9,524,000 as compared with $9,000
in 1998. Net operating income of the Acquisition Properties and the increase in
net operating income from the 1999/1998 Same Store Properties also contributed
to the increase in net income.
Liquidity and Capital Resources
At December 31, 2000, the Company had $6,600,000 of unrestricted cash and cash
equivalents. The Company expects to meet its short-term liquidity requirements
by using its working capital, cash generated from operations, and amounts
available under lines of credit. The Company believes that its current net cash
flows will be adequate to meet operating requirements and to provide for payment
of dividends by the Company in accordance with REIT qualification requirements.
The Company expects to meet its long-term liquidity requirements relating to
property acquisitions and development (beyond the next 12 months) by using a
combination of some or all of the following sources; working capital, amounts
available on lines of credit, net proceeds from public and private debt and
equity issuances, and proceeds from the disposition of properties that may be
sold from time to time. There can, however, be no assurance that the Company
will have access to the debt and equity markets in a timely fashion to meet such
future funding requirements or that future working capital and borrowings under
the lines of credit will be available, or if available, will be sufficient to
meet the Company's requirements or that the Company will be able to dispose of
properties in a timely manner and under terms and conditions that the Company
deems acceptable.
The Company has two outstanding unsecured lines of credit for an aggregate
amount $150,000,000. The first line, in the amount of $120,000,000, matures in
May 2002, with an option to extend it for one year thereafter. Outstanding
balances under this line of credit bear interest at a rate which uses a tiered
rate structure tied to the Company corporate ratings, if any, and leverage
rating which has been priced at LIBOR plus 1.15% during 2000 and 1999. At
December 31, 2000 the Company had $86,469,000 outstanding on this line of
credit. A second line of credit in the amount of $30,000,000 matures in
September 2001, with an option to extend for one year thereafter. Outstanding
balances, if any, on this second line bear interest based on a tiered rate
structure currently at LIBOR plus 1.175%. At December 31, 2000 the Company had
$7,000,000 outstanding on this line of credit. At December 31, 2000, the Company
had outstanding balances which bore interest rates of approximately 7.9%.
In addition to the unsecured lines of credit, the Company had $502,066,000 of
secured indebtedness at December 31, 2000. Such indebtedness consisted of
$425,022,000 in fixed rate debt with interest rates varying from 6.6% to 8.8%
and maturity dates ranging from 2002 to 2026. The indebtedness also includes
$58,820,000 of tax exempt variable rate demand bonds with interest rates paid
during 2000 ranging from approximately 4.5% to 5.5% and maturity dates ranging
from 2020 to 2026. The tax exempt variable rate demand bonds are capped at
interest rates ranging from 7.1% to 7.3%. The indebtedness also includes
$18,224,000 of variable rate debt, 1.75% over the LIBOR rate, with interest
rates paid during 2000 ranging from 7.8% to 9.5% and maturing in May 2001.
The Company's unrestricted cash balance decreased $5,748,000 from $12,348,000 as
of December 31, 1999 to $6,600,000 as of December 31, 2000. The Company
generated $92,164,000 in cash from operating activities, used $181,600,000 of
cash in investing activities and obtained $83,688,000 of cash from financing
activities. Of the $181,600,000 net cash used in investing activities,
$73,929,000 was used to purchase and upgrade rental properties, $43,612,000 was
used to fund real estate under development and $87,517,000 was issued as notes
receivable from investees and other related party notes and other receivables;
these expenditures were offset by $31,302,000 of proceeds received from the
disposition of rental properties. The $83,688,000 net cash provided by
financing activities was primarily a
25
result of $351,194,000 of proceeds from mortgages and other notes payable as
offset by $203,004,000 of repayments of mortgages and other notes payable and
lines of credit, and $65,611,000 of dividends/distributions paid.
Non-revenue generating capital expenditures are improvements and upgrades that
extend the useful life of the property and are not related to preparing a
multifamily property unit to be rented to a tenant. For the year ended December
31, 2000, non-revenue generating capital expenditures totaled approximately
$4,159,500 or $322 per weighted average occupancy unit. The Company expects to
incur approximately $325 to $330 per weighted average occupancy unit in non-
revenue generating capital expenditures for the year ended December 31, 2001.
These expenditures do not include the improvements required in connection with
the origination of mortgage loans, expenditures for acquisition properties'
renovations and improvements which are expected to generate additional revenue,
and renovation expenditures required pursuant to tax-exempt bond financings.
The Company expects that cash from operations and/or its lines of credit will
fund such expenditures. However, there can be no assurance that the actual
expenditures incurred during 2001 and/or the funding thereof will not be
significantly different than the Company's current expectations.
The Company is currently developing 5 multifamily residential projects, with an
aggregate of 1,349 multifamily units. Such projects involve certain risks
inherent in real estate development. See "Other Matters/ Risk Factors--Risk
that Development Activities Will be Delayed or Not Completed" in Item 1 of this
Annual Report on Form 10-K for the year ended December 31, 2000. In connection
with these development projects, the Company has directly, or in some cases
through its joint venture partners entered into contractual construction related
commitments with unrelated third parties for approximately $124,100,000. As of
December 31, 2000, the Company's remaining commitment to fund the estimated cost
to complete these development projects is approximately $108,600,000. The
Company expects to fund such commitments by using a combination of some or all
of the following sources; its working capital, amounts available on its lines of
credit, net proceeds from public and private equity and debt issuances, and
proceeds from the disposition of properties, if any.
Pursuant to existing shelf registration statements, the Company has the capacity
to issue up to $342,000,000 of equity securities and the Operating Partnership
has the capacity to issue up to $250,000,000 of debt securities.
The Company pays quarterly dividends from cash available for distribution.
Until it is distributed, cash available for distribution is invested by the
Company primarily in short-term investment grade securities or is used by the
Company to reduce balances outstanding under its line of credit.
Funds from Operations
Industry analysts generally consider Funds from Operations ("Funds from
Operations") an appropriate measure of performance of an equity REIT.
Generally, Funds from Operations adjusts the net income of equity REITS for non-
cash charges such as depreciation and amortization of rental properties, gains/
losses on sales of real estate and extraordinary items. Management considers
Funds from Operations to be a useful financial performance measurement of an
equity REIT because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the
performance of a REIT to incur and service debt and to fund acquisitions and
other capital expenditures. Funds from Operations does not represent net income
or cash flows from operations as defined by generally accepted accounting
principles (GAAP) and is not intended to indicate whether cash flows will be
sufficient to fund cash needs. It should not be considered as an alternative to
net income as an indicator of the REIT's operating performance or to cash flows
as a measure of liquidity. Funds from Operations does not measure whether cash
flow is sufficient to fund all cash needs including principal amortization,
capital improvements and distributions to shareholders. Funds from Operations
also does not represent cash flows generated from operating, investing or
financing activities as defined under GAAP. Further, Funds from Operations as
disclosed by other REITs may not be comparable to the Company's calculation of
Funds from Operations. The following table sets forth the Company's calculation
of Funds from Operations for 2000, 1999 and 1998.
26
For the year For the quarter ended
ended --------------------------------------------------------------
12/31/00 12/31/00 9/30/00 6/30/00 3/31/00
---------------- ------------ ------------ ----------- ------------
Income before gain on sale of real
estate, minority interests and
extraordinary item $ 64,200,000 $ 17,114,000 $ 15,946,000 $ 16,218,000 $14,922,000
Adjustments:
Depreciation and amortization 30,765,000 8,459,000 8,689,000 6,950,000 6,667,000
Adjustments for unconsolidated
joint ventures 4,541,000 1,246,000 1,232,000 1,054,000 1,009,000
Minority interests (1) (18,731,000) (4,625,000) (4,602,000) (4,778,000) (4,726,000)
------------ ------------ ------------ ------------ -----------
Funds from operations $ 80,775,000 $ 22,194,000 $ 21,265,000 $ 19,444,000 $17,872,000
============ ============ ============ ============ ===========
Weighted average number
shares outstanding diluted (1) 20,732,148 20,951,690 20,891,729 20,708,639 20,578,898
For the year For the quarter ended
ended --------------------------------------------------------------
12/31/99 12/31/99 9/30/99 6/30/99 3/31/99
---------------- ------------ ------------ ----------- ------------
Income before gain on sale of real
estate minority interests and
extraordinary item $ 52,092,000 $ 14,641,000 $ 13,426,000 $12,335,000 $11,690,000
Adjustments:
Depreciation and amortization 26,150,000 6,774,000 7,084,000 6,247,000 6,045,000
Adjustments for unconsolidated
joint ventures 1,790,000 691,000 366,000 366,000 367,000
Minority interests (1) (13,061,000) (4,685,000) (3,616,000) (2,397,000) (2,363,000)
------------ ------------ ------------ ------------ -----------
Funds from Operations $ 66,971,000 $ 17,421,000 $ 17,260,000 $16,551,000 $15,739,000
============ ============ ============ ============ ===========
Weighted average number
shares outstanding diluted (1) 20,513,398 20,554,096 20,573,866 20,476,092 20,496,718
For the year For the quarter ended
ended --------------------------------------------------------------
12/31/98 12/31/98 9/30/98 6/30/98 3/31/98
---------------- ------------ ------------ ----------- ------------
Income before gain on sale of real
estate, minority interests and
extraordinary item $ 40,591,000 $ 10,933,000 $ 9,998,000 $ 10,005,000 $ 9,655,000
Adjustments:
Depreciation and amortization 21,948,000 6,072,000 5,575,000 5,632,000 4,669,000
Adjustments for unconsolidated
joint ventures 1,393,000 366,000 365,000 366,000 296,000
Non-recurring items:
Provision for litigation loss 930,000 - 930,000 - -
Minority interests (1) (6,367,000) (2,014,000) (1,754,000) (1,692,000) (907,000)
------------ ------------ ------------ ------------ -----------
Funds from Operations $ 58,495,000 $ 15,357,000 $ 15,114,000 $ 14,311,000 $13,713,000
============ ============ ============ ============ ===========
Weighted average number
shares outstanding diluted (1) 20,510,988 20,522,910 20,523,466 20,549,875 20,550,845
20,550,845
(1) Assumes conversion of all outstanding operating partnership interests in the
Operating Partnership and Convertible Preferred Stock, Series 1996A into
shares of the Company's Common Stock. Minority interests have been
adjusted to reflect such conversion.
27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate changes primarily as a result of its
line of credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company's real estate investment portfolio and
operations. The Company's interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows
primarily at fixed rates and may enter into derivative financial instruments
such as interest rate swaps, caps and treasury locks in order to mitigate its
interest rate risk on a related financial instrument. The Company does not
enter into derivative or interest rate transactions for speculative purposes.
The Company's interest rate risk is monitored using a variety of techniques.
The table below presents the principal amounts and weighted average interest
rates by year of expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes. The Company believes that the principal
amounts of the Company's mortgage notes payable and line of credit approximate
fair value as of December 31, 2000 as interest rates are consistent with yields
currently available to the Company for similar instruments.
For the Year Ended December 31
------------------------------
(In thousands) 2001 2002 2003 2004 2005 Thereafter Total
------- ------ ------ ----- ------ ---------- --------
Fixed rate debt $ 2,898 11,394 20,855 2,888 34,859 352,128 $425,022
Average interest rate 7.4% 7.2% 7.2% 7.4% 6.8% 6.8%
Variable rate LIBOR debt $25,224 86,469 - - - 58,820(1) $170,513
Average interest rate 8.3% 7.1% - - - 5.50%
(1) Capped at interest rates ranging from 7.1% to 7.3%
At December 31, 1999 the Company had four forward treasury contracts for an
aggregate notional amount of $60,000,000, fixing the 10 year treasury rate at
between 6.15%-6.26% which limits interest rate exposure on certain future debt
financing and were settled in 2000. During the year 2000, four contracts were
sold, resulting in a net realized gain of approximately $1,384,000.
Item 8. Financial Statements and Supplemental Data
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 15, 2001.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 15, 2001.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 15, 2001.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 15, 2001.
28
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports
on Form 8-K
(A) Financial Statements and Report of KPMG LLP, independent Page
auditors ----
(1) Consolidated Financial Statements
Independent Auditors' Report F-1
Balance Sheets:
As of December 31, 2000 and December 31, 1999 F-2
Statements of Operations:
For the years ended December 31, 2000, 1999 and 1998 F-3
Statements of Stockholders' Equity:
For the years ended December 31, 2000, 1999 and 1998 F-4
Statements of Cash Flows:
For the years ended December 31, 2000, 1999 and 1998. F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedule: Real Estate and Accumulated F-29
Depreciation Essex Property Trust, Inc. for the year ended
December 31, 2000
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
2000.
(C) Exhibits
29
SIGNATURE
---------
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Essex Property Trust, Inc.
(Registrant)
Dated: March 30, 2001
By: /s/ Michael J. Schall
-------------------------
Michael J. Schall
Executive Vice President and
Chief Financial Officer and Director
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the date indicated.
Dated March 30, 2001 /s/ George M. Marcus
------------------------------
George M. Marcus
Chairman of the Board
Dated March 30, 2001 /s/ Keith R. Guericke
------------------------------
Keith R. Guericke
President and Chief Executive
Officer and Vice Chairman
(Principal Executive Officer)
Dated March 30, 2001 /s/ Michael J. Schall
------------------------------
Michael J. Schall
Chief Financial Officer Executive,
Vice President and Director
(Principal Financial Officer)
Dated March 30, 2001 /s/ Mark J. Mikl
------------------------------
Mark J. Mikl
Vice President and Controller
(Principal Accounting Officer)
Dated March 30, 2001 /s/ William A. Millichap
------------------------------
William A. Millichap
Director
Dated March 30, 2001 /s/ Gary P. Martin
------------------------------
Gary P. Martin
Director
Dated March 30, 2001 /s/ Robert E. Larson
------------------------------
Robert E. Larson
Director
Dated March 30, 2001 /s/ Thomas E. Randlett
------------------------------
Thomas E. Randlett
Director
S-1
Dated March 30, 2001 /s/ David W. Brady
-----------------------------
David W. Brady
Director
Dated March 30, 2001 /s/ Issie N. Rabinovitch
-----------------------------
Issie N. Rabinovitch
Director
Dated March 30, 2001 /s/ Willard H. Smith
-----------------------------
Willard H. Smith
Director
S-2
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Financial Statement Schedule
December 31, 2000, 1999 and 1998
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors
Essex Property Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Essex Property
Trust, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2000. In
connection with our audits of the consolidated financial statements, we have
also audited the related financial statement schedule of Real Estate and
Accumulated Depreciation as of December 31, 2000. These consolidated financial
statements and the financial statement schedule are the responsibility of the
management of Essex Property Trust, Inc. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Essex Property
Trust, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
San Francisco, California
February 2, 2001
F-1
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
(Dollars in thousands, except per share amounts)
2000 1999
----------- -----------
Assets
Real estate:
Rental properties:
Land and land improvements $ 289,796 $ 234,497
Buildings and improvements 866,612 694,579
----------- -----------
1,156,408 929,076
Less accumulated depreciation (119,499) (96,605)
----------- -----------
1,036,909 832,471
Investments 65,703 47,992
Real estate under development 38,231 120,414
----------- -----------
1,140,843 1,000,877
Cash and cash equivalents -- unrestricted 6,600 12,348
Cash and cash equivalents -- restricted cash 18,965 17,216
Notes receivable from investees and other related parties 77,081 13,654
Notes and other receivables 24,062 9,001
Prepaid expenses and other assets 7,654 3,495
Deferred charges, net 6,644 5,722
----------- -----------
Total assets $ 1,281,849 $ 1,062,313
=========== ===========
Liabilities and Stockholders' Equity
Mortgage notes payable $ 502,066 $ 373,608
Lines of credit 93,469 10,500
Accounts payable and accrued liabilities 30,430 28,379
Dividends payable 14,538 13,248
Other liabilities 6,539 5,594
Deferred gain 5,002 5,002
----------- -----------
Total liabilities 652,044 436,331
Minority interests 238,130 238,289
Stockholders' equity:
8.75% convertible preferred stock, series 1996A; $.0001 par value;
0 and 184,687 shares authorized, issued and outstanding -- 1
Common stock; $.0001 par value, 656,682,178 and 656,497,491 shares
authorized; 18,417,013 and 18,049,952 shares issued and outstanding 2 2
Cumulative redeemable preferred stock; $.0001 par value, no shares issued
and outstanding: -- --
7.875% Series B, 2,000,000 shares authorized -- --
9.125% Series C, 500,000 shares authorized -- --
9.30% Series D, 2,000,000 shares authorized -- --
9.25% Series E, 2,200,000 shares authorized -- --
Excess stock; $.0001 par value, 330,000,000 shares authorized; no shares
issued or outstanding -- --
Additional paid-in capital 428,433 425,089
Distributions in excess of accumulated earnings (36,760) (37,399)
----------- -----------
Total stockholders' equity 391,675 387,693
----------- -----------
Commitments and contingencies
$ 1,281,849 $ 1,062,313
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands, except per share amounts)
2000 1999 1998
------------ ------------ ------------
Revenues:
Rental $ 162,959 $ 137,262 $ 119,397
Other property 4,812 3,165 2,645
------------ ------------ ------------
Total property revenues 167,771 140,427 122,042
Interest and other 10,969 5,618 3,217
------------ ------------ ------------
Total revenues 178,740 146,045 125,259
------------ ------------ ------------
Expenses:
Property operating expenses:
Maintenance and repairs 10,074 9,222 8,972
Real estate taxes 11,338 10,271 9,109
Utilities 8,387 8,532 7,809
Administrative 13,695 10,582 9,228
Advertising 2,211 2,187 1,742
Insurance 985 912 1,073
Depreciation and amortization 30,765 26,150 21,948
------------ ------------ ------------
Total property operating expenses 77,455 67,856 59,881
Interest 30,384 21,268 19,374
Amortization of deferred financing costs 639 566 718
General and administrative 6,062 4,263 3,765
Provision for litigation loss -- -- 930
------------ ------------ ------------
Total expenses 114,540 93,953 84,668
------------ ------------ ------------
Income before gain on the sales of real estate,
minority interests and extraordinary item 64,200 52,092 40,591
Gain on the sales of real estate 4,022 9,524 9
------------ ------------ ------------
Income before minority interests and
extraordinary item 68,222 61,616 40,600
Minority interests (23,750) (17,838) (9,554)
------------ ------------ ------------
Income before extraordinary item 44,472 43,778 31,046
Extraordinary loss on early extinguishment of debt (119) (214) (4,718)
------------ ------------ ------------
Net income 44,353 43,564 26,328
Preferred stock dividends (246) (1,333) (3,500)
------------ ------------ ------------
Net income available to common stockholders $ 44,107 $ 42,231 $ 22,828
============ ============ ============
Per share data:
Basic:
Income before extraordinary item available to
common stockholders $ 2.43 $ 2.42 $ 1.65
Extraordinary item -- debt extinguishment (0.01) (0.01) (0.28)
------------ ------------ ------------
Net income $ 2.42 $ 2.41 $ 1.37
============ ============ ============
Weighted-average number of shares outstanding
during the year 18,233,752 17,521,185 16,630,954
============ ============ ============
Diluted:
Income before extraordinary item available to
common stockholders $ 2.38 $ 2.37 $ 1.64
Extraordinary item -- debt extinguishment (0.01) (0.01) (0.28)
------------ ------------ ------------
Net income $ 2.37 $ 2.36 $ 1.36
============ ============ ============
Weighted-average number of shares outstanding
during the year 18,657,636 18,491,242 16,808,943
============ ============ ============
See accompanying notes to consolidated financial statements.
F-3
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
(Dollars and shares in thousands)
Convertible Distribution
preferred stock Common stock Additional in excess of
------------------ ----------------- paid-in accumulated
Shares Amount Shares Amount capital earnings Total
------ ------ ------ ------ ---------- ------------ --------
Balances, December 31, 1997 1,600 $ 1 16,615 $ 2 $ 430,804 $ (31,892) $398,915
Shares issued from Dividend
Reinvestment Plan -- -- 2 -- 10 -- 10
Net proceeds from options
exercised -- -- 24 -- 464 -- 464
Net income -- -- -- -- -- 26,328 26,328
Dividends declared -- -- -- -- -- (35,917) (35,917)
------ ------ ------ ------ ---------- ------------ --------
Balances, December 31, 1998 1,600 1 16,641 2 431,278 (41,481) 389,800
Shares issued from conversion
of convertible preferred stock (1,415) -- 1,618 -- -- -- --
Shares purchased by Operating
Partnership -- -- (262) -- (7,119) -- (7,119)
Net proceeds from options exercised -- -- 53 -- 930 -- 930
Net income -- -- -- -- -- 43,564 43,564
Dividends declared -- -- -- -- -- (39,482) (39,482)
------ ------ ------ ------ ---------- ------------ --------
Balances, December 31, 1999 185 1 18,050 2 425,089 (37,399) 387,693
Shares issued from conversion
of convertible preferred stock (185) (1) 211 -- -- -- (1)
Net proceeds from options exercised -- -- 156 -- 3,344 -- 3,344
Net income -- -- -- -- -- 44,353 44,353
Dividends declared -- -- -- -- -- (43,714) (43,714)
------ ------ ------ ------ ---------- ------------ --------
Balances, December 31, 2000 -- $ -- 18,417 $ 2 $ 428,433 $ (36,760) $391,675
====== ====== ====== ====== ========== ============ ========
See accompanying notes to consolidated financial statements.
F-4
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(Dollars in thousands)
2000 1999 1998
------------ ----------- ------------
Cash flows from operating activities:
Net income $ 44,353 $ 43,564 $ 26,328
Minority interests 23,750 17,838 9,554
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on the sales of real estate (4,022) (9,524) (9)
Equity in income of limited partnerships (1,333) (1,389) (276)
Loss on early extinguishment of debt 119 214 4,718
Depreciation and amortization 30,765 26,150 21,948
Amortization of deferred financing costs 639 566 718
Changes in operating assets and liabilities:
Other receivables (944) 621 (10,207)
Prepaid expenses and other assets (4,159) (393) 336
Accounts payable and accrued liabilities 2,051 5,626 4,831
Other liabilities 945 293 1,093
------------ ----------- ------------
Net cash provided by operating activities 92,164 83,566 59,034
------------ ----------- ------------
Cash flows from investing activities:
Additions to rental properties (73,929) (88,305) (163,019)
Dispositions of rental properties 31,302 63,421 26,354
Increase in restricted cash (1,749) (1,684) (10,049)
Additions to notes receivable from investees, other related
parties and other receivables (87,517) (6,084) (5,616)
Repayments of notes from investees, other related parties and
other receivables 3,514 16,504 4,430
Net (contribution to) distribution from investments in
corporations and limited partnerships (9,609) (30,025) 1,255
Additions to real estate under development (43,612) (74,608) (33,256)
------------ ----------- ------------
Net cash provided by (used in) investing activities (181,600) (120,781) (179,901)
------------ ----------- ------------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable and lines
of credit 351,194 241,150 349,540
Repayment of mortgage and other notes payable and lines
of credit (203,004) (229,771) (283,065)
Additions to deferred charges (1,680) (1,253) (2,345)
Net proceeds from preferred unit sales -- 102,340 102,150
Payment of offering related costs -- (93) (323)
Net proceeds from stock options exercised and shares issued
through dividend reinvestment plan 3,344 930 474
Shares purchased by Operating Partnership -- (7,119) --
Redemption of Operating Partnership units (555) (2,100) --
Net payments made in connection with costs related to the
early extinguishment of debt -- -- (4,086)
Distributions to minority interest/partners (23,187) (18,435) (8,138)
Dividends paid (42,424) (38,634) (35,074)
------------ ----------- ------------
Net cash provided by financing activities 83,688 47,015 119,133
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (5,748) 9,800 (1,734)
Cash and cash equivalents at beginning of year 12,348 2,548 4,282
------------ ----------- ------------
Cash and cash equivalents at end of year $ 6,600 $ 12,348 $ 2,548
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $2,906, $5,172 and $3,494
capitalized in 2000, 1999 and 1998, respectively $ 25,528 $ 15,860 $ 18,947
============ =========== ============
Supplemental disclosure of noncash investing and financing
activities:
Real estate under development transferred to rental
properties $ 120,183 $ 21,700 $ --
============ =========== ============
Mortgage note payable assumed in connection with the
purchase of real estate $ 63,209 $ 15,800 $ 18,443
============ =========== ============
Issuance of Operating Partnership units in connection
with the purchase of real estate $ 2,365 $ 7,469 $ --
============ =========== ============
Consolidation of previously unconsolidated investment $ 2,771 $ 32,452 $ --
============ =========== ============
Exchange of real estate under development for notes
receivable $ 5,613 $ -- $ --
============ =========== ============
Exchange of notes receivable for investment $ 9,540 $ -- $ --
============ =========== ============
See accompanying notes to consolidated financial statements.
F-5
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(1) Organization and Basis of Presentation
The accompanying consolidated financial statements present the accounts of
Essex Property Trust, Inc. (the Company) which include the accounts of the
Company and Essex Portfolio, L.P. (the Operating Partnership, which holds
the operating assets of the Company). The Company was incorporated in the
state of Maryland in March 1994. On June 13, 1994, the Company commenced
operations with the completion of an initial public offering (the Offering)
in which it issued 6,275,000 shares of common stock at $19.50 per share. The
net proceeds of the Offering of $112,070 were used to acquire a 77.2%
general partnership interest in the Operating Partnership.
The Company has a 89.6% general partner interest and the limited partners
own a 10.4% interest in the Operating Partnership as of December 31, 2000.
The limited partners may convert their 2,129,430 interests into shares of
common stock or cash (based upon the trading price of the common stock at
the conversion date). The Company has reserved shares of common stock for
such conversions. These conversion rights may be exercised by the limited
partners at any time through 2024.
The Company operates and has ownership interests in 83 multifamily
properties (containing 18,673 units) and four commercial properties (with
approximately 290,000 square feet) (collectively, the Properties). The
Properties are located in Northern California (the San Francisco Bay Area),
Southern California (Los Angeles, Ventura, Orange and San Diego counties),
and the Pacific Northwest (Seattle, Washington and Portland, Oregon
metropolitan areas).
All significant intercompany balances and transactions have been eliminated
in the consolidated financial statements.
(2) Summary of Significant Accounting Policies
(a) Real Estate Rental Properties
Rental properties are recorded at cost less accumulated depreciation.
Depreciation on rental properties has been provided over estimated
useful lives ranging from 3 to 30 years using the straight-line method.
Maintenance and repair expenses are charged to operations as incurred.
Asset replacements and improvements are capitalized and depreciated
over their estimated useful lives.
Certain rental properties are pledged as collateral for the related
mortgage notes payable.
(Continued)
F-6
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
When the Company determines that a property is held for sale, it
discontinues the periodic depreciation of that property in accordance
with the provisions of Statement of Financial Accounting Standards No.
121 (SFAS 121). Assets held for sale are reported at the lower of the
carrying amount or estimated fair value less costs to sell. In
addition, whenever events or changes in circumstances indicate that the
carrying amount of a property held for investment may not be fully
recoverable, the carrying amount will be evaluated. If the sum of the
property's expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the property,
then the Company will recognize an impairment loss equal to the excess
of the carrying amount over the fair value of the property. No
impairment has been recorded through December 31, 2000. No properties
are classified as held for sale as of December 31, 2000 and 1999.
(b) Investments
The Company consolidates or accounts for its investments in joint
ventures and corporations under the cost method or the equity method of
accounting based on the control it exercises through its ownership
interests in those entities. Under the cost method, the investment is
carried at cost of acquisition and distributions are recognized as
income when received. Under the equity method of accounting, the
investment is carried at cost of acquisition, plus the Company's equity
in undistributed earnings or losses since acquisition.
(c) Revenues
Rental revenue is reported on the accrual basis of accounting.
(d) Income Taxes
Generally in any year in which the Company qualifies as a real estate
investment trust (REIT) under the Internal Revenue Code (the Code), it
is not subject to federal income tax on that portion of its income that
it distributes to stockholders. No provision for federal income taxes
has been made in the accompanying consolidated financial statements for
each of the three years in the period ended December 31, 2000, as the
Company believes it qualifies under the code as a REIT and has made
distributions during the periods in excess of its taxable income.
Cash dividends distributed for the years ended December 31, 2000, 1999
and 1998 are classified for tax purposes as follows:
2000 1999 1998
---- ---- ----
Taxable portion 100% 100% 85%
Return of capital -- -- 15
---- ---- ----
100% 100% 100%
==== ==== ====
(Continued)
F-7
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(e) Interest Rate Protection, Swap, and Forward Contracts
The Company has from time to time used interest rate protection, swap
and forward contracts to reduce its interest rate exposure on current
or identified future debt transactions. Amounts paid in connection with
such contracts were capitalized and amortized over the term of the
contract or related debt. If the original contract was terminated, the
gain or loss on termination was deferred and amortized over the
remaining term of the contract. If the related debt was repaid, the
unamortized portion of the deferred amount was charged to income or the
contract was marked to market, as appropriate. The Company's policy is
to manage interest rate risk for existing or anticipated borrowings.
Future transactions of this type will be accounted for under Financial
Accounting Standards Board Statement No. 133, which becomes effective
for interim periods beginning in 2001.
(f) Deferred Charges
Deferred charges are principally comprised of loan fees and related
costs which are amortized over the terms of the related borrowing in a
manner which approximates the effective interest method.
(g) Minority Interest
Minority interest includes the limited partners interests in the
Operating Partnership, the cumulative redeemable preferred units and a
15% interest in one San Diego multifamily property held by outside
investors.
(h) Interest
The Company capitalized $2,906, $5,172 and $3,494 of interest related
to the development of real estate during 2000, 1999 and 1998,
respectively.
(i) Stock-Based Compensation
Stock-based compensation is accounted for under Accounting Principles
Board (APB) Opinion 25 and related Interpretations with disclosures
specified in Financial Accounting Standards Board Statement No. 123.
(j) Cash Equivalents and Restricted Cash
Highly liquid investments with maturities of three months or less when
purchased are classified as cash equivalents. Restricted cash relates
to reserve requirements in connection with the Company's tax exempt
variable rate bond financings and a guarantee the Company has made on a
first mortgage loan held by one of its joint venture partnerships.
(k) Reclassifications
Certain reclassifications have been made to the 1998 balances to
conform with the 1999 and 2000 presentations.
(Continued)
F-8
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(l) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
(m) New Accounting Pronouncements
In June 1998, the Statement of Financial Accounting Standards Board
(FASB) issued Financial Accounting No. 133 (SFAS 133), Accounting for
Derivative Instruments and Hedging Activities. The Company will adopt
SFAS 133 for interim periods beginning in 2001, the effective date of
SFAS 133, as amended. Management believes that the adoption of this
statement will not have a material impact on the Company's financial
position or results of operations.
(3) Equity Transactions
During 1999, the Operating Partnership sold Cumulative Redeemable
Preferred Units to certain institutional investors in private
placements as follows:
Price per
Description Date Units unit Net proceeds
- -------------- -------------- --------- --------- ------------
9.30% Series D July 1999 2,000,000 $ 25.00 $ 48,940
9.25% Series E September 1999 2,200,000 25.00 53,400
Preferred units issued in connection with the above transactions are
included in minority interests in the accompanying consolidated balance
sheets.
During 2000 and 1999, Westbrook Real Estate Fund I, L.P. (formerly
known as Tiger/Westbrook Real Estate Fund, L.P.), and Westbrook Real
Estate Co-Investment Partnership I, L.P. (formerly known as
Tiger/Westbrook Real Estate Co-Investment Partnership, L.P.)
(collectively, Tiger/Westbrook) converted 184,687 and 1,415,313
preferred shares, respectively, of its ownership in the Company's 8.75%
convertible preferred stock, Series 1996A (the Convertible Preferred
Stock) into 211,071 shares and 1,617,501 shares, respectively, of
common stock. The Company has filed a shelf registration statement
covering Tiger/Westbrook's resale of all shares of common stock
issuable upon conversion of the Convertible Preferred Stock. The shelf
registration statement was declared effective by the Securities and
Exchange Commission in December 1998. There was no convertible
preferred stock outstanding as of December 31, 2000.
Pursuant to existing shelf registration statements, the Company has the
capacity to issue up to $342,000 of equity securities and the Operating
Partnership has the capacity to issue up to $250,000 of debt
securities.
(Continued)
F-9
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(4) Per Share Data
Basic income per share before extraordinary items and diluted income per
share before extraordinary items are calculated as follows for the years
ended December 31:
2000 1999
---------------------------------- --------------------------------
Weighted- Weighted-
average Per share average Per share
Income shares amount Income shares amount
-------- -------- --------- -------- -------- ---------
Income before extraordinary item $44,472 $43,778
Less: dividends on preferred stock (246) (1,333)
------- -------
Basic:
Income available to common stockholders 44,226 18,234 $2.43 42,445 17,521 $2.42
===== =====
Effect of Dilutive Securities:
Convertible limited partnership units -- --(1) -- --(1)
Convertible preferred stock 246 108 1,333 786
Stock options (2) -- 315 -- 184
------- ------ ------- ------
Diluted:
Income available to common stockholders
plus assumed conversions $44,472 18,657 $2.38 $43,778 18,491 $2.37
======= ====== ===== ======= ====== =====
1998
--------------------------------
Weighted-
average Per share
Income shares amount
-------- --------- ---------
Income before extraordinary item $31,046
Less: dividends on preferred stock (3,500)
-------
Basic:
Income available to common stockholders 27,546 16,631 $1.65
======= =====
Effect of Dilutive Securities:
Convertible limited partnership units -- --(1)
Convertible preferred stock -- --(1)
Stock options (2) -- 178
------- -----
Diluted:
Income available to common stockholders
plus assumed conversions $27,546 16,809 $1.64
======= ====== =====
(1) Securities not included because they were antidilutive.
(2) The following stock options are not included in the diluted earnings per
share calculation because the options' exercise price was greater than
the average market price of the common shares for the year and,
therefore, the effect would be antidilutive:
2000 1999 1998
---------------- ---------------- ----------------
Number of options 12 295 332
Range of exercise prices $45.063 - 54.250 $31.875 - 34.750 $30.125 - 34.250
(Continued)
F-10
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(5) Real Estate
(a) Rental Properties
Rental properties consist of the following as of December 31, 2000
and 1999:
Land and land Building and Accumulated
improvements improvements Total depreciation
------------------ ------------------ ----------- -----------------
December 31, 2000:
Multifamily properties $288,031 $862,900 $1,150,931 $119,088
Commercial properties 1,765 3,712 5,477 411
-------- -------- ---------- -------
$289,796 $866,612 $1,156,408 $119,499
======== ======== ========== ========
December 31, 1999:
Multifamily properties $232,732 $690,955 $ 923,687 $ 96,357
Commercial properties 1,765 3,624 5,389 248
-------- -------- ---------- --------
$234,497 $694,579 $ 929,076 $ 96,605
======== ======== ========== ========
The properties are located in California, Washington and Oregon. The
operations of the properties could be adversely affected by a
recession, general economic downturn or a natural disaster in the areas
where the properties are located.
During the year ended December 31, 2000, the Company sold one property
to an unrelated third party and in addition sold the buildings and
improvements and entered into a leasehold interest in the land of
another property to an unrelated third party for $31,302 resulting in a
gain of $4,022. The Company retained ownership of the land of the
latter property and receives a land lease payment over a 34-year term.
During the year ended December 31, 1999, the Company sold one property
to an unrelated third party for $11,100 resulting in a gain of $3,085.
The Company also sold one property for a gross sales price of $18,400
resulting in a gain of $4,708 to an entity controlled by a member of
the Company's Board of Directors. During the year ended 1999, the
Company sold an 80% interest in three properties and land with
development rights to a newly formed joint venture. The Company
received a 20% interest in the joint venture for contributing its
remaining 20% interest in these properties. The 80% interest was sold
for $58,098, resulting in a gain on the sale of $1,731.
During the year ended December 31, 1998, four properties were sold to
third parties for $26,354 resulting in a recognized gain of $9 and a
deferred gain of $5,002.
The Company utilized Internal Revenue Code Section 1031 to defer the
majority of the taxable gains resulting from these sales.
For the years ended December 31, 2000, 1999 and 1998, depreciation
expense on real estate was $30,762, $25,808 and $21,890, respectively.
(Continued)
F-11
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(b) Investments
The Company has investments in a number of affiliates which are
accounted for under the equity method. The affiliates own and operate
multifamily rental properties.
During 2000, the Company formed Essex VFGP, Inc. (VFGP), and received a
49% equity interest for its capital contribution. VFGP, through the
formation of four separate single asset limited partnerships (the VFGP
L.P.s), purchased four properties for an aggregate a purchase price of
$92,400, including the assumption of two loans totaling $41,300 with
interest rates ranging from 7.8% to 7.9% and maturity dates of July
2005 to July 2009. The remaining funding for the purchases was provided
by promissory notes issued to the VFGP L.P.s from the Company. VFGP
plans to contribute its interests in these properties to a joint
venture that is expected to be completed in 2001.
In October 1999, the Company entered into two separate joint venture
arrangements and received an approximate 49.9% equity interest in each.
Together with the joint venture partners, the Company formed two
separate private REITs, Newport Beach North, Inc. and Newport Beach
South, Inc. Newport Beach North, Inc. and Newport Beach South, Inc. own
an approximate 99.65% interest in Newport Beach North, LLC and Newport
Beach South, LLC, respectively. The Company contributed its investment
of Coronado at Newport - North, an acquisition made in the third
quarter of 1999, to Newport Beach North, LLC. At the same time, the
partners in Newport Beach South, LLC purchased Coronado at Newport -
South, a 715-unit apartment community located in Newport Beach,
California, for a contract price of $64,500. The two entities have
identical ownership structures, and generally, profit and loss are
allocated to the partners in accordance with their ownership interests.
In addition to its equity earnings, the Company is entitled to
management and redevelopment fees from the joint ventures and incentive
payments based on the financial success of the joint ventures.
In connection with formation of the two joint ventures, the entities
obtained nonrecourse debt financing of $34,100 and $37,600 for Newport
Beach North, LLC and Newport Beach South, LLC, respectively. The loans
bear interest at LIBOR plus 2.25% and mature in 2002. The joint venture
entities plan to invest a total of approximately $28,000 additionally
into the properties for exterior and interior renovation and such
investment is intended to be funded through additional advances under
the loans referred to above.
In December 1999, the Company entered into a joint venture arrangement
and received an approximate 20% equity interest in the joint venture.
The Company contributed its investment in Riverfront Apartments, Casa
Mango Apartments, and Westwood Apartments into the joint venture (AEW
joint venture). The Company also contributed land and development
rights for a development community located in Oxnard, California.
Generally, profit and loss are allocated to the partners in accordance
with their ownership interests. In addition to its equity earnings, the
Company is entitled to management, redevelopment and development fees
from the joint venture and incentive payments based on the financial
success of the joint venture.
(Continued)
F-12
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
In connection with its formation, the AEW joint venture assumed two
mortgage loans the Company previously had outstanding on the Casa Mango
and Riverfront properties of $7,300 and $20,000, respectively. The
loans bear interest at a fixed rate of 7.4% and mature in 2009.
The Company holds limited partnership interests in 10 partnerships
which collectively own 4 multifamily properties, comprised of 887 units
and 3 retail properties comprised of 236,000 square feet of leaseable
space (Down REIT entities). These investments were made under
arrangements whereby EMC became the general partner and the other
limited partners were granted rights of redemption for their interests.
Such partners can request to be redeemed and the Company can elect to
redeem their rights for cash or by issuing shares of its common stock.
Conversion values will be based on the market value of the Company's
common stock at the time of redemption multiplied by the number of
shares stipulated under the above arrangements.
(Continued)
F-13
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
Investments which are accounted for under the equity method consist of
the following as of December 31, 2000 and 1999:
2000 1999
---- ----
Investments in joint ventures:
Direct and indirect LLC member interests of approximately 49.9% in Newport
Beach North, LLC and Newport Beach South, LLC $ 31,201 $ 28,435
Limited partnership interest of 20% in AEW joint ventures 10,585 11,341
Class A Member interest of 45% in Park Hill LLC 5,753 5,516
Limited partnership interests of 49% in Parker Ranch 6,000 --
Preferred limited partnership interests in Mountain Vista Apartments 9,540 --
Limited partnership interest of 49.9% in Jackson School Village, L.P. -- 2,649
Limited partnership interest of 46% in Mt. Sutro Terrace Associates, L.P. 2,048 2,223
Limited partnership interests of 1 to 30% in Down REIT entities (1) (1,926) (2,693)
-------- --------
63,201 47,471
Investments in corporations:
Essex Management Corporation - 19,000 shares of preferred stock 190 190
Essex Fidelity I Corporation - 31,800 shares of preferred stock 331 331
Investment in Essex VFGP, Inc. 481 --
-------- --------
Total equity method investments 64,203 47,992
Other investments:
Internet Realty Partners 1,500 --
-------- --------
Total investments $ 65,703 $ 47,992
======== ========
(1) The negative balances result from excess distributions and
allocations over investment cost basis. The Company can receive
profits and losses different from its partnership interest.
(Continued)
F-14
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
The combined summarized financial information of investments which are
accounted for under the equity method are as follows:
December 31,
-------------------------------
2000 1999
----------- ------------
Balance sheets:
Real estate and real estate under development $ 376,261 $ 316,687
Other assets 37,373 22,083
--------- ---------
Total assets $ 413,634 $ 338,770
========= =========
Mortgage notes payable $ 179,994 $ 169,755
Other liabilities 29,926 37,273
Partners' equity 203,714 131,742
--------- ---------
Total liabilities and partners' equity $ 413,634 $ 338,770
========= =========
Company's share of equity $ 64,203 $ 47,992
========= =========
Years ended December 31,
-------------------------------
2000 1999
----------- ------------
Statements of operations:
Total revenue $ 39,097 $ 16,164
Total expenses 34,502 13,164
--------- ----------
Total net income $ 4,595 $ 3,000
========= ==========
Company's share of net income $ 1,333 $ 1,389
========= ==========
F-15 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(6) Notes Receivable from Investees and Other Related Parties
Notes receivable from joint venture investees and other related party
receivables consist of the following as of December 31, 2000 and 1999:
2000 1999
---- ----
Notes receivable from joint venture investees:
Notes receivable from VFGP L.P.s, secured, bearing interest at 9% - Prime + $ 47,840 $ --
3%, due 2001-2010
Note receivable from Highridge Apartments, secured, bearing interest at 9%, 1,047 1,047
due March 2008
Note receivable from Highridge Apartments, secured, bearing interest at 10%, 2,950 2,950
due on demand
Notes receivable from Fidelity I, secured, bearing interest at LIBOR + 2.5%, 5,613 --
due 2004
Receivable from Down REIT entities, noninterest bearing, due on demand 8,281 6,115
Receivable from Newport Beach North LLC and Newport Beach South LLC 1,753 --
Receivable from City Heights LP, noninterest bearing, due on demand 865 --
Receivables from VFGP L.P.s, noninterest bearing, due on demand 4,804 --
Other related party receivables:
Loans to officers, bearing interest at 8%, due April 2006 633 633
Other related party receivables, substantially all due on demand 3,295 2,909
-------- --------
$ 77,081 $ 13,654
======== ========
The Company's officers and directors do not have a substantial economic interest
in these joint venture investees.
Other related party receivables consist primarily of accrued interest income on
related party notes receivable from investees and other related parties and
loans to officers, advances and accrued management fees from joint venture
partnerships, and unreimbursed expenses due from EMC.
F-16 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(7) Notes and Other Receivables
Notes and other receivables consist of the following as of
December 31, 2000 and 1999:
2000 1999
---- ----
Note receivable from Derian Ave, LLC, secured, bearing interest at $ 15,000 $ --
9.3%, principal due May 2001
Note receivable from DOIT City Heights Los Angeles L.P., secured, 2,415 --
interest payable monthly at 9%, principal due December 2007
Note receivable from Derian Ave, LLC, secured, bearing interest at 208 --
15.0%, principal due February 2002
Receivable from AEW Capital Management, noninterest bearing, due on 283 5,529
demand
Receivable from Cadim, noninterest bearing, due on demand -- 429
Other receivables 6,156 3,043
-------- -------
$ 24,062 $ 9,001
======== =======
(8) Related Party Transactions
The Company provides some of its fee-based asset management and disposition
services as well as third-party property management and leasing services
through Essex Management Corporation (EMC). The Company owns 100% of EMC's
19,000 shares of nonvoting preferred stock. Executives of the Company own
100% of EMC's 1,000 shares of common stock. All general and administrative
expenses of the Company and EMC are initially borne by the Company, with a
portion subsequently allocated to EMC based on a business unit allocation
methodology, formalized and approved by management and the Board of
Directors. Expenses allocated to EMC for the years ended December 31, 2000,
1999 and 1998 totaled $1,247, $545 and $545, respectively, and are
reflected as a reduction in general and administrative expenses in the
accompanying consolidated statements of operations.
Included in rental revenue in the accompanying consolidated statements of
operations are rents earned from space leased to Marcus & Millichap Company
(M&M) including operating expense reimbursements of $0, $851 and $833 for
the years ended December 31, 2000, 1999 and 1998, respectively. The
Chairman of M&M is the Chairman of the Company. The commercial property
which M&M occupied was sold in September 1999 to an entity controlled by a
member of the Company's Board of Directors, following approval of the
independent members of the Board of Directors.
F-17 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
During the years ended December 31, 2000, 1999 and 1998, the Company
paid brokerage commissions totaling $289, $105 and $0 to M&M on the
purchase and sales of real estate. The commissions are either
capitalized as a cost of acquisition or are reflected as a reduction of
the gain on sales of real estate in the accompanying consolidated
statements of operations. EMC is entitled to receive a percentage of
M&M brokerage commissions on certain transactions in which the Company
is a party.
Interest and other income include interest income of $1,863, $705 and
$1,027 for the years ended December 31, 2000, 1999 and 1998,
respectively, which was earned principally on the notes receivable from
related party partnerships in which the Company owns an ownership
interest (Joint Ventures). Interest and other income also include
management fee income and investment income earned by the Company from
its Joint Ventures in which it has an ownership interest of $1,955,
$561 and $623 for the years ended December 31, 2000, 1999 and 1998,
respectively.
F-18 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(9) Mortgage Notes Payable
Mortgage notes payable consist of the following as of December 31, 2000 and
1999:
2000 1999
---- ----
Mortgage notes payable to a pension fund, secured by deeds of trust, bearing interest at rates ranging
from 6.62% to 8.18%, interest only payments due monthly for periods ranging from October 2001 through
November 2004, principal and interest payments due monthly thereafter, and maturity dates ranging from
October 2008 through October 2010. Under certain conditions a portion of these loans can be converted
to an unsecured note payable $ 240,000 $ 100,000
Mortgage notes payable, secured by deeds of trust, bearing interest at rates ranging from 6.885% to
8.055%, principal and interest payments due monthly, and maturity dates ranging from February 2003
through March 2008 116,551 145,106
Multifamily housing mortgage revenue bonds secured by deeds of trust on rental properties and
guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan
Agreement (approximately 3.5% for December 2000 and 1999), plus credit enhancement and underwriting
fees ranging from approximately 1.2 to 1.9%. The bonds are convertible to a fixed rate at the
Company's option. Among the terms imposed on the properties, which are security for the bonds, is that
20% of the units are subject to tenant income qualification criteria. Principal balances are due in
full at various maturity dates from July 2020 through October 2026. These bonds are subject to
interest rate protection agreements through August 2003, limiting the interest rate with respect to
such bonds to a maximum interest rate of 7.1% to 7.3% 58,820 58,820
Mortgage notes payable, secured by deeds of trust, bearing interest at rates ranging from 7.00% to
8.78%, principal and interest payments due monthly, and maturity dates ranging from December 2002
through April 2005. Under certain conditions these loans can be converted to unsecured notes payable 43,436 44,158
Multifamily housing mortgage revenue bonds secured by deed of trust on a rental property and guaranteed
by a collateral pledge agreement, bearing interest at 6.455%, principal and interest payments due
monthly, final principal payment of $14,800 due January 2026. Among the terms imposed on the property,
which is security for the bonds, is that 20% of the units are subject to tenant income qualification
criteria. The interest rate will be repriced in February 2008 at the then current tax-exempt bond rate 16,770 17,030
Multifamily housing mortgage revenue bonds secured by deed of trust on rental property, bearing
interest at 7.69%, principal and interest installments due monthly through June 2018. Among the terms
imposed on the property, which is security for the bonds, is that 20% of the units are subject to
tenant income qualifications criteria 8,265 8,494
Construction note payable, secured by deed of trust, bearing interest at a variable rate of LIBOR +
1.75% (approximately 8.5% for December 2000), interest payments due monthly and maturing in May 2001 18,224 --
--------- ---------
$ 502,066 $ 373,608
========= =========
F-19 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
The aggregate scheduled maturities of mortgage notes payable are as follows:
2001 $ 21,122
2002 11,394
2003 20,855
2004 2,888
2005 34,859
Thereafter 410,948
---------
$ 502,066
=========
In October 1997, the Company entered into four forward treasury
contracts for an aggregate notional amount of $60,000, locking the 10-
year treasury rate at between 6.15% and 6.26%. These contracts were
entered into to limit the interest rate exposure on identified future
debt financing requirements relating to real estate under development
and the refinancing of a $18,101 fixed rate loan. These contracts were
settled by June 2000. During 2000, the four contracts were sold,
resulting in a net realized gain of $1,384, which is being amortized
over the related debt.
During the years ended December 31, 2000, 1999 and 1998, the Company
refinanced various mortgages and incurred a loss on the early
extinguishment of debt of $119, $214 and $4,718 related to the write-
off of the unamortized mortgage loan fees and prepayment penalties.
(10) Lines of Credit
The Company has two outstanding unsecured lines of credit for an
aggregate amount $150,000. The first line, in the amount of $120,000,
matures in May 2002, with an option to extend it for one year
thereafter. Outstanding balances under this line of credit bear
interest at a rate which uses a tiered rate structure tied to the
Company corporate ratings, if any, and leverage rating, which has been
priced at LIBOR + 1.15% during 2000 and 1999. As of December 31, 2000
and 1999, the interest rate was approximately 7.9% and 7.0%,
respectively. As of December 31, 2000 and 1999, the Company had $86,469
and $10,500 outstanding on this line of credit, respectively. A second
line of credit in the amount of $30,000 matures in September 2001, with
an option to extend for one year thereafter. Outstanding balances, if
any, on this second line bear interest based on a tiered, rate
structure currently at LIBOR plus 1.175%. As of December 31, 2000 and
1999, the Company had $7,000 and $0 outstanding on this line of credit,
respectively. The Company had no outstanding letters of credit as of
December 31, 2000. As of December 31, 2000, the 30-day LIBOR rate was
approximately 6.7%.
The credit agreements contain debt covenants related to limitations on
indebtedness and liabilities, maintenance of minimum levels of
consolidated earnings before depreciation, interest and amortization
and maintenance of minimum tangible net worth.
(11) Leasing Activity
Rental revenues of the Company include revenues received from its
wholly and majority-owned apartment properties, which are rented under
short-term leases (generally, lease terms of 3 to 12 months). Due to
the short-term nature of the leases, future minimum rental activity is
not disclosed by the Company.
F-20 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(12) Fair Value of Financial Instruments
Management believes that the carrying amounts of mortgage notes
payable, lines of credit, notes and other related party receivables
approximate fair value as of December 31, 2000 and 1999, because
interest rates, yields and other terms for these instruments are
consistent with yields currently available to the Company for similar
instruments. Management believes that the carrying amounts of cash and
cash equivalents, restricted cash, accounts payable, other liabilities
and dividends payable approximate fair value as of December 31, 2000
and 1999 due to the short-term maturity of these instruments.
(13) Stock Option Plans
The Essex Property Trust, Inc. 1994 Stock Incentive Plan provides
incentives to attract and retain officers, directors and key employees.
The Stock Incentive Plan provides for the grants of options to purchase
a specified number of shares of common stock or grants of restricted
shares of common stock. Under the Stock Incentive Plan, the total
number of shares available for grant is approximately 1,375,400. The
Board of Directors (the Board) may adjust the aggregate number and type
of shares reserved for issuance. Participants in the Stock Incentive
Plans are selected by the Stock Incentive Plan Committee of the Board,
which is comprised of independent directors. The Compensation Committee
is authorized to establish the exercise price; however, the exercise
price cannot be less than 100% of the fair market value of the common
stock on the grant date. The Company's options have a life of ten
years. Option grants fully vest between one year and five years after
the grant date.
In connection with the Company's 1994 initial public offering, the
Company provided a one-time grant of options to M&M to purchase 220,000
shares of common stock at the initial public offering price of $19.50
per share pursuant to an agreement whereby Marcus & Millichap Real
Estate Investment Brokerage Company, a subsidiary of M&M, will provide
real estate transaction, trend and other information to the Company for
a period of ten years.
The Company has also reserved 406,500 shares of common stock in
connection with the Essex Property Trust, Inc. 1994 Employee Stock
Purchase Plan. There was no activity in this plan during 2000, 1999 and
1998.
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock-based compensation plans. Under this opinion,
no compensation cost has been recognized for its plans. Had
compensation cost for the Company's plans been determined based on the
fair value at the grant dates consistent with the method of FASB
Statement 123, the Company's net income for the years ended December
31, 2000, 1999 and 1998 would have been reduced to the pro forma
amounts indicated below:
2000 1999 1998
---- ---- ----
Net income:
As reported $ 44,353 $ 43,564 $ 26,328
Pro forma 43,857 43,489 26,294
For the years ended December 31, 2000, 1999 and 1998, the effect of
determining compensation cost consistent with FASB Statement 123 on
basic and diluted earnings per share was not material.
F-21 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
The fair value of options granted was estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants: risk-free interest rates
ranging from 5.67% to 6.72% in 2000, from 5.14% to 6.39% in 1999, and
from 4.19% to 5.77% in 1998; expected lives of 6 years for 2000, 7
years for 1999 and 4 years for 1998; volatility of 19.26% for 2000,
21.41% for 1999 and 18.79% for 1998; and dividend yield of 4.3% for
2000, 6.6% for 1999 and 6.0% for 1998.
A summary of the status of the Company's option plans as of December
31, 2000, 1999 and 1998 and changes during the years ended on those
dates is presented below:
2000 1999 1998
------------------------ ----------------------- ------------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
----------- ----------- ---------- ----------- ------------ ----------
Outstanding at beginning of year 954,449 $ 26.24 909,764 $ 24.40 828,214 $ 24.57
Granted 125,000 40.93 161,550 29.18 110,500 30.92
Exercised (151,591) 22.50 (45,535) 17.38 (19,950) 18.73
Forfeited and canceled (41,900) 36.01 (71,330) 25.40 (9,000) 24.57
------- ------- -------
Outstanding at end of year 885,958 954,449 26.24 909,764 24.40
======= ======= =======
Options exercisable at year end 560,681 25.06 579,112 23.31 449,457 21.66
Weighted-average fair value of $7.57 $3.45 $3.19
options granted during the year
F-22 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
The following table summarizes information about stock options outstanding as
of December 31, 2000:
Options outstanding Options exercisable
--------------------------------------------------------- ----------------------------------------
Number Number
outstanding as Weighted-average Weighted- exercisable as Weighted-
Range of of December 31, remaining average of December 31, average
exercise prices 2000 contractual life exercise price 2000 exercise price
- ----------------- ---------------- ------------------ ----------------- ------------------ -------------------
$10.85 - 16.28 3,000 4.2 years $ 15.50 3,000 $ 15.50
16.28 - 21.70 309,828 3.5 years 19.48 309,828 19.48
21.70 - 27.13 58,790 8.1 years 26.05 9,590 25.81
27.13 - 32.55 165,260 7.4 years 30.20 98,530 29.90
32.55 - 37.98 247,680 6.9 years 34.22 139,733 34.22
37.98 - 43.40 83,500 9.4 years 39.63 -- --
43.40 - 48.83 7,500 9.6 years 44.71 -- --
48.83 - 54.25 10,400 9.8 years 51.86 -- --
------- -------
885,958 560,681
======= =======
Through December 31, 2000, the Company has granted 42,586 stock units
under the Company's Phantom Stock Unit Agreement to two of the
Company's executives. The units vest in installments in accordance with
the vesting schedule set forth in the Phantom Stock Unit Agreement such
that the units will be fully vested five years from the date of
issuance. At that time, the Company expects to issue to the executives
the number of shares of common stock equal to the number of units
vested, or at the Company's option, an equivalent amount in cash.
Dividends are paid by the Company on the vested and unvested portion of
shares. For the years ended December 31, 2000, 1999 and 1998,
compensation cost was $262, $184 and $20, respectively, related to this
plan.
(14) Shareholder Rights Plan
On November 12, 1998, the Company's Board of Directors adopted a
Stockholder Rights Plan. A dividend of one right (a Right) per share of
common stock was distributed to stockholders of record on November 21,
1998. Each Right, expiring November 11, 2008, represents a right to buy
from the Company 1/100th of a share of Series A junior participating
preferred stock at a price of $99.13 per Right.
Generally the Rights will not be exercisable unless a person or group
acquires 15% or more, or announces an offer that could result in
acquiring 15% or more, of the Company's common stock unless such person
is or becomes the beneficial owner of 15% or more of the Company's
outstanding common stock and had a contractual right or the approval of
the Company's Board of Directors, provided that such percentage shall
not be greater than 19.9%. Following an acquisition of 15% or more of
the Company's common stock, each Right holder, except the 15% or more
shareholder, has the right to receive, upon exercise, shares of common
stock valued at twice the then applicable exercise price of the Right,
unless the 15% or more shareholder has offered to acquire all of the
outstanding shares of the Company under terms that a majority of the
independent directors of the Company have determined to be fair and in
the best interest of the Company and its shareholders.
F-23 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
Similarly, unless certain conditions are met, if the Company engages in
a merger or other business combination following a stock acquisition
where it does not survive or survives with a change or exchange of its
common stock or if 50% or more of its assets, earning power or cash
flow is sold or transferred, the Rights will become exercisable for
shares of the acquiror's stock having a value of twice the exercise
price.
Generally, Rights may be redeemed for $.01 each (in cash, common stock
or other consideration the Company deems appropriate) until the tenth
day following a public announcement that a 15% or greater position has
been acquired of the Company's stock.
(15) Segment Information
In accordance with FASB No. 131, Disclosures about Segments of an
Enterprise and Related Information, the Company defines its reportable
operating segments as the three geographical regions in which its
multifamily residential properties are located: Northern California,
Southern California, and the Pacific Northwest.
Nonsegment revenues and net operating income included in the following
schedule consist of revenue generated from the two commercial
properties. Also excluded from segment revenues is interest and other
corporate income. Other nonsegment assets include investments, real
estate under development, cash, notes receivables, other assets and
deferred charges.
The accounting policies of the segments are the same as those described
in note 1. The Company evaluates performance based upon net operating
income from the combined properties in each segment.
F-24 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
The revenues, net operating income, and assets for each of the
reportable operating segments are summarized as follows for the years
ended and as of December 31, 2000, 1999 and 1998:
Year ended December 31,
---------------------------------------
2000 1999 1998
----------- ----------- ---------
Revenues:
Northern California $ 57,998 $ 46,960 $ 42,078
Southern California 68,246 58,371 45,252
Pacific Northwest 41,527 33,316 32,137
------------ ------------ ----------
Total segment revenues 167,771 138,647 119,467
Nonsegment property revenues -- 1,780 2,575
Interest and other income 10,969 5,618 3,217
------------ ------------ ----------
Total revenues $ 178,740 $ 146,045 $ 125,259
============ ============ ==========
Net operating income:
Northern California $ 44,960 $ 35,962 $ 31,681
Southern California 47,168 40,122 29,758
Pacific Northwest 28,953 22,284 21,138
------------ ------------ ----------
Total segment net operating income 121,081 98,368 82,577
Nonsegment net operating income -- 353 1,532
Interest and other income 10,969 5,618 3,217
Depreciation and amortization (30,765) (26,150) (21,948)
Interest (30,384) (21,268) (19,374)
Amortization of deferred financing costs (639) (566) (718)
General and administrative (6,062) (4,263) (3,765)
Loss from hedge termination -- -- --
Provision for litigation loss -- -- (930)
------------ ------------ ----------
Income before gain on the sales of real estate, minority
interests, and extraordinary item $ 64,200 $ 52,092 $ 40,591
============ ============ ==========
Assets:
Northern California $ 284,773 $ 216,946 $ 241,676
Southern California 478,835 415,374 355,077
Pacific Northwest 268,235 195,011 198,761
------------ ------------ ----------
Total segment net real estate assets 1,031,843 827,331 795,514
Nonsegment net real estate assets 5,066 5,140 16,661
------------ ------------ ----------
Net real estate assets 1,036,909 832,471 812,175
Nonsegment assets 244,940 229,842 119,621
------------ ------------ ----------
Total assets $ 1,281,849 $ 1,062,313 $ 931,796
============ ============ ==========
F-25 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(16) Quarterly Results of Operations (Unaudited)
The following is a summary of quarterly results of operations for 2000 and
1999:
Quarter ended Quarter ended Quarter ended Quarter ended
December 31 September 30 June 30 March 31
---------------- ------------- ------------- -------------
2000:
Total revenues before gain on the sales of real estate $ 49,434 $ 47,358 $ 42,412 $ 39,536
Gain on the sales of real estate $ -- $ -- $ -- $ 4,022
======== ======== ======== ========
Extraordinary item $ (119) $ -- $ -- $ --
======== ======== ======== ========
Net income $ 11,081 $ 10,249 $ 10,273 $ 12,750
======== ======== ======== ========
Per share data:
Net income:
Basic $ 0.60 $ 0.56 $ 0.56 $ 0.70
======== ======== ======== ========
Diluted $ 0.59 $ 0.54 $ 0.55 $ 0.69
======== ======== ======== ========
Market price:
High $ 57.75 $ 56.50 $ 44.00 $ 36.31
======== ======== ======== ========
Low $ 50.50 $ 42.00 $ 36.00 $ 32.56
======== ======== ======== ========
Close $ 54.75 $ 55.38 $ 42.02 $ 36.00
======== ======== ======== ========
Dividends declared $ 0.61 $ 0.61 $ 0.61 $ 0.55
======== ======== ======== ========
1999:
Total revenues before gain on the sales of real estate $ 39,512 $ 37,745 $ 34,898 $ 33,890
Gain on the sales of real estate $ 4,816 $ 4,708 $ -- $ --
======== ======== ======== ========
Extraordinary item $ (124) $ -- $ (90) $ --
======== ======== ======== ========
Net income $ 13,161 $ 13,073 $ 8,876 $ 8,454
======== ======== ======== ========
Per share data:
Net income:
Basic $ 0.72 $ 0.72 $ 0.50 $ 0.46
======== ======== ======== ========
Diluted $ 0.71 $ 0.71 $ 0.49 $ 0.45
======== ======== ======== ========
Market price:
High $ 34.00 $ 34.94 $ 35.50 $ 26.25
======== ======== ======== ========
Low $ 33.69 $ 34.13 $ 34.31 $ 26.69
======== ======== ======== ========
Close $ 34.00 $ 34.93 $ 35.38 $ 26.13
======== ======== ======== ========
Dividends declared $ 0.55 $ 0.55 $ 0.55 $ 0.50
======== ======== ======== ========
F-26 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
(17) 401(k) Plan
The Company has a 401(k) pension plan (the Plan) for all full-time
employees who have completed one year of service. Employees may
contribute up to 23% of their compensation, limited by the maximum
allowed under Section 401(k) of the Internal Revenue Code. The Company
matches the employee contributions for nonhighly compensated personnel,
up to 50% of their compensation to a maximum of $.5 (per individual)
per year. Company contributions to the Plan were approximately $98, $58
and $46 for the years ended December 31, 2000, 1999 and 1998.
(18) Commitments and Contingencies
The Company had no outstanding letters of credit relating to financing
and development transactions as of December 31, 2000.
In conjunction with an acquisition of a property by the Company in
2000, the Company has guaranteed on behalf of the seller $13,260 on a
$44,200 loan secured by another property owned by the seller (a 413-
unit apartment complex in Herndon, Virginia). The guarantee expires no
later than February 2002.
The Company is developing five multifamily residential projects, which
are planned to have an aggregate of approximately 1,349 multifamily
units. The Company expects that such projects will be completed during
the next two years. In connection with these projects, the Company has
directly, or in some cases through its joint venture partners, entered
into contractual construction related commitments with unrelated third
parties. As of December 31, 2000, the Company is committed to fund
approximately $108,600 relating to these projects.
Investments in real property create a potential for environmental
liabilities on the part of the owner of such real property. The Company
carries no express insurance coverage for this type of environmental
risk. The Company has conducted environmental studies which revealed
the presence of groundwater contamination at certain properties; such
contamination at certain of these properties was reported to have
migrated on-site from adjacent industrial manufacturing operations. The
former industrial users of the properties were identified as the source
of contamination. The environmental studies noted that certain
properties are located adjacent to and possibly down gradient from
sites with known groundwater contamination, the lateral limits of which
may extend onto such properties. The environmental studies also noted
that at certain of these properties, contamination existed because of
the presence of underground fuel storage tanks, which have been
removed. Based on the information contained in the environmental
studies, the Company believes that the costs, if any, it might bear as
a result of environmental contamination or other conditions at these
properties would not have a material adverse effect on the Company's
financial position, results of operations, or liquidity.
The Company is involved in various lawsuits arising out of the ordinary
course of business and certain other legal matters. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Company's financial position, results of
operations or liquidity.
F-27 (Continued)
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(Dollars in thousands, except for per share amounts)
In September 1999, the Company formed a program in which directors and
management of the Company can participate indirectly in an investment
in the Company's common stock. The participants have entered into a
swap agreement with a securities broker whereby the securities broker
has acquired, in open market transactions, 223,475 shares of the
Company's common stock. The agreement terminates in five years at which
time the settlement amount is determined by comparing the original
purchase price of the stock plus interest at a rate of LIBOR plus 1.5%
to the termination date market value of the shares and all dividends
received during the investment period. In certain circumstances, the
participants may be required to provide collateral to the securities
broker. The Company has guaranteed performance of the participants with
respect to any obligations relating to the swap agreement. If the
program was terminated effective December 31, 2000, there would have
been no collateral requirement and no obligation under the participant
performance guarantee.
F-28
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
December 31, 2000
(Dollars in thousands)
Initial cost Costs
--------------------------- capitalized
Buildings and subsequent to
Property Units Location Encumbrance Land improvements acquisition
- ----------------------------------------------------------------- ------------- --------- --------------- ---------------
Encumbered multifamily properties
Summerhill Park 100 Sunnyvale, CA $ $ 2,654 $ 4,918 $ ,502
Oak Pointe 390 Sunnyvale, CA 4,842 19,776 5,077
Summerhill Commons 184 Newark, CA 1,608 7,582 922
Pathways 296 Long Beach, CA 4,083 16,757 7,962
Stevenson Place(The Apple) 200 Fremont, CA 996 5,582 6,041
Foothill Commons 360 Bellevue, WA 2,435 9,821 2,812
Woodland Commons 236 Bellevue, WA 2,040 8,727 1,692
Palisades 192 Bellevue, WA 1,560 6,242 1,659
------------- --------- --------------- ---------------
100,000 20,218 79,405 26,667
------------- --------- --------------- ---------------
Wharfside Pointe 142 Seattle, WA 2,245 7,020 848
Emerald Ridge 180 Bellevue, WA 3,449 7,801 815
Sammamish View 153 Bellevue, WA 3,324 7,501 675
------------- --------- --------------- ---------------
18,858 9,018 22,322 2,338
------------- --------- --------------- ---------------
Brighton Ridge 264 Renton, WA 2,623 10,800 958
Landmark 285 Hillsboro, OR 3,655 14,200 900
Eastridge 188 San Ramon, CA 6,068 13,628 388
------------- --------- --------------- ---------------
27,125 12,346 38,628 2,246
------------- --------- --------------- ---------------
Fountain Court 320 Bellevue, WA 6,702 27,306 35
Hillcrest Park(Mirabella) 608 Newbury Park, CA 15,318 40,601 5,088
Hillsborough Park 235 La Habra, CA 6,291 15,455 , 51
------------- --------- --------------- ---------------
80,000 28,311 83,362 5,174
------------- --------- --------------- ---------------
The Shores 462 San Ramon, CA 12,105 18,252 14,688
Waterford 238 San Jose, CA 11,808 24,500 245
------------- --------- --------------- ---------------
60,000 23,913 42,752 14,933
------------- --------- --------------- ---------------
Bridle Trails 92 Kirkland, WA 4,147 1,500 5,930 172
Bunker Hill Towers 456 Los Angeles, CA 17,919 11,498 27,871 511
Camarillo Oaks 564 Camarillo, CA 27,685 10,953 25,254 3,480
Evergreen Heights 200 Kirkland, WA 8,737 3,566 13,395 484
Hampton Park(Columbus) 83 Glendale, CA 4,497 2,407 5,672 1,195
Hampton Place(Lorraine) 132 Glendale, CA 8,316 4,288 11,081 1,124
Huntington Breakers 342 Huntington Beach, CA 23,179 9,306 22,720 1,219
Inglenook Court 224 Bothell, WA 8,300 3,467 7,881 1,478
Jackson School Village 200 Hillsboro, OR 9,261 2,588 10,452 342
Maple Leaf 48 Seattle, WA 2,026 805 3,283 80
Mariners Palce 105 Oxnard, CA 4,289 1,555 6,103 13
Meadowood 320 Simi Valley, CA 16,770 7,852 18,592 1,009
Monterra del Rey(Glenbrook) 84 Pasadena, CA 4,426 2,312 4,923 1,105
Monterra del Sol(Euclid) 85 Pasadena, CA 2,852 2,202 4,794 1,813
Spring Lake 69 Seattle, WA 2,219 838 3,399 92
Stonehedge Village 196 Bothell, WA 8,966 3,167 12,603 521
The Bluffs 224 San Diego, CA 8,251 3,405 7,743 229
The Carlyle 132 San Jose, CA 18,224 3,954 15,277 48
Treetops 172 Fremont, CA 9,800 3,520 8,182 1,012
Wandering Creek 156 Kent, WA 5,300 1,285 4,980 1,029
Wilshire Promenade 128 Fullerton, CA 7,574 3,118 7,385 375
Windsor Ridge 216 Sunnyvale, CA 13,345 4,017 10,315 692
------------- --------- --------------- ---------------
216,083 181,409 504,304 69,381
------------- --------- --------------- ---------------
Gross amount
carried at close of period
------------------------------------------ Depreciable
Land and Buildings and Accumulated Date of Date lives
Property improvements improvements Total(1) depreciation construction acquired (years)
- --------------------------------------------- --------------- --------- --------------- ---------------- ---------- ----------
Encumbered multifamily
properties
Summerhill Park 2,655 $ 5,419 $ 8,074 $ 2,040 1988 9/88 3-40
Oak Pointe 4,845 24,850 29,695 11,668 1973 12/88 3-30
Summerhill Commons 1,523 8,589 10,112 3,223 1987 7/87 3-40
Pathways 6,236 22,566 28,802 6,343 1975 2/91 3-30
Stevenson Place(The Apple) 1,000 11,619 12,619 4,949 1971 4/82 3-30
Foothill Commons 2,438 12,630 15,068 5,633 1978 3/90 3-30
Woodland Commons 2,042 10,417 12,459 4,376 1978 3/90 3-30
Palisades 1,562 7,899 9,461 3,829 1969/1977 (2) 5/90 3-30
------------- --------------- --------- --------------
22,301 103,989 126,290 42,061
------------- --------------- --------- ---------------
Wharfside Pointe 2,253 7,860 10,113 2,017 1990 6/94 3-30
Emerald Ridge 3,447 8,618 12,065 2,111 1987 11/94 3-30
Sammamish View 3,329 8,171 11,500 1,882 1986 11/94 3-30
------------- --------------- --------- --------------
9,029 24,649 33,678 6,010
------------- --------------- --------- ---------------
Brighton Ridge 2,654 11,727 14,381 1,435 1986 12/96 3-30
Landmark 3,697 15,058 18,755 2,250 1990 08/96 3-30
Eastridge 6,089 13,995 20,084 2,054 1988 08/96 3-30
------------- --------------- --------- --------------
12,440 40,780 53,220 5,732
------------- --------------- --------- ---------------
Fountain Court 6,702 27,341 34,043 690 2000 3/00 3-30
Hillcrest Park(Mirabella) 15,750 45,257 61,007 4,193 1973 3/98 3-30
Hillsborough Park 6,267 15,530 21,797 929 1999 09/99 3-30
------------- --------------- --------- --------------
28,719 88,128 116,847 5,812
------------- --------------- --------- ---------------
The Shores 12,555 32,490 45,045 2,883 1988 01/97 3-30
Waterford 11,910 24,643 36,553 408 2000 6/00 3-30
------------- --------------- --------- --------------
24,465 57,133 81,598 3,291
------------- --------------- --------- ---------------
Bridle Trails 1,529 6,073 7,602 679 1986 10/97 3-30
Bunker Hill Towers 11,631 28,249 39,880 2,694 1968 3/98 3-30
Camarillo Oaks 11,015 28,672 39,687 3,655 1985 07/96 3-30
Evergreen Heights 3,643 13,802 17,445 1,668 1990 06/97 3-30
Hampton Park(Columbus) 2,410 6,864 9,274 354 1974 06/99 3-30
Hampton Place(Lorraine) 4,291 12,202 16,493 624 1970 06/99 3-30
Huntington Breakers 9,312 23,933 33,245 2,581 1984 10/97 3-30
Inglenook Court 3,472 9,354 12,826 3,059 1985 10/94 3-30
Jackson School Village 2,690 10,692 13,382 87 1996 9/00 3-30
Maple Leaf 825 3,343 4,168 363 1986 10/97 3-30
Mariners Palce 1,555 6,116 7,671 118 1987 5/00 3-30
Meadowood 7,895 19,558 27,453 2,867 1986 11/96 3-30
Monterra del Rey(Glenbrook) 2,430 5,910 8,340 310 1972 04/99 3-30
Monterra del Sol(Euclid) 2,377 6,432 8,809 305 1972 04/99 3-30
Spring Lake 857 3,472 4,329 368 1986 10/97 3-30
Stonehedge Village 3,196 13,095 16,291 918 1986 10/97 3-30
The Bluffs 3,439 7,938 11,377 954 1974 06/97 3-30
The Carlyle 4,002 15,277 19,279 329 2000 4/00 3-30
Treetops 3,576 9,138 12,714 1,617 1978 01/96 3-30
Wandering Creek 1,296 5,998 7,294 1,252 1986 11/95 3-30
Wilshire Promenade 3,140 7,738 10,878 1,079 1992 01/97 3-30
Windsor Ridge 4,019 11,005 15,024 3,549 1989 03/89 3-40
------------- --------------- --------- --------------
185,554 569,540 755,094 92,343
------------- --------------- --------- --------------
(Continued)
F-29
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Real Estate and Accumulated Depreciation
December 31, 2000
(Dollars in thousands)
Initial cost Costs
--------------------------- capitalized
Buildings and subsequent to
Property Units Location Encumbrance Land improvements acquisition
- ----------------------------------------------------------------------- ------------- --------- --------------- ---------------
Unencumbered multifamily properties
Avondale at Warner Center 446 Woodland Hills, CA 10,536 24,522 992
Bristol Commons 188 Sunnyvale, CA 5,278 11,853 962
Castle Creek 216 Newcastle, WA 4,149 16,028 782
City Heights (3) -- Los Angeles, CA 9,655 -- --
El Encanto 116 Tustin, CA 2,057 8,200 819
Fairway (4) 74 Newport Beach, CA -- 7,850 375
Foothill/Twincreeks 176 San Ramon, CA 5,875 13,992 977
Kings Road 196 Los Angeles, CA 4,023 9,527 315
Linden Square 183 Seattle, WA 4,374 11,588 203
Marina Cove (5) 292 Santa Clara, CA 5,320 16,431 1,794
Meadows @ Cascade 198 Vancouver, WA 2,261 9,070 881
Mirabella 188 Marina Del Rey, CA 6,180 26,673 69
Park Place/
Windsor Court/Cochran 176 Los Angeles, CA 4,965 11,806 335
Plumtree 140 Santa Clara, CA 3,090 7,421 655
Rosebeach 174 La Mirada, CA 2,493 9,360 21
Salmon Run 132 Bothell, WA 3,717 11,483 27
Tara Village 168 Tarzana, CA 3,178 7,535 629
The Laurels 164 Mill Creek, WA 1,559 6,430 406
The Village 122 Oxnard, CA 2,349 5,579 236
Trabucco Villas 132 Lake Forest, CA 3,638 8,640 522
Villa Scandia 118 Ventura, CA 1,570 3,912 212
Village @ Cascade 192 Vancouver, WA 2,103 8,753 206
Wimbledon Woods 560 Hayward, CA 9,883 37,670 949
Monterra del Mar (Windsor Terrace) 122 Pasadena, CA 2,188 5,263 3,443
Vista Point (3)(7) -- Anaheim, CA -- -- --
------------- --------- --------------- ---------------
13,734 502,066 281,850 783,890 85,191
------------- ------------- --------- --------------- ---------------
Commercial properties
925 East Meadow (6) Palo Alto, CA -- 1,401 3,172 904
------------- --------- --------------- ---------------
Total multifamily and commercial properties $ 502,066 $ 283,251 $ 787,062 $ 86,095
============= ========= =============== ===============
Gross amount
carried at close of period
---------------------------------------- Depreciable
Land and Buildings Accumulated Date of Date lives
Property improvements improvements Total(1) depreciation construction acquired (years)
- -------------------------------------------------------- ------------- --------- ------------- ------------------------------------
Unencumbered multifamily properties
Avondale at Warner Center 10,561 25,489 36,050 1,173 1989 01/97 3-30
Bristol Commons 5,282 12,811 18,093 1,671 1989 01/97 3-30
Castle Creek 4,815 16,144 20,959 1,229 1997 12/97 3-30
City Heights (3) 9,655 -- 9,655 -- 1968 12/00 --
El Encanto 2,060 9,016 11,076 122 1969 8/00 3-30
Fairway (4) -- 8,225 8,225 414 1972 06/99 3-30
Foothill/Twincreeks 5,938 14,906 20,844 1,923 1985 02/97 3-30
Kings Road 4,028 9,837 13,865 1,179 1979 06/97 3-30
Linden Square 4,192 11,973 16,165 201 1994 6/00 3-30
Marina Cove (5) 5,319 18,226 23,545 4,624 1974 6/94 3-30
Meadows @ Cascade 2,334 9,878 12,212 1,066 1988 11/97 3-30
Mirabella 6,193 26,729 32,922 526 2000 5/00 3-30
Park Place/
Windsor Court/Cochran 5,014 12,092 17,106 1,064 1988 08/97 3-30
Plumtree 3,089 8,077 11,166 2,055 1975 2/94 3-30
Rosebeach 2,495 9,379 11,874 78 1970 9/00 3-30
Salmon Run 3,729 11,498 15,227 64 2000 10/00 3-30
Tara Village 3,210 8,132 11,342 1,099 1972 01/97 3-30
The Laurels 1,593 6,802 8,395 893 1981 12/96 3-30
The Village 2,391 5,773 8,164 708 1974 07/97 3-30
Trabucco Villas 3,841 8,959 12,800 962 1985 10/97 3-30
Villa Scandia 1,590 4,104 5,694 530 1971 06/97 3-30
Village @ Cascade 2,149 8,913 11,062 911 1995 12/97 3-30
Wimbledon Woods 10,344 38,158 48,502 3,589 1975 3/98 3-30
Monterra del Mar (Windsor Terrace) 2,655 8,239 10,894 663 1972 09/97 3-30
Vista Point (3)(7) -- -- -- -- 1968 07/85 --
--------- --------- ---------- ---------
288,031 862,900 1,150,931 119,087
--------- --------- ---------- ---------
Commercial properties
925 East Meadow (6) 1,765 3,712 5,477 412 1984 11/97 3-30
--------- --------- ---------- ---------
Total multifamily and commercial properties $ 289,796 $ 866,612 $1,156,408 $ 119,499
========= ========= ========== =========
(1) The aggregate cost for federal income tax purposes is $884,336,807.
(2) Phase I was built in 1969 and Phase II was built in 1977.
(3) The Company has a leasehold interest in this land and receives a land lease
payment over a 34-year-term.
(4) The land is leased pursuant to a ground lease expiring 2027.
(5) A portion of land is leased pursuant to a ground lease expiring in 2028.
(6) Total rentable square footage of 17,404
(7) The Company's interest in the land is subordinate to a loan issued to the
purchaser of the buildings and improvements, and therefore the carrying
amount was written off in connection with the sale.
A summary of activity for real estate and accumulated depreciation is as follows:
2000 1999 1998
----------------- -------------- ------------------
Real estate:
Balance at beginning of year $ 929,076 $ 889,964 $ 730,987
Improvements 18,348 5,554 12,200
Acquisition of real estate 238,938 193,634 169,934
Disposition of real estate (29,954) (160,076) (23,157)
----------------- -------------- ------------------
Balance at end of year $ 1.156,408 $ 929,076 $ 889,964
================= ============== ==================
2000 1999 1998
----------------- -------------- ------------------
Accumulated depreciation:
Balance at beginning of year $ 96,605 $ 77,789 $ 58,040
Dispositions (7,871) (7,334) (2,183)
Depreciation expense - 2,626 1,377 2,888
Acquisitions
Depreciation expense 28,139 24,773 19,044
----------------- -------------- ------------------
Balance at end of year $ 119,499 $ 96,605 $ 77,789
================= ============== ==================
F-30
EXHIBIT INDEX
Exhibit No. Document Page
- ----------- -------- ----
3.1 Articles of Amendment and Restatement of Essex dated June 22, 1995, --
attached as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, and incorporated herein by
reference.
3.2 Articles Supplementary of Essex Property Trust, Inc. for the 8.75% --
Convertible Preferred Stock, Series 1996A, attached as Exhibit 3.1 to
the Company's Current Report on Form 8-K, filed August 13, 1996, and
incorporated herein by reference.
3.3 First Amendment to Articles of Amendment and Restatement of Essex --
Property Trust, Inc., attached as Exhibit 3.1 to the Company's 10-Q for
the quarter ended September 30, 1996, and incorporated herein by
reference.
3.4 Certificate of Correction to Exhibit 3.2 dated December 20, 1996 (1)
3.5 Amended and Restated Bylaws of Essex Property Trust, Inc., attached as --
Exhibit 3.2 to the Company's Current Report on Form 8-K, filed August
13, 1996, and incorporated herein by reference.
3.6 Certificate of Amendment of the Bylaws of Essex Property Trust, Inc., (1)
dated December 17, 1996.
3.7 Articles Supplementary reclassifying 2,000,000 shares of Common Stock --
as 2,000,000 shares of 7.875% Series B Cumulative Redeemable Preferred
Stock, filed with the State of Maryland on February 10, 1998, attached
as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed March
3, 1998, and incorporated herein by reference.
3.8 Articles Supplementary reclassifying 500,000 shares of Common Stock as (2)
500,000 shares of 9-1/8% Series C Cumulative Redeemable Preferred
Stock, filed with the State of Maryland on November 25, 1998.
3.9 Certificate of Correction to Exhibit 3.2 dated February 12, 1999. (2)
3.10 Articles Supplementary reclassifying 6,617,822 shares of Common Stock --
as 6,617,822 shares of Series A Junior Participating Preferred Stock,
filed with the State of Maryland on November 13, 1998, attached as
Exhibit 4.0 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, and incorporated herein by reference.
3.11 Articles Supplementary reclassifying 2,000,000 shares of Common --
Exhibit No. Document Page
- ----------- -------- ----
Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable
Preferred Stock, filed with the State of Maryland on July 30, 1999,
attached as Exhibit 3.1 to the Company's 10-Q for the quarter ended
June 30, 1999 and incorporated herein by reference.
3.12 Articles Supplementary reclassifying 2,200,000 shares of Common Stock --
as 2,200,000 shares of 9.25% Series E Cumulative Redeemable Preferred
Stock, filed with the State of Maryland on September 9, 1999, attached
as Exhibit 3.1 to the Company's 10-Q for the quarter ended September
30, 1999 and incorporated herein by reference.
3.13 Certificate of Correction to Articles Supplementary reclassifying --
2,000,000 shares of Common Stock as 2,000,000 shares of 9.30% Series D
Cumulative Redeemable Preferred Stock, attached as Exhibit 3.1 to the
Company's Form 10-Q for the quarter ended March 31, 2000, and
incorporated herein by reference.
3.14 Certificate of Amendment of the Bylaws of Essex Property Trust, Inc. --
dated February 14, 2000, attached as Exhibit 3.2 to the Company's Form
10-Q for the quarter ended March 31, 2000, and incorporated herein by
reference.
4.1 Rights Agreement, dated as of November 11, 1998, between Essex Property --
Trust, Inc., and BankBoston, N.A., as Rights Agent, including all
exhibits thereto, attached as Exhibit 1 to the Company's Registration
Statement filed on Form 8-A dated November 12, 1998, and incorporated
herein by reference.
10.1 Essex Property Trust, Inc. 1994 Stock Incentive Plan, (amended and --
restated), attached as Exhibit 10.1 to the Company's Form 10-Q for the
quarter ended June 30, 2000 and incorporated herein by reference.
10.2 First Amended and Restated Agreement of Limited Partnership of Essex --
Portfolio, L.P. attached as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference.
10.3 First Amendment to the First Amended and Restated Agreement of Limited --
Partnership of Essex Portfolio, L.P. dated February 6, 1998, attached
as Exhibit 10.1 to the Company's Current Report on Form 8-K , filed
March 3, 1998, and incorporated herein by reference.
10.4 Second Amendment to the First Amended and Restated Agreement of Limited --
Partnership of Essex Portfolio, L.P. dated April 20, 1998, attached as
Exhibit 10.1 to the Company's Current Report on Form 8-K,
Page 2
Exhibit No. Document Page
- ----------- -------- ----
filed April 23, 1998, and incorporated herein by reference.
10.5 Third Amendment to the First Amended and Restated Agreement of Limited (2)
Partnership of Essex Portfolio, L.P. dated November 24, 1998.
10.6 Fourth Amendment to the First Amended and Restated Agreement of Limited --
Partnership of Essex Portfolio, L.P., dated July 28, 1999, attached as
Exhibit 10.1 to the Company's 10-Q for the quarter ended June 30, 1999
and incorporated herein by reference.
10.7 Fifth Amendment to the First Amended and Restated Agreement of Limited --
Partnership of Essex Portfolio, L.P., dated September 3, 1999, attached
as Exhibit 10.1 to the Company's 10-Q for the quarter ended September
30, 1999 and incorporated herein by reference.
10.8 Form of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock --
Incentive Plan, attached as Exhibit 10.3 to the Company's Registration
Statement on Form S-11 (Registration No. 33-76578), which became
effective on June 6, 1994, and incorporated herein by reference.
10.9 Form of Essex Property Trust, Inc. 1994 Employee Stock Purchase Plan, --
attached as Exhibit 10.4 to the Company's Registration Statement on
Form S-11 (RegistrationNo. 33-76578), which became effective on June 6,
1994, and incorporated herein by reference.
10.10 Form of Non-Competition Agreement between Essex and each of Keith R. --
Guericke and George M. Marcus, attached as Exhibit 10.5 to the
Company's Registration Statement on Form S-11 (Registration No.
33-76578), which became effective on June 6, 1994, and incorporated
herein by reference.
10.11 Termination of Non-Compete Agreement between Essex Property Trust, Inc. --
and George M. Marcus attached as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference.
10.12 Contribution Agreement by and among Essex, the Operating Partnership --
and the Limited Partners in the Operating Partnership, attached as
Exhibit 10.6 to the Company's Registration Statement on Form S-11
(Registration No. 33-76578), which became effective on June 6, 1994,
and incorporated herein by reference.
10.13 Form of Indemnification Agreement between Essex and its directors and --
officers, attached as Exhibit 10.7 to the Company's Registration
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Exhibit No. Document Page
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Statement on Form S-11 (Registration No. 33-76578), which became
effective on June 6, 1994, and incorporated herein by reference.
10.14 First Amendment to Investor Rights Agreement dated July 1, 1996 by and --
between George M. Marcus and The Marcus & Millichap Company, attached
as Exhibit 10.3 to the Company's Current Report on Form 8-K, filed
August 13, 1996, and incorporated herein by reference.
10.15 Agreement by and among M&M, M&M REIBC and the Operating Partnership and --
Essex regarding Stock Options attached as Exhibit 10.14 to the
Company's Registration Statement on Form S-11 (Registration No.
33-76578), which became effective on June 6, 1994, and incorporated
herein by reference.
10.16 Co-Brokerage Agreement by and among Essex, the Operating Partnership, --
M&M REIBC and Essex Management Corporation attached as Exhibit 10.15 to
the Company's Registration Statement on Form S-11 (Registration No.
33-76578), which became effective on June 6, 1994, and incorporated
herein by reference.
10.17 General Partnership Agreement of Essex Washington Interest Partners --
attached as Exhibit 10.16 to the Company's Registration Statement on
Form S-11 (Registration No.33-76578), which became effective on June 6,
1994, and incorporated herein by reference.
10.18 Form of Management Agreement between the Operating Partnership and --
Essex Management Corporation regarding the retail Properties attached
as Exhibit 10.18 to the Company's Registration Statement on Form S-11
(Registration No. 33-76578), which became effective on June 6, 1994,
and incorporated herein by reference.
10.19 Form of Investor Rights Agreement between Essex and the Limited Partner --
of the Operating Partnership attached as Exhibit 10.26 to the Company's
Registration Statement on Form S-11 (Registration No. 33-76578), which
became effective on June 6, 1994, and incorporated herein by reference.
10.20 Phantom Stock Unit Agreement for Mr. Guericke, attached as Exhibit 10.1 --
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, and incorporated herein by reference.
10.21 Phantom Stock Unit Agreement for Mr. Schall, attached as Exhibit 10.2 --
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, and incorporated herein by reference. (Same form was
used for 1998 and 1999 agreements.)
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Exhibit No. Document Page
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10.22 Replacement Promissory Note (April 15, 1996) and Pledge Agreement for --
Mr. Guericke, attached as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, and
incorporated herein by reference.
10.23 Promissory Note (December 31, 1996) and Pledge Agreement for Mr. --
Guericke, attached as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, and incorporated herein
by reference.
10.24 Replacement Promissory Note (April 30, 1996) and Pledge Agreement for --
Mr. Schall, attached as Exhibit 10.5 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1997, and incorporated
herein by reference.
10.25 Promissory Note (December 31, 1996) and Pledge Agreement for Mr. --
Schall, attached as Exhibit 10.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, and incorporated herein
by reference.
10.26 First Amended and Restated Agreement of Limited Partnership of Western- --
Highridge I Investors, effective as of May 13, 1997, attached as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and incorporated herein by reference.
10.27 Registration Rights Agreement, effective as of May 13, 1997, by and --
between the Company and the limited partners of Western-Highridge I
Investors, Irvington Square Associates, Western-Palo Alto II Investors,
Western Riviera Investors, and Western-San Jose III Investors, attached
as Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, and incorporated herein by reference.
10.28 $100,000,000 Promissory Note between Essex Portfolio, L.P., and Essex --
Morgan Funding Corporation, attached as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
and incorporated herein by reference.
10.29 Form of Revolving Loan Agreement among Essex Portfolio L.P., Bank of
America and other banks as specified therein, attached as Exhibit 10.1
to the Company's Form 10-Q for the quarter ended September 30, 2000 and
incorporated herein by reference.
12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges and --
Preferred Stock Dividends.
Page 5
Exhibit No. Document Page
- ----------- -------- ----
21.1 List of Subsidiaries of Essex Property Trust, Inc. --
23.1 Consent of Independent Public Accountants. --
________________
(1) Incorporated by reference to the identically numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
(2) Incorporated by reference to the identically numbered exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
Page 6