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

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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, 2001

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

Commission File Number: 1-13106

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ESSEX PROPERTY TRUST, INC.
(Exact name of registrant as specified in its charter)

Maryland 77-0369576
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

925 East Meadow Drive, Palo Alto, California 94303
(Address of principal executive offices) (Zip code)

(650) 494-3700
(Registrant's telephone number, including area code)

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

Title of each class Name of each exchange on which registered
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Common Stock, $.0001 par value New York Stock Exchange
Rights to purchase Series A Junior Participating New York Stock Exchange
Preferred Stock, par value $.0001

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

None

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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 25, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $542,153,852. 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 25, 2002, 19,575,172 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 34.

DOCUMENTS INCORPORATED BY REFERENCE:

The following document is incorporated by reference in Part III of the
Annual Report on Form 10-K: Proxy statement for the annual meeting of
stockholders of Essex Property Trust, Inc. to be held May 14, 2002.

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TABLE OF CONTENTS
FORM 10-K

Page No.
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PART I

Item 1 Business............................................................................. 1

Item 2 Properties........................................................................... 22

Item 3 Legal Proceedings.................................................................... 27

Item 4 Submission of Matters to a Vote of Security Holders.................................. 27

PART II

Item 5 Market for Registrant's Common Stock and Related Stockholder Matters................. 28

Item 6 Selected Financial Data.............................................................. 31

Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 32

Item 7A Quantitative and Qualitative Disclosures About Market Risk........................... 44

Item 8 Financial Statements and Supplementary Data.......................................... 44

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 44

PART III

Item 10 Directors and Executive Officers of the Registrant................................... 45

Item 11 Executive Compensation............................................................... 45

Item 12 Security Ownership of Certain Beneficial Owners and Management....................... 45

Item 13 Certain Relationships and Related Transactions....................................... 45

PART IV

Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-K..................... 46

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 capital
expenditures, future acquisitions and developments, the anticipated performance
of the Essex Apartment Value Fund, L.P., the anticipated performance of
existing properties, projected stabilization dates for development properties,
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 acquisitions will fail to meet
expectations, that future cash flows will be inadequate to meet operating
requirements and/or will be insufficient to provide for dividend payments in
accordance with REIT requirements, that the actual non-revenue generating
capital expenditures will exceed the Company's current expectations, that the
Essex Apartment Value Fund will fail to perform as anticipated, 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, 2001, 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

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 92 properties (comprising 20,762 apartment units), 11,295 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 5,444 of which are located in the Pacific Northwest
(4,073 units in the Seattle metropolitan area and 1,371 units in the Portland,
Oregon metropolitan area). The Company also owns an office building that has
approximately 17,400 square feet located in Northern California (Palo Alto)
which houses the Company's headquarters and an office building in Southern
California (Woodland Hills) that has approximately 38,940 square feet, of which
the Company currently occupies approximately 6,800 square feet. The Woodland
Hills office building has ten third party tenants occupying approximately
28,700 feet (the "Commercial Properties," and together with the Company's
multifamily residential properties, the "Properties"). The Company along with
its affiliated entities and joint ventures also have entered into commitments
for the development of 1,274 units in five 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 89.0% general
partnership interest and members of the Company's Board of Directors, senior
management and certain outside investors own approximately 11.0% 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

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.

Business Principles

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 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 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 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.

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

The Company conducts substantially all of its activities through the
Operating Partnership, of which it owns an approximate 89.0% general
partnership interest. The approximate 11.0% 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 the 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.

On July 11, 2001, Essex Apartment Value Fund, L.P. (the "Fund"), an
investment fund organized by the Company, had its initial closing with three
institutional investors. The Fund will acquire, develop, and manage multifamily
properties located in California, Oregon, and Washington. The Fund's objective
is to add value through rental growth and appreciation, using the Company's
development, redevelopment and asset management capabilities. The total equity
committed to the Fund by investors, including the Operating Partnership, at the
initial closing was $105 million. Subsequent to the initial closing the Fund,
several additional equity commitments were received. As of the final closing in
February 2002, equity commitments totaled approximately $250 million. An
affiliate of the Company, Essex VFGP, L.P. ("VFGP"), is the Fund's 1% general
partner and is a 20.4% percent limited partner. The Operating Partnership owns
a 99% limited partner interest in VFGP. The Fund is expected to utilize
leverage of approximately 65% of the value of the underlying real estate
portfolio. The Company, through VFGP, has a 21.4% interest in the Fund on
economic terms identical to the other investors with respect to capital
invested.

Since August 2000, the Company has acquired several properties in
anticipation of the Fund's formation. These properties include six apartment
properties having 1,377 apartment units and two development land parcels on
which approximately 368 units are planned for construction. These properties
have an aggregate purchase price of approximately $123 million. In addition,
six of the properties are encumbered by non-recourse mortgages in the aggregate
amount of approximately $81.9 million. On August 13, 2001, the Fund acquired
one asset directly, Marbrisas Apartments, a 500-unit apartment community
located in Chula Vista, California for a contract price of $62.0 million. In
connection with this transaction the Fund assumed an approximately
$39.9 million secured loan.

The current portfolio of stabilized properties of the Fund is set forth
below:

Fixed Loan
Loan Interest Maturity
Property Name Location Units Amount Rate Date
- ------------- -------- ----- --------------- -------- --------
($ in millions)

Rosebeach Apartments La Mirada, CA 174 $ 8.5 7.09% Feb-11
Foxborough Homes Orange, CA 90 5.0 7.84% Jul-09
Vista del Rey Tustin, CA 116 8.0 6.95% Feb-11
The Crest at Phillips Ranch Pomona, CA 501 36.1 7.99% Jul-05
Andover Park Apartments Beaverton, OR 240 12.5 6.66% Oct-11
Hunt Club Lake Oswego, OR 256 11.8 7.05% Feb-11
Marbrisas Chula Vista, CA 500 39.9 7.99% Jul-05
----- ------
Total 1,877 $121.8
===== ======

In December 2001, the Fund obtained an unsecured line of credit for an
aggregate amount of $50 million. The line matures in June 2002 but may be
extended at the Fund's option to September 2002. The line bears interest at
LIBOR plus 0.875%. As of December 31, 2001, the line had an outstanding balance
of $46.2 million.

In addition to distributions with respect to its pro-rata share of the
Fund's Limited Partnership Interest invested capital, VFGP (1) will receive
special priority distributions from the Fund in the annual amount of 1% of the
Fund's unreformed third party capital, payable quarterly for managing the
Fund's operations, and (2) may receive over the life of the Fund incentive
distributions up to 20% of the cumulative net profits on the Fund's
investments, if the Fund exceeds certain financial return benchmarks, including
a minimum 10% compounded annual return on the Limited Partner's total capital
contributions. VFGP will also be paid fees consistent with industry standards
for its property management, development and redevelopment services with
respect to the Fund's investments. VFGP will not receive transaction fees, such
as acquisition, disposition, and financing or similar fees, in connection with
the operation of the Fund.

The Company's executives, Keith Guericke, Michael Schall, John Eudy, Craig
Zimmerman and John Burkart, serve as the Fund's investment committee and are
required to devote such time as is reasonably necessary to achieve the
objectives of the Fund. Investors have the right to suspend their capital
commitments to the Fund if two or more of these executives are no longer
actively involved in the management of the Fund. John Burkart serves as the
portfolio manager and is committed to devote substantially all of his time to
the Fund during the investment period. The Fund also has a five-person advisory
committee representing the investors.

Acquisitions

During 2001, the Company acquired ownership interests in eight multifamily
properties consisting of 1,684 units with an aggregate purchase price of
approximately $171.4 million. These investments were primarily

funded by the contribution of equity from joint venture partners, cash
generated from operations, proceeds from the dispositions of properties,
proceeds from new and assumed loans and the Company's line of credit. Of the
eight properties of which the Company acquired ownership interest in 2001,
seven properties (1,444 units) are located in Southern California and one (240
units) is located in the Pacific Northwest.

Multifamily property ownership interests acquired in 2001 are as follows:

Purchase
Price or
Agreed Upon
Property Name Location Units Value
------------- -------- ----- ---------------
($ in millions)

Southern California
Marbrisas Apartments(1) Chula Vista, CA 500 $ 62.0
Capri at Sunny Hills(2)(3) Fullerton, CA 100 16.7
Hearthstone(2) Santa Ana, CA 140 14.1
Montejo(2) Garden Grove, CA 124 9.6
Treehouse(2) Santa Ana, CA 164 13.1
Valley Park(2) Fountain Valley, CA 160 16.8
Villa Angelina(2) Placentia, CA 256 22.5

Pacific Northwest
Andover Park(1) Beaverton, OR 240 16.6
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Total 1,684 $171.4
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(1) The Company has a 21.4% interest in the Fund, which owns this property.

(2) The Company holds a 1% special limited partner interest in the
partnerships, which own these multifamily properties. These investments
were made under arrangements whereby EMC became the 1% sole general partner
interest and the other limited partners were granted the right to require
the applicable partnership to redeem their interest for cash. Subject to
certain conditions, the Company may, however, elect to deliver an
equivalent number of shares of the Company's Common Stock in satisfaction
of the applicable partnership's cash redemption obligation.

(3) Acquired in an IRC Section 1031 exchange in which the Company disposed of
three retail properties located near Portland, OR.

Other Acquisition Related Activities

On March 1, 2001 the Company purchased Clarewood Office Building, an
approximately 38,940 square foot office building in Woodland Hills, California
for a contract price of $4.5 million. The Company currently occupies
approximately 6,800 square feet. The Company's employees that occupy this space
are involved in the following functions: property operations, development,
redevelopment and accounting. The building has ten third party tenants
occupying approximately 28,700 feet. The largest single tenant occupies
approximately 10,900 square feet.

On March 22, 2001, in connection with the acquisition of The Carlyle
Apartments in April 2000, Essex issued 158,202 Operating Partnership units
convertible into Common Stock at the option of the holder. This was the final
payment and was based on an amount that provides Essex with a targeted yield on
the property. Total consideration paid for the property was $26.5 million.

On June 1, 2001 the Company completed the partner buyout of Mt. Sutro
Terrace Apartments, a 99-unit apartment community located in San Francisco,
California. The buyout was at the Company's option under a capped pricing
formula which terms were agreed to at the time of the Company's initial
investment in September 1999. In connection with the partner buyout the Company
issued 50,725 Operating Partnership units, which are convertible into Common
Stock at the option of the holder.

On June 29, 2001, the Company purchased Moanalua Hillside Apartments through
one of its taxable REIT subsidiaries. Moanalua Hillside Apartments is a
700-unit apartment community located in Honolulu, Hawaii, which was acquired
for a contract price of $42.2 million. The Company is actively involved in
reselling this property to unrelated third parties at a price in excess of the
Company's purchase price. However, there can be no assurance that the sale of
the property will close as expected. The Company's net investment is reflected
in the Company's financial statements as notes receivable from investees and
related parties and investments.

Dispositions

On September 21,2001, two partnerships in which EMC is a 1% general partner
and the Operating Partnership holds a 1% special limited partnership interest,
sold to an unrelated third party the following three retail centers: Canby
Square, Garrison Square and Powell Villa. These properties are located in the
Portland, Oregon metropolitan area and were sold for a contract price of $14.5
million. The Company recognized a previously deferred gain of $3.8 million, net
of disposition related costs, in connection with this transaction. In a tax
deferred exchange transaction, these two partnerships acquired on September 28,
2001, Capri at Sunny Hills, a 100-unit apartment community located in
Fullerton, California for a contract price of $16.7 million.

Development

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,
2001, the Company had five development communities, with an aggregate of
1,274 multifamily units. During 2001, the Company announced one new development
community and also reached stabilized operations at one apartment property
containing 404 units. 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, 2001, the Company and its
partners are committed to fund approximately $113.4 million. The following
table sets forth information regarding the development communities at December
31, 2001.

Estimated Project Incurred Project
Cost as of Cost as of Projected
Development Communities Location Units 12/31/01(1) 12/31/01(1) Stabilization
- ----------------------- -------- ----- ----------------- ---------------- -------------
($ in millions) ($ in millions)

Direct Development
The San Marcos(2) Richmond, CA 312 $ 43.8 $ 31.5 Mar. 2003
(formerly Vista Del Mar)
The Essex on Lake Merritt(2) Oakland, CA 270 69.0 51.0 May 2003
Parker Ranch(3) Simi Valley, CA 324 43.0 10.8 Dec. 2004

Joint Venture
Chesapeake(4) San Diego, CA 230 43.0 9.0 Aug. 2004
Kelvin Avenue(4) Irvine, CA 138 22.4 5.5 Dec. 2003
----- ------ ------
Total Development Communities 1,274 $221.2 $107.8
===== ====== ======

- --------
(1) Estimated project cost as of December 31, 2001 includes total estimated and
incurred costs for the development projects.

(2) The Company is the sole owner of these development projects.

(3) The Company has 50% interest in this development project.

(4) The Company has a 21.4% interest in the Fund, which owns this property.

The Company is entitled to receive development fee income on the joint
venture development communities.

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.

During the year, the Company reached stabilized operations at one property,
Tierra Vista, a 404-unit apartment community located in Oxnard, California.

Redevelopment

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. As of
December 31, 2001, the Company had the following three-redevelopment
communities.

Estimated
Renovation Incurred
Cost as of Total Cost as Projected
Redevelopment Communities(1) Location Units 12/31/01(2) of 12/31/01 Completion
- ---------------------------- --------------- ----- --------------- --------------- ----------
($ in millions) ($ in millions)

Plumtree Santa Clara, CA 140 $3.2 $0.1 Sep. 2002
Monterey Villas (The Village) Oxnard, CA 122 3.2 2.4 Jan. 2002
The Lofts at Pinehurst (Villa Scandia) Ventura, CA 118 3.3 0.2 Aug. 2002
--- ---- ----
Total Redevelopment Communities 380 $9.7 $2.7
=== ==== ====

- --------
(1) The Company owns 100% of each redevelopment community.

(2) Represents the projected cost of renovation of the apartment community
excluding the original cost of land and buildings.

During 2001 the Company completed six redevelopment projects, which
comprised 1,806 units and had total project costs in excess of $30 million.

Equity Transactions

On June 28, 2001, the Operating Partnership issued 200,000 Series Z
Incentive Units of limited partner interest (the "Series Z Incentive Units") to
eleven senior executives of the Company in exchange for a capital commitment of
$1.00 per Series Z Incentive Unit, for an aggregate offering price of $200,000.
Upon certain triggering events, the Series Z Incentive Units will automatically
convert into common Operating Partnership units based on a conversion ratio
that may increase over time upon satisfaction of specific conditions. The
conversion ratio, initially set at zero, will increase on January 1 of each
year for each participating executive who remains employed by the Company if
the Company has met a specified "funds from operations" per share target for
the prior year, up to a maximum conversion ratio of 1.0. In certain change of
control situations, the participating executives will also be given the option
to convert their units at the then-effective conversion ratio. In addition, the
Operating Partnership has the option to redeem Series Z Incentive Units held by
any executive whose employment has been terminated for any reason and the
obligation to redeem any such units following the death of the holder. In such
event, the Operating Partnership will redeem the units for, at its option,
either common Operating Partnership units or shares of the Company's common
stock based on the then-effective conversion ratio.

During the year, the Company's Board of Directors authorized the Operating
Partnership to purchase from time to time shares of the Company's Common Stock,
in an amount up to $50 million, at a price not to exceed $48.00 per share in
the open market or through negotiated or block transactions. The timing of the
repurchase will depend on the market price and other market conditions and
factors. Essex will use working capital or proceeds from the sale of properties
to provide funds for this program. The purpose of the program is to acquire

stock related to real estate transactions involving the issuance of partnership
units in the Operating Partnership and similar interests. Such repurchased
shares may be reissued in connection with the conversion of such partnership
units, the exercise of stock options or other business transactions. This
Program supersedes its common stock repurchase plan as announced on March 25,
1999. In October 2001, the Operating Partnership acquired 100,700 shares of the
Company's outstanding Common Stock. The weighted average exercise price paid
for the shares was $47.88. The amount paid for the shares are reflected as a
reduction of the common stock and additional-paid-in-capital in the Company's
consolidated balance sheets for the year ended December 31, 2001.

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. Pursuant to the program, in 1999, the participants
entered into a swap agreement with a securities broker whereby the securities
broker acquired, in open market transactions, 223,475 shares of the Company's
common stock. The agreement by its terms expires in September 2004 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. From August 2001 through January 2002, the directors
and management effected an early termination of the agreement with respect to
120,718 shares of the total 223,475 shares, realizing a gain of approximately
$15 per share. Participants are obligated for any termination or settlement
shortfall. The Company is a guarantor of participant obligations under the
program.

Offices and Employees

The Company is headquartered in Palo Alto, California, and has regional
offices in Seattle, Washington, Portland, Oregon, Woodland Hills, California
and Tustin, California. As of December 31, 2001, the Company had approximately
754 employees.

Environmental Matters

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on, in or migrating from
such property. Such laws often impose liability without regard as to whether
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's or
operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons 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.

Recently there has been an increasing number of lawsuits against owners and
managers of multifamily properties other than Essex alleging personal injury
and property damage caused by the presence of mold in residential real estate.
Some of these lawsuits have resulted in substantial monetary judgments or
settlements. Insurance carriers have reacted to these liability awards by
excluding mold related claims from standard policies and pricing mold
endorsements at prohibitively high rates. We have adopted programs designed to
minimize the existence of mold in any of our properties as well as guidelines
for promptly addressing and resolving reports of mold to minimize any impact
mold might have on residents or the 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 downgradient 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.
Most of the Properties are included in an earthquake insurance program that 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. In
the future, 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.

Competition

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, 2001 the Company had an outstanding balance of
$74,459,000 under these facilities.

Other Matters/Risk Factors

Our operations involve various risks that could have adverse consequences to
us. These risks include, among others, the following:

Debt Financing

At December 31, 2001, the Company had approximately $638,660,000 of
indebtedness (including $133,279,000 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, 2001, the Company had an aggregate of approximately
$638,660,000 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,
2001, these mortgages and lines of credit

borrowings had the following scheduled maturity dates: 2002--$86.8 million
(includes lines of credit balance of $74.4 million as of December 31, 2001);
2003--$21.9 million; 2004--$4.0 million; 2005--$36.0 million; 2006--$15.1
million; 2007 and thereafter--$474.8 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 mortgagee. 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, 2001, 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), and $74,459,000 of variable rate indebtedness under its lines of
credit bearing interest at rates ranging from 1.15%--1.175% over LIBOR. The
long-term variable rate indebtedness of approximately $58,820,000 is subject to
an interest rate protection agreement, which may reduce the risks associated
with fluctuations in interest rates. The remaining $74,459,000 of long-term
variable rate indebtedness is not subject to any interest rate protection
agreement, and consequently, an increase in interest rates may have an adverse
effect on net income and results of operations of the Company.

Current interest rates are at historic lows and potentially could increase
rapidly to levels more in line with recent historic levels. The immediate
effect of significant and rapid interest rate increases would result in higher
interest expense in the Company's variable rate indebtedness. The effect of
prolonged interest rate increases could negatively impact the Company's ability
to make acquisitions and develop properties at economic returns on investment
and the Company's ability to refinance existing borrowings at acceptable rates.

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 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, 2001,
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). Of our 92 ownership interests in
multifamily residential properties, 65 are located in California. 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.

Both the national economy and the economies of the western states in which
the Company owns, manages and develops properties have been and continue to be
in a recession. The early indicators of how this affects the real estate
industry in general, and the Company in particular, are slightly reduced
occupancy rates, flattening and reductions in market rental rates.

The Company's property type and diverse geographic locations provide some
degree of risk moderation but are not immune to a prolonged down cycle in the
real estate markets in which the Company operates. Although the Company
believes it is well positioned to meet the challenges ahead, it is possible
that further reductions in occupancy and market rental rates will result in
reduction of rental revenues, operating income, cash flows, and market value of
the Company's shares. Prolonged recession could also affect the Company's
ability to obtain financing at acceptable rates of interest and to access funds
from the disposition of properties at acceptable disposition prices.

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.

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, 2001, the Company had 43 properties
encumbered by debt. Of the 43 properties, 24 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 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, 2001 owned approximately 11.0%
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 11.0%
limited partnership interests held by the "Operating Partnership Holders" in
the Operating Partnership is exchangeable for an aggregate of 2,286,082 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 1,511,533 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 the holding company for real estate
brokerage and services companies. 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 to 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 in situations where both the
Company and Marcus & Millichap have offered to purchase the property.
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.

The Influence of Executive Officers, Directors and Significant Stockholders
May Be Detrimental To Holders of Common Stock

As of December 31, 2001, George M. Marcus, the Chairman of the Company's
Board of Directors, wholly or partially owned 1,972,929 shares of Common Stock
(including shares issuable upon exchange of limited partnership interests in
the Operating Partnership and certain other partnerships and assuming exercise
of all vested options). This represents approximately 9.5% 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 af fect
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 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, 2001, 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. From August 2001 through
January 2002, the directors and management effected an early termination of the
agreement with respect to 120,718 shares of the total 223,475 shares, realizing
a gain of approximately $15 per share.

Bond Compliance Requirements May Limit Income From Certain Properties

At December 31, 2001, the Company had approximately $58.8 million of
tax-exempt financing relating to the Inglenook Court Apartments, Wandering
Creek Apartments, Treetops Apartments, Huntington Breakers 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 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 liquid 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 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.

Dedicated Investment Activities and Other Factors Specifically Related to the
Fund

The Company has recently organized an investment fund, the Essex Apartment
Value Fund, L.P. (the "Fund"), which will be, subject to specific exceptions,
the Company's exclusive investment vehicle for new investment until at least
90% of the Fund's committed capital has been invested or committed for
investments, or if earlier, December 31, 2003. The Company is committed to
invest 21.4% of the aggregate capital committed to the Fund. This Fund involves
risks to Essex such as the following: Essex's partners in the Fund might become
bankrupt (in which event Essex might become generally liable for the
liabilities of the Fund) or have economic or business interests or goals that
are inconsistent with the Company's business interests or goals, or fail to
approve decisions regarding the Fund that are in the best interest of the
Company. Essex will, however, generally seek to maintain sufficient control
over the Fund to permit it to achieve its business objectives.

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.

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.

Recently there has been an increasing number of lawsuits against owners and
managers of multifamily properties other than Essex alleging personal injury
and property damage caused by the presence of mold in residential real estate.
Mold related claims are often excluded from standard insurance policies. Should
an uninsured mold related claim arise against Essex, we could be required to
use our own funds to resolve the claim and to make any needed cleanups to the
involved property.

California has enacted legislation commonly referred to as "Proposition 65"
requiring that "clear and reasonable" warnings be given to consumers who are
exposed to chemicals known to the State to cause cancer or reproductive
toxicity, including tobacco smoke. Although Essex has sought to comply with
Proposition 65

requirements, there can be no assurance that Essex will not be adversely
affected by litigation relating to Proposition 65.

Essex cannot be assured that existing environmental assessments of its
properties reveal all environmental liabilities, that any prior owner of any of
our properties did not create a material environmental condition not known to
Essex, or that a material environmental condition does not otherwise exist as
to any one or more of its properties.

General Uninsured Losses

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 33.8% as of
December 31, 2001.

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 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 94 Properties: 92 multifamily residential Properties containing
20,762 apartment units, one office building in Northern California, which
houses the Company's headquarters, with approximately 17,400 square feet and an
approximately 38,940 square foot office building in Southern California. 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 in
excess of 95% of the Company's revenues for the year ended December 31, 2001.
The 92 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, 2001 of approximately 95%. As of December 31, 2001, the
headquarters building was 100% occupied by the Company and the Southern
California office building was 91% occupied. With respect to stabilized
multifamily properties with sufficient operating history, occupancy figures are
based on Financial Occupancy. With respect to office buildings or multifamily
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, 2001, 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 226 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
Company also has an office building in Southern California (Woodland Hills), an
approximately 38,940 square feet of which the Company currently occupies
approximately 6,800 square feet. The building has ten third party tenants
occupying approximately 28,700 feet. The largest single tenant occupies
approximately 10,900 square feet. The Company acquired this property in 2001.

The following tables describe the Company's Properties as of December 31,
2001. The first table describes the Company's multifamily residential
properties and the second table describes the Company's office buildings.

Rentable
Square Year Year
Multifamily Residential Properties(1) Location Units Footage Built Acquired Occupancy(2)
- ------------------------------------- -------- ----- --------- ----- -------- ------------

Northern California
Brookside Oaks (3)................... Cupertino, CA 170 119,980 1973 2000 96%
The Point at Cupertino (Westwood)(4). Cupertino, CA 116 135,288 1963(5) 1998 95%(6)
Stevenson Place...................... Fremont, CA 200 146,296 1971(7) 1982 92%
Treetops (8)......................... Fremont, CA 172 131,270 1978 1996 95%
Wimbledon Woods...................... Hayward, CA 560 462,400 1975 1998 92%
Summerhill Commons................... Newark, CA 184 139,012 1987 1987 92%
Marina Cove (9)...................... Santa Clara, CA 292 250,294 1974 1994 98%
Plumtree............................. Santa Clara, CA 140 113,260 1975(10) 1994 92%(6)
Mt. Sutro Terrace (8)................ San Francisco, CA 99 64,095 1973 1999 97%
The Carlye (8)....................... San Jose, CA 132 129,216 2000 2000 95%
Waterford Place...................... San Jose, CA 238 219,642 2000 2000 92%
Bel Air (8).......................... San Ramon, CA 462 391,136 1988(11) 1995 96%
Eastridge............................ San Ramon, CA 188 174,104 1988 1996 97%
Foothill Gardens..................... San Ramon, CA 132 155,100 1985 1997 96%
Twin Creeks.......................... San Ramon, CA 44 51,700 1985 1997 96%
Bristol Commons (8).................. Sunnyvale, CA 188 142,668 1989 1995 97%
Oak Pointe........................... Sunnyvale, CA 390 294,180 1973 1988 96%
Summerhill Park...................... Sunnyvale, CA 100 78,584 1988 1988 97%
Windsor Ridge........................ Sunnyvale, CA 216 161,892 1989 1989 96%
----- --------- ---
4,023 3,360,117 95%
Pacific Northwest
Seattle, Washington Metropolitan Area
Emerald Ridge........................ Bellevue, WA 180 144,036 1987 1994 92%
Foothill Commons (8)................. Bellevue, WA 360 288,317 1978 1990 94%
The Palisades (8).................... Bellevue, WA 192 159,792 1977 1990 96%
Sammamish View....................... Bellevue, WA 153 133,590 1986 1994 97%
Woodland Commons (8)................. Bellevue, WA 236 172,316 1978 1990 92%
Inglenook Court...................... Bothell, WA 224 183,624 1985 1994 95%
Salmon Run at Perry Creek............ Bothell, WA 132 117,125 2000 2000 94%
Stonehedge Village (8)............... Bothell, WA 196 214,872 1986 1997 94%
Park Hill at Issaquah (12)........... Issaquah, WA 245 277,778 1999 1999 89%
Wandering Creek...................... Kent, WA 156 124,366 1986 1995 97%
Bridle Trails (8).................... Kirkland, WA 92 73,448 1986 1997 97%
Evergreen Heights.................... Kirkland, WA 200 188,340 1990 1997 95%
Laurels at Mill Creek................ Mill Creek, WA 164 134,360 1981 1996 95%
Anchor Village (3)................... Mukilteo, WA 301 245,928 1981 1997 94%
Castle Creek......................... Newcastle, WA 216 191,935 1997 1997 96%
Brighton Ridge....................... Renton, WA 264 201,300 1986 1996 95%
Fountain Court (8)................... Seattle, WA 320 207,037 2000 2000 90%
Linden Square........................ Seattle, WA 183 142,271 1994 2000 94%
Maple Leaf (8)....................... Seattle, WA 48 35,584 1986 1997 98%
Spring Lake (8)...................... Seattle, WA 69 42,325 1986 1997 99%
Wharfside Pointe..................... Seattle, WA 142 119,290 1990 1994 92%
Meadows at Cascade Park.............. Vancouver, WA 198 199,377 1989 1997 94%
Village at Cascade Park.............. Vancouver, WA 192 178,144 1989 1997 93%
Portland, Oregon Metropolitan Area
Andover Park (13).................... Beaverton, OR 240 227,804 1992 2001 91%
Jackson School Village (8)........... Hillsboro, OR 200 196,896 1996 1996 92%
Landmark............................. Hillsboro, OR 285 282,934 1990 1996 94%
Hunt Club (13)....................... Lake Oswego, OR 256 198,056 1985 2000 92%
----- --------- ---
5,444 4,680,845 94%

Southern California
Barkley Apartments(14)(15)............ Anaheim, CA 161 139,835 1984 2000 97%
Vista Pointe(16)...................... Anaheim, CA 286 242,410 1968 1985 97%
Camarillo Oaks(8)..................... Camarillo, CA 564 459,072 1985 1996 94%
Marbrisas Apartments(13).............. Chula Vista, CA 500 540,116 1991 2001 94%
Casa Mango(4)......................... Del Mar, CA 96 88,112 1981 1997 98%
Valley Park(3)........................ Fountain Valley, CA 160 169,788 1969 2001 93%
Capri at Sunny Hills(3)............... Fullerton, CA 100 128,100 1961 2001 97%
Wilshire Promenade.................... Fullerton, CA 128 108,470 1992 1997 95%
Montejo(3)............................ Garden Grove, CA 124 103,280 1974 2001 93%
Hampton Court (Columbus)(8)........... Glendale, CA 83 71,573 1974(17) 1999 93%
Hampton Place (Loraine)(8)............ Glendale, CA 132 141,591 1970(18) 1999 92%
Huntington Breakers(8)................ Huntington Beach, CA 342 241,763 1984 1997 92%
Hillsborough Park..................... La Habra, CA 235 215,510 1999 1999 96%
Rosebeach(13)......................... 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 99%
Bunker Hill(8)........................ Los Angeles, CA 456 346,672 1968 1998 95%
City Heights(16)...................... Los Angeles, CA 687 424,170 1968 2000 93%
Cochran Apartments.................... Los Angeles, CA 58 51,468 1989 1998 97%
Kings Road............................ Los Angeles, CA 196 132,112 1979 1997 97%
Park Place............................ Los Angeles, CA 60 48,000 1988 1997 97%
Windsor Court......................... Los Angeles, CA 58 46,600 1988 1997 97%
Mirabella............................. Marina Del Rey, CA 188 176,860 2000 2000 95%
Hillcrest Park (Mirabella)............ Newbury Park, CA 608 521,968 1973(19) 1998 92%
Coronado at Newport North(20)......... Newport Beach, CA 732 459,677 1968(21) 1999 92%(6)
Coronado at Newport South(20)......... Newport Beach, CA 715 498,716 1968 1999 96%
Fairways(8)(22)....................... Newport Beach, CA 74 107,160 1972 1999 94%
Foxborough (Woodland Apartments)(13).. Orange, CA 90 108,000 1969(23) 2000 86%(6)
Mariners Place........................ Oxnard, CA 105 77,254 1987 2000 98%
Tierra Vista(4)....................... Oxnard, CA 404 387,144 2001 2001 96%(24)
Monterey Villas (Village Apartments).. Oxnard, CA 122 122,120 1974(25) 1997 83%(6)
Monterra del Mar (Windsor Terrace).... Pasadena, CA 123 74,475 1972(26) 1999 94%
Monterra del Rey (Glenbrook).......... Pasadena, CA 84 73,101 1972(27) 1999 86%(6)
Monterra del Sol (Euclid)............. Pasadena, CA 85 69,295 1972(28) 1999 93%
Villa Angelina(3)..................... Placentia, CA 256 217,600 1970 2001 94%
Crest, The(13)........................ Pomona, CA 501 498,036 1986 2000 91%
Highridge(3).......................... Rancho Palos, CA 255 290,250 1972 1997 94%
Bluffs II, The(29).................... San Diego, CA 224 126,744 1974 1997 97%
Riverfront(4)......................... San Diego, CA 229 231,006 1990 1997 98%
Hearthstone(3)........................ Santa Ana, CA 140 154,820 1970 2001 93%
Tree House(3)......................... Santa Ana, CA 164 135,762 1970 2001 95%
Meadowood(8).......................... Simi Valley, CA 320 264,568 1986 1996 94%
Tara Village.......................... Tarzana, CA 168 173,600 1972 1997 97%
El Encanto(13)........................ Tustin, CA 116 92,760 1969(30) 2000 94%
The Lofts at Pinehurst (Villa Scandia) Ventura, CA 118 71,160 1971 1997 98%
Avondale at Warner Center............. Woodland Hills, CA 446 331,072 1970 1999 94%
------ ---------- ---
11,295 9,462,744 94%
====== ========== ---
Total/Weighted Average 20,762 17,503,706 95%
====== ========== ===

Number Rentable
of Square Year Year
Office Buildings (1) Location Tenants Footage Built Acquired Occupancy (2)
- -------------------- -------- ------- -------- ----- -------- -------------

925 East Meadow Drive........ Palo Alto, CA 1 17,404 1988 1997 100%
22110-22120 Clarendon Street. Woodland Hills, CA 11 38,940 1982 2001 91%
-- ------ ----
Total Office Buildings 12 56,344 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, 2001; for the Office
Buildings, occupancy rates are based on Physical Occupancy as of December
31, 2001.
(3) The Company holds a 1% special limited partner interest in the
partnerships, which own these multifamily properties. These investments
were made under arrangements whereby EMC became the 1% sole general
partner interest and the other limited partners were granted the right to
require the applicable partnership to redeem their interest for cash.
Subject to certain conditions, the Company may, however, elect to deliver
an equivalent number of shares of the Company's Common Stock in
satisfaction of the applicable partnership's cash redemption obligation.
(4) The Company has a 20.0% ownership this property.
(5) The Company completed a $2.7 million redevelopment on this property in
2001.
(6) Financial Occupancy includes the impact of units that were not occupied
due to redevelopment activity at this property.
(7) The Company completed an approximately $4.5 million redevelopment on this
property in 1998.
(8) This Property is owned by a single asset limited partnership in which the
Company has a minimum 99.0% limited partnership interest.
(9) 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.
(10) The Company is in the process of performing a $3.2 million redevelopment
on this property.
(11) The Company completed construction of 114 units of the property's 462
total units in 2000.
(12) The Company has as approximate 45% limited partnership interest in this
property.
(13) The Company has a 21.4% interest in this property owned by the Fund.
(14) The Company has a 30% special limited partnership interest in this
property, 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.
(15) The property is subject to a ground lease, which, unless extended, will
expire in 2082.
(16) 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 in the
property anytime following the seventh anniversary of the date that the
leasehold was created.
(17) The Company completed an approximate $1.6 million redevelopment on this
property in 2000.
(18) The Company completed an approximate $2.3 million redevelopment on this
property in 2000.
(19) The Company completed an $11.0 million redevelopment on this property in
2001.
(20) The Company has an approximate 49.9% ownership interest in this property.
(21) The Company completed a $13.6 million redevelopment on this property in
2001.
(22) This property is subject to a ground lease, which, unless extended, will
expire in 2027.
(23) The Company completed a $1.7 million redevelopment on this property in
2001.
(24) Financial occupancy on development properties that have reached
stabilization is computed from the date of stabilization through December
31, 2001.
(25) The Company is in the process of performing a $3.2 million redevelopment
on this property.
(26) The Company completed a $1.9 million redevelopment on this property in
2000.
(27) The Company completed a $1.9 million redevelopment on this property in
2001.
(28) The Company is in the process of performing a $1.7 million redevelopment
on this property.
(29) The Company has an 85.0% limited partnership interest in this property.
(30) The Company is in the process of performing a $3.3 million redevelopment
on 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 2001, 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, 2001................................ $51.05 $45.50 $49.41
September 30, 2001............................... $54.67 $47.00 $49.10
June 30, 2001.................................... $50.97 $42.28 $49.55
March 31, 2001................................... $55.94 $46.96 $48.05

December 31, 2000................................ $57.75 $50.50 $54.75
September 30, 2000............................... $56.50 $42.00 $55.38
June 30, 2000.................................... $44.00 $36.00 $42.02
March 31, 2000................................... $36.31 $32.56 $36.00

The closing price as of March 25, 2002 was $53.65.

Holders

The approximate number of holders of record of the shares of the Company's
common stock was 175 as of March 25, 2002. 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,
2001, 2000 and 1999 for tax purposes is as follows:

2001 2000 1999
------ ------ ------

Taxable portion............................. 100.00% 100.00% 100.00%
Return of capital........................... -- -- --
------ ------ ------
100.00% 100.00% 100.00%
====== ====== ======

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 2001
------------- ------- ------- ------- ------- ------- ------ ------ ------

3/31.... N/A $0.4175 $0.4250 $0.4350 $0.4500 $.5000 $.5500 $.7000
6/30.... $0.0800 $0.4175 $0.4250 $0.4350 $0.5000 $.5500 $.6100 $.7000
9/30.... $0.4175 $0.4250 $0.4350 $0.4500 $0.5000 $.5500 $.6100 $.7000
12/31.... $0.4175 $0.4250 $0.4350 $0.4500 $0.5000 $.5500 $.6100 $.7000

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. Computershare, LLC, which serves as the Company's transfer agent,
administers the dividend reinvestment and share purchase plan. For a copy of
the plan, contact Computershare, LLC at (310) 360-5354.

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 for 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, as amended
between the Company and Computershare, LLC as Rights Agent.

Unregistered Sales of Securities

On June 1, 2001, in connection with the completion of its acquisition of the
Mt. Sutro Terrace Apartments, the Company issued 50,725 Operating Partnership
Units, which are convertible into common stock of the Company at the option of
the holder. This private placement of operating partnership units was completed
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.

On November 1, 2001, the Company acquired ownership interests in
partnerships which own the following five multifamily properties: Villa
Angelina, Valley Park Apartments, Hearthstone Apartments, Treehouse Apartments,
and Montejo Apartments. Each property is owned by a separate limited
partnership in which the Company has a 1% special limited partnership interest
and the 1% sole general partnership interest. The other limited partners were
granted the right to require the applicable partnership to redeem their
interest for cash. Subject to certain condition, the Company may elect to
deliver an aggregate of 461,163 shares of the Company's common stock in lieu of
the combined partnerships' redemption obligation. This private placement of
limited partnerships interests was completed pursuant to the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933, as
amended.

Transfer Agent

Effective as of February 28, 2002, the Company's shareholder accounts are
serviced by a new transfer agent, Computershare, LLC.

Item 6. Selected Financial Data

The following tables set forth summary financial and operating information
for the Company from January 1, 1997 through December 31, 2001.

As of December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- -------- --------
(Dollars in thousands, except per share amounts)

OPERATING DATA:
Revenues
Rental.............................................. $ 177,954 $ 162,959 $ 137,262 $119,397 $ 79,936
Other property income............................... 5,528 4,812 3,165 2,645 1,464
Interest and other income........................... 22,152 10,969 5,618 3,217 3,169
---------- ---------- ---------- -------- --------
Total revenues.................................. 205,634 178,740 146,045 125,259 84,569
---------- ---------- ---------- -------- --------
EXPENSES
Property operating expenses......................... 52,923 46,690 41,706 37,933 25,826
Depreciation and amortization....................... 36,295 30,765 26,150 21,948 13,992
Amortization of deferred financing costs............ 657 639 566 718 509
General and administrative.......................... 7,498 6,062 4,263 3,765 2,413
Other expenses...................................... -- -- -- 930 138
Interest............................................ 39,105 30,384 21,268 19,374 12,659
---------- ---------- ---------- -------- --------
Total expenses.................................. 136,478 114,540 93,953 84,668 55,537
---------- ---------- ---------- -------- --------
Income before gain on sales, minority interests and
extraordinary item................................ 69,156 64,200 52,092 40,591 29,032
Gain on sales of real estate........................ 3,788 4,022 9,524 9 5,114
Minority interests.................................. (24,399) (23,750) (17,838) (9,554) (4,469)
Extraordinary item--loss on early extinguishment of
debt.............................................. -- (119) (214) (4,718) (361)
---------- ---------- ---------- -------- --------
Net income............................................. $ 48,545 $ 44,353 $ 43,564 $ 26,328 $ 29,316
========== ========== ========== ======== ========
Net income per share--diluted.......................... $ 2.59 $ 2.37 $ 2.36 $ 1.36 $ 1.92
========== ========== ========== ======== ========
Weighted average common stock outstanding--diluted
(in thousands).................................... 18,768 18,658 18,491 16,809 15,285
Cash dividend per common share......................... $ 2.80 $ 2.38 $ 2.15 $ 1.95 $ 1.77

As of December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- -------- --------
BALANCE SHEET DATA:
Investment in real estate (before accumulated
depreciation)..................................... $1,175,200 $1,156,408 $ 929,076 $889,964 $730,987
Net investment in real estate....................... 1,018,931 1,036,909 832,471 812,175 702,716
Real estate under development....................... 93,256 38,231 120,414 53,213 20,234
Total assets........................................ 1,329,458 1,281,849 1,062,313 931,796 738,835
Total property indebtedness......................... 638,660 595,535 384,108 361,515 276,597
Stockholders' equity................................ 386,599 391,675 387,693 389,800 398,915

As of December 31,
------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- -------- --------
OTHER DATA:
Interest coverage ratio(1)............................. 3.7x 4.2x 4.7x 4.3x 4.4x
Gross operating margin(2).............................. 71% 72% 70% 68% 68%
Average same property monthly rental rate per apartment
unit(3)(4)........................................... $ 1,153 $ 1,039 $ 950 $ 944 $ 852
Average same property monthly operating expenses per
apartment unit(3)(5)................................. $ 293 $ 271 $ 259 $ 256 $ 257
Total multifamily units (at end of period)............. 20,762 18,673 15,106 12,267 10,700
Multifamily residential property occupancy rate(6)..... 95% 97% 96% 96% 96%
Total properties (at end of period).................... 94 87 72 63 59

- --------
(1) Interest coverage ratio represents earnings before minority 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 which are 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.

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, 2001, 2000 and 1999. 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, 2001, 2000, and 1999 owned an approximate
89.0%, 89.6% and 89.7% 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, 2002, future acquisitions and developments, the anticipated
performance of the Essex Apartment Value Fund, L.P., the anticipated
performance of existing properties, 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 acquisitions will
fail to meet expectations, that future cash flows will be inadequate to meet
operating requirements and/or will be insufficient to provide for dividend
payments in accordance with REIT requirements, that the actual non-revenue
generating

capital expenditures will exceed the Company's current expectations, that the
Essex Apartment Value Fund will fail to perform as anticipated, 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, 2001, 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.

Critical Accounting Policies and Estimates

In response to the SEC's Release Number 33-8040, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies," the Company
identifies the following critical accounting areas that affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. The related accounting policies are included here and in
the notes to the consolidated financial statements.

The preparation of consolidated financial statements, in accordance with
accounting principles generally accepted in the United States of America,
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosures
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to acquiring, developing and
assessing the carrying values of its real estate properties and its investments
in and advances to joint ventures and affiliates. The Company bases its
estimates on historical experience, current market conditions, and on various
other assumptions that are believed to be reasonable under the circumstances.

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. Development costs
include acquisition, direct and indirect construction costs, interest and real
estate taxes incurred during the construction period, and certain operating
expenses prior to property stabilization. Maintenance and repair expenses that
do not add to the value or prolong the useful life of the property are expensed
as incurred. Asset replacements and improvements are capitalized and
depreciated over their estimated useful lives.

The Company assesses the carrying value of its real estate investments by
monitoring performance compared to budget for operating properties and joint
ventures, and by monitoring contract performance for properties under
development. Local market knowledge and data is used to assess carrying values
of properties and the market value of acquisition opportunities. Whenever
events or changes in circumstances indicate that the carrying amount of a
property held for investment may not be fully recoverable, the carrying amount
is evaluated. If the sum of the property's expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the property, then the Company will recognize an impairment loss equal to the
excess of the carrying amount over the fair value of the property. Adverse
changes in market conditions or poor operating results of real estate
investments could result in impairment charges. When the Company determines
that a property is held for sale, it discontinues the periodic depreciation of
that property. Assets held for sale are reported at the lower of the carrying
amount or estimated fair value less costs to sell.

With respect to investments in and advances to joint ventures and
affiliates, the Company looks to the underlying properties to assess
performance and the recoverability of carrying amounts for those investments in
a manner similar to direct investments in real estate properties. An impairment
charge or investment valuation charge is recorded if the carrying value of the
investment exceeds its fair value.

The Company bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances.
Actual results may vary from those estimates and those estimates could be
different under different assumptions or conditions.

General Background

The Company's property revenues are generated primarily from multifamily
property operations, which accounted for greater than 95% of its property
revenues for the years ended December 31, 2001, 2000, and 1999. 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.

Essex Apartment Value Fund, L.P. (the "Fund"), is an investment fund managed
by the Company and will be, subject to specific exceptions, the Company's
exclusive investment vehicle for new investments until the Fund's committed
capital has been invested or committed for investments, or if earlier, December
31, 2003. The Fund has total capital commitments of $250 million and is
expected to utilize leverage of approximately 65% of the value of the
underlying real estate portfolio. The Company is committed to invest 21.4% of
the aggregate capital committed to the Fund. In addition, Essex will be
compensated by the Fund for its asset management, property management,
development and redevelopment services and may receive incentive distributions
if the Fund exceeds certain financial return benchmarks.

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 76 multifamily residential
properties, its headquarters building and its Southern California office
building, of which 14 are located in Northern California, 42 are located in
Southern California, 15 are located in the Seattle Metropolitan Area and 5 are
located in the Portland Metropolitan Area. In total, these acquisitions consist
of 16,451 units with total capitalized acquisition costs of approximately
$1,254.3 million. Additionally, since its IPO, the Company has developed and
has ownership interests in 9 multifamily development properties that have
reached stabilized operations. These development properties consist of 1,944
units with total capitalized development costs of $236.8 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 $118.7 million
resulting in a net realized gain of approximately $25.8 million.

The Company is developing five multifamily residential communities, with an
aggregate of 1,274 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 and the total projected estimated cost for these
projects is approximately $221.2 million. As of December 31, 2001, the
Company's remaining commitment to fund these projects is approximately
$113.4 million.

Results of Operations

Comparison of Year Ended December 31, 2001 to Year Ended December 31, 2000

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, 2001 and 2000) decreased to 95.1% for the year ended December 31,
2001 from 96.8% for the year ended December 31, 2000. Financial occupancy is
defined as the percentage resulting from dividing actual rental income by total
possible 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, 2001 and 2000 are as follows:

December 31, December 31,
2001 2000
------------ ------------

Northern California......................... 95.4% 98.0%
Southern California......................... 95.1% 96.2%
Pacific Northwest........................... 94.5% 95.9%

Total Revenues increased by $26,894,000 or 15.0% to $205,634,000 in 2001
from $178,740,000 in 2000. The following table sets forth a breakdown of these
revenue amounts, including the revenues attributable to the Same Store
Properties.

Years Ended
December 31,
Number of ----------------- Dollar Percentage
Properties 2001 2000 Change Change
---------- -------- -------- ------- ----------
(dollars in thousands)

Revenues
Property revenues
Same Store Properties
Northern California........................... 14 $ 56,646 $ 52,814 $ 3,832 7.3%
Southern California........................... 15 43,338 41,095 2,243 5.5
Pacific Northwest............................. 19 35,743 35,122 621 1.8
-- -------- -------- ------- -----
Total property revenues
Same Store Properties.................... 48 135,727 129,031 6,696 5.2
==
Property revenues properties acquired/disposed of
subsequent to January 1, 2000(1)................ 47,755 38,740 9,015 23.3
-------- -------- ------- -----
Total property revenues.................... 183,482 167,771 15,711 9.4
-------- -------- ------- -----
Interest and other income............................ 22,152 10,969 11,183 102.0
-------- -------- ------- -----
Total revenues............................. $205,634 $178,740 $26,894 15.0%
======== ======== ======= =====

- --------
(1) Also includes two office buildings, redevelopment communities and
development communities.

As set forth in the above table, $9,015,000 of the $26,894,000 net increase
in total revenues is attributable to properties acquired or disposed of
subsequent to January 1, 2000, the two office buildings, redevelopment
communities and development communities. During this period, the Company
acquired interests in 20 properties and achieved stabilized operations at six
development communities, (the "Acquisition Properties"), and disposed of three
retail shopping centers and one commercial property (the "Disposition
Properties").

Of the increase in total revenues, $6,696,000 is attributable to increases
in property revenues from the Same Store Properties. Property revenues from the
Same Store Properties increased by approximately 5.2% to $135,727,000 in 2001
from $129,031,000 in 2000. A significant portion of this increase was
attributable to the 14 multifamily Same Store Properties located in Northern
California; the property revenues of these properties increased by $3,832,000
or 7.3% to $56,646,000 in 2001 from $52,814,000 in 2000. This $3,832,000
increase is primarily attributable to rental rate increases, which were offset
by a decrease in average financial occupancy to 95.4% in 2001 from 98.0% in
2000. The 15 multifamily Same Store Properties located in Southern California
accounted for the next largest contribution to the Same Store Properties
revenues increased. The property revenues of these properties increased by
$2,243,000 or 5.5 % to $43,338,000 in 2001 from $41,095,000 in 2000. This
$2,243,000 increase is primarily attributable to rental rate increases, which
were offset by a decrease in average financial occupancy to 95.1% in 2001 from
96.2% in 2000. The 19 multifamily Same Store Properties located in the Pacific
Northwest accounted for the next largest contribution to the Same Store
Properties revenues

increase. The property revenues of these properties increased by $621,000 or
1.8% to $35,743,000 in 2001 from $35,122,000 in 2000. This $621,000 increase is
attributable to rental rate increases, which were offset by a decrease in
financial occupancy to 94.5% in 2001 from 95.9% in 2000.

The increase in total revenue also reflected an increase of $11,183,000
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 $21,938,000 or approximately 19.2% to
$136,478,000 in 2001 from $114,540,000 in 2000. The most significant factor
contributing to this increase was the growth in the Company's multifamily
portfolio from 83 properties (18,673 units) at January 1, 2001 to 92 properties
(20,762 units) at December 31, 2001. Interest expense increased by $8,721,000
or 28.7% to $39,105,000 in 2001 from $30,384,000 in 2000. 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 $1,011,000 or approximately 34.8% to $3,917,000
from $2,906,000 in 2000. Property operating expenses, exclusive of depreciation
and amortization, increased by $6,233,000 or 13.3% to $52,923,000 in 2001 from
$46,690,000 in 2000. Of such increase, $4,624,000 is attributable to properties
acquired or disposed of subsequent to January 1, 2000, and the balance is
attributable to an increase in operating expenses for the Same Store
Properties. Property operating expenses, exclusive of depreciation and
amortization, as a percentage of property revenues were 28.8% for 2001 and
27.8% for 2000. Depreciation and amortization increased by $5,530,000 or
approximately 18.0% to $36,295,000 in 2001 from $30,765,000 in 2000, primarily
due to the acquisition of assets. 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 $1,436,000 in 2001 from the amount incurred in 2000.
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 3.6 % for 2001 and 3.4% for 2000.

Minority interests increased by $649,000 or 2.7% to $24,399,000 in 2001 from
$23,750,000 in 2000. This is primarily due to the increase in net income of the
Company.

Net income increased by $4,192,000 to $48,545,000 in 2001 from $44,353,000
in 2000. Net income for 2001 included a gain on sales of real estate of
$3,788,000 as compared with $4,022,000 in 2000. Net operating income of the
Acquisition Properties and the increase in net operating income from the Same
Store Properties represent the largest contributions to the increase in net
income.

Comparison of Year Ended December 31, 2000 to Year Ended December 31, 1999

Average financial occupancy rates of the Company's multifamily "2000/1999
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 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 2000/1999
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 "2000/1999 Acquisition Properties"),
and disposed of one multifamily property and six retail shopping centers, (the
"2000/1999 Disposition Properties").

Of the increase in total revenues, $9,995,000 is attributable to increases
in property revenues from the 2000/1999 Same Store Properties. Property
revenues from the 2000/1999 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 2000/1999 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 2000/1999 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 2000/1999 Same Store Properties
located in the Pacific Northwest accounted for the next largest contribution to
this 2000/1999 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 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, 2000 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 2000/1999 Same Store Properties. Property operating
expenses, exclusive of depreciation and amortization, as a percentage of
property revenues were 27.8% for 2000 and 29.7% for 1999. Depreciation and
amortization increased by $4,615,000 or approximately 17.6% to $30,765,000 in
2000 from $26,150,000 in 1999 primarily due to the acquisitions of assets.
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 or 33.1% 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 2000/1999 Acquisition Properties and
an increase in net operating income from the 2000/1999 Same Store Properties.

Liquidity and Capital Resources Including Non-consolidated Investments

At December 31, 2001, the Company had $6,440,000 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 of $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's corporate ratings, if any, and leverage
rating, which has been priced at LIBOR plus 1.15% during 2001 and 2000. At
December 31, 2001 the Company had $44,459,000 outstanding on this line of
credit. A second line of credit in the amount of $30,000,000 matures in August
2002, 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, 2001 the Company had
$30,000,000 outstanding on this line of credit. At December 31, 2001, these
lines of credit bore interest rates of approximately 3.0%.

In addition, the Fund, the investment fund managed by the Company, has an
unsecured line of credit for an aggregate amount of $50 million. This line
matures in June 2002, but may be extended at the Fund's option to September
2002. The line bears interest at LIBOR plus 0.875%. As of December 31 2001, the
line had an outstanding balance of $46.2 million.

In addition to the Company's unsecured lines of credit, the Company had
$564,201,000 of secured indebtedness at December 31, 2001. Such indebtedness
consisted of $505,381,000 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 2001 ranging from approximately 4.0% 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 Company's unrestricted cash balance decreased $160,000 from $6,600,000
as of December 31, 2000 to $6,440,000 as of December 31, 2001. The Company
generated $98,871,000 in cash from operating activities, used $63,808,000 of
cash in investing activities and used $35,223,000 of cash from financing
activities. Of the $63,808,000 net cash used in investing activities,
$22,168,000 was used to purchase and upgrade rental properties, $52,969,000 was
used to fund real estate under development and $44,267,000 was issued as notes
receivable from investees and other related party notes and other receivables;
these expenditures were offset by $58,141,000 in repayment of notes from
investees, other related parties and other receivables and $5,018,000 of
proceeds received from the disposition of rental properties. The $35,223,000
net cash used in financing activities was primarily a result of $252,153,000 of
proceeds from mortgages and other notes payable as offset by $215,172,000 of
repayments of mortgages and other notes payable and lines of credit, and
$49,987,000 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, 2001, non-revenue generating capital expenditures totaled approximately
$342 per weighted average occupancy unit. The Company expects to incur
approximately $350 per weighted average occupancy unit in non-revenue
generating capital expenditures for the year ended December 31, 2002. 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 2002 and/or the funding thereof will not be
significantly different than the Company's current expectations.

The Company is currently developing five multifamily residential projects,
with an aggregate of 1,274 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, 2001.
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 and the total
projected estimated cost for these projects is approximately $221,200,000. As
of December 31, 2001, the Company's remaining commitment to these development
projects is approximately $113,400,000. 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.

During the year, the Company's Board of Directors has authorized the
Operating Partnership to purchase from time to time shares of the Company's
Common Stock, in an amount up to $50 million, at a price not to exceed $48.00
per share in the open market or through negotiated or block transactions. The
timing of any repurchase will depend on the market price and other market
conditions and factors. Essex will use working capital or proceeds from the
sale of properties to provide funds for this program. The purpose of the
program is to acquire stock related to real estate transactions involving the
issuance of partnership units in the Operating Partnership and similar
interests. Such repurchased shares may be reissued in connection with the
conversion of such partnership units, the exercise of stock options or other
business transactions. This Program supersedes its common stock repurchase plan
as announced on March 25, 1999. In October 2001, the Operating Partnership
acquired 100,700 shares of the Company's outstanding Common Stock. The weighted
average exercise price paid for the shares was $47.88. The amount paid for the
shares are reflected as a reduction of the common stock and
additional-paid-in-capital in the Company's consolidated balance sheets for the
year ended December 31, 2001.

The Company invests in joint ventures, which generally involve single
multifamily property acquisitions. The Company accounts for these investments
under the equity or consolidation methods of accounting based on the control it
exercises through its ownership interests in these affiliates. Under the equity
method of accounting, the investment is carried at cost of acquisition, plus
the Company's share in undistributed earnings or losses since acquisition. The
individual assets, liabilities, revenues and expenses of the joint venture are
not recorded in the Company's consolidated financial statements.

At December 31, 2001 and 2000, the Company did not have any other
relationship with unconsolidated entities or financial partnership, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purpose. As such,
the Company is not materially exposed to any financing, liquidity, market or
credit risk that could arise if the Company had engaged in such relationships.

Included in the Company's investments accounted for under the equity method
investments are limited partnership interests in 17 partnerships (Down REIT
entities), which collectively own ten multifamily properties, comprised of
1,831 units. These investments were made under arrangements whereby Essex
Management Corporation (EMC) became the general partner, the Operating
Partnership became a special minority interest limited 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 on a one share per
unit basis. Conversion values will be based on the market value of the
Company's common stock at the time of redemption multiplied by the number of
units stipulated under the above arrangements. The other limited partners
receive distributions based on the Company's current dividend rate times the
number of redemption shares. At December 31, 2001, the maximum number of shares
that could be required to meet redemption of these Down REIT entities is
1,511,533. The net income reported by the Company under the equity method of
accounting by these down REIT entities is the net income of these down REIT
entities as reduced by the distributions to the other limited partners.

Total investments accounted for under the equity method of accounting are
summarized as follows:

Investments--December 31, 2001 Company's Total Debt
- ------------------------------ Carrying Total ------------------------------------------- Down Value of Company's
Book Estimated Interest Maturity REIT Down Equity
Value Value(1) Amount Type Rate Date Units REIT Unit Value
(In thousands) --------- --------- -------- ---------- -------------- -------- ------ --------- ---------

Down REIT's
Highridge, Rancho Palos Verde, CA.. $ 12,075 Fixed 7.63% Jun-07
Anchor Village, Mukilteo, WA....... 10,750 Var.-bonds 5.50% Dec-27
Barkley Apartments, Anahiem, CA.... 5,406 Fixed 6.63% Feb-09
Brookside Oaks, Sunnyvale, CA...... 15,186 Fixed 7.90% Oct-10
Capri at Sunny Hills, Fullerton,
CA............................... 8,000 Var. Bank ref.+0.8% Oct-02
Hearthstone, Santa Ana, CA......... 10,168 Fixed 6.86%-7.25% Jun-08
Montejo, Garden Grove, CA.......... 6,255 Fixed 6.98% Feb-11
Treehouse, Santa Ana,CA............ 8,422 Fixed 6.98% Feb-11
Valley Park, Fountain Valley, CA... 10,669 Fixed 6.98% Feb-11
Villa Angelina, Placentia, CA...... 14,428 Fixed 6.98% Feb-11 (2) (3)
--------
$16,610 $192,425 101,360 1,511 $74,659 $16,406
======== ====== =======

Value
of Essex
Equity Ownership
------ ---------
Joint Ventures
Essex Apartment Value Fund, L.P.
Andover Park, Beaverton, OR...... 12,505 Fixed 6.60% Oct-11
Marbrisas, Chula Vista, CA....... 39,889 Fixed 7.99% Jul-05
Vista Del Rey (El Encanto),
Tustin, CA...................... 8,048 Fixed 6.95% Feb-11
Rosebeach, La Mirada, CA......... 8,490 Fixed 7.09% Feb-11
Hunt Club, Lake Oswego, CA....... 11,770 Fixed 7.05% Feb-11
The Crest, Pomona, CA............ 36,056 Fixed 7.99% Jul-05
Foxborough (Woodland), Orange,
CA.............................. 4,956 Fixed 7.84% Jul-09
Line of credit.................. 46,200 Var. LIBOR+.875% Jun-02
--------
17,119 $207,127 167,914 39,213 31.8% 12,466
========
AEW
Casa Mango, San Diego, CA.......... 7,155 Fixed 7.35% Feb-09
Riverfront, San Diego, CA.......... 19,434 Fixed 7.35% Feb-09
The Pointe at Cupertino,
Cupertino, CA.................... 0
Tierra Vista, Oxnard, CA........... 39,750 Var. LIBOR+1.795% Feb-03
--------
10,729 $125,266 66,339 58,927 20.0% 11,785
========
Newport Beach
Coronado at Newport--North, CA..... 34,137 Var. LIBOR+225 Nov-02
Coronado at Newport--South, CA(4)..
37,556 Var. LIBOR+225 Nov-02
--------
31,214 $139,682 71,693 67,989 49.9% 33,927
========
Other Joint Ventures
Park Hill Apartments, Issaquah, WA. 5,754 $ 34,888 22,500 Fixed 6.90% Aug-29 12,388 45.0% 5,575
========
Other............................... 14,034 14,034
------- -------- -------- -------
$95,460 $699,388 $429,806 $94,189
======= ======== ======== =======

- --------
(1) Value derived based on estimated 2002 net operating income at
capitalization rates ranging from 7.75% to 8.00% on stabilized multifamily
properties. Other properties, either in development, redevelopment or
acquired less than 12 months ago are valued at cost. The Company's carrying
value includes advances and other transaction costs which will be repaid or
recovered from refinancings, operations or dispositions.
(2) Based on assumed conversion of Down REIT limited partner units into
Company's shares at share price $49.41 at December 31, 2001.
(3) Estimate value attributed to Company's interest after limited partners
interest and debt.
(4) Rehab not yet started.

Potential Factors Affecting Future Operating Results

Many factors affect the Company's actual financial performance and may cause
the Company's future results to be different from past performance or trends.
These factors include:

Economic Environment

Both the national economy and the economies of the western states in which
the Company owns, manages and develops properties have been and continue to be
in a recession. This has resulted in reduced occupancy rates, and flattening
and reductions in market rental rates.

Interest Rate Fluctuations

The Company monitors changes in interest rates and believes that it is well
positioned from both a liquidity and interest rate risk perspective. However,
current interest rates are at historic lows and potentially could increase
rapidly to levels more in line with recent historic levels. The immediate
effect of significant and rapid interest rate increases would result in higher
interest expense on the Company's variable interest rate debt (see Item 7A and
Note 7 and 8 to consolidated financial statements). The effect of prolonged
interest rate increases could negatively impact the Company's ability to make
acquisitions and develop properties at economic returns on investment and the
Company's ability to refinance existing borrowings at acceptable rates.

Inflations

Inflationary increases would likely have a negative effect on property
operating results and such increases may be at a greater rate of increases than
property rental rates in a period of recession. The Company believes it
effectively manages its property and other expenses but understands that a
return to higher annual rates of inflation would result in increases to
operating expense.

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 2001, 2000 and 1999.

For the year For the quarter ended
ended --------------------------------------------------
12/31/01 12/31/01 9/30/01 6/30/01 3/31/01
------------ ----------- ----------- ----------- -----------

Income before gain on sale of real estate,
minority interests and extraordinary item.... $ 69,156,000 $17,148,000 $17,551,000 $17,537,000 $16,920,000
Adjustments:
Depreciation and amortization.............. 36,295,000 9,345,000 9,197,000 8,927,000 8,826,000
Adjustments for unconsolidated joint
ventures.................................. 5,341,000 1,694,000 1,209,000 1,201,000 1,237,000
Minority interests(1)......................... (18,515,000) (4,700,000) (4,608,000) (4,602,000) (4,605,000)
------------ ----------- ----------- ----------- -----------
Funds from Operations......................... $ 92,277,000 $23,487,000 $23,349,000 $23,063,000 $22,378,000
============ =========== =========== =========== ===========
Weighted average number of shares
outstanding diluted(1)....................... 21,004,707 21,026,883 21,093,631 21,034,366 20,922,186
============ =========== =========== =========== ===========

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 of 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 of shares
outstanding diluted(1)....................... 20,513,398 20,554,096 20,573,866 20,476,092 20,496,718
============ =========== =========== =========== ===========

- --------
(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.

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, 2001 as interest rates are consistent with yields
currently available to the Company for similar instruments.

For the Year Ended December 31
------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total
(In thousands) ------- ------ ----- ------ ------ ---------- --------

Fixed rate debt.............. $12,422 21,853 4,021 36,077 15,121 415,887 $505,381
Average interest rate........ 7.3% 6.9% 6.9% 7.1% 7.0% 7.0%
Variable rate LIBOR debt..... $74,459 -- -- -- -- 58,820(1) $133,279
Average interest rate........ 3.5% -- -- -- -- 5.1%

- --------
(1) Capped at interest rates ranging from 7.1% to 7.3%

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 14, 2002.

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 14, 2002.

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 14, 2002.

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 14, 2002.

PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

(A) Financial Statements and Report of KPMG LLP, independent auditors

Page
----

(1) Consolidated Financial Statements

Independent Auditors' Report........................................... F-1

Balance Sheets:

As of December 31, 2001 and December 31, 2000........................ F-2

Statements of Operations:

For the years ended December 31, 2001, 2000 and 1999................. F-3

Statements of Stockholders' Equity:

For the years ended December 31, 2001, 2000 and 1999................. F-4

Statements of Cash Flows:

For the years ended December 31, 2001, 2000 and 1999................. F-5

Notes to Consolidated Financial Statements............................. F-6

(2) Financial Statement Schedule: Real Estate and Accumulated Depreciation

Essex Property Trust, Inc. for the year ended December 31, 2001...... F-26

(B) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended December 31,
2001.

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Financial Statements and Financial Statement Schedule

December 31, 2001 and 2000

(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, 2001 and 2000, 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, 2001.
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, 2001. 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, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, 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.

/s/ KPMG LLP
San Francisco, California
February 5, 2002, except as to the second paragraph of
Note (3)(b) for which the date is February 15, 2002

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2001 and 2000
(Dollars in thousands, except per share amounts)

2001 2000
- - ---------- ----------
ASSETS
------

Real estate:
Rental properties:
Land and land improvements........................... $ 291,913 $ 289,796
Buildings and improvements........................... 883,287 866,612
---------- ----------
1,175,200 1,156,408
Less accumulated depreciation............................ (156,269) (119,499)
1,018,931 1,036,909
Investments.............................................. 95,460 65,703
Real estate under development............................ 93,256 38,231
---------- ----------
1,207,647 1,140,843
Cash and cash equivalents--unrestricted..................... 6,440 6,600
Cash and cash equivalents--restricted cash.................. 17,163 18,965
Notes receivable from investees and other related parties... 56,014 77,081
Notes and other receivables................................. 29,771 24,062
Prepaid expenses and other assets........................... 6,699 7,654
Deferred charges, net....................................... 5,724 6,644
---------- ----------
Total assets...................................... $1,329,458 $1,281,849
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Mortgage notes payable...................................... $ 564,201 $ 502,066
Lines of credit............................................. 74,459 93,469
Accounts payable and accrued liabilities.................... 29,577 30,430
Dividends payable........................................... 16,559 14,538
Other liabilities........................................... 6,583 6,539
Deferred gain............................................... -- 5,002
---------- ----------
Total liabilities................................. 691,379 652,044
Minority interests.......................................... 251,480 238,130
Stockholders' equity:
Common stock; $0.0001 par value, 656,682,178 and
656,682,178 shares authorized; 18,428,295 and
18,417,013 shares issued and outstanding............... 2 2
Cumulative redeemable preferred stock; $0.0001 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; $0.0001 par value; 330,000,000 shares
authorized; no shares issued or outstanding............ -- --
Additional paid-in capital............................... 426,517 428,433
Distributions in excess of accumulated earnings.......... (39,920) (36,760)
---------- ----------
Total stockholders' equity........................ 386,599 391,675
---------- ----------
Commitments and contingencies

Total liabilities and stockholders' equity........ $1,329,458 $1,281,849
========== ==========

See accompanying notes to consolidated financial statements.

F-2

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Years ended December 31, 2001, 2000 and 1999
(Dollars in thousands, except per share amounts)

2001 2000 1999
----------- ----------- -----------

Revenues:
Rental....................................... $ 177,954 $ 162,959 $ 137,262
Other property............................... 5,528 4,812 3,165
----------- ----------- -----------
Total property revenues................... 183,482 167,771 140,427
Interest and other........................... 22,152 10,969 5,618
----------- ----------- -----------
Total revenues............................ 205,634 178,740 146,045
----------- ----------- -----------
Expenses:
Property operating expenses:
Maintenance and repairs.................... 12,578 10,074 9,222
Real estate taxes.......................... 12,283 11,338 10,271
Utilities.................................. 8,787 8,387 8,532
Administrative............................. 15,254 13,695 10,582
Advertising................................ 2,870 2,211 2,187
Insurance.................................. 1,151 985 912
Depreciation and amortization.............. 36,295 30,765 26,150
----------- ----------- -----------
Total property operating expenses......... 89,218 77,455 67,856
Interest..................................... 39,105 30,384 21,268
Amortization of deferred financing costs..... 657 639 566
General and administrative................... 7,498 6,062 4,263
----------- ----------- -----------
Total expenses............................ 136,478 114,540 93,953
----------- ----------- -----------
Income before gain on the sales of
real estate, minority interests and
extraordinary item...................... 69,156 64,200 52,092
Gain on the sales of real estate................ 3,788 4,022 9,524
----------- ----------- -----------
Income before minority interests and
extraordinary item...................... 72,944 68,222 61,616
Minority interests.............................. (24,399) (23,750) (17,838)
----------- ----------- -----------
Income before extraordinary item.......... 48,545 44,472 43,778
Extraordinary loss on early extinguishment
of debt........................................ -- (119) (214)
----------- ----------- -----------
Net income................................ 48,545 44,353 43,564
Preferred stock dividends....................... -- (246) (1,333)
----------- ----------- -----------
Net income available to common
stockholders............................ $ 48,545 $ 44,107 $ 42,231
=========== =========== ===========
Per share data:
Basic:
Income before extraordinary item
available to common stockholders.......... $ 2.63 $ 2.43 $ 2.42
Extraordinary item--debt extinguishment.... -- (0.01) (0.01)
----------- ----------- -----------
Net income................................ $ 2.63 $ 2.42 $ 2.41
=========== =========== ===========
Weighted average number of shares
outstanding during the year................ 18,451,935 18,233,752 17,521,185
=========== =========== ===========
Diluted:
Income before extraordinary item
available to common stockholders.......... $ 2.59 $ 2.38 $ 2.37
Extraordinary item--debt extinguishment.... -- (0.01) (0.01)
=========== =========== ===========
Net income................................ $ 2.59 $ 2.37 $ 2.36
=========== =========== ===========
Weighted average number of shares
outstanding during the year............... 18,768,216 18,657,636 18,491,242
=========== =========== ===========

See accompanying notes to consolidated financial statements.

F-3

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

Years ended December 31, 2001, 2000 and 1999
(Dollars and shares in thousands)

Convertible Distributions
preferred stock Common stock Additional in excess of
-------------- -------------- paid-in accumulated
Shares Amount Shares Amount capital earnings Total
------ ------ ------ ------ ---------- ------------- --------

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
Shares purchased by Operating
Partnership.................... -- -- (101) -- (4,822) -- (4,822)
Net proceeds from options
exercised...................... -- -- 112 -- 2,906 -- 2,906
Net income....................... -- -- -- -- -- 48,545 48,545
Dividends declared............... -- -- -- -- -- (51,705) (51,705)
------ ---- ------ --- -------- -------- --------
Balances, December 31, 2001...... -- $ -- 18,428 $ 2 $426,517 $(39,920) $386,599
====== ==== ====== === ======== ======== ========

See accompanying notes to consolidated financial statements.

F-4

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2001, 2000 and 1999
(Dollars in thousands)

2001 2000 1999
--------- --------- ---------

Cash flows from operating activities:
Net income............................................. $ 48,545 $ 44,353 $ 43,564
Minority interests..................................... 24,399 23,750 17,838
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on the sales of real estate..................... (3,788) (4,022) (9,524)
Equity in income of limited partnerships............. (3,854) (1,333) (1,389)
Loss on early extinguishment of debt................. -- 119 214
Depreciation and amortization........................ 36,295 30,765 26,150
Amortization of deferred financing costs............. 657 639 566
Changes in operating assets and liabilities:
Other receivables................................. -- (944) 621
Prepaid expenses and other assets................. 955 (4,159) (393)
Accounts payable and accrued liabilities.......... (4,382) 2,051 5,626
Other liabilities................................. 44 945 293
--------- --------- ---------
Net cash provided by operating
activities................................... 98,871 92,164 83,566
--------- --------- ---------
Cash flows from investing activities:
Additions to rental properties......................... (22,168) (73,929) (88,305)
Dispositions of rental properties...................... -- 31,302 63,421
Contribution of real estate to corporate
investee.............................................. 21,005 -- --
Decrease/(increase) in restricted cash................. 1,802 (1,749) (1,684)
Additions to notes receivable from investees,
other related parties and other receivables........... (42,766) (87,517) (6,084)
Repayments of notes from investees, other
related parties and...................................
other receivables...................................... 56,640 3,514 16,504
Net contribution to investments in
corporations and limited partnerships................. (25,352) (9,609) (30,025)
Additions to real estate under development............. (52,969) (43,612) (74,608)
--------- --------- ---------
Net cash used in investing activities.......... (63,808) (181,600) (120,781)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from mortgage and other notes payable
and lines of credit................................... 252,153 351,194 241,150
Repayment of mortgage and other notes payable
and lines of credit................................... (215,172) (203,004) (229,771)
Additions to deferred charges.......................... (43) (1,680) (1,253)
Net proceeds from preferred unit sales................. -- -- 102,340
Payment of offering related costs...................... -- -- (93)
Net proceeds from stock options exercised and
shares issued and through dividend
reinvestment plan..................................... 2,906 3,344 930
Shares purchased by Operating Partnership.............. (4,822) -- (7,119)
Redemption of Operating Partnership units.............. (2,650) (555) (2,100)
Contribution from minority interest partners........... 6,660 -- --
Distributions to minority interest partners............ (24,268) (23,187) (18,435)
Dividends paid......................................... (49,987) (42,424) (38,634)
--------- --------- ---------
Net cash used in financing activities.......... (35,223) 83,688 47,015
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.............................................. (160) (5,748) 9,800
Cash and cash equivalents at beginning of year............ 6,600 12,348 2,548
--------- --------- ---------
Cash and cash equivalents at end of year.................. $ 6,440 $ 6,600 $ 12,348
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest, net of $3,917, $2,906
and $5,172 capitalized in 2001, 2000 and
1999, respectively.................................... $ 34,895 $ 25,528 $ 15,860
========= ========= =========
Supplemental disclosure of noncash investing and
financing activities:
Real estate under development transferred to
rental properties..................................... $ -- $ 120,183 $ 21,700
========= ========= =========
Mortgage notes payable assumed in connection
with the purchase of real estate...................... $ 6,144 $ 63,209 $ 15,800
========= ========= =========
Issuance of Operating Partnership units in
connection with the purchase of real estate........... $ 10,381 $ 2,365 $ 7,469
========= ========= =========
Consolidation of previously unconsolidated
investment............................................ $ 8,087 $ 2,771 $ 32,452
========= ========= =========
Exchange of real estate under development for
notes receivable...................................... $ -- $ 5,613 $ --
========= ========= =========
Exchange of notes receivable for investment............ $ 8,347 $ 9,540 $ --
========= ========= =========
Exchange of investment for note receivable
from investee......................................... $ 1,929 $ -- $ --
========= ========= =========
Contribution of real estate in exchange for
notes receivable and investments...................... $ 22,463 $ -- $ --
========= ========= =========

See accompanying notes to consolidated financial statements.

F-5

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999
(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 an 89.0% general partner interest and the limited partners
own a 11.0% interest in the Operating Partnership as of December 31, 2001. The
limited partners may convert their 2,286,082 units of interests into an
equivalent number of 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 92 multifamily
properties (containing 20,762 units) and two office buildings (with
approximately 56,300 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) Critical Accounting Policies and Estimates

In response to the SEC's Release Number 33-8040, "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies," the Company
identifies the following critical accounting areas that affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. The related accounting policies are included in this and
other notes to the consolidated financial statements and, as appropriate, in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

F-6

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(b) Real Estate Rental Properties

Maintenance and repair expenses that do not add to the value or prolong the
useful life of the property are expensed 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.

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.

When the Company determines that a property is held for sale, it
discontinues the periodic depreciation of that property. Assets held for sale
are reported at the lower of the carrying amount or estimated fair value less
costs to sell.

The Company consolidates or accounts for its investments in joint ventures
and affiliates under the equity method of accounting based on the percentage of
ownership and control it exercises through its ownership interests in those
entities. 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.

(d) Revenues and Gains on Sale of Real Estate

Rental revenue is reported on the accrual basis of accounting.

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 6 to 12 months).

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

(e) 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, 2001, as the

F-7

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

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, 2001, 2000, and
1999 are classified for tax purposes as follows:

2001 2000 1999
---- ---- ----

Taxable portion....................................... 100% 100% 100%
Return of capital..................................... -- -- --
--- --- ---
100% 100% 100%
=== === ===

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

The Company has from time to time used interest rate protection, swap and
forward contracts to manage its interest rate exposure on current or identified
future debt transactions. Prior to January 1, 2001, 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 adopted SFAS 133 "Accounting for Derivative Instruments and
Hedging Activities" effective January 1, 2001. Under the SFAS 133 derivative
instruments are required to be included in the balance sheet at fair value. The
changes in the fair value of the derivatives are accounted for depending on the
use of the derivative and whether it has been designated and qualifies as a
part of a hedging relationship. If the hedged exposure is a cash flow exposure,
changes in fair value of the effective portion of the gain or loss on the
derivative instrument are reported initially as a component of other
comprehensive income and subsequently reclassified into earnings when the
forecasted transaction affects earnings. Changes in the ineffective portion of
the gain or loss are reported in earnings immediately.

(g) 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.

(h) Interest

The Company capitalized $3,917, $2,906, and $5,172 of interest related to
the development of real estate during 2001, 2000, and 1999, respectively.

(i) Stock-based Compensation

Stock-based compensation is accounted for under Accounting Principles Board
Opinion 25 and related Interpretations with disclosures specified in Financial
Accounting Standards Board Statement No. 123.

F-8

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(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) Accounting Pronouncements

In July 2001, the FASB issued Statement No. 141, "Business Combinations,"
and Statement No. 142, "Goodwill and Other Intangible Assets." Statement 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and also specifies the criteria that
intangible assets acquired in a business combination must meet in order to be
recognized and reported apart from goodwill. Statement 142 eliminates the
requirement to amortize goodwill and intangible assets with indefinite useful
lives, but instead requires testing of these assets for impairment at least
annually. Statement 142 also requires that intangible with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values. The Company does not expect the adoption of
Statements 141 and 142 to have a material effect on the financial statements.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No.
121 " Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 144 develops one accounting model for
long-lived assets that are to be disposed of by sale. The Company will adopt
SFAS No. 144 effective January 1, 2002. The Company believes that the adoption
of SFAS No. 144 will not have a material impact on the Company's financial
statements.

(3) Real Estate

(a) Rental Properties

Rental properties consist of multifamily properties with a net book value of
$1,009,556 and office buildings with a net book value of $9,375.

As of December 31, 2001, Moanalua Hillside Apartments, a property purchased
by the Company's taxable REIT subsidiary, Essex Fidelity I Corp (EFC) (an
entity accounted for as an investment on the equity method of accounting) is
considered held for sale. The property was purchased in June 2001 for a
contract price of $42,200. The property is located in Honolulu, Hawaii, which
is not within the Company's geographic focus and the Company is actively
involved in reselling this property to various unrelated third parties. In the
opinion of management, the amount realized will be equal or greater than the
carrying value. In accordance with the FAS 121, no depreciation has been
recorded on this property during the year ended December 31, 2001.

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.

For the years ended December 31, 2001, 2000, and 1999, gain on the sales of
real estate was $3,788, $4,022, and $9,524, respectively. The Company utilized
Internal Revenue Code section 1031 to defer the majority of the taxable gains
resulting from these sales.

F-9

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

For the years ended December 31, 2001, 2000, and 1999, depreciation expense
on real estate was $36,295, $30,765, and $26,150, respectively.

(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.

Essex Apartment Value Fund, L.P. (the "Fund"), is an investment fund managed
by the Company and will be, subject to specific exceptions, the Company's
exclusive investment vehicle for new investments until the Fund's committed
capital has been invested or committed for investments, or if earlier, December
31, 2003. As of the year end, the Fund has total capital commitments of $157
million. On February 15, 2002 the Fund completed its equity raising effort with
a total of $250 million in capital commitments. The Fund is expected to utilize
leverage of approximately 65% of the value of the underlying real estate
portfolio. The Company is committed to invest 21.4% of the aggregate capital
committed to the Fund. In addition, Essex will be compensated by the Fund for
its asset management, property management, development and redevelopment
services and may receive incentive distributions if the Fund exceeds certain
financial return benchmarks.

The current portfolio of stabilized properties of the Fund is set forth
below:

Loan
Amount Fixed Loan
($ in Interest Maturity
Property Name Location Units millions) Rate Date
------------- --------------- ----- --------- -------- --------

Rosebeach Apartments....... LaMirada, CA 174 $ 8.5 7.09% Feb-11
Foxborough Homes........... Orange, CA 90 5.0 7.84% Jul-09
Vista del Rey.............. Tustin, CA 116 8.0 6.95% Feb-11
The Crest at Phillips Ranch Pomona, CA 501 36.1 7.99% Jul-05
Andover Park Apartments.... Beaverton, OR 240 12.5 6.66% Oct-11
Hunt Club.................. Lake Oswego, OR 256 11.8 7.05% Feb-11
Marbrisas.................. Chula Vista, CA 500 39.9 7.99% Jul-05
----- ------
Total............... 1,877 $121.8
===== ======

F-10

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

Subject to specific exceptions, the Fund will generally be the Company's
exclusive investment vehicle for new investments until the earlier of (i) the
date at least 90% of the Fund's aggregate capital commitments have been
invested or committed or reserved for investments or (ii) December 31, 2003.
The exceptions are: (1) properties acquired to complete transactions intended
to qualify for non-recognition under Section 1031 of the Internal Revenue Code,
(2) transactions involving properties with 75 units or less, (3) transactions
which require equity securities of the Company, including convertible or
exchangeable securities, with a value of at least $750,000, (4) follow-on
investments and re-building of properties which have been destroyed or damaged,
(5) land leases with remaining terms of less than 35 years; and (6) other
transactions which are prohibited from being consummated on behalf of the Fund
due to express restrictions or diversification limitations. The Company is not
prohibited from utilizing it's development and redevelopment capabilities to
improve properties that it currently owns or acquires pursuant to the preceding
exceptions.
In October 1999, the Company entered into two separate joint venture
arrangements and through two separate private REITs, Newport Beach North, Inc.
and Newport Beach South, Inc., received an approximate 49.9% equity interest in
each. 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 December 1999, the Company entered into a joint venture arrangement (AEW
joint venture) 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. The Company
also contributed land and development rights for a development community,
Tierra Vista, located in Oxnard, California. Tierra Vista completed
construction and reached stabilized operations in 2001. 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.

The Company holds limited partnership interests in 17 partnerships which
collectively own ten multifamily properties, comprised of 1,831 units (Down
REIT entities). These investments were made under arrangements whereby Essex
Management Corporation (EMC) became the general partner, the Operating
Partnership became a special limited 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 on a one unit per share basis.
Redemption values will be based on the market value of the Company's common
stock at the time of redemption multiplied by the number of units stipulated
under the above arrangements.

The Company has investments in two taxable REIT subsidiaries, EMC and EFC.
The Company has a 99% economic interest in these entities through its ownership
of nonvoting preferred stock. Executives of the Company have a 1% economic
interest through ownership of 100% of the common stock and for the years ended
December 31, 2001, 2000 and 1999 have not received any form of compensation
from this ownership interest. These entities were formed for the purpose of
acquiring, developing and managing real property and are accounted for on the
equity method of accounting. As of December 31, 2001, EFC owns one multifamily
property, one property under development and an investment in Internet Realty
Partners. The investments were made using proceeds from loans made by the
Company. At December 31, 2001, EFC's total assets and equity were $61,049 and
$8,926, respectively.

F-11

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

2001 2000
------- -------

Investments in joint ventures:
Direct and indirect LLC member interests of approximately
49.9% in Newport Beach North, LLC and Newport Beach South,
LLC........................................................ $31,214 $31,201
Limited partnership interest of 30.8% and general partner
interest of 1% in Essex Apartment Value Fund, L.P.(1)...... 17,119 --
Limited partnership interest of 20% in AEW joint ventures.... 10,729 10,585
Class A Member interest of 45% in Park Hill LLC.............. 5,754 5,753
Limited partnership interests of 49% in Parker Ranch......... -- 6,000
Preferred limited partnership interests in Mountain Vista
Apartments................................................. 4,004 9,540
Limited partnership interest of 46% in Mt. Sutro Terrace
Associates, L.P............................................ -- 2,048
Limited partnership interests of 1% to 30% in Down REIT
entities................................................... 16,610 (1,926)
------- -------
85,430 63,201
Total equity method investments..........................
Other investments............................................ 10,030 2,502
------- -------
Total investments........................................ $95,460 $65,703
======= =======

- --------
(1) Subsequent to the year end, the Fund completed its equity raising effort,
which will reduce its limited partnership interest to 20.4%.

The combined summarized financial information of investments, which are
accounted for under the equity method, are as follows:

December 31,
-----------------
2001 2000
-------- --------

Balance sheets:
Real estate and real estate under development.... $682,310 $376,261
Other assets..................................... 51,182 37,373
-------- --------
Total assets................................. $733,492 $413,634
======== ========
Mortgage notes payable........................... $421,556 $179,994
Other liabilities................................ 113,357 29,926
Partners' equity................................. 198,579 203,714
-------- --------
Total liabilities and partners' equity....... $733,492 $413,634
======== ========
Company's share of equity........................... $ 95,460 $ 65,703
======== ========

F-12

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

Years ended
December 31,
---------------
2001 2000
------- -------

Statements of operations:
Total revenue.................................... $70,414 $39,097
Total expenses................................... 60,289 34,502
------- -------
Total net income............................. $10,125 $ 4,595
======= =======
Company's share of net income....................... $ 3,854 $ 1,333
======= =======

The Company is developing five multifamily residential communities, with an
aggregate of 1,274 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 and the total estimated cost for this projects are
approximately $221.2 million. As of December 31, 2001, the remaining
development commitment including those held in joint ventures is approximately
$113.4 million.

(4) 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, 2001 and 2000:

2001 2000
------- -------

Notes receivable from joint venture investees:
Note receivable EFC, secured by Moanalua Hillside Apartment
bearing interest at 7% due by December 2002................. $34,000 $ --
Notes receivable from VFGP L.P.s, secured, bearing interest
at 9%--Prime + 3%, due 2001-2010............................ -- 47,840
Note receivable from Highridge Apartments, secured, bearing
interest at 9%, due March 2008.............................. -- 1,047
Note receivable from Highridge Apartments, secured, bearing
interest at 10%, due on demand.............................. 2,950 2,950
Notes receivable from EFC, secured, bearing interest at LIBOR
+ 2.5%, due 2004............................................ 13,305 5,613
Notes receivable from EFC, unsecured, bearing interest at
7.5%, due 2011.............................................. 1,150 --
Receivable from Down REIT entities, noninterest bearing, due
on demand................................................... -- 8,281
Receivable from Newport Beach North LLC and Newport Beach
South LLC, due on demand.................................... 974 1,753
Receivable from City Heights LP, noninterest bearing, due on
demand...................................................... -- 865

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...................................................... 3,002 8,099
------- -------
$56,014 $77,081
======= =======

F-13

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

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.

(5) Notes and Other Receivables

Notes and other receivables consist of the following as of December 31,
2001 and 2000:

2001 2000
------- -------

Note receivable from Derian Ave, LLC, secured, bearing interest
at 9.3%, due on demand........................................ $15,000 $15,000
Note receivable from DOIT City Heights Los Angeles L.P.,
secured, interest payable monthly at 9%, principal due
December 2007................................................. 2,434 2,415
Note receivable from Derian Ave, LLC, secured, bearing interest
at 15.0%, due on demand....................................... 1,372 208
Other receivables............................................... 10,965 6,439
------- -------
$29,771 $24,062
======= =======

(6) 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 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, 2001, 2000, and 1999 totaled $2,635, $1,247, and $545,
respectively, and are reflected as a reduction in general and administrative
expenses in the accompanying consolidated statements of operations.

The Company's Chairman, George Marcus, is also the Chairman of the Marcus &
Millichap Company (M&M), which is a real estate brokerage firm. During the
years ended December 31, 2001, 2000, and 1999, the Company paid brokerage
commissions totaling $0, $289, and $105 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 $1,236, $1,863, and
$705 for the years ended December 31, 2001, 2000, and 1999, 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
$11,567, $1,955, and $561 for the years ended December 31, 2001, 2000, and
1999, respectively.

F-14

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(7) Mortgage Notes Payable

Mortgage notes payable consist of the following as of December 31, 2001 and
2000:

2001 2000
-------- --------

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 $240,000

Mortgage notes payable, secured by deeds of trust, bearing
interest at rates ranging from 6.760% to 8.055%, principal
and interest payments due monthly, and maturity dates ranging
from February 2003 through July 2011......................... 198,140 116,551

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 3.0% for
December 2001 and 2000), 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...................................................... 42,723 43,436

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............................ 16,493 16,770

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..................... 8,025 8,265

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
-------- --------
$564,201 $502,066
======== ========

F-15

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

The aggregate scheduled maturities of mortgage notes payable are as follows:

2002....................................................... $ 12,422
2003....................................................... 21,853
2004....................................................... 4,021
2005....................................................... 36,077
2006....................................................... 15,121
Thereafter................................................. 474,707
--------
$564,201
========

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, 2001, 2000, and 1999, the Company
refinanced various mortgages and incurred a loss on the early extinguishment of
debt of $0, $119, and $214 related to the write-off of the unamortized mortgage
loan fees and prepayment penalties.

During transactions through 1999, the Company purchased interest rate cap
contracts in order to reduce the risks associated with increases in interest
rates on its tax exempt variable rate demand bonds. The Company has the right
to receive cash if interest rates increase above a specified level. The purpose
of the caps is to hedge the exposure to variability in expected future interest
cash flows above a fixed interest rate, and, accordingly, they are accounted
for as cash flow hedges under SFAS 133. The Company determines the fair value
of the caps and assesses the ineffectiveness of the hedge based on changes in
the time value of the caps. As of January 1, 2001, there were no changes in the
intrinsic value of the caps since the date the caps were purchased, and the
changes in fair value of the caps is attributable entirely to changes in time
value. The amortized cost of the cap contracts exceeded their fair value by
approximately $450, which resulted in a transition adjustment (charge to
earnings) of that amount in the quarter ended March 31, 2001.

(8) 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 2001 and 2000. As of December 31,
2001 and 2000, the interest rate was approximately 3.0% and 7.9%, respectively.
As of December 31, 2001 and 2000, the Company had $44,459 and $86,469
outstanding on this line of credit, respectively. A second line of credit in
the amount of $30,000 matures in September 2002, 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, 2001 and 2000, the Company had $30,000 and $7,000 outstanding on
this line of credit, respectively. The Company had no outstanding letters of
credit as of December 31, 2001. As of December 31, 2001, the 30-day LIBOR rate
was approximately 1.9%.

F-16

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

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.

(9) Equity Transactions

As of December 31, 2001 the Operating Partnership has the following
cumulative redeemable preferred units outstanding.

Liquidation
Description Issue Date Units Preference
-------------------- ------------------------- --------- -----------

7.875% Series B February 1998 1,200,000 $60,000
7.875% Series B April 1998 400,000 $20,000
9.125% Series C November 1998 500,000 $25,000
9.3% Series D July 1999 2,000,000 $50,000
9.25% Series E September 1999 2,200,000 $55,000

Dividends on the units are payable quarterly. The holders of the units do
not have any voting rights. Holders of the units have the right to exchange
their units on or after the tenth anniversary of the Issue Date for shares of
the Company's cumulative redeemable preferred stock at identical economic
terms. The Company has the right to redeem the units on the fifth anniversary
after the issue date. These preferred units are included in minority interests
in the accompanying consolidated balance sheet.

On June 28, 2001, the Operating Partnership issued 200,000 Series Z
Incentive Units of limited partner interest (the "Series Z Incentive Units") to
eleven senior executives of the Company in exchange for a capital commitment of
$1.00 per Series Z Incentive Unit, for an aggregate offering price of $200.
Upon certain triggering events, the Series Z Incentive Units will automatically
convert into common Operating Partnership units based on a conversion ratio
that may increase over time upon satisfaction of specific conditions. The
conversion ratio, initially set at zero, will increase by 10% (20% in 2002) on
January 1 of each year for each participating executive who remains employed by
the Company if the Company has met a specified "funds from operations" per
share target for the prior year, up to a maximum conversion ratio of 1.0. In
certain change of control situations, the participating executives will also be
given the option to convert their units at the then-effective conversion ratio.
In addition, the Operating Partnership has the option to redeem Series Z
Incentive Units held by any executive whose employment has been terminated for
any reason and the obligation to redeem any such units following the death of
the holder. In such event, the Operating Partnership will redeem the units for,
at its option, either common Operating Partnership units or shares of the
Company's common stock based on the then-effective conversion ratio.

During the year, the Company's Board of Directors has authorized the
Operating Partnership to purchase from time to time shares of the Company's
Common Stock, in an amount up to $50 million, at a price not to exceed $48.00
per share in the open market or through negotiated or block transactions. The
timing of the repurchase will depend on the market price and other market
conditions and factors. Essex will use working capital or proceeds from the
sale of properties to provide funds for this program. The purpose of the
program is to acquire stock related to real estate transactions involving the
issuance of partnership units in the Operating Partnership and similar
interests. Such repurchased shares may be reissued in connection with the
conversion of such partnership units, the exercise of stock options or other
business transactions. This Program supersedes its common stock repurchase plan
as announced on March 25, 1999. In October 2001, the Operating Partnership

F-17

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

acquired 100,700 shares of the Company's outstanding Common Stock. The weighted
average exercise price paid for the shares was $47.88. The amount paid for the
shares has been reflected as a reduction of the common stock and additional
paid-in-capital in the Company's consolidated balance sheets for the year ended
December 31, 2001.

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.

(10) 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:

2001 2000 1999
------------------------- -------------------------- --------------------------
Weighted- Per Weighted- Per Weighted- Per
average share average share average share
Income shares amount Income shares amount Income shares amount
------- --------- ------ ------- --------- ------ ------- --------- ------

Income before extraordinary item.... $48,545 $44,472 $43,778
Less: dividends on preferred stock.. -- (246) (1,333)
------- ------- -------
Basic:
Income available to common
stockholders..................... 48,545 18,452 $2.63 44,226 18,234 $2.43 42,445 17,521 $2.42
===== ===== =====
Effect of Dilutive Securities:
Convertible limited
partnership units................ -- -- (1) -- -- (1) -- -- (1)
Convertible preferred stock........ -- -- 246 108 1,333 786
Stock options(2)................... -- 316 -- 315 -- 184
------- ------ ------- ------ ------- ------
Diluted:
Income available to common
stockholders plus assumed
conversions...................... $48,545 18,768 $2.59 $44,472 18,657 $2.38 $43,778 18,491 $2.37
======= ====== ===== ======= ====== ===== ======= ====== =====

- --------
(1) Securities not included because they were anti-dilutive

(2) The following stock options are not included in the diluted earnings per
share calculation because the strike price of the option was greater than
the average market price of the common shares for the year and, therefore,
the effect would be anti-dilutive:

2001 2000 1999
-------------- -------------- --------------

Number of options............ 145 12 295
Range of exercise prices..... $49.250-54.250 $45.063-54.250 $31.875-34.750

(11) 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

F-18

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

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 2001, 2000, and 1999.

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, 2001, 2000, and 1999 would have been reduced to the pro
forma amounts indicated below:

2001 2000 1999
------- ------- -------

Net income:
As reported................................... $48,545 $44,353 $43,564
Pro forma..................................... 47,965 43,857 43,489

For the years ended December 31, 2001, 2000, and 1999, the effect of
determining compensation cost consistent with FASB Statement 123 on basic and
diluted earnings per share was not material.

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 3.54% to
4.96% in 2001, from 5.67% to 6.72% in 2000, and from 5.14% to 6.39% in 1999;
expected lives of 6 years for 2001, 6 years for 2000 and 7 years for 1999;
volatility of 18.93% for 2001, 19.26% for 2000 and 21.41% for 1999; and
dividend yield of 5.7% for 2001, 4.3% for 2000 and 6.6% for 1999.

F-19

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

A summary of the status of the Company's option plans as of December 31,
2001, 2000, and 1999 and changes during the years ended on those dates is
presented below:

2001 2000 1999
------------------- ------------------- ------------------
Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Shares price Shares price Shares price
-------- --------- -------- --------- ------- ---------

Outstanding at beginning of year....... 885,958 $28.48 954,449 $26.24 909,764 $24.40
Granted................................ 162,500 49.88 125,000 40.93 161,550 29.18
Exercised.............................. (111,982) 27.57 (151,591) 22.50 (45,535) 17.38
Forfeited and canceled................. (17,800) 43.42 (41,900) 36.01 (71,330) 25.40
-------- -------- -------
Outstanding at end of year............. 918,676 32.14 885,958 28.48 954,449 26.24
======== ======== =======
Options exercisable at year end........ 565,672 26.51 560,681 25.06 579,112 23.31
Weighted-average fair value of options
granted during the year.............. $5.82 $7.57 $3.45

The following table summarizes information about stock options outstanding
as of December 31, 2001:

Options outstanding Options exercisable
- ---------------------------------- ----------------------
Number Weighted- Number
outstanding average Weighted- exercisable Weighted-
as of remaining average as of average
Range of December 31, contractual exercise December 31, exercise
exercise prices 2001 life price 2001 price
--------------- ------------ ----------- --------- ------------ ---------

$16.28-21.70 275,016 2.5 years $19.48 275,016 $19.48
21.70-27.13 44,900 7.2 years 26.10 8,900 26.00
27.13-32.55 142,280 6.5 years 30.27 98,030 30.06
32.55-37.98 209,280 5.9 years 34.23 152,126 34.23
37.98-43.40 76,700 8.4 years 39.57 28,700 38.66
43.40-48.83 29,500 9.3 years 46.66 1,000 45.06
48.83-54.25 141,000 9.1 years 50.48 1,900 51.86
------- -------
918,676 565,672
======= =======

Through December 31, 2001, 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, 2001, 2000, and 1999, compensation
cost was $327, $262, and $184, respectively, related to this plan.

F-20

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(12) 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.

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 $0.01 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.

(13) 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 are 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 2. The Company evaluates performance based upon net operating income from
the combined properties in each segment.

F-21

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(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, 2001, 2000, and 1999:

Year ended December 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------

Revenues:
Northern California.............................................. $ 65,812 $ 57,998 $ 48,740
Southern California.............................................. 72,561 68,246 58,371
Pacific Northwest................................................ 45,109 41,527 33,316
---------- ---------- ----------
Total segment revenues....................................... 183,482 167,771 140,427
Interest and other income........................................... 22,152 10,969 5,618
---------- ---------- ----------
Total revenues............................................... $ 205,634 $ 178,740 $ 146,045
========== ========== ==========
Net operating income:
Northern California.............................................. $ 49,956 $ 44,960 $ 35,962
Southern California.............................................. 49,713 47,168 40,122
Pacific Northwest................................................ 30,890 28,953 22,284
---------- ---------- ----------
Total segment net operating income........................... 130,559 121,081 98,368
Nonsegment net operating income..................................... -- -- 353
Interest and other income........................................... 22,152 10,969 5,618
Depreciation and amortization....................................... (36,295) (30,765) (26,150)
Interest............................................................ (39,105) (30,384) (21,268)
Amortization of deferred financing costs............................ (657) (639) (566)
General and administrative.......................................... (7,498) (6,062) (4,263)
---------- ---------- ----------
Income before gain on the sales of real estate, minority
interests, and extraordinary item.......................... $ 69,156 $ 64,200 $ 52,092
========== ========== ==========
Assets:
Northern California.............................................. $ 302,408 $ 289,839 $ 222,086
Southern California.............................................. 456,639 478,835 415,374
Pacific Northwest................................................ 259,884 268,235 195,011
---------- ---------- ----------
Net real estate assets....................................... 1,018,931 1,036,909 832,471
Nonsegment assets................................................... 310,527 244,940 229,842
---------- ---------- ----------
Total assets................................................. $1,329,458 $1,281,849 $1,062,313
========== ========== ==========

F-22

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(14) Quarterly Results of Operations (Unaudited)

The following is a summary of quarterly results of operations for 2001 and
2000:

Quarter ended Quarter ended Quarter ended Quarter ended
December 31 September 30 June 30 March 31
------------- ------------- ------------- -------------

2001:
Total revenues before gain on the sales of real
estate....................................... $52,716 $51,763 $51,045 $50,110
======= ======= ======= =======
Gain on the sales of real estate............... $ -- $ 3,788 $ -- $ --
======= ======= ======= =======
Extraordinary item...................... $ -- $ -- $ -- $ --
======= ======= ======= =======
Net income.............................. $11,070 $14,899 $11,527 $11,049
======= ======= ======= =======
Per share data:
Net income:
Basic....................................... $ 0.60 $ 0.81 $ 0.62 $ 0.60
======= ======= ======= =======
Diluted..................................... $ 0.59 $ 0.79 $ 0.61 $ 0.59
======= ======= ======= =======
Market price:.................................
High........................................ $ 51.05 $ 54.67 $ 50.97 $ 55.94
======= ======= ======= =======
Low......................................... $ 45.50 $ 47.00 $ 42.28 $ 46.96
======= ======= ======= =======
Close....................................... $ 49.41 $ 49.10 $ 49.55 $ 48.05
======= ======= ======= =======
Dividends declared............................ $ 0.70 $ 0.70 $ 0.70 $ 0.70
======= ======= ======= =======
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
======= ======= ======= =======

F-23

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

(15) 401(k) Plan

The Company has a 401(k) pension plan (the Plan) for all full-time employees
who have completed six months 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 contribution to a maximum
of $.5 (per individual) per year. Company contributions to the Plan were
approximately $116, $98, and $58 for the years ended December 31, 2001, 2000,
and 1999.

(16) 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, 2001 and 2000, 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, 2001 and 2000 due to the short-term maturity of these instruments.

(17) Commitments and Contingencies

The Company had no outstanding letters of credit relating to financing and
development transactions as of December 31, 2001.

In conjunction with an acquisition of a property by the Company in 2000, the
Company has committed to provide a loan of up to $4,400 subject to conditions.
The commitment expires no later than February 2003.

Investments in real property create a potential for environmental
liabilities on the part of the owner of such real property. The Company carries
limited 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.

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,

F-24

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 2001, 2000 and 1999
(Dollars in thousands, except for per share amounts)

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, 2001, there would have been no collateral requirement and no
obligation under the participant performance guarantee. Through January 2002,
the directors and management effected an early termination of the agreement
with respect to 120,718 shares of the total 223,475 shares, realizing a gain of
approximately $15 per share.

F-25

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation
December 31, 2001
(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 $ 642
Oak Pointe 390 Sunnyvale, CA 4,842 19,776 5,443
Summerhill Commons 184 Newark, CA 1,608 7,582 1,040
Pathways 296 Long Beach, CA 4,083 16,757 8,137
Stevenson Place (The Apple) 200 Fremont, CA 996 5,582 6,143
Foothill Commons 360 Bellevue, WA 2,435 9,821 3,032
Woodland Commons 236 Bellevue, WA 2,040 8,727 1,764
Palisades 192 Bellevue, WA 1,560 6,242 1,825
-------- -------- -------- -------
100,000 20,218 79,405 28,026
-------- -------- -------- -------
Wharfside Pointe 142 Seattle, WA 2,245 7,020 1,010
Emerald Ridge 180 Bellevue, WA 3,449 7,801 956
Sammamish View 153 Bellevue, WA 3,324 7,501 791
-------- -------- -------- -------
18,487 9,018 22,322 2,757
-------- -------- -------- -------
Brighton Ridge 264 Renton, WA 2,623 10,800 1,098
Landmark 285 Hillsboro, OR 3,655 14,200 1,061
Eastridge 188 San Ramon, CA 6,068 13,628 419
-------- -------- -------- -------
26,781 12,346 38,628 2,578
-------- -------- -------- -------
Fountain Court 320 Bellevue, WA 6,702 27,306 352
Hillcrest Park (Mirabella) 608 Newbury Park, CA 15,318 40,601 6,974
Hillsborough Park 235 La Habra, CA 6,291 15,455 85
-------- -------- -------- -------
80,000 28,311 83,362 7,411
-------- -------- -------- -------
The Shores 462 San Ramon, CA 12,105 18,252 15,036
Waterford 238 San Jose, CA 11,808 24,500 1,275
-------- -------- -------- -------
60,000 23,913 42,752 16,311
-------- -------- -------- -------
Bridle Trails 92 Kirkland, WA 4,098 1,500 5,930 235
Bunker Hill Towers 456 Los Angeles, CA 17,700 11,498 27,871 606
Camarillo Oaks 564 Camarillo, CA 27,445 10,953 25,254 3,919
Evergreen Heights 200 Kirkland, WA 8,506 3,566 13,395 672
Hampton Park (Columbus) 83 Glendale, CA 4,450 2,407 5,672 1,340
Hampton Place (Lorraine) 132 Glendale, CA 8,245 4,288 11,081 1,177
Huntington Breakers 342 Huntington Beach, CA 22,930 9,306 22,720 1,458
Inglenook Court 224 Bothell, WA 8,300 3,467 7,881 1,609
Jackson School Village 200 Hillsboro, OR 9,111 2,588 10,452 432
Maple Leaf 48 Seattle, WA 2,002 805 3,283 95
Mariners Palce 105 Oxnard, CA 4,241 1,555 6,103 282
Meadowood 320 Simi Valley, CA 16,493 7,852 18,592 1,220
Monterra del Rey (Glenbrook) 84 Pasadena, CA 4,375 2,312 4,923 2,071
Monterra del Sol (Euclid) 85 Pasadena, CA 2,817 2,202 4,794 1,900
Mt. Sutro 99 San Francisco, CA 6,119 2,334 8,507 484
Spring Lake 69 Seattle, WA 2,193 838 3,399 110
Stonehedge Village 196 Bothell, WA 8,859 3,167 12,603 690
The Bluffs 224 San Diego, CA 13,268 3,405 7,743 336
The Carlyle 132 San Jose, CA 16,541 3,954 15,277 8,526
Treetops 172 Fremont, CA 9,800 3,520 8,182 1,141
Wandering Creek 156 Kent, WA 5,300 1,285 4,980 1,143
Wilshire Promenade 128 Fullerton, CA 7,435 3,118 7,385 685
Wimbledon Woods 560 Hayward, CA 55,650 9,883 37,670 1,929
Windsor Ridge 216 Sunnyvale, CA 13,055 4,017 10,315 835
-------- -------- -------- -------
278,933 193,626 550,481 89,978
-------- -------- -------- -------

Gross amount carried at close of period
---------------------------------------
Land and Buildings and Accumulated Date of Date Depreciable
Property improvements improvements Total(1) depreciation construction acquired (years)
- --------------------------------- ------------ ------------- -------- ------------ ------------ -------- -----------

Encumbered multifamily properties
Summerhill Park $ 2,655 $ 5,559 $ 8,214 $ 2,302 1988 9/88 3-40
Oak Pointe 4,845 25,216 30,061 13,089 1973 12/88 3-30
Summerhill Commons 1,523 8,707 10,230 3,643 1987 7/87 3-40
Pathways 6,236 22,741 28,977 7,235 1975 2/91 3-30
Stevenson Place (The Apple) 1,000 11,721 12,721 5,281 1971 4/82 3-30
Foothill Commons 2,438 12,850 15,288 6,581 1978 3/90 3-30
Woodland Commons 2,042 10,489 12,531 5,075 1978 3/90 3-30
Palisades 1,562 8,065 9,627 4,422 1969/1977 (2) 5/90 3-30
-------- -------- -------- --------
22,301 105,348 127,649 47,628
-------- -------- -------- --------
Wharfside Pointe 2,253 8,022 10,275 2,509 1990 6/94 3-30
Emerald Ridge 3,447 8,759 12,206 2,677 1987 11/94 3-30
Sammamish View 3,329 8,287 11,616 2,382 1986 11/94 3-30
-------- -------- -------- --------
9,029 25,068 34,097 7,568
-------- -------- -------- --------
Brighton Ridge 2,654 11,867 14,521 1,876 1986 12/96 3-30
Landmark 3,697 15,219 18,916 2,892 1990 08/96 3-30
Eastridge 6,089 14,026 20,115 2,585 1988 08/96 3-30
-------- -------- -------- --------
12,440 41,112 53,552 7,353
-------- -------- -------- --------
Fountain Court 6,977 27,383 34,360 1,631 2000 3/00 3-30
Hillcrest Park (Mirabella) 15,750 47,143 62,893 5,913 1973 3/98 3-30
Hillsborough Park 6,270 15,561 21,831 1,687 1999 09/99 3-30
-------- -------- -------- --------
28,997 90,087 119,084 9,231
-------- -------- -------- --------
The Shores 12,577 32,816 45,393 4,095 1988 01/97 3-30
Waterford 12,309 25,274 37,583 1,225 2000 6/00 3-30
-------- -------- -------- --------
24,886 58,090 82,976 5,320
-------- -------- -------- --------
Bridle Trails 1,530 6,135 7,665 924 1986 10/97 3-30
Bunker Hill Towers 11,635 28,340 39,975 3,813 1968 3/98 3-30
Camarillo Oaks 11,068 29,058 40,126 4,827 1985 07/96 3-30
Evergreen Heights 3,647 13,986 17,633 2,256 1990 06/97 3-30
Hampton Park (Columbus) 2,420 6,999 9,419 600 1974 06/99 3-30
Hampton Place (Lorraine) 4,302 12,244 16,546 1,060 1970 06/99 3-30
Huntington Breakers 9,312 24,172 33,484 3,579 1984 10/97 3-30
Inglenook Court 3,474 9,483 12,957 3,758 1985 10/94 3-30
Jackson School Village 2,697 10,775 13,472 453 1996 9/00 3-30
Maple Leaf 827 3,356 4,183 496 1986 10/97 3-30
Mariners Palce 1,560 6,380 7,940 333 1987 5/00 3-30
Meadowood 7,897 19,767 27,664 3,719 1986 11/96 3-30
Monterra del Rey (Glenbrook) 2,430 6,876 9,306 573 1972 04/99 3-30
Monterra del Sol (Euclid) 2,382 6,514 8,896 546 1972 04/99 3-30
Mt. Sutro 2,750 8,575 11,325 667 1973 06/01 3-30
Spring Lake 859 3,488 4,347 506 1986 10/97 3-30
Stonehedge Village 3,198 13,262 16,460 1,267 1986 10/97 3-30
The Bluffs 3,439 8,045 11,484 1,264 1974 06/97 3-30
The Carlyle 5,784 21,973 27,757 823 2000 4/00 3-30
Treetops 3,578 9,265 12,843 2,066 1978 01/96 3-30
Wandering Creek 1,296 6,112 7,408 1,635 1986 11/95 3-30
Wilshire Promenade 3,140 8,048 11,188 1,500 1992 01/97 3-30
Wimbledon Woods 10,348 39,134 49,482 5,122 1975 3/98 3-30
Windsor Ridge 4,019 11,148 15,167 4,061 1989 03/89 3-40
-------- -------- -------- --------
201,245 632,840 834,085 122,948
-------- -------- -------- --------

F-26

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES

Real Estate and Accumulated Depreciation
December 31, 2001
(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 2,278
Bristol Commons 188 Sunnyvale, CA 5,278 11,853 1,117
Castle Creek 216 Newcastle, WA 4,149 16,028 875
City Heights (3) -- Los Angeles, CA 9,655 -- 111
Fairway (4) 74 Newport Beach, CA -- 7,850 741
Foothill/Twincreeks 176 San Ramon, CA 5,875 13,992 1,117
Kings Road 196 Los Angeles, CA 4,023 9,527 521
Linden Square 183 Seattle, WA 4,374 11,588 226
Marina Cove (5) 292 Santa Clara, CA 5,320 16,431 2,128
Meadows @ Cascade 198 Vancouver, WA 2,261 9,070 1,026
Mirabella 188 Marina Del Rey, CA 6,180 26,673 157
Park Place/Windsor Court/Cochran 176 Los Angeles, CA 4,965 11,806 419
Plumtree 140 Santa Clara, CA 3,090 7,421 881
Salmon Run 132 Bothell, WA 3,717 11,483 187
Tara Village 168 Tarzana, CA 3,178 7,535 811
The Laurels 164 Mill Creek, WA 1,559 6,430 483
The Village 122 Oxnard, CA 2,349 5,579 2,715
Trabucco Villas 132 Lake Forest, CA 3,638 8,640 644
Villa Scandia 118 Ventura, CA 1,570 3,912 296
Village @ Cascade 192 Vancouver, WA 2,103 8,753 256
Monterra del Mar (Windsor Terrace) 123 Pasadena, CA 2,188 5,263 3,678
Vista Point (3)(6) -- Anaheim, CA -- -- 6
------ -------- -------- -------- --------
13,544 564,201 279,634 774,837 110,645
------ -------- -------- -------- --------
Commercial properties
3925 East Meadow (7) Palo Alto, CA -- 1,401 3,172 932
22120 Clarendon (8) Woodland Hills, CA -- 903 3,600 76
-------- -------- -------- --------
Total multifamily and commercial
properties $564,201 $281,938 $781,609 $111,653
======== ======== ======== ========

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)
- ----------------------------------------- ------------ ------------- ---------- ------------ ------------ -------- -----------

Unencumbered multifamily properties
Avondale at Warner Center 10,568 26,768 37,336 2,186 1989 01/97 3-30
Bristol Commons 5,284 12,964 18,248 2,157 1989 01/97 3-30
Castle Creek 4,830 16,222 21,052 1,816 1997 12/97 3-30
City Heights (3) 9,766 -- 9,766 -- 1968 12/00 --
Fairway (4) 9 8,582 8,591 775 1972 06/99 3-30
Foothill/Twincreeks 5,952 15,032 20,984 2,516 1985 02/97 3-30
Kings Road 4,030 10,041 14,071 1,617 1979 06/97 3-30
Linden Square 4,199 11,989 16,188 605 1994 6/00 3-30
Marina Cove (5) 5,322 18,557 23,879 5,745 1974 6/94 3-30
Meadows @ Cascade 2,334 10,023 12,357 1,508 1988 11/97 3-30
Mirabella 6,189 26,821 33,010 1,452 2000 5/00 3-30
Park Place/Windsor Court/Cochran 5,014 12,176 17,190 1,451 1988 08/97 3-30
Plumtree 3,091 8,301 11,392 2,507 1975 2/94 3-30
Salmon Run 3,784 11,603 15,387 448 2000 10/00 3-30
Tara Village 3,211 8,313 11,524 1,479 1972 01/97 3-30
The Laurels 1,595 6,877 8,472 1,163 1981 12/96 3-30
The Village 2,413 8,230 10,643 1,001 1974 07/97 3-30
Trabucco Villas 3,842 9,080 12,922 1,291 1985 10/97 3-30
Villa Scandia 1,612 4,166 5,778 740 1971 06/97 3-30
Village @ Cascade 2,151 8,961 11,112 1,267 1995 12/97 3-30
Monterra del Mar (Windsor Terrace) 2,730 8,399 11,129 909 1972 09/97 3-30
Vista Point (3)(6) 6 6 -- 1968 07/85 --
-------- -------- ---------- --------
289,171 875,945 1,165,116 155,581
-------- -------- ---------- --------
Commercial properties
3925 East Meadow (7) 1,771 3,734 5,505 588 1,984 11/97 3-30
22120 Clarendon (8) 971 3,608 4,579 100 1,982 03/01 3-30
-------- -------- ---------- --------
Total multifamily and commercial
properties $291,913 $883,287 $1,175,200 $156,269
======== ======== ========== ========

- --------
(1) The aggregate cost for federal income tax purposes is $896,529,421.
(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) 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.
(7) Total rentable square footage of 17,404.
(8) Total rentable square footage of 38,940.

A summary of activity for real estate and accumulated depreciation is as
follows:

2001 2000 1999 2001 2000
---------- ---------- --------- -------- --------

Real estate: Accumulated depreciation:
Balance at beginning of year.. $1,156,408 $ 929,076 $ 889,964 Balance at beginning of year........ $119,499 $ 96,605
Improvements.................. 25,839 18,348 5,554 Dispositions........................ -- (7,871)
Acquisition of real estate.... 15,904 238,938 193,634 Depreciation expense--Acquisitions.. 758 2,626
Disposition of real estate.... (22,951) (29,954) (160,076) Depreciation expense................ 36,012 28,139
---------- ---------- --------- -------- --------
Balance at end of year........ $1,175,200 $1,156,408 $ 929,076 Balance at end of year................ $156,269 $119,499
========== ========== ========= ======== ========

1999
-------

Real estate: Accumulated depreciation:
Balance at beginning of year.. Balance at beginning of year........ $77,789
Improvements.................. Dispositions........................ (7,334)
Acquisition of real estate.... Depreciation expense--Acquisitions.. 1,377
Disposition of real estate.... Depreciation expense................ 24,773
-------
Balance at end of year........ Balance at end of year................ $96,605
=======

F-27

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.

Dated: March 29, 2002
Essex Property Trust, Inc.

By: /s/ MICHAEL J. SCHALL
-----------------------------
Michael J. Schall
Senior Executive Vice
President 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.

Name Title Date
---- ----- ----
/s/ GEORGE M. MARCUS Chairman of the Board March 29, 2002
- -----------------------------
George M. Marcus

/s/ KEITH R. GUERICKE President and Chief Executive March 29, 2002
- ----------------------------- Officer and Vice
Keith R. Guericke Chairman (Principal
Executive Officer)

/s/ MICHAEL J. SCHALL Senior Executive Vice March 29, 2002
- ----------------------------- President and Chief
Michael J. Schall Financial Officer and
Director (Principal
Financial Officer)

/s/ MARK J. MIKL Vice President and Controller March 29, 2002
- ----------------------------- (Principal Accounting
Mark J. Mikl Officer)

/s/ WILLIAM A. MILLICHAP Director March 29, 2002
- -----------------------------
William A. Millichap

/s/ GARY P. MARTIN Director March 29, 2002
- -----------------------------
Gary P. Martin

/s/ ROBERT E. LARSON Director March 29, 2002
- -----------------------------
Robert E. Larson

/s/ THOMAS E. RANDLETT Director March 29, 2002
- -----------------------------
Thomas E. Randlett

/s/ DAVID W. BRADY Director March 29, 2002
- -----------------------------
David W. Brady

/s/ ISSIE N. RABINOVITCH Director March 29, 2002
- -----------------------------
Issie N. Rabinovitch

/s/ WILLARD H. SMITH, JR. Director March 29, 2002
- -----------------------------
Willard H. Smith, Jr.

S-1

EXHIBIT INDEX

Exhibit
No. Document Note
- ------- -------- ----

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.,
dated December 17, 1996. (1)

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 500,000 shares of 9 1/8% Series C Cumulative Redeemable
Preferred Stock, filed with the State of Maryland on November 25,
1998. (2)

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 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. --

Exhibit
No. Document Note
- ------- -------- ----

4.2 Amendment to Rights Agreement, dated as of December 13, 2000,
attached as Exhibit 4.1 to the Company's Form 10-Q for the quarter
ended March 31, 2001 and incorporated herein by reference. --

4.3 Amendment to Rights Agreement, dated as of February 28, 2002 --

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, filed April 23, 1998, and incorporated herein by reference. --

10.5 Third Amendment to the First Amended and Restated Agreement of
Limited Partnership of Essex Portfolio, L.P. dated November 24,
1998. (2)

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 (Registration No. 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
Statement on Form S-11 (Registration No. 33-76578), which became
effective on June 6, 1994, and incorporated herein by reference. --

Exhibit
No. Document Note
- ------- -------- ----

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. (Same
form was used for subsequent phantom stock agreements.)* --

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 subsequent phantom stock agreements.)* --

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. (Same form of Promissory Note and
Pledge Agreement used for subsequent loans.)* --

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. (Same form of Promissory Note and Pledge
Agreement used for subsequent loans.)* --

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. --

Exhibit
No. Document Note
- ------- -------- ----

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. --

10.30 Sixth Amendment to the First Amended and Restated Agreement of
Limited Partnership of Essex Portfolio, L.P. dated as of June 28,
2001, attached as Exhibit 10.1 to the Company's 10-Q for the
quarter ended June 30, 2001 and incorporated herein by reference.* --

10.31 Executive Severance Plan.* --

12.1 Schedule of Computation of Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends. --

21.1 List of Subsidiaries of Essex Property Trust, Inc. --

23.1 Consent of Independent Public Accountants. --

- --------
* Management contract or compensatory plan or arrangement.

(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.