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

FORM 10-K

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

For the fiscal year ended December 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number:   1-13106 (Essex Property Trust, Inc.)
Commission file number:   333-44467-01 (Essex Portfolio, L.P.)

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
(Exact name of Registrant as Specified in its Charter)

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

1100 Park Place, Suite 200
San Mateo, California    94403
(Address of Principal Executive Offices including Zip Code)
(650) 655-7800
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $.0001 par value (Essex Property Trust, Inc.)
 
New York Stock Exchange
 
 
 
7.125% Series H Cumulative Redeemable Preferred Stock (Essex Property Trust, Inc.)
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes o   No x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Essex Property Trust, Inc.    Yes o  No x
Essex Portfolio, L.P.     Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes x   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.
Essex Property Trust, Inc.    o
Essex Portfolio, L.P.    o

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

Essex Property Trust, Inc.:
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o   (Do not check if a smaller reporting company)
Smaller reporting company o

Essex Portfolio, L.P.:
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x   (Do not check if a smaller reporting company)
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Essex Property Trust, Inc.    Yes o   No x
Essex Portfolio, L.P.     Yes o   No x

As of June 30, 2015, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $13,717,739,025.  The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. Shares of common stock held by executive officers, directors and holders of more than ten percent of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates. This exclusion does not reflect a determination that such persons are affiliates for any other purposes. There is no public trading market for the common units of Essex Portfolio, L.P. As a result, the aggregate market value of the common units held by non-affiliates of Essex Portfolio, L.P., cannot be determined.

As of February 22, 2016, 65,411,581 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be filed within 120 days of December 31, 2015.
 



EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2015 of Essex Property Trust, Inc. and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, Inc., a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership”). Unless stated otherwise or the context otherwise requires, references to the “Company,” “Essex,” “we,” “us” or “our” mean collectively ESS, EPLP and those entities/subsidiaries owned or controlled by ESS and/or EPLP.  References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.

ESS is the general partner of, and as of December 31, 2015 owned an approximate 96.7% ownership interest in EPLP.  The remaining 3.3% interest is owned by limited partners. As the sole general partner of EPLP, ESS has exclusive control of EPLP's day-to-day management.

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

The Company believes that combining the reports on Form 10-K of ESS and EPLP into this single report provides the following benefits:

•
enhances investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
•
eliminates duplicative disclosure and provides a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
•
creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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

All of the Company's property ownership, development and related business operations are conducted through the Operating Partnership and ESS has no material assets, other than its investment in EPLP. ESS's primary function is acting as the general partner of EPLP. As general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. Therefore, the assets and liabilities of the Company and the Operating Partnership are the same on their respective financial statements. ESS also issues equity from time to time and guarantees certain debt of EPLP, as disclosed in this report. The Operating Partnership holds substantially all of the assets of the Company, including the Company's ownership interests in its joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for the net proceeds from equity offerings by the Company, which are contributed to the capital of the Operating Partnership in exchange for additional limited partnership interests in the Operating Partnership (“OP Units”) (on a one-for-one share of common stock per OP Unit basis), the Operating Partnership generates all remaining capital required by the Company's business. These sources include the Operating Partnership's working capital, net cash provided by operating activities, borrowings under its revolving credit facility, the issuance of secured and unsecured debt and equity securities and proceeds received from disposition of certain properties and joint ventures.

The Company believes it is important to understand the few differences between ESS and EPLP in the context of how ESS and EPLP operate as a consolidated company. Shareholders' equity, partners' capital and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partners of the Operating Partnership are accounted for as partners' capital in the Operating Partnership's consolidated financial statements and as noncontrolling interests in the Company's consolidated financial statements. The noncontrolling interests in the Operating Partnership's consolidated financial statements include the interests of unaffiliated partners in various consolidated partnerships and development joint venture partners. The noncontrolling interests in the Company's consolidated financial statements include (i) the same noncontrolling interests as presented in the Operating Partnership’s consolidated financial statements and (ii) limited partner OP Unit holders of the Operating Partnership. The differences between

iii

stockholders' equity and partners' capital result from differences in the equity issued at the Company and Operating Partnership levels.

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

This report also includes separate Part II, Item 9A. Controls and Procedures sections and separate Exhibits 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the requisite certifications have been made and that the Company and the Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that directly or indirectly enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the Company is one business and the Company operates that business through the Operating Partnership. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

iv

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
2015 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Part I.
 
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II.
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Part III.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV.
 
 
Item 15.
 


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Table of Contents

PART I
Forward Looking Statements
 
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in the section, “Forward Looking Statements.”  Actual results could differ materially from those set forth in each forward-looking statement.  Certain factors that might cause such a difference are discussed in this report, including in Item 1A, Risk Factors of this Form 10-K.

Item 1. Business

OVERVIEW

Essex Property Trust, Inc. (“Essex”, "ESS", or the “Company”) a Maryland corporation, is an S&P 500 company that operates as a self-administered and self-managed real estate investment trust (“REIT”). The Company owns all of its interest in its real estate and other investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership” or “EPLP”). The Company is the sole general partner of the Operating Partnership and as of December 31, 2015 owns a 96.7% general partnership interest. In this report, the terms “Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating Partnership.

The Company has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994 as the Company completed an initial public offering on June 13, 1994. In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. All taxable REIT subsidiaries are consolidated by the Company.

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities. As of December 31, 2015, the Company owned or held an interest in 246 communities, aggregating 59,160 apartment homes, located along the West Coast, as well as four commercial buildings (totaling approximately 319,079 square feet), and eight active development projects with 2,447 apartment homes in various stages of development (collectively, the “Portfolio”).

The Company’s website address is http://www.essex.com. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Stockholders are available, free of charge, on its website as soon as practicable after the Company files the reports with the U.S. Securities and Exchange Commission (“SEC”).

BUSINESS STRATEGIES

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

Business Strategies

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

•
Focus on markets in major metropolitan areas that have regional population in excess of one million;
•
Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;
•
Rental demand is enhanced by affordability of rents relative to costs of for-sale housing; and
•
Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.

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

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Table of Contents

projected to have declining economic conditions.  Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.

Property Operations – The Company manages its communities by focusing on activities that may generate above-average rental growth, tenant retention/satisfaction and long-term asset appreciation.  The Company intends to achieve this by utilizing the strategies set forth below:

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

CURRENT BUSINESS ACTIVITIES

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

Essex issued approximately 23.1 million shares of Essex common stock as Stock Consideration in the merger. For purchase accounting, the value of the common stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014. BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014.  As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration. After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex common stock issued.
 
Acquisitions of Real Estate

Acquisitions are an important component of the Company’s business plan, and during 2015, the Company acquired ownership interests in seven communities comprised of 1,722 apartment homes for $638.1 million. 


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Table of Contents

The following is a summary of 2015 acquisitions ($ in millions):
 
Property Name
 
Location
 
Apartment Homes
 
Essex Ownership Percentage
 
Ownership
 
Quarter in 2015
 
Purchase Price
8th & Hope
 
Los Angeles, CA
 
290

 
100
%
 
EPLP
 
Q1
 
$
200.0

The Huxley (1)
 
Los Angeles, CA
 
187

 
100
%
 
EPLP
 
Q1
 
48.8

The Dylan (1)
 
Los Angeles, CA
 
184

 
100
%
 
EPLP
 
Q1
 
51.3

Reveal (2)
 
Woodland Hills, CA
 
438

 
99.75
%
 
EPLP
 
Q2
 
73.0

Avant
 
Los Angeles, CA
 
247

 
100
%
 
EPLP
 
Q2
 
99.0

Avant II
 
Los Angeles, CA
 
193

 
100
%
 
EPLP
 
Q4
 
73.0

Enso
 
San Jose, CA
 
183

 
100
%
 
EPLP
 
Q4
 
93.0

Total 2015
 
1,722

 
 

 
 
 
 
 
$
638.1


(1) 
In March 2015, the Company purchased the joint venture partner's remaining membership interest in The Huxley and The Dylan co-investments for a purchase price of $100.1 million. The properties are now consolidated.
(2) 
In April 2015, the Company purchased the joint venture partner's 49.5% membership interest in the Reveal co-investment for a purchase price of $73.0 million. The property is now consolidated.

Dispositions of Real Estate

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

During 2015, the Company sold two apartment communities, Pinnacle South Mountain and Sharon Green, for a total of $308.8 million, resulting in total gains of $44.9 million. Additionally, in March 2015, the Company sold two commercial buildings, aggregating 120,000 square feet, located in Emeryville, CA, for $13.0 million, resulting in gains of $2.4 million.

Development Pipeline

The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations.  As of December 31, 2015, the Company had two consolidated development projects and six joint venture development projects comprised of 2,447 apartment homes for an estimated cost of $1.4 billion, of which $787 million remains to be expended, of which $542 million is the Company's share.

The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. As of December 31, 2015, the Company had various consolidated predevelopment projects. The Company may also acquire land for future development purposes or sale.


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Table of Contents

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

 
 
  
 
 
 
 
 
As of
 
 
 
 
 
 
 
 
12/31/2015
 
 
  
 
Essex
 
 
 
Incurred
 
Estimated
Development Pipeline
 
Location
 
Ownership%
 
Apartment Homes
 
Project Cost (1)
 
Project Cost(1)
Development Projects - Consolidated
 
 
 
 
 
 
 
 
 
 
MB 360 - Phase II
 
San Francisco, CA
 
100
%
 
172

 
$
119

 
$
135

Station Park Green
 
San Mateo, CA
 
100
%
 
599

 
83

 
354

Total - Consolidated Development Projects
 
 
 
 

 
771

 
202

 
489

Development Projects - Joint Venture
 
 
 
 

 
 

 
 

 
 

Epic - Phase III
 
San Jose, CA
 
55
%
 
200

 
84

 
92

Agora(2)
 
Walnut Creek, CA
 
51
%
 
49

 
84

 
95

Owens
 
Pleasanton, CA
 
55
%
 
255

 
55

 
89

Hacienda
 
Pleasanton, CA
 
55
%
 
251

 
37

 
86

Century Towers
 
San Jose, CA
 
50
%
 
376

 
93

 
172

500 Folsom (3)
 
San Francisco, CA
 
50
%
 
545

 
62

 
381

Total - Joint Venture Development Projects
 
 
 
 

 
1,676

 
415

 
915

Predevelopment Projects - Consolidated
 
 
 
 

 
 

 
 

 
 

Other Projects
 
various
 
100
%
 
—

 
40

 
40

Total - Predevelopment Projects
 
 
 
 

 
—

 
40

 
40

Grand Total - Development and Predevelopment Pipeline
 
 
 
 

 
2,447

 
$
657

 
$
1,444


(1) 
Includes costs related to the entire project, including both the Company's and joint venture partners' costs. Includes incurred costs and estimated costs to complete these development projects. For predevelopment projects, only incurred costs are included in estimated costs.
(2) 
Estimated project costs for this development include costs to develop both residential and commercial space.
(3) 
Estimated project cost for this development is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Redevelopment Pipeline

The Company defines the redevelopment pipeline as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement.  During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2015, the Company had ownership interests in five major redevelopment communities aggregating 1,313 apartment homes with estimated redevelopment costs of $159.8 million, of which approximately $82.5 million remains to be expended.

Long Term Debt

During 2015, the Company made regularly scheduled principal payments and loan payoffs of $118.3 million of its secured mortgage notes payable at an average interest rate of 5.3%.

In March 2015, the Company issued $500 million of 3.5% senior unsecured notes that mature in April 2025. The interest is payable semi-annually in arrears on April 1st and October 1st of each year, commencing October 1, 2015, until the maturity date in April 2025. The Company used the net proceeds of this offering to repay indebtedness under the Company's $1.0 billion unsecured line of credit facility, its $25.0 million unsecured working capital line and for other general corporate purposes.



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Table of Contents

Bank Debt

As of December 31, 2015, Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa2/Positive, and BBB/Positive, respectively.

At December 31, 2015, the Company's $1.0 billion credit facility had an interest rate of LIBOR plus 0.95%, which is based on a tiered rate structure tied to the Company's credit ratings. In January 2016, the Company extended the maturity date on its $1.0 billion unsecured line of credit facility from December 2017 to December 2019, with one 18-month extension, exercisable by the Company and lowered the interest rate to LIBOR plus 0.90%.

Equity Transactions

During 2015, ESS issued 1,481,737 shares of common stock at an average share price of $226.46 for proceeds of $332.3 million, net of fees and commissions. ESS contributed the net proceeds to the Operating Partnership and used the proceeds to pay down debt, fund the development and redevelopment pipeline, fund acquisitions, and for general corporate purposes. During the first quarter of 2016 through February 22, 2016, ESS has not issued any shares under its equity distribution program.

Co-investments

The Company has entered into, and may continue in the future to enter into, joint ventures or partnerships (including limited liability companies) through which we own an indirect economic interest in less than 100% of the community or land owned directly by the joint venture or partnership. For each joint venture the Company holds a 50% to 55% non-controlling interest in the venture and will earn customary management fees and may earn development, asset property management fees and may also earn a promote interest.

The Company has also made, and may continue in the future to make, preferred equity investments in various multi-family development projects. The Company earns a preferred rate of return on these investments.

OFFICES AND EMPLOYEES

The Company is headquartered in San Mateo, California, and has regional offices in Woodland Hills, California; San Jose, California; Irvine, California; San Diego, California and Bellevue, Washington. As of December 31, 2015, the Company had 1,806 employees.

INSURANCE

The Company purchases general liability and all risk property, including loss of rent, insurance coverage for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance.  There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and all risk losses. As of December 31, 2015, PWI has cash and marketable securities of approximately $60.3 million, and is consolidated in the Company's financial statements.

All of the Company's communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. The Company also purchases limited earthquake insurance for certain properties owned by the Company's co-investments.  
In addition, the Company carries other types of insurance coverage related to a variety of risks and exposures.  
Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, the Company may incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.


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Table of Contents

COMPETITION

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

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

WORKING CAPITAL

The Company believes that cash flows generated by its operations, existing cash and marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during 2016.

The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates, stock price, and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

ENVIRONMENTAL CONSIDERATIONS

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

OTHER MATTERS

Certain Policies of the Company

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

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


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

As leases at the communities expire, tenants may enter into new leases on terms that are less favorable to the Company. Income and real estate values also may be adversely affected by such factors as applicable laws (ex: the Americans with Disabilities Act of 1990 and tax laws). Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.
Short-term leases expose us to the effects of declining market rents, and the Company may be unable to renew leases or relet units as leases expire. Substantially all of our apartment leases are for a term of one year or less. If the Company is unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then the Company’s results of operations and financial condition will be adversely affected. With these short term leases, our rental revenues are impacted by declines in market rents more quickly than if our leases were for longer terms.
We may pursue acquisitions, dispositions, investments and joint ventures, which could adversely affect our results of operations. We may make acquisitions of and investments in businesses that offer complementary properties and communities to augment our market coverage, or enhance our property offerings. We may also enter into strategic alliances or joint ventures to achieve these goals. We cannot assure you that we will be able to identify suitable acquisition, investment, alliance, or joint venture opportunities, that we will be able to consummate any such transactions or relationships on terms and conditions acceptable to us, or that such transactions or relationships will be successful. In addition, our original estimates and assumptions used in assessing any acquisition may be inaccurate, and we may not realize the expected financial or strategic benefits of any such acquisition. From time to time, we may also divest portions of our business that are no longer strategically important or exit minority investments, which could materially affect our FFO, cash flows and results of operations.
These transactions or any other acquisitions or dispositions involve risks and uncertainties. For example, as a consequence of such transactions, we may assume unknown liabilities, which could ultimately lead to material costs for us. In addition, the integration of acquired businesses or other acquisitions may not be successful and could result in disruption to other parts of our business. To integrate acquired businesses or other acquisitions, we must implement our management information systems, operating systems and internal controls, and assimilate and manage the personnel of the acquired operations. There can be no assurance that all pre-acquisition property due diligence will have identified all material issues that might arise with respect to such acquired business and its properties or as to any such other acquisitions.
Any acquisition may also cause us to assume liabilities and ongoing lawsuits, acquire goodwill and other non-amortizable intangible assets that will be subject to impairment testing and potential impairment charges, incur amortization expense related

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to certain intangible assets, increase our expenses and working capital requirements, and subject us to litigation, which would reduce our return on invested capital. In addition, if the businesses or properties that we acquire have a different pricing or cost structure than we do, such acquisitions may adversely affect our profitability and reduce our overall margin. Failure to manage and successfully integrate the acquisitions we make or to improve margins of the acquired businesses and products could materially harm our business, operating results and margins. Any dispositions we may make may also result in ongoing obligations to us following any such divestiture, for example as a result of any transition services or indemnities we agree to provide to the purchaser in any such transaction, which may result in additional expenses and may adversely affect our financial condition and results of operation.
Any future acquisitions we make may also require significant additional debt or equity financing, which, in the case of debt financing, would increase our leverage and potentially affect our credit ratings and, in the case of equity or equity-linked financing, could be dilutive to our existing stockholders. Any downgrades in our credit ratings associated with an acquisition could adversely affect our ability to borrow by resulting in more restrictive borrowing terms. As a result of the foregoing, we also may not be able to complete acquisitions or other strategic transactions in the future to the same extent as in the past, or at all. These and other factors could harm our ability to achieve anticipated levels of profitability at acquired operations or realize other anticipated benefits of an acquisition, and could adversely affect our business, financial condition and results of operations.
National and regional economic environments can negatively impact the Company’s operating results. The Company's forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the west coast states. In the event of a recession, the Company could incur reductions in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.
Inflation/Deflation may affect rental rates and operating expenses. Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.
Acquisitions of communities involve various risks and uncertainties and may fail to meet expectations. The Company intends to continue to acquire apartment communities. However, there are risks that acquisitions will fail to meet the Company’s expectations. The Company’s estimates of future income, expenses and the costs of improvements or redevelopment that are necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate. Also, in connection with such acquisitions, we may assume unknown liabilities, which could ultimately lead to material costs for us. The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company. The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders. If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to undertake additional borrowing for further acquisitions or developments or such borrowing may be not available on advantageous terms.
Our apartment communities may be subject to unknown or contingent liabilities which could cause us to incur substantial costs. The properties that the Company owns or may acquire are or may be subject to unknown or contingent liabilities for which the Company may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to the sales of the properties may not survive the closing of the transactions. While the Company will seek to require the sellers to indemnify us with respect to breaches of representations and warranties that survive, such indemnification may be limited and subject to various materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with apartment communities may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may adversely affect our business, financial condition and results of operations.
Development and redevelopment activities may be delayed, not completed, and/or not achieve expected results. The Company pursues development and redevelopment projects and these projects generally require various governmental and other approvals, which have no assurance of being received. The Company’s development and redevelopment activities generally entail certain risks, including the following:
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funds may be expended and management's time devoted to projects that may not be completed;
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construction costs of a project may exceed original estimates possibly making the project economically unfeasible;
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projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage;
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occupancy rates and rents at a completed project may be less than anticipated;

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•
expenses at completed development projects may be higher than anticipated; and
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we may be unable to obtain, or experience a delay in obtaining, necessary zoning, occupancy, or other required governmental or third party permits and authorizations, which could result in increased costs or delay or abandonment of opportunities.

These risks may reduce the funds available for distribution to the Company’s stockholders. Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments. For further information regarding these risks, please see the risk factor above titled “General real estate investment risks may adversely affect property income and values.”
Difficulty of selling apartment communities could limit liquidity and financial flexibility. If we are found to have held, acquired or developed a community primarily with the intent to resell the community, federal tax laws may limit our ability to sell the community without incurring a 100% tax on the gain on the sale of the community and potentially adversely impacting our status as a real estate investment trust (“REIT”) unless we own the community through one of our taxable REIT subsidiaries (“TRSs”). In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the apartment communities in our portfolio promptly in response to changes in economic or other conditions, which could have a material adverse effect on our financial condition and results of operations.

The geographic concentration of the Company’s communities and fluctuations in local markets may adversely impact the Company’s financial condition and operating results. The Company generated significant amounts of rental revenues for the year ended December 31, 2015, from the Company’s communities concentrated in Southern California (Los Angeles, Orange, Santa Barbara, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area), and the Seattle metropolitan area. For the year ended December 31, 2015, 83% of the Company’s rental revenues were generated from communities located in California. This geographic concentration could present risks if local property market performance falls below expectations. In general, factors that may adversely affect local market and economic conditions include the following:

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the economic climate, which may be adversely impacted by a reduction in jobs or income levels, industry slowdowns and other factors;
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local conditions, such as oversupply of, or reduced demand for, apartment homes;
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declines in household formation;
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favorable residential mortgage rates;
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rent control or stabilization laws, or other laws regulating rental housing, which could prevent the Company from raising rents to offset increases in operating costs; and
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competition from other available apartments and other housing alternatives and changes in market rental rates.

The Company may experience various increased costs, including increased property taxes, to own and maintain its properties. Real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. Thus, our real estate taxes in the State of Washington could increase as a result of property value reassessments or increased property tax rates in that state. A current California law commonly referred to as Proposition 13 generally limits annual real estate tax increases on California properties to 2% of assessed value. However, under Proposition 13, property tax reassessment generally occurs as a result of a “change in ownership” of a property, as specially defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular transaction. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial and industrial property and/or introduce split tax roll legislation. Such initiatives, if successful, could increase the assessed value and/or tax rates applicable to commercial property in California, including our apartment communities.

The Company may experience increased costs associated with capital improvements and routine property maintenance, such as repairs to the foundation, exterior walls, and rooftops of its properties, as its properties advance through their life-cycles. Increases in the Company’s expenses to own and maintain its properties could adversely impact the Company’s financial condition and results of operations.

Competition in the apartment community market may adversely affect operations and the rental demand for the Company’s communities. There are numerous housing alternatives that compete with the Company’s communities in attracting residents. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which the communities are located. Competitive housing in a particular area and the increasing affordability of

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owner occupied single and multi-family homes caused by lower housing prices, mortgage interest rates and government programs to promote home ownership could adversely affect the Company’s ability to retain its residents, lease apartment homes and increase or maintain rents. If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations. The Company also faces competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities. This competition may result in an increase in costs and prices of apartment communities that the Company acquires and/or develops.
Investments in mortgages and other real estate securities could affect the Company’s ability to make distributions to stockholders. The Company may invest in equity, preferred equity or debt securities related to real estate, which could adversely affect the Company’s ability to make distributions to stockholders. The Company may purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. These mortgages may be first, second or third mortgages that may or may not be insured or otherwise guaranteed. The Company may acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity or entities that owns the interest in the entity owning the property. In general, investments in mortgages include the following risks:
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that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;
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the borrower may not pay indebtedness under the mortgage when due, requiring the Company to foreclose, and the amount recovered in connection with the foreclosure may be less than the amount owed;
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that interest rates payable on the mortgages may be lower than the Company’s cost of funds;
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in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage; and
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delays in the collection of principal and interest if a borrower claims bankruptcy.

If any of the above were to occur, it could adversely affect the Company’s cash flows from operations.
The Company’s joint ventures and joint ownership of communities and partial interests in corporations and limited partnerships could limit the Company’s ability to control such communities and partial interests. Instead of purchasing and developing apartment communities directly, the Company has invested and may continue to invest in joint ventures. Joint venture partners often have shared control over the development and operation of the joint venture assets. Therefore, it is possible that a joint venture partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with the Company’s business interests or goals, or be in a position to take action contrary to the Company’s instructions or requests, or its policies or objectives. Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk. Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ approval, or joint venture partners could take actions binding on the joint venture without its consent. A joint venture partner might fail to approve decisions that are in the Company’s best interest. Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities. In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would have not have initiated such a transaction.
From time to time, the Company, through the Operating Partnership, invests in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing, financing, or managing real property. For example, the Company has made preferred equity investments in third party entities that own real estate. With preferred equity investments and certain other investments, the Operating Partnership’s interest in a particular entity is typically less than a majority of the outstanding voting interests of that entity. Therefore, the Operating Partnership’s ability to control the daily operations of such an entity may be limited. Furthermore, the Operating Partnership may not have the power to remove a majority of the board of directors (in the case of a corporation) or the general partner or partners (in the case of a limited partnership) of such an entity in the event that its operations conflict with the Operating Partnership’s objectives. The Operating Partnership may not be able to dispose of its interests in such an entity. In the event that such an entity becomes insolvent, the Operating Partnership may lose up to its entire investment in and any advances to the entity. The Company may also incur losses if any guarantees or indemnifications were made by the Company. The Company also owns properties indirectly under "downREIT" structures. The Company has, and in the future may, enter into transactions that could require the Company to pay the tax liabilities of partners, which contribute assets into downREITs, joint ventures or the Operating Partnership, in the event that certain taxable events, which are within the Company’s control, occur. Although the Company plans to hold the contributed assets or defer recognition of gain on sale pursuant to the like-kind exchange rules under Section 1031 of the Code, the Company can provide no assurance that the Company will be able to do so and if such tax liabilities were incurred they could have a material impact on its financial position.

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Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy. A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction. Legislation or regulations adopted in the future may impose further burdens or restrictions on the Company with respect to improved access by disabled persons. The costs of compliance with these laws and regulations may be substantial. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any noncomplying feature, which could result in substantial capital expenditures.
The Company’s portfolio may have environmental liabilities. Under various federal, state and local environmental and public health laws, regulations and ordinances we have been from time to time, and may be required in the future, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases naturally occurring substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for response costs, property damage, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the impacts resulting from such releases.  While the Company is unaware of any such response action required or damage claims associated with its existing properties which individually or in aggregate would have a materially adverse effect on our business, assets, financial condition or results of operations, potential future costs and damage claims may be substantial and could exceed any insurance coverage we may have for such events or such coverage may not exist.  Further, the presence of such substances, or the failure to properly remediate any such impacts, may adversely affect our ability to borrow against, develop, sell or rent the affected property.  In addition, some environmental laws create or allow a government agency to impose a lien on the impacted site in favor of the government for damages and costs it incurs as a result of responding to hazardous or toxic substance or petroleum product releases .
Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air, and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs.  In connection with the ownership (direct or indirect), operation, management and development of our communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.
Investments in real property create a potential for environmental liabilities on the part of the owner of such real property.  The Company carries certain limited insurance coverage for this type of environmental risk as to its properties; however, such coverage is not fully available for all properties and, as to those properties for which limited coverage is fully available it may not apply to certain claims arising from known conditions present on those properties.  In general, in connection with the ownership, operation, financing, management and development of its communities, the Company may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities.  The Company may also be subject to governmental fines and costs related to injuries to third persons and damage to their property.
Properties which we intend to acquire undergo a pre-acquisition Phase I environmental site assessment, which is intended to afford the Company protection against so-called “owner liability” under the primary federal environmental law, as well as further environmental assessment, which generally does not involve invasive techniques such as soil or ground water sampling except where conditions warranting such further assessment are identified and seller’s consent is obtained.  While such assessments are conducted in accordance with applicable “all appropriate inquiry" standards, no assurance can be given that all environmental conditions present on or beneath or emanating from a given property will be discovered or that the full nature and extent of those conditions which are discovered will be adequately ascertained and quantified.
In connection with our ownership, operation and development of communities, from time to time we undertake remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings.  The Company does so pursuant to appropriate environmental regulatory requirements with the objective of obtaining regulatory closure or a no further action determination that will allow for future use, development and sale of any impacted community.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed in a timely manner.  Although the occurrence of mold at multi-family and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions.  The Company has adopted policies for promptly addressing and resolving reports of mold when it is detected, and to minimize any

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impact mold might have on residents of the property.  The Company believes its mold policies and proactive response to address any known existence reduce its risk of loss from these cases; however, no assurance can be provided that the Company has identified and responded to all mold occurrences.
California has enacted legislation, commonly referred to as "Proposition 65," requiring that "clear and reasonable" warnings be given to persons who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke.  Although the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that the Company will not be adversely affected by litigation relating to Proposition 65.
Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas.  Methane is a non-toxic gas, but is flammable and can be explosive at sufficient concentrations when in confined spaces and exposed to an ignition source.  Naturally-occurring, methane gas is regulated at the state and federal level as a greenhouse gas but is not otherwise regulated as a hazardous substance; however some local governments, such as Los Angeles County, require that new buildings constructed in areas designated methane gas zones install detection and/or venting systems.  Methane gas is also associated with certain industrial activities, such as former municipal waste landfills.  Radon is also a naturally-occurring gas that is found below the surface and can pose a threat to human health requiring abatement action if present in sufficient concentration within occupied areas.  The Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.
We cannot assure you that costs or liabilities incurred as a result of environmental matters will not affect our ability to make distributions to stockholders, or that such costs or liabilities will not have a material adverse effect on our financial condition and results of operations; provided, however, the Company is unaware of any pending or threatened alleged claim resulting from such matters which would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.
The Company may incur general uninsured losses. The Company purchases general liability and all risk property, including loss of rent, insurance coverage for each of its communities. The Company also purchases limited earthquake, terrorism, environmental and flood insurance. There are certain types of losses which may not be covered or could exceed coverage limits. The insurance programs are subject to deductibles and self-insured retentions in varying amounts. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI") to self-insure certain earthquake and all risk losses. As of December 31, 2015, PWI has cash and marketable securities of approximately $60.3 million, and is consolidated in the Company's financial statements.
All the communities are located in areas that are subject to earthquake activity. The Company evaluates its financial loss exposure to seismic events by using actuarial loss models developed by the insurance industry and property vulnerability based on structural evaluations of seismic consultants. The Company manages this exposure, where considered appropriate, desirable, and cost-effective, by upgrading properties to increase their resistance to forces caused by seismic events, by considering available funds and coverages provided by PWI and/or by purchasing seismic insurance. Purchasing seismic insurance coverage can be costly and such seismic insurance is in limited supply. As a result, the Company may experience a shortage in desired coverage levels if market conditions are such that insurance is not available, or the cost of the insurance makes it, in managements view, not economically practical. The Company purchases limited earthquake insurance for certain high-density properties and assets owned by the Company's co-investments.

The Company carries other types of insurance coverage related to a variety of risks and exposures. Based on market conditions, the Company may change or potentially eliminate insurance coverages, or increase levels of self-insurance. Further, we cannot assure you that the company will not incur losses, which could be material, due to uninsured risks, deductibles and self-insured retentions, and/or losses in excess of coverage limits.

We have significant investments in large metropolitan markets, such as the metropolitan markets in Southern California, the San Francisco Bay Area and Seattle. These markets may in the future be the target of actual or threatened terrorist attacks. Future terrorist attacks in these markets could directly or indirectly damage our communities, both physically and financially, or cause losses that exceed our insurance coverage.

Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental

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considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed.
Accidental death or horrendous injuries due to fire, natural disasters or other hazards could adversely affect our business and results of operations. The accidental death or horrendous injuries of persons living in our communities due to fire, natural disasters or other hazards could have a material adverse effect on our business and results of operations. Our insurance coverage may not cover all losses associated with such events, and we may experience difficulty marketing communities where any such events have occurred, which could have a material adverse effect on our business and results of operations.
Adverse changes in laws may affect the Company's liability relating to its properties and its operations. Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residents or users in the form of higher rents, and may adversely affect the Company's cash available for distribution and its ability to make distributions to its stockholders and pay amounts due on its debt. Similarly, changes in laws increasing the potential liability of the Company on a range of issues, including those regarding potential liability for other environmental conditions existing on properties or increasing the restrictions on discharges or other conditions, as well as changes in laws including those affecting development, construction and safety requirements, may result in significant unanticipated expenditures, which could have a material adverse effect on the Company and its ability to make distributions to its stockholders and pay amounts due on our debt. For example, the California statute known as "SB375" provides that, in order to reduce greenhouse emissions, there should be regional planning to coordinate housing needs with regional transportation. Such planning could lead to restrictions on property development that adversely affect the Company. In addition, future enactment of rent control or rent stabilization laws or other laws regulating multi-family housing, as well as any lawsuits against the Company arising from such rent control or other laws, may reduce rental revenues or increase operating costs.
The soundness of financial institutions could adversely affect us. We maintain cash and cash equivalent balances, including significant cash amounts of our wholly owned insurance subsidiary, Pacific Western Insurance LLC, as well as 401(k) plan assets in a limited number of financial institutions.  Our cash balances are generally in excess of federally insured limits.  The failure or collapse of one or more of these financial institutions may materially adversely affect our ability to recover our cash balances or the 401(k) assets.  Certain financial institutions are lenders under our credit facilities, and, from time to time, we execute transactions with counterparties in the financial services industry.  In the event that the volatility of the financial markets adversely affects these financial institutions or counterparties, we or other parties to the transactions with us may be unable to complete transactions as intended, which could adversely affect our business and results of operations.
Failure to succeed in new markets may limit the Company’s growth. The Company may from time to time make acquisitions or commence development activity outside of its existing market areas if appropriate opportunities arise. The Company’s historical experience in its existing markets does not ensure that it will be able to operate successfully in new markets. The Company may be exposed to a variety of risks if it chooses to enter new markets. These risks include, among others:
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an inability to evaluate accurately local apartment market conditions and local economies;
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an inability to identify appropriate acquisition opportunities or to obtain land for development;
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an inability to hire and retain key personnel; and
•
lack of familiarity with local governmental and permitting procedures.

The Company’s real estate assets may be subject to impairment charges. The Company continually evaluates the recoverability of the carrying value of its real estate assets under U.S. generally accepted accounting principles ("U.S. GAAP"). Factors considered in evaluating impairment of the Company’s existing multi-family real estate assets held for investment include significant declines in property operating profits, recurring property operating losses and other significant adverse changes in general market conditions that are considered permanent in nature. Generally, a multi-family real estate asset held for investment is not considered impaired if the undiscounted, estimated future cash flows of the asset over its estimated holding period are in excess of the asset’s net book value at the balance sheet date. Assumptions used to estimate annual and residual cash flow and the estimated holding period of such assets require the judgment of management. There can be no assurance that the Company will not take charges in the future related to the impairment of the Company’s assets. Any future impairment charges could have a material adverse effect on the Company’s results of operations.
We face risks associated with land holdings and related activities. We hold land for future development and may in the future acquire additional land holdings. The risks inherent in purchasing, owning and developing land increase as demand for apartments, or rental rates, decrease. Real estate markets are highly uncertain and, as a result, the value of undeveloped land may fluctuate significantly. In addition, carrying costs can be significant and can result in losses or reduced profitability. As a result, we hold certain land, and may, in the future acquire additional land, in our development pipeline at a cost we may not be able to fully recover or at a cost which may preclude our developing a profitable multi-family community. If there are

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subsequent changes in the fair value of our land holdings which we determine is less that the carrying basis of our land holdings reflected in our financial statements plus estimated costs to sell, we may be required to take future impairment changes which could have a material adverse effect on our results of operations.
Risks Related to Our Indebtedness and Financings
Capital and credit market conditions may affect the Company’s access to sources of capital and/or the cost of capital, which could negatively affect the Company’s business, results of operations, cash flows and financial condition. In periods when the capital and credit markets experience significant volatility, the amounts, sources and cost of capital available to the Company may be adversely affected. Our current balance sheet, the debt capacity available on the unsecured line of credit with a diversified bank group, access to the public and private placement debt markets and secured debt financing providers such as Fannie Mae and Freddie Mac provides some insulation from volatile capital markets. We primarily use external financing, including sales of equity securities, to fund acquisitions, developments, and redevelopments and to refinance indebtedness as it matures. If sufficient sources of external financing are not available to us on cost effective terms, we could be forced to limit our acquisition, development and redevelopment activity and/or take other actions to fund our business activities and repayment of debt, such as selling assets, reducing our cash dividend or paying out less than 100% of our taxable income. In general, to the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing without a corresponding change to investment cap rates) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely affected, which would impact the Company's financial standing and related credit rating. In addition, if our ability to obtain financing is adversely affected, we may be unable to satisfy scheduled maturities on existing financing through other sources of our liquidity, which could result in lender foreclosure on the apartment communities securing such debt.
The Company could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multi-family housing. Historically, the Company has utilized borrowing from Fannie Mae and Freddie Mac. There are no assurances that these entities will lend to the Company in the future.  Beginning in 2011, the Company has primarily utilized unsecured debt and has repaid secured debt at or near their respective maturity and has placed less reliance on agency mortgage debt financing. The Administration and lawmakers have proposed potential options for the future of agency mortgage finance in the U.S. that could involve the phase out of Fannie Mae and Freddie Mac. While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to our sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded or reorganized by the government or if there is reduced government support for support for multi-family housing more generally, it may adversely affect interest rates, capital availability, development of multi-family communities and the value of multi-family residential real estate and, as a result, may adversely affect the Company and its growth and operations.
Debt financing has inherent risks. At December 31, 2015, the Company had approximately $5.3 billion of indebtedness (including $525.3 million of variable rate indebtedness, of which $225.0 million is subject to interest rate swaps effectively fixing the interest rate, and $20.7 million is subject to interest rate cap protection).The Company is subject to the risks normally associated with debt financing, including the following:
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cash flow may not be sufficient to meet required payments of principal and interest;
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inability to refinance maturing indebtedness on encumbered apartment communities;
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inability to comply with debt covenants could cause defaults and an acceleration of maturity dates; and
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paying debt before the scheduled maturity date could result in prepayment penalties.

The Company may not be able to renew, repay or refinance its indebtedness when due or may be required to refinance its indebtedness at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness. If the Company is unable to refinance its indebtedness on acceptable terms, or not at all, the Company might be forced to dispose of one or more of its properties on disadvantageous terms, which might result in losses. Such losses could have an adverse effect on the Company and its ability to make distributions to its stockholders and pay amounts due on its debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and the Company is unable to meet mortgage payments, the mortgagee could foreclose on the property, appoint a receiver and exercise rights under an assignment of rents and leases, or pursue other remedies, all with a consequential loss of revenues and asset value. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet REIT distribution requirements.
Debt financing of communities may result in insufficient cash flow to service debt and fund distributions. Where appropriate, the Company intends to continue to use leverage to increase the rate of return on the Company’s investments and to provide for additional investments that the Company could not otherwise make. There is a risk that the cash flow from the

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communities will be insufficient to meet both debt payment obligations and the distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future. To a certain extent, our cash flow is subject to general economic, industry, regional, financial, competitive, operating, legislative, regulatory, taxation and other factors, many of which are beyond our control.
As of December 31, 2015, the Company had 69 consolidated communities encumbered by debt. With respect to the 69 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities. The holders of this indebtedness will have rights with respect to these communities and, if debt payment obligations are not met, lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.
Compliance requirements of tax-exempt financing and below market rent requirements may limit income from certain communities. At December 31, 2015, the Company had approximately $281.7 million of variable rate tax-exempt financing. This tax-exempt financing provides for certain deed restrictions and restrictive covenants. The Company expects to engage in tax-exempt financings in the future. The Code and rules and regulations thereunder impose various restrictions, conditions and requirements in order to allow the note holder to exclude interest on qualified bond obligations from gross income for federal income tax purposes. The Code also requires that at least 20% of apartment units be made available to residents with gross incomes that do not exceed a specified percentage, generally 50%, of the median income for the applicable family size as determined by the Housing and Urban Development Department of the federal government. Certain state and local authorities may impose additional rental restrictions. These restrictions may limit income from the tax-exempt financed communities if the Company is required to lower rental rates to attract residents who satisfy the median income test. If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability. Besides the limitations due to tax-exempt financing requirements, the income from certain communities may be limited due to below market rent ("BMR") requirements imposed by local authorities in connection with the original development of the community.
The indentures governing our notes and other financing arrangements contain restrictive covenants that limit our operating flexibility. The indentures that govern our publicly registered notes contain financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to:
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consummate a merger, consolidation or sale of all or substantially all of our assets; and
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incur additional secured and unsecured indebtedness.

The instruments governing our other unsecured indebtedness require us to meet specified financial covenants, including covenants relating to net worth, fixed charge coverage, debt service coverage, the amounts of total indebtedness and secured indebtedness, leverage and certain investment limitations. These covenants may restrict our ability to expand or fully pursue our business strategies. Our ability to comply with these provisions and those contained in the indentures governing the notes, may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us. The breach of any of these covenants, including those contained in our indentures, could result in a default under our indebtedness, which could cause those and other obligations to become due and payable. If any of our indebtedness is accelerated, we may not be able to repay it.
Rising interest rates may affect the Company’s costs of capital and financing activities and results of operation. Interest rates could increase, which could result in higher interest expense on the Company’s variable rate indebtedness or increase interest rates when refinancing maturing fixed rate debt. Prolonged interest rate increases could negatively impact the Company’s ability to make acquisitions and develop apartment communities with positive economic returns on investment and the Company’s ability to refinance existing borrowings.
Interest rate hedging arrangements may result in losses. The Company from time to time uses interest rate swaps and interest rate caps contracts to manage certain interest rate risks. Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to the Company if interest rates decline. If a hedging arrangement is not indexed to the same rate as the indebtedness that is hedged, the Company may be exposed to losses to the extent that the rate governing the indebtedness and the rate governing the hedging arrangement change independently of each other. Finally, nonperformance by the other party to the hedging arrangement may subject the Company to increased credit risks. In order to minimize counterparty credit risk, the Company enters into hedging arrangements only with investment grade financial institutions.

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A downgrade in the Company's investment grade credit rating could materially and adversely affect its business and financial condition. The Company plans to manage its operations to maintain its investment grade credit rating with a capital structure consistent with its current profile, but there can be no assurance that it will be able to maintain its current credit ratings. Any downgrades in terms of ratings or outlook by any of the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on its financial condition, results of operations and liquidity.
Changes in the Company’s financing policy may lead to higher levels of indebtedness. The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred. The Company has adopted a policy of maintaining a limit on debt financing consistent with the existing covenants required to maintain the Company’s unsecured line of credit bank facility, unsecured debt and senior unsecured bonds. Although pursuant to this policy the Company manages its debt to be in compliance with the debt covenants, the Company may increase the amount of outstanding debt at any time without a concurrent improvement in the Company’s ability to service the additional debt. Accordingly, the Company could become more leveraged, resulting in an increased risk of default of its debt covenants or on its debt obligations and in an increase in debt service requirements. Any covenant breach or significant increase in the Company’s leverage could materially adversely affect the Company’s financial condition and ability to access debt and equity capital markets in the future.
If the Company or its subsidiaries defaults on an obligation to repay outstanding indebtedness when due, the default could trigger a cross-default or cross-acceleration under other indebtedness. If the Company or one of its subsidiaries defaults on its obligations to repay outstanding indebtedness, the default could cause a cross-default or cross-acceleration under other indebtedness. A default under the agreements governing the Company’s or its subsidiaries’ indebtedness, including a default under mortgage indebtedness, lines of credit, bank term loan, or the indenture for the Company’s outstanding senior notes, that is not waived by the required lenders or holders of outstanding notes, could trigger cross-default or cross-acceleration provisions under one or more agreements governing the Company’s indebtedness, which could cause an immediate default or allow the lenders to declare all funds borrowed thereunder to be due and payable.
Risks Related to the Company in General and the Ownership of Essex’s Stock
The Company depends on its key personnel, whose continued service is not guaranteed.  The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers. There is substantial competition for qualified personnel in the real estate industry and the loss of any of the Company’s key personnel could have an adverse effect on the Company.
The price per share of the Company’s stock may fluctuate significantly. The market price per share of the Company’s common stock may fluctuate significantly in response to many factors, including without limitation:
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regional, national and global economic conditions;
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actual or anticipated variations in the Company’s quarterly operating results or dividends;
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changes in the Company’s funds from operations or earnings estimates;
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issuances of common stock, preferred stock or convertible debt securities;
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publication of research reports about the Company or the real estate industry;
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the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);
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general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of the Company’s stock to demand a higher annual yield from dividends;
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availability to capital markets and cost of capital;
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a change in analyst ratings or the Company’s credit ratings;
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terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; and
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natural disasters such as earthquakes.

Many of the factors listed above are beyond the Company’s control. These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.

The Company’s future issuances of common stock, preferred stock or convertible debt securities could be dilutive to current stockholders and adversely affect the market price of the Company’s common stock. In order to finance the Company’s acquisition and development activities, the Company has issued and sold common stock, preferred stock and convertible debt securities. For example, during the years ended December 31, 2015 and 2014, the Company issued 1.5 million and 3.0 million

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(excluding shares issued in connection with the BRE merger) shares of common stock for $332.3 million and $534.0 million, net of fees and commissions, respectively. The Company may in the future sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Citigroup Global Markets Inc., Jefferies LLC ("Jefferies"), J.P. Morgan Securities LLC ("JP Morgan"), Liquidnet, Inc., Mitsubishi UFJ Securities (USA), Inc., and UBS Securities LLC ("UBS").

In 2014, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number of equity and debt securities as defined in the prospectus. Future sales of common stock, preferred stock or convertible debt securities may dilute stockholder ownership in the Company and could adversely affect the market price of the common stock.
The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest. The Company’s Chairman, George M. Marcus is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest. Mr. Marcus owns interests in various other real estate-related businesses and investments. He is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment and development firms.  Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI.  MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.
Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by the Company's Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies. Notwithstanding this agreement, Mr. Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company. In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of the Company’s stockholders.
The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock. As of December 31, 2015, George M. Marcus, the Chairman of the Company’s Board of Directors, wholly or partially owned approximately 1.6 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships, indirectly held shares of common stock and assuming exercise of all vested options).  Mr. Marcus currently does not have majority control over the Company. However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions. Consequently, his influence could result in decisions that do not reflect the interests of all the Company’s stockholders.
Under the partnership agreement of the Operating Partnership, the consent of the holders of limited partnership interests is generally required for certain amendments of the agreement and for certain extraordinary actions. Through their ownership of limited partnership interests and their positions with the Company, the Company’s directors and executive officers, including Mr. Marcus, have substantial influence on the Company. Consequently, their influence could result in decisions that do not reflect the interests of all stockholders.
Our related party guidelines may not adequately address all of the issues that may arise with respect to related party transactions. The Company adopted "Related Party Transaction Approval Process Guidelines" that provide generally that any transaction in which a director or executive officer has an interest must have the prior approval of the Audit Committee of the Company's Board of Directors. The review and approval procedures in these guidelines are intended to determine whether a particular related party transaction is fair, reasonable and serves the interests of the Company's stockholders. Pursuant to these guidelines, related party transactions have been approved from time to time. There is no assurance that this policy will be adequate for determining whether a particular related party transaction is suitable and fair for the Company. Also, the policy's procedures may not identify and address all the potential issues and conflicts of interests with a related party transaction.
Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to stockholders. A decrease in rental revenue, or liquidity needs such as the repayment of indebtedness or funding of our acquisition and development activities, could have an adverse effect on our ability to pay distributions to our stockholders. Significant expenditures associated with each community such as debt service payments, if any, real estate taxes, insurance and maintenance costs are generally not reduced when circumstances cause a reduction in income from a community.


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The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations. The form, timing and/or amount of dividend distributions will be declared at the discretion of the Board of Directors and will depend on actual cash from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as the Board of Directors may consider relevant. The Board of Directors may modify our dividend policy from time to time.

We may choose to pay dividends in our own stock, in which case stockholders may be required to pay tax in excess of the cash they receive. We may distribute taxable dividends that are payable in part in our stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of the cash received. If a U.S. stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, the trading price of our stock would experience downward pressure if a significant number of our stockholders sell shares of our stock in order to pay taxes owed on dividends.

The voting rights of preferred stock may allow holders of preferred stock to impede actions that might otherwise benefit holders of common stock. Essex currently has outstanding shares of 7.125% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”). In general, the holders of the Company’s outstanding shares of Series H Preferred Stock do not have any voting rights. However, if full distributions are not made on outstanding Series H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock upon which like voting rights have been conferred, will have the right to elect two additional directors to serve on the Company’s Board of Directors.
These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the Series H Preferred Stock have been paid in full. At that time, the holders of the Series H Preferred Stock are divested of these voting rights, and the term of office of the directors so elected immediately terminates. These voting rights of the holders of the Series H Preferred Stock, or that of holders of other preferred stock that the Company may issue in the future, may allow such holders to impede or prevent actions that would otherwise benefit the holders of the Company’s common stock.
The Maryland Business Combination Act may delay, defer or prevent a transaction or change in control of the Company that might involve a premium price for the Company's stock or otherwise be in the best interest of our stockholders. Under the Maryland General Corporation Law, certain “business combinations” between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as any person (and certain affiliates of such person) who beneficially owns ten percent or more of the voting power of the then-outstanding voting stock of the corporation. The law also requires a two supermajority stockholder votes for such transactions. This means that the transaction must be approved by at least:
•
80% of the votes entitled to be cast by holders of outstanding voting shares; and
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Two-thirds of the votes entitled to be cast by holders of outstanding voting shares other than shares held by the interested stockholder with whom the business combination is to be effected.

The statute permits various exemptions from its provisions, including business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. These voting provisions do not apply if the stockholders receive a minimum price, as defined under the Maryland General Corporation Law. As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination among the Company, George M. Marcus, who is the chairman of the Company, and MMC or any entity owned or controlled by Mr. Marcus and MMC. Consequently, the five-year prohibition and supermajority vote requirements described above will not apply to any business combination between the Company, Mr. Marcus, or MMC. As a result, the Company may in the future enter into business combinations with Mr. Marcus and MMC, without compliance with the supermajority vote requirements and other provisions of the Maryland Business Combination Act.
Certain provisions contained in the Operating Partnership agreement, Charter and Bylaws, and certain provisions of the Maryland General Corporation Law could delay, defer or prevent a change in control. While the Company is the sole general partner of the Operating Partnership, and generally has full and exclusive responsibility and discretion in the management and control of the Operating Partnership, certain provisions of the Operating Partnership agreement place limitations on the Company’s power to act with respect to the Operating Partnership. Such limitations could delay, defer or prevent a transaction or a change in control that might involve a premium price for the Company’s stock or otherwise be in the

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best interests of its stockholders or that could otherwise adversely affect their interests. The partnership agreement provides that if the limited partners own at least 5% of the outstanding units of partnership interest in the Operating Partnership, the Company may not, 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 power to act may result in the Company’s being precluded from taking action that the Board of Directors otherwise believes is in the best interests of the Company or its stockholders.
The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such stock without the approval of the holders of the common stock. The Company may establish one or more classes or series of stock that could delay, defer or prevent a transaction or a change in control. Such a transaction might involve a premium price for the Company’s stock or otherwise be in the best interests of the holders of common stock. Also, such a class or series of stock could have dividend, voting or other rights that could adversely affect the interests of holders of common stock.
The Company’s Charter contains provisions limiting the transferability and ownership of shares of capital stock, which may delay, defer or prevent a transaction or a change in control. For example, subject to receiving an exemption from the Board of Directors, potential acquirers may not purchase more than 6% in value of the stock (other than qualified pension trusts which can acquire 9.9%). This may discourage tender offers that may be attractive to the holders of common stock and limit the opportunity for stockholders to receive a premium for their shares of common stock.
The Maryland General Corporation Law restricts the voting rights of holders of shares deemed to be “control shares.” Under the Maryland General Corporation 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 Corporation Law, the Board of Directors may amend or eliminate the provisions of the Bylaws at any time in the future. Moreover, any such amendment or elimination of such provision of the Bylaws may result in the application of the control share provisions of the Maryland General Corporation Law not only to control shares which may be acquired in the future, but also to control shares previously acquired. If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporation Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.
The Company’s Charter and Bylaws also contain other provisions that may impede various actions by stockholders without approval of the Company’s Board of Directors, and that in turn may delay, defer or prevent a transaction, including a change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company's stockholders. Those provisions include:
•
directors may be removed by stockholders, without cause, only upon the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of the directors, and with cause, only upon the affirmative vote of a majority of the votes entitled to be cast generally in the election of the directors;
•
the Company’s board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors;
•
stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and
•
for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.

A breach of the Company’s privacy or information security systems could materially adversely affect the Company’s business and financial condition. The protection of tenant, employee, and company data is critically important to the Company. Our business requires us, including some of our vendors, to use and store personally identifiable and other sensitive information of its tenants and employees. The collection and use of personally identifiable information is governed by federal and state laws and regulations. Privacy and information security laws continue to evolve and may be inconsistent from one jurisdiction to another. Compliance with all such laws and regulations may increase the Company’s operating costs and adversely impact the Company’s ability to market the Company’s properties and services.
The security measures put in place by the Company, and such vendors, cannot provide absolute security, and the Company and our vendors' information technology infrastructure may be vulnerable to criminal cyber-attacks or data security incidents due to employee error, malfeasance, or other vulnerabilities.  Any such incident could compromise the Company’s or such vendors' networks, and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed,

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corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm.  Moreover, if a data security incident or breach affects the Company’s systems or such vendors' systems or results in the unauthorized release of personally identifiable information, the Company’s reputation and brand could be materially damaged and the Company may be exposed to a risk of loss or litigation and possible liability, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition.
In the third quarter of 2014, the Company discovered and reported that certain of its computer networks containing personal and proprietary information were compromised by a cyber-intrusion. Based on information from our forensic investigation, the Company has confirmed that evidence exists of exfiltration of data on Company systems. The precise nature of the data has not been identified, and the Company does not presently have any evidence that data belonging to the Company has been misused.
After detecting unusual activity, the Company took immediate steps to assess and contain the intrusion and secure its systems. The Company retained independent forensic computer experts to analyze the impacted data systems and consulted with law enforcement.
As described in Note 16, "Commitments and Contingencies", of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K, on December 19, 2014, a putative class action was filed against the Company in the U.S. District Court for the Northern District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the personally-identifying information of its residents. At this point, the Company is unable to predict the developments in, outcome of, and/or economic and/or other consequences of such pending litigation or future litigation or predict the developments in, outcome of, and/or other consequences arising as a result of any potential government inquiries related to this matter.
Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. In light of this network intrusion we discovered in the third quarter of 2014, we have dedicated additional Company resources to strengthening the security of the Company’s computer systems. In the future, the Company may be required to expend additional resources to continue to enhance the Company’s information security measures and/or to investigate and remediate any information security vulnerabilities. Despite these steps, there can be no assurance that the Company will not suffer a similar data security incident in the future, that unauthorized parties will not gain access to sensitive data stored on the Company’s systems, or that any such incident will be discovered in a timely manner.  Further, the techniques used by criminals to obtain unauthorized access to sensitive data are often novel or change frequently; accordingly, the Company may be unable to anticipate these techniques or implement adequate preventative measures.
Expanding social media vehicles present new risks. The use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us on any social networking website could damage our reputation. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks.
Employee theft or fraud could result in loss. Certain of our employees have access to, or signature authority with respect to, bank accounts or other company assets, which exposes us to the risk of fraud or theft. In addition, certain employees have access to key information technology (IT) infrastructure and to tenant and other information that is commercially valuable. Should any employee compromise our IT systems, or misappropriate tenant or other information, we could incur losses, including significant financial or reputational harm, from which full recovery cannot be assured. We also may not have insurance that covers any losses in full or that covers losses from particular criminal acts. As of December 31, 2015, potential liabilities for theft or fraud are not quantifiable and an estimate of possible loss cannot be made.
Any material weaknesses identified in the Company's internal control over financial reporting could have an adverse effect on the Company’s stock price. Section 404 of the Sarbanes-Oxley Act of 2002 requires the Company to evaluate and report on its internal control over financial reporting. If the Company identifies one or more material weaknesses in its internal control over financial reporting, the Company could lose investor confidence in the accuracy and completeness of its financial reports, which in turn could have an adverse effect on the Company’s stock price.
Tax Risks
There are various U.S. tax risks in connection with an investment in the Company and in Essex Portfolio, L.P. The Company has elected to be taxed as a REIT under the Code. The Company’s qualification as a REIT requires it to satisfy numerous annual and quarterly requirements, including income, asset and distribution tests, established under highly technical and complex Code provisions for which there are only limited judicial or administrative interpretations.

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To qualify under the income test, (i) at least 75% of the Company’s annual gross income generally must be derived from rents from real property, mortgage interest, gain from the sale or other disposition of real property held for investment, dividends or other distributions on, and gain from the sale or other disposition of shares of other REITs and certain other limited categories of income and (ii) at least 95% of the Company’s annual gross income generally must be derived from the preceding sources plus other dividends, interest other than mortgage interest, and gain from the sale or other disposition of stock and securities held for investment. To qualify under the asset test, at the end of each quarter, at least 75% of the value of the Company’s assets must consist of cash, cash items, government securities and qualified real estate assets and there are significant additional limitations regarding the Company’s investment in securities other than government securities and qualified real estate assets, including limitations on the percentage of our assets that can be represented by the Company’s taxable REIT subsidiaries (“TRS’s”). To qualify under the distribution test, the Company generally must distribute to its shareholders each calendar year at least 90% of its REIT taxable income, determined before a deduction for dividends paid and excluding any net capital gain. In addition, to the extent the Company satisfies the 90% test, but distributes less than 100% of its REIT taxable income, it will be subject to corporate income tax on such undistributed income and could be subject to an additional 4% excise tax. Because the Company needs to meet these tests to maintain its qualification as a REIT, it could cause the Company to have to forego certain business opportunities and potentially require the Company to liquidate otherwise attractive investments.
In addition to the income, asset and distribution tests described above, the Company’s qualification as a REIT involves the determination of various factual matters and circumstances not entirely within the Company’s control. Although the Company intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future. Future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect the Company’s ability to qualify as a REIT or adversely affect the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on the Company’s taxable income at corporate rates, and the Company would not be allowed to deduct dividends paid to its stockholders in computing its taxable income. The Company would also be disqualified from treatment as a REIT for the four taxable years following the year in which the Company failed to qualify. The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status.
The Company has established several TRSs. The TRSs must pay U.S. federal income tax on their taxable income. While the Company will attempt to ensure that its dealings with its TRSs do not adversely affect its REIT qualification, it cannot provide assurances that it will successfully achieve that result. Furthermore, the Company may be subject to a 100% penalty tax, or its TRSs may be denied deductions, to the extent dealings between the Company and its TRSs are not deemed to be arm’s length in nature. The Company intends that its dealings with its TRSs will be on an arm’s length basis. No assurances can be given, however, that the Internal Revenue Service will not assert a contrary position.
The Company owns interests in multiple subsidiary REITs that have elected to be taxed as REITs under the Code. These subsidiary REITs are subject to the various REIT qualification requirements and other limitations that are applicable to the Company. If any of the Company’s subsidiary REITs were to fail to qualify as a REIT, then (i) the subsidiary REIT would become subject to federal income tax and (ii) the Company’s ownership of shares in such subsidiary REIT would cease to be a qualifying asset for purposes of the asset tests applicable to REITs. If any of the Company’s subsidiary REITs were to fail to qualify as REITs, it is possible that the Company could also fail to qualify as a REIT.
From time to time, the Company may transfer or otherwise dispose of some of its properties.  Under the Code, unless certain exceptions apply, any gain resulting from transfers of properties that the Company holds as inventory or primarily for sale to customers in the ordinary course of business could be treated as income from a prohibited transaction subject to a 100% penalty tax. Since the Company acquires properties for investment purposes, it does not believe that its occasional transfers or disposals of property should be treated as prohibited transactions. However, whether property is held for investment purposes depends on all the facts and circumstances surrounding the particular transaction. The Internal Revenue Service may contend that certain transfers or disposals of properties by the Company are prohibited transactions. If the Internal Revenue Service were to argue successfully that a transfer or disposition of property constituted a prohibited transaction, then the Company would be required to pay a 100% penalty tax on any gain allocable to it from the prohibited transaction, and the Company’s ability to retain proceeds from real property sales may be jeopardized. Income from a prohibited transaction might adversely affect the Company’s ability to satisfy the income tests for qualification as a REIT for U.S. federal income tax purposes. Therefore, no assurances can be given that the Company will be able to satisfy the income tests for qualification as a REIT if the Company transferred or disposed of property in a transaction treated as a prohibited transaction.
Dividends paid by REITs to U.S. stockholders that are individuals, trusts or estates are generally not eligible for the reduced tax rate applicable to qualified dividends received from non-REIT corporations (the maximum rate on qualified dividends is

21
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currently 23.8%). Rather, U.S. individual, trust or estate stockholders who receive dividends from a REIT that are not designated as capital gain dividends will be taxed on such dividends at ordinary income rates (at a current maximum rate of 43.4%). This may cause investors to view REIT investments to be less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of stock in REITs, including the Company’s stock.
Non-U.S. investors that invest in the Company should be aware of the following U.S. federal income tax considerations in connection with such investment. First, distributions by the Company from its current and accumulated earnings and profits are subject to a 30% U.S. withholding tax in the hands of non-U.S. investors, unless the 30% is reduced by an applicable income tax treaty. Such distributions may also be subject to a 30% withholding tax under the “Foreign Account Tax Compliance Act” (“FATCA”) unless a non-U.S. investor complies with certain requirements prescribed by FATCA. Second, distributions by the Company that are attributable to gains from dispositions of U.S. real property (“capital gain dividends”) will be treated as income that is effectively connected with a U.S. trade or business in the hands of a non-U.S. investor, such that a non-U.S. investor will have U.S. federal income tax payment and filing obligations with respect to capital gain dividends. Furthermore, capital gain dividends may be subject to an additional 30% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a non-U.S. investor that is a corporation. Third, any gain derived by a non-U.S. investor on a disposition of such investor’s stock in the Company will subject such investor to U.S. federal income tax payment and filing requirements unless the Company is treated as a domestically-controlled REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s capital stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. The Company believes that it is a domestically-controlled REIT, but no assurances can be given in this regard. Notwithstanding the foregoing, even if the Company were not a domestically-controlled REIT, under a special exception non-U.S. investors should not have U.S. federal income tax payment and filing obligations on capital gain dividends or a disposition of their stock in the Company if (i) they did not own more than 10% of such stock at any time during the one-year period ending on the date of the disposition, and (ii) the Company’s stock continues to be regularly traded on an established securities market located in the United States and certain other non-U.S. investors may also not be subject to these payment and filing obligations. Non-U.S. investors should consult with their independent advisors as to the above U.S. tax considerations and other U.S. tax consequences of an investment in the Company’s stock, in light of their particular circumstances.
The Company believes that its operating partnership, Essex Portfolio, L.P., will continue to be treated as a partnership for U.S. federal income tax purposes. As a partnership, Essex Portfolio, L.P. is not subject to U.S. federal income tax on its income. Instead, each of its partners is required to pay tax on the partner’s allocable share of the income of Essex Portfolio, L.P. No assurances can be given, however, that the Internal Revenue Service will not challenge Essex Portfolio, L.P.’s status as a partnership for U.S. federal income tax purposes, or that a court would not sustain such a challenge. If the Internal Revenue Service were successful in treating Essex Portfolio, L.P. as a corporation for U.S. federal income tax purposes, the Company could fail to meet the income tests and/or the asset tests applicable to REITs and, accordingly, cease to qualify as a REIT. Also, the failure of Essex Portfolio, L.P. to qualify as a partnership would cause it to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for distribution to its partners.
Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s portfolio as of December 31, 2015 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 246 apartment communities (comprising 59,160 apartment homes), of which 28,039 apartment homes are located in Southern California, 18,924 apartment homes are located in the San Francisco Bay Area, and 12,197 apartment homes are located in the Seattle metropolitan area.  The Company’s apartment communities accounted for 99.3% of the Company’s revenues for the year ended December 31, 2015.


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Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). When calculating actual rents for occupied apartment homes and market rents for vacant apartment homes, delinquencies and concessions are not taken into account. Total possible rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs. Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market. The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant apartment homes. The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.

For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.

Communities

The Company’s communities are primarily suburban garden-style communities and town homes comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land. As of December 31, 2015, the Company’s communities include 162 garden-style, 78 mid-rise, and 6 high-rise communities. The communities have an average of approximately 240 apartment homes, with a mix of studio, one, two and some three-bedroom apartment homes. A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.
 
The Company hires, trains and supervises on-site service and maintenance personnel.  The Company believes that the following primary factors enhance the Company’s ability to retain tenants:
 
•
located near employment centers;
•
attractive communities that are well maintained; and
•
proactive customer service.

Commercial Buildings

The Company’s former corporate headquarters was located in two office buildings with approximately 39,600 square feet located at 925/935 East Meadow Drive, Palo Alto, California and was classified as held for sale at December 31, 2015. The Company owns an office building with approximately 106,564 square feet located in Irvine, California, of which the Company occupies approximately 8,000 square feet at December 31, 2015.  The Company owns Essex-Hollywood, a 34,000 square foot commercial building and a 138,915 square foot retail site in Santa Clara, California as future development sites that are currently 100% leased.

The following tables describe the Company’s operating portfolio as of December 31, 2015. The first table describes the Company’s communities and the second table describes the Company’s other real estate assets. (See Note 8 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s portfolio.)

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
Southern California
 
 
 
 
 
 
 
 
 
 
 
 
Alpine Village
 
Alpine, CA
 
301

 
254,400

 
1971
 
2002
 
97%
Anavia
 
Anaheim, CA
 
250

 
312,343

 
2009
 
2010
 
96%

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Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
Barkley, The (3)(4)
 
Anaheim, CA
 
161

 
139,800

 
1984
 
2000
 
98%
Park Viridian
 
Anaheim, CA
 
320

 
254,600

 
2008
 
2014
 
96%
Bonita Cedars
 
Bonita, CA
 
120

 
120,800

 
1983
 
2002
 
97%
Camarillo Oaks
 
Camarillo, CA
 
564

 
459,000

 
1985
 
1996
 
96%
Camino Ruiz Square
 
Camarillo, CA
 
160

 
105,448

 
1990
 
2006
 
97%
Enclave at Town Square (21)
 
Chino Hills, CA
 
124

 
89,948

 
1987
 
2014
 
97%
The Heights I & II (21)
 
Chino Hills, CA
 
332

 
324,370

 
2004
 
2014
 
96%
The Summit (5)
 
Chino Hills, CA
 
125

 
98,420

 
1989
 
2014
 
98%
Pinnacle at Otay Ranch
 
Chula Vista, CA
 
364

 
384,192

 
2001
 
2014
 
95%
Mesa Village
 
Clairemont, CA
 
133

 
43,600

 
1963
 
2002
 
98%
Villa Siena
 
Costa Mesa, CA
 
272

 
262,842

 
1974
 
2014
 
96%
Emerald Pointe
 
Diamond Bar, CA
 
160

 
134,816

 
1989
 
2014
 
96%
Regency at Encino
 
Encino, CA
 
75

 
78,487

 
1989
 
2009
 
97%
The Havens (21)
 
Fountain Valley, CA
 
440

 
414,040

 
1969
 
2014
 
96%
Valley Park (4)
 
Fountain Valley, CA
 
160

 
169,700

 
1969
 
2001
 
97%
Capri at Sunny Hills (4)
 
Fullerton, CA
 
100

 
128,100

 
1961
 
2001
 
97%
Haver Hill (5)
 
Fullerton, CA
 
264

 
224,130

 
1973
 
2012
 
96%
Pinnacle at Fullerton
 
Fullerton, CA
 
192

 
174,336

 
2004
 
2014
 
96%
Wilshire Promenade
 
Fullerton, CA
 
149

 
128,000

 
1992
 
1997
 
96%
Montejo (4)
 
Garden Grove, CA
 
124

 
103,200

 
1974
 
2001
 
97%
CBC Apartments
 
Goleta, CA
 
148

 
91,538

 
1962
 
2006
 
97%
The Sweeps
 
Goleta, CA
 
91

 
88,370

 
1967
 
2006
 
97%
416 on Broadway
 
Glendale, CA
 
115

 
126,782

 
2009
 
2010
 
96%
Hampton Court
 
Glendale, CA
 
83

 
71,500

 
1974
 
1999
 
93%
Hampton Place
 
Glendale, CA
 
132

 
141,500

 
1970
 
1999
 
93%
Devonshire
 
Hemet, CA
 
276

 
207,200

 
1988
 
2002
 
96%
Huntington Breakers
 
Huntington Beach, CA
 
342

 
241,700

 
1984
 
1997
 
95%
The Huntington
 
Huntington Beach, CA
 
276

 
202,256

 
1975
 
2012
 
97%
Axis 2300
 
Irvine, CA
 
115

 
170,714

 
2010
 
2010
 
97%
Hillsborough Park
 
La Habra, CA
 
235

 
215,500

 
1999
 
1999
 
97%
Village Green
 
La Habra, CA
 
272

 
175,762

 
1971
 
2014
 
97%
The Palms at Laguna Niguel
 
Laguna Niguel, CA
 
460

 
362,136

 
1988
 
2014
 
96%
Trabuco Villas
 
Lake Forest, CA
 
132

 
131,000

 
1985
 
1997
 
97%
Marbrisa
 
Long Beach, CA
 
202

 
122,800

 
1987
 
2002
 
96%
Pathways
 
Long Beach, CA
 
296

 
197,700

 
1975
 
1991
 
96%
8th & Hope
 
Los Angeles, CA
 
290

 
298,437

 
2014
 
2015
 
79%
5600 Wilshire
 
Los Angeles, CA
 
284

 
243,910

 
2008
 
2014
 
96%
Alessio
 
Los Angeles, CA
 
624

 
552,716

 
2001
 
2014
 
95%
Avant
 
Los Angeles, CA
 
440

 
305,989

 
2014
 
2015
 
95%
The Avery (4)
 
Los Angeles, CA
 
121

 
129,393

 
2014
 
2014
 
97%
Bellerive
 
Los Angeles, CA
 
63

 
79,296

 
2011
 
2011
 
97%
Belmont Station
 
Los Angeles, CA
 
275

 
225,000

 
2009
 
2009
 
97%
Bunker Hill
 
Los Angeles, CA
 
456

 
346,600

 
1968
 
1998
 
88%
Catalina Gardens
 
Los Angeles, CA
 
128

 
117,585

 
1987
 
2014
 
97%
Cochran Apartments
 
Los Angeles, CA
 
58

 
51,400

 
1989
 
1998
 
97%
Gas Company Lofts (5)
 
Los Angeles, CA
 
251

 
226,666

 
2004
 
2013
 
97%
Jefferson at Hollywood
 
Los Angeles, CA
 
270

 
238,119

 
2010
 
2014
 
94%
Kings Road
 
Los Angeles, CA
 
196

 
132,100

 
1979
 
1997
 
96%

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Table of Contents

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
Marbella
 
Los Angeles, CA
 
60

 
50,108

 
1991
 
2005
 
97%
Muse
 
Los Angeles, CA
 
152

 
135,292

 
2011
 
2011
 
97%
Pacific Electric Lofts (6)
 
Los Angeles, CA
 
314

 
277,980

 
2006
 
2012
 
94%
Park Catalina
 
Los Angeles, CA
 
90

 
72,864

 
2002
 
2012
 
96%
Park Place
 
Los Angeles, CA
 
60

 
48,000

 
1988
 
1997
 
97%
Regency Palm Court (5)
 
Los Angeles, CA
 
116

 
54,844

 
1987
 
2014
 
96%
Santee Court
 
Los Angeles, CA
 
165

 
132,040

 
2004
 
2010
 
97%
Santee Village
 
Los Angeles, CA
 
73

 
69,817

 
2011
 
2011
 
97%
Tiffany Court
 
Los Angeles, CA
 
101

 
74,538

 
1987
 
2014
 
98%
Wilshire La Brea
 
Los Angeles, CA
 
478

 
354,972

 
2014
 
2014
 
95%
Windsor Court (5)
 
Los Angeles, CA
 
95

 
51,266

 
1987
 
2014
 
95%
Windsor Court
 
Los Angeles, CA
 
58

 
46,600

 
1988
 
1997
 
97%
Aqua at Marina Del Rey
 
Marina Del Rey, CA
 
500

 
479,312

 
2001
 
2014
 
95%
Marina City Club (7)
 
Marina Del Rey, CA
 
101

 
127,200

 
1971
 
2004
 
96%
Mirabella
 
Marina Del Rey, CA
 
188

 
176,800

 
2000
 
2000
 
97%
Mira Monte
 
Mira Mesa, CA
 
355

 
262,600

 
1982
 
2002
 
96%
Madrid Apartments (6)
 
Mission Viejo, CA
 
230

 
228,099

 
2000
 
2012
 
97%
Hillcrest Park
 
Newbury Park, CA
 
608

 
521,900

 
1973
 
1998
 
96%
Fairways (8)
 
Newport Beach, CA
 
74

 
107,100

 
1972
 
1999
 
96%
Candlewood North
 
Northridge, CA
 
189

 
166,910

 
1964
 
2014
 
96%
Canyon Creek (21)
 
Northridge, CA
 
200

 
148,150

 
1986
 
2014
 
96%
Country Villas
 
Oceanside, CA
 
180

 
179,700

 
1976
 
2002
 
96%
Mission Hills
 
Oceanside, CA
 
282

 
244,000

 
1984
 
2005
 
96%
Renaissance at Uptown Orange
 
Orange, CA
 
460

 
432,836

 
2007
 
2014
 
96%
Mariner's Place
 
Oxnard, CA
 
105

 
77,200

 
1987
 
2000
 
97%
Monterey Villas
 
Oxnard, CA
 
122

 
122,100

 
1974
 
1997
 
97%
Tierra Vista
 
Oxnard, CA
 
404

 
387,100

 
2001
 
2001
 
96%
Arbors Parc Rose (6)
 
Oxnard, CA
 
373

 
503,196

 
2001
 
2011
 
95%
The Hallie del Mar
 
Pasadena, CA
 
123

 
74,400

 
1972
 
1997
 
92%
The Hallie del Rey
 
Pasadena, CA
 
84

 
73,100

 
1972
 
1999
 
92%
The Hallie del Sol
 
Pasadena, CA
 
85

 
69,200

 
1972
 
1999
 
92%
Stuart at Sierra Madre Villa
 
Pasadena, CA
 
188

 
168,630

 
2007
 
2014
 
96%
Villa Angelina (4)
 
Placentia, CA
 
256

 
217,600

 
1970
 
2001
 
97%
Fountain Park
 
Playa Vista, CA
 
705

 
608,900

 
2002
 
2004
 
97%
Highridge (4)
 
Rancho Palos Verdes, CA
 
255

 
290,200

 
1972
 
1997
 
98%
Cortesia at Rancho Santa Margarita
 
Rancho Santa Margarita, CA
 
308

 
277,580

 
1999
 
2014
 
96%
Pinnacle at Talega
 
San Clemente, CA
 
362

 
355,764

 
2002
 
2014
 
96%
Allure at Scripps Ranch
 
San Diego, CA
 
194

 
207,052

 
2002
 
2014
 
96%
Bernardo Crest
 
San Diego, CA
 
216

 
205,548

 
1988
 
2014
 
96%
Cambridge Park
 
San Diego, CA
 
320

 
317,958

 
1998
 
2014
 
95%
Carmel Creek
 
San Diego, CA
 
348

 
384,216

 
2000
 
2014
 
96%
Carmel Landing
 
San Diego, CA
 
356

 
283,426

 
1989
 
2014
 
94%
Carmel Summit
 
San Diego, CA
 
246

 
225,880

 
1989
 
2014
 
97%
CentrePointe
 
San Diego, CA
 
224

 
126,700

 
1974
 
1997
 
94%
Domain
 
San Diego, CA
 
379

 
345,044

 
2013
 
2013
 
94%
Esplanade (21)
 
San Diego, CA
 
616

 
479,600

 
1986
 
2014
 
96%

25
Table of Contents

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
Montanosa
 
San Diego, CA
 
472

 
414,968

 
1990
 
2014
 
96%
Summit Park
 
San Diego, CA
 
300

 
229,400

 
1972
 
2002
 
96%
Essex Skyline at MacArthur Place (9)
 
Santa Ana, CA
 
349

 
512,791

 
2008
 
2010
 
96%
Fairhaven (4)
 
Santa Ana, CA
 
164

 
135,700

 
1970
 
2001
 
98%
Parkside Court (21)
 
Santa Ana, CA
 
210

 
152,400

 
1986
 
2014
 
97%
Pinnacle at MacArthur Place
 
Santa Ana, CA
 
253

 
262,867

 
2002
 
2014
 
96%
Hope Ranch
 
Santa Barbara, CA
 
108

 
126,700

 
1965 / 1973
 
2007
 
98%
Bridgeport Coast (22)
 
Santa Clarita, CA
 
188

 
168,198

 
2006
 
2014
 
97%
Hidden Valley (10)
 
Simi Valley, CA
 
324

 
310,900

 
2004
 
2004
 
97%
Meadowood
 
Simi Valley, CA
 
320

 
264,500

 
1986
 
1996
 
96%
Shadow Point
 
Spring Valley, CA
 
172

 
131,200

 
1983
 
2002
 
96%
The Fairways at Westridge (22)
 
Valencia, CA
 
234

 
223,330

 
2004
 
2014
 
96%
Vistas of West Hills (22)
 
Valencia, CA
 
220

 
221,119

 
2009
 
2014
 
96%
Allegro
 
Valley Village, CA
 
97

 
127,812

 
2010
 
2010
 
97%
Lofts at Pinehurst, The
 
Ventura, CA
 
118

 
71,100

 
1971
 
1997
 
97%
Pinehurst (11)
 
Ventura, CA
 
28

 
21,200

 
1973
 
2004
 
98%
Woodside Village
 
Ventura, CA
 
145

 
136,500

 
1987
 
2004
 
97%
Walnut Heights
 
Walnut, CA
 
163

 
146,700

 
1964
 
2003
 
95%
The Dylan
 
West Hollywood, CA
 
184

 
150,678

 
2014
 
2014
 
92%
The Huxley
 
West Hollywood, CA
 
187

 
154,776

 
2014
 
2014
 
93%
Reveal
 
Woodland Hills, CA
 
438

 
414,892

 
2010
 
2011
 
95%
Avondale at Warner Center
 
Woodland Hills, CA
 
446

 
331,000

 
1970
 
1999
 
96%
 
 
 
 
28,039


24,850,294

 
 
 
 
 
96%
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
Belmont Terrace
 
Belmont, CA
 
71

 
72,951

 
1974
 
2006
 
94%
Fourth & U
 
Berkeley, CA
 
171

 
146,255

 
2010
 
2010
 
96%
The Commons
 
Campbell, CA
 
264

 
153,168

 
1973
 
2010
 
97%
The Pointe at Cupertino
 
Cupertino, CA
 
116

 
135,200

 
1963
 
1998
 
98%
Connolly Station (23)
 
Dublin, CA
 
309

 
286,348

 
2014
 
2014
 
96%
Avenue 64
 
Emeryville, CA
 
224

 
196,896

 
2007
 
2014
 
94%
Emme (23)
 
Emeryville, CA
 
190

 
148,935

 
2015
 
2015
 
81%
Foster's Landing
 
Foster City, CA
 
490

 
415,130

 
1987
 
2014
 
96%
Stevenson Place
 
Fremont, CA
 
200

 
146,200

 
1975
 
2000
 
95%
Mission Peaks
 
Fremont, CA
 
453

 
404,034

 
1995
 
2014
 
96%
Mission Peaks II
 
Fremont, CA
 
336

 
294,720

 
1989
 
2014
 
96%
Paragon Apartments
 
Fremont, CA
 
301

 
267,047

 
2013
 
2014
 
94%
Boulevard
 
Fremont, CA
 
172

 
131,200

 
1978
 
1996
 
97%
Briarwood (6)
 
Fremont, CA
 
160

 
111,160

 
1978
 
2011
 
96%
The Woods (6)
 
Fremont, CA
 
160

 
105,280

 
1978
 
2011
 
96%
City Centre (22)
 
Hayward, CA
 
192

 
175,420

 
2000
 
2014
 
97%
City View
 
Hayward, CA
 
572

 
462,400

 
1975
 
1998
 
97%
Lafayette Highlands
 
Lafayette, CA
 
150

 
151,790

 
1973
 
2014
 
97%
Apex
 
Milpitas, CA
 
366

 
350,961

 
2014
 
2014
 
96%
Regency at Mountain View (5)
 
Mountain View, CA
 
142

 
127,600

 
1970
 
2013
 
96%
Bridgeport
 
Newark, CA
 
184

 
139,000

 
1987
 
1987
 
98%
The Landing at Jack London Square
 
Oakland, CA
 
282

 
257,796

 
2001
 
2014
 
95%

26
Table of Contents

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
The Grand
 
Oakland, CA
 
243

 
205,026

 
2009
 
2009
 
96%
Radius
 
Redwood City, CA
 
264

 
245,862

 
2015
 
2015
 
94%
San Marcos
 
Richmond, CA
 
432

 
407,600

 
2003
 
2003
 
96%
Bennett Lofts
 
San Francisco, CA
 
165

 
184,713

 
2004
 
2012
 
95%
Fox Plaza
 
San Francisco, CA
 
443

 
230,017

 
1968
 
2013
 
95%
MB 360 Phase I
 
San Francisco, CA
 
188

 
222,810

 
2014
 
2014
 
96%
Mosso (23)
 
San Francisco, CA
 
463

 
607,549

 
2014
 
2014
 
87%
Park West
 
San Francisco, CA
 
126

 
90,060

 
1958
 
2012
 
95%
101 San Fernando
 
San Jose, CA
 
323

 
296,078

 
2001
 
2010
 
96%
Bella Villagio
 
San Jose, CA
 
231

 
227,511

 
2004
 
2010
 
97%
Enso
 
San Jose, CA
 
183

 
179,562

 
2014
 
2015
 
100%
Epic - Phase I & II (13) (23)
 
San Jose, CA
 
569

 
472,236

 
2013
 
2013
 
95%
Esplanade
 
San Jose, CA
 
278

 
279,000

 
2002
 
2004
 
96%
Fountains at River Oaks
 
San Jose, CA
 
226

 
209,954

 
1990
 
2014
 
97%
Museum Park
 
San Jose, CA
 
117

 
121,329

 
2002
 
2014
 
97%
One South Market (23)
 
San Jose, CA
 
312

 
283,268

 
2015
 
2015
 
46%
Palm Valley (16)
 
San Jose, CA
 
1,098

 
1,132,284

 
2008
 
2014
 
96%
The Carlyle
 
San Jose, CA
 
132

 
129,200

 
2000
 
2000
 
97%
The Waterford
 
San Jose, CA
 
238

 
219,600

 
2000
 
2000
 
97%
Willow Lake
 
San Jose, CA
 
508

 
471,744

 
1989
 
2012
 
96%
Lakeshore Landing
 
San Mateo, CA
 
308

 
223,972

 
1988
 
2014
 
95%
Hillsdale Garden
 
San Mateo, CA
 
697

 
611,505

 
1948
 
2006
 
97%
Park 20 (23)
 
San Mateo, CA
 
197

 
140,547

 
2015
 
2015
 
79%
Deer Valley
 
San Rafael, CA
 
171

 
167,238

 
1996
 
2014
 
97%
Bel Air
 
San Ramon, CA
 
462

 
391,000

 
1988
 
1995
 
96%
Canyon Oaks
 
San Ramon, CA
 
250

 
237,894

 
2005
 
2007
 
98%
Crow Canyon
 
San Ramon, CA
 
400

 
337,064

 
1992
 
2014
 
96%
Foothill Gardens
 
San Ramon, CA
 
132

 
155,100

 
1985
 
1997
 
97%
Mill Creek at Windermere
 
San Ramon, CA
 
400

 
381,060

 
2005
 
2007
 
97%
Twin Creeks
 
San Ramon, CA
 
44

 
51,700

 
1985
 
1997
 
97%
1000 Kiely
 
Santa Clara, CA
 
121

 
128,486

 
1971
 
2011
 
95%
Le Parc
 
Santa Clara, CA
 
140

 
113,200

 
1975
 
1994
 
97%
Marina Cove (14)
 
Santa Clara, CA
 
292

 
250,200

 
1974
 
1994
 
96%
Riley Square (6)
 
Santa Clara, CA
 
156

 
126,900

 
1972
 
2012
 
95%
Villa Granada
 
Santa Clara, CA
 
270

 
238,841

 
2010
 
2014
 
96%
Chestnut Street Apartments
 
Santa Cruz, CA
 
96

 
87,640

 
2002
 
2008
 
97%
Harvest Park
 
Santa Rosa, CA
 
104

 
116,628

 
2004
 
2007
 
97%
Bristol Commons
 
Sunnyvale, CA
 
188

 
142,600

 
1989
 
1995
 
95%
Brookside Oaks (4)
 
Sunnyvale, CA
 
170

 
119,900

 
1973
 
2000
 
95%
Lawrence Station
 
Sunnyvale, CA
 
336

 
297,188

 
2012
 
2014
 
96%
Magnolia Lane (15)
 
Sunnyvale, CA
 
32

 
31,541

 
2001
 
2007
 
97%
Magnolia Square (4)
 
Sunnyvale, CA
 
156

 
110,824

 
1963
 
2007
 
97%
Montclaire
 
Sunnyvale, CA
 
390

 
294,100

 
1973
 
1988
 
97%
Reed Square
 
Sunnyvale, CA
 
100

 
95,440

 
1970
 
2011
 
97%
Solstice
 
Sunnyvale, CA
 
280

 
571,466

 
2014
 
2014
 
96%
Summerhill Park
 
Sunnyvale, CA
 
100

 
78,500

 
1988
 
1988
 
95%
Via
 
Sunnyvale, CA
 
284

 
309,421

 
2011
 
2011
 
96%
Windsor Ridge
 
Sunnyvale, CA
 
216

 
161,800

 
1989
 
1989
 
96%

27
Table of Contents

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
Vista Belvedere
 
Tiburon, CA
 
76

 
78,300

 
1963
 
2004
 
95%
Tuscana
 
Tracy, CA
 
30

 
29,088

 
2007
 
2007
 
99%
Verandas (22)
 
Union City, CA
 
282

 
199,092

 
1989
 
2014
 
96%
 
 
 
 
18,924

 
17,173,129

 
 
 
 
 
95%
Seattle, Washington Metropolitan Area
 
 
 
 
 
 
 
 
 
 
Belcarra
 
Bellevue, WA
 
296

 
241,567

 
2009
 
2014
 
96%
BellCentre
 
Bellevue, WA
 
248

 
181,288

 
2001
 
2014
 
96%
Cedar Terrace
 
Bellevue, WA
 
180

 
174,200

 
1984
 
2005
 
96%
Courtyard off Main
 
Bellevue, WA
 
110

 
108,388

 
2000
 
2010
 
96%
Ellington at Bellevue
 
Bellevue, WA
 
220

 
165,794

 
1994
 
2014
 
96%
Emerald Ridge
 
Bellevue, WA
 
180

 
144,000

 
1987
 
1994
 
96%
Foothill Commons
 
Bellevue, WA
 
394

 
288,300

 
1978
 
1990
 
96%
Palisades, The
 
Bellevue, WA
 
192

 
159,700

 
1977
 
1990
 
97%
Park Highland
 
Bellevue, WA
 
250

 
224,750

 
1993
 
2014
 
95%
Piedmont
 
Bellevue, WA
 
396

 
348,969

 
1969
 
2014
 
96%
Sammamish View
 
Bellevue, WA
 
153

 
133,500

 
1986
 
1994
 
97%
Woodland Commons
 
Bellevue, WA
 
302

 
217,878

 
1978
 
1990
 
95%
Bothell Ridge (21)
 
Bothell, WA
 
214

 
167,370

 
1988
 
2014
 
96%
Canyon Pointe
 
Bothell, WA
 
250

 
210,400

 
1990
 
2003
 
95%
Inglenook Court
 
Bothell, WA
 
224

 
183,600

 
1985
 
1994
 
97%
Pinnacle Sonata
 
Bothell, WA
 
268

 
343,095

 
2000
 
2014
 
95%
Salmon Run at Perry Creek
 
Bothell, WA
 
132

 
117,100

 
2000
 
2000
 
98%
Stonehedge Village
 
Bothell, WA
 
196

 
214,800

 
1986
 
1997
 
97%
Highlands at Wynhaven
 
Issaquah, WA
 
333

 
424,674

 
2000
 
2008
 
96%
Park Hill at Issaquah
 
Issaquah, WA
 
245

 
277,700

 
1999
 
1999
 
97%
Wandering Creek
 
Kent, WA
 
156

 
124,300

 
1986
 
1995
 
97%
Ascent
 
Kirkland, WA
 
90

 
75,840

 
1988
 
2012
 
97%
Bridle Trails
 
Kirkland, WA
 
108

 
99,700

 
1986
 
1997
 
97%
Corbella at Juanita Bay
 
Kirkland, WA
 
169

 
103,339

 
1978
 
2010
 
96%
Evergreen Heights
 
Kirkland, WA
 
200

 
188,300

 
1990
 
1997
 
97%
Slater 116
 
Kirkland, WA
 
108

 
81,415

 
2013
 
2013
 
96%
Montebello
 
Kirkland, WA
 
248

 
272,734

 
1996
 
2012
 
96%
Aviara (12)
 
Mercer Island, WA
 
166

 
147,033

 
2013
 
2014
 
96%
Laurels at Mill Creek
 
Mill Creek, WA
 
164

 
134,300

 
1981
 
1996
 
97%
Parkwood at Mill Creek
 
Mill Creek, WA
 
240

 
257,160

 
1989
 
2014
 
95%
The Elliot at Mukilteo (4)
 
Mukilteo, WA
 
301

 
245,900

 
1981
 
1997
 
95%
Castle Creek
 
Newcastle, WA
 
216

 
191,900

 
1998
 
1998
 
97%
Delano
 
Redmond, WA
 
126

 
116,340

 
2005
 
2011
 
97%
Elevation
 
Redmond, WA
 
158

 
138,916

 
1986
 
2010
 
97%
Redmond Hill (6)
 
Redmond, WA
 
442

 
350,275

 
1985
 
2011
 
96%
Shadowbrook
 
Redmond, WA
 
418

 
338,880

 
1986
 
2014
 
97%
The Trails of Redmond
 
Redmond, WA
 
423

 
376,000

 
1985
 
2014
 
97%
Vesta (6)
 
Redmond, WA
 
440

 
381,675

 
1998
 
2011
 
96%
Brighton Ridge
 
Renton, WA
 
264

 
201,300

 
1986
 
1996
 
97%
Fairwood Pond
 
Renton, WA
 
194

 
189,200

 
1997
 
2004
 
97%
Forest View
 
Renton, WA
 
192

 
182,500

 
1998
 
2003
 
97%
Pinnacle on Lake Washington
 
Renton, WA
 
180

 
190,908

 
2001
 
2014
 
96%
Annaliese
 
Seattle, WA
 
56

 
48,216

 
2009
 
2013
 
96%

28
Table of Contents

 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy(2)
The Audrey at Belltown
 
Seattle, WA
 
137

 
94,119

 
1992
 
2014
 
97%
Ballinger Commons (21)
 
Seattle, WA
 
485

 
407,253

 
1989
 
2014
 
96%
The Bernard
 
Seattle, WA
 
63

 
43,151

 
2008
 
2011
 
96%
Cairns, The
 
Seattle, WA
 
100

 
70,806

 
2006
 
2007
 
97%
Citywalk (21)
 
Seattle, WA
 
102

 
92,010

 
1988
 
2014
 
97%
Collins on Pine
 
Seattle, WA
 
76

 
48,733

 
2013
 
2014
 
97%
Domaine
 
Seattle, WA
 
92

 
79,421

 
2009
 
2012
 
95%
Expo (16)
 
Seattle, WA
 
275

 
190,176

 
2012
 
2012
 
97%
Fountain Court
 
Seattle, WA
 
320

 
207,000

 
2000
 
2000
 
95%
Joule (17)
 
Seattle, WA
 
295

 
191,109

 
2010
 
2010
 
96%
Taylor 28
 
Seattle, WA
 
197

 
155,630

 
2008
 
2014
 
95%
Vox
 
Seattle, WA
 
58

 
42,173

 
2013
 
2013
 
97%
Wharfside Pointe
 
Seattle, WA
 
155

 
119,200

 
1990
 
1994
 
94%
 
 
 
 
12,197

 
10,503,985

 
 
 
 
 
96%
 
 
 
 
 
 
 
 
 
 
 
 
 
Total/Weighted Average
 
 
 
59,160

 
52,527,408

 
 
 
 
 
95%

 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Other real estate assets (1)
 
Location
 
Tenants
 
Footage
 
Built
 
Acquired
 
Occupancy (2)
925 / 935 East Meadow Drive (18)
 
Palo Alto, CA
 
—
 
39,600

 
1988 / 1962
 
1997 / 2007
 
—%
Essex - Hollywood (19)
 
Los Angeles, CA
 
1
 
34,000

 
1938
 
2006
 
100%
Derian Office Building (20)
 
Irvine, CA
 
8
 
106,564

 
1983
 
2000
 
100%
Santa Clara Retail
 
Santa Clara, CA
 
3
 
138,915

 
1970
 
2011
 
100%
 
 
 
 
12
 
319,079

 
 
 
 
 
88%

Footnotes to the Company’s Portfolio Listing as of December 31, 2015

(1) 
Unless otherwise specified, the Company has a 100% ownership interest in each community.
(2) 
For communities, occupancy rates are based on financial occupancy for the year ended December 31, 2015; for the commercial buildings occupancy rates are based on physical occupancy as of December 31, 2015. For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.
(3) 
The community is subject to a ground lease, which, unless extended, will expire in 2082.
(4) 
The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby Essex Management Company became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.
(5) 
This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.
(6) 
This community is owned by Wesco I. The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.
(7) 
This community is subject to a ground lease, which, unless extended, will expire in 2067.
(8) 
This community is subject to a ground lease, which, unless extended, will expire in 2027.
(9) 
The Company has a 97% interest and an Executive Vice President of the Company has a 3% interest in this community.
(10) 
The Company has a 75% member interest.
(11) 
The community is subject to a ground lease, which, unless extended, will expire in 2028.
(12) 
This community is subject to a ground lease, which, unless extended, will expire in 2030.
(13) 
The community is being developed in three phases with one remaining phase currently under development.
(14) 
A portion of this community on which 84 apartment homes are presently located is subject to a ground lease, which, unless extended, will expire in 2028.

29
Table of Contents

(15) 
The community is subject to a ground lease, which, unless extended, will expire in 2070.
(16) 
The Company has 50% ownership in each of these communities which is accounted for using the equity method of accounting.
(17) 
The Company has 99% ownership in this community.
(18) 
This property was the Company's previous headquarters until December 2015 and was unoccupied at December 31, 2015.
(19) 
The property is leased through January 2016 to a single tenant.
(20) 
The Company occupies 8% of space in this property.
(21) 
This community is owned by BEXAEW.  The Company has a 50% interest in BEXAEW which is accounted for using the equity method of accounting.
(22) 
This community is owned by Wesco IV. The Company has a 50% interest in Wesco IV which is accounted for using the equity method of accounting.
(23) 
The Company has a 55% ownership in this community which is accounted for using the equity method of accounting. 

Item 3. Legal Proceedings

The information, which regards lawsuits, other proceedings and claims, set forth in Note 16, “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3. In addition to such matters referred to in Note 16, the Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations. We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not Applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS.  ESS common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:
Quarter Ended
 
High
 
Low
 
Close
December 31, 2015
 
$
244.71

 
$
214.29

 
$
239.41

September 30, 2015
 
$
232.20

 
$
205.72

 
$
223.42

June 30, 2015
 
$
231.90

 
$
208.85

 
$
212.50

March 31, 2015
 
$
243.17

 
$
207.26

 
$
229.90

December 31, 2014
 
$
214.43

 
$
176.70

 
$
206.60

September 30, 2014
 
$
196.08

 
$
177.68

 
$
178.75

June 30, 2014
 
$
185.99

 
$
164.76

 
$
184.91

March 31, 2014
 
$
173.01

 
$
141.79

 
$
170.05


The closing price of ESS stock as of February 22, 2016 was $209.53.
 
There is no established public trading market for Essex Portfolio, L.P.’s OP Units.
 
Holders
 
The approximate number of holders of record of the shares of ESS common stock was 1,395 as of February 22, 2016. This number does not include stockholders whose shares are held in investment accounts by other entities. ESS believes the actual number of stockholders is greater than the number of holders of record.
 

30
Table of Contents

As of February 22, 2016, there were 172 holders of record of Essex Portfolio, L.P.’s OP Units, including ESS.
 
Return of Capital
 
Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.

The status of the cash dividends distributed for the years ended December 31, 2015, 2014, and 2013 related to common stock, and Series G and H preferred stock for tax purposes are as follows:
 
 
2015
 
2014
 
2013
Common Stock
 
 
 
 
 
 
Ordinary income
 
99.28
%
 
70.03
%
 
77.34
%
Capital gain
 
0.72
%
 
21.95
%
 
17.64
%
Unrecaptured section 1250 capital gain
 
—
%
 
8.02
%
 
5.02
%
 
 
100.00
%
 
100.00
%
 
100.00
%
 
 
 
 
 
 
 
 
 
2015
 
2014
 
2013
Series G, and H Preferred stock
 
 

 
 

 
 

Ordinary income
 
99.28
%
 
70.03
%
 
77.34
%
Capital gains
 
0.72
%
 
21.95
%
 
17.64
%
Unrecaptured section 1250 capital gain
 
—
%
 
8.02
%
 
5.02
%
 
 
100.00
%
 
100.00
%
 
100.00
%

Dividends and Distributions
 
Since ESS’s initial public offering on June 13, 1994, ESS and the Operating Partnership have paid regular quarterly dividends/distributions to its stockholders and unitholders. ESS paid the following dividends per share of common stock and the Operating Partnership paid the following distributions per limited partner OP unit:
 
Year Ended
 
Annual Dividend/Distribution
 
Quarter Ended
 
2015
 
2014
 
2013
1995
 
$
1.69

 
March 31,
 
$1.44
 
$1.21
 
$1.21
1996
 
$
1.72

 
June 30,
 
$1.44
 
$1.30
 
$1.21
1997
 
$
1.77

 
September 30,
 
$1.44
 
$1.30
 
$1.21
1998
 
$
1.95

 
December 31,
 
$1.44
 
$1.30
 
$1.21
1999
 
$
2.15

 
 
 
 
 
 
 
 
2000
 
$
2.38

 
Annual Dividend/Distribution
 
$5.76
 
$5.11
 
$4.84
2001
 
$
2.80

 
 
 
 
 
 
 
 
2002
 
$
3.08

 
 
 
 
 
 
 
 
2003
 
$
3.12

 
 
 
 
 
 
 
 
2004
 
$
3.16

 
 
 
 
 
 
 
 
2005
 
$
3.24

 
 
 
 
 
 
 
 
2006
 
$
3.36

 
 
 
 
 
 
 
 
2007
 
$
3.72

 
 
 
 
 
 
 
 
2008
 
$
4.08

 
 
 
 
 
 
 
 
2009
 
$
4.12

 
 
 
 
 
 
 
 
2010
 
$
4.13

 
 
 
 
 
 
 
 
2011
 
$
4.16

 
 
 
 
 
 
 
 
2012
 
$
4.40

 
 
 
 
 
 
 
 

31
Table of Contents


Future dividends/distributions by ESS and the Operating Partnership will be at the discretion of the Board of Directors of ESS and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on ESS and the Operating Partnership present or future ability to pay dividends and distributions.
 
The Board of Directors has declared a dividend/distribution for the first quarter of 2016 of $1.60 per share.  The dividend/distribution will be payable on April 15, 2016 to shareholders/unitholders of record as of March 31, 2016.
 
Dividend Reinvestment and Share Purchase Plan

ESS has adopted a dividend reinvestment and share purchase plan designed to provide holders of common stock with a convenient and economical means to reinvest all or a portion of their cash dividends in shares of common stock and to acquire additional shares of common stock through voluntary purchases. Computershare, LLC, which serves as ESS transfer agent, administers the dividend reinvestment and share purchase plan. For a copy of the plan, contact Computershare, LLC at (312) 360-5354.

Securities Authorized for Issuance under Equity Compensation Plans

See the Company’s disclosure in the 2016 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.

Issuance of Registered Equity Securities

During 2015, ESS sold 1,481,737 shares of common stock for proceeds of $332.3 million, net of commissions, at an average price of $226.46. Common stock sales were made pursuant to a registration statement and ESS used the net proceeds from the stock offerings to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes. During the first quarter of 2016 through February 22, 2016, ESS has not issued any shares of common stock.

Issuer Purchases of Equity Securities

In December 2015, ESS Board of Directors authorized a stock repurchase plan to allow ESS to acquire shares in an aggregate of up to $250 million. The program supersedes the common stock repurchase plan that Essex announced on August 30, 2007. Under the previous stock repurchase plan, ESS repurchased and retired 816,659 shares totaling $66.6 million at an average stock price of $81.56 per share, including commissions.

Performance Graph

The line graph below compares the cumulative total stockholder return on ESS common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period.  This comparison assumes that the value of the investment in the common stock and each index was $100 on December 31, 2010 and that all dividends were reinvested (1).


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Table of Contents


 
 
Period Ending
Index
 
12/31/2010

 
12/31/2011

 
12/31/2012

 
12/31/2013

 
12/31/2014

 
12/31/2015

Essex Property Trust, Inc.
 
100.00

 
127.06

 
136.59

 
138.04

 
204.30

 
242.85

NAREIT All Equity REIT Index
 
100.00

 
108.28

 
129.62

 
133.32

 
170.68

 
175.51

S&P 500
 
100.00

 
102.11

 
118.45

 
156.82

 
178.28

 
180.75

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

The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.
 
Unregistered Sales of Equity Securities
 
During the years ended December 31, 2015 and 2014, the Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
 
During the year ended December 31, 2015 and 2014, ESS issued an aggregate of 203,556 and 185,387 shares of its common stock upon the exercise of stock options, respectively. ESS contributed the proceeds from the option exercises of $26.5 million and $11.0 million to our Operating Partnership in exchange for an aggregate of 203,556 and 185,387 common OP Units, as required by the Operating Partnership’s partnership agreement, respectively.
 
During the year ended December 31, 2015 and 2014, ESS issued an aggregate of 22,939 and 126,931 shares of its common stock in connection with restricted stock awards for no cash consideration, respectively. For each share of common stock issued

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by ESS in connection with such awards, our Operating Partnership issued common OP units to ESS as required by the partnership agreement, for an aggregate of 22,939 and 126,931 units during the year ended December 31, 2015 and 2014, respectively.

During the years ended December 31, 2015 and 2014, ESS issued and sold an aggregate of 1,481,737 and 2,964,315 shares of its common stock, respectively, pursuant to a registration statement and its equity distribution program. ESS contributed the net proceeds from these share issuances of $332.3 million and $534.0 million in exchange for an aggregate of 1,481,737 and 2,964,315 common OP Units, respectively, as required by the Operating Partnership's partnership agreement.
 
Item 6. Selected Financial Data
 
The following tables set forth summary financial and operating information for the ESS and the Operating Partnership from January 1, 2011 through December 31, 2015.

Essex Property Trust, Inc. and Subsidiaries
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
($ in thousands, except per share amounts)
OPERATING DATA:(1)
 
 
 
 
 
 
 
 
 
 
Rental and other property
 
$
1,185,498

 
$
961,591

 
$
603,327

 
$
527,945

 
$
461,866

Management and other fees from affiliates
 
8,909

 
9,347

 
7,263

 
8,457

 
5,428

 
 
 
 
 
 
 
 
 
 
 
Income before discontinued operations
 
$
248,239

 
$
134,438

 
$
140,882

 
$
127,653

 
$
46,958

Income from discontinued operations
 
—

 
—

 
31,173

 
11,937

 
10,558

Net income
 
248,239

 
134,438

 
172,055

 
139,590

 
57,516

Net income available to common stockholders
 
$
226,865

 
$
116,859

 
$
150,811

 
$
119,812

 
$
40,368

Per share data:
 
 

 
 

 
 

 
 

 
 

Basic:
 
 

 
 

 
 

 
 

 
 

Income before discontinued operations available to common stockholders
 
$
3.50

 
$
2.07

 
$
3.26

 
$
3.10

 
$
0.94

Net income available to common stockholders
 
$
3.50

 
$
2.07

 
$
4.05

 
$
3.42

 
$
1.24

Weighted average common stock outstanding
 
64,872

 
56,547

 
37,249

 
35,032

 
32,542

Diluted:
 
 

 
 

 
 

 
 

 
 

Income before discontinued operations available to common stockholders
 
$
3.49

 
$
2.06

 
$
3.25

 
$
3.09

 
$
0.94

Net income available to common stockholders
 
$
3.49

 
$
2.06

 
$
4.04

 
$
3.41

 
$
1.24

Weighted average common stock outstanding
 
65,062

 
56,697

 
37,335

 
35,125

 
32,629

Cash dividend per common share
 
$
5.76

 
$
5.11

 
$
4.84

 
$
4.40

 
$
4.16


(1) 
Reclassifications have been made in prior periods to conform to the current year’s presentation.

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Table of Contents

 
 
As of December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
($ in thousands)
BALANCE SHEET DATA:(1)
 
 
 
 
 
 
 
 
 
 
Investment in rental properties (before accumulated depreciation)
 
$
12,331,469

 
$
11,244,681

 
$
5,443,757

 
$
5,033,672

 
$
4,313,064

Net investment in rental properties
 
10,381,577

 
9,679,875

 
4,188,871

 
3,952,155

 
3,393,038

Real estate under development
 
242,326

 
429,096

 
50,430

 
66,851

 
44,280

Co-investments
 
1,036,047

 
1,042,423

 
677,133

 
571,345

 
383,412

Total assets
 
12,005,091

 
11,526,732

 
5,162,320

 
4,826,356

 
4,019,519

Total indebtedness
 
5,315,464

 
5,080,689

 
3,009,005

 
2,797,816

 
2,343,413

Redeemable noncontrolling interest
 
45,452

 
23,256

 
—

 
—

 
—

Cumulative convertible preferred stock
 
—

 
—

 
4,349

 
4,349

 
4,349

Cumulative redeemable preferred stock
 
73,750

 
73,750

 
73,750

 
73,750

 
73,750

Stockholders' equity
 
6,237,733

 
6,022,672

 
1,884,619

 
1,764,804

 
1,437,527


(1) 
Reclassifications have been made in prior periods to conform to the current year’s presentation. Additionally, due to measurement adjustments related to the BRE merger in 2014, certain amounts do not agree to previously reported balances.


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Table of Contents

 
 
As of and for the years ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
($ in thousands, except per share amounts)
OTHER DATA:
 
 
Funds from operations (FFO)(1) attributable to common stockholders and unitholders:
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
226,865

 
$
116,859

 
$
150,811

 
$
119,812

 
$
40,368

Adjustments:
 
 

 
 

 
 

 
 

 
 

Depreciation and amortization
 
453,423

 
360,592

 
193,518

 
170,686

 
152,543

Gains not included in FFO attributable to common stockholders and unitholders
 
(81,347
)
 
(50,064
)
 
(67,975
)
 
(60,842
)
 
(7,543
)
Depreciation add back from unconsolidated co-investments
 
49,826

 
33,975

 
15,748

 
14,467

 
12,642

Noncontrolling interest related to Operating Partnership units
 
7,824

 
4,911

 
8,938

 
7,950

 
3,228

Insurance reimbursements
 
(1,751
)
 
—

 
—

 
—

 
—

Depreciation attributable to third party ownership and other
 
(781
)
 
(1,331
)
 
(1,309
)
 
(1,223
)
 
(1,066
)
Funds from operations attributable to common stockholders and unitholders
 
$
654,059

 
$
464,942

 
$
299,731

 
$
250,850

 
$
200,172

Non-core items:
 
 

 
 

 
 

 
 

 
 

Merger and integration expenses
 
3,798

 
53,530

 
4,284

 
—

 
—

Acquisition and investment related costs
 
2,414

 
1,878

 
1,161

 
2,255

 
1,231

Gain on sale of marketable securities, note prepayment, and other investments
 
(598
)
 
(886
)
 
(2,519
)
 
(819
)
 
(4,956
)
Gain on sale of co-investments
 
—

 
—

 
—

 
—

 
(919
)
Gain on sale of land
 
—

 
(2,533
)
 
(1,503
)
 
—

 
(180
)
Loss on early retirement of debt
 
6,114

 
268

 
300

 
5,009

 
1,163

Co-investment promote income
 
(192
)
 
(10,640
)
 
—

 
(2,299
)
 
—

Income from early redemption of preferred equity investments
 
(1,954
)
 
(5,250
)
 
(1,358
)
 
—

 
—

Insurance reimbursements
 
(2,319
)
 
—

 
—

 
—

 
—

Other non-core items, net (2)
 
(651
)
 
1,852

 
—

 
—

 
268

Core funds from operations (Core FFO) attributable to common stockholders and unitholders
 
$
660,671

 
$
503,161

 
$
300,096

 
$
254,996

 
$
196,779

Weighted average number of shares outstanding, diluted (FFO)(3)
 
67,310

 
58,921

 
39,501

 
37,378

 
34,861

Funds from operations attributable to common stockholders and unitholders
 per share - diluted
 
$
9.72

 
$
7.89

 
$
7.59

 
$
6.71

 
$
5.74

Core funds from operations attributable to common stockholders and unitholders
 per share - diluted
 
$
9.82

 
$
8.54

 
$
7.60

 
$
6.82

 
$
5.64


(1) 
FFO is a financial measure that is commonly used in the REIT industry. The Company presents funds from operations as a supplemental operating performance measure. FFO is not used by the Company, nor should it be considered to be, as an alternative to net earnings computed under GAAP as an indicator of the Company’s operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of the Company's ability to fund its cash needs.

FFO is not meant to represent a comprehensive system of financial reporting and does not present, nor does it intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net earnings computed under GAAP remain the primary measure of performance and that FFO is only meaningful when it is used in conjunction with net earnings. The Company considers FFO and FFO excluding non-routine items (referred to as

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“Core FFO”) to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO provides investors with an additional basis to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and its ability to pay dividends.  Further, the Company believes that its consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of its financial condition and its operating performance.
 
In calculating FFO, the Company follows the definition for this measure published by the National Association of Real Estate Investment Trusts (“NAREIT”), which is a REIT trade association. The Company believes that, under the NAREIT FFO definition, the three most significant adjustments made to net income are (i) the exclusion of historical cost depreciation, (ii) the exclusion of gains and losses from the sale of previously depreciated properties and (iii) the exclusion of impairment losses on depreciated properties. Essex agrees that these three NAREIT adjustments are useful to investors for the following reasons:
 
(a)
historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves.” Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by GAAP do not reflect the underlying economic realities.
(b)
REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains from the sales and impairment losses of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.

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

(2) 
Other items, net are non-recurring in nature and include items such as gains on non-operating assets and tax related items.
(3) 
Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership and excludes 744,346 DownREIT units for which the Operating Partnership has the ability and intention to redeem the DownREIT limited partnership units for cash and does not consider them to be common stock equivalents.


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Table of Contents

Essex Portfolio, L.P. and Subsidiaries
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
($ in thousands, except per unit amounts)
OPERATING DATA:(1)
 
 
 
 
 
 
 
 
 
 
Rental and other property
 
$
1,185,498

 
$
961,591

 
$
603,327

 
$
527,945

 
$
461,866

Management and other fees from affiliates
 
8,909

 
9,347

 
7,263

 
8,457

 
5,428

 
 
 
 
 
 
 
 
 
 
 
Income before discontinued operations
 
$
248,239

 
$
134,438

 
$
140,882

 
$
127,653

 
$
46,958

Income from discontinued operations
 
—

 
—

 
31,173

 
11,937

 
10,558

Net income
 
248,239

 
134,438

 
172,055

 
139,590

 
57,516

Net income available to common unitholders
 
$
234,689

 
$
121,726

 
$
159,749

 
$
127,771

 
$
43,593

Per unit data:
 
 

 
 

 
 

 
 

 
 

Basic:
 
 

 
 

 
 

 
 

 
 

Income before discontinued operations available to common unitholders
 
$
3.50

 
$
2.07

 
$
3.27

 
$
3.11

 
$
0.95

Net income available to common unitholders
 
$
3.50

 
$
2.07

 
$
4.06

 
$
3.43

 
$
1.25

Weighted average common units outstanding
 
67,054

 
58,772

 
39,380

 
37,252

 
34,774

Diluted:
 
 

 
 

 
 

 
 

 
 

Income before discontinued operations available to common unitholders
 
$
3.49

 
$
2.07

 
$
3.26

 
$
3.10

 
$
0.95

Net income available to common unitholders
 
$
3.49

 
$
2.07

 
$
4.05

 
$
3.42

 
$
1.25

Weighted average common units outstanding
 
67,244

 
58,921

 
39,467

 
37,344

 
34,861

Cash distributions per common unit
 
$
5.76

 
$
5.11

 
$
4.84

 
$
4.40

 
$
4.16

 
(1) 
Reclassifications have been made in prior periods to conform to the current year’s presentation.

 
 
As of December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
 
 
($ in thousands)
BALANCE SHEET DATA:(1)
 
 
 
 
 
 
 
 
 
 
Investment in rental properties (before accumulated depreciation)
 
$
12,331,469

 
$
11,244,681

 
$
5,443,757

 
$
5,033,672

 
$
4,313,064

Net investment in rental properties
 
10,381,577

 
9,679,875

 
4,188,871

 
3,952,155

 
3,393,038

Real estate under development
 
242,326

 
429,096

 
50,430

 
66,851

 
44,280

Co-investments
 
1,036,047

 
1,042,423

 
677,133

 
571,345

 
383,412

Total assets
 
12,005,091

 
11,526,732

 
5,162,320

 
4,826,356

 
4,019,519

Total indebtedness
 
5,315,464

 
5,080,689

 
3,009,005

 
2,797,816

 
2,343,413

Redeemable noncontrolling interest
 
45,452

 
23,256

 
—

 
—

 
—

Cumulative convertible preferred interest
 
—

 
—

 
4,349

 
4,349

 
4,349

Cumulative redeemable preferred interest
 
71,209

 
71,209

 
71,209

 
71,209

 
71,209

Partners' capital
 
6,287,381

 
6,073,433

 
1,932,108

 
1,811,427

 
1,486,914


(1) 
Reclassifications have been made in prior periods to conform to the current year’s presentation. Additionally, due to measurement adjustments related to the BRE merger in 2014, certain amounts do not agree to previously reported balances.

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

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto. These consolidated financial statements include all adjustments which are, in the opinion of management, necessary to reflect a fair statement of the results and all such adjustments are of a normal recurring nature.
OVERVIEW

ESS is a self-administered and self-managed REIT that acquires, develops, redevelops and manages apartment communities in selected residential areas located primarily in the West Coast of the United States.  ESS owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership.  ESS is the sole general partner of the Operating Partnership and, as of December 31, 2015, had an approximately 96.7% general partner interest in the Operating Partnership.

The Company’s investment strategy has two components: constant monitoring of existing markets, and evaluation of new markets to identify areas with the characteristics that underlie rental growth. The Company’s strong financial condition supports its investment strategy by enhancing its ability to quickly shift acquisition, development, redevelopment, and disposition activities to markets that will optimize the performance of the portfolio.

As of December 31, 2015, the Company had ownership interests in 246 communities, comprising 59,160 apartment homes.

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

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

As of December 31, 2015, the Company’s development pipeline was comprised of two consolidated projects under development, six unconsolidated joint venture projects under development and various consolidated predevelopment projects aggregating 2,447 apartment homes, with total incurred costs of $0.7 billion, and estimated remaining project costs of approximately $0.8 billion for total estimated project costs of $1.4 billion. 

As of December 31, 2015, the Company also had ownership interests in four commercial buildings (with approximately 319,079 square feet).

By region, the Company's operating results for 2015 and 2014 and projections for 2016 new housing supply (defined as new multi-family apartment homes and single family homes, excluding developments with fewer than 100 apartment homes as well as senior and student housing), job growth, and rental income are as follows:

Southern California Region:  As of December 31, 2015, this region represented 49% of the Company’s consolidated apartment homes.  Revenues for “2015/2014 Same-Properties” (as defined below), or “Same-Property revenues,” increased 6.0% in 2015 as compared to 2014. In 2016, the Company projects new residential supply of 30,300 apartment homes and single family homes, which represents 0.5% of the total housing stock. The Company assumes an increase of 168,050 jobs or 2.2%, and an increase in Same-Property revenues of between 5.25% to 6.25% in 2016.
 
Northern California Region:  As of December 31, 2015, this region represented 30% of the Company’s consolidated apartment homes.  Same-Property revenues increased 10.5% in 2015 as compared to 2014.  In 2016, the Company projects new residential supply of 18,300 apartment homes and single family homes, which represents 0.8% of the total housing stock. The Company assumes an increase of 95,300 jobs or 2.9%, and an increase in Same-Property revenues of between 8.50% to 9.50% in 2016.
 
Seattle Metro Region: As of December 31, 2015, this region represented 21% of the Company’s consolidated apartment homes.  Same-Property revenues increased 7.7% in 2015 as compared to 2014.  In 2016, the Company projects new residential supply of 16,050 apartment homes and single family homes, which represents 1.3% of the total housing stock. The Company assumes an increase of 43,100 jobs or 2.7%, and an increase in Same-Property revenues of between 6.00% to 7.00% in 2016.

The Company projects 2016 Same-Property revenues to increase compared to 2015 results, as renewal and new leases are signed at higher rents in 2016 than 2015.  Same-Property operating expenses are expected to increase in 2016 by 3.25% to 4.25%.



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The Company’s consolidated communities are as follows:
 
As of
 
As of
 
December 31, 2015
 
December 31, 2014
 
Apartment Homes
 
%
 
Apartment Homes
 
%
Southern California
23,707

 
49
%
 
22,168

 
47
%
Northern California
14,694

 
30
%
 
14,789

 
31
%
Seattle Metro
10,239

 
21
%
 
10,216

 
21
%
Arizona
—

 
—
%
 
552

 
1
%
Total
48,640

 
100
%
 
47,725

 
100
%

Co-investments, including Wesco I, LLC ("Wesco I"), Wesco III, LLC ("Wesco III"), Wesco IV, LLC (“Wesco IV”), Canadian Pension Plan Investment Board ("CPPIB" or "CPP"), Palm Valley and BEXAEW, LLC (“BEXAEW”) communities, developments under construction and preferred equity interest co-investment communities are not included in the table presented above for both periods.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 2015 to the Year Ended December 31, 2014

The Company’s average financial occupancies for the Company’s stabilized apartment communities or “2015/2014 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2015 and 2014) was unchanged at 96.2% in both 2015 and 2014.  Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue (actual rental revenue for occupied apartment homes plus market rent for vacant apartment homes). Actual rental revenue represents contractual rental revenue pursuant to leases without considering delinquency and concessions. Total potential rental revenue represents the value of all apartment homes, with occupied apartment homes valued at contractual rental rates pursuant to leases and vacant apartment homes valued at estimated market rents.  We believe that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.

Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on the supply and demand in the apartment community’s market. The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates and the Company's calculation of financial occupancy may not be comparable to financial occupancy as disclosed by other REITs.

The Company does not take into account delinquency and concessions to calculate actual rent for occupied apartment homes and market rents for vacant apartment homes. The calculation of financial occupancy compares contractual rates for occupied apartment homes to estimated market rents for unoccupied apartment homes, and thus the calculation compares the gross value of all apartment homes excluding delinquency and concessions. For apartment communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric. While an apartment community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy, which is based on contractual revenue is not considered the best metric to quantify occupancy.


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The regional breakdown of the Company’s 2015/2014 Same-Property portfolio for financial occupancy for the years ended December 31, 2015 and 2014 is as follows:

 
Years ended
December 31,
 
2015
 
2014
Southern California
96.2
%
 
96.3
%
Northern California
96.3
%
 
96.2
%
Seattle Metro
96.2
%
 
96.0
%

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2015/2014 Same-Properties.

 
 
Number of
 
Years Ended
December 31,
 
Dollar
 
Percentage
Property Revenues ($ in thousands)
 
Properties
 
2015
 
2014
 
Change
 
Change
2015/2014 Same-Properties: (1)
 
 
 
 
 
 
 
 
 
 
Southern California
 
58

 
$
283,435

 
$
267,413

 
$
16,022

 
6.0
%
Northern California
 
37

 
250,478

 
226,679

 
$
23,799

 
10.5
%
Seattle Metro
 
34

 
124,143

 
115,219

 
8,924

 
7.7
%
Total 2015/2014 Same-Property revenues
 
129

 
658,056

 
609,311

 
48,745

 
8.0
%
2015/2014 Non-Same Property Revenues
 
 

 
527,442

 
352,280

 
175,162

 
49.7
%
Total property revenues
 
 

 
$
1,185,498

 
$
961,591

 
$
223,907

 
23.3
%
 
(1) 
Same-property excludes BRE properties acquired April 1, 2014 and properties held for sale.
 
2015/2014 Same-Property Revenues increased by $48.7 million or 8.0% to $658.1 million for 2015 compared to $609.3 million in 2014. The increase was primarily attributable to an increase of 8.1% in average rental rates from $1,741 per apartment home for 2014 to $1,882 per apartment home for 2015. 

2015/2014 Non-Same Property Revenues increased by $175.2 million or 49.7% to $527.4 million in 2015 compared to $352.3 million in 2014.  The increase was primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.

Property operating expenses, excluding real estate taxes increased $30.3 million or 14.8% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014. 2015/2014 Same-Property operating expenses excluding real estate taxes, increased by $2.3 million or 1.7% in 2015 compared to 2014, due mainly to a $1.7 million increase in repairs and maintenance.

Real estate taxes increased $20.7 million or 19.2% in 2015 compared to 2014, due primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and held for sale, since January 1, 2014. 2015/2014 Same-Property real estate taxes increased by $1.7 million or 3.2% for 2015 compared to 2014.

Depreciation and amortization expense increased by $92.8 million or 25.7% in 2015 compared to 2014, primarily due to the BRE merger and the acquisition or consolidation of ten communities, net of dispositions and properties held for sale, since January 1, 2014.

Merger and integration expenses include, but are not limited to, advisor fees, legal fees, and accounting fees related to the merger with BRE and related integration activity. The Company completed the merger with BRE on April 1, 2014. Merger and integration expenses were $3.8 million for 2015 and $53.5 million for 2014.

Interest expense increased $40.3 million or 24.5% in 2015, due to an increase in average outstanding debt primarily due to assumed debt in connection with the BRE merger in addition to a $6.8 million decrease in capitalized interest in 2015 compared to 2014, which was due to a decrease in development costs as compared to the same period in 2014.

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Total return swap income of $5.7 million in 2015 consists of monthly settlements related to the Company's total return swap contracts that were entered into during the year, in connection with $257.3 million of tax-exempt mortgage notes payable. The Company had no total return swap income in 2014.

Interest and other income increased $7.3 million or 62.1% in 2015, due to an increase in the investment of mortgage backed securities, an increase of $3.1 million in insurance proceeds and $0.6 million in income from the sale of an investment.

Equity income from co-investments decreased by $18.0 million to $21.9 million in 2015 compared to $39.9 million in 2014, primarily due to events in 2014 which did not recur in 2015, including the Company’s share of the gain on the sale of two co-investment communities of $6.6 million, promote income of $10.6 million, and income from the early redemption of preferred equity investments of $5.3 million in 2014, partially offset by $2.0 million in income from the early redemption of two preferred equity investments during 2015 and an increase of $7.4 million in equity income from co-investment operations. Additionally, income from preferred equity investments decreased by approximately $5.1 million from 2014 to 2015.

Gains on sale of real estate and land increased by $1.3 million or 2.8% in 2015 compared to 2014, due primarily to $7.1 million in gains on the sales of Pinnacle South Mountain and two commercial buildings as well as a $40.2 million gain on the sale of Sharon Green during 2015 as compared to approximately $16.8 million in gains on the sales of Vista Capri North, Coldwater Canyon, Pinnacle Town Center, and a land parcel adjacent to the Company's Park Viridian property, as well as a $29.2 million gain on the sale of Mt. Sutro during 2014.

Gains on remeasurement of co-investment increased by $34.0 million in 2015 compared to 2014, due to the remeasurement of the Company's investments, as a result of the Company's acquisition of a controlling interest in The Huxley and The Dylan properties, resulting in a gain of $21.3 million, and Reveal, resulting in a gain of $12.7 million.

Comparison of Year Ended December 31, 2014 to the Year Ended December 31, 2013

The Company’s average financial occupancies for the Company’s stabilized apartment communities for “2014/2013 Same-Properties” (stabilized properties consolidated by the Company for the years ended December 31, 2014 and 2013) increased 10 basis points to 96.2% in 2014 from 96.1% in 2013. The regional breakdown of the Company’s stabilized 2014/2013 Same-Property portfolio for financial occupancy for the years ended December 31, 2014 and 2013 is as follows:

 
Years ended
December 31,
 
2014
 
2013
Southern California
96.3
%
 
96.1
%
Northern California
96.3
%
 
96.1
%
Seattle Metro
96.0
%
 
96.1
%

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

 
 
Number of
 
Years Ended
December 31,
 
Dollar
 
Percentage
Property Revenues ($ in thousands)
 
Properties
 
2014
 
2013
 
Change
 
Change
2014/2013 Same-Properties:
 
 
 
 
 
 
 
 
 
 
Southern California
 
58

 
$
267,413

 
$
253,503

 
$
13,910

 
5.5
%
Northern California
 
35

 
218,577

 
199,395

 
19,182

 
9.6
%
Seattle Metro
 
29

 
115,219

 
107,225

 
7,994

 
7.5
%
Total 2014/2013 Same-Property revenues
 
122

 
601,209

 
560,123

 
41,086

 
7.3
%
2014/2013 Non-Same Property Revenues (1)
 
 

 
80,059

 
43,204

 
36,855

 
85.3
%
2014 BRE Legacy Property Revenues (2)
 
 
 
280,323

 
—

 
280,323

 


Total property revenues
 
 

 
$
961,591

 
$
603,327

 
$
358,264

 
59.4
%


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(1) 
Includes eleven communities acquired after January 1, 2013, three sold communities and one redevelopment community.
(2) 
Includes 55 stabilized properties acquired in connection with the BRE merger on April 1, 2014, and two development communities in lease-up.

2014/2013 Same-Property Revenues increased by $41.1 million or 7.3% to $601.2 million for 2014 compared to $560.1 million in 2013. The increase was primarily attributable to an increase in scheduled rents of $39.1 million as reflected in an increase of 7.1% in average rental rates from $1,619 per unit for 2013 to $1,734 per unit for 2014. Scheduled rents increased in all regions by 5.2%, 9.5%, and 7.4% in Southern California, Northern California, and Seattle Metro, respectively. Income from utility billings and other income increased by $2.2 million and $1.1 million, respectively in 2014 compared to 2013. Financial occupancy increased 10 basis points in 2014 to 96.2% compared to 96.1% in 2013.

2014/2013 Non-Same Property Revenues increased by $36.9 million or 85.3% to $80.1 million in 2014 compared to $43.2 million to 2013.  The increase was primarily due to revenue generated from eleven communities acquired or consolidated since January 1, 2013.

Management and other fees from affiliates increased $2.0 million or 28.7% to $9.3 million in 2013 compared to $7.3 million in 2012.  The increase is primarily due to the asset and property management fees earned from the Wesco III, Wesco IV, and BEXAEW co-investments formed during 2014. The increase in management fees was offset by a reduction of $1.2 million in asset and property management fees from the sale of two Essex Apartment Value Fund II, L.P. ("Fund II") communities in 2014.

Property operating expenses, excluding real estate taxes increased $64.6 million or 46.1% in 2014 compared to 2013, primarily due to properties acquired in connection with the BRE merger and six other communities in 2014. 2014/2013 Same-Property operating expenses excluding real estate taxes, increased by $3.8 million or 3.0% in 2014 compared to 2013, due mainly to a $1.6 million increase in repairs and maintenance and a $1.3 million increase in utilities expense.

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

Depreciation and amortization expense increased by $168.2 million or 87.4% in 2014 compared to 2013, due to the acquisition of BRE and six other communities. The increase is also due to the capitalization of approximately $313.1 million in additions to rental properties through 2013, including $152.8 million spent on acquisition of and additions to real estate under development, $81.4 million spent on redevelopment, and $78.9 million spent on capital expenditures on rental properties.  Approximately $122.0 million in additions to rental properties were capitalized for 2012, including $17.8 million spent on acquisitions of and additions to real estate under development, $47.3 million spent on redevelopment, and $56.9 million spent on capital expenditures on rental properties.

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

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

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

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


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Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for 2015, 2014 and 2013 ($ in thousands):
 
 
For the year ended December 31,
 
 
2015
 
2014
 
2013
Cash flow provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
617,410

 
$
493,312

 
$
304,982

Investing activities
 
$
(725,556
)
 
$
(1,147,156
)
 
$
(453,696
)
Financing activities
 
$
108,214

 
$
520,610

 
$
148,599


ESS’s business is operated primarily through the Operating Partnership. ESS issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company which are fully reimbursed by the Operating Partnership. ESS itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. ESS’s principal funding requirement is the payment of dividends on its common stock and preferred stock. ESS’s sole source of funding for its dividend payments is distributions it receives from the Operating Partnership.

As of December 31, 2015, ESS owned a 96.7% general partner interest and the limited partners owned the remaining 3.3% interest in the Operating Partnership.

The liquidity of ESS is dependent on the Operating Partnership’s ability to make sufficient distributions to ESS. The primary cash requirement of ESS is its payment of dividends to its stockholders. ESS also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 7 and 8 of the notes to consolidated financial statements included elsewhere herein. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger the ESS’s guarantee obligations, then ESS will be required to fulfill its cash payment commitments under such guarantees. However, ESS’s only significant asset is its investment in the Operating Partnership.

For ESS to maintain its qualification as a REIT, it must pay dividends to its stockholders aggregating annually at least 90% of its REIT taxable income, excluding net capital gains. While historically ESS has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, ESS’s own stock. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. ESS may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.

At December 31, 2015, the Company had $29.7 million of unrestricted cash and cash equivalents and $137.5 million in marketable securities, of which $57.1 million were held available for sale. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of the Company’s reasonably anticipated cash needs during 2016. The timing, source and amounts of cash flows provided by financing activities and used in investing activities are sensitive to changes in interest rates and other fluctuations in the capital markets environment, which can affect the Company’s plans for acquisitions, dispositions, development and redevelopment activities.

As of December 31, 2015, the Company had $465.0 million of private placement unsecured bonds outstanding at an average interest rate of 4.5% with maturity dates ranging from March 2016 through August 2021. In January 2016, $150.0 million of these bonds bearing an interest rate of 4.36% were repaid.

As of December 31, 2015, the Company had $2.4 billion of fixed rate public bonds, net of unamortized premiums, discounts and debt issuance costs, with interest rates varying from 3.25% to 5.50% and maturity dates ranging from 2017 to 2025.

As of December 31, 2015, the Company had a $225.0 million unsecured term loan outstanding that has a variable interest rate of LIBOR plus 1.05%. The Company has entered into interest rate swap contracts for a term of five years with a notional amount totaling $225.0 million, which effectively converted the interest rate on $225.0 million of the term loan to a fixed rate of 2.4%. The $200 million tranche of this unsecured term loan has a maturity date of November 2016 and the $25 million tranche has a maturity date of August 2017.

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As of December 31, 2015, the Company’s mortgage notes payable totaled $2.2 billion, net of unamortized premiums and debt issuance costs, which consisted of $1.9 billion in fixed rate debt with interest rates varying from 4.3% to 6.4% and maturity dates ranging from 2016 to 2021 and $281.7 million of tax-exempt variable rate demand notes with a weighted average interest rate of 1.2%. The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2040, and $20.7 million is subject to interest rate caps and $257.3 million is subject to total return swaps.

The Company has two lines of credit aggregating $1.03 billion as of December 31, 2015 including a $1.0 billion unsecured line of credit. As of December 31, 2015, there was a $15.0 million balance on this unsecured line of credit with an underlying interest rate of LIBOR plus 0.95%. In January 2016, the facility maturity date was extended to December 31, 2019 with one 18-month extension, exercisable by the Company, with an underlying interest rate of LIBOR plus 0.90%. The Company also has a $25.0 million working capital unsecured line of credit agreement. As of December 31, 2015, there were no amounts outstanding on this unsecured line with an underlying interest rate of LIBOR plus 0.95%. In January 2016 the maturity date was extended to January 2018 and the interest rate was lowered to LIBOR plus 0.90%.

The Company’s unsecured line of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization. The Company was in compliance with the debt covenants as of December 31, 2015 and 2014.

The Company pays quarterly dividends from cash available for distribution. Until it is distributed, cash available for distribution is invested by the Company primarily in investment grade securities held available for sale or is used by the Company to reduce balances outstanding under its line of credit.

The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future. To the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely impacted. For the past three years the Company has primarily issued unsecured debt and repaid secured debt when it has matured to place less reliance on mortgage debt financing, and to unencumber more of the Company's communities.

Derivative Activity

The Company uses interest rate swaps, interest rate cap, and total return swap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps and total return swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparties nonperformance risk in the fair value measurements.

The Company has entered into interest rate swap contracts with an aggregate notional amount of $225.0 million that effectively fixed the interest rate on the $225.0 million unsecured term loan at 2.4%. These derivatives qualify for hedge accounting.
 
The Company has entered into four total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. Additionally, the total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call one of the total return swaps with $114.4 million of the outstanding debt at par, while the call option on the other three total return swaps relating to $142.9 million of the outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting.

As of December 31, 2015 the Company also had nine interest rate caps totaling a notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.


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As of December 31, 2015 and 2014, the aggregate carrying value of the interest rate swap contracts was a liability of $1.0 million and $1.8 million, respectively. The aggregate carrying value of the interest rate caps was zero on the balance sheets as of both December 31, 2015 and 2014. The aggregate carrying value of the total return swaps was $4 thousand and zero as of December 31, 2015 and 2014, respectively.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, was not significant for the years ended December 31, 2015, 2014 and 2013.

Issuance of Common Stock

In 2014, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity (only ESS) and debt securities as defined in the prospectus.

ESS has entered into equity distribution agreements with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Citigroup Global Markets Inc, Jefferies LLC, J.P. Morgan Securities LLC, Liquidnet, Inc., Mitsubishi UFJ Securities (USA), Inc, and UBS Securities LLC.  Pursuant to its equity distribution program, in 2015, ESS issued 1,481,737 shares of common stock for $332.3 million, net of fees and commissions, and in 2014, ESS issued 2,964,315 shares of common stock for proceeds of $534.0 million, net of fees and commissions. During the first quarter of 2016 through February 22, 2016, ESS has not issued any shares of common stock pursuant to this program. Under this program, ESS may from time to time sell shares of common stock into the existing trading market at current market prices, and the Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes.  As of February 22, 2016, ESS may sell an additional 1,719,109 shares under the current equity distribution program.

Capital Expenditures

Non-revenue generating capital expenditures are improvements and upgrades that extend the useful life of the property.  For the year ended December 31, 2015, non-revenue generating capital expenditures totaled approximately $1,173 per apartment home. The Company projects to incur approximately $1,200 per apartment home in non-revenue generating capital expenditures for the year ending December 31, 2016. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, and expenditures for property renovations and improvements which are expected to generate additional revenue. The Company expects that cash from operations and/or its lines of credit will fund such expenditures. However, there can be no assurance that the actual expenditures incurred during 2016 and/or the funding thereof will not be significantly different than the Company’s current expectations.

Development and Predevelopment Pipeline

The Company defines development projects as new communities that are being constructed or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2015, the Company had two consolidated development projects comprised of 771 apartment homes with an estimated cost of $489.0 million of which $287.0 million remains to be expended, and six unconsolidated joint venture active development projects comprised of 1,676 apartment homes with an estimated cost of $0.9 billion, of which approximately $500.0 million remains to be expended. The Company's share of these estimated remaining project costs is approximately $255.0 million.
 
The Company defines predevelopment projects as proposed communities in negotiation or in the entitlement process with an expected high likelihood of becoming entitled development projects. The Company may also acquire land for future development purposes or sale.
 
The Company expects to fund the development and predevelopment pipeline by using a combination of some or all of the following sources: its working capital, amounts available on its lines of credit, construction loans, net proceeds from public and private equity and debt issuances, and proceeds from the disposition of properties, if any.

Redevelopment Pipeline

The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement.  During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2015, the Company had ownership interests in five major redevelopment communities aggregating 1,313

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apartment homes with estimated redevelopment costs of $159.8 million, of which approximately $82.5 million remains to be expended.

Alternative Capital Sources

The Company utilizes co-investments as an alternative source of capital for acquisitions of both operating and development communities. As of December 31, 2015, the Company had an interest in 1,676 apartment homes of communities actively under development with joint ventures for a total estimated cost of $0.9 billion. Total estimated remaining costs total approximately $500.0 million, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $255.0 million. In addition, the Company had an interest in 10,520 apartment homes of operating communities with joint ventures for a total book value of $738.9 million.

Contractual Obligations and Commercial Commitments

The following table summarizes the maturity or due dates of the Company’s contractual obligations and other commitments at December 31, 2015, and the effect such obligations could have on the Company’s liquidity and cash flow in future periods ($ in thousands):

 
 
2016
 
2017 and
2018
 
2019 and
2020
 
Thereafter
 
Total
Mortgage notes payable
 
$
29,714

 
$
519,802

 
$
1,279,300

 
$
329,451

 
$
2,158,267

Unsecured debt
 
350,000

 
365,000

 
75,000

 
2,300,000

 
3,090,000

Lines of credit
 
—

 
—

 
15,000

 
—

 
15,000

Interest on indebtedness (1)
 
221,917

 
373,819

 
266,313

 
223,734

 
1,085,783

Ground leases
 
2,742

 
5,484

 
5,484

 
131,851

 
145,561

Operating leases
 
1,695

 
3,557

 
3,792

 
12,350

 
21,394

Development commitments (including co-investments) (2)
 
195,218

 
329,207

 
17,235

 
—

 
541,660

 
 
$
801,286

 
$
1,596,869

 
$
1,662,124

 
$
2,997,386

 
$
7,057,665


(1) 
Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2015.
(2) 
Estimated project cost for development the Company's 500 Folsom project is net of a projected value for low-income housing tax credit proceeds and savings from tax exempt bonds.

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities (VIEs), the Company consolidates the Operating Partnership and 19 DownREIT limited partnerships (comprising eleven communities). The Company consolidates these entities because it is deemed the primary beneficiary. The REIT has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to these DownREIT VIEs, net of intercompany eliminations, were approximately $241.0 million and $206.7 million, respectively, as of December 31, 2015, and $235.1 million and $209.1 million respectively, as of December 31, 2014. Interest holders in VIEs consolidated by the Company are allocated net income equal to the cash payments made to those interest holders for services rendered or distributions from cash flow. The remaining results of operations are generally allocated to the Company. As of December 31, 2015, the Company did not have any VIE’s of which it was not deemed to be the primary beneficiary.

Critical Accounting Policies and Estimates

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

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

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

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

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

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

The Company assesses each entity in which it has an investment or contractual relationship to determine if it may be deemed to be a VIE. If such an entity is a VIE, then the Company performs an analysis to determine who is the primary beneficiary. If the Company is the primary beneficiary, then the entity is consolidated. The analysis required to identify VIEs and primary beneficiaries is complex and judgmental, and the analysis must be applied to various types of entities and legal structures.

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

Further, the Company evaluates whether its co-investments are other than temporarily impaired and, if so, records an impairment loss equal to the excess of the co-investments' carrying value over its estimated fair value.

The Company capitalizes all direct and certain indirect costs, including interest and real estate taxes, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use. The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period. Included in capitalized costs are management’s accounting estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development.

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


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Net Operating Income (“NOI”)

Same-Property net operating income (“NOI”) is considered by management to be an important supplemental performance measure to earnings from operations included in the Company’s consolidated statements of income. The presentation of Same-Property NOI assists with the presentation of the Company’s operations prior to the allocation of depreciation and any corporate-level or financing-related costs. NOI reflects the operating performance of a community and allows for an easy comparison of the operating performance of individual communities or groups of communities. Prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, and NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets.  The Company defines Same-Property NOI as Same-Property revenue less Same-Property operating expenses.

The reconciliation of earnings from operations to Same-Property NOI for the periods presented:

 
2015
 
2014
 
2013
Earnings from operations
$
331,174

 
$
201,514

 
$
188,705

Adjustments:
 

 
 

 
 

General and administrative
40,090

 
40,878

 
26,684

Management and other fees from affiliates
(8,909
)
 
(9,347
)
 
(7,263
)
Depreciation and amortization
453,423

 
360,592

 
192,420

Merger and integration expenses
3,798

 
53,530

 
4,284

Acquisition and investment related costs
2,414

 
1,878

 
1,161

Net operating income
821,990

 
649,045

 
405,991

Less: Non Same-Property NOI
(357,457
)
 
(229,244
)
 
(22,599
)
Same-Property NOI
$
464,533

 
$
419,801

 
$
383,392


Forward Looking Statements

Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," and elsewhere in this Annual Report on Form 10-K which are not historical facts may be considered forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the Company's expectations, hopes, intentions, beliefs and strategies regarding the future.  Forward looking statements include statements regarding the Company's expectations as to the timing of completion of current development and redevelopment projects and the stabilization dates of such projects, expectation as to the total projected costs of development and redevelopment projects, beliefs as to the adequacy of future cash flows to meet anticipated cash needs, expectations as to the amount of non-revenue generating capital expenditures, future acquisitions, the Company's development and redevelopment pipeline and the sources of funding for it, the anticipated performance of existing properties, anticipated property and growth trends in various geographic regions, statements regarding the Company’s expected 2016 Same-Property revenue generally and in various areas, and 2016 Same-Property operating expenses, statements regarding the Company's financing activities, and the use of proceeds from such activities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors including, but not limited to, that the Company will fail to achieve its business objectives, that the actual completion of development and redevelopment projects will be subject to delays, that the stabilization dates of such projects will be delayed, that the total projected costs of current development and redevelopment projects will exceed expectations, that such development and redevelopment projects will not be completed, that development and redevelopment projects and acquisitions will fail to meet expectations, that estimates of future income from an acquired property may prove to be inaccurate, that future cash flows will be inadequate to meet operating requirements and/or will be insufficient to provide for dividend payments in accordance with REIT requirements, that the actual non-revenue generating capital expenditures will exceed the Company's current expectations, that there may be a downturn in the markets in which the Company's communities are located, that the terms of any refinancing may not be as favorable as the terms of existing indebtedness, as well as those risks, special considerations, and other factors discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk factors and special considerations set forth in the Company’s other filings with the SEC which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.


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Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Hedging Activities

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks.  To accomplish this objective, the Company entered into interest rate swaps as part of its cash flow hedging strategy. As of December 31, 2015, the Company has seven interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $225.0 million of the five-year unsecured term debt.  As of December 31, 2015, the Company also had $291.7 million of variable rate indebtedness, of which $20.7 million is subject to interest rate cap protection. All of the Company’s interest rate swaps are designated as cash flow hedges as of December 31, 2015. The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s derivative instruments used to hedge interest rates as of December 31, 2015.  The notional amount represents the aggregate amount of a particular security that is currently hedged at one time, but does not represent exposure to credit, interest rates or market risks. The table also includes a sensitivity analysis to demonstrate the impact on the Company’s derivative instruments from an increase or decrease in 10-year Treasury bill interest rates by 50 basis points, as of December 31, 2015.

 
 
 
 
 
 
Carrying and
 
Estimated Carrying Value
 
 
 
 
Maturity
 
Estimated
 
+ 50
 
- 50
($ in thousands)
 
Notional Amount
 
Date Range
 
Fair Value
 
Basis Points
 
Basis Points
Cash flow hedges:
 
 
 
 
 
 
 
 

 
 

Interest rate swaps
 
$
225,000

 
2016-2017
 
$
(1,032
)
 
$
(56
)
 
$
(2,003
)
Interest rate caps
 
20,674

 
2018-2019
 
—

 
—

 
—

Total cash flow hedges
 
$
245,674

 
2016-2019
 
$
(1,032
)
 
$
(56
)
 
$
(2,003
)

Additionally, the Company has entered into total return swap contracts, with an aggregate notional amount of $257.3 million, that effectively converts $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread and had a carrying value of $4 thousand at December 31, 2015. These derivatives do not qualify for hedge accounting.

Interest Rate Sensitive Liabilities

The Company is exposed to interest rate changes primarily as a result of its line of credit and long-term debt used to maintain liquidity and fund capital expenditures and expansion of the Company’s real estate investment portfolio and operations. The Company’s interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. To achieve its objectives the Company borrows primarily at fixed rates and may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.

The Company’s interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows. Management has estimated that the fair value of the Company’s $4.8 billion of fixed rate debt at December 31, 2015, to be $4.8 billion.  Management has estimated the fair value of the Company’s $525.3 million of variable rate debt at December 31, 2015, is $527.6 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace ($ in thousands).
 
 
For the Years Ended December 31,
 
2016
 
2017
 
2018
 
2019
 
2020
 
Thereafter
 
Total
 
Fair value
Fixed rate debt (1)
$179,677
 
$538,685
 
$320,080
 
$650,620
 
$692,440
 
$
2,350,056

 
$
4,731,558

 
$
4,835,891

Average interest rate
4.5
%
 
3.3
%
 
5.5
%
 
4.3
%
 
5.0
%
 
3.8
%
 
 

 
 

Variable rate debt (1)
$200,038
 
$
25,495

 
$
542

 
$
25,592

 
$
647

 
$
279,395

(2
)
$
531,709

 
$
527,592

Average interest rate
2.3
%
 
2.3
%
 
1.1
%
 
1.8
%
 
1.1
%
 
1.2
%
 

 

 
 


49
Table of Contents

 
(1) 
Represents scheduled principal payments.
(2) 
$245.7 million is subject to interest rate protection agreements.

The table incorporates only those exposures that exist as of December 31, 2015; it does not consider those exposures or positions that could arise after that date. As a result, the Company’s ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise during the period.

Item 8. Financial Statements and Supplementary Data

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

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

Not applicable.

Item 9A. Controls and Procedures

Essex Property Trust, Inc.

As of December 31, 2015, ESS carried out an evaluation, under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, ESS’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2015, ESS’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by ESS in the reports that ESS files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that ESS  files or submits under the Exchange Act is accumulated and communicated to the ESS’s management, including ESS’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in ESS’s internal control over financial reporting, that occurred during the quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, ESS’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

ESS’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). ESS’s management assessed the effectiveness of ESS’s internal control over financial reporting as of December 31, 2015. In making this assessment, ESS’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). ESS’s management has concluded that, as of December 31, 2015, its internal control over financial reporting was effective based on these criteria. ESS’s independent registered public accounting firm, KPMG LLP, has issued an attestation report over ESS’s internal control over financial reporting, which is included herein.

Essex Portfolio, L.P.

As of December 31, 2015, the Operating Partnership carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer of the general partner, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of the general partner concluded that as of December 31, 2015, the Operating Partnership’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that it files or submits under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of the general partner, to allow timely decisions regarding required disclosure.


50
Table of Contents

There were no changes in the Operating Partnership’s internal control over financial reporting, that occurred during the quarter ended December 31, 2015, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Operating Partnership’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2015. In making this assessment, the Operating Partnership’s management used the criteria set forth in the report entitled “Internal Control-Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Operating Partnership’s management has concluded that, as of December 31, 2015, its internal control over financial reporting was effective based on these criteria.
 
Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2016 Annual Meeting of Shareholders, under the heading “Board and Corporate Governance Matters,” to be filed with the SEC within 120 days of December 31, 2015.

Item 11. Executive Compensation
 
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2016 Annual Meeting of Shareholders, under the headings “Executive Compensation” and “Director Compensation,” to be filed with the SEC within 120 days of December 31, 2015.

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

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2016 Annual Meeting of Shareholders, under the heading “Security Ownership of Certain Beneficial Owners and Management,” to be filed with the SEC within 120 days of December 31, 2015.
 
Item 13. Certain Relationships and Related Transactions and Director Independence

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2016 Annual Meeting of Shareholders, under the heading “Certain Relationships and Related Persons Transactions,” to be filed with the SEC within 120 days of December 31, 2015.

Item 14. Principal Accounting Fees and Services

The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2016 Annual Meeting of Shareholders, under the headings “Report of the Audit Committee” and “Fees Paid to KPMG LLP,” to be filed with the SEC within 120 days of December 31, 2015.


51
Table of Contents

PART IV

Item 15. Exhibits and Financial Statement Schedules
 
(A) Financial Statements
 
(1)   Consolidated Financial Statements of Essex Property Trust, Inc.
Page
 
 
Reports of Independent Registered Public Accounting Firm
 
 
Consolidated Balance Sheets: As of December 31, 2015 and 2014
 
 
Consolidated Statements of Income: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Equity: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Cash Flows: Years ended December 31, 2015, 2014, and 2013
 
 
Notes to Consolidated Financial Statements
 
 
(2)   Consolidated Financial Statements of Essex Portfolio, L.P.
 
 
 
Report of Independent Registered Public Accounting Firm
 
 
Consolidated Balance Sheets: As of December 31, 2015 and 2014
 
 
Consolidated Statements of Income: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Capital: Years ended December 31, 2015, 2014, and 2013
 
 
Consolidated Statements of Cash Flows: Years ended December 31, 2015, 2014, and 2013
 
 
Notes to Consolidated Financial Statements
 
 
(3)  Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2015
 
 
(4)   See the Exhibit Index immediately following the signature page and certifications for a list of exhibits filed or incorporated by reference as part of this report.
 
 
(B) Exhibits
 
The Company hereby files, as exhibits to this Form 10-K, those exhibits listed on the Exhibit Index referenced in Item 15(A)(4) above.

52
Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Essex Property Trust, Inc.:
 
We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, equity, and cash
flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Essex Property Trust, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Property Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 26, 2016 expressed an unqualified opinion on the effectiveness of Essex Property Trust, Inc.’s internal control over financial reporting.

/S/ KPMG LLP
KPMG LLP
 
San Francisco, California
February 26, 2016

F- 1
Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Essex Property Trust, Inc.:

We have audited Essex Property Trust, Inc.’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Essex Property Trust, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, appearing under Item 9A. Our responsibility is to express an opinion on Essex Property Trust, Inc.'s internal control over financial reporting based on our audit.

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

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

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

In our opinion, Essex Property Trust, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2015, and our report dated February 26, 2016, expressed an unqualified opinion on those consolidated financial statements.

/S/ KPMG LLP
KPMG LLP
 
San Francisco, California
February 26, 2016

F- 2
Table of Contents

Report of Independent Registered Public Accounting Firm

The General Partner
Essex Portfolio, L.P.:

We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. (the Operating Partnership) and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2015. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule III. These consolidated financial statements and the accompanying financial statement schedule III are the responsibility of Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements and the accompanying financial statement schedule III based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Essex Portfolio, L.P. and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule III, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/S/ KPMG LLP
KPMG LLP

San Francisco, California
February 26, 2016

F- 3
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2015 and 2014
(Dollars in thousands, except share amounts) 
 
2015
 
2014
ASSETS
Real estate:
 
 
 
Rental properties:
 
 
 
Land and land improvements
$
2,522,842

 
$
2,424,930

Buildings and improvements
9,808,627

 
8,819,751

 
12,331,469

 
11,244,681

Less accumulated depreciation
(1,949,892
)
 
(1,564,806
)
 
10,381,577

 
9,679,875

Real estate under development
242,326

 
429,096

Co-investments
1,036,047

 
1,042,423

Real estate held for sale, net
26,879

 
56,300

 
11,686,829

 
11,207,694

Cash and cash equivalents-unrestricted
29,683

 
25,610

Cash and cash equivalents-restricted
93,372

 
70,139

Marketable securities and other investments
137,485

 
117,240

Notes and other receivables
19,285

 
24,923

Acquired in-place lease value, net
2,857

 
47,748

Prepaid expenses and other assets
35,580

 
33,378

Total assets
$
12,005,091

 
$
11,526,732

LIABILITIES AND EQUITY
Unsecured debt, net
$
3,088,680

 
$
2,603,548

Mortgage notes payable, net
2,215,077

 
2,234,317

Lines of credit, net
11,707

 
242,824

Accounts payable and accrued liabilities
131,415

 
135,162

Construction payable
40,953

 
30,892

Dividends payable
100,266

 
88,221

Other liabilities
34,518

 
32,444

Total liabilities
5,622,616

 
5,367,408

Commitments and contingencies


 


Redeemable noncontrolling interest
45,452

 
23,256

Equity:
 

 
 

Common stock; $.0001 par value, 656,020,000 shares authorized; 65,379,359 and 63,682,646 shares issued and outstanding, respectively
6

 
6

Cumulative redeemable 7.125% Series H preferred stock at liquidation value
73,750

 
73,750

Additional paid-in capital
7,003,317

 
6,651,165

Distributions in excess of accumulated earnings
(797,329
)
 
(650,797
)
Accumulated other comprehensive loss, net
(42,011
)
 
(51,452
)
Total stockholders' equity
6,237,733

 
6,022,672

Noncontrolling interest
99,290

 
113,396

Total equity
6,337,023

 
6,136,068

Total liabilities and equity
$
12,005,091

 
$
11,526,732


See accompanying notes to consolidated financial statements.

F- 4
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2015, 2014 and 2013
(Dollars in thousands, except per share and share amounts)
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
Rental and other property
$
1,185,498

 
$
961,591

 
$
603,327

Management and other fees from affiliates
8,909

 
9,347

 
7,263

 
1,194,407

 
970,938

 
610,590

Expenses:
 

 
 

 
 

Property operating, excluding real estate taxes
234,953

 
204,673

 
140,060

Real estate taxes
128,555

 
107,873

 
57,276

Depreciation and amortization
453,423

 
360,592

 
192,420

General and administrative
40,090

 
40,878

 
26,684

Merger and integration expenses
3,798

 
53,530

 
4,284

Acquisition and investment related costs
2,414

 
1,878

 
1,161

 
863,233

 
769,424

 
421,885

Earnings from operations
331,174

 
201,514

 
188,705

Interest expense
(204,827
)
 
(164,551
)
 
(116,524
)
Total return swap income
5,655

 
—

 
—

Interest and other income
19,143

 
11,811

 
11,633

Equity income from co-investments
21,861

 
39,893

 
55,865

Loss on early retirement of debt, net
(6,114
)
 
(268
)
 
(300
)
Gains on sale of real estate and land
47,333

 
46,039

 
1,503

Gains on remeasurement of co-investment
34,014

 
—

 
—

Income before discontinued operations
248,239

 
134,438

 
140,882

Income from discontinued operations
—

 
—

 
31,173

Net income
248,239

 
134,438

 
172,055

Net income attributable to noncontrolling interest
(16,119
)
 
(12,288
)
 
(15,772
)
Net income attributable to controlling interest
232,120

 
122,150

 
156,283

Dividends to preferred stockholders
(5,255
)
 
(5,291
)
 
(5,472
)
Net income available to common stockholders
$
226,865

 
$
116,859

 
$
150,811

Per share data:
 

 
 

 
 

Basic:
 

 
 

 
 

Income before discontinued operations available to common stockholders
$
3.50

 
$
2.07

 
$
3.26

Income from discontinued operations available to common stockholders
—

 
—

 
0.79

Net income available to common stockholders
$
3.50

 
$
2.07

 
$
4.05

Weighted average number of shares outstanding during the year
64,871,717

 
56,546,959

 
37,248,960

Diluted:
 

 
 

 
 

Income before discontinued operations available to common stockholders
$
3.49

 
$
2.06

 
$
3.25

Income from discontinued operations available to common stockholders
—

 
—

 
0.79

Net income available to common stockholders
$
3.49

 
$
2.06

 
$
4.04

Weighted average number of shares outstanding during the year
65,061,685

 
56,696,525

 
37,335,295


See accompanying notes to consolidated financial statements.

F- 5
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2015, 2014 and 2013
(Dollars in thousands)
 
2015
 
2014
 
2013
Net income
$
248,239

 
$
134,438

 
$
172,055

Other comprehensive income (loss):
 

 
 

 
 

Changes in fair value of cash flow hedges and reclassification to interest expense
7,893

 
4,168

 
12,614

Changes in fair value of marketable securities
1,865

 
6,302

 
(1,556
)
Reversal of unrealized gains upon the sale of marketable securities
—

 
(886
)
 
(1,767
)
Total other comprehensive income
9,758

 
9,584

 
9,291

Comprehensive income
257,997

 
144,022

 
181,346

Comprehensive income attributable to noncontrolling interest
(16,436
)
 
(12,852
)
 
(16,274
)
Comprehensive income attributable to controlling interest
$
241,561

 
$
131,170

 
$
165,072


See accompanying notes to consolidated financial statements.

F- 6
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Equity
Years ended December 31, 2015, 2014 and 2013
(Dollars and shares in thousands)
 
Series H
Preferred stock
 
Common stock
 
Additional
paid-in
 
Distributions
in excess of
accumulated
 
Accumulated
other
comprehensive
 
Noncontrolling
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
earnings
 
loss, net
 
Interest
 
Total
Balances at December 31, 2012
2,950

 
$
73,750

 
36,443

 
$
3

 
$
2,204,778

 
$
(444,466
)
 
$
(69,261
)
 
$
115,312

 
$
1,880,116

Net income
—

 
—

 
—

 
—

 
—

 
156,283

 
—

 
15,772

 
172,055

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(1,673
)
 
(94
)
 
(1,767
)
Change in fair value of cash flow hedges and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
11,934

 
680

 
12,614

Change in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(1,472
)
 
(84
)
 
(1,556
)
Issuance of common stock under:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock option plans
—

 
—

 
65

 
—

 
7,244

 
—

 
—

 
—

 
7,244

Sale of common stock
—

 
—

 
913

 
1

 
138,365

 
—

 
—

 
—

 
138,366

Equity-based compensation costs
—

 
—

 
—

 
—

 
(907
)
 
—

 
—

 
2,515

 
1,608

Redemptions of noncontrolling interest
—

 
—

 
—

 
—

 
(3,717
)
 
—

 
—

 
(1,994
)
 
(5,711
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(18,488
)
 
(18,488
)
Common and preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(186,243
)
 
—

 
—

 
(186,243
)
Balances at December 31, 2013
2,950

 
73,750

 
37,421

 
4

 
2,345,763

 
(474,426
)
 
(60,472
)
 
113,619

 
1,998,238

Net income
—

 
—

 
—

 
—

 
—

 
122,150

 
—

 
12,288

 
134,438

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(841
)
 
(45
)
 
(886
)
Changes in fair value derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
3,721

 
447

 
4,168

Changes in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
6,140

 
162

 
6,302

Issuance of common stock under:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock consideration in the Merger, net
—

 
—

 
23,067

 
2

 
3,774,085

 
—

 
—

 
—

 
3,774,087


F- 7
Table of Contents

Stock option and restricted stock plans
—

 
—

 
218

 
—

 
11,024

 
—

 
—

 
—

 
11,024

Equity distribution agreements, net
—

 
—

 
2,943

 
—

 
532,670

 
—

 
—

 
—

 
532,670

Equity-based compensation costs
—

 
—

 
—

 
—

 
5,719

 
—

 
—

 
6,153

 
11,872

Reclassification of noncontrolling interest to redeemable noncontrolling interest
—

 
—

 
—

 
—

 
(19,823
)
 
—

 
—

 
(1,067
)
 
(20,890
)
Changes in the redemption value of redeemable noncontrolling interest
—

 
—

 
—

 
—

 
312

 
—

 
—

 
—

 
312

Conversion of Series G preferred stock
—

 
—

 
34

 
—

 
4,349

 
—

 
—

 
—

 
4,349

Contributions from noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,419,816

 
1,419,816

Retirement of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,419,816
)
 
(1,419,816
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(17,069
)
 
(17,069
)
Redemptions of noncontrolling interest
—

 
—

 
—

 
—

 
(2,934
)
 
—

 
—

 
(1,092
)
 
(4,026
)
Common and preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(298,521
)
 
—

 
—

 
(298,521
)
Balances at December 31, 2014
2,950

 
73,750

 
63,683

 
6

 
6,651,165

 
(650,797
)
 
(51,452
)
 
113,396

 
6,136,068

Net income
—

 
—

 
—

 
—

 
—

 
232,120

 
—

 
16,119

 
248,239

Change in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
7,637

 
256

 
7,893

Change in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
1,804

 
61

 
1,865

Issuance of common stock under:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock option and restricted stock plans
—

 
—

 
207

 
—

 
26,540

 
—

 
—

 
—

 
26,540

Sale of common stock
—

 
—

 
1,489

 
—

 
332,137

 
—

 
—

 
—

 
332,137

Equity based compensation costs
—

 
—

 
—

 
—

 
5,946

 
—

 
—

 
3,700

 
9,646

Reclassification of noncontrolling interest to redeemable noncontrolling interest
—

 
—

 
—

 
—

 
(7,657
)
 
—

 
—

 
(12,115
)
 
(19,772
)
Changes in the redemption value of redeemable noncontrolling interest
—

 
—

 
—

 
—

 
(2,615
)
 
—

 
—

 
—

 
(2,615
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(21,705
)
 
(21,705
)

F- 8
Table of Contents

Redemptions of noncontrolling interest
—

 
—

 
—

 
—

 
(2,199
)
 
—

 
—

 
(422
)
 
(2,621
)
Common and preferred stock dividends
—

 
—

 
—

 
—

 
—

 
(378,652
)
 
—

 
—

 
(378,652
)
Balances at December 31, 2015
2,950

 
$
73,750

 
65,379

 
$
6

 
$
7,003,317

 
$
(797,329
)
 
$
(42,011
)
 
$
99,290

 
$
6,337,023


See accompanying notes to consolidated financial statements.

F- 9
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014 and 2013
(Dollars in thousands) 
 
2015
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
Net income
$
248,239

 
$
134,438

 
$
172,055

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization
453,423

 
360,592

 
193,518

Earnings from co-investments
(21,392
)
 
(33,335
)
 
(14,613
)
Company's share of gain on the sales of co-investments
(469
)
 
(6,558
)
 
(41,252
)
Operating distributions from co-investments
46,608

 
49,486

 
19,636

Gain on the sales of real estate and land
(47,333
)
 
(46,039
)
 
(30,725
)
Loss on early retirement of debt, net
6,114

 
268

 
300

Gains on sale of marketable securities and other investments
(598
)
 
(886
)
 
(1,767
)
Amortization of (premium) discount and financing costs, net
(19,361
)
 
(14,672
)
 
12,216

Amortization of discount on notes receivables
—

 
—

 
(844
)
Amortization of discount on marketable securities and other investments
(12,389
)
 
(9,325
)
 
(6,556
)
Non cash merger and integration expenses
—

 
9,025

 
—

Equity-based compensation
6,061

 
8,740

 
4,508

Gains on remeasurement of co-investment
(34,014
)
 
—

 
—

Changes in operating assets and liabilities:
 

 
 

 
 

Prepaid expenses, in-place lease value, receivables and other assets
267

 
15,828

 
(1,588
)
Accounts payable and accrued liabilities
(9,633
)
 
24,233

 
72

Other liabilities
1,887

 
1,517

 
22

Net cash provided by operating activities
617,410

 
493,312

 
304,982

Cash flows from investing activities:
 

 
 

 
 

Additions to real estate:
 

 
 

 
 

Acquisitions of real estate and acquisition related capital expenditures
(515,726
)
 
(387,547
)
 
(348,774
)
Redevelopment
(99,346
)
 
(81,429
)
 
(47,289
)
Development acquisitions of and additions to real estate under development
(157,900
)
 
(152,766
)
 
(17,757
)
Capital expenditures on rental properties
(57,277
)
 
(78,864
)
 
(56,919
)
Proceeds from insurance for property losses
16,811

 
35,547

 
—

BRE merger consideration paid
—

 
(555,826
)
 
—

Acquisition of membership interest in co-investment
(115,724
)
 
—

 
—

Dispositions of real estate
319,008

 
141,189

 
65,496

Dispositions of co-investments
31,556

 
13,900

 
—

Changes in restricted cash and refundable deposits
(14,068
)
 
(36,582
)
 
(9,149
)
Purchases of marketable securities
(14,300
)
 
(20,516
)
 
(16,442
)
Sales and maturities of marketable securities and other investments
8,907

 
8,753

 
24,172

Purchases of and advances under notes and other receivables
—

 
—

 
(56,750
)
Collections of notes and other receivables
—

 
76,585

 
53,438

Contributions to co-investments
(127,879
)
 
(246,006
)
 
(162,578
)
Non-operating distributions from co-investments
382

 
136,406

 
118,856


F- 10
Table of Contents

Net cash used in investing activities
(725,556
)
 
(1,147,156
)
 
(453,696
)
Cash flows from financing activities:
 

 
 

 
 

Borrowings under debt agreements
1,345,855

 
2,093,406

 
969,061

Repayment of debt
(1,197,351
)
 
(1,814,020
)
 
(750,900
)
Additions to deferred charges
(8,034
)
 
(17,402
)
 
(7,402
)
Net proceeds from stock options exercised
26,540

 
11,039

 
4,958

Net proceeds from issuance of common stock
332,137

 
531,379

 
137,749

Distributions to noncontrolling interest
(21,055
)
 
(17,465
)
 
(18,488
)
Redemption of noncontrolling interest
(2,621
)
 
(5,753
)
 
(5,711
)
Common and preferred stock dividends paid
(367,257
)
 
(260,574
)
 
(180,668
)
Net cash provided by financing activities
108,214

 
520,610

 
148,599

Cash acquired from the BRE merger
—

 
140,353

 
—

Cash acquired from consolidation of co-investment
4,005

 
—

 
—

Net increase (decrease) in cash and cash equivalents
4,073

 
7,119

 
(115
)
Cash and cash equivalents at beginning of year
25,610

 
18,491

 
18,606

Cash and cash equivalents at end of year
$
29,683

 
$
25,610

 
$
18,491

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest, net of capitalized interest
$
181,106

 
$
130,691

 
$
103,516

Interest capitalized
$
15,571

 
$
22,510

 
$
16,486

 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

 
 

Issuance of Operating Partnership units for contributed properties
$
—

 
$
1,419,816

 
$
—

Retirement of Operating Partnership units
$
—

 
$
(1,419,816
)
 
$
—

Transfer from real estate under development to rental properties
$
308,704

 
$
10,203

 
$
68

Transfer from real estate under development to co-investments
$
6,234

 
$
83,574

 
$
27,906

Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest
$
22,387

 
$
18,766

 
$
—

Debt assumed in connection with acquisition of co-investment
$
114,435

 
$
—

 
$
—

Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded
$
—

 
$
72,568

 
$
—


See accompanying notes to consolidated financial statements


F- 11
Table of Contents

    ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2015 and 2014
(Dollars in thousands, except per unit amounts)
 
2015
 
2014
ASSETS
Real estate:
 
 
 
Rental properties:
 
 
 
Land and land improvements
$
2,522,842

 
$
2,424,930

Buildings and improvements
9,808,627

 
8,819,751

 
12,331,469

 
11,244,681

Less: accumulated depreciation
(1,949,892
)
 
(1,564,806
)
 
10,381,577

 
9,679,875

Real estate under development
242,326

 
429,096

Co-investments
1,036,047

 
1,042,423

Real estate held for sale, net
26,879

 
56,300

 
11,686,829

 
11,207,694

Cash and cash equivalents-unrestricted
29,683

 
25,610

Cash and cash equivalents-restricted
93,372

 
70,139

Marketable securities and other investments
137,485

 
117,240

Notes and other receivables
19,285

 
24,923

Acquired in-place lease value, net
2,857

 
47,748

Prepaid expenses and other assets
35,580

 
33,378

Total assets
$
12,005,091

 
$
11,526,732

LIABILITIES AND CAPITAL
Unsecured debt, net
$
3,088,680

 
$
2,603,548

Mortgage notes payable, net
2,215,077

 
2,234,317

Lines of credit, net
11,707

 
242,824

Accounts payable and accrued liabilities
131,415

 
135,162

Construction payable
40,953

 
30,892

Distributions payable
100,266

 
88,221

Other liabilities
34,518

 
32,444

Total liabilities
5,622,616

 
5,367,408

Commitments and contingencies


 


Redeemable noncontrolling interest
45,452

 
23,256

Capital:
 

 
 

General Partner:
 

 
 

Common equity (65,379,359 and 63,682,646 units issued and outstanding, respectively)
6,208,535

 
6,002,915

Series H 7.125% Preferred interest (liquidation value of $73,750)
71,209

 
71,209

 
6,279,744

 
6,074,124

Limited Partners:
 

 
 

Common equity (2,214,545 and 2,168,158 units issued and outstanding, respectively)
47,235

 
48,665

Accumulated other comprehensive loss
(39,598
)
 
(49,356
)
Total partners' capital
6,287,381

 
6,073,433

Noncontrolling interest
49,642

 
62,635

Total capital
6,337,023

 
6,136,068

Total liabilities and capital
$
12,005,091

 
$
11,526,732


See accompanying notes to consolidated financial statements

F- 12
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARES
Consolidated Statements of Income
Years ended December 31, 2015, 2014, and 2013
(Dollars in thousands, except per unit and unit amounts)
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
Rental and other property
$
1,185,498

 
$
961,591

 
$
603,327

Management and other fees from affiliates
8,909

 
9,347

 
7,263

 
1,194,407

 
970,938

 
610,590

Expenses:
 

 
 

 
 

Property operating, excluding real estate taxes
234,953

 
204,673

 
140,060

Real estate taxes
128,555

 
107,873

 
57,276

Depreciation and amortization
453,423

 
360,592

 
192,420

General and administrative
40,090

 
40,878

 
26,684

Merger and integration expenses
3,798

 
53,530

 
4,284

Acquisition and investment related costs
2,414

 
1,878

 
1,161

 
863,233

 
769,424

 
421,885

Earnings from operations
331,174

 
201,514

 
188,705

Interest expense
(204,827
)
 
(164,551
)
 
(116,524
)
Total return swap income
5,655

 
—

 
—

Interest and other income
19,143

 
11,811

 
11,633

Equity income from co-investments
21,861

 
39,893

 
55,865

Loss on early retirement of debt, net
(6,114
)
 
(268
)
 
(300
)
Gains on sale of real estate and land
47,333

 
46,039

 
1,503

Gains on remeasurement of co-investment
34,014

 
—

 
—

Income before discontinued operations
248,239

 
134,438

 
140,882

Income from discontinued operations
—

 
—

 
31,173

Net income
248,239

 
134,438

 
172,055

Net income attributable to noncontrolling interest
(8,295
)
 
(7,421
)
 
(6,834
)
Net income attributable to controlling interest
239,944

 
127,017

 
165,221

Preferred interest distributions
(5,255
)
 
(5,291
)
 
(5,472
)
Net income available to common unitholders
$
234,689

 
$
121,726

 
$
159,749

Per unit data:
 

 
 

 
 

Basic:
 

 
 

 
 

Income before discontinued operations available to common unitholders
$
3.50

 
$
2.07

 
$
3.27

Income from discontinued operations
—

 
—

 
0.79

Net income available to common unitholders
$
3.50

 
$
2.07

 
$
4.06

Weighted average number of common units outstanding during the year
67,054,184

 
58,771,666

 
39,380,385

Diluted:
 

 
 

 
 

Income before discontinued operations available to common unitholders
$
3.49

 
$
2.07

 
$
3.26

Income from discontinued operations
—

 
—

 
0.79

Net income available to common unitholders
$
3.49

 
$
2.07

 
$
4.05

Weighted average number of common units outstanding during the year
67,244,152

 
58,921,232

 
39,466,720


See accompanying notes to consolidated financial statements

F- 13
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2015, 2014, and 2013
(Dollars in thousands)
 
2015
 
2014
 
2013
Net income
$
248,239

 
$
134,438

 
$
172,055

Other comprehensive income (loss):
 

 
 

 
 

Changes in fair value of cash flow hedges and reclassification to interest expense
7,893

 
4,168

 
12,614

Changes in fair value of marketable securities
1,865

 
6,302

 
(1,556
)
Reversal of unrealized gains upon the sale of marketable securities
—

 
(886
)
 
(1,767
)
Total other comprehensive income
9,758

 
9,584

 
9,291

Comprehensive income
257,997

 
144,022

 
181,346

Comprehensive income attributable to noncontrolling interest
(8,295
)
 
(7,421
)
 
(6,834
)
Comprehensive income attributable to controlling interest
$
249,702

 
$
136,601

 
$
174,512


See accompanying notes to consolidated financial statements.

F- 14
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Capital
Years ended December 31, 2015, 2014, and 2013
(Dollars and units in thousands)
 
General Partner
 
Limited Partners
 
Accumulated
 
 
 
 
 
 
 
 
 
Preferred
 
 
 
 
 
Preferred
 
other
 
 
 
 
 
Common Equity
 
Equity
 
Common Equity
 
Equity
 
comprehensive
 
Noncontrolling
 
 
 
Units
 
Amount
 
Amount
 
Units
 
Amount
 
Amount
 
loss, net
 
Interest
 
Total
Balances at December 31, 2012
36,443

 
$
1,762,856

 
$
71,209

 
2,122

 
$
45,593

 
$
—

 
$
(68,231
)
 
$
68,689

 
$
1,880,116

Net income
—

 
150,811

 
5,472

 
—

 
8,938

 
—

 
—

 
6,834

 
172,055

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(1,767
)
 
—

 
(1,767
)
Change in fair value of cash flow hedges and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
12,614

 
—

 
12,614

Changes in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(1,556
)
 
—

 
(1,556
)
Issuance of common units under:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock and unit based compensation plans
65

 
7,244

 
—

 
—

 
—

 
—

 
—

 
—

 
7,244

Sale of common stock by the general partner
913

 
138,366

 
—

 
—

 
—

 
—

 
—

 
—

 
138,366

Stock and unit based compensation costs
—

 
(907
)
 
—

 
28

 
2,515

 
—

 
—

 
—

 
1,608

Redemptions
—

 
(3,717
)
 
—

 
—

 
(617
)
 
—

 
—

 
(1,377
)
 
(5,711
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,016
)
 
(8,016
)
Distributions declared
—

 
(180,771
)
 
(5,472
)
 
—

 
(10,472
)
 
—

 
—

 
—

 
(196,715
)
Balances at December 31, 2013
37,421

 
1,873,882

 
71,209

 
2,150

 
45,957

 
—

 
(58,940
)
 
66,130

 
1,998,238

Net income
—

 
116,859

 
5,291

 
—

 
4,867

 
—

 
—

 
7,421

 
134,438

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(886
)
 
—

 
(886
)
Changes in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
4,168

 
—

 
4,168

Changes in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
6,302

 
—

 
6,302

Issuance of common units under:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 


F- 15
Table of Contents

Common stock issued as consideration by general partner in merger
23,067

 
3,774,087

 
—

 
—

 
—

 
—

 
—

 
—

 
3,774,087

General partner's stock based compensation
218

 
11,024

 
—

 
—

 
—

 
—

 
—

 
—

 
11,024

Sale of common stock by the general partner
2,943

 
532,670

 
—

 
—

 
—

 
—

 
—

 
—

 
532,670

Equity-based compensation costs
—

 
5,719

 
—

 
28

 
6,153

 
—

 
—

 
—

 
11,872

Reclassification of noncontrolling interest to redeemable noncontrolling interest
—

 
(19,823
)
 
—

 
(10
)
 
4,017

 
—

 
—

 
(5,084
)
 
(20,890
)
Changes in the redemption value of redeemable noncontrolling interest
—

 
312

 
—

 
—

 
—

 
—

 
—

 
—

 
312

Conversion of Series G preferred stock
34

 
4,349

 
—

 
—

 
—

 
—

 
—

 
—

 
4,349

Contributions from noncontrolling interest
—

 
—

 
—

 
8,561

 
1,419,816

 
—

 
—

 
—

 
1,419,816

Retirement of noncontrolling interest
—

 
—

 
—

 
(8,561
)
 
(1,419,816
)
 
—

 
—

 
—

 
(1,419,816
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(4,890
)
 
(4,890
)
Redemptions
—

 
(3,374
)
 
—

 
—

 
(1,181
)
 
—

 
—

 
(942
)
 
(5,497
)
Distributions declared
—

 
(292,790
)
 
(5,291
)
 
—

 
(11,148
)
 
—

 
—

 
—

 
(309,229
)
Balances at December 31, 2014
63,683

 
6,002,915

 
71,209

 
2,168

 
48,665

 
—

 
(49,356
)
 
62,635

 
6,136,068

Net income
—

 
226,865

 
5,255

 
—

 
7,824

 
—

 
—

 
8,295

 
248,239

Change in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
7,893

 
—

 
7,893

Changes in fair value of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
1,865

 
—

 
1,865

Issuance of common units under:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
General partner's stock based compensation
207

 
26,540

 
—

 
—

 
—

 
—

 
—

 
—

 
26,540

Sale of common stock by the general partner
1,482

 
332,137

 
—

 
—

 
—

 
—

 
—

 
—

 
332,137

Equity based compensation costs
—

 
5,946

 
—

 
54

 
3,700

 
—

 
—

 
—

 
9,646

Changes in redemption value of redeemable noncontrolling interest
—

 
(2,615
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,615
)
Reclassification of noncontrolling interest to redeemable noncontrolling interest
—

 
(7,657
)
 
—

 
—

 
—

 
—

 
—

 
(12,115
)
 
(19,772
)

F- 16
Table of Contents

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(8,751
)
 
(8,751
)
Redemptions
7

 
(2,199
)
 
—

 
(7
)
 
—

 
—

 
—

 
(422
)
 
(2,621
)
Distributions declared
—

 
(373,397
)
 
(5,255
)
 
—

 
(12,954
)
 
—

 
—

 
—

 
(391,606
)
Balances at December 31, 2015
65,379

 
$
6,208,535

 
$
71,209

 
2,215

 
$
47,235

 
$
—

 
$
(39,598
)
 
$
49,642

 
$
6,337,023


See accompanying notes to consolidated financial statements

F- 17
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2015, 2014, and 2013
(Dollars in thousands)
 
2015
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
 
Net income
$
248,239

 
$
134,438

 
$
172,055

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization
453,423

 
360,592

 
193,518

Earnings from co-investments
(21,392
)
 
(33,335
)
 
(14,613
)
Operating Partnership's share of gain on the sales of co-investments
(469
)
 
(6,558
)
 
(41,252
)
Operating distributions from co-investments
46,608

 
49,486

 
19,636

Gain on the sales of real estate and land
(47,333
)
 
(46,039
)
 
(30,725
)
Loss on early retirement of debt, net
6,114

 
268

 
300

Gains on sale of marketable securities and other investments
(598
)
 
(886
)
 
(1,767
)
Amortization of (premium) discount and financing costs, net
(19,361
)
 
(14,672
)
 
12,216

Amortization of discount on notes receivables
—

 
—

 
(844
)
Amortization of discount on marketable securities and other investments
(12,389
)
 
(9,325
)
 
(6,556
)
Non cash merger and integration expenses
—

 
9,025

 
—

Equity-based compensation
6,061

 
8,740

 
4,508

Gains on remeasurement of co-investment
(34,014
)
 
—

 
—

Changes in operating assets and liabilities:
 

 
 

 
 

Prepaid expenses, in-place lease value, receivables and other assets
267

 
15,828

 
(1,588
)
Accounts payable and accrued liabilities
(9,633
)
 
24,233

 
72

Other liabilities
1,887

 
1,517

 
22

Net cash provided by operating activities
617,410

 
493,312

 
304,982

Cash flows from investing activities:
 

 
 

 
 

Additions to real estate:
 

 
 

 
 

Acquisitions of real estate and acquisition related capital expenditures
(515,726
)
 
(387,547
)
 
(348,774
)
Redevelopment
(99,346
)
 
(81,429
)
 
(47,289
)
Development acquisitions of and additions to real estate under development
(157,900
)
 
(152,766
)
 
(17,757
)
Capital expenditures on rental properties
(57,277
)
 
(78,864
)
 
(56,919
)
Proceeds from insurance for property losses
16,811

 
35,547

 
—

BRE merger consideration paid
—

 
(555,826
)
 
—

Acquisition of membership interest in co-investment
(115,724
)
 
—

 
—

Dispositions of real estate
319,008

 
141,189

 
65,496

Dispositions of co-investments
31,556

 
13,900

 
—

Changes in restricted cash and refundable deposits
(14,068
)
 
(36,582
)
 
(9,149
)
Purchases of marketable securities
(14,300
)
 
(20,516
)
 
(16,442
)
Sales and maturities of marketable securities and other investments
8,907

 
8,753

 
24,172

Purchases of and advances under notes and other receivables
—

 
—

 
(56,750
)
Collections of notes and other receivables
—

 
76,585

 
53,438

Contributions to co-investments
(127,879
)
 
(246,006
)
 
(162,578
)
Non-operating distributions from co-investments
382

 
136,406

 
118,856


F- 18
Table of Contents

Net cash used in investing activities
(725,556
)
 
(1,147,156
)
 
(453,696
)
Cash flows from financing activities:
 

 
 

 
 

Borrowings under debt agreements
1,345,855

 
2,093,406

 
969,061

Repayment of debt
(1,197,351
)
 
(1,814,020
)
 
(750,900
)
Additions to deferred charges
(8,034
)
 
(17,402
)
 
(7,402
)
Net proceeds from stock options exercised
26,540

 
11,039

 
4,958

Net proceeds from issuance of common units
332,137

 
531,379

 
137,749

Distributions to noncontrolling interest
(7,615
)
 
(4,841
)
 
(8,016
)
Redemption of limited partners units and noncontrolling interests
(2,621
)
 
(802
)
 
(5,711
)
Common units and preferred units and preferred interests distributions paid
(380,697
)
 
(278,149
)
 
(191,140
)
Net cash provided by financing activities
108,214

 
520,610

 
148,599

Cash acquired from the BRE merger
—

 
140,353

 
—

Cash acquired from consolidation of co-investment
4,005

 
—

 
—

Net increase (decrease) in cash and cash equivalents
4,073

 
7,119

 
(115
)
Cash and cash equivalents at beginning of year
25,610

 
18,491

 
18,606

Cash and cash equivalents at end of year
$
29,683

 
$
25,610

 
$
18,491

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest, net of capitalized interest
$
181,106

 
$
130,691

 
$
103,516

Interest capitalized
$
15,571

 
$
22,510

 
$
16,486

 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

 
 

Issuance of Operating Partnership units for contributed properties
$
—

 
$
1,419,816

 
$
—

Retirement of Operating Partnership units
$
—

 
$
(1,419,816
)
 
$
—

Transfer from real estate under development to rental properties
$
308,704

 
$
10,203

 
$
68

Transfer from real estate under development to co-investments
$
6,234

 
$
83,574

 
$
27,906

Reclassification to redeemable noncontrolling interest from additional paid in capital and noncontrolling interest
$
22,387

 
$
18,766

 
$
—

Debt assumed in connection with acquisition of co-investment
$
114,435

 
$
—

 
$
—

Mortgage notes (excluding BRE merger) assumed in connection with purchases of real estate including the loan premiums recorded
$
—

 
$
72,568

 
$
—


See accompanying notes to consolidated financial statements


F- 19
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013

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

ESS is the sole general partner in the Operating Partnership with a 96.7% general partner interest and the limited partners owned a 3.3% interest as of December 31, 2015. The limited partners may convert their Operating Partnership units into an equivalent number of shares of common stock. Total Operating Partnership limited partnership units outstanding were 2,214,545 and 2,168,158 as of December 31, 2015 and 2014, respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $530.2 million and $447.9 million, as of December 31, 2015 and 2014, respectively. The Company has reserved shares of common stock for such conversions.

As of December 31, 2015, the Company owned or had ownership interests in 246 apartment communities, (aggregating 59,160 apartment homes), four commercial buildings, and eight active development projects (collectively, the “Portfolio”). The communities are located in Southern California (Los Angeles, Orange, San Diego, and Ventura counties), Northern California (the San Francisco Bay Area) and the Seattle metropolitan areas.

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

Essex issued approximately 23.1 million shares of Essex common stock as Stock Consideration in the merger.  For purchase accounting, the value of the common stock issued by Essex upon the consummation of the merger was determined based on the closing price of BRE’s common stock on the closing date of the merger. As a result of Essex being admitted to the S&P 500 on the same date as the closing of the merger, Essex’s common stock price experienced significantly higher than usual trading volume and the closing price of $174 per share was significantly higher than its volume-weighted average trading price for the days before and after April 1, 2014.  BRE’s common stock did not experience the same proportionate increase in common stock price leading up to April 1, 2014.  As a result, given that a substantial component of the purchase price is an exchange of equity instruments, Essex used the closing price of BRE’s common stock on April 1, 2014 of $61 per share, less the Cash Consideration, as the fair value of the equity consideration.  After deducting the Special Dividend and the Cash Consideration per share, this resulted in a value of $48.67 per share of BRE common stock which is the equivalent of approximately $164 per share of Essex common stock issued.

(2) Summary of Critical and Significant Accounting Policies

(a) Principles of Consolidation and Basis of Presentation

The accounts of the Company, its controlled subsidiaries and the variable interest entities (“VIEs”) in which it is the primary beneficiary are consolidated in the accompanying financial statements and prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). In the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented have been included and are normal and recurring in nature. All significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation. Such reclassifications had no net effect on previously reported financial results.


F- 20
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Noncontrolling interest includes the 3.3% limited partner interests in the Operating Partnership not held by the Company at both December 31, 2015 and 2014. These percentages include the Operating Partnership’s vested long term incentive plan units (see Note 13).

The Company consolidates the Operating Partnership and 19 DownREIT limited partnerships (comprising eleven communities), since the Company is the primary beneficiary of these variable interest entities (“VIEs”). The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to these DownREIT VIEs, net of intercompany eliminations, were approximately $241.0 million and $206.7 million, respectively, as of December 31, 2015, and $235.1 million and $209.1 million, respectively, as of December 31, 2014.

The DownREIT VIEs collectively own eleven apartment communities in which Essex Management Company (“EMC”) is the general partner, the Operating Partnership is a special limited partner, and the other limited partners were granted rights of redemption for their interests. Such limited partners can request to be redeemed and the Company, subject to certain restrictions, can elect to redeem their rights for cash or by issuing shares of its common stock on a one share per unit basis.  Conversion values will be based on the market value of the Company's common stock at the time of redemption multiplied by the number of units stipulated under the above arrangements. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. Total DownREIT units outstanding were 963,172 and 974,790 as of December 31, 2015 and 2014 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $230.6 million and $201.4 million, as of December 31, 2015 and 2014, respectively. The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $45.5 million and $23.3 million as of December 31, 2015 and 2014, respectively. The amounts represent units of limited partners' interests in DownREIT VIEs as to which it is outside of the Company’s control to redeem the DownREIT units with Company common stock and may potentially be redeemed for cash, and are presented at either their redemption value or historical cost, depending on the limited partner's right to redeem their units as of the balance sheet date. The carrying value of DownREIT units as to which it is within the control of the Company to redeem the units with its common stock is $18.4 million and $30.8 million as of December 31, 2015 and 2014, respectively and is classified within noncontrolling interests in the accompanying consolidated balance sheets.
 
Interest holders in VIEs consolidated by the Company are allocated a priority of net income equal to the cash payments made to those interest holders or distributions from cash flow.  The remaining results of operations are generally allocated to the Company.

As of December 31, 2015 and 2014, the Company did not have any VIEs of which it was not deemed to be the primary beneficiary.

(b) Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The new standard provides a single comprehensive revenue recognition model for contracts with customers (excluding certain contracts, such as lease contracts) to improve comparability within industries. The new standard requires an entity to recognize revenue to reflect the transfer of goods or services to customers at an amount the entity expects to be paid in exchange for those goods and services and provide enhanced disclosures, all to provide more comprehensive guidance for transactions such as service revenue and contract modifications. In August 2015, the FASB deferred the effective date of the new standard by one year, and it is now effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted but not before the original effective date. The new standard may be applied using either a full retrospective or a modified approach upon adoption. The Company has not yet selected a transition method and is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.

In February 2015, the FASB issued ASU No. 2015-02 "Consolidation (Topic 810): Amendments to the Consolidation Analysis", which provides new consolidation guidance and makes changes to both the variable interest model and the voting model. Among other changes, the new standard specifically eliminates the presumption in the current voting model that a general partner controls a limited partnership or similar entity unless that presumption can be overcome. Generally, only a single limited partner that is able to exercise substantive kick-out rights will consolidate. The new standard will be effective for the Company beginning on January 1, 2016 and early adoption is permitted, including adoption in an interim period. The new standard must be applied using a modified retrospective approach by recording a cumulative-effect adjustment to equity/capital

F- 21
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


as of the beginning of the period of adoption or retrospectively to each period presented. The Company is currently evaluating the impact of adopting the new standard on its consolidated results of operations and financial position.

In April 2015, the FASB issued ASU No. 2015-03 "Simplifying the Presentation of Debt Issuance Costs", which requires companies to present debt financing costs as a direct deduction from the carrying amount of the associated debt liability rather than as an asset, consistent with the presentation of debt discounts on the consolidated balance sheets. The new standard will be effective for the Company beginning on January 1, 2016 and early adoption is permitted. The Company adopted this standard during the second quarter of 2015. This adoption resulted in a reclassification of $29.4 million in debt issuance costs, net of accumulated amortization, from an asset to a reduction to associated debt liabilities as of December 31, 2014.

In January 2016, the FASB issued ASU No. 2016-01 "Recognition and Measurement of Financial Assets and Financial Liabilities", which requires changes to the classification and measurement of investments in certain equity securities and to the presentation of certain fair value changes for financial liabilities measured at fair value. The new standard will be effective for the Company beginning on January 1, 2018 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.
 
(c) Real Estate Rental Properties

Significant expenditures, which improve or extend the life of an asset and have a useful life of greater than one year, are capitalized. Operating real estate assets are stated at cost and consist of land, buildings and improvements, furniture, fixtures and equipment, and other costs incurred during their development, redevelopment and acquisition.  Expenditures for maintenance and repairs are charged to expense as incurred.

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

The Company allocates the purchase price of real estate to land and building including personal property, and identifiable intangible assets, such as the value of above, below and in-place leases. The values of the above and below market leases are amortized and recorded as either a decrease (in the case of above market leases) or an increase (in the case of below market leases) to rental revenue over the remaining term of the associated leases acquired, which in the case of below market leases the Company assumes lessees will elect to renew their leases. The value of acquired in-place leases are amortized to expense over the term the Company expects to retain the acquired tenant, which is generally 15 months. The net carrying value of acquired in-place leases as of December 31, 2015 of $2.9 million is expected to be recognized in amortization expense primarily in 2016.

The Company performs the following evaluation for communities acquired:
 
(1)
adjust the purchase price for any fair value adjustments resulting from such things as assumed debt or contingencies;
(2)
estimate the value of the real estate “as if vacant” as of the acquisition date;
(3)
allocate that value among land and buildings including personal property;
(4)
compute the value of the difference between the “as if vacant” value and the adjusted purchase price, which will represent the total intangible assets;

F- 22
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


(5)
compute the value of the above and below market leases and determine the associated life of the above market/ below market leases;
(6)
compute the value of the in-place leases and customer relationships, if any, and the associated lives of these assets.

Whenever events or changes in circumstances indicate that the carrying amount of a property held for investment or held for sale may not be fully recoverable, the carrying amount will be evaluated for impairment. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount (including intangible assets) of a property held for investment, then the Company will recognize an impairment loss equal to the excess of the carrying amount over the fair value of the property. Fair value of a property is determined using conventional real estate valuation methods, such as discounted cash flow, the property’s unleveraged yield in comparison to the unleveraged yields and sales prices of similar communities that have been recently sold, and other third party information, if available. Communities held for sale are carried at the lower of cost and fair value less estimated costs to sell. As of December 31, 2015 and 2014, two and one properties were classified as held for sale, respectively. No impairment charges were recorded in 2015, 2014 or 2013.

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

(d) Co-investments

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

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

(e) Revenues and Gains on Sale of Real Estate

Revenues from tenants renting or leasing apartment homes are recorded when due from tenants and are recognized monthly as they are earned, which is not materially different than on a straight-line basis. Apartment homes are rented under short-term leases (generally, lease terms of 6 to 12 months). Revenues from tenants leasing commercial space are recorded on a straight-line basis over the life of the respective lease.

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

(f) Cash Equivalents and Restricted Cash

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

(g)  Marketable Securities and Other Investments

The Company reports its available for sale securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for the limited partnership interests, as defined by the

F- 23
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


FASB standard for fair value measurements as discussed later in Note 2), and any unrealized gain or loss is recorded as other comprehensive income (loss). There were no other than temporary impairment charges for the years ended December 31, 2015, 2014, and 2013. Realized gains and losses, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated statement of income.

As of December 31, 2015 and 2014, marketable securities and other investments consisted primarily of investment-grade unsecured bonds, common stock, investments in mortgage backed securities, investment funds that invest in U.S. treasury or agency securities, and other limited partnership investments.  As of December 31, 2015 and 2014, the Company classified its investments in mortgage backed securities, which mature in November 2019 and September 2020, as held to maturity, and accordingly, these securities are stated at their amortized cost.  The discount on the mortgage backed securities is being amortized to interest income based on an estimated yield and the maturity date of the securities.


As of December 31, 2015 and 2014 marketable securities and other investments consist of the following ($ in thousands):

 
December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gain (Loss)
 
Carrying
Value
Available for sale:
 
 
 
 
 
Investment-grade unsecured bonds
$
11,618

 
$
68

 
$
11,686

Investment funds - US treasuries
3,675

 
(9
)
 
3,666

Common stock and stock funds
34,655

 
7,091

 
41,746

Held to maturity:
 

 
 

 
 

Mortgage backed securities
80,387

 
—

 
80,387

Total - Marketable securities and other investments
$
130,335

 
$
7,150

 
$
137,485


 
December 31, 2014
 
Amortized
Cost
 
Gross
Unrealized
Gain
 
Carrying
Value
Available for sale:
 
 
 
 
 
Investment-grade unsecured bonds
$
9,435

 
$
145

 
$
9,580

Investment funds - US treasuries
3,769

 
3

 
3,772

Common stock and stock funds
25,755

 
5,137

 
30,892

Held to maturity:
 

 
 

 
 

Mortgage backed securities
67,996

 
—

 
67,996

Total - Marketable securities
106,955

 
5,285

 
112,240

Other investments
5,000

 
—

 
5,000

Total - Marketable securities and other investments
$
111,955

 
$
5,285

 
$
117,240


The Company uses the specific identification method to determine the cost basis of a security sold and to reclassify amounts from accumulated other comprehensive income for securities sold.  For the years ended December 31, 2015, 2014 and 2013, the proceeds from sales of available for sale securities totaled $3.3 million, $8.8 million and $24.2 million, respectively. For the years ended December 31, 2015, 2014 and 2013 these sales resulted in no net gains or losses, gains of $0.9 million and $1.8 million, respectively. For the year ended December 31, 2015, the proceeds from the sale of other investments totaled $5.6 million, which resulted in a realized gain of $0.6 million recorded in interest and other income on the consolidated statements of income. For the years ended December 31, 2014 and 2013, there were no such sales.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


(h) Notes Receivable
 
Notes receivable relate to real estate financing arrangements including mezzanine and bridge loans and are secured by real estate. Interest is recognized over the life of the note as interest income.
 
Each note is analyzed to determine if it is impaired. A note is impaired if it is probable that the Company will not collect all contractually due principal and interest. The Company does not accrue interest when a note is considered impaired and an allowance is recorded for any principal and previously accrued interest that are not believed to be collectible. All cash receipts on impaired notes are applied to reduce the principal amount of such notes until the principal has been recovered and, thereafter, are recognized as interest income. As of December 31, 2015 and 2014, no notes were impaired.

(i) Capitalization Policy

The Company capitalizes all direct and certain indirect costs, including interest, real estate taxes and insurance, incurred during development and redevelopment activities. Interest is capitalized on real estate assets that require a period of time to get them ready for their intended use.  The amount of interest capitalized is based upon the average amount of accumulated development expenditures during the reporting period.  Included in capitalized costs are management’s estimates of the direct and incremental personnel costs and indirect project costs associated with the Company's development and redevelopment activities. Indirect project costs consist primarily of personnel costs associated with construction administration and development, including accounting, legal fees, and various corporate and community onsite costs that clearly relate to projects under development. The Company’s capitalized internal costs related to development and redevelopment projects were comprised primarily of employee compensation and totaled $10.9 million, $10.4 million and $7.5 million for the years ended December 31, 2015, 2014 and 2013, respectively, most of which relates to development projects.  The Company capitalizes leasing costs associated with the lease-up of development communities and amortizes the costs over the life of the leases. The amounts capitalized are immaterial for all periods presented.

(j) Fair Value of Financial Instruments

The Company values its financial instruments based on the fair value hierarchy of valuation techniques described in the FASB’s accounting standard for fair value measurements. Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 inputs include quoted prices for similar assets and liabilities in active markets and inputs other than quoted prices observable for the asset or liability.  Level 3 inputs are unobservable inputs for the asset or liability. The Company uses Level 1 inputs for the fair values of its cash equivalents and its marketable securities except for unsecured bonds and mortgage backed securities. The Company uses Level 2 inputs for its investments in unsecured bonds, notes receivable, notes payable, and derivative liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 9. The Company uses Level 3 inputs to estimate the fair value of its mortgage backed securities. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Management believes that the carrying amounts of the outstanding balances under its notes and other receivables approximate fair value as of December 31, 2015 and 2014, because interest rates, yields and other terms for these instruments are consistent with yields and other terms currently available for similar instruments. Management has estimated that the fair value of fixed rate debt with a carrying value of $4.8 billion and $4.4 billion, at December 31, 2015 and 2014, respectively, to be $4.8 billion and $4.6 billion. Management has estimated the fair value of the Company’s $525.3 million and $651.7 million of variable rate debt at December 31, 2015 and 2014, respectively, is $527.6 million and $656.3 million based on the terms of the Company’s existing variable rate debt compared to those available in the marketplace.  Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payable, other liabilities and dividends payable approximate fair value as of December 31, 2015 and 2014 due to the short-term maturity of these instruments. Marketable securities and derivative liabilities are carried at fair value as of December 31, 2015 and 2014.

At December 31, 2015 and 2014, the Company’s investments in mortgage backed securities had a carrying value of $80.4 million and $68.0 million, respectively. The Company estimated the fair value of investment in mortgage backed securities at December 31, 2015 and 2014 to be approximately $110.2 million and $96.0 million, respectively. The Company determines the fair value of the mortgage backed securities based on unobservable inputs (level 3 of the fair value hierarchy) considering the

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


assumptions that market participants would make in valuing these securities. Assumptions such as estimated default rates and discount rates are used to determine expected, discounted cash flows to estimate the fair value.

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

The Company uses interest rate swaps, interest rate cap contracts, and forward starting swaps to manage interest rate risks. The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its cash flow hedging strategy. 
 
The Company records all derivatives on its consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated for accounting purposes as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated for accounting purposes as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the initial and ongoing effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

For derivatives not designated for accounting purposes as cash flow hedges, changes in fair value are recognized in earnings. All of the Company’s interest rate swaps are considered cash flow hedges. The change in fair value of the total return swaps is reported as total return swap income in the consolidated statements of income.

(l) Income Taxes

Generally in any year in which ESS qualifies as a real estate investment trust (“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to federal income tax on that portion of its income that it distributes to stockholders. No provision for federal income taxes, other than the taxable REIT subsidiaries discussed below, has been made in the accompanying consolidated financial statements for each of the years in the three-year period ended December 31, 2015 as ESS has elected to be and believes it qualifies under the IRC as a REIT and has made distributions during the periods in amounts to preclude ESS from paying federal income tax.

In order to maintain compliance with REIT tax rules, the Company utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Company. The activities and tax related provisions, assets and liabilities are not material.

As a partnership, the Operating Partnership is not subject to federal or state income taxes except that in order to maintain ESS’s compliance with REIT tax rules that are applicable to ESS, the Operating Partnership utilizes taxable REIT subsidiaries for various revenue generating or investment activities. The taxable REIT subsidiaries are consolidated by the Operating Partnership.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The status of cash dividends distributed for the years ended December 31, 2015, 2014, and 2013 related to common stock, Series G and Series H preferred stock are classified for tax purposes as follows:
 
 
2015
 
2014
 
2013
Common Stock
 
 
 
 
 
Ordinary income
99.28
%
 
70.03
%
 
77.34
%
Capital gain
0.72
%
 
21.95
%
 
17.64
%
Unrecaptured section 1250 capital gain
—
%
 
8.02
%
 
5.02
%
 
100.00
%
 
100.00
%
 
100.00
%

 
2015
 
2014
 
2013
Series G and H Preferred stock
 
 
 
 
 
Ordinary income
99.28
%
 
70.03
%
 
77.34
%
Capital gains
0.72
%
 
21.95
%
 
17.64
%
Unrecaptured section 1250 capital gain
—
%
 
8.02
%
 
5.02
%
 
100.00
%
 
100.00
%
 
100.00
%

(m) Equity-based Compensation

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

(n) Changes in Accumulated Other Comprehensive Loss by Component

Essex Property Trust, Inc. ($ in thousands)
 
Change in fair
value and
amortization
of swap settlements
 
Unrealized
gains on
available for sale
securities
 
Total
Balance at December 31, 2014
$
(56,003
)
 
$
4,551

 
$
(51,452
)
Other comprehensive income before reclassification
(393
)
 
1,804

 
1,411

Amounts reclassified from accumulated other comprehensive loss
8,030

 
—

 
8,030

Other comprehensive income
7,637

 
1,804

 
9,441

Balance at December 31, 2015
$
(48,366
)
 
$
6,355

 
$
(42,011
)


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Essex Portfolio, L.P. ($ in thousands)
 
Change in fair
value and
amortization
of swap settlements
 
Unrealized
gains on
available for sale
securities
 
Total
Balance at December 31, 2014
$
(53,980
)
 
$
4,624

 
$
(49,356
)
Other comprehensive income before reclassification
(407
)
 
1,865

 
1,458

Amounts reclassified from accumulated other comprehensive loss
8,300

 
—

 
8,300

Other comprehensive income
7,893

 
1,865

 
9,758

Balance at December 31, 2015
$
(46,087
)
 
$
6,489

 
$
(39,598
)

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

(o) Accounting Estimates

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

(p) BRE Merger

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

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013



A summary of the fair value of the assets and liabilities acquired on April 1, 2014 was as follows (includes the 14 properties acquired on March 31, 2014 as the OP Units issued were retired on April 1, 2014) (in millions):

Cash assumed
$
140

Rental properties and real estate under development
5,605

Real estate held for sale, net
108

Co-investments
224

Acquired in-place lease value
77

Other assets
16

Mortgage notes payable and unsecured debt
(1,747
)
Other liabilities
(87
)
Redeemable noncontrolling interest
(5
)
 
$
4,331

 
 
Cash consideration for BRE merger
$
556

Equity consideration for BRE merger
3,775

Total consideration for BRE merger
$
4,331


During the quarter ended March 31, 2015 the Company recorded adjustments to decrease the preliminary fair value of real property by $13.1 million, to increase the preliminary fair value of co-investments by $6.0 million and to decrease its preliminary estimate for liabilities assumed by $7.1 million. The change in estimates were the result of subsequent additional information pertaining to the opening balance sheet identified by management. The Company believes that the information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed. Due to these adjustments and, certain amounts do not agree to previously reported balances.

(3) Real Estate Investments

(a) Acquisitions of Real Estate

For the year ended December 31, 2015, the Company purchased seven communities consisting of 1,722 apartment homes for $638.1 million. The table below summarizes acquisition activity for the year ended December 31, 2015 ($ in millions):
Property Name
Location
Apartment Homes
Essex Ownership Percentage
Quarter in 2015
Purchase Price
8th & Hope
Los Angeles, CA
290

100
%
Q1
$
200.0

The Huxley (1)
Los Angeles, CA
187

100
%
Q1
48.8

The Dylan (1)
Los Angeles, CA
184

100
%
Q1
51.3

Reveal (2)
Woodland Hills, CA
438

99.75
%
Q2
73.0

Avant
Los Angeles, CA
247

100
%
Q2
99.0

Avant II
Los Angeles, CA
193

100
%
Q4
73.0

Enso
San Jose, CA
183

100
%
Q4
93.0

Total 2015
1,722

 

 
$
638.1

 
(1) 
In March 2015, the Company purchased the joint venture partner's remaining membership interest in The Huxley and The Dylan co-investments for a purchase price of $100.1 million. The properties are now consolidated.
(2) 
In April 2015, the Company purchased the joint venture partner's 49.5% membership interest in the Reveal co-investment for a purchase price of $73.0 million. The property is now consolidated.

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013



The $638.1 million aggregate purchase price for the acquisitions listed above were included on the Company's consolidated balance sheet as follows: $117.9 million was included in land and land improvements, $513.3 million was included in buildings and improvements, $5.3 million was included in acquired in-place lease value, net, and $1.6 million was included in other financial statement line items within the Company's consolidated balance sheets.

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

(b) Sales of Real Estate Investments

For the year ended December 31, 2015, the Company sold two communities consisting of 848 apartment homes for $308.8 million resulting in gains totaling $44.9 million. The table below summarized disposition activity for the year ended December 31, 2015 ($ in millions):
Property Name
Location
Apartment Homes
Essex Ownership Percentage
Ownership
Quarter in 2015
Sales Price
Gains
Pinnacle South Mountain
Phoenix, AZ
552

100
%
EPLP
Q1
$
63.8

$
4.7

Sharon Green
Menlo Park, CA
296

100
%
EPLP
Q4
245.0

40.2

Total 2015
848

 

 
 
$
308.8

$
44.9


In March 2015, the Company sold two commercial buildings, located in Emeryville, CA for $13.0 million, resulting in a gain of $2.4 million.

During 2014, the Company sold four communities consisting of 594 apartment homes for $120.4 million resulting in gains totaling $43.6 million, which are included in the line item gains on sale of real estate and land in the Company's consolidated statement of income.

During 2013, the Company sold three communities consisting of 363 apartment homes for $57.5 million resulting in gains totaling $29.2 million, which are included in the line item gains on sale of real estate and land in the Company's consolidated statement of income.

(c) Co-investments

The Company has joint ventures and preferred equity investments in co-investments which are accounted for under the equity method. The co-investments’ accounting policies are similar to the Company’s accounting policies. The co-investments own, operate, and develop apartment communities.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The carrying values of the Company’s co-investments as of December 31, 2015 and 2014 are as follows ($ in thousands):
 
Ownership
December 31,
 
Percentage
2015
 
2014
Membership interest/Partnership interest in:
 
 
 
 
CPPIB
50%-55%

$
329,723

 
$
336,977

Wesco I, III and IV
50
%
218,902

 
256,790

BEXAEW
50
%
88,850

 
97,686

Palm Valley
50
%
68,525

 
70,186

Other
28%-55%

32,927

 
50,438

Total operating co-investments
 
738,927

 
812,077

Total development co-investments
50%-55%

190,808

 
121,655

Total preferred interest co-investments (includes related party investments of $35.8 million and $40.8 million as of December 31, 2015 and December 31, 2014, respectively)
 
106,312

 
108,691

Total co-investments
 
$
1,036,047

 
$
1,042,423


The combined summarized financial information of co-investments is as follows ($ in thousands):
 
December 31,
 
2015
 
2014
Combined balance sheets: (1)
 
 
 
Rental properties and real estate under development
$
3,360,360

 
$
3,426,574

Other assets
96,785

 
107,902

Total assets
$
3,457,145

 
$
3,534,476

Debt
$
1,499,601

 
$
1,568,398

Other liabilities
92,241

 
91,579

Equity
1,865,303

 
1,874,499

Total liabilities and equity
$
3,457,145

 
$
3,534,476

Company's share of equity
$
1,036,047

 
$
1,042,423


 
Years ended
December 31,
 
2015
 
2014
 
2013
Combined statements of income: (1)
 
 
 
 
 
Property revenues
$
260,175

 
$
188,548

 
$
100,402

Property operating expenses
(93,067
)
 
(71,419
)
 
(37,518
)
Net operating income
167,108

 
117,129

 
62,884

Gain on sale of real estate
14

 
23,333

 
146,758

Interest expense
(44,834
)
 
(39,990
)
 
(24,155
)
General and administrative
(5,879
)
 
(6,321
)
 
(5,344
)
Equity income from co-investments (2)
—

 
26,798

 
18,703

Depreciation and amortization
(103,613
)
 
(74,657
)
 
(36,831
)
Net income
$
12,796

 
$
46,292

 
$
162,015

Company's share of net income (3)
$
21,861

 
$
39,893

 
$
55,865


(1) 
Includes preferred equity investments held by the Company.
(2) 
Represents income from Wesco II's preferred equity investment in Park Merced.

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


(3) 
Includes the Company's share of equity income from co-investments, income from preferred equity investments, gain on sale of co-investments, co-investment promote income, and income from early redemption of preferred equity investments. Includes income earned from investments with a related party of $3.7 million and $3.8 million for the years ended December 31, 2015 and 2014, respectively.

Operating Co-investments

As of December 31, 2015 and 2014, the Company, through several joint ventures, owned 10,520 and 9,983 apartment homes, respectively, in operating communities. The Company generally owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $738.9 million and $812.1 million at December 31, 2015 and 2014, respectively.

Development Co-Investments

As of December 31, 2015 and 2014, the Company, through several joint ventures, owned 1,676 and 2,296 apartment homes, respectively, in development communities. The Company generally owns 50%-55% of these joint ventures and the Company’s book value of these co-investments was $190.8 million and $121.7 million at December 31, 2015 and 2014, respectively.

In February 2015, the Company entered into a joint venture to develop 500 Folsom, a multi-family community comprised of 545 apartment homes located in San Francisco, California. The Company has a 50% ownership interest in the development which has a projected total cost of $381.0 million. Construction began in the fourth quarter of 2015 and the property is expected to open in the fourth quarter of 2018. At December 31, 2015, the total remaining estimated costs to be incurred on this project were $319.2 million, of which the Company’s portion of the remaining costs was $159.6 million.

In July 2014, the Company entered into a joint venture to develop Century Towers, a multi-family community containing 376 apartment homes located in San Jose, California. The Company has a 50% ownership interest in the development which has a projected total cost of $172.1 million. The Company has also committed to a $27.0 million preferred equity investment in the project, which accrues at an annualized preferred return of 8.1%. Construction began in the third quarter of 2014 and the property is expected to open in the first quarter of 2017. At December 31, 2015, the total remaining estimated costs to be incurred on this project were $78.9 million, of which the Company’s portion of the remaining costs was $39.4 million.

Preferred Equity Investments

As of December 31, 2015 and 2014, the Company held preferred equity investment interests in several joint-ventures which own real estate. The Company’s book value of these preferred equity investments was $106.3 million and $108.7 million at December 31, 2015 and 2014, respectively.
In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with a related party, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next paragraph. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return and was scheduled to mature in September 2020.

In June 2015, the Company made $10.0 million and $5.0 million preferred equity investments in limited liability companies owned by a related party, that own properties located in San Jose and Concord, California, respectively. These investments earn a 9.5% preferred return and are scheduled to mature in June 2022.
In August 2015, the Company made a $5.0 million preferred equity investment in a limited liability company owned by a related party that owns a property located in Los Angeles, California. This investment earns a 9.5% preferred return and is scheduled to mature in August 2022.
In August 2015, the Company redeemed a preferred equity investment in a joint venture that holds a property in San Jose, California with a carrying value of $20.4 million. The Company recognized a gain of $1.5 million as a result of this redemption which is included in equity income from co-investments in the consolidated statements of income.
In October 2014, the Company received cash of $101.0 million for its share of the redemption of a preferred equity investment related to a property located in San Francisco, California. The Company recorded $5.3 million of income from penalties due to

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


the early redemption of this preferred equity investment which is included in equity income from co-investments in the consolidated statements of income.

(d) Real Estate under Development

The Company defines development projects as new communities that are being constructed, or are newly constructed and are in a phase of lease-up and have not yet reached stabilized operations. As of December 31, 2015, the Company had two consolidated development projects, six unconsolidated joint venture development projects, and various consolidated predevelopment projects, aggregating 2,447 apartment homes for an estimated total cost of $1.4 billion, of which $787.0 million remains to be expended. The Company’s portion of the remaining costs was $542.0 million.

(4) Notes and Other Receivables
 
Notes receivables, secured by real estate, and other receivables consist of the following as December 31, 2015 and 2014 ($ in thousands):
 
2015
 
2014
Note receivable, secured, bearing interest at 6.0%, due December 2016
$
3,219

 
$
3,212

Notes and other receivables from affiliates (1)
3,092

 
8,105

Other receivables
12,974

 
13,606

 
$
19,285

 
$
24,923


(1) 
The Company had $3.1 million and $8.1 million of short-term loans outstanding and due from various joint ventures for the years ended December 31, 2015 and 2014, respectively. See Note 5, Related Party Transactions, for additional details.

(5) Related Party Transactions

The Company has adopted written related party transaction guidelines that are intended to cover transactions in which the Company (including entities it controls) is a party and in which any “related person” has a direct or indirect interest.  A “related person” means any Company director, director nominee, or executive officer, any beneficial owner of more than 5% of the Company’s outstanding common stock, and any immediate family member of any of the foregoing persons.  A related person may be considered to have an indirect interest in a transaction if he or she (i) is an owner, director, officer or employee of or otherwise associated with another company that is engaging in a transaction with the Company, or (ii) otherwise, through one or more entities or arrangements, has an indirect financial interest in or personal benefit from the transaction.

The related person transaction review and approval process is intended to determine, among any other relevant issues, the dollar amount involved in the transaction; the nature and value of any related person’s direct or indirect interest (if any) in the transaction; and whether or not (i) a related person’s interest is material, (ii) the transaction is fair, reasonable, and serves the best interest of the Company and its shareholders, and (iii) whether the transaction or relationship should be entered into, continued or ended.

The Company’s Chairman and founder, Mr. George Marcus, is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment, and development firms. Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI. MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.  Essex Apartment Value Fund II, L.P. (“Fund II”) paid brokerage commissions totaling $0.6 million and $0.4 million, respectively, to an affiliate of MMI related to the sales of properties in 2013 and 2012, respectively.  There were no brokerage commissions paid by the Company to MMI or its affiliates during 2015, 2014, and 2013.

The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates total $15.6 million, $16.5 million, and $11.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. All of these fees are net of intercompany amounts eliminated by the

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Company. The Company netted development and redevelopment fees of $6.7 million, $7.2 million, and $4.4 million against general and administrative expenses for the years ended December 31, 2015, 2014 and 2013, respectively.

In March 2015, a multi-family property, located in Anaheim, CA that was owned by an entity affiliated with MMC, in which the Company held a $13.7 million preferred equity investment, was sold. That investment of $13.7 million plus an additional $1.3 million in cash was invested as outlined in the next two paragraphs. Prior to the property sale, the $13.7 million preferred equity investment earned a 9.0% preferred return and was scheduled to mature in September 2020.

In June 2015, the Company made a $10.0 million preferred equity investment in an entity affiliated with MMC that owns Greentree Apartments, a 220 apartment community located in San Jose, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.

In June 2015, the Company made a $5.0 million preferred equity investment in an entity affiliated with MMC that owns Sterling Cove Apartments, a 218 apartment community located in Concord, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in June 2022.

In August 2015, the Company made a $5 million preferred equity investment in an entity affiliated with MMC that owns Alta Vista Apartments, a 92 apartment community located in Los Angeles, CA. This investment will earn a 9.5% preferred return and is scheduled to mature in August 2022.

In July 2014, the Company acquired Paragon Apartments, a 301 unit apartment community located in Fremont, CA for $111.0 million from an entity that was partially owned by an affiliate of MMC.

As described in Note 4, the Company has provided short-term bridge loans to affiliates. As of December 31, 2015 and 2014, $3.1 million and $8.1 million, respectively, of short-term loans remained outstanding due from joint venture affiliates and is classified within notes and other receivables in the accompanying consolidated balance sheets.

In January 2013, the Company invested $8.6 million as a preferred equity interest investment in an entity affiliated with MMC that owns an apartment development in Redwood City, California. In March 2015 the Company's preferred interest investment was prepaid and the Company recognized a gain of $0.5 million as a result of the prepayment.

In 2010, an Executive Vice President of the Company invested $4.0 million for a 3% limited partnership interest in a partnership with the Company that owns Essex Skyline at MacArthur Place. The Executive Vice President’s investment is equal to a pro-rata share of the contributions to the limited partnership. The Executive Vice President’s investment also receives pro-rata distributions resulting from distributable cash generated by the property if and when distributions are made.

(6) Discontinued Operations

The Company determined that the disposals through the years ended December 31, 2015 and 2014 were not considered discontinued operations in accordance with ASU 2014-08. The gains related to these disposals are recorded in gains on sale of real estate and land in the consolidated statements of income.

During 2013, the Company sold Linden Square, a 183 unit community located in Seattle, Washington for $25.3 million, resulting in a gain of $12.7 million. Also during 2013, the Company sold Cambridge, a 40 unit property located in Chula Vista, California for $4.7 million, resulting in a gain of $2.5 million, and Brentwood, a 140 unit property located in Santa Ana, California for $27.5 million, resulting in a gain of $14.0 million.

The Company has recorded the gains on sales and operations for these various assets sold described above as part of discontinued operations in the accompanying consolidated statements of income. 


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The components of discontinued operations are outlined below and include the results of operations for the respective periods that the Company owned such assets, as described above ($ in thousands):
 
 
 
2013
Revenues
 
 
$
4,454

Property operating expenses
 
 
(1,406
)
Depreciation and amortization
 
 
(1,098
)
Expenses
 
 
(2,504
)
Operating income from real estate sold
 
 
1,950

Gain on sale of real estate
 
 
29,223

Income from discontinued operations
 
 
$
31,173


(7) Unsecured Debt

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. ESS guarantees the Operating Partnership’s unsecured debt including the revolving credit facilities up to the maximum amounts and for the full term of the facilities.
 
Unsecured debt consists of the following as of December 31, 2015 and 2014 ($ in thousands):
 
2015
 
2014
 
Weighted Average
Maturity
In Years
Unsecured bonds private placement - fixed rate
$
463,891

 
$
463,443

 
3.2
Term loan - variable rate
224,467

 
224,130

 
0.9
Bonds public offering - fixed rate
2,400,322

 
1,915,975

 
6.7
Unsecured debt, net (1)
3,088,680

 
2,603,548

 
 
Lines of credit, net (2)
11,707

 
242,824

 
 
Total unsecured debt
$
3,100,387

 
$
2,846,372

 
 
Weighted average interest rate on fixed rate unsecured and unsecured private placement bonds
3.6
%
 
3.6
%
 
 
Weighted average interest rate on variable rate term loan
2.4
%
 
2.4
%
 
 
Weighted average interest rate on lines of credit
1.9
%
 
1.8
%
 
 

(1) 
Includes unamortized premium and discounts of $14.3 million and $27.5 million and reduced by unamortized debt issuance costs of $15.6 million and $13.9 million as of December 31, 2015 and 2014, respectively.
(2) 
Includes unamortized debt issuance costs of $3.3 million and $3.6 million as of December 31, 2015 and 2014, respectively.

As of December 31, 2015 and 2014, the Company had $465.0 million of private placement unsecured bonds outstanding at an average effective interest rate of 4.5%.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The following is a summary of the Company’s unsecured private placement bonds as of December 31, 2015 and 2014 ($ in thousands):
 
Maturity
 
2015
 
2014
 
Coupon
Rate
Senior unsecured private placement notes
March 2016
 
$
150,000

 
$
150,000

 
4.36
%
Senior unsecured private placement notes
September 2017
 
40,000

 
40,000

 
4.50
%
Senior unsecured private placement notes
December 2019
 
75,000

 
75,000

 
4.92
%
Senior unsecured private placement notes
April 2021
 
100,000

 
100,000

 
4.27
%
Senior unsecured private placement notes
June 2021
 
50,000

 
50,000

 
4.30
%
Senior unsecured private placement notes
August 2021
 
50,000

 
50,000

 
4.37
%
 
  
 
$
465,000

 
$
465,000

 
 


As of December 31, 2015 and 2014, the Company had unsecured term loans outstanding of $225.0 million at an average interest rate of 2.4%. These loans are included in the line “Term loan-variable rate” in the table above, and as of December 31, 2015 and 2014, the carrying value net of debt issuance costs was $224.5 million and $224.1 million, respectively. The term loans are at a variable interest rate of LIBOR plus 1.05%. The Company entered into interest rate swap contracts for a term of five years with a notional amount totaling $225.0 million, which effectively converted the interest rate on $225.0 million of the term loans to a fixed rate of 2.4%. The $200 million tranche of this unsecured term loan has a maturity date of November 2016 and the $25 million tranche has a maturity date of August 2017.

In March 2015, the Company issued $500.0 million of senior unsecured notes due on April 1, 2025 with a coupon rate of 3.5% per annum and are payable on April 1st and October 1st of each year, beginning October 1, 2015 (the 2025 Notes). The 2025 Notes were offered to investors at a price of 99.747% of par value. The 2025 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2015, the carrying value of the 2025 Notes, net of discount and debt issuance costs was $494.8 million.

In April 2014, the Company assumed $900.0 million aggregate principal amount of BRE’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together “BRE Notes”). These notes are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2015 and 2014, the carrying value of the BRE Notes, plus unamortized premium was $919.1 million and $931.4 million, respectively.

In April 2014, the Company issued $400.0 million of senior unsecured notes due on May 1, 2024 with a coupon rate of 3.875% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2014 (the 2024 Notes). The 2024 Notes were offered to investors at a price of 99.234% of par value. The 2024 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2015 and 2014, the carrying value of the 2024 Notes, net of discount and debt issuance costs was $394.5 million and $393.8 million, respectively.

In April 2013, the Company issued $300.0 million of senior unsecured notes due on May 1, 2023 with a coupon rate of 3.25% per annum and are payable on May 1st and November 1st of each year, beginning November 1, 2013 (the 2023 Notes). The 2023 Notes were offered to investors at a price of 99.152% of par value.  The 2023 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line “Bonds public offering-fixed rate” in the table above, and as of December 31, 2015 and 2014, the carrying value of the 2023 Notes, net of discount and debt issuance costs was $295.9 million and $295.5 million, respectively.

During the third quarter 2012, the Company issued $300.0 million of senior unsecured notes due August 2022 with a coupon rate of 3.625% per annum and are payable on February 15th and August 15th of each year, beginning February 15, 2013 (the 2022 Notes). The 2022 Notes were offered to investors at a price of 98.99% of par value.  The 2022 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2015 and 2014, the carrying value of the 2022 Notes, net of unamortized discount and debt issuance costs was $296.0 million and $295.3 million, respectively.

The following is a summary of the Company’s senior unsecured notes as of December 31, 2015 and 2014 ($ in thousands):
 
Maturity
 
2015
 
2014
 
Coupon
Rate
Senior notes
March 2017
 
300,000

 
300,000

 
5.500
%
Senior notes
March 2021
 
300,000

 
300,000

 
5.200
%
Senior notes
August 2022
 
300,000

 
300,000

 
3.625
%
Senior notes
January 2023
 
300,000

 
300,000

 
3.375
%
Senior notes
May 2023
 
300,000

 
300,000

 
3.250
%
Senior notes
May 2024
 
400,000

 
400,000

 
3.875
%
Senior notes
April 2025
 
500,000

 
—

 
3.500
%
 
  
 
2,400,000

 
1,900,000

 
 

The aggregate scheduled principal payments of unsecured debt payable, excluding lines of credit, at December 31, 2015 are as follows ($ in thousands):
2016
$
350,000

2017
365,000

2018
—

2019(1)
75,000

2020
—

Thereafter
2,300,000

 
$
3,090,000


(1) 
Amount does not include $15.0 million outstanding on the Company's lines of credit as of December 31, 2015, that becomes due in December 2019 in accordance with the January 2016 amendment.

The Company has two lines of credit aggregating $1.03 billion as of December 31, 2015. The Company has a $1 billion credit facility with an underlying interest rate based on a tiered rate structure tied to Fitch and S&P ratings on the credit facility and the rate was LIBOR plus 0.95% as of December 31, 2015. As of December 31, 2015 and 2014, the balance of the $1 billion credit facility was $15.0 million and $229.8 million, respectively.  In January 2016, the facility maturity date was extended to December 31, 2019 with one 18-month extension, exercisable by the Company and the interest rate, which is based on a tiered rate structure tied to the Company's corporate ratings, was lowered to LIBOR plus 0.90%. The Company also has a working capital unsecured line of credit agreement for $25.0 million. The underlying interest rate on the $25.0 million line is based on a tiered rate structure tied to Fitch and S&P ratings on the credit facility of LIBOR plus 0.95%. As of December 31, 2015 and 2014, there was a zero and $16.6 million balance, respectively, outstanding on this unsecured line. In January 2016, the maturity date was extended to January 2018 and the interest rate, which is based on a tiered rate structure tied to the Company's corporate ratings, was lowered to LIBOR plus 0.90%.

The Company’s unsecured line of credit and unsecured debt agreements contain debt covenants related to limitations on indebtedness and liabilities, and maintenance of minimum levels of consolidated earnings before depreciation, interest and amortization. The Company was in compliance with the debt covenants as of December 31, 2015 and 2014.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


(8) Mortgage Notes Payable

ESS does not have any indebtedness as all debt is incurred by the Operating Partnership. Mortgage notes payable consist of the following as of December 31, 2015 and 2014 ($ in thousands):
 
2015
 
2014
Fixed rate mortgage notes payable
$
1,925,985

 
$
2,049,577

Variable rate mortgage notes payable (1)
289,092

 
184,740

Total mortgage notes payable (2)
$
2,215,077

 
$
2,234,317

Number of properties securing mortgage notes
64

 
67

Remaining terms
1-31 years

 
1-26 years

Weighted average interest rate
4.4
%
 
4.6
%

The aggregate scheduled principal payments of mortgage notes payable at December 31, 2015 are as follows ($ in thousands):
2016
$
29,714

2017
199,180

2018
320,622

2019
586,212

2020
693,088

Thereafter
329,451

 
$
2,158,267


(1) 
Variable rate mortgage notes payable, including $257.3 million in bonds that have been converted to variable rate through total return swap contracts, consists of multi-family housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 1.2% at December 2015 and 1.8% at December 2014) plus credit enhancement and underwriting fees ranging from approximately 1.2% to 1.9%.  Among the terms imposed on the properties, which are security for the bonds, is a requirement that 20% of the apartment homes are subject to tenant income criteria. Principal balances are due in full at various maturity dates from March 2019 through December 2046. Of these bonds $20.7 million are subject to various interest rate cap agreements which limit the maximum interest rate to such bonds.
(2) 
Includes total unamortized premium of $64.8 million and $83.8 million and reduced by unamortized debt issuance costs of $8.0 million and $11.9 million as of December 31, 2015 and 2014, respectively.

For the Company’s mortgage notes payable as of December 31, 2015, monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $7.5 million and $2.4 million, respectively.  Second deeds of trust accounted for $48.5 million of the $2.2 billion in mortgage notes payable as of December 31, 2015.  Repayment of debt before the scheduled maturity date could result in prepayment penalties.  The prepayment penalty on the majority of the Company’s mortgage notes payable are computed by the greater of (a) 1% of the amount of the principal being prepaid or (b) the present value of the mortgage note payable which is calculated by multiplying the principal being prepaid by the difference between the interest rate of the mortgage note and the stated yield rate on a specified U.S. treasury security as defined in the mortgage note agreement.

(9) Derivative Instruments and Hedging Activities

The Company uses interest rate swaps and interest rate cap contracts to manage certain interest rate risks. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

The Company has entered into interest rate swap contracts with an aggregate notional amount of $225.0 million that effectively fixed the interest rate on the $225.0 million unsecured term loan at 2.4%. These derivatives qualify for hedge accounting.

As of December 31, 2015 the Company had interest rate caps, which are not accounted for as hedges, totaling a notional amount of $20.7 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying variable interest rate for $20.7 million of the Company’s tax exempt variable rate debt.

As of December 31, 2015 and 2014, the aggregate carrying value of the interest rate swap contracts was a liability of $1.0 million and $1.8 million, respectively, and is included in other liabilities on the consolidated balance sheets. The aggregate carrying value of the interest rate cap was zero on the balance sheet as of December 31, 2015 and December 31, 2014.

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was not significant for the years ended December 31, 2015, 2014 and 2013.

Additionally, the Company has entered into four total return swaps, that effectively convert $257.3 million of mortgage notes payable to a floating interest rate based on SIFMA plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to our counterparties during the initial period of the total return swap until the Company's option to call the mortgage notes at par can be exercised. The Company can currently call one of the total return swaps with $114.4 million of the outstanding debt at par, while the call option on the other three total return swaps relating to $142.9 million of the outstanding debt can be exercised starting on January 1, 2017. These derivatives do not qualify for hedge accounting and had a carrying and fair value of $4 thousand at December 31, 2015. These total return swaps are scheduled to mature between September 2021 and November 2022. The Company held no total return swaps at December 31, 2014. The realized gains of $5.7 million were reported in current year income as total return swap income. No such income or expense was incurred for the years ended December 31, 2014 and 2013.

(10) Lease Agreements

As of December 31, 2015 the Company is a lessor for three commercial buildings and the commercial portions of 33 mixed use communities. The tenants’ lease terms expire at various times through 2031. The future minimum non-cancelable base rent to be received under these operating leases for each of the years ending after December 31 is summarized as follows ($ in thousands):
 
Future
 
Minimum
 
Rent
2016
$
11,067

2017
10,078

2018
9,211

2019
8,467

2020
7,690

Thereafter
24,955

 
$
71,468


(11) Equity Transactions
 
Preferred Securities Offerings

During the second quarter of 2011, the Company issued 2,950,000 shares of 7.125% Series H Cumulative Redeemable Preferred Stock (“Series H”) at a price of $25.00 per share for net proceeds of $71.2 million, net of costs and original issuance discounts. The Series H has no maturity date and generally may not be called by the Company before April 13, 2016. Net

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


proceeds from the Series H offering were contributed to the Operating Partnership for a 7.125% Series H Cumulative Redeemable Preferred Interest. As of December 31, 2015 and 2014, there were 8,000,000 shares authorized and 2,950,000 shares outstanding of Series H with an aggregate liquidation value of $73.8 million.

Common Stock Offerings

During 2015, the Company issued 1,481,737 shares of common stock, through our equity distribution program, at an average price of $226.46 for net proceeds of $332.3 million.

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

During 2014, Essex sold 2,964,315 shares of common stock for proceeds of $534.0 million, net of fees and commissions, at an average price of $181.56.

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

As of December 31, 2015 and 2014, the Operating Partnership had outstanding 2,070,360 and 2,076,810 operating partnership units and 144,185 and 91,348 vested LTIP units, respectively. The Operating Partnership’s general partner, ESS, owned 96.7% of the partnership interests in the Operating Partnership at both December 31, 2015 and 2014, and ESS is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, ESS effectively controls the ability to issue common stock of ESS upon a limited partner’s notice of redemption. ESS has generally acquired OP units upon a limited partner’s notice of redemption in exchange for shares of its common stock. The redemption provisions of OP units owned by limited partners that permit ESS to settle in either cash or common stock at the option of ESS were further evaluated in accordance with applicable accounting guidance to determine whether temporary or permanent equity classification on the balance sheet is appropriate. The Operating Partnership evaluated this guidance, including the requirement to settle in unregistered shares, and determined that, with few exceptions, these OP units meet the requirements to qualify for presentation as permanent equity.

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

The redemption value of OP and LTIP units owned by the limited partners, not including ESS, had such units been redeemed at December 31, 2015, was approximately $530.2 million based on the closing price of ESS’s common stock as of December 31, 2015.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


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

Essex Property Trust, Inc.

Basic and diluted income from continuing and discontinued operations per share is calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):
 
2015
 
2014
 
2013
 
Income
 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 
Income
 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
 
Income
 
Weighted-
average
Common
Shares
 
Per
Common
Share
Amount
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common stockholders
$
226,865

 
64,871,717

 
$
3.50

 
$
116,859

 
56,546,959

 
$
2.07

 
$
121,324

 
37,248,960

 
$
3.26

Income from discontinued operations available to common stockholders
—

 
64,871,717

 
—

 
—

 
56,546,959

 
—

 
29,487

 
37,248,960

 
0.79

 
$
226,865

 
 

 
$
3.50

 
$
116,859

 
 

 
$
2.07

 
$
150,811

 
 

 
$
4.05

Effect of Dilutive Securities (1)
—

 
189,968

 
 

 
—

 
149,566

 
 

 
—

 
86,335

 
 

Diluted:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Income from continuing operations available to common stockholders (1)
$
226,865

 
65,061,685

 
$
3.49

 
$
116,859

 
56,696,525

 
$
2.06

 
$
121,324

 
37,335,295

 
$
3.25

Income from discontinued operations available to common stockholders
—

 
65,061,685

 
—

 
—

 
56,696,525

 
—

 
29,487

 
37,335,295

 
0.79

 
$
226,865

 
 

 
$
3.49

 
$
116,859

 
 

 
$
2.06

 
$
150,811

 
 

 
$
4.04


(1) 
Weighted average convertible limited partnership units of 2,182,467, 2,224,707, and 2,131,425, which include vested Series Z Incentive Units, Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units, for the years ended December 31, 2015, 2014 and 2013, respectively, were not included in the determination of diluted earnings per share calculation because they were anti-dilutive. Additionally, excludes 963,172 DownREIT units as they are anti-dilutive.

Stock options of 54,100, 10,843, and 168,325, for the years ended December 31, 2015, 2014, and 2013, respectively, were not included in the diluted earnings per share calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common stock for the years ended and, therefore, were anti-dilutive.

All shares of cumulative convertible Series H preferred interest have been excluded from diluted earnings per unit for the years ended 2015, 2014, and 2013 respectively, as the effect was anti-dilutive. All shares of cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the years ended 2014 and 2013 respectively, as the effect was anti-dilutive.



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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Essex Portfolio, L.P.

Basic and diluted income from continuing and discontinued operations per unit is calculated as follows for the years ended December 31 ($ in thousands, except unit and per unit amounts):

 
2015
 
2014
 
2013
 
Income
 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
 
Income
 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
 
Income
 
Weighted-
average
Common
Units
 
Per
Common
Unit
Amount
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income from continuing operations available to common unitholders
$
234,689

 
67,054,184

 
$
3.50

 
$
121,726

 
58,771,666

 
$
2.07

 
$
128,576

 
39,380,385

 
$
3.27

Income from discontinued operations
—

 
67,054,184

 
—

 
—

 
58,771,666

 
—

 
31,173

 
39,380,385

 
0.79

Income available to common unitholders
$
234,689

 
 

 
$
3.50

 
$
121,726

 
 

 
$
2.07

 
$
159,749

 
 

 
$
4.06

Effect of Dilutive Securities (1)
—

 
189,968

 
 

 
—

 
149,566

 
 

 
—

 
86,335

 
 

Diluted:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Income from continuing operations available to common unitholders (1)
$
234,689

 
67,244,152

 
$
3.49

 
$
121,726

 
58,921,232

 
$
2.07

 
$
128,576

 
39,466,720

 
$
3.26

Income from discontinued operations
—

 
67,244,152

 
—

 
—

 
58,921,232

 
—

 
31,173

 
39,466,720

 
0.79

Income available to common unitholders
$
234,689

 
 

 
$
3.49

 
$
121,726

 
 

 
$
2.07

 
$
159,749

 
 

 
$
4.05

 
(1) 
Stock options of 54,100, 10,843, and 168,325, for the years ended December 31, 2015, 2014, and 2013, respectively, were not included in the diluted earnings per unit calculation because the assumed proceeds per share of these options plus the average unearned compensation were greater than the average market price of the common shares for the years ended and, therefore, were anti-dilutive. Additionally, excludes 963,172 DownREIT units as they are anti-dilutive.

The cumulative convertible Series H preferred interest have been excluded from diluted earnings per unit for the years ended 2015, 2014, and 2013 respectively, as the effect was anti-dilutive. The cumulative convertible Series G preferred interest have been excluded from diluted earnings per unit for the years ended 2014 and 2013 respectively, as the effect was anti-dilutive.

(13) Equity Based Compensation Plans
 
Stock Options and Restricted Stock
 
In May 2013, stockholders approved the Company’s 2013 Stock Award and Incentive Compensation Plan (“2013 Plan”). The 2013 Plan became effective on June 1, 2013 and serves as the successor to the Company’s 2004 Stock Incentive Plan (the “2004 Plan”), and no additional equity awards can be granted under the 2004 Plan after the date the 2013 Plan became effective.
 
The Company’s 2013 Plan provides incentives to attract and retain officers, directors and key employees. The 2013 Plan provides for the grants of options to purchase shares of common stock, grants of restricted stock and other award types. Under the 2013 Plan, the maximum aggregate number of shares that may be issued is 1,000,000, plus any shares that have not been issued under the 2004 Plan, including shares subject to outstanding awards under the 2004 Plan that are not issued or delivered to a participant for any reason. The 2013 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised of independent directors. The Compensation Committee is authorized to establish the exercise price;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


however, the exercise price cannot be less than 100% of the fair market value of the common stock on the grant date. The Company’s options have a life of five to ten years. Option grants for officers and employees fully vest between 0 and 5 years after the grant date.
 
Stock-based compensation expense for options and restricted stock under the fair value method totaled $6.1 million, $6.1 million, and $2.3 million for years ended December 31, 2015, 2014 and 2013 respectively. Stock-based compensation expense for options and restricted stock for the year ended December 31, 2015 and 2014, includes $0.2 million and $3.6 million related to the BRE merger, of which $0.1 million and $1.7 million relates to merger and integration expenses, and which is recorded in merger and integration expense in the consolidated statements of income, respectively. In the fourth quarter of 2015, stock-based compensation expense included $2.7 million related to an immediate vesting of options and restricted stock for bonuses awarded based on asset dispositions, which is recorded as a cost of real estate and land sold. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $0.3 million, $0.4 million, and $0.4 million for the years ended December 31, 2015, 2014 and 2013, respectively. The intrinsic value of the options exercised totaled $19.4 million, $12.7 million, and $3.0 million, for the years ended December 31, 2015, 2014, and 2013 respectively.  The intrinsic value of the options exercisable totaled $29.8 million, as of December 31, 2015.
 
Total unrecognized compensation cost related to unvested stock options totaled $3.4 million as of December 31, 2015 and the unrecognized compensation cost is expected to be recognized over a period of 0 to 5 years.
 
The average fair value of stock options granted for the years ended December 31, 2015, 2014 and 2013 was $22.78, $20.56 and $15.80, respectively. Certain stock options granted in 2015, 2014, and 2013 included a $75 cap, a $100 cap or a $125 cap on the appreciation of the market price over the exercise price. The fair value of stock options was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants:

 
2015
 
2014
 
2013
Stock price
$
227.75

 
$
176.65

 
$
153.54

Risk-free interest rates
1.83
%
 
2.37
%
 
2.68
%
Expected lives
6 years

 
8 years

 
8 years

Volatility
20.06
%
 
18.00
%
 
18.03
%
Dividend yield
2.73
%
 
2.90
%
 
3.15
%

A summary of the status of the Company’s stock option plans as of December 31, 2015, 2014, and 2013 and changes during the years ended on those dates is presented below:

 
2015
 
2014
 
2013
 
Shares
 
Weighted-
average
exercise
price
 
Shares
 
Weighted-
average
exercise
price
 
Shares
 
Weighted-
average
exercise
price
Outstanding at beginning of year
664,785

 
$
138.78

 
695,488

 
$
133.37

 
623,434

 
$
125.96

Granted
78,600

 
227.75

 
42,518

 
176.65

 
150,325

 
153.54

Granted - BRE options converted
—

 
—

 
133,766

 
121.03

 
—

 
—

Exercised
(203,556
)
 
131.53

 
(185,387
)
 
113.72

 
(52,970
)
 
102.43

Forfeited and canceled
(14,735
)
 
136.11

 
(21,600
)
 
144.29

 
(25,301
)
 
135.25

Outstanding at end of year
525,094

 
154.98

 
664,785

 
138.78

 
695,488

 
133.37

Options exercisable at year end
342,048

 
152.42

 
395,986

 
133.99

 
300,632

 
119.09



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The following table summarizes information about stock options outstanding as of December 31, 2015:
 
 
Options outstanding
 
Options exercisable
 
 
Number
outstanding
as of
 
Weighted-
average
remaining
 
Weighted-
average
 
Number
exercisable
as of
 
Weighted-
average
Range of
 
December 31,
 
contractual
 
exercise
 
December 31,
 
exercise
exercise prices
 
2015
 
life (years)
 
price
 
2015
 
price
$66.05 - $101.01
 
15,901

 
3.2
 
$
74.47

 
15,901

 
$
74.47

$105.64 - $161.98
 
367,024

 
5.3
 
139.73

 
218,041

 
135.00

$164.76 - $229.43
 
142,169

 
7.5
 
203.37

 
108,106

 
199.02

 
 
525,094

 
5.8
 
154.98

 
342,048

 
152.42

 
The following table summarizes information about restricted stock outstanding as of December 31, 2015, 2014 and 2013 and changes during the years ended:
 
2015
 
2014
 
2013
 
Shares
 
Weighted-
average
grant
price
 
Shares
 
Weighted-
average
grant
price
 
Shares
 
Weighted-
average
grant
price
Unvested at beginning of year
25,820

 
$
168.22

 
16,176

 
$
108.06

 
24,922

 
$
104.52

Granted
56,177

 
155.21

 
22,014

 
194.03

 
1,556

 
158.75

Granted - BRE restricted stock converted
—

 
—

 
119,411

 
173.82

 
—

 
—

Vested
(22,939
)
 
148.20

 
(126,931
)
 
171.56

 
(7,211
)
 
109.86

Forfeited and canceled
(4,382
)
 
122.06

 
(4,850
)
 
135.10

 
(3,091
)
 
100.84

Unvested at end of year
54,676

 
147.10

 
25,820

 
168.22

 
16,176

 
108.06


The unrecognized compensation cost related to unvested restricted stock totaled $7.7 million as of December 31, 2015 and is expected to be recognized over a period of 0 to 4 years.

Long Term Incentive Plans – LTIP Units

On December 9, 2014, the Operating Partnership issued 44,750 units under the 2015 Long-Term Incentive Plan Award agreements to executives of the Company. The 2015 Long-Term Incentive Plan Units (the “2015 LTIP Units”) are subject to forfeiture based on performance-based and service based conditions. An additional 24,000 units were granted subject only to performance-based criteria and were fully vested on the date granted. The 2015 LTIP Units, that were subject to vesting, will vest at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement ended on December 9, 2015 and 95.75% of the units awarded were earned by the recipients. 2015 LTIP Units not earned based on the performance-based criteria were automatically forfeited by the recipients. The 2015 LTIP Units, once earned and vested, are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten-year liquidity restriction.

In December 2013, the Operating Partnership issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to executives of the Company. The 2014 Long-Term Incentive Plan Units (the “2014 LTIP Units”) were subject to forfeiture based on performance-based conditions and are currently subject to service based vesting. The 2014 LTIP Units vest 25% per year on each of the first four anniversaries of the initial grant date. In December 2014, the Company achieved the performance criteria and all of the 2014 LTIP Units awarded were earned by the recipients, subject to satisfaction of service based vesting conditions. The 2014 LTIP Units are convertible one-for-one into common units of the Operating Partnership which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


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

Prior to 2013, the Company issued Series Z Incentive Units and Series Z-1 Incentive Units (collectively referred to as “Z Units”) of limited partnership interest in the Operating Partnership.  Vesting in the Z Units is based on performance criteria established in the plan. The criteria can be revised by the Board's Compensation Committee if the Committee deems that the plan's criterion is unachievable for any given year.  The sale of Z Units is contractually prohibited. Z Units are convertible into Operating Partnership units which are exchangeable for shares of the Company’s common stock that have marketability restrictions. The estimated fair value of Z Units were determined on the grant date and considered the Company's stock price on the date of grant, the dividends that are not paid on unvested units and a marketability discount for the 8 to 15 years of illiquidity.  Compensation expense is calculated by multiplying estimated vesting increases for the period by the estimated fair value as of the grant date.
 
During 2011 and 2010, the Operating Partnership issued 154,500 Series Z-1 Incentive Units (the “Z-1 Units”) of limited partner interest to executives of the Company. The Z-1 Units are convertible one-for-one into common units of the Operating Partnership (which, in turn, are convertible into common stock of the Company) upon the earlier to occur of 100 percent vesting of the units or the year 2026. The conversion ratchet (accounted for as vesting) of the Z-1 Units into common units, is to increase consistent with the Company’s annual FFO growth, but is not to be less than zero or greater than 14 percent. Z-1 Unit holders are entitled to receive distributions, on vested units, that are now equal to dividends distributed to common stockholders.
 
Stock-based compensation expense for LTIP and Z Units under the fair value method totaled approximately $3.5 million, $6.0 million and $2.2 million for the years ended December 31, 2015, 2014 and 2013, respectively. Stock-based compensation expense for the year ended December 31, 2014 includes $1.7 million related to merger and integration expenses and is recorded in merger and integration expense in the consolidated statements of income. No such amounts were recorded in merger and integration expense in 2015. In the fourth quarter of 2014, stock-based compensation expense included $2.4 million related to an immediate vesting of certain of the 2015 LTIP Units. No such amounts were recorded in 2015. Stock-based compensation related to LTIP Units attributable to recipients who are direct and incremental to these projects was capitalized to real estate under development and totaled approximately $0.5 million, $0.4 million, and $0.5 million, for the years ended December 31, 2015, 2014, and 2013, respectively. The intrinsic value of the vested and unvested LTIP Units totaled $59.9 million as of December 31, 2015.  Total unrecognized compensation cost related to the unvested LTIP Units under the LTIP Units plans totaled $6.0 million as of December 31, 2015.  On a weighted average basis, the unamortized cost for the 2014 and 2015 LTIP Units and the Z Units is expected to be recognized over the next 3.2 years and 9.5 years, respectively.

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The following table summarizes information about the LTIP Units outstanding as of December 31, 2015 ($ in thousands):
 
Long Term Incentive Plan - LTIP Units
 
Total
Vested
Units
 
Total
Unvested
Units
 
Total
Outstanding
Units
 
Weighted-
average
Grant-date
Fair Value
 
Weighted-
average
Remaining
Contractual
Life (years)
Balance, December 31, 2012
190,704

 
140,043

 
330,747

 
$
58.44

 
11.3
Granted
—

 
50,500

 
50,500

 
 

 
 
Vested
35,919

 
(35,919
)
 
—

 
 

 
 
Converted
(108,433
)
 
—

 
(108,433
)
 
 

 
 
Cancelled
—

 
(5,243
)
 
(5,243
)
 
 

 
 
Balance, December 31, 2013
118,190

 
149,381

 
267,571

 
63.53

 
9.3
Granted
24,000

 
44,750

 
68,750

 


 

Vested
41,729

 
(41,729
)
 
—

 


 

Converted
(2,000
)
 
—

 
(2,000
)
 


 

Cancelled
—

 
(1,335
)
 
(1,335
)
 


 

Balance, December 31, 2014
181,919

 
151,067

 
332,986

 
71.14

 
10.5
Granted
—

 
—

 
—

 


 

Vested
36,650

 
(36,650
)
 
—

 


 

Converted
(74,384
)
 
—

 
(74,384
)
 


 

Cancelled
—

 
(8,260
)
 
(8,260
)
 


 

Balance, December 31, 2015
144,185

 
106,157

 
250,342

 
$
75.41

 
9.5

(14) Segment Information

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

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

Excluded from segment revenues and net operating income are communities classified in discontinued operations, management and other fees from affiliates, and interest and other income. Non-segment revenues and net operating income included in the following schedule also consist of revenue generated from commercial properties.  Other non-segment assets include real estate under development, co-investments, cash and cash equivalents, marketable securities, notes and other receivables and prepaid expenses and other assets.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


The revenues and net operating income for each of the reportable operating segments are summarized as follows for the years ended December 31, 2015, 2014, and 2013 ($ in thousands):
 
Years Ended December 31,
 
2015
 
2014
 
2013
Revenues:
 
 
 
 
 
Southern California
$
529,440

 
$
423,570

 
$
263,582

Northern California
416,347

 
326,996

 
210,831

Seattle Metro
201,418

 
168,337

 
107,796

Other real estate assets
38,293

 
42,688

 
21,118

Total property revenues
$
1,185,498

 
$
961,591

 
$
603,327

Net operating income:
 

 
 

 
 

Southern California
$
355,007

 
$
279,434

 
$
176,075

Northern California
297,472

 
228,971

 
146,053

Seattle Metro
136,580

 
112,494

 
71,650

Other real estate assets
32,931

 
28,146

 
12,213

Total net operating income
821,990

 
649,045

 
405,991

Depreciation and amortization
(453,423
)
 
(360,592
)
 
(192,420
)
Interest expense
(204,827
)
 
(164,551
)
 
(116,524
)
Total return swap income
5,655

 
—

 
—

Management and other fees from affiliates
8,909

 
9,347

 
7,263

General and administrative
(40,090
)
 
(40,878
)
 
(26,684
)
Merger and integration expenses
(3,798
)
 
(53,530
)
 
(4,284
)
Acquisition and investment related costs
(2,414
)
 
(1,878
)
 
(1,161
)
Interest and other income
19,143

 
11,811

 
11,633

Loss on early retirement of debt, net
(6,114
)
 
(268
)
 
(300
)
Gain on sale of real estate and land
47,333

 
46,039

 
1,503

Equity income from co-investments
21,861

 
39,893

 
55,865

Gain on remeasurement of co-investment
34,014

 
—

 
—

Income before discontinued operations
$
248,239

 
$
134,438

 
$
140,882



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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Total assets for each of the reportable operating segments are summarized as follows as of December 31, 2015 and 2014 ($ in thousands):
 
As of December 31,
Assets:
2015
 
2014
Southern California
$
4,912,264

 
$
4,277,754

Northern California
3,749,072

 
3,418,571

Seattle Metro
1,613,175

 
1,647,058

Other real estate assets
107,066

 
336,492

Net reportable operating segments - real estate assets
10,381,577

 
9,679,875

Real estate under development
242,326

 
429,096

Co-investments
1,036,047

 
1,042,423

Real estate held for sale, net
26,879

 
56,300

Cash and cash equivalents, including restricted cash
123,055

 
95,749

Marketable securities and other investments
137,485

 
117,240

Notes and other receivables
19,285

 
24,923

Other non-segment assets
38,437

 
81,126

Total assets
$
12,005,091

 
$
11,526,732


(15) 401(k) Plan
 
The Company has a 401(k) benefit plan (the “Plan”) for all eligible employees. Employee contributions are limited by the maximum allowed under Section 401(k) of the Internal Revenue Code. The Company matches 50% of the employee contributions up to a specified maximum. Company contributions to the Plan were approximately $1.6 million, $0.9 million, and $0.7 million for the years ended December 31, 2015, 2014, and 2013, respectively.
 
(16) Commitments and Contingencies
 
As of December 31, 2015, the Company had seven non-cancelable ground leases for certain apartment communities and buildings that expire between 2027 and 2082. Ground lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities. Total minimum lease commitments, under ground leases and operating leases, are approximately $2.7 million per year for the next five years and $131.9 million thereafter.
 
To the extent that an environmental matter arises or is identified in the future that has other than a remote risk of having a material impact on the financial statements, the Company will disclose the estimated range of possible outcomes associated with it and, if an outcome is probable, accrue an appropriate liability for that matter. The Company will consider whether any such matter results in an impairment of value on the affected property and, if so, impairment will be recognized.
 
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 with respect to the communities currently or formerly owned by the Company. No assurance can be given that: existing environmental assessments conducted with respect to any of these communities have revealed all environmental conditions or potential liabilities associated with such conditions; any prior owner or operator of a property did not create any material environmental condition not known to the Company; or a material environmental condition does not otherwise exist as to any one or more of the communities. The Company has limited insurance coverage for some of the types of environmental conditions and associated liabilities described above.

The Company has entered into transactions that may require the Company to pay the tax liabilities of the partners in the Operating Partnership or in the DownREIT entities. These transactions are within the Company’s control. Although the Company plans to hold the contributed assets or defer recognition of gain on their sale pursuant to like-kind exchange rules under Section 1031 of the Internal Revenue Code, the Company can provide no assurance that it will be able to do so and if such tax liabilities were incurred they may have a material impact on the Company’s financial position.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


There have been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in the residential units and common areas of those communities. Some of these lawsuits have resulted in substantial monetary judgments or settlements.  The Company has been sued for mold related matters and has settled some, but not all, such suits.   Insurance carriers have reacted to the increase in mold related liability awards by excluding mold related claims from standard general liability policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance which includes some coverage for mold claims.  The Company has also adopted policies intended to promptly address and resolve reports of mold and to minimize any impact mold might have on residents of its properties.  The Company believes its mold policies and proactive response to address reported mold exposures reduces its risk of loss from mold claims. While no assurances can be given that the Company has identified and responded to all mold occurrences, the Company promptly addresses and responds to all known mold reports. Liabilities resulting from such mold related matters are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. As of December 31, 2015, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.

The Company carries comprehensive liability, fire, extended coverage and rental loss insurance for each of the communities.  There are, however, certain types of extraordinary losses, such as, for example, losses from terrorism or earthquakes, for which the Company has limited insurance coverage.  Substantially all of the communities are located in areas that are subject to earthquake activity. The Company has established a wholly-owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Through PWI, the Company is self-insured as it relates to earthquake related losses. Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident. As of December 31, 2015, PWI has cash and marketable securities of approximately $60.3 million.  These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in the Company's co-investments.

On December 19, 2014, a putative class action was filed against the Company in the U.S. District Court for the Northern
District of California, entitled Foster v. Essex Property Trust, Inc. alleging that the Company failed to properly secure the
personally-identifying information of its residents. The lawsuit seeks the recovery of unspecified damages and certain
injunctive relief. This lawsuit was filed in connection with a cyber-intrusion that the Company discovered in the third quarter of
2014. At this point, the Company is unable to predict the developments in, outcome of, and/or economic and/or other
consequences of this litigation or predict the developments in, outcome of, and/or other consequences arising out of any
potential future litigation or government inquiries related to this matter.

The Company is subject to various other legal and/or regulatory proceedings arising in the course of its business operations.  We believe that, with respect to such matters that we are currently a party to, the ultimate disposition of any such matter will not result in a material adverse effect on the Company’s financial condition, results of operations or cash flows.

(17) Subsequent Events

In January 2016, the Company acquired Mio, a 103 unit apartment community, located in San Jose, CA for $51.3 million,

In January 2016, a Company co-investment, BEXAEW, LLC, sold The Heights, a 332 unit apartment community, located in Chino Hills, CA for total proceeds of $93.8 million, of which $50.3 million was used to repay the loan on the property. The Company has a 50% ownership interest in the BEXAEW, LLC joint venture.

In January 2016, the Company sold its former headquarters office building located in Palo Alto, CA for total proceeds of $18.0 million.

In January 2016, the Company paid off $150.0 million in private placement unsecured bonds that had an interest rate of 4.36%.

In February 2016, the Company sold Harvest Park, a 104 unit community located in Santa Rosa, CA for $30.5 million.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


(18) Quarterly Results of Operations (Unaudited)

Essex Property Trust, Inc.

The following is a summary of quarterly results of operations for 2015 and 2014 ($ in thousands, except per share and dividend amounts):

 
Quarter ended
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2015:
 
 
 
 
 
 
 
Total property revenues
$
308,646

 
$
302,522

 
$
294,101

 
$
280,229

Net income
$
85,762

 
$
47,182

 
$
50,542

 
$
64,753

Net income available to common stockholders
$
79,624

 
$
42,323

 
$
45,555

 
$
59,363

Per share data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.22

 
$
0.65

 
$
0.70

 
$
0.92

Diluted (1)
$
1.22

 
$
0.65

 
$
0.70

 
$
0.92

Market price:
 

 
 

 
 

 
 

High
$
244.71

 
$
232.20

 
$
231.90

 
$
243.17

Low
$
214.29

 
$
205.72

 
$
208.85

 
$
207.26

Close
$
239.41

 
$
223.42

 
$
212.50

 
$
229.90

Dividends declared
$
1.44

 
$
1.44

 
$
1.44

 
$
1.44

2014 (2):
 

 
 

 
 

 
 

Total property revenues
$
276,778

 
$
268,512

 
$
256,952

 
$
159,349

Net income
$
44,805

 
$
58,582

 
$
4,645

 
$
26,406

Net income available to common stockholders
$
40,175

 
$
53,565

 
$
1,207

 
$
21,912

Per share data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
0.63

 
$
0.85

 
$
0.02

 
$
0.58

Diluted (1)
$
0.63

 
$
0.85

 
$
0.02

 
$
0.58

Market price:
 

 
 

 
 

 
 

High
$
214.43

 
$
196.08

 
$
185.99

 
$
173.01

Low
$
176.70

 
$
177.68

 
$
164.76

 
$
141.79

Close
$
206.60

 
$
178.75

 
$
184.91

 
$
170.05

Dividends declared
$
1.30

 
$
1.30

 
$
1.30

 
$
1.21


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



F- 50
Table of Contents

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015, 2014, and 2013


Essex Portfolio, L.P.

The following is a summary of quarterly results of operations for 2015 and 2014 ($ in thousands, except per unit and distribution amounts):
 
Quarter ended
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2015:
 
 
 
 
 
 
 
Total property revenues
$
308,646

 
$
302,522

 
$
294,101

 
$
280,229

Net income
$
85,762

 
$
47,182

 
$
50,542

 
$
64,753

Net income available to common unitholders
$
82,333

 
$
43,794

 
$
47,088

 
$
61,474

Per unit data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.22

 
$
0.65

 
$
0.70

 
$
0.93

Diluted (1)
$
1.22

 
$
0.65

 
$
0.70

 
$
0.92

Distributions declared
$
1.44

 
$
1.44

 
$
1.44

 
$
1.44

2014 (2):
 

 
 

 
 

 
 

Total property revenues
$
276,778

 
$
268,512

 
$
256,952

 
$
159,349

Net income
$
44,805

 
$
58,582

 
$
4,645

 
$
26,406

Net income available to common unitholders
$
41,599

 
$
55,382

 
$
1,416

 
$
23,329

Per unit data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
0.63

 
$
0.85

 
$
0.02

 
$
0.58

Diluted (1)
$
0.63

 
$
0.85

 
$
0.02

 
$
0.58

Distributions declared
$
1.30

 
$
1.30

 
$
1.30

 
$
1.21


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

F- 51
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Encumbered communities
 
 
 
 
 
 
 
 
 
 
 
 
 
Avondale at Warner Center
446

Woodland Hills, CA
$
44,470

$
10,536

$
24,522

$
18,315

$
10,601

$
42,772

$
53,373

$
(26,174
)
1970
Jan-97
   3-30
Bel Air
462

San Ramon, CA
52,615

12,105

18,252

31,563

12,682

49,238

61,920

(26,928
)
1988
Jan-97
   3-30
Belcarra
296

Bellevue, WA
54,416

21,725

92,091

253

21,725

92,344

114,069

(5,874
)
2009
Apr-14
   5-30
Bella Villagio
231

San Jose, CA
34,686

17,247

40,343

2,271

17,247

42,614

59,861

(8,054
)
2004
Sep-10
   3-30
BellCentre
248

Bellevue, WA
40,485

16,197

67,207

1,463

16,197

68,670

84,867

(4,461
)
2001
Apr-14
   5-30
Belmont Station
275

 Los Angeles, CA
29,604

8,100

66,666

5,034

8,267

71,533

79,800

(20,898
)
2009
Mar-09
   3-30
Bridgeport
184

Newark, CA
20,559

1,608

7,582

8,801

1,525

16,466

17,991

(12,685
)
1987
Jul-87
   3-30
Brookside Oaks
170

Sunnyvale, CA
18,897

7,301

16,310

23,258

10,328

36,541

46,869

(16,270
)
1973
Jun-00
   3-30
Camino Ruiz Square
160

Camarillo, CA
21,093

6,871

26,119

1,431

6,931

27,490

34,421

(8,515
)
1990
Dec-06
   3-30
Canyon Oaks
250

San Ramon, CA
27,553

19,088

44,473

2,543

19,088

47,016

66,104

(14,036
)
2005
May-07
   3-30
Carmel Creek
348

San Diego, CA
65,204

26,842

107,368

2,474

26,842

109,842

136,684

(7,078
)
2000
Apr-14
   5-30
City View
572

Hayward, CA
73,204

9,883

37,670

23,281

10,350

60,484

70,834

(38,459
)
1975
Mar-98
   3-30
 Courtyard off Main
110

Bellevue, WA
15,402

7,465

21,405

2,927

7,465

24,332

31,797

(4,663
)
2000
Oct-10
   3-30
Domaine
92

Seattle, WA
15,149

9,059

27,177

710

9,059

27,887

36,946

(3,130
)
2009
Sep-12
   3-30
Elevation
158

Redmond, WA
10,973

4,758

14,285

5,740

4,757

20,026

24,783

(5,319
)
1986
Jun-10
   3-30
Ellington at Bellevue
220

Bellevue, WA
22,289

15,066

45,249

1,322

15,066

46,571

61,637

(2,109
)
1994
Jul-14
   3-30
Fairhaven
164

Santa Ana, CA
20,230

2,626

10,485

6,040

2,957

16,194

19,151

(7,714
)
1970
Nov-01
   3-30
Foster's Landing
490

Foster City, CA
100,847

61,714

144,000

5,685

61,714

149,685

211,399

(9,741
)
1987
Apr-14
   5-30
Fountain at River Oaks
226

San Jose, CA
33,159

26,046

60,773

590

26,046

61,363

87,409

(3,953
)
1990
Apr-14
   3-30
Fountain Park
705

Playa Vista, CA
82,366

25,073

94,980

29,371

25,203

124,221

149,424

(53,723
)
2002
Feb-04
   3-30
Hampton Place/Hampton Court
215

Glendale, CA
20,213

6,695

16,753

13,193

6,733

29,908

36,641

(13,448
)
1970
Jun-99
   3-30
Hidden Valley
324

Simi Valley, CA
29,262

14,174

34,065

2,620

9,674

41,185

50,859

(15,871
)
2004
Dec-04
   3-30
Highlands at Wynhaven
333

Issaquah, WA
31,522

16,271

48,932

8,001

16,271

56,933

73,204

(15,525
)
2000
Aug-08
   3-30
Highridge
255

Rancho Palos Verdes, CA
44,772

5,419

18,347

29,555

6,073

47,248

53,321

(26,591
)
1972
May-97
   3-30
Hillcrest Park
608

Newbury Park, CA
65,566

15,318

40,601

17,368

15,755

57,532

73,287

(32,302
)
1973
Mar-98
   3-30
Huntington Breakers
342

Huntington Beach, CA
36,648

9,306

22,720

17,026

9,315

39,737

49,052

(19,480
)
1984
Oct-97
   3-30
Inglenook Court
224

Bothell, WA
8,174

3,467

7,881

6,686

3,474

14,560

18,034

(10,524
)
1985
Oct-94
   3-30
Magnolia Square/Magnolia
Lane (2)
188

Sunnyvale, CA
17,363

8,190

24,736

14,591

8,191

39,326

47,517

(13,145
)
1969
Sep-07
   3-30
Mill Creek at Windermere
400

San Ramon, CA
47,344

29,551

69,032

3,447

29,551

72,479

102,030

(20,639
)
2005
Sep-07
   3-30
Mirabella
188

Marina Del Rey, CA
43,518

6,180

26,673

14,103

6,270

40,686

46,956

(19,485
)
2000
May-00
   3-30

F- 52
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Montanosa
472

San Diego, CA
62,724

26,697

106,787

2,210

26,697

108,997

135,694

(7,005
)
1990
Apr-14
   5-30
Montebello
248

Kirkland, WA
27,353

13,857

41,575

3,735

13,858

45,309

59,167

(5,903
)
1996
Jul-12
   3-30
Montejo
124

Garden Grove, CA
15,232

1,925

7,685

2,822

2,194

10,238

12,432

(4,974
)
1974
Nov-01
   3-30
Park Highland
250

Bellevue, WA
26,556

9,391

38,224

8,053

9,391

46,277

55,668

(2,743
)
1993
Apr-14
   5-30
Park Hill at Issaquah
245

Issaquah, WA
27,802

7,284

21,937

5,979

7,284

27,916

35,200

(10,277
)
1999
Feb-99
   3-30
Pathways
296

Long Beach, CA
36,325

4,083

16,757

19,274

6,239

33,875

40,114

(25,965
)
1975
Feb-91
   3-30
Piedmont
396

Bellevue, WA
46,635

19,848

59,606

4,502

19,848

64,108

83,956

(3,638
)
1969
May-14
   3-30
Pinnacle at Fullerton
192

Fullerton, CA
27,578

11,019

45,932

858

11,019

46,790

57,809

(2,980
)
2004
Apr-14
   5-30
Pinnacle on Lake Washington
180

Renton, WA
18,724

7,760

31,041

449

7,760

31,490

39,250

(2,027
)
2001
Apr-14
   5-30
Pinnacle at MacArthur Place
253

Santa Ana, CA
39,859

15,810

66,401

1,343

15,810

67,744

83,554

(4,306
)
2002
Apr-14
   5-30
Pinnacle at Otay Ranch
364

San Diego, CA
40,970

17,023

68,093

766

17,023

68,859

85,882

(4,442
)
2001
Apr-14
   5-30
Pinnacle at Talega
362

Irvine, CA
46,489

19,292

77,168

993

19,292

78,161

97,453

(5,014
)
2002
Apr-14
   5-30
Stevenson Place
200

Fremont, CA
20,980

996

5,582

9,323

1,001

14,900

15,901

(10,244
)
1971
Apr-83
   3-30
Summerhill Park
100

Sunnyvale, CA
13,032

2,654

4,918

9,769

2,656

14,685

17,341

(5,764
)
1988
Sep-88
   3-30
The Audrey at Belltown
137

Seattle, WA
22,099

9,228

36,911

185

9,228

37,096

46,324

(2,373
)
1992
Apr-14
   5-30
The Avery
121

Los Angeles, CA
9,985

6,964

29,922

16

6,964

29,938

36,902

(1,786
)
2014
Mar-14
   3-30
The Barkley (3)
161

Anaheim, CA
15,951

—

8,520

5,561

2,353

11,728

14,081

(6,090
)
1984
Apr-00
   3-30
The Bernard
63

Seattle, WA
9,141

3,699

11,345

231

3,689

11,586

15,275

(1,706
)
2008
Sep-11
   3-30
The Carlyle
132

San Jose, CA
21,889

3,954

15,277

10,317

5,801

23,747

29,548

(11,968
)
2000
Apr-00
   3-30
The Dylan
184

West Hollywood, CA
59,592

19,984

82,286

16

19,984

82,302

102,286

(2,637
)
2015
Mar-15
   3-30
The Elliot at Mukilteo
301

Mukilteo, WA
10,628

2,498

10,595

14,940

2,824

25,209

28,033

(14,705
)
1981
Jan-97
   3-30
The Huntington
276

Huntington Beach, CA
30,890

10,374

41,495

3,381

10,374

44,876

55,250

(5,765
)
1975
Jun-12
   3-30
The Huxley
187

West Hollywood, CA
54,272

19,362

75,641

40

19,362

75,681

95,043

(2,486
)
2014
Mar-15
   3-30
The Landing at Jack London Square
282

Oakland, CA
54,771

33,554

78,292

2,966

33,554

81,258

114,812

(5,336
)
2001
Apr-14
   5-30
The Montclaire
390

Sunnyvale, CA
44,921

4,842

19,776

20,602

4,997

40,223

45,220

(33,694
)
1973
Dec-88
   3-30
The Palms at Laguna Niguel
460

Laguna Niguel, CA
57,032

23,584

94,334

1,634

23,584

95,968

119,552

(6,171
)
1988
Apr-14
   5-30
The Palisades
192

Bellevue, WA
20,138

1,560

6,242

11,658

1,565

17,895

19,460

(13,831
)
1977
May-90
   3-30
The Waterford
238

San Jose, CA
30,689

11,808

24,500

13,536

15,165

34,679

49,844

(17,641
)
2000
Jun-00
   3-30
Tierra Vista
404

Oxnard, CA
53,948

13,652

53,336

4,226

13,661

57,553

71,214

(23,033
)
2001
Jan-01
   3-30
Valley Park
160

Fountain Valley, CA
25,856

3,361

13,420

5,269

3,761

18,289

22,050

(8,190
)
1969
Nov-01
   3-30
Villa Angelina
256

Placentia, CA
31,908

4,498

17,962

6,539

4,962

24,037

28,999

(11,020
)
1970
Nov-01
   3-30
Villa Grenada
270

Santa Clara, CA
61,057

38,299

89,365

326

38,299

89,691

127,990

(5,789
)
2010
Apr-14
   5-30

F- 53
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Wandering Creek
156

Kent, WA
5,209

1,285

4,980

3,790

1,296

8,759

10,055

(6,313
)
1986
Nov-95
   3-30
Wilshire Promenade
149

Fullerton, CA
17,259

3,118

7,385

7,693

3,797

14,399

18,196

(8,305
)
1992
Jan-97
   3-30
 
17,085

 
$
2,215,077

$
797,144

$
2,589,987

$
482,664

$
810,649

$
3,059,146

$
3,869,795

$
(750,915
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unencumbered Communities
 
 
 
 
 
 
 
 
 
 
 
 
 
8th & Hope
290

Los Angeles, CA
$
—

$
29,279

$
169,350

$
441

$
29,279

$
169,791

$
199,070

$
(5,544
)
2014
Feb-15
   3-30
Alessio
624

Los Angeles, CA
—

32,136

128,543

3,105

32,136

131,648

163,784

(8,564
)
2001
Apr-14
   5-30
Allegro
97

Valley Village, CA
—

5,869

23,977

1,573

5,869

25,550

31,419

(6,656
)
2010
Oct-10
   3-30
Allure at Scripps Ranch
194

San Diego, CA
—

11,923

47,690

280

11,923

47,970

59,893

(3,074
)
2002
Apr-14
   5-30
Alpine Village
301

Alpine, CA
—

4,967

19,728

6,551

4,982

26,264

31,246

(11,485
)
1971
Dec-02
   3-30
Anavia
250

Anaheim, CA
—

15,925

63,712

6,340

15,925

70,052

85,977

(11,955
)
2009
Dec-10
   3-30
Annaliese
56

Seattle, WA
—

4,727

14,229

330

4,726

14,560

19,286

(1,452
)
2009
Jan-13
   3-30
Apex
366

Milpitas, CA
—

44,240

103,251

1,104

44,240

104,355

148,595

(4,635
)
2014
Aug-14
   3-30
Aqua at Marina Del Rey
500

Marina Del Ray, CA
—

58,442

175,326

4,965

58,442

180,291

238,733

(11,632
)
2001
Apr-14
   5-30
Ascent
90

Kirkland, WA
—

3,924

11,862

1,669

3,924

13,531

17,455

(1,734
)
1988
Oct-12
   3-30
Avant
440

Los Angeles, CA
—

32,379

137,940

261

32,379

138,201

170,580

(1,631
)
2014
Jun-15
   3-30
Avenue 64
224

Emeryville, CA
—

27,235

64,403

8,486

27,235

72,889

100,124

(4,257
)
2007
Apr-14
   5-30
Aviara (4)
166

Mercer Island, CA
—

—

49,813

136

—

49,949

49,949

(3,596
)
2013
Apr-14
   5-30
Axis 2300
115

Irvine, CA
—

5,405

33,585

1,127

5,405

34,712

40,117

(8,800
)
2010
Aug-10
   3-30
Bellerive
63

Los Angeles, CA
—

5,401

21,803

765

5,401

22,568

27,969

(4,455
)
2011
Aug-11
   3-30
Belmont Terrace
71

Belmont, CA
—

4,446

10,290

4,399

4,473

14,662

19,135

(5,372
)
1974
Oct-06
   3-30
Bennett Lofts
165

San Francisco, CA
—

21,771

50,800

25,515

28,371

69,715

98,086

(7,560
)
2004
Dec-12
   3-30
Bernardo Crest
216

San Diego, CA
—

10,802

43,209

1,302

10,802

44,511

55,313

(2,837
)
1988
Apr-14
   5-30
Bonita Cedars
120

Bonita, CA
—

2,496

9,913

2,187

2,503

12,093

14,596

(5,574
)
1983
Dec-02
   3-30
Boulevard
172

Fremont, CA
—

3,520

8,182

10,888

3,580

19,010

22,590

(13,725
)
1978
Jan-96
   3-30
Bridle Trails
108

Kirkland, WA
—

1,500

5,930

5,577

1,531

11,476

13,007

(7,107
)
1986
Oct-97
   3-30
Brighton Ridge
264

Renton, WA
—

2,623

10,800

4,342

2,656

15,109

17,765

(9,599
)
1986
Dec-96
   3-30
Bristol Commons
188

Sunnyvale, CA
—

5,278

11,853

6,978

5,293

18,816

24,109

(9,909
)
1989
Jan-97
   3-30
416 on Broadway
115

Glendale, CA
—

8,557

34,235

1,905

8,557

36,140

44,697

(6,542
)
2009
Dec-10
   3-30
Bunker Hill
456

Los Angeles, CA
—

11,498

27,871

43,175

11,639

70,905

82,544

(24,680
)
1968
Mar-98
   3-30
Camarillo Oaks
564

Camarillo, CA
—

10,953

25,254

4,813

11,075

29,945

41,020

(19,180
)
1985
Jul-96
   3-30
Cambridge Park
320

San Diego, CA
—

18,185

72,739

945

18,185

73,684

91,869

(4,770
)
1998
Apr-14
   5-30

F- 54
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Candlewood North
189

Northridge, CA
—

7,267

29,068

1,298

7,267

30,366

37,633

(1,954
)
1964
Apr-14
   5-30
Canyon Pointe
250

Bothell, WA
—

4,692

18,288

6,156

4,693

24,443

29,136

(10,351
)
1990
Oct-03
   3-30
Capri at Sunny Hills
100

Fullerton, CA
—

3,337

13,320

8,354

4,048

20,963

25,011

(10,424
)
1961
Sep-01
   3-30
Carmel Landing
356

San Diego, CA
—

16,725

66,901

2,694

16,725

69,595

86,320

(4,478
)
1989
Apr-14
   5-30
Carmel Summit
246

San Diego, CA
—

14,968

59,871

1,076

14,968

60,947

75,915

(3,887
)
1989
Apr-14
   5-30
Castle Creek
216

Newcastle, WA
—

4,149

16,028

2,644

4,833

17,988

22,821

(11,526
)
1988
Dec-98
   3-30
Catalina Gardens
128

Los Angeles, CA
—

6,714

26,856

503

6,714

27,359

34,073

(1,748
)
1987
Apr-14
   5-30
CBC Apartments & The Sweeps
239

Goleta, CA
—

11,841

45,320

5,525

11,906

50,780

62,686

(19,106
)
1962
Jan-06
   3-30
Cedar Terrace
180

Bellevue, WA
—

5,543

16,442

5,020

5,652

21,353

27,005

(8,662
)
1984
Jan-05
   3-30
CentrePointe
224

San Diego, CA
—

3,405

7,743

19,503

3,442

27,209

30,651

(11,507
)
1974
Jun-97
   3-30
Chestnut Street Apartments
96

Santa Cruz, CA
—

6,582

15,689

1,262

6,582

16,951

23,533

(4,527
)
2002
Jul-08
   3-30
Collins on Pine
76

Seattle, WA
—

7,276

22,226

78

7,276

22,304

29,580

(1,215
)
2013
May-14
   3-30
Corbella at Juanita Bay
169

Kirkland, WA
—

5,801

17,415

2,133

5,801

19,548

25,349

(3,663
)
1978
Nov-10
   3-30
Cortesia at Rancho Santa Margarita
308

Rancho Santa Margarita, CA
—

13,912

55,649

719

13,912

56,368

70,280

(3,625
)
1999
Apr-14
   5-30
Country Villas
180

Oceanside, CA
—

4,174

16,583

3,332

4,187

19,902

24,089

(9,274
)
1976
Dec-02
   3-30
Deer Valley
171

San Rafael, CA
—

21,478

50,116

1,023

21,478

51,139

72,617

(3,329
)
1996
Apr-14
   5-30
Delano/Bon Terra
126

Redmond, WA
—

7,470

22,511

978

7,470

23,489

30,959

(3,265
)
2005
Dec-11
   3-30
Devonshire
276

Hemet, CA
—

3,470

13,786

3,236

3,482

17,010

20,492

(7,891
)
1988
Dec-02
   3-30
Domain
379

San Diego, CA
—

23,848

95,394

799

23,848

96,193

120,041

(6,868
)
2013
Nov-13
   3-30
Emerald Pointe
160

Diamond Bar, CA
—

8,458

33,832

813

8,458

34,645

43,103

(2,235
)
1989
Apr-14
   5-30
Emerald Ridge
180

Bellevue, WA
—

3,449

7,801

3,500

3,449

11,301

14,750

(8,307
)
1987
Nov-94
   3-30
Enso
183

San Jose, CA
—

21,397

71,135

2

21,397

71,137

92,534

(102
)
2014
Dec-15
   3-30
Esplanade
278

San Jose, CA
—

18,170

40,086

9,874

18,429

49,701

68,130

(19,358
)
2002
Apr-11
   3-30
Essex Skyline at MacArthur Place
349

Santa Ana, CA
—

21,537

146,099

2,862

21,537

148,961

170,498

(18,766
)
2008
Apr-12
   3-30
Evergreen Heights
200

Kirkland, WA
—

3,566

13,395

4,566

3,649

17,878

21,527

(10,945
)
1990
Jun-97
   3-30
Fairways (5)
74

Newport Beach, CA
—

—

7,850

6,731

9

14,572

14,581

(7,135
)
1972
Jun-99
   3-30
Fairwood Pond
194

Renton, WA
—

5,296

15,564

2,490

5,297

18,053

23,350

(7,407
)
1997
Oct-04
   3-30
Foothill Commons
394

Bellevue, WA
—

2,435

9,821

36,446

2,440

46,262

48,702

(30,270
)
1978
Mar-90
   3-30
Foothill Gardens/Twin Creeks
176

San Ramon, CA
—

5,875

13,992

7,919

5,964

21,822

27,786

(12,293
)
1985
Feb-97
   3-30
Forest View
192

Renton, WA
—

3,731

14,530

1,798

3,731

16,328

20,059

(6,991
)
1998
Oct-03
   3-30
Fountain Court
320

Seattle, WA
—

6,702

27,306

10,209

6,585

37,632

44,217

(19,053
)
2000
Mar-00
   3-30

F- 55
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Fourth & U
171

Berkeley, CA
—

8,879

52,351

2,396

8,879

54,747

63,626

(11,966
)
2010
Apr-10
   3-30
Fox Plaza
443

San Francisco, CA
—

39,731

92,706

12,668

39,731

105,374

145,105

(10,314
)
1968
Feb-13
   3-30
Hillsborough Park
235

La Habra, CA
—

6,291

15,455

2,182

6,272

17,656

23,928

(9,602
)
1999
Sep-99
   3-30
Hillsdale Garden
697

San Mateo, CA
—

22,000

94,681

20,672

22,000

115,353

137,353

(38,841
)
1948
Sep-06
   3-30
Hope Ranch
108

Santa Barbara, CA
—

4,078

16,877

2,507

4,208

19,254

23,462

(5,586
)
1965
Mar-07
   3-30
Jefferson at Hollywood
270

Los Angeles, CA
—

19,054

89,321

1,182

19,054

90,503

109,557

(5,745
)
2010
Apr-14
   5-30
Joule
295

Seattle, WA
—

14,558

69,417

3,614

14,558

73,031

87,589

(16,387
)
2010
Mar-10
   3-30
1000 Kiely
121

Santa Clara, CA
—

9,359

21,845

6,725

9,359

28,570

37,929

(5,605
)
1971
Mar-11
   3-30
Kings Road
196

Los Angeles, CA
—

4,023

9,527

10,731

4,031

20,250

24,281

(11,236
)
1979
Jun-97
   3-30
Lafayette Highlands
150

Lafayette, CA
—

17,774

41,473

410

17,774

41,883

59,657

(2,716
)
1973
Apr-14
   5-30
Lakeshore Landing
308

San Mateo, CA
—

38,155

89,028

2,950

38,155

91,978

130,133

(6,171
)
1988
Apr-14
   5-30
Laurels at Mill Creek
164

Mill Creek, WA
—

1,559

6,430

5,390

1,595

11,784

13,379

(7,694
)
1981
Dec-96
   3-30
Lawrence Station
336

Sunnyvale, CA
—

45,532

106,735

(15
)
45,532

106,720

152,252

(8,451
)
2012
Apr-14
   5-30
Le Parc Luxury Apartments
140

Santa Clara, CA
—

3,090

7,421

11,118

3,092

18,537

21,629

(12,351
)
1975
Feb-94
   3-30
Marbrisa
202

Long Beach, CA
—

4,700

18,605

6,526

4,760

25,071

29,831

(10,771
)
1987
Sep-02
   3-30
Marina City Club (6) 
101

Marina Del Rey, CA
—

—

28,167

40,352

—

68,519

68,519

(17,674
)
1971
Jan-04
   3-30
Marina Cove (7) 
292

Santa Clara, CA
—

5,320

16,431

12,560

5,324

28,987

34,311

(18,435
)
1974
Jun-94
   3-30
Mariner's Place
105

Oxnard, CA
—

1,555

6,103

2,150

1,562

8,246

9,808

(4,584
)
1987
May-00
   3-30
MB 360 Phase I
188

San Francisco, CA
—

21,421

114,376

—

21,421

114,376

135,797

(3,749
)
2014
Apr-14
   3-30
Meadowood
320

Simi Valley, CA
—

7,852

18,592

7,060

7,898

25,606

33,504

(16,003
)
1986
Nov-96
   3-30
Mesa Village
133

Clairemont, CA
—

1,888

7,498

1,250

1,894

8,742

10,636

(3,967
)
1963
Dec-02
   3-30
Mira Monte
355

Mira Mesa, CA
—

7,165

28,459

9,237

7,186

37,675

44,861

(19,094
)
1982
Dec-02
   3-30
Miracle Mile/Marbella
236

Los Angeles, CA
—

7,791

23,075

13,484

7,886

36,464

44,350

(20,985
)
1988
Aug-97
   3-30
Mission Hills
282

Oceanside, CA
—

10,099

38,778

4,996

10,167

43,706

53,873

(16,771
)
1984
Jul-05
   3-30
Mission Peaks
453

Fremont, CA
—

46,499

108,498

1,181

46,499

109,679

156,178

(7,087
)
1995
Apr-14
   5-30
Mission Peaks II
336

Fremont, CA
—

31,429

73,334

2,011

31,429

75,345

106,774

(4,860
)
1989
Apr-14
   5-30
Monterey Villas
122

Oxnard, CA
—

2,349

5,579

5,880

2,424

11,384

13,808

(6,284
)
1974
Jul-97
   3-30
Muse
152

Los Angeles, CA
—

7,822

33,436

2,168

7,823

35,603

43,426

(8,563
)
2011
Feb-11
   3-30
Museum Park
117

San Jose, CA
—

13,864

32,348

476

13,864

32,824

46,688

(2,145
)
2002
Apr-14
   5-30
Paragon
301

Fremont, CA
—

32,230

77,320

328

32,230

77,648

109,878

(3,782
)
2013
Jul-14
   3-30
Park Catalina
90

Los Angeles, CA
—

4,710

18,839

2,281

4,710

21,120

25,830

(2,730
)
2002
Jun-12
   3-30
Park Viridian
320

Anaheim, CA
—

15,894

63,574

1,116

15,894

64,690

80,584

(4,137
)
2008
Apr-14
   5-30

F- 56
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Park West
126

San Francisco, CA
—

9,424

21,988

9,472

9,424

31,460

40,884

(3,667
)
1958
Sep-12
   3-30
Parkwood at Mill Creek
240

Mill Creek, WA
—

10,680

42,722

1,517

10,680

44,239

54,919

(2,875
)
1989
Apr-14
   5-30
Pinehurst (8) 
28

Ventura, CA
—

—

1,711

482

6

2,187

2,193

(1,049
)
1973
Dec-04
   3-30
Pinnacle Crow Canyon
400

San Ramon, CA
—

37,579

87,685

1,717

37,579

89,402

126,981

(5,791
)
1992
Apr-14
   5-30
Pinnacle Sonata
268

Bothell, WA
—

14,647

58,586

564

14,647

59,150

73,797

(3,807
)
2000
Apr-14
   5-30
Radius
264

Redwood City, CA
—

11,702

152,336

28

11,702

152,364

164,066

(7,622
)
2015
Apr-14
   3-30
Reed Square
100

Sunnyvale, CA
—

6,873

16,037

7,750

6,873

23,787

30,660

(4,356
)
1970
Jan-12
   3-30
Regency at Encino
75

Encino, CA
—

3,184

12,737

2,519

3,184

15,256

18,440

(3,896
)
1989
Dec-09
   3-30
Renaissance at Uptown Orange
460

Orange, CA
—

27,870

111,482

1,600

27,870

113,082

140,952

(7,246
)
2007
Apr-14
   5-30
Reveal
438

Woodlands Hills, CA
—

25,073

121,314

232

25,073

121,546

146,619

(3,334
)
2010
Apr-15
   3-30
Salmon Run at Perry Creek
132

Bothell, WA
—

3,717

11,483

1,624

3,801

13,023

16,824

(6,577
)
2000
Oct-00
   3-30
Sammamish View
153

Bellevue, WA
—

3,324

7,501

6,192

3,331

13,686

17,017

(10,310
)
1986
Nov-94
   3-30
101 San Fernando
323

San Jose, CA
—

4,173

58,961

8,048

4,173

67,009

71,182

(13,787
)
2001
Jul-10
   3-30
San Marcos
432

Richmond, CA
—

15,563

36,204

27,780

22,866

56,681

79,547

(23,786
)
2003
Nov-03
   3-30
Santee Court/Santee Village
238

Los Angeles, CA
—

9,581

40,317

4,524

9,582

44,840

54,422

(8,616
)
2004
Oct-10
   3-30
Shadow Point
172

Spring Valley, CA
—

2,812

11,170

2,406

2,820

13,568

16,388

(6,197
)
1983
Dec-02
   3-30
Shadowbrook
418

Redmond, WA
—

19,292

77,168

2,326

19,292

79,494

98,786

(5,082
)
1986
Apr-14
   5-30
Slater 116
108

Kirkland, WA
—

7,379

22,138

513

7,379

22,651

30,030

(1,793
)
2013
Sep-13
   3-30
Solstice
280

Sunnyvale, CA
—

34,444

147,262

4,096

34,444

151,358

185,802

(11,281
)
2014
Apr-14
   5-30
Stonehedge Village
196

Bothell, WA
—

3,167

12,603

5,739

3,201

18,308

21,509

(11,102
)
1986
Oct-97
   3-30
Summit Park
300

San Diego, CA
—

5,959

23,670

4,773

5,977

28,425

34,402

(13,134
)
1972
Dec-02
   3-30
Taylor 28
197

Seattle, WA
—

13,915

57,700

218

13,915

57,918

71,833

(3,686
)
2008
Apr-14
   5-30
The Cairns
100

Seattle, WA
—

6,937

20,679

1,055

6,939

21,732

28,671

(6,340
)
2006
Jun-07
   3-30
The Commons
264

Campbell, CA
—

12,555

29,307

4,687

12,556

33,993

46,549

(7,457
)
1973
Jul-10
   3-30
The Grand
243

Oakland, CA
—

4,531

89,208

5,072

4,531

94,280

98,811

(24,391
)
2009
Jan-09
   3-30
The Hallie on del Mar/Rey/Sol
292

Pasadena, CA
—

2,202

4,794

48,986

8,385

47,597

55,982

(17,675
)
1972
Apr-99
   3-30
The Lofts at Pinehurst
118

Sunnyvale, CA
—

1,570

3,912

4,544

1,618

8,408

10,026

(4,565
)
2012
Apr-14
   3-30
The Pointe at Cupertino
116

Cupertino, CA
—

4,505

17,605

11,510

4,505

29,115

33,620

(11,984
)
1963
Aug-98
   3-30
The Stuart at Sierra Madre
188

Pasadena, CA
—

13,574

54,298

1,486

13,574

55,784

69,358

(3,674
)
2007
Apr-14
   5-30
 The Trails of Redmond
423

Redmond, WA
—

21,930

87,720

2,408

21,930

90,128

112,058

(5,779
)
1985
Apr-14
   5-30
Tiffany Court
101

Los Angeles, CA
—

6,949

27,796

461

6,949

28,257

35,206

(1,811
)
1987
Apr-14
   5-30
Trabuco Villas
132

Lake Forest, CA
—

3,638

8,640

2,605

3,890

10,993

14,883

(6,549
)
1985
Oct-97
   3-30

F- 57
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


 
 
 
 
 
 
Costs
 
 
 
 
 
 
 
 
 
 
 
Initial cost
capitalized
Gross amount carried at close of period
 
 
 
 
 
Apartment
 
 
 
Buildings and
subsequent to
Land and
Buildings and
 
Accumulated
Date of
Date
Lives
Property
Homes
Location
Encumbrance
Land
improvements
acquisition
improvements
improvements
Total (1)
depreciation
construction
acquired
(years)
Tuscana
30

Tracy, CA
—

2,828

6,599

166

2,870

6,723

9,593

(2,668
)
2007
Feb-07
   3-30
Via
284

Sunnyvale, CA
—

22,000

82,270

944

22,016

83,198

105,214

(15,571
)
2011
Jul-11
   3-30
Villa Siena
272

Costa Mesa, CA
—

13,842

55,367

1,333

13,842

56,700

70,542

(3,632
)
1974
Apr-14
   5-30
Village Green
272

La Habra, CA
—

6,488

36,768

2,168

6,488

38,936

45,424

(2,491
)
1971
Apr-14
   5-30
Vista Belvedere
76

Tiburon, CA
—

5,573

11,901

7,360

5,573

19,261

24,834

(7,708
)
1963
Aug-04
   3-30
Vox
58

Seattle, WA
—

5,545

16,635

70

5,545

16,705

22,250

(1,237
)
2013
Oct-13
   3-30
Walnut Heights
163

Walnut, CA
—

4,858

19,168

3,920

4,887

23,059

27,946

(9,514
)
1964
Oct-03
   3-30
Wharfside Pointe
155

Seattle, WA
—

2,245

7,020

10,292

2,258

17,299

19,557

(10,007
)
1990
Jun-94
   3-30
Willow Lake
508

San Jose, CA
—

43,194

101,030

6,615

43,194

107,645

150,839

(12,559
)
1989
Oct-12
   3-30
5600 Wilshire
284

Los Angeles, CA
—

30,535

91,604

471

30,535

92,075

122,610

(5,937
)
2008
Apr-14
   5-30
Wilshire La Brea
478

Los Angeles, CA
—

56,932

211,998

6,259

56,932

218,257

275,189

(16,228
)
2014
Apr-14
   5-30
Windsor Ridge
216

Sunnyvale, CA
—

4,017

10,315

15,210

4,021

25,521

29,542

(15,505
)
1989
Mar-89
   3-30
Woodland Commons
302

Bellevue, WA
—

2,040

8,727

20,544

2,044

29,267

31,311

(14,679
)
1978
Mar-90
   3-30
Woodside Village
145

Ventura, CA
—

5,331

21,036

3,502

5,341

24,528

29,869

(9,667
)
1987
Dec-04
   3-30
 
31,451

 
$
—

$
1,667,597

$
5,970,356

$
754,076

$
1,691,213

$
6,700,816

$
8,392,029

$
(1,177,395
)
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 Costs
 
 
 
 
 
 
 
 
 
 
 
 Initial cost
 capitalized
 Gross amount carried at close of period
 
 
 
 
 
 Square
 
 
 
 Buildings and
 subsequent
 Land and
 Buildings and
 
 Accumulated
Date of
Date
Lives
Property
 Footage
Location
Encumbrance
 Land
improvements
to acquisition
improvements
improvements
Total(1)
depreciation
construction
acquired
(years)
Other real estate assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 Hollywood
34,000

Los Angeles, CA
$
—

$
10,200

$
13,800

$
2,470

$
10,200

$
16,270

$
26,470

$
(5,777
)
1938
Jul-06
    3-30
 Santa Clara Retail
138,915

Santa Clara, CA
—

6,472

11,704

5,556

6,472

17,260

23,732

(4,643
)
1970
Sep-11
    3-30
Derian Office Building
106,564

Irvine, CA
—

3,079

12,315

4,049

4,308

15,135

19,443

(11,162
)
1983
Jul-00
    3-30
 
279,479

 
$
—

$
19,751

$
37,819

$
12,075

$
20,980

$
48,665

$
69,645

$
(21,582
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
2,215,077

$
2,484,492

$
8,598,162

$
1,248,815

$
2,522,842

$
9,808,627

$
12,331,469

$
(1,949,892
)
 
 
 
 
(1) The aggregate cost for federal income tax purposes is approximately $8.9 billion (unaudited).
(2) The land is leased pursuant to a ground lease expiring 2082.

F- 58
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2015
(Dollars in thousands)


(3) The land is leased pursuant to a ground lease expiring 2070.
(4) The land is leased pursuant to a ground lease expiring 2030.
(5) The land is leased pursuant to a ground lease expiring 2027.
(6) The land is leased pursuant to a ground lease expiring 2067.
(7) A portion of land is leased pursuant to a ground lease expiring in 2028.
(8) The land is leased pursuant to a ground lease expiring in 2028.

A summary of activity for rental properties and accumulated depreciation is as follows:
 
2015
 
2014
 
2013
 
2015
 
2014
 
2013
Rental properties:
 
 
 
 
 
Accumulated depreciation:
 
 
 
 
 
Balance at beginning of year
$
11,244,681

 
$
5,443,757

 
$
5,033,672

Balance at beginning of year
$
1,564,806

 
$
1,254,886

 
$
1,081,517

Improvements
220,895

 
135,812

 
92,016

Depreciation expense - Acquisitions
15,734

 
121,426

 
6,203

Acquisition of real estate (1)
805,124

 
5,678,054

 
344,476

Depreciation expense - Discontinued operations
—

 
—

 
12,290

Development of real estate
307,083

 
19,751

 
14,111

Depreciation expense - Rental properties
386,953

 
199,495

 
168,092

Disposition of real estate
(246,314
)
 
(32,693
)
 
(40,518
)
Dispositions
(17,601
)
 
(11,001
)
 
(13,216
)
Balance at the end of year
$
12,331,469

 
$
11,244,681

 
$
5,443,757

Balance at the end of year
$
1,949,892

 
$
1,564,806

 
$
1,254,886


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

F- 59
Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Mateo, State of California, on February 26, 2016.
 
ESSEX PROPERTY TRUST, INC.
 
 
 
By:  /S/ ANGELA L. KLEIMAN
 
Angela L. Kleiman
 
Executive Vice President, Chief Financial Officer
(Authorized Officer, Principal Financial Officer)
 
 
 
By:  /S/ JOHN FARIAS
 
John Farias
 
Group Vice President, Chief Accounting Officer
 
 
 
ESSEX PORTFOLIO, L.P.
By: Essex Property Trust, Inc., its general partner
 
 
 
By:  /S/ ANGELA L. KLEIMAN
 
Angela L. Kleiman
 
Executive Vice President, Chief Financial Officer
(Authorized Officer, Principal Financial Officer)
 
 
 
By:  /S/ JOHN FARIAS
 
John Farias
 
Group Vice President, Chief Accounting Officer


S-1
Table of Contents

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael J. Schall and Angela L. Kleiman, and each of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each Registrant and in the capacities and on the dates indicated.
 
 
Signature
 
 
Title
 
 
Date
 
 
 
/S/ MICHAEL J. SCHALL
Michael J. Schall
Chief Executive Officer and President, and Director (Principal Executive Officer)
February 26, 2016
 
 
 
/S/ KEITH R. GUERICKE
Keith R. Guericke
Director, and Vice Chairman of the Board
 
February 26, 2016
 
 
 
/S/ GEORGE M. MARCUS
George M. Marcus
Director and Chairman of the Board
February 26, 2016
 
 
 
/S/ DAVID W. BRADY
David W. Brady
Director
February 26, 2016
 
 
 
/S/ IRVING F. LYONS, III
Irving F. Lyons, III
Director
February 26, 2016
 
 
 
/S/ GARY P. MARTIN
Gary P. Martin
Director
February 26, 2016
 
 
 
/S/ ISSIE N. RABINOVITCH
Issie N. Rabinovitch
Director
February 26, 2016
 
 
 
/S/ THOMAS E. ROBINSON
Thomas E. Robinson
Director
February 26, 2016
 
 
 
/S/ BYRON A. SCORDELIS
Byron A. Scordelis
Director
February 26, 2016
 
 
 
/S/ JANICE L. SEARS
Janice L. Sears
Director
February 26, 2016
 
 
 
/S/ THOMAS P. SULLIVAN
Thomas P. Sullivan
Director
February 26, 2016
 
 
 
/S/ CLAUDE J. ZINNGRABE
Claude J. Zinngrabe
Director
February 26, 2016

S-2
Table of Contents

EXHIBIT INDEX
Exhibit No.
Document
 
 
3.1
Articles of Amendment and Restatement of Essex Property Trust, Inc., attached as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed May 17, 2013, and incorporated herein by reference.
 
 
3.2
Fourth Amended and Restated Bylaws of Essex Property Trust, Inc. (as of February 24, 2015), attached as Exhibit 3.2 to the Company's Current Report on Form 8-K, filed March 2, 2015, and incorporated herein by reference.
 
 
3.3
Certificate of Limited Partnership of Essex Portfolio, L.P. and amendments thereto, attached as Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2013, and incorporated herein by reference.
 
 
4.1
Form of 7.125% Series H Cumulative Redeemable Preferred Stock Certificate, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 13, 2011, and incorporated herein by reference.
 
 
4.2
Indenture, dated August 15, 2012, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.625% Senior Notes due 2022 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed August 15, 2012, and incorporated herein by reference.
 
 
4.3
Indenture, dated April 15, 2013, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.25% Senior Notes due 2023 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed April 15, 2013, and incorporated herein by reference.
 
 
4.4
Form of Common Stock Certificate of Essex Property Trust, Inc., filed as Exhibit 4.5 to the Company's Form S-4 Registration Statement, filed January 29, 2014, and incorporated herein by reference.
 
 
4.5
Indenture governing 5.500% Senior Notes due 2017, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.500% Senior Notes due 2017, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.6
Indenture governing 5.200% Senior Notes due 2021, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 5.200% Senior Notes due 2021, attached as Exhibit 4.2 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.7
Indenture governing 3.375% Senior Notes due 2023, dated April 4, 2014, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and U.S. Bank National Association, as trustee, including the form of 3.375% Senior Notes due 2023, attached as Exhibit 4.3 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.8
Registration Rights Agreement related to the 5.500% Senior Notes due 2017, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.7 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.9
Registration Rights Agreement related to the 5.200% Senior Notes due 2021, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.8 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.10
Registration Rights Agreement related to the 3.375% Senior Notes due 2023, dated April 4, 2014, between Essex Portfolio, L.P. and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC, attached as Exhibit 4.9 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 10, 2014, and incorporated herein by reference.
 
 
4.11
Indenture, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.875% Senior Notes due 2024 and the guarantee thereof, attached as Exhibit 4.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 16, 2014, and incorporated herein by reference.
 
 
4.12
Registration Rights Agreement, dated April 15, 2014, among Essex Portfolio, L.P., Essex Property Trust, Inc., and Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC as representatives of the several initial purchasers, attached as Exhibit 10.1 to Essex Property Trust, Inc.'s Current Report on Form 8-K, filed April 16, 2014, and incorporated herein by reference.
 
 

Table of Contents

4.13
Indenture, dated March 17, 2015, among Essex Portfolio, L.P., Essex Property Trust, Inc., and U.S. Bank National Association, as trustee, including the form of 3.500% Senior Notes due 2025 and the guarantee thereof, attached as Exhibit 4.1 to the Company's Current Report on Form 8-K, filed March 17, 2015, and incorporated herein by reference.
 
 
10.1
Agreement between Essex Property Trust, Inc. and George M. Marcus, dated March 27, 2003 attached as Exhibit 10.32 to the Company's Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
 
 
10.2
Essex Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, and incorporated herein by reference.*
 
 
10.3
2005 Deferred Compensation Plan (as amended and restated) of Essex Portfolio, L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 8, 2008, and incorporated herein by reference.*
 
 
10.4
Form of Indemnification Agreement between Essex Property Trust, Inc. and its directors and officers, attached as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed February 25, 2011, and incorporated herein by reference.*
 
 
10.5
Note Purchase Agreement, dated as of March 31, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the form of the 4.36% Senior Guaranteed Notes, due March 31, 2016), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed April 1, 2011, and incorporated herein by reference. †
 
 
10.6
Note Purchase Agreement, dated as of June 30, 2011, among Essex Portfolio, L.P., Essex Property Trust, Inc. and the purchasers of the notes party thereto (including the forms of the 4.50% Senior Guaranteed Notes, Series A, due September 30, 2017, and the 4.92% Senior Guaranteed Notes, Series B, due December 30, 2019), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed July 5, 2011, and incorporated herein by reference. †
 
 
10.7
Amended and Restated 2004 Non-Employee Director Equity Award Program, dated May 1, 2011, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, and incorporated herein by reference.*
 
 
10.8
Amended and Restated Revolving Credit Agreement, dated as of September 16, 2011, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent, Swing Line Lender and C Issuer, and other lenders as specified therein, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, and incorporated herein by reference.
 
 
10.9
Note Purchase Agreement, dated as of March 14, 2012, among Essex Portfolio, L.P., the Company and the purchasers of the notes party thereto (including the forms of the 4.27% Senior Guaranteed Notes, Series C, due April 30, 2021, the 4.30% Senior Guaranteed Notes, Series D, due June 29, 2021, and the 4.37% Senior Guaranteed Notes, Series E, due August 30, 2021), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on March 20, 2012, and incorporated herein by reference. †
 
 
10.10
First Amendment to Amended and Restated Revolving Credit Agreement, dated May 31, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
 
 
10.11
Modification Agreement, dated July 30, 2012, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, and incorporated herein by reference.
 
 
10.12
Amendment to Agreement, dated as of September 11, 2012, between the Company and George Marcus, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, and incorporated herein by reference.
 
 
10.13
Essex Property Trust, Inc. Executive Severance Plan (as Amended and Restated effective March 12, 2013), attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed March 18, 2013, and incorporated herein by reference.*
 
 
10.14
Second Amendment to Amended and Restated Revolving Credit Agreement, dated August 30, 2012, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and C Issuer and the other lenders party thereto, attached as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
 
 

Table of Contents

10.15
Third Amendment to Amended and Restated Revolving Credit Agreement, dated January 22, 2013, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and C Issuer and the other lenders party thereto, attached as Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, and incorporated herein by reference.
 
 
10.16
Essex Property Trust, Inc. 2013 Stock Award and Incentive Compensation Plan, attached as Appendix B to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*
 
 
10.17
Essex Property Trust, Inc. 2013 Employee Stock Purchase Plan, attached as Appendix C to the Company's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Stockholders held May 14, 2013, filed April 1, 2013, and incorporated herein by reference.*
 
 
10.18
Forms of equity award agreements for officers under the 2013 Stock Award and Incentive Compensation Plan, attached as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.*
 
 
10.19
Company's Non-Employee Director Equity Award Program and forms of equity award agreements thereunder, attached as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and incorporated herein by reference.*
 
 
10.20
Third Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., dated as of December 10, 2013, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed December 12, 2013, and incorporated herein by reference.*
 
 
10.21
Fourth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 29, 2014, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and the other lenders party thereto, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.
 
 
10.22
Third Modification Agreement, dated as of January 29, 2014 by and among Essex Portfolio, L.P., U.S. Bank National Association, as Administrative Agent and Lender and the other lenders party thereto, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed January 31, 2014, and incorporated herein by reference.
 
 
10.23
BRE Properties, Inc. 1999 Stock Incentive Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.1 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
 
 
10.24
BRE Properties, Inc. Fifth Amended and Restated Non-Employee Stock Option and Restricted Stock Plan (assumed by Essex Property Trust, Inc.), attached as Exhibit 99.2 to Essex Property Trust, Inc.'s Registration Statement on Form S-8, filed April 1, 2014, and incorporated herein by reference.*
 
 
10.25
Form of Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated August 28, 2014, attached as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed September 2, 2014, and incorporated herein by reference.
 
 
10.26
Form of Amended & Restated Equity Distribution Agreement between Essex Property Trust, Inc. and various entities, dated August 28, 2014, attached as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed September 2, 2014, and incorporated herein by reference.
 
 
10.27
Fifth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 22, 2015, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto, attached as Exhibit 10.27 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.
 
 
10.28
Forms of Essex Property Trust, Inc., Essex Portfolio L.P., Long-Term Incentive Plan Award Agreements, attached as Exhibit 10.28 to the Company's Annual Report on Form 10-K, filed March 2, 2015, and incorporated herein by reference.*
 
 
10.29
Terms Agreement dated as of May 20, 2015, among Essex Property Trust, Inc. and Citigroup Global Markets Inc., attached as Exhibit 1.1 to the Company's Current Report on Form 8-K, filed on May 26, 2015, and incorporated herein by reference.
 
 
10.30
Sixth Amendment to Amended and Restated Revolving Credit Agreement, dated as of January 19, 2016, by and among Essex Portfolio, L.P., PNC Bank, National Association, as Administrative Agent and L/C Issuer and other lenders party thereto.
 
 
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. and Essex Portfolio, L.P.

Table of Contents

 
 
23.1
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
 
 
23.2
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
 
 
24.1
Power of Attorney (see signature page)
 
 
31.1
Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.3
Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.4
Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification of Michael J. Schall, Principal Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification of Angela L. Kleiman, Principal Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.3
Certification of Michael J. Schall, Principal Executive Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.4
Certification of Angela L. Kleiman, Principal Financial Officer of General Partner, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensatory plan or arrangement.

† The schedules and certain exhibits to this agreement, as set forth in the agreement, have not been filed herewith. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.