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, 2018
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:   001-13106 (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
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Essex Property Trust, Inc.    Yes 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 (§229.405 of this chapter)
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.    x
Essex Portfolio, L.P.     x

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

Essex Property Trust, Inc.:
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o   
Smaller reporting company o
 
 
 
Emerging growth company o


Essex Portfolio, L.P.:
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x  
Smaller reporting company o
 
 
 
Emerging growth company o

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

Essex Property Trust, Inc.    o   
Essex Portfolio, L.P.     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, 2018 , the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $15,684,127,225. 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 15, 2019 , 65,692,107 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.



DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement to be filed with the Securities and Exchange Commission (the "SEC") pursuant to Regulation 14A in connection with the 2019 annual meeting of stockholders of Essex Property Trust, Inc. are incorporated by reference in Part III of this Annual Report on Form 10-K. Such Proxy Statement will be filed with the SEC within 120 days of
December 31, 2018 .
 



EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2018 of Essex Property Trust, Inc., a Maryland corporation, and Essex Portfolio, L.P., a Delaware limited partnership of which Essex Property Trust, Inc. is the sole general partner.

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

Essex operates as a self-administered and self-managed real estate investment trust ("REIT"), and is the sole general partner of the Operating Partnership. As of December 31, 2018 , Essex owned approximately 96.6% of the ownership interest in the Operating Partnership with the remaining 3.4% interest owned by limited partners. As the sole general partner of the Operating Partnership, Essex has exclusive control of the Operating Partnership's day-to-day management.

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

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

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

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

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

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

iii

consolidated financial statements include (i) the same noncontrolling interest as presented in the Operating Partnership’s consolidated financial statements and (ii) OP Unit holders. The differences between stockholders' equity and partners' capital result from differences in the equity issued at Essex and Operating Partnership levels.

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

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

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

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

The accompanying consolidated financial statements should be read in conjunction with the notes to such consolidated financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations herein.


iv

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
2018 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.
Item 16.
 


v
Table of Contents

PART I
Forward-Looking Statements
 
This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange Act.  Such forward-looking statements are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, "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"), a Maryland corporation, is an S&P 500 company that operates as a self-administered and self-managed real estate investment trust ("REIT"). Essex 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"). Essex is the sole general partner of the Operating Partnership and as of December 31, 2018 , had an approximately 96.6% general partnership interest in the Operating Partnership. In this report, the terms the "Company," "we," "us," and "our" also refer to Essex Property Trust, Inc., the Operating Partnership and those entities/subsidiaries owned or controlled by Essex and/or the Operating Partnership.

Essex has elected to be treated as a REIT for federal income tax purposes, commencing with the year ended December 31, 1994. Essex completed its 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 for financial reporting purposes.

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities, located along the West Coast of the United States. As of December 31, 2018 , the Company owned or had ownership interests in 245 operating apartment communities, aggregating 59,661 apartment homes, excluding the Company's ownership in preferred equity co-investments, loan investments, one operating commercial building with approximately 106,716 square feet and six active development projects with 1,861 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 markets and focusing on the following strategic criteria:

•
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 enhanced by affordability of rents relative to costs of for-sale housing; and
•
Housing demand 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

1

allocation in markets projected to have the strongest local economies and to decrease allocations in markets projected to have declining economic conditions. Likewise, the Company also seeks to increase its portfolio allocation in markets that have attractive property valuations and to decrease 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 tenants and manage the properties financial performance.
•
Capital Preservation – The Company's asset management services are 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

Acquisitions of Real Estate

Acquisitions are an important component of the Company’s business plan, and during 2018 , the Company acquired ownership interests in two communities comprised of 384 apartment homes for $139.4 million . 

The following is a summary of 2018 acquisitions ($ in millions):
 
Property Name
 
Location
 
Apartment Homes
 
Essex Ownership Percentage
 
Ownership
 
Quarter in 2018
 
Purchase Price
 
Meridian at Midtown
 
San Jose, CA
 
218

 
50
%
 
Wesco V
 
Q4
 
104.0

(1)  
Marquis (2)
 
San Jose, CA
 
166

 
100
%
 
EPLP
 
Q4
 
35.4

 
Total 2018
 
384

 
 

 
 
 
 
 
$
139.4

 

(1)  
Meridian at Midtown contract price represents the total contract price at 100%.
(2)  
In December 2018, the Company purchased the joint venture partner's 49.9% membership interest in the Marquis co-investment. As part of the acquisition, the Company paid $4.7 million in cash and issued Operating Partnership units for the remaining equity based on an estimated gross property valuation of $71.0 million and an encumbrance of $45.8 million of mortgage debt.

Dispositions of Real Estate

As part of its strategic plan to own quality real estate in supply-constrained markets, the Company continually evaluates all of its 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 to 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.

In June 2018 , the Company sold Domain, a 379 apartment home community located in San Diego, CA for $132.0 million, resulting in a gain of $22.3 million for the Company.

In November 2018, a Company co-investment, BEXAEW, LLC ("BEXAEW") sold Enclave at Town Square, a 124 apartment home community located in Chino Hills, CA, for $30.5 million, resulting in a gain of $5.4 million for the Company.


2

In November 2018, a Company co-investment, Wesco III, LLC ("Wesco III") sold The Summit, a 125 apartment home community located in Chino Hills, CA, for $34.8 million, resulting in a gain of $5.2 million for the Company.

In December 2018, the Company sold 8th & Hope, a 290 apartment home community located in Los Angeles, CA for $220.0 million, resulting in a gain of $39.6 million for the Company.

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, 2018 , the Company's development pipeline was comprised of four consolidated projects under development and two joint venture projects under development aggregating 1,861 apartment homes, with total incurred costs of $812.0 million , and estimated remaining project costs of approximately $417.0 million , $310.0 million of which represents the Company's estimated remaining costs, for total estimated project costs of $1.2 billion .

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, 2018 , the Company had various consolidated predevelopment projects. The Company may also acquire land for future development purposes or sale.

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

 
 
  
 
 
 
 
 
As of
 
 
 
 
 
 
 
 
12/31/2018
 
 
  
 
Essex
 
 
 
Incurred
 
Estimated
Development Pipeline
 
Location
 
Ownership%
 
Apartment Homes
 
Project Cost (1)
 
Project Cost (1)
Development Projects - Consolidated
 
 
 
 
 
 
 
 
 
 
Station Park Green - Phase II
 
San Mateo, CA
 
100%
 
199

 
$
110

 
$
141

Station Park Green - Phase III
 
San Mateo, CA
 
100%
 
172

 
87

 
124

Gateway Village
 
Santa Clara, CA
 
100%
 
476

 
155

 
226

Hollywood
 
Hollywood, CA
 
100%
 
200

 
43

 
105

Total - Consolidated Development Projects
 
 
 
 
 
1,047

 
395

 
596

Development Projects - Joint Venture
 
 
 
 
 
 

 
 

 
 

Ohlone
 
San Jose, CA
 
50%
 
269

 
70

 
136

500 Folsom (2)
 
San Francisco, CA
 
50%
 
545

 
265

 
415

Total - Joint Venture Development Projects
 
 
 
 
 
814

 
335

 
551

Predevelopment Projects - Consolidated
 
 
 
 
 
 

 
 

 
 

Other Projects
 
Various
 
100%
 
—

 
71

 
71

Total - Consolidated Predevelopment Projects
 
 
 
 
 
—

 
71

 
71

Predevelopment Projects - Joint Venture
 
 
 
 
 
 
 
 
 
 
Other Projects
 
Various
 
50%
 
—

 
11

 
11

Total - Joint Venture Predevelopment Projects
 
 
 
 
 
—

 
11

 
11

Grand Total - Development and Predevelopment Pipeline
 
 
 
 
 
1,861

 
$
812

 
$
1,229


(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 cost for this development is net of a projected value for low-income housing tax credit proceeds and the value of the tax exempt bond structure.

3


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, 2018 , the Company had ownership interests in five major redevelopment communities aggregating 1,727 apartment homes with estimated redevelopment costs of $140.1 million , of which approximately $27.8 million remains to be expended.

Long Term Debt

During 2018 , the Company made regularly scheduled principal payments and loan payoffs of $297.5 million of its secured mortgage notes payable at an average interest rate of 5.1% .

In March 2018, the Company issued $300.0 million of 30-year 4.500% senior unsecured notes that mature on March 15, 2048. The interest is payable semi-annually in arrears on March 15 and September 15 of each year, commencing September 15, 2018, until the maturity date on March 15, 2048. The Company used the net proceeds of this offering to repay indebtedness under its unsecured credit facilities and for other general corporate and working capital purposes.

Bank Debt

As of December 31, 2018 , Fitch Ratings, Moody’s Investor Service, and Standard and Poor's ("S&P") credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Positive, Baa1/Stable, and BBB+/Stable, respectively.

At December 31, 2018, the Company had two lines of unsecured credit aggregating $1.24 billion. The Company's $1.2 billion credit facility had an interest rate of LIBOR plus 0.875%, with a scheduled maturity date in December 2021 with one 18-month extension, exercisable at the Company's option. In January 2019, the line of credit facility was amended such that the scheduled maturity date was extended to December 2022 with one 18-month extension, exercisable at the Company's option. The interest rate on the amended line is based on a tiered rate structure tied to the Company's corporate ratings and is currently at LIBOR plus 0.825%. The Company's $35.0 million working capital unsecured line of credit had an interest rate of LIBOR plus 0.875%, with a scheduled maturity date in January 2020.

Equity Transactions

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

Upon entering into the 2018 ATM Program, the Company simultaneously terminated its existing equity distribution agreements, which were entered into in March 2016 in connection with its prior at-the-market equity offering program (the "2016 ATM Program"). During the year ended December 31, 2018, the Company did not sell any shares of its common stock through the 2018 ATM Program or through the 2016 ATM Program. Since commencement of the 2018 ATM Program, as of December 31, 2018, the Company has not sold any shares of its common stock and there are no outstanding forward sale agreements, and $900.0 million of shares remains available to be sold under the 2018 ATM 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 or other investments owned directly by the joint venture or partnership. For each joint venture the Company holds a non-controlling interest in the venture and earns customary management fees and may earn development fees, asset property management fees, and a promote interest.

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

4


OFFICES AND EMPLOYEES

The Company is headquartered in San Mateo, CA, and has regional offices in Woodland Hills, CA; Irvine, CA; San Diego, CA and Bellevue, WA. As of December 31, 2018 , the Company had 1,826 employees.

INSURANCE

The Company purchases general liability and property insurance coverage, including loss of rent, 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 property losses. As of December 31, 2018 , PWI had cash and marketable securities of approximately $86.6 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 in most cases property vulnerability analysis based on structural evaluations by 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. In most cases 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.
COMPETITION

There are numerous housing alternatives that compete with the Company’s communities in attracting tenants. 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 REITs, 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 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 its reasonably anticipated cash needs during 2019 .

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.




5

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 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, Northern California, 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.

6

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. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unitholders. 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 Essex's stockholders or the Operating Partnership's unitholders will be adversely affected. Income from the communities may be further adversely affected by, among other things, the following factors:
•
changes in the general economic or local climate, including layoffs, plant closings, industry slowdowns, relocations of significant local employers and other events negatively impacting local employment rates and wages and the local economy;
•
local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing;
•
the attractiveness of our communities to tenants;
•
inflationary environments in which the costs to operate and maintain communities increase at a rate greater than our ability to increase rents, or deflationary environments where we may be exposed to declining rents more quickly under our short-term leases;
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competition from other available housing alternatives;
•
changes in rent control or stabilization laws or other laws regulating housing;
•
the Company’s ability to provide for adequate maintenance and insurance;
•
declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants;
•
tenants' perceptions of the safety, convenience and attractiveness of our communities and the neighborhoods where they are located; and
•
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, including, without limitation, the Americans with Disabilities Act of 1990 (the "Disabilities Act"), Fair Housing Amendment Act of 1988 (the "FHAA"), permanent and temporary rent control laws, rent stabilization laws, other laws regulating housing that may prevent the Company from raising rents to offset increased operating expenses, and tax laws.
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.
National and regional economic environments can negatively impact the Company’s liquidity and 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. A recession may affect consumer confidence and spending and negatively impact the volume and pricing of real estate transactions, which could negatively affect the Company’s liquidity and its ability to vary its portfolio promptly in response to changes to the economy. Furthermore, if residents do not experience increases in their income, they may be unable or unwilling to pay rent increases, and delinquencies in rent payments and rent defaults may increase.


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Rent control, or other changes in applicable laws, or noncompliance with applicable laws, could adversely affect the Company's operations or expose us to liability. The Company must own, operate, manage, acquire, develop and redevelop its properties in compliance with numerous federal, state and local laws and regulations, some of which may conflict with one another or be subject to limited judicial or regulatory interpretations. These laws and regulations may include zoning laws, building codes, rent control or stabilization laws, federal, state and local tax laws, landlord tenant laws, environmental laws, employment laws, immigration laws and other laws regulating housing or that are generally applicable to the Company's business and operations. Noncompliance with laws could expose the Company to liability. If the Company does not comply with any or all of these requirements, it may have to pay fines to government authorities or damage awards to private litigants. The Company does not know whether these requirements will change or whether new requirements will be imposed. Changes in, or noncompliance with, these regulatory requirements could require the Company to make significant unanticipated expenditures, which could have a material adverse effect on the Company's financial condition, results of operations or cash flows.
In addition, rent control or rent stabilization laws and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants. There has been a recent increase in municipalities, including those in which we own properties, considering or being urged by advocacy groups to consider rent control or rent stabilization laws and regulations or take other actions which could limit our ability to raise rents based solely on market conditions. These initiatives and any other future enactments of rent control or rent stabilization laws or other laws regulating multifamily housing, as well as any lawsuits against the Company arising from such rent control or other laws, may reduce rental revenues or increase operating costs. Such laws and regulations limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses and could reduce the value of our communities or make it more difficult for us to dispose of properties in certain circumstances. Expenses associated with our investment in these communities, such as debt service, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental income from the community. Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such communities.
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. In addition, following an acquisition, the value and operational performance of an apartment community may be diminished if obsolescence or neighborhood changes occur before we are able to redevelop or sell the community. Also, in connection with such acquisitions, we may assume unknown liabilities, which could ultimately lead to material costs for us that we did not expect to incur. 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 joint ventures 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.
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 and/or the timing of which may be delayed from the Company’s expectations. 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, and redevelopment projects as existing properties owned or recently acquired that have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement. As of December 31, 2018, the Company had four consolidated development projects and two joint venture development projects comprised of 1,861 apartment homes for an estimated cost of $1.2 billion, of which $417.0 million remains to be expended, and $310.0 million is the Company's share. In addition, at December 31, 2018, the Company had ownership interests in five major redevelopment projects aggregating 1,727 apartment homes with estimated redevelopment costs of $140.1 million, of which approximately $27.8 million remains to be expended.
The Company’s development and redevelopment activities generally entail certain risks, including, among others:
•
funds may be expended and management's time devoted to projects that may not be completed on time or at all;
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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, or environmental remediation;
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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 or redevelopment projects may be higher than anticipated, including, without limitation, due to costs of environmental remediation or increased costs for labor, materials and leasing;
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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;
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we may be unable to obtain financing with favorable terms, or at all, for the proposed development or redevelopment of a community, which may cause us to delay or abandon an opportunity; and
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we may incur liabilities to third parties during the development process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements.)

These risks may reduce the funds available for distribution to the Essex’s stockholders and the Operating Partnership's unitholders. 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."
Investments in mortgages, mezzanine loans, subordinated debt, other real estate, and other marketable securities could adversely affect the Company’s cash flow from operations. The Company may invest in equity, preferred equity or debt securities related to real estate and/or other investment securities and/or cash investments, which could adversely affect the Company’s ability to make distributions to Essex's stockholders or the Operating Partnership's unitholders, including, without limitation, due to a decline in the value of such investments. The Company may also purchase or otherwise invest in securities issued by entities which own real estate and/or invest in mortgages or unsecured debt obligations. Such mortgages may be first, second or third mortgages, and these mortgages and/or other investments may not be insured or otherwise guaranteed. The Company may make or 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.
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.
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, 2018 , 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, 2018 , 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

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below expectations. In general, factors that may adversely affect local market and economic conditions include, among others, the following:

•
the economic climate, which may be adversely impacted by a reduction in jobs or income levels, industry slowdowns, changing demographics and other factors;
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local conditions, such as oversupply of, or reduced demand for, apartment homes;
•
declines in household formation or employment or lack of employment growth;
•
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, or the inability or unwillingness of tenants to pay rent increases;
•
competition from other available apartments and other housing alternatives and changes in market rental rates;
•
economic conditions that could cause an increase in our operating expenses, including increases in property taxes, utilities and routine maintenance; and
•
regional specific acts of nature (e.g., earthquakes, fires, floods, etc.).

Because the Company’s communities are primarily located in Southern California, Northern California and the Seattle metropolitan area, the Company is exposed to greater economic concentration risks than if it owned a more geographically diverse portfolio. The Company is susceptible to adverse developments in California and Washington economic and regulatory environments, such as increases in real estate and other taxes, and increased costs of complying with governmental regulations. In addition, the State of California is generally regarded as more litigious and more highly regulated and taxed than many states, which may reduce demand for the Company’s communities. Any adverse developments in the economy or real estate markets in California or Washington, or any decrease in demand for the Company’s communities resulting from the California or Washington regulatory or business environments, could have an adverse effect on the Company’s business and results of operations.

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. Further, changes in U.S. federal tax law, including U.S. tax legislation enacted in December 2017 (the "2017 Tax Legislation"), could cause state and local governments to alter their taxation of real property.

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. In some cases, we may spend more than budgeted amounts to make necessary improvements or maintenance. 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 and other housing alternatives 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 tenants. These include other apartment communities, condominiums and single-family homes that are available for rent or for sale in the markets in which our communities are located. Competitive housing in a particular area and the increasing affordability of owner-occupied single- and multifamily homes caused by lower housing prices, mortgage interest rates and government programs to promote home ownership or create additional rental and/or other types of housing, could adversely affect the Company’s ability to retain its tenants, 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 companies, REITs, businesses and other entities in the acquisition, development and operation of apartment communities. This competition may result in an increase in prices and costs of apartment communities that the Company acquires and/or develops.

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The Company’s ownership of co-investments, including joint ventures and joint ownership of communities, its ownership of properties with shared facilities with a homeowners' association or other entity, its ownership of properties subject to a ground lease and its preferred equity investments and its other partial interests in entities that own communities, could limit the Company’s ability to control such communities and may restrict our ability to finance, sell or otherwise transfer our interests in these properties and expose us to loss of the properties if such agreements are breached by us or terminated.
The Company has entered into, and may continue in the future to enter into certain co-investments, including joint ventures or partnerships through which it owns an indirect economic interest in less than 100% of the community or land or other investments owned directly by the joint venture or partnership. As of December 31, 2018 , the Company had, through several joint ventures, an interest in 10,613 apartment homes in operating communities for a total book value of $833.3 million.

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 partner's 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. A joint venture partner might fail to approve decisions that are in the Company’s best interests. 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 co-investments in the form of preferred equity investments in third party entities that own real estate and may continue in the future to make such preferred equity or other co-investments. With preferred equity investments and certain other co-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 co-investment 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 co-investment 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 co-investment. In the event that such co-investment becomes insolvent or fails to develop or operate the property in the manner anticipated and expected, the Operating Partnership may not receive the expected return in its expected timeframe or at all and may lose up to its entire investment in, and any advances to, the co-investment. 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 entered into, 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, if such assets consist of real property, defer recognition of gain on sale of such assets pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue Code of 1986, as amended (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.
Also, from time to time, the Company invests in properties which may be subject to certain shared facilities agreements with homeowners' associations and other entities and/or invests in properties subject to ground leases where a subtenant may have certain similar rights to that of a party under such a shared facilities agreement. For such properties, the Company's ability to control the expenditure of capital improvements and its allocation with such other parties may adversely affect the Company's business, financial condition and results of operations.
We may pursue acquisitions of other REITs and real estate companies, which may not yield anticipated results and could adversely affect our results of operations. We may make acquisitions of and investments in other REITs and real estate companies that offer 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. There can be no assurance 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

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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.
These transactions or any other acquisitions 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. The expected synergies from acquisitions may not be fully realized, which could result in increased costs or other issues and have an adverse effect on our business. 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 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 Essex's existing stockholders and the Operating Partnership's unitholders. 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.
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 limited. Real estate investments are illiquid and in our markets can at times be difficult to sell at prices we find acceptable. We may be unable to consummate such dispositions in a timely manner, on attractive terms, or at all. 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. In addition, if we are found to have held, acquired or developed a community as inventory or primarily for sale to customers in the ordinary course of business, 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").
Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The FHAA requires that multifamily communities first occupied after March 13, 1991 be accessible to handicapped tenants and visitors. These and other federal, state and local laws and regulations 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 may not be able to lease its retail/commercial space consistent with its projections or at market rates. The Company has retail/commercial space in its portfolio, which represents approximately 2% of our total revenue. The retail/commercial space at our properties, among other things, serve as additional amenity for our tenants. The long term nature of our retail/commercial leases, and characteristics of many of our retail/commercial tenants (small, local businesses) may subject us to certain risks. We may not be able to lease new space for rents that are consistent with our projections or at market rates, and the longer term leases for existing space could result in below market rents over time. Also, when leases for our existing retail/commercial space expire, the space may not be relet or the terms of reletting, including the cost of allowances and concessions to tenants, may be less favorable that the current lease terms. Our properties compete with other properties with retail/commercial space. The presence of competitive alternatives may affect our ability to lease space and the level of rents we can obtain. If our retail/commercial tenants experience financial distress or bankruptcy, they may fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations, which could adversely impact our results of operations and financial condition.
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

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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 property 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.
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 (direct or indirect), operation, financing, management and development of its communities, the Company could be considered as the owner or operator of such properties or as having arranged for disposal or treatment of hazardous substances present there and therefore 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 may involve invasive techniques such as soil or ground water sampling 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.
Certain environmental laws impose liability for release of asbestos-containing materials ("ACMs") into the air or exposure to lead-based paint ("LBP"), and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs or LBP.
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 multifamily 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 impact mold might have on tenants of the property. The Company believes its mold policies and proactive response to address any known mold 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, we 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

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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 Essex's stockholders or the Operating Partnership's unitholders, 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 property, including loss of rent, insurance coverage for each of its communities. The Company may also purchase limited earthquake, terrorism, environmental and flood insurance for some of its communities. However, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, pollution, environmental matters or extreme weather conditions such as hurricanes, fires and floods that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums the Company pays for coverage against property and casualty claims. The Company utilizes a wholly owned insurance subsidiary, Pacific Western Insurance LLC ("PWI"), to self-insure certain earthquake and property losses for some of the communities in its portfolio. As of December 31, 2018, PWI has cash and marketable securities of approximately $86.6 million, and is consolidated in the Company's financial statements. The value of the marketable securities of PWI could decline, and if a decline in value were to occur, PWI's ability to cover all or any portion of the amount of any insured losses could be adversely affected.
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 in most cases property vulnerability analysis 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, in some cases, 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 management's view, not economically practical. The Company may purchase limited earthquake insurance for certain high-density properties and in most cases 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, Northern California, 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. Our communities could also directly or indirectly be the location or target of actual or threatened terrorist attacks, crimes, shootings, other acts of violence or other incidents beyond our control, the occurrence of which could directly impact the value of our communities through damage, destruction, loss or increased security costs, as well as operational losses due to reduction of traffic and rental demand for our communities, and the availability of insurance for such acts may be limited or may be subject to substantial costs. If such an incident were to occur at one of our communities, we may also be subject to significant liability claims. Such events and losses could significantly affect our ability to operate those communities and materially impair our ability to achieve our expected results. Additionally, we may be obligated to continue to pay any mortgage indebtedness and other obligations relating to affected properties.

Although the Company may carry insurance for potential losses associated with its communities, employees, tenants, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material. In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses. Changes in building codes and ordinances, environmental considerations and other factors might also affect the Company’s ability to replace or renovate an apartment community after it has been damaged or destroyed. In addition, certain causalities and/or losses incurred may expose the Company in the future to higher insurance premiums.


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Climate change may adversely affect our business. To the extent that climate change does occur, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage or a decrease in demand for our communities located in these areas or affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations may be adversely affected.

In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing communities and could also require us to spend more on our new development communities without a corresponding increase in revenue. For example, various federal, regional and state laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions, including the recently updated California energy efficiency standards, referred to as Title 24 or The Energy Efficiency Standards for Residential and Nonresidential Buildings. Among other things, "green" building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency and waste management. The imposition of such requirements in the future could increase the costs of maintaining or improving our existing properties or developing properties (for example, to improve their energy efficiency and/or resistance to inclement weather) without a corresponding increase in revenue, resulting in adverse impacts to our operating results. Further, the impact of climate change may increase the cost of, or make unavailable, property insurance or other hazard insurance on terms we find acceptable or necessary to adequately protect our properties.

Accidental death or severe injuries due to fires, floods, other natural disasters or hazards could adversely affect our business and results of operations. The accidental death or severe injuries of persons living in our communities due to fires, floods, other natural disasters or 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 adversely affect the Company's liabilities and/or operating costs relating to its properties and its operations. Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to tenants 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 Essex's stockholders or the Operating Partnership's unitholders and pay amounts due on its debts. Similarly, changes in laws increasing the potential liability of the Company and/or its operating costs 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 affecting development, construction and safety requirements, may result in significant unanticipated expenditures, including without limitation, those related to structural or seismic retrofit or more costly operational safety systems and programs, which could have a material adverse effect on the Company. For example, (1) the California statute, the "Sustainable Communities and Climate Protection Act of 2008," also known as "SB375," provides that, in order to reduce greenhouse emissions, there should be regional planning to coordinate housing needs with regional transportation and such planning could lead to restrictions on, or increases in, property development that adversely affect the Company and (2) the Environmental Protection Agency has implemented a program for long-term phase out of HCFC-22 coolant (freon) by 2030, which could lead to increased capital and/or 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, PWI, 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. Additionally, certain of our tax-exempt bond financing documents require us to obtain a guarantee from a financial institution of payment of the principal and interest on the bonds. The guarantee may take the form of a letter of credit, surety bond, guarantee agreement or other additional collateral. If the financial institution defaults in its guarantee obligations, or if we are unable to renew the applicable guarantee or otherwise post satisfactory collateral, a default will occur under the applicable tax-exempt bonds and the community could be foreclosed upon if we do not redeem the bonds.
Failure to succeed in new markets may limit the Company’s growth. The Company may 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
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lack of familiarity with local governmental and permitting procedures.

Current volatility in market and economic conditions may impact the accuracy of the various estimates used in the preparation of our financial statements and footnotes to the financial statements. Various estimates are used in the preparation of our financial statements, including estimates related to the fair value of tangible and intangible assets and the carrying value of our real estate investments. Often these estimates require the use of local market knowledge and data that is difficult to assess, as well as estimates of future cash flows associated with our real estate investments that can also be difficult to accurately predict. Although our management believes it has been prudent and used reasonable judgment in making these estimates, it is possible that actual results may differ materially from these estimates.

Our business and reputation depend on our ability to continue providing high quality housing and consistent operation of our communities, the failure of which could adversely affect our business, financial condition and results of operations. Our business and reputation depend on providing tenants with quality housing with highly reliable services, including with respect to water and electric power, along with the consistent operation of our communities, including a wide variety of amenities such as covered parking, swimming pools, clubhouses with fitness facilities, playground areas, tennis courts and similar features. Public utilities, especially those that provide water and electric power, are fundamental for the consistent operation of our communities. The delayed delivery or any material reduction or prolonged interruption of these services may cause tenants to terminate their leases, or may result in a reduction of rents and/or increase in our costs or other issues. In addition, we may fail to provide quality housing and continuous access to amenities as a result of other factors, including mechanical failure, power outage, human error, vandalism, physical or electronic security breaches, war, terrorism or similar events. Such service interruptions, mechanical failures or other events may also expose us to additional liability claims and damage our reputation and brand, and could cause tenants to terminate or not renew their leases, or prospective tenants to seek housing elsewhere. Any such failures could impair our ability to continue providing quality housing and consistent operation of our communities, which could adversely affect our business, financial condition and results of operations.

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 multifamily 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 multifamily 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 multifamily community. If there are 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.
Under certain circumstances, assets owned by a subsidiary REIT may be required to be disposed of via a sale of capital stock rather than an asset sale. Under certain circumstances, assets owned by a subsidiary REIT may be required to be disposed of via a sale of capital stock rather than as an asset sale by that subsidiary REIT, which may limit the number of persons willing to acquire indirectly any assets held by that subsidiary REIT. As a result, we may not be able to realize a return on our investment in a joint venture that utilizes a subsidiary REIT structure, at the time or on the terms we desire.


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We may from time to time be subject to litigation, which could have a material adverse effect on our business, financial condition and results of operations.  We may be a party to various claims and routine litigation arising in the ordinary course of business. Some of these claims or others to which we may be subject from time to time may result in defense costs, settlements, fines or judgments against us, some of which are not, or cannot be, covered by insurance. Payment of any such costs, settlements, fines or judgments that are not insured could have an adverse impact on our financial position and results of operations. In addition, certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could adversely impact our results of operations and cash flow, expose us to increased risks that would be uninsured, or adversely impact our ability to attract officers and directors.

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, in the case of secured financings, could result in lender foreclosure on the apartment communities securing such debt.
Debt financing has inherent risks. At December 31, 2018, the Company had approximately $5.6 billion of indebtedness (including $619.6 million of variable rate indebtedness, of which $175.0 million is subject to an interest rate swap effectively fixing the interest rate on $175.0 million in debt. $9.9 million is subject to interest rate cap protection). The Company is subject to the risks normally associated with debt financing, including, among others, 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 Essex's stockholders or the Operating Partnership's unitholders 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 communities will be insufficient to meet both debt payment obligations and the REIT distribution requirements of 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. There is a risk that we may not be able to refinance existing indebtedness or that a refinancing will not be done on as favorable terms, which in either case could have an adverse effect on our financial condition, results of operations and cash flows. To a certain extent, our cash flow is subject to general economic,

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industry, regional, financial, competitive, operating, legislative, regulatory, taxation and other factors, many of which are beyond our control.
As of December 31, 2018, the Company had 50 consolidated communities encumbered by debt. With respect to such communities, 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, 2018, the Company had approximately $269.6 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. If the compliance requirements of the tax-exempt financing restrict our ability to increase our rental rates to low or moderate income tenants, or eligible/qualified tenants, then our income from these properties may be limited. While we generally believe that the interest rate benefit attendant to properties with tax-exempt bonds more than outweigh any loss of income due to restrictive covenants or deed restrictions, this may not always be the case. Some of these requirements are complex and our failure to comply with them may subject us to material fines or liabilities. 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 tenants who satisfy the median income test. If the Company does not reserve the required number of apartment homes for tenants 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.
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

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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.
The Company could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multifamily 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. Potential options have been proposed 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 multifamily housing more generally, it may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily residential real estate and, as a result, may adversely affect the Company and its growth and operations.
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 departure 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, or the perception that such issuances might occur;
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publication of research reports about the Company or the real estate industry;
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the general reputation of REITs 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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shifts in our investor base to a higher concentration of passive investors such as exchange traded fund and index funds, which may adversely affect our ability to communicate effectively with our investors;
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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;

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natural disasters such as earthquakes; and
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changes in public policy and tax law.

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. The Company may in the future sell further shares of common stock, including pursuant to its equity distribution program with Citigroup Global Markets Inc., Barclays Capital Inc., BNP Paribas Securities Corp., BTIG, LLC, Capital One Securities, Inc., Jefferies LLC, J.P. Morgan Securities LLC, Mizuho Securities USA LLC, MUFG Securities Americas Inc., and Scotia Capital (USA) Inc.

In 2018, 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 Essex'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 Essex's stockholders and the Operating Partnership's unitholders.
The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock. As of December 31, 2018, George M. Marcus, the Chairman of Essex’s Board of Directors, wholly or partially owned approximately 1.7 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 has 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 Essex'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

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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.
Stockholders have limited control over changes in our policies and operations. Essex’s Board of Directors determines our major policies, including our policies regarding investments, financing, growth, debt capitalization, REIT qualification and distributions. Essex’s Board of Directors may amend or revise these and other policies without a vote of the stockholders. Under the Company’s Charter and the Maryland General Corporation Law, stockholders currently have a right to vote only on the following matters:

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the election of Essex’s Board of Directors or the removal of any member of Essex’s Board of Directors;
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any amendment of Essex’s Charter, except that Essex’s Board of Directors may amend the Charter without stockholder approval to:
◦
change our name or the name or other designation or the par value of any class or series of our stock and the aggregate par value of our stock;
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increase or decrease the number of our shares of any class or series of stock that we have the authority to issue;
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classify or reclassify any unissued shares of stock by setting or changing the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares; and
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effect certain reverse stock splits;
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our liquidation and dissolution; and
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except as otherwise permitted by law, our being a party to any merger, consolidation, conversion, sale or other disposition of all or substantially all of our assets or similar reorganization.

All other matters are subject to the discretion of Essex’s Board of Directors. In addition, pursuant to Maryland law, all matters other than the election or removal of a director must be declared advisable by Essex’s Board of Directors prior to a stockholder vote.

Our score or rating by proxy advisory firms or other corporate governance consultants advising institutional investors could have an adverse effect on the perception of our corporate governance, and thereby negatively impact the market price of our common stock. Various proxy advisory firms and other corporate governance consultants advising institutional investors provide scores or ratings of our governance measures, nominees for election as directors, executive compensation practices, and other matters that may be submitted to stockholders for consideration at our annual meetings. From time to time certain matters that we propose for approval may not receive a favorable score or rating, or may result in a negative score or rating or recommendation against the nominee or matter proposed. These unfavorable scores or ratings may lead to rejected proposals or a loss of stockholder confidence in our corporate governance measures, which could adversely affect the market price of our common stock.

We periodically review our corporate governance measures and consider implementing changes that we believe are responsive to concerns that have been raised, but there may be times where we decide not to implement changes or other measures recommended by proxy advisors or other corporate governance consultants that we believe are contrary to the best interests of our stockholders, notwithstanding the adverse effect this decision may have on our scores or ratings or the perception of our corporate governance, thereby negatively impacting the market price of our common stock.

We could face adverse consequences as a result of actions of activist investors. Campaigns by stockholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to stockholder activism or engaging in a process or proxy contest may be costly and time-consuming, disrupt our operations and divert the attention of our management team and our employees from executing our business plan, which could adversely affect our business and results of operations.

Failure to generate sufficient revenue or other liquidity needs could limit cash flow available for distributions to Essex's stockholders or the Operating Partnership's unitholders. 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 Essex's stockholders or the Operating Partnership's unitholders. 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.

Essex may choose to pay dividends in its 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 Essex's 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 Essex's stock would experience downward pressure if a significant number of our stockholders sell shares of Essex's stock in order to pay taxes owed on dividends.

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
•
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 Essex 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 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

22

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 as well as Maryland General Corporation Law also contain other provisions that may impede various actions by stockholders without approval of Essex’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, among others:
•
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;
•
Essex’s Board of Directors can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors and the Essex's Board of Directors can classify the board such that the entire board is not up for re-election annually;
•
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.

Rising interest rates could increase interest costs and otherwise adversely affect the market price of our common stock. We are subject to interest rate risk which could adversely affect the market price of our common stock. As noted above, we are primarily exposed to interest rate risk as a result of our lines of credit, where fluctuations in interest rates may cause our interest expense to rise, which could have an adverse effect on our financial condition, results of operations and cash flows. In addition, an increase in market interest rates may lead purchasers of our common stock to demand a greater annual dividend yield, which could adversely affect the market price of our common stock.

We rely on information technology in our operations, and any material failure, inadequacy, interruption or breach of the Company’s privacy or information security systems, or those of our vendors or other third parties, 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. We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personally identifiable information, and tenant and lease data. Our business requires us, including some of our vendors, to use and store personally identifiable and other sensitive information of our 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.
Although we have taken steps to protect the security of our information systems and maintain confidential tenant, prospective tenant and employee information, 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, including, ransom of data, such as, without limitation, tenant and/or employee

23

information, due to employee error, malfeasance, or other vulnerabilities. Any such incident could compromise the Company’s or such vendors' networks (or the networks or systems of third parties that facilitate the Company’s or such vendors’ business activities), and the information stored by the Company or such vendors could be accessed, misused, publicly disclosed, corrupted, lost, or stolen, resulting in fraud, including wire fraud related to Company assets, or other harm. Moreover, if a data security incident or breach affects the Company’s systems or such vendors' systems, whether through a breach of the Company’s systems or a breach of the systems of third parties, or results in the unauthorized release of personally identifiable information, the Company’s reputation and brand could be materially damaged, which could increase our costs in attracting and retaining tenants, and other serious consequences may result. Such potential other consequences include, without limitation, that the Company and certain executive officers may be exposed to a risk of litigation and possible liability, including, without limitation, government enforcement actions and private litigation; and that the Company may be exposed to a risk of loss including, without limitation, loss related to the fact that agreements with such vendors, or such vendors' financial condition, may not allow the Company to recover all costs related to a cyber breach for which they alone or they and the Company should be jointly responsible for, which could result in a material adverse effect on the Company’s business, results of operations, and financial condition.
Privacy and information security risks have generally increased in recent years because of the proliferation of new technologies, such as ransomware, and the increased sophistication and activities of perpetrators of cyber-attacks. In light of the increased risks, we have dedicated additional Company resources to strengthening the security of the Company’s computer systems, including maintaining cyber risk insurance which may provide some coverage for certain risks arising out of cyber breaches. In the future, the Company may 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 significant 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. Any failure in or breach of the Company's information security systems, those of third party service providers, or a breach of other third party systems that ultimately impacts the operational or information security systems of the Company as a result of cyber-attacks or information security breaches could result in a wide range of potentially serious harm to our business and results of operations. Additionally, government agencies involved in investigating any potential data security incidents may impose injunctive relief or other civil or criminal penalties on the Company and/or certain executives, which could, among other things, divert the attention of management, impact the Company's ability to collect and use tenant information, materially increase data security costs and/or otherwise require us to alter how we operate our business. Further, the techniques used by criminals to obtain unauthorized access to sensitive data, such as phishing and other forms of human engineering, are increasing in sophistication and 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, 2018, 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
Sales of apartment communities could incur tax risks . If we are found to have held, acquired or developed a community as inventory or primarily for sale to customers in the ordinary course of business, 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 REIT unless we own the community through one of our TRSs.

24

Loss of the Company's REIT status would have significant adverse consequences to the Company and the value of the Company's common stock . The Company has elected to be taxed as a REIT under the Code. The Company’s qualification as a REIT requires it to satisfy various 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. 
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 TRSs. To comply with the distribution test, the Company generally must distribute to its stockholders 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 forgo 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. If the Company fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax on the Company’s taxable income at corporate rates (and the Company could be subject to the federal alternative minimum tax for taxable years prior to 2018), 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, unless we are entitled to relief under statutory provisions. The additional tax liability would reduce its net earnings available for investment or distribution to Essex stockholders and Operating Partnership unitholders, and the Company would no longer be required to make distributions to its stockholders for the purpose of maintaining REIT status. As a result of all these factors, the Company’s failure to qualify as a REIT also could impair its ability to expand its business and raise capital, and could adversely affect the value and market price of the Company’s common stock.
Legislative or other actions affecting REITs could have a negative effect on the Company or its stockholders. The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive legislation, could adversely affect the Company or its stockholders. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect the Company’s ability to qualify as a REIT, the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in the Company. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

The 2017 Tax Legislation has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. Changes made by the 2017 Tax Legislation that could affect the Company and its stockholders include:

•
temporarily reducing individual U.S. federal income tax rates on ordinary income (the highest individual U.S. federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026);
•
permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%;
•
permitting a deduction for certain pass-through business income, including dividends distributed by the Company and received by its stockholders that are not designated by the Company as capital gain dividends or qualified dividend income, which will allow individuals, trusts and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026;
•
reducing the highest rate of withholding with respect to the Company’s distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;

25

•
limiting the Company’s deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of REIT taxable income (determined without regard to the dividends paid deduction);
•
generally limiting the deduction for net business interest expense in excess of 30% of a business’s "adjusted taxable income," except for taxpayers (including most equity REITs) that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods); and
•
eliminating the corporate alternative minimum tax.

Many of these changes that are applicable to us are effective beginning with our 2018 taxable year, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Department of the Treasury and Internal Revenue Service, any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. Because state and local tax laws may adopt some of the base-broadening provisions of the 2017 Tax Legislation, such as the limitation on the deduction for net interest expense, while not adopting corresponding rate reductions, state and local tax liabilities may increase. While some of the changes made by the tax legislation may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. The Company continues to work with its tax advisors and auditors to determine the full impact that the 2017 Tax Legislation as a whole will have on the Company.

The Company’s ownership of TRS's is subject to certain restrictions, and it will be required to pay a 100% penalty tax on certain income or deductions if transactions with the Company’s TRS's are not conducted on arm’s length terms. 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, 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.

Failure of one or more of the Company’s subsidiaries to qualify as a REIT could adversely affect the Company’s ability to qualify as a REIT. 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.

The tax imposed on REITs engaging in "prohibited transactions" may limit the Company’s ability to engage in transactions which would be treated as sales for federal income tax purposes. 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.

Dividends payable by REITs may be taxed at higher rates than dividends of non-REIT corporations, which could reduce the net cash received by stockholders and may be detrimental to the Company’s ability to raise additional funds through any future sale of its stock. 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. However, under the 2017 Tax Legislation, U.S. stockholders that are individuals, trusts and estates generally may deduct 20% of ordinary dividends from a REIT for taxable years beginning after December 31, 2017 and before January 1, 2026. Although this deduction reduces the effective tax rate applicable to certain dividends paid by REITs, such tax rate is still higher than the tax rate applicable to regular corporate qualified dividends. This may cause investors to view REIT investments as 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.

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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.
We may face risks in connection with Section 1031 exchanges. From time to time we dispose of real properties in transactions intended to qualify as "like-kind exchanges" under Section 1031 of the Code. If a transaction intended to qualify as a Section 1031 exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of real properties on a tax deferred basis.

If Essex Portfolio, L.P. failed to qualify as a partnership for federal income tax purposes, the Company could cease to qualify as a REIT and suffer other adverse consequences. 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 .


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Item 2. Properties

The Company’s portfolio as of December 31, 2018 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 245 operating apartment communities (comprising 59,661 apartment homes), of which 26,695 apartment homes are located in Southern California, 21,146 apartment homes are located in Northern California, and 11,820 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, 2018 .

Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue. 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. When calculating actual rents for occupied apartment homes and market rents for vacant apartment homes, delinquencies and concessions are not taken into account. 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 the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on a variety of factors, including overall supply and demand for housing, concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity, and rental affordability.

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 urban and suburban high density wood frame communities comprising of three to seven stories above grade construction with structured parking situated on 1-10 acres of land with densities averaging between 30-80+ units per acre. As of December 31, 2018 , the Company’s communities include 103 garden-style, 129 mid-rise, and 13 high-rise communities. The communities have an average of approximately 244 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 owns an office building with approximately 106,716 square feet located in Irvine, CA, of which the Company occupies approximately 14,000 square feet at December 31, 2018 .

Operating Portfolio

The following tables describe the Company’s operating portfolio as of December 31, 2018 . The first table describes the Company’s communities and the second table describes the Company’s other real estate assets. (See Note 8, "Mortgage Notes Payable" to the Company’s consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K for more information about the Company’s secured mortgage debt and Schedule III thereto for a list of secured mortgage loans related to the Company’s portfolio.)


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

 
254,400

 
1971
 
2002
 
96%
Anavia
 
Anaheim, CA
 
Mid-rise
 
250

 
312,343

 
2009
 
2010
 
96%
Barkley, The (3)(4)
 
Anaheim, CA
 
Garden
 
161

 
139,800

 
1984
 
2000
 
97%
Park Viridian
 
Anaheim, CA
 
Mid-rise
 
320

 
254,600

 
2008
 
2014
 
97%
Bonita Cedars
 
Bonita, CA
 
Garden
 
120

 
120,800

 
1983
 
2002
 
97%
Village at Toluca Lake (5)
 
Burbank, CA
 
Mid-rise
 
145

 
132,144

 
1974
 
2017
 
98%
Camarillo Oaks
 
Camarillo, CA
 
Garden
 
564

 
459,000

 
1985
 
1996
 
98%
Camino Ruiz Square
 
Camarillo, CA
 
Garden
 
159

 
105,448

 
1990
 
2006
 
98%
Pinnacle at Otay Ranch I & II
 
Chula Vista, CA
 
Mid-rise
 
364

 
384,192

 
2001
 
2014
 
97%
Mesa Village
 
Clairemont, CA
 
Garden
 
133

 
43,600

 
1963
 
2002
 
97%
Villa Siena
 
Costa Mesa, CA
 
Garden
 
272

 
262,842

 
1974
 
2014
 
97%
Emerald Pointe
 
Diamond Bar, CA
 
Garden
 
160

 
134,816

 
1989
 
2014
 
97%
Regency at Encino
 
Encino, CA
 
Mid-rise
 
75

 
78,487

 
1989
 
2009
 
99%
The Havens (6)
 
Fountain Valley, CA
 
Garden
 
440

 
414,040

 
1969
 
2014
 
97%
Valley Park
 
Fountain Valley, CA
 
Garden
 
160

 
169,700

 
1969
 
2001
 
97%
Capri at Sunny Hills (4)
 
Fullerton, CA
 
Garden
 
102

 
128,100

 
1961
 
2001
 
96%
Haver Hill (7)
 
Fullerton, CA
 
Garden
 
264

 
224,130

 
1973
 
2012
 
97%
Pinnacle at Fullerton
 
Fullerton, CA
 
Mid-rise
 
192

 
174,336

 
2004
 
2014
 
97%
Wilshire Promenade
 
Fullerton, CA
 
Mid-rise
 
149

 
128,000

 
1992
 
1997
 
97%
Montejo Apartments
 
Garden Grove, CA
 
Garden
 
124

 
103,200

 
1974
 
2001
 
98%
CBC Apartments & The Sweeps
 
Goleta, CA
 
Garden
 
239

 
179,908

 
1962
 
2006
 
97%
416 on Broadway
 
Glendale, CA
 
Mid-rise
 
115

 
126,782

 
2009
 
2010
 
96%
The Henley I
 
Glendale, CA
 
Mid-rise
 
83

 
71,500

 
1974
 
1999
 
97%
The Henley II
 
Glendale, CA
 
Mid-rise
 
132

 
141,500

 
1970
 
1999
 
97%
Devonshire
 
Hemet, CA
 
Garden
 
276

 
207,200

 
1988
 
2002
 
96%
Huntington Breakers
 
Huntington Beach, CA
 
Mid-rise
 
342

 
241,700

 
1984
 
1997
 
96%
The Huntington
 
Huntington Beach, CA
 
Garden
 
276

 
202,256

 
1975
 
2012
 
97%
Axis 2300
 
Irvine, CA
 
Mid-rise
 
115

 
170,714

 
2010
 
2010
 
97%
Hillsborough Park (8)
 
La Habra, CA
 
Garden
 
235

 
215,500

 
1999
 
1999
 
97%
Village Green
 
La Habra, CA
 
Garden
 
272

 
175,762

 
1971
 
2014
 
96%
The Palms at Laguna Niguel
 
Laguna Niguel, CA
 
Garden
 
460

 
362,136

 
1988
 
2014
 
97%
Trabuco Villas
 
Lake Forest, CA
 
Mid-rise
 
132

 
131,000

 
1985
 
1997
 
98%
Marbrisa
 
Long Beach, CA
 
Mid-rise
 
202

 
122,800

 
1987
 
2002
 
96%
Pathways at Bixby Village
 
Long Beach, CA
 
Garden
 
296

 
197,700

 
1975
 
1991
 
97%
5600 Wilshire
 
Los Angeles, CA
 
Mid-rise
 
284

 
243,910

 
2008
 
2014
 
97%
Alessio
 
Los Angeles, CA
 
Mid-rise
 
624

 
552,716

 
2001
 
2014
 
96%
Ashton Sherman Village
 
Los Angeles, CA
 
Mid-rise
 
264

 
296,186

 
2014
 
2016
 
97%
Avant
 
Los Angeles, CA
 
Mid-rise
 
440

 
305,989

 
2014
 
2015
 
96%
The Avery
 
Los Angeles, CA
 
Mid-rise
 
121

 
129,393

 
2014
 
2014
 
97%
Bellerive
 
Los Angeles, CA
 
Mid-rise
 
63

 
79,296

 
2011
 
2011
 
98%
Belmont Station
 
Los Angeles, CA
 
Mid-rise
 
275

 
225,000

 
2009
 
2009
 
97%
Bunker Hill
 
Los Angeles, CA
 
High-rise
 
456

 
346,600

 
1968
 
1998
 
93%
Catalina Gardens
 
Los Angeles, CA
 
Mid-rise
 
128

 
117,585

 
1987
 
2014
 
97%

29

 
 
 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Type
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy (2)
Cochran Apartments
 
Los Angeles, CA
 
Mid-rise
 
58

 
51,400

 
1989
 
1998
 
97%
Emerson Valley Village
 
Los Angeles, CA
 
Mid-rise
 
144

 
179,060

 
2012
 
2016
 
96%
Gas Company Lofts (7)
 
Los Angeles, CA
 
High-rise
 
251

 
226,666

 
2004
 
2013
 
96%
Kings Road
 
Los Angeles, CA
 
Mid-rise
 
196

 
132,100

 
1979
 
1997
 
97%
Marbella
 
Los Angeles, CA
 
Mid-rise
 
60

 
50,108

 
1991
 
2005
 
97%
Pacific Electric Lofts (9)
 
Los Angeles, CA
 
High-rise
 
314

 
277,980

 
2006
 
2012
 
96%
Park Catalina
 
Los Angeles, CA
 
Mid-rise
 
90

 
72,864

 
2002
 
2012
 
97%
Park Place
 
Los Angeles, CA
 
Mid-rise
 
60

 
48,000

 
1988
 
1997
 
97%
Regency Palm Court (7)
 
Los Angeles, CA
 
Mid-rise
 
116

 
54,844

 
1987
 
2014
 
96%
Santee Court
 
Los Angeles, CA
 
High-rise
 
165

 
132,040

 
2004
 
2010
 
96%
Santee Village
 
Los Angeles, CA
 
High-rise
 
73

 
69,817

 
2011
 
2011
 
96%
Tiffany Court
 
Los Angeles, CA
 
Mid-rise
 
101

 
74,538

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

 
354,972

 
2014
 
2014
 
97%
Windsor Court (7)
 
Los Angeles, CA
 
Mid-rise
 
95

 
51,266

 
1987
 
2014
 
96%
Windsor Court
 
Los Angeles, CA
 
Mid-rise
 
58

 
46,600

 
1988
 
1997
 
97%
Aqua Marina Del Rey
 
Marina Del Rey, CA
 
Mid-rise
 
500

 
479,312

 
2001
 
2014
 
97%
Marina City Club (10)
 
Marina Del Rey, CA
 
Mid-rise
 
101

 
127,200

 
1971
 
2004
 
97%
Mirabella
 
Marina Del Rey, CA
 
Mid-rise
 
188

 
176,800

 
2000
 
2000
 
97%
Mira Monte
 
Mira Mesa, CA
 
Garden
 
354

 
262,600

 
1982
 
2002
 
97%
Hillcrest Park
 
Newbury Park, CA
 
Garden
 
608

 
521,900

 
1973
 
1998
 
97%
Fairway Apartments at Big Canyon (11)
 
Newport Beach, CA
 
Mid-rise
 
74

 
107,100

 
1972
 
1999
 
97%
Muse
 
North Hollywood, CA
 
Mid-rise
 
152

 
135,292

 
2011
 
2011
 
97%
Country Villas
 
Oceanside, CA
 
Garden
 
180

 
179,700

 
1976
 
2002
 
97%
Mission Hills
 
Oceanside, CA
 
Garden
 
282

 
244,000

 
1984
 
2005
 
97%
Renaissance at Uptown Orange
 
Orange, CA
 
Mid-rise
 
460

 
432,836

 
2007
 
2014
 
97%
Mariner's Place
 
Oxnard, CA
 
Garden
 
105

 
77,200

 
1987
 
2000
 
98%
Monterey Villas
 
Oxnard, CA
 
Garden
 
122

 
122,100

 
1974
 
1997
 
97%
Tierra Vista
 
Oxnard, CA
 
Mid-rise
 
404

 
387,100

 
2001
 
2001
 
97%
Arbors at Parc Rose (9)
 
Oxnard, CA
 
Mid-rise
 
373

 
503,196

 
2001
 
2011
 
97%
The Hallie
 
Pasadena, CA
 
Mid-rise
 
292

 
216,700

 
1972
 
1997
 
96%
The Stuart
 
Pasadena, CA
 
Mid-rise
 
188

 
168,630

 
2007
 
2014
 
97%
Villa Angelina
 
Placentia, CA
 
Garden
 
256

 
217,600

 
1970
 
2001
 
97%
Fountain Park
 
Playa Vista, CA
 
Mid-rise
 
705

 
608,900

 
2002
 
2004
 
96%
Highridge (4)
 
Rancho Palos Verdes, CA
 
Mid-rise
 
255

 
290,200

 
1972
 
1997
 
97%
Cortesia
 
Rancho Santa Margarita, CA
 
Garden
 
308

 
277,580

 
1999
 
2014
 
97%
Pinnacle at Talega
 
San Clemente, CA
 
Mid-rise
 
362

 
355,764

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

 
207,052

 
2002
 
2014
 
98%
Bernardo Crest
 
San Diego, CA
 
Garden
 
216

 
205,548

 
1988
 
2014
 
97%
Cambridge Park
 
San Diego, CA
 
Mid-rise
 
320

 
317,958

 
1998
 
2014
 
97%
Carmel Creek
 
San Diego, CA
 
Garden
 
348

 
384,216

 
2000
 
2014
 
97%
Carmel Landing
 
San Diego, CA
 
Garden
 
356

 
283,426

 
1989
 
2014
 
97%
Carmel Summit
 
San Diego, CA
 
Mid-rise
 
246

 
225,880

 
1989
 
2014
 
98%

30

 
 
 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Type
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy (2)
CentrePointe
 
San Diego, CA
 
Garden
 
224

 
126,700

 
1974
 
1997
 
97%
Esplanade (6)
 
San Diego, CA
 
Garden
 
616

 
479,600

 
1986
 
2014
 
97%
Form 15
 
San Diego, CA
 
Mid-rise
 
242

 
184,190

 
2014
 
2016
 
96%
Montanosa
 
San Diego, CA
 
Garden
 
472

 
414,968

 
1990
 
2014
 
97%
Summit Park
 
San Diego, CA
 
Garden
 
300

 
229,400

 
1972
 
2002
 
97%
Essex Skyline (12)
 
Santa Ana, CA
 
High-rise
 
349

 
512,791

 
2008
 
2010
 
95%
Fairhaven Apartments (4)
 
Santa Ana, CA
 
Garden
 
164

 
135,700

 
1970
 
2001
 
95%
Parkside Court (6)
 
Santa Ana, CA
 
Mid-rise
 
210

 
152,400

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

 
262,867

 
2002
 
2014
 
97%
Hope Ranch
 
Santa Barbara, CA
 
Garden
 
108

 
126,700

 
1965
 
2007
 
98%
Bridgeport Coast (13)
 
Santa Clarita, CA
 
Mid-rise
 
188

 
168,198

 
2006
 
2014
 
96%
Hidden Valley (14)
 
Simi Valley, CA
 
Garden
 
324

 
310,900

 
2004
 
2004
 
97%
Meadowood (8)
 
Simi Valley, CA
 
Garden
 
320

 
264,500

 
1986
 
1996
 
97%
Shadow Point
 
Spring Valley, CA
 
Garden
 
172

 
131,200

 
1983
 
2002
 
96%
The Fairways at Westridge (13)
 
Valencia, CA
 
Mid-rise
 
234

 
223,330

 
2004
 
2014
 
97%
The Vistas of West Hills (13)
 
Valencia, CA
 
Mid-rise
 
220

 
221,119

 
2009
 
2014
 
96%
Allegro
 
Valley Village, CA
 
Mid-rise
 
97

 
127,812

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

 
71,100

 
1971
 
1997
 
98%
Pinehurst (15)
 
Ventura, CA
 
Garden
 
28

 
21,200

 
1973
 
2004
 
98%
Woodside Village
 
Ventura, CA
 
Garden
 
145

 
136,500

 
1987
 
2004
 
98%
Walnut Heights
 
Walnut, CA
 
Garden
 
163

 
146,700

 
1964
 
2003
 
96%
The Dylan
 
West Hollywood, CA
 
Mid-rise
 
184

 
150,678

 
2014
 
2014
 
96%
The Huxley
 
West Hollywood, CA
 
Mid-rise
 
187

 
154,776

 
2014
 
2014
 
95%
Reveal
 
Woodland Hills, CA
 
Mid-rise
 
438

 
414,892

 
2010
 
2011
 
98%
Avondale at Warner Center
 
Woodland Hills, CA
 
Mid-rise
 
446

 
331,000

 
1970
 
1999
 
97%
 
 
 
 
 
 
26,695


23,704,377

 
 
 
 
 
97%
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Belmont Terrace
 
Belmont, CA
 
Mid-rise
 
71

 
72,951

 
1974
 
2006
 
98%
Fourth & U
 
Berkeley, CA
 
Mid-rise
 
171

 
146,255

 
2010
 
2010
 
97%
The Commons
 
Campbell, CA
 
Garden
 
264

 
153,168

 
1973
 
2010
 
96%
Pointe at Cupertino
 
Cupertino, CA
 
Garden
 
116

 
135,200

 
1963
 
1998
 
97%
Connolly Station (16)
 
Dublin, CA
 
Mid-rise
 
309

 
286,348

 
2014
 
2014
 
97%
Avenue 64
 
Emeryville, CA
 
Mid-rise
 
224

 
196,896

 
2007
 
2014
 
97%
Emme (16)
 
Emeryville, CA
 
Mid-rise
 
190

 
148,935

 
2015
 
2015
 
97%
Foster's Landing
 
Foster City, CA
 
Garden
 
490

 
415,130

 
1987
 
2014
 
97%
Stevenson Place
 
Fremont, CA
 
Garden
 
200

 
146,200

 
1975
 
2000
 
96%
Mission Peaks
 
Fremont, CA
 
Mid-rise
 
453

 
404,034

 
1995
 
2014
 
96%
Mission Peaks II
 
Fremont, CA
 
Garden
 
336

 
294,720

 
1989
 
2014
 
97%
Paragon Apartments
 
Fremont, CA
 
Mid-rise
 
301

 
267,047

 
2013
 
2014
 
97%
Boulevard
 
Fremont, CA
 
Garden
 
172

 
131,200

 
1978
 
1996
 
96%
Briarwood (9)
 
Fremont, CA
 
Garden
 
160

 
111,160

 
1978
 
2011
 
97%
The Woods (9)
 
Fremont, CA
 
Garden
 
160

 
105,280

 
1978
 
2011
 
97%
City Centre (13)
 
Hayward, CA
 
Mid-rise
 
192

 
175,420

 
2000
 
2014
 
97%
City View
 
Hayward, CA
 
Garden
 
572

 
462,400

 
1975
 
1998
 
96%
Lafayette Highlands
 
Lafayette, CA
 
Garden
 
150

 
151,790

 
1973
 
2014
 
98%

31

 
 
 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Type
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy (2)
Apex
 
Milpitas, CA
 
Mid-rise
 
366

 
350,961

 
2014
 
2014
 
97%
Regency at Mountain View (7)
 
Mountain View, CA
 
Mid-rise
 
142

 
127,600

 
1970
 
2013
 
95%
Bridgeport (8)
 
Newark, CA
 
Garden
 
184

 
139,000

 
1987
 
1987
 
96%
The Landing at Jack London Square
 
Oakland, CA
 
Mid-rise
 
282

 
257,796

 
2001
 
2014
 
97%
The Grand
 
Oakland, CA
 
High-rise
 
243

 
205,026

 
2009
 
2009
 
98%
The Galloway (16)
 
Pleasanton, CA
 
Mid-rise
 
506

 
470,550

 
2016
 
2016
 
96%
Radius
 
Redwood City, CA
 
Mid-rise
 
264

 
245,862

 
2015
 
2015
 
97%
San Marcos
 
Richmond, CA
 
Mid-rise
 
432

 
407,600

 
2003
 
2003
 
97%
Bennett Lofts
 
San Francisco, CA
 
Mid-rise
 
165

 
184,713

 
2004
 
2012
 
96%
Fox Plaza
 
San Francisco, CA
 
High-rise
 
445

 
230,017

 
1968
 
2013
 
93%
MB 360
 
San Francisco, CA
 
Mid-rise
 
360

 
441,489

 
2014
 
2014
 
97%
Mosso (16)
 
San Francisco, CA
 
High-rise
 
463

 
373,181

 
2014
 
2014
 
97%
Park West
 
San Francisco, CA
 
Mid-rise
 
126

 
90,060

 
1958
 
2012
 
95%
101 San Fernando
 
San Jose, CA
 
Mid-rise
 
323

 
296,078

 
2001
 
2010
 
95%
360 Residences (17)
 
San Jose, CA
 
Mid-rise
 
213

 
281,108

 
2010
 
2017
 
95%
Bella Villagio
 
San Jose, CA
 
Mid-rise
 
231

 
227,511

 
2004
 
2010
 
97%
Century Towers (18)
 
San Jose, CA
 
High-rise
 
376

 
330,178

 
2017
 
2017
 
97%
Enso
 
San Jose, CA
 
Mid-rise
 
183

 
179,562

 
2014
 
2015
 
98%
Epic (16)
 
San Jose, CA
 
Mid-rise
 
769

 
660,030

 
2013
 
2013
 
97%
Esplanade
 
San Jose, CA
 
Mid-rise
 
278

 
279,000

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

 
209,954

 
1990
 
2014
 
97%
Marquis (19)
 
San Jose, CA
 
Mid-rise
 
166

 
136,467

 
2015
 
2016
 
94%
Meridian at Midtown (17)
 
San Jose, CA
 
Mid-rise
 
218

 
184,148

 
2015
 
2018
 
88%
Mio
 
San Jose, CA
 
Mid-rise
 
103

 
92,405

 
2015
 
2016
 
98%
Museum Park
 
San Jose, CA
 
Mid-rise
 
117

 
121,329

 
2002
 
2014
 
96%
One South Market (20)
 
San Jose, CA
 
High-rise
 
312

 
283,268

 
2015
 
2015
 
96%
Palm Valley
 
San Jose, CA
 
Mid-rise
 
1,098

 
1,132,284

 
2008
 
2014
 
97%
Sage at Cupertino
 
San Jose, CA
 
Garden
 
230

 
178,961

 
1971
 
2017
 
96%
The Carlyle (8)
 
San Jose, CA
 
Garden
 
132

 
129,200

 
2000
 
2000
 
96%
The Waterford
 
San Jose, CA
 
Mid-rise
 
238

 
219,600

 
2000
 
2000
 
96%
Willow Lake
 
San Jose, CA
 
Mid-rise
 
508

 
471,744

 
1989
 
2012
 
97%
Lakeshore Landing
 
San Mateo, CA
 
Mid-rise
 
308

 
223,972

 
1988
 
2014
 
97%
Hillsdale Garden
 
San Mateo, CA
 
Garden
 
697

 
611,505

 
1948
 
2006
 
97%
Park 20 (16)
 
San Mateo, CA
 
Mid-rise
 
197

 
140,547

 
2015
 
2015
 
98%
Station Park Green - Phase I
 
San Mateo, CA
 
Mid-rise
 
121

 
111,636

 
2018
 
2018
 
68%
Deer Valley
 
San Rafael, CA
 
Garden
 
171

 
167,238

 
1996
 
2014
 
97%
Bel Air
 
San Ramon, CA
 
Garden
 
462

 
391,000

 
1988
 
1995
 
97%
Canyon Oaks
 
San Ramon, CA
 
Mid-rise
 
250

 
237,894

 
2005
 
2007
 
97%
Crow Canyon
 
San Ramon, CA
 
Mid-rise
 
400

 
337,064

 
1992
 
2014
 
97%
Foothill Gardens
 
San Ramon, CA
 
Garden
 
132

 
155,100

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

 
381,060

 
2005
 
2007
 
97%
Twin Creeks
 
San Ramon, CA
 
Garden
 
44

 
51,700

 
1985
 
1997
 
97%
1000 Kiely
 
Santa Clara, CA
 
Garden
 
121

 
128,486

 
1971
 
2011
 
98%
Le Parc
 
Santa Clara, CA
 
Garden
 
140

 
113,200

 
1975
 
1994
 
97%
Marina Cove (21)
 
Santa Clara, CA
 
Garden
 
292

 
250,200

 
1974
 
1994
 
97%
Riley Square (9)
 
Santa Clara, CA
 
Garden
 
156

 
126,900

 
1972
 
2012
 
97%

32

 
 
 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Type
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy (2)
Villa Granada
 
Santa Clara, CA
 
Mid-rise
 
270

 
238,841

 
2010
 
2014
 
97%
Chestnut Street Apartments
 
Santa Cruz, CA
 
Garden
 
96

 
87,640

 
2002
 
2008
 
97%
Bristol Commons
 
Sunnyvale, CA
 
Garden
 
188

 
142,600

 
1989
 
1995
 
98%
Brookside Oaks (4)
 
Sunnyvale, CA
 
Garden
 
170

 
119,900

 
1973
 
2000
 
98%
Lawrence Station
 
Sunnyvale, CA
 
Mid-rise
 
336

 
297,188

 
2012
 
2014
 
97%
Magnolia Lane (22)
 
Sunnyvale, CA
 
Garden
 
32

 
31,541

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

 
110,824

 
1963
 
2007
 
97%
Montclaire
 
Sunnyvale, CA
 
Mid-rise
 
390

 
294,100

 
1973
 
1988
 
97%
Reed Square
 
Sunnyvale, CA
 
Garden
 
100

 
95,440

 
1970
 
2011
 
98%
Solstice
 
Sunnyvale, CA
 
Mid-rise
 
280

 
257,659

 
2014
 
2014
 
97%
Summerhill Park
 
Sunnyvale, CA
 
Garden
 
100

 
78,500

 
1988
 
1988
 
97%
Via
 
Sunnyvale, CA
 
Mid-rise
 
284

 
309,421

 
2011
 
2011
 
98%
Windsor Ridge
 
Sunnyvale, CA
 
Mid-rise
 
216

 
161,800

 
1989
 
1989
 
98%
Vista Belvedere
 
Tiburon, CA
 
Mid-rise
 
76

 
78,300

 
1963
 
2004
 
97%
Verandas (13)
 
Union City, CA
 
Mid-rise
 
282

 
199,092

 
1989
 
2014
 
97%
Agora (23)
 
Walnut Creek, CA
 
Mid-rise
 
49

 
106,228

 
2016
 
2016
 
98%
 
 
 
 
 
 
21,146

 
18,777,392

 
 
 
 
 
96%
Seattle, Washington Metropolitan Area
 
 
 
 
 
 
 
 
 
 
 
 
Belcarra
 
Bellevue, WA
 
Mid-rise
 
296

 
241,567

 
2009
 
2014
 
96%
BellCentre
 
Bellevue, WA
 
Mid-rise
 
248

 
181,288

 
2001
 
2014
 
96%
Cedar Terrace
 
Bellevue, WA
 
Garden
 
180

 
174,200

 
1984
 
2005
 
96%
Courtyard off Main
 
Bellevue, WA
 
Mid-rise
 
110

 
108,388

 
2000
 
2010
 
96%
Ellington
 
Bellevue, WA
 
Mid-rise
 
220

 
165,794

 
1994
 
2014
 
97%
Emerald Ridge
 
Bellevue, WA
 
Garden
 
180

 
144,000

 
1987
 
1994
 
97%
Foothill Commons
 
Bellevue, WA
 
Mid-rise
 
394

 
288,300

 
1978
 
1990
 
96%
Palisades, The
 
Bellevue, WA
 
Garden
 
192

 
159,700

 
1977
 
1990
 
97%
Park Highland
 
Bellevue, WA
 
Mid-rise
 
250

 
224,750

 
1993
 
2014
 
96%
Piedmont
 
Bellevue, WA
 
Garden
 
396

 
348,969

 
1969
 
2014
 
96%
Sammamish View
 
Bellevue, WA
 
Garden
 
153

 
133,500

 
1986
 
1994
 
97%
Woodland Commons
 
Bellevue, WA
 
Garden
 
302

 
217,878

 
1978
 
1990
 
97%
Bothell Ridge (6)
 
Bothell, WA
 
Garden
 
214

 
167,370

 
1988
 
2014
 
96%
Canyon Pointe
 
Bothell, WA
 
Garden
 
250

 
210,400

 
1990
 
2003
 
96%
Inglenook Court
 
Bothell, WA
 
Garden
 
224

 
183,600

 
1985
 
1994
 
96%
Pinnacle Sonata
 
Bothell, WA
 
Mid-rise
 
268

 
343,095

 
2000
 
2014
 
96%
Salmon Run at Perry Creek
 
Bothell, WA
 
Garden
 
132

 
117,100

 
2000
 
2000
 
97%
Stonehedge Village
 
Bothell, WA
 
Garden
 
196

 
214,800

 
1986
 
1997
 
97%
Highlands at Wynhaven
 
Issaquah, WA
 
Mid-rise
 
333

 
424,674

 
2000
 
2008
 
97%
Park Hill at Issaquah
 
Issaquah, WA
 
Garden
 
245

 
277,700

 
1999
 
1999
 
96%
Wandering Creek
 
Kent, WA
 
Garden
 
156

 
124,300

 
1986
 
1995
 
97%
Ascent
 
Kirkland, WA
 
Garden
 
90

 
75,840

 
1988
 
2012
 
97%
Bridle Trails
 
Kirkland, WA
 
Garden
 
108

 
99,700

 
1986
 
1997
 
96%
Corbella at Juanita Bay
 
Kirkland, WA
 
Garden
 
169

 
103,339

 
1978
 
2010
 
97%
Evergreen Heights
 
Kirkland, WA
 
Garden
 
200

 
188,300

 
1990
 
1997
 
97%
Slater 116
 
Kirkland, WA
 
Mid-rise
 
108

 
81,415

 
2013
 
2013
 
97%
Montebello
 
Kirkland, WA
 
Garden
 
248

 
272,734

 
1996
 
2012
 
96%
Aviara (24)
 
Mercer Island, WA
 
Mid-rise
 
166

 
147,033

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

 
134,300

 
1981
 
1996
 
96%

33

 
 
 
 
 
 
Apartment
 
Rentable
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Type
 
Homes
 
Square Footage
 
Built
 
Acquired
 
Occupancy (2)
Parkwood at Mill Creek
 
Mill Creek, WA
 
Garden
 
240

 
257,160

 
1989
 
2014
 
96%
The Elliot at Mukilteo (4)
 
Mukilteo, WA
 
Garden
 
301

 
245,900

 
1981
 
1997
 
97%
Castle Creek
 
Newcastle, WA
 
Garden
 
216

 
191,900

 
1998
 
1998
 
97%
Delano
 
Redmond, WA
 
Mid-rise
 
126

 
116,340

 
2005
 
2011
 
98%
Elevation
 
Redmond, WA
 
Garden
 
158

 
138,916

 
1986
 
2010
 
97%
Redmond Hill (9)
 
Redmond, WA
 
Garden
 
442

 
350,275

 
1985
 
2011
 
96%
Shadowbrook
 
Redmond, WA
 
Garden
 
418

 
338,880

 
1986
 
2014
 
96%
The Trails of Redmond
 
Redmond, WA
 
Garden
 
423

 
376,000

 
1985
 
2014
 
97%
Vesta (9)
 
Redmond, WA
 
Garden
 
440

 
381,675

 
1998
 
2011
 
97%
Brighton Ridge
 
Renton, WA
 
Garden
 
264

 
201,300

 
1986
 
1996
 
96%
Fairwood Pond
 
Renton, WA
 
Garden
 
194

 
189,200

 
1997
 
2004
 
98%
Forest View
 
Renton, WA
 
Garden
 
192

 
182,500

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

 
190,908

 
2001
 
2014
 
96%
8th & Republican (17)
 
Seattle, WA
 
High-rise
 
211

 
161,371

 
2016
 
2017
 
97%
Annaliese
 
Seattle, WA
 
High-rise
 
56

 
48,216

 
2009
 
2013
 
98%
The Audrey at Belltown
 
Seattle, WA
 
Mid-rise
 
137

 
94,119

 
1992
 
2014
 
97%
The Bernard
 
Seattle, WA
 
Mid-rise
 
63

 
43,151

 
2008
 
2011
 
97%
Cairns, The
 
Seattle, WA
 
Mid-rise
 
99

 
70,806

 
2006
 
2007
 
96%
Collins on Pine
 
Seattle, WA
 
Mid-rise
 
76

 
48,733

 
2013
 
2014
 
98%
Domaine
 
Seattle, WA
 
Mid-rise
 
92

 
79,421

 
2009
 
2012
 
97%
Expo (18)
 
Seattle, WA
 
Mid-rise
 
275

 
190,176

 
2012
 
2012
 
96%
Fountain Court
 
Seattle, WA
 
Mid-rise
 
320

 
207,000

 
2000
 
2000
 
96%
Patent 523 (25)
 
Seattle, WA
 
Mid-rise
 
295

 
191,109

 
2010
 
2010
 
97%
Taylor 28
 
Seattle, WA
 
Mid-rise
 
197

 
155,630

 
2008
 
2014
 
97%
Vox Apartments
 
Seattle, WA
 
Mid-rise
 
58

 
42,173

 
2013
 
2013
 
96%
Wharfside Pointe
 
Seattle, WA
 
Mid-rise
 
155

 
119,200

 
1990
 
1994
 
96%
 
 
 
 
 
 
11,820

 
10,166,093

 
 
 
 
 
97%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total/Weighted Average
 
 
 
 
 
59,661

 
52,647,862

 
 
 
 
 
97%

 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Other real estate assets (1)
 
Location
 
Tenants
 
Footage
 
Built
 
Acquired
 
Occupancy (2)
Derian Office Building (26)
 
Irvine, CA
 
6
 
106,716

 
1983
 
2000
 
83%
 
 
 
 
6
 
106,716

 
 
 
 
 
83%

Footnotes to the Company’s Portfolio Listing as of December 31, 2018

(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, 2018 ; for the commercial buildings occupancy rates are based on physical occupancy as of December 31, 2018 . For an explanation of how financial occupancy is calculated, see "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, a wholly-owned subsidiary of Essex, 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.

34

(5)  
This community is owned by BEX III, LLC ("BEX III"). The Company has a 50% interest in BEX III, which is accounted for using the equity method of accounting.
(6)  
This community is owned by BEXAEW. The Company has a 50% interest in BEXAEW, which is accounted for using the equity method of accounting.
(7)  
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.
(8)  
This community is owned by BEX II, LLC ("BEX II"). The Company has a 50% interest in BEX II, which is accounted for using the equity method of accounting.
(9)  
This community is owned by Wesco I, LLC ("Wesco I"). The Company has a 58% interest in Wesco I, which is accounted for using the equity method of accounting.
(10)  
This community is subject to a ground lease, which, unless extended, will expire in 2067.
(11)  
This community is subject to a ground lease, which, unless extended, will expire in 2027.
(12)  
The Company has a 97% interest and an Executive Vice President of the Company has a 3% interest in this community.
(13)  
This community is owned by Wesco IV, LLC ("Wesco IV") The Company has a 50% interest in Wesco IV, which is accounted for using the equity method of accounting.
(14)  
The Company has a 75% member interest in this community.
(15)  
This community is subject to a ground lease, which, unless extended, will expire in 2028.
(16)  
This community is owned by an entity that is co-owned by the Company and the Canadian Pension Plan Investment Board ("CPPIB" or "CPP"). The Company has a 55% ownership in this community, which is accounted for using the equity method of accounting.
(17)  
This community is owned by Wesco V, LLC ("Wesco V"). The Company has a 50% interest in Wesco V, which is accounted for using the equity method of accounting.
(18)  
The Company has 50% ownership in this community, which is accounted for using the equity method of accounting.
(19)  
In December 2018, the Company purchased its joint venture partner's 49.9% membership interest in the Marquis co-investment. As a result of this purchase, the Company consolidates Marquis.
(20)  
The Company has a 55% membership interest in this community, which is accounted for using the equity method of accounting.
(21)  
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.
(22)  
The community is subject to a ground lease, which, unless extended, will expire in 2070.
(23)  
This community is owned by an entity that is co-owned by the Company and CPP. The Company has a 51% membership interest in this community, which is accounted for using the equity method of accounting.
(24)  
This community is subject to a ground lease, which, unless extended, will expire in 2070.
(25)  
The Company has 99% ownership in this community.
(26)  
The Company occupies 13% of space in this property.

Item 3. Legal Proceedings

The information regarding lawsuits, other proceedings and claims, set forth in Note 16, "Commitments and Contingencies", to our 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.


35

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.  Essex's common stock has been traded on the NYSE since June 13, 1994. The closing price of Essex's common stock as reported by the NYSE on February 15, 2019 was $278.82 .
 
There is no established public trading market for the Operating Partnership's limited partnership units ("OP Units").
 
Holders
 
The approximate number of holders of record of the shares of Essex's common stock was 1,313 as of February 15, 2019 . This number does not include stockholders whose shares are held in investment accounts by other entities. Essex believes the actual number of stockholders is greater than the number of holders of record.
 
As of February 15, 2019 , there were 184 holders of record of OP Units, including Essex.
 
Return of Capital
 
Under provisions of the Code, 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, 2018 , 2017 , and 2016 related to common stock, and Series H preferred stock for tax purposes are as follows:
 
 
2018
 
2017
 
2016
Common Stock
 
 
 
 
 
 
Ordinary income
 
79.72
%
 
84.04
%
 
86.68
%
Capital gain
 
15.35
%
 
13.20
%
 
7.11
%
Unrecaptured section 1250 capital gain
 
4.93
%
 
2.76
%
 
6.21
%
 
 
100.00
%
 
100.00
%
 
100.00
%
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2016
Series H Preferred stock
 
 

 
 

 
 

Ordinary income
 
—
%
 
—
%
 
86.68
%
Capital gains
 
—
%
 
—
%
 
7.11
%
Unrecaptured section 1250 capital gain
 
—
%
 
—
%
 
6.21
%
 
 
—
%
 
—
%
 
100.00
%

Dividends and Distributions
 
Future dividends/distributions by Essex and the Operating Partnership will be at the discretion of the Board of Directors of Essex 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 Code, applicable legal restrictions and such other factors as the Board of Directors deems relevant. There are currently no contractual restrictions on Essex's and the Operating Partnership's present or future ability to pay dividends and distributions, and we do not anticipate that our ability to pay dividends/distributions will be impaired; however, there can be no assurances in that regard.
 
The Board of Directors declared a dividend/distribution for the fourth quarter of 2018 of $1.86 per share. The dividend/distribution was paid on January 15, 2019 to stockholders/unitholders of record as of January 2, 2019.
 



36

Dividend Reinvestment and Share Purchase Plan

Essex 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 Essex's 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

The information required by this section is incorporated herein by reference from our Proxy Statement, relating to our 2019 Annual Meeting of Shareholders, under the headings "Equity Compensation Plan Information," to be filed with the SEC within 120 days of December 31, 2018 .

Issuance of Registered Equity Securities

In September 2018, the Company entered into a new equity distribution agreement in connection with the 2018 ATM Program pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million. In connection with the 2018 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the 2018 ATM Program under forward sales agreements. The use of a forward sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date. On February 19, 2019, Essex’s Board of Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan.

During 2018 , the Company issued no shares of common stock under the 2018 ATM Program or the prior 2016 ATM Program. As of December 31, 2018, the Company had no outstanding forward sale agreements to sell any shares of common stock.

Issuer Purchases of Equity Securities

In December 2015, Essex's Board of Directors authorized a stock repurchase plan to allow Essex to acquire shares in an aggregate of up to $250.0 million. Under this program, through December 31, 2018, the Company had repurchased and retired 215,583 shares of common stock totaling $52.3 million, including commissions, at an average stock price of $242.49 per share. As of December 31, 2018, the Company had $197.7 million of purchase authority remaining under the plan.
Performance Graph

The line graph below compares the cumulative total stockholder return on Essex's 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, 2013 and that all dividends were reinvested.


37

CHART-E2F7D5EF5BEB59AD936.JPG
 
 
Period Ending
Index
 
12/31/2013

 
12/31/2014

 
12/31/2015

 
12/31/2016

 
12/31/2017

 
12/31/2018

Essex Property Trust, Inc.
 
100.00

 
148.00

 
175.93

 
175.70

 
187.65

 
196.60

NAREIT All Equity REIT Index
 
100.00

 
128.03

 
131.64

 
143.00

 
155.41

 
149.12

S&P 500 Index
 
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

 
(1)  
Common stock performance data is provided by S&P Global Market Intelligence (formerly 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.
 
Unregistered Sales of Equity Securities
 
During the years ended December 31, 2018 and 2017 , the Operating Partnership issued OP Units in private placements in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, in the amounts and for the consideration set forth below:
 
During the years ended December 31, 2018 and 2017 , Essex issued an aggregate of 39,175 and 176,489 shares of its common stock upon the exercise of stock options, respectively. Essex contributed the proceeds from the option exercises of $6.2 million and $26.6 million to the Operating Partnership in exchange for an aggregate of 39,175 and 176,489 OP Units, as required by the Operating Partnership’s partnership agreement, during the years ended December 31, 2018 and 2017 , respectively.
 
During the years ended December 31, 2018 and 2017 , Essex issued an aggregate of 1,981 and 2,973 shares of its common stock in connection with restricted stock awards for no cash consideration, respectively. For each share of common stock issued by Essex in connection with such awards, the Operating Partnership issued OP Units to Essex as required by the Operating

38

Partnership's partnership agreement, for an aggregate of 1,981 and 2,973 OP Units during the years ended December 31, 2018 and 2017 , respectively.

During the years ended December 31, 2018 and 2017 , Essex issued an aggregate of 5,250 and 1,500 shares of its common stock in connection with the exchange of OP Units and DownREIT limited partnership units by limited partners into shares of common stock. For each share of common stock issued by Essex in connection with such exchange, the Operating Partnership issued OP Units to Essex as required by the Operating Partnership's partnership agreement, for an aggregate of 5,250 and 1,500 OP Units during the year ended December 31, 2018 and 2017 , respectively.

No shares of the Company's common stock were issued or sold by Essex pursuant to the 2018 ATM Program or the prior 2016 ATM Program during the year ended December 31, 2018 . For the year ended December 31, 2017 , the Company issued 345,444 shares of Essex's common stock through the 2016 ATM Program. Essex contributed the net proceeds from these share issuances of $89.1 million to the Operating Partnership in exchange for an aggregate of 345,444 OP units, as required by the Operating Partnership's partnership agreement. As of December 31, 2018, the Company had no outstanding forward purchase agreements to sell any shares of common stock.

Stock Repurchases

The following table summarizes the Company’s purchases of its common stock during the three months ended December 31, 2018:    
 
 
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of Shares
Purchased as Part of a
Publicly Announced
Program (1)
 
Maximum Dollar Value of Shares that May Yet Be Purchased Under the Program (in Millions)
October 1, 2018 - October 31, 2018
 
—

 
—
 
 
—
 
 
—
 
November 1, 2018 - November 30, 2018
 
74,811

 
249.20
 
 
74,811
 
 
226.5
 
December 1, 2018 - December 31, 2018
 
118,838

 
242.48
 
 
118,838
 
 
197.7
 
Total
 
193,649

 
$
245.08
 
 
193,649
 
 
$
197.7
 

(1) In December 2015, Essex’s Board of Directors authorized a stock repurchase plan to allow Essex to acquire shares in an aggregate of up to $250.0 million. Under this program, as of December 31, 2018, the Company had $197.7 million of purchase authority remaining. On February 19, 2019, Essex’s Board of Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan.


39

Item 6. Selected Financial Data
 
The following tables set forth summary financial and operating information for Essex and the Operating Partnership from January 1, 2014 through December 31, 2018 .

Essex Property Trust, Inc. and Subsidiaries
 
 
Years Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
($ in thousands, except per share amounts)
OPERATING DATA:
 
 
 
 
 
 
 
 
 
 
Rental and other property
 
$
1,390,870

 
$
1,354,325

 
$
1,285,723

 
$
1,185,498

 
$
961,591

Management and other fees from affiliates
 
9,183

 
9,574

 
8,278

 
8,909

 
9,347

Net income
 
413,599

 
458,043

 
438,410

 
248,239

 
134,438

Net income available to common stockholders
 
$
390,153

 
$
433,059

 
$
411,124

 
$
226,865

 
$
116,859

Per share data:
 
 

 
 

 
 

 
 

 
 

Basic:
 
 

 
 

 
 

 
 

 
 

Net income available to common stockholders
 
$
5.91

 
$
6.58

 
$
6.28

 
$
3.50

 
$
2.07

Weighted average common stock outstanding
 
66,041

 
65,829

 
65,472

 
64,872

 
56,547

Diluted:
 
 

 
 

 
 

 
 

 
 

Net income available to common stockholders
 
$
5.90

 
$
6.57

 
$
6.27

 
$
3.49

 
$
2.06

Weighted average common stock outstanding
 
66,085

 
65,898

 
65,588

 
65,062

 
56,697

Cash dividend per common share
 
$
7.44

 
$
7.00

 
$
6.40

 
$
5.76

 
$
5.11


 
 
As of December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
($ in thousands)
BALANCE SHEET DATA:
 
 
 
 
 
 
 
 
 
 
Investment in rental properties (before accumulated depreciation)
 
$
13,366,101

 
$
13,362,073

 
$
12,687,722

 
$
12,338,129

 
$
11,249,071

Net investment in rental properties
 
10,156,553

 
10,592,776

 
10,376,176

 
10,388,237

 
9,684,265

Real estate under development
 
454,629

 
355,735

 
190,505

 
242,326

 
429,096

Co-investments
 
1,300,140

 
1,155,984

 
1,161,275

 
1,036,047

 
1,042,423

Total assets
 
12,383,596

 
12,495,706

 
12,217,408

 
12,008,384

 
11,530,299

Total indebtedness, net
 
5,605,942

 
5,689,126

 
5,563,260

 
5,318,757

 
5,084,256

Redeemable noncontrolling interest
 
35,475

 
39,206

 
44,684

 
45,452

 
23,256

Cumulative redeemable preferred stock
 
—

 
—

 
—

 
73,750

 
73,750

Stockholders' equity
 
6,267,073

 
6,277,406

 
6,192,178

 
6,237,733

 
6,022,672






40

 
 
As of and for the years ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
($ 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
 
$
390,153

 
$
433,059

 
$
411,124

 
$
226,865

 
$
116,859

Adjustments:
 
 

 
 

 
 

 
 

 
 

Depreciation and amortization
 
479,884

 
468,881

 
441,682

 
453,423

 
360,592

Gains not included in FFO attributable to common stockholders and unitholders
 
(73,683
)
 
(159,901
)
 
(167,607
)
 
(81,347
)
 
(50,064
)
Deferred tax expense on sale of real estate and land - taxable REIT subsidiary activity
 
—

 
—

 
4,410

 
—

 
—

Depreciation and amortization add back from unconsolidated co-investments
 
62,954

 
55,531

 
50,956

 
49,826

 
33,975

Noncontrolling interest related to Operating Partnership units
 
13,452

 
14,825

 
14,089

 
7,824

 
4,911

Insurance reimbursements
 
—

 
—

 
—

 
(1,751
)
 
—

Depreciation attributable to third party ownership and other
 
(940
)
 
(286
)
 
(9
)
 
(781
)
 
(1,331
)
Funds from operations attributable to common stockholders and unitholders
 
$
871,820

 
$
812,109

 
$
754,645

 
$
654,059

 
$
464,942

Non-core items:
 
 

 
 

 
 

 
 

 
 

Merger and integration expenses
 
—

 
—

 
—

 
3,798

 
53,530

Expensed acquisition and investment related costs
 
194

 
1,569

 
1,841

 
2,414

 
1,878

Gain on sale of marketable securities, note prepayment, and other investments
 
(737
)
 
(1,909
)
 
(5,719
)
 
(598
)
 
(886
)
Unrealized losses on marketable securities
 
5,159

 
—

 
—

 
—

 
—

Gain on sale of land
 
—

 
—

 
—

 
—

 
(2,533
)
Interest rate hedge ineffectiveness (2)
 
148

 
(78
)
 
(250
)
 
—

 
—

Loss on early retirement of debt
 
—

 
1,796

 
606

 
6,114

 
268

Gain on early retirement of debt from unconsolidated co-investment

 
(3,662
)
 
—

 
—

 
—

 
—

Co-investment promote income
 
(20,541
)
 
—

 
—

 
(192
)
 
(10,640
)
Income from early redemption of preferred equity investments
 
(1,652
)
 
(356
)
 
—

 
(1,954
)
 
(5,250
)
Excess of redemption value of preferred stock over carrying value
 
—

 
—

 
2,541

 
—

 
—

General and administrative and other, net
 
8,745

 
(1,083
)
 
—

 
(651
)
 
1,758

Insurance reimbursements and legal settlements, net
 
(561
)
 
(25
)
 
(4,470
)
 
(2,319
)
 
94

Core funds from operations ("Core FFO") (1)  attributable to common stockholders and unitholders
 
$
858,913

 
$
812,023

 
$
749,194

 
$
660,671

 
$
503,161

Weighted average number of shares outstanding, diluted (FFO) (3)
 
68,322

 
68,194

 
67,890

 
67,310

 
58,921

Funds from operations attributable to common stockholders and unitholders
 per share - diluted
 
$
12.76

 
$
11.91

 
$
11.12

 
$
9.72

 
$
7.89

Core funds from operations attributable to common stockholders and unitholders
 per share - diluted
 
$
12.57

 
$
11.91

 
$
11.04

 
$
9.82

 
$
8.54



41

(1)  
FFO is a financial measure that is commonly used in the REIT industry. The Company presents FFO and FFO excluding non-core items ("referred to as "Core FFO") as supplemental operating performance measures. FFO and Core FFO are not used by the Company as, nor should they be considered to be, alternatives to net income computed under U.S. GAAP as an indicator of the Company’s operating performance or as alternatives to cash from operating activities computed under U.S. GAAP as an indicator of the Company's ability to fund its cash needs.

FFO and Core FFO are not meant to represent a comprehensive system of financial reporting and do not present, nor do they intend to present, a complete picture of the Company's financial condition and operating performance. The Company believes that net income computed under U.S. GAAP is the primary measure of performance and that FFO and Core FFO are only meaningful when they are used in conjunction with net income. The Company considers FFO and Core FFO to be useful financial performance measurements of an equity REIT because, together with net income and cash flows, FFO and Core FFO provide investors with additional bases to evaluate operating performance and ability of a REIT to incur and service debt and to fund acquisitions and other capital expenditures and to pay dividends. By excluding gains or losses related to sales of depreciated operating properties and excluding real estate depreciation (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a real estate company between periods or as compared to different companies. By further adjusting for items that are not considered part of the Company’s core business operations, Core FFO allows investors to compare the core operating performance of the Company to its performance in prior reporting periods and to the operating performance of other real estate companies without the effect of items that by their nature are not comparable from period to period and tend to obscure the Company’s actual operating results. The Company believes that its consolidated financial statements, prepared in accordance with U.S. GAAP, provide the most meaningful picture of its financial condition and its operating performance.
 
In calculating FFO, the Company follows the definition for this measure published by the National Association of Real Estate Investment Trusts (“NAREIT"), which is the leading REIT industry association. The Company believes that, under the NAREIT FFO definition, the two most significant adjustments made to net income are (i) the exclusion of historical cost depreciation and (ii) the exclusion of gains and losses from the sale of previously depreciated properties. The Company agrees that these two NAREIT adjustments are useful to investors for the following reasons:
 
(a)
historical cost accounting for real estate assets in accordance with U.S. GAAP assumes, through depreciation charges, that the value of real estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations “since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves." Consequently, NAREIT’s definition of FFO reflects the fact that real estate, as an asset class, generally appreciates over time and depreciation charges required by U.S. GAAP do not reflect the underlying economic realities.
(b)
REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate.  The exclusion, in NAREIT’s definition of FFO, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form the core of a REIT’s activity and assists in comparing those operating results between periods.

Management believes that it has consistently applied the NAREIT definition of FFO to all periods presented. However, there is judgment involved and other REITs' calculation of FFO may vary from the NAREIT definition for this measure, and thus their disclosure of FFO may not be comparable to the Company’s calculation.

The table to which this footnote relates is a reconciliation of net income available to common stockholders to FFO and Core FFO for the years ended December 31, 2018, 2017, 2016, 2015, and 2014.

(2)  
Interest rate swaps generally are adjusted to fair value through other comprehensive income (loss). However, because certain of the Company's interest rate swaps do not have a 0% LIBOR floor, while related hedged debt in these cases is subject to a 0% LIBOR floor, the portion of the change in fair value of these interest rate swaps attributable to this mismatch, if any, is recorded as a non-cash interest rate hedge ineffectiveness through interest expense.
(3)  
Assumes conversion of all dilutive outstanding operating partnership interests in the Operating Partnership into shares of the Company's common stock and excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.


42

Essex Portfolio, L.P. and Subsidiaries
 
 
Years Ended December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
($ in thousands, except per unit amounts)
OPERATING DATA:
 
 
 
 
 
 
 
 
 
 
Rental and other property
 
$
1,390,870

 
$
1,354,325

 
$
1,285,723

 
$
1,185,498

 
$
961,591

Management and other fees from affiliates
 
9,183

 
9,574

 
8,278

 
8,909

 
9,347

Net income
 
413,599

 
458,043

 
438,410

 
248,239

 
134,438

Net income available to common unitholders
 
$
403,605

 
$
447,884

 
$
425,213

 
$
234,689

 
$
121,726

Per unit data:
 
 

 
 

 
 

 
 

 
 

Basic:
 
 

 
 

 
 

 
 

 
 

Net income available to common unitholders
 
$
5.91

 
$
6.58

 
$
6.28

 
$
3.50

 
$
2.07

Weighted average common units outstanding
 
68,316

 
68,082

 
67,696

 
67,054

 
58,772

Diluted:
 
 

 
 

 
 

 
 

 
 

Net income available to common unitholders
 
$
5.90

 
$
6.57

 
$
6.27

 
$
3.49

 
$
2.07

Weighted average common units outstanding
 
68,360

 
68,151

 
67,812

 
67,244

 
58,921

Cash distributions per common unit
 
$
7.44

 
$
7.00

 
$
6.40

 
$
5.76

 
$
5.11

 
 
 
As of December 31,
 
 
2018
 
2017
 
2016
 
2015
 
2014
 
 
($ in thousands)
BALANCE SHEET DATA:
 
 
 
 
 
 
 
 
 
 
Investment in rental properties (before accumulated depreciation)
 
$
13,366,101

 
$
13,362,073

 
$
12,687,722

 
$
12,338,129

 
$
11,249,071

Net investment in rental properties
 
10,156,553

 
10,592,776

 
10,376,176

 
10,388,237

 
9,684,265

Real estate under development
 
454,629

 
355,735

 
190,505

 
242,326

 
429,096

Co-investments
 
1,300,140

 
1,155,984

 
1,161,275

 
1,036,047

 
1,042,423

Total assets
 
12,383,596

 
12,495,706

 
12,217,408

 
12,008,384

 
11,530,299

Total indebtedness, net
 
5,605,942

 
5,689,126

 
5,563,260

 
5,318,757

 
5,084,256

Redeemable noncontrolling interest
 
35,475

 
39,206

 
44,684

 
45,452

 
23,256

Cumulative redeemable preferred interest
 
—

 
—

 
—

 
71,209

 
71,209

Partners' capital
 
6,329,613

 
6,330,415

 
6,244,364

 
6,287,381

 
6,073,433



43

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

Essex is a self-administered and self-managed REIT that acquires, develops, redevelops, and manages apartment communities in selected residential areas located on the West Coast of the United States. Essex owns all of its interests in its real estate investments, directly or indirectly, through the Operating Partnership. Essex is the sole general partner of the Operating Partnership and, as of December 31, 2018 , had an approximately 96.6% 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 Company's portfolio.

As of December 31, 2018 , the Company owned or had ownership interests in 245 operating apartment communities, comprising 59,661 apartment homes, excluding the Company's ownership in preferred equity co-investments, loan investments, one operating commercial building with approximately 106,716 square feet and six active developments.

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, 2018 , the Company’s development and predevelopment pipeline was comprised of four consolidated projects under development, two unconsolidated joint venture projects under development, and various predevelopment projects aggregating 1,861 apartment homes, with total incurred costs of $812.0 million , and estimated remaining project costs of approximately $417.0 million , $310.0 million of which represents the Company's estimated remaining costs, for total estimated project costs of $1.2 billion . 

As of December 31, 2018 , the Company also had an ownership interest in one operating commercial building (totaling approximately 106,716 square feet).

By region, the Company's operating results for 2018 and 2017 and projection for 2019 new housing supply (defined as new multifamily apartment homes and single family homes, excluding developments with fewer than 50 apartment homes as well as student, senior and 100% affordable housing), projection for 2019 job growth, and 2019 estimated Same-Property revenue growth are as follows:

Southern California Region :  As of December 31, 2018 , this region represented 46% of the Company’s consolidated operating apartment homes.  Revenues for " 2018 Same-Properties" (as defined below), or "Same-Property revenues," increased 3.1% in 2018 as compared to 2017 . In 2019 , the Company projects new residential supply of 33,500 apartment homes and single family homes, which represents 0.6% of the total housing stock. The Company projects an increase of 104,750 jobs or 1.3% , and an increase in 2019 Same-Property revenues of between 2.5% to 3.5% in 2019 .
 
Northern California Region :  As of December 31, 2018 , this region represented 33% of the Company’s consolidated operating apartment homes. Same-Property revenues increased 2.4% in 2018 as compared to 2017 . In 2019 , the Company projects new residential supply of 15,750 apartment homes and single family homes, which represents 0.7% of the total housing stock. The Company projects an increase of 65,500 jobs or 2.0% , and an increase in 2019 Same-Property revenues of between 2.6% to 3.6% in 2019 .
 
Seattle Metro Region : As of December 31, 2018 , this region represented 21% of the Company’s consolidated operating apartment homes. Same-Property revenues increased 2.9% in 2018 as compared to 2017 . In 2019 , the Company projects new residential supply of 17,000 apartment homes and single family homes, which represents 1.3% of the total housing stock. The Company projects an increase of 45,900 jobs or 2.6% , and an increase in 2019 Same-Property revenues of between 2.3% to 3.3% in 2019 .

44


In total, the Company projects an increase in 2019 Same-Property revenues of between 2.5% to 3.5% , as renewal and new leases are signed at higher rents in 2019 than 2018 . Same-Property operating expenses are projected to increase in 2019 by 2.5% to 3.5% .

The Company’s consolidated operating communities are as follows:
 
As of
 
As of
 
December 31, 2018
 
December 31, 2017
 
Apartment Homes
 
%
 
Apartment Homes
 
%
Southern California
22,674

 
46
%
 
23,343

 
47
%
Northern California
16,136

 
33
%
 
15,848

 
32
%
Seattle Metro
10,238

 
21
%
 
10,238

 
21
%
Total
49,048

 
100
%
 
49,429

 
100
%

Co-investments, including Wesco I, Wesco III, Wesco IV, Wesco V, LLC, CPPIB, BEXAEW, BEX II, and BEX III 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, 2018 to the Year Ended December 31, 2017

The Company’s average financial occupancies for the Company’s stabilized apartment communities or "2018 Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2018 and 2017 ) increased 10 basis points to 96.7% in 2018 from 96.6% in 2017 . Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total potential rental revenue. 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. The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant apartment home at its estimated market rate.

Market rates are determined using the recently signed effective rates on new leases at the property and are used as the starting point in the determination of the market rates of vacant apartment homes. The Company may increase or decrease these rates based on a variety of factors, including overall supply and demand for housing, concentration of new apartment deliveries within the same submarket which can cause periodic disruption due to greater rental concessions to increase leasing velocity, and rental affordability. Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates, and the Company's calculation of financial occupancy may not be comparable to financial occupancy disclosed by other REITs.

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


45

The regional breakdown of the Company’s 2018 Same-Property portfolio for financial occupancy for the years ended December 31, 2018 and 2017 is as follows:

 
Years ended
December 31,
 
2018
 
2017
Southern California
96.7
%
 
96.6
%
Northern California
96.8
%
 
96.8
%
Seattle Metro
96.5
%
 
96.4
%


The following table provides a breakdown of revenue amounts, including the revenues attributable to 2018 Same-Properties.

 
 
Number of Apartment
 
Years Ended
December 31,
 
Dollar
 
Percentage
Property Revenues   ($ in thousands)
 
Homes
 
2018
 
2017
 
Change
 
Change
2018 Same-Properties: (1)
 
 
 
 
 
 
 
 
 
 
Southern California
 
21,979

 
$
573,658

 
$
556,630

 
$
17,028

 
3.1
%
Northern California
 
14,356

 
469,457

 
458,241

 
11,216

 
2.4
%
Seattle Metro
 
10,238

 
236,525

 
229,872

 
6,653

 
2.9
%
Total 2018 Same-Property revenues
 
46,573

 
1,279,640

 
1,244,743

 
34,897

 
2.8
%
2018 Non-Same Property Revenues
 
 

 
111,230

 
109,582

 
1,648

 
1.5
%
Total property revenues
 
 

 
$
1,390,870

 
$
1,354,325

 
$
36,545

 
2.7
%
  
(1)  
Same-property excludes properties held for sale.

2018 Same-Property Revenues increased by $34.9 million or 2.8% to $1.3 billion for 2018 compared to $1.2 billion in 2017 . The increase was primarily attributable to an increase of 2.5% in average rental rates from $2,177 per apartment home for 2017 to $2,231 per apartment home for 2018 . 

2018 Non-Same Property Revenues increased by $1.6 million or 1.5% to $111.2 million in 2018 compared to $109.6 million in 2017 . The increase was primarily due to revenue generated by Station Park Green - Phase I, a development community, which began producing rental income during the first quarter of 2018, and Sage at Cupertino, which was consolidated in March 2017, offset by the sales of Domain in the second quarter of 2018 and 8th & Hope in the fourth quarter of 2018.

Management and other fees from affiliates decreased by $0.4 million or 4.2% to $9.2 million in 2018 from $9.6 million 2017 . The decrease is primarily due to lower asset management fees caused by the amendment of the Wesco I joint venture operating agreement in October 2017.

Property operating expenses, excluding real estate taxes increased $4.7 million or 2.1% to $233.8 million in 2018 compared to $229.1 million in 2017 , primarily due to an increase of $2.4 million in maintenance and repairs expenses as well as an increase of $2.3 million in utilities expenses.  2018 Same-Property operating expenses excluding real estate taxes, increased by $4.2 million or 2.0% to $218.7 million in 2018 compared to $214.5 million in 2017 , primarily due to a $2.2 million increase in maintenance and repairs expenses as well as an increase of $2.2 million in utilities expenses.

Real estate taxes increased $5.2 million or 3.6% to $151.5 million in 2018 compared to $146.3 million in 2017 , primarily due to the acquisition of Marquis and increases in tax rates and property valuations, offset by the sales of Domain in the second quarter of 2018 and 8th & Hope in the fourth quarter of 2018.  2018 Same-Property real estate taxes increased by $4.9 million or 3.7% to $138.4 million in 2018 compared to $133.5 million in 2017 due to increases in tax rates and property valuations.

Corporate-level property management expenses increased by $0.9 million or 3.0% to $31.1 million in 2018 compared to $30.2 million in 2017 , primarily due to an increase in corporate-level property management and staffing costs supporting the communities.


46

Depreciation and amortization expense increased by $11.0 million or 2.3% to $479.9 million in 2018 compared to $468.9 million in 2017 , primarily due to the completion of the Station Park Green - Phase I development during the first and second quarters of 2018, the consolidation of Sage at Cupertino in March 2017, as well as an increase in redevelopment activity in 2018 versus 2017, partially offset by a decrease due to the sales of Domain in the second quarter of 2018 and 8th & Hope in the fourth quarter of 2018.

Interest expense decreased $2.4 million or 1.1% to $220.5 million in 2018 compared to $222.9 million in 2017 , primarily due to debt that was paid off or matured and regular principal amortization during and after 2017 , which resulted in a decrease in interest expense of $16.2 million for 2018 . Additionally, there was a $4.8 million increase in capitalized interest during 2018 , which was due to an increase in development costs as compared to 2017 . These decreases in interest expense were partially offset by an increase in average outstanding debt primarily as a result of the issuance of $350.0 million senior unsecured notes due May 1, 2027 in April 2017 and $300.0 million senior unsecured notes due March 15, 2048 in March 2018, which resulted in an increase of $18.6 million interest expense for 2018 as compared to 2017 .

Total return swap income of $8.7 million in 2018 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015, in connection with issuing $257.3 million of fixed rate tax-exempt mortgage notes payable. The decrease of $1.4 million or 13.9% from $10.1 million in 2017 was due to less favorable interest rates in 2018.

Interest and other income decreased $1.6 million or 6.5% to $23.0 million in 2018 compared to $24.6 million in 2017 , primarily due to unrealized losses on marketable securities of $5.2 million that were recognized through income during 2018, partially offset by an increase in marketable securities and other interest income of $4.2 million.

Equity income from co-investments increased by $2.7 million or 3.1% to $89.1 million in 2018 compared to $86.4 million in 2017 , primarily due to $20.5 million of co-investment promote income from the BEXAEW joint venture recognized during the first quarter of 2018, an increase in income from preferred equity investments of $11.8 million, and a gain on early retirement of debt from an unconsolidated co-investment of $3.7 million in the third quarter of 2018, partially offset by a decrease in gains on sales of co-investment communities of $34.3 million.

Gain on sale of real estate and land increased by $35.5 million or 134.5% to $61.9 million in 2018 compared to $26.4 million in 2017 . The Company's 2018 gain was attributable to the sales of Domain in the second quarter of 2018 and 8th & Hope in the fourth quarter of 2018, which resulted in a gain of $22.3 million and $39.6 million, respectively, for the Company. The Company's 2017 gain was primarily attributable to the sale of Jefferson at Hollywood, which resulted in a gain of $26.2 million.

Gain on remeasurement of co-investment of $1.3 million in 2018 resulted from the purchase of the Company's joint venture partner's 49.9% membership interest in the Marquis co-investment in December 2018. Gain on remeasurement of $88.6 million in 2017 resulted from the purchase of the Company's joint venture partner's 50% membership interest in the Palm Valley co-investment in January 2017.

Comparison of Year Ended December 31, 2017 to the Year Ended December 31, 2016

The Company’s average financial occupancies for the Company’s stabilized apartment communities or "2017 Same-Property" (stabilized properties consolidated by the Company for the years ended December 31, 2017 and 2016) increased 30 basis points to 96.6% in 2017 from 96.3% in 2016. The regional breakdown of the Company's 2017 Same-Property portfolio for financial occupancy for the years ended December 31, 2017 and 2016 is as follows:

 
Years ended
December 31,
 
2017
 
2016
Southern California
96.6
%
 
96.3
%
Northern California
96.8
%
 
96.3
%
Seattle Metro
96.4
%
 
96.1
%






47

The following table provides a breakdown of revenue amounts, including the revenues attributable to 2017 Same-Properties:

 
 
Number of Apartment
 
Years Ended
December 31,
 
Dollar
 
Percentage
Property Revenues   ($ in thousands)
 
Homes
 
2017
 
2016
 
Change
 
Change
2017 Same-Properties: (1)
 
 
 
 
 
 
 
 
 
 
Southern California
 
21,998

 
$
559,113

 
$
538,738

 
$
20,375

 
3.8
%
Northern California
 
13,892

 
436,876

 
425,823

 
11,053

 
2.6
%
Seattle Metro
 
10,238

 
229,871

 
217,259

 
12,612

 
5.8
%
Total 2017 Same-Property revenues
 
46,128

 
1,225,860

 
1,181,820

 
44,040

 
3.7
%
2017 Non-Same Property Revenues
 
 

 
128,465

 
103,903

 
24,562

 
23.6
%
Total property revenues
 
 

 
$
1,354,325

 
$
1,285,723

 
$
68,602

 
5.3
%

(1)  
Same-property excludes properties held for sale.

2017 Same-Property Revenues increased by $44.0 million or 3.7% to $1.2 billion for 2017 compared to $1.2 billion in 2016. The increase was primarily attributable to an increase of 3.3% in average rental rates from $2,095 per apartment home for 2016 to $2,164 per apartment home for 2017.

2017 Non-Same Property Revenues increased by $24.6 million or 23.6% to $128.5 million in 2017 compared to $103.9 million in 2016. The increase was primarily due to revenue generated by Palm Valley, which was consolidated in January 2017.

Management and other fees from affiliates increased by $1.3 million or 15.7% to $9.6 million in 2017 from $8.3 million in 2016. The increase is primarily due to property management fee revenue from joint venture development communities that went into lease-up from the third quarter of 2016 until the fourth quarter of 2017.

Property operating expenses, excluding real estate taxes increased $9.4 million or 4.3% to $229.1 million in 2017 compared to $219.7 million in 2016, primarily due to expenses generated by Palm Valley, which was consolidated in January 2017. 2017 Same-Property operating expenses excluding real estate taxes, increased by $5.5 million or 2.7% to $210.4 million in 2017 compared to $204.9 million in 2016, primarily due to a $4.3 million increase in utilities.

Real estate taxes increased $7.1 million or 5.1% to $146.3 million in 2017 compared to $139.2 million in 2016, primarily due to property taxes at Palm Valley, which was consolidated in January 2017 and due to increases in tax rates and property valuations. 2017 Same-Property real estate taxes increased by $4.1 million or 3.3% to $130.1 million in 2017 compared to $126.0 million in 2016 due to increases in tax rates and property valuations.

Corporate-level property management expenses increased $0.1 million or 0.3% to $30.2 million in 2017 compared to $30.1 million in 2016, primarily due to a slight increase in corporate-level property management and staffing costs supporting the communities.

Depreciation and amortization expense increased by $27.2 million or 6.2% to $468.9 million in 2017 compared to $441.7 million in 2016, primarily due to depreciation at Palm Valley, which was consolidated in January 2017.

Interest expense increased $3.2 million or 1.5% to $222.9 million in 2017 compared to $219.7 million in 2016, due to an increase in average outstanding debt primarily due to the $350.0 million senior unsecured notes due May 1, 2027 issued in April 2017 and the $450.0 million senior unsecured notes due April 15, 2026 issued in April 2016, which resulted in $19.1 million of interest expense for 2017 compared to 2016. These additions were partially offset by various debts that were paid off or matured and regular principal amortization during and after 2016, which resulted in a decrease in interest expense of $14.5 million for 2017. Additionally, there was a $1.4 million increase in capitalized interest in 2017 compared to 2016, which was due to an increase in development costs as compared to the same period in 2016.

Total return swap income of $10.1 million in 2017 consists of monthly settlements related to the Company's total return swap contracts that were entered into during 2015, in connection with issuing $257.3 million of fixed rate tax-exempt mortgage notes payable. The decrease of $1.6 million or 13.7% from $11.7 million in 2016 was due to less favorable interest rates in 2017.

Interest and other income decreased $2.7 million or 9.9% to $24.6 million in 2017 compared to $27.3 million in 2016, primarily due to a decrease of $3.8 million in income from the gain on sale of marketable securities combined with a decrease

48

of $3.5 million in income from insurance reimbursements, legal settlements, and other, partially offset by an increase of $4.6 million in marketable securities and other interest income.

Equity income from co-investments increased by $37.7 million or 77.4% to $86.4 million in 2017 compared to $48.7 million in 2016, primarily due to the sale of two properties by BEXAEW and one property by Wesco I during 2017, which resulted in a total gain of $44.8 million, as well as increases in preferred equity income of approximately $7.5 million. In 2016, two co-investment properties were sold, resulting in gains of $13.0 million for the Company during 2016.

Gain on sale of real estate and land decreased by $128.2 million or 82.9% to $26.4 million in 2017 compared to $154.6 million in 2016. The Company's 2017 gain was primarily attributable to the sale of Jefferson at Hollywood, which resulted in a gain of $26.2 million for the Company.

Deferred tax expense on gain on sale of real estate and land of $4.4 million for 2016 was recorded primarily due to the sale of Harvest Park, which was owned by our wholly owned taxable REIT subsidiary. There was no current tax expense on the sale of real estate and land for 2016 as the Harvest Park proceeds were used in a like-kind exchange transaction. There were no such transactions during 2017.

Gain on remeasurement of co-investment of $88.6 million in 2017 resulted from the purchase of the Company's joint venture partner's 50% membership interest in the Palm Valley co-investment in January 2017. There were no such transactions during 2016.

Liquidity and Capital Resources

The following table sets forth the Company’s cash flows for 2018 , 2017 and 2016 ($ in thousands):
 
 
For the year ended December 31,
 
 
2018
 
2017
 
2016
Cash flow provided by (used in):
 
 
 
 
 
 
Operating activities
 
$
826,554

 
$
769,607

 
$
716,792

Investing activities
 
$
(59,893
)
 
$
(567,940
)
 
$
(413,071
)
Financing activities
 
$
(676,392
)
 
$
(310,843
)
 
$
(256,474
)

Essex’s business is operated primarily through the Operating Partnership. Essex 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 from operating as a public company which are fully reimbursed by the Operating Partnership. Essex itself does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. Essex’s principal funding requirement is the payment of dividends on its common stock and preferred stock. Essex’s sole source of funding for its dividend payments is distributions it receives from the Operating Partnership.

As of December 31, 2018 , Essex owned a 96.6% general partner interest and the limited partners owned the remaining 3.4% interest in the Operating Partnership.

The liquidity of Essex is dependent on the Operating Partnership’s ability to make sufficient distributions to Essex. The primary cash requirement of Essex is its payment of dividends to its stockholders. Essex also guarantees some of the Operating Partnership’s debt, as discussed further in Notes 7 and 8 to our consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. If the Operating Partnership fails to fulfill certain of its debt requirements, which trigger Essex’s guarantee obligations, then Essex will be required to fulfill its cash payment commitments under such guarantees. However, Essex’s only significant asset is its investment in the Operating Partnership.

For Essex 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 Essex has satisfied this distribution requirement by making cash distributions to its stockholders, it may choose to satisfy this requirement by making distributions of other property, including, in limited circumstances, Essex’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. Essex may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, acquisitions and developments.


49

At December 31, 2018 , the Company had $134.5 million of unrestricted cash and cash equivalents and $209.5 million in marketable securities, of which $82.4 million were equity securities or available for sale debt securities. The Company believes that cash flows generated by its operations, existing cash and cash equivalents, marketable securities balances, 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 2019 . 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, 2018 , the Company had $275.0 million of private placement unsecured bonds outstanding at an average interest rate of 4.5% with maturity dates ranging from December 2019 through August 2021.

As of December 31, 2018 , the Company had $3.2 billion of fixed rate public bonds outstanding at an average interest rate of 3.9% with maturity dates ranging from 2021 to 2048.

As of December 31, 2018 , the Company had $350.0 million outstanding on its unsecured term loan. The unsecured term loan bears a variable interest rate of LIBOR plus 0.95%. The Company has five interest rate swap contracts, with an aggregate notional balance of $175.0 million, which effectively converts the interest rate on $175.0 million of the unsecured term loan to a fixed rate of 2.3%.

As of December 31, 2018 , the Company’s mortgage notes payable totaled $1.8 billion , net of unamortized premiums and debt issuance costs, which consisted of $1.5 billion in fixed rate debt at an average interest rate of 4.6% and maturity dates ranging from 2019 to 2028 and $268.1 million of tax-exempt variable rate demand notes with a weighted average interest rate of 2.5% . The tax-exempt variable rate demand notes have maturity dates ranging from 2025 to 2046, and $9.9 million is subject to interest rate caps. $256.0 million is subject to total return swaps.

As of December 31, 2018 , the Company had two unsecured lines of credit aggregating $ 1.24 billion , including a $1.2 billion unsecured line of credit and a $35.0 million working capital unsecured line of credit. As of December 31, 2018 , there was no amount outstanding on the $1.2 billion unsecured line of credit. The interest rate is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.875% as of December 31, 2018 . In January 2019 this line of credit was amended such that the scheduled maturity date was extended to December 2022 with one 18-month extension, exercisable at the Company's option. The interest rate on the amended line is based on a tiered rate structure tied to the Company's credit ratings and is currently at LIBOR plus 0.825%. As of December 31, 2018 , there was no amount outstanding on the Company's $35.0 million working capital unsecured line of credit. The interest rate on the line is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.875% as of December 31, 2018 .

The Company’s unsecured lines 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, 2018 and 2017 .

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 lines of credit.

Derivative Activity

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

The Company has entered into interest rate swap contracts with an aggregate notional amount of $175.0 million that effectively fixed the interest rate on the $175.0 million of the $350.0 million unsecured term loan at 2.3%. These derivatives qualify for hedge accounting.

50

 
The Company has four total return swap contracts, with an aggregate notional amount of $256.0 million, that effectively converts $256.0 million of mortgage notes payable to a floating interest rate based on the Securities Industry and Financial Markets Association Municipal Swap Index ("SIFMA") plus a spread. The total return swaps provide fair market value protection on the mortgage notes payable to 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 all four of the total return swaps, with $256.0 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting.

As of December 31, 2018 the Company also had interest rate caps with an aggregate notional amount of $9.9 million that effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the variable interest rate for a portion of the Company’s tax exempt variable rate debt.

As of December 31, 2018 and 2017 , the aggregate carrying value of the interest rate swap contracts was an asset of $5.8 million and $5.4 million , respectively and is included in prepaid expenses and other assets on the consolidated balance sheets and a liability of zero at each date. The aggregate carrying value of the interest rate caps was zero on the balance sheets as of both December 31, 2018 and 2017 . The aggregate carrying value of the total return swaps was zero as of both December 31, 2018 and 2017 .

Hedge ineffectiveness related to cash flow hedges, which is reported in current year income as interest expense, net was a loss of $0.1 million, and gains of $0.1 million, and $0.3 million for the years ended December 31, 2018 , 2017, and 2016, respectively.

Issuance of Common Stock

In September 2018, the Company filed a new shelf registration statement with the SEC, allowing the Company to sell an undetermined number or amount of certain equity and debt securities of the Company, as defined in the prospectus contained in the shelf registration statement.

Also in September 2018, the Company entered into a new equity distribution agreement in connection with the 2018 ATM Program pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million. In connection with the 2018 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the 2018 ATM Program under forward sales agreements. The use of a forward sales agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date. The Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to acquire, develop, or redevelop properties, which primarily will be apartment communities, to make other investments and for working capital or general corporate purposes, which may include the repayment of indebtedness.

Upon entering into the 2018 ATM Program, the Company simultaneously terminated its existing 2016 ATM Program. Since commencement of the 2018 ATM Program through December 31, 2018, the Company did not sell any shares of its common stock through the 2018 ATM Program or through the 2016 ATM Program. As of December 31, 2018, $900.0 million of shares remains available to be sold under the 2018 ATM Program. For the year ended December 31, 2017, the Company issued 345,444 shares of common stock through the 2016 ATM Program at an average price of $260.38 per share for total proceeds of $89.1 million, net of fees and commissions. For the year ended December 31, 2016, the Company did not issue any shares of common stock pursuant to the 2016 ATM 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, 2018 , non-revenue generating capital expenditures totaled approximately $1,342 per apartment home. These expenditures do not include the improvements required in connection with the origination of mortgage loans, expenditures for deferred maintenance on acquisition properties, expenditures for property renovations and improvements which are expected to generate additional revenue or cost savings, and do not include expenditures incurred, due to changes in government regulations, that the Company would not have incurred otherwise, and expenditures in which the Company expects to be reimbursed. The Company expects that cash from operations and/or its lines of credit will fund such expenditures. 





51

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, 2018 , the Company's development pipeline was comprised of four consolidated projects under development, two unconsolidated joint venture projects under development and various consolidated predevelopment projects, aggregating 1,861 apartment homes, with total incurred costs of $0.8 billion , and estimated remaining project costs of approximately $0.4 billion , $0.3 billion of which represents the Company's estimated remaining costs, for total estimated project costs of $1.2 billion .
 
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 assets, if any.

Redevelopment Pipeline

The Company defines redevelopment communities as existing properties owned or recently acquired, which have been targeted for additional investment by the Company with the expectation of increased financial returns through property improvement.  During redevelopment, apartment homes may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2018 , the Company had ownership interests in five major redevelopment communities aggregating 1,727 apartment homes with estimated redevelopment costs of $140.1 million , of which approximately $27.8 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, 2018 , the Company had an interest in 814 apartment homes in communities actively under development with joint ventures for total estimated costs of $0.6 billion . Total estimated remaining costs total approximately $0.2 billion, of which the Company estimates that its remaining investment in these development joint ventures will be approximately $0.1 billion. In addition, the Company had an interest in 10,613 apartment homes in operating communities with joint ventures for a total book value of $0.8 billion.

Contractual Obligations and Commercial Commitments

The following table summarizes our obligations at December 31, 2018 ($ in thousands):

 
 
For the Fiscal Years Ending
 
 
2019
 
2020 and
2021
 
2022 and
2023
 
Thereafter
 
Total
Mortgage notes payable
 
$
515,658

 
$
737,327

 
$
42,030

 
$
500,880

 
$
1,795,895

Unsecured debt
 
75,000

 
500,000

 
1,250,000

 
2,000,000

 
3,825,000

Lines of credit
 
—

 
—

 
—

 
—

 
—

Interest on indebtedness (1)
 
212,676

 
325,635

 
213,209

 
535,013

 
1,286,533

Ground leases
 
3,506

 
7,012

 
7,012

 
128,497

 
146,027

Operating leases
 
3,305

 
6,720

 
6,736

 
24,761

 
41,522

Development commitments (including co-investments) (2)
 
278,412

 
31,607

 
—

 
—

 
310,019

 
 
$
1,088,557

 
$
1,608,301

 
$
1,518,987

 
$
3,189,151

 
$
7,404,996


(1)  
Interest on indebtedness for variable debt was calculated using interest rates as of December 31, 2018 .
(2)  
Estimated project cost for development of the Company's 500 Folsom project is net of a projected value for low-income housing tax credit proceeds and the value of the tax exempt bond structure.


52

Variable Interest Entities

In accordance with accounting standards for consolidation of variable interest entities ("VIEs"), the Company consolidates the Operating Partnership, 16 DownREIT limited partnerships (comprising eight communities) and eight co-investments as of December 31, 2018. The Company consolidates these entities because it is deemed the primary beneficiary. Essex has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the eight consolidated co-investments and 16 DownREIT limited partnerships, net of intercompany eliminations, were approximately $849.8 million and $261.7 million , respectively, as of December 31, 2018 , and $837.7 million and $265.5 million respectively, as of December 31, 2017 . Noncontrolling interests in these entities were $64.5 million and $66.7 million as of December 31, 2018 and 2017 , respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE. As of December 31, 2018 , the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs 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 and estimates relate principally to the following key areas: (i) accounting for the acquisition of investments in real estate; and (ii) assessing the carrying values of our real estate properties and investments in and advances to joint ventures and affiliates. Specifically, determining the fair value of a real estate property or investment in and advances to a joint venture or affiliate after an indication of impairment is identified involves significant judgment. The Company bases its estimates on historical experience, current market conditions, and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from those estimates made by management.

The Company accounts for its acquisitions of investments in real estate by assessing each acquisition to determine if it meets the definition of a business or if it qualifies as an asset acquisition. We expect that acquisitions of individual operating communities will generally be viewed as asset acquisitions, and result in the capitalization of acquisition costs, and the allocation of purchase price to the assets acquired and liabilities assumed based on the relative fair value of the respective assets and liabilities.

The relative 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 relative fair value of the land and building is then allocated 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 amortized over the average remaining term of all acquired leases.

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 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.


53

Net Operating Income

Net operating income ("NOI") and Same-Property NOI are 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. In addition, because prospective buyers of real estate have different financing and overhead structures, with varying marginal impacts to overhead by acquiring real estate, NOI is considered by many in the real estate industry to be a useful measure for determining the value of a real estate asset or group of assets. The Company defines Same-Property NOI as Same-Property revenue less Same-Property operating expenses, including property taxes. Please see the reconciliation of earnings from operations to Same-Property NOI, which in the table below is the NOI for stabilized properties consolidated by the Company for the periods presented ($ in thousands):

 
2018
 
2017
 
2016
Earnings from operations
$
450,128

 
$
446,522

 
$
420,800

Adjustments:
 

 
 

 
 

Corporate-level property management expenses
31,062

 
30,156

 
30,110

Depreciation and amortization
479,884

 
468,881

 
441,682

Management and other fees from affiliates
(9,183
)
 
(9,574
)
 
(8,278
)
General and administrative
53,451

 
41,385

 
40,751

Expensed acquisition and investment related costs
194

 
1,569

 
1,841

NOI
1,005,536

 
978,939

 
926,906

Less: Non Same-Property NOI
(82,998
)
 
(82,177
)
 
(74,952
)
Same-Property NOI
$
922,538

 
$
896,762

 
$
851,954


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 and Section 21E of the Securities and Exchange Act, including statements regarding the Company's expectations, estimates, assumptions, hopes, intentions, beliefs and strategies regarding the future. Words such as "expects," "anticipates," "may," "will," "intends," "plans," "believes," "seeks," "estimates," and variations of such words and similar expressions are intended to identify such forward-looking statements. 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, expectations 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 2019 Same-Property revenue generally and in various areas, and 2019 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 may 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 acquired properties may prove to be inaccurate, that there may be increased interest rates and operating costs, 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 actual non-revenue generating capital expenditures may exceed the Company's current expectations, that there may be a downturn general economic conditions, the real estate industry and 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

54

future results, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements are made as of today, and the Company assumes no obligation to update this information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risks

Interest Rate Hedging Activities

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company uses interest rate swaps as part of its cash flow hedging strategy. As of December 31, 2018 , the Company had entered into five interest rate swap contracts to mitigate the risk of changes in the interest-related cash outflows on $175.0 million of the unsecured term debt. As of December 31, 2018 , the Company also had $269.6 million of secured variable rate indebtedness, of which $9.9 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, 2018 . The following table summarizes the notional amount, carrying value, and estimated fair value of the Company’s cash flow hedge derivative instruments used to hedge interest rates as of December 31, 2018 . 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, 2018 .

 
 
 
 
 
 
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
 
$
175,000

 
2022
 
$
5,844

 
$
8,377

 
$
3,324

Interest rate caps
 
9,924

 
2019
 
—

 
—

 
—

Total cash flow hedges
 
$
184,924

 
2019-2022
 
$
5,844

 
$
8,377

 
$
3,324


Additionally, the Company has entered into total return swap contracts, with an aggregate notional amount of $256.0 million that effectively convert $256.0 million of fixed mortgage notes payable to a floating interest rate based on the SIFMA plus a spread and have a carrying value of zero at December 31, 2018. The Company is exposed to insignificant interest rate risk on these swaps as the related mortgages are callable, at par, by the Company, co-terminus with the termination of any related swap. These derivatives do not qualify for hedge accounting.

Interest Rate Sensitive Liabilities

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

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 $5.0 billion of fixed rate debt at December 31, 2018 , to be $5.0 billion .  Management has estimated the fair value of the Company’s $619.6 million of variable rate debt at December 31, 2018 , to be $615.2 million based on the terms of existing mortgage notes payable and variable rate demand notes compared to those available in the marketplace. The following table represents scheduled principal payments ($ in thousands):
 

55

 
For the Years Ended December 31,
 ($ in thousands, except for interest rates)
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Total
 
Fair value
Fixed rate debt  
$590,061
 
$693,071
 
$542,891
 
$340,398
 
$600,000
 
$
2,234,849

$
5,001,270

 
$
4,965,815

Average interest rate
4.4
%
 
5.0
%
 
4.5
%
 
3.8
%
 
3.7
%
 
3.8
%
 

 
 

Variable rate debt  (1)
$
597

 
$
652

 
$
713

 
$
350,780

 
$
852

 
$
266,031

$
619,625

 
$
615,178

Average interest rate
2.6
%
 
2.6
%
 
2.6
%
 
2.9
%
 
2.6
%
 
2.5
%
 

 
 

 
(1)  
$184.9 million is subject to interest rate protection agreements ($175.0 million is subject to interest rate swaps and $9.9 million is subject to interest rate caps). $256.0 million is subject to total return swaps.

The table incorporates only those exposures that exist as of December 31, 2018 ; it does not consider those exposures or positions that could arise after that date. As a result, the Company’s ultimate realized gain or loss, with respect to interest rate fluctuations and hedging strategies would depend on the exposures that arise prior to settlement.

Item 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, 2018 , Essex carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Essex's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, Essex’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2018 , Essex’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by Essex in the reports that Essex files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that Essex files or submits under the Exchange Act is accumulated and communicated to Essex’s management, including Essex’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in Essex’s internal control over financial reporting, that occurred during the quarter ended December 31, 2018 , that have materially affected, or are reasonably likely to materially affect, Essex’s internal control over financial reporting.


Management’s Report on Internal Control Over Financial Reporting

Essex’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Essex’s management assessed the effectiveness of Essex’s internal control over financial reporting as of December 31, 2018 . In making this assessment, Essex’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"). Essex’s management has concluded that, as of December 31, 2018 , its internal control over financial reporting was effective based on these criteria. Essex’s independent registered public accounting firm, KPMG LLP, has issued an attestation report over Essex’s internal control over financial reporting, which is included herein.



56

Essex Portfolio, L.P.

As of December 31, 2018 , the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including Essex's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Operating Partnership's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2018 , the Operating Partnership’s disclosure controls and procedures were effective to ensure that the information required to be disclosed by the Operating Partnership in the reports that the Operating Partnership files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such disclosure controls and procedures were also effective to ensure that information required to be disclosed in the reports that the Operating Partnership files or submits under the Exchange Act is accumulated and communicated to the Operating Partnership’s management, including Essex's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There were no changes in the Operating Partnership’s internal control over financial reporting, that occurred during the quarter ended December 31, 2018 , 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 Exchange Act). The Operating Partnership’s management assessed the effectiveness of the Operating Partnership’s internal control over financial reporting as of December 31, 2018 . 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 COSO. The Operating Partnership’s management has concluded that, as of December 31, 2018 , its internal control over financial reporting was effective based on these criteria.
 
Item 9B. Other Information
New Form of Indemnification Agreement
On February 19, 2019, Essex’s Board approved and adopted an amended and restated form of indemnification agreement (the "Indemnification Agreement") which Essex expects to enter into with each of the current directors and officers of the Company (collectively, the "Indemnitees"). The Indemnification Agreement replaces the existing form of indemnification agreement in place with the Company’s directors and officers, which was adopted by the Board in 2011 (the "Prior Indemnification Agreement").
The Indemnification Agreement continues to provide for, among other things, the indemnification by the Company of the Indemnitees to the maximum extent permitted by Maryland law and the advancement of reasonable expenses incurred by Indemnitees in connection with certain legal proceedings, and shall be in addition to any other rights the Indemnitees may have under applicable law, the Company’s charter documents or bylaws, or otherwise. The Indemnification Agreement also continues to set forth procedures for determining entitlement to indemnification, the requirements relating to notice and defense of claims for which indemnification is sought, the procedures for enforcement of indemnification rights, and the limitations on and exclusions from indemnification.
The foregoing description of the Indemnification Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the complete form of Indemnification Agreement, a copy of which is filed as Exhibit 10.4 to this Annual Report on Form 10-K and incorporated herein by reference.


57


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 2019 Annual Meeting of Stockholders, under the heading "Board and Corporate Governance Matters," to be filed with the SEC within 120 days of December 31, 2018 .

Item 11. Executive Compensation
 
The information required by this Item is incorporated herein by reference from our Proxy Statement, relating to our 2019 Annual Meeting of Stockholders, under the headings "Executive Compensation" and "Director Compensation," to be filed with the SEC within 120 days of December 31, 2018 .

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 2019 Annual Meeting of Stockholders, under the heading "Security Ownership of Certain Beneficial Owners and Management," to be filed with the SEC within 120 days of December 31, 2018 .
 
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 2019 Annual Meeting of Stockholders, under the heading "Certain Relationships and Related Persons Transactions," to be filed with the SEC within 120 days of December 31, 2018 .

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 2019 Annual Meeting of Stockholders, 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, 2018 .


58

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, 2018 and 2017
 
 
Consolidated Statements of Income: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Equity: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Cash Flows: Years ended December 31, 2018, 2017, and 2016
 
 
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, 2018 and 2017
 
 
Consolidated Statements of Income: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Comprehensive Income: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Capital: Years ended December 31, 2018, 2017, and 2016
 
 
Consolidated Statements of Cash Flows: Years ended December 31, 2018, 2017, and 2016
 
 
Notes to Consolidated Financial Statements
 
 
(3)  Financial Statement Schedule – Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2018
 
 
(4)   See the Exhibit Index immediately preceeding 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.

Item 16. Form 10-K Summary

None.

59
Table of Contents

Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, 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, 2018, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2019 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for the derecognition of nonfinancial assets in 2018 due to the adoption of the Financial Accounting Standards Board’s Accounting Standard Update No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
 We have served as the Company’s auditor since 1994.

San Francisco, California
February 21, 2019

F- 1
Table of Contents

Report of Independent Registered Public Accounting Firm

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

Opinion on Internal Control Over Financial Reporting
We have audited Essex Property Trust, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, 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, 2018, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and our report dated February 21, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/s/ KPMG LLP
San Francisco, California
February 21, 2019

F- 2
Table of Contents

Report of Independent Registered Public Accounting Firm

To the Unitholders and General Partner
Essex Portfolio, L.P.:

Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Essex Portfolio, L.P. and subsidiaries (the Operating Partnership) as of December 31, 2018 and 2017, 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, 2018, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Operating Partnership has changed its method of accounting for the derecognition of nonfinancial assets in 2018 due to the adoption of the Financial Accounting Standards Board’s Accounting Standard Update No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20) .
Basis for Opinion
These consolidated financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2013.

San Francisco, California
February 21, 2019

F- 3
Table of Contents

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2018 and 2017
(Dollars in thousands, except share amounts) 
 
2018
 
2017
ASSETS
Real estate:
 
 
 
Rental properties:
 
 
 
Land and land improvements
$
2,701,356

 
$
2,719,064

Buildings and improvements
10,664,745

 
10,643,009

 
13,366,101

 
13,362,073

Less: accumulated depreciation
(3,209,548
)
 
(2,769,297
)
 
10,156,553

 
10,592,776

Real estate under development
454,629

 
355,735

Co-investments
1,300,140

 
1,155,984

 
11,911,322

 
12,104,495

Cash and cash equivalents-unrestricted
134,465

 
44,620

Cash and cash equivalents-restricted
16,930

 
16,506

Marketable securities
209,545

 
190,004

Notes and other receivables (includes related party receivables of $11.1 million and
   $41.2 million as of December 31, 2018 and December 31, 2017, respectively)
71,895

 
100,926

Prepaid expenses and other assets
39,439

 
39,155

Total assets
$
12,383,596

 
$
12,495,706

LIABILITIES AND EQUITY
Unsecured debt, net
$
3,799,316

 
$
3,501,709

Mortgage notes payable, net
1,806,626

 
2,008,417

Lines of credit
—

 
179,000

Accounts payable and accrued liabilities
127,086

 
127,501

Construction payable
59,345

 
51,770

Dividends payable
128,529

 
121,420

Distributions in excess of investments in co-investments
—

 
36,726

Other liabilities
33,375

 
33,132

Total liabilities
5,954,277

 
6,059,675

Commitments and contingencies


 


Redeemable noncontrolling interest
35,475

 
39,206

Equity:
 

 
 

Common stock; $0.0001 par value, 670,000,000 shares authorized; 65,890,322 and 66,054,399 shares issued and outstanding, respectively
7

 
7

Additional paid-in capital
7,093,079

 
7,129,571

Distributions in excess of accumulated earnings
(812,796
)
 
(833,726
)
Accumulated other comprehensive loss, net
(13,217
)
 
(18,446
)
Total stockholders' equity
6,267,073

 
6,277,406

Noncontrolling interest
126,771

 
119,419

Total equity
6,393,844

 
6,396,825

Total liabilities and equity
$
12,383,596

 
$
12,495,706


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, 2018 , 2017 and 2016
(Dollars in thousands, except per share and share amounts)
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
Rental and other property
$
1,390,870

 
$
1,354,325

 
$
1,285,723

Management and other fees from affiliates
9,183

 
9,574

 
8,278

 
1,400,053

 
1,363,899

 
1,294,001

Expenses:
 

 
 

 
 

Property operating, excluding real estate taxes
233,809

 
229,076

 
219,655

Real estate taxes
151,525

 
146,310

 
139,162

Corporate-level property management expenses
31,062

 
30,156

 
30,110

Depreciation and amortization
479,884

 
468,881

 
441,682

General and administrative
53,451

 
41,385

 
40,751

Expensed acquisition and investment related costs
194

 
1,569

 
1,841

 
949,925

 
917,377

 
873,201

Earnings from operations
450,128

 
446,522

 
420,800

Interest expense
(220,492
)
 
(222,894
)
 
(219,654
)
Total return swap income
8,707

 
10,098

 
11,716

Interest and other income
23,010

 
24,604

 
27,305

Equity income from co-investments
89,132

 
86,445

 
48,698

Loss on early retirement of debt
—

 
(1,796
)
 
(606
)
Gain on sale of real estate and land
61,861

 
26,423

 
154,561

Deferred tax expense on gain on sale of real estate and land
—

 
—

 
(4,410
)
Gain on remeasurement of co-investment
1,253

 
88,641

 
—

Net income
413,599

 
458,043

 
438,410

Net income attributable to noncontrolling interest
(23,446
)
 
(24,984
)
 
(23,431
)
Net income attributable to controlling interest
390,153

 
433,059

 
414,979

Dividends to preferred stockholders
—

 
—

 
(1,314
)
Excess of redemption value of preferred stock over the carrying value
—

 
—

 
(2,541
)
Net income available to common stockholders
$
390,153

 
$
433,059

 
$
411,124

Per share data:
 

 
 

 
 

Basic:
 

 
 

 
 

Net income available to common stockholders
$
5.91

 
$
6.58

 
$
6.28

Weighted average number of shares outstanding during the year
66,041,058

 
65,829,155

 
65,471,540

Diluted:
 

 
 

 
 

Net income available to common stockholders
$
5.90

 
$
6.57

 
$
6.27

Weighted average number of shares outstanding during the year
66,085,089

 
65,898,255

 
65,587,816


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, 2018 , 2017 and 2016
(Dollars in thousands)
 
2018
 
2017
 
2016
Net income
$
413,599

 
$
458,043

 
$
438,410

Other comprehensive income (loss):
 

 
 

 
 

Change in fair value of derivatives and amortization of swap settlements
7,824

 
12,744

 
15,926

Changes in fair value of marketable debt securities, net
(118
)
 
3,284

 
(828
)
Reversal of unrealized gains upon the sale of marketable debt securities
13

 
(1,909
)
 
(4,848
)
Total other comprehensive income
7,719

 
14,119

 
10,250

Comprehensive income
421,318

 
472,162

 
448,660

Comprehensive income attributable to noncontrolling interest
(23,702
)
 
(25,451
)
 
(23,768
)
Comprehensive income attributable to controlling interest
$
397,616

 
$
446,711

 
$
424,892


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, 2018 , 2017 and 2016
(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, 2015
2,950

 
$
73,750

 
65,379

 
$
6

 
$
7,003,317

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

 
$
6,337,023

Net income
—

 
—

 
—

 
—

 
—

 
414,979

 
—

 
23,431

 
438,410

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(4,689
)
 
(159
)
 
(4,848
)
Change in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
—

 
15,403

 
523

 
15,926

Change in fair value of marketable securities, net
—

 
—

 
—

 
—

 
—

 
—

 
(801
)
 
(27
)
 
(828
)
Issuance of common stock under:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock option and restricted stock plans, net
—

 
—

 
140

 
—

 
18,949

 
—

 
—

 
—

 
18,949

Sale of common stock, net
—

 
—

 
—

 
—

 
(384
)
 
—

 
—

 
—

 
(384
)
Equity based compensation costs
—

 
—

 
—

 
—

 
8,246

 
—

 
—

 
2,653

 
10,899

Redemption of Series H preferred stock
(2,950
)
 
(73,750
)
 
—

 
—

 
2,541

 
(2,541
)
 
—

 
—

 
(73,750
)
Retirement of common stock, net
—

 
—

 
(5
)
 
—

 
(1,045
)
 
—

 
—

 
—

 
(1,045
)
Changes in the redemption value of redeemable noncontrolling interest
—

 
—

 
—

 
—

 
172

 
—

 
—

 
596

 
768

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(25,854
)
 
(25,854
)
Redemptions of noncontrolling interest
—

 
—

 
14

 
—

 
(2,117
)
 
—

 
—

 
(394
)
 
(2,511
)
Preferred stock dividends ($0.45 per share)
—

 
—

 
—

 
—

 
—

 
(1,314
)
 
—

 
—

 
(1,314
)
Common stock dividends ($6.40 per share)
—

 
—

 
—

 
—

 
—

 
(419,204
)
 
—

 
—

 
(419,204
)
Balances at December 31, 2016
—

 
$
—

 
65,528

 
$
6

 
$
7,029,679

 
$
(805,409
)
 
$
(32,098
)
 
$
100,059

 
$
6,292,237

Net income
—

 
—

 
—

 
—

 
—

 
433,059

 
—

 
24,984

 
458,043

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
—

 
(1,846
)
 
(63
)
 
(1,909
)

F- 7
Table of Contents

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

 
—

 
—

 
—

 
—

 
—

 
12,322

 
422

 
12,744

Change in fair value of marketable securities, net
—

 
—

 
—

 
—

 
—

 
—

 
3,176

 
108

 
3,284

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

 
—

 
179

 
—

 
26,635

 
—

 
—

 
—

 
26,635

Sale of common stock, net
—

 
—

 
345

 
1

 
89,054

 
—

 
—

 
—

 
89,055

Equity based compensation costs
—

 
—

 
—

 
—

 
9,529

 
—

 
—

 
1,773

 
11,302

Changes in the redemption value of redeemable noncontrolling interest
—

 
—

 
—

 
—

 
(136
)
 
—

 
—

 
71

 
(65
)
Changes in noncontrolling interest from acquisition
—

 
—

 
—

 
—

 
—

 
—

 
—

 
22,506

 
22,506

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(27,051
)
 
(27,051
)
Redemptions of noncontrolling interest
—

 
—

 
2

 
—

 
(25,190
)
 
—

 
—

 
(3,390
)
 
(28,580
)
Common stock dividends ($7.00 per share)
—

 
—

 
—

 
—

 
—

 
(461,376
)
 
—

 
—

 
(461,376
)
Balances at December 31, 2017
—

 
$
—

 
66,054

 
$
7

 
$
7,129,571

 
$
(833,726
)
 
$
(18,446
)
 
$
119,419

 
$
6,396,825

Net income
—

 
—

 
—

 
—

 
—

 
390,153

 
—

 
23,446

 
413,599

Reversal of unrealized losses upon the sale of marketable debt securities
—

 
—

 
—

 
—

 
—

 
—

 
13

 
—

 
13

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

 
—

 
—

 
—

 
—

 
—

 
7,564

 
260

 
7,824

Change in fair value of marketable debt securities, net
—

 
—

 
—

 
—

 
—

 
—

 
(114
)
 
(4
)
 
(118
)
Issuance of common stock under:
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock option and restricted stock plans, net
—

 
—

 
41

 
—

 
6,213

 
—

 
—

 
—

 
6,213

Sale of common stock, net
—

 
—

 
—

 
—

 
(919
)
 
—

 
—

 
—

 
(919
)
Equity based compensation costs
—

 
—

 
—

 
—

 
11,651

 
—

 
—

 
1,200

 
12,851

Retirement of common stock, net
—

 
—

 
(210
)
 
—

 
(51,233
)
 
—

 
—

 
—

 
(51,233
)
Cumulative effect upon adoption of ASU No. 2016-01
—

 
—

 
—

 
—

 
—

 
2,234

 
(2,234
)
 
—

 
—

Cumulative effect upon adoption of ASU No. 2017-05
—

 
—

 
—

 
—

 
—

 
119,651

 
—

 
4,057

 
123,708


F- 8
Table of Contents

Changes in the redemption value of redeemable noncontrolling interest
—

 
—

 
—

 
—

 
(1,143
)
 
—

 
—

 
(21
)
 
(1,164
)
Changes in noncontrolling interest from acquisition
—

 
—

 
—

 
—

 
—

 
—

 
—

 
7,919

 
7,919

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(29,233
)
 
(29,233
)
Redemptions of noncontrolling interest
—

 
—

 
5

 
—

 
(1,061
)
 
—

 
—

 
(272
)
 
(1,333
)
Common stock dividends ($7.44 per share)
—

 
—

 
—

 
—

 
—

 
(491,108
)
 
—

 
—

 
(491,108
)
Balances at December 31, 2018
—

 
$
—

 
65,890

 
$
7

 
$
7,093,079

 
$
(812,796
)
 
$
(13,217
)
 
$
126,771

 
$
6,393,844


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, 2018 , 2017 and 2016
(Dollars in thousands) 
 
2018
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
Net income
$
413,599

 
$
458,043

 
$
438,410

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

 
 

 
 

Depreciation and amortization
479,884

 
468,881

 
441,682

Amortization of discount on marketable securities
(17,637
)
 
(15,119
)
 
(14,211
)
Amortization of (premium) discount and financing costs, net
(2,587
)
 
(5,948
)
 
(15,234
)
Gain on sale of marketable securities
(737
)
 
(1,909
)
 
(5,719
)
Unrealized gain on equity securities recognized through income
5,159

 
—

 
—

Company's share of gain on the sales of co-investments
(10,569
)
 
(44,837
)
 
(13,046
)
Earnings from co-investments
(78,563
)
 
(41,608
)
 
(35,652
)
Operating distributions from co-investments
99,593

 
76,764

 
60,472

Accrued interest from notes and other receivables
(5,436
)
 
(4,030
)
 
(302
)
Gain on the sale of real estate and land
(61,861
)
 
(26,423
)
 
(154,561
)
Equity-based compensation
7,135

 
9,286

 
9,811

Loss on early retirement of debt, net
—

 
1,796

 
606

Gain on remeasurement of co-investment
(1,253
)
 
(88,641
)
 
—

Changes in operating assets and liabilities:
 

 
 

 
 

Prepaid expenses, receivables and other assets
(1,203
)
 
(3,004
)
 
2,730

Accounts payable and accrued liabilities
(145
)
 
(13,474
)
 
2,302

Other liabilities
1,175

 
(170
)
 
(496
)
Net cash provided by operating activities
826,554

 
769,607

 
716,792

Cash flows from investing activities:
 

 
 

 
 

Additions to real estate:
 

 
 

 
 

Acquisitions of real estate and acquisition related capital expenditures
(15,311
)
 
(206,194
)
 
(315,632
)
Redevelopment
(73,000
)
 
(69,928
)
 
(83,927
)
Development acquisitions of and additions to real estate under development
(182,772
)
 
(137,733
)
 
(75,367
)
Capital expenditures on rental properties
(81,684
)
 
(72,812
)
 
(64,769
)
Acquisition of membership interest in co-investments
—

 
—

 
—

Investments in notes receivable
—

 
(106,461
)
 
(24,070
)
Collections of notes and other receivables
29,500

 
55,000

 
4,070

Proceeds from insurance for property losses
1,408

 
648

 
5,543

Proceeds from dispositions of real estate
347,587

 
132,039

 
239,289

Contributions to co-investments
(162,437
)
 
(293,363
)
 
(183,989
)
Changes in refundable deposits
(414
)
 
837

 
(2,129
)
Purchases of marketable securities
(37,952
)
 
(67,893
)
 
(18,779
)
Sales and maturities of marketable securities
31,521

 
35,481

 
30,458

Non-operating distributions from co-investments
83,661

 
162,439

 
76,231

Net cash used in investing activities
(59,893
)
 
(567,940
)
 
(413,071
)
Cash flows from financing activities:
 

 
 

 
 


F- 10

Proceeds from unsecured debt and mortgage notes
298,773

 
597,981

 
669,282

Payments on unsecured debt and mortgage notes
(230,398
)
 
(561,160
)
 
(532,020
)
Proceeds from lines of credit
742,961

 
982,246

 
596,106

Repayments of lines of credit
(921,961
)
 
(928,246
)
 
(486,106
)
Repayment of cumulative redeemable preferred stock
—

 
—

 
(73,750
)
Retirement of common stock
(51,233
)
 
—

 
(1,045
)
Additions to deferred charges
(4,250
)
 
(4,108
)
 
(7,926
)
Payments related to debt prepayment penalties
—

 
(1,630
)
 
(215
)
Net proceeds from issuance of common stock
(919
)
 
89,055

 
(384
)
Net proceeds from stock options exercised
6,213

 
26,635

 
18,949

Payments related to tax withholding for share-based compensation
(869
)
 
(316
)
 
(386
)
Distributions to noncontrolling interest
(29,050
)
 
(26,552
)
 
(25,334
)
Redemption of noncontrolling interest
(1,333
)
 
(28,580
)
 
(2,511
)
Redemption of redeemable noncontrolling interest
(144
)
 
(5,543
)
 
—

Common and preferred stock dividends paid
(484,182
)
 
(450,625
)
 
(411,134
)
Net cash used in financing activities
(676,392
)
 
(310,843
)
 
(256,474
)
Net increase (decrease) in unrestricted and restricted cash and cash equivalents
90,269

 
(109,176
)
 
47,247

Unrestricted and restricted cash and cash equivalents at beginning of period
61,126

 
170,302

 
123,055

Unrestricted and restricted cash and cash equivalents at end of period
$
151,395

 
$
61,126

 
$
170,302

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest, net of capitalized interest
$
203,803

 
$
212,163

 
$
203,743

Interest capitalized
$
18,708

 
$
13,860

 
$
12,486

 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

 
 

Issuance of Operating Partnership units for contributed properties
$
7,919

 
$
—

 
$
—

Issuance of DownREIT limited partnership units in connection with acquisition of real estate
$
—

 
$
22,506

 
$
—

Transfers between real estate under development to rental properties, net
$
100,415

 
$
2,413

 
$
104,159

Transfer from real estate under development to co-investments
$
853

 
$
5,075

 
$
9,919

Reclassifications to (from) redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest
$
1,165

 
$
65

 
$
(768
)
Redemption of redeemable noncontrolling interest via reduction of note receivable
$
4,751

 
$
—

 
$
—

Debt assumed in connection with acquisition
$
45,804

 
$
51,882

 
$
48,832

Debt deconsolidated in connection with BEX II transaction

$
—

 
$
—

 
$
20,195

Repayment of mortgage note from new financing proceeds
$
52,000

 
$
—

 
$
—


See accompanying notes to consolidated financial statements


F- 11

     ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2018 and 2017
(Dollars in thousands, except per unit amounts)
 
2018
 
2017
ASSETS
Real estate:
 
 
 
Rental properties:
 
 
 
Land and land improvements
$
2,701,356

 
$
2,719,064

Buildings and improvements
10,664,745

 
10,643,009

 
13,366,101

 
13,362,073

Less: accumulated depreciation
(3,209,548
)
 
(2,769,297
)
 
10,156,553

 
10,592,776

Real estate under development
454,629

 
355,735

Co-investments
1,300,140

 
1,155,984

 
11,911,322

 
12,104,495

Cash and cash equivalents-unrestricted
134,465

 
44,620

Cash and cash equivalents-restricted
16,930

 
16,506

Marketable securities
209,545

 
190,004

Notes and other receivables (related party receivables of $11.1 million and $41.2 million as of December 31, 2018 and December 31, 2017, respectively)
71,895

 
100,926

Prepaid expenses and other assets
39,439

 
39,155

Total assets
$
12,383,596

 
$
12,495,706

LIABILITIES AND CAPITAL
Unsecured debt, net
$
3,799,316

 
$
3,501,709

Mortgage notes payable, net
1,806,626

 
2,008,417

Lines of credit
—

 
179,000

Accounts payable and accrued liabilities
127,086

 
127,501

Construction payable
59,345

 
51,770

Distributions payable
128,529

 
121,420

Distributions in excess of investments in co-investments
—

 
36,726

Other liabilities
33,375

 
33,132

Total liabilities
5,954,277

 
6,059,675

Commitments and contingencies


 


Redeemable noncontrolling interest
35,475

 
39,206

Capital:
 

 
 

General Partner:
 

 
 

Common equity (65,890,322 and 66,054,399 units issued and outstanding, respectively)
6,280,290

 
6,295,852

 
6,280,290

 
6,295,852

Limited Partners:
 

 
 

Common equity (2,305,389 and 2,268,114 units issued and outstanding, respectively)
59,061

 
49,792

Accumulated other comprehensive loss
(9,738
)
 
(15,229
)
Total partners' capital
6,329,613

 
6,330,415

Noncontrolling interest
64,231

 
66,410

Total capital
6,393,844

 
6,396,825

Total liabilities and capital
$
12,383,596

 
$
12,495,706


See accompanying notes to consolidated financial statements

F- 12

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2018 , 2017 , and 2016
(Dollars in thousands, except per unit and unit amounts)
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
Rental and other property
$
1,390,870

 
$
1,354,325

 
$
1,285,723

Management and other fees from affiliates
9,183

 
9,574

 
8,278

 
1,400,053

 
1,363,899

 
1,294,001

Expenses:
 

 
 

 
 

Property operating, excluding real estate taxes
233,809

 
229,076

 
219,655

Real estate taxes
151,525

 
146,310

 
139,162

Corporate-level property management expenses
31,062

 
30,156

 
30,110

Depreciation and amortization
479,884

 
468,881

 
441,682

General and administrative
53,451

 
41,385

 
40,751

Expensed acquisition and investment related costs
194

 
1,569

 
1,841

 
949,925

 
917,377

 
873,201

Earnings from operations
450,128

 
446,522

 
420,800

Interest expense
(220,492
)
 
(222,894
)
 
(219,654
)
Total return swap income
8,707

 
10,098

 
11,716

Interest and other income
23,010

 
24,604

 
27,305

Equity income from co-investments
89,132

 
86,445

 
48,698

Loss on early retirement of debt
—

 
(1,796
)
 
(606
)
Gain on sale of real estate and land
61,861

 
26,423

 
154,561

Deferred tax expense on gain on sale of real estate and land
—

 
—

 
(4,410
)
Gain on remeasurement of co-investment
1,253

 
88,641

 
—

Net income
413,599

 
458,043

 
438,410

Net income attributable to noncontrolling interest
(9,994
)
 
(10,159
)
 
(9,342
)
Net income attributable to controlling interest
403,605

 
447,884

 
429,068

Preferred interest distributions
—

 
—

 
(1,314
)
Excess of redemption value of preferred units over the carrying value
—

 
—

 
(2,541
)
Net income available to common unitholders
$
403,605

 
$
447,884

 
$
425,213

Per unit data:
 

 
 

 
 

Basic:
 

 
 

 
 

Net income available to common unitholders
$
5.91

 
$
6.58

 
$
6.28

Weighted average number of common units outstanding during the year
68,315,999

 
68,081,730

 
67,695,640

Diluted:
 

 
 

 
 

Net income available to common unitholders
$
5.90

 
$
6.57

 
$
6.27

Weighted average number of common units outstanding during the year
68,360,030

 
68,150,830

 
67,811,916


See accompanying notes to consolidated financial statements

F- 13

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2018 , 2017 , and 2016
(Dollars in thousands)
 
2018
 
2017
 
2016
Net income
$
413,599

 
$
458,043

 
$
438,410

Other comprehensive income (loss):
 

 
 

 
 

Change in fair value of derivatives and amortization of swap settlements
7,824

 
12,744

 
15,926

Changes in fair value of marketable debt securities, net
(118
)
 
3,284

 
(828
)
Reversal of unrealized gains upon the sale of marketable debt securities
13

 
(1,909
)
 
(4,848
)
Total other comprehensive income
7,719

 
14,119

 
10,250

Comprehensive income
421,318

 
472,162

 
448,660

Comprehensive income attributable to noncontrolling interest
(9,994
)
 
(10,159
)
 
(9,342
)
Comprehensive income attributable to controlling interest
$
411,324

 
$
462,003

 
$
439,318


See accompanying notes to consolidated financial statements.

F- 14

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Capital
Years ended December 31, 2018 , 2017 , and 2016
(Dollars and units in thousands)
 
General Partner
 
Limited Partners
 
Accumulated
 
 
 
 
 
 
 
 
 
Preferred
 
 
 
 
 
other
 
 
 
 
 
Common Equity
 
Equity
 
Common Equity
 
comprehensive
 
Noncontrolling
 
 
 
Units
 
Amount
 
Amount
 
Units
 
Amount
 
loss, net
 
Interest
 
Total
Balances at December 31, 2015
65,379

 
$
6,208,535

 
$
71,209

 
2,215

 
$
47,235

 
$
(39,598
)
 
$
49,642

 
$
6,337,023

Net income
—

 
411,124

 
3,855

 
—

 
14,089

 
—

 
9,342

 
438,410

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
(4,848
)
 
—

 
(4,848
)
Change in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
15,926

 
—

 
15,926

Change in fair value of marketable securities, net
—

 
—

 
—

 
—

 
—

 
(828
)
 
—

 
(828
)
Issuance of common stock under:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General partner's stock based compensation, net
140

 
18,949

 
—

 
—

 
—

 
—

 
—

 
18,949

Sale of common stock by general partner, net
—

 
(384
)
 
—

 
—

 
—

 
—

 
—

 
(384
)
Equity based compensation costs
—

 
8,246

 
—

 
37

 
2,653

 
—

 
—

 
10,899

Redemption of Series H preferred units
—

 
—

 
(73,750
)
 
—

 
—

 
—

 
—

 
(73,750
)
Retirement of common units, net
(5
)
 
(1,045
)
 
—

 
—

 
—

 
—

 
—

 
(1,045
)
Changes in the redemption value of redeemable noncontrolling interest
—

 
172

 
—

 
—

 
—

 
—

 
596

 
768

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(11,296
)
 
(11,296
)
Redemptions
14

 
(2,117
)
 
—

 
(15
)
 
17

 
—

 
(411
)
 
(2,511
)
Preferred equity dividends ($0.45 per unit)
—

 
—

 
(1,314
)
 
—

 
—

 
—

 
—

 
(1,314
)
Distributions declared ($6.40 per unit)
—

 
(419,204
)
 
—

 
—

 
(14,558
)
 
—

 
—

 
(433,762
)
Balances at December 31, 2016
65,528

 
$
6,224,276

 
$
—

 
2,237

 
$
49,436

 
$
(29,348
)
 
$
47,873

 
$
6,292,237

Net income
—

 
433,059

 
—

 
—

 
14,825

 
—

 
10,159

 
458,043

Reversal of unrealized gains upon the sale of marketable securities
—

 
—

 
—

 
—

 
—

 
(1,909
)
 
—

 
(1,909
)
Change in fair value of derivatives and amortization of swap settlements
—

 
—

 
—

 
—

 
—

 
12,744

 
—

 
12,744


F- 15

Change in fair value of marketable securities, net
—

 
—

 
—

 
—

 
—

 
3,284

 
—

 
3,284

Issuance of common stock under:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General partner's stock based compensation, net
179

 
26,635

 
—

 
—

 
—

 
—

 
—

 
26,635

Sale of common stock by general partner, net
345

 
89,055

 
—

 
—

 
—

 
—

 
—

 
89,055

Equity based compensation costs
—

 
9,529

 
—

 
33

 
1,773

 
—

 
—

 
11,302

Changes in the redemption value of redeemable noncontrolling interest
—

 
(136
)
 
—

 
—

 
136

 
—

 
(65
)
 
(65
)
Changes in noncontrolling interest from acquisition
—

 
—

 
—

 
—

 
—

 
—

 
22,506

 
22,506

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(11,078
)
 
(11,078
)
Redemptions
2

 
(25,190
)
 
—

 
(2
)
 
(405
)
 
—

 
(2,985
)
 
(28,580
)
Distributions declared ($7.00 per unit)
—

 
(461,376
)
 
—

 
—

 
(15,973
)
 
—

 
—

 
(477,349
)
Balances at December 31, 2017
66,054

 
$
6,295,852

 
$
—

 
2,268

 
$
49,792

 
$
(15,229
)
 
$
66,410

 
$
6,396,825

Net income
—

 
390,153

 
—

 
—

 
13,452

 
—

 
9,994

 
413,599

Reversal of unrealized gains upon the sale of marketable debt securities
—

 
—

 
—

 
—

 
—

 
13

 
—

 
13

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

 
—

 
—

 
—

 
—

 
7,824

 
—

 
7,824

Change in fair value of marketable debt securities, net
—

 
—

 
—

 
—

 
—

 
(118
)
 
—

 
(118
)
Issuance of common stock under:


 


 


 


 


 


 


 


General partner's stock based compensation, net
41

 
6,213

 
—

 
—

 
—

 
—

 
—

 
6,213

Sale of common stock by general partner, net
—

 
(919
)
 
—

 
—

 
—

 
—

 
—

 
(919
)
Equity based compensation costs
—

 
11,651

 
—

 
11

 
1,200

 
—

 
—

 
12,851

Retirement of common units, net
(210
)
 
(51,233
)
 
—

 
—

 
—

 
—

 
—

 
(51,233
)
Cumulative effect upon adoption of ASU No. 2016-01
—

 
2,234

 
—

 
—

 
(6
)
 
(2,228
)
 
—

 
—

Cumulative effect upon adoption of ASU No. 2017-05
—

 
119,651

 
—

 
—

 
4,057

 
—

 
—

 
123,708

Changes in redemption value of redeemable noncontrolling interest
—

 
(1,143
)
 
—

 
—

 
(89
)
 
—

 
68

 
(1,164
)
Changes in noncontrolling interest from acquisition
—

 
—

 
—

 
31

 
7,919

 
—

 
—

 
7,919


F- 16

Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
(12,174
)
 
(12,174
)
Redemptions
5

 
(1,061
)
 
—

 
(5
)
 
(205
)
 
—

 
(67
)
 
(1,333
)
Distributions declared ($7.44 per unit)
—

 
(491,108
)
 
—

 
—

 
(17,059
)
 
—

 
—

 
(508,167
)
Balances at December 31, 2018
65,890

 
$
6,280,290

 
$
—

 
2,305

 
$
59,061

 
$
(9,738
)
 
$
64,231

 
$
6,393,844


See accompanying notes to consolidated financial statements

F- 17

ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2018 , 2017 , and 2016
(Dollars in thousands)
 
2018
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
 
Net income
$
413,599

 
$
458,043

 
$
438,410

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

 
 

 
 

Depreciation and amortization
479,884

 
468,881

 
441,682

Amortization of discount on marketable securities
(17,637
)
 
(15,119
)
 
(14,211
)
Amortization of (premium) discount and debt financing costs, net
(2,587
)
 
(5,948
)
 
(15,234
)
Gain on sale of marketable securities
(737
)
 
(1,909
)
 
(5,719
)
Unrealized gain on equity securities recognized through income
5,159

 
—

 
—

Company's share of gain on the sales of co-investments
(10,569
)
 
(44,837
)
 
(13,046
)
Earnings from co-investments
(78,563
)
 
(41,608
)
 
(35,652
)
Operating distributions from co-investments
99,593

 
76,764

 
60,472

Accrued interest from notes and other receivables
(5,436
)
 
(4,030
)
 
(302
)
Gain on the sale of real estate and land
(61,861
)
 
(26,423
)
 
(154,561
)
Equity-based compensation
7,135

 
9,286

 
9,811

Loss on early retirement of debt, net
—

 
1,796

 
606

Gain on remeasurement of co-investment
(1,253
)
 
(88,641
)
 
—

Changes in operating assets and liabilities:
 

 
 

 
 

Prepaid expenses, receivables and other assets
(1,203
)
 
(3,004
)
 
2,730

Accounts payable and accrued liabilities
(145
)
 
(13,474
)
 
2,302

Other liabilities
1,175

 
(170
)
 
(496
)
Net cash provided by operating activities
826,554

 
769,607

 
716,792

Cash flows from investing activities:
 

 
 

 
 

Additions to real estate:
 

 
 

 
 

Acquisitions of real estate and acquisition related capital expenditures
(15,311
)
 
(206,194
)
 
(315,632
)
Redevelopment
(73,000
)
 
(69,928
)
 
(83,927
)
Development acquisitions of and additions to real estate under development
(182,772
)
 
(137,733
)
 
(75,367
)
Capital expenditures on rental properties
(81,684
)
 
(72,812
)
 
(64,769
)
Investments in notes receivable
—

 
(106,461
)
 
(24,070
)
Collections of notes and other receivables
29,500

 
55,000

 
4,070

Proceeds from insurance for property losses
1,408

 
648

 
5,543

Proceeds from dispositions of real estate
347,587

 
132,039

 
239,289

Contributions to co-investments
(162,437
)
 
(293,363
)
 
(183,989
)
Changes in refundable deposits
(414
)
 
837

 
(2,129
)
Purchases of marketable securities
(37,952
)
 
(67,893
)
 
(18,779
)
Sales and maturities of marketable securities
31,521

 
35,481

 
30,458

Non-operating distributions from co-investments
83,661

 
162,439

 
76,231

Net cash used in investing activities
(59,893
)
 
(567,940
)
 
(413,071
)
Cash flows from financing activities:
 

 
 

 
 

Proceeds from unsecured debt and mortgage notes
298,773

 
597,981

 
669,282


F- 18

Payments on unsecured debt and mortgage notes
(230,398
)
 
(561,160
)
 
(532,020
)
Proceeds from lines of credit
742,961

 
982,246

 
596,106

Repayments of lines of credit
(921,961
)
 
(928,246
)
 
(486,106
)
Repayment of cumulative redeemable preferred stock
—

 
—

 
(73,750
)
Retirement of common stock
(51,233
)
 
—

 
(1,045
)
Additions to deferred charges
(4,250
)
 
(4,108
)
 
(7,926
)
Payments related to debt prepayment penalties
—

 
(1,630
)
 
(215
)
Net proceeds from issuance of common units
(919
)
 
89,055

 
(384
)
Net proceeds from stock options exercised
6,213

 
26,635

 
18,949

Payments related to tax withholding for share-based compensation
(869
)
 
(316
)
 
(386
)
Distributions to noncontrolling interest
(8,518
)
 
(7,752
)
 
(6,960
)
Redemption of noncontrolling interests
(1,333
)
 
(28,580
)
 
(2,511
)
Redemption of redeemable noncontrolling interests
(144
)
 
(5,543
)
 
—

Common and preferred units and preferred interests distributions paid
(504,714
)
 
(469,425
)
 
(429,508
)
Net cash used in financing activities
(676,392
)
 
(310,843
)
 
(256,474
)
Net increase (decrease) in unrestricted and restricted cash and cash equivalents
90,269

 
(109,176
)
 
47,247

Unrestricted and restricted cash and cash equivalents at beginning of period
61,126

 
170,302

 
123,055

Unrestricted and restricted cash and cash equivalents at end of period
$
151,395

 
$
61,126

 
$
170,302

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Cash paid for interest, net of capitalized interest
$
203,803

 
$
212,163

 
$
203,743

Interest capitalized
$
18,708

 
$
13,860

 
$
12,486

 
 
 
 
 
 
Supplemental disclosure of noncash investing and financing activities:
 

 
 

 
 

Issuance of Operating Partnership units for contributed properties
$
7,919

 
$
—

 
$
—

Issuance of DownREIT limited partnership units in connection with acquisition of real estate
$
—

 
$
22,506

 
$
—

Transfers between real estate under development to rental properties, net
$
100,415

 
$
2,413

 
$
104,159

Transfer from real estate under development to co-investments
$
853

 
$
5,075

 
$
9,919

Reclassifications to (from) redeemable noncontrolling interest to or from additional paid in capital and noncontrolling interest
$
1,165

 
$
65

 
$
(768
)
Redemption of redeemable noncontrolling interest via reduction of note receivable
$
4,751

 
$
—

 
$
—

Debt assumed in connection with acquisition
$
45,804

 
$
51,882

 
$
48,832

Debt deconsolidated in connection with BEX II transaction

$
—

 
$
—

 
$
20,195

Repayment of mortgage note from new financing proceeds
$
52,000

 
$
—

 
$
—


See accompanying notes to consolidated financial statements


F- 19

ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 , 2017 , and 2016

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

Essex is the sole general partner in the Operating Partnership with a 96.6% general partner interest and the limited partners owned a 3.4% interest as of December 31, 2018 . The limited partners may convert their Operating Partnership units into an equivalent number of shares of Essex common stock. Total Operating Partnership limited partnership units outstanding were 2,305,389 and 2,268,114 as of December 31, 2018 and 2017 , respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $565.3 million and $547.5 million , as of December 31, 2018 and 2017 , respectively. The Company has reserved shares of common stock for such conversions.

As of December 31, 2018 , the Company owned or had ownership interests in 245 operating apartment communities, aggregating 59,661 apartment homes, excluding the Company's ownership in preferred interest co-investments, loan investments, one operating commercial building, and six active developments. 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.

(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 ("U.S. 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 conform to the current year’s presentation, including the reclassification of corporate-level property management expenses out of property operating, excluding real estate taxes to its own line item on the Company's consolidated statements of income and comprehensive income. $13.2 million has been reclassified out of other assets and into buildings and improvements on the Company's consolidated balance sheets as of December 31, 2017. Such reclassifications had no net effect on previously reported financial results.

Noncontrolling interest includes the 3.4% limited partner interests in the Operating Partnership not held by the Company at both December 31, 2018 and 2017 . These percentages include the Operating Partnership’s vested long term incentive plan units (see Note 13).

(b) Accounting Pronouncements Adopted in the Current Year

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 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. The Company adopted ASU 2014-09 as of January 1, 2018, using the modified retrospective approach. See Note 4, Revenues, for further details.

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 Company adopted ASU No. 2016-01 as of January 1, 2018 using the modified retrospective method by applying a cumulative effect adjustment to retained earnings and partners' capital of $2.2 million, representing accumulated net unrealized gains of certain equity securities held by

F- 20
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


the Company. Furthermore, as a result of the adoption of this standard, the Company will recognize changes in the fair value of equity investments with readily determinable fair values through net income as opposed to comprehensive income.

In August 2016, the FASB issued ASU No. 2016-15 "Classification of Certain Cash Receipts and Cash Payments", which requires entities to adhere to a uniform classification and presentation of certain cash receipts and cash payments in the statement of cash flows. The amendments in this update provide guidance on eight specific cash flow issues.The Company adopted ASU No. 2016-15 as of January 1, 2018 using the retrospective transition method. This amendment did not have a material impact on the Company's consolidated results of operations or financial position.

In November 2016, the FASB issued ASU No. 2016-18 "Statement of Cash Flows", which requires entities to include restricted cash and restricted cash equivalents in the reconciliation of beginning-of-period to the end-of-period of cash and cash equivalents in the statement of cash flows. This new standard seeks to eliminate the current diversity in practice in how changes in restricted cash and restricted cash equivalents is presented in the statement of cash flows. The Company adopted ASU No. 2016-18 as of January 1, 2018 using the retrospective transition method. This amendment did not have a material impact on the Company's consolidated results of operations or financial position.

In January 2017, the FASB issued ASU No. 2017-01 "Business Combinations: Clarifying the Definition of a Business", which provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Previously, U.S. GAAP did not specify the minimum inputs and processes required for an integrated set of assets and activities to meet the definition of a business, causing a broad interpretation of the definition of a business. The Company adopted ASU No. 2017-01 as of January 1, 2018 prospectively. The Company expects that substantially all of its acquisitions of communities will qualify as asset acquisitions and transaction costs related to these acquisitions will be capitalized upon adoption.

In February 2017, the FASB issued ASU No. 2017-05 "Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets", which adds guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. This new standard reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. Partial sales of nonfinancial assets are common in the real estate industry and include transactions in which the seller retains an equity interest in the entity that owns the assets or has an equity interest in the buyer. The Company adopted ASU No. 2017-05 concurrently with the adoption of ASU No. 2014-09 "Revenue from Contracts with Customers" as of January 1, 2018 using the modified retrospective method by applying a cumulative effect adjustment to retained earnings and partners' capital of $123.7 million representing the partial sale of its membership interest in BEX II, LLC ("BEX II") during the fourth quarter of 2016.

(c) Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 "Leases", which requires an entity that is a lessee to classify leases as either finance or operating and to recognize a lease liability and a right-of-use asset for all leases that have a duration of greater than 12 months. Leases of 12 months or less will be accounted for similar to existing guidance for operating leases today. For lessors, accounting for leases under the new standard will be substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs.

The Company expects that its residential and commercial leases, where it is the lessor, will continue to be accounted for as operating leases under the new standard. In July 2018, the FASB issued ASU No. 2018-11 "Leases (Topic 842): Targeted Improvements," which includes a practical expedient that allows lessors to not separate nonlease components from the associated lease component. This provides the Company with the option of not bifurcating certain common area maintenance recoveries as a non-lease component, if certain requirements are met. The Company expects to elect this practical expedient, which would result in minimum rents and expense recoveries being presented as a single rental revenue line item in the consolidated statement of income and comprehensive income.
 
For leases where the Company is the lessee, which includes various corporate office and ground leases, the Company will be required to recognize a right of use asset and related lease liability on its consolidated balance sheets upon adoption. The

F- 21
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Company expects that its corporate office leases, where it is the lessee, will continue to be accounted for as operating leases. The Company also expects to elect a package of practical expedients, under which the Company would not be required to reassess the classification of existing ground leases. The new standards will be effective for the Company beginning January 1, 2019 and early adoption is permitted, including adoption in an interim period. The new standard will be effective for the Company beginning January 1, 2019 and the Company estimates the adoption will result in the recognition of operating lease assets and operating lease liabilities not expected to exceed $85 million .

In June 2016, the FASB issued ASU No. 2016-13 "Measurement of Credit Losses on Financial Instruments", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only when losses are probable and loss reversals are not permitted. The new standard will be effective for the Company beginning on January 1, 2020 and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its consolidated results of operations and financial position.

In August 2017, the FASB issued ASU No. 2017-12 "Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities", which, among other things, requires entities to present the earnings effect of hedging instruments in the same income statement line item in which the earnings effect of the hedged item is reported. The new standard also adds new disclosure requirements. This new standard will be effective for the Company beginning January 1, 2019 and early adoption is permitted. The Company expects to apply the new standard on January 1, 2019 and does not expect that this amendment will have a material effect on its consolidated results of operations or financial position.

In August 2018, the FASB issued ASU No. 2018-13 "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement," which eliminates certain disclosure requirements affecting all levels of measurements, and modifies and adds new disclosure requirements for Level 3 measurements. The new standard will be effective for the Company beginning January 1, 2020 and early adoption is permitted. The Company expects to apply the new standard on January 1, 2020 and does not expect the adoption to have a material impact on the Company's consolidated results of operations or financial position.

(d) 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 - 10 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 tenant 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

F- 22
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


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. The value of acquired in-place leases are amortized to expense over the average remaining term of the leases acquired. The net carrying value of acquired in-place leases is $0.1 million and $0.4 million as of December 31, 2018 and 2017 , respectively, and are included in prepaid expenses and other assets on the Company's consolidated balance sheets.

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;
(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 both December 31, 2018 and 2017, no properties were classified as held for sale. No impairment charges were recorded for the years ended December 31, 2018 , 2017 or 2016.

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.

(e) Co-investments

The Company owns investments in joint ventures in which it has significant influence, but its ownership interest does not meet the criteria for consolidation in accordance with U.S. GAAP. Therefore, the Company accounts for co-investments using the equity method of accounting. Under the equity method of accounting, the investment is carried at the cost of assets contributed, plus the Company’s equity in earnings less distributions received and the Company’s share of losses. The significant accounting policies of the Company’s co-investment entities are consistent with those of the Company in all material respects.

Upon the acquisition of a controlling interest of a co-investment, the co-investment entity is consolidated and a gain or loss is recognized upon the remeasurement of co-investments in the consolidated statement of income equal to the amount by which the fair value of the co-investment interest in the Company previously owned exceeds its carrying value. 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 income if certain financial return benchmarks are achieved. Asset management fees are recognized when earned, and promote fees are recognized when the earnings events have occurred and the amount is determinable and collectible. Any promote fees are reflected in equity income from co-investments.

The Company reports investments in co-investments where accumulated distributions have exceeded the Company’s investment as distributions in excess of investments in co-investments in the accompanying consolidated balance sheets. As of December 31, 2017, the net investment of one of the Company’s co-investments was less than zero as a result of financing distributions in excess of the Company's investment in that co-investment. As a result of the Company's adoption of ASU No. 2017-05 on January 1, 2018, the carrying value of this co-investment was greater than zero as of December 31, 2018.


F- 23
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


(f) 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.

Subsequent to the adoption of ASU 610-20 on January 1, 2018, the Company recognizes any gains on sales of real estate when we transfer control of a property and when it is probable that we will collect substantially all of the related consideration.

(g) Cash, Cash Equivalents and Restricted Cash

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

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows ($ in thousands):
 
2018
 
2017
 
2016
Cash and cash equivalents - unrestricted
$
134,465

 
$
44,620

 
$
64,921

Cash and cash equivalents - restricted
16,930

 
16,506

 
105,381

Total unrestricted and restricted cash and cash equivalents shown in the consolidated statements of cash flows
$
151,395

 
$
61,126

 
$
170,302


(h) Marketable Securities

The Company reports its equity securities and available for sale debt securities at fair value, based on quoted market prices (Level 1 for the common stock and investment funds, Level 2 for the unsecured bonds and Level 3 for investments in mortgage backed securities, as defined by the FASB standard for fair value measurements as discussed later in Note 2). Any unrealized gain or loss in debt securities classified as available for sale is recorded as other comprehensive income. There were no other than temporary impairment charges for the years ended December 31, 2018 , 2017 , and 2016 . Unrealized gains and losses in equity securities, realized gains and losses in debt securities, interest income, and amortization of purchase discounts are included in interest and other income on the consolidated statements of income and comprehensive income.

As of December 31, 2018 and 2017 , equity securities and available for sale debt securities consisted primarily of investment-grade unsecured bonds, common stock and stock funds, investments in mortgage backed securities, and investment funds that invest in U.S. treasury or agency securities. As of December 31, 2018 and 2017 , 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.












F- 24
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


As of December 31, 2018 and 2017 marketable securities consist of the following ($ in thousands):

 
December 31, 2018
 
Amortized
Cost
 
Gross
Unrealized
Loss
 
Carrying
Value
Equity securities:
 
 
 
 
 
Investment funds - debt securities
$
31,934

 
$
(568
)
 
$
31,366

Investment funds - U.S. treasuries
8,983

 
(31
)
 
8,952

Common stock and stock funds
39,731

 
(1,671
)
 
38,060

 
 
 
 
 
 
Debt securities:
 
 
 
 
 
  Available for sale
 
 
 
 
 
Investment-grade unsecured bonds
4,125

 
(145
)
 
3,980

Held to maturity:
 

 
 

 
 

Mortgage backed securities
127,187

 
—

 
127,187

Total - Marketable securities
$
211,960

 
$
(2,415
)
 
$
209,545


 
December 31, 2017
 
Amortized
Cost
 
Gross
Unrealized
Gain (Loss)
 
Carrying
Value
Equity securities:
 
 
 
 
 
Investment funds - debt securities
$
27,914

 
$
(29
)
 
$
27,885

Investment funds - U.S. treasuries
10,999

 
(55
)
 
10,944

Common stock and stock funds
34,329

 
2,973

 
37,302

 
 
 
 
 
 
Debt securities:
 
 
 
 
 
  Available for sale
 
 
 
 
 
Investment-grade unsecured bonds
4,365

 
(40
)
 
4,325

Held to maturity:
 

 
 

 
 

Mortgage backed securities
109,548

 
—

 
109,548

Total - Marketable securities
$
187,155

 
$
2,849

 
$
190,004


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

For the years ended December 31, 2018 , 2017 and 2016 , the proceeds from sales and maturities of marketable securities totaled $31.5 million , $35.5 million and $30.5 million , respectively. For the years ended December 31, 2018 , 2017 and 2016 these sales resulted in gains of $0.7 million , $1.9 million , and $5.7 million , respectively.

For the year ended December 31, 2018 , the portion of equity security unrealized loss that was recognized in income totaled $5.2 million , and was included in interest and other income on the Company's consolidated statements of income and comprehensive income.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


(i) 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, 2018 and 2017 , no notes were impaired.

(j) 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. Those costs as well as capitalized development and redevelopment fees totaled $18.6 million , $18.8 million and $16.4 million for the years ended December 31, 2018 , 2017 and 2016 , 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.

(k) 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 assets/liabilities. These inputs include interest rates for similar financial instruments. The Company’s valuation methodology for derivatives is described in Note 9. The Company uses Level 3 inputs to estimate the fair value of its mortgage backed securities. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Management believes that the carrying amounts of the outstanding balances under its lines of credit, and notes and other receivables approximate fair value as of December 31, 2018 and 2017 , 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 $5.0 billion and $4.9 billion at December 31, 2018 and 2017 , respectively, to be $5.0 billion at both December 31, 2018 and 2017. Management has estimated the fair value of the Company’s $619.6 million and $799.2 million of variable rate debt at December 31, 2018 and 2017 , respectively, to be $615.2 million and $793.9 million based on the terms of existing mortgage notes payable, unsecured debt, and variable rate demand notes compared to those available in the marketplace. Management believes that the carrying amounts of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities, construction payables, other liabilities and dividends payable approximate fair value as of December 31, 2018 and 2017 due to the short-term maturity of these instruments. Marketable securities, except mortgage backed securities, and derivatives are carried at fair value as of December 31, 2018 and 2017 .

At December 31, 2018 and 2017 , the Company’s investments in mortgage backed securities had a carrying value of $127.2 million and $109.5 million , respectively. The Company estimated the fair value of investment in mortgage backed securities at December 31, 2018 and 2017 to be approximately $129.5 million and $120.7 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

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


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

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

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

(m) Income Taxes

Generally in any year in which Essex 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, 2018 as Essex 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 Essex 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. In general, the activities and tax related provisions, assets and liabilities are not material. In 2016, a taxable REIT subsidiary sold two properties that it had acquired in 2007, resulting in the Company's recognition of a deferred income tax expense of approximately $4.4 million . On December 22, 2017 the Tax Cuts and Jobs Act ("Tax Act") was signed into law, which reduced the federal income tax rate from 35% to 21% effective January 1, 2018.  As a result of the Tax Act, the Company remeasured its net deferred tax liabilities at December 31, 2017, accordingly a net tax benefit of $1.5 million was recorded.
 
As a partnership, the Operating Partnership is not subject to federal or state income taxes, except that in order to maintain Essex's compliance with REIT tax rules that are applicable to Essex, 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 PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The status of cash dividends distributed for the years ended December 31, 2018 , 2017 , and 2016 related to common stock and Series H preferred stock are classified for tax purposes as follows:
 
 
2018
 
2017
 
2016
Common Stock
 
 
 
 
 
Ordinary income
79.72
%
 
84.04
%
 
86.68
%
Capital gain
15.35
%
 
13.20
%
 
7.11
%
Unrecaptured section 1250 capital gain
4.93
%
 
2.76
%
 
6.21
%
 
100.00
%
 
100.00
%
 
100.00
%

 
2018
 
2017
 
2016
Series H Preferred stock
 
 
 
 
 
Ordinary income
—
%
 
—
%
 
86.68
%
Capital gains
—
%
 
—
%
 
7.11
%
Unrecaptured section 1250 capital gain
—
%
 
—
%
 
6.21
%
 
—
%
 
—
%
 
100.00
%

(n) Equity-based Compensation

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

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

Changes in Accumulated Other Comprehensive Loss, Net, by Component
Essex Property Trust, Inc. ($ in thousands)
 
Change in fair
value and
amortization
of swap settlements
 
Unrealized
gain (loss) on
available for sale
securities
 
Total
Balance at December 31, 2017
$
(20,641
)
 
$
2,195

 
$
(18,446
)
Cumulative effect upon adoption of ASU No. 2016-01
—

 
(2,234
)
 
(2,234
)
Other comprehensive income (loss) before reclassification
15,343

 
(114
)
 
15,229

Amounts reclassified from accumulated other comprehensive loss
(7,779
)
 
13

 
(7,766
)
Other comprehensive income
7,564

 
(2,335
)
 
5,229

Balance at December 31, 2018
$
(13,077
)
 
$
(140
)
 
$
(13,217
)











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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Changes in Accumulated Other Comprehensive Loss, by Component
Essex Portfolio, L.P. ($ in thousands)
 
Change in fair
value and
amortization
of swap settlements
 
Unrealized
gain (loss) on
available for sale
securities
 
Total
Balance at December 31, 2017
$
(17,417
)
 
$
2,188

 
$
(15,229
)
Cumulative effect upon adoption of ASU No. 2016-01
—

 
(2,228
)
 
(2,228
)
Other comprehensive income (loss) before reclassification
15,871

 
(118
)
 
15,753

Amounts reclassified from accumulated other comprehensive loss
(8,047
)
 
13

 
(8,034
)
Other comprehensive income
7,824

 
(2,333
)
 
5,491

Balance at December 31, 2018
$
(9,593
)
 
$
(145
)
 
$
(9,738
)

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

(p) Redeemable Noncontrolling Interest

The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $35.5 million and $39.2 million as of December 31, 2018 and 2017 , respectively. The limited partners may redeem their noncontrolling interests for cash in certain circumstances.

The changes in the redemption value of redeemable noncontrolling interests for the years ended December 31, 2018 , 2017 , and 2016 is as follows:

 
2018
 
2017
 
2016
Balance at January 1,
$
39,206

 
$
44,684

 
$
45,452

Reclassifications due to change in redemption value and other
1,164

 
65

 
(768
)
Redemptions
(4,895
)
 
(5,543
)
 
—

Balance at December 31,
$
35,475

 
$
39,206

 
$
44,684


(q) Accounting Estimates

The preparation of consolidated financial statements, in accordance with U.S. GAAP, requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to acquiring, developing and assessing the carrying values of its real estate portfolio, its investments in and advances to joint ventures and affiliates, 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.

(r) Variable Interest Entities

In accordance with accounting standards for consolidation of VIEs, the Company consolidates the Operating Partnership and 16 DownREIT limited partnerships (comprising eight communities), and eight co-investments as of December 31, 2018 . The Company consolidates these entities because it is deemed the primary beneficiary. The Company has no assets or liabilities other than its investment in the Operating Partnership. The consolidated total assets and liabilities related to the eight consolidated co-investments and 16 DownREIT limited partnerships, net of intercompany eliminations, were approximately $849.8 million and $261.7 million , respectively, as of December 31, 2018 , and $837.7 million and $265.5 million , respectively,

F- 29
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


as of December 31, 2017 . Noncontrolling interests in these entities were $64.5 million and $66.7 million as of December 31, 2018 and 2017 , respectively. The Company's financial risk in each VIE is limited to its equity investment in the VIE.

The DownREIT VIEs collectively own eight 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 various arrangements, as noted above. The other limited partners receive distributions based on the Company's current dividend rate times the number of units held. Total DownREIT limited partnership units outstanding were 912,269 and 917,593 as of December 31, 2018 and 2017 respectively, and the redemption value of the units, based on the closing price of the Company’s common stock totaled approximately $223.7 million and $221.5 million , as of December 31, 2018 and 2017 , respectively. The carrying value of redeemable noncontrolling interest in the accompanying balance sheets was $35.5 million and $39.2 million as of December 31, 2018 and 2017 , respectively. Of these amounts, $14.5 million and $13.6 million as of December 31, 2018 and 2017 , respectively, represent units of limited partners' interests in DownREIT VIEs as to which it is outside of the Company’s control to redeem the DownREIT limited partnership 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 limited partnership units as to which it is within the control of the Company to redeem the units with its common stock was $32.4 million as of both December 31, 2018 and 2017 , 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, 2018 and 2017 , the Company did not have any other VIEs of which it was deemed to be the primary beneficiary and did not have any VIEs of which it was not deemed to be the primary beneficiary.

(s) Discontinued Operations

The Company determined that the disposals during the years ended December 31, 2018 , 2017 and 2016 were not considered discontinued operations in accordance with ASU 2014-08. The gains related to these disposals are recorded in gain on sale of real estate and land in the consolidated statements of income.

(3) Real Estate Investments

(a) Acquisitions of Real Estate

For the year ended December 31, 2018, the Company purchased a partial interest in one community consisting of 166 apartment homes for $35.4 million . The table below summarizes acquisition activity for the year ended December 31, 2018 ($ in millions):
Property Name
Location
Apartment Homes
Essex Ownership Percentage
Quarter in 2018
Purchase Price
Marquis (1)
San Jose, CA
166

100
%
Q4
$
35.4

Total 2018
166

 

 
$
35.4


(1)  
In December 2018, the Company purchased the joint venture partner's 49.9% membership interest in the Marquis co-investment. As part of the acquisition, the Company paid $4.7 million in cash and issued Operating Partnership units valued at $7.9 million , based on an estimated property valuation of $71.0 million and an encumbrance of $45.8 million of mortgage debt.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The consolidated fair value of the acquisition listed above was included on the Company's consolidated balance sheet as follows: $20.5 million was included in land and land improvements, $47.8 million was included in buildings and improvements, and $2.7 million was included in prepaid expenses and other assets and liabilities, within the Company's consolidated balance sheets.

For the year ended December 31, 2017, the Company purchased two communities consisting of 1,328 apartment homes for $273.0 million .

(b) Sales of Real Estate Investments

For the year ended December 31, 2018, the Company sold two communities consisting of 669 apartment homes for $352.0 million resulting in gains totaling $61.9 million . The table below summarizes disposition activity of operating communities for the year ended December 31, 2018 ($ in millions):
Property Name
Location
Apartment Homes
Essex Ownership Percentage
Ownership
Quarter in 2018
Sales Price
Gains
Domain
San Diego, CA
379

100
%
EPLP
Q2
$
132.0

$
22.3

8th & Hope
Los Angeles, CA
290

100
%
EPLP
Q4
220.0

39.6

Total 2018
669

 

 
 
$
352.0

$
61.9


During 2017, the Company sold one community consisting of 270 apartment homes for $132.5 million resulting in a gain of $26.2 million , which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

During 2016, the Company sold three communities, consisting of 323 apartment homes, for $80.8 million resulting in gains totaling $14.0 million , net of $4.4 million deferred tax on gain on sale of real estate.

In January 2016, the Company sold its former headquarters office building, located in Palo Alto, CA, for gross proceeds of $18.0 million , resulting in a gain of $9.6 million , which is included in the line item gain on sale of real estate and land in the Company's consolidated statement of income.

(c) Real Estate Assets Held for Sale, net

As of December 31, 2018 and 2017, the Company had no assets classified as held for sale.

(d) Co-investments

The Company has joint ventures 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.

In March 2018, the BEXAEW joint venture operating agreement was amended, and the joint venture was extended. Under the amendment, the Company received a cash payment for co-investment promote income of $20.5 million , which is included in equity income from co-investments on the consolidated statements of income and comprehensive income.

In October 2018, Wesco V acquired Meridian at Midtown, a 218 apartment home community located in San Jose, CA, for a total contract price of $104.0 million . In connection with this acquisition, Wesco V assumed $69.9 million of mortgage debt, with an effective interest rate of 4.50% and a maturity date of March 2026. The Company previously had a preferred equity investment in this apartment home community, which was fully redeemed in August 2015.

In November 2018, BEXAEW sold Enclave at Town Square, a 124 apartment home community located in Chino Hills, CA, for $30.5 million , which resulted in a gain of $5.4 million for the Company, recorded in the consolidated statement of income as equity income from co-investments. BEXAEW used $16.1 million of the proceeds to repay the loan on the property.


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Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


In November 2018, Wesco III sold The Summit, a 125 apartment home community located in Chino Hills, CA, for $34.8 million , which resulted in a gain of $5.2 million for the Company, recorded in the consolidated statement of income as equity income from co-investments. Wesco III used $15.6 million of the proceeds to repay the loan on the property.

In December 2018, the Company purchased its joint venture partner's 49.9% interest in the Marquis co-investment, for a contract price of $35.4 million . Prior to the purchase, an approximately $45.8 million mortgage encumbered the property. Marquis has 166 apartment homes and is located in San Jose, CA. As a result of this acquisition, the Company realized a gain on remeasurement of co-investment of $1.3 million upon consolidation.

The carrying values of the Company’s co-investments as of December 31, 2018 and 2017 are as follows ($ in thousands, except in parenthetical):
 
Weighted Average Essex Ownership
 
December 31,
 
Percentage  (1)
 
2018
 
2017
Ownership interest in:
 
 
 
 
 
CPPIB
54
%
 
$
482,507

 
$
500,287

Wesco I, Wesco III, Wesco IV, and Wesco V
52
%
 
194,890

 
214,408

BEXAEW, BEX II and BEX III (2)
50
%
 
121,780

 
13,827

Other
51
%
 
34,093

 
51,810

Total operating and other co-investments, net
 
 
833,270

 
780,332

Total pre-development and development co-investments
50
%
 
94,060

 
73,770

Total preferred interest co-investments (includes related party investments of $51.8 million and $15.7 million as of December 31, 2018 and December 31, 2017, respectively - FN 6 - Related Party Transactions for further discussion)
 
 
372,810

 
265,156

Total co-investments, net
 
 
$
1,300,140

 
$
1,119,258

(1)  
Weighted average Essex ownership percentages are as of December 31, 2018.
(2)  
As of December 31, 2017, the Company's investment in BEX II was classified as a liability of $36.7 million .

The combined summarized financial information of co-investments is as follows ($ in thousands):
 
December 31,
 
2018
 
2017
Combined balance sheets:  (1)
 
 
 
Rental properties and real estate under development
$
4,367,987

 
$
3,722,778

Other assets
104,119

 
110,333

Total assets
$
4,472,106

 
$
3,833,111

Debt
$
2,190,764

 
$
1,705,051

Other liabilities
106,316

 
45,515

Equity
2,175,026

 
2,082,545

Total liabilities and equity
$
4,472,106

 
$
3,833,111

Company's share of equity
$
1,300,140

 
$
1,155,984



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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


 
Years ended
December 31,
 
2018
 
2017
 
2016
Combined statements of income: (1)
 
 
 
 
 
Property revenues
$
332,164

 
$
312,841

 
$
289,011

Property operating expenses
(107,584
)
 
(110,583
)
 
(99,637
)
Net operating income
224,580

 
202,258

 
189,374

Gain on sale of real estate
24,218

 
90,663

 
28,291

Interest expense
(63,913
)
 
(62,844
)
 
(46,894
)
General and administrative
(6,379
)
 
(9,091
)
 
(7,448
)
Depreciation and amortization
(126,485
)
 
(118,048
)
 
(103,986
)
Net income
$
52,021

 
$
102,938

 
$
59,337

Company's share of net income (2)
$
89,132

 
$
86,445

 
$
48,698


(1)  
Includes preferred equity investments held by the Company.
(2)  
Includes the Company's share of equity income from joint ventures and preferred equity investments, gain on sales of co-investments, co-investment promote income and income from early redemption of preferred equity investments. Includes related party income of  $2.0 million , $1.9 million , and  $3.4 million  for the years ended December 31, 2018, 2017, and 2016, respectively.

Operating Co-investments

As of December 31, 2018 and 2017, the Company, through several joint ventures, owned 10,613 and 10,810 apartment homes, respectively, in operating communities. The Company’s book value of these co-investments was $833.3 million and $780.3 million at December 31, 2018 and 2017, respectively.

Pre-Development and Development Co-investments

As of both December 31, 2018 and 2017, the Company, through several joint ventures, owned 814 apartment homes in pre-development and development communities. The Company’s book value of these co-investments was $94.1 million and $73.8 million at December 31, 2018 and 2017, respectively.

In 2017, the Company entered into a joint venture to develop Ohlone, a multifamily community comprised of 269 apartment homes located in San Jose, CA. The Company has a 50% ownership interest in the development which has a projected total cost of $136.0 million . Construction began in the third quarter of 2017 and the community is expected to open in the fourth quarter of 2019. The Company has also committed to a $28.9 million preferred equity investment in the project, which accrues an annualized preferred return of 10.0% and matures in 2020.

In 2015, the Company entered into a joint venture to develop 500 Folsom, a multifamily community comprised of 545 apartment homes located in San Francisco, CA. The Company has a 50% ownership interest in the development which has a projected total cost of $415.0 million . Construction began in the fourth quarter of 2015 and the property is projected to open in the third quarter of 2019. 

Preferred Equity Investments

As of December 31, 2018 and 2017, 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 $372.8 million and $265.2 million at December 31, 2018 and 2017, respectively, and is included in the co-investments line in the accompanying consolidated balance sheets.
During 2018, the Company made commitments to fund $45.1 million preferred equity investment in two preferred equity investments, in which the sponsors include a related party. See Note 6, Related Party Transactions, for additional details. The investments have initial returns ranging from 10.25% - 12.0% , with maturities ranging from May 2023 to April 2024. As of

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


December 31, 2018, the Company had funded $39.6 million of the $45.1 million commitment. The remaining committed amount will be funded if and when requested by the sponsors.

During 2017, the Company made commitments to fund $153.8 million in eight preferred equity investments. These investments have initial accrued preferred returns ranging from 9.5% - 11.3% , with maturities ranging from March 2020 to August 2024. As of December 31, 2018, the Company had funded $151.8 million of the $153.8 million commitment.

In January 2018, the Company received cash of $2.4 million for the full redemption of a preferred equity investment in a co-investment that holds property in Seattle, WA.

In June 2018, the Company received cash of $26.5 million for the full redemption of a preferred equity investment in an entity that holds property in Seattle, WA. The Company recognized a gain of $1.6 million as a result of this early redemption, which is included in equity income from co-investments in the consolidated statements of income and comprehensive income.

In October 2018, the Company received cash of $5.0 million for the full redemption of a related party preferred equity investment in a co-investment that holds property in Los Angeles, CA.

(e) 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, 2018 , the Company's development pipeline was comprised of four consolidated projects under development, two unconsolidated joint venture projects under development and various predevelopment projects, aggregating 1,861 apartment homes, with total incurred costs of $0.8 billion .

(4) Revenues

On January 1, 2018, the Company adopted ASU No. 2014-09, "Revenue from Contracts with Customers" using a modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods after January 1, 2018 are presented under the new standard, while prior period amounts are not adjusted and continue to be reported in accordance with the old revenue recognition standard.

Based on a full analysis of applicable contracts, the Company determined that the new standard did not have an impact to reported revenues from prior or current periods.

Revenue Recognition

Revenue from Leasing

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

Revenue from Contracts with Customers

Apart from rental and other property-related revenue, revenues from contracts with customers are recognized as control of the promised services is passed to the customer.

For customer contracts related to management and other fees from affiliates (which includes asset management and property management), the transaction price and amount of revenue to be recognized is determined each quarter based on the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


management fee calculated and earned for that month or quarter. The contract will contain a description of the service and the fee percentage for management services. Payments from such services are one month or one quarter in arrears of the service performed.

Disaggregated Revenue

The following table presents the Company’s revenues disaggregated by revenue source ($ in thousands):
 
2018
 
2017
 
2016
Rental
$
1,296,435

 
$
1,263,476

 
$
1,201,995

Other property leasing revenue
94,435

 
90,849

 
83,728

Management and other fees from affiliates
9,183

 
9,574

 
8,278

Total revenues
$
1,400,053

 
$
1,363,899

 
$
1,294,001


The following table presents the Company’s rental and other property-leasing revenues disaggregated by geographic operating segment ($ in thousands):
 
2018
 
2017
 
2016
Southern California
$
592,281

 
$
574,552

 
$
540,000

Northern California
522,561

 
505,313

 
453,140

Seattle Metro
236,525

 
229,871

 
217,259

Other real estate assets (1)
39,503

 
44,589

 
75,324

Total rental and other property leasing revenues
$
1,390,870

 
$
1,354,325

 
$
1,285,723


(1) Other real estate assets consists of revenue generated from retail space, commercial properties, held for sale properties, and disposition properties. Executive management does not evaluate such operating performance geographically.

The following table presents the Company’s rental and other property-leasing revenues disaggregated by current property category status ($ in thousands):
 
2018
 
2017
 
2016
Same-property (1)
$
1,279,640

 
$
1,244,743

 
$
1,185,685

Acquisitions (2)
42,481

 
39,289

 
—

Development (3)
2,713

 
—

 
—

Redevelopment
20,345

 
19,641

 
18,737

Non-residential/other, net (4)
45,691

 
50,652

 
81,301

Total rental and other property leasing revenues
$
1,390,870

 
$
1,354,325

 
$
1,285,723


(1) Stabilized properties consolidated by the Company for the years ended December 31, 2018 , 2017 and 2016.
(2) Acquisitions includes properties acquired which did not have comparable stabilized results as of January 1, 2017.
(3) Development includes properties developed which did not have stabilized results as of January 1, 2017.
(4) Non-residential/other, net consists of revenue generated from retail space, commercial properties, held for sale properties, disposition properties and student housing.

Deferred Revenues and Remaining Performance Obligations

When cash payments are received or due in advance of the Company’s performance of contracts with customers, deferred revenue is recorded. The total deferred revenue balance related to such contracts was $6.2 million and $9.3 million as of December 31, 2018 and December 31, 2017 , respectively, and was included in accounts payable and accrued liabilities within the accompanying consolidated balance sheets. The amount of revenue recognized for the year ended December 31, 2018 that was included in the December 31, 2017 deferred revenue balance was $3.1 million , which was included in interest and other income within the consolidated statements of income and comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016



A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue recognition accounting standard. As of December 31, 2018 , the Company had $6.2 million of remaining performance obligations. The Company expects to recognize approximately 37% of these remaining performance obligations in 2019, an additional 24% through 2021, and the remaining balance thereafter.

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less or when variable consideration is allocated entirely to a wholly unsatisfied performance obligation.

(5) Notes and Other Receivables
 
Notes and loan investment receivables, secured by real estate, and other receivables consist of the following as of December 31, 2018 and 2017 ($ in thousands):
 
2018
 
2017
Notes receivable, secured, bearing interest at 10.00%, due May 2021
15,226

 
13,762

Note receivable, secured, bearing interest at 10.75%, due September 2020
32,650

 
29,318

Related party note receivable, secured, bearing interest at 9.50%, due October 2019 (1)
6,618

 
6,656

Related party note receivable, secured, bearing interest at 3.50%, due March 2018 (1)
—

 
29,500

Notes and other receivables from affiliates (2)
4,457

 
5,061

Other receivables
12,944

 
16,629

 Total notes and receivables
$
71,895

 
$
100,926

(1)  
See Note 6, Related Party Transactions, for additional details.
(2)  
These amounts consist of short-term loans outstanding and due from various joint ventures as of December 31, 2018 and 2017, respectively. See Note 6, Related Party Transactions, for additional details.

In November 2018, the Company made a commitment to fund a $12.5 million mezzanine loan in a multifamily community located in Vista, CA, with a 9.9% interest rate and an initial maturity date of November 2021, with options to extend for up to two years. As of December 31, 2018, the Company had not funded any of this commitment.

(6) 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 person who is or was (since the beginning of the last fiscal year) a 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. For the year ended December 31, 2016, the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Company paid brokerage commissions totaling $1.1 million to affiliates of MMC related to real estate transactions. There were no brokerage commissions paid by the Company to MMI or its affiliates during 2018 and 2017.

The Company charges certain fees relating to its co-investments for asset management, property management, development and redevelopment services. These fees from affiliates total $13.9 million , $12.6 million , and $12.4 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. All of these fees are net of intercompany amounts eliminated by the Company. The Company netted development and redevelopment fees of $4.8 million , $3.0 million , and $4.2 million against general and administrative expenses for the years ended December 31, 2018 , 2017 and 2016 , respectively.

As described in Note 5, Notes and Other Receivables, the Company has provided short-term loans to affiliates. As of December 31, 2018 and 2017 , $4.5 million and $5.1 million , respectively, of short-term loans remained outstanding due from joint venture affiliates and are classified within notes and other receivables in the accompanying consolidated balance sheets. In November 2016, the Company provided a $6.6 million mezzanine loan to a limited liability company in which MMC holds a significant ownership interest through subsidiaries. The mezzanine loan had an outstanding balance of $6.6 million and $6.7 million , as of December 31, 2018 and 2017, respectively, and is classified within notes and other receivables in the accompanying consolidated balance sheets.

In October 2018, the Company funded a $18.6 million preferred equity investment in an entity whose sponsor is an affiliate of MMC. The entity wholly owns a 268 apartment home community development located in Burlingame, CA. This investment will accrue interest based on an initial 12.00% preferred return. The investment is scheduled to mature in April 2024.

In May 2018, the Company made a commitment to fund a $26.5 million preferred equity investment in an entity whose sponsors include an affiliate of MMC. The entity wholly owns a 400 apartment home community located in Ventura, CA. This investment will accrue interest based on a 10.25% preferred return. The investment is scheduled to mature in May 2023. As of December 31, 2018, the Company had funded $21.0 million of the commitment. The remaining committed amount will be funded if and when requested by the sponsors.

In November 2017, the Company provided a $29.5 million related party bridge loan to a property acquired by BEX III. The note receivable accrued interest at 3.5% and was paid off in January 2018. The bridge loan was classified within notes and other receivables in the accompanying consolidated balance sheets and had no amount outstanding as of December 31, 2018.

In August 2017, the Company provided a $55.0 million related party bridge loan to a property acquired by Wesco V. The note receivable accrued interest at 3.5% and was paid off in November 2017.

In March 2017, the Company converted its existing $15.3 million preferred equity investment in Sage at Cupertino, a 230 apartment home community located in San Jose, CA, into a 40.5% common equity ownership interest in the property. The Company issued DownREIT limited partnership units to the other members, including an MMC affiliate, based on an estimated property valuation of $90.0 million . At the time of the conversion, the property was encumbered by $52.0 million of mortgage debt. As a result of this transaction, the Company consolidates the property, based on a consolidation analysis performed by the Company.

In 2015, the Company made preferred equity investments totaling $20.0 million in three entities affiliated with MMC that own apartment communities in California. The Company earns a 9.5% preferred return on each such investment. One $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2017. Another $5.0 million investment, which was scheduled to mature in 2022, was fully redeemed in 2018. The remaining investment is scheduled to mature in 2022.

(7) Unsecured Debt

Essex does not have any indebtedness as all debt is incurred by the Operating Partnership. Essex 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.
 




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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Unsecured debt consists of the following as of December 31, 2018 and 2017 ($ in thousands):
 
2018
 
2017
 
Weighted Average
Maturity
In Years
Unsecured bonds private placement - fixed rate
$
274,624

 
$
274,427

 
2.1
Term loan - variable rate
348,813

 
348,545

 
3.1
Bonds public offering - fixed rate
3,175,879

 
2,878,737

 
7.7
Unsecured debt, net (1)
3,799,316

 
3,501,709

 
 
Lines of credit (2)
—

 
179,000

 
 
Total unsecured debt
$
3,799,316

 
$
3,680,709

 
 
Weighted average interest rate on fixed rate unsecured bonds private placement and bonds public offering
3.9
%
 
3.7
%
 
 
Weighted average interest rate on variable rate term loan
3.0
%
 
2.5
%
 
 
Weighted average interest rate on lines of credit
3.2
%
 
2.3
%
 
 

(1)  
Includes unamortized discount, net of premiums, of $7.1 million and $5.2 million and unamortized debt issuance costs of $18.5 million and $18.1 million as of December 31, 2018 and 2017 , respectively.
(2)  
Lines of credit, related to the Company's two lines of unsecured credit aggregating $1.24 billion , excludes unamortized debt issuance costs of $3.9 million and $3.2 million as of December 31, 2018 and 2017, respectively. These debt issuance costs are included in prepaid expenses and other assets on the consolidated balance sheets.

As of both December 31, 2018 and 2017 , the Company had $275.0 million of private placement unsecured bonds outstanding at an average effective interest rate of 4.5% for both periods.

The following is a summary of the Company’s unsecured private placement bonds as of December 31, 2018 and 2017 ($ in thousands):
 
Maturity
 
2018
 
2017
 
Coupon
Rate
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
%
 
  
 
$
275,000

 
$
275,000

 
 


As of both December 31, 2018 and 2017 , the Company had unsecured term loans outstanding of $350.0 million at an average interest rate of 3.0% and 2.5% , respectively. These loans are included in the line "Term loan - variable rate" in the table above, and as of December 31, 2018 and 2017 , the carrying value, net of debt issuance costs, was $348.8 million and $348.5 million , respectively, and the term loan matures in February 2022. The Company had entered into five interest rate swap contracts, for a term of five years with a notional amount totaling $175.0 million , which will effectively convert the interest rate on $175.0 million of the term loan to a fixed rate of 2.3% . These interest rate swaps are accounted for as cash flow hedges.

In March 2018, the Company issued $300.0 million of senior unsecured notes due on March 15, 2048 with a coupon rate of 4.500% per annum and are payable on March 15 and September 15 of each year, beginning on September 15, 2018 (the "2048 Notes"). The 2048 Notes were offered to investors at a price of 99.591% of par value. The 2048 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, 2018 , the carrying value of the 2048 Notes, net of discount and debt issuance costs was $295.4 million .


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


In April 2017, the Company issued $350.0 million of senior unsecured notes due on May 1, 2027 with a coupon rate of 3.625% per annum and are payable on May 1 and November 1 of each year, beginning on November 1, 2017 (the "2027 Notes"). The 2027 Notes were offered to investors at a price of 99.423% of par value. The 2027 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, 2018 and 2017, the carrying value of the 2027 Notes, net of discount and debt issuance costs was $345.8 million and $345.2 million , respectively.

In April 2016, the Company issued $450.0 million of senior unsecured notes due on April 15, 2026 with a coupon rate of 3.375% per annum and are payable on April 15 th and October 15 th of each year, beginning October 15, 2016 (the "2026 Notes"). The 2026 Notes were offered to investors at a price of 99.386% of par value. The 2026 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, 2018 and 2017 , the carrying value of the 2026 Notes, net of discount and debt issuance costs was $445.0 million and $444.4 million , respectively.

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 1 st and October 1 st 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, 2018 and 2017 , the carrying value of the 2025 Notes, net of discount and debt issuance costs was $496.5 million and $495.9 million , respectively.

In April 2014, the Company assumed $900.0 million aggregate principal amount of BRE Property Inc.’s 5.500% senior notes due 2017; 5.200% senior notes due 2021; and 3.375% senior notes due 2023 (together the "BRE Notes"). These notes are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2018 and 2017 , the carrying value of the BRE Notes, plus unamortized premium was $601.3 million and $603.2 million , respectively. In March 2017, the Company paid off $300.0 million of 5.500% senior notes, at maturity.

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 1 st and November 1 st 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, 2018 and 2017 , the carrying value of the 2024 Notes, net of discount and debt issuance costs was $396.5 million and $395.8 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 1 st and November 1 st 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, 2018 and 2017 , the carrying value of the 2023 Notes, net of discount and debt issuance costs was $297.6 million and $297.0 million , respectively.

During the third quarter of 2012, the Company issued $300.0 million of senior unsecured notes due August 2022 with a coupon rate of 3.625% per annum and are payable on February 15th and August 15th of each year, beginning February 15, 2013 (the "2022 Notes"). The 2022 Notes were offered to investors at a price of 98.99% of par value. The 2022 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. These bonds are included in the line "Bonds public offering-fixed rate" in the table above, and as of December 31, 2018 and 2017 , the carrying value of the 2022 Notes, net of unamortized discount and debt issuance costs was $297.8 million and $297.2 million , respectively.


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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The following is a summary of the Company’s senior unsecured notes as of December 31, 2018 and 2017 ($ in thousands):
 
Maturity
 
2018
 
2017
 
Coupon
Rate
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

 
500,000

 
3.500
%
Senior notes
April 2026
 
450,000

 
450,000

 
3.375
%
Senior notes
May 2027
 
350,000

 
350,000

 
3.625
%
Senior notes
March 2048
 
300,000

 
—

 
4.500
%
 
  
 
$
3,200,000

 
$
2,900,000

 
 

The aggregate scheduled principal payments of unsecured debt payable, excluding lines of credit, at December 31, 2018 are as follows ($ in thousands):
2019
$
75,000

2020
—

2021
500,000

2022
650,000

2023
600,000

Thereafter
2,000,000

 
$
3,825,000


As of December 31, 2018 , the Company had two unsecured lines of credit aggregating $ 1.24 billion , including a $1.2 billion unsecured line of credit and a $35.0 million working capital unsecured line of credit. As of December 31, 2018 , there was no amount outstanding on the $1.2 billion unsecured line of credit. As of December 31, 2017, there was $179.0 million outstanding on this line. The interest rate is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.875% as of December 31, 2018 . In January 2019, this line of credit was amended such that the scheduled maturity date of this facility was extended to December 2022, with one 18 -month extension, exercisable at the Company's option. The interest rate on the amended line is based on a tiered rate structure tied to the Company's credit ratings and is currently at LIBOR plus 0.825% . As of both December 31, 2018 and 2017, there was no amount outstanding on the Company's $35.0 million working capital unsecured line of credit. The interest rate on the line is based on a tiered rate structure tied to the Company's credit ratings and was LIBOR plus 0.875% as of December 31, 2018 .

The Company’s unsecured lines 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, 2018 and 2017 .

In February 2019, the Company issued $350.0 million of senior unsecured notes due on March 1, 2029 with a coupon rate of 4.000% per annum (the "2029 Notes"). See Note 17, Subsequent Events, for further details.

(8) Mortgage Notes Payable

Essex 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, 2018 and 2017 ($ in thousands):

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


 
2018
 
2017
Fixed rate mortgage notes payable
$
1,538,488

 
$
1,739,856

Variable rate mortgage notes payable (1)
268,138

 
268,561

Total mortgage notes payable (2)
$
1,806,626

 
$
2,008,417

Number of properties securing mortgage notes
50

 
56

Remaining terms
1-28 years

 
1-29 years

Weighted average interest rate
4.3
%
 
4.2
%

The aggregate scheduled principal payments of mortgage notes payable at December 31, 2018 are as follows ($ in thousands):
2019
$
515,658

2020
693,723

2021
43,604

2022
41,178

2023
852

Thereafter
500,880

 
$
1,795,895


(1)  
Variable rate mortgage notes payable, including $256.0 million in bonds that have been converted to variable rate through total return swap contracts, consists of multifamily housing mortgage revenue bonds secured by deeds of trust on rental properties and guaranteed by collateral pledge agreements, payable monthly at a variable rate as defined in the Loan Agreement (approximately 2.5% at December 2018 and 2.0% at December 2017) including credit enhancement and underwriting fees. 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 May 2025 through December 2046. Of these bonds, $9.9 million are subject to various interest rate cap agreements that limit the maximum interest rate to such bonds.
(2)  
Includes total unamortized premium, net of discounts, of $ 14.9 million and $ 33.2 million and reduced by unamortized debt issuance costs of $4.2 million and $5.4 million as of December 31, 2018 and 2017 , respectively.

For the Company’s mortgage notes payable as of December 31, 2018 , monthly interest expense and principal amortization, excluding balloon payments, totaled approximately $7.6 million and $2.3 million , respectively. Second deeds of trust accounted for none of the mortgage notes payable balance as of both December 31, 2018 and 2017. 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 principal being prepaid multiplied by the difference between the interest rate of the mortgage note and the stated yield rate on a U.S. treasury security which generally has an equivalent remaining term as the mortgage note.

(9) Derivative Instruments and Hedging Activities

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

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ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.

In November 2016, the Company replaced its $225.0 million term loan with a $350.0 million five -year term loan with a delayed draw feature. The term loan carries a variable interest rate of LIBOR plus 95 basis points. In 2016, the Company entered into four forward starting interest rate swaps (settlement payments commenced in March 2017) and in 2017, the Company entered into one forward starting interest rate swap (settlement payments commenced in March 2017) all related to the $350.0 million term loan. These five swaps, with a total notional amount of $175.0 million bear an average fixed interest rate of 2.3% and are scheduled to mature in February 2022. These derivatives qualify for hedge accounting.

As of December 31, 2018 and 2017, the Company had interest rate caps, which were not accounted for as hedges, with an aggregate notional amount of $9.9 million and $20.7 million , respectively, which effectively limits the Company’s exposure to interest rate risk by providing a ceiling on the variable interest rate for a portion of the Company’s tax exempt variable rate debt.

As of December 31, 2018 and 2017 , the aggregate carrying value of the interest rate swap contracts was an asset of $5.8 million and $5.4 million , respectively, and is included in prepaid expenses and other assets on the consolidated balance sheets, and a liability of zero as of both December 31, 2018 and 2017. The aggregate carrying value of the interest rate caps was zero on the balance sheet as of December 31, 2018 and 2017 .

Hedge ineffectiveness related to cash flow hedges, which is included in interest expense was a loss of $0.1 million , and income of $0.1 million , and $0.3 million for the years ended December 31, 2018 , 2017, and 2016 respectively.

The Company has four total return swap contracts, with an aggregate notional amount of $256.0 million , that effectively convert $256.0 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 all four of the total return swaps with $256.0 million of the outstanding debt at par. These derivatives do not qualify for hedge accounting and had a carrying and fair value of zero at both December 31, 2018 and 2017, respectively. These total return swaps are scheduled to mature between September 2021 and November 2022. The realized gains of $8.7 million , $10.1 million , and $11.7 million as of December 31, 2018, 2017, and 2016, respectively, were reported in current year income as total return swap income.

(10) Lease Agreements

As of December 31, 2018 , the Company is a lessor for one commercial building and the commercial portions of 38 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
2019
$
16,386

2020
15,842

2021
14,412

2022
13,324

2023
12,181

Thereafter
33,034

 
$
105,179


(11) Equity Transactions
 

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Preferred Securities Offerings

In April 2016, the Company redeemed all of the issued and outstanding 2,950,000 shares of the Company's 7.125% Series H Cumulative Redeemable Preferred Stock ("Series H") for $25.00 per share for $73.8 million in cash. In connection with the Series H redemption, the Operating Partnership redeemed the Series H 7.125% Preferred Interest. The notice of redemption was given in March 2016, which resulted in the Company and the Operating Partnership each recording $2.5 million in excess of redemption value over carrying value charge to 2016 net income attributable to common stockholders and net income related to unitholders, respectively.

Common Stock Offerings

In September 2018, the Company entered into a new equity distribution agreement pursuant to which the Company may offer and sell shares of its common stock having an aggregate gross sales price of up to $900.0 million (the "2018 ATM Program"). In connection with the 2018 ATM Program, the Company may also enter into related forward sale agreements whereby, at the Company’s discretion, it may sell shares of its common stock under the 2018 ATM Program under forward sale agreements. The use of a forward sale agreement would allow the Company to lock in a share price on the sale of shares of its common stock at the time the agreement is executed, but defer receiving the proceeds from the sale of shares until a later date. The Company anticipates using the net proceeds, which are contributed to the Operating Partnership, to acquire, develop, or redevelop properties, which primarily will be apartment communities, to make other investments and for working capital or general corporate purposes, which may include the repayment of indebtedness.
Upon entering into the 2018 ATM Program, the Company simultaneously terminated its existing equity distribution agreements, which were entered into in March 2016 in connection with its prior at-the-market equity offering program (the "2016 ATM Program"). During the year ended December 31, 2018, the Company did not sell any shares of its common stock through the 2018 ATM Program or through the 2016 ATM Program. Since commencement of the 2018 ATM Program, as of December 31, 2018, the Company has not sold any shares of its common stock and there are no outstanding forward sale agreements, and $900.0 million of shares remains available to be sold under this program. During 2017, the Company issued 345,444 shares of common stock, through the 2016 ATM program at an average price of $260.38 per share for total proceeds of $89.1 million , net of fees and commissions. For the year ended December 31, 2016, the Company did not issue any shares of common stock pursuant to the 2016 ATM Program.
Operating Partnership Units and Long Term Incentive Plan ("LTIP") Units

As of December 31, 2018 and 2017 , the Operating Partnership had outstanding 2,171,309 and 2,054,814 operating partnership units and 134,080 and 213,300 vested LTIP units, respectively. The Operating Partnership’s general partner, Essex, owned 96.6% and 96.7% of the partnership interests in the Operating Partnership as of December 31, 2018 and 2017 , respectively, and Essex is responsible for the management of the Operating Partnership’s business. As the general partner of the Operating Partnership, Essex effectively controls the ability to issue common stock of Essex upon a limited partner’s notice of redemption. Essex has generally acquired Operating Partnership limited partnership units ("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 Essex to settle in either cash or common stock at the option of Essex 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 collective redemption value of OP Units and LTIP units owned by the limited partners, not including Essex, was approximately $565.3 million and $547.5 million based on the closing price of Essex's common stock as of December 31, 2018 and 2017, respectively.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


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

Essex Property Trust, Inc.

Basic and diluted income per share is calculated as follows for the years ended December 31 ($ in thousands, except share and per share amounts):
 
2018
 
2017
 
2016
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
390,153

 
66,041,058

 
$
5.91

 
433,059

 
65,829,155

 
$
6.58

 
411,124

 
65,471,540

 
$
6.28

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock options
—

 
44,031

 
 
 
—

 
69,100

 
 
 
—

 
116,276

 
 
Diluted:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income available to common stockholders
390,153

 
66,085,089

 
$
5.90

 
433,059

 
65,898,255

 
$
6.57

 
411,124

 
65,587,816

 
$
6.27


The table above excludes from the calculations of diluted earnings per share weighted average convertible OP Units of 2,274,941 , 2,252,575 , and 2,224,100 , which include vested Series Z-1 Incentive Units, 2014 Long-Term Incentive Plan Units, and 2015 Long-Term Incentive Plan Units, for the years ended December 31, 2018 , 2017 and 2016 , respectively, because they were anti-dilutive. The related income allocated to these convertible OP Units aggregated $13.5 million , $14.8 million , and $14.1 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Additionally, the table excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

Stock options of 160,039 , 154,793 , and 252,334 , for the years ended December 31, 2018 , 2017 , and 2016 , respectively, were excluded from the calculation of diluted earnings per share because the assumed proceeds per share of such options plus the average unearned compensation were greater than the average market price of the common stock for the years ended and, therefore, were anti-dilutive.

All shares of cumulative convertible Series H preferred interest have been excluded from diluted earnings per share for the years ended December 31, 2016 , as the effect was anti-dilutive.



















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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Essex Portfolio, L.P.

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

 
2018
 
2017
 
2016
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income available to common unitholders
$
403,605

 
68,315,999

 
$
5.91

 
$
447,884

 
68,081,730

 
$
6.58

 
$
425,213

 
67,695,640

 
$
6.28

Effect of Dilutive Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Stock options
—

 
44,031

 
 

 
—

 
69,100

 
 

 
—

 
116,276

 
 

Diluted:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net income available to common unitholders
$
403,605

 
68,360,030

 
$
5.90

 
$
447,884

 
68,150,830

 
$
6.57

 
$
425,213

 
67,811,916

 
$
6.27

 
Stock options of 160,039 , 154,793 , and 252,334 , for the years ended December 31, 2018 , 2017 , and 2016 , respectively, were excluded from the calculation of diluted earnings per unit because the assumed proceeds per unit of these options plus the average unearned compensation were greater than the average market price of the common unit for the years ended and, therefore, were anti-dilutive. Additionally, the table excludes all DownREIT limited partnership units for which the Operating Partnership has the ability and intention to redeem the units for cash and does not consider them to be common stock equivalents.

The cumulative convertible Series H preferred interest have been excluded from diluted earnings per unit for the years ended December 31, 2016 , as the effect was anti-dilutive.

(13) Equity Based Compensation Plans
 
Stock Options and Restricted Stock
 
In May 2018, stockholders approved the Company’s 2018 Stock Award and Incentive Compensation Plan ("2018 Plan"). The 2018 Plan serves as the successor to the Company’s 2013 Stock Incentive Plan (the "2013 Plan"). The Company’s 2018 Plan provides incentives to attract and retain officers, directors and key employees. The 2018 Plan provides for the grant of stock-based awards to employees, directors and consultants of the Company and its affiliates. The aggregate number of shares of the Company’s common stock available for issuance pursuant to awards granted under the 2018 Plan is 2,000,000 shares, plus the number of shares authorized for grants and available for issuance under the 2013 Plan as of the effective date of the 2018 Plan and the number of shares subject to outstanding awards under the 2013 Plan that are forfeited or otherwise not issued under such awards. No further awards will be granted under the 2013 Plan and the shares that remained available for future issuance under the 2013 Plan as of the effective date of the 2018 Plan will be available for issuance under the 2018 Plan. In connection with the adoption of the 2018 Plan, the Board delegated to the Compensation Committee of the Board the authority to administer the 2018 Plan.

Equity-based compensation costs for options and restricted stock under the fair value method totaled $12.1 million , $9.8 million , and $8.5 million for years ended December 31, 2018 , 2017 and 2016 respectively. For each of the years ended December 31, 2018, 2017 and 2016 equity-based compensation costs included $3.5 million related to restricted stock for bonuses awarded based on asset dispositions, which is recorded as a cost of real estate and land sold, respectively. Stock-based compensation for options and restricted stock related to recipients who are direct and incremental to projects under development were capitalized and totaled $2.0 million , $1.5 million , and $0.5 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. The intrinsic value of the options exercised totaled $3.1 million , $16.7 million , and $11.9

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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


million , for the years ended December 31, 2018 , 2017 , and 2016 respectively. The intrinsic value of the options exercisable totaled $12.5 million and $11.3 million as of December 31, 2018 and 2017, respectively.
 
Total unrecognized compensation cost related to unvested stock options totaled $6.0 million as of December 31, 2018 and the unrecognized compensation cost is expected to be recognized over a period of 2.1 years.
 
The average fair value of stock options granted for the years ended December 31, 2018 , 2017 and 2016 was $26.13 , $22.41 and $21.65 , respectively. Certain stock options granted in 2018 , 2017 , and 2016 included a $100 cap, $125 cap, or no 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:

 
2018
 
2017
 
2016
Stock price
$
262.09

 
$
240.56

 
$
219.60

Risk-free interest rates
2.76
%
 
2.30
%
 
2.08
%
Expected lives
6 years

 
6 years

 
6 years

Volatility
24.89
%
 
24.10
%
 
26.47
%
Dividend yield
2.81
%
 
2.90
%
 
2.89
%

A summary of the status of the Company’s stock option plans as of December 31, 2018 , 2017 , and 2016 and changes during the years ended on those dates is presented below:

 
2018
 
2017
 
2016
 
Shares
 
Weighted-
average
exercise
price
 
Shares
 
Weighted-
average
exercise
price
 
Shares
 
Weighted-
average
exercise
price
Outstanding at beginning of year
536,208

 
$
211.41

 
557,648

 
$
181.50

 
525,094

 
$
154.98

Granted
119,361

 
262.09

 
164,677

 
240.56

 
207,429

 
219.60

Exercised
(39,175
)
 
159.05

 
(176,489
)
 
146.86

 
(138,054
)
 
138.79

Forfeited and canceled
(3,440
)
 
221.80

 
(9,628
)
 
160.40

 
(36,821
)
 
178.18

Outstanding at end of year
612,954

 
224.57

 
536,208

 
211.41

 
557,648

 
181.50

Options exercisable at year end
322,837

 
206.63

 
223,796

 
191.09

 
290,340

 
160.90

 
The following table summarizes information about restricted stock outstanding as of December 31, 2018 , 2017 and 2016 and changes during the years ended:
 
2018
 
2017
 
2016
 
Shares
 
Weighted-
average
grant
price
 
Shares
 
Weighted-
average
grant
price
 
Shares
 
Weighted-
average
grant
price
Unvested at beginning of year
90,823

 
$
163.49

 
58,349

 
$
149.11

 
54,676

 
$
147.10

Granted
51,945

 
194.70

 
62,706

 
177.28

 
49,183

 
150.13

Vested
(48,212
)
 
150.76

 
(29,675
)
 
170.17

 
(38,427
)
 
147.12

Forfeited and canceled
(3,498
)
 
158.71

 
(557
)
 
119.37

 
(7,083
)
 
141.76

Unvested at end of year
91,058

 
180.99

 
90,823

 
163.49

 
58,349

 
149.11


The unrecognized compensation cost related to unvested restricted stock totaled $11.4 million as of December 31, 2018 and is expected to be recognized over a period of 2.7 years.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Long Term Incentive Plans – LTIP Units

On December 9, 2014, the Operating Partnership issued 44,750 LTIP 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 LTIP units were granted subject only to performance-based criteria and were fully vested on the date granted. The 2015 LTIP Units, that are subject to vesting, will vest at 20% per year on each of the first five anniversaries of the initial grant date. The 2015 LTIP Units performance conditions measurement 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 OP Units 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 LTIP 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 OP Units which, in turn, are convertible into common stock of the Company subject to a ten year liquidity restriction.

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 Compensation Committee of the Board of Directors 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.

Equity-based compensation costs for LTIP and Z Units under the fair value method totaled approximately $0.8 million , $1.5 million and $2.4 million for the years ended December 31, 2018 , 2017 and 2016 , respectively. Equity-based compensation costs 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 $0.2 million , $0.5 million , and $0.6 million , for the years ended December 31, 2018 , 2017 , and 2016 , respectively. The intrinsic value of the vested and unvested LTIP Units totaled $58.0 million as of December 31, 2018 . Total unrecognized compensation cost related to the unvested LTIP Units under the LTIP Units plans totaled $0.9 million as of December 31, 2018 . On a weighted average basis, the unamortized cost for the 2015 LTIP Units and the Z Units is expected to be recognized over the next 1.0 years to 6.5 years, depending on certain performance targets.


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ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The following table summarizes information about the LTIP Units outstanding as of December 31, 2018 :
 
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, 2015
144,185

 
106,157

 
250,342

 
$
75.41

 
9.5
Granted
—

 
—

 
—

 


 

Vested
36,842

 
(36,842
)
 
—

 


 

Converted
—

 
—

 
—

 


 

Cancelled
—

 
(9,288
)
 
(9,288
)
 


 

Balance, December 31, 2016
181,027

 
60,027

 
241,054

 
$
75.11

 
8.5
Granted
—

 
—

 
—

 


 

Vested
32,961

 
(32,961
)
 
—

 


 

Converted
(688
)
 
—

 
(688
)
 


 

Cancelled
—

 
(3,854
)
 
(3,854
)
 


 

Balance, December 31, 2017
213,300

 
23,212

 
236,512

 
$
75.03

 
7.5
Granted
—

 
—

 
—

 
 
 
 
Vested
12,051

 
(12,051
)
 
—

 
 
 
 
Converted
(91,270
)
 
—

 
(91,270
)
 
 
 
 
Cancelled
—

 
—

 
—

 
 
 
 
Balance, December 31, 2018
134,081

 
11,161

 
145,242

 
$
75.03

 
6.5

(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. The Company's chief operating decision makers are comprised of several members of its executive management team who use net operating income ("NOI") to assess the performance of the business for the Company's reportable operating segments. NOI represents total property 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 NOI are management and other fees from affiliates and interest and other income. Non-segment revenues and NOI included in the following schedule also consist of revenue generated from commercial properties and properties that have been sold. Other non-segment assets include items such as real estate under development, co-investments, real estate held for sale, net, cash and cash equivalents, marketable securities, notes and other receivables and prepaid expenses and other assets.


F- 48
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The revenues and NOI for each of the reportable operating segments are summarized as follows for the years ended December 31, 2018 , 2017 , and 2016 ($ in thousands):
 
Years Ended December 31,
 
2018
 
2017
 
2016
Revenues:
 
 
 
 
 
Southern California
$
592,281

 
$
574,552

 
$
540,000

Northern California
522,561

 
505,313

 
453,140

Seattle Metro
236,525

 
229,871

 
217,259

Other real estate assets
39,503

 
44,589

 
75,324

Total property revenues
$
1,390,870

 
$
1,354,325

 
$
1,285,723

Net operating income:
 

 
 

 
 

Southern California
$
421,613

 
$
408,070

 
$
381,212

Northern California
386,401

 
371,795

 
333,757

Seattle Metro
165,397

 
162,253

 
154,147

Other real estate assets
32,125

 
36,821

 
57,790

Total net operating income
1,005,536

 
978,939

 
926,906

Management and other fees from affiliates
9,183

 
9,574

 
8,278

Corporate-level property management expenses
(31,062
)
 
(30,156
)
 
(30,110
)
Depreciation and amortization
(479,884
)
 
(468,881
)
 
(441,682
)
General and administrative
(53,451
)
 
(41,385
)
 
(40,751
)
Expensed acquisition and investment related costs
(194
)
 
(1,569
)
 
(1,841
)
Interest expense
(220,492
)
 
(222,894
)
 
(219,654
)
Total return swap income
8,707

 
10,098

 
11,716

Interest and other income
23,010

 
24,604

 
27,305

Equity income from co-investments
89,132

 
86,445

 
48,698

Loss on early retirement of debt
—

 
(1,796
)
 
(606
)
Gain on sale of real estate and land
61,861

 
26,423

 
154,561

Deferred tax expense on gain on sale of real estate and land
—

 
—

 
(4,410
)
Gain on remeasurement of co-investment
1,253

 
88,641

 
—

Net income
$
413,599

 
$
458,043

 
$
438,410



F- 49
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Total assets for each of the reportable operating segments are summarized as follows as of December 31, 2018 and 2017 ($ in thousands):
 
As of December 31,
 
2018
 
2017
Assets:
 
 
 
Southern California
$
4,350,377

 
$
4,504,930

Northern California
4,270,238

 
4,220,551

Seattle Metro
1,472,916

 
1,522,452

Other real estate assets
63,022

 
344,843

Net reportable operating segments - real estate assets
10,156,553

 
10,592,776

Real estate under development
454,629

 
355,735

Co-investments
1,300,140

 
1,155,984

Cash and cash equivalents, including restricted cash
151,395

 
61,126

Marketable securities
209,545

 
190,004

Notes and other receivables
71,895

 
100,926

Prepaid expenses and other assets
39,439

 
39,155

Total assets
$
12,383,596

 
$
12,495,706


(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 $2.1 million , $1.8 million , and $1.8 million for the years ended December 31, 2018 , 2017 , and 2016 , respectively.
 
(16) Commitments and Contingencies
 
As of December 31, 2018 , the Company had eight ground leases that expire between 2027 and 2083. Ground lease payments are typically the greater of a stated minimum or a percentage of gross rents generated by these apartment communities, some of which may be subject to future adjustments, which are not contemplated in the disclosed minimum lease commitments. The total minimum lease commitments, under ground leases and operating leases, for each of the years ending December 31 is summarized as follows ($ in thousands):
 
Total Minimum
 
Lease Commitments
2019
$
6,811

2020
6,855

2021
6,877

2022
6,888

2023
6,860

Thereafter
153,258

 
$
187,549


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, the impairment will be recognized.
 

F- 50
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


The Company has no way of determining 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 unknown 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.

There continue to be lawsuits against owners and managers of certain of the Company's 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, of 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 coverage for some 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 tenants 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, 2018 , 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 for 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, 2018 , PWI has cash and marketable securities of approximately $86.6 million . These assets are consolidated in the Company’s financial statements. Beginning in 2013, the Company has obtained limited third party seismic insurance on selected assets in the Company's co-investments.

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 2019, the Company repaid $290.0 million in secured mortgage notes payable with a coupon rate of 5.57% and a stated maturity date of May 2019.

In February 2019, the Company issued $350.0 million of the 2029 Notes, with a coupon rate of 4.000% , which are payable on March 1 and September 1 of each year, beginning on September 1, 2019. The 2029 Notes were offered to investors at a price of 99.188% of par value. The 2029 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are unconditionally guaranteed by Essex Property Trust, Inc. The Company used the net proceeds of this offering to repay indebtedness under its unsecured lines of credit and for other general corporate purposes.


F- 51
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


In February 2019, the Company funded a $24.5 million related party preferred equity investment with an initial accrued preferred return of 11.0% and an initial maturity date of February 2024.

Subsequent to year end through February 15, 2019, the Company repurchased 234,061 shares of common stock totaling $57.0 million , including commissions, at an average price of $243.48 per share. As of December 31, 2018, the Company had $197.7 million of purchase authority remaining under the stock repurchase program. On February 19, 2019, Essex’s Board of Directors approved the replenishment of the stock repurchase plan such that, as of such date, the Company had $250.0 million of purchase authority remaining under the replenished plan.

(18) Quarterly Results of Operations (Unaudited)

Essex Property Trust, Inc.

The following is a summary of quarterly results of operations for 2018 and 2017 ( $ in thousands, except per share and dividend amounts ):

 
Quarter ended
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2018:
 
 
 
 
 
 
 
Total property revenues
$
350,787

 
$
348,610

 
$
346,526

 
$
344,947

Net income
$
124,440

 
$
86,110

 
$
106,410

 
$
96,639

Net income available to common stockholders
$
117,820

 
$
80,975

 
$
100,440

 
$
90,918

Per share data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.78

 
$
1.23

 
$
1.52

 
$
1.38

Diluted (1)
$
1.78

 
$
1.22

 
$
1.52

 
$
1.38

Dividends declared
$
1.86

 
$
1.86

 
$
1.86

 
$
1.86

2017:
 

 
 

 
 

 
 

Total property revenues
$
342,417

 
$
341,974

 
$
336,766

 
$
333,168

Net income
$
109,662

 
$
85,035

 
$
75,795

 
$
187,551

Net income available to common stockholders
$
103,613

 
$
79,723

 
$
70,759

 
$
178,964

Per share data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.57

 
$
1.21

 
$
1.08

 
$
2.73

Diluted (1)
$
1.57

 
$
1.21

 
$
1.08

 
$
2.72

Dividends declared
$
1.75

 
$
1.75

 
$
1.75

 
$
1.75


(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.




F- 52
Table of Contents
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018, 2017, and 2016


Essex Portfolio, L.P.

The following is a summary of quarterly results of operations for 2018 and 2017 ( $ in thousands, except per unit and distribution amounts ):
 
Quarter ended
December 31
 
Quarter ended
September 30
 
Quarter ended
June 30
 
Quarter ended
March 31
2018:
 
 
 
 
 
 
 
Total property revenues
$
350,787

 
$
348,610

 
$
346,526

 
$
344,947

Net income
$
124,440

 
$
86,110

 
$
106,410

 
$
96,639

Net income available to common unitholders
$
121,891

 
$
83,764

 
$
103,900

 
$
94,050

Per unit data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.78

 
$
1.23

 
$
1.52

 
$
1.38

Diluted (1)
$
1.78

 
$
1.23

 
$
1.52

 
$
1.38

Distributions declared
$
1.86

 
$
1.86

 
$
1.86

 
$
1.86

2017:
 

 
 

 
 

 
 

Total property revenues
$
342,417

 
$
341,974

 
$
336,766

 
$
333,168

Net income
$
109,662

 
$
85,035

 
$
75,795

 
$
187,551

Net income available to common unitholders
$
107,149

 
$
82,444

 
$
73,181

 
$
185,110

Per unit data:
 

 
 

 
 

 
 

Net income:
 

 
 

 
 

 
 

Basic (1)
$
1.57

 
$
1.21

 
$
1.08

 
$
2.73

Diluted (1)
$
1.57

 
$
1.21

 
$
1.08

 
$
2.72

Distributions declared
$
1.75

 
$
1.75

 
$
1.75

 
$
1.75


(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.

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, 2018
(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
$
41,945

$
10,536

$
24,522

$
22,604

$
10,601

$
47,061

$
57,662

$
(32,368
)
1970
Jan-99
   3-30
Bel Air
462

San Ramon, CA
49,185

12,105

18,252

37,550

12,682

55,225

67,907

(37,019
)
1988
Jan-95
   3-30
Belcarra
296

Bellevue, WA
48,602

21,725

92,091

1,985

21,725

94,076

115,801

(16,327
)
2009
Apr-14
   5-30
BellCentre
248

Bellevue, WA
36,617

16,197

67,207

3,843

16,197

71,050

87,247

(13,018
)
2001
Apr-14
   5-30
Belmont Station
275

Los Angeles, CA
29,678

8,100

66,666

6,379

8,267

72,878

81,145

(28,705
)
2009
Mar-09
   3-30
Brookside Oaks
170

Sunnyvale, CA
17,746

7,301

16,310

26,653

10,328

39,936

50,264

(22,529
)
1973
Jun-00
   3-30
Carmel Creek
348

San Diego, CA
58,875

26,842

107,368

6,069

26,842

113,437

140,279

(21,010
)
2000
Apr-14
   5-30
City View
572

Hayward, CA
62,544

9,883

37,670

29,252

10,350

66,455

76,805

(47,198
)
1975
Mar-98
   3-30
Courtyard off Main
110

Bellevue, WA
14,542

7,465

21,405

3,999

7,465

25,404

32,869

(7,768
)
2000
Oct-10
   3-30
Domaine
92

Seattle, WA
13,446

9,059

27,177

1,173

9,059

28,350

37,409

(6,238
)
2009
Sep-12
   3-30
Elevation
158

Redmond, WA
10,103

4,758

14,285

6,968

4,757

21,254

26,011

(8,650
)
1986
Jun-10
   3-30
Fairhaven Apartments
164

Santa Ana, CA
18,078

2,626

10,485

8,847

2,957

19,001

21,958

(10,794
)
1970
Nov-01
   3-30
Form 15
242

San Diego, CA
44,922

24,510

72,221

5,236

25,540

76,427

101,967

(7,633
)
2014
Mar-16
   3-30
Foster's Landing
490

Foster City, CA
90,117

61,714

144,000

9,004

61,714

153,004

214,718

(28,842
)
1987
Apr-14
   5-30
Fountains at River Oaks
226

San Jose, CA
29,974

26,046

60,773

4,234

26,046

65,007

91,053

(11,960
)
1990
Apr-14
   3-30
Fountain Park
705

Playa Vista, CA
82,571

25,073

94,980

33,057

25,203

127,907

153,110

(70,823
)
2002
Feb-04
   3-30
Hidden Valley
324

Simi Valley, CA
29,360

14,174

34,065

6,184

9,674

44,749

54,423

(21,000
)
2004
Dec-04
   3-30
Highlands at Wynhaven
333

Issaquah, WA
29,540

16,271

48,932

13,850

16,271

62,782

79,053

(24,572
)
2000
Aug-08
   3-30
Highridge
255

Rancho Palos Verdes, CA
69,273

5,419

18,347

31,535

6,073

49,228

55,301

(36,693
)
1972
May-97
   3-30
Hillcrest Park
608

Newbury Park, CA
61,279

15,318

40,601

20,434

15,755

60,598

76,353

(39,954
)
1973
Mar-98
   3-30
Huntington Breakers
342

Huntington Beach, CA
34,397

9,306

22,720

20,818

9,315

43,529

52,844

(29,374
)
1984
Oct-97
   3-30
Inglenook Court
224

Bothell, WA
8,238

3,467

7,881

7,771

3,474

15,645

19,119

(12,667
)
1985
Oct-94
   3-30
1000 Kiely
121

Santa Clara, CA
34,040

9,359

21,845

7,956

9,359

29,801

39,160

(10,654
)
1971
Mar-11
   3-30
Magnolia Square/Magnolia
Lane (2)
188

Sunnyvale, CA
52,237

8,190

24,736

17,531

8,191

42,266

50,457

(20,951
)
1963
Sep-07
   3-30
Marquis
166

San Jose, CA
43,467

20,495

47,823

117

20,495

47,940

68,435

(151
)
2015
Dec-18
3-30
Montanosa
472

San Diego, CA
60,473

26,697

106,787

5,447

26,697

112,234

138,931

(20,206
)
1990
Apr-14
   5-30
Montebello
248

Kirkland, WA
24,639

13,857

41,575

4,955

13,858

46,529

60,387

(11,718
)
1996
Jul-12
   3-30
Montejo Apartments
124

Garden Grove, CA
12,873

1,925

7,685

3,972

2,194

11,388

13,582

(6,436
)
1974
Nov-01
   3-30
Park Highland
250

Bellevue, WA
25,127

9,391

38,224

12,255

9,391

50,479

59,870

(10,986
)
1993
Apr-14
   5-30
Pinnacle at Fullerton
192

Fullerton, CA
25,320

11,019

45,932

3,377

11,019

49,309

60,328

(9,000
)
2004
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, 2018
(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)
Pinnacle on Lake Washington
180

Renton, WA
17,499

7,760

31,041

2,893

7,760

33,934

41,694

(5,993
)
2001
Apr-14
   5-30
Pinnacle at MacArthur Place
253

Santa Ana, CA
36,478

15,810

66,401

4,703

15,810

71,104

86,914

(12,752
)
2002
Apr-14
   5-30
Pinnacle at Otay Ranch I & II
364

Chula Vista, CA
37,272

17,023

68,093

3,691

17,023

71,784

88,807

(13,000
)
2001
Apr-14
   5-30
Pinnacle at Talega
362

San Clemente, CA
41,647

19,292

77,168

2,771

19,292

79,939

99,231

(14,268
)
2002
Apr-14
   5-30
Sage at Cupertino
230

San Jose, CA
51,690

35,719

53,449

3,467

35,719

56,916

92,635

(3,689
)
1971
Mar-17
   3-30
Stevenson Place
200

Fremont, CA
19,840

996

5,582

12,827

1,001

18,404

19,405

(13,221
)
1975
Apr-00
   3-30
Summerhill Park
100

Sunnyvale, CA
12,269

2,654

4,918

11,132

2,656

16,048

18,704

(10,309
)
1988
Sep-88
   3-30
The Audrey at Belltown
137

Seattle, WA
19,767

9,228

36,911

958

9,228

37,869

47,097

(6,618
)
1992
Apr-14
   5-30
The Barkley (3)
161

Anaheim, CA
14,843

—

8,520

7,001

2,353

13,168

15,521

(8,354
)
1984
Apr-00
   3-30
The Dylan
184

West Hollywood, CA
59,163

19,984

82,286

834

19,990

83,114

103,104

(12,396
)
2015
Mar-15
   3-30
The Huntington
276

Huntington Beach, CA
27,707

10,374

41,495

5,028

10,374

46,523

56,897

(11,692
)
1975
Jun-12
   3-30
The Huxley
187

West Hollywood, CA
53,874

19,362

75,641

1,321

19,371

76,953

96,324

(11,748
)
2014
Mar-15
   3-30
The Landing at Jack London Square
282

Oakland, CA
49,421

33,554

78,292

5,908

33,554

84,200

117,754

(16,132
)
2001
Apr-14
   5-30
The Palms at Laguna Niguel
460

Laguna Niguel, CA
52,887

23,584

94,334

8,094

23,584

102,428

126,012

(18,599
)
1988
Apr-14
   5-30
The Waterford
238

San Jose, CA
29,252

11,808

24,500

15,956

15,165

37,099

52,264

(21,980
)
2000
Jun-00
   3-30
Valley Park
160

Fountain Valley, CA
20,875

3,361

13,420

5,949

3,761

18,969

22,730

(10,761
)
1969
Nov-01
   3-30
Villa Angelina
256

Placentia, CA
27,184

4,498

17,962

7,398

4,962

24,896

29,858

(14,497
)
1970
Nov-01
   3-30
Villa Granada
270

Santa Clara, CA
54,307

38,299

89,365

1,732

38,299

91,097

129,396

(16,216
)
2010
Apr-14
   5-30
Wandering Creek
156

Kent, WA
5,254

1,285

4,980

4,833

1,296

9,802

11,098

(7,521
)
1986
Nov-95
   3-30
Wilshire Promenade
149

Fullerton, CA
16,189

3,118

7,385

9,124

3,797

15,830

19,627

(10,725
)
1992
Jan-97
   3-30
 
13,456

 
$
1,806,626

$
716,537

$
2,264,308

$
478,675

$
726,494

$
2,733,026

$
3,459,520

$
(865,715
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unencumbered Communities
 
 
 
 
 
 
 
 
 
 
 
 
 
Alessio
624

Los Angeles, CA
—

32,136

128,543

9,979

32,136

138,522

170,658

(25,383
)
2001
Apr-14
   5-30
Allegro
97

Valley Village, CA
—

5,869

23,977

2,304

5,869

26,281

32,150

(9,394
)
2010
Oct-10
   3-30
Allure at Scripps Ranch
194

San Diego, CA
—

11,923

47,690

1,394

11,923

49,084

61,007

(8,699
)
2002
Apr-14
   5-30
Alpine Village
301

Alpine, CA
—

4,967

19,728

8,602

4,982

28,315

33,297

(15,526
)
1971
Dec-02
   3-30
Anavia
250

Anaheim, CA
—

15,925

63,712

7,985

15,925

71,697

87,622

(19,857
)
2009
Dec-10
   3-30
Annaliese
56

Seattle, WA
—

4,727

14,229

613

4,726

14,843

19,569

(3,047
)
2009
Jan-13
   3-30
Apex
366

Milpitas, CA
—

44,240

103,251

3,321

44,240

106,572

150,812

(15,479
)
2014
Aug-14
   3-30
Aqua Marina Del Rey
500

Marina Del Rey, CA
—

58,442

175,326

13,232

58,442

188,558

247,000

(35,960
)
2001
Apr-14
   5-30
Ascent
90

Kirkland, WA
—

3,924

11,862

2,014

3,924

13,876

17,800

(3,547
)
1988
Oct-12
   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, 2018
(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)
Ashton Sherman Village
264

Los Angeles, CA
—

23,550

93,811

489

23,550

94,300

117,850

(6,777
)
2014
Dec-16
   3-30
Avant
440

Los Angeles, CA
—

32,379

137,940

1,949

32,379

139,889

172,268

(16,452
)
2014
Jun-15
   3-30
Avenue 64
224

Emeryville, CA
—

27,235

64,403

14,377

27,235

78,780

106,015

(13,015
)
2007
Apr-14
   5-30
Aviara (4)
166

Mercer Island, WA
—

—

49,813

1,063

—

50,876

50,876

(9,998
)
2013
Apr-14
   5-30
Axis 2300
115

Irvine, CA
—

5,405

33,585

1,674

5,405

35,259

40,664

(12,341
)
2010
Aug-10
   3-30
Bella Villagio
231

San Jose, CA
—

17,247

40,343

3,540

17,247

43,883

61,130

(13,122
)
2004
Sep-10
   3-30
Bellerive
63

Los Angeles, CA
—

5,401

21,803

1,189

5,401

22,992

28,393

(6,962
)
2011
Aug-11
   3-30
Belmont Terrace
71

Belmont, CA
—

4,446

10,290

6,946

4,473

17,209

21,682

(8,257
)
1974
Oct-06
   3-30
Bennett Lofts
165

San Francisco, CA
—

21,771

50,800

29,672

28,371

73,872

102,243

(16,319
)
2004
Dec-12
   3-30
Bernardo Crest
216

San Diego, CA
—

10,802

43,209

3,665

10,802

46,874

57,676

(8,539
)
1988
Apr-14
   5-30
Bonita Cedars
120

Bonita, CA
—

2,496

9,913

5,160

2,503

15,066

17,569

(7,598
)
1983
Dec-02
   3-30
Boulevard
172

Fremont, CA
—

3,520

8,182

13,860

3,580

21,982

25,562

(17,002
)
1978
Jan-96
   3-30
Bridle Trails
108

Kirkland, WA
—

1,500

5,930

6,154

1,531

12,053

13,584

(8,499
)
1986
Oct-97
   3-30
Brighton Ridge
264

Renton, WA
—

2,623

10,800

5,486

2,656

16,253

18,909

(11,818
)
1986
Dec-96
   3-30
Bristol Commons
188

Sunnyvale, CA
—

5,278

11,853

9,272

5,293

21,110

26,403

(14,211
)
1989
Jan-95
   3-30
416 on Broadway
115

Glendale, CA
—

8,557

34,235

2,973

8,557

37,208

45,765

(10,982
)
2009
Dec-10
   3-30
Bunker Hill
456

Los Angeles, CA
—

11,498

27,871

83,972

11,639

111,702

123,341

(54,527
)
1968
Mar-98
   3-30
Camarillo Oaks
564

Camarillo, CA
—

10,953

25,254

7,791

11,075

32,923

43,998

(23,428
)
1985
Jul-96
   3-30
Cambridge Park
320

San Diego, CA
—

18,185

72,739

2,974

18,185

75,713

93,898

(13,776
)
1998
Apr-14
   5-30
Camino Ruiz Square
159

Camarillo, CA
—

6,871

26,119

1,965

6,931

28,024

34,955

(11,628
)
1990
Dec-06
   3-30
Canyon Oaks
250

San Ramon, CA
—

19,088

44,473

4,232

19,088

48,705

67,793

(19,542
)
2005
May-07
   3-30
Canyon Pointe
250

Bothell, WA
—

4,692

18,288

8,142

4,693

26,429

31,122

(14,475
)
1990
Oct-03
   3-30
Capri at Sunny Hills
102

Fullerton, CA
—

3,337

13,320

9,319

4,048

21,928

25,976

(13,479
)
1961
Sep-01
   3-30
Carmel Landing
356

San Diego, CA
—

16,725

66,901

7,589

16,725

74,490

91,215

(13,639
)
1989
Apr-14
   5-30
Carmel Summit
246

San Diego, CA
—

14,968

59,871

3,514

14,968

63,385

78,353

(11,342
)
1989
Apr-14
   5-30
Castle Creek
216

Newcastle, WA
—

4,149

16,028

4,500

4,833

19,844

24,677

(13,953
)
1998
Dec-98
   3-30
Catalina Gardens
128

Los Angeles, CA
—

6,714

26,856

1,485

6,714

28,341

35,055

(5,018
)
1987
Apr-14
   5-30
CBC Apartments & The Sweeps
239

Goleta, CA
—

11,841

45,320

6,556

11,906

51,811

63,717

(24,758
)
1962
Jan-06
   3-30
Cedar Terrace
180

Bellevue, WA
—

5,543

16,442

7,214

5,652

23,547

29,199

(11,598
)
1984
Jan-05
   3-30
CentrePointe
224

San Diego, CA
—

3,405

7,743

21,354

3,442

29,060

32,502

(18,300
)
1974
Jun-97
   3-30
Chestnut Street Apartments
96

Santa Cruz, CA
—

6,582

15,689

1,995

6,582

17,684

24,266

(6,512
)
2002
Jul-08
   3-30
Collins on Pine
76

Seattle, WA
—

7,276

22,226

328

7,276

22,554

29,830

(3,520
)
2013
May-14
   3-30

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, 2018
(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)
Corbella at Juanita Bay
169

Kirkland, WA
—

5,801

17,415

3,165

5,801

20,580

26,381

(6,279
)
1978
Nov-10
   3-30
Cortesia
308

Rancho Santa Margarita, CA
—

13,912

55,649

2,492

13,912

58,141

72,053

(10,430
)
1999
Apr-14
   5-30
Country Villas
180

Oceanside, CA
—

4,174

16,583

5,074

4,187

21,644

25,831

(11,954
)
1976
Dec-02
   3-30
Crow Canyon
400

San Ramon, CA
—

37,579

87,685

9,894

37,579

97,579

135,158

(17,605
)
1992
Apr-14
   5-30
Deer Valley
171

San Rafael, CA
—

21,478

50,116

2,481

21,478

52,597

74,075

(9,580
)
1996
Apr-14
   5-30
Delano
126

Redmond, WA
—

7,470

22,511

1,330

7,470

23,841

31,311

(5,852
)
2005
Dec-11
   3-30
Devonshire
276

Hemet, CA
—

3,470

13,786

4,993

3,482

18,767

22,249

(10,271
)
1988
Dec-02
   3-30
Ellington
220

Bellevue, WA
—

15,066

45,249

3,535

15,066

48,784

63,850

(7,810
)
1994
Jul-14
   3-30
Emerald Pointe
160

Diamond Bar, CA
—

8,458

33,832

1,869

8,458

35,701

44,159

(6,477
)
1989
Apr-14
   5-30
Emerald Ridge
180

Bellevue, WA
—

3,449

7,801

5,871

3,449

13,672

17,121

(10,213
)
1987
Nov-94
   3-30
Emerson Valley Village
144

Los Angeles, CA
—

13,378

53,240

408

13,378

53,648

67,026

(3,861
)
2012
Dec-16
   3-30
Enso
183

San Jose, CA
—

21,397

71,135

1,490

21,397

72,625

94,022

(7,869
)
2014
Dec-15
   3-30
Esplanade
278

San Jose, CA
—

18,170

40,086

13,540

18,429

53,367

71,796

(26,905
)
2002
Apr-04
   3-30
Essex Skyline
349

Santa Ana, CA
—

21,537

146,099

7,313

21,537

153,412

174,949

(35,662
)
2008
Apr-10
   3-30
Evergreen Heights
200

Kirkland, WA
—

3,566

13,395

6,026

3,649

19,338

22,987

(13,793
)
1990
Jun-97
   3-30
Fairway Apartments at Big Canyon (5)  
74

Newport Beach, CA
—

—

7,850

7,923

—

15,773

15,773

(10,717
)
1972
Jun-99
   3-28
Fairwood Pond
194

Renton, WA
—

5,296

15,564

3,800

5,297

19,363

24,660

(9,745
)
1997
Oct-04
   3-30
Foothill Commons
394

Bellevue, WA
—

2,435

9,821

39,812

2,440

49,628

52,068

(42,805
)
1978
Mar-90
   3-30
Foothill Gardens/Twin Creeks
176

San Ramon, CA
—

5,875

13,992

10,803

5,964

24,706

30,670

(16,790
)
1985
Feb-97
   3-30
Forest View
192

Renton, WA
—

3,731

14,530

2,843

3,731

17,373

21,104

(9,071
)
1998
Oct-03
   3-30
Fountain Court
320

Seattle, WA
—

6,702

27,306

12,238

6,585

39,661

46,246

(25,952
)
2000
Mar-00
   3-30
Fourth & U
171

Berkeley, CA
—

8,879

52,351

3,228

8,879

55,579

64,458

(17,580
)
2010
Apr-10
   3-30
Fox Plaza
445

San Francisco, CA
—

39,731

92,706

28,996

39,731

121,702

161,433

(27,308
)
1968
Feb-13
   3-30
The Henley I/The Henley II
215

Glendale, CA
—

6,695

16,753

26,648

6,733

43,363

50,096

(22,504
)
1970
Jun-99
   3-30
Hillsdale Garden
697

San Mateo, CA
—

22,000

94,681

23,237

22,000

117,918

139,918

(53,970
)
1948
Sep-06
   3-30
Hope Ranch
108

Santa Barbara, CA
—

4,078

16,877

2,915

4,208

19,662

23,870

(7,931
)
1965
Mar-07
   3-30
Joule
295

Seattle, WA
—

14,558

69,417

4,872

14,558

74,289

88,847

(24,020
)
2010
Mar-10
   3-30
Kings Road
196

Los Angeles, CA
—

4,023

9,527

19,171

4,031

28,690

32,721

(15,924
)
1979
Jun-97
   3-30
Lafayette Highlands
150

Lafayette, CA
—

17,774

41,473

2,773

17,774

44,246

62,020

(7,883
)
1973
Apr-14
   5-30
Lakeshore Landing
308

San Mateo, CA
—

38,155

89,028

7,166

38,155

96,194

134,349

(18,412
)
1988
Apr-14
   5-30
Laurels at Mill Creek
164

Mill Creek, WA
—

1,559

6,430

7,228

1,595

13,622

15,217

(9,827
)
1981
Dec-96
   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, 2018
(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)
Lawrence Station
336

Sunnyvale, CA
—

45,532

106,735

1,530

45,532

108,265

153,797

(23,222
)
2012
Apr-14
   5-30
Le Parc
140

Santa Clara, CA
—

3,090

7,421

12,694

3,092

20,113

23,205

(15,581
)
1975
Feb-94
   3-30
Marbrisa
202

Long Beach, CA
—

4,700

18,605

9,216

4,760

27,761

32,521

(15,568
)
1987
Sep-02
   3-30
Marina City Club (6)
101

Marina Del Rey, CA
—

—

28,167

29,030

—

57,197

57,197

(26,137
)
1971
Jan-04
   3-30
Marina Cove (7)
292

Santa Clara, CA
—

5,320

16,431

15,312

5,324

31,739

37,063

(24,319
)
1974
Jun-94
   3-30
Mariner's Place
105

Oxnard, CA
—

1,555

6,103

2,464

1,562

8,560

10,122

(5,668
)
1987
May-00
   3-30
MB 360
360

San Francisco, CA
—

21,421

114,376

129,017

42,001

222,813

264,814

(31,219
)
2014
Apr-14
   3-30
Mesa Village
133

Clairemont, CA
—

1,888

7,498

2,336

1,894

9,828

11,722

(5,120
)
1963
Dec-02
   3-30
Mill Creek at Windermere
400

San Ramon, CA
—

29,551

69,032

5,452

29,551

74,484

104,035

(29,077
)
2005
Sep-07
   3-30
Mio
103

San Jose, CA
—

11,012

39,982

438

11,012

40,420

51,432

(4,232
)
2015
Jan-16
   3-30
Mirabella
188

Marina Del Rey, CA
—

6,180

26,673

16,128

6,270

42,711

48,981

(24,505
)
2000
May-00
   3-30
Mira Monte
354

Mira Mesa, CA
—

7,165

28,459

11,509

7,186

39,947

47,133

(23,737
)
1982
Dec-02
   3-30
Miracle Mile/Marbella
236

Los Angeles, CA
—

7,791

23,075

14,830

7,886

37,810

45,696

(26,268
)
1988
Aug-97
   3-30
Mission Hills
282

Oceanside, CA
—

10,099

38,778

7,820

10,167

46,530

56,697

(22,211
)
1984
Jul-05
   3-30
Mission Peaks
453

Fremont, CA
—

46,499

108,498

6,275

46,499

114,773

161,272

(20,332
)
1995
Apr-14
   5-30
Mission Peaks II
336

Fremont, CA
—

31,429

73,334

5,549

31,429

78,883

110,312

(14,566
)
1989
Apr-14
   5-30
Montclaire
390

Sunnyvale, CA
—

4,842

19,776

26,772

4,997

46,393

51,390

(40,215
)
1973
Dec-88
   3-30
Monterey Villas
122

Oxnard, CA
—

2,349

5,579

6,723

2,424

12,227

14,651

(7,958
)
1974
Jul-97
   3-30
Muse
152

North Hollywood, CA
—

7,822

33,436

3,201

7,823

36,636

44,459

(12,606
)
2011
Feb-11
   3-30
Museum Park
117

San Jose, CA
—

13,864

32,348

1,642

13,864

33,990

47,854

(6,180
)
2002
Apr-14
   5-30
Palm Valley
1,098

San Jose, CA
—

133,802

312,205

8,537

133,802

320,742

454,544

(22,477
)
2008
Jan-17
   3-30
Paragon Apartments
301

Fremont, CA
—

32,230

77,320

1,553

32,230

78,873

111,103

(11,935
)
2013
Jul-14
   3-30
Park Catalina
90

Los Angeles, CA
—

4,710

18,839

3,224

4,710

22,063

26,773

(5,926
)
2002
Jun-12
   3-30
Park Hill at Issaquah
245

Issaquah, WA
—

7,284

21,937

8,668

7,284

30,605

37,889

(14,860
)
1999
Feb-99
   3-30
Park Viridian
320

Anaheim, CA
—

15,894

63,574

3,302

15,894

66,876

82,770

(12,099
)
2008
Apr-14
   5-30
Park West
126

San Francisco, CA
—

9,424

21,988

12,288

9,424

34,276

43,700

(9,855
)
1958
Sep-12
   3-30
Parkwood at Mill Creek
240

Mill Creek, WA
—

10,680

42,722

2,808

10,680

45,530

56,210

(8,402
)
1989
Apr-14
   5-30
Pathways at Bixby Village
296

Long Beach, CA
—

4,083

16,757

20,936

6,239

35,537

41,776

(30,520
)
1975
Feb-91
   3-30
Piedmont
396

Bellevue, WA
—

19,848

59,606

11,970

19,848

71,576

91,424

(13,138
)
1969
May-14
   3-30
Pinehurst (8)
28

Ventura, CA
—

—

1,711

648

—

2,359

2,359

(1,359
)
1973
Dec-04
   3-24
Pinnacle Sonata
268

Bothell, WA
—

14,647

58,586

3,398

14,647

61,984

76,631

(11,047
)
2000
Apr-14
   5-30
Pointe at Cupertino
116

Cupertino, CA
—

4,505

17,605

12,182

4,505

29,787

34,292

(17,583
)
1963
Aug-98
   3-30

F- 58
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(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)
Radius
264

Redwood City, CA
—

11,702

152,336

322

11,702

152,658

164,360

(27,287
)
2015
Apr-14
   3-30
Reed Square
100

Sunnyvale, CA
—

6,873

16,037

8,274

6,873

24,311

31,184

(8,840
)
1970
Jan-12
   3-30
Regency at Encino
75

Encino, CA
—

3,184

12,737

3,615

3,184

16,352

19,536

(6,157
)
1989
Dec-09
   3-30
Renaissance at Uptown Orange
460

Orange, CA
—

27,870

111,482

4,959

27,870

116,441

144,311

(20,912
)
2007
Apr-14
   5-30
Reveal
438

Woodland Hills, CA
—

25,073

121,314

1,462

25,073

122,776

147,849

(17,821
)
2010
Apr-15
   3-30
Salmon Run at Perry Creek
132

Bothell, WA
—

3,717

11,483

2,502

3,801

13,901

17,702

(8,211
)
2000
Oct-00
   3-30
Sammamish View
153

Bellevue, WA
—

3,324

7,501

7,056

3,331

14,550

17,881

(12,089
)
1986
Nov-94
   3-30
101 San Fernando
323

San Jose, CA
—

4,173

58,961

11,773

4,173

70,734

74,907

(23,484
)
2001
Jul-10
   3-30
San Marcos
432

Richmond, CA
—

15,563

36,204

32,572

22,866

61,473

84,339

(31,117
)
2003
Nov-03
   3-30
Santee Court/Santee Village
238

Los Angeles, CA
—

9,581

40,317

9,296

9,582

49,612

59,194

(14,575
)
2004
Oct-10
   3-30
Shadow Point
172

Spring Valley, CA
—

2,812

11,170

3,802

2,820

14,964

17,784

(8,108
)
1983
Dec-02
   3-30
Shadowbrook
418

Redmond, WA
—

19,292

77,168

5,001

19,292

82,169

101,461

(14,797
)
1986
Apr-14
   5-30
Slater 116
108

Kirkland, WA
—

7,379

22,138

916

7,379

23,054

30,433

(4,293
)
2013
Sep-13
   3-30
Solstice
280

Sunnyvale, CA
—

34,444

147,262

5,603

34,444

152,865

187,309

(31,396
)
2014
Apr-14
   5-30
Station Park Green - Phase I
121

San Mateo, CA
—

14,923

82,552

553

14,924

83,104

98,028

(2,896
)
2018
Mar-18
3-30
Stonehedge Village
196

Bothell, WA
—

3,167

12,603

7,125

3,201

19,694

22,895

(13,784
)
1986
Oct-97
   3-30
Summit Park
300

San Diego, CA
—

5,959

23,670

7,507

5,977

31,159

37,136

(16,895
)
1972
Dec-02
   3-30
Taylor 28
197

Seattle, WA
—

13,915

57,700

2,913

13,915

60,613

74,528

(10,586
)
2008
Apr-14
   5-30
The Avery
121

Los Angeles, CA
—

6,964

29,922

459

6,964

30,381

37,345

(4,867
)
2014
Mar-14
   3-30
The Bernard
63

Seattle, WA
—

3,699

11,345

715

3,689

12,070

15,759

(3,068
)
2008
Sep-11
   3-30
The Cairns
99

Seattle, WA
—

6,937

20,679

1,965

6,939

22,642

29,581

(8,970
)
2006
Jun-07
   3-30
The Commons
264

Campbell, CA
—

12,555

29,307

8,468

12,556

37,774

50,330

(12,685
)
1973
Jul-10
   3-30
The Elliot at Mukilteo
301

Mukilteo, WA
—

2,498

10,595

16,549

2,824

26,818

29,642

(19,937
)
1981
Jan-97
   3-30
The Grand
243

Oakland, CA
—

4,531

89,208

7,131

4,531

96,339

100,870

(34,186
)
2009
Jan-09
   3-30
The Hallie
292

Pasadena, CA
—

2,202

4,794

54,029

8,385

52,640

61,025

(30,937
)
1972
Apr-97
   3-30
The Lofts at Pinehurst
118

Ventura, CA
—

1,570

3,912

5,102

1,618

8,966

10,584

(5,728
)
1971
Jun-97
   3-30
The Palisades
192

Bellevue, WA
—

1,560

6,242

13,055

1,565

19,292

20,857

(16,842
)
1977
May-90
   3-30
The Stuart
188

Pasadena, CA
—

13,574

54,298

2,321

13,574

56,619

70,193

(10,547
)
2007
Apr-14
   5-30
 The Trails of Redmond
423

Redmond, WA
—

21,930

87,720

5,006

21,930

92,726

114,656

(16,701
)
1985
Apr-14
   5-30
Tierra Vista
404

Oxnard, CA
—

13,652

53,336

5,415

13,661

58,742

72,403

(29,836
)
2001
Jan-01
   3-30
Tiffany Court
101

Los Angeles, CA
—

6,949

27,796

1,687

6,949

29,483

36,432

(5,263
)
1987
Apr-14
   5-30
Trabuco Villas
132

Lake Forest, CA
—

3,638

8,640

3,643

3,890

12,031

15,921

(8,134
)
1985
Oct-97
   3-30

F- 59
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(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)
Via
284

Sunnyvale, CA
—

22,000

82,270

2,908

22,016

85,162

107,178

(24,816
)
2011
Jul-11
   3-30
Villa Siena
272

Costa Mesa, CA
—

13,842

55,367

7,249

13,842

62,616

76,458

(11,592
)
1974
Apr-14
   5-30
Village Green
272

La Habra, CA
—

6,488

36,768

3,826

6,488

40,594

47,082

(7,652
)
1971
Apr-14
   5-30
Vista Belvedere
76

Tiburon, CA
—

5,573

11,901

8,708

5,573

20,609

26,182

(11,033
)
1963
Aug-04
   3-30
Vox Apartments
58

Seattle, WA
—

5,545

16,635

271

5,545

16,906

22,451

(2,936
)
2013
Oct-13
   3-30
Walnut Heights
163

Walnut, CA
—

4,858

19,168

5,383

4,887

24,522

29,409

(12,592
)
1964
Oct-03
   3-30
Wharfside Pointe
155

Seattle, WA
—

2,245

7,020

12,046

2,258

19,053

21,311

(13,796
)
1990
Jun-94
   3-30
Willow Lake
508

San Jose, CA
—

43,194

101,030

14,040

43,194

115,070

158,264

(27,006
)
1989
Oct-12
   3-30
5600 Wilshire
284

Los Angeles, CA
—

30,535

91,604

2,258

30,535

93,862

124,397

(16,636
)
2008
Apr-14
   5-30
Wilshire La Brea
478

Los Angeles, CA
—

56,932

211,998

10,929

56,932

222,927

279,859

(44,801
)
2014
Apr-14
   5-30
Windsor Ridge
216

Sunnyvale, CA
—

4,017

10,315

16,659

4,021

26,970

30,991

(21,175
)
1989
Mar-89
   3-30
Woodland Commons
302

Bellevue, WA
—

2,040

8,727

23,306

2,044

32,029

34,073

(20,855
)
1978
Mar-90
   3-30
Woodside Village
145

Ventura, CA
—

5,331

21,036

4,179

5,341

25,205

30,546

(12,674
)
1987
Dec-04
   3-30
 
35,592

 
$
—

$
1,923,612

$
6,604,680

$
1,352,987

$
1,970,554

$
7,910,725

$
9,881,279

$
(2,329,714
)
 
 
 
 
 
 
 
 
 
 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
 
 
 
 
 
 
 
 
 
 
 
 
 
Derian Office Building
106,716

Irvine, CA
—

3,079

12,315

9,908

4,308

20,994

25,302

(14,119
)
1983
Jul-00
    3-30
 
106,716

 
$
—

$
3,079

$
12,315

$
9,908

$
4,308

$
20,994

$
25,302

$
(14,119
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
1,806,626

$
2,643,228

$
8,881,303

$
1,841,570

$
2,701,356

$
10,664,745

$
13,366,101

$
(3,209,548
)
 
 
 
(1) The aggregate cost for federal income tax purposes is approximately $10.3 billion (unaudited).
(2) A portion of land is leased pursuant to a ground lease expiring 2070.
(3) The land is leased pursuant to a ground lease expiring 2082.
(4) The land is leased pursuant to a ground lease expiring 2070.
(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.

F- 60
ESSEX PROPERTY TRUST, INC. AND SUBSIDIARIES
ESSEX PORTFOLIO, L.P. AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2018
(Dollars in thousands)



A summary of activity for rental properties and accumulated depreciation is as follows:
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Rental properties:
 
 
 
 
 
Accumulated depreciation:
 
 
 
 
 
Balance at beginning of year
$
13,362,073

 
$
12,687,722

 
$
12,338,129

Balance at beginning of year
$
2,769,297

 
$
2,311,546

 
$
1,949,892

Acquisition, development, and improvement of real estate
325,986

 
700,892

 
609,669

Depreciation expense
478,721

 
464,043

 
432,165

Disposition of real estate and other
(321,958
)
 
(28,367
)
 
(264,832
)
Depreciation expense - Disposals and other
(38,470
)
 
(6,292
)
 
(70,511
)
Reclassification from other assets and into building and improvements, net
—

 
1,826

 
4,756

Balance at the end of year
$
3,209,548

 
$
2,769,297

 
$
2,311,546

Balance at the end of year
$
13,366,101

 
$
13,362,073

 
$
12,687,722

 


 


 





F- 61
Table of Contents

EXHIBIT INDEX
Exhibit No.
Document
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Table of Contents

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 

Table of Contents

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.



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 21, 2019 .
 
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
 
Senior 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
 
Senior 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 21, 2019
 
 
 
/S/ KEITH R. GUERICKE
Keith R. Guericke
Director, and Vice Chairman of the Board
 
February 21, 2019
 
 
 
/S/ GEORGE M. MARCUS
George M. Marcus
Director and Chairman of the Board
February 21, 2019
 
 
 
/S/ AMAL M. JOHNSON
Amal M. Johnson

Director
February 21, 2019
 
 
 
/S/ MARY KASARIS
Mary Kasaris


Director
February 21, 2019
 
 
 
/S/ IRVING F. LYONS, III
Irving F. Lyons, III

Director
February 21, 2019
 
 
 
/S/ THOMAS E. ROBINSON
Thomas E. Robinson
Director
February 21, 2019
 
 
 
/S/ BYRON A. SCORDELIS
Byron A. Scordelis
Director
February 21, 2019
 
 
 
/S/ JANICE L. SEARS
Janice L. Sears
Director
February 21, 2019

S-2
Exhibit 3.4

[Seal]
 
State of California
 
March Fong Eu
 
Secretary of State
 
 
Form LP-1
 
CERTIFICATE OF LIMITED PARTNERSHIP

IMPORTANT-Read Instructions on back before completing this form
This Certificate is presented for filing pursuant to Section 15621, California Corporations Code.
  
 
1.
NAME OF LIMITED PARTNERSHIP
 
ESX Partners, L.P.
2.
STREET ADDRESS OF PRINCIPAL EXECUTIVE OFFICE
CITY AND STATE
ZIP CODE
 
777 California Street
Palo Alto, California
94304
3.
STREET ADDRESS OF CALIFORNIA OFFICE IF EXECUTIVE OFFICE IS IN ANOTHER STATE
CITY
ZIP CODE
 
 
CA
 
4.
COMPLETE IF LIMITED PARTNERSHIP WAS FORMED PRIOR TO JULY 1, 1984 AND IS IN EXISTENCE ON DATE THIS CERTIFICATE IS EXECUTED.
 
THE ORIGINAL LIMITED PARTNERSHIP CERTIFICATE WAS RECORDED ON ____________________ 19 ________ WITH THE RECORDER OF _______________________ COUNTY.      FILE OR RECORDATION NUMBER _______________________________
 
5.
NAMES AND ADDRESSES OF ALL GENERAL PARTNERS: (CONTINUE ON SECOND PAGE, IF NECESSARY)


A. NAME:    Essex Property Trust, Inc.
ADDRESS :    777 California Street
CITY:   Palo Alto          STATE:   CA         ZIP CODE: 94304

C. NAME:
ADDRESS:
CITY:                       STATE:                          ZIP CODE:
 
 
 
 
 
B. NAME:
ADDRESS:
CITY:                              STATE:                 ZIP CODE:

D. NAME:
ADDRESS:
CITY:                       STATE:                         ZIP CODE:


 
 
6.
NAME AND ADDRESS OF AGENT FOR SERVICE OF PROCESS:
 
 
 
 
 
 
 
NAME:    Keith R. Guericke
 

 
ADDRESS:      777 California Street

CITY:   Palo Alto   STATE: CA                    ZIP CODE: 94304
7.
ANY OTHER MATTERS TO BE INCLUDED IN THIS CERTIFICATE MAY BE NOTED ON SEPARATE PAGES AND BY REFERENCE HEREIN ARE A PART OF THIS CERTIFICATE.
 
8.
 
INDICATE THE NUMBER OF GENERAL PARTNERS SIGNATURES REQUIRED FOR FILING CERTIFICATES OF AMENDMENT, DISSOLUTION, CONTINUATION AND CANCELLATION.

NUMBER OF PAGES ATTACHED:    0
   
NUMBER OF GENERAL PARTNER(S) SIGNATURE(S) IS/ARE:    1
 
(PLEASE INDICATE NUMBER ONLY)
 
9.  IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(s) WHO EXECUTED THIS CERTIFICATE OF LIMITED PARTNERSHIP WHICH EXECUTION IS MY (OUR) ACT AND DEED. (SEE INSTRUCTIONS)


ESSEX PROPERTY TRUST, INC.
 
 

THIS SPACE FOR FILING OFFICER USE
By: /s/ Keith R. Guericke
 



SIGNATURE   Keith R. Guericke
 
SIGNATURE

9407700013
 



    
President
3/16/94
 




POSITION OR TITLE
DATE
 
POSITION OR TITLE
DATE

FILED
 
 
 
 
 

In the office of the Secretary of State of the State of California
 
 



SIGNATURE
 
SIGNATURE

MAR 17 1994
 
 
 
 
 




 
   


TONY MILLER
POSITION OR TITLE
DATE
 
POSITION OR TITLE
DATE

Acting Secretary of State
         
10.  RETURN ACKNOWLEDGEMENT TO:

By /s/ Tony Miller          
NAME           David S. Fries


ADDRESS    Morrison & Foerster

 
CITY              345 California Street

 
STATE          San Francisco, California 94104-2675

  
ZIP CODE
    
 
SEC/STATE REV. 1/88
FORM LP-1-FILING FEE: $70
Approved by Secretary of State
     
     
 
[Seal]
 
State of California
 
March Fong Eu
 
Secretary of State
 
 
Form LP-2

AMENDMENT TO CERTIFICATE OF LIMITED PARTNERSHIP
IMPORTANT - Read instructions on back before completing this form

This Certificate is presented for filing pursuant to Section 15622, California Corporations Code.

1.
SECRETARY OF STATE FILE NO. (ORIGINAL CERTIFICATE-FORM LP-1)
2.
NAME OF LIMITED PARTNERSHIP
 
94-07700013
 
ESX Partners, L.P.
3.
THE CRETIFICATE OF LIMITED PARTNERSHIP IS AMENDED AS FOLLOWS: (COMPLETE APPROPRIATE SUB-SECTION(S) CONTINUE ON SECOND PAGE, IF NECESSARY).

 
A.
THE LIMITED PARTNERSHIP NAME IS CHANGED TO:      Essex Portfolio, L.P.
 
 
 
 
 
B.
PRINCIPAL EXECUTIVE OFFICE ADDRESS CHANGE:
 
E.
GENERAL PARTNER NAME CHANGE:
 
 
 
 
 
 
 
 
ADDRESS:      777 California Avenue
 
 
OLD NAME:
 
 
 
 
 
 
 
 
CITY:     Palo Alto           STATE:    CA            ZIP CODE: 94304
 
 
NEW NAME:
 
 
 
 
 
 
 
C.
CALIFORNIA OFFICE ADDRESS CHANGE:

F.
GENERAL PARTNER(S) WITHDRAWN:
 
 
 
 
 
 
 
 
ADDRESS:
 
 
NAME:
 
 
 
 
 
 
 
 
CITY:                                 STATE:   CA            ZIP CODE:
 
 
NAME:
 
 
 
 
 
 
 
D.
GENERAL PARTNER ADDRESS CHANGE:
 
G.
GENERAL PARTNER ADDED:
 
 
 
 
 
 
 
 
NAME:   Essex Property Trust, Inc.
 
 
NAME:
 
 
 
 
 
 
 
 
ADDRESS:      777 California Avenue
 
 
ADDRESS:
 
 
 
 
 
 
 
 
CITY: Palo Alto               STATE:    CA            ZIP CODE: 94304
 
 
CITY:                                 STATE:                      ZIP CODE:
 
 
 
 
 
 
 
H.
INFORMATION CONCERNING THE AGENT FOR SERVICE OF PROCESS HAS BEEN CHANGED TO:
 
 
 
 
 
 
 
 
NAME:      Keith R. Guericke
 
 
 
 
 
ADDRESS:      777 California Avenue
 
 
CITY: Palo Alto                STATE :   CA            ZIP CODE: 94304

 
I.
THE NUMBER OF GENERAL PARTNERS REQUIRED TO ACKNOWLEDGE AND FILE CERTIFICATES OF AMENDMENT, DISSOLUTION, CONTINUATION AND CANCELLATION IS CHANGED TO:
 
J.
OTHER MATTERS TO BE INCLUDED IN THE CERTIFICATE OF LIMITED PARTNERSHIP ARE AMENDED AS INDICATED ON THE ATTCHED PAGE(S).
 
 
☐
 
 

 
 
(PLEASE INDICATE NUMBER ONLY)
 
 
NUMBER OF PAGES ATTACHED:    0
 
 
 
 
 
 
4.
IT IS HEREBY DECLARED THAT I AM (WE ARE) THE PERSON(S) WHO EXECUTED THIS AMENDMENT TO THE IDENTIFIED CERTIFICATE OF LIMITED PARTNERSHIP, WHICH EXECUTION IS MY (OUR) ACT AND DEED. (SEE INSTRUCTIONS)
 
 
 
 
ESSEX PROPERTY TRUST, INC.
 
 
 
THIS SPACE FOR FILING OFFICER USE
SIGNATURE
 
SIGNATURE
 
 
By: /s/ Keith R. Guericke
 
 
 
 
9407700013
President
4/14/94
 
 
 
 
 
POSITION OR TITLE
DATE
 
POSITION OR TITLE
DATE
 
FILED
 
 
 
 
 
 
In the office of the Secretary of State of the State of California
 
 
 
 
 
SIGNATURE
 
SIGNATURE
 
APR 18 1994
 
 
 
 
 
 
 
 
  
 
 
 
 
/s/ Tony Miller
POSITION OR TITLE
DATE
 
POSITION OR TITLE
DATE
 
TONY MILLER
 
 
 
 
 
 
ACTING SECRETARY OF STATE
5.    RETURN ACKNOWLEDGEMENT TO:
 
 
NAME           David S. Fries
 
 
ADDRESS     Morrison & Foerster
 
 
CITY               345 California Street
 
 
STATE           San Francisco, California 94104-2675
 
 
ZIP CODE
 
 
SEC/STATE REV. 1/88
FORM LP-2-FILING FEE: $15
Approved by Secretary of State
 
 
 
[Seal]
State of California
 
Secretary of State
 
Bill Jones
ENDORSED - FILED
In the Office of the Secretary of State
of the State of California
OCT 05 2001
 
BILL JONES, Secretary of State
 
This Space For Filing Use Only
AMENDMENT TO CERTIFICATE OF LIMITED PARTNERSHIP
 
A $30.00 filing fee must accompany this form.
IMPORTANT- Read Instructions before completing this form.
 
1.
SECRETARY OF STATE FILE NUMBER
9407700013
2. NAME OF LIMITED PARTNERSHIP
Essex Portfolio, L.P.
3.
COMPLETE ONLY THE BOXES WHERE INFORMATION IS BEING CHANGED. ADDITIONAL PAGES MAY BE ATTACHED, IF NECESSARY.


A.
LIMITED PARTNERSHIP NAME (END THE NAME WITH THE WORDS "LIMITED PARTNERSHIP" OR THE ABBREVIATION "LP.")
 
B.
THE STREET ADDRESS OF THE PRINCIPAL OFFICE
ADDRESS   925 East Meadow Drive
 
 

 
CITY             Palo Alto
STATE   California
ZIP CODE   94303
 
C.
THE STREET ADDRESS IN CALIFORNIA WHERE RECORDS ARE KEPT
 
 
 
 
STREET ADDRESS
 
 

 
CITY
STATE CA
ZIP CODE
 
D.
THE ADDRESS OF GENERAL PARTNER(S)
 
 
 
 
NAME  Essex Property Trust, Inc.
 
 
 
 
ADDRESS   925 East Meadow Drive
 
 

 
CITY             Palo Alto
STATE   California
ZIP CODE   94303

E.
NAME CHANGE OF A GENERAL PARTNER
FROM:
TO:

F.
GENERAL PARTNER(S) CESSATION


 
G.
GENERAL PARTNER ADDED
 
 
 
 
NAME
 
 
 
 
ADDRESS
 
 

 
CITY
STATE
ZIP CODE
 
H.
THE PERSON(S) AUTHORIZED TO WIND UP AFFAIRS OF THE LIMITED PARTNERSHIP
 
 
 
 
NAME
 
 
 
 
ADDRESS
 
 

 
CITY
STATE
ZIP CODE

I.
THE NAME OF THE AGENT FOR SERVICE OF PROCESS    Jordan E. Ritter


 
J.
IF AN INDIVIDUAL, CALIFORNIA ADDRESS OF THE AGENT FOR SERVICE OF PROCESS
 
 
 
 
ADDRESS   925 East Meadow Drive
 
 

 
CITY             Palo Alto
STATE   CA
ZIP CODE   94303

K.
NUMBER OF GENERAL PARTNERS' SIGNATURES REQUIRED FOR FILING CRETIFICATES OF AMENDMENT, RESTATEMENT, MERGER, DISSOLUTION, CONTINUATION AND CANCELLATION.   
☐

L.
OTHER MATTERS (ATTACH ADDITIONAL PAGES, IF NECESSARY).
 
4.
TOTAL NUMBER OF PAGES ATTACHED (IF ANY) N/A
5.
I CERTIFY THAT THE STATEMENTS CONTAINED IN THIS DOCUMENT ARE TRUE AND CORRECT TO MY OWN KNOWLEDGE. I DECLARE THAT I AM THE PERSON WHO IS EXECUTING THIS INSTRUMENT, WHICH EXECUTION IS MY ACT AND DEED.
 
 
 
/s/ Jordan E. Ritter
Senior Vice President of General Partner, of Essex Property Trust, Inc.
 
 
Jordan E. Ritter
   
10/02/01
 
SIGNATURE
POSITION OR TITLE
 
PRINT NAME
DATE
 



 
 
  
  
 

  
 
SIGNATURE
POSITION OR TITLE
 
PRINT NAME
DATE
                
SEC/STATE (REV. 10/98)
FORM LP-2 - FILING FEE: $30.00
Approved by Secretary of State

LP-2
Amendment to Certificate of Limited Partnership (LP)
 
FILED
Secretary of State
State of California
 
FEB 17 2016

This Space For Office Filing Use Only
To change information of record for your LP, fill out this form, and submit for filing along with:
– A $30 filing fee.
–  A separate, non-refundable $15 service fee also must be included, if you drop off the completed form.
Items 3–7: Only fill out the information that is changing . Attach extra pages if you need more space or need to include any other matters.
  
For questions about this form, go to www.sos.ca.gov/business/be/filing-tips.htm
  
1
LP’s File No.  (issued by CA Secretary of State)
2
LP’s Exact Name (on file with CA Secretary of State)
 
199407700013
 
ESSEX PORTFOLIO, L.P.
 
New LP Name
3
   
 
Proposed New LP Name
The new LP name: must end with: "Limited Partnership," "LP," or "L.P.," and may not contain "bank," "insurance," "trust," "trustee," incorporated," "inc.," "corporation," or "corp."
 
New LP Addresses
4
a.
1100 PARK PLACE, SUITE 200
SAN MATEO
CA
94002
   
Street Address of Designated Office in CA
City (no abbreviations)
State
Zip
 
b.
SAME
     
   
Mailing Address of LP, if different from 4a
City (no abbreviations)
State
Zip
           
New Agent/Address for Service of Process (The agent must be a CA resident or qualified 1505 corporation in CA.)
5
a.
 
   
Agent's Name
     
 
b.
1100 PARK PLACE, SUITE 200
SAN MATEO
CA
94002
   
Agent's Street Address  (if agent is not a corporation)
C ity (no abbreviations)
S tate
Z ip
           
General Partner Changes
6
a.
New general partner:
 
     
Name
A ddress
C ity (no abbreviations)
S tate
Z ip
 
b.
Address change:
1100 PARK PLACE, SUITE 200
SAN MATEO
CA
94002
     
Name
N ew Address
C ity (no abbreviations)
S tate
Z ip
 
c.
Name change:
Old name:
   
New name:
 
 
d.
Name of dissociated general partner:
 
 
Dissolved LP (Either check box a or check box b and complete the information. Note: To terminate the LP, also file a Certificate of  Cancellation (Form LP-4/7), available at www.sos.ca.gov/business/be/forms.htm.)
7
a.
☐  The LP is dissolved and wrapping up its affairs.
 
b.
☐   The LP is dissolved and has no general partners. The following person has been appointed to wrap up the affairs
  of the LP:
     
      
N ame
A ddress
C ity (no abbreviations)
S tate
Z ip
               
Read and sign below: This form must be signed by ( 1 ) at least one general partner; ( 2 ) by each person listed in item 6a; and ( 3 ) by each person listed in item 6d if that person has not filed a Certificate of Dissociation (Form LP-101). If item 7b is checked, the person listed must sign. If a trust, association, attorney-in-fact, or any other person not listed above is signing, go to   www.sos.ca.gov/business/be/filing-tips.htm   for more information. If you need more space, attach extra pages that are 1-sided and on standard letter-sized paper (8 1/2" x 11"). All attachments are part of this amendment. Signing this document affirms under penalty of perjury that the stated facts are true.
         
   
(see attached addendum)
 
01/14/2016
Sign here
 
Print your name here
 
Date
         
Sign here
 
Print your name here
 
Date
         
Make check/money order payable to: Secretary of State Upon filing, we will return one (1) uncertified copy of your filed document for free, and will certify the copy upon request and payment of a $5 certification fee.
By Mail
Secretary of State
Business Entities , P.O. Box 944225
Sacramento, CA 94244-2250
Drop-Off
Secretary of State
1500 11th Street, 3rd Floor
Sacramento, CA 95814

ADDENDUM TO
AMENDMENT TO CERTIFICATE OF LIMITED PARTNERSHIP
 ESSEX PORTFOLIO, L.P.

ESSEX PORTFOLIO, L.P.,
 
A California limited partnership
 

 


 
By:
Essex Property Trust, Inc.,
 
 
A Maryland corporation,
 
 
Its General Partner
 

 
By:
/s/ Jordan E. Ritter
 
 
Name:
Jordan E. Ritter
 
 
Title:
Senior Vice President
 

LP-2
Amendment to Certificate of Limited Partnership (LP)
 
FILED
Secretary of State
State of California
 
DEC 04 2018

This Space For Office Use Only
To change information of record for your LP, fill out this form, and submit for filing along with:
– A $30 filing fee.
–  A separate, non-refundable $15 service fee also must be included, if you drop off the completed form.
Items 3–7: Only fill out the information that is changing . Attach extra pages if you need more space or need to include any other matters.
  
For questions about this form, go to www.sos.ca.gov/business/be/filing-tips.htm
  
1
LP’s File No.  (issued by CA Secretary of State)
2
LP’s Exact Name (on file with CA Secretary of State)
 
199407700013
 
ESSEX PORTFOLIO, L.P.
 
New LP Name
3
   
 
Proposed New LP Name
The new LP name: must end with: "Limited Partnership," "LP," or "L.P.," and may not contain "bank," "insurance," "trust," "trustee," incorporated," "inc.," "corporation," or "corp."
 
New LP Addresses
4
a.


CA

   
Street Address of Designated Office in CA
City (no abbreviations)
State
Zip
 
b.

     
   
Mailing Address of LP, if different from 4a
City (no abbreviations)
State
Zip
           
New Agent/Address for Service of Process (The agent must be a CA resident or qualified 1505 corporation in CA.)
5
a.
DANIEL J. ROSENBERG
   
Agent's Name
     
 
b.
1100 PARK PLACE, SUITE 200
SAN MATEO
CA
94403
   
Agent's Street Address  (if agent is not a corporation)
C ity (no abbreviations)
S tate
Z ip
           
General Partner Changes
6
a.
New general partner:
 
     
Name
A ddress
C ity (no abbreviations)
S tate
Z ip
 
b.
Address change:




     
Name
N ew Address
C ity (no abbreviations)
S tate
Z ip
 
c.
Name change:
Old name:
   
New name:
 
 
d.
Name of dissociated general partner:
 
 
Dissolved LP (Either check box a or check box b and complete the information. Note: To terminate the LP, also file a Certificate of  Cancellation (Form LP-4/7), available at www.sos.ca.gov/business/be/forms.htm.)
7
a.
☐  The LP is dissolved and wrapping up its affairs.
 
b.
☐   The LP is dissolved and has no general partners. The following person has been appointed to wrap up the affairs
      of the LP:
     
      
N ame
A ddress
C ity (no abbreviations)
S tate
Z ip
               
Read and sign below: This form must be signed by ( 1 ) at least one general partner; ( 2 ) by each person listed in item 6a; and ( 3 ) by each person listed in item 6d if that person has not filed a Certificate of Dissociation (Form LP-101). If item 7b is checked, the person listed must sign. If a trust, association, attorney-in-fact, or any other person not listed above is signing, go to   www.sos.ca.gov/business/be/filing-tips.htm   for more information. If you need more space, attach extra pages that are 1-sided and on standard letter-sized paper (8 1/2" x 11"). All attachments are part of this amendment. Signing this document affirms under penalty of perjury that the stated facts are true.
         
   
(see attached addendum)
 
Sign here
 
Print your name here
 
Date
         
Sign here
 
Print your name here
 
Date
         
Make check/money order payable to: Secretary of State Upon filing, we will return one (1) uncertified copy of your filed document for free, and will certify the copy upon request and payment of a $5 certification fee.
By Mail
Secretary of State
Business Entities , P.O. Box 944225
Sacramento, CA 94244-2250
Drop-Off
Secretary of State
1500 11th Street, 3rd Floor
Sacramento, CA 95814

ADDENDUM TO
AMENDMENT TO CERTIFICATE OF LIMITED PARTNERSHIP
 ESSEX PORTFOLIO, L.P,
 LP’s FILE NO. 199407700013
SIGNATURE OF GENERAL PARTNER:

Essex Property Trust, Inc.,
A Maryland corporation

By:
/s/ Anne M. Morrison

Date: November 30, 2018
 
Anne M. Morrison


 
Group Vice President











 
 [Seal]  
I hereby certify that the foregoing transcript of 7 page(s) is a full, true and correct copy of the complete record in the custody of the California Secretary of State's office as of this date:
 
 
    Date: Feb 08 2019
       
    /s/ Alex Padilla
    ALEX PADILLA, Secretary of State











Exhibit 10.3





















BRE PROPERTIES, INC.

2005 AMENDED AND RESTATED DEFERRED COMPENSATION PLAN

Effective As Of January 1, 2005

































TABLE OF CONTENTS
ARTICLE 1 ELIGIBILITY AND PARTICIPATION
 
 
1.1 Selection by Committee
 
1
1.2 Deferral Elections
 
1
(a) Initial Election
 
1
(b) Subsequent Elections
 
1
(c) Irrevocability of Deferral Elections
 
1
(d) Applicable Compensation
 
1
1.3 Minimum and Maximum Deferrals
 
1
1.4 Withholding of Deferrals
 
2
 
 
 
ARTICLE 2 ACCOUNTS
 
 
2.1 Accounts
 
2
2.2 Vesting
 
2
2.3 Crediting Earnings on Accounts
 
2
2.4 Investment Elections
 
2
(a) Participants to Elect Investments
 
2
(b) Committee to Prescribe Investment Options
 
2
(c) Committee May Change Investment Options
 
2
 
 
 
ARTICLE 3 DISTRIBUTIONS
 
 
3.1 Unscheduled In Service Withdrawals
 
2
3.2 Scheduled In Service Withdrawals
 
2
3.3 Hardship Distributions
 
2
3.4 Distribution Following Termination of Employment Including Retirement
 
3
(a) Form of Distribution
 
3
(b) Initial Distribution Election
 
3
(c) Subsequent Distribution Elections
 
3
(d) Cashout of Installment Payments
 
4
(e) Acceleration of Payments
 
4
3.5 Distribution Following Death
 
4
3.6 Time for Payment
 
4
 
 
 
ARTICLE 4 BENEFICIARIES
 
 
4.1 Beneficiaries
 
4
4.2 Procedure for Designating Beneficiaries
 
4
4.3 Failure to Designate a Beneficiary
 
4
4.4 Doubt as to Beneficiary
 
4
 
 
 
ARTICLE 5 AMENDMENT OR TERMINATION OF THE PLAN
 
 
5.1 Amendment
 
4
5.2 Termination
 
5
 
 
 
ARTICLE 6 ADMINISTRATION
 
 
6.1 Committee Duties
 
5
6.2 Agents
 
5
6.3 Binding Effect of Decisions
 
5
6.4 Indemnity
 
5
 
 
 
ARTICLE 7 CLAIMS PROCEDURES
 
 
7.1 Claims Normally Not Required
 
5
7.2 Disputes
 
5
7.3 Time for Filing Claims
 
5
7.4 Procedures
 
6
 
 
6
ARTICLE 8 TRUST
 
 
8.1 Establishment of Trust
 
6
8.2 Relationship Between the Plan and the Trust
 
6

i


ARTICLE 9 MISCELLANEOUS
 
 
9.1 Unsecured General Creditor
 
6
9.2 Company's Liability
 
6
9.3 Nonassignability
 
6
9.4 Not a Contract of Employment
 
6
9.5 Furnishing Information
 
6
9.6 Terms
 
6
9.7 Captions
 
6
9.8 Governing Law
 
6
9.9 Validity
 
7
9.10 Notice
 
7
9.11 Successors
 
7
9.12 Spouse's Interest
 
7
9.13 Incompetency
 
7
9.14 Taxes and Withholding
 
7
 
 
 
ARTICLE 10 DEFINITIONS
 
 
10.1 "Account"
 
7
10.2 "Beneficiary"
 
7
10.3 "Beneficiary Designation Form"
 
7
10.4 "Board"
 
7
10.5 "Bonus"
 
7
10.6 "Claimant"
 
8
10.7 "Code"
 
8
10.8 "Committee"
 
8
10.9 "Company"
 
8
10.10 "Compensation"
 
8
10.11 "Deferral"
 
8
10.12 "Election Form"
 
8
10.13 "ERISA"
 
8
10.14 "Participant"
 
8
10.15 "Plan"
 
8
10.16 "Plan Year"
 
8
10.17 "Pre-2005 Deferrals"
 
8
10.18 "Retirement"
 
8
10.19 "Termination of Employment"
 
8
10.20 "Trust"
 
8


ii


BRE PROPERTIES, INC.

2005 AMENDED AND RESTATED DEFERRED COMPENSATION PLAN

Effective As Of January 1, 2005 Preamble

This Plan provides salary reduction deferred compensation benefits to management or highly compensated employees who can contribute materially to the continued growth, development, and future business success of BRE Properties, Inc., and its affiliates. Capitalized terms are defined in the last Article of this Plan. The Plan is intended to be a plan maintained for the purpose of providing deferred compensation to a "select group of management or highly compensated employees" within the meaning of Section 201(2) of ERISA.

As amended and restated effective as of January 1, 2005, this Plan is further intended to meet the requirements of paragraphs (2), (3) and (4) of Section 409A(a) of the Code with respect to Deferrals which do not constitute Pre-2005 Deferrals. As to Pre- 2005 Deferrals, no change effected by this amendment and restatement of the Plan is intended to or shall be construed as materially modifying the terms and conditions of the Plan as in effect prior to January 1, 2005.

The Plan is intended to be exempt from the participation, vesting, funding, and fiduciary requirements of Title I of ERISA. The benefits under this Plan shall be paid out of the general assets of the Company, except to the extent they are paid from the assets of a Trust established by the Company to pay these benefits. No Participant shall have any interest whatsoever in any specific asset of the Company or its affiliates. To the extent that any person acquires a right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company.

Article 1
Eligibility and Participation

1.1
Selection by Committee . Participation in the Plan is limited to management or highly compensated employees of the Company that hold the title "Vice President," or a more senior title. If you are eligible to participate in the Plan, you will become a Participant on the date specified by the Committee. If the Committee thereafter elects to discontinue your active participation in the Plan, you will cease to be eligible to make further Deferrals beginning with the Plan Year following the Plan Year in which the Committee makes such election, but you will remain a Participant and retain all your other rights under this Plan.

1.2
Deferral Elections.

a. Initial Election . To commence Deferrals after first being selected to become a Participant, you must make an initial Deferral election within 30 days after the date on which you were selected to become a Participant by delivering to the Committee a completed and signed Election Form, which will become effective as of the date the Committee prescribes after its receipt of the Form or the first day of the next Plan Year, if earlier.

b. Subsequent Elections . For any succeeding Plan Year in which you wish to make or change the amount of your Deferrals, you must file a new Election Form with the Committee by December 1, or such other date as determined by the Committee, before the Plan Year for which the election is made. Your new Election Form will be effective with your first payroll period in the new Plan Year.

c. Irrevocability of Deferral Elections . Except as provided in subsection (b) above, or pursuant to Sections 3.1 or 3.3, Deferral elections are irrevocable and cannot be changed.

d. Applicable Compensation or Bonus . Your Election Form will be effective only with regard to Compensation and Bonuses for services performed after the effective date of the Election Form as established under this Section 1.2. In any case where an amount of Compensation, or Bonus, is paid after the effective date of your Election Form but in whole or in part for services performed before the effective date, any Deferral from such amount will be determined based on your Election Form which was last in effect before any part of such services were performed, if any, except to the extent the Committee otherwise determines would be consistent with the requirements of paragraph (4) of Section 409A(a) of the Code.

1.3
Maximum Deferrals . The maximum amount that you may elect to defer during a Plan Year is 25 percent of the Compensation and 50 percent of the Bonus you would otherwise have earned during the Plan Year, except as limited pursuant to Section 9.14.

1


1.4
Withholding of Deferrals . Your Deferrals will be withheld from your Compensation and Bonus in accordance with your Election Form, subject to any rules established by the Committee prescribing how Deferrals are to be withheld.

Article 2
Accounts

2.1
Accounts . For recordkeeping purposes only, a separate Account will be maintained for you and each other Participant. In connection with the maintenance of such Account, the amount of your Pre-2005 Deferrals, if any, and any amounts attributable to any Pre-2005 Deferrals, will be separately identified. Participants will receive periodic Account statements.

2.2
Vesting . All Accounts are fully vested at all times. The only reasons you could forfeit all or a portion of your Account would be if you choose to resolve a dispute relating to the Plan other than under the Plan's claim procedures (see Section 7.4), elect to make an early withdrawal subject to early withdrawal penalties pursuant to Section 3.1, or in the event of the Company’s insolvency.

2.3
Crediting Earnings on Accounts . Earnings will be credited (or debited, as the case may be) to your Account based on your investment election under Section 2.4. Deferrals shall be credited to your Account when they are invested. For purposes of determining earnings of your Account, your Deferrals will be deemed to be invested as of the date your Deferrals are credited to your Account up to the date of distribution. The Committee retains the discretion to make adjustments for earnings after the date of distribution, but before the Participant receives such distribution, as they may deem necessary.

2.4
Investment Elections .

a. Participants to Elect Investments . In accordance with rules prescribed by the Committee, you will be entitled to elect the form of investment that will apply to your Account from among the options made available by the Committee. You may change your election to the extent, in the manner, and at such times as the Committee prescribes. To the extent that you fail to elect a then available investment option, the investment option then specified by the Committee will be applied.

b. Committee to Prescribe Investment Options . The Committee will offer Participants one or more investment options. The Committee may offer different options to different groups of Participants.

c. Committee May Change Investment Options . The Committee may add or discontinue investment options, but no change shall become effective until at least 30 days after the Committee has made a good faith effort to give Participants advance written notice of the change and an opportunity to make new investment elections.

Article 3
Distributions

3.1
Unscheduled In Service Withdrawals . You may at any time elect to withdraw all of the balance then credited to your Account attributable to Pre-2005 Deferrals, less a 10 percent withdrawal penalty. For the succeeding two Plan Years, you may not make any Deferrals under this Plan.

3.2
Scheduled In Service Withdrawals . When making a Deferral election for a Plan Year, you may elect to schedule a withdrawal of the undistributed portion of your Account. This election may only be made with your Deferral election, and may not be changed. The scheduled distribution date must be at least two years after the date you elect the scheduled in service withdrawal. Your future scheduled in service withdrawal elections will become void when your Company employment ends, and the balance in your Account will thereafter be distributed in accordance with this Article. No scheduled in service withdrawals shall be allowed of amounts attributable to Deferrals other than Pre-2005 Deferrals.

3.3
Hardship Distributions . Upon a finding that you have suffered a severe financial hardship due to an unforeseeable emergency, you shall cease Deferrals, and, if necessary, the Committee may make distributions from your Account prior to the time specified for payment of benefits under the Plan. The amount of such Hardship Distribution will be limited to the amount reasonably necessary to meet your requirements during the financial hardship. For purposes of this Plan, a severe financial hardship due to an unforeseeable emergency may result from an illness or accident, including an illness or accident involving you, your spouse, beneficiary, or dependent (as defined in Code Section

2


152, without regard to Section 152(b)(1), (b)(2), and (d)(l )(B)), loss of your property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond your control. Examples of an unforeseeable emergency include the imminent foreclosure or eviction from your primary residence, the need to rebuild a home following damage to a home not otherwise covered by insurance, the need to pay for medical expenses (including non-refundable deductibles) including the costs of prescription drug medication, or the need to pay for the funeral expenses of a spouse, beneficiary, or dependent (as defined in Code Section 152, without regard to Section 152(b)(1), (b)(2), and (d)(l )(B)). Examples of what are not considered unforeseeable emergencies include the purchase of a home and payment of college tuition. The circumstances that will constitute the unforeseeable emergency will depend on the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved:

a. Through reimbursement or compensation by insurance or otherwise,

b. By liquidation of the your assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or

c. By cessation of Deferrals under the Plan.

The Committee shall be entitled to rely on the truthfulness of facts and representations set forth by you in this request without the need for independent certification. For the balance of the Plan Year in which the you cease Deferrals or receive a Hardship Distributions, and for the succeeding Plan Year, you may not make any Deferrals under this Plan.

3.4
Distribution Following Termination of Employment Including Retirement .

a. Form of Distribution . Following your Termination of Employment, you will be paid that portion of your Account attributable to Pre-2005 Deferrals as a lump sum payment. Following your Retirement, you will be paid that portion of your Account attributable to Pre-2005 Deferrals in accordance with the distribution method you have elected. Following your Termination of Employment, including Retirement, you will be paid that portion of your Account not attributable to Pre-2005 Deferrals in accordance with the distribution method you have elected.

b. Initial Distribution Election . On your initial Election Form, you may elect to receive distributions in either a lump sum or in 5, 10, or 15 annual installment payments (or other installments, as determined by the Committee); if you fail to make a valid election, you will be deemed to have elected lump sum. The amount of each installment payment will be determined by multiplying the balance then credited to your Account by a fraction, the numerator of which is 1 and the denominator of which is the number of unpaid installment payments (i.e., if you elect to receive 15 installments, the first 5 installments would be 1/15th, 1/14th, 1/13th, 1/12th, and 1/11th of the balance credited to your Account just before each installment (distribution is made).

c. Subsequent Distribution Elections .

i. Pre-2005 Deferrals . You may change your post Retirement distribution election with respect to that portion of your Account attributable to Pre-2005 Deferrals by filing a new Election Form. Any new Election Form filed in accordance with this Section 3.4(c)(i) will not take effect unless it is filed with the Committee at least 365 days before the date of your Retirement.

ii. Other Deferrals.

(A) During calendar year 2005 only, you may change your distribution election with respect to that portion of your Account not attributable to Pre-2005 Deferrals by filing a new Election Form. Any new Election Form filed in accordance with this subparagraph will be immediately effective.

(B) After calendar year 2005, you may only change your distribution election with respect to that portion of your Account not attributable to Pre-2005 Deferrals by electing on a new Election Form any form of payment permitted under Section 3.4(b) if you file the new Election Form with the Committee at least 12 months before the payment otherwise due you would be made and such election shall not take effect until at least 12 months after the date on which the election is made. Where such a new Election Form becomes effective, it will determine the time and form of the payment of all of that portion of your Account not attributable to Pre-2005 Deferrals. The first

3


payment to be made in connection with the filing of a new Election Form in accordance with this subparagraph may not be made until the fifth anniversary of the date on which the payment would otherwise have been made pursuant to your prior Election Form.

d. Cashout of Installment Payments . After installment payments to you of amounts attributable to your Pre-2005 Deferrals commence, you may at any time elect to receive a lump sum payment of the balance then credited to your Account attributable to Pre-2005 Deferrals, less a 10 percent early withdrawal penalty. You may not accelerate installment payments of amounts attributable to other Deferrals.

e. Acceleration of Payments . The Committee may unilaterally accelerate distributions of balances in Participants’ respective Accounts attributable to Pre-2005 Deferrals at any time for any reason except to the extent any such acceleration would result in such amounts becoming subject to the requirements of paragraphs (2), (3) and (4) of the Section 409A of the Code. For example, if the Plan is terminated, subject to the proviso concerning Section 409A of the Code, the Committee may distribute the balance then credited to your Account attributable to Pre-2005 Deferrals in a lump sum. Similarly, subject to the proviso concerning Section 409A of the Code, the Committee may elect to accelerate your installment payments if the amount in your Account attributable to Pre-2005 Deferrals is $25,000 or less. The Committee may likewise unilaterally accelerate distribution of the balance of your Account not attributable to Pre-2005 Deferrals at any time for any reason, but only if and to the extent permitted under paragraphs (2), (3) and (4) of Section 409A(a) of the Code.

3.5
Distribution Following Death . The amount in your Account will be paid to your Beneficiary, as determined under Article 4, in lump sum.

3.6
Time for Payment . Unless otherwise specified herein, payments under this Article will be made or commenced on the first day of the seventh month following your Termination of Employment (including Retirement), and on the 60th day following an unscheduled withdrawal election, scheduled distribution date, or your death, whichever is applicable.

Article 4
Beneficiaries

4.1
Beneficiaries . You will have the right, at any time, to designate Beneficiaries (both primary as well as contingent) to receive any benefits payable under the Plan after your death. You may designate the same or different Beneficiaries under this Plan as you designate under any other Company program in which you participate.

4.2
Procedure for Designating Beneficiaries . To designate your Beneficiaries, you must complete and sign a Beneficiary Designation Form and file it with the Committee. You may change your Beneficiaries by completing and signing a new Beneficiary Designation Form and filing it with the Committee. If you are married and name someone other than your then current spouse as a Beneficiary, your spouse must consent by signing the Beneficiary Designation Form unless the Committee, in its sole discretion, waives this spousal consent requirement. On filing with the Committee a properly executed new Beneficiary Designation Form, all of your previously filed Beneficiary designations will be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form you filed prior to your death.

4.3
Failure to Designate a Beneficiary . If you fail to designate a Beneficiary or no designated Beneficiary is then alive and can be located to receive Plan distributions on account of your death, your Beneficiary will be deemed to be your surviving spouse or, if none, your estate.

4.4
Doubt as to Beneficiary . Notwithstanding any other Plan provision, if the Committee has any doubt as to your proper Beneficiary, the Committee may, in its discretion, withhold payments until the matter is resolved to the Committee's satisfaction.

Article 5
Amendment Or Termination Of The Plan

5.1
Amendment . The Company (acting through its Board or other persons as the Board may designate) may amend the Plan in whole or in part, but no amendment may materially decrease the rights you or your Beneficiary have under this Plan, nor may the protections set forth in this sentence be materially reduced by means of a Plan amendment. Notwithstanding the foregoing, the Plan may be amended by the Company (acting through its Board or other

4


persons as the Board may designate), retroactively if required, if found necessary, in the opinion of the Company, in order to ensure that the Plan:

a. is characterized as a plan of deferred compensation maintained for a select group of employees as described under ERISA Section 201(2),

b. as to amounts attributable to Pre-2005 Deferrals, has not been not materially modified after October 3, 2004, and

c. as to amounts not attributable to Pre-2005 Deferrals, meets the requirements of paragraphs (2), (3) and (4) of Section 409A(a) of the Code.

5.2
Termination . The Company (acting through its Board or other persons as the Board may designate) reserves the right to terminate the Plan at any time. However, the Company may not terminate the Plan in any manner that would cause the Plan to fail to comply with the requirements of Code Section 409A. Any distribution on account of Plan termination that permits acceleration of payment shall be consistent with Final Treasury Regulation Section l.409A- 3(j)(4)(ix) or successor guidance thereto.

Article 6
Administration

6.1
Committee Duties . This Plan will be administered by the Compensation Committee of the Board, or other persons as the Compensation Committee may designate. The Board may also, in its sole discretion, appoint additional members of the Committee. The Committee shall have the discretion and authority to make, amend, interpret and enforce all appropriate rules and regulations for the administration of this Plan and decide or resolve any and all questions, including interpretations of this Plan, as may arise in connection with the Plan, including questions that may affect their own personal interests under the Plan.

6.2
Agents . In the administration of this Plan, the Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit and may, from time to time, consult with counsel who may be counsel to the Company.

6.3
Binding Effect of Decisions . The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan shall be final, conclusive, and binding on all persons having any interest in the Plan.

6.4
Indemnity . The Company shall indemnify and hold harmless each member of its Board, each member of the Committee, and any other person or persons (other than a corporate trustee) to whom any duty with respect to the Plan is allocated or delegated, from and against any and all liabilities, damages, claims, demands, losses, costs, or expenses, including reasonable attorneys fees, arising out of or as a result of the performance or nonperformance of their duties under the Plan or applicable law, other than such liabilities, damages, claims, demands, losses, costs, and expenses for which indemnification is prohibited by law.

Article 7
Claims Procedures

7.1
Claims Normally Not Required . Normally, you do not need to present a formal claim to receive benefits payable under this Plan.

7.2
Disputes . If any person (Claimant) believes that benefits are being denied improperly, that the Plan is not being operated properly, that any person has breached his, her, or its duties under the Plan, or that the Claimant's legal rights are being violated with respect to the Plan, the Claimant must file a formal claim with the Committee. This requirement applies to all claims that any Claimant has with respect to the Plan, except to the extent the Committee determines, in its sole discretion, that it does not have the power to grant all relief reasonably being sought by the Claimant.

7.3
Time for Filing Claims . A formal claim must be filed within 90 days after the date the Claimant first knew or should have known of the facts on which the claim is based, unless the Committee in writing consents otherwise. The Committee shall provide a Claimant, on request, with a copy of the claims procedures established under Section 7.4.

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7.4
Procedures . If and when needed, or before then, the Committee shall adopt procedures for considering claims, which it may amend from time to time, as it sees fit. These procedures shall comply with all applicable legal requirements. These procedures may provide that final and binding arbitration will be the ultimate means of contesting a denied claim (even if the Committee or its delegates have failed to follow the prescribed procedures with respect to the claim). The right to receive benefits under this Plan is contingent on a Claimant using the prescribed claims and arbitration procedures to resolve any claim. Therefore, if a Claimant (or his or her successor or assign) seeks to resolve any claim by any means other than the prescribed claims and arbitration provisions, he or she must repay all benefits received under this Plan and will not be entitled to any further Plan benefits.

Article 8
Trust

8.1
Establishment of Trust . At its discretion, the Company may establish a Trust, with such trustees as the Board may approve, for the purpose of providing for the payment of Plan benefits. Such Trust may be irrevocable, but the assets of the Trust will be general assets of the Company subject to the claims of its general creditors. If the Company establishes a Trust, it shall transfer to the Trust an amount equal to the Deferrals credited to Accounts when such amounts are credited. The Company shall transfer to the Trust any additional amounts, if any, as the Committee, in its sole discretion, determines to be appropriate.

8.2
Relationship Between the Plan and the Trust . The provisions of the Plan shall govern your right to receive distributions pursuant to the Plan. The provisions of the Trust shall govern your right to Trust assets. The Company shall at all times remain liable to carry out its obligations under the Plan.

Article 9
Miscellaneous

9.1
Unsecured General Creditor . Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of the Company. The Company's obligation under the Plan is merely an unfunded and unsecured promise to pay money in the future.

9.2
Company’s Liability . The Company shall be liable for all benefits due under the Plan except to the extent they are paid by a Trust.

9.3
Nonassignability . Neither you nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt, the amounts, if any, payable under this Plan, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. Except pursuant to Section 2.2 or a domestic relations order, unpaid Plan benefits shall not be subject to seizure or sequestration for the payment of any debts, judgments, alimony, separate maintenance, or family support owed by you or any other person, nor be transferable by operation of law in the event of your or any other person's bankruptcy or insolvency.

9.4
Not a Contract of Employment . This Plan shall not be deemed to constitute a contract of employment between you and the Company. Nothing in this Plan gives you the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge you at any time.

9.5
Furnishing Information . You must cooperate with the Committee by furnishing all information and by taking any other actions it requests, including taking physical examinations.

9.6
Terms . Wherever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

9.7
Captions . The captions in this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

9.8
Governing Law . Except to the extent preempted by the Employee Retirement Income Security Act of 1974, as amended, this Plan shall be construed and interpreted according to the laws of the State of California without regard to its conflicts of laws principles.


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9.9
Validity . The illegality or invalidity of any Plan provision shall not affect the other provisions of the Plan.

9.10
Notice . Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient in writing and hand-delivered, or sent by registered or certified mail, to the address shown below (or such other address or telefax number specified in notice given specified in notice given pursuant to this Section): Chief Financial Officer, BRE Properties, Inc., 44 Montgomery Street 36th Floor San Francisco, CA 94104 Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

9.11
Successors . The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns and the Participant, his or her Beneficiary and their permitted successors and assigns. If the Company sells or transfers all or a portion of its business in a bona fide arms' length transaction and you cease to be employed by the Company in connection with the transaction, the Company (acting through its Board or other persons as the Board may designate) may assign to the buyer or transferee its obligations to you under this Plan, after which the Company shall cease to have any further obligations to you under the Plan.

9.12
Spouse's Interest . The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by the spouse in any manner, including under the spouse's will or the laws of intestate succession.

9.13
Incompetency . If a benefit under this Plan is to be paid to a person declared incompetent or to a person incapable of handling the disposition of his or her property, the Committee may direct payment of the benefit to the guardian, legal representative, or person having the care and custody of the incompetent or incapable person. The Committee may require proof of incompetency, incapacity, or guardianship, as it may deem appropriate, prior to distribution of the benefit. Any payment of a benefit shall be a payment for the Participant or his or her Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for the payment.

9.14
Taxes and Withholding . For each Plan Year in which Deferrals are being withheld, the Company shall withhold from that portion of the Participant's Compensation that is not being deferred, the Participant's share of FICA and other employment taxes. If necessary, the Committee shall reduce a Participant's Deferrals in order to comply with this Section. The Company (or the trustee of the Trust) shall withhold from benefits distributed under the Plan all federal, state and local income, employment, and other taxes required to be withheld by applicable law.

Article 10
Definitions

Unless otherwise clearly apparent from the context, the following phrases or terms used in this Plan shall have the meanings set forth below:

10.1
"Account" shall mean, as to a Participant, his or her Deferrals and any Company contributions credited to the Participant, adjusted for earnings and reduced by distributions to the Participant (including any taxes withheld from distributions). As to a Beneficiary, the term "Account" shall mean the portion of the Participant's Account initially payable to the Beneficiary, adjusted for earnings and reduced by distributions to the Beneficiary (including any taxes withheld from distributions). Accounts are bookkeeping entries utilized solely to determine the amounts payable to Participants and Beneficiaries pursuant to this Plan.

10.2
"Beneficiary" shall mean one or more persons, trusts, estates or other entities, designated or determined in accordance with Article 4 to receive benefits under this Plan on the death of a Participant.

10.3
"Beneficiary Designation Form" shall mean the form prescribed by the Committee that a Participant completes, signs, and files with the Committee to designate Beneficiaries.

10.4
"Board" shall mean the Board of Directors of BRE Properties, Inc.

10.5
"Bonus" shall mean any amounts, other than Compensation, paid in a Plan Year to a Participant that the Committee so designates as a Bonus, for employment services rendered to the Company, before reduction for amounts contributed to or deferred under any Company benefit plan and excluding any severance benefits.

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10.6
"Claimant" shall have the meaning set forth in Section 7.2.

10.7
"Code" shall mean the Internal Revenue Code of 1986, as amended.

10.8
"Committee" shall mean the administrative committee appointed to manage and administer the Plan in accordance with Article 6, or any agent it designates.

10.9
"Company" shall mean BRE Properties, Inc., and all its affiliates as determined by the Committee, and their successors. However, as to all Plan provisions giving the Company powers and duties, the term "Company" only refers to BRE Properties, Inc., or its successor.

10.10
"Compensation" shall mean base salary paid in the Plan Year in question to a Participant for employment services rendered to the Company, before reduction for amounts contributed to or deferred under any Company benefit plan and excluding any severance benefits. "Compensation" also includes any amounts distributed to a Participant in the Plan Year in question from a company sponsored qualified retirement plan to comply with Code nondiscrimination requirements or benefit limits.

10.11
"Deferral" shall mean Compensation and Bonus that a Participant defers in accordance with Article 1.

10.12
"Election Form" shall mean the form prescribed by the Committee that a Participant completes, signs, and files with the Committee to elect to make Deferrals under the Plan.

10.13
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

10.14
"Participant" shall mean any current or former employee of the Company who is then eligible to make Deferrals or who has any amount credited to his or her Account.

10.15
"Plan" shall mean the BRE Properties, Inc. Deferred Compensation Plan, as set forth in this document, as amended from time to time.

10.16
"Plan Year" shall mean the calendar year.

10.17
"Pre-2005 Deferrals" shall mean a Participant's Deferrals made prior to January 1, 2005, if and to the extent such amounts are not subject to the requirements of paragraphs (2), (3) and (4) of Section 409A(a) of the Code assuming the Plan is not materially modified as to those Deferrals after October 3, 2004.

10.18
"Retirement" shall mean a Participant's termination of Company employment (other than by death) after attaining age 65. "Retirement" also means a Participant's commencement of a long term disability absence, the date of which shall be the date on which the Participant first receives benefits under a Company long-term disability plan (or the date on which the Participant would have qualified for benefits under such a plan had he or she been covered by it, as determined by the Committee). As to any portion of an Account not attributable to Pre-2005 Deferrals, however, a Participant shall not be considered to have entered Retirement on account of disability unless the Participant is considered disabled within the meaning of Section 409A(a)(2)(C) of the Code. Notwithstanding any other Plan provision, if a disabled Participant returns to substantially full time employment with the Company while distributions from the Plan are still being made, except to the extent prohibited by the requirements of paragraphs (2), (3) and (4) of Section 409A(a) of the Code, distributions shall cease, but the remaining balance of the Participant's Account shall be held for future payment in accordance with Article 3.

10.19
"Termination of Employment" shall mean a Participant's termination of Company employment (other than by death) for any reason.

10.20
"Trust" shall mean a "rabbi" trust, as that term is defined in Revenue Procedure 92-64, 1992-2 C.B. 422, that may be established at the Company's discretion to pay Plan benefits. Despite the existence of a Trust, this Plan is technically an unfunded plan for all legal purposes.





8



AMENDMENT NUMBER 1

BRE PROPERTIES, INC.

2005 AMENDED AND RESTATED DEFERRED COMPENSATION PLAN
Effective as of January 1, 2005


WHEREAS, BRE Properties, Inc. ("Company") has established the BRE Properties, Inc. 2005 Amended and Restated Deferred Compensation Plan, Effective As of January 1, 2005 (the "Plan").

WHEREAS, Section 5.1 of the Plan reserves to the Company, acting through its Board of Directors or other persons as the Board may designate, the right to amend the Plan.

The Company desires to amend the Plan as follows:

Section 1.1 shall be amended in its entirety to read:

1.1
Selection by Committee . Prior to May 1, 2010, participation in the Plan was limited to management or highly compensated employees of the Company that held the title "Vice President," or a more senior title. Effective May 1, 2010, participation in the Plan is limited to management or highly compensated employees of the Company that hold the title "Director," or a more senior title. If you are eligible to participate in the Plan, you will become a Participant on the date specified by the Committee. If the Committee thereafter elects to discontinue your active participation in the Plan, you will cease to be eligible to make further Deferrals beginning with the Plan Year following the Plan Year in which the Committee makes such election, but you will remain a Participant and retain all your other rights under this Plan.

IN WITNESS WHEREOF, the Company has caused this Amendment Number 1 to be executed this 18th day of May, 2010.

BRE PROPERTIES, INC.

By: /s/ Constance B. Moore
Constance B. Moore, Chief Executive Officer

Amendment No 1 to Deferred Compensation Plan May 2010



SECOND AMENDMENT TO THE

BRE PROPERTIES, INC.

2005 AMENDED AND RESTATED

DEFERRED COMPENSATION PLAN

Effective As Of January 1, 2005

The BRE Properties, Inc. 2005 Amended and Restated Deferred Compensation Plan Effective As Of January 1, 2005 is hereby amended effective January 1, 2015 as follows:

1.
The name of the Plan shall be changed to Essex Property Trust, Inc. Deferred Compensation Plan.

2.
Section 1.1 shall be amended to add at the end of the section:

Those employees of Essex Property Trust, Inc. who, prior to January 1, 2015, participated in the Essex Portfolio, LP. 2005 Deferred Compensation Plan shall be Participants in this Plan

All other terms and conditions of the Plan shall remain unchanged.

IN WITNESS WHEREOF, the undersigned has affixed his/her signature this 17 day of November, 2014.

ESSEX PROPERTY TRUST, INC.

By: /s/ Michael T. Dance
Chief Executive Officer



THIRD AMENDMENT TO THE

ESSEX PROPERTY TRUST, INC.

DEFERRED COMPENSATION PLAN

The Essex Property Trust, Inc. Deferred Compensation Plan ("Plan") is hereby clarified as follows:

1.
The Plan is hereby clarified by removing the last sentence from Plan Section 3.2, "No scheduled in service withdrawals shall be allowed of amounts attributable to Deferrals other than Pre-2005 Deferrals." , as such sentence was not intended to be a part of the Plan.

2.
The Plan is hereby clarified by correcting a typographical error in Plan Section 5.l(b) so that it reads as follows: "as to amounts attributable to Pre-2005 Deferrals, has not been materially modified after October 3, 2004, and".

All other terms and conditions of the Plan shall remain unchanged.

IN WITNESS WHEREOF, the undersigned has affixed his/her signature this 9th day of December, 2016.

ESSEX PROPERTY TRUST, INC.

By: /s/ Deborah Jones
Its: Senior Vice President, Human Resources


 Exhibit 10.4

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the _____ day of __________, 20____, by and between Essex Property Trust, Inc., a Maryland corporation (the “Company”), and ________________________ (“Indemnitee”).

WHEREAS, at the request of the Company, Indemnitee currently serves as a director and/or an officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of such   service;

WHEREAS, as an inducement to Indemnitee to serve or continue to serve in such capacity, the Company has agreed to indemnify Indemnitee and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law;

WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses; and

WHEREAS, if the Indemnitee has previously entered into an indemnification agreement (a “Prior Agreement”) with the Company with respect to the indemnification provided by the Company’s charter (the “Charter”) and amended and restated bylaws, as amended from time to time (the “Bylaws”) (the form of such Prior Agreement was filed as exhibit 99.1 to the Company’s Current Report on Form 8-K, filed with the U.S. Securities and Exchange Commission on February 25, 2011 (SEC File No. 001-13106)), this Agreement is intended to entirely supersede, amend and replace such Prior Agreement.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1.            Definitions .  For purposes of this Agreement:

(a)            “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if, after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person’s attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not individuals (A) who were directors as of the Effective Date or (B) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative vote of at least two-thirds of the directors then in office who were directors as of the Effective Date or whose election or nomination for election was previously so approved.

(b)            “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company.  As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company: (i) if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any corporation, partnership, limited liability company, joint venture, trust or other enterprise (1) of which a majority of the voting power or equity interest is or was owned directly or indirectly by the Company or (2) the management of which is controlled directly or indirectly by the Company and (ii) if, as a result of Indemnitee’s service to the Company or any of its affiliated entities, Indemnitee is subject to duties by, or required to perform services for, an employee benefit plan or its participants or beneficiaries, including as a deemed fiduciary thereof.

(c)            “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee.

(d)            “Effective Date” means the date set forth in the first paragraph of this Agreement.

(e)            “Expenses” means any and all reasonable and out-of-pocket attorneys’ fees and costs, retainers, court costs, arbitration and mediation costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties and any other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding.  Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding, including, without limitation, the premium for, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent.

(f)            “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

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(g)            “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, claim, demand or discovery request or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee, or if it would have been covered by a Prior Agreement.  If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a Proceeding.

Section 2.            Services by Indemnitee .  Indemnitee serves or will serve in the capacity or capacities set forth in the first WHEREAS clause above.  However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company.  This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee.

Section 3.            General .  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date.  The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by the Maryland General Corporation Law (the “MGCL”), including, without limitation, Section 2-418 of the MGCL.  In addition, the Company shall indemnify Indemnitee’s spouse (whether by statute or at common law and without regard to the location of the governing jurisdiction) and children to the same extent and subject to the same limitations applicable to Indemnitee hereunder for claims arising out of the status of such person as a spouse or child of Indemnitee, including claims seeking damages from marital property (including community property) or property held by such Indemnitee and such spouse or child or property transferred to such spouse or child but such indemnity shall not otherwise extend to protect the spouse or child against liabilities caused by the spouse’s or child’s own acts.

Section 4.            Standard for Indemnification .  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any such Proceeding unless it is established that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.

-3-
Section 5.            Certain Limits on Indemnification .  Notwithstanding any other provision of this Agreement (other than Section 6), Indemnitee shall not be entitled to:

(a)            indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is adjudged, in a final adjudication of the Proceeding not subject to further appeal, to be liable to the Company;

(b)            indemnification hereunder if Indemnitee is adjudged, in a final adjudication of the Proceeding not subject to further appeal, to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in Indemnitee’s Corporate Status; or

(c)            indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee, unless: (i) the Proceeding was brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Section 12 of this Agreement, or (ii) the Company’s Charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise.

Section 6.            Court-Ordered Indemnification .  Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification of Indemnitee by the Company in the following circumstances:

(a)            if such court determines that Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or

(b)            if such court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2-418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper without regard to any limitation on such court-ordered indemnification contemplated by Section 2-418(d)(2)(ii) of the MGCL.

Section 7.            Indemnification for Expenses of an Indemnitee Who is Wholly or Partially Successful .  Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is, by reason of Indemnitee’s Corporate Status, made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, the Company shall indemnify Indemnitee for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section 7 and, without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

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Section 8.            Advance of Expenses for Indemnitee .  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding.  The Company shall make such advance within ten days after the receipt by the Company of a statement or statements requesting such advance from time to time, whether prior to or after final disposition of such Proceeding, which advance may be in the form of, in the reasonable discretion of Indemnitee (but without duplication), (a) payment of such Expenses directly to third parties on behalf of Indemnitee, (b) advance of funds to Indemnitee in an amount sufficient to pay such Expenses or (c) reimbursement to Indemnitee for Indemnitee’s payment of such Expenses.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor.

Section 9.            Indemnification and Advance of Expenses as a Witness or Other Participant .  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of Indemnitee’s Corporate Status, made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other person, and to which Indemnitee is not a party, Indemnitee shall be advanced and indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting any such advance or indemnification from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee.  In connection with any such advance of Expenses, the Company may require Indemnitee to provide an undertaking and affirmation substantially in the form attached hereto as Exhibit A .

Section 10.         Procedure for Determination of Entitlement to Indemnification .

(a)            To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary or appropriate to determine whether and to what extent Indemnitee is entitled to indemnification.  Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in Indemnitee’s sole discretion.  The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

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(b)            Upon written request by Indemnitee for indemnification pursuant to Section 10(a) above, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control has occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by Indemnitee and approved by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL, which approval shall not be unreasonably withheld; or (ii) if a Change in Control has not occurred, (A) by a majority vote of the Disinterested Directors or by the majority vote of a  group of Disinterested Directors designated by the Disinterested Directors to make the determination, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by Indemnitee, which approval shall not be unreasonably withheld or delayed, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board of Directors, by the stockholders of the Company, other than directors or officers who are parties to the Proceeding.  If it is so determined that Indemnitee is entitled to indemnification, the Company shall make payment to Indemnitee within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary or appropriate to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 10(b).  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom.

(c)            The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed.

Section 11.         Presumptions and Effect of Certain Proceedings .

(a)            In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of overcoming that presumption in connection with the making of any determination contrary to that presumption.

(b)            The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification.

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(c)            The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement.

Section 12.         Remedies of Indemnitee .

(a)            If (i) a determination is made pursuant to Section 10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Sections 8 or 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Sections 7 or 9 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the Charter or Bylaws is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, or in an arbitration conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association, of Indemnitee’s entitlement to indemnification or advance of Expenses.  Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce Indemnitee’s rights under Section 7 of this Agreement.  Except as set forth herein, the provisions of Maryland law (without regard to its conflicts of laws rules) shall apply to any such arbitration.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b)            In any judicial proceeding or arbitration commenced pursuant to this Section 12, Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.  If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 8 of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).  The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement.

(c)            If a determination shall have been made pursuant to Section 10(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification that was not disclosed in connection with the determination.

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(d)            In the event that Indemnitee is successful in seeking, pursuant to this Section 12, a judicial adjudication of or an award in arbitration to enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by Indemnitee in such judicial adjudication or arbitration.  If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.

(e)            Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period (i) commencing with either the tenth day after the date on which the Company was requested to advance Expenses in accordance with Sections 8 or 9 of this Agreement or the 60 th day after the date on which the Company was requested to make the determination of entitlement to indemnification under Section 10(b) of this Agreement, as applicable, and (ii) ending on the date such payment is made to Indemnitee by the Company.

Section 13.         Defense of the Underlying Proceeding .

(a)            Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding.  The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced.

(b)            Subject to the provisions of the last sentence of this Section 13(b) and of Section 13(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 13(a) above.  The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee.  This Section 13(b) shall not apply to a Proceeding brought by Indemnitee under Section 12 of this Agreement.

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(c)            Notwithstanding the provisions of Section 13(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that Indemnitee may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld or delayed, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld or delayed, at the expense of the Company (subject to Section 12(d) of this Agreement), to represent Indemnitee in connection with any such matter.

Section 14.         Non-Exclusivity; Survival of Rights; Subrogation .

(a)            The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Charter or Bylaws, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise.  Unless consented to in writing by Indemnitee, no amendment, alteration or repeal of the Charter or Bylaws, this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy.

(b)            In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

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Section 15.         Insurance .

(a)            The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of Indemnitee’s Corporate Status and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of Indemnitee’s Corporate Status.  In the event of a Change in Control, the Company shall maintain in force any and all directors and officers liability insurance policies that were maintained by the Company immediately prior to the Change in Control for a period of six years with the insurance carrier or carriers and through the insurance broker in place at the time of the Change in Control; provided, however, (i) if the carriers will not offer the same policy and an expiring policy needs to be replaced, a policy substantially comparable in scope and amount shall be obtained and (ii) if any replacement insurance carrier is necessary to obtain a policy substantially comparable in scope and amount, such insurance carrier shall have an AM Best rating that is the same or better than the AM Best rating of the existing insurance carrier; provided, further, however, in no event shall the Company be required to expend in the aggregate in excess of 300% of the annual premium or premiums paid by the Company for directors and officers liability insurance in effect on the date of the Change in Control.  In the event that 300% of the annual premium paid by the Company for such existing directors and officers liability insurance is insufficient for such coverage, the Company shall spend up to that amount to purchase such lesser coverage as may be obtained with such amount.

(b)            Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee which would otherwise be indemnifiable hereunder arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in Section 15(a).  The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies.  If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies.

(c)            The Indemnitee shall cooperate with the Company or any insurance carrier of the Company with respect to any Proceeding.

Section 16.         Coordination of Payments .  The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

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Section 17.         Contribution .  If the indemnification provided in this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any reason, other than for failure to satisfy the standard of conduct set forth in Section 4 or due to the provisions of Section 5, then, with respect to any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for Expenses, judgments, penalties, and/or amounts paid or to be paid in settlement, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee.

Section 18.         Reports to Stockholders .  To the extent required by the MGCL or federal law, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting.

Section 19.         Duration of Agreement; Binding Effect .

(a)            This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement).

(b)            The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.

(c)            The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

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(d)            The Company and Indemnitee agree that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm.  Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled.  Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith.  The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking.

Section 20.         Severability .  If any provision or provisions of this Agreement shall be held to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, void, illegal or otherwise unenforceable that is not itself invalid, void, illegal or otherwise unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, void, illegal or otherwise unenforceable, that is not itself invalid, void, illegal or otherwise unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 21.         Identical Counterparts .  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement.

Section 22.         Entire Agreement/Prior Indemnification Agreements .  If the Indemnitee has previously entered into a Prior Agreement with the Company with respect to the indemnification provided by the Charter and Bylaws, this Agreement shall entirely supersede, amend and replace such Prior Agreement.  This Agreement constitutes the entire agreement among the parties and supersedes any prior understandings, agreements or representations by or among the parties, or any of them, written or oral, with respect to the subject matter of the Agreement.

Section 23.         Headings .  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

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Section 24.         Modification and Waiver .  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor, unless otherwise expressly stated, shall such waiver constitute a continuing waiver.

Section 25.         Notices .  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the day of such delivery, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a)            If to Indemnitee, to the address set forth on the signature page hereto.

(b)            If to the Company, to:

General Counsel and Chief Financial Officer
Essex Property Trust, Inc.
1100 Park Place, Suite 200
San Mateo, CA  94403

or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

Section 26.         Governing Law .  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 
COMPANY:
   
 
Essex Property Trust, Inc.

 
By:

 
 
Name:
 
 
Title:
 
     
 
INDEMNITEE:
 
 
 
 
Name:
 
 
Address:
 

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EXHIBIT A

AFFIRMATION AND UNDERTAKING TO REPAY EXPENSES ADVANCED

To:  The Board of Directors of Essex Property Trust, Inc.

Re:  Affirmation and Undertaking

Ladies and Gentlemen:

This Affirmation and Undertaking is being provided pursuant to that certain Indemnification Agreement dated the _____ day of ______________, 20____, by and between Essex Property Trust, Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”).

Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement.

I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm my good faith belief that at all times, insofar as I was involved as [a director] [and]   [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful.

In consideration of the advance by the Company for Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.

IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this ___ day of ____________________, 20____.

 
Name:
   


Exhibit 10.14

FOURTH AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP

OF

ESSEX PORTFOLIO, L.P.

THE LIMITED PARTNERSHIP INTERESTS REFERRED TO HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR, UNLESS IT HAS BEEN CONFIRMED TO YOU IN WRITING, WITH ANY STATE REGULATORY AGENCY. THESE LIMITED PARTNERSHIP INTERESTS MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS PARTNERSHIP AGREEMENT, MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH LIMITED PARTNERSHIP INTERESTS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE LAW (UNLESS EXEMPT THEREFROM), AND WITHOUT COMPLIANCE WITH THE REQUIREMENTS SET FORTH IN THIS PARTNERSHIP AGREEMENT.

NO STATE OR FEDERAL SECURITY COMMISSIONERS OR STATE OR FEDERAL REGULATORY AGENCIES HAVE PASSED UPON THE VALUE OF THE SECURITIES, NOR HAVE THEY APPROVED OR DISAPPROVED THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

* * * * * * * * * * * * *

TABLE OF CONTENTS

 
Page
   
ARTICLE I DEFINITIONS, ETC.
1
     
1.1
Definitions
1
1.2
Exhibit, Etc.
16
   
ARTICLE II ORGANIZATION
16
     
2.1
Continuation of the Partnership
16
2.2
Name
16
2.3
Character of the Business
16
2.4
Location of the Principal Place of Business
17
2.5
Agent for Service of Process
17
2.6
Certificates of Ownership
17
   
ARTICLE III TERM
17
     
3.1
Commencement
17
3.2
Termination
17
   
ARTICLE IV CONTRIBUTIONS TO CAPITAL
17
     
4.1
General Partner Capital Contribution
17
4.2
Limited Partner Capital Contributions
17
4.3
Issuances of Additional Partnership Interests
17

i
4.4
Options
18
4.5
Contribution of Proceeds of Issuance of Shares of Common Stock and Preferred Stock
18
4.6
Admission of Additional Limited Partners
19
4.7
No Third Party Beneficiary
20
4.8
No Interest; No Return
20
   
ARTICLE V [INTENTIONALLY OMITTED]
20
   
ARTICLE VI ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS
20
     
6.1
Allocations
20
6.2
Distributions
20
6.3
Withholding
21
6.4
Books of Account
21
6.5
Reports
21
6.6
Audits
21
6.7
Tax Elections and Returns
22
6.8
Tax Matters Partner; Partnership Representative
22
   
ARTICLE VII RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER
23
     
7.1
Expenditures by Partnership
23
7.2
Powers and Duties of General Partner
23
7.3
Major Decisions
25
7.4
Actions with Respect to Certain Documents
26
7.5
General Partner Participation
26
7.6
Proscriptions
26
7.7
Additional Limited Partners
26
7.8
Title Holder
26
7.9
Compensation of the General Partner
26
7.10
Waiver and Indemnification
27
7.11
Contracts With Controlled Entities
27
7.12
Operation in Accordance with REIT Requirements
27
   
ARTICLE VIII DISSOLUTION, LIQUIDATION AND WINDING-UP
27
     
8.1
Liquidating Events
27
8.2
Accounting
28
8.3
Distribution on Dissolution
28
8.4
Timing Requirements
28
8.5
Sale of Partnership Assets
28
8.6
Distributions in Kind
29
8.7
Documentation of Liquidation
29
8.8
Liability of the Liquidating Trustee
29
   
ARTICLE IX TRANSFER OF PARTNERSHIP INTERESTS
29
     
9.1
General Partner Transfer
29
9.2
Transfers by Limited Partners
29
9.3
Certain Transfers Prohibited
30
9.4
Additional Restrictions on Transfer
32
   
ARTICLE X RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS
32
     
10.1
No Participation in Management
32
10.2
Bankruptcy of a Limited Partner and Certain Other Events
32
10.3
No Withdrawal
32
10.4
Duties and Conflicts
32
10.5
[Intentionally Omitted]
32

ii
10.6
[Intentionally Omitted]
32
10.7
[Intentionally Omitted]
32
10.8
Conversion Upon Death
33
10.9
Rights of Series Z Incentive Units
33
10.10
Conversion and Redemption of Series Z-1 Incentive Units
33
   
ARTICLE XI GRANT OF RIGHTS TO LIMITED PARTNERS
36
     
11.1
Grant of Rights
36
11.2
Terms of Rights
37
   
ARTICLE XII ARBITRATION OF DISPUTES
37
     
12.1
Arbitration
37
12.2
Procedures
37
12.3
Binding Character
38
12.4
Exclusivity
38
12.5
No Alteration of Agreement
38
12.6
Acknowledgment
38
   
ARTICLE XIII GENERAL PROVISIONS
38
     
13.1
Notices
38
13.2
Successors
38
13.3
Effect and Interpretation
38
13.4
Counterparts
38
13.5
Partners Not Agents
39
13.6
Entire Understanding; Etc
39
13.7
Amendments
39
13.8
Severability
40
13.9
Trust Provision
40
13.10
Pronouns and Headings
40
13.11
Assurances
40
13.12
Tax Consequences
40
13.13
Securities Representations
41
13.14
Power of Attorney
41

EXHIBITS

EXHIBIT A
-
PARTNERSHIP UNITS
EXHIBIT B
-
INTENTIONALLY OMITTED
EXHIBIT C
-
INTENTIONALLY OMITTED
EXHIBIT D
-
INTENTIONALLY OMITTED
EXHIBIT E
-
ALLOCATIONS
EXHIBIT F
-
INTENTIONALLY OMITTED
EXHIBIT G
-
INTENTIONALLY OMITTED
EXHIBIT H
-
INTENTIONALLY OMITTED
EXHIBIT I
-
RIGHTS TERMS
EXHIBIT J
-
INTENTIONALLY OMITTED
EXHIBIT K
-
INTENTIONALLY OMITTED

iii
EXHIBIT L
-
INTENTIONALLY OMITTED
EXHIBIT M
-
ADDRESSES OF PARTNERS
EXHIBIT N
-
INTENTIONALLY OMITTED
EXHIBIT O
-
INTENTIONALLY OMITTED
EXHIBIT P
-
INTENTIONALLY OMITTED
EXHIBIT Q
-
INTENTIONALLY OMITTED
EXHIBIT R
-
LIST OF SERIES Z-1 UNITHOLDERS
EXHIBIT S
-
SERIES Z-1 TARGET FFO AMOUNTS
EXHIBIT T
-
DESIGNATION OF THE RIGHTS, POWERS, PRIVILEGES, RESTRICTIONS, QUALIFICATIONS AND LIMITATIONS OF THE LTIP UNITS
EXHIBIT U
-
NOTICE OF ELECTION BY PARTNER TO CONVERT LTIP UNITS INTO COMMON UNITS
EXHIBIT V
-
NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION OF LTIP UNITS INTO COMMON UNITS

SCHEDULES

SCHEDULE 1
-
EXERCISE NOTICE
SCHEDULE 2
-
ELECTION NOTICE

iv
FOURTH AMENDED AND RESTATED

AGREEMENT OF LIMITED PARTNERSHIP
OF
ESSEX PORTFOLIO, L.P.

THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP , is made and entered into as of the 20th day of December, 2018, by the undersigned parties.

W I T N E S S E T H:

WHEREAS , pursuant to that certain Agreement of Limited Partnership of ESX Partners, L.P., entered into as of March 15, 1994, as amended by that certain First Amendment to Agreement of Limited Partnership dated as of April 15, 1994 (such Agreement of Limited Partnership, as so amended, the “ Original Agreement ”), the parties to the Original Agreement formed Essex Portfolio, L.P., a California limited partnership (the “ Partnership ”), originally known as ESX Partners, L.P.;

WHEREAS , the Original Agreement was amended and restated as of September 30, 1997 (the “ First Amended and Restated Agreement ”) pursuant to the terms thereof, which was subsequently amended by that certain First Amendment to the First Amended and Restated Agreement dated February 6, 1998; that certain Second Amendment to the First Amended and Restated Agreement dated April 20, 1998; that certain Third Amendment to the First Amended and Restated Agreement dated November 24, 1998; that certain Fourth Amendment to the First Amended and Restated Agreement dated July 28, 1999; that certain Fifth Amendment to the First Amended and Restated Agreement dated September 3, 1999; that certain Sixth Amendment to the First Amended and Restated Agreement dated June 28, 2001; that certain Seventh Amendment to the First Amended and Restated Agreement dated June 26, 2003; that certain Eighth Amendment to the First Amended and Restated Agreement dated September 23, 2003; that certain Ninth Amendment to the First Amended and Restated Agreement dated January 8, 2004; that certain Tenth Amendment to the First Amended and Restated Agreement dated January 8, 2004; that certain Eleventh Amendment to the First Amended and Restated Agreement dated March 29, 2004; that certain Twelfth Amendment to the First Amended and Restated Agreement dated July 26, 2006; that certain Thirteenth Amendment to the First Amended and Restated Agreement dated October 26, 2006, that certain Fourteenth Amendment to the First Amended and restated Agreement dated December 26, 2007, that certain Fifteenth First Amendment to the Amended and Restated Agreement dated February 26, 2008, and that certain Sixteenth Amendment to the First Amended and Restated Agreement dated April 7, 2009;

WHEREAS , the First Amended and Restated Agreement was amended and restated as of May 27, 2009 (the “ Second   Amended and Restated Agreement ”) pursuant to the terms thereof, which was subsequently amended by that certain First Amendment to the Second Amended and Restated Agreement dated December 23, 2009; that certain Second Amendment to the Second Amended and Restated Agreement dated April 13, 2011; that certain Third Amendment to the Second Amended and Restated Agreement dated December 4, 2012;

WHEREAS , the Second Amended and Restated Agreement was amended and restated as of December 10, 2013 (the “ Third Amended and Restated Agreement ”) pursuant to the terms thereof; and

WHEREAS , Essex Property Trust, Inc., a Maryland corporation, as the General Partner of the Partnership, pursuant to the authority conferred on the General Partner by Section 13.7(b)(vi) of the Third Amended and Restated Agreement, hereby desires to amend, restate and supersede the Third Amended and Restated Agreement in its entirety, in order to conform with the centralized partnership audit rules enacted by the Bipartisan Budget Act of 2015 (Pub. L. No. 114-74, § 1101), as amended, that generally apply to audits of partnership taxable years beginning on or after January 1, 2018, by amending and restating Sections 6.7 and 6.8 hereof and making other administrative changes. ;

NOW, THEREFORE , pursuant to Section 13.7(b)(vi) of the Third Amended and Restated Agreement, the General Partner hereby amends and restates the Partnership Agreement in its entirety as follows:

1
ARTICLE I
DEFINITIONS, ETC.

1.1   Definitions . Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below:

“ Accountants ” shall mean the firm or firms of independent certified public accountants selected by the General Partner on behalf of the Partnership to audit the books and records of the Partnership and to prepare statements and reports in connection therewith.

“ Acquisition Cost ” shall mean (i) in the case of Contributed Property acquired by the General Partner in exchange for shares of Common Stock, the Current Per Share Market Price as of the closing date on which the General Partner acquired such Contributed Property multiplied by the number of shares of Common Stock issued in the acquisition, or (ii) in the case of Contributed Property acquired by the General Partner for consideration other than Common Stock, the amount of such consideration plus, in either case, any costs and expenses incurred by the General Partner in connection with such acquisition or contribution; provided, however, that in the event the Acquisition Cost of Contributed Property is financed by any borrowings by the General Partner, the Partnership shall assume any such obligations of the General Partner concurrently with the contribution of such property to the Partnership or, if impossible, shall obligate itself to the General Partner in an amount and on terms equal to such obligations, and the Acquisition Cost shall be reduced by the amount of such obligations.

“ Act ” shall mean the California Uniform Limited Partnership Act of 2008, California Corporations Code Sections 15900-15912.07, as the same may hereafter be amended from time to time.

“ Actual FFO ” shall mean with respect to any fiscal period “funds from operations” of the General Partner as determined with respect to such fiscal period by the Board of Directors of the General Partner using a consistently applied methodology that conforms with the standards for computation of “funds from operations” established by the National Association of Real Estate Investment Trusts, Inc. (or successor organizations) from time to time; it being understood that, to the extent that the General Partner discloses “funds from operations” for any fiscal period in any of its periodic reports publicly filed with the SEC, Actual FFO for such fiscal period for the purposes of this Agreement will conform to such publicly disclosed “funds from operations.”

“ Actual FFO Per Share ” shall mean with respect to any fiscal period the Actual FFO for such period divided by the number of Common Equivalent Shares.

“ Additional Limited Partner ” shall have the meaning set forth in Section 4.3(a) hereof.

“ Additional Units ” shall have the meaning set forth in Section 4.3(a) hereof.

“ Adjusted Capital Account Deficit ” shall mean, with respect to any Partner for any Fiscal Year or other period, the deficit balance, if any, in such Partner’s Capital Account as of the end of such Fiscal Year or other period, after increasing such Capital Account by any amounts that such Partner is obligated to restore pursuant to any provision of this Agreement, is treated as obligated to restore pursuant to Regulation Section 1.704-1(b)(2)(ii)(c), or is deemed obligated to restore pursuant to the penultimate sentences of Regulation Section 1.704-2(g)(1) and Regulation Section 1.704-2(i)(5), and reducing such Capital Account by any amounts described in Regulation Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6).

“ Administrative Expenses ” shall mean (i) all administrative and operating costs and expenses incurred by the Partnership and EWIP or any other Investment Entity, (ii) those administrative costs and expenses of the General Partner, including salaries paid to officers of the General Partner, and accounting and legal expenses undertaken by the General Partner on behalf or for the benefit of the Partnership, and (iii) to the extent not included in clause (ii) above, REIT Expenses, provided that Administrative Expenses shall not include Initial Offering Expenses or costs and expenses incurred subsequent to the Completion of the Offering relating to any offer or registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities.

“ Affiliate ” shall mean, with respect to any Partner (or as to any other person the affiliates of whom are relevant for purposes of any of the provisions of this Agreement), (i) any member of the Immediate Family of such Partner; (ii) any trustee or beneficiary of a Partner; (iii) any legal representative, successor, or assignee of any Person referred to in the preceding clauses (i) and (ii); (iv) any trustee for the benefit of any Person referred to in the preceding clauses (i) through (iii); or (v) any Entity which directly or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, any Person referred to in the preceding clauses (i) through (iv).

2
“ Agreement ” or the “ Partnership Agreement ” shall mean this Fourth Amended and Restated Agreement of Limited Partnership, as originally executed and as hereafter amended, modified, supplemented or restated from time to time, as the context requires.

“ Arbitration Rules ” shall have the meaning set forth in Section 12.1 hereof.

“ Articles Supplementary ” shall mean any Articles Supplementary executed by the General Partner, and filed with the Department, as the same may be amended, modified, supplemented or replaced, and pursuant to which shares of Preferred Stock were issued and/or in the future may be issued.

“ Assignee ” shall mean a Person to whom one or more Partnership Units have been transferred, but who has not become a Substituted Limited Partner.

“ Available Cash ” shall mean, with respect to any fiscal period of the Partnership, the excess, if any, of “Receipts” over “Expenditures.” For purposes hereof, the term “Receipts” means the sum of all cash receipts of the Partnership from all sources for such period, (x) including (i) Net Sale Proceeds and Net Financing Proceeds and (ii) any amounts held as reserves as of the last day of such period which the General Partner reasonably deems to be in excess of necessary reserves as determined below, and (y) excluding Capital Contributions. The term “Expenditures” means the sum of (a) all cash expenses of the Partnership for such period, (b) the amount of all payments of principal and interest on account of any indebtedness of the Partnership including payments of principal and interest on account of General Partner Loans, or amounts due on such indebtedness during such period, and (c) such additional cash reserves as of the last day of such period as the General Partner deems necessary for any capital or operating expenditure permitted hereunder, but excluding all amounts payable under the clauses (a), (b) and (c) above with the proceeds of Capital Contributions.

“ Bankruptcy ” shall mean, with respect to any Partner, (i) the commencement by such Partner of any proceeding seeking relief under any provision or chapter of the federal Bankruptcy Code or any other federal or state law relating to insolvency, bankruptcy or reorganization, (ii) an adjudication that such Partner is insolvent or bankrupt; (iii) the entry of an order for relief under the federal Bankruptcy Code with respect to such Partner, (iv) the filing of any such petition or the commencement of any such case or proceeding against such Partner, unless such petition and the case or proceeding initiated thereby are dismissed within ninety (90) days from the date of such filing, (v) the filing of an answer by such Partner admitting the allegations of any such petition, (vi) the appointment of a trustee, receiver or custodian for all or substantially all of the assets of such Partner unless such appointment is vacated or dismissed within ninety (90) days from the date of such appointment but not less than five (5) days before the proposed sale of any assets of such Partner, (vii) the insolvency of such Partner or the execution by such Partner of a general assignment for the benefit of creditors, (viii) the failure of such Partner to pay its debts as they mature, (ix) the levy, attachment, execution or other seizure of substantially all of the assets of such Partner where such seizure is not discharged within thirty (30) days thereafter, or (x) the admission by such Partner in writing of its inability to pay its debts as they mature or that it is generally not paying its debts as they become due.

“ Beneficially Own ” shall have the meaning set forth in attached Exhibit I .

“ Bipartisan Budget Act ” shall have the meaning set forth in Section 6.8(a) hereof.

“ Book-Up Target ” for an LTIP Unit means (i) initially, the Target Balance on the date such LTIP Unit was granted and (ii) thereafter, the remaining amount, if any, required to be allocated to such LTIP Unit for the Economic Capital Account Balance of the holder of such LTIP Unit, to the extent attributable to such LTIP Unit, to be equal to the Target Balance as determined from time to time.

“ Capital Account ” shall have the meaning set forth in subsection 2(c) of Exhibit E .

“ Capital Commitment ” shall mean, with respect to Series Z-1 Incentive Units, a commitment by a Series Z-1 Partner to pay to the Partnership the amount of $1.00 for each such Unit that is issued to the Series Z-1 Partner.

“ Capital Contribution ” shall mean, with respect to any Partner, the amount of money and the initial Gross Asset Value of any property other than money contributed to the Partnership with respect to the Partnership Interest held by such Partner (net of liabilities secured by such property that the Partnership is considered to assume or take subject to under Section 752 of the Code). Gross Asset Value shall be calculated as provided herein.

3
“ Cash Amount ” shall mean the amount of cash equal to the product of the Closing Price (calculated, in the case of the exercise of Rights, on the date on which the Exercise Notice is delivered to the General Partner) multiplied by the Common Stock Amount.

“ Certificate ” shall mean the Certificate of Limited Partnership establishing the Partnership, as filed with the office of the California Secretary of State, as it may be amended from time to time in accordance with the terms of this Agreement and the Act.

“ Change in Control ” shall mean the earliest to occur of any of the following events:

(i)   any “person,” as such term is used in the Exchange Act (other than any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of any of the General Partner or any of its subsidiaries or affiliates), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the General Partner representing thirty percent (30%) or more of the combined voting power of the General Partner’s then outstanding securities having the right to vote in an election of the General Partner’s Board of Directors (for purposes of this definition, “ Voting Securities ”) (other than as a result of an acquisition of securities directly from the General Partner). Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of this clause (i) solely as the result of an acquisition of securities by the General Partner which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person (as defined in the foregoing clause) to thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if such person shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the General Partner) and immediately thereafter beneficially owns thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of this clause (i).

(ii)   the moment immediately prior to the consummation of a merger, reorganization or consolidation of the General Partner or the occurrence of any other event (including without limitation a tender or exchange offer), the result of which is that the “beneficial owners” (as such term is defined in Rule 13d-3 of the Exchange Act) of the Voting Securities of the General Partner before the merger, reorganization, consolidation or other transaction are not the “beneficial owners”, directly or indirectly, of a majority of the voting power of the surviving or resulting entity upon completion of such merger, reorganization, consolidation or other transaction;

(iii)   the moment immediately prior to the consummation of a merger, reorganization or consolidation of the Partnership, unless the General Partner immediately prior to such merger, reorganization or consolidation remains the sole general partner of the Partnership after such merger;

(iv)   the moment immediately prior to the consummation of a change (whether by removal, withdrawal, transfer or otherwise) in the general partner of the Partnership;

(v)   persons who, as of June 1, 2001, constitute the General Partner’s Board of Directors (for purpose of this definition, the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender or exchange offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors of the General Partner (rounded up to the next whole number), provided that any person becoming a director of the General Partner subsequent to such date shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by a vote of a majority of the Incumbent Directors; provided, however, that any person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” other than the Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

(vi)   the moment immediately prior to the consummation of a sale of all or substantially all of the assets of the General Partner and/or the Partnership.

4
“ Closing Price ” on any date shall mean the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the last quoted price, or if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotations System or, if such system is no longer in use, the principal other automated quotations system that may then be in use or, if the Common Stock is not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock as such person is selected from time to time by the Board of Directors of the General Partner. In the event that the Common Stock Amount includes additional rights that a holder of shares of Common Stock would be entitled to receive and if the value of such additional rights is not included in the Closing Price, then the value of such additional rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers in its reasonable judgment appropriate, and such amount shall be added to the Closing Price.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Common Equivalent Shares ” shall mean the total number of shares of Common Stock outstanding on a fully diluted basis, calculated in a manner consistent with the manner used by the General Partner for reporting diluted earnings or loss per share under generally accepted accounting principles, it being understood that, to the extent that the General Partner discloses diluted earnings or loss per share in any of its periodic reports publicly filed with the SEC, Common Equivalent Shares for such period for the purposes of this Agreement shall be calculated in a manner consistent with such public disclosure.

“ Common Stock ” shall mean the shares of the common stock, par value $.0001 per share, of Essex Property Trust, Inc.

“ Common Stock Amount ” shall mean the number of shares of Common Stock equal to the product of the number of Partnership Units offered for conversion by an Exercising Partner, multiplied by the Conversion Factor; provided, however, that in the event the General Partner issues to all holders of Common Stock rights, options, warrants or convertible or exchangeable securities entitling the shareholders to subscribe for or purchase additional Common Stock, or any other securities or property of the General Partner, the value of which is not included in the first sentence of the definition of Closing Price of the shares of Common Stock (collectively, “additional rights”), then the Common Stock Amount shall also include such additional rights that a holder of that number of shares of Common Stock would be entitled to receive.

“ Common Tenancies ” shall mean, collectively, the Pathways Common Tenancy and the Oak Pointe Common Tenancy.

“ Common Unit ” shall mean a Partnership Unit representing an interest in the Partnership, other than a Series G Preferred Interest, Series H Preferred Interest, Series Z-1 Incentive Unit, LTIP Unit or any other Preferred Interest or Preferred Partnership Units.

“ Compensation Committee ” shall mean the Compensation Committee of the Board of Directors of the General Partner or, if no such committee exists, the full Board of Directors of the General Partner.

“ Completion of the Offering ” shall mean the closing of the sale of Common Stock in the Offering, which was completed on June 13, 1994.

“ Consent of the Limited Partners ” means the written consent of a Majority-In-Interest of the Limited Partners, which consent shall be obtained prior to the taking of any action for which it is required by this Agreement and may be given or withheld by a Majority-In-Interest of the Limited Partners, unless otherwise expressly provided herein, in their sole and absolute discretion.

“ Contributed Interests ” shall mean, with respect to each Limited Partner, the undivided ownership interests in the Existing Properties contributed to the Partnership by such Limited Partner; the undivided ownership interests in the assets of the Existing Partnerships that are tenants-in-common in the Common Tenancies; and the partnership interests in the Washington Partnerships contributed to the Partnership by such Limited Partner, all as set forth opposite such Limited Partner’s name on Exhibit B attached to the Original Agreement; provided that the term Contributed Interests shall not include the Plumtree Property or the Wharfside Property.

5
“ Contributed Property ” shall have the meaning set forth in the definition of Gross Asset Value.

“ Contribution Agreement ” shall mean that certain Contribution Agreement entered into as of March 15, 1994 between the Partnership and the original Partners in the Partnership.

“ Control ” shall mean the ability, whether by the direct or indirect ownership of shares or other equity interests, by contract or otherwise, to elect a majority of the directors of a corporation, to select the managing partner of a partnership, or otherwise to select, or have the power to remove and then select, a majority of those persons exercising governing authority over an Entity. In the case of a limited partnership, the sole general partner, all of the general partners to the extent each has equal management control and authority, or the managing general partner or managing general partners thereof shall be deemed to have control of such partnership and, in the case of a trust, any trustee thereof or any Person having the right to select any such trustee shall be deemed to have control of such trust.

“ Controlled Entity ” shall mean, with respect to any Limited Partner or Person, any Entity which directly or indirectly Controls, is Controlled by, or is under common Control with, such Limited Partner or Person.

“ Conversion Factor ” shall mean 1.0, provided that in the event that the General Partner (i) pays a dividend on its outstanding shares of Common Stock in shares of Common Stock or makes a distribution to all holders of its outstanding Common Stock in shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock, or (iii) combines its outstanding shares of Common Stock into a smaller number of shares of Common Stock, the Conversion Factor shall be adjusted by multiplying the Conversion Factor by a fraction, the numerator of which shall be the number of shares of Common Stock issued and outstanding on the record date for such dividend, distribution, subdivision or combination (assuming for such purposes that such dividend, distribution, subdivision or combination occurred as of such time), and the denominator of which shall be the actual number of shares of Common Stock (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, subdivision or combination. Any adjustment to the Conversion Factor shall become effective immediately after the record date for such event in the case of a dividend or distribution or the effective date in the case of a subdivision or combination. Notwithstanding the foregoing, the Conversion Factor shall not be adjusted in connection with the events described above if, in connection with such event, the Partnership makes a distribution per Common Unit of an equivalent number of Common Units and/or shares of Common Stock or effects an equivalent subdivision or combination of all outstanding Common Units, as applicable.

“ Current Per Share Market Price ” on any date shall mean the average of the Closing Price for the five (5) consecutive Trading Days ending on such date.

“ Demand Notice ” shall have the meaning set forth in Section 12.2 hereof.

“ Department ” shall mean the Maryland State Department of Assessments and Taxation.

“ Depreciation ” shall mean, with respect to any asset of the Partnership for any fiscal year or other period, the depreciation, depletion or amortization, as the case may be, allowed or allowable for Federal income tax purposes in respect of such asset for such fiscal year or other period; provided, however, that if there is a difference between the Gross Asset Value and the adjusted tax basis of such asset, Depreciation shall mean “book depreciation, depletion or amortization” as determined under Section 1.704-1(b)(2)(iv)(g)(3) of the Regulations.

“ Designated Individual ” shall have the meaning set forth in Section 6.8(b) hereof.

“ Economic Capital Account Balance ” with respect to a Partner means an amount equal to its Capital Account balance, plus the amount of its share of any Partner Nonrecourse Debt Minimum Gain and/or Partnership Minimum Gain.

“ Entity ” shall mean any general partnership, limited partnership, limited liability company, limited liability partnership, corporation, joint venture, trust, business trust, cooperative or association.

“ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time (or any corresponding provisions of succeeding laws).

“ EWIP ” shall mean Essex Washington Interest Partners, a California general partnership, the sole partners of which shall be the General Partner and the Partnership.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

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“ Exercise Notice ” shall have the meaning set forth in affected Exhibit I .

“ Exercising Partner ” shall have the meaning set forth in attached Exhibit I .

“ Existing Partnerships ” shall mean those seventeen (17) partnerships listed on Exhibit C attached to the Original Agreement.

“ Existing Properties ” shall mean those certain 12 multi-family residential properties and 6 commercial properties owned entirely by the Existing Partnerships immediately prior to the Completion of the Offering, the ground lessee’s interest in that certain Property commonly known as 777 California Avenue, Palo Alto, California, and an approximate 69.3% tenancy-in-common interest in that certain property commonly known as the Pathways Apartments, Long Beach, California.

“ Fiscal Year ” shall mean the fiscal year of the Partnership.

“ General Partner ” shall mean Essex Property Trust, Inc., a Maryland corporation, its duly admitted successors and assigns and any other Person who is a general partner of the Partnership at the time of reference thereto.

“ Gross Asset Value ” shall mean, with respect to any asset of the Partnership, such asset’s adjusted basis for Federal income tax purposes, except as follows:

1.   the initial Gross Asset Value of (i) in the case of the assets contributed by each Limited Partner to the Partnership as of the Completion of the Offering, the value of such assets at the time of such contribution as was established pursuant to the Original Agreement, and (ii) in the case of any other asset thereafter contributed by a Partner (other than money) (“ Contributed Property ”), the fair market value of such Contributed Property as reasonably determined by the General Partner using such reasonable method of valuation as the General Partner may adopt; provided, however, that the fair market value of any Contributed Property contributed by the General Partner shall be the Acquisition Cost of such Contributed Property;

2.   if the General Partner reasonably determines that an adjustment is necessary or appropriate to reflect or give effect to the intended relative economic interests of the Partners, the Gross Asset Values of all Partnership assets shall be adjusted to equal their respective gross fair market values, as reasonably determined by the General Partner, as of the following times:

a)   a Capital Contribution (other than a de minimis Capital Contribution) to the Partnership by the General Partner or a new or existing Limited Partner as consideration for Partnership Units;

b)   the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for the redemption of Partnership Units;

c)   the award or issuance by the Partnership of Partnership Units pursuant to a compensation program;

d)   the liquidation of the Partnership within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations; and

e)   any other time permitted under Section 1.704-1(b)(2)(iv)(f) of the Regulations;

3.   the Gross Asset Values of Partnership assets distributed to any Partner shall be the gross fair market values of such assets (taking Section 7701(g) of the Code into account) as reasonably determined by the General Partner as of the date of distribution; and

4.   the Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations (see attached Exhibit E ); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph to the extent that the General Partner reasonably determines that an adjustment pursuant to paragraph 2 above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this paragraph 4.

At all times, Gross Asset Values shall be adjusted by any Depreciation taken into account with respect to the Partnership’s assets for purposes of computing Net Operating Income, Net Operating Loss, Net Property Gain and Net Property Loss.

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“ Gross Offering Proceeds ” shall mean the amount equal to the product of the Initial Price of the Common Stock multiplied by the number of shares of Common Stock outstanding as of the Completion of the Offering.

“ Hart-Scott Act ” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

“ Immediate Family ” shall mean, with respect to any Person, such Person’s spouse, parents, parents-in-law, descendants, nephews, nieces, brothers, sisters, brothers-in-law, sisters-in-law and children-in-law.

“ Initial Offering Expenses ” shall mean (i) costs and expenses incurred prior to, at or substantially concurrent with the Completion of the Offering relating to the formation of the General Partner, including taxes, fees and assessments associated therewith, and (ii) costs and expenses incurred prior to, at or substantially concurrent with the Completion of the Offering relating to any offer or registration of securities by the General Partner and all statements, reports, fees and expenses incidental thereto, including underwriting discounts and selling commissions applicable to any such offer of securities.

“ Initial Price of the Common Stock ” shall mean the initial public offering price of the Common Stock.

“ Investment Entities ” shall have the meaning set forth in Section 7.5 hereof.

“ Lien ” shall mean any liens, security interests, mortgages, deeds of trust, charges, claims, encumbrances, pledges, options, rights of first offer or first refusal and any other rights or interests of others of any kind or nature, actual or contingent, or other similar encumbrances of any nature whatsoever.

“ Limited Partners ” shall mean those Persons listed under the heading “Limited Partners” on the signature page to the First Amended and Restated Agreement, the Second Amended and Restated Agreement or the Third Amended and Restated Agreement in their respective capacities as limited partners of the Partnership and any Person who subsequently became a limited partner of the Partnership pursuant to the provisions of the First Amended and Restated Agreement, the Second Amended and Restated Agreement or the Third Amended and Restated Agreement, in each case as amended, or of this Agreement, their permitted successors or assigns as a limited partner hereof, or any Person who, at the time of reference thereto, is a limited partner of the Partnership .

“ Liquidating Event ” shall have the meaning set forth in Section 8.1 hereof.

“ Liquidating Trustee ” shall mean such Person as is selected as the Liquidating Trustee hereunder by the General Partner, which Person may include an Affiliate of the General Partner, provided such Liquidating Trustee agrees in writing to be bound by the terms of this Agreement. The Liquidating Trustee shall be empowered to give and receive notices, reports and payments in connection with the dissolution, liquidation and/or winding-up of the Partnership and shall hold and exercise such other rights and powers as are necessary or required to permit all parties to deal with the Liquidating Trustee in connection with the dissolution, liquidation and/or winding-up of the Partnership.

“ LTIP Unit ” shall mean a Partnership Unit which is designated as an LTIP Unit having the rights, powers, privileges, restrictions, qualifications and limitations set forth in Exhibit T hereof and elsewhere in this Agreement in respect of the LTIP Unit.

“ LTIP Unit Sharing Percentage ” means, with respect to an LTIP Unit, ten percent (10%) or such other percentage designated as the LTIP Unit Sharing Percentage for such LTIP Unit as set forth in the documentation pursuant to which such LTIP Unit is granted. The LTIP Unit Sharing Percentage with respect to any LTIP Unit may increase (up to one hundred percent (100%)) at times and upon such conditions as may be set forth in the documentation pursuant to which such LTIP Unit is granted.

“ M&M ” shall mean The Marcus & Millichap Company, a California corporation.

“ M&M Option Agreement ” shall mean that certain agreement entered into between M&M, M&M REIBC and the General Partner pursuant to which M&M obtained at the Completion of the Offering certain options to purchase Common Stock and M&M REIBC provides certain transaction and trend information to the General Partner.

“ M&M REIBC ” shall mean Marcus & Millichap Real Estate Investment Brokerage Company, a California corporation.

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“ Major Decisions ” shall have the meaning set forth in Section 7.3 hereof.

“ Majority-In-Interest of the Limited Partners ” shall mean Limited Partner(s) who hold in the aggregate more than fifty percent (50%) of the Percentage Interests then allocable to and held by the Limited Partners, as a class.

“ Net Financing Proceeds ” shall mean the cash proceeds received by the Partnership in connection with any borrowing or refinancing of borrowing by or on behalf of the Partnership (whether or not secured), after deduction of all costs and expenses incurred by the Partnership in connection with such borrowing, and after deduction of that portion of such proceeds used to repay any other indebtedness of the Partnership, or any interest or premium thereon.

“ Net Operating Income ” shall mean, for any fiscal year or portion thereof, the excess of the items of income and gain over the items of deduction and loss, in each case as determined for purposes of maintaining Capital Accounts as set forth in subsection 2(c) of Exhibit E , but excluding, in each case, items of gain or loss realized in connection with the sale or disposition of real property and other capital assets.

“ Net Operating Loss ” shall mean, for any fiscal year or portion thereof, the excess of the items of deduction and loss over the items of income and gain, in each case as determined for purposes of maintaining Capital Accounts as set forth in subsection 2(c) of Exhibit E , but excluding, in each case, items of gain or loss realized in connection with the sale or disposition of real property and other capital assets.

“ Net Property Gain ” shall mean, for any fiscal year or portion thereof, the excess of gains realized from the sale or disposition of real property and other capital assets over the losses realized in connection with the sale or disposition of real property and other capital assets, in each case as determined for purposes of maintaining Capital Accounts as set forth in subsection 2(c) of Exhibit E (and, for the avoidance of doubt, including any upward and/or downward adjustments to Gross Asset Values in connection with a “book-up” of Capital Accounts described in such subsection).

“ Net Property Loss ” shall mean, for any fiscal year or portion thereof, the excess of losses realized from the sale or disposition of real property and other capital assets over the gains realized in connection with the sale or disposition of real property and other capital assets, in each case as determined for purposes of maintaining Capital Accounts as set forth in subsection 2(c) of Exhibit E (and, for the avoidance of doubt, including any upward and/or downward adjustments to Gross Asset Values in connection with a “book-up” of Capital Accounts described in such subsection).

“ Net Sale Proceeds ” means the cash proceeds received by the Partnership in connection with a sale of any asset by or on behalf of the Partnership after deduction of any costs or expenses incurred by the Partnership, or payable specifically out of the proceeds of such sale (including, without limitation, any repayment of any indebtedness required to be repaid as a result of such sale or which the General Partner elects to repay out of the proceeds of such sale, together with accrued interest and premium, if any, thereon and any sales commissions or other costs and expenses due and payable to any Person in connection with a sale, including to a Partner or its Affiliates).

“ New Securities ” shall have the meaning set forth in Section 4.3(c).

“ Nonrecourse Deductions ” shall have the meaning set forth in Sections 1.704-2(b)(1) and (c) of the Regulations.

“ Oak Pointe Common Tenancy ” shall mean the owner of that certain improved real property located in Pacifica, California, and commonly known as the Oak Pointe Apartments.

“ Offering ” shall have the meaning set forth in the Registration Statement.

“ Option ” shall mean an option to purchase Common Stock granted under any Stock Incentive Plan or under the M&M Option Agreement.

“ Ownership Limit ” shall have the meaning set forth in attached Exhibit I .

“ Partner Nonrecourse Debt ” shall have the meaning set forth in Section 1.704-2(b)(4) of the Regulations.

“ Partner Nonrecourse Debt Minimum Gain ” shall mean “partner nonrecourse debt minimum gain” as determined in accordance with Regulation Section 1.704-2(i)(2).

“ Partner Nonrecourse Deductions ” shall have the meaning set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Regulations.

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“ Partners ” shall mean the General Partner and the Limited Partners, their duly admitted successors or assigns or any Person who is a partner of the Partnership at the time of reference thereto.

“ Partnership ” shall mean the limited partnership formed pursuant to the Original Agreement and hereby constituted, as such limited partnership may from time to time be constituted.

“ Partnership Interest ” shall mean the ownership interest of a Partner in the Partnership from time to time, including each Partner’s Percentage Interest and such Partner’s Capital Account. Wherever in this Agreement reference is made to a particular Partner’s Partnership Interest, it shall be deemed to refer to such Partner’s Percentage Interest and shall include the proportionate amount of such Partner’s other interests in the Partnership which are attributable to or based upon the Partner’s Partnership Interest. A Partnership Interest may be expressed as a number of Partnership Units.

“ Partnership Minimum Gain ” shall have the meaning set forth in Section 1.704-2(b)(2) of the Regulations.

“ Partnership Representative ” shall have the meaning set forth in Section 6.8(b) hereof.

“ Partnership Unit ” shall mean a fractional, undivided share of the Partnership Interests of all Partners issued pursuant to the terms of this Agreement. The allocation of Partnership Units to each Partner as of the date hereof is as set forth on attached Exhibit A .

“ Pathways Common Tenancy ” shall mean the owner of that certain improved real property located in Long Beach, California, and commonly known as Pathways Apartments.

“ Percentage Interest ” shall mean:

(i)   with respect to any holder of Common Units (in such capacity), the undivided percentage ownership interest of such Partner in the Partnership, as determined by dividing,

(A)   the number of Common Units owned by such Partner by

(B)   the sum of


(I)
the total number of Common Units then outstanding,


(II)
the product of ( a ) the total number of outstanding Series Z-1 Incentive Units, multiplied by ( b ) the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis, and


(III)
the product of ( a ) the total number of outstanding LTIP Units, multiplied by ( b ) the LTIP Unit Sharing Percentage with respect to each such LTIP Unit, calculated on a unit-by-unit basis;

(ii)   with respect to any holder of Series Z-1 Incentive Units (in such capacity), the undivided percentage ownership interest of such Partner in the Partnership, as determined by dividing ,

(A)   the product of (x) the total number of outstanding Series Z-1 Incentive Units owned by such Partner, multiplied by (y) the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis, by

(B)   the sum of


(I)
the total number of Common Units then outstanding, and


(II)
the product of ( a ) the total number of outstanding Series Z-1 Incentive Units, multiplied by ( b ) the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis, and

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(III)
the product of ( a ) the total number of outstanding LTIP Units, multiplied by ( b ) the LTIP Unit Sharing Percentage with respect to each such LTIP Unit, calculated on a unit-by-unit basis;

(iii)   with respect to any holder of LTIP Units (in such capacity), the undivided percentage ownership interest of such Partner in the Partnership, as determined by dividing ,

(A)   the product of (x) the total number of outstanding LTIP Units owned by such Partner, multiplied by (y) the LTIP Unit Sharing Percentage with respect to each such LTIP Unit, calculated on a unit-by-unit basis by

(B)   the sum of


(I)
the total number of Common Units then outstanding,


(II)
the product of ( a ) the total number of outstanding Series Z-1 Incentive Units, multiplied by ( b ) the Series Z-1 Distribution Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis, and


(III)
the product of ( a ) the total number of outstanding LTIP Units, multiplied by ( b ) the LTIP Unit Sharing Percentage with respect to each such LTIP Unit, calculated on a unit-by-unit basis; and

If any Partner holds any combination of Common Units, Series Z-1 Incentive Units, and/or LTIP Units, then such Partner’s Percentage Interest shall equal the sum of the amounts calculated under clauses (i) through (iii) of this definition of “Percentage Interest”.

“ Person ” shall mean any individual or Entity.

“ Plumtree Property ” shall mean that certain improved real property located in Santa Clara, California, and commonly known as the Plumtree Apartments.

“ Preferred Stock ” shall mean any preferred stock of the General Partner as described in the applicable Articles Supplementary.

“ Preferred Units ” shall mean any preferred Partnership Units of the Partnership as described in this Agreement or in any amendment to this Agreement.

“ Prior Agreements ” shall mean, collectively, the Original Agreement, the First Amended and Restated Agreement, the Second Amended and Restated Agreement, the Third Amended and Restated Agreement and any amendments thereto.

“ Property ” or “ Properties ” shall mean any real property in which the Partnership, directly or indirectly, acquires ownership of a fee or leasehold interest.

“ Property Manager ” shall mean Essex Management Corporation, a California corporation.

“ Prospectus ” shall have the meaning set forth in the Underwriting Agreement.

“ Purchase Price ” shall mean the consideration payable for the Offered Units (as defined on Exhibit I attached hereto) pursuant to paragraph 6 of Exhibit I attached hereto.

“ Qualified Individual ” shall have the meaning set forth in Section 12.2 hereof.

“ Redemption Distribution ” shall have the meaning set forth in Section 6.2(c) hereof.

“ Registration Statement ” shall have the meaning set forth in the Underwriting Agreement.

“ Regulations ” or “ Treasury Regulations ” shall mean the final, temporary or proposed income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

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“ REIT ” shall mean a real estate investment trust as defined in Section 856 of the Code.

“ REIT   Expenses ” shall mean (i) costs and expenses incurred subsequent to the Completion of the Offering relating to the formation and continuity of existence of the General Partner and its subsidiaries (which subsidiaries shall, for purposes of this definition, be included within the definition of General Partner), including taxes, fees and assessments associated therewith, and any and all costs, expenses or fees payable to any director or trustee of the General Partner or such subsidiaries, (ii) costs and expenses associated with the preparation and filing of any periodic reports by the General Partner under federal, state or local laws or regulations, including filings with the SEC, (iii) costs and expenses associated with compliance by the General Partner with laws, rules and regulations promulgated by any regulatory body, including the SEC, and (iv) all other operating or administrative costs of the General Partner incurred in the ordinary course of its business on behalf of the Partnership.

“ REIT Requirements ” shall have the meaning set forth in Section 6.2 hereof.

“ Restricted Partner ” has the meaning set forth in subparagraph 1(d)(iv) of Exhibit E to the Agreement.

“ Requesting Party ” shall have the meaning set forth in Section 12.2 hereof.

“ Responding Party ” shall have the meaning set forth in Section 12.2 hereof.

“ Rights ” shall have the meaning set forth in Section 11.1 hereof.

“ SDAT ” shall mean the Department as defined herein.

“ SEC ” shall mean the United States Securities and Exchange Commission.

“ Securities Act ” shall mean the Securities Act of 1933, as amended.

“ Series G Preferred Interest ” shall mean the interest in the Partnership received by the General Partner in connection with the issuance of shares of Series G Preferred Stock, as and when issued, which Series G Preferred Interest includes and shall include the right to receive preferential distributions and certain other rights as set forth in this Agreement.

“ Series G Preferred Stock ” shall mean the preferred stock of the General Partner described in Article THIRD of the Articles Supplementary, reclassifying 5,980,000 shares of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative Convertible Preferred Stock filed with the Department on or about July 26, 2006.

“ Series H Preferred Interest ” shall mean the interest in the Partnership received by the General Partner in connection with the issuance of shares of Series H Preferred Stock, as and when issued, which Series H Preferred Interest includes and shall include the right to receive preferential distributions and certain other rights as set forth in this Agreement.

“ Series H Preferred Stock ” shall mean the preferred stock of the General Partner described in Article SECOND of the Articles Supplementary, reclassifying 8,000,000 shares of Common Stock as 8,000,000 shares of 7.125% Series H Cumulative Redeemable Preferred Stock filed with the Department on or about April 11, 2011.

“ Series Z-1 Change in Control ” shall mean the earliest to occur of any of the following:

(i)   any “person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of any of the General Partner or any of its subsidiaries or affiliates), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the General Partner representing thirty percent (30%) or more of the combined voting power of the General Partner’s then outstanding securities having the right to vote in an election of the General Partner’s Board of Directors (for purposes of this definition, “ Voting Securities ”) (other than as a result of an acquisition of securities directly from the General Partner). Notwithstanding the foregoing, a “Series Z-1 Change in Control” shall not be deemed to have occurred for purposes of this clause (i) solely as the result of an acquisition of securities by the General Partner which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person (as defined in the foregoing clause) to thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if such person shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the General Partner) and immediately thereafter beneficially owns thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities, then a “Series Z-1 Change in Control” shall be deemed to have occurred for purposes of this clause (i).

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(ii)   the moment immediately prior to the consummation of a merger, reorganization or consolidation of the General Partner or the occurrence of any other event (including without limitation a tender or exchange offer), the result of which is that the “beneficial owners” (as such term is defined in Rule 13d-3 of the Exchange Act) of the Voting Securities of the General Partner before the merger, reorganization, consolidation or other transaction are not the “beneficial owners”, directly or indirectly, of a majority of the voting power of the surviving or resulting entity upon completion of such merger, reorganization, consolidation or other transaction;

(iii)   the moment immediately prior to the consummation of a merger, reorganization or consolidation of the Partnership, unless the General Partner immediately prior to such merger, reorganization or consolidation remains the sole general partner of the Partnership after such merger;

(iv)   the moment immediately prior to the consummation of a change (whether by removal, withdrawal, transfer or otherwise) in the General Partner of the Partnership;

(v)   persons who, as of the date of issuance of the first Series Z-1 Incentive Unit, constitute the General Partner’s Board of Directors (for purposes of this definition, the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender or exchange offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board of Directors of the General Partner (rounded up to the next whole number), provided that any person becoming a director of the General Partner subsequent to such date shall be considered an Incumbent Director if such person’s election was approved by, or such person was nominated for election by, a vote of a majority of the Incumbent Directors; provided, however, that any person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by, or on behalf of, a “person” other than the Board of Directors, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

(vi)   the moment immediately prior to the consummation of a sale of all or substantially all of the assets of the General Partner and/or the Partnership.

“ Series Z-1 Clawback Amount ” shall mean, at any time with respect to each Series Z-1 Incentive Unit, an amount equal to the positive difference, if any, between (i) the then unpaid Capital Commitment with respect to such Series Z-1 Incentive Unit, and (ii) the sum of any distributions deemed to offset the Series Z-1 Clawback Amount in accordance with Section 6.2(e) below. The unpaid Capital Commitment of a Series Z-1 Partner with respect to a Series Z-1 Incentive Unit shall never be greater than the Series Z-1 Clawback Amount with respect to such Series Z-1 Incentive Unit, as adjusted from time to time.

“ Series Z-1 Conversion Ratchet Percentage ” with respect to any Series Z-1 Incentive Unit (i) shall equal 0% on the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, (ii) shall increase by twenty (20) percentage points on January 1 of the first calendar year after the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, on which (x) the holder of such Series Z-1 Incentive Unit is an employee of the General Partner and/or the Partnership and/or any subsidiary or affiliate thereof as of such January 1, (y) the Actual FFO Per Share of the General Partner for the calendar year preceding such January 1 is greater than or equal to the Series Z-1 Target FFO for such year, and (z) the Series Z-1 Conversion Ratchet Percentage prior to such increase is less than 100%, and (iii) shall increase ten (10) percentage points on January 1 of every calendar year thereafter on which the conditions in clauses (x), (y) and (z) of the immediately preceding clause (ii) are met; provided, however, that (a) the Compensation Committee may authorize the issuance of, or issue, Series Z-1 Incentive Units with a different schedule of percentage increase in the Conversion Ratchet Percentage than set forth in clauses (i), (ii) and (iii) above and such schedule shall be set forth in a subscription agreement executed at the time of issuance of the Series Z-1 Incentive Unit; and provided, further that such schedule is no less favorable to the Series Z-1 Partners than the schedule set forth in clauses (i), (ii) and (iii) above; and (b) if the Compensation Committee determines that Actual FFO Per Share is no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z-1 Partners or any other Partners of the Partnership, revise and amend the requirement in (y) above (and any definitions involved therein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended clause (y) is, considered as a whole, comparable or more effective as a means for analyzing the performance of the Partnership and incentivizing the Series Z-1 Partners (it being understood that such amended or restated clause (y) shall not be more difficult to achieve than the present requirements of clause (y)). In connection with the designation by the Compensation Committee of a specific date as the Series Z-1 Trigger Event, pursuant to the last sentence of the definition of Series Z-1 Trigger Event, for a particular Series Z-1 Incentive Unit or Units held by a Series Z-1 Partner, the Committee may, with respect to such unit or units and other Series Z-1 Incentive Units held by the same Series Z-1 Partner, (i) change the terms of such incentive units, including without limitation changing the existing Series Z-1 Conversion Ratchet Percentage and the schedule of future percentage increases in the Series Z-1 Conversion Ratchet Percentage, (ii) require that any or all Common Units issued upon the conversion of such incentive units be exchanged only into shares of Common Stock, subject to the Ownership Limit, and (iii) provide that any or all shares of Common Stock issued upon the exchange of Common Units, which Common Units were issued upon the conversion of such incentive units, be subject to sale restrictions, provided that in the case of each of the foregoing clauses (i), (ii) and (iii), that such Series Z-1 Partner consents to such provisions.

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“ Series Z-1 Distribution Ratchet Percentage ” with respect to any Series Z-1 Incentive Unit (i) shall equal 10% on the date of authorization of issuance, or upon issuance, of such Series Z-1 Incentive Unit, (ii) shall increase, on January 1 of the first calendar year after the date of issuance of such Series Z-1 Incentive Unit, to (a) twenty-five percent (25%) if the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units also increases to twenty percent (20%), or (b) fifteen percent (15%) if the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units remains at 0%, (iii) shall increase, to the extent it has not already done so, to twenty-five percent (25%) at such time as such Series Z-1 Conversion Ratchet Percentage is equal to 20%, and (iv) after such time as the Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units is equal to or greater than 30%, the Series Z-1 Distribution Ratchet Percentage shall be equal to the Series Z-1 Conversion Ratchet Percentage with respect to such Series Z-1 Incentive Units; provided, however that the Compensation Committee may authorize the issuance of, or issue, Series Z-1 Incentive Units with a different schedule of percentage increase in the Distribution Ratchet Percentage than set forth in clauses (i), (ii) and (iii) above and such schedule shall be set forth in a subscription agreement executed at the time of issuance of the Series Z-1 Incentive Unit; and provided, further that such schedule is no less favorable to the Series Z-1 Partners than the schedule set forth in clauses (i), (ii)and (iii) above.

“ Series Z-1 Forfeited Capital Account ” shall mean that portion of the Capital Account attributable to a Series Z-1 Incentive Unit equal to the product of (a) the excess of (i) the Adjusted Capital Account Balance (as defined in Section 10.10(a)) allocable to such Series Z-1 Incentive Unit over (ii) the sum of (A) the capital contribution made with respect to such Series Z-1 Incentive Unit and (B) the excess of the sum of the net allocations of operating income made with respect to such Series Z-1 Incentive Unit for all fiscal years (taking into account allocations of Net Operating Loss made with respect to such Series Z-1 Incentive Unit for all fiscal years) over the distributions of operating cash flow made to such Series Z-1 Incentive Unit (except to the extent such allocations have reduced the Series Z-1 Clawback Amount) multiplied by (b) 100% minus the Series Z-1 Conversion Ratchet Percentage applicable to such Series Z-1 Incentive Unit.

“ Series Z-1 Incentive Unit ” shall mean a Series Z-1 Incentive Unit of limited partnership interest in the Partnership with the rights set forth in this Agreement.

“ Series Z-1 Partner ” means an individual who was or is duly issued Series Z-1 Incentive Units and continues to hold such units, and his or her transferee, provided that such transferee qualifies as a Series Z-1 Partner pursuant to the provisions of Section 9.2(a). A Series Z-1 Partner shall also be deemed to be an Additional Limited Partner.

“ Series Z-1 Target FFO ” shall be determined by the Compensation Committee at the time each Series Z-1 Incentive Unit is issued; the Compensation Committee shall set forth in Exhibit S hereto the Series Z-1 Target FFO amount for the fiscal year in which such Series Z-1 Incentive Unit is issued and also the amounts of the Series Z-1 Target FFO or a formula for such amounts for each fiscal year thereafter through the term of such Series Z-1 Incentive Unit; provided, however, that if the Compensation Committee determines that the Series Z-1 Target FFO amounts and/or formulae set forth in Exhibit S are no longer an appropriate corporate performance parameter for establishing management objectives or that the applicable target levels are no longer feasible in light of factors or circumstances outside of the Partnership’s or the General Partner’s control (such as general economic conditions, legal/regulatory changes, war or similar events), it may, in its reasonable good faith discretion without any consent or other action on the part of the Series Z-1 Partners or any other Partners of the Partnership, revise and amend the Series Z-1 Target FFO amounts and/or formulae set forth in Exhibit S (and any definitions involved therein) to reflect one or more different or additional parameters, objectives or performance measures, so long as the Compensation Committee, in its reasonable good faith discretion, determines that the revised or amended definition is, considered as a whole, comparable as a means for analyzing the performance of the Partnership and incentivizing the Series Z-1 Partners (it being understood that such amended or restated definition shall not be more difficult to achieve than the present requirements of this definition).

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“ Series Z-1 Trigger Event ” shall mean the earliest to occur of any of the following events:

(i)   such time as a plan of dissolution or liquidation (but not including a deemed liquidation for tax purposes in connection with one or more transfers of interest in the Partnership) of the General Partner and/or the Partnership is duly adopted by appropriate corporate or partnership action;

(ii)   with respect to any and all Series Z-1 Incentive Units issued in a specific calendar year, the date on which the Series Z-1 Conversion Ratchet Percentage applicable to all the Series Z-1 Incentive Units issued in that same calendar year and held by then current employees of the General Partner and/or the Partnership (i.e., other than holders of Series Z-1 Incentive Units whose employment with the General Partner and/or the Partnership has terminated) reaches 100%;

(iii)   the earliest date on which the employment of all holders of Series Z-1 Incentive Units has been terminated; and

(iv)   fifteen (15) years after the date of issuance of the first Series Z-1 Incentive Unit, provided that, with respect to any Series Z-1 Incentive Units issued after December 31, 2009, such date shall be fifteen (15) years after the date of issuance of such Series Z-1 Incentive Unit.

In addition, with respect to any Series Z-1 Incentive Unit or Units, the Compensation Committee may at any time (including at the time of issuance of such unit or units or later) designate a specific date as the Series Z-1 Trigger Event for such unit or units and the Committee may elect, in its sole discretion, to have such date be subject to the consent of the holder of such unit or units, and such date shall be deemed to be the Series Z-1 Trigger Event for such unit or units for all purposes under this Agreement, provided that (x) if the Committee has elected to have such date be subject to the consent of the holder, the holder has consented to such date, or (y) if the Committee has not elected to have such date be subject to the consent of the holder, such date is earlier than the date of the Series Z-1 Trigger Event otherwise established pursuant to the earlier of items (i) through (iv) above.

“ Stock Incentive Plans ” shall have the meaning set forth in the Prospectus, along with any other employee or non-employee stock incentive, phantom unit or option plans adopted by the General Partner, and any amendments or amendment and restatements thereof.

“ Substituted Limited Partner ” shall mean a Person to whom one or more Partnership Units have been transferred, who is admitted as Limited Partner to the Partnership pursuant to Section 9.2 hereof.

“ Target Balance ” shall have the meaning set forth in subsection 1(e)(i) of Exhibit E.

“ Third Arbitrator ” shall have the meaning set forth in Section 12.2 hereof.

“ Trading Day ” shall mean a day on which the principal national securities exchange on which the Common Stock is listed or admitted to trading is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange, shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.

“ Transaction Expense ” shall have the meaning set forth in attached Exhibit I.

“ Transfer ” as a noun, shall mean any sale, assignment, conveyance, pledge, hypothecation, gift, encumbrance or other transfer (including any transfer by operation of law or by merger or consolidation), and, as a verb, shall mean to sell, assign (including by operation of law or by merger or consolidation), convey, pledge, hypothecate, give, encumber or otherwise transfer.

“ Treasury Regulations ” or “ Regulations ” shall mean the final, temporary or proposed income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

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“ Underwriting Agreement ” shall mean that certain Purchase Agreement dated June 6, 1994, among the General Partner, the Partnership and the representatives of the several underwriters named in Schedule I thereto.

“ Washington Partnership Interests ” shall mean a one percent (1%) limited partnership interest in each of the Washington Partnerships contributed to EWIP by the Partnership.

“ Washington Partnerships ” shall mean those two (2) Existing Partnerships listed on Exhibit G attached to the Original Agreement.

“ Weighted Number of Series Z-1 Incentive Units ” as determined from time to time shall mean the total number of outstanding Series Z-1 Incentive Units, multiplied by the Series Z-1 Conversion Ratchet Percentage with respect to each such Series Z-1 Incentive Unit, calculated on a unit-by-unit basis.

“ Wharfside Property ” shall mean that certain improved real property located in Seattle, Washington, and commonly known as Wharfside Pointe Apartments.

1.2   Exhibit, Etc. . References to “Exhibit” or to a “Schedule” are, unless otherwise specified, to one of the Exhibits or Schedules attached to this Agreement, and references to an “Article” or a “Section” are, unless otherwise specified, to one of the Articles or Sections of this Agreement. Each Exhibit and Schedule attached hereto and referred to herein is hereby incorporated herein by reference.

ARTICLE II
ORGANIZATION

2.1   Continuation of the Partnership . The parties hereto do hereby continue the Partnership, subject to the terms and conditions hereinafter set forth. The Partners agree that the rights and liabilities of the Partners shall be as provided in the Act except as otherwise herein expressly provided. The General Partner executed the Certificate and filed it with the Office of the Secretary of State of the State of California in connection with the formation of the Partnership. A certified copy of the amendment to the Certificate shall be filed for record in each county in which the Partnership shall own real property or an interest therein, and the General Partner shall cause such other notice, instrument, document or certificate as may be required by applicable law, and which may be necessary to enable the Partnership to conduct its business and to own the Properties under the Partnership name, to be filed or recorded in all appropriate public offices. The General Partner shall execute and file with the Office of the Secretary of State of the State of California any amendments to the Certificate required by law. A certified copy of each such amendment shall be filed by the General Partner for record in each county in which a copy of the Certificate has been filed for record.

2.2   Name . The business of the Partnership shall be conducted under the name of Essex Portfolio, L.P. or such other name as the General Partner may select, and all transactions of the Partnership, to the extent permitted by applicable law, shall be carried on and completed in such name.

2.3   Character of the Business. The purpose of the Partnership shall be to acquire, hold, own, develop, redevelop, construct, finance, improve, maintain, operate, manage, sell, provide seller financing, lease, transfer, encumber, convey, exchange, lend money, and otherwise dispose of or deal with Properties and ownership interests therein; to acquire, hold, own, develop, redevelop, construct, finance, improve, maintain, operate, manage, sell, provide seller financing, lease, transfer, encumber, convey, exchange, lend money, and otherwise dispose of or deal with real and personal property of all kinds, whether owned by the Partnership or otherwise; to be a partner in and to exercise all of the powers of a partner in other partnerships; subject to compliance with the REIT Requirements, to be a member in and to exercise all of the powers of a member in a limited liability company; to be a shareholder in a corporation, including, without limitation, the Property Manager (provided that the Partnership shall not have more than a ten percent (10%) voting interest in the Property Manager or any other corporation structured similarly thereto); and to undertake such other activities as may be necessary, advisable, desirable or convenient to the business of the Partnership, and to engage in such other ancillary activities as shall be necessary or desirable to effectuate the foregoing purposes. The Partnership shall have all powers necessary or desirable to accomplish the purposes enumerated. In connection with the foregoing, but subject to all of the terms, covenants, conditions and limitations contained in this Agreement and any other agreement entered into by the Partnership, the Partnership shall have full power and authority, directly or through its interests in EWIP, any of the other Investment Entities, the Washington Partnerships, the Property Manager or the Pathways Common Tenancy, to enter into, perform and carry out contracts of any kind, to borrow money and to issue evidences of indebtedness, whether or not secured by mortgage, trust deed, pledge or other lien, and, directly or indirectly, to acquire and construct additional Properties necessary or useful in connection with its business, and to lend money secured by additional Properties and other real and personal property.

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2.4   Location of the Principal Place of Business . The location of the principal place of business of the Partnership shall be at 1100 Park Place, Suite 200, San Mateo, California 94403, or such other location as shall be selected from time to time by the General Partner in its sole discretion.

2.5   Agent for Service of Process . The Partnership hereby appoints Daniel J. Rosenberg, whose address is 1100 Park Place, Suite 200, San Mateo, California 94403, as its agent for service of process. Such agent may be changed from time to time by the General Partner in its sole discretion by filing an amendment to the Certificate.

2.6   Certificates of Ownership . Each Partner’s Partnership Units may, in the sole and absolute discretion of the General Partner, either be evidenced by one or more registered certificates of ownership or be uncertificated; provided that certificates of ownership previously issued with respect to a Partner’s Partnership Units will continue to evidence such Partnership Units unless and until such certificates are submitted to the Partnership upon transfer, conversion or otherwise. Any such certificates shall contain a legend evidencing the restrictions on transfer of the Partnership Units, which legend shall be substantially similar to the legend contained on the cover page of this Agreement.

ARTICLE III
TERM

3.1   Commencement . The Partnership commenced business as a limited partnership upon the filing of the Certificate of Limited Partnership with the Secretary of State of the State of California, on March 15, 1994.

3.2   Termination . The term of the Partnership shall be perpetual, unless it is dissolved and wound up sooner pursuant to the provisions of Article VIII hereof or otherwise as provided by law.

ARTICLE IV
CONTRIBUTIONS TO CAPITAL

4.1   General Partner Capital Contribution . Concurrent with the Completion of the Offering, the General Partner contributed to the Partnership as its initial contribution to the capital of the Partnership an amount equal to the difference between the Gross Offering Proceeds and the Initial Offering Expenses. Subsequent to the Completion of the Offering, as of the date hereof, the General Partner has contributed as additional Capital Contributions (a) an amount equal to the net proceeds from the issuances of shares of Preferred Stock, and (b) the net proceeds from public, underwritten offerings of Common Stock completed subsequent to the Offering.

4.2   Limited Partner Capital Contributions . Prior to or concurrent with the Completion of the Offering, certain Limited Partners contributed, or caused to be contributed, as its initial Capital Contribution to the capital of the Partnership, all of such Limited Partner’s right, title and interest in the Purchase Contracts, the Contributed Interests and the Plumtree Property.

4.3   Issuances of Additional Partnership Interests .

(a)   Without the consent of any Limited Partner, but subject to the terms of Section 9.4 below, the General Partner may from time to time, upon its determination that the issuance of additional Partnership Units (“Additional Units”) is in the best interests of the Partnership, cause the Partnership to issue to the Partners (including the General Partner) or other Persons Additional Units or other Partnership Interests in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties as the General Partner shall determine, including, without limitation, rights, powers and duties senior to the Limited Partner’s Partnership Interests, and, if necessary, admit any such other Person as an additional Limited Partner (“Additional Limited Partner”) (in accordance with Section 4.6 hereof). Without limiting the provisions of this Article IV, the General Partner is expressly authorized to cause the Partnership to issue Additional Units for less than fair market value or in exchange for past or future services, so long as the General Partner concludes in good faith that such issuance is in the best interests of the Partnership.

(b)   The General Partner may not cause the Partnership to issue Additional Units or other Partnership Interests to itself unless either:

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(i)   (A) the Additional Units or additional Partnership Interests are issued in connection with an issuance of shares of the capital stock of the General Partner (including shares of Common Stock issued by the General Partner to the Partnership to satisfy the Partnership’s redemption obligations under Article XI hereof), which shares have designations, preferences and other rights, all such that the economic interests are substantially similar to the designations, preferences and other rights of the Additional Units or additional Partnership Interests issued to the General Partner in accordance with Section 4.3(a) hereof, and (B) except for shares of Common Stock issued by the General Partner to the Partnership to satisfy the Partnership’s redemption obligation under Article XI hereof, the General Partner shall make a Capital Contribution to the Partnership in an amount equal to the net proceeds raised in connection with the issuance of such shares of the General Partner; or

(ii) the Additional Units or additional Partnership Interests are issued to all Partners pro   rata in accordance with their respective Percentage Interests.

(c)   After the date hereof, the General Partner shall not issue any additional shares of Common Stock or Preferred Stock (other than shares of Common Stock or Preferred Stock issued pursuant to Article XI hereof or any exchange right or redemption right applicable to any Preferred Interest), rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock or Preferred Stock (collectively, “New Securities”) other than to all holders of the shares of Common Stock (or, to the extent such New Securities relate to Preferred Stock, to all holders of the shares of Preferred Stock) unless (i) the General Partner shall cause the Partnership to issue to the General Partner Partnership Interest or rights, options warrants or other rights, all such that the economic interests are substantially similar to those of the New Securities, and (ii) the General Partner contributes the proceeds, if any (subject to actual or deemed reimbursement of any expenses, including underwriting discount commission or fees by the Partnership to the General Partner pursuant to Section 7.1 hereof) from the issuance of such New Securities and from the exercise of rights contained in such New Securities to the Partnership. Without limiting the foregoing, the General Partner is expressly authorized to issue New Securities for less than fair market value or in exchange for past or future services (so long as the General Partner concludes in good faith that such issuance is in the best interests of the Partnership) and to cause the Partnership to issue to the General Partner corresponding Partnership Interests.

(d)   Notwithstanding anything contained herein to the contrary, the liability of the Limited Partners shall be limited to the aggregate amount of any capital contributions made by the Limited Partners pursuant to this Agreement. Except to the extent that additional capital contributions are unanimously approved by the Partners, the Limited Partners shall have no personal liability to contribute or lend money to, or in respect of, the liabilities or the obligations of the Partnership.

4.4   Options . If at any time or from time to time Options granted in connection with either any Stock Incentive Plan or the M&M Option Agreement are exercised in accordance with the terms of such Stock Incentive Plans or the M&M Option Agreement or Common Stock is issued pursuant to any stock purchase plan, dividend reinvestment plan or open enrollment plan adopted by the General Partner (as the case may be):

(a)   the General Partner shall contribute to the capital of the Partnership an amount equal to the exercise price paid to the General Partner by such exercising party in connection with the exercise of the Option or the purchase price of the Common Stock issued pursuant to such stock purchase plan or dividend reinvestment plan;

(b)   the General Partner shall be issued Additional Units equal to the number of shares of Common Stock delivered by the General Partner to such exercising party or purchaser;

(c)   the General Partner shall be deemed to have made an additional Capital Contribution, in an amount equal to the Current Per Share Market Price (as of the Trading Date immediately preceding the date on which the exercise price or the purchase price (as the case may be) is contributed to the capital of the Partnership) multiplied by the number of shares of Common Stock delivered by the General Partner to such exercising party or purchaser; and.

(d)   the Percentage Interests of the Partners shall be adjusted to reflect the issuance of such Additional Units.

4.5   Contribution of Proceeds of Issuance of Shares of Common Stock and Preferred Stock . In connection with the issuance of shares of Common Stock or Preferred Stock pursuant to Section 4.3 hereof, the General Partner shall make a Capital Contribution to the Partnership of the proceeds raised in connection with such issuance, provided that if the proceeds actually received by the General Partner are less than the gross proceeds of such issuance as a result of any underwriter’s discount, commission or fee or other expenses paid or incurred in connection with such issuance, then the General Partner shall be deemed to have made a Capital Contribution to the Partnership in the amount of the gross proceeds of such issuance and the Partnership shall be deemed simultaneously to have reimbursed the General Partner pursuant to Section 7.1 hereof for the amount of such underwriter’s discount, commission or fee or other expenses. A redemption of a Partnership Unit, whether by the Partnership or the General Partner, shall not constitute an issuance of shares of Common Stock or Preferred Stock for purposes of this Section 4.5.

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4.6   Admission of Additional Limited Partners .

(a)   After the date hereof, a Person issued Partnership Units in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) a written agreement in form satisfactory to the General Partner accepting all of the terms and conditions of this Agreement and (ii) such other documents or instruments as may be required in the discretion of the General Partner in order to effect such Person’s admission as an Additional Limited Partner.

(b)   No Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion for any or no reason. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission.

(c)   If an Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss, each item thereof and all other items allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Section 706(d) of the Code, using any permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all Partners and Assignees including such Additional Limited Partner.

(d)   The General Partner shall be authorized on behalf of each of the Partners to amend this Agreement to reflect the admission of any Additional Limited Partner or any increase in the Percentage Interests of any Partner and the corresponding reduction of the Percentage Interests of the other Partners in accordance with the provisions of this Agreement.

(e)   [Intentionally Omitted]

(f)   Effective immediately prior to the initial issuance of the Series Z-1 Incentive Units and the admission of the initial Series Z-1 Partners as Additional Limited Partners, the capital accounts of the Partnership were adjusted to reflect each Partner’s share of the net fair market value of the Partnership’s assets (a “book-up”) by adjusting the Gross Asset Values of all Partnership assets to their respective gross fair market values and allocating the amount of such adjustment as Net Property Gain or Net Property Loss pursuant to Exhibit E hereof. Each person who is issued a Series Z-1 Incentive Unit shall (a) make a Capital Commitment to the Partnership in the amount of $1.00 per Unit and (b) be admitted as an Additional Limited Partner in accordance with Sections 4.3 and 4.6 of this Agreement, holding that number of Series Z-1 Incentive Units as is set forth next to his or her name on Exhibit R. It is the intention of the Partnership that only directors, officers or other employees of the General Partner shall be issued Series Z-1 Incentive Units and only such persons may become Series Z-1 Partners. At the Partnership’s election, taking into account the provisions of Section 402 of the Sarbanes-Oxley Act of 2002, the Partnership may allow a Series Z-1 Partner to have a positive Series Z-1 Clawback Amount; provided, however, that prior to a Series Z-1 Partner becoming a director or executive officer of the General Partner, within the meaning of Section 402 of the Sarbanes-Oxley Act of 2002, as amended, such Series Z-1 Partner shall pay to the Partnership the aggregate Capital Commitment for the Series Z-1 Incentive Units that have been issued to such Series Z-1 Partner. If the Partnership does not elect to allow a Series Z-1 Partner to have such a positive Series Z-1 Clawback Amount, then upon the issuance of any Series Z-1 Incentive Units to such Series Z-1 Partner, the Capital Commitment calculated on a unit-by-unit basis for such Series Z-1 Incentive Units shall be immediately due and payable to the Partnership. Each person who is issued a Series Z-1 Incentive Unit shall become a party to this Agreement as a Limited Partner and shall be bound by all the terms, conditions and other provisions of this Agreement. Pursuant to Section 4.6(b) of this Agreement, the General Partner hereby consents to the admission of each Person who is issued a Series Z-1 Incentive Unit as an Additional Limited Partner of the Partnership. The admission of a Series Z-1 Partner shall become effective as of the date such Series Z-1 Partner has executed a counterpart signature page to the relevant amendment to the First Amended and Restated Agreement, the Second Amended and Restated Agreement or the Third Amended and Restated Agreement (and such other written agreements as the General Partner may require), which shall also be the date on which the name of a Series Z-1 Partner is recorded on the books and records of the Partnership. The admission of a Series Z-1 Partner shall not require the consent or approval of any other Limited Partner.

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4.7   No Third Party Beneficiary . No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or to pursue any other right or remedy hereunder or at law or in equity, it being understood and agreed that the provisions of this Agreement shall be solely for the benefit of, and may be enforced solely by, the Partners and their respective successors and assigns. None of the rights or obligations of the Partners herein set forth to make Capital Contributions to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or of any of the Partners.

4.8   No Interest; No Return . No Partner shall be entitled to interest on its Capital Contribution or on such Partner’s Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership.

ARTICLE V
[INTENTIONALLY OMITTED]

ARTICLE VI
ALLOCATIONS AND OTHER TAX AND ACCOUNTING MATTERS

6.1   Allocations . Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss and/or other Partnership items shall be allocated pursuant to the provisions of attached Exhibit E.

6.2   Distributions . The General Partner shall cause the Partnership to distribute all or a portion of Available Cash to the Partners from time to time as determined by the General Partner, but in any event not less frequently than quarterly in such amounts as the General Partner shall determine; provided, however, that notwithstanding the foregoing, the General Partner shall use its best efforts to cause the Partnership to distribute sufficient amounts to enable the General Partner to pay shareholder dividends that will (1) satisfy the requirements for qualifying as a REIT under the Code and Regulations (“REIT Requirements”), and (2) avoid any federal income or excise tax liability of the General Partner; and provided further, that all such distributions shall be made in accordance with the provisions of this Section 6.2.

(a)   Distributions shall be made in accordance with the following order of priority:

(i)   First, on a pro rata basis, (based upon the same ratio that accrued distributions per share of Series G Preferred Stock and Series H Preferred Stock (which shall not include any accumulation in respect of unpaid distributions for prior distribution periods if such stock does not have cumulative distribution rights) bear to each other) to the General Partner, on account of the Series G Preferred Interest and Series H Preferred Interest until the total amount of distributions made pursuant to this Section 6.2(a)(i) equals the total amount of accrued but unpaid distributions (if any) payable with respect to the Series G Preferred Stock and Series H Preferred Stock as of the date of such distribution.

(ii)   Next, to the Partners, pro rata in accordance with the Partners’ then Percentage Interests.

Neither the Partnership nor the Limited Partners shall have any obligation to see that any funds distributed to the General Partner pursuant to subparagraph (a)(i) of this Section 6.2 are in turn used by the General Partner to pay dividends on the Series G Preferred Stock or the Series H Preferred Stock (or any other Preferred Stock) or that funds distributed to the General Partner pursuant to subparagraph (a)(ii) of this Section 6.2 are in turn used by the General Partner to pay dividends on the Common Stock or for any other purpose.

(b)   Upon the receipt by the General Partner of each Exercise Notice pursuant to which one or more Limited Partners exercise Rights in accordance with the provisions of Article XI hereof, the General Partner shall, unless the General Partner is required or elects only to issue Common Stock to such exercising Limited Partners, cause the Partnership to distribute to the Partners all or a portion of Available Cash, which distribution shall be made prior to the closing of the purchase and sale of the Offered Units specified in such Exercise Notice, and which distribution shall be made in accordance with subparagraph (a) of this Section 6.2. Notwithstanding the foregoing, the General Partner shall have the right in its sole discretion to delay the actual distribution of Available Cash to the Partners required by this Section 6.2(b) until the next scheduled distribution of Available Cash.

(c)   Notwithstanding the foregoing, the General Partner may, in its sole discretion, at any time when any Preferred Stock (including any Series G Preferred Stock, Series H Preferred Stock or any other Preferred Stock) is outstanding, make a special distribution to itself, alone, on account of the Preferred Interest relating to such Preferred Stock, for the sole purpose of, and in an amount no greater than such amount as will be used by the General Partner for, redemption of all or any part of such outstanding Preferred Stock (any such distribution shall be referred to as a “Redemption Distribution”). There shall be no adjustments of the Percentage Interests of the Partners on account of any Redemption Distribution.

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(d)   [Intentionally Omitted]

(e)   Notwithstanding the foregoing, at any time that the Series Z-1 Clawback Amount with respect to a Series Z-1 Incentive Unit is greater than zero, then, to the extent of such Series Z-1 Clawback Amount, the distributions otherwise provided for by this Section with respect to such Series Z-1 Incentive Unit shall not be paid in cash and shall instead be deemed to offset the applicable Series Z-1 Partners’ unpaid Capital Commitment and thereby reduce the then existing Series Z-1 Clawback Amount with respect to such Series Z-1 Incentive Unit in an amount equal to the distributions that would have otherwise been paid with respect to such Series Z-1 Incentive Unit.

(f)   Distributions made pursuant to this Section 6.2 shall be adjusted as necessary to ensure that the amount apportioned to each LTIP Unit does not exceed the amount attributable to items of Partnership income or gain realized after the date such LTIP Unit was issued by the Partnership. The intent of this Section 6.2(f) is to ensure that any LTIP Units qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001), and Section 6.2 shall be interpreted and applied consistently therewith. The General Partner at its discretion may amend this Section 6.2(f) to ensure that any LTIP Units will qualify as “profits interests” under Revenue Procedure 93-27, 1993-2 C.B. 343 (June 9, 1993) and Revenue Procedure 2001-43, 2001-2 C.B. 191 (August 3, 2001) (and any other similar rulings or regulations that may be in effect at such time).

(g)   [Intentionally Omitted]

(h)   Notwithstanding anything to the contrary in this Agreement, a holder of Series Z-1 Incentive Units may convert all or a portion of his or her Vested Series Z-1 Incentive Units into Common Units, only to the extent of the balance in such holder’s Capital Account that is attributable to such Units, after giving effect to any adjustments to or “book ups” of such Capital Account pursuant to subsection 2(c) of Exhibit E of this Agreement.

6.3   Withholding . The General Partner may withhold taxes from any allocation or distribution to any Partner to the extent required by the Code or any other applicable law. For purposes of this Agreement, any taxes so withheld by the Partnership shall be deemed to be a distribution or payment to such Partner, reduce the amount otherwise distributable or allocable to such Partner pursuant to this Agreement and reduce the Capital Account of such Partner.

6.4   Books of Account . At all times during the continuance of the Partnership, the General Partner shall maintain or cause to be maintained full, true, complete and correct books of account in accordance with generally accepted accounting principles wherein shall be entered particulars of all monies, goods or effects belonging to or owing to or by the Partnership, or paid, received, sold or purchased in the course of the Partnership’s business, and all of such other transactions, matters and things relating to the business of the Partnership as are usually entered in books of account kept by persons engaged in a business of a like kind and character. In addition, the Partnership shall keep all records as required to be kept pursuant to the Act. The books and records of account shall be kept at the principal office of the Partnership, and each Partner shall at all reasonable times have access to such books and records and the right to inspect the same.

6.5   Reports . No later than the date on which the General Partner mails its annual report to its stockholders, the General Partner shall cause to be mailed to each Limited Partner, as of the close of the Fiscal Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Fiscal Year, presented in accordance with generally accepted accounting principles, such statements to be audited by the Accountants. The General Partner shall cause to be mailed to each Limited Partner such other information as may be required by applicable law or regulation, or as the General Partner determines to be appropriate. Notwithstanding the foregoing, the General Partner shall have satisfied its obligations under this Section by (i) to the extent the General Partner or the Partnership is subject to periodic reporting requirements under the Exchange Act, filing the quarterly and annual reports required thereunder within the time periods provided for the filing of such reports, including any permitted extensions, or (ii) posting or making available the reports required by this Section on the website maintained from time to time by the Partnership or the General Partner, provided that such reports are able to be printed or downloaded from such website.

6.6   Audits . Not less frequently than annually, the books and records of the Partnership shall be audited by the Accountants.

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6.7   Tax Elections and Returns . Except as otherwise required by applicable law, all elections required or permitted to be made by the Partnership under any applicable tax law shall be made by the General Partner in its sole discretion; provided, however, the General Partner shall, if requested by a transferee, file an election on behalf of the Partnership pursuant to Section 754 of the Code to adjust the basis of the Partnership property in the case of a transfer of a Partnership Interest, including transfers made in connection with the exercise of Rights, made in accordance with the provisions of this Agreement. The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use reasonable efforts to furnish for each Fiscal Year, at least 45 days prior to the deadline (after giving effect to all applicable extensions) for filing federal income tax returns for the Partnership for such fiscal year, the tax information reasonably required by the Limited Partners for federal and state income tax reporting purposes.

6.8   Tax Matters Partner; Partnership Representative .

(a)            For taxable years of the Partnership beginning before January 1, 2018, the General Partner has been designated to be the tax matters partner (the “Tax Matters Partner”) within the meaning of Section 6231(a)(7) of the Code for the Partnership; provided, however, (i) in exercising its authority as Tax Matters Partner it shall be limited by the provisions of this Agreement affecting tax aspects of the Partnership; (ii) the General Partner shall consult in good faith with the Limited Partners regarding the filing of a Code Section 6227(a) administrative adjustment request with respect to the Partnership or a Property before filing such request, it being understood, however, that the provisions hereof shall not be construed to limit the ability of any Partner, including the General Partner, to file an administrative adjustment request on its own behalf pursuant to Section 6227(a) of the Code; (iii) the General Partner shall consult in good faith with the Limited Partners regarding the filing of a petition for judicial review of an administrative adjustment request under Section 6228 of the Code, or a petition for judicial review of a final partnership administrative judgment under Section 6226 of the Code relating to the Partnership before filing such petition; (iv) the General Partner shall give prompt notice to the Limited Partners of the receipt of any written notice that the Internal Revenue Service or any state or local taxing authority intends to examine Partnership income tax returns for any year, receipt of written notice of the beginning of an administrative proceeding at the Partnership level relating to the Partnership under Section 6223 of the Code, receipt of written notice of the final Partnership administrative adjustment relating to the Partnership pursuant to Section 6223 of the Code, and receipt of any request from the Internal Revenue Service for waiver of any applicable statute of limitations with respect to the filing of any tax return by the Partnership; and (v) the General Partner shall promptly notify the Limited Partners if the General Partner does not intend to file for judicial review with respect to the Partnership. All references to Code Sections in this Section 6.8(a) are to such Code Sections as in effect prior to the repeal or amendment of such Sections by the Bipartisan Budget Act of 2015 (P.L. 114-74) (the “Bipartisan Budget Act”).

(b)            For each taxable year of the Partnership beginning on or after January 1, 2018, the General Partner shall designate itself or another Person to be the partnership representative of the Partnership (the “Partnership Representative”) within the meaning of Section 6223 of the Code in accordance with Regulations Section 301.6223-1 and any other applicable Internal Revenue Service guidance. If the Person designated by the General Partner to serve as the Partnership Representative is not an individual, the General Partner shall also appoint an individual (the “Designated Individual”) through whom the Partnership Representative acts in accordance with Regulations Section 301.6223-1 and any other applicable Internal Revenue Service guidance. The General Partner shall also designate a new Partnership Representative if the Partnership Representative resigns or is deemed ineligible or appoint a new Designated Individual if the Designated Individual resigns or is deemed ineligible. The General Partner is authorized to revoke and replace from time to time the Partnership Representative or the Designated Individual in accordance with Regulations Section 301.6223-1 and any other applicable Internal Revenue Service guidance. The General Partner shall make all designations and appointments under similar or analogous state, local or non-U.S. laws. The Partnership Representative shall have the right and obligation to take all actions authorized and required, respectively, by the Code and Regulations for the Partnership Representative. The taking of any action and the incurring of any expense by the Partnership Representative in connection with any applicable proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the Partnership Representative, and the provisions relating to indemnification of the General Partner set forth in Section 7.10 hereof shall be fully applicable to the Partnership Representative and the Designated Individual, if any, acting as such.

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(c)            Each Partner agrees that such Partner shall not treat any Partnership-related item inconsistently on such Partner’s federal, state, local or non-U.S. tax return with the treatment of the item on the Partnership’s return. Any deficiency for taxes imposed on any Partner with respect to such Partner’s interest in the Partnership (including penalties, additions to tax or interest imposed with respect to such taxes and any tax deficiency imposed pursuant to Section 6226 of the Code) will be paid by such Partner. If the Partnership is required to pay (and actually pays) an imputed underpayment (including penalties, additions to tax or interest imposed with respect to such taxes, pursuant to Section 6225 of the Code) with respect to a reviewed year, or bears the economic burden of imputed underpayments made by entities in which it is a partner, such amounts paid will be recoverable from the reviewed-year Partners. To the extent that the Partnership or the Partnership Representative, as applicable, does not make an election under Sections 6221(b) (if available) or 6226 of the Code, the Partnership shall use commercially reasonable efforts to (i) make any modifications available under Section 6225(c) of the Code, and (ii) if requested by a Partner, provide to such Partner information allowing such Partner to file an amended federal income tax return, as described in Section 6225(c)(2) of the Code, to the extent such amended return and payment of any related federal income taxes would reduce any taxes payable by Partnership. Each Limited Partner shall, including any time after such Limited Partner withdraws from or otherwise ceases to be a Limited Partner, take all actions requested by the General Partner, including timely provision of requested information and consents in connection with implementing any elections or decisions made by the Partnership or the Partnership Representative (or Person acting in a similar capacity under similar or analogous state, local or non-U.S. laws) related to any tax audit or examination of the Partnership (including to implement any modifications to any imputed underpayment or similar amount under Section 6225(c) of the Code, any elections under Sections 6221 or 6226 of the Code and any administrative adjustment request under Section 6227 of the Code).

(d)            Notwithstanding anything to the contrary in this Agreement, any information, representations, certificates, forms, or documentation provided pursuant to this Section 6.8 may be disclosed to any applicable taxing authority. Each Partner agrees to be bound by the provisions of this Section 6.8 at all times, including any time after such Partner ceases to be a Partner solely with respect to matters directly related to such Partner’s interest in the Partnership, and the provisions of Section 6.8 shall survive the winding up, liquidation and dissolution of the Partnership. For the avoidance of doubt, all references to Code Sections in Sections 6.8(b) and 6.8(c) are to such Code Sections as amended by the Bipartisan Budget Act (and any applicable subsequent amendments thereto).

ARTICLE VII
RIGHTS, DUTIES AND RESTRICTIONS OF THE GENERAL PARTNER

7.1   Expenditures by Partnership . The General Partner is hereby authorized to pay compensation for accounting, administrative, legal, technical, management and other services rendered to the Partnership. All of the aforesaid expenditures shall be made on behalf of the Partnership, and the General Partner shall be entitled to reimbursement by the Partnership for any expenditures incurred by it on behalf of the Partnership which shall be made other than out of the funds of the Partnership. The Partnership shall also assume, and pay when due, all Administrative Expenses.

7.2   Powers and Duties of General Partner . The General Partner shall be responsible for the management of the Partnership’s business and affairs. Except as otherwise herein expressly provided, and subject to the limitations contained in Section 7.3 hereof with respect to Major Decisions and the limitations set forth in Section 9.1 hereof, the General Partner has and shall have full and complete power, authority and discretion to take such action for and on behalf of the Partnership and in its name as the General Partner shall, in its sole and absolute discretion, deem necessary or appropriate to carry out the purposes for which the Partnership was organized. Except as otherwise expressly provided herein, and subject to Section 7.3 hereof, the General Partner shall have the right, power and authority:

(a)   To manage, control, invest, reinvest, acquire by purchase, lease, exchange or otherwise, sell, contract to purchase or sell, grant, obtain, or exercise options to purchase, options to sell or conversion rights, assign, transfer, convey, deliver, endorse, exchange, pledge, mortgage, abandon, improve, repair, maintain, insure, lease for any term and otherwise deal with any and all property of whatsoever kind and nature, and wheresoever situated, in furtherance of the purposes of the Partnership;

(b)   To acquire, directly or indirectly, interests in real estate or entities owning real estate of any kind and of any type, and any and all kinds of interests therein (whether through direct ownership, partnerships, security interests or any other type of interests), and to determine the manner in which title thereto is to be held; to manage, insure against loss, protect and subdivide any of the real estate, interests therein or parts thereof; to improve, develop or redevelop any such real estate; to participate in the ownership and development of any property; to dedicate for public use, to vacate any subdivisions or parts thereof, to re-subdivide, to contract to sell or exchange, to grant options to purchase, lease or exchange, to sell or exchange on any terms; to convey, to mortgage or receive mortgages, pledge or otherwise encumber said property, or any part thereof; to lease said property or any part thereof from time to time, upon any terms and for any period of time, and to renew or extend leases, to amend, change or modify the terms and provisions or any leases and to grant options to lease and options to renew leases and options to purchase; to partition or to exchange said real property, or any part thereof, for other real or personal property; to grant easements or charges of any kind; to release, convey or assign any right, title or interest in or about or easement appurtenant to said property or any part thereof; to construct and reconstruct, remodel, alter, repair, add to or take from buildings on any real property in which the Partnership owns an interest; to insure any Person having an interest in or responsibility for the care, management or repair of such property; to direct the trustee of any land trust to mortgage, lease, convey or contract to convey the real estate held in such land trust or to execute and deliver deeds, mortgages, notes, and any and all documents pertaining to the property subject to such land trust or in any matter regarding such trust; to execute assignments of all or any part of the beneficial interest in any land trust in which the Partnership owns a beneficial interest;

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(c)   To employ, engage or contract with or dismiss from employment or engagement Persons to the extent deemed necessary by the General Partner for the operation and management of the Partnership business, including but not limited to, contractors, subcontractors, engineers, architects, surveyors, mechanics, consultants, accountants, attorneys, insurance brokers, real estate brokers and others;

(d)   To negotiate and enter into contracts on behalf of the Partnership that the General Partner considers useful or necessary to the conduct of the Partnership’s operations or implementation of the General Partner’s powers under this Agreement;

(e)   To enter into, make, amend, perform and carry out or cancel and rescind, contracts and other obligations, including, without limitation, guarantees and indemnity agreements, for any purpose pertaining to the business of the Partnership, the Washington Partnerships, EWIP, any other Investment Entities and the Property Manager as well as any other Entity in which the Partnership or any of the other foregoing Entities has an equity interest; and to loan money to, borrow money from and engage in transactions with Affiliates of the Partnership or any other Person;

(f)   To borrow money, procure loans and advances from any Person for Partnership purposes, and to apply for and secure, from any Person, credit or accommodations; to contract liabilities and obligations, direct or contingent and of every kind and nature with or without security; and to repay, discharge, settle, adjust, compromise, or liquidate any such loan, advance, credit, obligation or liability;

(g)   To pledge, hypothecate, mortgage, assign, deposit, deliver, enter into sale and leaseback arrangements or otherwise give as security or as additional or substitute security, or for sale or other disposition any and all Partnership property, tangible or intangible, including, but not limited to, real estate and beneficial interests in land trusts, and to make substitutions thereof, and to receive any proceeds thereof upon the release or surrender thereof; to sign, execute and deliver any and all assignments, deeds and other contracts and instruments in writing; to authorize, give, make, procure, accept and receive moneys, payments, property, notices, demands, vouchers, receipts, releases, compromises and adjustments; to waive notices, demands, protests and authorize and execute waivers of every kind and nature; to enter into, make, execute, deliver and receive written agreements, undertakings and instruments of every kind and nature; to give oral instructions and make oral agreements; and generally to do any and all other acts and things incidental to any of the foregoing or with reference to any dealings or transactions which the General Partner may deem necessary, proper or advisable to effect or accomplish any of the foregoing;

(h)   To acquire and enter into any contract of insurance which the General Partner deems necessary or appropriate for the protection of the Partnership, for the conservation of the Partnership’s assets or for any purpose convenient or beneficial to the Partnership;

(i)   To conduct any and all banking transactions on behalf of the Partnership; to adjust and settle checking, savings, and other accounts with such institutions as the General Partner shall deem appropriate; to draw, sign, execute, accept, endorse, guarantee, deliver, receive and pay any checks, drafts, bills of exchange, acceptances, notes, obligations, undertakings and other instruments for or relating to the payment of money in, into, or from any account in the Partnership’s name; to execute, procure, consent to and authorize extensions and renewals of any of the foregoing; to make deposits into and withdrawals from the Partnership’s bank accounts and to negotiate or discount commercial paper, acceptances, negotiable instruments, bills of exchange and dollar drafts;

(j)   To demand, sue for, receive, and otherwise take steps to collect or recover all debts, rents, proceeds, interest, dividends, goods, chattels, income from property, damages and all other property, to which the Partnership may be entitled or which are or may become due the Partnership from any Person; to commence, prosecute or enforce, or to defend, answer or oppose, contest and abandon all legal proceedings in which the Partnership is or may hereafter be interested; and to settle, compromise or submit to arbitration any accounts, debts, claims, disputes and matters which may arise between the Partnership and any other Person and to grant an extension of time for the payment or satisfaction thereof on any terms, with or without security;

(k)   To make arrangements for financing, including the taking of all action deemed necessary or appropriate by the General Partner to cause any approved loans to be closed;

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(l)   To take all reasonable measures necessary to insure compliance by the Partnership with applicable arrangements, and other contractual obligations and arrangements entered into by the Partnership from time to time in accordance with the provisions of this Agreement, including periodic reports as required to be submitted to lenders and using all due diligence to insure that the Partnership is in compliance with its contractual obligations;

(m)   To maintain the Partnership’s books and records;

(n)   To prepare and deliver, or cause to be prepared and delivered, all financial and other reports with respect to the operations of the Partnership, and preparation and filing of all Federal and state tax returns and reports;

(o)   Subject to compliance with the REIT Requirements, to prepare and deliver all financial, regulatory, tax and other filings or reports to governmental or other agencies having jurisdiction over the Partnership; and

(p)   To act in any state or nation in which the Partnership may lawfully act, for itself or as principal, agent or representative for any Person with respect to any business of the partnership;

(q)   To become a partner or member in, and perform the obligations of a partner or member of, any general or limited partnership or limited liability company;

(r)   To apply for, register, obtain, purchase or otherwise acquire trademarks, trade names, labels and designs relating to or useful in connection with any business of the Partnership, and to use, exercise, develop and license the use of any of the foregoing;

(s)   To do all acts which are necessary, customary or appropriate for the protection and preservation of the Partnership’s assets, including the establishment of reserves; and

(t)   To do all other actions of a partner in a partnership without limited partners, recognizing that the Limited Partners shall have only the right and authority to participate in the affairs of the Partnership to the extent specifically set forth in this Agreement.

Except as otherwise provided herein, to the extent the duties of the General Partner require expenditures of funds to be paid to third parties, the General Partner shall not have any obligations hereunder except to the extent that Partnership funds are reasonably available to it for the performance of such duties, and nothing herein contained shall be deemed to require the General Partner, in its capacity as such, to expend its individual funds for payment to third parties on behalf of the Partnership or to undertake any individual liability or obligation on behalf of the Partnership. Each of the Limited Partners agrees that the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provisions of this Agreement (except as provided in Section 7.3), the Act or any applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not in itself constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity.

7.3   Major Decisions . The General Partner shall not, without the prior Consent of the Limited Partners, on behalf of the Partnership, undertake any of the following actions (the “Major Decisions”):

(a)   Terminate this Agreement or, except as expressly provided otherwise herein, amend or modify this Agreement.

(b)   Make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Partnership.

(c)   Take title to any personal or real property, other than in the name of the Partnership or pursuant to Section 7.8 hereof.

(d)   Institute any proceeding for Bankruptcy on behalf of the Partnership.

(e)   Dissolve the Partnership, except as otherwise set forth in this Partnership Agreement.

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Notwithstanding the foregoing, the action described in Section 7.3(a) shall not be a Major Decision if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time that such action is undertaken and the actions described in Sections 7.3(b), (d) and (e) shall not be Major Decisions if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time that such action is undertaken.

7.4   Actions with Respect to Certain Documents . Notwithstanding the provisions of Section 7.3 hereof to the contrary, whenever the consent, agreement, authorization or approval of the Partnership is required under any agreement to which the Limited Partners and/or their Controlled Entities are parties in interest other than in their capacities as Limited Partners of the Partnership, the Consent of the Limited Partners shall not be required.

7.5   General Partner Participation . The General Partner agrees that all business activities of the General Partner, including activities pertaining to the acquisition, development and ownership of Properties, shall be conducted through the Partnership (except that the General Partner shall be permitted to possess an ownership interest in EWIP or some other Entity (collectively, the “Investment Entities”) so long as the Partnership’s interest in any property, partnership, limited liability company or other Entity in which the Investment Entity has an ownership interest is at least 99 times the Investment Entity’s interest). Without the Consent of the Limited Partners, the General Partner shall not, directly or indirectly, participate in or otherwise acquire any interest in any real or personal property unless the Partnership participates in, or otherwise acquires an interest in, such real or personal property at least to the extent of 99 times such proposed participation by the Investment Entity, provided that the Consent of the Limited Partners shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time that the General Partner undertakes such action. The General Partner agrees that all borrowings for the purpose of making distributions to its stockholders will be incurred by the Partnership and the proceeds of such indebtedness will be included as Net Financing Proceeds hereunder (provided that the foregoing shall not prohibit the General Partner from guaranteeing or co-signing an obligation of any of the foregoing Entities).

7.6   Proscriptions . The General Partner shall not have the authority to:

(a)   Do any act in contravention of this Agreement or which would make it impossible to carry on the ordinary business of the Partnership;

(b)   Possess any Partnership property or assign rights in specific Partnership property for other than Partnership purposes; or

(c)   Do any act in contravention of applicable law.

Nothing herein contained shall impose any obligation on any Person or firm doing business with the Partnership to inquire as to whether or not the General Partner has properly exercised its authority in executing any contract, lease, mortgage, deed or other instrument on behalf of the Partnership, and any such third Person shall be fully protected in relying upon such authority.

7.7   Additional Limited Partners . Additional Limited Partners may be admitted to the Partnership only as provided in this Agreement.

7.8   Title Holder . To the extent allowable under applicable law, title to all or any part of the properties of the Partnership may be held in the name of the Partnership or any other Person, the beneficial interest in which shall at all times be vested in the Partnership. Any such title holder shall perform any and all of its respective functions to the extent and upon such terms and conditions as may be determined from time to time by the General Partner, consistent with the business purpose of the Partnership.

7.9   Compensation of the General Partner . The General Partner shall not be entitled to any compensation for services rendered to the Partnership solely in its capacity as General Partner, except with respect to reimbursement for those costs and expenses constituting Administrative Expenses.

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7.10   Waiver and Indemnification .

(a)   Neither the General Partner nor any Person acting on its behalf, pursuant hereto, shall be liable, responsible or accountable in damages or otherwise to the Partnership or to any Partner for any acts or omissions performed or omitted to be performed by them within the scope of the authority conferred upon the General Partner by this Agreement and the Act, provided that the General Partner’s or such other Person’s conduct or omission to act was taken in good faith and in the belief that such conduct or omission was in the best interests of the Partnership and, provided further, that the General Partner or such other Person shall not be guilty of fraud, misconduct, bad faith, or gross negligence. The Partnership shall, and hereby does, indemnify and hold harmless the General Partner and its Affiliates and any individual or Entity acting on their behalf from any loss, damage, claim or liability, including, but not limited to, reasonable attorneys’ fees and expenses, incurred by them by reason of any acts or omissions performed or omitted to be performed by them in connection with the business and affairs of the Partnership as described herein, subject to the standards set forth above; provided, however, no Partner shall have any personal liability with respect to the foregoing indemnification, any such indemnification to be satisfied solely out of the assets of the Partnership.

(b)   Any Person entitled to indemnification under this Agreement shall be entitled to receive, upon application therefor, the costs reasonably incurred defending any proceeding against such Person; provided, however, that such advances shall be repaid to the Partnership, without interest, if such Person is found by a court of competent jurisdiction upon entry of a final judgment not to be entitled to such indemnification. All rights of the indemnitee hereunder shall survive the dissolution of the Partnership; provided, however, that a claim for indemnification under this Agreement must be made by or on behalf of the Person seeking indemnification prior to the time the Partnership is liquidated hereunder. The indemnification rights contained in this Agreement shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which the person seeking indemnification shall be entitled, whether at law or in equity. Indemnification pursuant to this Agreement shall be made solely and entirely from the assets of the Partnership, and no Partner shall be liable therefor.

7.11   Contracts With Controlled Entities . The General Partner may contract with any Controlled Entities for the provision of property management, asset management, brokerage or similar services or any other services customarily rendered by the Controlled Entities; provided that all such contracts or agreements shall be for compensation and on terms and conditions substantially similar to other such contracts or agreements available from similarly qualified third parties.

7.12   Operation in Accordance with REIT Requirements . The General Partner is a REIT and is subject to the provisions of Section 856 through and including 860 of the Code. The Partners have agreed that it is their intent that the Partnership be operated in a manner that will enable the General Partner to (a) satisfy the REIT Requirements and (b) avoid the imposition of any federal income or excise tax liability. The General Partner shall use its best efforts to cause the Partnership to avoid taking any action that would result in the General Partner ceasing to satisfy the REIT Requirements or would result in the imposition of any federal income or excise tax liability on the General Partner. Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to continue to qualify as a REIT, or (ii) to prevent the General Partner from incurring any taxes under Section 857 or Section 4981 of the Code, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners.

ARTICLE VIII
DISSOLUTION, LIQUIDATION AND WINDING-UP

8.1   Liquidating Events . The Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each, a “Liquidating Event”):

(a)   The dissolution, termination, retirement or Bankruptcy of the General Partner unless the Partnership is continued as provided in Section 9.1 hereof;

(b)   The election to dissolve the Partnership made in writing by the General Partner with the Consent of the Limited Partners, provided that the Consent of the Limited Partners shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time of such election;

(c)   The sale or other disposition of all or substantially all the assets of the Partnership unless the General Partner, with the Consent of the Limited Partners, elects to continue the Partnership business for the purpose of the receipt and the collection of indebtedness or the collection of any other consideration to be received in exchange for the assets of the Partnership (which activities shall be deemed to be part of the winding up of the affairs of the Partnership), provided that the Consent of the Limited Partners shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time of such sale or disposition;

(d)   Dissolution required by operation of law; or

(e)   The expiration of its term as provided in Section 3.2.

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8.2   Accounting . In the event of a Liquidating Event, a proper accounting (which shall be certified) shall be made of the Capital Account of each Partner and of the Net Profits or Net Losses of the Partnership from the date of the last previous accounting to the date of dissolution. Financial statements presenting such accounting shall include a report of a certified public accountant selected by the Liquidating Trustee.

8.3   Distribution on Dissolution . In the event of a Liquidating Event, the assets of the Partnership shall be liquidated for distribution in the following rank and order:

(a)   First, to the payment and discharge or all of the Partnership’s debt and liabilities to creditors of the Partnership (other than Partners) in the order of priority as provided by law;

(b)   Second, to the establishment of reserves as provided by the General Partner to provide for contingent liabilities, if any;

(c)   Third, to the payment of debts of the Partnership to Partners, if any, in the order of priority provided by law;

(d)   The balance, if any, to the Partners in accordance with the positive balances in their Capital Accounts after giving effect to all contributions, distributions and allocations for all periods, including the period in which such distribution occurs (other than those adjustments made pursuant to this Section 8.3(d) and Section 8.4 hereof).

Whenever the Liquidating Trustee reasonably determines that any reserves established pursuant to paragraph (b) above are in excess of the reasonable requirements of the Partnership, the amount determined to be excess shall be distributed to the Partners in accordance with the above provisions.

8.4   Timing Requirements . In the event that the Partnership is “liquidated” within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations and a Liquidating Event has occurred, any and all distributions to the Partners pursuant to Section 8.3(d) hereof shall be made no later than the later to occur of (i) the last day of the taxable year of the Partnership in which such liquidation occurs or (ii) ninety (90) days after the date of such liquidation. If the Partnership is liquidated within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Regulations and no Liquidating Event has occurred and is continuing, the Partnership property shall not be liquidated, the Partnership’s debts and liabilities shall not be paid or discharged (except to the extent due and payable in the ordinary course) and the Partnership’s affairs shall not be wound up. Instead, solely for federal income tax purposes, the Partnership shall be deemed to have contributed the Partnership property in-kind to a “new partnership,” which shall be deemed to have taken the Partnership property subject to all debts and liabilities of the Partnership. Immediately thereafter, the Partnership shall be deemed to have been liquidated, distributing new partnership interests to the Partners, all in accordance with their respective Capital Accounts. The new partnership shall operate in accordance with this Agreement.

8.5   Sale of Partnership Assets . In the event of the liquidation of the Partnership in accordance with the terms of this Agreement, the Liquidating Trustee may, with the Consent of the Limited Partners, sell Partnership property if the Liquidating Trustee has in good faith solicited bids from unrelated third parties and obtained independent appraisals before making any such sale; provided, however, all sales, leases, encumbrances or transfers of Partnership assets shall be made by the Liquidating Trustee with the prior Consent of the Limited Partners and solely on an “arm’s-length” basis, at the best price and on the best terms and conditions as the General Partner in good faith believes are reasonably available at the time and under the circumstances and on a non-recourse basis to the Limited Partners. Notwithstanding the foregoing, the Consent of the Limited Partners shall not be required under the preceding sentence if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time that the Liquidating Trustee undertakes such action. The liquidation of the Partnership shall not be deemed finally completed until the Partnership shall have received cash payments in full with respect to obligations such as notes, installment sale contracts or other similar receivables received by the Partnership in connection with the sale of Partnership assets and all obligations of the Partnership have been satisfied or assumed by the General Partner. The Liquidating Trustee shall continue to act to enforce all of the rights of the Partnership pursuant to any such obligations until paid in full. Notwithstanding the foregoing, the Liquidating Trustee shall not distribute to the holders of Series G Preferred Interest and Series H Preferred Interest assets other than cash.

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8.6   Distributions in Kind . Notwithstanding the provisions of Section 8.3 hereof which require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidating Trustee determines that an immediate sale of part or all of the Partnership’s assets would be impractical or would cause undue loss to the Partners, the Liquidating Trustee may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners in lieu of cash as tenants in common and in accordance with the provisions of Section 8.3 hereof, undivided interests in such Partnership assets as the Liquidating Trustee deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good-faith judgment of the Liquidating Trustee, such distributions in kind are in the best interest of the Partners and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidating Trustee deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidating Trustee shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt.

8.7   Documentation of Liquidation . Upon the completion of the dissolution and liquidation of the Partnership, the Partnership shall terminate and the Liquidating Trustee shall have the authority to execute and record any and all documents or instruments required to effect the dissolution, liquidation and termination of the Partnership.

8.8   Liability of the Liquidating Trustee . The Liquidating Trustee shall be indemnified and held harmless by the Partnership from and against any and all claims, demands, liabilities, costs, damages and causes of action of any nature whatsoever arising out of or incidental to the Liquidating Trustee’s taking of any action authorized under or within the scope of this Agreement; provided, however, that the Liquidating Trustee shall not be entitled to indemnification, and shall not be held harmless, where the claim, demand, liability, cost, damage or cause of action at issue arose out of:

(a)   A matter entirely unrelated to the Liquidating Trustee’s action or conduct pursuant to the provisions of this Agreement; or

(b)   The proven misconduct or gross negligence of the Liquidating Trustee.

ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS

9.1   General Partner Transfer . The General Partner shall not withdraw from the Partnership and shall not Transfer all or any portion of its interest in the Partnership without the Consent of the Limited Partners, provided that the Consent of the Limited Partners shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time of such Transfer. Upon any Transfer of all of the General Partner’s Partnership Interest in accordance with the provisions of this Section 9.1, the transferee General Partner shall become vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any Transfer otherwise permitted hereunder that the transferee assumes by operation of law or express agreement all of the obligations of the transferor General Partner under this Agreement with respect to such transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor General Partner are assumed by a successor corporation or other Entity by operation of law) shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners, provided that the Consent of the Limited Partners shall not be required if the Limited Partners collectively own less than five percent (5%) of the Partnership Units at the time of such Transfer. In the event the General Partner withdraws from the Partnership, in violation of this Agreement or otherwise, or dissolves, terminates or upon the Bankruptcy of the General Partner, a Majority-In-Interest of the Limited Partners may elect to continue the Partnership business by selecting a substitute general partner.

9.2   Transfers by Limited Partners .

(a)   Each Limited Partner shall, subject to the provisions of Section 9.2(b) and Section 9.3 hereof, have the right to Transfer (or convert to Common Stock and thereafter sell such Common Stock) to any Person all or any portion of its Partnership Interest, whether or not in connection with the exercise of such Limited Partner’s Rights. In addition, the Partners hereby acknowledge and agree that the Series Z-1 Incentive Units shall not be Transferred, other than (i) by operation of law to the estate of a Series Z-1 Partner, (ii) by assignment to a trust of which the Series Z-1 Partner is sole trustee or co-trustee with that Partner’s spouse and which trust is for the benefit of the Series Z-1 Partner and/or such Partner’s spouse, children, and other descendants, or residual heirs if any of the foregoing are deceased, or (iii) to the Partnership or the General Partner, subject in the case of clauses (i), (ii) and (iii) to the applicable provisions of Section 9.2(b) and Section 9.3. With respect to transfers pursuant to the foregoing clauses (i) and (ii), if the transferee shall qualify as a Substituted Limited Partner pursuant to the provisions of Section 9.2(b), then such transferee shall be deemed to be a Series Z-1 Partner.

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(b)   (i) It is a condition to any Transfer (other than pursuant to Section 9.2(b)(ii) below) permitted under this Section 9.2 that the transferee assumes by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such transferred Partnership Interest, and no such Transfer (other than pursuant to a statutory merger or consolidation wherein all obligations and liabilities of the transferor Partner are assumed by a successor corporation or other Entity by operation of law) shall relieve the transferor Partner of its obligations under this Agreement without the approval of the General Partner, in its sole and absolute discretion. Upon such Transfer, the transferee shall be deemed to be an Assignee with respect to such Partnership Interest, but shall not become or be admitted to the Partnership as a Substituted Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion for any or no reason. An Assignee shall be entitled as a result of such Transfer only to receive the economic benefits of the Partnership Interest to which the transferor Limited Partner would otherwise be entitled, along with such transferor Limited Partner’s rights with respect to the Rights (although any transferee of any transferred Partnership Interest shall be subject to any and all ownership limitations contained in the corporate charter of the General Partner as the same may be amended from time to time which may limit or restrict such transferee’s ability to exercise the Rights), and such Assignee shall have no right (a) to participate in the management of the Partnership or to vote on any matter requiring the consent or approval of the Limited Partners, (b) to demand or receive any account of the Partnership’s business, or (c) to inspect the Partnership’s books and records, unless and until such Assignee is admitted to the Partnership as a Substituted Limited Partner. A transferee of a Partnership Interest may become a Substituted Limited Partner only upon the satisfaction of the following conditions: (A) filing with the Partnership of a duly executed and acknowledged written instrument of assignment in a form approved by the General Partner specifying the Partnership Interest being assigned and setting forth the intention of the transferor Limited Partner that such transferee succeeds to the assignor’s interest as a Limited Partner; (B) execution and acknowledgment by the transferor Limited Partner and such transferee of any other instruments required in the discretion of the General Partner, including the acceptance and adoption by such transferee of the provisions of this Agreement; (C) obtaining the written consent of the General Partner as provided above; and (D) payment of a transfer fee to the Partnership, sufficient to cover the reasonable expenses of the substitution, if any. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor Limited Partner hereunder.

(ii)   Notwithstanding any provision of this Agreement to the contrary (including, without limitation, Section 4.6 hereof), each Limited Partner shall have the right, without the consent of the General Partner, to pledge or otherwise encumber all or any portion of its Partnership Units, subject to any applicable securities laws, to any recognized financial institution with assets in excess of $100,000,000. Any such financial institution (or any other purchaser at a foreclosure sale) shall upon foreclosure of any such pledged or encumbered Partnership Units be (A) recognized as an Assignee under this Agreement, (B) deemed to be a Substituted Limited Partner under this Agreement, and (C) deemed to be and have all of the rights, if any, of the pledging Limited Partner for all purposes of any registration rights agreement relating to the pledged or encumbered Partnership Units. The General Partner shall execute such documents in connection with any such pledges as such financial institution may reasonably require acknowledging the rights of such financial institution hereunder and the obligations of the Partnership and the General Partner hereunder.

9.3   Certain Transfers Prohibited .

(a)   Notwithstanding any other provision of this Agreement, no Transfer of a Limited Partner’s Partnership Interest (including any Transfer of an interest in Partnership gains, losses or distributions) shall be permitted if such Transfer would result in (i) such interests being traded on an “established securities market” or a “secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code; or (ii) the Partnership being unable to qualify for at least one of the “safe harbors” set forth in Treasury Regulations Section 1.7704-1(e), (f), (g), (h) or (j) (or such other guidance subsequently published by the IRS setting forth safe harbors under which interests will not be treated as “readily tradable on a secondary market (or the substantial equivalent thereof)” within the meaning of Section 7704 of the Code) (the “Safe Harbors”).

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(b)   By means of example, the Safe Harbors described in the foregoing include, but are not limited to, the following: (i) “private transfers” including transfers which constitute “block transfers” consisting of a Transfer by a partner and any related persons (within the meaning of Section 267(b) or Section 707(b)(1) of the Code) in one or more transactions during any thirty (30) calendar-day period of Partnership Interests representing in the aggregate more than two percent (2%) of the total interests in the Partnership’s capital or profits (determined without regard to Partnership Interests held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or Section 707(b)(1) of the Code); (ii) any Transfer that, when aggregated with all other Transfers of Partnership Interests (other than Transfers described in Treasury Regulations Section 1.7704-1(e), (f) or (g), inclusive of, but not limited to, those Transfers described by items (i) and (iii) of this Section 9.3(b)) within the same taxable year of the Partnership, would constitute a transfer of a percentage of the total interests in the Partnership’s capital or profits (determined without regard to Partnership Interests held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or Section 707(b)(1) of the Code) of two percent (2%) or less; (iii) certain Transfers made pursuant to a redemption or repurchase agreement, where (A) such redemption or repurchase is made pursuant to a redemption or repurchase agreement that requires that the redemption or repurchase does not occur until at least sixty (60) calendar days after a partner notifies the Partnership in writing of the partner’s intention to exercise the redemption or repurchase right; (B) either (i) such redemption or repurchase is made pursuant to a redemption or repurchase agreement that requires that the redemption or repurchase price not be established until at least sixty (60) calendar days after receipt of such notification by the partnership or the partner; or (ii) the redemption or repurchase price is established not more than four times during the partnership’s taxable year; and (C) the sum of the percentage interests in Partnership capital or profits (determined without regard to Partnership Interests held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or Section 707(b)(1) of the Code) transferred during the taxable year of the Partnership does not exceed ten percent (10%) of the total interests in Partnership capital or profits (determined without regard to Partnership Interests held by the General Partner and any other person related to the General Partner within the meaning of Section 267(b) or Section 707(b)(1) of the Code); and (iv) the “Private Placement Safe Harbor,” which requires (A) the Partnership to have not more than 100 partners at any time during its taxable year and (B) all Partnership Interests to have been issued in a transaction (or transactions) that was not required to be registered under the Securities Act of 1933.

(c)   The General Partner is authorized to take all steps reasonably necessary or appropriate to prevent any trading of interests or any recognition by the Partnership of Transfers made on such markets and, except as otherwise provided herein, to insure that at least one of the Safe Harbors is met; provided, however, that the foregoing shall not authorize the General Partner to limit or restrict in any manner the right of any holder of a Partnership Interest to exercise its rights in accordance with the terms of Article XI (other than a Partnership Unit (excluding Common Units issued upon conversion of Partnership Units outstanding on December 10, 2013) initially issued on or after December 10, 2013) and Exhibit I unless, and only to the extent that, outside tax counsel provides to the General Partner an opinion to the effect that, in the absence of such limitation or restriction, there is a significant risk that the Partnership will be treated as a “publicly traded partnership” and, by reason thereof, taxable as a corporation.

The General Partner may establish such policies and procedures as it may deem necessary or desirable in its sole discretion to administer the limitations set forth above. Solely for purposes of this Section, the term “Transfer” shall not include (except as provided in the following clause) the mere pledge, hypothecation or grant of a security interest in a Partnership Interest, but shall include any transfer of a Partnership Interest within the meaning of Treasury Regulations Section 1.7704-1(a)(3) (other than transfers that have not been recognized by the Partnership).

(d)   For the avoidance of doubt, the Partnership will rely on the Private Placement Safe Harbor described in Section 9.3(b)(iv) and set forth in Treasury Regulations Section 1.7704-1(h) until the Partnership can no longer avail itself of the Private Placement Safe Harbor as currently in force or as amended by the IRS. The Partnership will not rely on any of the other Safe Harbors until and unless it can no longer rely on the Private Placement Safe Harbor. If and when the Private Placement Safe Harbor becomes inapplicable, the Partnership intends to rely on the other Safe Harbors, including but not limited to those Safe Harbors provided in Section 9.3(b)(i) through (iii), in order to avoid being treated as a “publicly traded partnership,” and no Transfer of a Limited Partner’s Partnership Interest shall be permitted if such Transfer does not qualify for one of these Safe Harbors.

(e)   The restrictions set forth in this Section 9.3 shall continue in effect until such time as the Partnership is no longer potentially subject to classification as a publicly traded partnership, as defined in Section 7704 of the Code, or in the absence of applicable regulations, as determined by the General Partner in its discretion. The restrictions set forth in this Section 9.3, together with the Additional Restrictions on Transfer set forth in Section 9.4, are intended to limit transfers of interests in the Partnership in such a manner as to permit the Partnership to qualify for the Safe Harbors from treatment as a publicly traded partnership set forth in Treasury Regulations Sections 1.7704-1. The General Partner may modify the restrictions set forth in this Section 9.3, and the provisions of Section 9.4, from time to time in its discretion to ensure that the Partnership complies and continues to comply with such requirements.

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9.4   Additional Restrictions on Transfer . In addition to any other restrictions on Transfer herein contained, in no event may any Transfer of a Partnership Interest by any Partner be made and in no event shall Additional Units be issued (i) to any Person that lacks the legal right, power or capacity to own a Partnership Interest; (ii) in violation of any provision of any mortgage or trust deed (or the note or bond secured thereby) constituting a Lien against a Property or any part thereof, or other instrument, document or agreement to which the Partnership, EWIP or any other Investment Entity, the Property Manager, the Pathways Common Tenancy, or any Washington Partnership is a party or otherwise bound; (iii) in violation of applicable law, including, without limitation, any applicable state securities “Blue Sky” law (including investment suitability standards); (iv) of any component portion of a Partnership Interest, such as the Capital Account, or rights to Available Cash, separate and apart from all other components of a Partnership Interest; (v) in the event such transfer would cause the General Partner to cease to comply with the REIT Requirements or result in a violation of Section 7.12 hereof; (vi) if such transfer would cause a termination of the Partnership for Federal income tax purposes; (vii) if such transfer would, in the opinion of counsel to the Partnership, cause the Partnership to cease to be classified as a partnership for Federal income tax purposes; (viii) if such transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title 1 of ERISA, a “party-in-interest” (as defined in Section 3(14) of ERISA) or a “disqualified person” (as defined in Section 4975(c) of the Code); (ix) if such transfer would, in the opinion of counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.3-101; (x) if such transfer may not be effected without registration of such Partnership Interest under the Securities Act; (xi) if such transfer would violate any provision of the General Partner’s Articles of Incorporation, as such may be amended from time to time; or (xii) to a lender to the Partnership or any Person who is related (within the meaning of Section 1.7542-4(b) of the Regulations) to any lender to the Partnership whose loan constitutes a “nonrecourse liability” (within the meaning of Section 1.752-1(a)(2) of the Regulations) without the consent of the General Partner, in its sole and absolute discretion, unless the Partnership’s basis for tax purposes would not be reduced as a result of such Transfer.

ARTICLE X
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNERS

10.1   No Participation in Management . Except as expressly permitted hereunder, the Limited Partners shall not take part in the management of the Partnership’s business, transact any business in the Partnership’s name or have the power to sign documents for or otherwise bind the Partnership and shall have no rights, powers or authority, except as specifically provided herein.

10.2   Bankruptcy of a Limited Partner and Certain Other Events . The Bankruptcy, death (subject to Section 10.8 below), incompetency, legal incapacity, withdrawal or retirement of any Limited Partner shall not cause a dissolution of the Partnership, but the rights of such Limited Partner to share in the Net Profits or Losses of the Partnership and to receive distributions of Partnership funds shall, on the happening of such event, devolve on its successors or assigns, subject to the terms and conditions of this Agreement, and the Partnership shall continue as a limited partnership. However, in no event shall such assignee(s) become a Substituted Limited Partner, except in accordance with Article IX hereof.

10.3   No Withdrawal . Notwithstanding anything to the contrary provided in Section 10.2 above, no Limited Partner may withdraw or retire from the Partnership without the prior written consent of the General Partner, other than as expressly provided in this Agreement.

10.4   Duties and Conflicts . The General Partner recognizes that the Limited Partners and their Affiliates have or may have other business interests, activities and investments, some of which may be in conflict or competition with the business of the Partnership, and that such persons are entitled to carry on such other business interests, activities and investments. The Limited Partners and their Affiliates may engage in or possess an interest in any other business or venture of any kind, independently or with others, on their own behalf or on behalf of other entities with which they are affiliated or associated, and such persons may engage in any activities, whether or not competitive with the Partnership, without any obligation to offer any interest in such activities to the Partnership or to any Partner. Neither the Partnership nor any Partner shall have any right, by virtue of this Agreement, in or to such activities, or the income or profits derived therefrom, and the pursuit of such activities, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper.

10.5   [Intentionally Omitted] .

10.6   [Intentionally Omitted] .

10.7   [Intentionally Omitted] .

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10.8   Conversion Upon Death . So long as Code Section 1014 or a successor provision remains in effect and provides for the “step-up” in basis of an asset upon death, as determined by the Partnership’s counsel, upon the death of a Limited Partner, all of such Limited Partner’s Partnership Units shall, without the taking of any action by the General Partner or any heir, representative, administrator or executor of or for such Limited Partner, automatically convert as of the date of such death into shares of Common Stock in the amount of the Common Stock Amount; provided that the General Partner, in its sole and absolute discretion, shall have the option, instead of issuing the Common Stock Amount to the estate of the decedent Limited Partner, of paying to such estate the Cash Amount or any combination of cash and Common Stock equal to the Cash Amount; provided, however, that, notwithstanding the foregoing, the provisions of this Section shall not apply to any Series Z-1 Incentive Units or LTIP Units held by such Limited Partner. In determining the Cash Amount, the Closing Price shall be calculated as of the date of death. Any “cash” owed may be paid in the form of cash, cashier’s or certified check or by wire transfer of immediately available funds. The General Partner shall notify the executor, administrator, legal representative or personal representative of the decedent Limited Partner’s estate of the General Partner’s election to issue the Common Stock Amount, to pay the Cash Amount or to deliver a combination thereof within a reasonable period of time after the General Partner becomes aware of such death. In the event that any Liens exist or arise with respect to the decedent Limited Partner’s Partnership Units, the Common Stock Amount or the Cash Amount, as the case may be, shall be reduced by an amount necessary to discharge such Liens, as determined by the General Partner in good faith, and the General Partner is expressly authorized to apply such portion of the consideration as may be necessary to satisfy any indebtedness in full and to discharge such Lien in full. In the event any state or local property transfer tax is payable as a result of the transfer of the decedent Limited Partner’s Partnership Units to the General Partner (or its designee), the decedent Limited Partner’s estate shall assume and pay such transfer tax. If the General Partner elects to pay a portion of the consideration owing in cash because the issuance of the Common Stock Amount would cause the Person legally entitled to receive such Common Stock, together with such Person’s Affiliates, to Beneficially Own in the aggregate shares of Common Stock in excess of the Ownership Limit, and, if as a result thereof the General Partner elects to raise such cash through a public offering of its securities, borrowings or otherwise, the Cash Amount shall be reduced by the Transaction Expenses allocable to the amounts required to pay the Cash Amount hereunder; provided, however, notwithstanding the foregoing, the Cash Amount shall not be reduced hereunder by an amount exceeding 5% of the Cash Amount computed without regard to the adjustment for Transaction Expenses.

10.9   Rights of Series Z Incentive Units . Any Common Units received upon the conversion or redemption of Series Z Incentive Units in the Partnership, which were issued under the Prior Agreements, may thereafter be converted into Common Stock pursuant to Section 10.8 and the holder of such Common Units shall have the Rights provided in Article XI; provided, however, that, notwithstanding anything to the contrary contained in Section 10.8, Article XI or Exhibit I, (i) the General Partner may, in its sole discretion, choose to assign its obligation pursuant to Section 10.8, Article XI or Exhibit I, as the case may be, to the Partnership, in which case the Partnership will deliver shares of Common Stock that it holds on such date in exchange for the Common Units to be converted or redeemed, in lieu of the General Partner issuing new shares of Common Stock to the holder of such Common Units and (ii) neither the General Partner nor the Partnership shall pay cash (in whole or in part) with respect to the conversion of Common Units received upon conversion or redemption of Series Z Incentive Units.

10.10   Conversion and Redemption of Series Z-1 Incentive Units .

(a)   Upon the occurrence of any Series Z-1 Trigger Event with respect to the Series Z-1 Incentive Units, the Series Z-1 Forfeited Capital Account with respect to such Series Z-1 Incentive Units shall be forfeited and each such Series Z-1 Incentive Unit shall, without the taking of any action by the General Partner or any Series Z-1 Partners, automatically convert into that number of Common Units calculated by dividing (i) the remainder resulting from (x) the portion of the adjusted Capital Account balance properly allocable to each such Series Z-1 Incentive Unit at the time of conversion, as determined by the General Partner, taking into account all allocations made pursuant to Exhibit E hereof through and including the date of the conversion (as so adjusted, for purposes of this Section, the “Adjusted Capital Account Balance”), minus (y) the Series Z-1 Forfeited Capital Account as of the time of conversion minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (ii) the adjusted Capital Account balance properly allocable to one Common Unit determined immediately prior to such conversion, after taking into account any adjustments made pursuant to Exhibit E hereof through and including the date of conversion.

(b)   In the event of a Series Z-1 Change in Control, (1) the Partnership shall give each Series Z-1 Partner notice as required by Section 10.10(d) and otherwise comply with the procedures set forth in such Section and (2) upon or at any time (except as expressly provided in clause (ii) below) following the occurrence of such Series Z-1 Change in Control, each Series Z-1 Partner shall have the right to elect, in accordance with the procedures set forth in Section 10.10(d), to forfeit the Series Z-1 Forfeited Capital Account with respect to all of the Series Z-1 Incentive Units held by such Series Z-1 Partner and convert each such Series Z-1 Incentive Unit into either:

(i)   that number of Common Units calculated by dividing (I) the remainder resulting from (x) the Adjusted Capital Account balance properly allocable to each such Series Z-1 Incentive Unit at the time of an election pursuant to this Section 10.10(b), as determined by the General Partner after taking into account all allocations required to be made pursuant to Exhibit E hereof, minus (y) the Series Z-1 Forfeited Capital Account as of the time of conversion, minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (II) the adjusted Capital Account balance properly allocable to one Common Unit determined immediately prior to such conversion, after taking into account any adjustments made pursuant to Exhibit E hereof through and including the date of conversion; provided, however, that, if applicable, references to “Common Units” in this clause shall be deemed to refer to the class or series of equity interests in the Substitute Umbrella Partnership (as defined in Section 10.10(c)) most comparable to the Common Units, after taking into account all relevant rights, benefits, terms and conditions and economic factors and all references to capital account balances and numbers of Common Units shall be equitably adjusted, as nearly as may be practicable, to give effect to the rights and obligations of the Series Z-1 Incentive Units or, if applicable, the Substitute Z-1 Incentive Units; or

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(ii)   that amount and type of cash, securities or other property as such holder would have received in connection with such Series Z-1 Change in Control if he, she or it had elected to convert such Series Z-1 Incentive Units into Common Units in accordance with the immediately preceding clause (i) prior to the consummation of the Series Z-1 Change in Control and received (or had the right to elect to receive) such consideration in connection with the Series Z-1 Change in Control as the Holder of the number of Common Units into which such Series Z-1 Incentive Units would have converted as of the date of occurrence of such Change of Control without any increase in the Series Z-1 Conversion Ratchet Percentage that may have occurred after such date; provided, however, that any election pursuant to this clause (ii) must be made within the twelve (12) month period immediately following the occurrence of such Series Z-1 Change in Control. For the avoidance of doubt, it is the intent of the parties hereto that a holder’s right to make the election provided in this clause (ii) shall continue notwithstanding that, within such twelve (12) month period, another Series Z-1 Change in Control occurs, such holder’s employment is terminated as referred to in clause (e) below, or such holder dies as referred to in clause (f) below; provided, further, that if a Series Z-1 Trigger Event occurs, such holder’s right to make the election provided in this clause (ii) shall continue only until the moment immediately prior to the occurrence of such Series Z-1 Trigger Event.

For the avoidance of doubt, the Series Z-1 Incentive Units of any Series Z-1 Partner who has not made the election contemplated by this Section 10.10(b) shall remain outstanding until such election is made or another clause of this Section 10.10 becomes applicable, and thereafter shall continue to be entitled to all the rights and benefits of the Series Z-1 Incentive Units, including without limitation the right to make an election pursuant to this Section 10.10(b) with respect to any subsequent Series Z-1 Change in Control and the potential for continued increase in the Series Z-1 Conversion Ratchet Percentage.

(c)   Notwithstanding anything in this Agreement to the contrary, in connection with any Series Z-1 Change in Control following which the Partnership will not continue to exist as a separate legal entity or following which the Partnership, despite continuing in legal existence, will no longer conduct its business in a fashion substantially similar to the fashion in which it conducted its business immediately prior to such Series Z-1 Change of Control (e.g., owning similar properties and operating in a comparable fashion), the General Partner shall use commercially reasonable efforts (after taking into account the fiduciary duties owed by the General Partner to the other Partners in the Partnership in connection with negotiating the Series Z-1 Change in Control transaction as a whole) to cause the resulting or surviving entity and/or the entity primarily succeeding to the business of the Partnership, as the case may be, to be a partnership, limited liability company or other pass-through entity organized under the laws of any state of the United States or the District of Columbia (for purposes of this Section, a “Substitute Umbrella Partnership”), and, in the event the Series Z-1 Change in Control does result in a Substitute Umbrella Partnership, shall use commercially reasonable efforts to (1) cause the Substitute Umbrella Partnership to issue in connection with such Series Z-1 Change in Control in substitution for any Series Z-1 Incentive Units remaining outstanding as of the effective time thereof other interests in the Substitute Umbrella Partnership having substantially the same terms and rights as the Series Z-1 Incentive Units, including with respect to distributions, conversions, ratcheting, voting rights and rights upon liquidation, dissolution or winding-up (for purposes of this Section, the “Substitute Z-1 Incentive Units”), (2) make equitable and appropriate provisions for adjustments to the terms of the Substitute Z-1 Incentive Units such that the rights and obligations of the Series Z-1 Partners after such Series Z-1 Change in Control as holders of Substitute Z-1 Incentive Units of the Substitute Umbrella Partnership shall be equivalent, as nearly as may be practicable, to their rights and obligations as holders of Series Z-1 Incentive Units of the Partnership, and (3) secure a commitment of the general partner or other controlling person of the Substitute Umbrella Partnership to undertake to perform the obligations and covenants of the General Partner with respect to the Series Z-1 Partners. Anything in the foregoing to the contrary notwithstanding, the Compensation Committee may provide, with respect to all or less than all of the outstanding Series Z-1 Incentive Units, that in connection with one or more of the events that constitute a Series Z-1 Change in Control or similar event following which the Partnership will not continue to exist as a separate legal entity or following which the Partnership, despite continuing in legal existence, will no longer conduct its business in a fashion substantially similar to the fashion in which it conducted its business immediately prior to such Series Z-1 Change of Control or similar event (e.g., owning similar properties and operating in a comparable fashion) (a “Series Z-1 Incentive Units Substitution Event”), the Series Z-1 Conversion Ratchet Percentage for such Series Z-1 Incentive Units outstanding immediately prior to the Series Z-1 Change in Control or similar event shall be equal to 100% in the event that (i) the Series Z-1 Change in Control or similar event does not result in a Substitute Umbrella Partnership or (ii) the Substitute Umbrella Partnership does not issue interests in the Substitute Umbrella Partnership to holders of Series Z-1 Incentive Units in connection with a Series Z-1 Incentive Units Substitution Event in accordance with the foregoing sentence. The Compensation Committee may also provide that the Series Z-1 Conversion Ratchet Percentage (or the equivalent conversion percentage provision applicable to interests that are issued in the Substitute Umbrella Partnership in connection with a Series Z-1 Incentive Units Substitution Event) shall be equal to 100% upon the involuntary termination (as determined by the Compensation Committee) within a specified period following a Z-1 Series Change in Control or similar event of (i) a holder of interests in the Substitute Umbrella Partnership issued in connection with a Series Z-1 Incentive Units Substitution Event or (ii) a holder of Series Z-1 Incentive Units (where no Series Z-1 Incentive Units Substitution Event occurs)

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(d)   As promptly as possible prior to the consummation of a Series Z-1 Change of Control (but in any event not later than ten (10) days following consummation of such Series Z-1 Change in Control), the Partnership shall deliver a written notice of such Series Z-1 Change of Control to each Series Z-1 Partner at their addresses as shown on the records of the Partnership, containing all instructions and materials necessary to enable such Series Z-1 Partners to make an election pursuant to Section 10.10(b) hereof and describing the circumstances and relevant facts regarding such Series Z-1 Change of Control, including, without limitation, the expected date of consummation. Failure to give or receive such notice or any defect therein shall not affect the legality or validity of any proceedings in connection with such Series Z-1 Change of Control or otherwise as contemplated by this Agreement. Each Series Z-1 Partner may exercise his or her right to convert in accordance with Section 10.10(b) by delivering written notice of such intent (and specifying whether he or she is electing to convert pursuant to Section 10.10(b)(i) or Section 10.10(b)(ii)) to the Partnership, Attn: Chief Financial Officer, with a copy to Baker & McKenzie LLP, Attn: Stephen J. Schrader, Esq. (such notice, for purposes of this Section, an “Election Notice”). On or before the later of (i) the effective date of such Series Z-1 Change in Control and (ii) the tenth (10th) business day following the date of such Election Notice, the Partnership shall issue the consideration required by Section 10.10(b) to the Series Z-1 Partner making the election in exchange for his or her Series Z-1 Incentive Units (or, if applicable, Substitute Z-1 Incentive Units).

(e)   Effective as of such time as (other than by reason of death, as provided in Section 10.10(f)) a holder of Series Z-1 Incentive Units is no longer an employee of the Partnership, the General Partner or any of their subsidiaries or affiliates, the Series Z-1 Forfeited Capital Account with respect to such holder’s Series Z-1 Incentive Units shall be forfeited and the Partnership shall have the right, for 90 days following the date of termination of such holder’s employment, to redeem each Series Z-1 Incentive Unit held by such holder in exchange for, at the Partnership’s option, either (1) a number of shares of Common Stock then owned by the Partnership calculated by dividing (i) the remainder resulting from (x) the Adjusted Capital Account Balance properly allocable to each such Series Z-1 Incentive Unit as determined by the General Partner after taking into account all allocations required to be made pursuant to Exhibit E hereto and, in the event the provisions of Section 2(g) thereof are inapplicable, in a manner consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2) (iv)(f) minus (y) the Series Z-1 Forfeited Capital Account as of the time of redemption minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (ii) the Closing Price of Common Stock determined as of such date; or (2) a number of Common Units calculated by dividing (i) the remainder resulting from (x) the Adjusted Capital Account Balance which would be allocable to each such Series Z-1 Incentive Unit as determined by the General Partner after taking into account all allocations required to be made pursuant to Exhibit E hereof and assuming that the Capital Accounts of the Partners were adjusted at such time as provided in Section 2(g) of Exhibit E hereto minus (y) the Series Z-1 Forfeited Capital Account minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (ii) the adjusted Capital Account balance properly allocable to one Common Unit determined immediately prior to such redemption, after taking into account any adjustments made pursuant to Exhibit E hereof and assuming that the Capital Accounts of the Partners were adjusted at such time as provided in Section 2(g) of Exhibit E hereto through and including the date of redemption. The Partnership may exercise its rights under this Section 10.10(e) by providing written notice to the terminated Series Z-1 Partner within 90 days of such termination and consummating the redemption promptly thereafter.

(f)   Upon the death of a holder of Series Z-1 Incentive Units, the Series Z-1 Forfeited Capital Account with respect to such Series Z-1 Incentive Units, shall be forfeited and each such Series Z-1 Incentive Unit held by such holder shall be redeemed by the Partnership for, at its option, either (1) a number of shares of Common Stock then owned by the Partnership calculated by dividing (i) the remainder resulting from (x) the Adjusted Capital Account Balance properly allocable to each such Series Z-1 Incentive Unit as determined by the General Partner after taking into account all allocations required to be made by Exhibit E hereto and in the event that the provisions of Section 2(g) of Exhibit E are inapplicable, in a manner consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f) minus (y) the Series Z-1 Forfeited Capital Account as of the time of redemption minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (ii) the Closing Price of Common Stock determined immediately prior to such redemption; or (2) a number of Common Units calculated by dividing (i) the remainder resulting from (x) the Adjusted Capital Account Balance which would be allocable to each such Series Z-1 Incentive Unit as determined by the General Partner after taking into account all allocations required to be made by Exhibit E hereto and in the event that the provisions of Section 2(g) are inapplicable, in a manner consistent with the provisions of Treasury Regulation Section 1.704-1 (b)(2)(iv)(f) minus (y) the Series Z-1 Forfeited Capital Account as of the time of redemption minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, by (ii) the average adjusted Capital Account balance properly allocable to one Common Unit determined immediately prior to such redemption, as determined by the General Partner after taking into account all allocations required to be made by Exhibit E hereto and in the event that the provisions of Section 2(g) are inapplicable in a manner consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f). The Partnership shall effect the redemption required by this Section 10.10(f) within 60 days following its receipt of written notification of the death of a Series Z-1 Partner.

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(g)   In lieu of delivering a fractional share of Common Stock pursuant to this Section 10.10, the Partnership may deliver cash equal to the Closing Price attributable to such fractional share. In lieu of issuing a fractional Common Unit pursuant to this Section 10.10, the Partnership may deliver cash equal to the product of (i) the Closing Price multiplied by the Series Z-1 Conversion Ratchet Percentage, and (ii) such fractional Common Unit. For the avoidance of doubt, as to any fractional Common Unit or fraction of a share of Common Stock which would otherwise be delivered, the Partnership shall pay a cash adjustment in respect of such final fraction (which for each holder of Series Z-1 Incentive Units shall be deemed to be a fraction of the last fractional Common Unit or fraction of a share of Common Stock after taking into account all Series Z-1 Incentive Units held by such holder, not on a unit-by-unit basis) in the amount provided for in this clause (g).

(h)   The holder of any Common Units received upon a conversion or redemption of Series Z-1 Incentive Units pursuant to this Section 10.10 shall have an aggregate Capital Account balance with respect to such Common Units equal to the remainder resulting from (x) the Adjusted Capital Account Balance of such holder’s Series Z-1 Incentive Units (determined pursuant to the applicable sub-section of this Section 10.10) immediately prior to conversion or redemption minus (y) the Series Z-1 Forfeited Capital Account minus (z) the Series Z-1 Clawback Amount, if any, with respect to such Series Z-1 Incentive Unit, and such holder of Common Units shall have all of the rights of holders of Common Units as set forth in this Agreement. Immediately upon conversion or redemption of any Series Z-1 Incentive Units pursuant to this Section 10.10, the aggregate Series Z-1 Forfeited Capital Accounts with respect to all Series Z-1 Incentive Units being converted or redeemed shall be reallocated among the Capital Accounts of the holders of Common Units immediately subsequent to such conversion or redemption on a pro rata basis, in proportion to the Capital Account balances of all such units immediately subsequent to such conversion or redemption. Any Common Units received upon the conversion or redemption of Series Z-1 Incentive Units pursuant to this Section 10.10 may thereafter be converted into Common Stock pursuant to Section 10.8 and the holder of such Common Units shall have the Rights provided in Article XI; provided, however, that, notwithstanding anything to the contrary contained in Section 10.8, Article XI or Exhibit I, (i) the General Partner may, in its sole discretion, choose to assign its obligation pursuant to Section 10.8, Article XI or Exhibit I, as the case may be, to the Partnership, in which case the Partnership will deliver shares of Common Stock that it holds on such date in exchange for the Common Units to be converted or redeemed, in lieu of the General Partner issuing new shares of Common Stock to the holder of such Common Units and (ii) neither the General Partner nor the Partnership shall pay cash (in whole or in part) with respect to the conversion of Common Units received upon conversion or redemption of Series Z-1 Incentive Units.

(i)   The Series Z-1 Incentive Units shall rank (i) junior to any and all presently outstanding or subsequently issued Preferred Interests and preferred Partnership Units of the Partnership, unless the terms of such Preferred Interests and/or preferred Partnership Units expressly provide that they shall rank junior to or pari passu with the Series Z Incentive Units, Series Z-1 Incentive Units or Common Units, and (ii) pari passu with the Common Units and with any other class or series of presently existing or subsequently issued Partnership Units of the Partnership, the terms of which do not expressly provide that such Partnership Units shall rank senior to the Series Z-1 Incentive Units or the Common Units with respect to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up.

ARTICLE XI
GRANT OF RIGHTS TO LIMITED PARTNERS

11.1   Grant of Rights . The General Partner does hereby grant to the Limited Partners who were Limited Partners at the time of the enactment of the First Amended and Restated Agreement and to those Additional Limited Partners who acquired Additional Units with Rights and such Limited Partners and such Additional Limited Partners do hereby accept the right, but not the obligations (hereinafter such right sometimes referred to as the “Rights”), to convert a portion of their Partnership Units into shares of Common Stock and to sell the remainder (or any part thereof) of their Partnership Units to the General Partner (or its designee), at any time (whether in one or more instances) on the terms and subject to the conditions and restrictions contained in attached Exhibit I. The Rights granted hereunder may be exercised by any one or more of the Limited Partners or Additional Limited Partners, on the terms and subject to the conditions and restrictions contained in attached Exhibit I, upon delivery to the General Partner of an Exercise Notice substantially in the form of attached Schedule 1, which notice shall specify the Partnership Units to be sold by such Limited Partner. Once delivered, the Exercise Notice shall be irrevocable, subject to payment by the General Partner of the Purchase Price in respect of such Partnership Units in accordance with the terms hereof. Notwithstanding anything contained herein to the contrary, an Additional Limited Partner that acquires Additional Units pursuant to Sections 4.3 and 4.6 hereof shall not acquire any interest in, and may not exercise or otherwise participate in, any Rights pursuant to this Article XI and attached Exhibit I, unless the General Partner approves in writing prior to the admission of such Additional Limited Partner the acquisition of Rights by such Additional Limited Partner.

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11.2   Terms of Rights The terms and provisions applicable to the Rights shall be as set forth in attached Exhibit I.

ARTICLE XII
ARBITRATION OF DISPUTES

12.1   Arbitration . Notwithstanding anything to the contrary contained in this Agreement, all claims, disputes and controversies between the parties hereto (including, without limitation, any claims, disputes and controversies between the Partnership and any one or more of the Partners and any claims, disputes and controversies between any one or more Partners) arising out of or in connection with this Agreement or the Partnership created hereby, relating to the validity, construction, performance, breach, enforcement or termination thereof, or otherwise, shall be resolved by binding arbitration in San Francisco, California, in accordance with California Civil Procedure Code Sections 1280 et seq. (other than Section 1283.05), this Article XII and, to the extent not inconsistent with this Article XII (other than the reference in this Article to Sections of the California Civil Procedure Code), the Expedited Procedures and Commercial Arbitration Rules of the American Arbitration Association (the “Arbitration Rules”).

12.2   Procedures . Any arbitration called for by this Article XII shall be conducted in accordance with the following procedures:

(a)   The Partnership or any Partner (the “Requesting Party”) may demand arbitration pursuant to Section 12.1 hereof at any time by giving written notice of such demand (the “Demand Notice”) to all other Partners and (if the Requesting Party is not the Partnership) to the Partnership which Demand Notice shall describe in reasonable detail the nature of the claim, dispute or controversy.

(b)   Within fifteen (15) days after the giving of a Demand Notice, the Requesting Party, on the one hand, and each of the other Partners and/or the Partnership against whom the claim has been made or with respect to which a dispute has arisen (collectively, the “Responding Party”), on the other hand, shall select and designate in writing to the other party one reputable, disinterested individual (a “Qualified Individual”) willing to act as an arbitrator of the claim, dispute or controversy in question. Each of the Requesting Party and the Responding Party shall use its best efforts to select a present or former partner of a “Big 6” accounting firm (or a “Big 8” predecessor thereof) having no affiliation with any of the parties as its respective Qualified Individual. Within fifteen (15) days after the foregoing selections have been made, the arbitrators so selected shall jointly select a present or former partner of a “Big 6” accounting firm (or a “Big 8” predecessor thereof) having no affiliation with any of the parties as the third Qualified Individual willing to act as an arbitrator of the claim, dispute or controversy in question (the “Third Arbitrator”). In the event that the two arbitrators initially selected are unable to agree on the Third Arbitrator within the second fifteen (15) day period referred to above, then, on the application of either party, the American Arbitration Association shall promptly select and appoint a present or former partner of a “Big 6” accounting firm (or a “Big 8” predecessor thereof) having no affiliation with any of the parties as the Qualified Individual to act as the Third Arbitrator in accordance with the terms of the Arbitration Rules. The three arbitrators selected pursuant to this subsection (b) shall constitute the arbitration panel for the arbitration in question.

(c)   The presentations of the parties hereto in the arbitration proceeding shall be commenced and completed within sixty (60) days after the selection of the arbitration panel pursuant to subsection (b) above, and the arbitration panel shall render its decision in writing within thirty (30) days after the completion of such presentations. Any decision concurred in by any two (2) of the arbitrators shall constitute the decision of the arbitration panel, and unanimity shall not be required. If a decision concurred in by at least two (2) of the arbitrators is not rendered within such thirty (30) day period, then each of the parties shall select a new Qualified Individual willing to act as an arbitrator and a new arbitration proceeding shall commence in accordance with this Article XII.

(d)   The arbitration panel shall have the discretion to include in its decision a direction that all or part of the attorneys’ fees and costs of any party or parties and/or the costs of such arbitration be paid by any other party or parties. On the application of a party before or after the initial decision of the arbitration panel, and proof of its attorneys’ fees and costs, the arbitration panel shall order the other party to make any payments directed pursuant to the preceding sentence.

(e)   The Third Arbitrator shall have the right in its discretion to authorize the obtaining of discovery, including the taking of depositions of witnesses for the purpose of discovery.

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(f)   At the request of any party, the arbitrators shall make and provide to the parties written findings of fact and conclusions of law.

12.3   Binding Character . Any decision rendered by the arbitration panel pursuant to this Article XII shall be final and binding on the parties hereto, and judgment thereon may be entered by any state or federal court of competent jurisdiction.

12.4   Exclusivity . Arbitration shall be the exclusive method available for resolution of claims, disputes and controversies described in Section 12.1 hereof, and the Partnership and its Partners stipulate that the provisions hereof shall be a complete defense to any suit, action, or proceeding in any court or before any administrative or arbitration tribunal with respect to any such claim, controversy or dispute. The provisions of this Article XII shall survive the dissolution of the Partnership.

12.5   No Alteration of Agreement . Nothing contained herein shall be deemed to give the arbitrators any authority, power or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Partnership Agreement.

12.6   Acknowledgment . PURSUANT TO SECTION 12.6 OF THE ORIGINAL AGREEMENT, THE FIRST AMENDED AND RESTATED AGREEMENT, AS AMENDED, THE SECOND AMENDED AND RESTATED AGREEMENT, AS AMENDED, AND THE THIRD AMENDED AND RESTATED AGREEMENT, EACH OF THE PARTNERS AGREED TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE “ARBITRATION OF DISPUTES” PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND ACKNOWLEDGED THAT SUCH PARTNER WAS GIVING UP ANY RIGHTS THAT SUCH PARTNER MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL EXCEPT AS SPECIFICALLY INCLUDED IN SUCH “ARBITRATION OF DISPUTES” PROVISION. EACH PARTNER, BY HAVING EXECUTED EITHER THE ORIGINAL AGREEMENT OR THE AMENDED OR RESTATED AGREEMENT, AS AMENDED, OR ANY AMENDMENT TO EITHER OF SUCH AGREEMENTS, OR BY EXECUTING THIS AGREEMENT OR ANY AMENDMENT HERETO OR BY BECOMING AN ADDITIONAL LIMITED PARTNER, ACKNOWLEDGED OR ACKNOWLEDGES, AS THE CASE MAY BE, GIVING UP SUCH PARTNER’S JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THIS “ARBITRATION OF DISPUTES” PROVISION. IF ANY PARTNER REFUSES TO SUBMIT TO ARBITRATION AFTER HAVING AGREED TO THIS PROVISION, SUCH PARTNER MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. EACH PARTNER, BY HAVING EXECUTED EITHER THE ORIGINAL AGREEMENT OR THE AMENDED OR RESTATED AGREEMENT, AS AMENDED, OR ANY AMENDMENT TO EITHER OF SUCH AGREEMENTS, OR BY EXECUTING THIS AGREEMENT OR ANY AMENDMENT HERETO, ACKNOWLEDGED OR ACKNOWLEDGES, AS THE CASE MAY BE, THAT ITS AGREEMENT TO THIS ARBITRATION PROVISION WAS OR IS VOLUNTARY.

ARTICLE XIII
GENERAL PROVISIONS

13.1   Notices . All notices, offers or other communications required or permitted to be given pursuant to this Agreement shall be in writing and may be personally served, telecopied or sent by United States mail and shall be deemed to have been given when delivered in person, upon receipt of telecopy or three business days after deposit in United States mail, registered or certified, postage prepaid, and properly addressed, by or to the appropriate party. For purposes of this Section 13.1, the addresses of the Partners shall be as set forth in Exhibit M attached hereto, as such Exhibit may be modified from time to time. The address of any Limited Partner may be changed by a notice in writing given to the General Partner in accordance with the provisions hereof, and the address of the General Partner may be changed by a notice in writing given to each of the Limited Partners in accordance with the provisions hereof.

13.2   Successors . This Agreement and all the terms and provisions hereof shall be binding upon and shall inure to the benefit of all Partners, and their legal representatives, heirs, successors and permitted assigns, except as expressly herein otherwise provided.

13.3   Effect and Interpretation . This Agreement shall be governed by and construed in conformity with the laws of the State of California.

13.4   Counterparts . This Agreement may be executed in counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.

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13.5   Partners Not Agents . Except as specifically provided herein, nothing contained herein shall be construed to constitute any Partner the agent of another Partner, or in any manner to limit the Partners in the carrying on of their own respective businesses or activities.

13.6   Entire Understanding; Etc . This Agreement constitutes the entire agreement and understanding among the Partners and supersedes any prior understandings and/or written or oral agreements among them respecting the subject matter within.

13.7   Amendments .

(a)   This Agreement may not be amended, and no provision benefiting the General Partner may be waived, except by a written instrument signed by the General Partner and, if the Limited Partners collectively own five percent (5%) or more of the Partnership Units, a Majority-In-Interest of the Limited Partners, provided that no amendment of this Agreement may be made without the consent of all of the affected Limited Partners if such amendment (i) provides for any Limited Partner to receive any distribution other than pari passu with all other Limited Partners, based on their respective Percentage Interests, (ii) decreases any Limited Partner’s Percentage Interest but does not decrease all Limited Partners’ respective Percentage Interest on a proportionate bases, (iii) converts any Limited Partner’s interest in the Partnership into a general partnership interest, (iv) modifies the limited liability of any Limited Partner in a manner adverse to such Limited Partner, or (v) alters or modifies the Rights set forth in Article XI in a manner adverse to such Partner.

(b)   Notwithstanding anything to the contrary provided in Section 13.7(a) above, the General Partner shall have the power, without the consent of any Limited Partner, to amend this Agreement as may be required to facilitate or implement any of the following:

(i)   to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners;

(ii)   to reflect the admission, substitution, termination, or withdrawal of Partners in accordance with this Agreement;

(iii)   to set forth the rights, powers and duties of the holders of any additional Partnership Units issued pursuant to Section 4.3(a) hereof;

(iv)   to reflect any change that does not adversely affect the Limited Partners in any material respect, to cure any ambiguity, to correct or supplement any defective provision in this Agreement, or to make other changes with respect to matters arising under this Agreement that will not be inconsistent with any other provision of this Agreement;

(v)   to reflect in Section 6.2 and Exhibit E attached hereto the relative distribution and allocation preferences and priorities among two (2) or more classes of Preferred Stock, if applicable;

(vi)   to satisfy any requirements, conditions, or guidelines contained in any order, directive, opinion, ruling or regulations of a federal or state agency or contained in federal or state law; and

(vii)   to reflect such changes as are reasonably necessary for the General Partner to maintain its status as a REIT, including changes which may be necessitated due to a change in applicable law (or an authoritative interpretation thereof) or a ruling of the IRS.

The General Partner shall provide notice to the Limited Partners when any action under this Section 13.7(b) is taken, provided that, with respect to any amendment to this Agreement, notice of such amendment shall be deemed to have been given when such amendment is publicly filed with the SEC.

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(c)   So long as any Series Z-I Incentive Unit remains outstanding, the Partnership shall not, without the affirmative vote of the holders of at least two-thirds (2/3) of the Weighted Number of Series Z-1 Incentive Units amend, alter or repeal any provisions of this Agreement, including, without limitation, as a result of, or in connection with, a merger, consolidation or otherwise, in a manner that would materially and adversely affect the powers, special rights, preferences, privileges or voting power of the Series Z-1 Incentive Units or the holders thereof; provided, however, that the following shall be deemed not to materially and adversely affect such powers, special rights, preferences, privileges or voting power of the Series Z-1 Incentive Units: (a) any revision or amendment of the definition of “Series Z-1 Conversion Ratchet Percentage” or “Series Z-1 Target FFO” in accordance with the proviso contained in each such definition; (b) any increase in the amount of Partnership Interests, or the creation or issuance of any other class or series of Partnership Interests, or obligation or security convertible into, or evidencing the right to purchase, any such Partnership Interests, ranking senior to, junior to or on a parity with the Series Z-1 Incentive Units with respect to payment of distributions or the distribution of assets upon liquidation, dissolution or winding up; or (c) any amendment, alteration or repeal of any provision(s) of this Agreement that also materially and adversely affects the Common Units or the holders thereof in a comparable and proportionate fashion; provided, further, that with respect to the occurrence of a merger, consolidation or comparable transaction, so long as (1) the Partnership is the surviving entity and the Series Z-1 Incentive Units remain outstanding with the terms thereof unchanged, or (2) the resulting, surviving or transferee entity is a partnership, limited liability company or other pass-through entity organized under the laws of any state and substitutes the Series Z-1 Incentive Units for other interests in such entity having substantially the same terms and rights as the Series Z-1 Incentive Units, including with respect to distributions, conversions, voting rights and rights upon liquidation, dissolution or winding-up, then the occurrence of any such event shall not be deemed to materially and adversely affect such rights, privileges or voting powers of the holders of the Series Z-1 Incentive Units. Notwithstanding anything in this Section 13.7(c) to the contrary, the holders of Series Z-1 Incentive Units shall have no right to vote or consent with respect to any transaction that constitutes a Series Z-1 Trigger Event or that constitutes a Series Z-1 Change in Control so long as the provisions of Section 10.10(b) of this Agreement remain in effect. For avoidance of doubt, holders of the Series Z-1 Incentive Units will not have any voting rights or rights to consent to any matters except as set forth in this Section 13.17(c).

13.8   Severability . If any provision of this Agreement, or the application of such provision to any person or circumstance, shall be held invalid by a court of competent jurisdiction, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid by such court, shall not be affected thereby.

13.9   Trust Provision . This Agreement, to the extent executed by the trustee of a trust, is executed by such trustee solely as trustee and not in a separate capacity. Nothing herein contained shall create any liability on, or require the performance of any covenant by, any such trustee individually, nor shall anything contained herein subject the individual personal property of any trustee to any liability.

13.10   Pronouns and Headings . As used herein, all pronouns shall include the masculine, feminine and neuter, and all defined terms shall include the singular and plural thereof whatever the context and facts require such construction. The headings, titles and subtitles herein are inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. Any references in this Agreement to “including” shall be deemed to mean “including without limitation”.

13.11   Assurances . Each of the Partners shall hereafter execute and deliver such further instruments and do such further acts and things as may be required or useful to carry out the intent and purpose of this Agreement and as are not inconsistent with the terms hereof.

13.12   Tax Consequences . Each Partner acknowledged in the Original Agreement, the First Amended and Restated Agreement, as amended, the Second Amended and Restated Agreement, as amended, or the Third Amended and Restated Agreement, or in an amendment to any of such agreements, that he or she has relied fully upon the advice of its own legal counsel and/or accountant in determining the tax consequences of the Original Agreement, the First Amended and Restated Agreement, as amended, the Second Amended and Restated Agreement, as amended, or the Third Amended and Restated Agreement, as the case may be, and the transactions contemplated thereby and not upon any representations or advice by the General Partner or by any other Partner. Each Additional Limited Partner shall be deemed to have acknowledged that it has relied fully upon the advice of its own legal counsel and/or accountant in determining the tax consequences of this Agreement and the transactions contemplated thereby and not upon any representations or advice by the General Partner or by any other Partner.

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13.13   Securities Representations . Each Limited Partner hereby represents and warrants to the Partnership and the General Partner that such Limited Partner (i) has acquired its Partnership Interest for itself for investment purposes only, and not with a view to any resale or distribution of such Partnership Interest, (ii) has been advised and understands that such Partnership Interest has not been and will not be registered under the Securities Act or any applicable state securities laws and, therefore, cannot be resold unless such Partnership Interest is registered under the Securities Act and all applicable state securities laws, or unless exemptions from registration are available, and (iii) has, either alone or with its “purchaser representatives” as that term is defined in Rule 501(h) under the Securities Act, such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Partnership. Each Limited Partner further acknowledges that the Partnership and the General Partner have made available to such Limited Partner, at a reasonable time prior to its acquisition of its Partnership Interest, the opportunity to ask questions and receive answers concerning the terms and conditions of such acquisition and to obtain any additional information which the Partnership and/or the General Partner possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished by the Partnership and the General Partner in connection with such acquisition. Each Limited Partner admitted to the Partnership after the date hereof, shall, by its agreeing to be bound by the terms hereof, be deemed to have represented and warranted to the Partnership and the General Partner that such Limited Partner (i) acquired its Partnership Units for itself for investment purposes only, and not with a view to any resale or distribution of such Partnership Units, (ii) has been advised and understands that such Partnership Units have not been and will not be registered under the Securities Act or any applicable state securities laws and, therefore, cannot be resold unless such Partnership Units are registered under the Securities Act and all applicable state securities laws, or unless exemptions from registration are available, and (iii) has, either alone or with its “purchaser representatives” as that term is defined in Rule 501(h) under the Securities Act, such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Partnership, and that the Partnership and the General Partner made available to such Limited Partner, at a reasonable time prior to its acquisition of its Partnership Interest, the opportunity to ask questions and receive answers concerning the terms and conditions of such acquisition and to obtain any additional information which the Partnership and/or the General Partner possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of the information furnished by the Partnership and the General Partner in connection with such acquisition.

13.14   Power of Attorney . Each Limited Partner and each Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidating Trustee, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to:

(1)   execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidating Trustee deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of California and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidating Trustee deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidating Trustee deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the dissolution, liquidation or winding up of the Partnership or the admission, withdrawal, removal or substitution of any Partner or any of the other events described in, Article VIII, Article IX or Section 13.7 hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and

(2)   execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner, to effectuate the terms or intent of this Agreement.

Nothing contained herein shall be construed as authorizing the General Partner to amend this Agreement except in accordance with this Article XIII hereof or as may be otherwise expressly provided for in this Agreement.

The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of all or any portion of such Limited Partner’s or Assignee’s Partnership Units or Partnership Interest and shall extend to such Limited Partner’s or Assignee’s heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidating Trustee, within fifteen (15) days after receipt of the General Partner’s or the Liquidating Trustee’s request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidating Trustee, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership.

41
IN WITNESS WHEREOF, this Agreement is hereby entered into among the undersigned Partners as of the date first written above.

GENERAL PARTNER:
ESSEX PROPERTY TRUST, INC.,
 
 
a Maryland corporation
 
     
 
By:
/s/ Daniel J. Rosenberg
 
   
Senior Vice President, General Counsel & Secretary
 

42
EXHIBIT A
PARTNERSHIP UNITS

*   *   *   *   *   *

A-1
EXHIBIT B

Intentionally Omitted

B-1
EXHIBIT C

Intentionally Omitted

C-1
EXHIBIT D

Intentionally Omitted

D-1
EXHIBIT E
ALLOCATIONS

1.   Allocations of Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss and Components and Items Thereof.

(a)   Net Operating Income . Except as otherwise provided herein, Net Operating Income for any fiscal year or other applicable period shall be allocated in the following order and priority:

(i)   First, to the Partners, until the cumulative Net Operating Income allocated pursuant to this subparagraph 1(a)(i) for the current and all prior periods equals the cumulative Net Operating Loss allocated pursuant to subparagraphs 1(b)(iii) and (iv) hereof for all prior periods, among the Partners in the same ratio and reverse order that such Net Operating Loss was allocated (and, in the event of a shift of a Partner’s interest in the Partnership, to the Partners in a manner that most equitably reflects the successors in interest to such Partners);

(ii)   Second, to the General Partner, until the cumulative Net Operating Income allocated pursuant to this subparagraph 1(a)(ii) for the current and all prior periods equals the cumulative Net Operating Loss allocated pursuant to subparagraph 1(b)(ii) hereof for all prior periods;

(iii)   Third, to the General Partner until the sum of the cumulative amount of

(x)   Net Operating Income allocated pursuant to this subparagraph 1(a)(iii) (and any Net Operating Income allocated with respect to the Series G Preferred Interest and the Series H Preferred Interest under any provisions of the Prior Agreements, as determined by the General Partner), plus

(y)   Net Property Gain allocated pursuant to subparagraph 1(c)(iii) (and any Net Property Gain allocated with respect to the Series G Preferred Interest and the Series H Preferred Interest under any provisions of the Prior Agreements, as determined by the General Partner),

in each case for all fiscal years, equals the total amount of dividends paid on the Series G Preferred Stock and the Series H Preferred Stock, as of or prior to the date of such allocation plus the total amount of accrued but unpaid dividends on the Series G Preferred Stock and the Series H Preferred Stock as of such date;

(iv)   Thereafter, the balance of the Net Operating Income, if any, shall be allocated to the Partners in accordance with their respective Percentage Interests.

(b)   Net Operating Loss . Except as otherwise provided herein, Net Operating Loss for any fiscal year or other applicable period shall be allocated in the following order and priority:

(i)   First, to the Partners in accordance with their respective Percentage Interests until the Capital Account balances of the Limited Partners are reduced to zero (for purposes of this calculation, each Partner’s Capital Account balance shall be credited with the amount such Partner is obligated to restore pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations);

(ii)   Second, to the General Partner until its Capital Account balance has been reduced to zero (for purposes of this calculation, such Partner’s share of Partnership Minimum Gain shall be added back to its Capital Account);

(iii)   Thereafter, to the Partners in accordance with their then Percentage Interests;

(iv)   Notwithstanding anything to the contrary above, to the extent any Net Operating Loss allocated to a Partner would cause such Partner (hereinafter, a “Restricted Partner”) to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Operating Loss relates, such Net Operating Loss shall not be allocated to such Restricted Partner and instead shall be allocated to the other Partner(s), pro rata in accordance with their relative Percentage Interests.

(c)   Net Property Gain . Except as otherwise provided herein, after the allocation of Net Operating Income or Net Operating Loss has been made pursuant to paragraphs 1(a) and (b) above, Net Property Gain, if any, shall be allocated in the following order and priority:

E-1
(i)   First, to the Partners, until the cumulative Net Property Gain allocated pursuant to this subparagraph 1(c)(i) for the current and all prior periods equals the cumulative Net Property Loss allocated pursuant to subparagraph 1(d)(iii) and (iv) hereof for all prior periods, among the Partners in the same ratio and reverse order that such Net Property Loss was allocated to the Partners pursuant to subparagraph 1(d)(iii) and (iv) hereof (and, in the event of a shift of a Partner’s interest in the Partnership, to the Partners in a manner that most equitably reflects the successors in interest to the Partners).

(ii)   Second, to the General Partner, until the cumulative Net Property Gain allocated pursuant to this subparagraph 1(c)(ii) for the current and all prior periods equals the cumulative Net Property Loss allocated pursuant to subparagraph 1(d)(ii) hereof for all prior periods;

(iii)   Third, to the General Partner until the sum of the cumulative amount of

(x)   Net Operating Income allocated to the General Partner under subparagraph 1(a)(iii) (and any Net Operating Income allocated with respect to the Series G Preferred Interest and the Series H Preferred Interest under any provisions of the Prior Agreements, as determined by the General Partner), for the current and all prior periods, plus

(y)   Net Property Gain allocated pursuant to this subparagraph 1(c)(iii) (and any Net Property Gain allocated with respect to the Series G Preferred Interest and the Series H Preferred Interest under any provisions of the Prior Agreements, as determined by the General Partner),

in each case for all fiscal years, equals the total amount of dividends paid on the Series G Preferred Stock and the Series H Preferred Stock as of or prior to the date of such allocation plus the total amount of accrued but unpaid dividends on the Series G Preferred Stock and the Series H Preferred Stock as of such date;

(iv)   Thereafter, the balance of the Net Property Gain, if any, shall be allocated to the Partners in accordance with their respective Percentage Interests.

(d)   Net Property Loss . Except as otherwise provided herein, after the allocation of Net Operating Income or Net Operating Loss has been made pursuant to paragraphs 1(a) and (b) above, Net Property Loss of the Partnership for each fiscal year or other applicable period shall be allocated as follows:

(i)   First, to the Partners in accordance with their respective Percentage Interests until the Capital Account balances of the Limited Partners are reduced to zero (for purposes of this calculation, each Partner’s Capital Account balance shall be credited with the amount such Partner is obligated to restore pursuant to the provisions of Section 1.704-1(b)(2)(ii)(c) of the Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations);

(ii)   Second, to the General Partner until its Capital Account balance has been reduced to zero (for purposes of this calculation, such Partner’s share of Partnership Minimum Gain shall be added back to its Capital Account);

(iii)   Thereafter, to the Partners in accordance with their then Percentage Interests;

(iv)   Notwithstanding anything to the contrary hereunder, to the extent any Net Property Loss allocated to a Partner under subparagraph 1(d) would cause such Partner (hereinafter, a “Restricted Partner”) to have an Adjusted Capital Account Deficit as of the end of the fiscal year to which such Net Property Loss relates, such Net Property Loss shall not be allocated to such Restricted Partner and instead shall be allocated to the other Partner(s), pro rata, in accordance with their relative Percentage Interests.

(e)   Special Allocation to Holders of Series Z-1 Incentive Units and LTIP Units .

(i)   After giving effect to the special allocations set forth in subsections 2(a) and the allocations of Net Property Gain set forth in subsections 1(c)(i)-1(c)(iii), but notwithstanding any other provision of this Exhibit E, in the year in which the Partnership sells or otherwise disposes of all or substantially all of its assets in a single transaction or a series of related transactions (or in connection with any “book-up” of Capital Accounts described in subsection 2(c)), Net Property Gain shall first be allocated to the holders of the Series Z-1 Incentive Units and LTIP Units until the Economic Capital Account balance attributable to each such Series Z-1 Incentive Unit and LTIP Unit is equal to (A) the aggregate Economic Capital Account balance attributable to the Common Units outstanding divided by (B) the number of such Common Units outstanding (such result, the “Target Balance”). Any such allocations shall be made among the holders of Series Z-1 Incentive Units and LTIP Units in proportion to the aggregate amounts required to be allocated to each such holder under this subsection 1(e)(i). The allocations pursuant to this subparagraph 1(e) shall be made after the allocation of Net Operating Income or Net Operating Loss for the applicable period in which such sale, other disposition or “book-up” of Capital Accounts occurs. For purposes of this subsection 1(e) “all or substantially all” means assets representing not less than 95% of the aggregate fair market value of the Partnership’s assets.

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(ii)   Net Property Gain allocated to a holder of Series Z-1 Incentive Units or LTIP Units under this subsection 1(e) will be attributed to specific Series Z-1 Incentive Units or LTIP Units of such holder for purposes of determining (i) allocations under this subsection 1(e), (ii) the effect of the forfeiture or conversion of specific Series Z-1 Incentive Units or LTIP Units on such holder’s Capital Account and (iii) the ability of such holder of Series Z-1 Incentive Units or LTIP Units to convert specific Series Z-1 Incentive Units or LTIP Units into Common Units. Such Net Property Gain allocated to a holder will generally be attributed in the following order: (i) first, to Vested Series Z-1 Incentive Units and Vested LTIP Units held for more than two years, (ii) second, to Vested Series Z-1 Incentive Units and Vested LTIP Units held for two years or less, (iii) third, to Unvested Series Z-1 Incentive Units and Unvested LTIP Units that have remaining vesting conditions that only require continued employment or service to the General Partner, the Partnership or an Affiliate of either for a certain period of time (with such Net Property Gain being attributed in order of vesting from soonest vesting to latest vesting), and (iv) fourth, to other Unvested Series Z-1 Incentive Units and Unvested LTIP Units (with such Net Property Gains being attributed in order of issuance from earliest issued to latest issued). Within each category, Net Property Gain will be allocated seriatim ( i.e. , entirely to the first unit in a set, then entirely to the next unit in the set, and so on, until a full allocation is made to the last unit in the set) in the order of smallest amount remaining to achieve the applicable Target Balance to the largest such amount.

(iii)   After giving effect to the special allocations set forth above, if, due to distributions with respect to Common Units in which the Series Z-1 Incentive Units or LTIP Units do not participate, forfeitures or otherwise, the Economic Capital Account Balance of any present or former holder of Series Z-1 Incentive Units or LTIP Units attributable to such holder’s Series Z-1 Incentive Units or LTIP Units, exceeds the aggregate Target Balance with respect to such Units, then Net Property Losses shall be allocated to such holder, or Net Property Gains shall be allocated to the other Partners, to reduce or eliminate the disparity; provided, however, that if Net Property Losses or Net Property Gains are insufficient to completely eliminate all such disparities, such losses or gains shall be allocated among Partners in a manner reasonably determined by the General Partner.

(iv)   If Net Property Gain is insufficient to make the full allocation provided in subsection 1(e)(i) to any holder of Series Z-1 Incentive Units, then, in lieu of such special allocation of Net Property Gain provided thereunder, items of gross capital gain shall be allocated to the holders of Series Z-1 Incentive Units, and, if such gross items are insufficient to make the full required allocation, items of gross capital loss shall be allocated pro rata with respect to such Series Z-1 Incentive Units; provided , however , items of gross capital gain or gross capital loss shall not be allocated pursuant to this subsection 1(e)(iv) to the extent such allocations would reduce the amount of Net Property Gain otherwise allocable in respect of LTIP Units pursuant to subsection 1(e)(i).

(v)   The parties agree that the intent of this subsection 1(e) is (i) to the extent possible to make the Capital Account balance associated with each Series Z-1 Incentive Unit and each LTIP Unit economically equivalent to the Capital Account balance associated with a Common Unit and (ii) to allow conversion of a Series Z-1 Incentive Unit or an LTIP Unit (assuming prior vesting) into a Common Unit when sufficient Net Property Gains (or items thereof) have been allocated to such Series Z-1 Incentive Unit or LTIP Unit pursuant to subsection 1(e)(i) so that the parity described in the definition of Target Balance has been achieved. The General Partner shall be permitted to interpret this subsection 1(e) or to amend this Agreement to the extent necessary and consistent with this intention.

(vi)   In the event that Net Property Gains or items thereof are allocated under this subsection 1(e), Net Property Gain or Net Property Loss allocable under subsections 1(c) or (1)(d) shall be recomputed without regard to the Net Property Gains or items thereof so allocated under this subsection 1(e).

(f)   LTIP Forfeitures . If a holder of LTIP Units forfeits any LTIP Units to which Net Property Gain has previously been allocated under subsection 1(e), (i) the portion of such holder’s Capital Account attributable to such Net Property Gain allocated to such forfeited LTIP Units will be re-allocated to such holder’s remaining LTIP Units that were outstanding on the date of the initial allocation of such Net Property Gain, using a methodology similar to that described in subsection 1(e)(ii) above as reasonably determined by the General Partner, to the extent necessary to cause such holder’s Economic Capital Account Balance attributable to each such LTIP Unit to equal the Economic Capital Account Balance attributable to a Common Unit and (ii) such holder’s Capital Account will be reduced by the amount of any such Net Property Gain not re-allocated pursuant to clause (i) above.

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2.   Regulatory Allocations, Capital Accounts and Related Provisions .

(a)   Regulatory Allocations . Notwithstanding Section 1, the following special allocations shall be made for each Fiscal Year in the following order of priority:

(i)   Minimum Gain Chargeback . In the event there is a net decrease in Partnership Minimum Gain during any Fiscal Year, the “minimum gain chargeback” described in Treasury Regulations Section 1.704-2(f) and Treasury Regulations Section 1.704-2(g) shall apply.

(ii)   Partner Minimum Gain Chargeback . In the event there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Fiscal Year, the “partner minimum gain chargeback” described in Treasury Regulations Section 1.704-2(i)(4) shall apply.

(iii)   Qualified Income Offset . This Agreement incorporates the “qualified income offset” set forth in Treasury Regulations Section 1.704-1(b)(2)(ii)(d) as if those provisions were fully set forth in this Agreement.

(iv)   Nonrecourse Deductions . The Nonrecourse Deductions of the Partnership (as determined under Treasury Regulation Section 1.704-2(c)) for any Fiscal Year or other applicable period shall be allocated to the Partners in accordance with their respective Percentage Interests.

(v)   Partner Nonrecourse Deductions . Any Partner Nonrecourse Deductions for any Fiscal Year (or any other period in which it is necessary to make allocations under this Exhibit E) shall be specially allocated to the Partner who bears the economic risk of losses with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i)(1).

(b)   Code Section 754 Adjustment . To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Sections 734(b) or 743(b) is required pursuant to Treasury Regulations Sections 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as a result of a distribution to a Partner in complete liquidation of its interest in the Partnership, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or losses (if the adjustment decreases such basis) and such gain or losses shall be specifically allocated to the Partners in accordance with their interests in the Partnership (in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies) or to the Partners to whom such distribution was made (in the event Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies).

(c)   Capital Accounts . A separate capital account (each a “Capital Account”) shall be maintained for each Partner in accordance with the rules of Treasury Regulations Section 1.704-1(b)(2)(iv), and this subsection 2(c) shall be interpreted and applied in a manner consistent therewith. Whenever the Partnership would be permitted to adjust the Capital Accounts of the Partners pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Partnership property, the Partnership shall so adjust the Capital Accounts of the Partners, unless the General Partner determines in its discretion that such adjustment is not necessary or appropriate to reflect or give effect to the intended relative economic interests of the Partners. In the event that the Capital Accounts of the Partners are adjusted pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(f) to reflect revaluations of Partnership property, (i) the Capital Accounts of the Partners shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss, as computed for book purposes, with respect to such property, (ii) the Partners’ distributive shares of depreciation, depletion, amortization and gain or loss, as computed for tax purposes, with respect to such property shall be determined so as to take account of the variation between the adjusted tax basis and book value of such property in the same manner as under Code Section 704(c), and (iii) the amount of upward and/or downward adjustments to the Gross Asset Value of the Partnership property shall be treated as income, gain, deduction and/or loss for purposes of applying the allocation provisions of this Exhibit E. In the event that Code Section 704(c) applies to Partnership property, the Capital Accounts of the Partners shall be adjusted in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain and loss, as computed for book purposes, with respect to such property.

(d)   Certain Depreciation Adjustments . For any Fiscal Year in which book depreciation exceeds tax depreciation with respect to any asset the holders of the Preferred Units shall be allocated no book depreciation in excess of tax depreciation allocated to them, and any book depreciation from such assets in excess of tax depreciation from such asset shall be allocated to holders other than the holders of Preferred Units.

E-4
(e)   Capital Accounts of Holders of Series Z-1 Incentive Units . The Partners recognize that the Percentage Interests of the Series Z-1 Incentive Units are likely to change from year to year as a result of the Series Z-1 Distribution Ratchet Percentage applicable to the Series Z-1 Incentive Units (the “Ratchet Changes”). If there are Ratchet Changes in any taxable year and, after all allocations have been made under the other subsections of this Section 2 (other than subsection (f) below) and under Section 1 of this Exhibit E, the Capital Accounts relating to the Series Z-1 Incentive Units have not been changed to reflect any changes in the Ratchet Percentages, then items of income, gain, loss, or deduction shall be allocated to the holders of the Series Z-1 Incentive Units so as to reflect the Ratchet Changes in the Capital Account relating to the Series Z-1 Incentive Units.

(f)   Profits Interests . The Series Z-1 Incentive Units and the LTIP Units are intended to constitute “profits interests” within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, and Revenue Procedure 2001-43, 2001-2 C.B. 191. For any Fiscal Year in which distributions are actually made to holders of the Series Z-1 Incentive Units, after all other allocations have been tentatively made pursuant to this Exhibit E, if necessary to cause the Capital Accounts relating to any Series Z-1 Incentive Units to be equal (immediately before such distributions and so as to avoid negative Capital Accounts) to the amounts distributed to the holders of the Series Z-1 Incentive Units, items of gross income shall be allocated to the holders of the Series Z-1 Incentive Units. If there are insufficient items of gross income to be allocated to the holders of the Series Z-1 Incentive Units, then such distributions shall, to the extent of such excess, be treated as “guaranteed payments” within the meaning of Section 707(c) of the Code.

3.   Other Allocation Rules .

(a)   Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss and any other items of income, gain, losses or deduction shall be allocated to the Partners pursuant to this Exhibit E as of the last day of each Fiscal Year; provided that Net Property Gain, Net Property Loss and such other items shall also be allocated at such times as Capital Accounts are adjusted pursuant to subsection 2(c) of this Exhibit E.

(b)   Each item of the Partnership’s income, gain, losses, deduction and credit as determined for federal income tax purposes shall be allocated among the Partners in the same manner as such items are allocated for book purposes in accordance with the provisions of this Exhibit E.

(c)   The Partners are aware of the federal income tax consequences of the allocations made by this Exhibit E and hereby agree to be bound by the provisions of this Exhibit E in reporting their shares of Partnership income and losses for federal income tax purposes. Any elections or other decisions relating to allocations shall be made by the General Partner in a manner that reasonably reflects the purpose and intention of this Agreement.

(d)   For purposes of determining Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss or any other items allocable to any period, the Partnership shall use a daily, monthly, or other convention, as determined by the General Partner using any permissible method under Code Section 706 and the Treasury Regulations thereunder.

(e)   The Partnership shall allocate all “excess nonrecourse liabilities” within the meaning of Treasury Regulations Section 1.752-3(a)(3) to the Partners in accordance with their respective Percentage Interests.

(f)   To the extent permitted by Treasury Regulations Section 1.704-2(h)(3), the Partners shall endeavor not to treat distributions of cash as having been made from the proceeds of a Nonrecourse Liability or a Partner Nonrecourse Debt.

4.   Code Section 704(c) .

(a)   In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, losses and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value using an allocation method pursuant to the regulations under Code Section 704(c) as selected by the General Partner. In the event the Gross Asset Value of any Partnership asset is adjusted pursuant to the definition of Gross Asset Value, subsequent allocations of income, gain, losses and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder. Allocations made under Section 704(c) are solely for purposes of federal, state, and local income taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Net Operating Income, Net Operating Loss, Net Property Gain, Net Property Loss or other items, or distributions pursuant to any provisions of this Agreement.

E-5
EXHIBIT F

Intentionally Omitted

F-1
EXHIBIT G

Intentionally Omitted

G-1
EXHIBIT H

Intentionally Omitted

H-1
EXHIBIT I
RIGHTS TERMS

The Rights granted by the General Partner to the Limited Partners pursuant to Section 11.1 hereof shall be subject to the following terms and conditions:

1.   Definitions . The following terms and phrases shall, for purposes of this Exhibit I and the Agreement, have the meanings set forth below:

“ Beneficially Own ” shall mean the ownership of Common Stock by a Person who would be treated as an owner of such Shares of Common Stock either directly or constructively through the application of Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code.

“ Conversion Component Exercise Notice ” shall have the meaning set forth in Paragraph 2(a) hereof.

“ Conversion Rights ” shall have the meaning set forth in Paragraph 2(a) hereof.

“ Election Notice ” shall mean the written notice to be given by the General Partner to the Exercising Partners in response to the receipt by the General Partner of an Exercise Notice from such Exercising Partners, the form of which Election Notice is attached hereto as Schedule 2.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, or any successor statute.

“ Exercise Notice ” shall mean and include a Conversion Component Exercise Notice and/or a Sale Component Exercise Notice.

“ Exercising Partners ” shall have the meaning set forth in Paragraph 2 hereof.

“ Offered Units ” shall mean the Partnership Units of the Exercising Partners identified in a Conversion Component Exercise Notice or a Sale Component Exercise Notice which, pursuant to the exercise of Conversion Rights or Sale Rights, can be acquired by the General Partner under the terms hereof.

“ Sale Component Exercise Notice ” shall have the meaning set forth in Paragraph 2(b) hereof.

“ Sale Rights ” shall have the meaning set forth in Paragraph 2(b) hereof.

2.   Delivery of Exercise Notices . Any one or more Limited Partners (“Exercising Partners”) may, subject to the limitations set forth herein:

(a)   deliver to the General Partner written notice (the “ Conversion Component Exercise Notice ”) pursuant to which such Exercising Partners elect to exercise their Rights to convert (the “ Conversion Rights ”) all or any portion of their Partnership Units into shares of Common Stock subject to the limitations contained in Paragraph 4 below; and

(b)   deliver to the General Partner written notice (the “Sale Component Exercise Notice”) pursuant to which such Exercising Partners elect to exercise their Rights to sell (the “Sale Rights”) all or any portion of their Partnership Units to the General Partner (or the General Partner’s designee), subject to the limitations contained in Paragraph 3 below.

3.   Limitations on Delivery of Exercise Notices . The first Sale Component Exercise Notice may not be exercised prior to the time that Conversion Rights have been exercised to the fullest extent permissible under Paragraph 4 below.

4.   Limitation on Exercise of Conversion Rights . Conversion Rights may be exercised at any time and from time to time to the extent that, upon exercise of the Conversion Rights, the exercising Limited Partner shall not Beneficially Own shares of Common Stock including shares of Common Stock to be issued in connection with the exercise of such Conversion Rights, in excess of the applicable Ownership Limit or existing Holder Limit, as such terms are defined in the Articles of Incorporation of the General Partner (the “Ownership Limit”). For purposes of computing the Ownership Limit as of any date, the Limited Partner shall be deemed to own all shares of Common Stock issuable to the Limited Partner upon the exercise of stock options granted on or before such date under the Stock Incentive Plan. If a Conversion Component Exercise Notice is delivered to the General Partner but, as a result of the Ownership Limit or as a result of restrictions contained in the Articles of Incorporation of the General Partner, the Conversion Rights cannot be exercised in full, the Conversion Component Exercise Notice shall be deemed to be modified such that the Conversion Rights shall be exercised only to the extent permitted under the Ownership Limit in accord with the Articles of Incorporation of the General Partner; with the remainder of such Conversion Rights being deemed to be Sale Rights with the corresponding portion of the Conversion Component Exercise Notice being deemed to be a Sale Component Exercise Notice.

I-1
5.   Exercise of Sale Rights . Sale Rights may be exercised at any time and from time to time, subject to the limitation contained in Paragraph 3 hereof.

6.   Computation of Consideration/Form of Payment . With respect to the exercise of Conversion Rights, the consideration payable for the Offered Unit shall be the issuance by the General Partner of the Common Stock Amount. With respect to the exercise of Sale Rights, the consideration shall, in the sole and absolute discretion of the General Partner, be paid in the form of (a) cash, cashier’s or certified check, or by wire transfer of immediately available funds to the Exercising Partner’s designated account in the amount of the Cash Amount, or (b) by the issuance by the General Partner of the Common Stock Amount, or (c) any combination of cash and Common Stock equal to the Cash Amount.

7.   Closing; Delivery of Election Notice .

(a)   If the transfers effectuated pursuant to the exercise of Conversion Rights or Sale Rights qualify under one of the Safe Harbors set forth in Treasury Regulations Section 1.7704-1, other than the Safe Harbor described in Section 9.3(b)(iii), the closing of the acquisition of Offered Units shall, unless otherwise mutually agreed, be held at the principal offices of the General Partner, on the following date(s):

(i)   With respect to the exercise of Conversion Rights, the closing shall occur on the date agreed to by the General Partner and the Exercising Partners, which date shall in no event be more than the later of (A) ten (10) days after the date of the Conversion Component Exercise Notice and (B) the expiration or termination of the waiting period applicable to each Exercising Partner, if any, under the Hart-Scott Act; and

(ii)   With respect to the exercise of Sale Rights, the General Partner shall, within thirty (30) days after receipt by the General Partner of any Sale Component Exercise Notice which Notice does not violate the provisions of Paragraph 3 hereof, deliver to the Exercising Partners an Election Notice, which Election Notice shall set forth the computation of the Cash Amount and shall specify the form of the consideration (which shall be in accordance with Paragraph 6 hereof) to be paid by the General Partner to such Exercising Partners and the date, time and location for completion of the purchase and sale of the Offered Units, which date shall, to the extent required, in no event be more than (A) ten (10) days after delivery by the General Partner of the Election Notice for Offered Units with respect to which the General Partner has elected to pay the consideration by issuance of shares of its Common Stock or (B) sixty (60) days after the initial date of receipt by the General Partner of the Sale Component Rights Notice for Offered Units with respect to which the General Partner has elected to pay the Cash Amount; provided, however, that such sixty (60) day period may be extended for an additional period to the extent required for the General Partner to cause additional shares of its Common Stock to be issued to provide financing to be used to acquire the Offered Units. Notwithstanding the foregoing, in the event the completion date is extended, the General Partner agrees to use its best efforts to cause the closing of the acquisition of Offered Units hereunder to occur as quickly as possible.

(b)   If the transfers effectuated pursuant to the exercise of Conversion Rights or Sale Rights only qualify under the Safe Harbor described in Section 9.3(b)(iii), which Section covers the Safe Harbor set forth in Treasury Regulations Section 1.7704-1(f) or its successor provision, the closing of the acquisition of Offered Units shall, unless otherwise mutually agreed, be held at the principal offices of the General Partner, on the following date(s):

(i)   With respect to the exercise of Conversion Rights, the closing shall occur on the date agreed to by the General Partner and the Exercising Partners, which date shall in no event be more than the ten (10) days after the later of (A) sixty (60) days after the date of the Conversion Component Exercise Notice and (B) the expiration or termination of the waiting period applicable to each Exercising Partner, if any, under the Hart-Scott Act; and

(ii)   With respect to the exercise of Sale Rights, the General Partner shall, within thirty (30) days after receipt by the General Partner of any Sale Component Exercise Notice which Notice does not violate the provisions of Paragraph 3 hereof, deliver to the Exercising Partners an Election Notice, which Election Notice shall set forth the computation of the Cash Amount and shall specify the form of the consideration (which shall be in accordance with Paragraph 6 hereof) to be paid by the General Partner to such Exercising Partners and the date, time and location for completion of the purchase and sale of the Offered Units, which completion date shall in no event be less than sixty (60) days and no more than seventy (70) days after the initial receipt date by the General Partner of the Sale Component Exercise Notice, provided, however, that if the General Partner has elected to pay the Cash Amount for all or a portion of the Offered Units, then such completion date may be extended to the extent required for the General Partner to cause additional shares of its Common Stock to be issued to provide financing to be used to acquire the Offered Units. Notwithstanding the foregoing, in the event the completion date is extended, the General Partner agrees to use its best efforts to cause the closing of the acquisition of Offered Units hereunder to occur as quickly as possible.

I-2
(c)   To the extent that the acquisition of Offered Units pursuant to Section 7(b) of Exhibit I involves a cash payment, then, notwithstanding any other provision of the Partnership Agreement, such cash payment shall be based on either, in the General Partner’s sole discretion, (A) calculating the Cash Amount by using the Closing Price as of the closing of the acquisition of the Offered Units, or (B) calculating the Cash Amount by using a redemption or repurchase price established not more than four times during the Partnership’s taxable year.

8.   Adjustment to Purchase Price . If, with respect to the exercise of Sale Rights, the General Partner elects to pay all or any portion of the Purchase Price in cash and if as a result thereof the General Partner elects to raise such cash through a public offering of its securities, borrowings or otherwise, the Cash Amount shall be reduced by an amount (“Transaction Expenses”) equal to the expenses incurred by the General Partner in connection with such raising of funds allocable to the amounts required to pay the Cash Amount hereunder; provided, however, notwithstanding the foregoing, the Cash Amount shall not be reduced hereunder by an amount exceeding 5% of the Cash Amount computed without regard to the adjustment for Transaction Expenses.

9.   Closing Deliveries . At the closing of the purchase and sale of Offered Units, payment of the consideration shall be accompanied by proper instruments of transfer and assignment and by the delivery of (i) representations and warranties of (A) the Exercising Partner with respect to its due authority to sell all of the right, title and interest in and to such Offered Units to the General Partner and with respect to the status of the Partnership Units being transferred, free and clear of all Liens, and (B) the General Partner with respect to due authority for the purchase of such Offered Units, and (ii) to the extent that any shares of Common Stock are issued in payment of the consideration or any portion thereof, (A) an opinion of counsel for the General Partner, reasonably satisfactory to the Exercising Partners, to the effect that such shares of Common Stock have been duly authorized, are validly issued, fully-paid and non-assessable, and (B) a stock certificate or certificates evidencing the Common Stock to be issued and registered in the name of the Exercising Partner or its designee.

10.   [Intentionally Omitted ]

11.   Covenants of the General Partner . To facilitate the General Partner’s ability to fully perform its obligations hereunder, the General Partner covenants and agrees as follows:

(a)   At all times during the pendency of the Rights, the General Partner shall reserve for issuance such number of shares of Common Stock as may be necessary to enable the General Partner to issue such shares in exchange for all of the Partnership Units held by Limited Partners which are from time to time outstanding.

(b)   As long as the General Partner shall be obligated to file periodic reports under the Exchange Act, the General Partner will timely file such reports in such manner as shall enable any recipient of Common Stock issued to Limited Partners hereunder in reliance upon an exemption from registration under the Securities Act to continue to be eligible to utilize Rule 144 promulgated by the SEC pursuant to the Securities Act, or any successor rule or regulation or statute thereunder, for the resale thereof.

(c)   During the pendency of the Rights, the Limited Partners shall receive in a timely manner all reports filed by the General Partner with the SEC and all other communications transmitted from time to time by the General Partner to its stockholders generally.

(d)   Under no circumstances shall the General Partner declare any stock dividend, stock split, stock distribution or the like, unless fair and equitable arrangements are provided, to the extent necessary, to fully adjust, and to avoid any dilution in, the rights of Limited Partners under this Agreement.

(e)   Notwithstanding the General Partner’s determination as to the form in which the consideration for the Offered Units shall be payable, the General Partner shall be required to pay such consideration by cashier’s check or wire transfer of immediately available funds to the extent that payment by issuance of Common Stock would disqualify the General Partner from being characterized as a REIT.

12.   Limited Partner’s Covenant . Each Limited Partner covenants and agrees with the General Partner that all Offered Units tendered to the General Partner in accordance with the exercise of Rights herein provided shall be delivered to the General Partner free and clear of all Liens, and should any Liens exist or arise with respect to such Offered Units, the General Partner shall be under no obligation to acquire the same unless, in connection with such acquisition, the General Partner has elected to pay such portion of the consideration therefor in the form of cash in circumstances where such cash will be sufficient to cause such existing Lien to be discharged in full upon application of all or a part of such consideration and the General Partner is expressly authorized to apply such portion of the consideration as may be necessary to satisfy any indebtedness in full and to discharge such Lien in full. Each Limited Partner further agrees that, in the event any state or local property transfer tax is payable as a result of the transfer of its Offered Units to the General Partner (or its designee), such Limited Partner shall assume and pay such transfer tax.

I-3
EXHIBIT J

Intentionally Omitted

J-1
EXHIBIT K

Intentionally Omitted

K-1
EXHIBIT L

Intentionally Omitted

L-1
EXHIBIT M
ADDRESSES OF PARTNERS

*   *   *   *   *   *

M-1
EXHIBIT N

Intentionally Omitted

N-1
EXHIBIT O

Intentionally Omitted

O-1
EXHIBIT P

Intentionally Omitted

P-1
EXHIBIT Q

Intentionally Omitted

Q-1
EXHIBIT R
LIST OF SERIES Z-1 UNITHOLDERS

*   *   *   *   *   *

R-1
EXHIBIT S
SERIES Z-1 TARGET FFO AMOUNTS

*   *   *   *   *   *

S-1
EXHIBIT T
DESIGNATION OF THE RIGHTS, POWERS, PRIVILEGES,
RESTRICTIONS, QUALIFICATIONS AND LIMITATIONS
OF THE LTIP UNITS

The following are certain additional terms of the LTIP Units:

1.1   Designation . A class of Partnership Units in the Partnership designated as the “LTIP Units” is hereby established. LTIP Units are intended to qualify as “profits interests” in the Partnership. The number of LTIP Units that may be issued shall not be limited.

1.2   Vesting . LTIP Units may, in the sole discretion of the General Partner, be issued subject to vesting, forfeiture and additional restrictions on transfer pursuant to the terms of an award, vesting or other similar agreement (a “Vesting Agreement”). The terms of any Vesting Agreement may be modified from time to time in accordance with its terms. LTIP Units that are not subject to the terms of a Vesting Agreement or have vested and are no longer subject to forfeiture under the terms of a Vesting Agreement are referred to as “Vested LTIP Units”; all other LTIP Units are referred to as “Unvested LTIP Units.” Subject to the terms of any Vesting Agreement, a holder of LTIP Units shall be entitled to transfer his or her LTIP Units to the extent permitted under Article IX of the Agreement.

1.3   Forfeiture or Transfer of Unvested LTIP Units . Unless otherwise specified in the relevant Vesting Agreement, upon the occurrence of any event specified in a Vesting Agreement as resulting in either the forfeiture of any LTIP Units, or the repurchase by the Partnership or the General Partner of LTIP Units at a specified purchase price, then the relevant LTIP Units shall immediately, and without any further action, be treated as cancelled and no longer outstanding for any purpose, or as transferred to the Partnership or General Partner, as applicable. Unless otherwise specified in the Vesting Agreement, no consideration or other payment shall be due with respect to any LTIP Units that have been forfeited, other than any distributions declared with a record date prior to the effective date of the forfeiture.

1.4   Legend . Any certificate evidencing an LTIP Unit shall bear an appropriate legend indicating that additional terms, conditions and restrictions on transfer, including without limitation, any Vesting Agreement, apply to the LTIP Unit.

1.5   Distributions . The distributions to which holders of LTIP Units will be entitled with respect to their LTIP Units will be determined in accordance with the terms of the Agreement, including, without limitation, Article VI and Article VIII thereof.

1.6   Allocations . The allocations to which holders of LTIP Units will be entitled with respect to their LTIP Units will be determined in accordance with the terms of the Agreement, including, without limitation, Exhibit E thereto.

1.7   Adjustments . If an LTIP Unit Adjustment Event (as defined below) occurs, then the General Partner shall make a corresponding adjustment to the LTIP Units to maintain the same correspondence between Common Units and LTIP Units as existed prior to such LTIP Unit Adjustment Event. The following shall be “LTIP Unit Adjustment Events”: (A) the Partnership makes a distribution of Partnership Units on all outstanding Common Units, (B) the Partnership subdivides the outstanding Common Units into a greater number of units or combines the outstanding Common Units into a smaller number of units, or (C) the Partnership issues any Partnership Units in exchange for its outstanding Common Units by way of a reclassification or recapitalization of its Common Units. If more than one LTIP Unit Adjustment Event occurs, the adjustment to the LTIP Units need be made only once using a single formula that takes into account each and every LTIP Unit Adjustment Event as if all LTIP Unit Adjustment Events occurred simultaneously. If the Partnership takes an action affecting the Common Units other than actions specifically described above as LTIP Unit Adjustment Events and in the opinion of the General Partner such action would require an adjustment to the LTIP Units to maintain the correspondence between Common Units and LTIP Units as existed prior to such action, the General Partner shall make such adjustment to the LTIP Units, to the extent permitted by law and by the terms of any plan pursuant to which the LTIP Units have been issued, in such manner and at such time as the General Partner, in its sole discretion, may determine to be appropriate under the circumstances to maintain such correspondence. If an adjustment is made to the LTIP Units as herein provided, the Partnership shall promptly file in the books and records of the Partnership an officer’s certificate setting forth such adjustment and a brief statement of the facts requiring such adjustment, which certificate shall be conclusive evidence of the correctness of such adjustment absent manifest error. Promptly after filing of such certificate, the Partnership shall mail a notice to each holder of LTIP Units setting forth the adjustment to his or her LTIP Units and the effective date of such adjustment.

T-1
1.8   Right to Convert LTIP Units into Common Units .

(a)   Conversion Right . A holder of LTIP Units shall have the right (the “LTIP Unit Conversion Right”), at his or her option, at any time to convert all or a portion of such holder’s Vested LTIP Units the Book-Up Target of which is zero into Common Units. Holders of LTIP Units shall not have the right to convert Unvested LTIP Units into Common Units until they become Vested LTIP Units; provided, however, that when a holder of LTIP Units is notified of the expected occurrence of an event that will cause his or her Unvested LTIP Units to become Vested LTIP Units, such Person may give the Partnership an LTIP Unit Conversion Notice conditioned upon and effective as of the time of vesting, and such LTIP Unit Conversion Notice, unless subsequently revoked by the holder of the LTIP Units, shall be accepted by the Partnership subject to such condition. The General Partner shall have the right at any time to cause a conversion of Vested LTIP Units into Common Units provided that the Book-Up Target of each such LTIP Unit is zero. In all cases, the conversion of any LTIP Units the Book-Up Target of which is zero into Common Units shall be subject to the conditions and procedures set forth in this Section 1.8.

(b)   Number of Units Convertible . A holder of Vested LTIP Units may convert such Vested LTIP Units the Book-Up Target of which is zero into an equal number of fully paid and non-assessable Common Units, giving effect to all adjustments (if any) made pursuant to Section 1.7.

(c)   Notice . In order to exercise his or her Conversion Right, a holder of LTIP Units shall deliver a notice (a “LTIP Unit Conversion Notice”) in the form attached as Exhibit U to the Agreement not less than 10 nor more than 60 days, or such shorter period as the General Partner shall agree in its sole and absolute discretion, prior to a date (the “LTIP Unit Conversion Date”) specified in such LTIP Unit Conversion Notice. Each holder of LTIP Units covenants and agrees with the Partnership that all Vested LTIP Units to be converted pursuant to this Section 1.8 shall be free and clear of all liens.

(d)   Rights . Any Common Units received upon the conversion of LTIP Units may thereafter be converted into Common Stock pursuant to Section 10.8 of the Agreement and the holder of such Common Units shall have the Rights provided in Article XI with respect to such Common Units; provided, however, that, notwithstanding anything to the contrary contained in Section 10.8, Article XI or Exhibit I, the General Partner may, in its sole discretion, choose to assign its obligation pursuant to Section 10.8, Article XI or Exhibit I, as the case may be, to the Partnership, in which case the Partnership will deliver shares of Common Stock that it holds on such date in exchange for the Common Units to be converted or redeemed, in lieu of the General Partner issuing new shares of Common Stock to the holder of such Common Units.

1.9   Forced Conversion . The Partnership, at any time at the election of the General Partner, may cause any number of Vested LTIP Units the Book-Up Target of which is zero held by a holder of LTIP Units to be converted (a “LTIP Unit Forced Conversion”) into an equal number of Common Units, giving effect to all adjustments (if any) made pursuant to Section 1.7. In order to exercise its right to cause an LTIP Unit Forced Conversion, the Partnership shall deliver a notice (a “LTIP Unit Forced Conversion Notice”) in the form attached as Exhibit V to this Agreement to the applicable holder not less than 10 nor more than 60 days prior to a date (the “LTIP Unit Forced Conversion Date”) specified in such LTIP Unit Forced Conversion Notice. A Forced LTIP Unit Conversion Notice shall be provided in the manner provided in Section 13.1 of this Agreement.

1.10   Conversion Procedures . Subject to any redemption of Common Units to be received upon the conversion of Vested LTIP Units, a conversion of Vested LTIP Units for which the holder thereof has given an LTIP Unit Conversion Notice or the Partnership has given a Forced LTIP Unit Conversion Notice shall occur automatically after the close of business on the applicable LTIP Unit Conversion Date or LTIP Unit Forced Conversion Date without any action on the part of such holder of LTIP Units, as of which time such holder of LTIP Units shall be credited on the books and records of the Partnership with the issuance as of the opening of business on the next day of the number of Common Units issuable upon such conversion. After the conversion of LTIP Units as aforesaid, the Partnership shall deliver to such holder of LTIP Units, upon his or her written request, a certificate of the General Partner certifying the number of Common Units and remaining LTIP Units, if any, held by such Person immediately after such conversion.

1.11   Treatment of Capital Account . For purposes of making future allocations pursuant to Exhibit E to this Agreement, upon the conversion of LTIP Units into Common Units, the portion of the Economic Capital Account Balance of the applicable holder of LTIP Units that is treated as attributable to his or her LTIP Units shall be reduced, as of the date of conversion, by the product of the number of LTIP Units converted into Common Units and the Target Balance as of such time, provided that for the avoidance of doubt, the amount of such reduction shall instead be attributable to the Economic Capital Account Balance that is attributable to the Common Units into which such LTIP Units were converted.

T-2
1.12   Mandatory Conversion in Connection with a Transaction .

(a)   If the Partnership or the General Partner shall be a party to any transaction (including without limitation a merger, consolidation, unit exchange, self-tender offer for all or substantially all Common Units or other business combination or reorganization, or sale of all or substantially all of the Partnership’s assets, but excluding any transaction which constitutes an LTIP Unit Adjustment Event), in each case as a result of which Common Units shall be exchanged for or converted into the right, or the holders of Common Units shall otherwise be entitled, to receive cash, securities or other property or any combination thereof (each of the foregoing being referred to herein as a “Transaction”), then the General Partner shall, immediately prior to the Transaction, exercise its right to cause an LTIP Unit Forced Conversion with respect to the maximum number of LTIP Units then eligible for conversion, taking into account any allocations that occur in connection with the Transaction or that would occur in connection with the Transaction if the assets of the Partnership were sold at the Transaction price or, if applicable, at a value determined by the General Partner in good faith using the value attributed to the Partnership Units in the context of the Transaction (in which case the LTIP Unit Forced Conversion Date shall be the effective date of the Transaction and the conversion shall occur immediately prior to the effectiveness of the Transaction).

(b)   In anticipation of such LTIP Unit Forced Conversion and the consummation of the Transaction, the Partnership shall cause each holder of LTIP Units to be afforded the right to receive in connection with such Transaction in consideration for the Common Units into which his or her LTIP Units will be converted the same kind and amount of cash, securities and other property (or any combination thereof) receivable upon the consummation of such Transaction by a holder of the same number of Common Units, assuming such holder of Common Units is not a Person with which the Partnership consolidated or into which the Partnership merged or which merged into the Partnership or to which such sale or transfer was made, as the case may be (a “Constituent Person”), or an Affiliate of a Constituent Person. In the event that holders of Common Units have the opportunity to elect the form or type of consideration to be received upon consummation of the Transaction, prior to such Transaction the General Partner shall give prompt written notice to each holder of LTIP Units of such election, and shall afford such holders the right to elect, by written notice to the General Partner, the form or type of consideration to be received upon conversion of each LTIP Unit held by such holder into Common Units in connection with such Transaction. If a holder of LTIP Units fails to make such an election, such holder (and any of its transferees) shall receive upon conversion of each LTIP Unit held by him or her (or by any of his or her transferees) the same kind and amount of consideration that a holder of a Common Unit would receive if such holder of Common Units failed to make such an election.

(c)   Subject to the rights of the Partnership and the General Partner under any Vesting Agreement and the terms of any plan under which LTIP Units are issued, the Partnership shall use commercially reasonable efforts to cause the terms of any Transaction to be consistent with the provisions of this Section 1.12 and to enter into an agreement with the successor or purchasing entity, as the case may be, for the benefit of any holders of LTIP Units whose LTIP Units will not be converted into Common Units in connection with the Transaction that will (i) contain provisions enabling the holders of LTIP Units that remain outstanding after such Transaction to convert their LTIP Units into securities as comparable as reasonably possible under the circumstances to the Common Units and (ii) preserve as far as reasonably possible under the circumstances the distribution, special allocation, conversion, and other rights set forth in the Agreement for the benefit of the holders of LTIP Units.

1.13   Redemption at the Option of the Partnership . LTIP Units will not be redeemable at the option of the Partnership; provided , however , that the foregoing shall not prohibit the Partnership from (i) repurchasing LTIP Units from the holder thereof if and to the extent such holder agrees to sell such LTIP Units or (ii) from exercising its LTIP Unit Forced Conversion right.

1.14   Voting Rights . Holders of LTIP Units shall have the right to vote on all matters submitted to a vote of the holders of Common Units; holders of LTIP Units and Common Units shall vote together as a single class, together with any other class or series of Partnership Units upon which like voting rights have been conferred. In any matter in which the LTIP Units are entitled to vote, including an action by written consent, each LTIP Unit shall be entitled to vote a Percentage Interest equal on a per unit basis to the Percentage Interest represented by each Common Unit.

T-3
1.15   Special Approval Rights . Except as provided in Section 1.14 above, holders of LTIP Units shall only (a) have those voting rights required from time to time by non-waivable provisions of applicable law, if any, and (b) have the additional voting rights that are expressly set forth in this Section 1.15 . The General Partner and/or the Partnership shall not, without the affirmative consent of holders of more than 50% of the then outstanding LTIP Units affected thereby, given in person or by proxy, either in writing or at a meeting (voting separately as a class), take any action that would materially and adversely alter, change, modify or amend, whether by merger, consolidation or otherwise, the rights, powers or privileges of such LTIP Units, subject to the following exceptions: (i) no separate consent of the holders of LTIP Units will be required if and to the extent that any such alteration, change, modification or amendment would equally, ratably and proportionately alter, change, modify or amend the rights, powers or privileges of the Common Units (in which event the holders of LTIP Units shall only have such voting rights, if any, as expressly provided for in the Agreement, in accordance with Section 1.14 above); (ii) with respect to any merger, consolidation or other business combination or reorganization, so long as either (w) the LTIP Units are converted into Common Units immediately prior to the effectiveness of the transaction, (x) the holders of LTIP Units either will receive, or will have the right to elect to receive, for each LTIP Unit an amount of cash, securities, or other property equal to the greatest amount of cash, securities or other property paid to a holder of one Common Unit in consideration of one Common Unit pursuant to the terms of such transaction, (y) the LTIP Units remain outstanding with the terms thereof materially unchanged, or (z) if the Partnership is not the surviving entity in such transaction, the LTIP Units are exchanged for a security of the surviving entity with terms that are materially the same with respect to rights to allocations, distributions, redemption, conversion and voting as the LTIP Units and without any income, gain or loss expected to be recognized by the holder upon the exchange for U.S. federal income tax purposes (and with the terms of the Common Units or such other securities into which the LTIP Units (or the substitute security therefor) are convertible materially the same with respect to rights to allocations, distributions, redemption, conversion and voting), such merger, consolidation or other business combination or reorganization shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units, provided further, that if some, but not all, of the LTIP Units are converted into Common Units immediately prior to the effectiveness of the transaction (and neither clause (y) or (z) above is applicable), then the consent required pursuant to this Section will be the consent of the holders of more than 50% of the LTIP Units to be outstanding following such conversion; (iii) any creation or issuance of Partnership Units (whether ranking junior to, on a parity with or senior to the LTIP Units in any respect, which either (x) does not require the consent of the holders of Common Units or (y) does require such consent and is authorized by a vote of the holders of Common Units and LTIP Units voting together as a single class pursuant to Section 1.14 above, together with any other class or series of units of limited partnership interest in the Partnership upon which like voting rights have been conferred, shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units; and (iv) any waiver by the Partnership of restrictions or limitations applicable to any outstanding LTIP Units with respect to any holder or holders thereof shall not be deemed to materially and adversely alter, change, modify or amend the rights, powers or privileges of the LTIP Units with respect to other holders.

1.16   The foregoing voting provisions will not apply if, as of or prior to the time when the action with respect to which such vote would otherwise be required to be taken or be effective, all outstanding LTIP Units shall have been converted and/or redeemed, or provision is made for such redemption and/or conversion to occur as of or prior to such time.

[End of text]

T-4
EXHIBIT U
NOTICE OF ELECTION BY PARTNER TO CONVERT LTIP UNITS INTO COMMON UNITS

The undersigned holder of LTIP Units hereby irrevocably elects to convert the number of Vested LTIP Units in Essex Portfolio, L.P. (the “Partnership”) set forth below into Common Units in accordance with the terms of the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, as amended. The undersigned hereby represents, warrants, and certifies that the undersigned: (a) has title to such LTIP Units, free and clear of the rights or interests of any other Person other than the Partnership; (b) has the full right, power, and authority to cause the conversion of such LTIP Units as provided herein; and (c) has obtained the consent or approval of all persons or entities, if any, having the right to consent or approve such conversion.

 
Name of Holder:

 
   
(Please Print: Exact Name as Registered with Partnership)
 

 
Number of LTIP Units to be Converted:

 

 
Conversion Date:

 


 
(Signature of Holder: Sign Exact Name as Registered with Partnership)
 

 
(Street Address)
 

 
 
(City)
(State)
(Zip Code)
 

U-1
EXHIBIT V
NOTICE OF ELECTION BY PARTNERSHIP TO FORCE CONVERSION
OF LTIP UNITS INTO COMMON UNITS

Essex Portfolio, L.P. (the “Partnership”) hereby irrevocably elects to cause the number of LTIP Units held by the holder of LTIP Units set forth below to be converted into Common Units in accordance with the terms of the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, as amended.


 
Name of Holder:
   
   
(Please Print: Exact Name as Registered with Partnership)
 

 
Number of LTIP Units to be Converted:
   

 
Conversion Date:
   

V-1
SCHEDULE 1
EXERCISE NOTICE

To: Essex Property Trust, Inc.

Reference is made to that certain Fourth Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., a California limited partnership (the “Partnership”), dated as of _______________, 2018 (the “Partnership Agreement”). Capitalized terms used but not defined herein shall have the meanings set forth in the Partnership Agreement. Pursuant to Article XI and Paragraph 2 of Exhibit I to the Partnership Agreement, each of the undersigned, being a limited partner of the Partnership (an “Exercising Partner”), hereby elects to exercise its Conversion Rights and/or Sale Rights as to the number of Partnership Units specified opposite its signature below:

Dated: __________________

Exercising Partner
 
Type of Rights
Being Exercised (Conversion
Rights or Sale Rights)
 
Number of
Partnership Units
         
Exercising Partners:
       
         
         

SCHEDULE 2
ELECTION NOTICE

To: All Exercising Partners

Reference is made to that certain Fourth Amended and Restated Agreement of Limited Partnership of Essex Portfolio, L.P., a California limited partnership (the “Partnership”), dated as of _______________, 2018 (the “Partnership Agreement”). All capitalized terms used but not defined herein shall have the meanings set forth in the Partnership Agreement. Pursuant to subsection (b) of Paragraph 7 of Exhibit I to the Partnership Agreement, the undersigned, being the general partner of the Partnership, hereby notifies the Exercising Partners that (a) the consideration for the Partnership Units as to which the Sale Rights are being or are deemed to be exercised is $_________, the computation of which is set forth on an attachment hereto; (b) $_________ of the consideration is payable in cash and the balance thereof is payable by issuance of ______ shares of Common Stock; and (c) the closing of the purchase and sale of the Partnership Units as to which the Sale Rights are being or are deemed to be exercised shall take place at the offices of ______________ at ______ a.m., local time, on ______________________________________.

Dated: __________________

     
ESSEX PROPERTY TRUST, INC.,
       
     
a Maryland corporation
       
     
By:
 
         
     
Its:
 




Exhibit 10.21

FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this “ First Amendment ”) is made as of January 11, 2019 (the “ Effective Date ”), by and among ESSEX PORTFOLIO, L.P., a California limited partnership (“ Borrower ”), the lenders which are parties hereto (collectively, the “ Lenders ”) and PNC BANK, NATIONAL ASSOCIATION, as administrative agent under the Credit Agreement (in such capacity, “ Administrative Agent ”) and L/C Issuer.
BACKGROUND
A. Administrative Agent, the Lenders, and Borrower entered into that certain Second Amended and Restated Revolving Credit Agreement, dated as of January 17, 2018 (the “ Credit Agreement ”), pursuant to which the Lenders agreed to make revolving credit loans to Borrower under the terms and conditions set forth therein.

B. Administrative Agent, the Lenders and Borrower desire to modify the Credit Agreement and the other Loan Documents to (i) extend the Original Maturity Date, and (ii) modify certain other terms and provisions, on the terms and subject to the conditions herein set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree as follows:
AGREEMENT
1. Terms . Capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement.

2. Amendments to Credit Agreement . The Credit Agreement is hereby amended as follows:

(a) The definition of “Applicable Committed Loan Margin” in Section 1.1 is hereby amended and restated to read in full as follows:

““ Applicable Committed Loan Margin ” means the Applicable LIBOR Committed Loan Margin or the Applicable Reference Rate Committed Loan Margin determined from the following pricing grid based on the current published or private ratings of Guarantor’s senior unsecured long term debt, as provided below:
TIER
GUARANTOR’S SENIOR UNSECURED LONG TERM DEBT RATING
APPLICABLE LIBOR COMMITTED LOAN MARGIN (BPS)
FACILITY FEE
(BPS PER ANNUM)
APPLICABLE REFERENCE RATE COMMITTED LOAN MARGIN (BPS)
I
A- and/or A3 or better
77.5
12.5
0
II
BBB+ and/or Baa1
82.5
15
0
III
BBB and/or Baa2
90
20
0
IV
BBB- and/or Baa3
110
25
20
V
Less than BBB- and/or Baa3
145
30
55

Borrower shall provide to Administrative Agent written evidence of the current rating or ratings on Guarantor’s senior unsecured long term debt by any of Moody’s, S&P and/or Fitch, if such rating agency has provided to Guarantor a rating on such senior unsecured long term debt, which evidence shall be reasonably acceptable to Administrative Agent; provided, that, at a minimum, Guarantor must provide such a rating from either Moody’s or S&P. In the event that Guarantor has a rating on its senior unsecured long term debt provided by (a) both



Moody’s and S&P, (b) both Moody’s and Fitch, (c) both S&P and Fitch, or (d) each of Moody’s, S&P and Fitch, and there is a difference in rating between such rating agencies, the Applicable Committed Loan Margin shall be based on the higher rating. Changes in the Applicable Committed Loan Margin shall become effective on the first day following the date on which any of Moody’s, S&P or Fitch that has provided Guarantor a rating on Guarantor’s senior unsecured long term debt changes such rating. Borrower shall notify Administrative Agent of any such changes in Guarantor’s senior unsecured long term debt pursuant to and in accordance with Section 6.4(i).”
(a) The definition of “Gross Asset Value” in Section 1.1 is hereby amended and restated to read in full as follows:

““ Gross Asset Value ” shall mean, at any time, the sum (without duplication) of (i) an amount equal to EBITDA for Guarantor and its consolidated subsidiaries for the most recent four (4) consecutive fiscal quarters for which Administrative Agent has received financial statements (the “ Measuring Period ”) (excluding any income attributable to properties bought or sold during such Measuring Period), and divided by the applicable Capitalization Rate (expressed as a decimal); (ii) the amount of cash and marketable securities held by Guarantor and its consolidated subsidiaries as of the end of such Measuring Period; (iii) the aggregate acquisition cost of properties acquired by Guarantor or any of its consolidated subsidiaries during such Measuring Period (including Borrower’s pro rata shares of any properties acquired by Joint Ventures, based on its Capital Interests in such Joint Ventures); and (iv) the aggregate book value of all development property as of the end of the Measuring Period (including Borrower’s pro rata share of development property held by Joint Ventures, based on its Capital Interests in such Joint Ventures). For the purposes of the foregoing clause (iv), “development property” shall include all properties from the date that such properties are listed as development projects in Guarantor’s 10K or 10Q until the date that is eighteen (18) months following the date on which Completion of Construction on such development property has occurred.”
(b) The definition of “Original Maturity Date” in Section 1.1 is hereby amended and restated to read in full as follows:

““ Original Maturity Date ” means December 31, 2022.”
(c) The definition of “Permitted Subordinated Indebtedness” in Section 1.1 is hereby amended and restated to read in full as follows:
  
““ Permitted Subordinated Indebtedness ” means Indebtedness owing by an Obligor to an Intercompany Creditor, provided that such Intercompany Creditor has executed a subordination agreement in form and substance acceptable to Administrative Agent in its reasonable discretion.”
(d) The following new definitions are hereby added to Section 1.1 , in appropriate alphabetical order, to read in full as follows:

““ Beneficial Owner ” means, for Borrower, each of the following: (a) each individual, if any, who, directly or indirectly, owns 25% or more of Borrower’s equity interests; and (b) a single individual with significant responsibility to control, manage, or direct Borrower.
“ Beneficial Ownership Regulation ” means 31 C.F.R. § 1010.230.
“ Certificate of Beneficial Ownership ” shall mean, for Borrower, a certificate in form and substance acceptable to Administrative Agent and the Lenders (as amended or modified by Administrative Agent from time to time in its sole discretion), certifying, among other things, the Beneficial Owner of Borrower.
“ First Amendment ” means that certain First Amendment to Credit Agreement, dated January 11, 2019, by and among Administrative Agent, the Lenders and Borrower.”
“ LIBOR Termination Date ” shall have the meaning set forth in Section 2.10.5 .”
(e) A new Section 2.10.5 is hereby added as follows:
“2.10.5. Successor LIBOR Rate Index . (i) If Administrative Agent reasonably and in good faith determines (which determination shall be final and conclusive, absent manifest error) that (a) the circumstances


 
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set forth in Section 3.5 have arisen and are unlikely to be temporary, (b) the LIBOR Base Rate specified herein is no longer a widely used benchmark rate for newly originated loans in the U.S. syndicated loan market in the applicable currency or (c) the circumstances set forth in Section 3.5 have not arisen but the applicable supervisor or administrator (if any) of the LIBOR Base Rate or a Governmental Authority having jurisdiction over Administrative Agent has made a public statement identifying the specific date after which the LIBOR Base Rate shall no longer be used for determining interest rates for loans in the U.S. syndicated loan market in the applicable currency (the applicable date of any such event, a “ LIBOR Termination Date ”), then Administrative Agent may (in consultation with Borrower and as determined by Administrative Agent to be generally consistent with market practice), choose a replacement index for the LIBOR Base Rate and make adjustments to applicable margins and related amendments to this Agreement as referred to below such that, to the extent practicable, the all-in interest rate based on the replacement index will be substantially equivalent to the all-in LIBOR Rate-based interest rate in effect prior to its replacement.
(ii)    Administrative Agent and Borrower shall enter into an amendment to this Agreement to reflect the replacement index, the adjusted margins and such other related amendments as may be necessary or appropriate, in the discretion of Administrative Agent, for the implementation and administration of the replacement index-based rate. Notwithstanding anything to the contrary in this Agreement or the other Loan Documents (including, without limitation, Section 10.1 hereof), such amendment shall become effective without any further action or consent of any other party to this Agreement at 5:00 p.m. New York City time on the fifth (5th) Business Day after the date a draft of the amendment is provided to the Lenders, unless Administrative Agent receives, on or before such fifth (5th) Business Day, a written notice from the Required Lenders stating that such Lenders object to such amendment (which notice shall note with specificity the particular provisions of the amendment to which such Lender objects).
(iii)    Selection of the replacement index, adjustments to the applicable margins, and amendments to this Agreement (a) will be determined with due consideration to the then-current market practices in respect of syndicated loans in the United States for determining and implementing a rate of interest for newly originated syndicated loans in the United States and loans converted from a LIBOR Rate-based rate to a replacement index-based rate, (b) may also reflect adjustments to account for (x) the effects of the transition from the LIBOR Rate to the replacement index and (y) yield- or risk-based differences between the LIBOR Rate and the replacement index and (c) shall be applied in a manner consistent with market practice.
(iv)    Until an amendment reflecting a new replacement index in accordance with this Section 2.10.5 is effective, each advance, conversion and renewal of a LIBOR Loan will continue to bear interest with reference to the LIBOR Rate; provided however, that if Administrative Agent reasonably and in good faith determines (which determination shall be final and conclusive, absent manifest error) that a LIBOR Termination Date has occurred, then following the LIBOR Termination Date, all LIBOR Loans shall automatically be converted to Reference Rate Committed Loans until such time as an amendment reflecting a replacement index and related matters as described above is implemented.
(v)    Notwithstanding anything to the contrary contained herein, if at any time the replacement index is less than zero, at such times, such index shall be deemed to be zero for purposes of this Agreement.”
(f) The following new Section 6.1.6 is hereby added:

“6.1.6. Certificate of Beneficial Ownership and Other Additional Information . If Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, then Borrower shall provide to Administrative Agent and the Lenders: (i) promptly upon such qualification, a Certificate of Beneficial Ownership in form and substance acceptable to Administrative Agent and the Lenders and thereafter from time to time confirmation of the accuracy of the information set forth in the most recent Certificate of Beneficial Ownership provided to Administrative Agent and the Lenders; (ii) a new Certificate of Beneficial Ownership, in form and substance acceptable to Administrative Agent and the Lenders, when the individual(s) to be identified as a Beneficial Owner have changed; and (iii) such other information and documentation as may reasonably be requested by Administrative Agent or any Lender from time to time for purposes of compliance by Administrative Agent or such Lender with applicable laws (including without limitation the Act and other “know your customer” and anti-money laundering rules and regulations), and any policy or procedure implemented by Administrative Agent or such Lender to comply therewith.”
(g) Section 6.14(b) is hereby amended and restated to read in full as follows:


 
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“6.14(b). Borrower shall not, and shall not permit any of its subsidiaries to, create, assume or allow any negative pledge agreement in favor of any other Person affecting or relating to any Unencumbered Property, other than a negative pledge agreement as contemplated by Section 6.14(a) under and pursuant to a third party credit agreement (including any third party private placement note agreement) with institutional investors or under and pursuant to notes issued at any time in a Rule 144A, Regulation S or public offering or exchange of such notes. In addition, neither Borrower nor Guarantor shall incur nor permit their respective subsidiaries to incur (in this context, an “ Obligor ”) any intercompany Indebtedness owing to Borrower, Guarantor, any such subsidiary of Borrower or Guarantor or any other Affiliate (in this context, an “ Intercompany Creditor ”) other than on fair and reasonable terms substantially as favorable to the Obligor as would be obtainable by the Obligor at the time in a comparable arm’s length transaction with a Person other than the Intercompany Creditor.”
(h) The following new Section 7.19 is hereby added:

“7.19. Certificate of Beneficial Ownership . The Certificate of Beneficial Ownership executed and delivered to Administrative Agent and Lenders for Borrower on or prior to the date of the First Amendment (if such certification was required to be delivered by Administrative Agent), as updated from time to time in accordance with this Agreement, is accurate, complete and correct as of the date thereof and as of the date any such update is delivered.”
1. Loan Documents . Except where the context clearly requires otherwise, all references to the Credit Agreement in any other Loan Document shall be to the Credit Agreement as amended by this First Amendment.

2. Borrower’s Ratification . Borrower agrees that it has no defenses or set-offs against the Lenders or their respective officers, directors, employees, agents or attorneys, with respect to the Loan Documents, all of which are in full force and effect, and that all of the terms and conditions of the Loan Documents not inconsistent herewith shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms. Borrower hereby ratifies and confirms its obligations under the Loan Documents and agrees that the execution and delivery of this First Amendment does not in any way diminish or invalidate any of its obligations thereunder.

3. Guarantor Ratification . Guarantor agrees that it has no defenses or set-offs against the Lenders or their respective officers, directors, employees, agents or attorneys, with respect to the Guaranty, which is in full force and effect, and that all of the terms and conditions of the Guaranty not inconsistent herewith shall remain in full force and effect unless and until modified or amended in writing in accordance with their terms. Guarantor hereby ratifies and confirms its obligations under the Guaranty and agrees that the execution and delivery of this First Amendment does not in any way diminish or invalidate any of its obligations thereunder.

4. Representations and Warranties . Borrower hereby represents and warrants to the Lenders that:
(a) The representations and warranties made in the Credit Agreement, as amended by this First Amendment, are true and correct in all material respects as of the date hereof;
(b) After giving effect to this First Amendment, no Default or Event of Default under the Credit Agreement or the other Loan Documents exists on the date hereof;
(c) This First Amendment has been duly authorized, executed and delivered by Borrower so as to constitute the legal, valid and binding obligations of Borrower, enforceable in accordance with its terms, except as the same may be limited by insolvency, bankruptcy, reorganization or other laws relating to or affecting the enforcement of creditors’ rights or by general equitable principles;
(d) The Joinder Page to this First Amendment has been duly authorized, executed and delivered by Guarantor; and
(e) No material adverse change in the business, assets, operations, condition (financial or otherwise) or prospects of Borrower, Guarantor or any of their subsidiaries or Affiliates has occurred since the date of the last financial statements of the afore-mentioned entities which were delivered to Administrative Agent.

All of the above representations and warranties shall survive the making of this First Amendment.
5. Conditions Precedent . The effectiveness of the amendments set forth herein is subject to the fulfillment, to the satisfaction of Administrative Agent and its counsel, of the following conditions precedent:

(a) Borrower shall have delivered to Administrative Agent the following, all of which shall be in form and substance satisfactory to Administrative Agent and shall be duly completed and executed (as applicable):


 
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(i) This First Amendment;

(ii) If requested by Administrative Agent, evidence that the execution, delivery and performance by Borrower and Guarantor, as the case may be, of this First Amendment have been duly authorized, executed and delivered by Responsible Officers of Borrower and Guarantor, as the case may be; and

(iii) Such additional documents, certificates and information as Administrative Agent may require pursuant to the terms hereof or otherwise reasonably request.

(b) The representations and warranties set forth in the Credit Agreement shall be true and correct in all material respects on and as of the date hereof.

(c) After giving effect to this First Amendment, no Default or Event of Default shall have occurred and be continuing as of the date hereof.

(d) Borrower shall have paid to Administrative Agent, (i) any fees required to be paid by Borrower to Administrative Agent for its benefit or the benefit of the Lenders in connection with the extension of the Original Maturity Date as agreed to by Borrower and Administrative Agent; and (ii) all other costs and expenses of Administrative Agent in connection with preparing and negotiating this First Amendment, including, but not limited to, reasonable attorneys’ fees and costs.

6. Miscellaneous .

(a) All terms, conditions, provisions and covenants in the Loan Documents and all other documents delivered to Administrative Agent in connection therewith shall remain unaltered and in full force and effect except as modified or amended hereby. To the extent that any term or provision of this First Amendment is or may be deemed expressly inconsistent with any term or provision in any Loan Document or any other document executed in connection therewith, the terms and provisions hereof shall control.

(b) Except as expressly provided herein, the execution, delivery and effectiveness of this First Amendment shall neither operate as a waiver of any right, power or remedy of Administrative Agent or the Lenders under any of the Loan Documents nor constitute a waiver of any Default or Event of Default thereunder.

(c) This First Amendment constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings and agreements.

(d) In the event any provisions of this First Amendment shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

(e) This First Amendment shall be governed by and construed according to the laws of the State of California, without giving effect to any of its choice of law rules.

(f) This First Amendment shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and assigns and may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(g) The headings used in this First Amendment are for convenience of reference only, do not form a part of this First Amendment and shall not affect in any way the meaning or interpretation of this First Amendment.


[Signatures commence on the next page]







 
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IN WITNESS WHEREOF, Borrower, Administrative Agent and the Lenders have caused this First Amendment to be executed by their duly authorized officers as of the date first above written.
ESSEX PORTFOLIO, L.P.,
a California limited partnership

BY:
ESSEX PROPERTY TRUST, INC.,
a Maryland corporation, its general partner

By:     /s/ Daniel J. Rosenberg                     
Name:    Daniel J. Rosenberg
Title:    Senior Vice President











[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]
































 
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PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent

By: /s/ David C. Drouillard
David C. Drouillard, Senior Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]








































 
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PNC BANK, NATIONAL ASSOCIATION ,
as L/C Issuer, Swing Line Lender and Lender

By: /s/ David C. Drouillard
David C. Drouillard, Senior Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]









































 
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MUFG UNION BANK, N.A.,
as Lender

By: /s/ Jeffrey Kosmo     
Name: Jeffrey Kosmo
Title: Assistant Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]








































 
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U.S. BANK NATIONAL ASSOCIATION,
as Lender

By: /s/ Michael F. Diemer
Name: Michael F. Diemer
Title: Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]























 
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CAPITAL ONE, NATIONAL ASSOCIATION,
as Lender

By: /s/ Peter C. Ilovic
Name: Peter C. Ilovic
Title: Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]























 
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WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Lender

By: /s/ Ricky Nahal
Name: Ricky Nahal
Title: Vice President









[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]








































 
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BANK OF THE WEST,
as Lender

By: /s/ Michael Pavao
Name: Michael Pavao
Title: Vice President


By: /s/ Sarah Burns
Name: Sarah Burns
Title: Vice President









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]





















 
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THE BANK OF NOVA SCOTIA,
as Lender

By: /s/ Chad Hale
Name: Chad Hale
Title: Director & Execution Head REGAL









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]























 
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CITIBANK, N.A.,
as Lender

By: /s/ David Bouton
Name: David Bouton
Title: Authorized Signatory









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]

























 
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MIZUHO BANK, LTD.,
as Lender

By: /s/ Tracy Rahn
Name: Tracy Rahn
Title: Authorized Signatory









[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]






















 
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JPMORGAN CHASE BANK, N.A.,
as Lender

By: /s/ Ryan M. Dempsey
Name: Ryan M. Dempsey
Title: Authorized Officer









[Signatures Continue on the Next Page]



[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]

























 
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CITY NATIONAL BANK , a national banking association,
as Lender

By: /s/ Jason Tola
Name: Jason Tola
Title: Vice President









[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]























 
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REGIONS BANK,
as Lender

By: /s/ William V. Chalmers
Name: William V. Chalmers
Title: Assistant Vice President









[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]























 
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BRANCH BANKING AND TRUST COMPANY,
as Lender

By: /s/ Brad Bowen
Name: Brad Bowen
Title: Senior Vice President









[Signatures Continue on the Next Page]

[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]






















 
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BNP PARIBAS,
as Lender

By: /s/ Richard Pace
Name: Richard Pace
Title: Managing Director

By: / s/ Melissa Dyki
Name: Melissa Dyki
Title: Director









[Signature Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]






















 
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JOINDER PAGE

Essex Property Trust, Inc., a Maryland corporation, as the “Guarantor” under the Credit Agreement hereby joins in the execution of this First Amendment to make the affirmations set forth in Section 5 of this First Amendment and to evidence its agreement to be bound by the terms and conditions of this First Amendment applicable to it. The party executing this Joinder Page on behalf of Guarantor has the requisite power and authority, and has been duly authorized, to execute this Joinder Page on behalf of Guarantor.

ESSEX PROPERTY TRUST, INC.,
a Maryland corporation, as Guarantor


By: /s/ Daniel J. Rosenberg                 
Name: Daniel J. Rosenberg
Title: Senior Vice President    



[Joinder Page to First Amendment to Second
Amended and Restated Revolving Credit Agreement]



 
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Exhibit 10.25

3 Year Vest (Executive)

ESSEX PROPERTY TRUST, INC.
2018 LONG-TERM INCENTIVE AWARD
AWARD AGREEMENT

Name of Grantee:  [________] (“the Grantee ”)
No. of Restricted Stock Units: [_________] (the “ Stock Units ”)
Grant Date: December 5, 2018 (the “ Grant Date ”)

RECITALS

A.       The Grantee is an employee of Essex Property Trust, Inc., a Maryland corporation (the “ Company ”).
 
B.      As of December 5, 2018 , the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) approved the terms of the 2018 Long-Term Incentive Awards to be granted by the Company under the Company’s 2018 Stock Award and Incentive Compensation Plan (the “ 2018 Plan ”) to provide the Company’s employees with incentive compensation.  This award agreement (this “ Award Agreement ”) evidences a 2018 Long-Term Incentive Award to the Grantee under the 2018 Plan (the “ Award ”), which is subject to the terms and conditions set forth herein and in the 2018 Plan.

C.      The Grantee was selected by the Company to receive the Award.  The Company, effective as of the Grant Date set forth above, issued to the Grantee the number of Stock Units set forth above.

D.      Capitalized terms used herein shall have the respective meanings ascribed to them in Appendix A hereto. Unless the context requires otherwise, capitalized terms used, but not otherwise defined herein or in Appendix A , shall have the respective meanings ascribed to them in the 2018 Plan.

NOW, THEREFORE,   IT IS HEREBY AGREED AS FOLLOWS :

1.        Grant of Stock Units; Issuance of Stock; Payment of Dividends .

(a)      The Company hereby grants the Grantee an award consisting of [________] Stock Units with the terms and conditions set forth in this Agreement.  The 2018 Plan is hereby incorporated herein by reference as though set forth herein in its entirety.

(b)     On the Determination Date, (i) the Committee will determine, pursuant to Section 2(b) , the number of Stock Units for which the performance criteria applicable to such Stock Units were satisfied as of the Valuation Date, (ii) the Company will issue to the Grantee a number of shares of Stock equal to the number of such earned Stock Units and (iii) all of the Stock Units shall be canceled.

(c)      Neither this Award nor the Stock Units may be sold, transferred, pledged assigned or otherwise encumbered or disposed of by the Grantee . The shares of Stock issuable hereunder may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting and any book entries or certificates for the shares of Stock shall bear an appropriate legend, as determined by the Committee in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the 2018 Plan.

(d)      With respect to the shares of Stock issuable pursuant to Section 1(b) above, the Grantee shall be entitled to dividends with a record date on or after the later of the Determination Date or the applicable Vesting Date (as defined below). Prior to the occurrence of the later of the Determination Date or the applicable Vesting Date, Grantee shall not be entitled to any dividends with respect to the Stock Units or the Stock issuable in settlement thereof.

2.        Performance Criteria and Attainment Levels .

(a)      The number of Stock Units that will be earned pursuant to this Award will be based on the Company’s Equity REIT Relative TSR as of the Valuation Date in accordance with the following table:

Equity REIT Relative TSR
 
Percentage of
Stock Units Earned
   
Number of
Stock Units
Earned
 
Below 5 th percentile
   
0
%
   
0
 
Equal to or above 5 th percentile but below 25 th percentile
   
30
%
  [____]  
Equal to or above 25 th percentile but below 50 th percentile
   
30% – 100
%
  [____]  
Equal to or above 50 th percentile
   
100
%
  [____]  

For Equity REIT Relative TSR falling between the 25 th percentile and the 50 th percentile, the number of Stock Units earned will be based on linear interpolation between the number of Stock Units that would have been earned if Equity REIT Relative TSR was at the 25 th percentile and the number that would have been earned if Equity REIT Relative TSR was at the 50 th percentile, as set forth above.

(b)       The Committee, as promptly as practicable following the conclusion of the Performance Period (but, in any event, no later than two and one-half months after the conclusion of the Performance Period), shall determine the actual number of the Stock Units that are earned in accordance with this Section 2 .  Notwithstanding anything herein to the contrary, if a Change in Control occurs on or prior to the twelve (12)-month anniversary of the Grant Date and the Grantee remains employed by the Company or a Company Affiliate until at least immediately prior to the date of such Change in Control or has incurred a Terminating Event prior to such Change in Control, one hundred percent (100%) of the Stock Units subject to this Award shall be deemed earned in accordance with this Section 2 .

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3.        Vesting .

(a)       All of the Stock Units and shares of Stock issued pursuant to this Award prior to the Final Vesting Date (as defined below) shall be subject to time-based vesting, with one-third (1/3) of the Stock Units earned pursuant to this Award and the shares of Stock issued or issuable pursuant to this Award vesting on each of the first three (3) anniversaries of the Grant Date (each, a “ Vesting Date ,” and the third (3 rd ) anniversary of the Grant Date, the “ Final Vesting Date ”), subject to the Grantee’s continued employment with the Company (or a Company Affiliate) through the applicable Vesting Date. All shares of Stock issued pursuant to this Award after the Final Vesting Date shall be fully vested upon issuance. Except as provided in Sections 3(b ) and 3(c) below, if at any time the Grantee shall cease to be an employee of the Company or a Company Affiliate for any reason (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of the Company or a Company Affiliate), then the Stock Units and shares of Stock issued pursuant to this Award that remain unvested at such time shall automatically and immediately be forfeited by the Grantee without consideration therefor.

(b)     If the Grantee shall cease to be an employee of the Company or a Company Affiliate (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of a Company Affiliate) in circumstances that constitute a Terminating Event, any then unvested Stock Units or shares of Stock issued pursuant to this Award will not be forfeited and such Stock Units or shares of Stock issued pursuant to this Award will be fully time-vested as of the date of such Terminating Event. Any shares of Stock issued pursuant to this Award with respect to Stock Units that vested pursuant to this Section 3(b) will be fully time-vested upon issuance.

(c)      In the event the Grantee shall cease to be an employee of the Company or a Company Affiliate (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of a Company Affiliate) as a result of the Grantee’s change in status from an Employee to a Director or Consultant, then, unless otherwise required by law, the Grantee shall continue to time-vest in any then unvested Stock Units or shares of Stock issued pursuant to this Award based on the Grantee’s continued service as a Director or Consultant, in which case, the Grantee ceasing to serve as a Director or Consultant will be treated in the same manner as Grantee ceasing to be an Employee of the Company or a Company Affiliate for purposes of this Agreement.

4.       Tax Withholding .  The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding it determines to be required by law.  The Grantee shall, not later than the date as of which vesting or payment in respect of this Award becomes a taxable event, pay to the Company or make arrangements satisfactory to the Company for payment of any Federal, state and local taxes required by law to be withheld on account of such taxable event; provided that, to the extent such taxable event occurs upon or concurrently with the issuance or vesting of Stock hereunder, the Company will satisfy any required tax withholding obligation by withholding a number of shares of Stock issued or issuable hereunder with a Fair Market Value on the date of withholding equal to the aggregate amount of such tax withholding obligation based on the maximum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to this Award, as determined pursuant to the 2018 Plan.  For purposes of this Section 4 , the Fair Market Value of the shares of Stock to be withheld shall be calculated in the same manner as the shares of Stock are valued for purposes of determining the amount of withholding taxes due.

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5.       Changes in Capital Structure .  If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, significant repurchases of stock, or other similar change in the capital stock of the Company, (iii) any cash dividend or other distribution to holders of shares of Stock shall be declared and paid other than in the ordinary course, or (iv) any other extraordinary corporate event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of equitable or proportionate adjustment in the terms of this Award Agreement, the Stock Units or the shares of Stock issuable pursuant to this Award to avoid distortion in the value of this Award, then the Committee shall make equitable or proportionate adjustment and take such other action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award and the terms of the Stock Units and the shares of Stock prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Award Agreement; (B) adjustments in any calculations provided for in this Award Agreement, and (C) substitution of other awards under the 2018 Plan or otherwise.  All adjustments made by the Committee shall be final, binding and conclusive.

6.        Effectiveness of Award Agreement

(a)      This award shall be binding upon the successors and permitted assigns of the Grantee and shall be binding upon successors and assigns of the Company.

(b)     Every provision of this Award Agreement is intended to be severable, and if any term or provision hereof is held to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder hereof.

7.        Governing Law .

This Award Agreement shall be governed by and construed in accordance with the laws of the State of Maryland.

8.        Administration .

This Award shall be administered by the Committee, which in the administration of this Award shall have all the powers and authority it has in the administration of the 2018 Plan as set forth in the 2018 Plan.

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9.        Section 409A .

The Award is intended to comply with or be exempt from (under the “short term deferral” exception) Section 409A of the Internal Revenue Code (“ Section 409A ”) and, to the extent applicable, this Agreement shall be interpreted in accordance with Section 409A, including without limitation any applicable Department of Treasury regulations and other interpretive guidance currently in effect or that may be issued after the effective date of this Agreement. In addition, notwithstanding any provision herein to the contrary, in the event that following the Grant Date, the Administrator determines that it may be necessary or appropriate to do so, the Administrator may adopt such amendments to the Plan and/or this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Plan and/or the Stock Units from the application of Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to this Award, or (b) comply with the requirements of Section 409A; provided, however, that this paragraph shall not create an obligation on the part of the Administrator to adopt any such amendment, policy or procedure or take any such other action.  No payment hereunder shall be made during the six (6)-month period following the Grantee’s “separation from service” (within the meaning of Section 409A) to the extent that the Administrator determines that paying such amount at the time set forth herein would be a prohibited distribution under Section 409A(a)(2)(B)(i). If the payment of any such amounts is delayed as a result of the previous sentence, then within thirty (30) days following the end of such six (6)-month period (or, if earlier, the Grantee’s death), the Administrator shall pay to the Grantee (or to the Grantee’s estate) the cumulative amounts that would have otherwise been payable to the Grantee during such period, without interest. Notwithstanding anything herein or in the Plan to the contrary, to the extent required to avoid the imposition of additional taxes under Section 409A, a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement unless such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

10.      Communication .

Any notice, demand, request or other communication which may be required or contemplated herein shall be sufficiently given if (i) given either by facsimile transmission or telex, by reputable overnight delivery service, postage prepaid, or by registered or certified mail, postage prepaid and return receipt requested, to the address indicated herein or to such other address as my party hereto may specify as provided herein, or (ii) delivered personally at such address.

11.      Recovery of Erroneously Awarded Compensation .

If the Grantee is now or hereafter become subject to any policy providing for the recovery of Awards, Shares, Stock Units, proceeds or payments to the Grantee in the event of fraud or other circumstances, then this Award, the Stock Units, and any Shares issuable upon the settlement of this Awards or proceeds therefrom, are subject to potential recovery by the Company under the circumstances provided under such policy as may be in effect from time to time.

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IN WITNESS WHEREOF, the undersigned has executed this Award Agreement as of the Grant Date.

 
ESSEX PROPERTY TRUST, INC.
   
 
By
 
     
   
Hereunto duly authorized

Agreed and Accepted:
 
   

 
Name:
 

[Signature page to 2018 RSU Award Agreement]

6
APPENDIX A

DEFINITIONS

“ 2018 Plan ” means the Essex Property Trust, Inc. 2018 Stock Award and Incentive Compensation Plan, as amended, modified or supplemented from time to time.

“ Cause ” shall mean , and shall be limited to, the occurrence of any one or more of the following events:

(i)       a willful act of dishonesty by the Grantee with respect to any matter involving the Company or any Company Affiliates;

(ii)      conviction of the Grantee of a crime involving moral turpitude; or

(iii)    the deliberate or willful failure by the Grantee (other than by reason of the Grantee’s physical or mental illness, incapacity or disability) to substantially perform the Grantee’s duties with the Company and the Company Affiliates and the continuation of such failure for a period of 30 days after delivery by the Company or a Company Affiliate to the Grantee of written notice specifying the scope and nature of such failure and its intention to terminate the Grantee for Cause.

For purposes of clauses (i) and (iii) above, no act, or failure to act, on the Grantee’s part shall be deemed “willful” unless done, or omitted to be done, by the Grantee without reasonable belief that the Grantee’s act, or failure to act, was in the best interest of the Company and/or the Company Affiliates.

“ Company Affiliate ” means any parent entity of the Company, if any, that directly or indirectly owns a majority of the common equity of the Company, any direct or indirect subsidiary of any such parent entity and any direct or indirect subsidiary of the Company.

“ Determination Date ” means the date on which the number of Stock Units earned pursuant to this Award is determined by the Compensation Committee pursuant to Section 2(b) .

“ Equity REIT Relative TSR ” means the percentile rank of the Company’s total stockholder return during the Performance Period relative to the total stockholder returns of the Index Companies during the Performance Period as determined by dividing (a) the sum of (i) 100% minus the percentage of Index Companies with a total stockholder return greater than the Company during the Performance Period, plus (ii) the percentage of Index Companies with a total stockholder return less than the Company during the Performance Period, by (b) two. For example, if there were nine Index Companies, four with higher total stockholder returns, four with lower total stockholder returns and one with identical total stockholder return during the Performance Period, then the Company would be in the 50 th percentile, as calculated by taking the sum of (i) 100% minus the percentage of companies with higher total stockholder returns (100% - 4 / 9 = 56%), and (ii) the percentage of companies with lower total stockholder returns (4 / 9 = 44%) and dividing by two ((56% + 44%) / 2 = 50%).

7
For purposes of this definition, the total stockholder return of the Company and each of the Index Companies shall be computed based on the total return that would have been realized by a stockholder who (1) bought $100 of shares of common equity securities of such company on the first day of the Performance Period at a price per share equal to the closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed on such date (or, if such date is not a trading date, on the most recent prior trading date), (2) contemporaneously reinvested in shares of Stock each dividend and other distribution declared during the Performance Period and received with respect to such share (and any other shares previously received upon reinvestment of dividends or other distributions) and (3) sold such shares on the last day of the Performance Period for a per share price equal to the average closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed for the twenty (20) consecutive calendar day period up to and including the Valuation Date; provided that if the Valuation Date is the date upon which a Transactional Change in Control occurs, the ending stock price of the Stock as of such date shall be equal to the fair market value in cash, as determined by the Committee, of the total consideration paid or payable in the transaction resulting in the Transactional Change in Control for one share of Stock. Total stockholder return shall be computed on a consistent basis across all companies, in accordance with the foregoing, using total stockholder return data obtained from SNL Financial (or such other third party data provider as is selected by the Committee in its sole discretion).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Executive Severance Plan ” means the Essex Property Trust, Inc. Executive Severance Plan, as Amended and Restated, effective March 12, 2013, as amended , modified or supplemented from time to time.

“ Good Reason ” means, for purposes of determining whether a Terminating Event occurred in connection with a Change in Control, the occurrence of any of the following events:

(i)     a substantial adverse change in the nature or scope of the Grantee’s responsibilities, authorities, title, powers, functions, or duties from the responsibilities, authorities, powers, functions, or duties exercised by the Grantee immediately prior to the Change in Control; or

(ii)      a reduction in the Grantee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time; or

(iii)     a reduction in the Grantee’s annual bonus opportunity to an annual bonus opportunity that is less than the highest bonus opportunity during the three fiscal years preceding the date of the Change in Control; or

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(iv)     a reduction in the long-term incentive, savings and retirement program opportunities and health and welfare benefits to a level that is less favorable than the most favorable of such benefits and opportunities as are in effect on the date hereof or as the same may be increased from time to time; or

(v)      a reduction in the fringe benefits programs and policies and vacation accrual rate to a level that is less favorable than the most favorable of such benefits and accrual rates as are in effect on the date hereof or as the same may be increased from time to time; or

(vi)     the relocation of the offices of the Company or Company Affiliate at which the Grantee is principally employed immediately prior to the date of the Change in Control to a location more than 30 miles from such offices, or the requirement by the Company or a Company Affiliate for the Grantee to be based anywhere other than the offices of the Company or Company Affiliate at such location, except for required travel on the business of the Company and the Company Affiliates to an extent substantially consistent with the Grantee’s business travel obligations immediately prior to the Change in Control; or

(vii)    the failure by the Company or a Company Affiliate to pay to the Grantee any portion of Grantee’s compensation or to pay to the Grantee any portion of an installment of deferred compensation under any deferred compensation program of the Company or a Company Affiliate within 15 days of the date such compensation is due without prior written consent of the Grantee; or

(viii)   the failure by the Company and the Company Affiliates to obtain an effective agreement from any successor to assume and agree to perform the obligation of the Company and the Company Affiliates under the Executive Severance Plan; or

(ix)      any material breach by the Company under the Executive Severance Plan or by any successor of the Company.

Notwithstanding the foregoing to the contrary, none of the circumstances described above will constitute Good Reason unless the Grantee has provided written notice to the Company that such circumstances exist within ninety (90) days of the Grantee’s learning of such circumstances and the Company has failed to cure such circumstances within thirty (30) days following its receipt of such notice; and provided further, that the Grantee did not previously consent in writing to the action leading to his or her claim of resignation for Good Reason.

“ Index Companies ” means, as of a particular date, the companies comprising the SNL Apartment REIT Index which, as of the Grant Date, consists of the companies listed on Appendix B hereto; provided that no such company will be deemed an Index Company if such company ceases to have a class of common equity securities listed on a national stock exchange during the entire Performance Period.

“ Performance Period ” means the period beginning on December 5, 2018 and ending on the Valuation Date.

9
“ Qualified Termination ” of the Grantee means (i) termination by the Company and/or a Company Affiliate of the employment of the Grantee with the Company (if the Grantee is then employed by the Company) and all Company Affiliates then employing the Grantee for any reason other than for Cause or the death or disability (as determined under the then existing long-term disability coverage of the Company or such Company Affiliate) of the Grantee or (ii) termination by the Grantee of the Grantee’s employment with the Company (if the Grantee is then employed by the Company) and all other Company Affiliates then employing the Grantee for Good Reason; provided, for avoidance of doubt, that no such termination shall constitute a Qualified Termination if the Grantee remains or becomes an employee of the Company or a Company Affiliate immediately following such termination.

“ Stock ” means a share of the Company’s common stock, par value $0.001 per share.

“ Terminating Event ” shall mean:

(A) a Qualified Termination of the Grantee during (i) the 24 months following a Change in Control or (ii) the two-month period prior to the date of a Change in Control, and it is reasonably demonstrated by the Grantee that such termination of employment (1) was at the request of a third party that had taken steps reasonably calculated to effect such Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control; provided that a Terminating Event under this clause (A) shall not be deemed to have occurred solely as a result of the Grantee being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control; or

(B) a termination by the Company and/or a Company Affiliate of the employment of the Grantee with the Company (if the Grantee is then employed by the Company) and all Company Affiliates then employing the Grantee for any reason other than for Cause or the death or disability (as determined under the then existing long-term disability coverage of the Company or such Company Affiliate) of the Grantee that occurs (x) at least one year after the Grant Date, and (y) at a time when the Grantee’s combined age and years of Continuous Service are equal to or greater than 68 and the Grantee has at least seven (7) years of Continuous Service with the Company or a Company Affiliate .

“ Transactional Change in Control ” means a Change in Control resulting from any person or group making a tender offer for Stock, a merger or consolidation where the Company is not the surviving entity, the shares of Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property or consisting of a sale, transfer or disposition of all or substantially all of the assets of the Company.

“ Valuation Date ” means the earlier of (A) December 4, 2021, or (B) the date upon which a Change in Control shall occur.

10
APPENDIX B

SNL Apartment REIT Index

AvalonBay Communities, Inc.
AVB
BRT Apartments Corp.
BRT
Equity Residential
EQR
Essex Property Trust, Inc.
ESS
Mid-America Apartment Communities, Inc.
MAA
UDR, Inc.
UDR
Camden Property Trust
CPT
Apartment Investment and Management Co
AIV
Independence Realty Trust, Inc.
IRT
Investors Real Estate Trust
IRET
Preferred Apartment Communities, Inc.
APTS
NexPoint Residential Trust Inc.
NXRT
Bluerock Residential Growth REIT, Inc.
BRG

11
Full Vest

ESSEX PROPERTY TRUST, INC.
2018 LONG-TERM INCENTIVE AWARD
AWARD AGREEMENT

Name of Grantee:  [________] (“the Grantee ”)
No. of Restricted Stock Units: [_________] (the “ Stock Units ”)
Grant Date: December 5, 2018 (the “ Grant Date ”)

RECITALS

A.       The Grantee is an employee of Essex Property Trust, Inc., a Maryland corporation (the “Company”).

B.        As of December 5, 2018 , the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) approved the terms of the 2018 Long-Term Incentive Awards to be granted by the Company under the Company’s 2018 Stock Award and Incentive Compensation Plan (the “ 2018 Plan ”) to provide the Company’s employees with incentive compensation.  This award agreement (this “ Award Agreement ”) evidences a 2018 Long-Term Incentive Award to the Grantee under the 2018 Plan (the “ Award ”), which is subject to the terms and conditions set forth herein and in the 2018 Plan.

C.      The Grantee was selected by the Company to receive the Award.  The Company, effective as of the Grant Date set forth above, issued to the Grantee the number of Stock Units set forth above.

D.      Capitalized terms used herein shall have the respective meanings ascribed to them in Appendix A hereto. Unless the context requires otherwise, capitalized terms used, but not otherwise defined herein or in Appendix A , shall have the respective meanings ascribed to them in the 2018 Plan.

NOW, THEREFORE,   IT IS HEREBY AGREED AS FOLLOWS :

1.             Grant of Stock Units; Issuance of Stock; Payment of Dividends .

(a)       The Company hereby grants the Grantee an award consisting of [________] Stock Units with the terms and conditions set forth in this Agreement.  The 2018 Plan is hereby incorporated herein by reference as though set forth herein in its entirety.

(b)     On the Determination Date, (i) the Committee will determine, pursuant to Section 2(b) , the number of Stock Units for which the performance criteria applicable to such Stock Units were satisfied as of the Valuation Date, (ii) the Company will issue to the Grantee a number of shares of Stock equal to the number of such earned Stock Units and (iii) all of the Stock Units shall be canceled.

(c)       Neither this Award nor the Stock Units may be sold, transferred, pledged assigned or otherwise encumbered or disposed of by the Grantee .

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(d)       With respect to the shares of Stock issuable pursuant to Section 1(b) above, the Grantee shall be entitled to dividends with a record date on or after the Determination Date. Prior to the Determination Date, Grantee shall not be entitled to any dividends with respect to the Stock Units or the Stock issuable in settlement thereof.

2.        Performance Criteria and Attainment Levels .

(a)       The number of Stock Units that will be earned pursuant to this Award will be based on the Company’s Equity REIT Relative TSR as of the Valuation Date in accordance with the following table:

Equity REIT Relative TSR
 
Percentage of
Stock Units Earned
   
Number of
Stock Units
Earned
 
Below 5 th percentile
   
0
%
   
0
 
Equal to or above 5 th percentile but below 25 th percentile
   
30
%
 
[____]
 
Equal to or above 25 th percentile but below 50 th percentile
   
30% – 100
%
 
[____]
 
Equal to or above 50 th percentile
   
100
%
 
[____]
 

For Equity REIT Relative TSR falling between the 25 th percentile and the 50 th percentile, the number of Stock Units earned will be based on linear interpolation between the number of Stock Units that would have been earned if Equity REIT Relative TSR was at the 25 th percentile and the number that would have been earned if Equity REIT Relative TSR was at the 50 th percentile, as set forth above.

(b)      The Committee, as promptly as practicable following the conclusion of the Performance Period (but, in any event, no later than two and one-half months after the conclusion of the Performance Period), shall determine the actual number of the Stock Units that are earned in accordance with this Section 2 .  Notwithstanding anything herein to the contrary, if a Change in Control occurs on or prior to the twelve (12) month-anniversary of the Grant Date, one hundred percent (100%) of the Stock Units subject to this Award shall be deemed earned in accordance with this Section 2 .

3.             Vesting .  All of the Stock Units and shares of Stock issued pursuant to this Award shall be fully vested upon issuance.

4.           Tax Withholding .  The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding it determines to be required by law.  The Grantee shall, not later than the date as of which vesting or payment in respect of this Award becomes a taxable event, pay to the Company or make arrangements satisfactory to the Company for payment of any Federal, state and local taxes required by law to be withheld on account of such taxable event; provided that, to the extent such taxable event occurs upon or concurrently with the issuance or vesting of Stock hereunder, the Company will satisfy any required tax withholding obligation by withholding a number of shares of Stock issued or issuable hereunder with a Fair Market Value on the date of withholding equal to the aggregate amount of such tax withholding obligation based on the maximum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to this Award, as determined pursuant to the 2018 Plan.  For purposes of this Section 4 , the Fair Market Value of the shares of Stock to be withheld shall be calculated in the same manner as the shares of Stock are valued for purposes of determining the amount of withholding taxes due.

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5.            Changes in Capital Structure .  If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, significant repurchases of stock, or other similar change in the capital stock of the Company, (iii) any cash dividend or other distribution to holders of shares of Stock shall be declared and paid other than in the ordinary course, or (iv) any other extraordinary corporate event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of equitable or proportionate adjustment in the terms of this Award Agreement, the Stock Units or the shares of Stock issuable pursuant to this Award to avoid distortion in the value of this Award, then the Committee shall make equitable or proportionate adjustment and take such other action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award and the terms of the Stock Units and the shares of Stock prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Award Agreement; (B) adjustments in any calculations provided for in this Award Agreement, and (C) substitution of other awards under the 2018 Plan or otherwise.  All adjustments made by the Committee shall be final, binding and conclusive.

6.        Effectiveness of Award Agreement

(a)       This award shall be binding upon the successors and permitted assigns of the Grantee and shall be binding upon successors and assigns of the Company.

(b)      Every provision of this Award Agreement is intended to be severable, and if any term or provision hereof is held to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder hereof.

7.             Governing Law .

This Award Agreement shall be governed by and construed in accordance with the laws of the State of Maryland.

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8.             Administration .

This Award shall be administered by the Committee, which in the administration of this Award shall have all the powers and authority it has in the administration of the 2018 Plan as set forth in the 2018 Plan.

9.             Section 409A .

The Award is intended to comply with or be exempt from (under the “short term deferral” exception) Section 409A of the Internal Revenue Code (“Section 409A”) and, to the extent applicable, this Agreement shall be interpreted in accordance with Section 409A, including without limitation any applicable Department of Treasury regulations and other interpretive guidance currently in effect or that may be issued after the effective date of this Agreement.   In addition, notwithstanding any provision herein to the contrary, in the event that following the Grant Date, the Administrator determines that it may be necessary or appropriate to do so, the Administrator may adopt such amendments to the Plan and/or this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Plan and/or the Stock Units from the application of Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to this Award, or (b) comply with the requirements of Section 409A; provided, however, that this paragraph shall not create an obligation on the part of the Administrator to adopt any such amendment, policy or procedure or take any such other action.  No payment hereunder shall be made during the six (6)-month period following the Grantee’s “separation from service” (within the meaning of Section 409A) to the extent that the Administrator determines that paying such amount at the time set forth herein would be a prohibited distribution under Section 409A(a)(2)(B)(i). If the payment of any such amounts is delayed as a result of the previous sentence, then within thirty (30) days following the end of such six (6)-month period (or, if earlier, the Grantee’s death), the Administrator shall pay to the Grantee (or to the Grantee’s estate) the cumulative amounts that would have otherwise been payable to the Grantee during such period, without interest.  Notwithstanding anything herein or in the Plan to the contrary, to the extent required to avoid the imposition of additional taxes under Section 409A, a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement unless such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

10.           Communication .

Any notice, demand, request or other communication which may be required or contemplated herein shall be sufficiently given if (i) given either by facsimile transmission or telex, by reputable overnight delivery service, postage prepaid, or by registered or certified mail, postage prepaid and return receipt requested, to the address indicated herein or to such other address as my party hereto may specify as provided herein, or (ii) delivered personally at such address.

11.           Recovery of Erroneously Awarded Compensation .

If the Grantee is now or hereafter become subject to any policy providing for the recovery of Awards, Shares, Stock Units, proceeds or payments to the Grantee in the event of fraud or other circumstances, then this Award, the Stock Units, and any Shares issuable upon the settlement of this Awards or proceeds therefrom, are subject to potential recovery by the Company under the circumstances provided under such policy as may be in effect from time to time.

15
IN WITNESS WHEREOF, the undersigned has executed this Award Agreement as of the Grant Date.

 
ESSEX PROPERTY TRUST, INC.
   
 
By:
 
     
   
Hereunto duly authorized

Agreed and Accepted:
 
   
   
Name:
 

[Signature page to 2018 RSU Award Agreement]

16
APPENDIX A

DEFINITIONS

“ 2018 Plan ” means the Essex Property Trust, Inc. 2018 Stock Award and Incentive Compensation Plan, as amended, modified or supplemented from time to time.

“ Company Affiliate ” means any parent entity of the Company, if any, that directly or indirectly owns a majority of the common equity of the Company, any direct or indirect subsidiary of any such parent entity and any direct or indirect subsidiary of the Company.

“ Determination Date ” means the date on which the number of Stock Units earned pursuant to this Award is determined by the Compensation Committee pursuant to Section 2(b) .

“ Equity REIT Relative TSR ” means the percentile rank of the Company’s total stockholder return during the Performance Period relative to the total stockholder returns of the Index Companies during the Performance Period as determined by dividing (a) the sum of (i) 100% minus the percentage of Index Companies with a total stockholder return greater than the Company during the Performance Period, plus (ii) the percentage of Index Companies with a total stockholder return less than the Company during the Performance Period, by (b) two. For example, if there were nine Index Companies, four with higher total stockholder returns, four with lower total stockholder returns and one with identical total stockholder return during the Performance Period, then the Company would be in the 50 th percentile, as calculated by taking the sum of (i) the percentage of companies with higher total stockholder returns (100% - 4 / 9 = 56%), and (ii) the percentage of companies with lower total stockholder returns (4 / 9 = 44%) and dividing by two ((56% + 44%) / 2 = 50%).

For purposes of this definition, the total stockholder return of the Company and each of the Index Companies shall be computed based on the total return that would have been realized by a stockholder who (1) bought $100 of shares of common equity securities of such company on the first day of the Performance Period at a price per share equal to the closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed on such date (or, if such date is not a trading date, on the most recent prior trading date), (2) contemporaneously reinvested in shares of Stock each dividend and other distribution declared during the Performance Period and received with respect to such share (and any other shares previously received upon reinvestment of dividends or other distributions) and (3) sold such shares on the last day of the Performance Period for a per share price equal to the average closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed for the twenty (20) consecutive calendar day period up to and including the Valuation Date; provided that if the Valuation Date is the date upon which a Transactional Change in Control occurs, the ending stock price of the Stock as of such date shall be equal to the fair market value in cash, as determined by the Committee, of the total consideration paid or payable in the transaction resulting in the Transactional Change in Control for one share of Stock. Total stockholder return shall be computed on a consistent basis across all companies, in accordance with the foregoing, using total stockholder return data obtained from SNL Financial (or such other third party data provider as is selected by the Committee in its sole discretion).

17
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Index Companies ” means, as of a particular date, the companies comprising the SNL Apartment REIT Index which, as of the Grant Date, consists of the companies listed on Appendix B hereto; provided that no such company will be deemed an Index Company if such company ceases to have a class of common equity securities listed on a national stock exchange during the entire Performance Period.

“ Performance Period ” means the period beginning on December 5, 2018 and ending on the Valuation Date.

“ Stock ” means a share of the Company’s common stock, par value $0.001 per share.

“ Transactional Change in Control ” means a Change in Control resulting from any person or group making a tender offer for Stock, a merger or consolidation where the Company is not the surviving entity, the shares of Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property or consisting of a sale, transfer or disposition of all or substantially all of the assets of the Company.

“ Valuation Date ” means the earlier of (A) December 4, 2021, or (B) the date upon which a Change in Control shall occur.

18
APPENDIX B

SNL Apartment REIT Index

AvalonBay Communities, Inc.
AVB
BRT Apartments Corp.
BRT
Equity Residential
EQR
Essex Property Trust, Inc.
ESS
Mid-America Apartment Communities, Inc.
MAA
UDR, Inc.
UDR
Camden Property Trust
CPT
Apartment Investment and Management Co
AIV
Independence Realty Trust, Inc.
IRT
Investors Real Estate Trust
IRET
Preferred Apartment Communities, Inc.
APTS
NexPoint Residential Trust Inc.
NXRT
Bluerock Residential Growth REIT, Inc.
BRG

19
DIP

ESSEX PROPERTY TRUST, INC.
2018 LONG-TERM INCENTIVE AWARD
AWARD AGREEMENT

Name of Grantee:  [________] (“the Grantee ”)
Maximum Number of Restricted Stock Units: [_________]
Target Number of Restricted Stock Units: [_________]
Grant Date: December 5, 2018 (the “ Grant Date ”)

RECITALS

A.        The Grantee is an employee of Essex Property Trust, Inc., a Maryland corporation (the “ Company ”).

B.            As of December 5, 2018 , the Compensation Committee (the “ Committee ”) of the Board of Directors of the Company (the “ Board ”) approved the terms of the 2018 Long-Term Incentive Awards to be granted by the Company under the Company’s 2018 Stock Award and Incentive Compensation Plan (the “ 2018 Plan ”) to provide the Company’s employees with incentive compensation.  This award agreement (this “ Award Agreement ”) evidences a 2018 Long-Term Incentive Award to the Grantee under the 2018 Plan (the “ Award ”), which is subject to the terms and conditions set forth herein and in the 2018 Plan.

C.            The Grantee was selected by the Company to receive the Award.  The Company, effective as of the Grant Date set forth above, issued to the Grantee the Maximum Number of Restricted Stock Units set forth above.

D.            Capitalized terms used herein shall have the respective meanings ascribed to them in Appendix A hereto. Unless the context requires otherwise, capitalized terms used, but not otherwise defined herein or in Appendix A , shall have the respective meanings ascribed to them in the 2018 Plan.

NOW, THEREFORE,   IT IS HEREBY AGREED AS FOLLOWS :

1.            Grant of Stock Units; Issuance of Stock; Payment of Dividends .

(a)       The Company hereby grants the Grantee an award consisting of [________] 1 Restricted Stock Units (the “ Stock Units ”) with the terms and conditions set forth in this Agreement.  The 2018 Plan is hereby incorporated herein by reference as though set forth herein in its entirety.

(b)       On the First Determination Date, the Committee will determine the number of Stock Units that will be eligible to be earned hereunder (the “ Eligible Stock Units ”), as set forth in Section 2(a) (including the final sentence thereof).  In the event that any Stock Units granted hereunder fail to become Eligible Stock Units in accordance with the provisions set forth herein, such Stock Units that fail to become Eligible Stock Units shall thereupon automatically be forfeited by the Grantee without further action and without payment of consideration therefor.  On the Final Determination Date, (i) the Committee will determine, pursuant to Section 2(c) , the number of Stock Units for which the performance criteria applicable to such Stock Units pursuant to Section 2(b) were satisfied as of the Valuation Date, (ii) the Company will issue to the Grantee a number of shares of Stock equal to the number of such earned Stock Units and (iii) all of the Stock Units shall be canceled.

1 Note to Draft:  Maximum Number of Restricted Stock Units.

20
(c)       Neither this Award nor the Stock Units may be sold, transferred, pledged assigned or otherwise encumbered or disposed of by the Grantee . The shares of Stock issuable hereunder may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting and any book entries or certificates for the shares of Stock shall bear an appropriate legend, as determined by the Committee in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the 2018 Plan.

(d)      With respect to the shares of Stock issuable pursuant to Section 1(b) above, the Grantee shall be entitled to dividends with a record date on or after the later of the Final Determination Date or the Vesting Date (as defined below). Prior to the occurrence of the later of the Final Determination Date or the Vesting Date, Grantee shall not be entitled to any dividends with respect to the Stock Units or the Stock issuable in settlement thereof.

2.        Performance Criteria and Attainment Levels .

(a)       The number of Stock Units that will become Eligible Stock Units pursuant to this Award will be based on the gain or purchase price from the disposition of certain assets of the Company’s real estate portfolio, determined by reference to the following formula and subject to the final sentence of this Section 2(a) :

Number of Eligible Stock Units = (___% 2 * Funded Amount) / $180.00

The Number of Eligible Stock Units shall be rounded to the nearest whole Stock Unit.

For purposes of this Agreement, “ Funded Amount ” shall mean the dollar amount that is equal to the product of (A) the greater of (x) 1% of the aggregate purchase price (net of the cost of sale) of all Company real estate dispositions consummated during the Funding Period or (y) 10% of the gain from all Company real estate dispositions consummated during the Funding Period determined in accordance with Generally Accepted Accounting Principles (GAAP), multiplied by (B) the quotient of (x) $2,500,000 3 // $1,000,000 4 over (y) $3,500,000; provided, that the Funded Amount shall not exceed $2,500,000 5 // $1,000,000 6 . Notwithstanding anything in this Section 2(a) to the contrary, in determining the number of Stock Units that become Eligible Stock Units hereunder the Committee (or its designee or delegatee, as applicable) may, in its sole discretion, adjust the number of Stock Units that become Eligible Stock Units under the formula set forth above in this Section 2(a) ; provided, that in no event shall the number of Eligible Stock Units hereunder, as adjusted, be less than zero or exceed the Maximum Number of Restricted Stock Units (as defined above).

2   Note to Draft:   Percentage to equal individual’s maximum dollar amount divided by $2,500,000 - NEOs // $1,000,000 – Non-NEOs .
3   Note to Draft :  NEO form only.
4   Note to Draft :  Non-NEO form only.
5   Note to Draft :  NEO form only.
6   Note to Draft :  Non-NEO form only.

21
(b)      The number of Eligible Stock Units that will be earned pursuant to this Award will be based on the Company’s Equity REIT Relative TSR as of the Valuation Date in accordance with the following table:

Equity REIT Relative TSR
 
Percentage of
Eligible Stock Units
Earned
   
Number of Eligible
Stock Units Earned
 
Below 5 th percentile
   
0
%
   
0
 
Equal to or above 5 th percentile but below 25 th percentile
   
30
%
 
[____]
 
Equal to or above 25 th percentile but below 50 th percentile
   
30% – 100
%
 
[____]
 
Equal to or above 50 th percentile
   
100
%
 
[____]
 

For Equity REIT Relative TSR falling between the 25 th percentile and the 50 th percentile, the number of Eligible Stock Units earned will be based on linear interpolation between the number of Eligible Stock Units that would have been earned if Equity REIT Relative TSR was at the 25 th percentile and the number that would have been earned if Equity REIT Relative TSR was at the 50 th percentile, as set forth above.

(c)       The Committee, as promptly as practicable following the conclusion of the Performance Period (but, in any event, no later than two and one-half months after the conclusion of the Performance Period), shall determine the actual number of the Eligible Stock Units that are earned in accordance with this Section 2 .  Notwithstanding anything herein to the contrary, if a Change in Control occurs on or prior to December 31, 2019, and the Grantee remains employed by the Company or a Company Affiliate until at least immediately prior to the date of such Change in Control [or has incurred a Terminating Event prior to such Change in Control,] 7 then, as of the date of such Change in Control, the Target Number of Restricted Stock Units (as defined herein) shall be deemed earned in accordance with Section 2(b) and this Section 2(c) .

7   Note to Draft:   Exec form only.

22
3.         Vesting .

(a)      All of the Stock Units and shares of Stock issued pursuant to this Award prior to the Vesting Date (as defined below) shall be subject to time-based vesting, with 100% of the Stock Units earned pursuant to this Award and the shares of Stock issued or issuable pursuant to this Award vesting on December 31, 2019 (the “ Vesting Date ”), subject to the Grantee’s continued employment with the Company (or a Company Affiliate) through such vesting date. All shares of Stock issued pursuant to this Award after the Vesting Date shall be fully vested upon issuance. Except as provided in Sections 3(b ) and 3(c) below, if at any time the Grantee shall cease to be an employee of the Company or a Company Affiliate for any reason (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of the Company or a Company Affiliate), then the Stock Units and shares of Stock issued pursuant to this Award that remain unvested at such time shall automatically and immediately be forfeited by the Grantee without consideration therefor.

(b)      If the Grantee shall cease to be an employee of the Company or a Company Affiliate (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of a Company Affiliate) in circumstances that constitute a Terminating Event, any then unvested Stock Units or shares of Stock issued pursuant to this Award will not be forfeited and such Stock Units or shares of Stock issued pursuant to this Award will be fully time-vested as of the date of such Terminating Event. Any shares of Stock issued pursuant to this Award with respect to Stock Units that vested pursuant to this Section 3(b) will be fully time-vested upon issuance.

(c)      In the event the Grantee shall cease to be an employee of the Company or a Company Affiliate (other than in circumstances where the Grantee immediately thereafter remains or becomes an employee of a Company Affiliate) as a result of the Grantee’s change in status from an Employee to a Director or Consultant, then, unless otherwise required by law, the Administrator may, on or prior to the date on which such change in status occurs, permit the Grantee to continue to time-vest in any then unvested Stock Units or shares of Stock issued pursuant to this Award based on the Grantee’s continued service as a Director or Consultant, in which case, unless otherwise provided by the Administrator, the Grantee ceasing to serve as a Director or Consultant will be treated in the same manner as Grantee ceasing to be an Employee of the Company or a Company Affiliate for purposes of this Agreement.

4.        Tax Withholding .  The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding it determines to be required by law.  The Grantee shall, not later than the date as of which vesting or payment in respect of this Award becomes a taxable event, pay to the Company or make arrangements satisfactory to the Company for payment of any Federal, state and local taxes required by law to be withheld on account of such taxable event; provided that, to the extent such taxable event occurs upon or concurrently with the issuance or vesting of Stock hereunder, the Company will satisfy any required tax withholding obligation by withholding a number of shares of Stock issued or issuable hereunder with a Fair Market Value on the date of withholding equal to the aggregate amount of such tax withholding obligation based on the maximum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to this Award, as determined pursuant to the 2018 Plan.  For purposes of this Section 4 , the Fair Market Value of the shares of Stock to be withheld shall be calculated in the same manner as the shares of Stock are valued for purposes of determining the amount of withholding taxes due.

23
5.         Changes in Capital Structure .  If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or stock of the Company or other transaction similar thereto, (ii) any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, significant repurchases of stock, or other similar change in the capital stock of the Company, (iii) any cash dividend or other distribution to holders of shares of Stock shall be declared and paid other than in the ordinary course, or (iv) any other extraordinary corporate event shall occur that in each case in the good faith judgment of the Committee necessitates action by way of equitable or proportionate adjustment in the terms of this Award Agreement, the Stock Units or the shares of Stock issuable pursuant to this Award to avoid distortion in the value of this Award, then the Committee shall make equitable or proportionate adjustment and take such other action as it deems necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Award and the terms of the Stock Units and the shares of Stock prior to such event, including, without limitation: (A) interpretations of or modifications to any defined term in this Award Agreement; (B) adjustments in any calculations provided for in this Award Agreement, and (C) substitution of other awards under the 2018 Plan or otherwise.  All adjustments made by the Committee shall be final, binding and conclusive.

6.        Effectiveness of Award Agreement

(a)       This award shall be binding upon the successors and permitted assigns of the Grantee and shall be binding upon successors and assigns of the Company.

(b)      Every provision of this Award Agreement is intended to be severable, and if any term or provision hereof is held to be illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder hereof.

7.         Governing Law .

This Award Agreement shall be governed by and construed in accordance with the laws of the State of Maryland.

8.          Administration .

This Award shall be administered by the Committee, which in the administration of this Award shall have all the powers and authority it has in the administration of the 2018 Plan as set forth in the 2018 Plan; provided that, unless the Grantee is an officer or director of the Company subject to reporting under Section 16 of the Exchange Act or as otherwise determined by the Committee, the Chief Executive Officer or Chief Financial Officer of the Company shall serve as the Administrator for purposes of the determination set forth in Section 3 (c) .

24
9.         Section 409A .

The Award is intended to comply with or be exempt from (under the “short term deferral” exception) Section 409A of the Internal Revenue Code (“ Section 409A ”) and, to the extent applicable, this Agreement shall be interpreted in accordance with Section 409A, including without limitation any applicable Department of Treasury regulations and other interpretive guidance currently in effect or that may be issued after the effective date of this Agreement. In addition, notwithstanding any provision herein to the contrary, in the event that following the Grant Date, the Administrator determines that it may be necessary or appropriate to do so, the Administrator may adopt such amendments to the Plan and/or this Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (a) exempt the Plan and/or the Stock Units from the application of Section 409A and/or preserve the intended tax treatment of the benefits provided with respect to this Award, or (b) comply with the requirements of Section 409A; provided, however, that this paragraph shall not create an obligation on the part of the Administrator to adopt any such amendment, policy or procedure or take any such other action.  No payment hereunder shall be made during the six (6)-month period following the Grantee’s “separation from service” (within the meaning of Section 409A) to the extent that the Administrator determines that paying such amount at the time set forth herein would be a prohibited distribution under Section 409A(a)(2)(B)(i). If the payment of any such amounts is delayed as a result of the previous sentence, then within thirty (30) days following the end of such six (6)-month period (or, if earlier, the Grantee’s death), the Administrator shall pay to the Grantee (or to the Grantee’s estate) the cumulative amounts that would have otherwise been payable to the Grantee during such period, without interest. Notwithstanding anything herein or in the Plan to the contrary, to the extent required to avoid the imposition of additional taxes under Section 409A, a “Change in Control” shall not be deemed to have occurred for purposes of this Agreement unless such transaction also constitutes a “change in control event,” as defined in Treasury Regulation Section 1.409A-3(i)(5).

10.       Communication .

Any notice, demand, request or other communication which may be required or contemplated herein shall be sufficiently given if (i) given either by facsimile transmission or telex, by reputable overnight delivery service, postage prepaid, or by registered or certified mail, postage prepaid and return receipt requested, to the address indicated herein or to such other address as my party hereto may specify as provided herein, or (ii) delivered personally at such address.

11.       Recovery of Erroneously Awarded Compensation .

If the Grantee is now or hereafter become subject to any policy providing for the recovery of Awards, Shares, Stock Units, proceeds or payments to the Grantee in the event of fraud or other circumstances, then this Award, the Stock Units, and any Shares issuable upon the settlement of this Awards or proceeds therefrom, are subject to potential recovery by the Company under the circumstances provided under such policy as may be in effect from time to time.

25
IN WITNESS WHEREOF, the undersigned has executed this Award Agreement as of the Grant Date.

 
ESSEX PROPERTY TRUST, INC.
   
 
By:
 
     
   
Hereunto duly authorized

Agreed and Accepted:
 
   

 
Name:
 

[Signature page to 2018 RSU Award Agreement (DIP)]

26
APPENDIX A

DEFINITIONS

“ 2018 Plan ” means the Essex Property Trust, Inc. 2018 Stock Award and Incentive Compensation Plan, as amended, modified or supplemented from time to time.

“ Cause ” shall mean , and shall be limited to, the occurrence of any one or more of the following events:

(i)        a willful act of dishonesty by the Grantee with respect to any matter involving the Company or any Company Affiliates;

(ii)      conviction of the Grantee of a crime involving moral turpitude; or

(iii)     the deliberate or willful failure by the Grantee (other than by reason of the Grantee’s physical or mental illness, incapacity or disability) to substantially perform the Grantee’s duties with the Company and the Company Affiliates and the continuation of such failure for a period of 30 days after delivery by the Company or a Company Affiliate to the Grantee of written notice specifying the scope and nature of such failure and its intention to terminate the Grantee for Cause.

For purposes of clauses (i) and (iii) above, no act, or failure to act, on the Grantee’s part shall be deemed “willful” unless done, or omitted to be done, by the Grantee without reasonable belief that the Grantee’s act, or failure to act, was in the best interest of the Company and/or the Company Affiliates.

“ Company Affiliate ” means any parent entity of the Company, if any, that directly or indirectly owns a majority of the common equity of the Company, any direct or indirect subsidiary of any such parent entity and any direct or indirect subsidiary of the Company.

“ Eligible Stock Units ” means the Stock Units that the Compensation Committee determines, pursuant to Section 2(a) , are eligible to be earned pursuant to this Award.

“ Equity REIT Relative TSR ” means the percentile rank of the Company’s total stockholder return during the Performance Period relative to the total stockholder returns of the Index Companies during the Performance Period as determined by dividing (a) the sum of (i) 100% minus the percentage of Index Companies with a total stockholder return greater than the Company during the Performance Period, plus (ii) the percentage of Index Companies with a total stockholder return less than the Company during the Performance Period, by (b) two. For example, if there were nine Index Companies, four with higher total stockholder returns, four with lower total stockholder returns and one with identical total stockholder return during the Performance Period, then the Company would be in the 50 th percentile, as calculated by taking the sum of (i) 100% minus the percentage of companies with higher total stockholder returns (100% - 4 / 9 = 56%), and (ii) the percentage of companies with lower total stockholder returns (4 / 9 = 44%) and dividing by two ((56% + 44%) / 2 = 50%).

27
For purposes of this definition, the total stockholder return of the Company and each of the Index Companies shall be computed based on the total return that would have been realized by a stockholder who (1) bought $100 of shares of common equity securities of such company on the first day of the Performance Period at a price per share equal to the closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed on such date (or, if such date is not a trading date, on the most recent prior trading date), (2) contemporaneously reinvested in shares of Stock each dividend and other distribution declared during the Performance Period and received with respect to such share (and any other shares previously received upon reinvestment of dividends or other distributions) and (3) sold such shares on the last day of the Performance Period for a per share price equal to the average closing sales price per share on the principal national stock exchange on which shares of such common equity securities are listed for the twenty (20) consecutive calendar day period up to and including the Valuation Date; provided that if the Valuation Date is the date upon which a Transactional Change in Control occurs, the ending stock price of the Stock as of such date shall be equal to the fair market value in cash, as determined by the Committee, of the total consideration paid or payable in the transaction resulting in the Transactional Change in Control for one share of Stock. Total stockholder return shall be computed on a consistent basis across all companies, in accordance with the foregoing, using total stockholder return data obtained from SNL Financial (or such other third party data provider as is selected by the Committee in its sole discretion).

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

[“ Executive Severance Plan ” means the Essex Property Trust, Inc. Executive Severance Plan, as Amended and Restated, effective March 12, 2013, as amended , modified or supplemented from time to time.] 8

“ Final Determination Date ” means the date on which the number of Eligible Stock Units earned pursuant to this Award is determined by the Compensation Committee pursuant to Section 2(c) .

“ First Determination Date ” means the date on which the number of Stock Units that are Eligible Stock Units pursuant to this Award is determined by the Compensation Committee pursuant to Section 2(a) which date shall be as soon as practicable following December 31, 2019, and in no event later than March 15, 2020.

“ Funding Period ” means the period commencing on January 1, 2019 and ending on the earlier of (A) December 31, 2019, or (B) the date upon which a Change in Control occurs.

[“ Good Reason ” means, for purposes of determining whether a Terminating Event occurred in connection with a Change in Control, the occurrence of any of the following events:

8   Note to Draft:   Exec form only.

28
(i)      a substantial adverse change in the nature or scope of the Grantee’s responsibilities, authorities, title, powers, functions, or duties from the responsibilities, authorities, powers, functions, or duties exercised by the Grantee immediately prior to the Change in Control; or

(ii)      a reduction in the Grantee’s annual base salary as in effect on the date hereof or as the same may be increased from time to time; or

(iii)     a reduction in the Grantee’s annual bonus opportunity to an annual bonus opportunity that is less than the highest bonus opportunity during the three fiscal years preceding the date of the Change in Control; or

(iv)    a reduction in the long-term incentive, savings and retirement program opportunities and health and welfare benefits to a level that is less favorable than the most favorable of such benefits and opportunities as are in effect on the date hereof or as the same may be increased from time to time; or

(v)      a reduction in the fringe benefits programs and policies and vacation accrual rate to a level that is less favorable than the most favorable of such benefits and accrual rates as are in effect on the date hereof or as the same may be increased from time to time; or

(vi)      the relocation of the offices of the Company or Company Affiliate at which the Grantee is principally employed immediately prior to the date of the Change in Control to a location more than 30 miles from such offices, or the requirement by the Company or a Company Affiliate for the Grantee to be based anywhere other than the offices of the Company or Company Affiliate at such location, except for required travel on the business of the Company and the Company Affiliates to an extent substantially consistent with the Grantee’s business travel obligations immediately prior to the Change in Control; or

(vii)    the failure by the Company or a Company Affiliate to pay to the Grantee any portion of Grantee’s compensation or to pay to the Grantee any portion of an installment of deferred compensation under any deferred compensation program of the Company or a Company Affiliate within 15 days of the date such compensation is due without prior written consent of the Grantee; or

(viii)   the failure by the Company and the Company Affiliates to obtain an effective agreement from any successor to assume and agree to perform the obligation of the Company and the Company Affiliates under the Executive Severance Plan; or

(ix)      any material breach by the Company under the Executive Severance Plan or by any successor of the Company.

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Notwithstanding the foregoing to the contrary, none of the circumstances described above will constitute Good Reason unless the Grantee has provided written notice to the Company that such circumstances exist within ninety (90) days of the Grantee’s learning of such circumstances and the Company has failed to cure such circumstances within thirty (30) days following its receipt of such notice; and provided further, that the Grantee did not previously consent in writing to the action leading to his or her claim of resignation for Good Reason.] 9

“ Index Companies ” means, as of a particular date, the companies comprising the SNL Apartment REIT Index which, as of the Grant Date, consists of the companies listed on Appendix B hereto; provided that no such company will be deemed an Index Company if such company ceases to have a class of common equity securities listed on a national stock exchange during the entire Performance Period.

“ Performance Period ” means the period beginning on December 5, 2018 and ending on the Valuation Date.

[“ Qualified Termination ” of the Grantee means (i) termination by the Company and/or a Company Affiliate of the employment of the Grantee with the Company (if the Grantee is then employed by the Company) and all Company Affiliates then employing the Grantee for any reason other than for Cause or the death or disability (as determined under the then existing long-term disability coverage of the Company or such Company Affiliate) of the Grantee or (ii) termination by the Grantee of the Grantee’s employment with the Company (if the Grantee is then employed by the Company) and all other Company Affiliates then employing the Grantee for Good Reason; provided, for avoidance of doubt, that no such termination shall constitute a Qualified Termination if the Grantee remains or becomes an employee of the Company or a Company Affiliate immediately following such termination.] 10

“ Stock ” means a share of the Company’s common stock, par value $0.001 per share.

“ Terminating Event ” shall mean [(A) a Qualified Termination of the Grantee during (i) the 24 months following a Change in Control or (ii) the two-month period prior to the date of a Change in Control, and it is reasonably demonstrated by the Grantee that such termination of employment (1) was at the request of a third party that had taken steps reasonably calculated to effect such Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control; provided that a Terminating Event under this clause (A) shall not be deemed to have occurred solely as a result of the Grantee being an employee of any direct or indirect successor to the business or assets of the Company, rather than continuing as an employee of the Company following a Change in Control; or (B) ] 11 a termination by the Company and/or a Company Affiliate of the employment of the Grantee with the Company (if the Grantee is then employed by the Company) and all Company Affiliates then employing the Grantee for any reason other than for Cause or the death or disability (as determined under the then existing long-term disability coverage of the Company or such Company Affiliate) of the Grantee that occurs (x) at least one year after the Grant Date, and (y) at a time when the Grantee’s combined age and years of Continuous Service are equal to or greater than 68 and the Grantee has at least seven (7) years of Continuous Service with the Company or a Company Affiliate.

9   Note to Draft:   Exec form only.
10   Note to Draft:   Exec form only.
11   Note to Draft:   Exec form only.

30
“ Transactional Change in Control ” means a Change in Control resulting from any person or group making a tender offer for Stock, a merger or consolidation where the Company is not the surviving entity, the shares of Stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property or consisting of a sale, transfer or disposition of all or substantially all of the assets of the Company.

“ Valuation Date ” means the earlier of (A) December 4, 2021, or (B) the date upon which a Change in Control shall occur.

31
APPENDIX B

SNL Apartment REIT Index

AvalonBay Communities, Inc.
AVB
BRT Apartments Corp.
BRT
Equity Residential
EQR
Essex Property Trust, Inc.
ESS
Mid-America Apartment Communities, Inc.
MAA
UDR, Inc.
UDR
Camden Property Trust
CPT
Apartment Investment and Management Co
AIV
Independence Realty Trust, Inc.
IRT
Investors Real Estate Trust
IRET
Preferred Apartment Communities, Inc.
APTS
NexPoint Residential Trust Inc.
NXRT
Bluerock Residential Growth REIT, Inc.
BRG

32
ESSEX PROPERTY TRUST, INC.
2018 STOCK AWARD AND INCENTIVE COMPENSATION PLAN

NOTICE OF STOCK OPTION AWARD

Grantee’s Name and Address:
 
 
 
 
 

You (the “ Grantee ”) have been granted an option to purchase shares of Common Stock, subject to the terms and conditions of this Notice of Stock Option Award (the “ Notice ”), the Essex Property Trust, Inc. 2018 Stock Award and Incentive Compensation Plan, as amended from time to time (the “ Plan ”), and the Stock Option Award Agreement (the “ Option Agreement ”) attached hereto, as follows.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Notice.

Award Number
 

 
       
Gant Date
December 5, 2018
 
     
Exercise Price per Share (*)
$

 
       
Total Number of Shares Subject to the Option (the “ Shares ”)


 
       
       
       
Total Exercise Price
$

 

Type of Option
   
Incentive Stock Option
       
     
Non-Qualified Stock Option
       
Expiration Date
December 4, 2028

Post-Termination Exercise Period: Three (3) Months, subject to an extended Post-Termination Exercise period that may apply upon a termination of the Grantee’s Continuous Service under the circumstances set forth in Section 6, 7, or 8 of the Option Agreement.

* An amount in addition to the Exercise Price will become payable if the Fair Market Value of the Shares on date of exercise exceeds the Exercise Price per Share by more than $100 as set forth in Section 2(c) of the Option Agreement.

33
Vesting Schedule :

Subject to the Grantee’s Continuous Service through the vesting dates set forth below and other limitations set forth in this Notice, the Plan and the Option Agreement, the Option may be exercised, in whole or in part, in accordance with the following schedule:

1/3 of the Shares subject to the Option shall vest on the first anniversary of the Grant Date, 1/3 of the Shares subject to the Option shall vest on the second anniversary of the Grant Date, and 1/3 of the Shares subject to the Option shall vest on the third anniversary of the Grant Date.

IN WITNESS WHEREOF, the Company and the Grantee have executed this Notice and agree that the Option is to be governed by the terms and conditions of this Notice, the Plan, and the Option Agreement.

Essex Property Trust, Inc.,
a Maryland corporation

By:
 
 

Title:
 
 

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER). THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS NOTICE, THE OPTION AGREEMENT, OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE RIGHT OF THE COMPANY OR RELATED ENTITY TO WHICH THE GRANTEE PROVIDES SERVICES TO TERMINATE THE GRANTEE'S CONTINUOUS SERVICE, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE. THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S EMPLOYMENT STATUS IS AT WILL.

34
THE GRANTEE ACKNOWLEDGES RECEIPT OF A COPY OF THE PLAN AND THE OPTION AGREEMENT, AND REPRESENTS THAT HE OR SHE IS FAMILIAR WITH THE TERMS AND PROVISIONS HEREOF AND THEREOF, AND HEREBY ACCEPTS THE OPTION SUBJECT TO ALL OF THE TERMS AND PROVISIONS HEREOF AND THEREOF. THE GRANTEE HAS REVIEWED THIS NOTICE, THE PLAN, AND THE OPTION AGREEMENT IN THEIR ENTIRETY, HAS HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS NOTICE, AND FULLY UNDERSTANDS ALL PROVISIONS OF THIS NOTICE, THE PLAN AND THE OPTION AGREEMENT. THE GRANTEE HEREBY AGREES THAT ALL QUESTIONS OF INTERPRETATION AND ADMINISTRATION RELATING TO THIS NOTICE, THE PLAN AND THE OPTION AGREEMENT SHALL BE RESOLVED BY THE ADMINISTRATOR IN ACCORDANCE WITH SECTION 13 OF THE OPTION AGREEMENT. THE GRANTEE FURTHER AGREES TO THE VENUE SELECTION AND WAIVER OF A JURY TRIAL IN ACCORDANCE WITH SECTION 14 OF THE OPTION AGREEMENT. THE GRANTEE FURTHER AGREES TO NOTIFY THE COMPANY UPON ANY CHANGE IN THE RESIDENCE ADDRESS INDICATED IN THIS NOTICE.

Dated:
   
Signed:
 
         
     

Grantee

35
 
Award Number: 
 

ESSEX PROPERTY TRUST, INC.
2018 STOCK AWARD AND INCENTIVE COMPENSATION PLAN

STOCK OPTION AWARD AGREEMENT

1.               Grant of Option . Essex Property Trust, Inc., a Maryland corporation (the “ Company ”), hereby grants to the Grantee (the “ Grantee ”) named in the Notice of Stock Option Award (the “ Notice ”), an option (the “ Option ”) to purchase the Total Number of Shares of Common Stock subject to the Option (the “ Shares ”) set forth in the Notice, at the Exercise Price per Share set forth in the Notice, and payment of, if applicable, the Purchase Price Supplement (as defined below, and collectively with the Exercise Price, the “ Exercise Price ”) subject to the terms and provisions of the Notice, this Stock Option Award Agreement (the “ Option Agreement ”) and the Company’s 2018 Stock   Award and Incentive Compensation Plan, as amended from time to time (the “ Plan ”), all of which are incorporated herein by reference.  Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement.

If designated in the Notice as an Incentive Stock Option, the Option is intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of Shares subject to Options designated as Incentive Stock Options which become exercisable for the first time by the Grantee during any calendar year (under all plans of the Company or any Parent or Subsidiary of the Company) exceeds $100,000, such excess Options, to the extent of the Shares covered thereby in excess of the foregoing limitation, shall be treated as Non-Qualified Stock Options.  For this purpose, Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the date the Option with respect to such Shares is awarded.

2.               Exercise of Option .

(a)       Right to Exercise . The Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of the Plan and this Option Agreement.  The Option shall be subject to the provisions of Section   11 of the Plan relating to the exercisability or termination of the Option in the event of a Change in Control.  The Grantee shall be subject to reasonable limitations on the number of requested exercises during any monthly or weekly period as determined by the Administrator. In no event shall the Company issue fractional Shares.

(b)       Method of Exercise . The Option shall be exercisable by compliance with such procedures as specified from time to time by the Administrator, which may include completion and delivery of an exercise notice in a form specified by the Administrator.  The Option shall be deemed to be exercised upon completion of the procedures specified by the Administrator and receipt by the Company of the Exercise Price, which, to the extent selected, shall be deemed to be satisfied by use of the broker-dealer sale and remittance procedure to pay the Exercise Price provided in Section 3, below.

36
(c)       Purchase Price Supplement .  If, at the time of exercise of the Option, the Fair Market Value of a share of Common Stock exceeds the Exercise Price per Share by more than $100 (the “ $100 Spread ”), then an amount equal to the amount by which the Fair Market Value of a share of Common Stock exceeds the $100 Spread shall be payable to the Company in addition to the Exercise Price per Share (the “ Purchase Price Supplement ”).

(d)     Taxes .  Regardless of any action the Company or any Related Entity takes with respect to any or all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“ Tax-Related Items ”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or a Related Entity.  The Grantee further acknowledges that the Company (1) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including, but not limited to, the grant or vesting of the Option, the issuance of Shares under the Option, the subsequent sale of Shares acquired pursuant to such issuance and the receipt of any dividends and/or any dividend equivalents; and (2) does not commit to and is under no obligation to structure the terms of the Option or any aspect of the Option to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result.

Prior to any relevant taxable or tax withholding event, as applicable, the Grantee shall pay or make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items.  In this regard, the Grantee hereby authorizes the Company or its agent, at the Company’s discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following methods:

(i)       withholding from wages or other cash compensation otherwise payable to the Grantee by the Company or the Company’s employer (if different); and/or

(ii)       withholding from the proceeds of the sale of Shares acquired upon exercise of the Option, either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization); and/or

(iii)      withholding in Shares to be issued upon exercise of the Option.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in Shares.  If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Grantee will be deemed to have been issued the full number of Shares subject to the exercised portion of the Option, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the Grantee’s participation in the Plan.

37
3.               Method of Payment . Payment of the Exercise Price shall be made by any of the following, or a combination thereof, at the election of the Grantee; provided, however, that such exercise method does not then violate any Applicable Law:

(a)       cash;

(b)       check;

(c)       surrender of Shares or delivery of a properly executed form of attestation of ownership of Shares as the Administrator may require which have a Fair Market Value on the date of surrender or attestation equal to the aggregate Exercise Price of the Shares as to which the Option is being exercised; or

(d)      payment through a broker-dealer sale and remittance procedure pursuant to which the Grantee (i) shall provide written instructions to a Company-designated brokerage firm to effect the immediate sale of some or all of the purchased Shares and remit to the Company sufficient funds to cover the aggregate Exercise Price payable for the purchased Shares and (ii) shall provide written directives to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale transaction.

4.               Restrictions on Exercise . The Option may not be exercised if the issuance of the Shares subject to the Option upon such   exercise would constitute a violation of any Applicable Laws.

5.               Termination or Change of Continuous Service .

(a)       In the event the Grantee’s Continuous Service terminates, other than for Cause, the Grantee may, but only during the Post-Termination Exercise Period (set forth in the Notice), exercise the portion of the Option that was vested at the date of such termination (the “ Termination Date ”).  In the event of termination of the Grantee’s Continuous Service for Cause, the Grantee’s right to exercise the Option shall terminate concurrently with the termination of the Grantee’s Continuous Service.  In no event, however, shall the Option be exercised later than the Expiration Date set forth in the Notice.

(b)       Change in Status .  In the event of the Grantee’s change in status from Employee, Director or Consultant to any other status of Employee, Director or Consultant or from an Employee whose customary employment is 20 hours or more per week to an Employee whose customary employment is fewer than 20 hours per week, then, unless otherwise required by law, the Option shall remain in place and vesting of the Option shall continue; provided, however, that with respect to any Incentive Stock Option that shall remain in effect after a change in status from Employee to Director or Consultant, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following such change in status.  Except as provided in Sections 6, 7 and 8 below, to the extent that the Option was unvested on the Termination Date, or if the Grantee does not exercise the vested portion of the Option within the Post-Termination Exercise Period,   the Option shall terminate.

38
(c)      Leave of Absence .  During any authorized leave of absence, the vesting of the Option as provided in this schedule shall be suspended after the leave of absence exceeds a period of ninety (90) days.  For purposes of an Incentive Stock Option, in the case of any leave of absence exceeding three months where reemployment upon expiration of the leave is not guaranteed by statute or contract, the Incentive Stock Option shall be treated as a Non-Statutory Stock Option on the date three months and one day following the date that the leave of absence exceeds three months.  Vesting of the Option shall resume upon the Grantee’s termination of the leave of absence and return to service to the Company or a Related Entity.  The Vesting Schedule of the Option shall be extended by the length of the suspension.

(d)       Terminating Event .  Notwithstanding anything in the Notice, this Option Agreement or the Plan to the contrary, upon the termination by the Company and/or a Company Affiliate of the Grantee’s Continuous Service with the Company and all Company Affiliates (for which the Grantee is then providing Continuous Service) for any reason other than for Cause or the death or disability (as determined under the then existing long-term disability coverage of the Company or such Company Affiliate) of the Grantee that occurs (x) at least one year after the Grant Date, and (y) at a time when the Grantee’s combined age and years of Continuous Service are equal to or greater than 68 and the Grantee has at least seven (7) years of Continuous Service with the Company or a Company Affiliate, the Shares subject to the Option that are unvested immediately prior to such termination or change will not be forfeited and will instead vest in full upon such termination of Continuous Service..

6.               Retirement of Grantee .  If the Grantee’s Continuous Service terminates at a time when the Grantee’s combined age and years of Continuous Service is equal to or greater than 68, then the Grantee may, but only within the period ending on the third anniversary of the Termination Date (but in no event later than the Expiration Date), exercise the portion of the Option that was vested as of the Termination Date.  To the extent that the Option was unvested on the Termination Date then, except as provided in Section 5(d) above, the Option shall terminate.  If the Grantee does not exercise the vested portion of the Option within the time specified herein the Option shall terminate.  If the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the Termination Date.

7.               Disability of Grantee .  In the event the Grantee’s Continuous Service terminates as a result of his or her Disability, the Grantee may, but only within twelve (12) months from the Termination Date (but in no event later than the Expiration Date), exercise the portion of the Option that was vested on the Termination Date; provided, however, that if such Disability is not a “disability” as such term is defined in Section 22(e)(3) of the Code (without regard to the last sentence thereof) and the Option is an Incentive Stock Option, such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated as a Non-Qualified Stock Option on the day three (3) months and one (1) day following the Termination Date.  To the extent that the Option was unvested on the Termination Date then the Option shall terminate.  If the Grantee does not exercise the vested portion of the Option within the time specified herein the Option shall terminate.  Section 22(e)(3) of the Code provides, in part, that an individual is permanently and totally disabled if he or she is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months.

39
8.             Death of Grantee . In the event of the termination of the Grantee’s Continuous Service as a result of his or her death, or in the event of the Grantee’s death during the Post-Termination Exercise Period or during the twelve (12) month period following the Grantee’s termination of Continuous Service as a result of his or her Disability, the person who acquired the right to exercise the Option pursuant to Section 9 may exercise the portion of the Option that was vested at the date of termination within twelve (12) months from the date of death (but in no event later than the Expiration Date).  To the extent that the Option was unvested on the date of death then the Option shall terminate.  If the vested portion of the Option is not exercised within the time specified herein, the Option shall terminate.

9.               Transferability of Option . The Option, if an Incentive Stock Option, may not be transferred in any manner other than by will or by the laws of descent and distribution and may be exercised during the lifetime of the Grantee only by the Grantee. The Option, if a Non-Qualified Stock Option, may not be transferred in any manner other than by will or by the laws of descent and distribution, provided, however, that a Non-Qualified Stock Option may be transferred during the lifetime of the Grantee to the extent and in the manner authorized by the Administrator, subject to the applicable limitations, if any, described in the General Instructions to Form S-8 Registration Statement under the Securities Act; provided, that any transfer of a Non-Qualified Stock Option that is permitted hereunder shall be without consideration, except as required by Applicable Laws. Notwithstanding the foregoing, the Grantee may designate one or more beneficiaries of the Grantee’s Incentive Stock Option or Non-Qualified Stock Option in the event of the Grantee’s death on a beneficiary designation form provided by the Administrator. Following the death of the Grantee, the Option, to the extent provided in Section 8, may be exercised (a) by the person or persons designated under the deceased Grantee’s beneficiary designation or (b) in the absence of an effectively designated beneficiary, by the Grantee’s legal representative or by any person empowered to do so under the deceased Grantee’s will or under the then applicable laws of descent and distribution. The Option may not be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance of the Option shall be void and unenforceable against the Company or any Related Entity.  The terms of the Option shall be binding upon the executors, administrators, heirs, successors and transferees of the Grantee.

10.             Term of Option . The Option must be exercised no later than the Expiration Date set forth in the Notice or such earlier date as otherwise provided herein. After the Expiration Date or such earlier date, the Option shall be of no further force or effect and may not be exercised.

11.              Entire Agreement: Governing Law . The Notice, the Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Grantee with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Company and the Grantee. Nothing in the Notice, the Plan and this Option Agreement (except as expressly provided therein) is intended to confer any rights or remedies on any persons other than the parties. The Notice, the Plan and this Option Agreement are to be construed in accordance with and governed by the internal laws of the   State of Maryland without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Maryland to the rights and duties of the parties. Should any provision of the Notice, the Plan or this Option Agreement be determined to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable.

40
12.             Headings . The captions used in the Notice and this Option Agreement are inserted for convenience and shall not be deemed a part of the Option for construction or interpretation.

13.             Administration and Interpretation . The grant of the Option, the vesting of the Option and the issuance of Shares upon exercise of the Option are subject to, and shall be administered in accordance with, the provisions of the Plan, as the same may be amended from time to time.  Any question or dispute regarding the administration or interpretation of the Notice, the Plan or this Option Agreement shall be submitted by the Grantee or by the Company to the Administrator. The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

14.           Venue and Waiver of Jury Trial . The parties agree that any suit, action, or proceeding arising out of or relating to the Notice, the Plan or this Option Agreement shall be brought in the United States District Court for the Northern District of California (or should such court lack jurisdiction to hear such action, suit or proceeding, in a California state court in the County of Santa Clara) and that the parties shall submit to the jurisdiction of such court. The parties irrevocably waive, to the fullest extent permitted by law, any objection the party may have to the laying of venue for any such suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more provisions of this Section 14 shall for any reason be held invalid or unenforceable, it is the specific intent of the parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

15.            Tax Consequences for Exercise After Per Share Fair Market Value Exceeds $100 Spread .  The Grantee hereby acknowledges that he or she shall be solely responsible for any adverse tax consequences that may arise if the Grantee elects to exercise the Option at any time after the date that the Fair Market Value of a share of Common Stock exceeds the Exercise Price Per Share by an amount that would exceed the $100 Spread (as contemplated under Section 2(c) hereof).

16.           Notices . Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, upon deposit for delivery by an internationally recognized express mail courier service or upon deposit in the United States mail by certified mail (if the parties are within the United States), with postage and fees prepaid, addressed to the other party at its address as shown in these instruments, or to such other address as such party may designate in writing from time to time to the other party.

17.             Adjustments .  The number and type of Shares subject to the Option and exercise price Option is subject to adjustment as provided in Section 10 of the Plan.  The Grantee shall be notified of such adjustment and such adjustment shall be binding upon the Company and the Grantee.

41
18.           Restrictions on Resale .  The Grantee hereby agrees not to sell any Shares at a time when Applicable Laws, Company policies or an agreement between the Company and its underwriters prohibit a sale.  This restriction will apply as long as the Grantee’s Continuous Service continues and for such period of time after the termination of the Grantee’s Continuous Service as the Company may specify.

19.             Successors and Assigns .  The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer herein set forth, this Agreement shall be binding upon the Grantee and his or her heirs, executors, administrators, successors and assign.

20.            Severability .  Should any provision of the Notice, the Plan or this Agreement be determined to be illegal or unenforceable, such provision shall be enforced to the fullest extent allowed by law and the other provisions shall nevertheless remain effective and shall remain enforceable.

21.           No Advice Regarding Grant .  The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the Grantee’s acquisition or sale of the underlying Shares.  The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

22.             Electronic Delivery .  The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means.  The Grantee hereby consents to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

23.             Imposition of Other Requirements .  The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Option and on any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable in order to comply with local law or facilitate the administration of the Plan, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

24.           Amendments .  The Company may amend this Agreement at any time, provided that no such amendment shall be made without the Grantee’s consent if such action would materially and adversely affect the Grantee’s rights under this Agreement.  The Company reserves the right to impose other requirements on the Option and the Shares acquired upon vesting of the Option, to the extent the Company determines it is necessary or advisable under the laws of the country in which the Grantee resides pertaining to the issuance or sale of the Shares or to facilitate the administration of the Plan.

25.             Counterparts .  For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

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26.           Waiver .  The Grantee acknowledges that a waiver by the Company of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other person.

27.            Recovery of Erroneously Awarded Compensation .  If the Grantee is now or hereafter becomes subject to any policy providing for the recovery of Awards, Shares, proceeds or payments to the Grantee in the event of fraud or other circumstances, then this Award, and any Shares issuable upon the exercise of the Option or proceeds therefrom, are subject to potential recovery by the Company under the circumstances provided under such policy as may be in effect from time to time.

END OF AGREEMENT


43


ESSEX PROPERTY TRUST, INC.
AND ESSEX PORTFOLIO, L.P.

List of Subsidiaries
as of December 31, 2018

Exhibit 21.1


1.
Essex Portfolio, L.P., a California limited partnership, (a subsidiary of Essex Property Trust, Inc.)
2.
Essex Management Corporation, a California corporation
3.
Essex-Palisades Facilitator, a California limited partnership
4.
Essex Mirabella Marina Apartments, L.P., a California limited partnership
5.
Essex San Ramon Partners L.P., a California limited partnership
6.
Essex Fidelity I Corporation, a California corporation
7.
Essex Camarillo Corporation, a California corporation
8.
Essex Camarillo L.P., a California limited partnership
9.
Essex Meadowood, L.P., a California limited partnership
10.
Essex Bunker Hill, L.P., a California limited partnership
11.
Essex Treetops, L.P., a California limited partnership
12.
Essex Bluffs, L.P., a California limited partnership
13.
Essex Huntington Breakers, L.P., a California limited partnership
14.
Essex Stonehedge Village, L.P., a California limited partnership
15.
Essex Inglenook Court, LLC, a Delaware limited liability company
16.
Essex Wandering Creek, LLC, a Delaware limited liability company
17.
Essex Columbus, L.P., a California limited partnership
18.
Essex Lorraine, L.P., a California limited partnership
19.
Essex Glenbrook, L.P., a California limited partnership
20.
Essex Euclid, L.P., a California limited partnership
21.
Richmond Essex L.P., a California limited partnership
22.
Essex Wilshire, L.P., a California limited partnership
23.
Essex Wynhaven, L.P., a California limited partnership
24.
Jackson School Village Limited Partnership, a California limited partnership
25.
Essex Carlyle, L.P., a California limited partnership
26.
Essex Dupont Lofts, L.P., a California limited partnership
27.
ESG Properties I, LLC, a Delaware limited liability company
28.
Essex Cochran, L.P., a California limited partnership
29.
Essex Kings Road, L.P., a California limited partnership
30.
Essex Le Parc, L.P., a California limited partnership
31.
Essex Monterey Villas, L.P., a California limited partnership
32.
Essex Monterey Villas, LLC, a Delaware limited liability company
33.
Essex Jaysac Tasman, L.P., a California limited partnership
34.
Western Blossom Hill Investors, a California limited partnership
35.
Western-Los Gatos I Investors, a California limited partnership
36.
Western Highridge Investors, a California limited partnership
37.
Western-San Jose III Investors, a California limited partnership
38.
Western Riviera Investors, a California limited partnership
39.
Western-Palo Alto II Investors, a California limited partnership
40.
Irvington Square Associates, a California limited partnership
41.
Western-Seven Trees Investors, a California limited partnership
42.
Western-Las Hadas Investors, a California limited partnership
43.
San Pablo Medical Investors, Ltd., a California limited partnership
44.
Gilroy Associates, a California limited partnership
45.
The Oakbrook Company, an Ohio limited partnership
46.
Pine Grove Apartment Fund, Ltd., a California limited partnership
47.
Valley Park Apartments, Ltd., a California limited partnership
48.
Fairhaven Apartment Fund, Ltd., a California limited partnership
49.
K-H Properties, a California limited partnership
50.
Villa Angelina Apartment Fund, Ltd., a California limited partnership




51.
Essex Camarillo Oaks 789, L.P., a California limited partnership
52.
Essex Emerald Ridge, L.P., a California limited partnership
53.
Essex CAL-WA, L.P., a California limited partnership
54.
Essex Marina City Club, L.P., a California limited partnership
55.
Essex Fountain Park Apartments, L.P., a California limited partnership
56.
Essex SPE, LLC, a Delaware limited liability company
57.
Essex MCC, LLC, a Delaware limited liability company
58.
Essex Excess Assets TRS, Inc., a Delaware corporation
59.
Essex The Pointe, L.P., a California limited partnership
60.
Essex Tierra Vista, L.P., a California limited partnership
61.
EMC SPE, LLC, a Delaware limited liability company
62.
Essex Vista Belvedere, L.P., a California limited partnership
63.
Essex Marbrisa Long Beach, L.P., a California limited partnership
64.
Essex Marina City Club, LLC, a Delaware limited liability company
65.
Essex Northwest Gateway, LLC, a Delaware limited liability company
66.
Essex Fairwood Pond, L.P., a California limited partnership
67.
Park Hill LLC, a Washington limited liability company
68.
Essex NBN SPE, LLC, a Delaware limited liability company
69.
Essex Gateway Management, LLC, a California limited liability company
70.
Essex Property Financial Corporation, a California corporation
71.
Northwest Gateway Apartments, L.P., a California limited partnership
72.
Essex Alamo, L.P., a Delaware limited partnership
73.
Essex Broadway, LLC, a Washington limited liability company
74.
Essex HGA, LLC, a Delaware limited liability company
75.
Essex Hillsdale Garden Apartments, L.P., a California limited partnership
76.
Essex Camino Ruiz Apartments, L.P., a California limited partnership
77.
Belmont Affordable Partners, L.P., a California limited partnership
78.
Essex Chestnut Apartments, L.P., a California limited partnership
79.
Essex Canyon Oaks Apartments, L.P., a California limited partnership
80.
Essex Esplanade, L.P., a California limited partnership
81.
Pacific Western Insurance LLC, a Hawaii limited liability company
82.
Western-Mountain View II Investors, a California limited partnership
83.
Western-San Jose IV Investors Limited Partnership, a California limited partnership
84.
Essex Berkeley 4thStreet, L.P., a California limited partnership
85.
Newport Beach North LLC, a Delaware limited liability company
86.
Essex Summerhill Park, L.P., a California limited partnership
87.
Essex Skyline, L.P., a Delaware limited partnership
88.
Essex San Fernando, L.P., a California limited partnership
89.
Essex Eagle Rim, L.P., a California limited partnership
90.
Essex Hillcrest Park, L.P., a California limited partnership
91.
Essex The Commons, L.P., a California limited partnership
92.
Essex Derian, L.P., a California limited partnership
93.
Essex Bella Villagio, L.P., a California limited partnership
94.
Essex NoHo Apartments, L.P., a California limited partnership
95.
Essex Hillsborough Park, L.P., a California limited partnership
96.
Essex Santee Court, L.P., a California limited partnership
97.
Essex City View, L.P., a California limited partnership
98.
Essex Courtyard, L.P., a California limited partnership
99.
Essex Anavia, L.P., a California limited partnership
100.
Essex Waterford, L.P., a California limited partnership
101.
Essex 416 on Broadway, L.P., a California limited partnership
102.
RP/Essex Skyline Holdings, L.L.C., a Delaware limited liability company
103.
Essex Valley Village Magnolia, LLC, a Delaware limited liability company
104.
Essex Queen Anne, LLC, a Washington limited liability company
105.
Essex Wesco, L.P., a California limited partnership
106.
Essex Arbors, L.P., a California limited partnership
107.
Essex Cadence GP, L.P., a Delaware limited partnership
108.
Essex Cadence Owner, L.P., a California limited partnership
109.
Cadence San Jose, L.P., a Delaware limited partnership




110.
Essex Warner Center, L.P., a California limited partnership
111.
Essex Bellerive, L.P., a California limited partnership
112.
Essex Bernard, L.P., a California limited partnership
113.
Essex Dublin GP, L.P., a Delaware limited partnership
114.
Essex Dublin Owner, L.P., a California limited partnership
115.
West Dublin Bart, L.P., a Delaware limited partnership
116.
Essex Redmond Hill CW, L.P., a California limited partnership
117.
Essex Redmond Hill NE, L.P., a California limited partnership
118.
Essex Monarch I, L.P., a Delaware limited partnership
119.
Essex Monarch La Brea Apartments, L.P., a California limited partnership
120.
Essex Monarch II, L.P., a Delaware limited partnership
121.
Essex Monarch Santa Monica Apartments, L.P., a California limited partnership
122.
Essex Briarwood, L.P., a California limited partnership
123.
Essex The Woods, L.P., a California limited partnership
124.
Essex JMS Acquisition, L.P., a California limited partnership
125.
Wesco I, LLC, a Delaware limited liability company
126.
Santa Clara Square, LLC, a California limited liability company
127.
Wesco GP, LLC, a Delaware limited liability company
128.
Cadence REIT, LLC, a Delaware limited liability company
129.
LINC REIT, LLC, a Delaware limited liability company
130.
EssexMonarch GP I, LLC, a Delaware limited liability company
131.
EssexMonarch GP II, LLC, a Delaware limited liability company
132.
Wesco Redmond CW GP, LLC, a Delaware limited liability company
133.
Wesco Redmond NE GP, LLC, a Delaware limited liability company
134.
Essex CPP GP, L.P., a Delaware limited partnership
135.
Essex CPP, L.P., a Delaware limited partnership
136.
Essex CPP REIT, LLC, a Delaware limited liability company
137.
Essex SF GP, L.P., a California limited partnership
138.
Essex SF Owner, L.P., a California limited partnership
139.
Essex SF, L.P., a Delaware limited partnership
140.
Essex SF Manager, L.P., a California limited partnership
141.
Essex SF REIT, LLC, a Delaware limited liability company
142.
Essex Huntington on Edinger, L.P., a California limited partnership
143.
Essex Montebello, L.P., a California limited partnership
144.
Essex Elkhorn Owner, L.P., a California limited partnership
145.
Essex PE Lofts, L.P., a California limited partnership
146.
Essex Riley Square, L.P., a California limited partnership
147.
Essex Moorpark GP, L.P., a California limited partnership
148.
Essex Moorpark Owner, L.P., a California limited partnership
149.
Essex Moorpark, L.P., a Delaware limited partnership
150.
Essex Moorpark REIT, LLC, a Delaware limited liability company
151.
Essex Wesco III, L.P. a California limited partnership
152.
Wesco III, LLC, a Delaware limited liability company
153.
Wesco III GP, LLC, a Delaware limited liability company
154.
Essex Haver Hill, L.P., a California limited partnership
155.
Essex Walnut REIT, LLC, a Delaware limited liability company
156.
Essex OSM REIT, LCC, a Delaware limited liability company
157.
Essex Fox Plaza, L.P., a California limited partnership
158.
Essex Walnut GP, L.P., a Delaware limited partnership
159.
Essex Walnut Owner, L.P., a California limited partnership
160.
Essex Walnut, L.P., a Delaware limited partnership
161.
Essex OSM GP, L.P., a Delaware limited partnership
162.
Essex OSM, L.P., a Delaware limited partnership
163.
Essex Regency Escuela, L.P., a California limited partnership
164.
La Brea Affordable Partners, L.P., a California limited partnership
165.
Santa Monica Affordable Partners, L.P., a California limited partnership
166.
Essex Gas Company Lofts, L.P., a California limited partnership
167.
BEXAEW Bothell Ridge, LP, a Washington limited partnership
168.
BEXAEW Enclave at Town Square, LP, a California limited partnership




169.
BEXAEW Parkside Court, LP, a California limited partnership
170.
BEXAEW Esplanade, LP, a California limited partnership
171.
BEXAEW The Havens, LP, a California limited partnership
172.
Essex Piedmont, L.P., a California limited partnership
173.
Essex Bellevue Park, L.P., a California limited partnership
174.
Essex Emeryville GP, L.P., a Delaware limited partnership
175.
Essex Emeryville, L.P., a Delaware limited partnership
176.
Essex Emeryville Owner, L.P., a California limited partnership
177.
Essex Pleasanton GP, L.P., a Delaware limited partnership
178.
Essex Pleasanton, L.P., a Delaware limited partnership
179.
Essex Pleasanton Owner, L.P., a California limited partnership
180.
Essex Cadence Phase III Owner, L.P., a California limited partnership
181.
Block 9 Transbay, LLC, a Delaware limited liability company
182.
BEX Portfolio, LLC, a Delaware limited liability company
183.
Wesco III BEX, LLC, a Delaware limited liability company
184.
Essex Wesco IV, LLC, a Delaware limited liability company
185.
Wesco IV, LLC, a Delaware limited liability company
186.
Essex BEXAEW, LLC, a Delaware limited liability company
187.
BEXAEW, LLC, a Delaware limited liability company
188.
BEXAEW GP, LLC, a Delaware limited liability company
189.
BRE-FMCA, LLC, a Delaware limited liability company
190.
BEX FMCA, LLC, a Delaware limited liability company
191.
Emerald Pointe Apartments, LLC, a Delaware limited liability company
192.
Essex Emeryville REIT, LLC, a Delaware limited liability company
193.
Essex Pleasanton REIT, LLC, a Delaware limited liability company
194.
Cadence Phase III REIT, LLC, a Delaware limited liability company
195.
GBR Palm Valley LLC, a Delaware limited liability company
196.
Palm Valley Roll-Up LLC, a Delaware limited liability company
197.
New Century Towers, LLC, a Delaware limited liability company
198.
BRE Builders, Inc., a Delaware corporation
199.
Block 9 Residential, LLC, a Delaware limited liability company
200.
Essex Block 9 Manager, LLC, a Delaware limited liability company
201.
Essex Form 15, LP, a California limited partnership
202.
Essex Park Catalina, LP, a California limited partnership
203.
500 Folsom, LP, a California limited partnership
204.
Essex Bridgeport, LP, a California limited partnership
205.
Essex 500 Folsom, LLC, a Delaware limited liability company
206.
Block 9 MRU Residential, LLC, a Delaware limited liability company
207.
BEX II, LLC, a Delaware limited liability company
208.
BEX II GP, LLC, a Delaware limited liability company
209.
Essex Kiely, LP, a California limited partnership
210.
Block 9 UPPER MRU and Retail, LLC, a Delaware limited liability company
211.
Japantown Associates, LLC, a Delaware limited liability company
212.
Essex BEX II, LLC, a Delaware limited liability company
213.
Essex Portfolio Management, L.P., a California limited partnership
214.
360 Residences, L.P., a California limited partnership
215.
Essex Toluca Lake, L.P., a California limited partnership
216.
GBR Palma Sorrento LLC, a Delaware limited liability company
217.
GBR Villa Veneto LLC, a Delaware limited liability company
218.
GBR Santa Palmia LLC, a Delaware limited liability company
219.
GBR Palm Valley Podium LLC, a Delaware limited liability company
220.
PPC Sage LLC, a Delaware limited liability company
221.
PPC Sage Apartments Manager II LLC, a Delaware limited liability company
222.
GR Block B LLC, a Delaware limited liability company
223.
EPT SPE LLC, a Delaware limited liability company
224.
Essex Wesco V, LLC, a California limited liability company
225.
Wesco V, LLC, a Delaware limited liability company
226.
Wesco V GP, LLC, a Delaware limited liability company
227.
Wesco V Sub, LLC, a Delaware limited liability company




228.
Wesco V Sub GP, LLC, a Delaware limited liability company
229.
8th and Republican, LLC, a Washington limited liability company
230.
8th & Republican REIT LP, a Delaware limited partnership
231.
8th & Republican REIT GP LLC, a Delaware limited liability company
232.
8th & Republican TRS, LLC, a Delaware limited liability company
233.
8th & Republican SPE, LLC, a Delaware limited liability company
234.
Essex BEX III, LLC, a Delaware limited liability company
235.
BEX III, LLC, a Delaware limited liability company
236.
BEX III GP, LLC, a Delaware limited liability company
237.
Essex Monarch Portfolio, LLC, a Delaware limited liability company
238.
Essex Meridian, LLC, a Delaware limited liability company
239.
Essex Madison, LLC, a Delaware limited liability company
240.
PacWest Insurance Services, LLC, a California limited liability company
241.
Essex Scripps, LLC, a Delaware limited liability company
242.
Zarsion Essex, LLC, a Delaware limited liability company



Exhibit 23.1

Consent of Independent Registered Public Accounting Firm
The Board of Directors
Essex Property Trust, Inc.:

We consent to the incorporation by reference in the registration statements (Nos. 333-227600 & 333-102552) on Form S-3 and registration statements (Nos. 333-224941, 333-194954, 333-189239, 33-123001 and 333-122999) on Form S-8 of Essex Property Trust, Inc. of our reports dated February 21, 2019, with respect to the consolidated balance sheets of Essex Property Trust, Inc. and subsidiaries as of December 31, 2018 and 2017, 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, 2018, and the related notes and financial statement schedule III (collectively, the consolidated financial statements), and the effectiveness of internal control over financial reporting as of December 31, 2018, which reports appear in the December 31, 2018 annual report on Form 10‑K of Essex Property Trust, Inc. and Essex Portfolio, L.P.

Our report with respect to the consolidated financial statements and financial statement schedule of Essex Property Trust, Inc. makes reference to Essex Property Trust, Inc. changing its method of accounting for the derecognition of nonfinancial assets in 2018 due to the adoption of the Financial Accounting Standards Board’s Accounting Standard Update No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).
/s/ KPMG LLP    
San Francisco, California
February 21, 2019

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm
The General Partner
Essex Portfolio, L.P.:

We consent to the incorporation by reference in the registration statement (No. 333-227600-01) on Form S-3 of Essex Portfolio, L.P. of our report dated February 21, 2019, with respect to the consolidated balance sheets of Essex Portfolio, L.P. and subsidiaries as of December 31, 2018 and 2017, 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, 2018, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”), which report appears in the December 31, 2018 annual report on Form 10‑K of Essex Property Trust, Inc. and Essex Portfolio, L.P.

Our report with respect to the consolidated financial statements and financial statement schedule of Essex Portfolio, L.P. makes reference to Essex Portfolio, L.P. changing its method of accounting for the derecognition of nonfinancial assets in 2018 due to the adoption of the Financial Accounting Standards Board’s Accounting Standard Update No. 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).
/s/ KPMG LLP    
San Francisco, California
February 21, 2019



EXHIBIT 31.1

ESSEX PROPERTY TRUST, INC.
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Schall, certify that:

1.
I have reviewed this annual report on Form 10-K of Essex Property Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:   February 21, 2019
/s/ Michael J. Schall
 
Michael J. Schall
 
Chief Executive Officer and President
 
Essex Property Trust, Inc.
 





EXHIBIT 31.2

ESSEX PROPERTY TRUST, INC.
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Angela L. Kleiman, certify that:

1.
I have reviewed this annual report on Form 10-K of Essex Property Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:   February 21, 2019
/s/ Angela L. Kleiman
 
Angela L. Kleiman
 
Chief Financial Officer and Executive Vice President
 
Essex Property Trust, Inc.
 





EXHIBIT 31.3

ESSEX PORTFOLIO, L.P.
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Michael J. Schall, certify that:

1.
I have reviewed this annual report on Form 10-K of Essex Portfolio, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:   February 21, 2019
/s/ Michael J. Schall
 
Michael J. Schall
 
Chief Executive Officer and President
 
Essex Property Trust, Inc., general partner of
 
Essex Portfolio, L.P.
 




EXHIBIT 31.4

ESSEX PORTFOLIO, L.P.
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Angela L. Kleiman, certify that:

1.
I have reviewed this annual report on Form 10-K of Essex Portfolio, L.P.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date:   February 21, 2019
/s/ Angela L. Kleiman
 
Angela L. Kleiman
 
Chief Financial Officer and Executive Vice President
 
Essex Property Trust, Inc., general partner of
 
Essex Portfolio, L.P.
 




Exhibit 32.1

ESSEX PROPERTY TRUST, INC.
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Michael J. Schall, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) of Essex Property Trust, Inc. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Property Trust, Inc. at the dates of and for the periods presented.

Date: February 21, 2019
 
/s/ Michael J. Schall
 
 
Michael J. Schall
 
 
Chief Executive Officer and President
 
 
Essex Property Trust, Inc.
 





Exhibit 32.2

ESSEX PROPERTY TRUST, INC.
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Angela L. Kleiman, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) of Essex Property Trust, Inc. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Property Trust, Inc. at the dates of and for the periods presented.

Date: February 21, 2019
 
/s/ Angela L. Kleiman
 
 
Angela L. Kleiman
 
 
Chief Financial Officer and Executive Vice President
 
 
Essex Property Trust, Inc.
 





Exhibit 32.3

ESSEX PORTFOLIO, L.P.
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Michael J. Schall, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) of Essex Portfolio, L.P. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Portfolio, L.P. at the dates of and for the periods presented.

Date: February 21, 2019
 
/s/ Michael J. Schall
 
 
Michael J. Schall
 
 
Chief Executive Officer and President
 
 
Essex Property Trust, Inc., general partner of
 
 
Essex Portfolio, L.P.
 





Exhibit 32.4

ESSEX PORTFOLIO, L.P.
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, chapter 63 of title 18, United States Code), I, Angela L. Kleiman, hereby certify, to the best of my knowledge, that the Annual Report on Form 10-K for the year ended December 31, 2018 (the “Form 10-K”) of Essex Portfolio, L.P. fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of Essex Portfolio, L.P. at the dates of and for the periods presented.

Date: February 21, 2019
 
/s/ Angela L. Kleiman
 
 
Angela L. Kleiman
 
 
Chief Financial Officer and Executive Vice President
 
 
Essex Property Trust, Inc., general partner of
 
 
Essex Portfolio, L.P.