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, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _____________
Commission file number:   1-13106 (Essex Property Trust, Inc.)
Commission file number:   333-44467-01 (Essex Portfolio, L.P.)

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

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

925 East Meadow Drive
Palo Alto, California    94303
(Address of Principal Executive Offices including Zip Code)
(650) 494-3700
(Registrant's Telephone Number, Including Area Code)

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Essex Property Trust, Inc.    Yes o  No x
Essex Portfolio, L.P.     Yes o   No x


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Essex Property Trust, Inc.    Yes x   No o
Essex Portfolio, L.P.     Yes x   No o

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

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

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

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

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

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

Essex Property Trust, Inc.    Yes o   No x
Essex Portfolio, L.P.     Yes o   No x

As of June 30, 2013, the aggregate market value of the voting stock held by non-affiliates of Essex Property Trust, Inc. was $5,855,449,673.  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.

As of February 24, 2014, 38,606,706 shares of common stock ($.0001 par value) of Essex Property Trust, Inc. were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:
The following document is incorporated by reference in Part III of the Annual Report on Form 10-K: Proxy statement for the annual meeting of stockholders of Essex Property Trust, Inc. to be filed within 120 days of December 31, 2013.



EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2013 of Essex Property Trust, Inc and Essex Portfolio, L.P. Unless stated otherwise or the context otherwise requires, references to “ESS” mean Essex Property Trust, a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT ”), and references to “EPLP” mean Essex Portfolio, L.P. (the “Operating Partnership” ). References to the “Company,” “we,” “us” or “our” mean collectively ESS, EPLP and those entities/subsidiaries owned or controlled by ESS and/or EPLP.  References to the “Operating Partnership” mean collectively EPLP and those entities/subsidiaries owned or controlled by EPLP.

ESS is the general partner of, and as of December 31, 2013 owned an approximate 94.6% ownership interest in EPLP.  The remaining 5.4% interest is owned by limited partners. As the sole general partner of EPLP, ESS has exclusive control of EPLP's day-to-day management.

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

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

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

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

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

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

iii

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

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

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

iv

ESSEX PROPERTY TRUST, INC.
ESSEX PORTFOLIO, L.P.
2013 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS

Part I.
 
Page
Item 1.
1
Item 1A.
7
Item 1B.
21
Item 2.
21
Item 3.
27
Item 4.
27
Part II.
 
 
Item 5.
28
Item 6.
31
Item 7.
34
Item 7A.
46
Item 8.
47
Item 9.
47
Item 9A.
47
Item 9B.
48
Part III.
 
 
Item 10.
48
Item 11.
48
Item 12.
49
Item 13.
49
Item 14.
49
Part IV.
 
 
Item 15.
50
 
S-1


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

Item 1. Business

OVERVIEW

Essex Property Trust, Inc. (“Essex” or the “Company”) is a Maryland corporation that operates as a self-administered and self-managed real estate investment trust (“REIT”).  The Company owns all of its interest in its real estate investments directly or indirectly through Essex Portfolio, L.P. (the “Operating Partnership” or “EPLP”).  The Company is the sole general partner of the Operating Partnership and as of December 31, 2013 owns a 94.6% general partnership interest.   In this report, the terms “Essex” or the “Company” also refer to Essex Property Trust, Inc., its Operating Partnership and those entities owned or controlled by the Operating Partnership.

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

The Company is engaged primarily in the ownership, operation, management, acquisition, development and redevelopment of predominantly apartment communities.  As of December 31, 2013, the Company owned or held an interest in 164 communities, aggregating 34,079 units, located along the West Coast, as well as four commercial buildings (totaling approximately 315,900 square feet), and eleven active development projects with 2,501 units in various stages of development (collectively, the “Portfolio”).

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

BUSINESS STRATEGIES

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

Business Strategies

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

· Focus on markets in major metropolitan areas that have regional population in excess of one million;
· Constraints on new supply driven by: (i) low availability of developable land sites where competing housing could be economically built; (ii) political growth barriers, such as protected land, urban growth boundaries, and potential lengthy and expensive development permit processes; and (iii) natural limitations to development, such as mountains or waterways;
· Rental demand is enhanced by affordability of rents relative to costs of for-sale housing; and
· Housing demand that is based on job growth, proximity to jobs, high median incomes and the quality of life including related commuting factors.
Recognizing that all real estate markets are cyclical, the Company regularly evaluates the results of its regional economic, and local market research, and adjusts the geographic focus of its portfolio accordingly.  The Company seeks to increase its Portfolio allocation in markets projected to have the strongest local economies and to decrease such allocations in markets projected to have declining economic conditions.  Likewise, the Company also seeks to increase its Portfolio allocation in markets that have attractive property valuations and to decrease such allocations in markets that have inflated valuations and low relative yields.

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

· Property Management Oversee delivery of and quality of the housing provided to our residents and manage the properties financial performance.
· Capital Preservation –Asset Management is responsible for the planning, budgeting and completion of major capital improvement projects at the Company’s communities.
· Business Planning and Control – Comprehensive business plans are implemented in conjunction with every investment decision.  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

Summary of Proposed Merger with BRE Properties, Inc.
 
The board of directors of Essex Property Trust, Inc. and the board of directors of BRE Properties, Inc. have each unanimously approved an Agreement and Plan of Merger, dated as of December 19, 2013, as it may be amended from time to time, which we refer to as the merger agreement, by and among Essex, Bronco Acquisition Sub, Inc., a direct wholly owned subsidiary of Essex, which we refer to as Merger Sub, and BRE.  On February 5, 2014, Bronco Acquisition Sub, Inc. changed its name to BEX Portfolio, Inc.  Pursuant to the merger agreement, Essex and BRE will combine through a merger of BRE with and into Merger Sub, with Merger Sub surviving the merger.  The combined company, which we refer to as the Combined Company, will retain the name “Essex Property Trust, Inc.” and will continue to trade on the New York Stock Exchange, or NYSE, under the symbol “ESS.” The executive officers of Essex immediately prior to the effective time of the merger will continue to serve as the executive officers of the Combined Company, with Michael J. Schall continuing to serve as the President and Chief Executive Officer of the Combined Company. The obligations of Essex and BRE to effect the merger are subject to the satisfaction or waiver of certain customary conditions set forth in the merger agreement (including the applicable approvals of each company’s stockholders).
 
If the merger is completed pursuant to the merger agreement, each share of BRE common stock outstanding immediately prior to the effective time of the merger will convert into the right to receive (i) 0.2971 shares of Essex common stock and (ii) $12.33 in cash, without interest, which we collectively refer to as the merger consideration, each subject to certain adjustments provided for in the merger agreement and subject to any applicable withholding tax.  As explained in more detail in the joint proxy statement/prospectus filed with a registration statement on Form S-4 filed with the SEC on January 29, 2014, by Essex (as the same may thereafter be amended), the cash amount of the merger consideration will be reduced to the extent a special distribution is authorized and declared to be paid to BRE stockholders of record as of the close of business on the business day immediately prior to the effective time of the merger as a result of any applicable asset sale (as described in the joint proxy statement/prospectus). Essex stockholders will continue to hold their existing shares of Essex common stock. The exchange ratio and cash amount will not be adjusted to reflect changes in the price of Essex common stock or the price of BRE common stock occurring prior to the completion of the merger. Based on the closing price of Essex common stock on the NYSE of $147.70 on December 18, 2013, the last trading date before the announcement of the proposed merger, the merger consideration (based on the value of $43.88 in Essex common stock plus the $12.33 in cash per share) represented approximately $56.21 for each share of BRE common stock.  The value of the merger consideration will fluctuate with changes in the market price of Essex common stock. The cash portion of the merger consideration will be reduced by the amount of any special distribution in connection with or as a result of any applicable asset sale.
Upon completion of the merger, we estimate that continuing Essex stockholders will own approximately 62% of the issued and outstanding common stock of the Combined Company, and former BRE stockholders will own approximately 38% of the issued and outstanding common stock of the Combined Company.

In connection with the proposed merger, Essex and BRE will each hold a special meeting of their respective stockholders.  At the Essex special meeting, Essex stockholders will be asked to vote on (i) a proposal to approve the issuance of Essex common stock to BRE stockholders in the merger and (ii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the issuance of shares of Essex common stock to BRE stockholders in the merger.  At the BRE special meeting, BRE stockholders will be asked to vote on (i) a proposal to approve the merger and the other transactions contemplated by the merger agreement, (ii) an advisory (non-binding) proposal to approve certain compensation that may be paid or become payable to the named executive officers of BRE in connection with the merger, and (iii) a proposal to approve one or more adjournments of the meeting to another date, time or place, if necessary or appropriate, to solicit additional proxies in favor of the proposal to approve the merger and the other transactions contemplated by the merger agreement.
 
The merger agreement may also be terminated prior to the effective time of the merger by either BRE or Essex under certain conditions, including if the merger has not been consummated on or before June 17, 2014.
 
Acquisitions of Real Estate

Acquisitions are an important component of the Company’s business plan, and during 2013, the Company and its co-investments acquired ownership interests in eight communities comprising of 1,472 units for $462.5 million.  The following is a summary of 2013 acquisitions ($ in millions):
 
 
 
 
   
Essex Ownership
 
 
 
   
Purchase
 
Property Name
Location
 
Units
   
Percentage
 
Ownership
 
Date
   
Price
 
Fox Plaza Apartments
San Francisco, CA
   
444
     
100
%
EPLP
   
Q1 2013
   
$
135.0
 
Bennett Lofts (formerly Q Lofts) (1)
San Francisco, CA
   
34
     
100
%
EPLP
   
Q1 2013
     
22.2
 
Annaliese
Seattle, WA
   
56
     
100
%
EPLP
   
Q1 2013
     
19.0
 
Gas Company Lofts
Los Angeles, CA
   
251
     
50
%
Wesco III
   
Q2 2013
     
71.0
 
Regency at Mountain View
Mountain View, CA
   
142
     
50
%
Wesco III
   
Q2 2013
     
42.5
 
Slater 116
Kirkland, WA
   
108
     
100
%
EPLP
   
Q3 2013
     
29.6
 
Domain
San Diego, CA
   
379
     
100
%
EPLP
   
Q4 2013
     
121.0
 
Vox
Seattle, WA
   
58
     
100
%
EPLP
   
Q4 2013
     
22.2
 
Total 2013
   
1,472
         
 
         
$
462.5
 
 
(1) The 147 unit apartment community was acquired in two phases for $96.0 million.  Approximately 75% was acquired in December 2012 with the remainder in January 2013.

Dispositions of Real Estate

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

During 2013, the Company sold three apartment communities, Linden Square, Cambridge, and Brentwood for a total of $57.5 million, resulting in total gains on the transactions of $29.2 million.

During the second quarter 2013, Essex Apartment Value Fund II, L.P. (“Fund II”) sold Morning Run for a total of $26.4 million. In connection with the sale, Fund II incurred a prepayment penalty on debt of which the Company’s pro rata share was $0.2 million. In the third quarter 2013, Fund II sold four properties for gross proceeds of $294.0 million. In connection with the sales in the third quarter, Fund II incurred prepayment penalties on debt of which the Company’s pro rata share was $0.2 million. The total gains on the transactions in 2013 were $146.8 million, of which the Company’s pro-rata share was $38.8 million net of internal disposition costs. The two remaining properties in the Fund II portfolio are expected to be sold in 2014.
Also in 2013, the Company sold a land parcel held for future development located in Palo Alto, California for $9.1 million, resulting in a gain of $1.5 million.

Development Pipeline

The Company defines development projects as new communities that are in various stages of active development, or are in the process of leasing activities prior to stabilization.  As of December 31, 2013, the Company had two consolidated development projects and nine joint venture development projects comprised of 2,501 units for an estimated cost of $1.1 billion, of which $407.0 million remains to be expended.

The Company defines the 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, 2013, the Company had one consolidated predevelopment project comprised of 200 units.  The Company may also acquire land for future development purposes or sale.

The following table sets forth information regarding the Company’s development pipeline:

 
  
 
Essex
   
   
As of 12/31/13 ($ in millions)
 
 
  
 
Ownership
   
   
Incurred
   
Estimated
 
Development Pipeline
Location
 
%
   
Units
   
Project Cost
   
Project Cost(1)
 
Development Projects - Consolidated
 
 
   
   
   
 
The Emme (formerly 64th & Christie)
Emeryville, CA
   
100
%
   
190
   
$
34.1
   
$
61.6
 
The Avery (2)
Los Angeles, CA
   
100
%
   
121
     
2.5
     
37.6
 
Total - Consolidated Development Projects
 
           
311
     
36.6
     
99.2
 
 
 
                               
Development Projects - Joint Venture
 
                               
Epic - Phase II
San Jose, CA
   
55
%
   
289
     
87.1
     
97.3
 
Epic - Phase III
San Jose, CA
   
55
%
   
200
     
28.0
     
96.3
 
Connolly Station
Dublin, CA
   
55
%
   
309
     
88.6
     
94.5
 
The Huxley
West Hollywood, CA
   
50
%
   
187
     
71.8
     
75.0
 
The Dylan
West Hollywood, CA
   
50
%
   
184
     
64.6
     
75.4
 
Mosso I and Mosso II
San Francisco, CA
   
55
%
   
463
     
191.2
     
250.0
 
Park 20 (formerly Elkhorn)
San Mateo, CA
   
55
%
   
197
     
47.8
     
76.1
 
One South Market
San Jose, CA
   
55
%
   
312
     
30.9
     
145.1
 
The Village
Walnut Creek, CA
   
50
%
   
49
     
36.3
     
81.0
 
Total - Joint Venture Development Projects
 
           
2,190
     
646.3
     
990.7
 
 
 
                               
Predevelopment Projects - Consolidated
 
                               
City Centre
Moorpark, CA
   
100
%
   
200
     
11.6
     
11.6
 
Other Projects
various
   
100
%
   
-
     
2.2
     
2.2
 
Total - Predevelopment Projects
 
           
200
     
13.8
     
13.8
 
 
 
                               
Grand Total - Development and Predevelopment Pipeline
 
           
2,701
   
$
696.7
   
$
1,103.7
 

(1) Includes incurred costs and estimated costs to complete these development projects.
(2) The Company invested $1.0 million and has incurred $1.5 million of additional internal costs as part of an agreement to purchase the property upon receipt of certificate of occupancy for total estimated cost of $37.6 million, which is expected in the first quarter of 2014.

In April 2013, the Company stabilized Expo, a 275 unit community in Seattle, Washington with total costs of approximately $66.9 million.  The Company has a 50% interest in this joint venture.

Redevelopment Pipeline

The Company defines 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 units may not be available for rent and, as a result, may have less than stabilized operations.  As of December 31, 2013, the Company had ownership interests in five redevelopment communities aggregating 1,312 apartment units with estimated redevelopment costs of $124.7 million, of which approximately $86.1 million remains to be expended.
Long Term Debt

During 2013, the Company repaid $103.7 million in secured debt including secured mortgage debt totaling $84.3 million at an average interest rate of 5.4% and $19.4 million of tax-exempt bonds.  In addition, the Company repaid $14.2 million of Mello Roos bonds related to one property.  The Company replaced the construction loan on Expo with a seven year, $45.0 million term loan. The loan has a variable interest rate of LIBOR plus 1.50% and in connection with the loan the Company entered into a $45.0 million interest rate swap to fix the rate to 3.7% for the entire seven year period.

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 is payable on May 1st and November 1st of each year, beginning November 1, 2013 (the 2023 Notes).  The 2023 Notes were offered to investors at a price of 99.152% of par value.  The 2023 Notes are general unsecured senior obligations of the Operating Partnership, rank equally in right of payment with all other senior unsecured indebtedness of the Operating Partnership and are fully and unconditionally guaranteed by Essex Property Trust, Inc. The carrying value of the 2023 Notes, net of discount was $297.7 million as of December 31, 2013.

Bank Debt

As of December 31, 2013, Fitch Ratings ("Fitch"), Moody’s Investor Service, and Standard and Poor's (“S&P”) credit agencies rated Essex Property Trust, Inc. and Essex Portfolio, L.P. BBB+/Stable, Baa2/Stable, and BBB/Stable, respectively.

In December 2013, in connection with the BRE merger, the Company obtained committed financing up to $1.0 billion (the “bridge loan”) which is available if needed to fund the cash portion of the purchase price.   The bridge loan facility is structured as a 364-day unsecured loan facility available in a single draw on the closing date of the merger. The company is exploring several alternatives to fund the cash needs of the transaction including asset sales, joint ventures or new financing.

In January 2014, the Company increased the capacity of the unsecured line of credit facility from $600.0 million to $1.0 billion and included an accordion feature pursuant to which the Company could expand to $1.5 billion. This facility matures in December 2017 with one 18-month extension option. The new facility carries an interest rate based on its current credit ratings of LIBOR plus 0.95%.

In January 2014, the Company extended the $25.0 million working capital unsecured line of credit for two additional years and reduced the pricing which carries an interest rate based on a tiered rate structure tied to Fitch and S&P ratings on the credit facility of LIBOR plus 0.95%.

In January 2014, the Company reduced the pricing on its $350.0 million unsecured term loan by 15 basis points to LIBOR plus 1.05%.

Equity Transactions

During 2013, ESS issued 913,344 shares of common stock at an average share price of $152.92 for proceeds of $138.4 million, net of fees and commissions.  During the first quarter of 2014 through February 24, 2014, ESS has issued 462,555 shares of common stock at an average price of $162.97 for proceeds of $74.9 million, net of fees and commissions.  ESS contributed the net proceeds to the Operating Partnership and used the proceeds to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes.

WESCO

In 2011, the Company entered into a 50/50 programmatic joint venture, Wesco I LLC (“Wesco I”), with an institutional partner for a total equity commitment of $300.0 million.  Each partner’s equity commitment was $150.0 million, and Wesco I will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate.  The Company has contributed $150.0 million to Wesco I, and as of December 31, 2013, Wesco I owned nine apartment communities with 2,713 units with an aggregate carrying value of approximately $670 million.  Investments must meet certain criteria to qualify for inclusion in the joint venture and both partners must approve any new acquisitions and material dispositions. The Company records revenue for its asset management, property management, development, and redevelopment services when earned, and promote income when realized, if Wesco I exceeds certain financial return benchmarks.
During 2012, the Company entered into a 50/50 programmatic joint venture, Wesco III LLC (“Wesco III”), with an institutional partner for a total equity commitment from the parties of $120.0 million.  Each partner’s equity commitment is $60.0 million, and Wesco III will utilize debt targeted at approximately 50% of the cost to acquire and improve real estate.  The Company has contributed $39.7 million to Wesco III and, as of December 31, 2013, Wesco III owned three apartment communities with 657 units for an aggregate carrying value of approximately $164 million. Both partners must approve all major decisions including dispositions. The joint venture has an investment period of up to two years.  The Company records revenue for its asset management, property management, development, and redevelopment services when earned, and promote income when realized, if Wesco III exceeds certain financial return benchmarks.

OFFICES AND EMPLOYEES

The Company is headquartered in Palo Alto, California, and has regional offices in Woodland Hills, California; Irvine, California; San Diego, California and Bellevue, Washington.  As of December 31, 2013, the Company had 1,173 employees.

INSURANCE

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 does not have insurance coverage.  Substantially all of the communities are located in areas that are subject to earthquake activity.  The Company has established a wholly owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Through PWI, the Company is self-insured as it relates to earthquake related losses.  Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident.  As of December 31, 2013, PWI has cash and marketable securities of approximately $40 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 which it holds an ownership interest in.

The Company believes it has a proactive approach to its potential earthquake losses.  The Company utilizes third-party seismic consultants for its acquisitions and may perform seismic upgrades to those acquisitions that are determined to have a higher level of potential loss from an earthquake.  The Company utilizes third-party loss models to help to determine its exposure.  The majority of the communities are lower density garden-style apartments which may be less susceptible to material earthquake damage.  The Company will continue to monitor third-party earthquake insurance pricing and conditions and may consider obtaining third-party coverage if it deems it cost effective.

Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, co-payments or losses in excess of applicable insurance coverage and those losses may be material.

COMPETITION

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

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

The Company believes that cash flows generated by its operations, existing cash and marketable securities balances, availability under existing lines of credit, access to capital markets and the ability to generate cash from the disposition of real estate are sufficient to meet all of its reasonably anticipated cash needs during 2014.  As noted above, in connection with the BRE merger, the Company obtained committed financing up to $1.0 billion which is available if needed to fund the cash portion of the purchase price.  The company is exploring several alternatives to fund the cash needs of the transaction including asset sales, joint ventures or new financing.

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.

ENVIRONMENTAL CONSIDERATIONS

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

OTHER MATTERS

Certain Policies of the Company

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

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

Item 1A.  Risk Factors
 
For purposes of this section, the term “stockholders” means the holders of shares of Essex Property Trust, Inc.’s common stock and preferred stock. Set forth below are the risks that we believe are material to Essex Property Trust, Inc.’s stockholders and Essex Portfolio, L.P.’s unit holders. You should carefully consider the following factors in evaluating our company, our properties and our business.
 
Our business, operating results, cash flows and financial condition are subject to various risks and uncertainties, including, without limitation, those set forth below, any one of which could cause the our actual results to vary materially from recent results or from our anticipated future results.
 
Risk Factors Relating to the Proposed Merger with BRE
 
The exchange ratio and the cash consideration will not be adjusted in the event of any change in the stock prices of either Essex or BRE.  Upon the consummation of the merger, each outstanding share of BRE common stock will be converted automatically into the right to receive 0.2971 shares of Essex common stock, with cash paid in lieu of any fractional shares, plus $12.33 in cash, without interest, each subject to certain adjustments provided for in the merger agreement.  The exchange ratio of 0.2971 and cash consideration will not be adjusted for changes in the market prices of either shares of Essex common stock or shares of BRE common stock. Changes in the market price of shares of Essex common stock prior to the merger will affect the market value of the merger consideration that will be paid to BRE shareholders upon completion of the merger. Stock price changes may result from a variety of factors (many of which are beyond the control of Essex and BRE), including the following factors:
market reaction to the announcement of the merger;
changes in the respective businesses, operations, assets, liabilities and prospects of Essex and BRE;
changes in market assessments of the business, operations, financial position and prospects of either company or the Combined Company;
market assessments of the likelihood that the merger will be completed;
interest rates, general market and economic conditions and other factors generally affecting the market prices of Essex common stock and BRE common stock;
federal, state and local legislation, governmental regulation and legal developments in the businesses in which Essex and BRE operate; and
other factors beyond the control of Essex and BRE.
 
The market price of shares of Essex common stock at the closing of the merger may vary from its price on the date the merger agreement was executed and thereafter.  As a result, the market value of the merger consideration represented by the exchange ratio will also vary.
 
Therefore, while the number of shares of Essex common stock to be issued per share of BRE common stock is fixed, Essex stockholders cannot be sure of the market value of the merger consideration that will be paid to BRE stockholders upon completion of the merger.
 
Essex stockholders and unitholders of the Operating Partnership will be diluted by the merger.  The merger will dilute the ownership position of Essex stockholders and unitholders of the Operating Partnership.  Upon completion of the merger, we estimate that continuing Essex stockholders will own approximately 62% of the issued and outstanding shares of Combined Company common stock, and former BRE stockholders will own approximately 38% of the issued and outstanding common stock of the Combined Company.  Consequently, Essex stockholders and unitholders of the Operating Partnership, as a general matter, will have less influence over the management and policies of the Combined Company after the effective time of the merger than they currently exercise over the management and policies of Essex.
 
Failure to complete the merger could negatively impact the stock prices and the future business and financial results of Essex.  If the merger is not completed, the ongoing business of Essex could be adversely affected and Essex will be subject to a variety of risks associated with the failure to complete the merger, including the following:
 
Essex being required, under certain circumstances, to pay to BRE up to $10 million in expense reimbursement;
Essex having to pay certain costs relating to the proposed merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and
diversion of Essex management focus and resources from operational matters and other strategic opportunities while working to implement the merger.
 
If the merger is not completed, these risks could materially affect the business, financial results and stock prices of Essex.
 
The pendency of the merger could adversely affect the business and operations of Essex.  Prior to the effective time of the merger, some tenants or vendors of Essex may delay or defer decisions, which could negatively affect the revenues, earnings, cash flows and expenses of Essex, regardless of whether the merger is completed.  Similarly, current and prospective employees of Essex may experience uncertainty about their future roles with the Combined Company following the merger, which may materially adversely affect the ability of Essex to attract and retain key personnel during the pendency of the merger.  In addition, due to operating restrictions in the merger agreement, Essex may be unable, during the pendency of the merger, to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.
There can be no assurance that Essex will be able to secure the financing necessary to pay the cash portion of the merger consideration on acceptable terms, in a timely manner, or at all.  In connection with the merger, Essex has obtained commitments for up to $1.0 billion in a senior unsecured bridge loan facility to finance the cash portion of the merger consideration.  In addition, Essex is exploring additional alternatives to fund the cash portion of the merger consideration including through existing unsecured credit facilities, asset sales, joint ventures or other financing arrangements.  However, Essex has not entered into a definitive agreement for the debt financing, nor has it secured alternative financing, nor has it entered into a definitive agreement for the potential asset sales (the “Asset Sale”) in connection with the merger.  There can be no assurance that Essex will be able to secure financing to pay the cash portion of the merger consideration on acceptable terms, in a timely manner, or at all.  If Essex is unable to secure such financing, Essex will nonetheless be required to close the merger under the terms of the merger agreement.  In addition, the bridge loan facility expires on April 18, 2014 (with a right to extend up to an additional 30 days in certain circumstances) whereas the merger agreement may not be terminable until June 17, 2014.
 
Risk Factors Relating to the Combined Company Following the Merger
 
If the proposed merger closes, we will face various additional risks.  If the proposed merger closes, the Combined Company (the combination of Essex and BRE pursuant to the merger) will face various additional risks, including, among others, the following:
 
the Combined Company expects to incur substantial expenses related to the merger;
following the merger, the Combined Company may be unable to integrate the businesses of Essex and BRE successfully and realize the anticipated synergies and other benefits of the merger or do so within the anticipated timeframe;
following the merger, the Combined Company may be unable to retain key employees;
the Combined Company’s anticipated level of indebtedness will increase upon completion of the merger and will increase the related risks Essex now faces;
the future results of the Combined Company will suffer if the Combined Company does not effectively manage its expanded operations following the merger;
counterparties to certain significant agreements with Essex or BRE may exercise contractual rights under such agreements in connection with the merger; and
the Combined Company’s joint ventures, including any joint venture entered into in connection with the asset sale (as described in the joint proxy statement/prospectus), assuming the asset sale occurs, could be adversely affected by the Combined Company’s lack of sole decision-making authority, its reliance on its joint venture partner’s financial condition and disputes between the Combined Company and its joint venture partner.
 
Any of these risks could adversely affect the business and financial results of the Combined Company.
 
If the proposed merger closes, there will be additional risks relating to an investment in our common stock.  The results of operations of the Combined Company, as well as the market price of the common stock of the Combined Company, after the merger may be affected by other factors in addition to those currently affecting Essex’s results of operations and the market prices of Essex common stock.  Such factors include:
 
there will be a greater number of shares of the Combined Company common stock outstanding as compared to the number of currently outstanding shares of Essex common stock;
there will be different stockholders;
there will be different assets and capitalizations;
the market price of the Combined Company’s common stock may decline as a result of the merger;
the Combined Company cannot assure you that it will be able to continue paying dividends at or above the rate currently paid by Essex;
the Combined Company may need to incur additional indebtedness in the future;
the Combined Company may incur adverse tax consequences if Essex or BRE has failed or fails to qualify as a REIT for U.S. federal income tax purposes; and
in certain circumstances, even if the Combined Company qualifies as a REIT, it and its subsidiaries may be subject to certain U.S. federal, state, and other taxes, which would reduce the Combined Company’s cash available for distribution to its stockholders.
 
Any of these factors could adversely affect Essex's common stock price and financial results.  Accordingly, the historical market prices and financial results of Essex may not be indicative of these matters for the Combined Company after the merger.
 
The risks set forth in the foregoing risk factors titled "If the proposed merger closes, we will face various additional risks" and "If the proposed merger closes, there will be additional risks relating to an investment in our common stock", and additional risks associated with the merger, are described in more detail under the heading “Risk Factors” in the joint proxy statement/prospectus contained in our Registration Statement on Form S-4, which was filed with the SEC on January 29, 2014. Neither the Form S-4 nor the joint proxy statement/prospectus contained therein is incorporated by reference or constitutes a part of this Annual Report on Form 10-K.
 
In connection with the announcement of the merger agreement, three lawsuits have been filed and are pending as of February 10, 2014, seeking, among other things, to enjoin the merger, and an injunction or other adverse ruling being entered in this lawsuit may prevent the merger from being effective or from becoming effective within the expected timeframe (if at all).
 
Since the announcement of the merger agreement on December 19, 2013, three putative class action and shareholder derivative actions have been filed on behalf of alleged BRE stockholders and/or BRE itself in the Circuit Court for Baltimore City, Maryland, under the following captions: Sutton v. BRE Properties, Inc., et al., No. 24-C-13-008425, filed December 23, 2013; Applegate v. BRE Properties, Inc., et al., No. 24-C-14-00002, filed December 30, 2013; and Lee v. BRE Properties, Inc., et al., No. 24-C-14-00046, filed January 3, 2014.
 
All of these complaints name as defendants BRE, the BRE Board, Essex, and Merger Sub, and allege that the BRE Board breached its fiduciary duties to BRE’s stockholders and/or to BRE itself, and that the merger involves an unfair price, an inadequate sales process, and unreasonable deal protection devices that purportedly preclude competing offers. The complaints further allege that Essex, Merger Sub, and, in some cases, BRE aided and abetted those alleged breaches of duty. The complaints seek injunctive relief, including enjoining or rescinding the merger, and an award of other unspecified attorneys’ and other fees and costs, in addition to other relief.
 
On February 7, 2014, Plaintiffs filed identical, amended complaints in the three pending actions. The amended complaints add allegations that disclosures regarding the proposed merger in the joint proxy statement/prospectus filed with the SEC on January 29, 2014 are inadequate.
 
We cannot assure you as to the outcome of these, or any similar future lawsuits, including the costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation or settlement of these claims. If the plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the merger on the agreed-upon terms, such an injunction may prevent the completion of the merger in the expected time frame, or may prevent it from being completed altogether. Whether or not the plaintiffs’ claims are successful, this type of litigation is often expensive and diverts management’s attention and resources, which could adversely affect the operation of the businesses of BRE and Essex.
Risks Relating to Essex Property Trust, Inc. Regardless of Whether
the Proposed Merger with BRE is Consummated
 
The Company depends on its key personnel.  The Company’s success depends on its ability to attract and retain executive officers, senior officers and company managers.  There is substantial competition for qualified personnel in the real estate industry and the loss of any of the Company’s key personnel could have an adverse effect on the Company.
 
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.  The Company’s strong balance sheet, the debt capacity available on the unsecured line of credit with a bank group and access to the public debt and private placement markets and Fannie Mae and Freddie Mac secured debt financing provides some insulation from volatile markets.  The Company has benefited from borrowing from Fannie Mae and Freddie Mac, and there are no assurances that these entities will lend to the Company in the future.  To the extent that the Company’s access to capital and credit is at a higher cost than the Company has experienced in recent years (reflected in higher interest rates for debt financing or a lower stock price for equity financing) the Company’s ability to make acquisitions, develop communities, obtain new financing, and refinance existing borrowing at competitive rates could be adversely impacted.  For the past two years the Company has primarily issued unsecured debt and repaid secured debt when it has matured to place less reliance on mortgage debt financing.
 
Debt financing has inherent risks.  At December 31, 2013, the Company had approximately $3.0 billion of indebtedness (including $737.0 million of variable rate indebtedness, of which $300.0 million is subject to interest rate swaps effectively fixing the interest rate and $156.9 million is subject to interest rate protection agreements).  The Company is subject to the risks normally associated with debt financing, including the following:
 
cash flow may not be sufficient to meet required payments of principal and interest;
inability to refinance maturing indebtedness on encumbered apartment communities;
inability to comply with debt covenants could cause an acceleration of the maturity date; and
repaying debt before the scheduled maturity date could result in prepayment penalties.
 
The Company may not be able to refinance its indebtedness.  This indebtedness includes secured mortgages, and the communities subject to these mortgages could be foreclosed upon or otherwise transferred to the lender.  This could cause the Company to lose income and asset value.  The Company may be required to refinance the debt at higher interest rates or on terms that may not be as favorable as the terms of existing indebtedness.
 
Debt financing of communities may result in insufficient cash flow to service debt.  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 distribution requirements of the real estate investment trust provisions of the Internal Revenue Code of 1986, as amended.  The Company may obtain additional debt financing in the future through mortgages on some or all of the communities.  These mortgages may be recourse, non-recourse, or cross-collateralized.
 
Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital and capital expenditures, depends on our ability to generate cash in the future.  To a certain extent, our cash flow is subject to general economic, industry, regional, financial, competitive, operating, legislative, regulatory, taxation, and other factors, many of which are beyond our control.
 
As of December 31, 2013, the Company had 49 of its 139 consolidated communities encumbered by debt.  With respect to the 49 communities encumbered by debt, all of them are secured by deeds of trust relating solely to those communities.  The holders of this indebtedness will have rights with respect to these communities and lenders may seek foreclosure of communities which would reduce the Company’s income and net asset value, and its ability to service other debt.
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 lossesPeriodically, the Company has entered into agreements to reduce the risks associated with increases in interest rates, and may continue to do so. Although these agreements may partially protect against rising interest rates, 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 financial institutions that have a current rating of A or higher.
 
Bond compliance requirements may limit income from certain communities.  At December 31, 2013, the Company had approximately $167.6 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.  The Internal Revenue Code and rules and regulations thereunder impose various restrictions, conditions and requirements in order to allow the note holder to exclude interest on qualified bond obligations from gross income for federal income tax purposes.  The Internal Revenue Code also requires that at least 20% of apartment units be made available to residents with gross incomes that do not exceed a specified percentage, generally 50%, of the median income for the applicable family size as determined by the Housing and Urban Development Department of the federal government.  Certain state and local authorities may impose additional rental restrictions.  These restrictions may limit income from the tax-exempt financed communities if the Company is required to lower rental rates to attract residents who satisfy the median income test.  If the Company does not reserve the required number of apartment homes for residents satisfying these income requirements, the tax-exempt status of the bonds may be terminated, the obligations under the bond documents may be accelerated and the Company may be subject to additional contractual liability.
 
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 do not generate sufficient income to meet operating expenses, including debt service and capital expenditures, cash flow and the ability to make distributions to stockholders will be adversely affected.  Income from the communities may be further adversely affected by, among other things, the following factors:
 
the general economic climate;
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 the communities to tenants;
competition from other available housing; and
the Company’s ability to provide for adequate maintenance and insurance.
 
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 (e.g., the Americans with Disabilities Act of 1990 and tax laws).  Real estate investments are relatively illiquid and, therefore, the Company’s ability to vary its portfolio promptly in response to changes in economic or other conditions may be quite limited.
 
National and regional economic environments can negatively impact the Company’s operating results.  During recent years, a confluence of factors has resulted in job losses, turmoil and volatility in the capital markets, and caused a national and global recession.  The Company’s forecast for the national economy assumes growth of the gross domestic product of the national economy and the economies of the western states.  In the event of another recession, the Company could incur reduction in rental rates, occupancy levels, property valuations and increases in operating costs such as advertising and turnover expenses.
Inflation/Deflation may affect rental rates and operating expenses.  Substantial inflationary or deflationary pressures could have a negative effect on rental rates and property operating expenses.
 
Acquisitions of communities 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 is necessary to allow the Company to market an acquired apartment community as originally intended may prove to be inaccurate.  The Company expects to finance future acquisitions, in whole or in part, under various forms of secured or unsecured financing or through the issuance of partnership units by the Operating Partnership or related partnerships or additional equity by the Company.  The use of equity financing, rather than debt, for future developments or acquisitions could dilute the interest of the Company’s existing stockholders.  If the Company finances new acquisitions under existing lines of credit, there is a risk that, unless the Company obtains substitute financing, the Company may not be able to secure further lines of credit for new development or such lines of credit 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.  The Company’s development and redevelopment activities generally entail certain risks, including the following:
 
funds may be expended and management’s time devoted to projects that may not be completed;
construction costs of a project may exceed original estimates possibly making the project economically unfeasible;
projects may be delayed due to, without limitation, adverse weather conditions, labor or material shortage;
occupancy rates and rents at a completed project may be less than anticipated; and
expenses at completed development projects may be higher than anticipated.
 
These risks may reduce the funds available for distribution to the Company’s stockholders.  Further, the development and redevelopment of communities is also subject to the general risks associated with real estate investments.  For further information regarding these risks, please see the risk factor “General real estate investment risks may adversely affect property income and values.”
 
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, 2013, 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, 2013, 82% of the Company’s rental revenues were generated from communities located in California.  This geographic concentration could present risks if local property market performance falls below expectations.  The economic condition of these markets could affect occupancy, property revenues, and expenses, from the communities and their underlying asset values.  The financial results of major local employers also may impact the cash flow and value of certain of the communities.  This could have a negative impact on the Company’s financial condition and operating results, which could affect the Company’s ability to pay expected dividends to its stockholders and the Operating Partnership’s ability to pay expected distributions to unit holders.
 
Competition in the apartment community market may adversely affect operations and the rental demand for the Company’s communities.  There are numerous housing alternatives that compete with the Company’s communities in attracting residents.  These include other apartment communities and single-family homes that are available for rent in the markets in which the communities are located.  If the demand for the Company’s communities is reduced or if competitors develop and/or acquire competing apartment communities, rental rates may drop, which may have a material adverse effect on the Company’s financial condition and results of operations.  The Company also faces competition from other real estate investment trusts, businesses and other entities in the acquisition, development and operation of apartment communities.  This competition may result in an increase in costs and prices of apartment communities that the Company acquires and/or develops.
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:
 
regional, national and global economic conditions;
actual or anticipated variations in the Company’s quarterly operating results or dividends;
changes in the Company’s funds from operations or earnings estimates;
issuances of common stock, preferred stock or convertible debt securities;
publication of research reports about the Company or the real estate industry;
the general reputation of real estate investment trusts and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate based companies);
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;
availability to capital markets and cost of capital;
a change in analyst ratings or the Company’s credit ratings;
terrorist activity may adversely affect the markets in which the Company’s securities trade, possibly increasing market volatility and causing erosion of business and consumer confidence and spending; and
Natural disasters such as earthquakes.
 
Many of the factors listed above are beyond the Company’s control.  These factors may cause the market price of shares of the Company’s common stock to decline, regardless of the Company’s financial condition, results of operations, or business prospects.
 
The Company’s future issuances of common stock, preferred stock or convertible debt securities could adversely affect the market price of the Company’s common stock.  In order to finance the Company’s acquisition and development activities, the Company has issued and sold common stock, preferred stock and convertible debt securities.  For example, during 2013 and 2012, the Company issued and sold 0.9 million and 2.4 million shares of common stock for $138.4 million and $357.7 million, net of fees and commissions, respectively.  The Company may in the future sell further shares of common stock, including pursuant to its equity distribution programs with Cantor Fitzgerald & Co., Barclays Capital Inc., BMO Capital Markets Corp., Liquidnet, Inc., and Mitsubishi UFJ Securities (USA), Inc., and Citigroup Global Markets Inc., and BNP Paribas Securities Corp.  In 2011, the Company issued 2,950,000 shares of 7.125% Series H Cumulative Redeemable Preferred Stock at a price of $25.00 per share for net proceeds of $71.2 million, net of costs and original issuance discounts.
 
In 2013, 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 indentures governing our publicly registered notes contain restrictive covenants that limit our operating flexibility.  The indentures that govern these 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:
 
consummate a merger, consolidation or sale of all or substantially all of our assets; and
incur additional secured and unsecured indebtedness.
The instruments governing 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 publicly registered 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.
 
A downgrade in our investment grade credit rating could materially and adversely affect our business and financial condition.  The Company plans to manage its operations to maintain its investment grade credit rating with a capital structure consistent with its current profile, but there can be no assurance that it will be able to maintain its current credit ratings.  Any downgrades in terms of ratings or outlook by any of the rating agencies could have a material adverse impact on the Company’s cost and availability of capital, which could in turn have a material adverse impact on its financial condition, results of operations and liquidity.
 
The Company’s Chairman is involved in other real estate activities and investments, which may lead to conflicts of interest.  The Company’s Chairman, George M. Marcus is not an employee of the Company, and is involved in other real estate activities and investments, which may lead to conflicts of interest.  Mr. Marcus owns interests in various other real estate-related businesses and investments.  He is the Chairman of the Marcus & Millichap Company (“MMC”), which is a parent company of a diversified group of real estate service, investment and development firms.  Mr. Marcus is also the Co-Chairman of Marcus & Millichap, Inc. (“MMI”), and Mr. Marcus owns a controlling interest in MMI.  MMI is a national brokerage firm listed on the NYSE that underwent its initial public offering in 2013.
 
Mr. Marcus has agreed not to divulge any confidential or proprietary information that may be received by him in his capacity as Chairman of the Company to any of his affiliated companies and that he will absent himself from any and all discussions by the Company Board of Directors regarding any proposed acquisition and/or development of an apartment community where it appears that there may be a conflict of interest with any of his affiliated companies.  Notwithstanding this agreement, Mr. Marcus and his affiliated entities may potentially compete with the Company in acquiring and/or developing apartment communities, which competition may be detrimental to the Company.  In addition, due to such potential competition for real estate investments, Mr. Marcus and his affiliated entities may have a conflict of interest with the Company, which may be detrimental to the interests of the Company’s stockholders.
 
The influence of executive officers, directors and significant stockholders may be detrimental to holders of common stock.  As of December 31, 2013, George M. Marcus, the Chairman of the Company’s Board of Directors, wholly or partially owned 1.6 million shares of common stock (including shares issuable upon exchange of limited partnership interests in the Operating Partnership and certain other partnerships and assuming exercise of all vested options).  This represents approximately 4.3% of the outstanding shares of the Company’s common stock.  Mr. Marcus currently does not have majority control over the Company.  However, he currently has, and likely will continue to have, significant influence with respect to the election of directors and approval or disapproval of significant corporate actions.  Consequently, his influence could result in decisions that do not reflect the interests of all 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.
 
The voting rights of preferred stock may allow holders of preferred stock to impede actions that otherwise benefit holders of common stock.  Essex currently has outstanding shares of 7.125% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”).  In general, the holders of the Company’s outstanding shares of Series H Preferred Stock do not have any voting rights.  However, if full distributions are not made on outstanding Series H Preferred Stock for six quarterly distributions periods, the holders of Series H Preferred Stock, together with holders of other series of preferred stock upon which like voting rights have been conferred, will have the right to elect two additional directors to serve on Essex’s Board of Directors.
These voting rights continue until all distributions in arrears and distributions for the current quarterly period on the Series H Preferred Stock have been paid in full.  At that time, the holders of the Series H Preferred Stock are divested of these voting rights, and the term of office of the directors so elected immediately terminates.
 
While any shares of the Company’s Series H Preferred Stock are outstanding, the Company may not, without the consent of the holders of two-thirds of the outstanding shares of Series H Preferred Stock:
 
authorize or create any class or series of stock that ranks senior to the Series H Preferred Stock with respect to the payment of dividends, rights upon liquidation, dissolution or winding-up of the Company’s business; or
amend, alter or repeal the provisions of the Company’s Charter, including by merger or consolidation, that would materially and adversely affect the rights of the Series H Preferred Stock; provided that in the case of a merger or consolidation, so long as the Series H Preferred Stock remains outstanding with the terms thereof materially unchanged or the holders of shares of Series H Preferred Stock receive shares of stock or other equity securities with rights, preferences, privileges and voting powers substantially similar to that of the Series H Preferred Stock, the occurrence of such merger or consolidation shall not be deemed to materially and adversely affect the rights of the holders of the Series H Preferred Stock.
 
These voting rights of the holders of the Series H Preferred Stock and of other preferred stock may allow such holders to impede or veto actions that would otherwise benefit the holders of the Company’s common stock.
 
The Maryland business combination law may not allow certain transactions between the Company and its affiliates to proceed without compliance with such law.  Under Maryland law, “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.  The law also requires a supermajority stockholder vote 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 Maryland law.  As permitted by the statute, the Board of Directors of the Company irrevocably has elected to exempt any business combination by 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 requirement 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.
 
Anti-takeover provisions contained in the Operating Partnership agreement, charter, bylaws, and certain provisions of Maryland law could delay, defer or prevent a change in control.  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 ability 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 interest of the stockholders or that could otherwise adversely affect the interest of the Company’s stockholders.  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 cannot, without first obtaining the consent of a majority-in-interest of the limited partners in the Operating Partnership, transfer all or any portion of the Company’s general partner interest in the Operating Partnership to another entity.  Such limitations on the Company’s ability to act may result in the Company’s being precluded from taking action that the Board of Directors believes is in the best interests of the Company’s stockholders.  As of December 31, 2013, the limited partners held or controlled approximately 5.4% of the outstanding units of partnership interest in the Operating Partnership, allowing such actions to be blocked by the limited partners.
The Company’s Charter authorizes the issuance of additional shares of common stock or preferred stock and the setting of the preferences, rights and other terms of such preferred stock without the approval of the holders of the common stock.  The Company may establish one or more series of preferred stock that could delay defer or prevent a transaction or a change in control.  Such a transaction might involve a premium price for the Company’s stock or otherwise be in the best interests of the holders of common stock.  Also, such a class of preferred stock could have dividend, voting or other rights that could adversely affect the interest of holders of common stock.
 
The Company’s Charter contains other provisions that may delay, defer or prevent a transaction or a change in control that might be in the best interest of the Company’s stockholders.  The Charter contains ownership provisions limiting the transferability and ownership of shares of capital stock, which may have the effect of delaying, deferring or preventing a transaction or a change in control.  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 Corporations Law restricts the voting rights of shares deemed to be “control shares.” Under the Maryland General Corporations Law, “control shares” are those which, when aggregated with any other shares held by the acquirer, entitle the acquirer to exercise voting power within specified ranges.  Although the Bylaws exempt the Company from the control share provisions of the Maryland General Corporations Law, the 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 Corporations Law not only to control shares which may be acquired in the future, but also to control shares previously acquired.  If the provisions of the Bylaws are amended or eliminated, the control share provisions of the Maryland General Corporations Law could delay, defer or prevent a transaction or change in control that might involve a premium price for the stock or otherwise be in the best interests of the Company’s stockholders.
 
The Company’s Charter and bylaws also contain other provisions that may impede various actions by stockholders without approval of the Company’s board of directors, which in turn may delay, defer or prevent a transaction, including a change in control.  Those provisions include:
 
directors may be removed, without cause, only upon a two-thirds vote of stockholders, and with cause, only upon a majority vote of stockholders;
the Company’s board can fix the number of directors and fill vacant directorships upon the vote of a majority of the directors;
stockholders must give advance notice to nominate directors or propose business for consideration at a stockholders’ meeting; and
for stockholders to call a special meeting, the meeting must be requested by not less than a majority of all the votes entitled to be cast at the meeting.
 
The Company’s joint ventures and joint ownership of communities and partial interests in corporations and limited partnerships could limit the Company’s ability to control such communities and partial interests.  Instead of purchasing and developing apartment communities directly, the Company has invested and may continue to invest in joint ventures.  Joint venture partners often have shared control over the development and operation of the joint venture assets.  Therefore, it is possible that a joint venture partner in an investment might become bankrupt, or have economic or business interests or goals that are inconsistent with the Company’s business interests or goals, or be in a position to take action contrary to the Company’s instructions or requests, or its policies or objectives.  Consequently, a joint venture partners’ actions might subject property owned by the joint venture to additional risk.  Although the Company seeks to maintain sufficient influence over any joint venture to achieve its objectives, the Company may be unable to take action without its joint venture partners’ approval, or joint venture partners could take actions binding on the joint venture without its consent.  A joint venture partner might fail to approve decisions that are in the Company’s best interest.  Should a joint venture partner become bankrupt, the Company could become liable for such partner’s share of joint venture liabilities.  In some instances, the Company and the joint venture partner may each have the right to trigger a buy-sell arrangement, which could cause the Company to sell its interest, or acquire a partner’s interest, at a time when the Company otherwise would have not have initiated such a transaction.
From time to time, the Company, through the Operating Partnership, invests in corporations, limited partnerships, limited liability companies or other entities that have been formed for the purpose of acquiring, developing, financing, or managing real property.  In certain circumstances, the Operating Partnership’s interest in a particular entity may be less than a majority of the outstanding voting interests of that entity.  Therefore, the Operating Partnership’s ability to control the daily operations of such an entity may be limited.  Furthermore, the Operating Partnership may not have the power to remove a majority of the board of directors (in the case of a corporation) or the general partner or partners (in the case of a limited partnership) of such an entity in the event that its operations conflict with the Operating Partnership’s objectives.  The Operating Partnership may not be able to dispose of its interests in such an entity.  In the event that such an entity becomes insolvent, the Operating Partnership may lose up to its entire investment in and any advances to the entity.  The Company may also incur losses if any guarantees were made by the Company.  The Company has, and in the future may, enter into transactions that could require the Company to pay the tax liabilities of partners, which contribute assets into joint ventures or the Operating Partnership, in the event that certain taxable events, which are within the Company’s control, occur.  Although the Company plans to hold the contributed assets or defer recognition of gain on sale pursuant to the like-kind exchange rules under Section 1031 of the Internal Revenue 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.
 
Investments in mortgages and other real estate securities could affect the Company’s ability to make distributions to stockholders.  The Company may invest in securities related to real estate, which could adversely affect the Company’s ability to make distributions to stockholders.  The Company may purchase securities issued by entities which own real estate and invest in mortgages or unsecured debt obligations.  These mortgages may be first, second or third mortgages that may or may not be insured or otherwise guaranteed.  In general, investments in mortgages include the following risks:
 
that the value of mortgaged property may be less than the amounts owed, causing realized or unrealized losses;
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;
that interest rates payable on the mortgages may be lower than the Company’s cost of funds; and
in the case of junior mortgages, that foreclosure of a senior mortgage could eliminate the junior mortgage.
 
If any of the above were to occur, it could adversely affect cash flows from operations and the Company’s ability to make expected dividends to stockholders and the Operating Partnership’s ability to make expected distributions to unit holders.
 
Compliance with laws benefiting disabled persons may require the Company to make significant unanticipated expenditures or impact the Company’s investment strategy.  A number of federal, state and local laws (including the Americans with Disabilities Act) and regulations exist that may require modifications to existing buildings or restrict certain renovations by requiring improved access to such buildings by disabled persons and may require other structural features which add to the cost of buildings under construction.  Legislation or regulations adopted in the future may impose further burdens or restrictions on the Company with respect to improved access by disabled persons.  The costs of compliance with these laws and regulations may be substantial.
 
The Company’s Portfolio may have environmental liabilities.  Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on, in, to or migrating from such property.  Such laws often impose liability without regard as to whether the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances.  The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s or operator’s ability to sell or rent such property or to borrow using such property as collateral.  Persons exposed to such substances, either through soil vapor or ingestion of the substances may claim personal injury damages.  Persons who arrange for the disposal or treatment of hazardous or toxic substances or wastes also may be liable for the costs of removal or remediation of such substances at the disposal or treatment facility to which such substances or wastes were sent, whether or not such facility is owned or operated by such person.  Certain environmental laws impose liability for release of asbestos-containing materials (“ACMs”) into the air, and third parties may seek recovery from owners or operators of apartment communities for personal injury associated with ACMs.  In connection with the ownership (direct or indirect), operation, management and development of apartment communities, the Company could be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and costs related to injuries of persons and property.
Investments in real property create a potential for environmental liabilities on the part of the owner of such real property.  The Company carries certain limited insurance coverage for this type of environmental risk.  The Company has conducted environmental studies which revealed the presence of groundwater contamination at certain communities.  Such contamination at certain of these apartment communities was reported to have migrated on-site from adjacent industrial manufacturing operations.  The former industrial users of the communities were identified as the source of contamination.  The environmental studies noted that certain communities are located adjacent to or possibly down gradient from sites with known groundwater contamination, the lateral limits of which may extend onto such apartment communities.  The environmental studies also noted that at certain of these apartment communities, contamination existed because of the presence of underground fuel storage tanks, which have been removed.  In general, in connection with the ownership, operation, financing, management and development of apartment communities, the Company may be potentially liable for removal or clean-up costs, as well as certain other costs and environmental liabilities.  The Company may also be subject to governmental fines and costs related to injuries to persons and property.
 
There have been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate.  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 matters.  Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  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 residents of the property.  The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases.  There can be no assurance that the Company has identified and responded to all mold occurrences.  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, 2013, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.
 
California has enacted legislation commonly referred to as “Proposition 65” requiring that “clear and reasonable” warnings be given to consumers who are exposed to chemicals known to the State of California to cause cancer or reproductive toxicity, including tobacco smoke.  Although the Company has sought to comply with Proposition 65 requirements, the Company cannot assure you that the Company will not be adversely affected by litigation relating to Proposition 65.
 
Methane gas is a naturally-occurring gas that is commonly found below the surface in several areas, particularly in the Southern California coastal areas.  Methane is a non-toxic gas, but can be ignitable in confined spaces.  Although naturally-occurring, methane gas is not regulated at the state or federal level, however some local governments, such as the County of Los Angeles, have imposed requirements that new buildings install detection systems in areas where methane gas is known to be located.  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.  The Company cannot assure you that it will not be adversely affected by costs related to its compliance with methane or radon gas related requirements or litigation costs related to methane or radon gas.
 
The Company has almost no indemnification agreements from third parties for potential environmental clean-up costs at its communities.  The Company has no way of determining at this time the magnitude of any potential liability to which it may be subject arising out of environmental conditions or violations with respect to communities formerly owned by the Company.  No assurance can be given that existing environmental studies with respect to any of the communities reveal all environmental liabilities, that any prior owner or operator of an apartment community did not create any material environmental condition not known to the Company, or that a material environmental condition does not exist as to any one or more of the communities.  The Company has limited insurance coverage for the types of environmental liabilities described above.
The Company may incur general uninsured losses.  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 does not have insurance coverage.  Substantially all of the communities are located in areas that are subject to earthquake activity.  The Company has established a wholly owned insurance subsidiary, Pacific Western Insurance LLC (“PWI”).  Through PWI, the Company is self-insured as it relates to earthquake related losses.  Additionally, since January 2008, PWI has provided property and casualty insurance coverage for the first $5.0 million of the Company’s property level insurance claims per incident.  As of December 31, 2013, PWI has cash and marketable securities of approximately $40 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 which it holds an ownership interest in.
 
Although the Company may carry insurance for potential losses associated with its communities, employees, residents, and compliance with applicable laws, it may still incur losses due to uninsured risks, deductibles, copayments or losses in excess of applicable insurance coverage and those losses may be material.  In the event of a substantial loss, insurance coverage may not be able to cover the full replacement cost of the Company’s lost investment, or the insurance carrier may become insolvent and not be able to cover the full amount of the insured losses.  Changes in building codes and ordinances, environmental 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.
 
Adverse changes in laws may affect our liability relating to our properties and our operations.  Increases in real estate taxes and income, service and transfer taxes cannot always be passed through to residents or users in the form of higher rents, and may adversely affect our cash available for distribution and our ability to make distributions to our shareholders and pay amounts due on our debt.  Similarly, changes in laws increasing the potential liability for 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, which could have a material adverse effect on us and our ability to make distributions to our shareholders and pay amounts due on our debt.  In addition, future enactment of rent control or rent stabilization laws or other laws regulating multifamily housing may reduce rental revenues or increase operating costs.
 
Changes in the Company’s financing policy may lead to higher levels of indebtedness.  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.  The Company’s organizational documents do not limit the amount or percentage of indebtedness that may be incurred.  If the Company changed this policy, the Company could incur more debt, resulting in an increased risk of default on the Company’s obligations and the obligations of the Operating Partnership, and an increase in debt service requirements that could adversely affect the Company’s financial condition and results of operations.  Such increased debt could exceed the underlying value of the communities.
 
The Company is subject to various tax risks.  ESS has elected to be taxed as a REIT under the Internal Revenue Code.  ESS’s qualification as a REIT requires it to satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Internal Revenue Code provisions for which there are only limited judicial or administrative interpretations, and involves the determination of various factual matters and circumstances not entirely within the Company’s control.  Although ESS intends that its current organization and method of operation enable it to qualify as a REIT, it cannot assure you that it so qualifies or that it will be able to remain so qualified in the future.  Future legislation, new regulations, administrative interpretations or court decisions (any of which could have retroactive effect) could adversely affect ESS’s ability to qualify as a REIT or adversely affect the Company’s stockholders.  If ESS fails to qualify as a REIT in any taxable year, the Company would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on the Company’s taxable income at corporate rates, and ESS would not be allowed to deduct dividends paid to its shareholders in computing its taxable income.  ESS may also be disqualified from treatment as a REIT for the four taxable years following the year in which ESS failed to qualify.  The additional tax liability would reduce its net earnings available for investment or distribution to stockholders, and ESS would no longer be required to make distributions to its stockholders.  Even if ESS continues to qualify as a REIT, it will continue to be subject to certain federal, state and local taxes on ESS’s  income and property.
The Company has established several taxable REIT subsidiaries (“TRSs”).  Despite its qualification as a REIT, the Company’s 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 ESS’s REIT qualification, it cannot provide assurance that it will successfully achieve that result.  Furthermore, it may be subject to a 100% penalty tax, or its TRSs may be denied deductions, to the extent its dealings with its TRSs are not deemed to be arm’s length in nature.  No assurances can be given that the Company’s dealings with its TRSs will be arm’s length in nature.
 
From time to time, the Company may transfer or otherwise dispose of some of its Properties.  Under the Internal Revenue Code, 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 would 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 are prohibited transactions.  However, whether property is held for investment purposes is a question of fact that 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 future gains on real property sales may be jeopardized.  Income from a prohibited transaction might adversely affect ESS’s ability to satisfy the income tests for qualification as a REIT for U.S. federal income tax purposes.  Therefore, no assurances can be given that ESS will be able to satisfy the income tests for qualification as a REIT if the Company transferred or disposed of property in a transaction treated as a prohibited transaction.
 
Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend income rates (the current maximum rate is 20%) applicable to individual U.S. stockholders who receive dividends from taxable subchapter C corporations.  With limited exceptions, dividends received by individual U.S. stockholders from the Company that are not designated as capital gain dividends will continue to be taxed at rates applicable to ordinary income, which are as high as 39.6%.  This may cause investors to view REIT investments to be less attractive than investments in non-REIT corporations, which in turn may adversely affect the value of stock in REITs, including the Company’s stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company’s Portfolio as of December 31, 2013 (including communities owned by unconsolidated joint ventures, but excluding communities underlying preferred equity investments) was comprised of 164 apartment communities (comprising 34,079 apartment units), of which 15,725 units are located in Southern California, 10,494 units are located in the San Francisco Bay Area, and 7,860 units are located in the Seattle metropolitan area.  The Company’s apartment communities accounted for 97.5% of the Company’s revenues for the year ended December 31, 2013.

Occupancy Rates

Financial occupancy is defined as the percentage resulting from dividing actual rental revenue by total possible rental revenue.  When calculating actual rents for occupied units and market rents for vacant units, delinquencies and concessions are not taken into account.  Total possible rental revenue represents the value of all apartment units, with occupied units valued at contractual rental rates pursuant to leases and vacant units valued at estimated market rents.   The Company believes that financial occupancy is a meaningful measure of occupancy because it considers the value of each vacant unit at its estimated market rate.  Financial occupancy may not completely reflect short-term trends in physical occupancy and financial occupancy rates as disclosed by other REITs may not be comparable to the Company’s calculation of financial occupancy.  Market rates are determined using a variety of factors such as effective rental rates at the property based on recently signed leases and asking rates for comparable properties in the market.  The recently signed effective rates at the property are used as the starting point in the determination of the market rates of vacant units.  The Company then increases or decreases these rates based on the supply and demand in the apartment community’s market.  The Company will check the reasonableness of these rents based on its position within the market and compare the rents against the asking rents by comparable properties in the market.
For communities that are development properties in lease-up without stabilized occupancy figures, the Company believes the physical occupancy rate is the appropriate performance metric.  While a community is in the lease-up phase, the Company’s primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives, and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy.

Communities

The Company’s communities are primarily suburban garden-style communities and town homes comprising multiple clusters of two and three-story buildings situated on three to fifteen acres of land.  As of December 31, 2013, the Company’s communities include 113 garden-style, 46 mid-rise, and 5 high-rise communities.  The communities have an average of approximately 208 units, with a mix of studio, one, two and some three-bedroom units.  A wide variety of amenities are available at the Company’s communities, including covered parking, fireplaces, swimming pools, clubhouses with fitness facilities, volleyball and playground areas and tennis courts.
 
The Company hires, trains and supervises on-site service and maintenance personnel.  The Company believes that the following primary factors enhance the Company’s ability to retain tenants:
 
· located near employment centers;
· attractive communities that are well maintained; and
 
·
proactive customer service.

Commercial Buildings

The Company’s corporate headquarters is located in two office buildings with approximately 31,900 square feet located at 925/935 East Meadow Drive, Palo Alto, California.   The Company owns an office building with approximately 110,000 square feet located in Irvine, California, of which the Company occupies approximately 7,150 square feet at December 31, 2013.  The Company owns Essex-Hollywood, a 35,000 square foot commercial building and a 139,000 square foot retail site in Santa Clara, California as future development sites that are currently 100% leased.

The following tables describe the Company’s Portfolio as of December 31, 2013. The first table describes the Company’s communities and the second table describes the Company’s other real estate assets.   (See Note 7 of the Company’s consolidated financial statements for more information about the Company’s secured mortgage debt and Schedule III for a list of secured mortgage loans related to the Company’s Portfolio.)
 
 
 
 
 
 
Rentable
 
 
 
 
 
 
 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Units
 
Footage
 
Built
 
Acquired
 
Occupancy(2)
Southern California
 
 
 
 
 
 
 
 
 
 
 
 
Alpine Village
 
Alpine, CA
 
301
 
254,400
 
1971
 
2002
 
97%
Anavia
 
Anaheim, CA
 
250
 
312,343
 
2009
 
2010
 
96%
Barkley, The(3)(4)
 
Anaheim, CA
 
161
 
139,800
 
1984
 
2000
 
97%
Bonita Cedars
 
Bonita, CA
 
120
 
120,800
 
1983
 
2002
 
97%
Camarillo Oaks
 
Camarillo, CA
 
564
 
459,000
 
1985
 
1996
 
96%
Camino Ruiz Square
 
Camarillo, CA
 
160
 
105,448
 
1990
 
2006
 
98%
Mesa Village
 
Clairemont, CA
 
133
 
43,600
 
1963
 
2002
 
97%
Regency at Encino
Encino, CA
 
75
 
78,487
 
1989
 
2009
 
97%
Valley Park(4)
 
Fountain Valley, CA
 
160
 
169,700
 
1969
 
2001
 
98%
Capri at Sunny Hills(4)
 
Fullerton, CA
 
100
 
128,100
 
1961
 
2001
 
94%
Haver Hill(5)
 
Fullerton, CA
 
264
 
224,130
 
1973
 
2012
 
94%
Wilshire Promenade
 
Fullerton, CA
 
149
 
128,000
 
1992
 
1997
 
96%
Montejo(4)
 
Garden Grove, CA
 
124
 
103,200
 
1974
 
2001
 
96%
CBC Apartments
 
Goleta, CA
 
148
 
91,538
 
1962
 
2006
 
95%
The Sweeps
 
Goleta, CA
 
91
 
88,370
 
1967
 
2006
 
95%
416 on Broadway
 
Glendale, CA
 
115
 
126,782
 
2009
 
2010
 
97%
Hampton Court
 
Glendale, CA
 
83
 
71,500
 
1974
 
1999
 
97%
Hampton Place
 
Glendale, CA
 
132
 
141,500
 
1970
 
1999
 
97%
Devonshire
 
Hemet, CA
 
276
 
207,200
 
1988
 
2002
 
91%
Huntington Breakers
 
Huntington Beach, CA
 
342
 
241,700
 
1984
 
1997
 
96%
The Huntington
 
Huntington Beach, CA
 
276
 
202,256
 
1975
 
2012
 
96%
Axis 2300
 
Irvine, CA
 
115
 
170,714
 
2010
 
2010
 
96%
Hillsborough Park
 
La Habra, CA
 
235
 
215,500
 
1999
 
1999
 
97%
Trabuco Villas
 
Lake Forest, CA
 
132
 
131,000
 
1985
 
1997
 
97%
Madrid Apartments(6)
 
Mission Viejo, CA
 
230
 
228,099
 
2000
 
2012
 
96%
Marbrisa
 
Long Beach, CA
 
202
 
122,800
 
1987
 
2002
 
96%
Pathways
 
Long Beach, CA
 
296
 
197,700
 
1975(7)
 
1991
 
95%
Belmont Station
 
Los Angeles, CA
 
275
 
225,000
 
2008
 
2008
 
96%
Bellerive
 
Los Angeles, CA
 
63
 
79,296
 
2011
 
2011
 
98%
Bunker Hill
 
Los Angeles, CA
 
456
 
346,600
 
1968
 
1998
 
95%
Cochran Apartments
 
Los Angeles, CA
 
58
 
51,400
 
1989
 
1998
 
97%
Kings Road
 
Los Angeles, CA
 
196
 
132,100
 
1979
 
1997
 
94%
Gas Company Lofts(5)
Los Angeles, CA
 
251
 
226,666
 
2004
 
2013
 
94%
Marbella, The
 
Los Angeles, CA
 
60
 
50,108
 
1991
 
2005
 
97%
Pacific Electric Lofts(6)
 
Los Angeles, CA
 
314
 
277,980
 
2006
 
2012
 
96%
Park Catalina
 
Los Angeles, CA
 
90
 
72,864
 
2002
 
2012
 
97%
Park Place
 
Los Angeles, CA
 
60
 
48,000
 
1988
 
1997
 
97%
Santee Court
 
Los Angeles, CA
 
165
 
132,040
 
2004
 
2010
 
95%
Santee Village
 
Los Angeles, CA
 
73
 
69,817
 
2011
 
2010
 
95%
Windsor Court
 
Los Angeles, CA
 
58
 
46,600
 
1988
 
1997
 
97%
Marina City Club(8)
 
Marina Del Rey, CA
 
101
 
127,200
 
1971
 
2004
 
96%
Mirabella
 
Marina Del Rey, CA
 
188
 
176,800
 
2000
 
2000
 
96%
Mira Monte
 
Mira Mesa, CA
 
355
 
262,600
 
1982
 
2002
 
96%
Hillcrest Park
 
Newbury Park, CA
 
608
 
521,900
 
1973
 
1998
 
97%
Fairways(9)
 
Newport Beach, CA
 
74
 
107,100
 
1972
 
1999
 
94%
Muse
 
North Hollywood, CA
 
152
 
135,292
 
2011
 
2011
 
97%
Country Villas
 
Oceanside, CA
 
180
 
179,700
 
1976
 
2002
 
96%
Mission Hills
 
Oceanside, CA
 
282
 
244,000
 
1984
 
2005
 
97%
Mariners Place
 
Oxnard, CA
 
105
 
77,200
 
1987
 
2000
 
98%
Monterey Villas
 
Oxnard, CA
 
122
 
122,100
 
1974
 
1997
 
98%
Tierra Vista
 
Oxnard, CA
 
404
 
387,100
 
2001
 
2001
 
96%
Arbors Parc Rose(6)
 
Oxnard, CA
 
373
 
503,196
 
2001
 
2011
 
95%
Monterra del Mar
 
Pasadena, CA
 
123
 
74,400
 
1972
 
1997
 
96%
Monterra del Rey
 
Pasadena, CA
 
84
 
73,100
 
1972
 
1999
 
96%
Monterra del Sol
 
Pasadena, CA
 
85
 
69,200
 
1972
 
1999
 
96%
Villa Angelina(4)
 
Placentia, CA
 
256
 
217,600
 
1970
 
2001
 
97%
 
 
 
 
 
 
 
 
 
 
 
 
(continued)

 
 
 
 
 
 
Rentable
 
 
 
 
 
 
 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Units
 
Footage
 
Built
 
Acquired
 
Occupancy(2)
Southern California (continued)
 
 
 
 
 
 
 
 
 
 
 
 
Fountain Park
 
Playa Vista, CA
 
705
 
608,900
 
2002
 
2004
 
97%
Highridge(4)
 
Rancho Palos Verdes, CA
255
 
290,200
 
1972(10)
 
1997
 
94%
CentrePointe
 
San Diego, CA
 
224
 
126,700
 
1974(11)
 
1997
 
90%
Summit Park
 
San Diego, CA
 
300
 
229,400
 
1972
 
2002
 
97%
Domain
 
San Diego, CA
 
379
 
345,044
 
2013
 
2013
 
82%
Vista Capri - North
 
San Diego, CA
 
106
 
51,800
 
1975
 
2002
 
97%
Essex Skyline at MacArthur Place (12)
 
Santa Ana, CA
 
349
 
512,791
 
2008
 
2012
 
95%
Fairhaven(4)
 
Santa Ana, CA
 
164
 
135,700
 
1970
 
2001
 
97%
Hope Ranch Collection
 
Santa Barbara, CA
 
108
 
126,700
 
1965&73
 
2007
 
97%
Hidden Valley(13)
 
Simi Valley, CA
 
324
 
310,900
 
2004
 
2004
 
96%
Meadowood
 
Simi Valley, CA
 
320
 
264,500
 
1986
 
1996
 
97%
Shadow Point
 
Spring Valley, CA
 
172
 
131,200
 
1983
 
2002
 
95%
Coldwater Canyon
 
Studio City, CA
 
39
 
34,125
 
1979
 
2007
 
97%
Allegro
 
Valley Village, CA
 
97
 
127,812
 
2010
 
2010
 
98%
Lofts at Pinehurst, The
 
Ventura, CA
 
118
 
71,100
 
1971
 
1997
 
97%
Pinehurst(14)
 
Ventura, CA
 
28
 
21,200
 
1973
 
2004
 
97%
Woodside Village
 
Ventura, CA
 
145
 
136,500
 
1987
 
2004
 
97%
Walnut Heights
 
Walnut, CA
 
163
 
146,700
 
1964
 
2003
 
96%
Reveal(6)
 
Woodland Hills, CA
 
438
 
414,892
 
2010
 
2011
 
95%
Avondale at Warner Center
 
Woodland Hills, CA
 
446
 
331,000
 
1970(15)
 
1997
 
97%
 
 
 
 
15,725
 
13,957,790
 
 
 
 
 
96%
Northern California
 
 
 
 
 
 
 
 
 
 
 
 
Belmont Terrace
 
Belmont, CA
 
71
 
72,951
 
1974
 
2006
 
97%
Davey Glen(16)
 
Belmont, CA
 
69
 
65,974
 
1962
 
2006
 
96%
Fourth and U
 
Berkeley, CA
 
171
 
146,255
 
2010
 
2010
 
96%
Commons, The
 
Campbell, CA
 
264
 
153,168
 
1973
 
2010
 
98%
Pointe at Cupertino, The
 
Cupertino, CA
 
116
 
135,200
 
1963(17)
 
1998
 
93%
Stevenson Place
 
Fremont, CA
 
200
 
146,200
 
1971
 
1983
 
96%
Boulevard
 
Fremont, CA
 
172
 
131,200
 
1978(18)
 
1996
 
97%
Briarwood(6)
 
Fremont, CA
 
160
 
111,160
 
1975
 
2011
 
98%
The Woods(6)
 
Fremont, CA
 
160
 
105,280
 
1978
 
2011
 
98%
City View
 
Hayward, CA
 
572
 
462,400
 
1975(19)
 
1998
 
97%
Alderwood Park(16)
 
Newark, CA
 
96
 
74,624
 
1987
 
2006
 
97%
Bridgeport
 
Newark, CA
 
184
 
139,000
 
1987(20)
 
1987
 
96%
Regency at Mountain View(5)
Mountain View, CA
 
142
 
127,600
 
1970
 
2013
 
93%
The Grand
 
Oakland, CA
 
243
 
205,026
 
2009
 
2009
 
97%
San Marcos
 
Richmond, CA
 
432
 
407,600
 
2003
 
2003
 
97%
Mt. Sutro
 
San Francisco, CA
 
99
 
64,000
 
1973
 
2001
 
93%
Park West
 
San Francisco, CA
 
126
 
90,060
 
1958
 
2012
 
92%
Fox Plaza
 
San Francisco, CA
 
444
 
230,017
 
1968
 
2013
 
94%
Bennett Lofts
 
San Francisco, CA
 
147
 
184,607
 
2004
 
2012
 
81%
Epic, Phase I(21)
San Jose, CA
 
280
 
249,080
 
2013
 
2013
 
49%
101 San Fernando
 
San Jose, CA
 
323
 
296,078
 
2001
 
2010
 
96%
Willow Lake
 
San Jose, CA
 
508
 
471,744
 
1989
 
2012
 
95%
Bella Villagio
 
San Jose, CA
 
231
 
227,511
 
2004
 
2010
 
97%
Carlyle, The
 
San Jose, CA
 
132
 
129,200
 
2000
 
2000
 
98%
Esplanade
 
San Jose, CA
 
278
 
279,000
 
2002
 
2004
 
97%
Waterford, The
 
San Jose, CA
 
238
 
219,600
 
2000
 
2000
 
97%
Hillsdale Garden
 
San Mateo, CA
 
697
 
611,505
 
1948
 
2006
 
97%
Bel Air
 
San Ramon, CA
 
462
 
391,000
 
1988/2000
 
1997
 
95%
Canyon Oaks
 
San Ramon, CA
 
250
 
237,894
 
2005
 
2007
 
97%
Foothill Gardens
 
San Ramon, CA
 
132
 
155,100
 
1985
 
1997
 
95%
Mill Creek at Windermere
 
San Ramon, CA
 
400
 
381,060
 
2005
 
2007
 
97%
Twin Creeks
 
San Ramon, CA
 
44
 
51,700
 
1985
 
1997
 
95%
1000 Kiely
 
Santa Clara, CA
 
121
 
128,486
 
1971
 
2011
 
93%
Le Parc Luxury Apartments
 
Santa Clara, CA
 
140
 
113,200
 
1975
 
1994
 
97%
Marina Cove(22)
 
Santa Clara, CA
 
292
 
250,200
 
1974(23)
 
1994
 
94%
Riley Square(6)
 
Santa Clara, CA
 
156
 
126,900
 
1972
 
2012
 
96%
Chestnut Street
 
Santa Cruz, CA
 
96
 
87,640
 
2002
 
2008
 
94%
Harvest Park
 
Santa Rosa, CA
 
104
 
116,628
 
2004
 
2007
 
96%
Bristol Commons
 
Sunnyvale, CA
 
188
 
142,600
 
1989
 
1997
 
97%
 
 
 
 
 
 
 
 
 
 
 
 
(continued)


 
 
 
 
 
 
Rentable
 
 
 
 
 
 
 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Communities (1)
 
Location
 
Units
 
Footage
 
Built
 
Acquired
 
Occupancy(2)
Northern California (continued)
 
 
 
 
 
 
 
 
 
 
 
 
Brookside Oaks(4)
 
Sunnyvale, CA
 
170
 
119,900
 
1973
 
2000
 
95%
Magnolia Lane(24)
 
Sunnyvale, CA
 
32
 
31,541
 
2001
 
2007
 
94%
Magnolia Square(4)
 
Sunnyvale, CA
 
156
 
110,824
 
1969
 
2007
 
94%
Montclaire, The
 
Sunnyvale, CA
 
390
 
294,100
 
1973(25)
 
1988
 
97%
Reed Square
 
Sunnyvale, CA
 
100
 
95,440
 
1970
 
2012
 
97%
Summerhill Park
 
Sunnyvale, CA
 
100
 
78,500
 
1988
 
1988
 
98%
Windsor Ridge
 
Sunnyvale, CA
 
216
 
161,800
 
1989
 
1989
 
97%
Via
 
Sunnyvale, CA
 
284
 
309,421
 
2011
 
2011
 
97%
Vista Belvedere
 
Tiburon, CA
 
76
 
78,300
 
1963
 
2004
 
93%
Tuscana
 
Tracy, CA
 
30
 
29,088
 
2007
 
2007
 
100%
 
 
 
 
10,494
 
9,027,362
 
 
 
 
 
96%
Seattle, Washington Metropolitan Area
 
 
 
 
 
 
 
 
 
 
 
 
Cedar Terrace
 
Bellevue, WA
 
180
 
174,200
 
1984
 
2005
 
97%
Courtyard off Main
 
Bellevue, WA
 
109
 
108,388
 
2000
 
2010
 
96%
Emerald Ridge
 
Bellevue, WA
 
180
 
144,000
 
1987
 
1994
 
97%
Foothill Commons
 
Bellevue, WA
 
388
 
288,300
 
1978(26)
 
1990
 
95%
Palisades, The
 
Bellevue, WA
 
192
 
159,700
 
1977
 
1990
 
97%
Sammamish View
 
Bellevue, WA
 
153
 
133,500
 
1986
 
1994
 
97%
Woodland Commons
 
Bellevue, WA
 
302
 
220,066
 
1978(27)
 
1990
 
96%
Canyon Pointe
 
Bothell, WA
 
250
 
210,400
 
1990
 
2003
 
97%
Inglenook Court
 
Bothell, WA
 
224
 
183,600
 
1985
 
1994
 
96%
Salmon Run at Perry Creek
 
Bothell, WA
 
132
 
117,100
 
2000
 
2000
 
98%
Stonehedge Village
 
Bothell, WA
 
196
 
214,800
 
1986
 
1997
 
97%
Highlands at Wynhaven
 
Issaquah, WA
 
333
 
424,674
 
2000
 
2008
 
95%
Park Hill at Issaquah
 
Issaquah, WA
 
245
 
277,700
 
1999
 
1999
 
97%
Wandering Creek
 
Kent, WA
 
156
 
124,300
 
1986
 
1995
 
97%
Ascent
 
Kirkland, WA
 
90
 
75,840
 
1988
 
2012
 
95%
Bridle Trails
 
Kirkland, WA
 
108
 
99,700
 
1986(28)
 
1997
 
96%
Corbella at Juanita Bay
 
Kirkland, WA
 
169
 
103,339
 
1978
 
2010
 
96%
Evergreen Heights
 
Kirkland, WA
 
200
 
188,300
 
1990
 
1997
 
96%
Slater 116
 
Kirkland, WA
 
108
 
81,415
 
2013
 
2013
 
60%
Montebello
 
Kirkland, WA
 
248
 
272,734
 
1996
 
2012
 
97%
Laurels at Mill Creek
 
Mill Creek, WA
 
164
 
134,300
 
1981
 
1996
 
97%
The Elliot at Mukilteo(4)
 
Mukilteo, WA
 
301
 
245,900
 
1981
 
1997
 
94%
Castle Creek
 
Newcastle, WA
 
216
 
191,900
 
1997
 
1997
 
96%
Delano/Bon Terra
 
Redmond, WA
 
126
 
116,340
 
2011/2005
 
2011/2012
 
97%
Elevation
 
Redmond, WA
 
157
 
138,916
 
1986
 
2010
 
95%
Vesta(6)
 
Redmond, WA
 
440
 
381,675
 
1998
 
2011
 
94%
Redmond Hill West(6)
 
Redmond, WA
 
442
 
350,275
 
1985
 
2011
 
97%
Brighton Ridge
 
Renton, WA
 
264
 
201,300
 
1986
 
1996
 
97%
Fairwood Pond
 
Renton, WA
 
194
 
189,200
 
1997
 
2004
 
97%
Forest View
 
Renton, WA
 
192
 
182,500
 
1998
 
2003
 
97%
The Bernard
 
Seattle, WA
 
63
 
43,151
 
2008
 
2011
 
97%
Annaliese
Seattle, WA
 
56
 
48,216
 
2009
 
2013
 
94%
Vox
Seattle, WA
 
58
 
42,173
 
2013
 
2013
 
96%
Expo(29)
Seattle, WA
 
275
 
190,176
 
2012
 
2012
 
96%
Cairns, The
 
Seattle, WA
 
100
 
70,806
 
2006
 
2007
 
96%
Domaine
 
Seattle, WA
 
92
 
79,421
 
2009
 
2012
 
95%
Fountain Court
 
Seattle, WA
 
320
 
207,000
 
2000
 
2000
 
94%
Joule (30)
 
Seattle, WA
 
295
 
191,109
 
2010
 
2010
 
96%
Wharfside Pointe
 
Seattle, WA
 
142
 
119,200
 
1990
 
1994
 
93%
 
 
 
 
7,860
 
6,725,614
 
 
 
 
 
96%
Total/Weighted Average
 
 
 
34,079
 
29,710,766
 
 
 
 
 
96%
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
Rentable
 
 
 
 
 
 
 
 
 
 
 
 
Square
 
Year
 
Year
 
 
Other real estate assets(1)
 
Location
 
Tenants
 
Footage
 
Built
 
Acquired
 
Occupancy(2)
925 / 935 East Meadow Drive(31)
 
Palo Alto, CA
 
1
 
31,900
 
1988 / 1962
 
1997 / 2007
 
100%
6230 Sunset Blvd(32)
 
Los Angeles, CA
 
1
 
35,000
 
1938
 
2006
 
100%
17461 Derian Ave(33)
 
Irvine, CA
 
6
 
110,000
 
1983
 
2000
 
93%
Santa Clara Retail
 
Santa Clara, CA
 
3
 
139,000
 
1970
 
2011
 
100%
 
 
 
 
11
 
315,900
 
 
 
 
 
99%

Footnotes to the Company’s Portfolio Listing as of December 31, 2013

(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, 2013; for the commercial buildings or properties which have not yet stabilized, or have insufficient operating history, occupancy rates are based on physical occupancy as of December 31, 2013.  For an explanation of how financial occupancy and physical occupancy are calculated, see “Properties-Occupancy Rates” in this Item 2.
(3) The community is subject to a ground lease, which, unless extended, will expire in 2082.
(4) The Company holds a 1% special limited partner interest in the partnerships which own these apartment communities. These investments were made under arrangements whereby EMC became the 1% sole general partner and the other limited partners were granted the right to require the applicable partnership to redeem their interest for cash. Subject to certain conditions, the Company may, however, elect to deliver an equivalent number of shares of the Company’s common stock in satisfaction of the applicable partnership’s cash redemption obligation.
(5) This community is owned by Wesco III. The Company has a 50% interest in Wesco III which is accounted for using the equity method of accounting.
(6) This community is owned by Wesco I.  The Company has a 50% interest in Wesco I which is accounted for using the equity method of accounting.
(7) The Company completed a $10.8 million redevelopment in 2009.
(8) This community is subject to a ground lease, which, unless extended, will expire in 2067.
(9) This community is subject to a ground lease, which, unless extended, will expire in 2027.
(10) The Company completed a $16.6 million redevelopment in 2010.
(11) The Company is in the process of performing a $13.0 million redevelopment.
(12) The Company has a 97% interest and an executive vice president of the Company has a 3% interest in this community.
(13) The Company has a 75% member interest.
(14) The community is subject to a ground lease, which, unless extended, will expire in 2028.
(15) The Company completed a $12.0 million redevelopment in 2008.
(16) This community is owned by Fund II.  The Company has a 28.2% interest in Fund II which is accounted for using the equity method of accounting.
(17) The Company is in the process of performing a $10.0 million redevelopment.
(18) The Company completed an $8.9 million redevelopment in 2008.
(19) The Company completed a $9.4 million redevelopment in 2009.
(20) The Company completed a $4.6 million redevelopment in 2009.
(21) The Company has 55% ownership in this community.  The community is being developed in three phases with the remaining two phases currently under development.
(22) A portion of this community on which 84 units are presently located is subject to a ground lease, which, unless extended, will expire in 2028.
(23) The Company is in the process of performing a $14.1 million redevelopment.
(24) The community is subject to a ground lease, which, unless extended, will expire in 2070.
(25) The Company completed a $12.5 million redevelopment in 2009.
(26) The Company completed a $36.3 million redevelopment in 2012, which included the construction of 28 in-fill units in 2009.
(27) The Company completed the construction of 66 additional apartment homes in 2012 and is in the process of performing a redevelopment for a total cost of $15.4 million.
(28) The Company completed a $5.1 million redevelopment and completed construction of 16 units of the community’s 108 units in 2006.
(29) The Company has 50% ownership in this community.
(30) The Company has 99% ownership in this community.
(31) The Company occupies 100% of this property.
(32) The property is leased through July 2014 to a single tenant.
(33) The Company occupies 7% of this property.
Item 3. Legal Proceedings

There have been an increasing number of lawsuits against owners and managers of apartment communities alleging personal injury and property damage caused by the presence of mold in residential real estate.  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 matters.   Insurance carriers have reacted to mold related liability awards by excluding mold related claims from standard policies and pricing mold endorsements at prohibitively high rates.  The Company has, however, purchased pollution liability insurance, which includes some coverage for mold.  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 residents of the property.  The Company believes its mold policies and proactive response to address any known existence, reduces its risk of loss from these cases.  There can be no assurances that the Company has identified and responded to all mold occurrences, but the Company promptly addresses all known reports of mold.  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, 2013, potential liabilities for mold and other environmental liabilities are not quantifiable and an estimate of possible loss cannot be made.

The information set forth and discussed  regarding  litigation relating to the merger transaction with BRE  in note 16,  “Commitments and Contingencies”, of our notes to consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K is incorporated by reference into this Item 3.

The Company is subject to various other lawsuits in the normal course of its business operations.  Such lawsuits are not expected to have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

Not Applicable.
Part II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Market Information
 
The shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol ESS.  ESS common stock has been traded on the NYSE since June 13, 1994. The high, low and closing price per share of common stock reported on the NYSE for the quarters indicated are as follows:

Quarter Ended
 
High
   
Low
   
Close
 
 
 
   
   
 
December 31, 2013
 
$
165.44
   
$
137.53
   
$
143.51
 
September 30, 2013
 
$
172.16
   
$
139.64
   
$
147.70
 
June 30, 2013
 
$
171.11
   
$
147.56
   
$
158.92
 
March 31, 2013
 
$
156.36
   
$
147.06
   
$
150.58
 
 
                       
December 31, 2012
 
$
150.71
   
$
136.38
   
$
146.65
 
September 30, 2012
 
$
160.64
   
$
147.38
   
$
148.24
 
June 30, 2012
 
$
161.53
   
$
146.05
   
$
153.92
 
March 31, 2012
 
$
151.54
   
$
136.43
   
$
151.51
 

The closing price of ESS stock as of February 24, 2014 was $166.38.
 
There is no established public trading market for Essex Portfolio, L.P.’s OP Units.
 
Holders
 
The approximate number of holders of record of the shares of ESS common stock was 256 as of February 24, 2014.  This number does not include stockholders whose shares are held in investment accounts by other entities.  ESS believes the actual number of stockholders is greater than the number of holders of record.
 
As of February 24, 2014, there were 45 holders of record of Essex Portfolio, L.P.’s OP Units, including ESS.
 
Return of Capital
 
Under provisions of the Internal Revenue Code of 1986, as amended, the portion of the cash dividend, if any, that exceeds earnings and profits is considered a return of capital. The return of capital is generated due to a variety of factors, including the deduction of non-cash expenses, primarily depreciation, in the determination of earnings and profits.

The status of the cash dividends distributed for the years ended December 31, 2013, 2012, and 2011 related to common stock, and Series F, G and H preferred stock for tax purposes are as follows:

 
 
2013
   
2012
   
2011
 
Common Stock
 
   
   
 
Ordinary income
   
77.34
%
   
70.58
%
   
63.68
%
Capital gain
   
17.64
%
   
8.75
%
   
11.16
%
Unrecaptured section 1250 capital gain
   
5.02
%
   
7.97
%
   
0.74
%
Return of capital
   
0.00
%
   
12.70
%
   
24.42
%
 
   
100.00
%
   
100.00
%
   
100.00
%
 
                       
 
   
2013
     
2012
     
2011
 
Series F, G, and H Preferred stock
                       
Ordinary income
   
77.34
%
   
80.85
%
   
100.00
%
Capital gains
   
17.64
%
   
10.02
%
   
0.00
%
Unrecaptured section 1250 capital gain
   
5.02
%
   
9.13
%
   
0.00
%
 
   
100.00
%
   
100.00
%
   
100.00
%
Dividends and Distributions
 
Since ESS’s initial public offering on June 13, 1994, ESS and the Operating Partnership have paid regular quarterly dividends/distributions to its stockholders and unitholders. ESS paid the following dividends per share of common stock and the Operating Partnership paid the following distributions per limited partner OP unit:
 
Year Ended
 
Annual Dividend/Distribution
 
Quarter Ended
 
2013
   
2012
   
2011
 
1995
 
$
1.69
 
March 31,
 
$
1.21
   
$
1.10
   
$
1.04
 
1996
 
$
1.72
 
June 30,
 
$
1.21
   
$
1.10
   
$
1.04
 
1997
 
$
1.77
 
September 30,
 
$
1.21
   
$
1.10
   
$
1.04
 
1998
 
$
1.95
 
December 31,
 
$
1.21
   
$
1.10
   
$
1.04
 
1999
 
$
2.15
 
 
                       
2000
 
$
2.38
 
Annual Dividend/Distribution
 
$
4.84
   
$
4.40
   
$
4.16
 
2001
 
$
2.80
 
 
                       
2002
 
$
3.08
 
 
                       
2003
 
$
3.12
 
 
                       
2004
 
$
3.16
 
 
                       
2005
 
$
3.24
 
 
                       
2006
 
$
3.36
 
 
                       
2007
 
$
3.72
 
 
                       
2008
 
$
4.08
 
 
                       
2009
 
$
4.12
 
 
                       
2010
 
$
4.13
 
 
                       

Future dividends/distributions by ESS and the Operating Partnership will be at the discretion of the Board of Directors of ESS and will depend on the actual cash flows from operations of the Company, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant.  There are currently no contractual restrictions on ESS and the Operating Partnership present or future ability to pay dividends and distributions.
 
The Board of Directors has declared a dividend/distribution for the first quarter of 2014 of $1.21 per share.  The dividend/distribution will be payable on March 31, 2014 to shareholders/unitholders of record as of March 14, 2014.  The timing of the first quarter dividend/distribution is coordinated with BRE’s first quarter dividend, pursuant to the merger agreement.
 
On February 18, 2014, the ESS Board of Directors acknowledged management’s recommendation to increase the quarterly dividend by 9 cents to $1.30 per share/unit an annualized cash dividend/distribution of $5.20 per share/unit.
 
Future distributions by Essex Portfolio, L.P., will be at the discretion of the Board of Directors of Essex Portfolio, L.P.’s general partner, Essex Property Trust, Inc. and will depend on our actual cash flows from operations, our financial condition, capital requirements, Essex Property Trust, Inc.’s annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deem relevant. There are currently no contractual restrictions on Essex Portfolio, L.P.’s  present or future ability to pay distributions.

Dividend Reinvestment and Share Purchase Plan

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

See the Company’s disclosure in the 2014 Proxy Statement under the heading “Equity Compensation Plan Information”, which disclosure is incorporated herein by reference.

Issuance of Registered Equity Securities

During 2013, ESS sold 913,344 shares of common stock for proceeds of $138.4 million, net of commissions, at an average price of $152.92.  During the first quarter of 2014 through February 24, 2014, ESS has issued 462,555 shares of common stock at an average price of $162.97 for proceeds of $74.9 million, net of fees and commissions.  These sales were pursuant to a registration statement and ESS used the net proceeds from the stock offerings to pay down debt, fund redevelopment and development pipelines, fund acquisitions, and for general corporate purposes.

Issuer Purchases of Equity Securities – Common Stock, Series G Cumulative Convertible Preferred Stock

In August 2007, ESS Board of Directors authorized a stock repurchase plan to allow ESS to acquire shares in an aggregate of up to $200 million.  ESS did not repurchase any shares during 2013, 2012 and 2011.  Since ESS announced the inception of the stock repurchase plan, ESS has repurchased and retired 816,659 shares for $66.6 million at an average stock price of $81.56 per share, including commissions as of December 31, 2013.

Performance Graph

The line graph below compares the cumulative total stockholder return on ESS common stock for the last five years with the cumulative total return on the S&P 500 and the NAREIT All Equity REIT index over the same period.  This comparison assumes that the value of the investment in the common stock and each index was $100 on December 31, 2008 and that all dividends were reinvested (1).


   
Period Ending
   
 
   
 
 
Index
   
12/31/08
   
12/31/09
   
12/31/10
   
12/31/11
   
12/31/12
   
12/31/13
 
Essex Property Trust, Inc.
     
100.00
     
115.60
     
164.28
     
208.73
     
224.40
     
226.77
 
NAREIT All Equity REIT Index
     
100.00
     
127.99
     
163.76
     
177.32
     
212.26
     
218.32
 
S&P 500
     
100.00
     
126.46
     
145.51
     
148.59
     
172.37
     
228.19
 
 
(1) Common stock performance data is provided by SNL Financial.
The graph and other information furnished under the above caption “Performance Graph” in this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of the Exchange Act, as amended.
 
Unregistered Sales of Equity Securities
 
During the year ended December 31, 2013, the Operating Partnership issued partnership units in private placements in reliance on the exemption from registration provided by Section 4(2) of the Securities Act, in the amounts and for the consideration set forth below:
 
On December 10, 2013, Essex Portfolio, L.P. issued 50,500 units under the 2014 Long-Term Incentive Plan Award agreements to twelve senior executives of the Company for no cash consideration.
 
During the year ended December 31, 2013, Essex Property Trust, Inc. issued an aggregate of 52,970 shares of its common stock upon the exercise of stock options. Essex Property Trust, Inc. contributed the proceeds from the option exercises of $5.0 million to our Operating Partnership in exchange for an aggregate of 52,970 common OP Units, as required by the Operating Partnership’s partnership agreement.
 
During the year ended December 31, 2013, Essex Property Trust, Inc. issued an aggregate of 7,211 shares of its common stock in connection with restricted stock awards for no cash consideration. For each share of common stock issued by Essex Property Trust, Inc. in connection with such awards, our operating partnership issued a common unit to Essex Property Trust, Inc. as required by the partnership agreement, for an aggregate of 7,211 units during the year ended December 31, 2013.
 
Item 6. Selected Financial Data
 
The following tables set forth summary financial and operating information for the Company and the Operating Partnership from January 1, 2009 through December 31, 2013.
Essex Property Trust, Inc. and Subsidiaries

 
 
Years Ended December 31,
 
 
 
2013
   
2012
   
2011
   
2010
   
2009
 
 
 
($ in thousands, except per share amounts)
 
OPERATING DATA:
 
   
   
   
   
 
Rental and other property
 
$
602,003
   
$
526,696
   
$
460,660
   
$
400,841
   
$
396,498
 
Management and other fees from affiliates
   
11,700
     
11,489
     
6,780
     
4,551
     
4,325
 
 
                                       
Income before discontinued operations
 
$
140,882
   
$
127,653
   
$
46,958
   
$
47,424
   
$
41,244
 
Income from discontinued operations
   
31,173
     
11,937
     
10,558
     
3,358
     
12,495
 
Net income
   
172,055
     
139,590
     
57,516
     
50,782
     
53,739
 
 
                                       
Net income available to common stockholders
 
$
150,811
   
$
119,812
   
$
40,368
   
$
33,764
   
$
82,200
 
 
                                       
Per share data:
                                       
Basic:
                                       
Income before discontinued operations available to common stockholders
 
$
3.26
   
$
3.10
   
$
0.94
   
$
1.03
   
$
2.59
 
Net income available to common stockholders
 
$
4.05
   
$
3.42
   
$
1.24
   
$
1.14
   
$
3.01
 
Weighted average common stock outstanding
   
37,249
     
35,032
     
32,542
     
29,667
     
27,270
 
Diluted:
                                       
Income before discontinued operations available to common stockholders
 
$
3.25
   
$
3.09
   
$
0.94
   
$
1.03
   
$
2.51
 
Net income available to common stockholders
 
$
4.04
   
$
3.41
   
$
1.24
   
$
1.14
   
$
2.91
 
Weighted average common stock outstanding
   
37,335
     
35,125
     
32,629
     
29,734
     
29,747
 
Cash dividend per common share
 
$
4.84
   
$
4.40
   
$
4.16
   
$
4.13
   
$
4.12
 
 
                                       
 
 
 
As of December 31,
 
 
 
2013
   
2012
   
2011
   
2010
   
2009
 
 
 
($ in thousands)
 
BALANCE SHEET DATA:
 
   
   
   
   
 
Investment in rental properties (before accumulated depreciation)
 
$
5,443,757
   
$
5,033,672
   
$
4,313,064
   
$
3,964,561
   
$
3,412,930
 
Net investment in rental properties
   
4,188,871
     
3,952,155
     
3,393,038
     
3,189,008
     
2,663,466
 
Real estate under development
   
50,430
     
66,851
     
44,280
     
217,531
     
274,965
 
Total assets
   
5,186,839
     
4,847,223
     
4,036,964
     
3,732,887
     
3,254,637
 
Total secured indebtedness
   
1,404,080
     
1,565,599
     
1,745,858
     
2,082,745
     
1,832,549
 
Total unsecured indebtedness
   
1,629,444
     
1,253,084
     
615,000
     
176,000
     
14,893
 
Cumulative convertible preferred stock
   
4,349
     
4,349
     
4,349
     
4,349
     
4,349
 
Cumulative redeemable preferred stock
   
73,750
     
73,750
     
73,750
     
25,000
     
25,000
 
Stockholders' equity
   
1,884,619
     
1,764,804
     
1,437,527
     
1,149,946
     
1,053,096
 

 
 
As of and for the years ended December 31,
 
 
 
2013
   
2012
   
2011
   
2010
   
2009
 
 
 
($ in thousands, except per share amounts)
 
OTHER DATA:
 
 
Funds from operations (FFO)(1):
 
   
   
   
   
 
Net income available to common stockholders
 
$
150,811
   
$
119,812
   
$
40,368
   
$
33,764
   
$
82,200
 
Adjustments:
                                       
Depreciation and amortization
   
193,518
     
170,686
     
152,543
     
129,711
     
118,522
 
Gains not included in FFO, net of internal disposition costs
   
(67,975
)
   
(60,842
)
   
(7,543
)
   
-
     
(7,943
)
Depreciation add back from unconsolidated co-invetsments and other, net
   
23,377
     
21,194
     
14,804
     
7,893
     
7,607
 
Funds from operations
 
$
299,731
   
$
250,850
   
$
200,172
   
$
171,368
   
$
200,386
 
Non-core items:
                                       
Loss (gain) on early retirement of debt
   
300
     
5,009
     
1,163
     
-
     
(4,750
)
Acquisition and merger costs
   
5,445
     
2,255
     
1,231
     
1,250
     
-
 
Gain on sale of marketable securities and note prepayment
   
(2,519
)
   
(819
)
   
(4,956
)
   
(12,491
)
   
(1,014
)
Co-investment promote income
   
-
     
(2,299
)
   
-
     
(500
)
   
-
 
CEO retirement and non-recurring payroll costs
   
-
     
-
     
-
     
2,127
     
4,358
 
Redemption of preferred stock
   
-
     
-
     
1,949
     
-
     
(49,952
)
Impairment of development projects
   
-
     
-
     
-
     
-
     
12,428
 
Other items. net (2)
   
(2,861
)
   
-
     
(2,780
)
   
(959
)
   
32
 
Core funds from operations (Core FFO)
 
$
300,096
   
$
254,996
   
$
196,779
   
$
160,795
   
$
161,488
 
Weighted average number of shares outstanding, diluted (FFO)(3)
   
39,501
     
37,378
     
34,861
     
32,028
     
29,747
 
Funds from operations per share - diluted
 
$
7.59
   
$
6.71
   
$
5.74
   
$
5.35
   
$
6.74
 
Core funds from operations per share - diluted
 
$
7.60
   
$
6.82
   
$
5.64
   
$
5.02
   
$
5.43