form10k.htm
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, 2008
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.
(Exact
name of Registrant as Specified in its Charter)
Maryland
|
77-0369576
|
(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
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Common
Stock, $.0001 par value
Rights
to purchase Series A Junior Participating
|
New
York Stock Exchange
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.
Yes x No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
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.
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. 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):
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
(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).
Yes o Nox
As of
June 30, 2008, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately
$2,605,700,000. The aggregate market value was computed with
reference to the closing price on the New York Stock Exchange on such date.
Shares of common stock held by executive officers, directors and holders of more
than ten percent of the outstanding common stock have been excluded from this
calculation because such persons may be deemed to be affiliates. This exclusion
does not reflect a determination that such persons are affiliates for any other
purposes.
As of
February 25, 2009, 26,818,907 shares of Common Stock ($.0001 par value) 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 held May 5, 2009
Essex Property Trust, Inc.
2008
ANNUAL REPORT ON FORM 10-K
TABLE
OF CONTENTS
Part
I.
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Page
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Item
1.
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1
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Item
1A.
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7
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Item
1B.
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18
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Item
2.
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18
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Item
3.
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24
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Item
4.
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24
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Part
II.
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Item
5.
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25
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Item
6.
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29
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Item
7.
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32
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Item
7A.
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43
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Item
8.
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44
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Item
9.
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44
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Item
9A.
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44
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Item
9B.
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44
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Part
III.
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Item
10.
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44
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Item
11.
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44
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Item
12.
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44
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Item
13.
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44
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Item
14.
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44
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Part
IV.
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Item
15.
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45
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S-1
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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.” Our 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 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”). The Company is the sole general partner of the
Operating Partnership and as of December 31, 2008 owns a 91.6% general
partnership interest. In this report, the terms “we,” “us” and
“our” refer to Essex Property Trust, its Operating Partnership and the Operating
Partnership’s subsidiaries.
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. Each of the taxable
REIT subsidiary entities are consolidated by the Company.
We are
engaged primarily in the ownership, operation, management, acquisition,
development and redevelopment of real estate. The majority of our
real estate consists of apartment communities. As of December 31,
2008, we owned or held an interest in 134 apartment communities, aggregating
26,992 units, located along the West Coast (collectively, the “Communities” and
individually, a "Community"). Our other real estate included six
office buildings (totaling approximately 478,300 square feet), and six active
development projects with 1,256 units in various stages of active development
(together with the Communities, 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 our
website as soon as practicable after we file the reports with the Securities and
Exchange Commission (“SEC”).
BUSINESS
OBJECTIVES AND STRATEGIES
The
following is a discussion of our business objectives and strategies in regards
to real estate investment and management. One or more of these
criteria may be amended or rescinded from time to time without stockholder
vote.
Business
Objectives
The
Company's primary business objectives are to increase stockholders’ value by
investing in and operating communities located in supply constrained markets,
and by improving operating results and the value of its Communities, while
maintaining a strong balance sheet. The Company intends to achieve
these objectives by:
|
·
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Maintain
high level of occupancy to maximize rental
income;
|
|
·
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Improve
financial performance of the Company's Portfolio through
acquisitions, dispositions, development and, when appropriate,
redevelopment of apartment communities in selected major
metropolitan areas; and
|
|
·
|
Maintain
a strong balance sheet by identifying and utilizing capital resources that
provide positive arbitrage (i.e. investment yield that exceeds capital
cost).
|
The
Company cannot assure stockholders that the Company will achieve its business
objectives.
Business
Strategies
Research Driven
Approach – We
believe that successful real estate investment decisions and portfolio growth
begin with extensive regional economic research and local market
knowledge.
Utilizing
a proprietary research model that we have developed over the last two decades,
we continually assess markets where we currently operate, as well as markets
where we consider future investment opportunities by evaluating the
following:
|
·
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Markets
in major metropolitan areas that have regional population primarily in
excess of one million;
|
|
·
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Constraints
on new supply driven by: (i) low availability of developable land sites
where competing housing could be 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;
|
|
·
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Rental
demand is enhanced by affordability of rents compared to expensive
for-sale housing; and
|
|
·
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Housing
demand that is based on proximity to jobs, high quality of life and
related commuting factors, as well as potential job
growth.
|
Recognizing
that all real estate markets are cyclical, we regularly evaluate the results of
our regional economic, as well as our local market research, and adjust the
geographic focus of our portfolio accordingly. We seek to increase our 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 – We manage our Communities by focusing on strategies that
will generate above-average rental growth, tenant retention/satisfaction and
long-term asset appreciation. We intend to achieve this by utilizing the
strategies set forth below:
|
·
|
Property Management
– The Chief
Operating Officer, Senior Vice President of Operations, Divisional
Managers, Regional Portfolio Managers and Area Managers are accountable
for the performance and maintenance of the Communities. They supervise,
provide training for the on-site managers, review actual performance
against budget, monitor market trends and prepare operating and capital
budgets.
|
|
·
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Capital Preservation –
The Capital and Maintenance department is responsible for the planning,
budgeting and completion of major deferred maintenance and capital
improvement projects at our
Communities.
|
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·
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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.
|
|
·
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Development and Redevelopment
– We focus on acquiring and developing apartment communities in
supply constrained markets, and redeveloping our existing communities to
improve the financial and physical aspects of our
communities.
|
CURRENT
BUSINESS ACTIVITIES
Acquisitions
Acquisitions
is an important component of our business plan, and during 2008, we completed
the acquisition of two communities totaling $88.4 million.
|
·
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In
July 2008, the Company acquired Chestnut Street Apartments, a 96-unit
apartment community located in Santa Cruz, California, for $22.1 million.
The community was built in 2002 and includes approximately 9,000 square
feet of commercial and retail
space.
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·
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In
August 2008, the Company acquired The Highlands at Wynhaven, a 333-unit
apartment community located in Issaquah, Washington for $66.3
million. The community was built in
2000.
|
Dispositions
of Real Estate
As part
of our strategic plan to own quality real estate in supply-constrained markets
the Company continually evaluates all the Communities and sell those which no
longer meet our strategic criteria. The Company may use the capital
generated from the dispositions to invest in higher-return communities,
repurchase the Company's common stock, or repay debts. The
Company believes that the sale of these Communities will not have a
material impact on our future results of operations or cash flows nor will their
sale materially affect our ongoing operations. Generally, any impact of earnings
dilution resulting from these dispositions will be offset by the positive impact
of our acquisitions, development and redevelopment activities.
In 2008,
in accordance with our strategic plan, the Company sold three apartment
communities for gross proceeds of $99.6 million, two recreational vehicle (“RV”)
parks and one manufactured housing community for gross proceeds of $18.9
million.
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·
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In
the third quarter of 2008, the Company sold Cardiff by the Sea, a 300-unit
apartment community located in Cardiff, California for $71.0 million
resulting in a gain of $46,000, and St. Cloud, a 302-unit apartment
community located in Houston, Texas for $8.8 million resulting in no gain
on sale.
|
|
·
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In
the third quarter of 2008, the Company sold the Circle RV park located in
El Cajon, California for $5.4 million resulting in a gain of $0.9 million,
and the Company sold the Vacationer RV park located in El Cajon,
California for $4.6 million. The gain on sale of $0.8 million
resulting from the sale of Vacationer was deferred due to the fact the
Company loaned $4.1 million to the buyer at a fixed rate of 6.5% due in
August 2011.
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·
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In the fourth
quarter of 2008, the Company sold Coral Gardens, a 200-unit property
located in El Cajon, California for $19.8 million resulting in a gain of
$3.4 million, and the Company sold Green Valley, a manufactured housing
community located in Vista, California, for $8.9 million resulting in a
gain of $1.8 million. In conjunction with the sale of Green
Valley the Company loaned $1.0 million to the buyer at a fixed rate of
8.0% due in November 2010. The Company also sold the 90 Archer
land parcel for $3.7 million resulting in a gain of $147,000, and the
Company sold three condominium units at Eastridge for a gain of
$140,000.
|
Development
Pipeline
The
Company defines development activities as new communities that are in various
stages of active development, or the community is in lease-up and phases of the
project are not completed. As of December 31, 2008, the Company had
four development projects comprised of 988 units for an estimated cost of $410.0
million, of which $234.6 million remains to be expended. These four
projects exclude development projects owned by Essex Apartment Value Fund II,
L.P. (“Fund II”) an investment fund formed by the Company which the Company does
not consolidate.
In May
2008, the Company’s consolidated joint venture, Joule Broadway, obtained a
construction loan in the amount of $60.0 million secured by the development
project in Seattle, Washington. The loan is variable based on LIBOR
plus 155 basis points and matures in June 2011 with two one-year extension
options. Approximately $9.3 million of future development costs will
be funded by the joint venture partners during 2009 and the remainder of the
estimated development costs will be funded by the construction
loan. The estimated remaining costs to be incurred totaling $165.3
million for the other three active development projects including The Grand,
Fourth Street, and Tasman Place will be financed by the Company’s lines of
credit. The following table sets forth information regarding the
Company’s consolidated development pipeline:
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As
of 12/31/08 ($ in millions)
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Incurred
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Estimated
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Estimated
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Development
Pipeline
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Location
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Units
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Project
Cost
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Remaining
Cost
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Project
Cost(1)
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Development Projects
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The
Grand
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Oakland,
CA
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238 |
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$ |
88.7 |
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$ |
7.5 |
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$ |
96.2 |
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Fourth
Street
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Berkeley,
CA
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171 |
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25.3 |
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45.3 |
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70.6 |
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Joule
Broadway
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Seattle,
WA
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295 |
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35.0 |
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69.3 |
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104.3 |
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Tasman
Place
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Sunnyvale,
CA
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284 |
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26.4 |
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112.5 |
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138.9 |
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988 |
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175.4 |
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234.6 |
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410.0 |
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Predevelopment
projects
|
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various
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820 |
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73.0 |
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169.4 |
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242.4 |
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Land
held for future development
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|
various
|
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392 |
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23.9 |
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- |
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23.9 |
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Consolidated
Development Pipeline
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2,200 |
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$ |
272.3 |
|
|
$ |
404.0 |
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|
$ |
676.3 |
|
(1) Includes incurred costs and
estimated costs to complete these development projects.
The
Company defines the predevelopment pipeline as proposed communities in
negotiation or in the entitlement process with a high likelihood of becoming
entitled development projects. As of December 31, 2008, the Company
had two development projects aggregating 820 units that were classified as
predevelopment projects. The estimated total cost of the
predevelopment pipeline at December 31, 2008 was $242.4 million, of which $169.4
million remains to be expended. The Company may also acquire
land for future development purposes. The Company owned four
land parcels held for future development aggregating 392 units as of December
31, 2008. The Company had incurred $23.9 million in costs related to
these four land parcels as of December 31, 2008.
Redevelopment
Pipeline
The
Company defines redevelopment communities as existing properties owned or
recently acquired, which have been targeted for additional investment by the
Company with the expectation of increased financial returns through property
improvement. During redevelopment, apartment units may not be
available for rent and, as a result, may have less than stabilized
operations. As of December 31, 2008, the Company had ownership
interests in nine major redevelopment communities aggregating 2,631 apartment
units with estimated redevelopment costs of $128.0 million, of which
approximately $56.5 million remains to be expended. These amounts
exclude redevelopment projects owned by Fund II. The following
table illustrates these consolidated redevelopment projects:
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As
of 12/31/08 ($ in thousands)
|
|
|
|
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Incurred
|
|
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Estimated
|
|
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Estimated
|
|
Redevelopment
Pipeline
|
|
Location
|
|
Units
|
|
|
Project
Cost
|
|
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Remaining
Cost
|
|
|
Project
Cost(1)
|
|
Southern California
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|
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|
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|
|
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Avondale
at Warner Center
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Woodland
Hills
|
|
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446 |
|
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$ |
11,540 |
|
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$ |
2,530 |
|
|
$ |
14,070 |
|
Highridge
|
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Rancho
Palos Verdes
|
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255 |
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4,118 |
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12,445 |
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16,563 |
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Pathways
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Long
Beach
|
|
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296 |
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8,255 |
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2,505 |
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10,760 |
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Northern California
|
|
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Boulevard
(2)
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Fremont
|
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172 |
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8,875 |
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12 |
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8,887 |
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Bridgeport
(2)
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Newark
|
|
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184 |
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4,372 |
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214 |
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4,586 |
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Marina
Cove
|
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Santa
Clara
|
|
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292 |
|
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3,112 |
|
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6,746 |
|
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9,858 |
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Montclaire
- Phase I-III (2)
|
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Sunnyvale
|
|
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390 |
|
|
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13,863 |
|
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1,269 |
|
|
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15,132 |
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Seattle Metro
|
|
|
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Woodland
Commons
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Bellevue
|
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236 |
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3,323 |
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8,456 |
|
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|
11,779 |
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Foothill
Commons
|
|
Bellevue
|
|
|
360 |
|
|
|
14,021 |
|
|
|
22,317 |
|
|
|
36,338 |
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Total
Redevelopment Pipeline
|
|
|
|
|
2,631 |
|
|
$ |
71,479 |
|
|
$ |
56,494 |
|
|
$ |
127,973 |
|
(1) Includes incurred costs and
estimated costs to complete these redevelopment projects.
(2) The redevelopment at these
apartment communities were substantially completed in the fourth quarter of
2008, and will be added back to Same-Property operations (as defined in Item 7)
during the first quarter of 2010.
Co-Investments
In
January 2008, the Company collected $7.5 million and recognized income of $6.3
million from the sale of its preferred interest in Waterstone at Fremont
Apartments, located in Fremont, California.
Debt
Transactions
During
2008, the Company obtained fixed rate mortgage loans totaling $378.1 million and
paid-off mortgage loans or the buyers of Essex communities assumed mortgage
loans totaling $169.4 million, including the following:
|
·
|
In
the first quarter 2008, the Company obtained a mortgage loan in the amount
of $49.9 million secured by Mirabella, with a fixed interest rate of 5.2%
due in January 2018. The Company paid-off two mortgage loans
totaling $7.3 million at 6.9% and $4.8 million at 7.5%, respectively
secured by The Bluffs II. The Company refinanced two mortgage
loans aggregating $9.3 million with a combined weighted average interest
rate of 7.0% secured by Brentwood, into a $20.6 million secured loan with
a fixed interest rate of 5.5% due in March
2018.
|
|
·
|
In
the second quarter 2008, the Company obtained a mortgage loan secured by
Park Hill at Issaquah, in the amount of $31.5 million, with a fixed
interest rate of 5.6% due in April 2018. In conjunction with
this transaction the Company settled a $30 million forward-starting swap
for a $1.7 million payment to the counterparty, and the amortization of
the settlement of the swap increased the effective interest rate on the
mortgage loan to 6.1%. The Company obtained a mortgage
loan in the amount of $17.2 million secured by Kings Road, with a fixed
interest rate at 5.6% due in January 2018. The Company obtained
a $22.5 million loan secured by Hampton Place, with a fixed interest rate
of 6.1% due in June 2018. In conjunction with this transaction,
the Company settled a $20.0 million forward-starting swap for a $0.1
million payment to the counterparty, and amortization of settlement of the
swap increased the effective interest rate on the mortgage loan to
6.2%.
|
|
·
|
In
the third quarter of 2008, the Company paid-off an $89.0 million
cross-collateralized mortgage loan at a fixed rate of 6.6%. The
Company obtained a mortgage loan in the amount of $53.0 million secured by
Mill Creek, with a fixed rate of 5.8% due in August 2018. In
conjunction with the sale of Cardiff by the Sea, the buyer assumed the
mortgage loan totaling $42.2 million at a fixed rate of
5.7%. The Company obtained mortgage loans in the amount of
$23.0 million with a fixed rate of 5.8% and $22.5 million with a fixed
rate of 5.8%, secured by the Palisades and Bridgeport communities,
respectively. Both mortgage loans are due in September
2018.
|
|
·
|
In
the fourth quarter of 2008, the Company obtained a $49.7 million mortgage
loan secured by Montclaire, with a rate of 6.2% due in November
2018. In conjunction with this transaction the Company settled
a $25 million forward-starting swap for a $1.2 million payment to the
counterparty, and the amortization of the settlement of the swap increased
the effective interest of this mortgage loan to 6.4%. The
Company obtained a $40.2 million mortgage loan secured by Pathways, with a
fixed interest rate of 6.2% due in October 2018. The Company
obtained a $30.4 million mortgage loan secured by Canyon Oaks, with a
fixed interest rate of 6.1% due in December 2018. The Company
obtained a $17.6 million mortgage loan secured by Barkley, with a fixed
interest rate of 6.14% due in December 2018. In conjunction
with the sale of Coral Gardens, the buyer assumed the mortgage loan for
the property totaling $10.7 million with a fixed rate of 5.5%, and in
conjunction with the sale of Green Valley, the buyer assumed the mortgage
loan for the property totaling $6.1 million with a fixed rate of
5.6%.
|
During
the fourth quarter of 2008, the Company repurchased $53.3 million of 3.625%
exchangeable bonds (the “Bonds”) due in 2025 at a discount to par value and
recognized a gain of $3.5 million. During the first quarter of 2009,
the Company repurchased $71.3 million of these Bonds at a discount to par value
for cash paid of $66.5 million.
During
the fourth quarter of 2008, the Company entered into a new five-year secured
line of credit facility with Freddie Mac to replace the existing secured line of
credit facility. The new secured facility expanded the existing
secured facility from $100 million to $150 million, and the new facility is
expandable to $250 million during the first two years. The underlying
interest rate on this line is between 99 and 150 basis points over the Freddie
Mac Reference Rate and the interest rate is subject to change by the lender in
November 2011. The line is secured by eight communities and matures
in December 2013.
In
January 2009, the Company exercised its option to extend the maturity of the
$200 million unsecured line of credit facility to March 2010. The
underlying interest rate on this line is based on a tiered structure tied to the
Company’s corporate credit rating and is currently LIBOR + 80 basis
points.
Equity
and Minority Interest Transactions
During
the first quarter of 2008, the Company, under its stock repurchase program,
repurchased and retired 143,400 shares of its common stock for approximately
$13.7 million, at an average stock price of $95.64 per share.
During
the third and fourth quarter of 2008, the Company issued 1,209,050 shares of
common stock at an average share price of $120.17 for $142.8 million, net of
fees and commissions. The Company used the net proceeds to pay down
debt and to fund the development pipeline.
In
November 2008, the holders of the outstanding 7.875% Series D Cumulative
Redeemable Preferred Units of Essex Portfolio, L.P. exchanged their preferred
units with a par value of $50 million for 363,000 shares of common stock of the
Company and $10 million in cash plus accrued dividends.
During
the first quarter of 2009, the Company repurchased $54.6 million of 4.875%
Series G Cumulative Convertible Preferred Stock at a discount to par value for
cash paid of $30.1 million.
ESSEX
APARTMENT VALUE FUND II
Essex
Apartment Value Fund II, L.P. (“Fund II”) is an investment fund formed by the
Company to add value through rental growth and asset appreciation, utilizing the
Company's development, redevelopment and asset management
capabilities.
Fund II
has eight institutional investors, and the Company, with combined partner equity
commitments of $265.9 million which are fully contributed as of December
2008. The Company contributed $75.0 million to Fund II, which
represents a 28.2% interest as general partner and limited partner, and the
Company uses the equity method of accounting for its investment in Fund
II. Fund II utilized leverage equal to approximately 55% upon the
initial acquisition of the underlying real estate. Fund II invested
in apartment communities in the Company’s targeted West Coast markets and, as of
December 31, 2008, owned eleven apartment communities, one development project
completed in 2008 but not yet stabilized and two development
projects. Essex records revenue for its asset management, property
management, development and redevelopment services when earned, and promote
income when realized if Fund II exceeds certain financial return
benchmarks.
Fund
II - Development Pipeline
The
following table sets forth information regarding Fund II’s development
pipeline:
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|
|
|
|
|
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As
of 12/31/08 ($ in millions)
|
|
|
|
|
|
|
|
|
Incurred
|
|
|
Estimated
|
|
|
Estimated
|
|
Development
Pipeline - Fund II
|
|
Location
|
|
Units
|
|
|
Project
Cost
|
|
|
Remaining
Cost(2)
|
|
|
Project
Cost(1)
|
|
Development Projects
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Studio
40-41
|
|
Studio
City, CA
|
|
|
149 |
|
|
$ |
50.7 |
|
|
$ |
9.9 |
|
|
$ |
60.6 |
|
Cielo
|
|
Chatsworth,
CA
|
|
|
119 |
|
|
|
25.4 |
|
|
|
14.1 |
|
|
|
39.5 |
|
Fund
II - Development Pipeline
|
|
|
|
|
268 |
|
|
$ |
76.1 |
|
|
$ |
24.0 |
|
|
$ |
100.1 |
|
(1) Includes
incurred costs and estimated costs to complete these development
projects.
(2) All
estimated remaining costs will be funded by construction loans.
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, 2008, the Company had approximately 930
employees.
INSURANCE
The
Company carries comprehensive liability, fire, extended coverage and rental loss
insurance for each of the Communities. Insured risks for
comprehensive liabilities covers claims in excess of $25,000 per incident, and
property casualty insurance covers losses in excess of a $5.0 million deductible
per incident. There are, however, certain types of extraordinary losses, such
as, for example, losses from terrorism and earthquake, for which the Company
does not have insurance. Substantially all of the Communities are located in
areas that are subject to earthquakes.
The
Company believes it has a proactive approach to its potential earthquake
losses. The Company utilizes third-party seismic consultants for its
acquisitions and performs seismic upgrades to those acquisitions that are
determined to have a higher level of potential loss from an
earthquake. The Company utilizes internal and 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
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 our apartment communities in
attracting residents. These include other apartment communities and
single-family homes that are available for rent in the markets in which the
apartment communities are located. The Communities also compete for residents
with new and existing homes and condominiums that are for sale. If the demand
for our Communities is reduced or if competitors develop and/or acquire
competing apartment communities on a more cost-effective basis, rental rates and
occupancy may drop which may have a material adverse affect on our financial
condition and results of operations.
We face
competition from other real estate investment trusts, businesses and other
entities in the acquisition, development and operation of apartment communities.
Some of the competitors are larger and have greater financial resources than we
do. This competition may result in increased costs of apartment communities we
acquire and/or develop.
WORKING
CAPITAL
We
believe that cash flows generated by our operations, existing cash 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 our reasonably anticipated cash needs during 2009. 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 our
plans for acquisitions, dispositions, development and redevelopment
activities.
ENVIRONMENTAL
CONSIDERATIONS
See the
discussion under the caption, “The Company’s Portfolio may have
unknown environmental liabilities” in Item 1A, Risk Factors, for
information concerning the potential effect of environmental regulations on our
operations.
OTHER
MATTERS
Certain
Policies of the Company
We intend
to continue to operate in a manner that will not subject us 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. In general, the Company does not (i) underwrite securities of other
issuers or (ii) actively trade in loans or other investments.
We invest
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.
Our
business, operating results, cash flows and financial conditions are subject to
various risks and uncertainties, including, without limitation, those set forth
below, any one of which could cause our actual results to vary materially from
recent results or from our anticipated future results.
We depend on our
key personnel. Our success depends on our 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 several of our key personnel could have an adverse effect on
us.
Capital and
credit market conditions may affect our access to sources of capital and/or the
cost of capital, which could negatively affect our business, results of
operations, cash flows and financial condition. The Company’s
current financing activities have been impacted by the instability and
tightening in the credit markets which has led to an increase in spreads and
pricing of secured and unsecured debt. Our strong balance sheet, the
established relationships with our unsecured line of credit bank group, the
secured line of credit with Freddie Mac and access to Fannie Mae and Freddie Mac
secured debt financing have provided some insulation to us from the turmoil
being experienced by many other real estate companies. 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. The Company has experienced more restrictive loan to value
and debt service coverage ratio limits and an expansion in credit
spreads. Continued turmoil in the capital markets could
negatively impact the Company’s ability to make acquisitions, develop
communities, obtain new financing, and refinance existing borrowing at
competitive rates.
Debt financing
has inherent risks. At December 31, 2008, we had approximately
$1.76 billion of indebtedness (including $251.1 million of variable rate
mortgage indebtedness, of which $183.4 million is subject to interest rate
protection agreements). We are subject to the risks normally associated with
debt financing, including the following:
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·
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cash
flow may not be sufficient to meet required payments of principal and
interest;
|
|
·
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inability
to refinance maturing indebtedness on encumbered apartment
communities;
|
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·
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the
terms of any refinancing may not be as favorable as the terms of existing
indebtedness;
|
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·
|
inability
to comply with debt covenants could cause an acceleration of the maturity
date; and
|
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·
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repaying
debt before the scheduled maturity date could result in prepayment
penalties.
|
The Company is
uncertain about its ability to refinance balloon payments. As
of December 31, 2008, we had approximately $1.76 billion of mortgage loans,
exchangeable bonds and line of credit borrowings, most of which are subject to
balloon payments (see Notes 7 and 8 to the Company’s consolidated financial
statements for more details). We do not expect to have sufficient
cash flows from operations to make all of these balloon payments. These
mortgages, bonds and lines of credit borrowings have the following scheduled
principal and balloon payments:
2009--$35.8
million;
2010--$152.4
million;
2011--$151.3
million;
2012--$31.8
million;
2013--$312.8
million;
Thereafter--$1.08
billion.
We may
not be able to refinance such mortgage indebtedness, bonds, or lines of
credit. The Communities subject to these mortgages could be
foreclosed upon or otherwise transferred to the lender. This could
cause us to lose income and asset value. We 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 possible, we intend to continue to use leverage to
increase the rate of return on our investments and to provide for additional
investments that we 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. We 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.
As of
December 31, 2008, the Company had 71 of its 122 consolidated Communities
encumbered by debt. Of the 71 Communities, 55 are secured by deeds of
trust relating solely to those Communities. With respect to the
remaining 16 Communities, there are 4 cross-collateralized mortgages secured by
8 Communities, 3 Communities, 3 Communities, and 2 Communities,
respectively. The holders of this indebtedness will have rights with
respect to these Communities and, to the extent indebtedness is
cross-collateralized, lenders may seek to foreclose upon communities which are
not the primary collateral for their loan. This may accelerate other
indebtedness secured by communities. Foreclosure of Communities would
reduce our income and net asset value.
Rising interest
rates may affect our costs of capital and financing activities and results of
operation. Interest rates could increase rapidly, which could
result in higher interest expense on our variable rate
indebtedness. Prolonged interest rate increases could negatively
impact our ability to make acquisitions and develop apartment communities with
positive economic returns on investment and our ability to refinance existing
borrowings.
As of
December 31, 2008, the Company had approximately $236.2 million of long-term
variable rate indebtedness bearing interest at floating rates tied to the rate
of short-term tax-exempt revenue bonds (which mature at various dates from 2020
through 2034), $14.9 million of short-term variable rate indebtedness related to
predevelopment projects due in 2010, and $120.0 million of variable rate
indebtedness under the secured line of credit due in December 2013 and bears
interest at 99 to 150 basis points over the Freddie Mac Reference Rate and the
interest rate is subject to change by the lender in December
2011. Approximately $183.4 million of the long-term variable
rate indebtedness is subject to interest rate cap protection agreements, which
may reduce the risks associated with fluctuations in interest
rates. The remaining $52.8 million of long-term variable rate
indebtedness and the $120.0 borrowings under the secured line of credit were not
subject to any interest rate cap protection agreements as of December 31,
2008. An increase in interest rates may have an adverse effect on our
net income and results of operations.
Interest rate
hedging arrangements may result in losses. Periodically, we
have 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 us if interest rates decline. If a hedging arrangement is
not indexed to the same rate as the indebtedness that is hedged, we 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 us to increased credit risks. In order to
minimize counterparty credit risk, our policy is to enter into hedging
arrangements only with A-rated financial institutions.
Bond compliance
requirements may limit income from certain communities. At
December 31, 2008, we had approximately $236.2 million of variable rate
tax-exempt financing relating to the following apartment communities: Inglenook
Court, Wandering Creek, Boulevard, Huntington Breakers, Camarillo Oaks, Fountain
Park, Anchor Village and Hidden Valley. This tax-exempt financing
subjects these Communities to certain deed restrictions and restrictive
covenants. We expect to engage in tax-exempt financings in the
future. The Internal Revenue Code and rules and regulations there
under impose various restrictions, conditions and requirements excluding
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. In addition to federal
requirements, certain state and local authorities may impose additional rental
restrictions. These restrictions may limit income from the tax-exempt
financed communities if we are 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 we 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. The yields available from equity investments in real estate
depend on the amount of income generated and expenses incurred. 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 space; and
|
|
·
|
the
Company’s ability to provide for adequate maintenance and
insurance.
|
As leases
on the Communities expire, tenants may enter into new leases on terms that are
less favorable to us. 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), interest rate levels and the
availability and terms of financing. Real estate investments are
relatively illiquid and, therefore, our ability to vary our portfolio promptly
in response to changes in economic or other conditions may be quite
limited.
National and
regional economic environments can negatively impact our operating
results. During the past twelve to eighteen months, a
confluence of many factors has contributed to deteriorate economic conditions,
diminish expectations for the national and global economy, and cause
unprecedented turmoil and volatility in the capital markets. The
Company’s 2009 forecast assumes continued slowing of the national economy, with
estimated GDP decline of 1.3% and non-farm employment decrease of 2 million
jobs. The national economy and the economies of the western states in
markets where we operate can impact our operating results. Some of
these markets are concentrated in high-tech sectors, which have experienced
economic downturns, and currently the high-tech sector is experiencing the
impact of the deteriorating economic conditions as well as are most other
sectors of the economy. Our property type and diverse geographic
locations provide some degree of risk mitigation. However, we are not
immune to prolonged economic downturns. Although we believe we are
well positioned to meet these challenges, it is possible a reduction in rental
rates, occupancy levels, property valuations and increases in operating costs
such as advertising, turnover and repair and maintenance expense could occur in
the event of continued economic turmoil.
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. We intend to
continue to acquire apartment communities. However, there are risks
that acquisitions will fail to meet our expectations. Our estimates
of future income, expenses and the costs of improvements or redevelopment that
are necessary to allow us to market an acquired apartment community as
originally intended may prove to be inaccurate. We expect 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 we finance new acquisitions under existing lines of
credit, there is a risk that, unless we obtain 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. We pursue development and
redevelopment projects and these projects generally require various governmental
and other approvals, which have no assurance of being received. Our 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,
entitlement and government regulations, labor shortages, or unforeseen
complications;
|
|
·
|
occupancy
rates and rents at a completed project may be less than anticipated;
and
|
|
·
|
expenses
at 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 our financial condition and operating
results. The Company generated significant amounts of rental
revenues for the year ended December 31, 2008, from our 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. As of December 31, 2008, 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, market rental rates, and expenses, as well as impact the
income generated 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 our financial condition and operating results,
which could affect our ability to pay expected dividends to our
stockholders.
Competition in
the apartment community market may adversely affect operations and the rental
demand for our Communities. There are numerous housing
alternatives that compete with our 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. The Communities also compete for residents with new and
existing homes and condominiums that are for sale. If the demand for
our Communities is reduced or if competitors develop and/or acquire competing
apartment communities on a more cost-effective basis, rental rates may drop,
which may have a material adverse affect on our financial condition and results
of operations. We also face competition from other real estate
investment trusts, businesses and other entities in the acquisition, development
and operation of apartment communities. Some of the competitors are
larger and have greater financial resources than we do. This competition may
result in an increase in costs and prices of apartment communities that we
acquire and/or develop.
Dividend
requirements as a result of preferred stock may lead to a possible inability to
sustain dividends. We have
Series F Cumulative Redeemable Preferred Stock (“Series F Preferred Stock”) with
an aggregate liquidation preference of approximately $25 million outstanding and
Series G Cumulative Convertible Preferred Stock (“Series G Preferred Stock”)
with an aggregate liquidation preference of approximately $94.9 million
outstanding as of February 2009. In addition, we are required under
limited conditions to issue Series B Cumulative Redeemable Preferred Units
(“Series B Preferred Units”) with an aggregate liquidation preference of $80
million in exchange for outstanding preferred interests in the Operating
Partnership. The terms of the Series B Preferred Units, Series F and G Preferred
Stock provide for certain cumulative preferential cash distributions per each
share of preferred units or stock.
These
terms also provide that while such preferred stock is outstanding, we cannot
authorize, declare, or pay any distributions on our common stock, unless all
distributions accumulated on all shares of such preferred stock have been paid
in full. Our failure to pay distributions on such preferred stock would impair
our ability to pay dividends on our common stock. Our credit agreement limits
our ability to pay dividends on our preferred stock if we fail to satisfy a
fixed charge coverage ratio.
If the
Company wishes to issue any common stock in the future (including upon the
exercise of stock options), the funds required to continue to pay cash dividends
at current levels will be increased. The Company’s ability to pay
dividends will depend largely upon the performance of our current Communities
and other apartment communities that may be acquired or developed in the
future.
If the
Company cannot pay dividends on its common stock, the Company’s status as a real
estate investment trust may be jeopardized. Our ability to pay dividends on our
common stock is further limited by the Maryland General Corporation Law. Under
the Maryland General Corporation Law, the Company may not make a distribution on
stock if, after giving effect to such distribution, either:
|
·
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we
would not be able to pay our indebtedness as it becomes due in the usual
course of business; or
|
|
·
|
our
total assets would be less than our total liabilities, including the
liquidation preference on our Series B Preferred Units, Series F and our
Series G preferred stock.
|
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:
|
·
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national
and global economic conditions;
|
|
·
|
actual
or anticipated variations in our quarterly operating results or
dividends;
|
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·
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changes
in our funds from operations or earnings
estimates;
|
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·
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issuances
of common stock, preferred stock or convertible debt
securities;
|
|
·
|
publication
of research reports about us 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 our stock
to demand a higher annual yield from
dividends;
|
|
·
|
availability
to credit markets and cost of
credit;
|
|
·
|
a
change in analyst ratings or our credit
ratings;
|
|
·
|
terrorist
activity may adversely affect the markets in which our securities trade,
possibly increasing market volatility and causing erosion of business and
consumer confidence and spending.
|
Many of
the factors listed above are beyond our control. These factors may
cause the market price of shares of our common stock to decline, regardless of
our financial condition, results of operations, or business
prospects.
Sale of shares
pursuant to our effective registration statement or that are issued upon
conversion of our convertible preferred stock may have an adverse effect on the
market price of the shares. The Company has the following
effective registration statements, which allows for the sale into the public
stock of common stock held by shareholders, as specified in the registration
statements:
|
·
|
A
registration statement, declared effective in 2003, which covers the
resale of certain shares, including (i) up to 2,270,490 shares of common
stock that are issuable upon exchange of limited partnership interests in
the Operating Partnership and (ii) up to 1,473,125 shares that are
issuable upon exchange of limited partnership interests in certain other
real estate partnerships;
|
|
·
|
Registration
statements, declared effective in 2006, that cover (i) the resale of up to
142,076 shares issuable in connection with our Waterford and Vista
Belvedere acquisitions and (ii) the resale of shares issuable in
connection with the exchange rights of our 3.625% Exchangeable Bonds, as
to which there is a principal amount of $100.4 million outstanding as of
February 2009.
|
During
the third quarter of 2006, the Company issued, pursuant to a registration
statement, 5,980,000 shares of 4.875% Series G Cumulative Preferred Stock for
gross proceeds of $149.5 million; such shares are convertible, subject to
certain conditions, into common stock, which could be sold into the public
market. During 2009, the Company has repurchased $54.6 million of the
Series G Preferred Stock and $94.9 million in aggregate liquidation value is
currently outstanding.
The sale
of the shares of common stock pursuant to these various registration statements
or that are issued upon conversion of our outstanding convertible preferred
stock may have an adverse effect on the market price of our shares.
The exchange and
repurchase rights of Exchangeable Bonds and Series G Preferred Stock may be
detrimental to holders of common stock. As of February 2009,
the Operating Partnership has $100.4 million principal amount of 3.625%
exchangeable bonds (the “Bonds”) outstanding which mature on November 1, 2025.
The Bonds are exchangeable into the Company's common stock on or after November
1, 2020 or prior to November 1, 2020 under certain circumstances. The Bonds are
redeemable at the Company's option for cash at any time on or after November 4,
2010 and are subject to repurchase for cash at the option of the holder on
November 1st in the
years 2010, 2015 and 2020, or upon the occurrence of certain events. The Bonds
are senior unsecured and unsubordinated obligations of the Company.
In 2006,
the Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible
Preferred Stock (the “Series G Preferred Stock”) for gross proceeds of $149.5
million, of which $94.9 million in aggregate liquidation value is
outstanding as of February 2009. Holders may convert Series G
Preferred Stock into shares of the Company’s common stock subject to certain
conditions. The conversion rate was initially .1830 shares of common
stock per $25 share liquidation preference, which is equivalent to an initial
conversion price of $136.62 per share of common stock (the conversion rate will
be subject to adjustment upon the occurrence of specified events). On
or after July 31, 2011, the Company may, under certain circumstances cause some
or all of the Series G Preferred Stock to be converted into shares of common
stock at the then prevailing conversion rate. Further, if a
fundamental change occurs, as defined in the articles supplementary for the
Series G Preferred Stock, then the holders may require the Company to repurchase
all or part of their Series G Preferred Stock subject to certain
conditions.
The
exchange of the Bonds and/or Series G Preferred Stock for common stock would
dilute stockholder ownership in the Company, and such exchange could adversely
affect the market price of our common stock and our ability to raise capital
through the sale of additional equity securities. If the Bonds and
Series G Preferred Stock are not exchanged, the repurchase price of the Bonds
and Series G Preferred Stock may discourage or impede transactions that might
otherwise be in the interest of the holders of common stock. Further, these
repurchase rights may be triggered in situations where the Company needs to
conserve its cash reserves, in which event such repurchase might adversely
affect the Company and its common stockholders.
The
Company’s future issuances of common stock, preferred stock or
convertible debt securities could adversely affect the market price of our
common stock. In order to
finance our acquisition and development activities, we have issued and sold
common stock, preferred stock and convertible debt securities. For
example, during 2008 and 2007, the Company issued and sold 1,209,050 and
1,670,500 shares of common stock for $142.8 million and $213.7 million, net of
fees and commissions, respectively. The Company may in the future
sell further shares of common stock, including pursuant to its controlled equity
offering program with Cantor Fitzgerald & Co.
In
November 2008, the holders of the outstanding 7.875% Series D Cumulative
Redeemable Preferred Units of Essex Portfolio, L.P. exchanged their preferred
units with a par value of $50.0 million for 363,000 shares of common stock of
the Company and $10.0 million in cash plus accrued dividends.
In 2007,
the Company filed a new shelf registration statement with the SEC, allowing the
Company to sell an undetermined number of equity and debt securities as defined
in the prospectus. Future sales of common stock, preferred stock or
convertible debt securities may dilute stockholder ownership in the Company and
could adversely affect the market price of the common stock.
The
Company’s Chairman is involved in other real estate activities and
investments, which may lead to conflicts of
interest. Our 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 (“TMMC”), which is a
holding company for certain real estate brokerage and services companies. TMMC
has an interest in Pacific Property Company, a company that invests in apartment
communities.
Mr.
Marcus has agreed not to divulge any 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 abstain his vote on any and all resolutions 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 us in acquiring and/or
developing apartment communities, which competition may be detrimental to
us. In addition, due to such potential competition for real estate
investments, Mr. Marcus and his affiliated entities may have a conflict of
interest with us, 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, 2008, George M.
Marcus, the Chairman of our Board of Directors, wholly or partially owned
1,772,199 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 6.7% of the outstanding shares of our common stock. Mr. Marcus
currently does not have majority control over us. 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 our
stockholders.
Under the
partnership agreement of the Operating Partnership, the consent of the holders
of limited partnership interests is generally required for any amendment of the
agreement and for certain extraordinary actions. Through their
ownership of limited partnership interests and their positions with us, our
directors and executive officers, including Mr. Marcus, have substantial
influence on us. 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. In general, the holders
of our outstanding shares of preferred stock do not have any voting rights.
However, if full distributions are not made on any outstanding preferred stock
for six quarterly distributions periods, the holders of preferred stock who have
not received distributions, voting together as a single class, will have the
right to elect two additional directors to serve on our Board of
Directors.
These
voting rights continue until all distributions in arrears and distributions for
the current quarterly period on the preferred stock have been paid in full. At
that time, the holders of the preferred stock are divested of these voting
rights, and the term and office of the directors so elected immediately
terminates. While any shares of our preferred stock are outstanding, the Company
may not, without the consent of the holders of two-thirds of the outstanding
shares of each series of preferred stock, each voting separately as a single
class:
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authorize
or create any class or series of stock that ranks senior to such preferred
stock with respect to the payment of dividends, rights upon liquidation,
dissolution or winding-up of our
business;
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amend,
alter or repeal the provisions of the Company’s Charter or Bylaws,
including by merger or consolidation, that would materially and adversely
affect the rights of such series of preferred stock;
or
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in
the case of the preferred stock into which our preferred units are
exchangeable, merge or consolidate with another entity or transfer
substantially all of its assets to another entity, except if such
preferred stock remains outstanding with the surviving entity and has the
same terms and in certain other
circumstances.
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These
voting rights of the preferred stock may allow holders of preferred stock to
impede or veto actions that would otherwise benefit the holders of our common
stock.
The redemption
rights of the Series B preferred units, Series F preferred stock and Series G
preferred stock may be detrimental to holders of the Company’s common
stock. Upon the occurrence of one of the following events, the
terms of the Operating Partnership’s Series B Preferred Units require it to
redeem all of such units and the terms of the Company’s Series F Preferred Stock
and the Series G Preferred Stock provide the holders of the majority of the
outstanding Series F Preferred Stock and Series G Preferred Stock the right to
require the Company to redeem all of such stock:
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the
Company completes a “going private” transaction and its common stock is no
longer registered under the Securities Exchange Act of 1934, as
amended;
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the
Company completes a consolidation or merger or sale of substantially all
of its assets and the surviving entity’s debt securities do not possess an
investment grade rating;
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the
Company fails to qualify as a REIT;
or
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in
the case of Series G preferred stock, the Company common stock is not
traded on a major exchange.
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The
aggregate redemption price of the Series B Preferred Units would be $80 million,
the aggregate redemption price of the Series F Preferred Stock would be $25
million and the aggregate redemption price of the Series G Preferred Stock would
be $94.9 million, plus, in each case, any accumulated
distributions.
These
redemption rights may discourage or impede transactions that might otherwise be
in the interest of holders of common stock. Further, these redemption
rights might trigger situations where the Company needs to conserve its cash
reserves, in which event such redemption might adversely affect the Company and
its common holders.
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:
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80%
of the votes entitled to be cast by holders of outstanding voting shares;
and
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Two-thirds
of the votes entitled to be cast by holders of outstanding voting shares
other than shares held by the interested stockholder with whom the
business combination is to be
effected.
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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 us, George M. Marcus, William A. Millichap, who are the chairman
and a director of the Company, respectively, and TMMC or any entity owned or
controlled by Messrs. Marcus and Millichap and TMMC. Consequently, the five-year
prohibition and supermajority vote requirement described above will not apply to
any business combination between us and Mr. Marcus, Mr. Millichap, or
TMMC. As a result, we may in the future enter into business
combinations with Messrs. Marcus and Millichap and TMMC, without compliance with
the supermajority vote requirements and other provisions of the Maryland General
Corporation Law.
Anti-takeover
provisions contained in the Operating Partnership agreement, charter, bylaws,
and certain provisions of Maryland law could delay, defer or prevent a change in
control. 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 our
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 our general partner interest in the Operating
Partnership to another entity. Such limitations on the Company’s
ability to act may result in our 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, 2008, the limited partners held or
controlled approximately 8.4% 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. We 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 our
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.
Our
Charter and bylaws also contain other provisions that may impede various actions
by stockholders without approval of our board of directors, which in turn may
delay, defer or prevent a transaction, including a change in
control. Those provisions include:
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the
Company’s directors have terms of office of three years and the board of
directors is divided into three classes with staggered terms; as a result,
less than a majority of directors are up for re-election to the board in
any one year;
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directors
may be removed, without cause, only upon a two-thirds vote of
stockholders, and with cause, only upon a majority vote of
stockholders;
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our
board can fix the number of directors and fill vacant directorships upon
the vote of a majority of the
directors;
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stockholders
must give advance notice to nominate directors or propose business for
consideration at a stockholders’ meeting;
and
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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.
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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 apartment communities directly, we have invested and may continue to
invest in joint ventures. Joint venture partners often have shared
control over the 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 our
business interests or goals, or be in a position to take action contrary to our
instructions or requests, or our policies or
objectives. Consequently, a joint venture partners’ actions might
subject property owned by the joint venture to additional
risk. Although we seek to maintain sufficient influence over any
joint venture to achieve its objectives, we may be unable to take action without
our joint venture partners’ approval, or joint venture partners could take
actions binding on the joint venture without our
consent. Should a joint venture partner become bankrupt, we
could become liable for such partner’s share of joint venture
liabilities.
From time
to time, we, through the Operating Partnership, invest in corporations, limited
partnerships, limited liability companies or other entities that have been
formed for the purpose of acquiring, developing or managing real property. In
certain circumstances, the Operating Partnership’s interest in a particular
entity may be less than a majority of the outstanding voting interests of that
entity. Therefore, the Operating Partnership’s ability to control the
daily operations of such an entity may be limited. Furthermore, the Operating
Partnership may not have the power to remove a majority of the board of
directors (in the case of a corporation) or the general partner or partners (in
the case of a limited partnership) of such an entity in the event that its
operations conflict with the Operating Partnership’s objectives. 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. We have, and in the future may, enter into transactions that
could require us 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 our control, occur. Although we plan
to hold the contributed assets or defer recognition of gain on their sale
pursuant to the like-kind exchange rules under Section 1031 of the Internal
Revenue Code, we can provide no assurance that we will be able to do so and if
such tax liabilities were incurred they can expect to have a material impact on
our financial position.
There are risks
that Fund II may operate in ways that may adversely impact the Company’s
interests. The Company is the general partner of Fund II, and
with Fund II there are the following risks:
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the
Company’s partners in Fund II might remove the Company as the general
partner of Fund II;
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the
Company’s partners in Fund II might have economic or business
interests or goals that are inconsistent with our business interests or
goals; or
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the
Company’s partners in Fund II might fail to approve decisions
regarding Fund II that are in the Company’s best
interest.
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We will,
however, seek to maintain sufficient influence over Fund II to permit it to
achieve its business objectives.
Investments in
mortgages and other real estate securities could affect our ability to make
distributions to stockholders. The Company may invest in
securities related to real estate, which could adversely affect our 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:
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that
the value of mortgaged property may be less than the amounts owed, causing
realized or unrealized losses;
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the
borrower may not pay indebtedness under the mortgage when due, requiring
us to foreclose, and the amount recovered in connection with the
foreclosure may be less than the amount
owed;
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that
interest rates payable on the mortgages may be lower than our cost of
funds; and
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in
the case of junior mortgages, that foreclosure of a senior mortgage could
eliminate the junior mortgage.
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If any of
the above were to occur, cash flows from operations and our ability to make
expected dividends to stockholders could be adversely affected.
The Company’s
Portfolio may have unknown 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. We carry certain limited insurance
coverage for this type of environmental risk. We have 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 any
possible 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 we may be potentially liable for removal or
clean-up costs, as well as certain other costs and environmental
liabilities. We may also be subject to governmental fines and costs
related to injuries to persons and property.
Recently
there has been an increasing number of lawsuits against owners and managers of
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, 2008,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
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 we have sought to comply
with Proposition 65 requirements, we cannot assure you that we 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 unknown 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 for terrorism or earthquake,
for which the Company does not have insurance coverage. Substantially all of the
Communities are located in areas that are subject to earthquake
activity. In January 2007, the Company canceled its then existing
earthquake policy and 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.
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. In the event of a substantial loss, insurance coverage may
not be able to cover the full current market value of 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. Inflation,
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.
Changes in real
estate tax and other laws may adversely affect the Company’s results of
operations. Generally we do not directly pass through costs
resulting from changes in real estate tax laws to residential property tenants.
We also do not generally pass through increases in income, service or other
taxes, to tenants under leases. These costs may adversely affect funds from
operations and the ability to make distributions to
stockholders. Similarly, compliance with changes in (i) laws
increasing the potential liability for environmental conditions existing on
apartment communities or the restrictions on discharges or other conditions or
(ii) rent control or rent stabilization laws or other laws regulating housing
may result in significant unanticipated decrease in revenue or increase in
expenditures, which would adversely affect funds from operations and the ability
to make distributions to stockholders.
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. 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
our obligations and the obligations of the Operating Partnership, and an
increase in debt service requirements that could adversely affect our 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. The Company has elected to be
taxed as a REIT under the Internal Revenue Code ("IRC"). The
Company’s qualification as a REIT requires it to satisfy numerous requirements
(some on an annual and quarterly basis) established under highly technical and
complex IRC 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 the Company intends that its current organization
and method of operation enable it to qualify as a REIT, the Company 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 impact the Company’s ability to qualify as a REIT or adversely
affect its stockholders. If it 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 its taxable income at corporate
rates, and would not be allowed to deduct dividends paid to its shareholders in
computing its taxable income. The Company may also be disqualified
from treatment as a REIT for the four taxable years following the year in which
it failed to qualify. The additional tax liability would reduce its
net earnings available for investment or distribution to stockholders, and it
would no longer be required to make distributions to its
stockholders. Even if the Company continues to qualify as a REIT, it
will continue to be subject to certain federal, state and local taxes on its
income and property.
The
Company has established several taxable REIT subsidiaries. Despite
the Company’s qualification as a REIT, its taxable REIT subsidiaries must pay
U.S. federal income tax on their taxable income. While the Company
will attempt to ensure that its dealing with its taxable REIT subsidiaries does
not adversely affect its REIT qualification, the Company cannot provide
assurance that it will successfully achieve that result. Furthermore,
the Company may be subject to a 100% penalty tax, or its taxable REIT
subsidiaries may be denied deductions, to the extent its dealings with its
taxable REIT subsidiaries’ are not deemed to be arm’s length in
nature. No assurances can be given that the Company’s dealings
with its taxable REIT subsidiaries will be considered arm’s length in nature.
From time
to time, the Company may transfer or otherwise dispose of some of its
Communities. Under the IRC, any gain resulting from transfers of Communities
that we hold 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 we acquire apartment communities
for investment purposes, we do not believe that our 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 apartment communities by us 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 the Company 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 the Company’s ability to satisfy the income tests for qualification as a
REIT for U.S. federal income tax purposes. Therefore, no assurances
can be given that the Company will be able to satisfy the income tests for
qualification as a REIT.
Item 1B. Unresolved Staff Comments
None.
Our core
apartment Portfolio as of December 31, 2008 (including partial ownership
interests) was comprised of 134 apartment communities (comprising 26,992
apartment units), of which 12,980 units are located in Southern California,
8,032 units are located in the San Francisco Bay Area, and 5,980 units are
located in the Seattle metropolitan area. The Company’s apartment
communities accounted for 94.8% of the Company’s revenue for the year ended
December 31, 2008.
Occupancy
Rates
The 134
apartment communities had an average Same-Properties occupancy (as defined in
Item 7), based on “financial occupancy,” during the year ended December 31,
2008, of approximately 96.3%. With respect to stabilized apartment communities
with sufficient operating history, occupancy figures are based on financial
occupancy (the percentage resulting from dividing actual rental revenue by total
possible rental revenue). Actual rental revenue represents contractual revenue
pursuant to leases without considering delinquency and concessions. 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. We believe that financial occupancy is a
meaningful measure of occupancy because it considers the value of each vacant
unit at its estimated market rate. 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 our calculation of financial
occupancy.
As of
December 31, 2008, the headquarters building was 100% occupied by the Company
and the Southern California office building was 100% occupied, based on physical
occupancy. With respect to office buildings, occupancy figures are based on
“physical occupancy” which refers to the percentage resulting from dividing
leased and occupied square footage by rentable square footage. With respect to
apartment communities which have not yet stabilized or have insufficient
operating history, occupancy figures are based on “physical occupancy” which
refers to the percentage resulting from dividing leased and occupied units by
rentable units. For the year ended December 31, 2008, none of
the Company’s Properties had book values equal to 10% or more of total assets of
the Company or gross revenues equal to 10% or more of aggregate gross revenues
of the Company.
Apartment
Communities
Our
apartment communities are generally suburban garden apartments and town homes
comprising multiple clusters of two and three story buildings situated on three
to fifteen acres of land. The apartment communities have an average of
approximately 200 units, with a mix of studio, one, two and some three-bedroom
units. A wide variety of amenities are available at each apartment community,
including covered parking, fireplaces, swimming pools, clubhouses with complete
fitness facilities, volleyball and playground areas and tennis
courts.
We
select, train and supervise a full team of on-site service and maintenance
personnel. We believe that the following primary factors enhance our ability to
retain tenants:
|
·
|
located
near employment centers;
|
|
·
|
attractive
communities that are well maintained;
and
|
|
·
|
proactive
customer service approach.
|
Office
and Other Commercial Buildings
The
Company’s corporate headquarters is located in an office building with
approximately 17,400 square feet located at 925 East Meadow Drive, Palo Alto,
California. The Company acquired the property in 1997. In 2007, the
Company acquired the adjacent property at 935 East Meadow Drive, and the
building is under redevelopment through the first quarter of
2009. This building is approximately 14,500 square feet and will be
solely occupied by the Company. The Company also owns an office
building in Woodland Hills, California, comprised of approximately 38,900 square
feet, of which the Company occupies approximately 11,500 square feet at December
31, 2008. The Company acquired the Woodland Hills property in
2001. The Company has a mortgage loan receivable on an office
building with approximately 110,000 square feet located in Irvine, California,
which is consolidated in accordance with GAAP. The Company acquired
Essex-Hollywood in 2006, a 35,000 square foot commercial building that is
currently utilized as a production studio, and the Company has one
predevelopment project, Cadence Campus acquired in 2007, which is an office
building, comprised of 262,500 square feet. Both Essex-Hollywood and
the Cadence Campus properties were 100% leased to single tenants as of December
31, 2008.
The
following tables describe the Company’s Portfolio as of December 31, 2008. The
first table describes the Company’s apartment 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
|
|
|
Apartment
Communities (1)
|
|
Location
|
|
Units
|
|
Footage
|
|
Built
|
|
Acquired
|
|
Occupancy(2)
|
Southern
California
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine
Country
|
|
Alpine,
CA
|
|
108
|
|
81,900
|
|
1986
|
|
2002
|
|
95%
|
Alpine
Village
|
|
Alpine,
CA
|
|
306
|
|
254,400
|
|
1971
|
|
2002
|
|
97%
|
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
|
|
95%
|
Camino
Ruiz Square
|
|
Camarillo,
CA
|
|
160
|
|
105,448
|
|
1990
|
|
2006
|
|
96%
|
Mountain
View
|
|
Camarillo,
CA
|
|
106
|
|
83,900
|
|
1980
|
|
2004
|
|
97%
|
Cambridge
|
|
Chula
Vista, CA
|
|
40
|
|
22,100
|
|
1965
|
|
2002
|
|
98%
|
Woodlawn
Colonial
|
|
Chula
Vista, CA
|
|
159
|
|
104,500
|
|
1974
|
|
2002
|
|
96%
|
Mesa
Village
|
|
Clairemont,
CA
|
|
133
|
|
43,600
|
|
1963
|
|
2002
|
|
98%
|
Parcwood(5)
|
|
Corona,
CA
|
|
312
|
|
270,000
|
|
1989
|
|
2004
|
|
95%
|
Tierra
del Sol/Norte
|
|
El
Cajon, CA
|
|
156
|
|
117,000
|
|
1969
|
|
2002
|
|
98%
|
Grand
Regency
|
|
Escondido,
CA
|
|
60
|
|
42,400
|
|
1967
|
|
2002
|
|
98%
|
Valley
Park(6)
|
|
Fountain
Valley, CA
|
|
160
|
|
169,700
|
|
1969
|
|
2001
|
|
96%
|
Capri
at Sunny Hills(6)
|
|
Fullerton,
CA
|
|
100
|
|
128,100
|
|
1961
|
|
2001
|
|
98%
|
Wilshire
Promenade
|
|
Fullerton,
CA
|
|
149
|
|
128,000
|
|
1992(7)
|
|
1997
|
|
96%
|
Montejo(6)
|
|
Garden
Grove, CA
|
|
124
|
|
103,200
|
|
1974
|
|
2001
|
|
99%
|
CBC
Apartments
|
|
Goleta,
CA
|
|
148
|
|
91,538
|
|
1962
|
|
2006
|
|
98%
|
Chimney
Sweep Apartments
|
|
Goleta,
CA
|
|
91
|
|
88,370
|
|
1967
|
|
2006
|
|
85%
|
Hampton
Court
|
|
Glendale,
CA
|
|
83
|
|
71,500
|
|
1974(8)
|
|
1999
|
|
94%
|
Hampton
Place
|
|
Glendale,
CA
|
|
132
|
|
141,500
|
|
1970(9)
|
|
1999
|
|
95%
|
Devonshire
|
|
Hemet,
CA
|
|
276
|
|
207,200
|
|
1988
|
|
2002
|
|
89%
|
Huntington
Breakers
|
|
Huntington
Beach, CA
|
|
342
|
|
241,700
|
|
1984
|
|
1997
|
|
97%
|
Hillsborough
Park
|
|
La
Habra, CA
|
|
235
|
|
215,500
|
|
1999
|
|
1999
|
|
98%
|
Trabuco
Villas
|
|
Lake
Forest, CA
|
|
132
|
|
131,000
|
|
1985
|
|
1997
|
|
97%
|
Marbrisa
|
|
Long
Beach, CA
|
|
202
|
|
122,800
|
|
1987
|
|
2002
|
|
97%
|
Pathways
|
|
Long
Beach, CA
|
|
296
|
|
197,700
|
|
1975(10)
|
|
1991
|
|
92%
|
Belmont
Station
|
|
Los
Angeles, CA
|
|
275
|
|
225,000
|
|
2008(11)
|
|
2008
|
|
70%
|
Bunker
Hill
|
|
Los
Angeles, CA
|
|
456
|
|
346,600
|
|
1968
|
|
1998
|
|
96%
|
Cochran
Apartments
|
|
Los
Angeles, CA
|
|
58
|
|
51,400
|
|
1989
|
|
1998
|
|
91%
|
Kings
Road
|
|
Los
Angeles, CA
|
|
196
|
|
132,100
|
|
1979(12)
|
|
1997
|
|
95%
|
Marbella,
The
|
|
Los
Angeles, CA
|
|
60
|
|
50,108
|
|
1991
|
|
2005
|
|
90%
|
Park
Place
|
|
Los
Angeles, CA
|
|
60
|
|
48,000
|
|
1988
|
|
1997
|
|
91%
|
Renaissance,
The(5)
|
|
Los
Angeles, CA
|
|
168
|
|
154,268
|
|
1990(13)
|
|
2006
|
|
94%
|
Windsor
Court
|
|
Los
Angeles, CA
|
|
58
|
|
46,600
|
|
1988
|
|
1997
|
|
91%
|
Marina
City Club(14)
|
|
Marina
Del Rey, CA
|
|
101
|
|
127,200
|
|
1971
|
|
2004
|
|
95%
|
Mirabella(15)
|
|
Marina
Del Rey, CA
|
|
188
|
|
176,800
|
|
2000
|
|
2000
|
|
95%
|
Mira
Monte
|
|
Mira
Mesa, CA
|
|
355
|
|
262,600
|
|
1982(16)
|
|
2002
|
|
98%
|
Hillcrest
Park
|
|
Newbury
Park, CA
|
|
608
|
|
521,900
|
|
1973(17)
|
|
1998
|
|
95%
|
Fairways(18)
|
|
Newport
Beach, CA
|
|
74
|
|
107,100
|
|
1972
|
|
1999
|
|
94%
|
Country
Villas
|
|
Oceanside,
CA
|
|
180
|
|
179,700
|
|
1976
|
|
2002
|
|
97%
|
Mission
Hills
|
|
Oceanside,
CA
|
|
282
|
|
244,000
|
|
1984
|
|
2005
|
|
97%
|
Mariners
Place
|
|
Oxnard,
CA
|
|
105
|
|
77,200
|
|
1987
|
|
2000
|
|
97%
|
Monterey
Villas
|
|
Oxnard,
CA
|
|
122
|
|
122,100
|
|
1974(19)
|
|
1997
|
|
95%
|
Tierra
Vista
|
|
Oxnard,
CA
|
|
404
|
|
387,100
|
|
2001
|
|
2001
|
|
95%
|
Monterra
del Mar
|
|
Pasadena,
CA
|
|
123
|
|
74,400
|
|
1972(20)
|
|
1997
|
|
96%
|
Monterra
del Rey
|
|
Pasadena,
CA
|
|
84
|
|
73,100
|
|
1972(21)
|
|
1999
|
|
95%
|
Monterra
del Sol
|
|
Pasadena,
CA
|
|
85
|
|
69,200
|
|
1972(22)
|
|
1999
|
|
96%
|
Villa
Angelina(6)
|
|
Placentia,
CA
|
|
256
|
|
217,600
|
|
1970
|
|
2001
|
|
97%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
|
|
|
|
|
|
Rentable
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Year
|
|
Year
|
|
|
Apartment
Communities (1)
|
|
Location
|
|
Units
|
|
Footage
|
|
Built
|
|
Acquired
|
|
Occupancy(2)
|
Southern
California (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fountain
Park
|
|
Playa
Vista, CA
|
|
705
|
|
608,900
|
|
2002
|
|
2004
|
|
94%
|
Highridge(6)
|
|
Rancho
Palos Verdes, CA
|
255
|
|
290,200
|
|
1972(23)
|
|
1997
|
|
93%
|
Bluffs
II, The(24)
|
|
San
Diego, CA
|
|
224
|
|
126,700
|
|
1974
|
|
1997
|
|
98%
|
Summit
Park
|
|
San
Diego, CA
|
|
300
|
|
229,400
|
|
1972
|
|
2002
|
|
97%
|
Vista
Capri - North
|
|
San
Diego, CA
|
|
106
|
|
51,800
|
|
1975
|
|
2002
|
|
97%
|
Brentwood(6)
|
|
Santa
Ana, CA
|
|
140
|
|
154,800
|
|
1970
|
|
2001
|
|
96%
|
Treehouse(6)
|
|
Santa
Ana, CA
|
|
164
|
|
135,700
|
|
1970
|
|
2001
|
|
95%
|
Hope
Ranch Collection
|
|
Santa
Barbara, CA
|
|
108
|
|
126,700
|
|
1965&73
|
|
2007
|
|
96%
|
Carlton
Heights
|
|
Santee,
CA
|
|
70
|
|
48,400
|
|
1979
|
|
2002
|
|
95%
|
Hidden
Valley(25)
|
|
Simi
Valley, CA
|
|
324
|
|
310,900
|
|
2004
|
|
2004
|
|
96%
|
Meadowood
|
|
Simi
Valley, CA
|
|
320
|
|
264,500
|
|
1986
|
|
1996
|
|
96%
|
Shadow
Point
|
|
Spring
Valley, CA
|
|
172
|
|
131,200
|
|
1983
|
|
2002
|
|
97%
|
Coldwater
Canyon
|
|
Studio
City, CA
|
|
39
|
|
34,125
|
|
1979
|
|
2007
|
|
61%
|
Lofts
at Pinehurst, The
|
|
Ventura,
CA
|
|
118
|
|
71,100
|
|
1971(26)
|
|
1997
|
|
97%
|
Pinehurst(27)
|
|
Ventura,
CA
|
|
28
|
|
21,200
|
|
1973
|
|
2004
|
|
99%
|
Woodside
Village
|
|
Ventura,
CA
|
|
145
|
|
136,500
|
|
1987
|
|
2004
|
|
97%
|
Walnut
Heights
|
|
Walnut,
CA
|
|
163
|
|
146,700
|
|
1964
|
|
2003
|
|
97%
|
Avondale
at Warner Center
|
|
Woodland
Hills, CA
|
|
446
|
|
331,000
|
|
1970(28)
|
|
1997
|
|
94%
|
|
|
|
|
12,980
|
|
10,796,557
|
|
|
|
|
|
95%
|
Northern
California
|
|
|
|
|
|
|
|
|
|
|
|
|
Belmont
Terrace …
|
|
Belmont,
CA
|
|
71
|
|
72,951
|
|
1974
|
|
2006
|
|
98%
|
Carlmont
Woods(5)
|
|
Belmont,
CA
|
|
195
|
|
107,200
|
|
1971
|
|
2004
|
|
98%
|
Davey
Glen(5)
|
|
Belmont,
CA
|
|
69
|
|
65,974
|
|
1962
|
|
2006
|
|
96%
|
Pointe
at Cupertino, The
|
|
Cupertino,
CA
|
|
116
|
|
135,200
|
|
1963(29)
|
|
1998
|
|
98%
|
Harbor
Cove(5)
|
|
Foster
City, CA
|
|
400
|
|
306,600
|
|
1971
|
|
2004
|
|
98%
|
Stevenson
Place
|
|
Fremont,
CA
|
|
200
|
|
146,200
|
|
1971(30)
|
|
1983
|
|
97%
|
Boulevard
|
|
Fremont,
CA
|
|
172
|
|
131,200
|
|
1978(31)
|
|
1996
|
|
91%
|
City
View
|
|
Hayward,
CA
|
|
560
|
|
462,400
|
|
1975(32)
|
|
1998
|
|
97%
|
Alderwood
Park(5)
|
|
Newark,
CA
|
|
96
|
|
74,624
|
|
1987
|
|
2006
|
|
97%
|
Bridgeport
|
|
Newark,
CA
|
|
184
|
|
139,000
|
|
1987(33)
|
|
1987
|
|
97%
|
Regency
Towers(5)
|
|
Oakland,
CA
|
|
178
|
|
140,900
|
|
1975(34)
|
|
2005
|
|
95%
|
San
Marcos
|
|
Richmond,
CA
|
|
432
|
|
407,600
|
|
2003
|
|
2003
|
|
98%
|
Mt Sutro
|
|
San
Francisco, CA
|
|
99
|
|
64,000
|
|
1973
|
|
2001
|
|
98%
|
Carlyle,
The
|
|
San
Jose, CA
|
|
132
|
|
129,200
|
|
2000
|
|
2000
|
|
97%
|
Enclave,
The(5)
|
|
San
Jose, CA
|
|
637
|
|
525,463
|
|
1998
|
|
2005
|
|
97%
|
Esplanade
|
|
San
Jose, CA
|
|
278
|
|
279,000
|
|
2002
|
|
2004
|
|
98%
|
Waterford,
The
|
|
San
Jose, CA
|
|
238
|
|
219,600
|
|
2000
|
|
2000
|
|
98%
|
Hillsdale
Garden(35)
|
|
San
Mateo, CA
|
|
697
|
|
611,505
|
|
1948
|
|
2006
|
|
98%
|
Bel
Air
|
|
San
Ramon, CA
|
|
462
|
|
391,000
|
|
1988/2000(36)
|
|
1997
|
|
97%
|
Canyon
Oaks
|
|
San
Ramon, CA
|
|
250
|
|
237,894
|
|
2005
|
|
2007
|
|
97%
|
Foothill
Gardens
|
|
San
Ramon, CA
|
|
132
|
|
155,100
|
|
1985
|
|
1997
|
|
97%
|
Mill
Creek at Windermere
|
|
San
Ramon, CA
|
|
400
|
|
381,060
|
|
2005
|
|
2007
|
|
96%
|
Twin
Creeks
|
|
San
Ramon, CA
|
|
44
|
|
51,700
|
|
1985
|
|
1997
|
|
97%
|
Le
Parc Luxury Apartments
|
|
Santa
Clara, CA
|
|
140
|
|
113,200
|
|
1975(37)
|
|
1994
|
|
97%
|
Marina
Cove(38)
|
|
Santa
Clara, CA
|
|
292
|
|
250,200
|
|
1974(39)
|
|
1994
|
|
97%
|
Chestnut
Street
|
|
Santa
Cruz, CA
|
|
96
|
|
87,640
|
|
2002
|
|
2008
|
|
97%
|
Harvest
Park
|
|
Santa
Rosa, CA
|
|
104
|
|
116,628
|
|
2004
|
|
2007
|
|
97%
|
Bristol
Commons
|
|
Sunnyvale,
CA
|
|
188
|
|
142,600
|
|
1989
|
|
1997
|
|
99%
|
Brookside
Oaks(6)
|
|
Sunnyvale,
CA
|
|
170
|
|
119,900
|
|
1973
|
|
2000
|
|
99%
|
Magnolia
Lane(40)
|
|
Sunnyvale,
CA
|
|
32
|
|
31,541
|
|
2001
|
|
2007
|
|
99%
|
Montclaire,
The
|
|
Sunnyvale,
CA
|
|
390
|
|
294,100
|
|
1973(41)
|
|
1988
|
|
94%
|
Summerhill
Park
|
|
Sunnyvale,
CA
|
|
100
|
|
78,500
|
|
1988
|
|
1988
|
|
99%
|
Thomas
Jefferson(6)
|
|
Sunnyvale,
CA
|
|
156
|
|
110,824
|
|
1969
|
|
2007
|
|
99%
|
Windsor
Ridge
|
|
Sunnyvale,
CA
|
|
216
|
|
161,800
|
|
1989
|
|
1989
|
|
98%
|
Vista
Belvedere
|
|
Tiburon,
CA
|
|
76
|
|
78,300
|
|
1963
|
|
2004
|
|
96%
|
Tuscana
|
|
Tracy,
CA
|
|
30
|
|
29,088
|
|
2007
|
|
2007
|
|
97%
|
|
|
|
|
8,032
|
|
6,849,692
|
|
|
|
|
|
97%
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Year
|
|
Year
|
|
|
Apartment
Communities (1)
|
|
Location
|
|
Units
|
|
Footage
|
|
Built
|
|
Acquired
|
|
Occupancy(2)
|
Seattle,
Washington Metropolitan Area
|
|
|
|
|
|
|
|
|
|
|
|
|
Cedar
Terrace
|
|
Bellevue,
WA
|
|
180
|
|
174,200
|
|
1984
|
|
2005
|
|
96%
|
Emerald
Ridge-North
|
|
Bellevue,
WA
|
|
180
|
|
144,000
|
|
1987
|
|
1994
|
|
97%
|
Foothill
Commons
|
|
Bellevue,
WA
|
|
360
|
|
288,300
|
|
1978(42)
|
|
1990
|
|
99%
|
Palisades,
The
|
|
Bellevue,
WA
|
|
192
|
|
159,700
|
|
1977(43)
|
|
1990
|
|
98%
|
Sammamish
View
|
|
Bellevue,
WA
|
|
153
|
|
133,500
|
|
1986(44)
|
|
1994
|
|
98%
|
Woodland
Commons
|
|
Bellevue,
WA
|
|
236
|
|
172,300
|
|
1978(45)
|
|
1990
|
|
99%
|
Canyon
Pointe
|
|
Bothell,
WA
|
|
250
|
|
210,400
|
|
1990
|
|
2003
|
|
96%
|
Inglenook
Court
|
|
Bothell,
WA
|
|
224
|
|
183,600
|
|
1985
|
|
1994
|
|
95%
|
Salmon
Run at Perry Creek
|
|
Bothell,
WA
|
|
132
|
|
117,100
|
|
2000
|
|
2000
|
|
97%
|
Stonehedge
Village
|
|
Bothell,
WA
|
|
196
|
|
214,800
|
|
1986
|
|
1997
|
|
97%
|
Highlands
at Wynhaven
|
|
Issaquah,
WA
|
|
333
|
|
424,674
|
|
2000
|
|
2008
|
|
96%
|
Park
Hill at Issaquah
|
|
Issaquah,
WA
|
|
245
|
|
277,700
|
|
1999
|
|
1999
|
|
97%
|
Wandering
Creek
|
|
Kent,
WA
|
|
156
|
|
124,300
|
|
1986
|
|
1995
|
|
98%
|
Bridle
Trails
|
|
Kirkland,
WA
|
|
108
|
|
99,700
|
|
1986(46)
|
|
1997
|
|
98%
|
Evergreen
Heights
|
|
Kirkland,
WA
|
|
200
|
|
188,300
|
|
1990
|
|
1997
|
|
97%
|
Laurels
at Mill Creek, The
|
|
Mill
Creek, WA
|
|
164
|
|
134,300
|
|
1981
|
|
1996
|
|
96%
|
Morning
Run(5)
|
|
Monroe,
WA
|
|
222
|
|
221,786
|
|
1991
|
|
2005
|
|
96%
|
Anchor
Village(6)
|
|
Mukilteo,
WA
|
|
301
|
|
245,900
|
|
1981
|
|
1997
|
|
97%
|
Castle
Creek
|
|
Newcastle,
WA
|
|
216
|
|
191,900
|
|
1997
|
|
1997
|
|
96%
|
Brighton
Ridge
|
|
Renton,
WA
|
|
264
|
|
201,300
|
|
1986
|
|
1996
|
|
96%
|
Fairwood
Pond
|
|
Renton,
WA
|
|
194
|
|
189,200
|
|
1997
|
|
2004
|
|
97%
|
Forest
View
|
|
Renton,
WA
|
|
192
|
|
182,500
|
|
1998
|
|
2003
|
|
97%
|
Cairns,
The
|
|
Seattle,
WA
|
|
100
|
|
70,806
|
|
2006
|
|
2007
|
|
97%
|
Eastlake
2851(5)
|
|
Seattle,
WA
|
|
127
|
|
234,086
|
|
2008(47)
|
|
2008
|
|
99%
|
Fountain
Court
|
|
Seattle,
WA
|
|
320
|
|
207,000
|
|
2000
|
|
2000
|
|
96%
|
Linden
Square
|
|
Seattle,
WA
|
|
183
|
|
142,200
|
|
1994
|
|
2000
|
|
97%
|
Maple
Leaf
|
|
Seattle,
WA
|
|
48
|
|
35,500
|
|
1986
|
|
1997
|
|
99%
|
Spring
Lake
|
|
Seattle,
WA
|
|
69
|
|
42,300
|
|
1986
|
|
1997
|
|
98%
|
Tower
@ 801(5)
|
|
Seattle,
WA
|
|
173
|
|
118,500
|
|
1970
|
|
2005
|
|
96%
|
Wharfside
Pointe
|
|
Seattle,
WA
|
|
142
|
|
119,200
|
|
1990
|
|
1994
|
|
97%
|
Echo
Ridge(5)
|
|
Snoqualmie,
WA
|
|
120
|
|
124,359
|
|
2000
|
|
2005
|
|
97%
|
|
|
|
|
5,980
|
|
5,373,411
|
|
|
|
|
|
96%
|
Total/Weighted
Average
|
|
|
|
26,992
|
|
23,019,660
|
|
|
|
|
|
96%
|
|
|
|
|
|
|
|
Rentable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
Year
|
|
Year
|
|
|
|
Other
real estate assets(1)
|
|
Location
|
|
Tenants
|
|
|
Footage
|
|
Built
|
|
Acquired
|
|
Occupancy(2)
|
|
Office
Buildings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
535
- 575 River Oaks(48)
|
|
San
Jose, CA
|
|
|
1 |
|
|
|
262,500 |
|
1990
|
|
2007
|
|
|
100 |
% |
925
East Meadow Drive(49)
|
|
Palo
Alto, CA
|
|
|
1 |
|
|
|
17,400 |
|
1988
|
|
1997
|
|
|
100 |
% |
935
East Meadow Drive(50)
|
|
Palo
Alto, CA
|
|
|
- |
|
|
|
14,500 |
|
1962
|
|
2007
|
|
|
0 |
% |
6230
Sunset Blvd(51)
|
|
Los
Angeles, CA
|
|
|
1 |
|
|
|
35,000 |
|
1938
|
|
2006
|
|
|
100 |
% |
17461
Derian Ave(52)
|
|
Irvine,
CA
|
|
|
8 |
|
|
|
110,000 |
|
1983
|
|
2000
|
|
|
100 |
% |
22110-22120
Clarendon Street(53)
|
|
Woodland
Hills, CA
|
|
|
10 |
|
|
|
38,900 |
|
1982
|
|
2001
|
|
|
100 |
% |
Total
Office Buildings
|
|
|
|
|
21 |
|
|
|
478,300 |
|
|
|
|
|
|
100 |
% |
Footnotes to the Company’s
Portfolio Listing as of December 31, 2008
|
(1)
|
Unless
otherwise specified, the Company has a 100% ownership interest in each
Community.
|
|
(2)
|
For
apartment communities, occupancy rates are based on financial occupancy
for the year ended December 31, 2008; for the office buildings or
properties which have not yet stabilized, or have insufficient operating
history, occupancy rates are based on physical occupancy as of December
31, 2008. For an explanation of how financial occupancy and physical
occupancy are calculated, see “Properties-Occupancy Rates” in this Item
2.
|
|
(3)
|
The
Company has a 30% special limited partnership interest in the entity that
owns this apartment community. This investment was made under arrangements
whereby Essex Management Corporation (“EMC”) became the general partner
and the existing partners were granted the right to require the applicable
partnership to redeem their interest for cash. Subject to certain
conditions, the Company may, however, elect to deliver an equivalent
number of shares of the Company’s common stock in satisfaction of the
applicable partnership's cash redemption
obligation.
|
|
(4)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2082.
|
|
(5)
|
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.
|
|
(6)
|
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.
|
|
(7)
|
In
2002 the Company purchased an additional 21 units adjacent to this
apartment community for $3 million. This property was built in
1992.
|
|
(8)
|
The
Company completed a $1.6 million redevelopment in
2000.
|
|
(9)
|
The
Company completed a $2.3 million redevelopment in
2000.
|
|
(10)
|
The
Company is in the process of performing a $10.8million
redevelopment.
|
|
(11)
|
The
Company completed construction of this community in the fourth quarter of
2008.
|
|
(12)
|
The
Company completed a $6.2 million redevelopment in
2007.
|
|
(13)
|
Fund
II completed a $5.3 million redevelopment in
2008.
|
|
(14)
|
This
community is subject to a ground lease, which, unless extended, will
expire in 2067.
|
|
(15)
|
During
the third quarter of 2007, the Company acquired full ownership by
purchasing the general contractor's interest for $9
million.
|
|
(16)
|
The
Company completed a $6.1 million redevelopment in
2007.
|
|
(17)
|
The
Company completed an $11.0 million redevelopment in 2001 and an additional
$3.6 million redevelopment in 2005.
|
|
(18)
|
This
community is subject to a ground lease, which, unless extended, will
expire in 2027.
|
|
(19)
|
The
Company completed a $3.2 million redevelopment in
2002.
|
|
(20)
|
The
Company completed a $1.9 million redevelopment in
2000.
|
|
(21)
|
The
Company completed a $1.9 million redevelopment in
2001.
|
|
(22)
|
The
Company completed a $1.7 million redevelopment in
2001.
|
|
(23)
|
The
Company is in the process of performing a $16.6 million
redevelopment.
|
|
(24)
|
The
Company had an 85% controlling limited partnership interest as of December
31, 2006, and during January 2007 the Company acquired the remaining 15%
partnership interest.
|
|
(25)
|
The
Company and EMC have a 74.0% and a 1% member interest,
respectively.
|
|
(26)
|
The
Company completed a $3.5 million redevelopment in
2002.
|
|
(27)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2028.
|
|
(28)
|
The
Company is in the process of performing a $14.1 million
redevelopment.
|
|
(29)
|
The
Company completed a $2.7 million redevelopment in
2001.
|
|
(30)
|
The
Company completed a $4.5 million redevelopment in
1998.
|
|
(31)
|
The
Company completed an $8.9 million redevelopment in
2008.
|
|
(32)
|
The
Company completed a $9.4 million redevelopment in
2008.
|
|
(33)
|
The
Company is in the process of performing a $4.6 million
redevelopment
|
|
(34)
|
Fund
II completed a $4.5 million redevelopment in
2008.
|
|
(35)
|
The
community was subject to a ground lease, which, unless extended, would
expire in 2047. In the second quarter of 2007, the Company
entered into a joint venture partnership with a third-party, and the
Company contributed the improvements for an 81.5% interest and the joint
venture partner contributed the title to the land for an 18.5% interest in
the partnership.
|
|
(36)
|
The
Company completed construction of 114 units of the 462 total units in
2000.
|
|
(37)
|
The
Company completed a $3.4 million redevelopment in
2002.
|
|
(38)
|
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.
|
|
(39)
|
The
Company is in the process of performing a $9.9 million
redevelopment.
|
|
(40)
|
The
community is subject to a ground lease, which, unless extended, will
expire in 2070.
|
|
(41)
|
The
Company completed a $15.1 million redevelopment in
2008.
|
|
(42)
|
The
Company is in the process of performing a $36.3 million redevelopment,
including the construction of 34 in-fill
units.
|
|
(43)
|
The
Company completed a $7.0 million redevelopment in
2007.
|
|
(44)
|
The
Company completed a $3.9 million redevelopment in
2007.
|
|
(45)
|
The
Company is in the process of performing an $11.8 million
redevelopment.
|
|
(46)
|
The
Company completed a $5.1 million redevelopment and completed construction
of 16 units of the community’s 108 units in
2006.
|
|
(47)
|
The
Company completed construction of this community in the third quarter of
2008.
|
|
(48)
|
The
property is leased through January 2009 to a single tenant, and is
included in the Company’s predevelopment
pipeline.
|
|
(49)
|
The
Company occupies 100% of this
property.
|
|
(50)
|
The
property is currently vacant and under a $2.0 million redevelopment. The
Company expects to occupy 100% of this property upon completion of the
redevelopment in approximately the first quarter of
2009.
|
|
(51)
|
The
property is leased through July 2012 to a single tenant and was
reclassified out of the Company’s predevelopment pipeline in December
2008.
|
|
(52)
|
The
Company has a mortgage receivable, and consolidates this property in
accordance with GAAP. The Company occupies 4.6% of this
property.
|
|
(53)
|
The
Company occupies 30% of this
property.
|
Item 3. Legal Proceedings
Recently
there has 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, 2008,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
The
Company carries comprehensive liability, fire, extended coverage and rental loss
insurance for each of the Communities. Insured risks for
comprehensive liabilities covers claims in excess of $25,000 per incident, and
property casualty insurance covers losses in excess of a $5.0 million deductible
per incident. There are, however, certain types of extraordinary losses, such
as, for example, losses from terrorism and earthquake, for which the Company
does not have insurance. Substantially all of the Communities are located in
areas that are subject to earthquakes.
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. Submission of Matters to a Vote of Security
Holders
During
the fourth quarter of 2008, no matters were submitted to a vote of security
holders.
Part
II
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
The
shares of the Company’s common stock are traded on the New York Stock Exchange
(“NYSE”) under the symbol ESS.
Market
Information
The
Company’s common stock has been traded on the NYSE since June 13, 1994. The
high, low and closing price per share of common stock reported on the NYSE for
the quarters indicated are as follows:
Quarter Ended
|
|
High
|
|
|
Low
|
|
|
Close
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2008
|
|
$ |
117.77 |
|
|
$ |
60.77 |
|
|
$ |
76.75 |
|
September
30, 2008
|
|
$ |
129.57 |
|
|
$ |
100.63 |
|
|
$ |
118.33 |
|
June
30, 2008
|
|
$ |
124.33 |
|
|
$ |
105.12 |
|
|
$ |
106.50 |
|
March
31, 2008
|
|
$ |
117.51 |
|
|
$ |
84.59 |
|
|
$ |
113.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
$ |
127.35 |
|
|
$ |
94.08 |
|
|
$ |
97.49 |
|
September
28, 2007
|
|
$ |
123.50 |
|
|
$ |
102.00 |
|
|
$ |
117.57 |
|
June
30, 2007
|
|
$ |
133.40 |
|
|
$ |
114.19 |
|
|
$ |
116.30 |
|
March
30, 2007
|
|
$ |
148.54 |
|
|
$ |
124.78 |
|
|
$ |
124.78 |
|
The
closing price as of February 25, 2009 was $56.09.
Holders
The
approximate number of holders of record of the shares of the Company’s common
stock was 278 as of February 25, 2009. This number does not include stockholders
whose shares are held in trust by other entities. The Company
believes the actual number of stockholders is greater than the number of holders
of record.
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, 2008,
2007 and 2006 related to common stock, and Series F and Series G preferred stock
for tax purposes are as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
income
|
|
|
98.95 |
% |
|
|
75.65 |
% |
|
|
100.00 |
% |
Capital
gains
|
|
|
1.05 |
% |
|
|
24.35 |
% |
|
|
0.00 |
% |
Return
of capital
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
Dividends
and Distributions
Since its
initial public offering on June 13, 1994, the Company has paid regular quarterly
dividends to its stockholders. The Company has paid the following dividends per
share of common stock:
Year
Ended
|
|
Annual
Dividend
|
|
1994
|
|
$ |
0.915 |
|
1995
|
|
$ |
1.685 |
|
1996
|
|
$ |
1.720 |
|
1997
|
|
$ |
1.770 |
|
1998
|
|
$ |
1.950 |
|
1999
|
|
$ |
2.150 |
|
2000
|
|
$ |
2.380 |
|
2001
|
|
$ |
2.800 |
|
2002
|
|
$ |
3.080 |
|
2003
|
|
$ |
3.120 |
|
2004
|
|
$ |
3.160 |
|
2005
|
|
$ |
3.240 |
|
Quarter
Ended
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
March
31,
|
|
$ |
0.840 |
|
|
$ |
0.930 |
|
|
$ |
1.020 |
|
June
30,
|
|
|
0.840 |
|
|
|
0.930 |
|
|
|
1.020 |
|
September
31,
|
|
|
0.840 |
|
|
|
0.930 |
|
|
|
1.020 |
|
December
31,
|
|
|
0.840 |
|
|
|
0.930 |
|
|
|
1.020 |
|
Annual
Dividend
|
|
$ |
3.360 |
|
|
$ |
3.720 |
|
|
$ |
4.080 |
|
Future
distributions by the Company will be at the discretion of the Board of Directors
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 the Company’s present or
future ability to pay dividends.
On
February 25, 2009, the Company announced the Board of Directors approved a $0.01
per share increase to the quarterly cash dividend, which represents a $0.04
increase on an annualized basis. Accordingly, the first quarter
dividend distribution, payable on April 15, 2009 to stockholders as of record as
of March 31, 2009, will be $1.03 per share. On an annualized basis,
the dividend represents a distribution of $4.12 per common share.
Dividend
Reinvestment and Share Purchase Plan
The
Company has adopted a dividend reinvestment and share purchase plan designed to
provide holders of common stock with a convenient and economical means to
reinvest all or a portion of their cash dividends in shares of common stock and
to acquire additional shares of Common Stock through voluntary
purchases. Computershare, LLC, which serves as the Company’s transfer
agent, administers the dividend reinvestment and share purchase plan. For a copy
of the plan, contact Computershare, LLC at (312) 360-5354. The plan
has been suspended as of December 31, 2008 and the plan is not available to
stockholders until further notice.
Securities
Authorized for Issuance under Equity Compensation Plans
See our
disclosure in the 2008 Proxy Statement under the heading “Equity Compensation
Plan Information”, which disclosure is incorporated herein by
reference.
Issuance
of Registered Equity Securities
Period
|
|
Total
Number of Shares Sold
|
|
|
Average
Price per Share
|
|
|
Proceeds
(net of fees and commissions)
|
|
8/11/08
to 8/14/08
|
|
|
413,000 |
|
|
$ |
120.69 |
|
|
$ |
48,971,483 |
|
9/04/08
to 9/30/08
|
|
|
717,750 |
|
|
|
120.08 |
|
|
|
84,682,358 |
|
10/01/08
to 10/03/08
|
|
|
78,300 |
|
|
|
118.25 |
|
|
|
9,096,571 |
|
Total
|
|
|
1,209,050 |
|
|
$ |
120.17 |
|
|
$ |
142,750,412 |
|
During
August through October 2008, the Company sold 1,209,050 shares of common stock
for proceeds of $142.8 million, net of underwriter fees and
expenses. The Company used the net proceeds from the stock offerings
to pay down debt and to fund the development pipeline.
Sales
of Unregistered Securities
In
addition to the sale of common stock discussed above, in November 2008, the
holders of the outstanding 7.875% D Cumulative Redeemable Preferred
Units of Essex Portfolio, L.P. exchanged their preferred units with a par value
of $50 million for 363,000 shares of common stock of the Company and $10 million
in cash plus accrued dividends. The shares were issued upon the
exemption from registration provided by Section 4(2) of the Securities Act of
1933, as amended, and upon Rule 506 of Regulation D under that Act.
Issuer
Purchases of Equity Securities
Period
|
|
Total
Number of Shares
Purchased
|
|
|
Average
Price
Paid
per Share
|
|
|
Total
Number of Shares
Purchased
as Part of Publicly
Announced
Plans or
Programs
|
|
|
Total
Amount that May Yet
be Purchased
Under the Plans or
Programs
|
1/3/08
to 1/8/08
|
|
|
143,400 |
|
|
$ |
95.64 |
|
|
|
143,400 |
|
|
$ |
153,657,062 |
|
In August
2007, the Company’s Board of Directors authorized a stock repurchase plan to
allow the Company to acquire shares in an aggregate of up to $200
million. The program supersedes the common stock repurchase plan that
the Company announced on May 16, 2001. During 2007 the Company
repurchased and retired 323,259 shares of its common stock for approximately
$32.6 million. During January 2008, the Company repurchased and
retired 143,400 shares of its common stock for approximately $13.7
million. Since the Company announced the inception of the stock
repurchase plan, the Company has repurchased and retired 466,659 shares for
$46.3 million at an average stock price of $99.31 per share, including
commissions as of December 31, 2008.
During
the first quarter of 2009, under the authorization of the stock repurchase plan
the Company repurchased $54.6 million in liquidation value of 4.875% Series G
Cumulative Convertible Preferred Stock at a discount to par value for cash paid
of $30.1 million.
Performance
Graph
The line
graph below compares the cumulative total stockholder return on the Company’s
common stock for the last five years with the cumulative total return on the
S&P 500 and the NAREIT All Equity REIT index over the same
period. This comparison assumes that the values of the investment of
in the common stock and each index was $100 on December 31, 2003 and that all
dividends were reinvested (1).
(1)
Common stock performance data is provided by SNL Financial.
The graph
and other information furnished under the above caption “Performance Graph” in
this Part II Item 5 of this Form 10-K shall not deemed to be “soliciting
material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or
to the liabilities of the Exchange Act, as amended.
Item 6. Selected Financial Data
The
following tables set forth summary financial and operating information for the
Company from January 1, 2004 through December 31, 2008.
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
|
|
($
in thousands, except per share amounts)
|
|
OPERATING
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
and other property
|
|
$ |
407,729 |
|
|
$ |
373,959 |
|
|
$ |
329,072 |
|
|
$ |
297,761 |
|
|
$ |
261,141 |
|
Management
and other fees from affiliates
|
|
|
5,166 |
|
|
|
5,090 |
|
|
|
5,030 |
|
|
|
10,951 |
|
|
|
23,146 |
|
|
|
|
412,895 |
|
|
|
379,049 |
|
|
|
334,102 |
|
|
|
308,712 |
|
|
|
284,287 |
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses, excluding depreciation and
amortization
|
|
|
133,961 |
|
|
|
123,018 |
|
|
|
110,578 |
|
|
|
100,719 |
|
|
|
89,921 |
|
Depreciation
and amortization
|
|
|
110,860 |
|
|
|
97,647 |
|
|
|
77,130 |
|
|
|
73,887 |
|
|
|
65,523 |
|
Amortization
of deferred financing costs
|
|
|
2,883 |
|
|
|
3,055 |
|
|
|
2,745 |
|
|
|
1,947 |
|
|
|
1,560 |
|
General
and administrative
|
|
|
26,984 |
|
|
|
26,273 |
|
|
|
22,234 |
|
|
|
19,148 |
|
|
|
18,042 |
|
Interest
|
|
|
78,203 |
|
|
|
78,938 |
|
|
|
72,272 |
|
|
|
70,149 |
|
|
|
60,063 |
|
Other
expenses
|
|
|
1,350 |
|
|
|
800 |
|
|
|
1,770 |
|
|
|
5,827 |
|
|
|
- |
|
|
|
|
354,241 |
|
|
|
329,731 |
|
|
|
286,729 |
|
|
|
271,677 |
|
|
|
235,109 |
|
Earnings
from operations
|
|
|
58,654 |
|
|
|
49,318 |
|
|
|
47,373 |
|
|
|
37,035 |
|
|
|
49,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on the sales of real estate
|
|
|
4,578 |
|
|
|
- |
|
|
|
- |
|
|
|
6,391 |
|
|
|
7,909 |
|
Gain
on early retirement of debt
|
|
|
3,517 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
and other income
|
|
|
11,343 |
|
|
|
10,310 |
|
|
|
6,176 |
|
|
|
8,524 |
|
|
|
3,077 |
|
Equity
income (loss) in co-investments
|
|
|
7,820 |
|
|
|
3,120 |
|
|
|
(1,503 |
) |
|
|
18,553 |
|
|
|
40,683 |
|
Minority
interests
|
|
|
(22,395 |
) |
|
|
(19,999 |
) |
|
|
(18,783 |
) |
|
|
(20,699 |
) |
|
|
(28,106 |
) |
Income
from continuing operations before income tax provision
|
|
|
63,517 |
|
|
|
42,749 |
|
|
|
33,263 |
|
|
|
49,804 |
|
|
|
72,741 |
|
Income
tax provision
|
|
|
- |
|
|
|
(400 |
) |
|
|
(525 |
) |
|
|
(2,538 |
) |
|
|
(257 |
) |
Income
from continuing operations
|
|
|
63,517 |
|
|
|
42,349 |
|
|
|
32,738 |
|
|
|
47,266 |
|
|
|
72,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations (net of minority interests)
|
|
|
1,837 |
|
|
|
73,289 |
|
|
|
30,010 |
|
|
|
32,450 |
|
|
|
7,209 |
|
Net
income
|
|
|
65,354 |
|
|
|
115,638 |
|
|
|
62,748 |
|
|
|
79,716 |
|
|
|
79,693 |
|
Dividends
to preferred stockholders
|
|
|
(9,241 |
) |
|
|
(9,174 |
) |
|
|
(5,145 |
) |
|
|
(1,953 |
) |
|
|
(1,952 |
) |
Net
income available to common stockholders
|
|
$ |
56,113 |
|
|
$ |
106,464 |
|
|
$ |
57,603 |
|
|
$ |
77,763 |
|
|
$ |
77,741 |
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations available to common
stockholders
|
|
$ |
2.15 |
|
|
$ |
1.35 |
|
|
$ |
1.20 |
|
|
$ |
1.97 |
|
|
$ |
3.08 |
|
Net
income available to common stockholders
|
|
$ |
2.23 |
|
|
$ |
4.34 |
|
|
$ |
2.50 |
|
|
$ |
3.38 |
|
|
$ |
3.39 |
|
Weighted
average common stock outstanding
|
|
|
25,205 |
|
|
|
24,548 |
|
|
|
23,082 |
|
|
|
23,039 |
|
|
|
22,921 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations available to common
stockholders
|
|
$ |
2.14 |
|
|
$ |
1.32 |
|
|
$ |
1.17 |
|
|
$ |
1.93 |
|
|
$ |
3.05 |
|
Net
income available to common stockholders
|
|
$ |
2.21 |
|
|
$ |
4.24 |
|
|
$ |
2.45 |
|
|
$ |
3.32 |
|
|
$ |
3.36 |
|
Weighted
average common stock outstanding
|
|
|
25,347 |
|
|
|
25,101 |
|
|
|
23,551 |
|
|
|
23,389 |
|
|
|
23,156 |
|
Cash
dividend per common share
|
|
$ |
4.08 |
|
|
$ |
3.72 |
|
|
$ |
3.36 |
|
|
$ |
3.24 |
|
|
$ |
3.16 |
|
|
|
As
of December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
($
in thousands)
|
|
BALANCE
SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in rental properties (before accumulated depreciation)
|
|
$ |
3,279,788 |
|
|
$ |
3,117,759 |
|
|
$ |
2,669,187 |
|
|
$ |
2,431,629 |
|
|
$ |
2,371,194 |
|
Net
investment in rental properties
|
|
|
2,639,762 |
|
|
|
2,575,772 |
|
|
|
2,204,172 |
|
|
|
2,042,589 |
|
|
|
2,041,542 |
|
Real
estate under development
|
|
|
272,273 |
|
|
|
233,445 |
|
|
|
107,620 |
|
|
|
54,416 |
|
|
|
38,320 |
|
Total
assets
|
|
|
3,164,823 |
|
|
|
2,980,323 |
|
|
|
2,485,840 |
|
|
|
2,239,290 |
|
|
|
2,217,217 |
|
Total
secured indebtedness
|
|
|
1,588,931 |
|
|
|
1,362,873 |
|
|
|
1,186,554 |
|
|
|
1,129,918 |
|
|
|
1,161,184 |
|
Total
unsecured indebtedness
|
|
|
171,716 |
|
|
|
294,818 |
|
|
|
225,000 |
|
|
|
225,000 |
|
|
|
155,800 |
|
Cumulative
convertible preferred stock
|
|
|
145,912 |
|
|
|
145,912 |
|
|
|
145,912 |
|
|
|
- |
|
|
|
- |
|
Cumulative
redeemable preferred stock
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
25,000 |
|
Stockholders'
equity (less redeemable preferred stock)
|
|
|
819,918 |
|
|
|
765,318 |
|
|
|
587,209 |
|
|
|
555,967 |
|
|
|
566,277 |
|
|
|
As
of and for the years ended December 31,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2006(1)
|
|
|
2005(1)
|
|
|
2004(1)
|
|
OTHER
DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
65,354 |
|
|
$ |
115,638 |
|
|
$ |
62,748 |
|
|
$ |
79,716 |
|
|
$ |
79,693 |
|
Interest
expense
|
|
|
78,203 |
|
|
|
78,938 |
|
|
|
72,272 |
|
|
|
70,149 |
|
|
|
60,063 |
|
Tax
expense
|
|
|
- |
|
|
|
400 |
|
|
|
525 |
|
|
|
2,538 |
|
|
|
257 |
|
Depreciation
and amortization
|
|
|
110,860 |
|
|
|
97,647 |
|
|
|
77,130 |
|
|
|
73,887 |
|
|
|
65,523 |
|
Amortization
of deferred financing costs
|
|
|
2,883 |
|
|
|
3,055 |
|
|
|
2,745 |
|
|
|
1,947 |
|
|
|
1,560 |
|
EBITDA(2)
|
|
|
257,300 |
|
|
|
295,678 |
|
|
|
215,420 |
|
|
|
228,237 |
|
|
|
207,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-property
gross operating margin(3)(4)
|
|
|
68 |
% |
|
|
67 |
% |
|
|
67 |
% |
|
|
66 |
% |
|
|
65 |
% |
Average
same-property monthly rental rate per apartment unit(4)(5)
|
|
$ |
1,401 |
|
|
$ |
1,314 |
|
|
$ |
1,225 |
|
|
$ |
1,149 |
|
|
$ |
1,055 |
|
Average
same-property monthly operating expenses per apartment unit(4)(6)
|
|
$ |
456 |
|
|
$ |
437 |
|
|
$ |
421 |
|
|
$ |
395 |
|
|
$ |
331 |
|
Total
apartment units (at end of period)
|
|
|
26,992 |
|
|
|
27,489 |
|
|
|
27,553 |
|
|
|
26,587 |
|
|
|
25,518 |
|
Same-property
occupancy rate(7)
|
|
|
96 |
% |
|
|
96 |
% |
|
|
96 |
% |
|
|
97 |
% |
|
|
96 |
% |
Total
Communities (at end of period)
|
|
|
134 |
|
|
|
134 |
|
|
|
130 |
|
|
|
126 |
|
|
|
131 |
|
|
(1)
|
The
results of operations for 2007, 2006, 2005 and 2004 have been reclassified
to reflect discontinued operations for properties sold subsequent to
December 31, 2007.
|
|
(2)
|
EBITDA
is defined as net income before interest expense, income taxes,
depreciation and amortization. EBITDA, as defined by the
Company, is not a recognized measurement under U.S. generally accepted
accounting principles, or GAAP. This measurement should not be
considered in isolation or as a substitute for net income, cash flows from
operating activities and other income or cash flow statement data prepared
in accordance with GAAP, or as a measure of profitability or
liquidity. The Company’s definition may not be comparable to
that of other companies.
|
|
(3)
|
Gross
operating margin represents rental revenues and other property income less
property operating expenses, exclusive of depreciation and amortization,
divided by rental revenues and other property
income.
|
|
(4)
|
A
stabilized apartment community, or “Same-Property” apartment units (as
defined in Item 7), are those units in Communities that the Company has
consolidated for the entire two years as of the end of the period set
forth. The number of apartment units in such properties may
vary at each year-end. Percentage changes in averages per unit
do not correspond to total Same-Property revenues and expense percentage
changes which are discussed in Item 7—Management’s Discussion and Analysis
of Financial Condition and Results of
Operations.
|
|
(5)
|
Average
Same-Property monthly rental rate per apartment unit represents total
scheduled rent for the same property apartment units for the period
(actual rental rates on occupied apartment units plus market rental rates
on vacant apartment units) divided by the number of such apartment units
and further divided by the number of months in the
period.
|
|
(6)
|
Average
Same-Property monthly expenses per apartment unit represents total monthly
operating expenses, exclusive of depreciation and amortization, for the
same property apartment units for the period divided by the total number
of such apartment units and further divided by the number of months in the
period.
|
|
(7)
|
Occupancy
rates are based on financial occupancy. For an explanation of
how financial occupancy is calculated, see Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations
The
following discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes
thereto. These consolidated financial statements include all
adjustments which are, in the opinion of management, necessary to reflect a fair
statement of the results and all such adjustments are of a normal recurring
nature.
OVERVIEW
The
Company is a self-administered and self-managed REIT that acquires, develops,
redevelops and manages apartment communities in selected residential areas
located primarily in the West Coast of the United States. The Company
owns all of its interests in its real estate investments, directly or
indirectly, through the Operating Partnership. The Company is the
sole general partner of the Operating Partnership and, as of December 31, 2008,
had an approximately 91.6% general partner interest in the Operating
Partnership.
Our
investment strategy has two components: constant monitoring of existing markets,
and evaluation of new markets to identify areas with the characteristics that
underlie rental growth. Our strong financial condition supports our
investment strategy by enhancing our ability to quickly shift our acquisition,
development, and disposition activities to markets that will optimize the
performance of the portfolio.
As of
December 31, 2008, we had ownership interests in 134 apartment communities,
comprising 26,992 apartment units. Our apartment communities are
located in the following major West Coast regions:
Southern
California (Los Angeles, Orange, Riverside, Santa Barbara, San Diego, and
Ventura counties)
Northern
California (the San Francisco Bay Area)
Seattle Metro
(Seattle metropolitan area)
As of
December 31, 2008, we also had ownership interests in six office buildings (with
approximately 478,300 square feet).
As of
December 31, 2008, our consolidated development pipeline was comprised of four
development projects, two predevelopment projects and four land parcels held for
future development aggregating 2,200 units, with total incurred costs of $272.3
million, and estimated remaining project costs of approximately $404.0 million
for total estimated project costs of $676.3 million.
By
region, the Company's operating results for 2008 and 2009 projected new housing
supply, job losses, and market rent analysis are as follows:
Southern
California Region: As of December 31, 2008, this region
represented 47% of the Company’s total apartment units. During the
year ended December 31, 2008, Same-Property (as defined below) revenues
increased 1.6% as compared to 2007. The Company expects in 2009 new
residential supply of 7,400 single family homes and 13,400 apartment units which
represents a total new supply of 0.4% of existing stock. The Company
expects this region to lose 67,900 jobs and experience a reduction in market
rents of 2.5% in 2009.
Northern
California Region: As of December 31, 2008, this region
represented 31% of the Company’s total apartment units. Same-Property
revenues increased 9.3% in 2008 as compared to 2007. The Company
expects in 2009 new residential supply of 3,300 single family homes and 6,700
apartment units which represents a total new supply of 0.5% of existing
stock. The Company expects this region to lose 21,000 jobs and
experience a reduction in market rents of 0.7% in 2009.
Seattle Metro
Region: As of
December 31, 2008, this region represented 22% of the Company’s total apartment
units. Same-Property revenues increased 7.8% in 2008 as compared to
2007. The Company expects in 2009 new residential supply of 4,400
single family homes and 5,100 apartment units which represents a total new
supply of 1.1% of existing stock. The Company expects this region to
lose 15,000 jobs and experience a reduction in market rents of 2.0% in
2009.
The
Company’s consolidated apartment communities are as follows:
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
|
Apartment
Units
|
|
|
%
|
|
|
Apartment
Units
|
|
|
%
|
|
Southern
California
|
|
|
12,500 |
|
|
|
51 |
% |
|
|
12,725 |
|
|
|
53 |
% |
Northern
California
|
|
|
6,457 |
|
|
|
27 |
% |
|
|
6,361 |
|
|
|
26 |
% |
Seattle
Metro
|
|
|
5,338 |
|
|
|
22 |
% |
|
|
5,005 |
|
|
|
21 |
% |
Total
|
|
|
24,295 |
|
|
|
100 |
% |
|
|
24,091 |
|
|
|
100 |
% |
Co-investments
including Fund II communities and communities in discontinued operations are not
included in the table presented above for both years.
RESULTS
OF OPERATIONS
Comparison
of Year Ended December 31, 2008 to the Year Ended December 31, 2007
Our
average financial occupancies for the Company’s stabilized apartment communities
or “2008/2007 Same-Properties” (stabilized properties consolidated by the
Company for the years ended December 31, 2008 and 2007) increased 50 basis
points to 96.3% for 2008 from 95.8% for 2007. Financial
occupancy is defined as the percentage resulting from dividing actual rental
revenue by total possible rental revenue. Actual rental revenue represents
contractual rental revenue pursuant to leases without considering delinquency
and concessions. 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. We believe
that financial occupancy is a meaningful measure of occupancy because it
considers the value of each vacant unit at its estimated market rate.
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 our calculation of financial occupancy.
The
regional breakdown of the Company’s 2008/2007 Same-Property portfolio for
financial occupancy for the years ended December 31, 2008 and 2007 is as
follows:
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Southern
California
|
|
|
95.5 |
% |
|
|
95.5 |
% |
Northern
California
|
|
|
97.5 |
% |
|
|
96.5 |
% |
Seattle
Metro
|
|
|
96.9 |
% |
|
|
96.1 |
% |
The
following table provides a breakdown of revenue amounts, including the revenues
attributable to 2008/2007 Same-Properties.
|
|
|
|
|
Years
Ended
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
December
31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
Properties
|
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
|
Property
Revenues ($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008/2007
Same-Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
|
56 |
|
|
$ |
187,352 |
|
|
$ |
184,485 |
|
|
$ |
2,867 |
|
|
|
1.6
|
% |
Northern
California
|
|
|
18 |
|
|
|
79,389 |
|
|
|
72,611 |
|
|
|
6,778 |
|
|
|
9.3 |
|
Seattle
Metro
|
|
|
23 |
|
|
|
62,338 |
|
|
|
57,848 |
|
|
|
4,490 |
|
|
|
7.8 |
|
Total
2008/2007 Same-Property revenues
|
|
|
97 |
|
|
|
329,079 |
|
|
|
314,944 |
|
|
|
14,135 |
|
|
|
4.5 |
|
2008/2007
Non-Same Property Revenues (1)
|
|
|
|
|
|
|
78,650 |
|
|
|
59,015 |
|
|
|
19,635 |
|
|
|
33.3 |
|
Total
property revenues
|
|
|
|
|
|
$ |
407,729 |
|
|
$ |
373,959 |
|
|
$ |
33,770 |
|
|
|
9.0
|
% |
(1) Includes
ten communities acquired after January 1, 2007, ten redevelopment communities,
three office buildings and two development communities.
2008/2007 Same-Property
Revenues increased by $14.1 million or 4.5% to $329.1 million for 2008
compared to $314.9 million for 2007. The increase was primarily
attributable to an increase in scheduled rents of $12.0 million or 3.8% as
compared to 2007. Average monthly rental rates for 2008/2007
Same-Property communities were $1,401 per unit for 2008 compared to $1,349 per
unit for 2007. The increase in occupancy of 50 basis points in 2008
compared to 2007 increased revenues by $0.9 million. Bad debt
expense and rent concessions modestly decreased by $0.1 million, ratio utility
billing system (“RUBS”) income increased $0.8 million, and ancillary property
income increased $0.4 million for 2008 compared to 2007.
2008/2007 Non-Same Property
Revenues increased by $19.6 million or 33.3% to $78.7 million for 2008
compared to $59.0 million for 2007. The increase was primarily due to
ten communities acquired since January 1, 2007, and the lease-up of Belmont
Station which began in the third quarter of 2008 and the community was 70%
occupied as of December 2008.
Management and other fees from
affiliates increased only slightly by $0.1 million to $5.2 million in
2008. These fees consist of $5.2 million in fee income from Fund II
in 2008, and $4.8 million in fee income from Fund II and $0.3 million in promote
income from Fund I in 2007.
Total Expenses increased
$24.5 million or 7.4% to $354.2 million for 2008 from $329.7 million for
2007. Property operating expenses increased by $10.9 million or 8.9%
for 2008, which is primarily due to the acquisition of ten communities and
annual increases in property salaries. The total operating expenses
increase of 8.9% is comparable to total rental property revenues which increased
9.0% or $33.7 million. The increase in total operating expenses
includes an increase of real estate taxes of $1.8 million due primarily to the
increase in the number of communities, increase in assessments for the Company’s
California communities that are limited to 2% per year and large increases in
assessments of the communities located in the Seattle metropolitan
area. Depreciation expense increased by $13.2 million or 13.5%
for 2008 to $110.9 million in 2008 compared to $97.6 million in 2007 due
primarily to the acquisition of ten communities.
Other expenses of $1.4
million for 2008 consists of $0.7 million for loan loss reserve on a note
receivable related to an apartment community located in the Portland
metropolitan area, and a $0.7 million severance charged related to a workforce
reduction of corporate employees. Other expenses totaling $0.8
million for 2007 relate to a loan loss reserve of $0.5 million on a note
receivable related to a condominium projected located in Sherman Oaks,
California, and a $0.3 million accrual for unpaid business taxes related to the
sale of Essex on Lake Merritt in 2004.
Gain on sale of real estate
was $4.6 million for 2008 compared to $0 for 2007 resulting from the
recognition of a gain on sale of $1.8 million and $0.9 million related to the
sale of Green Valley and Circle RV parks, respectively, $1.5 million gain that
was previously deferred on the gain on sale of the 2005 sale of Eastridge
Apartments, gain of $0.2 million on the sale of the 90 Archer land parcel, and a
gain of $0.1 million on the sale of three condominiums. The Eastridge
$1.5 million gain recognized is equal to the estimated fair value of seven
condominium units received in satisfaction of the note receivable issued in
connection with the sale of Eastridge Apartments.
Gain on early retirement of debt
was $3.5 million for 2008 compared to $0 for 2007 resulting from the
repurchase of $53.3 million of 3.625% exchangeable bonds due in 2025 at a
discount to par value.
Interest and other income
increased by $1.0 million or 10.0% to $11.3 million for 2008 from $10.3 million
for 2007 due primarily to an increase in investment income generated from an
increase of short-term debt investments classified as marketable securities
compared to 2007, and $21.4 million in cash held by a 1031 exchange facilitator
related to the 2008 sale of Coral Gardens and the RV parks.
Equity income in co-investments
increased by $4.7 million to $7.8 million for 2008 compared to $3.1
million for 2007, due primarily to $6.3 million of preferred income from the
retirement of the Company’s investment in the Mountain Vista, LLC joint
venture. In 2007, the Company recorded $2.0 million from the partial
sale of the Company’s interest in the Mountain Vista, LLC joint
venture.
Income from discontinued
operations for 2008 includes the operating results and gain on sale of
$3.4 million from the sale of Coral Gardens and the operating results and gain
on sale of Cardiff by the Sea and St. Cloud for a combined gain of
$46,000. For 2007, income from discontinued operations includes the
operating results and a gain from the sale of four communities in the Portland
metropolitan region, net of minority interest, of $47.6 million, sale of the
City Heights joint venture property for a gain, net of minority interest, of
$13.7 million, $10.3 million in fees from the joint venture partner, the net
gain on sale of 21 condominiums at Peregrine Point for $1.0 million and
operating results from the communities sold in 2008.
Comparison
of Year Ended December 31, 2007 to the Year Ended December 31, 2006
Our
average financial occupancies for the Company’s stabilized apartment communities
or “2007/2006 Same-Properties” (stabilized properties consolidated by the
Company for the years ended December 31, 2007 and 2006) decreased 50 basis
points to 96.0% for 2007 from 96.5% for 2006.
The
regional breakdown of the Company’s stabilized 2007/2006 Same-Property portfolio
for financial occupancy for the years ended December 31, 2007 and 2006 is as
follows:
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
|
2006
|
|
Southern
California
|
|
|
95.6 |
% |
|
|
96.4 |
% |
Northern
California
|
|
|
96.8 |
% |
|
|
96.7 |
% |
Seattle
Metro
|
|
|
96.3 |
% |
|
|
96.8 |
% |
The
following table provides a breakdown of revenue amounts, including the revenues
attributable to 2007/2006 Same-Properties.
|
|
|
|
|
Years
Ended
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
December
31,
|
|
|
Dollar
|
|
|
Percentage
|
|
|
|
Properties
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
Property
Revenues ($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007/2006
Same-Properties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
|
55 |
|
|
$ |
182,062 |
|
|
$ |
174,252 |
|
|
$ |
7,810 |
|
|
|
4.5
|
% |
Northern
California
|
|
|
16 |
|
|
|
59,777 |
|
|
|
54,620 |
|
|
|
5,157 |
|
|
|
9.4 |
|
Seattle
Metro
|
|
|
22 |
|
|
|
56,263 |
|
|
|
50,684 |
|
|
|
5,579 |
|
|
|
11.0 |
|
Total
2007/2006 Same-Property revenues
|
|
|
93 |
|
|
|
298,102 |
|
|
|
279,556 |
|
|
|
18,546 |
|
|
|
6.6 |
|
2007/2006
Non-Same Property Revenues (1)
|
|
|
|
|
|
|
75,857 |
|
|
|
49,516 |
|
|
|
26,341 |
|
|
|
53.2 |
|
Total
property revenues
|
|
|
|
|
|
$ |
373,959 |
|
|
$ |
329,072 |
|
|
$ |
44,887 |
|
|
|
13.6
|
% |
(1) Includes
eleven communities acquired subsequent to January 1, 2006, eleven redevelopment
communities, three office buildings and one development community.
2007/2006 Same-Property
Revenues increased by $18.5 million or 6.6% to $298.1 million for 2007
compared to $279.6 million for 2006. The increase was primarily
attributable to an increase in scheduled rents of $20.4 million or 7.3% as
compared to 2006. Average monthly rental rates for 2007/2006
Same-Property communities were $1,314 per unit for 2007 compared to $1,225 per
unit for 2006. The decrease in occupancy of 50 basis points in 2007
compared to 2006 decreased revenues by $2.3 million of which $0.8 million was
caused by vacancy created by units that were under renovation. Bad
debt expense and rent concessions increased $0.8 million, ratio utility billing
system (“RUBS”) income increased $0.8 million, and ancillary property income
increased $0.4 million for 2007 compared to 2006.
2007/2006 Non-Same Property
Revenues increased by $26.3 million or 53.2% to $75.9 million for 2007
compared to $49.5 million for 2006. The increase was primarily due to
eleven communities acquired since January 1, 2006.
Management and other fees from
affiliates increased only slightly by $0.1 million to $5.1 million in
2007. These fees consist of $4.8 million in fee income primarily from
Fund II and $0.3 million in promote income from Fund I in 2007, compared to $3.8
million in fee income primarily from Fund II and $1.2 million in promote income
from Fund I in 2006.
Total Expenses increased
$43.0 million or 15.0% to $329.7 million for 2007 from $286.7 million for
2006. Property operating expenses increased by $12.4 million or 11.2%
for 2007, which is primarily due to the acquisition of eleven communities and
annual increases in property salaries. The increase includes an
increase of real estate taxes of $3.5 million due primarily to the increase in
the number of communities, increase in assessments for the Company’s California
communities that are limited to 2% per year and large increases in assessments
of the communities located in the Seattle metropolitan
area. Depreciation expense increased by $20.5 million or 26.6%
for 2007, due to the acquisition of eleven communities after January 1, 2006 and
recording depreciation expense for the Cadence Campus and Hollywood commercial
buildings, which are predevelopment properties with short-term tenant
leases. Interest expense increased $6.7 million or 9.2% due primarily
to due to an increase in funding of redevelopment and acquisitions on the
Company’s lines of credit and an increase of outstanding mortgage notes
payable. General and administrative costs increased $4.0 million or
18.2% due to an increase in costs related to employees working on Fund II
development and redevelopment projects that can not be capitalized by the
Company of approximately $1.5 million, an increase in the number of employees,
annual increases in compensation and increased bonuses.
Other expenses of $0.8
million for 2007 consists of a $0.5 million reserve for loan loss resulting from
the write-down of an impaired mezzanine note receivable related to a condominium
project located in Sherman Oaks, California, and a $0.3 million accrual for
unpaid business taxes related to the sale of the Essex on Lake Merritt in
2004. Other expenses of $1.8 million for the year ended 2006, relate
to $1.0 million in pursuit costs related to the Company’s attempt to acquire the
Town & Country REIT, and a $0.8 million impairment charge resulting from a
write-down of a community in Houston, Texas.
Interest and other income
increased by $4.1 million or 66.9% to $10.3 million for 2007 from $6.2 million
for 2006 due primarily to an increase in lease income of $4.7 million resulting
from the income generated from the Cadence Campus and Hollywood commercial
buildings, and an increase of $1.5 million in interest income earned from the
mezzanine/bridge loans, compared to the Company recorded a non-recurring gain of
$1.7 million related to the sale of Town & Country REIT stock in
2006.
Equity income (loss) in
co-investments increased by $4.6 million to $3.1 million for 2007
compared to a loss of $1.5 million for 2006, due primarily to the recording of a
$2.0 million gain from the partial sale of the Company’s interest in the
Mountain Vista, LLC joint venture in the first quarter of 2007 plus $0.3 million
of equity income recorded from Fund I, and $0.4 million of equity income earned
from its investment in Fund II during 2007. Fund II operations for
2006 included $2.7 million in depreciation resulting in the Company recording a
loss of $1.5 million in equity income (loss) in co-investments related to Fund
II during 2006.
Income from discontinued
operations for 2007 includes the gain from the sale of four communities
in the Portland metropolitan region, net of minority interest, of $47.6 million,
sale of the City Heights joint venture property for a gain, net of minority
interest, of $13.7 million, $10.3 million in fees from the joint venture
partner, and the net gain on sale of 21 condominiums at Peregrine Point for $1.0
million and the results of operations of these communities and the three
communities sold in 2008. For 2006, income from discontinued
operations included a gain of $8.8 million from the sale of the Vista Pointe
joint venture property and $8.2 million in fees, a gain of $3.1 million on the
sales of Vista Capri East, Casa Tierra, and Diamond Valley properties, and a
gain of $2.0 million from the sale of the first 45 condominiums at Peregrine
Point, and the results of operations of these communities and communities sold
in 2007 and 2008.
Liquidity
and Capital Resources
In June
2008, Standard and Poor's (“S&P”) reaffirmed its corporate credit rating of
BBB/Stable for Essex Property Trust, Inc. and Essex Portfolio, L.P.
At
December 31, 2008, the Company had $41.9 million of unrestricted cash and cash
equivalents, $23.9 million in marketable securities, and $21.4 million of cash
held by a 1031 exchange facilitator. The funds held by the 1031
exchange facilitator were received in the first quarter of 2009 as the funds are
part of a reverse exchange involving a 2008 apartment community
acquisition. The Company believes that cash flows generated by its
operations, existing cash 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 our reasonably anticipated cash
needs during 2009. 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 our plans for acquisitions, dispositions,
development and redevelopment activities.
The
Company has a $200.0 million unsecured line of credit and, as of December 31,
2008, there was $0 balance on the line. In January 2009, this
facility’s maturity was extended to March 2010. The underlying
interest rate on this line is based on a tiered rate structure tied to an
S&P rating on the credit facility (currently BBB-) at LIBOR plus
0.8%. We also have a $150.0 million credit facility from Freddie Mac
which is expandable to $250.0 million at any time during the first two years
which matures in December 2013. This line is secured by eight
apartment communities. As of December 31, 2008, the Company had
$120.0 million outstanding under this line of credit at an average interest rate
of 3.0%. The underlying interest rate on this line is between 99 and
150 basis points over the Freddie Mac Reference Rate and the interest rate is
subject to change by the lender in November 2011. In 2007, the
Company entered into an unsecured revolving line of credit for $10.0 million
with a commercial bank that matures in March 2009. Borrowing under
this revolving line of credit bears an interest rate at the bank’s Prime Rate
less 2.0%. As of December 31, 2008 there was a $0 balance on the
revolving line of credit. The line is used to fund short-term working
capital needs. The Company’s unsecured line of credit agreements
contain debt covenants related to limitations on indebtedness and liabilities,
maintenance of minimum levels of consolidated earnings before depreciation,
interest and amortization and maintenance of minimum tangible net
worth. The Company was in compliance with the line of credit
covenants as of December 31, 2008 and 2007.
In
November 2008, the holders of the outstanding 7.875% Series D Cumulative
Redeemable Preferred Units exchanged their preferred units with a par value of
$50 million for 363,000 shares of common stock and $10.0 million in cash plus
accrued dividends.
The
Company sold 5,980,000 shares of 4.875% Series G Cumulative Convertible
Preferred Stock (“Series G Preferred Stock”) for gross proceeds of $149.5
million during 2006. Holders may convert Series G Preferred Stock
into shares of the Company’s common stock subject to certain
conditions. The conversion rate was initially .1830 shares of common
stock per the $25 share liquidation preference, which is equivalent to an
initial conversion price of approximately $136.62 per share of common stock (the
conversion rate will be subject to adjustment upon the occurrence of specified
events). The conversion rate was .1849 shares of common stock per $25
per share liquidation preference as of December 31, 2008. On or after
July 31, 2011, the Company may, under certain circumstances, cause some or all
of the Series G Preferred Stock to be converted into shares of common stock at
the then prevailing conversion rate.
During
the first quarter of 2009, the Company repurchased $54.6 million in liquidation
value of Series G Preferred Stock at a discount to par value for cash paid of
$30.1 million. The Company may continue to repurchase Series G
Preferred Stock.
In August
2007, the Company’s Board of Directors authorized a stock repurchase plan to
allow the Company to acquire shares in an aggregate of up to $200
million. The program supersedes the common stock repurchase plan that
Essex announced on May 16, 2001. During the first quarter of January
2008, the Company under its stock repurchase program repurchased 143,400 shares
of common stock for $13.7 million, net of fees and commissions, and in 2007, the
Company repurchased and retired 323,259 shares of common stock for approximately
$32.6 million, net of fees and commissions. As of February 2009, the
Company may repurchase an additional $124 million of stock under the stock
repurchase program.
The
Company, through its Operating Partnership, in 2005 issued $225 million of
outstanding exchangeable bonds (the “Bonds”) with a coupon of 3.625% due
2025. The Bonds are senior unsecured obligations of the Operating
Partnership, and are fully and unconditionally guaranteed by the
Company. On or after November 1, 2020, the Bonds will be exchangeable
at the option of the holder into cash and, in certain circumstances at Essex’s
option, shares of the Company’s common stock at an initial exchange price of
$103.25 per share subject to certain adjustments. The Bonds will also
be exchangeable prior to November 1, 2020, but only upon the occurrence of
certain specified events. On or after November 4, 2010, the Operating
Partnership may redeem all or a portion of the Bonds at a redemption price equal
to the principal amount plus accrued and unpaid interest (including additional
interest, if any). Bond holders may require the Operating Partnership
to repurchase all or a portion of the Bonds at a purchase price equal to the
principal amount plus accrued and unpaid interest (including additional
interest, if any) on the Bonds on November 1, 2010, November 1, 2015 and
November 1, 2020. During the fourth quarter of 2008 the Company
repurchased $53.3 million of these bonds at a discount to par value, and during
2009, the Company repurchased $71.3 million of these bonds at a discount to par
value for cash paid of $66.5 million. As of February 2009, there are
$100.4 million of Bonds still outstanding. The Company may continue
to repurchase Bonds.
During
the first quarter of 2007, the Company filed a new shelf registration statement
with the SEC, allowing the Company to sell an undetermined number or amount of
certain equity and debt securities as defined in the prospectus.
As of
December 31, 2008, the Company’s mortgage notes payable totaled $1.47 billion
which consisted of $1.2 billion in fixed rate debt with interest rates varying
from 4.86% to 8.18% and maturity dates ranging from 2009 to 2019 and $251.1
million of variable rate debt including $236.2 million of tax-exempt variable
rate demand bonds with a weighted average interest rate of 3.6%. The
tax-exempt variable rate demand bonds have maturity dates ranging from 2020 to
2039, and $183.4 million is subject to interest rate caps.
The
Company pays quarterly dividends from cash available for distribution. Until it
is distributed, cash available for distribution is invested by the Company
primarily in bank money market accounts and short-term investment grade
securities or is used by the Company to reduce balances outstanding under its
lines of credit.
Derivative
Activity
In April
2008, the Company settled a $30.0 million forward-starting swap for a $1.7
million payment to the counterparty, which increased the effective interest rate
on the new Park Hill at Issaquah mortgage loan to 6.1%. In June 2008,
the Company settled a $20.0 million forward-starting swap for a $0.1 million
payment to the counterparty, which increased the effective interest rate on the
new Hampton Place mortgage loan to 6.2%. In November 2008, the
Company settled a $25.0 million forward starting-swap for a $1.2 million payment
to the counterparty which increased the effective interest on the Montclaire
mortgage loan to 6.4%. In April 2007, the Company settled a
$50.0 million forward-starting swap and received a $1.3 million payment from the
counterparty, which decreased the effective interest rate on the Tierra Vista
mortgage loan to 5.2%.
As of
December 31, 2008 the Company had seven forward-starting interest rate swap
contracts totaling a notional amount of $375 million with interest rates ranging
from 5.1% to 5.9% and settlements dates ranging from November 2010 to October
2011. These derivatives qualify for hedge accounting as they are
expected to economically hedge the cash flows associated with future financings
of debt between 2010 and 2011. The fair value of the derivatives
decreased $64.2 million during the year ended December 31, 2008 to an obligation
of $73.1 million as of December 31, 2008, and the derivative liability was
recorded in cash flow hedge liabilities in the Company’s consolidated financial
statements. The changes in the fair values of the derivatives are
reflected in accumulated other comprehensive (loss) income in the Company’s
consolidated financial statements. No hedge ineffectiveness on cash
flow hedges was recognized during the year ended December 31, 2008 and
2007.
Issuance
of Common Stock
In 2008,
Company issued 1,209,050 shares of common stock for $142.8 million, net of fees
and commissions, and in 2007, the Company issued 1,670,500 shares of common
stock for $213.7 million, net of fees and commissions. Under its
controlled equity offering program with Cantor Fitzgerald & Co., the Company
may from time to time sell shares of common stock into the existing trading
market at current market prices, and the Company anticipates using the net
proceeds to pay down debt and fund the development pipeline.
Capital
Expenditures
Non-revenue
generating capital expenditures are improvements and upgrades that extend the
useful life of the property. For the year ended December 31, 2008, non-revenue
generating capital expenditures totaled approximately $1,050 per unit. The
Company expects to incur approximately $1,100 to $1,400 per unit in non-revenue
generating capital expenditures for the year ended December 31, 2009. These
expenditures do not include the improvements required in connection with the
origination of mortgage loans, expenditures for deferred maintenance on
acquisition properties, expenditures for property renovations and improvements
which are expected to generate additional revenue. Revenue-generating
expenditures totaled $6.5 million during 2008, and the Company expects to incur
approximately $3 million to $5 million in revenue generating capital
expenditures for the year ended December 31, 2009. The Company
expects that cash from operations and/or its lines of credit will fund such
expenditures. However, there can be no assurance that the actual expenditures
incurred during 2009 and/or the funding thereof will not be significantly
different than the Company’s current expectations.
Development
and Predevelopment Pipeline
The
Company defines development activities as new communities that are in various
stages of active development, or the community is in lease-up and phases of the
project are not completed. As of December 31, 2008, excluding
development projects owned by Fund II, the Company had four development projects
comprised of 988 units for an estimated cost of $410.0 million, of which $234.6
million remains to be expended. See discussion in the section, “Development and redevelopment
activities may delayed, not completed, and/or not achieve expected
results” in Item 1A, Risk Factors, of this Form 10-K.
The
Company defines the predevelopment pipeline as proposed communities in
negotiation or in the entitlement process with a high likelihood of becoming
entitled development projects. As of December 31, 2008, the Company
had two development projects aggregating 820 units that were classified as
predevelopment projects. The estimated total cost of the
predevelopment pipeline at December 31, 2008 was $242.4 million, of which $169.4
million remains to be expended. The Company may also acquire
land for future development purposes. The Company owned four
land parcels held for future development aggregating 392 units as of December
31, 2008. The Company had incurred $23.9 million in costs related to
these four land parcels as of December 31, 2008.
The
Company expects to fund the development pipeline by using a combination of some
or all of the following sources: its working capital, amounts available on its
lines of credit, construction loans, net proceeds from public and private equity
and debt issuances, and proceeds from the disposition of properties, if
any.
Redevelopment
Pipeline
The
Company defines redevelopment activities 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. The Company’s redevelopment strategy strives to improve
the financial and physical aspects of the Company’s redevelopment apartment
communities and to target a 7 to 9 percent return on the incremental renovation
investment. Many of the Company’s properties are older and in
excellent neighborhoods, providing lower density with large floor plans that
represent attractive redevelopment opportunities. During
redevelopment, apartment units may not be available for rent and, as a result,
may have less than stabilized operations. As of December 31, 2008,
the Company had nine major redevelopment communities aggregating 2,631 apartment
units with estimated redevelopment costs of $128.0 million, of which
approximately $56.5 million remains to be expended. The Company
expects to fund the redevelopment pipeline by using primarily the Company’s
lines of credit.
Alternative
Capital Sources
Fund II
has eight institutional investors, and the Company, with combined partner equity
commitments of $265.9 million which are fully contributed as of December 31,
2008. The Company has contributed $75.0 million to Fund II,
which represents a 28.2% interest as general partner and limited partner and the
Company uses the equity method of accounting for its investment in Fund
II. Fund II utilized debt as leverage equal to approximately 55% of
the estimated value of the initial acquisition of the underlying real
estate. Fund II invested in apartment communities in the Company’s
targeted West Coast markets and, as of December 31, 2008, owned eleven apartment
communities, one development project completed but not yet stabilized and two
development projects. The Company records revenue for its asset
management, property management, development and redevelopment services when
earned, and promote income when realized if Fund II exceeds certain financial
return benchmarks.
Contractual
Obligations and Commercial Commitments
The
following table summarizes the maturation or due dates of our contractual
obligations and other commitments at December 31, 2008, and the effect such
obligations could have on our liquidity and cash flow in future
periods:
|
|
|
|
|
2010
and
|
|
|
2012
and
|
|
|
|
|
|
|
|
($
in thousands)
|
|
2009
|
|
|
2011
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
Mortgage
notes payable
|
|
$ |
35,842 |
|
|
$ |
303,693 |
|
|
$ |
224,572 |
|
|
$ |
904,824 |
|
|
$ |
1,468,931 |
|
Exchangeable
bonds (1)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
171,716 |
|
|
|
171,716 |
|
Lines
of credit
|
|
|
- |
|
|
|
- |
|
|
|
120,000 |
|
|
|
- |
|
|
|
120,000 |
|
Interest
on indebtedness
|
|
|
90,000 |
|
|
|
117,943 |
|
|
|
73,718 |
|
|
|
173,017 |
|
|
|
454,678 |
|
Development
commitments
|
|
|
114,300 |
|
|
|
176,300 |
|
|
|
92,200 |
|
|
|
21,200 |
|
|
|
404,000 |
|
Redevelopment
commitments
|
|
|
33,600 |
|
|
|
22,900 |
|
|
|
- |
|
|
|
- |
|
|
|
56,500 |
|
|
|
$ |
273,742 |
|
|
$ |
620,836 |
|
|
$ |
510,490 |
|
|
$ |
1,270,757 |
|
|
$ |
2,675,825 |
|
(1) In
2009, the Company repurchased an additional $71.3 million of the exchangeable
bonds. The outstanding balance as of February 2009 is $100.4
million.
Variable
Interest Entities
In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46 Revised (“FIN 46R”), “Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51”, the Company consolidates 19
DownREIT limited partnerships (comprising twelve communities), a development
project, an office building that is subject to loans made by the Company, and
prior to the sale of a community during 2007, the buildings and improvements
that were owned by a third-party subject to ground lease on land that was owned
by the Company. The Company consolidates these entities because it is
deemed the primary beneficiary under FIN 46R. The total assets and
liabilities related to these variable interest entities (VIEs), net of
intercompany eliminations, were approximately $256.0 million and $169.1 million
as of December 31, 2008 and $222.7 million and $163.9
million as of December 31, 2007, respectively. Interest
holders in VIEs consolidated by the Company are allocated net income equal to
the cash payments made to those interest holders for services rendered or
distributions from cash flow. The remaining results of operations are
generally allocated to the Company. As of December 31, 2007, the
Company had two VIE’s of which it was not deemed to be the primary
beneficiary. Total assets and liabilities of these entities were
approximately $71.7 million and $58.3 million as of December 31,
2007. As of December 31, 2008, the Company did not have any VIE’s of
which it was not deemed to be the primary beneficiary.
Critical
Accounting Policies and Estimates
The
preparation of consolidated financial statements, in accordance with U.S.
generally accepted accounting principles requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses and related disclosures of contingent assets and
liabilities. The Company defines critical accounting policies as
those accounting policies that require the Company's management to exercise
their most difficult, subjective and complex judgments. The Company’s
critical accounting policies relate principally to the following key areas: (i)
consolidation under applicable accounting standards of various entities; (ii)
assessing the carrying values of the Company's real estate and investments in
and advances to joint ventures and affiliates; and (iii) internal cost
capitalization. The Company bases its estimates on historical
experience, current market conditions, and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ
from those estimates made by management.
The
Company assesses each entity in which it has an investment or contractual
relationship to determine if it may be deemed to be a VIE. If such an
entity is a VIE, then the Company analyzes the expected losses and expected
residual returns to determine who is the primary beneficiary. If the
Company is the primary beneficiary, then the entity is
consolidated. The analysis required to identify VIEs and primary
beneficiaries is complex and judgmental, and the analysis must be applied to
various types of entities and legal structures.
The
Company assesses the carrying value of its real estate investments by monitoring
investment market conditions and performance compared to budget for operating
properties and joint ventures, and by monitoring estimated costs for properties
under development. Local market knowledge and data is used to assess
carrying values of properties and the market value of acquisition
opportunities. Whenever events or changes in circumstances indicate
that the carrying amount of a property held for investment may not be fully
recoverable, the carrying amount is evaluated. If the sum of the
property’s expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the property, then the Company will
recognize an impairment loss equal to the excess of the carrying amount over the
fair value of the property. Adverse changes in market conditions or
poor operating results of real estate investments could result in impairment
charges. When the Company determines that a property is held for
sale, it discontinues the periodic depreciation of that property. The
criteria for determining when a property is held for sale requires judgment and
has potential financial statement impact as depreciation would cease and an
impairment loss could occur upon determination of held for sale
status. Assets held for sale are reported at the lower of the
carrying amount or estimated fair value less costs to sell. With
respect to investments in and advances to joint ventures and affiliates, the
Company looks to the underlying properties to assess performance and the
recoverability of carrying amounts for those investments in a manner similar to
direct investments in real estate properties. An impairment charge or
investment valuation charge is recorded if the carrying value of the investment
exceeds its fair value.
The
Company capitalizes all direct and certain indirect costs, including interest
and real estate taxes, incurred during development and redevelopment activities.
Interest is capitalized on real estate assets that require a period of time to
get them ready for their intended use. The amount of interest
capitalized is based upon the average amount of accumulated development
expenditures during the reporting period. Included in capitalized
costs are management’s accounting estimates of the direct and incremental
personnel costs and indirect project costs associated with the Company's
development and redevelopment activities. Indirect project costs
consist primarily of personnel costs associated with construction administration
and development accounting, legal fees, and various office costs that clearly
relate to projects under development.
The
Company bases its accounting estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances. Actual results may vary from those estimates and those
estimates could be different under different assumptions or
conditions.
Forward
Looking Statements
Certain
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and elsewhere in this Annual Report on Form 10-K
which are not historical facts may be considered forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended, including
statements regarding the Company's expectations, hopes, intentions, beliefs and
strategies regarding the future. Forward looking statements include
statements regarding the Company's expectations as to the timing of completion
of current development and redevelopment projects and the stabilization dates of
such projects, expectation as to the total projected costs and rental rates of
development and redevelopment projects, beliefs as to the adequacy of future
cash flows to meet operating requirements and to provide for dividend payments
in accordance with REIT requirements, expectations as to the amount of capital
expenditures, expectations as to the amount of non-revenue generating capital
expenditures, future acquisitions, the Company's and Fund II’s development
and redevelopment pipeline, the anticipated performance of existing properties,
anticipated results from various geographic regions, statements regarding the
Company's financing activities, and the use of proceeds from such
activities.
Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors including, but not limited to, that the Company will fail to
achieve its business objectives, that the actual completion of development and
redevelopment projects will be subject to delays, that the stabilization dates
of such projects will be delayed, that the total projected costs of current
development and redevelopment projects will exceed expectations, that such
development and redevelopment projects will not be completed, that development
and redevelopment projects and acquisitions will fail to meet expectations, that
estimates of future income from an acquired property may prove to be inaccurate,
that future cash flows will be inadequate to meet operating requirements and/or
will be insufficient to provide for dividend payments in accordance with REIT
requirements, that the actual non-revenue generating capital expenditures will
exceed the Company's current expectations, that there may be a downturn in the
markets in which the Company's Communities are located, that the terms of any
refinancing may not be as favorable as the terms of existing indebtedness, as
well as those risks, special considerations, and other factors discussed under
the caption “Potential Factors Affecting Future Operating Results” below and
those discussed in Item 1A, Risk Factors, of this Form 10-K, and those risk
factors and special considerations set forth in the Company’s other filings with
the Securities and Exchange Commission (the "SEC") which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. All forward-looking statements are
made as of today, and the Company assumes no obligation to update this
information.
Potential
Factors Affecting Future Operating Results
Many
factors affect the Company’s actual financial performance and may cause the
Company’s future results to be different from past performance or
trends. These factors include those set forth under the caption “Risk
Factors” in Item 1A of this Annual Report on Form 10-K and the
following:
Funds
from Operations ("FFO")
FFO is a
financial measure that is commonly used in the REIT industry. The
Company presents funds from operations as a supplemental performance
measure. FFO is not used by the Company, nor should it be considered
to be, as an alternative to net earnings computed under GAAP as an indicator of
the Company’s operating performance or as an alternative to cash from operating
activities computed under GAAP as an indicator of the Company's ability to fund
its cash needs.
FFO is
not meant to represent a comprehensive system of financial reporting and does
not present, nor does the Company intend it to present, a complete picture of
its financial condition and operating performance. The Company believes that net
earnings computed under GAAP remains the primary measure of performance and that
FFO is only meaningful when it is used in conjunction with net earnings.
Further, the Company believes that its consolidated financial statements,
prepared in accordance with GAAP, provide the most meaningful picture of its
financial condition and its operating performance.
In
calculating FFO, the Company follows the definition for this measure published
by the National Association of REITs (“NAREIT”), which is a REIT trade
association. The Company believes that, under the NAREIT FFO
definition, the two most significant adjustments made to net income are (i) the
exclusion of historical cost depreciation and (ii) the exclusion of gains and
losses from the sale of previously depreciated properties. Essex
agrees that these two NAREIT adjustments are useful to investors for the
following reasons:
|
(a)
|
historical
cost accounting for real estate assets in accordance with GAAP assumes,
through depreciation charges, that the value of real estate assets
diminishes predictably over time. NAREIT stated in its White Paper on
Funds from Operations “since real estate asset values have historically
risen or fallen with market conditions, many industry investors have
considered presentations of operating results for real estate companies
that use historical cost accounting to be insufficient by themselves.”
Consequently, NAREIT’s definition of FFO reflects the fact that real
estate, as an asset class, generally appreciates over time and
depreciation charges required by GAAP do not reflect the underlying
economic realities.
|
|
(b)
|
REITs
were created as a legal form of organization in order to encourage public
ownership of real estate as an asset class through investment in firms
that were in the business of long-term ownership and management of real
estate. The exclusion, in NAREIT’s definition of FFO, of gains
from the sales of previously depreciated operating real estate assets
allows investors and analysts to readily identify the operating results of
the long-term assets that form the core of a REIT’s activity and assists
in comparing those operating results between
periods.
|
Management
has consistently applied the NAREIT definition of FFO to all periods
presented. However, other REITs in calculating FFO may vary from the
NAREIT definition for this measure, and thus their disclosure of FFO may not be
comparable to Essex’s calculation.
The
following table sets forth the Company’s calculation of FFO for 2008 and
2007.
|
|
For
the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
For
the quarter ended
|
|
|
|
12/31/08
|
|
|
12/31/08
|
|
|
9/30/08
|
|
|
6/30/08
|
|
|
3/31/08
|
|
Net
income available to common stockholders
|
|
$ |
56,113,000 |
|
|
$ |
18,345,000 |
|
|
$ |
12,376,000 |
|
|
$ |
9,688,000 |
|
|
$ |
15,704,000 |
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
113,294,000 |
|
|
|
28,296,000 |
|
|
|
28,581,000 |
|
|
|
28,683,000 |
|
|
|
27,734,000 |
|
Gains
not included in FFO
|
|
|
(7,849,000 |
) |
|
|
(5,356,000 |
) |
|
|
(2,493,000 |
) |
|
|
- |
|
|
|
- |
|
Minority
interests and co-investments(1)
|
|
|
9,299,000 |
|
|
|
2,766,000 |
|
|
|
2,218,000 |
|
|
|
1,892,000 |
|
|
|
2,423,000 |
|
Funds
from Operations
|
|
$ |
170,857,000 |
|
|
$ |
44,051,000 |
|
|
$ |
40,682,000 |
|
|
$ |
40,263,000 |
|
|
$ |
45,861,000 |
|
Weighted
average number of shares outstanding diluted(2)
|
|
|
27,807,946 |
|
|
|
28,663,993 |
|
|
|
27,910,297 |
|
|
|
27,623,939 |
|
|
|
27,398,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
For
the quarter ended
|
|
|
|
12/31/07
|
|
|
12/31/07
|
|
|
9/30/07
|
|
|
6/30/07
|
|
|
3/31/07
|
|
Net
income available to common stockholders
|
|
$ |
106,464,000 |
|
|
$ |
51,287,000 |
|
|
$ |
9,997,000 |
|
|
$ |
9,877,000 |
|
|
$ |
35,303,000 |
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
102,250,000 |
|
|
|
29,754,000 |
|
|
|
21,718,000 |
|
|
|
25,166,000 |
|
|
|
25,612,000 |
|
Gains
not included in FFO
|
|
|
(66,470,000 |
) |
|
|
(51,905,000 |
) |
|
|
(64,000 |
) |
|
|
(461,000 |
) |
|
|
(14,040,000 |
) |
Minority
interests and co-investments(1)
|
|
|
11,665,000 |
|
|
|
5,563,000 |
|
|
|
1,781,000 |
|
|
|
1,915,000 |
|
|
|
2,406,000 |
|
Funds
from Operations
|
|
$ |
153,909,000 |
|
|
$ |
34,699,000 |
|
|
$ |
33,432,000 |
|
|
$ |
36,497,000 |
|
|
$ |
49,281,000 |
|
Weighted
average number of shares outstanding diluted(2)
|
|
|
27,596,668 |
|
|
|
27,838,516 |
|
|
|
28,043,125 |
|
|
|
27,592,976 |
|
|
|
26,735,117 |
|
(1) Amount
includes the following: (i) minority interest related to Operating Partnership
units, and (ii) add back of depreciation expense from unconsolidated
co-investments and less depreciation attributable to third-party ownership of
consolidated co-investments.
(2) Assumes
conversion of all dilutive outstanding operating partnership interests in the
Operating Partnership.
The
following table sets forth the Company’s cash flows for 2008 and 2007 ($ in
thousands).
|
|
For
the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
For
the quarter ended
|
|
|
|
12/31/08
|
|
|
12/31/2008
|
|
|
9/30/2008
|
|
|
6/30/2008
|
|
|
3/31/2008
|
|
Cash
flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
181,241 |
|
|
$ |
38,193 |
|
|
$ |
53,315 |
|
|
$ |
42,498 |
|
|
$ |
47,235 |
|
Investing
activities
|
|
|
(285,023 |
) |
|
|
(41,054 |
) |
|
|
(148,104 |
) |
|
|
(69,849 |
) |
|
|
(26,016 |
) |
Financing
activities
|
|
|
135,735 |
|
|
|
11,366 |
|
|
|
107,198 |
|
|
|
37,989 |
|
|
|
(20,818 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ended
|
|
|
For
the quarter ended
|
|
|
|
12/31/07
|
|
|
12/31/07
|
|
|
9/30/07
|
|
|
6/30/07
|
|
|
3/31/07
|
|
Cash
flow provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
$ |
190,877 |
|
|
$ |
32,729 |
|
|
$ |
58,496 |
|
|
$ |
39,721 |
|
|
$ |
59,931 |
|
Investing
activities
|
|
|
(377,870 |
) |
|
|
7,915 |
|
|
|
(169,574 |
) |
|
|
(190,573 |
) |
|
|
(25,638 |
) |
Financing
activities
|
|
|
187,287 |
|
|
|
(40,927 |
) |
|
|
108,730 |
|
|
|
148,401 |
|
|
|
(28,917 |
) |
Item 7A. Quantitative and Qualitative Disclosures About Market
Risks
Interest
Rate Hedging Activities
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified
risks. To accomplish this objective, the Company uses interest rate
forward-starting swaps as part of its cash flow hedging strategy. As
of December 31, 2008, we have entered into seven forward-starting swap contracts
to mitigate the risk of changes in the interest-related cash outflows on
forecasted issuance of long-term debt. The forward-starting swaps are
cash flow hedges of the variability of forecasted interest payments associated
with expected financings between 2010 and 2011. As of December 31,
2008, the Company also had $251.1 million of variable rate indebtedness, of
which $183.4 million is subject to interest rate cap
protection. All of our derivative instruments are designated as
cash flow hedges, and the Company does not have any fair value hedges as of
December 31, 2008. The following table summarizes the notional
amount, carrying value, and estimated fair value of our derivative instruments
used to hedge interest rates as of December 31, 2008. The
notional amount represents the aggregate amount of a particular security that is
currently hedged at one time, but does not represent exposure to credit,
interest rates or market risks. The table also includes a sensitivity
analysis to demonstrate the impact on our derivative instruments from an
increase or decrease in 10-year Treasury bill interest rates by 50 basis points,
as of December 31, 2008.
|
|
|
|
|
|
|
|
Carrying
and
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
Maturity
|
|
|
Estimate
Fair
|
|
|
+
50
|
|
|
-
50
|
|
($
in thousands)
|
|
Amount
|
|
|
Date
Range
|
|
|
Value
|
|
|
Basis
Points
|
|
|
Basis
Points
|
|
Cash
flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate forward-starting swaps
|
|
$ |
375,000 |
|
|
|
2010-2011 |
|
|
$ |
(73,245 |
) |
|
$ |
(58,938 |
) |
|
$ |
(96,451 |
) |
Interest
rate caps
|
|
|
183,359 |
|
|
|
2009-2013 |
|
|
|
116 |
|
|
|
287 |
|
|
|
52 |
|
Total
cash flow hedges
|
|
$ |
558,359 |
|
|
|
2009-2013 |
|
|
$ |
(73,129 |
) |
|
$ |
(58,651 |
) |
|
$ |
(96,399 |
) |
Interest
Rate Sensitive Liabilities
The
Company is exposed to interest rate changes primarily as a result of its line of
credit and long-term debt used to maintain liquidity and fund capital
expenditures and expansion of the Company’s real estate investment portfolio and
operations. The Company’s interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows and to lower its
overall borrowing costs. To achieve its objectives the Company borrows primarily
at fixed rates and may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks in order to mitigate its interest
rate risk on a related financial instrument. The Company does not enter into
derivative or interest rate transactions for speculative purposes.
The
Company’s interest rate risk is monitored using a variety of techniques. The
table below presents the principal amounts and weighted average interest rates
by year of expected maturity to evaluate the expected cash flows. Management
believes that the carrying amounts of its LIBOR debt approximates fair value as
of December 31, 2008 because interest rates, yields and other terms for these
instruments are consistent with yields and other terms currently available to
the Company for similar instruments. Management has estimated that the fair
value of the Company’s $1.39 billion of fixed rate mortgage notes payable and
exchangeable bonds at December 31, 2008 is approximately $1.39 billion based on
the terms of existing mortgage notes payable compared to those available in the
marketplace.
|
|
For
the Years Ended December 31,
|
|
|
|
2009
|
|
|
2010(1)
|
|
|
2011(2)
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
|
Total
|
|
|
Fair
value
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate debt
|
|
$ |
18,279 |
|
|
$ |
152,412 |
|
|
$ |
150,760 |
|
|
$ |
31,759 |
|
|
$ |
192,813 |
|
|
$ |
843,498 |
|
|
$ |
1,389,521 |
|
|
$ |
1,386,794 |
|
Average
interest rate
|
|
|
6.9 |
% |
|
|
8.1 |
% |
|
|
6.4 |
% |
|
|
5.4 |
% |
|
|
5.8 |
% |
|
|
5.3 |
% |
|
|
|
|
|
|
|
|
Variable
rate LIBOR debt
|
|
$ |
17,563 |
|
|
$ |
- |
|
|
$ |
521 |
|
|
$ |
- |
|
|
$ |
120,000 |
|
|
$ |
233,042 |
(3) |
|
$ |
371,126 |
|
|
$ |
371,126 |
|
Average
interest rate
|
|
|
5.6 |
% |
|
|
- |
|
|
|
4.0 |
% |
|
|
- |
|
|
|
3.0 |
% |
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
(1) $150
million covered by three forward-starting swaps with fixed rates ranging from
5.099% to 5.824%, with a settlement date on or before January
1, 2011.
(2) $125
million covered by forward-starting swaps with fixed rates ranging from 5.655%
to 5.8795%, with a settlement date on or before February 1, 2011. $50
million covered by a forward-starting swap with a fixed rate of 5.535%, with a
settlement date on or before July, 1 2011. $50 million covered by a
forward-starting swap with a fixed rate of 5.343%, with a settlement date on or
before October 1, 2011. The Company intends to encumber certain
unencumbered assets during 2011 in conjunction with the settlement of these
forward-starting swaps.
(3)
$183.4 million subject to interest rate caps.
The table
incorporates only those exposures that exist as of December 31, 2008; it does
not consider those exposures or positions that could arise after that
date. As a result, our ultimate realized gain or loss, with respect
to interest rate fluctuations and hedging strategies would depend on the
exposures that arise during the period.
Item 8. Financial Statements and Supplementary Data
The
response to this item is submitted as a separate section of this Form 10-K. See
Item 15.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not
applicable.
Item 9A. Controls and Procedures
As of
December 31, 2008, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rules 13a-15 of the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that as of
December 31, 2008, our disclosure controls and procedures are effective in
timely alerting management to material information relating to the Company that
is required to be included in our periodic filings with the Securities and
Exchange Commission. There were no changes in the Company’s internal
control over financial reporting, that occurred during the quarter ended
December 31, 2008, that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934, as amended). Our management assessed the
effectiveness of our internal control over financial reporting as of
December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control-Integrated Framework. Our management has
concluded that, as of December 31, 2008, our internal control over
financial reporting was effective based on these criteria. Our independent
registered public accounting firm, KPMG LLP, has issued an audit report on the
effectiveness of our internal control over financial reporting, which is
included herein.
Item 9B. Other Information
None.
PART
III
Item 10. Directors, Executive Officers and Corporate
Governance
The
information required by Item 10 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 5, 2009.
Item 11. Executive Compensation
The
information required by Item 11 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 5, 2009.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
information required by Item 12 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 5, 2009.
Item 13. Certain Relationships and Related Transactions and Director
Independence
The
information required by Item 13 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 5, 2009.
Item 14. Principal Accounting Fees and Services
The
information required by Item 14 is incorporated by reference from the Company’s
definitive proxy statement for its annual stockholders’ meeting to be held on
May 5, 2009.
PART
IV
Item 15. Exhibits and Financial Statement Schedules
(A)
Financial Statements
(1)
|
Consolidated
Financial Statements
|
Page
|
|
|
|
|
Reports
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
|
|
Consolidated
Balance Sheets: As of December 31, 2008 and 2007
|
F-4
|
|
|
|
|
Consolidated
Statements of Operations: Years ended December 31, 2008, 2007 and
2006
|
F-5
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income: Years ended
December 31, 2008, 2007 and 2006
|
F-6
|
|
|
|
|
Consolidated
Statements of Cash Flows: Years ended December 31, 2008, 2007 and
2006
|
F-7
|
|
|
|
|
Notes
to the Consolidated Financial Statements
|
F-9
|
|
|
|
(2)
|
Financial
Statement Schedule - Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 2008
|
F-32
|
|
|
|
(3)
|
See
the Exhibit Index immediately following the signature page and
certifications for a list of exhibits filed or incorporated by reference
as part of this report.
|
|
(B)
Exhibits
The
Company hereby files, as exhibits to this Form 10-K, those exhibits listed on
the Exhibit Index referenced in Item 15(A)(3) above.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Essex
Property Trust, Inc.:
We have
audited Essex Property Trust, Inc.’s internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal
Control–Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Essex Property Trust, Inc.’s
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in Management’s Report on Internal
Control over Financial Reporting, appearing under Item 9A. Our responsibility is
to express an opinion on Essex Property Trust Inc.'s internal control over
financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control, based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Essex Property Trust, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2008, based on criteria established in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Essex
Property Trust, Inc. and subsidiaries as of December 31, 2008 and 2007, and
the related consolidated statements of operations, stockholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2008, and our report dated February 26, 2009,
expressed an unqualified opinion on those consolidated financial
statements.
San
Francisco, California
February
26, 2009
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Essex
Property Trust, Inc.:
We have
audited the accompanying consolidated balance sheets of Essex Property Trust,
Inc. and subsidiaries as of December 31, 2008 and 2007, and the related
consolidated statements of operations, stockholders’ equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2008. In connection with our audits of the consolidated
financial statements, we have also audited the accompanying financial statement
schedule III. These consolidated financial statements and the accompanying
financial statement schedule III are the responsibility of Essex Property Trust
Inc.’s management. Our responsibility is to express an opinion on these
consolidated financial statements and the accompanying financial statement
schedule III based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Essex Property Trust, Inc.
and subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2008, in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule III, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Essex Property Trust, Inc.’s internal control
over financial reporting as of December 31, 2008, based on criteria
established in Internal Control–Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
February 26, 2009 expressed an unqualified opinion on the effectiveness of Essex
Property Trust, Inc.’s internal control over financial reporting.
San
Francisco, California
February
26, 2009
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
December
31, 2008 and 2007
(Dollars
in thousands, except share amounts)
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Real
estate:
|
|
|
|
|
|
|
Rental
properties:
|
|
|
|
|
|
|
Land
and land improvements
|
|
$ |
683,876 |
|
|
$ |
670,494 |
|
Buildings
and improvements
|
|
|
2,595,912 |
|
|
|
2,447,265 |
|
|
|
|
3,279,788 |
|
|
|
3,117,759 |
|
Less
accumulated depreciation
|
|
|
(640,026 |
) |
|
|
(541,987 |
) |
|
|
|
2,639,762 |
|
|
|
2,575,772 |
|
|
|
|
|
|
|
|
|
|
Real
estate under development
|
|
|
272,273 |
|
|
|
233,445 |
|
Co-investments
|
|
|
76,346 |
|
|
|
64,191 |
|
|
|
|
2,988,381 |
|
|
|
2,873,408 |
|
Cash
and cash equivalents-unrestricted
|
|
|
41,909 |
|
|
|
9,956 |
|
Cash
and cash equivalents-restricted
|
|
|
12,810 |
|
|
|
12,527 |
|
Marketable
securities
|
|
|
23,886 |
|
|
|
2,017 |
|
Funds
held by 1031 exchange facilitator
|
|
|
21,424 |
|
|
|
- |
|
Notes
and other receivables
|
|
|
47,637 |
|
|
|
50,536 |
|
Prepaid
expenses and other assets
|
|
|
17,430 |
|
|
|
20,286 |
|
Deferred
charges, net
|
|
|
11,346 |
|
|
|
11,593 |
|
Total
assets
|
|
$ |
3,164,823 |
|
|
$ |
2,980,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Mortgage
notes payable
|
|
$ |
1,468,931 |
|
|
$ |
1,262,873 |
|
Exchangeable
bonds
|
|
|
171,716 |
|
|
|
225,000 |
|
Lines
of credit
|
|
|
120,000 |
|
|
|
169,818 |
|
Accounts
payable and accrued liabilities
|
|
|
38,223 |
|
|
|
44,749 |
|
Construction
payable
|
|
|
18,605 |
|
|
|
5,365 |
|
Dividends
payable
|
|
|
32,124 |
|
|
|
28,521 |
|
Other
liabilities
|
|
|
16,444 |
|
|
|
15,580 |
|
Cash
flow hedge liabilities
|
|
|
73,129 |
|
|
|
10,227 |
|
Total
liabilities
|
|
|
1,939,172 |
|
|
|
1,762,133 |
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
234,821 |
|
|
|
281,960 |
|
Cumulative
convertible preferred stock; $.0001 par value: 4.875% Series G - 5,980,000
issued and outstanding
|
|
|
145,912 |
|
|
|
145,912 |
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock; $.0001 par value, 649,702,178 shares authorized; 26,395,807 and
24,876,737 shares issued and outstanding
|
|
|
2 |
|
|
|
2 |
|
Cumulative
redeemable preferred stock; $.0001 par value: 7.8125% Series F - 1,000,000
shares authorized, issued and outstanding, liquidation
value
|
|
|
25,000 |
|
|
|
25,000 |
|
Excess
stock, $.0001 par value, 330,000,000 shares authorized and no shares
issued and outstanding
|
|
|
- |
|
|
|
- |
|
Additional
paid-in capital
|
|
|
1,026,037 |
|
|
|
857,109 |
|
Distributions
in excess of accumulated earnings
|
|
|
(130,697 |
) |
|
|
(82,805 |
) |
Accumulated
other comprehensive (loss) income
|
|
|
(75,424 |
) |
|
|
(8,988 |
) |
Total
stockholders' equity
|
|
|
844,918 |
|
|
|
790,318 |
|
Total
liabilities and stockholders' equity
|
|
$ |
3,164,823 |
|
|
$ |
2,980,323 |
|
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Operations
Years
ended December 31, 2008, 2007 and 2006
(Dollars
in thousands, except per share and share amounts)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Rental
and other property
|
|
$ |
407,729 |
|
|
$ |
373,959 |
|
|
$ |
329,072 |
|
Management
and other fees from affiliates
|
|
|
5,166 |
|
|
|
5,090 |
|
|
|
5,030 |
|
|
|
|
412,895 |
|
|
|
379,049 |
|
|
|
334,102 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating, excluding real estate taxes
|
|
|
100,469 |
|
|
|
91,369 |
|
|
|
82,428 |
|
Real
estate taxes
|
|
|
33,492 |
|
|
|
31,649 |
|
|
|
28,150 |
|
Depreciation
and amortization
|
|
|
110,860 |
|
|
|
97,647 |
|
|
|
77,130 |
|
Interest
|
|
|
78,203 |
|
|
|
78,938 |
|
|
|
72,272 |
|
Amortization
of deferred financing costs
|
|
|
2,883 |
|
|
|
3,055 |
|
|
|
2,745 |
|
General
and administrative
|
|
|
26,984 |
|
|
|
26,273 |
|
|
|
22,234 |
|
Other
expenses
|
|
|
1,350 |
|
|
|
800 |
|
|
|
1,770 |
|
|
|
|
354,241 |
|
|
|
329,731 |
|
|
|
286,729 |
|
Earnings
from operations
|
|
|
58,654 |
|
|
|
49,318 |
|
|
|
47,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of real estate
|
|
|
4,578 |
|
|
|
- |
|
|
|
- |
|
Gain
on early retirement of debt
|
|
|
3,517 |
|
|
|
- |
|
|
|
- |
|
Interest
and other income
|
|
|
11,343 |
|
|
|
10,310 |
|
|
|
6,176 |
|
Equity
income (loss) in co-investments
|
|
|
7,820 |
|
|
|
3,120 |
|
|
|
(1,503 |
) |
Minority
interests
|
|
|
(22,395 |
) |
|
|
(19,999 |
) |
|
|
(18,783 |
) |
Income
before discontinued operations and tax provision
|
|
|
63,517 |
|
|
|
42,749 |
|
|
|
33,263 |
|
Income
tax provision
|
|
|
- |
|
|
|
(400 |
) |
|
|
(525 |
) |
Income
before discontinued operations
|
|
|
63,517 |
|
|
|
42,349 |
|
|
|
32,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations (net of minority interests)
|
|
|
1,837 |
|
|
|
73,289 |
|
|
|
30,010 |
|
Net
income
|
|
|
65,354 |
|
|
|
115,638 |
|
|
|
62,748 |
|
Dividends
to preferred stockholders
|
|
|
(9,241 |
) |
|
|
(9,174 |
) |
|
|
(5,145 |
) |
Net
income available to common stockholders
|
|
$ |
56,113 |
|
|
$ |
106,464 |
|
|
$ |
57,603 |
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before discontinued operations available to common
stockholders
|
|
$ |
2.15 |
|
|
$ |
1.35 |
|
|
$ |
1.20 |
|
Income
from discontinued operations
|
|
|
0.08 |
|
|
|
2.99 |
|
|
|
1.30 |
|
Net
income available to common stockholders
|
|
$ |
2.23 |
|
|
$ |
4.34 |
|
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the year
|
|
|
25,205,367 |
|
|
|
24,548,003 |
|
|
|
23,081,682 |
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before discontinued operations available to common
stockholders
|
|
$ |
2.14 |
|
|
$ |
1.32 |
|
|
$ |
1.17 |
|
Income
from discontinued operations
|
|
|
0.07 |
|
|
|
2.92 |
|
|
|
1.28 |
|
Net
income available to common stockholders
|
|
$ |
2.21 |
|
|
$ |
4.24 |
|
|
$ |
2.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding during the year
|
|
|
25,346,520 |
|
|
|
25,100,974 |
|
|
|
23,551,042 |
|
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income
Years
ended December 31, 2008, 2007 and 2006
(Dollars
and shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
|
|
|
Accumulated
|
|
|
|
|
|
|
Series
F
|
|
|
|
|
|
|
|
|
Additional
|
|
|
in
excess of
|
|
|
other
|
|
|
|
|
|
|
Preferred
stock
|
|
|
Common
stock
|
|
|
paid-in
|
|
|
accumulated
|
|
|
comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
earnings
|
|
|
(loss)
income
|
|
|
Total
|
|
Balances
at December 31, 2005
|
|
|
1,000 |
|
|
$ |
25,000 |
|
|
|
22,858 |
|
|
$ |
2 |
|
|
$ |
632,646 |
|
|
$ |
(77,341 |
) |
|
$ |
660 |
|
|
$ |
580,967 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
62,748 |
|
|
|
- |
|
|
|
62,748 |
|
Change
in fair value of cash flow hedges
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,933 |
) |
|
|
(2,933 |
) |
Comprehensive
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,815 |
|
Issuance
of common stock under stock-based compensation plans
|
|
|
- |
|
|
|
- |
|
|
|
92 |
|
|
|
- |
|
|
|
5,575 |
|
|
|
- |
|
|
|
- |
|
|
|
5,575 |
|
Issuance
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
427 |
|
|
|
- |
|
|
|
48,273 |
|
|
|
- |
|
|
|
- |
|
|
|
48,273 |
|
Reallocation
of minority interest
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
|
|
- |
|
|
|
443 |
|
|
|
- |
|
|
|
- |
|
|
|
443 |
|
Dividends
declared
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(82,864 |
) |
|
|
- |
|
|
|
(82,864 |
) |
Balances
at December 31, 2006
|
|
|
1,000 |
|
|
|
25,000 |
|
|
|
23,416 |
|
|
|
2 |
|
|
|
686,937 |
|
|
|
(97,457 |
) |
|
|
(2,273 |
) |
|
|
612,209 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
115,638 |
|
|
|
- |
|
|
|
115,638 |
|
Settlement
of forward-starting swap
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,311 |
|
|
|
1,311 |
|
Change
in fair value of cash flow hedges and amortization of gain on settlement
of swap
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,026 |
) |
|
|
(8,026 |
) |
Comprehensive
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,923 |
|
Issuance
of common stock under stock-based compensation plans
|
|
|
- |
|
|
|
- |
|
|
|
87 |
|
|
|
- |
|
|
|
5,648 |
|
|
|
- |
|
|
|
- |
|
|
|
5,648 |
|
Issuance
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
1,671 |
|
|
|
- |
|
|
|
213,672 |
|
|
|
- |
|
|
|
- |
|
|
|
213,672 |
|
Retirement
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
(323 |
) |
|
|
- |
|
|
|
(32,644 |
) |
|
|
- |
|
|
|
- |
|
|
|
(32,644 |
) |
Conversion/reallocation
of minority interest
|
|
|
- |
|
|
|
- |
|
|
|
26 |
|
|
|
- |
|
|
|
(16,504 |
) |
|
|
- |
|
|
|
- |
|
|
|
(16,504 |
) |
Dividends
declared
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(100,986 |
) |
|
|
- |
|
|
|
(100,986 |
) |
Balances
at December 31, 2007
|
|
|
1,000 |
|
|
|
25,000 |
|
|
|
24,877 |
|
|
|
2 |
|
|
|
857,109 |
|
|
|
(82,805 |
) |
|
|
(8,988 |
) |
|
|
790,318 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
65,354 |
|
|
|
- |
|
|
|
65,354 |
|
Change
in fair value of cash flow hedges and amortization of settlement of
swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(66,436 |
) |
|
|
(66,436 |
) |
Comprehensive
(loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,082 |
) |
Issuance
of common stock under stock-based compensation plans
|
|
|
- |
|
|
|
- |
|
|
|
80 |
|
|
|
- |
|
|
|
6,065 |
|
|
|
- |
|
|
|
- |
|
|
|
6,065 |
|
Issuance
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
1,209 |
|
|
|
- |
|
|
|
142,751 |
|
|
|
- |
|
|
|
- |
|
|
|
142,751 |
|
Issuance
of common stock in conjunction with retirement of Series D
Preferred
|
|
|
- |
|
|
|
- |
|
|
|
363 |
|
|
|
- |
|
|
|
36,625 |
|
|
|
- |
|
|
|
- |
|
|
|
36,625 |
|
Retirement
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
(143 |
) |
|
|
- |
|
|
|
(13,723 |
) |
|
|
- |
|
|
|
- |
|
|
|
(13,723 |
) |
Conversion/reallocation
of minority interest
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
- |
|
|
|
(2,790 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2,790 |
) |
Dividends
declared
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(113,246 |
) |
|
|
- |
|
|
|
(113,246 |
) |
Balances
at December 31, 2008
|
|
|
1,000 |
|
|
$ |
25,000 |
|
|
|
26,396 |
|
|
$ |
2 |
|
|
$ |
1,026,037 |
|
|
$ |
(130,697 |
) |
|
$ |
(75,424 |
) |
|
$ |
844,918 |
|
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
ended December 31, 2008, 2007 and 2006
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
65,354 |
|
|
$ |
115,638 |
|
|
$ |
62,748 |
|
Minority
interests
|
|
|
22,538 |
|
|
|
26,508 |
|
|
|
22,738 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on the sales of real estate
|
|
|
(7,995 |
) |
|
|
(66,559 |
) |
|
|
(22,096 |
) |
The
Company's share of gain on the sales of co-investments
assets
|
|
|
- |
|
|
|
(2,046 |
) |
|
|
- |
|
Gain
on early retirement of debt
|
|
|
(3,517 |
) |
|
|
- |
|
|
|
- |
|
Impairment
loss and reserve for loan loss
|
|
|
650 |
|
|
|
500 |
|
|
|
800 |
|
Equity
(income) loss of co-investments
|
|
|
(7,644 |
) |
|
|
(320 |
) |
|
|
1,503 |
|
Depreciation
and amortization
|
|
|
110,860 |
|
|
|
100,389 |
|
|
|
83,036 |
|
Amortization
and write-off of deferred financing costs
|
|
|
3,001 |
|
|
|
3,071 |
|
|
|
2,743 |
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
3,940 |
|
|
|
- |
|
|
|
- |
|
Prepaid
expenses and other assets
|
|
|
(1,791 |
) |
|
|
2,458 |
|
|
|
493 |
|
Accounts
payable and accrued liabilities
|
|
|
(5,019 |
) |
|
|
9,984 |
|
|
|
6,162 |
|
Other
liabilities
|
|
|
864 |
|
|
|
1,254 |
|
|
|
1,808 |
|
Net
cash provided by operating activities
|
|
|
181,241 |
|
|
|
190,877 |
|
|
|
159,935 |
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
of real estate
|
|
|
(87,533 |
) |
|
|
(336,312 |
) |
|
|
(199,107 |
) |
Improvements
to recent acquisitions
|
|
|
(7,048 |
) |
|
|
(5,145 |
) |
|
|
(5,238 |
) |
Redevelopment
|
|
|
(48,941 |
) |
|
|
(38,618 |
) |
|
|
(25,609 |
) |
Revenue
generating capital expenditures
|
|
|
(6,537 |
) |
|
|
(11,044 |
) |
|
|
(4,788 |
) |
Non-revenue
generating capital expenditures
|
|
|
(25,205 |
) |
|
|
(22,620 |
) |
|
|
(19,120 |
) |
Additions
to real estate under development
|
|
|
(124,126 |
) |
|
|
(142,967 |
) |
|
|
(68,362 |
) |
Dispositions
of real estate
|
|
|
58,078 |
|
|
|
218,069 |
|
|
|
38,092 |
|
Changes
in restricted cash and refundable deposits
|
|
|
(20,515 |
) |
|
|
467 |
|
|
|
4,371 |
|
Purchases
of marketable securities
|
|
|
(83,261 |
) |
|
|
(7,776 |
) |
|
|
- |
|
Sales
of marketable securities
|
|
|
60,915 |
|
|
|
5,759 |
|
|
|
- |
|
Advances
under notes and other receivables
|
|
|
(2,501 |
) |
|
|
(36,145 |
) |
|
|
(26,125 |
) |
Collections
of notes and other receivables
|
|
|
5,695 |
|
|
|
3,724 |
|
|
|
21,234 |
|
Contributions
to co-investments
|
|
|
(14,346 |
) |
|
|
(21,647 |
) |
|
|
(38,395 |
) |
Distributions
from co-investments
|
|
|
10,302 |
|
|
|
16,385 |
|
|
|
10,171 |
|
Net
cash used in investing activities
|
|
|
(285,023 |
) |
|
|
(377,870 |
) |
|
|
(312,876 |
) |
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
under mortgage and other notes payable and lines of credit
|
|
|
896,471 |
|
|
|
866,397 |
|
|
|
324,228 |
|
Repayment
of mortgage and other notes payable and lines of credit
|
|
|
(682,069 |
) |
|
|
(678,383 |
) |
|
|
(266,965 |
) |
Additions
to deferred charges
|
|
|
(3,264 |
) |
|
|
(1,800 |
) |
|
|
(587 |
) |
(Payments)
proceeds from settlement of derivative instruments
|
|
|
(3,083 |
) |
|
|
1,311 |
|
|
|
- |
|
Retirement
of exchangeable bonds
|
|
|
(49,258 |
) |
|
|
- |
|
|
|
- |
|
Retirement
of common stock
|
|
|
(13,723 |
) |
|
|
(32,644 |
) |
|
|
- |
|
Retirement
of preferred units, Series D
|
|
|
(10,065 |
) |
|
|
- |
|
|
|
- |
|
Net
proceeds from stock options exercised
|
|
|
4,884 |
|
|
|
4,321 |
|
|
|
4,287 |
|
Net
proceeds from issuance of common stock
|
|
|
142,751 |
|
|
|
213,672 |
|
|
|
48,273 |
|
Net
proceeds from issuance of preferred stock, Series G
|
|
|
- |
|
|
|
- |
|
|
|
145,912 |
|
Contributions
from minority interest partners
|
|
|
- |
|
|
|
4,000 |
|
|
|
- |
|
Distributions
to minority interest partners
|
|
|
(24,214 |
) |
|
|
(82,715 |
) |
|
|
(21,657 |
) |
Redemption
of minority interest limited partnership units
|
|
|
(13,205 |
) |
|
|
(9,233 |
) |
|
|
(4,779 |
) |
Dividends
paid
|
|
|
(109,490 |
) |
|
|
(97,639 |
) |
|
|
(80,446 |
) |
Net
cash provided by financing activities
|
|
|
135,735 |
|
|
|
187,287 |
|
|
|
148,266 |
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
31,953 |
|
|
|
294 |
|
|
|
(4,675 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
9,956 |
|
|
|
9,662 |
|
|
|
14,337 |
|
Cash
and cash equivalents at end of year
|
|
$ |
41,909 |
|
|
$ |
9,956 |
|
|
$ |
9,662 |
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
Years
ended December 31, 2008, 2007 and 2006
(Dollars
in thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest, net of $10,908, $5,134 and $3,913 capitalized in
2008, 2007 and 2006, respectively
|
|
$ |
78,343 |
|
|
$ |
79,531 |
|
|
$ |
72,599 |
|
Supplemental
disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
notes assumed by buyer in connection with sales of real
estate
|
|
$ |
59,068 |
|
|
|
- |
|
|
|
- |
|
Mortgage
notes assumed in connection with purchases of real estate
|
|
|
- |
|
|
$ |
43,839 |
|
|
|
- |
|
Land
contributed by a partner in a consolidated joint venture
|
|
$ |
10,500 |
|
|
$ |
22,200 |
|
|
|
- |
|
Issuance
of DownREIT units in connection with purchase of real
estate
|
|
|
- |
|
|
$ |
7,067 |
|
|
|
- |
|
Issuance
of Operating Partnership units in connection with the purchase of real
estate
|
|
|
- |
|
|
|
- |
|
|
$ |
7,704 |
|
Redemption
of Series D Units for common stock
|
|
$ |
36,625 |
|
|
|
- |
|
|
|
- |
|
Accrual
of dividends
|
|
$ |
32,124 |
|
|
$ |
28,521 |
|
|
$ |
24,910 |
|
Change
in value of cash flow hedge liabilities
|
|
$ |
64,201 |
|
|
$ |
8,026 |
|
|
$ |
2,933 |
|
Reclassification
between stockholder's equity and minority interests resulting from
conversions and equity transactions
|
|
$ |
2,790 |
|
|
$ |
16,504 |
|
|
$ |
443 |
|
Change
in construction payable
|
|
$ |
13,240 |
|
|
$ |
8,703 |
|
|
$ |
4,804 |
|
See
accompanying notes to consolidated financial statements.
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2008, 2007 and 2006
(1)
Organization
The
accompanying consolidated financial statements present the accounts of Essex
Property Trust, Inc. (the “Company”), which include the accounts of the Company
and Essex Portfolio, L.P. (the Operating Partnership, which holds the operating
assets of the Company). The Company was incorporated in the state of
Maryland in March 1994. On June 13, 1994, the Company commenced operations with
the completion of an initial public offering (the “Offering”) in which it issued
6,275,000 shares of common stock at $19.50 per share. The net
proceeds of the Offering of $112.1 million were used to acquire a 77.2% general
partnership interest in the Operating Partnership.
The
Company has a 91.6% general partner interest and the limited partners own an
8.4% interest in the Operating Partnership as of December 31,
2008. The limited partners may convert their 2,162,151 Operating
Partnership units into an equivalent number of shares of common
stock. The Company has reserved shares of common stock for such
conversions. These conversion rights may be exercised by the limited partners at
any time through 2024.
As of
December 31, 2008, the Company owned or had ownership interests in 134 apartment
communities, (aggregating 26,992 units) (collectively, the “Communities”, and
individually, a “Community”) and six office buildings and six active development
projects (collectively, the “Portfolio”). The Communities are located
in Southern California (Los Angeles, Orange, Riverside, Santa Barbara, San
Diego, and Ventura counties), Northern California (the San Francisco Bay Area)
and the Seattle metropolitan area.
(2)
Summary of Critical and Significant Accounting Policies
(a)
Principles of Consolidation
The
accounts of the Company, its controlled subsidiaries and the variable interest
entities (“VIEs”) in which it is the primary beneficiary are consolidated in the
accompanying financial statements. All significant inter-company accounts and
transactions have been eliminated.
In
accordance with Financial Accounting Standards Board (“FASB”) Interpretation No.
46 Revised (“FIN 46R”), “Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51”, the Company consolidates 19
DownREIT limited partnerships (comprising twelve communities), a development
project, an office building that is subject to loans made by the Company, and
prior to the sale of the property during 2007, the buildings and improvements
that were owned by a third-party subject to a ground lease on land that was
owned by the Company. The Company consolidates these entities because
it is deemed the primary beneficiary under FIN 46R. The consolidated
total assets and liabilities related to these VIEs, net of intercompany
eliminations, were approximately $256.0 million and $169.1 million,
respectively, as of December 31, 2008 and $222.7 million and $163.9 million, respectively,
as of December 31, 2007.
The
DownREIT entities that collectively own twelve apartment communities were
investments made under arrangements whereby Essex Management Company (“EMC”)
became the general partner, the Operating Partnership became a special limited
partner, and the other limited partners were granted rights of redemption for
their interests. Such limited partners can request to be redeemed and the
Company can elect to redeem their rights for cash or by issuing shares of its
common stock on a one share per unit basis. Conversion values will be based on
the market value of the Company's common stock at the time of redemption
multiplied by the number of units stipulated under the above arrangements. The
other limited partners receive distributions based on the Company's current
dividend rate times the number of units held. As of December 31, 2008, the
maximum number of shares that could be issued to meet redemption of these
DownREIT entities is 1,148,510. As of December 31, 2008 and 2007, the
carrying value of the other limited partners' interests is presented at their
historical cost and is classified within minority interests in the accompanying
consolidated balance sheets.
Minority
interests include the 8.4% and 9.1% limited partner interests in the Operating
Partnership not held by the Company at December 31, 2008 and 2007, respectively.
The Company periodically adjusts the carrying value of minority interest in the
Operating Partnership to reflect its share of the book value of the Operating
Partnership. Such adjustments are recorded to stockholders’ equity as a
reallocation of minority interest in the Operating Partnership in the
accompanying consolidated statements of stockholders’ equity. The
minority interest balance also includes the Operating Partnership’s cumulative
redeemable preferred units (see Note 11) and the Operating Partnership’s long
term incentive plan units (see Note 13).
Interest
holders in VIEs consolidated by the Company are allocated a priority of net
income equal to the cash payments made to those interest holders for services
rendered or distributions from cash flow. The remaining results of
operations are generally allocated to the Company.
As of
December 31, 2007, the Company had two VIE’s of which it was not deemed to be
the primary beneficiary. Total assets and liabilities of these
entities were approximately $71.7 million and $58.3 million as of December 31,
2007. As of December 31, 2008, the Company did not have any VIE’s of
which it was not deemed to be the primary beneficiary.
(b)
Real Estate Rental Properties
Significant
expenditures, which improve or extend the life of an asset and have a useful
life of greater than one year, are capitalized. Operating real estate
assets are stated at cost and consist of land, buildings and improvements,
furniture, fixtures and equipment, and other costs incurred during their
development, redevelopment and acquisition. Expenditures for
maintenance and repairs are charged to expense as incurred.
The
depreciable life of various categories of fixed assets is as
follows: |
|
Computer
software and equipment
|
|
3 -
5 years
|
Interior
unit improvements
|
|
5
years
|
Land
improvements and certain exterior components of real
property
|
|
10
years
|
Real
estate structures
|
|
30
years
|
In
accordance with SFAS No. 67, “Accounting for Costs and Initial
Rental Operations of Real Estate Projects,” the Company capitalizes
predevelopment costs incurred in the pursuit of new development opportunities,
in the negotiation process, as well as the entitlement process with a high
likelihood of the projects becoming development
activities. Predevelopment costs for which a future development is no
longer considered probable are charged to expense. All costs incurred
with the predevelopment, development or redevelopment of real estate assets are
capitalized if they are clearly associated with the predevelopment, development
or redevelopment of rental property, or are associated with the construction or
expansion of real property. Such capitalized costs include land, land
improvements, allocated costs of the Company’s project management staff,
construction costs, as well as interest and related loan fees, property taxes
and insurance. Capitalization begins for predevelopment, development,
and redevelopment projects when activity commences. Capitalization
ends when the apartment home is completed and the property is available for a
new resident.
In
accordance with FASB’s Statement of Financial Accounting Standard No. 141
(“SFAS No. 141”) “Business
Combinations,” the Company allocates the purchase price of real estate to
land and building, and identifiable intangible assets, such as the value of
above, below and at-market in-place leases. The values of the above and below
market leases are amortized and recorded as either a decrease (in the case of
above market leases) or an increase (in the case of below market leases) to
rental revenue over the remaining term of the associated leases
acquired. The value of acquired at-market leases are amortized to
expense over the term the Company expects to retain the acquired tenant, which
is generally 20 months.
In
accordance with SFAS No. 141 and its applicability to acquired in-place leases,
we perform the following evaluation for communities we acquire:
|
(1)
|
estimate the value of the real
estate “as if vacant” as of the acquisition date;
|
|
(2)
|
allocate that value among land
and building;
|
|
(3)
|
compute the value of the
difference between the “as if vacant” value and the purchase price, which
will represent the total intangible assets;
|
|
(4)
|
allocate the value of the above
and below market leases to the intangible assets and determine the
associated life of the above market/ below market
leases;
|
|
(5)
|
allocate
the remaining intangible value to the at-market in-place leases or
customer relationships, if any, and the associated lives of these
assets.
|
Whenever
events or changes in circumstances indicate that the carrying amount of a
property held for investment or held for sale may not be fully recoverable, the
carrying amount will be evaluated for impairment. If the sum of the property’s
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount (including intangible assets) of the property, then the
Company will recognize an impairment loss equal to the excess of the carrying
amount over the fair value of the property. Such fair value of a
property is determined using conventional real estate valuation methods, such as
discounted cash flow, the property’s unleveraged yield in comparison to the
unleveraged yields and sales prices of similar communities that have been
recently sold, and other third party information, if
available. Communities held for sale are carried at the lower of cost
and fair value less estimated costs to sell.
During
the second quarter of 2006, the Company recorded an impairment loss of $0.8
million resulting from write-down of a property’s value in Houston, Texas, to
reduce the property’s carrying value to its estimated fair value. The
impairment charges are recorded in other expenses in the accompanying
consolidated statements of operations.
In the
normal course of business, the Company will receive offers for sale of its
Communities, either solicited or unsolicited. For those offers that are
accepted, the prospective buyer will usually require a due diligence period
before consummation of the transaction. It is not unusual for matters
to arise that result in the withdrawal or rejection of the offer during this
process. The Company classifies real estate as "held for sale" when
all criteria under Statement of Financial Accounting Standard No. 144 (“SFAS No.
144”), "Accounting for the
Impairment or Disposal of Long-Lived Assets" have been met. In
accordance with SFAS No. 144, the Company presents income and gains/losses on
communities sold as discontinued operations net of minority interests. Real
estate investments accounted for under the equity method of accounting remain
classified in continuing operations upon disposition. (See Note 6 for
a description of the Company’s discontinued operations for 2008, 2007, and
2006).
(c)
Co-investments
The
Company owns investments in joint ventures (“co-investments”) in which it has
significant influence, but its ownership interest does not meet the criteria for
consolidation in accordance with FIN 46R or Emerging Issues Task Force Consensus
No. 04-05 (“EITF 04-05”), “Determing Whether a General Partner
or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain
Rights.” Therefore, the Company accounts for these investments
using the equity method of accounting. Under the equity method of accounting,
the investment is carried at the cost of assets contributed, plus the Company’s
equity in earnings less distributions received and the Company’s share of
losses.
A
majority of these co-investments compensate the Company for its asset management
services and some of these investments may provide promote distributions if
certain financial return benchmarks are achieved. Asset management
fees are recognized when earned, and promote fees are recognized when the
earnings events have occurred and the amount is determinable and collectible.
Asset management fees and promote fees are reflected in interest and other and
equity income in co-investments, respectively, in the accompanying consolidated
statements of operations.
(d)
Revenues and Gains on Sale of Real Estate
Revenues
from tenants renting or leasing apartment units are recorded when due from
tenants and are recognized monthly as they are earned, which is not materially
different than on a straight-line basis. Units are rented under
short-term leases (generally, lease terms of 6 to 12 months) and may provide no
rent for one or two months, depending on the market conditions and leasing
practices of the Company’s competitors in each sub-market at the time the leases
are executed. Revenues from tenants leasing commercial space
are recorded on a straight-line basis over the life of the respective
lease.
The
Company recognizes gains on sales of real estate when a contract is in place, a
closing has taken place, the buyer’s initial and continuing investment is
adequate to demonstrate a commitment to pay for the property and the Company
does not have a substantial continuing involvement in the property.
(e)
Cash Equivalents and Restricted Cash
Highly
liquid investments with original maturities of three months or less when
purchased are classified as cash equivalents. Restricted cash balances relate
primarily to reserve requirements for capital replacement at certain Communities
in connection with the Company’s mortgage debt.
(f) Marketable
Securities
Marketable
securities consist primarily of U.S. treasury or agency securities and REIT
unsecured exchangeable bonds. The Company has classified U.S.
treasury and agency securities as held-to-maturity securities, and the Company
reports the securities at amortized cost. The Company has classified
the REIT exchangeable bonds as available for sale and the Company reports these
securities at fair value, based on quoted market prices (Level 1 as defined by
FAS 157 which is discussed in paragraph (i) and (o) below), and any unrealized
gain or loss is recorded as other comprehensive income
(loss). Realized gains and losses and interest income are included in
interest and other income on the consolidated statement of
operations. Amortization of unearned discounts on both held to
maturity and available for sale securities is included in interest
income.
(g)
Notes Receivable
Notes
receivable relate to real estate financing arrangements including mezzanine and
bridge loans that exceed one year. Amounts outstanding under the
notes bear interest at a rate based on the borrower’s credit quality and are
recorded at face value. Interest is recognized over the life of the note. The
Company requires collateral for the notes.
Each note
is analyzed to determine if it is impaired pursuant to FAS No. 114, “Accounting by Creditors for
Impairment of a Loan”. A note is impaired if it is probable
that the Company will not collect all principal and interest contractually
due. The Company does not accrue interest when a note is considered
impaired. All cash receipts on impaired notes are applied to reduce the
principal amount of such notes until the principal has been recovered and,
thereafter, are recognized as interest income.
(h)
Interest and Other Income
Other
income includes rental income from office buildings classified as real estate
under development. Other income also includes rental income for RV
parks and a manufactured housing community, all of which were sold during 2008.
Total interest and other income are comprised of the following for the years
ended December 31:
($ in
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Interest
income
|
|
$ |
4,817 |
|
|
$ |
3,947 |
|
|
$ |
2,719 |
|
Rental
income
|
|
|
6,526 |
|
|
|
6,363 |
|
|
|
1,570 |
|
Gain
on sale of marketable securities
|
|
|
- |
|
|
|
- |
|
|
|
1,687 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
200 |
|
|
|
$ |
11,343 |
|
|
$ |
10,310 |
|
|
$ |
6,176 |
|
(i)
Interest Rate Protection, Swap, and Forward Contracts
The
Company adopted FAS 157 as of January 1, 2008, as discussed below in paragraph
(o). The
Company values forward-starting interest rate swaps at fair value, and based on
the fair value hierarchy of valuation techniques, the Company has elected to use
fair values determined by Level 2. Level 2 valuation methodology is
determined based on inputs other than quoted prices in active markets for
identical assets or liabilities the Company has the ability to access as
included in Level 1 valuation methodology that are observable for the asset or
liability, either directly or indirectly. Level 2 inputs include
quoted prices for similar assets and liabilities in active markets and inputs
other than quoted prices observable for the asset or liability, such as interest
rates and yield curves observable at commonly quoted intervals. The
Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and considers factors specific to
the asset or liability. As of December 31, 2008, forward-starting
interest rates swaps are the only assets and liabilities that the Company
measured at fair value based on the FAS 157 fair valuation
methodology.
The
Company has from time to time used interest rate protection, swap and forward
contracts to manage its interest rate exposure on current or identified future
debt transactions. The Company accounts for such derivative contracts using SFAS
No. 133. Under SFAS No. 133, derivative instruments are required to
be included in the balance sheet at fair value. The changes in the fair value of
the derivatives are accounted for depending on the use of the derivative and
whether it has been designated and qualifies as a part of a hedging
relationship. The Company records all derivatives on the balance
sheet at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative and the resulting
designation. Derivatives used to hedge the exposure to changes
in the fair value of an asset, liability, or firm commitment attributable to a
particular risk, such as interest rate risk, are considered fair value
hedges. Derivatives used to hedge the exposure to variability in
expected future cash flows, or other types of forecasted transactions, are
considered cash flow hedges.
For
derivatives designated as fair value hedges, changes in the fair value of the
derivative and the hedged item related to the hedged risk are recognized in
earnings. For derivatives designated as cash flow hedges, the
effective portion of changes in the fair value of the derivative is initially
reported in other comprehensive income (outside of earnings) and subsequently
reclassified to earnings when the hedged transaction affects earnings, and the
ineffective portion of changes in the fair value of the derivative is recognized
directly in earnings. The Company assesses the initial and ongoing
effectiveness of each hedging relationship by comparing the changes in fair
value or cash flows of the derivative hedging instrument with the changes in
fair value or cash flows of the designated hedged item or
transaction.
For
derivatives not designated as hedges, changes in fair value are recognized in
earnings. All existing instruments are considered cash flow hedges,
and the Company does not have any fair value hedges as of December 31, 2008.
The
Company’s objective in using derivatives is to add stability to interest expense
and to manage its exposure to interest rate movements or other identified
risks. To accomplish this objective, the Company primarily uses interest
rated forward-starting swaps as part of its cash flow hedging
strategy.
Amounts
reported in accumulated other comprehensive (loss) income related to derivatives
will be reclassified to interest expense as interest payments are made on the
Company’s hedged debt. The Company is hedging its exposure to the
variability in future cash flows for a portion of its forecasted transactions
over a maximum period of 35 months as of December 31, 2008.
(j)
Deferred Charges
Deferred
charges are principally comprised of loan fees and related costs which are
amortized over the terms of the related borrowing in a manner which approximates
the effective interest method.
(k)
Income Taxes
Generally
in any year in which the Company qualifies as a real estate investment trust
(“REIT”) under the Internal Revenue Code (the “IRC”), it is not subject to
federal income tax on that portion of its income that it distributes to
stockholders. No provision for federal income taxes, other than the taxable REIT
subsidiaries discussed below has been made in the accompanying consolidated
financial statements for each of the three years in the period ended December
31, 2008, as the Company has elected to be and believes it qualifies under the
IRC as a REIT and has made distributions during the periods in amounts to
preclude the Company from paying federal income tax.
In order
to maintain compliance with REIT tax rules, the Company utilizes taxable REIT
subsidiaries for
various revenue generating or investment activities. The taxable REIT
subsidiaries are consolidated by the Company. The activities and tax related
provisions, assets and liabilities are not material.
The
status of cash dividends distributed for the years ended December 31, 2008,
2007, and 2006 related to common stock, Series F, and Series G preferred stock
are classified for tax purposes as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
income
|
|
|
98.95 |
% |
|
|
75.65 |
% |
|
|
100.00 |
% |
Capital
gains
|
|
|
1.05 |
% |
|
|
24.35 |
% |
|
|
0.00 |
% |
Return
of capital
|
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
100.00 |
% |
(l)
Preferred Stock
The
Company classifies its Series G Cumulative Convertible Preferred Stock (“ Series
G Preferred Stock”) based on Emerging Issues Task Force Topic D-98,
(“EITF D-98”) “Classification
and Measurement of Redeemable Securities.” The Series G Preferred Stock
contains fundamental change provisions that allow the holder to redeem the
preferred stock for cash if certain events occur. The redemption
under these provisions is not solely within the Company’s control, thus the
Company has classified the Series G Preferred Stock as temporary equity in the
accompanying consolidated balance sheets.
The
Company classifies its Series F Cumulative Redeemable Preferred Stock (“Series F
Preferred Stock”) based on EITF D-98. The Series F Preferred Stock
contains fundamental change provisions that allow the holder to redeem the
preferred stock for cash if certain events occur. The redemption
under these provisions is within the Company’s control, and thus the Company has
classified the Series F Preferred Stock as permanent equity in the accompanying
consolidated balance sheets.
(m)
Stock-based Compensation
The
Company accounts for share based compensation using the fair value method of
accounting. The estimated fair value of stock options granted by the
Company is being amortized over the vesting period of the stock
options. The estimated grant date fair values of the long term
incentive plan units (discussed in Note 13) are being amortized over the
expected service periods.
(n)
Accounting Estimates and Reclassifications
The
preparation of consolidated financial statements, in accordance with U.S.
generally accepted accounting principles (“GAAP”), requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosures of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to acquiring, developing and assessing the carrying
values of its real estate communities, its investments in and advances to joint
ventures and affiliates, its notes receivable and its qualification as a
REIT. The Company bases its estimates on historical experience,
current market conditions, and on various other assumptions that are believed to
be reasonable under the circumstances. Actual results may vary from those
estimates and those estimates could be different under different assumptions or
conditions.
Reclassifications
for discontinued operations have been made to prior year statements of
operations balances in order to conform to the current year
presentation. Such reclassifications have no impact on reported
earnings, total assets or total liabilities.
(o)
New Accounting Pronouncements
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“FAS 157”). FAS 157 provides guidance for using fair value to
measure assets and liabilities. FAS 157 establishes a fair value
hierarchy, giving the highest priority to quoted prices in active markets and
the lowest priority to unobservable data. This statement is effective in fiscal
years beginning after November 15, 2007. The adoption of this
standard on January 1, 2008 did not have a material impact on the Company’s
consolidated financial position, results of operations or cash
flows.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“FAS No. 159”). FAS 159
expands opportunities to use fair value measurement in financial reporting and
permits entities to choose to measure many financial instruments and certain
other items at fair value. This Statement is effective for fiscal
years beginning after November 15, 2007. Through December 31, 2008,
The Company has not elected to measure any eligible financial assets and
liabilities at fair value.
In
December 2007, the FASB issued revised FAS No. 141, “Business Combinations” (“FAS
141(R)”). FAS141(R)
establishes principles and requirements for how the acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. FAS 141(R) is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. Management is currently evaluating the impact FAS 141(R) will
have on the Company’s accounting for future business combinations.
In
December 2007, the FASB issued FAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements” (“FAS 160”). FAS 160 establishes
accounting and reporting standards that require the ownership interests in
subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated balance sheet within equity, but
separate from the parent’s equity; the amount of consolidated net income
attributable to the parent and to the noncontrolling interest be clearly
identified and presented on the face of the consolidated statement of income;
changes in a parent’s ownership interest while the parent retains its
controlling financial interest in its subsidiary be accounted for consistently;
when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value; and
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. FAS 160 is effective for fiscal years beginning on or after
December 15, 2008. Management is currently evaluating the impact FAS 160
will have on the Company’s consolidated financial statements.
In May
2008, the FASB issued FASB staff position APB 14-1, “Accounting for Convertible Debt
Instruments That May be Settled in cash upon Conversion (Including Partial Cash
Settlement)” (“APB 14-1”). APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) upon conversion separately account for the liability (debt) and equity
(conversion option) components of the instruments in a manner that reflects the
issuer’s nonconvertible debt borrowing rate. APB 14-1 requires the
initial debt proceeds from the sale of a company’s convertible debt instrument
to be allocated between the liability component and the equity
component. The resulting debt discount will be amortized over the
period during which the debt is expected to be outstanding (i.e., through the
first optional redemption dates) as additional non-cash interest
expense. APB 14-1 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited and retroactive application is
required for all periods presented. The interest expense from the
Company’s $225.0 million exchangeable bonds (the “Bonds”) with a coupon rate of
3.625% due November 2025, which were issued in the fourth quarter of 2005, will
be impacted by APB 14-1. During the fourth quarter of 2008, the
Company repurchased $53.3 million of the Bonds, and during 2009 the Company
repurchased an additional $71.3 million of the Bonds, thus the outstanding
balance as of February 2009 is $100.4 million. Based on the Company's
understanding of the application of APB 14-1, this will result in an additional
non-cash interest expense of additional interest of $3.9 million for 2007, and
$4.1 million for 2008 and will restate the gain on redemption of the bonds from
$3.5 million to $4.1 million in 2008. The Company will adopt APB 14-1
as of January 1, 2009, and the Company will present prior period comparative
results reflecting the impact of APB 14-1.
(3)
Real Estate Investments
(a)
Sales of Real Estate investments
In the
fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property
located in El Cajon, California for $19.8 million resulting in a gain of $3.4
million. The Company also sold Green Valley, a manufactured
housing community located in Vista, California for $8.9 million resulting in a
gain of $1.8 million.
In the
third quarter of 2008, the Company sold Cardiff by the Sea Apartments, located
in Cardiff, California for $71.0 million resulting in a gain of $46,000 and St.
Cloud Apartments, located in Houston, Texas for $8.8 million resulting in no
gain on sale. The Company also sold the Circle recreational vehicle
(“RV”) park located in El Cajon, California for $5.4 million resulting in a gain
of $0.9 million, and the Company sold the Vacationer RV park located in El
Cajon, California for $4.6 million. The gain on sale of $0.8 million
resulting from the sale of Vacationer was deferred due to the fact the Company
loaned $4.1 million to the buyer at a fixed rate of 6.5% due in August
2011.
In
December 2007, the Company sold four communities (875-units) in the Portland
metropolitan area for $97.5 million, resulting in a gain of $47.6 million net of
minority interest. The proceeds from the sale were used in a tax-free
reverse exchange for the purchase of Mill Creek at Windermere in September
2007.
In
February 2007, the Company sold the joint venture property City Heights
Apartments, a 687-unit community located in Los Angeles, California for $120
million. The Company’s share of the proceeds from the sale totaled
$33.9 million, resulting in a $13.7 million gain on sale to the Company, and an
additional $10.3 million for fees from the joint venture partner, both of which
are included in income from discontinued operations.
(b)
Co-investments
The
Company has joint venture investments in a number of co-investments which are
accounted for under the equity method. The joint ventures own and
operate apartment communities.
Essex
Apartment Value Fund, L.P. (“Fund I”), was an investment fund organized by the
Company in 2001 to add value through rental growth and asset appreciation,
utilizing the Company’s acquisition, development, redevelopment and asset
management capabilities. Fund I was considered fully invested in 2003. The
Company was a 1% general partner and was a 20.4% limited
partner. Fund I acquired or developed ownership interests in 19
apartment communities, representing 5,406 apartment units. Fund
I sold its apartment communities during 2004 and 2005. During 2006,
the Company recorded a $1.2 million in promote income related to the
dispositions of assets in 2005, and during 2007 the Company recorded $0.3
million in gain on its investment and $0.3 million in promote income related to
the final liquidation of Fund I assets.
Essex
Apartment Value Fund II, L.P. (“Fund II”), has eight institutional investors,
and the Company, with combined partner equity commitments of $265.9 million
which are fully contributed as of December 31, 2008. The Company
contributed $75.0 million to Fund II, which represents a 28.2% interest as
general partner and limited partner. Fund II utilized debt as
leverage equal to approximately 55% of the estimated value of the underlying
real estate. Fund II invested in apartment communities in the
Company’s targeted West Coast markets with an emphasis on investment
opportunities in the Seattle metropolitan area and the San Francisco Bay
Area. As of October 2006, Fund II was fully invested and closed for
any future acquisitions or development. As of December 31, 2008, Fund
II owned eleven apartment communities, one development project completed but not
yet stabilized and two development projects. No communities have been
sold by Fund II. Consistent with Fund I, the Company records revenue
for its asset management, property management, development and redevelopment
services when earned, and promote income when realized if Fund II exceeds
certain financial return benchmarks.
In August
2005, the Company purchased 500,000 Series A Preferred shares in Multifamily
Technology Solutions, Inc. (“MTS”). The Company owns less than 5% of
the voting stock of MTS and therefore accounts for this investment on the cost
method.
During
2006, the Company made a contribution to a development with a joint venture
partner totaling $3.4 million, and made additional contributions to this joint
venture of $1.3 million and $0.7 million during 2008 and 2007,
respectively. The development is located in Southern California and
as of December 31, 2008 was still in the predevelopment stage.
During
March 2007, the Mountain Vista Apartments, LLC, a joint venture that owns the
Waterstone at Fremont apartments in Fremont, California, was recapitalized with
the inclusion of a new joint venture partner, and as part of this transaction
the Company received $7.7 million in net distributions from the joint
venture. The Company accounted for this transaction as a partial sale
of the Company’s investment and recorded a gain of $2.0 million which is
included in equity income in co-investments as a result of this
transaction. As of December 31, 2007, the Company’s carrying value of
its remaining investment in the amended and restated Mountain Vista Apartments,
LLC joint venture was $1.2 million. During January 2008, the Company
collected $7.5 million in connection with the return of its remaining interest
in the joint venture and recognized income of $6.3 million from its preferred
interest.
|
|
2008
|
|
|
2007
|
|
Investments
in joint ventures accounted for under the equity method of
accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
thousands)
|
|
|
|
|
|
|
Limited
partnership interest of 27.2% and general partner interest of 1% in Essex
Apartment Value Fund II, L.P (Fund II)
|
|
$ |
70,469 |
|
|
$ |
58,419 |
|
Preferred
limited partnership interest in Mountain Vista Apartments LLC
(A)
|
|
|
- |
|
|
|
1,182 |
|
Development
joint venture
|
|
|
5,377 |
|
|
|
4,090 |
|
|
|
|
75,846 |
|
|
|
63,691 |
|
Investments
accounted for under the cost method of accounting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
A Preferred Stock interest in Multifamily Technology Solutions,
Inc
|
|
|
500 |
|
|
|
500 |
|
Total
investments
|
|
$ |
76,346 |
|
|
$ |
64,191 |
|
(A)
|
The
investment is held in an entity that includes an affiliate of The Marcus
& Millichap Company (“TMMC”), and is the general
partner. TMMC’s Chairman is also the Chairman of the
Company.
|
The
combined summarized financial information of co-investments, which are accounted
for under the equity method, is as follows:
|
|
December
31,
|
|
($ in
thousands)
|
|
2008
|
|
|
2007
|
|
Balance
sheets:
|
|
|
|
|
|
|
Rental
properties and real estate under development
|
|
$ |
526,906 |
|
|
$ |
614,266 |
|
Other
assets
|
|
|
40,877 |
|
|
|
16,184 |
|
Total
assets
|
|
$ |
567,783 |
|
|
$ |
630,450 |
|
|
|
|
|
|
|
|
|
|
Mortgage
notes payable
|
|
$ |
308,853 |
|
|
$ |
322,615 |
|
Other
liabilities
|
|
|
8,481 |
|
|
|
24,014 |
|
Partners'
equity
|
|
|
250,449 |
|
|
|
283,821 |
|
Total
liabilities and partners' equity
|
|
$ |
567,783 |
|
|
$ |
630,450 |
|
|
|
|
|
|
|
|
|
|
Company's
share of equity
|
|
$ |
75,846 |
|
|
$ |
63,691 |
|
|
|
Years
ended
|
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Statements
of operations:
|
|
|
|
|
|
|
|
|
|
Property
revenues
|
|
$ |
46,879 |
|
|
$ |
46,559 |
|
|
$ |
43,031 |
|
Property
operating expenses
|
|
|
(17,621 |
) |
|
|
(18,551 |
) |
|
|
(20,464 |
) |
Net
operating income
|
|
|
29,258 |
|
|
|
28,008 |
|
|
|
22,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(12,210 |
) |
|
|
(13,888 |
) |
|
|
(17,000 |
) |
Depreciation
and amortization
|
|
|
(13,926 |
) |
|
|
(14,116 |
) |
|
|
(12,395 |
) |
Net
income (loss)
|
|
$ |
3,122 |
|
|
$ |
4 |
|
|
$ |
(6,828 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's
share of operating net income (loss)
|
|
|
1,502 |
|
|
|
1,074 |
|
|
|
(1,503 |
) |
Company's
preferred interest/gain - Mt Vista
|
|
|
6,318 |
|
|
|
2,046 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company's
share of net income (loss)
|
|
$ |
7,820 |
|
|
$ |
3,120 |
|
|
$ |
(1,503 |
) |
(c)
Real Estate Under Development
The
Company defines real estate under development activities as new communities that
are in various stages of active development, or the community is in
lease-up and phases of the project are not completed. As of
December 31, 2008, excluding the two development projects owned by Fund II, the
Company had four development projects comprised of 988 units for an estimated
cost of $410.0 million, of which $234.6 million remains to be
expended.
The
Company defines the predevelopment pipeline as new communities in negotiation or
in the entitlement process with a high likelihood of becoming development
activities. As of December 31, 2008, the Company had two development
communities aggregating 820 units that were classified as predevelopment
projects. The estimated total cost of the predevelopment pipeline at
December 31, 2008 is $242.4 million, of which $169.4 million remains to be
expended. The Company owns land parcels held for future development
aggregating 392 units as of December 31, 2008. The Company had
incurred $23.9 million in costs related to these four land parcels as of
December 31, 2008.
(4)
Notes and Other Receivables
Notes
receivables, secured by real estate, and other receivables consist of the
following as of December 31, 2008 and 2007:
|
|
2008
|
|
|
2007
|
|
($ in
thousands)
|
|
|
|
|
|
|
Note
receivable, secured, bearing interest at LIBOR + 4.65%, due July
2008
|
|
$ |
- |
|
|
$ |
5,448 |
|
Note
receivable, secured, bearing interest at LIBOR + 3.38%, due February
2009
|
|
|
12,748 |
|
|
|
10,999 |
|
Note
receivable, secured, bearing interest at LIBOR + 2.95%, due April
2009
|
|
|
14,043 |
|
|
|
14,010 |
|
Note
receivable, secured, bearing interest at LIBOR + 3.69%, due June
2009
|
|
|
7,325 |
|
|
|
7,346 |
|
Note
receivable, secured, bearing interest at LIBOR + 4.75%, due March
2011
|
|
|
7,294 |
|
|
|
7,128 |
|
Note
receivable, secured, bearing interest at 6.5%, due August
2011
|
|
|
4,070 |
|
|
|
- |
|
Note
receivable, secured, bearing interest at 8.0%, due November
2010
|
|
|
965 |
|
|
|
- |
|
Other
receivables
|
|
|
1,192 |
|
|
|
5,605 |
|
|
|
$ |
47,637 |
|
|
$ |
50,536 |
|
The
Company originated a loan to the owners of an apartment community under
development in Vancouver, Washington, with a maturity date of February
2009. The loan provided funding for the completion of the 146-unit
apartment community. In July 2008, the Company ceased recording
interest income and issued a notice of monetary default to the borrower, and in
November 2008 the borrower filed for bankruptcy. During the fourth
quarter 2008, the Company recorded a loan loss reserve in the amount of $0.7
million on this impaired note receivable, which is approximately equal to the
estimated fair value less holding and selling costs of the apartment community
as of December 31, 2008.
During
the fourth quarter of 2007, the Company recorded a loan loss reserve in the
amount of $0.5 million on another impaired note receivable, which was
approximately equal to accrued and unpaid interest recorded from inception of
the note through June 30, 2007. During 2008, this note receivable was
repaid.
(5)
Related Party Transactions
Management
and other fees from affiliates includes management, promote, development and
redevelopment fees totaling $5.2 million, $5.1 million, and $5.0 million for the
years ended December 31, 2008, 2007, and 2006, respectively.
The
Company’s Chairman, George Marcus, is the Chairman of TMMC, which owns a real
estate brokerage firm. During the years ended December 31, 2008,
2007, and 2006, the Company paid brokerage commissions totaling $0.2 million,
$1.3 million, and $0.8 million, respectively to TMMC on the purchase and sales
of real estate.
Mr.
Marcus was an investor in the two partnerships that owned the Thomas Jefferson
Apartments that was acquired by the Company during September 2007 in a DownREIT
transaction. In conjunction with that transaction, Mr. Marcus
received 7,006 DownREIT units in exchange for his partnership interests in those
apartments. The Company’s independent Board of Directors approved the
acquisition of the apartment community.
Mr.
Marcus is the Chairman of the Urban Housing Group (“UHG”), a subsidiary of
TMMC. During December 2007, UHG sold the rights to the Company to
acquire the Fourth Street development land parcel in Berkeley, California for
$2.8 million. The amount paid to the Urban Housing Group included
reimbursement for the costs incurred by UHG to entitle the property for
development. The Company’s independent Board of Directors approved
the acquisition of the rights to the land parcel.
(6)
Discontinued Operations
In the
fourth quarter of 2008, the Company sold Coral Gardens, a 200-unit property
located in El Cajon, California for $19.8 million resulting in a gain of $3.4
million.
In the
third quarter of 2008, the Company sold Cardiff by the Sea Apartments, located
in Cardiff, California for $71.0 million resulting in a gain of $46,000 and St.
Cloud Apartments, located in Houston, Texas for $8.8 million resulting in no
gain on sale.
In
December 2007, the Company sold four communities (875-units) in the Portland
metropolitan area for $97.5 million, resulting in a gain of $47.6 million, net
of minority interest.
During
the first three quarters of 2007, the Company sold the 21 remaining condominium
units at the Peregrine Point community resulting in a gain of $1.0 million net
of taxes and expenses, and during 2006, the Company sold 45 units at Peregrine
Point resulting in a gain of $2.0 million net of taxes and
expenses.
In
February 2007, City Heights Apartments, a 687-unit community located in Los
Angeles was sold to a third-party for $120.0 million. The Company’s
share of the proceeds from the sale totaled $33.9 million, resulting in a $13.7
million gain, net of minority interest, to the Company, and an additional $10.3
million for fees from the City Heights joint venture partner.
In
December 2006, the Company sold Emerald Palms, a 152-unit apartment community
located in San Diego for $20.5 million, resulting in a gain of $6.7
million.
In June
2006, the unconsolidated joint venture property, Vista Pointe, a 286-unit
apartment community located in Anaheim, California, was sold for approximately
$46.0 million. The Company’s share of the proceeds from the transaction totaled
$19.3 million, resulting in an $8.8 million gain on the sale, and an additional
$8.2 million for fees and a promote distribution.
In
January 2006, the Company sold Vista Capri East and Casa Tierra apartment
communities for approximately $7.0 million and in March 2006, the Company sold
Diamond Valley, a Recreational Vehicle Park, for approximately $1.3
million. The total combined gain was $3.1 million.
The
Company has recorded the gains and operations for these various assets sold
described above as part of discontinued operations in the accompanying
consolidated statements of operations. The components of discontinued
operations are outlined below and include the results of operations for the
respective periods that the Company owned such assets, as described
above.
($ in
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
7,058 |
|
|
$ |
17,425 |
|
|
$ |
23,841 |
|
Interest
and other income
|
|
|
- |
|
|
|
290 |
|
|
|
41 |
|
Equity
income in co-investments
|
|
|
- |
|
|
|
- |
|
|
|
238 |
|
Revenues
|
|
|
7,058 |
|
|
|
17,715 |
|
|
|
24,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating expenses
|
|
|
(3,851 |
) |
|
|
(7,477 |
) |
|
|
(10,037 |
) |
Interest
expense, secured mortgage debt
|
|
|
(2,210 |
) |
|
|
(2,489 |
) |
|
|
(2,940 |
) |
Depreciation
and amortization
|
|
|
(2,434 |
) |
|
|
(4,603 |
) |
|
|
(5,904 |
) |
Minority
interests
|
|
|
117 |
|
|
|
(260 |
) |
|
|
(1,223 |
) |
Expenses
|
|
|
(8,378 |
) |
|
|
(14,829 |
) |
|
|
(20,104 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from real estate sold
|
|
|
(1,320 |
) |
|
|
2,886 |
|
|
|
4,016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of real estate
|
|
|
3,417 |
|
|
|
52,874 |
|
|
|
20,503 |
|
Gain
on sale of real estate - City Heights
|
|
|
- |
|
|
|
78,306 |
|
|
|
- |
|
Promote
interest and fees
|
|
|
- |
|
|
|
10,290 |
|
|
|
8,221 |
|
Minority
interests
|
|
|
(260 |
) |
|
|
(6,443 |
) |
|
|
(2,730 |
) |
Minority
interests - City Heights
|
|
|
- |
|
|
|
(64,624 |
) |
|
|
- |
|
|
|
|
3,157 |
|
|
|
70,403 |
|
|
|
25,994 |
|
Income
from discontinued operations
|
|
$ |
1,837 |
|
|
$ |
73,289 |
|
|
$ |
30,010 |
|
(7)
Mortgage Notes Payable and Exchangeable Bonds
Mortgage
notes payable and exchangeable bonds consist of the following as of December 31,
2008 and 2007:
($ in thousands except per
share amounts)
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Mortgage
notes payable to a pension fund, secured by deeds of trust, bearing
interest at rates ranging from 7.73% to 8.18%, principal and interest
payments due monthly, and maturity dates ranging through October 2010.
Under certain conditions a portion of these loans can be converted to an
unsecured note payable. Two loans are are cross-collateralized
by a total of five communities, and a third loan bearing interest at 6.62%
and cross-collateralized by eight communities, was repaid in
2008
|
|
$ |
132,595 |
|
|
$ |
224,876 |
|
|
|
|
|
|
|
|
|
|
Mortgage
notes payable, secured by deeds of trust, bearing interest at ranges
ranging from 4.86% to 7.90%, principal and interest payments due monthly,
and maturity dates ranging from April 2009 through June
2020
|
|
|
1,085,210 |
|
|
|
804,859 |
|
|
|
|
|
|
|
|
|
|
Multifamily
housing mortgage revenue bonds secured by deeds of trust on rental
properties and guaranteed by collateral pledge agreements, payable monthly
at a variable rate as defined in the Loan Agreement (approximately 4.0% at
December 2008 and 4.5% at December 2007), plus credit enhancement and
underwriting fees ranging from approximately 1.2% to 1.9%. The bonds are
primarily convertible to a fixed rate at the Company's option. Among the
terms imposed on the properties, which are security for the bonds, is a
requirement that 20% of the units are subject to tenant income criteria.
Principal balances are due in full at various maturity dates from December
2009 through December 2039. Of these bonds $183.4 million are
subject to various interest rate cap agreements which limit the maximum
interest rate to such bonds
|
|
|
251,126 |
|
|
|
233,138 |
|
|
|
|
|
|
|
|
|
|
Exchangeable
bonds, unsecured obligations of the Operating Partnership and guaranteed
by the Company, bearing interest at 3.625% per year, payable November 1
and May 1 of each year, which mature on November 1, 2025. The
bonds are exchangeable at the option of the holder into cash and, in
certain circumstances at the Company's option, shares of the Company's
common stock at an initial exchange price of $103.25 per share subject to
certain adjustments. These bonds will also be exchangeable prior to
November 1, 2020 under certain circumstances. The bonds are
redeemable at the Company's option for cash at any time on or after
November 4, 2010 and are subject to repurchase for cash at the option of
the holder on November 1st in years 2010, 2015, and 2020 or upon the
occurrence of certain events
|
|
|
171,716 |
|
|
|
225,000 |
|
|
|
$ |
1,640,647 |
|
|
$ |
1,487,873 |
|
The
aggregate scheduled principal payments of mortgage notes payable and
exchangeable bonds are as follows:
($
in thousands)
|
|
|
|
2009
|
|
$ |
35,842 |
|
2010
|
|
|
152,412 |
|
2011
|
|
|
151,281 |
|
2012
|
|
|
31,759 |
|
2013
|
|
|
192,813 |
|
Thereafter
|
|
|
1,076,540 |
|
|
|
$ |
1,640,647 |
|
For the
Company’s mortgage notes payable as of December 31, 2008, monthly interest
expense and principal amortization, excluding balloon payments, totaled
approximately $7.6 million and $1.5 million, respectively. Second
deeds of trust accounted for $74.7 million of the $1.2 billion in mortgage notes
payable as of December 31, 2008. Repayment of debt before the
scheduled maturity date could result in prepayment penalties. The
prepayment penalty on the majority of the Company’s mortgage notes payable are
computed by the greater of (a) 1% of the amount of the principal being prepaid
or (b) the present value of the mortgage note payable which is calculated by
multiplying the principal being prepaid by the difference between the interest
rate of the mortgage note and the stated yield rate on a specified U.S. treasury
security as defined in the mortgage note agreement and as published by the
Wall Street Journal. (See Schedule III for a list of mortgage loans
related to each Community in the Company’s Portfolio.)
During
the fourth quarter of 2008, the Company repurchased $53.3 million of the $225
million of exchangeable bonds due in 2025 at a discount to par value and
recognized a gain of $3.5 million. During 2009, the Company
repurchased $71.3 million of the exchangeable bonds at a discount to par value
for cash paid of $66.5 million, and the balance outstanding on the exchangeable
bonds was $100.4 million as of February 2009.
(8)
Lines of Credit
The
Company has three outstanding lines of credit in the aggregate committed amount
of $360.0 million as of December 31, 2008. The Company has a
$200 million unsecured line of credit, and in January 2009 the maturity date was
extended to March 2010. The balance on this unsecured line of credit
was $0 and $61.0 million, respectively as of December 31, 2008 and
2007. The interest rate under this unsecured line of credit ranges
from LIBOR plus 0.8% to LIBOR plus 1.0%. The average interest rate
for the balance outstanding as of December 31, 2007 was 6.2%. During
the fourth quarter 2008, the Company entered into a new five-year secured line
of credit facility with Freddie Mac to replace the prior secured line of credit
facility. The new secured facility expanded the existing secured
facility from $100 million to $150 million, and the new facility is expandable
to $250 million during the first two years. The underlying
interest rate on this line is between 99 and 150 basis points over the Freddie
Mac Reference Rate which is an increase from the prior secured line of credit
facility interest rate of 55 to 59 basis points over the Freddie Mac Reference
Rate, and the interest rate on the secured line of credit is subject to change
by the lender in November 2011. The secured line of credit is secured
by eight communities and matures in December 2013. As of December 31,
2008 and 2007, $120.0 million and $100.0 million were outstanding under this
line of credit, respectively, with an average interest rate of 3.0% and 5.4% for
balances outstanding as of December 31, 2008 and 2007,
respectively. During March 2007, the Company entered into an
unsecured revolving line of credit for $10.0 million with a commercial bank with
a maturity date of March 2009. Borrowings under this revolving line
of credit bear an interest rate at the bank’s Prime Rate less
2.0%. The balance on this revolving line of credit was $0 and
$8.8 million, respectively as of December 31, 2008 and 2007, which yielded an
average interest rate of 5.6% as of December 31, 2007.
The line
of credit agreements contain debt covenants related to limitations on
indebtedness and liabilities, maintenance of minimum levels of consolidated
earnings before depreciation, interest and amortization and maintenance of
minimum tangible net worth. The Company was in compliance with
the line of credit covenants as of December 31, 2008 and 2007.
(9)
Derivative Instruments and Hedging Activities
In
November 2008, in conjunction with obtaining a mortgage loan secured by
Montclaire, the Company settled a $25.0 million forward starting swap for a $1.2
million payment to the counterparty, which increased the effective interest on
the mortgage loan to 6.4%.
In June
2008, in conjunction with obtaining the mortgage loan secured by Hampton Place,
the Company settled a $20.0 million forward-starting swap for a $0.1 million
payment to the counterparty, which increased the effective interest rate on the
mortgage loan to 6.2%.
In April
2008, in conjunction with obtaining the mortgage loan secured by Park Hill at
Issaquah, the Company settled a $30 million forward-starting swap for a $1.7
million payment to the counterparty, which increased the effective interest rate
on the mortgage loan to 6.1%.
During
April 2007, the Company refinanced a mortgage loan for $35.7 million secured by
the Tierra Vista property in the amount of $62.5 million, with a fixed interest
rate of 5.5%, which matures in April 2017. In conjunction with this
transaction the Company settled a $50 million forward-starting swap and received
$1.3 million from the counterparty. The amortization of the
settlement of the swap decreased the effective interest on this loan to
5.2%.
As of
December 31, 2008 the Company had seven forward-starting interest rate swap
contracts totaling a notional amount of $375 million with interest rates ranging
from 5.1% to 5.9% and settlements dates ranging from November 2010 to October
2011. These derivatives qualify for hedge accounting as they are
expected to economically hedge the cash flows associated with future financings
of debt between 2010 and 2011. The fair value of the derivatives
decreased $64.2 million during the year ended December 31, 2008 to an obligation
of $73.1 million as of December 31, 2008, and the derivative liability was
recorded in cash flow hedge liabilities in the Company’s consolidated financial
statements. The changes in the fair values of the derivatives are
reflected in accumulated other comprehensive (loss) income in the accompanying
consolidated financial statements. No hedge ineffectiveness on cash
flow hedges was recognized during the year ended December 31, 2008 and
2007.
(10)
Lease Agreements
Cadence
Campus, a predevelopment property, is an office building, and Essex-Hollywood, a
rental property purchased for future development, is a commercial building
currently utilized as a production studio, and both communities are 100% leased
to single tenants as of December 31, 2008. The lease at Cadence
Campus expired in January 2009. The Essex-Hollywood lease was
extended to July 2012, and due to the length of this lease, during the fourth
quarter of 2008, the Company has reclassified this property from the
predevelopment pipeline to rental property on the Company’s consolidated balance
sheet. Interest expense is not being capitalized on these communities
while they are leased, and depreciation expense is being recorded until the
leases expire.
The
Company is also a lessor for two office buildings located in Southern
California. The tenants’ lease terms expire at various times through 2014 with
average annual lease payments of approximately $1.3 million. The
future minimum non-cancelable base rent to be received under the Cadence Campus,
Essex-Hollywood and the two office buildings in Southern California operating
leases for each of the years ending after December 31 is summarized as
follows:
|
|
Future
|
|
|
|
Minimum
|
|
($ in
thousands)
|
|
Rent
|
|
2009
|
|
$ |
3,787 |
|
2010
|
|
|
3,109 |
|
2011
|
|
|
2,633 |
|
2012
|
|
|
1,320 |
|
2013
|
|
|
338 |
|
2014
and thereafter
|
|
|
1,938 |
|
|
|
$ |
13,125 |
|
(11)
Equity and Minority Interest Transactions
Preferred
Securities Offerings
As of
December 31, 2008, the Company, either directly or through the Operating
Partnership, has the following cumulative preferred securities outstanding ($ in
thousands):
|
|
|
|
|
|
Liquidation
|
|
Description
|
|
Issue
Date
|
|
|
|
Preference
|
|
7.875%
Series B
|
|
February
1998
|
|
1,200,000
units
|
|
$ |
60,000 |
|
7.875%
Series B
|
|
April
1998
|
|
400,000
units
|
|
$ |
20,000 |
|
7.8125%
Series F
|
|
September
2003
|
|
1,000,000
shares
|
|
$ |
25,000 |
|
4.875%
Series G
|
|
July
2006
|
|
5,980,000
shares
|
|
$ |
149,500 |
|
Dividends
on the preferred securities are payable quarterly. The holders of the securities
have limited voting rights if the required dividends are in
arrears. The preferred units are included in minority interests in
the accompanying consolidated balance sheets.
In
January 2004, the Operating Partnership restructured its previously issued
$50,000, 9.30% Series D Cumulative Redeemable Preferred Units
("Series D Units"), and its previously issued $80,000, 7.875% B
Cumulative Redeemable Preferred Units ("Series B Units"). The
existing distribution rate of 9.30% of the Series D Units continued until July
27, 2004 the end of the non-call period. Effective July 28, 2004, the
distribution rate on the Series D Units was reduced to 7.875%. As of
December 31, 2007, 2,000,000 units of 7.875% Series D Units were
outstanding. In November 2008, the holders of the Series D units,
with a par value of $50 million, exchanged the units for 363,000 shares of
common stock and $10 million in cash plus accrued dividends. The date
that the Series B Units can first be redeemed at the Company's option was
extended from February 6, 2003 to December 31, 2009.
In
September 2003, the Company issued 1,000,000 shares of its Series F Cumulative
Redeemable Preferred Stock (“Series F Preferred Stock”) at a fixed price of
$24.664 per share, a discount from the $25.00 per share liquidation value of the
shares. The shares pay quarterly distributions at an annualized rate of
7.8125% per year of the liquidation value and are redeemable by the Company on
or after September 23, 2008. The shares were issued pursuant to the
Company’s existing shelf registration statement. The Company used the net
proceeds from this sale of Series F Preferred Stock to redeem all of the 9.125%
Series C Cumulative Redeemable Preferred Units of Essex Portfolio, L.P., of
which the Company is the general partner.
During
the third quarter of 2006, the Company sold 5,980,000 shares of 4.875% Series G
Cumulative Convertible Preferred Stock (“Series G Preferred Stock”) for
gross proceeds of $149.5 million. Holders may convert Series G
Preferred Stock into shares of the Company’s common stock subject to certain
conditions. The conversion rate was initially .1830 shares of common
stock per the $25 share liquidation preference, which is equivalent to an
initial conversion price of approximately $136.62 per share of common stock (the
conversion rate will be subject to adjustment upon the occurrence of specified
events). On or after July 31, 2011, the Company may, under certain
circumstances, cause some or all of the Series G Preferred Stock to be converted
into that number of shares of common stock at the then prevailing conversion
rate. During the first quarter of 2009, the Company repurchased $54.6
million of Series G Preferred Stock at a discount to par value for cash paid of
$30.1 million. As of February 2009, shares of Series G Preferred
Stock with an aggregate liquidation value of $94.9 million are currently
outstanding.
Common
Stock Offerings
During
2008 and 2007, the Company issued and sold 1,209,050 and 1,670,500 shares of
common stock for $142.8 million and $213.7 million, net of fees and commissions,
respectively. The Company used the net proceeds from such sales to
pay down debt and to fund the development pipeline.
Common
Stock Repurchases
In August
2007, the Company’s Board of Directors authorized a stock repurchase plan to
allow the Company to acquire shares in an aggregate of up to $200
million. The program supersedes the common stock repurchase plan that
the Company announced on May 16, 2001. During 2008 and 2007, the
Company repurchased and retired 143,400 and 323,259 shares of its common stock
for approximately $13.7 million, and $32.6 million, respectively.
DownREIT
transactions
During
September 2007, the Company acquired the Thomas Jefferson apartments in
Sunnyvale, California, for $28.0 million by acquiring ownership interests in the
two limited partnerships that collectively owned the property. In
connection with this acquisition, the limited partnerships were restructured to
provide for limited partnership units, or DownREIT units, that are redeemable
for cash, or at the Company's sole discretion, cash or shares of the common
stock of the Company. A total of 62,873 such units were issued, and
the Company assumed $20.0 million in mortgage loans in the
transaction.
(12)
Net Income Per Common Share
Basic and
diluted income from continuing operations per share are calculated as follows
for the years ended December 31 ($ in thousands, except share and
per share amounts):
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted-
|
|
|
Per
|
|
|
|
|
|
Weighted-
|
|
|
Per
|
|
|
|
|
|
Weighted-
|
|
|
Per
|
|
|
|
|
|
|
average
|
|
|
Common
|
|
|
|
|
|
average
|
|
|
Common
|
|
|
|
|
|
average
|
|
|
Common
|
|
|
|
|
|
|
Common
|
|
|
Share
|
|
|
|
|
|
Common
|
|
|
Share
|
|
|
|
|
|
Common
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations available to common
stockholders
|
|
$ |
54,276 |
|
|
|
25,205,367 |
|
|
$ |
2.15 |
|
|
$ |
33,175 |
|
|
|
24,548,003 |
|
|
$ |
1.35 |
|
|
$ |
27,593 |
|
|
|
23,081,682 |
|
|
$ |
1.20 |
|
Income
from discontinued operations
|
|
|
1,837 |
|
|
|
25,205,367 |
|
|
|
0.08 |
|
|
|
73,289 |
|
|
|
24,548,003 |
|
|
|
2.99 |
|
|
|
30,010 |
|
|
|
23,081,682 |
|
|
|
1.30 |
|
|
|
|
56,113 |
|
|
|
|
|
|
|
2.23 |
|
|
|
106,464 |
|
|
|
|
|
|
|
4.34 |
|
|
|
57,603 |
|
|
|
|
|
|
|
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities (1)
|
|
|
- |
|
|
|
141,153 |
|
|
|
|
|
|
|
- |
|
|
|
552,971 |
|
|
|
|
|
|
|
- |
|
|
|
469,360 |
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations available to common
stockholders
|
|
|
54,276 |
|
|
|
25,346,520 |
|
|
|
2.14 |
|
|
|
33,175 |
|
|
|
25,100,974 |
|
|
|
1.32 |
|
|
|
27,593 |
|
|
|
23,551,042 |
|
|
|
1.17 |
|
Income
from discontinued operations
|
|
|
1,837 |
|
|
|
25,346,520 |
|
|
|
0.07 |
|
|
|
73,289 |
|
|
|
25,100,974 |
|
|
|
2.92 |
|
|
|
30,010 |
|
|
|
23,551,042 |
|
|
|
1.28 |
|
|
|
$ |
56,113 |
|
|
|
|
|
|
$ |
2.21 |
|
|
$ |
106,464 |
|
|
|
|
|
|
$ |
4.24 |
|
|
$ |
57,603 |
|
|
|
|
|
|
$ |
2.45 |
|
|
(1)
|
Weighted
convertible limited partnership units of 2,210,808, 2,282,568, and
2,294,591for the years ended December 31, 2008, 2007, and 2006,
respectively, and Series Z incentive units of 250,618, 213,126, and
184,142, for the years ended December 31 2008, 2007and 2006, respectively,
were not included in the determination of diluted EPS because they were
anti-dilutive. The Company has the ability and intent to redeem
Down REIT Limited Partnership units for cash and does not consider them to
be common stock equivalents.
|
On or
after November 1, 2020, the holders of the $100.4 million exchangeable bonds may
exchange, at the then applicable exchange rate, the bonds for cash and, at
Essex’s option, a portion of the bonds may be exchanged for Essex common stock;
the current exchange rate is $103.25 per share of Essex common
stock. The exchangeable bonds will also be exchangeable prior to
November 1, 2020, but only upon the occurrence of certain specified
events. During 2008, 2007, and 2006, the weighted average common
stock price exceeded the $103.25 strike price and therefore common stock
issuable upon exchange of the exchangeable bonds was included in the diluted
share count. The treasury method was used to determine the shares to
be added to the denominator for the calculation of earnings per diluted
share.
Stock
options of 150,369, 25,326, and 1,014 for 2008, 2007, 2006, respectively, are
not included in the diluted earnings per share calculation because the exercise
price of the options was greater than the average market price of the common
shares for the twelve months ended and, therefore, were
anti-dilutive.
5,980,000
shares of cumulative convertible preferred stock Series G has been excluded from
diluted earnings per share for 2008, 2007 and 2006 as the effect was
anti-dilutive.
(13)
Stock Based Compensation Plans
Stock
Options and Restricted Stock
Effective
January 1, 2006, the Company adopted the provisions of SFAS No. 123 Revised
(“SFAS No. 123(R)”), “Share-Based Payment”, a
revision of SFAS No. 123 using the modified prospective
approach. SFAS No. 123(R) requires companies to recognize in
the income statement the grant-date fair value of stock options and other equity
based compensation issued to employees.
The Essex
Property Trust, Inc. 2004 Stock Incentive Plan provides incentives to attract
and retain officers, directors and key employees. The Stock Incentive
Plan provides for the grants of options to purchase a specified number of shares
of common stock or grants of restricted shares of common stock. Under
the Stock Incentive Plan, the total number of shares available for grant is
approximately 1,200,000. The 2004 Stock Incentive Plan is
administered by the Compensation Committee of the Board of
Directors. The Compensation Committee is comprised of independent
directors. The Compensation Committee is authorized to
establish the exercise price; however, the exercise price cannot be less than
100% of the fair market value of the common stock on the grant
date. The Company’s options have a life of ten
years. Option grants for officers and employees fully vest between
one year and five years after the grant date.
Stock-based
compensation expense for options and restricted stock under the fair value
method totaled $1.2 million, $1.2 million and $1.1 million, for the years ended
December 31, 2008, 2007 and 2006, respectively. Stock-based
compensation capitalized for options totaled $0.2 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The intrinsic value
of the options exercised totaled $4.2 million, $6.3 million, and $6.0 million,
for the years ended December 31, 2008, 2007 and 2006,
respectively. The intrinsic value of the options outstanding and
fully vested totaled $3.7 million, $9.9 million, and $14.3 million, for the
years ended December 31, 2008, 2007 and 2006, respectively. Total
unrecognized compensation cost related to unvested share-based compensation
granted under the stock option totaled $1.2 million as of December 31,
2008. The unrecognized compensation cost is expected to be recognized
over a weighted-average period of 2 to 4 years for the stock option
plans.
No stock
options were granted for the year ended December 31, 2008. The
average fair value of stock options granted for the years ended December 31,
2007 and 2006 was $11.58 and $17.40 per share, respectively, and was estimated
on the date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants:
|
|
2007
|
|
|
2006
|
|
Stock
price
|
|
$ |
95.34-$126.73 |
|
|
$ |
101.01-$132.62 |
|
Risk-free
interest rates
|
|
|
3.52%-4.58 |
% |
|
|
4.45%-5.15 |
% |
Expected
lives
|
|
7-9
years
|
|
|
4-7
years
|
|
Volatility
|
|
|
18.52%-20.31 |
% |
|
|
18.44%-18.54 |
% |
Dividend
yield
|
|
|
3.99%-5.26 |
% |
|
|
3.12%-4.29 |
% |
A summary
of the status of the Company’s stock option plans as of December 31, 2008, 2007,
and 2006 and changes during the years ended on those dates is presented
below:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
|
|
exercise
|
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
Outstanding
at beginning of year
|
|
|
493,703 |
|
|
$ |
79.83 |
|
|
|
570,542 |
|
|
$ |
72.60 |
|
|
|
530,375 |
|
|
$ |
57.73 |
|
Granted
|
|
|
- |
|
|
|
- |
|
|
|
29,250 |
|
|
|
119.98 |
|
|
|
170,350 |
|
|
|
106.63 |
|
Exercised
|
|
|
(78,000 |
) |
|
|
62.62 |
|
|
|
(86,056 |
) |
|
|
50.23 |
|
|
|
(90,633 |
) |
|
|
47.57 |
|
Forfeited
and canceled
|
|
|
(22,260 |
) |
|
|
97.38 |
|
|
|
(20,033 |
) |
|
|
94.29 |
|
|
|
(39,550 |
) |
|
|
80.85 |
|
Outstanding
at end of year
|
|
|
393,443 |
|
|
|
80.63 |
|
|
|
493,703 |
|
|
|
79.83 |
|
|
|
570,542 |
|
|
|
72.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at year end
|
|
|
285,128 |
|
|
|
74.28 |
|
|
|
288,889 |
|
|
|
64.69 |
|
|
|
272,074 |
|
|
|
52.42 |
|
The
following table summarizes information about stock options outstanding as of
December 31, 2008:
|
|
|
Options
outstanding
|
|
|
Options
exercisable
|
|
|
|
|
Number
|
|
Weighted-
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
outstanding
|
|
average
|
|
Weighted-
|
|
|
exercisable
|
|
|
Weighted-
|
|
|
|
|
as
of
|
|
remaining
|
|
average
|
|
|
as
of
|
|
|
average
|
|
Range
of
|
|
|
December
31,
|
|
contractual
|
|
exercise
|
|
|
December
31,
|
|
|
exercise
|
|
exercise
prices
|
|
|
2008
|
|
life
|
|
price
|
|
|
2008
|
|
|
price
|
|
|
$28.94
- 46.98
|
|
|
|
26,372 |
|
0.9
years
|
|
$ |
34.35 |
|
|
|
26,372 |
|
|
$ |
34.35 |
|
|
46.99
- 71.30
|
|
|
|
105,111 |
|
3.7
years
|
|
|
53.82 |
|
|
|
103,515 |
|
|
|
53.55 |
|
|
72.20
- 125.84
|
|
|
|
257,710 |
|
7.0
years
|
|
|
95.48 |
|
|
|
153,891 |
|
|
|
94.56 |
|
|
126.73
- 132.62
|
|
|
|
4,250 |
|
8.1
years
|
|
|
130.19 |
|
|
|
1,350 |
|
|
|
131.09 |
|
|
|
|
|
|
393,443 |
|
6.6
years
|
|
|
80.63 |
|
|
|
285,128 |
|
|
|
74.28 |
|
During
2008 and 2007, the Company issued 18,122 and 17,178 shares of restricted stock,
respectively. The unrecognized compensation cost of $2.7 million as
of December 31, 2008 is expected to be recognized straight-line over a period of
7 years.
The
following table summarizes information about restricted stock outstanding as of
December 31, 2008:
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
|
|
|
|
|
|
average
|
|
|
|
|
|
|
grant
|
|
|
|
|
|
grant
|
|
|
|
Shares
|
|
|
price
|
|
|
Shares
|
|
|
price
|
|
Unvested
at beginning of year
|
|
|
17,178
|
|
|
$
|
123.23
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
18,122
|
|
|
|
116.01
|
|
|
|
17,178
|
|
|
|
123.23
|
|
Vested
|
|
|
(2,262
|
)
|
|
|
123.58
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
and canceled
|
|
|
(2,734
|
)
|
|
|
118.58
|
|
|
|
-
|
|
|
|
-
|
|
Unvested
at end of year
|
|
|
30,304
|
|
|
|
119.31
|
|
|
|
17,178
|
|
|
|
123.23
|
|
Long
Term Incentive Plan – Z Units
The Company has adopted an
incentive program involving the issuance of Series Z Incentive Units and Series
Z-1 Incentive Units (collectively referred to as “Z Units”) of limited
partnership interest in the Operating Partnership. Vesting in
the Z Units is based on performance criteria established in the
plan. The criteria can be revised at the beginning of the year by the
Board's Compensation Committee if the Committee deems that the plan's criterion
is unachievable for any given year. The sale of Z Units is
contractually prohibited and cannot be converted into Operating Partnership
units until certain conditions are met or 15 years after the inception of the
plan. The estimated fair value of a Z Unit is determined on the grant
date and considers the company's current stock price, the dividends that are not
paid on unvested units and a marketability discount for the 8 to 15 years of
illiquidity. Compensation expense is calculated by taking annual vesting
increases multiplied by the estimated fair value as of the grant date less its
$1.00 purchase price.
Stock-based
compensation expense for Z Units under the fair value method totaled
approximately $1.5 million, $1.5 million and $1.3 million, for the years ended
December 31, 2008, 2007 and 2006, respectively. Stock-based compensation
capitalized for Z Units totaled approximately $0.6 million, $0.4 million and
$0.3 million, for the years ended December 31, 2008, 2007 and 2006,
respectively. The intrinsic value of the Z Units vested totaled $17.7
million as of December 31, 2008. Total unrecognized compensation cost
related to Z Units unvested under the Z Units plans totaled $6.6 million as of
December 31, 2008. The unamortized cost is expected to be recognized over
the next 3 to 11 years subject to the achievement of the stated performance
criteria.
The
issuance of Z Units is administered by the Compensation Committee which has the
authority to select participants and determine the awards to be made up to a
maximum of 600,000 Z Units. The conversion ratchet (accounted for as
vesting) of the Z Units into common units, will increase by up to 10% (up to 20%
in certain circumstances following their initial issuance) effective January 1of
each year for each participating executive who remains employed by the Company
if the Company has met a specified “funds from operations” per share target, or
such other target as the Compensation Committee deems appropriate, for the prior
year, up to a maximum conversion ratchet of 100%. The Operating Partnership has
the option to redeem Z Units held by any executive whose employment has been
terminated with either common units of the Operating Partnership or shares of
the Company’s common stock based on the then-effective conversion ratchet.
During
2001, the Operating Partnership issued 200,000 Series Z Incentive Units of
limited partner interest to eleven senior executives of the Company in exchange
for a capital commitment of $1.00 per Series Z Incentive Unit, for an aggregate
offering price of $200. The 2001 Series Z Unit grant had a
conversion ratchet of 55, 65, and 75 percent as of January 1, 2006, 2007, and
2008 respectively.
During
2004, the Operating Partnership issued 95,953 Series Z-1 Incentive Units of
limited partner interest to fourteen senior executives of the Company in
exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
Unit, for an aggregate offering price of $96. The 2004 Z Unit grant had a
conversion ratchet of 20 percent upon issuance, and 40, 50, and 60 percent as of
January 1, 2006, 2007, and 2008, respectively. In 2005 an additional 27,000
Z-1 Units were granted to two senior executives pursuant to the 2004 grant terms
with a 20 percent conversion ratchet at issuance, and 30, 40, and 50 percent
conversion ratchets as of January 1, 2006, 2007, and 2008, respectively.
During
2005, the Operating Partnership issued 89,999 Series Z-1 Incentive Units of
limited partner interest to fourteen senior executives of the Company in
exchange for cash or a capital commitment of $1.00 per Series Z-1 Incentive
Unit, for an aggregate offering price of $90. The 2005 Z-1 Unit grant had
a conversion ratchet of 20, 30, and 40 percent as of January 1, 2006, 2007, and
2008, respectively.
The
following table summarizes information about the Z Units outstanding as of
December 31, 2008:
|
|
Long
Term Incentive Plan - Z Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
average
|
|
|
Total
|
|
|
Aggregate
|
|
|
Total
|
|
|
Total
|
|
|
average
|
|
remaining
|
|
|
Vested
|
|
|
intrinsic
|
|
|
Unvested
|
|
|
Outstanding
|
|
|
grant-date
|
|
contractual
|
|
|
Units
|
|
|
value
|
|
|
Units
|
|
|
Units
|
|
|
fair
value
|
|
life
|
Balance,
December 2005
|
|
|
125,186 |
|
|
|
|
|
|
287,766 |
|
|
|
412,952 |
|
|
|
|
|
|
Vested
|
|
|
50,295 |
|
|
|
|
|
|
(50,295 |
) |
|
|
- |
|
|
|
|
|
|
Balance,
December 2006
|
|
|
175,481 |
|
|
$ |
13,400 |
|
|
|
237,471 |
|
|
|
412,952 |
|
|
$ |
39.36 |
|
11.2
years
|
Vested
|
|
|
37,724 |
|
|
|
|
|
|
|
(37,724 |
) |
|
|
- |
|
|
|
|
|
|
Balance,
December 2007
|
|
|
213,205 |
|
|
|
15,963 |
|
|
|
199,747 |
|
|
|
412,952 |
|
|
|
39.36 |
|
10.2
years
|
Vested
|
|
|
37,723 |
|
|
|
|
|
|
|
(37,723 |
) |
|
|
- |
|
|
|
|
|
|
Balance,
December 2008
|
|
|
250,928 |
|
|
$ |
17,723 |
|
|
|
162,024 |
|
|
|
412,952 |
|
|
$ |
39.36 |
|
9.2
years
|
Long
Term Incentive Plan – Outperformance Plan
Stock-based
compensation expense for the Outperformance Plan, (the “OPP”) adopted in
December 2007 under the fair value method totaled approximately $1.2 million and
$0.1 million for years ended December 31, 2008 and 2007,
respectively. Total unrecognized compensation cost less an estimate
for forfeitures related to the OPP totaled $4.1 million as of December 31,
2008. The unamortized cost is expected to be recognized over the expected
service period of five years for senior officers and three years for
non-employee directors.
Under the
2007 OPP, award recipients will share in a “performance pool” if the Company’s
total return to stockholders for the period from December 4, 2007 (measured
based on the closing price of the Company’s common stock on December 4, 2007)
through December 3, 2010 exceeds a cumulative total return to stockholders of
30%. The size of the pool will be 10% of the outperformance amount in
excess of the 30% benchmark, subject to an aggregate maximum award of $25
million. The maximum award will be reduced by the amount of any forfeited
awards. In the event the potential performance pool reaches the maximum
aggregate award between June 4, 2010 and December 3, 2010 and remains at that
level or higher for 30 consecutive days, the performance period will end early
and the performance pool will be formed on the last day of such 30-day period,
but the participants will nonetheless be subject to the time-based vesting
requirements described below.
Each
participant’s award under the 2007 OPP has been designated as a specified
percentage of the aggregate performance pool. Assuming the 30% benchmark
is achieved, the pool will be allocated among the participants in accordance
with the percentage specified in each participant’s award agreement.
Individual awards were made in the form of newly created long term incentive
plan (“LTIP”) Units, which are partnership units of the Operating Partnership,
and the LTIP units are exchangeable on a one-for-one basis into common units of
the Operating Partnership to the extent the LTIP Units become vested. Such
common units are exchangeable for shares of the Company’s common stock on a
one-for-one basis. Any shares of the Company’s common stock, which are
ultimately issued in connection with the 2007 OPP, will be issued pursuant to
the Company’s 2004 Stock Incentive Plan. LTIP Units were granted prior to
the determination of the performance pool; however, they will only vest upon
satisfaction of performance and time vesting thresholds and will not be entitled
to distributions until after the benchmark is achieved. Distributions on
LTIP Units will equal the distributions payable on each common unit of the
Operating Partnership on a per unit basis.
In the
case of awards granted to senior officers, if the benchmark is achieved, the
LTIP Units will vest in three substantially equal installments, on December 4,
2010 and on each of the first two anniversaries thereafter, based on the
officer’s continued employment through the applicable vesting date. In the
case of awards granted to non-employee directors, such awards will vest in full
on December 4, 2010 if the benchmark is achieved and only to the extent the
board members have continued to serve through such date. In the event
of a change of control of the Company prior to the establishment of the
performance pool, the performance period will be shortened to end on a date
immediately prior to such event and the cumulative stockholder return benchmark
will be adjusted on a pro rata basis. The performance pool will be formed
as described above if the adjusted benchmark target is achieved, and the awards
will become fully vested at such time.
(14)
Segment Information
In
accordance with FASB No. 131, “Disclosures about Segments of an
Enterprise and Related Information” the Company defines its reportable
operating segments as the three geographical regions in which its communities
are located: Southern California, Northern California and Seattle
Metro. Excluded from segment revenues are communities classified in
discontinued operations including management and other fees from affiliates, and
interest and other income. Non-segment revenues and net operating
income included in the following schedule also consist of revenue generated from
commercial properties which are primarily office buildings. Other
non-segment assets include investments, real estate under development, cash and
cash equivalents, marketable securities, notes receivable, other assets and
deferred charges.
The
revenues and net operating income for each of the reportable operating segments
are summarized as follows for the years ended December 31, 2008, 2007, and
2006:
|
|
Years
Ended December 31,
|
|
($ in
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
$ |
213,430 |
|
|
$ |
208,304 |
|
|
$ |
195,769 |
|
Northern
California
|
|
|
119,884 |
|
|
|
99,378 |
|
|
|
75,288 |
|
Seattle
Metro
|
|
|
71,680 |
|
|
|
63,877 |
|
|
|
55,513 |
|
Other
real estate assets
|
|
|
2,735 |
|
|
|
2,400 |
|
|
|
2,502 |
|
Total
property revenues
|
|
$ |
407,729 |
|
|
$ |
373,959 |
|
|
$ |
329,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
$ |
145,995 |
|
|
$ |
143,885 |
|
|
$ |
134,662 |
|
Northern
California
|
|
|
78,882 |
|
|
|
65,142 |
|
|
|
49,907 |
|
Seattle
Metro
|
|
|
47,694 |
|
|
|
42,130 |
|
|
|
35,138 |
|
Other
real estate assets
|
|
|
1,197 |
|
|
|
(216 |
) |
|
|
(1,213 |
) |
Total
net operating income
|
|
|
273,768 |
|
|
|
250,941 |
|
|
|
218,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
|
(51,338 |
) |
|
|
(47,216 |
) |
|
|
(42,442 |
) |
Northern
California
|
|
|
(34,871 |
) |
|
|
(27,892 |
) |
|
|
(17,568 |
) |
Seattle
Metro
|
|
|
(19,376 |
) |
|
|
(15,491 |
) |
|
|
(13,170 |
) |
Other
real estate assets
|
|
|
(5,275 |
) |
|
|
(7,048 |
) |
|
|
(3,950 |
) |
|
|
|
(110,860 |
) |
|
|
(97,647 |
) |
|
|
(77,130 |
) |
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern
California
|
|
|
(31,576 |
) |
|
|
(29,570 |
) |
|
|
(25,806 |
) |
Northern
California
|
|
|
(24,157 |
) |
|
|
(18,741 |
) |
|
|
(18,295 |
) |
Seattle
Metro
|
|
|
(9,159 |
) |
|
|
(6,892 |
) |
|
|
(6,904 |
) |
Other
real estate assets
|
|
|
(13,311 |
) |
|
|
(23,735 |
) |
|
|
(21,267 |
) |
|
|
|
(78,203 |
) |
|
|
(78,938 |
) |
|
|
(72,272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred financing costs
|
|
|
(2,883 |
) |
|
|
(3,055 |
) |
|
|
(2,745 |
) |
General
and administrative
|
|
|
(26,984 |
) |
|
|
(26,273 |
) |
|
|
(22,234 |
) |
Other
expenses
|
|
|
(1,350 |
) |
|
|
(800 |
) |
|
|
(1,770 |
) |
Management
and other fees from affiliates
|
|
|
5,166 |
|
|
|
5,090 |
|
|
|
5,030 |
|
Gain
on sale of real estate
|
|
|
4,578 |
|
|
|
- |
|
|
|
- |
|
Gain
on early retirement of debt
|
|
|
3,517 |
|
|
|
- |
|
|
|
- |
|
Interest
and other income
|
|
|
11,343 |
|
|
|
10,310 |
|
|
|
6,176 |
|
Equity
income (loss) in co-investments
|
|
|
7,820 |
|
|
|
3,120 |
|
|
|
(1,503 |
) |
Minority
interests
|
|
|
(22,395 |
) |
|
|
(19,999 |
) |
|
|
(18,783 |
) |
Income
tax provision
|
|
|
- |
|
|
|
(400 |
) |
|
|
(525 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
63,517 |
|
|
$ |
42,349 |
|
|
$ |
32,738 |
|
Total
assets for each of the reportable operating segments are summarized as follow as
of December 31, 2008 and 2007:
($ in
thousands)
|
|
As
of December 31,
|
|
Assets:
|
|
2008
|
|
|
2007
|
|
Southern
California
|
|
$ |
1,291,850 |
|
|
$ |
1,354,818 |
|
Northern
California
|
|
|
850,170 |
|
|
|
829,879 |
|
Seattle
Metro
|
|
|
431,041 |
|
|
|
353,737 |
|
Other
real estate assets
|
|
|
66,701 |
|
|
|
37,338 |
|
Net
reportable operating segments - real estate assets
|
|
|
2,639,762 |
|
|
|
2,575,772 |
|
Real
estate under development
|
|
|
272,273 |
|
|
|
233,445 |
|
Cash
and cash equivalents
|
|
|
54,719 |
|
|
|
22,483 |
|
Marketable
securities
|
|
|
23,886 |
|
|
|
2,017 |
|
Funds
held by 1031 exchange facilitator
|
|
|
21,424 |
|
|
|
- |
|
Notes
and other receivables
|
|
|
47,637 |
|
|
|
50,536 |
|
Other
non-segment assets
|
|
|
105,122 |
|
|
|
96,070 |
|
Total
assets
|
|
$ |
3,164,823 |
|
|
$ |
2,980,323 |
|
(15)
401(k) Plan
The
Company has a 401(k) benefit plan (the Plan) for all full-time employees who
have completed six months of service. Employees may contribute up to 23% of
their compensation, limited by the maximum allowed under Section 401(k) of the
Internal Revenue Code. The Company matches the employee contributions for
non-highly compensated personnel, up to 50% of their contribution up to a
specified maximum. Company contributions to the Plan were approximately $261,
$267, and $226 for the years ended December 31, 2008, 2007, and 2006,
respectively.
(16)
Fair Value of Financial Instruments
Management
believes that the carrying amounts of its variable rate mortgage notes payable,
amounts outstanding under lines of credit, notes receivable and other
receivables from related parties, and notes and other receivables approximate
fair value as of December 31, 2008 and 2007, because interest rates, yields and
other terms for these instruments are consistent with yields and other terms
currently available for similar instruments. Management has estimated
that the fair value of the Company’s $1.39 billion of fixed rate mortgage notes
payable and exchangeable bonds at December 31, 2008 are approximately $1.39
billion based on the terms of existing mortgage notes payable compared to those
available in the marketplace. At December 31, 2007, the Company’s
fixed rate mortgage notes payable and exchangeable bonds of $1.25 billion had an
approximate market value of $1.30 billion. Management believes that
the carrying amounts of cash and cash equivalents, restricted cash, marketable
securities classified as held to maturity, funds held by 1031 exchange
facilitator, accounts payable and accrued liabilities, other liabilities and
dividends payable approximate fair value as of December 31, 2008 and 2007 due to
the short-term maturity of these instruments. Marketable
securities classified as available for sale and cash flow hedge liabilities are
carried at estimated fair value.
(17)
Commitments and Contingencies
At
December 31, 2008, the Company had six non-cancelable ground leases for certain
apartment communities and buildings that expire between 2027 and
2080. Land lease payments are typically the greater of a stated
minimum or a percentage of gross rents generated by these apartment
communities. Total minimum lease commitments, under land leases and
operating leases, are approximately $1.6 million per year for the next five
years. The Company is also a lessee of an office building
located in Palo Alto next to the Company’s headquarters. The lease
term expires on September 30, 2009, with average annual lease payments of
approximately $0.2 million.
The
Company has performance guarantees with commercial banks related to the Belmont
Station development community that was in lease-up as of December 31, 2008 and
the Joule Broadway development project.
To the
extent that an environmental matter arises or is identified in the future that
has other than a remote risk, as defined in SFAS 5, of having a material impact
on the financial statements, the Company will disclose the estimated range of
possible outcomes, and, if an outcome is probable, accrue appropriate liability
for remediation and other potential liability. The Company will consider whether
such occurrence results in an impairment of value on the affected property and,
if so, accrue an appropriate reserve for impairment.
Except
with respect to three Communities, the Company has 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
unknown environmental conditions or violations with respect to the 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 a Property did
not create any material environmental condition not known to the Company, or
that a material environmental condition does not otherwise exist as to any one
or more of the Communities. The Company has limited insurance
coverage for the types of environmental liabilities described
above.
The
Company may enter into transactions that could require the Company to pay the
tax liabilities of the partners in the Operating Partnership or in the DownREIT
entities. These transactions which are within the Company’s control.
Although the Company plans to hold the contributed assets or defer recognition
of gain on their sale pursuant to like-kind exchange rules under Section 1031 of
the Internal Revenue Code the Company can provide no assurance that it will be
able to do so and if such tax liabilities were incurred they may to have a
material impact on the Company’s financial position.
Recently
there has 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, 2008,
potential liabilities for mold and other environmental liabilities are not
considered probable or the loss cannot be quantified or estimated.
The
Company carries comprehensive liability, fire, extended coverage and rental loss
insurance for each of the Communities. Insured risks for
comprehensive liabilities covers claims in excess of $25,000 per incident, and
property casualty insurance covers losses in excess of a $5.0 million deductible
per incident. There are, however, certain types of extraordinary losses, such
as, for example, losses from terrorism and earthquake, for which the Company
does not have insurance. Substantially all of the Communities are located in
areas that are subject to earthquakes.
The
Company is subject to various other lawsuits in the normal course of its
business operations. Such lawsuits are not expected to have a
material adverse effect on the Company’s financial condition, results of
operations or cash flows.
(18)
Quarterly Results of Operations (Unaudited)
The
following is a summary of quarterly results of operations for 2008 and 2007
($ in thousands, except per
share and dividend amounts):
|
|
Quarter
ended
|
|
|
Quarter
ended
|
|
|
Quarter
ended
|
|
|
Quarter
ended
|
|
|
|
December
31(1)
|
|
|
September
30(1)
|
|
|
June
30(1)
|
|
|
March
31(1)
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
property revenues
|
|
$ |
104,831 |
|
|
$ |
102,907 |
|
|
$ |
100,908 |
|
|
$ |
99,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before discontinued operations
|
|
$ |
17,401 |
|
|
$ |
15,270 |
|
|
$ |
12,491 |
|
|
$ |
18,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
20,655 |
|
|
$ |
14,686 |
|
|
$ |
11,999 |
|
|
$ |
18,014 |
|
Net
income available to common stockholders
|
|
$ |
18,345 |
|
|
$ |
12,376 |
|
|
$ |
9,688 |
|
|
$ |
15,704 |
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.70 |
|
|
$ |
0.50 |
|
|
$ |
0.39 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.70 |
|
|
$ |
0.49 |
|
|
$ |
0.38 |
|
|
$ |
0.63 |
|
Market
price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
117.77 |
|
|
$ |
129.57 |
|
|
$ |
124.33 |
|
|
$ |
117.51 |
|
Low
|
|
$ |
60.77 |
|
|
$ |
100.63 |
|
|
$ |
105.12 |
|
|
$ |
84.59 |
|
Close
|
|
$ |
76.75 |
|
|
$ |
118.33 |
|
|
$ |
106.50 |
|
|
$ |
113.98 |
|
Dividends
declared
|
|
$ |
1.02 |
|
|
$ |
1.02 |
|
|
$ |
1.02 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
property revenues
|
|
$ |
98,212 |
|
|
$ |
95,012 |
|
|
$ |
92,155 |
|
|
$ |
88,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before discontinued operations
|
|
$ |
5,479 |
|
|
$ |
12,043 |
|
|
$ |
11,152 |
|
|
$ |
13,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
53,597 |
|
|
$ |
12,308 |
|
|
$ |
12,187 |
|
|
$ |
37,546 |
|
Net
income available to common stockholders
|
|
$ |
51,287 |
|
|
$ |
9,997 |
|
|
$ |
9,877 |
|
|
$ |
35,303 |
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
2.04 |
|
|
$ |
0.40 |
|
|
$ |
0.40 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
2.02 |
|
|
$ |
0.39 |
|
|
$ |
0.39 |
|
|
$ |
1.46 |
|
Market
price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
$ |
127.35 |
|
|
$ |
123.50 |
|
|
$ |
133.40 |
|
|
$ |
148.54 |
|
Low
|
|
$ |
94.08 |
|
|
$ |
102.00 |
|
|
$ |
114.19 |
|
|
$ |
124.78 |
|
Close
|
|
$ |
97.49 |
|
|
$ |
117.57 |
|
|
$ |
116.30 |
|
|
$ |
129.48 |
|
Dividends
declared
|
|
$ |
0.93 |
|
|
$ |
0.93 |
|
|
$ |
0.93 |
|
|
$ |
0.93 |
|
|
(1)
|
Net
earnings from discontinued operations have been reclassified for all
periods presented.
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Financial
Statement Schedule III
Real
Estate and Accumulated Depreciation
December
31, 2008
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
Buildings
and
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Units
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
improvements
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Encumbered
apartment communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fountain
Court
|
|
|
320 |
|
Seattle,
WA
|
|
|
|
$ |
6,702 |
|
$ |
27,306 |
|
$ |
2,301 |
|
$ |
6,985 |
|
$ |
29,324 |
|
$ |
36,309 |
|
$ |
8,905 |
|
2000
|
|
|
03/00 |
|
|
3-30 |
|
Hillcrest
Park
|
|
|
608 |
|
Newbury
Park, CA
|
|
|
|
|
15,318 |
|
|
40,601 |
|
|
13,010 |
|
|
15,755 |
|
|
53,174 |
|
|
68,929 |
|
|
18,724 |
|
1973
|
|
|
03/98 |
|
|
3-30 |
|
Hillsborough
Park
|
|
|
235 |
|
La
Habra, CA
|
|
|
|
|
6,291 |
|
|
15,455 |
|
|
1,030 |
|
|
6,272 |
|
|
16,504 |
|
|
22,776 |
|
|
5,387 |
|
1999
|
|
|
09/99 |
|
|
3-30 |
|
|
|
|
|
|
|
|
$ |
75,584 |
|
|
28,311 |
|
|
83,362 |
|
|
16,341 |
|
|
29,012 |
|
|
99,002 |
|
|
128,014 |
|
|
33,016 |
|
|
|
|
|
|
|
|
|
Bel
Air
|
|
|
462 |
|
San
Ramon, CA
|
|
|
|
|
|
12,105 |
|
|
18,252 |
|
|
19,110 |
|
|
12,682 |
|
|
36,785 |
|
|
49,467 |
|
|
14,337 |
|
1988
|
|
|
01/97 |
|
|
3-30 |
|
Waterford,
The
|
|
|
238 |
|
San
Jose, CA
|
|
|
|
|
|
11,808 |
|
|
24,500 |
|
|
11,923 |
|
|
15,165 |
|
|
33,066 |
|
|
48,231 |
|
|
8,957 |
|
2000
|
|
|
06/00 |
|
|
3-30 |
|
|
|
|
|
|
|
|
|
57,288 |
|
|
23,913 |
|
|
42,752 |
|
|
31,033 |
|
|
27,847 |
|
|
69,851 |
|
|
97,698 |
|
|
23,294 |
|
|
|
|
|
|
|
|
|
Bonita
Cedars
|
|
|
120 |
|
Bonita,
CA
|
|
|
|
|
|
2,496 |
|
|
9,913 |
|
|
1,223 |
|
|
2,503 |
|
|
11,129 |
|
|
13,632 |
|
|
2,437 |
|
1983
|
|
|
12/02 |
|
|
3-30 |
|
Bristol
Commons
|
|
|
188 |
|
Sunnyvale,
CA
|
|
|
|
|
|
5,278 |
|
|
11,853 |
|
|
2,762 |
|
|
5,293 |
|
|
14,600 |
|
|
19,893 |
|
|
6,541 |
|
1989
|
|
|
01/97 |
|
|
3-30 |
|
Castle
Creek
|
|
|
216 |
|
Newcastle,
WA
|
|
|
|
|
|
4,149 |
|
|
16,028 |
|
|
2,592 |
|
|
4,833 |
|
|
17,936 |
|
|
22,769 |
|
|
7,369 |
|
1997
|
|
|
12/97 |
|
|
3-30 |
|
Forest
View
|
|
|
192 |
|
Renton,
WA
|
|
|
|
|
|
3,731 |
|
|
14,530 |
|
|
842 |
|
|
3,731 |
|
|
15,372 |
|
|
19,103 |
|
|
2,836 |
|
1998
|
|
|
10/03 |
|
|
3-30 |
|
Mira
Monte
|
|
|
355 |
|
Mira
Mesa, CA
|
|
|
|
|
|
7,165 |
|
|
28,459 |
|
|
6,999 |
|
|
7,186 |
|
|
35,437 |
|
|
42,623 |
|
|
8,025 |
|
1982
|
|
|
12/02 |
|
|
3-30 |
|
Mission
Hills
|
|
|
282 |
|
Oceanside,
CA
|
|
|
|
|
|
10,099 |
|
|
38,778 |
|
|
2,871 |
|
|
10,167 |
|
|
41,581 |
|
|
51,748 |
|
|
5,202 |
|
1984
|
|
|
7/05 |
|
|
3-30 |
|
Walnut
Heights
|
|
|
163 |
|
Walnut,
CA
|
|
|
|
|
|
4,858 |
|
|
19,168 |
|
|
1,403 |
|
|
4,887 |
|
|
20,542 |
|
|
25,429 |
|
|
3,694 |
|
1964
|
|
|
10/03 |
|
|
3-30 |
|
Windsor
Ridge
|
|
|
216 |
|
Sunnyvale,
CA
|
|
|
|
|
|
4,017 |
|
|
10,315 |
|
|
4,446 |
|
|
4,021 |
|
|
14,757 |
|
|
18,778 |
|
|
9,013 |
|
1989
|
|
|
03/89 |
|
|
3-30 |
|
|
|
|
|
|
|
|
|
120,000 |
|
|
41,793 |
|
|
149,044 |
|
|
23,138 |
|
|
42,621 |
|
|
171,354 |
|
|
213,975 |
|
|
45,117 |
|
|
|
|
|
|
|
|
|
Alpine
Village
|
|
|
306 |
|
Alpine,
CA
|
|
|
16,714 |
|
|
4,967 |
|
|
19,728 |
|
|
2,488 |
|
|
4,982 |
|
|
22,201 |
|
|
27,183 |
|
|
4,762 |
|
1971
|
|
|
12/02 |
|
|
3-30 |
|
Anchor
Village
|
|
|
301 |
|
Mukilteo,
WA
|
|
|
10,750 |
|
|
2,498 |
|
|
10,595 |
|
|
9,253 |
|
|
2,823 |
|
|
19,523 |
|
|
22,346 |
|
|
7,942 |
|
1981
|
|
|
01/97 |
|
|
3-30 |
|
Bridgeport
|
|
|
184 |
|
Newark,
CA
|
|
|
22,934 |
|
|
1,608 |
|
|
7,582 |
|
|
6,623 |
|
|
1,525 |
|
|
14,288 |
|
|
15,813 |
|
|
7,989 |
|
1987
|
|
|
07/87 |
|
|
3-30 |
|
Barkley, The(2)
|
|
|
161 |
|
Anaheim,
CA
|
|
|
17,623 |
|
|
- |
|
|
8,520 |
|
|
4,428 |
|
|
2,369 |
|
|
10,579 |
|
|
12,948 |
|
|
3,679 |
|
1984
|
|
|
04/00 |
|
|
3-30 |
|
Belmont
Station
|
|
|
275 |
|
Los
Angeles, CA
|
|
|
49,840 |
|
|
8,100 |
|
|
71,650 |
|
|
79 |
|
|
8,100 |
|
|
71,729 |
|
|
79,829 |
|
|
557 |
|
2008
|
|
|
12/08 |
|
|
3-30 |
|
Brentwood
|
|
|
140 |
|
Santa
Ana, CA
|
|
|
20,471 |
|
|
2,833 |
|
|
11,303 |
|
|
4,504 |
|
|
3,503 |
|
|
15,137 |
|
|
18,640 |
|
|
3,405 |
|
1970
|
|
|
11/01 |
|
|
3-30 |
|
Brighton
Ridge
|
|
|
264 |
|
Renton,
WA
|
|
|
15,771 |
|
|
2,623 |
|
|
10,800 |
|
|
4,071 |
|
|
2,656 |
|
|
14,838 |
|
|
17,494 |
|
|
6,751 |
|
1986
|
|
|
12/96 |
|
|
3-30 |
|
Brookside
Oaks
|
|
|
170 |
|
Sunnyvale,
CA
|
|
|
13,900 |
|
|
7,301 |
|
|
16,310 |
|
|
17,286 |
|
|
10,328 |
|
|
30,569 |
|
|
40,897 |
|
|
6,490 |
|
1973
|
|
|
06/00 |
|
|
3-30 |
|
Cairns,
The
|
|
|
100 |
|
Seattle,
WA
|
|
|
11,442 |
|
|
6,937 |
|
|
20,679 |
|
|
101 |
|
|
6,939 |
|
|
20,778 |
|
|
27,717 |
|
|
1,076 |
|
2006
|
|
|
06/07 |
|
|
3-30 |
|
Camarillo
Oaks
|
|
|
564 |
|
Camarillo,
CA
|
|
|
52,036 |
|
|
10,953 |
|
|
25,254 |
|
|
5,820 |
|
|
11,075 |
|
|
30,952 |
|
|
42,027 |
|
|
15,138 |
|
1985
|
|
|
07/96 |
|
|
3-30 |
|
Camino
Ruiz Square
|
|
|
160 |
|
Camarillo,
CA
|
|
|
21,110 |
|
|
6,871 |
|
|
26,119 |
|
|
345 |
|
|
6,932 |
|
|
26,404 |
|
|
33,335 |
|
|
1,763 |
|
1990
|
|
|
12/06 |
|
|
3-30 |
|
Canyon
Oaks
|
|
|
250 |
|
San
Ramon, CA
|
|
|
30,439 |
|
|
19,088 |
|
|
44,473 |
|
|
270 |
|
|
19,088 |
|
|
44,743 |
|
|
63,831 |
|
|
2,442 |
|
2005
|
|
|
05/07 |
|
|
3-30 |
|
Canyon
Pointe
|
|
|
250 |
|
Bothell,
WA
|
|
|
15,498 |
|
|
4,692 |
|
|
18,288 |
|
|
1,848 |
|
|
4,693 |
|
|
20,135 |
|
|
24,828 |
|
|
3,598 |
|
1990
|
|
|
10/03 |
|
|
3-30 |
|
Capri
at Sunny Hills
|
|
|
100 |
|
Fullerton,
CA
|
|
|
18,920 |
|
|
3,337 |
|
|
13,320 |
|
|
5,108 |
|
|
4,048 |
|
|
17,717 |
|
|
21,765 |
|
|
4,154 |
|
1961
|
|
|
09/01 |
|
|
3-30 |
|
Carlyle,
The
|
|
|
132 |
|
San
Jose, CA
|
|
|
15,190 |
|
|
3,954 |
|
|
15,277 |
|
|
9,461 |
|
|
5,801 |
|
|
22,891 |
|
|
28,692 |
|
|
6,116 |
|
2000
|
|
|
04/00 |
|
|
3-30 |
|
City
View
|
|
|
560 |
|
Hayward,
CA
|
|
|
50,755 |
|
|
9,883 |
|
|
37,670 |
|
|
16,593 |
|
|
10,350 |
|
|
53,796 |
|
|
64,146 |
|
|
19,071 |
|
1975
|
|
|
03/98 |
|
|
3-30 |
|
Coldwater
Canyon
|
|
|
39 |
|
Studio
City, CA
|
|
|
5,852 |
|
|
1,674 |
|
|
6,640 |
|
|
1,026 |
|
|
1,676 |
|
|
7,664 |
|
|
9,340 |
|
|
473 |
|
1979
|
|
|
05/07 |
|
|
3-30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2008
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
Buildings
and
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Units
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
improvements
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Encumbered
apartment communities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Devonshire
|
|
276 |
|
Hemet,
CA
|
|
|
10,882 |
|
|
3,470 |
|
|
13,786 |
|
|
1,864 |
|
|
3,482 |
|
|
15,639 |
|
|
19,120 |
|
|
3,614 |
|
1988
|
|
|
12/02 |
|
|
3-30 |
|
Emerald
Ridge - North
|
|
180 |
|
Bellevue,
WA
|
|
|
10,549 |
|
|
3,449 |
|
|
7,801 |
|
|
3,418 |
|
|
3,449 |
|
|
11,219 |
|
|
14,668 |
|
|
5,612 |
|
1987
|
|
|
11/94 |
|
|
3-30 |
|
Esplanade
|
|
278 |
|
San
Jose, CA
|
|
|
38,316 |
|
|
18,170 |
|
|
40,086 |
|
|
3,382 |
|
|
18,429 |
|
|
43,209 |
|
|
61,638 |
|
|
6,324 |
|
2002
|
|
|
11/04 |
|
|
3-30 |
|
Evergreen
Heights
|
|
200 |
|
Kirkland,
WA
|
|
|
10,736 |
|
|
3,566 |
|
|
13,395 |
|
|
2,306 |
|
|
3,649 |
|
|
15,618 |
|
|
19,267 |
|
|
6,520 |
|
1990
|
|
|
06/97 |
|
|
3-30 |
|
Fairwood
Pond
|
|
194 |
|
Renton,
WA
|
|
|
14,299 |
|
|
5,296 |
|
|
15,564 |
|
|
968 |
|
|
5,297 |
|
|
16,531 |
|
|
21,828 |
|
|
2,420 |
|
1997
|
|
|
10/04 |
|
|
3-30 |
|
Fountain
Park
|
|
705 |
|
Playa
Vista, CA
|
|
|
98,472 |
|
|
25,073 |
|
|
94,980 |
|
|
18,225 |
|
|
25,203 |
|
|
113,075 |
|
|
138,278 |
|
|
18,238 |
|
2002
|
|
|
02/04 |
|
|
3-30 |
|
Harvest
Park
|
|
104 |
|
Santa
Rosa, CA
|
|
|
11,444 |
|
|
6,700 |
|
|
15,479 |
|
|
408 |
|
|
6,690 |
|
|
15,897 |
|
|
22,587 |
|
|
972 |
|
2004
|
|
|
03/07 |
|
|
3-30 |
|
Hampton
Place
|
|
132 |
|
Glendale,
CA
|
|
|
22,424 |
|
|
4,288 |
|
|
11,081 |
|
|
2,485 |
|
|
4,307 |
|
|
13,547 |
|
|
17,854 |
|
|
4,407 |
|
1970
|
|
|
06/99 |
|
|
3-30 |
|
Hidden
Valley
|
|
324 |
|
Simi
Valley, CA
|
|
|
32,722 |
|
|
14,174 |
|
|
34,065 |
|
|
378 |
|
|
11,663 |
|
|
36,954 |
|
|
48,617 |
|
|
5,586 |
|
2004
|
|
|
12/04 |
|
|
3-30 |
|
Highridge
|
|
255 |
|
Rancho
Palos Verdes, CA
|
|
|
44,807 |
|
|
5,419 |
|
|
18,347 |
|
|
11,761 |
|
|
6,073 |
|
|
29,454 |
|
|
35,527 |
|
|
10,845 |
|
1972
|
|
|
05/97 |
|
|
3-30 |
|
Huntington
Breakers
|
|
342 |
|
Huntington
Beach, CA
|
|
|
20,537 |
|
|
9,306 |
|
|
22,720 |
|
|
4,197 |
|
|
9,315 |
|
|
26,908 |
|
|
36,223 |
|
|
10,620 |
|
1984
|
|
|
10/97 |
|
|
3-30 |
|
Inglenook
Court
|
|
224 |
|
Bothell,
WA
|
|
|
8,300 |
|
|
3,467 |
|
|
7,881 |
|
|
6,771 |
|
|
3,474 |
|
|
14,645 |
|
|
18,119 |
|
|
6,647 |
|
1985
|
|
|
10/94 |
|
|
3-30 |
|
Kings
Road
|
|
196 |
|
Los
Angeles, CA
|
|
|
31,417 |
|
|
4,023 |
|
|
9,527 |
|
|
6,187 |
|
|
4,031 |
|
|
15,706 |
|
|
19,737 |
|
|
5,629 |
|
1979
|
|
|
06/97 |
|
|
3-30 |
|
Le
Pac Luxury Apartments
|
|
140 |
|
Santa
Clara, CA
|
|
|
13,478 |
|
|
3,090 |
|
|
7,421 |
|
|
8,526 |
|
|
3,092 |
|
|
15,944 |
|
|
19,037 |
|
|
5,402 |
|
1975
|
|
|
02/94 |
|
|
3-30 |
|
Marbrisa
|
|
202 |
|
Long
Beach, CA
|
|
|
20,570 |
|
|
4,700 |
|
|
18,605 |
|
|
1,626 |
|
|
4,760 |
|
|
20,171 |
|
|
24,931 |
|
|
4,593 |
|
1987
|
|
|
09/02 |
|
|
3-30 |
|
Mirabella
|
|
188 |
|
Marina
Del Rey, CA
|
|
|
49,379 |
|
|
6,180 |
|
|
26,673 |
|
|
10,596 |
|
|
6,270 |
|
|
37,179 |
|
|
43,449 |
|
|
8,903 |
|
2000
|
|
|
05/00 |
|
|
3-30 |
|
Mill
Creek at Windermere
|
|
400 |
|
San
Ramon, CA
|
|
|
52,842 |
|
|
29,551 |
|
|
70,430 |
|
|
850 |
|
|
29,551 |
|
|
69,284 |
|
|
98,834 |
|
|
2,991 |
|
2005
|
|
|
09/07 |
|
|
3-30 |
|
Montclaire,
The
|
|
390 |
|
Sunnyvale,
CA
|
|
|
49,685 |
|
|
4,842 |
|
|
19,776 |
|
|
21,355 |
|
|
4,997 |
|
|
40,976 |
|
|
45,973 |
|
|
19,938 |
|
1973
|
|
|
12/88 |
|
|
3-30 |
|
Mariners
Place
|
|
105 |
|
Oxnard,
CA
|
|
|
3,793 |
|
|
1,555 |
|
|
6,103 |
|
|
1,601 |
|
|
1,562 |
|
|
7,697 |
|
|
9,259 |
|
|
2,512 |
|
1987
|
|
|
05/00 |
|
|
3-30 |
|
Montejo
|
|
124 |
|
Garden
Grove, CA
|
|
|
5,719 |
|
|
1,925 |
|
|
7,685 |
|
|
2,008 |
|
|
2,195 |
|
|
9,423 |
|
|
11,618 |
|
|
2,370 |
|
1974
|
|
|
11/01 |
|
|
3-30 |
|
Monterey
Villas
|
|
122 |
|
Oxnard,
CA
|
|
|
13,569 |
|
|
2,349 |
|
|
5,579 |
|
|
4,470 |
|
|
2,424 |
|
|
9,974 |
|
|
12,398 |
|
|
3,603 |
|
1974
|
|
|
07/97 |
|
|
3-30 |
|
Monterra
del Rey
|
|
84 |
|
Pasadena,
CA
|
|
|
9,949 |
|
|
2,312 |
|
|
4,923 |
|
|
4,401 |
|
|
2,825 |
|
|
8,811 |
|
|
11,636 |
|
|
2,858 |
|
1972
|
|
|
04/99 |
|
|
3-30 |
|
Mt.
Sutro
|
|
99 |
|
San
Francisco, CA
|
|
|
5,641 |
|
|
2,334 |
|
|
8,507 |
|
|
2,142 |
|
|
2,809 |
|
|
10,174 |
|
|
12,983 |
|
|
3,509 |
|
1973
|
|
|
06/01 |
|
|
3-30 |
|
Park
Place/Windsor Court/Cochran
|
|
176 |
|
Los
Angeles, CA
|
|
|
21,583 |
|
|
4,965 |
|
|
11,806 |
|
|
4,863 |
|
|
5,015 |
|
|
16,619 |
|
|
21,634 |
|
|
6,643 |
|
1988
|
|
|
08/97 |
|
|
3-30 |
|
Park
Hill at Issaquah
|
|
245 |
|
Issaquah,
CA
|
|
|
31,252 |
|
|
7,284 |
|
|
21,937 |
|
|
1,075 |
|
|
7,284 |
|
|
23,012 |
|
|
30,296 |
|
|
3,399 |
|
1999
|
|
|
02/99 |
(3) |
|
3-30 |
|
Palisades,
The
|
|
192 |
|
Bellevue,
WA
|
|
|
22,457 |
|
|
1,560 |
|
|
6,242 |
|
|
9,598 |
|
|
1,565 |
|
|
15,835 |
|
|
17,400 |
|
|
7,697 |
|
1969/1977
|
(4) |
|
05/90 |
|
|
3-30 |
|
Pathways
|
|
296 |
|
Long
Beach, CA
|
|
|
40,163 |
|
|
4,083 |
|
|
16,757 |
|
|
17,638 |
|
|
6,239 |
|
|
32,239 |
|
|
38,478 |
|
|
15,003 |
|
1975
|
|
|
02/91 |
|
|
3-30 |
|
Pointe
at Cupertino, The
|
|
116 |
|
Cupertino,
CA
|
|
|
12,839 |
|
|
4,505 |
|
|
17,605 |
|
|
833 |
|
|
4,505 |
|
|
18,438 |
|
|
22,943 |
|
|
2,989 |
|
1963
|
|
|
08/98 |
(5) |
|
3-30 |
|
Sammamish
View
|
|
153 |
|
Bellevue,
WA
|
|
|
10,605 |
|
|
3,324 |
|
|
7,501 |
|
|
6,078 |
|
|
3,331 |
|
|
13,572 |
|
|
16,903 |
|
|
5,683 |
|
1986
|
|
|
11/94 |
|
|
3-30 |
|
San
Marcos
|
|
432 |
|
Richmond,
CA
|
|
|
48,447 |
|
|
15,563 |
|
|
36,204 |
|
|
24,529 |
|
|
22,866 |
|
|
53,430 |
|
|
76,296 |
|
|
9,295 |
|
2003
|
|
|
11/03 |
|
|
3-30 |
|
Stonehedge
Village
|
|
196 |
|
Bothell,
WA
|
|
|
13,586 |
|
|
3,167 |
|
|
12,603 |
|
|
3,580 |
|
|
3,201 |
|
|
16,149 |
|
|
19,350 |
|
|
6,145 |
|
1986
|
|
|
10/97 |
|
|
3-30 |
|
Summit
Park
|
|
300 |
|
San
Diego, CA
|
|
|
20,725 |
|
|
5,959 |
|
|
23,670 |
|
|
2,317 |
|
|
5,977 |
|
|
25,969 |
|
|
31,946 |
|
|
5,856 |
|
1972
|
|
|
12/02 |
|
|
3-30 |
|
Thomas
Jefferson
|
|
156 |
|
Sunnyvale,
CA
|
|
|
19,320 |
|
|
8,190 |
|
|
19,306 |
|
|
493 |
|
|
8,191 |
|
|
19,798 |
|
|
27,989 |
|
|
845 |
|
1969
|
|
|
09/07 |
|
|
3-30 |
|
Tierra
Vista
|
|
404 |
|
Oxnard,
CA
|
|
|
61,224 |
|
|
13,652 |
|
|
53,336 |
|
|
878 |
|
|
13,661 |
|
|
54,205 |
|
|
67,866 |
|
|
8,582 |
|
2001
|
|
|
01/01 |
(5) |
|
3-30 |
|
Treehouse
|
|
164 |
|
Santa
Ana, CA
|
|
|
7,700 |
|
|
2,626 |
|
|
10,485 |
|
|
2,511 |
|
|
2,957 |
|
|
12,665 |
|
|
15,622 |
|
|
3,219 |
|
1970
|
|
|
11/01 |
|
|
3-30 |
|
Boulevard
|
|
172 |
|
Fremont,
CA
|
|
|
9,800 |
|
|
3,520 |
|
|
8,182 |
|
|
10,861 |
|
|
3,580 |
|
|
18,984 |
|
|
22,563 |
|
|
6,227 |
|
1978
|
|
|
01/96 |
|
|
3-30 |
|
Valley
Park
|
|
160 |
|
Fountain
Valley, CA
|
|
|
9,755 |
|
|
3,361 |
|
|
13,420 |
|
|
3,147 |
|
|
3,761 |
|
|
16,167 |
|
|
19,928 |
|
|
4,136 |
|
1969
|
|
|
11/01 |
|
|
3-30 |
|
Villa
Angelina
|
|
256 |
|
Placentia,
CA
|
|
|
13,191 |
|
|
4,498 |
|
|
17,962 |
|
|
3,005 |
|
|
4,961 |
|
|
20,504 |
|
|
25,465 |
|
|
5,101 |
|
1970
|
|
|
11/01 |
|
|
3-30 |
|
Vista
Belvedere
|
|
76 |
|
Tiburon,
CA
|
|
|
11,114 |
|
|
5,573 |
|
|
11,901 |
|
|
2,784 |
|
|
5,573 |
|
|
14,685 |
|
|
20,258 |
|
|
2,217 |
|
1963
|
|
|
08/04 |
|
|
3-30 |
|
Wandering
Creek
|
|
156 |
|
Kent,
WA
|
|
|
5,300 |
|
|
1,285 |
|
|
4,980 |
|
|
3,989 |
|
|
1,296 |
|
|
8,958 |
|
|
10,254 |
|
|
4,196 |
|
1986
|
|
|
11/95 |
|
|
3-30 |
|
Wharfside
Pointe
|
|
142 |
|
Seattle,
WA
|
|
|
7,702 |
|
|
2,245 |
|
|
7,020 |
|
|
5,871 |
|
|
2,258 |
|
|
12,878 |
|
|
15,136 |
|
|
5,329 |
|
1990
|
|
|
06/94 |
|
|
3-30 |
|
|
|
|
|
|
|
|
1,588,410 |
|
|
451,935 |
|
|
1,420,697 |
|
|
383,794 |
|
|
478,135 |
|
|
1,776,294 |
|
|
2,254,430 |
|
|
443,506 |
|
|
|
|
|
|
(Continued)
|
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2008
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
|
Buildings
and
|
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Units
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
|
improvements
|
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Unencumbered
apartment communities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpine
Country
|
|
108 |
|
Alpine,
CA
|
|
|
|
|
1,741 |
|
|
6,914 |
|
|
736 |
|
|
1,746 |
|
|
|
7,645 |
|
|
|
9,391 |
|
|
1,640 |
|
1986
|
|
|
12/02 |
|
|
3-30 |
|
Avondale
at Warner Center
|
|
446 |
|
Woodland
Hills, CA
|
|
|
|
|
10,536 |
|
|
24,522 |
|
|
15,514 |
|
|
10,601 |
|
|
|
39,971 |
|
|
|
50,572 |
|
|
13,269 |
|
1970
|
|
|
01/97 |
|
|
3-30 |
|
Bluffs
II, The
|
|
224 |
|
San
Diego, CA
|
|
|
|
|
3,405 |
|
|
7,743 |
|
|
6,264 |
|
|
3,442 |
|
|
|
13,970 |
|
|
|
17,412 |
|
|
4,326 |
|
1974
|
|
|
06/97 |
(6) |
|
3-30 |
|
Belmont
Terrace
|
|
71 |
|
Belmont,
CA
|
|
|
|
|
4,446 |
|
|
10,290 |
|
|
1,623 |
|
|
4,473 |
|
|
|
11,886 |
|
|
|
16,359 |
|
|
989 |
|
1974
|
|
|
10/06 |
|
|
3-30 |
|
Bridle
Trails
|
|
108 |
|
Kirkland,
WA
|
|
|
|
|
1,500 |
|
|
5,930 |
|
|
5,463 |
|
|
1,531 |
|
|
|
11,362 |
|
|
|
12,893 |
|
|
3,800 |
|
1986
|
|
|
10/97 |
|
|
3-30 |
|
Bunker
Hill
|
|
456 |
|
Los
Angeles, CA
|
|
|
|
|
11,498 |
|
|
27,871 |
|
|
3,852 |
|
|
11,639 |
|
|
|
31,582 |
|
|
|
43,221 |
|
|
12,683 |
|
1968
|
|
|
03/98 |
|
|
3-30 |
|
Cambridge
|
|
40 |
|
Chula
Vista, CA
|
|
|
|
|
497 |
|
|
1,973 |
|
|
242 |
|
|
498 |
|
|
|
2,214 |
|
|
|
2,712 |
|
|
478 |
|
1965
|
|
|
12/02 |
|
|
3-30 |
|
Carlton
Heights
|
|
70 |
|
Santee,
CA
|
|
|
|
|
1,099 |
|
|
4,368 |
|
|
528 |
|
|
1,103 |
|
|
|
4,892 |
|
|
|
5,995 |
|
|
1,054 |
|
1979
|
|
|
12/02 |
|
|
3-30 |
|
CBC
Apartments
|
|
148 |
|
Goleta,
CA
|
|
|
|
|
6,283 |
|
|
24,000 |
|
|
1,068 |
|
|
6,288 |
|
|
|
25,063 |
|
|
|
31,351 |
|
|
2,488 |
|
1962
|
|
|
01/06 |
|
|
3-30 |
|
Cedar
Terrace
|
|
180 |
|
Bellevue,
WA
|
|
|
|
|
5,543 |
|
|
16,442 |
|
|
2,633 |
|
|
5,652 |
|
|
|
18,965 |
|
|
|
24,618 |
|
|
2,654 |
|
1984
|
|
|
01/05 |
|
|
3-30 |
|
Chimney
Sweep Apartments
|
|
91 |
|
Goleta,
CA
|
|
|
|
|
5,558 |
|
|
21,320 |
|
|
1,593 |
|
|
5,618 |
|
|
|
22,852 |
|
|
|
28,471 |
|
|
2,678 |
|
1967
|
|
|
01/06 |
|
|
3-30 |
|
Chestnut
Street
|
|
96 |
|
Santa
Cruz, CA
|
|
|
|
|
6,582 |
|
|
15,689 |
|
|
45 |
|
|
6,582 |
|
|
|
15,734 |
|
|
|
22,316 |
|
|
197 |
|
2002
|
|
|
07/08 |
|
|
3-30 |
|
Country
Villas
|
|
180 |
|
Oceanside,
CA
|
|
|
|
|
4,174 |
|
|
16,583 |
|
|
2,265 |
|
|
4,187 |
|
|
|
18,835 |
|
|
|
23,022 |
|
|
4,225 |
|
1976
|
|
|
12/02 |
|
|
3-30 |
|
Monterra
del Sol
|
|
85 |
|
Pasadena,
CA
|
|
|
|
|
2,202 |
|
|
4,794 |
|
|
4,459 |
|
|
2,824 |
|
|
|
8,631 |
|
|
|
11,455 |
|
|
2,640 |
|
1972
|
|
|
04/99 |
|
|
3-30 |
|
Fairways(7)
|
|
74 |
|
Newport
Beach, CA
|
|
|
|
|
- |
|
|
7,850 |
|
|
3,102 |
|
|
9 |
|
|
|
10,943 |
|
|
|
10,952 |
|
|
4,402 |
|
1972
|
|
|
06/99 |
|
|
3-30 |
|
Foothill
Commons
|
|
360 |
|
Bellevue,
WA
|
|
|
|
|
2,435 |
|
|
9,821 |
|
|
20,026 |
|
|
2,440 |
|
|
|
29,842 |
|
|
|
32,282 |
|
|
10,239 |
|
1978
|
|
|
03/90 |
|
|
3-30 |
|
Foothill
Gardens/Twin Creeks
|
|
176 |
|
San
Ramon, CA
|
|
|
|
|
5,875 |
|
|
13,992 |
|
|
3,739 |
|
|
5,964 |
|
|
|
17,642 |
|
|
|
23,606 |
|
|
7,803 |
|
1985
|
|
|
02/97 |
|
|
3-30 |
|
Grand
Regency
|
|
60 |
|
Escondido,
CA
|
|
|
|
|
881 |
|
|
3,498 |
|
|
251 |
|
|
883 |
|
|
|
3,747 |
|
|
|
4,630 |
|
|
815 |
|
1967
|
|
|
12/02 |
|
|
3-30 |
|
Hampton
Court
|
|
83 |
|
Glendale,
CA
|
|
|
|
|
2,407 |
|
|
5,672 |
|
|
1,693 |
|
|
2,426 |
|
|
|
7,346 |
|
|
|
9,772 |
|
|
2,331 |
|
1974
|
|
|
06/99 |
|
|
3-30 |
|
Hillsdale
Garden Apartments
|
|
697 |
|
San
Mateo, CA
|
|
|
|
|
22,000 |
|
|
94,681 |
|
|
1,976 |
|
|
22,244 |
|
|
|
98,548 |
|
|
|
120,792 |
|
|
7,399 |
|
1948
|
|
|
09/06 |
(8) |
|
3-30 |
|
Highlands
at Wynhaven
|
|
333 |
|
Issaquah,
WA
|
|
|
|
|
16,271 |
|
|
48,932 |
|
|
226 |
|
|
16,271 |
|
|
|
49,158 |
|
|
|
65,429 |
|
|
618 |
|
2000
|
|
|
08/08 |
|
|
3-30 |
|
Hope
Ranch Collection
|
|
108 |
|
Santa
Barbara, CA
|
|
|
|
|
16,877 |
|
|
4,078 |
|
|
331 |
|
|
4,208 |
|
|
|
17,078 |
|
|
|
21,286 |
|
|
882 |
|
1965
|
|
|
03/07 |
|
|
3-30 |
|
Linden
Square
|
|
183 |
|
Seattle,
WA
|
|
|
|
|
4,374 |
|
|
11,588 |
|
|
1,094 |
|
|
4,202 |
|
|
|
12,854 |
|
|
|
17,056 |
|
|
3,982 |
|
1994
|
|
|
06/00 |
|
|
3-30 |
|
Lofts
at Pinehurst, The
|
|
118 |
|
Ventura,
CA
|
|
|
|
|
1,570 |
|
|
3,912 |
|
|
4,030 |
|
|
1,618 |
|
|
|
7,893 |
|
|
|
9,512 |
|
|
2,849 |
|
1971
|
|
|
06/97 |
|
|
3-30 |
|
Magnolia Lane(9)
|
|
32 |
|
Sunnyvale,
CA
|
|
|
|
|
- |
|
|
5,430 |
|
|
18 |
|
|
- |
|
|
|
5,448 |
|
|
|
5,448 |
|
|
281 |
|
2001
|
|
|
06/07 |
|
|
3-30 |
|
Maple
Leaf
|
|
48 |
|
Seattle,
WA
|
|
|
|
|
805 |
|
|
3,283 |
|
|
892 |
|
|
828 |
|
|
|
4,152 |
|
|
|
4,980 |
|
|
1,578 |
|
1986
|
|
|
10/97 |
|
|
3-30 |
|
Marbella,
The
|
|
60 |
|
Los
Angeles, CA
|
|
|
|
|
2,826 |
|
|
11,269 |
|
|
2,518 |
|
|
2,871 |
|
|
|
13,742 |
|
|
|
16,613 |
|
|
1,570 |
|
1991
|
|
|
09/05 |
|
|
3-30 |
|
Marina City Club(10)
|
|
101 |
|
Marina
Del Rey, CA
|
|
|
|
|
- |
|
|
28,167 |
|
|
3,120 |
|
|
- |
|
|
|
31,287 |
|
|
|
31,287 |
|
|
5,278 |
|
1971
|
|
|
01/04 |
|
|
3-30 |
|
Marina Cove(11)
|
|
292 |
|
Santa
Clara, CA
|
|
|
|
|
5,320 |
|
|
16,431 |
|
|
6,750 |
|
|
5,324 |
|
|
|
23,177 |
|
|
|
28,501 |
|
|
11,372 |
|
1974
|
|
|
06/94 |
|
|
3-30 |
|
Meadowood
|
|
320 |
|
Simi
Valley, CA
|
|
|
|
|
7,852 |
|
|
18,592 |
|
|
4,135 |
|
|
7,898 |
|
|
|
22,681 |
|
|
|
30,579 |
|
|
10,134 |
|
1986
|
|
|
11/96 |
|
|
3-30 |
|
Mesa
Village
|
|
133 |
|
Clairemont,
CA
|
|
|
|
|
1,888 |
|
|
7,498 |
|
|
559 |
|
|
1,894 |
|
|
|
8,052 |
|
|
|
9,945 |
|
|
1,681 |
|
1963
|
|
|
12/02 |
|
|
3-30 |
|
Monterra
del Mar
|
|
123 |
|
Pasadena,
CA
|
|
|
|
|
2,188 |
|
|
5,263 |
|
|
3,998 |
|
|
2,735 |
|
|
|
8,714 |
|
|
|
11,449 |
|
|
3,338 |
|
1972
|
|
|
09/97 |
|
|
3-30 |
|
Mountain
View
|
|
106 |
|
Camarillo,
CA
|
|
|
|
|
3,167 |
|
|
11,106 |
|
|
891 |
|
|
3,117 |
|
|
|
12,047 |
|
|
|
15,164 |
|
|
2,033 |
|
1980
|
|
|
01/04 |
|
|
3-30 |
|
Pinehurst(12)
|
|
28 |
|
Ventura,
CA
|
|
|
|
|
355 |
|
|
1,356 |
|
|
294 |
|
|
6 |
|
|
|
2,000 |
|
|
|
2,005 |
|
|
350 |
|
1973
|
|
|
12/04 |
|
|
3-30 |
|
Salmon
Run at Perry Creek
|
|
132 |
|
Bothell,
WA
|
|
|
|
|
3,717 |
|
|
11,483 |
|
|
587 |
|
|
3,801 |
|
|
|
11,987 |
|
|
|
15,787 |
|
|
3,316 |
|
2000
|
|
|
10/00 |
|
|
3-30 |
|
Shadow
Point
|
|
172 |
|
Spring
Valley, CA
|
|
|
|
|
2,812 |
|
|
11,170 |
|
|
1,550 |
|
|
2,820 |
|
|
|
12,712 |
|
|
|
15,532 |
|
|
2,924 |
|
1983
|
|
|
12/02 |
|
|
3-30 |
|
Spring
Lake
|
|
69 |
|
Seattle,
WA
|
|
|
|
|
838 |
|
|
3,399 |
|
|
400 |
|
|
859 |
|
|
|
3,777 |
|
|
|
4,637 |
|
|
1,600 |
|
1986
|
|
|
10/97 |
|
|
3-30 |
|
Stevenson
Place
|
|
200 |
|
Fremont,
CA
|
|
|
|
|
996 |
|
|
5,582 |
|
|
8,898 |
|
|
1,001 |
|
|
|
14,475 |
|
|
|
15,476 |
|
|
9,365 |
|
1971
|
|
|
04/83 |
|
|
3-30 |
|
Summerhill
Park
|
|
100 |
|
Sunnyvale,
CA
|
|
|
|
|
2,654 |
|
|
4,918 |
|
|
1,211 |
|
|
2,656 |
|
|
|
6,127 |
|
|
|
8,783 |
|
|
4,229 |
|
1988
|
|
|
09/88 |
|
|
3-30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2008
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
Buildings
and
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Units
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
improvements
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Unencumbered
apartment communities (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Laurels at Mill Creek
|
|
|
164 |
|
Mill
Creek, WA
|
|
|
|
|
1,559 |
|
|
6,430 |
|
|
5,051 |
|
|
1,595 |
|
|
11,445 |
|
|
13,040 |
|
|
3,908 |
|
1981
|
|
|
12/96 |
|
|
3-30 |
|
Tierra
del Sol/Norte
|
|
|
156 |
|
El
Cajon, CA
|
|
|
|
|
2,455 |
|
|
9,753 |
|
|
866 |
|
|
2,463 |
|
|
10,611 |
|
|
13,074 |
|
|
2,310 |
|
1969
|
|
|
12/02 |
|
|
3-30 |
|
Trabucco
Villas
|
|
|
132 |
|
Lake
Forest, CA
|
|
|
|
|
3,638 |
|
|
8,640 |
|
|
1,727 |
|
|
3,890 |
|
|
10,115 |
|
|
14,005 |
|
|
4,434 |
|
1985
|
|
|
10/97 |
|
|
3-30 |
|
Tuscana
|
|
|
30 |
|
Tracy,
CA
|
|
|
|
|
2,828 |
|
|
6,599 |
|
|
151 |
|
|
2,870 |
|
|
6,708 |
|
|
9,578 |
|
|
364 |
|
2007
|
|
|
02/07 |
|
|
3-30 |
|
Vista
Capri - North
|
|
|
106 |
|
San
Diego, CA
|
|
|
|
|
1,663 |
|
|
6,609 |
|
|
549 |
|
|
1,668 |
|
|
7,153 |
|
|
8,821 |
|
|
1,450 |
|
1975
|
|
|
12/02 |
|
|
3-30 |
|
Wilshire
Promenade
|
|
|
149 |
|
Fullerton,
CA
|
|
|
|
|
3,118 |
|
|
7,385 |
|
|
5,429 |
|
|
3,797 |
|
|
12,135 |
|
|
15,932 |
|
|
5,100 |
|
1992
|
|
|
01/97 |
|
|
3-30 |
|
Woodlawn
Colonial
|
|
|
159 |
|
Chula
Vista, CA
|
|
|
|
|
2,344 |
|
|
9,311 |
|
|
1,037 |
|
|
2,351 |
|
|
10,341 |
|
|
12,692 |
|
|
2,346 |
|
1974
|
|
|
12/02 |
|
|
3-30 |
|
Woodland
Commons
|
|
|
236 |
|
Bellevue,
WA
|
|
|
|
|
2,040 |
|
|
8,727 |
|
|
6,279 |
|
|
2,044 |
|
|
15,002 |
|
|
17,046 |
|
|
7,928 |
|
1978
|
|
|
03/90 |
|
|
3-30 |
|
Woodside
Village
|
|
|
145 |
|
Ventura,
CA
|
|
|
|
|
5,331 |
|
|
21,036 |
|
|
1,810 |
|
|
5,341 |
|
|
22,837 |
|
|
28,177 |
|
|
3,046 |
|
1987
|
|
|
12/04 |
|
|
3-30 |
|
|
|
|
24,295 |
|
|
|
1,588,410
|
|
|
650,083 |
|
|
2,042,597 |
|
|
525,270 |
|
|
666,412 |
|
|
2,551,676 |
|
|
3,218,088 |
|
|
627,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rentable
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
Square
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
Buildings
and
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Footage
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
improvements
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Other
real estate assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Buildings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6230
Sunset Boulevard
|
|
|
35,000 |
|
Los
Angeles, CA
|
|
|
- |
|
|
10,200 |
|
|
13,800 |
|
|
- |
|
|
10,200 |
|
|
13,800 |
|
|
24,000 |
|
|
2,300 |
|
1938
|
|
|
07/06 |
|
|
3-30 |
|
925
East Meadow
|
|
|
17,400 |
|
Palo
Alto, CA
|
|
|
- |
|
|
1,401 |
|
|
3,172 |
|
|
1,106 |
|
|
1,857 |
|
|
3,822 |
|
|
5,679 |
|
|
2,433 |
|
1988
|
|
|
11/97 |
|
|
3-30 |
|
935 East Meadow(13)
|
|
|
14,500 |
|
Palo
Alto, CA
|
|
|
- |
|
|
1,290 |
|
|
3,078 |
|
|
1,245 |
|
|
1,287 |
|
|
4,326 |
|
|
5,613 |
|
|
107 |
|
1962
|
|
|
12/07 |
|
|
3-30 |
|
17461
Derian
|
|
|
110,000 |
|
Irvine,
CA
|
|
|
- |
|
|
3,079 |
|
|
12,315 |
|
|
5,284 |
|
|
3,105 |
|
|
17,573 |
|
|
20,678 |
|
|
5,468 |
|
1983
|
|
|
07/00 |
|
|
3-30 |
|
22120
Clarendon
|
|
|
38,900 |
|
Woodland
Hills, CA
|
|
|
- |
|
|
903 |
|
|
3,600 |
|
|
1,228 |
|
|
1,015 |
|
|
4,716 |
|
|
5,731 |
|
|
1,833 |
|
1982
|
|
|
03/01 |
|
|
3-30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
apartment communities and other real estate assets
|
|
|
$ |
1,588,410 |
|
$ |
666,956 |
|
$ |
2,078,562 |
|
$ |
534,131 |
|
$ |
683,876 |
|
$ |
2,595,912 |
|
$ |
3,279,788 |
|
$ |
640,026 |
|
|
|
|
|
|
(Continued)
|
|
ESSEX
PROPERTY TRUST, INC. AND SUBSIDIARIES
Real
Estate and Accumulated Depreciation
December
31, 2008
(Dollars
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
cost
|
|
capitalized
|
|
Gross
amount carried at close of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings
and
|
|
subsequent
to
|
|
Land
and
|
|
Buildings
and
|
|
|
|
Accumulated
|
|
Date
of
|
|
Date
|
|
Lives
|
|
Property
|
|
Units
|
|
Location
|
|
Encumbrance
|
|
Land
|
|
improvements
|
|
acquisition
|
|
improvements
|
|
improvements
|
|
Total(1)
|
|
depreciation
|
|
construction
|
|
acquired
|
|
(years)
|
|
Other
real estate assets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Projects(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Grand
|
|
|
238 |
|
Oakland,
CA
|
|
$ |
- |
|
$ |
4,838 |
|
$ |
- |
|
$ |
83,801 |
|
$ |
88,639 |
|
$ |
- |
|
$ |
88,639 |
|
$ |
- |
|
|
12/06 |
|
|
08/05 |
|
|
- |
|
Fourth
Street
|
|
|
171 |
|
Berkeley,
CA
|
|
|
- |
|
|
8,772 |
|
|
- |
|
|
16,541 |
|
|
25,313 |
|
|
- |
|
|
25,313 |
|
|
- |
|
|
04/08 |
|
|
12/07 |
|
|
- |
|
Joule
Broadway
|
|
|
295 |
|
Seattle,
WA
|
|
|
521 |
|
|
14,500 |
|
|
- |
|
|
20,473 |
|
|
34,973 |
|
|
- |
|
|
34,973 |
|
|
- |
|
|
05/08 |
|
|
05/08 |
|
|
|
|
Tasman
Place
|
|
|
284 |
|
Sunnyvale,
CA
|
|
|
- |
|
|
22,000 |
|
|
- |
|
|
4,430 |
|
|
26,430 |
|
|
- |
|
|
26,430 |
|
|
- |
|
|
09/09 |
|
|
04/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predevelopment Projects(15)
|
|
|
820 |
|
various
|
|
|
- |
|
|
63,992 |
|
|
- |
|
|
8,999 |
|
|
72,991 |
|
|
- |
|
|
72,991 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Land
held for future development
|
|
|
392 |
|
various
|
|
|
- |
|
|
11,459 |
|
|
- |
|
|
12,468 |
|
|
23,927 |
|
|
- |
|
|
23,927 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
Development Pipeline
|
|
|
2,200 |
|
|
|
$ |
521 |
|
$ |
125,561 |
|
$ |
- |
|
$ |
146,712 |
|
$ |
272,273 |
|
$ |
- |
|
$ |
272,273 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
(1) The
aggregate cost for federal income tax purposes is approximately $2.59 billion
(unaudited).
(2) The
land is leased pursuant to a ground lease expiring 2082.
(3) The
Company's initial ownership was 45%, and the remaining 55% interest was acquired
in 2004.
(4) Phase
I was built in 1969 and Phase II was built in 1977.
(5) The
Company's initial ownership was 20%, and the remaining 80% interest was acquired
in 2004.
(6) The
Company's initial ownership was 85%, and the remaining 15% interest was acquired
in 2007.
(7) The
land is leased pursuant to a ground lease expiring 2027.
(8) The
land was subject to a ground lease that would have expired in
2047. In the second quarter of 2007, the Company entered into a joint
venture with a third-party, and the Company contributed the improvements for an
81.5% interest and the joint venture partner contributed title to the land for
an 18.5% interest in the partnership.
(9) The
land is leased pursuant to a ground lease expiring 2070.
(10) The
land is leased pursuant to a ground lease expiring 2067.
(11) A
portion of land is leased pursuant to a ground lease expiring in
2028.
(12) The
land is leased pursuant to a ground lease expiring in 2028.
(13) The
office building is currently under renovation through approximately the first
quarter of 2009.
(14) All
construction costs are reflected as real estate under development in the
Company's consolidated balance sheets during active development, or the project
is in lease-up.
(15) The
535 - 575 River Oaks commercial building is accounted as part of predevelopment
projects for the year ended December 31, 2008.
A
summary of activity for rental properties and accumulated depreciation is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Rental
properties:
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
3,117,759 |
|
|
$ |
2,669,187 |
|
|
$ |
2,431,629 |
|
Improvements
|
|
|
87,490 |
|
|
|
105,673 |
|
|
|
40,885 |
|
Acquisition
of real estate
|
|
|
89,120 |
|
|
|
388,051 |
|
|
|
202,459 |
|
Development
of real estate
|
|
|
103,792 |
|
|
|
9,554 |
|
|
|
- |
|
Disposition
of real estate
|
|
|
(118,373 |
) |
|
|
(54,706 |
) |
|
|
(5,786 |
) |
Balance
at the end of year
|
|
$ |
3,279,788 |
|
|
$ |
3,117,759 |
|
|
$ |
2,669,187 |
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Accumulated
depreciation:
|
|
|
|
|
|
|
|
|
|
Balance
at beginning of year
|
|
$ |
541,987 |
|
|
$ |
465,015 |
|
|
$ |
389,040 |
|
Depreciation
expense - Acquisitions
|
|
|
1,252 |
|
|
|
4,838 |
|
|
|
2,314 |
|
Depreciation
expense - Development
|
|
|
557 |
|
|
|
5,540 |
|
|
|
- |
|
Depreciation
expense - Discontinued operations
|
|
|
2,434 |
|
|
|
4,603 |
|
|
|
5,904 |
|
Depreciation
and amortization expense - Rental properties
|
|
|
105,596 |
|
|
|
80,491 |
|
|
|
72,278 |
|
Dispositions
|
|
|
(11,800 |
) |
|
|
(18,500 |
) |
|
|
(2,362 |
) |
Real
estate investment held for sale
|
|
|
- |
|
|
|
- |
|
|
|
(2,159 |
) |
Balance
at the end of year
|
|
$ |
640,026 |
|
|
$ |
541,987 |
|
|
$ |
465,015 |
|
Pursuant
to the requirements of Section 13 of 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
ESSEX
PROPERTY TRUST, INC.
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
Date:
February 27, 2009
|
|
|
|
|
|
|
|
|
By: /S/ MICHAEL T.
DANCE
|
|
|
|
|
|
|
|
|
Michael
T. Dance
|
|
|
Executive
Vice President, Chief Financial Officer
(Authorized
Officer, Principal Financial Officer)
|
|
|
|
|
|
|
|
|
By: /S/
BRYAN G.
HUNT
|
|
|
|
|
|
|
|
|
Bryan
G. Hunt
|
|
|
Vice
President, Chief Accounting Officer
|
|
KNOWN ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Keith R. Guericke and Michael T. Dance, and each of
them, his attorney-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form 10-K and to
file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacity and on the date indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ KEITH R. GUERICKE
|
|
Chief
Executive Officer and President, Director, and
|
|
February
27, 2009
|
Keith
R. Guericke
|
|
Vice
Chairman of the Board
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/S/ MICHAEL J. SCHALL
|
|
Senior
Executive Vice President, Director, and Chief
|
|
February
27, 2009
|
Michael
J. Schall
|
|
Operating
Officer |
|
|
|
|
|
|
|
/S/ GEORGE M. MARCUS
|
|
Director
and Chairman of the Board
|
|
February
27, 2009
|
George
M. Marcus
|
|
|
|
|
|
|
|
|
|
/S/ WILLIAM A. MILLICHAP
|
|
Director
|
|
February
27, 2009
|
William
A. Millichap
|
|
|
|
|
|
|
|
|
|
/S/ DAVID W. BRADY
|
|
Director
|
|
February
27, 2009
|
David
W. Brady
|
|
|
|
|
|
|
|
|
|
/S/ ROBERT E. LARSON
|
|
Director
|
|
February
27, 2009
|
Robert
E. Larson
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ GARY P. MARTIN
|
|
Director
|
|
February
27, 2009
|
Gary
P. Martin
|
|
|
|
|
|
|
|
|
|
/S/ ISSIE N. RABINOVITCH
|
|
Director
|
|
February
27, 2009
|
Issie
N. Rabinovitch
|
|
|
|
|
|
|
|
|
|
/S/ THOMAS E. RANDLETT
|
|
Director
|
|
February
27, 2009
|
Thomas
E. Randlett
|
|
|
|
|
|
|
|
|
|
/S/ WILLARD H. SMITH, JR.
|
|
Director
|
|
February
27, 2009
|
Willard
H. Smith, Jr.
|
|
|
|
|
EXHIBIT
INDEX
Exhibit No.
|
Document
|
|
|
3.1
|
Articles
of Amendment and Restatement of Essex dated June 22, 1995, attached as
Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by
reference.
|
|
|
3.2
|
Articles
Supplementary of Essex Property Trust, Inc. for the 8.75% Convertible
Preferred Stock, Series 1996A, attached as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed July 16, 1996, and incorporated herein
by reference.
|
|
|
3.3
|
First
Amendment to Articles of Amendment and Restatement of Essex Property
Trust, Inc., attached as Exhibit 3.1 to the Company’s 10-Q for the quarter
ended September 30, 1996, and incorporated herein by
reference.
|
|
|
3.4
|
Certificate
of Correction to Exhibit 3.2 dated December 20, 1996; attached as Exhibit
3.4 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by
reference.
|
|
|
3.5
|
Articles
Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
shares of 7.875% Series B Cumulative Redeemable Preferred Stock, filed
with the State of Maryland on February 10, 1998, attached as Exhibit 3.1
to the Company’s Current Report on Form 8-K, filed March 3, 1998, and
incorporated herein by reference.
|
|
|
3.6
|
Articles
Supplementary reclassifying 500,000 shares of Common Stock as 500,000
shares of 9 1/8% Series C Cumulative Redeemable Preferred Stock, filed
with the State of Maryland on November 25, 1998, attached as Exhibit 3.8
to the Company’s Annual Report on Form 10-K for the year ended December
31, 1998, and incorporated herein by reference.
|
|
|
3.7
|
Certificate
of Correction to Exhibit 3.2 dated February 12, 1999, attached as Exhibit
3.9 to the Company’s Current Report on Form 10-K for the year ended
December 31, 1998, and incorporated herein by
reference.
|
|
|
3.8
|
Articles
Supplementary reclassifying 6,617,822 shares of Common Stock as 6,617,822
shares of Series A Junior Participating Preferred Stock, filed with the
State of Maryland on November 13, 1998, attached as Exhibit 4.0 to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference.
|
|
|
3.9
|
Articles
Supplementary reclassifying 2,000,000 shares of Common Stock as 2,000,000
shares of 9.30% Series D Cumulative Redeemable Preferred Stock, filed with
the State of Maryland on July 30, 1999, attached as Exhibit 3.1 to the
Company’s 10-Q for the quarter ended June 30, 1999 and incorporated herein
by reference.
|
|
|
3.10
|
Articles
Supplementary reclassifying 2,200,000 shares of Common Stock as 2,200,000
shares of 9.25% Series E Cumulative Redeemable Preferred Stock, filed with
the State of Maryland on September 9, 1999, attached as Exhibit 3.1 to the
Company’s 10-Q for the quarter ended September 30, 1999 and incorporated
herein by reference.
|
|
|
3.11
|
Certificate
of Correction to Articles Supplementary reclassifying 2,000,000 shares of
Common Stock as 2,000,000 shares of 9.30% Series D Cumulative Redeemable
Preferred Stock, attached as Exhibit 3.1 to the Company’s Form 10-Q for
the quarter ended March 31, 2000, and incorporated herein by
reference.
|
|
|
3.12
|
Articles
Supplementary relating to the 7.8125% Series F Cumulative Redeemable
Preferred Stock, attached as Exhibit 3.1 to the Company's Current Report
on Form 8-K, filed September 19, 2003, and incorporated herein by
reference.
|
|
|
3.13
|
Articles
Supplementary reclassifying 2,000,000 shares of 7.875% Series B Cumulative
Redeemable Preferred Stock as 2,000,000 shares of Series B Cumulative
Redeemable Preferred Stock, filed with the State of Maryland on January
14, 2004, attached as Exhibit 3.16 to the Company’s Form 10-K for the year
ended December 31, 2003, and incorporated herein by
reference.
|
|
|
3.14
|
Articles
Supplementary reclassifying 2,000,000 shares of 9.30% Series D Cumulative
Redeemable Preferred Stock as 2,000,000 shares of Series D Cumulative
Redeemable Preferred Stock, filed with the State of Maryland on January
14, 2004, attached as Exhibit 3.17 to the Company’s Form 10-K for the year
ended December 31, 2003, and incorporated herein by
reference.
|
3.15
|
Articles
Supplementary of Essex Property Trust, Inc. reclassifying 5,980,000 shares
of Common Stock as 5,980,000 shares of 4.875% Series G Cumulative
Convertible Preferred Stock, attached as Exhibit 3.1 to the Company’s
Current Report on Form 8-K, filed July 27, 2006, and incorporated herein
by reference.
|
|
|
3.16
|
Second
Amended and Restated Bylaws of Essex Property Trust, Inc., dated as of
September 16, 2008, attached as Exhibit 3.1 to the Company’s Current
Report on Form 8-K, filed September 22, 2008, and incorporated herein by
reference.
|
|
|
4.1
|
Form
of 4.875% Series G Cumulative Convertible Preferred Stock Certificate,
attached as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed
July 27, 2006, and incorporated herein by reference.
|
|
|
10.1
|
Essex
Property Trust, Inc. 1994 Stock Incentive Plan, (amended and restated),
attached as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended
June 30, 2000 and incorporated herein by reference.*
|
|
|
10.2
|
First
Amended and Restated Agreement of Limited Partnership of Essex Portfolio,
L.P. attached as Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the quarter ended September 30, 1997, and incorporated herein by
reference.
|
|
|
10.3
|
First
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated February 6, 1998, attached as
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 3,
1998, and incorporated herein by reference.
|
|
|
10.4
|
Second
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated April 20, 1998, attached as
Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed April 23,
1998, and incorporated herein by reference.
|
|
|
10.5
|
Third
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated November 24, 1998, attached as
Exhibit 10.5 to the Company’s Form 10-K for the year ended December 31,
1998, and incorporated herein by reference.
|
|
|
10.6
|
Fourth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated July 28, 1999, attached as
Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference.
|
|
|
10.7
|
Fifth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated September 3, 1999, attached as
Exhibit 10.1 to the Company’s 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference.
|
|
|
10.8
|
Form
of Essex Property Trust, Inc. 1994 Non-Employee and Director Stock
Incentive Plan, attached as Exhibit 10.3 to the Company’s Registration
Statement on Form S-11 (Registration No. 33-76578), which became effective
on June 6, 1994, and incorporated herein by reference.*
|
|
|
10.9
|
Form
of Indemnification Agreement between Essex and its directors and officers,
attached as Exhibit 10.7 to the Company’s Registration Statement on Form
S-11 (Registration No. 33-76578), which became effective on June 6, 1994,
and incorporated herein by reference.
|
|
|
10.10
|
Sixth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of June 28, 2001, attached
as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2001
and incorporated herein by reference.*
|
|
|
10.11
|
Agreement
between Essex Property Trust, Inc. and George M. Marcus dated March 27,
2003 attached as Exhibit 10.32 to the Company’s Form 10-K for the year
ended December 31, 2002 and incorporated herein by
reference.
|
|
|
10.12
|
Seventh
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of June 26, 2003, attached
as Exhibit 10.1 to the Company’s 10-Q for the quarter ended June 30, 2003
and incorporated herein by
reference.*
|
10.13
|
Eighth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of September 23, 2003,
attached as Exhibit 10.2 to the Company’s 10-Q for the quarter ended
September 30, 2003 and incorporated herein by
reference.
|
|
|
10.14
|
Ninth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of January 8, 2004, attached
as Exhibit 10.36 to the Company’s 10-K for the year ended December 31,
2003, and incorporated herein by reference.
|
|
|
10.15
|
Tenth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of January 8, 2004, attached
as Exhibit 10.37 to the Company’s 10-K for the year ended December 31,
2003, and incorporated herein by reference.
|
|
|
10.16
|
Eleventh
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P. dated as of March 29, 2004, attached
as Exhibit 10.1 to the Company’s 10-Q for the quarter ended March 31,
2004, and incorporated herein by reference. *
|
|
|
10.17
|
Essex
Property Trust, Inc. 2004 Stock Incentive Plan, attached as Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2004, and incorporated herein by reference. *
|
|
|
10.18
|
Indenture,
dated October 28, 2005, by and among Essex Property Trust, Inc., as
Guarantor, Essex Portfolio, L.P., as the Issuer, and Wells Fargo Bank,
N.A., attached as Exhibit 10.1 to the Company’s current report on Form
8-K, filed November 2, 2005, and incorporated herein by
reference.
|
|
|
10.19
|
Fourth
Amended and Restated Revolving Credit Agreement, dated as of March 24,
2006, among Essex Portfolio L.P., Bank of America and other lenders as
specified therein, attached as Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed March 31, 2006, and incorporated herein by
reference.
|
|
|
10.20
|
Twelfth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated as of July 26, 2006, attached
as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed August
1, 2006, and incorporated herein by reference.
|
|
|
10.21
|
Thirteenth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated as of October 26, 2006,
attached as Exhibit 10.2 to the Company’s Current Report on Form 10-Q for
the quarter ended September 30, 2006, and incorporated herein
by reference.
|
|
|
10.22
|
Supplemental
Indenture, dated November 1, 2006, to the Indenture, dated October 28,
2005, by and among Essex Portfolio, L.P., Essex Property Trust, Inc. and
Wells Fargo Bank, N.A., attached as Exhibit 10.3 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006,
and incorporated herein by reference.
|
|
|
10.23
|
First
Amendment to Fourth Amended and Restated Revolving Credit Agreement, dated
as of September 28, 2007, among Essex Portfolio L.P., Bank of America and
other lenders as specified therein, attached as Exhibit 10.1 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended September
30, 2007, and incorporated herein by reference.
|
|
|
10.24
|
Agreement
to Restructure Partnership Between Western-Mountain View II Investors, a
California Limited Partnership and Essex Portfolio, L.P., a California
Limited Partnership and Essex Property Trust, Inc., a Maryland Corporation
and Essex Management Corporation, a California Corporation and General
Partners of the Partnership, attached as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2007,
and incorporated herein by reference. (The related agreement to
restructure the Western-San Jose IV Investors Limited Partnership, a
California Limited Partnership, has basically the same terms as the
exhibit and is not being filed, but will be furnished to the SEC upon
request.)
|
|
|
10.25
|
Fourteenth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated as of December 26, 2007,
attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed December 28, 2007, and incorporated herein by
reference.*
|
10.26
|
Form
of Awards Agreement under the Essex Property Trust, Inc. 2007
Outperformance Plan, attached as Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed December 28, 2007, and incorporated herein by
reference.*
|
|
|
10.27
|
Certificate
of Amendment to the 2004 Non-Employee Director Option Program, dated as of
February 26, 2008, attached as Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed March 3, 2008, and incorporated herein by
reference.*
|
|
|
10.28
|
Fifteenth
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Essex Portfolio, L.P., dated as of February 26, 2008,
attached as Exhibit 10.2 to the Company’s Current Report on Form 8-K,
filed March 3, 2008, and incorporated herein by
reference.
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10.29
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2005
Deferred Compensation Plan (as amended and restated) of Essex Portfolio,
L.P., dated as of December 2, 2008, attached as Exhibit 10.1 to the
Company’s Current Report on Form 8-K, filed December 8, 2008, and
incorporated herein by reference.*
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10.30
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Executive
Severance Plan of Essex Property Trust, Inc., amended and restated
effective as of December 31, 2008, attached as Exhibit 10.2 to the
Company’s Current Report on Form 8-K, filed December 8, 2008, and
incorporated herein by reference.*
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Credit
Agreement by and between Essex CAL-WA, L.P., as Borrower and Northmarq
Capital, Inc., as Lender, dated November 17, 2008.
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Schedule
of Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends.
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14.1
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Code
of Business Conduct and Ethics, attached as Exhibit 14.1 to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, and
incorporated herein by reference.
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List
of Subsidiaries of Essex Property Trust, Inc.
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Consent
of KPMG LLP, Independent Registered Public Accounting
Firm.
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24.1
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Power
of Attorney (see signature page)
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Certification
of Keith R. Guericke, Principal Executive Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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Certification
of Michael T. Dance, Principal Financial Officer, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
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Certification
of Keith R. Guericke, Principal Executive Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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Certification
of Michael T. Dance, Principal Financial Officer, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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*
Management contract or compensatory plan or
arrangement. |